20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

Commission File Number: 000-30540

GIGAMEDIA LIMITED

(Exact name of registrant as specified in its charter)

REPUBLIC OF SINGAPORE

(Jurisdiction of incorporation or organization)

14^th Floor, 122 TUNHWA NORTH ROAD, TAIPEI, TAIWAN, R.O.C.

(Address of principal executive offices)

Registrant’s telephone number, including area code

886-2- 8770-7966

Securities registered or to be registered pursuant to Section 12(b) of the Exchange Act:

None

Securities registered or to be registered pursuant to Section 12(g) of the Exchange Act:

Ordinary shares

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

50,343,642 ordinary shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) 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 (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨ Accelerated filer  x Non-accelerated filer  ¨

Indicate by check mark which financial statement item the registrant has elected to follow.

¨  Item 17    x  Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

TABLE OF CONTENTS

		Page
PART I
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	2
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	2
ITEM 3.	KEY INFORMATION	2
ITEM 4.	INFORMATION ON THE COMPANY	21
ITEM 4A	UNRESOLVED STAFF COMMENTS	42
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	43
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	61
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	67
ITEM 8.	FINANCIAL INFORMATION	67
ITEM 9.	THE OFFER AND LISTING	70
ITEM 10.	ADDITIONAL INFORMATION	71
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	84
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	85
PART II
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	85
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	85
ITEM 15.	CONTROLS AND PROCEDURES	85
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	87
ITEM 16B.	CODE OF ETHICS	87
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	88
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	88
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	89
PART III
ITEM 17.	FINANCIAL STATEMENTS	89
ITEM 18.	FINANCIAL STATEMENTS	89
ITEM 19.	EXHIBITS	89
SIGNATURE

USE OF CERTAIN TERMS

In this annual report, all references to (i) “we,” “us,” “our,” “our Company” or “GigaMedia” are to GigaMedia Limited and, unless the context requires otherwise, its subsidiaries, (ii) “Shares” are to ordinary shares of our Company, (iii) “CESL” are to Cambridge Entertainment Software Limited (previously known as Grand Virtual International Limited), a company incorporated under the laws of British Virgin Islands, (iv) “Hoshin GigaMedia” are to Hoshin GigaMedia Center, Inc., a company incorporated under the laws of Taiwan, Republic of China, (“R.O.C.”), and (v) “FunTown” are to our online casual games business operated through Hoshin GigaMedia and FunTown World Limited, a company incorporated under the laws of the British Virgin Islands. All references in this annual report to “U.S. dollar,” “$” and “US$” are to United States dollars and all references to “NT dollar” and “NT$” are to New Taiwan dollars.

1

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements that involve risks and uncertainties. These statements include certain projections and business trends that are “forward-looking” within the meaning of the U.S. Private Securities Litigation Reform Act 1995. These statements are generally indicated by the use of forward-looking terminology such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “project,” “may,” “will” or other similar words, and include the following statements:

• We believe that our cross-marketing relationships with certain well-known companies will increase the recognition of our online game brands.

• To cope with competition, we aim to develop new features and services that we think our players will pay for and enjoy.

• We do not believe that any potential merger or acquisition that we may be engaged in would alter our goal of preserving sufficient cash and cash equivalents to fund future operations; and

• We believe that our existing cash, cash equivalents, marketable securities and expected cash flow from operations will be sufficient to meet our capital expenditure, working capital, cash obligations under our existing lease arrangements, and other requirements through 2006.

These forward-looking statements are based on our own information and on information from other sources we believe to be reliable. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of risk factors and other factors noted throughout this annual report, including those described under Item 3D, “Risk Factors” and those detailed from time to time in other filings with the U.S. Securities and Exchange Commission (the “Commission”). We undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events. Given this level of uncertainty, you are advised not to place undue reliance on such forward-looking statements.

PART I

I TEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Exchange Rates

Our consolidated financial statements have historically been reported in New Taiwan dollars. Effective January 1, 2004, we adopted the U.S. dollar as our reporting currency because operations denominated in U.S. dollars have represented an increasing portion of our business following the acquisition of our entertainment software business. Comparative financial information has been recast as if the U.S. dollar had been used as our reporting currency for the periods ended and as of December 31, 2001, 2002 and 2003.

The financial information for the periods presented has been translated from NT dollars to U.S. dollars based on the following exchange rates:

	2001	2002	2003	2004	2005
Year-end	34.95	34.75	33.97	31.71	32.85
Weighted-average	33.83	34.55	34.40	33.41	32.19

2

Assets and liabilities in our balance sheet denominated in non-U.S. dollars are translated into U.S. dollars using year-end exchange rates. Income and expense items in our statement of operations denominated in non-U.S. dollars are translated into U.S. dollars using the weighted-average exchange rates. See Note 1 of our consolidated financial statements for additional information. Certain other operating financial information denominated in non-U.S. dollars, not included in our consolidated financial statements and provided in this annual report, is translated using weighted-average exchange rates.

A. Selected Financial Data

The selected consolidated balance sheet data as of December 31, 2004 and 2005 and the selected consolidated statement of operations data for the years ended December 31, 2003, 2004 and 2005 have been derived from our audited consolidated financial statements included elsewhere in this annual report. The selected consolidated balance sheet data as of December 31, 2001, 2002 and 2003, and the selected consolidated statement of operations data for the years ended December 31, 2001 and 2002 have been derived from our audited consolidated financial statements for the years ended December 31, 2001, 2002 and 2003, which are not included in this annual report. The audited consolidated financial statements for the years ended December 31, 2001, 2002 and 2003 were stated in NT dollars. We have converted certain information in such financial statements into U.S. dollars for inclusion in this annual report for the convenience of investors using the exchange rates provided under “Exchange Rates” above. The consolidated financial statements have been prepared and presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The selected consolidated financial data set forth below should be read in conjunction with Item 5 — “Operating and Financial Review and Prospects” and the consolidated financial statements and the notes to those statements included elsewhere in this annual report. The profit and loss statements for the years ended December 31, 2001, 2002, 2003, and 2004 have been restated to reflect the results of our music distribution business, which was sold in September 2005, as discontinued operations. Certain prior-year amounts have been reclassified to conform to the current-year presentation. These reclassifications had no effect on the result of operation or shareholders’ equity as previously reported.

3

For the Years Ended December 31,

(in thousands except for income/loss per share amounts)

	2001		2002		2003		2004		2005
	US$		US$		US$		US$		US$
STATEMENT OF OPERATIONS DATA:
OPERATING REVENUES
Software licensing and online entertainment revenues	0		0		0		11,434		22,511
Internet access revenues	11,522		18,493		18,829		20,960		21,408
Other revenues	625		773		684		450		268
Total	12,147		19,266		19,513		32,844		44,187
COSTS AND EXPENSES
Operating costs	(53,021	)	(19,955	)	(16,115	)	(16,109	)	(17,383	)
Product development and engineering expenses	(3,147	)	(1,865	)	(1,211	)	(2,513	)	(3,562	)
Selling and marketing expenses	(8,442	)	(4,095	)	(2,432	)	(6,310	)	(10,777	)
General and administrative expenses	(6,375	)	(4,155	)	(5,162	)	(5,657	)	(7,892	)
Bad debt expenses	(1,190	)	(869	)	(128	)	220		(207	)
Impairment loss on intangible assets	0		(2,334	)	0		0		0
Impairment loss on property, plant and equipment	0		0		(1,557	)	0		0
Total	(72,175	)	(33,273	)	(26,605	)	(30,369	)	(39,821	)
Income (loss) from operations	(60,028	)	(14,007	)	(7,092	)	2,475		4,366
Income (loss) from continuing operations	(53,542	)	(10,617	)	(9,799	)	1,253		6,490
Income (loss) from discontinued operations	0		(7,849	)	(4,296	)	429		(154	)
Net income (loss)	(53,542	)	(18,466	)	(14,095	)	1,682		6,336
Income (loss) per share (in dollars)
Basic:
Income (loss) from continuing operations	(1.07	)	(0.21	)	(0.20	)	0.02		0.13
Income (loss) from discontinued operations	0		(0.16	)	(0.08	)	0.01		0
Net income (loss)	(1.07	)	(0.37	)	(0.28	)	0.03		0.13
Diluted:
Income (loss) from continuing operations	(1.07	)	(0.21	)	(0.20	)	0.02		0.12
Income (loss) from discontinued operations	0		(0.16	)	(0.08	)	0.01		0
Net income (loss)	(1.07	)	(0.37	)	(0.28	)	0.03		0.12

As of December 31,

(in thousands)

	2001	2002	2003	2004	2005
	US$	US$	US$	US$	US$
BALANCE SHEET DATA:
Current assets	175,476	82,812	77,709	67,726	70,204
Property, plant and equipment-net	20,188	21,264	15,636	15,056	10,747
Intangible assets-net	361	6,964	6,199	8,372	2,704
Total assets	230,688	135,138	119,792	125,977	113,519
Total shareholders’ equity	224,468	104,169	90,363	95,971	100,648
Capital stock amount (common shares)	15,565	15,565	15,565	15,565	15,626
Number of issued shares (basic, in thousands)	50,154	50,154	50,154	50,154	50,344
Dividend declared per share (in dollars)	0	0	0	0	0

4

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Risks Related to Our Business

Our limited operating history as an entertainment software provider and an online casual games business operator, and the unproven long-term potential of those business models make evaluating our business and prospects difficult

We acquired our entertainment software business, CESL, in April 2004 and our online casual games business, FunTown, in January 2006. We launched new poker software products in 2004, which generated approximately 2 percent of CESL’s total revenues in 2004 and 18 percent of CESL’s total revenues in 2005. In addition, the senior management teams of our different businesses and our employees have worked together at our Company for only a relatively short period of time.

As a result, we have a limited relevant operating history as an entertainment software developer and an online casual games operator for you to evaluate. It is also difficult to evaluate our prospective business, because we may not have sufficient experience to address the risks frequently encountered by companies using new and unproven business models and entering new and rapidly evolving markets, including the online gaming and online casual games markets. These risks may include our potential failure to:

• retain existing customers or attract new customers;

• license, develop, or acquire additional online games that are appealing to consumers;

• anticipate and adapt to changing consumer preferences;

• adapt to competitive market conditions;

• respond to technological changes or resolve unexpected service interruptions in a timely manner;

• adequately and efficiently operate, upgrade and develop our transaction and service platforms; or

• maintain adequate control of our expenses.

If we are unsuccessful in addressing any of the risks listed above, our business and financial condition will be adversely affected.

Our businesses face intense competition, which may adversely affect our revenues, profitability and planned business expansion

We face competition from many competitors, and we expect to face additional competition from potential competitors, including those with:

• significantly greater technological, financial, sales and marketing resources;

• larger customer bases and longer operating histories;

• greater name recognition; and

• more established relationships with distribution partners, advertisers, content and application providers and/or other strategic partners.

5

COMPETITION IN THE ENTERTAINMENT SOFTWARE AND INTERNET GAMING BUSINESSES. The Internet entertainment software industry is characterized by rapid technological change and we face significant and intense competition from online entertainment software design houses and application service providers. Given the relatively low barriers to entry into the software industry and the increasing popularity of Internet-based businesses, there are a large number of potential competitors from many different segments of software and Internet industries. Traditional entertainment service providers, many of which have significant financial resources, might expand and provide Internet-based entertainment services. Such Internet service providers and other entertainment service providers may also develop and offer the underlying software solutions and tools to others in direct competition with us. Ultra Internet Media, S.A. (“UIM”), a provider of Internet gaming services, is the sole licensee of our entertainment software business. Although we do not have any ownership interest in UIM, we consolidate its assets, liabilities and results of operations in our financial statements and are entitled to fees from UIM based upon its revenues. Accordingly, we are exposed to competition in the Internet gaming industry, which is also characterized by low barriers to entry, rapid technological change and ever-changing consumer preferences.

Furthermore, some of our competitors and competitors of UIM are more established, enjoy greater market recognition, are substantially larger and have substantially greater resources and distribution capabilities than we do. There is no assurance that we or UIM will be able to compete successfully with existing and future competitors, which could have a material adverse effect on our business, financial condition or results of operations. See Item 4 — “Information on the Company — Entertainment Software Business — Competition” for additional information.

COMPETITION IN THE ONLINE CASUAL GAMES BUSINESS. Our main competitors in the online casual games business are casual games operators in Greater China, including Shanda Interactive Entertainment Ltd. (“Shanda”), Nineyou (Shanghai Everstar Online Entertainment Co., Ltd.), Tencent Holdings Limited, Ourgames.com (Beijing Globalink Computer Technology Co., Ltd.) and Chinagames.net.

We expect more companies to enter the online casual games industry in Greater China and a wider range of casual games to be introduced to the Greater China market, given the relatively low entry barriers to the online casual games industry. Our competitors vary in size and include large companies such as Shanda, many of which have significant financial, marketing and game development resources as well as name recognition. We may not be able to devote adequate resources to designing, developing or acquiring new games, undertaking extensive marketing campaigns, adopting aggressive pricing policies, paying high compensation to game developers or compensating independent game developers to the same degree as a number of our competitors may be able to do. We cannot assure you that we will be able to compete successfully against any new or existing competitors. In addition, the increased competition we anticipate in the online casual games industry may reduce the number of our users or growth rate of our user base, reduce the average number of hours played by our users, or cause us to reduce usage fees. All of these competitive factors could have a material adverse effect on our business, financial condition or results of operations.

6

COMPETITION IN THE BROADBAND ISP BUSINESS. Our main competitors in the consumer broadband Internet service provider (“ISP”) business are fixed-line service providers and other ISPs in Taiwan that offer asymmetrical digital subscriber line (“ADSL”) broadband services, including Chunghwa Telecom’s HiNet, the overwhelmingly dominant provider of broadband services; Taiwan Fixed Network, a fixed-line service provider; and Seednet, SoNet and Asia Pacific Online, which are all ISPs. Our competitors also include cable-based Internet access companies that have developed their own cable-based services and market those services to cable operators and those that are seeking to contract with cable operators to bring their services into geographic areas that are not covered by an exclusive relationship between our Company and our cable partners. Our corporate ISP business faces competition from fixed-line service providers, including Chunghwa Telecom, Taiwan Fixed Network, NCIC’s Sparq and Asia Pacific Online. In recent years, we have experienced a reduction in the number of our new consumer subscribers and our total consumer subscribers. The primary basis of competition in the Internet access business industry is price. We can offer no assurance that we will be able to attract new subscribers or retain existing subscribers, as a result of which our revenues may decline. Due to this intense competition, there may be a limited market opportunity for our broadband access services. We cannot assure you that we will be successful in achieving widespread acceptance of our services before our competitors offer services similar to our current or prospective offerings, which might preclude or delay purchasing decisions by potential subscribers or cause us to lose our existing subscribers. All of these competitive factors could have a material adverse effect on our business, financial condition or results of operations.

Our business could suffer if we do not successfully manage current growth and potential future growth

We are pursuing a number of growth strategies, including leveraging our customer base to develop additional sources of revenues and exploring opportunities to expand into new online entertainment business segments. Some of these strategies relate to new services or products for which there are no established markets in Taiwan or China, or relate to services or products in which we lack experience and expertise. We cannot assure you that we will be able to deliver new products or services on a commercially viable basis or in a timely manner, or at all.

Our growth to date has placed, and our anticipated further expansion of our operations will continue to place, a significant strain on our management, systems and resources. In addition to training and managing our workforce, we will need to continue to develop and improve our financial and management controls and our reporting systems and procedures, including those of acquired businesses. We cannot assure you that we will be able to efficiently or effectively manage the growth of our operations, and any failure to do so may limit our future growth and materially and adversely affect our business, financial condition and results of operations.

Our business strategy, which contemplates growth through acquisitions and strategic investments, exposes us to significant risks

As a component of our growth strategy, we intend to continue to enhance our business development, including our game content offerings, by acquiring other businesses that complement our current online businesses, represent related but new lines of business that may be appropriate areas of expansion, or that we believe may benefit us in terms of user base, product or content offering. We also intend to make selective strategic investments. We will continue to examine the merits, risks and feasibility of potential transactions, and expect to search for additional acquisition opportunities in the future.

7

Such search and examination efforts and any related discussions with third parties, may or may not lead to future acquisitions and investments. Our reported financial results may be affected by any such acquisitions and/or investments, including any acquisitions or dispositions undertaken by us in anticipation of or in connection with any such acquisitions and/or investments. Our ability to grow through such acquisitions and investments will depend on the availability of suitable acquisition candidates at an acceptable cost, our ability to reach agreement with acquisition candidates or investee companies on commercially reasonable terms, the availability of financing to complete larger acquisitions or investments and our ability to obtain any required governmental approvals. In addition, the benefits of an acquisition or investment transaction may take considerable time to develop and we cannot assure you that any particular acquisition or investment will produce the intended benefits.

Furthermore, the identification and completion of any transactions may require us to expend significant management and other resources. Any transaction may require that we expend a significant portion of our cash reserves and/or issue a substantial amount of new equity, which could adversely affect our financial condition and liquidity and result in significant dilution of shareholders’ interests. The impact of dilution may restrict our ability to consummate further acquisitions. We may also incur debt and losses related to the impairment of goodwill and other intangible assets upon or following the acquisition of another business, which could negatively impact our results of operations. For example, we wrote off goodwill associated with our music distribution business in the amount of US$7.0 million in 2002 and US$0.7 million in 2003, which reduced our profitability in both years. Any write-off of goodwill in the future may have a negative impact on our financial results.

Additional risks associated with acquisitions include the following:

• It may be difficult to assimilate the operations and personnel of an acquired business into our own business;

• Management, information, and accounting systems of an acquired business would be different from our current systems and would need to be successfully integrated;

• Our management must devote its attention to assimilating the acquired business, which diverts attention from other business concerns;

• Suppliers, vendors and/or distributors may renegotiate or cancel contracts with us following the acquisition of a business;

• We may enter markets in which we have limited prior experience. For example, in April 2006, we acquired a minority stake in T2CN Holding Limited (“T2CN”), an online casual sports game operator in China, and intend to develop our casual games business in China in combination with T2CN. However, we are not presently active in T2CN’s business and have limited experience in its line of business; and

• We may lose some of our key employees or key employees of an acquired business.

We have a history of losses and cannot assure you that we will not incur substantial losses in future periods

We incurred net losses in each of our previous fiscal years except 2004 and 2005, in which we recorded net income of US$1.7 million and US$6.3 million, respectively. Our losses were primarily the result of the substantial costs incurred in operating our broadband Internet access and music distribution businesses and declining revenues from our music distribution business. We may incur substantial losses in the future.

Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business

We regard our copyrights, service marks, trademarks, trade secrets, patents and other intellectual property as critical to our success. Unauthorized use of the intellectual property, whether owned by us or licensed to us, could adversely affect our business and reputation.

8

We rely on trademark, patent and copyright law, trade secret protection and confidentiality agreements with our employees, customers, business partners and others to protect our intellectual property rights. Despite our precautions, it may be possible for third parties to obtain and use the intellectual property used in our business without authorization.

The validity, enforceability and scope of protection of intellectual property in Internet-related industries are uncertain and evolving. In particular, the laws and enforcement procedures of Taiwan, Hong Kong, the PRC and certain other countries are uncertain or do not protect intellectual property rights to the same extent as do the laws and enforcement procedures of the United States. Moreover, litigation may be necessary in the future to enforce our intellectual property rights. Future litigation could result in substantial costs and diversion of our resources, which could disrupt our business and could have a material adverse effect on our business, financial condition and results of operations.

Our results of operations are subject to significant fluctuations

Our revenues, expenses and results of operations have varied in the past and may fluctuate significantly in the future due to a variety of factors, many of which are beyond our control. The key factors affecting each of our respective businesses include:

• Entertainment software business: availability of Internet infrastructure, competition from existing and new competitors, the revenues, expenses and results of operations of our sole customer and licensee, UIM, the retention of the key license with our sole licensee, UIM, and the regulatory restrictions applicable to the Internet gaming industry.

• Online casual games business: existing and new competitors, the pace of rollout of new games and price competition in the industry.

• Broadband ISP business: price competition in the Internet access business, the rate at which new customers subscribe to our services, subscriber turnover rates and the pace of rollout of our services.

In addition, our operating expenses are based on our expectations of the future demand for our services and are relatively fixed in the short term. We may be unable to adjust spending quickly enough to offset any unexpected demand shortfall. A shortfall in revenues in relation to our expenses could have a material and adverse effect on our business and financial results.

The markets for our principal businesses are characterized by rapid technological change, and failure to respond quickly and sufficiently to new Internet technologies or standards may have a material adverse effect on our business

The markets for our entertainment software business, online casual games business and broadband ISP business are characterized by rapid technological advances, evolving industry standards, changes in user requirements and frequent new service introductions and enhancements.

The online gaming and online casual games industries, in particular, are subject to rapid technological change. We need to anticipate the emergence of new technologies and games, assess their acceptance and make appropriate investments accordingly. If we are unable to do so, new technologies in online gaming and online casual games programming or operations could render our gaming services and games obsolete or unattractive.

We use internally developed software systems that support nearly all aspects of our billing and payment transactions in our online casual games business. All of our businesses may be adversely affected if we are unable to upgrade our systems quickly enough to accommodate future traffic levels, to avoid obsolescence or to successfully integrate any newly developed or acquired technology with our existing systems. Capacity constraints could cause unanticipated system disruptions and slower response times, affecting data transmission and game play. These factors could, among other things, cause us to lose existing or potential customers and existing or potential game developer partners.

9

The number of consumer subscribers of our broadband ISP services declined from approximately 108,000 in 2002 to approximately 80,500 in 2005. If we are unable to effectively use leading technologies, continue to develop our technological expertise, enhance our current services and continue to improve the performance, features and reliability of our products and services, or we are unable to respond quickly and sufficiently to new technologies or standards, we may not be able to attract new customers and our business and financial results may be materially and adversely affected.

Our entertainment software business, online casual games business, and broadband ISP business depend on the reliability of our network infrastructure, which is subject to physical, technological, security and other risks

The development and operation of our online networks are subject to physical, technological, security and other risks which may result in interruption in service or reduced capacity for customers. These risks include physical damage, power loss, telecommunications failure, capacity limitation, hardware or software failures or defects and breaches of security by computer viruses, break-ins or otherwise. The occurrence of any of these events could result in interruptions, delays or cessation in service to users of our online services, which could have a material adverse effect on our business and operating results. An increase in the volume of usage of online services could strain the capacity of our software and hardware employed, which could result in slower response time or system failures. We do not have redundant facilities in the event of an emergency, but we have a variety of backup servers at our primary site to deal with possible system failures.

While we have implemented industry-standard security measures, our network may still be vulnerable to unauthorized access, computer viruses, denial of service attacks and other disruptive problems. A party that is able to circumvent security measures could misappropriate proprietary information and, perhaps, most importantly, cause interruptions in our operations. Internet and online service providers have, in the past, experienced and may, in the future, experience interruptions in service as a result of the accidental or intentional actions of Internet users, current and former employees or others. We may be required to expend significant capital or other resources to protect against the threat of security breaches or to alleviate problems caused by such breaches. There can be no assurance that any measures implemented will not be circumvented in the future.

The adoption of new laws or changes to or the application of existing laws relating to Internet commerce may affect the growth of our entertainment software business

In addition to regulations pertaining specifically to online entertainment, we may become subject to a number of laws and regulations that may be adopted with respect to the Internet and electronic commerce. New laws and regulations that address issues such as user privacy, pricing, online content regulation, taxation, advertising, intellectual property, information security, and the characteristics and quality of online products and services may be enacted. Moreover, current laws, which predate or are incompatible with Internet commerce, may be enforced in a manner that restricts the electronic commerce market. In addition, the application of such pre-existing U.S. and international laws regulating communications or commerce in the context of the Internet and electronic commerce is uncertain.

Moreover, it may take years to determine the extent to which existing laws relating to issues such as intellectual property ownership and infringement, libel and personal privacy are applicable to the Internet. The U.S. Federal Trade Commission and government agencies in certain states of the United States have been investigating certain Internet companies regarding their use of personal information. We could incur additional expenses if these agencies choose to investigate, or if any new regulations regarding the use of personal information are introduced affecting the way in which we do business.

The adoption of new laws or regulations relating to the Internet, or particular applications or interpretations of existing laws, could decrease the growth in the use of the Internet, decrease the demand for our products and services, increase the cost of conducting our business or could otherwise have a material adverse affect on our business, revenues, operating results and financial condition.

10

Our entertainment software business has a sole licensee, and any adverse effect on its business could have a material adverse effect on our revenues, operating results and financial condition

All of our revenues from our entertainment software business are derived from UIM, currently the sole licensee of our software products. Although we do not have any ownership interest in UIM, we consolidate its assets, liabilities and results of operations in our financial statements and are entitled to fees from UIM based upon its revenues. We do not control its management and hence have no control over its business decisions. A decision by UIM to terminate its contract with us or any adverse effect on its business, operating results or financial performance could have a direct material adverse effect on our business, operating results and financial performance. Further, any significant increase in UIM’s liabilities or decrease in its assets would adversely affect our balance sheet. We continue to explore developing business relations with other clients but there is no assurance that such efforts will be successful.

The worldwide legal and regulatory environment in which our entertainment software business operates is characterized by uncertainties that could adversely affect our business and operating results

Our software entertainment business includes software development and the provision of application services for Internet gaming. UIM, which operates an online gaming business and also sub-licenses our software products to third parties, is the sole licensee of our entertainment software products and we earn fees from UIM based upon its revenues. Each of these businesses is subject to applicable laws and regulations relating to online gaming and electronic commerce in various jurisdictions throughout the world, and it is in many cases uncertain which governments have authority to legislate or regulate different aspects of these industries. Moreover, the Internet gaming industry is still in an early stage of development and the worldwide legal and regulatory environment in which the businesses operate remains highly fluid and subject to change. While most foreign jurisdictions have some form of legal framework applicable to games of chance, few provide clear guidance on how this framework applies to Internet gaming. Issues such as determining the physical location of a gaming event and significant differences among the gaming laws and “Cyberlaws” of various countries all make traditional concepts of jurisdiction and conflicts of laws difficult to apply. In addition, the very nature of Internet gaming creates new and unique forms of entertainment that were neither contemplated nor feasible in the past.

Due to the uncertainties in the worldwide legal and regulatory environment in which our entertainment software business operates, we cannot assure you that our operations as an application service provider to the gaming industry, or the Internet gaming services provided by UIM, are in compliance with all laws and regulations of the jurisdictions where our entertainment software products are used, or that changes in such laws and regulations, or in their interpretation, will not adversely affect our business and operating results. Also, the substantial uncertainties in the global regulatory environment relating to online gaming expose us to the risk that regulatory authorities in various jurisdictions will determine that our Company provides online gaming services (rather than only providing software and application services to our licensee) and thus subject our Company to gaming laws and regulations in such jurisdictions.

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U.S. regulation of the online gaming industry could have a substantial impact on UIM’s business and consequentially our entertainment software business

Our Company, UIM and the online gaming industry as a whole may be affected by pending legislation in the U.S. Congress that, if enacted, would prohibit the use of communication facilities and financial transactions in connection with Internet gambling. The current administration adheres to the view that Internet gambling is already prohibited by the Federal Wire Act and other federal laws. In addition, Internet gambling currently constitutes illegal gambling activity in all 50 U.S. states, including those states where other forms of gambling are legal. Because many U.S. citizens continue to participate in Internet gambling despite these prohibitions, Congressional opponents of Internet gambling have unsuccessfully proposed legislation over the past several years with the intent of restricting the means available for participation in this activity. In the current Congress, three bills affecting Internet gambling are under consideration:

• H.R. 4411, entitled the Unlawful Internet Gambling Enforcement Act of 2006, would prohibit gambling businesses from accepting credit cards or other bank instruments in connection with illegal Internet gambling. In order to enforce that objective, the proposed legislation directs various federal agencies to develop regulations within nine months of enactment that would require financial institutions with electronic payment systems to establish policies and procedures to identify and block restricted transactions. The bill is designed to reduce participation in illegal Internet gambling by restricting the payment methods for such activities and by imposing increased criminal penalties on illegal Internet gambling businesses. H.R. 4411 would also create judicial procedures through which federal agencies could obtain injunctions directing interactive computer services to remove or disable access to online sites that violate the law.

• H.R. 4777, entitled the Internet Gambling Prohibition Act, would prohibit financial transactions related to Internet gambling in substantially the same manner as H.R. 4411, but it does not direct federal agencies to adopt regulations supporting that mandate. More significantly, H.R. 4777 would also criminalize any gambling business from using a communication facility to transmit bets or wagers, or information assisting in the placing of bets and wagers, to or from the United States. The bill would also expand the scope of the Wires Act by including satellite and microwave transmission in addition to wire and cable transmissions as communication facilities through which gambling information may not be transmitted. However, H.R. 4777 also sets out a number of broad exemptions, the most important of which is that the proposed legislation would not prohibit the transmission of information assisting in the placing of bets or wagers from a state or foreign country where such betting or wagering is permitted into a state or foreign country where such betting or wagering is permitted. Like H.R. 4411, H.R. 4777 would also create judicial procedures through which federal agencies could obtain injunctions directing interactive computer services to remove or disable access to sites identified as participants in illegal Internet gambling.

• H.R. 5474 was recently introduced to create a commission to study the proper response of the United States to the growth of Internet gambling. No significant action has taken place with regard to this.

We continue to monitor the progress of this legislation through the Congress since the passage of this legislation could potentially impact the revenues of UIM. Although UIM operates outside of the U.S. jurisdiction and maintains that it does not purposefully solicit or accept gambling transactions that would violate current U.S. law, a substantial impairment of UIM’s revenues could affect the continued operation of our entertainment software business.

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In November 2004, the World Trade Organization (“WTO”) found that the United States was in violation of its commitments under the General Agreement on Trade in Services (“GATS”), by not allowing operators of online gaming services licensed in Antigua and Barbuda to access U.S. markets. The decision was appealed and, in April 2005, the Appellate Body of the WTO found that the provisions of the Wire Act, Travel Act and Illegal Gambling Business Act are inconsistent with the obligations of the United States under the GATS, but also that the United States had shown that such measures are necessary to protect public morals or maintain public order and therefore fall within an exception to its general obligations. However, the Appellate Body further found that, in the light of existing federal legislation regarding Internet gambling on horseracing, the United States had failed to demonstrate that the Wire Act, Travel Act and Illegal Gambling Business Act are applied equally to both foreign and domestic providers of online gambling services for horseracing and therefore recommended that the United States bring its legislation into conformity with its obligations under the GATS. If the United States or other jurisdictions adopt laws which restrict their citizens from participating in Internet gaming offered outside their jurisdictions, on the grounds of public morals, public order or otherwise, the business of UIM, and our business, could be materially and adversely affected.

All of our entertainment software revenues are derived from UIM which, in turn, derives its revenues from end users in non-U.S. jurisdictions, exposing us to regulatory risks and cultural and linguistic barriers in such jurisdictions

UIM is an operator of an online entertainment business and all of our entertainment software revenues are derived from its operations. UIM’s revenues are derived substantially from non-U.S. jurisdictions. All of our entertainment software revenues from licensing and support fees are also derived from non-U.S jurisdictions. We currently provide user interface and licensee support to UIM in 16 languages. Once a licensee has posted its gaming site on the Internet, the site is available to users around the world. To be able to further expand our business we expect we will require modification of our products, particularly domestic language and currency support. However, there can be no assurance that we will be able to sustain or increase revenues derived from international operations or that we will be able to penetrate linguistic, cultural or other barriers to new foreign markets.

In addition to uncertainty regarding the legal status of Internet gaming in other jurisdictions, there are certain difficulties and inherent risks faced by UIM, in doing business internationally, including the burden of complying with multiple and conflicting regulatory requirements, foreign exchange controls, potential restrictions or tariffs on gaming activities that may be imposed, potentially adverse tax consequences and tax risks. Changes in the political and economic stability, regulatory and taxation structures, and the interpretation thereof, of jurisdictions in which we or UIM operates, and in which our licensee’s customers are located could have a material adverse effect on our business, revenues, operating results and financial condition.

Online gaming is a relatively new industry and therefore, we do not know if the market will continue to grow

Both the Internet entertainment and online gaming industries are relatively new industries that continue to evolve and are characterized by an increasing number of market entrants. The demand and market acceptance for recently introduced products and services are typically subject to a high level of uncertainty. The success of our entertainment software business will depend on the widespread adoption of the Internet for commercial transactions. There can be no assurance that entertainment on the Internet will become widespread.

All of the revenues from our entertainment software business to date have been derived from the licensing of our online entertainment software and support of our associated services. Our continued success will depend largely upon the success of our online entertainment software. If the market fails to develop, develops more slowly than expected, or becomes saturated with competitors or if our services do not achieve market acceptance, our business, revenues, operating results and financial condition could be materially adversely affected.

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We may be vulnerable to delays or interruptions due to our reliance on infrastructure and related services provided by third parties

Our electronic commerce product for handling transactions over the Internet relies on ISPs to allow the customers of UIM, our licensee, and servers to communicate with each other. If all of the ISPs experienced lengthy service interruptions, it would prevent communication over the Internet and would greatly impair our ability to carry out our business.

Our ability to process e-commerce transactions depends on bank processing and credit card systems. In order to prepare for certain types of system problems, we are developing a formal disaster recovery plan. Nevertheless, any system failure, including network, software or hardware failure, which causes a delay or interruption in our e-commerce services could have a material adverse effect on our business, revenues, operating results and financial condition.

The licensee of our entertainment software depends on credit card transactions for a substantial portion of the deposits or payments by their customers

Our entertainment software business derives all of its revenues from its licensee, UIM. A substantial portion of the deposits or payments to our licensee are made through credit card transactions. If credit card companies were to stop processing online gaming transactions, either generally or in jurisdictions where our licensee operates, our entertainment software business could be materially and adversely affected.

Many issuing banks of major credit cards decline authorization to U.S. persons who attempt to use their credit cards for online gaming. We may be adversely affected by the provisions of the U.S. Patriot Act. Both U.S. and non-U.S. banks which process online gaming transactions for U.S. persons face potential criminal proceedings under the U.S. Patriot Act, as U.S. jurisdiction under the Patriot Act extends to non-U.S. banks that have correspondent accounts in the United States. This could result in issuing banks deciding not to process online gaming transactions generally. For example, following pressure from Eliot Spitzer, in June 2002, Citibank started to block credit card payments to known online gaming sites and, later that year, the Delaware payment processing firm, PayPal, stopped processing payments for the purposes of online gaming. In addition, it is possible that other jurisdictions may enact legislation or take other actions which result in credit card companies being unwilling or unable to process online gaming transactions.

Furthermore, there is a higher incidence of fraud associated with online credit card payments than with respect to other types of transactions, which could further discourage issuing banks from processing online gaming transactions.

Undetected programming errors or defects in our software, services and games and the proliferation of cheating programs could materially and adversely affect our entertainment software and online casual games businesses, financial condition and results of operations

Our software, services and games may contain undetected programming errors or other defects. These errors or other defects could result in losses to our licensee (in the case of our entertainment software business), end users and to us; and the risk from claims resulting from losses to end users, which could damage our reputation and subject us to liability.

In addition, parties unrelated to us may develop Internet cheating programs that enable our users to acquire superior features for their game characters that they would not have otherwise. Furthermore, certain cheating programs could cause the loss of a character’s superior features acquired by a user. The occurrence of undetected errors or defects in our games, and our failure to discover and disable cheating programs affecting the fairness of our game environment, could disrupt our operations, damage our reputation and detract from the game experience of our users. As a result, such errors, defects and cheating programs could materially and adversely affect our business, financial condition and results of operations.

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We could be liable for breaches of security on our Web sites and fraudulent transactions by users of our Web sites

Currently, a portion of our transactions are conducted through our Web sites and Web sites of UIM, our sole licensee. In such transactions, and those conducted on our FunTown platform, secured transmission of confidential information (such as customers’ credit card numbers and expiration dates, personal information and billing addresses) over public networks is essential to maintain consumer confidence. Our current security measures may not be adequate. Security breaches could expose us to litigation and possible liability for failing to secure confidential customer information and could harm our or our licensee’s reputation and ability to attract customers.

We face the risks of changing consumer preferences and uncertainty of market acceptance of our new products in our online casual games business

Online casual games are a new and evolving entertainment concept in Asia. The level of demand and market acceptance of our online casual games is subject to a high degree of uncertainty. Our future operating results will depend on numerous factors beyond our control. These factors include:

• the popularity of existing and new online games operated by us;

• the introduction of new online games, competing with or replacing our existing online games;

• general economic conditions, particularly economic conditions adversely affecting discretionary consumer spending;

• changes in customer tastes and preferences;

• the availability of other forms of entertainment; and

• critical reviews and public tastes and preferences, all of which change rapidly and cannot be predicted.

Our ability to plan for product development and distribution and promotional activities will be significantly affected by our ability to anticipate and adapt to relatively rapid changes in consumer tastes and preferences. Currently, two of the most popular types of online casual games in Greater China are online board and card games. However, there is no assurance that these games will continue to be popular in Greater China and their status as one of the most popular types of online casual games in Greater China’s online casual games industry will not be replaced by new and different types of online or other games in the future. A decline in the popularity of online casual games in general or, in particular, the online board and card games that we operate, will likely adversely affect our business, financial condition and results of operations.

In addition, we expect that as we introduce new online casual games, a certain portion of our existing customers will switch to the new games. If this transfer of players from our existing games exceeds our expectations, we may have to adjust our marketing, pricing and other business plans and, as a result, our growth and profitability could be materially and adversely affected.

Currently there are no clear laws or regulations in Greater China governing virtual asset property rights and therefore, it is not clear what liabilities, if any, online game operators may have for virtual assets

In the course of playing online games, some virtual assets, such as special equipment, player experience grades and other features of our users’ game characters, are acquired and accumulated. Such virtual assets can be important to online game players. In practice, virtual assets can be lost for various reasons, often through unauthorized use of users’ IDs by other users and occasionally through data loss caused by delay of network service or by a network crash. Currently there are no clear laws and regulations in Greater China governing virtual asset property rights. In case of a loss of virtual assets, we may be sued by online game players and could be held liable for damages, which may negatively affect our business, financial condition and results of operations.

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The benefits of our exclusive agreements with certain cable partners may be substantially diminished by open-access proposals, which would require our exclusive cable partners to grant our competitors access to their systems

We have entered into exclusive agreements with 11 out of 22 of our cable partners granting us the exclusive right to provide services through their cable systems. As per new regulations in Taiwan, our cable partners must obtain leased-circuit licenses to provide their circuits to us in order for us to provide two-way cable services. In addition, any holder of leased-circuit licenses, including any of the cable partners having exclusive relationships with us, may be required to grant our competitors access to its cable system if it is deemed to be a dominant leased-circuit operator. In that event:

• other Internet and online service providers could potentially provide services over these cable partners’ cable systems that compete with our services;

• our rights as the exclusive broadband Internet access provider over these cable partners’ systems could be lost; and

• our business, financial condition and results of operations would likely be adversely affected.

See Item 4 — “Information on the Company — B. Business Overview — Broadband ISP Business — Industry Overview” for additional information.

Failure to achieve and maintain effective internal control could have a material adverse effect on our business, results of operations and the trading price of our Shares

We are subject to reporting obligations under the U.S. securities laws. The Commission, as required by Section 404 of the Sarbanes-Oxley Act of 2002, has adopted rules requiring public companies to include a report of management on such companies’ internal control over financial reporting in its annual report, which contains an assessment by management of the effectiveness of such company’s internal control over financial reporting. In addition, an independent registered public accounting firm for a public company must attest to and report on management’s assessment of the effectiveness of the company’s internal control over financial reporting. These requirements are expected to apply to our annual report on Form 20-F beginning in the fiscal year ending December 31, 2006. We are following an internal plan of action for compliance. Our efforts to implement standardized internal control procedures and develop the internal tests necessary to verify the proper application of the internal control procedures and their effectiveness will be a key area of focus for our board of directors, our audit committee and our senior management. We cannot be certain as to the timing of completion of our evaluation, testing and any remedial actions or the impact of the same on our operations. If we do not achieve compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner, our independent auditors may not be able to provide a written attestation as to the effectiveness of our internal control over financial reporting and we could be subject to sanctions or investigation by regulatory authorities, such as the Commission.

We are not yet required to comply with the Section 404 requirements. Nonetheless, in 2004, we requested our independent auditors to evaluate our internal controls over financial reporting, and they identified certain material weaknesses in our internal controls, which we have subsequently rectified. However, there is no guarantee that we will not have weaknesses in our internal controls over financial reporting in the future. If we are unable to successfully address such significant deficiencies in our internal control over financial reporting, our ability to report our financial results on a timely and accurate basis may be adversely affected. In the event that deficiencies that have been or might be identified are not remediated within the required period, we may again determine that we have a material weakness in internal control over financial reporting and, consequently, that our internal control over financial reporting is not effective to ensure that material information relating to our Company and its subsidiaries is made known to our management, including our chief executive officer and chief financial officer, particularly during the period when our periodic reports are being prepared or to provide reasonable assurance that our financial statements are fairly presented in conformity with the accounting principles generally accepted in the United States.

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Our failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our Shares. Furthermore, we anticipate that we will incur considerable costs and use significant management and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

We may need additional capital in the future and it may not be available on acceptable terms

The development of our business may require significant additional capital in the future to:

• fund our operations;

• enhance and expand the range of products and services we offer; and

• respond to competitive pressures and perceived opportunities, such as investment, acquisition and international expansion activities.

We cannot assure you that additional financing will be available on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be forced to curtail or cease our operations. Moreover, even if we are able to continue our operations, any failure to obtain additional financing could have a material and adverse effect on our business, financial condition and results of operations and we may need to delay the deployment of our services. See Item 5 — “Operating and Financial Review and Prospects — B. Liquidity and Capital Resources.”

We depend on our key personnel, and our business and growth prospects may be severely disrupted if we lose their services

Our future success is heavily dependent upon the continued service of our key executives and other key employees. In particular, we rely on the expertise, experience and leadership ability of our chief executive officer, Arthur Wang, and our chief financial officer, Thomas Hui, in our business operations, and rely on their personal relationships with our employees, the relevant regulatory authorities, and our game and service suppliers. We also rely on a number of key technology officers and staff for the development and operation of our online games. In addition, as we expect to focus increasingly on our online games businesses, we will need to continue attracting and retaining skilled and experienced professionals to maintain our competitiveness.

If one or more of our key personnel are unable or unwilling to continue in their present positions, we may not be able to easily replace them and may incur additional expenses to recruit and train new personnel. As a result, our business could be severely disrupted, and our financial condition and results of operations could be materially and adversely affected. Furthermore, since our industry is characterized by high demand and intense competition for talent, we may need to offer higher compensation and other benefits in order to attract and retain key personnel in the future. We cannot assure you that we will be able to attract or retain the key personnel that we will need to achieve our business objectives.

We may be classified as a passive foreign investment company for U.S. federal income tax purposes. As a result, you may be subject to materially adverse tax consequences with respect to our Shares

Although we do not believe we should be classified as a passive foreign investment company for the 2005 taxable year, no assurances may be given that we will not be classified as a passive foreign investment company in the current or any future taxable year. For a discussion of the factors that will affect whether or not we are classified as a passive foreign investment company, see Item 10 — “Additional Information — E. Taxation — U.S. Federal Income Tax Considerations for U.S. Holders — Passive Foreign Investment Company Rules.” If you are a U.S. person holding our Shares, (or have held our Shares during a taxable year in respect of which we were classified as a passive foreign investment company and you continue to hold such Shares or portion thereof) and we are classified as a passive foreign investment company and you do not determine to make a mark-to-market election, you will be subject to special U.S. federal income tax rules that may have materially adverse tax consequences and will require annual reporting. See Item 10 — “Additional Information — E. Taxation — U.S. Federal Income Tax Considerations for U.S. Holders — Passive Foreign Investment Company Rules.”

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Fluctuations in the exchange rates between U.S. dollar and other currencies in which we conduct our business could adversely affect our profitability

Our financial results since January 1, 2004 have been reported in U.S. currency, which is subject to fluctuations in respect of the currencies of the countries in which we operate. The operations of UIM, our entertainment software licensee, are conducted in most major currencies, including U.S. dollars, British pounds sterling and Euros, and we earn revenues from these sources in such currencies, as well as incurring expenses in U.S. dollars and Canadian dollars. The operations of our online casual games business are conducted in NT dollars, Hong Kong dollars and Renminbi. Our broadband ISP business is conducted mainly in NT dollars. Accordingly, fluctuations in the exchange rates of world currencies could have a positive or negative effect on our reported results. Given the constantly changing currency exposures and the substantial volatility of currency exchange rates, we cannot predict the effect of exchange rate fluctuations upon future operating results. There can be no assurance that we will not experience currency losses in the future, which could have a material adverse effect on our business, revenues, operating results and financial condition.

Our controlling shareholder has significant influence in determining the outcome of any corporate transaction or other matters submitted to our shareholders for approval, and their interests may conflict with your interests

As of March 31, 2006, members of the Koo family beneficially owned approximately 21.34 percent of our outstanding shares. Accordingly, the members of the Koo family have significant influence in determining the outcome of any corporate transaction or other matters submitted to our shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. The interests of such members of the Koo family may differ from or conflict with your interests.

Our transactions with affiliates may not benefit us and may harm our Company

We have entered into several transactions with our affiliates. Our policy is that transactions with affiliates are to be conducted on an arm’s-length basis and on terms as favorable to us as with non-affiliates. However, we cannot assure you that all our future transactions with affiliates will be beneficial to us.

Our operating results and financial condition are affected by general economic conditions, levels of consumer spending, political stability as well as the occurrence of natural disasters and epidemics

Our operating results and financial condition, particularly in relation to our entertainment software business and our online casual games business, are directly dependent upon general economic conditions and levels of consumer spending. Political unrest, war, acts of terrorism and other instability, as well as natural disasters such as earthquakes and typhoons which are common in Taiwan, can result in disruption to our business or the businesses of our customers. Similar occurrences in the future could result in increased volatility in or damage to the global financial markets, which in turn may adversely affect our business and results of operations. Past economic downturns have resulted in lower levels of consumer spending and have negatively impacted our sales and profit. There can be no assurance that rising interest rates, an economic recession, other adverse economic developments, or natural disasters or epidemics will not have a material adverse effect on our cash flows, profitability or financial condition.

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There are economic risks associated with doing business in Taiwan, particularly due to the tense relationship between Taiwan and the PRC

Our principal executive offices, a major portion of our online casual games business and our broadband ISP business are located in Taiwan and substantially all of our net revenues in respect of these businesses are derived from customers in Taiwan. Taiwan, as part of the R.O.C., has a unique international political status. The People’s Republic of China (“PRC”) asserts sovereignty over mainland China and Taiwan and does not recognize the legitimacy of the Taiwan government. Although significant economic and cultural relations have been established during recent years between Taiwan and the PRC, the PRC government has indicated that it may use military force to gain control over Taiwan if Taiwan declares independence or if any foreign power interferes in Taiwan’s affairs. Relations between Taiwan and the PRC and other factors affecting the political or economic conditions of Taiwan could also affect our online casual games and broadband ISP businesses.

Our subsidiary’s ability to distribute dividends to us may be subject to restrictions under the laws of Singapore and Taiwan

We are a holding company, and some of our assets constitute our ownership interests in our subsidiaries in Taiwan, including Hoshin GigaMedia which owns the Taiwan-based operations of our online casual games business and our broadband ISP business. Accordingly, part of our primary internal sources of funds to meet our cash needs is our share of the dividends, if any, paid by our subsidiaries, including those in Taiwan. The distribution of dividends from these subsidiaries in Taiwan to us is subject to restrictions imposed by Taiwan and Singapore corporate and tax regulations, which are more fully described in Item 5 — “Operating and Financial Review and Prospects — B. Liquidity and Capital Resources — Dividends from Our Subsidiaries in Taiwan.” In addition, although there are currently no foreign exchange control regulations which restrict the ability of our subsidiaries in Taiwan to distribute dividends to us, the relevant regulations may be changed and the ability of these subsidiaries to distribute dividends to us may be restricted in the future.

We are a Singapore company, and because the rights of shareholders under Singapore law differ from those under U.S. law, you may have difficulty protecting your shareholder rights

Our corporate affairs are governed by our Memorandum and Articles of Association and by the laws governing corporations incorporated in Singapore. The rights of our shareholders and the responsibilities of members of our board of directors under Singapore law are different from those applicable to a corporation incorporated in the United States and, therefore, our shareholders may have more difficulty protecting their interests in connection with actions by the management, members of our board of directors or our controlling shareholders than they would as shareholders of a corporation incorporated in the United States.

There are anti-takeover provisions under the Singapore Securities and Futures Act (Chapter 289) and the Singapore Code on Take-overs and Mergers that may delay, deter or prevent a future takeover or change of control of our Company, which may adversely affect the price of our Shares

There are provisions under the Singapore Securities and Futures Act (Chapter 289) and the Singapore Code on Take-overs and Mergers that may delay, deter or prevent a future takeover or change of control of our Company. Anyone acquiring an interest, either on his own or together with parties acting in concert with him, in 30 percent or more of our voting shares must extend a takeover offer for the remaining voting shares. A person holding between 30 percent and 50 percent of our voting shares, either on his own or together with parties acting in concert with him, must also make a takeover offer if that person together with parties acting in concert with him acquires additional voting shares in excess of 1 percent of the total number of voting shares in any six-month period. These provisions may discourage or prevent transactions that involve an actual or threatened change of control of our Company. This may harm you because an acquisition bid may allow you to sell your Shares at a price above the prevailing market price.

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You may be subject to Singapore taxes

You should consult your tax advisors concerning the overall tax consequences of acquiring, owning or selling the shares. Singapore tax law may differ from the tax laws of other jurisdictions, including the United States.

We may be subject to claims of intellectual property right infringement, and our limited intellectual property protection causes us to be vulnerable to competitors infringing upon or misappropriating our proprietary rights

As a distributor of Internet content, we face the same types of risks that apply to all businesses that publish or distribute information, such as potential liability for copyright, patent or trademark infringement, defamation, indecency and other similar claims. Any imposition of liability that is not covered by insurance, is in excess of insurance coverage or for which we are not indemnified by a content provider, could have a material adverse effect on our business and results of operations.

We rely on a combination of copyright and trademark laws, trade secret protection, confidentiality and non-disclosure agreements, and other contractual provisions to protect our proprietary software, trade secrets and similar intellectual property. These are especially critical to our entertainment software business. We can offer no assurance that our efforts will prove to be sufficient or that third parties will not infringe upon or misappropriate our proprietary rights. We may have to engage in litigation to enforce and protect our trade secrets and other intellectual property rights. We may also be sued for allegedly infringing the rights of others or to determine the scope and validity of their intellectual property rights. Any litigation involving proprietary rights could be costly, require us to seek licenses from third parties and prevent us from selling our products and services, any of which could have a material adverse effect on us.

We are subject to the R.O.C. Alternative Minimum Tax Act

On January 1, 2006, the R.O.C. government enacted the R.O.C. Alternative Minimum Tax Act (the “AMT Act”). The alternative minimum tax (“AMT”) imposed under the AMT Act is a supplemental tax which is payable if the income tax payable pursuant to the R.O.C. Income Tax Act is below the minimum amount prescribed under the AMT Act. The AMT rate for business entities is 10 percent. The taxable income for calculating the AMT includes most income that is exempted from income tax under various legislations, such as tax holidays and investment tax credits. For example, gains on disposal of marketable securities from our Taiwan-based entities were exempt from income tax based on Taiwan tax laws prior to AMT Act. However, such gains will need to be included for the purpose of calculating the AMT. We currently do not expect the AMT to have a material effect on our income tax expense in 2006. However, the actual AMT may differ significantly from management’s estimates and have an adverse effect on our financial condition and results of operations.

Risks Related to our Shares

The price of our Shares has been volatile historically and may continue to be volatile, which may make it difficult for holders to resell the Shares when desired or at attractive prices

The trading price of our Shares has been and may continue to be subject to wide fluctuations. Since January 1, 2005, the sale prices of our Shares on the NASDAQ National Market have ranged from US$1.30 to US$10.39 per share and the last reported sale price on June 15, 2006 was US$7.02. Our Share price may fluctuate in response to a number of events and factors. In addition, the financial markets in general, and the market prices for Internet-related companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our Shares, regardless of our operating performance. In addition, our issuance of approximately US$15 million zero coupon convertible notes, 50 percent of which are due January 1, 2008 and 50 percent of which are due January 1, 2009 in conjunction with our acquisition of FunTown, may encourage short selling in our Shares by market participants because the conversion of the convertible notes could depress the price of our Shares.

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ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of our Company

Our legal and commercial name is GigaMedia Limited. We were incorporated in September 1999 as a company limited by shares organized under the laws of the Republic of Singapore. Our Singapore company registration number is 199905474H. Our principal executive offices are located at 14th Floor, 122 Tunhwa North Road, Taipei 10595, Taiwan, and our telephone number is 886-2-8770-7966. Our Web site address is: http://www.gigamedia.com.tw.

Prior to September 2002, all our operations were conducted primarily through our wholly-owned subsidiary, Hoshin GigaMedia. Hoshin GigaMedia was incorporated in October 1998 in Taiwan. Hoshin GigaMedia, as an unlisted Taiwanese company, could not directly offer its shares to investors outside of Taiwan. To enable it to offer its shares to international investors, GigaMedia was incorporated in Singapore in September 1999 and acquired 99.99 percent of Hoshin GigaMedia in November 1999. In October 2002, GigaMedia acquired the remaining 0.01 percent of Hoshin GigaMedia.

We completed the initial public offering of our Shares on February 24, 2000. Our Shares trade on the NASDAQ National Market under the symbol “GIGM.” We were the first Internet company based in Taiwan to list on the NASDAQ National Market.

In September 2002, we acquired Rose Records (formerly known as Point Records Co., Ltd.) and Tachung Records (formerly known as Music King Co., Ltd.), two of the largest music store chains in Taiwan, with a view to expanding our business to retail entertainment services.

Under new management in 2004, we began to restructure our Company to achieve profitability, generate growth and enhance shareholder value.

In April 2004, we acquired the business and operations of Grand Virtual, Inc. and related affiliates, a privately-held entertainment software developer and application service provider, through CESL, our wholly-owned subsidiary, with a view to enhancing our diversified entertainment products portfolio.

In September 2005, we sold all of our ownership interest in the Rose Records and Tachung Records music store chains with a view to eliminating our non-core operations.

In order to enhance our position in the online entertainment market, in January 2006, we acquired FunTown, an Asian online casual games portal.

See Notes 4 and 5 of our consolidated financial statements for additional information.

For a description of the important events in the development of our business since the beginning of our last three financial years to the date of this annual report, see Item 5 — “Operating and Financial Review and Prospects — A. Operating Results.” A description of our principal capital expenditures and divestitures, since the beginning of our last three financial years to the date of this annual report is set forth in Item 5 — “Operating and Financial Review Prospects — B. Liquidity and Capital Resources.” Information concerning the principal capital expenditures and divestitures currently in progress is also described in Item 5 — “Operating and Financial Review and Prospect — B. Liquidity and Capital Resources.”

B. Business Overview

We are a holding company and, through several subsidiaries, develop and license entertainment software and provide application services, own and operate an online games portal, and provide broadband Internet access services. Our entertainment software business is operated through our subsidiary CESL. Our Taiwan online casual games business is operated through Hoshin GigaMedia. Our Hong Kong and PRC online casual games business is operated through our subsidiary FunTown World Limited. Our Taiwan broadband ISP businesses are operated through our subsidiary, Hoshin GigaMedia, which focuses on consumer users, and Hoshin GigaMedia’s subsidiary, Koos Broadband Telecom Co., Ltd., (“KBT”), which focuses on corporate users.

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Prior to 2002, our primary business was the provisions of broadband Internet access services in Taiwan. Since disposing of our music distribution business in 2005 and acquiring an entertainment software provider in 2004 and an online casual games portal in 2006, we have become a diversified provider of entertainment services and broadband Internet access services.

We acquired our entertainment software business in a private transaction from the founding shareholders of GV Enterprise Voting Trust in April 2004 with a view to enhancing our portfolio of entertainment products. In this transaction, we acquired all the outstanding and issued shares of some of the founding shareholder’s subsidiaries, Grand Virtual, Inc., Grand Virtual Limited and Grand Virtual (Alderney) Limited, for an all-cash consideration of US$32.5 million. To help ensure a smooth transition and the continued expansion of our entertainment software business in the future, we also retained the experienced management, engineering and operation teams of these companies. Since the acquisition, we have restructured the business and currently operate our entertainment software business through our subsidiary CESL, which develops and provides software solutions through its wholly-owned subsidiary Cambridge Interactive Development Corporation (“CIDC”), in Cambridge, MA and application services through its wholly-owned subsidiary Internet Media Licensing Limited (“IML”), in Montreal, for clients operating in the expanding Internet-based entertainment markets worldwide. Our entertainment software business generated revenues of approximately US$11.5 and US$22.5 million and operating income of approximately US$2.8 and US$6.0 million during the nine months ended December 31, 2004 and for the year ended December 31, 2005, respectively.

We operate our broadband ISP business through our subsidiary Hoshin GigaMedia, which provides Internet access services. In 2005, our access products consisted of ADSL and cable modem offerings, giving us the ability to deliver broadband connections island-wide. As of June 2006, we had 22 cable system partners, through which we had access to more than 3.1 million Taiwanese households, as well as approximately 417,000 small and medium-sized enterprises (“SMEs”). In addition, another of our subsidiaries, KBT, provides broadband services to corporate customers. On May 15, 2006, we entered into an asset purchase and sale agreement and a service agreement with Webs-TV Digital International Corporation (“Webs-TV”) to sell our ADSL business and provide certain telecom and consulting services on a transitional basis. Our broadband ISP business generated revenues of approximately US$21.7 million and operating income of approximately US$2.1 million in 2005. Our ADSL business generated approximately US$9.4 million in revenues in 2005, which represented approximately 43 percent of our broadband ISP revenues and approximately 21 percent of our consolidated revenues.

We acquired FunTown, an online casual games business, in January 2006 to strengthen our online entertainment business. Founded in 1998, FunTown is one of the leading casual games platforms in Asia, with over 5 million registered users and an offering of 41 casual games and services in Greater China as of June 15, 2006. FunTown generates revenues through access fees and also through the sales of various in-game items. FunTown’s games can be played on personal computers, mobile phones and airplane entertainment consoles and are expected to be available on the Xbox 360 when launched in Taiwan in 2006. FunTown has strong research and development capabilities and has developed over 90 percent of its games in-house. FunTown also provides value-added services, such as tournaments, personal contact lists and social networking to help build a strong player community.

On May 15, 2006, we entered into an asset purchase and sale agreement and a transition service agreement with Webs-TV to sell our ADSL business and provide certain transition services. Under the agreements, Webs-TV purchased our ADSL business and agreed upon services in an all cash transaction with a total price of approximately US$17.9 million. Approximately US$9.7 million of the price is for the ADSL business and is payable from May 16, 2006 through July 31, 2007. Approximately US$8.2 million represents fees for bandwidth, consulting and other support services to be provided by Hoshin GigaMedia on a transitional basis through December 31, 2007, and is payable from May 16, 2006 through December 31, 2007. The transferred ADSL business includes our ADSL-related equipment, business contracts, and subscription contracts between Hoshin GigaMedia and approximately 62,000 ADSL subscribers, as well as the right to use our ADSL brand for five years.

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Entertainment Software Business

Overview

We operate our entertainment software business through our subsidiary, CESL, and through its wholly-owned subsidiaries, CIDC and IML. CESL develops and licenses software solutions and application services in the expanding Internet-based entertainment markets. CESL offers a wide array of products and services, including online entertainment and social networking. CESL’s software solutions and services also offer great expansion capabilities. CESL can help existing and potential clients expand geographically through language localization for products and services. Currently, our products and services are available in 16 languages, which include mostly European languages and some Asian languages. CESL can also help existing and potential clients who license our software and services to expand their business through a fully-customizable multi-tiered licensing program to a great number of sub-licensees.

Our Products

Our software products are built upon modern Internet technologies capable of providing multi-player gaming platforms, powerful transaction engines, advanced risk management tools, comprehensive online marketing tools, sophisticated data mining and reporting utilities, intuitive graphical user interfaces and localization in 16 major languages including English, French, German, Italian, Spanish, Portuguese, Norwegian, Swedish, Danish, Dutch, Greek, Hebrew, Traditional Chinese, Simplified Chinese, Japanese and Korean.

Our software products are specially designed to enable our clients to manage the online entertainment properties and offer online entertainment to visitors of their online entertainment properties. We currently provide the following entertainment software products:

Online Entertainment Management — these are tools that enable our existing and potential clients to offer online entertainment software, monitor end-user behavior, and potentially to monetize the traffic and patronage generated by the end users. Our integrated and comprehensive multi-lingual e-commerce system facilitates Internet-based transaction processing and can provide detailed analysis of transaction records of our diversified international end users. In addition, there are promotional tools that help build player loyalty and increase retention rates.

Online Entertainment Modules — these are customizable entertainment modules that run on Microsoft Windows 95/98/NT/2000/ME/XP and feature a realistic 3-D environment, selectable background music, and local language interface. In 2004 we developed and launched a new suite of poker software that enables players to compete against each other in both “ring games” and tournaments.

Our Services

In addition to licensing our software products to our licensee, UIM, we offer a variety of application services and consulting services for backend operation. These services include:

Infrastructure Design Services –

• Infrastructure Design: Architecture design of servers, routers, firewalls, network software and management tools required for a 24x7 Internet property.

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• Site Creation: Creation and branding of our client’s Internet property, customized to match our licensee’s unique identity and creative theme.

Transaction Processing Design Services –

• Payment: Consultation for the design of timely collection and distribution of payments through a variety of channels and merchants.

• Billing: Consultation for the design of real-time and out-of-band transaction processing and order management.

• Risk Management: Consultation for design of tools and processes for fraud detection, prevention, and management.

Customer Support Services –

• Infrastructure Consultation Support: Complete round-the-clock consultation support to help clients resolve infrastructure issues.

• Platform Technical Support: Consultation during periodic maintenance to update, patch, and fine-tune the system performance of our software solutions.

Custom Gaming Software Development Services –

• Design and development of custom entertainment modules and interfaces for our platform meeting client specific requests.

Our Technology and Infrastructure

Our Universal Gaming Platform is based on a sophisticated modular distributed transaction processing architecture that is designed to be flexible, extensible, scalable and secure. Composed of multiple fault-tolerant distributed modules, our backend infrastructure provides the functions of gaming servers, game points management, financial stored-value management, e-commerce engines, a central database and an extensive toolset to handle fraud screening, data mining, player support and partner programs. Being comprehensive and extensible, our Universal Gaming Platform can be used as a generic common platform to support a wide range of online gaming, including skills-based gaming and multi-player gaming. Our multiple real-time gaming server software enables seamless integrated management of all end user registration, account administration, deposit and transactions. With our software, end users on various platforms can communicate securely across the Internet through multiple real-time gaming servers. To further increase the flexibility of our platform, a transaction server layer encapsulates business logic and abstracts data and third-party services, such as payment processors. This allows us to isolate the core processing module with business logic, greatly reducing the amount of development and quality assurance work required when we want to extend the system. Our comprehensive administration tools enable advanced data analysis to deliver high-quality end-user support and licensee management. Our multiple payment processor gateway capabilities provide choice and flexibility to handle the complexities of international markets.

We have developed expertise as well as necessary infrastructure to make our products suitable for the local markets in which we operate, for the non-English speaking markets along with our in-house teams of native language experts to ensure cultural fidelity in everything from content to graphics to interfaces and controls.

Our Licensee

Our software entertainment business is dependent upon UIM, our sole licensee. UIM is a third-party online entertainment operator to which we license our software and provide application services and consultation services for its Internet property and infrastructure, including Web site design, payment gateways, and database and operating systems, in return for a fixed percentage of UIM’s gross receipts. UIM operates exclusively from computer servers located in the Kahnawake Territory in Canada under a gaming license issued by the Kahnawake Gaming Commission, subject to continuing compliance with strict licensing requirements.

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While we have no equity shareholding in UIM, we consolidated UIM’s assets, liabilities and results of operations as of and for the nine months ended December 31, 2004 and for the year ended December 31, 2005 in our consolidated financial statements in accordance with the requirements under FIN 46(R). See Item 5 — “Operating and Financial Review and Prospects — Overview — Consolidation of UIM Under FIN 46(R)” for additional information. We are entitled to fees from UIM based upon its revenues.

Competition

Our success depends, in part, upon our ability to enhance our products and services to keep pace with technological developments, respond to evolving customer requirements and achieving continued market acceptance.

Online entertainment software design houses and application service providers are our primary competitors. However, given the low barriers to entry in the software industry and the increasing popularity of Internet-based businesses, there are a large number of competitors scattered throughout many different segments of software and Internet industries. We potentially compete with a number of public and private companies, which provide Internet property architecture design/development, Web design/development, online entertainment software design/development, marketing tools and solutions providers, customer support tools and solutions providers, and e-commerce tools and solutions providers. The diversity of our potential competitors makes it difficult to compile information about the nature of our competitors, their operations and their resources.

Our sole licensee, UIM, also faces tough competition in the online gaming industry. New entrants to the online gaming sector, market consolidation and aggressive marketing and pricing by competitors may lead to a significant decline in UIM’s customer base, revenues and margins. Any future liberalization of licensing or regulation of online gaming in countries where UIM generates significant revenues is likely to lead to increased competition from companies that do not currently offer online gaming services. Traditional Internet service providers and other entities, many of which have significant financial resources and name brand recognition, may provide online entertainment services in the future. Traditional entertainment service providers might expand and provide Internet-based entertainment services and such Internet service providers and entertainment service providers may also develop and offer the underlying software solutions and tools to others, and thus directly compete with UIM and us.

Faced with our known competitors, and most likely several new competitors that may be established in the near future, we will continue to improve the principal competitive factors that we believe can create certain barriers to entry, including: brand, technology, financial stability and resources, proven track record, regulatory compliance, independent oversight and transparency of business practices in our industry.

Online Casual Games Business

Overview

We operate our online casual games business through our subsidiary FunTown, a leading Asian casual games portal with operations throughout Greater China.

FunTown offers a broad range of online casual games and services, which we develop in-house or license from third parties. The online games offered by FunTown include MahJong and numerous varieties of card, chess, and table games, most of which cater specifically to Asian audiences. FunTown also provides services, such as game clubs for players, tournaments related to FunTown’s online casual games, and social networking, all of which are intended to help build a strong player community. As of May 30, 2006, FunTown had approximately five million registered members, approximately 30,000 peak concurrent users and 19,000 average concurrent users.

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Our online casual games allow users access to a broad continuum of online entertainment, from traditional Asian games that are instantly recognizable and easy to learn and play, to more advanced online casual games that allow users to interact with each other in virtual worlds by assuming characters they may customize. We believe that the traditional appeal, and interactive and group-oriented nature of these games, combined with our community-focused services and the large size of our user base, contributes to retaining our current users and attracting new users.

Our operating platform includes our technological infrastructure, distribution and payment system, customer service center, game content management and marketing platform. Our technological infrastructure consists of a server network throughout Greater China, the architecture of which is easily scalable to accommodate business growth and increased future user demand. Our distribution and payment network in Taiwan includes approximately 9,200 offline distribution points. Additionally, in 2005, we processed approximately 888,000 online transactions for virtual point cards. Our customer service system includes a 24-hour call center and a walk-in customer service center. In addition, our most popular online games have separate game content management teams that manage the operation of the games and the online community for the games.

Currently, our games and services are primarily accessed through personal computers. Our games are also available on mobile phones, Intel Viiv platform and on certain airlines. We expect FunTown’s games to be offered on Microsoft’s Xbox 360 in Taiwan in 2006.

In March 2006, we entered into a subscription rights agreement with Wretch Co. Ltd. (“Wretch”) pursuant to which we entered into a strategic alliance with Wretch for the development of an online entertainment community by combining Wretch’s strengths in blogs, online photo sharing and other community offerings with FunTown’s leading MahJong and other online casual game offerings. We are in discussions with Wretch on the implementation of this arrangement.

Our Products

In general, online casual games are games with simple rules, that are easy to learn and play, and can be completed in short sessions. Online casual games appeal to a broader and larger consumer market segment than multi-player online role-playing games (“MMORPGs”), which are more complex, require much greater time to learn and often involve large groups of players competing simultaneously online.

FunTown offers more than 40 online casual games in the following categories: MahJong, Chinese poker, Chinese chess, table games, social games, and arcade games. These games are real-time and multi-player capable.

MahJong

MahJong is a traditional and highly popular Chinese social game, often played on holidays, at social gatherings and during special occasions, such as weddings. It is widely played in Japan, Korea, Greater China and other parts of Asia. Similar to poker, MahJong is a multiplayer game, consisting of four players per game. FunTown offers different local versions of MahJong for players in the PRC, Hong Kong and Taiwan. Players select a table, based on either skill or stakes level, and can then invite friends to play on the same table online. Players can compete with anyone throughout FunTown’s Greater China network.

Special offline events are held from time to time to stimulate interest and foster group solidarity among the many MahJong guilds that players can join online. FunTown organizes a large annual MahJong tournament in Taipei, Taiwan which is open to anyone belonging to one of FunTown’s MahJong guilds. In 2005, more than 200 guilds and 30,000 players participated in the event and attended the tournament.

Chinese Poker

As with MahJong, there are several varieties of poker played in different regions of Greater China. FunTown offers many different Chinese poker games popular in various regions of Greater China. FunTown’s players can select their desired poker table based on skill or stakes level.

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Chinese Chess

FunTown also offers various popular Chinese chess games. Players can select from opponents online based on different skill levels.

Social Games

FunTown has a unique social networking and matching game which offers a virtual playground for players to meet other players through their online “avatars.” Players can purchase virtual items, such as clothing, to enhance the appeal of their online “avatars.” We plan to introduce more such virtual items to address the strong social interests of our players and to help increase FunTown’s overall appeal as a distinct game community and brand.

Arcade Games

FunTown offers a collection of arcade-like games similar to historically popular and “classic” games commonly offered in arcades, such as Tetris. In addition, FunTown is broadening its arcade games offering to include sports action games, such as an obstacle running game that was recently launched called Tales Runner.

Table Games

FunTown currently only offers nine-ball in its table game category. Nine-ball is a contemporary variation of pocket billiards. FunTown may add more table games in the future, depending on player surveys and feedback.

Our Services

FunTown provides many gaming services to its players to enhance their playing experiences and support the development of a strong player community.

Player Clubs

We offer player clubs in which FunTown players can form their own club, invite players with similar interests or skill levels to join, and organize online and offline events for club members. Player clubs complement the strong social qualities of online casual games by helping to build and maintain an online game community.

Tournaments

Tournaments are one of the most important services provided by FunTown. Players can organize and participate in clubs and compete in weekly online club tournaments. On an annual basis, FunTown also sponsors large-scale real-person tournaments where players attend the tournament in person and compete online via computers provided on the tournament premises.

Friends and Family

The FunTown platform has a unique personal contact feature, similar to the contact list of instant message programs, which enables players to see when their personal network of friends and family are online. This enables players to invite people in their network to play online games together.

Social Networking

FunTown’s platform is designed to be an attractive forum in which to make friends and have fun, as well as compete and win prizes. The platform has a 3-D virtual town hall, in which players may interact, meet new people or even get married. FunTown’s social networking features help build an important online community.

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Avatars

To help players customize their persona online and increase their overall entertainment experience, FunTown also offers many in-game items which may be purchased by players for their online personas, or avatars, in order to create their own unique look while participating in the online community. The items for sale for avatars include facial expressions, clothes and accessories. These items are particularly popular with younger players, who like to customize their avatars to express themselves and establish unique identities and distinct fashions in the online community.

Our Pricing, Distribution and Payment

Our principle sources of revenue for the online casual games are access fees and fees for sale of in-game items. We offer flexible pricing to suit different players’ playing habits. We have both hourly and monthly access fee pricing schemes to cater to light-usage and heavy-usage players, respectively.

We also charge players fees for the purchase of various in-game items, mainly virtual coins and customized avatars.

FunTown has both physical and virtual distribution channels for its games:

• Physical distribution channels. Physical distribution channels include convenience chain stores such as 7-11, and Internet cafés. At these locations, users may purchase pre-paid cards with varying amounts of credits to play FunTown’s suite of casual games. In addition, players may purchase game packs to play specific games on FunTown’s platform.

• Virtual distribution channels. Virtual distribution channels consist of various Web sites, including FunTown’s official Web site. Users may purchase game credits through online sites with their credit card or bill via their telecom carrier.

To use our fee-based online casual games, a customer must register an account in our system. Once registered, the customer may log onto our network, select and activate the games the customer wishes to play, and then charge his or her account using a prepaid card or prepaid online points. Customers only need to maintain one account, which provides information regarding the customer’s available prepaid game credits and payment history.

Our Marketing

Our marketing strategy is to capitalize on our established brand and utilize our large existing user base and distribution network to retain our existing users and attract new users. We employ a variety of traditional and online marketing programs and promotional activities to promote our games, which include:

• In-Game Events. We organize in-game events for our users, which we believe encourages the development of virtual communities among our users and increases user interest in our games. Examples of in-game events include special challenges or features introduced to the game environments for a scheduled period. In addition, we use in-game events to introduce users to new features of our games. We may also post announcements in the game environment to promote new features, other improvements to the games, and in-game events.

• In-Game Marketing. We may conduct in-game marketing programs from time to time, including online contests for prizes.

• Cross-Marketing. We have cross-marketing relationships with popular consumer brands, technology companies and major telecom carriers. We believe that our cross-marketing relationships with certain well-known companies, including Intel Corporation (“Intel”) and Microsoft Corporation (“Microsoft”), will increase the recognition of our online game brands.

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• Open Beta Testing. Our open beta testing system tests both the operation of new games under open market conditions and introduces new games to users. During open beta testing, we do not charge users to play the new game. Open beta testing provides an initial user base and creates initial interest and word-of-mouth publicity to support the commercial launch of the game.

• Offline Events/Promotions. From time to time we distribute free game-related posters, promotional prepaid cards for beginners, and game-related souvenirs at trade shows, selected Internet cafés and other locations. We may conduct events at popular venues to stage exhibitions, distribute software and game content-related merchandise, and interact directly with our user base. Furthermore, we may sponsor select media events, such as industry-related awards shows, to promote our brand names and our games.

We also regard customer service as a key marketing tool and we are committed to providing superior customer service to our users. We provide service to our customers through three principal channels:

• our call center in FunTown’s offices in Taiwan, which serves our customers 24 hours a day, seven days a week;

• our walk-in customer service centers in Taipei and Hong Kong; and

• e-mail and facsimile letters.

In addition, we offer bulletin board services that allow users to post questions to, and receive responses from, other users.

We have game masters dedicated to our most popular games. Game master responsibilities include organizing in-game events, troubleshooting and actively monitoring the online game environment. Game masters are available to respond to players’ inquiries, initiate “bug” reporting and removal processes, as well as to identify, record and deal with inappropriate player behavior such as cheating and fighting. We believe that our provision of game masters to monitor the gaming environment is an important element in maintaining our customer loyalty and efficiently addressing technical problems as they arise.

Our Players

The simple and short-session nature of our online casual games enables us to attract more mature players than players of MMORPGs. As of May 30, 2006, we had approximately five million registered players and over 100,000 paying players in the month of May 2006. Majority of our players are 25 to 45 years old, with approximately 55 percent male and 45 percent female.

Our Sources of Products and Services

We mainly develop our games and services in-house to have better control of the game features and allow for seamless integration with our games platform. Occasionally, we outsource the game development to local game studios to expedite the development process and time to market. More recently, we began to license games to expand the scope of our games offering, particularly in the Arcade Games category. As of June 15, 2006, we only licensed one game, Tales Runner, from Nowcom in Korea. The game licensing cost consists of an upfront fee and an ongoing licensing fee equal to a percentage of revenues from the licensed game.

We continue to aggressively expand our products and services offerings by developing and launching new games, updated games and community features on our platform. We are currently working with Microsoft to launch FunTown’s online MahJong on the Xbox 360. In order to support our product development capabilities and develop our proprietary online casual games, we have a strong research and development team composed of approximately 70 employees in Taipei and Shanghai.

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Our Technology and Infrastructure

We have a scalable and modular platform that enables us to increase our game offerings and services. The platform consists of several key modules: authentication, billing, game management, customer service, and the basic platform operation. Since our platform was designed with expansion in mind, we have a unified user account system, which allows our players to use one single account to access all the games, whether self-developed or licensed, and services offered. Our billing and game management modules are flexible enough to integrate both in-house and licensed games. Our customer service module enables us to assist our players both in and outside of the games.

As technologies advance and enable people to access the Internet in new ways, we plan to expand our offerings to match these new access technologies and platforms. We are currently working with Microsoft to have some of our games available on the Xbox 360 platform. We are also working with Intel to include our games and services in Intel’s new Viiv technology for digital home media centers. In addition to these new technologies, our games are currently available to air travelers on certain airlines, enabling players to play with other passengers on the same flight.

Competition

We compete directly with other online casual games operators and portals in Greater China, some of which may have significantly greater resources than us. Given the low barriers to entry, they can easily copy the format, features, strategy, and business model of our casual games portal. To cope with competition, we aim to develop new features and services that we think our players will pay for and enjoy. We also work on strengthening the appeal of our portal through building player community, honorary titles, virtual badges and banners of honor, as well as other virtual assets.

Intellectual Property and Proprietary Rights

We rely on copyrights, trademarks, trade secrets and other intellectual property laws, as well as non-competition, confidentiality and license agreements with our employees, suppliers, business partners and others to protect our intellectual property rights. Our employees are generally required to sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments and other processes generated by them on our behalf are our property, and assign to us any ownership rights that they may claim in those works.

As of June 15, 2006, we were the owner of 33 software copyrights and 32 trademarks registered with various government agencies throughout Greater China.

Broadband ISP Business

Our Services

We provide broadband Internet access services to consumer and corporate customers through various technologies and products including, cable modems, leased-lines, virtual private network and other value-added services.

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Access Services Offerings

CABLE MODEMS. We offer our broadband Internet access services for consumers via cable modems at transmission speeds of up to 6 Mbps. Our cable modem-based broadband access services allow subscribers to use bandwidth-intensive multimedia applications, such as interactive games, high-quality audio, video and distance learning applications, and electronic commerce applications, such as retailing, financial services and online software distribution more efficiently. We reached an agreement in principle in May 2004 with certain of our cable partners to whom we provide bandwidth on an exclusive basis to equally share revenues, thus providing our cable partners with increased economic incentives to promote two-way cable services through their systems. In September 2005, we started providing to certain of our exclusive cable partners, cable modem services that they could sell under their own brand name. Two-way cable systems allow us to offer subscribers higher upstream transmission speeds and “always on” Internet access capabilities. As of December 31, 2005, we had 17,600 cable modem-based broadband customers, as compared to 20,720 cable modem-based broadband customers as of December 31, 2004.

CORPORATE ACCESS SERVICES. We also offer dedicated and high-speed Internet access services to corporate customers over fiber optical lines. Our target customers include ISPs, Internet content providers (“ICPs”), corporations, SMEs and cyber cafés. Our corporate ISP services include leased-line services, ranging from 1 Mbps to 1 Gbps, virtual private network and other value-added services.

ADSL. On May 15, 2006, we entered into an asset purchase and sale agreement and a transition service agreement with Webs-TV to sell our ADSL business and provide certain transition services. Under the agreements, Webs-TV purchased our ADSL business and agreed upon services in an all cash transaction with a total price of approximately US$17.9 million. Approximately US$9.7 million of the price is for the ADSL business and is payable from May 16, 2006 through July 31, 2007. Approximately US$8.2 million represents fees for bandwidth, consulting and other support services to be provided by Hoshin GigaMedia on a transitional basis through December 31, 2007, and is payable from May 16, 2006 through December 31, 2007. The transferred ADSL business includes our ADSL-related equipment, business contracts, and subscription contracts between Hoshin GigaMedia and approximately 62,000 ADSL subscribers, as well as the right to use our ADSL brand for five years.

Markets of Access Services

CONSUMER ACCESS SERVICES. Our two-way cable modem-based broadband service packages are offered at approximately US$33.50 per subscriber per month for premium service; approximately US$24.40 per subscriber per month for a mid-tier package; and approximately US$19.80 per subscriber per month for a basic service. We also offer selected subscribers discounts on their monthly access fees and quarterly or yearly payment options to further promote our access services. We recognize our revenues from access fees net of the split with cable partners and these discounts. In the future, our product mix may change in response to market dynamics.

The number of subscribers of our broadband Internet ISP services continued to decline during 2005. The table below sets forth the number of our subscribers on the dates specified. Our access revenues increased in 2005 compared to 2004, primarily due to the growth of our corporate broadband business, which offset declines in our consumer broadband business. We do not expect to see significant growth in our subscriber base in the future.

	Number of Subscribers
Date	2003	2004	2005
31-Mar	103,375	103,283	93,775
30-Jun	100,677	100,740	90,285
30-Sep	99,837	97,414	86,346
31-Dec	102,940	94,520	80,541

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Besides directly providing cable modem-based Internet services under GigaMedia’s brand name to end users, we also provide trunk bandwidth and backend systems, which include a customer provisioning system, billing system and network management system, to cable operators that wish to operate their cable modem-based Internet service under their own brand names, or turnkey cable modem services. We receive fees from these cable systems under various revenue sharing arrangements. As of December 31, 2005, we had 10 cable partners under non-exclusive contracts and one cable partner under an exclusive contract to whom we offered turnkey cable modem services.

CORPORATE ACCESS SERVICES. KBT offers and sells dedicated and high-speed Internet access to corporate customers over fiber optical Ethernet MAN infrastructure. KBT offers various speeds of leased-line services, ranging from 1Mbps to 1Gbps, to different kinds of subscribers like ISPs, ICPs, corporations, SMEs and cyber cafés. KBT charges its customers monthly fees for access services and other value-added services depending on the level of bandwidth and type of services provided.

Other Services

As part of our Internet services, we provide various other value-added services including free electronic mail, bulletin boards and photo albums.

Our Broadband Network — Cable and ADSL Network

We began upgrading our island-wide backbone network, which is based primarily on Gigabit Ethernet technologies and covers 20 major districts out of a total 25 districts in Taiwan, from early 2004 and completed the upgrade in early 2005. In addition, we built small regional data centers to host both the cable Internet and ADSL headend equipment in these 20 districts connected by our backbone network. These centers also act as service hubs for:

• the provision of key community services, including electronic mail, photo albums and personal Web hosting, to subscribers;

• the management of network performance;

• the replication of content and applications; and

• the provision of a cost-efficient infrastructure to cache data.

In connection with the sale of our ADSL business, we have given Webs-TV the right to co-locate their equipment, which is necessary for the ADSL operation, into our network operation centers.

NETWORK OPERATIONS CENTERS. We provide centralized network management through our network operations centers, which represent the nerve center of our whole network. Our centers use advanced proprietary network management tools and systems to monitor the network infrastructure 24 hours a day, 7 days a week, enabling us to effectively address network problems before they adversely affect our subscribers. As per our service agreement with Webs-TV, we will provide the same amount and level of data bandwidth service to Webs-TV’s ADSL subscribers until the end of 2007. The economic scale of our broadband network will not be affected by the sale of our ADSL business until the end of 2007.

Data Backbone

Ongoing privatization of the telecommunications market by Taiwan’s government has expanded the number of telecommunications operators. Including Chunghwa Telecom, there are currently four fixed-line telecommunications operators in Taiwan. It is our policy to continually monitor the usage pattern, adjust the network architecture, and select better leased-line circuits providers to optimize the user experience and service economics.

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Private peer-to-peer relationships among ISPs (i.e., private direct cable connections as opposed to public Internet connections) have become the most effective solutions to resolve the problems of packet loss and latency resulting from the significant traffic volume through Internet networks. We have peering arrangements with most of Taiwan’s major networks and ISPs, providing us with what we believe to be the one of the most comprehensive array of Internet connections in Taiwan. According to the Taiwan Network Information Center (“TWNIC”), as of April 2006, we had one of the best aggregate peering bandwidth arrangements among all commercial organizations in Taiwan. Our extensive peering arrangements have enabled us to route most of our traffic over the less congested private peering links. This enhances the efficiency of our network and allows us to provide better, faster access services to our subscribers.

Through our peering arrangements with several Internet service providers and networks, we currently connect to Taiwan’s Internet backbone from our network operations center. We have installed direct Internet connections at each of our regional data centers to minimize backbone traffic flow and to provide Internet connection redundancies. We currently connect to the international Internet through a direct trans-Pacific submarine cable link. As competition in the trans-Pacific submarine cable segment provides better price economics, we are able to significantly increase our bandwidth without incurring additional cost. In 2005, we completed the upgrade of our infrastructure from STM-1 and STM-4 connections to Gigabit Ethernet-based connections to provide faster connections.

Information System

We have established a versatile, scalable, real-time information system that integrates service provisioning, customer management, billing, data gathering and usage tracking functions. With independent multiple processing layers, we are able to respond to increases in user, subscriber or service data by expanding our information system’s capacity on demand.

Sales and Marketing

CONSUMER ACCESS SERVICES. We plan to continue utilizing bundled marketing with our strategic partners to minimize costs. We primarily use the following means to market our services:

• television, magazine and newspaper advertisements;

• Web-based banners;

• Internet newsletters;

• inserts in cable television guides;

• participation in computer, technology and telecommunications tradeshows;

• free trial promotions through waiving monthly access fees for one to two months; and

• demonstration centers in computer superstores and other locations.

TURNKEY CABLE MODEM SERVICES. For cable operators that are interested in providing or improving upon their cable Internet services, we have formed a team of sales personnel, network engineers, backend software engineers and customer service specialists to provide free consultancy and turnkey solutions. We believe that direct sales contact and site visits to existing cable partners and referrals by our existing cable partners are the most efficient methods of marketing our cable modem services.

CORPORATE ACCESS SERVICES. With an optical Ethernet MAN infrastructure and solution, KBT is able to provide corporate customers, one-megabit increment, on-demand leased-line services. We primarily use a direct sales force to reach our potential customers.

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Customer Service

We provide our subscribers with a comprehensive range of customer service, including assistance on cable modem installations, post-installation technical support and prompt responses to billing and service requests.

Our customer service department is divided into two groups: technical support and general customer service. Our customer service department operates a toll-free help desk with extended hours of operation. Our subscribers may also contact us via electronic mail or through accessing our interactive self-service Web site. Our general customer service staff assists subscribers with cable modem questions and problems, as well as basic computer and software configuration questions and billing inquiries. Our technical support group handles technical problems referred by the general customer service staff.

Competition

The Internet access service industry is highly competitive.

We mainly compete with broadband ISPs, which provide basic Internet access to consumer and corporate users generally through the provision of ADSL services using existing telephone networks or cable modem-based services operating over cable television networks. The Internet access service industry in Taiwan is very competitive. The broadband Internet access service industry in Taiwan is dominated by the main fixed-line telecommunication company, Chunghwa Telecom. Chunghwa Telecom’s HiNet broadband service is the current broadband ISP market leader estimated to have approximately 80 percent of the market share in 2005, while we have only managed to capture approximately 2 percent of the market share. The primary basis for competition is price. The availability of similar services at competitive prices has made it difficult for us to attract and retain customers.

We also compete with other broadband technologies, including integrated services digital networks and wireless (and, in particular, WiMax). In the cable modem-based Internet access market, we believe that our close relationships with a large number of cable partners and our exclusive access to a substantial portion of Taiwan’s households and businesses provide us with a competitive advantage. Our competitors in Internet access services include all four fixed-line operators in Taiwan.

We also face competition in corporate ISP services from fixed-line service providers, including Chunghwa Telecom, Taiwan Fixed Network, NCIC’s Sparq and Asia Pacific Online and other Internet access service providers in Taiwan.

Some of our major competitors, including Chunghwa Telecom, have certain competitive advantages over us, including financial and marketing resources, established customer relationships, brand awareness, customer access and telecommunications infrastructure.

Regulation

Regulation Relating to Online Gaming

Our software entertainment business includes software development and the provision of application services for Internet gaming. UIM, which operates an online gaming business and also sub-licenses our software products to third parties, is the sole licensee of our entertainment software products and we earn fees from UIM based upon its revenues. Each of these businesses is subject to applicable laws and regulations relating to online gaming and electronic commerce in various jurisdictions.

We are incorporated in Singapore and Singapore law does not prohibit us from providing software products and application services to online gaming companies.

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UIM operates exclusively in the Kahnawake territory in Canada under a gaming license issued by the Kahnawake Gaming Commission, subject to continuing satisfaction of strict licensee requirements. All of UIM’s gaming transactions take place in Kahnawake. UIM operates exclusively from computer servers in Kahnawake.

However, the end users of our software products, including the online gaming customers of UIM and its sub-licensees are located around the world and it is, in many cases, uncertain which governments have authority to legislate or regulate different aspects of these industries. Moreover, the Internet gaming industry is still in an early stage of development and the worldwide legal and regulatory environment in which the businesses operate therefore remains highly fluid and subject to change. While most foreign jurisdictions have some form of legal framework applicable to games of chance, few provide clear guidance on how this framework applies to Internet gaming. Issues such as determining the physical location of a gaming event as well as significant differences in the gaming laws and “Cyberlaws” of various countries all make traditional concepts of jurisdiction and conflicts of laws difficult to apply. In addition, the very nature of Internet gaming creates new and unique forms of entertainment that were neither contemplated nor feasible in the past. The risks and uncertainties in the worldwide legal and regulatory environment make it impossible to assess whether our status or operations as an application service provider to the online gaming industry, or the Internet gaming services provided by UIM, are in compliance with all laws and regulations of the jurisdictions where our entertainment software products are used.

Our Company, UIM and the online gaming industry as a whole may be affected by pending legislation in the U.S. Congress that, if enacted, would prohibit the use of communication facilities and financial transactions in connection with Internet gambling. The current administration adheres to the view that Internet gambling is already prohibited by the Federal Wire Act and other federal laws. In addition, Internet gambling currently constitutes illegal gambling activity in all 50 U.S. states, including those states where other forms of gambling are legal. Because many U.S. citizens continue to participate in Internet gambling despite these prohibitions, Congressional opponents of Internet gambling have unsuccessfully proposed legislation over the past several years with the intent of restricting the means available for participation in this activity. In the current Congress, three bills affecting Internet gambling are under consideration:

• H.R. 4411, entitled the Unlawful Internet Gambling Enforcement Act of 2006, would prohibit gambling businesses from accepting credit cards or other bank instruments in connection with illegal Internet gambling. In order to enforce that objective, the proposed legislation directs various federal agencies to develop regulations within nine months of enactment that would require financial institutions with electronic payment systems to establish policies and procedures to identify and block restricted transactions. The bill is designed to reduce participation in illegal Internet gambling by restricting the payment methods for such activities and by imposing increased criminal penalties on illegal Internet gambling businesses. H.R. 4411 would also create judicial procedures through which federal agencies could obtain injunctions directing interactive computer services to remove or disable access to online sites that violate the law.

• H.R. 4777, entitled the Internet Gambling Prohibition Act, would prohibit financial transactions related to Internet gambling in substantially the same manner as H.R. 4411, but it does not direct federal agencies to adopt regulations supporting that mandate. More significantly, H.R. 4777 would also criminalize any gambling business from using a communication facility to transmit bets or wagers, or information assisting in the placing of bets and wagers, to or from the United States. The bill would also expand the scope of the Wires Act by including satellite and microwave transmission in addition to wire and cable transmissions as communication facilities through which gambling information may not be transmitted. However, H.R. 4777 also sets out a number of broad exemptions, the most important of which is that the proposed legislation would not prohibit the transmission of information assisting in the placing of bets or wagers from a state or foreign country where such betting or wagering is permitted into a state or foreign country where such betting or wagering is permitted. Like H.R. 4411, H.R. 4777 would also create judicial procedures through which federal agencies could obtain injunctions directing interactive computer services to remove or disable access to sites identified as participants in illegal Internet gambling.

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• H.R. 5474 was recently introduced to create a commission to study the proper response of the United States to the growth of Internet gambling. No significant action has taken place with regard to this.

We continue to monitor the progress of this legislation through the Congress since the passage of this legislation could potentially impact the revenues of UIM. Although UIM operates outside of U.S. jurisdiction and maintains that it does not purposefully solicit or accept gambling transactions that would violate current U.S. law, a substantial impairment of UIM’s revenues could affect the continued operation of our entertainment software business.

In November 2004, the World Trade Organization (“WTO”) found that the United States was in violation of its commitments under the General Agreement on Trade in Services (“GATS”), by not allowing operators of online gaming services licensed in Antigua and Barbuda to access U.S. markets. The decision was appealed and, in April 2005, the Appellate Body of the WTO found that the provisions of the Wire Act, Travel Act and Illegal Gambling Business Act are inconsistent with the obligations of the United States under the GATS, but also that the United States had shown that such measures are necessary to protect public morals or maintain public order and therefore fall within an exception to its general obligations. However, the Appellate Body further found that, in the light of existing federal legislation regarding Internet gambling on horseracing, the United States had failed to demonstrate that the Wire Act, Travel Act and Illegal Gambling Business Act are applied equally to both foreign and domestic providers of online gambling services for horseracing and therefore recommended that the United States bring its legislation into conformity with its obligations under the GATS. If the United States or other jurisdictions adopt laws which restrict their citizens from participating in Internet gaming offered outside their jurisdictions, on the grounds of public morals, public order or otherwise, the business of UIM, and our business, could be materially and adversely affected.

It is unclear what steps the U.S. government will take following the decision of the Appellate Body of the WTO and whether the threat of any sanction or fine relating to a failure to implement the recommendation of the Appellate Body would be sufficient to prompt a change in U.S. online gaming policy. A number of states are lobbying/petitioning the federal authorities to ensure they retain the ability to regulate state gaming and that this ability is not affected by the WTO decision.

Finally, substantial uncertainties in the global regulatory environment relating to online gaming expose our Company to a real risk that regulatory authorities in various jurisdictions may determine that our entertainment software business provides online gaming services (rather than only providing software and application services to our licensee) and thus subject our Company to the gaming laws and regulations in such jurisdictions.

Regulations Relating to Online Casual Games in Taiwan

At present, there is no specific law in Taiwan governing online game services, nor are there any specific licensing requirements imposed on Internet content providers in connection with offering online game services. The National Communications Commission (the “NCC”) was established in March 2006. It is anticipated that the NCC will overhaul the regulatory framework in the communications sector and may enact new regulations governing Internet content.

Rating of Internet Content. The Government Information Office, which was the agency in charge of Internet content prior to establishment of the NCC, promulgated the Regulations for the Rating of Internet Content in April 2004, as amended in October 2005. In general, Internet content shall not include any illegal or banned materials. To avoid negative impact on the physical or mental development of children or adolescents, Internet content containing any of the following materials shall be rated as restricted and shall not be viewed by those below the age of 18: (i) excessive depiction of gambling, robbery or other criminal offenses; (ii) excessive depiction of suicide; (iii) depiction involving terror, blood or cruelty which is presented in an matter acceptable to adults; or (iv) depiction of sexual acts or sexual obscenity which does not embarrass or disgust adults in general. If Internet content is in violation of the Regulations for the Rating of Internet Content, competent authorities may order the relevant Internet service providers to restrict access to children or adolescents or remove the offending content and impose an administrative fine on the offenders.

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Online Game Contract Template. The Ministry of Economic Affairs, which is the industrial authority in charge of online games, published a model contract template for online game services in February 2006 for reference only. However, under the Consumer Protection Act, the industrial authority can prescribe the terms and conditions that shall be, and shall not be, set forth in a model contract. It is unclear at this stage whether the Ministry of Economic Affairs will require that the template be used as a model contract.

Telecommunications Regulation in Taiwan

The NCC was established in March 2006 to act as the regulator of the telecommunications and broadcasting industry. Prior to the establishment of the NCC, the Ministry of Transportation and Communications and the Directorate General of Telecommunications of Taiwan regulated Taiwan’s telecommunications industry primarily under the Telecommunications Act of Taiwan. The Directorate General of Telecommunications has been merged into the NCC, while the Ministry of Transportation and Communications remains responsible for industrial policy and promotion of the telecommunications industry.

The Telecommunications Act regulates two types of telecommunications companies, Type I operators and Type II operators. Type I operators, such as Chunghwa Telecom, are enterprises that have established their own switching and transmission facilities to provide telecommunications services. These facilities-based services are similar to common carrier services or basic services in the United States. Type II operators, such as Hoshin GigaMedia and KBT, comprise all telecommunications operators other than Type I operators, including companies which generate fees from providing Internet access, online information, electronic mail and electronic commerce services.

Regulation of Type II Operators. Type II operators typically provide telecommunications services to customers by using the telecommunications facilities of Type I operators and are not permitted to engage in the buildup of telecommunications facilities. Type II telecommunications services can be further divided into special Type II telecommunications services and general Type II telecommunications services. A special Type II telecommunications license is required for any Type II operator which provides simple voice resale, Internet telephony, and other international telecommunications services by leasing international circuit(s). A general Type II telecommunications license is required for any Type II operator which provides telecommunications services other than those specified above. Hoshin GigaMedia and KBT each hold a general Type II telecommunication license.

• License. A Type II license is valid for ten years, and may be renewed six months before its expiration. The license is nontransferable. Hoshin GigaMedia’s license is due to expire in 2008. KBT’s license is due to expire in 2012.

• Tariff Regulation. Type II operators are required to announce their business regulations with respect to the terms for provision of services, including tariffs for major rates and charges. Any changes to the business regulations must be filed with the NCC before they become effective. Tariff information must include the types of services provided, terms and fee schedules for all service items, rights and obligations of customers, contract termination events and other matters affecting the right and obligations of customers, all to be included in the operator’s business plans.

• Change in Business. Under Taiwan’s Regulations Governing Type II Telecommunications Operators, any change of type or scope of business must be approved by the NCC. For change of the systems structure stated in the business plan, a report shall be filed with the NCC for recording within one month from the effective date of change of such system structure. In addition, Type II operators must report to the NCC and inform their customers in advance of any plan to suspend or terminate any of their businesses.

• Technical Standards. Special Type II operators are required to retain qualified senior telecommunications engineers to install and maintain telecommunications equipment. Any telecommunications equipment used by a Type II operator must also satisfy technical standards adopted by the NCC.

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Regulation of Type I Operators. Type I operators are more heavily regulated than Type II operators, and the government of Taiwan has broad powers to limit the number of operators and their business scope and markets. Under the Telecommunications Act, Type I operators must satisfy required levels of capital adequacy and, to ensure that they meet their facilities rollout obligations, are subject to pre-licensing merit review of their business plans and tariff rates. In addition, the Telecommunications Act prescribes that any adjustment to the tariff rates of a Type I operator is subject to a price cap set according to the annual increase rate of the consumer price index promulgated by the Directorate General of Budget, Account and Statistics under the Executive Yuan of Taiwan minus adjusted coefficient.

Liberalization of Type I Fixed Network Licensing. The Directorate General of Telecommunications adopted Fixed Network Regulations in 1999 to govern the issuance of fixed network communication licenses. Type I fixed network communications licenses are subdivided into comprehensive network, local network, long distance network, international network and lease-circuit licenses. These regulations have been designed to grant additional comprehensive network licenses to encourage competition with Chunghwa Telecom, which is a state-owned company and currently the dominant fixed-line network operator in Taiwan.

Content Liability. If content sent, transmitted or received via the Internet through an operator’s system is found to be obscene, defamatory or in violation of public order or national security, the relevant operator would be liable for the content only if it knew or should have known that the content was obscene, defamatory or in violation of public order or national security. In addition, carriers must provide telecommunications services on a fair and equal basis and may not refuse to receive or transmit telecommunications information unless the content would endanger the national security or offend against the public order of Taiwan.

Cable Regulation in Taiwan

Regulation on Shareholding. In 2000 and 2001 the Cable Radio and Television Act were modified. Under the modified regulations, the original regulations of “a single shareholder cannot own more than 10 percent of the total issued shares of a cable operator,” and “no shareholder and its related parties may collectively own more than 20 percent of a cable operator’s total issued shares” were eliminated. Instead, the shares of a cable operator directly or indirectly held by foreign shareholders cannot exceed 60 percent of all outstanding shares of the cable operator. Furthermore, foreign shareholders who directly hold shares of a cable operator are limited to foreign corporations and the total shares held by them cannot exceed 20 percent of all outstanding shares of the cable operator.

Operating Licenses. To obtain an operating license, a cable operator must first apply for a rollout permit. After receiving this permit, the cable operator generally has three years to complete the cable system rollout as set forth in its permit application. Upon the satisfactory completion of the rollout, the Government Information Office will issue an operating license to the cable operator. If the cable operator has not received an operating license before its rollout permit expires, its right to engage in the cable television business will be terminated immediately.

The term of an operating license is nine years. The NCC conducts a periodic review of the performance of each licensed cable operator on the basis of its business and operating plans every three years. Following a review, a licensed cable operator may be instructed by the NCC to make requested improvements in its business within a specified period. A failure to timely comply with the instruction could result in revocation of the cable operator’s license.

Market Share Limitations. Under the Cable Radio and Television Act, the number of subscribers of all affiliated cable operators may not exceed one-third of the total number of cable television subscribers in Taiwan. In addition, the number of affiliated cable operators may not exceed one-third of the total number of all cable operators in Taiwan.

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Competition. Under the Cable Radio and Television Act, the NCC is authorized to issue additional licenses in a franchised area if it believes that the existing license holders in that area are engaging in anti-competitive or unfair competition practices. In addition, service fees charged by cable operators must be approved by local government authorities on an annual basis.

Open Access Regulation. Under the Regulation Governing Fixed Network Business described above, cable operators must obtain leased-circuit licenses issued by the NCC in order to lease their circuits to companies that provide services through their cable systems. The Directorate General of Telecommunications (which was replaced by the NCC in March 2006) began to accept applications for these licenses from cable operators in June 1999 and most of the cable operators have been granted with leased-circuit licenses to lease out their cable capacities to Type I operators and Type II operators, including Hoshin GigaMedia and KBT. As a condition to holding these licenses, any licensed cable operator that is deemed to be a dominant operator in the fixed network business market (such as in leased-circuit business) may be required by the NCC to allow all parties to provide services, including Internet access services, through their cable systems on substantially similar terms. Any imposition of this requirement from the NCC on the cable partners having exclusive relationships with us will eliminate the benefits associated with our exclusive rights.

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C. Organizational Structure

We are a holding company incorporated in Singapore in September 1999. Prior to 2002, our primary business was to provide broadband Internet access services in Taiwan. After we acquired our entertainment software business in April 2004 and our online casual games business in January 2006, we became a diversified provider of entertainment software and application services, online casual games services and broadband Internet access services. In September 2005, we sold our interest in our land-based music distribution business. The organization chart and the table below set forth our business structure and the name, year and country of incorporation for each of our principal subsidiaries and our percentage holding and principal activities as of June 15, 2006:

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Entity	Year of Incorporation	Place of Incorporation Operation	Our Percentage Holding	Principal Activities
Held by our Company
Hoshin GigaMedia Center, Inc.	1998	Taiwan	100%	Cable-based Internet access services and FunTown online casual games portal
GigaMedia Finance International Limited	2000	Cayman Islands	100%	Holding company
GigaMedia International Holdings Limited	2004	British Virgin Islands	100%	Holding company
Cambridge Entertainment Software Limited	2004	British Virgin Islands	100%	Holding company
GigaMedia (Taiwan) Limited	2004	Taiwan	100%	Holding company
Held by Hoshin GigaMedia Center, Inc
Koos Broadband Telecom Co., Ltd.	2001	Taiwan	100%	Broadband Internet access services targeting business clients
Held by GigaMedia International Holdings Limited
GigaMedia (HK) Limited	2004	Hong Kong	100%	Holding company
FunTown World Limited	2005	British Virgin Islands	100%	Holding company
GigaMedia Asia Limited	2005	British Virgin Islands	100%	Holding company
Held by FunTown World Limited
FunTown Hong Kong Limited	1999	Hong Kong	100%	Online casual games portal
Held by GigaMedia Asia Limited
GigaMedia China Limited	2005	British Virgin Islands	100%	Holding company

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Entity	Year of Incorporation	Place of Incorporation Operation	Our Percentage Holding	Principal Activities
Held by Cambridge Entertainment Software Limited
Cambridge Interactive Development Corporation (Quebec) Inc.	2005	Canada	100%	Financial and management services
Cambridge Interactive Development Corporation	1997	U.S.A.	100%	Software developer and application service provider
Internet Media Licensing Ltd.	2005	British Virgin Islands	100%	Software developer and application service provider

D. Property, Plant and Equipment

Our principal executive office and operating office are located at 14F, No. 122 Tunhwa North Road, Taipei 10595, Taiwan, where we lease approximately 24,368 square feet of office space. We also lease office and other space, including space for our servers, in various other locations.

We operate our casual games business from FunTown’s office in Taiwan at 8F, No. 22, Lane 407, Sec. 2, Tiding Blvd., Taipei 114, Taiwan, where we lease approximately 28,235 square feet, and FunTown’s Hong Kong office at Suite 1403-1405 Sunbeam Plaza, 1155 Canton Rd. KL, Hong Kong, where we lease approximately 4,831 square feet.

We operate our ISP business from Hoshin GigaMedia’s office at 4F, No.57, Dongxing Road, Taipei 110, Taiwan, where we lease approximately 9,272 square feet, and from KBT’s office at 6F, No. 20, Lane 478, Rueiguang Road, Neihu District, Taipei 114, Taiwan, where we lease approximately 13,092 square feet.

We operate our entertainment software business from CESL’s headquarters at 100 Cambridge Park Drive, Cambridge, MA 02140, U.S.A., where we lease approximately 23,774 square feet, and from the offices of Cambridge Interactive Development Corporation (Quebec) Inc. at 1550 Metcalfe Street, Suite 590, Montreal, Quebec, H3A 1X6, Canada, where we lease approximately 1,000 square feet.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. Operating Results

Unless stated otherwise, the discussion and analysis of our financial condition and results of operations in this section apply to our financial statements as prepared in accordance with U.S. GAAP. You should read the following discussion of our financial condition and results of operations together with the financial statements and the notes to these statements included elsewhere in this annual report.

Overview

We are a holding company. We operate three principal businesses through our subsidiaries:

• Our entertainment software business is operated through our subsidiary, CESL. CESL is a software developer and support services provider. CESL develops software for online entertainment services. As a software developer and support services provider, CESL offers software solutions for online entertainment, which it licenses to UIM under a software license and support service contract.

• Our online casual games business is operated through our subsidiaries Hoshin GigaMedia and FunTown World Limited.

• Our Taiwan broadband ISP businesses are operated through our subsidiary, Hoshin GigaMedia, which focuses on consumer users, and Hoshin GigaMedia’s subsidiary, KBT, which focuses on corporate users.

In 2005, we recorded net income of approximately US$6.3 million. Our total operating revenues increased by approximately US$11.3 million, mainly from our entertainment software business which had an increase in operating revenues of approximately US$11.1 million and our ISP business which had a slight increase in operating revenues of US$0.3 million. Our total costs and expenses increased by approximately US$9.5 million.

Prior to April 2004, our main business was to provide broadband Internet access services in Taiwan. Since we did not acquire our entertainment software business until April 2004, our historical financial results prior to fiscal 2004 did not reflect the financial results of our entertainment software business. Also, a full-year consolidation of our entertainment software business would have a much greater impact on our financial results than as presented in this annual report.

Entertainment Software Business. We acquired our entertainment software business in a private transaction on April 1, 2004 with a view to enhancing our diversified entertainment products portfolio. We have consolidated the results of operations of the acquired business as of and for the nine months ended December 31, 2004 and the year ended December 31, 2005. See Note 5 of our consolidated financial statements for additional information. Our entertainment software business generated revenues of approximately US$22.5 million and operating income of approximately US$6.0 million in 2005.

We currently have only one licensee, UIM, whose financial results were incorporated into our 2004 and 2005 consolidated financial statements pursuant to FIN 46(R) although we do not own any equity in UIM. We have a revenue sharing arrangement with UIM and as such, we bear certain economic risks with respect to, and derive certain economic benefits from, its operations. See “— A. Operating Results — Overview — Consolidation of UIM Under FIN 46(R).”

Online entertainment software design houses and application service providers are our primary competitors. However, given the low barriers to entry in the software industry and the increasing popularity of Internet-based businesses, there are a large number of competitors scattered throughout many different segments of the software and Internet industries. In addition to known current competitors, traditional service providers and other entities, many of which have significant financial resources and name brand recognition, may provide online entertainment services in the future, and thus become our competitors.

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Faced with our known competitors, and most likely several new competitors which may be established in the near future, we will continue to improve the principal competitive factors that we believe can create certain barriers to entry, including: brand, technology, financial stability and resources, proven track record, regulatory compliance, independent oversight and transparency of business practices in our industry.

Broadband ISP Business. In 2005, we operated a major broadband ISP and provided broadband Internet access service with multiple delivery technologies in Taiwan targeting both consumer and corporate customers. Our broadband ISP business generated revenues of approximately US$21.7 million and operating income of approximately US$2.1 million in 2005.

Our consumer ISP business is operated through Hoshin GigaMedia and our corporate ISP business is operated through Hoshin GigaMedia’s subsidiary, KBT. Of the total access revenues recorded for 2005, consumer access revenues through Hoshin GigaMedia were approximately US$14.9 million, while corporate access revenues through KBT were approximately US$6.5 million. Our consumer broadband Internet access products consisted of ADSL and cable modem offerings. Our ADSL and cable modem services accounted for approximately 44 percent and 16 percent of our ISP access revenues in 2005, respectively. In May 2006, we sold our ADSL business to Webs-TV. See “— Subsequent Events — Sale of our ADSL Business.” The resulting decrease in monthly ADSL revenues will be partially offset for the transition period from May 16, 2006 to December 31, 2007 by service revenues from Webs-TV.

Following the sale of our ADSL business, our retail ISP business is primarily composed of our cable modem broadband business. We reached an agreement in principle in May 2004 with our cable partners to equally share revenues, thus providing our cable partners with additional economic incentives to promote two-way cable services through their systems.

While access revenues from our corporate ISP business represented only approximately 31 percent of our total access revenues in 2005, they demonstrated a significant growth of 32 percent from US$5.0 million in 2004, compared to a decline of 7 percent in our consumer ISP access revenues from US$16.0 million in 2004. Our corporate ISP services include leased-line, virtual private networks and other value-added services.

Our broadband ISP business continues to operate in a very competitive and challenging environment. Our principal competitor, Chunghwa Telecom is the dominant provider of broadband services in Taiwan and has significantly greater resources than us. The availability of similar services at competitive prices has made it difficult for us to attract and retain customers.

Subsequent Events

We entered into the following transactions after December 31, 2005.

Acquisition of FunTown

On January 2, 2006, we completed the acquisition of FunTown and purchased certain assets and assumed certain liabilities of FunTown from TWP Corporation (“TWP”), a subsidiary of Acer, Inc. The total purchase price of approximately US$43 million consisted of cash payments of approximately US$27.2 million and approximately US$15 million zero coupon convertible notes, with a valuation premium on the convertible notes of approximately US$0.7 million as determined by KGI Securities Co. Ltd. The notes are convertible into approximately 4,794,000 shares of our common stock at US$3.1287 per share, with 50 percent maturing on January 1, 2008 and 50 percent maturing on January 1, 2009. The conversion price is subject to customary anti-dilution adjustments. We have the right to redeem the convertible notes, in whole or in part, within the first twelve months after the issue date, together with the accrued interest at five percent per annum. The convertible notes are secured by our shareholding in Hoshin GigaMedia. The transaction also included an incentive in the form of an additional amount to be paid by us on April 1, 2007, which amount will be determined as follows:

• If the growth of the pre-tax net income of FunTown in 2006 is 30 percent or more, an additional payment of US$5 million;

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• If the growth of the pre-tax net income of FunTown in 2006 is 25 percent or above but less than 30 percent, an additional payment of US$4.17 million;

• If the growth of the pre-tax net income of FunTown in 2006 is 20 percent or above but less than 25 percent, an additional payment of US$3.33 million;

• If the growth of the pre-tax net income of FunTown in 2006 is 15 percent or above but less than 20 percent, an additional payment of US$2.5 million; and

• If the growth of the pre-tax net income of FunTown in 2006 is less than 15 percent, no additional payment will be made by us.

FunTown is one of the leading casual games platforms in Asia. FunTown generates revenues through access fees and also through the sales of various in-game items. We acquired FunTown in order to enhance our position in the online entertainment market. See Note 25 of our consolidated financial statements for initial estimated fair values of the assets acquired and liabilities assumed at the date of acquisition; the pro forma condensed balance sheet gives effect to the acquisition of FunTown as if the acquisition had occurred on December 31, 2005.

Subscription Rights for Purchase of Shares of Wretch

On March 10, 2006, our wholly-owned subsidiary Hoshin GigaMedia entered into a subscription rights agreement with Wretch. Wretch is a leading online “community” offering a wide range of community services including blogs, photo albums and bulletin boards. Pursuant to the subscription rights agreement, Hoshin GigaMedia has the right to acquire up to a 20 percent equity stake in Wretch with a valuation based on a pre-agreed formula if and when Wretch increases its share capital within three years of the date of the subscription rights agreement. We have also entered into a strategic alliance with Wretch for the development of an online entertainment community by combining Wretch’s strengths in blogs, online photo sharing and other community offerings with FunTown’s leading MahJong and other online casual games offerings. In exchange for these rights, Hoshin GigaMedia agreed to provide Wretch with certain free Internet services for three years.

Strategic Investment Agreement with T2CN

On April 27, 2006, we entered into a strategic investment agreement with T2CN, an online casual sports game operator in the PRC, pursuant to which we made an initial investment of US$15 million to acquire 7.5 million shares of convertible preferred stock. We also obtained the right to elect one member to the board of directors of T2CN, along with customary preferred share rights and protections. The convertible preferred shares have an initial liquidation preference, are entitled to receive cumulative dividends at 8 percent per annum, and are redeemable starting December 31, 2009. The preferred shares are convertible into common shares of T2CN based on a valuation of 8.65 times the forward net income of T2CN for the 12-month period ending on March 31, 2007, subject to certain adjustments and limitations. Pursuant to this strategic agreement, we and T2CN will together offer FunTown’s existing games to the T2CN user base. We will become T2CN’s exclusive provider for FunTown’s existing games and preferred provider for games newly developed by us.

Sale of Our ADSL Business

On May 15, 2006, we entered into an asset purchase and sale agreement and a transition service agreement with Webs-TV to sell our ADSL business and provide certain transition services. Under the agreements, Webs-TV purchased our ADSL business and agreed upon services in an all cash transaction with a total price of approximately US$17.9 million. Approximately US$9.7 million of the price is for the ADSL business and is payable from May 16, 2006 through July 31, 2007. Approximately US$8.2 million represents fees for bandwidth, consulting and other support services to be provided by Hoshin GigaMedia on a transitional basis through December 31, 2007, and is payable from May 16, 2006 through December 31, 2007. The transferred ADSL business includes our ADSL-related equipment, business contracts, and subscription contracts between Hoshin GigaMedia and approximately 62,000 ADSL subscribers, as well as the right to use our ADSL brand for five years.

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Certain Significant Events Affecting Our Results of Operations for 2003, 2004, 2005

Change in Reporting Currency and Basis of Presentation

Our consolidated financial statements have historically been reported in New Taiwan dollars. Effective January 1, 2004, we adopted the U.S. dollar as our reporting currency because operations denominated in the U.S. dollar have represented an increasing portion of our business following the acquisition of our entertainment software business. Comparative financial information has been recast as if the U.S. dollar had been our reporting currency for the periods ended and as of December 31, 2003, 2004 and 2005, and financial information has been translated into U.S. dollars for all periods presented. See Item 3 — “Key Information — Exchange Rates.” As a result, the financial information for the year ended and as of December 2003 presented in this annual report are different from that presented in our annual reports for 2002 and 2003.

Discontinued Operations

On September 29, 2005, we sold our land-based music distribution business to Nextbase International Limited. The music distribution business has been accounted for as a discontinued operation under U.S. GAAP and, therefore, the results of operations for all periods presented have been restated to reflect the result of the music distribution business as a discontinued operation.

See Note 1, “Business Overview, Basis of Presentation, and Summary of Significant Accounting Policy” of our consolidated financial statements for further information.

Summary select financial information for discontinued operations is as follows:

	2003			2004		2005
	(in US$ thousands)
Revenues	$	75,839		$	66,975	$	37,907
Income (loss) before tax and minority interest income	$	(7,405	)	$	752	$	(1,861	)
Income tax (benefit)/expenses	$	3		$	5	$	(1	)
Minority interest income (loss)	$	(3,112	)	$	318	$	(796	)
Income (loss) from discontinued operations	$	(4,296	)	$	429	$	(154	)

Consolidation of UIM Under FIN 46(R)

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,” (“FIN 46”), which clarifies when a company should consolidate in its financial statements the assets, liabilities and activities of a variable interest entity. FIN 46 provides general guidance as to the definition of a variable interest entity and requires a variable interest entity to be consolidated if a company absorbs the majority of the variable interest entity’s expected losses, or is entitled to receive a majority of the variable interest entity’s residual returns, or both.

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The FASB amended FIN 46 by issuing FIN 46(R) in December 2003. In April of 2004, we entered into a software license and support service contract with UIM to provide Internet software support services for UIM’s entertainment software operations. The contract allows us to charge a percentage of UIM gross receipts resulting from UIM’s online entertainment operations. The percentage of gross receipts varies depending upon the software and support services selected by UIM. We analyzed the provisions of FIN 46(R) as it relates to contractual relationships and determined that we are a primary beneficiary of a software licensee, UIM. As a result of this determination, we incorporated the results of UIM into our consolidated financial statements as of and for nine months ended December 31, 2004, and as of and for the year ended December 31, 2005, even though we do not own any of UIM’s equity. UIM’s net assets as of December 31, 2004 and 2005 were approximately US$0.4 million and US$0.6 million, respectively, and the consolidation of UIM resulted in an increase in our assets and liabilities of approximately US$1.6 million and US$1.2 million in 2004, respectively, and US$3.6 million and US$3.1 million in 2005, respectively. Because we have no equity ownership interest in UIM, the consolidation had no impact on our net income.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are derived from our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S., or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We continually evaluate our estimates and assumptions, which are based on historical experience and other various factors that we believe are reasonable under the circumstances. The results of these estimates and assumptions form the basis for making judgments about the carrying values of certain assets and liabilities. Our actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussions address the most critical accounting policies applicable to our Company, which are those that are most important to the portrayal of the financial condition and results of operations of our Company, and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Acquisitions

During 2004, we acquired Grand Virtual, Inc. and certain of its affiliates in a private transaction from the founding shareholders of GV Enterprise Voting Trust, through our wholly-owned subsidiary, CESL, for an all-cash consideration of US$32.5 million.

On December 19, 2005, we entered into a definitive agreement with TWP to acquire FunTown. In January 2006, we completed the acquisition of FunTown and purchased certain assets and assumed certain liabilities of FunTown for a total consideration of approximately US$43 million, which included cash payments of approximately US$27.2 million and zero coupon convertible notes in the aggregate principal amount of approximately US$15 million with a valuation premium on the convertible notes of approximately US$0.7 million as determined by KGI Securities Co. Ltd.

In the absence of a quoted market price for these businesses, the acquisition prices of these businesses were determined based on management’s estimates for the fair value of the acquired net assets, including goodwill and amortizable intangibles. We determined the purchase price allocation based on estimates of the fair values of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. These estimates were arrived at with the assistance of independent valuation consultants utilizing recognized valuation techniques. Any excess of cost over the net of the amounts assigned to the assets acquired and liabilities assumed is recorded as goodwill. The actual fair value of such acquired net assets may differ significantly from management’s estimates.

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Revenue Recognition

We recorded revenues from our entertainment software business from licensing our software and providing support services. These revenues are recognized monthly as a fixed percentage of our licensee’s gross receipts. The results of UIM, our licensee, have been incorporated into our 2004 and 2005 consolidated financial statements. Software licensing and support services revenues we received from UIM have been eliminated in consolidation. UIM generates revenues by providing and promoting online games of skill and chance. Revenues are recognized upon receipt. End-user account balances are recognized as current liabilities and are accrued for in full. The charge in aggregate end-user account balances is recognized monthly as a reduction to receipts, as are end-user disbursements.

We recorded Internet access revenues from cable modem Internet access services and from our ADSL business, which we sold in May 2006. Such revenues are recognized for the period in which the service is performed, if no significant company obligations remain and collection of the receivables is reasonably assured. Customers have a choice of paying either monthly or in advance for a certain period of time, for which they receive corresponding discounts. We record any such advanced payment receipts as other current liabilities on the balance sheet and amortize such revenues over the subscription period. Other revenues, which consist of subscription revenues and the sale of cable modem and other related products generated from our broadband ISP, are recognized when services are provided or products are delivered.

Allowance for Doubtful Accounts

An allowance for doubtful accounts is provided based on management’s evaluation of collectibility of notes receivable, accounts receivable and other receivables. The actual value of such notes and accounts may differ significantly from management’s estimates.

Classification of Marketable Securities

Our investments in marketable securities are classified as available-for-sale. Marketable securities included in current assets represent securities with a maturity of less than one year or securities that management intends to sell within one year. Securities classified as non-current represent securities that have maturity of more than one year or securities that management does not intend to sell within one year. These investments principally consist of debt securities and equity securities of public and privately held companies and investment funds, and are stated at fair value with any unrealized gains or losses recorded in accumulated other comprehensive income (loss) in shareholders’ equity until realized. Unrealized losses that are considered other-than-temporary are included in the current year’s operations. Realized gains and losses, measured against cost, are also included in the current year’s operations.

We had approximately US$34.3 million and US$20.4 million of investments classified as current marketable securities as of December 31, 2004 and 2005, respectively. As of December 31, 2004 and 2005, the balances of unrealized gains from these securities were approximately US$0.6 million and US$0.3 million, respectively. See Note 10 of our consolidated financial statements for 2005 for additional information.

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As of December 31, 2004, we had an investment of approximately US$2.9 million in Gamania Digital Entertainment Co., Ltd. (“Gamania”). Our investment represented 4,905,000 shares or approximately 3 percent ownership in Gamania. We have no ability to exercise significant influence over Gamania’s operating and financial policies. The market price of Gamania’s shares has been below our carrying cost for an extended period of time; therefore, we recorded an other-than-temporary loss of US$1.8 million on December 31, 2004. As of December 31, 2005, our investment in Gamania shares was classified as marketable securities–current, as a result of our agreement with JSDWAY Digital Technology Co., Ltd (“JSDWAY”) regarding the purchase and sale of Gamania shares. Pursuant to the agreement, we granted JSDWAY an option to buy, at NT$18.70 per share, a total of 4,905,000 common shares of Gamania owned by us, and JSDWAY granted us an option to sell to JSDWAY, at NT$18.70 per share, the Gamania shares owned by us. JSDWAY also provided a deposit as a guarantee for fulfillment of its payment obligations under the aforementioned agreement. Due to this arrangement with JSDWAY, the Gamania securities have been classified as marketable securities–current and marked-to-market at NT$18.70 per share. See Note 22 of our consolidated financial statements for 2005 for additional information.

Impairment of Long-Lived Assets

Fixed assets and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset over its remaining useful life. 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. The estimate of fair value is generally based on quoted market prices or on the best available information, including prices for similar assets and the results of using other valuation techniques. During 2005, we did not record any asset impairment charges.

Impairment of Intangible Assets

We have significant amortizable intangible assets arising from the acquisition of CESL. The amortizable intangible assets are amortized on a straight-line basis over estimated useful lives ranging from two to ten years. As of December 31, 2005, the balance of amortizable intangible assets was US$2.7 million. In determining the useful lives and recoverability of the intangibles, assumptions must be made regarding estimated future cash flows and other factors to determine the fair value of the assets, which may not represent the true fair value of such assets. If these estimates or their related assumptions change in the future, there may be a significant impact on our results of operations in the period of the change incurred. Based on our impairment test performed in 2005, we did not record any intangible assets impairment loss for 2005. However, as the value of intangible assets and its impairment are determined based on a number of assumptions and management’s estimates, a change in assumptions and circumstances in the future may have a significant impact on our results of operations in the period when a change occurred.

Impairment of Goodwill

Goodwill represents the adjusted amount of the cost of acquisitions in excess of the fair value of net assets acquired in purchase transactions. Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (“FAS 142”). Under the provisions of FAS 142, goodwill is no longer subject to amortization and the potential impairment of goodwill and purchased intangible assets with indefinite useful lives will be evaluated at least annually using the specific guidance provided by FAS 142. We periodically evaluate the carrying amount of goodwill to determine whether adjustments to these amounts are required based on current events and circumstances. We perform an analysis of the recoverability of goodwill using a cash flow approach consistent with the analysis of the impairment of long-lived assets. We performed an impairment test of our goodwill as of December 31, 2005 and recorded no goodwill impairment loss for 2005. However, as the value of goodwill and its impairment are determined based on a number of assumptions and management’s estimates, a change in assumptions and circumstances in the future may have a significant impact on our results of operations in the period when a change occurs.

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Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Loss carryforwards and investment credits are measured using the enacted tax rate and laws that will be in effect in different jurisdictions in which we operate when the differences are expected to reverse. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are subject to valuation allowances based upon the management’s estimate of realizability. Due to the slow market growth and strong competition we face in our broadband ISP business, we have made a full allowance for all of the aggregate net deferred tax assets as of December 31, 2005. Actual results may differ significantly from management’s estimate.

Discussions of Results of Operations

Factors Affecting Our Performance

We believe that the following are the principal factors affecting our results of operations:

Acquisitions and dispositions. We have made several significant acquisitions and dispositions of businesses during the past several years, and may enter into additional acquisition and disposition transactions in the future. Past acquisitions and dispositions have had a significant impact on our results of operations over the past several years, and if we engage in such transactions in the future, the nature, amounts and timing of our revenues, expenses and cash flows and the nature and amounts our assets and liabilities are likely to be materially affected.

Development of online gaming and online casual games industry. The online gaming and online casual games industries are in relatively early stages of development. We believe that our results of operations are likely to be affected by developments in these industries, including:

• the development and regulation of these industries generally;

• our adaptation to technological change;

• changing consumer preferences;

• legal development affecting these industries, in particular the online gaming industry; and

• general economic conditions in the markets where we or our licensees operate.

Competition. All of our businesses are in industries that are extremely competitive. Our online gaming and online casual games business are characterized by rapid technological change and we face significant and intense competition from online entertainment software design houses, application service providers and casual games operators. Our broadband ISP business has experienced a reduction in the number of new consumer subscribers and total consumer subscribers due to intense competition in the broadband ISP industry in Taiwan. The primary basis of competition in the Internet access business industry is price. Due to this intense competition, there may be a limited market opportunity for our broadband access services.

For each of our businesses, we cannot assure you that we will be successful in adapting to technological developments and achieving widespread acceptance of our services before our competitors offer services similar to our current or prospective offerings. As a consequence, we may lose our existing customers and not expand our client base, which would have a material adverse effect on our revenues and financial condition.

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The table below presents, for the periods indicated, information regarding certain revenues and expense items for our consolidated operations:

Particulars	For the year ended December 31,
	2003			2004			2005
	Amount in US$ thousands		% of total revenues	Amount in US$ thousands		% of total revenues	Amount in US$ thousands		% of total revenues
OPERATING REVENUES
Software licensing and online entertainment revenues	—			11,434		34.8	22,511		50.9
Internet access revenues	18,829		96.5	20,960		63.8	21,408		48.4
Other revenues	684		3.5	450		1.4	268		0.6
Total	19,513		100.0	32,844		100.0	44,187		100.0
COSTS AND EXPENSES
Operating costs	16,115		82.6	16,109		49.0	17,383		39.3
Product development and engineering expenses	1,211		6.2	2,513		7.7	3,562		8.1
Selling and marketing expenses	2,432		12.5	6,310		19.2	10,777		24.4
General and administrative expenses	5,162		26.5	5,657		17.2	7,892		17.9
Bad debt expense	128		0.7	(220	)	0.7	207		0.5
Impairment loss on property, plant and equipment	1,557		8.0	—			—
Total	26,605		136.3	30,369		92.5	39,821		90.1
Income (loss) from operations	(7,092	)	36.3	2,475		7.5	4,366		9.9
NON-OPERATING INCOME (EXPENSES)	(2,583	)	13.2	(1,143	)	3.5	2,710		6.1
INCOME TAX BENEFIT (EXPENSE)	(139	)	0.7	84		0.3	(436	)	1.0
INCOME (LOSS) FROM CONTINUING OPERATIONS	(9,799	)	50.2	1,253		3.8	6,490		14.7
INCOME (LOSS) FROM DISCONTINUED OPERATIONS	(4,296	)	22.0	429		1.3	(154	)	0.3
NET INCOME	(14,095	)	72.2	1,682		5.1	6,336		14.3

The key items included in our income statement are:

OPERATING REVENUES. Our operating revenues consist of revenues from the entertainment software business and the broadband ISP business. Going forward, it will include revenues from our online casual games business. Revenues from the entertainment software business include revenues of UIM, our licensee, from providing and promoting online games of skill and chance. See “— Consolidation of UIM Under FIN 46(R).” Software licensing and support services revenues received by our subsidiary, CESL, from UIM have been eliminated in consolidation. Revenues from the broadband ISP business consist of Internet access revenues, subscription revenues and proceeds from sales of cable modems and other related products.

COSTS AND EXPENSES. Costs and expenses include operating costs, product development and engineering expenses, selling and marketing expenses, general and administrative expenses, bad debt expenses, and impairment loss on property, plant and equipment.

NON-OPERATING INCOME (EXPENSES). Non-operating income and expenses consist of interest income and expenses, gain or loss on sales of marketable securities, other-than-temporary impairment of marketable securities, foreign exchange gain or loss and gain or loss on disposal of property, plant and equipment.

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INCOME FROM DISCONTINUED OPERATIONS. In September 2005, we completed the sale of our land-based music distribution business. Results for the music distribution operations are reported as discontinued operations in each of the periods presented.

INCOME TAX BENEFITS (LOSSES). Taxes include income tax in various jurisdictions in which our subsidiaries operate and deferred tax assets or liabilities that arise due to the timing differences between book profits and taxable profits that originate in one period and are capable of reversal in one or more subsequent periods. Taxes are measured using the tax rates and laws that have been enacted or subsequently enacted as of the date of the financial statements.

The financial information in relation to our business segments is provided net of inter-segment transactions.

For the Years Ended December 31, 2004 and 2005

Consolidated Results Of Operations

OPERATING REVENUES. Total operating revenues for 2005 grew by approximately 35 percent to approximately US$44.2 million from approximately US$32.8 million in 2004. The increase was primarily a result of strong revenue growth from the entertainment software business, which contributed approximately US$22.5 million, or 51 percent, of our total revenues in 2005 compared to approximately US$11.5 million in 2004 (which only included nine months of results from this segment), or 35 percent of our total revenues in 2004, and a slight increase in revenues from our broadband ISP business to approximately US$21.7 million in 2005, which in total contributed approximately 49 percent of our total revenues in 2005, compared to approximately US$21.4 million in 2004.

COSTS AND EXPENSES. Costs and expenses increased by approximately 31 percent to approximately US$39.8 million in 2005 from approximately US$30.4 million in 2004. The increase in total costs and expenses was mainly due to a 91 percent increase in costs and expenses related to our entertainment software business, which was attributable to the inclusion of full twelve-month results in 2005 versus nine-month results in 2004 and reflected increased selling and marketing expenses and operating costs as a result of our increased level of business volume.

OPERATING INCOME. Operating income for 2005 increased by approximately 76 percent to approximately US$4.4 million from approximately US$2.5 million for 2004. The increase was primarily due to strong revenue growth from, and an increase in operating margin in, our entertainment software business.

NON-OPERATING INCOME (EXPENSES). We had non-operating income in 2005 of approximately US$2.7 million compared to non-operating expenses of approximately US$1.1 million in 2004. This was principally due to a foreign exchange gain of approximately US$0.2 million in 2005 compared to a foreign exchange loss of approximately US$0.8 million in 2004, as well as an increase of approximately US$1.1 million in other non-operating revenues which included a gain of approximately US$0.6 million on the sale of our Internet content business gigigaga.com.tw and a reversal of US$0.5 million on the provision of a class action lawsuit. See Note 23 of our consolidated financial statements for 2005 for additional information. In addition, we had no other-than-temporary impairment loss in 2005, compared with an other-than-temporary impairment loss of approximately US$1.8 million for our investment in Gamania in 2004.

INCOME FROM DISCONTINUED OPERATIONS. In September 2005, we completed the sale of our land-based music distribution business. The transaction price, net of transaction costs, was US$5.02 million. The cash proceeds, net of transaction costs and cash transferred, was US$3.25 million. Results for the music distribution operations are reported as discontinued operations in each of the periods presented. In 2005, we recorded an operating loss of approximately US$1.1 million and a gain on the sale of the business of approximately US$0.9 million.

NET INCOME. Net income for 2005 increased by approximately 277 percent to approximately US$6.3 million from approximately US$1.7 million in 2004.

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Business Segment Results

Entertainment Software Business

We acquired our entertainment software business in April 2004 and incorporated it into our consolidated financial statements as of and for the nine months ended December 31, 2004 and for the year ended December 31, 2005. As a result, total revenues, operating income, and net income figures for 2004 and 2005 periods may not be comparable. See Note 5 of our consolidated financial statements for a summary of unaudited pro-forma results of operations for the years ended December 31, 2003 and December 31, 2004 as if the acquisition of our entertainment software business had occurred on January 1, 2003 and 2004.

OPERATING REVENUES. Total operating revenues in 2005 increased by 97 percent to approximately US$22.5 million from US$11.5 million in 2004. Such increase was attributable to the inclusion of full twelve-month results of our entertainment software business in 2005 versus nine-month results in 2004, strong growth in our poker software business, and growth in our traditional online gaming software business in 2005. Revenues from our poker software business grew from approximately US$0.2 million in 2004 to US$4.1 million in 2005 and accounted for 18 percent of our revenues in 2005 compared to 2 percent in 2004. Revenues from our traditional online gaming software business increased in 2005 to approximately US$18.4 million from US$11.2 million in 2004, which was attributable to combinations of targeted promotions (bonuses) and a game of the month campaign. These initiatives increased player acquisition and retention rates.

COSTS AND EXPENSES. Total costs and expenses increased by 91 percent to approximately US$16.6 million in 2005 from US$8.7 million in 2004. Such increase was attributable to the inclusion of full twelve-month results of our entertainment software business in 2005 versus nine-month results in 2004, and operating costs and selling and marketing expenses increasing as a result of our revenue growth in 2005.

Operating costs. Operating costs increased by 109 percent to approximately US$3.3 million in 2005 from US$1.6 million in 2004. The increase was due to the inclusion of full twelve-month results of our entertainment software business in 2005 versus nine-month results in 2004, and a higher level of business volume in 2005.

Product development and engineering expenses. Product development and engineering expenses increased by approximately 79 percent to approximately US$2.5 million in 2005 from approximately US$1.4 million in 2004 due to the inclusion of full twelve-month results of our entertainment software business in 2005 versus nine-month results in 2004, as well as our ongoing efforts to develop and improve our products.

Selling and marketing expenses. Selling and marketing expenses increased by approximately 134 percent to approximately US$8.0 million in 2005 from approximately US$3.4 million in 2004, primarily due to the inclusion of full twelve-month results of our entertainment software business in 2005 versus nine-month results in 2004, and an increase in commissions to partners due to growth in revenue and competitive pressure within the industry.

General and administrative expenses. General and administrative expenses increased by 19 percent to approximately US$2.7 million in 2005 from approximately US$2.2 million in 2004 due to the inclusion of full twelve-month results of our entertainment software business in 2005 versus nine-month results in 2004.

OPERATING INCOME. Operating income in 2005 increased 115 percent to approximately US$6.0 million from US$2.8 million in 2004. The increase was primarily due the inclusion of full twelve-month results of our entertainment software business in 2005 versus nine-month results in 2004, and strong revenue growth from the launch of new games which led to an increase in operating margin from 24 percent to 26 percent. Operating income does not reflect certain corporate headquarter expenses. For a reconciliation of business segment results to our consolidated net income, please see Note 24 of our financial statements.

Broadband ISP Business

OPERATING REVENUES. Total operating revenues increased by 1 percent to approximately US$21.7 million in 2005 from approximately US$21.4 million in 2004. Such increase was attributable to an increase in total access revenues, which contributed more than 99 percent of total revenues from our broadband ISP business.

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Access Revenues. Access revenues increased by 2 percent to approximately US$21.4 million in 2005 from approximately US$21.0 million in 2004, mainly as a result of the significant growth of our corporate broadband ISP business. Of the total access revenues recorded for 2005, consumer access revenues through Hoshin GigaMedia were approximately US$14.9 million, while corporate access revenues through KBT were approximately US$6.5 million. While revenues from our corporate ISP business represented only 31 percent of our total access revenues in 2005, they demonstrated a growth of 32 percent to approximately US$6.5 million in 2005 from approximately US$5.0 million in 2004, compared to a decline of 7 percent to approximately US$14.9 million in 2005 in our consumer ISP business from approximately US$16.0 million in 2004.

The number of our consumer broadband subscribers decreased from 94,520 as of December 31, 2004 to 80,541 as of December 31, 2005, of which 16,534 were two-way cable modem subscribers and 62,937 were ADSL subscribers. In the fourth quarter of 2005, the average blended access revenues per broadband subscriber per month (ARPU) for access services was approximately US$11.36, as compared to approximately US$12.40 for the fourth quarter of 2004. ARPU for two-way cable modem and ADSL services was approximately US$16.30 and US$10.50, respectively, during the fourth quarter of 2005, as compared to approximately US$16.50 and US$11.80, respectively, for the same services during the fourth quarter of 2004.

COSTS AND EXPENSES. Total costs and expenses decreased by 4 percent from approximately US$20.4 million in 2004 to approximately US$19.6 million in 2005, mainly as a result of declines in general and administrative expenses, operating costs and in selling and marketing expenses.

Operating costs. Operating costs decreased by 3 percent from approximately US$14.5 million for 2004 to approximately US$14.1 million for 2005 due to decrease in depreciation and amortization, and customer service costs, partially offset by increase in bandwidth costs.

Product development and engineering expenses. Product development and engineering expenses decreased by approximately 6 percent from approximately US$1.1 million in 2004 to approximately US$1.0 million in 2005 as a result of our continued effort to de-emphasize this aspect of our operations.

Selling and marketing expenses. Selling and marketing expenses decreased by approximately 5 percent from approximately US$2.9 million in 2004 to approximately US$2.7 million in 2005, primarily due to a moderate decline in our advertising expenses.

General and administrative expenses. General and administrative expenses decreased by 30 percent from approximately US$2.2 million in 2004 to approximately US$1.5 million in 2005 due to centralizing of certain back-office functions at the headquarters.

OPERATING INCOME. Operating income increased by 121 percent from approximately US$1.0 million for 2004 to approximately US$2.1 million for 2005. Operating income does not reflect certain corporate headquarter expenses. For a reconciliation of business segment results to our consolidated net income, please see Note 24 of our financial statements.

For the Years Ended December 31, 2003 and 2004

Consolidated Results of Operations

Consolidated results for 2003 and 2004 have been restated to reflect the results of our music distribution business as discontinued operations, since we sold this business in September 2005. Certain prior year amounts have been reclassified to conform to the current-year presentation.

OPERATING REVENUES. Total operating revenues for 2004 grew 68 percent to approximately US$32.8 million from approximately US$19.5 million in 2003, primarily due to the acquisition of our entertainment software business in April 2004 which contributed approximately US$11.5 million, or 35 percent of our total revenues in 2004. The broadband ISP business contributed approximately US$21.4 million, or 65 percent of our revenues in 2004.

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COSTS AND EXPENSES. Costs and expenses increased by 14 percent to approximately US$30.4 million in 2004 from approximately US$26.6 million in 2003 as a result of the acquisition of our entertainment software business in April 2004, which was partially offset by the decrease in costs and expenses of the broadband ISP business. Our costs and expenses in 2004 primarily consisted of operating costs of approximately US$16.1 million, product development and engineering expenses of approximately US$2.5 million, selling and marketing expenses of approximately US$6.3 million, and general and administrative expenses of approximately US$5.7 million.

OPERATING INCOME. Operating income for 2004 was approximately US$2.5 million, compared to an operating loss of approximately US$7.1 million in 2003.

NON-OPERATING EXPENSES. In 2004, non-operating expenses decreased by 56 percent to approximately US$1.1 million from approximately US$2.6 million for 2003. This was principally due to a significant increase in gain on sale of marketable securities of approximately US$1.2 million in 2004 from approximately US$0.5 million in 2003, an increase in other non-operating income to approximately US$0.1 million in 2004 compared to other non-operating expenses of US$0.6 million in 2003, and recognition of a small loss on disposal of property, plant and equipment of approximately US$44,000 in 2004, compared to a loss on disposal of property, plant, and equipment of approximately US$0.5 million in 2003. In 2004, we recorded an other-than-temporary impairment loss of approximately US$1.8 million for our investment in Gamania, compared with an other-than-temporary impairment loss recorded in 2003 of approximately US$1.7 million related to our write-off of our investment in Rock Internet Corporation.

INCOME FROM DISCONTINUED OPERATIONS. In 2004, income from discontinued operations was US$0.4 million compared to loss of US$4.3 million in 2003 due to the fact that we reduced operating costs and expenses and improved our management information systems which reduced inventory costs.

NET INCOME. We had net income in 2004 of approximately US$1.7 million compared to a net loss of approximately US$14.1 million in 2003.

Business Segment Results

Entertainment Software Business

We acquired our entertainment software business in April 2004 and incorporated results of the business into our consolidated financial statements as of and for the nine months ended December 31, 2004. As this business was acquired during 2004, year-over-year comparisons of this business segment are not available. See Note 5 of our consolidated financial statements for a summary of unaudited pro-forma results of operations for the years ended December 31, 2003 and December 31, 2004 as if the acquisition of our entertainment software business had occurred on January 1, 2003 and 2004.

Broadband ISP Business

OPERATING REVENUES. Total operating revenues increased by 10 percent to approximately US$21.4 million in 2004 from approximately US$19.5 million in 2003. Such increase was attributable to an increase in total access revenues, which contributed more than 98 percent of total revenues.

Access Revenues. Access revenues increased by 11 percent to approximately US$21.0 million in 2004 from approximately US$18.8 million in 2003, mainly as a result of the significant growth of our corporate broadband ISP business. Of the total access revenues recorded for 2004, consumer access revenues through Hoshin GigaMedia were approximately US$16.0 million, while corporate access revenues through KBT were approximately US$5.0 million. While revenues from our corporate ISP business represented only 24 percent of our total access revenues in 2004, they demonstrated a growth of 34 percent to approximately US$5.0 million in 2004 from approximately US$3.7 million in 2003, compared to a moderate growth of 6 percent to approximately US$16.0 million in 2004 in our consumer ISP business from approximately US$15.1 million in 2003.

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The number of our consumer broadband subscribers decreased from 102,940 as of December 31, 2003 to 94,520 as of December 31, 2004, of which 18,608 were two-way cable modem subscribers and 73,800 were ADSL subscribers. In the fourth quarter of 2004, the average blended ARPU for access services was approximately US$12.40, as compared to approximately US$12.60 for the fourth quarter of 2003. ARPU for two-way cable modem and ADSL services was approximately US$16.50 and US$11.80, respectively, during the fourth quarter of 2004, as compared to approximately US$17.30 and US$12.00, respectively, for the same services during the fourth quarter of 2003.

COSTS AND EXPENSES. Total costs and expenses decreased by 18 percent from approximately US$25.0 million in 2003 to approximately US$20.4 million in 2004, mainly as a result of the significant decline in general and administrative expenses and operating costs, offsetting the increase in selling and marketing expenses.

Operating costs. Operating costs decreased by 10 percent from approximately US$16.1 million for 2003 to approximately US$14.5 million for 2004 due to decreases in the price of leasing bandwidth and circuits.

Product development and engineering expenses. Product development and engineering expenses decreased by approximately 9 percent from approximately US$1.2 million in 2003 to approximately US$1.1 million in 2004 as a result of our continued effort to de-emphasize this aspect of our operations.

Selling and marketing expenses. Selling and marketing expenses increased by approximately 18 percent from approximately US$2.4 million in 2003 to approximately US$2.9 million in 2004, primarily due to reclassification of certain general and administrative expenses as selling and marketing expenses and hiring of additional sales staff in the corporate ISP business, which was partially offset by a reduction in marketing expenses and related activities.

General and administrative expenses. General and administrative expenses decreased by 38 percent from approximately US$3.6 million in 2003 to approximately US$2.2 million in 2004 due to reclassification of certain general and administrative expenses as selling and marketing expenses.

OPERATING INCOME. We had operating income of approximately US$1.0 million in 2004, compared to an operating loss of approximately US$5.5 million in 2003. Operating income does not reflect certain corporate headquarter expenses. For a reconciliation of business segment results to our consolidated net income, please see Note 24 of our financial statements.

Seasonality

Due to the predominant indoor nature of online entertainment, there is a seasonality pattern observed on user traffic and patronage for our online gaming and online casual games businesses. Summer is typically a slower season, while winter is generally a higher season for online entertainment activities. MahJong and Chinese poker games are traditionally played during Chinese New Year, and we typically experience high player traffic during this period of time. We generally observe high traffic during all major Chinese holidays. As a result, seasonality affects the revenues of our entertainment software business and our online casual games business.

Inflation

Inflation has not had a material affect on our results of operation for 2003, 2004 and 2005 as the countries in which we operate or earn significant revenues did not experience any material inflationary trends.

B. Liquidity and Capital Resources

Our principal sources of liquidity consist of cash generated from our operations, proceeds generated from the disposal of our investments and other assets and interest derived from our investments. Our cash and cash equivalents are held primarily in U.S. dollars and NT dollars. Our policy with respect to liquidity management is to maintain sufficient cash and cash equivalents to fund operations and strategic transactions, while placing remaining funds in higher yield investment instruments.

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Our future cash requirements will depend on a number of factors including:

• the rate at which we enter into strategic transactions;

• the rate of which we expand our operations and employee base;

• the timing of entry into new markets and new services offered;

• changes in revenues and cost splits with our business partners;

• the rate at which we invest in improving our products and upgrading and maintaining our network and future technologies; and

• the rate at which we grow and monetize our customer bases.

As a result of our operating, investing and financing activities during 2005, the amount of our cash and cash equivalents as of December 31, 2005 increased to approximately US$41.7 million compared to US$13.2 million as of December 31, 2004. Such increase was primarily attributable to our operating cash flow of US$11.4 million, investing cash flow of US$17.2 million, which includes cash proceeds from the sale of our music distribution business of US$3.3 million, net of transaction costs and cash transferred. In 2006, our cash used in the purchase of FunTown amounted to US$27.2 million and our sale of our ADSL business totaled US$9.7 million, of which approximately US$4.5 million is expected to be received in 2006 and approximately US$5.2 million in 2007. We issued approximately US$15 million zero coupon convertible notes in January 2006, which may be redeemed by us within 12 months of the issuance. We continue to seek and review potential merger and acquisition opportunities on an ongoing basis, which may be funded through cash or equity. We do not believe that any potential merger or acquisition that we may be engaged in would alter our goal of preserving sufficient cash and cash equivalents to fund future operations. We believe that our existing cash, cash equivalents, marketable securities and expected cash flow from operations will be sufficient to meet our capital expenditure, working capital, cash obligations under our existing lease arrangements, and other requirements through 2006.

OPERATING ACTIVITIES. In 2005, our net cash provided by operating activities amounted to US$11.4 million. This was primarily from income from operations of US$6.3 million plus non-cash depreciation and amortization of US$6.4 million.

INVESTING ACTIVITIES. Our net cash from investing activities in 2005 was US$17.2 million. This was primarily generated from the sale of marketable securities of US$37.0 million, which was offset by the purchase of other marketable securities of US$20.2 million.

FINANCING ACTIVITIES. Our net cash provided by financing activities in 2005 was US$247,000.

OTHER. Set forth below are the aggregate amounts, as of December 31, 2005, of our future cash payment obligations under our existing contractual obligations.

Capital Expenditures

We typically finance our capital expenditures through cash holdings. Our gross capital expenditures for equipment, furniture and fixtures, software, intangible assets and other deferred assets were US$2.1 million, US$3.4 million and US$4.0 million for 2003, 2004 and 2005, respectively. Capital expenditures during 2005 were primarily for the replacement and upgrades of network-related hardware in our consumer and corporate broadband businesses and capitalization of software development for our entertainment software business. For 2005, the capital expenditure for our music distribution business was approximately US$0.5 million. Our capital expenditure plans for 2006 will continue to focus primarily on software development for our entertainment software business and for our online casual games business. We may adjust the amount of our capital expenditures upward or downward based on cash flow from operations, the progress of our expansion plans, and market conditions.

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Dividends From Our Subsidiaries in Taiwan

Under existing laws of Taiwan, dividends, whether in cash or shares of common stock, declared by our subsidiaries incorporated under Taiwan law, including Hoshin GigaMedia, out of retained earnings and distributed to us are subject to Taiwan withholding tax, currently at the rate of 20 percent for non-Taiwan investors holding a foreign investment approval granted by Taiwan’s Ministry of Economic Affairs, such as us, on the amount of any cash dividends or on the par value of any share dividends.

Foreign Currency Exchange

Effective January 1, 2004, we adopted the U.S. dollar as our reporting currency as operations denominated in the U.S. dollar have represented an increasing portion of our business following the acquisition of our entertainment software business. Our financial results may be impacted by fluctuations of exchange rates between the NT dollar and the U.S. dollar, exposing us to foreign currency exchange risks. Because expenses denominated in foreign currencies historically have not been material, we have not sought to reduce our exposure to exchange rate fluctuations by using hedging transactions. However, we may choose to do so in the future. We recognized a foreign exchange loss of approximately US$0.8 million for 2004 and a gain of approximately US$0.2 million for 2005.

Recent Accounting Pronouncements

In December 2004, the FASB issued FAS No. 123(R), “Share-Based Payment,” (“FAS 123 (R)”). FAS 123(R) requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair-value method, and eliminates the ability to account for these instruments under the intrinsic-value method prescribed by APB Opinion No. 25, which was allowed under the original provisions of FAS 123. FAS 123(R) requires the use of an option-pricing model for estimating fair value, which is amortized to expenses over the requisite periods. The requirements of FAS 123(R) were effective for interim periods beginning after June 15, 2005. The Commission has postponed the effective date of FAS 123(R), giving companies more time to develop their implementation strategies. Under the Commission’s rule, FAS 123(R) is now effective for public companies for annual, rather than interim, periods that begin after June 15, 2005. We adopted this new standard on January 1, 2006, using the modified prospective method and the Black-Scholes valuation model. Because we had not recorded any compensation cost in our statement of operations prior to the adoption of FAS 123(R), no cumulative effect adjustment was recorded upon adoption. Our adoption of FAS 123(R) may have a material impact on our net income and net income per share.

In May 2005, the FASB issued FAS No. 154, “Accounting Changes and Error Corrections,” (“FAS 154”), a replacement of Accounting Principles Board (“APB”) Opinion No. 20 and FAS No. 3. FAS 154 changes the requirement for the accounting for and reporting of a change in accounting principles. FAS 154 applies to all voluntary changes in accounting principles. It also applies to changes required by an accounting pronouncement if the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. The provisions of FAS 154 will be effective for accounting changes made in fiscal years beginning after December 15, 2005. It is not expected that FAS 154 will have a material effect on our consolidated financial statements.

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143, ‘Accounting for Asset Retirement Obligations,’” (“FIN 47”). FIN 47 generally applies to long-lived assets and requires a liability to be recognized for a conditional asset retirement obligation if the fair value of that liability can be reasonably estimated. A conditional asset retirement obligation is defined as a legal obligation to perform an activity associated with an asset retirement in which the timing and/or method of settlement are conditional on a future event that may or may not occur or be within the control of the company. A liability should be recognized when incurred (based on its fair value at that date), which generally would be upon the acquisition or construction of the related asset. Upon recognition, the offset to the liability would be capitalized as part of the cost of the asset and depreciated over the estimated useful life of that asset. FIN 47 is effective no later than December 31, 2005. We adopted FIN 47 in the fourth quarter of 2005 without material effect on our financial position or results of operations.

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In September 2005, the Emerging Issues Task Force (“EITF”) ratified EITF 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty,” (“EITF 04-13”). This issue addresses the circumstances under which two or more inventory purchase and sales transactions with the same counterparty should be viewed as a single exchange transaction and whether there are circumstances under which such non-monetary exchanges should be accounted for at fair value. The adoption of EITF 04-13 is effective for new or modified agreements for fiscal periods beginning after March 15, 2006. It is not expected that EITF 04-13 will have a material effect on our consolidated financial statements.

In November 2005, FASB Staff Position (“FSP”) 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” was issued. The FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities” and APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” The FSP applies to investments in debt and equity securities and cost-method investments. The application guidance within the FSP includes items to consider in determining whether an investment is impaired, in evaluating if an impairment is other-than-temporary and recognizing impairment losses equal to the difference between the investment’s cost and its fair value when an impairment is determined. The FSP is required for all reporting periods beginning after December 15, 2005. Earlier application is permitted. We do not anticipate the amendment will have a material effect on our consolidated financial statements.

In February 2006, the FASB issued FAS No. 155, “Accounting for Certain Hybrid Financial Instruments,” (“FAS 155”). FAS No. 155 amends Financial Accounting Standards Board Statements Nos. 133 and 140. The statement applies to certain hybrid financial instruments, which are instruments that contain embedded derivatives. The new standard establishes a requirement to evaluate beneficial interests in securitized financial assets to determine if the interests represent freestanding derivatives or are hybrid financial instruments containing embedded derivatives requiring bifurcation. This new standard also permits an election for fair value re-measurement of any hybrid financial instrument containing an embedded derivative that otherwise would require bifurcation under Financial Accounting Standards Board Statement No. 133. The fair value election can be applied on an instrument-by-instrument basis to existing instruments at the date of adoption and can be applied to new instruments on a prospective basis. It is not expected that FAS 155 will have a material effect on our consolidated financial statements.

Taxation

At December 31, 2005, we had net operating loss carryforwards for tax purposes of approximately US$38 million, arising from our broadband ISP operations in Taiwan. These operating loss carryforwards will expire at various times from December 2006 through December 2009. At December 31, 2005, we had a deferred tax asset of US$10.4 million, relating principally to our net operating loss. Our ability to realize the value of our deferred tax asset depends on our future earnings, if any, the timing and amount of which are uncertain. We have made a full allowance for all of the aggregate net deferred tax assets as a result of those uncertainties. The current corporate income tax rate in Taiwan is 25 percent. Any future taxable income derived from Taiwan-based operations exceeding these operating loss carryforwards will be subject to Taiwan income tax.

As per the R.O.C. income tax laws, all retained earnings generated beginning January 1, 1998 by our subsidiaries under Taiwan law and not distributed to us as dividends in the following year are assessed a 10 percent retained earnings tax. This rule applies primarily to our broadband ISP business and our online casual games portal whose principal operating entities are incorporated under Taiwan law.

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The majority of our entertainment software business is located outside the United States, with the exception of CIDC, an entity registered in Delaware, which is subject to U.S. federal income tax, state tax and local tax. Current U.S. federal income tax rate and state and local tax rates are 34 percent and 6.3 percent, respectively. Our operations in the United States did not, and are not expected to, have a significant tax impact on the Company’s consolidated financial statements.

C. Research, Development and Intellectual Property

We make investments in research and development to keep pace and remain competitive with technology advancements and product development relating to our entertainment software business and our online casual games portal. We do not believe our expenditure for research and development for 2005 and 2004 was material.

D. Trend Information

Please see Item 3 — “D. Risk Factors,” Item 4 — “Information on the Company” and “ — A. Operating Results — Overview” for a discussion of the most recent trends in our operation costs and revenues since the end of 2005. In addition, please refer to discussions included in this Item for a discussion of known trends, uncertainties, demands, commitments or events that we believe are reasonable likely to have a material effect on our net operating revenues, income from continuing operations, profitability or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

E. Off-Balance Sheet Arrangements

We currently do not engage in any off-balance sheet arrangements.

F. Tabular Disclosure of Contractual Obligations

	Payment Due by Period (in US$ thousands)
Contractual Obligations	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years
Operating lease	3,162	1,823	1,295	44	0
Total contractual cash obligations	3,162	1,823	1,295	44	0
Long-term debt obligations	0	0	0	0	0
Other Liabilities — Accrued pension liabilities	0	0	0	0	819

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following table sets forth information with respect to our directors and executive officers as of June 15, 2006:

Name	Age	Position	Year Appointed to Current Position
WU, Daniel Chuen-Tai	58	Chairman of the Board	2003
BAO, Gilbert	42	Independent Non-Executive Director	2003
CHANG, Nelson	41	Independent Non-Executive Director	2004
DING, Michael Y.J.	49	Independent Non-Executive Director	2003
HSU, Emmet Yu-Jui	43	Independent Non-Executive Director	2003
HU ZEE, Nancy Jing-Ying	47	Independent Non-Executive Director	2003
LEE, Howe Yong	50	Independent Non-Executive Director	2004
LEE, Yichin	45	Independent Non-Executive Director	2003
WANG, Arthur M.	45	Chief Executive Officer and Director	2003
HUI, Thomas T.	34	Chief Financial Officer and Director	2004/2005
CAHILL, Robert J.	40	Head of Entertainment Software Business	2004
CHOU, Mou-Shyh	49	Head of Online Casual Games Business	2006
CHU, Michel	37	Executive Vice President and Chief Technology Officer	2000
HUANG, Kenny Ching-Kun	41	Senior Vice President	2004
MAI, Falco	44	Executive Vice President and Chief Administrative Officer	2001
SHEA, Joseph	40	Executive Vice President	2002
TARN, Chen-Wen	46	Head of Broadband ISP Business	2005
TSENG, Jennifer	37	Senior Vice President and General Counsel	2003

Mr. Thomas T. Hui was appointed as our director on May 17, 2005. Our former directors, Jeffrey Koo, Jr. and Andre Koo, resigned on May 17, 2005 for personal reasons.

Biographical information with respect to each of our directors and executive officers is set forth below.

DANIEL CHUEN-TAI WU is the chairman of the board of directors of GigaMedia. He brings to our Company significant operational experience and extensive business relationships in Taiwan. Dr. Wu is currently the chairman of CDIB & Partners Investment Holding Corp. in Taiwan and a director and senior executive vice president of China Development Financial Holding Corporation. Previously, he served as the chairman of various companies including Videoland Inc. from 2002 to 2004, Grand Pacific Petrochemical Corp. from 1994 to 2004, Biocare Corp. from 1997 to 2003 and Precision Semiconductor Mask Corp. from 1998 to 2000. He was the chief executive officer of Wyse Technology Inc. from 1990 to 1994 and the president of Grand Pacific Petrochemical Corp. from 1992 to 1994. Dr. Wu was chairman of Crimson Asia Capital Holdings, Ltd. from 1993 to 2000. Prior to that, Dr. Wu was also the chairman of Monte Jade Science & Technology Association from 1993 to 1994. Dr. Wu received his doctorate in chemical engineering from the University of Delaware in 1976 and an undergraduate degree in the same discipline from National Taiwan University in 1970.

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GILBERT BAO is an independent non-executive director of our Company. He is also currently vice president of Chung Shing Textile Co., Ltd., executive director of Taiwan Cotton Spinners Association, and executive director of Taiwan Manmade Fiber Industry Association. He graduated from the University of Southern California in 1986.

NELSON CHANG is an independent non-executive director of our Company. He is also currently the managing director of Shin-Long Construction Co., managing director of Enrich Venture Capital Management Co., Ltd., vice president of X-Legend Entertainment Corp., and vice president of EasyFun Entertainment Corp. Mr. Chang received a Master of Business Administration degree from National Taiwan University.

MICHAEL Y.J. DING is an independent non-executive director of our Company. Mr. Ding is currently chairman of Fubon Securities Investment Consulting Co. Ltd. Prior to that, Mr. Ding was president and chief executive officer of Fubon Asset Management Co., Ltd., president and fund manager of the R.O.C. Fund (listed on the New York Stock Exchange), as well as president of the International Investment Trust Co. in Taiwan, where he also served as chief investment officer and a senior vice president. Mr. Ding was previously chief economist and head of research at Citicorp International Securities Ltd. in Taipei and head of research and information for the Greater China region at McKinsey & Co., Inc. Mr. Ding holds a Bachelor of Laws degree from Chinese Cultural University and a master’s degree and a doctorate in economics from Indiana University.

EMMET YU-JUI HSU is an independent non-executive director of our Company. He is also currently chairman and president of Shihlin Electric and Engineering Corp., Hsinchu Transportation Co. Ltd., and The Ambassador Hotel in Taipei, Taiwan. He majored in business administration at the University of Southern California and received a Master of Business Administration degree from Chengchi University in Taiwan.

NANCY JING-YING HU ZEE is an independent non-executive director of our Company. Ms. Hu is currently the president of Videoland Inc. She is also chairman of Ho Wei Communication, which is a subsidiary of Videoland Inc. She is a certified accountant in the United States and Hong Kong and is currently a director of NHL CPA, ETKING Media Technology Limited and Artel Solutions Group Holdings Limited. Ms. Hu holds a bachelor’s degree from National Taiwan University, a master’s degree in computers from Barry University and a Master of Business Administration degree from Florida International University.

HOWE YONG LEE is an independent non-executive director of our Company. He is currently the managing director of Lee Kim Yew (Pte) Ltd., an investment company based in Singapore. He also served as a director of China Development Corporation in Hong Kong and also a director of Transmarco Limited in Singapore. Mr. Lee received a Bachelor of Arts degree in business administration from the University of Washington in 1984.

YICHIN LEE is an independent non-executive director of our Company. He is also currently managing director of Giant Management Consulting, LLC. Mr. Lee was a Founding Partner of CRC Investment Management, LLC. Mr. Lee holds a doctorate degree in resource planning and management from Stanford University.

ARTHUR M. WANG is the chief executive officer and a director of our Company. He is also a member of the board of Linmark Group, a Hong Kong Stock Exchange listed global sourcing firm, where he serves as chair of the audit committee. Previously, Mr. Wang was a managing partner of 698 Capital Limited, an Asian investment firm, as well as an executive director of KGI Asia Limited (“KGI”). At KGI, Mr. Wang served as head of corporate finance. He also served as an investment advisor and board member of UFJ Asia Finance Technology Fund of the UFJ Group (formerly the Sanwa Bank Group of Japan), and as a board member and director of Softbank Investment International (Strategic) Limited, the Hong Kong Stock Exchange listed arm of Softbank Corporation. Mr. Wang received his Bachelor of Arts degree from the University of California, Los Angeles and his Juris Doctorate degree from Yale Law School. He practiced corporate and securities law in the New York and Hong Kong offices of Skadden, Arps, Slate, Meagher & Flom LLP.

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THOMAS T. HUI is the chief financial officer and a director of our Company. Mr. Hui joined GigaMedia from Goldman Sachs (Asia) L.L.C. (“Goldman Sachs”), where he was an executive director of the investment banking division. At Goldman Sachs, Mr. Hui originated and executed a broad range of mergers and acquisitions and financing transactions in Asia. Prior to working at Goldman Sachs, Mr. Hui served as an investment banker at Merrill Lynch & Co. and as a management consultant at McKinsey & Company, both in Hong Kong. Mr. Hui holds a Master of Engineering degree in electrical engineering from Cornell University and a Bachelor of Science degree in electrical engineering from the University of Wisconsin – Madison.

ROBERT J. CAHILL is the head of the entertainment software business of our Company. Mr. Cahill is the chief executive officer of CESL. Prior to joining our Company, Mr. Cahill served as the chief executive officer for Smarterkids.com. He also previously served in the finance group for Gensym Corporation and as an audit manager at Ernst & Young, LLC. Mr. Cahill received a Master of Business Administration degree from Bentley College and a Bachelor of Science degree in business administration from the University of Massachusetts.

MOU-SHYH CHOU is the head of the online casual games business of our Company. Mr. Chou became the chief executive officer of FunTown in January 2006, and has played a fundamental role in FunTown’s success in the online casual games business industry. Before joining our Company, Mr. Chou was a vice president of Acer, Inc. and served for more than 21 years at Acer Group.

MICHEL CHU is the chief technology officer and an executive vice president of our Company. He has extensive experience in Internet-related software development, system engineering and project management. Mr. Chu is responsible for the design, development and implementation of our broadband service infrastructure. Mr. Chu received a Master of Science degree in electrical engineering from National Taiwan University.

KENNY CHING-KUN HUANG is a senior vice president of our Company. He has experience in investment banking, the television and cable industry, as well as the Asian gaming industry. Mr. Huang is responsible for the promotion and business development of our gaming software in Asia. Mr. Huang received his Master of Business Administration from the University of California, Irvine.

FALCO MAI is the chief administrative officer and an executive vice president of our Company. He is also currently the director of KGI Securities Co. Ltd in Taipei and Taiwan Futures Exchange. Prior to joining our Company, Mr. Mai worked at KGI Securities Co. Ltd in Taipei as a manager of the research department, the equity and sales—proprietary trading department and the derivatives product department. Mr. Mai was also senior vice president to the general management office, as well as the spokesman from 1993 to 2001. Mr. Mai received a Bachelor of Science degree in electrical engineering from National Taiwan University.

JOSEPH SHEA is an executive vice president of our Company responsible for strategic and business development. Prior to joining us, Mr. Shea was an equity research analyst at Lehman Brothers Asia Limited covering the Internet industry. Mr. Shea was also a manager at A.T. Kearney (Hong Kong) Limited (“A.T. Kearney”) where he was responsible for project planning and engagement execution for clients based in Asia and Europe. While working at A.T. Kearney, Mr. Shea led several Internet-related projects. Mr. Shea also held design engineer positions in several major microprocessor design projects at Intel Corporation. Mr. Shea received his Master of Business Administration degree from the University of California, Berkeley. He also holds a Master of Science in electrical engineering from Columbia University as well as a Bachelor of Science in electrical engineering from Carnegie-Mellon University.

CHEN-WEN TARN is the head of the broadband ISP business of our Company. Prior to joining us, Mr. Tarn was a full professor of the National Taiwan University of Science and Technology. Mr. Tarn holds a doctorate degree in electrical and computer engineering from Syracuse University.

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JENNIFER TSENG is a senior vice president and general counsel of our Company. Prior to joining us, Ms. Tseng practiced law and presided over a local law firm in Taipei where she conducted a general litigation practice across a range of major business disputes and civil litigation, from counseling through trial and appeal. Ms. Tseng received her Master of Laws degree from School of Law at University of Warwick in the United Kingdom and her Bachelor of Law degree from Department of Law at National Taiwan University.

B. Compensation

For the year ended December 31, 2005, the aggregate compensation paid by us to all of our executive officers was approximately US$0.9 million and the aggregate compensation paid by us to all of our directors was approximately US$0.6 million. The total outstanding number of share options granted to our directors and officers was 6,768,888. For information on stock option plans, see Item 6 “Directors, Senior Management and Employees – E. Share Ownership.” For information on total amounts set aside by the Company to provide pension and retirement benefits, see Note 18 of our consolidated financial statements.

C. Board Practices

Our board of directors has appointed an audit committee. Our audit committee currently consists of Michael Y. J. Ding, Gilbert Bao and Yichin Lee. Our audit committee will select and evaluate, on our behalf, the independent public accountants who audit our annual financial statements, and will review and approve the planned scope of our annual audit, subject to the appointment, replacement or removal from office of our independent public accountants been approved by our shareholders at our Annual General Meeting. In accordance with our Articles of Association and our audit committee charter, all of the members of our audit committee must be persons who qualify as “independent” directors for purposes of the rules and regulations of the NASDAQ National Market.

We also have a compensation committee that consists of Daniel Chuen-Tai Wu, Michael Y.J. Ding and Yichin Lee. Our compensation committee reviews and evaluates the compensation and performance of executive officers, and our Company’s general compensation plans and other employee benefit plans, and performs other duties and responsibilities pursuant to the compensation committee charter. In accordance with our compensation committee charter, all of the members of the compensation committee are qualified independent directors pursuant to the requirements of the NASDAQ National Market.

D. Employees

In the years ended December 31, 2003, 2004 and 2005, our total employees were 578, 608 and 323, respectively. As of June 15, 2006, we had a total of 507 employees, excluding part-time and temporary personnel and consultants. Our corporate headquarters employed 77 people. Our broadband ISP business employed 171 people, including 96 people in Hoshin GigaMedia and 75 people in our subsidiary, KBT. Our entertainment software business had 76 employees. Our online casual games business had 183 employees. Of the total 507 employees, 431 were in Asia and 76 were in North America.

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E. Share Ownership

Share Ownership of Directors and Executive Officers

The tables below set forth information as to our directors’ and executive officers’ share ownership in our Company as of June 15, 2006:

Person	Number of Common Shares	Number of Shares Issuable upon exercise of options
WU, Daniel Chuen-Tai	0	*
BAO, Gilbert T.C.	0	*
CHANG, Nelson	0	*
DING, Michael Y.J.	0	*
HSU, Emmet Yu-Jui	0	*
HU ZEE, Nancy Jing-Ying	0	*
LEE, Howe Yong	0	*
LEE, Yichin	0	*
WANG, Arthur M.	*	2,500,000
HUI, Thomas T.	*	1,500,000
CAHILL, Robert J.	*	653,699
CHOU, Mou-Shyh	*	*
CHU, Michel	*	*
HUANG, Kenny Ching-Kun	*	*
MAI, Falco	*	*
SHEA, Joseph	*	*
TARN, Chen-Wen	*	*
TSENG, Jennifer	*	*

* Less than 1 percent

All options to our directors and executive officers were granted pursuant to the 2002 Plan and the 2004 Plan as defined under “Employee Share Option Plans” below. The options expire in 2014.

Beneficial Ownership

No director or executive officer beneficially owns of record more than 1 percent of the outstanding shares of our Company. See Item 7 — “Major Shareholders and Related Party Transactions” below.

Employee Share Option Plans

2002 Option Plan

At the June 2002 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2002 Employee Share Option Plan (the “2002 Plan”) under which up to 3,000,000 common shares of our Company were reserved for issuance. All employees, officers, and directors of our Company are eligible to participate in the 2002 Plan. The 2002 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the exercise price for the option grants, to determine which eligible individuals are to receive option grants, the time or times when options grants are to be made, the number of shares subject to grant and the maximum term for which any granted option is exercisable.

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In August 2004, options to purchase 3,000,000 shares of our Company’s common stock were granted at an exercise price of US$0.79 pursuant to the 2002 Plan. All options granted under the 2002 Plan expire in 2014.

2004 Option Plan

At the June 2004 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2004 Employee Share Option Plan (the “2004 Plan”) under which up to 7,000,000 common shares of our Company were reserved for issuance. All employees, officers, and directors of our Company are eligible to participate in the 2004 Plan. The 2004 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the exercise price for the option grants, to determine which eligible individuals are to receive option grants, the time or times when options grants are to be made, the number of shares subject to grant and the maximum term for which any granted option is exercisable.

In August 2004, options to purchase 5,462,530 shares of our Company’s common stock were granted at an exercise price of US$0.79 pursuant to the 2004 Plan. These options were subject to two vesting schedules. In accordance with the terms of the first vesting schedule, 3,863,888 options were vested and exercisable upon granting. By the end of 2005, 95,000 options were cancelled, and the number of outstanding options under the first vesting schedule was 3,768,888 options. In accordance with the terms of the second vesting schedule, 1,598,642 options were granted, of which 399,663 options were vested and exercisable upon granting. The remaining 1,198,979 options will be vested 399,661 options per year from the grant date. By the end of 2005, 273,185 options were cancelled, and the number of outstanding options under the second vesting schedule was 1,325,457 options.

In May 2005, options to purchase 100,000 shares of our Company’s common stock were granted at an exercise price of US$1.45 pursuant to the 2004 Plan. In accordance with the terms of the vesting schedule, 25,000 options were vested and exercisable upon granting. The remaining 75,000 options will be vested 25,000 options per year from the grant date.

In December 2005, options to purchase 1,805,655 shares of our Company’s common stock were granted at an exercise price of US$2.55. These options were subject to two vesting schedules. In accordance with the terms of the first vesting schedule, 1,570,655 options were vested and exercisable upon granting. In accordance with the terms of the second vesting schedule, 94,000 options are vested and exercisable in December 2007. The remaining 141,000 options are vested and exercisable in December 2008.

All options granted under the 2004 Plan expire on June 29, 2014.

No options were exercised as of December 31, 2005.

Employee Share Purchase Plan

At the June 2004 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2004 Employee Share Purchase Plan (the “2004 ESPP”) under which up to 2,000,000 common shares of our Company were reserved for issuance. Pursuant to the 2004 ESPP, our Company offered its shares to qualified employees on favorable terms and established a restricted period of six months during which employees may not transfer the shares after purchasing them. To be eligible, employees must be employed by our Company or its subsidiaries and the customary employment shall be no less than 20 hours per week. Employees are also subject to certain restrictions on the amount that may be invested to purchase the shares and to other terms and conditions of the 2004 ESPP. The 2004 ESPP is a one-time plan and is administered by a committee designated by the board of directors. In March 2005, there were 189,642 shares subscribed by eligible employees at a purchase price of approximately US$1.39 per share.

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

The following table sets forth information known to us with respect to the ownership of our shares as of March 31, 2006 by (1) each shareholder known by us to own more than 5 percent of our shares and (2) all directors and executive officers as a group.

Name of Owner	Shares Owned	Percentage of Shares Owned
Best Method Limited (1)	10,799,999	21.34	%
Sansar Capital Management LLC Fidelity International Small Cap Opportunity Fund	4,710,898 3,043,020	9.31 6.01	% %
Directors and executive officers as a group (8 persons)	504,320	1	%

(1) Through Best Method Limited, Jeffrey Koo, Jr. and Andre Koo jointly have a beneficial ownership of 10,799,999 common shares of our Company.

As of March 31, 2006, we had 50,601,608 ordinary shares outstanding, of which, 31,543,371 shares were listed on the NASDAQ National Market and not held by our major shareholders and directors or executive officers as disclosed above and in Item 6 “Directors, Senior Management and Employees — E. Share Ownership,” representing 62.3 percent of our total outstanding shares. As of March 31, 2006, the 31,543,371 shares listed on the NASDAQ National Market were held by 48 record holders, including nominee holders, with the registered address in the United States.

None of our major shareholders have different voting rights from those of our other shareholders.

B. Related Party Transactions

In the course of operating our business, we provide Internet access services to certain of our affiliates. We believe such transactions with affiliates were not material. In March 2006, we entered into a short term loan agreement with Chinatrust Commercial Bank with a total credit line of NT$100 million (approximately US$3 million), which was in the ordinary course of business. As of June 15, 2006, we had drawn down NT$61 million (approximately US$1.9 million) from the facility.

C. Interests of Experts and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

Financial Statements

Please refer to Item 18 “Financial Statements.”

Information on Legal or Arbitration Proceedings

Class Action

In December 2001, a class action lawsuit was filed in the U.S. District Court for the Southern District of New York against our Company in connection with the initial public offering of its stock.

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The complaint alleged that our Company violated Sections 11 and Section 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In October 2002, the plaintiffs voluntarily dismissed the individual defendants without prejudice. On February 19, 2003, the court issued an opinion and order on the defendants’ motion to dismiss, which granted the motions in part and denied the motions in part. As to our Company, the Rule 10b-5 claims were dismissed without prejudice while the Section 11 claims survived the motion. Discovery is now commencing.

In June 2004, the plaintiffs and issuer defendants, including our Company, presented the executed settlement agreement to the judge during a court conference. Subsequently, the plaintiffs and issuer defendants made a motion for preliminary approval of the settlement agreement. The key terms of the settlement agreement include: 1) the insurers of the issuers will provide an undertaking that guarantees that plaintiffs will recover a total of US$1 billion; 2) the insurers will pay up to US$15 million for the notice costs arising from the settlement; 3) the issuers shall assign their interest in certain claims against the underwriters to a litigation trust, represented by plaintiffs’ counsel; and 4) the plaintiffs shall release all of the settling issuer defendants. If plaintiffs are successful in recovering more than US$1 billion from the underwriters, the issuer defendants will not be obligated to pay any additional amounts. If the plaintiffs recover less than US$1 billion from the underwriters, the insurers will pay the deficit between US$1 billion and the amount received from the underwriters.

On February 15, 2005, the judge issued an opinion and order granting preliminary approval to the settlement agreement subject to a narrowing of the proposed bar order as to only contribution claims. In July 2005, the settling parties reached agreement and submitted modifications to the settlement agreement in accordance with the court’s opinion.

Neither our Company nor our Company’s legal counsel is able to assess the likelihood of the outcome and can determine as to the amount or range of potential loss, if any. Our Company has entered into an annually renewable insurance policy with American Insurance Group with US$10 million of liability coverage in which our Company is required to pay a US$500,000 deductible. Our Company recorded a provision of US$500,000 in 2003, representing our Company’s deductible amount, related to these claims. In 2005, our Company’s legal counsel advised that it is unlikely that our Company will have to pay any remaining, unused portion of its deductible with respect to the claims. Accordingly, our Company reversed the provision of US$500,000 in 2005. Our Company believes that the insurance coverage is sufficient to cover the liability arising from the settlement and claim.

On April 24, 2006, the court held a fairness hearing on the proposed settlement, which is subject to the court’s approval. As of this date, the court has not issued its ruling.

Alfy Settlement

On February 21, 2005, we entered into a final settlement agreement (the “Settlement”) with Alfy, Inc. (“Alfy”) to resolve royalty payment issues arising from certain agreements, including a development agreement and license, dated January 29, 2001 and an amendment to the development agreement and license, dated September 25, 2001 (together referred to as the “License Agreements”). Pursuant to the final Settlement, Alfy agreed to early termination of the License Agreements and to reduce the total minimum guaranteed royalty payment to US$0.1 million. Revenues produced from licensed Alfy content significantly decreased after 2002, and the cost to localize, maintain, and update the licensed Alfy content site became burdensome to us. By entering into the final Settlement, we eliminated future minimum guaranteed royalty payments and maintenance costs.

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Dividend Policy

We have not declared nor paid any dividends on our Shares. We anticipate that we will continue to retain any earnings for use in the operation of our business and we do not intend to pay dividends in the foreseeable future.

B. Significant Changes

Except as disclosed in this annual report, no significant change has occurred since the date of our consolidated financial statements.

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ITEM 9. THE OFFER AND LISTING

A. Offer and listing details

The following table shows, for the periods indicated, the high and low closing prices for our Shares as quoted on the NASDAQ National Market.

	Common Shares
Year Ending December 31, 2001	High		Low
	(in US$)
First quarter	$	4.00	$	1.97
Second quarter	$	2.83	$	1.12
Third quarter	$	1.41	$	0.60
Fourth quarter	$	2.76	$	0.89
	Common Shares
Year Ending December 31, 2002	High		Low
	(in US$)
First quarter	$	2.88	$	2.30
Second quarter	$	1.25	$	0.67
Third quarter	$	1.30	$	0.63
Fourth quarter	$	0.84	$	0.42
	Common Shares
Year Ending December 31, 2003	High		Low
	(in US$)
First quarter	$	1.52	$	0.66
Second quarter	$	1.21	$	0.86
Third quarter	$	2.98	$	1.17
Fourth quarter	$	3.35	$	1.44
	Common Shares
Year Ending December 31, 2004	High		Low
	(in US$)
First quarter	$	2.07	$	1.33
Second quarter	$	1.87	$	1.06
Third quarter	$	1.43	$	0.70
Fourth quarter	$	2.43	$	1.30
	Common Shares
Year Ending December 31, 2005	High		Low
	(in US$)
First quarter	$	1.86	$	1.30
Second quarter	$	2.48	$	1.38
Third quarter	$	2.66	$	1.68
Fourth quarter	$	2.99	$	1.76

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	Common Shares
Year Ending December 31, 2006	High		Low
	(in US$)
January	$	5.50	$	2.90
February	$	4.81	$	4.06
March	$	6.01	$	4.27
April	$	8.27	$	6.13
May	$	10.39	$	8.02
June (only through June 15)	$	9.00	$	6.40

B. Plan of Distribution

Not applicable.

C. Markets

Our Shares have been listed and traded on the NASDAQ National Market since February 18, 2000.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

Our current Memorandum and Articles of Association were first adopted on our date of incorporation, being September 13, 1999, and have been amended since that date.

The principal purpose of our Company is that of investment holding. Our Company’s objects and purposes are set out in full in Clause 3 of our Memorandum of Association. Subject to the provisions of the Singapore Companies Act and any other written law in Singapore and our Memorandum and Articles of Association, we have full capacity to carry on or undertake any business or activity, do any act or enter into any transaction and for such purposes, full rights, powers and privileges.

The following is a summary of certain provisions of our Articles of Association.

DIRECTORS

Each of our directors will remain in his office as a director until:

• He is prohibited from acting as a director by reason of any order made pursuant to the Singapore Companies Act;

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• He ceases to be a director by virtue of any of the provisions of the Singapore Companies Act or the Articles of Association of our Company;

• He resigns from his office;

• He receives a bankruptcy order made against him;

• He has a receiving order made against him or suspends payment or compounds with this creditors generally;

• He is found to be a lunatic or of unsound mind; or

• He is removed by an ordinary resolution passed by our shareholders in accordance with the provisions of the Singapore Companies Act.

A director of our Company who is directly or indirectly interested in a transaction, contract or arrangement with our Company shall, as soon as practicable after the relevant facts have come to his knowledge, disclose the nature of his interest at a meeting of the board of directors. Subject to such disclosure, a director shall be entitled to vote in respect of any contract or arrangement in which he is interested and he shall be taken into account in ascertaining whether a quorum is present.

Our directors may borrow or raise money from time to time for the purpose of our Company or secure the payment of such sums as they think fit and may secure the repayment or payment of such sums by mortgage or charge upon all or any of our property or assets or by the issue of debentures (whether at par or at discount or premium) or otherwise as they may think fit, provided that the directors shall not carry into effect any proposals for disposing of the whole or substantially whole of our Company’s undertaking or property unless those proposals have been approved by our Company in general meeting.

Subject to the Singapore Companies Act, the remuneration of the directors shall be determined from time to time by our Company in general meeting. Any director who is appointed to any executive office or serves on any committee or who otherwise performs or renders services, which in the opinion of the directors are outside his ordinary duties as a director, may, subject to the Singapore Companies Act, be paid such extra remuneration as the directors may determine.

Our directors are not required to hold any of our Shares by way of qualification. A director who is not a shareholder of us is nevertheless entitled to attend and speak at shareholders meetings.

AUDIT COMMITTEE

Our audit committee has the ultimate authority and responsibility to select and evaluate, on our behalf, the independent public registered accounting firms who audit our annual financial statements, subject to the appointment, replacement or removal from office of our independent public accountants been approved by our shareholders at our Annual General Meeting. Our audit committee will review and approve the planned scope of our annual audit. In accordance with our Articles of Association, all of the members of our audit committee must be persons who qualify as “independent” directors for purposes of the rules and regulations of the NASDAQ National Market.

The audit committee currently consists of Messrs. Gilbert Bao, Michael Y. J. Ding and Yichin Lee. We intend to fully comply with the requirements of the U.S. Sarbanes-Oxley Act of 2002 and the rules of the U.S. Securities and Exchange Commission thereunder and the NASDAQ National Market’s requirements relating to audit committees.

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DIVIDENDS

Our Company may by an ordinary resolution declare dividends but no dividend shall be payable except out of the profits of our Company or in excess of the amount recommended by the directors. Our profits available for dividend and determined to be distributed shall be applied to pay dividends to shareholders according to their respective rights and priorities. Except for shares with special rights as to dividends, all dividends shall be declared and paid according to the amounts paid up on shares.

All dividends unclaimed after having been declared may be invested or otherwise made use of by our board of directors for the benefit of our Company. If any dividend has not been claimed for six years from the date of declaration, such dividend may be forfeited and shall revert to our Company. However, the directors may at any time thereafter at their absolute discretion annul any such forfeiture and pay the dividend so forfeited to the person entitled thereto prior to the forfeiture. No dividend shall bear interest against our Company.

LIQUIDATION DISTRIBUTION

In the case of a winding up of our Company and in accordance with applicable laws, our shareholders may pass a special resolution to authorize a liquidator to divide and distribute our assets to our shareholders or, authorize the liquidator to vest the whole or part of our assets in trustees upon such trusts for the benefit of our shareholders but so that no shareholder will be compelled to accept shares or other securities on which there is any liability.

SHAREHOLDERS’ MEETINGS

We are required to hold an annual general meeting once in every calendar year and not more than 15 months after the preceding annual general meeting. The directors may convene an extraordinary general meeting whenever they think fit, and they must do so upon the request in writing of shareholders representing not less than 10 percent of the voting rights of our Company. In addition, two or more shareholders holding not less than 10 percent of the total number of issued shares may call a meeting of our shareholders. Unless otherwise required by law or by our Articles of Association, voting at general meetings is by ordinary resolution, requiring an affirmative vote of a simple majority of those present and voting. An ordinary resolution suffices, for example, in respect of appointments of directors. A special resolution, requiring an affirmative vote of at least 75 percent of those present and voting, is necessary for certain matters under the Singapore Companies Act, such as an alteration of our Articles of Association. Subject to the Singapore Companies Act, at least 21 days’ advance written notice specifying the intention to propose a special resolution must be given of every general meeting convened for the purpose of passing a special resolution. Subject to the Singapore Companies Act, at least 14 days’ advance written notice must be given of every general meeting convened for the purpose of passing an ordinary resolution.

VOTING RIGHTS

Voting at any meeting of our shareholders is by a poll. On a poll every shareholder who is present in person or by proxy has one vote for every share held by him.

SHARE CAPITAL

We generally have the right by obtaining a general mandate at the annual general meeting to repurchase not more than 10 percent of our own Shares in issue.

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Our board of directors may make a capital call on our shareholders with respect to the amounts unpaid on their shares and the shareholders are required to pay the amount called at the time(s) and place as appointed by the board of directors. The board of directors may revoke a call or postpone the time previously fixed for the call payment.

We may by ordinary resolution:

(i) consolidate and divide some or all of our share capital into shares of a larger nominal value than our existing Shares;

(ii) subject to the Singapore Companies Act (Chapter 50), sub-divide some or all of our Shares into shares of a smaller nominal value than is fixed by our Memorandum of Association, provided always that in such sub-division, the proportion between the amount paid and the amount (if any) unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived;

(iii) cancel any shares which have not been taken or agreed to be taken by any person or which have been forfeited at the date of the passing of the resolution and reduce the amount of our share capital by the amount of the shares so cancelled; or

(iv) subject to the Singapore Companies Act (Chapter 50) and our Articles of Association, convert any class of our Shares into any other class of shares.

We may also by special resolution reduce our share capital and any capital redemption reserve fund and any share premium account in any manner as authorized by law.

We are not required to provide any sinking fund pursuant to our Articles of Association. There was no provision discriminating against any existing or prospective holder of shares as a result of such shareholder owning a substantial number of our Shares.

There was no limitation on the rights of non-resident or foreign shareholders to hold or exercise voting rights on the shares.

MODIFICATION OF RIGHTS

We may vary or abrogate any special rights attached to any class of our Shares by a special resolution passed at a separate meeting of holders of the shares of that class or, where the necessary majority for such special resolution is not obtained at the meeting, with the consent in writing of the holders of three-fourths in nominal value of the issued shares of that class within two months of such meeting.

TRANSFER OF SHARES

Subject to our Articles of Association, our Shares are freely transferable but our directors may, in their absolute discretion, decline to register any transfer of our Shares on which we have a lien. All of our outstanding Shares have been fully paid. In addition, our directors may refuse, at their discretion, to register or transfer shares to a transferee of whom they do not approve. Shares may be transferred by a duly signed instrument of transfer in the usual common form or in a form approved by our directors. Our directors may decline to register any transfer of shares evidenced in certificated form unless, among other things, it has been duly stamped and is presented for registration together with the share certificate and other evidence of title as they may require. We will replace worn-out or defaced certificates for shares upon production thereof to the directors and upon payment of such fee as specified in our Articles of Association. We will replace lost, destroyed or stolen certificates for shares upon, among other things, the applicant furnishing evidence and such indemnity as the directors may require.

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TAKEOVERS

The acquisition of shares of public companies is regulated by the Singapore Securities and Futures Act (Chapter 289) and the Singapore Code on Take-overs and Mergers. Any person, either on his own or together with parties acting in concert with him, acquiring an interest in 30 percent or more of our voting shares is obliged to extend a takeover offer for the remaining shares which carry voting rights, in accordance with the provisions of the Singapore Code on Take-overs and Mergers. “Parties acting in concert” include a company and its related and associated companies, a company and its directors, including their close relatives and related trusts, a company and its pension funds and employee share schemes, a person and any investment company, unit trust or other fund whose investment such person manages on a discretionary basis and a financial advisor and its client in respect of shares held by the financial advisor and all the funds managed by the financial advisor on a discretionary basis where the shareholdings of the financial advisor and any of those funds in the client total 10 percent or more of the client’s equity share capital. The offer must be in cash or be accompanied by a cash alternative at not less than the highest price, excluding stamp duty and dealing costs, paid by the offeror or parties acting in concert with him for shares of that class within the preceding six months. A mandatory takeover offer is also required to be made if a person holding between 30 percent and 50 percent, both inclusive, of the voting shares, either on his own or together with parties acting in concert with him, acquires additional shares representing more than 1 percent of the voting shares in any six-month period.

AMENDMENTS TO THE ARTICLES OF ASSOCIATION

It should be noted that the Singapore Companies Act has been amended with effect from January 30, 2006 resulting in significant changes to the companies law regime. These amendments include the abolition of the concepts of par value and authorized capital, and allowing repurchased shares to be held as treasury shares. With the abolition of the concept of par value pursuant to the Companies (Amendment) Act 2005, shares of a company no longer have any par or nominal value. The concepts of share premium and the issue of shares at a discount have also been abolished. Some of the Articles of Association described in this Item 10.B are proposed to be amended at the coming annual general meeting of our Company to be held on June 29, 2006. Details of these proposed amendments are set out in the notice of the annual general meeting dated June 6, 2006.

C. Material Contracts

The following are summaries of our material contracts entered into over the past two years. However, these summaries may not contain all the information important to you. For more complete information, you should read the entire agreements, which have been included as exhibits to this annual report or incorporated into this annual report by reference from our annual reports on Form 20-F filed with the Commission on June 30, 2004.

Stock Purchase Agreement, dated as of March 17, 2004, between CESL (previously GigaMedia International Limited), GV Holding Company, and Alexander Saidakovsky, Alexander Ganelis and Daniil Utin

On March 17, 2004, through our wholly-owned subsidiary, CESL, we entered into a stock purchase agreement with GV Holding Company, Alexander Saidakovsky, Alexander Ganelis and Daniil Utin to acquire all of the issued and outstanding shares of Grand Virtual, Inc. in a private transaction for an all-cash consideration of US$32.5 million.

End-User License Agreement dated April 1, 2004, between IML and UIM, as amended by the Second Amendment to the End-User License Agreement dated March 1, 2006

On April 1, 2004, IML entered into an end-user license agreement with UIM pursuant to which IML granted a non-exclusive, non-transferable, world-wide license to UIM to use our software and certain operational and support services for a licensing fee based on a revenues sharing arrangement between us and UIM. The agreement is for a term of ten years.

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Purchase and Sale Agreement, dated June 23, 2005, between Hoshin GigaMedia and Webs-TV

On June 23, 2005, we entered into an agreement with Webs-TV to assign our Internet content business at a consideration of an amount in NT dollars equivalent to approximately US$0.7 million and, for a period of ten years commencing from January 1, 2006, a portion of the net revenues generated from the gigigaga.com.tw Web site will be transferred. Pursuant to the agreement, we have transferred to Webs-TV all properties relating to the operation of our gigigaga.com.tw Web site, including fixed assets, the gigigaga logo, and our content and data.

Share Purchase Agreement, dated September 17, 2005, between GigaMedia and Nextbase International Ltd.

On September 17, 2005, we entered into an agreement with Nextbase International Ltd. to sell our 9,262,501 shares in G-Music Limited (the “Target Shares”) which accounted for 58.6 percent of the total issued and outstanding shares in G-Music Limited. The total purchase price for all the Target Shares was US$5.15 million.

Asset Sale and Purchase Agreement, dated December 19, 2005, between GigaMedia, FunTown World Limited, Hoshin GigaMedia and TWP

On December 19, 2005, through our wholly-owned subsidiaries, FunTown World Limited and Hoshin GigaMedia, we entered into a definitive agreement with TWP to acquire FunTown. On January 2, 2006, we completed the acquisition of FunTown and purchased certain assets and assumed certain liabilities of FunTown from TWP. The total purchase price of approximately US$43 million consisted of cash payments of approximately US$27.2 million and zero coupon convertible notes in the aggregate principal amount of approximately US$15 million, representing a valuation premium of US$0.7 million as determined by KGI Securities Co. Ltd. The convertible notes were issued on January 1, 2006 by our Company to TWP, in the aggregate principal amount of approximately NT$494 million (US$15 million) with 50 percent maturing on January 1, 2008 and 50 percent maturing on January 1, 2009 and were convertible into 4,794,000 shares of our common stock at US$3.1287 per share (The conversion price is subject to adjustment for stock dividend, stock split, reserve stock split, recapitalization, merger, and other dilution). We have the right to redeem the convertible notes, in whole or in part, within 12 months after the issue date, together with the accrued interest at 5 percent per annum. On January 1, 2006, we pledged our share holdings in Hoshin GigaMedia as collateral for the notes. Direct transaction costs amounting to approximately US$107 thousand were included as part of the acquisition cost.

The transaction also included an incentive in the form of an additional amount to be paid by GigaMedia on April 1, 2007, which amount will be determined as follows:

(i) If the growth of the pre-tax net income of FunTown in 2006 is 30 percent or more, the additional payment will be US$5 million;

(ii) If the growth of the pre-tax net income of FunTown in 2006 is 25 percent or above but less than 30 percent, the additional payment will be US$4.17 million;

(iii) If the growth of the pre-tax net income of FunTown in 2006 is 20 percent or above but less than 25 percent, the additional payment will be US$3.33 million;

(iv) If the growth of the pre-tax net income of FunTown in 2006 is 15 percent or above but less than 20 percent, the additional payment will be US$2.5 million; and

(v) If the growth of the pre-tax net income of FunTown in 2006 is less than 15 percent, no additional payment will be made by GigaMedia.

FunTown is one of the leading casual games platforms in Asia. FunTown generates revenues through access fees and also through the sales of various in-game items. We acquired FunTown in order to enhance our position in the online entertainment market.

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Put-Call Option Agreement, dated December 21, 2005, between Hoshin GigaMedia and JSDWAY

On December 21, 2005, our wholly-owned subsidiary, Hoshin GigaMedia, entered into a put-call option agreement with JSDWAY. As of the date of the put-call option agreement, Hoshin GigaMedia owns 4,905,000 common shares (the “Put-Call Shares”) of Gamania. According to the put-call option agreement, JSDWAY granted Hoshin GigaMedia an option to sell to JSDWAY the Put-Call Shares at the price of NT$18.7 (US$0.57) per share exercisable before December 21, 2006, and Hoshin GigaMedia granted JSDWAY an option to buy from Hoshin GigaMedia the Put-Call Shares at the price of NT$18.7 (US$0.57) per share exercisable before December 21, 2006. As of December 31, 2005, neither Hoshin GigaMedia nor JSDWAY had exercised the put-call option agreement. See Note 10, “Marketable Securities – Current” of our consolidated financial statements for further information.

Subscription Rights Agreement, dated March 10, 2006, between Hoshin GigaMedia and Wretch

On March 10, 2006, our wholly-owned subsidiary Hoshin GigaMedia entered into a subscription rights agreement with Wretch. Wretch is a leading online “community” offering a wide range of community services including blogs, photo albums and bulletin boards. According to the subscription rights agreement, Hoshin GigaMedia was granted a right to acquire up to a 20 percent equity stake in Wretch with a valuation based on a pre-agreed formula if and when Wretch increases its share capital within three years of the date of this subscription rights agreement. In exchange for these rights, Hoshin GigaMedia agreed to provide Wretch with certain free Internet services for three years.

Share Purchase Agreement, dated April 27, 2006, between GigaMedia China Limited and T2CN

On April 27, 2006, our wholly-owned subsidiary, GigaMedia China Limited (“GigaMedia China”), entered into a share purchase agreement with T2CN, an online casual sports games operator in the PRC, pursuant to which GigaMedia China made an initial investment of US$15 million to acquire 7.5 million shares of convertible preferred stock. GigaMedia China also obtained the right to elect one member to the board of directors of T2CN, along with customary preferred share rights and protections. The convertible preferred shares have an initial liquidation preference, are entitled to receive cumulative dividends at 8 percent per annum, and are redeemable starting December 31, 2009. The preferred shares are convertible into common shares of T2CN based on a valuation of 8.65 times the forward net income of T2CN for the 12-month period ending on March 31, 2007, subject to certain adjustments and limitations.

Strategic Partnership Agreement, dated April 27, 2006, between T2CN and GigaMedia China

On April 27, 2006, through our wholly-owned subsidiary GigaMedia China, we entered into a strategic partnership agreement with TC2N. Pursuant to this strategic partnership agreement, GigaMedia and T2CN will together offer FunTown’s existing games to the T2CN user base. GigaMedia will become T2CN’s exclusive provider for FunTown’s existing games and preferred provider for games newly developed by GigaMedia.

Asset Purchase and Sale Agreement, dated May 15, 2006, between Hoshin GigaMedia and Webs-TV

On May 15, 2006, our wholly-owned subsidiary, Hoshin GigaMedia, entered into an agreement with Webs-TV, a Taiwan digital content provider, to sell GigaMedia’s ADSL business. Under the agreement, Webs-TV purchased our ADSL business in an all cash transaction with a total price of approximately US$9.7 million and is payable from May 16, 2006 through July 31, 2007. The transferred ADSL business includes GigaMedia’s ADSL-related equipment, business contracts, and subscription contracts between Hoshin GigaMedia and approximately 62,000 ADSL subscribers, as well as the right to use our ADSL brand for five years.

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Service Agreement, dated May 15, 2006, between Hoshin GigaMedia and Webs-TV

In connection with the sale of our ADSL business, we agreed on May 15, 2006 to provide Webs-TV with the following support and administrative services that are necessary for the ADSL business on a transitional basis: bandwidth support, consulting and other services through December 31, 2007. For these services, Webs-TV shall pay us a fee of approximately US$8.2 million which is payable from May 16, 2006 through December 31, 2007. The term of this agreement is from May 16, 2006 to December 31, 2007.

D. Exchange Controls

There are currently no foreign exchange regulations which restrict the export or import of our capital and the ability of our subsidiaries to distribute dividends to us. There are no limitations on the right of a non-resident or foreign owner to hold or vote the shares imposed by Singapore law or by our Articles of Association.

E. Taxation

Singapore Tax Considerations

Taxation of Dividends received by Singapore Resident Shareholders

Dividends paid by us would be taxable in Singapore if they are received in Singapore or if they are considered, in the hands of a particular shareholder, to be derived in Singapore (for example if they constitute the income of a trade or business carried out in Singapore).

Under the Singapore-Taiwan Tax Treaty, if a dividend is paid by a company which is tax resident in Taiwan to a person who is tax resident in Singapore, the tax on the dividend shall not exceed an amount which, together with the corporate income tax on the profits of the company paying the dividends, constitutes 40 percent of that part of the taxable income out of which the dividends are paid. The term “corporate income tax payable” shall be deemed to include the corporate income tax that would have been paid but for the reduction or exemption under the laws designed to promote economic development.

If our shareholder, whether a company or an individual, receiving or deriving such dividends is tax resident in Singapore, he would be entitled to foreign tax credits under the Singapore-Taiwan Tax Treaty and, if the recipient is a company which owns not less than 25 percent of our shares, the tax credit will include underlying tax paid by us. Singapore foreign tax credit is limited to the lower of the foreign tax suffered and the Singapore tax payable on the net foreign income (after attributable and allowable expenses). Certain foreign dividends received by a Singapore resident person on or after June 1, 2003 will, however, be exempt from tax. The main conditions to be satisfied for such exemption are that:

(a) the dividends are received from a jurisdiction with a maximum tax rate on the trade or business income of a company of at least 15 percent; and

(b) the dividends themselves, or the income from which they are paid, have been subject to tax in the foreign jurisdiction or have been exempted from tax under an incentive granted for substantive business activities.

The normal tax rate for corporate profits is 20 percent for the year of assessment 2005 (i.e. for the income earned in the financial year or other basis period ended 2006). Resident individuals are subject to tax at progressive rates. Based on proposals made by the government in the 2006 budget, the maximum individual tax rate would be 20 percent for the year of assessment 2007.

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If our shareholders are corporations, our shareholders will be regarded as being tax resident in Singapore if the control and management of our shareholders’ business is exercised in Singapore. For example, if our shareholders’ board of directors meets and conducts the business of our shareholders’ company in Singapore, our shareholders will be regarded as tax residents of Singapore. If our shareholders are individuals, our shareholders will be regarded as being tax resident in Singapore in a year of assessment if, in the preceding year, our shareholders were physically present in Singapore or exercised an employment in Singapore (other than as directors of a company) for 183 days or more or if our shareholders had resided in Singapore.

All foreign-sourced income received (except for income received through a partnership in Singapore) in Singapore on or after January 1, 2004 by tax resident individuals will be exempt from tax.

Gains on Disposal of Shares

Singapore does not impose a tax on capital gains. However, there are no specific laws or regulations which deal with the characterization of capital gains and hence, gains may be construed to be of an income nature and subject to tax if they arise from activities which the Inland Revenue Authority of Singapore regards as the carrying on of a trade or business in Singapore.

Stamp Duty

There is no stamp duty payable in respect of the issuance and holding of shares. Where existing shares are acquired in Singapore, stamp duty is payable on the instrument of transfer of the shares at the rate of S$2.00 for every S$1,000 of the consideration for, or market value of, the shares, whichever is higher. The stamp duty is borne by the purchaser unless there is an agreement to the contrary. Where an instrument is executed outside Singapore, or no instrument of transfer is executed, no stamp duty is payable on the acquisition of existing shares. However, stamp duty would be payable if an instrument of transfer which is executed outside Singapore is received in Singapore.

Under Singapore law, our directors may not register a transfer of shares unless the instrument of transfer has been duly stamped.

Singapore Estate Duty

With respect to deaths occurring on or after January 1, 2002, the movable property of persons who are not domiciled in Singapore at the time of death are exempt from estate duty. Therefore, an individual holder of shares who is not domiciled in Singapore at the time of his or her death will not be subject to Singapore estate duty on the value of our Shares.

If our shareholders are individuals who are domiciled in Singapore, Singapore estate duty is imposed on the value of most immoveable property situated in Singapore and on most movable property, wherever it may be situated, subject to specific exemption limits. Accordingly, our Shares held by an individual domiciled in Singapore are subject to Singapore estate duty upon such an individual’s death. Singapore estate duty is payable to the extent that the value of our Shares aggregated with any other assets subject to Singapore estate duty exceeds S$600,000. Unless other exemptions apply to the other assets, for example, the separate exemption limit for residential properties, any excess beyond S$600,000 will be taxed at 5 percent on the first S$12,000,000 of the individual’s Singapore chargeable assets and thereafter at 10 percent.

Individuals should consult their own tax advisors regarding the Singapore estate duty consequences of their ownership of our shares.

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U.S. Federal Income Tax Considerations for U.S. Holders

The following is a discussion of certain U.S. federal income tax considerations for investors in our Shares that are U.S. persons (as defined below) that hold the shares as a capital asset. This discussion is based on U.S. federal income tax law as in effect on the date hereof which is subject to change, possibly on a retroactive basis. This discussion is for general information only and does not address all of the tax considerations that may be relevant to you in light of your particular circumstances or if you are subject to special treatment under the U.S. federal income tax laws including if you are:

• a bank;

• a broker-dealer;

• a financial institution or an insurance company;

• a tax-exempt entity;

• a person holding shares as part of a straddle, hedge, conversion or other integrated investment;

• a person owning, actually or constructively, 10 percent or more of the combined voting power of all classes of our stock; or

• a person whose “functional currency” is not the U.S. dollar.

This discussion does not address any U.S. state, local or foreign or any U.S. federal estate, gift or alternative minimum tax consideration of a holder of our shares.

As used in this discussion, the term “U.S. person” means:

• an individual who is a citizen or resident of the United States;

• a corporation, or other entity treated as a corporation, created or organized under the laws of the United States or any political subdivision thereof;

• an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

• a trust if (1) it is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) has otherwise elected to be treated as a U.S. person under the Internal Revenue Code.

If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) holds our Shares, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our Shares, you are urged to consult your tax advisors as to the particular U.S. federal income tax consequences as applicable to you.

You are urged to consult your tax advisor concerning the particular U.S. federal, state, local and foreign income and other tax considerations regarding the ownership and disposition of the shares including the application of the passive foreign investment company rules discussed below. Investors should review the discussion below under “Passive Foreign Investment Company Rules” carefully.

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Taxation of Dividends

Except as discussed below with respect to the passive foreign investment company tax rules, the amount of distributions you receive on your shares (other than certain pro rata distributions of shares or rights to subscribe for shares) will generally be treated as dividend income to you if the distributions are made from our current and accumulated earnings and profits as calculated according to U.S. federal income tax principles. You will include such dividends in your gross income as ordinary income on the day you actually or constructively receive them. The amount of any distribution of property other than cash will be the fair market value of such property on the date it is distributed. A non-corporate recipient of dividend income will generally be subject to tax on dividend income from a “qualified foreign corporation” at a maximum U.S. federal tax rate of 15 percent rather than the marginal tax rates generally applicable to ordinary income so long as certain holding period requirements are met. A non-U.S. corporation (other than a passive foreign investment company) generally will be considered to be a qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information program or (ii) with respect to any dividend it pays on stock which is readily tradable on an established securities market in the United States. There is currently no tax treaty in effect between the United States and Singapore. Our shares are expected to be readily tradable on the NASDAQ National Market, an established securities market in the United States. Distributions, if any, in excess of current and accumulated earnings and profits will constitute a return of capital and will be applied against and reduce the holder’s tax basis in such shares. To the extent that distributions are in excess of such basis, the distributions will constitute capital gain as discussed below. U.S. corporate holders will generally not be eligible for the dividends received deduction for distributions to domestic corporations in respect of distributions on shares.

The amount of any distribution paid in a currency other than the U.S. dollar will equal the U.S. dollar value of the foreign currency you receive, calculated by reference to the exchange rate in effect on the date you actually or constructively receive the distribution regardless of whether the foreign currency is actually converted into U.S. dollars. If you do not convert the foreign currency you receive as a dividend on the date of receipt, you will have a basis in such foreign currency equal to its U.S. dollar value on the date of receipt. Any gain or loss you realize when you subsequently sell or otherwise dispose of such foreign currency generally will be ordinary income or loss from sources within the United States for foreign tax credit limitation purposes.

Holders may generally elect to claim a credit against their U.S. federal income tax liability for Singapore tax withheld from dividends received in respect of the shares. The rules relating to the determination of the foreign tax credit are complex and prospective purchasers are urged to consult their personal tax advisors to determine whether and to what extent they would be entitled to such credit. Holders that do not elect or are not permitted to claim foreign tax credits may instead claim a deduction for Singapore tax withheld. You will not be eligible for a foreign tax credit for the underlying Singapore taxes on profits paid by us with respect to such dividends.

Sale or other disposition of shares. Except as discussed below with respect to the passive foreign investment company tax rules, a holder generally will recognize capital gain or loss for U.S. federal income tax purposes upon a sale or other disposition of our shares in an amount equal to the difference between the amount realized from the sale or disposition and the holder’s adjusted tax basis in the shares. Such gain or loss generally will be long-term (taxable at a reduced rate for individuals) if, on the date of sale or disposition, the shares were held by the holder for more than one year and will generally be treated as gain or loss from U.S. sources for foreign tax credit purposes. The deductibility of a capital loss may be subject to limitations.

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Passive Foreign Investment Company Rules

In general, we will be classified as a “passive foreign investment company” (“PFIC”) for any taxable year if either (i) at least 75 percent of our gross income is passive income or (ii) at least 50 percent of the value (determined on the basis of a quarterly average) of our assets produce or are held for the production of passive income. Based upon an analysis of our income and assets for the 2005 taxable year as reasonably approximated for purposes of applying the PFIC rules, we do not believe we should be classified as a PFIC for the 2005 taxable year. Whether we are classified as a PFIC in the current or any future taxable year will be determined on the basis of, among other things, our asset values (including, among other items, the level of our cash, cash equivalents and short-term investments), and gross income (including whether such income is active versus passive income as specially determined under the PFIC rules) for such taxable year, which assets, and gross income are subject to change from year to year. In January 2006, we acquired FunTown for cash (plus other consideration) and we continue to investigate opportunities, which may give rise to the acquisition of additional businesses for cash, thereby reducing our cash or other investment assets. If we acquire additional businesses for cash, we may, in turn, mitigate our risk of being or becoming classified as a PFIC. Because the determination of whether we are a PFIC is a factual determination made annually and because there are uncertainties in the application of the relevant rules, there can be no assurance we will not be classified a PFIC in the current or any future taxable year. Provided we are a PFIC for any taxable year during your holding period of our shares, the PFIC tax rules discussed below generally will apply in future years even if we cease to be a PFIC in subsequent years. U.S. holders who are individuals will not be eligible for reduced rates of taxation on any dividends, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.

If we were classified as a PFIC for any taxable year during which you held shares, and unless you make a mark-to-market election (as described below), you will generally be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, on (i) any excess distribution that we make to you (which generally means any distribution received by you in a taxable year that is greater than 125 percent of the average annual distributions received by you in the three preceding taxable years or your holding period for the shares, if shorter), and (ii) any gain realized on the sale or other disposition, including a pledge, of shares. Under these PFIC rules:

• the excess distribution or gain would be allocated ratably over your holding period for the shares;

• the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we are classified as a PFIC (a “pre-PFIC year”) would be taxable as ordinary income;

• the amount allocated to each prior taxable year, other than the current taxable year or a pre-PFIC year, would be subject to tax at the highest tax rate in effect applicable to you for that year; and

• the interest charge generally applicable to underpayments of tax would be imposed on the tax attributable to each prior taxable year, other than the current taxable year or a pre-PFIC year.

As an alternative to the foregoing rules, a holder of “marketable stock” in a PFIC may make a mark-to-market election, provided that the shares are actively traded on a “qualified exchange.” Under applicable Treasury regulations, a “qualified exchange” includes a national securities exchange that is registered with the Commission or the national market system established under the Securities and Exchange Act of 1934 (i.e., the NASDAQ National Market). In addition, we believe that, based on the current level of trading activity of our shares on the NASDAQ National Market, our shares should qualify as being actively traded, but no assurances may be given in this regard. If you make this election, you will generally (i) include as income for each taxable year the excess, if any, of the fair market value of your shares at the end of the taxable year over the adjusted tax basis of the shares and (ii) deduct as a loss the excess, if any, of the adjusted tax basis of the shares over the fair market value of the shares at the end of the taxable year, but only to the extent of the amount previously included in income as a result of the mark-to-market election. Your adjusted tax basis in the shares would be adjusted to reflect any income or loss resulting from the mark-to-market election. If you make a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, you will generally not be required to take into account the gain or loss described above during any period that such corporation is not classified as a PFIC.

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The “QEF Election”, which serves as a further alternative to the foregoing rules, is not available.

If you own shares during any year that we are a PFIC, you must file an annual IRS Form 8621. In the case of investors who have held our Shares during any taxable year in respect of which we were classified as a PFIC and continue to hold such shares (or any portion thereof), who have not previously determined to make a mark-to-market election, and who are now considering the making of a mark-to-market election, special tax rules may apply relating to purging the PFIC taint of such shares. You are urged to consult your tax advisor concerning the U.S. federal income tax consequences of purchasing, holding, and disposing our Shares if we are or become classified as a PFIC, including the possibility of making a mark-to-market election

Information Reporting and Backup Withholding

In general, unless you are an exempt recipient such as a corporation and demonstrate this when required, information reporting will apply to dividend payments that we make to you paid within the United States (and in some cases, outside of the United States). Additionally, if you fail to provide your taxpayer identification number, or fail either to report in full dividend and interest income or to make the necessary certifications, you will be subject to backup withholding.

In general, payment of the proceeds from the sale of shares to or through a U.S. office of a broker is subject to both U.S. backup withholding and information reporting unless you certify as to your non-U.S. status under penalties of perjury or otherwise establish an exemption. U.S. information reporting and backup withholding generally will not apply to a payment made outside the United States of the proceeds of a sale of shares through an office outside the United States of a non-U.S. broker. However, U.S. information reporting requirements (but not backup withholding) will apply to a payment made outside the United States of the proceeds of a sale of shares through an office outside the United States if the broker is:

• a U.S. person;

• a foreign person 50 percent or more of whose gross income is effectively connected with a U.S. trade or business for a specified three-year period;

• a “controlled foreign corporation” for U.S. tax purposes; or

• a foreign partnership, if at any time during its tax year;

• one or more of its partners are U.S. holders (as defined in U.S. Treasury regulations) who in the aggregate hold more than 50 percent of the income or capital interest in the partnership; or

• such foreign partnership is engaged in a U.S. trade or business;

unless the broker has documentary evidence in its files that you are a non-U.S. person or you otherwise establish an exemption.

Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, provided you furnish the required information to the Internal Revenue Service.

F. Dividends and Paying Agents

Not applicable.

G. Statements by Experts

Not applicable.

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H. Documents on Display

The Commission allows us to “incorporate by reference” the information we file with the Commission. This means that we can disclose important information to you by referring you to another document filed separately with the Commission. The information incorporated by reference in this annual report is considered to be part of this annual report. We therefore incorporate by reference in Item 19 of this annual report certain exhibits, which we filed with the Commission in prior filings. You may read and copy this annual report, including the exhibits incorporated by reference in this annual report, at the Commission’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can also request copies of this annual report, including the exhibits incorporated by reference in this annual report, upon payment of a duplicating fee, by writing for information on the operation of the Commission’s Public Reference Room.

You may also request a copy of our Commission filings, at no cost, upon written request to our investor relations department at 14th Floor, No. 122, Tunhwa North Road, Taipei 10595, Taiwan, R.O.C., or e-mail to: Brad.miller@GigaMedia.com.tw. A copy of each report submitted in accordance with applicable U.S. law is also available for public review at our principal executive offices.

I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss related to adverse changes in market prices, including interest rates and foreign exchange rates, of financial instruments. We are exposed to various types of market risks, including changes in interest rates and foreign currency exchange rates, in the normal course of business.

Foreign Currency Exchange

Our subsidiaries conclude most of their business transactions in their own measurement currencies, therefore the foreign currency risks derived from operations are not significant. However, we hold some assets or liabilities in foreign currency other than measurement currency and the value of these assets and liabilities are subject to foreign currency risks resulting from fluctuations in exchange rates between the foreign-denominated currency and the measurement currency. Because expenses denominated in foreign currencies historically have not been material, we have not tried to reduce our exposure to exchange rate fluctuations by using hedging transactions. However, we may choose to do so in the future.

As of December 31, 2005, we had bank deposits of approximately US$0.4 million denominated in foreign currencies other than measurement currencies of the entities holding such assets. These assets are subject to foreign currency exchange risk. We recorded a realized foreign exchange loss of US$132 thousand and unrealized foreign exchange gain of US$283 thousand in 2005.

As of December 31, 2005, we had available-for-sale marketable securities of approximately US$1.8 million denominated in foreign currencies other than measurement currencies of the entities holding such assets. Changes in the value of these marketable securities resulting from movements in foreign exchange rates are reported in the separate component of shareholders’ equity until realized. As of December 31, 2005, unrealized foreign exchange gain for these marketable securities was approximately US$40 thousand.

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Interest Rate Sensitivity

Our exposure to interest rates relates primarily to our investments in marketable securities. As of December 31, 2005, we had approximately US$14.3 million of investment in fixed-income or money market investment funds. These investments are subject to interest rate risk in that the value of their holdings in debt instruments will fall if market interest rates increase. Declines in interest rates over time will, however, reduce our interest income from our bank deposits. We have not entered into any interest rate swaps, caps or any hedge contracts to modify our exposure to interest rate fluctuations.

Other Market Risk

We are also exposed to other market risk, which is mainly derived from our investments in Gamania, other investee companies and investment funds. Changes in the stock price, the performance or the net asset value of these companies and investment funds might have significant impact on our financial positions or operating results.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and our chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this annual report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, rather than absolute, assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation and taking into account the foregoing, our chief executive officer and chief financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported on a timely basis and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

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In February and May 2005, our audit committee was notified by our preceding independent auditors, PricewaterhouseCoopers, in connection with their audit of our consolidated financial statements for the year ended December 31, 2004 that they had identified certain material weaknesses in our internal controls. Specifically our auditors noted: (1) deficiencies in the inventory costing and measuring and monitoring inventory status of our land-based music distribution business, including calculation of inventory costing and related cost of sales on the lump sum averaged basis rather than as an item by item basis; inadequate formula set up in the calculation spreadsheet for inventory costing, lack of controls surrounding obsolete and excess inventory and lack of cycle counts to monitor the inventory status throughout the year, (2) lack of adequate documentation on the status of legal proceedings and lack of an effective communication procedure to deliver the contract review results to the accounting department and to reflect the results on the financial statements, (3) certain weaknesses with respect to the pre-approval process for the authorization of our audit and non-audit services by our audit committee,(4) certain weaknesses with respect to our review procedures for related-party transactions, and (5) certain weaknesses with respect to our procedures for income tax accounting and approval of short term loan. In response to such findings, our senior management undertook necessary remedial measures to strengthen our internal control processes and procedures, and as a result, no material weaknesses were identified by our auditors in the fiscal year ended December 31, 2005. Remedial measures undertaken by management in the fiscal year ended December 31, 2005 included the following:

• Prior to the divestiture of our land-based music distribution business in September 2005, we finished the roll-out of our new point of sale, or “POS” system. The new POS system allowed us to (1) track and account for inventory cost on a per-unit basis, (2) significantly increase the level of automation in the inventory costing process and (3) better manage the issues of obsolete and excess inventory by monitoring and analyzing the level and mix of our inventory using data provided by the POS system.

• We implemented a new legal documentation process, including a control log sheet of all material legal proceedings maintained by the general counsel’s office, which is designed to monitor the development of outstanding litigations and to ensure timely disclosure of estimates for the probable influences of litigations in our financial statements.

• We developed a pre-approval process for the authorization of our audit and non-audit services to ensure the engagement and performance of all audit and non-audit service provided by our auditor are approved and supervised by our audit committee.

• We established guidelines on related-party transactions, including related-party identification and review procedures, to ensure that all the transactions between a related party and the Company are entered in accordance with applicable regulatory requirements and are approved by our audit committee. All transactions between related parties and the Company, including short-term borrowings from related parties, are submitted to our audit committee for approval semi-annually.

• We implemented procedures for income tax accounting, recruited an additional manager with expertise in accounting for income taxes and engaged an independent tax consultant to ensure the appropriate preparation of our year-end income tax provision and our income tax related balance sheet account.

With the implementation of these additional control processes and procedures, we believe we have remediated the weaknesses previously identified by PricewaterhouseCoopers.

Additionally, we have commenced the implementation of the reporting requirements of Section 404 of the U.S. Sarbanes-Oxley Act of 2002. For the year ending December 31, 2006, we will be required to comply with Section 404 of the Sarbanes Oxley Act, which requires that a report on management’s assessment of the effectiveness of internal control over financial reporting be issued and that management’s assessment be independently audited by the company’s auditors. We are continuing with our program towards compliance with Section 404 internal controls.

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Scope of Internal Control Over Financial Reporting

As of December 31, 2005, with regards to the scope of our assessment, we did not have the right or authority to assess, modify or dictate the internal controls of UIM, nor have we reviewed its internal control. We also lacked the ability, in practice, to make the assessment, as we did not have control of this entity. Accordingly, our conclusions regarding the effectiveness of our disclosure controls and procedures and internal control over financial reporting do not extend to the disclosure controls and procedures and internal control over financial reporting of UIM. However, we do have adequate internal controls in place to ensure that the financial information for UIM is appropriately included in our financial statements.

Changes in Internal Control Over Financial Reporting

During the year ended December 31, 2005, other than as discussed above, there have not been any significant changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Mr. Michael Y. J. Ding, a member of our audit committee, qualifies as an audit committee financial expert in accordance with the requirements of Item 16A of Form 20-F. Mr. Ding has served as an independent director of our board and a member of our audit committee since July 30, 2003. Mr. Ding is currently president and chairman of Fubon Securities Investment Consulting Co. Ltd. Prior to that, Mr. Ding was president and chief executive officer of Fubon Asset Management Co. Ltd., president and fund manager of the R.O.C. Fund (listed on the New York Stock Exchange), as well as president of the International Investment Trust Co. in Taiwan, where he also served as chief investment officer and a senior vice president. Prior to that, Mr. Ding was a chief economist and head of research at Citicorp International Securities Ltd. in Taipei and head of research and information for the Greater China region at McKinsey & Co., Inc.

ITEM 16B. CODE OF ETHICS

We have adopted a code of ethics, as defined in Item 16B of Form 20-F. Our code of ethics applies to our chief executive officer, chief financial officer and persons performing similar functions as well as to our directors, other officers, employees and consultants. The code of ethics was amended on December 19, 2005 in order to conform certain provisions in it with our newly adopted antifraud policy. Our code of ethics is available on our Web site at http://www.gigamedia.com.tw/code.htm. If we further amend any provisions of our code of ethics that apply to our chief executive officer, chief financial officer or persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our Web site at the same address. We will also provide any person without charge a copy of our code of ethics, upon written request to our investor relations department at 14th Floor, No. 122, Tunhwa North Road, Taipei 10595, Taiwan, R.O.C., or e-mail to: Brad.miller@GigaMedia.com.tw.

On December 19, 2005, our board of directors adopted an antifraud policy for the purpose of preventing fraud schemes, including fraudulent financial reporting, misappropriation of assets, any fraud committed by senior management, and information technology fraud. According to our antifraud policy, our audit committee is responsible for monitoring the implementation of our antifraud policy and procedures, and an antifraud taskforce is assigned by our audit committee to be responsible for the hotline management, risk assessment, complaint investigation and resolution, and reporting to our chief executive officer, chief financial officer and audit committee.

On May 10, 2006, our audit committee adopted a whistleblower program pursuant to our antifraud policy. The whistleblower program enables all employees to know how and when to use the whistleblower hotline, and communicate or report, on a confidential or anonymous basis, without fear of retribution, concerns related to wrongdoings or violations, and ensures that all reported incidents are properly investigated.

87

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table summarizes the aggregate fees billed to us by PricewaterhouseCoopers in Taiwan and Singapore during the fiscal year ended December 31, 2004 and by GHP Horwath, P.C. during the fiscal year ended December 31, 2005.

	Year Ended December 31,
	2004	2005
	(in US$)	(in US$)
Audit Fees	323,994	360,959
Audit-Related Fees	113,000	2,245
Tax Fees	17,000	11,967
Other Fees	0	0

A. Audit Fees

Audit fees consist of fees billed for our statutory consolidated financial statements and the statutory financial statements of our subsidiaries.

B. Audit-Related Fees

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, such as accounting consultation in 2005.

C. Tax Fees

Tax fees include fees billed for tax compliance services, including the preparation of original and amended tax returns.

D. Other Fees

All other fees are fees billed for services provided by the principal accountant, other than the services reported as audit fees, audit-related fees and tax fees above, consisting of fees billed for business registration services performed before May 30, 2006.

E. Audit Committee Pre-Approval Policies and Procedures

In May 2005, we adopted our audit committee charter. Consistent with the Commissions’ policies regarding auditor independence, our audit committee is directly responsible for the appointment, compensation, retention and oversight of the work of auditors engaged to provide us with audit, review or attest services. Our audit committee has sole discretion to review and pre-approve the appointment of auditors and to set their fees for the performance of audit and non-prohibited non-audit services in accordance with the Sarbanes-Oxley Act of 2002 and the Commission rules and regulations promulgated thereunder, subject to the appointment, replacement or removal from office of our independent public accountants been approved by our shareholders at our Annual General Meeting.

The appointment of our independent auditors, GHP Horwath, P.C., as well as the scope of each audit, audit-related or non-prohibited non-audit service provided pursuant to such appointment and our auditors’ fees for all such services were approved by our audit committee.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

88

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

PART III

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide financial statements for fiscal year 2005 and the related information pursuant to Item 18.

ITEM 18. FINANCIAL STATEMENTS

Our consolidated financial statements and the reports thereon by our independent registered public accounting firms listed below are attached hereto as follows:

		Page
(a)	Reports of Independent Registered Public Accounting Firm	F-1, F-2
(b)	Consolidated Balance Sheets as of December 31, 2004 and 2005	F-3
(c)	Consolidated Statements of Operations for the years ended December 31, 2003, 2004 and 2005	F-5
(d)	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2003, 2004 and 2005	F-6
(e)	Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005	F-7
(f)	Notes to the Consolidated Financial Statements	F-9

ITEM 19. EXHIBITS

EXHIBIT INDEX

1.1	Memorandum of Association of our Company
1.2	Articles of Association of our Company
4.1	Microsoft Commercial Internet System License Agreement between Hoshin GigaMedia Center, Inc., dated April 1, 1998*
4.2	License Agreement between Portal Information Network, Inc. and Hoshin GigaMedia Center, Inc., dated May 23, 1998*
4.3	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Prosperity CATV Inc., dated May 12, 1999 (including English summary)*
4.4	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Everlasting Cable TV Co., dated June 16, 1999 (including English summary)*
4.5	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Lee Kwan Cable TV Co., dated June 16, 1999 (including English summary)*
4.6	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Wonderful Cable TV Co. Ltd., dated June 16, 1999 (including English summary)*
4.7	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Powerful CATV Co. Ltd., dated May 14, 1999 (including English summary)*

89

4.8	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Netwave Cable TV Inc., dated April 16, 1999 (including English summary)*
4.9	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and New Visual Wave CATV Inc., dated August 18, 1999 (including English summary)*
4.10	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Da Fung CATV Co. Ltd., dated July 6, 1999 (including English summary)*
4.11	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Gaho Cable Co. Ltd., dated May 12, 1999 (including English summary)*
4.12	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and TeleFirst Cable Communication Co. Ltd., dated May 19, 1999 (including English summary)*
4.13	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Twinstar CATV Co. Ltd., dated April 16, 1999 (including English summary)*
4.14	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Sun Crown CATV Co. Ltd., dated April 16, 1999 (including English summary)*
4.15	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Shinyeongan CATV Co. Ltd., dated May 21, 1999 (including English summary)*
4.16	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Chung Lian Inc., dated April 16, 1999 (including English summary)*
4.17	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Gang Du Cable TV Co. Ltd., dated April 16, 1999 (including English summary)*
4.18	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Union Cable TV Co. Ltd., dated May 14, 1999 (including English summary)*
4.19	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and North Taoyuan CATV Company, dated August 9, 1999 (including English summary)*
4.20	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Top Cable TV System Co., dated November 1, 1999 (including English summary)*
4.21	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Shin Ho Cable TV Co. Ltd., dated May 13, 1999 (including English summary)*
4.22	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Shuang Shing Cable TV Co., dated June 16, 1999 (including English summary)*
4.23	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Hai Sun Cable Broadcasting System Co. Ltd., dated August 9, 1999 (including English summary)*
4.24	Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Tien Wai Tien CATV Co., Ltd., dated October 25, 1999 (including English summary)*
4.25	Registration Rights Agreement among GigaMedia Limited and Microsoft Corporation, dated November 23, 1999*
4.26	Shareholders’ Agreement among GigaMedia Limited and Microsoft Corporation, Koos Develop Corp., Kudos Fund, Best Method Limited, TCC International, Mr. Chester Koo, Mr. Leslie Koo, Mr. Kent Yen, Mr. Raymond Chang, Mr. Yichun Chang, Mr. Chris Tung and Mr. Michel Chu dated November 23, 1999*
4.27	Business Co-Operation Agreement among Hoshin GigaMedia Center, Inc. and Microsoft Corporation, dated November 1, 1999*
4.28	Strategic Alliance Agreement among GigaMedia Limited, Hoshin GigaMedia Center, Inc., and Gamania Digital Entertainment Co., LTD., dated March 1, 2001**

90

4.29	Stock Purchase Agreement, dated as of March 17, 2004, by and among GigaMedia International Limited, GV Holding Company, and Alexander Saidakovsky, Alexander Ganelis and Daniil Utin*****
4.30	End User License Agreement between Internet Media Licensing Limited and Ultra Internet Media S.A., dated April 1, 2004******
4.31	Purchase and Sale Agreement between Hoshin GigaMedia Center, Inc. and Webs-TV, Digital International Corporation, dated June 23, 2005******
4.32	Put-Call Option Agreement between Hoshin GigaMedia Center, Inc. and JSDWAY Digital Technology Co. Ltd., dated December 21, 2005
4.33	Assets Sale and Purchase Agreement among GigaMedia Limited, FunTown World Limited, Hoshin GigaMedia Center, Inc. and TWP Corporation, dated December 19, 2005
4.34	Share Purchase Agreement between GigaMedia Limited and Nextbase International Limited, dated September 17, 2005
4.35	Share Subscription Right Agreement between Hoshin GigaMedia Center, Inc. and Wretch Co., Ltd., dated March 10, 2006
4.36	Series A Preferred Share Purchase Agreement among T2CN Holding Limited, GigaMedia China Limited, and The Key Shareholders dated April 27, 2006
4.37	Shareholders’ Agreement among T2CN Holding Limited and the Shareholders dated April 27, 2006
4.38	Strategic Partnership Agreement between T2CN Holding Limited and GigaMedia China Limited, dated April 27, 2006
4.39	Assets Purchase and Sale Agreement between Hoshin GigaMedia Center, Inc. and Webs-TV Digital International Corporation, dated May 15, 2006
4.40	Service Agreement between Hoshin GigaMedia Center, Inc. and Webs-TV Digital International Corporation, dated May 15, 2006
4.41	Second Amendment to the End User License Agreement between Internet Media Licensing Limited and Ultra Internet Media S.A., dated March 1, 2006
8.1	List of Subsidiaries
11	Code of ethics adopted by the registrant on April 21, 2004, as amended on December 19, 2005
12.1	Certification by our Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act
12.2	Certification by our Chief Financial Officer pursuant to Rule13a-14(b) of the Securities Exchange Act
13	Certifications by our Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15	Consent of PricewaterhouseCoopers, Independent Registered Public Accounting Firm

* Incorporated by reference from our Registration Statement on Form F-1, file number 333-11416 filed with the Commission on February 2, 2000.

** Incorporated by reference from our annual report on Form 20-F, file number 000-30540 filed with the Commission on June 28, 2001.

91

***** Incorporated by reference from our annual report on Form 20-F, file number 000-30540 filed with the Commission on June 30, 2004.

****** Incorporated by reference from our annual report on Form 20-F, file number 000-30540 filed with the Commission on June 30, 2005.

+ Does not contain portions for which confidential treatment has been requested.

92

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

GIGAMEDIA LIMITED

/s/ Arthur Wang

Arthur Wang

Chief Executive Officer

Date: June 28, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

GigaMedia Limited

We have audited the accompanying consolidated balance sheet of GigaMedia Limited and subsidiaries of December 31, 2005 and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GigaMedia Limited and subsidiaries as of December 31, 2005, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/GHP Horwath, P.C.

Denver, Colorado

April 7, 2006;

April 28, 2006 as to Note 25c; and

May 22, 2006 as to Note 25d

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of GigaMedia Limited:

We have audited the accompanying consolidated balance sheet of GigaMedia Limited and its subsidiaries as of December 31, 2004, and the related consolidated statements of operations, of shareholders’ equity and of cash flows for the years ended December 31, 2004 and 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 the standards of the Public Company Accounting Oversight Board (United States). 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GigaMedia Limited and its subsidiaries at December 31, 2004, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

Taipei, Taiwan

May 26, 2005, except as to the change in presentation basis for the discontinued operation as described in Note 1, which is as of December 9, 2005

F-2

GIGAMEDIA LIMITED

CONSOLIDATED BALANCE SHEETS

December 31, 2004 and 2005

(in thousands except for par value amount)

	December 31
	2004			2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 9)	$	13,233		$	41,731
Marketable securities-current (Note 10)		34,284			20,404
Notes and accounts receivable-net (Note 11)		6,396			6,443
Inventories-net (Note 12)		10,488			58
Prepaid expenses		680			274
Restricted cash (Note 15)		1,506			—
Other current assets		1,139			1,294
Total Current Assets		67,726			70,204
Marketable securities-noncurrent (Note 13)		2,893			—
PROPERTY, PLANT AND EQUIPMENT
Land		701			676
Building		1,194			1,153
Information and communication equipment		20,450			20,647
Modems rented		2,421			2,085
Office furniture and fixtures		2,662			1,445
Transportation equipment		325			369
Leasehold improvements		3,734			1,841
		31,487			28,216
Less: Accumulated depreciation		(16,722	)		(17,469	)
Prepayment for equipment		291			—
		15,056			10,747
GOODWILL (Notes 5 and 6)		29,607			29,243
INTANGIBLE ASSETS-NET (Notes 5 and 7)		8,372			2,704
OTHER ASSETS
Deferred assets (Note 14)		349			91
Refundable deposits		1,960			500
Other		14			30
Total Other Assets		2,323			621
TOTAL ASSETS	$	125,977		$	113,519

F-3

GIGAMEDIA LIMITED

CONSOLIDATED BALANCE SHEETS—(Continued)

December 31, 2004 and 2005

(in thousands except for par value amount)

	December 31
	2004			2005
LIABILITIES & SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term loans (Note 16)	$	284		$	—
Notes and accounts payable		14,037			1,427
Accrued compensation		1,655			1,194
Accrued expenses		3,362			1,791
Other current liabilities (Note 17)		3,902			6,245
Total Current Liabilities		23,240			10,657
OTHER LIABILITIES
Refundable deposits		930			831
Deferred tax liabilities (Note 20)		386			—
Accrued pension liabilities (Note 18)		1,184			819
Total Other Liabilities		2,500			1,650
Total Liabilities		25,740			12,307
MINORITY INTERESTS		4,266			564
COMMITMENTS AND CONTINGENCIES (Note 22)
SHAREHOLDERS’ EQUITY
Common shares, NT$10 dollars par value; authorized 80,000 thousand and 100,000 thousand shares; issued 50,154 thousand and 50,344 thousand shares on December 31, 2004 and 2005 (Note 19)		15,565			15,626
Additional paid-in capital		272,092			272,294
Accumulated deficit (Note 19)		(165,559	)		(159,223	)
Accumulated other comprehensive loss		(26,127	)		(28,049	)
Total Shareholders’ Equity		95,971			100,648
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	125,977		$	113,519

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

F-4

GIGAMEDIA LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2003, 2004 and 2005

(in thousands except for earnings/loss per share amounts)

	2003			2004			2005
OPERATING REVENUES
Software licensing and online entertainment revenues	$	—		$	11,434		$	22,511
Internet Access revenues		18,829			20,960			21,408
Other revenues		684			450			268
Total		19,513			32,844			44,187
COSTS AND EXPENSES
Operating costs		(16,115	)		(16,109	)		(17,383	)
Product development and engineering expenses		(1,211	)		(2,513	)		(3,562	)
Selling and marketing expenses		(2,432	)		(6,310	)		(10,777	)
General and administrative expenses		(5,162	)		(5,657	)		(7,892	)
Bad debt expense		(128	)		220			(207	)
Impairment loss on property, plant and equipment (Note 8)		(1,557	)		—			—
Total		(26,605	)		(30,369	)		(39,821	)
Income (loss) from operations		(7,092	)		2,475			4,366
NON-OPERATING INCOME (EXPENSES)
Interest income		347			140			411
Gains on sales of marketable securities		488			1,230			850
Other-than-temporary impairment of marketable securities (Note 13)		(1,701	)		(1,833	)		—
Interest expense		—			(4	)		—
Foreign exchange gain (loss)		(637	)		(765	)		151
Gain (loss) on disposal of property, plant and equipment		(466	)		(44	)		204
Other		(614	)		133			1,094
		(2,583	)		(1,143	)		2,710
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTERESTS		(9,675	)		1,332			7,076
INCOME TAX BENEFIT (EXPENSES) (Note 20)		(139	)		84			(436	)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS		(9,814	)		1,416			6,640
MINORITY INTERESTS (INCOME) LOSS		15			(163	)		(150	)
INCOME (LOSS) FROM CONTINUING OPERATIONS		(9,799	)		1,253			6,490
INCOME (LOSS) FROM DISCONTINUED OPERATIONS		(4,296	)		429			(154	)
	$	(14,095	)	$	1,682		$	6,336
EARNINGS (LOSS) PER SHARE (IN DOLLARS) (Note 2)
Basic:
Income (loss) from continuing operations	$	(0.20	)	$	0.02		$	0.13
Income (loss) from discontinued operations		(0.08	)		0.01			—
Net income (loss)	$	(0.28	)	$	0.03		$	0.13
Diluted:
Income (loss) from continuing operations	$	(0.20	)	$	0.02		$	0.12
Income (loss) from discontinued operations		(0.08	)		0.01			—
Net income (loss)	$	(0.28	)	$	0.03		$	0.12
WEIGHTED AVERAGE SHARES USED TO COMPUTE EARNINGS (LOSS) PER SHARE (Note 2)
Basic		50,154			50,154			50,312
Diluted		50,154			51,701			55,059

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

F-5

GIGAMEDIA LIMITED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Years Ended December 31, 2003, 2004 and 2005

(in thousands)

	Issuance of common shares			Warrant outstanding			Additional paid-in capital		Accumulated Deficit (Note 19)			Accumulated other comprehensive income (loss)			Total
	Shares	Amount
2003
Balance as of January 1, 2003	50,154		15,565		48,653			223,439		(153,146	)		(30,342	)		104,169
Net loss	—		—		—			—		(14,095	)		—			(14,095	)
Components of other comprehensive income (loss):
Net unrealized loss on marketable securities	—		—		—			—		—			(1,861	)		(1,861	)
Foreign currency translation adjustment	—		—		—			—		—			2,150			2,150
Total comprehensive loss	—		—		—			—		—			—			(13,806	)
Balance as of December 31, 2003	50,154		15,565		48,653			223,439		(167,241	)		(30,053	)		90,363
2004
Net income	—		—		—			—		1,682			—			1,682
Cancellation of warrant	—		—		(48,653	)		48,653		—			—			—
Components of other comprehensive income (loss):
Net unrealized loss on marketable securities	—		—		—			—		—			(357	)		(357	)
Foreign currency translation adjustment	—		—		—			—		—			4,283			4,283
Total comprehensive income	—		—		—			—		—			—			5,608
Balance as of December 31, 2004	50,154		15,565		—			272,092		(165,559	)		(26,127	)		95,971
2005
Issuance of common shares	190		61					202								263
Net income	—		—		—			—		6,336			—			6,336
Components of other comprehensive income (loss):
Net unrealized loss on marketable securities	—		—		—			—		—			(333	)		(333	)
Foreign currency translation adjustment	—		—		—			—		—			(1,589	)		(1,589	)
Total comprehensive income	—		—		—			—		—			—			4,414
Balance as of December 31, 2005	50,344	$	15,626	$	—		$	272,294	$	(159,223	)	$	(28,049	)	$	100,648

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

F-6

GIGAMEDIA LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2003, 2004 and 2005

(in thousands)

	2003			2004			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(14,095	)	$	1,682		$	6,336
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		5,240			4,675			4,203
Amortization		2,229			2,545			2,202
Provision for bad debt expenses		156			247			307
Provision for (reversal of) inventory loss		3,169			(300	)		507
Gain on divestiture of business		—			—			(911	)
Gain on physical inventory		—			9			—
Loss (gain) on disposal of property, plant and equipment		846			106			(204	)
Gain on sale of marketable securities		(488	)		(1,230	)		(958	)
Premium from debt securities		—			—			(3	)
Minority interests income (loss)		(3,127	)		481			(646	)
Impairment loss on goodwill		738			—			—
Other-than-temporary impairment on marketable securities		1,701			1,833			—
Impairment loss on property, plant and equipment		1,557			—			—
Net changes in operating assets and liabilities:
Notes and accounts receivable		(580	)		694			(2,193	)
Inventories		2,591			(5,531	)		3,186
Prepaid expenses		(783	)		730			185
Other current assets		3,741			(86	)		(667	)
Notes and accounts payable		2,749			(4,089	)		(1,371	)
Accrued expenses		1,678			(924	)		(1,177	)
Accrued compensation		105			236			(18	)
Other current liabilities		(1,243	)		981			2,663
Accrued pension liabilities		255			309			62
Deferred tax assets and liabilities		—			22			19
Net cash provided by operating activities		6,439			2,390			11,522
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash		1,018			419			176
Proceeds from disposal of marketable securities		103,947			69,352			36,970
Divestiture of business, net of cash transferred		—			—			3,253
Purchase of property, plant and equipment		(1,913	)		(2,587	)		(2,652	)
Proceeds from disposal of property, plant and equipment		310			415			949
Purchase of marketable securities		(107,226	)		(60,834	)		(20,184	)
Purchase of intangible assets		—			(663	)		(1,005	)
Acquisitions, net of cash acquired		—			(32,797	)		—
Decrease (increase) in refundable deposits		(749	)		1,450			42
Increase (decrease) in other assets		(164	)		1			(16	)
Increase in deferred assets		(189	)		(193	)		(331	)
Cash recognized on initial consolidation of variable interest enity		—			94			—
Net cash provided by (used in) investing activities		(4,966	)		(25,343	)		17,202

F-7

GIGAMEDIA LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

For the Years Ended December 31, 2003, 2004 and 2005

(in thousands)

	2003			2004			2005
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term loan	$	—		$	2,098		$	—
Repayment of short-term loan		(2,703	)		(1,829	)		(284	)
Increase (decrease) in refundable deposits		109			125			268
Acquisition of minority interests		—			(238	)		—
Inssuance of common shares		—			—			263
Net cash provided by (used in) financing activities		(2,594	)		156			247
Exchange difference		698			736			(473	)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS		(423	)		(22,061	)		28,498
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		35,717			35,294			13,233
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	35,294		$	13,233		$	41,731
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year	$	36		$	7		$	—
Income tax paid during the year	$	—		$	9		$	323
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Unrealized holding loss on available-for-sale securities	$	(1,925	)	$	(357	)	$	(333	)

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

F-8

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BUSINESS OVERVIEW, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Overview

GigaMedia Limited (referred to herein as GigaMedia, our Company, we, us, or our) is a diversified provider of online entertainment and broadband services, with headquarters in Taipei, Taiwan. We are a holding company and through several subsidiaries develop and license software for online gaming, operate a leading casual game portal, and provide broadband Internet access.

In April 2004, GigaMedia acquired a software developer and support service business through Cambridge Entertainment Software Limited (CESL). CESL develops software for online entertainment services. As a software developer and support service provider, CESL offers software solutions for online entertainment, which it licenses under a software license and support service contract.

In January 2006, we acquired from TWP Corporation, which is a subsidiary of Acer, Inc., an online casual game business marketed under the brand FunTown (FunTown). FunTown is a leading Asian casual game portal.

We also operate a broadband Internet service provider (ISP) via our subsidiary Hoshin GigaMedia Center, Inc. (Hoshin GigaMedia), which provides Internet access service with multiple delivery technologies to consumers. The access products consist of ADSL and cable modem offerings. GigaMedia’s subsidiary, Koos Broadband Telecom Co., Ltd. (KBT), provides broadband services to corporate subscribers in Taiwan.

Basis of Presentation

On September 29, 2005, we sold our land-based music distribution business to Nextbase International Limited. (See Note 4, “Divestiture,” for additional information.) The music distribution business has been accounted for as a discontinued operation under accounting principles generally accepted in the United States of America (GAAP) and, therefore, the results of operations of the music distribution business have been removed from our Company’s results of continuing operations for all periods.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of GigaMedia and our wholly-owned and majority-owned subsidiaries after elimination of all inter-company accounts and transactions. In addition, the accounts of variable interest entities (VIEs) as defined by the Financial Accounting Standards Board (FASB) Interpretation No. 46(R) (FIN 46R) are included in the Consolidated Financial Statements. (See Note 3, “Variable Interest Entity.”) The accounting policy for other investments in securities is described in Note 1 within “Marketable Securities.” Other investments are accounted for using the cost method.

F-9

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Reporting Currency and Foreign Currency Translation

The Consolidated Financial Statements of our Company and our subsidiaries have historically been reported in New Taiwan (NT) dollars. Effective January 1, 2004, we adopted the U.S. dollar as our reporting currency as operations denominated in the U.S. dollar have represented an increasing portion of our business following the acquisition of our Company’s entertainment software business. (See Note 5, “Acquisitions.”) As a result of this change, we recorded cumulative translation adjustments to other comprehensive income. Comparative financial information has been recast as if the U.S. dollar had always been used as our reporting currency. Cumulative translation adjustments in 2003, 2004, and 2005 were $31 million, $27 million, and $28 million, respectively, and financial information has been translated into U.S. dollars for all periods presented. Assets and liabilities denominated in non-U.S. currency are translated to U.S. dollars at year-end exchange rates. Income and expenses items are translated at weighted-average rates of exchange prevailing during the year. Cumulative translation adjustments resulting from this process are charged or credited to other comprehensive income in shareholders’ equity. Gains and losses on foreign currency transactions are included in other income and expenses.

Exchange rates between the U.S. dollar and the NT dollar for the periods reported in the Consolidated Financial Statements were as follows:

	2003	2004	2005
Year-end	33.97	31.71	32.85
Weighted average	34.40	33.41	32.19

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures in the Consolidated Financial Statements and accompanying notes. Actual results could differ significantly from those estimates.

Revenue Recognition

General

Our Company recognizes revenues in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” (SAB 101) and Staff Accounting Bulletin No. 104, “Revenue Recognition,” (SAB 104). Revenue is recognized when persuasive evidence of an arrangement exists, delivery occurs or services are rendered, the sales price is fixed or determinable and collectibility is reasonably assured.

In addition to the aforementioned general policies, the following are the specific revenue recognition policies for each major category of revenue.

Software Licensing and Online Entertainment Revenues

Software licensing and online entertainment revenues are related to software we develop and support services we provide for use within the online entertainment industry.

Under the provisions of FIN 46(R), the results of a software licensee of our Company, Ultra Internet Media (UIM), for the nine months ended December 31, 2004, and for the twelve months ended December 31, 2005 have been incorporated into the Consolidated Financial Statements. UIM and GigaMedia are separately owned. (See Note 3, “Variable Interest Entity,” for additional information.) Software licensing and support service revenues are based upon a percentage of UIM’s gross receipts, and are recognized monthly. Software licensing and support service revenues from UIM have been eliminated in consolidation.

F-10

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

UIM generates revenue by providing and promoting online games of skill and chance. Revenue is recognized upon receipt. Player account balances are recognized as current liabilities and are accrued for in full. The change in aggregate player account balances is recognized monthly as a reduction to receipts, as are player disbursements. Residual expenses and commissions are charged to expenses as incurred.

Internet Access Revenues

Internet access revenues are related to ADSL and cable modem Internet access services provided by us. Revenues are recorded net of discounts, and in the case of our cable modem services, net of fees paid to our cable partners in accordance with revenue sharing agreements in effect between GigaMedia and our cable partners. Cable modem and ADSL revenues are recognized for the period of time for which our Company provides services to the customer. Customers have a choice of paying either monthly or in advance for a certain period of time, for which they receive corresponding discounts. We record any such advanced payment receipts as other current liabilities on the balance sheet and amortizes such revenues over the subscription period.

Other Revenues

Other revenues, which consist of subscription revenues and sales of cable modem and other related products generated from our Company’s broadband ISP, are recognized when services are provided or products are delivered.

Fair Value of Financial Instruments

The Company’s financial instruments, including cash and cash equivalents, marketable securities, accounts receivable, accounts payable, short-term debt and accrued liabilities are carried at amounts which approximate their fair values.

Cash Equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, and so near to their maturity that they present insignificant risk from changes in interest rates. Commercial paper, negotiable certificates of deposit, time deposit and bank acceptances with original maturities of three months or less are considered to be cash equivalents.

Marketable Securities

The Company’s investments in marketable securities are classified as available-for-sale. Marketable securities included in current assets represent securities with a maturity of less than one year or securities that management intend to sell within one year. Securities classified as non-current include securities that have maturity of more than one year or securities that management does not intend to sell within one year. Marketable securities principally consist of debt securities and equity securities of public and privately held companies and investment funds, and are stated at fair value with any unrealized gains or losses recorded in accumulated other comprehensive income (loss) in shareholders’ equity until realized. Unrealized losses that are considered other-than-temporary are included in the current year’s operations. Realized gains and losses, measured against cost, are also included in the current year’s operations.

Allowance for Doubtful Accounts

An allowance for doubtful accounts is provided based on an evaluation of collectibility of notes receivable, accounts receivable and other receivables.

F-11

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Inventories

Inventories are carried at the lower of cost or market value using the weighted average cost method, while net realizable value is used to determine the market value. An allowance for loss on obsolescence and decline in market value is provided, when necessary.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is provided on a straight-line basis over useful lives that correspond to items as follows:

Item	Years
Buildings	50
Information and communication equipment	2 to 5
Modems rented	3 to 5
Office furniture and equipment	3 to 5
Transportation equipment	5
Leasehold improvements	5

Leasehold improvements are depreciated over the life of the lease or the assets, whichever is shorter. Improvements and replacements are capitalized and depreciated over their estimated useful lives, while ordinary repairs and maintenance are expensed as incurred.

Intangible Assets and Goodwill

Our Company’s intangible assets all have definite lives and are being amortized by the straight-line method over their estimated useful lives, ranging from two to 10 years. The recoverability of intangible assets is evaluated periodically and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.

In conjunction with the implementation of Statement of Financial Accounting Standards (FAS) No. 142, “Goodwill and Other Intangible Assets,” (FAS 142) which became effective January 1, 2003, all goodwill, including goodwill related to acquisitions prior to July 1, 2002, is no longer amortized and potential impairment of goodwill and purchased intangible assets with indefinite useful lives has been evaluated using the specific guidance provided by FAS 142. This impairment analysis has been performed at least annually, or whenever events or changes in circumstances indicate that the carrying value might not be recoverable from related future undiscounted cash flows. Impairment is measured as the differences between the carrying amounts and the fair value of the assets, and is recognized as a component of income (loss) from operations.

Impairment of Long-Lived Assets

Potential impairment of long-lived assets other than goodwill has been evaluated using the guidance provided by FAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (FAS 144) which became effective January 1, 2003. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset over its remaining useful life. 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. The estimate of fair value is generally based on quoted market prices or on the best available information, including prices for similar assets and the results of using other valuation techniques. When an impairment is identified, the carrying amount of the asset is reduced to its estimated fair value.

F-12

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Software Cost

We capitalize certain computer software costs, after technological feasibility has been established. These costs are amortized utilizing a straight-line method over the economic lives of the related products, not to exceed four years. Our Company performs periodic reviews to ensure that unamortized software costs remain recoverable from related future undiscounted cash flows. (See Note 7, “Intangible Assets—Net,” for additional information.)

Product Development and Engineering

Research, product development and engineering costs are expensed as incurred.

Advertising

Advertising costs are expensed as incurred. Advertising costs incurred in 2003, 2004 and 2005 totaled $727 thousand, $1.4 million and $915 thousand, respectively (including respective amounts of $115 thousand, $83 thousand, and $93 thousand reported in discontinued operations).

Stock-Based Compensation

We have elected to measure stock-based compensation expense using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25), as interpreted, with pro-forma disclosures of net income (loss) and earnings (loss) per share, as if the fair-value method of accounting defined in FAS No. 123 “Accounting for Stock-Based Compensation,” (FAS 123) were used. FAS 123 establishes a fair-value-based method of accounting for stock-based employee compensation plans. Under the fair-value method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. Had our Company determined the stock-based compensation expense for our stock options based upon the fair-value as determined by the Black-Scholes option-pricing model at the grant date for the years ended December 31, 2003, 2004 and 2005, our net income (loss) and earnings (loss) per share would have been as the following pro-forma amounts indicate:

	Years Ended December 31,
	2003			2004			2005
	(in US$ thousands, except per share figures)
Net income (loss)
As reported	$	(14,095	)	$	1,682		$	6,336
Less: Stock compensation expense, net of related tax effects		—			(3,421	)		(1,951	)
Pro-forma	$	(14,095	)	$	(1,739	)	$	4,385
Earnings (loss) per share (in US$):
As reported—basic	$	(0.28	)	$	0.03		$	0.13
As reported—diluted		(0.28	)		0.03			0.12
Pro-forma—basic		(0.28	)		(0.03	)		0.09
Pro-forma—diluted		(0.28	)		(0.03	)		0.08

(See Note 19, “Shareholders’ Equity and Share Options,” for the assumptions and methodology used to determine the fair value of stock-based compensation.)

For the years ended December 31, 2003 and 2004, pro-forma diluted loss per share included only weighted-average common shares outstanding as the inclusion of additional potential common shares would have been anti-dilutive since we incurred a pro-forma net loss for the respective years.

F-13

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Retirement Plan and Net Periodic Pension Cost

Under the defined benefit pension plan, net periodic pension cost, which includes service cost, interest cost, expected return on plan assets, and amortization of unrecognized net transition obligation and gains or losses on plan assets, is recognized based on an actuarial valuation report.

Under the defined contribution pension plan, net periodic pension cost is recognized as incurred.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity of a company from transactions and other events and circumstances, excluding transactions resulting from investments from owners and distributions to owners. Comprehensive income (loss) is recorded as a component of shareholders’ equity. Our Company’s comprehensive income (loss) consists of net income or loss, foreign currency translation adjustments, as well as unrealized gains and losses on marketable securities.

Accounting for Income Taxes

We have adopted FAS No. 109, “Accounting for Income Taxes,” (FAS 109). Under FAS 109, the asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities. Loss carryforwards and investment credits are measured using the enacted tax rate and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that will more likely than not be realized. In assessing the likelihood of realization, management considers estimates of future taxable income.

Earnings (Loss) Per Share

We compute earnings (loss) per share in accordance with FAS No. 128, “Earnings Per Share,” (FAS 128). Under the provisions of FAS 128, basic earnings or loss per share is computed by dividing the net income or loss available to common shareholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings or loss per share is computed by dividing the net income or loss for the period by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares, composed of incremental common shares issuable upon the exercise of warrants and stock options, are included in the computation of diluted earnings or loss per share to the extent such shares are dilutive.

Minority Interest

Minority interest consists of 100% of the common stock of UIM held by outside shareholders. UIM was deemed a VIE as defined by FIN 46(R) and our Company was considered the primary beneficiary of UIM. Under the provisions of FIN 46(R), we have incorporated the results of UIM into our 2004 and 2005 Consolidated Financial Statements, even though we own none of UIM’s equity. (See Note 3, “Variable Interest Entity,” for more information.) Prior to the sale of the music distribution business on September 29, 2005, minority interest also consisted of 41.42% of the common stock of G-Music Limited held by outside shareholders; subsequent to the divestiture of G-Music Limited, related minority interest income is included in discontinued operations. Prior to February 2004, minority interests also included 5% ownership of GigaMusic.com Limited (GigaMusic) held by EMI Music Asia (EMI), a division of EMI Group Hong Kong Limited. In February 2004, EMI returned its 5% ownership in GigaMusic to our Company.

F-14

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Reclassification

The presentation of certain prior years’ information has been reclassified to conform with current year presentations.

Recent Accounting Pronouncements

In December 2004, the FASB issued FAS No. 123(R), “Share-Based Payment,” (FAS 123 (R)). FAS 123(R) requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair-value method, and eliminates the ability to account for these instruments under the intrinsic-value method prescribed by APB Opinion No. 25, which was allowed under the original provisions of FAS 123. FAS 123(R) requires the use of an option-pricing model for estimating fair value, which is amortized to expenses over the requisite periods. The requirements of FAS 123(R) were effective for interim periods beginning after June 15, 2005. The Securities and Exchange Commission (SEC) has postponed the effective date of FAS 123(R), giving companies more time to develop their implementation strategies. Under the SEC’s rule, FAS 123(R) is now effective for public companies for annual, rather than interim, periods that begin after June 15, 2005. We adopted this new standard on January 1, 2006, using the modified prospective method and the Black-Scholes valuation model. Because our Company had not recorded any compensation cost in its Statement of Operations prior to the adoption of FAS 123(R), no cumulative effect adjustment was recorded upon adoption. Our adoption of FAS 123(R) may have a material impact on our net income and net income per share.

In May 2005, the FASB issued FAS No. 154, “Accounting Changes and Error Corrections” (FAS 154), a replacement of Accounting Principles Board (APB) Opinion No. 20 and FAS No. 3. FAS 154 changes the requirement for the accounting for and reporting of a change in accounting principles. FAS 154 applies to all voluntary changes in accounting principles. It also applies to changes required by an accounting pronouncement if the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. The provisions of FAS 154 will be effective for accounting changes made in fiscal years beginning after December 15, 2005. It is not expected that FAS 154 will have a material effect on our Consolidated Financial Statements.

In March 2005, the FASB issued Interpretation No. 47 (FIN 47), “Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143, “Accounting for Asset Retirement Obligations.” FIN 47 generally applies to long-lived assets and requires a liability to be recognized for a conditional asset retirement obligation if the fair value of that liability can be reasonably estimated. A conditional asset retirement obligation is defined as a legal obligation to perform an activity associated with an asset retirement in which the timing and/or method of settlement are conditional on a future event that may or may not occur or be within the control of the company. A liability should be recognized when incurred (based on its fair value at that date), which generally would be upon the acquisition or construction of the related asset. Upon recognition, the offset to the liability would be capitalized as part of the cost of the asset and depreciated over the estimated useful life of that asset. FIN 47 is effective no later than December 31, 2005. We adopted FIN 47 in the fourth quarter of 2005 without material effect on our financial position or results of operations.

In September 2005, the Emerging Issues Task Force (EITF) ratified EITF 04-13 (EITF 04-13), “Accounting for Purchases and Sales of Inventory with the Same Counterparty.” This issue addresses the circumstances under which two or more inventory purchase and sales transactions with the same counterparty should be viewed as a single exchange transaction and whether there are circumstances under which such non-monetary exchanges should be accounted for at fair value. The adoption of EITF 04-13 is effective for new or modified agreements for fiscal periods beginning after March 15, 2006. It is not expected that EITF 04-13 will have a material effect on our Company’s Consolidated Financial Statements.

F-15

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In November 2005, FASB Staff Position (FSP) 115-1 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” was issued. The FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities” and APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” The FSP applies to investments in debt and equity securities and cost-method investments. The application guidance within the FSP includes items to consider in determining whether an investment is impaired, in evaluating if an impairment is other-than-temporary and recognizing impairment losses equal to the difference between the investment’s cost and its fair value when an impairment is determined. The FSP is required for all reporting periods beginning after December 15, 2005. Earlier application is permitted. We do not anticipate the amendment will have a material effect on our financial statements.

In February 2006, the FASB issued FAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (FAS 155). FAS 155 amends Financial Accounting Standards Board Statements No. 133 and 140. The statement applies to certain hybrid financial instruments, which are instruments that contain embedded derivatives. The new standard establishes a requirement to evaluate beneficial interests in securitized financial assets to determine if the interests represent freestanding derivatives or are hybrid financial instruments containing embedded derivatives requiring bifurcation. This new standard also permits an election for fair value re-measurement of any hybrid financial instrument containing an embedded derivative that otherwise would require bifurcation under Financial Accounting Standards Board Statement No. 133. The fair value election can be applied on an instrument-by-instrument basis to existing instruments at the date of adoption and can be applied to new instruments on a prospective basis. It is not expected that FAS 155 will have a material effect on our Company’s Consolidated Financial Statements.

F-16

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 2. EARNINGS (LOSS) PER SHARE

	For the years end December 31,
	2003			2004		2005
	(in US$ thousands, except per share figures)
Weighted average outstanding shares
Basic		50,154			50,154		50,312
Effect of dilutive securities Employee stock options		—			1,547		4,747
Diluted		50,154			51,701		55,059
Income (loss) from continuing operations	$	(9,799	)	$	1,253	$	6,490
Income (loss) from discontinued operations, net of taxes		(4,296	)		429		(154	)
Net income (loss)	$	(14,095	)	$	1,682	$	6,336
Earnings (loss) per share
Basic
Continuing operations	$	(0.20	)	$	0.02	$	0.13
Discontinued operations		(0.08	)		0.01		—
	$	(0.28	)	$	0.03	$	0.13
Diluted
Continuing operations	$	(0.20	)	$	0.02	$	0.12
Discontinued operations		(0.08	)		0.01		—
	$	(0.28	)	$	0.03	$	0.12

For the year ended December 31, 2003, diluted loss per share included only weighted-average common shares outstanding as the inclusion of additional potential common shares would have been anti-dilutive since we incurred a net loss for 2003.

NOTE 3. VARIABLE INTEREST ENTITY

In January 2003, the FASB issued FIN 46, which addressed the consolidation by business enterprises of VIEs, to which the usual conditions of consolidating a controlling financial interest do not apply. As defined in FIN 46, variable interests are contractual, ownership or other interests in an entity that change with changes in the entity’s net asset value. Variable interests in an entity may arise from financial instruments, service contracts, guarantees, leases, or other arrangements with the VIE. An entity that will absorb a majority of the VIE’s expected losses if they occur, receive a majority of the entity’s expected residual returns if they occur, or both, is considered the primary beneficiary of the VIE. The primary beneficiary must include the VIE’s assets, liabilities and results of operations in its consolidated financial statements. FIN 46 became immediately effective for all VIEs created after January 31, 2003.

F-17

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The FASB amended FIN 46 by issuing FIN 46(R) in December 2003. FIN 46(R) is an update of FIN 46 and contains different implementation dates based on types of entities subject to the standard and based on whether a company has adopted FIN 46. In April of 2004, our Company entered into a software license and support service contract with UIM to provide Internet software support services for UIM’s entertainment software operations. The contract allows for us to charge a percentage of UIM gross receipts resulting from UIM’s online entertainment operations. The percentage of gross receipts varies depending upon the software and support services selected by UIM. We analyzed the provisions of FIN 46(R) as it relates to contractual relationships and determined that we were a primary beneficiary of a software licensee, UIM. As a result of the determination by our Company that GigaMedia is a primary beneficiary of UIM, we have incorporated the results of UIM into our 2004 and 2005 Consolidated Financial Statements, even though we own none of UIM’s equity. UIM’s net assets as of December 31, 2004 and 2005 were approximately $414 thousand and $564 thousand, respectively, and the consolidation of UIM resulted in an increase in assets and liabilities of approximately $1.6 million and $1.2 million in 2004, respectively, and $3.6 million and $3.1 million in 2005, respectively.

NOTE 4. DIVESTITURE

In September 2005, we completed the sale of our land-based music distribution business. The transaction price, net of transaction costs, was $5.02 million. The cash proceeds, net of transaction costs and cash transferred, was $3.25 million. Results for the music distribution operations are reported as discontinued operations in each of the periods presented in the Consolidated Financial Statements. In 2005, such amount was negative $154 thousand, which included an operating loss of $1.07 million and a gain on the sale of the business of $911 thousand. (See Note 1, “Business Overview, Basis of Presentation, and Summary of Significant Accounting Policy” for the “Basis of Presentation” for the discontinued operation.)

Summarized select financial information for discontinued operations is as follows:

	2003			2004		2005
	(in US$ thousands)
Revenue	$	75,839		$	66,975	$	37,907
Income (loss) before tax and minority interest income	$	(7,405	)	$	752	$	(1,861	)
Income tax (benefit)/expense	$	3		$	5	$	(1	)
Minority interest income (loss)	$	(3,112	)	$	318	$	(796	)
Income (loss) from discontinued operations	$	(4,296	)	$	429	$	(154	)

F-18

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 5. ACQUISITIONS

Acquisition—CESL

On April 1, 2004, GigaMedia acquired, through GigaMedia International Limited (GMIL), a wholly-owned subsidiary of our Company, all of the issued and outstanding shares of Grand Virtual, Inc. and selected affiliates in a private transaction for an all-cash consideration of $32.5 million, excluding related transaction costs. Subsequent to the acquisition, GMIL was renamed Cambridge Entertainment Software Limited. CESL is a software developer and support service provider. CESL develops software for online entertainment services. As a software developer and support service provider, CESL offers software solutions for online entertainment, which it licenses under a software license and support service contract. The acquisition of CESL strengthened our Company’s diversified entertainment product portfolio and revenue base. CESL’s software provides GigaMedia a secure, scalable technology platform that can be used to provide a range of entertainment services and develop highly efficient business models. These factors, among others, contributed to a purchase price in excess of the fair market value of the net tangible assets and intangible assets acquired. As a result, we recorded goodwill of $29.4 million, which was assigned to the entertainment software segment and is non-deductible for tax purposes.

Upon the closing of the acquisition, results of operations of CESL were included in our Consolidated Financial Statements under the entertainment software business. The identified intangible assets are being amortized on a straight-line basis over their useful lives and the overall weighted-average life is 3.85 years.

The purchase price allocation of the acquisition was shown as follows:

	Amount			Amortization life (in years)
	(in US$ thousands)
Cash acquired	$	21
Accounts receivable		1,186
Other current assets		127
Fixed assets/non-current assets		450
Intangible assets
Completed technology		1,300		3
Trade name and trademark		700		10
Non-competition agreement		200		5
Others		373		2-4
Goodwill		29,398		N/A
Total assets acquired		33,755
Current liabilities		(573	)
Noncurrent liabilities		(364	)
Total liabilities assumed		(937	)
Total purchase price	$	32,818

F-19

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following unaudited pro-forma information presents a summary of the results of operations of our Company as of December 31, 2003 and 2004 as if the acquisition had occurred on January 1, 2003 and 2004.

	Year ended December 31
	2003			2004
	(in US$ thousands, except per share figures)
	Unaudited
Net revenue	$	106,776		$	102,668
Income (loss) from operations		(8,374	)		4,440
Net income (loss)		(8,298	)		3,103
Basic earnings (loss) per share		(0.17	)		0.06
Diluted earnings (loss) per share		(0.17	)		0.06

The above unaudited pro-forma financial information includes adjustments for the amortization and depreciation of identified assets.

NOTE 6. GOODWILL

	For the years ended December 31,
	2003			2004		2005
	(in US$ thousands)
Balance as of January 1,	$	731		$	—	$	29,607
Acquisitions		—			29,607		—
Impairment		(738	)		—		—
Post-acquisition adjustments		—			—		(364	)
Translation adjustment		7			—		—
Balance as of December 31,	$	—		$	29,607	$	29,243

Goodwill is tested annually for impairment using a fair value approach, at the “reporting unit” level. A reporting unit is an operating segment, or a component of an operating segment, as defined in FAS 142.

Following the acquisition of our music distribution business in 2002, we determined that the goodwill of our music distribution business was impaired due to a general market downturn. We therefore recorded goodwill impairment losses of $738 thousand in 2003. Such impairment losses were determined based on an independent appraiser’s report. The goodwill carrying amount was completely written off at December 31, 2003.

The increase in goodwill for the year ended December 31, 2004 was a result of the acquisition of CESL’s subsidiaries and the subsequent adoption of FIN46 (R). (See Note 5, “Acquisitions,” for additional information.) No impairment of goodwill has been identified during 2004 and 2005.

In connection with our 2004 income tax filing, we reduced goodwill by $364 thousand as a result of a change in estimates concerning the ultimate tax treatment of the acquisition under FAS 109.

F-20

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 7. INTANGIBLE ASSETS—NET

The following table summarizes our Company’s intangible assets, by major asset class:

	December 31, 2004
	Gross carrying amount		Accumulated amortization			Net
	(in US$ thousands)
Brand names	$	4,758	$	(793	)	$	3,965
Distribution channel		3,370		(1,685	)		1,685
Completed technology		1,300		(325	)		975
Trade name trademark and non-competition agreement		900		(83	)		817
Capitalized software cost		1,150		(279	)		871
Other		65		(6	)		59
Total	$	11,543	$	(3,171	)	$	8,372

	December 31, 2005
	Gross carrying amount		Accumulated amortization			Net
	(in US$ thousands)
Completed technology	$	1,300	$	(758	)	$	542
Trade name trademark and non-competition agreement		900		(193	)		707
Capitalized software cost		2,155		(753	)		1,402
Other		66		(13	)		53
Total	$	4,421	$	(1,717	)	$	2,704

We amortize the cost of intangible assets over their estimated useful lives. Amortizable intangible assets are tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on discounted cash flows or appraised values. No impairment of intangible assets has been identified during any of the periods presented. The net carrying amount of intangible assets decreased by $5.7 million for the year ended December 31, 2005, primarily due to the divestiture of the music distribution business.

F-21

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the years ended December 31, 2003, 2004 and 2005, total amortization expenses of intangible assets were $914 thousand, $1.5 million, and $1.8 million, respectively (including respective amounts of $914 thousand, $941 thousand, and $732 thousand reported in discontinued operations), which included respective amortization of capitalized software costs of $0, $191, and $473 thousand. As of December 31, 2005, based on the current amount of intangibles subject to amortization, the estimated amortization expense for each of the succeeding five years is as follows:

	Amount (in US$ thousands)
2006	$	1,171
2007		776
2008		347
2009		87
2010		77
	$	2,458

NOTE 8. IMPAIRMENT LOSS ON PROPERTY, PLANT AND EQUIPMENT

Due to rapid technological development in broadband Internet access services and our Company’s related decision to phase out one-way Internet access services, we disposed of certain broadband and communication equipment in 2003. Accordingly, we compared the carrying amount of one-way broadband equipment with undiscounted future net cash flows expected to be generated by these assets over their remaining lives and deemed that the equipment was unrecoverable and impaired. Therefore, for the year ended December 31, 2003, we recorded impairment charges of $1.6 million, measured as the amount by which the carrying value exceeded the fair value of this equipment based on quoted market prices in accordance with FAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” We assessed potential impairment of our property, plant and equipment and deemed no write-down was required at the balance sheet dates of 2004 and 2005.

NOTE 9. CASH AND CASH EQUIVALENTS

	December 31,
	2004		2005
	(in US$ thousands)
Petty cash	$	333	$	8
Checking and savings accounts		8,292		36,823
Time deposits		4,608		4,900
Total	$	13,233	$	41,731

F-22

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 10. MARKETABLE SECURITIES—CURRENT

	December 31,
	2004			2005
	Amount		Percentage held	Amount		Percentage held
	(in US$ thousands)
Available-for-sale securities
Debt securities within one year	$	3,514	—	$	4,957	—
Open-end funds		30,770	—		12,655	—
Equity Securities—Gamania Digital Entertainment Co., Ltd. (Gamania)		—	—		2,792	3.34
Total	$	34,284		$	20,404

Marketable securities-current are classified as available-for-sale. As of December 31, 2004 and 2005, the balances of unrealized gains for marketable securities—current were $577 and $276 thousand, respectively. During 2003, 2004 and 2005, realized gains from disposal of marketable securities—current amounted to $488 thousand, $351 thousand, and $850 thousand, respectively.

The following table summarizes the unrealized losses and fair value of our investments with unrealized losses that were not deemed to be other-than-temporarily impaired at December 31, 2005:

	Less than 12 months
	Fair Value		Unrealized Losses
	(in US$ thousands)
Debt securities
Freddie Mac N1206	$	4,957	$	(36	)

The unrealized losses on the debt securities were primarily caused by higher interest rates. We expect that these unrealized losses are not other-than-temporary, and have the intent to hold these securities with unrealized losses until a recovery of fair value.

On December 21, 2005, our Company entered into an agreement with an independent third party JSDWAY Digital Technology Co., Ltd (JSDWAY) regarding the purchase and sale of shares of Gamania owned by us. (See Note 22, “Commitments and Contingencies.”) From the period December 21, 2005 to December 20, 2006, we granted JSDWAY an option to buy, at NT$18.70 per share, a total of 4,905 thousand common shares of Gamania owned by our Company, and JSDWAY granted us an option to sell to JSDWAY, at NT$18.70 per share, the Gamania shares owned by our Company. JSDWAY also provided a deposit to our Company to guarantee fulfillment of its payment obligations under the aforementioned agreement. Due to this arrangement with JSDWAY, the Gamania securities have been classified as marketable securities—current and marked to market at NT$18.70 per share.

F-23

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 11. NOTES AND ACCOUNTS RECEIVABLE—NET

	December 31,
	2004			2005
	(in US$ thousands)
Notes and accounts receivable	$	8,446		$	8,127
Less: Allowance for doubtful accounts		(2,050	)		(1,684	)
Net	$	6,396		$	6,443

	For the years ended December 31,
	2003			2004			2005
	(in US$ thousands)
Allowance for doubtful accounts
Balance at beginning of year	$	1,556		$	1,731		$	2,050
Additions: Bad debt expenses		156			247			203
Less: Write-off		(18	)		(73	)		—
Divestiture—Music distribution business		—			—			(489	)
Translation adjustment		37			145			(80	)
Balance at end of year	$	1,731		$	2,050		$	1,684

NOTE 12. INVENTORIES—NET

	December 31,
	2004			2005
	(in US$ thousands)
Cable modems	$	1,686		$	100
Merchandise		10,714			12
Subtotal		12,400			112
Less: Allowance for inventory market value decline and obsolescence		(1,912	)		(54	)
Total	$	10,488		$	58

The net carrying amount of inventories decreased by $10.4 million for the year ended December 31, 2005, primarily due to the divestiture of the music distribution business.

	For the years ended December 31,
	2003			2004			2005
	(in US$ thousands)
Allowance for inventory market value decline and obsolescence
Balance at beginning of year	$	1,294		$	2,080		$	1,912
Additions: Charges for (reversal of) inventory market value decline and obsolete items		3,169			(300	)		33
Reductions: Written-off allowance for inventory market value decline and obsolescence		(2,423	)		—			(1,554	)
Divestiture—Music distribution business		—			—			(298	)
Translation adjustment		40			132			(39	)
Balance at end of year	$	2,080		$	1,912		$	54

F-24

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A significant portion of our total gross merchandise as of December 31, 2004 was returnable to vendors, subject to certain terms and conditions. Charges for (reversal of) inventory market value decline and obsolete items are a component of operating costs.

NOTE 13. MARKETABLE SECURITIES—NONCURRENT

	December 31,
	2004			2005
	Amount		Percentage held	Amount		Percentage held
	(in US$ thousands)
Equity Securities:
Gamania	$	2,893	3.32	$	—	—
Rock Internet Corporation (RIC)		—	4.35		—	—
Rock Mobile (Cayman) Corporation (RMC)		—	—		—	1.04
Total	$	2,893		$	—

Marketable securities—noncurrent are classified as available-for-sale, of which the investment in Gamania shares was classified as marketable securities—current as of December 31, 2005, as a result of our agreement with JSDWAY regarding the purchase and sale of Gamania shares. (See Note 10, “Marketable Securities—Current.”) On December 31, 2004, the market price of Gamania shares had been below our carrying cost for an extended period of time; therefore, we recorded an other-than-temporary loss of $1.8 million. As of December 31, 2004, the balance of unrealized losses was $0.

The investment in RIC was accounted for under the cost method. In 2003, this investment was considered impaired due to the downturn in the Internet industry and the significant operating loss incurred by RIC. Impairment losses of $1.7 million were recognized in 2003 and the investment balance was written down to $0 as of December 31, 2003.

On December 31, 2005, we exchanged all of our three million RIC shares for 646,859 ordinary shares of RMC, a company headquartered in Mainland China that provides music-related digital entertainment content and services through mobile networks and telecommunication devices. RIC had a 24.02% effective beneficial shareholding in RMC before the share exchange. Our effective shareholding ownership in RMC was 1.04%. After the share exchange, we hold an approximate 1.04% direct shareholding in RMC.

The share exchange was entered into without a change of interest in substance. In accordance with FASB Technical Bulletin No. 85-55, we account for our ownership in RMC after the exchange based on its existing carrying cost of $0.

NOTE 14. DEFERRED ASSETS

	December 31,
	2004		2005
	(in US$ thousands)
Royalty and license fees	$	115	$	36
Network setup cost		186		11
Other		48		44
Total	$	349	$	91

F-25

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred assets are stated at cost and amortized on a straight-line basis over the following periods: royalty and license fees, one to three years; network setup cost, five years. Network setup cost is comprised of costs incurred in setting up the leased network.

NOTE 15. RESTRICTED CASH

Restricted cash recorded in current assets as of December 31, 2004 consisted of the following:

	(in US$ thousands)
Restricted cash-current assets
Time deposit pledged to Hua Nan Commercial, China Trust Commercial and Ta Chong Bank as a guarantor for inventory purchases	$	1,290
Time deposit pledged to Hua Nan Commercial Bank for refundable deposit maturing on January 14, 2005		19
Funds restrained by preliminary injunction from court for a lease lawsuit		197
Total	$	1,506

As of December 31, 2005, we had no restricted cash. The elimination of restricted cash totaling $1.5 million was a result of the divestiture of the music distribution business.

NOTE 16. SHORT-TERM LOANS

Name	Nature	Weighted-average interest rate		December 31,
				2004		2005
				(in US$ thousands)
United Advertising Company, Ltd.	Unsecured loans	4	%	$	284	$	—

NOTE 17. OTHER CURRENT LIABILITIES

	December 31,
	2004		2005
	(in US$ thousands)
Unearned revenues	$	2,409	$	2,434
Player account balances		641		2,087
Other		852		1,724
Total	$	3,902	$	6,245

Unearned revenues include advanced payment receipts related to Internet access services. Revenues from these advanced payment receipts are amortized over the relevant subscription period.

Player account balances are player deposits associated with UIM’s operation of its online entertainment business. The change in aggregate player account balances is recognized monthly as a reduction to revenue. Player accounts inactive for one year or more are forfeited, effectively resulting in revenue upon the forfeiture date.

F-26

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 18. PENSION BENEFITS

Our Company and our subsidiaries have defined benefit and defined contribution pension plans that cover substantially all of our employees.

Defined Benefit Pension Plan

We have a defined benefit pension plan in accordance with the Labor Standards Law of the Republic of China for the employees located in Taiwan, covering substantially all full-time employees for services provided prior to July 1, 2005, and employees who elect to remain in the defined benefit pension plan subsequent to the enactment of the Labor Pension Act on July 1, 2005. Under the defined benefit pension plan, employees are entitled to two base points for every year of service for the first 15 years and one base point for every additional year of service, up to a maximum of 45 base points. The pension payment to employees is computed based on years of service and average salaries or wages for the six months prior to approved retirement.

We use a December 31 measurement date for our defined benefit pension plan. The following tables set forth the actuarial assumptions of our defined benefit pension plan:

	2004			2005
	(in US$ thousands)
Change in benefit obligation
Benefit obligation at beginning of year	$	1,105		$	941
Divestitures of music distribution business		—			(328	)
Service cost		249			88
Interest cost		39			21
Plan participants’ contribution		—			—
Actuarial gain		(518	)		(255	)
Benefits paid		—			—
Exchange diff.		66			(18	)
Benefit obligation at end of year	$	941		$	449

Effective January 1, 2004, our subsidiary KBT adopted FAS No. 87, “Employers’ Accounting for Pensions,” (FAS 87). According to an independent actuarial valuation, the adoption of FAS 87 resulted in an increase in the pension benefit obligation of $86 thousand as of January 1, 2004.

	2004		2005
	(in US$ thousands)
Change in plan assets
Fair value of plan asset at beginning of year	$	—	$	—
Actual return on plan assets		—		—
Employer contribution		—		—
Plan participants’ contributions		—		49
Benefit paid		—		—
Fair value of plan asset at end of year	$	—	$	49

F-27

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	2004			2005
	(in US$ thousands)
Funded status	$	(941	)	$	(399	)
Unrecognized net actuarial gain		(724	)		(461	)
Unrecognized prior service cost		348			—
Unrecognized transition obligation		149			82
Net amount recognized	$	(1,168	)	$	(778	)

Amounts recognized in the statement of financial position consisted of the following:

	Pension Benefits
	2004			2005
	(in US$ thousands)
Accrued benefit cost	$	(1,184	)	$	(811	)
Deferred pension cost (other assets)		16			33
Accumulated other comprehensive income		—			—
Net amount recognized	$	(1,168	)	$	(778	)

Information for pension plans with an accumulated benefit obligation in excess of plan assets was as follows:

	2004			2005
	(in US$ thousands)
Projected benefit obligation	$	(941	)	$	(449	)
Accumulated benefit obligation		(500	)		(364	)
Fair value of plan assets		—			49

The net periodic benefit cost for the plans included the following components:

	2003			2004			2005
	(in US$ thousands)
Service cost	$	218		$	249		$	88
Interest cost		35			39			21
Expected return on plan assets		—			—			—
Amortization of transition obligation		5			8			4
Amortization of prior service cost		27			28			—
Amortization of net (gain) loss		(11	)		(15	)		(20	)
Net periodic benefit cost	$	274		$	309		$	93

Assumptions

Weighted-average assumptions used to determine benefit obligations and net periodic pension costs at December 31, 2003, 2004 and 2005 were as follows:

	2003		2004		2005
Discount rate	3.50	%	3.50	%	3.50	%
Rate of return on plan assets	N/A		N/A		3.50	%
Rate of compensation increase	3.00	%	3.00	%	1.00	%

F-28

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Starting July 1, 2005, we have contributed an amount equal to 2% of the salaries and wages paid by GigaMedia to a pension fund (the Fund). The Fund is administered by a pension fund monitoring committee (the Committee) and deposited in the Committee’s name in the Central Trust of China in Taiwan. Under R.O.C regulations, government authorities will then collect the Fund as a Labor Retirement Fund and determine asset allocations and investment policy. Our Company makes pension payments from the Fund first and if the Fund is not sufficient, we make payments from internal funds as payments become due. We maintain a normal, highly liquid working capital balance to ensure payments are made timely.

We expect to make a contribution of $99 thousand to our pension fund in 2006. The benefits expected to be paid from 2005 through 2010 are $0, and in aggregate from 2011 to 2015 are $57 thousand.

Defined Contribution Pension Plan

Pursuant to the New “Labor Pension Act” enacted on July 1, 2005, our Company set up a defined contribution pension plan for the employees located in Taiwan. For domestic employees who elect to participate in the defined contribution pension plan, we contribute an amount no less than 6% of the employees’ salaries and wages paid each month to the employees’ individual pension accounts at the Bureau of Labor Insurance. Benefits accrued are portable upon termination of service. Pension payments to employees are made either by monthly installments or in a lump sum from the accumulated contributions and earnings in employees’ individual accounts.

We have also provided a defined contribution plan for employees located in North America. Participants under the age of 50 are allowed to defer up to $10 thousand of their annual compensation to the plan, whereas participants over the age of 50 are allowed to defer up to $12 thousand annually. CESL contributes an amount equal to the lesser of 3% of the participant’s compensation or 100% of the amount deferred by the employee.

The defined contribution expenses pursuant to the plans in Taiwan and North America for the years ended December 31, 2004 and 2005 were $42 thousand and $216 thousand, respectively. The plans are fully funded, except for $50 thousand accrued at the end of 2005. The accrual was funded in February 2006.

NOTE 19. SHAREHOLDERS’ EQUITY AND SHARE OPTIONS

As of December 31, 2005, the authorized capital of our Company was $30.81 million (NT$1,000 million), represented by 100 million common shares with par value of NT$10 per share. As of December 31, 2005, there were 50,343,642 common shares issued and outstanding.

In accordance with R.O.C. law, an appropriation for legal reserve amounting to 10% of a company’s net profit is required until the reserve equals the aggregate par value of such Taiwan company’s issued capital stock. As of December 31, 2005, the legal reserves of Hoshin GigaMedia, which represent a component of our accumulative deficits, were $339 thousand. The reserve can only be used to offset a deficit or be distributed as a stock dividend of up to 50% of the reserve balance when the reserve balance has reached 50% of the aggregate par value of the issued capital stock of Hoshin GigaMedia.

1999 Share Option Plan

During 1999, we adopted the GigaMedia Limited 1999 Employee Share Option Plan (the 1999 Plan). Pursuant to the 1999 Plan, 1,111,440 options with an exercise price of $24.30 and 836,470 options with an exercise price of $15.00 were granted before end of the financial year 2000. All options granted under the 1999 plan expired on or before December 17, 2005 without exercising.

F-29

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2002 Share Option Plan

At the June 2002 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2002 Employee Share Option Plan (the 2002 Plan) under which up to three million common shares of the Company have been reserved for issuance. All employees, officers, directors, supervisors, advisors, and consultants of our Company are eligible to participate in the 2002 Plan. The 2002 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the exercise price for the option grants, to determine which eligible individuals are to receive option grants, the time or times when options grants are to be made, the number of shares subject to grant and the maximum term for which any granted option is exercisable.

In August 2004, options to purchase three million shares of our common stock were granted and exercisable upon granting at an exercise price of $0.79 pursuant to the 2002 Plan. The expiration date of the options is June 29, 2014.

2004 Share Purchase Plan

At the June 2004 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2004 Employee Share Purchase Plan (the 2004 ESPP) under which up to two million common shares of our Company have been reserved for issuance. Pursuant to the 2004 ESPP, we have offered our shares to qualified employees at favorable conditions and established a restricted period of six months during which employees may not transfer the shares after purchasing them. To be eligible, employees must be employed by us or our subsidiaries and the customary employment shall be no less than 20 hours per week. Employees are also subject to certain restrictions on the amount that may be invested to purchase the shares and to other terms and conditions of the 2004 ESPP. The 2004 ESPP is a one-time plan and is administered by a committee designated by the board of directors. In March 2005, there were 189,642 shares subscribed by eligible employees at a purchase price of approximately $1.39 per share.

2004 Share Option Plan

At the June 2004 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2004 Employee Share Option Plan (the 2004 Plan) under which up to seven million common shares of our Company have been reserved for issuance. All employees, officers, directors, supervisors, advisors, and consultants of our Company are eligible to participate in the 2004 Plan. The 2004 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the exercise price for the option grants, to determine which eligible individuals are to receive option grants, the time or times when options grants are to be made, the number of shares subject to grant and the maximum term for which any granted option is exercisable.

In August 2004, options to purchase 5,462,530 shares of our Company’s common stock were granted at an exercise price of $0.79 pursuant to the 2004 Plan. These options were subject to two vesting schedules. In accordance with the terms of the first vesting schedule, 3,863,888 options were vested and exercisable upon granting. By the end of 2005, 95,000 options were cancelled, and the number of outstanding options under the first vesting schedule was 3,768,888 options. In accordance with the terms of the second vesting schedule, 1,598,642 options were granted, of which 399,663 options were vested and exercisable upon granting. The remaining 1,198,979 options are vested 399,661 options per year from the grant date. By the end of 2005, 273,185 options were cancelled, and the number of outstanding options under the second vesting schedule was 1,325,457 options.

F-30

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In May 2005, options to purchase 100,000 shares of our Company’s common stock were granted at an exercise price of $1.45. In accordance with the terms of the vesting schedule, 25,000 options were vested and exercisable upon granting. The remaining 75,000 options are vested 25,000 options per year from the grant date.

In December 2005, options to purchase 1,805,655 shares of our Company’s common stock were granted at an exercise price of $2.55. These options were subject to two vesting schedules. In accordance with the terms of the first vesting schedule, 1,570,655 options were vested and exercisable upon granting. In accordance with the terms of the second vesting schedule, 94,000 options are vested and exercisable in December 2007. The remaining 141,000 options are vested and exercisable in December 2008.

All options granted under the 2004 Plan expire on June 29, 2014.

No options were exercised as of December 31, 2005.

There were no compensation expenses recorded in 2004 and 2005 as a result of options granted in those years as all options were granted to employees at prices equal to or in excess of the common stock market price at the date of grant. There were no options granted in 2003.

The pro-forma disclosures of net income (loss) and earnings (loss) per share required under FAS 123 were disclosed in “Stock-Based Compensation” under Note 1, “Business Overview, Basis of Presentation, and Summary of Significant Accounting Policies.” In computing this pro-forma impact, the fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model based on the following assumptions:

	For the years ended December 31,
	2003	2004	2005
Option term (years)	5	3.35	3.41
Volatility	41.34%~58.77%	92.94%	53.77%~92.94%
Risk-free interest rate	5.06%~6.2%	2.92%	2.92%~4.33%
Dividend yield	0%	0%	0%
Weighted-average fair value of option granted	0	0.45	0.45~1.08

For options granted prior to December 31, 2004, an analysis of historical volatility was used to develop the estimate of expected volatility. However, with the divestiture of our land-based music distribution business in 2005, we do not believe historical stock price volatility is representative of our future stock trends. Therefore, for options granted during 2005, we applied the concept of “mean-reversion tendency” and excluded the period during which the divested business accounted for the majority of volatility for the estimate of expected volatility, which was calculated by weight-averaging the adjusted historical volatility of GigaMedia and the average mean volatility of our Company’s peer groups.

F-31

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Option and grant transactions during the last three years were summarized as follows:

	2003			2004				2005
	Weighted Avg. Exercise Price		No. of Shares (in thousands)	Weighted Avg. Exercise Price		No. of Shares (in thousands)		Weighted Avg. Exercise Price		No. of Shares (in thousands)
Balance at January 1,	$	23.50	473	$	23.50	473		$	2.00	8,844
Options granted		—	—		0.79	8,463			2.49	1,905
Options exercised		—	—		—	—			—	—
Options canceled/expired		—	—		0.79	(92	)		15.13	(749	)
Balance at December 31,	$	23.50	473	$	2.00	8,844		$	1.11	10,000
Exercisable at December 31,	$	23.50	473	$	2.18	7,737		$	1.09	9,170

The following table sets forth information about stock options outstanding at December 31, 2005:

	Options outstanding		Options currently exercisable
Range of exercise price	No. of Shares (in thousands)	Weighted average remaining   contractual life	Weighted average exercise price	No. of Shares (in thousands)
$0.79	8,094	8.49 years	$0.79	7,574
$1.45	100	8.49 years	$1.45	25
$2.55	1,806	8.49 years	$2.55	1,571
	10,000			9,170

NOTE 20. INCOME TAXES

	For the years ended December 31,
	2003			2004			2005
	(in US$ thousands)
Income (loss) from continuing operations before income taxes
U.S. operations	$	—		$	(4,392	)	$	516
Non-U.S. operations		(9,675	)		5,724			6,560
Total income (loss) from continuing operations before income taxes	$	(9,675	)	$	1,332		$	7,076

Income tax provision (benefit) from continuing operations by geographic operation is as follows:

	For the years ended December 31,
	2003		2004			2005
	(in US$ thousands)
U.S. operations	$	—	$	(88	)	$	304
Non-U.S. operations		139		4			132
	$	139	$	(84	)	$	436

F-32

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The components of income tax provision (benefit) from continuing operations by taxing jurisdiction are as follows:

	For the years ended December 31,
	2003		2004			2005
	( in US$ thousands)
U.S. federal
Current	$	—	$	7		$	233
Deferred		—		(19	)		17
		—		(12	)		250
U.S. state and local:
Current		—		12			60
Deferred		—		(88	)		(6	)
		—		(76	)		54
Non-U.S. :
Current		139		4			132
Deferred		—		—			—
		139		4			132
Total income tax provisions (benefit)	$	139	$	(84	)	$	436

A reconciliation of the Company’s continuing operations effective tax rate to the statutory U.S. federal tax rate is as follows:

	For the years ended December 31,
	2003		2004		2005
	(in US$ thousands)
Federal statutory rate	34.00	%	34.00	%	34.00	%
State and local—net of federal tax benefit	—		6.27	%	6.27	%
Foreign tax differential	(9.00	)%	(9.00	)%	(9.00	)%
Valuation allowance for deferred tax assets	(25.00	)%	(25.00	)%	(25.00	)%
Other	(1.44	)%	(12.58	)%	(0.11	)%
Effective rate	(1.44	)%	(6.31	)%	6.16	%

The provision for income taxes attributable to discontinued operations is as follows:

	For the years ended December 31,
	2003		2004		2005
	(in US$ thousands)
Provision on income from discontinued operations	$	3	$	5	$	(1	)
Provision on gain on disposal of discontinued operations	$	—	$	—	$	—

F-33

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Significant components of the Company’s deferred tax assets and liabilities consisted of the following:

	December 31,
	2004			2005
	(in US$ thousands)
Deferred tax assets:
Net operating loss carryforwards	$	20,990		$	9,458
Organization costs		1			—
Unrealized foreign exchange (gain) loss		9			3
Allowance for inventory market value decline and obsolete items		741			14
Allowance for doubtful accounts		381			400
Pension expense		191			197
Investment credits		186			175
Property, plant & equipment		—			149
Accrued expenses		47			—
		22,546			10,396
Less: valuation allowance	$	(22,499	)	$	(10,396	)
Deferred tax assets—net	$	47		$	—

	December 31,
	2004			2005
	(in US$ thousands)
Deferred tax liabilities:
Property, plant & equipment	$	(55	)	$	11
Intangible assets		(331	)		—
Others		—			(5	)
Deferred tax liabilities—net	$	(386	)	$	6

	For the years ended December 31,
	2003		2004			2005
	(in US$ thousands)
Valuation allowance:
Balance at beginning of year	$	19,514	$	21,316		$	22,499
Additions: charged to (realization of) valuation allowance		1,354		(336	)		(5,863	)
Divestiture		—		—			(5,405	)
Exchange difference		448		1,519			(835	)
Balance at end of year	$	21,316	$	22,499		$	10,396

We do not believe that sufficient objective, positive evidence currently exists to conclude that realization of deferred tax assets is more likely than not since our broadband ISP operations face slow market growth and strong market competition. As a result, we have provided a valuation allowance covering substantially all of the deferred tax assets arising from our broadband ISP operations in Taiwan.

In 2005, we applied for investment tax credits and research and development tax credits.

F-34

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As at December 31, 2005, we had net operating loss carryforwards of approximately $37.8 million, arising from our broadband ISP operations in Taiwan. Currently, the net operating loss can be carried forward for five years. A breakdown of the expiration of GigaMedia’s net operating loss carryforwards is as follows:

Year incurred	Amount		Expiring year
	(in US$ thousands)
2001	$	25,655	2006
2002		8,468	2007
2003		3,437	2008
2004		271	2009
Total	$	37,831

NOTE 21. RELATED PARTY TRANSACTIONS

In the course of operating our business, we provide Internet access services to, or sources services from, our Company’s business partners. These partners include companies in which we hold an interest, and companies with which members of the Board, senior managers of our Company, and our major shareholders or beneficial owners of our major shareholders are associated. Business with such companies was not material from the viewpoint of our Company.

Except for the following transactions, we were not a party to any transaction with any related party that did not arise in the ordinary course of business or that was material to us.

The chairman of China Trust Commercial Bank was one of our directors in 2004 and in 2005. As of December 31, 2004 and 2005, we had deposits in China Trust Commercial Bank, in the amount of $2,981 thousand and 31.7 million, respectively.

On March 31, 2004, we entered into an agreement with our major shareholder, Best Method Limited, and a former major shareholder, JKK, Inc., with regard to a warrant issued to Microsoft Corporation by GigaMedia. In September 2004, Microsoft Corporation returned the warrant unexercised. As a result, the Company transferred the book value of the warrant of $48.7 million to additional paid-in capital.

NOTE 22. COMMITMENTS AND CONTINGENCIES

(a) Operating Leases

We lease certain offices and stores under lease agreements that expire at various dates through 2010. One of the lease agreements, which expires in 2008, provides for a three-year renewal option; two of them, which both expire in 2010, provide for a 10-year renewal option. The following is a schedule of future minimum lease payments required under these operating leases, as of December 31, 2005:

Year	Amount (in US$ thousands)
2006	$	1,823
2007		974
2008		277
2009		44
2010 and after		44

F-35

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Rental expense for the above operating leases amounted to $7.3 million, $7.1 million and $5.3 million for the years ended December 31, 2003, 2004 and 2005, respectively (including respective amounts of $6.4 million, $5.9 million, and $3.4 million reported in discontinued operations).

(b) Contingencies

We are subject to legal proceedings and claims that arise in the normal course of business. We believe the ultimate liabilities with respect to these actions will not have a material adverse effect on our financial condition, results of operations or cash flows. (See Note 23, “Litigation,” for additional information.)

(c) Put-Call Option Agreement

On December 21, 2005, our wholly-owned subsidiary, Hoshin GigaMedia, entered into a Put-Call Option Agreement with JSDWAY. As of the date of the Put-Call Option Agreement, Hoshin GigaMedia owns 4,905,000 common shares (Put-Call Shares) of Gamania. According to the Put-Call Option Agreement, JSDWAY granted Hoshin GigaMedia an option to sell to JSDWAY the Put-Call Shares at the price of NT$18.7 per share exercisable before December 21, 2006, and Hoshin GigaMedia granted JSDWAY an option to buy from Hoshin GigaMedia the Put-Call Shares at the price of NT$18.7 per share exercisable before December 21, 2006. As of December 31, 2005, neither Hoshin GigaMedia nor JSDWAY had exercised the Put-Call Option Agreement. (See Note 10, “Marketable Securities—Current.”)

NOTE 23. LITIGATION

a. In December 2001, a class action lawsuit was filed in the United States District Court for the Southern District of New York against our Company in connection with the initial public offering of our stock.

The complaint alleged that we violated Section 11 and Section 15 of the Securities Exchange Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In October 2002, the plaintiffs voluntarily dismissed the individual defendants without prejudice. On February 19, 2003, the court issued an opinion and order on defendants’ motions to dismiss, which granted the motions in part and denied the motions in part. As to Gigamedia, the Rule 10b-5 claims were dismissed without prejudice while the Section 11 claims survived the motion. Discovery is now commencing.

In June 2004, the plaintiffs and issuer defendants, including our Company, presented the executed settlement agreement to the judge during a court conference. Subsequently, the plaintiffs and issuer defendants made a motion for preliminary approval of the settlement agreement. The key terms of the settlement agreement include: 1) the insurers of the issuers will provide an undertaking to guarantee that plaintiffs will recover a total of $1 billion; 2) the insurers will pay up to $15 million for the notice costs arising from the settlement; 3) the issuers shall assign their interest in certain claims against the underwriters to a litigation trust, represented by plaintiffs’ counsel; and 4) the plaintiffs shall release all of the settling issuer defendants. That is, if plaintiffs are successful in recovering more than $1 billion from the underwriters, the issuer defendants will not be obligated to pay any additional amounts. If the plaintiffs recover less than $1 billion from the underwriters, the insurers will pay the deficit between $1 billion and the amount received from the underwriters.

On February 15, 2005, the judge issued an opinion and order granting preliminary approval to the settlement agreement subject to a narrowing of the proposed bar order as to only contribution claims. In July 2005, the settling parties reached agreement and submitted modifications to the settlement agreement in accordance with the court’s opinion.

F-36

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Neither we nor our legal counsel are able to assess the likelihood of the outcome and can determine as to the amount or range of potential loss, if any. We have entered into an annually renewable insurance policy with American Insurance Group with $10 million of liability coverage in which our Company is required to pay a $500 thousand deductible. We recorded a provision of $500 thousand in 2003, representing our deductible amount, related to these claims. In 2005, our legal counsel advised that it is unlikely that we will have to pay any remaining, unused portion of our deductible with respect to the claims. Accordingly, we reversed the provision of $500 thousand in 2005. We believe that the insurance coverage is sufficient to cover the liability arising from the settlement and claim.

The court will hold a fairness hearing on April 24, 2006 on the proposed settlement and subsequently will decide whether to grant final approval to the settlement agreement. The settlement agreement is subject to the approval of the court. If the judge does not grant final approval of the settlement agreement, we will vigorously defend ourself against the class action lawsuit.

b. On February 21, 2005, we entered into a final settlement agreement (the Settlement) with Alfy, Inc. (ALFY) to resolve royalty payment issues arising from certain agreements, including a development agreement and license, dated January 29, 2001 and an amendment to the development agreement and license, dated September 25, 2001 (together referred to as the License Agreements). Pursuant to the final Settlement, ALFY agreed to early termination of the License Agreements and to reduce the total minimum guaranteed royalty payment to $100 thousand. Revenue produced from licensed ALFY content significantly decreased after 2002, and the cost to localize, maintain, and update the licensed ALFY content site became burdensome to us. By entering into the final settlement agreement, we eliminated future minimum guaranteed royalty payments and maintenance costs.

NOTE 24. SEGMENT INFORMATION

Segment data

Subsequent to the sale of the music distribution business in 2005, we realigned our reportable business segments. In compliance with FAS 131 “Disclosures about Segments of an Enterprise and Related Information,” we have identified reportable segments: an entertainment software business segment, and a broadband ISP business segment. The entertainment software business segment mainly derives its revenues from online games of chance and skill. The broadband ISP business segment mainly derives its revenues from Internet-related services.

Our management relies on an internal management reporting process that provides revenue and segment information for making financial decisions and allocating resources. The results are based on our method of internal reporting and are not necessarily in conformity with accounting principles generally accepted in the U.S. Management measures the performance of each segment based on several metrics, including income or loss from operations. The entertainment software business segment includes the financial conditions and results of CESL and the operations of UIM, which was consolidated as a result of applying FIN 46(R). (See Note 3, “Variable Interest Entity,” to the Consolidated Financial Statements included herein.) CESL develops, licenses and provides support services for software used within the online entertainment industry. UIM operates online entertainment activities. Revenues from the entertainment software business segment are derived from online games of skill and chance and are presented net of end-user winnings.

F-37

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Financial information for each reportable segment was as follows as of and for the years ended December 31, 2003, 2004 and 2005:

	Broadband ISP			Entertainment Software		Total
	(in US$ thousands)
2003:
Segment profit or loss:
Net revenue from external customers	$	19,513		$	—	$	19,513
Impairment loss on property, plant and equipment	$	1,557		$	—	$	1,557
Loss from operations	$	5,490		$	—	$	5,490
Interest income	$	227		$	—	$	227
Interest expense	$	—		$	—	$	—
Gain on sales of marketable securities	$	488		$	—	$	488
Foreign exchange gain (loss)	$	(362	)	$	—	$	(362	)
Depreciation	$	4,633		$	—	$	4,633
Amortization, including intangible assets	$	1,253		$	—	$	1,253
Income tax expenses	$	139		$	—	$	139
Segment assets:
Additions to property, plant and equipment	$	1,724		$	—	$	1,724
Total assets	$	70,451		$	—	$	70,451

F-38

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Broadband ISP			Entertainment Software			Total
	(in US$ thousands)
2004:
Segment profit or loss:
Net revenue from external customers	$	21,390		$	11,454		$	32,844
Income from operations	$	959		$	2,777		$	3,736
Interest income	$	45		$	6		$	51
Interest expenses	$	—		$	4		$	4
Gain on sales of marketable securities	$	1,222		$	—		$	1,222
Foreign exchange gain (loss)	$	533		$	8		$	541
Other-than-temporary loss on marketable securities	$	(1,833	)	$	—		$	(1,833	)
Depreciation	$	3,895		$	267		$	4,162
Amortization, including intangible assets	$	1,060		$	521		$	1,581
Income tax expenses (benefit)	$	—		$	(87	)	$	(87	)
Segment assets:
Additions to property, plant and equipment	$	1,866		$	567		$	2,433
Additions to intangible assets	$	—		$	3,327		$	3,327
Additions to goodwill	$	—		$	29,607		$	29,607
Total assets	$	29,861		$	38,476		$	68,337

F-39

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Broadband ISP			Entertainment Software		Total
	(in US$ thousands)
2005:
Segment profit or loss:
Net revenue from external customers	$	21,676		$	22,511	$	44,187
Income from operations	$	2,123		$	5,957	$	8,080
Interest income	$	5		$	92	$	97
Interest expenses	$	—		$	—	$	—
Gain on sales of marketable securities	$	466		$	—	$	466
Foreign exchange gain (loss)	$	(144	)	$	9	$	(135	)
Other-than-temporary loss on marketable securities	$	—		$	—	$	—
Depreciation	$	3,651		$	266	$	3,917
Amortization, including intangible assets	$	413		$	1,023	$	1,436
Income tax expenses (benefit)	$	110		$	325	$	435
Segment assets:
Additions to property, plant and equipment	$	1,782		$	474	$	2,256
Additions to intangible assets	$	—		$	1,005	$	1,005
Additions to goodwill	$	—		$	—	$	—
Total assets	$	31,344		$	45,413	$	76,757

F-40

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The reconciliations of segment information to GigaMedia consolidated totals were as follows:

	2003			2004			2005
	(in US$ thousands)
Income (loss) from operations:
Total segments	$	(5,490	)	$	3,736		$	8,080
Adjustment*		(1,602	)		(1,261	)		(3,714	)
Total GigaMedia consolidated	$	(7,092	)	$	2,475		$	4,366
Interest income:
Total segments	$	227		$	51		$	97
Adjustment*		120			89			314
Total GigaMedia consolidated	$	347		$	140		$	411
Gain on sales of marketable securities:
Total segments	$	488		$	1,222		$	466
Adjustments*		—			8			384
Total GigaMedia consolidated	$	488		$	1,230		$	850
Foreign exchange gain (loss):
Total segments	$	(362	)	$	541		$	(135	)
Adjustments*		(275	)		(1,306	)		286
Total GigaMedia consolidated	$	(637	)	$	(765	)	$	151
Income tax benefit (expense):
Total segments	$	(139	)	$	87		$	(435	)
Adjustments*		—			(3	)		(1	)
Total GigaMedia consolidated	$	(139	)	$	84		$	(436	)
Total assets:
Total segments	$	70,451		$	68,337		$	76,757
Adjustment**		49,341			57,640			36,762
Total GigaMedia consolidated	$	119,792		$	125,977		$	113,519

As discussed above, the reportable segments of our Company have been realigned subsequent to the divestiture of the music distribution business. The corresponding items of segment information for 2003 and 2004 have been restated to conform to the current year presentation.

* Adjustment items include corporate and certain back-office costs and expenses not attributable to any specific segment.

** Adjustment items include total corporate assets, the divested music distribution business segment and eliminations.

Major Customers

No single customer represented 10% or more of GigaMedia’s total net revenues in any period presented.

F-41

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Geographic Information

Revenue from unaffiliated customers by geographic region is as follows:

	2003		2004		2005
	(in US$ thousands)
Geographic region/country
Taiwan	$	19,513	$	21,390	$	21,676
Canada		—		11,454		22,511

Net long-lived assets by geographic region are as follows:

	December 31,
	2003		2004		2005
	(in US$ thousands)
Geographic region
Asia	$	15,636	$	14,672	$	10,156
North America		—		1,309		1,351
Europe		—		1,797		1,944
Latin America		6,199		35,257		29,243
Total	$	21,835	$	53,035	$	42,694

NOTE 25. SUBSEQUENT EVENTS

a. On December 19, 2005, our Company entered into a definitive agreement with TWP Corporation to acquire FunTown. On January 2, 2006, we completed the acquisition of FunTown and purchased certain assets and assumed certain liabilities of FunTown from TWP Corporation. The total purchase price of approximately $43 million consisted of a cash payment of approximately $27.2 million and convertible notes in the aggregate principal amount of approximately $15 million with a yield to maturity of 0% per annum excluding any contingent interest, representing a valuation premium of $757 thousand as determined by a third-party valuation. The convertible notes were issued on January 1, 2006 by our Company to TWP Corporation, in the aggregate principal amount of approximately NT$494 million ($15 million) with 50% maturing on January 1, 2008 and 50% maturing on January 1, 2009 and were convertible into 4,794 thousand shares of our common stock at $3.1287 per share (The conversion price is subject to adjustment for stock dividend, stock split, reserve stock split, recapitalization, merger, and other dilution.) On January 1, 2006, we pledged our share holdings in Hoshin Gigamedia as collateral for the notes. Direct transaction costs amounting to approximately $107 thousand were included as part of the acquisition cost.

The transaction also included an incentive in the form of an additional amount to be paid by GigaMedia on April 1, 2007, which amount will be determined as follows:

(i) If the growth of the pre-tax net income of FunTown in 2006 is 30% or more, an additional payment of $5 million;

(ii) If the growth of the pre-tax net income of FunTown in 2006 is 25% or above but less than 30%, an additional payment of $4.17 million;

(iii) If the growth of the pre-tax net income of FunTown in 2006 is 20% or above but less than 25%, an additional payment of $3.33 million;

F-42

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(iv) If the growth of the pre-tax net income of FunTown in 2006 is 15% or above but less than 20%, an additional payment of $2.5 million; and

(v) If the growth of the pre-tax net income of FunTown in 2006 is less than 15%, no additional payment will be made by GigaMedia.

FunTown is one of the leading casual game platforms in Asia. FunTown generates revenues through access fees and also through the sales of various in-game items. We acquired FunTown in order to enhance our position in the online entertainment market.

The following table summarizes the initial estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The allocation of the purchase price is preliminary and subject to adjustment following completion of the valuation process:

	Amount			Amortization life (in years)
	(in US$ thousands)
Cash acquired	$	463
Accounts receivable		3,626
Other current assets		121
Fixed assets/non-current assets		473
Other assets		140
Intangible assets
Trademark		10,795		Indefinite
Customer relationship		5,546		9
Completed technology		2,301		7
Self-developed software and game		1,534		5
Others		73		5
Goodwill		21,532
Total assets acquired		46,604
Total liabilities		(3,589	)
Total purchase price	$	43,015

F-43

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following pro forma condensed balance sheet gives effect to the above events as if the acquisition had occurred on December 31, 2005:

GIGAMEDIA LIMITED

UNAUDITED PRO FORMA CONDENSED BALANCE SHEET

December 31, 2005

(in thousands)

	As Reported in Accompanying Financial Statements		Pro Forma Adjustments for Subsequent Events			Pro Forma Balance Sheet
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	41,731	$	(26,767	)(1)/(2)	$	14,964
Marketable securities—current		20,404					20,404
Notes and accounts receivable—net		6,443		3,626	(1)		10,069
Inventories—net		58					58
Prepaid expenses		274					274
Other current assets		1,294		121	(1)		1,415
Total Current Assets		70,204					47,184
PROPERTY, PLANT AND EQUIPMENT—NET		10,747		473	(1)		11,220
GOODWILL		29,243		21,532	(1)		50,775
INTANGIBLE ASSETS—NET		2,704		20,249	(1)		22,953
OTHER ASSETS		621		140	(1)		761
TOTAL ASSETS	$	113,519				$	132,893
LIABILITIES & SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Notes and accounts payable	$	1,427	$	255	(1)	$	1,682
Accrued compensation		1,194					1,194
Accrued expenses		1,791		576	(1)		2,367
Other current liabilities		6,245		2,758	(1)		9,003
Total Current Liabilities		10,657					14,246
CONVERTIBLE NOTES		—		15,785	(2)		15,785
OTHER LIABILITIES
Refundable deposits		831					831
Deferred tax liabilities		—					—
Accrued pension liabilities		819					819
Total Other Liabilities		1,650					1,650
Total Liabilities		12,307					31,681
MINORITY INTERESTS		564					564
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY		100,648					100,648
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	113,519				$	132,893

Notes to Unaudited Pro Forma Balance Sheet as of December 31, 2005

(1) The adjustments reflect the initial estimated fair value of the assets acquired and liabilities assumed at the date of acquisition.

(2) The adjustments reflect the cash payment of $27.2 million and issuance of $15 million of convertible notes, with a valuation premium of $757 thousand.

F-44

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

b. On March 10, 2006, our wholly-owned subsidiary Hoshin GigaMedia entered into a Subscription Rights Agreement with Wretch Co., Ltd. (Wretch). Wretch is a leading online “community” offering a wide range of community services including Web logs or “blogs”, photo albums and bulletin boards. According to the Subscription Rights Agreement, Hoshin GigaMedia was granted a right to acquire up to a 20 percent equity stake in Wretch with a valuation based on a pre-agreed formula if and when Wretch increases its share capital within three years of the date of this Subscription Rights Agreement. In exchange for these rights, Hoshin GigaMedia agreed to provide Wretch with certain free Internet services for three years.

c. On April 27, 2006, GigaMedia entered into a strategic investment agreement with T2CN Holding Limited (“T2CN”), an online gaming operator in China, pursuant to which GigaMedia made an initial investment of US$15 million to acquire 7.5 million shares of convertible preferred stock. GigaMedia also obtained the right to elect one member to the board of directors of T2CN, along with customary preferred share rights and protections.

The convertible preferred shares have an initial liquidation preference, are entitled to receive cumulative dividends at 8% per annum, and are redeemable starting December 31, 2009. The preferred shares are convertible into common shares of T2CN based on a valuation of 8.65 times the forward net income of T2CN for the 12-month period ending on March 31, 2007, subject to certain adjustments and limitations.

Pursuant to this strategic agreement, GigaMedia and T2CN will together offer FunTown’s existing games to the T2CN user base. GigaMedia will become T2CN’s exclusive provider for FunTown’s existing games and preferred provider for games newly developed by GigaMedia.

d. On May 15, 2006, our Company entered into an Assets Purchase and Sale Agreement and a Service Agreement with Webs—TV Digital International Corporation (“Webs—TV”), a Taiwan digital content provider, to sell GigaMedia’s ADSL business and provide agreed upon services. Under the agreements, Webs—TV purchased GigaMedia’s ADSL business and agreed upon services in an all cash transaction with a total price of $17.9 million. Approximately $9.7 million of the price is for the ADSL business and is payable from May 16, 2006 through July 31, 2007. Approximately $8.2 million represents fees for bandwidth, consulting and other support services to be provided by GigaMedia through December 31, 2007, and is payable from May 16, 2006 through December 31, 2007.

The transferred ADSL business includes GigaMedia’s ADSL-related equipment, business contracts, and subscription contracts between GigaMedia and approximately 62,000 ADSL subscribers, as well as the right to use GigaMedia’s ADSL brand for five years.

F-45

EX-1.1

Exhibit 1.1

THE COMPANIES ACT, CAP. 50

PUBLIC COMPANY LIMITED BY SHARES

MEMORANDUM OF ASSOCIATION

of

GIGAMEDIA LIMITED

1. The name of the Company is “Gigamedia Limited”.

2. The Registered Office of the Company will be situate in the Republic of Singapore.

3. The objects for which the Company is established are:-

(1)     To carry on the business of investment holding, and in particular to invest the moneys of the Company in or otherwise to acquire and hold shares, stocks, debentures, debenture stock, scrip, loans, bonds, obligations, notes, securities and investments issued or guaranteed by any company or trust constituted or carrying on business in any part of the world, and in the funds or loans or other securities and investments of or issued or guaranteed by any government, state, or dominion, public body or authority, supreme, municipal local or otherwise, in the Republic of Singapore or elsewhere.

(2)     To acquire any such shares, stocks, debentures, debenture stock, scrip, loans, bonds, obligations, notes, securities and investments by original subscription, contract, tender, purchase exchange or otherwise, and whether or not fully paid up, and to make payments thereon as called up or in advance of calls or otherwise, and to subscribe for the same, either conditionally or otherwise, and to exercise and enforce all rights and powers conferred by or incident to the ownership thereof.

(3)     To exercise and enforce all rights and powers conferred by or incident to the ownership of any

          such shares, stocks, obligations or other securities including without prejudice to the generality of the foregoing all such powers of veto or control as may be conferred by virtue of the holding by the Company of some proportion of the issued or nominal amount thereof.

(4)     To vary or transpose by sale, exchange or otherwise from time to time as may be considered expedient any of the Company’s investments for the time being.

(5)     To acquire by purchase, lease, exchange or otherwise and hold by way of investment, land, buildings and immovable property of any tenure or description whatsoever in the Republic of Singapore or elsewhere, and to mortgage, lease or let out the property of the Company or any part thereof for such consideration as the Company may think fit.

(6)     To provide on such terms as may be thought fit those services for the companies in which the Company has invested which are suitable and convenient to be provided by a holding company and in particular, and without prejudice to the generality of the foregoing, to provide managerial, executive, supervisory, financial and accounting, investment and administrative services and office accommodation and equipment facilities to any such company.

(7)     To assist and participate in the privatisation of assets by the government of the Republic of Singapore.

(8)     To carry on any other business which may seem to the Company capable of being conveniently carried on in connection with its business or calculated directly or indirectly to enhance the value of or render profitable any of the Company’s properties or rights.

(9)     To acquire and undertake the whole or any part of the business, property, and liabilities of any person or company carrying on any business which the Company is authorized to carry on, or possessed of property suitable for the purposes of the Company.

(10)   To apply for, purchase, or otherwise acquire any patents, patent rights, copyrights, trade marks, formulae, licences, concessions, and the like, conferring any exclusive or non-exclusive or limited right to use, or any secret or other information as to any invention which may seem capable of being used for any of the purposes of the Company, or the acquisition of which may seem calculated directly or indirectly to benefit the Company; and to use, exercise, develop, or grant licences in respect of, or otherwise turn to account, the property, rights, or information so acquired.

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(11)   To amalgamate or enter into partnership or into any arrangement for sharing of profits, union of interest, co-operation, joint adventure, reciprocal concession, or otherwise, with any person or company carrying on or engaged in or about to carry on or engage in any business or transaction which the Company is authorized to carry on or engage in, or any business or transaction capable of being conducted so as directly or indirectly to benefit the Company.

(12)   To take, or otherwise acquire, and hold shares, debentures, or other securities of any other company.

(13)   To enter into any arrangements with any government or authority, supreme, municipal, local, or otherwise, that may seem conducive to the Company’s objects, or any of them; and to obtain from any such government or authority any rights, privileges, and concessions which the Company may think it desirable to obtain; and to carry out, exercise, and comply with any such arrangements, rights, privileges, and concessions.

(14)   To establish and support or aid in the establishment and support of associations, institutions, funds, trusts, and conveniences calculated to benefit employees or directors or past employees or directors of the Company or its predecessors in business, or the dependants or connections of any such persons; and to grant pensions and allowances, and to make payments towards insurance; and to subscribe or guarantee money for charitable or benevolent objects, or for any exhibition, or for any public, general, or useful object.

(15)   To promote any other company or companies for the purpose of acquiring or taking over all or any of the property, rights, and liabilities of the Company, or for any other purpose which may seem directly or indirectly calculated to benefit the Company.

(16)   To purchase, take on lease or in exchange, hire, or otherwise acquire any movable or immovable properties and any rights or privileges which the Company may think necessary or convenient for the purposes of its business, and in particular any land, buildings, easements, machinery, plant, and stock-in-trade.

(17)   To construct, improve, maintain, develop, work, manage, carry out, or control any buildings, works, factories, mills, roads, ways, tram-ways, railways, branches or sidings, bridges, reservoirs, water-courses, wharves, warehouses, electric works, shops, stores, and other works, and conveniences which may seem calculated directly or indirectly to advance the Company’s interests; and to contribute to, subsidize, or otherwise assist or take part in the construction, improvement, maintenance, development, working, management, carrying out, or control thereof.

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(18)   To enter into any guarantee, contract of indemnity or suretyship and in particular (without prejudice to the generality of the foregoing) to guarantee, support or secure, with or without consideration, whether by personal obligation or by mortgaging or charging all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company or by both such methods or in any other manner, the performance of any obligations or commitments of, and the repayment or payment of the principal amounts of and any premiums, interest, dividends and other moneys payable on or in respect of any securities or liabilities of, any person, including (without prejudice to the generality of the foregoing) any company which is for the time being a subsidiary or a holding company of the Company or another subsidiary of a holding company of the Company or otherwise associated with the Company.

(19)   To lend and advance money or give credit to any person or company and on such terms as may be considered expedient, and either with or without security; to secure or undertake in any way the repayment of moneys lent or advanced to or the liabilities incurred by any person or company, and otherwise to assist any person or company.

(20)   To borrow or raise or secure the payment of money in such manner as the Company may think fit and to secure the same or the repayment or performance of any debt, liability, contract, guarantee or other engagement incurred or to be entered into by the Company in any way and in particular by the issue of debentures perpetual or otherwise, charged upon all or any of the Company’s property (both present and future), including its uncalled capital; and to purchase, redeem, or pay off any such securities.

(21)   To invest and deal with the money of the Company not immediately required in such manner as may from time to time be thought fit.

(22)   To enter into or to invest in any interest rate exchange contracts, currency exchange contracts, forward contracts, futures contracts, options (including, without limitation, interest rate or currency options) and other derivative or financial instruments or products, whether or not entered into or acquired for the purpose of hedging against or minimising any loss concerning the assets and business of the Company and in relation thereto, the Company may pay any margin or margin calls or other demands concerning any such contracts or instruments entered into or acquired by the Company.

(23)   To remunerate any person or company for services rendered, or to be rendered, in placing or assisting to place or guaranteeing the placing of any of the shares in the Company’s capital or any debentures, or other securities of the Company, or in or about the organization, formation, or promotion of the Company or the conduct of its business.

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(24)   To draw, make, accept, endorse, discount, execute, and issue promissory notes, bills of exchange, bills of lading, and other negotiable or transferable instruments.

(25)   To sell or dispose of the undertaking of the Company or any part thereof for such consideration as the Company may think fit, and in particular for shares, debentures, or securities of any other company having objects altogether or in part similar to those of the Company.

(26)   To adopt such means of making known and advertising the business and products of the Company as may seem expedient.

(27)   To apply for, secure, acquire by grant, legislative enactment, assignment, transfer, purchase, or otherwise, and to exercise, carry out, and enjoy any charter, licence, power, authority, franchise, concession, right, or privilege, which any Government or authority or any corporation or other public body may be empowered to grant; and to pay for, aid in, and contribute towards carrying the same into effect; and to appropriate any of the Company’s shares, debentures, or other securities and assets to defray the necessary costs, charges, and expenses thereof.

(28)   To apply for, promote, and obtain any statute, order, regulation, or other authorization or enactment which may seem calculated directly or indirectly to benefit the Company; and to oppose any bills, proceedings, or applications which may seem calculated directly or indirectly to prejudice the Company’s interests.

(29)   To procure the Company to be registered or recognized in any country or place outside the Republic of Singapore.

(30)   To sell, improve, manage, develop, exchange, lease, dispose of, turn to account, or otherwise deal with all or any part of the property and rights of the Company.

(31)   To issue and allot fully or partly paid shares in the capital of the Company in payment or part payment of any movable or immovable property purchased or otherwise acquired by the Company or any services rendered to the Company.

(32)   To distribute any of the property of the Company among the members in kind or otherwise but so that no distribution amounting to a reduction of capital shall be made without the sanction required by law.

(33)   To take or hold mortgages, liens, and charges to secure payment of the purchase price, or any unpaid balance of the purchase price, of any part of the

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Company’s property of whatsoever kind sold by the Company, or any money due to the Company from purchasers and others.
(34)   To undertake and transact all kinds of agency or secretarial business and also to undertake and execute any trusts, the undertaking whereof may seem desirable, and either gratuitously or otherwise.
(35)   To transact any lawful business in aid of the Republic of Singapore in the prosecution of any war or hostilities in which the Republic of Singapore is engaged.
(36)   To carry out all or any of the objects of the Company and do all or any of the above things in any part of the world and either as principal, agent, contractor, or trustee, or otherwise, and by or through trustees or agents or otherwise, and either alone or in conjunction with others.
(37)   To do all such other things as are incidental or conducive to the attainment of the objects and the exercise of the powers of the Company.
AND IT IS HEREBY DECLARED that the word “company” in this Memorandum when not referring to this Company shall be deemed to include any corporation partnership association club or other body of persons whether incorporated or not and wherever incorporated or domiciled and whether now existing or hereafter to be formed AND further that unless the context or subject matter is inconsistent therewith words signifying the singular number shall be deemed and taken to include the plural and vice versa AND further that the objects specified in each of the paragraphs in this Memorandum shall be regarded as independent objects, and accordingly, shall in no way be limited or restricted (except when otherwise expressed in such paragraph), by reference to the objects indicated in any other paragraph or the name of the Company, but may be carried out in as full and ample a manner and construed in as wide a sense as if each of the said paragraphs defined the objects of a separate, distinct and independent company.
4.  The liability of the members is limited.
5.  The capital of the Company is NT$1,000,000,000/- divided into 100,000,000 shares of NT$10/- each, and the Company shall have power to increase or reduce the capital to consolidate or subdivide the shares into shares of larger or smaller amounts, and to issue all or any part of the original or any additional capital as fully paid or partly paid shares and with any special or preferential rights or privileges or subject to any special terms or conditions, and either with or without any special designation, and also from time to time to alter, modify, commute, abrogate or deal with any such rights, privileges, terms, conditions or designations in accordance with the regulations for the time being of the Company.	Amended by Ordinary Resolution on 29.6.2005

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WE, the several persons whose names, addresses and descriptions are subscribed, are desirous of being formed into a Company in pursuance of this Memorandum of Association and respectively agree to take the number of shares in the capital of the Company set opposite our respective names:-

NAMES, ADDRESSES AND DESCRIPTIONS OF SUBSCRIBERS		Number of shares taken by each Subscriber
SGD	CHRISTINE CHAN MENG YOOK 11C SWISS CLUB ROAD SINGAPORE 288103	ONE
	ADVOCATE & SOLICITOR
SGD	LIM MEI 56 JALAN AMPANG SINGAPORE 268638	ONE
	ADVOCATE & SOLICITOR
	TOTAL NUMBER OF SHARES TAKEN	TWO

Dated this 11th day of September 1999.

Witness to the above signatures:-

SGD	THEODORA LIM RERN SING
	Advocate & Solicitor
	c/o Allen & Gledhill
	Advocates & Solicitors
	36 Robinson Road
	#18-01 City House
	Singapore 068877

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EX-1.2

Exhibit 1.2

THE COMPANIES ACT, CAP. 50

PUBLIC COMPANY LIMITED BY SHARES

ARTICLES OF ASSOCIATION

of

GIGAMEDIA LIMITED

PRELIMINARY

1. The regulations contained in Table “A” in the Fourth Schedule to the Companies Act, Cap. 50 shall not apply to the Company, but the following shall subject to repeal, addition and alteration as provided by the Act or these Articles be the regulations of the Company.	Table “A” not to apply.
2. In these Articles, if not inconsistent with the subject or context, the words standing in the first column of the Table next hereinafter contained shall bear the meanings set opposite to them respectively in the second column thereof:-	Interpretation.

WORDS	MEANINGS
“The Act”	The Companies Act, Cap. 50 or any statutory modification, amendment or re-enactment thereof for the time being in force or any and every other act for the time being in force concerning companies and affecting the Company and any reference to any provision of the Act is to that provision as so modified, amended or re-enacted or contained in any such subsequent Companies Act.
“These Articles”	These Articles of Association or other regulations of the Company for the time being in force.
“The Company”	The abovenamed Company by whatever name from time to time called.
“Directors”	The Directors for the time being of the Company or such number of them as have authority to act for the Company.
“Director”	Includes any person acting as a Director of the Company and includes any person duly appointed and acting for the time being as an Alternate Director.

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“Dividend”	Includes bonus.
“Member”	A Member of the Company.
“Month”	Calendar month.
“Office”	The Registered Office of the Company for the time being.
“Paid Up”	Includes credited as paid up.
“Register”	The Register of Members.
“Seal”	The Common Seal of the Company or in appropriate cases the Official Seal or duplicate Common Seal.
“Secretary”	The Secretary or Secretaries appointed under these Articles and shall include any person entitled to perform the duties of Secretary temporarily.
“Singapore”	The Republic of Singapore.
“Writing” and “Written”	Includes printing, lithography, typewriting and any other mode of representing or reproducing words in a visible form.
“Year”	Calendar Year.

Words denoting the singular number only shall include the plural and vice versa. Words denoting the masculine gender only shall include the feminine gender. Words denoting persons shall include corporations. Save as aforesaid, any word or expression used in the Act and the Interpretation Act, Cap. 1 shall, if not inconsistent with the subject or context, bear the same meaning in these Articles. The headnotes and marginal notes are inserted for convenience only and shall not affect the construction of these Articles.
BUSINESS
3. Subject to the provisions of the Act, any branch or kind of business which by the Memorandum of Association of the Company or these Articles is expressly or by implication authorised to be undertaken by the Company may be undertaken by the Directors at such time or times as they shall think fit, and further may be suffered by them to be in abeyance, whether such branch or kind of business may have been actually commenced or not, so long as the Directors may deem it expedient not to commence or proceed with such branch or kind of business.	Any branch of business either expressly or by implication authorised may be undertaken by Directors.
PUBLIC COMPANY
4. The Company is a public company.	Public Company.

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SHARES
5. The authorised capital of the Company is NT$1,000,000,000/- divided into 100,000,000 shares of NT$10/- each.	Authorised Share Capital. Amended by AGM held on 29.6.2005
6. (a) Except as is otherwise expressly permitted by the Act, the Company shall not give, whether directly or indirectly and whether by means of the making of a loan, the giving of a guarantee, the provision of security, the release of an obligation or the release of a debt or otherwise, any financial assistance for the purpose of, or in connection with, the acquisition or proposed acquisition of shares or units of shares in the Company or its holding company.	Prohibition against financial assistance.
(b) The Company may, subject to and in accordance with the Act, purchase or otherwise acquire ordinary shares in the issued share capital of the Company on such terms and in such manner as the Company may from time to time think fit. Any share that is so purchased or acquired by the Company shall be deemed to be cancelled immediately on purchase or acquisition. On the cancellation of a share as aforesaid, the rights and privileges attached to that share shall expire.	Company may acquire its own issued ordinary shares.
7. Save as provided by Section 161 of the Act, no shares may be issued by the Directors without the prior approval of the Company in General Meeting but subject thereto and to the provisions of these Articles, the Directors may allot or grant options over or otherwise dispose of the same to such persons on such terms and conditions and either at a premium or at par and (subject to the provisions of the Act) at a discount and at such time as the Company in General Meeting may approve.	Issue of Shares.
8. The rights attached to shares issued upon special conditions shall be clearly defined in the Memorandum of Association or these Articles. Without prejudice to any special right previously conferred on the holders of any existing shares or class of shares but subject to the Act and these Articles, shares in the Company may be issued by the Directors and any such shares 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 determine.	Special Rights.
9. If at any time the share capital is divided into different classes, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may subject to the provisions of the Act, whether or not the Company is being wound up, be varied or abrogated with the sanction of a Special Resolution passed at a separate General Meeting of the holders of shares of the class and to every such Special Resolution the provisions of Section 184 of the Act shall with such adaptations as are necessary apply. To every such separate General Meeting the provisions of these Articles relating to General Meetings shall mutatis mutandis apply; but so that the necessary quorum shall be two persons at least holding or representing by proxy or by attorney one-third of the issued shares of the class Provided always that where the necessary majority for such a Special Resolution is not obtained at the Meeting, consent in writing if obtained from the holders of three-fourths of the issued shares of the class concerned, within two months of the Meeting shall be as valid and effectual as a Special Resolution, carried at the Meeting.	Variation of rights.
10. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall, unless otherwise expressly provided by the terms of issue of the shares	Creation or issue of further

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of that class or by these Articles as are in force at the time of such issue, be deemed to be varied by the creation or issue of further shares ranking equally therewith.	shares with special rights.
11. The Company may exercise the powers of paying commission conferred by the Act, provided that the rate per cent or the amount of the commission paid or agreed to be paid shall be disclosed in the manner required by the Act and the commission shall not exceed the rate of ten per cent of the price at which the shares in respect whereof the same is paid are issued or an amount equal to ten per cent of that price (as the case may be). Such commission may be satisfied by the payment of cash or the allotment of fully or partly paid shares or partly in one way and partly in the other. The Company may also on any issue of shares pay such brokerage as may be lawful.	Power to pay commission and brokerage.
12. If any shares of the Company are issued for the purpose of raising money to defray the expenses of the construction of any works or the provisions of any plant which cannot be made profitable for a long period, the Company may, subject to the conditions and restrictions mentioned in the Act pay interest on so much of the share capital as is for the time being paid up and may charge the same to capital as part of the cost of the construction or provision.	Power to charge interest on capital.
13. Except as required by law, no person shall be recognised by the Company as holding any share upon any trust and the Company shall not be bound by or compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except only as by these Articles or by law otherwise provided) any other rights in respect of any share, except an absolute right to the entirety thereof in the registered holder.	Exclusion of equities.
14. If two or more persons are registered as joint holders of any share any one of such persons may give effectual receipts for any dividend payable in respect of such share and the joint holders of a share shall, subject to the provisions of the Act, be severally as well as jointly liable for the payment of all instalments and calls and interest due in respect of such shares. Such joint holders shall be deemed to be one Member and the delivery of a certificate for a share to one of several joint holders shall be sufficient delivery to all such holders.	Joint holders.
15. No person shall be recognised by the Company as having title to a fractional part of a share or otherwise than as the sole or a joint holder of the entirety of such share.	Fractional part of a share.
16. If by the conditions of allotment of any shares the whole or any part of the amount of the issue price thereof shall be payable by instalments every such instalment shall, when due, be paid to the Company by the person who for the time being shall be the registered holder of the share or his personal representatives, but this provision shall not affect the liability of any allottee who may have agreed to pay the same.	Payment of instalments.
17. The certificate of title to shares in the capital of the Company shall be issued under the Seal in such form as the Directors shall from time to time prescribe and shall bear the autographic or facsimile signatures of at least one Director and the Secretary or some other person appointed by the Directors, and shall specify the number and class of shares to which it relates and the amounts paid thereon. The facsimile signatures may be reproduced by mechanical or other means provided the method or system of reproducing signatures has first been approved by the Auditors of the Company.	Share Certificates.
18. Every person whose name is entered as a Member in	Entitlement

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the Register shall be entitled within two months after allotment or within one month after the lodgment of any transfer to one certificate for all his shares of any one class or to several certificates in reasonable denominations each for a part of the shares so allotted or transferred. Where a Member transfers part only of the shares comprised in a certificate or where a Member requires the Company to cancel any certificate or certificates and issue new certificates for the purpose of subdividing his holding in a different manner the old certificate or certificates shall be cancelled and a new certificate or certificates for the balance of such shares issued in lieu thereof and the Member shall pay a fee not exceeding $2/- for each such new certificate as the Directors may determine.	to certificates.
19. If any certificate or other document of title to shares or debentures be worn out or defaced, then upon production thereof to the Directors, they may order the same to be cancelled and may issue a new certificate in lieu thereof. For every certificate so issued there shall be paid to the Company the amount of the proper duty, if any, with which such certificate is chargeable under any law for the time being in force relating to stamps together with a further fee not exceeding $2/- as the Directors may determine. Subject to the provisions of the Act and the requirements of the Directors thereunder, if any certificate or document be lost or destroyed or stolen, then upon proof thereof to the satisfaction of the Directors and on such indemnity as the Directors deem adequate being given, and on the payment of the amount of the proper duty with which such certificate or document is chargeable under any law for the time being in force relating to stamps together with a further fee not exceeding $2/- as the Directors may determine, a new certificate or document in lieu thereof shall be given to the person entitled to such lost or destroyed or stolen certificate or document.	New certificates may be issued.
RESTRICTION ON TRANSFER OF SHARES
20. Subject to the restrictions of these Articles any Member may transfer all or any of his shares, but every transfer must be in writing and in the usual common form, or in any other form which the Directors may approve. The instrument of transfer of a share shall be signed both by the transferor and by the transferee, and by the witness or witnesses thereto and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register in respect thereof. Shares of different classes shall not be comprised in the same instrument of transfer.	Form of Transfer.
21. All instruments of transfer which shall be registered shall be retained by the Company, but any instrument of transfer which the Directors may refuse to register shall (except in any case of fraud) be returned to the party presenting the same.	Retention of Transfers.
22. No share shall in any circumstances be transferred to any infant or bankrupt or person of unsound mind.	Infant, bankrupt or unsound mind.
23. The Directors may, in their absolute discretion, decline to register any transfer of shares on which the Company has a lien or to a person of whom they do not approve but shall in such event, within one month after the date on which the transfer was lodged with the Company send to the transferor and transferee notice of the refusal. If the Directors refuse to register a transfer they shall within one month of the date of application for the transfer by notice in writing to the applicant state the facts which are considered to justify the refusal to register the transfer.	Directors’ power to decline to register.

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24. The Directors may decline to register any instrument of transfer unless:-	Instrument of transfer.
(a)     such fee not exceeding $2/- or such other sum as the Directors may from time to time require under the provisions of these Articles, is paid to the Company in respect thereof; and
(b)     the instrument of transfer is deposited at the Office or at such other place (if any) as the Directors may appoint accompanied by the certificates of the shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer and, if the instrument of transfer is executed by some other person on his behalf, the authority of the person so to do.
25. The Company shall provide a book to be called “Register of Transfers” which shall be kept under the control of the Directors, and in which shall be entered the particulars of every transfer of shares.	Register of Transfers.
26. The Register may be closed at such times and for such periods as the Directors may from time to time determine not exceeding in the whole thirty days in any year.	Closure of Register.
TRANSMISSION OF SHARES
27. In case of the death of a Member, the survivor or survivors, where the deceased was a joint holder, and the executors or administrators of the deceased, where he was a sole or only surviving holder, shall be the only persons recognised by the Company as having any title to his interest in the shares, but nothing herein shall release the estate of a deceased Member (whether sole or joint) from any liability in respect of any share held by him.	Transmission on death.
28. Any person becoming entitled to a share in consequence of the death or bankruptcy of any Member may, upon producing such evidence of title as the Directors shall require, be registered himself as holder of the share upon giving to the Company notice in writing of such his desire or transfer such share to some other person. If the person so becoming entitled shall elect to be registered himself, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. If he shall elect to have another person registered he shall testify his election by executing to that person a transfer of the share. All the limitations, restrictions and provisions of these Articles relating to the right to transfer and the registration of transfers shall be applicable to any such notice or transfer as aforesaid as if the death or bankruptcy of the Member had not occurred and the notice or transfer were a transfer executed by such Member.	Persons becoming entitled on death or bankruptcy of Member may be registered.
29. Save as otherwise provided by or in accordance with these Articles a person becoming entitled to a share in consequence of the death or bankruptcy of a Member shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share except that he shall not be entitled in respect thereof to exercise any right conferred by membership in relation to Meetings of the Company until he shall have been registered as a Member in respect of the share.	Rights of un- registered executors and trustees.

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30. There shall be paid to the Company in respect of the registration of any probate, letters of administration, certificate of marriage or death, power of attorney or other document relating to or affecting the title to any shares, such fee not exceeding $2/- as the Directors may from time to time require or prescribe.	Fee for registration of probate etc.
CALLS ON SHARES
31. The Directors may from time to time make such calls as they think fit upon the Members in respect of any moneys unpaid on their shares (whether on account of the nominal value of the shares or by way of premium) and not by the terms of the issue thereof made payable at fixed times, and each Member shall (subject to receiving at least fourteen days’ notice specifying the time or times and place of payment) pay to the Company at the time or times and place so specified the amount called on his shares. A call may be revoked or postponed as the Directors may determine.	Calls on shares.
32. A call shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed and may be made payable by instalments.	Time when made.
33. If a sum called in respect of a share is not paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest on the sum due from the day appointed for payment thereof to the time of actual payment at such rate not exceeding ten per cent per annum as the Directors determine, but the Directors shall be at liberty to waive payment of such interest wholly or in part.	Interest on calls.
34. Any sum (whether on account of the nominal value of the share or by way of premium) which by the terms of issue of a share becomes payable upon allotment or at any fixed date, shall for all purposes of these Articles be deemed to be a call duly made and payable on the date, on which, by the terms of issue, the same becomes payable, and in case of non-payment all the relevant provisions of the Articles as to payment of interest and expenses, forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.	Sum due on allotment.
35. The Directors may on the issue of shares differentiate between the holders as to the amount of calls to be paid and the times of payments.	Power to differentiate.
36. The Directors may, if they think fit, receive from any Member willing to advance the same all or any part of the moneys (whether on account of the nominal value of the shares or by way of premium) uncalled and unpaid upon the shares held by him and such payments in advance of calls shall extinguish, so far as the same shall extend, the liability upon the shares in respect of which it is made, and upon the moneys so received or so much thereof as from time to time exceeds the amount of the calls then made upon the shares concerned the Company may pay interest at such rate not exceeding ten per cent per annum as the Member paying such sum and the Directors agree upon.	Payment in advance of calls.
FORFEITURE AND LIEN
37. If any Member fails to pay in full any call or instalment of a call on the day appointed for payment thereof, the Directors may at any time thereafter serve a notice on such Member requiring payment of so much of the call or instalment as is unpaid together with any interest and expenses which may have accrued.	Notice requiring payment of calls.

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38. The notice shall name a further day (not being less than fourteen days from the date of service of the notice) on or before which and the place where the payment required by the notice is to be made, and shall state that in the event of non-payment in accordance therewith the shares on which the call was made will be liable to be forfeited.	Notice to state time and place.
39. If the requirements of any such notice as aforesaid are not complied with, any share in respect of which such notice has been given may at any time thereafter, before payment of all calls and interest and expenses due in respect thereof be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited share and not actually paid before the forfeiture. The Directors may accept a surrender of any share liable to be forfeited hereunder.	Forfeiture on non- compliance with notice.
40. A share so forfeited or surrendered shall become the property of the Company and may be sold, re-allotted or otherwise disposed of either to the person who was before such forfeiture or surrender the holder thereof or entitled thereto, or to any other person, upon such terms and in such manner as the Directors shall think fit, and at any time before a sale, re-allotment or disposition the forfeiture or surrender may be cancelled on such terms as the Directors think fit. To give effect to any such sale, the Directors may, if necessary, authorise some person to transfer a forfeited or surrendered share to any such person as aforesaid.	Sale of shares forfeited.
41. A Member whose shares have been forfeited or surrendered shall cease to be a Member in respect of the shares, but shall notwithstanding the forfeiture or surrender remain liable to pay to the Company all moneys which at the date of forfeiture or surrender were payable by him to the Company in respect of the shares with interest thereon at ten per cent per annum (or such lower rate as the Directors may approve) from the date of forfeiture or surrender until payment, but such liability shall cease if and when the Company receives payment in full of all such money in respect of the shares and the Directors may waive payment of such interest either wholly or in part.	Rights and liabilities of Members whose shares have been forfeited or surrendered.
42. The Company shall have a first and paramount lien and charge on every share (not being a fully paid share) registered in the name of each Member (whether solely or jointly with others) and on the dividends declared or payable in respect thereof for all calls and instalments due on any such share and interest and expenses thereon but such lien shall only be upon the specific shares in respect of which such calls or instalments are due and unpaid and on all dividends from time to time declared in respect of the shares. The Directors may resolve that any share shall for some specified period be exempt from the provisions of this Article.	Company’s lien.
43. The Company may sell in such manner as the Directors think fit any share on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of fourteen days after notice in writing stating and demanding payment of the sum payable and giving notice of intention to sell in default, shall have been given to the registered holder for the time being of the share or the person entitled thereto by reason of his death or bankruptcy. To give effect to any such sale, the Directors may authorise some person to transfer the shares sold to the purchaser thereof.	Sale of shares subject to lien.
44. The proceeds of the sale shall be received by the Company and applied in payment of such part of the amount in	Application of proceeds

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respect of which the lien exists as is presently payable and the residue, if any, shall (subject to a like lien for sums not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale.	of such sale.
45. A statutory declaration in writing that the declarant is a Director of the Company and that a share has been duly forfeited or surrendered or sold to satisfy a lien of the Company on a date stated in the declaration shall be conclusive evidence of the facts stated therein as against all persons claiming to be entitled to the share, and such declaration and the receipt of the Company for the consideration (if any) given for the share on the sale, re-allotment or disposal thereof together with the certificate of proprietorship of the share under Seal delivered to a purchaser or allottee thereof shall (subject to the execution of a transfer if the same be required) constitute a good title to the share and the person to whom the share is sold, re-allotted or disposed of shall be registered as the holder of the share and shall not be bound to see to the application of the purchase money (if any) nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, surrender, sale, re-allotment or disposal of the share.	Title to shares forfeited or surrendered or sold to satisfy a lien.
ALTERATION OF CAPITAL
46. The Company in General Meeting may from time to time by Ordinary Resolution, whether all the shares for the time being authorised shall have been issued or all the shares for the time being issued shall have been fully called up or not, increase its capital by the creation of new shares of such amount as may be deemed expedient.	Power to increase capital.
47. Subject to any special rights for the time being attached to any existing class of shares, the new shares shall be issued upon such terms and conditions and with such rights and privileges annexed thereto as the General Meeting resolving upon the creation thereof shall direct and if no direction be given as the Directors shall determine subject to the provisions of these Articles and in particular (but without prejudice to the generality of the foregoing) such shares may be issued with a preferential or qualified right to dividends and in the distribution of assets of the Company or otherwise.	Rights and privileges of new shares.
48. Unless otherwise determined by the Company in General Meeting any original shares for the time being unissued and any new shares from time to time to be created shall before issue be offered in the first instance and either at par or at a premium to all the then holders of any class of shares in proportion as nearly as may be to the amount of capital held by them. In offering such shares in the first instance to all the then holders of any class of shares the offer shall be made by notice specifying the number of shares offered and limiting the time within which the offer if not accepted will be deemed to be declined and after the expiration of that time or on the receipt of an intimation from the person to whom the offer is made that he declines to accept the shares offered, the Directors may dispose of those shares in such manner as they think most beneficial to the Company and the Directors may dispose of or not issue any such shares which by reason of the proportion borne by them to the number of holders entitled to any such offer or by reason of any other difficulty in apportioning the same cannot, in the opinion of the Directors, be conveniently offered under this Article.	Issue of new shares to Members.
49. Except so far as otherwise provided by the conditions of issue or by these Articles all new shares shall be	New shares otherwise

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subject to the provisions of these Articles with reference to allotments, payment of calls, lien, transfer, transmission, forfeiture and otherwise.	subject to provisions of Articles.
50. The Company may by Ordinary Resolution:-	Power to consolidate, cancel and subdivide shares.
(a)     consolidate and divide 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 or which have been forfeited and diminish the amount of its share capital by the amount of the shares so cancelled;
(c)     subdivide its shares or any of them into shares of a smaller amount than is fixed by the Memorandum of Association (subject nevertheless to the provisions of the Act) provided always that in such subdivision the proportion between the amount paid and the amount (if any) unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; and
(d)     subject to the provisions of these Articles and the Act, convert any class of shares into any other class of shares.
51. The Company may by Special Resolution reduce its share capital, any capital redemption reserve fund or share premium account in any manner and with and subject to any incident authorised and consent required by law. Without prejudice to the generality of the foregoing, upon cancellation of a share purchased or otherwise acquired by the Company pursuant to these Articles and the Act, the nominal amount of the issued share capital of the Company shall be diminished by the nominal amount of the share so cancelled.	Power to reduce capital.
STOCK
52. The Company may by Ordinary Resolution convert any paid up shares into stock and may from time to time by like resolution reconvert any stock into paid up shares of any denomination.	Power to convert into stock.
53. The holders of stock may transfer the same or any part thereof in the same manner and subject to the same Articles as and subject to which the shares from which the stock arose might previously to conversion have been transferred or as near thereto as circumstances admit but no stock shall be transferable except in such units as the Directors may from time to time determine, provided that such units shall not be greater than the nominal amount of the shares from which the stock arose.	Transfer of stock.
54. The holders of stock shall, according to the amount of stock held by them, have the same rights, privileges and advantages as regards dividend, return of capital, voting and other matters, as if they held the shares from which the stock arose; but no such privilege or advantage (except as regards dividend and return of capital and the assets on winding up) shall be conferred by any such aliquot part of stock which would	Rights of stockholders.

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not if existing in shares have conferred that privilege or advantage; and no such conversion shall affect or prejudice any preference or other special privileges attached to the shares so converted.
55. All such of the provisions of these Articles as are applicable to paid up shares shall apply to stock and the words “share” and “shareholder” or similar expressions herein shall include “stock” or “stockholder”.	Interpretation.
GENERAL MEETINGS
56. (a) Subject to the provisions of the Act the Company shall in each year hold a general meeting as its Annual General Meeting in addition to any other meetings in that year and not more than fifteen months shall elapse between the date of one Annual General Meeting of the Company and that of the next. Provided that so long as the Company holds its First Annual General Meeting within eighteen months of its incorporation, it need not hold it in the year of its incorporation or in the following year.	Annual General Meeting.
(b) All General Meetings other than Annual General Meetings shall be called Extraordinary General Meetings.	Extra- ordinary General Meetings.
(c) The time and place of any General Meeting shall be determined by the Directors.	Time and Place.
57. The Directors may, whenever they think fit, convene an Extraordinary General Meeting and Extraordinary General Meetings shall also be convened on such requisition or, in default, may be convened by such requisitionists, as provided by Section 176 of the Act. If at any time there are not within Singapore sufficient Directors capable of acting to form a quorum at a meeting of Directors, any Director may convene an Extraordinary General Meeting in the same manner as nearly as possible as that in which meetings may be convened by the Directors.	Calling Extra- ordinary General Meetings.
NOTICE OF GENERAL MEETINGS
58. Subject to the provisions of the Act as to Special Resolutions and special notice, at least fourteen days’ notice in writing (exclusive both of the day on which the notice is served or deemed to be served and of the day for which the notice is given) of every General Meeting shall be given in the manner hereinafter mentioned to such persons (including the Auditors) as are under the provisions herein contained entitled to receive notice from the Company. Provided that a General Meeting notwithstanding that it has been called by a shorter notice than that specified above shall be deemed to have been duly called if it is so agreed:-	Notice of Meetings.
(a)     in the case of an Annual General Meeting by all the Members entitled to attend and vote thereat; and
(b)     in the case of an Extraordinary General Meeting by that number or majority in number of the Members having a right to attend and vote thereat as is required by the Act.
Provided also that the accidental omission to give notice to, or the non-receipt by, any person entitled thereto shall not invalidate the proceedings at any General Meeting.

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59. (a) Every notice calling a General Meeting shall specify the place and the day and hour of the Meeting, and there shall appear with reasonable prominence in every such notice a statement that a Member entitled to attend and vote is entitled to appoint a proxy to attend and to vote instead of him and that a proxy need not be a Member of the Company.	Contents of notice.
(b) In the case of an Annual General Meeting, the notice shall also specify the Meeting as such.
(c) In the case of any General Meeting at which business other than routine business is to be transacted, the notice shall specify the general nature of the business; and if any resolution is to be proposed as a Special Resolution or as requiring special notice, the notice shall contain a statement to that effect.
60. Routine business shall mean and include only business transacted at an Annual General Meeting of the following classes, that is to say:-	Routine Business.
(a)     Declaring dividends; (b)     Reading, considering and adopting the balance sheet, the reports of the Directors and Auditors, and other accounts and documents required to be annexed to the balance sheet; (c)     Appointing Auditors and fixing the remuneration of Auditors or determining the manner in which such remuneration is to be fixed; and (d)     Fixing the remuneration of the Directors proposed to be paid under Article 85.
PROCEEDINGS AT GENERAL MEETINGS
61. No business shall be transacted at any General Meeting unless a quorum is present. Save as herein otherwise provided, the quorum at any General Meeting shall be at least two members holding in aggregates not less than 33 1/3 per cent. of the total issued and fully paid shares in the capital of the Company for the time being, present in person or by proxy. For the purpose of this Article, “Member” includes a person attending by proxy or by attorney or as representing a corporation which is a Member.	Quorum. Amended by AGM held on 30.06.2000
62. If within 30 minutes from the time appointed for a General Meeting (or such longer interval as the chairman of the meeting may think fit to allow) a quorum is not present, the meeting, if convened on the requisition of members, shall be dissolved. In any other case it shall stand adjourned to the same day in the next week (or if that day is a public holiday then to the next business day following that public holiday) at the same time and place or such other day, time or place as the Directors may by not less than ten days’ notice appoint. At the adjourned meeting any one or more members present in person or by proxy shall be a quorum.	Adjournment if quorum not present. Amended by AGM held on 30.06.2004
63. Subject to the provisions of the Act, a resolution in writing signed by every Member of the Company entitled to vote or being a corporation by its duly authorised representative shall have the same effect and validity as an Ordinary Resolution of the Company passed at a General Meeting duly convened, held and constituted, and may consist of several documents in the like form, each signed by one or more of such Members.	Resolution in writing.

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64. The Chairman of the Board of Directors shall preside as Chairman at every General Meeting. If there be no such Chairman or if at any Meeting he be not present within fifteen minutes after the time appointed for holding the Meeting or be unwilling to act, the Members present shall choose some Director to be Chairman of the Meeting or, if no Director be present or if all the Directors present decline to take the Chair, one of their number present, to be Chairman.	Chairman.
65. The Chairman may, with the consent of any Meeting at which a quorum is present (and shall if so directed by the Meeting) adjourn the Meeting from time to time and from place to place, but no business shall be transacted at any adjourned Meeting except business which might lawfully have been transacted at the Meeting from which the adjournment took place. When a Meeting is adjourned for thirty days or more, notice of the adjourned Meeting shall be given as in the case of the original Meeting. Save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned Meeting.	Adjournment.
66. At any General Meeting a resolution put to the vote of the Meeting shall be decided by a poll. No resolution put to the vote at any General Meeting shall be decided on a show of hands.	Method of voting.
67. A poll shall be taken in such manner (including the use of ballot or voting papers or tickets) as the Chairman may direct and the result of a poll shall be deemed to be the resolution of the Meeting at which the poll was taken. The Chairman may, and if so requested shall, appoint scrutineers and may adjourn the Meeting to some place and time fixed by him for the purpose of declaring the result of the poll.	Taking a poll.
68. If any votes be counted which ought not to have been counted or might have been rejected, the error shall not vitiate the result of the voting unless it be pointed out at the same Meeting or at any adjournment thereof and not in any case unless it shall in the opinion of the Chairman be of sufficient magnitude.	Votes counted in error.
69. In the case of equality of votes on a poll, the Chairman of the Meeting at which the poll is taken shall be entitled to a casting vote.	Chairman’s casting vote.
VOTES OF MEMBERS
70. Subject to these Articles and to any special rights or restrictions as to voting attached to any class of shares hereinafter issued on a poll every Member who is present in person or by proxy or attorney or in the case of a corporation by a representative shall have one vote for every share of which he is the holder.	Voting rights of Members.
71. Where there are joint registered holders of any share any one of such persons may vote and be reckoned in a quorum at any Meeting either personally or by proxy or by attorney or in the case of a corporation by a representative as if he were solely entitled thereto and if more than one of such joint holders be so present at any Meeting that one of such persons so present whose name stands first in the Register in respect of such share shall alone be entitled to vote in respect thereof. Several executors or administrators of a deceased Member in whose name any share stands shall for the purpose of this Article be deemed joint holders thereof.	Voting rights of joint holders.

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72. A Member of unsound mind or whose person or estate is liable to be dealt with in any way under the law relating to mental disorders may vote on a poll by his committee, curator bonis or such other person as properly has the management of his estate and any such committee, curator bonis or other person may vote by proxy or attorney, provided that such evidence as the Directors may require of the authority of the person claiming to vote shall have been deposited at the Office not less than forty eight hours before the time appointed for holding the Meeting.	Voting rights of Members of unsound mind.
73. Subject to the provisions of these Articles every Member shall be entitled to be present and to vote at any General Meeting either personally or by proxy or by attorney or in the case of a corporation by a representative and to be reckoned in a quorum in respect of shares fully paid and in respect of partly paid shares where calls are not due and unpaid.	Right to vote.
74. No objection shall be raised to the qualification of any voter except at the Meeting or adjourned Meeting at which the vote objected to is given or tendered and every vote not disallowed at such Meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the Meeting whose decision shall be final and conclusive.	Objections.
75. On a poll votes may be given either personally or by proxy or by attorney or in the case of a corporation by its representative and a person entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.	Votes on a poll.
76. An instrument appointing a proxy shall be in writing and:-	Appointment of proxies.
(a)     in the case of an individual shall be signed by the appointor or by his attorney; and
(b)     in the case of a corporation shall be either under the common seal or signed by its attorney or by an officer on behalf of the corporation.
The Directors may, but shall not be bound to, require evidence of the authority of any such attorney or officer.
76A. A Member shall be entitled to appoint more than two proxies to attend and vote at the same meeting, and any such proxies shall be entitled to nominate a person or persons other than himself as the proxy or proxies appointed by the Member.	Multiple proxies Amended by AGM held on 29.06.2005
77. A proxy need not be a Member of the Company.	Proxy need not be a Member.
78. An instrument appointing a proxy or the power of attorney or other authority, if any, must be left at the Office or such other place (if any) as is specified for the purpose in the notice convening the Meeting not less than forty-eight hours before the time appointed for the holding of the Meeting or adjourned Meeting (or in the case of a poll before the time appointed for the taking of the poll) at which it is to be used and in default shall not be treated as valid unless the Directors otherwise determine.	Deposit of proxies.
79. An instrument appointing a proxy shall be in such form as any Director may approve. An instrument appointing a proxy shall, unless the contrary is stated thereon, be valid as well for any adjournment of the Meeting as for the Meeting to which it relates and need not be witnessed.	Form of proxies. Amended by AGM held on 29.06.2005

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80. A vote given in accordance with the terms of an instrument of proxy (which for the purposes of these Articles shall also include a power of attorney) shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy, or of the authority under which the proxy was executed or the transfer of the share in respect of which the proxy is given, provided that no intimation in writing of such death, insanity, revocation or transfer shall have been received by the Company at the Office (or such other place as may be specified for the deposit of instruments appointing proxies) before the commencement of the Meeting or adjourned Meeting (or in the case of a poll before the time appointed for the taking of the poll) at which the proxy is used.	Intervening death or insanity of principal not to revoke proxy.
81. Any corporation 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 corporation as the corporation could exercise if it were an individual Member of the Company.	Corporations acting by representatives.
DIRECTORS
82. Subject to the other provisions of Section 145 of the Act the number of the Directors all of whom shall be natural persons shall not be less than two nor unless otherwise determined by a General Meeting more than fifteen.	Number of Directors.
83. The first Directors of the Company are:- CHRISTINE CHAN MENG YOOK LIM MEI	First Directors.
84. A Director need not be a Member and shall not be required to hold any share qualification unless and until otherwise determined by the Company in General Meeting but shall be entitled to attend and speak at General Meetings.	Qualification.
85. Subject to Section 169 of the Act, the remuneration of the Directors shall be determined from time to time by the Company in General Meeting, and shall be divisible among the Directors in such proportions and manner as they may agree and in default of agreement equally, except that in the latter event any Director who shall hold office for part only of the period in respect of which such remuneration is payable shall be entitled only to rank in such division for the proportion of remuneration related to the period during which he has held office.	Remuneration of Directors.
86. The Directors shall be entitled to be repaid all travelling or such reasonable expenses as may be incurred in attending and returning from meetings of the Directors or of any committee of the Directors or General Meetings or otherwise howsoever in or about the business of the Company in the course of the performance of their duties as Directors.	Travelling expenses.
87. Any Director who is appointed to any executive office or serves on any committee or who otherwise performs or renders services, which in the opinion of the Directors are outside his ordinary duties as a Director, may, subject to Section 169 of the Act, be paid such extra remuneration as the Directors may determine.	Extra Remuneration.
88. (a) Other than the office of Auditor, a Director	Power of

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may hold any other office or place of profit under the Company and he or any firm of which he is a member may act in a professional capacity for the Company in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine. Subject to the Act, no Director or intending Director shall be disqualified by his office from contracting or entering into any arrangement with the Company either as vendor, purchaser or otherwise nor shall such contract or arrangement or any contract or arrangement entered into by or on behalf of the Company in which any Director shall be in any way interested be avoided nor shall any 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 only of such Director holding that office or of the fiduciary relation thereby established.	Directors to hold office of profit and to contract with Company.
(b) Every Director shall observe the provisions of Section 156 of the Act relating to the disclosure of the interests of the Directors in contracts or proposed contracts with the Company or of any office or property held by a Director which might create duties or interests in conflict with his duties or interests as a Director. Subject to such disclosure, a Director shall be entitled to vote in respect of any contract or arrangement in which he is interested and he shall be taken into account in ascertaining whether a quorum is present.	Directors to observe Section 156 of the Act.
89. (a) A Director may be or become a director of or hold any office or place of profit (other than as Auditor) or be otherwise interested in any company in which the Company may be interested as vendor, purchaser, shareholder or otherwise and unless otherwise agreed shall not be accountable for any fees, remuneration or other benefits received by him as a director or officer of or by virtue of his interest in such other company.	Holding of office in other companies.
(b) The Directors may exercise the voting power conferred by the shares in any company held or owned by the Company in such manner and in all respects as the Directors think fit in the interests of the Company (including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors of such company or voting or providing for the payment of remuneration to the directors of such company) and any such Director of the Company may vote in favour of the exercise of such voting powers in manner aforesaid notwithstanding that he may be or be about to be appointed a director of such other company.	Directors may exercise voting power conferred by Company’s shares in another company.
CHIEF EXECUTIVE OFFICERS 90. The Directors may from time to time appoint one or more of their body to be Chief Executive Officer or Chief Executive Officers of the Company and may from time to time (subject to the provisions of any contract between him or them and the Company) remove or dismiss him or them from office and appoint another or others in his or their places.	Appointment of Chief Executive Officers. Amended by AGM held on 30.06.2004
91. A Chief Executive Officer shall subject to the provisions of any contract between him and the Company be subject to the same provisions as to resignation and removal as the other Directors of the Company and if he ceases to hold the office of Director from any cause he shall ipso facto and immediately cease to be a Chief Executive Officer.	Resignation and removal of Chief Executive Officer. Amended by AGM held on 30.06.2004
92. The remuneration of a Chief Executive Officer shall from time to time be fixed by the Directors and may subject to these Articles be by way of salary or commission or participation in profits or by any or all of these modes.	Remuneration of Chief Executive Officer. Amended by AGM held on 30.06.2004

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93. The Directors may from time to time entrust to and confer upon a Chief Executive Officer for the time being such of the powers exercisable under these Articles by the Directors as they may think fit and may confer such powers for such time and to be exercised on such terms and conditions and with such restrictions as they think expedient and they may confer such powers either collaterally with or to the exclusion of and in substitution for all or any of the powers of the Directors in that behalf and may from time to time revoke withdraw alter or vary all or any of such powers.	Powers of Chief Executive Officer. Amended by AGM held on 30.06.2004
VACATION OF OFFICE OF DIRECTOR 94. The office of a Director shall be vacated in any one of the following events, namely:- (a)    if he becomes prohibited from being a Director by reason of any order made under the Act;	Vacation of office of Director.
(b)    if he ceases to be a Director by virtue of any of the provisions of the Act or these Articles; (c)    if he resigns by writing under his hand left at the Office; (d)    if he has a receiving order made against him or suspends payments or compounds with his creditors generally; or (e)    if he is found lunatic or becomes of unsound mind.
APPOINTMENT AND REMOVAL OF DIRECTORS 95. The Company may by Ordinary Resolution remove any Director before the expiration of his period of office, notwithstanding anything in these Articles or in any agreement between the Company and such Director.	Removal of Directors.
96. The Company may by Ordinary Resolution appoint another person in place of a Director removed from office under the immediately preceding Article.	Appointment in place of Director removed.
97. The Directors shall have power at any time and from time to time to appoint any person to be a Director either to fill a casual vacancy or as an additional Director but so that the total number of Directors shall not at any time exceed the maximum number fixed by or in accordance with these Articles.	Directors’ power to fill casual vacancies and to appoint additional Director.
ALTERNATE DIRECTORS 98. (a) Any Director may at any time by writing under his hand and deposited at the Office or by telefax, telex or by cable sent to the Secretary appoint any person to be his Alternate Director and may in like manner at any time terminate	Appointment of Alternate Directors.

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such appointment. Any appointment or removal by telefax, telex or cable shall be confirmed as soon as possible by letter, but may be acted upon by the Company meanwhile.
(b) A Director or any other person may act as an Alternate Director to represent more than one Director and such Alternate Director shall be entitled at Directors’ meetings to one vote for every Director whom he represents in addition to his own vote if he is a Director.
(c) The appointment of an Alternate Director shall ipso facto determine on the happening of any event which if he were a Director would render his office as a Director to be vacated and his appointment shall also determine ipso facto if his appointor ceases for any reason to be a Director.
(d) An Alternate Director shall be entitled to receive notices 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, if his appointor is absent from Singapore or is otherwise unable to act as such Director, to perform all functions of his appointor as a Director (except the power to appoint an Alternate Director) and to sign any resolution in accordance with the provisions of Article 104.
(e) An Alternate Director shall not be taken into account in reckoning the minimum or maximum number of Directors allowed for the time being under these Articles but he shall be counted for the purpose of reckoning whether a quorum is present at any meeting of the Directors attended by him at which he is entitled to vote Provided that he shall not constitute a quorum under Article 101 if he is the only person present at the meeting notwithstanding that he may be an Alternate to more than one Director.
(f) An Alternate Director may be repaid by the Company such expenses as might properly be repaid to him if he were a Director and he shall be entitled to receive from the Company such proportion (if any) of the remuneration otherwise payable to his appointor as such appointor may by notice in writing to the Company from time to time direct, but save as aforesaid he shall not in respect of such appointment be entitled to receive any remuneration from the Company.
(g) An Alternate Director shall not be required to hold any share qualification.
PROCEEDINGS OF DIRECTORS 99. (a) The Directors may meet together for the despatch of business, adjourn or otherwise regulate their meetings as they think fit. Subject to the provisions of these Articles questions arising at any meeting shall be determined by a majority of votes and in case of an equality of votes the Chairman of the meeting shall have a second or casting vote.	Meetings of Directors.
(b) Any Director or his Alternate may participate at a meeting of the Directors by conference telephone or by means of a similar communication equipment whereby all persons participating in the meeting are able to hear each other in which event such Director or his Alternate shall be deemed to be present at the meeting. A Director or his Alternate participating in a meeting in the manner aforesaid may also be taken into account in ascertaining the presence of a quorum at the meeting. Such a meeting shall be deemed to take place where the largest group of Directors present for purposes of the meeting is assembled or, if there is no such group, where the Chairman is present.	Participation in a Meeting by conference telephone.

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100. A Director may and the Secretary on the requisition of a Director shall at any time summon a meeting of the Directors but it shall not be necessary to give notice of a meeting of Directors to any Director for the time being absent from Singapore.	Convening meetings of Directors.
101. The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors and unless so fixed at any other number shall be two. A meeting of the Directors at which a quorum is present shall be competent to exercise all the powers and discretions for the time being exercisable by the Directors.	Quorum.
102. The continuing Directors may act notwithstanding any vacancies in their body but if and so long as the number of Directors is reduced below the minimum number fixed by or in accordance with these Articles the continuing Directors or Director may act for the purpose of filling up such vacancies or of summoning General Meetings of the Company but not for any other purpose. If there be no Directors or Director able or willing to act, then any two Members may summon a General Meeting for the purpose of appointing Directors.	Proceedings in case of vacancies.
103. The Directors may from time to time elect a Chairman and if desired a Deputy Chairman and determine the period for which he is or they are to hold office. The Deputy Chairman will perform the duties of the Chairman during the Chairman’s absence for any reason. The Chairman and in his absence the Deputy Chairman shall preside as Chairman at meetings of the Directors but if no such Chairman or Deputy Chairman be elected or if at any meeting the Chairman and the Deputy Chairman be not present within five minutes after the time appointed for holding the same, the Directors present shall choose one of their number to be Chairman of such meeting.	Chairman of Directors.
104. A resolution in writing signed by all the Directors for the time being and being not less than are sufficient to form a quorum shall be as effective as a resolution passed at a meeting of the Directors duly convened and held, and may consist of several documents in the like form each signed by one or more of the Directors. Provided that where a Director has appointed an Alternate Director, the Director or (in lieu of the Director) his Alternate Director may sign. The expressions “in writing” and “signed” include approval by telex, telefax, cable or telegram by any such Director.	Resolutions in writing.
105. 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 them by the Directors.	Power to appoint committees.
AUDIT COMMITTEE OF THE BOARD OF DIRECTOR 105A. (a)    PURPOSE	Audit Committee Amended by AGM held on 30.06.2000
The Audit Committee shall provide assistance to the corporate directors in fulfilling their responsibility to the shareholders, potential shareholders, and investment community relating to corporate accounting, reporting practices of the Company, and the quality and integrity of the financial reports of the Company. The Audit Committee primary duties and responsibilities are to: 1.      Oversee that management has maintained the reliability and integrity of the accounting policies and financial reporting and disclosure practices of the Company.

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2.      Oversee that management has established and maintained processes to assure that an adequate system of internal control is functioning with the Company.

3.      Oversee that management has established and maintained processes to assure compliance by the Company with all applicable laws, regulations and corporate policy.

The Audit Committee will fulfill these responsibilities primarily by carrying out the activities enumerated in Section (d) of this Article.

(b)    COMPOSITION

On or before March 1, 2001, the Audit Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be independent directors, and free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Audit Committee. All members of the Audit Committee shall have a working familiarity with basic finance and accounting practices, and at least one member of the Audit Committee shall have accounting or related financial management expertise. Audit Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Company or an outside consultant.

The members of the Audit Committee shall be elected by the Board at the annual organizational meeting of the Board or until their successors shall be duly elected and qualified. Unless a Chairperson is elected by the full Board, the members of the Audit Committee may designate a Chairperson by majority vote of the full Audit Committee membership.

(c)    MEETINGS

The Audit Committee shall meet at least four times annually, or more frequently as circumstances dictate. As part of its job to foster open communication, the Audit Committee should meet at least annually with management, the director of the internal auditing department and the independent accountants separately to discuss any matters that the Audit Committee or each of these groups believe should be discussed privately. In addition, the Audit Committee or at least its Chairperson should meet with the independent accountants and management quarterly to review the Company’s financials consistent with Section (d)(3) below.

(d)    RESPONSIBILITIES AND DUTIES

To fulfill its responsibilities and duties the Audit Committee shall:

Documents/Reports Review

(1)    Review and reassess, at least annually, the adequacy of this Article. Make recommendations to the Directors, as conditions dictate, to update this Article.

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(2)    Review with management and the independent accountants the Company’s annual financial statements, including a discussion with the independent accountants of the matters required to be discussed by Statement of Auditing Standards No. 61 (“SAS No. 61”). Independent Accountants (3)    Review the performance of the independent accountants and make recommendations to the Board regarding the appointment or termination of the independent accountants. The Audit Committee and the Board of Directors have the ultimate authority and responsibility to select, evaluate, and where appropriate, replace the outside auditor. The independent accountants are ultimately accountable to the Audit Committee and the entire Board of Directors for such accountant’s review of the financial statements and controls of the Company. On an annual basis, the Audit Committee should review and discuss with the accountants all significant relationships the accountants have with the Company to determine the accountants’ independence. (4)    Oversee independence of the accountants by: •      Receiving from the accountants, on a periodic basis, a formal written statement delineating all relationships between the accountants and the Company consistent with Independence Standards Board Standard 1 (“ISBS No. 1”); •      Reviewing, and actively discussing with the Board, if necessary, and the accountants, on a periodic basis, any disclosed relationships or services between the accountants and the Company or any other disclosed relationships or services that may impact the objectivity and independence of the accountants; and •      Recommending, if necessary, that the Board take certain action to satisfy itself of the auditors’ independence. Financial Reporting Process (5)    In consultation with the independent accountants and the internal auditors, review the integrity of the Company’s financial reporting processes, both internal and external. (6)    Review any significant disagreement among management and the independent accountants or the internal auditing department in connection with the preparation of the financial statements. Legal Compliance/General (7)    Report through its Chairperson to the Board of Directors following meetings of the Audit Committee. (8)    Maintain minutes or other records of meetings and activities of the Audit Committee.

106. The meetings and proceedings of any such committee consisting of two or more members shall be governed by the provisions of these Articles regulating the meetings and proceedings of the Directors, so far as the same are applicable and are not superseded by any regulations made by the Directors under the last preceding Article.

Proceedings at committee meetings.

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107. All acts done by any meeting of Directors or of a committee of Directors or by any person acting as Director shall as regards all persons dealing in good faith with the Company, notwithstanding that there was some defect in the appointment of any such Director or person acting as aforesaid or that they or any of them were disqualified or had vacated office or were not entitled to vote be as valid as if every such person had been duly appointed and was qualified and had continued to be a Director and had been entitled to vote.	Validity of acts of Directors in spite of some formal defect.
GENERAL POWERS OF THE DIRECTORS 108. The management of the business of the Company shall be vested in the Directors who (in addition to the powers and authorities by these Articles or otherwise expressly conferred upon them) may exercise all such powers and do all such acts and things as may be exercised or done by the Company and are not hereby or by the Act expressly directed or required to be exercised or done by the Company in General Meeting but subject nevertheless to the provisions of the Act and of these Articles and to any regulations from time to time made by the Company in General Meeting provided that no regulations so made shall invalidate any prior act of the Directors which would have been valid if such regulation had not been made and in particular and without prejudice to the generality of the foregoing the Directors may at their discretion exercise every borrowing power vested in the Company by its Memorandum of Association or permitted by law together with collateral power of hypothecating the assets of the Company including any uncalled or called but unpaid capital; provided that the Directors shall not carry into effect any proposals for disposing of the whole or substantially the whole of the Company’s undertaking or property unless those proposals have been approved by the Company in General Meeting.	General powers of Directors to manage Company’s business.
109. The Directors may from time to time by power of attorney appoint any company, firm or person or any fluctuating 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 and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with such attorney as the Directors may think fit and may also authorise any such attorney to subdelegate all or any of the powers, authorities and discretions vested in him.	Power to appoint attorneys.
110. All cheques, promissory notes, drafts, bills of exchange, and other negotiable or transferable instruments and all receipts for moneys paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as the Directors shall from time to time by Resolution determine.	Signature of cheques and bills.
BORROWING POWERS 111. The Directors may borrow or raise money from time to time for the purpose of the Company or secure the payment of such sums as they think fit and may secure the repayment or payment of such sums by mortgage or charge upon all or any of the property or assets of the Company or by the issue of debentures (whether at par or at discount or premium) or otherwise as they may think fit.	Directors’ borrowing powers.

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SECRETARY 112. The Secretary or Secretaries shall and a Deputy or Assistant Secretary or Secretaries may be appointed by the Directors for such term, at such remuneration and upon such conditions as they may think fit, and any Secretary, Deputy or Assistant Secretary so appointed may be removed by them, but without prejudice to any claim he may have for damages for breach of any contract of service between him and the Company. The appointment and duties of the Secretary or Secretaries shall not conflict with the provisions of the Act and in particular Section 171 thereof.	Secretary.
SEAL 113. (a) The Directors shall provide for the safe custody of the Seal, which shall only be used by the authority of the Directors or a committee of Directors authorised by the Directors in that behalf, and every instrument to which the Seal shall be affixed shall (subject to the provisions of these Articles as to certificates for shares) be signed by a Director and shall be countersigned by the Secretary or by a second Director or by some other person appointed by the Directors in place of the Secretary for the purpose.	Seal.
(b) The Company may exercise the powers conferred by the Act with regard to having an Official Seal for use abroad, and such powers shall be vested in the Directors.	Official Seal.
(c) The Company may have a duplicate Common Seal as referred to in Section 124 of the Act which shall be a facsimile of the Common Seal with the addition on its face of the words “Share Seal”.	Share Seal.
AUTHENTICATION OF DOCUMENTS 114. Any Director or the Secretary or any person appointed by the Directors for the purpose shall have power to authenticate any documents affecting the constitution of the Company and any resolutions passed by the Company or the Directors, and any books, records, documents and accounts relating to the business of the Company, and to certify copies thereof or extracts therefrom as true copies or extracts; and where any books, records, documents or accounts are elsewhere than at the Office, the local manager and other officer of the Company having the custody thereof shall be deemed to be a person appointed by the Directors as aforesaid.	Power to authenticate documents.
115. A document purporting to be a copy of a resolution of the Directors or an extract from the minutes of a meeting of Directors which is certified as such in accordance with the provisions of the last preceding Article shall be conclusive evidence in favour of all persons dealing with the Company upon the faith thereof that such resolution has been duly passed or, as the case may be, that such extract is a true and accurate record of a duly constituted meeting of the Directors.	Certified copies of resolution of the Directors.
DIVIDENDS AND RESERVES 116. The Company may by Ordinary Resolution declare dividends but (without prejudice to the powers of the Company to pay interest on share capital as hereinbefore provided) no dividend shall be payable except out of the profits of the Company, or in excess of the amount recommended by the Directors.	Payment of dividends.
117. Subject to the rights of holders of shares with special rights as to dividend (if any), all dividends shall be declared and paid according to the amounts paid on the shares in respect whereof the dividend is paid, but (for the purposes of	Apportionment of dividends.

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this Article only) no amount paid on a share in advance of calls shall be treated as paid on the share. All dividends shall be apportioned and paid pro rata according to the amount paid on the shares during any portion or portions of the period in respect of which the dividend is paid, but if any share is issued on terms providing that it shall rank for dividend as from a particular date such share shall rank for dividend accordingly.
118. If and so far as in the opinion of the Directors the profits of the Company justify such payments, the Directors may pay the fixed preferential dividends on any class of shares carrying a fixed preferential dividend expressed to be payable on a fixed date on the half-yearly or other dates (if any) prescribed for the payment thereof by the terms of issue of the shares, and subject thereto may also from time to time pay to the holders of any other class of shares interim dividends thereon of such amounts and on such dates as they may think fit.	Payment of preference and interim dividends.
119. If the Company shall issue shares at a premium whether for cash or otherwise, the Directors shall transfer a sum equal to the aggregate amount or value of the premiums to an account to be called “Share Premium Account” and any amount for the time being standing to the credit of such account shall not be applied in the payment of dividend.	Share premium account.
120. No dividend or other moneys payable on or in respect of a share shall bear interest against the Company.	Dividends not to bear interest.
121. The Directors may deduct from any dividend or other moneys payable to any Member on or in respect of a share all sums of money (if any) presently payable by him to the Company on account of calls or in connection therewith.	Deduction of debts due to Company.
122. The Directors may retain any dividend or other moneys payable on or in respect of a share on which the Company has a lien and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists.	Retention of dividends on shares subject to lien.
123. The Directors may retain the dividends payable on shares in respect of which any person is under the provisions as to the transmission of shares hereinbefore contained entitled to become a Member or which any person under those provisions is entitled to transfer until such person shall become a Member in respect of such shares or shall duly transfer the same.	Retention of dividends on shares pending transmission.
124. The payment by the Directors of any unclaimed dividends or other moneys payable on or in respect of a share into a separate account shall not constitute the Company a trustee in respect thereof. All dividends unclaimed after being declared may be invested or otherwise made use of by the Directors for the benefit of the Company and any dividend unclaimed after a period of six years from the date of declaration of such dividend may be forfeited and if so shall revert to the Company but the Directors may at any time thereafter at their absolute discretion annul any such forfeiture and pay the dividend so forfeited to the person entitled thereto prior to the forfeiture.	Unclaimed dividends.
125. The Company may, upon the recommendation of the Directors, by Ordinary Resolution direct payment of a dividend in whole or in part by the distribution of specific assets and in particular of paid up shares or debentures of any other company or in any one or more of such ways; and the Directors shall give effect to such Resolution and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may fix the	Payment of dividend in specie.

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value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the footing of the value so fixed in order to adjust the rights of all parties and may vest any such specific assets in trustees as may seem expedient to the Directors.
126. Any dividend or other moneys payable in cash on or in respect of a share may be paid by cheque or warrant sent through the post to the registered address of the Member or person entitled thereto, or, if several persons are registered as joint holders of the share or are entitled thereto in consequence of the death or bankruptcy of the holder to any one of such persons or to such persons and such address as such persons may by writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent or to such person as the holder or joint holders or person or persons entitled to the share in consequence of the death or bankruptcy of the holder may direct and payment of the cheque if purporting to be endorsed or the receipt of any such person shall be a good discharge to the Company. Every such cheque or warrant shall be sent at the risk of the person entitled to the money represented thereby.	Dividends payable by cheque.
127. A transfer of shares shall not pass the right to any dividend declared on such shares before the registration of the transfer.	Effect of transfer.
RESERVES 128. The Directors may from time to time set aside out of the profits of the Company and carry to reserve such sums as they think proper which, at the discretion of the Directors, shall be applicable for meeting contingencies or for the gradual liquidation of any debt or liability of the Company or for repairing or maintaining the works, plant and machinery of the Company or for special dividends or bonuses or for equalising dividends or for any other purpose to which the profits of the Company may properly be applied and pending such application may either be employed in the business of the Company or be invested. The Directors may divide the reserve into such special funds as they think fit and may consolidate into one fund any special funds or any parts of any special funds into which the reserve may have been divided. The Directors may also without placing the same to reserve carry forward any profits which they may think it not prudent to divide.	Power to carry profit to reserve.
CAPITALISATION OF PROFITS AND RESERVES 129. The Directors may, with the sanction of an Ordinary Resolution of the Company, capitalise any sum standing to the credit of any of the Company’s reserve accounts (including share premium account, capital redemption reserve fund or other undistributable reserve) or any sum standing to the credit of profit and loss account by appropriating such sum to the persons registered as holders of shares in the Register of Members at the close of business on the date of the Resolution (or such other date as may be specified therein or determined as therein provided) or such other date as may be determined by the Directors in proportion to their then holdings of shares and applying such sum on their behalf then holdings of shares and applying such sum on their behalf in paying up in full unissued shares (or, subject to any special rights previously conferred on any shares or class of shares for the time being issued, unissued shares of any other class not being redeemable shares) for allotment and distribution credited as fully paid up to and amongst them as bonus shares in the proportion aforesaid. The Directors may do all acts and things considered necessary or expedient to give effect to any such provisions as they think fit for any fractional entitlements which would arise on the	Power to capitalise profits. Amended by EGM held on 15.11.1999

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basis aforesaid (including provisions whereby fractional entitlements are disregarded or the benefit thereof accrues to the Company rather than to the members concerned). The Directors may authorise any person to enter on behalf of all the members interested into an agreement with the Company providing for any such capitalisation and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned.
130. In addition and without prejudice to the power to capitalise profits and other moneys provided for by Article 129, the Directors shall have power to capitalise any undivided profits or other moneys of the Company not required for the payment or provision of any dividend on any shares entitled to cumulative or non-cumulative preferential dividends (including profits or other moneys carried and standing to any reserve or reserves) and to apply such profits or other moneys in paying up in full at par unissued shares in such manner and on such terms as the Directors shall think fit.	Implementation of resolution to capitalise profits. Amended by EGM held on 15.11.1999
MINUTES AND BOOKS 131. The Directors shall cause minutes to be made in books to be provided for the purpose:-	Minutes.
(a)    of all appointments of officers made by the Directors; (b)    of the names of the Directors present at each meeting of Directors and of any committee of Directors; and (c)    of all Resolutions and proceedings at all Meetings of the Company and of any class of Members, of the Directors and of committees of Directors.
132. The Directors shall duly comply with the provisions of the Act and in particular the provisions in regard to registration of charges created by or affecting property of the Company, in regard to keeping a Register of Directors, Managers, Secretaries and Auditors, the Register, a Register of Mortgages and Charges and a Register of Directors’ Share and Debenture Holdings and in regard to the production and furnishing of copies of such Registers and of any Register of Holders of Debentures of the Company.	Keeping of Registers, etc.
133. Any register, index, minute book, book of accounts or other book required by these Articles or by the Act to be kept by or on behalf of the Company may be kept either by making entries in bound books or by recording them in any other manner. In any case in which bound books are not used, the Directors shall take adequate precautions for guarding against falsification and for facilitating discovery.	Form of registers, etc.
ACCOUNTS 134. The Directors shall cause to be kept such accounting and other records as are necessary to comply with the provisions of the Act and shall cause those records to be kept in such manner as to enable them to be conveniently and properly audited.	Directors to keep proper accounts.
135. Subject to the provisions of Section 199 of the Act, the books of accounts shall be kept at the Office or at such other place or places as the Directors think fit within Singapore. No Member (other than a Director) shall have any right of inspecting any account or book or document or other	Location and inspection.

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recording of the Company except as is conferred by law or authorised by the Directors or by an Ordinary Resolution of the Company.
136. In accordance with the provisions of the Act the Directors shall cause to be prepared and to be laid before the Company in General Meeting such profit and loss accounts, balance sheets, group accounts (if any) and reports as may be necessary.	Presentation of accounts.
137. A copy of every balance sheet and profit and loss account which is to be laid before a General Meeting of the Company (including every document required by the Act to be annexed thereto) together with a copy of every report of the Auditors relating thereto and of the Directors’ report shall not less than fourteen days before the date of the Meeting be sent to every Member of, and every holder of debentures (if any) of, the Company and to every other person who is entitled to receive notices from the Company under the provisions of the Act or of these Articles Provided that this Article shall not require a copy of these documents to be sent to any person of whose address the Company is not aware or to more than one of the joint holders of a share in the Company or the several persons entitled thereto in consequence of the death or bankruptcy of the holder or otherwise but any Member to whom a copy of these documents has not been sent shall be entitled to receive a copy free of charge on application at the Office.	Copies of accounts.
AUDITORS 138. Auditors shall be appointed and their duties regulated in accordance with the provisions of the Act. Every Auditor of the Company shall have a right of access at all times to the accounting and other records of the Company and shall make his report as required by the Act.	Appointment of Auditors.
139. Subject to the provisions of the Act all acts done by any person acting as an Auditor shall, as regards all persons dealing in good faith with the Company, be valid, notwithstanding that there was some defect in his appointment or that he was at the time of his appointment not qualified for appointment.	Validity of acts of Auditors in spite of some formal defect.
140. The Auditors shall be entitled to attend any General Meeting and to receive all notices of and other communications relating to any General Meeting to which any Member is entitled and to be heard at any General Meeting on any part of the business of the Meeting which concerns them as Auditors.	Auditors’ right to receive notices of and attend at General Meetings.
NOTICES 141. (a) Any notice may be given by the Company to any Member in any of the following ways:-	Service of notice.
(i)     by delivering the notice personally to him; or (ii)    by sending it by prepaid mail to him at his registered address in Singapore or where such address is outside Singapore by prepaid air-mail; or (iii)  by sending a cable or telex or telefax or by electronic mail containing the text of the notice to him at his registered address in Singapore or where such address is outside Singapore to such address or to any other address as might have been previously notified by the Member concerned to the Company.

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(b) Any notice or other communication served under any of the provisions of these Articles on or by the Company or any officer of the Company may be tested or verified by telex or telefax or electronic mail or telephone or such other manner as may be convenient in the circumstances but the Company and its officers are under no obligation so to test or verify any such notice or communication.
142. All notices and documents (including a share certificate) with respect to any shares to which persons are jointly entitled shall be given to whichever of such persons is named first on the Register and notice so given shall be sufficient notice to all the holders of such shares.	Service of notices in respect of joint holders.
143. Any Member with a registered address shall be entitled to have served upon him at such address any notice to which he is entitled under these Articles.	Members shall be served at registered address.
144. A person entitled to a share in consequence of the death or bankruptcy of a Member or otherwise upon supplying to the Company such evidence as the Directors may reasonably require to show his title to the share, and upon supplying also an address for the service of notice, shall be entitled to have served upon him at such address any notice or document to which the Member but for his death or bankruptcy or otherwise would be entitled and such service shall for all purposes be deemed a sufficient service of such notice or document on all persons interested (whether jointly with or as claiming through or under him) in the share. Save as aforesaid any notice or document delivered or sent by post to or left at the registered address of any Member in pursuance of these Articles shall (notwithstanding that such Member be then dead or bankrupt or otherwise not entitled to such share and whether or not the Company shall have notice of the same) be deemed to have been duly served in respect of any share registered in the name of such Member as sole or joint holder.	Service of notices after death etc. of a Member.
145. (a) Any notice given in conformity with Article 141 shall be deemed to have been given at any of the following times as may be appropriate:-	When service effected.
(i)     when it is delivered personally to the Member, at the time when it is so delivered; (ii)    when it is sent by prepaid mail to an address in Singapore or by prepaid airmail to an address outside Singapore, on the day following that on which the notice was put into the post; and (iii)  when the notice is sent by cable or telex or telefax or electronic mail, the day it is so sent.
(b) In proving such service or sending, it shall be sufficient to prove that the letter containing the notice or document was properly addressed and put into the post office as a prepaid letter or airmail letter as the case may be or that a telex or telefax or electronic mail was properly addressed and transmitted or that a cable was properly addressed and handed to the relevant authority for despatch.
146. Any notice on behalf of the Company or of the Directors shall be deemed effectual if it purports to bear the signature of the Secretary or other duly authorised officer of the Company, whether such signature is printed or written.	Signature on notice.

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147. When a given number of days’ notice or notice extending over any other period is required to be given the day of service shall, unless it is otherwise provided or required by these Articles or by the Act, be not counted in such number of days or period.	Day of service not counted.
148. (a) Notice of every General Meeting shall be given in manner hereinbefore authorised to:- (i)     every Member; (ii)    every person entitled to a share in consequence of the death or bankruptcy or otherwise of a Member who but for the same would be entitled to receive notice of the Meeting; and (iii)  the Auditor for the time being of the Company.	Notice of General Meeting.
(b) No other person shall be entitled to receive notices of General Meetings.
149. The provisions of Articles 141, 145, 146 and 147 shall apply mutatis mutandis to notices of meetings of Directors or any committee of Directors.	Notice of meetings of Directors or any committee of Directors.
WINDING UP 150. If the Company is wound up (whether the liquidation is voluntary, under supervision, or by the Court) the Liquidator may, with the authority of a Special Resolution, divide among the Members in specie or kind the whole or any part of the assets of the Company and whether or not the assets shall consist of property of one kind or shall consist of properties of different kinds and may for such purpose set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The Liquidator may, with the like authority, vest the whole or any part of the assets in trustees upon such trusts for the benefit of Members as the Liquidator with the like authority thinks fit and the liquidation of the Company may be closed and the Company dissolved but so that no Member shall be compelled to accept any shares or other securities in respect of which there is a liability.	Distribution of assets in specie.
INDEMNITY 151. Subject to the provisions of the Act, every Director, Auditor, Secretary or other officer of the Company shall be entitled to be indemnified by the Company against all costs, charges, losses, expenses and liabilities incurred by him in the execution and discharge of his duties or in relation thereto and in particular and without prejudice to the generality of the foregoing no Director, Manager, Secretary or other officer of the Company shall be liable for the acts, receipts, neglects or defaults of any other Director or officer or for joining in any receipt or other act for conformity or for any loss or expense happening to the Company through the insufficiency or deficiency of title to any property acquired by order of the Directors for or on behalf of the Company or for the insufficiency or deficiency of any security in or upon which	Indemnity of Directors and officers.

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any of the moneys of the Company shall be invested or for any loss or damage arising from the bankruptcy insolvency or tortious act of any person with whom any moneys, securities or effects shall be deposited or left or for any other loss, damage or misfortune whatever which shall happen in the execution of the duties of his office or in relation thereto unless the same shall happen through his own negligence, wilful default, breach of duty or breach of trust.
SECRECY 152. No Member shall be entitled to require discovery of or any information respecting any detail of the Company’s trade or any matter which may be in the nature of a trade secret, mystery of trade or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Directors it will be inexpedient in the interest of the Members of the Company to communicate to the public save as may be authorised by law.	Secrecy.
STOCK MARKET RULES 153. Upon listing of its shares on any stock market, the Company shall, to the extent permitted under Singapore law, comply with all rules of such stock market(s) as regarding corporate governance.	Stock Market Rules. Amended by EGM held on 15.11.1999

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NAMES, ADDRESSES AND DESCRIPTIONS OF SUBSCRIBERS

/s/ CHRISTINE CHAN MENG YOOK

CHRISTINE CHAN MENG YOOK

11C SWISS CLUB ROAD

SINGAPORE 288103

ADVOCATE & SOLICITOR

/s/ LIM MEI

LIM MEI

56 JALAN AMPANG

SINGAPORE 268638

ADVOCATE & SOLICITOR

Dated this 11^th day of September 1999.

Witness to the above signatures:-

/s/ THEODORA LIM RERN SING

THEODORA LIM RERN SING

Advocate & Solicitor

c/o Allen & Gledhill

Advocates & Solicitors

36 Robinson Road

#18-01 City House

Singapore 068877

38

EX-4.32

Exhibit 4.32

12/21/2005

PUT–CALL OPTION AGREEMENT

This Put-Call Option Agreement (the “Agreement”) is made and entered into on this 21^st day of December 2005 by and between:

(A) Hoshin GigaMedia Center Inc. , a company incorporated under the laws of the Republic of China (“ROC”), with a principal office at 122 Tunhwa North Road 14/F, Taipei, Taiwan (“Party A”); and

(B) JSDWAY Digital Technology Co., Ltd., a company incorporated under the laws of the ROC, with a principal office at (“Party B”).

WHEREAS:

(a) As of the date hereof, Party A owns 4,905,000 common shares in Gamania Digital Entertainment Co., Ltd , a company incorporated under the laws of the ROC (“Company”) and traded on the GreTai Securities Market (the Taiwan OTC Board).

(b) Party A desires to grant an option to Party B to buy the Put-Call Shares (as defined below) from party A, and Party B desires to grant an option to Party A to sell the Put-Call Shares to Party B, on the terms and subject to the conditions of this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, it is hereby agreed as follows:

1 Definitions

In this Agreement, unless the context otherwise requires,

“Business Day” means a day (other than a Saturday, a Sunday or a public holiday) on which licensed banks are open for business in Taipei, Taiwan.

“Call Strike Price” means NT$18.7 per Put-Call Share

“Put-Call Period” means the period beginning on the date of this Agreement and ending on the same date 12 months later.

“Put-Call Shares” means the 4,905,000 common shares in the Company held by Party A as of the date of this Agreement.

“Put Strike Price” means NT$18.7 per Put-Call Share

Put-Call Agreement / 21 December 2005 / Page 1

2 Grant of Option

(a) Party B hereby grants Party A an irrevocable option (“Put Option”) under this Agreement, exercisable in whole, but not in part, to sell to Party B all the Put-Call Shares at the Put Strike Price during the Put-Call Period.

(b) Party A hereby grants Party B an irrevocable option (“Call Option”) under this Agreement, exercisable in whole, but not in part, to buy from Party A all the Put-Call Shares at the Call Strike Price during the Put-Call Period.

3 Exercise of Option

(a) In exercising the Put Option, Party A shall give a written notice (“Put Notice”) to Party B, specifying (i) the number of the Put-Call Shares to be sold to Party B (“Put Shares”); and (ii) the total purchase price calculated by multiplying the Put Strike Price with the Put Shares (“Put Purchase Price”). If Party A delivers the Put Notice to Party B, Party A shall be obligated to sell, and Party B shall be obligated to purchase, at the closing of the Put Option, the Put Shares at the Put Purchase Price.

(b) In exercising the Call Option, Party B shall give a written notice (“Call Notice”) to Party A, specifying (i) the number of the Put-Call Shares to be bought from Party A (“Call Shares”); and (ii) the total purchase price calculated by multiplying the Call Strike Price with the Call Shares (“Call Purchase Price”). If Party B delivers the Call Notice to Party A, Party A shall be obligated to sell, and Party B shall be obligated to purchase, at the closing of the Call Option, the Call Shares at the Call Purchase Price.

4 Closing

(a) The closing of the Put Option or the Call Option (“Closing”) shall take place at the office of counsel to Party A (as set forth below) on the seventh day after the issuing date of the Put Notice or the Call Notice, as the case may be, or if such seventh day is not a Business Day, then the next Business Day, or at such other time and place as the parties hereto may agree. The date of the Closing shall hereinafter be referred to as the Closing Date. For the avoidance of doubt, any Closing may occur after the expiration of the Put-Call Period, provided that the Put Notice or Call Notice was issued during the Put-Call Period.

(b) Upon issuing the Put Notice or upon receipt of the Call Notice, Party A shall take necessary actions to apply for retrieving the Put Shares or the Call Shares deposited with the Taiwan Securities Central Deposit Co., Ltd. (“TSCD”). If any of the Call Shares is still locked-up by TSCD on the Closing Date (“Lock-up Shares”), the parties hereto shall still complete the Closing (including payment and transfer) of those Call Shares which are not then Lock-up Shares. The closing of the Lock-up Shares (“Lock-up Share Closing”) shall take place at the same location as Closing on the third Business Day after those shares are retrieved from the TSCD, regardless of whether this Lock-up Share Closing occurs after the end of the Put-Call Period.

(c) With respect to the Call Option, party B acknowledges that the Lock-up Shares are currently under the custody of the TSCD, and that the cooperation of the Company and other director(s) or supervisor(s) of the Company is required to retrieve any of the Lock-up Shares from the TSCD. Party A undertakes to use its best endeavours to secure the cooperation from the Company and other

Put-Call Agreement / 21 December 2005 / Page 2

director(s) or supervisor(s) to retrieve the Lock-up Shares. With respect to the Call Option, party A shall not be deemed in default and shall not be held liable if it fails to retrieve any of the Lock-up Shares on the scheduled Closing Date.

(d) On the date of the closing of the Put Option or the Call Option:

(i) Party A shall deliver to Party B (x) the share certificates and other instruments of title for the Put Shares or the Call Shares, as the case may be; and (y) all documents required to transfer title to the Put Shares or the Call Shares, as the case may be, duly executed by Party A;

(ii) Party A shall transfer the full legal and beneficial interest in the Put Shares or the Call Shares, as the case may be, to Party B, free and clear of all encumbrances;

(iii) Party B shall pay the Put Purchase Price or the Call Purchase Price, as the case may be, in cash in immediately available funds to an account designated by Party A;

(iv) Party A shall pay the securities transaction tax (“STT”) payable for the transactions contemplated hereby in accordance with Clause 5 to any designated bank of the Taiwan tax authorities and deliver a copy of the receipt for payment of the STT to Party A for record; and

(v) Party A and Party B shall jointly apply with the securities agent of the Company to record the share transfer.

5 Taxation

All payments or amounts due under this Agreement, including the Put Purchase Price and the Call Purchase Price, shall be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected or withheld or assessed by or on behalf of any authority having power to tax, unless such withholding or deduction is required by law. The parties hereto acknowledge and agree that the STT shall be borne by Party A solely.

6 Security Deposit

To guarantee its fulfilment of payment obligation set forth herein, Party B agrees to maintain or procure a third party to maintain a security deposit in cash (“Deposit”) in an account of Party A in the amount equivalent to the difference between the Put Exercise Price and the then market price; the initial deposit amount shall be NT$19,129,500 in cash (“Deposit”) to Party A upon the execution of this Agreement, calculated on the basis of the closing price of the Company shares on the date of the Agreement of NT$14.8. Upon the closing of the Put Option or the Call Option and subject to Party B’s fulfilment of all of its obligations, Party A shall return the Deposit to Party B with interest at market rates, in such manner as reasonably designated by Party B, or shall apply the Deposit along with interest to offset the Put Purchase Price or the Call Purchase Price, as the case may be. If Party B breaches any of its obligations under this Agreement, Party A may foreclose the Deposit and interest immediately without any prior notice as punitive damages.

Put-Call Agreement / 21 December 2005 / Page 3

7 Director Veto

With respect to the appointment of its Corporate Director/Representative on the Board of the Company, Party A hereby agrees that it will seek the prior consent of Party B for any replacement or new appointment of such Director/Representative.

8 Representations and Warranties

Each party represents and warrants to the other party that (i) it has full power and capacity to enter into and perform this Agreement and this Agreement, when executed, will constitute its valid and binding obligations; and (ii) its execution and delivery of, and the performance of its obligations under this Agreement will not result in a breach of any provision of its articles of incorporation or any other constitutive document; or any agreement to which it is a party or which is binding on it or its assets; or result in a breach of any order, judgement or decree of any court, governmental agency or regulatory body to which it is a party or by which it is bound.

9 Termination

(a) Unless otherwise provided herein, this Agreement shall terminate on the expiry of the Put-Call Period if no Call Notice or no Put Notice shall have been served in accordance with this Agreement on or prior to such time. If any Call Notice has been served during the Call Period, or if any Put Option Notice has been served during the Put Period, this Agreement shall terminate upon the fulfilment of the parties’ obligation under this Agreement.

(b) On the termination of this Agreement, the rights and obligations of the parties under this Agreement shall cease and terminate save in respect of any antecedent breach of this Agreement.

10 Notices

All notices, including the Put Notice and the Call Notice, shall be sent to the address and facsimile number set out below, or to such other address and number as one party may notify to the other party in writing from time to time.

PARTY A:	Contact name:	CFO
	Address:	122 Tunhwa North Road 14/F, Taipei, Taiwan
	Tel no.:	+8862-3518-1102
	Fax no.:	+8862-8770-7955
And to Counsel to Party A:		James Chen
		Lee & Li Attorneys at Law
		201 Tunhwa North Road 7/F, Taipei, Taiwan
	Tel no.:	+8862-2715-3300
	Fax no.:	+8862-2713-3966

Put-Call Agreement / 21 December 2005 / Page 4

PARTY B:	Contact name:
	Address:
	Tel no.:
	Fax no.:

10 Governing Law and Dispute Resolution

This Agreement is governed by and shall be construed in accordance with the laws of the ROC. In the case of any dispute or claim arising out of or in connection with or relating to this Agreement, or the breach, termination or invalidity hereof, the parties hereto shall attempt to first resolve such dispute or claim through friendly consultations. If the dispute is not resolved through friendly consultations within thirty days after one party has served a written notice on the other party requesting the commencement of consultation, then the dispute or claim may be finally settled by arbitration in accordance with the ROC Arbitration Act.

11 CONFIDENTIALITY

The parties hereto agree to keep the content of this Agreement confidential. Unless otherwise compelled by applicable law or under the situation where any party hereto transfer to a third party its rights or obligations hereunder pursuant to this Agreement, no party shall disclose any part of this Agreement without the prior written consent of the other party.

12 MISCELLANEOUS

(a) This Agreement embodies all the terms and conditions agreed upon between the parties as to the Call Option and Put Option, and supersedes and cancels in all respects all previous agreements and undertakings, if any, between the parties with respect to the Call Option and Put Option, whether such be written or oral.

(b) Any liability to any party under this Agreement may in whole or in part be released, compounded or compromised, or time or indulgence given, by it in its absolute discretion as regards the other party under such liability without in any way prejudicing or affecting its rights against such other party.

(c) No failure on the part of any party to exercise and no delay on the part of such party in exercising any right under this Agreement will operate as a release or waiver of the failure, nor will any single or partial exercise of any right under this Agreement preclude any other or further exercise of it or any other right or remedy.

(d) This Agreement may not be amended, modified or supplemented except by a written instrument executed by each of the parties hereto.

(e) Any time, date or period mentioned in any provision of this Agreement may be extended by mutual agreement between the parties hereto in accordance with this Agreement or by agreement but as regards any time, date or period originally fixed or any time, date or period so extended as aforesaid time shall be of the essence.

Put-Call Agreement / 21 December 2005 / Page 5

(f) No remedy conferred by any of the provisions of this Agreement is intended to be exclusive of any other remedy which is otherwise available at law, in equity, by statute or otherwise, and each and every other remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law, in equity, by statute or otherwise. The election of any one or more of such remedies by any party shall not constitute a waiver by such party of the right to pursue any other available remedies.

(g) If any provision of this Agreement is held to be illegal, invalid or unenforceable in whole or in part in any jurisdiction, this Agreement shall, as to such jurisdiction, continue to be valid as to its other provisions and the remainder of the affected provision; and the legality, validity and enforceability of such provision in any other jurisdiction shall be unaffected.

(h) No party hereto may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement.

(i) This Agreement may be signed in any number of counterparts including counterparts transmitted by telecopier or facsimile, each of which shall be deemed an original, with the same effect as if the signatories thereto and hereto were upon the same instrument.

IN WITNESS WHEREOF, this Agreement is entered into on the date first written above.

FOR AND ON BEHALF OF
HOSHIN GIGAMEDIA CENTER, INC.	WITNESSED:
By:	By:
Name:	Name:
Title:	Title:
FOR AND ON BEHALF OF
JSDWAY DIGITAL TECHNOLOGY CO., LTD.	WITNESSED:
By:	By:
Name:	Name:
Title:	Title:

Put-Call Agreement / 21 December 2005 / Page 6

EX-4.33

Exhibit 4.33

ASSETS SALE AND PURCHASE AGREEMENT

by and among

GigaMedia Limited

Funtown World Limited

Hoshin GigaMedia Center Inc.

and

TWP Corporation

Dated: December 19, 2005

ASSETS SALE AND PURCHASE AGREEMENT

TABLE OF CONTENTS

		Page
ARTICLE I. DEFINITIONS		1
1.1.	Defined Terms	1
ARTICLE II. PURCHASE AND SALE OF ASSETS		5
2.1.	Purchase and Sale of Assets	5
2.2.	Closing	5
2.3.	Transfer of FunTown Business	5
2.4.	Excluded Assets and Liabilities	6
2.5.	Consideration and Method of Payments	6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER		6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYERS		6
ARTICLE V. ACTIONS PRIOR TO THE CLOSING DATE		6
5.1.	Preserve Accuracy of Representations and Warranties	7
5.2.	Necessary Assistance	7
5.3.	Employee Matters	7
5.4.	Notification of Certain Matters	7
5.5.	Investigation by Buyers	7
5.6.	Operation of FunTown Business Prior to the Closing	8
ARTICLE VI. ACTIONS BY SELLER AND BUYERS AFTER THE CLOSING		9
6.1.	Collection of Accounts Receivable and Letters of Credit	9
6.2.	Books and Records; Tax Matters	9
6.3.	Non-compete	9
6.4.	Survival of Obligation	10
6.5.	Further Assistance	10
6.6.	Reports and Consultants	10
6.7.	Employee Matters	11
ARTICLE VII. INDEMNITY		11
7.1.	Seller’s Indemnity	11
7.2.	Buyer’s Indemnity	11
ARTICLE VIII. MISCELLANEOUS		12
8.1.	Termination	12

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8.2.	Assignment	12
8.3	Notices	12
8.4	Choice of Law and Dispute Resolution	13
8.5	Entire Agreement; Amendments and Waivers	13
8.6	Multiple Counterparts	14
8.7	Expenses	14
8.8	Invalidity	14
8.9	Titles; Gender	14
8.10	Public Statements and Press Releases	14
8.11	Cumulative Remedies	15
8.12	Confidentiality	15

Schedules and Exhibits

Schedule 2.2	Closing Conditions
Schedule 2.2.2 (d)	List of Important Operating Contracts Requiring Consents
Schedule 2.2.2 (e)	Form of the Officer Certificate
Schedule 2.3(a)	Acquired Assets
	Part A - Acquired Assets to be transferred to Buyer A
	Part B - Acquired Assets to be transferred to Buyer B
Schedule 2.3(b)	Assumed Liabilities
Schedule 2.4(a)	Excluded Assets
Schedule 2.5	Payment Terms
Schedule 3.1	Representation and Warranties of Seller
Schedule 3.1.10	Performa Financial Statements
Schedule 3.1.13(a)	List of Owned Real Properties
Schedule 3.1.13(b)	List of Leases
Schedule 3.1.14(a)	List of Material Contracts
Schedule 3.1.16	List of Litigations
Schedule 3.1.19(a)	List of Proprietary Rights
Schedule 3.1.19(d)	List of License Agreements
Schedule 3.1.22	List of Inventory
Schedule 4.1	Representation and Warranties of Buyer
Exhibit A	Terms and Conditions of Convertible Note
Exhibit B	Pledge Agreement

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ASSETS SALE AND PURCHASE AGREEMENT

This Assets Sale and Purchase Agreement (this “Agreement”) is entered into as of December 19, 2005 by and between GigaMedia Limited, a corporation organized and existing under the laws of the Republic of Singapore, its wholly owned subsidiaries, Hoshin GigaMedia Center Inc., a corporation organized and existing under the laws of the Republic of China (“Buyer A”) and Funtown World Limited, a corporation organized and existing under the laws of British Virgin Islands (“Buyer B”), (GigaMedia Limited, Buyer A and Buyer B are collectively referred to as the “Buyers”), of the one part, and TWP Corporation, a corporation organized and existing under the laws of the Republic of China (“Seller”) of the other. As used herein, the reference to Seller shall also include Subsidiary and any other third party that are in possession of any assets, rights and interests relating to FunTown Business.

RECITALS

WHEREAS, Seller’s FunTown Division is engaged in the business of operating on-line gaming platforms under the brand name FunTown, designing and developing entertainment software, gaming software and other software, and providing relevant services relating thereto in Taiwan, Hong Kong and Peoples’ Republic of China, including, without limitation, design and development of entertainment software, gaming software and other software, marketing, sale and distribution of entertainment software, gaming software and other software, operating on-line gaming platform, on-line shops for sale of various goods and services, and providing other ancillary services (“FunTown Business”); and

WHEREAS, Buyers desires to purchase from Seller all assets, rights and interests relating to FunTown Business, and Seller desires to sell and cause their affiliate or any third party to sell such assets, rights, interests to Buyers.

AGREEMENT

NOW THEREFORE, in consideration of the respective covenants and agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I.

DEFINITIONS

1.1. Defined Terms

Except as otherwise specified or the context may require, the following terms shall have the respective meanings set forth below. Any terms defined in this Agreement may be used in the singular or plural, depending upon the reference.

“Acquired Assets” shall mean any and all of the right, interest and title that Seller, Subsidiary, or any other third party possesses in and to the business, properties, assets and

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intellectual property rights of any kind, whether tangible or intangible, real or personal and constituting, primarily related to, primarily used in or primarily dedicated to, FunTown Business except for the Excluded Assets as set forth in Schedule 2.4(a). A description of the Acquired Assets to be acquired by Buyers is set forth in Schedule 2.3(a) for reference.

“Action” shall mean any action, claim, suit, litigation, proceeding, labor dispute, arbitral action, governmental audit, criminal prosecution, or unfair labor practice charge or complaint.

“Assumed Liabilities” shall mean the liabilities relating to FunTown Business to be assumed by Buyers, which are listed in Schedule 2.3(b).

“Books and Records” shall mean (a) all records and lists, including, without limitation, those relating to customers, suppliers or personnel, (b) all financial, legal, regulatory, Tax, accounting and personnel records and files, and (c) all other books, ledgers, files, reports, plans, drawings and operating records, whether in hard copy or computer or other format (including without limitation historical files and documents of FunTown Business stored on computer systems or backup files), maintained by or for Seller or Subsidiary, but in the case of each of (a)-(c) above, only to the extent primarily related to or primarily used in FunTown Business and excluding the originals of minute books, stock books and Tax returns.

“Business Employees” means all employees of Seller and Subsidiary who are primarily employed to operate FunTown Business.

“Business Material Adverse Effect” means any change, event, violation, inaccuracy, circumstance or effect (any such item, an “Effect”), individually or when taken together with all other Effects that have occurred prior to the date of determination of the occurrence of the Business Material Adverse Effect, that is or is reasonably likely to (a) be materially adverse to the business, assets (including intangible assets), financial condition or results of operations of FunTown Business or (b) materially impede Seller’s ability to consummate the transactions contemplated by this Agreement in accordance with the terms hereof and applicable laws; provided, however, that for purposes of clause (a) above, in no event shall any effect resulting from compliance with the terms and conditions of this Agreement, alone or in combination, be deemed to constitute, nor shall any such effect be taken into account in determining whether there has been or shall be, a Business Material Adverse Effect.

“Closing” means the completion of transfer of the Acquired Assets with respect to FunTown Business which shall take effective on January 1, 2006 at 00:00 a.m.

“Closing Date” means January 2, 2006 or such other date as the Parties shall mutually agree upon.

“Contract” shall mean any agreement, contract, note, loan, evidence of indebtedness, purchase order, letter of credit, indenture, security or pledge agreement, franchise agreement, undertaking, covenant not to compete, employment agreement, license, instrument, obligation or commitment to which any Seller or Subsidiary is a party or is bound and which primarily relates to FunTown Business or the Acquired Assets, whether oral or written .

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“Copyrights” shall mean all ROC and foreign copyrights, mask work rights, mask work registrations, copyright applications and unregistered copyrights which primarily relates to FunTown Business held by Seller or Subsidiary.

“Court Order” shall mean any judgment, decision, consent decree, injunction, ruling or order of any governmental Entity that is binding on any Person or its property under applicable law.

“Default” shall mean a breach of or default under any Contract or this Agreement.

“Encumbrance” shall mean any claim, lien, pledge, option, charge, assessment, easement, security interest, deed of trust, mortgage, right-of-way, encroachment, building or use restriction, encumbrance, whether voluntarily incurred or arising by operation of law, and includes, without limitation, any agreement to give any of the foregoing in the future, and any contingent sale or other title retention agreement or lease in the nature thereof entered into by any Seller or of which any Seller has knowledge.

“Excluded Assets,” notwithstanding any other provision of this Agreement, shall mean the assets of Seller or Subsidiary which are specifically excluded from being acquired by Buyers, as set forth in Schedule 2.4(a).

“FunTown Business” means on-line gaming platforms operated by Seller, Subsidiary or any other third party under the brand name FunTown, entertainment software, gaming software and other software designed, developed or used by Seller or Subsidiary, and the relevant services provided by Seller or Subsidiary relating thereto in Taiwan, Hong Kong and Peoples’ Republic of China, including, without limitation, design and development of entertainment software, gaming software and other software, marketing, sale and distribution of entertainment software, gaming software and other software, operating on-line gaming platform, on-line shops for sale of various goods and services, and providing other ancillary services.

“GAAP” shall mean generally accepted accounting principles applied in the ROC for Seller and in Hong Kong for Subsidiary, as the case may be.

“Governmental Entity” means any court or any governmental or other administrative or regulatory authority, department, ministry, agency or commission, whether federal, state or local, domestic or foreign.

“Inventory” shall mean all inventory held for resale and all raw materials, work in process, finished products, wrapping, supply and packaging items and similar items each primarily with respect to FunTown Business and in each case whether owned or held by Seller or Subsidiary and wherever the same may be located.

“Leases” shall mean all of the existing leases with respect to the personal or real property of Seller or Subsidiary listed on Schedule 3.1.13(b).

“Liabilities” shall mean any direct or indirect liability, indebtedness, obligation, commitment, claim, deficiency or guaranty of or by any Person of any type, whether known or unknown, disputed or undisputed, secured or unsecured, due or to become due, vested or unvested, liquidated or unliquidated, accrued, absolute, contingent, matured or unmatured, whether or not the same is required to be accrued on the financial statements of Seller.

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“Mortgages” shall mean all deeds of trust, mortgages or other debt encumbrances on Owned Real Property.

“Ordinary Course of Business” or “Ordinary Course” or any similar phrase shall mean the ordinary course of the business and consistent with Seller’s past practice with respect to the Business.

“Owned Real Property” shall mean the real property described in Schedule 3.1.13(a), including without limitation all rights, easements and privileges appertaining or relating thereto.

“Patent” shall mean all ROC, Hong Kong, SAR and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof.

“Performa Financial Statements” shall mean the consolidated financial statements (including balance sheet and income statement) related to FunTown Business as of October 31, 2005 attached hereto as Schedule 3.1.10.

“Performa Financial Statements Date” shall mean October 31, 2005.

“Permits” shall mean all licenses, permits, franchises, approvals, authorizations, security clearances, consents or orders, filed with, or issued or granted by, any Governmental Entity, or any other Person.

“Proprietary Rights” shall mean all of Seller’s Copyrights, Patents, Trademarks, technology rights and licenses, computer software (including without limitation any source or object codes therefor or documentation relating thereto), trade secrets, franchises, know-how, inventions, designs, specifications, plans, drawings and intellectual property rights primarily related to, used in or otherwise necessary to FunTown Business, including but not limited to all such rights acquired by Seller or Subsidiary pursuant to the Agreement.

“Regulations” shall mean any laws, statutes, ordinances, regulations, rules, notice requirements, court decisions, enforceable agency guidelines, and orders of any Governmental Entity, including without limitation public utility, zoning, building and occupational safety and health and laws respecting employment practices, employee documentation, terms and conditions of employment and wages and hours.

“ROC” or “Taiwan” shall mean the Republic of China.

“Subsidiary” shall mean TWP (Far East) Limited.

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“Tax” shall mean any local or foreign income, gross receipts, franchise, estimated, alternative, minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, customs duties, real property, personal property, capital stock, intangibles, withholding, social security, unemployment, disability, payroll, license, employee or other Tax or levy, of any kind whatsoever, including any interest, penalties or additions to Tax in respect of the foregoing whether disputed or not.

“Tax Return” shall mean any return, declaration, report, claim for refund, information return or statement relating to any Taxes, including any schedule or attachment thereto and including any amendment thereof.

“Trademarks” shall mean ROC and foreign registered trademarks, common law trademarks and rights, service marks, trade dress, logos, trade names, corporate names, all rights arising from the use of or existing in connection with domain names, and all goodwill associated with the foregoing and all registrations and applications for registration of any of the foregoing.

ARTICLE II.

PURCHASE AND SALE OF ASSETS

2.1. Purchase and Sale of Assets

On the terms and subject to the conditions of this Agreement, as of the Closing, Seller agrees to, and agrees to cause its affiliate or any third party to, sell, transfer, convey, assign and deliver to Buyers, and Buyers agree to buy and acquire from Seller, free and clear of all Encumbrances, all assets, rights and interests of Seller in respect of FunTown Business as more fully described below.

2.2. Closing

The Closing of the transactions contemplated herein with respect to the transfer of FunTown Business shall take effect on January 1, 2006 at 00:00 am subject to the satisfaction or (to the extent permitted by law) waiver of the Closing Conditions set forth in Schedule 2.2. The Closing Date is scheduled on January 2, 2006 at 11:00 am at the office of Seller, or such other date as the Parties shall mutually agree upon.

2.3. Transfer of FunTown Business

(a) On the terms and subject to the conditions contained herein, Seller shall, and shall cause its affiliate or any third party to, at the Closing, sell, convey, transfer, assign and deliver to Buyers, and Buyers shall, at the Closing, purchase and acquire from Seller, the Acquired Assets in respect of FunTown Business located in Taiwan, Hong Kong and Peoples’ Republic of China, including, without limitation, to cause TWI International Inc. and Mr. Chou Mou-Shyh to sell and transfer 7,000,000 shares held by them in TWP (Far East) Limited to Buyer B. A description of the Acquired Assets is set forth in Schedule 2.3(a) for reference.

(b) On the terms and subject to the conditions contained herein, Buyer A and/or Buyer B shall at the Closing, assume and agree to pay, discharge and perform as and when due, and Seller shall assign to the applicable Buyer the Assumed Liabilities, and only the Assumed Liabilities in respect of FunTown Business as set forth in Schedule 2.3(b).

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Except as otherwise set forth in this Agreement, Buyers shall be responsible for all Liabilities arising out of, or in connection with, the ownership and use of the Acquired Assets, the settlement of the Assumed Liabilities, and the operation of FunTown Business on and after the Closing Date.

2.4. Excluded Assets and Liabilities

(a) Notwithstanding anything to the contrary contained herein, the Excluded Assets set forth in Schedule 2.4(a) are not part of the sale and purchase transaction contemplated hereby and shall remain the assets of Seller.

(b) For avoidance of any doubt, the parties specifically agree that Buyers shall not assume, or otherwise be responsible for, and Seller agrees to indemnify and hold the Buyers free and harmless from any and all Liabilities of Seller and its affiliates and any Liability not expressly assumed as an Assumed Liability, whether liquidated or unliquidated, or known or unknown, whether arising out of occurrences prior to, at or after the execution date hereof.

2.5. Consideration and Method of Payments

The total consideration for acquisition of FunTown Business is Forty-five Million United States Dollars (US$45,000,000) plus a final payment of up to Five Million United States Dollars (US$5,000,000), subject to its payment terms. The payment terms for the total consideration are set forth in Schedule 2.5.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF SELLER

3.1. Seller represent and warrant to Buyers that the statements contained in the attached Schedule 3.1 are true and correct, as of the date hereof.

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES OF BUYERS

4.1 Buyers hereby represent and warrant to Seller that the statements contained in attached Schedule 4.1 are true and correct, as of the date hereof.

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ARTICLE V.

ACTIONS PRIOR TO THE CLOSING DATE

Seller and Buyers covenant and agree to take the following actions prior to the Closing Date:

5.1. Preserve Accuracy of Representations and Warranties

Each of the parties hereto shall refrain from taking any action which would render any representation or warranty contained in Schedules 3.1 and 4.1 of this Agreement not to be true and correct in all material respects as of the Closing Date.

5.2. Necessary Assistance

Upon the terms and subject to the conditions set forth in this Agreement, Seller and Buyers each agree to use their commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including using commercially reasonable efforts to accomplish the following: (i) the taking of all acts necessary to cause the conditions to the Closing to be satisfied as promptly as practicable, (ii) the obtaining of all necessary actions or non-actions, waivers, consents and approvals from any applicable governmental authorities and the making of all necessary registrations and filings and the taking of all steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any governmental authorities and (iii) the obtaining of all necessary consents, approvals or waivers from third parties.

5.3. Employee Matters

Seller agrees to serve a notice of termination to each of the Business Employees under Seller’s payroll with effective termination date of employment upon and prior to the Closing and to pay out the severance pay required by the applicable law and any and all other salaries, benefits and payments due prior to the effective date of termination to those Business Employees. The seniority of the Business Employees under Seller’s payroll will not be carried forwarded and recognized by Buyers. Seller shall use all reasonable efforts to persuade the Business Employees under Subsidiary’s payroll to stay with Subsidiary.

5.4. Notification of Certain Matters

From the date hereof through the Closing, Seller shall give prompt notice to Buyers pursuant to Section 8.3 hereof under any of the following circumstances:

(a) the inability of Seller to satisfy any conditions to Closing;

(b) the lack of truth of any representation or warranty provided by Seller as set forth in Schedule 3.1;

(c) any written notice of any material Action received by Seller that has a Business Material Adverse Effect; or

(d) any Default, the threat of any Action, or any development that occurs before the Closing that has a Business Material Adverse Effect.

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5.5. Investigation by Buyers

From the date hereof through the Closing, Seller shall, and shall cause its officers, directors, employees and agents to, afford the representatives of Buyers reasonable access at all reasonable times to the Acquired Assets for the purpose of inspecting the same, and to the officers, employees, agents, attorneys, accountants and properties of FunTown Business and the Books and Records relating to FunTown Business, and shall furnish Buyers and their representatives all financial, operating and other data and information with respect to the Acquired Assets or FunTown Business as Buyers, through their respective representatives, may reasonably request.

5.6. Operation of FunTown Business Prior to the Closing

From the date hereof through the Closing Date, Seller shall, and shall cause its Subsidiary to, operate FunTown Business in the ordinary course of business, consistent with past practice, and as reasonably directed by Buyers. Seller will be responsible for all costs and expenses of FunTown Business incurred prior to the Closing and shall maintain sufficient working capital from the date hereof through the Closing Date. Seller hereby undertakes that the Acquired Assets shall be greater than the Assumed Liabilities by at least Twenty Five Million New Taiwan Dollars (NT$25,000,000) as of the Closing.

From the date hereof through the Closing Date, Seller shall not, and shall cause its Subsidiary not to, without the prior written consent of Buyers or otherwise agreed to by the Parties:

(a) Sell, transfer or otherwise dispose or create any Encumbrance of any material part of its assets (or any interest therein) relating to FunTown Business or contract to do so;

(b) acquire assets (or any interest therein) relating to FunTown Business or contract to do so, other than in the ordinary course of its business;

(c) enter into or permit any Subsidiary to enter into any arrangement, contract or agreement with any Related Party except (i) on an arm’s length basis, (ii) in the ordinary course of business, and (iii) in an amount not exceeding NT$3 million for any such arrangement, contract or agreement or series of related arrangements, contracts or agreements; or

(d) lend any money or permit any Subsidiary to lend any money.

(e) borrow or agree to borrow any money, or act as guarantor to guarantee the obligations of others or incur any material obligations.

(f) hire or increase the remuneration of any employee or agent whose aggregate remuneration exceeds NT$3 million per year.

(g) execute any agreement or commit to license or transfer any of the Proprietary Rights, other than in the ordinary course of its business.

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ARTICLE VI.

ACTIONS BY SELLER AND BUYERS AFTER THE CLOSING

Seller and Buyers covenant and agree to take the following actions after the Closing Date:

6.1. Collection of Accounts Receivable and Letters of Credit

At and after the Closing, Buyers shall have the right and authority to collect for the Seller’s account receivables, letters of credit and other items which constitute a part of the Acquired Assets, and Seller shall within ten (10) business days after receipt of any payment in respect of any of the foregoing, properly endorse and deliver to the Buyers any letters of credit, documents, cash or checks received after the Closing on account of or otherwise relating to any such receivables, letters of credit or other items. Seller shall promptly transfer or deliver, or cause to be transferred or delivered, to the Buyers or its designee any cash or other property that Seller may receive after the Closing in respect of any deposit, prepaid expense, claim, contract, license, lease, commitment, sales order, purchase order, letter of credit or receivable of any item, constituting a part of the Acquired Assets.

6.2. Books and Records; Tax Matters

Buyers and Seller agree to furnish or cause to be furnished to the other, upon reasonable request, as promptly as practicable, such information and assistance relating to the Acquired Assets or FunTown Business, including, without limitation, access to books and records, as is reasonably necessary for the filing of all tax returns by Buyers or Seller, the making of any election relating to taxes, the preparation for any audit by any taxing authority, and the prosecution or defense of any claim, suit or proceeding relating to any taxes. Buyers and Seller shall cooperate fully with the other in the conduct of any audit, litigation or other proceeding relating to taxes involving the Acquired Assets or FunTown Business. Buyers and Seller further agree, upon request, to use their commercially reasonable efforts to obtain any certificate or other document from any governmental authorities or any other person as may be necessary to mitigate, reduce or eliminate any tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby).

6.3. Non-compete

(a) Seller shall not, and shall cause its directors, supervisors, officers or affiliates not to, directly or indirectly approach or hire the employees of Buyers and Business Employees, approach or solicit any subscribers or customers of FunTown Business, or conduct any business that may compete with FunTown Business within the territory of Taiwan, Hong Kong and People’s Republic of China for a period of five years from the Closing Date.

(b) In the event of a breach by Seller of this Section 6.3, Buyers may, in addition to other rights and remedies vested by law, apply to any court of competent jurisdiction for specific performance and injunctive or other relief in order to enforce or prevent any violation of such provisions and the defendant in any such action will not contest such relief on the grounds that the aggrieved party has an adequate remedy at law.

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(c) If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 6.3 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration or area of such term or provision to the extent necessary to make it valid and enforceable and this Section 6.3 shall be enforceable as so modified.

6.4. Survival of Obligation

All representations, warranties, covenants and obligations contained in this Agreement shall survive the consummation of the transactions contemplated by this Agreement; provided that all remedies and claims in connection with breaches of this Agreement shall be subject to the indemnifications and the limitations contained therein. The respective representations and warranties of the Parties shall not be deemed waived or otherwise affected by any investigation made by the other party hereto and shall survive the Closing Date.

6.5. Further Assistance

(a) Upon and after the Closing, Buyers agree to have relevant Business Employees employed by Buyers at then to provide reasonable assistance and cooperate with Seller to close down the department or the business activities of Seller.

(b) Upon and after the Closing, Seller agrees to provide reasonable assistance and cooperate with Buyers to facilitate a smooth transition of the FunTown Business, including, without limitation, to cooperate with Buyers to complete the required procedures for transfer of the Trademarks and/or Copyrights, to assist Buyers in obtaining any third consents for assignment of the Contracts and/or in renewing or negotiating new contracts relating to FunTown Business on the terms and conditions no less favorable than the existing contracts, and to provide Buyers with other consultation to facilitate the smooth transition.

(c) The parties acknowledge that some of the assets relating to the FunTown Business in Peoples’ Republic of China and the employees under the payroll of Seller’s subsidiary in Peoples’ Republic of China (collectively “China Assets”) will not be transferred to Subsidiary or any other entity to be designated by Buyer B upon the Closing due to the regulatory requirement or other constraints. To the extent permitted by the applicable law, Seller undertakes to assign and transfer the China Assets to Subsidiary or any other entity to be designated by Buyer B as soon as practicable after the Closing and agrees to procure its subsidiary in Peoples’ Republic of China to continue holding the China Assets in trust for Buyers and to provide all the necessary transition services to Buyers at Buyers’ cost so as to enable Buyers to carry out FunTown Business in Peoples’ Republic of China in the ordinary course of business consistent with past practice in all material respects before completion of the transfer of the China Assets. Seller’s subsidiary in Peoples’ Republic of China shall use its own fund to settle any accrued severance or pension liabilities due and payable to the employees under its payroll when their employment is terminated.

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6.6. Reports and Consultants

In order to facilitate the Final Payment set forth in Schedule 2.5, during the year of 2006, (a) Buyer B will prepare a business plan with respect to FunTown Business for the year of 2006 which might be updated or developed quarterly and will provide a copy of the business plan and any updates thereof to Seller; (b) Buyer B will prepare monthly reports with respect to the operation and financial status of the FunTown and will provide a copy of such monthly reports whenever they are available; (c) Buyer B agrees that Seller may designate a consultant to monitor the operations of FunTown Business and to keep Seller posted of the developments of FunTown Business. Seller acknowledges and agrees that any information provided to Seller under this Section is for reference only and Seller undertakes to keep any such information in strict confidence.

6.7. Employee Matters

(a) Buyers agree to work in cooperation with the management of the FunTown Business to hire and retain all Business Employees on terms consistent with past practice and prevailing market norms, subject to the views of the FunTown management; the Buyers further agree to continue this arrangement so long as the performance of the individual employees and the business unit overall, as well as the relevant market conditions so warrant. Buyers agree to share with Business Employees (by way of cash bonuses and/or stock options) the good performance of the FunTown Business and agree to grant a high degree of autonomy to the FunTown management to run and grow the FunTown Business.

(b) Seller shall be responsible for any and all liabilities relating to the accrued or unaccrued performance bonus for the entire year of 2005 payable to Business Employees and shall use its own fund to settle any such accrued or unaccrued performance bonus if the payments had not been made to the Business Employees in full on or prior to the Closing.

ARTICLE VII.

INDEMNITY

7.1. Seller’s Indemnity

Seller agrees to indemnify and hold Buyers free and harmless from and against any and all losses, damages, liabilities and expenses incurred by Buyers arising out of, or in connection with, any breach by Seller of any of its covenants in this Agreement and any breach of Seller’s representations and warranties contained and referred to in Schedule 3.1.

7.2. Buyer’s Indemnity

Buyers agree to indemnify and hold Seller free and harmless from and against any and all losses, damages, liabilities and expenses incurred by Seller arising out of, or in connection with, any breach by any Buyer of any of its covenants in this Agreement and any breach of Buyers’ representations and warranties contained and referred to in Schedule 4.1

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ARTICLE VIII.

MISCELLANEOUS

8.1. Termination

This Agreement may be terminated by mutual consent of Buyers and Seller without further obligation or costs to either Party prior to the Closing Date. Either Party can terminate this Agreement at any time prior to the Closing Date by thirty-day written notice to the other Party, if the other Party (i) has materially breached the terms or conditions of this Agreement which may materially and adversely affect the transaction contemplated herein; or (ii) is subject to any final order, decree or injunction of a court of competent jurisdiction which prohibits or enjoins the purchase and sale of FunTown Business.

8.2. Assignment

Neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party without the prior written consent of the other parties; provided, however, that, following the Closing, Buyers may, without such consent, assign all or any portion of such rights to any lender as collateral security and, at any time, assign all or any portion of such rights and obligations to one or more direct or indirect wholly-owned subsidiaries controlled by any Buyer or to a successor in interest to Buyers which shall assume all related obligations and Liabilities of Buyers under this Agreement, provided, further, that any such assignment shall not relieve Buyers of its obligations hereunder. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, and no other Person shall have any right, benefit or obligation under this Agreement as a third party beneficiary or otherwise.

8.3 Notices

All notices, requests, demands and other communications that are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy, electronic or digital transmission method; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal Express); and upon receipt, if sent by certified or registered mail, return receipt requested.

In each case notice shall be sent to:

If to Seller, addressed to:

TWP Corporation

Address: 8F, 88, Sec. 1, Hsin Tai Wu Road, Hsichih Taipei Hsien, Taiwan, R.O.C.

Attention: H.T. Chou

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With a copy to General Counsel

Acer Incorporated

Address: 8F, 88, Sec. 1, Hsin Tai Wu Road, Hsichih Taipei Hsien, Taiwan, R.O.C.

Attention: BJ Lin

If to Buyers, addressed to:

GigaMedia Limited

Address: 14Fl, No. 122 Tun Hwa North Road, Taipei, Taiwan, R.O.C

Attention: Chief Executive Officer

With a copy to General Counsel

Address: 14Fl, No. 122 Tun Hwa North Road, Taipei, Taiwan, R.O.C

Funtown World Limited

Address: 14Fl, No. 122 Tun Hwa North Road, Taipei, Taiwan, R.O.C

Attention: Chief Executive Officer

Hoshin GigaMedia Center Inc.

Address: 14Fl, No. 122 Tun Hwa North Road, Taipei, Taiwan, R.O.C

Attention: Chief Executive Officer

or to such other place and with such other copies as either party may designate as to itself by written notice to the others.

8.4 Choice of Law and Dispute Resolution

This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of ROC (without reference to the choice of law provisions). The Parties shall seek to solve through negotiations any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof. If the Parties fail to solve such dispute, controversy or claim by a written agreement within thirty days after one of the Parties or has requested such negotiations by notice to the other Party, such dispute, controversy or claim shall be subject to the jurisdiction of the Taipei District Court for the first instance.

Notwithstanding the above, either Party may bring an action in any court of competent jurisdiction for provisional relief pending the outcome of litigation, including, without limitation, provisional injunctive relief or pre-judgment attachment of assets.

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8.5 Entire Agreement; Amendments and Waivers

This Agreement together with all schedules hereto and thereto constitute the entire agreement among the parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

8.6 Multiple Counterparts

This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

8.7 Expenses

Buyers shall bear all expenses related to registration and assignment of Trademarks.

Except as otherwise specified in this Agreement, each party hereto shall pay its own legal, accounting, out-of-pocket and other expenses incident to this Agreement and to any action taken by such party in preparation for carrying this Agreement into effect.

8.8 Invalidity

In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument.

8.9 Titles; Gender

The titles, captions or headings of the Articles and Sections herein, and the use of a particular gender, are for convenience of reference only and are not intended to be a part of or to affect or restrict the meaning or interpretation of this Agreement.

8.10 Public Statements and Press Releases

The parties hereto covenant and agree that each will not from and after the date hereof make, issue or release any public announcement, press release, public statement or public acknowledgment of the existence of, or reveal publicly the terms, conditions and status of, the transactions provided for herein, without the prior written consent of the other party as to the content and time of release of and the media in which such statement or announcement is to be made; provided, however, that in the case of announcements, statements, acknowledgments or revelations which either party is required by law to make, issue or release, the making, issuing or releasing of any such announcement, statement, acknowledgment or revelation by the party so

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required to do so by law shall not constitute a breach of this Agreement if such party shall have given a prior notice to the other party, to the extent reasonably possible, and shall have attempted, to the extent reasonably possible, to clear such announcement, statement, acknowledgment or revelation with the other party. Each party hereto agrees that it will not unreasonably withhold any such consent or clearance.

8.11 Cumulative Remedies

All rights and remedies of either party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies.

8.12 Confidentiality

The Parties agree that all aspects of the transactions covered by this Agreement shall be kept confidential and neither Party shall without the prior written consent of the other reveal the same to anyone, except as may be required by law or regulations, in which case the Party making such disclosure shall provide the other with prior written notice thereof.

(Signature page follows)

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on their respective behalf, by their respective officers thereunto duly authorized, all as of the day and year first above written.

GigaMedia Limited
By:
Name:
Title:
Funtown World Limited	Hoshin GigaMedia Center Inc.
By:	By:
Name:	Name:
Title:	Title:
TWP Corporation
By:
Name:
Title:

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SCHEDULE 2.2

CLOSING CONDITIONS

1.1 Conditions to the Obligations of Seller

The obligations of Seller to consummate Closing shall be subject, in the discretion of Seller, to satisfaction, at or prior to such Closing, of each of the following conditions, any of which may be waived by Seller:

(a) Representations, Warranties and Covenants. The representations and warranties of Buyers contained in this Agreement shall be true and correct at and as of the date of this Agreement and at and as of the Closing Date (except that those representations and warranties which address matters only as of a particular date shall have been true and correct only as of such date); provided, however, that for purposes of determining whether such representations and warranties were true and correct as of the date hereof, or are true and correct as of the Closing Date, all “materiality” shall be disregarded and given no effect. Buyers shall have performed and complied in all material respects with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by Buyers on or before the Closing Date.

(b) Corporate Documents. Each Buyer shall have obtained resolutions adopted by its board of directors, or shareholders’ meeting, if applicable, approving this Agreement and the transactions contemplated hereby and thereby.

1.2 Conditions to the Obligations of Buyers

The obligations of Buyers to consummate the Closing shall be subject, in the discretion of Buyers, to satisfaction, at or prior to the Closing, of each of the following conditions, any of which may be waived by Buyers:

(a) Representations, Warranties and Covenants. The representations and warranties of Seller contained in this Agreement shall be true and correct as of the date of this Agreement and at and as of the Closing Date (except that those representations and warranties which address matters only as of a particular date shall have been true and correct only as of such date), except in each case, or in the aggregate, has not had and would not reasonably be expected to have a Business Material Adverse Effect; provided, however, that for purposes of determining whether such representations and warranties were true and correct as of the date hereof, or are true and correct as of the Closing Date, all “materiality” and other similar qualifications contained therein shall be disregarded and given no effect. Seller shall have performed and complied in all material respects with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by them on or before the Closing Date.

(b) No Actions or Court Orders. No Action by any Governmental Entity shall have been issued, promulgated, enforced, entered, or threatened, or shall be in effect, that does or would restrain or prohibit the Closing, or that would subject Seller, or any of their respective affiliates, to material penalty or sanction as a result of the Closing.

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(c) Consents; Regulatory Compliance and Approval. All consents, approvals and waivers from governmental entities necessary to permit the consummation of the Closing shall have been obtained and all waiting periods applicable to the consummation of the Closing under any applicable competition or other laws shall have expired or been terminated.

(d) Consents. Except otherwise Buyers are notified pursuant to Section 5.4(a), the consents, approvals and waivers from third parties required to be obtained prior to the Closing shall have been obtained and shall be in form and scope reasonably satisfactory to Buyers. For the avoidance of doubt and to avoid business interruption, Seller shall obtain the written consents or approvals from each counter-party of the important operating contracts listed in Schedule 2.2.2 (d) prior to the Closing so as to properly assign and transfer the contracts to Buyers or procure the counter-parties to enter into new contracts with Buyers effective from the Closing on terms and conditions no less favorable than existing contracts; provided, however, that if the written consent or approval of any of the counter-parties to those important operating contracts listed in Schedule 2.2.2(d) is unavailable prior to the Closing, Seller shall seek Buyer’s waiver of this condition, which shall not be unreasonably withheld by Buyers unless the failure to obtain the consent or approval would give rise to material risk of business interruption of the major FunTown Business.

(e) Officer Certificate. Buyers shall have received from Seller a certificate, signed by its President or its Chief Executive Officer and dated as of the Closing Date, stating that the conditions set forth in this Schedule have been satisfied. The form of the Officer Certificate is set forth in Schedule 2.2.2(e).

(f) Material Changes. Since the Performa Balance Sheet Date, there shall not have occurred any Business Material Adverse Effect.

(g) Completion of Due Diligence. Subject to Seller’s cooperation, Buyers has completed an auditing and due diligence checking process on FunTown Business to the satisfaction of Buyers prior to December 31, 2005.

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SCHEDULE 2.2.2 (d)

List of the Important Operating Contracts Requiring Consents

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SCHEDULE 2.2.2 (e)

Form of Officer Certificate

Certificate of the President or Chief Executive Officer of TWP Corporation

Reference is made to the Assets Sale and Purchase Agreement dated as of December 19, 2005 (“Agreement”), entered into by and among GigaMedia Limited, its wholly owned subsidiaries, Funtown World Limited and Hoshin GigaMedia Center Inc. and TWP Corporation. Capital terms used but not defined herein shall have the meanings ascribed thereto in the Agreement and its Schedules attached thereto.

The undersigned certifies that he is the duly appointed President [or Chief Executive Officer] of TWP Corporation, and that he is authorized to execute and deliver this Certificate pursuant to Section 1.2 (e), Schedule 2.2 of the Agreement in the name and on behalf of the TWP Corporation and further certifies that:

(a) The representations and warranties of TWP Corporation contained in this Agreement were true and correct as of the date of this Agreement and at and as of the Closing Date (except that those representations and warranties which address matters only as of a particular date shall have been true and correct only as of such date), except in each case, or in the aggregate, has not had and would not reasonably be expected to have a Business Material Adverse Effect. TWP Corporation has performed and complied in all material respects with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by them on or before the Closing Date.

(b) No Action by any Governmental Entity has been issued, promulgated, enforced, entered, or threatened, or be in effect, that does restrain or prohibit the Closing, or that be subject TWP Corporation, or any of their respective affiliates, to material penalty or sanction as a result of the Closing.

(c) All consents, approvals and waivers from governmental entities necessary to permit the consummation of the Closing have been obtained and all waiting periods applicable to the consummation of the Closing under any applicable competition or other laws have expired or been terminated.

(d) Except otherwise Buyers are notified pursuant to Section 5.4(a), the consents, approvals and waivers from third parties required to be obtained prior to the Closing have been obtained and shall be in form and scope reasonably satisfactory to Buyers.

(e) Since the Performa Balance Sheet Date, no Business Material Adverse Effect has occurred.

TWP Corporation

By:

Name

Title:

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SCHEDULE 2.3(a)

ACQUIRED ASSETS

PART A – ACQUIRED ASSETS TO BE TRANSFERRED TO BUYER A

[Taiwan Assets]

The Acquired Assets shall mean any and all of the right, interest and title that Seller, Subsidiary or any other third party possesses in and to the business, properties, assets and intellectual property rights of any kind, whether tangible or intangible, real or personal and constituting, primarily related to, primarily used in or primarily dedicated to FunTown Business in Taiwan, including but not limited to the following assets, rights and interests relating to FunTown Business, but excluding the Excluded Assets as set forth in Schedule 2.4(a):

(a) all accounts and notes receivable (whether current or noncurrent) relating to FunTown Business;

(b) all rights of Sellers under the Contracts;

(c) all Leases;

(d) all Owned Real Property;

(e) all Inventory;

(f) all Books and Records;

(g) all Proprietary Rights;

(h) to the extent transferable, all Permits primarily used in FunTown Business;

(i) all computers and software primarily used in FunTown Business;

(j) all data base, subscribers information, customer information, supplier information, and any other information primarily used in FunTown Business;

(k) all available product brochures, marketing and display units, primarily related to FunTown Business;

(l) all credits, prepaid expenses, deferred charges, advance payments, security deposits and other prepaid items that are used, held for use or that arise out of, the operation or conduct of FunTown Business;

(m) all cash or cash equivalents;

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(n) all fixtures, equipments, spare parts, supplies, tooling, molds, dies and other tangible personal property owned by Sellers and used primarily in connection with FunTown Business, including all warranty rights with respect thereto.

(o) all rights, claims and credits to the extent relating primarily to FunTown Business or to any of the Acquired Assets or any of the Assumed Liabilities, including all rights in and to products sold or leased (including products returned after the Closing and rights of rescission, and reclamation) in the operation or conduct of FunTown Business and any rights, claims and credits arising under insurance policies to the extent relating to FunTown Business or to any of the Acquired Assets or any of the Assumed Liabilities (including without limitation coverage rights in respect of losses incurred during the period after the date hereof and prior to the Closing) and all guarantees, representations, warranties, indemnities and similar rights in favor of Seller or Subsidiary to the extent primarily relating to FunTown Business or to any of the Acquired Assets or any of the Assumed Liabilities; and

(p) all lap-tops and tool-kits and other equipment assigned to the Business Employees.

(q) all other tangible and intangible assets related to, generated by or associated with FunTown Business.

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SCHEDULE 2.3(a)

ACQUIRED ASSETS

PART A – ACQUIRED ASSETS TO BE TRANSFERRED TO BUYER A

[A list of the Contracts to be transferred to Buyer A is omitted]

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PART B – ACQUIRED ASSETS TO BE TRANSFERRED TO BUYER B OR ANY PERSON TO BE DESIGNATED BY BUYER B

[Non-Taiwan Assets]

The Acquired Assets shall mean any and all of the right, interest and title that Seller, Subsidiary or any other third party possesses in and to the business, properties, assets and intellectual property rights of any kind, whether tangible or intangible, real or personal and constituting, primarily related to, primarily used in or primarily dedicated to FunTown Business anywhere outside of Taiwan, including but not limited to the following assets, rights and interests relating to FunTown Business, but excluding the Excluded Assets as set forth in Schedule 2.4(a):

1. 7,000,000 shares of TWP (Far East) Limited

[2. Any and all of the right, interest and title relating to FunTown Business in Peoples’ Republic of China. A list of the Contracts to be transferred to Buyer B or any person to be designated by Buyer B is omitted].

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SCHEDULE 2.3(b)

ASSUMED LIABILITIES

[OMITTED]

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SCHEDULE 2.4(a)

EXCLUDED ASSETS

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SCHEDULE 2.5

PAYMENT TERMS

1. First Payment: On the Closing Date, Buyers shall pay to Seller by telex transfer of immediately available fund into the bank account designated by Seller in U.S. dollars in an aggregate amount equal to Seventeen Million United States Dollars (US$17,000,000) and in New Taiwan Dollars in an aggregate amount equal to Eight Million United States Dollars (US$8,000,000) based on the average of the closing spot buying and selling rates published by the Bank of Taiwan two business days prior to the Closing Date, or based on the average of the closing spot buying and selling rates published by the Bank of Taiwan on December 29, 2005 if the Closing is contemplated on January 1, 2006; and shall cause its parent company, GigaMedia Limited, to issue a convertible note for the principal amount of Fifteen Million United States Dollars (US$15,000,000) to Seller (“Convertible Note”). The terms and conditions of exercising Seller’s rights in respect of the Convertible Note are set out in Exhibit A.

2. Second Payment: On April 1, 2006, subject to the completion of the fiscal year 2005 financial statements in respect of FunTown Business by Seller in accordance with GAAP, Buyers shall pay to Seller by telex transfer of immediately available fund into the bank account designated by Seller in U.S. dollars in an aggregate amount equal to Five Million United States Dollars (US$5,000,000).

3. Final Payment: After Buyer B’s completion of the fiscal year 2006 financial statements of FunTown Business, if the pre-tax net income of FunTown Business in fiscal year 2006 exceeds by a certain percentage over that of fiscal year 2005, Buyer B shall pay an additional payment to Seller on April 1, 2007, according to the following formula:

(i) If the growth of the pre-tax net income of the FunTown Business in fiscal year 2006 is 30% or more, Buyers shall make an additional payment of US$5,000,000 to Seller.

(ii) If the growth of the pre-tax net income of the FunTown Business in fiscal year 2006 is 25% or above but less than 30%, Buyers shall make an additional payment of US$4,170,000 to Seller.

(iii) If the growth of the pre-tax net income of the FunTown Business in fiscal year 2006 is 20% or above but less than 25%, Buyers shall make an additional payment of US$3,330,000 to Seller;

(iv) If the growth of the pre-tax net income of the FunTown Business in fiscal year 2006 is 15% or above but less than 20%, Buyers shall make an additional payment of US$2,500,000 to Seller; or

(v) If the growth of the pre-tax net income of the FunTown Business in fiscal year 2006 is less than 15%, Buyer shall not be required to make any additional payment.

The pre-tax net income of FunTown Business in fiscal year 2006 shall be calculated based on the same accounting principles as those applied in fiscal year 2005, assuming that the costs of the head office allocation are the same as those in year 2005. The fact that the Acquired Assets are transferred to two Buyers shall not affect Buyer B’s calculation of the pre-tax net income of FunTown Business.

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SCHEDULE 3.1

REPRESENTATION AND WARRANTIES OF SELLER

REPRESENTATIONS AND WARRANTIES IN RELATION TO SELLER

1.1 Organization.

Seller is a corporation duly organized, validly existing and in good standing under the laws of ROC with full corporate power and authority to conduct FunTown Business as it is presently being conducted and to own and lease its properties and assets.

1.2 Authorization

Seller has all requisite corporate power and authority, and has taken all corporate action necessary, to execute and deliver this Agreement, to consummate or cause the consummation of the transactions contemplated hereby and to perform their respective obligations hereunder. The execution and delivery by Seller of this Agreement and the consummation by it of the transactions contemplated hereby have been duly approved by all necessary corporate action on its part and no other corporate proceedings on the part of any Seller are necessary to authorize this Agreement or to consummate the transactions contemplated hereby.

1.3 No Conflict or Violation

Neither the execution, delivery or performance of this Agreement nor the consummation of the transactions contemplated hereby, nor compliance by Buyers with any of the provisions hereof, will (a) conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, the Certificate of Incorporation or Bylaws of Seller, (b) conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a benefit under any of Seller’s assets under, any of the terms, conditions or provisions of any contract or other instrument or obligation to which Seller is a party.

1.4 No Other Agreements to Sell the Acquired Assets

Neither Seller not its parent company nor any of their respective officers, directors, shareholders or affiliates have any commitment or legal obligation, absolute or contingent, to any other Person (a) other than Buyers to sell, assign, transfer or effect a sale of any of the Acquired Assets (other than inventory in the ordinary course of business), or (b) as of the date hereof, to sell or effect a sale of the capital stock of Seller, to effect any merger, consolidation or other reorganization of Seller, or to enter into any agreement or cause the entering into of an agreement with respect to any of the foregoing.

1.5 No Insolvency

No order has been made and no resolution has been passed for the winding up of Seller or for a provisional liquidator or receiver to be appointed in respect of Seller or its assets and no petition has been presented and no meeting has been convened for the purpose of winding up Seller.

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REPRESENTATIONS AND WARRANTIES IN RELATION TO FUNTOWN BUSINESS

1.6 Title to the Acquired Assets

Seller is the true and lawful owner of, and have and will transfer good and valid title to the Acquired Assets. Upon execution and delivery by Seller of Acquired Assets referred to in Schedule 2.3(a), the Buyers will acquire good and valid title to all of the Acquired Assets, free and clear of any Encumbrances.

1.7 Permits; Consents and Approvals.

(a) Seller has, and at all times has had, all the Permits required under any regulation in the operation of FunTown Business or in the ownership of the Acquired Assets, and owns or possesses such Permits free and clear of all Encumbrances. Seller is not in default, nor has it received any notice of any claim of default, with respect to any such Permit.

(b) No consent, approval, order or authorization of, action by or in respect of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Seller in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby and thereby, except for such consents, approvals, orders, authorizations, actions, registrations, declarations and filings the failure of which to be obtained or made individually or in the aggregate has not had and will not have a Business Material Adverse Effect.

1.8 Subsidiary.

Subsidiary, TWP (Far East) Limited, is a company owned by TWI International Inc., a wholly-owned subsidiary of Seller (and Chou, Mou-Shyh, as a nominee designated by Seller), which (i) is duly organized under the laws of Hong Kong, SAR as of the date of this Agreement and validly existing and in good standing under the laws of Hong Kong, SAR (ii) has a total issued and outstanding share capital of HK$7,000,000, of which 6,999,999 shares at a par value of HK$1 are held by TWI International Inc. and 1 share at a par value of HK$1 is held by Chou, Mou-Shyh, (iii) has all requisite corporate power and authority to own, operate and lease its own properties and assets and to carry on its businesses as conducted immediately prior to the consummation of the transactions contemplated hereunder and as currently proposed to be conducted after the Closing, (iv) is duly qualified to do business in Hong Kong, SAR and is in good standing in which the nature of its business or the location of its properties owned or leased makes such qualification necessary, (v) holds all approvals, licenses and permits necessary or required to transact the business in which it is engaged, and (vi) conducts its business in compliance with all applicable governmental and other regulations.

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1.9 Sufficiency of the Acquired Assets.

The Acquired Assets consist of all the tangible or intangible assets, properties, and rights which are adequate and sufficient to carry out FunTown Business as currently conducted and consistent with the past practice.

1.10 Performa Financial Statements.

Seller has delivered to Buyers the Performa Financial Statements in relation to FunTown Business, a copy of which is attached hereto as Schedule 3.1.10. The Performa Financial Statements has been prepared in accordance with GAAP and fairly and accurately presents in all material respects the assets, liabilities (including all reserves) and financial position of FunTown Business as of October 31, 2005. The management team of Seller expects that the pre-tax net income of FunTown Business for the full fiscal year 2005 shall be around NT$157million.

1.11 Books and Records.

Seller and Subsidiary have made and kept Books and Records and accounts, which, in reasonable detail and in all material respects, accurately and fairly reflect the activities of Seller and Subsidiary with respect to FunTown Business in Taiwan and Hong Kong.

1.12 Absence of Certain Changes or Events

Except as otherwise disclosed in the Performa Financial Statements, since the issuance of Performa Financial Statements to the date hereof, the operations of FunTown Business have been conducted in the ordinary course of business consistent with past practice in all material respects, and Seller has not:

(a) failed to pay any creditor any amount arising from the operation of FunTown Business owed to such creditor when due, other than good faith disputes reserved against in accordance with GAAP and trade payables arising in the ordinary course of business;

(b) failed to discharge or satisfy any encumbrance required to be discharged during such period on any of the Acquired Assets other than permitted encumbrances;

(c) sold, leased, licensed or otherwise disposed of any of the assets of FunTown Business (or entered into any Contract to do any of the foregoing), except inventory and obsolete or worn out equipment sold in the ordinary course of business consistent with past practice which was not otherwise material (individually or in the aggregate) to the Business or canceled any material indebtedness or waived any material claims or rights of material value;

(d) defaulted on any material obligation relating to the conduct or operation of FunTown Business;

(e) granted any allowances or discounts outside the ordinary course of business consistent with past practice;

(f) incurred or assumed any Liabilities individually in excess of NT$3 million with respect to FunTown Business or in the aggregate in excess of NT$3 million;

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(g) suffered any damage, destruction or loss, whether or not covered by insurance, that, individually or in the aggregate, could reasonably be expected to have a Business Material Adverse Effect;

(h) changed any accounting methods, principles or practices affecting the assets or Liabilities of the Business, other than as required by GAAP;

(i) revaluated any of the Acquired Assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable;

(j) increased the rate of compensation payable or to become payable to any officer or other employee of Seller employed in connection with FunTown Business and earning in excess of NT$1 Million in base salary annually or any consultant, representative, executive or agent (but excluding temporary workers) of Seller.

(k) experienced any adverse change in employee relations which has had a Business Material Adverse Effect other than the conducts contemplated pursuant to Section 5.3;

(l) cancelled, terminated or materially amended any material Contract relating to the Acquired Assets or FunTown Business or entered into any Contract, lease, or Permit which is not in the ordinary course of business;

(m) disposed or allowed to lapse any material Proprietary Rights (except in the ordinary course of business consistent with past practice) or disclosed to any person any material Proprietary Rights not theretofore a matter of public knowledge (except in the ordinary course of business using reasonable means to protect its confidentiality);

(n) permitted, allowed or suffered any other event or condition which in any one case or in the aggregate has had a Business Material Adverse Effect; or

(o) entered into any agreement to do, or failed to do anything that would result in, any of the things described in the preceding clauses (a) through (o) other than as expressly provided for herein.

1.13 Real Property.

(a) Owned Real Property. Schedule 3.1.13(a) contains a complete and accurate list, as of the date hereof, of all real properties owned by Seller and used in FunTown Business. At the Closing, Seller has and will transfer to Buyer good and valid title to all Owned Real Property free and clear of all Encumbrances, except for Permitted Encumbrances. There are no pending or, to Seller’s knowledge, threatened condemnation proceedings or other Actions relating to the Owned Real Property or any pending public improvements in, about or outside the Owned Real Property which will affect access thereto.

(b) Leased Real Property. Schedule 3.1.13(b) contains a complete and accurate list of all the leased real properties (the “Leases”) used in FunTown Business. The Leases are in full force and effect. Seller and Subsidiary have and will transfer to Buyer at the Closing an unencumbered interest under the Leases. Seller or Subsidiary has made all payments required to be made by Seller or Subsidiary, where applicable, as Lessee under the Leases and neither Seller or Subsidiary nor, to Seller’s knowledge, the landlord thereunder, is in Default under any such Lease.

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1.14 Contracts and Commitments.

(a) Contracts. Schedule 3.1.14(a) contains a complete and accurate list, as of the date hereof, of all Material Contracts currently in effect as of the date of this Agreement of the following categories:

(i) Any Contract (excluding purchase order and agreements in connection therewith) not made in the ordinary course of business;

(ii) Any employment contract involving payments in excess of NT$1 million per annum or severance agreement, including without limitation Contracts (A) to employ or terminate Business Employees or (B) that will result in the payment by, or the creation of any Liability to pay on behalf of Seller any severance, termination, “golden parachute,” or other similar payments to any present or former Business Employees following termination of employment or otherwise as a result of the consummation of the transactions contemplated by this Agreement;

(iii) Any distribution, franchise, license, technical assistance, sales, commission, consulting, agency or advertising Contract involving payments in excess of NT$3 million per annum (excluding purchase orders or invoices entered into in the ordinary course of business);

(iv) Any options with respect to any property, real or personal, included in the Acquired Assets involving amounts in excess of NT$3 million whether Seller shall be the grantor or grantee thereunder;

(v) Any Contract involving future expenditures or Liabilities, actual or potential, in excess of NT$3 million or otherwise material to FunTown Business or the Acquired Assets;

(vi) Any Contract that either (i) is an open purchase order involving an amount in excess of NT$ 3 million or (ii) involves the sale of a system for aggregate proceeds in excess of NT$3 million;

(vii) Any Contract relating to commission arrangements with others involving aggregate amounts in excess of NT$3 million;

(viii) Any promissory note, loan, agreement, indenture, evidence of indebtedness, letter of credit, guarantee, or other instrument relating to an outstanding obligation to pay money, individually in excess of or in the aggregate in excess of US$25,000, whether any Seller shall be the borrower, lender or guarantor thereunder or whereby any material Acquired Assets are pledged (excluding credit provided by Seller in the ordinary course of business to purchasers of its products);

(ix) Any Contract containing covenants limiting the freedom of Seller to engage in any line of business or compete with any Person, in each case only if such limitation materially restricts FunTown Business as currently conducted;

(x) Any Contract granting the other party or any third person “most favored customer” status;

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(xi) Any Contract providing for “exclusivity” with respect to suppliers and customers or under which FunTown Business is restricted with respect to distribution, marketing, development or manufacture;

(xii) Any written agreement with any Governmental Entity;

(xiii) Any Contract granting a third party any license to Proprietary Rights that is not limited to the internal use of such third party other than any such Contract entered into in the ordinary course of business consistent with past practice;

(xiv) Any Contract creating or granting an encumbrance;

Seller has made available to Buyers true, correct and complete copies of all of the aforementioned Contracts, including all amendments and supplements thereto (together, the “Material Contracts”).

(b) Absence of Defaults. All of the Material Contracts are valid, binding and enforceable in accordance with their terms. Seller or Subsidiary is not, and to Seller’s knowledge no other party is, in default under any Material Contract and no notice of any claim of default under any Material Contract has been given to Seller or Subsidiary.

(c) Certain Commitments. Except pursuant to Material Contracts, neither Seller nor Subsidiary has outstanding any commitment relating to FunTown Business, whether oral or written, that involves the sale of a system for aggregate proceeds in excess of NT$3 million.

1.15 Labor Matters.

(a) Insofar as it pertains to FunTown Business, Seller or Subsidiary is not a party to or bound by any union contract and has not experienced any strike, grievance or any arbitration proceeding, claim of unfair labor practices filed against Seller or, to Seller’s knowledge, threatened to be filed against Seller or Subsidiary or any other material labor difficulty. To Seller’s knowledge, none of the Business Employees is involved in or is otherwise threatening a potential labor dispute against Seller that would be reasonably likely to have a Business Material Adverse Effect.

(b) Seller or Subsidiary is in full compliance with all statutes, regulations and other laws of the ROC and Hong Kong relating to the employment of the Business Employees and has made contribution to their respective pension accounts pursuant to the applicable law and all of the accrued pension liabilities for Business Employees are fully funded.

1.16 Litigation.

Schedule 3.1.16 contains a list, as of the date hereof and to the best knowledge of Seller, of all claims, actions, suits or judicial, administrative and regulatory proceedings and, to the knowledge of Seller of all investigations, in each case pending or, to the knowledge of Seller threatened by or before any Governmental Entity with respect to the Acquired Assets or FunTown Business. Seller is not in default with respect to or subject to any Court Order relating to FunTown Business, and there are no unsatisfied judgments relating to the Acquired Assets against Seller.

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1.17 Absence of Undisclosed Liabilities.

The FunTown Business has no Liabilities except for such Liabilities (i) as are reflected or reserved against in the Performa Balance Sheet (including the related notes thereto), (ii) as have arisen after the Performa Balance Sheet Date in the ordinary course of business consistent with past practice, in accordance with the terms of this Agreement; (iv) under Assumed Contracts that are not required by GAAP to be reflected on the Performa Balance Sheet as liabilities; and (v) such other Liabilities that individually or in the aggregate do not and would not reasonably be expected to have a Business Material Adverse Effect.

1.18 Compliance with Law.

Seller does not violated in any material respect any, and each is in compliance with all, material Regulations and Court Orders applicable or relating to the Acquired Assets or FunTown Business. Seller does not receive any notice to the effect that, or otherwise been advised that, it is not in compliance with any such Regulations or Court Orders.

1.19 Proprietary Rights.

(a) Schedule 3.1.19(a) contains a list, as of the date hereof and to the best knowledge of Seller, of all Porprietary Rights, including: (i) all Patents owned by Seller or Subsidiary relating primarily to FunTown Business, including the number, title and country in which each such Patent has been issued, or, for all patent applications, the application number, date of filing, title and country in which each such application has been filed, (ii) all Trademarks owned by Seller or Subsidiary relating primarily to FunTown Business, including the application serial number or registration number, country, class of goods covered and renewal date (if applicable) for each Trademark, and (iii) all Copyrights owned by Seller or Subsidiary relating primarily to FunTown Business that have been registered, including the number, title and country in which each such Copyright has been filed. All material Proprietary Rights are either (i) owned by Seller or Subsidiary free and clear of all encumbrances or (ii) licensed to Seller free and clear (to the knowledge of Seller) of all encumbrances. There are no claims pending or, to the knowledge of Seller, threatened with regard to the ownership or licensing by Seller or Subsidiary of any Proprietary Rights.

(b) To the knowledge of Seller, the Proprietary Rights have not been infringed, and are not being infringed.

(c) To the knowledge of Seller the Proprietary Rights, including the licensed intellectual property rights, are sufficient for Seller and Subsidiary to conduct FunTown Business as currently conducted. There are no pending or, to the knowledge of Seller, threatened claims that Seller or Subsidiary has infringed or is infringing (including with respect to the manufacture, use or sale by Seller of any commercial products or to the operations of FunTown Business) any intellectual property rights of any third Person. To the knowledge of Seller neither the operation of FunTown Business nor the manufacture, marketing, licensing or sale of Seller’s products relating to FunTown Business infringes or violates any patent right, trademark, service mark, copyright, trade secret or other proprietary right of any third Person.

(d) Schedule 3.1.19(d) contains a list, as of the date hereof and to the best knowledge of the Seller, of all material agreements with respect to any options, rights, licenses or interests of any kind relating to intellectual property rights granted (i) to Seller or Subsidiary with respect to FunTown Business (“In-Licenses”), (other than agreements commonly generated in the ordinary course of business (including software licenses for

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generally available software, employee assignment agreements, nondisclosure agreements and consulting agreements)) or (ii) by Seller or Subsidiary to any other Person with respect to FunTown Business (“Out-Licenses,” and collectively with the In-Licenses, the “License Agreements”) (other than agreements commonly generated in the ordinary course of business (including purchase agreements, software licenses for generally available software, employee assignment agreements, nondisclosure agreements and consulting agreements)). Expect otherwise provided in Schedule 3.1.19(d), Seller or Subsidiary has not (i) licensed any material Proprietary Rights to any Person on an exclusive basis or (ii) entered into any covenant not to compete or any Contract limiting its ability to exploit fully any material Proprietary Rights or to transact business in any market or geographical area or with any Person.

(e) Seller and Subsidiary have used reasonable efforts to maintain the material trade secrets relating to FunTown Business in confidence, including entering into licenses and contracts that generally require licensees, contractors and other third persons with access to such trade secrets to keep such trade secrets confidential.

1.20 Tax Matters

All of the material Tax Returns required to be filed by Seller or Subsidiary that relate in whole or in part to FunTown Business or the Acquired Assets have been filed and all such Tax Returns are true, complete and correct in all material respects, (ii) all material Taxes required to be paid by Seller or Subsidiary that relate in whole or in part to FunTown Business or the Acquired Assets have been paid in full or are being contested in good faith, and (iii) there are not outstanding Tax liens that have been filed by any Tax authority against any of the Acquired Assets.

1.21 Accounts Receivable.

The accounts receivable set forth in the Performa Balance Sheet, and all accounts receivable arising since the Performa Balance Sheet Date, represent bona fide claims of Seller or Subsidiary against debtors for sales, services performed or other charges arising on or before the date hereof, and all the goods delivered and services performed which gave rise to said accounts were delivered or performed in accordance with the applicable orders, Contracts or customer requirements in all material respects. All such accounts receivable arose in the ordinary course of business. Neither Seller nor Subsidiary has been notified orally or in writing that any person intends to claim a material setoff or counterclaim with respect to any such accounts receivable.

1.22 Inventory.

Schedule 3.1.22 contains a complete and accurate list in all material respects of all Inventory set forth on the Performa Balance Sheet and the addresses at which the Inventory is located. The Inventory as set forth on the Performa Balance Sheet or arising since the Performa Balance Sheet Date was acquired and has been maintained in accordance with the regular business practices of Seller or Subsidiary, consists in all material respects of items of a quality and quantity usable or saleable in the ordinary course of business except for such obsolete, unusable, damaged or unsalable items of Inventory which have been written off or written down to realizable market value or for which adequate reserves have been provided, as reflected on the Performa Balance Sheet or on the Books and Records of FunTown Business as of the Closing Date. All of the inventory is valued on the normal valuation policy of Seller or Subsidiary at prices equal to the lower of standard cost or market value.

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1.23 Insurance.

Seller have policies of insurance relating to FunTown Business in full force and effect of the type and in an amount customarily carried by Persons conducting business or owning assets similar to those of FunTown Business.

1.24 Warranty.

Each product or service provided, sold, leased, or delivered by Seller or Subsidiary relating to FunTown Business has been in conformity in all material respects with all applicable contractual commitments and all express and implied warranties. There are no pending, or, to the knowledge of Seller, threatened, and, to the knowledge of Seller, there is no basis for, any civil, criminal or administrative actions, suits, demands, claims, hearings, notices of violation, investigations, proceedings or demand letters relating to any alleged defect in design, manufacture, materials or workmanship, including any failure to warn or alleged breach of express or implied warranty or representation, relating to any product or service provided, distributed or sold by or on behalf of FunTown Business, except as would not, individually or in the aggregate result in a Business Material Adverse Effect.

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SCHEDULE 3.1.10 PERFORMA FINANCIAL STATEMENTS

[Consolidated Income Statement]

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[Consolidated Balance Sheet]

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[Balance Sheet for Taiwan]

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[Balance Sheet for Hong Kong]

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SCHEDULE 3.1.13 (a) LIST OF OWNED REAL PROPERTIES

None

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SCHEDULE 3.1.13(b) LIST OF LEASES

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SCHEDULE 3.1.14(a) LIST OF MATERIAL CONTRACTS

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SCHEDULE 3.1.16 LIST OF LITIGATIONS

None

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SCHEDULE 3.1.19 (a) LIST OF PROPRIETARY RIGHTS

[List of Trademarks in Taiwan]

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SCHEDULE 3.1.19 (a) LIST OF PROPRIETARY RIGHTS

[List of Trademarks in Hong Kong]

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SCHEDULE 3.1.19 (a) LIST OF PROPRIETARY RIGHTS

[List of Trademarks in China]

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SCHEDULE 3.1.19 (a) LIST OF PROPRIETARY RIGHTS

[List of Trademarks in Singapore]

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SCHEDULE 3.1.19 (a) LIST OF PROPRIETARY RIGHTS

[List of Domain Names in Taiwan]

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SCHEDULE 3.1.19 (a) LIST OF PROPRIETARY RIGHTS

[List of Domain Names in China]

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SCHEDULE 3.1.19 (a) LIST OF PROPRIETARY RIGHTS

[SSL Certificates]

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SCHEDULE 3.1.19(d) LIST OF LICENSE AGREEMENTS

[In-Licenses]

[Out-Licenses]

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SCHEDULE 3.1.22 LIST OF INVENTORY

[List of Inventory in Taiwan]

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[List of Inventory in China]

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SCHEDULE 4.1

REPRESENTATION AND WARRANTIES OF BUYERS

1.1 Organization of Buyers.

Buyer A is a corporation duly organized, validly existing and in good standing under the laws of ROC and Buyer B is a corporation duly organized, validly existing and in good standing under the laws of British Virgin Islands.

1.2 Authorization

Each Buyer has all requisite corporate power and authority, and has taken all corporate action necessary, to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder. The execution and delivery of this Agreement by Buyers and the consummation by Buyers of the transactions contemplated hereby have been duly approved by all necessary corporate action on the part of Buyers and no other corporate proceedings on the part of Buyers are necessary to authorize this Agreement or to consummate the transactions contemplated hereby.

1.3 No Conflict or Violation

Neither the execution, delivery or performance of this Agreement nor the consummation of the transactions contemplated hereby, nor compliance by Buyers with any of the provisions hereof, will (a) conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, the Certificate of Incorporation or Bylaws of each Buyer, (b) conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a benefit under any of Buyer’s assets under, any of the terms, conditions or provisions of any contract or other instrument or obligation to which Buyer A or Buyer B is a party.

1.4 Sufficient Funds

Buyers currently has access to sufficient immediately available funds in cash or cash equivalents, Convertible Notes, and shall at the Closing have sufficient immediately available funds or Convertible Notes to pay all amounts payable pursuant to this Agreement and to consummate the transactions contemplated hereby.

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EXHIBIT A

CONVERTIBLE NOTE ISSUED BY GIGAMEDIA LIMITED

US$15,000,000

January 1, 2006

GigaMedia Limited, a company organized under the laws of the Republic of Singapore, with its registered office at 8 Cross Street, #11-00 PWC Building, Singapore 048424 (“Obligor”), for value received, hereby executes and delivers this Convertible Note in favor of TWP Corporation, a corporation organized under the laws of the Republic of China (“Initial Holder”), and hereby promises to pay to Initial Holder, its designee(s) or successor(s) or permitted assign(s), the principal sum of Fifteen Million United States Dollars (US$15,000,000) (the “Principal Amount”) on the Maturity Date (as defined below) with 0% coupon rate and 0% yield rate. This Convertible Note is issued in connection with the transactions described in the Assets Sale and Purchase Agreement, dated December 19, 2005 entered into by and, between Obligor and its wholly owned subsidiaries Hoshin GigaMedia Center Inc. (“HGC”) and Funtown World Limited (“Funtown World”) and Initial Holder.

Capitalized terms used and not otherwise defined herein shall have the same meanings ascribed to such terms in Section 9 below.

1. Maturity Date

Subject to Sections 5 and 6, 50% of the then outstanding Principal Amount shall become due and payable on the second anniversary of the Issue Date. The remaining outstanding Principal Amount shall become due and payable on the third anniversary of the Issue Date (each referred to as the “Maturity Date”).

2. Method of Payment

On the Maturity Date, Obligor shall pay all the amounts payable under this Convertible Note in cash by telex-transfer of immediately available fund into the account designated by Holder, or if no account has been designated, by a certified check delivered to Holder at such place as Holder shall inform Obligor in writing.

3. Presentment Waived

Obligor hereby expressly waives presentment for payment, demand, notice of dishonor, protest and notice of protest. Acceptance by Holder of any payment that is less than the full amount then due and owing hereunder shall not constitute a waiver of Holder’s right to receive payment in full at such time or at any prior or subsequent time.

EXHIBIT A- 1

4. Early Redemption and Call Option

Obligor has the following rights:

(a) Obligor has the right to redeem the total or a certain amount of the Principal Amount of this Conversion Note within the first twelve months after the Issue Date, together with the accrued interest at 5% per annum; provided that Obligor shall notify Holder in writing five (5) days before exercise of such right. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed.

(b) Obligor has the right to designate a third party to buy the total or a certain amount of the Principal Amount of this Conversion Note within the first twelve months after the Issue Date, together with the accrued interest at 5% per annum; provided that Obligor shall notify Holder in writing five (5) days before exercise of such right. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed.

(c) If the closing price of the Shares exceeds 150% of the Reference Price (as defined below) or the Adjusted Conversion Price, as the case may be, for three (3) consecutive trading days, Obligor has the right to call the total or a certain amount of the Principal Amount of this Conversion Note by paying the price equivalent to the sum of the amount of the Principal Amount to be called plus the accrued interest at 5% per annum by a written notice to Holder; provided, however, that Holder shall have the right to exercise its Conversion Right pursuant to Section 5 below within seven (7) days after receipt of such notice from Obligor. If Holder fails to exercise its Conversion Right within seven (7) days after such notice from Obligor, the call option exercised by Obligor shall take effect on the next day after the lapse of the notice period.

Once Obligor exercises its right provided in (a), (b) or (c) above, it shall pay in full or if applicable, cause the designated third party to pay in full, the Principal Amount plus any accrued interest, in the method set forth in Section 2, within twenty (20) days from the date of its exercise of early redemption or call option.

5. Conversion Rights

(a) Optional Conversion

Subject to the Conversion Restriction provided in Section 5(b) below, at the option of Holder, any amount of the then outstanding Principal Amount of this Convertible Note may be converted into a number of Shares (the “Conversion Shares”) equal to the amount of the then outstanding Principal Amount to be converted divided by the Conversion Price. In event that the balance after such conversion is less than the value of one share, such balance will be rounded down and paid in cash.

The Initial Conversion Price is 125% of the Reference Price. The Reference Price is fixed at the average volume-weighted closing price of the Shares for the ninety days prior to the Issue Date. If the closing price of the Shares on the Issue Date, or the last trading day immediately prior to

EXHIBIT A- 2

the Issue Date if the Issue Date is not a trading date, is greater than the Initial Conversion Price, the Conversion Price will be adjusted accordingly to the closing price of the Shares on the Issue Date, or the last trading day immediately prior to the Issue Date if the Issue Date is not a trading date (the “Adjusted Conversion Price”).

In the case where the Adjusted Conversion Price is applicable, Initial Holder (and no other Holder, if any, other than Acer) shall have the right to reset the Conversion Price at the average volume-weighted closing price of Shares for the ten (10) days immediately after the commencement date of the Conversion Period (the “Reset Conversion Price”) by a written notice to Obligor, if and only if the Reset Conversion Price is below the Adjusted Conversion Price.

(b) Conversion Restriction

No conversion is allowed during the first nine months from the Issue Date. During the period from the ninth months to twelfth month after the Issue Date, only 50% of the then outstanding Principal Amount of this Convertible Note may be converted into Conversion Shares. The remaining outstanding Principal Amount of this Convertible Note may be converted into Conversion Shares after twelve months following the Issue Date.

The conversion right provided hereunder cannot be separated from the payment obligations under this Convertible Note and for avoidance of any doubt, neither Obligor nor Holder is allowed to create, offer, sell or otherwise dispose of any derivative products arising out of, or in connection with, this Convertible Note.

(c) Exercise of Conversion Rights

In order to exercise the conversion right, Holder shall surrender this Convertible Note at the principal office of Obligor and shall give written notice of such exercise to Obligor at such office. Such conversion shall be deemed to have been effected at the close of business on the date on which such conversion notice, duly completed and executed, shall have been given as aforesaid, and at such time such portion of the Principal Amount as is subject to such conversion shall be applied by Obligor in full payment of the Conversion Shares to be issued in consequence of such conversion and that application shall discharge Obligor from all liability in respect of such portion of the Principal Amount converted, and Holder shall be deemed for all purposes to have become the holder of the Conversion Shares. Under no circumstances will cash settlement be made for any such conversion. Obligor will arrange for issuance and delivery of the share certificates representing the Conversion Shares to Holder as soon as practicable after such conversion.

(d) Disposal

In the case where Initial Holder has exercised its conversion right to convert the Principal Amount of this Convertible Note into the Conversion Shares, Obligor shall, at the request of Initial Holder (and no other Holder, if any, other than Acer), apply with the competent authorities for registration of the Conversion Shares to enable Initial Holder to sell the Conversion Shares in the public market for no more than two times. During the period from the ninth months to

EXHIBIT A- 3

twelfth month after the Issue Date, Initial Holder shall be entitled, but not an obligation, to make one request for such registration in the event that Initial Holder has exercised its conversion right to convert all the 50% of the then outstanding Principal Amount of this Convertible Note into Conversion Shares. After twelve months following the Issue Date, Initial Holder shall be entitled, but not an obligation, to make one request for such registration in the event that Initial Holder has exercised its conversion right to convert all the then outstanding Principal Amount, not a portion thereof, of this Convertible Note into Conversion Shares. The costs and expenses associated with the first time of such registration shall be borne by Obligor and the second time shall be borne by Initial Holder (or Acer).

To the extent permitted by laws, Obligor and Holder shall jointly decide in an orderly manner to dispose of the Conversion Shares to avoid affecting the marketing price of Shares. Obligor and Holder shall seek to resolve through negotiations any dispute, controversy out of or relating to this Section 5 (d). If Obligor and Holder fail to resolve such dispute, controversy by a written agreement within seven (7) days after either party has requested for such negotiations by notice to the other party, Holder shall have a first and paramount right to solely decide to dispose of the Conversion Shares; provided however that to the extent permitted by laws, regulations or rules by competent stock exchanges or over-the-counter systems, Obligor shall be vested with the right of first refusal within three (3) days to purchase any and all of the Conversion Shares at the same terms and conditions offered to Holder for disposition of the Conversion Shares before any such disposition.

6. Anti-Dilution Provisions

The Conversion Price shall be subject to appropriate adjustment so as to protect the rights of Holder upon the occurrence on or after the Issue Date of any stock dividend, stock split, reverse stock split, recapitalization, merger or other similar transaction. Upon each occurrence of any event described in the immediately preceding sentence, the Conversion Price in effect immediately prior to such event shall be adjusted (and any other appropriate actions shall be taken by Obligor, including, upon the occurrence of any merger or other similar transaction, the issuance to Holder of any securities into which this Convertible Note shall be converted by operation of law or pursuant to the express terms of such transaction provided that such transaction has been approved by the board of Obligor), so that Holder, upon any conversion, shall be entitled to receive the number of the Shares or other property, including cash or securities, that Holder would have owned or would have been entitled to receive upon or by reason of any of the events described above, had this Convertible Note been converted immediately prior to the date of such event, or if such event has a record date, then the record date applicable to such event. An adjustment made pursuant to the immediately preceding sentence shall become effective retroactively to the close of business on the day upon which such event is effected.

7. Collateral for the Convertible Note

This Convertible Note is a senior, unsubordinated note and rank pari passu with all the other unsubordinated debt now or hereafter outstanding.

EXHIBIT A- 4

To secure Obligor’s payment obligation to Initial Holder under this Convertible Note, Obligor shall, and shall procure GigaMedia International Holdings Limited (“GIL”) to, create a pledge over all of the issued and outstanding shares in HGC and Funtown World in favor of Initial Holder. The terms and conditions in respect of such share pledge are set out in Exhibit B.

In the event that this Convertible Note is redeemed or called by Obligor, bought back by a third party designated by Obligor, or is otherwise assigned to a third party upon the consent of Obligor, the share pledge provided in this Section will not be assigned or transferred to such third party and Initial Holder shall immediately release the pledged shares, duly endorsed on the reverse side of the share certificates representing the pledged shares to effectuate the release of such share pledge before return of the share certificates to Obligor and GIL, respectively; provided that in the case where this Convertible Note is assigned or otherwise transferred by Initial Holder to Acer Incorporated (“Acer”), the provisions in this paragraph shall not apply and Acer shall be entitled to the same rights subject to the same restrictions as those applicable to Initial Holder.

8. Successors; Assigns; Third-Party Beneficiaries

Obligor and Initial Holder acknowledge that this Convertible Note is for the sole benefit of Obligor and Initial Holder and their respective successors and permitted assigns and no provision hereof, whether express or implied, is intended, or shall be construed, to give any other Person any rights or remedies, whether legal or equitable, hereunder. Except as otherwise provided herein, neither this Convertible Note nor the rights or obligations hereunder may be assigned, transferred by any party without the prior written consent of the other party.

The parties specifically acknowledge and agree that Initial Holder is entitled to assign or otherwise transfer this Convertible Note to Acer at any time by notice to Obligor and Acer shall be entitled to the same rights subject to the same obligations as those applicable to Initial Holder under this Convertible Note. In the case where Initial Holder is to be dissolved or merged into Acer or the shares held by Acer in Initial Holder are below 50% of the total issued and outstanding shares of Initial Holder, Initial Holder has an obligation to assign or otherwise transfer this Convertible Note to Acer on or before the occurrence of any such event. If Initial Holder fails to assign this Convertible Note on or before the occurrence of any such event, the share pledge created in favor of Initial Holder under Section 7 shall be forfeited and Initial Holder shall immediately release the pledged shares, duly endorsed on the reverse side of the share certificates representing the pledged shares to effectuate the release of such share pledge before return of the share certificates to Obligor and GIL, respectively.

9. Miscellaneous

(a) Specific Performance

Obligor and Holder acknowledge and agree that in the event of any breach of this Convertible Note, the non-breaching party would be irreparably harmed and could not be made whole solely by monetary damages. Obligor and Holder hereby agree that in addition to any other remedy to which any party may be entitled at law or in equity, to the extent permitted by applicable law, Obligor and Holder shall be entitled to obtain an injunction or compel specific performance of this Convertible Note in any action instituted in any Court.

EXHIBIT A- 5

(b) Interpretation

The headings and captions in this Convertible Note are for convenience of reference only and shall not control or affect the meaning or construction of any provisions hereof. When used in this Convertible Note, (i) the symbol “US$” shall refer to the lawful currency of the United States of America and (ii) the words “including” and “include” shall be deemed followed by the words “without limitation.”

(c) Notices

All notices and other communications required or permitted to be given hereunder shall be in writing and shall be (i) delivered by hand, (ii) delivered by a reputable commercial overnight delivery service, or (iii) transmitted by facsimile, in each case, sent to the address or telecopier number set below. Such notices shall be effective: (i) in the case of hand deliveries, when received; (ii) in the case of an overnight delivery service, when received; and (iii) in the case of facsimile transmission, when electronic confirmation of receipt is received by the sender. Any party may change its address and telecopy number by written notice to another party in accordance with this provision, provided that such notice shall be effective only upon receipt.

If to Obligor, to:

GigaMedia Limited

Address: 14Fl, No. 122 Tun Hwa North Road, Taipei, Taiwan, R.O.C

Telecopy: +8862-8770-7955

Attention: Chief Executive Officer

Funtown World Limited

Address: 14Fl, No. 122 Tun Hwa North Road, Taipei, Taiwan, R.O.C

Telecopy: +8862-8770-7955

Attention: Chief Executive Officer

Hoshin GigaMedia Center Inc.

Address: 14Fl, No. 122 Tun Hwa North Road, Taipei, Taiwan, R.O.C

Telecopy: +8862-8770-7955

Attention: Chief Executive Officer

If to TWP Corporation, to:

TWP Corporation

Address: 8F, 88, Sec. 1, Hsin Tai Wu Road, Hsichih Taipei Hsien, Taiwan, R.O.C.

Telecopy: +8862-2696-3377

Attention: H.T. Chou

EXHIBIT A- 6

Acer Incorporated

Address: 8F, 88, Sec. 1, Hsin Tai Wu Road, Hsichih Taipei Hsien, Taiwan, R.O.C.

Telecopy: +8862-8691-1009

Attention: BJ Lin

(d) Governing Law; Forum

This Convertible Note shall be governed by and construed in accordance with the laws of Singapore (without giving effect to conflicts of law principles) as to all matters, including validity, construction, effect, performance and remedies of and under this Convertible Note. Venue in any and all suits, actions and proceedings between the parties hereto and relating to the subject matter of this Convertible Note shall be in the courts located in Singapore (the “Courts”), which shall have exclusive jurisdiction for such purpose, and Holder and Obligor hereby irrevocably submit to the exclusive jurisdiction of such Courts and irrevocably waive the defense of an inconvenient forum to the maintenance of any such suit, action or proceeding. Service of process may be made in any manner recognized by such Courts.

(e) Severability

The invalidity, illegality or unenforceability of one or more of the clauses or provisions of this Convertible Note in any jurisdiction shall not affect the validity, legality or enforceability of this Convertible Note in such jurisdiction or the validity, legality or enforceability of this Convertible Note, including any such clause or provision in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.

(f) Amendments

This Convertible Note may not be amended, modified or supplemented except in a writing signed by Obligor and Holder.

(g) Waiver

Any waiver (whether express or implied) of any default or breach of or by any party to this Convertible Note shall be effective unless evidenced by a writing signed by the party against which such waiver is sought to be enforced. No such waiver for any purpose shall constitute a waiver of any other or subsequent default or breach, or for any other purpose.

(h) Counterparts

This Convertible Note may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Convertible Note.

EXHIBIT A- 7

10. Definitions

As used in this Convertible Note, the following terms shall have the following meanings:

“Adjusted Conversion Price” means the closing price of the Shares on the Issue Date, or the last trading day immediately prior to the Issue Date if the Issue Date is not a trading date, if it is greater than the Initial Conversion Price.

“Assets Purchase Agreement” has the meaning specified in the Preamble.

“Conversion Period” means the period in which Holder is entitled to exercise the conversion right commencing from the ninth month (for 50% of the Principal Amount, and all after the twelfth month) after the Issue Date and ending on the Maturity Date.

“Conversion Price” means the Initial Conversion Price, the Adjusted Conversion Price or the Reset Conversion Price, as the case may be.

“Convertible Note” means this Convertible Note and all amendments made hereto in accordance with the provisions hereof.

“Court” has the meaning specified in Section 8(d).

“Holder” means Initial Holder, its successors and permitted assigns, including Acer Incorporated, the third party designated by Obligor to buy back this Convertible Note, and any other third party with the consent of Obligor.

“Initial Conversion Price” means 125% of the Reference Price, as may be adjusted pursuant to Section 6.

“Initial Holder” has the meaning specified in the Preamble.

“Issue Date” means the date of issuance of this Convertible Note as first set forth above.

“Obligor” has the meaning specified in the Preamble.

“Person” means any individual, firm, corporation, proprietary, public or private company, partnership, limited liability company, public liability company, trust or other entity, and shall include any successor (by merger or otherwise) of such entity.

“Principal Amount” has the meaning specified in the Preamble.

“Reference Price” has the meaning specified in Section 5(a).

“Reset Conversion Price” means the average volume-weighted closing price of Shares for the ten (10) days immediately after the commencement date of the Conversion Period.

“Shares” means the ordinary shares of Obligor.

[Signature Page Follows]

EXHIBIT A- 8

IN WITNESS WHEREOF, GigaMedia Limited has caused this Convertible Note to be duly executed and delivered as of the date first set forth above.

GigaMedia Limited

By:

Name:

Title:

IN WITNESS WHEREOF, TWP Corporation has caused this Convertible Note to be duly executed as a deed as of the date first set forth above.

TWP Corporation

By:

Name:

Title:

EXHIBIT A- 9

EXHIBIT B

PLEDGE AGREEMENT

This Pledge Agreement is entered into this      day of January 2006 by and among:

GigaMedia Limited, a company organized and existing under the laws of Singapore, having its registered office at 8 Cross Street, #11-00 PWC Building, Singapore 048424 (the “GigaMedia”); and

GigaMedia International Holdings Limited, a company organized and existing under the laws of British Virgin island, having its registered office at OMC Chambers, P.O. Box 3152 Road Town, Tortola, British Virgin Islands (the “GIL”);

TWP Corporation, a company organized and existing under the laws of Republic of China, having its registered office at 2-4Floor, No. 39, Section 1, Zhong Jiao West Road (the “TWP”);

WHEREAS, GigaMedia Limited (“GigaMedia”) and its wholly owned subsidiaries Funtown World Limited (“Funtown World”) and Hoshin GigaMedia Center Inc. (“HGC”) and TWP have entered into a certain Assets Sale and Purchase Agreement (the “Assets Purchase Agreement”) on December 19, 2005 whereby GigaMedia and its wholly owned subsidiaries Funtown World and HGC will acquire the FunTown Business, as defined therein, from TWP;

WHEREAS, GigaMedia has agreed to issue a convertible note (the “Convertible Note”) in the amount of US$15,000,000 in favor of TWP to fulfill a portion of its payment obligations under the Assets Purchase Agreement;

WHEREAS, in order to secure GigaMedia’s payment obligations to TWP under the Convertible Note, GigaMedia has undertaken to pledge and cause to be pledged all of the issued and outstanding shares in the Funtown World and HGC in favor of TWP in accordance with the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual agreements and covenants hereinafter set forth, the parties hereto agree as follows:

Article 1 – Establishment of the Pledge

GigaMedia shall create a pledge over 60,000,000 shares of common stock in the HGC, which represent all of the issued and outstanding shares in HGC, and shall procure its wholly-owned subsidiary GIL to create a pledge over 1 share of common stock in Funtown World, which represent all of the issued and outstanding shares in Funtown World, in favor of TWP as collateral to secure GigaMedia’s payment obligations to TWP under the Convertible Note as shown on Exhibit A of the Assets Purchase Agreement (collectively, the “Pledge Stocks”) attached hereto.

EXHIBIT B- 1

Article 2 - Delivery of the Pledged Stocks

Upon execution of this Agreement, (1) GigaMedia shall forthwith deliver the stock certificates representing 60,000,000 shares in HGC duly endorsed by GigaMedia to effectuate the share pledge in favor of TWP; and (2) GIL shall forthwith deliver the stock certificates representing 1 share of common stock in Funtown World duly endorsed by GIL to effectuate the share pledge in favor of TWP.

Article 3- Free of Encumbrances

GigaMedia and GIL hereby undertake to and with TWP that they are the owner of the Pledged Stocks and have the right to create the pledge over the Pledged Stocks in favor of TWP, and that the Pledged Stocks, when delivered to TWP are and shall be free from any and all claims, charges, lien, equities, pledges and any other encumbrances except for the share pledge contemplated hereby.

Article 4 –Right of GigaMedia and GIL

Unless otherwise provided herein, GigaMedia and GIL, as the case may be, shall be entitled to exercise any and all voting rights pertaining to the Pledged Stocks, to receive any dividends and distributions on the Pledged Stocks, and to exercise other rights on Pledged Stocks before TWP exercises its rights on the Pledge Stocks against GigaMedia and GIL according to the terms and conditions of this Agreement.

The parties acknowledge and agree that as long as TWP holds the Convertible Note, GigaMedia shall not sell, pledge or otherwise dispose of or create any encumbrance on the assets and business related to FunTown Business to secure financing except in the ordinary course of business, but GigaMedia may restructure the ownership structure of Funtown World and HGC and may cause Funtown World and HGC to acquire, sell or otherwise dispose of its assets and business other than the FunTown Business without TWP’s consent; provided that a 7 days prior notice shall be given to TWP before taking any such action. TWP agrees to cooperate with GigaMedia in any such action to the extent that the Pledged Stocks remain unchanged. For avoidance of any doubt, nothing in this Agreement shall GigaMedia or HGC, as the case may be, from taking any of the following actions:

1. To proceed with the merger between HGC and Koos Broadband Telecom Limited;

2. To sell in part or in whole, businesses currently operated by HGC;

3. To proceed with capital reduction and/or capital increase of HGC to the extent that such capital reduction and/or capital increase will not have direct impact on the financial conditions and business operations of FunTown Business;

4. To change the ownership structure of Funtown World and HGC for the purpose of internal restructuring (not change of control);

EXHIBIT B- 2

5. To proceed with the sale and purchase of the assets relating to FunTown Business between Funtown World and HGC;

6. To proceed with the sale, purchase and otherwise disposal of the business or assets of HGC other than the FunTown Business

Article 5- Disposal of the Pledge Stocks

(1) At any time when GigaMedia shall have failed to observe or comply with any of its obligations to TWP under the terms and conditions of the Convertible Note and hereunder, TWP shall have the right to dispose of all or any part of the Pledged Stocks in settlement of their rights against GigaMedia under the terms and conditions of the Convertible Note with the proceeds from the sale of the Pledged Stocks.

(2) TWP shall notice GigaMedia and GIL before it exercises its rights to sell the Pledged Stocks hereunder.

Article 6 – Prohibition of Assignment, Transfer or Sub-pledge

This Pledge Agreement is for the sole benefit of GigaMedia and TWP and no provisions hereof, whether express or implied, is intended, or shall be construed, to give any other person any rights or remedies, whether legal or equitable, hereunder. Without the prior consent of GigaMedia, TWP shall not transfer or sub-pledge the Pledged Stocks or assign any rights or obligations hereunder to a third party.

Article 7 - Return of the Pledged Stocks

This Agreement shall be terminated upon the occurrence of any of the following events:

(1) GigaMedia has fully performed its obligations and fully settled the payments to TWP pursuant to the terms and conditions of the Convertible Note;

(2) The Convertible Note is redeemed or called by GigaMedia and the payments for exercise of such redemption or call option have been fully settled pursuant to the terms and conditions of the Convertible Note;

(3) The outstanding balance of the Convertible Note is bought back by a third party designated by GigaMedia;

(4) The Convertible Note has assigned to a third party, other than Acer Incorporated upon the consent of GigaMedia;

(5) TWP fails to observe its obligation pursuant to Section 8 of the terms and conditions of the Convertible Note to assign or otherwise transfer the Convertible Note to Acer Incorporated before the occurrence of the event that TWP is to be dissolved or merged into Acer Incorporated or the shares held by Acer Incorporated in TWP are below 50% of the total issued and outstanding shares of TWP; or

EXHIBIT B- 3

(6) TWP has disposed of the Pledged Stocks according to the terms and conditions of this Agreement.

Upon termination of this Agreement, TWP shall immediately release the pledged shares, duly endorsed on the reverse side of the share certificates representing the pledged shares to effectuate the release of such share pledge before return of the share certificates to GigaMedia and GIL, respectively. TWP shall also cooperate with GigaMedia and GIL to update the shareholder rosters and corporate records of Funtown World and HGC to reflect the release of such share pledge.

Article 8 - Notice

Unless otherwise specifically provided herein, any notice required to be given hereunder shall be in writing and addressed as follows:

If GigaMedia or GIL, to:

GigaMedia Limited

Address: 14Fl, No. 122 Tun Hwa North Road, Taipei, Taiwan, R.O.C

Telecopy: +8862-8770-7955

Attention: Chief Executive Officer

GigaMedia International Holdings Limited

Address: 14Fl, No. 122 Tun Hwa North Road, Taipei, Taiwan, R.O.C

Telecopy: +8862-8770-7955

Attention: Chief Executive Officer

If to TWP Corporation, to:

TWP Corporation

Address: 8F, 88, Sec. 1, Hsin Tai Wu Road, Hsichih Taipei Hsien, Taiwan, R.O.C.

Telecopy: +8862-2696-3377

Attention: H.T. Chou

Acer Incorporated

Address: 8F, 88, Sec. 1, Hsin Tai Wu Road, Hsichih Taipei Hsien, Taiwan, R.O.C.

Telecopy: +8862-8691-1009

Attention: BJ Lin

Article 9 - Amendment

No amendment or change to this Agreement may be made unless agreed upon in writing by all the parties hereto.

EXHIBIT B- 4

Article 10 - Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the R.O.C. In the event of any disputes arising from or in connection with this Agreement, the parties hereto agree that the Taipei District Court of Taiwan, ROC shall be the court of jurisdiction in the first instance.

[Signature Page Follows]

EXHIBIT B- 5

IN WITNESS WHEREOF, each of the parties has executed this Agreement by its duly authorized representative as of the date first above written.

GIGAMEDIA LIMITED

By:

Name:

Title:

GIGAMEDIA INTERNATIONAL HOLDINGS LIMITED

By:

Name:

Title:

TWP CORPORATION

By:

Name:

Title:

EXHIBIT B- 6

EX-4.34

Exhibit 4.34

SHARE PURCHASE AGREEMENT

THIS SHARE PURCHASE AGREEMENT (the “Agreement”) is entered into as of this 17th day of September 2005 by and between:

(1) GigaMedia Limited, a company organized and existing under the laws of Singapore, with its registered office at 8 Cross Street, #11-00 PWC Building, Singapore 048424 (the “Seller”); and

(2) Nextbase International Limited, a company organized and existing under the laws of British Virgin Islands, with its registered office at OMC Chambers, P.O. Box 3152, Road Town, Tortola, British Virgin Islands (the “Purchaser”)

(Each of the Purchaser and the Seller is hereinafter referred to individually a “Party” and collectively, the “Parties”.)

W I T N E S S E T H:

WHEREAS, the Seller owns 9,262,501 shares in G-Music Limited (the “Target Shares”), a company organized and existing under the laws of Cayman Islands, having its registered office at Walker House, Mary Street, P.O. Box 908GT, George Town, Grand Cayman, Cayman Islands (the “Target Company”), which accounts for 58.58% of the total issued and outstanding shares in the Target Company;

WHEREAS, the Seller intends to sell to the Purchaser and the Purchaser intends to purchase from the Seller the Target Shares pursuant to the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and of the covenants and agreements herein contained and intending to be legally bound, the Parties agree as follows:

ARTICLE 1. PURCHASE AND SALE OF THE TARGET SHARES

1.01 Purchase and Sale of the Target Shares. Subject to the terms and conditions set forth in this Agreement, the Seller shall sell, assign, transfer and deliver to the Purchaser, and the Purchaser shall purchase and acquire from the Seller, all the Target Shares.

1.02 Purchase Price. In consideration of the sale and purchase of the Target Shares as provided in Article 1.01 hereof, the aggregate total purchase price for all the Target Shares shall be Five Million One Hundred and Fifty Thousand U.S. Dollars (US$5,150,000) (“ Total Purchase Price”).

1

ARTICLE 2. THE CLOSING

2.01 The Closing. Subject to the terms and conditions set forth in this Agreement, the completion of the transfer of the Target Shares (the “Closing”) will take place at 10:00 A.M. on September 29, 2005 (the “Closing Date”). In case of a “Force Majeure Event” which prevents either of the Parties from completing the transaction contemplated herein, the Closing Date shall be moved to the day following the day when the Force Majeure Event ceases to exist and such Party shall not be held liable. For the purpose of this Agreement, a Force Majeure Event shall mean strikes, wars, riots, lightning, earthquake, fires, explosions, storms, floods, landslides, washouts, and any other cause or circumstances which is not within the reasonable control of the Party invoking this clause, and not the result of its negligence or lack of due diligence.

2.02 Payment by the Purchaser.

(1) Upon execution of this Agreement, the Purchaser shall pay the Seller 50% of the Total Purchase Price by delivering two checks payable no later than the Closing Date issued by Gin-Shin Technology Co., Ltd. ( , Uniform No.: 27540037). One of the checks represents 20% of the Total Purchase Price (“Check 1”) and the other check represents 30% of the Total Purchase Price (“Check 2”). Check 1 and Check 2 may be payable in New Taiwan Dollars at the exchange rate of 1:32.93 (i.e., 1 U.S. Dollar exchanges for 32.92 New Taiwan Dollars).

(2) The Purchaser shall remit the Total Purchase Price to the bank account of the Seller by wire transfer so that the Seller would be able to receive the Total Purchase Price on the Closing Date. The bank account information of the Seller is as follows:

Beneficiary Bank: Chinatrust Commercial Bank Tun Pei Branch

SWIFT CODE: CTCBTWTP

Address: No. 122, Tunhwa North Road, Taipei Taiwan, R.O.C.

Beneficiary Name: GigaMedia Limited

Account No.: 015-14-0008106

(3) The Seller shall return Check 1 and Check 2 to the Purchaser upon receipt of the Total Purchase Price on the Closing Date.

(4) In the event that the Purchaser refuses to complete the transaction contemplated herein by the Closing Date, Check 1 shall become nonrefundable and the Seller shall be entitled to cash Check 1. The Seller

2

shall return Check 2 to the Purchaser upon request of the Purchaser. The Seller shall not negotiate with any party other than the Purchaser for the transfer of the Target Shares or the transaction contemplated herein before the Closing Date. In case of a Force Majeure Event which prevents the Purchaser from completing the transaction contemplated herein, the Seller shall not be entitled to cash Check 1, unless the Purchaser refuses to complete the transaction contemplated herein on the day following the day when such Force Majeure Event ceases to exist.

2.03 Deliveries by the Seller. On the Closing Date, upon receipt of the Total Purchase Price in cash, the Seller shall deliver each of the following to the Purchaser in form and substance satisfactory to the Purchaser:

(1) Share Certificates representing all the Target Shares, together with all necessary documents as required by the Purchaser for registration of share transfer for the Target Shares;

(2) The board meeting minutes of the Target Company appointing the designees of the Purchaser as the directors of the Target Company; and

(3) The resignation letters issued by the current directors of the Target Company.

2.04 Price Adjustment.

(1) By September 23, 2005, the Purchaser shall complete the review of the financial statements of the Target Company and its subsidiaries, including Music King Co., Ltd. and Point Records Co., Ltd. , and notify the Seller of the results. In the event that the net equity value of the Target Shares, on a consolidated basis, as of July 31, 2005 is less than the net equity value, on a consolidated basis, of the Target Shares as of June 30, 2005, and such deficiency exceeds 15% of the Total Purchase Price, the Total Purchase Price payable on the Closing Date shall be reduced by the amount of such deficiency. The Parties hereby agree that no adjustment shall be made in the event that the net equity value, on a consolidated basis, of the Target Shares as of July 31, 2005 is 85% or more of the Total Purchase Price.

(2) The above financial review shall be conducted in the following manner: (i) Ernst & Young, the Purchaser’s auditor, and Pricewaterhouse Cooper, the Seller’s auditor, shall conduct and complete the financial review and determine by consensus, the difference between the net equity value, on a consolidated basis, of the Target Company as of June 30, 2005 and July 31, 2005 by September 23, 2005; and (ii) In the event that the two auditors are not able to reach consensus by the above deadline, the Parties agree

3

that KPMG shall be the third auditor jointly appointed by both Parties and any determination on such difference made by KPMG prior to the Closing Date shall be final and binding on the Parties. The Parties shall equally share the audit fees charged by KPMG.

ARTICLE 3. REPRESENTATIONS AND WARRANTIES

3.01 The Seller. The Sellers hereby represents and warrants to the Purchaser that:

(1) It owns the Target Shares registered under its name free and clear of any trusts, liens, pledges, security agreements, options, restrictions, encumbrances or charges of whatever nature, and has full legal right, power and authority to sell, transfer, assign and deliver the Target Shares as provided in this Agreement, and such delivery will convey to the Purchaser lawful, valid, marketable and indefeasible title to the Target Shares, free and clear of any trusts, liens, pledges, security agreement, options, restrictions, encumbrances or charges of whatsoever nature.

(2) The consummation of the transactions contemplated hereby will not violate any provision of its Articles of Incorporation or be in conflict with any agreement in which the Seller is a party, and this Agreement constitutes the legal, valid and binding obligations of the Seller enforceable against the Seller in accordance with its terms.

(3) The Seller is duly incorporated and validly existing under the laws of Singapore. The Seller has obtained all corporate approvals necessary and appropriate for the valid execution, delivery and performance hereof.

(4) The financial information that the Seller provides to the Purchaser for the due diligence purpose is accurate, complete and updated.

(5) The Seller will not cause the Target Company and its subsidiaries to incur any contingent liability or material liability during the period from the execution date of this Agreement to the Closing Date.

3.02 The Purchaser. The Purchaser represents and warrants to the Sellers that:

(1) The Purchaser is duly incorporated and validly existing under the laws of British Virgin Islands.

(2) The Purchaser has obtained all corporate approvals necessary and appropriate for the valid execution, delivery and performance hereof. The Purchaser is legally permitted to make the investment hereunder, and this Agreement constitutes the legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms.

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ARTICLE 4. COVENANTS

4.01 Further Assurance.

(1) The Parties shall take necessary actions to effect the title transfer of the Target Shares, the appointment of new directors of the Target Company, and the amendment of any corporate documents.

(2) As the Seller is required to consolidate its financial statements with that of the Target Company for the year 2005 in accordance with the relevant laws and accounting rules, the Purchaser hereby agrees to provide with the Seller the financial statements, accounting books, or other financial information of the Target Company for the year 2005, at the request of the Seller on a timely fashion.

ARTICLE 5. INDEMNIFICATION

5.01 Indemnification by the Seller. The Seller hereby agrees to indemnify, defend and hold harmless the Purchaser from and against any and all losses, damages, and expenses against the Purchaser, including reasonable legal fees, in connection with the breach by the Seller of any of the representations and warranties as set forth in Article 3.01 of this Agreement.

5.02 Indemnification by the Purchaser. The Purchaser hereby agrees to indemnify, defend and hold harmless the Seller from and against any and all losses, damages, and expenses against the Seller, including reasonable legal fees, in connection with the breach by the Purchaser of any of the representations and warranties as set forth in Article 3.02 of this Agreement.

ARTICLE 6. CONFIDENTIALITY

6.01 Confidentiality and Non-Disclosure. The Seller and the Purchaser agree to keep confidential the contents of this Agreement and any information in connection with the transaction contemplated herein. Except with the prior written consent of the other Party, neither Party shall disclose the contents of this Agreement or the Parties’ negotiations on the acquisition of the equity interests in the Target Company to any third party; provided, however, that (i) for the purpose of obtaining a necessary permission from the competent authorities and (ii) in a manner conforming to the disclosure and reporting provisions of the applicable laws and regulations, either Party may make limited disclosure to the competent authorities after giving a prior notice to the other Party. This confidentiality obligation shall survive the termination or expiration of this Agreement for a period of one year.

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ARTICLE 7. MISCELLANEOUS

7.01 Amendments and Modification. Subject to applicable law, this Agreement may be amended, modified and supplemented only by written agreement of all Parties.

7.02 Non-Waiver. Any failure or delay by any Party in exercising any right, power or remedy shall not preclude the further exercise thereof, and every right, power of remedy of the Parties hereto shall continue in full force and effect until such right, power or remedy is specifically waived in writing by the relevant Party.

7.03 Transactional Expenses. Whether or not the transactions contemplated by this Agreement are consummated, each Party shall pay its own fees and expenses incident to the negotiation, preparation, execution, delivery and performance hereof, including without limitation, the fees and expenses of its counsel, accountants and other experts.

7.04 Approvals and Filings. Either Party shall be responsible for obtaining any required prior approval from the applicable competent authorities or making any filings or reporting to the relevant regulatory authorities, including without limitation to stock exchange, that such a Party is required to obtain, file or report under the applicable law concerning the consummation of the transaction contemplated herein.

7.05 Transfer Tax. Each Party shall be individually responsible for its taxes due by reason of the consummation of the transaction contemplated herein, including but not limited to any interest or penalties in respect thereof.

7.06 Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be (i) personally delivered, (ii) transmitted by telecopier (with confirmation by mail, postage prepaid, registered or certified, return receipt requested, or by airmail in the event of mailing for delivery outside of the country in which mailed), or (iii) transmitted by an overnight courier, to the other Party as follows, as elected by the Party giving such notice:

To the Purchaser:

Vondelon International Corp.

6F, No. 39, Kee Hu Road, Taipei 114 Taipei, Taiwan

Attention: Mavis Yu

Fax: 886-2-6600-9082

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To the Seller:

GigaMedia Limited

122, Tun Hwa North Road, 14^th Floor

Taipei, Taiwan

Republic of China

Attention: Joseph Shea

Fax: +8862-8770-7576

Except as otherwise specified herein, all notices and other communications shall be deemed to have been duly given on the date of receipt. Either Party may change its address for purposes hereof by notice as aforesaid to the other Party.

7.07 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties without the prior written consent of the other Party, except that the Purchaser may assign its rights under this Agreement to its affiliates by serving a written notice to the Sellers without the prior consent of the Sellers.

7.08 Governing Law. This Agreement shall be construed, interpreted and governed by the laws of the R.O.C., and the Parties hereby consent to the exclusive jurisdiction of the Taipei District Court for the first instance in any dispute arising hereunder.

7.09 Entire Agreement. This Agreement and the other documents and certificates delivered pursuant to the terms hereof, constitute the entire agreement of the Parties in respect of the transactions contemplated herein. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings among the Parties with respect to the transaction contemplated herein.

7.10 Severability. In the event that any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any of the other provisions hereof, which shall nevertheless remain in full force and effect, and this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had never been contained herein.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.

GigaMedia Limited
By:	Joseph Shea
Title:	Executive Vice President
Nextbase International Limited
By:	Mavis Yu
Title:	Chief Financial Officer of Vondelon International Corp. authorized by Nextbase International Limited

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EX-4.35

Exhibit 4.35

Share Subscription Right Agreement

Hoshin GigaMedia Center Inc.

And

Wretch Co., Ltd.

And

All shareholders of Wretch Co., Ltd.

March 10, 2006

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(English translation for reference only)

Share Subscription Right Agreement

This Share Subscription Right Agreement (the “Agreement”) is entered into on the 10th day of March, 2006 by and among the following parties:

(1) Hoshin GigaMedia Center Inc., a company established and in existence pursuant to ROC laws. Its principal place of business is in 14^th Floor, No. 122, Tun Hua N. Road, Taipei. (“HGC”);

(2) Wretch Co., Ltd., a company established and in existence pursuant to ROC laws. Its principal place of business is in 2^nd Floor, No. 310, Chung Hsiao E. Rd., Taipei. (“Wretch”); and

(3) The registrar of shareholders of Wretch on the signing date of this agreement is listed in Attachment 1 (“Wretch Shareholders”).

Whereas, Wretch operates the website, Wretch (http://www.wretch.cc), combining BBS, web albums and blogs, providing the Chinese community a place to share information. It is the most popular website which contains blogs and web albums in Taiwan. Due to the vast increase of users and capital requirement to purchase new machinery equipment, Wretch plans to conduct capital increase in cash within the next three years.

Whereas, due to the development and potential commercial opportunity of blogs, HGC is interested in subscribing the shares of stock of Wretch; Wretch and its shareholders agree to give HGC the right of first refusal to subscribe its shares (the “Subscription Right”) so that HGC can acquire 20% of the total number of issued and outstanding shares after completion of the capital increase in cash of Wretch.

Based on the above, the parties hereby agree to the following terms and conditions:

1. The Subscription Right of HGC

(1) HGC agrees to provide Wretch free network service for a term of three years from the signing date of this agreement (the detailed services are listed in Attachment 2) as the consideration of this subscription right.

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(2) HGC may exercise this subscription right when Wretch conducts the first capital increase in cash. HGC may subscribe all or part of the newly issued shares with the price as indicated in Attachment 3. The share held by HGC in Wretch after completion of its capital increase in cash can represent 20% of the total number of issued and outstanding shares of Wretch.

(3) The Wretch Shareholders agree to waive their preemptive right to subscribe newly issued shares, and shall encourage all employees to waive their preemptive rights to subscribe newly issued shares. If any shareholder of Wretch does not waive the preemptive right to subscribe newly issued shares or due to other reasons (for example, issuance of new shares for subscription by those who have the right to subscribe) and have to increase the newly issued shares for those who have the subscription right, the price to subscribe by the employees of Wretch and others who have the stock subscription right shall be the same as the price that HGC subscribed. When calculating the number of new shares to be issued by Wretch for capital increase, the number of shares to be subscribed by Wretch’s employees and those who have the right to subscribe shall be taken into consideration, to ensure that the percentage of the shares subscribed by HGC is no less than 20% of the total number of issued and outstanding shares after the capital increase in cash of Wretch.

(4) In the case where HGC is eligible to exercises its share subscription right, HGC may at its sole discretion decide whether to exercise this right to subscribe all or part of the shares or to waive this right. If HGC decides to waive this subscription right, Wretch or its shareholders shall not claim any damages from HGC.

2. Obligation of Wretch and its shareholders

In order to have HGC exercise this share subscription right, Wretch and its shareholders promise to fulfill the following obligation:

(1) At the end of 2006 and 2007 fiscal years, if there is surplus profit in the respective years, after having paid all the taxes and dues and making up the losses and setting aside ten percent of the surplus profits as the legal

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reserve, Wretch Shareholders shall resolve to capitalize all the surplus profit. If the legal reserve meets the capitalization requirement, Wretch Shareholders shall also resolve to capitalize all the legal reserve.

(2) Wretch and Wretch Shareholders shall conduct the first capital increase in cash within three years after the signing of this agreement.

(3) During the first capital increase in cash, if Wretch has not yet completed the capitalization of the profits or reserves in previous fiscal years, those profits which could be capitalized shall be deemed as part of the paid in capital prior to the capital increase in cash for the purpose of calculating the total number of issued and outstanding shares and earnings profits per share.

(4) Upon completion of the first capital increase in cash, the total number of issued and outstanding shares of Wretch shall not be greater than 25,000,000 shares.

The Wretch Shareholders undertake that prior to the first capital increase in cash, if any Wretch Shareholder intends to sell, pledge, or create any other encumbrance over the Wretch shares, such shareholder shall notify HGC, and shall have the assignee agrees to be bound by this Agreement in writing, otherwise, such shareholder shall not sell, pledge or create any other encumbrance over the Wretch shares.

3. HGC’s Right to Due Diligence Review

In order to have HGC fully understand the financial and operational situation of Wretch, Wretch and Wretch Shareholders undertake that after the board meeting of Wretch resolves to have the first capital increase in cash, HGC may conduct a due diligence review, to decide whether to exercise this subscription right; Wretch shall provide relevant information for HGC to conduct due diligence review, and shall not refuse or conceal any information that may influence HGC’s investment decision.

4. Representations and Warranties of HGC and its shareholders

HGC hereby represents and warrants to Wretch and Wretch Shareholders that HGC is duly incorporated and established pursuant to ROC laws, and have all the necessary corporate power and internal authorization to sign this Agreement.

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5. Representations and Warranties of Wretch and Wretch Shareholders

Wretch and Wretch Shareholders jointly represent and warrant to HGC as follows:

(1) Wretch is a company limited by shares duly incorporated and established pursuant to ROC laws and conducts business pursuant to ROC laws. Until the date of signing this Agreement, the paid in capital of Wretch is NT$20,000,000; divided into 2,000,000 shares of common stock with the par value of NT$10 per share.

(2) Until the date of signing this agreement, the names of all the shareholders of Wretch and their respective shares are listed in attachment 1, and there was no special stock issued by Wretch.

(3) Until the signing date of this agreement, there is no shareholder agreement or other similar agreements that may affect HGC’s exercise of its right pursuant to this agreement or its shareholder rights after subscribing the Wretch shares.

(4) The execution of this agreement shall not constitute violation of any provisions of the memorandum and articles of association of Wretch nor shall it constitute violation of any agreement signed by Wretch or Wretch Shareholders. This agreement shall constitute legal, valid and binding obligation to Wretch and Wretch Shareholders.

(5) Upon the date of signing this agreement, there is no litigation, claims, or legal proceedings with the courts, authorities, arbitration associations or any other governmental agencies, which may lead Wretch to be a party, and constitute decisions, orders, adjudication or other decisions which are disadvantageous to Wretch.

(6) The representations or warranties made by Wretch and Wretch Shareholders in this agreement, and all the financial, business documents, proofs or any other documents provided by Wretch to HGC under this agreement shall all be true and have no omission.

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(7) The required programs to operate the website of Wretch (http://www.wretch.cc), was researched and developed by Wretch Shareholders or had obtained authorization from the third party; there is no violation of others’ intellectual property.

If there is any change of the above representations and warranties since signing this agreement, Wretch and Wretch Shareholders shall immediately notify HGC of such change; Wretch and Wretch Shareholders undertake that upon conducting the first capital increase in cash, all the representations and warranties set forth in this agreement remain true, except for the matters notified HGC, and no material adverse changes of the financial, business, and legal compliance matters of Wretch occurred since signing this agreement.

6. Business Strategic Alliance

HGC and Wretch agree to be strategic alliance “partners,” in the business of blogs, web albums and online games. Cooperation includes, without limitation, in developing mutual markets, cross marketing between members of both parties, Wretch provides web albums and online games for HGC’s members of “Funtown”, and HGC provides games for members of Wretch’s members of “Wretch” to use and establish co-location website for mutual games. The details for alliance may be negotiated by both parties at a later date. As for the above mentioned business, both parties agree that the other party has the right of first refusal to negotiate cooperation agreement.

7. Corporate Governance of Wretch after Capital Increase in Cash

(1) Upon exercise by HGC of this subscription right, Wretch Shareholders shall sign a shareholder agreement with HGC to govern the rights and responsibilities between the shareholders and management of Wretch in the future.

(2) After HGC completes the share subscription with price indicated in Attachment 3, Wretch Shareholders shall facilitate Wretch to convene a shareholder meeting for election of the directors, HGC shall obtain the board seats of Wretch according to the percentage of shares held by it; and Wretch shall complete all the necessary changes of company registration.

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8. Miscellaneous

(1) Public Announcement and Press Release

Both parties agree that, since the date of signing this agreement, any party shall not make any public announcement or press release to indicate the existence of this agreement or disclose any provision in this agreement, without the other party’s written consent with regard to the disclosing content, timing and media. However, if any party, pursuant to legal requirement, shall disclose, admit or public announce part or all of this agreement, there is no violation of this agreement of the disclosed party, provided however, that the disclosed party in reasonable and possible degree to inform the other party immediately and obtain the other party’s consent. Both parties agree that they shall not unreasonably refuse to consent.

(2) Modification and Revision

The modification, revision and supplement of this agreement shall be made after the written consent of all parties, provided however, all relevant laws and decrees permit.

(3) Non-waiver

If any party of this agreement does not exercise or delay exercising any right or remedy, it is not a waiver to these rights and remedies, which shall be valid until the party who holds the rights waive them in written notice.

(4) Transaction Expenses

Any party shall bear the fees and expenses due to negotiation, preparation, signature, deliver, and performance of this agreement, including but not limited to the fees and expenses of its lawyers, accountants, and other professionals.

(5) Notices

All the notification of request or permission shall be written notice, and the notifying party shall decide to a) deliver in person, b) by fax (and mailed by

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registered mail with prepaid postage or if the notified party is out of country, mail by air mail with delivery confirmation); or c) by express to the following address:

To: Hoshin GigaMedia Center Inc.:

Hoshin GigaMedia Center Inc.

14^th Floor, No. 122, Tun Hua N. Road, Taipei.

Fax: +8862-8770-7955

Attention: Chairman of the Board

To Wretch or Wretch Shareholders:

Wretch Limited

2^nd Floor, No. 310, Chung Hsiao E. Rd., Taipei

Fax: +8862-

Attention: Chairman of the Board

All the notices and other communication shall be deemed delivered when the other party receives. Any party shall notify the other party change of address by the above mentioned methods.

(6) Confidentiality

Both parties agree to keep confidential of all the transactions mentioned in this agreement. Unless the other party gives consent by prior written notice, the other party shall not disclose the provisions and transaction of this agreement to any third party. If the laws or ordinances request disclosure, both parties shall act pursuant to the laws or ordinances, provided however, the disclosed party shall give the other party prior written notice.

(7) The Code of Business Conduct and Ethics of GigaMedia

HGC shall abide by the Code of Business Conduct and Ethics, published by its parent company, GigaMedia Limited. HGC and all of the employees shall abide by related laws and ordinances and business conduct and ethics. Abiding by high standard of business conduct and ethics, maintaining the company’s business reputation and the legitimacy of conducting business are the norms of HGC and all the employees. Please refer to http://ir.gig.net.tw/code/htm for the GigaMedia Limited’s Code of Business Conduct and Ethics.

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(8) Transfer

All parties and their permitted assignees shall be bound by this agreement and all the clauses hereto. Any party of this agreement shall not transfer any right, interest or obligation under this agreement to any third party, unless the prior written consent of the other party.

(9) Governing Law

This agreement shall be governed by the ROC laws. The parties hereto agree to submit to the jurisdiction of Taipei District Court, Taiwan for any dispute or legal proceedings arising out of this agreement.

(10) Entire Agreement

This agreement includes all the attachments and other documents stipulated in this agreement. Unless express stipulated in this agreement, no other limitation, undertaking, representation, warranty or agreement exist between the parties. This agreement replaces prior agreement and letter of intent between the parties with regard to the proposed transaction.

(11) Severability:

In the event that any of the provisions of this Agreement should be held to be invalid or unenforceable, any and all of the remaining clauses will remain valid and enforceable. The invalid or unenforceable provision shall be regarded as never exist for the purpose of explanation of this agreement.

Attachments

Attachment 1: The Roster of Shareholders of Wretch

Attachment 2: The List of the Web Services

Attachment 3: The Subscribed Price per Share

[Intentionally Left in Blank]

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IN WITNESS WHEREOF, the parties hereby sign this agreement on the date first above written.

Hoshin GigaMedia Center Inc.

Representative: Arthur Wang

Title: Chairman of the Board

Wretch Co., Ltd.

Representative:

Title: Chairman of the Board

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Wretch Shareholders

ROC ID Number: G121439679	ROC ID Number:R123185761
Address: 5F., No.9, Mincyuan E. Rd.,	Address: No.164, Wusong St.,
Dasi Township, Taoyuan County	Fongshan City, Kaohsiung County
ROC ID Number: G121262892	ROC ID Number: E123371212
Address: No.119, Sec. 1, Jhongshan Rd.,	Address: No.7, Alley 12, Lane 1240,
Jiaosi Township, Yilan County	Jhongming S. Rd., South District, Taichung City
ROC ID Number: F125198294	ROC ID Number: L122999873
Address: 7F., No.91, Alley 12,	Address: No.20, Alley 12, Lane 82,
Lane 1240, Baoshun St., Shulin City, Taipei County	Yangming St., Fongyuan City, Taichung County
80685476
Address: 11F., No.230, Sec. 4,
Chung Hsiao E. Rd., Da-an District, Taipei City
Representative:

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EX-4.36

Exhibit 4.36

SERIES A PREFERRED SHARE PURCHASE AGREEMENT

by and among

T2CN HOLDING LIMITED

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GIGAMEDIA CHINA LIMITED

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THE KEY SHAREHOLDERS LISTED ON

EXHIBIT A HERETO

dated as of

April 27, 2006

Table of Contents

1. AGREEMENT TO SELL AND PURCHASE SHARES		1
2. PAYMENT, DELIVERY AND CLOSING		2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE PRC SUBSIDIARY AND THE EXISTING SHAREHOLDERS		2
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS		11
5. COVENANTS OF THE COMPANY AND THE KEY SHAREHOLDERS		13
6. CONDITIONS TO INVESTORS’ OBLIGATIONS AT THE CLOSING		14
7. MISCELLANEOUS		16
EXHIBIT A:	Schedule of Key Shareholders	23
EXHIBIT B:	Schedule of Subsidiaries and Affiliates	24
EXHIBIT C:	Restated Articles	25
EXHIBIT D:	Disclosure Schedule	26
EXHIBIT E:	Form of Shareholders Agreement	34
EXHIBIT F:	Notices	35
EXHIBIT G:	Memorandum and Articles of Association of the Company	38

SERIES A PREFERRED SHARE PURCHASE AGREEMENT

THIS SERIES A PREFERRED SHARE PURCHASE AGREEMENT (the “Agreement”) is entered into as of April 27, 2006 by and between T2CN HOLDING LIMITED, a British Virgin Islands company (the “Company”) with its registered address at the offices of S-HR&M Financial Services Limited of Kingston Chambers, P.O. Box 173, Road Town, Tortola, British Virgin Islands, the persons listed on Exhibit A, each a shareholder of the Company (each a “Key Shareholder” and together, the “Key Shareholders”), and GIGAMEDIA CHINA LIMITED, a British Virgin Islands company (the “Investor”) with its office at 122 TunHwa North Road – 14/F, Taipei, Taiwan ROC.

RECITALS:

A. The Company is engaged in the Internet online gaming and other related businesses through a number of Subsidiaries and an Affiliated Company (both as defined herein);

B. The Company and the Investor agree to form a strategic partnership in the table chess, card and board casual game sector and enter into a Strategic Partnership Agreement to expand and enrich the casual game offerings to the Group Company’s user base, for the mutual benefit of the Company and the Investor; and

C. The Company desires to issue and sell to the Investor, and the Investor desires to purchase from the Company, certain newly issued Series A Preferred Shares, par value US$0.01 per share, of the Company (the “Series A Shares”) on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth, the Parties hereto do agree as follows:

1. AGREEMENT TO SELL AND PURCHASE SHARES

On the basis of the representations, warranties and covenants set forth herein, the Company hereby agrees to issue and sell to Investor, and Investor agrees to buy from the Company, 7,500,000 newly issued Series A Shares (the “Purchase Shares”) at a price of US$2.00 per share, for an aggregate purchase price of US$15,000,000 (the “Purchase Consideration”), subject in all cases to the terms and conditions herein.

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2. PAYMENT, DELIVERY AND CLOSING

2.1. The Closing. The Closing of the purchase and sale of the Purchase Shares hereunder shall be held at the offices of T2CN Information Technology (Shanghai) Co., Ltd. in Shanghai, China, on May 8, 2006, or at such other time and place as the Company and the Investor may mutually agree upon (the “Closing”).

2.2. Payment and Delivery. At the Closing, the Company will deliver to the Investor (a) a Series A Share Certificate of the Company representing the Purchase Shares and (b) all certificates and other documents specified under this Agreement to be delivered at Closing; and Investor will make payment of the Purchase Consideration to the Company via wire of immediately available funds into the bank account designated by the Company.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE PRC SUBSIDIARY AND THE EXISTING SHAREHOLDERS

The Company and each Key Shareholder, jointly and severally, hereby represent and warrant to the Investor that, except as set forth in the Disclosure Schedule (the “Disclosure Schedule”) attached to this Agreement as Exhibit D (which Disclosure Schedule shall be deemed to be representations and warranties to the Investor), the statements in this Section 3 are all true, correct and complete as of this date and as of Closing. In this Agreement, any reference to a party’s “knowledge” means such party’s actual knowledge; “Group Companies” means the Company, each Subsidiary (as defined below) and each Affiliated Company (as defined below) (each a “Group Company”).

3.1. Organization, Standing and Qualification. Each Group Company is duly organized, validly existing and in good standing (or equivalent status in the relevant jurisdiction) under, and by virtue of, the laws of the place of its incorporation or establishment and has all requisite power and authority to own its properties and assets and to carry on its business as now conducted and as proposed to be conducted. Each Group Company is qualified to do business and is in good standing (or equivalent status in the relevant jurisdiction) in each jurisdiction where failure to be so qualified would have a material adverse effect on its financial condition, business, prospects or operations, or otherwise. The Memorandum and the Articles of Association of the Company attached as Exhibit G are true and complete, and have never been amended as of the date hereof. There is no shareholder agreement signed by shareholders of the Company that has ever been put into force prior to the date hereof.

3.2. Capitalization. Immediately prior to the Closing, the share capital of the Company consists of the following:

(a) Ordinary Shares. A total of 50,000,000 authorized ordinary shares, par value US$0.01 per share, of the Company (the “Ordinary Shares”), of which 31,928,001 shares are issued and outstanding. The Company has not authorized or issued any classes of shares other than the Ordinary Shares.

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(b) Preferred Shares. A total of 7,500,000 to-be authorized Preferred Shares, all of which are designated as Series A Shares, none of which are issued and outstanding, having the rights, preferences, privileges and restrictions as set forth in the Amended and Restated Memorandum and Articles of Association of the Company (the “Restated Articles”).

(c) Total Number of Shares. Upon the Closing, the Company will have a total of 57,500,000 authorized shares, with 50,000,000 Ordinary Shares and 7,500,000 Preferred Shares respectively.

(c) Options, Warrants, Reserved Shares. The Company has reserved 7,500,000 Ordinary Shares for issuance upon the conversion of the Purchase Shares (the “Conversion Shares”). Except for (i) the conversion privileges of the Purchase Shares, (ii) the preemptive rights provided in the Shareholders Agreement to be entered into at the Closing and attached hereto as Exhibit E (the “Shareholders Agreement”), (iii) 5,500,000 Ordinary Shares reserved for issuance to employees pursuant to the Company’s equity incentive plans approved by the Board of Directors of the Company, (iv) 3,000,000 Ordinary Shares reserved for issuance to JC Entertainment Corp. pursuant to the warrant issued by the Company to JC Entertainment Corp, (v) up to 8,500,000 Ordinary Shares reserved for issuance to certain shareholders of Chengdu Happy Digital Information Technology Co., Ltd. (“Happy Digital”) in exchange for their equity interest in Happy Digital pursuant to satisfactory due diligence of Happy Digital performed by the Company and pursuant to certain agreement between the Company and Happy Digital and (vi) as contemplated hereby, there are no options, warrants, conversion privileges or other rights, or agreements with respect to the issuance thereof, presently outstanding to purchase any of the shares of the Company.

Apart from the exceptions noted in this Section 3.2 and the Shareholders Agreement, no shares (including the Purchase Shares and the Conversion Shares) of the Company’s outstanding share capital, or shares issuable upon exercise or exchange of any outstanding options or other shares issuable by the Company, are subject to any preemptive rights, rights of first refusal or other rights to purchase such shares (whether in favor of the Company or any other person).

3.3. Valid Issuance of Purchase Shares.

(a) The Purchase Shares, when issued, sold and delivered in accordance with the terms of this Agreement, shall be duly and validly issued, fully paid and nonassessable. The Conversion Shares have been duly and validly reserved for issuance in accordance with this Agreement, the Shareholders Agreement and the Restated Articles and, upon issuance in accordance with their conversion terms, will be duly and validly issued, fully paid and nonassessable.

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(b) The outstanding capital shares of the Company are duly and validly issued, fully paid and nonassessable, and such capital shares, and all outstanding shares, options and other securities of the Company have been issued in full compliance with the requirements of all applicable securities laws and regulations.

(c) Outstanding Security Holders. A complete list of all outstanding shareholders, option holders and other security holders of the Company as of the date hereof is contained in Section 3.3 (c) of the Disclosure Schedule, setting forth the type and number of shares, options or other securities held by each such shareholder, option holder or other security holder.

3.4. Subsidiaries and Affiliates. Except for the Subsidiaries and Affiliated Companies as disclosed in Section 3.4 of Exhibit B, the Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, association, or other entity. None of the Subsidiaries and the Affiliated Company has any subsidiaries, owns or controls, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, association or other entity and does not maintain any offices or branches or subsidiaries.

3.5. Due Authorization. All corporate action on the part of the Company and each Key Shareholder and, as applicable, their respective officers, directors and shareholders necessary for the authorization, execution and delivery of, and the performance of all obligations of the Company and each Key Shareholder under, this Agreement, the Shareholders Agreement and any other agreements to which it is a party and the execution of which is necessarily contemplated hereunder (the “Ancillary Agreements”), and the authorization, issuance, reservation for issuance and delivery of all of the Purchase Shares under this Agreement and of the Conversion Shares issuable upon conversion of such Purchase Shares has been taken or will be taken prior to the Closing. Each of this Agreement, the Shareholders Agreement and the Ancillary Agreements is a valid and binding obligation of the Company and each Key Shareholder enforceable in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors’ rights generally and to general equitable principles.

3.6. Compliance with Laws; Governmental Consents. Except for matters as disclosed in Section 3.6 of Exhibit D, none of the Group Companies is in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties; all consents, approvals, orders, authorizations or registrations, qualifications, designations, declarations or filings with any governmental authority (including but not limited to approvals, verifications or registrations in China, if any) on the part of each Group Company and each Key Shareholder required in connection

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with the consummation of the transactions contemplated hereunder including in this Agreement, the Shareholders Agreement and the Ancillary Agreements shall have been obtained prior to and be effective as of the Closing; each Group Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects or financial condition of such Group Company, and such Group Company believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as proposed to be conducted; none of the Group Companies is in default in any material respect under any of such franchises, permits, licenses or other similar authority.

3.7. Compliance with Other Instruments and Agreements. Each Group Company is not in, nor shall the conduct of its business as currently or proposed to be conducted result in, any violation, breach or default of any material term of its constitutional documents of the respective Group Company which may include, as applicable, memoranda and articles of association, by-laws, joint venture contracts, feasibility studies for the PRC Subsidiary and the like (the “Constitutional Documents”), or in any material respect of any term or provision of any mortgage, indenture, contract, agreement or instrument to which the Group Company is a party or by which it may be bound (the “Group Company Contracts”) or of any provision of any judgment, decree, order, statute, rule or regulation applicable to or binding upon the Group Company. The execution, delivery and performance of and compliance with this Agreement, the Shareholders Agreement and any Ancillary Agreement and the consummation of the transactions contemplated hereby and thereby will not result in any material violation, breach or default, or be in conflict with or constitute either a default under any Group Company’s Constitutional Documents or any Group Company Contract, or, to the best knowledge of each Key Shareholder, a violation of any statutes, laws, regulations or orders, or an event which results in the creation of any lien, charge or encumbrance upon any asset of any Group Company.

3.8. Title to Properties and Assets. Each Group Company has good and marketable title to its properties and assets held in each case subject to no mortgage, pledge, lien, encumbrance, security interest or charge of any kind. With respect to the property and assets it leases, each Group Company is in compliance with such leases and, to the best knowledge of its and each Key Shareholder, such Group Company holds legal and valid leasehold interests in such assets free of any liens, encumbrances, security interests or claims of any party other than the lessors of such property and assets.

3.9. Status of Proprietary Assets. For purpose of this Agreement, “Proprietary Assets” shall mean all patents, patent applications, trademarks, service marks, trade names, domain names, copyrights, formulas, designs, trade secrets, confidential and proprietary information, proprietary rights, know-how and processes of a company. Each Group Company owns or has a valid right to use all the Proprietary Assets necessary for its business as now conducted and as proposed to be conducted and, to the best knowledge of each Key Shareholder, without any conflict with or infringement of any rights of any third

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party. Section 3.9 of the Disclosure Schedule contains a complete list of Proprietary Assets of each Group Company. There are no outstanding options, licenses or agreements of any kind granted by any Group Company relating to any of its Proprietary Assets, nor is any Group Company bound by or a party to any options, licenses or agreements of any kind with respect to the Proprietary Assets of any other person or entity, except, in either case, for standard end-user agreements with respect to commercially readily available intellectual property such as “off the shelf” computer software. No Group Company has received any communications alleging that it has violated or, by conducting its business as proposed, would violate any Proprietary Assets of any other person or entity, nor, to the best knowledge of each Key Shareholder, are there any potential allegations or any reasonable basis for any actual or potential allegations. Each Group Company is not aware that any of its officers, employees or consultants is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his, her or its best efforts to promote the interests of such Group Company or that would conflict with the business of such Group Company as proposed to be conducted or that would prevent such officers, employees or consultants from assigning to such Group Company any and all inventions conceived or reduced to practice in connection with services rendered to such Group Company. Neither the execution nor delivery of this Agreement, the Shareholders Agreement and any Ancillary Agreement, nor the carrying on of the business of any Group Company by its employees, nor the conduct of the business of any Group Company as proposed, will, to the best knowledge of each Key Shareholder, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. No Group Company needs to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to or outside the scope of their employment by such Group Company for the purpose of conducting its business or proposed business.

3.10. Material Contracts and Obligations. All agreements, contracts, leases, licenses, instruments, commitments (oral or written), indebtedness, liabilities and other obligations to which each Group Company is a party or by which it is bound that (i) are material to the conduct and operations of its business and properties, (ii) involve any of the officers, consultants, directors, employees or shareholders of the Group Company; or (iii) obligate such Group Company to share, license or develop any product or technology, are listed in Section 3.10 of the Disclosure Schedule and have been made available for inspection by the Investor and its counsel. For purposes of this Section 3.10. “ material” shall mean (i) having an aggregate value, cost or amount, or imposing liability or contingent liability on any Group Company, in excess of US$50,000 or that extend for more than one year beyond the date of this Agreement, (ii) not terminable upon thirty (30) days notice without incurring any penalty or obligation, (iii) containing exclusivity, non-competition, or similar clauses that might impair, restrict or impose conditions on any Group Company’s right to offer or sell products or services in specified areas, during specified periods, or otherwise, (iv) not in the ordinary course of business, or (v) transferring or licensing any Proprietary Assets to or from any Group Company (other than licenses from commercially readily available “off the shelf” computer software).

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3.11. Litigation. There is no action, suit, proceeding, claim, arbitration or investigation (“Action”) pending (or, to the best knowledge of the Company and each Key Shareholder) or currently threatened against any of the Group Companies, any Group Company’s activities, properties or assets or , to the best knowledge of the Company and each Key Shareholder, against any officer, director or employee of each Group Company in connection with such officer’s, director’s or employee’s relationship with, or actions taken on behalf of the Company. To the best knowledge of the Company and each Key Shareholder, there is no factual or legal basis for any such Action that is likely to result, individually or in the aggregate, in any material adverse change in the business, properties, assets, financial condition, affairs or prospects of any Group Company. By way of example, but not by way of limitation, there are no Actions pending against any of the Group Companies or, to the best knowledge of the Company and each Key Shareholder, threatened against any of the Group Companies, relating to the use by any employee of any Group Company of any information, technology or techniques allegedly proprietary to any of their former employers, clients or other parties. No Group Company is a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality and there is no Action by any Group Company currently pending or which it intends to initiate.

3.12. Disclosure. Each of the Company and Key Shareholders has, in good faith, fully provided the Investor with all the information that the Investor has reasonably requested for deciding whether to purchase the Purchase Shares and all information that the Company believes is reasonably necessary to enable the Investor to make such decision. No representation or warranty by the Company or any Key Shareholder in this Agreement and no information or materials provided by the Company, the PRC Subsidiary or any Key Shareholder to the Investors in connection with the negotiation or execution of this Agreement contains any untrue statement of a material fact or intentionally omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they are made, not misleading.

3.13. Registration Rights. Except as provided in the Shareholders Agreement, the Company has not granted or agreed to grant any person or entity any registration rights (including piggyback registration rights), nor is the Company obliged to list any of its shares on any securities exchange. To the best knowledge of the Company, except as contemplated under this Agreement, the Shareholders Agreement and the Restated Articles, no voting or similar agreements exist related to the Company’s securities which are presently outstanding or that may hereafter be issued.

3.14. Financial Statements. Each of the Company and Key Shareholders hereby represents and warrants that prior to the Closing, the Company shall have delivered to the Investor the consolidated balance sheet

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and income statement (the foregoing financial statements and any notes thereto are hereinafter referred to as the “Financial Statements” ) as of March 31, 2006 (the “Balance Sheet Date”). Such Financial Statements (a) are in accordance with the books and records of the applicable Group Company, (b) are true, correct and complete and present fairly in all material aspects the financial condition of such Group Company at the date or dates therein indicated and the results of operations for the period or periods therein specified, and (c) have been prepared in accordance with US generally accepted accounting principles applied on a consistent basis, except as to the unaudited consolidated financial statements, for the omission of notes thereto and normal year-end audit adjustments. Specifically, but not by way of limitation, the respective balance sheets of the Financial Statements disclose all of the respective Group Company’s material debts, liabilities and obligations of any nature, whether due or to become due, as of their respective dates (including, without limitation, absolute liabilities, accrued liabilities, and contingent liabilities) to the extent such debts, liabilities and obligations are required to be disclosed in accordance with the US/PRC generally accepted accounting principles. Each Group Company has good and marketable title to all assets set forth on the balance sheets of the respective Financial Statements, except for such assets as have been spent, sold or transferred in the ordinary course of business since their respective dates. Except as disclosed in the Financial Statements, none of the Group Companies is a guarantor or indemnitor of any indebtedness of any other person or entity. Each Group Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles.

3.15. Activities Since Balance Sheet Date. Since the Balance Sheet Date, with respect to any Group Company, there has not been:

(a) any material change in the assets, liabilities, financial condition or operating results of such Group Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse;

(b) any material change in the contingent obligations of such Group Company by way of guarantee, endorsement, indemnity, warranty or otherwise;

(c) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of such Group Company (as presently conducted and as presently proposed to be conducted);

(d) any waiver by such Group Company of a valuable right or of a material debt;

(e) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by such Group Company, except such satisfaction, discharge or payment made in the ordinary course of business that is not material to the assets, properties, financial condition, operating results or business of such Group Company;

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(f) any material change or amendment to a material contract or arrangement by which such Group Company or any of its assets or properties is bound or subject, except for changes or amendments which are expressly provided for or disclosed in this Agreement;

(g) any material change in any compensation arrangement or agreement with any present or prospective employee, contractor or director not approved by such Group Company’s Board of Directors or comparable governing body;

(h) any sale, assignment or transfer of any Proprietary Assets or other material intangible assets of such Group Company (other than in the ordinary course of business);

(i) any resignation or termination of any key officer or employee of such Group Company;

(j) any mortgage, pledge, transfer of a security interest in, or lien created by such Group Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable;

(k) any debt, obligation, or liability incurred, assumed or guaranteed by such Group Company individually in excess of US$25,000 or in excess of US$50,000 in the aggregate;

(l) any declaration, setting aside or payment or other distribution in respect of any of such Group Company’s share capital, or any direct or indirect redemption, purchase or other acquisition of any of such share capital by such Group Company other than the repurchase of share capital from employees, officers, directors or consultants pursuant to agreements approved by the Board of Directors of such Group Company under which such Group Company has the option to repurchase such shares at cost upon the occurrence of certain events, such as termination of employment or consulting relationship;

(m) any failure to conduct business in the ordinary course, consistent with such Group Company’s past practices that would cause material and adverse impact on the Group Companies;

(n) any transactions with any of its officers, directors or employees, or any members of their immediate families, or any entity controlled by any of such individuals, which adversely affect the interests of the Group Companies;

(o) any other event or condition of any character which would materially and adversely affect the assets, properties, financial condition, operating results or business of such Group Company; or

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(p) any agreement or commitment by such Group Company to do any of the things described in this Section.

3.16. Liabilities. Except for the matters as disclosed in the Section 3.16 of the Disclosure Schedule, no Group Company has any material indebtedness or liability for borrowed money that it has directly or indirectly created, incurred, assumed, or guaranteed, or with respect to which the Group Company has otherwise become directly or indirectly liable.

3.17. Operational Information. Each of the Company and Key Shareholders hereby represents and warrants that all the operational information in relation to the Company, such as average number of online players, peak online players, registered users of the casual games, etc., provided by the Company to the Investor are true, correct and complete as of the date hereof.

3.18. Tax Matters. The provisions for taxes in the respective Financial Statements are sufficient for the payment of all accrued and unpaid applicable taxes of the covered Group Company, whether or not assessed or disputed as of the date of each such balance sheet. There have been no examinations or audits of any tax returns or reports by any applicable governmental agency. Each Group Company has duly filed all tax returns required to have been filed by it and paid all taxes shown to be due on such returns. Each Group Company is not subject to any waivers of applicable statutes of limitations with respect to taxes for any year. Since Balance Sheet Date, none of the Group Companies has incurred any taxes, assessments or governmental charges other than in the ordinary course of business and each Group Company has made adequate provisions on its books of account for all taxes, assessments and governmental charges with respect to its business, properties and operations for such period.

3.19. Interested Party Transactions. Except for transactions in the ordinary course of the business of a Group Company and as disclosed in Section 3.19 of the Disclosure Schedule, to the best knowledge of each Key Shareholder, no officer or director of a Group Company of any such person has any material agreement, understanding, proposed transaction with, or is indebted to, any Group Company, nor is any Group Company indebted (or committed to make loans or extend or guarantee credit) to any of them (other than for accrued salaries, reimbursable expenses or other standard employee benefits). No officer or director of a Group Company has any direct or indirect ownership interest in any firm or corporation with which a Group Company is affiliated or with which a Group Company has a business relationship, or any firm or corporation that competes with a Group Company, except that any of the foregoing persons may have record ownership interest in the Company or own shares in publicly traded companies that may compete with a Group Company, and no officer or director of a Group Company has had, either directly or indirectly, a material interest in: (a) any person or entity which purchases from or sells, licenses or furnishes to a Group Company any goods, property, intellectual or other property rights or services; or (b) any contract or agreement to which a Group Company is a party or by which it may be bound or affected.

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3.20. Environmental and Safety Laws. To the best knowledge of the Company and each Key Shareholder, none of the Group Companies is in violation of any applicable statute, law, or regulation relating to the environment or occupational health and safety and no material expenditures are or will be required in order to comply with any such existing statute, law or regulation.

3.21. No Other Business. The Company was formed solely to engage in the online gaming and related services through its PRC Subsidiaries and the Affiliated Company (“Principal Business”) and since its formation has not engaged in any other business and has not incurred any liability except in the ordinary course of its business of acquiring and holding its equity interest in the Subsidiaries. Other than the principal businesses of the Group Company, which are the online gaming and related services, none of the Subsidiaries and the Affiliated Company has engaged in any business.

3.22 Budget. The budget to be delivered prior to the Closing is prepared based on reasonable business assumptions. Based on our current knowledge, the Company and management expect that the Company will be able to deliver operational and financial results outlined by its current budget under normal business circumstances.

3.23. Minute Books. The minute books of each Group Company made available to the Investor contain a complete summary of all meetings and actions taken by directors and shareholders or owners of such Group Company since its time of formation, and reflect all transactions referred to in such minutes accurately in all material respects.

4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

The Investor represents and warrants to the Company as follows:

4.1. Authorization. The Investor has all requisite power, authority and capacity to enter into this Agreement and the Shareholders Agreement, and to perform its obligations under this Agreement and the Shareholders Agreement. This Agreement has been duly authorized, executed and delivered by such Investor. This Agreement and the Shareholders Agreement, when executed and delivered by the Investor, will constitute valid and legally binding obligations of such Investor, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors’ rights generally and to general equitable principles.

4.2. Purchase for Own Account. The Purchase Shares and the Conversion Shares will be acquired for the Investor’s own account, not as a nominee or agent, and not with a view to or in connection with the sale or distribution of any part thereof, and the Investor does not have a present intention of selling, granting any participation in, or otherwise distributing the same.

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4.3 Investment Experience. To the best knowledge of the Investor, the Investor (i) is an “accredited investor” as that term is defined in Rule 501(a) promulgated under the Securities Act, (ii) is an investor experienced in the evaluation of businesses similar to the Company, (iii) is able to fend for itself in the transactions contemplated by this Agreement, the Shareholders Agreement and the Ancillary Agreements, (iv) has such knowledge and experience of financial, business and investment matters as to be capable of evaluating the merits and risks of this investment, (v) has the ability to bear the economic risks of this investment, and (vi) was not organized or reorganized for the specific purpose of acquiring the Series A Shares.

4.4 Rule 144. To its best knowledge, the Investor acknowledges that Purchase Shares and Conversion Shares must be held indefinitely unless subsequently registered under the Securities Act or under the securities laws of the relevant jurisdiction or unless an exemption from such registration is available, and the Investor is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited public resale of shares purchased in a private placement subject to the satisfaction of certain conditions.

4.5 Disclosure of Information. To the best knowledge of the Investor, it is not a U.S. person, it is acquiring the Purchase Shares in an “offshore transaction” (as defined under Rule 902 of Regulation S) and it has not offered or sold, and does not currently anticipate selling any Series A Shares, the Purchase Shares and the Conversion Shares within the United States except in accordance with Rule 904 of Regulation S under the Securities Act and, that neither it nor any of its Affiliates has engaged in any directed selling efforts with respect to such shares. Terms used herein shall have the meanings given to them by Regulation S under the Securities Act.

4.6 No Public Market. To its best knowledge, the Investor understands that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.

4.7 Tax Liability. To its best knowledge, the Investor has reviewed with its own tax advisors consequences of this investment and the transactions contemplated by this Agreement, the Shareholders Agreement and the Ancillary Agreements, and the Investor understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement and the Shareholders Agreement.

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5. COVENANTS OF THE COMPANY AND THE KEY SHAREHOLDERS.

The Company and the Key Shareholders covenant to the Investor as follows:

5.1. Use of Proceeds from the Sale of Purchase Shares. The Company shall use the the entire USD 15,000,000 proceeds (less reasonable expenses) from the sale of the Purchase Shares only for product development, strategic acquisitions and general working capital in the Principal Business.

5.2. Business of the Company. The business of the Company shall be restricted to engaging in the Principal Business .

5.3. Business of the Subsidiaries and Affiliated Company. The business of the Subsidiaries and the Affiliated Company shall be restricted to engaging in the online gaming and related services.

5.4. Employee Vesting. The Company shall not directly or indirectly issue Ordinary Shares, share options or other forms of equity of the Company to employees, directors or consultants except in accordance with incentive equity plans approved by the Board of Directors of the Company and relevant Shareholders and in accordance with the Shareholders Agreement and the Restated Articles.

5.5. Filing of Restated Articles. The Company shall file, or cause to be filed, the Restated Articles with the British Virgin Islands Registrar of Companies as soon as practicable following the Closing.

5.6. Increase of Registered Capital. Each of the Company and the Key Shareholders shall use its best efforts to obtain, or cause to be obtained, the necessary PRC governmental approvals required for the increase of registered capital of the PRC Subsidiary as soon as practicable following the date of this Agreement.

5.7. Additional Covenants. Except as required by this Agreement, no resolution of the directors, owners, members, partners or shareholders of any Group Company shall be passed, nor shall any contract or commitment be entered into, in each case, prior to Closing without the written consent of the Investor, except that the Group Companies may carry on its respective business in the same manner as heretofore and may pass resolutions and enter into contracts for so long as they are effected in the ordinary course of business.

If at any time before Closing, the Company or any Key Shareholder comes to know of any fact or event which:

(a) is in any way materially inconsistent with any of the representations and warranties given by the Company or the Key Shareholders, and/or

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(b) suggests that any fact warranted may not be as warranted or may be misleading the Company and the Key Shareholders shall give immediate written notice thereof to the Investor, in which event the Investor may within fourteen (14) business days of receiving such notice terminate this Agreement by a written notice without any penalty whatsoever and without prejudice to any rights that the Investor may have under this Agreement or applicable law.

5.8 Register of Members. The Company shall, as soon as possible, provide the Investor with a copy of the Company’s register of members, certified by the Chairman of the Company as true and complete as of the date of the Closing, updated to show such Investor as the holder of its respective number of Purchase Shares.

5.9 No Action. Prior to the Closing, neither the Company nor any Key Shareholder will take any actions that will make any representation or warranty in Article 3 untrue, incorrect or misleading.

6. CONDITIONS TO INVESTORS’ OBLIGATIONS AT THE CLOSING.

The obligation of the Investor to purchase the Purchase Shares at the Closing is subject to the fulfillment or the written waiver, on or prior to the Closing, of all of the following conditions:

6.1. Representations and Warranties True and Correct. Any and all the representations and warranties made by the Company and the Shareholders in Section 3 hereof shall be true and correct and complete when made, and shall be true and correct and complete as of Closing with the same force and effect as if they had been made on and as of such date, subject to changes contemplated by this Agreement.

6.2. Performance of Obligations. Each of the Company, the PRC Subsidiary and each Key Shareholder shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing.

6.3. Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated hereby and all documents and instruments necessary for conducting such transactions (including relevant resolutions passed by the board of directors, shareholders’ meeting of the Company approving the share acquisition and authorizing the execution of this Agreement and other documents that might be required by applicable law).

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6.4. Approvals, Consents and Waivers. Exception for those as disclosed in Section 3.6 of the Disclosure Schedule, each Group Company shall have obtained, any and all approvals, consents and waivers necessary for consummation of the transactions contemplated by this Agreement, including, but not limited to (i) all permits, authorizations, approvals, verifications, consents, permits or registrations of any governmental authority or regulatory body, and (ii) the waiver by the existing shareholders of the Company of any anti-dilution rights, rights of first refusal, preemptive rights and all similar rights in connection with the issuance of the Purchase Shares.

6.5. Compliance Certificate. At the Closing, the Company shall deliver to the Investor certificates, dated the date of Closing, signed by the Company’s President or director, certifying that the conditions specified in Sections 6 have been fulfilled and stating, where applicable, that there shall have been no material adverse change in the business, affairs, prospects, operations, properties, assets or condition of the Company and the PRC Subsidiaries since the Balance Sheet Date.

6.6. Securities Laws. The offer and sale of the Purchase Shares to the Investor pursuant to this Agreement shall be exempt from the registration and/or qualification requirements of all applicable securities laws in the United States, the BVI and Singapore.

6.7. Amendment to Constitutional Documents. The Restated Articles shall have been duly adopted by the Company by all necessary corporate action of its Board of Directors and its shareholders and duly filed with the British Virgin Islands Registrar of Companies.

6.8. Execution of Shareholders Agreement. The Company shall have delivered to the Investor the Shareholders Agreement, duly executed by the Company and all other parties thereto.

6.9. Employee Vesting. All of the share options of the Company issued to the employees, directors and consultants of the Company prior to the Closing, if any, shall have been issued subject to vesting or repurchase by the Company over [three (3)] years or other reasonable period as approved by the Board of Directors.

6.10. Confidential Information and Invention Assignment Agreements. Each key officer and employee, as designated by the Investor and set forth in Exhibit E hereto, shall have entered into a Confidential Information and Invention Assignment Agreement.

6.11. Good Standing. The Investor shall have received a certificate of good standing issued by the Registrar of Companies of the British Virgin Islands certifying that, among other things, the Company was duly constituted, paid all required fees and is in good legal standing.

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6.12. Due Diligence. The Investor shall have completed its legal, financial and business due diligence investigation of all Group Companies to its reasonable satisfaction.

6.13. Board of Directors. At the Closing, the Board of Directors of the Company shall consist of the following persons: Jim Wang, Joe Teng, Bo Feng and Tao Feng.

6.14. Directors of Subsidiaries. All necessary actions shall have been taken to ensure that all the directors of each subsidiary to be appointed by the Company shall be appointed by the Board of Directors of the Company.

6.15. Annual Budget. The Company shall have completed and provided the Investor with a detailed annual budget satisfactory to the Investor pursuant to the business plan provided to the Investors.

7. CONDITIONS TO THE COMPANY’S OBLIGATIONS AT THE CLOSING

The obligations of the Company to the Investor under this Agreement are subject to the fulfillment or written waiver on or before the Closing of each of the following conditions:

7.1 Representations and Warranties. The representations and warranties of the Investor contained in Section 4 shall be true and complete on the date of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing.

7.2 The Shareholders Agreement. The Investor shall have executed and delivered the Shareholders Agreement to the Company.

7.3 Restated Articles. The Investor shall have executed and delivered the Shareholders Agreement to the Company.

7.4 Good Standing. The Investor shall deliver to the Company a certificate of good standing by the Registrar of Companies of the BVI certifying that, among other things, the Investor was duly incorporated, paid all required fees and is in good legal standing.

7.5 Approvals. The receipt of any necessary approval of this Agreement, the Shareholders Agreement and the transactions contemplated herein or therein from the Board of Directors of the Investor.

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8. MISCELLANEOUS

8.1. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to provisions regarding choice of laws or conflict of laws.

8.2. Survival. The representations, warranties, covenants and agreements made herein shall survive the closing.

8.3. Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto whose rights or obligations hereunder are affected by such amendments. This Agreement and the rights and obligations therein may not be assigned by any Investor without the written consent of the Company except to a parent corporation, a subsidiary or an affiliate. This Agreement and the rights and obligations therein may not be assigned by one party without the written consent of all other parties.

8.4. Entire Agreement. This Agreement, the Shareholders Agreement, any Ancillary Agreements, and the schedules and exhibits hereto and thereto, which are hereby expressly incorporated herein by this reference constitute the entire understanding and agreement between the parties with regard to the subjects hereof and thereof; provided, however, that nothing in this Agreement or related agreements shall be deemed to terminate or supersede the provisions of any confidentiality and nondisclosure agreements executed by the parties hereto prior to the date hereof, which agreements shall continue in full force and effect until terminated in accordance with their respective terms.

8.5. Notices. Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Agreement shall be in writing and shall be conclusively deemed to have been duly given (a) when hand delivered to the other party; (b) when sent by facsimile at the number set forth in Exhibit E hereto; (c) seven (7) business days after deposit in the mail as air mail or certified mail, receipt requested, postage prepaid and addressed to the other party as set forth in Exhibit E ; or (d) three (3) business days after deposit with an overnight delivery service, postage prepaid, addressed to the parties as set forth in Exhibit E with next business-day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery service provider.

Each person making a communication hereunder by facsimile shall promptly confirm by telephone to the person to whom such communication was addressed each communication made by it by facsimile pursuant hereto but the absence of such confirmation shall not affect the validity of any such communication. A party may change or supplement the addresses given above, or designate additional addresses, for purposes of this Section 8.5 by giving, the other party written notice of the new address in the manner set forth above.

8.6. Amendments and Waivers. Any term of this Agreement may be amended only with the written consent of all the parties.

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8.7. Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to the Company, a Key Shareholder, or the Investor, upon any breach or default of any party hereto under this Agreement, shall impair any such right, power or remedy of the Company, the Key Shareholder, or the Investor nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach of default thereafter occurring; nor shall any waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of the Company, a Key Shareholder, or the Investor of any breach of default under this Agreement or any waiver on the part of the Company, a Key Shareholder, or the Investor of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, or by law or otherwise afforded to the Company, the Key Shareholders, or the Investor shall be cumulative and not alternative.

8.8. Finder’s Fees. Each party (a) represents and warrants to the other party hereto that it has retained no finder or broker in connection with the transactions contemplated by this Agreement, and (b) hereby agrees to indemnify and to hold harmless the other party hereto from and against any liability for any commission or compensation in the nature of a finder’s fee of any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which the indemnifying party or any of its employees or representatives are responsible.

8.9. Interpretation; Titles and Subtitles. This Agreement shall be construed according to its fair language. The rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in interpreting this Agreement. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

8.10. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

8.11. Severability. Should any provision of this Agreement be determined to be illegal or unenforceable, such determination shall not affect the remaining provisions of this Agreement.

8.12. Confidentiality and Non-Disclosure. The parties hereto agree to be bound by confidentiality and non-disclosure obligations

8.13. Further Assurances. Each party shall from time to time and at all times hereafter make, do, execute, or cause or procure to be made, done and executed such further acts, deeds, conveyances, consents and assurances without further consideration, which may reasonably be required to effect the transactions contemplated by this Agreement.

18

8.14. Dispute Resolution.

(a) Negotiation Between Parties; Mediations. The parties agree to negotiate in good faith to resolve any dispute between them regarding this Agreement. If the negotiations do not resolve the dispute to the reasonable satisfaction of all parties, then each party shall nominate a representative (who shall be a senior officer of the rank of Vice President or higher if such party is a business entity). The parties or their representatives, as the case may be, shall, within thirty (30) days of a written request by any party to call such a meeting, meet in person and alone (except for one assistant for each party) and shall attempt in good faith to resolve the dispute. If the disputes cannot be resolved by such representative in such meeting, the parties agree that they shall, if requested in writing by either party, meet within thirty (30) days after such written notification for one day with an impartial mediator and consider dispute resolution alternatives other than formal arbitration. If an alternative method of dispute resolution is not agreed upon within thirty (30) days after the one day mediation, either party may begin formal arbitration proceedings to be conducted in accordance with subsection (b) below. This procedure shall be a prerequisite before taking any additional action hereunder.

(b) Arbitration. In the event the parties are unable to settle a dispute between them regarding this Agreement in accordance with subsection (a) above, such dispute shall he referred to and finally settled by arbitration at the Hong Kong International Arbitration Centre in accordance with the UNCITRAL Arbitration Rules (the “UNCITRAL Rules”) in effect, which rules are deemed to be incorporated by reference into this subsection (b). The arbitration tribunal shall consist of one arbitrator to be appointed according to the UNCITRAL Rules. The language of the arbitration shall be English.

8.15 Expenses. The Company shall not oblige to pay, or reimburse the Investor until and only upon Closing, its legal expenses associated with the transaction contemplated under this Agreement and incurred by the Investor up to US$80,000, which amount shall be deducted from the Purchase Consideration.

8.16. Termination. This Agreement may be terminated by any party that has not materially breached its representations, warranties or covenants hereunder on or after May 31, 2006, by written notice to the other parties, if the Closing has not occurred on or prior to the time of such termination. Such termination under this Section 8.16 shall be without prejudice to any claims for damages or other remedies that the parties may have under this Agreement or applicable law.

— REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK —

19

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date herein above first written.

T2CN HOLDING LIMITED
By:
Name:	Jun-Tse TENG
Title:	Chief Executive Officer
GIGAMEDIA CHINA LIMITED
By:
Name:	Arthur WANG
Title:	Chief Executive Officer
CHENGWEI (CHINA) INVESTMENT COMPANY
By:
Name:	Bo FENG
Title:	Authorized Representative
Ji WANG
Signed:
Yanqing LI
Signed:
Jun-Tse TENG
Signed:

20

William ZHU
Signed:
Yu-Chia LEE
Signed:
Weigang YE
Signed:
NEWMARGIN T2CN INVESTMENT LTD.
By:
Name:	Tao FENG
Title:	Authorized Representative
KINGLAND OVERSEAS DEVELOPMENT INC.
By:
Name:	Jun-Tse TENG
Title:	Authorized Representative

21

LIST OF EXHIBITS

Exhibit A	Schedule of Key Shareholders
Exhibit B	Schedule of Subsidiaries and Affiliates
Exhibit C	Restated Articles
Exhibit D	Disclosure Schedule
Exhibit E	Form of Shareholders Agreement
Exhibit F	Notices

22

EXHIBIT A: Schedule of Key Shareholders

Full Name	Share Number	Shareholding Percentage
Chengwei (China) Investment Company	4,774,000	14.95	%
Ji WANG	1,708,200	5.35	%
Yanqing LI	832,200	2.61	%
Jun-Tse TENG	457,245	1.43	%
William ZHU	1,000,000	3.13	%
Yu-Chia LEE	300,000	0.94	%
Weigang Ye	200,000	0.63	%
NEWMARGIN T2CN INVESTMENT LTD.	3,035,715	9.51	%
KINGLAND OVERSEAS DEVELOPMENT INC.	5,964,285	18.68	%

23

EXHIBIT B: Schedule of Subsidiaries and Affiliates

T2CN Information Technology (Shanghai) Co., Ltd. (“T2 Information”)

Date of Incorporation: Nov. 22, 2004

Place of Incorporation: Zhangjiang High-tech Park, Shanghai

Corporate Form: Limited Liability

Registered Capital: USD 2.5 million

The ownership percentage held by the Company: 100%

Principal Business: Design, Development, Manufacture of Computer Software;

Sale of Self-Products; Design, Development of Computer Hardware; Technical

Consultation and Technical Service.

J-Town Information Technology Co., Ltd. (“J-Town”)

Date of Incorporation: Oct. 11, 2005

Place of Incorporation: Zhangjiang High-tech Park, Shanghai

Corporate Form: Limited Liability

Registered Capital: USD 1.5 million

The ownership percentage held by the Company: 65%

Principal Business: Design, Manufacture of Software; Sale of Self-Products;

System Integration; Technical Consultation and Technical Service; Commercial

Service.

Shanghai T2 Entertainment Co., Ltd. (“T2 Entertainment”)

Date of Incorporation: Oct. 8, 2004

Place of Incorporation: No. 88, Qinjiang Road, Shanghai

Corporate Form: Limited Liability

Registered Capital: RMB 1 million

The ownership percentage held by the Company: N/A

Principal Business: Technical Development, Service, Transfer, Train, etc. of

Computer Software and Hardware and Others.

T2 Information and J-Town are together referred to as the “PRC Subsidiaries” in this Agreement and each, a “PRC Subsidiary”. T2 Entertainment is referred to as the “Affiliated Company”.

24

EXHIBIT C:	Restated Articles
	(Intentionally deleted)

25

EXHIBIT D: Disclosure Schedule

3.3(c) The list of existing shareholders of the Company as of the date of the Agreement:

Full Name	Share Number	Shareholding Percentage
Chengwei (China) Investment Company	4,774,000	14.95	%
Ji WANG	1,708,200	5.35	%
Yanqing LI	832,200	2.61	%
Bin ZHENG	194,755	0.61	%
Fei ZHANG	233,600	0.73	%
Jun-Tse TENG	457,245	1.43	%
Zhigang Li	1,000,000	3.13	%
William ZHU	1,000,000	3.13	%
Ye JIN	250,000	0.78	%
Yu-Chia LEE	300,000	0.94	%
Weigang Ye	200,000	0.63	%
NEWMARGIN T2CN INVESTMENT LTD.	3,035,715	9.51	%
KINGLAND OVERSEAS DEVELOPMENT INC.	5,964,285	18.68	%
THE CALNEVA FINANCIAL GROUP, LTD. BRYAN M. DEAR	700,002	2.19	%
MICHELLE COTE-DEAR	200,000	0.63	%
TANDOOR HOLDINGS LTD.	200,000	0.63	%
JACQUELINE J. McCLURE	300,000	0.94	%
KEITH LIM INC.	100,000	0.31	%
D. BRUCE HORTON	850,000	2.66	%
T. ROBERT HORTON	150,000	0.47	%
BRADLEY N. SCHARFE	850,000	2.66	%
JASON SCHARFE	49,999	0.16	%
GUY PECKHAM	500,000	1.57	%
BELTRING LIMITED	300,000	0.94	%
THE CALNEVA FINANCIAL GROUP, LTD.	282,497	0.88	%
HAMPTON ASSOCIATES LIMITED	500,000	1.57	%
JETCO HOLDINGS LTD.	300,000	0.94	%
RICHARD DOUGLAS STEWART	100,000	0.31	%
622416 ALBERTA LTD.	28,000	0.09	%
GEORGE C. ROBERTSON	65,000	0.20	%
ROBERT C. BARTON	100,000	0.31	%
STEVE THACKRAY	10,000	0.03	%
DONALD R. MACSORLEY	26,667	0.08	%

26

Full Name	Share Number	Shareholding Percentage
JAMES S. BARTON	100,000	0.31	%
RONNIE STEINER TRAVEL TOURS INC.	10,000	0.03	%
THE MACLACHLAN INVESTMENTS CORPORATION	133,333	0.42	%
RON JONES LTD.	50,000	0.16	%
JOHN MICHAEL KEEGAN	15,000	0.05	%
BRUNO BENEDET JR.	40,000	0.13	%
DARYL TURNER	40,000	0.13	%
ELLIOTT J. LIPSEY	33,333	0.10	%
ERIC K. STEWART	6,666	0.02	%
VERONA CAPITAL INTERNATIONAL	66,667	0.21	%
MATRIX PARTNERS, INC.	133,333	0.42	%
HUGH COOPER	66,667	0.21	%
LEONARD CLOUGH	28,533	0.09	%
KYUNG W. LEE, TRUSTEE	20,000	0.06	%
EASTSIDE PINNACLE, LLC	26,667	0.08	%
MICHEAL R. MUZOS	6,000	0.02	%
MARTIN S. ROOD	20,000	0.06	%
MON SZETO	6,000	0.02	%
KATHLEEN WRIGHT	6,667	0.02	%
KATHLEEN WRIGHT ROTH IRA	6,667	0.02	%
KC GLOBAL HOLDINGS INC.	53,333	0.17	%
ROBERT J. CHARLETON	50,000	0.16	%
DR. BRANDT MILES INC.	10,000	0.03	%
R.J. LABONTE & CO. LTD.	12,000	0.04	%
UNITED TRIUMP INC.	53,334	0.17	%
DEAN WILLIAMS	26,667	0.08	%
RICK GRIFFITHS	13,333	0.04	%
JAMES PALEOLOGOS	80,000	0.25	%
VALEURS MOBILIERES DEJARDINS INC. ITF ROXY AND BEAR INVESTMENT	200,000	0.63	%
JEFFREY SHEAR	366,667	1.15	%
MICHAEL SHEAR	166,667	0.52	%
SHEAR HOLDINGS LIMITED	133,334	0.42	%
BIXBIE FINANCIAL CORP.	267,000	0.84	%
WALLY MARCOLIN	10,000	0.03	%
BRAD SHACKMAN	10,000	0.03	%
RICHARD JEFFREY	10,000	0.03	%
WINTON CAPITAL HOLDINGS LTD.	250,000	0.78	%
DAVID L. DREYER	10,000	0.03	%

27

Full Name	Share Number	Shareholding Percentage
BRENDAN G. MURRAY	10,000	0.03	%
EVAN S. HO	10,000	0.03	%
GRAHAM WATSON	15,000	0.05	%
DEAN ROOSDAHL	15,000	0.05	%
EDWARD MITCHUK	1,000	0.00	%
ROCKY J. PAOLO	25,000	0.08	%
ALEXANDER WONG	10,000	0.03	%
LORINDA HOYEM	10,000	0.03	%
619476 B.C. LTD.	15,000	0.05	%
JOHN MICHAEL KEEGAN	13,334	0.04	%
Ernest S. Pounder	13,334	0.04	%
Norma Vandenberg	10,000	0.03	%
David Vandenberg	10,000	0.03	%
Shane Pierce	10,000	0.03	%
Terry Bonneschranz	1,000	0.00	%
Jay Browne	500	0.00	%
Steve Pippy	2,200	0.01	%
Austin J. Pippy	400	0.00	%
Robert Vanoverschot	1,000	0.00	%
Brenda Leighton	2,500	0.01	%
Harold Leighton	2,500	0.01	%
Marvin D. Kristoff	500	0.00	%
Caroline Farrell	1,000	0.00	%
Troy Leighton	1,000	0.00	%
Ryan Leighton	1,000	0.00	%
Kerri Leighton	1,000	0.00	%
Concettina Amante	1,700	0.01	%
Rosa Marie Amante	500	0.00	%
Remo Pomponio	500	0.00	%
Donald S. Reitsma	1,000	0.00	%
Mark Storer	500	0.00	%
Barbara A. Barker	1,000	0.00	%
Calvin Thompson	1,500	0.00	%
Conrad Lacker	1,000	0.00	%
Don Gee	1,000	0.00	%
Bruce Biles	10,000	0.03	%
Bruce Biles In Trust For Brodie Biles	2,000	0.01	%
Gerry Caul	5,000	0.02	%

28

Full Name	Share Number	Shareholding Percentage
Dundee Securities Corp. In Trust For Robert Sali	35,000	0.11	%
Byron Hampton	1,000	0.00	%
Ken Nielsen	5,000	0.02	%
Abraham Christopher Fehr	1,000	0.00	%
Eric T. P. Lin	100,000	0.31	%
Jung-His Tan	100,000	0.31	%
Pui Pui Betty Ng	28,000	0.09	%
Yao Fen Angela Hung	50,000	0.16	%
Jao-Juen Hung	150,000	0.47	%
Seung Chong Shin	100,000	0.31	%
Ya-Tsen Lin	50,000	0.16	%
JC Entertainment Corp.	2,000,000	6.26	%
Red Deer Development Company, Ltd.	450,000	1.41	%
F3 Holding Limited	400,000	1.25	%
Yu-Hui Lee	50,000	0.16	%
Wan Jiayi	100,000	0.31	%
Total:	31,928,001	100	%

The Company issued to JC Entertainment Corp. (“JCE”) a warrant which is convertible into 3,000,000 Common Shares in the Company of par value of US$0.01 each, according to a Share Subscription Agreement between the Company and JC Entertainment Corp. dated September 1, 2005.

3.4 List of PRC Subsidiaries and PRC Affiliates:

PRC Subsidiaries:	T2CN Information Technology Co., Ltd.
	J-Town Information Technology Co., Ltd.
PRC Affiliate:	Shanghai T2 Entertainment Co., Ltd.

3.6 Disclosures in relation to compliance with laws and governmental consents.

China currently restricts a foreign invested company to hold ICP license. The Company entrusts PRC natural persons to hold shares of Shanghai T2 Entertainment Co., Ltd. for the purpose of obtaining the ICP license.

Certain existing shareholders of the Company and/or the Affiliated Company have not completed the overseas investment registration requirements at the State Administration of Foreign Exchange.

Newmargin T2CN Investment Ltd. might not have complied with approval and registration requirements with respect to its Investment in the Group Companies and to the consummation of transactions contemplated herein.

29

The above disclosure shall be deemed to be made anywhere relevant in this entire Agreement.

3.9 List of Proprietary Assets

(1) T2 Information:

The domain names listed below are registered in the name of T2 Information:

www.shenmue-online.com.cn

www.t2dk.com

www.t2cn.com

www.fsjoy.com

www.t2uu.com

T2 Information has licensed the domain names to T2 Entertainment for its daily operation.

(2) J-Town:

JCE granted to J-Town the exclusive, non-sub-licensable, non-transferable right and license to manufacture, market, promote, use, distribute, publish and sell the localized Free Style game to subscribers in the PRC.

(3) T2 Entertainment:

The domain names listed below are registered in the name of T2 Information:

www.t2qq.com

www.t2ns.com

3.10 List of Material Contracts

(1) Share Subscription Agreement entered into among the Company, Mr. WANG Ji , Mr. LI Yanqing , Chengwei (China) Investment Company, Mr. ZHENG Bin , Mr. ZHANG Fei , Mr. TENG Jun-Tse , Newmargin T2CN Investment Ltd, and Kingland Overseas Development Inc., dated November 4, 2004;

(2) Investors’ Rights Agreement entered into among the Company, Mr. WANG Ji , Mr. LI Yanqing , Chengwei (China) Investment Company, Mr. ZHENG Bin , Mr. ZHANG Fei ,

30

Mr. TENG Jun-Tse , Newmargin T2CN Investment Ltd, Kingland Overseas Development Inc. and Chengwei (China) Investment Company, dated November 4, 2004;

(3) Service Agreement between the Company and Mr. WANG Ji dated May 7, 2004;

(4) Service Agreement between the Company and Mr. LI Yanqing dated May 7, 2004;

(5) Service Agreement between the Company and Chengwei (China) Investment Company dated May 7, 2004;

(6) Service Agreement between the Company and Mr. TENG Jun-Tse dated May 7, 2004;

(7) Consulting Service Agreement entered into between the Company and TC Entertainment Corporation dated July 4, 2005;

(8) Solution Development Agreement entered into between the Company and TC Entertainment Corporation dated July 11, 2005;

(9) Purchase Agreement entered into between the Company and TC Entertainment Corporation dated August 4, 2005;

(10) Sports Portal Development Agreement entered into between the Company and TC Entertainment Corporation dated November 1, 2005;

(11) Share Subscription Agreement between the Company and JC Entertainment Corp. dated September 1, 2005;

(12) Exclusive Equity Transfer Option Agreement entered into among Feng Tao, Shanghai NewMargin Ventures Capital Co., Ltd. (“Shanghai NM”), T2 Entertainment and the Company dated November 4, 2004;

(13) Voting Rights Proxy Agreement entered into among Feng Tao, Shanghai NM, T2 Entertainment and T2CN Information, dated November 4, 2004;

(14) Operation Agreement entered into among Feng Tao, Shanghai NM, T2 Entertainment and T2CN Information, dated November 4, 2004;

(15) Equity Pledge Agreement entered into among Feng Tao, Shanghai NM and T2CN Information dated November 4, 2004;

31

(16) Exclusive Technical Service and Consultancy Agreement entered into between T2 Entertainment and T2CN Information, dated November 4, 2004;

(17) Novation Agreement entered into among Mr. WANG Ji . Mr. FENG Ta , Shanghai NM, T2 Entertainment and the Company dated May 13, 2005 regarding the original Exclusive Equity Transfer Option Agreement;

(18) Novation Agreement entered into among Feng Tao, WANG Ji, Shanghai NM, T2 Entertainment and T2CN Information, dated June 6, 2005 regarding the original Voting Rights Proxy Agreement;

(19) Novation Agreement entered into among Feng Tao, WANG Ji, Shanghai NM, T2 Entertainment and T2CN Information, dated June 6, 2005 regarding the original Operation Agreement;

(20) Novation Agreement entered into among Mr. WANG Ji . Mr. FENG Tao , Shanghai NM and T2CN Information regarding the original Equity Pledge Agreement dated June 6, 2005;

(21) Nominee Agreement made between Mr. Feng Tao and the Company dated November 4, 2004;

(22) Nominee Agreement made between Mr. Wang Ji and the Company dated May 13, 2005;

(23) Equity Transfer Agreement between Newmargin HappyDigital Investment Partners Inc. (“NHIP”) and the Company regarding the transfer of the equity interest held by NHIP in Chengdu HappyDigital Information & Technology Co., Ltd. (“HappyDigital”), dated December 23, 2005;

(24) Exclusive Software License Agreement between T2 Entertainment and JCE dated August 4, 2005 regarding the online game Free Style;

(25) Purchase Agreement between the Company and JCE dated August 4, 2005 on ten casual online games;

(26) Derivative Merchandise Agreement between the Company and JCE dated September 14, 2005;

(27) Cooperation Agreement between J-Town and T2 Entertainment regarding operation of FreeStyle, dated December 2, 2005;

32

(28) Exclusive Software License Agreement between J-Town and JCE regarding the online game Rush Online, dated October 10, 2004;

(29) Software License Agreement among Sega Corporation, JCE and T2 Entertainment on Shenmue Online, dated October 15, 2004.

3.16 Disclosed liabilities

The Company has an existing loan of USD 500,000 borrowed from Kinland Overseas Development Ltd.

3.19 Interested Party Transaction

a) As disclosed above, the Company has borrowed RMB3.5 million from Kinland Overseas Development Ltd.

b) Those as disclosed in Section 3.10 above.

c) Certain Group Company(ies) has certain transactions with Happy Digital. (The Company will confirm and be more specific.)

33

EXHIBIT E: Form of Shareholders Agreement

34

EXHIBIT F: Notices

1. T2CN HOLDINGS LIMITED

Address: offices of S-HR&M Financial Service Limited of Kingston Chambers. P.O. Box 173, Road Tow, Tortola, British Virgin Islands

Attn: Mr.TENG Jun-Tse

Fax: 8621-54262830

Tel:

2. GIGAMEDIA CHINA LIMITED

Address: Chamber A, 26F, Catic Mansion, No.212 JiangNing Road JingAn District 200041 Shanghai, China

Attn: Hsiang-Jen Chiang

Fax: +86-21-32180117:

Tel: +86-21-52895131

3. CHENGWEI (CHINA) INVESTMENT COMPANY

Address: Scotia Centre, 4th Floor, P.O.Box 2804, George Town Grand Cayman, Cayman Island

Attn: Feng Bo

Fax: 8621-62137000

Tel:

4. Ji WANG

Address: No.94, Dongcheng Road, Hangzhou, Zhejiang Province

Fax: 8621-62137000

Tel:

35

5. Yanqing LI

Address: Room 301, Weat Unit, Block 13, East Guedang District, Hangzhou, Zhejiang Province

Fax: 8621-54262830

Tel:

8. Jun-Tse TENG

Address: Floor 5 No.88, Qingjiang Road, Shanghai, PRC

Fax: 8621-54262830

Tel:

10. William ZHU

Address: 777 Huajiang Road, No. 53 California Garden, Shanghai, P. R. China

Fax: 8621-54262830

Tel:

11. Yu-Chia LEE

Address: 2F., No. 11, Lane 23, Zhongmei 3rd St., Hualien City, Hualien County 970, Taiwan R.O.C.

Fax:

Tel:

12. Weigang YE

Address: 5597 Glenoak .Ct San Jose ..CA.95129.USA

Fax: 8621-62137000

Tel: 8621-62138000

36

13. NEWMARGIN T2CN INVESTMENT LTD.

Address: Drake chambers, Tortola, British Virgin Islands, British Virgin Islands,

Attn: Mr. FengTao

Fax: 8621-62137000

Tel: 8621-62138000

14. KINGLAND OVERSEAS DEVELOPMENT INC.

Address: offices of Arias, Fabrega&Fabrega Trust Co. BVI Limited of Wick hams Cay, Road Town, Tortola, British Virgin Islands

Attn: TENG Jun-Tse

Fax: 86-21-54262830

Tel:

37

Exhibit G Memorandum and Articles of Association of the Company

38

EXHIBIT G: Budget

39

EX-4.37

Exhibit 4.37

SHAREHOLDERS’ AGREEMENT

by and among

T2CN HOLDING LIMITED

- and -

THE SHAREHOLDERS LISTED ON

SCHEDULE 2 HERETO

dated as of

April 27, 2006

1

CONTENTS

Table of Contents

ARTICLE I. DEFINITIONS AND INTERPRETATION	5
SECTION 1.01 Definitions	4
SECTION 1.02 Interpretation	11
ARTICLE II. OBJECTIVES AND CERTAIN UNDERTAKINGS	13
SECTION 2.01 Objectives of the Company	13
SECTION 2.02 Principal Business	13
ARTICLE III. DIVIDEND RIGHTS	13
SECTION 3.01 Dividend Rights	13
ARTICLE IV. BOARD; SHAREHOLDERS' MEETING	13
SECTION 4.01 Board of Directors	13
SECTION 4.02 Shareholders' Meeting	16
ARTICLE V. PROTECTIVE PROVISIONS	17
SECTION 5.01 Protective Provisions for Preferred Shareholders	17
ARTICLE VI. CONVERSION RIGHTS	18
SECTION 6.01 Optional Conversion	18
SECTION 6.02 Automatic Conversion	18
SECTION 6.03 Preferred Share Conversion Price	19
SECTION 6.04 Fractional Shares	23
SECTION 6.05 Reservation of Shares Issuable Upon Conversion	23
SECTION 6.06 Notices	23
SECTION 6.07 Payment of Taxes	23
ARTICLE VII. LIQUIDATION RIGHTS	23
SECTION 7.01 Liquidation Preferences	23
SECTION 7.02 Liquidation on Sale or Merger	24
ARTICLE VIII. INFORMATION AND INSPECTION RIGHTS	24
SECTION 8.01 Delivery of Financial Statements to Preferred Shareholders	24
SECTION 8.02 Financial Statements	24
SECTION 8.03 Inspection	25
ARTICLE IX. RIGHTS OF FIRST REFUSAL; CO-SALE RIGHTS AND TRANSFER RESTRICTIONS	25
SECTION 9.01 General	29
SECTION 9.02 Special Provisions in Relation to the Founders	29
SECTION 9.03 Rights of First Refusal for Key Shareholders	29
ARTICLE X REGISTRATION RIGHTS	29
SECTION 10.01 Demand Registration	29
SECTION 10.02 Piggyback Registrations	31
SECTION 10.03 Procedures	33
SECTION 10.04 Indemnification under Registration Rights	35

2

SECTION 10.05 Additional Undertakings	37
ARTICLE XI. PRE-EMPTIVE RIGHT	40
SECTION 11.01 Pre-emptive Right	40
ARTICLE XII. REDEMPTION RIGHT	41
SECTION 12.01 Redemption Rights of Preferred A Shareholders	41
ARTICLE XIII. AFFILIATED TRANSACTION	41
SECTION 13.01 Affiliated Transactions	41
ARTICLE XIV. Put Option	42
SECTION 14.01 Put Right	42
SECTION 14.02 Net Operating Income	42
ARTICLE XV. ISSUANCE OF ADDITIONAL PREFERRED SHARES	42
SECTION 15.01 Issuance of Additional Preferred Shares based on 2006 Accounts	44
SECTION 15.02 Issuance of Additional Shares based on 2007 Accounts	45
SECTION 15.03 Exercise of Options	45
SECTION 15.04 Net Operating Income	46
ARTICLE XVI. MISCELLANEOUS	47
SECTION 16.01 Insurance	47
SECTION 16.02 Successors and Assigns	47
SECTION 16.03 Cumulative Rights	47
SECTION 16.04 Entire Agreement; Amendments	47
SECTION 16.05 Further Assurance	48
SECTION 16.06 Severability	48
SECTION 16.07 Non-waiver	48
SECTION 16.08 Counterparts	48
SECTION 16.09 Dispute Resolution; Governing Law	48
SECTION 16.10 Effectiveness	49

3

THIS SHAREHOLDERS AGREEMENT (the “Agreement”) is made on 27^th of April, 2006

BY AND AMONG:

1. T2CN HOLDING LTD., a limited liability company organized and existing under the laws of the British Virgin Islands (the “Company”),

2. The key shareholders of the Company listed on Schedule 2 hereof (“Key Shareholders”, as further defined),

3. Certain Ordinary Shareholders of the Company who has/have signed this Agreement prior to the Closing, and

4. GIGAMEDIA CHINA LIMITED, a limited liability company organized and existing under the laws of the British Virgin Islands (“Investor”).

The Company, the Key Shareholders and the Investor may hereinafter, as appropriate, respectively be referred to as a “Party” and collectively be referred to as the “Parties”.

WHEREAS:

(A) The Company is a company incorporated in the British Virgin Islands and the details of the Company as at the date of this Agreement are set out in Schedule 1 hereof; and

(B) The Company, the Preferred Shareholder (as defined below) and the Ordinary Shareholders (as defined below) were parties to a share purchase agreement dated April 27^th, 2006 among the same Parties hereto (the “Series A Share Purchase Agreement”), under which the Company has agreed to issue and allot 7,500,000 Series A Preferred Shares to the Investor.

In consideration of the premises set forth above, the mutual promises and covenants set forth herein and other good and valuable consideration,

IT IS AGREED as follows:

ARTICLE I. DEFINITIONS AND INTERPRETATION

SECTION 1.01 Definitions.

“Additional Shares” as used in Section 6.03(e) hereof, means any Shares to be issued by the Company in subsequent funding transactions, subject to restrictions as provided in Section 6.03(e);

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“Additional Preferred Shares”	as used in Section 6.03(e) hereof, means any Shares issued by the Company;
“Additional Transfer Notice”	has the meaning set forth in Sub-Section 9.01(b)(iii);
“Applicable Securities Law”	means (i) with respect to any offering of securities in the United States of America, or any other act or omission within that jurisdiction, the securities law of the United States, as amended from time to time, including the Exchange Act and the Securities Act, and any applicable law of any state of the United States of America, and (ii) with respect to any offering of securities in any jurisdiction other than the United States of America, or any related act or omission in that jurisdiction, the applicable laws of that jurisdiction;
“Affiliate”	with regard to a given Person, means a Person that controls, is controlled by or is under common control with the given Person. For purposes of this Agreement, except as otherwise expressly provided, when used with respect to any Person, “control” means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “affiliated”, “controlling and “controlled” have meanings correlative to the foregoing;
“Board of Directors”	means the board of directors of the Company;
“Business”	has the meaning set forth in Section 2.01;
“Business Day”	means a day (other than a Saturday or Sunday or national holiday) on which licensed banks are generally open in the PRC for general banking business;
“Closing”	means the Closing under the Series A Share Purchase Agreement;

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“Commission”	means (i) with respect to any offering of securities in the United States of America, the Securities and Exchange Commission of the United States of America or any other federal agency at the time administering the Securities Act, and (ii) with respect to any offering of securities in a jurisdiction other than the United States of America, the regulatory body of the jurisdiction with authority to supervise and regulate the sale of securities in that jurisdiction;
“Company”	means T2CN Holding Limited, a company incorporated in British Virgin Islands, with its registered address at the offices of S-HR&M Financial Services Limited of Kingston Chambers, P.O. Box 173, Road Town, Tortola, BVI, and/or its subsidiaries, where applicable;
“Conversion Price”	has the meaning set forth in Section 6.03;
“Domestic Company”	means T2 Entertainment Co., Ltd., a company incorporated under the laws of the PRC in Shanghai, PRC;
“Effective Conversion Price”	means, with respect to any Ordinary Share Equivalent at a given time, an amount equal to the quotient of (i) the sum of any consideration, if any, received by the Company with respect to the issuance of such Ordinary Share Equivalent and the consideration receivable by the Company, if any, upon the exercise, exchange or conversion of the Ordinary Share Equivalent over (ii) the number of Ordinary Shares issuable upon the exercise, conversion or exchange of the Ordinary Share Equivalent;
“Equity Securities”	means any Ordinary Shares or Ordinary Share Equivalents;
“Form F-3”	means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. Form F-3, as

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	applied in this Agreement, could be either Form F-3, if the Company is deemed a foreign private issuer under the Securities Exchange Act of 1934, as amended, or Form S-3, if the Company is deemed a domestic issuer under such Act;
“Founder”	means such Key Shareholders as listed on Schedule 2-1 hereof;
“GAAP”	means generally accepted accounting principles in the United States of America;
“Group”	means the Company and its Subsidiaries and Affiliate(s);
“Happy Digital”	means a company established in Chengdu City with the Chinese name of ;
“HKIAC”	means Hong Kong International Arbitration Center;
“Holder” or “Holders”	means any person or persons owning or have the right to acquire Registrable Securities including the Founders and the Key Shareholders.
“Initiating Holder”	means, with respect to a request duly made under Section 10.01 or Section 10.02 to register any Registrable Securities, the Holder owning at least twenty five percent (25%) of the Registrable Securities including any Preferred Shareholder holding more than fifty percent (50%) of the Preferred Shares on an as-converted basis initiating such request;
“Issuance Notice”	has the meaning set forth in Section 11.01(b);
“Key Shareholder”	has the meaning set forth in the recitals, including the Founders, the Management and other shareholders listed on Schedule 2 hereof;
“Listing”	means the admission or quotation of the Shares (including the Shares into which any Securities may convert) to the list of a quotation system of a stock exchange;

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“Management”	means such management staff and the Key Shareholder of the Company as listed on Schedule 2-2 hereof;
“New Securities”	shall mean any Equity Securities of the Company to be issued after the closing of the transactions contemplated by the Series A Share Subscription Agreement; provided the term “New Securities” does not include (i) securities issued upon conversion of the Preferred Shares; (ii) securities issued to employees, professional consultants, officers or directors of the Company pursuant to any stock option, stock purchase or stock bonus plan, agreement or arrangement approved by the Board of Directors; (iii) securities issued in a Qualified Public Offering; (iv) securities issued pursuant to the acquisition of another corporation by the Company by merger or by purchase, and (v) securities issued in connection with any stock split, stock dividend or re-capitalization of the Company;
“Ordinary Shareholders”	means any Persons registered in the Company’s register of members as the holder of Ordinary Shares (including but not limited to the Key Shareholders), and the permitted transferees and assigns of such Person;
“Ordinary Shares”	means the Ordinary Shares of the Company with par value of US$0.01 per share;
“Ordinary Share Equivalents”	means warrants, options and rights exercisable for Ordinary Shares and instruments convertible or exchangeable for Ordinary Shares;
“Original Issue Price”	means, as to Series A Preferred Shares, US$2.00 each; or the aggregate amount of issue price based on such price per share;

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“Person”	means any individual, person corporate, corporation, partnership, limited partnership, proprietorship, association, limited liability company, firm, trust, estate or enterprise or entity;
“PRC”	means the People’s Republic of China, for the purpose of this agreement, excluding the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan;
“Preferred Shares”	means the Company’s Series A Preferred Shares with par value of US$0.01 each with the rights and privileges as set forth in the Restated Memorandum and Articles;
“Preferred Shareholder”	means the person(s) registered in the Company’s register of members as the holder of Series A Preferred Shares, and the permitted transferees and assigns of any Preferred Shareholder;
“Qualified Public Offering”	means a firm commitment public offering of Ordinary Shares that has been registered under the relevant securities act and jurisdiction with gross proceeds to the Company of at least US$40,000,000, and in which situation the price of each share shall be at least 2.4 times the purchase price of each Series A Preferred Share;
“Registrable Securities”	means (i) the Preferred Shares, (ii) the Ordinary Shares issuable or issued upon conversion of the Preferred Shares and (iii) any other Ordinary Shares now or later held by any holder of Ordinary Shares including the Key Shareholders;
“Registration”	means a registration effected by preparing and filing a Registration Statement and the declaration or ordering of the effectiveness of that Registration Statement; and the terms “Register” and “Registered” have meanings concomitant with the foregoing;

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“Registration Statement”	means a registration statement prepared on Form F-1, F-2 or F-3 under the Securities Act, or on any comparable form in connection with registration in a jurisdiction other than the United States;
“Remaining Shares”	has the meaning set forth in Section 9.01(b)(iii);
“Restated Memorandum and Articles”	means the Restated Memorandum and Articles of Association of the Company adopted pursuant to a shareholders special resolution of the Company, the form of which is attached as Exhibit 1 hereto;
“Securities”	means shares, equity interests, debentures, stocks, bonds, notes, units, warrants, options, derivative instruments or any other instrument of whatsoever nature which may be converted into and/or give rise to any rights in respect of or relating to shares or any equity interest or any other interests or securities, in or of the Company (or, where applicable, the holding company of the Company);
“Securities Act”	means the United States Securities Act of 1933, as amended;
“Selling Expenses”	means all underwriting discounts and selling commissions applicable to the sale of Registrable Securities pursuant to this Agreement;
“Share”	means a share or, where applicable, Share Equivalent (on as-converted basis) in the share capital of the Company (of whatever class);
“Share Offered by Shareholder”	has the meaning set forth in Section 9.01(b);
“Series A Preferred Shares”	series A preferred shares of par value of US$0.01 each in the capital of the Company;
“Series A Share Purchase Agreement”	has the meaning set forth in the Recitals of this Agreement;
“Shareholder”	means a holder of Share(s) from time to time;

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“Stock Option Pool”	means up to 5,500,000 Ordinary Shares that the Company shall reserve for the issuance of stock option to certain directors, officers, employees, consultants and/or advisors of the Company as the Board of Directors of the Company may approve from time to time;
“Subsidiaries”	means the subsidiaries of the Company from time to time (and each a “Subsidiary”);
“Trade Sale”	means an event where there shall be any offer or undertaking for the sale of all or substantially all of the equity or assets of the Company;
“Transfer”	has the meaning set forth in Section 9.01(b);
“Transfer Notice”	has the meaning set forth in Section 9.01(b);
“Transferor”	has the meaning set forth in Section 9.01(b);
“US and United States”	means the United States of America;
“United States Dollars and US$”	means the lawful currency of the US;
“Violation”	has the meaning set forth in Section 10.04(a)(i);

SECTION 1.02 Interpretation. For all purposes of this Agreement, except as otherwise expressly provided:

(i) the terms defined in this Section 1 shall have the meanings assigned to them in this Section 1 and include the plural as well as the singular;

(ii) references to a Shareholder shall include references to his successors or permitted assignees;

(iii) all accounting terms not otherwise defined herein have the meanings assigned under GAAP;

(iv) all references in this Agreement to designated “Sections” and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement;

(v) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms;

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(vi) the words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision; and

(vii) all references in this Agreement to designated Schedules, Exhibits and Annexes are to the Schedules, Exhibits and Annexes attached to this Agreement unless explicitly stated otherwise.

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ARTICLE II. OBJECTIVES AND CERTAIN UNDERTAKINGS

SECTION 2.01 Objectives of the Company. The objectives of the Company are, to directly or indirectly engage in the Internet online gaming and other related services (the “Business”).

SECTION 2.02 Principal Business. The principal business of the Group shall be the Business, unless it is changed in accordance with the provisions herein.

ARTICLE III. DIVIDEND RIGHTS

SECTION 3.01 Dividend Rights. No dividend shall be paid out unless approved by an unanimous resolution by all the members of the Board of Directors. The Preferred Shareholder shall be entitled to receive, out of funds legally available therefore, cumulative dividends accrued at the rate of 8% per share per annum prior and in preference to the Ordinary Shareholders or any other class of shareholders of the Company on an as-converted basis. Accrued dividends shall be payable in cash or, at the election of the Preferred Shareholder, be converted into Ordinary Shares at the then effective Conversion Price for the Series A Preferred Shares.

ARTICLE IV BOARD; SHAREHOLDERS’ MEETING

SECTION 4.01 Board of Directors. (a) The number of Persons comprising the Board of Directors shall be five (5). The authorized number of directors may not be changed except by an amendment to the Restated Memorandum and Articles. So long as at least 50% of the Preferred Shares are outstanding, the Preferred Shareholder shall be entitled to elect one (1) director of the Board. Board quorum shall consist of three (3) directors.

(b) Any Board resolutions shall require a simple majority vote of the directors present at a duly convened Board meeting, except that the following matters shall require the vote of the director appointed by the Preferred Shareholder together with the simple majority vote of such directors:

(i) establishment of any subsidiary or investment in any other company except for investment in operating or developing online Mahjong, chess and poker game;

(ii) making of any distribution of profits amongst the shareholders by way of dividend, capitalization of reserves, bonus share, special distribution or otherwise;

(iii) Approval of any transfer of shares in the Subsidiary and/or the Domestic Company;

(iv) making of any alteration or amendment to the Memorandum and/or Articles of Association of the Company, any Subsidiary and/or the Domestic Company;

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(v) appointment or settlement of the terms of appointment of the chief executive officer and chief financial officer;

(vi) settlement of or alteration of the terms of any bonus or profit sharing scheme or any share option plan (including but not limited to employee share option) or share participation schemes;

(vii) sale, transferring, licensing, charging, encumbering or otherwise disposition of any trademarks, patents or other intellectual property owned by the Company, any Subsidiary and/or the Domestic Company;

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(viii) formulation of the preparation plan for the Qualified Public Offering and any amendment or modification thereof;

(ix) incurrence of indebtedness in any form by the Company or any of its Subsidiaries and/or the Domestic Company in excess of US$50,000 in one transaction other than the trade debts;

(x) creation of, allowing to arise, or issuance of any debenture or undertaking constituting a pledge, lien or charge (whether by way of fixed or floating charge, mortgage encumbrance or other security) on all or any of the undertaking, shares, other equity interests, assets or rights of the Company, any Subsidiary and/or the Domestic Company, or provision of a guarantee by the Company, any Subsidiary or the Domestic Company to any third party;

(xi) approval of or making of adjustments or modifications to terms of transactions involving the interest of any director, officers, employees or shareholder of the Company or any Subsidiary and/or the Domestic Company, or other insiders or any of their family members or affiliates, including but not limited to the making of any loans or advances, whether directly or indirectly, or the provision of any guarantee, indemnity or security for or in connection with any indebtedness of liabilities of any director or shareholder of the Company or any Subsidiary and/or the Domestic Company, other than on an arms-length basis and upon full disclosure to shareholders;

(xii) entering into an affiliated transaction with an Affiliate of any of Key Shareholders or management or directors of the Company, other than on an arms-length basis and upon full disclosure to the Preferred Shareholder;

(xiii) change to the previously adopted accounting policies and change to the financial year of the Company or any Subsidiary;

(xv) appointment or removal of the auditors of the Company or any Subsidiary and/or the Domestic Company;

(xvi) approval of annual financial budget and the establishment of annual milestones;

(xvii) commencement or settlement of any litigation or arbitration by the Company or any Subsidiary and/or the Domestic Company;

(xviii) any adjustment in compensation of the annual remuneration of the five (5) most highly compensated employees of the Company;

(xix) any change in the important corporate or financial policy or milestones of the Company or any Subsidiary and/or the Domestic Company; and

(xx) entering into or changing any commercial arrangements between the Domestic Company and the Company, any Subsidiary, or Key Shareholders.

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(d) The Board of Directors shall convene a meeting at least once during each quarter of a year.

(e) When convening a meeting of the Board of Directors, a director shall be given (i) a written notice of meeting; (ii) a meeting agenda for the meeting; and (iii) documents to be reported and distributed to the directors at the meeting, at least seven (7) Business Days before the convention of the meeting. Any meeting held without seven (7) Business Days’ written notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting waive the notice of the meeting in writing; and for this purpose, the presence of a director at a meeting shall be deemed to constitute a waiver on his part in respect of such meeting.

(f) The Company shall reimburse the directors for reasonable costs incurred in relation to attending meetings of the Board of Directors, including without limitation, travel and accommodation expenses, and other reasonable costs incurred for the benefit of the Company and deemed acceptable to the Board of Directors.

(g) Any member of the Board of Directors may participate in a meeting by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

(h) Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting by a written resolution; provided, however, that such resolution shall have been signed by the director appointed by the Preferred Shareholder.

SECTION 4.02 Shareholders’ Meeting. (a) The Board of Directors shall give no less than fourteen (14) Business Days’ notice of meetings of Shareholders to those persons whose names on the date the notice is given appear as Shareholders in the register of members of the Company and are entitled to vote at the meeting.

(b) The Preferred Shareholder shall be entitled to such number of votes as equal to the whole number of Ordinary Shares into which such Preferred Shareholder’s aggregate number of Preferred Shares are convertible immediately after the close of business on the record date of the determination of the Company’s shareholders entitled to vote, or if no such record date is established, at the date such vote is taken or any written consent of the Company’s shareholders is first solicited. Except for the matters provided in Section 5 hereof or in the Restated Memorandum and Articles, the Preferred Shareholder shall vote together with the holders of Ordinary Shares as if they were the same classes of shareholders, and not as a separate class or series, on all matters put before the Shareholders.

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(c) The Company shall take all steps as are necessary to cause the provisions of this Section 4 and Section 5 below to apply mutatis mutandis to the governance of any Subsidiary, including without limitation, formulating the board of directors with the same constitution, function, convention, quorum, and voting rights same as those of the Company, without contradicting applicable laws of the jurisdiction where the Subsidiary is situated.

ARTICLE V. PROTECTIVE PROVISIONS

SECTION 5.01 Protective Provisions for Preferred Shareholder. For so long as at least 50% of the Preferred Shares remain outstanding, in addition to any other vote or consent required herein or by law, an approval by the holders of at least 50% of the Preferred Shares shall be necessary to effect the following actions:

(1) authorization or issuance or creation of any class of stock, or securities exchangeable for or convertible into shares of the Company, any Subsidiary and/or the Domestic Company, provided that this Section 5.01 does not apply to the issuance of no more than 3 million new shares (which have no right, preference or priority superior to the Preferred Shares) of the Company in the second closing within 3 months after the Closing;

(2) Increasing, reduction or cancellation of the authorized or issued share capital, or split or combination of Shares of the Company, any Subsidiary and/or the Domestic Company;

(3) ceasing to conduct or carry on or changing the business of the Company, any Subsidiary and/or the Domestic Company substantially as now conducted or change any part of such business activities;

(4) reclassification of the issued Shares or any adjustment of the preferences, privileges, powers, rights or interest or the restrictions attached to any class of Shares;

(5) Passing of any resolution for the winding up of the Company or any Subsidiary and/or the Domestic Company or undertaking of any merger, sale, consolidation, reconstruction, dissolution or liquidation exercise concerning the Company, any Subsidiary and/or the Domestic Company or apply for the appointment of a receiver, manager or judicial manager or like officer;

(6) Sale, transfer or disposition or purchase of the whole or a substantial part of the undertaking goodwill or the assets of the Company or any Subsidiary and/or the Domestic Company or any of intellectual property rights; and.

(7) Any repurchase or redemption of shares of the Company other than pursuant to restricted share agreements with employees with redemption provisions in the Restated Memorandum and Articles, provided that this Section 5.01 does not apply to any repurchase of the shares owned by either Zhigang Li or Yan Jin;

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ARTICLE VI. CONVERSION RIGHTS

The Preferred Shareholder shall have the following rights described below with respect to the conversion of the Preferred Shares into Ordinary Shares: The initial conversion ratio for Preferred Shares to Ordinary Shares shall be 1:1, subject to adjustments of the Conversion Price as set forth in Section 6.03 below.

SECTION 6.01 Optional Conversion. (a) Subject to and in compliance with the provisions of this Section 6, any Preferred Share may, at the option of the Preferred Shareholders, be converted at any time into fully-paid and non-assessable Ordinary Shares pursuant to Section 6.01(b) below. Upon such conversion, all preference rights attached to such Preferred Shares shall be automatically terminated

(b) The Preferred Shareholder who desires to convert such Preferred Shares into Ordinary Shares shall surrender the certificate or certificates therefore, duly endorsed, at the office of the Company or any transfer agent for the Preferred Shares, and shall give written notice to the Company at such office that such Preferred Shareholder has elected to convert such Preferred Shares. Such notice shall state the number of Preferred Shares being converted. Thereupon, the Company shall promptly issue and deliver to such Preferred Shareholder at such office a certificate or certificates for the number of Ordinary Shares to which the Preferred Shareholder is entitled and shall promptly pay (i) in cash or, to the extent sufficient funds are not then legally available therefor, in Ordinary Shares (at the fair market value of an Ordinary Share determined by the Board of Directors as of the date of such conversion), any declared and unpaid dividends on the Preferred Share being converted and (ii) in cash (at the fair market value of an Ordinary Share determined by the Board of Directors as of the date of conversion) the value of any fractional Ordinary Shares to which the Preferred Shareholder would otherwise be entitled. Such conversion shall be deemed to have been made at the close of business on the date of the surrender of the certificates representing the Preferred Shares to be converted, and the person entitled to receive the Ordinary Shares issuable upon such conversion shall be treated for all purposes as the record holder of such Ordinary Shares on such date.

SECTION 6.02 Automatic Conversion. (a) Each Preferred Share shall automatically be converted, based on the then-effective Conversion Price, immediately upon (i) the closing of a Qualified Public Offering, or (ii) the election of the holders of at least 50% of the outstanding Preferred Shares, pursuant to Section 6.02(b) below.

(b) The Company shall not be obligated to issue certificates for any Ordinary Shares issuable upon the automatic conversion of any Preferred Shares unless the certificate or certificates evidencing such Preferred Shares is either delivered as provided below to the Company or any transfer agent for the Preferred

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Shares, or any Preferred Shareholder notifies the Company or its transfer agent that such certificate has been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificate. The Company shall, as soon as practicable after receipt of certificates for Preferred Shares, or satisfactory agreement for indemnification in the case of a lost certificate, promptly issue and deliver at its office to the Preferred Shareholder thereof a certificate or certificates for the number of Ordinary Shares to which such Preferred Shareholder is entitled and shall promptly pay (i) in cash or, to the extent sufficient funds are not then legally available therefor, in Ordinary Shares (at the fair market value for a Ordinary Share determined by the Board of Directors as of the date of such conversion), any declared and unpaid dividends on the Preferred Share being converted and (ii) in cash (at the fair market value of an Ordinary Share determined by the Board of Directors as of the date of such conversion) the value of any fractional Ordinary Shares to which such Preferred Shareholder would otherwise be entitled. Any person entitled to receive Ordinary Shares issuable upon the automatic conversion of the Preferred Shares shall be treated for all purposes as the record holder of such Ordinary Shares on the date of such conversion.

SECTION 6.03 Preferred Share Conversion Price. The Conversion Price for the Preferred Shares shall initially equal the Original Issue Price and shall be adjusted from time to time as provided below:

(a) Adjustment for Share Splits and Combinations. If the Company shall at any time, or from time to time, effect a subdivision of the outstanding Ordinary Shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately decreased. Conversely, if the Company shall at any time, or from time to time, combine the outstanding Ordinary Shares into a smaller number of shares, the Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective.

(b) Adjustment for Ordinary Share Dividends and Distributions. If the Company at any time, or from time to time, makes (or fixes a record date for the determination of holders of Ordinary Shares entitled to receive) a dividend or other distribution to the holders of Ordinary Shares payable in Ordinary Shares, in each such event the Conversion Price then in effect shall be decreased as of the time of such issuance (or in the event such record date is fixed, as of the close of business on such record date) by multiplying the Conversion Price then in effect by a fraction (i) the numerator of which is the total number of Ordinary Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the total number of Ordinary Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of Ordinary Shares issuable in payment of such dividend or distribution.

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(c) Adjustments for Other Dividends. If the Company at any time, or from time to time, makes (or fixes a record date for the determination of holders of Ordinary Shares entitled to receive) a dividend or other distribution payable in securities of the Company other than Ordinary Shares or equivalents of Ordinary Shares, then, and in each such event, upon conversion of any Preferred Share thereafter, the Preferred Shareholder thereof shall receive, in addition to the number of Ordinary Shares issuable thereon, the amount of securities of the Company which the Preferred Shareholder of such share would have received had the Preferred Shares been converted into Ordinary Shares immediately prior to such event, all subject to further adjustment as provided herein.

(d) Reorganizations, Mergers, Consolidations, Reclassifications, Exchanges, Substitutions. If at any time, or from time to time, any capital reorganization or reclassification of the Ordinary Shares (other than as a result of a share dividend, subdivision, split or combination otherwise treated above) occurs or the Company is consolidated, merged or reorganized with or into another Person (other than a consolidation, merger or reorganization treated in Section 7.02), then in any such event, upon conversion of any Preferred Share thereafter, the Preferred Shareholder thereof shall receive the kind and amount of shares and other securities and property which the Preferred Shareholder of such share would have received had the Preferred Shares been converted into Ordinary Shares on the date of such event, all subject to further adjustment as provided herein, or with respect to such other securities or property, in accordance with any terms applicable thereto.

(e) Sale of Shares Below the Conversion Price. (A) If at any time, or from time to time, the Company shall issue or sell Additional Shares (other than (i) as a subdivision or combination of Ordinary Shares provided for in Section 6.03 (a) above, (ii) as a dividend or other distribution provided for in Section 6.03 (b) above, (iii) the issuance of Additional Shares under the Stock Option Scheme or upon the exercise of options thereof, (iv) the conversion of Preferred Shares into Ordinary Shares, or (v) the issuance of Additional Shares in a Qualified Public Offering) for a consideration of price per share less than the then-existing Conversion Price, then, and in each such case, the Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to the level of the price per share for the Additional Shares newly issued or sold by the Company.

(B) For the purpose of making any adjustment in the Conversion Price or number of Ordinary Shares issuable upon conversion of the Preferred Shares, as provided above:

(i) To the extent it consists of cash, the consideration received by the Company for any issue or sale of securities shall be computed on the gross amount basis;

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(ii) To the extent it consists of property other than cash, consideration other than cash received by the Company for any issue or sale of securities shall be computed on the gross amount basis at the fair market value thereof, as determined in good faith by the Board of Directors as of the date of the adoption of the resolution specifically authorizing such issue or sale, irrespective of any accounting treatment of such property ; and (iii) If Additional Shares or Ordinary Share Equivalents exercisable, convertible or exchangeable for Additional Shares are issued or sold together with other stock or securities or other assets of the Company for consideration which covers both, the consideration received for the Additional Shares or Ordinary Share Equivalents shall be computed as that portion of the consideration received which is reasonably determined in good faith by the Board of Directors to be allocable to such Additional Shares or Ordinary Share Equivalents.

(C) For the purpose of making any adjustment in the Conversion Price provided in this Section 6.03(e), if at any time, or from time to time, the Company issues any Ordinary Share Equivalents exercisable, convertible or exchangeable for Additional Shares and the Effective Conversion Price of such Ordinary Share Equivalents is less than the Conversion Price in effect immediately prior to such issuance, then, in each such case, at the time of such issuance, the Company shall be deemed to have issued the maximum number of Additional Shares issuable upon the exercise, conversion or exchange of such Ordinary Share Equivalents and to have received in consideration for each Additional Share deemed issued an amount equal to the Effective Conversion Price.

(i) In the event of any increase in the number of Ordinary Shares deliverable or any reduction in consideration payable upon exercise, conversion or exchange of any Ordinary Share Equivalents where the resulting Effective Conversion Price is less than the Conversion Price at such date, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Conversion Price, shall be re-computed to reflect such change as if, at the time of issue for such Ordinary Share Equivalent, such Effective Conversion Price applied.

(ii) If any right to exercise, convert or exchange any Ordinary Share Equivalents shall expire without having been fully exercised, the Conversion Price as adjusted upon the issuance of such Ordinary Share Equivalents shall be readjusted to the Conversion Price which would have been in effect had such adjustment been made on the basis that (A) the only Additional Shares to be issued on such Ordinary Share Equivalents were such Additional Shares, if any, as were actually issued or sold in the exercise, conversion or exchange of any part of such Ordinary Share Equivalents prior to the expiration thereof and (B) such Additional Shares, if any, were issued or sold for (x) the consideration actually received by the Company upon such exercise, conversion or exchange, plus (y) where the Ordinary Share Equivalents consist of options, warrants or rights to purchase

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Ordinary Shares, the consideration, if any, actually received by the Company for the grant of such Ordinary Share Equivalents, whether or not exercised, plus (z) where the Ordinary Share Equivalents consist of shares or securities convertible or exchangeable for Ordinary Shares, the consideration received for the issue or sale of Ordinary Share Equivalent actually converted.

(iii) For any Ordinary Share Equivalent with respect to which the Conversion Price has been adjusted under this Sub-Section (iii), no further adjustment of the Conversion Price shall be made solely as a result of the actual issuance of Ordinary Shares upon the actual exercise or conversion of such Ordinary Share Equivalent.

(f) Certificate of Adjustment. In the case of any adjustment or readjustment of the Conversion Price, the Company, at its sole expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered Preferred Shareholder at the holder’s address as shown in the Company’s books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any Additional Shares issued or sold or deemed to have been issued or sold, (ii) the number of Additional Shares issued or sold or deemed to be issued or sold, (iii) particulars of share splits or combination, if any; (iv) particulars of the dividend or other distribution to holders of Ordinary Shares, if any; (v) the Conversion Price in effect after such adjustment or readjustment, and (vi) the number of Ordinary Shares and the type and amount, if any, of other property which would be received upon conversion of the Preferred Shares after such adjustment or readjustment.

(g) Notice of Record Date. In the event the Company shall propose to take any action of the type or types requiring an adjustment to the Conversion Price or the number or character of the Preferred Shares as set forth herein, the Company shall give notice to the Preferred Shareholders, which notice shall specify the record date, if any, with respect to any such action and the date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable upon the occurrence of such action of deliverable upon the conversion of Preferred Shares. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed, and in the case of all other actions, such notice shall be given at least 15 days prior to the taking of such proposed action.

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SECTION 6.04 Fractional Shares. No fractional Ordinary Shares shall be issued upon conversion of any Preferred Share. All Ordinary Shares (including fractions thereof) issuable upon conversion of more than one Preferred Share by a Preferred Shareholder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after such aggregation, the conversion would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the fair market value of a Ordinary Share (as determined by the Board of Directors) on the date of conversion.

SECTION 6.05 Reservation of Shares Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued Ordinary Shares, solely for the purpose of effecting the conversion of the Preferred Shares, such number of its Ordinary Shares as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Shares. If at any time the number of authorized but unissued Ordinary Shares shall not be sufficient to effect the conversion of all then outstanding Preferred Shares, the Company will take all necessary actions to increase its authorized but unissued Ordinary Shares to such number of Shares as shall be sufficient for such purpose.

SECTION 6.06 Notices. Any notice required by the provisions of this Section 6 shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All notices shall be addressed to each Preferred Shareholder of record at the address of such Preferred Shareholder appearing on the books of the Company.

SECTION 6.07 Payment of Taxes. The Company will pay all taxes (other than taxes based upon income and withholding taxes) and other governmental charges that may be imposed with respect to the issue or delivery of Ordinary Shares upon conversion of Preferred Shares, excluding any tax or other charges imposed in connection with any transfer involved in the issuance and delivery of Ordinary Shares in a name other than that in which the Preferred Shares so converted were registered.

ARTICLE VII. LIQUIDATION RIGHTS

SECTION 7.01 Liquidation Preferences. In the event of a liquidation of the Company, the Preferred Shareholder shall first be paid an amount equal to 1.2 times the Original Issue Price plus a compound annual interest of 15% of such amount from the date of the payment of the Original Issue Price. Thereafter, the Preferred Shareholder on a

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deemed converted basis shall be entitled to participate ratably with the holders of other shares in the residue (if any) of such surplus assets as shall remain after paying out the capital paid up on other shares.

SECTION 7.02 Liquidation on Sale or Merger. The following events shall be treated as a liquidation under this Section 7:

(1) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the shareholders of the Company immediately prior to such consolidation, merger or reorganization, own less than 50% of the Company’s voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company; or

(2) a sale, lease or other disposition of all or substantially all of the assets of the Company;

and upon any such event, any proceeds resulting to the Shareholders of the Company therefrom shall be distributed in accordance with the terms of Section 7.01.

ARTICLE VIII. INFORMATION AND INSPECTION RIGHTS

SECTION 8.01 Delivery of Financial Statements to Preferred shareholder. The Company shall deliver to the Preferred Shareholder(s):

(a) within 90 days after the end of each fiscal year of the Company, annual operational reports and financial statements as of the end of the fiscal year, and audited and certified by independent certified public accountants of recognized international standing and reputation selected by the Company;

(b) unaudited quarterly consolidated financial statements and the quarterly operational report within fourty five (45) days of the end of each quarter;

(c) unaudited monthly consolidated financial statements within thirty (30) days of the end of each month; and

(d) at least forty-five (45) days prior to the end of each fiscal year, a budget for the succeeding fiscal year, setting forth for each month during such succeeding fiscal year projected balance sheets, income statements and statements of cash flows.

SECTION 8.02 Financial Statements. For the purpose of this Section 8, the term “financial statements” shall be construed to include a balance sheet, statements of income and loss and cash flows for the applicable period, prepared in accordance with US GAAP and compared against the Company’s annual operating plan and budget.

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SECTION 8.03 Inspection. The Company shall permit the Preferred Shareholder, at such Preferred Shareholder’s expense, to visit and inspect any of the properties and examine the books of account and records of the Company and its Subsidiaries and discuss the affairs, finances and accounts of the Company and its Subsidiaries with the directors, officers, employees, accountants, legal counsel and investment bankers of the Company, all at business hours as may be requested by such Preferred Shareholder by delivering three (3) days written notice to the Company, provided that such inspection rights shall terminate upon a Qualified Public Offering.

ARTICLE IX. RIGHTS OF FIRST REFUSAL; CO-SALE RIGHTS AND TRANSFER RESTRICTIONS

SECTION 9.01 (a) Right of First Refusal for Preferred Shareholders. (i) If at any time an Ordinary Shareholder who is a Key Shareholder of the Company (a “Transferor”) proposes to transfer Equity Securities to one or more third parties pursuant to an understanding with such third parties (a “Transfer”), then the Transferor shall give the Preferred Shareholder and the Company written notice of the Transferor’s intention to make the Transfer (the “Transfer Notice”), which shall include (i) a description of the Equity Securities to be transferred (“Shares Offered by Ordinary Shareholder”), (ii) the identity of the prospective transferee and (iii) the consideration and the material terms and conditions upon which the proposed Transfer is to be made. The Transfer Notice shall certify that the Transferor has received a firm offer from the prospective transferee and in good faith believes a binding agreement for the Transfer is obtainable on the terms set forth in the Transfer Notice. The Transfer Notice shall also include a copy of any written proposal, term sheet or letter of intent or other agreement relating to the proposed Transfer.

(ii) Preferred Shareholders’ Option:

(1) The Preferred Shareholder shall have an option for a period of thirty (30) days from the receipt of the Transfer Notice to elect to purchase its respective pro rata shares of the Shares Offered by Ordinary Shareholder at the same price and subject to the same material terms and conditions as described in the Transfer Notice.

(2) The Preferred Shareholder may exercise such purchase option and, thereby, purchase all or a part of its respective pro rata shares of the Shares Offered by Ordinary Shareholder, by notifying Transferor and the Company in writing, before expiration of the thirty (30) day period as to the number of such shares which it will purchase (including any re-allotment).

(3) The Preferred Shareholder shall be entitled to apportion the Shares Offered by Ordinary Shareholder to be purchased

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among its partners and affiliates, provided that such Preferred Shareholder notifies the Transferor of such allocation and upon receipt of written consent of the Transferor.

(4) If the Preferred Shareholder gives the Transferor notice that it desires to purchase all or part of its pro rata share of the Shares Offered by Ordinary Shareholder and, as the case may be, its re-allotment, then payment for the Shares offered by Ordinary Shareholder shall be by check or wire transfer, against delivery of the Shares Offered by Ordinary Shareholder to be purchased at a place agreed by the Parties and at the time of the scheduled closing therefore, which shall be no later than forty-five (45) days after the Preferred Shareholders’ receipt of the Transfer Notice, unless the Transfer Notice contemplated a later closing with the prospective third party transferee or unless the value of the purchase price has not yet been established pursuant to Section 9.01(b)(v).

(iii) Additional Transfer Notice from Ordinary Shareholder. If the Preferred Shareholder has declined to purchase all, or a portion of, its respective pro rata shares of the Shares Offered by Ordinary Shareholder in connection with a proposed Transfer, the Transferor shall give the Company an “Additional Transfer Notice” which shall include all of the information and certifications required in a Transfer Notice and shall additionally identify the Shares Offered by Ordinary Shareholder which the Preferred Shareholders have declined to purchase (the “Remaining Shares”) and briefly describe the Company’s rights of first refusal and co-sale rights with respect to the proposed Transfer.

(iv) Company’s Option to Buy the Remaining Shares. The Company shall have an option for a period of ten (10) days from receipt of the Additional Transfer Notice to elect to purchase the Remaining Shares at the same price and subject to the same material terms and conditions as are described in the Additional Transfer Notice. The Company may exercise such purchase option and, thereby, purchase all or a portion of the Remaining Shares by notifying the Transferor in writing before expiration of the ten day period as to the number of such shares which it wishes to purchase. If the Company gives the Transferor notice that it desires to purchase such shares, then payment for the Remaining Shares shall be by check or wire transfer, against delivery of the Remaining Shares to be purchased, at a place agreed by the parties and at the time of the scheduled closing therefor, which shall be no later than sixty (60) days after the Company’s receipt of the Transfer Notice, unless the Transfer Notice contemplated a later closing with the prospective third party transferee or unless the value of the purchase price has not yet been established pursuant to Section 9.01(b)(v).

(v) Valuation of Property.

(1) Should the purchase price specified in the Transfer Notice or Additional Transfer Notice be payable in property other than cash or evidences of indebtedness, the Preferred Shareholders (or the Company) shall have the right, upon

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receipt of the Transferor’s written consent, to pay the purchase price in the form of cash equal in amount to the value of such property.

(2) Subject to the paragraph above, if the Transferor and the Preferred Shareholder (or the Company) cannot agree on such cash value within ten days after the Preferred Shareholders’ receipt of the Transfer Notice (or the Company’ receipt of the Additional Transfer Notice), the valuation shall be made by an appraiser of recognized standing selected by the Transferor and the Preferred Shareholders (or the Company) or, if they cannot agree on an appraiser within twenty (20) days after the Preferred Shareholders’ receipt of the Transfer Notice (or the Company’ receipt of the Additional Transfer Notice), each shall select an appraiser of recognized standing and the two appraisers shall designate a third appraiser of recognized standing, whose appraisal shall be determinative of such value.

(3) The cost of such appraisal shall be borne by the Preferred Shareholder (or the Company).

(4) If the time for the closing of the Preferred Shareholder’s purchase or the Company’s purchase has expired but for the determination of the value of the purchase price offered by the prospective transferee, such closing shall be held on or prior to the fifth business day after such valuation shall have been made pursuant to this sub-Section.

(b) Preferred Shareholder’s Right of Co-Sale. (i) To the extent the Preferred Shareholder and the Company do not exercise their respective rights of first refusal to all of the Shares Offered by Ordinary Shareholder pursuant to Section 9.01(b), the Preferred Shareholder shall have the right to participate in such sale of Equity Securities on the same terms and conditions as specified in the Transfer Notice.

(ii) The Preferred Shareholder may elect to sell up to such number of Equity Securities equal to (on a fully converted basis) the product obtained by multiplying (i) the aggregate number of Ordinary Shares covered by the Transfer Notice (including the number of Ordinary Shares that would be issuable upon the exercise, conversion or exchange of Ordinary Share Equivalents) by (ii) a fraction, the numerator of which is the number of Ordinary Shares (including the number of Ordinary Shares that would be issuable upon the exercise, conversion or exchange of Ordinary Share Equivalents) owned by the Selling Preferred Shareholder on the date of the Transfer Notice and the denominator of which is the total number of Ordinary Shares (including the number of Ordinary Shares that would be issuable upon the exercise, conversion or exchange of Ordinary Share Equivalents) owned by the selling Ordinary Shareholders and all of the Selling Preferred Shareholders on the date of the Transfer Notice.

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(iii) The Preferred Shareholder shall effect its participation in the sale by delivering to the Ordinary Shareholders for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent the type and number of Equity Securities which the Selling Preferred Shareholder elects to sell; provided, however that if the prospective third-party purchaser objects to the delivery of Equity Securities in lieu of Ordinary Shares, the Selling Preferred Shareholder shall convert such Equity Securities into Ordinary Shares and deliver certificates corresponding to such Ordinary Shares. The Company agrees to make any such conversion concurrent with the actual transfer of such shares to the purchaser and contingent on such transfer.

(iv) The share certificate or certificates that the Preferred Shareholder delivers to the Ordinary Shareholders pursuant to Section 9.01(c)(iii) shall be transferred to the prospective purchaser in consummation of the sale of the Equity Securities pursuant to the terms and conditions specified in the Transfer Notice, and the Ordinary Shareholders shall concurrently therewith remit to the Preferred Shareholder that portion of the sale proceeds to which the selling Preferred Shareholder is entitled by reason of its participation in such sale.

(v) To the extent that any prospective purchaser prohibits the participation of the selling Preferred Shareholder exercising its co-sale rights hereunder in a proposed Transfer or otherwise refuses to purchase shares or other securities from the selling Preferred Shareholder exercising its co-sale rights hereunder, the Transferor shall not sell to such prospective purchaser any Equity Securities unless and until, simultaneously with such sale, the Transferor shall purchase such shares or other securities from the Selling Preferred Shareholder for the same consideration and on the same terms and conditions as the proposed transfer described in the Transfer Notice.

(vi) The rights provided in this Section 9.01 shall terminate upon a Qualified Public Offering.

(c) Limitations to Rights of First Refusal and Co-Sale. Notwithstanding the provisions of this Section 9.01 and this Section 9.01 shall not apply to the followings: an Ordinary Shareholder may sell or otherwise assign, with or without consideration, Equity Securities to any spouse or member of such Ordinary Shareholder’s immediate family, or to a custodian, trustee, executor, or other fiduciary for the account of the Ordinary Shareholder’s spouse or members of the Ordinary Shareholder’s immediate family, or to a trust for the Ordinary Shareholders’ own self, or a charitable remainder trust, provided that each such transferee or assignee, prior to the completion of the sale, transfer, or assignment, shall have executed documents assuming the obligations of the transferring Ordinary Shareholder under this Agreement with respect to the transferred securities.

(d) Accession of Subsequent Shareholders. Prior to a Qualified Public Offering, no Ordinary Shareholder shall sell, assign, transfer, or hypothecate any Ordinary Shares (whether now owned or hereafter acquired) unless the transferee thereof shall agree in writing in form reasonably acceptable to the Company to be bound by this Section 9.01, as if such transferee were an Ordinary Shareholder.

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SECTION 9.02 Special Provisions in Relation to the Founders and Management. (a) Unless otherwise approved by the holders of at least 50% of the Preferred Shares, the Founders and the Management Shall not sell or transfer, or dispose of any Ordinary Shares during the three-year period from the Closing. (b) Each Founder and Management undertake not to compete with the Company (including but not limited to directly or indirectly engaging in any business or conducting any activities that are same with or similar to those engaged in or conducted by the Company) or solicit any employees of the Company for a period of one year following the termination of such Founder or Management’s employment relationship with the Company.

SECTION 9.03 Right of First Refusal for Key Shareholders. If at any time the Preferred Shareholder proposes to transfer 50% or more of the Preferred Shares to any third parties, each Key Shareholder shall have an option for a period of thirty (30) days from the receipt of a written notice for such transfer to elect to purchase their respective pro rata shares of all (but not a portion) of the Preferred Shares offered at the same price and subject to the same material terms and conditions as described in the said notice. If the Key Shareholders fail to exercise the option to purchase all the Preferred Shares offered, the Preferred Shareholder may sell the Preferred Shares to the said third parties. Unless otherwise provided in this Section 9.03, other provisions regarding the Right of First Refusal for Preferred Shareholder in this Article IX shall apply to the Right of First Refusal for Key Shareholders herein, to the extent such provisions are applicable.

ARTICLE X REGISTRATION RIGHTS

SECTION 10.01 Demand Registration. (a) Registration Other Than on Form F-3. (i) Subject to the terms of this Agreement, at any time after a Qualified Public Offering, an Initiating Holder may request the Company in writing to effect the Registration of Registrable Securities for which the reasonably anticipated aggregate price to the public, would exceed US$15,000,000. Upon receipt of such a request, the Company shall (a) promptly give written notice of the proposed Registration to all other Holders and (b) as soon as practicable, and in any event within sixty (60) days of the receipt of such request, cause Registrable Securities specified in the request, to be Registered and/or qualified for sale and distribution in such jurisdictions as the Initiating Holder may reasonably request. The Company shall be obligated to effect only three (3) such Registrations.

(b) Registration on Form F-3. Subject to the terms of this Agreement, at any time after a Qualified Public Offering, an Initiating Holder may request the Company in writing to file a Registration Statement on Form F-3 (or any successor form to Form F-3, or any comparable form for Registration in a jurisdiction other than the United States) for a public offering of Registrable Securities for which the reasonably anticipated aggregate price to the public, would exceed

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US$15,000,000, and the Company is entitled to use Form F-3 or a comparable form to Register the requested Registrable Securities. Upon receipt of such a request the Company shall, as soon as practicable, and in any event within sixty (60) days of the receipt of such request, cause the Registrable Securities specified in the request, to be Registered and qualified for sale and distribution in such jurisdictions as the Initiating Holder may reasonably request. The Company’s obligation to effect registrations pursuant to this Section 10.01(b) is unlimited.

(c) Right of Deferral. (i) The Company shall not be obligated to Register or qualify Registrable Securities pursuant to this Section 10.01:

(1) in any jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such Registration or qualification, unless the Company is already subject to service of process in such jurisdiction;

(2) if, within ten (10) days of the receipt of any request of the Initiating Holder to Register any Registrable Securities under Section 10.01(a) or Section 10.01(b), the Company gives notice to the Initiating Holder of its bona fide intention to effect the filing for its own account of a Registration Statement with the Commission within sixty (60) days of receipt of that request (other than a registration of securities in a transaction under Rule 145 of the Securities Act or an offering solely to employees), provided that the Company is actively employing in good faith all reasonable efforts to cause that Registration Statement to become effective; or

(3) within six (6) months immediately following the effective date of any Registration Statement pertaining to the securities of the Company (other than a registration of securities in a transaction under Rule 145 of the Securities Act or with respect to an employee benefit plan).

(ii) if, after receiving a request from the Initiating Holder pursuant to Section 10.01(a) or Section 10.01(b), the Company furnishes to the Initiating Holder a certificate signed by the Chief Executive Officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company or its shareholders for a Registration Statement to be filed in the near future, the Company’s obligation to use its commercially reasonable efforts to file a Registration Statement shall be deferred for a period not to exceed 120 days from the receipt of any request duly submitted by the Initiating Holder under Section 10.01(a) or 10.01(b) to Register Registrable Securities; provided that the Company shall not exercise the right contained in this Section 10.1(c)(ii) more than twice in any twelve (12) month period.

(d) Underwritten Offerings. If, in connection with a request to Register Registrable Securities under Section 10.01(a) or Section 10.01(b), the Initiating Holder seek to distribute such Registrable Securities in an underwriting, they has the

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right to so advise the Company as a part of the request, and the Company shall include such information in the written notice to the other Holders described in Sections 10.01(a) and 10.01(b). In such event, the right of any Holders to include its Registrable Securities in such Registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by the Initiating Holder representing a majority in voting power of the Registrable Securities held by the Initiating Holder) to the extent provided herein. The Initiating Holder proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company (which underwriter or underwriters shall be reasonably acceptable to Initiating Holder representing a majority in voting power of the Registrable Securities held by the Initiating Holder). Notwithstanding any other provision of this Agreement, if the managing underwriter advises the Company that marketing factors (including the aggregate number of securities requested to be Registered, the general condition of the market, and the status of the Persons proposing to sell securities pursuant to the Registration) require a limitation of the number of Equity Securities to be underwritten, the underwriters may exclude some of the Registrable Securities from the underwriting if so justified after excluding any other Equity Securities from the underwriting, provided that any Registration must include at lease 25% of the Shares requested to be included by the holders of Registrable Securities. If a limitation of the number of Registrable Securities is required pursuant to this Section 10.01(d), the number of Registrable Securities that may be included in the underwriting by selling Holders shall be allocated among such Holders, in proportion, as nearly as practicable, to the respective amounts of Registrable Securities which the Holders would otherwise be entitled to include in the Registration. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the Registration. If shares of the Company are offered in an underwritten public offering (whether or not a Qualified Public Offering) for the account of any shareholder, each Preferred Shareholder shall have the right to include a pro rata number of shares in the offering on terms and conditions no less favorable to the Preferred Shareholders than to any other selling shareholders.

SECTION 10.02 Piggyback Registrations. (a) Registration of the Company’s Securities. Subject to Section 10.02(c), if the Company proposes to Register for its own account any of its Equity Securities in connection with the public offering of such securities, the Company shall promptly give the Holders written notice of such Registration and, upon the written request of the Holders given within twenty (20) days after delivery of such notice, the Company shall use commercially reasonable efforts to include in such Registration any Registrable Securities thereby requested by the Holders.

(b) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any Registration initiated by it under Section 10.02(a) prior to the effectiveness of such Registration, whether or not the Holders have elected to participate therein. The expenses of such withdrawn Registration shall be borne by the Company in accordance with Section 10.03(c).

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(c) Underwriting Requirements. (i) In connection with any offering involving an underwriting of the Company’s Equity Securities, the Company shall not be required to Register the Registrable Securities of any Holder under this Section 10.02 unless such Holder’s Registrable Securities are included in the underwriting and such Holder enters into an underwriting agreement in customary form with the underwriters selected by the Company and setting forth such terms for the underwriting as have been agreed upon between the Company and the underwriters. In the event the underwriters advise the Holders seeking Registration of Registrable Securities pursuant to this Section 10.02 in writing that market factors (including the aggregate number of Registrable Securities requested to be Registered, the general condition of the market, and the status of the persons proposing to sell securities pursuant to the Registration) require a limitation of the number of Equity Securities to be underwritten, the underwriters may exclude some or all Registrable Securities from the Registration and underwriting if so justified after excluding any other Equity Securities (except for securities to be offered by the Company) from the Registration and underwriting, provided that any Registration must include at lease 25% of the Shares requested to be included by the Holders.

(ii) If a limitation of the number of Registrable Securities is required pursuant to Section 10.2(c)(i) the number of Registrable Securities that may be included in the Registration and underwriting by selling Holders shall be allocated among such Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities which the Holders would otherwise be entitled to include in the Registration.

(iii) If the Holder disapproves of the terms of any underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriters delivered at least seven (7) days prior to the effective date of the Registration Statement. Any Registrable Securities excluded or withdrawn from the underwriting shall be withdrawn from the Registration.

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(d) Exempt Transactions. The Company shall have no obligation to Register any Registrable Securities under this Section 10.02 in connection with a Registration by the Company (i) relating solely to the sale of securities to participants in a Company stock plan, (ii) relating to a corporate reorganization or other transaction under Rule 145 of the Securities Act (or comparable provision under the laws of another jurisdiction, as applicable), or (iii) on any form that does not include substantially the same information as would be required to be included in a Registration Statement covering the sale of the Registrable Securities.

SECTION 10.03 Procedures. (a) Registration Procedures and Obligations. Whenever required under this Agreement to effect the Registration of any Registrable Securities, the Company shall, as expeditiously as possible:

(i) Prepare and file with the Commission a Registration Statement with respect to those Registrable Securities and use its reasonable best efforts to cause that Registration Statement to become effective, and, upon the request of the Holders holding a majority of the Registrable Securities Registered thereunder, keep the Registration Statement effective for up to 120 days;

(ii) Prepare and file with the Commission amendments and supplements to that Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to comply with the provisions of Applicable Securities Law with respect to the disposition of all securities covered by the Registration Statement;

(iii) Furnish to the Holders the number of copies of a prospectus, including a preliminary prospectus, required by Applicable Securities Law, and any other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;

(iv) Use its reasonable best efforts to Register and qualify the securities covered by the Registration Statement under the securities laws of any jurisdiction, as reasonably requested by the Holders, provided that the Company shall not be required to qualify to do business or file a general consent to service of process in any such jurisdictions, and provided further that in the event any jurisdiction in which the securities shall be qualified imposes a non-waivable requirement that expenses incurred in connection with the qualification of the securities be borne by selling shareholders, those expenses shall be payable pro rata by selling shareholders;

(v) In the event of any underwritten public offering, entering into and performing its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of the offering. Each shareholder participating in the underwriting shall also enter into and perform its obligations under such an agreement;

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(vi) Notify the Holders of Registrable Securities covered by the Registration Statement at any time when a prospectus relating thereto is required to be delivered under Applicable Securities Law or of the happening of any event as a result of which any prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

(vii) Provide a transfer agent and registrar for all Registrable Securities Registered pursuant to the Registration Statement and, where applicable, a CUSIP number for all those Registrable Securities, in each case not later than the effective date of the Registration;

(viii) Furnish, at the request of any Initiating Holder requesting Registration of Registrable Securities pursuant to this Agreement, on the date that such Registrable Securities are delivered for sale in connection with a Registration pursuant to this Agreement, (i) an opinion, dated the date of the sale, of the counsel representing the Company for the purposes of the Registration, in form and substance as is customarily given to underwriters in an underwritten public offering; and (ii) a comfort letter dated the date of the sale, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters; and

(ix) Take all reasonable action necessary to list the Registrable Securities on the primary exchange upon which the Company’s securities are then traded.

(b) Information From Holders. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Securities of the selling Holders that the selling Holders shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the Registration of such Holders’ Registrable Securities.

(c) Expenses of Registration. All expenses, other than Selling Expenses, incurred in connection with Registrations, filings or qualifications pursuant to this Agreement, including (without limitation) all Registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and underwriters but excluding any underwriting discounts and commissions, shall be borne by the Company. The Company shall not, however, be

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required to pay for any expenses of any Registration proceeding begun pursuant to this Agreement if the Registration request is subsequently withdrawn at the request of the Holders.

SECTION 10.04 Indemnification under Registration Rights.

(a) Company Indemnity.

(i) To the extent permitted by law, the Company will indemnify and hold harmless the Holder, its officers, directors, shareholders, legal counsel and accountants, any underwriter (as defined in the Securities Act) for such Holder and each Person, if any, who controls (as defined in the Securities Act) the Holder or underwriter against any losses, claims, damages or liabilities (joint or several) to which they may become subject under laws which are applicable to the Company and relate to action or inaction required of the Company in connection with any Registration, qualification, or compliance, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (each a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state in the Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of Applicable Securities Laws, or any rule or regulation promulgated under Applicable Securities Laws. The Company will reimburse the Holders, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action.

(ii) The indemnity agreement contained in this Section 10.04(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such Registration by any such Holder, underwriter or controlling person of the Company.

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(iii) With respect to any preliminary prospectus, the foregoing indemnity shall not inure to the benefit of the Holders or underwriter, or any Person controlling (within the meaning of the Securities Act) the Holders or underwriter, from whom the Person asserting any such losses, claims, damages or liabilities purchased shares in the offering, if a copy of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of the Holders or underwriter to such Person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the shares to such Person, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability.

(b) Holders Indemnity.

(i) To the extent permitted by law, the selling Holder will indemnify and hold harmless the Company, its directors, officers, legal counsel and accountants, any underwriter, and each Person, if any, who controls (within the meaning of the Securities Act) the Company or such underwriter, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under Applicable Securities Laws, or any rule or regulation promulgated under Applicable Securities Laws, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by the Holders expressly for use in connection with such Registration; and the Holders will reimburse any person intended to be indemnified pursuant to this Section 10.04(b), for any legal or other expenses reasonably incurred by such person in connection with investigating or defending any such loss, claim, damage, liability or action.

(ii) The indemnity contained in this Section 10.04(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holders (which consent shall not be unreasonably withheld), and in no event shall any indemnity under this Section 10.04(b) exceed the gross proceeds from the offering received by such Holders.

(c) Notice of Indemnification Claim. Promptly after receipt by an indemnified party under Section 10.04(a) or Section 10.04(b) of notice of the

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commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under Section 10.04(a) or Section 10.04(b), deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the indemnifying parties. An indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 10.04, but the omission to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 10.04.

(d) Contribution. If any indemnification provided for in Section 10.04(a) or Section 10.04(b) is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and of the indemnified party, on the other, in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

(e) Underwriting Agreement. To the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

(f) Survival. The obligations of the Company and the Holders under this Section 10.04 shall survive the completion of any offering of Registrable Securities in a Registration Statement under this Agreement, and otherwise.

SECTION 10.05 Additional Undertakings. (a) Reports Under the Exchange Act. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any comparable provision of any Applicable Securities Law that may at any time permit a Holder to sell securities of the Company to the public

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without Registration or pursuant to a Registration on Form F-3 (or any comparable form in a jurisdiction other than the United States), the Company agrees to:

(i) make and keep public information available, as those terms are understood and defined in Commission Rule 144 (or comparable provision under Applicable Securities Laws in any jurisdiction where the Company’s securities are listed), at all times following ninety (90) days after the effective date of a Qualified Public Offering;

(ii) file with the Commission in a timely manner all reports and other documents required of the Company under all Applicable Securities Laws; and

(iii) at any time following 90 days after the effective date of the Qualified Public Offering, promptly furnish to the Holders, upon request (i) a written statement by the Company that it has complied with the reporting requirements of all Applicable Securities Laws at any time after it has become subject to such reporting requirements or, at any time after so qualified, that it qualifies as a registrant whose securities may be resold pursuant to Form F-3 (or any form comparable thereto under Applicable Securities Laws of any jurisdiction where the Company’s securities are listed), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents as may be filed by the Company with the Commission, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission, that permits the selling of any such securities without Registration or pursuant to such form.

(b) Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holder, enter into any agreement with any holder or prospective holder of any Equity Securities of the Company that would allow such holder or prospective holder (a) to include such securities in any Registration filed under Section 10.02, unless under the terms of such agreement such holder or prospective holder may include such Equity Securities in any such Registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holder that are included, (b) to demand Registration of their securities, or (c) to enjoy registration rights otherwise superior to or in parity with the Preferred Shareholders except that this sentence will not apply in the situation where the Company issues no more than 3 million new shares which has the right, preference or priority on a parity with the Preferred Shares.

(c) “Market Stand-Off” Agreement. Each Holder agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company’s initial public offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed l80 days) (i) lend, offer, pledge, sell, contract

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to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Registrable Securities or other shares of the Company (whether then owned or thereafter acquired) or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Shares of the Company, whether any such transaction described in Section (i) or (ii) above is to be settled by delivery of Equity Securities or such other securities, in cash or otherwise. The underwriters in connection with the Company’s initial public offering are intended third party beneficiaries of this Section 10.05(c) and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.

(d) Termination of Registration Rights. Notwithstanding anything to the contrary in this Agreement, if: (i) the Company obtains from the Commission a “no-action” letter in which the Commission indicated that it will take no action if, without Registration under the Securities Act or other Applicable Securities Laws, any Holder disposes of Registrable Securities covered by any request for Registration made under this Agreement in the specific manner in which such Holder proposes to dispose of Registrable Securities included in that request (including, without limitation, inclusion of the Registrable Securities in an underwriting initiated by either the Company or the Holders) and that the Registrable Securities may be sold to the public without Registration or (ii) in the opinion of counsel for the Company , no Registration under the Securities Act (or other Applicable Securities Law) is required in connection with the disposition and that the Registrable Securities may be sold to the public without Registration, then the Registrable Securities included in the request for Registration, shall not be eligible for Registration under Section 10.01 with respect to the proposed disposition. Any Registrable Securities not so disposed of shall be eligible for Registration in accordance with the terms of this Agreement with respect to other proposed dispositions to which this Section 10.05(d) does not apply. In any event, these registration rights shall terminate on the fifth anniversary of a Qualified Public Offering.

(e) Assignment of Registration Rights. The right to cause the Company to Register Registrable Securities pursuant to this Agreement may be assigned by a Holder to a transferee or assignee of such securities [that (i) is an Affiliate of the Holder, or (ii) after such assignment or transfer, holds Registrable Securities representing at least 100,000 Ordinary Shares (subject to appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations)], provided that: (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement; (c) such transfer or assignment shall be effective only if immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under Applicable Securities Law; ; (e) the transfer is in connection with a transfer of all securities of the Company; and (f) the transfer is to constituent partners or

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shareholders who agree to act through a single representative. In the event of a transfer or assignment of Registrable Securities which does not satisfy the conditions set forth above, such securities shall no longer be deemed to constitute “Registrable Securities” for purposes of this Agreement.

(f) Exercise of Preferred Shares. Notwithstanding anything to the contrary provided in this Agreement, the Company shall have no obligation to Register Registrable Securities which, if constituting Ordinary Share Equivalents, have not been exercised, converted or exchanged, as applicable, for Ordinary Shares.

ARTICLE XI. PRE-EMPTIVE RIGHT

SECTION 11.01 Pre-emptive Right. (a) General. The Company hereby grants to the Preferred Shareholder a right of first refusal to purchase up to a pro rata share of the entirety of any New Securities which the Company may, from time to time, propose to sell and issue. A Preferred Shareholder’s “pro rata share”, for purposes of this pre-emptive right shall be determined according to the number of Ordinary Shares owned by the Preferred Shareholder immediately prior to the issuance of the New Securities (assuming the exercise, conversion or exchange of any Ordinary Share Equivalents) in relation to the total number of Ordinary Shares outstanding immediately prior to the issuance of the New Securities (assuming the exercise, conversion or exchange of any Ordinary Share Equivalents).

(b) Issuance Notice. In the event the Company proposes to undertake an issuance of New Securities, it shall give the Preferred Shareholder written notice (an “Issuance Notice”) of such intention, describing the type of New Securities, and their price and the general terms upon which the Company proposes to issue the same. Each Preferred Shareholder shall have thirty (30) days after any such notice is mailed or delivered to agree to purchase up to such Preferred Shareholder’s pro rata share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased.

(c) Sales by the Company. Upon the expiration of the above thirty (30) days notice period, the Company may sell any New Securities with respect to which the Preferred Shareholders’ right of first refusal under this Section 11.03 was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Issuance Notice. In the event the Company has not sold such New Securities within a 90-day period, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Preferred Shareholders in the manner provided in Section 11.03(a) above.

(d) Assignments and Transfers. No Third Party Beneficiaries. This Agreement and the rights and obligations of the parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives, but shall not otherwise be for the benefit of any third party. The rights of the Preferred Shareholder hereunder are only assignable (i) by such Preferred Shareholder to any other Preferred Shareholder, if any, (ii) to a partner or affiliate of such Preferred Shareholder or (iii) to an assignee or transferee who acquires all of the

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Equity Securities held by the Preferred Shareholder. This Agreement and the rights and obligations of any party hereunder shall not otherwise be assigned without the mutual written consent of the other parties.

(e) Legend. Each existing or replacement certificate for shares now owned or hereafter acquired by the Ordinary Shareholders shall, to the extent applicable, bear the following legend upon its face:

“THE SALE, PLEDGE, HYPOTHECATION, ASSIGNMENT OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF RIGHT OF FIRST REFUSAL, CO-SALE AGREEMENT AND/OR OTHER TRANSFER RESTRICTIONS, AS APPLICABLE, BY AND BETWEEN THE SHAREHOLDER, THE COMPANY AND CERTAIN PREFERRED SHAREHOLDERS OF SHARES OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.”

(f) Exception. Notwithstanding anything to the contrary contained in this Article XI, this Article XI shall not apply to the issuance of no more than [3 million] new shares of the Company in the second closing within 3 months after the Closing.

(g) Termination. This Article XI shall terminate upon a Qualified Public Offering.

ARTICLE XII. REDEMPTION RIGHT

SECTION 12.01 Redemption Rights of Preferred Shareholders. Subject to the terms and conditions of this Agreement and to the extent permitted by applicable laws, at any time and from time to time after December 31, 2009, upon request by the holders of at least 50% of the Preferred Shareholders, the Company shall redeem all of the outstanding Series A Preferred Shares. The amount payable to the redeeming party shall be converted into a debt payable over 12 months or on a payment schedule mutually agreed by the Company and the redeeming party. The redemption amount shall be equal to 1 time the original purchase price of the Series A Preferred Shares, as the case may be, plus a compound annual interest of 10% of such amount over the repayment period. The redemption amount shall be proportionally adjusted for share splits, share dividends, recapitalizations and similar events.

ARTICLE XIII. AFFILIATED TRANSACTION

SECTION 13.01 Affiliated Transactions. For any affiliated transaction that is to be entered into by the Company with any of its Affiliates or Affiliates of the Founders, the terms, conditions and consideration for such transaction shall be comparable to a normal arms-length transaction that is to be conducted in the market at the time such transaction is conducted. However, the transactions between the Domestic Company

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and the Group shall not be construed as affiliated transactions for the purpose of this Section 13.

ARTICLE XIV. PUT OPTION

SECTION 14.01 Put Right. Within two (2) years from the date of the Closing under the Series A Share Purchase Agreement, the Key Shareholders shall have the right to sell to the Preferred Shareholder the entire Shares held by such Key Shareholders pursuant to and in compliance with the terms hereof (“Put Option”). Such sale shall be made on the following terms and conditions:

(a) A Key Shareholder may exercise the Put Option only if all the Shares held by such Key Shareholder will be sold to the Preferred Shareholder, and a Key Shareholder is not allowed to only sell part of its/his Shares in exercising the Put Option;

(b) Put Option enjoyed by Key Shareholders are not transferable, and no purchaser or assignee of the Shares has the right to exercise the Put Option;

(c) The price per share at which the Shares are to be sold to the Preferred Shareholder shall be equal to eight point sixty five (8.65) times of the Net Operating Income (as defined in Section 14.02) per Share in the complete fiscal year preceding to the notice as mentioned in sub-paragraph (ii) hereafter as reflected in the consolidated financial statements of the Company audited by a Big-4 accounting firm. Any and all reasonable fees and expenses, including legal fees and out-of-pocket expenses, incurred pursuant to the exercise or the attempted exercise of such Put Option under this Agreement shall be deducted from the price payable by the Preferred Shareholder to such Key Shareholder.

(d) A Key Shareholder is only entitled to exercise Put Option once a year, subject to each sale of a minimum of 500,000 shares, within the two years of the Closing, and shall deliver a written notice (as specified in the subsection (c) below) within 10 days from the first and second anniversaries respectively for the purpose of exercising the Put Option;

(e) The Company shall have Net Operating Income for the first year of the Closing for exercising the first-year Put Option by a Key Shareholder, and shall have a higher amount of Net Operating Income for the second year than for the first year for exercising the second-year Put Option by the Key Shareholder;

(f) A Key Shareholder shall, if exercising the right created hereby, deliver to the Preferred Shareholder a written notice of selling all the Shares it/he holds in the Company to the Preferred Shareholder (“Put Option Notice”).

(g) The Preferred Shareholder shall purchase the Shares specified to be sold under the Put Option Notice. The payment of the purchase price can be made in cash or shares issued by the Preferred Shareholder (“Consideration Shares”);

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(h) At least 50% of the purchase price for the Shares shall be paid in cash up to USD 4,800,000 in aggregate for total annual exercise; provided, however, that (i) if the Investor and exercising Key Shareholders mutually desire, the cash portion of the purchase price can be lower than 50%; or (ii) at the choice of the Preferred Shareholder, the total annual cash payment can be higher than USD4,800,000. The Preferred Shareholder shall, within forty-five (45) days upon receipt of the notice described above from the Key Shareholder(s) exercising the right created hereby, elect to pay the purchase price in cash or the Consideration Shares, after deducting the amount of reimbursable fees and expenses, as specified above. The price of the Consideration Shares shall be the average weighted trading price of the shares of the Preferred Shareholder in the past thirty (30) trading days prior to the date of the Put Option Notice].

(h) The payment of the purchase price pursuant to paragraph (g) above shall be made against delivery of the certificate or certificates representing Shares to be sold, together with a transfer form signed by the Key Shareholder(s) transferring such Shares to the Preferred Shareholder.

(i) The Consideration Shares obtained by the Shareholder(s) shall be subject to lock-up for a period of two (2) years. A Key Shareholder can only dispose of one half (1/2) of the Consideration Shares it received in every year during such lock-up period.

(j) The Put Option will terminate upon the earliest to occur of (i) immediately prior to the effectiveness of the registration statement for the Company’s Qualified IPO, (ii) the effectiveness of any reorganization, consolidation, merger, sale or transfer of the Company’s outstanding Shares or similar transaction (excluding a sale of shares by the Company for capital raising purposes) in which (A) the members of the Company immediately prior to such reorganization, merger or consolidation, sale or transfer of shares or similar transaction do not (by virtue of their ownership of securities of the Company immediately prior to such transaction) beneficially own shares possessing a majority of the voting power of the surviving company or companies immediately following such transaction and (B) the consideration received in such transaction by members of the Company (by virtue of their ownership of securities of the Company immediately prior to such transaction) consists solely of cash and/or securities of any entity for which such class of securities has been and continues to be traded on an internationally-recognized securities exchange, and (iii) immediately prior to the effectiveness of the sale, lease or disposition by the Company of all or substantially all of the Company’s assets in which (A) the members of the Company immediately prior to such sale, lease or disposition do not (by virtue of their ownership of securities of the Company immediately prior to such transaction) beneficially own shares possessing a majority of the voting power of the purchasing entity and (B) the consideration received in such transaction by the Company consists solely of cash and/or securities of any entity for which such class of securities has been and continues to be traded on an internationally-recognized securities exchange.

SECTION 14.02 Net Operating Income. For the purpose of this Clause, the “Net Operating Income” as used in this Section shall mean Net Income less Non-Operating Income excluding Interest Income and Dividend Income (the terms

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“Net Income”, “Non-Operating Income”, “Interest Income” and “Dividend Income” are defined in US GAAP).

In calculating the “Net Operating Income”:

(a) No provision shall be made for revenues recognized but not collected for less than 3 months unless the customer in question has entered voluntary or involuntary bankruptcy proceeding, is under financial distress or is otherwise in a condition which the Board shall reasonably believe will impact its ability to perform its payment obligations to the Company;

(b) Provisions shall be made for revenues recognized but not collected for 3 months or longer in the following percentages:

(i) 30%, if more than 3 months but less than 4 months,

(ii) 70%, if more than 4 months but less than 5 months, and

(iii) 100%, if more than 5 months;

which provisions shall be deducted from the Net Operating Income of the relevant fiscal year.

ARTICLE XV. ISSUANCE OF ADDITIONAL PREFERRED SHARES

SECTION 15.01 Issuance of Additional Shares based on 2006 Accounts. Upon the delivery by the Company of the Company’s audited consolidated financial statements for the 12 month period ending on March 31, 2007 prepared in accordance with the US GAAP and audited by a Big-Four accounting firm mutually selected by the Company and the Series A Preferred Shareholder (the “2006 Accounts”):

If the Net Operating Income reflected in the 2006 Accounts (“2006N”) is less than US$10,000,000, the Preferred Shareholder shall be entitled to purchase additional Preferred Shares from the Company at a consideration being par value of the Shares. The number of the additional Preferred Shares shall be calculated as follows:

ANP = NP×(10,000,000/2006N* ISR2006 - 1)

For the purpose of this Section 15.01:

NP = The number of Series A Preferred Shares issued on Closing

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ANP = Additional number of preferred shares to be issued

ISR 2006 = (Number of issued shares and warrants as of December 31,2006- Ordinary Shares issued for the exercise of the employee Stock Option Pool) / (number of issued shares and warrants as of the Closing + Ordinary Shares actually issued for Happy Digital)

If 2006N is less than USD 5 million, the Preferred Shareholder has the option to further buy additional 6 million Series A Preferred Shares at the price of higher of 8.65 times of the Net Operating Income per Share or $1 per share.

Notwithstanding anything to the contrary in this Section 15.01, in no event should ANP exceed 7.5 million shares.

SECTION 15.02 Issuance of Additional Shares based on 2007 Accounts. Upon the delivery by the Company of the Company’s audited consolidated financial statements for the fiscal year ending on December 31, 2007 prepared in accordance with the US GAAP and audited by a Big-Four accounting firm mutually selected by the Company and the Series A Preferred Shareholder (the “2007 Accounts”):

If the Net Operating Income reflected in the 2007 accounts (“2007N”) is less than US$17,000,000, the Preferred Shareholders shall be entitled to purchase additional Preferred Shares from the Company at a consideration being par value of the Shares. The number of the additional Preferred Shares shall be calculated as follows:

ANP = NP×(17,000,000/2007N*ISR2007 - 1)

For the purpose of this Section 15.02:

NP = the number of Series A Preferred Shares issued on Closing

ANP = Additional number of preferred shares to be issued

ISR2007 = (Number of issued shares and warrants as of December 31,2007- Ordinary Shares issued in the exercise of the employee Stock Option Pool) /(number of issued shares and warrants as of Closing + Ordinary Shares actually issued for Happy Digital)

In case the additional Preferred Shares have been already issued to the Preferred Shareholder according to Section 15.01, then the additional Preferred Shares issued under this Section 15.02 shall be calculated as follows:

ANP = NP×(17,000,000/2007N*ISR2007 - 1) - ANP1

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ANP1 = The number of additional Preferred Shares already issued according to Section 15.01

Notwithstanding anything to the contrary in this Section 15.02, in no event should ANP plus ANP1 exceed 7.5 million shares.

SECTION 15.03 Exercise of Options. The Preferred Shareholder’s option to purchase the additional shares under this Article XV shall expire after the closing of a Qualified Public Offering. Prior to such expiry, the Preferred Shareholder may assign its right under the option to a no-competing third party.

SECTION 15.04 Net Operating Income. For the purpose of this Section, the “Net Operating Income” as used in this Section shall mean Net Income less (Non-Operating Income excluding Interest Income and Dividend Income) plus Stock Based Compensation plus amortization expenses related to the 3 million shares of warrants issued to JCE to the extent that the valuation of such warrants exceeds $1 per share ( the terms “Net Income”, “Non-Operating Income”, “Interest Income”, “Dividend Income” and “Stock Based Compensation” are defined in US GAAP). If the Net Operating Income is negative in either 2006 or 2007, then it will be 0 in calculating the formula set forth in Sections 15.01 and 15.02.

In calculation of the Net Operating Income:

(a) No provision shall be made for revenues recognized but not collected for less than 3 months unless the customer in question has entered voluntary or involuntary bankruptcy proceeding, is under financial distress or is otherwise in a condition which the Board shall reasonably believe will impact its ability to perform its payment obligations to the Company;

(b) Provisions shall be made for revenues recognized but not collected for 3 months or longer in the following percentages:

(i) 30%, if more than 3 months but less than 4 months,

(ii) 70%, if more than 4 months but less than 5 months, and

(iii) 100%, if more than 5 months;

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which provisions shall be deducted from the Net Operating Income of fiscal year 2006 or 2007, as the case may be, unless such provisions have already been reflected in the 2006 Accounts or 2007 Accounts, as the case may be.

(c) Upon actual collection in cash of revenues for which provisions have been made hereunder, such collected revenues less collection expenses shall be deducted from the provisions account and reflected in the Net Operating Income for 2006 or 2007, as the case may be; provided, however, that the cash collection period shall not exceed 12 months following the date on which the revenue recognition.

(d) The calculation of Net Operating Income as provided in this Section 15 shall be based on accounts closed on (A) March 31, 2007, in the case of the 2006 Accounts, and December 31, 2007, in the case of the 2007 Accounts, or (B) three months prior to a planned Qualified Public Offering, whichever is earlier. The Series A Preferred Shareholder shall have the right to retain an auditor at its own expense to validate the actual revenue collection for the purpose of the adjustment to the Net Operating Income as provided hererin. Such adjustments to the calculation of Net Operating Income for the purpose of determining the number of additional Preferred Shares to be issued shall be deemed to be effected immediately prior to the closing of the Qualified Public Offering.

ARTICLE XVI MISCELLANEOUS

SECTION 16.01 Insurance. The Company shall procure Directors’ Personal Liability Insurance for each of the Directors at least six months before a Qualified Public Offering or liquidation.

SECTION 16.02 Successors and Assigns. (a) This Agreement is personal to the Parties hereto and save as expressly provided herein, none of them may assign, mortgage, charge or sub-license any of their respective rights herein, or sub-contract or otherwise delegate any of its obligations herein, except with the prior written consent of the other Parties hereto.

(b) Subject to sub-Section (a) above, this Agreement shall be binding on and inure for the benefit of the successors, permitted assigns and personal representatives (as the case may be) of each of the Parties hereto.

SECTION 16.03 Cumulative Rights. Unless otherwise provided in this Agreement, any remedy conferred on any Party hereto for breach of this Agreement shall be in addition and without prejudice to all other rights and remedies available to it.

SECTION 16.04 Entire Agreement; Amendments. (a) Entire Agreement. This Agreement shall supersede all and any previous agreements, understandings or arrangements (if any) between and among the parties hereto or any of them in relation to the subject matter hereof and all or any such previous agreements, understandings or arrangements (if any) shall cease and determine with effect from the date hereof. This Agreement constitutes the whole agreement between and among the Parties hereto or any of them in relation to the subject matter hereof (no Party having relied on any representation, warranty or undertaking made by any other party which is not a term of this Agreement).

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(b) Amendment. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of each of (i) the Company, (ii) the Preferred Shareholders, and (iii) Ordinary Shareholders representing 60% of the Equity Securities (on as-converted basis) held by all the Ordinary Shareholders. Any amendment or waiver effected in accordance with this paragraph shall be binding upon the parties and their respective successors and assigns.

SECTION 16.05 Further Assurance. Each of the Parties hereto undertakes with each of the other Parties that it shall do, or shall procure to be done, all such acts and things and shall execute, or shall procure to be executed, all such documents as may be necessary or appropriate to implement the provisions of this Agreement or otherwise to give full legal force and effect thereof.

SECTION 16.06 Severability. The Parties hereto intended that the provisions of this Agreement shall be enforced to the maximum extent permissible under the laws applied in each jurisdiction in which enforcement of any provisions of this Agreement is sought. If any particular provision or part of this Agreement shall be held to be invalid or unenforceable, this Agreement shall be deemed to be amended by the deletion of the provision or part held to be invalid or unenforceable or, to the extent permissible by the applicable laws of the relevant jurisdiction in which such enforcement is sought, such provision or part shall be deemed to be varied in such a way as to achieve most closely the purpose of the original provision or part in a manner which is valid and enforceable, provided that for the avoidance of doubt, such amendments shall apply only with respect to the operation of this Agreement in the particular jurisdiction in which the decision as to invalidity or unenforceability is made.

SECTION 16.07 Non-waiver. No delay or omission on the part of any Party hereto in exercising any right, power or privilege shall operate to impair such right, power or privilege or be construed as a waiver by such Party of the same and no single or partial exercise or non-exercise or delay in exercising any right, power or privilege by any Party hereto shall in any circumstances preclude any other or further exercise by such Party of such right, power or privilege or the exercise of any other right, power or privilege by such Party.

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SECTION 16.08 Counterparts. This Agreement may be executed in counterparts and by different Parties hereto on separate copies or counterparts and which taken together shall constitute one and the same agreement. The facsimile transmissions of any executed original document (including without limitation, any page of an original document on which an original signature appears) and/or retransmission of any such facsimile transmission shall be deemed to be the same as the delivery of an executed original. At the request of any Party hereto, the other Parties hereto shall confirm facsimile transmissions by executing duplicate original documents and delivering the same to the requesting party or parties.

SECTION 16.09 Dispute Resolution; Governing Law. (a) Any dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation, breach, termination or validity hereof, shall be resolved through consultation. Such consultation shall begin immediately after one Party hereto has delivered to the other Party hereto a written request for such consultation. If within thirty (30) days following the date on which such notice is given the dispute cannot be resolved, the dispute shall be submitted to arbitration upon the request of either Party with notice to the other.

(b) The arbitration shall be conducted in Hong Kong under the auspices of the Hong Kong International Arbitration Centre (“HKIAC”) in accordance with its arbitration rules. There shall be a single arbitrator. If the parties do not agree to appoint an arbitrator who has consented to participate within thirty (30) days after a notice of arbitration, the relevant appointment shall be made by HKIAC.

(c) The arbitration proceedings shall be conducted in English.

(d) Each Party hereto shall cooperate with the other(s) in making full disclosure of and providing complete access to all information and documents requested by the other in connection with such arbitration proceedings, subject only to any confidentiality obligations binding on such party.

(e) The award of the arbitration tribunal shall be final and binding upon the disputing parties, and the prevailing party may apply to a court of competent jurisdiction for enforcement of such award.

(f) Any Party in dispute with another shall be entitled to seek preliminary injunctive relief from any court of competent jurisdiction pending the constitution of the arbitral tribunal.

(g) This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to provisions regarding choice of laws or conflict of laws.

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SECTION 16.10 Effectiveness. This Agreement shall take effect, after being duly executed and delivered by the Investor and the Ordinary Shareholders (including the Key Shareholders) representing 51% or more of the vote of the Ordinary Shareholders, upon the effectiveness of the Series A Share Subscription Agreement.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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SCHEDULE 1

Particulars of the Company

as at the date of this Agreement

1.	Name:	T2CN Holding LTD.
2.	Date of Incorporation:	May 7, 2004
3.	Country of incorporation	British Virgin Islands,
	and status of company:	International Business Company
4.	Registered number:
5.	Registered office:	offices of S-HR&M Financial Service Limited of Kingston Chambers P.O.Box 173, Road Tow, Tortola, British Virgin Islands
6.	Share capital:	USD 500,000
7.	Issued shares:	31,928,001
8.	Directors:	TAO FENG, BO FENG, JI WANG, JUN-TSE TENG,
9.	Secretary:	N/A
10.	Financial year end:	December 31

SCHEDULE 2

List of Key Shareholders

2-1    List of Founders

Ji Wang

Yanqing Li

Jun-Tse Teng

2-2    List of Management

William Zhu

Yu-Chia Lee

Weigang YE

2-3 List of Other Key Shareholders

Chengwei (China) Investment Company

Michelle Cote-Dear

D Bruce Horton

T. Robert Horton

Bradley N. Scharfe

Guy Peckham

Newmargin T2CN Investment Ltd.

Kingland and Overseas Development Inc.

Bryan M. Dear

Calneva Financial Group

EX-4.38

Exhibit 4.38

STRATEGIC PARTNERSHIP AGREEMENT

THIS STRATEGIC PARTNERSHIP AGREEMENT (the “Agreement”) is entered into as of April 27, 2006 by and between T2CN HOLDING LIMITED, a British Virgin Islands company (“T2CN”) with its registered address at the offices of S-HR&M Financial Services Limited of Kingston Chambers, P.O. Box 173, Road Town, Tortola, British Virgin Islands, and GIGAMEDIA CHINA LIMITED (“GigaMedia”) with its office at 122 TunHwa North Road – 14/F, Taipei, Taiwan ROC.

RECITALS:

A. Whereas T2CN operates a leading game platform in China with over 21 million registered users and desires to expand and enrich its game offerings to its user base, in particular in the table and board game sector; and

B. Whereas GigaMedia – through its FunTown game portal – is a leading MahJong and other board, card, chess and table game provider, and desires to expand its offering of its games in China; and

C. Whereas T2CN and GigaMedia thereby desire to form a strategic partnership for mutual benefit to offer GigaMedia’s board and table games to T2CN’s user base.

NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth, the Parties hereto do agree as follows:

1. FORMATION OF STRATEGIC PARTNERSHIP

T2CN and GigaMedia hereby agree to form a strategic partnership in the table chess, card and board casual game sector to expand and enrich the casual game offerings to T2CN’s user base, for the mutual benefit of T2CN and GigaMedia.

2. MAJOR TERMS OF THE STRATEGIC PARTNERSHIP

a. T2CN and GigaMedia shall together offer GigaMedia’s MahJong and other table, chess, card and board games to T2CN user base on standard and customary market terms – specifically, a revenue

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sharing arrangement – provided, however, that T2CN will not be required to make any up-front software licensing payment to GigaMedia.

b. T2CN agrees that GigaMedia will be the exclusive provider of MahJong and the other board, card, chess and table games types currently offered by FunTown for an initial period of two years, and will be the preferred provider to T2CN of any new games or game types developed by GigaMedia, provided that condition (c) is satisfied.

c. GigaMedia ensures to develop and update its games as necessary so that its game offerings remain competitive within the marketplace at competitive terms.

d. T2CN and GigaMedia shall together plan, organize, market and operate casual game tournaments for the games provided by GigaMedia.

e. T2CN and GigaMedia shall together explore joint development of new casual games for the Asian marketplace and overseas Asians.

3. MISCELLANEOUS

3.1. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PROVISIONS REGARDING CHOICE OF LAWS OR CONFLICT OF LAWS.

3.2. Survival. The representations, warranties, covenants and agreements made herein shall survive any investigation made by any party hereto and the closing of the transactions contemplated hereby.

3.3. Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto whose rights or obligations hereunder are affected by such amendments. This Agreement and the rights and obligations therein may not be assigned without the prior written consent of the other Party.

3.4. Entire Agreement. This Agreement constitutes the entire understanding and agreement between the Parties with regard to the subjects hereof and thereof; provided, however, that nothing in this Agreement or related agreements shall be deemed to terminate or supersede the provisions of any confidentiality and nondisclosure agreements executed by the parties hereto prior to the date hereof, which agreements shall continue in full force and effect until terminated in accordance with their respective terms.

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3.5. Amendments and Waivers. Any term of this Agreement may be amended only with the written consent of the other Party.

3.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

3.7. Further Assurances. Each party shall from time to time and at all times hereafter make, do, execute, or cause or procure to be made, done and executed such further acts, deeds, conveyances, consents and assurances without further consideration, which may reasonably be required to effect the transactions contemplated by this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date herein above first written.

T2CN HOLDING LIMITED
By:	/s/ Jun-Tse TENG
Name:	Jun-Tse TENG
Title:	Chief Executive Officer
GIGAMEDIA CHINA LIMITED
By:	/s/ Arthur WANG
Name:	Arthur WANG
Title:	Chief Executive Officer

Page 3

EX-4.39

Exhibit 4.39

(English translation – For reference only)

Assets Purchase and Sale Agreement

HOSHIN GIGAMEDIA CENTER INC.

and

WEBS-TV DIGITAL INTERNATIONAL CORPORATION

15 May 2006

Contents

1.	Definition	3
2.	Object of Transaction	5
2.1	Transfer of “ADSL Business”	5
2.2	Completion of Transaction	5
2.3	Sale and purchase of Object of Transaction	5
2.4	Transfer of Assumed Liabilities	6
2.5	Employees	6
2.6	Sales Price	6
2.7	Methods of payments	7
2.8	Guarantee of Payments	8
3.	Object of Licensing	9
3.1	“Self-Developed Software”	9
3.2	Trademark	9
3.3	Internet connection	10
3.4	Internet service equipment and traffic	10
3.5	Exclusion of Third-Party Licensing Software	10
4.	Seller’s Statement and Certification	10
4.1	Company organization and status	10
4.2	Enforceability	11
4.3	Legal rights of Object of Transaction	11
4.4	Conformity to relevant laws and regulations	11
4.5	Disclosure	11
4.6	Guaranty of legality of intellectual property transfer and licensing	11
4.7	Non-competition	11
5.	Buyer’s Statement and Certification	12
5.1	Company organization and status	12
5.2	Enforceability	12
5.3	Sufficient Funding	12
6.	Indemnity Liability	12
6.1	Seller’s indemnity liability	12
6.2	Buyer’s indemnity liability	12
6.3	Limitation on liabilities	12
7.	Parties’ Obligations after Completion of Transaction	13
7.1	Administrative services	13
7.2	Separate account	13
8.	Miscellaneous	14
8.1	Publish and disseminate press releases	14

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8.2	Seller’s Code of Business Conduct and Ethics	14
8.3	Alteration and modification	14
8.4	Non-waiver of the rights	14
8.5	Transaction expenses	14
8.6	Notification	14
8.7	Confidentiality	15
8.8	Applicable law	15
8.9	Entire agreement	15
8.10	Saving clause	16
8.11	Language	16

Attachment 2.3(A)	Equipment List	19
Attachment 2.3(B)	Business Agreements List	19
Attachment 2.3(C)	Customer Information List	19
Attachment 2.4	Assumed Liabilities List	19
Attachment 2.6	Content and Calculation Methods of “Estimated Income of ADSL Business”	19
Attachment 3.1	Self-Developed Software List	19
Attachment 3.2	Third-Party Licensing Software List	19
APPENDIX A	Service Agreement	19
Attachment I	Scope of Party A Bandwidth Support Service	19
Attachment II	Scope of Customer Service and Calculation of Service Fee	19

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Assets Purchase and Sale Agreement

This Assets Purchase and Sale Agreement (“this Agreement”) is entered into on the 15^th day of May, 2006 by and among the following parties:

(1) HOSHIN GIGAMEDIA CENTER INC., a company duly organized and existing under the laws of the Republic of China, having its principal office at 14F, No. 122, Dun-Hua North Road, Taipei (“Seller”), and

(2) WEBS-TV DIGITAL INTERNATIONAL CORPORATION, a company duly organized and existing under the laws of the Republic of China, having its principal office at 12F, No. 100, Civic Boulevard, Section 4, Taipei (“Buyer”)

(3) Kevin Cheng, a citizen of the Republic of China, ID number: N121818568, residing at No. 29-2, Xia-Lun Road, Wen-Shan District, Taipei; Morse Chen, a citizen of the Republic of China, ID number: Y120277954, residing at 3F, No. 24, Lane 372, Song-Jiang Road, Zhong-Shan District, Taipei (“Joint Guarantors”)

(Seller or Buyer hereinafter respectively referred to as “Party,” and collectively “Parties.”)

WHEREAS, Seller holds a Type II Telecommunications Enterprise license and operates ADSL and Cable Modem broadband Internet services and other related business;

WHEREAS, Buyer desires to buy “Object of Transaction” relating to “ADSL Business” (defined as follows), and Seller desires to sell “Object of Transaction” to Buyer according to the terms and conditions of this Agreement.

NOW, THEREFORE, Parties hereby agree as follows:

1. Definition

Unless otherwise prescribed in this Agreement, the following terms are defined as follows:

“Object of Transaction” means customers, business, and assets listed in Attachment 2.3 that are related to “ADSL Business” that Buyer desires to purchase.

“ADSL Business” means broadband Internet connection services via ADSL provided by Seller to individual customers.

“Assumed Liabilities” means liabilities relating to “Object of Transaction” that Buyer plans to assume and that are listed in Attachment 2.4.

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“Completion of Transaction” means Seller completes transfer of “ADSL Business” to Buyer, which is defined in Article 2.2.

“Transaction Completion Date” is defined in Article 2.2.

“Unrealized Prepayments from Customers” means prepayments from customers to Seller for services not yet provided by Seller before “Transaction Completion Date.”

“Estimated Income of ADSL Business” means the balance of NT$104,836,657, which is arrived at by subtracting “ADSL Costs” and “ADSL Expenses” from 2005 “Realized Business Income” relating to “ADSL Business” listed in Seller’s 2005 “Projected Financial Reports.” The detailed content and calculation method are listed in Attachment 2.6.

“Encumbrances” means all claims, requests, mortgages, liens, or other encumbrances, options, or privileges relating to rights in rem.

“Equipment” means all Internet equipment and other relevant installation documents provided necessary for Seller to provide ADSL broadband services. A detailed list is in Attachment 2.3(a).

“Generally Accepted Accounting Principles (GAAP)” means Generally Accepted Accounting Principles of the Republic of China, which shall be followed by ROC companies when they make financial reports. Each Party, when applying the Principles, shall also conform to the accounting principles followed when it made financial reports of the previous years.

“Business Agreements” means all existing valid agreements signed by Seller for operating “ADSL Business” that Buyer plans to assume. A detailed list is in Attachment 2.3(b).

“Self-Developed Software” means software that is researched and developed by Seller for operating “ADSL Business.” A detailed list is in Attachment 3.1.

“Third-Party Licensed Software” means software licensed from a third party to Seller for operating “ADSL Business.” A detailed list is in Attachment 3.2.

“Sales Price” is defined in Article 2.6.

“Republic of China” or “Taiwan” means the Republic of China.

“Customers” means individual customers who have signed agreements with Seller before “Completion of Transaction” to utilize broadband Internet services provided by Seller, but it does not include individual customers who have terminated “Customer Agreements” or have removed ADSL broadband Internet services devices before “Completion of Transaction.”

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“Customer Agreements” means “GIGA Supra-Internet Services Utilization Agreement,” “GIGA ADSL Supra-Internet General Conditions,” and existing and valid agreements as of “Completion of Transaction” that are signed by and between “Customers” and Seller.

“Service Agreement” is defined in Article 7.1.

2. Object of Transaction

2.1 Transfer of “ADSL Business”

According to the terms and conditions of this Agreement, Seller shall transfer to Buyer and Buyer shall accept Object of Transaction and Assumed Liabilities relating to ADSL Business upon Completion of Transaction.

2.2 Completion of Transaction

Unless otherwise agreed by Parties, the transfer of ADSL Business shall be completed at 12 pm on 15 May 2006. Transaction Completion Date shall be set at 4 p.m. on 15 May 2006 at Seller’s office or another place agreed by Parties.

2.3 Sale and purchase of Object of Transaction

According to the terms and conditions of this Agreement, upon Completion of Transaction, Seller shall sell, transfer, and deliver to Buyer, and Buyer shall purchase and accept from Seller the following customers, business, and assets relating to ADSL Business (collectively “Object of Transaction”):

(a) All Equipment necessary for operating ADSL Business, as listed in Attachment 2.3 (a).

(b) Business Agreements relating to ADSL Business are listed in Attachment 2.3 (b); but each Business Agreement may be transferred only upon the consent of the other party thereto.

(c) Rights and obligations under all valid Customer Agreements as of Completion of Transaction, including but not limited to information, database, documents, and materials related to Customer Agreements. Customer information and the use of it are listed in Attachment 2.3 (c).

(d) Other necessary information, database, documents, and materials related to Object of Transaction.

(e) Object of Transaction include the permanent use of Self-Developed Software, but not Third-Party Licensed Software.

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2.4 Transfer of Assumed Liabilities

According to the terms and conditions of this Agreement, upon Completion of Transaction, Seller shall transfer and Buyer shall assume and agree to perform Assumed Liabilities listed in Attachment 2.4. Regarding the transfer and assumption of Business Agreements, Seller shall inform and request the other party of each Business Agreement to reply whether it consents to the transfer and assumption within 30 days after Transaction Completion Date. For those Business Agreements which the other parties do not agree to the transfer, Seller shall be responsible for exercise of rights and fulfillment of obligations under those agreements, or the termination of those agreements. Buyer is not required in any way to negotiate with the other parties. Buyer’s obligation to pay Sales Price will not be influenced or altered in any way.

2.5 Employees

Seller shall provide Buyer on Transfer Completion Date with a list of employees (“Chosen Employees”) whose job responsibilities are related to ADSL Business and whom will be hired by Buyer afterwards.

Seller agrees to inform Chosen Employees within 14 days after Transaction Completion Date that their employment agreements with Seller will be terminated on 31 August 2006, and Seller agrees to assist Buyer in hiring Chosen Employees starting from 1 September 2006. However, Seller does not guarantee that Chosen Employees will accept Buyer’s offer of employment. Seller shall be responsible for all legal severance pay, salaries, bonus, and all other payments due before the termination of their employment agreements.

2.6 Sales Price

The sales price at which Seller sells Object of Transaction to Buyer is NT$320,000,000 (“Sales Price”), which is calculated by multiplying 3.0524 by the NT$104,836,657 Estimated Income of ADSL Business indicated in Attachment 2.6. NT$19,375,000 (tax included) of Sales Price is for the sale of Equipment necessary for ADSL Business in Article 2.3, and NT$7,000,000 of Sales Price is for severance pay to be paid to Chosen Employees. The Parties agree to subtract NT$72,000,000 (tax included) of service fees that Buyer shall pay to Seller on Transaction Completion Date according to Service Agreement from Unrealized Prepayments from Customers that Seller shall transfer to Buyer. Parties also agree that the closing date is 15 May 2006, and that the

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remaining Unrealized Prepayments from Customers will be subtracted from the second installment of Sales Price that Buyer pays to Seller. If Unrealized Prepayments from Customers calculated by Seller are less than NT$72,000,000 (tax included) on the closing date, Buyer shall immediately refund the difference in amount to Seller upon receiving Seller’s notice. Sales Price includes VAT that Buyer shall pay.

2.7 Methods of payments

Buyer shall pay Sales Price to Seller in installments as follows:

(a) Buyer shall pay NT$30,000,000 to Seller on Transaction Completion Date as the first installment by wire-transfer to Seller’s designated account.

(b) On Transaction Completion Date, Buyer shall issue the following eight checks to Seller to pay the second to ninth installments:

(1) Second installment: issuing date is 31 July 2006, and the amount is NT$30,000,000.

(2) Third installment: issuing date is 31 August 2006, and the amount is NT$50,000,000.

(3) Fourth installment: issuing date is 31 October 2006, and the amount is NT$30,000,000.

(4) Fifth installment: issuing date is 30 November 2006, and the amount is NT$10,000,000.

(5) Sixth installment: issuing date is 31 January 2007, and the amount is NT$20,000,000.

(6) Seventh installment: issuing date is 30 April 2007, and the amount is NT$50,000,000.

(7) Eighth installment: issuing date is 30 June 2007, and the amount is NT$50,000,000.

(8) Ninth installment: issuing date is 31 July 2007, and the amount is NT$50,000,000.

If Buyer does not pay the installments according to the terms and amounts in this Article and fails to rectify the default within 30 days after receiving Seller’s notice, Seller may terminate this Agreement with written notice. The termination shall be effective upon Buyer’s receiving such written notice (“Termination Date”). Buyer shall return Object of Transaction to Seller on Termination Date in the following manner:

(i) Buyer agrees to transfer title to Equipment that Buyer provides to Seller for its use without charge on Termination Date. Seller will possess Equipment as an owner after Termination Date.

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(ii) Business Agreements and Customer Agreements: Buyer agrees that Seller, starting from Termination Date, may inform the other parties and customers of ADSL Business’s transfer back to Seller on Termination Date. Seller is responsible for fulfilling obligations under Business Agreements and Customer Agreements starting from Termination Date. Buyer does not have any rights to claim payments from the other parties and customers to Seller, but Buyer has the rights to claim the business income occurred before Termination Date.

(iii) Buyer agrees to deliver or return to Seller on Termination Date other necessary information, database, documents, and materials relating to Object of Transaction.

(iv) Buyer agrees to terminate ADSL Business starting from Termination Date and to provide Seller with all necessary assistance to enable Seller to operate ADSL Business again starting from Termination Date.

In addition to the aforementioned obligations, Sales Price that Buyer paid to Seller before Termination Date is deemed a penalty for breach of the agreement, and Buyer cannot ask Seller to refund the payments. If the penalty is not enough to cover the damages, Seller may claim for damages by other means.

2.8 Guarantee of Payments

In order to guarantee Buyer’s obligation to pay under this Agreement and Service Agreement signed according to Article 7.1 of this Agreement, Buyer agrees to perform the following:

(a) Buyer agrees to have Kevin Cheng and Morse Chen become its Joint Guarantors, to sign on this Agreement and Service Agreement to waive their rights of guaranty of collection under Article 745 of the Civil Code, and to be jointly and severally liable for Buyer’s due payments and interest and damages arising from this Agreement and the Service Agreement.

(b) Joint Guarantors Kevin Cheng and Morse Chen agree to indorse and deliver the Buyer’s shares they own (Kevin Cheng owns 590,196 shares, and Morse Chen

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owns 1,503,386 shares) to Seller so that Seller may obtain the pledge on their shares within 30 days after Completion of Transaction to guarantee Buyer’s payment obligations under this Agreement and Service Agreement. Unless Buyer violates its obligations under this Agreement, the interests derived from the pledged shares still belong to Joint Guarantors. Joint Guarantors certify that the above shares are all the shares held by them in Buyer as of Transaction Completion Date, and that they have not underreported or concealed the shares they own.

3. Object of Licensing

3.1 “Self-Developed Software”

Seller agrees to license to Buyer perpetual use of Self-Developed Software listed in Attachment 3.1 starting from Completion of Transaction, but Buyer shall not transfer or license Self-Developed Software to any third party. Seller agrees to provide, free of charge, one-year maintenance service for Self-Developed Software starting from Completion of Transaction, but Seller is not responsible for any updates, revision, or upgrades of Self-Developed Software. Buyer may update, revise, or upgrade the Software for ADSL Business by itself, but Parties jointly own the copyrights of the Software that is updated, revised, or upgraded.

3.2 Trademark

Seller agrees to license to Buyer rights to use Seller’s “Giga ADSL” trademark when Buyer provides ADSL services to its customers within five years after Completion of Transaction; after the five-year period, Buyer shall use its own trademark. During the licensing period, however, if Seller finds that Buyer impairs the value of the Giga ADSL trademark, Seller may withdraw its licensing. In addition, Buyer shall be responsible for all civil/criminal and administrative liabilities, defense for Seller in all related negotiations, arbitrations, and litigations, and pay settlement sums or all expenses and damages for which Seller is liable that are determined by court rulings or arbitration awards. Buyer shall also be liable for Seller’s damage due to Buyer’s impairing value of Seller’s trademark, including but not limited to, loss of goodwill, the costs and expenses for resolving the disputes, attorney’s fee, and arbitration/litigation fee. Buyer shall not settle with any third party regarding the above disputes without written consent from Seller.

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3.3 Internet connection

Seller agrees to provide Buyer with the connections necessary for ADSL services at www.giga.net.tw within five years after Completion of Transaction. If during this period, Seller finds that Buyer abuses the connections, Seller may cancel or terminate the connections at any time, and Buyer shall be responsible for any damage to Seller.

3.4 Internet service equipment and traffic

Seller agrees to license Buyer to provide Customers in this Agreement with services of GigaADSL Mail, GigaADSL Photoshop, and GigaADSL hard disk (hereinafter collectively referred to as “Customer Value-Added Services”) within five years after Completion of Transaction. Buyer guarantees that the IP traffic caused by Customer Value-Added Services will be transmitted free of charge by Seller and Seller’s affiliate AS Number (Autonomous System Number). If Buyer needs to add equipment because of providing Customer Value-Added Services after Completion of Transaction (“Added Equipment for Customer Value-Added Services”), Buyer shall purchase the equipment itself, but Seller agrees that Buyer can put Added Equipment for Customer Value-Added Services in Seller’s control room. At present, Seller agrees to provide Buyer, free of charge, with 13 cabinets to locate Equipment for Customer Value-Added Services. If additional cabinets are required for Added Equipment for Customer Value-Added Services, usage fee for each cabinet is NT$8,925 (tax included).

3.5 Exclusion of Third-Party Licensed Software

The Object of Licensing of this Agreement does not include Third-Party Licensed Software listed in Attachment 3.2. Starting from Completion of Transaction, Seller may assist Buyer, according to its request, to obtain the license to use the software from the owner of Third-Party Licensed Software. However, Seller does not guarantee that Buyer can obtain the license from the owner of Third-Party Licensed Software, and it does not guarantee that the owner of Third-Party Licensed Software will license Buyer with the same licensing conditions.

4. Seller’s Representations and Warranties

Seller herby represents and warrants to Buyer as follows:

4.1 Company organization and status

Seller is a company duly organized and existing under the laws of the Republic of China, which has obtained all necessary internal authorization and permission to sign, deliver, and perform this Agreement.

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4.2 Enforceability

This Agreement imposes legal, valid, and binding obligations on Seller, and Buyer can enforce the provisions of this Agreement against Seller. Seller possesses absolute and unlimited capacity and authorization to sign, deliver, and perform this Agreement, and Seller has obtained permission from its Board of Directors.

4.3 Legal rights in Object of Transaction

Seller has the legal right to possess and use Object of Transaction. When Seller transfers to Buyer Object of Transaction listed in Attachment 2.3, Buyer obtains valid ownership and use without Encumbrances.

4.4 Compliance of relevant laws and regulations

Seller is in compliant to relevant laws, regulations, and court orders that are necessary for possessing Object of Transaction and operating ADSL Business, and Seller has not grossly violated laws and regulations. Seller has not received any notice regarding, or is informed in any way of, its ADSL Business’s violation of laws, regulations, or court orders.

4.5 Disclosure

To the best knowledge of Seller, there exist no special situations (not including the economic and industry conditions) of Seller or its ADSL Business that will have a significant and adverse influence on Object of Transaction but are not disclosed.

4.6 Guaranty of legality of transferred or licensed intellectual property

The intellectual property rights, such as copyrights of software and trademark, that Seller transfers or licenses to Buyer according to this Agreement are developed or obtained by Seller itself. Seller guarantees that no third party has exercised any rights or has threatened that it would bring any claims against Seller as of the date of signing this Agreement. Seller does not guarantee that there would be no infringement claims after signing this Agreement, but agrees to assist Buyer in resolving relevant disputes to a reasonable extent.

4.7 Non-competition

Seller agrees that it will not use information relating to ADSL Business in any other way or give it to a third party without Buyer’s written consent starting from the signing of this Agreement and after transferring and delivering Object of Transaction. After Buyer pays Sales Price in whole, Seller shall destroy all information relating to ADSL Business and shall not keep or reproduce relevant information, except for accounting records that should be legally maintained.

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Seller agrees not to operate the same ADSL Business under this Agreement within five years after signing this Agreement. Seller also agrees that it will not instigate or induce ADSL Customers and users that are transferred along with this Agreement to terminate their use of ADSL services, unless Seller terminates this Agreement owing to Buyer’s breach of agreement.

5. Buyer’s Representations and Warranties

Buyer hereby represents and warrants to Seller as follows:

5.1 Company organization and status

Buyer is a company duly organized and existing under the laws of the Republic of China, which has obtained all necessary internal authorization and permission to sign, deliver, and perform this Agreement.

5.2 Enforceability

This Agreement imposes legal, valid, and binding obligations on Buyer, and Seller can enforce the provisions of this Agreement against Buyer. Buyer possesses absolute and unlimited capacity and authorization to sign, deliver, and perform this Agreement, and Buyer has obtained permission from its Board of Directors.

5.3 Sufficient Funding

Buyer guarantees that it has sufficient funding to perform its payment obligations and to complete the transactions under this Agreement on the Transaction Completion Date.

6. Indemnity Liability

6.1 Seller’s indemnity liability

Seller agrees to indemnify Buyer and hold Buyer harmless from any loss if Seller’s breaching its obligations under this Agreement or its statement and certification under Article 4 causes any loss, damage, liabilities and expenses to Buyer.

6.2 Buyer’s indemnity liability

Buyer agrees to indemnify Seller and hold Seller harmless from any loss if Buyer’s breaching its obligations under this Agreement or its statement and certification under Article 4 causes any loss, damage, liabilities and expenses to Seller.

6.3 Limitation on liabilities

Each party’s indemnity liability to the other party is limited to Sales Price.

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7. Parties’ obligations after Completion of Transaction

7.1 Management Services

Conditional upon the Parties’ signing Service Agreement by 15 May 2006 and the transaction contemplated hereby is completed at 12 pm on 15 May 2006 according to this Agreement, Seller agrees to provide to Buyer according to Service Agreement, from 16 May 2006 to 31 December 2007, services concerning engineering and telecommunication administration, domestic and foreign telecommunication bandwidth, administration and consultation about ADSL operation, instruction in special technology and knowledge, and training and education for relevant employees. Seller also agrees to license Self-Developed Software to Buyer for it to use the Software and to help its continuing operation of ADSL for it Business. Meanwhile, Buyer shall, free of charge, permit Seller to use Equipment to provide administrative services and support. Seller can request service fee from Buyer but should bear the costs and expenses for providing administrative services and support.

7.2 Designated Account

From Transaction Completion Date to the date that Sales Price is fully paid, Buyer shall cause ADSL Customers and companies that collect ADSL service fee for Buyer to remit fees payable to Buyer to the designated account jointly created by the Parties with Chinatrust Commercial Bank (“Designated Account”). Buyer shall submit the documents to open an account on Transaction Completion Date, and it shall note on the documents that the fund in the Designated Account shall not be withdrawn without signatures of the Parties’ designated personnel and that the designated personnel cannot be changed without the written consent of the original designated personnel. Buyer also guarantees that it will not change its designated person without Seller’s consent. If Buyer pays Sales Price and service fee on schedule according to this Agreement and Service Agreement, Seller shall not by any reason refuse to allow Buyer to withdraw the fund from the Designated Account, and Seller shall sign the documents for withdrawing the fund within three business days after Buyer requests to withdraw the fund from the Designated Account, or Seller’s failure to sign the documents will be deemed a material breach of this agreement.

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8. Miscellaneous

8.1 Publish and disseminate press releases

Parties promise and agree that each party will not make any announcements, press releases, or public statements to indicate the existence of this Agreement or to disclose the provisions under this Agreement before Transaction Completion Date, unless the other party consents to the content, timing, and media for making the disclosure. The consent shall not be unreasonably held. This Article shall not apply if each party is required to make the disclosure according to laws or Taiwan Stock Exchange Corporation’s regulations; the disclosing party shall give prior notice to the other party.

8.2 Seller’s Code of Business Conduct and Ethics

Seller is bound by the Code of Business Conduct and Ethics published by its parent company, GigaMedia Limited. In addition to relevant laws and regulations, Seller and its employees shall also observe the Code of Business Conduct and Ethics. Seller and its employees shall follow the high-standard Code of Business Conduct and Ethics to maintain its goodwill and the legitimacy and propriety of its business conduct. Please go to http://ir.giga.net.tw/code.htm for details of GigaMedia Limited’s Code of Business Conduct and Ethics.

8.3 Alteration and modification

The alteration, modification, and supplementation of this Agreement can only be made by all parties’ written consent, provided that the alteration, modification, and supplementation are allowed by laws and regulations.

8.4 Non-waiver of the rights

The failure to or delay in exercising any rights or claims by each party of this Agreement shall not influence or preclude it from further exercising any rights or claims, and all rights or claims shall remain valid until Parties expressly waive their rights or claims in writing.

8.5 Transaction expenses

Unless otherwise prescribed in this Agreement, each party shall be responsible for its expenses and fees for negotiating, preparing, signing, delivering, and performing this Agreement, including but not limited to the expenses and fees for attorneys, accountants, and other professionals.

8.6 Notification

All notices required or permitted under this Agreement shall be made in writing and sent by (1) personal delivery, (2) facsimile (with follow-up certified mail, postage

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prepaid, return receipt required, or if the destination address is in a foreign country, with follow-up certified mail or airmail express delivery to confirm the receipt), or (3) express delivery to the following addresses:

If the notice is sent to Seller:

HOSHIN GIGAMEDIA CENTER INC.

6F, No. 20, Lane 478, Rui-Guang Road, Nei-Hu District, Taipei

Facsimile: +8862-8751-5700

Attention: Mr. Chen Wen Tarn

If the notice is sent to Buyer:

WEBS-TV DIGITAL INTERNATIONAL CORPORATION

12F, No. 100, Section 4, Civic Boulevard, Taipei

Facsimile: +8862-6638-8383

Attention: CEO

All notices and other correspondence are deemed delivered at the time the other party receives them. Each party may for the purpose of this Agreement notify the other party of change of the above address pursuant to the above-mentioned methods.

8.7 Confidentiality

Parties agree to maintain the confidentiality of all transactions mentioned in this Agreement. Each party shall not disclose the provisions and transactions of this Agreement to any third party without the other party’s prior consent, unless the disclosure is compelled by laws, regulations, or Taiwan Exchange Stock Corporation. The disclosing party shall give a prior notice to the other party before the disclosure under this situation.

8.8 Governing law

This Agreement shall be construed according to the laws of the Republic of China. Parties agree that the Taiwan Taipei District Court will be the court of first instance if any disputes arise from this Agreement.

8.9 Entire agreement

This Agreement, together with Attachments hereto and other documents provided according to this Agreement, constitute the entire agreement between Parties regarding the transactions hereof. Unless expressly prescribed in this Agreement, there are no additional restrictions, commitments, statements, or certifications. This Agreement supersedes any previous agreements or letters of intent for the planned transactions.

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8.10 Saving clause

If any one or several provisions in this Agreement are declared void, illegal, or unenforceable, the invalidity, illegality, or unenforceability will not influence other provisions in this Agreement. Other provisions shall remain in force, and this Agreement shall be construed as if the void, illegal, or unenforceable provisions have never existed.

8.11 Language

This Agreement shall be signed in Chinese, and any versions in any other languages are only for reference. Should there be any inconsistency between the Chinese version and other translated versions, the Chinese version shall govern.

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NOW, Parties have agreed to all articles set in this Agreement and have executed this Agreement on the date mentioned above:

HOSHIN GIGAMEDIA CENTER INC.

Responsible Person: Chen Wen Tarn
Title:	Director

WEBS-TV DIGITAL INTERNATIONAL CORPORATION

Responsible Person: Kevin Cheng
Title:	Chairman of the Board

Guarantors, Kevin Cheng and Morse Chen, hereby confirm that they fully understand the content of this Agreement and agree that they shall be jointly and severally liable with WEBS-TV DIGITAL INTERNATIONAL CORPORATION for its liabilities and damages to HOSHIN GIGAMEDIA CENTER INC. under this Agreement.

Guarantor: Kevin Cheng

ID number: N121818568

Address: No. 29-2, Xia-Lun Road, Wen-Shan District, Taipei

Guarantor: Morse Chen

ID number: Y120277954

Address: 3F, No. 24, Lane 372, Song-Jiang Road, Zhong-Shan District, Taipei

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EX-4.40

Exhibit 4.40

(English translations – For reference only)

Service Agreement

This agreement is entered into by and between:

HOSHIN GIGAMEDIA CENTER INC., a company duly organized and existing under the laws of the Republic of China, having its principal office at 14F, No. 122, Dun-Hua North Road, Taipei (“Party A”), and

WEBS-TV DIGITAL INTERNATIONAL CORPORATION, a company duly organized and existing under the laws of the Republic of China, having its principal office at 12F, No. 100, Civic Boulevard, Section 4, Taipei (“Party B”).

Kevin Cheng, a citizen of the Republic of China, ID number: N121818568, residing at No. 29-2, Xia-Lun Road, Wen-Shan District, Taipei (“Guarantor”)

Morse Chen, a citizen of the Republic of China, ID number: Y120277954, residing at 3F, No. 24, Lane 372, Song-Jiang Road, Zhong-Shan District, Taipei (”Guarantor”)

(Party A or Party B hereinafter respectively referred to as “Party,” and collectively “Parties.”)

WHEREAS, Party A and Party B signed the Assets Purchase and Sale Agreement on 15 May 2006. Transaction Completion Date is 4 p.m. on 15 May 2006, and Completion of Transaction is at 12 noon on 15 May 2006. Parties have agreed to sign this administrative service agreement (“this Service Agreement”). After Completion of Transaction, Party A will provide Party B with services for the necessary ADSL engineering and telecommunication support, domestic and foreign telecommunication bandwidth, administration and consultation about ADSL Business, instruction on special technology and knowledge, licensing of Self-Developed Software, and training for relevant employees. Unless otherwise prescribed in this Service Agreement, all definitions in the Assets Purchase and Sale Agreement shall apply to this Service Agreement.

Article 1 Scope of Party A’s Services

Party A shall provide Party B with the following support and administrative services that are necessary for ADSL Business (“Party A Services”). Party B may adjust the scope of Party A Services, if necessary, after obtaining Party A’s consent.

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1. Providing bandwidth support and relevant engineering and telecommunication services as listed in Attachment 1.

2. Collecting payments for bills of ADSL Customers on behalf of Party B from 16 May 2006 to 31 August 2006.

3. Providing electronic file of specifications of monthly bills of ADSL Customers, including printing bills, but not including other bill-processing services, such as mailing services.

4. Providing advisory, consulting, and administrative services relating to ADSL Business.

5. Providing instruction on special technology and knowledge relating to ADSL Business.

6. Providing Party B with instruction on and assistance with Self-Developed Software listed in Attachment 3.1 of the Assets Purchase and Sale Agreement.

7. Providing education, training, advisory, and consulting services to relevant employees of ADSL Business.

From 16 May 2006 to 31 August 2006, in addition to the service fee paid according to Article 3 of this Service Agreement, Party B shall also pay Party A NT$4,200,000 per month (tax included) for the ADSL customer service that Party A provides according to Attachment 2 of this Service Agreement. For the ADSL customer service provided less than one month, Party A and Party B agree that such payment shall be calculated proportionately. Party A shall submit the payment request to Party B by the 10^th day of each month, and Party B shall pay Party A by check by the end of the same month, and the issuing date of the check shall be the 30^th day of each month.

Article 2 Term of the Service Agreement

The term of this Service Agreement starts from 16 May 2006 to 31 December 2007.

Article 3 Party A Service Fee and Methods of Payment

1. According to this Service Agreement, Party B shall pay Party A the service fee of NT$20,000,000 (tax included) every month from 16 may 2006 to 15 February 2007; NT$3,900,000 (tax included) from 16 February 2007 to 28 February 2007; NT$8,400,000 (tax included) every month from 1 March 2007 to 31 December 2007.

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The total amount of the service fee is NT$267,900,000 (tax included). The service fee in this Article does not include ADSL customer service payment. If Party B needs customer service administrative support relating to ADSL Business, Parties agree that the scope of and payment for the support shall be calculated pursuant to the methods in Attachment 2.

2. Party B shall pay Party A NT$90,000,000 on Transaction Completion Date, but Party A and Party B agree that NT$72,000,000 (tax included) of the Unrealized Prepayments from Customers shall be subtracted from the service fee paid by Party B to Party A, and therefore, Party B needs to pay Party A only the balance of NT$18,000,000. The balance shall be paid by check on 15 June 2006. Party A and Party B further agree that the closing date is 15 May 2006. If there exist remaining Unrealized Prepayments from Customers, the balance will be subtracted from the second installment of Sales Price that Party B pays Party A. If Unrealized Prepayments from Customers calculated by Party A are less than NT$72,000,000 (tax included) on the closing date, Party B shall immediately refund the difference to Party A upon receiving Party A’s notice.

3. Party B issues 14 checks to Party A in advance with the following issuing dates on them:

(1) Issuing date is 31 October 2006, and the amount is NT$20,000,000.

(2) Issuing date is 30 November 2006, and the amount is NT$40,000,000.

(3) Issuing date is 31 January 2007, and the amount is NT$30,000,000.

(4) Issuing date is 30 April 2007, and the amount is NT$3,900,000.

(5) Issuing date is 31 May 2007, and the amount is NT$8,400,000.

(6) Issuing date is 30 June 2007, and the amount is NT$8,400,000.

(7) Issuing date is 31 July 2007, and the amount is NT$8,400,000.

(8) Issuing date is 31 August 2007, and the amount is NT$8,400,000.

(9) Issuing date is 30 September 2007, and the amount is NT$8,400,000.

(10) Issuing date is 31 October 2007, and the amount is NT$8,400,000.

(11) Issuing date is 30 November 2007, and the amount is NT$8,400,000.

(12) Issuing date is 31 December 2007, and the amount is NT$8,400,000.

(13) Issuing date is 31 January 2008, and the amount is NT$8,400,000.

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(14) Issuing date is 28 February 2008, and the amount is NT$8,400,000.

4. All prices in this Service Agreement include tax.

Article 4 Service Conditions and Disclaimer

1. Party B agrees that employees of Party A may use Equipment listed in Attachment 2.3(a) of Assets Purchase and Sale Agreement free of any charge for providing services. Party A shall inform Party B of any malfunction or inadequacy of Equipment, as well as any needs for maintenance, upgrades, or updates. Party B shall immediately correct the malfunction, maintain, or purchase necessary equipment at its own expense. If Party A cannot provide services owing to Party B’s failure to maintain Equipment, Party B shall still pay monthly service fees by month according to Article 3.

2. If Equipment/lines are damaged or destroyed or Party A’s services are interrupted by force majeure, such as typhoons, earthquakes, tsunamis, blackouts, and wars, Party A is not liable for any damage caused by it. However, Party A agrees that the fees payable by Party B will be deducted proportionally for the period during which the services are interrupted based on the calculation of NT$8,400,000 per month.

3. If Party A requires other companies’ support for the services provided and if Party A’s services are affected because of other companies, Party A shall not be held liable for the damage. However, Party A agrees that the fees payable by Party B will be deducted proportionally for the period during which the services are affected based on the calculation of NT$8,400,000 per month. If Party B can file claims against other companies for the damage incurred, Party A agrees to assist Party B in making such claims to a reasonable extent.

Article 5 Termination

Unless otherwise agreed by Parties, each party may not request to terminate this Service Agreement or to adjust service fees before the end of the term of this Service Agreement, except for the following reasons:

1. If Parties have difficulty enforcing this Service Agreement, they may agree to terminate this Service Agreement.

2. Party A may immediately terminate this Service Agreement with written notice to Party B, if any of the following happens:

(1) Major property of Party B is seized, which will affect its payment of service fees under this Service Agreement.

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(2) Party B transfers the whole or the bulk of its business to others, provided that the transfer will affect the performance of this Service Agreement.

(3) Party B receives an order to dissolve or passes a resolution to dissolve.

(4) Party B encounters any other serious incidents that results in extreme difficulty in its business operation.

(5) Party B grossly violates this Service Agreement, including but not limited to failing to pay service fees on schedule, and does not correct the violation within 30 days after receiving Party A’s written notice. However, Party A may also request a default penalty of 5% annual interest of overdue payment rather than terminating this Service Agreement.

(6) Party B violates the Assets Purchase and Sale Agreement and is informed by Party A that the Assets Purchase and Sale Agreement is terminated.

3. Party B may immediately terminate this Service Agreement with written notice to Party A if any of the following happens that will affect the continued operation of the ADSL Business that Party B assumed:

(1) Party A becomes insolvent, has received an order to dissolve, passes a resolution to dissolve, has financial and operating difficulty, or is incapable or unable to provide services under this Service Agreement owing to transfer of business.

(2) Party A grossly violates this Service Agreement and does not correct the violation within 30 days after receiving Party B’s written notice.

4. The termination of this Service Agreement will not prejudice the claims for damage arising from this Service Agreement. The service fee paid by Party B to Party A is deemed a default penalty, which Party B cannot request Party A to refund. If the default penalty is not enough to cover Party A’s damage, Party A may claim for the damage additionally.

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Article 6 Miscellaneous

1. Publish and disseminate press releases

Parties promise and agree that each party will not make any announcements, press releases, or public statements to impart the existence of this Agreement or to disclose the provisions under this Agreement before Transaction Completion Date, unless the other party consents to the content, timing, and media for making the disclosure. The consent shall not be unreasonably held. This Article shall not apply if each party is required to make the disclosure according to laws or Taiwan Stock Exchange Corporation’s regulations; the disclosing party shall give prior notice to the other party.

2. Party A’s Code of Business Conduct and Ethics

Party A is bound by the Code of Business Conduct and Ethics published by its parent company, GigaMedia Limited. In addition to relevant laws and regulations, Party A and its employees shall also observe the Code of Business Conduct and Ethics. Party A and its employees shall follow the high-standard Code of Business Conduct and Ethics to maintain its goodwill and the legitimacy and propriety of its business conduct. Please go to http://ir.giga.net.tw/code.htm for details of GigaMedia Limited’s Code of Business Conduct and Ethics.

3. Alteration and modification

The alteration, modification, and supplementation of this Service Agreement can only be made by all parties’ written consent, provided that the alteration, modification, and supplementation are allowed by laws and regulations.

4. Non-waiver of the rights

The failure to or delay in exercising any rights or claims by each party of this Service Agreement shall not influence or preclude it from further exercising any rights or claims, and all rights or claims shall remain valid until Parties expressly waive their rights or claims in writing.

5. Transaction expenses

Unless otherwise prescribed in this Service Agreement, each party shall be responsible for its expenses and fees for negotiating, preparing, signing, delivering, and performing this Service Agreement, including but not limited to the expenses and fees for attorneys, accountants, and other professionals.

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6. Notification

All notices required or permitted under this Service Agreement shall be made in writing and sent by (1) personal delivery, (2) facsimile (with follow-up certified mail, postage prepaid, return receipt required, or if the destination address is in a foreign country, with follow-up certified mail or air mail express delivery to confirm the receipt), or (3) express delivery to the following addresses:

If the notice is sent to Party A:

HOSHIN GIGAMEDIA CENTER INC.

6F, No. 20, Lane 478, Rui-Guang Road, Nei-Hu District, Taipei

Facsimile: +8862-8751-5700

Attention: Mr. Chen Wen Tarn

If the notice is sent to Party B:

WEBS-TV DIGITAL INTERNATIONAL CORPORATION

12F, No. 100, Section 4, Civic Boulevard, Taipei

Facsimile: +8862-6638-8383

Attention: CEO

All notices and other correspondence are deemed delivered at the time the other party accepts them. Each party may for the purpose of this Service Agreement notify the other party of change of the above address pursuant to the above-mentioned methods.

7. Confidentiality

Parties agree to maintain the confidentiality of all transactions mentioned in this Service Agreement. Each party shall not disclose the provisions and transactions of this Service Agreement to any third party without the other party’s prior consent, unless the disclosure is compelled by laws, regulations, or Taiwan Exchange Stock Corporation. The disclosing party shall give a prior notice to the other party before the disclosure under this situation.

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8. Transfer

This Service Agreement and Parties’ rights and obligations prescribed under this Service Agreement shall not be assigned or transferred or become the object of any assignment or transfer, but each party may transfer the rights under this Service agreement to its affiliates without the other party’s consent.

9. Governing law

This Service Agreement shall be construed according to the laws of the Republic of China. Parties agree that the Taiwan Taipei District Court will be the court of first instance if any disputes arise from this Agreement.

10. Entire agreement

This Service Agreement, together with Attachments hereto and other documents provided according to this Service Agreement, constitute the entire agreement between Parties regarding the transactions hereof. Unless expressly prescribed in this Service Agreement, there are no additional restrictions, commitments, statements, or certifications. This Service Agreement supersedes any previous agreements for the planned transactions.

11. Severability

If any one or several provisions in this Service Agreement are declared void, illegal, or unenforceable, the invalidity, illegality, or unenforceability will not influence other provisions in this Service Agreement. Other provisions shall remain in force, and this Service Agreement shall be construed as if the void, illegal, or unenforceable provisions have never existed.

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IN WITNESS WEHREOF, Parties hereto agree to the aforementioned articles.

HOSHIN GIGAMEDIA CENTER INC.

Responsible Person: Chen Wen Tarn

Title: Director

WEBS-TV DIGITAL INTERNATIONAL CORPORATION

Responsible Person: Kevin Cheng

Title: Chairman of the Board

Guarantors hereby confirm that they fully understand the content of this Agreement and agree that they shall be jointly and severally liable with WEBS-TV DIGITAL INTERNATIONAL CORPORATION for its liabilities and damages to HOSHIN GIGAMEDIA CENTER INC. under this Agreement, and they hereby sign below:

Guarantor: Kevin Cheng

ID number: N121818568

Address: No. 29-2, Xia-Lun Road, Wen-Shan District, Taipei

Guarantor: Morse Chen

ID number: Y120277954

Address: 3F, No. 24, Lane 372, Song-Jiang Road, Zhong-Shan District, Taipei

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EX-4.41

Exhibit 4.41

SECOND AMENDMENT TO THE END USER LICENSE AGREEMENT

Contract No. EULA-010404-Second Amendment

THIS SECOND AMENDMENT TO EULA-010404 (this Amendment) is made and entered into this the first day of March 2006, by and between Internet Media Licensing Limited, a British Virgin Island corporation (“IML”), having its registered office at Akara Bldg., 24 De Castro Street, Wickhams Cay I, Road Town, Tortola, British Virgin Islands and Ultra Internet Media, S.A. a Nevis corporation, having its registered address at Veira Grant & Associates, Chambers, #10 Solomon’s Arcade, Charlestown, Nevis (“Licensee”).

WHEREAS, Grand Virtual (Alderney) Limited, a company registered in Alderney with company number 1443 whose registered office is at York House, Victoria Street, Alderney GY9 3TA (“GVA”) and Licensee entered into a certain End User License Agreement (EULU-010404) as of April 1, 2004 for the License of Grand Virtual software, and

WHEREAS, GVA and Licensee entered into an Amendment agreement on January 1, 2005 (EULA-010404-First Amendment), to amend Schedule B, for Software Royalties fees associated with Grand Virtual’s multi-player game software and to delete in its entirety and replace Section 6.3 of the End User License Agreement.

WHEREAS, GVA, IML and the Licensee entered into a Novation agreement on April, 1, 2005, which released and discharged GVA from the End User License Agreement and IML assumed full liability to perform the Contract and to be bound by the terms in every way as if IML had been a party to it in place of GVA.

WHEREAS, IML and Licensee desire to amend the First Amendment to the End User License Agreement, dated January 1, 2005, (EULA-010404-First Amendment) with the terms set forth herein.

NOW THEREFORE, IML and Licensee hereby agree to amend the First Amendment to the End User License Agreement (EULA-010404-First Amendment), effective January 1, 2006, as follows:

1. SCHEDULE B of the agreement is hereby deleted in its entirety and replaced with the following:

Payment	Due
Up-front, non-refundable license fee, of USD $0	Upon signing of agreement
Software Royalties for Games of Chance Software - the royalty shall be equal to Forty-five percent (45%) of Gross Revenues (“Royalty Rate”) derived from the Games of Chance Software, received in the particular Calculation Period. Software Royalties for Multi Player Game Software - the royalty shall be equal to Ten percent (16%) of Gross Revenues (“Royalty Rate”) derived from the Multi-Player Game Software, received in the particular Calculation Period.	On the tenth day of each calendar month following the end of the preceding Calculation Period.

IML will record all data relevant to the determination of Software Royalties from Licensee’s databases by means of utilities included in the Software. On the basis of such recorded data, Licensor shall invoice Licensee immediately following the end of each Calculation Period for that Calculation Period’s Software Royalty. In the event that a calculation period ends on a day in which revenues are not processed by the software (i.e. holiday), the Licensor is entitled to a pro-rata share.

Gross Revenues for the Calculation Period are defined as:

ALL Gross Receipts from Credit Cards receipts, Bank Wires, and all other third party payment providers (e.g. NETeller, 1-Pay) before any and all processor (transaction) fees and reserve withholdings.

Excluded from the Gross Receipts definition are ALL payments. For example, ALL payments to End Users (Withdrawals, Distributions and Refunds), End User, Chargebacks (including fees and penalties), and ALL operational expenditures (third party licensee commissions, Marketing Expenditures, data center, bandwidth, legal & accounting, etc.).

Marketing Events - If requested, IML will provide on-site Marketing personnel in conjunction with direct end user marketing programs and events (e.g. Poker Tours, Poker Events, Investigating and Negotiating Marketing Contracts). IML will bill Licensee for all direct travel expenditures in relation to such programs and events.

IN WITNESS WHEREOF, the parties’ authorized representatives have executed this Agreement as of the Effective Date.

Internet Media Licensing Limited		Ultra Internet Media S.A. :
By:		By:
Name:	Kenneth Huang	Name:
Title:	Director	Title:	Director

EX-8.1

Exhibit 8.1

List of Subsidiaries

Subsidiary	Year of Incorporation	Jurisdiction of Incorporation
Hoshin GigaMedia Center, Inc.	1998	Taiwan
GigaMedia Finance International Limited	2000	Cayman Islands
GigaMedia International Holdings Limited	2004	British Virgin Islands
Cambridge Entertainment Software Limited	2004	British Virgin Islands
Koos Broadband Telecom Co., Ltd.	2001	Taiwan
Bridgepoint International Limited	2004	British Virgin Islands
FunTown World Limited	2005	British Virgin Islands
GigaMedia Asia Limited	2005	British Virgin Islands
Implus International Limited	2004	British Virgin Islands
FunTown Hong Kong Limited	1999	Hong Kong
GigaMedia China Limited	2005	British Virgin Islands
Cambridge Interactive Development Corporation (Quebec) Inc.	2005	Canada
Cambridge Interactive Development Corporation	1997	U.S.A.
Internet Media Licensing Ltd.	2005	British Virgin Islands

EX-11

Exhibit 11

GIGAMEDIA LIMITED

CODE OF BUSINESS CONDUCT AND ETHICS

Dear Colleagues:

The good name and reputation of GigaMedia Limited (the “Company”) are a result of the dedication and hard work of all of us. Together, we are responsible for preserving and enhancing this reputation, a task that is fundamental to our continued well-being. Our goal is not just to comply with the laws and regulations that apply to our business; we also strive to abide by the highest principles of business conduct and ethics.

We set forth in the succeeding pages the Company’s Code of Business Conduct and Ethics (the “Code”). The purpose of the Code is to reinforce and enhance the Company’s commitment to an ethical way of doing business. The contents of the Code are not new, however. The policies set forth here are part of the Company’s long-standing tradition of high ethical standards.

All employees, consultants, officers and directors are expected to comply with the policies set forth in this Code. As a Singapore company, it goes without saying that we must comply with Singapore law. In addition, you must abide by applicable law in the country where you are located. In some instances, there may be a conflict between the applicable laws of two or more countries. If you encounter such a conflict, or if a local law conflicts with a policy set forth in this Code, you should consult with the General Counsel to determine the appropriate course of action.

Read the Code carefully and make sure that you understand it and the consequences of non-compliance. If you have any questions, speak to your supervisor, the General Counsel or any of the other resources identified in this booklet. The Code cannot and is not intended to cover every applicable law or provide answers to all questions that might arise; for that we must ultimately rely on each person’s good sense of what is right, including a sense of when it is proper to seek guidance from others on the appropriate course of conduct.

We at the Company are committed to providing the best and most competitive products and services to our customers and clients. Adherence to the policies set forth in the Code will help us achieve this goal.

Sincerely,

Chairman

Table of Contents

	Page
PUTTING THE CODE OF BUSINESS CONDUCT AND ETHICS TO WORK	1
About the Code of Business Conduct and Ethics	1
Meeting Our Shared Obligations	1
RESPONSIBILITY TO OUR ORGANIZATION	1
Conflicts of Interest	1
Improper Personal Benefits from the Company	1
Financial Interests in Other Businesses	2
Business Arrangements with the Company	2
Outside Employment or Activities with a Competitor	2
Outside Employment with a Customer or Supplier	2
Corporate Opportunities	2
Charitable, Government and Other Outside Activities	3
Family Members Working in the Industry	3
Protection and Proper Use of Company Assets	3
Company Books and Records	3
Record Retention	4
Confidential Information	4
Insider Trading	5
Trademarks, Copyrights and Other Intellectual Property	6
Trademarks	6
Copyright Compliance	6
Intellectual Property Rights of Others	6
Computer and Communication Resources	7
Responding to Inquiries from the Press and Others	7
FAIR DEALING	8
Antitrust Laws	8
Conspiracies and Collaborations Among Competitors	8
Distribution Issues	9
Penalties	9
Gathering Information About the Company’s Competitors	10
RESPONSIBILITY TO OUR PEOPLE	10
Respecting One Another	10
Privacy	10
Equal Employment Opportunity and Nondiscrimination	11
Sexual and Other Forms of Harassment	11
Other Forms of Harassment	11
Reporting Responsibilities and Procedures	12
Safety in the Workplace	12
Weapons and Workplace Violence	12
Drugs and Alcohol	13
INTERACTING WITH GOVERNMENT	13
Prohibition on Gifts to Government Officials and Employees	13
Political Contributions and Activities	13
Lobbying Activities	13
Bribery of Foreign Officials	14
IMPLEMENTATION OF THE CODE	14
Seeking Guidance	14
Reporting Violations	14

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Investigations of Suspected Violations	15
Reports Regarding Accounting Issues	15
Discipline for Violations	15
A Framework for Approaching Questions and Problems	15
Waivers of the Code	16
No Rights Created	16

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PUTTING THE CODE OF BUSINESS CONDUCT AND ETHICS TO WORK

About the Code of Business Conduct and Ethics

We at the Company are committed to the highest standards of business conduct in our relationships with each other and with our customers and clients, suppliers, shareholders and others. This requires that we conduct our business in accordance with all applicable laws and regulations and in accordance with the highest standards of business ethics. The Company’s Code of Business Conduct and Ethics helps each of us in this endeavor by providing a statement of the fundamental principles and key policies and procedures that govern the conduct of our business.

Our business depends on the reputation of the Company and its employees for integrity and principled business conduct. Thus, in many instances, the policies referenced in this Code go beyond the requirements of the law.

The Code is a statement of policies for individual and business conduct and does not, in any way, constitute an employment contract or an assurance of continued employment. As employees of the Company, we are employed at-will except when we are covered by an express, written employment agreement. This means that you may choose to resign your employment at any time, for any reason or for no reason at all. The Company may choose to terminate your employment at any time, for any reason permitted under the laws in the country where you are employed.

Meeting Our Shared Obligations

Each of us is responsible for knowing and understanding the policies and guidelines contained in the following pages. If you have questions, ask them; if you have ethical concerns, raise them. The General Counsel, who is responsible for overseeing and monitoring compliance with this Code, and the other company resources set forth in this Code are available to answer your questions and provide guidance and for you to report suspected misconduct. Our conduct should reflect the Company’s values, demonstrate ethical leadership, and promote a work environment that upholds the Company’s reputation for integrity, ethical conduct and trust.

RESPONSIBILITY TO OUR ORGANIZATION

We are all expected to dedicate our best efforts to advancing the Company’s interests and to make decisions that affect the Company using objective and independent standards.

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 as a whole. A conflict situation can arise when you take actions or have interests that make it difficult for you to perform your company work objectively and effectively. 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, including full disclosure of such conflicts. Although we cannot list every conceivable conflict, following are some common examples that illustrate actual or apparent conflicts of interest that should be avoided:

Improper Personal Benefits from the Company

Conflicts of interest arise when an employee, officer or director, or a member of his or her family, receives improper personal benefits as a result of his or her position in the Company. You may not accept any benefits from the Company that have not been authorized and approved pursuant to Company policy and procedure, including any Company loans or guarantees of your personal obligations. The Company will not make any personal loans to, nor guarantee the personal obligations of, directors and executive officers.

Financial Interests in Other Businesses

You may not own an interest in a company that competes with the Company. You may not own an interest in a company that does business with the Company (such as a Company customer or supplier) without the prior written approval of the General Counsel. Executive officers and members of the Board must obtain the written approval of the Audit Committee of the Board of Directors before making any such investment. However, it is not typically considered a conflict of interest (and therefore, prior approval is not required) to make investments of no more than one percent (1%) of the outstanding equity securities of competitors, customers or suppliers that are public companies (in other words, companies with stock listed on a national or international securities exchange), so long as the interest is not so significant that it would affect your decisions on behalf of the Company.

Business Arrangements with the Company

Without prior written approval from the General Counsel you may not participate in a joint venture, partnership or other business arrangement with the Company. Executive officers and members of the Board must obtain the prior written approval of the chairman of the Audit Committee of the Board of Directors and otherwise be in compliance with the Company’s memorandum and articles of association before participating in such an arrangement.

Outside Employment or Activities with a Competitor

Simultaneous employment with or serving as a director of a competitor of the Company is strictly prohibited, as is any activity that is intended to or that you should reasonably expect to advance a competitor’s interests. You may not market products or services in competition with the Company’s current or potential business activities. It is your responsibility to consult with the General Counsel to determine whether a planned activity will compete with any of the Company’s business activities before you pursue the activity in question.

Outside Employment with a Customer or Supplier

Without prior written approval from the General Counsel, you may not be a customer or client or be employed by, serve as a director of, or represent a customer of the Company. Similarly, without prior written approval from the General Counsel, you may not be a supplier or be employed by, serve as a director of, or represent a supplier to the Company. Executive officers and members of the Board must obtain the prior written approval of the Chairman of the Audit Committee of the Board of Directors and otherwise be in compliance with the Company’s memorandum and articles of association before participating in such an arrangement.

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Corporate Opportunities

We each owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises. If you learn of a business or investment opportunity through the use of corporate property or information or your position at the Company, such as from a competitor or actual or potential customer, supplier or business associate of the Company, you may not participate in the opportunity or make the investment without the prior written approval of the General Counsel. Such an opportunity should be considered an investment opportunity for the Company in the first instance. You may not use corporate property or information or your position at the Company for improper personal gain, and you may not compete with the Company.

Charitable, Government and Other Outside Activities

The Company encourages all employees to participate in projects and causes that further the welfare of our local communities. However, you must obtain the prior written approval of the General Counsel before serving as a director or trustee of any charitable, not-for-profit, for-profit, or other entity or before running for election or seeking appointment to any government-related position. Executive officers and members of the Board must obtain the prior written approval of the Audit Committee of the Board of -Directors.

Family Members Working in the Industry

You may find yourself in a situation where your spouse or significant other, your children, parents, or in-laws, or someone else with whom you have a familial relationship is a competitor, supplier or customer of the Company or is employed by one. Such situations are not prohibited, but they call for extra sensitivity to security, confidentiality and conflicts of interest. You must disclose any such situation to the General Counsel to assess the nature and extent of any concern and how it can be resolved. In some instances, any risk to the Company’s interests is sufficiently remote that the General Counsel may only remind you to guard against inadvertently disclosing the Company’s confidential information and not to be involved in decisions on behalf of the Company that involve the other company.

Protection and Proper Use of Company Assets

We each have a duty to protect the Company’s assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on the Company’s profitability. We should take measures to prevent damage to and theft or misuse of Company property. Any suspected incidents of fraud or theft should be immediately reported to our Administration Department for investigation.

When you leave the Company, all Company property must be returned to the Company. Except as specifically authorized by the Company, Company assets, including Company time, equipment, materials, resources and proprietary information, must be used for legitimate business purposes only, though incidental personal use (such as, for example, of Company electronic mail and telephones) may be permitted. However, you should be aware that even personal messages on the Company’s computer and telephone systems are Company property, and you should therefore have no expectation of personal privacy in connection with your use of these resources.

Company Books and Records

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

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Company files with, or submits to, the U.S. Securities and Exchange Commission, any regulatory authority in Singapore, including but not limited to the Singapore Registry of Companies and Businesses and in all other public communications made by the Company. You must complete all Company documents accurately, truthfully, and in a timely manner, including all travel and expense reports. When using business expense accounts, you must document and record all information accurately. If you are not sure whether a certain expense is legitimate, ask your supervisor or the appropriate financial officer.

When applicable, documents must be properly authorized. You must record the Company’s financial activities in compliance with all applicable laws and accounting practices and the Company’s system of internal controls. The making of false or misleading entries, records or documentation is strictly prohibited. You must never create a false or misleading report or make a payment or establish an account on behalf of the Company with the understanding that any part of the payment or account is to be used for a purpose other than as described by the supporting documents.

Business records and communications often become public, and we should avoid exaggeration, derogatory remarks, guesswork, or inappropriate characterizations of people and companies that can be misunderstood. This applies to e-mail, internal memos, formal reports and all other business communications.

Record Retention

In the course of its business, the Company produces and receives large numbers of records. Numerous laws require the retention of certain Company records for various periods of time. The Company is committed to compliance with all applicable laws and regulations relating to the preservation of records. Under no circumstances are Company records to be destroyed selectively or to be maintained outside Company premises or designated storage facilities.

If you learn of a subpoena or a pending or contemplated litigation or government investigation, you should immediately contact the General Counsel. You must retain and preserve ALL records that may be responsive to the subpoena or relevant to the litigation or that may pertain to the investigation until you are advised by the General Counsel as to how to proceed. You must not destroy any such records in your possession or control. You must also affirmatively preserve from destruction all relevant records that without intervention would automatically be destroyed or erased (such as e-mails and voicemail messages). Destruction of such records, even if inadvertent, could seriously prejudice the Company. If you have any questions regarding whether a particular record pertains to a pending or contemplated investigation or litigation or may be responsive to a subpoena or regarding how to preserve particular types of records, you should preserve the records in question and ask the General Counsel for advice.

Confidential Information

All employees may learn, to a greater or lesser degree, facts about the Company’s business, plans, operations or “secrets of success” that are not known to the general public or to competitors. The advantages we derive from information we consider proprietary or sensitive is critical to the success of the Company. Sensitive information such as customer data, the terms offered or prices charged to particular customers, marketing or strategic plans or design, product specifications and production processes and techniques are examples of the Company’s confidential information or trade secrets. Confidential information includes all non-public information that might be of use to competitors, or harmful to the Company or its customers, if

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disclosed. During the course of performing your responsibilities, you may obtain information concerning possible transactions with other companies or receive confidential information concerning other companies, such as our customers, which the Company may be under an obligation to maintain as confidential.

You must maintain the confidentiality of information entrusted to you by the Company or its customers, except when disclosure is authorized or legally mandated. Employees who possess or have access to confidential information or trade secrets must:

• Not use the information for their own benefit or the benefit of persons inside or outside the Company.

• Carefully guard against disclosure of that information to people outside the Company. For example, you should not discuss such matters with family members or business or social acquaintances or in places where the information may be overheard, such as taxis, public transportation, elevators or restaurants.

• Not disclose confidential information to another Company employee unless the employee needs the information to carry out business responsibilities.

Confidentiality Agreements are commonly used when the Company needs to disclose confidential information to suppliers, consultants, joint venture participants, or others. A Confidentiality Agreement puts the person receiving confidential information on notice that he or she must maintain the secrecy of such information. If, in doing business with persons not employed by the Company, you foresee that you may need to disclose confidential information, you should call the General Counsel and discuss the utility of entering into a Confidentiality Agreement.

Your obligation to treat information as confidential does not end when you leave the Company. Upon the termination of your employment, you must return everything that belongs to the Company, including all documents and other materials containing Company and customer confidential information. You must not disclose confidential information to a new employer or to others after ceasing to be a Company employee.

You may not disclose your previous employer’s confidential information to the Company. Of course, you may use general skills and knowledge acquired during your previous employment.

Insider Trading

You are prohibited by Company policy and the law from buying or selling securities of the Company at a time when in possession of “material non-public information.” This conduct is known as “insider trading.” Passing such information on to someone who may buy or sell securities – known as “tipping” – is also illegal. The prohibition applies to Company securities and to securities of other companies if you learn material non-public information about other companies, such as the Company’s customers, in the course of your duties for the Company.

Information is “material” if (a) there is a substantial likelihood that a reasonable investor would find the information “important” in determining whether to trade in a security; (b) the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether or not to subscribe for, buy or sell securities; or (c) the information, if made public, likely would affect the market price of a company’s securities. Examples of types of material information include

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unannounced dividends, earnings, financial results, new or lost contracts or products, sales results, important personnel changes, business plans, possible mergers, acquisitions, divestitures or joint ventures, important litigation developments, and important regulatory, judicial or legislative actions. Information may be material even if it relates to future, speculative or contingent events and even if it is significant only when considered in combination with publicly available information.

Information is considered to be non-public unless it has been adequately disclosed to the public, which means that the information must be publicly disclosed, and adequate time must have passed for the securities markets to digest the information. Examples of adequate disclosure include public filings with securities regulatory authorities and the issuance of press releases, and may also include meetings with members of the press and the public. A delay of one or two business days is generally considered a sufficient period for routine information to be absorbed by the market. Nevertheless, a longer period of delay might be considered appropriate in more complex disclosures.

Do not disclose material non-public information to anyone, including co-workers, unless the person receiving the information has a legitimate need to know the information for purposes of carrying out the Company’s business. If you leave the Company, you must maintain the confidentiality of such information until it has been adequately disclosed to the public by the Company.

For additional information on trading in the Company’s securities you should contact the General Counsel.

Trademarks, Copyrights and Other Intellectual Property

Trademarks

Our logos and the name GigaMedia Limited are examples of Company trademarks. You must always properly use our trademarks and advise your supervisor or the General Counsel of infringements by others. Similarly, the trademarks of third parties must be used properly.

Copyright Compliance

Works of authorship such as books, articles, drawings, computer software and other such materials may be covered by copyright laws. It is a violation of those laws and of the Company’s policies to make unauthorized copies of or derivative works based upon copyrighted materials. The absence of a copyright notice does not necessarily mean that the materials are not copyrighted.

The Company licenses the use of much of its computer software from outside companies. In most instances, this computer software is protected by copyright. You may not make, acquire or use unauthorized copies of computer software. Any questions concerning copyright laws should be directed to the Legal Department.

Intellectual Property Rights of Others

It is Company policy not to infringe upon the intellectual property rights of others. When using the name, trademarks, logos or printed materials of another company, including any such uses on the Company’s websites, you must do so properly and in accordance with applicable law.

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Computer and Communication Resources

The Company’s computer and communication resources, including computers, voicemail and e-mail, provide substantial benefits, but they also present significant security and liability risks to you and the Company. It is extremely important that you take all necessary measures to secure your computer and any computer or voicemail passwords. All sensitive, confidential or restricted electronic information must be password protected, and, if sent across the Internet, must be protected by Company-approved encryption software. If you have any reason to believe that your password or the security of a Company computer or communication resource has in any manner been compromised, you must change your password immediately and report the incident to the Information System Department or the Administration Department.

When you are using Company resources to send e-mail, voicemail or to access Internet services, you are acting as a representative of the Company. Any improper use of these resources may reflect poorly on the Company, damage its reputation, and expose you and the Company to legal liability.

All the computing resources used to provide computing and network connections throughout the organization are the property of the Company and are intended for use by the Company employees to conduct the Company’s business. To the extent permitted by applicable law, all e-mail, voicemail and personal files stored on Company computers are Company property. You should therefore have no expectation of personal privacy in connection with these resources. The Company may, from time to time and at its sole discretion, review any files stored or transmitted on its computer and communication resources, including e-mail messages, for compliance with Company policy. Incidental and occasional personal use of electronic mail and telephones is permitted, but such use should be minimized and the length of the messages should be kept as short as possible, as these messages cost the Company in both productive time and money. As stated previously, even personal messages on the Company’s e-mail and voicemail systems are Company property.

You should not use Company resources in a way that may be disruptive or offensive to others or unlawful. At all times when sending e-mail or transmitting any other message or file, you should not transmit comments, language, images or other files that you would be embarrassed to have read by any person. Remember that your “private” e-mail messages are easily forwarded to a wide audience. In addition, do not use these resources in a wasteful manner. Unnecessarily transmitting messages and other files wastes not only computer resources, but also the time and effort of each employee having to sort and read through his or her own e-mail.

Use of computer and communication resources must be consistent with all other Company policies, including those relating to harassment, privacy, copyright, trademark, trade secret and other intellectual property considerations.

Responding to Inquiries from the Press and Others

Company employees who are not official Company spokespersons may not speak with the press, securities analysts, other members of the financial community, shareholders or groups or organizations as a Company representative or about Company business unless specifically authorized to do so. Requests for financial or other information about the Company from the media, the press, the financial community, shareholders or the public should be referred to the Investment Management Department or the Administration Department. Requests for information from regulators or the government should also be referred to the General Counsel. You should then report any such contact to one of them.

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FAIR DEALING

The Company depends on its reputation for quality, service and integrity. The way we deal with our customers, competitors and suppliers molds our reputation, builds long-term trust and ultimately determines our success. We must never take unfair advantage of others through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair dealing practice.

Antitrust Laws

While the Company competes vigorously in all of its business activities, its efforts in the marketplace must be conducted in accordance with the letter and spirit of applicable antitrust and competition laws. While it is impossible to describe antitrust and competition laws fully in any code of business conduct, this Code will give you an overview of the types of conduct that are particularly likely to raise antitrust concerns.

Conspiracies and Collaborations Among Competitors

One of the primary goals of the antitrust laws is to promote and preserve each competitor’s independence when making decisions on price, output, and other competitively sensitive factors. Some of the most serious antitrust offenses are agreements between competitors that limit independent judgment and restrain trade, such as agreements to fix prices, restrict output or control the quality of products, or to divide a market for customers, territories, products or purchases. You should not agree with any competitor on any of these topics, as these agreements are virtually always unlawful.

Unlawful agreements need not take the form of a written contract or even express commitments or mutual assurances. Courts can — and do — infer agreements based on “loose talk,” informal discussions, or the mere exchange between competitors of information from which pricing or other collusion could result. Any communication with a competitor’s representative, no matter how innocuous it may seem at the time, may later be subject to legal scrutiny and form the basis for accusations of improper or illegal conduct. You should take care to avoid involving yourself in situations from which an unlawful agreement could be inferred.

By bringing competitors together, trade associations and standard-setting organizations can raise antitrust concerns, even though such groups serve many legitimate goals. The exchange of sensitive information with competitors regarding topics such as prices, profit margins, output levels, or billing or advertising practices can potentially violate antitrust and competition laws, as can creating a standard with the purpose and effect of harming competition. You must notify the Legal Department before joining any trade associations or standard-setting organizations. Further, if you are attending a meeting at which potentially competitively sensitive topics are discussed without oversight by an antitrust lawyer, you should object, leave the meeting, and notify the Legal Department immediately.

Joint ventures with competitors are not illegal under applicable antitrust and competition laws. However, like trade associations, joint ventures present potential antitrust concerns. The Legal Department should therefore be consulted before negotiating or entering into such a venture.

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Distribution Issues

Relationships with customers and suppliers can also be subject to a number of antitrust prohibitions if these relationships harm competition. For example, it can be illegal for a company to affect competition by agreeing with a supplier to limit that supplier’s sales to any of the company’s competitors. Collective refusals to deal with a competitor, supplier or customer may be unlawful as well. While a company generally is allowed to decide independently that it does not wish to buy from or sell to a particular person, when such a decision is reached jointly with others, it may be unlawful, regardless of whether it seems commercially reasonable. Finally, it is always unlawful to restrict a customer’s re-selling activity through minimum resale price maintenance (for example, by prohibiting discounts).

Other activities that can raise antitrust concerns are:

• discriminating in terms and services offered to customers where a company treats one customer or group of customers differently than another;

• exclusive dealing agreements where a company requires a customer to buy from or a supplier to sell to only that company;

• tying arrangements where a customer or supplier is required, as a condition of purchasing one product, to also purchase a second, distinct product;

• “bundled discounts,” in which discount or rebate programs link the level of discounts available on one product to purchases of separate but related products (for example, pencils linked to other office supplies); and

• “predatory pricing,” where a company offers a discount that results in the sales price of a product being below the product’s cost (the definition of cost varies depending on the court), with the intention of sustaining that price long enough to drive competitors out of the market.

Because these activities are prohibited under many circumstances, you should consult the General Counsel before implementing any of them.

Penalties

Failure to comply with antitrust laws in the relevant jurisdictions could result in jail terms for individuals and large criminal fines and other monetary penalties for both the Company and individuals. In addition, private parties may bring civil suits in the relevant jurisdictions to recover three times their actual damages, plus attorney’s fees and court costs.

The antitrust laws are extremely complex. Because antitrust lawsuits can be very costly, even when a company has not violated the antitrust laws and is cleared in the end, it is important to consult with the Legal Department before engaging in any conduct that even appears to create the basis for an allegation of wrongdoing. It is far easier to structure your conduct to avoid erroneous impressions than to have to explain your conduct in the future when an antitrust investigation or action is in progress. For that reason, when in doubt, consult the Legal Department with your concerns.

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Gathering Information About the Company’s Competitors

It is entirely proper for us to gather information about our marketplace, including information about our competitors and their products and services. However, there are limits to the ways that information should be acquired and used, especially information about competitors. In gathering competitive information, you should abide by the following guidelines:

• We may gather information about our competitors from sources such as published articles, advertisements, brochures, other non-proprietary materials, surveys by consultants and conversations with our customers, as long as those conversations are not likely to suggest that we are attempting to (a) conspire with our competitors, using the customer as a messenger, or (b) gather information in breach of a customer’s nondisclosure agreement with a competitor or through other wrongful means. You should be able to identify the source of any information about competitors.

• We must never attempt to acquire a competitor’s trade secrets or other proprietary information through unlawful means, such as theft, spying, bribery or breach of a competitor’s nondisclosure agreement.

• If there is any indication that information that you obtain was not lawfully received by the party in possession, you should refuse to accept it. If you receive any competitive information anonymously or that is marked confidential, you should not review it and should contact the General Counsel immediately.

The improper gathering or use of competitive information could subject you and the Company to criminal and civil liability. When in doubt as to whether a source of information is proper, you should contact the General Counsel.

RESPONSIBILITY TO OUR PEOPLE

Respecting One Another

The way we treat each other and our work environment affects the way we do our jobs. All employees want and deserve a work place where they are respected and appreciated. Everyone who works for the Company must contribute to the creation and maintenance of such an environment, and supervisors and managers have a special responsibility to foster a workplace that supports honesty, integrity, respect and trust.

Privacy

We respect the privacy and dignity of all individuals. The Company collects and maintains personal information that relates to your employment, including medical and benefit information. Special care is taken to limit access to personal information to Company personnel with a need to know such information for a legitimate purpose. Employees and officers who are responsible for maintaining personal information and those who are provided access to such information must not disclose private information in violation of any applicable law or in violation of the Company’s policies.

Employees should not search for or retrieve items from another employee’s workspace without prior approval of that employee or management. Similarly, you should not use communication or

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information systems to obtain access to information directed to or created by others without the prior approval of management, unless such access is part of your job function and responsibilities at the Company.

Personal items, messages, or information that you consider to be private should not be placed or kept in telephone systems, computer or electronic mail systems, office systems, offices, work spaces, desks, credenzas, or file cabinets. The Company reserves all rights, to the fullest extent permitted by law, to inspect such systems and areas and to retrieve information or property from them when deemed appropriate in the judgment of management.

Equal Employment Opportunity and Non-discrimination

The diversity of the Company’s employees is a tremendous asset. The Company is an equal opportunity employer in hiring and promoting practices, benefits and wages. We will not tolerate discrimination against any person on the basis of race, religion, color, gender, age, marital status, national origin, sexual orientation, citizenship, disabled veteran status or disability (where the applicant or employee is qualified to perform the essential functions of the job with or without reasonable accommodation), or any other basis prohibited by law in recruiting, hiring, placement, promotion, or any other condition of employment.

You must treat all Company people, customers and clients, suppliers and others with respect and dignity.

Sexual and Other Forms of Harassment

Company policy strictly prohibits any form of harassment in the workplace, including sexual harassment. The Company will take prompt and appropriate action to prevent and, where necessary, discipline behavior that violates this policy.

Sexual harassment consists of unwelcome sexual advances, requests for sexual favors and other verbal or physical conduct of a sexual nature when:

• submission to such conduct is made a term or condition of employment;

• submission to or rejection of such conduct is used as a basis for employment decisions; or

• such conduct has the purpose or effect of unreasonably interfering with an individual’s work performance or creating an intimidating, offensive or hostile work environment.

Forms of sexual harassment include, but are not limited to, the following:

• verbal harassment, such as unwelcome comments, jokes, or slurs of a sexual nature;

• physical harassment, such as unnecessary or offensive touching, or impeding or blocking movement; and

• visual harassment, such as derogatory or offensive posters, cards, cartoons, graffiti, drawings or gestures.

Other Forms of Harassment

Harassment on the basis of other characteristics is also strictly prohibited. Under this policy, harassment is verbal or physical conduct that degrades or shows hostility or hatred toward an individual because of his or her race, color, national origin, citizenship, religion, sexual orientation,

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marital status, age, mental or physical handicap or disability, veteran status or any other characteristic protected by law, which

• has the purpose or effect of creating an intimidating, hostile, or offensive work environment;

• has the purpose or effect of unreasonably interfering with an individual’s work performance; or

• otherwise adversely affects an individual’s employment.

Harassing conduct includes, but is not limited to, the following: epithets; slurs; negative stereotyping; threatening, intimidating or hostile acts; and written or graphic material that ridicules or shows hostility or aversion to an individual or group and that is posted on Company premises or circulated in the workplace.

Reporting Responsibilities and Procedures

If you believe that you have been subjected to harassment of any kind, you should promptly report the incident to your supervisor, the harasser’s supervisor, or the Director of Human Resources. If you feel comfortable doing so, you may also wish to confront the offender and state that the conduct is unacceptable and must stop. Complaints of harassment, abuse or discrimination will be investigated promptly and thoroughly and will be kept confidential to the extent possible. The Company will not in any way retaliate against any employee for making a good faith complaint or report of harassment or participating in the investigation of such a complaint or report.

The Company encourages the prompt reporting of all incidents of harassment, regardless of who the offender may be, or the offender’s relationship to the Company. This procedure should also be followed if you believe that a non-employee with whom you are required or expected to work has engaged in prohibited conduct. Supervisors must promptly report all complaints of harassment to the Director of Human Resources.

Any employee who is found to be responsible for harassment, or for retaliating against any individual for reporting a claim of harassment or cooperating in an investigation, will be subject to disciplinary action, up to and including discharge.

Remember that, regardless of legal definitions, the Company expects employees to interact with each other in a professional and respectful manner.

Safety in the Workplace

Safety and security are of primary importance. You are responsible for maintaining our facilities free from recognized hazards and obeying all Company safety rules. Working conditions should be maintained in a clean and orderly state to encourage efficient operations and promote good safety practices.

Weapons and Workplace Violence

No employee may bring firearms, explosives, incendiary devices or any other weapons into the workplace or any work-related setting, regardless of whether or not employees are licensed to carry such weapons. Similarly, the Company will not tolerate any level of violence in the workplace or in any work-related setting. Violations of this policy must be referred to your supervisor and the Director of the Administration Department immediately. Threats or assaults that require immediate attention should be reported to the police.

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Drugs and Alcohol

The Company intends to maintain a drug-free work environment. Except at approved Company functions, you may not use, possess or be under the influence of alcohol on Company premises.

You cannot use, sell, attempt to use or sell, purchase, possess or be under the influence of any illegal drug on Company premises or while performing Company business on or off the premises.

INTERACTING WITH GOVERNMENT

Prohibition on Gifts to Government Officials and Employees

The various branches and levels of government in all countries have different laws restricting gifts, including meals, entertainment, transportation and lodging, that may be provided to government officials and government employees. You are prohibited from providing gifts, meals or anything of value to government officials or employees or members of their families without prior written approval from the General Counsel.

Political Contributions and Activities

Laws of certain jurisdictions prohibit the use of Company funds, assets, services, or facilities on behalf of a political party or candidate. Payments of corporate funds to any political party, candidate or campaign may be made only if permitted under applicable law and approved in writing and in advance by the General Counsel.

Your work time may be considered the equivalent of a contribution by the Company. Therefore, unless required by applicable law, you will not be paid by the Company for any time spent running for public office, serving as an elected official, or campaigning for a political candidate. Nor will the Company compensate or reimburse you, in any form, for a political contribution that you intend to make or have made.

You must notify the General Counsel before running for election or seeking appointment to any government-related position. Executive officers and members of the Board of Directors must notify the Chairman of the Audit Committee of the Board before running for election or seeking appointment to any government-related position.

Lobbying Activities

Laws of some jurisdictions require registration and reporting by anyone who engages in a lobbying activity. Generally, lobbying includes: (1) communicating with any member or employee of a legislative branch of government for the purpose of influencing legislation; (2) communicating with certain government officials for the purpose of influencing government action; or (3) engaging in research or other activities to support or prepare for such communication.

So that the Company may comply with lobbying laws, you must notify the General Counsel before engaging in any activity on behalf of the Company that might be considered “lobbying” as described above.

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Bribery of Foreign Officials

Company policy, the U.S. Foreign Corrupt Practices Act (the “FCPA”), and the laws of many other countries (including but not limited to the Prevention of Corruption Act, Chapter 24 of Singapore) prohibit the Company and its officers, employees and agents from giving or offering to give money or anything of value to a foreign official, a foreign political party, a party official or a candidate for political office in order to influence official acts or decisions of that person or entity, to obtain or retain business, or to secure any improper advantage. A foreign official is an officer or employee of a government or any department, agency, or instrumentality thereof, or of certain international agencies, such as the World Bank or the United Nations, or any person acting in an official capacity on behalf of one of those entities. Officials of government-owned corporations are considered to be foreign officials.

Payments need not be in cash to be illegal. The FCPA prohibits giving or offering to give “anything of value.” Over the years, many non-cash items have been the basis of bribery prosecutions, including travel expenses, golf outings, automobiles, and loans with favorable interest rates or repayment terms. Indirect payments made through agents, contractors, or other third parties are also prohibited. Employees may not avoid liability by “turning a blind eye” when circumstances indicate a potential violation of the FCPA.

The FCPA does allow for certain permissible payments to foreign officials. Specifically, the law permits “facilitating” payments, which are payments of small value to effect routine government actions such as obtaining permits, licenses, visas, mail, utilities hook-ups and the like. However, determining what is a permissible “facilitating” payment involves difficult legal judgments. Therefore, employees must obtain permission from the General Counsel before making any payment or gift thought to be exempt from the FCPA.

IMPLEMENTATION OF THE CODE

Copies of this Code are available from the Director of Human Resources or the General Counsel. The Code is available in print to any shareholder who requests it. The Code can also be found on the Company website at http://ir.giga.net.tw/code.htm. A statement of compliance with the Code must be signed by all employees, officers, directors and consultants.

Seeking Guidance

This Code cannot provide definitive answers to all questions. If you have questions regarding any of the policies discussed in this Code or if you are in doubt about the best course of action in a particular situation, you should seek guidance from your supervisor, the General Counsel or the other resources identified in this Code.

Reporting Violations

If you know of or suspect a violation of applicable laws or regulations, the Code, or the Company’s related policies, you must immediately report that information to your supervisor, the General Counsel, the Taskforce¹, or, in the circumstances described below, the Audit Committee of the Board. No one will be subject to retaliation because of a good faith report of suspected

¹ The Taskforce hereinafter referred to shall mean the Taskforce organized under the Antifraud Policy of the Company.

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misconduct. If any fraud is involved in the reported violation, supervisors should report to the Taskforce in accordance with the Antifraud Policy².

Investigations of Suspected Violations

All reported violations will be promptly investigated and treated confidentially to the greatest extent reasonably possible, given the need to conduct an investigation. It is imperative that reporting persons not conduct their own preliminary investigations. Investigations of alleged violations may involve complex legal issues, and acting on your own may compromise the integrity of an investigation and adversely affect both you and the Company. You are expected to cooperate in internal investigations of suspected misconduct.

Reports Regarding Accounting Issues

The Company is committed to compliance with applicable securities and other laws, rules, and regulations, accounting standards and internal accounting controls. You are expected to report any complaints or concerns regarding accounting, internal accounting controls and auditing matters (“Accounting Issues”) promptly. Reports may be made in writing to either the Taskforce at the Company’s headquarters or to the Audit Committee of the Board at audit_committee@gigamedia.com.tw. Reports may be made anonymously. Reports will be treated confidentially to the extent reasonably possible given the need to conduct an investigation. No one will be subject to retaliation because of a good faith report of a complaint or concern regarding Accounting Issues.

Treatment of Complaints and Retention of Records Regarding Accounting Issues

Reports of concerns or complaints regarding Accounting Issues will be investigated in accordance with Antifraud Policy. The Taskforce will forward, as appropriate, complaints and concerns regarding Accounting Issues to the Audit Committee, and if appropriate, to the Chief Financial Officer. The Taskforce will retain copies of all reports, investigative reports, summaries of reports and other documents relating to complaints and concerns regarding Accounting Issues in accordance with the Company’s records retention policy.

Discipline for Violations

The Company intends to use every reasonable effort to prevent the occurrence of conduct not in compliance with its Code and to halt any such conduct that may occur as soon as reasonably possible after its discovery. Subject to applicable laws and agreements, Company personnel who violate this Code and other Company policies and procedures may be subject to disciplinary actions, up to and including discharge. In addition, disciplinary measures, up to and including discharge, may be taken against anyone who directs or approves infractions or has knowledge of them and does not promptly report and correct them in accordance with Company policies.

A Framework for Approaching Questions and Problems

Everyone must work to ensure prompt and consistent action against violations of this Code. However, in some situations it is difficult to know right from wrong. Since it is impossible to

² The Antifraud Policy was adopted by the Board of Directors on December 19, 2005. Copies of the Antifraud Policy are available from the Administration Department.

15

anticipate every situation that will arise, it is important to have a way to approach a new question or problem. These are the steps to keep in mind:

• Make sure you have all the facts. In order to reach the right solutions, we must be as fully informed as possible.

• Ask yourself: What specifically am I being asked to do? Does it seem unethical or improper? This will enable you to focus on the specific question you are faced with, and the alternatives you have. Use your independent good judgment and common sense; if something seems unethical or improper, it probably is.

• Clarify your responsibility and role. In most situations, there is shared responsibility. Are your colleagues informed? It may help to get others involved and discuss the problem.

• Discuss the problem with your supervisor. This is the basic guidance for all situations. In many cases, your supervisor will be more knowledgeable about the question, and will appreciate being brought into the decision-making process. Remember that it is your supervisor’s responsibility to help solve problems.

Seek help from Company resources. In the rare case where it may not be appropriate to discuss an issue with your supervisor, or where you do not feel comfortable approaching your supervisor with your question, contact the General Counsel or the Audit Committee by email at audit_committee@gigamedia.com.tw.

Waivers of the Code

Waivers of the Code for directors and executive officers may be made only by the Board of Directors or the Audit Committee of the Board. The Company is required to disclose any such waivers in its U.S. securities filings and interim report on Form 6-K or its next annual report on Form 20-F.

No Rights Created

This Code is a statement of the fundamental principles and key policies and procedures that govern the conduct of the Company’s business. It is not intended to and does not create any rights in any employee, officer, customer, supplier, competitor, shareholder or any other person or entity.

16

ACKNOWLEDGMENT FORM

I have received and read the Company’s Code of Business Conduct and Ethics (“Code”), and I understand its contents. I agree to comply fully with the standards, policies and procedures contained in the Code and the Company’s related policies and procedures. I understand that I have an obligation to report to the General Counsel any suspected violations of the Code that I am aware of. I acknowledge that the Code is a statement of policies for business conduct and does not, in any way, constitute an employment contract or an assurance of continued employment.

Printed Name

Signature

Date

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EX-12.1

Exhibit 12.1

CERTIFICATIONS

I, Arthur Wang, certify that:

1. I have reviewed this annual report on Form 20-F of GigaMedia Limited (the “Company”);

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The Company’s other certifying officer(s) 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)) 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 report is being prepared;

(b) 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 evaluation; and

(c) 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 control over financial reporting, to the Company’s auditors and the audit committee of Company’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control 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 control over financial reporting.

Date: June 28, 2006

/s/ ARTHUR WANG

Name: ARTHUR WANG

Title: CHIEF EXECUTIVE OFFICER

EX-12.2

Exhibit 12.2

I, Thomas Hui, certify that:

1. I have reviewed this annual report on Form 20-F of GigaMedia Limited (the “Company”);

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The Company’s other certifying officer(s) 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)) 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 report is being prepared;

(b) 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 evaluation; and

(c) 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 control over financial reporting, to the Company’s auditors and the audit committee of Company’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control 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 control over financial reporting.

Date: June 28, 2006

/s/ THOMAS HUI

Name:  THOMAS HUI

Title:    CHIEF FINANCIAL OFFICER

EX-13

Exhibit 13

CERTIFICATION OF CEO AND CFO PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 20-F of GigaMedia Limited (the “Company”) for the year ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Arthur Wang, as chief executive officer of the Company, and Thomas Hui, as chief financial officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/Arthur Wang

Name:  Arthur Wang

Title:    Chief Executive Officer

Date:    June 28, 2006

/s/ Thomas Hui

Name:  Thomas Hui

Title:    Chief Financial Officer

Date:    June 28, 2006

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-15

EXHIBIT 15

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 0001145549-04-001326) of GigaMedia Limited of our report dated May 26, 2005, except as to the change in presentation basis for the discontinued operation as described in Note 1, which is as of December 9, 2005 relating to the financial statements, which appears in this Form 20-F. We also consent to the reference to us under the heading of “Principal Accountant Fees and Services” and “Controls and Procedures” in such Registration Statement.

/s/ PricewaterhouseCoopers

Taipei, Taiwan

June 28, 2006