NAM TAI ELECTRONICS, INC

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F


o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Fiscal Year Ended December 31, 2004


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-16673

Nam Tai Electronics, Inc.

(Exact name of registrant as specified in its charter)

British Virgin Islands
(Jurisdiction of incorporation or organization)

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

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

Securities registered pursuant to Section 12(g) of the Act: NONE

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

As of December 31, 2004, there were 42,664,536 common shares of the registrant outstanding.

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

Indicate by check mark which financial statement item the registrant has elected to follow: Item 17. o Item 18. þ

PART I

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

Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

Selected Financial Data

Our historical consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States and are presented in U.S. dollars. The following selected statements of income data for each of the three years in the period ended December 31, 2004 and the balance sheet data as of December 31, 2003 and 2004 are derived from our consolidated financial statements and notes thereto included in this Report. The selected statements of income data for each of the two years in the period ended December 31, 2000 and 2001 and the balance sheet data as of December 31, 2000, 2001 and 2002 were derived from our audited financial statements, which are not included in this Report. The following data should be read in conjunction with the Section of the Report entitled Item 5, Operating and Financial Review and Prospects, and our consolidated financial statements including the related footnotes. All reference to numbers of common shares, per share data and stock option data have been adjusted to give effect to a three-for-one stock split effective on June 30, 2003 on a retroactive basis and for the purposes of earnings per share calculation, all references to numbers of common shares, and per share data have been adjusted to reflect an issuance of a stock dividend to shareholders at a ratio of one dividend share for every ten shares, or a ten-for-one stock dividend, effective on November 7, 2003.


	Year ended December 31,
	2000			2001			2002			2003			2004
					(in thousands except per share data)
Consolidated statements of income data:

Net sales — third parties	$	207,456		$	212,934		$	228,167		$	385,524		$	499,680
Net sales — related party		6,232			21,072			7,849			20,782			34,181
Total net sales		213,688			234,006			236,016			406,306			533,861
Cost of sales		182,096			203,974			197,956			340,016			457,385
Gross profit		31,592			30,032			38,060			66,290			76,476
Operating costs and expenses:
Selling, general and administrative		17,646			21,974			17,983			24,866			28,053
Research and development		3,489			2,954			2,686			4,037			5,045
Impairment of goodwill		—			—			339			—			—
Total operating expenses		21,135			24,928			21,008			28,903			33,098
Income from operations		10,457			5,104			17,052			37,387			43,378
Other income (expenses) — net		13,853			2,709			(6,043	)		5,525			37,397
Interest expense		(165	)		(178	)		(790	)		(121	)		(195	)
Income before income taxes and minority interests		24,145			7,635			10,219			42,791			80,580


	Year ended December 31,
	2000			2001			2002			2003				2004
				(in thousands except per share data)
Income taxes benefit (expense)		33			(227	)		(773	)			(399	)			(879	)
Income before minority interests and equity in income (loss) of affiliated companies		24,178			7,408			9,446				42,392				79,701
Minority interests		12			(230	)		(164	)			(1,067	)			(6,010	)
Income after minority interests		24,190			7,178			9,282				41,325				73,691
Equity in income (loss) of affiliated companies		(189	)		1,867			10,741				498				(6,806	)
Discontinued operation		—			—			—				1,979				—
Net income	$	24,001		$	9,045		$	20,023			$	43,802			$	66,885
Earnings per share:
Basic	$	0.80		$	0.27		$	0.57			$	1.09			$	1.57
Diluted	$	0.78		$	0.26		$	0.57			$	1.07			$	1.57
Weighted average shares:
Basic		30,077			33,905			34,885				40,336				42,496
Diluted		30,938			34,298			35,430				40,839				42,548


	At December 31,
		2000		2001		2002		2003		2004
	(in thousands)
Consolidated balance sheet data:

Cash and cash equivalents		$	58,896	$	58,676	$	82,477	$	61,827	$	160,649
Working capital			88,969		83,525		87,184		93,474		218,243
Property, plant and equipment — net			44,599		70,414		75,914		77,647		97,441
Total assets			208,370		224,573		275,086		297,695		460,473
Short-term debt, including current portion of long-term debt			1,523		3,687		14,970		3,004		4,955
Long-term debt, less current portion			—		12,860		2,812		1,688		5,163
Total debt			1,523		16,547		17,782		4,692		10,118
Shareholders’ equity			162,364		169,351		202,128		217,118		305,053
Common shares			306		312		360		412		426
Total dividend per share			0.45		0.13		0.49		1.00		0.48

Risk Factors

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

Risks Related to Our Business

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

Historically, a substantial percentage of our sales have been to a small number of customers. During the years ended December 31, 2002, 2003 and 2004, sales to our customers accounting for 10% or more of our net sales aggregated approximately 60.2%, 46.7% and 47.9%, respectively, of our net sales. The loss of Epson Precision (HK) Ltd., Sharp Corporation, Wuxi Sharp Electronic Components Co., Ltd., or Motorola Inc., each of which accounted for more than 10% of our net sales during 2004, or a substantial reduction in orders from any of them, would materially and adversely impact our business and operating results.

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

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

•    the timing, cancellation or postponement of orders;

•    the type of product and related margins;

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

•    the life cycles of our customers’ products;

•    our timing of expenditures in anticipation of future orders;

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

•    the mix of orders filled.

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

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

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

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

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

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

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

In order to expand our production capacity, we have built a new factory consisting of approximately 265,000 square feet adjacent to our principal manufacturing facilities in Shenzhen, the People’s Republic of China, or China or the PRC. The construction was completed in December 2004 and we expect full operations to commence in April 2005. As of December 31, 2004, we had spent $15.0 million to cover the cost of construction and fixtures and equipment for the new factory. The financing for these improvements to our manufacturing facilities was obtained from our internal resources. We have committed substantial expenditures and resources constructing and equipping this factory but cannot guarantee that we will be able to fully utilize such additional capacity. Our factory utilization is dependent on our success in providing manufacturing services for new or other products that we intend to produce at that factory, such as Bluetooth^TM wireless headset accessory for cellular phones, CMOS sensor modules for cellular phones with built-in camera function, home entertainment products and FPC sub-assemblies at a price and volume sufficient to absorb our increased overhead expenses. Demand for contract manufacturing of these products may not be as high as we expect, and we may fail to realize the expected benefit from our investment in our new factory.

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

Although certain barriers to entry exist in providing electronics manufacturing services, or EMS, including technical expertise, substantial capital requirements, difficulties relating to building customer relationships and a large customer base, the barriers to entry are comparatively low and we are aware that manufacturers in Hong Kong and China may be developing or have developed the required technical capability and customer base to compete with our existing business.

Competition in the EMS industry is intense and is characterized by price erosion, rapid technological change, and competition from major international companies. This intense competition has resulted in pricing pressures, lower sales and reduced margins. Continuing competitive pressures could materially and adversely affect our business and operating results. Over the last several years our margins have declined substantially, from 17.2% in 1999 to approximately 14.3% in 2004. Continuing competitive pressures could materially and adversely affect our business and operating results.

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

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

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

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

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

•    utilization of advances in technology;

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

•    delivery of efficient and cost-effective services; and

•    timely completion of the manufacture of new products.

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

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

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

At various times, we have and continue to experience shortages of some of the electronic components that we use, and suppliers of some components lack sufficient capacity to meet the demand for these components. In some cases, supply shortages and delays in deliveries of particular components have resulted in curtailed production, or delays in production, of assemblies using that component, which contributed to an increase in our inventory levels and reduction in our gross margins. We expect that shortages and delays in deliveries of some components will continue. If we are unable to obtain sufficient components on a timely basis, we may experience manufacturing delays, which could harm our relationships with current or prospective customers and reduce our sales. We also depend on a small number of suppliers for certain of the

components that we use in our business. For example, we purchase most of our integrated circuits from Toshiba Corporation and Sharp Corporation and certain of their affiliates. If we were unable to continue to purchase components from these limited source suppliers, our business and operating results would be materially and adversely affected.

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

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

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

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

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

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

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

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

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

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

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

For example, in September 2004, we made an impairment to write down our $10.0 million investment in Alpha Star Investments Ltd. to its fair value of approximately $3.0 million, based on advice from an external valuer.

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

Our customers rely on a variety of carriers for product transportation through various world ports. A work stoppage, strike or shutdown of one or more major ports or airports could result in shipping delays materially and adversely affecting our customers, which in turn could have a material adverse effect on our business and operating results. Similarly, an increase in freight surcharges due to rising fuel costs or general price increases could materially and adversely affect our business and operating results.

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

We are incorporated in the British Virgin Islands and have subsidiaries incorporated in the Cayman Islands, Hong Kong, Macao, Japan and China. We have administrative offices in Hong Kong and Macao. We manufacture all of our products in China. As of December 31, 2004, approximately 86.7% of the net book value of our total fixed assets is located in China. We sell our products to customers in Hong Kong, North America, Europe, Japan, China and Southeast Asia. Our international operations may be subject to significant political and economic risks and legal uncertainties, including:

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

•    changes in international and domestic customs regulations;

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

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

•    difficulties in managing or overseeing foreign operations; and

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

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

Our operating results could be negatively impacted by seasonality.

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

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

Our operations create some environmentally sensitive waste that may increase in the future depending on the nature of our manufacturing operations. The general issue of the disposal of hazardous waste has received increasing attention from Chinese national and local governments and foreign governments and agencies and has been subject to increasing regulation. Currently, relevant Chinese environmental protection laws and regulations impose fines on discharge of waste materials and empower certain environmental authorities to close any facility which causes serious environmental problems. Although it has not been alleged that we have violated any current environmental regulations by China government officials, there is no assurance that the Chinese government will not amend its current environmental protection laws and regulations. Our business and operating results could be materially and adversely affected if we were to increase expenditures to comply with environmental regulations affecting our operations.

Our insurance coverage may not be sufficient to cover the risks related to our operations and losses.

We have not experienced any major accidents in the course of our operations which have caused significant property damage or personal injuries. However, there is no assurance that we will not experience major accidents in the future. Although we have purchased the necessary insurances, including a business interruption policy, a fidelity guarantee policy and policies covering losses or damages in respect of buildings’ machineries, equipments and inventories, the occurance of certain incidents such as earthquake, war and flood, and the consequences resulting from them, may not be covered adequately, or at all, by the insurance policies under which we are protected. We also face exposure to product liability claims in the event that any of our products is alleged to have resulted in property damage, bodily injury or other adverse effects. We only have product liability insurance for some of our products. Losses incurred or payments we may be required to make, may have a material adverse effect on our results of operations if such losses or payments are not fully insured.

We are a defendant in putative class action lawsuits and this litigation could harm our business regardless of the final outcome.

On March 11, 2003, we were served with a complaint in an action captioned Michael Rocco v. Nam Tai, et al., 03 Civ. 1148 (S.D.N.Y.), or the Rocco Action. In addition to Nam Tai, certain directors are named as defendants. On or about April 9, 2003, a second complaint was filed in an action captioned A.J. & Celine Steigler v. Nam Tai, et al., 03 Civ. 2462 (S.D.N.Y.) or the Steigler Action, and together with the Rocco Action, the Actions. The Actions have been consolidated since July 2003 and purport to represent a putative class of persons who purchased the common stock of Nam Tai from July 29, 2002 through February 18, 2003. Plaintiffs in the Actions assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and allege that misrepresentations and/or omissions were made during the alleged class period concerning the partial reversal of an inventory provision and a charge to goodwill related to Nam Tai’s LCD panels and transformers segment, or LPT segment. Defendants’ motion to dismiss was denied on September 27, 2004. The putative class action has not been certified as a class action by the court but we expect plaintiffs to seek such certification in the near future. The court has set May 23, 2005 to hear such a certification motion. Nam Tai believes it has meritorious defenses and it intends to defend the case vigorously. Nam Tai is aware of no other actions that have been filed which relate to these matters. The ultimate outcome of this litigation cannot be presently determined. However, this litigation could be very costly and divert our management’s attention and resources. In addition, we have no insurance covering our liability, if any, or that of our officers and directors, and we will have to pay the costs of the defense. Any adverse determination in this litigation could also subject us to significant liabilities, any or all of which could materially and adversely affect our business and operating results.

We depend on our executive officers and skilled management personnel.

Our success depends to a large extent upon the continued services of our executive officers. Generally, our employees are bound by employment or non-competition agreements. However, we cannot assure you that we will retain our executive officers and other key employees. We could be seriously harmed by the loss of any of our executive officers. In order to manage our growth, we will need to recruit and retain additional skilled management personnel and if we are not able to do so our business and our ability to continue to grow could be harmed. We maintain no key person insurance on these individuals. The loss of service of any of these officers or key management personnel could have a material adverse effect on our business growth and operating results.

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

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

We could become involved in intellectual property disputes.

We do not have any patents, licenses, or trademarks material to our business. Instead, we rely on trade secrets, industry expertise and our

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

We may not pay dividends in the future.

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

We are subject to the risk of increased taxes.

We base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities. Our tax position, however, is subject to review and possible challenge by taxing authorities and to possible changes in law. We cannot determine in advance the extent to which some jurisdictions may assess additional tax or interest and penalties on such additional taxes.

Several places in which we are located allow for tax holidays or provide other tax incentive to attract and retain business. We have obtained holidays or other incentives where available. Our taxes could increase if certain tax holidays or incentives are retracted, or if they are not renewed upon expiration, or tax rates applicable to us in such jurisdictions are otherwise increased.

Recently enacted changes in the securities laws and regulations are likely to increase our costs.

The Sarbanes-Oxley Act of 2002 that became law in July 2002 has required changes in some of our corporate governance, securities disclosure and compliance practices. In response to the requirements of that act, the Securities and Exchange Commission, or SEC, and the New York Stock Exchange, or NYSE, have promulgated new rules on a variety of subjects. Compliance with these new rules as well as the Sarbanes-Oxley Act of 2002 has increased our legal, financial and accounting costs, and we expect these increased costs to continue indefinitely, particularly as new rules and regulations, including Section 404 of the Sarbanes-Oxley Act of 2002, come into effect. We also expect these developments to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be forced to accept reduced coverage or incur substantially higher costs to obtain coverage. Likewise, these developments may make it more difficult for us to attract and retain qualified members of our board of directors or qualified executive officers.

Risks Related to Our Operations in China, Hong Kong, Macao and Japan

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

We are exposed to risks associated with doing business in China.

Our principal manufacturing operations are located in Shenzhen, China. These operations could be severely impacted by evolving interpretation and enforcement of legal standards, by strains on Chinese energy, transportation, communications, trade and other infrastructures, by conflicts, embargoes, increased tensions or escalation of hostilities between China and Taiwan, and by other trade customs and practices that are dissimilar to those in the United States and Europe. Interpretation and enforcement of China’s laws and regulations continue to evolve and we expect differences in interpretation and enforcement to continue in the foreseeable future. Further, we may be exposed to fluctuations in the value of the renminbi yuan, or RMB, the local currency of China. Recently, China has been confronted with international pressure demanding the appreciation of the RMB. Should the Chinese government allow a significant RMB appreciation, our component and other raw material costs could increase and could adversely affect our financial results.

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

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

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

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

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

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

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

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

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

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

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

Our financial results have been affected by currency fluctuations, resulting in total foreign exchange gains of $189,000 during the year ended December 31, 2004, total foreign exchange losses of $62,000 during the year ended December 31, 2003 and total foreign exchange losses of $345,000 during the year ended December 31, 2002. We sell most of our products in United States dollars and pay our expenses in United States dollars, Japanese yen, Hong Kong dollars, and Chinese renminbi. While we face a variety of risks associated with changes among the relative value of these currencies, we believe the most significant exchange risk presently results from material purchases we make in Japanese yen. Approximately 8%, 16% and 6% of our material costs have been in Japanese yen during the years ended December 31, 2002, 2003 and 2004, respectively, but sales made in Japanese yen accounted for less than 11% of sales for each of the last three years. An appreciation of the Japanese yen against the United States dollar would increase our expenses when translated into United States dollars and would materially and adversely affect our margins unless we made sufficient sales in Japanese yen to offset against material purchases made in Japanese yen.

Approximately 8% and 6% of our revenues and 12% and 12% of our expenses were in Chinese renminbi and Hong Kong dollars, respectively, during the year ended December 31, 2004. Approximately 1% and 8% of our revenues and 13% and 12% of our expenses were in Chinese renminbi and Hong Kong dollars, respectively, during the year ended December 31, 2003. An appreciation of the Chinese renminbi or Hong Kong dollar against the United States dollar would increase our expenses when translated into United States dollars and could materially and adversely affect our margins. In addition, a significant devaluation in the Chinese renminbi or Hong Kong dollar could harm our business if it destabilizes the economy of China or Hong Kong, creates serious domestic problems or increases our borrowing costs.

We have suffered losses from hedging against our currency exchange risk.

From time to time, we have attempted to hedge our currency exchange risk. We did not engage in currency hedging transactions for fiscal year 2003 and 2004. We have experienced in the past and may experience in the future losses as a result of currency hedging.

Political and economic instability in Hong Kong could harm our operations.

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

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

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

In addition, there has recently been an outbreak of avian influenza in humans in Asian countries, including Vietnam, South Korea and Japan, which has proven fatal in some instances. As the human death toll continues to grow, many are concerned that the virus will mutate and trigger a human pandemic. If such an outbreak were to spread to southern China, where our operation facilities are located, it may adversely affect our business operating results.

We conduct operations in a number of countries and the effect of business, legal and political risks associated with international operations could significantly harm us.

We conduct operations in number of countries. There are risks inherent in doing business in international markets, including:

•    Difficulties in staffing and managing international operations;

•    Compliance with laws and regulations, including environmental laws, which vary from country to country and over time, increasing the costs of compliance and potential risks of non-compliance;

•    Exposure to political and financial instability, leading to currency exchange losses, collection difficulties or other losses;

•    Exposure to fluctuations in the value of local currencies;

•    Changes in value-added tax or VAT reimbursement;

•    Imposition of currency exchange controls; and

•    Delays from customs brokers or government agencies.

Any of these risks could significantly harm our business, financial condition and operating results.

Risks Related to Our Industry

We are exposed to general economic conditions. Any slowdown in the technology products industry may affect our business and operating results adversely.

As a result of the economic downturn in the United States and internationally, and reduced capital spending, sales to OEMs in the electronics industry declined beginning in the second quarter of fiscal year 2001 and continuing through 2002. Lower consumer demand and high customer inventory levels have resulted in the delay and cancellation of orders for nearly all types of electronic products. As a result of order cancellations in 2001, we were required to write down slow-moving inventory, which materially and adversely impacted our net income in 2001. Although the industry experienced a recovery in 2003 and 2004, we cannot assure that this recovery is sustainable or that the industry will not further decline. If the economic conditions in the United States or the other markets we serve worsen, particularly in the electronics and contract manufacturing businesses particularly, or if a wider or global economic slowdown occurs, this could materially and adversely impact our business and operating results.

Our business and operating results are dependent on growing global outsourcing trends.

Over the last two decades, the EMS industry experienced rapid change and growth as the capabilities of EMS companies continued to expand and consumer electronic product manufacturers adopted, and became increasingly reliant on, manufacturing outsourcing strategies to remain competitive. Despite the slow down of the EMS industry in 2001 and 2002 as a result of consumer electronic product manufacturers’ decreasing production requirement, growth has been renewed in 2003 and 2004 and we believe that the EMS industry has the potential for further growth as many consumer electronic product manufacturers continue to favor outsourcing over internal manufacturing, and the market for outsourcing, as a whole, continues to flourish. However, there can be no assurance that the trends of adopting manufacturing outsourcing strategies by consumer electronic product manufacturers will continue to grow. If the growing outsourcing trends discontinue, this could materially and adversely impact our business and operating results.

Risks Related to Ownership of Our Common Shares

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

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

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

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

On February 28, 2005, members of our management and Board of Directors as a group beneficially owned approximately 42.0% of our common shares. As a result, acting together, they may be able to control and substantially influence the outcome of all matters requiring approval by our shareholders, including the election of directors and approval of significant corporate transactions. This ability may have the effect of delaying or preventing a change in control of Nam Tai, or causing a change in control of Nam Tai that may not be favored by our other shareholders.

If we do not receive an unqualified opinion on the adequacy of our internal control over financial reporting as of December 31, 2006 and future year-ends as required by Section 404 of the Sarbanes-Oxley Act of 2002, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our shares.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the company’s internal control structure and procedures over financial reporting in their annual reports on Form 20-F that contains an assessment by management of the effectiveness of the company’s internal control structure and procedures over financial reporting. In addition, the public accounting firm auditing the company’s financial statements must attest to and report on management’s assessment of the effectiveness of the company’s internal control structure and procedures over financial reporting. While we intend to conduct a rigorous review of our internal control structure and procedures over financial reporting in order to assure compliance with Section 404 requirements, if our independent auditors interpret Section 404 requirements and the related rules and regulations differently from us or if our independent auditors are not satisfied with our internal control structure and procedures over financial reporting or with the level at which it is documented, operated or reviewed, they may decline to attest to management’s assessment or issue a qualified report. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which could cause the market price of our shares to decline.

Changes to financial accounting standards may affect our reported results of operations and could result in a decrease in the value of our shares.

The Financial Accounting Standards Board recently published amendments to Statement of Financial Accounting Standards No. 123 that would require stock-based compensation issued to employees to be treated as compensation expense using the fair value method. If we are required to record an expense for our stock-based compensation plans using the fair value method, we would incur significant compensation charges. Although we currently are not required to record any compensation expense in connection with options granted that have an exercise price equal to fair market value of our common stock at the grant date, if future laws and regulations require us to treat all stock-based compensation as a compensation expense using the fair value method, our results or operations could be adversely affected. For discussion of our employee stock option and employee stock purchase plans, see Note 2 – “Summary of Significant Accounting Policies – Stock Options” and Note 11 – “Shareholders’ Equity” to the Consolidated Financial Statements.

Risks Related to Our Foreign Private Issuer Status

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Item 4. Information on the Company

History and Development of Nam Tai

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

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

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

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

capturing devices such as digital cameras for cellular phones and home entertainment products, FPC sub-assemblies for integration into various LCD modules, front light panels for handheld video game devices and digital camera accessories for use with the cellular phones and home entertainment products. In 2004, we expanded our business on CMOS sensor modules and FPC sub-assemblies. We also further broadened our product line by manufacturing back light panels for handheld video game devices and Bluetooth^TM wireless headset accessory for cellular phones.

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

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

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

In January 2002, we acquired a 6% equity interest in TCL Corporation (formerly known as TCL Holdings Corporation Ltd.), for a consideration of approximately $12.0 million. TCL Corporation, an enterprise established in China, is the parent company of the TCL Group of companies. TCL Corporation changed from a limited liability company to a company limited by shares in April 2002. In January 2004, TCL Corporation listed its A-shares on the Shenzhen Stock Exchange at RMB 4.26 (equivalent to $0.52) per A-share. The Company’s interest in TCL Corporation has since been diluted to 3.69% and represents 95.52 million promoter’s shares of TCL Corporation after its initial public offering. Pursuant to Article 147 of the Company Law of China, the Company is restricted from transferring its promoter’s shares within three years from the establishment date. The Company is, however, entitled to receive dividends and other rights similar to holders of A-shares. As these promoter’s shares have a restriction on their sale prior to April 2005, the Company hired an independent valuer to determine the fair value of these shares as of December 31, 2004 and recognized an unrealized gain of $6.55 million, which has been recorded as a separate component of accumulated other comprehensive income, based on the Company’s cost of $11.97 million and an estimated fair value of $20.70 million.

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

During the period from November to December 2004, we further disposed of a total of 128,000,000 ordinary shares of J.I.C. Technology Company Limited for cash consideration of $12.95 million. The disposal resulted in a net gain on partial disposal of a subsidiary of $6.25 million and the release of unamortized goodwill of $3.52 million. During the same period, we converted all 423,320,000 preference shares into 410,990,290 ordinary shares. As of December 31, 2004, we held 546,890,978 ordinary shares of J.I.C. Technology Company Limited, equivalent to 71.63% of issued ordinary shares.

In January 2003, we invested $10.0 million for a 25% equity interest in Alpha Star Investments Ltd., the ultimate holding company of JCT Wireless Technology Limited, or JCT. JCT is engaged in the design, development and marketing of wireless communication terminals and wireless application software and is using us to manufacture wireless communication terminals and their related modules. As of December 31, 2004, we recognized net sales of $34.2 million to JCT for the year. However, in September 2004, we made an impairment to write down our $10.0 million investment in Alpha Star to a fair value of approximately $3.0 million. As of December 31, 2004, another analysis had been conducted by an independent valuer, who determined that no further impairment to value was required.

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

On January 23, 2003, the listing of our shares was transferred to the NYSE from the NASDAQ National Market with symbol of “NTE”. On June 30, 2003, we implemented a three-for-one stock split with both the stock size and market price to be divided by three. As of December 31, 2004, there were 42,664,536 common shares outstanding.

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

In August 2003, we set up our first subsidiary, Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited in Macao as our PRC headquarters. Macao, like Hong Kong, is a special administrative region of the China and has recently introduced an incentive program to attract investment to Macao. In March and November 2004, we further established Zastron (Macao Commercial Offshore) Company Limited and J.I.C. (Macao Commercial Offshore) Company Limited in Macao, respectively.

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

In December 2003, we placed approximately $5.3 million into an escrow account for an investment in Stepmind. The investment was to occur in two phases. For the first phase, approximately $2.64 million, representing 7.66% of the equity interest in Stepmind, was released to Stepmind in January 2004. The second phase amounting to approximately $2.65 million was released to Stepmind in August 2004 subject to fulfillment of certain conditions. In August 2004, we disposed of our entire interest in Stepmind to one of the shareholders of Stepmind at the original subscription price for those shares.

In April 2004, we increased our shareholding in TCL Mobile from approximately 3% to 9% through the acquisition of Jasper Ace Limited, or Jasper Ace, which directly holds a 9% equity interest in TCL Mobile, for a consideration of approximately $102.2 million. The consideration was satisfied by the exchange of our 72.2% equity interest in Mate Fair, plus cash of $25 million in cash, and the issuance of 1,416,764 new Nam Tai shares and resulted in a net investment cost of $79.5 million. In July 2004, Nam Tai transferred all its shares in TCL Mobile to TCL Communication Technology Holdings Limited, or TCL Communication, in exchange for 90 shares of TCL Communication. In August 2004, we further subscribed for 254,474,910 shares in TCL Communication at a consideration of approximately $16 million. The consideration was satisfied by the dividend receivable from TCL Communication. Together with the 90 shares it received in July 2004, Nam Tai in total holds 254,475,000 shares in TCL Communication, representing 9% of the shareholding of TCL Communication. In September 2004, shares of TCL Communication were listed on the Hong Kong Stock Exchange by way of introduction. There were no new shares issued or sold in connection with the listing, and therefore no dilution to Nam Tai’s original stake in TCL Communication. As of December 31, 2004, we still hold 254,475,000 shares, representing 9% of the total issued shares of TCL Communication.

As of December 31, 2004, the Company’s investment in TCL Communication was stated at fair value based on the traded market price of TCL Communication’s shares. The Company recognized an unrealized loss of $58.3 million in its consolidated statements of income based on the Company’s cost of $79.5 million and a fair value of $21.2 million.

In April 2004, shares of Nam Tai Electronic & Electrical Products Limited, or NTEEP, a wholly owned subsidiary of the Company, were listed on the Hong Kong Stock Exchange. Since all of the shares of NTEEP involved in the initial public offering, or IPO, were existing shares of NTEEP owned by Nam Tai, all of the proceeds raised in the IPO went to Nam Tai instead of NTEEP. The offer price of NTEEP’s share was $0.497, which resulted in net proceeds of approximately $92.8 million and a gain of approximately $71.1 million to the Company. As of December 31, 2004, we held 600,000,000 shares of NTEEP, representing 75% of the total issued shares of NTEEP.

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

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

Capital Expenditures

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


	2002		2003		2004
Property, plant and equipment (net)	$	18,485,000		17,053,000		38,611,000

Our major capital expenditure in 2004 included:

•    $13.8 million for new factory expansion;

•    $7.7 million for the expansion of an LCD factory (which included 5.8 million paid as a deposit for fixed assets);

•    $0.7 million for the expansion of our high-resolution color LCD module production capacity;

•    $14.5 million for machineries used mainly for FPC sub-assemblies;

•    $5.6 million for other capital equipment; and

•    $2.1 million for construction work in relation to the electricity supply for Nam Tai Electronic (Shenzhen) Co., Ltd.

Our major capital expenditures in 2003 included:

•    $6.0 million for machinery for manufacturing RF modules;

•    $1.2 million for new factory expansion;

•    $0.4 million for machinery on FPC sub-assemblies;

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

•    $6.7 million for other capital equipment; and

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

Our major capital expenditures in 2002 included:

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

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

In order to expand production capacity, we have built a new factory consisting of approximately 265,000 square feet adjacent to our principal manufacturing facilities in Shenzhen, China. The construction was completed in December 2004 and we expect full operations to commence in April 2005. As of December 31, 2004, we had spent $15.0 million to cover the cost of construction, fixtures and equipment for the new factory. The financing for these improvements to our manufacturing facilities were obtained from internal resources. In October 2004, our existing production facility for the LCD panels segment also relocated to new factory premises which are approximately 670,000 square feet and twice the size of the former factory premises. This new factory provides room for the future expansion of production capacity. As of December 31, 2004, we had spent $7.7 million for this relocation and financed this amount with a combination of internal resources and bank financing.

Other capital expenditures we have planned for 2005 include:

•    $ 8.0 million for land purchase;

•    $16.5 million for new factory expansion;

•    $14.0 million for machinery; and

•    $4.5 million for other equipment.

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

Business Overview

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

obtaining new business but do not represent a material component of our revenue. We also provide original design manufacturing, or ODM, services, in which we design and develop proprietary products that are sold by our OEM customers using their brand name.

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

Our Customers

Historically, we have had substantial recurring sales from existing customers. About 89.4% of our 2004 net sales came from customers that also used our services in 2003. While we seek to diversify our customer base, a small number of customers currently generate a significant portion of our sales. Sales to our 10 largest customers accounted for 84.8%, 84.9% and 82.5% of our net sales during the years ended December 31, 2002, 2003 and 2004, respectively. Sales to customers accounting for 10% or more of our net sales in the year ended December 31, 2002, 2003 or 2004 were as follows:


				Year ended
				December 31,
	2002			2003			2004
Epson Precision (HK) Ltd.		32.2	%		24.8	%		14.1	%
Sony Ericsson Mobile Communications AB		16.9	%		11.3	%		*
Texas Instruments Incorporated		11.1	%		*			*
Toshiba Matsushita Display Technology Co. Ltd		*			10.6	%		*
Motorola Inc.		*			*			10.2	%
Sharp Corporation		*			*			13.5	%
Wuxi Sharp Electronic Components Co., Ltd.		*			*			10.1	%

* Less than 10% of our total net sales.

Our largest OEM customers based on net sales during 2004 include the following (listed alphabetically):


Customer		Products
Advance Watch Co. (Far East) Ltd.		LCD panels for watches
Appeal Telecom Co., Ltd.		CMOS sensor modules
Canon Electronic Business Machines (H.K.) Co. Ltd.		Electronic dictionaries, calculators, PDAs and dictionaries, LCD panel sub-assemblies for copy machines and software development
Epson Precision (H.K.) Ltd.		LCD modules for cellular phones and FPC sub-assemblies
Goyo Paper Working Co., Ltd.		Game front light panel and back light panel assembly
JCT Wireless Technology Ltd.		RF modules and cellular phones in semi-knocked down, or SKD, form
Kanda Tsushin Kogyo Co Ltd. (affiliate of Fujitsu)		Assemblies for cordless phones
Motorola Inc.		CMOS sensor modules
Nanox Ltd.		LCD panels for cordless phones and household appliances
National Electronic & Watch Company Ltd.		LCD panels
Optrex Corporation		Assemblies for LCD modules
Polar Group		LCD panels
Seiko Instruments Inc.		Electronic dictionaries and PDAs, software development
Sharp Corporation		FPC sub-assemblies, calculators, PDAs and dictionaries
Sony Computer Entertainment Europe Ltd.		Home entertainment products
Sony Corporation		Electronic dictionaries and software development
Sony Ericsson Mobile Communications AB		Mobile phone digital camera accessories, Bluetooth^TM wireless headset accessory
Stanley Electric (Asia Pacific) Ltd.		LCD panels for car audio devices
Texas Instruments Incorporated		Calculators
Toshiba Matsushita Display Technology Co. Ltd.		LCD modules for cellular phones
Uniden HK Ltd.		LCD panels
Wuxi Sharp Electronic Components Co. Ltd.		Telecom printed circuit board, or PCB, modules and FPC sub-assemblies

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

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

Our Products

During 2003, our operations are generally organized in two segments, Consumer Electronics Products, or CEP, and LCD panels and transformers, or LPT. The activities of our LPT segment relate primarily to our J.I.C. subsidiary that we acquired in October 2000. In 2004, our operations were re-organized into three reportable segments consisting of consumer electronics and communication products, or CECP, telecommunication components assembly, or TCA and LCD panels, or LCDP. In 2003, CECP and TCA were classified as a single reportable segment as CEP while LCDP also comprised the transformers operations and collectively referred to as LPT as a result of the disposal of transformer business in 2003.

The dollar amount (in thousands) and percentage of our net sales by business segment and product category for the years ended December 31, 2002, 2003 and 2004 were as follows:


						Year ended December 31,
	2002					2003					2004
	Dollars		Percent			Dollars		Percent			Dollars		Percent
Consumer Electronics and Communication Products	$	94,032		40	%	$	128,778		32	%	$	163,584		31	%
Telecom, Components Assembly:
Telecom, components assembly(1)		103,800		44			232,163		57			316,695		59
Software development services		2,923		1			4,041		1			4,872		1
LCD Panels and Transformers
LCD panels		23,937		10			35,040		9			48,710		9
Transformers(2)		11,324		5			6,284		1			—		—
Total	$	236,016		100	%	$	406,306		100	%	$	533,861		100	%

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

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

Please refer to Note 19 “Segment Information” of the Consolidated Financial Statements and Item 8 Financial Information — Export Sales which sets forth the information of net sales to customers by geographic area.

Consumer Electronic and Communication Products, or CECP

The consumer electronic and communication products we manufacture are primarily finished products and include:

•    A Bluetooth^TM wireless headset accessory for cellular phones, which we began manufacturing in March 2004.

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

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

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

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

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

Telecommunication Component Assembly, or TCA

Telecommunications Components Assembly

We manufacture the following sub-assemblies and components:

• Color and monochrome LCD modules to display information as part of telecommunication products such as cellular phones and telephone

systems, appliances and office automation products, such as copiers and facsimile machines. Our LCD modules could be manufactured for use in most other hand-held consumer electronic devices, such as electronic games and digital cameras.

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

•    Cellular phones in SKD form.

•    FPC sub-assemblies which we began manufacturing in March 2003 for integration into various LCD modules.

•    Front light panels for handheld video game devices.

•    Back light panels for handheld video game devices, which we began manufacturing in August 2004.

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

Software Development Services

We offer software development services principally for the electronic dictionary products for major Japanese customers. In addition, we focus on research and development for car navigation products which we aim to results in providing license and/or manufacturing services to the OEM customers.

LCD Panels, or LCDP

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

Our Manufacturing and Assembly Capabilities

We utilize the following production techniques:

•    Chip on Film, or COF, is an assembly method for bonding integrated circuit chips and other components onto a flexible printed circuit. This process allows for greater compression of the size of a product when assembled enabling the production and miniaturization of small form factor devices like cellular phones, PDAs, digital cameras and notebook PCs. As of December 31, 2004, we had 14 COF machines. These machines connect the bump of large scale integrated, or LSI, driver onto FPC pattern with anisotropic conductive film, or ACF, and mount chip resister cap components to FPC through surface mount technology, or SMT, is available. These COF machines have the ability to pitch fine to 38 micrometers and a total production capacity of up to 4,000,000 chips per month.

•    Chip On Glass, or COG, is a process that connects integrated circuits directly to LCD panels without the need for wire bonding. We apply this technology to produce advanced LCD modules for high-end electronic products, such as cellular phones and PDAs. As of December 31, 2004, we had 21 COG lines in our principal manufacturing facilities. These machines provide an LCD of dimension of up to 200 millimeters (length) x 150 (width) x 2.2 (height), a process time per chip of five seconds, a pin pitch fine to 38 micrometers and a total production capacity of up to 4,000,000 chips per month. During 2004, our subsidiary, Jetup Electronic (Shenzhen) Co. Ltd., or Jetup, also started manufacturing COG LCD modules. As of December 31, 2004, Jetup had five COG lines and is capable of bonding 1,000,000 pieces of COG LCD modules a month. They are able to bond LCD panels up to sizes of 100 millimeters x 100 millimeters x 2.2 millimeters thick, with an accuracy of five microns’ tolerence, in a cycle time of 12-15 seconds per piece.

•    Chip On Board, or COB, is a technology that utilizes wire bonding to connect large-scale integrated circuits directly to printed circuit boards. We use COB in the assembly of consumer products such as calculators, personal organizers and linguistic products. As of December 31, 2004, we had 52 COB machines. These machines are fully automatic bonding machines and use ultrasonic mounting technology. The bonding time, pressure, power and each wire loop are under machine programmable control. These machines provide a high speed chip mounting time of per 2 millimeters wire per 0.25 second, a bond pad fine to 75 micrometers and a total production capacity of up to 3,000,000 chips per month.

•    Outer Lead Bonding, or OLB, is an advanced technology used to connect PCBs and large-scale integrated circuits with a large number of connectors. We use this technology to manufacture complex miniaturized products, such as high-memory PDAs. As of December 31, 2004, we had three OLB machines. The machines include multi-pinned tape carrier packaged large scale integrated circuit, or TCP LSIC, bonding which is up to 280 pins, which also provide ultra thin assembly with module thickness to around one millimeter and high accuracy bonding with pin pitch to 100 micrometers. The total production capacity is 12,000 units per month.

•    Tape Automated Bonding with Anisotropic Conductive Film, or TAB with ACF, is an advanced heat sealing technology that connects a liquid crystal display component with an integrated circuit in very small LCD modules, such as those used in cellular phones and pagers. As of December 31, 2004, we had 35 systems of TAB with ACF machines. The machines provide process time of 24 to 25 seconds per component, a pin pitch fine to 200 micrometers and a total production capacity of up to 3,660,000 components per month. During 2004, Jetup also started manufacturing TAB LCD modules. As of December 31, 2004, Jetup had two TAB lines and is capable of bonding 250,000 pieces of TAB LCD modules a month. They are able to bond LCD panels up to sizes of 120 millimeters x 120 millimeters x 2.2 millimeters thick, with an accuracy of 10 microns’ tolerence in a cycle time of 20-25 seconds per piece.

•    Fine Pitch Heat Seal Technology, or FPHS technology, allows us to connect LCD displays to PCBs produced by COB and outer lead bonding that enables very thin connections. This method is highly specialized and is used in the production of finished products such as PDAs. As of December 31, 2004, we had eight machines utilizing FPHS technology. The machines provide a pin pitch fine to 260 micrometers and a total production capacity of up to 268,000 units per month.

•    Surface Mount Technology, or SMT, is a process by which electronic components are mounted directly on both sides of a printed circuit board, increasing board capacity, facilitating product miniaturization and enabling advanced automation of production. We use SMT for products such as electronic linguistic devices. As of December 31, 2004, we had 29 SMT productions lines. The production time per chip ranges from 0.072 second per chip to 0.8 second per chip and high precision ranging from +/-0.05 millimeter to +/-0.1 millimeter. The components size ranges from 0.6 millimeter (length) x 0.3 millimeter (width) to 55 millimeters (length) x 55 millimeters (width). Ball grid array, or BGA, ball pitch is 0.5 millimeter and ball diameter is 0.2 millimeter. The total production capacity is 670,000,000 resistor capacitor chips per month.

•    Twisted Nematic LCDs, or TN type LCD, is the most conventional and economical and is suitable for low information content display systems such as those found in calculators, watches, car audio, car clusters and other medical instruments. As of December 31, 2004, J.I.C. had two TN LCD lines capable of total capacity of about 100,000 pairs of glass panels (each sheet of glass of 360 millimeters x 400 millimeters size) per month.

•    Super-Twisted Nematic LCDs, or STN, type LCDs capable of providing higher information content display systems are found in applications such as cordless phones, mobile phones, MP3 players, pocket games and PDAs. J.I.C. started producing STN LCDs in 2002 and, as of December 31 2004, was equiped with a automated line capable of capacity 50,000 pairs of glass (each sheet of glass of 360 millimeters x 400 millimeters size) panels per month.

As of December 31, 2004, we had four clean rooms at our principal manufacturing facilities, which housed COF and COG capabilities for LCD module and front light or back light panel manufacturing. We also have five clean rooms at another of our factories, which are used to manufacture LCD panels. Of our nine clean rooms as of December 31, 2004, six were class ten thousand, three were class thousand.

Quality Control

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

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

We started the implementation of the Six Sigma approach in 2004 and our principal manufacturing facilities have been recognized by the China Association for Quality of the Chinese Government as a “National Advanced Enterprise for the Promotion of Six Sigma”. Six Sigma is an internationally recognized approach that uses facts and data to develop better solutions, thereby reducing defects and production times, and improving customer satisfaction. This approach allows the Company to lower its costs due to the minimization of manufacturing defects. This results in improved profit margins and higher competitiveness.

Our Suppliers

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

The major component parts we purchase include the following:

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

•    LCD panels, which are available from many manufacturers. In 2004, we purchased LCD panels from Epson Hong Kong Ltd., Toshiba Matsushita Display Technology Co. Ltd., Optrex Corporation and Sharp Corporation for LCD panels and in the future we may produce some LCD supplies internally;

•    CMOS sensors, which we purchase mainly from Omnivision Technologies Inc.;

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

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

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

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

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

Production Scheduling

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

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

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

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

We did not suffer a material loss resulting from the cancellation of OEM customer orders in 2001 to 2004. In 2001, we wrote down our inventory for $3.8 million for slow-moving raw materials relating to cancelled, reduced or delayed orders. However, subsequently we were able to use some of these raw materials in production or we received compensation for the unused raw materials from certain of our customers, and the gain of $2.0 million was recorded in cost of sales during 2002.

Sales and Marketing

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

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

Seasonality

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

Transportation

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

Competition

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

The EMS services we provide are available from many independent sources as well as from current and potential customers with in-house manufacturing capabilities. Our EMS competitors include Celestica, Inc., Flextronics International Ltd., Hon Hai Precision Industry Co., Ltd., Jabil Circuit, Inc., Sanmina-SCI Corporation and Solectron Corporation. Our principal competitors in the manufacture of our traditional product lines of calculators, personal organizers and linguistic products include Kinpo Electronics, Inc. and Inventec Co. Ltd. Our competitors in the manufacturing of image capturing devices and their modules include Lite-On Technology Corporation, The Primax Group and Logitech International S.A. Our principal competitors in the manufacture of mobile phone accessories include Elcoteq Network Corp. Our competitors in the manufacturing of RF modules include Wavecom and WKK International (Holdings) Ltd. Our competitors in the manufacturing of LCD panels include Truly International Holdings Ltd. and Varitronix International Ltd. We have numerous competitors in the telecommunication, sub-assemblies and components product lines, including Philips, Samsung and Varitronix International Ltd. Our competitors in our FPC sub-assemblies business include Solectron Corporation.

Research and Development

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

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

Patents, Licenses and Trademarks

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

Organizational Structure

We are a holding company for Nam Tai Group Management Limited, Nam Tai Electronic & Electrical Products Limited, Zastron Precision-Tech Limited, Namtek Software Development Company Limited and J.I.C. Technology Company Limited and their subsidiaries. The chart below illustrates the organizational structure of the Company and our principal operating subsidiaries as of December 31, 2004.

(ORGANISATION CHART)

Our significant operating entities are described below:

Nam Tai Group Management Limited

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

Nam Tai Electronic & Electrical Products Limited

Nam Tai Electronic & Electrical Products Limited, or NTEEP, was incorporated in June 2003 in the Cayman Islands, and is the holding company for Namtai Electronic (Shenzhen) Co., Ltd. and Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited. Its shares were listed on the Hong Kong Stock Exchange on 28 April 2004 and we hold 75% of the issued ordinary shares of NTEEP.

Namtai Electronic (Shenzhen) Co., Ltd.

Namtai Electronic (Shenzhen) Co., Ltd. was established as Baoan (Nam Tai) Electronic Co. Ltd. in June 1989 as a contractual joint venture company with limited liability pursuant to the relevant laws of China. The equity of Baoan (Nam Tai) Electronic Co. Ltd. was 70% owned by Nam Tai Electronic & Electrical Products Limited and 30% owned by a Chinese company. In 1992, the Chinese company transferred all of its equity interest in the contractual joint venture to Nam Tai Electronic & Electrical Products Limited, a Hong Kong subsidiary of Nam Tai, which name was subsequently changed to Nam Tai Trading Company Limited, and the company changed its name to Namtai Electronic (Shenzhen) Co., Ltd. It is the principal operating arm of NTEEP.

Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited

Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited was established in August 2003 in Macao, China. In March 2004, the equity interest of Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited was transferred from the Company to NTEEP and became its wholly owned subsidiary. Its principal business is the provision of management and sales co-ordination and marketing services to other companies within the NTEEP group.

Zastron Precision-Tech Limited

Zastron Precision-Tech Limited, or Zastron, was incorporated in June 2003 in the Cayman Islands, and is the holding company for Zastron Electronic (Shenzhen) Co., Ltd. and Zastron (Macao Commercial Offshore) Company Limited.

Zastron Electronic (Shenzhen) Co. Ltd.

Zastron Electronic (Shenzhen) Co. Ltd. was organized as Zastron Plastic & Metal Products (Shenzhen) Ltd. in March 1992 as a limited liability company pursuant to the relevant laws of China. Zastron Plastic & Metal Products (Shenzhen) Ltd. was engaged in the production of metallic parts and PVC plastic products, much of which is used in the products manufactured in our principal manufacturing facilities. In August 2002, Zastron Plastic & Metal Products (Shenzhen) Ltd. changed its name to Zastron Electronic (Shenzhen) Co. Ltd. and expanded the nature of its business to include manufacturing of telecommunication products, LCD modules, TFT LCD modules and others. It also became one of our principal manufacturing arms. Zastron Electronic (Shenzhen) Co. Ltd. is currently a wholly-owned subsidiary of Zastron.

Zastron (Macao Commercial Offshore) Company Limited

Zastron (Macao Commercial Offshore) Company Limited was established in March 2004 in Macao, China and is a wholly owned subsidiary of Zastron. Its principal business is the provision of management, sales co-ordination and marketing services to other companies within the Zastron group.

J.I.C. Technology Company Limited

J.I.C. Technology Company Limited, or J.I.C., was formed in the Cayman Islands in January 2002 in connection with a reverse merger with Albatronics, of which we owned slightly more than 50% of the outstanding capital stock. J.I.C. was listed on the Hong Kong Stock Exchange in June 2002. We currently hold 71.63% of the issued ordinary shares of J.I.C.

Jetup Electronic (Shenzhen) Co., Ltd.

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

J.I.C. (Macao Commercial Offshore) Company Limited

J.I.C. (Macao Commercial Offshore) Company Limited was incorporated in November 2004 in Macao, China and is a wholly-owned subsidiary of J.I.C. Technology Company Limited. Its principal business is the provision of management, sales co-ordination and marketing services to other companies with the J.I.C. Group.

Namtek Software Development Company Limited

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

Shenzhen Namtek Co., Ltd.

Shenzhen Namtek Co., Ltd. was organized in December 1995 as a limited liability company pursuant to the relevant laws of China. Shenzhen Namtek Co., Ltd. commenced operations in early 1996 developing and commercializing software for the consumer electronics industry, particularly for our customers and for products we manufacture or we will manufacture in the future. At December 31, 2004, Shenzhen Namtek Co., Ltd employed approximately 93 software engineers and provides the facilities and expertise to assist in new product development and research, enabling us to offer our customers program design for microprocessors, enhanced software design and development services, and strengthening our ODM capabilities.

Namtek Japan Company Limited

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

Property, Plant and Equipment

Our registered office in the British Virgin Islands is located at McNamara Chambers, P.O. Box 3342, Road Town, Tortola. Our principal

executive office in the British Virgin Islands is located at 116 Main Street, 3^rd Floor, Road Town, Tortola. Corporate administrative matters are conducted at this office through our registered agent, McNamara Corporate Services Limited. We do not own any property in the British Virgin Islands. The table below lists the locations, square footage, principal use and lease expiration dates of the facilities used in our principal operations.


				Owned or lease
Location	Square Footage		Principal Use	expiration date(1)
Hong Kong		24,200	Offices	Owned(2)
Macao		1,875	Offices	2005
Macao (for J.I.C. Macao)		964	Offices	2006
British Virgin Islands		300	Offices	2005
Principal Manufacturing Facilities		557,835	Manufacturing	2043/2049 (3)
Shenzhen, China		87,462	Offices	2043/2049 (3)
		189,952	Dormitories	2043/2049 (3)
		26,939	Cafeteria	2043
		33,826	Recreational	2049
Other facilities
Other facilities Shenzhen, China		383,547	Manufacturing LCD panels	2012
		32,005	Offices	2012
		221,666	Dormitories	2012
		22,259	Cafeteria	2012
		14,548	Recreational	2012

Shekou, Shenzhen, China		12,374	Software development	2005
Tokyo, Japan		904	Software development	2005

(1)		Only the Chinese government and peasant collectives may own land in China. Our principal manufacturing facilities are located on land in which we have entered into a land lease agreement with the Chinese government that gives us the right to use the land for 50 years. Based on our understanding of the practice as it exists today, at the expiration of the land lease we may be given the right to renew the lease. However, at the end of the lease term, all improvements we have made will revert to the government. For our other facilities, we have entered into factory building lease agreements with peasant collectives or other companies for 10 years or less.

(2)		Although we own the office space, the land on which the building is located is subject to a 75-year lease with the government that expires in 2055, with a right to renew for 75 more years.

(3)		Our principal manufacturing facilites occupy two pieces of land with 50-year leases which we acquired in 1993 and 1999, respectively.

In order to expand our production capacity, we have built a new factory consisting of approximately 265,000 square feet adjacent to our principal manufacturing facilities in Shenzhen, China. The construction completed in December 2004. We expect full operations can commence in April 2005. As of December 31, 2004, we had spent $15.0 million to cover the cost of construction and fixtures and equipment for the new factory. The financing of these improvements to our manufacturing facilities were obtained from internal resources.

In October 2004, our existing production facility for the LCD panels segment also relocated to new factory premises which are approximately 670,000 square feet and twice the size of the former factory premises. This new factory provides room for future expansion of production capacity. As of December 31, 2004, we had spent $7.7 million for this relocation and financed this amount with a combination of internal resources and bank financing.

Hong Kong

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

As of December 31, 2004, we own one residential flat in Hong Kong purchased for total consideration of $1,108,000. This property is occupied by one member of senior management and forms a part of his compensation.

Until 1996, we owned approximately ten acres of land in Hong Kong carried on our books at a cost of approximately $523,000. Between 1997 and 2004, we sold approximately 7.7 acres of land for net proceeds of $7.28 million; realizing a gain of $7.03 million. We plan to sell the remaining land and, pending the sale, to continue to carry the land at a cost of approximately $134,000.

Macao

In August 2003, we established our PRC headquarters in Macao, China and set up Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited in Macao, China. Macao, like Hong Kong, is a special administrative region of China and has recently introduced an incentive program to attract investments to Macao. In March and November 2004, we further established Zastron (Macao Commercial Offshore) Company Limited and J.I.C.(Macao Commercial Offshore) Company Limited in Macao, China, respectively. We currently lease three offices and all of them under two-year leases expiring in July 2005 and December 2006, respectively. The monthly rental cost is approximately $905 per office.

Shenzhen, China

Principal Manufacturing Facilities

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

In July 1999, we purchased another vacant lot of approximately 280,000 square feet (approximately 6.5 acres) bordering our current manufacturing complex located in Shenzhen, China at a cost of approximately $1.2 million. We have built another factory consisting of approximately 265,000 square feet of space. Construction started in September 2003 and completed in December 2004. We expect full operation can commence in April 2005. With this new addition, our principal manufacturing facilities now consists of 557,835 square feet of manufacturing space, 87,462 square feet of offices, 189,952 square feet of dormitories and 60,765 square feet of cafeteria space and a full services recreational building. As of December 31, 2004, we had spent $15.0 million to cover the cost of construction and fixtures and equipment for the new factory. The financing for these improvements to our manufacturing facilities was obtained from internal resources.

LCD Factory

In October 2003, Jetup Electronic (Shenzhen) Co., Ltd. entered into a tenancy agreement for new factory premises, which is also located in Baoan County, Shenzhen, China, and relocated to the new factory premises in October 2004. The new factory premises are about twice the size of the former factory premises and consist of 383,547 square feet of manufacturing space, 32,005 square feet of offices, 221,666 square feet of dormitories, and 36,807 square feets of cafeteria and recreational spaces. This new factory provides room for the future expansion of production capacity. As of December 31, 2004, we had spent $7.7 million for this relocation and financed this amount with a combination of internal resources and bank financing.

Software Development

We currently lease two offices in which we conduct software development. Our Shekou, Shenzhen, China office is approximately 12,374 square feet, which we lease under two one-year leases expiring in July 2005. The monthly rental is approximately $7,667. In July 2003, we opened an office in Tokyo, Japan to further expand our sales and marketing team in Japan for our software development business. The Tokyo office has approximately 904 square feet, which we lease under a two-year lease expiring in June 2005. The monthly rental for the Tokyo office is approximately $1,975. See Item 3. Key Information — “Risk Factors.” — “Risks Related to Our Operations in China, Hong Kong, Macao and Japan.”

Item 5. Operating and Financial Review and Prospects

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

Operating Results

Overview

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

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

Net Sales and Cost of Sales

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

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

Gross Margins

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

The increased costs associated with developing advanced manufacturing techniques to produce complex products on a mass scale and at a low cost have also negatively impacted our gross margins. For example, in our initial production runs of LCD modules and RF modules, we experienced low production yields and other inefficiencies that caused our gross margin to decrease. Although we believe we have improved the efficiency and quality of our manufacturing processes relating to LCD modules and RF modules, we may not be able to improve or maintain our gross margin for these products. Furthermore, in January 2003, we began to produce color and TFT LCD modules, each a complex component used in a variety of devices. The increased costs associated with manufacturing these products and other new complex products could have a negative impact on our future gross margins. The complex manufacturing processes involved in the production of complex products is also capital intensive, thereby increasing our fixed overhead costs. It has been our strategy to shift our focus more to the business of key components sub-assembly. The key components sub-assembly business generally accounts for relatively lower gross profit margin business. Nam Tai has been very successful in shifting its focus to key components sub-assembly, which accounted for 59% of our sales in 2004. We believe that the strong growth of this business will offset the impact of lower gross profit margins and we can continue to achieve strong growth in our overall profits. In the long run, we expect to achieve an overall gross profit margins of around 12%.

Income Taxes

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

Under current Cayman Islands law, Nam Tai Electronic & Electrical Products Limited, Zastron Precision-Tech Limited, J.I.C. Technology Company Limited and Namtek Software Development Company Limited are not subject to profit tax in the Cayman Islands as they have no business operations in the Cayman Islands. However, they may be subject to Hong Kong income taxes as described below if they are registered in Hong Kong.

The provision for current income taxes of the subsidiaries operating in Hong Kong has been calculated by applying the current rate of taxation of 16% for 2002 and 17.5% for both 2003 and 2004 to the estimated taxable income earned in or derived from Hong Kong during the applicable period.

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

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

Our effective tax rates were 8%, 1% and 1% for 2002, 2003 and 2004, respectively. The significant factors that caused our effective tax rates to differ from the applicable statutory rates of 15% were as follows:


	2002			2003			2004
Applicable statutory tax rates		15	%		15	%		15	%
Effect of loss / income for which no income tax benefit/expense is receivable/payable		6	%		(2	%)		(10	%)
Tax losses not recognised		—			—			1	%
Tax holidays and incentives		(5	%)		(5	%)		(3	%)
Effect of China tax concessions, giving rise to no China tax liability		(21	%)		(8	%)		(3	%)
Under / (over) provision of income tax expense in prior years		5	%		—			—
Other items which are not assessable (deductible) for tax purposes		8	%		1	%		1	%
Effective tax rates		8	%		1	%		1	%

Strategic Investments

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

Stepmind. In December 2003, we placed approximately $5.3 million into an escrow account for an investment in Stepmind. The investment was to occur in two phases. For the first phase, approximately $2.64 million, representing 7.66% of the equity interest in Stepmind, was released to Stepmind in January 2004. The second phase amounting to $2.65 million was released to Stepmind in August 2004 subject to fulfillment of certain conditions. In August 2004, we disposed of our entire interest in Stepmind to one of the shareholders of Stepmind at the original subscription price for those shares.

Alpha Star/JCT. In January 2003, we invested $10.0 million for a 25% equity interest in Alpha Star Investments Ltd., the ultimate holding company of JCT. JCT is engaged in the design, development and marketing of wireless communication terminals and wireless application software and is using us to manufacture wireless communication terminals and their related modules. In September 2004, we made an impairment to write down our $10.0 million investment in Alpha Star to a fair value of approximately $3.0 million. As of December 31, 2004, another analysis had been conducted by an independent valuer, who determined that no further impairment to value was required.

TCL Group. Over the period from September 2000 through November 2002, we made three investments in the TCL Group of companies and disposed of a portion of the investment in 2002 and 2003. In 2004, we further increased our investment in TCL Mobile from holding approximately 3% to 9% through the acquisition of Jasper Ace. The TCL group of companies is a leading OEM for numerous consumer electronic and telecommunications products in the domestic Chinese market.

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

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

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

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

• In April 2004, we increased our shareholding in TCL Mobile from approximately 3% to 9% through acquiring Jasper Ace, which directly holds 9% equity interest in TCL Mobile, at a consideration of approximately $102.2 million. The consideration was satisfied, by the exchange of our 72.2% equity interest in Mate Fair, plus cash of $25 million and the issuance of 1,416,764 new Nam Tai shares and resulted in a net investment cost of $79.5 million.

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

The following details the impact of our strategic investments on our income statements for each of the years ended 2002, 2003 and 2004:


		2002			2003		2004
		(in thousands)
Cost Investments
Included in other income:
Deswell	Realized gain on disposal of marketable securities	$	642		$	—	$	—
Deswell	Dividend income received from marketable securities		114			—		—
TCL Corporation	Dividend income received from investment		803			1,696		926
Huizhou TCL	Dividend income received from investment		—			2,018		17,369

		$	1,559		$	3,714	$	18,295

Equity Investments
Included in equity in income (loss) of affiliated companies:
Mate Fair		$	10,741		$	—	$	—
Alpha Star Investments Limited		$	—		$	498	$	(6,806	)

Equity in income (loss) of affiliated companies		$	10,741		$	498	$	(6,806	)
Included in other income:
Mate Fair	Release of unamortized goodwill of affiliated companies	$	(520	)	$	—	$	—

		$	10,221		$	498	$	(6,806	)

Toshiba Joint Venture

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

Based on the 2001 full year results of BPC, we estimate that the sale of BPC will result in a reduction of annual revenues for 2002 of approximately $21.1 million and a reduction in profits of $1.3 million for 2002. We further estimate that the BPC sale will result in a reduction of annual operating expenses of approximately $600,000 for 2002. Cash flows from operations for 2002 would decline by approximately $1.7 million.

J.I.C. Group

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

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

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

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

During the period from June to November 2003, we disposed of a total of 42,600,000 ordinary shares of J.I.C. Technology Company Limited for cash consideration of $4.0 million. The disposal resulted in a net gain on partial disposal of a subsidiary of $1.8 million and the releasing of unamortized goodwill of $1.2 million. The release of unamortized goodwill is netted off with the gain on the partial disposal of a subsidiary. In November 2003, we converted 175,100,000 preference shares into 170,000,000 ordinary shares of J.I.C. Technology Company Limited.

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

During the period from November to December 2004, we further disposed of a total of 128,000,000 ordinary shares of J.I.C. Technology Company Limited for cash consideration of $12.95 million. The disposal resulted in a net gain on partial disposal of a subsidiary of $6.25 million. During the same period, we converted all 423,320,000 preference shares into 410,990,290 ordinary shares. As of December 31, 2004, we held 546,890,978 ordinary shares of J.I.C. Technology Company Limited, equivalent to 71.63% of issued ordinary shares.

Summary of Results

Net sales for 2004 increased 31% to $533.8 million compared to $406.3 million for 2003. The increase in sales was primarily due to an increase in the sales in telecom components sub-assemblies and optical devices. The increase in our net sales base year-over-year represents stronger demand from existing customers, as well as organic growth from new and existing customers.

The following table sets forth key operating results (in thousands, except per share data) for the years ended December 31, 2002, 2003 and 2004:


	Year Ended December 31,

	2002		2003		2004
Net sales	$	236,016	$	406,306	$	533,861
Gross profit		38,060		66,290		76,476
Operating income		17,052		37,387		43,378
Net income		20,023		43,802		66,885
Basic earnings per share		0.57		1.09		1.57
Diluted earnings per share		0.57		1.07		1.57

Key Performance Indicators

The following table sets forth, for the quarterly periods indicated, certain of management’s key financial performance indicators that management utilizes to assess the Company’s operating results:

Three Months Ended

December 31,

September 30,

June 30

March 31,

2003

Sales cycle (1)

27 days

23 days

27 days

32 days

Inventory turns (2)

13 turns

17 turns

16 turns

9 turns

Days in accounts receivable (3)

58 days

61 days

60 days

61 days

Days in accounts payable (4)

60 days

55 days

69 days

Three Months Ended

December 31,

September 30,

June 30

March 31,

2004

Sales cycle (1)

9 days

29 days

41 days

29 days

Inventory turns (2)

20 turns

15 turns

11 turns

10 turns

Days in accounts receivable (3)

62 days

54 days

86 days

56 days

Days in accounts payable (4)

72 days

49 days

79 days

64 days

(1)	The sales cycle is calculated as the sum of days in accounts receivable and days in inventory, less the days in accounts payable.

(2) Inventory turns are calculated as the ratio of four times our year to date cost of sales divided by inventory, net, at period end divided by numbers of quarters.

(3) Days in accounts receivable is calculated as the ratio of accounts receivable, net, at period end divided by year to date average daily net sales.

(4) Days in accounts payable is calculated as the ratio of accounts payable, net, at period end divided by year to date average daily net cost of sales.

Critical Accounting Policies and Estimates

The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. We have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. For further discussion of our significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies” to the Consolidated Financial Statements.

Marketable securities

Marketable securities at December 31, 2004 are principally equity securities and are classified as available-for-sale. Securities classified as available-for-sale are stated at fair value with unrealized gains and losses recorded as a separate component of accumulated other comprehensive income (loss). Fair value is determined by reference to market price or analysis conducted by independent valuer. In the event where the fair value of the securities has been below the carrying value for a period of time, we will assess whether this decline in value is other-than-temporary.

Our assessment includes the consideration of the duration and severity of the decline in values and our ability and intent to hold the investments for a reasonable period of time sufficient for a forecasted recovery of the fair value up to or beyond the cost of the investment, and an assessment of the evidence indicating that the cost of the investment is recoverable within a reasonable period of time which outweighs the evidence to the contrary. If it is determined that the decline is other-than-temporary, an impairment charge to the income statement will be made.

Valuation of long-lived assets, including goodwill and purchased intangible assets

The Company reviews the carrying value of its long-lived assets, including goodwill and purchased intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company assesses the recoverability of the carrying value of long-lived assets, other than goodwill and purchased intangible assets with indefinite useful lives, by first grouping its long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows largely independent of the cash flows of other assets and liabilities (the asset group) and, secondly, estimating the undiscounted future cash flows that are directly associated with and expected to arise from the use of and eventual disposition of such asset group. The Company estimates the undiscounted cash flows over the remaining useful life of the primary asset within the asset group. If the carrying value of the asset group exceeds the estimated undiscounted cash flows, the Company records an impairment charge to the extent the carrying value of the long-lived asset exceeds its fair value. The Company determines fair value through quoted market prices in active markets or, if quoted market prices are unavailable, through the performance of internal analysis of discounted cash flows or external appraisals. The undiscounted and discounted cash flow analyses are based on a number of estimates and assumptions, including the expected period over which the asset will be utilized, projected future operating results of the asset group, discount rate and long-term growth rate.

To assess goodwill for impairment, the Company performs an assessment of the carrying value of its reporting units at least on an annual basis or when events and changes in circumstances occur that would more likely than not reduce the fair value of the Company’s reporting units below their carrying value. If the carrying value of a reporting unit exceeds its fair value, the Company would perform the second step in its assessment process and would record an impairment charge to earnings to the extent the carrying amount of the reporting unit goodwill exceeds its implied fair value. The Company estimates the fair value of its reporting units through internal analysis and external valuations, which utilize income and market valuation approaches through the application of capitalized earnings, discounted cash flow and market comparable methods. These valuation techniques are based on a number of estimates and assumptions, including the projected future operating results of the reporting unit, discount rate, long-term growth rate and appropriate market comparables.

The Company’s assessments of impairment of long-lived assets, including goodwill and purchased intangible assets, and its periodic review of the remaining useful lives of its long-lived assets are an integral part of the Company’s ongoing strategic review of its business and operations. Therefore, future changes in the Company’s strategy and other changes in the operations of the Company could impact the projected future operating results that are inherent in the Company’s estimates of fair value, resulting in impairments in the future. Additionally, other changes in the estimates and assumptions, including the discount rate and expected long-term growth rate, which drive the valuation techniques employed to estimate the fair value of long-lived assets and goodwill could change and, therefore, impact the assessments of impairment in the future.

In performing the annual assessment of goodwill for impairment, the Company determined that none of the reporting units’ carrying values were close to exceeding their respective fair values.

Revenue recognition

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

•   Persuasive evidence of an arrangement exists;

•   Delivery has occurred or services have been rendered;

•   Price to the customer is fixed or determinable; and

•   Collectibility is reasonably assured.

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

Deferred Income Taxes

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

When considering whether a valuation allowance is necessary, we will assess the history of operating losses and unexpired tax credit, losses expected in the future and any unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels on a continuing basis in future years. Therefore, any changes in our assessment of the above would impact our estimation of the amount of valuation allowance.

Accruals and Provisions for Loss Contingencies

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

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

Results of Operations

The following table presents selected consolidated financial information stated as a percentage of net sales for the years ended December 31, 2002, 2003 and 2004 (certain amounts may not calculate due to rounding and amounts may not add due to rounding).


	Year Ended December 31,
	2002			2003			2004
Net sales		100.0	%		100.0	%		100.0	%
Cost of sales		(83.9	)		(83.7	)		(85.7	)

Gross profit		16.1			16.3			14.3
Selling, general and administrative expenses		(7.6	)		(6.1	)		(5.2	)
Research and development expenses		(1.1	)		(1.0	)		(1.0	)
Impairment of goodwill		(0.2	)		—			—

Income from operations		7.2			9.2			8.1
Other (expenses) income, net		(2.9	)		0.7			3.2
Gain on partial disposal of subsidiaries		—			0.5			14.5
Unrealised loss on marketable securities		—			—			(10.9	)
Interest income		0.3			0.2			0.2
Interest expense		(0.3	)		—			—

Income before income taxes and minority interests		4.3			10.6			15.1
Income taxes		(0.3	)		(0.1	)		(0.2	)

Income before minority interests and equity in income (loss) of affiliated companies		4.0			10.5			14.9
Minority interests		(0.1	)		(0.3	)		(1.1	)
Equity in income (loss) of affiliated companies		4.6			0.1			(1.3	)

Income after minority interests and equity in income (loss) of affiliated companies		8.5			10.3			12.5
Discontinued operation		—			0.5			—

Net income		8.5	%		10.8	%		12.5	%

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Net Sales. Our net sales increased 31.4% to $533.9 million for 2004, up from $406.3 million in 2003. The increase was due to increased sales levels across all business segments. Specific increases include a 27.0% increase in the sales of consumer electronics and communication products, a 36.4% increase in the sales of telecommunication components assembly, a 17.9% increase in the sales of LCD panels and a 20.6% increase in the sales of software development services. The increased sales levels were due to the addition of new customers, and organic growth in these business segments. The increase in the consumer electronics and communication products was primarily attributable to the increased sales levels in optical devices. The increase in telecom, components assembly was primarily attributable to sales of FPC sub-assemblies in 2004 and the increase in sales of levels of mobile phone handsets in SKD forms and lighting panels for hand-held devices.

The following table sets forth, for the periods indicated, revenue by business segments expressed as a percentage of net sales. The distribution of revenue across our business segments has fluctuated, and will continue to fluctuate, as a result of numerous factors, including but not limited to the following: increased business from new and existing customers, fluctuations in customer demand and seasonality.


	Year Ended December 31,
	2002			2003			2004
Consumer Electronics and Communication Products		40	%		32	%		31	%
Telecommunication Components Assembly :
Telecommunication components assembly(1)		44	%		57	%		59	%
Software development services		1	%		1	%		1	%
LCD Panels and Transformers
LCD panels		10	%		9	%		9	%
Transformers(2)		5	%		1	%		—

		100	%		100	%		100	%

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

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

Gross Profit. Gross profit decreased to 14.3% of net sales in 2004 from 16.3% in 2003. Generally, the gross margin for box-built products is higher than key components assembly. Our target was to shift our business to the high-growth and high-technology key components assemblies sector, and we succeeded in increasing net sales in the TCA segment. The percentage decrease in gross profit was primarily due to a higher proportion of TCA segment revenue. Additionally, we have been impacted by the reduction of input credit in respect of value-added tax related to domestic purchase materials by the PRC government during 2004.

In terms of dollar values, gross profit for 2004 increased by $10.2 million from 2003, due to the increased revenue base.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $28.1 million, or 5.2% of net sales in 2004 from $24.9 million, or 6.1% of net sales in 2003. The $3.2 million increase was primarily attributable to the increase in sales commission paid to marketing staff as a result of increased revenue, and the commission paid to external agents for particular products during 2004. The decrease as a percentage of net sales was due primarily to the increased revenue base in 2004.

Research and development Expenses. Research and development expenses in 2004 increased to $5.0 million from $4.0 million in 2003 but remained at 1.0% of net sales for each of 2004 and 2003. The absolute dollar increase was primarily attributable to the recruitment of more engineers to support our R&D activities, including design of production process, development of new products and products associated with customer design-related programs.

Other (Expenses) Income. During 2004, other income was $17.3 million. We received $17.4 million and $0.9 million dividend income from our investment in TCL Communication and TCL Corporation, respectively. This income was partially offset by $0.2 million in bank charges and $0.9 million in other non-operating charges.

During 2003, other income was $2.9 million. The amount included dividend income of $2.0 million from our indirect investment in TCL Communication, dividend income of $1.7 million from TCL Corporation, and income of $0.5 million related to the recovery of a non-trade receivable which had been written off previously. This income was partially offset by $0.3 million in bank charges during 2003.

Gain on Partial Disposal of Subsidiaries. In April 2004, one of the previously wholly-owned subsidiaries of the Company, NTEEP, completed a public offering of its common stock on The Hong Kong Stock Exchange. As a result, the Company disposed of a 25% interest in this subsidiary, resulting in a gain on partial disposal of US$71.1 million.

In November and December 2004, the Company disposed of 128 million ordinary shares of J.I.C. for cash consideration of $12.9 million. The disposal resulted in a net gain on partial disposal of interest in J.I.C. of $6.3 million after deducting the release of unamortized goodwill of $3.5 million.

During 2003, we recorded a $1.8 million gain on partial disposal of interest in J.I.C.

Unrealized Loss of Marketable Securities. At December 31, 2004, the Company’s investment in TCL Communication was stated at fair value based on the traded market price of TCL Communication’s shares and the Company recognized an unrealized loss of $58.3 million, based on the Company’s cost of $79.5 million and a fair value of $21.2 million. As the loss is considered to be other-than-temporary, it has been recorded in the consolidated statements of income.

Interest Income. Interest income increased to $1.1 million in 2004 from $0.8 million in 2003. The increase was primarily due to higher average cash balances, partially offset by lower interest yields on cash deposits.

Interest Expense. Interest expense increased to $195,000 in 2004 from $121,000 in 2003. This increase was primarily a result of the draw-down of a $7.0 million fixed-term loan by J.I.C.

Income Taxes. Income tax expenses of $879,000 for 2004 compares to $399,000 for 2003. The increase was primarily the result of not receiving full tax refunds for several of our PRC entities for taxes paid in previous years that we have normally been eligible to receive full tax refunds in the past as a result of the strict enforcement of certain regulations.

Minority Interests. Minority interest increased to $6.0 million in 2004 from $1.1 million in 2003. The increase was primarily the result of the increase in minority shareholders’ share of NTEEP’s profit of approximately $4.9 million since its listing in April 2004. In addition, the minority shareholders’ share of profits of the J.I.C. Group for 2004 increased to $254,000 from $211,000 in 2003, and the minority shareholders’ share of profits of Namtek Software Development Company Limited for 2004 increased to $472,000 from $296,000 in 2003. The minority shareholders’ share of profits of Mate Fair for 2004 decreased to $405,000 from $560,000.

Equity in Income (Loss) of Affiliated Companies. We recorded an equity in loss of $6.8 million for 2004 of Alpha Star but recognized $0.5 million in equity in income for 2003. The amount in 2004 included an impairment charge of approximately $5.6 million upon careful assessment of various factors relevant to the affiliate, including the competitive handset market in the PRC and $1.2 million share of loss of Alpha Star. For additional information, see Note 8 — “Investment in Affiliated Companies, Equity Method – Alpha Star” to the Consolidated Statements of Income.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Net Sales. Our net sales increased significantly by 72.2% to $406.3 million for 2003 compared to $236.0 million for 2002. The increase was primarily attributable to sales of the telecommunication components assembly products of approximately $232.2 million in 2003 compared to $103.8 million in 2002, an increase of $128.4 million. This increase was mainly as a result of an increase in sales of telecom LCD and PCB modules and the launch of new products in 2003, like RF modules, SKD handsets, front light panel assembly, and flash light for cellular phones.

In addition, we also experienced increased sales in consumer electronics and communication products. Sales of consumer electronics and communication products amounted to approximately $128.8 million in 2003 compared to $94.0 million in 2002, an increase of $34.8 million. This increase was mainly driven by the PC camera, which was first launched in 2003.

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

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

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

In addition, the gross profit of the LPT segment also increased. This increase was as a result of increases in the sales proportion of high margin products and the disposal of the transformers operation in June 2003. The impact of the discontinued operations of transformers on gross profit contribution was insignificant as the margin of transformers products was low.

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

This increase was primarily due to an approximately $5.1 million increase in salaries and benefits expenses, due to an increase in headcount, an approximately 10% increase in salary for certain employees and a $3.9 million incentive bonus due to the implementation of a new incentive bonus scheme in January 2003, which was calculated based on operating profit, as well as a $0.9 million increase in selling expenses, which was primarily due to more sales commissions paid as sales increased.

Our SG&A expenses include provisions for bad debt expenses, which decreased from $138,000 in 2002 to $91,000 in 2003. The decrease in allowance has been attributable to the implementation of tighter credit controls.

Research and Development Expenses. Research and development expenses for 2003 increased to $4.0 million, or 1.0% of net sales, from $2.7 million, or 1.1% of net sales, in 2002. The increase was due to an increase in the number of staff related to the expansion of our production capacity and the products we manufacture.

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

Other (Expenses)/Income, Net. Other income, net, during 2003 was $2.9 million. This amount included dividend income of $2.0 million from our indirect investment in Huizhou TCL Mobile Communication Co., Ltd., dividend income of $1.7 million from TCL Corporation and income of $0.5 million related to the recovery of a non-trade receivable which had been written off previously. This income was partially offset by a $0.3 million bank charge during 2003.

Gain on Partial Disposal of Subsidiaries. Gain on partial disposal of subsidiaries in 2003 of $1.8 million represented gain on partial disposal of interests in J.I.C. Technology while the amount in 2002 of $17,000 represented the gain on disposal of a subsidiary, BPC (Shenzhen) Co. Ltd.

Interest income. Interest income decreased to $788,000 in 2003 from $799,000 in 2002 due to lower average cash balances and lower interest yields on cash deposits.

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

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

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

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

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

Liquidity and Capital Resources

Liquidity

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

We had positive net working capital of $218.2 million at December 31, 2004 compared to positive net working capital of $93.5 million at December 31, 2003. Our working capital requirements and capital expenditures could continue to increase in order to support future expansions of our operations through acquisition of land, construction of a new factory and machinery purchases. It is possible that future expansions may be significant and may require the payment of cash. Future liquidity needs will also depend on fluctuations in levels of inventory and shipments, changes in customer order volumes and timing of expenditures for new equipment.

We currently believe that during the next twelve months, our capital expenditures will be in the range of $35 million to $55 million, principally for land, machinery and equipment, and expansion in China. We believe that our level of resources, which include cash and cash equivalents, marketable securities, accounts receivable and available borrowings under our credit facilities, will be adequate to fund these capital expenditures and our working capital requirements for the next twelve months. Should we desire to consummate significant additional acquisition opportunities or undertake significant expansion activities, our capital needs would increase and could possibly result in our need to increase available borrowings under our revolving credit facilities or access public or private debt and equity markets. There can be no assurance, however, that we would be successful in raising additional debt or equity on terms that we would consider acceptable.

The following table sets forth, for the year ended December 31 2002, 2003 and 2004, selected consolidated cash flow information (in thousands):


	Year Ended December 31,

	2002			2003			2004
Net cash provided by operating activities	$	39,502		$	44,272		$	75,210

Net cash (used in) provided by investing activities		(33,760	)		(21,669	)		37,729

Net cash provided by (used in) financing activities		18,085			(43,253	)		(14,117	)

Effect of foreign currencies on cash flows		(26	)		—			—


Net increase (decrease) in cash and cash equivalents	$	23,801		$	(20,650	)	$	98,822

Net cash provided by operating activities for 2004 was $75.2 million. This consisted primarily of $66.9 million of net income, $13.9 million of depreciation and amortization, $58.3 million unrealized loss on marketable securities, $6.8 million equity in loss of an affiliated company and $6.0 million in minority interests offset by $6.2 million in gain on partial disposal of J.I.C., $71.1 million gain on partial disposal of NTEEP and $15.9 million in dividend income. Our working capital related to operating activities increased, driven by an increase of $33.9 million in accounts payable and $3.0 million in accrued expenses and others payables, a decrease of $2.6 million in amount due from a related party, $3.9 million in inventories and $2.6 million in prepaid expenses and other receivables, offset by increases in accounts receivable of $28.3 million. The increase in accounts receivable and accounts payable was due to increased levels of business during 2004.

Net cash provided by investing activities of $37.7 million for 2004 consisted primarily of proceeds from partial disposal of subsidiaries and investments of $95.4 million and $5.6 million, respectively, proceeds from disposal of property, plant and equipment of $4.5 million, offset by capital expenditures of $38.6 million and increase in deposits for property, plant and equipment of $4.4 million and acquisition of marketable securities of TCL Communication of $25.1 million. Capital expenditure in 2004 mainly consisted of the construction of a new factory and purchases of machinery and equipment which were used to expand our manufacturing capacity and to upgrade our equipment to produce increasingly complex products.

Net cash used in financing activities of $14.1 million for 2004 resulted primarily from $19.4 million paid to shareholders as dividends, $5.4 million in repayment of bank loans, offset by proceeds of bank loans of $10.6 million.

Net cash provided by operating activities was $44.3 million in 2003. Cash provided by operating activities in 2003 was primarily attributable to net income of $43.8 million plus depreciation and amortization expense of $12.2 million, offset by the gain on disposal of transformers operation, net of minority interests of $2.0 million and a gain on the partial disposal of our J.I.C. Group for $1.8 million. Our working capital related to operating activities net of the effect of the disposal of a subsidiary decreased, driven by an increase of $11.1 million in accounts receivable, $3.0 million in prepaid expenses and other receivables, $2.7 million in the amount due from a related party and $8.5 million in inventories, which was offset by increases in accounts payable of $18.0 million, and accrued expenses and other payables of $1.2 million.

Our inventories increased in 2003 as a result of our anticipation of increases in sales. Accounts receivable increased due to an increase in sales in the fourth quarter relative to sales in the prior year. Accounts payable increased due to increased inventory purchases. Accrued expenses increased due to the provision of an incentive bonus in 2003.

Net cash used in investing activities was $21.7 million in 2003. Cash used in investing activities primarily related to our $10.0 million and $0.4 million strategic investments in Alpha Star Investments Limited and iMagic Infomedia Technology Limited, respectively, and $5.3 million prepayment for a long-term investment in Stepmind, as well as capital expenditures of $17.1 million and an increase in deposits for property, plant and equipment of $3.1 million, offset by $2.6 million proceeds on disposal of property, plant and equipment, $2.4 million proceeds on disposal of transformers operation to a third party, $4.0 million proceeds on the partial disposal of our J.I.C. Group, and $5.0 million proceeds on the disposal of convertible notes of TCL International Holdings Ltd.

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

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

For the years ended December 31, 2003 and 2004, the Company has made guarantees for debt, loans and credit facilities held by various wholly owned subsidiaries aggregating up to a maximum guarantee of $49,756,000 and $49,205,000, respectively. The terms of the guarantees correspond with the terms of the underlying debt, loan and credit facility agreements.

Capital Resources

As of December 31, 2004, we had $160.6 million in cash and cash equivalents, consisting of cash and short-term deposits, compared to $61.8 million as of December 31, 2003. Our long-term bank borrowing was $8.0 million and $2.8 million as of December 31, 2004 and December 31, 2003, respectively.

As of December 31, 2004, we had in place general banking facilities with two financial institutions aggregating $87.9 million. The maturity of these facilities is generally up to 90 days. These banking facilities are guaranteed by us and there is an undertaking not to pledge any assets to any other banks without the prior consent of our bankers. However, these covenants do not have any impact on our ability to undertake additional debt or equity financing. Interest rates are generally based on the banks’ reference lending rates. Our facilities permit us to obtain overdrafts, lines of credit for forward exchange contracts, letters of credit, import facilities, trust receipt financing, shipping guarantees, working capital and revolving loans. No significant commitment fees are required to be paid for the banking facilities. These facilities are subject to annual review and approval. As of December 31, 2004, we had utilized approximately $3.4 million under such general credit facilities and had available unused credit facilities of $84.5 million.

As of December 31, 2004, we had two four-year term loans, which allowed us to borrow up to a maximum amount of $4.5 million and $7.0 million. The outstanding balance amounted to $8.1 million as of December 31, 2004 and $2.8 million as of December 31, 2003. Here is an analysis of the term loans:


										Outstanding		Outstanding
	Date of					Amount				balance at		balance at
	draw	Amount		No. of		per		Interest	First	December 31,		December 31,
	down	drawn		installments		installment		rate	repayment	2004		2003
		(in million)				(in million)				(in million)
Term loan 1	May 2002	$	4.5		16	$	0.3	1.5% over LIBOR, changed to 0.75% over LIBOR in August 2004	August 2002	$	1.7	$	2.8
Term loan 2
	April 2004	$	1.6		16	$	0.1	0.75% over LIBOR	July 2004	$	1.4		—
	June 2004	$	3.6		16	$	0.2	0.75% over LIBOR	September 2004	$	3.2		—
	December 2004	$	1.8		16	$	0.1	0.75% over LIBOR	March 2005	$	1.8		—

Total										$	8.1	$	2.8

Our contractual obligations for long-term debt arrangements and future minimum lease payments under non-cancelable operating lease arrangements as of December 31, 2004 are summarized below. We do not participate in, or secure financing for, any unconsolidated limited purpose entities. Non-cancelable purchase commitments do not typically extend beyond the normal lead-time of several weeks at most. Purchase orders beyond this time frame are typically cancelable.


	Payments due by period

													2010 and
Contractual obligation	Total		2005		2006		2007		2008		2009		thereafter
Long-term bank	$	8,038,000	$	2,875,000	$	2,313,000	$	1,750,000	$	1,100,000	$	—	$	—
borrowing
Operating leases		9,136,000		1,243,000		1,116,000		1,169,000		1,215,000		1,215,000		3,178,000
Capital expenditures		17,080,000		17,080,000		—		—		—		—		—
Purchase obligations		115,136,000		115,136,000		—		—		—		—		—
Total	$	149,390,000	$	136,334,000	$	3,429,000	$	2,919,000	$	2,315,000	$	1,215,000		3,178,000

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

Impact of Inflation

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

Exchange Controls

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

Recent Changes in Accounting Standards

In March 2004, the Emerging Issues Task Force, or EITF, reached a consensus in EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. The consensus was that certain quantitative and qualitative disclosures should be required for debt and marketable equity securities classified as available-for-sale or held-to-maturity under SFAS Nos. 115 and 124, that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. This EITF consensus is effective for fiscal years ending after December 15, 2003. Adoption of the EITF consensus did not result in an impact on the Company’s financial position, results of operations or cash flows.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 clarifies the accounting that requires abnormal amounts of idle facility expenses, freight, handling costs, and spoilage costs to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective for inventory costs incurred on or after July 1, 2005. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment”. This statement is a revision to SFAS No. 123 and supercedes APB Opinion No. 25. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. Entities will be required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service, the requisite service period (usually the vesting period), in exchange for the award. The grant-date fair value of employee share options and similar instruments will be estimated using option pricing models. If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. This statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. In accordance with the standard, the Company will adopt SFAS No. 123R effective July 1, 2005.

Upon adoption, the Company has two application methods to choose from: the modified-prospective transition approach or the modified-retrospective transition approach. Under the modified-prospective transition method, the Company would be required to recognize compensation cost for share-based awards to employees based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied, as well as compensation cost for awards that were granted prior to, but not vested as of the date of adoption. Prior periods remain unchanged and pro forma disclosures previously required by SFAS No. 123 continue to be required. Under the modified-retrospective transition method, the Company would restate prior periods by recognizing compensation cost in the amounts previously reported in the pro forma footnote disclosure under SFAS No. 123. Under this method, the Company is permitted to apply this presentation to all periods presented or to the start of the fiscal year in which SFAS No. 123R is adopted. The Company would follow the same guidelines as in the modified-prospective transition method for awards granted subsequent to adoption and those that were granted and not yet vested. The Company has not yet determined which methodology it will adopt but believes that the impact that the adoption of SFAS No. 123R will have on its financial position or results of operations will approximate the magnitude of the stock-based employee compensation cost disclosed in Note 2 (p) pursuant to the disclosure requirements of SFAS No. 148.

Research and Development

Our research and development expenditure mainly comprised of salaries and benefits paid to our research and development personnel and is mainly for the development of advanced manufacturing techniques to produce complex products on a mass scale and at a low cost. We expense our research and development costs as incurred. For the years ended December 31, 2002, 2003 and 2004, we incurred research and development expenses of approximately $2.7 million, $4.0 million and $5.0 million, respectively.

Trend Information

Currently, our operations consist of three reportable segments, Consumer Electronics and Communication Products, Telecommunication Components Assembly and LCD panels.

We plan to continue to leverage on our solid customer relationships and to expand our business. During 2004, we were able to expand our product line to higher growth products and we were able to benefit from the increase in production capacity from the commencement of operation of our new factory premises.

For Consumer Electronics and Communication Products, we will continue to focus on optical devices, educational products, cellular phone accessories and home entertainment products. In 2004, we began delivering new products, like Bluetooth^™ wireless headset accessory for cellular phones and new home entertainment products, in addition to the Eyetoy USB cameras for Playstation 2. Since June 2003, we have been able to diversify our product range from finished products to component assemblies and began manufacturing the high growth CMOS sensor modules for integration into various image capturing devices such as cellular phones with built-in camera functions.

For Telecom Component Assembly, we will continue to focus on high-growth products which require advance technological production know-how. In addition to high-end color LCD modules, we began manufacturing FPC sub-assemblies in March 2003 for integration into various LCD modules and other products, like infotainment consumer electronic products. We plan to seek opportunities to expand our product line and customer base for these products.

LCD panels are found in numerous applications in electronics products, such as watches, clocks, calculators, pocket games, PDAs and mobile and cordless telephones. We are a customized LCD panel manufacturer, and we develop each product from design concept all the way to a high quality mass producible product. The LCD panels segment moved to new premises, which are about 670,000 square feet and are twice the size of the old factory premises. This new factory will provide room for future expansion of production capacity.

It has been our strategy to shift our focus more to the business of key components sub-assembly. The key components sub-assembly business generally accounts for relatively lower gross profit margin business. Nam Tai has been very successful in shifting its focus to key components sub-assembly, which accounted for 59% of our sales in 2004. We believe that the strong growth of this business will offset the impact of lower gross profit margins and we can continue to achieve strong growth in our overall profits. In the long run, we expect to achieve an overall gross profit margins of around 12%.

Off-balance Sheet Arrangement

For the year of 2004, the Company did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 6. Directors, Senior Management and Employees

Directors and Senior Managers

Our current directors and senior management, and their ages as of February 28, 2005, are as follows:


Name	Age		Position with Nam Tai
Tadao Murakami		61	Chairman of the Board and member of the Board of Directors
Joseph Li		53	Chief Executive Officer, President and Chief Financial Officer
Karene Wong		41	Chairman of the Board of Namtai Electronic and Electrical Products Limited
Guy Bindels		44	Chief Executive Officer of Namtai Electronic and Electrical Products Limited
Joseph Hsu		40	Chief Financial Officer of Namtai Electronic and Electrical Products Limited
Chen Yee, William		46	Managing Director of Namtai Electronic (Shenzhen) Co., Ltd.
Patinda Lei		38	Chairman of the Board of Zastron Precision-Tech Limited
Bobby Hirasawa		40	Chief Financial Officer of Zastron Precision-Tech Limited
George Shih		48	Managing Director of Zastron Electronic (Shenzhen) Co., Ltd.
Seitaro Furukawa		63	Chairman of the Board of J.I.C. Technology Company Limited
Ivan Chui		46	Chief Executive Officer of J.I.C. Technology Company Limited
Colin Yeoh		40	Chief Financial Officer of J.I.C. Technology Company Limited
Lap Kei Yuen		40	Managing Director of Jetup Electronic (Shenzhen) Co., Ltd.
Kazuhiro Asano		53	Chairman of the Board of Namtek Software Development Company Limited
M. K. Koo		60	Member of the Board of Directors
Peter R. Kellogg		62	Member of the Board of Directors
Stephen Seung		58	Member of the Board of Directors and Secretary
Dr. Wing Yan (William) Lo		44	Member of the Board of Directors
Charles Chu		48	Member of the Board of Directors
Mark Waslen		44	Member of the Board of Directors

Tadao Murakami. Mr. Murakami has served Nam Tai in various executive capacities since 1984. He became our Secretary and a Director in November 1989. Since June 1989, he has been employed as the President of our Hong Kong subsidiary. In July 1994, Mr. Murakami succeeded Mr. Koo as President and, in June 1995, became our Chief Executive Officer until September 1998. Mr. Murakami assumed the position of Vice-Chairman in January 1996, and Chairman from September 1998 until March 1, 2001 and again starting February 1, 2002. With effect from January 1, 2005, Mr. Murakami became a non-executive director of the Company but maintained his role as Chairman of the Board.

Joseph Li. Mr. Li, co-founder of the J.I.C. Group, has served in various senior executive positions since we acquired the J.I.C. Group in October 2000. Mr. Li assumed the position of Chief Executive Officer in May 2002. Mr. Li has directed J.I.C. Group’s business development since founding J.I.C. group in 1980. Mr. Li resigned as a member of the Board of Directors in July 2003. In April 2004, he resumed position of Chief Financial Officer of J.I.C. Technology Company Limited. In January 2005, he resigned from the position of Chief Financial Officer of J.I.C. and assumed the position of Chief Financial Officer of the Company.

Karene Wong. Ms. Wong joined us in June 1989 and was promoted to Managing Director of our subsidiary Nam Tai Electronic & Electrical Products Ltd. (Hong Kong) on January 1, 2001. She was further promoted to Chairman of Nam Tai Electronic & Electrical Products Limited (Cayman Islands) in October 2003. Before joining us, Ms. Wong was Assistant to the Sales Manager at Wright Joint & Co. Ltd. Ms. Wong is responsible for our sales and marketing operations and supporting employee recruitment and training.

Guy Bindels. Mr. Bindels joined the Nam Tai Group as Research and Development Director in March 2003 and became a director of Nam Tai Electronic & Electrical Products Limited in March 2004. He was promoted to Chief Executive Officer of Nam Tai Elecrtronic & Electrical Products Limited since July 2004 and is responsible for the research and development activities of the group. Before joining the Nam Tai Group, he worked with the research and development unit of Alcatel for 19 years. He graduated from “Ecole Nationale d’ Ingenieur de Brest” (Engineering School located in Brest) in France in 1983.

Joseph Hsu. Mr. Hsu is the Chief Financial Officer of Nam Tai Electronic & Electrical Products Limited. He joined the Nam Tai Group in February 2004 and has nearly 11 years of investment banking experience. Mr. Hsu worked in the corporate finance division of the Hongkong and Shanghai Banking Corporation Limited from 1992 to 2003, where his last position was Corporate Finance Director. Mr. Hsu is a qualified accountant and is an Associate Member of the Hong Kong Society of Accountants and an Associate Member of the Institute of Chartered Accountants in England and Wales. Mr. Hsu graduated with a Bachelor’s Degree in Economics and Accounting from Leeds University, UK and an MSc degree in Management Science from the Imperial College of Science and Technology, University of London, UK.

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

Patinda Lei. Ms. Lei joined Nam Tai Group in May 1990. In June 2002, she assumed the position of Managing Director of our subsidiary Nam Tai Telecom (Hong Kong) Company Limited and in September 2003, became the Chairman of the Board of Zastron Precision-Tech Limited. Ms. Lei has worked with Nam Tai Group for fourteen years specializing in promoting, generating and monitoring sales revenues on various high-end electronics products. Ms. Lei graduated from the Faculty of Engineering of Tokyo University of Science in Japan with a degree in management science.

Bobby Hirasawa. Mr. Hirasawa is the Chief Financial Officer of Zastron Precision-Tech Limited. He joined Nam Tai Group in July 2004 and has more than 15 years of experience in the financial industry. He has previously worked at Nomura International (HK) Limited, Jardine Fleming Securities, SG Securities and Kokusai Securities. He has worked in Tokyo, Shanghai and Hong Kong. He graduated from Meiji Gakuin University in Japan.

George Shih. Mr. Shih took up the post of Chief Operating Officer of the Nam Tai Group when he joined us in June 2003 and was transferred to assume the position of Managing Director of Zastron Electronic (Shenzhen) Co., Ltd. in May 2004. Before joining Nam Tai, he had 20 years of experience in electronics manufacturing services in various management roles with Solectron Corporation. Mr. Shih has obtained a Bachelor’s Degree in Materials Science and Engineering from National Tsing Hua University, Taiwan in 1978. In 1980, he also obtained a Master’s Degree in Industrial Engineering from University of Texas, USA in 1980. He further obtained a Master’s Degree in Electrical and Computer Engineering from University of Texas, USA in 1983.

Seitaro Furukawa. Mr. Furukawa assumed the position of Chairman of the Board of our subsidiary J.I.C. Technology Company Limited in March 2002. He has extensive experience in international operational management. He held management positions in the Japan offices of General Electric, Admiral International Company and Thompson CSF. After joining the J.I.C. Group in 1992 as a Managing Director, he assumed responsibility for production management and monitoring daily operations of the LCD plant in Shenzhen. Mr. Furukawa received his Bachelor’s of English Literature degree from Aoyama University in 1965 and his Bachelor’s of Technology and Metallurgy degree from Kogakuin University in 1967.

Ivan Chui. Mr. Chui is the co-founder and Chief Executive Officer of our subsidiary J.I.C. Technology Company Limited. Mr. Chui has directed J.I.C. Group’s marketing activities since founding J.I.C. Group in 1980. He has over 20 years of experience in the LCD business and has extensive experience in doing business with Japanese companies.

Colin Yeoh. Mr. Yeoh joined J.I.C. Group in September 2003 and assumed the post of Managing Director of Jetup Electronic (Shenzhen) Co., Ltd. in October 2004. In January 2005, he assumed the position of Chief Financial Officer of the J.I.C. Group. Before joining the J.I.C. Group, he worked for Varitronix, a customised LCD manaufacturer, from 1994 to 2003, in the field of operations. Prior to Varitronix, he worked in GEC Marconi Hirst Research (UK) from 1990 to 1994, in the field of optical and display system research. Mr. Yeoh was awarded a PhD in Liquid Crystal Devices in 1990 at Imperial College (London, UK), Master of Science in Microwaves and Modern Optics in 1986 from University College London (UK) and Bachelor of Science in Electrical and Electronic Engineering from University College London (UK).

Lap Kei Yuen. Mr. Yuen is currently the Managing Director of Jetup Electronic (Shenzhen) Co., Ltd. He joined the J.I.C. Group in 1986. Prior to J.I.C., he served as a Production Manager in Slexs Watch Co., Ltd. from 1984 to 1986. With his excellent performance, he was appointed as the representative to study LC Injection technology in Japan in 1994 and has been a Vice Managing Director of Jetup since 2000. He has 20 years of experience in the LCD industry. While in charge of Jetup’s operations, he successfully established the LCD front process, middle process and rear process production lines. He became the Managing Director of Jetup on January 1, 2005.

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

M.K. Koo. Mr. Koo has served as Chairman of the Board of Nam Tai and its predecessor companies from inception until September 1998. He then became our Senior Executive Officer, responsible for corporate strategy, finance and administration and also served as the Company’s Chief Financial Officer. Mr. Koo has resigned from the position of Chief Financial Officer on January 1, 2005 but maintained his role as a non-executive director of the Company. Mr. Koo received his Bachelor’s of Laws degree from National Taiwan University in 1970.

Peter R. Kellogg. Mr. Kellogg was elected to our Board of Directors in June 2000. Mr. Kellogg was a Senior Managing Director of Spear, Leeds & Kellogg, a registered broker-dealer in the United States and a specialist firm on the New York Stock Exchange until the firm merged with Goldman Sachs in 2000. Mr. Kellogg served on our Audit Committee until July 8, 2003. He currently serves on our Compensation Committee and Nominating and Corporate Governance Committee. Mr. Kellogg is also a member of the Board of the Ziegler Companies.

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

Dr. Wing Yan (William) Lo. Dr. Lo was elected to our Board of Directors at our annual meeting of shareholders on July 8, 2003. Dr. Lo is currently the Executive Director and Vice President of China Unicom Ltd., a telecommunications operator in China that is listed on both the Hong Kong and New York Stock Exchanges. From 1998 to 1999, Dr. Lo was the chief executive officer of Citibank’s Global Consumer Banking business for Hong Kong. Dr. Lo was the founding Managing Director of Hongkong Telecom IMS Ltd. Dr. Lo holds an M. Phil. degree in molecular pharmacology and a Ph.D. degree in genetic engineering, both from Cambridge University, England. He is also an Adjunct Professor of The School of Business, Hong Kong Baptist University as well as a Governor of a newly established independent school, the ISF Academy. In 1998, Dr. Lo was appointed as a Justice of the Peace of Hong Kong. In 2003, he was appointed as Committee Member of Shantou People’s Political Consultative Conference. Dr. Lo currently serves on the Nominating and Corporate Governance Committee acting as the Chairman and also serves on our Audit Committee and Compensation Committee.

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

Mark Waslen. Mr. Waslen was appointed a director of Nam Tai at our annual meeting of shareholders on July 8, 2003 and currently serves on the Audit Committee acting as Chairman. He also serves on our Compensation Committee and Nominating and Corporate Governance Committee. Previously, Mr. Waslen was employed with Nam Tai during the periods from 1990 to 1995 and from June 1998 to October 1999 in various capacities, including Financial Controller, Secretary and Treasurer. Mr. Waslen has been employed with various accounting firms, including Peat Marwick Thorne, Deloitte Touche Tohmatsu and is currently employed with BME + Partners Chartered Accountants. Mr. Waslen is a C.F.A., C.A. and a C.P.A. and received a Bachelor’s of Commerce (Accounting Major) from University of Saskatchewan in 1982.

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

Compensation of Directors and Senior Managers

The aggregate compensation we and our subsidiaries paid during the year ended December 31, 2004 to all directors and officers as a group for services in all capacities was approximately $4.2 million, including compensation in the form of housing in Hong Kong for our Chairman of the Board and our Chief Executive Officer, President and our Chief Financial Officer.

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

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

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

Prior to December 2000, we maintained staff contributory retirement plans (defined contribution pension plans), which covered certain of our employees in Hong Kong. From December 2000 onwards, we terminated our existing staff contributory retirement plans and enrolled all of our eligible employees in Hong Kong into a Mandatory Provident Fund, or MPF, program. In August 2003, we set up our first subsidiary, Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited, in Macao, China. We enrolled all of our eligible employees in Macao into a retirement benefit scheme, or RBS. Both the MPF and RBS are available to all employees aged 18 to 64 and with at least 60 days of service under the employment of Nam Tai in Hong Kong and Macao. Contributions are made by us at 5% based on the staff’s relevant income. The maximum relevant income for contribution purpose per employee is $3,000 per month. Staff members are entitled to 100% of the Company’s contributions, together with accrued returns, irrespective of their length of service with us, but the benefits are required by law to be preserved until the retirement age of 65 for employees in Hong Kong while the benefit can be withdrawn by the employees in Macao at the end of employment contracts.

The cost of our contribution to the staff retirement plans in Hong Kong, Macao and China amounted to $617,000, $982,000 and $1,363,000 for the years ended December 31, 2002, 2003 and 2004, respectively.

In August 1990, we fixed compensation for loss of office at $500,000 for Mr. M.K. Koo and $300,000 for Mr. Tadao Murakami. We also fixed the age of retirement for directors, including Messrs. Koo and Murakami, at age 65 years. We have accrued the entire $800,000 on account of this compensation for loss of office, which was paid out in 2005.

Board Practices

All directors hold office until our next annual meeting of shareholders, which generally is in June of each calendar year, or until their respective successors are duly elected and qualified or their positions are earlier vacated by resignation or otherwise. All executive officers are appointed by the Board and serve at the pleasure of the Board. There are no director service contracts providing for benefits upon termination of employment. Our Board of Directors decided, effective December 31, 2002, to grant future options under our stock option plan only to our non-employee directors. However, in July 2004, our Board of Directors decided to resume granting options to management and key staff members as incentive based on their performance.

Corporate Governance Guideline

We have adopted a set of corporate governance guidelines, which are available on our website at http://www.namtai.com/ corpgov/corpgov.htm. The contents of this website address, other than the corporate governance guidelines, the code of ethics and committee charters, are not a part of this Form 20-F. Stockholders also may request a free copy of our corporate governance guidelines in print form from:

Pan Pacific I.R. Ltd.
Attention: Investor Relations Office
Suite 1790 - 999 W. Hastings Street
Vancouver, BC
Canada V6C 2W2
Toll Free Telephone: 1-800-661-8831

Committee Charters

The charters for our audit committee, compensation committee and nominating and corporate governance committee are available on our website at http://www.namtai.com/corpgov/corpgov.htm. The contents of this website address, other than the corporate governance guidelines, the code of ethics and committee charteres, are not a part of this Form 20-F. Stockholders may request a copy of each of these charters from the address and phone number set forth above under “—Corporate Governance Guideline.”

Audit Committee

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

In November 2003, the SEC approved the final NYSE corporate governance guidelines. Pursuant to NYSE Section 303A, three committees, namely the audit committee, nominating and corporate governance committee and compensation committee, are to be set up by all domestic filers and should be composed entirely of independent directors. For purposes of keeping with the best practice, Nam Tai established the compensation committee and the nominating and corporate governance committee on July 30, 2004. The composition and primary duties of these committees are set forth as below.

Pursuant to the requirements of NYSE Section 303A.11, the Company has evaluated its corporate governance standards in light of the corporate governance standards required of domestic companies under NYSE standards. Based on this evaluation, the Company has determined that there are no significant ways in which its corporate governance standards differ from those required of domestic companies by the NYSE.

Compensation Committee

Nam Tai has established a compensation committee whose primary duties consist of evaluating and making recommendations to the Board of Directors regarding the compensation of the Company’s directors and equity-based and incentive compensation programs of the Company. The compensation committee currently consists of four independent non-executive directors, Messrs. Chu, Lo, Waslen and Kellogg. Mr. Chu, who was elected by the full Board of Directors, currently acts as the Chairman of the compensation committee.

Nominating and Corporate Governance Committee

Nam Tai established a nominating and corporate governance committee on July 30, 2004, whose primary duties consist of identifying and recommending to the Board of Directors individuals qualified to become Board members and developing and recommending to the Board and administering the corporate governance guidelines of the Company.

The nominating and corporate governance committee currently consists of four independent non-executive directors, Messrs. Lo, Chu, Waslen and Kellogg. Dr. Lo, who was elected by the full Board of Directors, currently acts as the Chairman of the nominating and corporate governance committee.

Options of Directors and Senior Management

The following table provides information concerning the options owned by our current Directors and Senior Management as of February 28, 2005. All share numbers subject to options and exercise price per share have been adjusted to give effect to a three-for-one stock split effective on June 30, 2003 and a ten-for-one stock dividend effective on November 7, 2003.


	Number of
	common shares		Exercise
	subject to		Price ($)		Expiration
Name	options		per share		Date
Tadao Murakami		180,000		19.40		7/30/2006
		350,000		20.84		2/4/2007
Joseph Li		30,000		19.40		7/30/2006
		50,000		20.84		2/4/2007
Karene Wong		—		—		—
Guy Bindels		—		—		—
Joseph Hsu		—		—		—
Chen Yee, William		—		—		—
Patinda Lei		—		—		—
Bobby Hirasawa		—		—		—
George Shih		—		—		—
Seitaro Furukawa		—		—		—
Ivan Chui		—		—		—
Colin Yeoh		—		—		—
Lap Kei Yuen		—		—		—
Kazuhiro Asano		—		—		—
M.K. Koo		180,000		19.40		7/30/2006
		350,000		20.84		2/4/2007
Charles Chu		16,500		16.82		7/8/2006
		15,000		19.40		7/30/2006
Peter R. Kellogg		16,500		6.02		4/30/2005
		16,500		16.82		7/8/2006
		15,000		19.40		7/30/2006
Stephen Seung		16,500		16.82		7/8/2006
		15,000		19.40		7/30/2006
Wing Yan (William) Lo		16,500		16.82		7/8/2006
		15,000		19.40		7/30/2006
Mark Waslen		15,000		19.40		7/30/2006

Please refer to page 49 of this Report, which sets forth the shareholding information of each of the director and senior management of the Company.

Employee Stock Option and Incentive Plan

In July 2004, our Board of Directors has decided to resume granting stock options under our 2001 stock option plan, which provides for the grant of stock options to directors, employees (including officers), and consultants. Pursuant to the amended 2001 stock option plan, the terms and conditions of individual grants may vary subject to the following: (i) the exercise price of incentive stock options may not normally be less than market value on the date of grant; (ii) the term of incentive stock options may not exceed ten years from the date of grant; (iii) the exercise price of an option cannot be altered once granted; and (iv) every non-employee director who is not our employee shall, on an annual basis upon their election to the Board of Director at the Annual General Meeting, be automatically granted 15,000 options, with an exercise price equal to 100% of the fair market value of the common shares on the date of grant. At February 28, 2005, options to purchase 1,737,050 shares were outstanding under our amended 2001 stock option plan and 259,869 shares were available for future grant under them. The full text of our amended 2001 stock option plan, amended on July 30, 2004, we hereby file as Exhibit 4.18 with this Annual Report on Form 20-F for 2004.

Our Board of Directors decided, effective December 31, 2002, to grant future options under our stock option plans only to our non-employee directors. However, our Board of Directors decided to resume granting options to management and key staff members as incentive based on their performance in July 2004. Thereafter, incentive compensation paid to management and other key employees was in the form of either cash bonuses and/or stock options.

Employees

As of December 31, 2004, we employed 5,636 persons on a full-time basis, of which 5,574 were employed in China, 49 were employed in Hong Kong, 10 were employed in Macao, 2 were employed in Japan and 1 was employed in the British Virgin Islands. Of these employees, approximately 4,131 were engaged in manufacturing, approximately 1505 were engaged in administrative, research and development, quality control, engineering and marketing positions, and the balance in supporting jobs such as security, janitorial, food and medical services.

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

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

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

It is the practice of one of our subsidiaries to enter into a collective agreement with its trade union. The collective agreement usually sets out the minimum standard for the wages, working hours and other benefits of the workers. The current collective agreement between our subsidiary and its trade union expires on December 31, 2005 and will be renewed.

Item 7. Major Shareholders and Related Party Transactions

The following table sets forth certain information known to us regarding the beneficial ownership of our common shares as of February 28, 2005, by:

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

• each of our current directors and senior management.

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


	Shares beneficially(1) owned
Name	Number(12)			Percent
M. K. Koo		6,975,786	(2)		16.2
Peter R. Kellogg		5,679,680	(3)		13.3
I.A.T. Reinsurance Syndicate Ltd.		5,108,300	(3)		12.0
Li & Chui Holdings (B.V.I.) Ltd.		2,935,087			6.9
Joseph Li		3,093,957	(4)		7.2
Ivan Chui		2,980,957	(5)		7.0
Tadao Murakami		2,379,225	(6)		5.5
Karene Wong		39,100			*
Guy Bindels		1,000			*
Joseph Hsu		2,000			*
Chen Yee, William		—			—
Patinda Lei		25,300			*
Bobby Hirasawa		3,000			*
George Shih		—			—
Seitaro Furukawa		—			—
Colin Yeoh		—			—
Lap Kei Yuen		1,800			*
Kazuhiro Asano		—			—
Charles Chu		84,000	(7)		*
Stephen Seung		84,800	(8)		*
Wing Yan (William) Lo		31,500	(9)		*
Mark Waslen		25,000	(10)		*

*	Less than 1%.

(1)	Pursuant to the rules of the Securities and Exchange Commission, shares of common shares that an individual or group has a right to acquire within 60 days pursuant to the exercise of options are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Percentage of ownership is based on 42,664,536 common shares outstanding as of February 28, 2005.

(2)	Includes options to purchase 530,000 common shares exercisable within 60 days of February 28, 2005.

(3)	Mr. Kellogg holds directly 523,380 common shares and options to purchase 48,000 common shares exercisable within 60 days of February 28, 2005. Indirectly, through I.A.T. Reinsurance Syndicate Ltd., Mr. Kellogg holds 5,108,300 common shares. I.A.T. Reinsurance Syndicate Ltd. is a Bermuda corporation of which Mr. Kellogg is the sole holder of voting stock. Mr. Kellogg disclaims beneficial ownership of these shares.

(4)	Includes shares held of record by Li & Chui Holdings (B.V.I.) Limited for which Mr. Li shares investment and voting control with Mr. Chui. These are the same shares shown in the table for Ivan Chui. Also, includes options to purchase 80,000 common shares exercisable within 60 days of February 28, 2005.

(5)	Includes shares held of record by Li & Chui Holdings (B.V.I.) Limited for which Mr. Chui shares investment and voting control with Mr. Li. These are the same shares shown in the table for Joseph Li.

(6)	Includes options to purchase 530,000 common shares exercisable within 60 days of February 28, 2005

(7)	Includes options to purchase 31,500 common shares exercisable within 60 days of February 28, 2005.

(8)	Includes options to purchase 31,500 common shares exercisable within 60 days of February 28, 2005, and 20,300 common shares that are registered to Violet Seung, Mr. Seung’s wife, as to which Mr. Seung disclaims beneficial ownership.

(9)	Consists of options to purchase common shares exercisable within 60 days of February 28, 2005.

(10)	Includes options to purchase 15,000 common shares exercisable within 60 days of February 28, 2005.

(11)	All the share numbers have been adjusted to give effect to a three-for-one stock split effective on June 30, 2003 and a ten-for-one stock dividend effective on November 7, 2003.

(12)	These share numbers include options owned by these individuals and assume that these options will be exercised.

All of the holders of our common shares have equal voting rights with respect to the number of common shares held. As of February 28, 2005, there were approximately 766 holders of record of our common shares. According to information supplied by our transfer agent, 733 holders of

record with addresses in the United States held 29,642,848 of our outstanding common shares.

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


			Percentage Ownership(1)
	March 31,		March 1,		February 28,
	2003		2004		2005
M. K. Koo		18.9		12.9		16.2
Peter R. Kellogg		12.2		12.7		13.3
I.A.T. Reinsurance Syndicate Ltd.		10.7		11.3		12.0
Li & Chui Holdings (B.V.I.) Ltd.		8.7		7.1		6.9
Joseph Li		9.1		7.3		7.2
Ivan Chui		9.0		7.2		7.0
Tadao Murakami		6.0		4.5		5.5

(1)	Based on 36,392,004, 41,231,272 and 42,664,536 common shares outstanding on March 31, 2003, March 1, 2004 and February 28, 2005, respectively.

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

Certain Relationships and Related Transactions

In January 2003, we invested $10.0 million for a 25% equity interest in Alpha Star Investments Ltd., the ultimate parent of JCT. JCT is engaged in the design, development and marketing of wireless communication terminals and wireless application software. In connection with our investment, Mr. Koo was appointed as a director to Alpha Star Investment Ltd.’s Board of Directors. Mr. Koo resigned from the Board of Directors of Alpha Star Investment Ltd. on July 12, 2004. We currently manufacture wireless communication terminals and related modules for JCT. As part of our investment, Alpha Star Investment Ltd. agreed to have us manufacture the RF modules for at least 50 percent of the orders it, or any of its subsidiaries, receives for RF modules provided we perform such manufacturing services at a price comparable to the market. As of December 31, 2004, we were owed $66,000 from JCT. For the year ended December 31, 2004, we recognized net sales of $34.2 million to JCT and purchased raw materials of approximately $12.4 million from JCT and its related companies.

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

On December 10, 2004, by unanimous consent, the Board of Directors of Nam Tai Group Management Limited, adopted a resolution for assigning the beneficial interest of Nam Tai Group Management Limited in 10 units of debentures of nominal value of approximately $1,603 each, issued by The Clearwater Bay Golf & Country Club to Mr. Koo at the consideration of approximately $231,000, which represented the book value of the debentures in the financial statements of Nam Tai Group Management Limited. An agreement was entered between Nam Tai Group Management Limited and Mr. Koo on December 10, 2004.

Item 8. Financial Information

Financial Statements

The Consolidated Financial Statements have been appended to this Form 20-F (see pages F-1 to F-36). From year-end dated December 31, 2004 to our reporting date of March 4, 2005, there has been no significant changes on our consolidated Financial Statements.

Change in Public Accountants

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

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

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

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

Legal Proceedings

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

Tele-Art Litigation

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

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

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

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

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

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

On July 5, 2002, upon our application, the court ordered the removal of the liquidator’s ex-parte injunction and ordered an inquiry into damages. Nam Tai filed its amended Points of Claim of Defence on April 16, 2004. There are currently applications before the Court of Appeal in the British Virgin Islands to determine the progress of this matter as Nam Tai has sought to enter judgment against David Hague, the former liquidator, who has applied to strike out Nam Tai’s claim for damages. On August 9, 2002, the court delivered a decision awarding us a judgment against Tele-Art, Inc. for approximately $34.0 million. On August 12, 2002, we redeemed and cancelled, pursuant to its Articles of Association, the remaining 509,181 (Note 2) shares beneficially owned by Tele-Art, Inc. at a price of $6.14 per share. Including the dividends which we had withheld and credited against the judgment, this offset a further $3.5 million, approximately, in judgment debts owed to us by Tele-Art, Inc. We recorded the $3.3 million redemption net of expenses as other income in 2002.

On January 21, 2003, judgment was delivered on the liquidators’ February 4, 1999 summons declaring that the redemption and set-off of dividends on the 415,500 (Note 1) shares be set aside and that all Tele-Art, Inc. property withheld by us be delivered to Tele-Art, Inc. in liquidation. The orders granted in the judgment were substantially different from the relief sought in the February 4, 1999 application. On February 4, 2003, we filed an application for a stay of execution and leave to appeal the decision listing eight grounds of appeal, which was granted on June 23, 2003. The case was heard on January 12, 2004 and judgment was delivered on April 26, 2004. It was held that the redemption by Nam Tai of 415,500 (Note 1) Nam Tai’s shares owned by Tele-Art, Inc. was proper, however, Nam Tai must return the redemption proceeds and dividends payable received to the liquidator for distribution to the creditors. David Hague, the former liquidator of Tele-Art, Inc. who filed the original application in 1999, has obtained leave to appeal to the Privy Council, the final appellate court for the British Virgin Islands, that part of the Court of Appeal judgment which upheld the redemption of the Tele Art shares by Nam Tai. It is not expected that this appeal will be heard before 2006. The court also held that Bank of China was a secured creditor but the court did not determine the amount owed by Tele-Art, Inc. to Bank of China. We dispute that finding, and among other matters, have argued that the proof of debt by Bank of China was incomplete and invalid.

Bank of China has submitted that it is a secured creditor. In this respect, the Bank’s position is that as of December 6, 2004, the debt from Tele-Art Limited, a former wholly-owned subsidiary of Tele-Art, Inc. (the loan was also guaranteed by Tele-Art, Inc.) was HK$21,985,970.16 (approximately US$2.8 million) with interest accruing at HK$4,264.7 (or US$547) daily. The liquidator, however, took the view in his third liquidator report which was submitted to the Court on October 13, 2004, that Bank of China’s proof of debt was incomplete. The liquidator has requested the Court’s approval to take further action and demand that Bank of China provide further information for his consideration. Nam Tai is of the view that the amount of debt owed by Tele-Art Limited to Bank of China may not exceed $1.4 million. It should further be noted that apart from Nam Tai, the liquidator admitted the proof of debts of two other unsecured creditors which together amounted to approximately $33,000. David Hague, the former liquidator, has submitted a claim for $381,860 in respect of fees and expenses for work done while acting as liquidator of Tele Art, Inc. These fees however are subject to the approval of the court and as such are still pending as they have not yet been approved. The Liquidator filed a Summons for the approval of his third report on October 13, 2004 and this was heard on December 14, 2004. The Court inter alia ordered that the Liquidator continue the administration of the liquidation of Tele-Art, Inc. substantially in accordance with his proposals contained in said report as well as the second report.

As of December 31, 2002, due to the uncertainty of the final outcome of the litigation and in accordance with SFAS No. 5, “Accounting for Contingencies”, we have recorded a provision for $5.2 million as a component of accrued expenses pending a final determination of this matter by the courts. This represented the then-best estimate of the net monetary expense we would incur if our appeal is unsuccessful and the two judgment debts in the total amount of $38.0 million (including interest, costs, and related expenses) is determined as having the lowest priorities in recovering from the estate of Tele-Art, Inc. As of November 7, 2003, apart from Nam Tai, a total of three other creditors of Tele-Art, Inc., including Bank of China, had submitted their proof of debt to the liquidator. These claims, together with the claim by David Hague, the former liquidator of the Company for outstanding fees and expenses, amounted to approximately $3.4 million. As a result, the 2002 provision for $5.2 million was reduced to $3.9 million in the fourth quarter of 2003.

With the two judgment debts as well as the several costs orders in favour of Nam Tai, Nam Tai is the major unsecured creditor of Tele-Art, Inc. holding approximately 99.9% outstanding debts of Tele-Art, Inc. Pursuant to the judgment of April 26 2004, we are in negotiations with the liquidator on the distribution of the redemption proceeds among the unsecured creditors. If our proposal is accepted by the liquidator and approved by the court, as well as all the legal matters related to Tele-Art, Inc. finalized, including the final determination of the creditor’s position of Bank of China, then the remaining portion of $3.9 million provision will also be reversed into income for the related period.

However, the actual amount of the recovery, if any, is uncertain, and is dependent on a number of factors including the final determination of Bank of China’s position. We plan to continue to pursue vigorously all legal alternatives available to seek to recover the maximum amount of the outstanding debt from Tele-Art, Inc. as well as to pursue other parties that may have assisted in any transfers of the assets from Tele-Art, Inc. In furtherance of this objective, Nam Tai commenced proceedings in 2002 against David Hague, the former liquidator of Tele-Art, Inc., and PriceWaterhouseCoopers for, inter alia, negligence and breach of statutory duty in their conduct of the liquidation. This matter is still in its initial stages as the Defendants are seeking leave to appeal against the dismissal of their challenge to the jurisdication of the BVI courts in this matter. We may incur substantial additional costs in pursuing our recovery and such costs may not be recoverable.

Note

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

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

Putative Class Actions

On March 11, 2003, we were served with a complaint in an action captioned Michael Rocco v. Nam Tai, et al., 03 Civ. 1148 (S.D.N.Y.), or the Rocco Action. In addition to Nam Tai, certain directors are named as defendants. On or about April 9, 2003, a second complaint was filed in an action captioned A.J. & Celine Steigler v. Nam Tai, et al., 03 Civ. 2462 (S.D.N.Y.), or the Steigler Action, and together with the Rocco

Action, the Actions. The Actions have been consolidated since July 2003 and purports to represent a putative class of persons who purchased the common stock of Nam Tai from July 29, 2002 through February 18, 2003. Plaintiffs in the Actions assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and allege that misrepresentations and/or omissions were made during the alleged class period concerning the partial reversal of an inventory provision and a charge to goodwill related to Nam Tai’s LPT segment. Our motion to dismiss was denied on September 27, 2004. The putative class action has not been certified as a class action by the court but we expect plaintiffs to seek such certification in the near future. The court has set May 23, 2005 to hear the certification motion. Nam Tai believes it has meritorious defenses and intends to defend the case vigorously.

Export Sales

Geographic Markets

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


	Year ended December 31,
Geographic Areas	2002			2003			2004
China (excluding Hong Kong)		12	%		25	%		25	%
Europe (excluding Estonia)		18			21			18
Japan		11			17			6
United States		14			14			11
Hong Kong		24			9			30
Estonia		8			5			1
North America (excluding United States)		3			—			1
Korea		7			6			4
Other		3			3			4
		100	%		100	%		100	%

Dividends

We have paid an annual dividend for the last eleven consecutive years. On February 7, 2005, we announced that we were increasing our regular annual dividend to $1.32 per share to be declared and paid quarterly commencing with the first quarter 2005 dividend of $0.33 per share. The following table sets forth the total cash dividends and dividends per share we have declared for each of the five years in the period ended December 31, 2004, adjusted to give effect to a three-for-one stock split effective on June 30, 2003.


			Year ended December 31,
	2000		2001		2002		2003		2004
Total dividends declared (in thousands)	$	12,190	$	4,134	$	17,056	$	37,584	$	20,424
Regular dividends per share	$	0.12	$	0.13	$	0.16	$	0.20	$	0.48
Special dividends		0.33		—		0.33		0.80		—
Total dividends per share	$	0.45	$	0.13	$	0.49	$	1.00	$	0.48

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

We declared special dividends in 2002 and 2003 for the reasons described below:

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

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

Item 9. The Listing

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

The following table sets forth the high and low closing sales prices for our common shares for the quarters in the three-year period ended December 31, 2004, adjusted to give effect to a three-for-one stock split effective on June 30, 2003:


	2002						2003						2004
					Average						Average						Average
					Daily						Daily						Daily
					Trading						Trading						Trading
	High		Low		Volume(1)		High		Low		Volume(1)		High		Low		Volume(1)
First Quarter	$	6.35	$	5.15		153,210	$	11.30	$	7.92		363,270	$	34.24	$	22.30		927,119
Second Quarter		7.73		6.10		143,827		14.13		6.94		288,459		28.00		13.99		509,173
Third Quarter		6.86		5.33		54,983		32.90		12.87		734,330		23.51		16.10		412,488
Fourth Quarter		9.07		6.17		303,351		42.48		26.25		1,393,722		23.14		18.07		283,030

(1)	Determined by dividing the sum of the reported daily volume for the quarter by the number of trading days in the quarter.

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


					Daily
					Trading
Year ended	High		Low		Volume(1)
December 31, 2004	$	34.24	$	13.99		532,568
December 31, 2003		42.48		6.94		597,858
December 31, 2002		9.07		5.15		164,011
December 31, 2001		6.38		3.77		81,656
December 31, 2000		6.88		4.31		113,644

(1)	Determined by dividing the sum of the reported daily volume for the year by the number of trading days in the year.

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


					Daily
					Trading
Month ended		High	Low		Volume(1)
February 28, 2005	$	24.35		18.80		503,174
January 31, 2005		19.49		17.25		253,252
December 31, 2004		19.82		18.07		242,014
November 30, 2004		20.00		18.28		335,390
October 31, 2004		23.14		19.50		271,686
September 30, 2004		22.85		18.75		318,162

(1)	Determined by dividing the sum of the reported daily volume for the month by the number of trading days in the month.

On March 11, 2005, the last reported sale price of our common shares on the NYSE was $27.12 per share. As of February 28, 2005, there were 766 holders of record of our common shares.

Item 10. Additional Information

Share Capital

Our authorized capital consists of 200,000,000 common shares, $0.01 par value per share. On June 20, 2003, we announced a three-for-one stock split effective on June 30, 2003 and a ten-for-one stock dividend effective November 7, 2003. As of February 28, 2005, 42,664,536 common shares were outstanding.

Memorandum and Articles of Association

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

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

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

Our registered office is at P.O. Box 3342, Road Town, Tortola, British Virgin Islands and we have been assigned company number 3805. Our object or purpose is to engage in any act or activity that is not prohibited under British Virgin Islands law as set forth in Clause 4 of our Memorandum of Association. As an International Business Company, and as set forth in Clause 6, we are prohibited from doing business with persons resident in the British Virgin Islands, owning real estate in the British Virgin Islands, or accepting banking deposits or contracts of insurance. We do not believe these restrictions materially affect our operations.

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

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

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

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

Provisions in respect of the holding of general meetings and extraordinary general meetings are set out in Paragraphs 27 to 46 of the Articles and under the International Business Companies Act. The directors may convene meetings of our shareholders at such times and in such manner and places as the directors consider necessary or desirable, and they shall convene such a meeting upon the written request of shareholders holding more than 30 percent of the votes of our outstanding voting shares. Other than providing, if requested, reasonable proof of a holder’s status as a holder of our shares as of the applicable record date, there is no condition to the admission of a shareholder or his or her proxy holder to our meetings of shareholders.

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

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

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

Transfer Agent

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

Material Contracts

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

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

• On July 3, 2003, a Sale and Purchase Agreement was entered into between Nam Tai Electronic & Electrical Products Limited (Hong Kong) and Nam Tai Electronic & Electrical Products Limited (Cayman Islands) regarding the purchase of the entire 100% interest in Nam Tai Electronic (Shenzhen) Co., Ltd. by Nam Tai Electronic & Electrical Products Limited (Cayman Islands).

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

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

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

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

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

• On March 26, 2004, a Memorandum of Understanding was signed by Namtai Electronic (Shenzhen) Co., Ltd. and Nam Tai Electronic & Electrical Products Limited (Hong Kong) to confirm the respective rights and liabilities of Nam Tai Electronic & Electrical Products Limited (Hong Kong) and Namtai Electronic (Shenzhen) Co., Ltd. under an internal restructuring.

• On March 31, 2004, a Sale and Purchase Agreement was entered into between Nam Tai Electronics, Inc. and Mr. Wong Toe Yeung regarding purchasing the entire issued share capital of Jasper Ace Limited from Mr. Wong Toe Yeung with the consideration of disposal of a 72.2% interest in Mate Fair Group Limited, cash of $25 million and 2,389,974 shares issued by Nam Tai Electronics, Inc.

• On April 8, 2004, a Trademark License Agreement was entered into between Nam Tai Electronics, Inc. and Nam Tai Electronic & Electrical Products Limited for the use of certain “Namtai” trademarks.

• On April 15, 2004, a Deed of Indemnity was entered into between Nam Tai Electronics, Inc., and Nam Tai Electronic & Electrical Products Limited in favour of Nam Tai Electronic & Electrical Products Limited regarding the Global Offering of 200,000,000 shares of HK$0.01 each of Nam Tai Electronic & Electrical Products Limited.

• On April 15, 2004, an Underwriting Agreement was entered into among Nam Tai Electronics, Inc. as the selling shareholder and the Hongkong and Shanghai Banking Corporation Limited, BNP Paribas Peregrine Capital Limited, Nomura International (Hong Kong) Limited, Cazenove Asia Limited, DBS Asia Capital Limited and VC CEF Capital Limited as public offer underwriters regarding the public offering of 20,000,000 shares of HK$0.01 each of Nam Tai Electronic & Electrical Products Limited.

• On April 21, 2004, a Supplemental Agreement was entered into between Nam Tai Electronics, Inc., and Mr. Wong Toe Yeung regarding to adjust the consideration for purchasing entire issued share capital of Jasper Ace Limited by canceling 973,210 common shares of Nam Tai Electronics, Inc., issued to Top Scale Company Limited on April 21, 2004.

• On April 22, 2004, an Underwriting Agreement was entered into among Nam Tai Electronics, Inc. as the selling shareholder and the Hongkong and Shanghai Banking Corporation Limited, BNP Paribas Peregrine Capital Limited, Nomura International (Hong Kong) Limited, Cazenove Asia Limited, DBS Asia Capital Limited and VC CEF Capital Limited as international placing underwriters regarding the international placing of 180,000,000 shares of HK$0.01 each of Nam Tai Electronic & Electrical Products Limited.

• On April 22, 2004, a Pricing Determination Agreement was entered into among Nam Tai Electronics, Inc., Nam Tai Electronic & Electrical Products Limited and the Hongkong and Shanghai Banking Corporation Limited for determining the offering price of the shares of Nam Tai Electronic & Electrical Products Limited to be HK$3.88 per share.

• On April 22, 2004, a Stock Borrowing Agreement was entered into between Nam Tai Electronics, Inc. and the Hongkong and Shanghai Banking Corporation Limited regarding the Global Offering of 200,000,000 shares of HK$0.01 each of Nam Tai Electronic & Electrical Products Limited.

• On August 4, 2004, an Accession Agreement was entered into between Welcome Success Technology Ltd. and Mr. Alain Jolivet in relation to the transfer of entire interest in Stepmind to Remote Reward SAS and became a party to the Shareholders Agreement entered into among Nam Tai Electronics, Inc., AGF Innovation 3, AGF Innovation 4, AGF Innovation 5, Mighty Wealth Group Limited, Remote Reward SAS, Mr. Alain Jolivet and Mr. Andre Jolivet executed on November 28, 2003, December 9, 2003 and December 10, 2003.

• On August 18, 2004, an Escrow Agreement was entered into among Nam Tai Electronics, Inc., Welcome Success Technology Ltd., Remote Reward SAS, Johnson Stokes & Master, Mr. Andre Jolivet and Mr. Alain Jolivet in relation to the disposal of 1,457,720 shares in Stepmind to Remote Reward SAS with a consideration of Euros 4,253,301.98.

• On August 19, 2004, a Subscription Agreement was entered into among TCL Industries Holdings (HK) Limited, TCL International Holdings Limited, Cheerful Asset Investments Limited, Jasper Ace Limited, Mate Fair Group Limited, and TCL Communication Technology Holdings Limited for subscribing 254,474,910 shares in TCL Communication Technology Holdings Limited in a consideration of RMB131,283,020.

• On September 20, 2004, a Deed of Assignment of Trademarks was entered into between Nam Tai Electronics, Inc. and Namtai Electronic (Shenzhen) Co., Ltd. for assigning “Namtai & device” trademarks to Nam Tai Electronics, Inc.

• Banking Facilities Letter from the Hongkong and Shanghai Banking Corporation Limited to Nam Tai Group Management Limited on September 24, 2004 regarding the renewal of Overdraft Facility of HK$500,000, Treasury Facilities of US$30,000,000 and Corporate Card of HK$1,100,000.

• On October 15, 2004, a Share Transfer Agreement was entered into between J.I.C. Enterprises (Hong Kong) Limited and J.I.C. Technology Company Limited for the disposal of the entire issued share capital of Jetup Electronic (Shenzhen) Co., Ltd. to J.I.C. Technology Company Limited for a consideration of HK$105,878,396.

Exchange Controls

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

Taxation

United States Federal Income Tax Consequences

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

General

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

• a dealer in securities or currencies;

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

• a financial institution or a bank;

• an insurance company;

• a tax-exempt organization;

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

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

• a person liable for alternative minimum tax;

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

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

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

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

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

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

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

Distributions on Our Common Shares

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

For United States foreign tax credit limitation purposes, dividends received on our common shares will be treated as foreign source income and generally will be “passive income,” or in the case of certain holders, “financial services income.” For taxable years beginning after December 31, 2006, dividends generally will be “passive category income,” or in the case of certain holders, “general category income.” You may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of foreign withholding taxes, if any, imposed on dividends received on our common shares. The rules governing United States foreign tax credits are complex, and we recommend that you consult your tax advisor regarding the applicability of such rules to you.

Sale, Exchange or Other Disposition of Our Common Shares

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

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

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

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

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

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

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

PFIC Considerations

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

Backup Withholding and Information Reporting

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

• you are a corporation or other exempt recipient, or

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

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

BRITISH VIRGIN ISLANDS TAX CONSIDERATIONS

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

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

Documents on Display

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

Item 11. Quantitative and Qualitative Disclosure About Market Risk

Currency Fluctuations

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

We believe our most significant foreign exchange risk results from material purchases made in Japanese yen. Approximately 8%, 16% and 6%, respectively, of our material costs have been in Japanese yen during the years ended December 31, 2002, 2003, and 2004. Sales made in Japanese yen account for less than 11% of sales for the years ended December 31, 2002, 2003 and 2004. Our business and operating results could be materially and adversely affected in the event of a severe increase in the value of the Japanese yen to the US dollar at a time when our sales made in Japanese yen are insufficient to cover our material purchases in Japanese yen.

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

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

As of December 31, 2004, we held no option or future contracts and during the year we did not purchase or sell any commodity or currency options. We are continuing to review our hedging strategy and there can be no assurance that we will not suffer losses in the future as a result of hedging activities.

Foreign Currency Risk

As of December 31, 2004, we had no open forward contracts or option contracts to purchase or sell foreign currencies.

Cash on hand at December 31, 2004 of $160,649,000 was held in the following currencies.


	Equivalent
	U.S. Dollar
	Holdings
	December 31, 2004
Japanese yen		5,554,000
United States dollars		131,561,000
Hong Kong dollar		5,823,000
Chinese renminbi		17,700,000
Macao Pataca		11,000

Interest Rate Risk

Short-term interest rate risk

Our interest expenses and income are sensitive to changes in interest rates. All of our cash reserves and short-term borrowings are subject to interest rate changes. Cash on hand of $160.6 million as of December 31, 2004 was invested in short-term interest-bearing investments having a maturity of three months or less. As such, interest income will fluctuate with changes in short-term interest rates. In 2004, we had $1.1 million in interest income and $195,000 in interest expense.

As of December 31, 2004, we had utilized approximately $3.4 million of our credit facilities, including $2.1 million in short-term notes payable resulting in minimal interest rate risk.

Long-term interest rate risk

As of December 31, 2004, we had $8.0 million in long-term bank borrowing, including the current portion of $2.9 million.

Our long-term bank borrowing consisted of a $4.5 million term loan obtained in May 2002, has a term of four years and bear interest at a rate of 1.5% and subsequently changed to 0.75% effective August 2004 over three months’ LIBOR repayable in 16 quarterly installments of $281,250 beginning August 2002. The outstanding balance as of December 31, 2004 was $1.7 million. A $1.6 million term loan obtained in April 2004 has a term of four years and bears interest at a rate of 0.75% over three months’ LIBOR repayable in 16 quarterly installments of $100,000 beginning July 2004. The outstanding balance as of December 31, 2004 was $1.4 million. A $3.6 million term loan obtained in June 2004 has a term of four years and bears interest at a rate of 0.75% over three months’ LIBOR repayable in 16 quarterly installments of $225,000 beginning September, 2004. The outstanding balance as of December 31, 2004 was $3.2 million. A $1.8 million term loan obtained in December 2004 has a term of four years and bears interest at a rate of 0.75% over three months’ LIBOR repayable in 16 quarterly installments of $112,500 beginning March 2005.

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

Item 12. Description of Securities Other Than Equity Securities

Not applicable

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

Not applicable

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

As required by Rule 13a-14 under the Securities Exchange Act of 1934, as of December 31, 2004, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934). This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Company’s controls and procedures were designed and provided reasonable assurance of preventing errors and irregularities.

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

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

Changes in Internal Controls

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

Item 16. [Reserved]

Item 16 A. Audit Committee Financial Expert

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

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

Item 16 B. Code of Ethics

The Company has adopted a Code of Ethics for the Chief Executive Officer and Chief Financial Officer, which applies to the Company’s principal executive officers and to its principal financial and accounting officers. In July 2004, the Code of Ethics was revised to apply to all employees. A copy of the revised Code of Ethics is attached as Exhibit 14.1 to this Annual Report on Form 20-F. These codes have been posted on our website, which is located at http://www.namtai.com/corpgov/corpgov.htm. The contents of this website address, other than the corporate governance guidelines, the code of ethics and committee charters, are not a part of this Form 20-F. Stockholders may request a free copy in print form from:

Pan Pacific I.R. Ltd.
Attention : Investor Relations Office
Suite 1790 - 999 W. Hastings Street
Vancouver, BC
Canada V6C 2W2
Toll Free Telephone : 1-800-661-8831

Item 16 C. Principal Accountant Fees and Services

Deloitte Touche Tohmatsu has served as our independent public accountant for each of the fiscal years in the three-year period ended December 31, 2004, for which audited financial statements appear in this annual report on Form 20-F. The auditor is elected annually at the Annual General Meeting. The Audit Committee will propose to the Annual General Meeting convening on June 6, 2005 that Deloitte Touche Tohmatsu be elected as the auditor for 2005.

The following table presents the aggregate fees for professional services and other services rendered by Deloitte Touche Tohmatsu to us in 2004 and 2003.


	2004		2003
	US$’000		US$’000
Audit Fees(1)		702		271
Audit-related Fees(2)		21		1
Tax Fees(3)		3		11
All Other Fees(4)		15		8

Total		741		291

(1) Audit Fees consist of fees billed for the annual audit of our consolidated financial statements and the statutory financial statements of our subsidiaries. They also include fees billed for other audit services, which are those services that only the external auditor reasonably can provide, and include the provision of comfort letters and consents, and attestation services relating to the review of documents filed with the SEC. The fees for 2004 include US$159 of accrued audit fees for the 2004 year-end audit that were not billed until 2005. The fees for 2003 included $40 of accrued audit fees for the 2003 year-end audit that were not billed until 2004.

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

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

(4) All Other Fees includes business advisory service fee.

Audit Committee Pre-approval Policies and Procedures

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

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

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

During 2003 and 2004, services provided to us by Deloitte Touche Tohmatsu representing less than 49.6% and 0.0%, respectively, of the total non-audit service fees were approved by the Audit Committee pursuant to the de minima exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

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

Not applicable

PART III

Item 17. Financial Statements

Not Applicable

Item 18. Financial Statements

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Independent Auditors’ Reports		F-2
Consolidated Statements of Income for the years ended December 31, 2002, 2003 and 2004		F-3
Consolidated Balance Sheets as of December 31, 2003 and 2004		F-4
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the years ended December 31, 2002, 2003 and 2004		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2003 and 2004		F-6 – F-7
Notes to Consolidated Financial Statements		F-8 – F-36

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

Item 19 Exhibits.

The following exhibits are filed as part of this annual report:


Exhibit
Number		DESCRIPTION
1.1		Memorandum and Articles of Association, as amended on June 26, 2003.*

4.1		Purchase Agreement entered into between Citigroup Global Markets Limited and Nam Tai Electronics, Inc. on August 22, 2003 for the sale of 3% convertible notes of TCL International Holdings Ltd. at an aggregate price of HK$39,555,068.49 (approximately $5.03 million).*

4.2		Agreement entered into between J.I.C. Technology Company Limited and Glory Gate Enterprises Limited on June 28, 2003 for the disposal of transformers operation to Glory Gate Enterprises Limited for approximately $2.4 million.*

4.3		Equity Interest Transfer Agreement between Nam Tai Electronic & Electrical Products Limited HK and Nam Tai Electronic & Electrical Products Limited July 3, 2003.

4.4		Construction Agreement, with commencement date of September 23, 2003, entered into between Namtai Electronic (Shenzhen) Co. Ltd. and Takasago Thermal Engineering (Hong Kong) Co. Ltd. on October 28, 2003 for the construction of new factory premises.*

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

4.6		A Supplemental Agreement entered into among Mr. André Jolivet, Mr. Alain Jolivet, Remote Reward SAS, AGF Private Equity, Mighty Wealth Group Limited and Nam Tai Electronics, Inc. on January 2, 2004 for consenting to the release of the second phase of payment and increasing capital investment in Stepmind should Stepmind fulfill certain conditions.*

4.7		Land Title Rights Issued by Shenzhen Municipal Bureau of Planning and Land Resources February 16, 2004.

4.8		An Agreement entered into between Nam Tai Group Management limited and Frontier Profit Inc. on March 10, 2004 for selling Flat A, 22nd Floor, Tower 2 and Car Parking Space No. A86, The Leighton Hill, 28 Broadwood Road, Happy Valley, Hong Kong to Frontier Profit Inc.*

4.9		A Memorandum of Understanding signed by Namtai Electronic (Shenzhen) Co., Ltd. and Nam Tai Electronic & Electrical Products Limited (Hong Kong) on March 26, 2004 to confirm the respective rights and liabilities of Nam Tai Electronic & Electrical Products Limited (Hong Kong) and Namtai Electronic (Shenzhen) Co., Ltd. under an internal restructuring.

4.10		A Sale and Purchaser Agreement entered into between Nam Tai Electronics, Inc. and Mr. Wong Toe Yeung on March 31, 2004 regarding purchasing the entire issued share capital of Jasper Ace Limited from Mr. Wong Toe Yeung with the consideration of disposal 72.2% interest in Mate Fair Group Limited, cash of $25 million and 2,389,974 shares issued by Nam Tai Electronics, Inc.

4.11		A Trademark License Agreement entered into between Nam Tai Electronics, Inc. and Nam Tai Electronic & Electrical Products Limited on April 8, 2004 for the use of certain “Namtai” trademarks.

4.12		A Deed of Indemnity entered into between Nam Tai Electronics, Inc, and Nam Tai Electronic & Electrical Products Limited on April 15, 2004 in favour of Nam Tai Electronic & Electrical Products Limited regarding the Global Offering of 200,000,000 shares of HK$0.01 each of Nam Tai Electronic & Electrical Products Limited.

4.13		An Underwriting Agreement entered into among Nam Tai Electronics, Inc. as the selling shareholders and the Hongkong and Shanghai Banking Corporation Limited, BNP Paribas Peregrine Capital Limited, Nomura International (Hong Kong) Limited, Cazenove Asia Limited, BDS Asia Capital Limited and VC CEF Capital Limited as public offer underwriters on April 15, 2004 regarding the public offering of 20,000,000 shares of HK$0.01 each of Nam Tai Electronic & Electrical Products Limited.

4.14		A Supplemental Agreement entered into between Nam Tai Electronics, Inc, and Mr. Wong Toe Yeung on July 27, 2004 to adjust the consideration for purchasing the entire issued share capital of Jasper Ace Limited by canceling 973,210 common shares of Nam Tai Electronics, Inc, issued to Top Scale Company Limited on April 21, 2004.

4.15		An Underwriting Agreement entered into among Nam Tai Electronics, Inc. as the selling shareholders and the Hongkong and Shanghai Banking Corporation Limited, BNP Paribas Peregrine Capital Limited, Nomura International (Hong Kong) Limited, Cazenove Asia Limited, BDS Asia Capital Limited and VC CEF Capital Limited as international placement underwriters on April 22, 2004 regarding the international placing of 180,000,000 shares of HK$0.01 each of Nam Tai Electronic & Electrical Products Limited.

4.16		A Pricing Determination Agreement entered into among Nam Tai Electronics, Inc., Nam Tai Electronic & Electrical Products Limited and the Hongkong and Shanghai Banking Corporation Limited on April 22, 2004 for determining the offering price of the shares of Nam Tai Electronic & Electrical Products Limited to be HK$3.88 per share.

4.17		A Stock Borrowing Agreement entered into between Nam Tai Electronics, Inc. and the Hongkong and Shanghai Banking Corporation Limited on April 22, 2004 regarding the Global Offering of 200,000,000 shares of HK$0.01 each of Nam Tai Electronic & Electrical Products Limited.


Exhibit
Number		DESCRIPTION
4.18		Amended 2001 Option Plan July 30, 2004

4.19		An Accession Agreement entered into between Welcome Success Technology Ltd. and Mr. Alain Jolivet on August 4, 2004 in relation to the transfer of entire interest in Stepmind to Remote Reward SAS and who became a party to the Shareholders Agreement which entered into among Nam Tai Electronics, Inc. , AGF Innovation 3, AGF Innovation 4, AGF Innovation 5, Mighty Wealth Group Limited, Remote Reward SAS, Mr. Alain Jolivet and Mr. Andre Jolivet executed on November 278, 2003, December 9, 2003 and December 10, 2003.

4.20		An Escrow Agreement entered into among Nam Tai Electronics, Inc., Welcome Success Technology Limited, Remote Reward SAS, Johnson Stokes & Master, Mr. Andre Jolivet and Mr. Alain Jolivet on August 18, 2004 in relation to the disposal of 1,457,720 shares in Stepmind to Remote Reward SAS with a consideration of Euros 4,253,301.98.

4.21		A subscription Agreement entered into among TCL Industries Holdings (HK) Limited, TCL International holdings Limited, Cheerful Asset Investments Limited, Jasper Ace Limited, Mate Fair Group Limited, and TCL Communication Technology Holdings Limited on August 19, 2004 for subscribing 254,474,910 shares in TCL Communication Technology Holdings Limited in a consideration of RMB131,283,020.

4.22		A Deed of Assignment of Trademarks entered into between Nam Tai Electronics, Inc. and Namtai Electronic (Shenzhen) Co. Ltd. on September 20, 2004 for assigning “Namtai & device” trademarks to Nam Tai Electronics, Inc.

4.23		A Banking Facilities Letter from the Hongkong and Shanghai Banking Corporation Limited to Nam Tai Group Management Limited on September 24, 2004 regarding the renewal of Overdraft Facility of HK$500,000, Treasury Facilities of US$30,000,000 and Corporate Card of HK$1,100,000.

4.24		A Share Transfer Agreement entered into between J.I.C. Enterprises (Hong Kong) Limited and J.I.C. Technology Company Limited on October 15, 2004 for the disposal of the entire issued share capital of Jetup Electronic (Shenzhen) Co. Ltd. to J.I.C. Technology Company Limited for a consideration of HK$105,878,396.

8.1		Diagram of Company’s subsidiaries. See Page 24 of this report.

10.1		Letter from MCW. Todman & Co. dated February 10, 2003. **

10.2		Letter from MCW. Todman & Co. dated February 17, 2003. **

12.1		Certification pursuant to Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

12.2		Certification pursuant to Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

14.1		Code of Ethics.

23.1		Consent of Deloitte Touche Tohmatsu.

99.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*		Previously filed with the registrant’s Form 20-F filed with the SEC on March 10, 2004.

**		Previously filed with the registrant’s Form 20-F filed with the SEC on February 28, 2003.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Nam Tai Electronics, Inc.:

We have audited the accompanying consolidated balance sheets of Nam Tai Electronics, Inc. and subsidiaries as of December 31, 2003 and 2004, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2004. 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nam Tai Electronics, Inc. and subsidiaries at December 31, 2003 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

DELOITTE TOUCHE TOHMATSU
Certified Public Accountants
Hong Kong
March 4, 2005

F-2

NAM TAI ELECTRONICS, INC.

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


	Year ended December 31,
	2002			2003			2004

Net sales - third parties	$	228,167		$	385,524		$	499,680
Net sales - related party		7,849			20,782			34,181

Total net sales		236,016			406,306			533,861
Cost of sales		197,956			340,016			457,385

Gross profit		38,060			66,290			76,476


Selling, general and administrative expenses		17,983			24,866			28,053
Research and development expenses		2,686			4,037			5,045
Impairment of goodwill		339			—			—

Total operating expenses		21,008			28,903			33,098


Income from operations		17,052			37,387			43,378
Other (expenses) income, net		(6,859	)		2,899			17,283
Gain on partial disposal of subsidiaries		17			1,838			77,320
Unrealized loss on marketable securities		—			—			(58,316	)
Interest income		799			788			1,110
Interest expense		(790	)		(121	)		(195	)

Income before income taxes and minority interests		10,219			42,791			80,580
Income taxes		(773	)		(399	)		(879	)


Income before minority interests and equity in income (loss) of affiliated companies		9,446			42,392			79,701
Minority interests		(164	)		(1,067	)		(6,010	)
Equity in income (loss) of affiliated companies		10,741			498			(6,806	)


Income after minority interests and equity in income (loss) of affiliated companies		20,023			41,823			66,885
Discontinued operation		—			1,979			—


Net income	$	20,023		$	43,802		$	66,885


Basic earnings per share	$	0.57		$	1.09		$	1.57


Diluted earnings per share	$	0.57		$	1.07		$	1.57

See accompanying notes to consolidated financial statements.

F-3

NAM TAI ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share data)


	December 31,
	2003			2004

ASSETS
Current assets:
Cash and cash equivalents	$	61,827		$	160,649
Marketable securities		—			41,906
Accounts receivable, less allowance for doubtful accounts of $119 and $157 at December 31, 2003 and 2004, respectively		62,090			90,362
Amount due from a related party		2,707			66
Inventories		27,032			23,096
Prepaid expenses and other receivables		9,799			12,087
Income taxes recoverable		4,922			6,566


Total current assets		168,377			334,732

Investment in an affiliated company		9,855			3,049
Investments, at cost		16,366			—
Property, plant and equipment, net		77,647			97,441
Deposits for property, plant and equipment		3,327			7,701
Goodwill, net		20,137			15,831
Intangible assets, net		551			459
Other assets		1,435			1,260


Total assets	$	297,695		$	460,473


LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Notes payable	$	1,879		$	2,080
Long term bank loans - current portion		1,125			2,875
Accounts payable		55,674			89,570
Accrued expenses and other payables		13,633			16,661
Dividend payable		2,062			5,120
Income taxes payable		530			183


Total current liabilities		74,903			116,489

Deferred income taxes		78			—
Long term bank loans - non-current portion		1,688			5,163


Total liabilities		76,669			121,652


Minority interests		3,908			33,768

Commitments and contingencies		—			—

Shareholders’ equity:
Common shares (2004: $0.01 par value - authorized 200,000,000 shares)		412			426
Additional paid-in capital		206,845			241,756
Retained earnings		9,863			56,324
Accumulated other comprehensive (loss) income		(2	)		6,547


Total shareholders’ equity		217,118			305,053


Total liabilities and shareholders’ equity	$	297,695		$	460,473

See accompanying notes to consolidated financial statements.

F-4

NAM TAI ELECTRONICS, INC.

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


													Accumulated			Total
	Common			Common			Additional						Other			Share-
	Shares			Shares			Paid-in			Retained			Comprehensive			holders’			Comprehensive
	Outstanding			Amount			Capital			Earnings			Income (loss)			Equity			Income (loss)
Balance at January 1, 2002		31,205,820		$	312		$	111,333		$	57,691		$	15		$	169,351
Share buy-back program		(592,800	)		(6	)		—			(3,522	)		—			(3,528	)
Share redemption		(509,181	)		(5	)		—			(3,120	)		—			(3,125	)
Shares issued on exercise of public warrants		4,381,965			44			29,753			—			—			29,797
Shares issued on exercise of options		1,573,200			15			6,658			—			—			6,673
Advisors’ options (note 11b)		—			—			10			—			—			10
Net income		—			—			—			20,023			—			20,023		$	20,023
Foreign currency translation		—			—			—			—			(17	)		(17	)		(17	)

Comprehensive income																			$	20,006

Cash dividends ($0.49 per share, including special dividend of $0.33 per share)		—			—			—			(17,056	)		—			(17,056	)


Balance at December 31, 2002		36,059,004			360			147,754			54,016			(2	)		202,128
Shares issued on exercise of options		1,425,600			14			8,494			—			—			8,508
Issue of stock dividend		3,746,668			38			50,333			(50,371	)		—			—
Compensation expense (note 3(b)(iv))		—			—			264			—			—			264
Net income		—			—			—			43,802			—			43,802		$	43,802

Cash dividends ($1.00 per share, including special dividend of $0.80 per share)		—			—			—			(37,584	)		—			(37,584	)


Balance at December 31, 2003		41,231,272			412			206,845			9,863			(2	)		217,118
Shares issued on exercise of options		16,500			—			72			—			—			72
Shares issued on acquisition of a subsidiary		2,389,974			24			58,769			—			—			58,793
Cancellation of shares issued on acquisition of a subsidiary		(973,210	)		(10	)		(23,930	)		—			—			(23,940	)
Net income		—			—			—			66,885			—			66,885		$	66,885
Unrealized gain of marketable securities		—			—			—			—			6,549			6,549			6,549

Comprehensive income																			$	73,434

Cash dividends ($0.48 per share)		—			—			—			(20,424	)		—			(20,424	)

Balance at December 31, 2004		42,664,536		$	426		$	241,756		$	56,324		$	6,547		$	305,053

See accompanying notes to consolidated financial statements.

F-5

NAM TAI ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)


	Year ended December 31,
	2002			2003			2004

Cash flows from operating activities:
Net income	$	20,023		$	43,802		$	66,885


Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment		10,397			12,172			13,924
Amortization of intangible assets		222			92			92
Loss (gain) on disposal of property, plant and equipment		977			(6	)		347
Loss (gain) on disposal of other assets		21			—			(19	)
Loss on disposal of convertible notes		—			102			—
Loss on disposal of investment		—			—			67
Realized gain on marketable securities - trading		(642	)		—			—
Impairment of goodwill - business acquired from Micro Business Systems Industries Company Limited (“MBS”)		339			—			—
Unrealised loss on marketable securities TCL Communication Technology Holdings Limited (“TCL Communication”)		—			—			58,316
Release of unamortized goodwill of an affiliated company - Mate Fair Group Limited (“Mate Fair”)		520			—			—
Gain on disposal of a subsidiary and related intangible assets - BPC (Shenzhen) Co. Ltd (“BPC”)		(77	)		—			—
Gain on disposal of a subsidiary - Jieyao Electronics (Shenzhen) Co., Ltd. (“Jieyao”)		—			(1,979	)		—
Gain on partial disposal of a subsidiary - J.I.C. Technology Company Limited (“JIC Technology”)		—			(1,838	)		(6,249	)
Gain on partial disposal of a subsidiary - Nam Tai Electronic & Electrical Products Limited (“NTEEP”)		—			—			(71,071	)
Loss on reverse merger of subsidiaries - J.I.C. Group (B.V.I.) Limited and its subsidiaries (“JIC Group”)		2,655			—			—
Compensation cost on transfer of interest in a subsidiary - Namtek Software Development Company Limited (“Namtek Software”)		—			509			—
Amortization of advisors’ warrants and options		10			—			—
Share redemption and dividend withheld in settlement of a receivable - - Tele-Art, Inc. (“Tele-Art”)		(3,519	)		—			—
Equity in (income) loss of affiliated companies less dividend received		(285	)		(498	)		6,806
Dividend income		—			—			(15,913	)
Deferred income taxes		(39	)		(34	)		(78	)
Minority interests		164			1,067			6,010
Changes in current assets and liabilities (net of effects of acquisitions and disposals):
Proceeds from marketable securities - trading		10,147			—			—
Increase in accounts receivable		(8,531	)		(11,146	)		(28,272	)
(Increase) decrease in amount due from a related party		—			(2,707	)		2,641
(Increase) decrease in inventories		(7,625	)		(8,554	)		3,936
Decrease (increase) in prepaid expenses and other receivables		496			(3,027	)		2,654
Decrease (increase) in income taxes recoverable		498			(4,067	)		(1,644	)
(Decrease) increase in notes payable		(562	)		894			201
Increase in accounts payable		10,816			17,971			33,896
Increase in accrued expenses and other payables		6,151			1,189			3,028
Increase (decrease) in income taxes payable		112			330			(347	)
Decrease in amount due to a related party		(2,766	)		—			—

Total adjustments		19,479			470			8,325


Net cash provided by operating activities	$	39,502		$	44,272		$	75,210

F-6

NAM TAI ELECTRONICS. INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)


	Year ended December 31,
	2002			2003			2004

Cash flows from investing activities:
Purchase of property, plant and equipment	$	(18,485	)	$	(17,053	)	$	(38,611	)
Increase in deposits for property, plant and equipment		—			(3,103	)		(4,374	)
Prepayment for long term investment		—			(5,277	)		—
Increase in other assets		(25	)		(24	)		(37	)
Acquisition of an affiliated company - Alpha Star		—			(10,000	)		—
Acquisition of long term investments - TCL Corporation/ iMagic Infomedia Technology Limited		(11,968	)		(384	)		—
(Acquisition) proceeds from disposal of convertible notes - TCL International Holdings Limited		(5,128	)		5,026			—
Acquisition of additional shares in subsidiaries, net of cash acquired - - JIC Group and Mate Fair		(436	)		—			—
Acquisition of marketable securities - TCL Communication		—			—			(25,084	)
Proceeds from partial disposal of subsidiaries - JIC Technology and Namtek Software/JIC Technology and NTEEP		—			4,165			95,449
Proceeds from disposal of property, plant and equipment		628			2,595			4,546
Proceeds from disposal of investment		—			—			5,609
Proceeds from disposal of other assets		—			—			231
Proceeds from disposal of a subsidiary, net of cash disposal of - Jieyao		—			2,386			—
Proceeds from disposal of a subsidiary and related intangible assets, net of cash disposal of — BPC		1,654			—			—

Net cash (used in) provided by investing activities		(33,760	)		(21,669	)		37,729


Cash flows from financing activities:
Cash dividends paid		(16,654	)		(37,777	)		(19,414	)
Share buy-back program		(3,528	)		—			—
Repayment of bank loans		(2,703	)		(13,984	)		(5,375	)
Proceeds from bank loans		4,500			—			10,600
Proceeds from shares issued on exercise of options and warrants		36,470			8,508			72

Net cash provided by (used in) financing activities		18,085			(43,253	)		(14,117	)


Effect of foreign currencies on cash flows		(26	)		—			—


Net increase (decrease) in cash and cash equivalents		23,801			(20,650	)		98,822
Cash and cash equivalents at beginning of year		58,676			82,477			61,827

Cash and cash equivalents at end of year	$	82,477		$	61,827		$	160,649


Supplemental schedule of cash flow information:
Interest paid	$	790		$	121		$	195
Income taxes paid, net		227			4,183			2,953


Non-cash financing transactions:
Share redemption and dividend withheld in settlement of a receivable - Tele-Art	$	3,519		$	—		$	—

See accompanying notes to consolidated financial statements.

F-7

NAM TAI ELECTRONICS, INC.

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

1.   Company Information

    Nam Tai Electronics, Inc. and subsidiaries (the “Company” or “Nam Tai”) is an electronics manufacturing and design services provider to a selected group of the world’s leading original equipment manufacturers, or OEMs, of telecommunication and consumer electronic products. Through its electronics manufacturing services, or EMS, operations, the Company manufactures electronic components and subassemblies, including liquid crystal display, or LCD, panels, LCD modules, radio frequency, or RF, modules, flexible printed circuit subassemblies and image sensors modules. These components are used in numerous electronic products, including cellular phones, laptop computers, digital cameras, copiers, fax machines, electronic toys, handheld video game devices and microwave ovens. The Company also manufactures finished products, including cellular phones, palm-sized PC’s, personal digital assistants, electronic dictionaries, calculators, digital camera accessories and Bluetooth^™ wireless headset accessory for use with cellular phones.

    The Company was founded in 1975 and moved its manufacturing facilities to the People’s Republic of China (the “PRC”) in 1980 to take advantage of lower overhead costs, lower material costs and competitive labor rates available and subsequently relocated to Shenzhen, PRC in order to capitalize on opportunities offered in Southern China. The Company was reincorporated as a limited liability International Business Company under the laws of the British Virgin Islands (“BVI”) in August 1987. The Company’s principal manufacturing and design operations are based in Shenzhen, the PRC, approximately 30 miles from the Hong Kong Special Administrative Region (“Hong Kong”). Its PRC headquarters are located in the Macao Special Administrative Region (“Macao”). Some of the subsidiaries’ offices are located in Hong Kong and Macao, which provides it access to Hong Kong’s and Macao’s infrastructure of communication and banking and facilitates management of its PRC operations. The Company’s principal manufacturing operations are conducted in the PRC. The PRC resumed sovereignty over Hong Kong and Macao effective July 1, 1997 and December 20, 1999, respectively, and politically Hong Kong and Macao are integral parts of China. However, for simplicity and as a matter of definition only, our references to PRC in these consolidated financial statements means the PRC and all of its territories excluding Hong Kong and Macao.

    In 2004, Nam Tai’s operations were re-organized into three reportable segments consisting of consumer electronics and communication products (“CECP”), telecommunication components assembly (“TCA”) and LCD panels (“LCDP”). In 2003, CECP and TCA were classified as a single reportable segment as consumer electronic products (“CEP”) while LCDP also comprised the transformers operations and collectively referred to as LCD panels and transformers (“LPT”). Through the disposal of a subsidiary in 2003, the Company discontinued its transformers operations, details of which are set out in note 3(b)(iii).

2.   Summary of Significant Accounting Policies

(a)   Principles of consolidation

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

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

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

(b)   Cash and cash equivalents

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

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2. Summary of Significant Accounting Policies - continued

(c)   Marketable securities

    Marketable securities at December 31, 2004 are principally equity securities and are classified as available-for-sale. Securities classified as available-for-sale are stated at fair value with unrealized gains and losses recorded as a separate component of accumulated other comprehensive income (loss). Realized gains and losses on the sale of the available-for-sale securities are determined using the specific-identification method and are reflected in other income (expenses).

(d)   Inventories

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

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

    For the Company’s LCDP segment, due to the nature of the business, LCDP customers do not always place orders advance enough to enable the Company to order inventory from suppliers based on firm customer orders. Nonetheless, management reviews its inventory balance on a regular basis and writes down all inventory over six months old if it is determined that the relevant inventory can not be utilized in the foreseeable future.

(e)   Property, plant and equipment

    Property, plant and equipment are recorded at cost and include interest on funds borrowed to finance construction. No interest was capitalized for the years ended December 31, 2002, 2003 and 2004. The cost of major improvements and betterments is capitalized whereas the cost of maintenance and repairs is expensed in the year incurred. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. Gains and losses for the disposal of leasehold land are included in other income (expenses) while gains and losses from the disposal of other property, plant and equipment are included in income from operations.

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

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

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


	Classification		Years
	Land use right, leasehold land and buildings		20 to 50 years
	Machinery and equipment		4 to 12 years
	Leasehold improvements		3 to 7 years
	Furniture and fixtures		4 to 8 years
	Automobiles		4 to 6 years
	Tools and molds		4 to 6 years

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2. Summary of Significant Accounting Policies - continued

(f)   Goodwill and licenses

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

    With effect from January 1, 2002, the Group adopted Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. Under this statement goodwill and other intangible assets with indefinite lives will not be amortized, but will be tested for impairment at the reporting unit level on at least an annual basis. A reporting unit is an operating segment or one level below an operating segment (i.e. a component) as defined in SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information”. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. Through May 2002, the Company operated in two reporting units, which were its then operating segments of CEP and LPT. Beginning in June 2002, the Company segregated its then LPT segment into two reporting units: LCD panels and transformers. In June 2003, the Company disposed of its transformers operation through the disposal of a subsidiary, details of which are set out in note 3(b)(iii). Effective April 2004, the Company operated in three reporting units which were its reportable segments of CECP, TCA and LCDP.

    The evaluation of goodwill for impairment involves two steps: (1) the identification of potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill and (2) the measurement of the amount of goodwill loss by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill and recognizing a loss by the excess of the latter over the former. For future impairment tests, the Company will measure fair value based either on internal models or independent valuations.

(g)   Impairment or disposal of long-lived assets

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

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

(h)   Revenue recognition

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

•   Persuasive evidence of an arrangement exists,

•   Delivery has occurred or services have been rendered,

•   Price to the customer is fixed or determinable, and

•   Collectibility is reasonably assured.

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2. Summary of Significant Accounting Policies - continued

(i)   Shipping and handling costs

    Shipping and handling costs are classified as to cost of sales for material purchased and selling expenses for those costs incurred in the delivery of finished products. During the years ended December 31, 2002, 2003, and 2004, shipping and handling costs classified as costs of sales were $536, $466 and $536, respectively. During the years ended December 31, 2002, 2003 and 2004, shipping and handing costs classified as selling expenses were $808, $870 and $767, respectively.

(j)   Research and development costs

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

(k)   Advertising expenses

    The Company expenses advertising costs as incurred. Advertising expenses were $528, $261 and $265 for the years ended December 31, 2002, 2003 and 2004, respectively.

(l)   Staff retirement plan costs

    The Company’s costs related to the staff retirement plans (see note 14) are charged to the consolidated statement of income as incurred.

(m)   Income taxes

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

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

(n)   Foreign currency transactions and translations

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

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

    The exchange rate between the Hong Kong dollar and the U.S. dollar were approximately 7.7989,7.7643 and 7.7732 as of December 31, 2002, 2003 and 2004, respectively. The exchange rate between the Chinese Renminbi and the U.S. dollar is based on the applicable rate of exchange quoted by the People’s Bank of China prevailing at the balance sheet date and were approximately 8.2773, 8.2767 and 8.2765 as of December 31, 2002, 2003 and 2004, respectively.

F-11

2. Summary of Significant Accounting Policies - continued

(o)   Earnings per share

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

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

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

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

(p)   Stock options

    The Company does not recognize compensation expense for employee stock-based compensation if the strike-price is equal to or greater than the market price of the stock at the date of grant. The Company’s policy is to generally grant stock-based compensation to employees with a stock price equal to the market price of the stock on the date of grant. The Company continues to account for stock-based compensation arrangements under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and provides additional financial statement disclosure in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation". The Company recognizes compensation expense for all stock-based compensation granted to non-employees by estimating the fair value of the stock-based compensation utilizing the Black-Scholes option-pricing model. See note 11.

    The Company has two stock-based employee compensation plans, as more fully described in note 11(b). Stock-based employee compensation costs are not reflected in net income when options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant.

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


Year ended December 31,		2002			2003			2004
Net income, as reported		$	20,023		$	43,802		$	66,885
Less: Stock based compensation costs under fair value based method for all awards			(1,491	)		(582	)		(4,476	)

Net income, pro forma		$	18,532		$	43,220		$	62,409


Basic earnings per share	As reported	$	0.57		$	1.09		$	1.57
	Pro forma	$	0.53		$	1.07		$	1,47


Diluted earnings per share	As reported	$	0.57		$	1.07		$	1.57
	Pro forma	$	0.52		$	1.06		$	1.47

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.123R, “Share-Based Payment”. This statement is a revision to SFAS 123 and supersedes APB Opinion No. 25 (see note 2(t)).

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2. Summary of Significant Accounting Policies - continued

(q)   Use of estimates

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

(r)   Comprehensive income

    Accumulated other comprehensive income (loss) represents unrealized gains on marketable securities and foreign currency translation adjustments and is included in the consolidated statement of shareholders’ equity.

(s)   Fair value disclosures

    The carrying amounts of cash and cash equivalents, accounts receivable, other receivables, income taxes recoverable, notes payable, accounts payable, accrued expenses and other payables approximate their fair values due to the short term nature of these instruments. The carrying amount of long term debt also approximates fair value due to the variable nature of the interest calculations.

(t)   Recent changes in accounting standards

    In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus in EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. The consensus was that certain quantitative and qualitative disclosures should be required for debt and marketable equity securities classified as available-for-sale or held-to-maturity under SFAS Nos. 115 and 124, that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. This EITF consensus is effective for fiscal years ending after December 15, 2003. Adoption of the EITF consensus did not result in an impact on the Company’s financial position, results of operations or cash flows.

    In November 2004, the FASB issued SFAS No. 151, “Inventory Costs - an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 clarifies the accounting that requires abnormal amounts of idle facility expenses, freight, handling costs, and spoilage costs to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective for inventory costs incurred on or after July 1, 2005. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

    In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment”. This statement is a revision to SFAS No. 123 and supercedes APB Opinion No. 25. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. Entities will be required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service, the requisite service period (usually the vesting period), in exchange for the award. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models. If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. This statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. In accordance with the standard, the Company will adopt SFAS No. 123R effective July 1, 2005.

    Upon adoption, the Company has two application methods to choose from: the modified-prospective transition approach or the modified-retrospective transition approach. Under the modified-prospective transition method the Company would be required to recognize compensation cost for share-based awards to employees based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied as well as compensation cost for awards that were granted prior to, but not vested as of the date of adoption. Prior periods remain unchanged and pro forma disclosures previously required by SFAS No. 123 continue to be required. Under the modified-retrospective transition method, the Company would restate prior periods by recognizing compensation cost in the amounts previously reported in the pro forma footnote disclosure under SFAS No. 123. Under this method, the Company is permitted to apply this presentation to all periods presented or to the start of the fiscal year in which SFAS No. 123R is adopted. The Company would follow the same guidelines as in the modified-prospective transition method for awards granted subsequent to adoption and those that were granted and not yet vested. The Company has not yet determined which methodology it will adopt but believes that the impact that the adoption of SFAS No. 123R will have on its financial position or results of operations will approximate the magnitude of the stock-based employee compensation cost disclosed in Note 2 (p) pursuant to the disclosure requirements of SFAS No. 148.

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3. Investment in Subsidiaries

(a) Subsidiaries


			Percentage of ownership
	Place of	Principal	as at December 31
	incorporation	activity	2003			2004

Consolidated principal subsidiaries:

Jasper Ace Limited (“Jasper Ace”)	BVI	Investment holding		—			100	%
J.I.C. Technology Company Limited (“JIC Technology”)	Cayman Islands	Investment holding		74.86	%*		71.63	%
J.I.C Enterprises (Hong Kong) Limited	Hong Kong	Manufacturing and trading**		74.86	%*		71.63	%
Jetup Electronic (Shenzhen) Co., Limited (“Jetup”)	PRC	Manufacturing		74.86	%*		71.63	%
J.I.C. (Macao Commercial Offshore) Company Limited	Macao	Trading of electronic components and the provision of marketing, management and technical consultancy services		-			71.63	%
Nam Tai Electronic & Electrical Products Limited (“NTEEP”)	Cayman Islands	Investment holding		100	%		75	%
Nam Tai Group Management Limited	Hong Kong	Provision of management services		100	%		100	%
Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited	Macao	Provision of management and sales co-ordination and marketing services		100	%		75	%
Nam Tai Telecom (Hong Kong) Company Limited	Hong Kong	Inactive		100	%		100	%
Nam Tai Trading Company Limited (“NTTC”, formerly known as Nam Tai Electronic & Electrical Products Limited)	Hong Kong	Inactive		100	%		100	%
Namtai Electronic (Shenzhen) Co., Ltd.	PRC	Manufacturing and trading		100	%		75	%
Namtek Japan Company Limited	Japan	Provision of sales co-ordination and marketing services		80	%		80	%
Namtek Software Development Company Limited (“Namtek Software”)	Cayman Islands	Investment holding		80	%		80	%
Shenzhen Namtek Company Ltd.	PRC	Software development		80	%		80	%
Zastron Electronic (Shenzhen) Co. Ltd.	PRC	Manufacturing and trading		100	%		100	%
Zastron Precision-Tech Limited (“ZPTL”, formerly known as Nam Tai Telecom (Cayman) Company Limited)	Cayman Islands	Investment holding		100	%		100	%
Zastron (Macao Commercial Offshore) Company Limited	Macao	Provision of sales co-ordination and marketing services		-			100	%
Mate Fair Group Limited	BVI	Investment holding		72.22	%	—

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

**		Business ceased subsequent to December 31, 2004.

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3. Investment in Subsidiaries - continued

(b) Significant transactions

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

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

    Due to the reverse merger, the Company’s effective interest in the JIC Group reduced from 100% to 92.9%. As a result of this reduction in interest during 2002, the Company has released unamortized goodwill of $1,483, representing 7.1% of the goodwill that had previously been recorded upon purchasing the JIC Group in October 2000. The release of unamortized goodwill is included as part of the loss on reverse merger of the JIC Group of $2,655.

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3. Investment in Subsidiaries - continued

(b) Significant transactions - continued

(ii)- continued

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

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

    In November and December 2004, the Company disposed of totally 128,000,000 ordinary shares of JIC Technology for cash considerations of $12,902. The disposal resulted in a net gain on partial disposal of a subsidiary of $6,249 after deducting the releasing of unamortized goodwill of $3,518. The Company also converted all outstanding preference shares into 313,902,912 ordinary shares of JIC Technology resulting in 71.63% equity interest held in JIC Technology as of December 31, 2004.

(iii)   In order to concentrate its effort on its LCD panels reporting unit, in June 2003, JIC Technology disposed its transformers reporting unit to a third party for a cash consideration of $2,426. Sales of the transformers reporting unit for the years ended December 31, 2002 and 2003 were $11,324 and $6,284, respectively, and were insignificant comparing to the sales of the Company as a whole. The income from operations of the transformers reporting unit was less than 3% and 1% of the Company’s income from operations for the years ended December 31, 2002 and 2003, respectively. The transformers reporting unit had no non-operating income or expenses for the years ended December 31, 2002 and 2003.

    The proceeds from the disposal exceeded the carrying value of the net assets of the transformers reporting unit, resulting in a gain from discontinued operation, net of minority interests, in 2003 of $1,979.

    The carrying amounts of the assets and liabilities of the transformers reporting unit at the date of disposal were as follows:

Net assets disposed of:


Property, plant and equipment	$	559
Cash		40
Other assets		870
Liabilities		(1,176	)

Total	$	293

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

F-16

3. Investment in Subsidiaries - continued

(b) Significant transactions - continued

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

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

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

    In April 2004, the Company increased its equity interest in Huizhou TCL to 9% through exchange of its existing 72.2% interest in Mate Fair, which had a 3.033% equity interest in Huizhou TCL, and acquiring the entire issued share capital of Jasper Ace, a holding company with no operations, which directly holds 9% equity interest in Huizhou TCL. The acquisition was satisfied by the exchange of the Company’s 72.2% equity interest in Mate Fair, cash of $25,000, and 1,416,764 new shares in the Company upon a pricing adjustment in July 2004 resulting in the cancellation of 973,210 shares of the Company previously issued as part of the purchase consideration.

(vi)   In April 2004, one of the then wholly owned subsidiaries of the Company, NTEEP, completed public offering of its common stock on the SEHK in which the Company disposed of a 25% interest in this subsidiary resulting in a gain on partial disposal of US$71,071.

F-17

3. Investment in Subsidiaries - continued

(c) Establishment of subsidiaries

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

(ii)   In June 2003, the Company established two wholly-owned subsidiaries, namely ZPTL and NTEEP, incorporated in the Cayman Islands. Their principal activity is to act as investment holding companies.

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

(iv)   In March 2004, the ZPTL established Zastron (Macao Commercial Offshore) Company Limited, a subsidiary incorporated in Macao, at an investment cost of $13. Its principal activity is provision of sales co-ordination and marketing activities to group companies.

(v)   In November 2004, J.I.C. Technology established J.I.C. (Macao Commercial Offshore) Company Limited, a wholly owned subsidiary incorporated in Macao, at an investment cost of $13. Its principal activity is trading of electronic components, and the provision of marketing, management and technical consultancy services.

(d) Retained earnings

Retained earnings are not restricted as to the payment of dividends except to the extent dictated by prudent business practices. The Company believes that there are no material restrictions, including foreign exchange controls, on the ability of its non-PRC subsidiaries to transfer surplus funds to the Company in the form of cash dividends, loans, advances or purchases. With respect to the Company’s PRC subsidiaries, there are restrictions on the payment of dividends and the removal of dividends from the PRC. In the event that dividends are paid by the Company’s PRC subsidiaries, such dividends will reduce the amount of reinvested profits and accordingly, the refund of taxes paid will be reduced to the extent of tax applicable to profits not reinvested. However, the Company believes that such restrictions will not have a material effect on the Company’s liquidity or cash flows. In addition, pursuant to the PRC regulations, a certain portion of the profits made by these subsidiaries must be set aside for future capital investment and are not distributable, and amounted to $400 and $6,164 as of December 31, 2003 and 2004 respectively.

4. Inventories

Inventories consist of the following:


At December 31,	2003		2004
Raw materials	$	17,448	$	19,815
Work-in-progress		4,534		1,578
Finished goods		5,050		1,703

	$	27,032	$	23,096

5. Property, Plant and Equipment, net

Property, plant and equipment, net consist of the following:


At December 31,	2003			2004
At cost
Land use right, leasehold land and buildings	$	47,777		$	45,499
Machinery and equipment		61,417			80,479
Leasehold improvements		12,506			15,226
Furniture and fixtures		1,967			2,026
Automobiles		1,432			1,427
Tools and molds		132			196

Total		125,231			144,853
Less: accumulated depreciation and amortization		(50,283	)		(60,706	)
Construction in progress		2,699			13,294

Net book value	$	77,647		$	97,441

As at December 31, 2004, the Company has entered into commitments for capital expenditure for property, plant and equipment of approximately $17,080, which are expected to be disbursed during the year ending December 31, 2005.

F-18

6. Goodwill

Goodwill consists of the following:


	CECP			LCDP
	Segment			Segment
	(reporting			(reporting
	unit)			unit)			Total
Balance at January 1, 2003	$	788		$	20,520		$	21,308
Goodwill release related to disposition of 5.58% interest in JIC Technology (see note 3(b)(ii))		—			(1,171	)		(1,171	)

Balance at December 31, 2003	$	788		$	19,349		$	20,137
Goodwill release related to disposition of 16.76% interest in JIC Technology		—			(3,518	)		(3,518	)
Goodwill release related to disposition of 72.22% interest in Mate Fair		(788	)		—			(788	)

Balance at December 31, 2004	$	—		$	15,831		$	15,831

    No goodwill has been assigned to the “transformer” reporting unit of the previous LPT Segment as the Company’s purchase of the JIC Group was exclusively for the “LCD panel” reporting unit.

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

7.   Intangible Assets, net

    Amortized intangible assets, net consist of the following:


At December 31,	2003			2004
Gross carrying amount of licenses	$	643		$	643
Accumulated amortization		(92	)		(184	)

Net carrying amount	$	551		$	459

Amortization expense charged to income from operations for the year ended December 31, 2002, 2003 and 2004 was $222, $92 and $92, respectively. Amortization expense on intangible assets for each of the next five years is as follows:


Year ending December 31,
- 2005	$	92
- 2006		92
- 2007		92
- 2008		92
- 2009		91

Total	$	459

F-19

8. Investment in Affiliated Companies, Equity Method

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

Mate Fair

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

Alpha Star

In January 2003, the Company further expanded its business to include wireless communication technology and related products. The Company made a strategic investment of $10,000 by subscribing for a 25% shareholding in Alpha Star, a BVI company, which is the ultimate holding company of JCT Wireless Technology Company Limited (“JCT”), a company engaged in the design, development and marketing of wireless communication terminals and wireless application software. The Company also manufactures wireless communication terminals and related modules for JCT. As part of the agreement, Alpha Star agreed to purchase from the Company at least 50 percent of the orders it, or any of its subsidiaries, receives for RF modules provided the Company performs such manufacturing services at a price comparable to the market. The fair value of this arrangement was estimated to be $643 and is included in the consolidated balance sheet as an intangible asset (note 7). The Company had one representative on Alpha Star’s board of directors until his resignation in July 2004.

The Company initially recorded goodwill of approximately $5,596 as a result of the acquisition of Alpha Star. The Company recorded $498 on equity in earning of Alpha Star for 2003 but recognized an equity in loss of $1,210 for 2004. In the third quarter of 2004, the Company recorded an other-than-temporary cash impairment charge of approximately $5,596 to write-down its investment in Alpha Star upon careful assessment of various factors relevant to the affiliate, including the competitive handset market in the PRC.

As of December 31, 2003 and 2004, JCT owed the Company $2,707 and $66. For the year ended December 31, 2003 and 2004, the Company recognized net sales of $20,782 and $34,181 to JCT and purchased raw materials of $5,456 and $12,398 from JCT and its related companies, respectively.

9. Investments

Investments in TCL

The Company had various investments in TCL Group of companies in the form of convertible notes, and available for sale marketable securities. During the year ended December 31, 2003, the Company disposed of the convertible notes. During the year ended December 31, 2004, the investments at cost became marketable securities upon the listing of these investments on public stock exchanges. The Company has not incurred any material operating revenue or expenses from the TCL Group of companies, for the years ended December 31, 2002, 2003 and 2004.

(a) Convertible Notes

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

F-20

9. Investments — continued

(b) Investments, at cost/available for sale investment securities

(i) TCL Corporation

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

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

As these promoter’s shares have a restriction on their sale prior to April 2005, the Company hired a third party valuation firm to determine the fair value of these shares as of December 31, 2004 and recognized an unrealized gain of $6,549 based on the Company’s cost of $11,968 and an estimated fair value of $20,700.

(ii) Huizhou TCL

The Company had a 3.033% direct interest in Huizhou TCL. As described in note 3(b)(v), the Company increased its equity interest in Huizhou TCL to 9%. In August 2004, as part of the preparation for TCL Communication’s public offering on SEHK, the shares in Huizhou TCL were exchanged for the shares in TCL Communication. In September 2004, TCL Communication’s public offering was completed. At December 31, 2004, the Company’s investment in TCL Communication is stated at fair value based on the traded market price of TCL Communication’s shares and recognized an unrealized loss of $58,316 based on the Company’s cost of $79,522 and a fair value of $21,206.

Investment in Stepmind

In December 2003, the Company paid approximately $5,277 (Euros 4,250) into an escrow account for an investment in Stepmind, which was included in prepaid expenses and other receivables at December 31, 2003. Approximately $2,646 (Euros 2,122) was released from the escrow account in January 2004 for the Company’s first phase of investment and was included in investments. In August 2004, the remaining balance in the escrow account was released. In the same month, the Company disposed of its entire interest in Stepmind to one of the shareholders of Stepmind at the original subscription price. As a result, a loss of $67, representing the legal and administrative costs incurred, was noted.

F-21

10. Bank Loans and Banking Facilities

The Company has credit facilities with various banks representing notes payable, trade acceptances, import facilities and overdrafts. At December 31, 2003 and 2004, these facilities totaled $62,256 and $87,923, of which $53,947 and $84,495 were unused at December 31, 2003 and 2004, respectively. The maturity of these facilities is generally up to 90 days. Interest rates are generally based on the banks’ usual lending rates in Hong Kong and the credit lines are normally subject to annual review. The banking facilities are secured by guarantees given by Nam Tai and certain subsidiaries and restrict the pledge of assets to any other banks without the prior consent of the Company’s bankers.

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


At December 31,	2003			2004

Outstanding letters of credit	$	6,430		$	1,348
Trust receipts		1,531			1,257
Usance bills pending maturity		348			823

Total banking facilities utilized		8,309			3,428
Less: Outstanding letters of credit		(6,430	)		(1,348	)

Notes payable	$	1,879		$	2,080

A subsidiary of the Company has an unsecured four-year term loan with borrowings in May 2002 totaling $4,500 at a rate of 1.5% p.a. over three months London Interbank Offered Rate, repayable in 16 quarterly instalments of approximately $281 beginning August 31, 2002. The interest rate was reduced to 0.75% p.a. over three months London Interbank Offered Rate in 2004. During the year 2004, it has obtained another unsecured four-year term loan totaling $7,000 at a rate of 0.75% p.a. over three months London Interbank Offered Rate, repayable in 16 quarterly instalments of $438 beginning in July 2004. At December 31, 2004, the loans had outstanding balances of $8,038. There are no restrictive financial covenants associated with these term loans.

The long term debts are repayable as follows for the years ending December 31


- 2005	$	2,875
- 2006		2,313
- 2007		1,750
- 2008		1,100

	$	8,038

11. Shareholders’ Equity

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

(b) Stock options

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

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

F-22

11. Shareholders’ Equity — continued

(b) Stock options — continued

In 2003, the Company suspended issuing options to management and employees except for the non-employee directors and approved an incentive bonus program to reward management and employees with a cash bonus instead; however, in 2004, the Company had decided to resume issuing stock options to employees in addition to giving cash bonuses.

A summary of stock option activity during the three years ended December 31, 2004 is as follows:


	Number of			Weighted average
	options			option price per share

Outstanding at January 1, 2002		2,122,200		$	4.32
Granted		900,000		$	6.62
Exercised		(1,573,200	)	$	4.24

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

Outstanding at December 31, 2003		108,550		$	12.34
Granted		645,000		$	19.40
Exercised		(16,500	)	$	4.39

Outstanding at December 31, 2004		737,050		$	18.70

During 2002, 6,000 advisors’ options with an exercise price of $6.62 exercisable from April 30, 2002 and expiring on April 30, 2005 were granted to an advisor and all were exercised during 2003. The Company recorded compensation expense of $10 for the 2002 advisors’ options based on the Black-Scholes option-pricing model. No advisors’ options were granted during 2003 and 2004.

Details of the options granted by the Company in 2002, 2003 and 2004 are as follows:


Number of	Exercise
options granted	price			Exercisable period

In 2002

900,000	$	6.02	*	April 30, 2002 to April 30, 2005

In 2003

75,000	$	16.82	*	July 8, 2003 to July 8, 2006

In 2004

645,000	$	19.40		July 30, 2004 to July 30, 2006

The following summarizes information about stock options outstanding at December 31, 2004. All stock options are exercisable as of December 31, 2004.


			Weighted average
	Number		remaining contractual
Exercise prices	of options		life in months
$ 6.02*		26,050		4.0
$16.82*		66,000		18.3
$19.40		645,000		19.0

		737,050		18.4

Subsequent to November 7, 2003, the exercise price has been adjusted to reflect the 10 for 1 stock dividend effect.

F-23

11. Shareholders’ Equity — continued

(b) Stock options — continued

The weighted average remaining contractual life of the stock options outstanding at December 31, 2002, 2003 and 2004 was 22, 23 and 18 months, respectively. The weighted average fair value of options granted during 2002, 2003 and 2004 was $1.66, $7.76 and $6.94, respectively, using the Black-Scholes option-pricing model based on the following assumptions:


Year ended December, 31	2002			2003			2004
Risk-free interest rate		4.5	%		2.56	%		2.75	%
Expected life	3 years			3 years			2 years
Expected volatility		36.0	%		64.24	%		68.62	%
Expected dividend per quarter	$	0.04		$	0.05		$	0.12

(c) Public warrants

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

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

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

(d) Advisors’ warrants

On December 2, 1997, the Company issued 390,000 units to its advisors and 30,000 remained outstanding in 2002. These advisors’ warrants expired on November 24, 2002.

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

(e) Share buy — back program

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


Year	Shares repurchased		Average purchase price
2002		592,800	$	5.95

No shares were repurchased during the year ended December 31, 2003 and 2004.

F-24

11. Shareholders’ Equity — continued

(f) Share redemptions

On January 22, 1999, pursuant to its Articles of Association, the Company redeemed and canceled 415,500 shares of the Company registered in the name of Tele-Art at a price of $3.73 per share for $1,549 (see note 18(b)).

On August 12, 2002, pursuant to its Articles of Association, the Company redeemed and cancelled an additional 509,181 shares of the Company beneficially owned by Tele-Art at a price of $6.14 per share for $3,125 (see note 18(b)).

No shares were redeemed during the year ended December 31, 2003 and 2004.

12. Earnings Per Share

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


			Weighted
			average number		Per share
Year ended December 31, 2002	Income		of shares *		amount

Basic earnings per share	$	20,023		34,885,366	$	0.57

Effect of dilutive securities
- Stock options		—		476,837
- Warrants		—		67,914


Diluted earnings per share	$	20,023		35,430,117	$	0.57

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


			Weighted
			average number		Per share
Year ended December 31, 2003	Income		of shares *		amount

Continuing operations
Basic earnings per share	$	41,823		40,336,439	$	1.04

Effect of dilutive securities
- Stock options		—		502,701


Diluted earnings per share	$	41,823		40,839,140	$	1.02


Discontinued operation
Basic earnings per share	$	1,979		40,336,439	$	0.05

Effect of dilutive securities
- Stock options		—		502,701


Diluted earnings per share	$	1,979		40,839,140	$	0.05


Net income
Basic earnings per share	$	43,802		40,336,439	$	1.09

Effect of dilutive securities
- Stock options		—		502,701


Diluted earnings per share	$	43,802		40,839,140	$	1.07

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

F-25

12. Earnings Per Share — continued


			Weighted
			average number		Per share
Year ended December 31, 2004	Income		of shares		amount

Basic earnings per share	$	66,885		42,496,122	$	1.57

Effect of dilutive securities
- Stock options		—		52,123		—


Diluted earnings per share	$	66,885		42,548,245	$	1.57

All options to purchase shares of common stock were included in the computation of 2004 diluted earnings per share as the exercise prices were less than the average market price of the common stock.

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

13. Other (Expenses) Income — Net

Other (expenses) income — net consists of:


Year ended December 31,	2002			2003			2004

Miscellaneous expense	$	(771	)	$	(886	)	$	(947	)
Non-trade receivable recovered		—			500			—
Foreign exchange (loss) gain		(345	)		(62	)		189
Bank charges		(307	)		(274	)		(206	)
Finance charge on early repayment of a bank loan		(610	)		—			—
Release of unamortized goodwill of an affiliated company
- Mate Fair (see note 3(b)(v))		(520	)		—			—
Realized gain on disposal of marketable securities		642			—			—
Dividend income received from marketable securities and investment		917			3,714			18,295
Gain on disposal of intangible asset (see note 16)		60			—			—
Gain on disposal of other assets		—			—			19
Gain on disposal of land		—			9			—
Loss on disposal of investment		—			—			(67	)
Loss on disposal of convertible notes (see note 9 (a))		—			(102	)		—
Redemption of shares in legal settlement, net of expenses
- Tele Art case (see note 18(b))		3,333			—			—
Provision for loss on Tele-Art Case for 1999 and 2002 share redemptions (see note 18(b))		(5,192	)		—			—
Loss on reverse merger of JIC Group, including release of unamortized goodwill of $1,483 (see note 3(b)(ii))		(2,655	)		—			—
Legal expense related to reverse merger of JIC Group		(1,411	)		—			—

	$	(6,859	)	$	2,899		$	17,283

F-26

14. Staff Retirement Plans

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

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

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

The cost of the Company’s contribution to the staff retirement plans in Hong Kong, Macao and PRC amounted to $617, $982 and $1,190 for the years ended December 31, 2002, 2003 and 2004, respectively.

15. Income Taxes

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


Year ended December 31,	2002			2003		2004
PRC, excluding Hong Kong and Macao	$	18,823		$	39,778	$	37,546
Hong Kong, Macao and other jurisdictions		(8,604	)		3,013		43,034

	$	10,219		$	42,791	$	80,580

Under the current BVI law, the Company’s income is not subject to taxation. Subsidiaries operating in Hong Kong and the PRC are subject to income taxes as described below, and the subsidiary operating in Macao is exempted from income taxes. Under the current Cayman Islands law, ZPTL, NTEEP, JIC Technology and Namtek Software are not subject to profit tax in the Cayman Islands as they have no business operations in the Cayman Islands. However, they may be subject to Hong Kong income taxes as described below if they are registered in Hong Kong

The provision for current income taxes of the subsidiaries operating in Hong Kong has been calculated by applying the current rate of taxation of 16% for 2002 and 17.5% for 2003 and 2004 to the estimated taxable income earned in or derived from Hong Kong during the period, if applicable.

Deferred tax, where applicable, is provided under the liability method at the rate of 16% for 2002 and 17.5% for 2003, and 2004, being the effective Hong Kong statutory income tax rate applicable to the ensuing financial year, on the difference between the financial statement and income tax bases of measuring assets and liabilities.

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

F-27

15. Income Taxes — continued

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

•   On January 8, 1999, NTSZ received the recognition of “High and New Technology Enterprise” which entitles it to various tax benefits including a lower income tax rate of 7.5% until 2003. In July 2002, the Shenzhen local tax authority issued a notice to shorten the tax incentive period from 5 years to 3 years expiring in 2001. Nevertheless NTSZ was advised by the Shenzhen local tax authority that it would continue to provide a rebate of corporate tax paid for 2 years for 2002 and 2003. During 2003, NTSZ received $110 rebate of corporate tax paid for 2002, a tax refund of $122 from reinvestment of profits for 1999 to 2001 and a refund of $441 for being an export-oriented enterprise in 2002. In 2004, NTSZ received a tax refund of $821 from reinvestment of profits for 2002 and a refund of $399 for being an export-oriented enterprise in 2003.

•   In 2003 Zastron received a refund of $56 from reinvestment of profits for 1999 and a refund of $124 for being an export-oriented enterprise in 2002. On May 13, 2004, Zastron received the recognition of “High and New Technology Enterprise” and was entitled to enjoy a reduced corporate tax rate of 7.5% for three years commencing 2004. In 2004 Zastron received a refund of $243 from reinvestment of profits for 1999 to 2002 and a refund of $793 for being an export-oriented enterprise in 2003.

•   For the years ended December 31, 2002, the income tax of Jieda Electronics (Shenzhen) Co., Ltd. (“Jieda”), a then wholly owned subsidiary of JIC Technology, was payable at the rate of 15% on the assessable profit. During 2003, Jieda merged with Jetup.

•   In February 2001, Shenzhen Namtek received the recognition of “Advanced Technology Enterprise” which entitles it to various tax benefits including a lower income tax rate of 7.5% until 2003. In 2003, Shenzhen Namtek received a refund of $27 from the reinvestment of profits for 1998 to 2000. In 2004, Shenzhen Namtek is entitled to a 5% tax refund for being an export-oriented enterprise in 2004.

•   The Shenzhen local tax authority has granted Jetup the status of “High and New Technology Enterprise” and allowed it to enjoy a lower income tax rate to 7.5% for 3 years from 2002 to 2004. During 2003, Jetup received a refund of $175 from reinvestment of profit for 2002.

•   Income tax of Jieyao Electronics (Shenzhen) Co., Ltd. (“Jieyao”), a then wholly owned subsidiary of JIC Technology was payable at the rate of 7.5% on the assessable profit for the years ended December 31, 2002 to 2003. During 2003, Jieyao was disposed of to a third party (see note 3(b)(iii)).

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

A FIE whose foreign investor directly reinvests by way of capital injection its share of profits obtained from that FIE or another FIE owned by the same foreign investor in establishing or expanding an export-oriented or technologically advanced enterprise in the PRC for a minimum period of five years may obtain a refund of the taxes already paid on those profits. The PRC subsidiaries qualified for such refunds of taxes as a result of reinvesting their profit earned in previous years by their respective holding companies. As a result, the Company recorded tax expense net of the benefit related to the refunds. At December 31, 2003 and 2004, taxes recoverable under such arrangements were $4,889 and $6,520, respectively, which are included in income taxes recoverable and expected to be received during 2004 and 2005, respectively. However, during 2003 the Shenzhen government did not refund approximately $13 in taxes the Company paid in 1998 to 2000. Therefore, the Company reversed the related receivable into current tax expense in 2003.

In accordance with its normal practice, the Hong Kong tax authorities selected the Company and one of its wholly owned subsidiaries for a tax audit. In March 2003, in relation to fiscal year 1996, the Hong Kong tax authorities have made certain estimated assessments for public revenue protection purposes to prevent the assessments, if any, from becoming time barred. The Hong Kong tax authorities have not provided concrete grounds for the assessments. The Company and the subsidiary concerned have objected to these estimated assessments. The outcome of the objection is uncertain at this stage as the Hong Kong tax authorities are still reviewing the Company’s and its subsidiary’s Hong Kong tax position. At the time, it is not possible to estimate the outcome of the tax audit, the amount that may have to be paid, if any, or the impact that the results of the 1996 tax audit will have to subsequent tax years. However, management is of the view that there will be no material tax adjustment as a result of the tax audit. In March 2004, this wholly owned subsidiary received a tax demand note from the Hong Kong tax authorities for additional tax assessment for the fiscal year 1997. The subsidiary requested for an unconditional hold-over of such assessment and was denied by the Hong Kong tax authorities. In June 2004, this subsidiary applied to the High Court of Hong Kong for a judicial review and the hearing is scheduled to be held on April 25 and 26, 2005. Management is of the view that they will obtain favorable judgment and hence, no material tax adjustment is expected.

F-28

15. Income Taxes — continued

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


Year ended December 31,	2002			2003			2004
Current tax	$	(812	)	$	(433	)	$	(957	)
Deferred tax		39			34			78

	$	(773	)	$	(399	)	$	(879	)

The Company’s deferred tax assets and liabilities as of December 31, 2003 and 2004 are attributable to the following:


December 31,	2003			2004

Property, plant and equipment	$	(78	)	$	—
Net operating losses		—			5,863

		(78	)		5,863
Valuation allowance		—			(5,863	)

	$	(78	)	$	—

The realization of the recorded deferred tax assets is dependent on generating sufficient taxable income prior to the expiration of net operating loss carryforwards. As the management does not believe that it is more likely than not that all of the deferred tax asset will be realized, a full valuation allowance has been established at December 31, 2004.

At December 31, 2002 and 2003, the Company did not have any net operating loss carryforwards. At December 31, 2004, the Company had net operating losses of $5,863 which may be carried forward indefinitely.

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


YEAR ENDED DECEMBER 31,	2002			2003			2004

Income before income taxes and minority interests	$	10,219		$	42,791		$	80,580
PRC tax rate		15	%		15	%		15	%
Income tax expense at PRC tax rate on income before income tax	$	(1,533	)	$	(6,419	)	$	(12,087	)
Effect of difference between Hong Kong and PRC tax rates applied to Hong Kong income		42			72			205
Effect of (loss) income for which no income tax benefit/ expense is receivable/payable		(661	)		796			7,660
Tax holidays and tax incentives		542			2,122			2,220
Effect of PRC tax concessions, giving rise to no PRC tax liability		2,153			3,435			2,774
Tax losses not recognised		—			—			(1,026	)
Tax benefit (expense) arising from items which are not assessable (deductible) for tax purposes:
Gain on disposal of land in Hong Kong		—			1			—
Exempted interest income		12			16			24
Non-deductible legal and professional fees		(234	)		(301	)		(282	)
Non-deductible and non-taxable other items		(466	)		(105	)		17
Overprovision for income tax expense in prior year		—			103			—
Underprovision of income tax expense in prior years		(501	)		—			(268	)
Other		(127	)		(119	)		(116	)

	$	(773	)	$	(399	)	$	(879	)

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

Tax that would otherwise have been payable without tax holidays and tax concessions amounts to approximately $2,695, $5,557 and $4,994 in the years ended December 31, 2002, 2003 and 2004, respectively (representing a decrease in the basic earnings and diluted earnings per share of $0.08, $0.14 and $0.12 in the years ended December 31, 2002, 2003 and 2004, respectively).

F-29

16. Related Party Balance and Transactions

For the period from January 1, 2002 though April 2002, the Company recognized net sales of $7,849 and purchased raw materials of $7,751 from TBCL, a minority shareholder of BPC, and its related companies. In addition, the Company had paid $1,000 to TBCL for acquisition of a license during the year ended December 31, 1999, which was disposed of during 2002 for a consideration of $800 together with the disposal of interest in BPC, plus the foreign exchange gain of $9, resulting in a gain of $60.

As of December 31, 2003 and 2004, the balance due from a related party represented the balance due from JCT, a subsidiary of Alpha Star. For the years ended December 31, 2003 and 2004, the Company recognized net sales of $20,782 and $34,181 and purchased raw materials of $5,456 and $12,398 from JCT and its related companies, respectively.

During the year ended December 31, 2004, the Company disposed of certain other assets to a director of the Company at a consideration of $231, which represented the then carrying value of the assets. No significant gain or loss arose from such transaction.

17. Financial Instruments

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

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

The trade receivable balances largely represent amounts due from the Company’s principal customers who are generally international organizations with high credit ratings. Letters of credit are the principal security obtained to support lines of credit or negotiated contracts from a customer. As a consequence, concentrations of credit risk are limited. Allowance for doubtful debts was $119 and $157 in 2003 and 2004, respectively. There were no other movements in the provision for doubtful accounts.

The Company’s financial instruments reported in current assets or current liabilities in the consolidated balance sheet at carrying amounts approximate their fair values due to the short maturity of these instruments. The Company’s financial instruments reported as non-current liabilities, such as its long term debt, approximate their fair value due to the variable nature of the interest calculations.

18. Commitments and Contingencies

(a) Lease commitments

The Company leases premises under various operating leases, certain of which contain contingent escalation clauses whereby the percentage increase is subject to periodic review and agreement between the Company and the lessor. Rental expense under operating leases was $909, $617 and $975 in the years ended December 2002, 2003 and 2004, respectively.

At December 31, 2004, the Company was obligated under operating leases, which relate to land and buildings, requiring minimum rentals as follows:

Year ending December 31,


- 2005	$	1,243
- 2006		1,116
- 2007		1,169
- 2008		1,215
- 2009		1,215
- 2010 and thereafter		3,178

	$	9,136

F-30

18. Commitments and Contingencies - continued

(b) Significant legal proceedings

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

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

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

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

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

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

On July 5, 2002, upon application by the Company, the court ordered the removal of the liquidator’s ex-parte injunction and ordered an inquiry into damages. On April 16, 2004, the Company filed its amended points of claim of defense. There are currently applications before the Court of Appeal in the British Virgin Islands to determine the progress of this matter as the Company has sought to enter judgment against David Hague who has applied to strike out the Company’s claim for damages. On August 9, 2002, the court delivered a decision awarding the Company a judgment against Tele-Art for approximately $34,000. On August 12, 2002, the Company redeemed and cancelled, pursuant to its Articles of Association, the remaining 509,181 ** shares beneficially owned by Tele-Art at a price of $6.14 per share. Including the dividends which the Company had withheld and credited against the judgment, this offset a further $3,519 in judgment debts owed to the Company by Tele-Art. The Company recorded the $3,333 redemption, net of expenses, as other income in 2002.

On January 21, 2003, a judgment was delivered on the liquidators’ February 4, 1999 summons declaring that the redemption and set off of dividends on the 415,500 shares be set aside and that all Tele-Art property withheld by Nam Tai be delivered to Tele-Art in liquidation. The orders granted in the judgment were substantially different from the relief sought in the February 4, 1999 application. On February 4, 2003, the Company filed an application for a stay of execution and leave to appeal the decision listing eight grounds of appeal, which was granted on June 23, 2003. The case was heard on January 12, 2004 and the judgment was delivered on April 26, 2004. It was held that the redemption of 415,500 shares by the Company was proper and efficacious. However, the Company must return the redemption proceeds and dividends payable received to the liquidator for distribution to creditors. David Hague, who filed the original application in 1999, has obtained leave to appeal to the Privy Council, the final court of appeal, against the decision of the Court of Appeal. It is not expected that this appeal will be heard before 2006. The court also found that Bank of China to be a secured creditor but the court did not determine the amount owed by Tele-Art, Inc. to Bank of China. We dispute that finding, and among other matters, have argued that the proof of debt by Bank of China was incomplete and invalid.

F-31

18. Commitments and Contingencies - continued

(b) Significant legal proceedings - continued

The Bank of China is claiming to be a secured creditor. Bank of China claims that as of December 6, 2004, the debt from Tele-Art Limited, a former wholly-owned subsidiary of Tele-Art, Inc., that is guaranteed by Tele-Art, Inc. was $2,819 with interest accruing daily. However, pursuant to the third liquidator report of October 13, 2004, the liquidator took the view that Bank of China’s proof of debt was incomplete. The liquidator has requested the Court’s approval to take further action and demand that Bank of China provide further information for his consideration. The Company is of the view that the amount of debt owed by Tele-Art Limited to Bank of China may not exceed $1.4 million. Pursuant to the same liquidator report, apart from Nam Tai, the liquidator admitted the proof of debts of two other unsecured creditors with the total amount to approximately $33. David Hague is claiming to have incurred $382 in costs for work as the liquidator. These costs, however, are subject to the approval of the Court and as such are still pending as they have not yet been approved. The liquidator filed a summons for the approval of its third report on October 13, 2004 and this was heard on December 14, 2004. The Court, inter alia, ordered that the liquidator continue the administration of the liquidation of Tele-Art, Inc. substantially in accordance with his proposals contained in the third report as well as the second report.

In 2002, due to the uncertainty of the final outcome of the litigation as a result of the January 21, 2003 judgment and in accordance with SFAS No. 5, “Accounting for Contingencies", the Company recorded a provision for $5,192 as a component of accrued expenses as of December 31, 2002, pending a final determination of this matter by the courts, represented the then best estimate of the net monetary expense the Company would have if its appeal was unsuccessful and its two judgment debts in the total amount of $38,000 (including interest, costs, and related expenses) was determined as having the lowest priorities in recovering from the estate of Tele-Art. According to the information provided by the liquidator on November 7, 2003, apart from Nam Tai, a total of 3 other creditors of Tele-Art, including the Bank of China, submitted their proof of debt to the liquidator for a total claim of approximately $3,390. Together with the outstanding legal charge as at December 31, 2003, the total potential obligation to the Company was estimated to be approximately $3,890, and accordingly, the 2002 provision for $5,192 had been reduced to $3,890 in the fourth quarter of 2003. As a result of the April 26, 2004 judgment, the Company is in negotiations with the liquidator on the distribution of the redemption proceeds among the unsecured creditors. If the Company’s proposal is accepted by the liquidator and approved by the court, and all legal matters related to Tele-Art, Inc. are finalized, including the final determination of the position of the Bank of China, then any remaining portion of the $3,890 provision will be reversed into income in the related period.

However, the actual amount of the recovery, if any, is uncertain, and is dependent on a number of factors including the final determination of the Bank of China’s position. The Company plans to continue to pursue vigorously all legal alternatives available to seek to recover the maximum amount of the outstanding debt from Tele-Art, Inc. as well as to pursue other parties that may have assisted in any transfers of the assets from Tele-Art, Inc. In furtherance of this objective, the Company commenced proceedings in 2002 against David Hague and PriceWaterhouseCoopers for, inter alia, negligence and breach of statutory duty in their conduct of the liquidation. This matter is still in its initial stages as the defendants are seeking leave to appeal against the dismissal of their challenge to the jurisdiction of the BVI courts in this matter. The Company may incur substantial additional costs in pursuing its recovery and such costs may not be recoverable.

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

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

Shareholders’ Class Actions

On March 11, 2003, the Company were served with a complaint in an action captioned Michael Rocco v. Nam Tai, et al., 03 Civ. 1148 (S.D.N.Y.), or the Rocco Action. In addition to Nam Tai, certain directors are named as defendants. On or about April 9, 2003, a second complaint was filed in an action captioned A.J. & Celine Steigler v. Nam Tai, et al., 03 Civ. 2462 (S.D.N.Y.), or the Steigler Action, and together with the Rocco Action, the Actions. The Actions have been consolidated since July 2003 and purports to represent a putative class of persons who purchased the common stock of Nam Tai from July 29, 2002 through February 18, 2003. Plaintiffs in the Actions assert claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and allege that misrepresentations and/or omissions were made during the alleged class periods concerning the recovery of an inventory write-down and a charge to goodwill related to Nam Tai’s LPT segment. The Company has filed a motion to dismiss the lawsuit was denied on September 27, 2004. The putative class action has not been certified as a class action by the court but we expect the plaintiffs to seek such certification in the near future. The court has set May 23, 2005 to near the certification motion. Nam Tai believes it has meritorious defenses and intends to defend the case vigorously.

F-32

19. Segment Information

The Company operates in three segments: CECP, TCA and LCDP. In 2002 and 2003, LCDP also comprised the transformers operations. These segments are operated and managed as strategic business units. The chief operating decision maker evaluates the net income of each segment in assessing performance and allocating resources between segments.

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

Year ended December 31, 2002


	CECP			TCA			LCDP			Total
Net sales — third parties	$	94,032		$	98,874		$	35,261		$	228,167
Net sales — related parties		—			7,849			—			7,849

Total net sales		94,032			106,723			35,261			236,016
Cost of sales		(75,746	)		(91,694	)		(30,516	)		(197,956	)

Gross profit		18,286			15,029			4,745			38,060
Selling, general and administrative expenses		(8,727	)		(6,213	)		(3,043	)		(17,983	)
Research and development expenses		(1,215	)		(947	)		(524	)		(2,686	)
Impairment of goodwill		—			(339	)		—			(339	)
Other income (expenses), net		1,780			(7,464	)		(1,175	)		(6,859	)
Gain on partial disposal of subsidiaries		—			17			—			17
Interest income		4			784			11			799
Interest expense		(1	)		(704	)		(85	)		(790	)

Income (loss) before income taxes and minority interests		10,127			163			(71	)		10,219
Income taxes expense		(345	)		(365	)		(63	)		(773	)

Income before minority interests and equity in income of affiliated companies		9,782			(202	)		(134	)		9,446
Minority interests		—			(107	)		(57	)		(164	)
Equity in income of affiliated companies		—			10,741			—			10,741

Net income (loss)	$	9,782		$	10,432		$	(191	)	$	20,023

Year ended December 31, 2003


	CECP			TCA			LCDP			Total
Net sales — third parties	$	128,778		$	215,422		$	41,324		$	385,524
Net sales — related parties		—			20,782			—			20,782

Total net sales		128,778			236,204			41,324			406,306
Cost of sales		(97,693	)		(207,733	)		(34,590	)		(340,016	)

Gross profit		31,085			28,471			6,734			66,290
Selling, general and administrative expenses		(8,157	)		(12,751	)		(3,958	)		(24,866	)
Research and development expenses		(1,963	)		(1,584	)		(490	)		(4,037	)
Other income (expenses), net		1,907			4,070			(3,078	)		2,899
Gain on partial disposal of subsidiaries		—			—			1,838			1,838
Interest income		5			777			6			788
Interest expense		—			(5	)		(116	)		(121	)

Income before income taxes and minority interests		22,877			18,978			936			42,791
Income taxes expense		(29	)		(366	)		(4	)		(399	)

Income before minority interests and equity in income of affiliated companies		22,848			18,612			932			42,392
Minority interests		—			(856	)		(211	)		(1,067	)
Equity in income of affiliated companies		—			498			—			498


Income after minority interests and equity in income of affiliated companies	$	22,848		$	18,254		$	721		$	41,823
Discontinued operation		—			—			1,979			1,979

Net income	$	22,848		$	18,254		$	2,700		$	43,802

F-33

19. Segment Information — continued

Year ended December 31, 2004


	CECP			TCA			LCDP			Total
Net sales — third parties	$	163,584		$	287,386		$	48,710		$	499,680
Net sales — related parties		—			34,181			—			34,181

Total net sales		163,584			321,567			48,710			533,861
Cost of sales		(130,140	)		(287,229	)		(40,016	)		(457,385	)

Gross profit		33,444			34,338			8,694			76,476
Selling, general and administrative expenses		(9,222	)		(13,619	)		(5,212	)		(28,053	)
Research and development expenses		(2,212	)		(1,884	)		(949	)		(5,045	)
Other income (expenses), net		1,698			15,546			39			17,283
Gain on partial disposal of subsidiaries		—			77,320			—			77,320
Interest income		138			954			18			1,110
Interest expense		(1	)		(23	)		(171	)		(195	)
Unrealised loss on marketable securities		—			(58,316	)		—			(58,316	)

Income before income taxes and minority interests		23,845			54,316			2,419			80,580
Income taxes expense		(405	)		(407	)		(67	)		(879	)

Income before minority interests and equity in loss of affiliated companies		23,440			53,909			2,352			79,701
Minority interests		(4,879	)		(877	)		(254	)		(6,010	)
Equity in loss of affiliated companies		—			(6,806	)		—			(6,806	)

Net income	$	18,561		$	46,226		$	2,098		$	66,885

Year ended December 31, 2002


	CECP		TCA		LCDP		Total
Depreciation and amortization	$	2,982	$	5,757	$	1,880	$	10,619
Capital expenditures	$	4,597	$	1,365	$	12,523	$	18,485
Identifiable assets	$	77,360	$	148,394	$	49,332	$	275,086

Year ended December 31, 2003


	CECP		TCA		LCDP		Total
Depreciation and amortization	$	4,154	$	5,479	$	2,631	$	12,264
Capital expenditures	$	5,243	$	11,341	$	469	$	17,053
Identifiable assets	$	85,799	$	162,366	$	49,530	$	297,695

Year ended December 31, 2004


	CECP		TCA		LCDP		Total
Depreciation and amortization	$	4,441	$	7,121	$	2,454	$	14,016
Capital expenditures	$	21,493	$	14,891	$	2,227	$	38,611
Identifiable assets	$	134,473	$	274,664	$	51,336	$	460,473

There were no material inter-segment sales for the years ended December 31, 2002, 2003 and 2004. Property, plant and equipment with a net book value of $312 was transferred from the TCA segment to the LCDP segment during 2002. The Company charges 100% of its corporate level related expenses to its reportable segments as management fees.

F-34

19. Segment Information — continued

A summary sets forth the percentage of net sales of each of the Company’s product lines of each segment for the years ended December 31, 2002, 2003 and 2004, is as follows:


Year ended December 31,	2002			2003			2004

Product line

CECP:
- Assembling
- Consumer electronics and communication products		40	%		32	%		31	%


TCA:
- Assembling
- Telecom components assembly		44	%		57	%		59	%
- Software development services		1	%		1	%		1	%

		45	%		58	%		60	%


LCDP:
- Parts and components
- LCD panels		10	%		9	%		9	%
- Transformers		5	%		1	%		0	%

		15	%		10	%		9	%

		100	%		100	%		100	%

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

By geographical area:


Year ended December 31,	2002			2003			2004

Net sales from operations within:
- Hong Kong and Macao:
Unaffiliated customers	$	223,709		$	295,113		$	48,710
Related party		—			14,770			—
Intercompany sales		979			404			563

		224,688			310,287			49,273

- PRC, excluding Hong Kong and Macao:
Unaffiliated customers		4,458			90,411			450,970
Related parties		7,849			6,012			34,181
Intercompany sales		179,411			263,971			4,393

		191,718			360,394			489,544

- Intercompany eliminations		(180,390	)		(264,375	)		(4,956	)

Total net sales	$	236,016		$	406,306		$	533,861


Net income within:
- PRC, excluding Hong Kong and Macao	$	17,930		$	38,627		$	30,981
- Hong Kong and Macao		2,093			5,175			35,904

Total net income	$	20,023		$	43,802		$	66,885

F-35

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


Exhibit
Number		DESCRIPTION
1.1		Memorandum and Articles of Association, as amended on June 26, 2003.*

4.1		Purchase Agreement entered into between Citigroup Global Markets Limited and Nam Tai Electronics, Inc. on August 22, 2003 for the sale of 3% convertible notes of TCL International Holdings Ltd. at an aggregate price of HK$39,555,068.49 (approximately $5.03 million).*

4.2		Agreement entered into between J.I.C. Technology Company Limited and Glory Gate Enterprises Limited on June 28, 2003 for the disposal of transformers operation to Glory Gate Enterprises Limited for approximately $2.4 million.*

4.3		Equity Interest Transfer Agreement between Nam Tai Electronic & Electrical Products Limited HK and Nam Tai Electronic & Electrical Products Limited July 3, 2003.

4.4		Construction Agreement, with commencement date of September 23, 2003, entered into between Namtai Electronic (Shenzhen) Co. Ltd. and Takasago Thermal Engineering (Hong Kong) Co. Ltd. on October 28, 2003 for the construction of new factory premises.*

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

4.6		A Supplemental Agreement entered into among Mr. André Jolivet, Mr. Alain Jolivet, Remote Reward SAS, AGF Private Equity, Mighty Wealth Group Limited and Nam Tai Electronics, Inc. on January 2, 2004 for consenting to the release of the second phase of payment and increasing capital investment in Stepmind should Stepmind fulfill certain conditions.*

4.7		Land Title Rights Issued by Shenzhen Municipal Bureau of Planning and Land Resources February 16, 2004.

4.8		An Agreement entered into between Nam Tai Group Management limited and Frontier Profit Inc. on March 10, 2004 for selling Flat A, 22nd Floor, Tower 2 and Car Parking Space No. A86, The Leighton Hill, 28 Broadwood Road, Happy Valley, Hong Kong to Frontier Profit Inc.*

4.9		A Memorandum of Understanding signed by Namtai Electronic (Shenzhen) Co., Ltd. and Nam Tai Electronic & Electrical Products Limited (Hong Kong) on March 26, 2004 to confirm the respective rights and liabilities of Nam Tai Electronic & Electrical Products Limited (Hong Kong) and Namtai Electronic (Shenzhen) Co., Ltd. under an internal restructuring.

4.10		A Sale and Purchaser Agreement entered into between Nam Tai Electronics, Inc. and Mr. Wong Toe Yeung on March 31, 2004 regarding purchasing the entire issued share capital of Jasper Ace Limited from Mr. Wong Toe Yeung with the consideration of disposal 72.2% interest in Mate Fair Group Limited, cash of $25 million and 2,389,974 shares issued by Nam Tai Electronics, Inc.

4.11		A Trademark License Agreement entered into between Nam Tai Electronics, Inc. and Nam Tai Electronic & Electrical Products Limited on April 8, 2004 for the use of certain “Namtai” trademarks.

4.12		A Deed of Indemnity entered into between Nam Tai Electronics, Inc, and Nam Tai Electronic & Electrical Products Limited on April 15, 2004 in favour of Nam Tai Electronic & Electrical Products Limited regarding the Global Offering of 200,000,000 shares of HK$0.01 each of Nam Tai Electronic & Electrical Products Limited.

4.13		An Underwriting Agreement entered into among Nam Tai Electronics, Inc. as the selling shareholders and the Hongkong and Shanghai Banking Corporation Limited, BNP Paribas Peregrine Capital Limited, Nomura International (Hong Kong) Limited, Cazenove Asia Limited, BDS Asia Capital Limited and VC CEF Capital Limited as public offer underwriters on April 15, 2004 regarding the public offering of 20,000,000 shares of HK$0.01 each of Nam Tai Electronic & Electrical Products Limited.

4.14		A Supplemental Agreement entered into between Nam Tai Electronics, Inc, and Mr. Wong Toe Yeung on July 27, 2004 to adjust the consideration for purchasing the entire issued share capital of Jasper Ace Limited by canceling 973,210 common shares of Nam Tai Electronics, Inc, issued to Top Scale Company Limited on April 21, 2004.

4.15		An Underwriting Agreement entered into among Nam Tai Electronics, Inc. as the selling shareholders and the Hongkong and Shanghai Banking Corporation Limited, BNP Paribas Peregrine Capital Limited, Nomura International (Hong Kong) Limited, Cazenove Asia Limited, BDS Asia Capital Limited and VC CEF Capital Limited as international placement underwriters on April 22, 2004 regarding the international placing of 180,000,000 shares of HK$0.01 each of Nam Tai Electronic & Electrical Products Limited.

4.16		A Pricing Determination Agreement entered into among Nam Tai Electronics, Inc., Nam Tai Electronic & Electrical Products Limited and the Hongkong and Shanghai Banking Corporation Limited on April 22, 2004 for determining the offering price of the shares of Nam Tai Electronic & Electrical Products Limited to be HK$3.88 per share.

4.17		A Stock Borrowing Agreement entered into between Nam Tai Electronics, Inc. and the Hongkong and Shanghai Banking Corporation Limited on April 22, 2004 regarding the Global Offering of 200,000,000 shares of HK$0.01 each of Nam Tai Electronic & Electrical Products Limited.
4.18		Amended 2001 Option Plan July 30, 2004

4.19		An Accession Agreement entered into between Welcome Success Technology Ltd. and Mr. Alain Jolivet on August 4, 2004 in relation to the transfer of entire interest in Stepmind to Remote Reward SAS and who became a party to the Shareholders Agreement which entered into among Nam Tai Electronics, Inc., AGF Innovation 3, AGF Innovation 4, AGF Innovation 5, Mighty Wealth Group Limited, Remote Reward SAS, Mr. Alain Jolivet and Mr. Andre Jolivet executed on November 278, 2003, December 9, 2003 and December 10, 2003.

4.20		An Escrow Agreement entered into among Nam Tai Electronics, Inc., Welcome Success Technology Limited, Remote Reward SAS, Johnson Stokes & Master, Mr. Andre Jolivet and Mr. Alain Jolivet on August 18, 2004 in relation to the disposal of 1,457,720 shares in Stepmind to Remote Reward SAS with a consideration of Euros 4,253,301.98.

4.21		A subscription Agreement entered into among TCL Industries Holdings (HK) Limited, TCL International holdings Limited, Cheerful Asset Investments Limited, Jasper Ace Limited, Mate Fair Group Limited, and TCL Communication Technology Holdings Limited on August 19, 2004 for subscribing 254,474,910 shares in TCL Communication Technology Holdings Limited in a consideration of RMB131,283,020.

4.22		A Deed of Assignment of Trademarks entered into between Nam Tai Electronics, Inc. and Namtai Electronic (Shenzhen) Co. Ltd. on September 20, 2004 for assigning “Namtai & device” trademarks to Nam Tai Electronics, Inc.

4.23		A Banking Facilities Letter from the Hongkong and Shanghai Banking Corporation Limited to Nam Tai Group Management Limited on September 24, 2004 regarding the renewal of Overdraft Facility of HK$500,000, Treasury Facilities of US$30,000,000 and Corporate Card of HK$1,100,000.

4.24		A Share Transfer Agreement entered into between J.I.C. Enterprises (Hong Kong) Limited and J.I.C. Technology Company Limited on October 15, 2004 for the disposal of the entire issued share capital of Jetup Electronic (Shenzhen) Co. Ltd. to J.I.C. Technology Company Limited for a consideration of HK$105,878,396.

8.1		Diagram of Company’s subsidiaries. See Page 24 of this report.

10.1		Letter from MCW. Todman & Co. dated February 10, 2003. **

10.2		Letter from MCW. Todman & Co. dated February 17, 2003. **

12.1		Certification pursuant to Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

12.2		Certification pursuant to Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

14.1		Code of Ethics.

23.1		Consent of Deloitte Touche Tohmatsu.

99.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-4.3 2 u99587exv4w3.txt EX-4.3 EQUITY INTEREST TRANSFER AGREEMENT . . . EXHIBIT 4.3 EQUITY INTEREST TRANSFER AGREEMENT Transferor: Nam Tai Electronic & Electrical Products Limited (hereinafter called "Party A") Address: 15/F, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong Legal Representative: Wong Kuen Ling Title: Managing Director Authorised Agent: Fu Xiao Jiang Transferee: Nam Tai Electronic & Electrical Products Limited (hereinafter called "Party B") Address: Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681, GT, George Town, Grand Cayman, Cayman Islands, British West Indies Legal Representative: Wong Kuen Ling Title: Managing Director Authorised Agent: Wu Liu Fung

Namtai Electronic (Shenzhen) Co., Ltd. (hereinafter called the "Company") was approved by the Shenzhen Municipal People's Government for establishment on 24th June 1989 and was wholly foreign owned by Party A with registered capital of US$90 million. Pursuant to the board of directors' approval, Party A shall transfer its 100% equity interest in the Company to Party B. NOW IT IS HEREBY AGREED by both parties as follows: I. Consideration, Payment Date and Form of Share Transfer 1. Party A is the owner of 100% equity interest in the Company with a fully paid up registered capital of US$90 million pursuant to the Articles of Association of the Company. Party A hereby agreed to transfer its 100% equity interest in the Company at a consideration of US$90 million to Party B. 2. Party B shall pay to Party A in a lump sum the amount and currency as stipulated in Clause 1 within 3 days from the effective date of this Agreement. II. Rights and Obligations of Both Parties 1. Party A warrants that it is has the absolute right to dispose of the equity interest to be transferred in the Company to Party B. Party A further warrants and represents to Party B that there is no mortgage created over the equity interest and no claim has been made by any third party. Otherwise, Party A shall indemnify Party B against all economic losses and legal liabilities arising out of breach of the foregoing. 2. All profits and liabilities shall pass to Party B upon the effective date of this Agreement. III. Liability for Breach of Agreement 1. Upon the coming into effect of this Agreement, unless otherwise agreed by the other party, this Agreement may not be terminated by either party. The defaulting party shall compensate the other party for any economic losses suffered by the other party. 2. In the event that Party B fails to pay the consideration sum to Party B on the agreed date of payment, Party B shall pay to Party A 0.01% of the contract sum for each day of delay which shall be without prejudice to any claim of economic losses suffered by Party A as a result of delay in payment by Party B. IV. Disputes The parties shall endeavour to resolve any disputes amicably, failing which either party may take the legal proceedings to the local people's courts. V. Effective Date This Agreement shall take effect from the date of signing and notarisation of this Agreement and registration for the change shall be handled at the State Administration for Industry and Commerce. VI. This Agreement shall be executed in 6 copies with the same legal status. A copy each will be held by Party A, Party B, the notary public and other relevant departments. Party A: Nam Tai Electronic & Electrical Products Limited Legal Representative: Authorised Agent: Party A: Nam Tai Electronic & Electrical Products Limited Legal Representative: Authorised Agent: Shenzhen, 3rd July 2003 EX-4.7 3 u99587exv4w7.txt EX-4.7 LAND TITLE RIGHTS EXHIBIT 4.7 Real Property Certificate No sale and purchase is allowed for the real property as stipulated in this certificate. Any mortgage (pledge) or lease shall be subject to the relevant regulations. OWNER Namtai Electronic (Shenzhen) Co., Ltd. (100%)**************************** LAND Land No. A116-0018 Land Area 26,313.9m2 Land Use Industrial Location Baoan District Location Xixiang Town, Baoan District Lease term 50 years from 26 April 1999 to 25 April 2049

Shenzhen Land No. 5000109464 (Original) Shenzhen Municipal Bureau of Planning and Land Resources (Chop) Registration Date 16 February 2004 BUILDING AND OTHER ATTACHMENTS Name of real property Nil Construction Area Nil Construction Area inside boundary Nil Purpose Nil Completion Date Nil Registered price RMB4,210,224.00

SUMMARY OF OTHER RIGHTS AND APPENDICES 1. The subject land is based on negotiated price (discounted land price) and is for industrial use based 1n the land price of RMB4,210,224.00; 2. The plot ratio of the total allowable construction area of the subject land is 37,600 square meters of which the factory premises is 24,608 square meters, office building is 7,698 square meters, staff quarters is 3,894 square meters and other ancillary facilities is 1,400 square meters. POINTS TO NOTE (1) The land use right and buildings together with all attachments on the land registered under this "Real Property Certificate" take effect upon the affixing of the chop of the Shenzhen municipal government and is entitled to protection under the laws of PRC and shall not be infringed by any other parties. (2) The real property rights land owner shall comply with the laws, regulations of PRC and relevant real property administration authority. (3) Any transfer, change or mortgage of real property rights shall be subject to the relevant procedures and shall be registered. (4) This certificate shall not be amended. Any alteration without authorization made will be ineffective and will be pursued against the relevant person. Issued by the Shenzhen Municipal People's Government Office EX-4.9 4 u99587exv4w9.txt EX-4.9 MEMO OF UNDERSTANDING EXHIBIT 4.9 Execution copy THIS MEMORANDUM OF UNDERSTANDING is made 26 March 2004 between (1) Nam Tai Electronic and Electrical Products Limited ("NTEEP"), a company incorporated in Hong Kong with limited liability and having its registered address at 15th Floor, China Merchants Tower, Chun Tak Centre, 168-200 Connaught Road Central; and (2) Namtai Electronic (Shenzhen) Company Limited ("NTSZ"), a company incorporated in Shenzhen, the PRC with limited liability and having its address at Gusu Industrial Estate, Xixiang Town Baoan District, Shenzhen, the PRC. WHEREAS:- (A) NTEEP and NTSZ are both wholly owned subsidiaries of Nam Tai Electronics, Inc.( "NTEI"), a company incorporated in the British Virgin Islands which shares are listed on the New York Stock Exchange. (B) NTSZ is an electronics manufacturing and design services provider. NTEEP is an investment holding company and was previously the immediate holding company of NTSZ. Prior to the Restructuring (as defined below), NTSZ used to sell its consumer electronics and communications products ("PRODUCTS") to NTEEP which then sold the Products to the ultimate customers. (C) At the direction of NTEI, an internal restructuring for the purpose of business efficacy ("RESTRUCTURING") was conducted since mid June 2003, as a result of which those sales coordination and marketing functions previously carried out by NTEEP in connection with the Products such as arranging invoicing, handling of customer purchase orders and conducting marketing activities ("BUSINESS"), which was essenitally clerical and administrative in nature, was assumed by NTSZ. The Restructuring was completed by end of December 2003. (D) The purpose of this Memorandum is to confirm the respective rights and liabilities of NTEEP and NTSZ under the Restructuring. IT IS HEREBY CONFIRMED that: 1. Pursuant to the Restructuring, NTEEP had, since June 2003, arranged to transfer all existing customer contracts to NTSZ by novation or by NTSZ entering into a new contract with customer. By 31 December 2003, all the then existing customers of NTEEP had signed separate new contracts with NTSZ. 2. NTEEP has, since 1 August 2003, ceased to take any purchase orders from customers in relation to the Business. NTEEEP now only acts as an investment holding company holding certain land and properties in Hong Kong for NTEI and will remain 1 to be so in the foreseeable future. NTEEP has not (since 1 August 2003) and will not in the future engage itself in any businesses similar to that of the Business now conducted by NTSZ. 3. Title to and risk in the property, undertaking, rights and assets (if any) of the Business passed to NTSZ upon its assumption of the Business from NTEEP. NTEEP will be liable in respect of anything done or omitted to be done up to the assumption of Business by NTSZ and NTSZ will be liable in respect of anything done or omitted to be done thereafter in relation to the carrying on of the Business. NTEEP on the one part and NTSZ on the other part will indemnify each other in full accordingly. In particular, for those account receivables subsisting as of 1 August 2003 and thereafter, NTSZ agrees to indemnify and hold NTEEP harmless from all losses and expenses which NTEEP may sustain or incur as a result of non-performance of the relevant customer contracts. SIGNED BY ) on behalf of ) Nam Tai Electronic and Electrical ) Products Limited ) in the presence of:- ) SIGNED BY ) on behalf of ) Nam Tai Electronic (Shenzhen) ) Company Limited ) in the presence of:- ) 2 EX-4.10 5 u99587exv4w10.txt EX-4.10 SALE AND PURCHASER AGREEMENT EXHIBIT 4.10 PRIVATE & CONFIDENTIAL EXECUTION COPY DATED MARCH 31, 2004 MR. WONG TOE YEUNG AND NAM TAI ELECTRONICS, INC. ------------------------- AGREEMENT RELATING TO THE SALE AND PURCHASE OF THE ENTIRE ISSUED SHARE CAPITAL OF JASPER ACE LIMITED ------------------------- (MSR/6716628/5/#96637v3) WWW.JSM.COM \ CONTENTS
CLAUSE HEADING PAGE 1 Definitions and Interpretation.................................. 1 2 Conditions...................................................... 5 3 Sale and Purchase............................................... 5 4 Consideration................................................... 6 5 Completion...................................................... 9 6 Pre-Completion Undertakings..................................... 9 7 Warranties...................................................... 9 8 Tax Indemnity................................................... 10 9 Miscellaneous................................................... 10 10 Expenses........................................................ 11 11 Confidentiality................................................. 11 12 Notices......................................................... 12 13 Law and Jurisdiction............................................ 12
SCHEDULES
NUMBER DESCRIPTION PAGE 1 Basic Information Concerning the Company........................ 13 2 The Warranties.................................................. 14 3 Matters to be Transacted at Completion.......................... 19 4 Legend.......................................................... 22 5 JAMF Shareholding Transfer Letter............................... 23 EXECUTION................................................................. 25
EXHIBITS A JA Accounts B Unaudited Huizhou TCL Accounts C Huizhou TCL Board Resolutions (declaration of dividends) THIS AGREEMENT is dated March 31, 2004 and is made BETWEEN (1) MR. WONG TOE YEUNG (I.D. Card Number A322103(5)) of 39th Floor, Tower 6, The Leighton Hill, 2B Broadwood Road, Hong Kong ("MR. WONG"); and (2) NAM TAI ELECTRONICS, INC., an International Business Company incorporated in the British Virgin Islands having its registered office at McW. Todman & Co., McNamara Chambers, P O Box 3342, Road Town, Tortola, the British Virgin Islands ("NTEI"). Background (A) Mr. Wong indirectly holds a 9% shareholding interest in Huizhou TCL. This interest is held through Mr. Wong's direct 100% shareholding interest in Top Scale, which in turn holds a direct 100% shareholding interest in JA, which in turn directly holds 9% of Huizhou TCL. (B) NTEI indirectly holds a 3.033% shareholding interest in Huizhou TCL. This interest is held through a 72.2% owned subsidiary, MF, which directly holds 4.2% of Huizhou TCL. JA holds the remaining 27.8% shareholding interest in MF. (C) The parties have agreed that NTEI will increase its indirect shareholding interest in Huizhou TCL from 3.033% to 9%, through its acquisition of Top Scale's 100% shareholding in JA. This transaction is conditional upon JA transferring its 27.8% shareholding in MF to another special purpose vehicle wholly owned by Mr. Wong prior to Completion. BY WHICH IT IS AGREED as follows: 1. DEFINITIONS AND INTERPRETATION 1.1 Defined Terms In this Agreement unless the context requires otherwise: "ACCOUNTS" means collectively the JA Accounts and the Unaudited Huizhou TCL Accounts; "ACCOUNTS DATE" means December 31, 2003; "ADJUSTED COMPLETION BENCHMARK VALUATION" has the meaning given in Clause 4.2(b); "ADJUSTED IPO BENCHMARK VALUATION" has the meaning given in Clause 4.2(c); "ADJUSTMENT AMOUNT" has the meaning given in Clause 4.2(e); Page 1 "BENCHMARK VALUATION" has the meaning given in Clause 4.2(a); "BUSINESS DAY" means a day other than a Saturday, Sunday on which banks are open in Hong Kong to the general public for business; "CASH CONSIDERATION" means the sum of US$25,000,000.00 (Twenty-five million); "COMPANIES ORDINANCE" means the Companies Ordinance (Chapter 32, as amended, of the Laws of Hong Kong); "COMPLETION" means completion of the sale and purchase of the JA Shares in accordance with Clause 5; "COMPLETION DATE" means April 21, 2004(or such later date as the parties may mutually agree in writing); "CONDITION" means the condition set out in Clause 2.1; "CONSIDERATION" means the total consideration to be paid by NTEI to Top Scale for the JA Shares, specified in Clause 4.1; "EMV" has the meaning given in Clause 4.2(a); "ENCUMBRANCE" means a mortgage, charge, pledge, lien, option, restriction, right of first refusal, right of pre-emption, third-party right or interest, other encumbrance or security interest of any kind, or another type of preferential arrangement (including, without limitation, a title transfer or retention arrangement) having similar effect and any agreement or obligation to create or grant any of the aforesaid; "HUIZHOU TCL" means Huizhou TCL Mobile Communication Company Limited, (name in Chinese) T C L name in Chines, a company incorporated in the People's Republic of China, Registration Number GH003740, having its registered office at No. 23 Zone, Zhong Kai High Technology Development Zone, Huizhou, Guangdong, China; "IPO" means an initial public offering of the ordinary shares of Huizhou TCL or of any of its holding company or subsidiaries set up for this purpose ("LISTCO") and the listing of the share capital of Listco incidental to such offering of the shares on a stock exchange; "JA" means Jasper Ace Limited (name in Chinese), an International Business Company incorporated in the British Virgin Islands, Registration Number 269914, having its registered office at Sea Meadow House, Blackburne Highway, Road Town, Tortola, British Virgin Islands particulars of which are set out in Schedule 1; "JA ACCOUNTS" means the unaudited profit and loss account of JA for the period February 1, 1999 to March 31, 2004 and the unaudited balance sheet of JA as at March 31, 2004, copies of which are attached as Exhibit A; Page 2 "JA HUIZHOU TCL SHAREHOLDING" means US$ 2,682,000 paid-up capital in the capital of Huizhou TCL registered in the name of JA, which will at Completion represent 9% of the entire capital of Huizhou TCL; "JA SHARES" means 100,000 ordinary shares of US$ 1.00 each in the capital of JA to be sold to NTEI pursuant to this Agreement, being all the issued shares in the capital of JA held by, or as nominee for, Top Scale; "JAMF SHAREHOLDING" means the 1167 ordinary shares of US$1.00 each in the capital of MF (representing a 27.8% shareholding interest in MF) in respect of which the share certificates are presently held by JA (as trustee and agent for Crystal Island Investment Limited) and which pursuant to Clause 2.1 will be returned to Crystal Island Investment Limited prior to Completion,; "JAMF SHAREHOLDING TRANSFER LETTER" means a letter from JA addressed to Crystal Island Investment Limited substantially in the form set out in Schedule 5; "LEGEND" means the legend affixed to the share certificate representing the Namtai Common Stock substantially in the form set out in Schedule 4; "MF" means Mate Fair Group Limited (name in chinese), an International Business Company incorporated in the British Virgin Islands, Registration Number 370066, having its registered office at Sea Meadow House, Blackburne Highway, Road Town, Tortola, British Virgin Islands; "MF SHARES" means 3033 ordinary shares of US$1.00 each in the capital of MF registered in the name of NTEI and representing as at Completion a 72.2% shareholding interest in MF; "NAMTAI COMMON STOCK" means 2,389,974 new shares of the common stock of NTEI, being the result of the following formula:- US$58,793,367.40 divided by the average market closing price of one share of the common stock of NTEI as reported on NYSE for each day during the period from March 3, 2004 to March 30, 2004 (inclusive) on which NYSE is open for trading and on which at least 10,000 shares of NTEI common stock are traded (the "AVERAGE MARKET CLOSING PRICE"), rounded down or up to the nearest whole number; "NYSE" means the New York Stock Exchange; "RELIEF" includes any relief, allowance, set-off or deduction in computing profits or credit or right to repayment of Taxation granted by or pursuant to any legislation concerning or otherwise relating to Taxation; "RMB" means Renminbi, the lawful currency for the time being of the People's Republic of China; "TAXATION" means (i) any liability to any form of taxation, duty, impost, levy, rate, or Page 3 other amount payable to any revenue, customs or fiscal authorities whenever created or imposed and of any part of the world, including, without limitation, profits tax, provisional profits tax, interest tax, salaries tax, property tax, taxes on income, estate duty, capital duty, stamp duty, payroll tax, rates, customs and excise duties and other similar liabilities, (ii) such an amount or amounts as is referred to in Clause 8.2 and (iii) all interest, penalties, costs, charges and expenses incidental or relating to the liability to Taxation or the deprivation of any Relief which is the subject of the indemnity under Clause 8.1 to the extent that the same is payable or suffered by JA; "TOP SCALE" means Top Scale Company Limited, a company incorporated in the British Virgin Islands, Registration Number 46750, having its registered office at International Trust Building, Wickhams Cay, Road Town, Tortola, the British Virgin Islands, a company which is 100% beneficially owned and controlled by Mr. Wong; "UNAUDITED HUIZHOU TCL ACCOUNTS" means the unaudited financial statements of Huizhou TCL for the period of 12 months ended on the Accounts Date, copies of which are attached as Exhibit B; "US$" means United States Dollars; "WARRANTIES" means the representations, warranties and undertakings set out in Schedule 2; "2003 UNAUDITED PROFIT AMOUNT" has the meaning given in Clause 4.2(a). 1.2 Construction of References In this Agreement, unless the context requires otherwise, any reference: (a) to a Clause or Schedule is a reference to a Clause of or a Schedule to this Agreement; (b) to this Agreement, any other document or any provision of this Agreement or that document is a reference to this Agreement, that document or that provision as in force for the time being or from time to time amended in accordance with the terms of this Agreement or that document; and (c) to a "SUBSIDIARY" or "HOLDING COMPANY" is to be construed in accordance with Section 2 of the Companies Ordinance. Page 4 1.3 Interpretation In this Agreement, unless the context otherwise requires: (a) words importing the plural include the singular and vice versa; and (b) words importing a gender include every gender. 1.4 Headings and Contents The headings and the tables of contents in this Agreement do not affect its interpretation. 1.5 Schedules This Agreement includes its Schedules and any reference to a paragraph is a reference to the paragraph of the relevant Schedule. 2. CONDITIONS 2.1 Completion of this Agreement is conditional upon Mr. Wong procuring that JA has transferred its interest in the JAMF Shareholding to another special purpose vehicle wholly owned by Mr. Wong, by JA executing the JAMF Shareholding Transfer Letter. 2.2 Mr. Wong shall procure the fulfilment of the Condition prior to the Completion Date. 2.3 To the extent that the Condition is or may not be satisfied in full prior to Completion, such Condition or Conditions may be waived by NTEI at its absolute discretion and to such extent it thinks fit by giving notice in writing to Mr. Wong. 2.4 If the Condition is not duly fulfilled (or waived by NTEI) on or before the Completion Date, NTEI shall be entitled to terminate this Agreement without penalty by giving notice to Mr. Wong, whereupon all liabilities of NTEI hereunder shall cease and determine (without prejudice to any of the other rights or remedies available to NTEI). 3. SALE AND PURCHASE 3.1 Sale and Purchase Mr. Wong shall procure the sale by Top Scale as legal and beneficial owner of the JA Shares free from all Encumbrances and with all rights now attached to the JA Shares including the right to receive all dividends and other distributions declared, made or paid on or after the Accounts Date and NTEI relying on the representations, warranties and undertakings of Mr. Wong contained or referred to in this Agreement shall purchase the JA Shares with effect from Completion. 3.2 Pre-emption Rights Mr. Wong hereby waives and shall procure that Top Scale and any other person Page 5 (including any other transferor of the legal or beneficial interest in the JA Shares) waives any right of pre-emption which each may have in respect of the JA Shares, whether pursuant to the Articles of Association of JA or otherwise howsoever arising. 4. CONSIDERATION 4.1 Consideration Subject to adjustment in accordance with Clause 4.2, the Consideration shall be US$126,385,169.40 (One hundred and twenty-six million three hundred and eighty-five thousand one hundred and sixty-nine dollars and forty cents) which shall satisfied by:- (a) the transfer by NTEI to Top Scale of the MF Shares in accordance with paragraph 2(a) of Schedule 3. In accordance with Clause 4.2(a) the valuation which the parties have provisionally attributed to the MF Shares has been calculated as : 3.033% x Benchmark Valuation = US$42,591,802 (Forty two million five hundred and ninety-one thousand eight hundred and two); (b) the payment of the Cash Consideration to Top Scale in accordance with paragraph 2(b) of Schedule 3; and (c) the issuance by NTEI of the Namtai Common Stock to Top Scale in accordance with paragraph 2(c) of Schedule 3. The share certificate evidencing the Namtai Common Stock shall bear the Legend and shall be dated the Completion Date. NTEI shall procure that such Namtai Common Stock is issued credited as fully paid and non assessable and free from all Encumbrances, and that the Namtai Common Stock will rank pari passu with all other common stock of NTEI in issue on the date of such issue. 4.2 Adjustment of Consideration (a) The benchmark valuation of Huizhou TCL for the purpose of the transactions contemplated in this Agreement has been agreed with reference to the expected market value ("EMV") of Listco at the time of its IPO (prior to the public investors participating therein). For the purpose of calculating such provisional valuation, the parties have valued Huizhou TCL at US$1,404,279,660 (One thousand four hundred and four million two hundred seventy nine thousand six hundred and sixty) (the "BENCHMARK VALUATION") based on an unaudited net profit of US$100,305,690 (One hundred million three hundred and five thousand six hundred and ninety) as shown in the Unaudited Huizhou TCL Accounts ("2003 UNAUDITED PROFIT AMOUNT") for Huizhou TCL's financial year ended December 31, 2003 and an historical P/E of 14 times, representing the P/E multiple of 15 times which the parties currently expect to achieve at IPO minus 1 (one) = 14 times. Accordingly, assuming a P/E multiple at IPO of 15 times, the parties have estimated that the EMV of Huizhou TCL at the time of its IPO is US$1,504,585,350 (One thousand five hundred and four million five hundred eighty five thousand three hundred and fifty) based on the 2003 Unaudited Profit Amount. Page 6 (b) (i) Mr Wong undertakes to provide to NTEI a copy of the signed, audited financial statements of Huizhou TCL for the period of 12 months ended on the Accounts Date, duly certified as true and complete by the Directors of Huizhou TCL, as soon as practicable following Completion and in any event within three (3) months thereafter. Forthwith following NTEI's receipt of such signed, audited financial statements, the parties agree, subject to Clause 4.2(d), that the Consideration shall be subject to adjustment in accordance with the following formula :- A = (B x C) - (D x C) Where: A is the amount of the adjustment to the Consideration (expressed in US$); B is the Benchmark Valuation; C is 5.967%, representing the percentage increase in NTEI's indirect shareholding interest in Huizhou TCL which will result upon Completion; D is the Adjusted Completion Benchmark Valuation calculated in accordance with Clause 4.2(b)(ii). (ii) The "ADJUSTED COMPLETION BENCHMARK VALUATION" shall be the product of the following formula :- A x B Where: A is the audited net profit (expressed in RMB) as shown in the audited financial statements of Huizhou TCL in respect of the financial year of Huizhou TCL ending on the Accounts Date, as converted to US$ using an exchange rate of US$1.00 to RMB8.26; B is 14, representing the P/E multiple which was applied in calculating the Benchmark Valuation; (c) (i) Subject to Clause 4.2(d), the parties agree that the Consideration shall be subject to adjustment in accordance with the following formula :- A = (B x C) - (D x C) Where: A is the amount of the adjustment to the Consideration (expressed in US$); B is the Benchmark Valuation; C is 5.967%, representing the percentage increase in NTEI's indirect shareholding interest in Huizhou TCL which will result upon Completion; Page 7 D is the Adjusted IPO Benchmark Valuation calculated in accordance with Clause 4.2(c)(ii). (ii) The "ADJUSTED IPO BENCHMARK VALUATION" shall be the product of the following formula :- A x B Where : A is the audited net profit (expressed in RMB) as shown in the audited financial statements of Huizhou TCL in respect of the latest complete financial year of Huizhou TCL immediately preceding the date of the IPO, as converted to US$ using an exchange rate of US$1.00 to RMB8.26; B is the historical P/E multiple achieved on IPO minus 1 (one). (d) The parties agree that no adjustment shall be made to the Consideration in the event that the Adjusted Completion Benchmark Valuation or the Adjusted IPO Benchmark Valuation is equal to or exceeds the Benchmark Valuation. (e) Any adjustment to the Consideration pursuant to Clause 4.2(b) and/or Clause 4.2(c) (as the case may be)(the "ADJUSTMENT AMOUNT") shall be satisfied by the immediate cancellation by NTEI of such number of shares of the Namtai Common Stock as were issued to Top Scale pursuant to Clause 4.1(c) which is the result of the following formula :- A/B (rounded down or up to the nearest whole number) Where: A is the Adjustment Amount; and B is the price per share at which the Namtai Common Stock is issued to Top Scale at Completion (i.e. US$24.60 per share). Page 8 4.3 Form of Payment The payment of the Cash Consideration to be made under Clause 4.1(b) shall be made by telegraphic transfer to the account notified by Mr. Wong to NTEI not later than 3 Business Days before the Completion Date. 5. COMPLETION 5.1 Subject to Clause 2, Completion shall occur in Macau Special Administrative Region of the People's Republic of China (or at such other place as the parties may agree in writing) on the Completion Date when the business set out in Schedule 3 shall be transacted. 5.2 Neither party shall be obliged to complete this Agreement unless the other party complies fully with its obligations under Schedule 3. 6. PRE-COMPLETION UNDERTAKINGS Mr Wong hereby undertakes to procure that pending Completion, JA will not (save as contemplated by this Agreement or as NTEI may agree in writing):- (a) issue or agree to issue any share or loan capital or grant or agree to grant any option over or right to acquire any share or loan capital; (b) enter into any transaction, agreement or contract, trade or carry on business, acquire or dispose of any interest in any asset or create or undertake any capital commitment or actual or contingent liability whatsoever; (c) create or permit to arise any lien, charge, encumbrance, pledge, mortgage or other third party right or interest on or in respect of any of its undertaking, property or assets; (d) borrow any money; (e) declare, pay or make any dividends or other distributions; or (f) appoint any directors, secretaries or (pursuant to any power of attorney or similar authority) attorneys. 7. WARRANTIES 7.1 Warranties Mr. Wong hereby represents, warrants and undertakes to and with NTEI and its successors in title that each statement contained in Schedule 2 is true, accurate and complete in all respects and not misleading as at the date of this Agreement, and will continue to be so on each day up to and including the Completion Date with reference to the fact and circumstances subsisting from time to time. Page 9 7.2 Reliance on Warranties Mr. Wong acknowledges and accepts that NTEI is entering into this Agreement in reliance upon each of the Warranties, notwithstanding any investigations which NTEI, its agents or advisers may have made. 7.3 Separate Warranties Each of the Warranties shall be construed as a separate Warranty and (save as expressly provided to the contrary) shall not be limited or restricted by reference to or inference from the terms of any other Warranty or any other terms of this Agreement. 8. TAX INDEMNITY 8.1 Mr Wong hereby covenants and agrees with NTEI (both for itself and as trustee for and on behalf of JA) that he will fully and effectually indemnify and at all times keep fully and effectually indemnified NTEI and/or JA from and against and thus he will pay to NTEI and/or JA:- (a) the amount of any and all Taxation falling on JA resulting from or by reference to any income, profits, gains, transactions, events, matters or things earned, accrued, received, entered into or occurring up to the Completion Date, whether alone or in conjunction with any other circumstances whenever occurring and whether or not such Taxation is chargeable against or attributable to any other person, firm or company, including any and all Taxation resulting from the receipt by JA or NTEI of any amounts paid by Mr Wong under this Agreement; and (b) any and all costs (including all legal costs), expenses or other liabilities which NTEI or JA may reasonably and properly incur in connection with:- (i) the settlement of any claim under this indemnity; (ii) any legal proceedings in which NTEI or JA claims under or in respect of this indemnity and in which judgement is given for NTEI or JA; or (iii) the enforcement of any such settlement or judgement. 8.2 In the event of any deprivation of any Relief, there shall be treated as an amount of Taxation for which liability has arisen the amount of such Relief multiplied by the relevant rates of Taxation in force in the period or periods in respect of which Relief would have applied or (where the rate has at the relevant time not been fixed) the last known rate and assuming that such amount of Relief was capable of full utilisation by JA. 9. MISCELLANEOUS Page 10 9.1 This Agreement contains the entire agreement between the parties as to their subject matter. 9.2 The rights of the parties under this Agreement are cumulative and do not exclude or restrict any other rights (except as otherwise provided in the Agreement). 9.3 No failure or delay by a party to exercise any right under this Agreement or otherwise will operate as a waiver of that right or any other right nor will any single or partial exercise of any such right preclude any other or further exercise of that right or the exercise of any other right. 9.4 Time is of the essence of this Agreement as regards any time, date or period specified for the performance of an obligation. 9.5 No amendment to this Agreement will be effective unless in writing and executed by all the parties. 9.6 This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which is an original but, together, they constitute one and the same agreement. 9.7 This Agreement is binding on the successors of each party. 9.8 Neither party may assign any of the rights or obligations of that party under this Agreement without the prior written consent of the other party to this Agreement. 9.9 The Warranties shall remain in full force and effect notwithstanding Completion. 10. EXPENSES 10.1 Each of the parties is responsible for that party's own legal and other expenses incurred in the negotiation, preparation and completion of this Agreement. 10.2 Mr. Wong shall pay all stamp duty or other transfer taxes (if any) on the sale of the JA Shares and on the purchase of the MF Shares. 10.3 NTEI shall pay all stamp duty or other transfer taxes (if any) on the purchase of the JA Shares and on the sale of the MF Shares. 11. CONFIDENTIALITY None of the parties to this Agreement shall make any public announcement or communication or divulge or otherwise make public in any manner any information in connection with this Agreement, the negotiations leading up to this Agreement or the transactions or arrangements contemplated or referred to in this Agreement (including without prejudice to the foregoing generality the fact that this Agreement has been entered into between the parties) or any matter ancillary to this Agreement without the prior written consent of the other party, provided that nothing shall restrict the making by NTEI (or any holding company or subsidiary of NTEI or any fellow subsidiary of Page 11 such holding company) (even in the absence of agreement by Mr Wong) of any announcement, press release, communication, divulgence or disclosure which may be required by law or by any stock exchange or by any regulatory authority. 12. NOTICES Every notice or communication under this Agreement must be in writing and may, without prejudice to any other form of delivery, be delivered personally or sent by post or transmitted by fax to the address given in this Agreement or at such other address as the recipient may have notified to the other parties in writing. 13. LAW AND JURISDICTION 13.1 Governing Law This Agreement is governed by and will be construed in accordance with Hong Kong law. 13.2 Hong Kong Jurisdiction The parties submit to the non-exclusive jurisdiction of the Hong Kong courts and each party waives any objection to proceedings in Hong Kong on the grounds of venue or inconvenient forum. Page 12 SCHEDULE 1 BASIC INFORMATION CONCERNING THE COMPANY Name of Company: Jasper Ace Limited (name in Chinese) Registration number: 269914 Date of Incorporation: March 2, 1998 Place of Incorporation: British Virgin Islands (International Business Company) Registered office: Sea Meadow House, Blackburne Highway, Road Town, Tortola, British Virgin Islands Authorised share capital: US$100,000.00 divided into 100,000 Shares of US$1.00 par value each Issued share capital: 100,000 Shares in the name of Top Scale Company Limited Directors: Wong Toe Yeung Leung Lai Bing Secretary: N/A Registered Agent: CCS Management Limited Auditors: N/A Financial Year End: N/A

Page 13 SCHEDULE 2 THE WARRANTIES 1. Mr. Wong is the sole legal and beneficial owner of the entire issued share capital of Top Scale. Top Scale is the sole legal and beneficial owner of the JA Shares. Mr. Wong is fully empowered, authorised and entitled to procure the sale and transfer by Top Scale of, and Top Scale is fully empowered, authorised and entitled to sell and transfer, the full legal and beneficial ownership of the JA Shares to NTEI or its nominees free from all Encumbrances and with all rights now and hereafter relating to such JA Shares. 2. There are no Encumbrances on, over or affecting any of the JA Shares or any part of the issued or unissued share capital of JA and there is no agreement or commitment to give or create any Encumbrance and no claim has been made by any person to be entitled to any Encumbrance which has not been waived in its entirety or satisfied in full. 3. The JA Shares comprise the whole of the issued and allotted share capital of JA and all of the JA Shares are fully paid up or credited as fully paid up. 4. There is no agreement or commitment outstanding which calls for the transfer, allotment or issue of or accords to any person the right to call for the transfer, allotment or issue of any shares or debentures in JA (including any option or right of pre-emption or conversion). 5. JA has no subsidiaries (as defined in the Companies Ordinance) and no shareholding or other interest in any company, partnership, firm or other entity, except for those mentioned in paragraph 9(g) of this Schedule. 6. JA has not repaid, redeemed or purchased any of its share capital or issued any share capital as paid up otherwise than by receipt of consideration therefor. 7. No consent of any third party is required to be obtained in respect of the sale of the JA Shares. 8. The obligations of Mr. Wong under this Agreement and each document to be executed at Completion are, or when the relevant document is executed, will be binding in accordance with their terms. Each document to be executed by Top Scale at Completion will be binding on Top Scale in accordance with its terms. 9. JA is not and has never been engaged in any manner whatsoever in the carrying on of any trade or business or engaged in any activities of any sort except in connection with incorporation, the appointment of directors and the filing of documents pursuant to the Companies Ordinance or The International Business Companies Act (Cap 291 of the Laws of the British Virgin Islands) and accordingly JA:- (a) has no indebtedness, mortgages, charges, debentures, guarantees or other commitments or liabilities (actual, accrued or contingent) outstanding; (b) has no employees or executive officers; Page 14 (c) is not party to any contract whatsoever; (d) has not given any power of attorney; (e) is not a party to any litigation or arbitration and no litigation or arbitration is pending or threatened; (f) is not a lessee of any property; and (g) is not the owner of, or interested in, any assets whatsoever including, without limitation, the share capital of any other body corporate, save and except for :- (i) the JA Huizhou TCL Shareholding; (ii) the JAMF Shareholding; and (iii) a Hong Kong - PRC vehicle license. 10. JA owns and will at Completion own free from Encumbrances all of its undertaking and assets shown or comprised in the JA Accounts, which assets include the JA Huizhou TCL Shareholding and all such assets are in its possession and under its sole and absolute control. 11. In this paragraph 11, the "COMPANY" refers to each of JA and Huizhou TCL, as the context requires. (a) The Accounts: (i) comply with the requirements of all applicable legislation; (ii) were prepared on the same basis and in accordance with the same accounting policies consistently applied as the audited accounts of the Company prepared in the three preceding years and in accordance with accounting principles generally accepted in the relevant country of incorporation at the time they were prepared; (iii) are complete and accurate in all respects and in particular make full provision for all established liabilities or make proper provision for (or contain a note in accordance with good accounting practice respecting) all deferred or contingent liabilities (whether liquidated or unliquidated) at the date thereof including deferred Taxation where appropriate; (iv) give a true and fair view of the state of affairs and financial position of the relevant Company at the accounts date thereof and of the relevant Company's results for the financial period ended on such date; and (v) are not adversely affected by any unusual or non-recurring items which are not disclosed as such in the Accounts. (b) Without limitation to paragraph 11(a), full provision has been made in the Accounts: Page 15 (i) for depreciation of assets; (ii) for any foreseeable liabilities in relation to the disposal of any assets or the cessation or diminution of any part of the business of the relevant Company; (iii) for bad or doubtful debts and all debts which were, as at the relevant accounts date, more than six months overdue; (iv) for long service payments; (v) for all tax exposures (including contingent exposures); (vi) for any exposures (including contingent exposures) relating to supplier discount arrangements; (vi) in respect of all litigation; (vii) in respect of all claims and returns; (viii) for all management fees; (ix) for bonuses payable; and (x) in respect of all customer rebates. (c) The Company has no outstanding liability for Taxation of any kind which has not been fully provided for or is not provided for in the Accounts. (d) The Company does not have any liability for any matter (whether actual, accrued, contingent or potential) which is not shown or otherwise specifically provided for or noted in the Accounts. (e) All of the debts which are reflected in the Accounts as owing to the Company (apart from bad and doubtful debts to the extent to which they have been provided for in the Accounts) or which have subsequently been recorded in the books of the Company have realised or will realise in the normal course of collection and within three months of Completion their full value as included in the Accounts or in the books of the Company, and no such debt nor any part of it has been outstanding for more than two months from its due date for payment. 12. Since the Accounts Date: (a) there has been no adverse change in the financial condition or prospects of Huizhou TCL and Huizhou TCL has entered into transactions and incurred liabilities solely in the ordinary course of trading; (b) no resolution of any members of Huizhou TCL in general meeting has been passed other than resolutions relating to the business of the annual general Page 16 meeting which was not special business; (c) Huizhou TCL has not declared, paid or made and is not proposing to declare, pay or make any dividend or other distribution save and except for the dividends declared pursuant to the copy board resolutions of Huizhou TCL attached as Exhibit C to this Agreement; (d) the financial year end of Huizhou TCL has not changed from December 31; (e) no event has occurred which would entitle any third party (with or without the giving of notice) to call for the repayment of indebtedness owed by Huizhou TCL prior to its normal maturity date; (f) the business of Huizhou TCL has been carried on in the ordinary and usual course and in the same manner (including nature and scope) as in the past, no fixed asset or stock has been written up nor any debt written off, and no unusual or abnormal contract has been entered into by Huizhou TCL; (g) no asset of Huizhou TCL has been acquired or disposed of on capital account, or has been agreed to be acquired or disposed of, otherwise than in the ordinary course of business and Huizhou TCL has not disposed of or parted with possession of any of its property, assets (including know-how) or stock in trade or made any payments, and no contract involving expenditure by it on capital account has been entered into by Huizhou TCL, and no liability has been created or has otherwise arisen (other than in the ordinary course of business as previously carried on); (h) there has been no disposal of any asset (including stock) or supply of any service or business facility of any kind (including a loan of money or the letting, hiring or licensing of any property whether tangible or intangible) in circumstances where the consideration actually received or receivable for such disposal or supply was less than the consideration which could be deemed to have been received for tax purposes; (i) no event has occurred which gives rise to a tax liability to Huizhou TCL on deemed (as opposed to actual) income, profits or gains or which results in Huizhou TCL becoming liable to pay or bear a tax liability directly or primarily chargeable against or attributable to another person, firm or company; and (j) no remuneration (including bonuses) or benefit payable to any officer or employee of Huizhou TCL has been increased nor has Huizhou TCL undertaken any obligation to increase any such remuneration at any future date with or without retrospective effect. 13. MR. WONG HEREBY EXPRESSLY ACKNOWLEDGES THAT THE NAMTAI COMMON STOCK HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND IS PURCHASING THE NAMTAI COMMON STOCK FOR HIS OWN ACCOUNT AND NOT WITH A VIEW TO ANY RESALE OR DISTRIBUTION THEREOF IN THE UNITED STATES OR TO U.S. PERSONS. MR. WONG FURTHER AGREES THAT UNTIL THE DATE Page 17 WHICH IS ONE YEAR AFTER THE COMPLETION DATE NO RESALES OR OTHER TRANSFERS OF THE NAMTAI COMMON STOCK SHALL BE PERMITTED AT ALL AND, FOLLOWING SUCH FIRST ANNIVERSARY OF THE COMPLETION DATE, ALL RESALES AND OTHER TRANSFERS OF THE NAMTAI COMMON STOCK SHALL BE MADE (a) WITHIN THE UNITED STATES IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT OR (b) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT. 14. MR. WONG ACKNOWLEDGES AND AGREES THAT PRIOR TO ANY PERMITTED RESALE OR OTHER TRANSFER OF THE NAMTAI COMMON STOCK IN ACCORDANCE WITH CLAUSE 13, ABOVE, THE LEGEND AFFIXED TO THE SHARE CERTIFICATE REPRESENTING THE NAMTAI COMMON STOCK WILL NEED TO BE REMOVED AND THAT NTEI'S TRANSFER AGENT FOR THE NAMTAI COMMON STOCK MAY REQUIRE FROM MR. WONG CERTAIN UNDERTAKINGS, REPRESENTATIONS AND OPINIONS OF COUNSEL AS A PRECONDITION TO REMOVING SUCH LEGEND IN ACCORDANCE WITH NORMAL MARKET PRACTICE FOR RESALES OF SECURITIES PURSUANT TO RULE 144 UNDER THE SECURITIES ACT. Page 18 SCHEDULE 3 MATTERS TO BE TRANSACTED AT COMPLETION At Completion: 1. MR. WONG'S OBLIGATIONS (a) Mr. Wong shall deliver to NTEI or procure the delivery to NTEI of: (i) duly executed instruments of transfer (in a form complying with all applicable laws) in respect of the JA Shares in favour of NTEI and/or its nominee together with the relative certificates for such JA Shares; (ii) such other documents as may be required to give good title to the JA Shares or which may be necessary to enable NTEI or its nominee to procure the registration of the same in the name of NTEI or its nominee; (iii) letters of resignation duly executed under seal of all the existing directors, of JA in each case acknowledging that they have no outstanding claims whether for compensation for loss of office or otherwise howsoever; (iv) in respect of JA, share certificates in respect of all issued shares together with instruments of transfer and declarations of trust (duly stamped, where appropriate) in respect of any shares which are held by nominees; the statutory and minutes books (which shall be written up to but not including the date of Completion), share certificate books; common seal, certificate of incorporation, business registration certificate, together with copies of the memorandum and articles of association, cheque books, books of account (all complete and written up to Completion), copies of all tax return(s) filed and related correspondence (if any), all current insurance policies, all contracts (if any) to which JA is a party and all other documents and records of JA; (v) copy of the latest certificate of approval of Huizhou TCL as the evidence of the JA Huizhou Shareholding held by JA together with a copy of the capital contribution verification report issued by an independent accountant evidencing the fact that US$2,682,000 registered capital has been paid in by JA to Huizhou TCL; (vi) such documentation as NTEI may reasonably require evidencing the fulfilment by Mr. Wong of the Condition referred to in Clause 2.1, including without limitation copies (certified by Mr. Wong as a true and correct copy of the original) of the following :- (aa) the JAMF Shareholding Transfer Letter, duly executed for and on behalf of JA; Page 19 (bb) written resolution of all the directors of JA approving the transfer referred to in sub-paragraph (aa) above. (b) Mr. Wong shall procure a board meeting to be held of JA and at which resolutions shall be passed (where appropriate): (i) to approve and give effect to all of the matters referred to above; (ii) to approve NTEI and/or its nominee for registration as the holder of the JA Shares; (iii) to accept the resignation of the directors referred to in paragraph 1(a)(iii) above and to appoint as new directors of JA, such persons as NTEI may require, all with effect from the close of business of the relevant meeting; (iv) to change the authorised signatories of JA to operate their bank accounts and otherwise conduct their business as NTEI may require; and (v) to deal with and resolve upon such other matters as NTEI shall reasonably require for the purposes of giving effect to the provisions of this Agreement. 2. NTEI'S OBLIGATIONS (a) NTEI shall deliver or procure the delivery to Mr. Wong (as agent and trustee for Top Scale) of :- (i) duly executed instruments of transfer (in a form complying with all applicable laws) in respect of the MF Shares in favour of Top Scale and/or its nominee together with the relative share certificates for such MF Shares; (ii) such other documents as may be required to give good title to the MF Shares or which may be necessary to enable Top Scale and/or its nominee to procure the registration of the same in the name of Top Scale and/or its nominee; and (iii) a letter of resignation duly executed under seal of Mr. Koo Ming Kown as a director of MF acknowledging that he has no outstanding claims against MF whether for compensation for loss of office or otherwise howsoever; (b) NTEI shall pay to Top Scale the Cash Consideration by telegraphic transfer (to such account, details of which shall be notified by Mr. Wong to NTEI 3 Business Days prior to the Completion Date); (c) NTEI shall hold a board meeting or otherwise adopt resolutions authorizing and approving the issuance of the Namtai Common Stock to Top Scale. Page 20 3. MUTUAL OBLIGATIONS Mr. Wong and NTEI shall severally procure a board meeting to be held of MF and at which resolutions shall be passed (where appropriate) to approve and give effect to the matters referred to in paragraph 1(a)(vi)(aa) and 2(a) above. Page 21 SCHEDULE 4 LEGEND THE SHARES OF NAM TAI ELECTRONICS, INC. REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO A U.S. PERSON OTHER THAN IN A TRANSACTION REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT. ACCORDINGLY, UNTIL THE DATE WHICH IS ONE YEAR AFTER THE DATE OF ISSUANCE OF THIS CERTIFICATE, NO RESALES OR OTHER TRANSFERS OF THIS CERTIFICATE OR THE SHARES OF NAMTAI COMMON STOCK REPRESENTED HEREBY SHALL BE PERMITTED AT ALL AND, FOLLOWING SUCH FIRST ANNIVERSARY OF THE DATE OF ISSUANCE, ALL RESALES AND OTHER TRANSFERS OF THIS CERTIFICATE AND THE SHARES OF NAMTAI COMMON STOCK REPRESNETED HEREBY SHALL BE MADE ONLY (A) WITHIN THE UNITED STATES IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT OR (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER SECURITIES ACT. Page 22 SCHEDULE 5 JAMF SHAREHOLDING TRANSFER LETTER JASPER ACE LIMITED Sea Meadow House Blackburne Highway Road Town, Tortola British Virgin Islands Date: Crystal Island Investment Limited The Creque Building 216 Man Street Road Town Tortola British Virgin Islands Dear Sirs, We refer to your letter dated July 10, 2003. Pursuant to that letter and the understanding between us, we, Jasper Ace Limited, have been holding the following Bearer Share Certificates ("SHARE CERTIFICATES") of Mate Fair Group Limited for you as your trustee and agent and to your Company's strict order. You have instructed us that that your Company no longer wishes us to hold these Share Certificates on such basis and, in accordance with such instruction, we herewith return these Share Certificates to your Company for your safe custody.
Share Certificate Nos. No. of Shares - ---------------------- ------------- -6- -1- -7- -1- -8- -1- -9- -1- -10- -1- -11- -1- -12- -1- -13- -1- -14- -1- -15- -1- -16- -1- -17- -1- -18- -1- -19- -1- -20- -1-
Page 23 -21- -691- -22- -461- ------- -1,167- =======

Please acknowledge receipt of the above Share Certificates by signing and returning the duplicate of this letter to us. Yours faithfully, Accepted by: For and on behalf of For and on behalf of Jasper Ace Limited Crystal Island Investment Limited ____________________________ _______________________________ ( ) Name in Block Letter Dated: _______________________ Page 24 EXECUTED by the parties in Macau Special Administrative Region of the People's Republic of China MR. WONG TOE YEUNG ) ) _______________________ Witnessed by _______________________ Name: Title: For and on behalf of ) ) NAM TAI ELECTRONICS, INC. ) ) by MR. KOO MING KOWN ) _______________________ Witnessed by _______________________ Name: Title: Page 25 EX-4.11 6 u99587exv4w11.txt EX-4.11 TRADEMARK LICENSE AGREEMENT EXHIBIT 4.11 THIS TRADEMARK LICENCE AGREEMENT is made this 8th day of April 2004 BETWEEN:- 1) NAM TAI ELECTRONICS, INC., an International Business Company incorporated and existing under the laws of the British Virgin Islands, having its registered office at McNamara Chambers, P.O. Box 3342, Road Town, Tortola, British Virgin Islands ("Licensor") of the one part; and 2) NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LIMITED, a company incorporated and existing under the laws of the Cayman Islands, having its registered office at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, British West Indies ("Licensee") of the other part WHEREAS 1) The Licensor currently holds the entire issued share capital of the Licensee which is arranging for the listing of its shares on The Stock Exchange of Hong Kong Limited. 2) The Licensor, being the legal and beneficial owner of the Trademarks, particulars of which are set out in the Schedule hereto ("Trademarks") has agreed to grant a sole licence to the Licensee with a right to sub-license to the Licensee's subsidiaries (the Licensee and its subsidiaries shall collectively be referred to as the "NTEEP Group"), to use the Trademarks in connection with the trade, businesses and operations of the NTEEP Group upon the terms hereinafter appearing. IT IS HEREBY AGREED AND DECLARED as follows:- 1. The Licensor hereby grants to the Licensee a sole and royalty-free licence to use the Trademarks. Such licence shall include the right to sub-license to the Licensee's subsidiaries. For the avoidance of doubt, the sole licence shall not prohibit any use of the Trademarks by the Licensor for the purpose of conducting its investment holding business. 2. The Licensor has the sole and absolute discretion to, from time to time, extend the registration of the Trademarks to other classes or jurisdictions. Any new trademarks so registered shall be added to the definition of the Trademarks in the Schedule of this Agreement. Where required by the law of the relevant jurisdiction, the Licensee shall be registered as a registered user of the Trademarks. - 1 - 3. The Licensee hereby agrees that it will only use the Trademarks upon and in relation to those goods and services in respect of which the Trademarks have been registered ("Goods and Services") under the provisions of this Agreement and subject to the conditions hereof governing the use of the Trademarks. 4. The Licensee shall be permitted to use the Trademarks on the Goods and Services only so long as such Goods and Services conform to the standards of quality, specifications or directions as may, from time to time, be reasonably laid down by or on behalf of the Licensor. 5. The Licensee hereby agrees that, at reasonable times and upon reasonable notice being given by the Licensor, it shall allow the Licensor's duly authorised representatives free access to inspect samples and test the Goods and Services in the possession of or under the control of the Licensee to ensure that the Goods and Services produced or offered by the Licensee conform to the standards of quality, specifications or directions as may, from time to time, be laid down by or on behalf of the Licensor. 6. If the Licensee uses the Trademarks in a manner inconsistent with or otherwise than under the terms and conditions hereof and fails to remedy within two (2) weeks of written notice from the Licensor, this Agreement shall cease and terminate forthwith. 7. On termination of this Agreement for whatever reason, the Licensee shall discontinue all use of the Trademarks. Notwithstanding the foregoing, the Licensee shall have the right to dispose of all Goods and Services bearing the Trademarks and to fulfil any orders of the Goods and Services confirmed prior to termination subject to such reasonable terms as the parties may agree. 8. The Licensee undertakes to the Licensor that any sublicence granted pursuant to this Agreement shall be in the form as appearing in Appendix I and that the termination of this Agreement shall automatically terminate all sublicences. The Licensee further undertakes to duly, promptly and strictly enforce the terms of any sublicence as may be required by the Licensor. 9. This Agreement shall run from the date hereof and shall continue thereafter in force from year to year unless terminated by either party giving to the other 3 months previous notice in writing. Notwithstanding the foregoing, this - 2 - Agreement shall be deemed automatically terminated when the Licensor no longer holds more than 50% of the issued share capital of the Licensee. 10. All provisions of this Agreement which in their nature shall survive termination to give effect to their meaning shall survive termination and remain in full force and effect notwithstanding termination. 11. The governing law of this Agreement shall be the laws of the Hong Kong Special Administrative Region ("Hong Kong") and the parties agree to submit to the non-exclusive jurisdiction of the Hong Kong courts. IN WITNESS WHEREOF this Agreement is duly executed by the authorised representatives of the parties on the date and year first above written. SCHEDULE A. HONG KONG
Goods and Services for respect of Trademark Registration No. Class which the Trademark is registered - --------------- ---------------- ----- ------------------------------------ Namtai & Device 1990B1259 9 calculators, digital scales, digital thermometers, digital blood pressure meters Namtai & Device 1990B1260 16 electronic typewriters Device 19900269 9 calculators, digital scales, digital thermometers, digital blood pressure meters Device 19900270 16 electronic typewriters
B. CANADA
Goods and Services for respect of Trademark Registration No. Class which the Trademark is registered - --------- ---------------- ----- --------------------------------- ~~NAMTAI 381244 - Wares: calculators, scales, thermometers, blood pressure~~
- 3 - meters and typewriters Services: custom design and manufacturing of electronic products for others and the operation of a wholesale business of selling electronic products Namtai & Device 381245 - Wares: calculators, scales, thermometers, blood pressure meters and typewriters Services: custom design and manufacturing of electronic products for others and the operation of a wholesale business of selling electronic products

- 4 - Sealed with the Common Seal of ) NAM TAI ELECTRONICS, INC. ) in accordance with its constitution) in the presence of:- ) ________________________ Koo Ming Kown director Sealed with the Common Seal of ) NAM TAI ELECTRONIC & ) ELECTRICAL PRODUCTS ) LIMITED in accordance with its ) constitution in the presence of:- ) _________________________ Wong Kuen Ling director _________________________ Guy Jean Francois Bindels director - 5 - Appendix I - Pro Forma Sublicence THIS TRADEMARK SUBLICENCE AGREEMENT is made this day of BETWEEN:- 1) NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LIMITED, a company incorporated and existing under the laws of the Cayman Islands, having its registered office at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, British West Indies ("Sub-Licensor") of the one part; and 2) [name of sub-licensee] [ description of company particulars] ("Sub-Licensee") of the other part WHEREAS 1) The Sub-Licensor is licensed by Nam Tai Electronics, Inc., the legal and beneficial owner ("Owner") of the Trademarks, particulars of which are set out in the Schedule hereto ("Trademarks"), to use the Trademarks with a right to sub-license such use to the Sub-Licensor's subsidiaries (the Licensee and its subsidiaries shall collectively be referred to as the "NTEEP Group") in connection with the trade, businesses and operations of the NTEEP Group upon the terms hereinafter appearing. 2) The Sub-Licensee is a subsidiary of the Sub-Licensor and desires and agrees to use the Trademarks in accordance with the terms hereof. IT IS HEREBY AGREED AND DECLARED as follows:- 1. The Sub-Licensor hereby grants to the Sub-Licensee a non-exclusive, personal and royalty-free licence to use the Trademarks. The Sub-Licensee acknowledges that the Owner is the legal and beneficial owner of the Trademarks. The Sub-Licensee agrees that the Sub-Licensor has the sole and absolute discretion to add any new trademarks to the definition of the Trademarks in the Schedule of this Agreement as may be permitted by the Owner. Where required by the law of the relevant jurisdiction, the Sub-Licensee shall be registered as a registered user of the Trademarks. 2. The Sub-Licensee hereby agrees that it will only use the Trademarks upon and in relation to those goods and services in respect of which the Trademarks have been registered ("Goods and Services") under the provisions of this Agreement and subject to the conditions hereof governing the use of the Trademarks. - 6 - 3. The Sub-Licensee shall be permitted to use the Trademarks on the Goods and Services only so long as such Goods and Services conform to the standards of quality, specifications or directions as may, from time to time, be reasonably laid down by or on behalf of the Owner. 4. The Sub-Licensee hereby agrees that, at reasonable times and upon reasonable notice being given by the Sub-Licensor and/or the Owner, it shall allow the Sub-Licensor's and/or the Owner's duly authorised representatives free access to inspect samples and test the Goods and Services in the possession of or under the control of the Sub-Licensee to ensure that the Goods and Services produced or offered by the Sub-Licensee conform to the standards of quality, specifications or directions as may, from time to time, be laid down by or on behalf of the Owner. 5. If the Sub-Licensee uses the Trademarks in a manner inconsistent with or otherwise than under the terms and conditions hereof and fails to remedy within two (2) weeks of written notice from the Sub-Licensor, this Agreement shall cease and terminate forthwith. 6. On termination of this Agreement for whatever reason, the Sub-Licensee shall discontinue all use of the Trademarks. Notwithstanding the foregoing, the Sub-Licensee shall have the right to dispose of all Goods and Services bearing the Trademarks and to fulfil any orders of the Goods and Services confirmed prior to termination subject to such reasonable terms as the parties may agree. 7. This Agreement shall run from the date hereof and shall continue thereafter unless terminated by either party giving to the other 3 months previous notice in writing. Notwithstanding the foregoing, this Agreement shall be deemed automatically terminated if the Licence Agreement relating to the Trademarks between the Sub-Licensor and the Owner is terminated for whatever reasons. 8. All provisions of this Agreement which in their nature shall survive termination to give effect to their meaning shall survive termination and remain in full force and effect notwithstanding termination. 9. The governing law of this Agreement shall be the laws of the Hong Kong Special Administrative Region ("Hong Kong") and the parties agree to submit to the non-exclusive jurisdiction of the Hong Kong courts. - 7 - IN WITNESS WHEREOF this Agreement is duly executed by the authorised representatives of the parties on the date and year first above written. SCHEDULE A. HONG KONG
Goods and Services for respect of Trademark Registration No. Class which the Trademark is registered - --------------- ---------------- ----- ------------------------------------ Namtai & Device 1990B1259 9 calculators, digital scales, digital thermometers, digital blood pressure meters Namtai & Device 1990B1260 16 electronic typewriters Device 19900269 9 calculators, digital scales, digital thermometers, digital blood pressure meters Device 19900270 16 electronic typewriters
B. CANADA
Goods and Services for respect of Trademark Registration No. Class which the Trademark is registered - --------------- ---------------- ----- -------------------------------------- NAMTAI 381244 - Wares: calculators, scales, thermometers, blood pressure meters and typewriters Services: custom design and manufacturing of electronic products for others and the operation of a wholesale business of selling electronic products Namtai & Device 381245 - Wares: calculators, scales, thermometers, blood pressure meters and typewriters Services: custom design and manufacturing of electronic
- 8 - ~~products for others and the operation of a wholesale business of selling electronic products~~

- 9 - Sealed with the Common Seal of ) NAM TAI ELECTRONIC & ) ELECTRICAL PRODUCTS ) LIMITED in accordance with its ) constitution in the presence of:- ) Sealed with the Common Seal of ) the Sub-Licensee in accordance ) with its constitution in the ) presence of:- ) - 10 - EX-4.12 7 u99587exv4w12.txt EX-4.12 DEED OF INDEMNITY EXHIBIT 4.12 Private & Confidential Dated the 15th day of April 2004 NAM TAI ELECTRONICS INC. in favour of NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LIMITED and THE SUBSIDIARIES (as defined herein) DEED OF INDEMNITY relating to the Global Offering of 200,000,000 shares (subject to over-allotment option) of each of Nam Tai Electronic & Electrical Products Limited [JOHNSON STOKES & MASTER LOGO] CONTENTS DEED OF INDEMNITY
Clause Heading Page 1 Definitions and Interpretation 1 2 Conditions ................... 4 3 Estate Duty Indemnity ........ 4 4 Taxation Indemnity ........... 5 5 Payment ...................... 7 6 Conduct of Claims ............ 7 7 Repayments and Refunds ....... 8 8 Successors and Assigns ....... 8 9 Rights and Remedies .......... 8 10 Notices ...................... 9 11 Miscellaneous ................ 10 SCHEDULE Subsidiaries ................. 12 EXECUTION................................. 13
Page i THIS DEED OF INDEMNITY is dated 15 April, 2004 and is made by: (1) NAM TAJ ELECTRONICS INC., a company incorporated under the laws of the British Virgin Islands, having its registered office at McNamara Chambers, P. 0, Box 3342, Road Town, Tortola, British Virgin Islands (the "INDEMNIFIER") IN FAVOUR OF: (2) NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LIMITED, a company incorporated under the laws of the Cayman Islands whose registered office is at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, British West Indies (the "Company"); and (3) The companies whose names are set out in Schedule 2 being subsidiaries of the Company (together the "SUBSIDIARIES"). BACKGROUND (A) It is proposed that 200,000,000 shares (subject to over-allotment option) of HK$0.01 each in the capital of the Company be offered for sale by way of a global offering (the "SHARE OFFER") on and subject to the terms and conditions set out in a prospectus proposed to be dated on or around 16 April, 2004 (the "PROSPECTUS") and the Company has applied for listing of and permission to deal in the whole of its issued share capital on The Stock Exchange of Hong Kong Limited. (B) The Indemnifier has agreed to give certain indemnities in favour of the Company, for itself and as trustee for each of the Subsidiaries, subject to the terms and in accordance with the conditions set out in this Deed. THIS DEED WITNESSES AND IT IS AGREED as follows: 1. DEFINITIONS AND INTERPRETATION 1.1 In this Deed, unless the context otherwise requires: "BUSINESS DAY" means a day (other than a Saturday or Sunday) on which banks in Hong Kong are open to the public for business; "COMPANIES" means the Company and the Subsidiaries; "HONG KONG" means the Hong Kong Special Administrative Region of the People's Republic of China; "PRC" means the People's Republic of China and, for the purposes of this Deed, excluding Hong Kong, Macau and Taiwan; Page 1 "MACAO" means the Macao Special Administrative Region of the People's Republic of China; a "RELEVANT TRANSFER" in relation to any person means a transfer made by that person of any property other than an interest limited to cease on his death or property which he transferred in a fiduciary capacity being a transfer made on or before the date on which the Share Offer becomes unconditional. A transfer made by a person of any property other than an interest limited to cease on his death, or property which he transferred in a fiduciary capacity, means a transaction of the kind described by the words "a transfer of any property other than an interest limited to cease on his death or property which he transferred in a fiduciary capacity" in section 35 of the Estate Duty Ordinance interpreted in accordance with the provisions contained in section 3 of the Estate Duty Ordinance; "RELIEF" includes any relief, allowance, set off or deduction in computing profits, right to repayment or credit granted by or pursuant to any legislation or otherwise relating to all forms of Taxation; "REPRESENTATIVE" means such one or more of the Companies as the Indemnifier shall reasonably consider appropriate to take such action as is provided in Clause 6; "TAXATION" means: (i) any liability to any form of taxation whenever created or imposed and whether of Hong Kong, the PRC, the Cayman Islands, Macau or of any other part of the world and without prejudice to the generality of the foregoing includes profits tax, provisional profits tax, interest tax, salaries tax, property tax, estate duty, death duty, capital duty, stamp duty, payroll tax, withholding tax, rates, customs and excise duties and generally any tax, duty, impost, levy or rate or any amount payable to the revenue, customs or fiscal authorities whether of Hong Kong, the PRC, the Cayman Islands, Macau or of any other part of the world; (ii) such an amount or amounts as is referred to in sub-clause (i) above; and (iii) all costs, interest, penalties, charges, fines and expenses incidental or relating to the liability to taxation or the loss, reduction, modification, cancellation or deprivation of Relief or of a right to repayment of taxation which is the subject of the indemnity given by the Indemnifier pursuant to Clause 3.1 or Clause 4.1 to the extent that the same is/are payable or suffered by the Companies or any of them; "TAXATION CLAIM" includes any claim, counterclaim, assessment, notice, demand or other documents issued or action taken by or on behalf of the Inland Revenue Department or any equivalent authority of Hong Kong, the PRC, the Page 2 Cayman Islands, Macau or any other statutory or governmental authority whatsoever in Hong Kong, the PRC, the Cayman Islands, Macau or any other part of the world from which it appears that the Companies or any of them is/are liable or is/are sought to be made liable for any payment of any form of Taxation or to be deprived of any Relief, which Relief would, but for the Taxation Claim, have been available to the Companies or any of them; and "HK$" means Hong Kong dollars. 1.2 CONSTRUCTION OF REFERENCES In this Deed, unless the context requires otherwise: (a) any reference to a Clause or Schedule is a reference to a Clause of or the Schedules to this Deed; (b) any reference to a person includes an individual, a body corporate, a partnership, any other unincorporated body or association of persons and any state or state agency; (c) references to provisions of the Estate Duty Ordinance or the Inland Revenue Ordinance are references to the Estate Duty Ordinance and Inland Revenue Ordinance respectively of Hong Kong as in force at the date of this Deed but in the event of any repeal or amendment of such provisions such references shall be read as including any provisions to the like effect respectively replacing or amending the same, and "ESTATE DUTY" means Hong Kong estate duty; and (d) in the event of any loss, reduction, modification, cancellation or deprivation of Relief, there shall be treated as an amount of Taxation for which a liability has arisen the amount of such Relief, applying the relevant rates of taxation in force in the period or periods in respect of which Relief would have applied or (where the rate has at the relevant time not been fixed) the last known rate and assuming that the Companies or any of them (as the case may be) had sufficient profits or gains against which Relief might be set or given. 1.3 INTERPRETATION In this Deed, unless the context otherwise requires: (a) words importing the plural include the singular and vice versa; (b) words importing a gender include every gender; and (c) the words "OTHER", "INCLUDING" and "IN PARTICULAR" do not limit the generality of any preceding words and are not to be construed as being limited to the same class as the preceding words where a wider Page 3 construction is possible. 1.4 HEADINGS AND CONTENTS The headings and the tables of contents in this Deed do not affect its interpretation. 1.5 SCHEDULE This Deed includes its Schedule. 2. CONDITIONS This Deed is conditional on the conditions set out in the section headed "Structure and Conditions of the Global Offering" in the Prospectus being fulfilled. If such conditions are not fulfilled as mentioned in the section headed "Structure and Conditions of the Global Offering" in the Prospectus, this Deed shall become null and void and cease to have effect. 3. ESTATE DUTY INDEMNITY 3.1 The Indemnifier shall indemnify and at all times keep each of the Companies fully and effectively indemnified from and against any depletion in or reduction in value of its respective assets as a consequence of, and in respect of any amount which any of the Companies may hereafter become liable to pay, being: (a) any duty which is or hereafter becomes payable by the Companies or any of them by virtue of section 35 of the Estate Duty Ordinance under the provisions of section 43 of the Estate Duty Ordinance by reason of the death of any person and by reason of the assets of the Companies or any of them being deemed for the purpose of estate duty to be included in the property passing on his or her death by reason of that person making or having made a relevant transfer to the Companies or any of them; (b) any amount recovered against the Companies or any of them under the provisions of section 43(7) of the Estate Duty Ordinance in respect of any duty payable under section 43(one)(c) or 43(6) of the Estate Duty Ordinance by reason of the death of any person and by reason of the assets of the Companies or any of them being deemed for the purpose of estate duty to be included in the property passing on his death by reason of that person making or having made a relevant transfer to the Companies or any of them; (c) any amount of duty which the Companies or any of them is obliged to pay by virtue of section 43(one)(c) of the Estate Duty Ordinance in respect of the death of any person in any case where the assets of another company are deemed for the purpose of estate duty to be Page 4 included in the property passing on that person's death by reason of that person making or having made a relevant transfer to that other company and by reason of the Companies or any of them having received any distributed assets of that other company on their distribution within the meaning of the Estate Duty Ordinance, but only to the extent to which the Companies or any of them is unable to recover an amount or amounts in respect of that duty from any other person under the provisions of section 43(7)(a) of the Estate Duty Ordinance; and (d) all costs (including all legal costs), expenses, interests, penalties, fines, charges or other liabilities which any of the Companies may properly incur in connection with: (i) the investigation, assessment or the contesting of any claim under Clause 3.1 (a) to (c); (ii) the settlement of any claim under Clause 3.1 (a) to (c); (iii) any legal proceedings in which any of the Companies claim under or in respect of Clause 3.1 (a) to (c) and in which judgment is given for any of the Companies; or (iv) the enforcement of any such settlement or judgments. 3.2 Notwithstanding any other provision of this Deed, the Indemnifier will not be liable for any penalty imposed on the Companies or any of them under section 42 of the Estate Duty Ordinance by reason of the relevant company defaulting in any obligation to give information to the Commissioner under section 42(1) of the Estate Duty Ordinance (provided that any such obligations on the part of the Companies or any of them to give information do not go beyond the extent of the actual knowledge of the relevant company), but the Indemnifier shall be liable for any interest on unpaid estate duty. 4. TAXATION INDEMNITY 4.1 The Indemnifier shall indemnify and at all times keep each of the Companies fully and effectively indemnified against: (a) Taxation falling on any of the Companies resulting from or by reference to any income, profits or gains earned, accrued or received (or deemed to be so earned, accrued or received) on or before the date on which this Deed becomes unconditional or any transactions, matters, things, event, act or omission occurring or deemed to occur on or before such date, whether alone or in conjunction with any other transaction, matter, thing, event, act, omission or circumstance whenever occurring, and whether or not such Taxation is chargeable against or attributable to any other person, firm or company; Page 5 (b) all costs (including all legal costs), expenses, interests, penalties, fines, charges or other liabilities which any of the Companies may properly incur in connection with: (i) the investigation, assessment or the contesting of any claim under Clause 4.1(a); (ii) the settlement of any claim under Clause 4. l(a); (iii) any legal proceedings in which any of the Companies claim under or in respect of Clause 4.1 (a), and in which judgment is given for any of the Companies; or (iv) the enforcement of any such settlement or judgments. 4.2 Clause 4.1 (a) does not cover, and the Indemnifier shall be under no liability in respect of, Taxation: (a) to the extent that provision has been made for such Taxation in the audited accounts of the Companies or any of them for an accounting period ended on or before 31 December, 2003; (b) falling on any of the Companies in respect of any accounting period commencing on or after 1 January, 2004 unless liability for such Taxation would not have arisen but for some act or omission of, or transaction entered into by, the Indemnifier, the Companies or any of them (whether alone or in conjunction with some other act, omission or transaction, whenever occurring), otherwise than in the ordinary course of business, or in the ordinary course of acquiring or disposing of capital assets, on or before the date on which this Deed becomes unconditional; (c) to the extent that such Taxation arises or is incurred as a consequence of any change in the law, rules or regulations, or the interpretation or practice thereof by the Inland Revenue Department or any other statutory or governmental authority (in Hong Kong, the PRC, the Cayman Islands, Macau or elsewhere) having retrospective effect coming into force after the date on which this Deed becomes unconditional or to the extent that such Taxation arises or is increased by an increase in rates of Taxation after the date on which this Deed becomes unconditional with retrospective effect (except the imposition of or an increase in the rate of Hong Kong profits tax or any tax of the PRC, the Cayman Islands, Macau or anywhere else in the world on the profits of companies for the current or any earlier financial period); (d) to the extent that such Taxation is discharged by another person who is not any of the Companies and that none of the Companies is required Page 6 to reimburse such person in respect of the discharge of the Taxation; or (e) to the extent of any provision or reserve made for Taxation in the audited accounts referred to in Clause 4.2(a) which is finally established to be an over-provision or an excessive reserve, provided that the amount of any such provision or reserve applied to reduce the liability of the Indemnifier or any of them in respect of Taxation shall not be available in respect of any such liability arising thereafter. 5. PAYMENT 5.1 All payments made by the Indemnifier under this Deed shall be made gross, free of any rights of counterclaim or set-off and without any deductions or withholdings of any nature. In the event that any deductions or withholdings are required by law, or that any payments made by or due from the Indemnifier under this Deed are liable for Taxation or the subject of a Taxation Claim (in the hands of or against the Companies or any of them or otherwise) then the Indemnifier will be liable to pay to the Companies or that one of the Companies to whom the payments are made or due (by virtue of Clauses 3 or 4 above) such further sums as will ensure that the aggregate of the sums paid or payable under this Clause and Clauses 3 or 4 shall, after making all deductions or withholdings from, or deducting liabilities to Taxation or the amount of any Taxation Claims in respect of, such sums, leave the Companies or the relevant one of the Companies with the same amount as it would have been entitled to receive under Clauses 3 or 4 in the absence of any such deductions or withholdings, Taxation or Taxation Claims. 5.2 Any payments due by the Indemnifier under this Deed shall be increased to include such interest on unpaid tax as the Companies or any of them shall have been required to pay pursuant to section 71(5) or section 7l(5A) of the Inland Revenue Ordinance or similar legislation elsewhere or otherwise. 6. CONDUCT OF CLAIMS In the event of any of the Companies becoming aware of any Taxation Claim, the Company or the relevant Companies shall by way of covenant, but not as a condition precedent to the liability of the Indemnifier hereunder, give or procure that notice thereof is as soon as reasonably practicable given to the Indemnifier in the manner provided in Clause 10. As regards any Taxation Claim the Representative shall, at the request of the Indemnifier, take such action as the Indemnifier may reasonably request by notice to the Representative (provided that the Indemnifier make such request within a reasonable time of receipt by the Indemnifier of the Company's notice) to cause the Taxation Claim to be withdrawn, or to dispute, resist, appeal against, compromise or defend the Taxation Claim and any determination in respect thereof, but subject to the Representative being indemnified and secured to its or their reasonable satisfaction by the Indemnifier against all losses (including additional taxation), costs, damages and expenses which may be thereby Page 7 incurred, provided that the Indemnifier shall not make any settlement of the Taxation Claim nor agree any matter in the course of disputing any Taxation Claim likely to affect the amount thereof or the future taxation liability of the Companies or any of them without the prior written approval of the Company (such approval not to be unreasonably withheld or delayed). 7. REPAYMENTS AND REFUNDS If after the Indemnifier has made any payment pursuant to Clause 4 or Clause 5, any of the Companies shall receive a refund of all or part of the relevant Taxation (whether pursuant to section 79 of the Inland Revenue Ordinance or similar legislation elsewhere or otherwise) the Company (if it shall receive such refund) shall repay or (if another of the Companies shall receive such refund) shall procure repayment by such other of the Companies to the Indemnifier a sum corresponding to the amount of such refund less: (a) any expenses, costs and charges properly incurred by the Companies or any of them in recovering such refund; and (b) the amount of any additional Taxation which shall not have been taken into account in calculating any other payment made or to be made under this Clause but which is suffered by any of the Companies in consequence of such refund. 8. SUCCESSORS AND ASSIGNS 8.1 This Deed shall bind the successors of the Indemnifier and shall enure for the benefit of each party's successors or permitted assigns. 8.2 The whole or any part of the benefit of this Deed may be assigned by the Companies or any of them, but not by the Indemnifier. 9. RIGHTS AND REMEDIES 9.1 In the event that any payment is required or due to be made hereunder by the Indemnifier and is not made within 14 days following such payment falling due, the Company shall be entitled in respect of all and any dividends payable thereafter to the Indemnifier to set the same aside and place them in a separate account in trust for the benefit of that one or more of the Companies to whom the relevant payment under this Deed is due. Any sums transferred to such account shall thereafter be paid to such one or more of the Companies as is due the relevant payment under this Deed unless such payment under this Deed is the subject of a bona fide dispute with the relevant taxation authorities, in which event it shall be held in escrow on such terms as shall then be agreed between the parties until such dispute is resolved. 9.2 No delay or omission by any of the Companies in exercising any right, power or privilege hereunder shall impair such right, power or privilege or be Page 8 construed as a waiver thereof, and any single or partial exercise of any such right, power or privilege shall not preclude the further exercise of any right, power or privilege. The rights and remedies of the Companies or any of them provided in this Deed are cumulative and not exclusive of any rights and remedies provided by law. 9.3 In the event that any claim subject to the indemnities hereunder is or has been discharged by the Companies or any of them, the indemnities given hereunder shall take effect as covenants by the Indemnifier forthwith to reimburse the Companies or such of them as have so discharged the claim for any loss or payment so discharged. 10. NOTICES 10.1 Any notice, request or other communication given or made under or in connection with the matters contemplated by this Deed shall be in writing and in English. 10.2 Any such notice or other communication shall be addressed as provided in Clause 10.3 and, if so addressed, shall be deemed to have been duly given or made as follows: (a) if sent by personal delivery, upon delivery at the address of the relevant party; (b) if sent by post, three days after the date of posting; and (c) if sent by facsimile, upon receipt of transmission being received by the sender. 10.3 The relevant address, facsimile number and contact person of each party hereto for the purposes of this Deed, subject to Clause 10.4 are: TO the Indemnifier: Nam Tai Electronics Inc. Fax: (852) 22631223 Attn: Mr. Koo Ming Kown To the Company/Companies: Nam Tai Electronic & Electrical Products Limited Fax: (852) 22631223 Attn: Ms. Wong Kuen Ling 10.4 A party may notify the other party to this Deed of a change to its relevant Page 9 address, facsimile number or contact person for the purposes of Clause 10.3 provided that such notification shall only be effective on: (a) the date specified in the notification as the date on which the change is to take place; or (b) if no date is specified, or the date specified is less than 7 days after the date on which notice is given, the date falling 7 days after notice of any such change has been given. 11. MISCELLANEOUS 11.1 The Company shall bear the legal and professional fees, costs and expenses incurred in relation to the negotiation and preparation of this Deed. 11.2 The Indemnifier undertakes to each of the Companies that it will on demand do all such acts and things and execute all such deeds and documents as may be necessary to carry into effect or to give legal effect to the provisions of this Deed and the transaction hereby contemplated. 11.3 This Deed sets forth the entire agreement and understanding between the parties or any of them in relation to the subject matter of this Deed and supersedes and cancels in all respects all previous agreements, letters of intent, correspondence, understandings, agreements and undertakings (if any) between the parties hereto with respect to the subject matter hereof, whether such be written or oral. 11.4 This Deed may be executed in any number of counterparts and by different parties on separate counterparts, each of which is an original, but together, they constitute one and the same Deed. 11.5 This Deed is governed by and will be construed in accordance with Hong Kong law. The parties submit to the non-exclusive jurisdiction of the Hong Kong courts and each party waives any objection to proceedings in Hong Kong on the grounds of venue or inconvenient forum. 11.6 Time shall be of the essence as regards any date or period mentioned in this Deed or any date or period substituted for the same by the agreement of the parties or otherwise. 11.7 The Indemnifier hereby irrevocably appoints Mr. Jackie Wah of 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong to receive, for and on its behalf, service of process in any proceedings in Hong Kong. Such service shall be deemed completed on delivery to the process agent (whether or not it is forwarded to and received by the Indemnifier). If for any reason the process agent ceases to be able to act as such or no longer has an address in Hong Kong, the Indemnifier irrevocably agrees to appoint forthwith a substitute process agent acceptable to the Company, and to deliver to the Company Page 10 a copy of the new agent's acceptance of that appointment, within 7 days of such appointment. 11.6 The sendee of any process connected with proceedings in the Hong Kong courts and relating to this Deed will be deemed to have been validly served on a party if they are served on the process agent whose name and present address are set out below against the name of that party, and service will be deemed to have been acknowledged by that party if it is acknowledged by that process agent: Party Process Agent Indemnifier Mr. Jackie Wah of 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong Company Ms. Wong Kuen Ling of 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong Page 11 SCHEDULE SUBSIDIARIES Name Place of Incorporation Namtai Electronic (Shenzhen) the PRC Company Limited Nam Tai Investments Consultant Macau (Macao Commercial Offshore) Company Limited Page 12 EXECUTED as a deed by the parties on the date first above written. SEALED with the COMMON SEAL of ) NAME TAI ELECTONICS INC. ) and SIGNED by /s/ Li Shi Yuen. Joseph ) /s/ Li Shi Yuen. Joseph [SEAL] in the presence of: ) Tammie Mei Fung Tam Johnson Stokes & Master Solicitor, Hong Kong SAR SEALED with the COMMON SEAL of ) NAME TAI ELECTRONICS & ELECTRICAL ) PRODUCTS LIMITED ) and SIGNED by /s/ Li Shi Yuen. Joseph ) /s/ Li Shi Yuen. Joseph [SEAL] in the presence of: ) ) Tammie Mei Fung Tam Johnson Stokes & Master Solitor, Hong Kong SAR EX-4.13 8 u99587exv4w13.txt EX-4.13 UNDERWRITING AGREEMENT DATED APRIL 15, 2004 EXHIBIT 4.13 Dated 15 April 2004 NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LIMITED and NAM TAI ELECTRONICS, INC. and THE EXECUTIVE DIRECTORS (AS DEFINED HEREIN) and THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED and THE PUBLIC OFFER UNDERWRITERS (AS DEFINED HEREIN) PUBLIC OFFER UNDERWRITING AGREEMENT relating to a Public Offer consisting initially of 20,000,000 Shares (subject to adjustment) of nominal value HK$0.01 each in the capital of Nam Tai Electronic & Electrical Products Limited LINKLATERS 10th Floor, Alexandra House Chater Road Hong Kong Telephone (852) 2842 4888 Facsimile (852) 2810 8133/2810 1695 Ref: L-065038-05-001/DWLT/KKLC TABLE OF CONTENTS
CONTENTS PAGE 1 INTERPRETATION ............................................. 2 2 THE GLOBAL OFFERING ........................................ 10 3 THE PUBLIC OFFER ........................................... 14 4 COSTS, EXPENSES, FEES AND COMMISSIONS ...................... 21 5 REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS ............... 23 6 FURTHER UNDERTAKINGS ....................................... 25 7 INDEMNITY .................................................. 32 8 CONTRIBUTION ............................................... 35 9 TERMINATION IN EXCEPTIONAL CIRCUMSTANCES ................... 36 10 GENERAL PROVISIONS ......................................... 38 SCHEDULE 1 The Public Offer Underwriters ........................ 47 SCHEDULE 2 The Executive Directors .............................. 48 SCHEDULE 3 The Reorganisation Documents ......................... 49 SCHEDULE 4 The Conditions Precedent Documents ................... 50 SCHEDULE 5 Advertising Arrangements ............................. 52 SCHEDULE 6 Professional Investor Treatment Notice ............... 53 SCHEDULE 7 The Warranties ....................................... 55 SIGNATURE PAGE .................................................. 75
- i - THIS AGREEMENT is made on 15 April 2004 BETWEEN: (1) NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LIMITED, a company incorporated under the laws of the Cayman Islands whose registered office is at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, British West Indies (the "COMPANY"); (2) NAM TAI ELECTRONICS, INC., a company incorporated under the laws of British Virgin Islands whose registered office is at McW. Todman & Co., McNamara Chambers, PO Box 3342, Road Town, Tortola, British Virgin Islands (the "SELLING SHAREHOLDER"); (3) THE EXECUTIVE DIRECTORS (as hereinafter defined); (4) THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, a company incorporated under the laws of Hong Kong whose registered office is at 1 Queen's Road Central, Hong Kong ("HSBC"); and (5) THE PUBLIC OFFER UNDERWRITERS (as defined herein). RECITALS: (A) The Company was incorporated in the Cayman Islands with limited liability on 9 June 2003 under the Companies Law and has submitted a valid application (together with all necessary supporting documents) to the Registrar of Companies in Hong Kong to be registered as an oversea company in Hong Kong under Part XI of the Companies Ordinance on 19 March 2004; (B) As at the date of this Agreement, the authorised share capital of the Company is HK$20,000,000 divided into 2,000,000,000 Shares, of which 800,000,000 Shares have been allotted and issued and are fully paid or credited as fully paid; (C) As at the date of this Agreement, the Selling Shareholder is the legal and beneficial owner of 800,000,000 Shares representing 100% of the existing issued share capital of the Company; (D) The Selling Shareholder has agreed to offer for sale the Public Offer Shares pursuant to the Public Offer at the Offer Price (as defined herein); (E) The Company, the Selling Shareholder and the International Underwriters (as defined herein) are expected to enter into the International Underwriting Agreement (as defined herein) providing for the International Underwriters to purchase or procure the purchase of the International Placing Shares (as defined herein) on the terms and subject to the conditions set out therein; (F) The Selling Shareholder is expected to grant to HSBC, exercisable at the sole and absolute discretion of HSBC, the Over-allotment Option (as defined herein) to require the Selling Shareholder to sell up to an aggregate of 30,000,000 additional Shares, subject to and on the terms of the International Underwriting Agreement; (G) Immediately upon completion of the Global Offering (as defined herein) and assuming the Over-allotment Option (as defined herein) will not be exercised, the Selling Shareholder will own 600,000,000 Shares representing 75% of the existing issued share capital of the Company or, if the Over-allotment Option (as defined herein) expected to be granted is 1 fully exercised, the Selling Sharehofder will own 570,000,000 Shares representing 71.25% of the existing issued share capital of the Company; (H) At a meeting of the board of Directors held on 8 April 2004, resolutions were passed pursuant to which, inter alia, Directors were authorised to agree and sign on behalf of the Company this Agreement and all the other relevant documents in connection with the Global Offering; (I) The Public Offer Underwriters have severally agreed to underwrite the Public Offer, on the terms and subject to the conditions set out herein; (J) The Executive Directors are the executive directors of the Company; (K) The Company has appointed HSBC to act as the sponsor in respect of the listing of the Share on the Stock Exchange; (L) The Selling Shareholder has appointed HSBC to act as the global coordinator, lead manager and bookrunner of the Global Offering; (M) The Selling Shareholder proposes to appoint HSBC to act as the Receiving Banker for the Public Offer; (N) The Company proposes to appoint Computershare Hong Kong Investor Services Limited to act as its Hong Kong branch share registrar and transfer office; (O) HSBC, on behalf of the Company, has submitted an application to the Stock Exchange for listing of and permission to deal in the Shares in issue and the Shares to be issued as described in the Prospectus; and (P) The Warrantors have agreed to give the representations, warranties and undertakings contained in this Agreement. IT IS HEREBY AGREED as follows: 1 INTERPRETATION 1.1 DEFINITIONS in this Agreement (including the Recitals and the Schedules), the following expressions shall, unless defined otherwise or the context otherwise requires, have the following meanings: "ACCEPTANCE DATE" the date on which the Application Lists close in accordance with the provisions of Clause 3.1.2; "ACCEPTED PUBLIC OFFER Public Offer Applications which have been APPLICATIONS" accepted (whether in whole or in part) pursuant to the provisions of Clause 3.1.3; "ACCOUNTS DATE" 31 December 2003; 2 "AFFILIATE" in relation to a particular company, any company or other entity which is its holding company or subsidiary, or any subsidiary of its holding company or which directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the company specified. For the purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise; "AGREEMENT AMONG PUBLIC the agreement expected to be entered into on the OFFER UNDERWRITERS" date hereof between HSBC and the other Public Offer Underwriters governing certain rights and obligations as between the Public Offer Underwriters in relation to the Public Offer; "APPLICATION FORMS" the application forms on which Public Offer Appliations may be made, which are in agreed form (as amended or supplemented pursuant to Clause 6.1 .1 (x)); "APPLICATION LISTS" the application lists referred to in Clause 3.1.2; "APPROVALS" includes all approvals, sanctions, orders, franchises, clearances, declarations, qualifications, licences, permits, certificates, consents, permissions, authorisations, filings and registrations and "APPROVAL" shall be construed accordingly; "ARTICLES OF ASSOCIATION" the articles of association of the Company conditionally adopted on 8 April 2004; "BOARD" the board of directors of the Company; "BROKERAGE" brokerage per Share of 1% of the Offer Price; "BROKERAGE, FEE AND the Brokerage, the Trading Fee, the Transaction LEVIES" Levy and the Investor Compensation Levy; "BUSINESS DAY" a day that is not a Saturday, Sunday or public holiday in Hong Kong; "CCASS" the Central Clearing and Settlement System established and operated by Hong Kong Securities Clearing Company Limited; "COMPANIES LAW" the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands; "COMPANIES ORDINANCE" the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) (as amended); "CONDITIONS" the conditions set out in Clause 2.1.1; "CONDITIONS PRECEDENT the documents listed in Schedule 4; DOCUMENTS" 3 "CONTINUING BUSINESSES" the businesses carried out by the Group in the three years ended 31 December 2003, except for the Discontinued Businesses; "DEED OF INDEMNITY" the deed of indemnity dated 15 April 2004 provided in connection with the Global Offering entered into between the Selling Shareholder and the Company; "DIRECTORS" the directors of the Company whose names are set out in the section headed "Directors, Senior Management and Staff" in the Prospectus; "DISCONTINUED the Group's discontinued businesses related to the BUSINESSES" trading and manufacturing of essential components and subassemblies for mobile phones in the three years ended 31 December 2003; "ENCUMBRANCE" any pledge, charge, lien, mortgage, security interest, claim, pre-emption rights, equity interest, third party rights or interests or rights similar to the foregoing; "EXECUTIVE DIRECTORS" the executive directors of the Company whose names and addresses are listed in Schedule 2; "FINAL OFFERING CIRCULAR" the final offering circular expected to be issued by the Company in connection with the International Placing (as amended or supplemented pursuant to Clause 6.1.1 (x)); "FORCE MAJEURE EXPIRY the Listing Date; DATE" "FORMAL NOTICE" the formal notice to be published in connection with the Public Offer, which is in agreed form (as amended or supplemented pursuant to Clause 6.1.1 (x)); "GLOBAL OFFERING" the Public Offer and the International Placing; "GOVERNMENTAL AUTHORITY" any public, regulatory, taxing, administrative or governmental, agency or authority (including, without limitation, the Stock Exchange and the SFC), other authority and any court at the national, provincial, municipal or local level; "GROUP" the Company, NTSZ and NTIC or, where the context so requires, in respect of the period before the Reorganisation is completed, the Continuing Businesses operated by NTSZ and the businesses operated by NTIC and the sales co-ordination and marketing activities operated by NTEEPHK; "HK DOLLAR" AND "HK$" Hong Kong dollar, the lawful currency of Hong Kong; "HOLDING COMPANY" has the meaning ascribed thereto in section 2 of the Companies Ordinance; "HONG KONG" the Hong Kong Special Administrative Region of the PRC; "INDEMNIFIED PARTY" has the meaning ascribed thereto in Clause 7.1; 4 "INDEMNIFYING PARTY" has the meaning ascribed thereto in Clause 7.1; "INTERNATIONAL PLACING" the conditional placing of the International Placing Shares on and subject to the terms of the Placing Documents and the International Underwriting Agreement; "INTERNATIONAL PLACING the 180,000,000 Shares initially to be offered for SHARES" sale by the Selling Shareholder and placed under the International Placing, subject to adjustment as provided in the International Underwriting Agreement; "INTERNATIONAL PLACING the underwriters identified in the International UNDERWRITERS" Underwriting Agreement as being the several underwriters of the International Placing; "INTERNATIONAL an international underwriting agreement expected UNDERWRITING AGREEMENT" to be entered into on the Price Determination Date among the Company, the Selling Shareholder, the Executive Directors, HSBC and the International Placing Underwriters in substantially agreed form; "INVESTOR COMPENSATION SFC investor compensation levy per Share of 0.002% LEVY" of the Offer Price; "LAWS" include all laws, rules, statutes, ordinances, regulations, guidelines, opinions, notices, circulars, orders, judgements, decrees or rulings of any Governmental Authority and "LAW" includes any one of them; "LISTING COMMITTEE" the listing committee of the Stock Exchange; "LISTING DATE" the day on which dealings in the Shares commence on the Stock Exchange; "LISTING RULES" the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited; "MACAO" the Macao Special Administrative Region of the PRC; "NOMINEE" HSBC Nominees (Hong Kong) Limited; "NTEEPHK" Nam Tai Electronic & Electrical Products Limited, a company incorporated under the laws of Hong Kong; "NTIC" Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited, a company incorporated in Macao and wholly owned by the Company; "NTSZ" Name in Chinese (Namtai Electronic (Shenzhen) Company Limited), a wholly foreign owned enterprise established under the laws of the PRC and wholly owned by the Company; "OFFER DOCUMENTS" the Public Offer Documents and the Placing Documents; 5 "OFFER PRICE" the final Hong Kong dollar price per Offer Share (exclusive of the Brokerage, Fee and Levies) at which the Public Offer Shares are to be offered as determined in accordance with the provisions of Clause 2.5; "OFFER SHARES" the Public Offer Shares and the International Placing Shares; "OPERATIVE DOCUMENTS" the Reorganisation Documents, the Deed of Indemnity, the Price Determination Agreement, the Receiving Banker Agreement, the Registrars Agreement and the Sub-Registrars Agreement; "OVER-ALLOTMENT OPTION" the option expected to be granted by the Selling Shareholder to HSBC, exercisable by HSBC, to require the Selling Shareholder to sell up to an aggregate of 30,000,000 additional Shares pursuant to the international Underwriting Agreement; "OVER-ALLOTMENT SHARES" the additional Shares which the Selling Shareholder may be required to sell at the Offer Price pursuant to the Over-allotment Option; "PENSION SCHEMES" the provident fund, retirement and welfare fund schemes of members of the Group as described in the section headed "Directors, Senior Management and Staff" of the Prospectus; "PLACING DOCUMENTS" the Preliminary Offering Circular and the Final Offering Circular; "PRC" the People's Republic of China (which shall for the purposes of this Agreement, unless otherwise indicated, exclude Hong Kong, Macao and Taiwan); "PRE-IPO SHARE OPTION the share option scheme adopted by the sole SCHEME" shareholder of the Company by way of written resolution dated 22 March 2004, the principal terms of which are summarised in the paragraph headed "Pre-IPO Share Option Scheme" in Appendix V of the Prospectus; "PRELIMINARY OFFERING the preliminary offering circular dated 12 April CIRCULAR" 2004 and prepared in respect of the International Placing and circulated to the Public Offer Underwriters (as amended or supplemented pursuant to Clause 6.1.1 (x)); "PRICE DETERMINATION the agreement expected to be entered into on the AGREEMENT" Price Determination Date between the Company, the Selling Shareholder and HSBC (on behalf of the Public Offer Underwriters) to record their agreement of the Offer Price; "PRICE DETERMINATION means the date on which the Offer Price is fixed DATE" for the purposes of the Public Offer in accordance with the Public Offer Documents and Clause 2.5; "PROFESSIONAL INVESTOR the notice from HSBC in the form set out in TREATMENT NOTICE" Schedule 6; 6 "PROPERTY VALUERS" LCH (Asia-Pacific) Surveyors Limited; "PROSPECTUS" the prospectus to be issued by the Company in connection with the Public Offer (as amended or supplemented pursuant to Clause 6.1.1(x)); "PROSPECTUS DATE" the date of issue of the Prospectus, which is intended to be on or about 16 April 2004; "PUBLIC OFFER" the offer of the Public Offer Shares for sale on and subject to the terms and conditions set out in the Public Offer Documents; "PUBLIC OFFER valid applications for Public Offer Shares made on APPLICATIONS" Application Forms (including, without limitation and for the avoidance of doubt, applications made on white Application Forms by HKSCC Nominees Limited on behalf of applicants who have given electronic application instructions) and accompanied by cheques or cashier's orders for the full amount payable on application which are honoured on first (or, at HSBC's option, subsequent) presentation and otherwise in compliance with the terms of the Public Offer Documents; "PUBLIC OFFER APPLICATION application moneys received in respect of Public MONEYS" Offer Applications; "PUBLIC OFFER DOCUMENTS" the Prospectus and the Application Forms; "PUBLIC OFFER SHARES" the 20,000,000 Shares initially being offered for sale by the Selling Shareholder pursuant to the Public Offer, as adjusted in accordance with Clauses 2.3 and 2.4; "PUBLIC OFFER OVER- a situation where the aggregate number of Public SUBSCRIPTION" Offer Shares being applied for under Public Offer Applications is greater in number than the aggregate number of the initial Public Offer Shares; "PUBLIC OFFER UNDER- has the meaning attributed thereto in Clause SUBSCRIPTION" 3.4.2; "PUBLIC OFFER the underwriters whose names and addresses are UNDERWRITERS" listed in Schedule 1, being the several underwriters of the Public Offer; "PUBLIC OFFER UNDERWRITING in relation to a Public Offer Underwriter, the COMMITMENT" maximum number of Public Offer Shares the application for which such Public Offer Underwriter has agreed to underwrite pursuant to the terms of this Agreement, as calculated by applying the percentages set out in Clause 3.4.2(a) to the number of initial Public Offer Shares, subject to adjustment as set out in Clause 2.4; 7 "RECEIVING BANKER" HSBC, in its capacity as the bank appointed to hold the application monies received in connection with the Public Offer pursuant to the Receiving Banker Agreement; "RECEIVING BANKER the agreement to be entered into by the Selling AGREEMENT" Shareholder, the Nominee, HSBC, which is in the agreed form; "REFERENCE PUBLIC OFFER the amount obtained by A x (B - C) where A = the AMOUNT" Offer Price, B = the initial number of Public Offer Shares, C = the number of unsubscribed Public Offer Shares which are reallocated to the International Placing in accordance with Clause 2.4; "REGISTRARS" Bank of Butterfield International (Cayman) Ltd., being the principal share registrar of the Company; "REGISTRARS AGREEMENT" the registrars and transfer agent agreement to be entered into between the Company and the Registrars in agreed form; "RELEVANT PUBLIC OFFER in relation to any Public Offer Underwriter, a APPLICATION" Public Offer Application made or procured to be made by such Public Offer Underwriter, the number of Public Offer Shares comprised in which is applied to reduce the Public Offer Underwriting Commitment of such Public Offer Underwriter pursuant to the provisions of Clause 3.4.1 ; "REORGANISATION" the corporate reorganisation of the Group in preparation for the listing of the Shares on the Stock Exchange as defined and described in the Prospectus; "REORGANISATION the documents referred to in Schedule 3; DOCUMENTS" "REPORTING ACCOUNTANTS" Deloitte Touche Tohmatsu; "SFC" the Securities and Futures Commission of Hong Kong; "SHARE OPTION SCHEME" the share option scheme conditionally adopted by the sole shareholder of the Company at an extraordinary general meeting held on 8 April 2004, the principal terms of which are summarised in the paragraph headed "Share Option Scheme" in Appendix V of the Prospectus; "SHARE(S)" ordinary shares of nominal value HK$0.01 each in the share capital of the Company; "STOCK EXCHANGE" The Stock Exchange of Hong Kong Limited; "SUB-REGISTRARS" Computershare Hong Kong Investor Services Limited, being the Hong Kong branch share registrar of the Company; "SUB-REGISTRARS the branch registrar agreement to be entered into AGREEMENT" between the Company and the Sub-Registrars, which is in agreed form; 8 "SUBSIDIARIES" the Subsidiaries of the Company named in the accountants' report, the text of which is set out in Appendix 1 to the Prospectus, and "SUBSIDIARY" means any or a specific one of them; "SUBSIDIARIES" has the meaning ascribed thereto in the Companies Ordinance; "TRADING FEE" Stock Exchange trading fee per Share of 0.005% of the Offer Price; "TRANSACTION" any transaction, act, event, omission or circumstance existing of whatever nature; "TRANSACTION LEVY" SFC transaction levy per Share of 0.005% of the Offer Price; "UNDERWRITERS" the Public Offer Underwriters and the International Placing Underwriters; "UNDERWRITING DOCUMENTS" this Agreement, the Price Determination Agreement and the International Underwriting Agreement; "US" AND "UNITED STATES" the United States of America, its territories, its possessions, any State of the United States and the District of Columbia; "US SECURITIES ACT" the United States Securities Act of 1933 (as amended or supplemented); "VERIFICATION NOTES" the verification notes dated 15 April 2004 prepared by Linklaters in connection with the verification of the Prospectus; "WARRANTIES" the representations, warranties, agreements and undertakings to be given by the Warrantors in Schedule 7; and "WARRANTORS" the Company and the Selling Shareholder. 1.2 OTHER INTERPRETATION In this Agreement, unless otherwise specified: 1.2.1 references to "RECITALS", "SECTIONS", "CLAUSES", "PARAGRAPHS" and "SCHEDULES" are to recitals, sections, clauses, paragraphs of and schedules to this Agreement; 1.2.2 a reference to any statute or statutory provision shall be construed as a reference to the same as it may have been, or may from time to time be, amended, modified or re-enacted; 1.2.3 references to a "COMPANY" shall be construed so as to include any company, corporation or other body corporate, whenever and however incorporated or established; 1.2.4 references to a "PERSON" shall be construed so as to include any individual, firm, company, government, state or agency of a state or any joint venture, association or (whether or not having separate legal personality); 9 1.2.5 references to writing shall include any modes of reproducing words in a legible and non-transitory form; 1.2.6 references to times of the day are, unless otherwise specified, to Hong Kong time; 1.2.7 headings to Clauses, sections and Schedules are for convenience only and do not affect the interpretation of this Agreement; 1.2.8 the Schedules form part of this Agreement and shall have the same force and effect as if expressly set out in the body of this Agreement, and any reference to this Agreement shall include the Schedules; 1.2.9 references to documents being "IN AGREED FORM" are to the form of the draft or final or executed version thereof signed for identification by or on behalf of the Company and HSBC with such alterations as may be agreed between the Company and HSBC but such documents in agreed form do not form part of this Agreement; 1.2.10 references to "best knowledge, information, belief and/or awareness" of any person or similar terms shall be treated as including but not limited to any knowledge, information, belief and awareness which the person would have had if such person had made due and careful enquiries; and 1.2.11 words in the singular shall include the plural (and vice versa) and words importing one gender shall include the other two genders. 2 THE GLOBAL OFFERING 2.1 CONDITIONS PRECEDENT 2.1.1 OBLIGATIONS CONDITIONAL The obligations of the Public Offer Underwriters under this Agreement are conditional upon: (i) HSBC, on behalf of the Public Offer Underwriters, receiving from the Company and the Selling Shareholder (as the case may be) the Conditions Precedent Documents not later than 6:00 p.m. on the Business Day before the Prospectus Date; (ii) the Registrar of Companies in Hong Kong registering one copy of the Prospectus certified by two Directors (or by their agents duly authorised in writing) as having been approved by resolution of the Board and having endorsed thereon or attached thereto all necessary consents and other documents as required by the provisions of section 342C of the Companies Ordinance not later than the Business Day before the Prospectus Date; (iii) the Listing Committee granting listing of and permission to deal in the Shares in issue and to be issued pursuant to the Pre-IPO Share Option Scheme and the Share Option Scheme (subject only to despatch of the share certificates in respect thereof and such other normal conditions acceptable to the Company and HSBC, on behalf of the Underwriters) not later than 16 May 2004 and such listing and permission not subsequently having been revoked prior to the commencement of dealings in the Shares on the Stock Exchange; 10 (iv) the Offer Price being duly determined as provided in Clause 2.5 and the Price Determination Agreement having been executed by the Selling Shareholder and HSBC (on behalf of the Public Offer Underwriters); (v) the execution and delivery of the International Underwriting Agreement on or before the Price Determination Date; and (vi) the International Underwriting Agreement; to the extent that it is subject to any specific conditions, becoming unconditional in accordance with its terms (other than any condition for the other Underwriting Documents to become unconditional) and not having been terminated in accordance with its terms or otherwise. 2.1.2 UNDERTAKING BY THE COMPANY, THE SELLING SHAREHOLDER AND THE EXECUTIVE DIRECTORS Each of the Company, the Selling Shareholder and the Executive Directors undertakes to use its best endeavours to procure that the Conditions are fulfilled by the times and dates stated therein, and in particular shall furnish such information, supply such documents, pay such fees, give such undertakings and do all such acts and things as may be required by HSBC (on behalf of the Public Offer Underwriters), the Stock Exchange, the Registrar of Companies in Hong Kong, the SFC and any relevant Governmental Authority in connection with the application for the listing of and permission to deal in the Shares on the Stock Exchange or the fulfilment of the Conditions. 2.1.3 HSBC'S WAIVER HSBC may, for itself and on behalf of the other Public Offer Underwriters, in its sole and absolute discretion, by giving notice to the Company and the other Public Offer Underwriters on or before the respective latest times on which the relevant Condition may be fulfilled: (i) extend the deadline for the fulfilment of any or all Conditions by such number of days and/or hours and/or in such manner as HSBC may determine on behalf of the Public Offer Underwriters but in any event no later than 16 May 2004; or (ii) waive (conditionally or unconditionally) the Condition under Clause 2.1.1(i) on behalf of the Public Offer Underwriters. 2.1.4 TERMINATION If any of the Conditions is not fulfilled, or waived in accordance with Clause 2.1.3, this Agreement shall terminate with immediate effect except that the provisions of Clause 9.2 shall apply. 2.2 STABILIZATION 2.2.1 HSBC is hereby appointed as stabilizing manager in connection with the Global Offering and may (but shall not be obliged) and not as agent for the Company or the Selling Shareholder, to the extent permitted by applicable Law of Hong Kong or elsewhere, over allocate or effect any other transactions (in the market or otherwise and whether in Hong Kong or elsewhere) with a view to supporting the market price of the Shares at a level higher than that which might otherwise prevail 11 in the open market for a limited period after the commencement of trading in the Shares ("STABILIZING ACTION"). 2.2.2 HSBC may, in its sole and absolute discretion, appoint any of its Affiliates or any other person(s) to be its agent(s) for the purposes of taking any stabilizing action, with such authorities and rights as HSBC has pursuant to Clause 2.2.1. 2.2.3 Stabilizing action, if taken, may be discontinued at any time. 2.2.4 Any liability, expenses and any loss resulting from such stabilizing action shall be borne, and any profit arising from such stabilizing action shall be beneficially retained, by HSBC. 2.2.5 Each of the Warrantors and the Public Offer Underwriters (other than HSBC) undertakes to the Public Offer Underwriters (including HSBC) that it will not take or cause or authorise any other person to take, and the Warrantors shall cause their respective affiliates, agents and/or subsidiaries not to take, directly or indirectly, any stabilizing action or any action which is designed to or which constitutes or which might be expected to cause or result in the stabilization or manipulation, in violation of applicable Laws, of the price of any security of the Company, provided that the granting of the Over-allotment Option under the International Underwriting Agreement shall not constitute a breach of this Clause 2.2.5. 2.3 CLAWBACK FROM INTERNATIONAL PLACING TO PUBLIC OFFER AND POOLS 2.3.1 The aggregate number of the initial Public Offer Shares shall be increased in the following manner: if the number of Shares validly applied for in Accepted Public Offer Applications represents (i) 15 times or more but less than 50 times (ii) 50 times or more but less than 100 times or (iii) 100 times or more, of the number of Shares initially available for purchase under the Public Offer, then Shares will be reallocated to the Public Offer from the International Placing, so that the total number of Shares available under the Public Offer will be increased to such number as represents approximately 30% (in the case of (i)) or 40% (in the case of (ii)) or 50% (in the case of (iii)), respectively, of the number of Offer Shares initially available under the Global Offering (before taking into account any exercise of the Over-allotment Option). 2.3.2 In the event of a reallocation of Offer Shares from the International Placing to the Public Offer pursuant to Clause 2.3.1, the relevant number of International Placing Shares shall be withdrawn from the International Placing and made available as additional Public Offer Shares offered for sale pursuant to the Public Offer, provided always that for the avoidance of doubt, any such reallocation shall have no effect on obligations of the Selling Shareholder to pay the commission due to the Public Offer Underwriters which shall be determined pursuant to Clause 4.1. 2.3.3 The total number of Shares initially available under the Public Offer (after taking into account any reallocation pursuant to this Clause 2.3) shall be divided equally into two pools for allocation purposes: pool A and pool B. The Shares in pool A will be allocated by HSBC in its sole and absolute discretion on an equitable basis to applicants who have applied for Shares with a total amount of HK$5 million (excluding the Brokerage, Fee and Levies payable) or less. The Shares in pool B will be allocated by HSBC in its sole and absolute discretion on an equitable basis to applicants who have applied for Shares with a total amount of more than HK$5 12 million (excluding the Brokerage, Fee and Levies payable). HSBC shall in its sole and absolute discretion determine the allocation ratio for the two pools described above subject to the provisions relevant thereto set out in the section headed "Structure and Conditions of the Global Offering" in the Prospectus. Any Shares which are reallocated from the International Placing to the Public Offer pursuant to this Clause 2.3 shall, subject to the provisions of this paragraph, be allocated in such manner as HSBC may, in its sole and absolute discretion, determine. 2.4 ALLOCATION OF PUBLIC OFFER UNDER-SUBSCRIPTION TO INTERNATIONAL PLACING If a Public Offer Under-Subscription shall occur, HSBC, at its sole and absolute discretion, may (but shall not be obliged to) reallocate all or any of the Public Offer Shares comprised in any such Public Offer Under-Subscription from the Public Offer to the International Placing and the Public Offer Underwriting Commitment of the relevant Public Offer Underwriter or the Public Offer Underwriters, as the case may be, shall be correspondingly automatically reduced in the same proportion as the aggregate amount of Public Offer Shares is reduced as a result of any such reallocation. 2.5 PRICE DETERMINATION The Offer Price shall be fixed by agreement between the Selling Shareholder (after consultation with the Company) and HSBC (on behalf of the Public Offer Underwriters) in Hong Kong dollars after market demand for the International Placing has been determined, which price (net of Brokerage, Fee and Levies) shall not exceed HK$4.20. It is expected that the Offer Price will be determined on or around the 22 April 2004, provided that such determination shall in any event be made no later than 26 April 2004. 2.6 APPOINTMENT OF SPONSOR, GLOBAL COORDINATOR, BOOKRUNNER, LEAD MANAGER AND PUBLIC OFFER UNDERWRITERS 2.6.1 Subject to the terms and conditions of this Agreement: (i) the Company hereby appoints, to the exclusion of all others, HSBC as its sponsor in respect of the listing of the Shares on the Stock Exchange; (ii) the Selling Shareholder hereby appoints, to the exclusion of others, HSBC as the global coordinator, bookrunner and lead manager to manage the Global Offering; and (iii) the Selling Shareholder hereby appoints, to the exclusion of others, the Public Offer Underwriters as underwriters for the Public Offer, and HSBC and other Public Offer Underwriters relying on the representations, warranties, agreements, undertakings and indemnities herein contained and subject as hereinafter mentioned, accept their respective appointments hereunder. 2.6.2 Each such appointment is made on the basis, and upon terms, that the appointee is irrevocably authorised to delegate all or any of its relevant rights, duties, powers and discretions in such manner and on such terms or subject to such conditions as it thinks fit (with or without formality and without prior notice of any such delegation being required to be given to the Company or the Selling Shareholder) to any one or more of its Affiliates. 2.6.3 Each of the Company and the Selling Shareholder hereby confirms that the foregoing appointments confer on each appointee and its Affiliates all rights, 13 powers, authorities and discretions on behalf of the Company and the Selling Shareholder which are necessary for, or incidental to, the performance of its roles contemplated by this Agreement and hereby agree to ratify and confirm everything which such appointee and its Affiliates have done or shall do in the exercise of such rights, powers, authorities and discretions. 3 THE PUBLIC OFFER 3.1 PUBLIC OFFER 3.1.1 OFFER OF PUBLIC OFFER SHARES The Selling Shareholder will, subject to the determination of the Offer Price pursuant to Clause 2.5, offer the Public Offer Shares for purchase by the public at the Offer Price plus Brokerage, Fee and Levies which is payable in full on application in Hong Kong dollars, on and subject to the terms and conditions set out in the Public Offer Documents and this Agreement. HSBC will, subject to registration of the Public Offer Documents in accordance with Clauses 2.1.1 (ii) and 2.1.1(iii), cause the Formal Notice to be published in the newspapers and publications and on the date(s) set out in Schedule 5 (or such other newspapers, publications and/or date(s) as the Company, the Selling Shareholder and HSBC may agree). 3.1.2 APPLICATION LISTS The application lists for the Public Offer Shares will, subject as mentioned below, open at 11:45 a.m. on 21 April 2004 and will close at 12:00 noon on the same day. In the event of a tropical cyclone warning signal number 8 or above or a "black" rainstorm warning signal (in any such case, a "SIGNAL") being in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on 21 April 2004 then the application lists will open at 11:45 a.m. and close at 12:00 noon on the next Business day. All references in this Agreement to the time of opening and closing of the application lists shall be construed accordingly. 3.1.3 BASIS OF ALLOCATION The Selling Shareholder agrees that HSBC shall have the sole and exclusive right, in its sole and absolute discretion, on and subject to the terms and conditions set out in the Public Offer Documents and this Agreement, to accept or reject (in whole or in part) any Public Offer Application and, where the number of Public Offer Shares being applied for exceeds the total number of the Public Offer Shares, to determine the basis of allocation of the Public Offer Shares. Each of the Company and the Selling Shareholder (as the case may be) shall, and shall procure (and insofar as it is able) that the Receiving Banker and the Sub-Registrars shall, as soon as practicable and in no event later than 10:00 p.m. on the Acceptance Date provide to HSBC with such information and assistance as HSBC may require for the purposes of determining; (i) in respect of a Public Offer Over-Subscription, the basis of allocation of the Public Offer Shares; or 14 (ii) in respect of a Public Offer Under-Subscription, the number of Public Offer Shares in respect of which Accepted Public Offer Applications have not been received. 3.1.4 RECEIVING BANKER; NOMINEE The Selling Shareholder will appoint the Receiving Banker to act as receiving banker in connection with the receiving of Public Offer Applications and the Nominee in connection with the receiving and holding of Public Offer Application Moneys and any interest accruing thereon, in both cases on and subject to the terms and conditions of the Receiving Banker Agreement. 3.1.5 REGISTRARS AND SUB-REGISTRARS The Company and the Selling Shareholder will appoint the Registrars and the Sub-Registrars to provide services in connection with the processing of Public Offer Applications on and subject to the terms and conditions of the Registrars Agreement and the Sub-Registrars Agreement. 3.1.6 FURTHER ASSURANCE Without prejudice to the foregoing obligations, each of the Company, the Selling Shareholder and the Executive Directors undertakes with the Public Offer Underwriters that it will give all such assistance and provide all such information and do (or procure to be done) all such other acts and things as may be required by HSBC to implement the Public Offer and this Agreement and that it will comply with all requirements so as to enable listing of and permission to deal in the Shares to be granted by the Listing Committee, such dealing to commence on or before 16 May 2004 and to enable such listing to be maintained thereafter, including in particular, effecting all necessary registrations and/or filings with the Stock Exchange, the SFC and the Registrar of Companies in Hong Kong, and the Executive Directors and the Company will take all steps to ensure that each of the Directors shall duly sign or cause to be duly signed on their behalf all documents required to be signed by them as Directors for the purpose of or in connection with any such registrations and/or filings or the obtaining of listing of and permission to deal in the Shares on the Stock Exchange. 3.2 PUBLIC OFFER DOCUMENTS The Company will, on the Prospectus Date, issue the Public Offer Documents and will cause such number of copies as HSBC directs of the Public Offer Documents to be delivered to HSBC or as HSBC directs. 3.3 SALE OF PUBLIC OFFER SHARES 3.3.1 No later than 8:30 a.m. on the day which is two Business Days after the Acceptance Date, the Selling Shareholder will deliver the relevant share certificates for the Public Offer Shares together with instruments of transfer and/or any other documents required to effect the transfer of the Public Offer Shares under the applicable Laws to the Sub-Registrars. The Selling Shareholder agrees to give all consents and do all acts and things and execute all and any documents which in the sole and absolute discretion of HSBC are deemed necessary or desirable to effect the sale of the Public Offer Shares. The Selling Shareholder shall sell each Public Offer Shares free from any Encumbrance and with the benefit of all rights 15 attached thereto and thereafter accruing thereto including the right to receive all dividends or other distributions which may declared, paid or made thereon at or after the date of the transfer of the Public Offer Shares pursuant to Clause 3.3.3. 3.3.2 Upon receipt by the Sub-Registrars of the Application Forms for the Accepted Public Offer Applications, the Company shall (and the Selling Shareholder shall procure that the Company) as soon as practicable thereafter and in no event by later than 8:30 a.m. on the fourth Business Day after the Acceptance Date: {i) procure that the Sub-Registrars shall, conditional upon the fulfilment of the Conditions, effect the cancellation of the relevant share certificates for the Public Offer Shares and the transfer of the public offer shares to the successful applicants; (ii) procure that the names of the successful applicants (or, where appropriate, HKSCC Nominees Limited) shall be entered in the register of members of the Company accordingly (without payment of any registration fee); and (iii) procure that share certificates in respect thereof (each in a form complying with the Listing Rules and in such number and denominations as directed by HSBC) shall be issued and despatched, or delivered or released to successful applicants (or where appropriate, Hong Kong Securities Clearing Company Limited for immediate credit to such CCASS stock accounts as shall be notified by HSBC to the Company for such purpose), or made available for collection (as applicable) as provided for in the Public Offer Documents and this Agreement. 3.4 UNDERWRITING OF THE PUBLIC OFFER 3.4.1 PUBLIC OFFER UNDERWRITERS' SET OFF In relation to each Public Offer Application made or procured to be made by any of the Public Offer Underwriters otherwise than pursuant to the provisions of Clause 3.4.2, the Public Offer Underwriting Commitment of such Public Offer Underwriter shall, subject to the Application Form relating to such Public Offer Application having been duly completed and marked with the name of such Public Offer Underwriter (or any sub-underwriter of such Public Offer Underwriter and designated as such) and to such Public Offer Application having been accepted (whether in whole or in part) pursuant to the provisions of Clause 3.1.3, be reduced pro tanto by the number of Public Offer Shares comprised in such Public Offer Application to the extent that such Public Offer Application has been accepted until the Public Offer Underwriting Commitment of such Public Offer Underwriter is reduced to zero. Application Forms and cheques or cashier's orders for the full amount payable on application in respect of Public Offer Applications to which this Clause 3.4.1 applies may be submitted in the manner provided for in the Public Offer Documents with delivery of a copy to HSBC, on or before 10:00 a.m. on the Acceptance Date, 3.4.2 SEVERAL UNDERWRITING COMMITMENTS On and subject to the terms and conditions of this Agreement and in reliance upon the Warranties, if and to the extent that, by 12:00 noon on the Acceptance Date, there shall remain any Public Offer Shares which have not been validly applied for pursuant to Accepted Public Offer Applications or in respect of which payment has 16 not been cleared (a "PUBLIC OFFER UNDER-SUBSCRIPTION"), the Public Offer Underwriters (other than any Public Offer Underwriter whose Public Offer Underwriting Commitment has been reduced by Relevant Public Offer Applications to zero pursuant to Clause 3.4.1) shall, subject as provided in Clause 3.4.7, apply or procure applications for such Public Offer Shares at the Offer Price in accordance with the terms and conditions set out in the Public Offer Documents (other than as to the deadline for making Public Offer Applications and the terms of payment) and shall pay or procure to be paid the full amount payable on application (plus Brokerage, Fee and Levies) in accordance with Clause 3.4.6, provided that the obligations of the Public Offer Underwriters in respect of such Public Offer Shares under this Clause 3.4.2 shall be several (and not joint or joint and several) on the basis that each Public Offer Underwriter shall apply or procure applications for the number of such Public Offer Shares up to but not exceeding the number of Public Offer Shares calculated by applying the percentage set opposite the name of such Public Offer Underwriter in column (II) below to the total number of Public Offer Shares finally determined, subject to adjustment as referred to in Clauses 2.3 and 2.4 (if applicable) and each Public Offer Underwriter's obligations in respect of such Public Offer Shares shall be borne in the proportion which: (a) the number of Public Offer Shares calculated by applying the percentage set opposite the name of such Public Offer Underwriter in column (II) below to the total number of Public Offer Shares finally determined: (I) (II) NAME OF UNDERWRITER % HSBC 71 BNP Paribas Peregrine Capital Limited 10 Nomura International (Hong Kong) Limited 10 Cazenove Asia Limited 3 DBS Asia Capital Limited 3 VC CEF Capital Limited 3 less the number of Public Offer Shares comprised in Relevant Public Offer Applications of such Public Offer Underwriter bears to (b) the aggregate number of Public Offer Shares less the aggregate number of Public Offer Shares comprised in Relevant Public Offer Applications of all Public Offer Underwriters. The obligations of the Public Offer Underwriters determined pursuant to this Clause 3.4.2 may be rounded, as determined by HSBC in its sole and absolute discretion, to avoid fractions and odd lots. The determination of HSBC shall be final and conclusive. 3.4.3 ACCEPTANCE OF APPLICATIONS The Selling Shareholder agree with the Public Offer Underwriters that all duly completed Application Forms received prior to the Application Lists being closed and accepted by HSBC pursuant to Clause 3.1.3, either in whole or in part, will, if accompanied with a remittance which has been duly cleared, be accepted by the 17 Selling Shareholder before calling upon the Public Offer Underwriters or any of them to perform the obligations imposed on it by this Clause 3.4. 3.4.4 CALCULATION OF PUBLIC OFFER SHARES APPLIED FOR Following the closing of the Application Lists, the Company and the Selling Shareholder shall procure that the Receiving Banker and the Sub-Registrars shall as soon as possible, and in any event not later than 5:00 p.m. on the second Business Day following the Acceptance Date, to calculate the number of Public Offer Shares for which duly completed Application Forms have been received and to complete the processing of the Public Offer Applications and in the event of a Public-Offer Under-Subscription, to notify HSBC forthwith of the number of the unsubscribed Public Offer Shares. 3.4.5 NOTIFICATION TO THE PUBLIC OFFER UNDERWRITERS Subject to Clause 2.4, in the event of a Public Offer Under-Subscription so that the Public Offer Underwriters are obliged to apply for or procure applicants for the Public Offer Shares representing the shortfall, HSBC on behalf of the Selling Shareholder will, subject to receiving notification from the Receiving Banker and Sub-Registrars pursuant to Clauses 3.1.3 and 3.4.4, cause the Receiving Banker as soon as possible and in any event by 9:00 p.m. on the Acceptance Date (such Business Day being hereinafter referred to as the "Shortfall Notification Date") to notify the Public Offer Underwriters of the number of Public Offer Shares falling to be taken up pursuant to Clause 3.4.2 (subject to adjustment taking into account applications rejected due to application cheques which were dishonoured upon first presentation (the "BOUNCED CHEQUES")). HSBC on behalf of the Selling Shareholder will, subject to receiving notification from the Receiving Banker and Sub-Registrars pursuant to Clauses 3.1.3 and 3.4.4, cause the Receiving Banker as soon as possible and in any event by 5:00 p.m. on the second Business Day following the Acceptance Date to notify the Public Offer Underwriters of the number of Public Offer Shares falling to be taken up pursuant to Clause 3.4.2, having taken into account the Bounced Cheques. If there is no Public Offer Under-Subscription, then the obligations of the Public Offer Underwriters in relation to the Public Offer pursuant to this Clause 3.4 shall cease. 3.4.6 PUBLIC OFFER UNDERWRITERS' PURCHASE OBLIGATIONS As soon as practicable, and in any event not later than 2:00 p.m. on the third Business Day which falls immediately after the Shortfall Notification Date and subject to the Conditions having been fulfilled or waived by HSBC (on behalf of the Public Offer Underwriters) pursuant to Clause 2.1, each of the Public Offer Underwriters will: (i) deliver to HSBC duly completed Application Form(s) for such number of Public Offer Shares as fall to be taken up by it pursuant to Clause 3.4.2 specifying the names and addresses of the applicants and the number of Public Offer Shares to be allocated to each such applicant; and (ii) pay, or procure to be paid, to the Nominee the aggregate amount payable on application in respect of the Offer Price for such Public Offer Shares as fall to be taken up by it pursuant to Clause 3.4.2 (which shall include all 18 amounts on account of Brokerage, Fee and Levies in accordance with the terms of the Public Offer), and the Selling Shareholder will, as soon as practicable after such payment and in no event later than 8:30 a.m. on the fourth Business Day after the Shortfall Notification Date, duly transfer to the said applicants the Public Offer Shares to be taken up as aforesaid and procure the Sub-Registrars to duly issue and deliver the share certificates in relation to such Public Offer Shares, in each case on the basis set out in Clause 3.3. 3.4.7 HSBC'S OPTION If a Public Offer Under-Subscription shall occur, HSBC shall have the right (but shall not be obliged) to apply or procure applications for (subject to and in accordance with this Agreement) all or any of the Public Offer Shares which any Public Offer Underwriter is required to apply or procure applications for pursuant to Clause 3.4.2. Any application submitted or procured to be submitted by HSBC pursuant to this Clause 3.4.7 in respect of which payment is made in accordance with Clause 3.4.6, specifying the relevant Public Offer Underwriter whose obligations HSBC is thereby satisfying, shall satisfy pro tanto the obligation of the relevant Public Offer Underwriter under this Clause 3.4 and shall not affect any agreement or arrangement between the Public Offer Underwriters regarding the payment of underwriting commission. 3.5 DEFAULT OF A PUBLIC OFFER UNDERWRITER Subject to the provisions of the Agreement Between Public Offer Underwriters (which shall not be binding on or confer any rights upon any persons other than the parties thereto), none of HSBC or any of the Public Offer Underwriters will be liable for any failure on the part of any of the other Public Offer Underwriters to perform any of such other Public Offer Underwriter's obligations under this Agreement. Notwithstanding the foregoing, each of HSBC and the Public Offer Underwriters shall be entitled to enforce any or all of its rights under this Agreement either alone or jointly with any or all of the other Public Offer Underwriters. 3.6 PAYMENT OBLIGATIONS RELATING TO THE PUBLIC OFFER 3.6.1 PAYMENT TO THE SELLING SHAREHOLDER The Public Offer Application Moneys held by the Nominee will, in accordance with the provisions of the Receiving Banker Agreement and subject to Clauses 3.6.2, 3.6.3 and 3.6.4, be paid over to the Selling Shareholder through Nam Tai Group Management Limited in Hong Kong dollars by 9:30 a.m. on the Listing Date by crediting the Designated Bank Account (as defined in this Clause 3.6.1), upon the Nominee receiving written confirmation from HSBC in accordance with the provisions of the Receiving Banker Agreement that, inter alia, the Conditions have been fulfilled and that the Sub-Registrars has despatched valid share certificates in the names of successful applicants or HKSCC Nominees Limited (as the case may be) for the Public Offer Shares provided that the Nominee will, in accordance with the provisions of the Receiving Banker Agreement, deduct from the amount so payable to the Selling Shareholder and pay to HSBC (where a person other than HSBC is entitled to any amount so paid, as agent on behalf of such person) or to such person as HSBC may instruct: 19 (i) the underwriting commission, the sponsorship and financial advisory fee and other fees and expenses payable under Clauses 4.1 and 4.2; and (ii) the whole or such portion of the fees, costs and expenses which remain payable by the Selling Shareholder under Clauses 4.3 and 4.4 as HSBC may calculate and direct being an amount representing HSBC's estimate of all such fees, costs and expenses provided that: (a) without prejudice to the Selling Shareholder's obligation under Clauses 4.3 and 4.4, any actual payment by HSBC to such person who is entitled to payment under Clauses 4.3 and 4.4 shall not be made without prior consent of the Selling Shareholder; (b) if the amount deducted pursuant to this paragraph (ii) is insufficient for purposes of covering such fees, costs and expenses, the Selling Shareholder shall pay to HSBC (where a person other than HSBC is entitled to any amount so paid, as agent on behalf of such person) and/or to such person as HSBC may instruct an amount equal to such shortfall forthwith upon receipt of demand for the same from HSBC and, in any event, no later than five Business Days from the date of such demand); and (c) HSBC shall within three months of the date of this Agreement pay to the Selling Shareholder through Nam Tai Group Management Limited by crediting the Designated Bank Account an amount equal to the balance of the amount of fees, costs and expenses deducted under this paragraph (ii), if any, after payment by HSBC on behalf of the Selling Shareholder of the aforementioned fees, costs and expenses, and such payment of the Public Offer Application Moneys (subject to the deductions to be made pursuant to this Clause 3.6.1) into the Designated Bank Account shall discharge the Public Offer Underwriters of any further payment obligations with respect to the Public Offer Shares. For the purpose this Clause 3.6.1, "DESIGNATED BANK ACCOUNT" means the following bank account of Nam Tai Group Management Limited, a wholly owned subsidiary of the Selling Shareholder and incorporated in Hong Kong: Holder of the Bank Account: Nam Tai Group Management Limited Bank Name: The Hongkong and Shanghai Banking Corporation Limited Account Number: 500-815287-001. 3.6.2 PAYMENT OF BROKERAGE, FEE AND LEVIES HSBC, on behalf of the Public Offer Underwriters, will arrange for the payment by the Nominee to the persons entitled thereto of the Brokerage, Fee and Levies in respect of Accepted Public Offer Applications, such amounts to be paid out of the Public Offer Application Moneys. 20 3.6.3 PAYMENT OF TRADING FEE, TRANSACTION LEVY AND INVESTOR COMPENSATION LEVY ON BEHALF OF THE SELLING SHAREHOLDER HSBC, on behalf of the Selling Shareholder, will arrange for the payment by the Nominee of the Trading Fee, the Transaction Levy and the Investor Compensation Levy payable by the Selling Shareholder in respect of Accepted Public Offer Applications to the Stock Exchange, such amounts to be paid out of the Public Offer Application Moneys. 3.6.4 PAYMENT OF STAMP DUTY ON BEHALF OF THE SELLING SHAREHOLDER HSBC, on behalf of the Selling Shareholder, will arrange for the Nominee to transfer from the Public Offer Application Moneys such amount of the stamp duty payable by the Selling Shareholder and the purchasers of the Public Offer Shares in connection with the transfer of the Public Offer Shares, for payment by HSBC to the Inland Revenue Department of the Government of Hong Kong. 3.6.5 REFUND OF PUBLIC OFFER APPLICATION MONEYS In accordance with the terms of the Receiving Banker Agreement and the Sub-Registrars Agreement, the Nominee will pay, and the Sub-Registrars will arrange for the distribution of cheques, to applicants under the Public Offer who are entitled to receive any refund of Public Offer Application Moneys in accordance with the terms of the Public Offer Documents. 3.6.6 DISCHARGE FROM PUBLIC OFFER UNDERWRITER'S OBLIGATIONS As soon as the Public Offer Shares comprising the Public Offer Underwriting Commitment of a Public Offer Underwriter shall be purchased and paid for by the Public Offer Underwriter and/or purchasers procured by such Public Offer Underwriter and/or otherwise pursuant to this Agreement, such Public Offer Underwriter shall be discharged from all further liability under this Agreement save in respect of Clauses 10.8 and 10.9 and any antecedent breaches under this Agreement. 4 COSTS, EXPENSES, FEES AND COMMISSIONS 4.1 UNDERWRITING COMMISSIONS In consideration of the services of the Public Offer Underwriters under this Agreement, the Selling Shareholder will pay to HSBC (for itself and on behalf of the Public Offer Underwriters) an underwriting commission at the rate of 3.0% of the Reference Public Offer Amount, out of which the Public Offer Underwriters will meet all (if any) sub-underwriting commissions. For the avoidance of doubt, if the number of Public Offer Shares is reduced as provided in Clause 2.4, the Public Offer Underwriters shall not be entitled to the commission of 3.0% in relation to those unsubscribed Shares which are reallocated to the International Placing pursuant to Clause 2.4, and if the number of Public Offer Shares is increased as provided in Clause 2.3, the Public Offer Underwriters shall not be entitled to the commission of 3.0% in relation to those Shares reallocated from the International Placing to the Public Offer pursuant to Clause 2.3. 4.2 SPONSORSHIP AND FINANCIAL ADVISORY FEE AND OTHER FEES AND EXPENSES The Selling Shareholder will further pay to HSBC a combined sponsorship and financial advisory fee and such other fees and expenses of such amounts and in such manner as 21 have been separately agreed between the Company (or any member of the Group) and/or the Selling Shareholder (or any member of its group) and HSBC. 4.3 PUBLIC OFFER UNDERWRITERS' EXPENSES The Selling Shareholder shall also pay to HSBC on behalf of the Public Offer Underwriters, all amount of costs, fees and expenses (including, without limitation, the costs of the Public Offer Underwriters' legal advisers and all travelling, telecommunications, postage and other out-of-pocket expenses) incurred by the Public Offer Underwriters or any of them or on their or its behalf under this Agreement or in connection with the Public Offer. 4.4 EXPENSES TO BE BORNE BY THE SELLING SHAREHOLDER The Selling Shareholder shall be responsible for all costs, fees and expenses arising from, in connection with or incidental to the Global Offering, which shall include but are not limited to the following: (a) the stamp duty payable by the Selling Shareholder and purchasers of the Public Offer Shares in connection with the transfer of the Public Offer Shares in the Public Offer; (b) any other capital duty, premium duty, tax, duty, levy and other fees, charges and expenses payable (including any fines or penalties), whether pursuant to any Law or otherwise in respect of the transfer of the Offer Shares, the Global Offering and all transactions contemplated thereunder, the execution and delivery of, and the performance of any of the provisions under, the Underwriting Documents save for any profit tax payable in Hong Kong by any of HSBC or the Underwriters, arising out of any commission or fees received by any of such parties pursuant to the Underwriting Documents; (c) fees and expenses of the Reporting Accountants; (d) fees and expenses of the Receiving Banker; (e) fees and expenses of the Property Valuers; (f) fees and expenses of the Registrars and the Sub-Registrars; (g) fees and expenses of all legal advisers; (h) fees and expenses of the public relations consultants; (i) fees and expenses of the translators; (j) fees and expenses of other agents and advisers of the Company and the Selling Shareholder; (k) fees and expenses related to the application for listing of the Shares on the Stock Exchange and the maintenance of a listing on the Stock Exchange; (l) fees and expenses related to the filing or registration of the Public Offer Documents and any amendments and supplements thereto with any relevant authority, including the Registrar of Companies in Hong Kong; (m) costs and expenses relating to the launching of the Global Offering and the conducting of roadshows, syndicate analysts' briefing and video and other presentations relating to the Global Offering; 22 (n) printing and advertising costs; (o) the costs of preparing, printing, delivery and distribution (including transportation, packaging and insurance) of documents of title to the Offer Shares; and (p) costs of despatch and distribution of the Offer Documents and all amendments and supplements thereto in all relevant jurisdictions. 4.5 PAYMENT All amounts due hereunder shall be due and payable on or before the Listing Date and may be deducted from the Public Offer Application Moneys pursuant to Clause 3.6. 5 REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS 5.1 REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS BY THE WARRANTORS The Warrantors jointly and severally represent, warrant, agree and undertake to the Public Offer Underwriters and each of them in the terms set out in Part 1 of Schedule 7. The Company represents, warrants, agrees and undertakes to the Public Offer Underwriters and each of them in the terms set out in Part 2 of Schedule 7. The Selling Shareholder further represents, warrants, agrees and undertakes to the Public Offer Underwriters and each of them in the terms set out in Part 3 of Schedule 7. The Warrantors accept that each of the Public Offer Underwriters is entering into this Agreement in reliance upon each of such representations, warranties, agreements and undertakings. 5.2 RIGHTS IN RELATION TO THE WARRANTIES 5.2.1 Each of the Warranties shall be construed separately and shall not be limited or restricted by reference to or inference from the terms of any other of the Warranties or any other term of this Agreement. 5.2.2 The Warranties shall remain in full force and effect notwithstanding completion of the Global Offering. 5.2.3 The Warranties are given on and as at the date of this Agreement with respect to the facts and circumstances subsisting at the date of this Agreement. In addition, the Warranties shall be deemed to be given on and as at: (i) the date on which the Public Offer Documents are registered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies Ordinance; (ii) the Acceptance Date; (iii) the Price Determination Date; and (iv) immediately prior to 8:00 a.m. on the Force Majeure Expiry Date, in each case with reference to the facts and circumstances then subsisting. For the avoidance of doubt, nothing in this Clause 5.2.3 shall affect the on-going nature of the Warranties. 5.2.4 Each of the Warrantors undertakes to give notice to each of the Public Offer Underwriters forthwith of any matter or event coming to their respective attention at any time on or prior to the last date on which the Warranties are deemed to be 23 given pursuant to the provisions of Clause 5.2.3 which shows any of the Warranties to be or to have been untrue or inaccurate or breached. 5.2.5 If at any time on or prior to the date on which the Warranties are deemed to be given pursuant to the provisions of Clause 5.2,3, by reference to the facts and circumstances then subsisting, any matter or event comes to the attention of any of the Warrantors which: (i) would or might result in any of the Warranties, if repeated immediately after the occurrence of such matter or event, being untrue or inaccurate or breached; or (ii) would or might render untrue, inaccurate or misleading any statement, whether of fact or opinion, contained in the Public Offer Documents, the Formal Notice or the Preliminary Offering Circular or any of them if the same were issued immediately after the occurrence of such matter or event; or (iii) would or might result in the omission of any fact which is material for disclosure or required by applicable Laws to be disclosed in the Public Offer Documents, the Formal Notice or the Preliminary Offering Circular or any of them (assuming that the relevant documents were to be issued immediately after occurrence of such matter or event); or (iv) would or might result in any breach of the representations, warranties or undertakings given by any of the Warrantors or any circumstances giving rise to a claim under any of the indemnities as contained in, or given pursuant to, this Agreement, such Warrantor shall forthwith notify and consult the Company (for itself and on behalf of the Selling Shareholder) and HSBC (for itself and on behalf of the other Public Offer Underwriters) and shall take such steps as may be requested by HSBC (for itself and on behalf of the other Public Offer Underwriters) to remedy the same. 5.2.6 If any matter or event referred to in Clause 5.2.5 shall have occurred, nothing herein shall prejudice any rights that HSBC or any of the Public Offer Underwriters may have in connection with the occurrence of such matter or event, including without limitation its rights under Clause 9. 5.2.7 Each of the Company and the Selling Shareholder shall not, and shall procure that their respective Affiliates will not, and the Executive Directors and the Selling Shareholder shall procure that the Company will not: (i) do or omit to do anything which may cause, and will use its best efforts not to permit, any of the Warranties pursuant to Clause 5.1 to be untrue or inaccurate or breached in any respect at or prior to any time referred to in Clause 5.2.3 (assuming such Warranties to be repeated at such times with reference to the facts and circumstances then subsisting); or (ii) do or omit to do anything which could materially and adversely affect the Global Offering. 24 5.2.8 For the purpose of this Clause 5: (i) the representations, warranties, agreements and undertakings shall remain in full force and effect notwithstanding the completion of the purchase of the Offer Shares, the completion of the Global Offering and all other matters and arrangements referred to or contemplated by this Agreement; and (ii) if an amendment or supplement to the Public Offer Documents, the Formal Notice or the Preliminary Offering Circular or any of them is published after the date hereof pursuant to Clause 6.1.1(x), representations, warranties, agreements and undertakings relating to any such documents given pursuant to this Clause 5 shall be deemed to be repeated on the date of publication of such amendment or supplement and when so repeated, representations, warranties, agreements and undertakings relating to such documents shall be read and construed subject to the provisions of this Agreement as if the references therein to such documents means such documents when read together with such amendment or supplement. 6 FURTHER UNDERTAKINGS 6.1 FURTHER UNDERTAKINGS BY THE COMPANY, THE SELLING SHAREHOLDER AND THE EXECUTIVE DIRECTORS 6.1.1 The Company undertakes to each of the Public Offer Underwriters that it will, and the Executive Directors and the Selling Shareholder shall procure that the Company will: (i) maintain a listing for the Shares on the Stock Exchange for at least one year after the Conditions have been fulfilled and to pay all fees and supply all further documents, information and undertakings and publish all advertisements or other material as may be necessary or advisable for such purpose, except following a withdrawal of such listing which has been approved by the relevant shareholders of the Company in accordance with the Listing Rules or following an offer (within the meaning of the Hong Kong Code on Takeovers and Mergers) for the Company becoming unconditional; (ii) procure that no connected persons (as defined in the Listing Rules) of the Company will itself (or through a company controlled by it) apply or purchase any Offer Shares either in its own name or through nominees unless permitted to do so under the Listing Rules, and if any such application therefor, or after due and careful enquiries, it becomes aware of any indication of interest therefor, has been made by such persons, it shall forthwith notify HSBC (on behalf of the Public Offer Underwriters); (iii) procure that there shall be delivered to the Stock Exchange as soon as practicable the declaration in the form set out in Appendix 5, Form F of the Listing Rules; (iv) procure that the audited accounts of the Company for its financial year ending 31 December 2004 will be prepared on a basis consistent with the accounting policies adopted for the purposes of the financial statements 25 contained in the report of the Reporting Accountants set out in Appendix I to the Prospectus; (v) save as pursuant to any share option scheme of any member of the Group, not without the prior written consent of HSBC (on behalf of the Public Offer Underwriters) and unless in compliance with the Listing Rules: (a) at any time after the date of this Agreement up to and including the date falling six months after the date on which dealings in the Shares first commence on the Stock Exchange (the "FIRST SIX-MONTH PERIOD"): (I) offer, accept subscription for, pledge, issue, sell, lend, mortgage, assign, charge, contract to issue or sell, sell any option or contract to purchase, purchase any option or contract to sell, grant or agree to grant any option, right or warrant to purchase or subscribe for, lend or otherwise transfer or dispose of, either directly or indirectly, conditionally or unconditionally, any of the share capital or other securities of the Company or any interest therein (including, but not limited to, any securities that are convertible into or exchangeable for, or that represent the right to receive any such capital or securities or any interest therein); 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 any such capital or securities or any interest therein; or (III) enter into any transaction with the same economic effect as any transaction described in paragraphs (I) or (II) above; (IV) agree or contract to, or publicly announce any intention to enter into, any transaction described in paragraphs (I), (II) or (III) above, whether any such transaction described in paragraphs (I) or (II) or (III) above is to be settled by delivery of Shares or other securities, in cash or otherwise; and (b) enter into any of the foregoing transactions in paragraphs (a)(I), (II) and (III) above, or agree or contract to or publicly announce any intention to enter into any such transaction, such that the Selling Shareholder would cease to be a controlling shareholder (as defined in the Listing Rules) of the Company during the six-month period immediately following the First Six-Month Period (the "SECOND SIX-MONTH PERIOD"); (vi) not, at any time after the date of this Agreement up to and including the date on which all of the Conditions are fulfilled (or waived) in accordance with this Agreement, amend or agree to amend the Articles of Association save as requested by Stock Exchange; 26 (vii) until the date falling one year after the Listing Date, without the prior written consent of HSBC, not enter into or procure, or permit any member of the Group to enter into any commitment or agreement or arrangement: (a) of an unusual or onerous nature or outside its ordinary course of business, whether or not that contract, commitment or arrangement would constitute a material contract for the purposes of the Prospectus; and (b) which could materially and adversely affect the business or affairs of the Company and the Group taken as a whole; (viii) until the date falling six months after the Listing Date: (a) discuss with HSBC: (I) any major new developments in its sphere of activity which are not public knowledge which may, by virtue of the effect of those developments on its assets and liabilities or financial position or on the general course of its business, lead to substantial movement in the price of its listed securities; (II) any change in the Company's financial condition or in the performance of its business or in the Company's expectation of its performance which, if made public, would be likely to lead to substantial movement in the price of its listed securities; and (III) any proposals or circumstances which may lead to any such developments or changes as described in paragraphs (I) and (II) above, (b) forward to HSBC for perusal in draft all documents to be sent to shareholders and all press announcements to be issued by the Company to the Stock Exchange during such period; (ix) until the date falling six months after the Listing Date, furnish to HSBC copies of all reports or other communications furnished to shareholders, and deliver to HSBC (i) as soon as they are publicly available, copies of any reports and financial statements furnished to or filed with the Stock Exchange or any securities exchange on which any class of securities of the Company may be listed, and (ii) such additional information concerning the business and financial condition of the Company publicly available as HSBC may from time to time request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its shareholders generally or to the Stock Exchange); (x) without prejudice to any other rights of any party hereto, if at any time until the completion of the Global Offering: (a) Clause 5.2.5 applies; or (b) any event shall have occurred as a result of which the Offer Documents or the Formal Notice or any of them (as then amended or 27 supplemented pursuant to the provisions of this Clause 6.1.1(x)) would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such document was issued, not misleading; or (c) if it shall be necessary to amend or supplement the Offer Documents or the Formal Notice or any of them to comply with applicable Law, promptly notify HSBC of such event and, subject to the provisions of this Clause 6.1.1(x), the Company (for itself and on behalf of the Selling Shareholder) shall, at its own expense, amend or supplement the Offer Documents, the Formal Notice or any of them, as the case may be, and shall issue and publish such other announcement, circular, document, material or information and do such other act or thing as necessary or advisable to correct such statement or omission or effect such compliance with applicable Law or as may be requested by HSBC and shall, without charge, supply HSBC or as such person(s) as it shall direct with as many copies as HSBC may from time to time request of the aforesaid documents, material or information; Except for the Offer Documents and the Formal Notice or except as otherwise provided pursuant to the Underwriting Documents, each of the Company and the Selling Shareholder undertakes that it shall not, and each of the Executive Directors undertakes to procure that the Company shall not, without the prior written approval of HSBC (for itself and on behalf of the Public Offer Underwriters), issue, publish, distribute or otherwise make available any document (including any prospectus or offering circular), announcement, material or information in connection with the Public Offer (including any supplement or amendment thereto). The Company will advise HSBC promptly of any proposal to amend or supplement the Offer Documents or the Formal Notice or any of them, and will not effect such amendment or supplementation without HSBC's consent (such consent not to be unreasonably withheld or delayed); (xi) during the period of one year after the Listing Date, refrain from taking any action that could jeopardise the listed status of the Shares on the Stock Exchange, provided however, that this paragraph shall not prevent the Company from taking any action for the delisting of the Shares so long as (a) the Company complies in all respects with the Listing Rules and all other applicable Laws, and (b) the requisite approval of such action by the holders of the Shares is duly obtained; (xii) for so long as the Shares are listed on the Stock Exchange and during the period of one year after the Listing Date, file with the Stock Exchange, the SFC and any other Governmental Authority in Hong Kong and the Cayman Islands, such reports, documents, agreements and other information which may from time to time be required by applicable Laws to be so filed because the Shares are listed on the Stock Exchange; and (xiii) provide to HSBC (on behalf of the Public Offer Underwriters) any such other resolutions, consents, authorities, documents, opinions and 28 certificates which are relevant in the context of the Global Offering owing to circumstances arising or events occurring after the date of this Agreement, but on or before 8:00 a.m. on the Force Majeure Expiry Date and as HSBC may require. 6.1.2 Each of the Company and the Selling Shareholder undertakes to each of the Public Offer Underwriters that it will, and the Executive Directors and the Selling Shareholder shall procure that the Company will: (i) comply in all respects with the terms and conditions of the Global Offering as provided for in the Offer Documents and the Underwriting Documents and,in particular, transfer the Public Offer Shares to successful applicants under the Public Offer and, if any of the Public Offer Shares falls to be taken up pursuant to Clause 3.4.6, to the applicants under Clause 3.4.6(i); (ii) comply in a timely manner with its obligations under the requirements of the Stock Exchange in connection with the Global Offering (including, without limitation, the Listing Rules); (iii) procure compliance with the obligations imposed upon it by the Companies Ordinance, the Companies Law and the Listing Rules in respect of or by reason of the matters contemplated by this Agreement, including but without limitation: (a) the making of all necessary registrations with the Registrar of Companies in Hong Kong and the Registrar of Companies in the Cayman Islands; and (b) the making available for inspection at the offices of Johnson Stokes & Master of the documents referred to in Appendix VI to the Prospectus during the period referred to therein; and (iv) procure that the terms of the Registrars Agreement, the Sub-Registrars Agreement and the Receiving Banker Agreement shall not be amended without the prior written consent of HSBC. 6.1.3 The undertakings in this Clause 6.1 shall remain in full force and effect notwithstanding the completion of the Global Offering and all matters contemplated in this Agreement. 6.2 RESTRICTIONS ON DEALINGS AND RELATED MATTERS 6.2.1 The Selling Shareholder agrees and undertakes that, save as pursuant to the offer for sale of the Offer Shares under the Global Offering or the Over-allotment Option or any stock lending arrangements agreed between the Selling Shareholder and HSBC in connection with the Global Offering, without the prior written consent of HSBC (on behalf of the Public Offer Underwriters) and unless in compliance with the Listing Rules: (i) during the First Six-Month Period: (a) save for using the Shares beneficially owned by it as security (including a charge or a pledge) in favour of an authorised institution (as defined in the Banking Ordinance (Chapter 155 of the Laws of Hong Kong)) for a bona fide commercial loan, it will not offer, pledge, 29 charge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant or agree to grant any option, right or warrant to purchase or subscribe for, lend or otherwise transfer or dispose of, either directly or indirectly, conditionally or unconditionally, any share capital or other securities of the Company or any interest therein (including, but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, any such capital or securities or any interest therein); or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any such capital or securities or any interest therein; or (c) enter into any transaction with the same economic effect as any transaction described in (a) or (b) above; or (d) agree or contract to, or publicly announce any intention to enter into, any transaction described in (a) or (b) or (c) above, whether any such transaction described in (a) or (b) or (c) above is to be settled by delivery of such capital or securities, in cash or otherwise; and (ii) during the Second Six-Month Period, it will not enter into any of the foregoing transactions in paragraphs (i)(a) or (b) or (c) above or agree or contract to or publicly announce any intention to enter into any such transactions if, immediately following such transfer or disposal, the Selling Shareholder will cease to be a controlling shareholder (as the term is defined in the Listing Rules) of the Company; and (iii) until the expiry of the Second Six-Month Period, in the event that it enters into any such transactions or agrees or contracts to, or publicly announces an intention to enter into any such transactions, it will take all reasonable steps to ensure that it will not create a disorderly or false market in the securities of the Company. 6.2.2 Subject to Clause 6.2.1, the Selling Shareholder agrees and undertakes that, if at any time after the date of this Agreement up to and including the date falling twelve months from the Listing Date, it shall (i) if and when it pledges, mortgages or charges any securities or interests in the securities of the Company beneficially owned by it, immediately inform the Company and HSBC in writing of such pledge, mortgage or charge together with the number of securities so pledged or mortgaged or charged; and (ii) if and when it receives indications, either verbal or written, from any pledgee or mortgagee or charges that any of the pledged, mortgaged or charged securities or interests in the securities of the Company will be disposed of, immediately inform the Company and HSBC in writing of such indications. The Company agrees and undertakes that upon receiving such information in writing from the Selling Shareholder, it shall, as soon as practicable, notify the Stock Exchange and in accordance with the requirements of the Listing Rules or the Stock Exchange make a public disclosure in relation to such information by way of press announcement. 30 6.2.3 Each of the Executive Directors and the Selling Shareholder agrees and undertakes not to (whether itself or through any company controlled by it) apply or subscribe for or purchase any Offer Shares either in its own name or through nominees unless permitted to do so under the Listing Rules, and if any such application has been made or it has indicated an interest to acquire such Offer Shares, it shall forthwith notify HSBC (on behalf of the Public Offer Underwriters); 6.2.4 The Company agrees and undertakes that it will not, and the Selling Shareholder and each of the Executive Directors undertakes to procure that the Company will not, effect any purchase of Shares, or agree to do so, which may reduce the holdings of Shares of persons other than the directors of the Company, its substantial shareholders or their respective associates (as defined in the Listing Rules) to below 25% on or before the date falling six months after the Listing Date without first having obtained the prior written consent of HSBC (on behalf of the Public Offer Underwriters). 6.2.5 The Warrantors will procure that none of the connected persons shall be accepted as subscribers or purchasers of any Offer Shares either in its own name or through nominees unless permitted to do so under the Listing Rules and such subscriptions or purchases are disclosed in the Prospectus. 6.3 OBLIGATIONS AND LIABILITY 6.3.1 The obligations of each of the Company, the Selling Shareholder, the Executive Directors shall be binding on his, her or its personal representatives and successors (as the case may be). 6.3.2 Any liability to the Public Offer Underwriters or any of them hereunder may in whole or in part be released, compounded or compromised and time or indulgence may be given by HSBC on behalf of the Public Offer Underwriters or any of them as regards any person under such liability without prejudicing the rights of any other Public Offer Underwriter or the relevant Public Offer Underwriter's other rights against such person or the relevant Public Offer Underwriter's rights against any other person under the same or a similar liability. 6.3.3 Subject to the provisions of the Agreement Between Public Offer Underwriters (which shall not be binding on or confer any rights upon any persons other than the parties thereto), for the avoidance of doubt neither HSBC nor any of the Public Offer Underwriters shall be responsible or liable for any breach of the provisions of this Agreement by any of the Public Offer Underwriters (other than itself in its capacity as a Public Offer Underwriter). 6.3.4 Save and except for any breach of any of its obligations under this Agreement and/or any loss or damage arising out of any gross negligence, wilful default or fraud on the part of HSBC or the relevant Public Offer Underwriter, no claim shall be made against HSBC or any of the Public Offer Underwriters or against any other of the Indemnified Parties (such right of the Indemnified Parties being held by the Public Offer Underwriters as trustee for the Indemnified Parties) by any of the Warrantors (and the Warrantors shall procure that none of its affiliates shall make any such claim), to recover any damage, cost, charge or expense which any of the Warrantors may suffer or incur by reason of or arising out of the carrying out by HSBC or any of the Public Offer Underwriters of the work to be done by any of them or the performance of their respective obligations hereunder or otherwise in 31 connection with the Offer Documents, the Global Offering and any associated transactions (whether in performance of its duties as underwriters or otherwise). Specifically (but without prejudice to the generality of the foregoing), none of HSBC or the Public Offer Underwriters shall have any liability or responsibility whatsoever for any alleged insufficiency of the Offer Price or any dealing price of the Offer Shares or any announcements, documents, materials, communications or information whatsoever made, given, related or issued arising out of, in relation to or in connection with the Company or the Global Offering (whether or not approved by HSBC or any of the Public Offer Underwriters). 7 INDEMNITY 7.1 Each of the Warrantors (collectively, the "INDEMNIFYING PARTIES" and individually, an "INDEMNIFYING PARTY") jointly and severally undertakes to HSBC, the Public Offer Underwriters and each of them, for themselves and on trust for the other Indemnified Parties (as hereinafter defined), to indemnify and hold harmless HSBC and each of the Public Offer Underwriters and each of their respective subsidiaries and Affiliates and each of their respective representatives, partners, directors, officers, employees, assignees and agents (collectively, the "INDEMNIFIED PARTIES" and individually, an "INDEMNIFIED PARTY") (on an after-tax basis) against: (i) all actions, suits, claims (whether or not any such claim involves or results in any actions or proceedings), demands, investigations, judgement, awards and proceedings, joint or several, from time to time instituted, made or brought or threatened or alleged to be instituted, made or brought against or otherwise involve, (together the "ACTIONS") and (ii) all losses, liabilities and damage suffered and all payments, expenses (including legal expenses and taxes (including stamp duty and any penalties and/or interest arising in respect of any taxes)), costs and charges (including, without limitation, all payments, expenses, costs or charges suffered, made or incurred arising out of, in relation to or in connection with the investigation, dispute, defence or settlement of or response to any such Actions or the enforcement of any such settlement or any judgement obtained in respect of any such Actions) (together, the "LOSSES") which may be made or incurred or suffered by, an Indemnified Party (with such amount of indemnity to be paid to HSBC or the relevant Public Offer Underwriter to whom the Indemnified Party is related to cover all the Actions against and Losses suffered, made or incurred by such Indemnified Party) arising out of, in relation to or in connection with: (a) the performance by HSBC or any of the Public Offer Underwriters of their respective obligations under this Agreement or the Offer Documents or otherwise in connection with the Global Offering; or (b) the issue, publication, distribution or making available of any of the Offer Documents or the Formal Notice (including any amendments or supplements thereto) in accordance with the terms of this Agreement and/or any announcements, documents, materials, communications or information whatsoever made, given, released or issued arising out of, in relation to or in connection with the Company or the Global Offering (whether or not approved by HSBC or any of the Public Offer Underwriters); or 32 (c) the offer or transfer of the Offer Shares; or (d) a breach or alleged breach on the part of any of the Indemnifying Parties of any of the provisions of any of the Underwriting Documents or an action or omission of an Indemnifying Party or any of their respective subsidiaries, directors, officers or employees resulting in a breach of any of the provisions of any of the Underwriting Documents; or (e) any of the Warranties being untrue, inaccurate or having been breached or being alleged to be untrue, inaccurate or alleged to have been breached; or (f) any untrue statement or alleged untrue statement of a fact contained in any Offer Documents, the Formal Notice or in any announcements, documents, materials, communications or information whatsoever made, given, released or issued arising out of, in relation to or in connection with the Company or the Global Offering (whether or not approved by HSBC (or any of the Public Offer Underwriters), or, in each case, any supplement or amendment thereto, or any omission or alleged omission to state therein a fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, or any of the Offer Documents or the Formal Notice, or such announcement, document, material, communication or information or any such supplement or amendment thereto not containing any information material in the context of the Global Offering whether required by Law or not; or (g) any breach or alleged breach of the Laws of any country or territory resulting from the distribution of any of the Offer Documents, the Formal Notice or any announcements, documents, materials, communications or information whatsoever made, given, released or issued arising out of, in relation to or in connection with the Company or the Global Offering (whether or not approved by HSBC or any of the Public Offer Underwriters) and/or any offer, sale or distribution of the Shares, otherwise than in accordance with and on the terms of those documents and the Underwriting Documents; or (h) the Global Offering failing to comply with the requirements of the Securities and Futures (Stock Exchange Listing) Rules (Chapter 571V of the Laws of Hong Kong), the Listing Rules or any other applicable Laws; or (i) any statement in any of the Offer Documents, the Formal Notice or any announcements, documents, materials, communications or information whatsoever made, given, released or arising out of, in relation to or in connection with the Company, the Selling Shareholder or the Global Offering (whether or not approved by HSBC or any of the Public Offer Underwriters) being or alleged to be defamatory of any person; or (j) any failure or alleged failure by any of the Directors to comply with their respective obligations under the Listing Rules; or (k) the breach or alleged breach by the Company, the Selling Shareholder or other members of the Group of applicable Laws, provided that the indemnity provided for in this Clause 7.1 shall not apply in respect of an Indemnified Party to the extent where any such Action made against, or any such Loss suffered by, such Indemnified Party arises out of or in connection with fraud, gross negligence or wilful default on the part of such Indemnified Party; and any settlement or 33 compromise of or consent to the entry of judgement with respect to any Action or Loss by any of the Indemnified Parties shall not prejudice any right, claim, action or demand any of the Indemnified Parties may have or make against the Warrantors or any of them under this Clause 7.1 or otherwise under this Agreement. 7.2 If any of the Warrantors becomes aware of any claim which may give rise to a liability under the indemnity provided under Clause 7.1, such party shall promptly give notice thereof to the other parties in writing. 7.3 Counsel to the Indemnified Parties shall be selected by HSBC. The Company and/or the Selling Shareholder, as the case may be, may participate at its own expense in the defence of any such Action, provided however, that counsel to the Company and/or the Selling Shareholder shall not (except with the consent of the Indemnified Parties) also be counsel to the Indemnified Parties. 7.4 None of the Indemnifying Parties shall, without the prior written consent of the Indemnified Parties, settle or compromise or consent to the entry of any judgement with respect to any Action, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Clause 7 (whether or not the Indemnified Parties are actual or potential parties thereto). 7.5 Any settlement or compromise by any Indemnified Party in relation to any claim shall be without prejudice to, and without (other than any obligations imposed on it by Law) any accompanying obligation or duty to mitigate the same in relation to, any claim, action or demand it may have or make against any of the Indemnifying Parties under this Agreement. The Indemnified Parties are not required to obtain consent from any of the Indemnifying Parties with respect to such settlement or compromise. The rights of the Indemnified Parties herein are in addition to any rights that each Indemnified Party may have at Law or otherwise and the obligations of the Indemnifying Parties herein shall be in addition to any liability which the indemnifying Parties may otherwise have. 7.6 If an Indemnifying Party enters into any agreement or arrangement with any adviser for the purpose of or in connection with the Global Offering, the terms of which provide that the liability of the adviser to the Indemnifying Party or any other person is excluded or limited in any manner, and any of the Indemnified Parties may have joint and/or several liability with such adviser to the Indemnifying Party or to any other person arising out of the performance of its duties in connection with the Global Offering, the Indemnifying Party shall: 7.6.1 not be entitled to recover any amount from any Indemnified Party which, in the absence of such exclusion or limitation, the Indemnified Party would have been entitled to recover from such Indemnified Party; and 7.6.2 indemnify the Indemnified Parties in respect of any increased liability to any third party which would not have arisen in the absence of such exclusion or limitation; and 7.6.3 take such other action as the Indemnified Parties may require to ensure that the Indemnified Parties are not prejudiced as a consequence of such agreement or arrangement. 7.7 No claim shall be made against any Indemnified Party by any Indemnifying Party to recover any Losses incurred by the Indemnifying Party in connection with or arising out of the services rendered or duties performance by the Indemnified Party under this 34 Agreement or otherwise in connection with the Global Offering and the application for the listing of, and permission to deal in, the Shares on the Stock Exchange unless and to the extent that they are finally judicially determined by a court of competent jurisdiction to have arisen primarily as a result of fraud, gross negligence or wilful default(1) of the relevant Indemnified Party. 7.8 For the avoidance of doubt, the indemnity under this Clause 7 shall cover all costs, charges and expenses which any Indemnified Party may incur or pay in disputing, settling or compromising any Action to which the indemnity may relate and in establishing its right to indemnification under this Clause 7. 7.9 All amounts subject to indemnity under this Clause 7 shall be paid by the Indemnifying Party as and when they are incurred within 10 Business Days of a written notice demanding payment being given to the relevant Indemnifying Party by or on behalf of an Indemnified Party. 7.10 This Clause 7 shall remain in full force and effect notwithstanding the completion of the Global Offering in accordance with the terms of this Agreement or the termination of this Agreement. 8 CONTRIBUTION 8.1 If for any reason the undertaking to pay in Clause 7 is unavailable or insufficient to indemnify and hold harmless an Indemnified Party in respect of any Action or Loss referred to therein, then each Indemnifying Party, in lieu of its obligations under Clause 7, shall contribute to the amount paid or payable by such Indemnifying Party as a result of such Action or Loss: 8.1.1 in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Shareholder on the one hand and the Public Offer Underwriters on the other from the Public Offer; or 8.1.2 if the allocation provided by Clause 8.1.1 above is not permitted by applicable Law, in such proportion as is appropriate to reflect not only the relative benefits referred to in Clause 8.1.1 above but also the relative fault of the Company and the Selling Shareholder on the one hand and the Public Offer Underwriters on the other in connection with the statements or omissions that resulted in such Action or Loss, as well as any other relevant equitable considerations. 8.2 The relative benefits received by the Company and the Selling Shareholder on the one hand and the Public Offer Underwriters on the other shall be deemed to be in the same respective proportions as the net proceeds from the Public Offer (before deducting expenses) received by the Company and the Selling Shareholder bear to the total commissions received by the Public Offer Underwriters, as set forth in Clause 4.1. 8.3 The relative fault of the Company and the Selling Shareholder on the one hand and the Public Offer Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a fact or the omission or alleged omission to state a fact relates to information supplied by the Company or the Selling Shareholder on the one hand or by the Public Offer Underwriters on the other and the 35 parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 8.4 The parties hereto agree that it would not be just and equitable if contribution pursuant to this Clause 8 were determined by pro rata allocation (even if the Public Offer Underwriters were treated as one entity for such purposes) or by any other method of allocation that does not take account of the equitable considerations referred to in this Clause 8. In no event shall a Public Offer Underwriter be required to contribute any amount in excess of the amount by which the total commissions received by such Public Offer Underwriter with respect to the Public Offer exceeds the amount of any Losses that such Public Offer Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (with the meaning of Section 11 (f) of the US Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Public Offer Underwriters' obligations to contribute pursuant to this Clause 8 are several in proportion to their respective purchase or subscription obligations hereunder (and not joint or joint and several). 8.5 The indemnity and contribution agreements contained in this Clause 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Party at Law or in equity. 9 TERMINATION IN EXCEPTIONAL CIRCUMSTANCES 9.1 If, at any time prior to 8:00 a,m. on the Force Majeure Expiry Date: 9.1.1 there has been a breach of any of the Warranties or there has been a breach by the Company or the Selling Shareholder of any of the provisions of this Agreement; or 9.1.2 any matter has arisen or has been discovered which would, had it arisen immediately before the Prospectus Date, not having been disclosed in the Prospectus, constitute an omission therefrom; or 9.1.3 any statement contained in the Prospectus has become or been discovered to be untrue, incorrect or misleading in any respect; or 9.1.4 there shall have occurred any event, act or omission which gives or is likely to give rise to any liability of any of the Company or the Selling Shareholder pursuant to the indemnities referred to in Clause 7; or 9.1.5 there shall have been any adverse change or prospective adverse change in the business or the financial or trading position of any member of the Group; or 9.1.6 there shall have developed, occurred, happened or come into effect or series of events, matters or circumstances concerning or relating to: (i) any change in, or any event or series of events likely to result in any change in, local, national or international financial, political, economic, military, industrial, fiscal, regulatory, currency or market conditions or equity securities or stock or other financial market conditions or any monetary or trading settlement system (including, without limitation, any change in the system under which the value of the Hong Kong currency is linked to that of 36 the United States) in Hong Kong, the Cayman Islands, the US, the United Kingdom, Japan or the PRC; or (ii) any new Law or change in existing Laws or any change in the interpretation or application thereof by any court or other competent authority in Hong Kong, the Cayman Islands, the US, the United Kingdom, Japan or the PRC; or (iii) any event of force majeure affecting Hong Kong, the Cayman Islands, the US, the United Kingdom, Japan or the PRC including, without limiting the generality thereof, any act of God, war, outbreak or escalation of hostilities (whether or not war is declared) or act of terrorism, or declaration of a national or international emergency or war, riot, public disorder, civil commotion, economic sanctions, fire, flood, explosion, epidemic, outbreak of an infectious disease, calamity, crisis, strike or lock-out (whether or not covered by insurance); or (iv) the imposition of any moratorium, suspension or restriction on trading in securities generally on the Stock Exchange or the New York Stock Exchange or any suspension of trading of any of the securities of the Company on any exchange or over-the-counter market or any major disruption of any securities settlement or clearing services in the US or Hong Kong or on commercial banking activities in Hong Kong or New York, due to exceptional financial circumstances or otherwise; or (v) a change or development involving a prospective change in taxation or exchange control (or the implementation of any exchange control) in Hong Kong, the Cayman Islands, the US or the PRC, which, in the sole opinion of HSBC (for itself and on behalf of the Public Offer Underwriters): (i) is or will be, or is likely to be, materially adverse to the general affairs, management, business, financial, trading or other condition or prospects of the Group or to any present or prospective shareholder of the Company in its capacity as such; or (ii) has or will have or is likely to have a material adverse impact on the success of the Global Offering or the level of Offer Shares applied for or accepted or purchased or the distribution of the Offer Shares or dealings in the Shares in the secondary market; or (iii) makes it impracticable, inadvisable or inexpedient to proceed with the Public Offer and/or the International Placing on the terms and in the manner contemplated in the Offer Documents, then HSBC, in its sole and absolute discretion, may, on behalf of the Public Offer Underwriters, upon giving notice to the Company and the Selling Shareholder made pursuant to the provisions of Clause 10.16 on or prior to 8:00 a.m. on the Force Majeure Expiry Date (with a copy of such notice to each of the Selling Shareholder, the Executive Directors and the other Public Offer Underwriters), terminate this Agreement with immediate effect. 9.2 Upon the termination of this Agreement pursuant to the provisions of Clauses 9.1 or 2.1: 37 9.2.1 each of the parties hereto shall cease to have any rights or obligations under this Agreement and no party to this Agreement shall be under any liability to any other party in respect of this Agreement and no party have any claim against any other party to this Agreement for costs, damages, compensation or otherwise, save in respect of the provisions of this Clause 9 and Clauses 7, 8 and 10, any antecedent breaches under this Agreement and any rights or obligations which may have accrued under this Agreement prior to such termination; and 9.2.2 the Selling Shareholder shall pay to HSBC all fees, costs and expenses set out in Clauses 4.2, 4.3, and 4.4 as soon as practicable and in any event within 10 Business Days from the date of receipt of written, demand for payment of the same; and 9.2.3 the Selling Shareholder shall refund forthwith all payments made by the Public Offer Underwriters or any of them pursuant to Clause 3.4.6 (to the extent received) and/or by the successful applicants under valid Applications (in the latter case, the Company and the Selling Shareholder shall procure that the Sub-Registrars and the Nominee despatch refund cheques to all applicants under the Public Offer in accordance with the Sub-Registrars Agreement and the Receiving Banker Agreement). 10 GENERAL PROVISIONS 10.1 RELEASE Any liability to any party under this Agreement may in whole or in part be released, compounded or compromised, and time or indulgence may be given, by that party (and, where any liability is owed to any Public Offer Underwriters, by HSBC on behalf of any or all of the Public Offer Underwriters) in its absolute discretion as regards any person under such liability without in any way prejudicing or affecting that party's rights against any other person under the same or a similar liability, whether joint and several or otherwise. 10.2 REMEDIES AND WAIVERS 10.2.1 No failure or delay by any party hereto in exercising any right or remedy provided by Law under or pursuant to this Agreement shall impair such right or remedy or operate or be construed as a waiver or variation of it or preclude its exercise at any subsequent time and no single or partial exercise of any such right or remedy shall preclude any other or further exercise of it or the exercise of any other right or remedy. 10.2.2 The rights, powers and remedies provided in this Agreement are cumulative and not exclusive of any rights, powers and remedies (whether provided by Law or otherwise. 10.3 SUCCESSORS AND ASSIGNMENT 10.3.1 This Agreement shall be binding upon, and inure solely to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. 10.3.2 Each of HSBC and the Public Offer Underwriters may assign or transfer all or any part of the benefits of, or interest or right in or under this Agreement. 38 10.3.3 Save as provided in Clause 10.3.2, no party hereto may assign or transfer all or any part of the benefits of, or interest or right in or under this Agreement. 10.3.4 Obligations under this Agreement shall not be assignable. 10.4 FURTHER ASSURANCE Each of the parties hereto undertakes with the other parties hereto that it shall execute and perform and procure that there are executed and performed such further documents and acts as the other parties hereto may reasonably require to give effect to the provisions of this Agreement. 10,5 Entire agreement and variation 10.5.1 Save as otherwise agreed by the relevant parties, this Agreement, together with any document referred to hefein as being in the agreed form, constitutes the entire agreement between the Company, the Selling Shareholder, the Executive Directors, HSBC and the Public Offer Underwriters relating to the underwriting of the Public Offer to the exclusion of any terms implied by Law which may be excluded by contract. Save as otherwise agreed by the relevant parties, this Agreement supersedes all previous agreements or understandings relating to the underwriting of the Public Offer which shall cease to have any further force or effect and no party hereto has entered into this Agreement in reliance upon any representation, warranty, agreement or undertaking which is not set out or referred to in this Agreement. 10.5.2 No party shall have any right of action (except in the case of fraud) against any other party to this Agreement arising out of or in connection with any representation, warranty, agreement or undertaking which is not set out in this Agreement except to the extent such representation, warranty, agreement or undertaking is repeated in this Agreement or the other documents or agreements referred to herein which are incorporated by reference in this Agreement. 10.5.3 No variation of this Agreement shall be valid unless it is in writing and signed by or on behalf of each of the parties hereto. The expression "VARIATION" shall include any variation, supplement, deletion or replacement however effected. 10.6 TIME OF ESSENCE Any time, date or period referred to in this Agreement may be extended by mutual written agreement between the Company (for itself and for and on behalf of the Selling Shareholder and the Executive Directors) and HSBC (for itself and for and on behalf of the Public Offer Underwriters), 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. 10.7 ANNOUNCEMENTS 10.7.1 Subject to Clause 10.7.2, no announcement or public communication concerning this Agreement or the subject matter hereof shall be made by any of the parties hereto (and each party shall procure that their respective directors, officers and agents shall comply with the restrictions of this Clause 10.7) without the prior written approval of HSBC. 39 10.7.2 Any party hereto may make an announcement or public communication concerning this Agreement, the subject matter hereof or any ancillary matter hereto if and to the extent: (i) required by Law; or (ii) required by any Governmental Authority to which such party is subject or submits, wherever situated, including, without limitation, the Stock Exchange and the SFC whether or not the requirement has the force of Law, provided that in such case, the relevant party shall first consult with HSBC in so far as it is reasonably practicable to do so. 10.8 CONFIDENTIALITY 10.8.1 Subject to Clause 10.8.2, each party hereto shall, and shall procure that their respective directors, officers and agents will, treat as strictly confidential all information received or obtained as a result of entering into or performing this Agreement which relates to: (i) the provisions of this Agreement; (ii) the negotiations relating to this Agreement; (iii) the subject matter of this Agreement; or (iv) the other parties. 10.8.2 Any party hereto may disclose, or permit its directors, officers and agents to disclose, information which would otherwise be confidential if and to the extent: (i) required by Law; (ii) required by any Governmental Authority to which such party is subject or submits, wherever situated, including, without limitation, the Stock Exchange and the SFC whether or not the requirement for information has the force of Law; (iii) required to vest the full benefit of this Agreement in such party; (iv) disclosed to the professional advisers and auditors of such party under a duty of confidentiality; (v) the information has come into the public domain through no fault of such party; (vi) the information becomes available to such party on a non-confidential basis from a person not known by such party to be bound by a confidentiality agreement with any of the other parties hereto or to be otherwise prohibited from transmitting the information; (vii) the other parties have given prior written approval to the disclosure, such approval not to be unreasonably withheld or delayed; or (viii) (where the disclosure is otherwise than by HSBC or its directors, officers or agents) HSBC has given prior written approval to the disclosure. 40 provided that in relation to (i), (ii) and (iii) above, such party shall first consult with HSBC prior to making such disclosure. 10.9 RIGHTS OF CONTRIBUTION The Selling Shareholder and the Executive Directors hereby irrevocably and unconditionally: 10.9.1 (until the Underwriters' claims have become fully satisfied) waives any right of contribution or recovery or any claim, demand or action it may have or be entitled to take against the Company as a result of any Action made or taken against it/him, whether alone or jointly with the Company, as the case may be, in consequence of its/his entering into this Agreement or otherwise with respect to any act or matter relating to the Global Offering; and 10.9.2 acknowledges and agrees that the Company shall have no liability to it whatsoever under the provisions of this Agreement or otherwise in respect of any act or matter relating to the Global Offering. 10.10 INVALIDITY If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the Law of any jurisdiction, that shall not affect or impair: 10.10.1 the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or 10.10.2 the legality, validity or enforceability under the Law of any other jurisdiction of that or any other provision of this Agreement. 10.11 COUNTERPARTS This Agreement may be executed in any number of counterparts and by the parties hereto on separate counterparts, but shall not be so effective until each party has executed at least one counterpart. Each counterpart each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. 10.12 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of Hong Kong. 10.13 DISPUTE RESOLUTION 10.13.1 The parties hereto unconditionally and irrevocably agree that the courts of Hong Kong shall have non-exclusive jurisdiction to settle any disputes or differences (including claims for set-off and counterclaims) arising out of or in connection with this Agreement, including any dispute regarding the validity or existence of this Agreement (each a "Dispute"). Each of the parties submits to the non-exclusive jurisdiction of the Hong Kong courts in connection therewith and unconditionally and irrevocably waives any objection which it may have now or hereafter to the laying of any such proceeding in the Hong Kong courts including any right to invoke any claim that such proceeding have been brought in an inconvenient forum. 10.13.2 The submission to jurisdiction pursuant to Clause 10.13.1 shall not (and shall not be construed so as to) limit the right of any of the parties to commence any 41 proceeding against any other party in whatsoever jurisdictions shall to it seem fit nor shall the taking of any proceeding in any one or more jurisdictions preclude the taking of any proceeding in any other jurisdiction, whether concurrently or not. 10.13.3 Notwithstanding Clause 10.13.1, each of the parties hereto unconditionally and irrevocably agrees that each of HSBC and/or the Public Offer Underwriters shall have the option to refer any Dispute to be finally resolved by arbitration in accordance with this Clause 10.13.3. Upon written notice by HSBC and/or the Public Offer Underwriters pursuant to this Clause 10.13.3, such Dispute shall be referred to and finally resolved by arbitration in accordance with the UNCITRAL Arbitration Rules (the "RULES") as in force from time to time and as may be amended by the rest of this Clause 10.13. There shall be three arbitrators. The appointing authority shall be the Hong Kong International Arbitration Centre ("HKIAC"). Where there are multiple parties, whether as claimant or as respondent, the multiple claimants, jointly, shall appoint a claimants-appointed arbitrator, and the multiple respondents, jointly, shall appoint a respondents-appointed arbitrator for the purpose of Article 7(1) of the Rules. The claimants-appointed arbitrator and the respondents-appointed arbitrator shall then choose the third arbitrator who will act as chairman of the arbitral tribunal. The seat of arbitration shall be Hong Kong, and the arbitration shall be administered by HKIAC. The governing law of the arbitration proceedings shall be the laws of Hong Kong. The language to be used in the arbitral proceedings shall be English. By agreeing to arbitration pursuant to this Clause 10.13.3, the parties hereto irrevocably waive their right to any form of appeal, review or recourse to any state court or other judicial authority, insofar as such waiver may be validly made and to the fullest extent permitted by applicable Laws. The award shall be given by a majority decision. If there be no majority, the award shall be made by the chairman of the arbitral tribunal alone. 10.13.4 Without prejudice to the provisions of Clause 10.13.5 or Clause 10.13.6, each of the parties unconditionally and irrevocably agrees that any writ, judgement or other notice of process shall, to the fullest extent permitted by applicable Laws, be validly and effectively served on it if delivered to its address referred to in this agreement and marked for the attention of the person referred to in that Clause or to such other person or address in Hong Kong as may be notified by the relevant party (as the case may be) to the other parties hereto pursuant to the provisions of this agreement. 10.13.5 The Selling Shareholder irrevocably appoints Mr. Jackie Wah of c/o 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong as its authorised agent for the service of process in Hong Kong in connection with this Agreement. Service of process upon Mr. Jackie Wah at the above address shall be deemed, for all purposes, to be due and effective service, and shall be deemed completed whether or not forwarded to or received by any such appointer. If for any reason such agent shall cease to be the Selling 42 Shareholder's agent for the service of process, the Selling Shareholder shall forthwith appoint a new agent for the service of process in Hong Kong acceptable to HSBC and deliver to each of the other parties hereto a copy of the new agent's acceptance of that appointment within [14] days, failing which HSBC shall be entitled to appoint such new agent for and on behalf of the Selling Shareholder and such appointment shall be effective upon the giving notice of such appointment to the Selling Shareholder. Nothing in this Agreement shall affect the right to serve process in any other manner permitted by Law.] 10.13.6 Where proceedings are commenced by any party in any jurisdiction other than Hong Kong pursuant to Clause 10.13.2, upon being given notice of such proceedings in writing, the party against whom such proceedings have been brought shall immediately appoint an agent to accept service of process in that jurisdiction and shall give notice to the other party, as the case may be, of the details and address for service of such agent. 10.14 IMMUNITY To the extent that any party hereto may in any jurisdiction claim for itself or its assets immunity from suit, execution, attachment (whether in aid of execution, before judgement or otherwise) or other legal process or to the extent that in any such jurisdiction there may be attributed to itself or its assets such immunity (whether or not claimed), such party hereby irrevocably agrees not to claim and irrevocably waives such immunity to the full extent permitted by applicable Laws. 10.15 JUDGEMENT CURRENCY INDEMNITY The obligation of any party (the "PAYING PARTY") in respect of any sum due to any other party shall, notwithstanding any judgement in a currency other than Hong Kong dollars, not be discharged until the first Business Day, following receipt by the party to receive the payment (the "RECEIVING PARTY") (as the case may be) of any sum adjudged to be so due in such other currency, on which (and only to the extent that) the receiving party (as the case may be) may in accordance with normal banking procedures purchase Hong Kong dollars with such other currency. If the Hong Kong dollars so purchased are less than the sum originally due to such party (as the case may be) hereunder, the paying party agree, as a separate obligation and notwithstanding any such judgement, to indemnify the receiving party (as the case may be) against such loss. If the Hong Kong dollars so purchased are greater than the sum originally due to the receiving party (as the case may be) hereunder, the receiving party (as the case may be) agrees to pay to the paying party an amount equal to the excess of the dollars so purchased over the sum originally due to it hereunder. 10.16 NOTICES 10.16.1 Any notice or other communication given or made under or in connection with the matters contemplated by this Agreement shall be in writing and shall be in the English language. 10.16.2 Any such notice or other communication shall be addressed as provided in Clause 10.16.3 and, if so addressed, shall be deemed to have been duly given or made as follows: (i) if sent by personal delivery, upon delivery at the address of the relevant party; 43 (ii) if sent by post, on the third Business Day after the date of posting; (iii) if sent by facsimile, on receipt of confirmation of transmission. 10.16.3 The relevant addresses and facsimile numbers of each party hereto for the purposes of this Agreement, subject to Clause 10,16.4, are:
NAME OF PARTY ADDRESS FACSIMILE NO. Nam Tai Electronic & Electrical 15th Floor, China Merchants (852) 2263 1223 Products Limited Tower Shun Tak Centre Nos. 168-200 Connaught Road Central Hong Kong Attention: Mr. Joseph Hsu 15th Floor, China Merchants Tower Shun Tak Centre Nos.168-200 Connaught Road Central Hong Kong Nam Tai Electronics, Inc. 15th Floor, China Merchants (852) 2263 1223 Tower Shun Tak Centre Nos.168-200 Connaught Road Central Hong Kong Attention: Mr. Jackie Wan Any of: Wong Kuen Ling 15th Floor, China Merchants (852) 2263 1223 Tower Shun Tak Centre Nos.168-200 Connaught Road Central Hong Kong Guy Jean Francois Bindels 15th Floor, China Merchants (852) 2263 1223 Tower Shun Tak Centre Nos.168-200 Connaught Road Central Hong Kong
44 The Hongkong and Shanghai The Hongkong and Shanghai (852) 2845 5654 Banking Corporation Limited Banking Corporation Limited Level 15 1 Queen's Road Central Hong Kong Attention: Ronald Tham The Public Offer Underwriters The Hongkong and Shanghai (852) 2845 5654 Banking Corporation Limited c/o The Hongkong and Shanghai Level 15 Banking Corporation Limited 1 Queen's Road Central Hong Kong Attention: Ronald Tham

10.16.4 A party may notify the other parties to this Agreement of a change to its relevant address or facsimile number for the purposes of Clause 10.16.3, provided that such notification shall only be effective on: (i) the date specified in the notification as the date on which the change is to take place; or (ii) if no date is specified or the date specified is less than five Business Days after the date on which notice is given, the date falling five Business Days after notice of any such change has been given. 10.16.5 All references in this Agreement to notices given to or received from, consents or requests from or waivers by or consultations with the Public Offer Underwriters shall be to notices given to or received from, consents or requests from or waivers by or consultations with HSBC, on behalf of the Public Offer Underwriters. 10.16.6 All references in this Agreement to notices given to or received from, consents or requests from or waivers by or consultations with the Executive Directors and/or the Selling Shareholder (as the case may be) shall be to notices given to or received from, consents or requests from or waivers by or consultations with the Company, on behalf of the Executive Directors and/or the Selling Shareholder (as the case may be). 10.17 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND OBLIGATIONS The respective indemnities, covenants, undertakings, agreements, representations, warranties and other statements of the Company, the Selling Shareholder and the Executive Directors or any of them as set forth in this Agreement or made by or on behalf of any of them pursuant to this Agreement, shall remain in full force and effect notwithstanding completion of the Global Offering and regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any of the Public Offer Underwriters, any of their respective Affiliates or any of their respective representatives, directors, officers, agents, employees, advisers. Clauses 4.2, 4.3, 7,8,10.7,10.8 and 10.9 shall survive completion of the Global Offering. 45 10.18 NO WITHHOLDING BY THE COMPANY, THE SELLING SHAREHOLDER AND THE EXECUTIVE DIRECTORS All payments by or on behalf of each of the Company, the Selling Shareholder and the Executive Directors under or in connection with this Agreement (including deductions from the Public Offer Application Moneys) shall be paid without set-off or counterclaim, and free and clear of and without deduction or withholding for or on account of, any present or future taxes, levies, imposts, funds, duties, fees, assessments or other charges of whatever nature, imposed, levied, collected, withheld or assessed by any Governmental Authority or any interest, penalties or similar liabilities with respect thereto ("TAXES"). If any Taxes are required, by law to be deducted or withheld in connection with any such payment, the Company, the Selling Shareholder and the Executive Directors, as the case may be, will increase the amount so paid so thai the amount of such payment received by the payee is such amount as the payee would have received if no such deduction or withholding had been made. 10.19 NO TAXATION IN THE HANDS OF HSBC, THE PUBLIC OFFER UNDERWRITERS AND THE INDEMNIFIED PARTIES If any sum payable under or in connection with this Agreement to HSBC or any of the Public Offer Underwriters or any of the Indemnified Parties, or any sum payable under Clause 4 (other than under Clauses 4.1 and 4.2), shall be subject to Taxes in the hands of any of them or taken into account as a receipt in computing the taxable profits or losses of any of them, the sum payable shall be increased to such sum as will ensure that, after payment of any Taxes which would not have arisen but for that sum, HSBC or such Public Offer Underwriter or such Indemnified Party shall be left with a sum equal to the sum that it would have received in the absence of such Taxes. IN WITNESS WHEREOF this Agreement has been entered into the day and year first before written. 46 SCHEDULE 1 THE PUBLIC OFFER UNDERWRITERS
NAME ADDRESS The Hongkong and Shanghai Banking Corporation Level 15 Limited 1 Queen's Road Central Hong Kong BNP Paribas Peregrine Capital Limited 36th Floor, Asia Pacific Finance Tower 3 Garden Road Central Hong Kong Nomura International (Hong Kong) Limited 30th Floor, Two International Finance Centre 8 Finance Street Hong Kong Cazenove Asia Limited 5001, One Exchange Square 8 Connaught Place, Central Hong Kong DBS Asia Capital Limited 16th Floor, Man Yee Building 68 Des Voeux Road Central Hong Kong VC CEF Capital Limited 38th Floor, The Centrium 60 Wyndham Street Central Hong Kong BNP Paribas Peregrine Capital Limited 36th Floor, Asia Pacific Finance Tower 3 Garden Road Central Hong Kong
47 SCHEDULE 2 THE EXECUTIVE DIRECTORS
NAME ADDRESS Wong Kuen Ling Flat B, 33rd Floor, Block 11 Tierra Verde 33 Tsing King Road Tsing Yi New Territories Hong Kong Guy Jean Francois Bindels Flat B, 33rd Floor, Block 11 Tierra Verde 33 Tsing King Road TSING YI New Territories Hong Kong
48 SCHEDULE 3 THE REORGANISATION DOCUMENTS THE documents referred to in paragraph 4 of the section headed "Further information about the Company" in Appendix V to the Prospectus including the following: (a) Sale & Purchase Agreement dated 30 December 2002 regarding the transfer of equipment from NTSZ to Zastron. (b) Supplemental agreement dated 26 March 2004 between NTSZ and Zastron. (c) Certificate of Incorporation of the Company. (d) - First Board Minutes of the Company dated 13 June 2003 - Register of Members of the Company dated 16 June 2003 (e) Sale & Purchase Agreement dated 3 July 2003 regarding the transfer of interest in NTSZ. (f) approval document issued by the Ministry of Commerce of the PRC dated 3 December 2003 ([2003] 1108). (g) Certificate of Approval for Establishment of Enterprises with Investment of Taiwan, Hong Kong, Macao and Overseas Chinese in the People's Republic of China dated 4 December 2003 ([1998] 0041). (h) Business Licence issued by Shenzhen Administration for Industry and Commerce to NTSZ dated 11 December 2003. (i) Memorandum of Understanding dated 26 March 2004 between NTSZ and NTEEPHK. (j) Consultancy Agreement dated 1 October 2003 entered between NTSZ and NTIC, (k) Approval document issued by the Macao Trade and Investment Promotion Institute regarding the transfer of NTIC from NTE Inc. to the Company. (l) Sale & Purchase Agreement dated 24 March 2004 regarding transfer of equity in NTIC. 49 SCHEDULE 4 THE CONDITIONS PRECEDENT DOCUMENTS 1 A certified copy of the resolutions of the shareholders of the Company referred to in paragraph 3 of Appendix V to the Prospectus. 2 A certified copy of the resolution(s) of the Directors or a committee of the Board of Directors: 2.1 approving and authorising execution, delivery and performance of or confirming this Agreement and each of the Operative Documents to which the Company is a party together with all other agreements and documents necessary for the Global Offering; 2.2 approving the listing of the Shares on the Stock Exchange; 2.3 approving and authorising the issue of the Preliminary Offering Circular on behalf of the Company or ratifying the same; and 2.4 approving and authorising the issue and the registration with the Registrar of Companies in Hong Kong and the filing with the Registrar of Companies in the Cayman Islands of the Public Offer Documents. 3 A certified copy of the resolutions of the directors of the Selling Shareholder, inter alia, approving and authorising execution, delivery and performance of or confirming this Agreement and each of the Operative Documents to which it is a party, 4 Certified copies of the Operative Agreements except for the Price Determination Agreement. 5 A certified copy of each of the service contracts of the Directors. 6 Certified copies of the responsibility letters, powers of attorney and statements of interests signed by all the Directors in forms previously agreed by HSBC. 7 Two printed copies of each of the Public Offer Documents each duly signed by two Directors or their respective duly authorised agents and, if signed by their respective duly authorised agents, certified copies of the relevant authorisation document. 8 The Verification Notes signed by or on behalf of each person to whom responsibility is therein assigned (other than HSBC and its legal advisers). 9 One signed original or certified copy of the accountants' report dated the Prospectus Date by the Reporting Accountants, the text of which is contained in Appendix I to the Prospectus. 10 One signed original of the statement of adjustments and letter relating thereto both dated the Prospectus Date produced by the Reporting Accountants. 11 One signed original or certified copy of the letter with the valuation certificate(s) dated the Prospectus Date from the Property Valuers to the Directors in connection with the valuation of the property interests of the Group as at 29 February 2004, the text of which is contained in Appendix III to the Prospectus. 12 One signed original of each of the letters from the Reporting Accountants to the Directors and HSBC (as sponsor and on behalf of the Public Offer Underwriters) confirming the 50 indebtedness statement contained in the Prospectus, commenting on the statement contained in the Prospectus as to the sufficiency of working capital and commenting on the other financial information set out in the Prospectus, such letters to be (in form and substance) previously agreed by the Reporting Accountants with the Company and HSBC on behalf of the Public Offer Underwriters. 13 One signed original or a certified copy of each of the letters dated the Prospectus Date referred to in the paragraph headed "Consents of experts" in Appendix V to the Prospectus containing consents to the issue of the Prospectus with the inclusion of references to their respective names, and where relevant, their reports and letters in the form and context in which they are included. 14 A letter from Johnson Stokes & Master to the Public Offer Underwriters confirming that a copy of each of the documents specified in Appendix VI to the Prospectus have been delivered to the Registrar of Companies in Hong Kong as required by section 342C of the Companies Ordinance. 15 A certified copy of the written confirmation issued by the Registrar of Companies in Hong Kong confirming registration of the Prospectus as required by section 342C of the Companies Ordinance. 16 A certified copy of the Articles of Association of the Company which were conditionally adopted by the sole shareholder of the Company at a special general meeting which was held on 8 April 2004. 17 A certified copy of each of the material contracts referred to in sub-paragraphs B(1) of the paragraph headed "Summary of material contracts" in Appendix V to the Prospectus. 18 A certified copy of each of the following: 18.1 the translation certificate issued by the translators in respect of the Prospectus; and 18.2 the certificate of registration of the Company under Part XI of the Companies Ordinance. 19 Certified copies of powers of attorney or authorities under which any of the Conditions Precedent Documents (other than those material contracts referred to in paragraph 17 above) are executed. SCHEDULE 5 ADVERTISING ARRANGEMENTS NEWSPAPERS DATES South China Morning Post 16, 17, 19, 20 and 21 April 2004 Hong Kong Economic Times 16, 17, 19, 20 and 21 April 2004 52 SCHEDULE 6 PROFESSIONAL INVESTOR TREATMENT NOTICE 1 You are a Professional Investor by reason of your being within a category of person described in the Securities and Futures (Professional Investor) Rules as follows: 1.1 a trust corporation having been entrusted with total assets of not less than HK$40 million (or equivalent) as stated in its latest audited financial statements prepared within the last 16 months, or in the latest audited financial statements prepared within the last 16 months of the relevant trust or trusts of which it is trustee, or in custodian statements issued to the trust corporation in respect of the trust(s) within the last 12 months; 1.2 a high net worth individual having, alone or with associates on a joint account, a portfolio of at least HK$8 million (or equivalent) in securities and/or currency deposits, as stated in a certificate from an auditor or professional accountant or in custodian statements issued to the individual within the last 12 months; 1.3 a corporation the sole business of which is to hold investments and which is wholly owned by an individual who, alone or with associates on a joint account, falls within paragraph 1.2 above; and 1.4 a high net worth corporation or partnership having total assets of at least HK$40 million (or equivalent) or a portfolio of at least HK$8 million (or equivalent) in securities and/or currency deposits, as stated in its latest audited financial statements prepared within the last 16 months or in custodian statements issued to the corporation or partnership within the last 12 months. HSBC has categorised you as a Professional Investor based on information you have given us. You will inform us promptly in the event any such information ceases to be true and accurate. You will be treated as a Professional Investor in relation to all investment products and markets. 2 As a consequence of categorisation as a Professional Investor, HSBC is not required to fulfil certain requirements under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the "CODE") and other Hong Kong regulations. While HSBC may in fact do some or all of the following in providing services to you, HSBC has no regulatory responsibility to do so. 2.1 Client agreement HSBC is not required to enter into a written agreement complying with the Code relating to the services that are to be provided to you. 2.2 Risk disclosures HSBC is not required by the Code to provide you with written risk warnings in respect of the risks involved in any transactions entered into with you, or to bring those risks to your attention. 2.3 Information about HSBC HSBC is not required to provide you with information about its business or the identity and status of employees and others acting on its behalf with whom you will have contact. 2.4 Prompt confirmation 53 HSBC is not required by the Code to promptly confirm the essential features of a transaction after effecting a transaction for you. 2.5 Information about clients HSBC is not required to establish your financial situation, investment experience or investment objectives, except where HSBC is providing advice on corporate finance work. 2.6 Nasdaq-Amex Pilot Program If you wish to deal through the Stock Exchange in securities admitted to trading on the Stock Exchange under the Nasdaq-Amex Pilot Program, HSBC is not required to provide you with documentation on that program. 2.7 Suitability HSBC is not required to ensure that a recommendation or solicitation is suitable for you in the light of your financial situation, investment experience and investment objectives. 3 You have the right to withdraw from being treated as a Professional Investor at any time in respect of all or any investment products or markets on giving written notice to the Compliance Department of HSBC. 4 By entering into this Agreement, you represent and warrant to HSBC that you are knowledgeable and have sufficient expertise in the products and markets that you are dealing in and are aware of the risks in trading in the products and markets that you are dealing in. 5 By entering into this Agreement, you hereby agree and acknowledge that you have read and understood and have had explained to you the consequences of consenting to being treated as a Professional investor and the right to withdraw from being treated as such as set out herein and that you hereby consent to being treated as a Professional Investor. 6 By entering into this Agreement, you hereby agree and acknowledge that HSBC will not provide you with any contract notes, statements of account or receipts under the Hong Kong Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules where such would otherwise be required. 54 SCHEDULE 7 THE WARRANTIES PART 1 1 CAPACITY AND AUTHORITY 1.1 Each of the Warrantors has the requisite power and authority to enter into and perform its obligations under this Agreement and each of the Operative Documents to which it is a party. 1.2 This Agreement and each of the Operative Documents to which the Warrantors or any one of them is a party and any other document required to be executed by the Warrantors or any one of them pursuant to the provisions of this Agreement or any of the Operative Documents constitute or will, when executed and delivered, constitute valid and binding obligations of the Warrantors enforceable in accordance with their respective terms. 1.3 The execution and delivery of, and the performance by each of the Warrantors of its obligations under this Agreement or any of the Operative Documents to which it is a party do not and will not, and each such document does not and will not: 1.3.1 result in a breach of any provision of the memorandum or articles of association or bye-laws (or equivalent constitutive documents) of the Warrantors or any member of the Group; or 1.3.2 result in a breach of, or constitute a default under, any indenture, mortgage, charge, trust, lease, agreement, instrument or obligation to which any member of the Group or any of the Warrantors is a party or by which any member of the Group or any of the Warrantors or any of their respective assets is bound; 1.3.3 result in a breach of any Laws to which any member of the Group or any of the Warrantors is subject or by which any member of the Group or any of the Warrantors or any of their respective assets is bound; 1.3.4 except as disclosed in the Prospectus and the Preliminary Offering Circular, require any Approval from any Government Authority or the sanction or consent of its shareholders; or 1.3.5 result in the creation or imposition of any Encumbrance or other restriction upon any assets of any member of the Group. 1.4 Each member of the Group has been duly incorporated and is validly existing under the laws of the jurisdiction in which it is established and is capable of suing and being sued. 1.5 Each member of the Group has the legal right and authority to own, use, lease and operate its assets and to conduct its business in the manner presently conducted. 1.6 Neither the Company nor any of the Subsidiaries is in violation of any of its respective constitutive documents. 1.7 None of the Warrantors or any of the Subsidiaries has taken any action nor have any steps been taken or legal, legislative or administrative proceedings been started or threatened (i) to wind up, dissolve, make dormant, or eliminate the Company or (as the case may be) the Selling Shareholder or (as the case may be) any of the Subsidiaries, or (ii) to withdraw, revoke or cancel any Approval to conduct business of any member of the Group. 55 2 THE REORGANISATION 2.1 Each step of the Reorganisation was effected in compliance with all applicable Laws of all appropriate jurisdictions. 2.2 Neither the Reorganisation (or its implementation) nor any of the Reorganisation Documents: 2.2.1 resulted or will result in a breach of any of the terms or provisions of, or in the case of the Company, its Articles of Association (or its articles of association at the time) or, in the case of any Subsidiary, its constituent documents; or 22.2 resulted or will result in a breach of, or constituted or will constitute a default under, any indenture, mortgage, charge, trust, lease, agreement, instrument or obligation to which the Company or any Subsidiary was or is a party or by which the Company or any Subsidiary or any of their respective assets was or is bound; or 2.2.3 resulted or will result in a breach of any Laws to which the Company or any Subsidiary was or is subject or by which the Company or any Subsidiary or any of their respective assets was or is bound; or 2.2.4 resulted or will result in the creation or imposition of any Encumbrance or other restriction upon any assets of any member of the Group; or 2.2.5 has rendered or will render the Company or any of the Subsidiaries liable to any additional tax, duty, charge, impost or levy of any amount which has not been provided for in the accounts based upon which the accountants' report was prepared by the Reporting Accountants and set out in Appendix I to the Prospectus, or in the Deed of Indemnity or otherwise described in the Prospectus and the Preliminary Offering Circular. 2.3 All Approvals required in connection with the Reorganisation have been obtained and are in full force and effect and no Approval is subject to any condition precedent which has not been fulfilled or performed. 2.4 There are no legal or administrative or other proceedings pending anywhere challenging the effectiveness or validity of the Reorganisation or any of the Reorganisation Documents and, to the best knowledge, information, belief and awareness of the Warrantors, no such proceedings are threatened or contemplated by any Governmental Authority or by any other person. 3 THE GLOBAL OFFERING 3.1 The details of the authorised and issued share capital of the Company and the Subsidiaries set out in the Prospectus and the Preliminary Offering Circular are true and accurate in all respects. 3.2 There are no outstanding securities convertible into or exchangeable for, or warrants, rights or options to purchase from the Company, or subscribe for, or obligations of the Company to issue or sell, or pre-emptive or other rights to subscribe or acquire, shares or securities in any member of the Group. 3.3 The Offer Shares conform to the description thereof contained in the Prospectus and the Preliminary Offering Circular and such description is true and correct in all respects. 56 3.4 The Company has obtained an approval in principle for the listing of, and permission to deal in, the shares of the Company in issue or to be issued, as described in the Prospectus and the Preliminary Offering Circular, on the Stock Exchange. 3.5 The performance by the Company and the Selling Shareholder of their respective obligations under the Global Offering; the sale and transfer of the Offer Shares; and the issue, publication, distribution or making available of the Public Offer Documents, the Formal Notice and the Preliminary Offering Circular have been duly authorised and do not and will not: 3.5.1 result in a violation or breach of any provision of the Articles of Association; or 3.5.2 result in a breach of, or constitute a default under, any indenture, mortgage, charge, trust, lease, agreement or other instrument to which any member of the Group is a party or by which any member of the Group or any of its assets is bound; or 3.5.3 result in a breach of any Laws to which any member of the Group is a party or is subject or by which any member of the Group or any of their respective assets is bound; or 3.5.4 except as disclosed in the Prospectus and the Preliminary Offering Circular, require any Approval from any Governmental Authority or, in the case of the Company, the sanction or consent of its shareholders; or 3.5.5 result in the creation or imposition of any Encumbrance or other restriction upon any assets of any member of the Group. 3.6 All Approvals required for the performance by the Company and the Selling Shareholder of their respective obligations under the Global Offering; the sale and transfer of the Offer Shares; and the issue, publication, distribution or making available of each of the Public Offer Documents, the Formal Notice and the Preliminary Offering Circular have been or will (prior to the Prospectus Date) be irrevocably and unconditionally obtained and are in full force and effect. 3.7 All of the Offer Shares: 3.7.1 are fully paid up; 3.7.2 have not been issued in violation of or subject to any right of pre-emptive right, right of first refusal or similar rights; and 3.7.3 are freely transferable by the Selling Shareholder and there are no restrictions on subsequent transfers of the Offer Shares under the Laws of the Cayman Islands. 3.8 No holder of Shares is or will be subject to any liability regarding the Company arising out of his holding of Shares (except to the extent of the amount payable for such Shares on purchase under the terms of the Global Offering). 3.9 There are no limitations on the rights of holders of Shares to hold or vote or transfer their shares. 3.10 All dividends and other distributions declared and payable on the shares of capital stock of the Company may under the current laws and regulations of the Cayman Islands be paid to the shareholders of the Company in Hong Kong dollars, and may be converted into foreign currency that may be freely transferred out of the Cayman Islands and all such 57 dividends and other distributions will not be subject to withholding or other taxes under the laws and regulations of the Cayman Islands and are otherwise free and clear of any other tax, withholding or deduction in the Cayman Islands and may be so paid without the necessity of obtaining any Approval from any Governmental Authority in the Cayman Islands. 3.11 None of the Warrantors nor any of their respective affiliates, agents and (where applicable) subsidiaries, nor any person acting on its or their behalf, has taken or will take or caused or authorised or will cause or authorise any other person to take, directly or indirectly, any stabilizing action or any action designed to or which constitutes or which cause or to result in, or that has constituted or which might reasonably be expected to cause or result in, the stabilization or manipulation, in violation of applicable Laws, of the price of any security of the Company, provided that the granting of the Over-allotment Option shall not constitute a breach of this paragraph 3.11. 4 THE ACCOUNTS 4.1 The audited combined results of the Group for each of the three years ended the Accounts Date and the audited combined net assets of the Group as at the Accounts Date contained in the accountants' report prepared by the Reporting Accountants and set out in Appendix I to the Prospectus have been prepared in accordance with generally accepted Hong Kong accounting principles, standards and practices so as to give a true and fair view of the combined net assets of the Group at the Accounts Date and of the results of the Group for the accounting reference period of three years ending on the Accounts Date and: 4.1.1 such accounts are accurate in all respects, make due provision for any bad or doubtful debts and make appropriate provision for (or contain a note in accordance with good accounting practice respecting) all deferred or contingent liabilities, whether liquidated or unliquidated at the date thereof; 4.1.2 depreciation of fixed assets has been made at rates sufficient to spread the cost over their respective estimated useful lives to the Group; and 4.1.3 the profits and losses shown by such accounts and the trend of profits thereby shown have not been affected by any unusual or exceptional item or by any other matter which has rendered such profits or losses unusually high or low. 4.2 The unaudited management accounts of the Group for the 2 months ended 29 February 2004 have been prepared in accordance with generally accepted Hong Kong accounting principles, standards and practices so as to give a true and fair view of the state of affairs of the Group as at 29 February 2004 and of the results of the Group for the accounting reference period of 2 months ended 29 February 2004 and: 4.2.1 such accounts make proper provision for any bad or doubtful debts and make appropriate provision for (or contain a note in accordance with good accounting practice respecting) all deferred or contingent liabilities, whether liquidated or unliquidated at the date thereof; 4.2.2 depreciation of fixed assets has been made at rates sufficient to spread the cost over their respective estimated useful lives to the Group; and 4.2.3 the profits and losses shown by such accounts and the trend of profits thereby shown have not been affected by any unusual or exceptional item or by any other matter which has rendered such profits or losses unusually high or low. 58 4.3 The Reporting Accountants, who have certified certain financial statements of the Company and its Subsidiaries, are qualified independent professional accountants as required by the Listing Rules, the Companies Ordinance, the Professional Accountants Ordinance, and the rules and regulations thereunder. 5 CHANGES SINCE THE ACCOUNTS DATE 5.1 Since the Accounts Date: 5.1.1 each member of the Group has carried on and will carry on business in the ordinary and usual course so as to maintain it as a going concern and in the same manner as previously carried on and since such date has not entered into any contract, transaction or commitment outside the ordinary course of business or of an unusual or onerous nature; 5.1.2 there has been no material adverse change, or any development involving a prospective material adverse change, in the general affairs, management, financial condition or prospects of the said business or the earnings, business affairs or net asset value of the said business or of the Group taken as a whole as compared with the position or prospects disclosed by the audited combined net assets of the Group referred to in paragraph 4.1 above and there has been no damage, destruction or loss (whether or not covered by insurance) affecting the said business or its assets; 5.1.3 each member of the Group has continued to pay its creditors in the ordinary course of business; 5.1.4 save as disclosed in the Prospectus and the Preliminary Offering Circular no member of the Group has acquired, sold, transferred or otherwise disposed of any assets of whatsoever nature or cancelled or waived or released or discounted in whole or in part any debts or claims, except in each case in the ordinary course of business; 5.1.5 save as disclosed in the Prospectus and the Preliminary Offering Circular no member of the Group has purchased or reduced any of its share capital, nor declared, paid or made any dividend or distribution of any kind on any class of shares; and 5.1.6 no member of the Group has taken on or become subject to any material contingent liability. 6 FINANCIAL REPORTING PROCEDURES The Directors have established procedures which provide a reasonable basis for them to make proper judgements as to the financial position and prospects of the Group, taken as a whole, and the Group maintains a system of internal accounting controls sufficient to provide reasonable assurance that (!) transactions are executed in accordance with management's general or specific authorisations; (ii) transactions are recorded as necessary to permit preparation of complete and accurate returns and reports to regulatory bodies as and when required by them and financial statements in accordance with the relevant generally accepted accounting principles and applicable accounting requirements; (iii) access to assets is permitted only in accordance with management's general or specific authorisation; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate actions taken with respect to any 59 differences. The Group's current management information and accounting control system has been in operation for at least three years (or since incorporation, whichever is shorter) during which none of them has experienced any difficulties with regard to (i) through (iv) above or with regard to ascertaining at any point in time the differences in real time between budgeted and actual expenses. 7 ACCOUNTING AND OTHER RECORDS The statutory books, books of account and other records of whatsoever kind of each member of the Group are up-to-date and contain complete and accurate records required by Law to be dealt with in such books and no notice or allegation that any is incorrect or should be rectified has been received. All accounts, documents and returns required by Law to be delivered or made to the Registrar of Companies in Hong Kong and the Cayman Islands or any other authority have been duly and correctly delivered or made. 8 CAPITAL AND CONTRACTUAL COMMITMENTS 8.1 No member of the Group has any capital commitment or any guarantee or other contingent liabilities. 8.2 No member of the Group is, or has been, party to any unusual, long-term or onerous commitments, contracts or arrangements not wholly on an arm's length basis in the ordinary and usual course of business. For these purposes, a long-term contract, commitment or arrangement is one which is unlikely to have been fully performed in accordance with its terms more than six months after the date it was entered into or undertaken or is incapable of termination by the relevant member of the Group on six months' notice or less. 8.3 No member of the Group is party to any agency, distributorship, marketing, purchasing, manufacturing or licensing agreement or arrangement or any agreement or arrangement which restricts its freedom to carry on its business in any part of the world in such manner as it thinks fit. 8.4 All the contracts and all leases, tenancies, licences, concessions and agreements of whatsoever nature to which any member of the Group is a party are valid, binding and enforceable obligations of the parties thereto and the material terms thereof have been complied with by the relevant member of the Group and by all the other parties thereto and there are no grounds for rescission, avoidance or repudiation of any of the contracts or such leases, tenancies, licences, concessions or agreements and no notice of termination or of intention to terminate has been received in respect of any thereof. 9 LITIGATION AND OTHER PROCEEDINGS 9.1 Save as disclosed in the Prospectus and the Preliminary Offering Circular no litigation, arbitration or governmental proceedings or investigations directly or indirectly involving any member of the Group or involving or affecting any of the directors of any member of the Group or any member of the Group is in progress or, to the best knowledge, information, belief and awareness of the Warrantors, or any of them, is threatened or pending and to the best knowledge, information, belief and awareness of the Warrantors after due and careful enquiry, there are no circumstances likely to give rise to any such litigation, arbitration or governmental proceedings or investigations. 9.2 No member of the Group which is a party to a joint venture or shareholders' agreement is in dispute with the other parties to such joint venture or shareholders' agreement and to the 60 best knowledge, information, belief and awareness of the Warrantors after due and careful enquiry, there are no circumstances which may give rise to any dispute or affect the relevant member's relationship with such other parties which might be expected to have a material adverse effect on such joint venture or company or its business or finances. 10 INDEBTEDNESS/DEFAULT 10.1 Save as disclosed in the Prospectus and the Preliminary Offering Circular, no member of the Group has any outstanding liabilities, term loans, other borrowings or indebtedness in the nature of borrowings, including bank overdrafts and loans, debt securities or similar indebtedness, hire purchase commitments or any mortgages and charges. 10.2 No outstanding indebtedness of any member of the Group which is material taken in the context of the Group as a whole has become repayable before its stated maturity, nor has any security in respect of such indebtedness become enforceable by reason of default by any member of the Group 10.3 No person to whom any indebtedness of any member of the Group, which is material taken in the context of the Group as a whole and which is repayable on demand, is owed has demanded or threatened to demand repayment of, or to take steps to enforce any security for, the same. 10.4 No circumstance has arisen such that any person is now entitled to require payment of any indebtedness or under any guarantee of any liability of any member of the Group which is material taken in the context of the Group as a whole by reason of default by any such member or any other person or any guarantee given by any member of the Group which is material taken in the context of the Group as a whole. 10.5 No event has occurred and is subsisting or, to the best knowledge, information, belief and awareness of the Warrantors, is about to occur which constitutes or would (whether with the expiry of any applicable grace period or the fulfilment of any condition or the giving of any notice or the compliance with any other formality or otherwise) constitute a default under, or result in the acceleration by reason of default of, any obligations under any agreement, undertaking, instrument or arrangement to which any member of the Group is a party or by which any of them or their respective revenues or assets are bound. 10.6 The amounts borrowed by each member of the Group do not exceed any limitation on its borrowing contained in its articles of association or bye-laws (or equivalent constituent documents), any debenture or other deed or document binding upon it and except in the ordinary course of business, no member of the Group has factored any of its debts, or engaged in financing of a type which would not be required to be shown or reflected in its audited accounts. 10.7 All the Group's borrowing facilities have been duly executed and are in full force and effect. All undrawn amounts under such borrowing facilities are or will be capable of drawdown. No event has occurred and no circumstances exist which could cause any undrawn amounts under any such borrowing facilities to be unavailable for drawing as required. 10.8 No event has occurred and no circumstances exist in relation to any government, regional, state or local authority investment grants, loan subsidies or financial assistance received by or pledged to any member of the Group in consequence of which any of the member of the Group is or may be held liable to forfeit or repay in whole or in part any such grant or loan. 61 11 ARRANGEMENTS WITH RELATED PARTIES 11.1 No indebtedness (actual or contingent) and no contract or arrangement is outstanding between any member of the Group and any director of any member of the Group or any of his associates (as defined in the Listing Rules). 11.2 Save as disclosed in the Prospectus and the Preliminary Offering Circular or for such transactions as may be entered into by the Company pursuant to any of the Operative Documents, no indebtedness (actual or contingent) and no contract or arrangement is outstanding between any member of the Group and the Warrantors (excluding the Company) or any of them or any company (excluding the members of the Group) or undertaking which is owned or controlled by the Warrantors (excluding the Company) or any of them (whether by way of shareholding or otherwise). 11.3 None of the Warrantors (excluding the Company) nor any of their respective associates (as defined in the Listing Rules), either alone or in conjunction with or on behalf of any other person, is engaged in any business of any member of the Group or any business similar to or in competition with the business of any member of the Group to the extent that there could be a conflict of interests between the Warrantors (excluding the Company) or any of their respective associates (as defined in the Listing Rules) and the general body of shareholders of the Company, nor are any of the Warrantors (excluding the Company) or their respective associates (as defined in the Listing Rules) interested, directly or indirectly, in any assets which have since the date two years immediately preceding the Prospectus Date been acquired or disposed of by or leased to any member of the Group. 11.4 There are no relationships or transactions not in the ordinary course of business between any member of the Group and their respective customers or suppliers. 11.5 In respect of the connected transactions (as defined under the Listing Rules) of the Group (the "CONNECTED TRANSACTIONS"): (A) the statements contained in the Prospectus and the Preliminary Offering Circular relating to the Connected Transactions are true and accurate and there are no other facts the omission of which would make any such statements misleading, and there are no other Connected Transactions which have not been disclosed in the Prospectus and the Preliminary Offering Circular; (B) all information (including but not limited to historical figures) and documentation provided by the Company to HSBC and the Underwriters are true and accurate and complete and there is no other information or document which have not been provided the result of which would make the information and documents so received misleading; (C) the transactions mentioned in the section "Connected Transactions" in the Prospectus and the Preliminary Offering Circular have been entered into and will be carried out in the ordinary course of business, on normal commercial terms and are fair and reasonable so far as the shareholders of the Company are concerned; (D) each of the Company and (where applicable) the Selling Shareholder) has complied with and undertakes to continue to comply with the terms of the Connected Transactions disclosed in the Prospectus and the Preliminary Offering Circular so long as the agreement or arrangement relating thereto is in effect and shall inform HSBC should there be any breach of any such terms either before or after the listing of Shares on the Stock Exchange; (E) each of the Connected Transactions and related agreements and undertakings as disclosed in the Prospectus and the Preliminary Offering Circular constitutes a legal, valid and binding agreement or undertaking of the relevant parties thereto; and (F) each of the Connected Transactions has been consummated and was and will be effected in compliance with all applicable Laws. 62 12 GROUP STRUCTURE 12.1 The Subsidiaries are the only subsidiaries of the Company. 12.2 No member of the Group has any branch, agency, place of business or permanent establishment outside Hong Kong, the Cayman Islands, Macao and the PRC. 12.3 No member of the Group acts or carries on business in partnership with any other person or is a member of any corporate or unincorporated body, undertaking or association or holds or is liable on any share or security which is not fully paid up or which carries any liability. 12.4 Each joint venture contract and shareholders agreement in respect of which a member of the Group is a party is legal, valid, binding and enforceable in all respects in accordance with its terms under its governing law and all relevant Approvals in respect thereof have been obtained. 12.5 None of the member of the Group is engaged in any business activity or has any asset or liability (whether actual, contingent or otherwise) which is not directly or indirectly related to the business of the Group as described in the Prospectus and the Preliminary Offering Circular. 13 ACCURACY AND ADEQUACY OF INFORMATION SUPPLIED 13.1 The recitals to this Agreement are true and accurate in all respects. 13.2 Subject to limitations set out in the Prospectus and the Preliminary Offering Circular, the statistical and market related data included in the Prospectus and the Preliminary Offering Circular are based on or derived from sources which the Warrantors believe to be accurate and reliable. 13.3 All information supplied or disclosed by or on behalf of any member of the Group and/or any director of any member of the Group and/or any of the Warrantors to the Underwriters, the Reporting Accountants, the Property Valuers and other professional advisers to the Underwriters for the purposes of the Global Offering is true and accurate and not misleading and was given in good faith and all forward-looking statements so supplied or disclosed have been made after due and proper consideration and, where appropriate, are based on the assumptions referred to in the Prospectus and the Preliminary Offering Circular. 13.4 All information requested from the Company by the Reporting Accountants and the Property Valuers for the purposes of their reports, letters, and certificates to the Company and/or the Underwriters has been supplied to them. No information was withheld from the Reporting Accountants and the Property Valuers and the Company does not disagree with any aspect of the reports, letters or certificates prepared by the Reporting Accountants and the Property Valuers and the opinions attributed to the Directors in such reports or letters are honestly held by the Directors and are fairly based upon facts within their knowledge after due and careful consideration. 13.5 The replies to the questions set out in the Verification Notes given by or on behalf of the Company or the Selling Shareholder or the Directors were so given by persons having appropriate knowledge and duly authorised for such purposes and all such replies have been given in full and in good faith and were, and remain, true and accurate and not 63 misleading and contain all information and particulars with regard to the subject matter thereof with no omissions, 13.6 None of the Public Offer Documents and the Preliminary Offering Circular contains or will contain any untrue statement or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading or which are material for disclosure therein. All expressions of opinion or intention therein (including but not limited to the statements regarding the sufficiency of working capital, use of proceeds, indebtedness, prospects, dividends, material contracts and litigation) are made on reasonable grounds or, where appropriate, reasonable assumptions and are truly and honestly held and there .are no other material facts the omission of disclosure therein of which would make any such statement or expression misleading. 13.7 All forward-looking statements contained in the Public Offer Documents and the Preliminary Offering Circular are made after due and proper consideration, are based on relevant assumptions referred to therein and represent reasonable and fair expectations honestly held based on facts known to the Group and/or the Warrantors or any of them and there are no other assumptions on which such forward-looking statements are based other than the assumptions referred to in the Public Offer Documents and the Preliminary Offering Circular in which such forward-looking statements are contained. Such forward-looking statements do not omit or neglect to include or take into account of any facts or matters which are or may be material to such forward-looking statements or to the Global Offering. 13.8 Without limiting the generality of the foregoing, each of the Prospectus and the Preliminary Offering Circular contains all particulars and information reasonably necessary to enable an investor to make an informed assessment of the activities, assets and liabilities, financial position, management and prospects of the Group and its profits and losses and of the rights attaching to the Shares and there are no other facts the omission of which would make any statement in the Prospectus or the Preliminary Offering Circular misleading or which is in the context of the Global Offering material for disclosure. 13.9 The report prepared by the Company in respect of the adequacy of the Group's working capital and cash flow for the twelve-month period after the date of the Prospectus has been properly compiled by the Company on the basis of the assumptions stated therein and is presented on a basis consistent with the accounting principles and policies adopted by the Reporting Accountants in relation to the preparation of the Accountants' Report contained in the Prospectus and the Preliminary Offering Circular after making proper provision for all known liabilities (whether actual or contingent or otherwise); that the assumptions upon which the report are based have been made after due and careful enquiry and are fair and reasonable in the context of the Group and that there are no facts known or which could on due and careful enquiry have been known to the Company or the Directors which have not been taken into account in the preparation of the report or the omission of which would make any statement made in such report or any expression of opinion or intention contained or assumption made in such report misleading. 13.10 The Public Offer Documents and the Formal Notice contain and, when each of them is issued, wilt contain all information and particulars required to comply with all statutory and other provisions (including the Companies Ordinance, the Companies Law and the Listing Rules) so far as applicable. 64 14 PROPERTIES 14.1 None of the members of the Group owns, operates, manages, leases or has any other right of interest in any other property of any kind save for those described in the valuation report set out in the Prospectus and the Preliminary Offering Circular. 14.2 With respect to the rights and interests in property and other assets (including but not limited to land and buildings) owned by members of the Group: (i) the relevant member of the Group has good and marketable title, or has the right by Law to good and marketable title, to such property and other assets or any rights or interests thereto; (ii) there are no mortgages, charges, liens, claims, Encumbrances or other security interests or third party rights or interests, conditions, planning consents, orders, regulations or other restrictions affecting any of such property and other assets which could have an adverse effect on the value of such property and other assets or adversely limit, restrict or otherwise affect the ability of the relevant member of the Group to utilise, develop or redevelop any such property or other assets; and (iii) the relevant member of the Group is entitled as legal and beneficial owner of such property and other assets to all rights and benefits as landlord and/or licensor under the leases, tenancies or licences to which it is a party as landlord and/or licensor in respect of such property and other assets, and such leases, tenancies and licences are and will be in full force and effect 14.3 Where any property and other assets are held under lease, tenancy or licence by any member of the Group. (i) each lease, tenancy or licence is legal, valid, subsisting and enforceable by the relevant member of the Group; (ii) no default (or event which with notice or lapse of time, or both, would constitute a default) by any member of the Group has occurred and is continuing under any of such leases, tenancies or licences; and (iii) no member of the Group has notice of any claim of any nature that has been asserted by anyone adverse to the rights of the relevant member of the Group under such leases, tenancies or licences or affecting the rights of the relevant member of the Group to the continued possession of such leased or licensed property or other assets. 14.4 The ownership of and the right to use the land and buildings as described in the Prospectus and the Preliminary Offering Circular by the relevant member of the Group is not subject to any unusual or onerous terms or conditions. 15 INSURANCE 15.1 The description of the Company's insurance coverage contained in the Prospectus and the Preliminary Offering Circular is true, accurate and not misleading. All the assets of each of the members of the Group which are of an insurable nature have at all times been and are insured in amounts reasonably regarded as adequate and prudent against fire and other risks normally insured against by companies carrying on similar businesses or owning assets of a similar nature and each member of the Group has at all times been and is adequately covered against accident, third party injury, defective products, environmental 65 liabilities, damage and other risks normally covered by insurance by such companies. Nothing has been done or has been omitted to be done whereby any such policies have or may become void or are likely to be avoided. 15.2 Save and except for outstanding medical claims made under the Group's medical insurance policies, no claim under any insurance policies taken out by any member of the Group is outstanding and there are no circumstances likely to give rise to such a claim. None of the outstanding medical claims made under the Group's medical insurance policies is material in the context of the Group as a whole. 15.3 All premiums due in respect of such insurance policies have been duly paid in full and all conditions for the validity and effectiveness of the said policies have been fully observed and performed. 15.4 None of the Warrantors has any reason to believe that any member of the Group will not be able to renew its existing insurance coverage from similar insurers as may be necessary to continue its business at a cost that would not adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Group, taken as a whole. 16 COMPLIANCE WITH LEGAL AND REGULATORY REQUIREMENTS 16.1 Each member of the Group has carried on and is carrying on its business and operations in accordance with applicable Laws and all statutory, municipal and other Approvals necessary or desirable for the carrying on of the businesses and operations of each of the member of the Group as now carried on, as previously carried on and as proposed to be carried on have been obtained and are (or were at the relevant time) valid and subsisting and all conditions applicable to any such Approval have been and are complied with and there are no facts or circumstances exist or have in the past existed which may lead to the revocation, rescission, avoidance, repudiation, withdrawal, non-renewal or change, in whole or in part, of or in any existing Approvals or any requirements for additional Approvals which could prevent, restrict or hinder the operations of any member of the Group or involve any member of the Group in additional expenditure. 16.2 None of the members of the Group and the businesses now run by any of them, nor any of their respective officers, directors, supervisors, managers, agents, or employees have, directly or indirectly, (A) made or authorised any contribution, payment or gift of funds or property to any official, employee or agent of any governmental agency, authority or instrumentality in Hong Kong, the Cayman Islands, Macao, the PRC or any other jurisdiction or (B) made any contribution to any candidate for public office, in either case, where either the payment or the purpose of such contribution, payment or gift was, is, or would be prohibited under applicable Law, of any locality, including but not limited to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the rules and regulations promulgated thereunder; 16.3 None of the members of the Group is a party to any agreement, arrangement or concerted practice or is carrying on an practice which in whole or in part contravenes or is invalidated by any anti-trust, anti-monopoly, competition, fair trading, consumer protection or similar Laws in any jurisdiction where any of the members of the Group has assets or carries on business or in respect of which any filing, registration or notification is required or is advisable pursuant to such Laws (whether or not the same has in fact been made). 17 EMPLOYMENT AND PENSIONS 66 17.1 There are no amounts owing or promised to any present or former directors, employees or consultants of any member of the Group other than remuneration accrued due or for reimbursement of business expenses. 17.2 No directors or senior management or employees of any member of the Group have given or been given notice terminating their contracts of employment. 17.3 There are no proposals to terminate the employment or consultancy of any directors, employees or consultants of any member of the Group or to vary or amend their terms of employment or consultancy (whether to their detriment or benefit). 17.4 No member of the Group has outstanding any undischarged liability to pay to any Governmental Authority in any jurisdiction any taxation, contribution or other impost arising in connection with the employment or engagement of directors, employees or consultants by it. 17.5 No liability has been incurred by any member of the Group for: 17.5.1 breach of any contract of service, contract for services or consultancy agreement; 17.5.2 redundancy payments; 17.5.3 compensation for wrongful, constructive, unreasonable or unfair dismissal; 17.5.4 failure to comply with any order for the reinstatement or re-engagement of any director, employee or consultant; or 17.5.5 the actual or proposed termination or suspension of employment or consultancy, or variation of any terms of employment or consultancy of any present or former employee, director or consultant of any member of the Group. 17.6 No dispute of material importance with the directors, employees (or any trade union or other body representing all or any of such employees), consultants or agents of any member of the Group exists or, to the best knowledge, information, belief and awareness of the Warrantors, is imminent or threatened. None of the members of the Group is aware of any existing or imminent labour disturbance by the directors, employees or consultants of any of its principal suppliers, customers or contractors which might be expected to result in an adverse change in the condition, financial or otherwise, or in the results of operations, business affairs or business prospects or net worth of the Group. 17.7 The Group has in relation to its directors, employees or consultants (and so far as relevant to each of its former directors, employees or consultants) complied in all material respects with all applicable statutes, regulations and bye-laws and the terms and conditions of such directors', employees' or consultants' (or former directors', employees' or consultants') contracts of employment or consultancy. 17.8 No contributions are being, or have been made by a member of the Group to any pension, retirement, provident fund or death or disability benefit scheme or arrangement other than the Pension Schemes and no member of the Group participates in, or has participated in, or is liable to contribute to, any pension, retirement, provident fund or death or disability benefit scheme or arrangement in respect of past or present employees or directors of the Group other than the Pension Schemes. 17.9 Each of the Pension Schemes complies with and has been operated in all material respects in accordance with all applicable laws and regulations and the rules of the 67 relevant scheme. There is no ground upon which any applicable registrations or exemptions in respect of any of the Pensions Schemes could be withdrawn or cancelled. 17.10 Other than contributions due to be paid at the next payment date, no contributions (or contribution surcharge) in respect of any employee or director of the Group or any other payment due to, or in respect of, the Pension Schemes is unpaid. 17.11 All defined benefit retirement schemes are adequately funded and no additional contributions by any member of the Group are currently due to be made to make up for any shortfall. 17.12 There is no material dispute relating to the Pension Schemes, whether involving any member of the Group, the trustees or administrators of the Pension Schemes, any employee or director of a member of the Group, or any other person and no circumstances exist which may give rise to any such claims. 18 INTELLECTUAL PROPERTY 18.1 For the purpose of this paragraph 18, "INTELLECTUAL PROPERTY" means all patents, patent rights, inventions, trade marks, service marks, logos, get-up, registered or unregistered design rights, trade or business names, domain names, trade secrets, confidential information, Know-how, copyrights, semi-conductor topography rights, database rights and any proprietary or confidential information systems processes or procedures and of their intellectual property (whether, in each case, registered, unregistered or unregistrable, and including pending applications for registration and rights to apply for registration) and all rights of a similar nature or having similar effect which may subsist in any part of the world. 18.2 For the purpose of this paragraph 18, "KNOW-HOW" means confidential and proprietary industrial and commercial information and techniques in any form (including paper, electronically stored data, magnetic media, film and microfilm) including without limitation drawings, formulae, test results, reports, project reports and testing procedures, instruction and training manuals, tables of operating conditions, market forecasts, lists and particulars of customers and suppliers. 18.3 All Intellectual Property and all pending applications therefor which have been, are or are capable of being used in or in relation to or which are necessary for the business of each member of the Group are (or, where appropriate in the case of pending applications, will be): 18.3.1 legally and beneficially owned by the relevant member of the Group or lawfully used under valid licences granted by the registered proprietor(s) or beneficial owner(s) thereof and such licences are in full force and effect and have not been revoked or terminated and there are no grounds on which they might be revoked or terminated; 18.3.2 valid and enforceable; 18.3.3 not being infringed or attacked or opposed by any person; 18.3.4 not subject to any Encumbrance or any licence or authority in favour of another; 18.3.5 in the case of rights in such Intellectual Property as are registered or the subject of applications for registration, all renewal fees which are due and steps which are required for their maintenance and protection have been paid and taken; and 68 18.3.6 in the case of unregistered trade marks which are likely to be material to any member of the Group, and no claims have been made or threatened and no applications are pending, which if pursued or granted might be material to the truth and accuracy of any of the above statements in this Clause 18.3. 18.4 No member of the Group has received any notice or is otherwise aware of (having made due and careful enquiries): 18.4.1 any infringement of or conflict with claimed or asserted rights of others with respect to any rights mentioned in paragraph 18.3 above; or 18.4.2 any unauthorised use of any Know-how of any third party and no member of the Group has made disclosure of Know-how to any person except properly and in the ordinary course of business and on the basis that such disclosure is to be treated as being of a confidential character; or 18.4.3 any opposition by any person to any pending applications; or 18.4.4 any assertion of moral rights which would affect the use of any of the Intellectual Property in the business of any member of the Group; or 18.4.5 any facts or circumstances which would render any rights mentioned in paragraph 18.3 above invalid or inadequate to protect the interests of the relevant member of the Group or unenforceable. 18.5 The rights and interest held by the Group (whether as owner, licensee or otherwise) in Intellectual Property comprises all the rights and interests necessary or convenient for the carrying on of the business of each member of the Group in and to the extent which it is presently conducted. 18.6 The processes employed and the products and services dealt in by a member of the Group both now and at any time within the last six years do and did not use, embody or infringe any rights or interests of third parties in Intellectual Property in any respect (other than those belonging to or licensed to a member of the Group and no claims of infringement of any such rights or interests have been made or threatened by any third party. 18.7 All licences and agreements to which any member of the Group is a party (including all amendments, novations, supplements or replacements to those licences and agreements) are in full force and effect, no notice having been given on any party to terminate them; the obligations of the parties thereto thereunder have been fully complied with; and no disputes have arisen or are foreseeable in respect thereof; and where such licences are of such a nature that they could be registered with the appropriate authorities and where such registration would have the effect of strengthening the Group's rights, they have been so registered. 19 INFORMATION TECHNOLOGY 19.1 For the purpose of this paragraph 19, "INFORMATION TECHNOLOGY" means all computer systems, communications systems, software and hardware owned, used or licensed by or to any member of the Group. 19.2 The Information Technology comprises all the information technology systems and related rights necessary to run the business of the Group. 69 19.3 All Information Technology which has been or which is necessary for the business of any member of the Group is either legally and beneficially owned by the relevant member of the Group or lawfully used under valid licences granted by the registered proprietor(s) or beneficial owner(s) thereof and such licences are in full force and effect and have not been revoked or terminated and to the best knowledge, belief, awareness and information of the Warrantors after due and careful enquiry, there are no grounds on which they might be revoked or terminated. 19.4 All the records and systems (including but not limited to Information Technology) material to the business of the Group taken as a whole and all data and information of each member of the Group are maintained and operated by a member of the Group are not wholly or partially dependent on any facilities not under the exclusive ownership or control of a member of the Group. 19.5 To the best knowledge, information, belief and awareness of the Warrantors after due and careful enquiry, there are no bugs or viruses, logic bombs or other contaminants (including without limitation, "worms" or "trojan horses") in or failures or breakdowns of any computer hardware or software or any other Information Technology equipment used in connection with the business of any member of the Group which have caused any substantial disruption or interruption in or to the business of any member of the Group. 19.6 In the event that the persons providing maintenance or support services for the Group's Information Technology cease or are unable to do so, the members of the Group have all the necessary rights and information to continue to maintain and support or have a third party maintain or support the Information Technology which is material for the operations of the Group as a whole. 19.7 Each member of the Group has in place procedures to prevent unauthorised access and the introduction of viruses. 19.8 Each member of the Group has in place adequate back-up policies and disaster recovery arrangements which enable its Information Technology and the data and information stored thereon to be replaced and substituted without material disruption to the business of the Group taken as a whole. 19.9 To the best knowledge, information, belief and awareness of the Warrantors after due and careful enquiry, there are no defects relating to the Information Technology owned or used by the business of any member of the Group and the Information Technology owned or used by any member of the Group has the capacity and performance necessary to fulfil the present and foreseeable requirements of the business of any member of the Group. 20 DATA PROTECTION 20.1 Each member of the Group has complied in all respects with all applicable data protection legislation, guidelines and industry standards. 20.2 No member of the Group has received any notice (including without limitation any enforcement notice, de-registration notice or transfer prohibition notice), letter, complaint or allegation from the relevant data protection regulator alleging breach or non-compliance by it of the applicable data protection legislation, guidelines and industry standards or prohibiting the transfer of data to a place outside the territory. 20.3 No member of the Group has received a claim for compensation from any individual in respect of its business under the applicable data protection legislation, guidelines and 70 industry standards in respect of inaccuracy, loss, unauthorised destruction or unauthorised disclosure of data in the previous three years and there is no outstanding order against any member of the Group in respect of the rectification or erasure of data. 20.4 No warrant has been issued authorising the data protection regulator (or any of his officers or servants) to enter any of the premises of any member of the Group for the purposes of, inter alia, searching them or seizing any documents or other material found there. 21 ENVIRONMENTAL MATTERS 21.1 For the purposes of this paragraph 21: 21.1.1 "ENVIRONMENT"means all or any part of the air (including, without limitation, air within buildings or natural or man-made structures whether above or below ground), water (including, without limitation, territorial, ocean, coastal and inland waters, surface water, groundwater and drains and sewers) and land (including, without limitation, sea bed or river bed under any water as described above, surface land and sub-surface land, and any natural or man-made structures), and also includes human, animal and plant life; and 21.1.2 "ENVIRONMENTAL LAW" means any treaty, national, state, federal or local law, common law rule or other rule, regulation, ordinance, by-law, code, decree, demand or demand letter, injunction, judgement, notice or notice demand, code of practice, order or plan issued, promulgated or approved thereunder or in connection therewith pertaining to the protection of the Environment or to health and safety matters (and shall include, without limitation, laws relating to workers and public health and safety). 21.2 Each member of the Group has complied and is complying with all Environmental Laws that are applicable to its business. 21.3 There is no civil, criminal or administrative action, claim, investigation or other proceeding or suit pending or threatened against any member of the Group arising from or relating to Environmental Law which is material in the context of the Group as a whole and there are no circumstances existing which may lead to any such action, claim, investigation, proceeding or suit. 21.4 Each member of the Group conducts its operations so as not to lead to a breach of Environmental Law and in accordance with good operating practice of the industry in relation to all matters, practices and activities which could affect or cause harm to the Environment. 21.5 None of the members of the Group occupies, leases, owns, uses or has previously used, owned, leased or occupied, any property such that it is or may be wholly or partly responsible for the costs of any clean-up or other corrective action to any site or any part of the Environment. 21.6 There are no circumstances which require or may require any member of the Group to incur significant expenditure which is material in the context of the Group as a whole in respect of the Environment or under Environmental Law. 22 TAXATION 22.1 All returns, reports or filings which ought to have been made by or in respect of each of the existing member of the Group for taxation purposes have been made and all such returns 71 are up to date, correct and prepared with due care and skill and on a proper basis and are not the subject of any dispute with the relevant revenue or other appropriate authorities and there are no present circumstances likely to give rise to any such dispute and the provisions included in the audited combined results of the Group as at the Accounts Date referred to in paragraph 4.1 above were sufficient to cover all taxation (if any) in respect of all accounting periods ended on or before the Accounts Date for which the Group was then liable, and the provisions included in the unaudited management accounts of the Group for the 2 months ended 29 February 2004 referred to in paragraph 4.2 above were sufficient to cover all taxation in respect of the period of 2 months ended on 29 February 2004 for which the Group was then liable]. There is no tax deficiency that has been asserted against any member of Group. 22.2 All information and statements concerning taxation and its application to members of the Group in the Prospectus and the Preliminary Offering Circular are true and accurate and not misleading. 22.3 Save as disclosed in the Prospectus and the Preliminary Offering Circular (and subject to any reservation made therein), no tax or duty (including, without limitation, any stamp or issuance or transfer tax or duty and any tax or duty on capital gains or income, whether chargeable on a withholding basis or otherwise) is payable to any Governmental Authority in Hong Kong or the Cayman Islands in connection with: 22.3.1 the transfer of the Offer Shares; 22.3.2 the execution, delivery and performance of the Underwriting Documents; 22.3.3 the delivery by the Selling Shareholder of the Offer Shares to or for the respective accounts of the Public Offer Underwriters and the International Placing Underwriters or to the initial purchasers thereof (as the case may be) or from the International Placing Underwriters to the placees of the International Placing in the manner contemplated in the Underwriting Documents; 22.3.4 the payment by the Company to, and the receipt by shareholders of, any dividend in respect of Shares; and 22.3.5 the sale, transfer or other disposition or delivery of any Shares, including any realised or unrealised capital gains arising in connection with such sale, transfer or other disposition. 23 IMMUNITY None of the Warrantors nor any of their respective assets or revenues are entitled to any right of immunity on the grounds of sovereignty from any legal action, suit or proceedings, from set-off or counterclaim, from the jurisdiction of any court, from service of process, from attachment prior to or in aid of execution of judgement, or from other legal process or proceedings for the giving of any relief or for the enforcement of any judgement. The irrevocable and unconditional waiver and agreement of the Warrantors in Clause 10.14 hereof not to plead or claim any such immunity in any legal action, suit or proceeding based on this Agreement is valid and binding under all applicable laws. 24 LAW AND JURISDICTION 24.1 Under the applicable Laws, the courts of the applicable jurisdiction of each party will recognise and give effect to the choice of law and dispute resolution provisions set forth in 72 this Agreement and will enforce judgements of Hong Kong courts obtained against the other parties to enforce this Agreement, provided that the judgement: (i) is not obtained by fraud; (ii) is final and conclusive; (iii) in the opinion of the relevant court after its review of such judgement pursuant to international treaties concluded or acceded to by the relevant jurisdictions or in accordance with the principle of reciprocity, does not contradict the basic principles of Law of the relevant jurisdictions; (iv) in the opinion of the relevant court after its review of such judgement pursuant to international treaties concluded or acceded to by the relevant jurisdictions or in accordance with the principle of reciprocity, does not violate state sovereignty, security or social and public interest; and (v) is for a definite sum of money. PART 2 1 PROFESSIONAL INVESTOR The Company has read and understood the Professional Investor Treatment Notice and acknowledges and agrees to the representations waivers and consents contained in the Professional Investor Treatment Notice. For the purpose of this provision, the words "you" and "your" in the Professional Investor Treatment Notice shall means "the Company" and "the Company's" respectively. PARTS 3 1 CAPACITY 1.1 The Selling Shareholder has been duly incorporated and is validly existing under the laws of its place of incorporation and is capable of suing and being sued. 2 THE GLOBAL OFFERING 2.1 The Selling Shareholder has good and valid title to, and is and will, prior to the transfer of the Public Offer Shares to the purchasers thereof under the Global Offering, be the legal and beneficial owner of, the Public Offer Shares to be sold by it under the Global Offering, free and clear of all Encumbrances and with the benefit of all rights attached thereto and thereafter accruing thereto including the right to receive all dividends or other distributions which may be declared, paid or made thereon at or after the transfer of the Public Offer Shares pursuant to Clause 3.3.3. 2.2 The execution and delivery by or on behalf of the Selling Shareholder of, and compliance by the Selling Shareholder with, the terms of this Agreement; the performance by the Selling Shareholder of its obligations under the Global Offering; the sale and transfer of the Offer Shares; and the issue, publication, distribution or making available of the Public Offer Documents, the Formal Notice and the Preliminary Offering Circular have been duly authorised and do not and will not: 2.2.1 result in a breach of any provision of the memorandum or articles of association or bye-laws (or equivalent constitutive documents) of the Selling Shareholder; or 73 2.2.2 result in a breach of, or Constitute a default under, any indenture, mortgage, charge, trust, lease, agreement, instrument or obligation to the Selling Shareholder is a party or by which the Selling Shareholder or any of the Selling Shareholder's assets is bound; 2.2.3 result in a breach of any Laws to which the Selling Shareholder is subject or by which the Selling Shareholder or any of its assets is bound; 2.2.4 except as disclosed in the Prospectus and the Preliminary Offering Circular, require any Approval from any Governmental Authority or the sanction or consent of its shareholders; or 2.2.5 result in the creation or imposition of any Encumbrance or other restriction upon any assets of the Selling Shareholder. 2.3 All Approvals required for the performance by the Selling Shareholder of its obligations under the Global Offering; the sale and transfer of the Offer Shares; and the issue, publication, distribution or making available of each of the Public Offer Documents and the Preliminary Offering Circular have been or will (prior to the Prospectus Date) be irrevocably and unconditionally obtained and are in full force and effect. 3 PROFESSIONAL INVESTOR The Selling Shareholder has read and understood the Professional Investor Treatment Notice and acknowledges and agrees to the representations, warranties and consents contained in the Professional Investor Treatment Notice. For the purpose of this provision, the words "you" or "your" in the Professional Investor Treatment Notice shall mean "the Selling Shareholder" and "the Selling Shareholder's" respectively. SIGNATURE PAGE THE COMPANY SIGNED by Li Shi Yuen, Joseph for and on behalf of NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LIMITED /s/ Tammie Mei Fung Tam Tammie Mei Fung Tam Johnson Stokes & Master Solicitor, Hong Kong SAR THE SELLING SHAREHOLDER SIGNED by Li Shi Yuen, Joseph for and on behalf of NAM TAI ELECTRONICS, INC. /s/ Tammie Mei Fung Tam Tammie Mei Fung Tam Johnson Stokes & Master Solicitor, Hong Kong SAR THE EXECUTIVE DIRECTORS SIGNED by Li Shi Yuen, Joseph as attorney for WONG KUEN LING /s/ Tammie Mei Fung Tam Tammie Mei Fung Tam Johnson Stokes & Master Solicitor, Hong Kong SAR SIGNED by Li Shi Yuen, Joseph as attorney for GUY JEAN FRANCOIS BINDELS /s/ Tammie Mei Fung Tam Tammie Mei Fung Tam Johnson Stokes & Master Solicitor, Hong Kong SAR HSBC SIGNED by Jonathan Orders for and on behalf of THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED /s/ Jonathan orders /s/ [ILLEGIBLE] CHOW KA LOK KEVIN LINKLATERS SOLICITOR, HONG KONG SAR THE PUBLIC OFFER UNDERWRITERS SIGNED by Jonathan Orders of THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED as the duly authorised agent or attorney of: /s/ Jonathan orders BNP PARIBAS PEREGRINE CAPITAL LIMITED NOMURA INTERNATIONAL (HONG KONG) LIMITED CAZENOVE ASIA LIMITED DBS ASIA CAPITAL LIMITED VC CEF CAPITAL LIMITED /s/ [ILLEGIBLE] Chow Ka Lok Kevin Linkiaters Solicitor, Hong Kong SAR EX-4.14 9 u99587exv4w14.txt EX-4.14 SUPPLEMENTAL AGREEMENT EXHIBIT 4.14 Dated 27th July 2004 Mr. WONG TOE YEUNG and NAM TAI ELECTRONICS, INC. ------------------------------------- SUPPLEMENTAL AGREEMENT Relating to the Sale and Purchase of the entire issued share capital of JASPER ACE LIMITED ------------------------------------- 1 THIS SUPPLEMENTAL AGREEMENT is dated 27th JULY, 2004 and is made BETWEEN (1) MR. WONG TOE YEUNG (I.D. Card Number A322103(5)) of 39th Floor, Tower 6, The Leighton Hill, 2B Broadwood Road, Hong Kong ("MR. WONG"); and (2) NAM TAI ELECTRONICS, INC., an International Business Company incorporated in the British Virgin Islands having its registered office at McW. Todman & Co., McNamara Chambers, P.O. Box 3342, Road Town, Tortola, the British Virgin Islands ("NTEI") WHEREAS: (A) By an agreement made between Mr. Wong and NTEI dated March 31st, 2004 ("the JA Agreement"), Mr. Wong has agreed to sell and NTEI has agreed to acquire the entire issued share capital of JA. (B) The JA Agreement was completed on April 21st, 2004. (C) Pursuant to the JA Agreement, Mr. Wong and NTEI have agreed that the number of Namtai Common Stock issued to Top Scale has to be adjusted if :- (a) the audited net profit of Huizhou TCL for the year ended 31st December 2003 is less than US$100,305,690, and/or (b) the Adjusted IPO Benchmark Valuation is less than the Benchmark Valuation. (D) It is likely that the Adjusted IPO Benchmark Valuation will be less than the Benchmark Valuation. (E) Mr. Wong and NTEI have therefore agreed to adjust the number of Namtai Common Stock pursuant to the terms and conditions of this Supplemental Agreement in full and final settlement of any possible adjustment to be made pursuant to Clause 4.2(c) of the JA Agreement. 2 BY WHICH IT IS AGREED as follows:- 1. Definitions and Interpretation In this Supplemental Agreement, unless the context requires otherwise, terms defined in the JA Agreement shall have the same meaning when used herein. 2. Adjustment of Consideration 2.1 In full and final settlement of any possible adjustment of Consideration to be made pursuant to Clause 4.2(c) of the JA Agreement, Mr. Wong and NTEI have agreed to use a P/E multiple of 10 times for the purpose of calculating the adjustment to the Consideration pursuant to Clause 2.2 hereof. 2.2 The Consideration shall be adjusted in accordance with the following formula:- The amount of adjustment to = (US$100,305,690) x (14-10) x 5.967% the Consideration = US$23,940,962.09 ("the Adjustment") 2.3 Mr. Wong and NTEI have agreed that the Adjustment shall be satisfied by the cancellation of the following number of shares of the Namtai Common Stock on July 31st, 2004, which shares were issued to Top Scale pursuant to Clause 4.1(c) of the JA Agreement:- Number of shares of US$23,940,962.09 Namtai Common Stock = ------------------ to be cancelled US$24.6 = 973,209.8 (rounding to the nearest whole number) = 973,210 ("the Adjusted Namtai Common Stock") 3 3. Cancellation of the Adjusted Namtai Common stock 3.1 Mr. Wong shall immediately upon signing of this Supplemental Agreement deliver to NTEI the original share certificate in relation to the Namtai Common Stock. 3.2 NTEI shall arrange for cancellation of the Adjusted Namtai Common Stock on July 31st , 2004 and shall within 14 days thereafter issue a new share certificate to Top Scale for the remaining 1,416,764 shares of Namtai Common Stock. 4. The JA Agreement Save and except for Clause 4.2(c) of the JA Agreement as varied herein, this Supplemental Agreement shall not affect other terms of the JA Agreement which shall continue to be valid and of full effect. 5. Law and Jurisdiction 5.1 Governing Law This Supplemental Agreement is governed by and will be construed in accordance with Hong Kong law. 5.2 Hong Kong Jurisdiction The parties submit to the non-exclusive jurisdiction of the Hong Kong courts and each party waives any objection to proceedings in Hong Kong on the grounds of venue or inconvenient forum. 4 EXECUTED by the parties in Macau Special Administrative Region of the People's Republic of China. MR. WONG TOE YEUNG ) ) __________________________ Witnessed by ________________________ Name : Title : For and on behalf of ) ) NAM TAI ELECTRONICS, INC. ) ) By MR. KOO MING KOWN ) ___________________________ Witnessed by ________________________ Name : Title : 5 EX-4.15 10 u99587exv4w15.txt EX-4.15 UNDERWRITING AGREEMENT DATED APRIL 22, 2004 EXHIBIT 4.15 Dated 22 April 2004 NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LIMITED and NAM TAI ELECTRONICS, INC. and THE EXECUTIVE DIRECTORS (AS DEFINED HEREIN) and THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED and THE INTERNATIONAL PLACING UNDERWRITERS (AS DEFINED HEREIN) INTERNATIONAL UNDERWRITING AGREEMENT relating to an International Placing consisting initially of 180,000,000 Shares (subject to adjustment) of nominal value HK$0.01 each in in the capital of Nam Tai Electronic & Electrical Products Limited LINKLATERS 10th Floor, Alexandra House Chater Road Hong Kong Telephone (852) 2842 4888 Facsimile (852) 2810 8133/2810 1695 Ref :L-065038-05-001/ DWLT/CLLW/KKLC TABLE OF CONTENTS
CONTENTS PAGE 1 INTERPRETATION.................................. 2 2 THE GLOBAL OFFERING............................. 11 3 THE INTERNATIONAL PLACING....................... 16 4 COSTS, EXPENSES, FEES AND COMMISSIONS........... 23 5 REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS.... 25 6 FURTHER UNDERTAKINGS............................ 27 7 INDEMNITY....................................... 35 8 CONTRIBUTION.................................... 38 9 TERMINATION IN EXCEPTIONAL CIRCUMSTANCES........ 39 10 GENERAL PROVISIONS.............................. 41 SCHEDULE 1 The International Placing Underwriters... 50 SCHEDULE 2 The Executive Directors.................. 51 SCHEDULE 3 The Reorganisation Documents............. 52 SCHEDULE 4 The Conditions Precedent Documents....... 53 SCHEDULE 5 Form of Deed Poll........................ 57 SCHEDULE 6 Professional Investor Treatment Notice... 59 SCHEDULE 7 The Warranties........................... 61 SIGNATURE PAGE...................................... 82
THIS AGREEMENT is made on 22 April 2004 BETWEEN:- (1) NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LIMITED, a company incorporated under the laws of the Cayman Islands whose registered office is at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, British West Indies (the "COMPANY"); (2) NAM TAI ELECTRONICS, INC., a company incorporated under the laws of British Virgin Islands whose registered office is at McW. Todman & Co., McNamara Chambers, PO Box 3342, Road Town, Tortola, British Virgin Islands (the "SELLING SHAREHOLDER"); (3) THE EXECUTIVE DIRECTORS (as hereinafter defined); (4) THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, a company incorporated under the laws of Hong Kong whose registered office is at 1 Queen's Road Central, Hong Kong ("HSBC"); and (5) THE INTERNATIONAL PLACING UNDERWRITERS (as defined herein). RECITALS:- (A) The Company was incorporated in the Cayman Islands with limited liability on 9 June 2003 under the Companies Law and has been registered as an oversea company in Hong Kong under Part XI of the Companies Ordinance on 19 March 2004; (B) As at the date of this Agreement, the authorised share capital of the Company is HK$20,000,000 divided into 2,000,000,000 Shares, of which 800,000,000 Shares have been allotted and issued and are fully paid or credited as fully paid;; (C) As at the date of this Agreement, the Selling Shareholder is the legal and beneficial owner of 800,000,000 Shares representing 100% of the existing issued share capital of the Company; (D) The Company, the Selling Shareholder, the Executive Directors, HSBC and the Public Offer Underwriters (as defined herein) entered into an underwriting agreement dated 15 April 2004 providing for the underwriting of the Public Offer by the Public Offer Underwriters subject to the terms and conditions set out therein. Pursuant to the Public Offer, the Public Offer Shares were offered to the public in Hong Kong; (E) The Selling Shareholder has agreed to offer for sale the International Placing Shares by way of placing to selected placees under the International Placing at the Offer Price, and the International Placing Underwriters have severally agreed to purchase or procure the purchase of the International Placing Shares on and subject to the terms and conditions hereinafter mentioned; (F) The Selling Shareholder has agreed to grant to HSBC, exercisable at the sole and absolute discretion of HSBC, the Over-allotment Option (as defined herein) to require the Selling Shareholder to sell up to an aggregate of 30,000,000 additional Shares, subject to and on the terms of this Agreement; (G) Immediately upon completion of the Global Offering (as defined herein) and assuming the Over-allotment Option (as defined herein) will not be exercised, the Selling Shareholder will own 600,000,000 Shares representing 75% of the existing issued share capital of the Company or, if the Over-allotment Option (as defined herein) expected to be granted is 1 fully exercised, the Selling Shareholder will own 570,000,000 Shares representing 71.25% of the existing issued share capital of the Company; (H) The International Placing is to be made (i) outside the United States to non-US persons within the meaning of and pursuant to Regulation S and (ii) in the United States to qualified institutional buyers within the meaning of and pursuant to Rule 144A or otherwise pursuant to an applicable exemption; (I) The Company, the Selling Shareholder and HSBC (on behalf of the Public Offer Underwriters) have entered into the Price Determination Agreement on the date hereof to record their agreement regarding the Offer Price; (J) The International Placing Underwriters have severally agreed to procure the purchase of, or failing which to purchase, the International Placing Shares, on the terms and subject to the conditions set out herein; (K) The Executive Directors are the executive directors of the Company; (L) The Company has appointed Computershare Hong Kong Investor Service Limited to act as its Hong Kong branch share registrar and transfer office; (M) The Selling Shareholder has appointed HSBC to act as the sponsor in respect of the listing of the Share on the Stock Exchange; (N) The Selling Shareholder has appointed HSBC to act as the global coordinator, the sponsor, lead manager and bookrunner of the Global Offering; (O) HSBC, on behalf of the Company, has submitted an application to the Stock Exchange for listing of and permission to deal in the Shares in issue and the Shares to be issued as described in the Final Offering Circular; and (P) The Warrantors have agreed to give the representations, warranties and undertakings contained in this Agreement. IT IS HEREBY AGREED as follows:- 1 INTERPRETATION 1.1 DEFINITIONS In this Agreement (including the Recitals and the Schedules), the following expressions shall, unless defined otherwise or the context otherwise requires, have the following meanings:- "ACCOUNTS DATE" 31 December 2003; "AFFILIATE" in relation to a particular company, any company or other entity which is its holding company or subsidiary, or any subsidiary of its holding company or which directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the company specified. For the purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, 2 whether through the ownership of voting securities, by contract, or otherwise; "AGREEMENT BETWEEN the agreement expected to be entered into on INTERNATIONAL PLACING the date hereof between HSBC and the other UNDERWRITERS" International Placing Underwriters governing certain rights and obligations as between the International Placing Underwriters in relation to the International Placing; "AGREEMENT BETWEEN the agreement expected to be entered into on SYNDICATES" the date hereof between the Public Offer Underwriters, the International Placing Underwriters and HSBC governing certain rights and obligations as between the parties thereto in connection with the Global Offering; "APPLICATION FORMS" the application forms on which Public Offer Applications may be made (as amended or supplemented pursuant to Clause 6.1.1(x) or Clause 6.1.1(x) of the Public Offer Underwriting Agreement (as the case may be)); "APPROVALS" includes all approvals, sanctions, orders, franchises, clearances, declarations, qualifications, licences, permits, certificates, consents, permissions, authorisations, filings and registrations and "APPROVAL" shall be construed accordingly; "ARTICLES OF ASSOCIATION" the articles of association of the Company conditionally adopted on 8 April 2004; "BOARD" the board of directors of the Company; "BROKERAGE" brokerage per Share of 1% of the Offer Price; "BROKERAGE, FEE AND the Brokerage, the Trading Fee, the LEVIES" Transaction Levy and the Investor Compensation Levy; "BUSINESS DAY" a day that is not a Saturday, Sunday or public holiday in Hong Kong; "CCASS" the Central Clearing and Settlement System established and operated by Hong Kong Securities Clearing Company Limited; "CLOSING" with respect to the initial International Placing Shares prior to any adjustments under Clause 2.3, the time when payment and delivery is to made under Clause 3.5.8 after all the Conditions have been fulfilled or waived in accordance with this Agreement, which is expected to be 8:00 a.m. on the Force Majeure Expiry Date or otherwise as agreed between the Company, the Selling Shareholder and HSBC (on behalf of the International Placing Underwriters), and with respect to the Over-allotment Shares, the date and time determined by HSBC (on behalf of the International Placing Underwriters) for the payment and delivery thereof as 3 referred to in Clause 2.3.(iv); "CLOSING DATES" the Placing Closing Date and the Option Closing Dates and "CLOSING DATE" shall mean any or a specific one of such dates; "CLOSING TIME OF 8:00 a.m. on the Force Majeure Expiry Date; DELIVERY" "COMPANIES LAW" the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands; "COMPANIES ORDINANCE" the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) (as amended); "COMPLETION" the latest of (i) the last Closing Date for delivery of the Offer Shares; and (ii) the expiry, release or settlement in full of the Over-allotment Option; and (iii) the completion of the distribution of the Offer Shares as determined by HSBC; "CONDITIONS" the conditions set out in Clause 2.1.1; "CONDITIONS PRECEDENT the documents listed in Schedule 4; DOCUMENTS" "CONTINUING BUSINESSES" the businesses carried out by the Group in the three years ended 31 December 2003, except for the Discontinued Businesses; "DEED OF INDEMNITY" the deed of indemnity dated 15 April 2004 provided in connection with the Global Offering entered into between the Selling Shareholder and the Company; "DEED POLL" the deed poll the form of which is set out in Schedule 5; "DIRECTORS" the directors of the Company whose names are set out in the section headed "Directors, Senior Management and Staff" in the Final Offering Circular; "DISCONTINUED BUSINESSES" the Group's discontinued businesses related to the trading and manufacturing of essential components and subassemblies for mobile phones in the three years ended 31 December 2003; "ENCUMBRANCE" any pledge, charge, lien, mortgage, security interest, claim, pre-emption rights, equity interest, third party rights or interests or rights similar to the foregoing; "EXERCISE NOTICE" written notice upon which the Over-allotment Option may be exercised pursuant to Clause 2.3.2(iv); "EXECUTIVE DIRECTORS" the executive directors of the Company whose names and addresses are listed in Schedule 2; "FINAL OFFERING CIRCULAR" the final offering circular dated the date of this Agreement to be issued by the Company in connection with the International Placing in the agreed form (as amended or 4 supplemented pursuant to Clause 6.1.1(x)); "FORCE MAJEURE EXPIRY the Listing Date; DATE" "FORMAL NOTICE" the formal notice dated 16 April 2004 published by the Company in connection with the Public Offer (as amended or supplemented pursuant to Clause 6.1.1(x) or clause 6.1.1(x) of the Public Offer Underwriting Agreement); "GLOBAL OFFERING" the Public Offer and the International Placing; "GOVERNMENTAL AUTHORITY" any public, regulatory, taxing, administrative or governmental, agency or authority (including, without limitation, the Stock Exchange, the SFC), other authority and any court at the national, provincial, municipal or local level; "GROUP" the Company, NTSZ and NTIC or, where the context so requires, in respect of the period before the Reorganisation is completed, the Continuing Businesses operated by NTSZ and the businesses operated by NTIC and the sales co-ordination and marketing activities operated by NTEEPHK; "HK DOLLAR" AND "HK$" Hong Kong dollar, the lawful currency of Hong Kong; "HOLDING COMPANY" has the meaning ascribed thereto in section 2 of the Companies Ordinance; "HONG KONG" the Hong Kong Special Administrative Region of the PRC; "INDEMNIFIED PARTY" has the meaning ascribed thereto in Clause 7.1; "INDEMNIFYING PARTY" has the meaning ascribed thereto in Clause 7.1; "INTERNATIONAL PLACING" the conditional placing of the International Placing Shares on and subject to the terms of the Placing Documents and this Agreement; "INTERNATIONAL PLACING the 180,000,000 Shares initially to be SHARES" offered for sale by the Selling Shareholder and placed under the International Placing, subject to adjustment pursuant to Clauses 2.3, 2.4 and 2.5; "INTERNATIONAL PLACING the underwriters whose names and addresses UNDERWRITERS" are listed in columns (I) and (II) in Schedule 1, being the several underwriters of the International Placing; "INTERNATIONAL PLACING in relation to each International Placing UNDERWRITING COMMITMENT" Underwriter, the maximum number of International Placing Shares set out opposite its name in column (IV) in Schedule 1 and, in the event that the Over-allotment Option is exercised, in column (V) in Schedule 1, which such International Placing Underwriter has agreed to purchase or to procure purchasers for, pursuant to the terms of this Agreement, subject to adjustment as set out in Clause 2.5; "INVESTOR COMPENSATION SFC investor compensation levy per Share of 0.002% of the 5 LEVY" Offer Price; "LAWS" include all laws, rules, statutes, ordinances, regulations, guidelines, opinions, notices, circulars, orders, judgements, decrees or rulings of any Governmental Authority and "LAW" includes any one of them; "LISTING COMMITTEE" the listing committee of the Stock Exchange; "LISTING DATE" the day on which dealings in the Shares commence on the Stock Exchange; "LISTING RULES" the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited; "MACAO" the Macao Special Administrative Region of the PRC; "NTEEPHK" Nam Tai Electronic & Electrical Products Limited, a company incorporated under the laws of Hong Kong (which has recently changed its name to Nam Tai Trading Company Limited [name in chinese]); "NTIC" Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited, a company incorporated in Macao and wholly owned by the Company; "NTSZ" [name in chinese](Namtai Electronic (Shenzhen) Company Limited), a wholly foreign owned enterprise established under the laws of the PRC and wholly owned by the Company; "OFFER DOCUMENTS" the Public Offer Documents and the Placing Documents; "OFFER PRICE" $[-], being the final Hong Kong dollar price per Offer Share (exclusive of the Brokerage, Fee and Levies) at which the International Placing Shares are to be offered for sale under the Global Offering in accordance with the provisions of Clause 3; "OFFER SHARES" the Public Offer Shares and the International Placing Shares; "OPERATIVE DOCUMENTS" the Reorganisation Documents, the Deed of Indemnity, the Price Determination Agreement, the Receiving Banker Agreement, the Registrars Agreement and the Sub-Registrars Agreement; "OPTION CLOSING" the payment for and delivery of Over-allotment Shares are to be made pursuant to any exercise of the Over-allotment Option, to be determined by HSBC (on behalf of the International Placing Underwriters) pursuant to Clause 2.3.2(iv); "OPTION CLOSING DATE" the date of Option Closing; "OPTION TIME OF DELIVERY" has the meaning ascribed thereto in Clause 2.3.2(iv); 6 "OVER-ALLOTMENT OPTION" the option granted by the Selling Shareholder to HSBC, exercisable by HSBC, to require the Selling Shareholder to sell up to an aggregate of 30,000,000 additional Shares pursuant to Clause 2.3 of this Agreement; "OVER-ALLOTMENT SHARES" the additional Shares which the Selling Shareholder may be required to sell at the Offer Price pursuant to the Over-allotment Option; "PENSION SCHEMES" the provident fund, retirement and welfare fund schemes of members of the Group as described in the section headed "Directors, Senior Management and Staff" of the Prospectus; "PLACING CLOSING" the payment for and delivery of the initial International Placing Shares (other than the Over-allotment Shares) are to be made pursuant to Clause 3.5.8; "PLACING CLOSING DATE" the date of Placing Closing; "PLACING DOCUMENTS" the Preliminary Offering Circular and the Final Offering Circular; "PLACING MONEYS" moneys received from placees in respect of the International Placing; "PORTAL" The Portal(SM) Market of The Nasdaq Stock Market; "PRC" the People's Republic of China (which shall for the purposes of this Agreement, unless otherwise indicated, exclude Hong Kong, Macao and Taiwan); "PRE-IPO SHARE OPTION the share option scheme adopted by the sole SCHEME" shareholder of the Company by way of written resolution dated 22 March 2004, the principal terms of which are summarised in the paragraph headed "Pre-IPO Share Option Scheme" in Appendix V of the Prospectus; "PRELIMINARY OFFERING the preliminary offering circular dated 12 CIRCULAR" April 2004 issued by the Company and circulated to the International Placing Underwriters and selected prospective placees in connection with the International Placing (as amended or supplemented pursuant to Clause 6.1.1(x)); "PRICE DETERMINATION the agreement entered into on the date hereof AGREEMENT" between the Company, the Selling Shareholder and HSBC (on behalf of the Public Offer Underwriters) to record their agreement of the Offer Price; "PROFESSIONAL INVESTOR the notice from HSBC in the form set out in TREATMENT NOTICE" Schedule 6; "PROPERTY VALUERS" LCH (Asia-Pacific) Surveyors Limited; "PROSPECTUS" the prospectus dated 16 April 2004 issued by the Company in connection with the Public Offer (as amended or supplemented pursuant to Clause 6.1.1(x) or clause 6.1.1(x) 7 of the Public Offer Underwriting Agreement (as the case may be)); "PROSPECTUS DATE" 16 April 2004, being the date of issue of the Prospectus; "PUBLIC OFFER" the offer of the Public Offer Shares for sale on and subject to the terms and conditions set out in the Public Offer Documents; "PUBLIC OFFER APPLICATIONS" valid applications for Public Offer Shares made on Application Forms (including, without limitation and for the avoidance of doubt, applications made on white Application Forms by HKSCC Nominees Limited on behalf of applicants who have given electronic application instructions) and accompanied by cheques or cashier's orders for the full amount payable on application which are honoured on first (or, at HSBC's option, subsequent) presentation and otherwise in compliance with the terms of the Public Offer Documents; "PUBLIC OFFER DOCUMENTS" the Prospectus and the Application Forms; "PUBLIC OFFER SHARES" the 20,000,000 Shares initially being offered for sale by the Selling Shareholder pursuant to the Public Offer, as adjusted in accordance with clauses 2.3 and 2.4 of the Public Offer Underwriting Agreement; "PUBLIC OFFER OVER- a situation where the aggregate number of SUBSCRIPTION" Public Offer Shares being applied for under Public Offer Applications is greater in number than the aggregate number of the initial Public Offer Shares; "PUBLIC OFFER UNDERWRITERS" the underwriters identified in the Public Offer Underwriting Agreement as being the several underwriters of the Public Offer; "PUBLIC OFFER the underwriting agreement dated 15 April UNDERWRITING AGREEMENT" 2004 between the Company, the Selling Shareholder, the Executive Directors, HSBC and the Public Offer Underwriters relating the Public Offer; "PUBLIC OFFER UNDER- has the meaning attributed thereto in clause SUBSCRIPTION" 3.4.2 of the Public Offer Underwriting Agreement; "QUALIFIED INSTITUTIONAL has the meaning attributed thereto in Rule BUYERS" OR "QIBS" 144A; "RECEIVING BANKER" HSBC, in its capacity as the bank appointed to hold the application monies received in connection with the Public Offer pursuant to the Receiving Banker Agreement; "RECEIVING BANKER the agreement dated 15 April 2004 and entered AGREEMENT" into by the Selling Shareholder, HSBC Nominees (Hong Kong) Limited and HSBC; "REFERENCE INTERNATIONAL the amount obtained by A x (PV + OPV) where A = the Offer 8 PLACING AMOUNT" Price, PV = the initial number of International Placing Shares and OPV = the number of Over-allotment Shares to be sold by the Selling Shareholder pursuant to the exercise of the Selling Shareholder's Over-allotment Option and allocated to the International Placing in accordance with Clause 2.3.2(i); "REGISTRARS" Bank of Butterfield International (Cayman) Ltd., being the principal share registrar of the Company; "REGISTRARS AGREEMENT" the registrars and transfer agent agreement dated 16 April 2004 between the Company and the Registrars; "REGULATION D" Regulation D promulgated under the US Securities Act; "REGULATION S" Regulation S promulgated under the US Securities Act; "REORGANISATION" the corporate reorganisation of the Group in preparation for the listing of the Shares on the Stock Exchange as defined and described in the Final Offering Circular; "REORGANISATION DOCUMENTS" the documents referred to in Schedule 3; "REPORTING ACCOUNTANTS" Deloitte Touche Tohmatsu; "RULE 144A" Rule 144A promulgated under the US Securities Act; "SELLING AGENT" any sub-agent (including, without limitation, any US Selling Agent) on behalf of the Company appointed pursuant to the provisions of Clause 3.4.3; "SFC" the Securities and Futures Commission of Hong Kong; "SHARE OPTION SCHEME" the share option scheme conditionally adopted by the sole shareholder of the Company at an extraordinary general meeting held on 8 April 2004, the principal terms of which are summarised in the paragraph headed "Share Option Scheme" in Appendix V of the Prospectus; "SHARE(S)" ordinary shares of nominal value HK$0.01 each in the share capital of the Company; "STOCK BORROWING the stock borrowing and lending agreement of AGREEMENT" even date in connection with Shares between the Selling Shareholder and HSBC; "STOCK EXCHANGE" The Stock Exchange of Hong Kong Limited; "SUB-REGISTRARS" Computershare Hong Kong Investor Services Limited, being the Hong Kong branch share registrar of the Company; "SUB-REGISTRARS the branch registrar agreement dated 16 April AGREEMENT" 2004 between the Company and the Sub-Registrars; "SUBSIDIARIES" the subsidiaries of the Company named in the accountants' report, the text of which is set out in Appendix I to the Final Offering Circular, and "SUBSIDIARY" means any or a specific 9 one of them; "SUBSIDIARIES" has the meaning ascribed thereto in the Companies Ordinance; "TIME OF DELIVERY" the Closing Time of Delivery or an Option Time of Delivery (as the case may be); "TRADING FEE" Stock Exchange trading fee per Share of 0.005% of the Offer Price; "TRANSACTION" any transaction, act, event, omission or circumstance existing of whatever nature; "TRANSACTION LEVY" SFC transaction levy per Share of 0.005% of the Offer Price; "UNDERWRITERS" the Public Offer Underwriters and the International Placing Underwriters; "UNDERWRITING DOCUMENTS" this Agreement, the Price Determination Agreement and the Public Offer Underwriting Agreement; "US" AND "UNITED STATES" the United States of America, its territories, its possessions, any State of the United States and the District of Columbia; "US EXCHANGE ACT" the United States Securities Exchange Act of 1934 (as amended or supplemented); "US INVESTMENT COMPANY ACT" the United States Investment Company Act of 1940 (as amended or supplemented); "US PERSON" has the meaning assigned thereto under Regulation S; "US SECURITIES ACT" the United States Securities Act of 1933 (as amended or supplemented); "US SELLING AGENT(S)" broker dealer(s) registered under Section 15 of the US Exchange Act who are identified as Selling Agent(s) in the US in relation to the International Placing; "VERIFICATION NOTES" the verification notes dated 15 April 2004 prepared by Linklaters in connection with the verification of the Prospectus; "WARRANTIES" the representations, warranties, agreements and undertakings to be given by the Warrantors in Schedule 7; "WARRANTORS" the Company and the Selling Shareholder. 1.2 OTHER INTERPRETATION In this Agreement, unless otherwise specified:- 1.2.1 references to "RECITALS", "SECTIONS", "CLAUSES", "PARAGRAPHS" and "SCHEDULES" are to recitals, sections, clauses, paragraphs of and schedules to this Agreement; 10 1.2.2 a reference to any statute or statutory provision shall be construed as a reference to the same as it may have been, or may from time to time be, amended, modified or re-enacted; 1.2.3 references to a "COMPANY" shall be construed so as to include any company, corporation or other body corporate, whenever and however incorporated or established; 1.2.4 references to a "PERSON" shall be construed so as to include any individual, firm, company, government, state or agency of a state or any joint venture, association or partnership (whether or not having separate legal personality); 1.2.5 references to writing shall include any modes of reproducing words in a legible and non-transitory form; 1.2.6 references to times of the day are, unless otherwise specified, to Hong Kong time; 1.2.7 headings to Clauses, sections and Schedules are for convenience only and do not affect the interpretation of this Agreement; 1.2.8 the Schedules form part of this Agreement and shall have the same force and effect as if expressly set out in the body of this Agreement, and any reference to this Agreement shall include the Schedules; 1.2.9 references to documents being "IN AGREED FORM" are to the form of the draft or final or executed version thereof signed for identification by or on behalf of the Company and HSBC with such alterations as may be agreed between the Company and HSBC, but such documents in agreed form do not form part of this Agreement; 1.2.10 references to "best knowledge, information, belief and/or awareness" of any person or similar terms shall be treated as including but not limited to any knowledge, information, belief and awareness which the person would have had if such person had made due and careful enquiries; and 1.2.11 words in the singular shall include the plural (and vice versa) and words importing one gender shall include the other two genders. 2 THE GLOBAL OFFERING 2.1 CONDITIONS PRECEDENT 2.1.1 OBLIGATIONS CONDITIONAL The obligations of the International Placing Underwriters under this Agreement are conditional upon:- (i) HSBC, on behalf of the International Placing Underwriters, receiving from the Company and the Selling Shareholder (as the case may be): (a) the Conditions Precedent Documents listed in Part A of Schedule 4 (other than those Conditions Precedent Documents already received by HSBC (on behalf of the Public Offer Underwriters) pursuant to Clause 2.1.1 of the Public Offer Underwriting Agreement) in form and substance satisfactory to HSBC not later than 5:00 p.m. on the date hereof; and 11 (b) the Conditions Precedent Documents listed in Part B of Schedule 4 in form and substance satisfactory to HSBC not later than 5:00 p.m. on the Business Day before each Closing; (ii) the Listing Committee granting listing of and permission to deal in the Shares in issue and to be issued pursuant to the Pre-IPO Share Option Scheme and the Share Option Scheme (subject only to despatch of the share certificates in respect thereof and such other normal conditions acceptable to the Company and HSBC, on behalf of the Underwriters) not later than 16 May 2004 and such listing and permission not subsequently having been revoked prior to the commencement of dealings in the Shares on the Stock Exchange; (iii) the Price Determination Agreement being executed and delivered by the parties thereto prior to or simultaneously with the execution of this Agreement; (iv) the Public Offer Underwriting Agreement, to the extent that it is subject to any specific conditions, becoming unconditional in accordance with its terms (other than any condition for the other Underwriting Documents to become unconditional) and not having been terminated in accordance with its terms or otherwise; (v) the Warranties being true and accurate on and as of the date of this Agreement and the dates on which they are deemed to be repeated under this Agreement (as though and they had been given and made on such date by reference to the facts and circumstances then subsisting); and (vi) each of the Company, the Selling Shareholder and the Executive Directors having complied with this Agreement and satisfied all the obligations and conditions on its part under this Agreement to be performed or satisfied on or prior to the respective times and dates by which such obligations must be performed or conditions met. 2.1.2 UNDERTAKING BY THE COMPANY, THE SELLING SHAREHOLDER AND THE EXECUTIVE DIRECTORS Each of the Company, the Selling Shareholder and the Executive Directors undertakes to use its best endeavours to procure that the Conditions are fulfilled by the times and dates stated therein, and in particular shall furnish such information, supply such documents, pay such fees, give such undertakings and do all such acts and things as may be required by HSBC (on behalf of the International Placing Underwriters), the Stock Exchange, the SFC and any relevant Governmental Authority in connection with the application for the listing of and permission to deal in the Shares on the Stock Exchange or the fulfilment of the Conditions. 2.1.3 HSBC'S WAIVER HSBC may, for itself and on behalf of the other International Placing Underwriters, in its sole and absolute discretion, by giving notice to the Company and the other International Placing Underwriters on or before the respective latest times on which the relevant Condition may be fulfilled:- 12 (i) extend the deadline for the fulfilment of any or all Conditions by such number of days and/or hours and/or in such manner as HSBC may determine on behalf of the International Placing Underwriters but in any event no later than 16 May 2004; or (ii) waive (conditionally or unconditionally) the Conditions under Clauses 2.1.1(i), (v) or (vi) on behalf of the International Placing Underwriters. 2.1.4 TERMINATION If any of the Conditions is not fulfilled, or waived in accordance with Clause 2.1.3, this Agreement (in the case of any non-fulfilment or non-waiver on or prior to the International Placing Closing Date) or the relevant unperformed obligations in connection with any undelivered Over-allotment Shares (in the case of any non-fulfilment or non-waiver after the International Placing Closing Date and on or prior to the relevant Option Closing Date) shall cease and terminate with immediate effect except that the provisions of Clause 9.2 shall apply. 2.2 STABILIZATION 2.2.1 HSBC is hereby appointed as stabilizing manager in connection with the Global Offering and may (but shall not be obliged) and not as agent for the Company or the Selling Shareholder, to the extent permitted by applicable Law of Hong Kong or elsewhere, over allocate or effect any other transactions (in the market or otherwise and whether in Hong Kong or elsewhere) with a view to supporting the market price of the Shares at a level higher than that which might otherwise prevail in the open market for a limited period after the commencement of trading in the Shares ("STABILIZING ACTION"). 2.2.2 HSBC may, in its sole and absolute discretion, appoint any of its Affiliates or any other person(s) to be its agent(s) for the purposes of taking any stabilizing action, with such authorities and rights as HSBC has pursuant to Clause 2.2.1. 2.2.3 Stabilizing action, if taken, may be discontinued at any time. 2.2.4 Any liability, expenses and any loss resulting from such stabilizing action shall be borne, and any profit arising from such stabilizing action shall be beneficially retained, by HSBC. 2.2.5 Each of the Warrantors and the International Placing Underwriters (other than HSBC) undertakes to the International Placing Underwriters (including HSBC) that it will not take or cause or authorise any other person to take, and the Warrantors shall cause their respective affiliates, agents and/or subsidiaries not to take, directly or indirectly, any stabilizing action or any action which is designed to or which constitutes or which might be expected to cause or result in the stabilization or manipulation, in violation of applicable Laws, of the price of any security of the Company, provided that the granting of the Over-allotment Option hereunder shall not constitute a breach of this Clause 2.2.5. 2.3 OVER-ALLOTMENT OPTION 2.3.1 The Selling Shareholder hereby grants to HSBC an option, exercisable at the sole and absolute discretion by HSBC, to require the Selling Shareholder to sell up to an additional 30,000,000 Shares to such person(s) as HSBC shall direct at the 13 Offer Price (plus the Brokerage, Fee and Levies) per Share, subject to the provisions of Clause 2.3.2. 2.3.2 The exercise of the Over-allotment Option is subject to the following provisions: (i) the Over-allotment Shares to be sold pursuant to an exercise of the Over-allotment Option shall be deemed to be International Placing Shares (subject to rounding by HSBC in its sole and absolute discretion); (ii) the Over-allotment Option shall be exercisable up to and including at 5:00 p.m. on the date which is 30 days after the last day for the lodging of applications under the Public Offer; (iii) the Over-allotment Option may be exercised in whole or in part, for any number of times and can be used solely to cover over-allocations in the International Placing; (iv) the Over-allotment Option may be exercised upon issuance of the Exercise Notice by HSBC to the Selling Shareholder setting out (i) the number of Shares under the Over-allotment Option as to which HSBC is then exercising the option; (ii) the time and date of payment for and delivery of such Over-allotment Shares (each such time and date in connection with exercise of the Over-allotment Option, an "OPTION TIME OF DELIVERY"); and (iii) the manner in which the share certificates in respect of such Over-allotment Shares shall be issued; (v) each Option Time of Delivery shall be determined by HSBC and, unless HSBC and the Selling Shareholder agree in writing, such time and date: (a) shall not be earlier than two or later than five Business Days after the date of receipt of the relevant Exercise Notice; (b) shall not be earlier than the Closing Time of Delivery; and (c) shall not be later than the date which is 30 days after the last time for the lodging of applications under the Public Offer; (vi) any Over-allotment Shares sold pursuant to this Clause 2.3 shall for all purposes (including underwriting commissions and expenses) be deemed to be delivered under and with the benefit of all rights, representations, warranties and undertakings applying under this Agreement to the International Placing Shares, and HSBC shall, for all such purposes, be deemed to have agreed to procure purchasers for, or failing which to itself purchase, any such Over-allotment Shares and the International Placing Underwriting Commitment of HSBC shall be deemed to be increased by the number of such Over-allotment Shares; (vii) to the extent the Over-allotment Option is not previously exercised, they may be surrendered and terminated at any time upon notice by HSBC to the Selling Shareholder. 2.4 CLAWBACK FROM INTERNATIONAL PLACING TO PUBLIC OFFER 2.4.1 It is agreed and understood that pursuant to the Agreement Between Syndicates and the Public Offer Underwriting Agreement, the aggregate number of the initial Public Offer Shares shall be increased in the following manner: if the number of 14 Shares validly applied for in Accepted [comment - not defined] Public Offer Applications represents (i) 15 times or more but less than 50 times (ii) 50 times or more but less than 100 times or (iii) 100 times or more, of the number of Shares initially available for purchase under the Public Offer, then Shares will be reallocated to the Public Offer from the International Placing, so that the total number of Shares available under the Public Offer will be increased to such number as represents approximately 30% (in the case of (i)) or 40% (in the case of (ii)) or 50% (in the case of (iii)), respectively, of the number of Offer Shares initially available under the Global Offering (before taking into account any exercise of the Over-allotment Option). 2.4.2 In the event of a reallocation of Offer Shares from the International Placing to the Public Offer pursuant to Clauses 2.4.1, the relevant number of International Placing Shares shall be withdrawn from the International Placing and made available as additional Public Offer Shares offered for sale pursuant to the Public Offer, provided always that: (i) for the avoidance of doubt, any such reallocation shall have no effect on the obligations of the Selling Shareholder to pay the combined underwriting and management commission and selling concession due to the International Placing Underwriters which shall be determined pursuant to Clause 4.1; and (ii) subject as aforesaid and to the terms and conditions set out in the Public Offer Underwriting Agreement, any Shares which are reallocated from the International Placing to the Public Offer shall be allocated in such manner as HSBC may, in its sole and absolute discretion, determine. 2.5 ALLOCATION OF PUBLIC OFFER UNDER-SUBSCRIPTION TO INTERNATIONAL PLACING 2.5.1 If a Public Offer Under-Subscription shall occur, HSBC, at its sole and absolute discretion, may (but shall not be obliged to) reallocate all or any of the Public Offer Shares comprised in any such Public Offer Under-Subscription from the Public Offer to the International Placing and make such Offer Shares available for purchase as additional International Placing Shares. 2.5.2 Subject as aforesaid and to the terms and conditions of the Placing Documents, any Shares which are reallocated from the Public Offer to the International Placing shall be allocated in such manner as HSBC shall, in its sole and absolute discretion, determine. 2.5.3 Such reallocated Shares shall be allocated to such International Placing Underwriters and in such manner as HSBC shall in its sole and absolute discretion determine and in such amounts as HSBC and such International Placing Underwriters shall agree, and the International Placing Underwriting Commitment of each such International Placing Underwriter shall be increased by the number of reallocated Shares allocated to it and such International Placing Underwriter agrees to take up or procure placees for such reallocated Shares. 2.5.4 The Selling Shareholder shall pay combined underwriting and management commission and selling concession to the International Placing Underwriters in respect of Shares reallocated from the Public Offer to the International Placing in accordance with Clause 4.1. 15 2.6 APPOINTMENT OF SPONSOR, GLOBAL COORDINATOR, BOOKRUNNER, LEAD MANAGER AND INTERNATIONAL PLACING UNDERWRITERS 2.6.1 Subject to the terms and conditions of this Agreement: (i) the Company hereby appoints, to the exclusion of all others, HSBC as its sponsor in respect of the listing of the Shares on the Stock Exchange; and (ii) the Selling Shareholder hereby appoints, to the exclusion of all others, HSBC as the global coordinator, bookrunner and lead manager to manage the Global Offering; and (iii) the Selling Shareholder hereby appoints, to the exclusion of others, the International Placing Underwriters as underwriters for the International Placing, and HSBC and other International Placing Underwriters relying on the representations, warranties, agreements, undertakings and indemnities herein contained and subject as hereinafter mentioned, accept their respective appointments hereunder. 2.6.2 Each such appointment is made on the basis, and upon terms, that the appointee is irrevocably authorised to delegate all or any of its relevant rights, duties, powers and discretions in such manner and on such terms or subject to such conditions as it thinks fit (with or without formality and without prior notice of any such delegation being required to be given to the Company or the Selling Shareholder) to any one or more of its Affiliates. 2.6.3 Each of the Company and the Selling Shareholder hereby confirms that the foregoing appointments confer on each appointee and its Affiliates all rights, powers, authorities and discretions on behalf of the Company and the Selling Shareholder which are necessary for, or incidental to, the performance of its roles contemplated by this Agreement and hereby agree to ratify and confirm everything which such appointee and its Affiliates have done or shall do in the exercise of such rights, powers, authorities and discretions. 3 THE INTERNATIONAL PLACING 3.1 OFFER AND UNDERWRITING OF INTERNATIONAL PLACING SHARES 3.1.1 The Selling Shareholder agrees to offer and sell the International Placing Shares for purchase by such placees as the International Placing Underwriters shall direct or to the International Placing Underwriters (as the case may be) at the Offer Price (plus the Brokerage, Fee and Levies), payable in full in HK dollars, on and subject to the terms and conditions set out in the Final Offering Circular and this Agreement and, on and subject to the terms and conditions of this Agreement and in reliance upon the Warranties and the other representations, warranties, undertakings and indemnities given by the Warrantors or any of them under this Agreement, each of the International Placing Underwriters agrees severally (but not jointly or jointly and severally) to procure the purchase of, or failing which the International Placing Underwriter will itself purchase, from the Selling Shareholder the maximum number of International Placing Shares set forth opposite the name of such International Placing Underwriter in column (IV) in Schedule 1 and, in the event that the Over-allotment Option is duly exercised, that portion of the number 16 of Over-allotment Shares in respect of which the Over-allotment Option shall then have been exercised, up to but not exceeding the number of Over-allotment Shares in column (V) in Schedule 1. 3.1.2 The International Placing Shares are to be offered on terms, inter alia, that: (i) the International Placing Shares have not been and will not be registered under the US Securities Act and may not be offered or sold within the US except in reliance on Rule 144A or otherwise pursuant to an applicable exemption and outside the US to non-US Persons in reliance on Regulation S; (ii) all offers and sales of the International Placing Shares in the US shall be made by US Selling Agents and otherwise in compliance with the US Securities Act, the US Exchange Act and applicable Laws. 3.1.3 The obligations of the International Placing Underwriters determined pursuant to this Clause 3.1 may be rounded, as determined by HSBC in its sole and absolute discretion, to avoid fractions and odd lots. The determination of HSBC shall be final and conclusive. 3.2 HSBC'S OPTION If one or more International Placing Underwriters incur an obligation under Clause 3.1.1 to take up International Placing Shares, HSBC shall have the right (but shall not be obliged) to purchase or procure placees (which may include any other International Placing Underwriter(s)) to purchase (subject to and in accordance with this Agreement) all or any of the International Placing Shares for which any International Placing Underwriter is required to purchase or procure purchasers pursuant to Clause 3.1.1. Any purchase made or procured to be made by HSBC pursuant to this Clause 3.2 in respect of which payment is duly made, specifying the relevant International Placing Underwriter whose obligations HSBC is thereby satisfying, shall satisfy pro tanto the obligation of the relevant International Placing Underwriter under this Clause 3 and shall not affect any agreement or arrangement between the International Placing Underwriters regarding the payment of the combined underwriting and management commission and selling concession. 3.3 DEFAULT OF AN INTERNATIONAL PLACING UNDERWRITER Subject to the provisions of the Agreement Between International Placing Underwriters (which shall not be binding on or confer any rights upon any persons other than the parties thereto), none of HSBC or any of the International Placing Underwriters will be liable for any failure on the part of any of the other International Placing Underwriters to perform any of such other International Placing Underwriter's obligations under this Agreement. Notwithstanding the foregoing, each of HSBC and the International Placing Underwriters shall be entitled to enforce any or all of its rights under this Agreement either alone or jointly with any or all of the other International Placing Underwriters. 3.4 APPOINTMENT OF INTERNATIONAL PLACING UNDERWRITERS 3.4.1 The Selling Shareholder hereby appoints the International Placing Underwriters together to be its sole agents in respect of the offer of the International Placing Shares and to arrange for the placing thereof, and the International Placing Underwriters, relying on the representations, warranties, undertakings and 17 indemnities herein contained and subject as hereinafter mentioned, hereby accept the appointment. 3.4.2 The Selling Shareholder hereby confirm that the respective appointments under Clause 3.4.1 confer on the International Placing Underwriters all rights, powers, authorities and discretions on behalf of the Selling Shareholder which are necessary for or incidental to, the making of the International Placing and hereby agrees to ratify and confirm everything which the International Placing Underwriters shall do or have done in the exercise of such rights, powers, authorities and discretions. 3.4.3 Each International Placing Underwriter may, in its absolute discretion, appoint any of its Affiliates and/or, with the prior written approval of HSBC, any other person (including a US Selling Agent) to be sub-agent(s) on behalf of the Selling Shareholder for the purposes of arranging for the placing of the International Placing Shares, with such rights, powers, discretions and authorities as the International Placing Underwriter has pursuant to its appointment under this Clause 3.4. 3.4.4 The Selling Shareholder hereby approves, confirms and ratifies the appointment by each International Placing Underwriter of any sub-agent(s) pursuant to Clause 3.4.3 and everything (including, without limitation, any oral contracts made on behalf of the Selling Shareholder in respect of the placing of the International Placing Shares with, and the sending of placing letters or telexes to, the said placees under the International Placing) done by such International Placing Underwriter and/or any such sub-agent(s) in exercising its rights, powers, authorities and discretions or in complying with their obligations under this Agreement. 3.5 CLOSING 3.5.1 HSBC shall inform the Sub-Registrars not later than 5:00 p.m. on the day which is 2 Business Days immediately preceding the relevant Closing Date of the total number of International Placing Shares to be sold by the Selling Shareholder under the International Placing at the relevant Closing (after taking into account any adjustment made pursuant to Clauses 2.3, 2.4 and 2.5), the number of share certificates required to be issued by the Company in the name of HSBC Securities Asia Nominees Limited and/or such other name(s) as HSBC may request, the denomination of each such certificate and the manner in which such International Placing Shares are to be delivered. 3.5.2 No later than 8:30 a.m. on the relevant Closing Date: (i) the Selling Shareholder will deliver to the Registrars such documents necessary to effect the transfer of the International Placing Shares under the applicable Laws; (ii) the Company shall (and the Selling Shareholder shall procure that the Company shall): (a) procure that the Registrars shall effect [COMMENT - no share certificates issued to NTE Inc.] the transfer of the International Placing Shares (including any Over-allotment Shares specified in the relevant Exercise Notice) to HSBC Securities Asia Nominees 18 Limited (as nominee for the placees who are entitled to the International Placing Shares under the International Placing) and/or such other name(s) as HSBC may request; (b) procure that HSBC Securities Asia Nominees Limited (as nominee for the placees who are entitled to the International Placing Shares under the International Placing) and/or such other name(s) as HSBC may request shall be entered in the register of members of the Company in respect of the International Placing Shares accordingly (without payment of any registration fee); and (c) procure that share certificates in respect of the International Placing Shares (each in a form complying with the Listing Rules) shall be issued (in such number and denominations as directed by HSBC) in the name of HSBC Securities Asia Nominees Limited and/or such other name(s) as HSBC may request and delivered or released to such person(s) as HSBC may request and/or Hong Kong Securities Clearing Company Limited for immediate credit to such CCASS stock accounts as shall be notified by HSBC to the Company for such purposes. Subject to Clause 3.8.3, the Company and the Selling Shareholder shall procure that the transfer of the International Placing Shares to the placees thereof under the International Placing shall be effected in a manner so that no stamp duty is payable in connection with such transfer. The Selling Shareholder agrees to give all consents and do all acts and things and execute all and any documents which in the sole and absolute discretion of HSBC are deemed necessary or desirable to effect the sale of the International Placing Shares. The Selling Shareholder shall sell each International Placing Shares free from any Encumbrance and with the benefit of all rights attached thereto and thereafter accruing thereto including the right to receive all dividends or other distributions which may declared, paid or made thereon at or after the Placing Closing Date. 3.5.3 The Company shall, pursuant to instructions given by HSBC (on behalf of the International Placing Underwriters), procure that the Sub-Registrar shall deposit the share certificates in respect of the International Placing Shares into HSBC's CCASS participant's account and/or other CCASS participants' accounts as HSBC may designate by 10:00 a.m. [COMMENT: 10:00 am is the time as agreed between Computershare and HKSCC] on the relevant Closing Date [COMMENT: in respect of International Placing Shares before adjustment, "Time of Delivery" means 8:00 am on the Force Majeure Expiry Date]. 3.5.4 No delivery of International Placing Shares to be purchased hereunder shall be effective until and unless each of the Company and Hong Kong Securities Clearing Company Limited shall have furnished or caused to be furnished to HSBC, on behalf of the International Placing Underwriters, certificates and other evidence satisfactory to HSBC of such delivery of International Placing Shares. 19 3.5.5 The Selling Shareholder shall receive the net proceeds from the Global Offering through the following bank account: "DESIGNATED BANK ACCOUNT" means the following bank account of Nam Tai Group Management Limited, a wholly owned subsidiary of the Selling Shareholder and incorporated in Hong Kong: Holder of the Bank Account: Nam Tai Group Management Limited Bank Name: The Hongkong and Shanghai Banking Corporation Limited Account Number: 500-815287-001. 3.5.6 Subject to the Selling Shareholder having fulfilled its obligations under this Clause 3.5 and to the extent such moneys have been received by HSBC from the other International Placing Underwriters pursuant to the terms of the Agreement Between International Placing Underwriters (for the avoidance of doubt, HSBC shall not be responsible for the failure or delay by any International Placing Underwriter (except for itself in its capacities as an International Placing Underwriter) to make such payment), HSBC (on behalf of the International Placing Underwriters) shall pay or procured to be paid, prior to 9:30 a.m. on the relevant Closing Date, to the Selling Shareholder through Nam Tai Group Management Limited in Hong Kong dollars in immediately available funds by crediting the Designated Bank Account, the aggregate price for the International Placing Shares to be delivered on such Closing, being the amount obtained by multiplying the Offer Price by the total number of the International Placing Shares to be delivered upon such Closing as adjusted in accordance with Clauses 2.3, 2.4 and 2.5, subject to the deductions to be made pursuant to Clause 3.5.9 and such payment into the Designated Bank Account shall discharge the International Placing Underwriters of any further payment obligations with respect to the International Placing Shares. For the avoidance of doubt, the Brokerage, Fee and Levies paid by the placees of the International Placing shall not be payable to the Selling Shareholder and shall be paid pursuant to Clause 3.8.1. 3.5.7 The following shall be deducted from the purchase price payable for the International Placing Shares to the Selling Shareholder referred to in Clause 3.5.8 and paid to HSBC (where a person other than HSBC is entitled to any amount so paid, as agent on behalf of such person) or to such person as HSBC may instruct: (i) the combined management and underwriting commission and selling concession payable under Clause 4.1; (ii) the whole or such portion of the fees, costs and expenses which remain payable by the Selling Shareholder under Clauses 3.8, 4.2, 4.3 and 4.4 as HSBC may calculate and direct being an amount representing HSBC's estimate of all such fees, costs and expenses, except to the extent that such fees, costs and expenses have been deducted from the application moneys pursuant to clause 3.6.1 of the Public Offer Underwriting Agreement, provided that: (a) without prejudice to the Selling Shareholder's obligation under Clauses 4.3 and 4.4, any actual payment under Clauses 4.3 and 4.4 shall not be made without prior consent of the Selling Shareholder; 20 (b) if the amount deducted pursuant to this paragraph (ii) is insufficient for purposes of covering such fees, costs and expenses, the Selling Shareholder shall pay to HSBC (where a person other than HSBC is entitled to any amount so paid, as agent on behalf of such person) and/or to such person as HSBC may instruct, an amount equal to such shortfall forthwith upon receipt of demand for the same from HSBC and, in any event, no later than five Business Days from the date of such demand); and (c) HSBC shall within three months of the date of this Agreement pay to the Selling Shareholder through Nam Tai Group Management Limited by crediting the Designated Bank Account an amount equal to the balance of the amount of fees, costs and expenses deducted under this paragraph (ii), if any, after payment by HSBC on behalf of the Selling Shareholder of the aforementioned fees, costs and expenses. 3.5.8 The Selling Shareholder will maintain and cause to be maintained any and all proceeds received by it from HSBC as payment for the Offer Shares in the account at HSBC designated by them pursuant to Clause 3.5.7 prior to commencement of dealings of the Shares (and if such proceeds relates to Over-allotment Shares, the Over-allotment Shares) on the Hong Kong Stock Exchange. 3.6 THE PLACING DOCUMENTS The Company has issued the Preliminary Offering Circular dated 12 April 2004 and will issue the Final Offering Circular on and dated the date hereof. The Company will cause copies of the Placing Documents to be delivered without charge to such persons, in such number, by the time and in the manner as directed by HSBC. 3.7 FURTHER ASSURANCE Without prejudice to the foregoing obligations, each of the Company, the Selling Shareholder and the Executive Directors undertakes with the International Placing Underwriters that it will give all such assistance and provide all such information and do (or procure to be done) all such other acts and things as may be required by HSBC to implement the International Placing and this Agreement and that it will comply with all requirements so as to enable listing of and permission to deal in the Shares to be granted by the Listing Committee, such dealings to commence on or before 16 May 2004 and to enable such listing to be maintained thereafter, including in particular, effecting all necessary registrations and/or filings with the Stock Exchange, the SFC, the Registrar of Companies in Hong Kong, and the Executive Directors and the Company will take all steps to ensure that each of the Directors shall duly sign or cause to be duly signed on their behalf all documents required to be signed by them as Directors for the purpose of or in connection with any such registrations and/or filings or the obtaining of listing of and permission to deal in the Shares on the Stock Exchange. 3.8 PAYMENT OBLIGATIONS RELATING TO THE INTERNATIONAL PLACING 3.8.1 PAYMENT OF BROKERAGE, FEE AND LEVIES ON BEHALF OF PLACEES The International Placing Underwriters shall be entitled to retain for their own account the Brokerage to be paid by the placees to the International Placing Underwriters in respect of the International Placing Shares. HSBC (on behalf of the 21 International Placing Underwriters) will arrange for payment on behalf of placees under the International Placing of the Trading Fee, the Transaction Levy and the Investor Compensation Levy in respect of the sale of the International Placing Shares to the Stock Exchange, such amounts to be paid out of the Placing Moneys payable to the Selling Shareholder. 3.8.2 PAYMENT OF TRADING FEE, TRANSACTION LEVY AND INVESTOR COMPENSATION LEVY ON BEHALF OF THE SELLING SHAREHOLDER HSBC, on behalf of the Selling Shareholder, will arrange for the payment of the Trading Fee, the Transaction Levy and the Investor Compensation Levy payable by the Selling Shareholder in respect of the sale of International Placing Shares to the Stock Exchange, such amounts to be paid out of the Placing Moneys payable to the Selling Shareholder. 3.8.3 PAYMENT OF TRANSFER AND OTHER FEES (i) The Selling Shareholder shall pay any tax, duty (including stamp duty), fund, levy, fee or other charge or expense (including any fine or penalty) which may be payable in Hong Kong or elsewhere, together with any interest and penalties, payable on the offer or transfer of the International Placing Shares under the Global Offering (whether payable as seller or purchaser) in accordance with the terms of this Agreement, the International Placing, the execution and delivery of, or the performance of any of the provisions under, this Agreement, which are or may be required to be paid under the applicable Laws or by any Governmental Authority or otherwise, save for any profit tax payable in Hong Kong by HSBC or the International Placing Underwriters arising out of any commission or fees received by any such party pursuant to Clauses 4.1 and 4.2 to this Agreement. For the avoidance of doubt, this includes, without limitation, any stamp duty payable by the Selling Shareholder, the International Placing Underwriters and the purchasers of the International Placing Shares in relation to the transfers of the International Placing Shares contemplated under this Agreement (including, the transfer to the International Placing Underwriters, or purchasers procured by the International Placing Underwriters, and the re-offers and re-sales of, the International Placing Shares, or transfers of, or agreements to transfer, the International Placing Shares executed or made by the International Placing Underwriters as transferor to placees procured by the International Placing Underwriters under the International Placing). (ii) This Clause 3.8.3 shall, extend to: (a) the sales and transfers by any person (the "STOCKLENDERS") to any International Placing Underwriter, and subsequent sales and retransfers by each such International Placing Underwriter to the relevant Stocklender, each under the terms of one or more stock lending agreements, of a number of Shares not exceeding, in total for all International Placing Underwriters, the maximum number of Over-allotment Shares to which the Over-allotment Option relates (for the avoidance of doubt, regardless of whether, and the extent to which the Over-allotment Option is exercised); and 22 (b) (to the extent to which the Over-allotment Option is not exercised) the sale, transfer or delivery by the International Placing Underwriters to placees of a number of Shares not exceeding, in total for all International Placing Underwriters, the maximum number of Over-allotment Shares to which the Over-allotment Option relates (for the avoidance of doubt, regardless of whether, and the extent to which, the Over-allotment Option is exercised). 3.9 DISCHARGE FROM INTERNATIONAL PLACING UNDERWRITERS' OBLIGATIONS As soon as the International Placing Shares comprising the International Placing Underwriting Commitment of an International Placing Underwriter shall be purchased and paid for by the International Placing Underwriter and/or purchasers procured by such International Placing Underwriter and/or otherwise pursuant to this Agreement, such International Placing Underwriter shall be discharged from all further liability under this Agreement save in respect of Clauses 10.8 and 10.9 and any antecedent breaches under this Agreement. 4 COSTS, EXPENSES, FEES AND COMMISSIONS 4.1 UNDERWRITING COMMISSIONS 4.1.1 In consideration of the services of the International Placing Underwriters under this Agreement, the Selling Shareholder will pay a combined underwriting and management commission and selling concession at the rate of 3.0% of the Reference International Placing Amount, out of which the International Placing Underwriters will meet all (if any) selling concessions. 4.1.2 For the avoidance of doubt: (a) if the number of International Placing Shares is reduced as provided in Clause 2.4, the International Placing Underwriters shall still be entitled to be paid a combined underwriting and management commission and selling concession of 3.0% in relation to those International Placing Shares which are withdrawn from the International Placing and made available for purchase pursuant to Public Offer; and (b) if the number of International Placing Shares is increased as provided in Clause 2.5, the International Placing Underwriters shall be entitled to be paid a combined underwriting and management commission and selling concession of 3.0% in relation to those additional International Placing Shares for which the International Placing Underwriters shall have agreed to purchase or procure purchasers. 4.2 OTHER FEES AND EXPENSES The Selling Shareholder will further pay to HSBC (to the extent not already paid under clause 4.2 of the Public Offer Underwriting Agreement) such other fees and expenses of such amounts and in such manner as have been separately agreed between the Company (or any member of the Group) and/or the Selling Shareholder (or any member of its group) and HSBC. 4.3 INTERNATIONAL PLACING UNDERWRITERS' EXPENSES 23 The Selling Shareholder shall also pay to HSBC on behalf of the International Placing Underwriters, all amount of costs, fees and expenses (including, without limitation, the costs of the International Placing Underwriters' legal advisers and all travelling, telecommunications, postage and other out-of-pocket expenses) incurred by the International Placing Underwriters or any of them or on their or its behalf under this Agreement or in connection with the International Placing. 4.4 EXPENSES TO BE BORNE BY THE SELLING SHAREHOLDER The Selling Shareholder shall be responsible for all costs, fees and expenses arising from, in connection with or incidental to the Global Offering, which shall include but are not limited to the following:- (a) all capital duty, premium duty, tax, duty, levy and other fees, charges and expenses payable, whether pursuant to any Law or otherwise in respect of the transfer of the Offer Shares, the Global Offering and all transactions contemplated thereunder, the execution and delivery of, and the performance of any of the provisions under, the Underwriting Documents save for any profit tax payable in Hong Kong by any of HSBC or the Underwriters, arising out of any commission or fees received by any of such parties pursuant to the Underwriting Documents; (b) fees and expenses of the Reporting Accountants; (c) fees and expenses of the Receiving Banker; (d) fees and expenses of the Property Valuers; (e) fees and expenses of the Registrars and the Sub-Registrars; (f) fees and expenses of all legal advisers; (g) fees and expenses of the public relations consultants; (h) fees and expenses of the translators; (i) fees and expenses of other agents and advisers of the Company and the Selling Shareholder; (j) fees and expenses related to the application for listing of the Shares on the Stock Exchange and the maintenance of a listing on the Stock Exchange; (k) fees and expenses related to the filing or registration of the Offer Documents and any amendments and supplements thereto with any relevant authority, including the Registrar of Companies in Hong Kong; (l) the costs and expenses of listing the Offer Shares on, and qualifying the Offer Shares for trading in, PORTAL and any expenses incidental thereto; (m) costs and expenses relating to the launching of the Global Offering and the conducting of roadshows, syndicate analysts' briefing and video and other presentations relating to the Global Offering; (n) printing and advertising costs; (o) the costs of preparing, printing, delivery and distribution (including transportation, packaging and insurance) of documents of title to the Offer Shares; 24 (p) costs of despatch and distribution of the Offer Documents and all amendments and supplements thereto in all relevant jurisdictions; (q) CCASS transaction fees payable on the deposit into HSBC's CCASS account, the transfers within CCASS of the International Placing Shares by HSBC to the International Placing Underwriters and by the International Placing Underwriters to the placees under the International Placing; and (r) all expenses in connection with the qualification of the International Placing Shares for offering and sale under securities laws of the relevant jurisdictions including the fees and disbursement of counsel for the International Placing Underwriters in connection with such qualification and in connection with the Blue Sky surveys. 4.5 PAYMENT All amounts due hereunder shall be due and payable on or before the Listing Date and may be deducted from the Placing Moneys pursuant to Clause 3.5.9. 5 REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS 5.1 REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS BY THE WARRANTORS The Warrantors jointly and severally represent, warrant, agree and undertake to the International Placing Underwriters and each of them in the terms set out in Part 1 of Schedule 7. The Company represents, warrants, agrees and undertakes to the International Placing Underwriters and each of them in the terms set out in Part 2 of Schedule 7. The Selling Shareholder further represents, warrants, agrees and undertakes to the International Placing Underwriters and each of them in the terms set out in Part 3 of Schedule 7. The Warrantors accept that each of the International Placing Underwriters is entering into this Agreement in reliance upon each of such representations, warranties, agreements and undertakings. Any certificate signed by a duly authorised officers of the Company or the Selling Shareholder which is required to be delivered pursuant to Clause 2.1.1(i) shall be deemed to be a representation, warranty, agreement and undertaking by the Company or the Selling Shareholder (as the case may be) to the International Placing Underwriters and each of them as to the matters covered thereby. 5.2 RIGHTS IN RELATION TO THE WARRANTIES 5.2.1 Each of the Warranties shall be construed separately and shall not be limited or restricted by reference to or inference from the terms of any other of the Warranties or any other term of this Agreement. 5.2.2 The Warranties shall remain in full force and effect notwithstanding completion of the Global Offering. 5.2.3 The Warranties are given on and as at the date of this Agreement with respect to the facts and circumstances subsisting at the date of this Agreement. In addition, the Warranties shall be deemed to be given on and as at: (i) the date of the Final Offering Circular; (ii) immediately prior to 8:00 a.m. on the Force Majeure Expiry Date; (iii) the Closing Time of Delivery; and 25 (iv) each Option Time of Delivery [unless a notice is given pursuant to Clause 9.2], in each case with reference to the facts and circumstances then subsisting. For the avoidance of doubt, nothing in this Clause 5.2.3 shall affect the on-going nature of the Warranties. 5.2.4 Each of the Warrantors undertakes to give notice to each of the International Placing Underwriters forthwith of any matter or event coming to their respective attention at any time on or prior to the last date on which the Warranties are deemed to be given pursuant to the provisions of Clause 5.2.3 which shows any of the Warranties to be or to have been untrue or inaccurate or breached. 5.2.5 If at any time on or prior to Completion, by reference to the facts and circumstances then subsisting, any matter or event comes to the attention of any of the Warrantors which: (i) would or might result in any of the Warranties, if repeated immediately after the occurrence of such matter or event, being untrue or inaccurate or breached; or (ii) would or might render untrue, inaccurate or misleading any statement, whether of fact or opinion, contained in the Public Offer Documents, the Formal Notice or the Placing Documents or any of them if the same were issued immediately after the occurrence of such matter or event; or (iii) would or might result in the omission of any fact which is material for disclosure or required by applicable Laws to be disclosed in the Public Offer Documents, the Formal Notice or the Placing Documents or any of them (assuming that the relevant documents were to be issued immediately after occurrence of such matter or event); or (iv) would or might result in any breach of the representations, warranties or undertakings given by any of the Warrantors or any circumstances giving rise to a claim under any of the indemnities as contained in, or given pursuant to, this Agreement, such Warrantor shall forthwith notify and consult the Company (for itself and on behalf of the Selling Shareholder) and HSBC (for itself and on behalf of the other International Placing Underwriters) and shall take such steps as may be requested by HSBC (for itself and on behalf of the other International Placing Underwriters) to remedy the same. 5.2.6 If any matter or event referred to in Clause 5.2.5 shall have occurred, nothing herein shall prejudice any rights that HSBC or any of the International Placing Underwriters may have in connection with the occurrence of such matter or event, including without limitation, its rights under Clause 9. 5.2.7 Each of the Company and the Selling Shareholder shall not, and shall procure that their respective Affiliates will not, and the Executive Directors and the Selling Shareholder shall procure that the Company will not: (i) do or omit to do anything which may cause, and will use its best efforts not to permit, any of the Warranties to be untrue or inaccurate or breached in any respect at or prior to any time referred to in Clause 5.2.3 or, if later, 26 Completion (assuming such Warranties to be repeated at such times with reference to the facts and circumstances then subsisting); or (ii) do or omit to do anything which could materially and adversely affect the Global Offering. 5.2.8 For the purpose of this Clause 5: (i) the representations, warranties, agreements and undertakings shall remain in full force and effect notwithstanding the completion of the purchase of the Offer Shares, the completion of the Global Offering and all other matters and arrangements referred to or contemplated by this Agreement; and (ii) if an amendment or supplement to the Public Offer Documents, the Formal Notice, the International Placing Documents or any of them is published after the date hereof pursuant to Clause 6.1.1(x) or clause 6.1.1(x) of the Public Offer Underwriting Agreement (as the case may be), representations warranties, agreements and undertakings relating to any such documents given pursuant to this Clause 5 shall be deemed to be repeated on the date of publication of such amendment or supplement and when so repeated, representations, warranties, agreements and undertakings relating to such documents shall be read and construed subject to the provisions of this Agreement as if the references therein to such documents means such documents when read together with such amendment or supplement. 6 FURTHER UNDERTAKINGS 6.1 FURTHER UNDERTAKINGS BY THE COMPANY, THE SELLING SHAREHOLDER AND THE EXECUTIVE DIRECTORS 6.1.1 The Company undertakes to each of the International Placing Underwriters that it will, and the Executive Directors and the Selling Shareholder shall procure that the Company will: (i) maintain a listing for the Shares on the Stock Exchange for at least one year after the Conditions have been fulfilled and to pay all fees and supply all further documents, information and undertakings and publish all advertisements or other material as may be necessary or advisable for such purpose, except following a withdrawal of such listing which has been approved by the relevant shareholders of the Company in accordance with the Listing Rules or following an offer (within the meaning of the Hong Kong Code on Takeovers and Mergers) for the Company becoming unconditional; (ii) procure that no connected persons (as defined in the Listing Rules) of the Company will itself (or through a company controlled by it) apply or purchase any Offer Shares either in its own name or through nominees unless permitted to do so under the Listing Rules, and if any such application therefor, or after due and careful enquiries, it becomes aware of any indication of interest therefor, has been made by such persons, it shall forthwith notify HSBC (on behalf of the International Placing Underwriters); 27 (iii) procure that there shall be delivered to the Stock Exchange as soon as practicable the declaration in the form set out in Appendix 5, Form F of the Listing Rules; (iv) procure that the audited accounts of the Company for its financial year ending 31 December 2004 will be prepared on a basis consistent with the accounting policies adopted for the purposes of the financial statements contained in the report of the Reporting Accountants set out in Appendix I to the Final Offering Circular; (v) save as pursuant to any share option scheme of any member of the Group, not without the prior written consent of HSBC (on behalf of the International Placing Underwriters) and unless in compliance with the Listing Rules: (a) at any time after the date of this Agreement up to and including the date falling six months after the date on which dealings in the Shares first commence on the Stock Exchange (the "FIRST SIX-MONTH PERIOD"): (I) offer, accept subscription for, pledge, issue, sell, lend, mortgage, assign, charge, contract to issue or sell, sell any option or contract to purchase, purchase any option or contract to sell, grant or agree to grant any option, right or warrant to purchase or subscribe for, lend or otherwise transfer or dispose of, either directly or indirectly, conditionally or unconditionally, any of the share capital or other securities of the Company or any interest therein (including, but not limited to, any securities that are convertible into or exchangeable for, or that represent the right to receive any such capital or securities or any interest therein); 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 any such capital or securities or any interest therein; or (III) enter into any transaction with the same economic effect as any transaction described in paragraphs (I) or (II) above; (IV) agree or contract to, or publicly announce any intention to enter into, any transaction described in paragraphs (I), (II) or (III) above, whether any such transaction described in paragraphs (I) or (II) or (III) above is to be settled by delivery of Shares or other securities, in cash or otherwise; and (b) enter into any of the foregoing transactions in paragraphs (a)(I), (II) and (III) above, or agree or contract to or publicly announce any intention to enter into any such transaction, such that the Selling Shareholder would cease to be a controlling shareholder (as defined in the Listing Rules) of the Company during the six-month period 28 immediately following the First Six-Month Period (the "SECOND SIX-MONTH PERIOD"); (vi) not, at any time after the date of this Agreement up to and including the date on which all of the Conditions are fulfilled (or waived) in accordance with this Agreement, amend or agree to amend the Articles of Association save as requested by Stock Exchange; (vii) until the date falling one year after the Listing Date, without the prior written consent of HSBC, not enter into or procure, or permit any member of the Group to enter into, any commitment or agreement or arrangement: (a) of an unusual or onerous nature or outside its ordinary course of business, whether or not that contract, commitment or arrangement would constitute a material contract for the purposes of the Prospectus, the Preliminary Offering Circular or the Final Offering Circular; and (b) which could materially and adversely affect the business or affairs of the Company and the Group taken as a whole; (viii) until the date falling six months after the Listing Date: (a) discuss with HSBC: (I) any major new developments in its sphere of activity which are not public knowledge which may, by virtue of the effect of those developments on its assets and liabilities or financial position or on the general course of its business, lead to substantial movement in the price of its listed securities; (II) any change in the Company's financial condition or in the performance of its business or in the Company's expectation of its performance which, if made public, would be likely to lead to substantial movement in the price of its listed securities; and (III) any proposals or circumstances which may lead to any such developments or changes as described in paragraphs (I) and (II) above; (b) forward to HSBC for perusal in draft all documents to be sent to shareholders and all press announcements to be issued by the Company, which will be sent to the Stock Exchange during such period; (ix) until the date falling six months year after the Listing Date, furnish to HSBC copies of all reports or other communications furnished to shareholders, and deliver to HSBC (i) as soon as they are publicly available, copies of any reports and financial statements furnished to or filed with the Stock Exchange or any securities exchange on which any class of securities of the Company may be listed, and (ii) such additional information concerning the business and financial condition of the Company publicly available as HSBC may from time to time request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its 29 subsidiaries are consolidated in reports furnished to its shareholders generally or to the Stock Exchange); (x) without prejudice to any other rights of any party hereto, if at any time until the date on which the distribution of the International Placing Shares has been completed as determined by HSBC: (a) Clause 5.2.5 applies; or (b) any event shall have occurred as a result of which the Offer Documents or the Formal Notice or any of them (as then amended or supplemented pursuant to the provisions of this Clause 6.1.1(x) or clause 6.1.1(x) of the Public Offer Underwriting Agreement) would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such document was issued, not misleading; or (c) if it shall be necessary to amend or supplement the Offer Documents or the Formal Notice or any of them to comply with applicable Law, promptly notify HSBC of such event and, subject to the provisions of this Clause 6.1.1(x), the Company (for itself and on behalf of the Selling Shareholder) shall, at its own expense, amend or supplement the Offer Documents, the Formal Notice or any of them, as the case may be, and shall issue and publish such other announcement, circular, document, material or information and do such other act or thing as necessary or advisable to correct such statement or omission or effect such compliance with applicable Law or as may be requested by HSBC and shall, without charge, supply HSBC or as such person(s) as it shall direct with as many copies as HSBC may from time to time request of the aforesaid documents, material or information; Except for the Offer Documents and the Formal Notice or except as otherwise provided pursuant to the Underwriting Documents, each of the Company and the Selling Shareholder undertakes that it shall not, and each of the Executive Directors undertakes to procure that the Company shall not, without the prior written approval of HSBC (for itself and on behalf of the International Placing Underwriters), issue, publish, distribute or otherwise make available any document (including any prospectus or offering circular), announcement, material or information in connection with the International Placing (including any supplement or amendment thereto). The Company will advise HSBC promptly of any proposal to amend or supplement the Offer Documents or the Formal Notice or any of them, and will not effect such amendment or supplementation without HSBC's consent (such consent not to be unreasonably withheld or delayed); (xi) during the period of one year after the Listing Date, refrain from taking any action that could jeopardise the listed status of the Shares on the Stock Exchange, provided however, that this paragraph shall not prevent the Company from taking any action for the delisting of the Shares so long as (a) the Company complies in all respects with the Listing Rules and all 30 other applicable Laws, and (b) the requisite approval of such action by the holders of the Shares is duly obtained; (xii) for so long as the Shares are listed on the Stock Exchange and during the period of one year after the Listing Date, file with the Stock Exchange and the SFC and any other Governmental Authority in Hong Kong and the Cayman Islands, such reports, documents, agreements and other information which may from time to time be required by applicable Laws to be so filed because the Shares are listed on the Stock Exchange; (xiii) provide to HSBC (on behalf of the International Placing Underwriters) any such other resolutions, consents, authorities, documents, opinions and certificates which are relevant in the context of the Global Offering owing to circumstances arising or events occurring after the date of this Agreement, but on or before 8:00 a.m. on the last Closing Date, and as HSBC may require; (xiv) for so long as any Offer Shares are "restricted securities" within the meaning of Rule 144(a)(3) under the US Securities Act, during any period in which it is neither subject to Section 13 or 15(d) of the US Exchange Act nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, provide to any holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or beneficial owner, upon the request of such holder, beneficial owner or prospective purchaser, the information required to be provided by Rule 144A(d)(4) under the US Securities Act. The Company will execute and deliver the Deed Poll in favour of those persons entitled to the benefit of the undertaking set forth in this paragraph on or before the time and date set out in Clause 2.1.1(i); (xv) for so long as any Offer Shares are "restricted securities" within the meaning of Rule 144(a)(3) under the US Securities Act, the Company will not become an "open-end investment company", "unit investment trust" or "face-amount certificate company", as such terms are defined in, and that is or is required to be registered under Section 8 of, the US Investment Company Act; (xvi) cause the Offer Shares to be designated as eligible for trading in PORTAL; (xvii) during the period of two years after the last Time of Delivery, the Company will not and will not permit any of its "affiliates" (as defined in Rule 144 of the US Securities Act) to resell in the United States any of the Offer Shares which constitute "restricted securities" under Rule 144 of the US Securities Act which have been acquired by the Company or any such affiliates; and (xviii) promptly from time to time to take such action as HSBC (on behalf of the International Placing Underwriters) may request, to qualify the Offer Shares for offer and sale by the International Placing Underwriters or through their Affiliates and agents under the Laws of such states of the United States or other jurisdictions as HSBC may designate and shall maintain such qualifications in effect so long as HSBC may require for the offer and sale of the International Placing Shares; provided, however, that, in connection therewith, the Company shall not be obliged to file any general consent to 31 service of process or to qualify as a foreign corporation in any jurisdiction in which it is not qualified. The Company will immediately advise HSBC of the receipt by the Company of any notification with respect to the suspension of the qualification of the Offer Shares, for sale in any jurisdiction or the initiation or threatening of any proceedings for such purposes. 6.1.2 Each of the Company and the Selling Shareholder undertakes to each of the International Placing Underwriters that it will, and the Executive Directors and the Selling Shareholder shall procure that the Company will: (i) comply in all respects with the terms and conditions of the Global Offering as provided for in the Offer Documents and the Underwriting Documents and, in particular transfer the International Placing Shares to successful placees under the International Placing; (ii) comply in a timely manner with its obligations under the requirements of the Stock Exchange in connection with the Global Offering (including, without limitation, the Listing Rules); (iii) procure compliance with the obligations imposed upon it by the Companies Ordinance, the Companies Law and the Listing Rules in respect of or by reason of the matters contemplated by this Agreement, including but without limitation:- (a) the making of all necessary registrations with the Registrar of Companies in Hong Kong and the Registrar of Companies in the Cayman Islands; and (b) the making available for inspection at the offices of Johnson Stokes & Master of the documents referred to in Appendix VI to the Prospectus during the period referred to therein; and (iv) procure that the terms of the Registrars Agreement, the Sub-Registrars Agreement and the Receiving Banker Agreement shall not be amended without the prior written consent of HSBC. 6.1.3 The undertakings in this Clause 6.1 shall remain in full force and effect notwithstanding the completion of the Global Offering and all matters contemplated in this Agreement. 6.2 RESTRICTIONS ON DEALINGS AND RELATED MATTERS 6.2.1 The Selling Shareholder agrees and undertakes that, save as pursuant to the offer for sale of the Offer Shares under the Global Offering or the Over-allotment Option or any stock lending arrangements agreed between the Selling Shareholder and HSBC in connection with the Global Offering, without the prior written consent of HSBC (on behalf of the International Placing Underwriters) and unless in compliance with the Listing Rules: (i) during the First Six-Month Period: (a) save for using the Shares beneficially owned by it as security (including a charge or a pledge) in favour of an authorised institution (as defined in the Banking Ordinance (Chapter 155 of the Laws of Hong Kong)) for a bona fide commercial loan, it will not offer, pledge, 32 charge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant or agree to grant any option, right or warrant to purchase or subscribe for, lend or otherwise transfer or dispose of, either directly or indirectly, conditionally or unconditionally, any share capital or other securities of the Company or any interest therein (including, but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, any such capital or securities or any interest therein); or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any such capital or securities or any interest therein; or (c) enter into any transaction with the same economic effect as any transaction described in (a) or (b) above; or (d) agree or contract to, or publicly announce any intention to enter into, any transaction described in (a) or (b) or (c) above, whether any such transaction described in (a) or (b) or (c) above is to be settled by delivery of such capital or securities, in cash or otherwise; and (ii) during the Second Six-Month Period, it will not enter into any of the foregoing transactions in paragraphs (i)(a) or (b) or (c) above or agree or contract to or publicly announce any intention to enter into any such transactions if, immediately following such transfer or disposal, the Selling Shareholder will cease to be a controlling shareholder (as the term is defined in the Listing Rules) of the Company; and (iii) until the expiry of the Second Six-Month Period, in the event that it enters into any such transactions or agrees or contracts to, or publicly announces an intention to enter into any such transactions, it will take all reasonable steps to ensure that it will not create a disorderly or false market in the securities of the Company. 6.2.2 Subject to Clause 6.2.1, the Selling Shareholder agrees and undertakes that, if at any time after the date of this Agreement up to and including the date falling twelve months from the Listing Date, it shall (i) if and when it pledges, mortgages or charges any securities or interests in the securities of the Company beneficially owned by it, immediately inform the Company and HSBC in writing of such pledge, mortgage or charge together with the number of securities so pledged or mortgaged or charged; and (ii) if and when it receives indications, either verbal or written, from any pledgee or mortgagee or chargee that any of the pledged, mortgaged or charged securities or interests in the securities of the Company will be disposed of, immediately inform the Company and HSBC in writing of such indications. The Company agrees and undertakes that upon receiving such information in writing from the Selling Shareholder, it shall, as soon as practicable, notify the Stock Exchange and in accordance with the requirements of the Listing Rules or the Stock Exchange make a public disclosure in relation to such information by way of press announcement. 33 6.2.3 Each of the Executive Directors and the Selling Shareholder agrees and undertakes not to (whether itself or through any company controlled by it) apply or subscribe for or purchase any Offer Shares either in its own name or through nominees unless permitted to do so under the Listing Rules, and if any such application has been made or it has indicated an interest to acquire such Offer Shares, it shall forthwith notify HSBC (on behalf of the International Placing Underwriters); 6.2.4 The Company agrees and undertakes that it will not, and the Selling Shareholder and each of the Executive Directors undertakes to procure that the Company will not, effect any purchase of Shares, or agree to do so, which may reduce the holdings of Shares of persons other than the directors of the Company, its substantial shareholders or their respective associates (as defined in the Listing Rules) to below 25% on or before the date falling six months after the Listing Date without first having obtained the prior written consent of HSBC (on behalf of the International Placing Underwriters). 6.2.5 The Warrantors will procure that none of the connected persons shall be accepted as subscribers or purchasers of any Offer Shares either in its own name or through nominees unless permitted to do so under the Listing Rules and such subscriptions or purchases are disclosed in the Preliminary Offering Circular, the Final Offering Circular and the Prospectus. 6.3 OBLIGATIONS AND LIABILITY 6.3.1 The obligations of each of the Company, the Selling Shareholder, the Executive Directors shall be binding on his, her or its personal representatives and successors (as the case may be). 6.3.2 Any liability to the International Placing Underwriters or any of them hereunder may in whole or in part be released, compounded or compromised and time or indulgence may be given by HSBC on behalf of the International Placing Underwriters or any of them as regards any person under such liability without prejudicing the rights of any other International Placing Underwriters or the relevant International Placing Underwriter's other rights against such person or the relevant International Placing Underwriter's rights against any other person under the same or a similar liability. 6.3.3 Subject to the provisions of the Agreement Between International Placing Underwriters (which shall not be binding on or confer any rights upon any persons other than the parties thereto), for the avoidance of doubt, neither HSBC nor any of the International Placing Underwriters shall be responsible or liable for any breach of the provisions of this Agreement by any of the International Placing Underwriters (other than itself in its capacity as an International Placing Underwriter). 6.3.4 Save and except for any breach of any of its obligations under this Agreement and/or any loss or damage arising out of any gross negligence, wilful default or fraud on the part of HSBC or the relevant International Placing Underwriter, no claim shall be made against HSBC or any of the International Placing Underwriters or against any other of the Indemnified Parties (such right of the Indemnified Parties being held by the International Placing Underwriters as trustee for the Indemnified Parties) by any of the Warrantors (and the Warrantors shall procure that none of its affiliates shall make any such claim), to recover any damage, cost, 34 charge or expense which any of the Warrantors may suffer or incur by reason of or arising out of the carrying out by HSBC or any of the International Placing Underwriters of the work to be done by any of them or the performance of their respective obligations hereunder or otherwise in connection with the Offer Documents, the Global Offering and any associated transactions (whether in performance of its duties as underwriters or otherwise). Specifically (but without prejudice to the generality of the foregoing), none of HSBC or the International Placing Underwriters shall have any liability or responsibility whatsoever for any alleged insufficiency of the Offer Price or any dealing price of the Offer Shares or any announcements, documents, materials, communications or information whatsoever made, given, related or issued arising out of, in relation to or in connection with the Company or the Global Offering (whether or not approved by HSBC or any of the International Placing Underwriters. 7 INDEMNITY 7.1 Each of the Warrantors (collectively, the "INDEMNIFYING PARTIES" and individually, an "INDEMNIFYING PARTY") jointly and severally undertakes to HSBC, the International Placing Underwriters and each of them, for themselves and on trust for the other Indemnified Parties (as hereinafter defined), to indemnify and hold harmless HSBC and each of the International Placing Underwriters, the Selling Agents, each person who controls any Placing Underwriter or Selling Agent within the meaning of Section 15 of the US Securities Act or Section 20 of the US Exchange Act and each of their respective subsidiaries and Affiliates, and each of their respective representatives, partners, directors, officers, employees, assignees and agents (collectively, the "INDEMNIFIED PARTIES" and individually, an "INDEMNIFIED PARTY") (on an after-tax basis) against: (i) all actions, suits, claims (whether or not any such claim involves or results in any actions or proceedings), demands, investigations, judgement, awards and proceedings, joint or several, from time to time instituted, made or brought or threatened or alleged to be instituted, made or brought against or otherwise involve, (together the "ACTIONS") and (ii) all losses, liabilities and damage suffered and all payments, expenses (including legal expenses and taxes (including stamp duty and any penalties and/or interest arising in respect of any taxes)), costs and charges (including, without limitation, all payments, expenses, costs or charges suffered, made or incurred arising out of, in relation to or in connection with the investigation, dispute, defence or settlement of or response to any such Actions or the enforcement of any such settlement or any judgement obtained in respect of any such Actions) (together, the "LOSSES") which may be made or incurred or suffered by, an Indemnified Party (with such amount of indemnity to be paid to HSBC or the relevant International Placing Underwriter to whom the Indemnified Party is related to cover all the Actions against and Losses suffered, made or incurred by such Indemnified Party) arising out of, in relation to or in connection with: (a) the performance by HSBC or any of the International Placing Underwriters of their respective obligations under this Agreement or the Offer Documents or otherwise in connection with the Global Offering; or 35 (b) the issue, publication, distribution or making available of any of the Offer Documents or the Formal Notice (including any amendments or supplements thereto) in accordance with the terms of this Agreement and/or any announcements, documents, materials, communications or information whatsoever made, given, released or issued arising out of, in relation to or in connection with the Company or the Global Offering (whether or not approved by HSBC or any of the International Placing Underwriters); or (c) the offer or transfer of the Offer Shares; or (d) a breach or alleged breach on the part of any of the Indemnifying Parties of any of the provisions of any of the Underwriting Documents or an action or omission of an Indemnifying Party or any of their respective subsidiaries, directors, officers or employees resulting in a breach of any of the provisions of any of the Underwriting Documents; or (e) any of the Warranties being untrue, inaccurate or having been breached or being alleged to be untrue, inaccurate or alleged to have been breached; or (f) any untrue statement or alleged untrue statement of a fact contained in any Offer Documents, the Formal Notice or in any announcements, documents, materials, communications or information whatsoever made, given, released or issued arising out of, in relation to or in connection with the Company or the Global Offering (whether or not approved by HSBC or any of the International Placing Underwriters), or, in each case, any supplement or amendment thereto, or any omission or alleged omission to state therein a fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, or any of the Offer Documents or the Formal Notice, or such announcement, document, material, communication or information or any such supplement or amendment thereto not containing any information material in the context of the Global Offering whether required by Law or not; or (g) any breach or alleged breach of the Laws of any country or territory resulting from the distribution of any of the Offer Documents, the Formal Notice or any announcements, documents, materials, communications or information whatsoever made, given, released or issued arising out of, in relation to or in connection with the Company or the Global Offering (whether or not approved by HSBC or any of the International Placing Underwriters) and/or any offer, sale or distribution of the Shares, otherwise than in accordance with and on the terms of those documents and the Underwriting Documents; or (h) the Global Offering failing to comply with the requirements of the Securities and Futures (Stock Exchange Listing) Rules (Chapter 571V of the Laws of Hong Kong), the Listing Rules or any other applicable Laws; or (i) any statement in any of the Offer Documents, the Formal Notice or any announcements, documents, materials, communications or information whatsoever made, given, released or arising out of, in relation to or in connection with the Company, the Selling Shareholder or the Global Offering (whether or not approved by HSBC or any of the International Placing Underwriters) being or alleged to be defamatory of any person; or 36 (j) any failure or alleged failure by any of the Directors to comply with their respective obligations under the Listing Rules; or (k) the breach or alleged breach by the Company, the Selling Shareholder or other members of the Group of applicable Laws, provided that the indemnity provided for in this Clause 7.1 shall not apply in respect of an Indemnified Party to the extent where any such Action made against or any such Loss suffered by, such Indemnified Party, arises out of or in connection with fraud, gross negligence or wilful default on the part of such Indemnified Party; and any settlement or compromise of or consent to the entry of judgement with respect to any Action or Loss by any of the Indemnified Parties shall not prejudice any right, claim, action or demand any of the Indemnified Parties may have or make against the Warrantors or any of them under this Clause 7.1 or otherwise under this Agreement. 7.2 If any of the Warrantors becomes aware of any claim which may give rise to a liability under the indemnity provided under Clause 7.1, such party shall promptly give notice thereof to the other parties in writing. 7.3 Counsel to the Indemnified Parties shall be selected by HSBC. The Company and/or the Selling Shareholder, as the case may be, may participate at its own expense, in the defence of any such Action, provided however, that counsel to the Company and/or the Selling Shareholder shall not (except with the consent of the Indemnified Parties) also be counsel to the Indemnified Parties. 7.4 None of the Indemnifying Parties shall, without the prior written consent of the Indemnified Parties, settle or compromise or consent to the entry of any judgement with respect to any Action, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Clause 7 (whether or not the Indemnified Parties are actual or potential parties thereto). 7.5 Any settlement or compromise by any Indemnified Party in relation to any claim shall be without prejudice to, and without (other than any obligations imposed on it by Law) any accompanying obligation or duty to mitigate the same in relation to, any claim, action or demand it may have or make against any of the Indemnifying Parties under this Agreement. The Indemnified Parties are not required to obtain consent from any of the Indemnifying Parties with respect to such settlement or compromise. The rights of the Indemnified Parties herein are in addition to any rights that each Indemnified Party may have at Law or otherwise and the obligations of the Indemnifying Parties herein shall be in addition to any liability which the Indemnifying Parties may otherwise have. 7.6 If an Indemnifying Party enters into any agreement or arrangement with any adviser for the purpose of or in connection with the Global Offering, the terms of which provide that the liability of the adviser to the Indemnifying Party or any other person is excluded or limited in any manner, and any of the Indemnified Parties may have joint and/or several liability with such adviser to the Indemnifying Party or to any other person arising out of the performance of its duties in connection with the Global Offering, the Indemnifying Party shall: 7.6.1 not be entitled to recover any amount from any Indemnified Party which, in the absence of such exclusion or limitation, the Indemnified Party would have been entitled to recover from such Indemnified Party; and 37 7.6.2 indemnify the Indemnified Parties in respect of any increased liability to any third party which would not have arisen in the absence of such exclusion or limitation; and 7.6.3 take such other action as the Indemnified Parties may require to ensure that the Indemnified Parties are not prejudiced as a consequence of such agreement or arrangement. 7.7 No claim shall be made against any Indemnified Party by any Indemnifying Party to recover any Losses incurred by the Indemnifying Party in connection with or arising out of the services rendered or duties performance by the Indemnified Party under this Agreement or otherwise in connection with the Global Offering and the application for the listing of, and permission to deal in, the Shares on the Stock Exchange unless and to the extent that they are finally judicially determined by a court of competent jurisdiction to have arisen primarily as a result of fraud, gross negligence or wilful default of the relevant Indemnified Party. 7.8 For the avoidance of doubt, the indemnity under this Clause 7 shall cover all costs, charges and expenses which any Indemnified Party may incur or pay in disputing, settling or compromising any Action to which the indemnity may relate and in establishing its right to indemnification under this Clause 7. 7.9 All amounts subject to indemnity under this Clause 7 shall be paid by the Indemnifying Party as and when they are incurred within 10 Business Days of a written notice demanding payment being given to the relevant Indemnifying Party by or on behalf of an Indemnified Party. 7.10 This Clause 7 shall remain in full force and effect notwithstanding the completion of the Global Offering in accordance with the terms of this Agreement or the termination of this Agreement. 8 CONTRIBUTION 8.1 If for any reason the undertaking to pay in Clause 7 is unavailable or insufficient to indemnify and hold harmless an Indemnified Party in respect of any Action or Loss referred to therein, then each Indemnifying Party, in lieu of its obligations under Clause 7, shall contribute to the amount paid or payable by such Indemnifying Party as a result of such Action or Loss: 8.1.1 in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Shareholder on the one hand and the International Placing Underwriters on the other from the International Placing; or 8.1.2 if the allocation provided by Clause 8.1.1 above is not permitted by applicable Law, in such proportion as is appropriate to reflect not only the relative benefits referred to in Clause 8.1.1 above but also the relative fault of the Company and the Selling Shareholder on the one hand and the International Placing Underwriters on the other in connection with the statements or omissions that resulted in such Action or Loss, as well as any other relevant equitable considerations. 8.2 The relative benefits received by the Company and the Selling Shareholder on the one hand and the International Placing Underwriters on the other shall be deemed to be in the same respective proportions as the net proceeds from the International Placing (before deducting expenses) received by the Company and the Selling Shareholder bear to the 38 total combined underwriting and management commission and selling concessions received by the International Placing Underwriters, as set forth in Clause 4.1. 8.3 The relative fault of the Company and the Selling Shareholder on the one hand and the International Placing Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a fact or the omission or alleged omission to state a fact relates to information supplied by the Company or the Selling Shareholder on the one hand or by the International Placing Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 8.4 The parties hereto agree that it would not be just and equitable if contribution pursuant to this Clause 8 were determined by pro rata allocation (even if the International Placing Underwriters were treated as one entity for such purposes) or by any other method of allocation that does not take account of the equitable considerations referred to in this Clause 8. In no event shall an International Placing Underwriter be required to contribute any amount in excess of the amount by which the total combined underwriting and management commission and selling concessions received by such International Placing Underwriter with respect to the International Placing exceeds the amount of any Losses that such International Placing Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (with the meaning of Section 11(f) of the US Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The International Placing Underwriters' obligations to contribute pursuant to this Clause 8 are several in proportion to their respective purchase or subscription obligations hereunder (and not joint or joint and several). 8.5 The indemnity and contribution agreements contained in this Clause 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Party at law or in equity. 9 TERMINATION IN EXCEPTIONAL CIRCUMSTANCES 9.1 If, at any time prior to 8:00a.m. on the Force Majeure Expiry Date: 9.1.1 there has been a breach of any of the Warranties or there has been a breach by the Company or the Selling Shareholder of any of the provisions of this Agreement; or 9.1.2 any matter has arisen or has been discovered which would, had it arisen immediately before the date of the Prospectus, the Preliminary Offering Circular or the Final Offering Circular (as the case may be), not having been disclosed in the Prospectus, the Preliminary Offering Circular or the Final Offering Circular (as the case may be), constitute an omission therefrom; or 9.1.3 any statement contained in the Prospectus, the Preliminary Offering Circular or the Final Offering Circular (as the case may be) has become or been discovered to be untrue, incorrect or misleading in any respect; or 9.1.4 there shall have occurred any event, act or omission which gives or is likely to give rise to any liability of any of the Company or the Selling Shareholder pursuant to the indemnities referred to in Clause 7; or 39 9.1.5 there shall have been any adverse change or prospective adverse change in the business or the financial or trading position of any member of the Group; or 9.1.6 there shall have developed, occurred, happened or come into effect any event or series of events, matters or circumstances concerning or relating to: (i) any change in, or any event or series of events likely to result in any change in, local, national or international financial, political, economic, military, industrial, fiscal, regulatory, currency or market conditions or equity securities or stock or other financial market conditions or any monetary or trading settlement system (including, without limitation, any change in the system under which the value of the Hong Kong currency is linked to that of the United States) in Hong Kong, the Cayman Islands, the US, the United Kingdom, Japan, or the PRC; or (ii) any new Law or change in existing Laws or any change in the interpretation or application thereof by any court or other competent authority in Hong Kong, the Cayman Islands, the US, the United Kingdom, Japan or the PRC; or (iii) any event of force majeure affecting Hong Kong, the Cayman Islands, the US, the United Kingdom, Japan or the PRC including, without limiting the generality thereof, any act of God, war, outbreak or escalation of hostilities (whether or not war is declared) or act of terrorism, or declaration of a national or international emergency or war, riot, public disorder, civil commotion, economic sanctions, fire, flood, explosion, epidemic, outbreak of an infectious disease, calamity, crisis, strike or lock-out (whether or not covered by insurance); or (iv) the imposition of any moratorium, suspension or restriction on trading in securities generally on the Stock Exchange or the New York Stock Exchange or any suspension of trading of any of the securities of the Company on any exchange or over-the-counter market or any major disruption of any securities settlement or clearing services in the US or Hong Kong or on commercial banking activities in Hong Kong or New York, due to exceptional financial circumstances or otherwise; or (v) a change or development involving a prospective change in taxation or exchange control (or the implementation of any exchange control) in Hong Kong, the Cayman Islands, the US or the PRC, which, in the sole opinion of HSBC (for itself and on behalf of the International Placing Underwriters): (i) is or will be, or is likely to be, materially adverse to the general affairs, management, business, financial, trading or other condition or prospects of the Group or to any present or prospective shareholder of the Company in its capacity as such; or (ii) has or will have or is likely to have a material adverse impact on the success of the Global Offering or the level of Offer Shares applied for or accepted or purchased or the distribution of the Offer Shares or dealings in the Shares in the secondary market; or 40 (iii) makes it impracticable, inadvisable or inexpedient to proceed with the Public Offer and/or the International Placing on the terms and in the manner contemplated in the Offer Documents, then HSBC, in its sole and absolute discretion, may on behalf of the International Placing Underwriters, upon giving notice to the Company and the Selling Shareholder made pursuant to the provisions of Clause 10.16 on or prior to 8:00a.m. on the Force Majeure Expiry Date (with a copy of such notice to each of the Selling Shareholder, the Executive Directors and the other International Placing Underwriters), terminate this Agreement with immediate effect. 9.2 Upon the termination of this Agreement or any obligations of the International Placing Underwriters under this Agreement are terminated pursuant to the provisions of Clauses 2.1, 3.3.2 or 9.1: 9.2.1 each of the parties hereto shall cease to have any rights or obligations under this Agreement and no party to this Agreement shall be under any liability to any other party in respect of this Agreement and no party have any claim against any other party to this Agreement for costs, damages, compensation or otherwise, save in respect of the provisions of this Clause 9 and Clauses 7, 8 and 10, any antecedent breaches under this Agreement and any rights or obligations which may have accrued under this Agreement prior to such termination; and 9.2.2 the Selling Shareholder shall pay to HSBC all fees, costs and expenses referred to Clauses 4.2, 4.3 and 4.4 as soon as practicable and in any event within 10 Business Days from the date of receipt of written demand for payment of the same; and 9.2.3 the Selling Shareholder shall refund forthwith all payments made by or on behalf of any of the International Placing Underwriters (for themselves or on behalf of the placees of the International Placing Shares) or any of them pursuant to Clause 3.5.8 (to the extent received). 10 GENERAL PROVISIONS 10.1 RELEASE Any liability to any party under this Agreement may in whole or in part be released, compounded or compromised, and time or indulgence may be given, by that party (and, where any liability is owed to any International Placing Underwriters, by HSBC on behalf of any or all of the International Placing Underwriters) in its absolute discretion as regards any person under such liability without in any way prejudicing or affecting that party's rights against any other person under the same or a similar liability, whether joint and several or otherwise. 10.2 REMEDIES AND WAIVERS 10.2.1 No failure or delay by any party hereto in exercising any right or remedy provided by Law under or pursuant to this Agreement shall impair such right or remedy or operate or be construed as a waiver or variation of it or preclude its exercise at any subsequent time and no single or partial exercise of any such right or remedy shall 41 preclude any other or further exercise of it or the exercise of any other right or remedy. 10.2.2 The rights, powers and remedies provided in this Agreement are cumulative and not exclusive of any rights, powers and remedies (whether provided by Law or otherwise). 10.3 SUCCESSORS AND ASSIGNMENT 10.3.1 This Agreement shall be binding upon, and inure solely to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. 10.3.2 Each of HSBC and the International Placing Underwriters may assign or transfer all or any part of the benefits of, or interest or right in or under this Agreement. 10.3.3 Save as provided in Clause 10.3.2, no party hereto may assign or transfer all or any part of the benefits of, or interest or right in or under this Agreement. 10.3.4 Obligations under this Agreement shall not be assignable. 10.4 FURTHER ASSURANCE Each of the parties hereto undertakes with the other parties hereto that it shall execute and perform and procure that there are executed and performed such further documents and acts as the other parties hereto may reasonably require to give effect to the provisions of this Agreement. 10.5 ENTIRE AGREEMENT AND VARIATION 10.5.1 Save as otherwise agreed by the relevant parties, this Agreement, together with any document referred to herein as being in the agreed form, constitutes the entire agreement between the Company, the Selling Shareholder, the Executive Directors, HSBC and the International Placing Underwriters relating to the underwriting of the International Placing to the exclusion of any terms implied by Law which may be excluded by contract. Save as otherwise agreed by the relevant parties, this Agreement supersedes all previous agreements or understandings relating to the underwriting of the International Placing which shall cease to have any further force or effect and no party hereto has entered into this Agreement in reliance upon any representation, warranty, agreement or undertaking which is not set out or referred to in this Agreement. 10.5.2 No party shall have any right of action (except in the case of fraud) against any other party to this Agreement arising out of or in connection with any representation, warranty, agreement or undertaking which is not set out in this Agreement except to the extent such representation, warranty, agreement or undertaking is repeated in this Agreement or the other documents or agreements referred to herein which are incorporated by reference in this Agreement. 10.5.3 No variation of this Agreement shall be valid unless it is in writing and signed by or on behalf of each of the parties hereto. The expression "VARIATION" shall include any variation, supplement, deletion or replacement however effected. 42 10.6 TIME OF ESSENCE Any time, date or period referred to in this Agreement may be extended by mutual written agreement between the Company (for itself and for and on behalf of the Selling Shareholder and the Executive Directors) and HSBC (for itself and for and on behalf of the International Placing Underwriters), 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. 10.7 ANNOUNCEMENTS 10.7.1 Subject to Clause 10.7.2, no announcement or public communication concerning this Agreement or the subject matter hereof shall be made by any of the parties hereto (and each party shall procure that their respective directors, officers and agents shall comply with the restrictions of this Clause 10.7) without the prior written approval of HSBC. 10.7.2 Any party hereto may make an announcement or public communication concerning this Agreement, the subject matter hereof or any ancillary matter hereto if and to the extent:- (i) required by Law; or (ii) required by any Governmental Authority to which such party is subject or submits, wherever situated, including, without limitation, the Stock Exchange and the SFC whether or not the requirement has the force of Law, provided that in such case, the relevant party shall first consult with HSBC in so far as it is reasonably practicable to do so. 10.8 CONFIDENTIALITY 10.8.1 Subject to Clause 10.8.2, each party hereto shall, and shall procure that their respective directors, officers and agents will, treat as strictly confidential all information received or obtained as a result of entering into or performing this Agreement which relates to:- (i) the provisions of this Agreement; (ii) the negotiations relating to this Agreement; (iii) the subject matter of this Agreement; or (iv) the other parties. 10.8.2 Any party hereto may disclose, or permit its directors, officers and agents to disclose, information which would otherwise be confidential if and to the extent:- (i) required by Law; (ii) required by any Governmental Authority to which such party is subject or submits, wherever situated, including, without limitation, the Stock Exchange and the SFC whether or not the requirement for information has the force of Law; (iii) required to vest the full benefit of this Agreement in such party; 43 (iv) disclosed to the professional advisers and auditors of such party under a duty of confidentiality; (v) the information has come into the public domain through no fault of such party; (vi) the information becomes available to such party on a non-confidential basis from a person not known by such party to be bound by a confidentiality agreement with any of the other parties hereto or to be otherwise prohibited from transmitting the information; (vii) the other parties have given prior written approval to the disclosure, such approval not to be unreasonably withheld or delayed; or (viii) (where the disclosure is otherwise than by HSBC or its directors, officers or agents) HSBC has given prior written approval to the disclosure. provided that in relation to (i), (ii) and (iii) above, such party shall first consult with HSBC prior to making such disclosure. 10.9 RIGHTS OF CONTRIBUTION The Selling Shareholder and the Executive Directors hereby irrevocably and unconditionally: 10.9.1 (until the Underwriters' claims have become fully satisfied) waives any right of contribution or recovery or any claim, demand or action it may have or be entitled to take against the Company as a result of any Action made or taken against it/him, whether alone or jointly with the Company, as the case may be, in consequence of its/his entering into this Agreement or otherwise with respect to any act or matter relating to the Global Offering; and 10.9.2 acknowledges and agrees that the Company shall have no liability to it whatsoever under the provisions of this Agreement or otherwise in respect of any act or matter relating to the Global Offering. 10.10 INVALIDITY If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the Law of any jurisdiction, that shall not affect or impair:- 10.10.1 the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or 10.10.2 the legality, validity or enforceability under the Law of any other jurisdiction of that or any other provision of this Agreement. 10.11 COUNTERPARTS This Agreement may be executed in any number of counterparts, and by the parties hereto on separate counterparts, but shall not be effective until each party has executed at least one counterpart. Each counterpart when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. 10.12 GOVERNING LAW 44 This Agreement shall be governed by and construed in accordance with the laws of Hong Kong. 10.13 DISPUTE RESOLUTION 10.13.1 The parties hereto unconditionally and irrevocably agree that the courts of Hong Kong shall have non-exclusive jurisdiction to settle any disputes or differences (including claims for set-off and counterclaims) arising out of or in connection with this Agreement, including any dispute regarding the validity or existence of this Agreement (each a "DISPUTE"). Each of the parties submits to the non-exclusive jurisdiction of the Hong Kong courts in connection therewith and unconditionally and irrevocably waives any objection which it may have now or hereafter to the laying of any such proceeding in the Hong Kong courts including any right to invoke any claim that such proceeding have been brought in an inconvenient forum. 10.13.2 The submission to jurisdiction pursuant to Clause 10.13.1 shall not (and shall not be construed so as to) limit the right of any of the parties to commence any proceeding against any other party in whatsoever jurisdictions shall to it seem fit nor shall the taking of any proceeding in any one or more jurisdictions preclude the taking of any proceeding in any other jurisdiction, whether concurrently or not. 10.13.3 Notwithstanding Clause 10.13.1, each of the parties hereto unconditionally and irrevocably agrees that each of HSBC and/or the International Placing Underwriters shall have the option to refer any Dispute to be finally resolved by arbitration in accordance with this Clause 10.13.3. Upon written notice by HSBC and/or the International Placing Underwriters pursuant to this Clause 10.13.3, such Dispute shall be referred to and finally resolved by arbitration in accordance with the UNCITRAL Arbitration Rules (the "RULES") as in force from time to time and as may be amended by the rest of this Clause 10.13. There shall be three arbitrators. The appointing authority shall be the Hong Kong International Arbitration Centre ("HKIAC"). Where there are multiple parties, whether as claimant or as respondent, the multiple claimants, jointly, shall appoint a claimants-appointed arbitrator, and the multiple respondents, jointly, shall appoint a respondents-appointed arbitrator for the purpose of Article 7(1) of the Rules. The claimants-appointed arbitrator and the respondents-appointed arbitrator shall then choose the third arbitrator who will act as chairman of the arbitral tribunal. The seat of arbitration shall be Hong Kong, and the arbitration shall be administered by HKIAC. The governing law of the arbitration proceedings shall be the laws of Hong Kong. The language to be used in the arbitral proceedings shall be English. By agreeing to arbitration pursuant to this Clause 10.13.3, the parties irrevocably waive their right to any form of appeal, review or recourse to any state court or other judicial authority, insofar as such waiver may be validly made and to the fullest extent permitted by applicable Laws. The award shall be given by a majority decision. If there be no majority, the award shall be made by the chairman of the arbitral tribunal alone. 45 10.13.4 Without prejudice to the provisions of Clause 10.13.5 or Clause 10.13.6, each of the parties unconditionally and irrevocably agrees that any writ, judgement or other notice of process shall, to the fullest extent permitted by applicable Laws, be validly and effectively served on it if delivered to its address referred to in this agreement and marked for the attention of the person referred to in that Clause or to such other person or address in Hong Kong as may be notified by the relevant party (as the case may be) to the other parties hereto pursuant to the provisions of this agreement. 10.13.5 The Selling Shareholder irrevocably appoints Mr. Jackie Wah of c/o 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong as its authorised agent for the service of process in Hong Kong in connection with this Agreement. Service of process upon Mr. Jackie Wah at the above address shall be deemed, for all purposes, to be due and effective service, and shall be deemed completed whether or not forwarded to or received by any such appointer. If for any reason such agent shall cease to be the Selling Shareholder's agent for the service of process, the Selling Shareholder shall forthwith appoint a new agent for the service of process in Hong Kong acceptable to HSBC and deliver to each of the other parties hereto a copy of the new agent's acceptance of that appointment within 14 days, failing which HSBC shall be entitled to appoint such new agent for and on behalf of the Selling Shareholder and such appointment shall be effective upon the giving notice of such appointment to the Selling Shareholder. Nothing in this Agreement shall affect the right to serve process in any other manner permitted by Law. 10.13.6 Where proceedings are commenced by any party in any jurisdiction other than Hong Kong pursuant to Clause 10.13.2, upon being given notice of such proceedings in writing, the party against whom such proceedings have been brought shall immediately appoint an agent to accept service of process in that jurisdiction and shall give notice to the other party, as the case may be, of the details and address for service of such agent. 10.14 IMMUNITY To the extent that any party hereto may in any jurisdiction claim for itself or its assets immunity from suit, execution, attachment (whether in aid of execution, before judgement or otherwise) or other legal process or to the extent that in any such jurisdiction there may be attributed to itself or its assets such immunity (whether or not claimed), such party hereby irrevocably agrees not to claim and irrevocably waives such immunity to the full extent permitted by applicable Laws. 10.15 JUDGEMENT CURRENCY INDEMNITY The obligation of any party (the "PAYING PARTY") in respect of any sum due to any other party shall, notwithstanding any judgement in a currency other than Hong Kong dollars, not be discharged until the first Business Day, following receipt by the party to receive the payment (the "RECEIVING PARTY") (as the case may be) of any sum adjudged to be so due in such other currency, on which (and only to the extent that) the receiving party (as the case may be) may in accordance with normal banking procedures purchase Hong Kong dollars with such other currency. If the Hong Kong dollars so purchased are less than the sum originally due to such party (as the case may be) hereunder, the paying party agree, as a separate obligation and notwithstanding any such judgement, to indemnify the receiving 46 party (as the case may be) against such loss. If the Hong Kong dollars so purchased are greater than the sum originally due to the receiving party (as the case may be) hereunder, the receiving party (as the case may be) agrees to pay to the paying party an amount equal to the excess of the dollars so purchased over the sum originally due to it hereunder. 10.16 NOTICES 10.16.1 Any notice or other communication given or made under or in connection with the matters contemplated by this Agreement shall be in writing and shall be in the English language. 10.16.2 Any such notice or other communication shall be addressed as provided in Clause 10.16.3 and, if so addressed, shall be deemed to have been duly given or made as follows:- (i) if sent by personal delivery, upon delivery at the address of the relevant party; (ii) if sent by post, on the third Business Day after the date of posting; (iii) if sent by facsimile, on receipt of confirmation of transmission. 10.16.3 The relevant addresses and facsimile numbers of each party hereto for the purposes of this Agreement, subject to Clause 10.16.4, are:-
NAME OF PARTY ADDRESS FACSIMILE NO. Nam Tai Electronic & 15th Floor, China Merchants Tower (852) 2263 1223 Electrical Products Limited Shun Tak Centre Nos.168-200 Connaught Road Central Hong Kong Attention: Mr. Joseph Hsu Nam Tai Electronics, Inc. 15th Floor, China Merchants Tower (852) 2263 1223 Shun Tak Centre Nos.168-200 Connaught Road Central Hong Kong Attention: Mr. Jackie Wah Wong Kuen Ling 15th Floor, China Merchants Tower (852) 2253 1223 Shun Tak Centre Nos.168-200 Connaught Road Central Hong Kong
47 Guy Jean Francois Bindels 15th Floor, China Merchants Tower (852) 2263 1223 Shun Tak Centre Nos.168-200 Connaught Road Central Hong Kong The Hongkong and The Hongkong and Shanghai (852) 2845 5654 Shanghai Banking Banking Corporation Limited Corporation Limited Level 15 1 Queen's Road Central Hong Kong Attention: Mr. Ronald Tham The International Placing The Hongkong and Shanghai (852) 2845 5654 Underwriters Banking Corporation Limited c/o The Hongkong and Level 15 Shanghai Banking 1 Queen's Road Central Corporation Limited Hong Kong Attention: Mr. Ronald Tham

10.16.4 A party may notify the other parties to this Agreement of a change to its relevant address or facsimile number for the purposes of Clause 10.16.3, provided that such notification shall only be effective on:- (i) the date specified in the notification as the date on which the change is to take place; or (ii) if no date is specified or the date specified is less than five Business Days after the date on which notice is given, the date falling five Business Days after notice of any such change has been given. 10.16.5 All references in this Agreement to notices given to or received from, consents or requests from or waivers by or consultations with the International Placing Underwriters shall be to notices given to or received from, consents or requests from or waivers by or consultations with HSBC, on behalf of the International Placing Underwriters. 10.16.6 All references in this Agreement to notices given to or received from, consents or requests from or waivers by or consultations with the Executive Directors and/or the Selling Shareholder (as the case may be) shall be to notices given to or 48 received from, consents or requests from or waivers by or consultations with the Company, on behalf of the Executive Directors and/or the Selling Shareholder (as the case may be). 10.17 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND OBLIGATIONS The respective indemnities, covenants, undertakings, agreements, representations, warranties and other statements of the Company, the Selling Shareholder and the Executive Directors or any of them as set forth in this Agreement or made by or on behalf of any of them pursuant to this Agreement, shall remain in full force and effect notwithstanding completion of the Global Offering and regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any of the International Placing Underwriters, any of their respective Affiliates or any of their respective representatives, directors, officers, agents, employees, advisers. Clauses 4.2, 4.3, 4.4, 7, 8, 10.7, 10.8 and 10.9 shall survive completion of the Global Offering. 10.18 NO WITHHOLDING BY THE COMPANY, THE SELLING SHAREHOLDER AND THE EXECUTIVE DIRECTORS All payments by or on behalf of each of the Company, the Selling Shareholder and the Executive Directors under or in connection with this Agreement (including deductions from the Placing Moneys) shall be paid without set-off or counterclaim, and free and clear of and without deduction or withholding for or on account of, any present or future taxes, levies, imposts, funds, duties, fees, assessments or other charges of whatever nature, imposed, levied, collected, withheld or assessed by any Governmental Authority or any interest, penalties or similar liabilities with respect thereto ("TAXES"). If any Taxes are required by law to be deducted or withheld in connection with any such payment, the Company the Selling Shareholder and the Executive Directors, as the case may be, will increase the amount so paid so that the amount of such payment received by the payee is such amount as the payee would have received if no such deduction or withholding had been made. 10.19 NO TAXATION IN THE HANDS OF HSBC, THE INTERNATIONAL PLACING UNDERWRITERS AND THE INDEMNIFIED PARTIES If any sum payable under or in connection with this Agreement to HSBC or any of the International Placing Underwriters or any of the Indemnified Parties, or any sum payable under Clause 4 (other than under Clauses 4.1 and 4.2), shall be subject to Taxes in the hands of any of them or taken into account as a receipt in computing the taxable profits or losses of any of them, the sum payable shall be increased to such sum as will ensure that, after payment of any Taxes which would not have arisen but for that sum, HSBC or such International Placing Underwriter or such Indemnified Party shall be left with a sum equal to the sum that it would have received in the absence of such Taxes. IN WITNESS WHEREOF this Agreement has been entered into the day and year first before written. 49 SCHEDULE 1 THE INTERNATIONAL PLACING UNDERWRITERS INTERNATIONAL PLACING UNDERWRITING COMMITMENT
(III) (I) % OF TOTAL (IV) (V) NAME OF NUMBER OF NUMBER OF NUMBER OF INTERNATIONAL INTERNATIONAL INTERNATIONAL OVER- PLACING (II) PLACING PLACING ALLOTMENT UNDERWRITER ADDRESS SHARES SHARES SHARES HSBC 1 Queen's Road 71 127,800,000 30,000,000 Central Hong Kong BNP Paribas 36th Floor, Asia Pacific 10 18,000,000 Peregrine Capital Limited Finance Tower 3 Garden Road Central Hong Kong Nomura International 30th Floor, Two International 10 18,000,000 (Hong Kong) Limited Finance Centre 8 Finance Street Hong Kong Cazenove Asia Limited 5001, One Exchange Square 3 5,400,000 8 Connaught Place, Central Hong Kong DBS Asia Capital Limited 16th Floor, Man Yee Building 3 5,400,000 68 Des Voeux Road Central Hong Kong VC CEF Capital Limited 38th Floor, The Centrium 3 5,400,000 60 Wyndham Street Central Hong Kong
50 SCHEDULE 2 THE EXECUTIVE DIRECTORS NAME ADDRESS Wong Kuen Ling Flat B, 33rd Floor, Block 11 Tierra Verde 33 Tsing King Road Tsing Yi New Territories Hong Kong Guy Jean Francois Bindels Flat C 10th Floor Tower 12 Parc Oasis Kowloon Tong Hong Kong 51 SCHEDULE 3 THE REORGANISATION DOCUMENTS The documents referred to in paragraph 4 of the section headed "Further information about the Company" in Appendix V to the Prospectus including the following: (a) Sale & Purchase Agreement dated 30 December 2002 regarding the transfer of equipment from NTSZ to Zastron. (b) Supplemental agreement dated 26 March 2004 between NTSZ and Zastron. (c) Certificate of Incorporation of the Company. (d) - First Board Minutes of the Company dated 13 June 2003 - Register of Members of the Company dated 16 June 2003 (e) Sale & Purchase Agreement dated 3 July 2003 regarding the transfer of interest in NTSZ. (f) approval document issued by the Ministry of Commerce of the PRC dated 3 December 2003 ([2003] 1108). (g) Certificate of Approval for Establishment of Enterprises with Investment of Taiwan, Hong Kong, Macao and Overseas Chinese in the People's Republic of China dated 4 December 2003 ([1998] 0041). (h) Business Licence issued by Shenzhen Administration for Industry and Commerce to NTSZ dated 11 December 2003. (i) Memorandum of Understanding dated 26 March 2004 between NTSZ and NTEEPHK. (j) Consultancy Agreement dated 1 October 2003 entered between NTSZ and NTIC. (k) Approval document issued by the Macao Trade and Investment Promotion Institute regarding the transfer of NTIC from NTE Inc. to the Company. (l) Sale & Purchase Agreement dated 24 March 2004 regarding transfer of equity in NTIC. 52 SCHEDULE 4 THE CONDITIONS PRECEDENT DOCUMENTS PART A 1 A certified copy of the resolutions of the shareholders of the Company referred to in paragraph 3 of Appendix V to the Prospectus. 2 A certified copy of the resolution(s) of the Directors or a committee of the Board of Directors:- (i) approving and authorising execution, delivery and performance of or confirming the Underwriting Documents and each of the Operative Documents to which the Company is a party together with all other agreements and documents necessary for the Global Offering; (ii) approving the listing of the Shares on the Stock Exchange; (iii) approving and authorising the issue of the Preliminary Offering Circular and the Final Offering Circular on behalf of the Company or ratifying the same; and (iv) approving and authorising the issue and the registration with the Registrar of Companies in Hong Kong and the filing with the Registrar of Companies in the Cayman Islands of the Public Offer Documents. 3 A certified copy of the resolutions of the directors of the Selling Shareholder, inter alia, approving and authorising execution, delivery and performance of or confirming the Underwriting Documents and each of the Operative Documents to which it is a party. 4 Certified copies of the Operative Agreements except for the Price Determination Agreement. 5 A certified copy of each of the service contracts of the Directors. 6 Certified copies of the responsibility letters, powers of attorney and statements of interests signed by all the Directors in forms previously agreed by HSBC. 7 Two printed copies of each of the Public Offer Documents each duly signed by two Directors or their respective duly authorised agents and, if signed by their respective duly authorised agents, certified copies of the relevant authorisation document. 8 The Verification Notes signed by or on behalf of each person to whom responsibility is therein assigned (other than HSBC and its legal advisers). 9 One signed original or certified copy of the accountants' report dated the Prospectus Date by the Reporting Accountants, the text of which is contained in Appendix I to the Prospectus. 10 One signed original of the statement of adjustments and letter relating thereto both dated the Prospectus Date produced by the Reporting Accountants. 11 One signed original or certified copy of the letter with the valuation certificate(s) dated the Prospectus Date from the Property Valuers to the Directors in connection with the valuation of the property interests of the Group as at 29 February 2004, the text of which is contained in Appendix III to the Prospectus. 53 12 One signed original of each of the letters dated the Prospectus Date from the Reporting Accountants to the Directors and HSBC (as sponsor and on behalf of the Public Offer Underwriters) confirming the indebtedness statement contained in the Prospectus, commenting on the statement contained in the Prospectus as to the sufficiency of working capital and commenting on the other financial information set out in the Prospectus, such letters to be in form and substance previously agreed by the Reporting Accountants with the Company and HSBC on behalf of the Public Offer Underwriters. 13 One signed original or a certified copy of each of the letters dated the Prospectus Date referred to in the paragraph headed "Consents of experts" in Appendix V to the Prospectus containing consents to the issue of the Prospectus with the inclusion of references to their respective names, and where relevant, their reports and letters in the form and context in which they are included. 14 A letter from Johnson Stokes & Master to the International Placing Underwriters confirming that a copy of each of the documents specified in Appendix VI to the Prospectus have been delivered to the Registrar of Companies in Hong Kong as required by section 342C of the Companies Ordinance. 15 A certified copy of the written confirmation issued by the Registrar of Companies in Hong Kong confirming registration of the Prospectus as required by section 342C of the Companies Ordinance. 16 A certified copy of the Articles of Association of the Company which were conditionally adopted by the sole shareholder of the Company at a special general meeting which was held on 8 April 2004. 17 A certified copy of each of the material contracts referred to in sub-paragraphs B(1) of the paragraph headed "Summary of material contracts" in Appendix V to the Prospectus (other than the Public Offer Documents and material contracts which are Operative Agreements). 18 One executed original of the Deed Poll. 19 A certified copy of each of the following: (i) the translation certificate issued by the translators in respect of the Prospectus; (ii) the certificate of registration of the Company under Part XI of the Companies Ordinance. 20 One signed original of the executed comfort letter dated as of the date hereof, issued by the Reporting Accountants confirming the financial information with respect to the Company set forth in the Preliminary Offering Circular (in form and substance satisfactory to HSBC). 21 Certified copies of powers of attorney or authorities under which any of the Conditions Precedent Documents (other than those material contracts referred to in paragraph 17 above) are executed. PART B In respect of the Placing Closing: 1 One signed original of the comfort letter dated as of the Placing Closing Date in form and substance satisfactory to HSBC, issued by the Reporting Accountants. 54 2 One signed original of the legal opinion, dated as of the date immediately before Placing Closing Date, from Conyers Dill & Pearman, Cayman, as to Cayman Islands laws in form as previously agreed by HSBC. 3 One signed original of the legal opinion, dated as of the Placing Closing Date, from Guangdong Jingtian Law Firm, as to PRC law, in form as previously agreed by HSBC. 4 One signed original of the legal opinion, dated as of the Placing Closing Date, from Jingtian & Gongcheng, as to PRC law, in form and substance satisfactory to HSBC. 5 One signed original of the legal opinion, dated as of the Placing Closing Date, from Artur Dos Santos Robarts, as to Macao law, in form as previously agreed by HSBC. 6 One signed original of the legal opinion, dated as of the date immediately before Placing Closing Date, from Johnson Stokes & Master, as to Hong Kong law, in form as previously agreed by HSBC. 7 One signed original of the legal opinion, dated as of the date immediately before Placing Closing Date, from McW. Todman & Co, as to British Virgin Islands law, in form as previously agreed by HSBC. 8 One signed original of the "10b-5" disclosure letter, dated as of the Placing Closing Date, issued by Linklaters in form and substance satisfactory to HSBC. 9 A certificate dated as of the Placing Closing Date, in substance and form satisfactory to HSBC, signed by a duly authorised officer of and on behalf of each of the Company and the Selling Shareholder and by each of the Executive Directors confirming (i) that such authorised officer has carefully reviewed the Final Offering Circular and, to the best of such officer's knowledge, the representation set forth in Clause 13.6 of Schedule 7 is true and correct; (ii) that the representations and warranties of the Company and the Selling Shareholder and the Executive Directors are true and correct in all material respects as of the Placing Closing Date, (iii) that the Company, Selling Shareholder and the Executive Directors have performed all of their respective obligations and satisfied all of the conditions required to be performed or satisfied under this Agreement at or prior to the Placing Closing Date; (iv) that to the best of such officer's knowledge there has not occurred any termination events which would have such material adverse impact as set out in Clause 9.1; (v) that subsequent to the date of the most recent financial statements of the Company in the Final Offering Circular, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole, except as set forth in or contemplated by the Final Offering Circular or as described in such certificate; and (vi) as to such other matters as HSBC may reasonably request in writing 2 Business Days before the Placing Closing Date. 10 A certified copy/copies of the resolutions of the board committee of the Company and the Selling Shareholder relating to the Placing Closing (in forms satisfactory to HSBC). In respect of each Option Closing: 11 One signed original of the bring down comfort letter dated as of the Option Closing Date in form and substance satisfactory to HSBC, issued by the Reporting Accountants. 1 12 One signed original of the bring down legal opinion, dated as of the Option Closing Date, from Conyers Dill & Pearman, Cayman, as to Cayman Islands laws in form and substance satisfactory to HSBC. [COMMENT: items 13-17 are the same as items 3-7] 13 One signed original of the bring down "10b-5" disclosure letter, dated as of the Option Closing Date, issued by Linklaters in form and substance satisfactory to HSBC. 14 A certificate dated as of the Option Closing Date, in substance and form satisfactory to HSBC, signed by a duly authorised officer of and on behalf of each of the Company and the Selling Shareholder and by each of the Executive Directors confirming the matters as set out in paragraph 8 of Part B of this Schedule. For the purpose of this paragraph 17, all references to the Placing Closing Date in paragraph 8 of Part B shall be deemed to be references to the relevant Option Closing Date. 15 A certified copy/copies of the resolutions of the board committee of the Company and the Selling Shareholder relating to the Option Closing (in forms satisfactory to HSBC). 2 SCHEDULE 5 FORM OF DEED POLL THIS DEED POLL is made on [-] 2004 by Nam Tai Electronic & Electrical Products Limited, a limited company incorporated under the laws of the Cayman Islands, whose registered office is at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, British West Indies (the "COMPANY"). WHEREAS:- (A) The Company has entered into a placing and underwriting agreement dated [22] April 2004 (the "AGREEMENT") with, inter alia, The Hongkong and Shanghai Banking Corporation Limited ("HSBC") relating to the shares of the Company to be sold by Nam Tai Electronics, Inc. in connection with the Global Offering described in the Agreement. (B) In order to ensure compliance with Rule 144A under the United States Securities Act of 1933 (the "US SECURITIES ACT") in connection with resales of its Shares, the Company intends to comply with the information delivery requirements of Rule 144A(d)(4) under the US Securities Act. NOW THIS DEED WITNESSETH AS FOLLOWS and is made by way of deed poll:- 1 The following expressions shall have the following meanings: "SHARE" means a share of nominal value HK$0.01 in the capital of the Company; "PROSPECTIVE PURCHASER" means a prospective purchaser of Shares designated to the Company as such by a Shareholder; and "SHAREHOLDER" means the person recorded in the Company's register of members as a holder for the time being of the Shares or any person having a beneficial interest in the Shares. 2 The Company hereby undertakes that, for so long as any Shares are "restricted securities" within the meaning of Rule 144(a)(3) under the US Securities Act, the Company will, during any period in which it is neither subject to Section 13 or 15(d) of the United States Securities Exchange Act of 1934 nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, provide to any holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or beneficial owner, upon the request of such holder, beneficial owner or prospective purchaser, the information required to be provided by Rule 144A(d)(4) under the US Securities Act. 3 This Deed Poll shall be governed by and construed in accordance with the laws of the Hong Kong Special Administrative Region of the People's Republic of China ("HONG KONG"). 4 Any suit, action or proceeding ("PROCEEDING") in relation to any dispute arising out of or in connection with this Deed Poll may be brought in the Hong Kong courts and the Company submits to the non-exclusive jurisdiction of such courts in connection therewith. The Company unconditionally and irrevocably waives any objection which it may have now or hereafter to the laying of any such Proceeding in the Hong Kong courts including any right to invoke any claim that such Proceeding have been brought in an inconvenient forum. The foregoing submission to jurisdiction shall not (and shall not be construed so as to) limit the right to commence any Proceeding in any other jurisdictions nor shall the taking of any 3 Proceeding in any one or more jurisdictions preclude the taking of any Proceeding in any other jurisdiction, whether concurrently or not. To the extent that the Company may in any jurisdiction claim for itself or its assets immunity from suit, execution, attachment (whether in aid of execution, before judgement or otherwise) or other legal process or to the extent that in any such jurisdiction there may be attributed to itself or its assets such immunity (whether or not claimed), the Company hereby irrevocably agrees not to claim and irrevocably waives such immunity to the full extent permitted by applicable laws. If, for any reason the Company does not have an agent to receive service of process in Hong Kong, it will promptly appoint a substitute process agent and notify HSBC of such appointment. IN WITNESS whereof this deed poll has been executed as a deed on the date stated above. SEALED with the Seal of NAM TAI ELECTRONIC & ELECTRICAL } PRODUCTS LIMITED and SIGNED by Director Director/Company Secretary in the presence of: Witness: 4 SCHEDULE 6 PROFESSIONAL INVESTOR TREATMENT NOTICE 1 You are a Professional Investor by reason of your being within a category of person described in the Securities and Futures (Professional Investor) Rules as follows: 1.1 a trust corporation having been entrusted with total assets of not less than HK$40 million (or equivalent) as stated in its latest audited financial statements prepared within the last 16 months, or in the latest audited financial statements prepared within the last 16 months of the relevant trust or trusts of which it is trustee, or in custodian statements issued to the trust corporation in respect of the trust(s) within the last 12 months; 1.2 a high net worth individual having, alone or with associates on a joint account, a portfolio of at least HK$8 million (or equivalent) in securities and/or currency deposits, as stated in a certificate from an auditor or professional accountant or in custodian statements issued to the individual within the last 12 months; 1.3 a corporation the sole business of which is to hold investments and which is wholly owned by an individual who, alone or with associates on a joint account, falls within paragraph 1.2 above; and 1.4 a high net worth corporation or partnership having total assets of at least HK$40 million (or equivalent) or a portfolio of at least HK$8 million (or equivalent) in securities and/or currency deposits, as stated in its latest audited financial statements prepared within the last 16 months or in custodian statements issued to the corporation or partnership within the last 12 months. HSBC has categorised you as a Professional Investor based on information you have given us. You will inform us promptly in the event any such information ceases to be true and accurate. You will be treated as a Professional Investor in relation to all investment products and markets. 2 As a consequence of categorisation as a Professional Investor, HSBC is not required to fulfil certain requirements under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the "CODE") and other Hong Kong regulations. While HSBC may in fact do some or all of the following in providing services to you, HSBC has no regulatory responsibility to do so. 2.1 Client agreement HSBC is not required to enter into a written agreement complying with the Code relating to the services that are to be provided to you. 2.2 Risk disclosures HSBC is not required by the Code to provide you with written risk warnings in respect of the risks involved in any transactions entered into with you, or to bring those risks to your attention. 2.3 Information about HSBC HSBC is not required to provide you with information about its business or the identity and status of employees and others acting on its behalf with whom you will have contact. 5 2.4 Prompt confirmation HSBC is not required by the Code to promptly confirm the essential features of a transaction after effecting a transaction for you. 2.5 Information about clients HSBC is not required to establish your financial situation, investment experience or investment objectives, except where HSBC is providing advice on corporate finance work. 2.6 Nasdaq - Amex Pilot Program If you wish to deal through the Stock Exchange in securities admitted to trading on the Stock Exchange under the Nasdaq-Amex Pilot Program, HSBC is not required to provide you with documentation on that program. 2.7 Suitability HSBC is not required to ensure that a recommendation or solicitation is suitable for you in the light of your financial situation, investment experience and investment objectives. 3 You have the right to withdraw from being treated as a Professional Investor at any time in respect of all or any investment products or markets on giving written notice to the Compliance Department of HSBC. 4 By entering into this Agreement, you represent and warrant to HSBC that you are knowledgeable and have sufficient expertise in the products and markets that you are dealing in and are aware of the risks in trading in the products and markets that you are dealing in. 5 By entering into this Agreement, you hereby agree and acknowledge that you have read and understood and have had explained to you the consequences of consenting to being treated as a Professional Investor and the right to withdraw from being treated as such as set out herein and that you hereby consent to being treated as a Professional Investor. 6 By entering into this Agreement, you hereby agree and acknowledge that HSBC will not provide you with any contract notes, statements of account or receipts under the Hong Kong Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules where such would otherwise be required. 6 SCHEDULE 7 THE WARRANTIES PART 1 1 CAPACITY AND AUTHORITY 1.1 Each of the Warrantors has the requisite power and authority to enter into and perform its obligations under each of this Agreement and each of the Operative Documents to which it is a party. 1.2 This Agreement and each of Operative Documents to which the Warrantors or any one of them is a party and any other document required to be executed by the Warrantors or any one of them pursuant to the provisions of this Agreement or the Operative Documents constitute or will, when executed and delivered, constitute valid and binding obligations of the Warrantors enforceable in accordance with their respective terms. 1.3 The execution and delivery of, and the performance by each of the Warrantors of its obligations under this Agreement or any of the Operative Documents to which it is a party do not and will not, and each such document does not and will not: 1.3.1 result in a breach of any provision of the memorandum or articles of association or bye-laws (or equivalent constitutive documents) of the Warrantors or any member of the Group; or 1.3.2 result in a breach of, or constitute a default under, any indenture, mortgage, charge, trust, lease, agreement, instrument or obligation to which any member of the Group or any of the Warrantors is a party or by which any member of the Group or any of the Warrantors or any of their respective assets is bound; 1.3.3 result in a breach of any Laws to which any member of the Group or any of the Warrantors is subject or by which any member of the Group or any of the Warrantors or any of their respective assets is bound; 1.3.4 except as disclosed in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular, require any Approval from any Government Authority or the sanction or consent of its shareholders; or 1.3.5 result in the creation or imposition of any Encumbrance or other restriction upon any assets of any member of the Group. 1.4 Each member of the Group has been duly incorporated and is validly existing under the laws of the jurisdiction in which it is established and is capable of suing and being sued. 1.5 Each member of the Group has the legal right and authority to own, use, lease and operate its assets and to conduct its business in the manner presently conducted. 1.6 Neither the Company nor any of the Subsidiaries is in violation of any of its respective constitutive documents. 1.7 None of the Warrantors or any of the Subsidiaries has taken any action nor have any steps been taken or legal, legislative or administrative proceedings been started or threatened (i) to wind up, dissolve, make dormant, or eliminate the Company or (as the case may be) the Selling Shareholder or (as the case may be) any of the Subsidiaries, or (ii) to withdraw, revoke or cancel any Approval to conduct business of any member of the Group. 7 2 THE REORGANISATION 2.1 Each step of the Reorganisation was effected in compliance with all applicable Laws of all appropriate jurisdictions. 2.2 Neither the Reorganisation (or its implementation) nor any of the Reorganisation Documents: 2.2.1 resulted or will result in a breach of any of the terms or provisions of, or in the case of the Company, its Articles of Association (or its articles of association at the time) or, in the case of any Subsidiary, its constituent documents; or 2.2.2 resulted or will result in a breach of, or constituted or will constitute a default under, any indenture, mortgage, charge, trust, lease, agreement, instrument or obligation to which the Company or any Subsidiary was or is a party or by which the Company or any Subsidiary or any of their respective assets was or is bound; or 2.2.3 resulted or will result in a breach of any Laws to which the Company or any Subsidiary was or is subject or by which the Company or any Subsidiary or any of their respective assets was or is bound; or 2.2.4 resulted or will result in the creation or imposition of any Encumbrance or other restriction upon any assets of any member of the Group; or 2.2.5 has rendered or will render the Company or any of the Subsidiaries liable to any additional tax, duty, charge, impost or levy of any amount which has not been provided for in the accounts based upon which the accountants' report was prepared by the Reporting Accountants and set out in Appendix I to the Prospectus, or in the Deed of Indemnity or otherwise described in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular. 2.3 All Approvals required in connection with the Reorganisation have been obtained and are in full force and effect and no Approval is subject to any condition precedent which has not been fulfilled or performed. 2.4 There are no legal or administrative or other proceedings pending anywhere challenging the effectiveness or validity of the Reorganisation or any of the Reorganisation Documents and, to the best knowledge, information, belief and awareness of the Warrantors, no such proceedings are threatened or contemplated by any Governmental Authority or by any other person. 3 THE GLOBAL OFFERING 3.1 The details of the authorised and issued share capital of the Company and the Subsidiaries set out in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular are true and accurate in all respects. 3.2 There are no outstanding securities convertible into or exchangeable for, or warrants, rights or options to purchase from the Company, or subscribe for, or obligations of the Company to issue or sell, or pre-emptive or other rights to subscribe or acquire, shares or securities in any member of the Group. 3.3 The Offer Shares conform to the description thereof contained in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular and such description is true and correct in all respects. 8 3.4 The Company has obtained an approval in principle for the listing of, and permission to deal in, the shares of the Company in issue or to be issued, as described in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular, on the Stock Exchange. 3.5 The performance by the Company and the Selling Shareholder of their respective obligations under the Global Offering; the sale and transfer of the Offer Shares; and the issue, publication, distribution or making available of the Public Offer Documents, the Formal Notice, the Preliminary Offering Circular and the Final Offering Circular have been duly authorised and do not and will not:- 3.5.1 result in a violation or breach of any provision of the Articles of Association; or 3.5.2 result in a breach of, or constitute a default under, any indenture, mortgage, charge, trust, lease, agreement or other instrument to which any member of the Group is a party or by which any member of the Group or any of its assets is bound; or 3.5.3 result in a breach of any Laws to which any member of the Group is a party or is subject or by which any member of the Group or any of their respective assets is bound; or 3.5.4 except as disclosed in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular, require any Approval from any Governmental Authority or, in the case of the Company, the sanction or consent of its shareholders; or 3.5.5 result in the creation or imposition of any Encumbrance or other restriction upon any assets of any member of the Group. 3.6 All Approvals required for the performance by the Company and the Selling Shareholder of their respective obligations under the Global Offering; the sale and transfer of the Offer Shares; and the issue, publication, distribution or making available of each of the Public Offer Documents, the Formal Notice, the Preliminary Offering Circular and the Final Offering Circular have been or will (prior to the Prospectus Date) be irrevocably and unconditionally obtained and are in full force and effect. 3.7 All of the Offer Shares: 3.7.1 are fully paid up; 3.7.2 have not been issued in violation of or subject to any right of pre-emptive right, right of first refusal or similar rights; and 3.7.3 are freely transferable by the Selling Shareholder and there are no restrictions on subsequent transfers of the Offer Shares under the Laws of the Cayman Islands. 3.8 No holder of Shares is or will be subject to any liability regarding the Company arising out of his holding of Shares (except to the extent of the amount payable for such Shares on purchase under the terms of the Global Offering). 3.9 There are no limitations on the rights of holders of Shares to hold or vote or transfer their shares. 3.10 All dividends and other distributions declared and payable on the shares of capital stock of the Company may under the current laws and regulations of the Cayman Islands be paid to the shareholders of the Company in Hong Kong dollars, and may be converted into 9 foreign currency that may be freely transferred out of the Cayman Islands and all such dividends and other distributions will not be subject to withholding or other taxes under the laws and regulations of the Cayman Islands and are otherwise free and clear of any other tax, withholding or deduction in the Cayman Islands and may be so paid without the necessity of obtaining any Approval from any Governmental Authority in the Cayman Islands. 3.11 None of the Warrantors nor any of their respective affiliates, agents and (where applicable) subsidiaries, nor any person acting on its or their behalf, has taken or will take or caused or authorised or will cause or authorise any other person to take, directly or indirectly, any stabilizing action or any action designed to or which constitutes or which cause or to result in, or that has constituted or which might reasonably be expected to cause or result in, the stabilization or manipulation, in violation of applicable Laws, of the price of any security of the Company, provided that the granting of the Over-allotment Option shall not constitute a breach of this paragraph 3.11. 4 THE ACCOUNTS 4.1 The audited combined results of the Group for each of the three years ended the Accounts Date and the audited combined net assets of the Group as at the Accounts Date contained in the accountants' report prepared by the Reporting Accountants and set out in Appendix I to the Final Offering Circular have been prepared in accordance with generally accepted Hong Kong accounting principles, standards and practices so as to give a true and fair view of the combined net assets of the Group at the Accounts Date and of the results of the Group for the accounting reference period of three years ending on the Accounts Date and: 4.1.1 such accounts are accurate in all respects, make due provision for any bad or doubtful debts and make appropriate provision for (or contain a note in accordance with good accounting practice respecting) all deferred or contingent liabilities, whether liquidated or unliquidated at the date thereof; 4.1.2 depreciation of fixed assets has been made at rates sufficient to spread the cost over their respective estimated useful lives to the Group; and 4.1.3 the profits and losses shown by such accounts and the trend of profits thereby shown have not been affected by any unusual or exceptional item or by any other matter which has rendered such profits or losses unusually high or low. 4.2 The unaudited management accounts of the Group for the 2 months ended 29 February 2004 have been prepared in accordance with generally accepted Hong Kong accounting principles, standards and practices so as to give a true and fair view of the state of affairs of the Group as at 29 February 2004 and of the results of the Group for the accounting reference period of 2 months ended 29 February 2004 and: 4.2.1 such accounts, make proper provision for any bad or doubtful debts and make appropriate provision for (or contain a note in accordance with good accounting practice respecting) all deferred or contingent liabilities, whether liquidated or unliquidated at the date thereof; 4.2.2 depreciation of fixed assets has been made at rates sufficient to spread the cost over their respective estimated useful lives to the Group; and 10 4.2.3 the profits and losses shown by such accounts and the trend of profits thereby shown have not been affected by any unusual or exceptional item or by any other matter which has rendered such profits or losses unusually high or low. 4.3 The Reporting Accountants, who have certified certain financial statements of the Company and its Subsidiaries, are qualified independent professional accountants as required by the Listing Rules, the Companies Ordinance, the Professional Accountants Ordinance, and the rules and regulations thereunder. 5 CHANGES SINCE THE ACCOUNTS DATE 5.1 Since the Accounts Date: 5.1.1 each member of the Group has carried on and will carry on business in the ordinary and usual course so as to maintain it as a going concern and in the same manner as previously carried on and since such date has not entered into any contract, transaction or commitment outside the ordinary course of business or of an unusual or onerous nature; 5.1.2 there has been no material adverse change, or any development involving a prospective material adverse change, in the general affairs, management, financial condition or prospects of the said business or the earnings, business affairs or net asset value of the said business or of the Group taken as a whole as compared with the position or prospects disclosed by the audited combined net assets of the Group referred to in paragraph 4.1 above and there has been no damage, destruction or loss (whether or not covered by insurance) affecting the said business or its assets; 5.1.3 each member of the Group has continued to pay its creditors in the ordinary course of business; 5.1.4 save as disclosed in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular, no member of the Group has acquired, sold, transferred or otherwise disposed of any assets of whatsoever nature or cancelled or waived or released or discounted in whole or in part any debts or claims, except in each case in the ordinary course of business; 5.1.5 save as disclosed in the Prospectus, the Preliminary Offering Circular and the Final Offering circular, no member of the Group has purchased or reduced any of its share capital, nor declared, paid or made any dividend or distribution of any kind on any class of shares; and 5.1.6 no member of the Group has taken on or become subject to any material contingent liability. 6 FINANCIAL REPORTING PROCEDURES The Directors have established procedures which provide a reasonable basis for them to make proper judgements as to the financial position and prospects of the Group, taken as a whole, and the Group maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorisations; (ii) transactions are recorded as necessary to permit preparation of complete and accurate returns and reports to regulatory bodies as and when required by them and financial statements in accordance with the relevant generally accepted accounting principles and applicable accounting requirements; 11 (iii) access to assets is permitted only in accordance with management's general or specific authorisation; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate actions taken with respect to any differences. The Group's current management information and accounting control system has been in operation for at least three years (or since incorporation, whichever is shorter) during which none of them has experienced any difficulties with regard to (i) through (iv) above or with regard to ascertaining at any point in time the differences in real time between budgeted and actual expenses. 7 ACCOUNTING AND OTHER RECORDS The statutory books, books of account and other records of whatsoever kind of each member of the Group are up-to-date and contain complete and accurate records required by Law to be dealt with in such books and no notice or allegation that any is incorrect or should be rectified has been received. All accounts, documents and returns required by Law to be delivered or made to the Registrar of Companies in Hong Kong and the Cayman Islands or any other authority have been duly and correctly delivered or made. 8 CAPITAL AND CONTRACTUAL COMMITMENTS 8.1 No member of the Group has any capital commitment or any guarantee or other contingent liabilities. 8.2 No member of the Group is, or has been, party to any unusual, long-term or onerous commitments, contracts or arrangements not wholly on an arm's length basis in the ordinary and usual course of business. For these purposes, a long-term contract, commitment or arrangement is one which is unlikely to have been fully performed in accordance with its terms more than six months after the date it was entered into or undertaken or is incapable of termination by the relevant member of the Group on six months' notice or less. 8.3 No member of the Group is party to any agency, distributorship, marketing, purchasing, manufacturing or licensing agreement or arrangement or any agreement or arrangement which restricts its freedom to carry on its business in any part of the world in such manner as it thinks fit. 8.4 All the contracts and all leases, tenancies, licences, concessions and agreements of whatsoever nature to which any member of the Group is a party are valid, binding and enforceable obligations of the parties thereto and the material terms thereof have been complied with by the relevant member of the Group and by all the other parties thereto and there are no grounds for rescission, avoidance or repudiation of any of the contracts or such leases, tenancies, licences, concessions or agreements and no notice of termination or of intention to terminate has been received in respect of any thereof. 9 LITIGATION AND OTHER PROCEEDINGS 9.1 Save as disclosed in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular, no litigation, arbitration or governmental proceedings or investigations directly or indirectly involving any member of the Group or involving or affecting any of the directors of any member of the Group or any member of the Group is in progress or, to the best knowledge, information, belief and awareness of the Warrantors, or any of them, is threatened or pending and to the best knowledge, information, belief and awareness of the Warrantors after due and careful enquiry, there are no circumstances likely to give rise to any such litigation, arbitration or governmental proceedings or investigations. 12 9.2 No member of the Group which is a party to a joint venture or shareholders' agreement is in dispute with the other parties to such joint venture or shareholders' agreement and to the best knowledge, information, belief and awareness of the Warrantors after due and careful enquiry, there are no circumstances which may give rise to any dispute or affect the relevant member's relationship with such other parties which might be expected to have a material adverse effect on such joint venture or company or its business or finances. 10 INDEBTEDNESS/DEFAULT 10.1 Save as disclosed in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular, no member of the Group has any outstanding liabilities, term loans, other borrowings or indebtedness in the nature of borrowings, including bank overdrafts and loans, debt securities or similar indebtedness, hire purchase commitments or any mortgages and charges. 10.2 No outstanding indebtedness of any member of the Group which is material taken in the context of the Group as a whole has become repayable before its stated maturity, nor has any security in respect of such indebtedness become enforceable by reason of default by any member of the Group 10.3 No person to whom any indebtedness of any member of the Group, which is material taken in the context of the Group as a whole and which is repayable on demand, is owed has demanded or threatened to demand repayment of, or to take steps to enforce any security for, the same. 10.4 No circumstance has arisen such that any person is now entitled to require payment of any indebtedness or under any guarantee of any liability of any member of the Group which is material taken in the context of the Group as a whole by reason of default by any such member or any other person or any guarantee given by any member of the Group which is material taken in the context of the Group as a whole. 10.5 No event has occurred and is subsisting or, to the best knowledge, information, belief and awareness of the Warrantors, is about to occur which constitutes or would (whether with the expiry of any applicable grace period or the fulfilment of any condition or the giving of any notice or the compliance with any other formality or otherwise) constitute a default under, or result in the acceleration by reason of default of, any obligations under any agreement, undertaking, instrument or arrangement to which any member of the Group is a party or by which any of them or their respective revenues or assets are bound. 10.6 The amounts borrowed by each member of the Group do not exceed any limitation on its borrowing contained in its articles of association or bye-laws (or equivalent constituent documents), any debenture or other deed or document binding upon it and except in the ordinary course of business, no member of the Group has factored any of its debts, or engaged in financing of a type which would not be required to be shown or reflected in its audited accounts. 10.7 All the Group's borrowing facilities have been duly executed and are in full force and effect. All undrawn amounts under such borrowing facilities are or will be capable of drawdown. No event has occurred and no circumstances exist which could cause any undrawn amounts under any such borrowing facilities to be unavailable for drawing as required. 10.8 No event has occurred and no circumstances exist in relation to any government, regional, state or local authority investment grants, loan subsidies or financial assistance received by or pledged to any member of the Group in consequence of which any of the member of 13 the Group is or may be held liable to forfeit or repay in whole or in part any such grant or loan. 11 ARRANGEMENTS WITH RELATED PARTIES 11.1 No indebtedness (actual or contingent) and no contract or arrangement is outstanding between any member of the Group and any director of any member of the Group or any of his associates (as defined in the Listing Rules). 11.2 Save as disclosed in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular or for such transactions as may be entered into by the Company pursuant to any of the Operative Documents, no indebtedness (actual or contingent) and no contract or arrangement is outstanding between any member of the Group and the Warrantors (excluding the Company) or any of them or any company (excluding the members of the Group) or undertaking which is owned or controlled by the Warrantors (excluding the Company) or any of them (whether by way of shareholding or otherwise). 11.3 None of the Warrantors (excluding the Company) nor any of their respective associates (as defined in the Listing Rules), either alone or in conjunction with or on behalf of any other person, is engaged in any business of any member of the Group or any business similar to or in competition with the business of any member of the Group to the extent that there could be a conflict of interests between the Warrantors (excluding the Company) or any of their respective associates (as defined in the Listing Rules) and the general body of shareholders of the Company, nor are any of the Warrantors (excluding the Company) or their respective associates (as defined in the Listing Rules) interested, directly or indirectly, in any assets which have since the date two years immediately preceding the Prospectus Date been acquired or disposed of by or leased to any member of the Group. 11.4 There are no relationships or transactions not in the ordinary course of business between any member of the Group and their respective customers or suppliers. 11.5 In respect of the connected transactions (as defined under the Listing Rules) of the Group (the "CONNECTED TRANSACTIONS"): (A) the statements contained in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular relating to the Connected Transactions are true and accurate and there are no other facts the omission of which would make any such statements misleading, and there are no other Connected Transactions which have not been disclosed in the Prospectus, the Preliminary Offering Circular and Final Offering Circular; (B) all information (including but not limited to historical figures) and documentation provided by the Company to HSBC and the International Placing Underwriters are true and accurate and complete and there is no other information or document which have not been provided the result of which would make the information and documents so received misleading; (C) the transactions mentioned in the section "Connected Transactions" in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular have been entered into and will be carried out in the ordinary course of business, on normal commercial terms and are fair and reasonable so far as the shareholders of the Company are concerned; (D) each of the Company and (where applicable) the Selling Shareholder has complied with and undertakes to continue to comply with the terms of the Connected Transactions disclosed in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular so long as the agreement or arrangement relating thereto is in effect and shall inform HSBC should there be any breach of any such terms either before or after the listing of Shares on the Stock Exchange; (E) each of the Connected Transactions and related agreements and undertakings as 14 disclosed in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular constitutes a legal, valid and binding agreement or undertaking of the relevant parties thereto; and (F) each of the Connected Transactions has been consummated and was and will be effected in compliance with all applicable Laws. 12 GROUP STRUCTURE 12.1 The Subsidiaries are the only subsidiaries of the Company. 12.2 No member of the Group has any branch, agency, place of business or permanent establishment outside Hong Kong, the Cayman Islands, Macao and the PRC. 12.3 No member of the Group acts or carries on business in partnership with any other person or is a member of any corporate or unincorporated body, undertaking or association or holds or is liable on any share or security which is not fully paid up or which carries any liability. 12.4 Each joint venture contract and shareholders' agreement in respect of which a member of the Group is a party is legal, valid, binding and enforceable in all respects in accordance with its terms under its governing law and all relevant Approvals in respect thereof have been obtained. 12.5 None of the member of the Group is engaged in any business activity or has any asset or liability (whether actual, contingent or otherwise) which is not directly or indirectly related to the business of the Group as described in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular. 13 ACCURACY AND ADEQUACY OF INFORMATION SUPPLIED 13.1 The recitals to this Agreement are true and accurate in all respects. 13.2 Subject to limitations set out in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular, the statistical and market related data included in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular are based on or derived from sources which the Warrantors believe to be accurate and reliable. 13.3 All information supplied or disclosed by or on behalf of any member of the Group and/or any director of any member of the Group and/or any of the Warrantors to the Underwriters, the Reporting Accountants, the Property Valuers and other professional advisers to the Underwriters for the purposes of the Global Offering is true and accurate and not misleading and was given in good faith and all forward-looking statements so supplied or disclosed have been made after due and proper consideration and, where appropriate, are based on the assumptions referred to in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular. 13.4 All information requested from the Company by the Reporting Accountants and the Property Valuers for the purposes of their reports, letters, and certificates to the Company and/or the Underwriters has been supplied to them. No information was withheld from the Reporting Accountants and the Property Valuers and the Company does not disagree with any aspect of the reports, letters or certificates prepared by the Reporting Accountants and the Property Valuers and the opinions attributed to the Directors in such reports or letters are honestly held by the Directors and are fairly based upon facts within their knowledge after due and careful consideration. 15 13.5 The replies to the questions set out in the Verification Notes given by or on behalf of the Company or the Selling Shareholder or the Directors were so given by persons having appropriate knowledge and duly authorised for such purposes and all such replies have been given in full and in good faith and were, and remain, true and accurate and not misleading and contain all information and particulars with regard to the subject matter thereof with no omissions. 13.6 None of the Public Offer Documents, the Preliminary Offering Circular and the Final Offering Circular contain or will contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading or which are material for disclosure therein. All expressions of opinion or intention therein (including but not limited to the statements regarding the sufficiency of working capital, use of proceeds, indebtedness, prospects, dividends, material contracts and litigation) are made on reasonable grounds or, where appropriate, reasonable assumptions and are truly and honestly held and there are no other material facts the omission of disclosure therein of which would make any such statement or expression misleading. 13.7 All forward-looking statements contained in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular are made after due and proper consideration, are based on relevant assumptions referred to therein and represent reasonable and fair expectations honestly held based on facts known to the Group and/or the Warrantors or any of them and there will be no other assumptions on which such are based other than the assumptions referred to in the Public Offer Documents, the Preliminary Offering Circular and the Final Offering Circular in which such forward-looking statements are contained. Such forward-looking statements do not omit or neglect to include or take into account of any facts or matters which are or may be material to such forward-looking statements or to the Global Offering. 13.8 Without limiting the generality of the foregoing, each of the Prospectus, the Preliminary Offering Circular and the Final Offering Circular contains all particulars and information reasonably necessary to enable an investor to make an informed assessment of the activities, assets and liabilities, financial position, management and prospects of the Group and its profits and losses and of the rights attaching to the Shares and there are no other facts the omission of which would make any statement in the Prospectus, the Preliminary Offering Circular or the Final Offering Circular misleading or which is in the context of the Global Offering material for disclosure. 13.9 The report prepared by the Company in respect of the adequacy of the Group's working capital and cash flow for the twelve-month period after the date of the Prospectus has been properly compiled by the Company on the basis of the assumptions stated therein and is presented on a basis consistent with the accounting principles and policies adopted by the Reporting Accountants in relation to the preparation of the Accountants' Report contained in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular after making proper provision for all known liabilities (whether actual or contingent or otherwise); that the assumptions upon which the report are based have been made after due and careful enquiry and are fair and reasonable in the context of the Group and that there are no facts known or which could on due and careful enquiry have been known to the Company or the Directors which have not been taken into account in the preparation of the report or the omission of which would make any statement made in such report or any 16 expression of opinion or intention contained or assumption made in such report misleading. 13.10 The Public Offer Documents and the Formal Notice contain and, when each of them is issued, will contain all information and particulars required to comply with all statutory and other provisions (including the Companies Ordinance, the Companies Law and the Listing Rules) so far as applicable. 14 PROPERTIES 14.1 None of the members of the Group owns, operates, manages, leases or has any other right of interest in any other property of any kind save for those described in the valuation report set out in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular. 14.2 With respect to the rights and interests in property and other assets (including, but not limited to, land and buildings) owned by members of the Group: 14.2.1 the relevant member of the Group has good and marketable title, or has the right by Law to good and marketable title, to such property and other assets or any rights or interests thereto; 14.2.2 there are no mortgages, charges, liens, claims, Encumbrances or other security interests or third party rights or interests, conditions, planning consents, orders, regulations or other restrictions affecting any of such property and other assets which could have an adverse effect on the value of such property and other assets or adversely limit, restrict or otherwise affect the ability of the relevant member of the Group to utilise, develop or redevelop any such property or other assets; and 14.2.3 the relevant member of the Group is entitled as legal and beneficial owner of such property and other assets to all rights and benefits as landlord and/or licensor under the leases, tenancies or licences to which it is a party as landlord and/or licensor in respect of such property and other assets, and such leases, tenancies and licences are and will be in full force and effect. 14.3 Where any property and other assets are held under lease, tenancy or licence by any member of the Group: (i) each lease, tenancy or licence is legal, valid, subsisting and enforceable by the relevant member of the Group; (ii) no default (or event which with notice or lapse of time, or both, would constitute a default) by any member of the Group has occurred and is continuing under any of such leases, tenancies or licences; and (iii) no member of the Group has notice of any claim of any nature that has been asserted by anyone adverse to the rights of the relevant member of the Group under such leases, tenancies or licences or affecting the rights of the relevant member of the Group to the continued possession of such leased or licensed property or other assets. 14.4 The ownership of and the right to use the land and buildings as described in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular by the relevant member of the Group is not subject to any unusual or onerous terms or conditions. 17 15 INSURANCE 15.1 The description of the Company's insurance coverage contained in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular is true, accurate and not misleading. All the assets of each of the members of the Group which are of an insurable nature have at all times been and are insured in amounts reasonably regarded as adequate and prudent against fire and other risks normally insured against by companies carrying on similar businesses or owning assets of a similar nature and each member of the Group has at all times been and is adequately covered against accident, third party injury, defective products, environmental liabilities, damage and other risks normally covered by insurance by such companies. Nothing has been done or has been omitted to be done whereby any such policies have or may become void or are likely to be avoided. 15.2 Save and except for outstanding medical claims made under the Group's medical insurance policies, no claim under any insurance policies taken out by any member of the Group is outstanding and there are no circumstances likely to give rise to such a claim. None of the outstanding medical claims made under the Group's medical insurance policies is material in the context of the Group as a whole. 15.3 All premiums due in respect of such insurance policies have been duly paid in full and all conditions for the validity and effectiveness of the said policies have been fully observed and performed. 15.4 None of the Warrantors has any reason to believe that any member of the Group will not be able to renew its existing insurance coverage from similar insurers as may be necessary to continue its business at a cost that would not adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Group, taken as a whole. 16 COMPLIANCE WITH LEGAL AND REGULATORY REQUIREMENTS 16.1 Each member of the Group has carried on and is carrying on its business and operations in accordance with applicable Laws and all statutory, municipal and other Approvals necessary or desirable for the carrying on of the businesses and operations of each of the member of the Group as now carried on, as previously carried on and as proposed to be carried on have been obtained and are (or were at the relevant time) valid and subsisting and all conditions applicable to any such Approval have been and are complied with and there are no facts or circumstances exist or have in the past existed which may lead to the revocation, rescission, avoidance, repudiation, withdrawal, non-renewal or change, in whole or in part, of or in any existing Approvals or any requirements for additional Approvals which could prevent, restrict or hinder the operations of any member of the Group or involve any member of the Group in additional expenditure. 16.2 None of the members of the Group and the businesses now run by any of them, nor any of their respective officers, directors, supervisors, managers, agents, or employees have, directly or indirectly, (A) made or authorised any contribution, payment or gift of funds or property to any official, employee or agent of any governmental agency, authority or instrumentality in Hong Kong, the Cayman Islands, Macao, the PRC or any other jurisdiction or (B) made any contribution to any candidate for public office, in either case, where either the payment or the purpose of such contribution, payment or gift was, is, or would be prohibited under applicable Law, of any locality, including but not limited to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the rules and regulations promulgated thereunder; 18 16.3 None of the members of the Group is a party to any agreement, arrangement or concerted practice or is carrying on an practice which in whole or in part contravenes or is invalidated by any anti-trust, anti-monopoly, competition, fair trading, consumer protection or similar Laws in any jurisdiction where any of the members of the Group has assets or carries on business or in respect of which any filing, registration or notification is required or is advisable pursuant to such Laws (whether or not the same has in fact been made). 17 EMPLOYMENT AND PENSIONS 17.1 There are no amounts owing or promised to any present or former directors, employees or consultants of any member of the Group other than remuneration accrued due or for reimbursement of business expenses. 17.2 No directors or senior management or employees of any member of the Group have given or been given notice terminating their contracts of employment. 17.3 There are no proposals to terminate the employment or consultancy of any directors, employees or consultants of any member of the Group or to vary or amend their terms of employment or consultancy (whether to their detriment or benefit). 17.4 No member of the Group has outstanding any undischarged liability to pay to any Governmental Authority in any jurisdiction any taxation, contribution or other impost arising in connection with the employment or engagement of directors, employees or consultants by it. 17.5 No liability has been incurred by any member of the Group for: 17.5.1 breach of any contract of service, contract for services or consultancy agreement; 17.5.2 redundancy payments; 17.5.3 compensation for wrongful, constructive, unreasonable or unfair dismissal; 17.5.4 failure to comply with any order for the reinstatement or re-engagement of any director, employee or consultant; or 17.5.5 the actual or proposed termination or suspension of employment or consultancy, or variation of any terms of employment or consultancy of any present or former employee, director or consultant of any member of the Group. 17.6 No dispute of material importance with the directors, employees (or any trade union or other body representing all or any of such employees), consultants or agents of any member of the Group exists or, to the best knowledge, information, belief and awareness of the Warrantors, is imminent or threatened. None of the members of the Group is aware of any existing or imminent labour disturbance by the directors, employees or consultants of any of its principal suppliers, customers or contractors which might be expected to result in an adverse change in the condition, financial or otherwise, or in the results of operations, business affairs or business prospects or net worth of the Group. 17.7 The Group has in relation to its directors, employees or consultants (and so far as relevant to each of its former directors, employees or consultants) complied in all material respects with all applicable statutes, regulations and bye-laws and the terms and conditions of such directors', employees' or consultants' (or former directors', employees' or consultants') contracts of employment or consultancy. 19 17.8 No contributions are being, or have been made by a member of the Group to any pension, retirement, provident fund or death or disability benefit scheme or arrangement other than the Pension Schemes and no member of the Group participates in, or has participated in, or is liable to contribute to, any pension, retirement, provident fund or death or disability benefit scheme or arrangement in respect of past or present employees or directors of the Group other than the Pension Schemes. 17.9 Each of the Pension Schemes complies with and has been operated in all material respects in accordance with all applicable laws and regulations and the rules of the relevant scheme. There is no ground upon which any applicable registrations or exemptions in respect of any of the Pensions Schemes could be withdrawn or cancelled. 17.10 Other than contributions due to be paid at the next payment date, no contributions (or contribution surcharge) in respect of any employee or director of the Group or any other payment due to, or in respect of, the Pension Schemes is unpaid. 17.11 All defined benefit retirement schemes are adequately funded and no additional contributions by any member of the Group are currently due to be made to make up for any shortfall. 17.12 There is no material dispute relating to the Pension Schemes, whether involving any member of the Group, the trustees or administrators of the Pension Schemes, any employee or director of a member of the Group, or any other person and no circumstances exist which may give rise to any such claims. 18 INTELLECTUAL PROPERTY 18.1 For the purpose of this paragraph 18, "INTELLECTUAL PROPERTY" means all patents, patent rights, inventions, trade marks, service marks, logos, get-up, registered or unregistered design rights, trade or business names, domain names, trade secrets, confidential information, Know-how, copyrights, semi-conductor topography rights, database rights and any proprietary or confidential information systems processes or procedures and of their intellectual property (whether, in each case, registered, unregistered or unregistrable, and including pending applications for registration and rights to apply for registration) and all rights of a similar nature or having similar effect which may subsist in any part of the world. 18.2 For the purpose of this paragraph 18, "KNOW-HOW" means confidential and proprietary industrial and commercial information and techniques in any form (including paper, electronically stored data, magnetic media, film and microfilm) including without limitation drawings, formulae, test results, reports, project reports and testing procedures, instruction and training manuals, tables of operating conditions, market forecasts, lists and particulars of customers and suppliers. 18.3 All Intellectual Property and all pending applications therefor which have been, are or are capable of being used in or in relation to or which are necessary for the business of each member of the Group are (or, where appropriate in the case of pending applications, will be): 18.3.1 legally and beneficially owned by the relevant member of the Group or lawfully used under valid licences granted by the registered proprietor(s) or beneficial owner(s) thereof and such licences are in full force and effect and have not been revoked or terminated and there are no grounds on which they might be revoked or terminated; 20 18.3.2 valid and enforceable; 18.3.3 not being infringed or attacked or opposed by any person; 18.3.4 not subject to any Encumbrance or any licence or authority in favour of another; 18.3.5 in the case of rights in such Intellectual Property as are registered or the subject of applications for registration, all renewal fees which are due and steps which are required for their maintenance and protection have been paid and taken; and 18.3.6 in the case of unregistered trade marks which are likely to be material to any member of the Group, and no claims have been made or threatened and no applications are pending, which if pursued or granted might be material to the truth and accuracy of any of the above statements in this Clause 18.3. 18.4 No member of the Group has received any notice or is otherwise aware of (having made due and careful enquiries): 18.4.1 any infringement of or conflict with claimed or asserted rights of others with respect to any rights mentioned in paragraph 18.3 above; or 18.4.2 any unauthorised use of any Know-how of any third party and no member of the Group has made disclosure of Know-how to any person except properly and in the ordinary course of business and on the basis that such disclosure is to be treated as being of a confidential character; or 18.4.3 any opposition by any person to any pending applications; or 18.4.4 any assertion of moral rights which would affect the use of any of the Intellectual Property in the business of any member of the Group; or 18.4.5 any facts or circumstances which would render any rights mentioned in paragraph 18.3 above invalid or inadequate to protect the interests of the relevant member of the Group or unenforceable. 18.5 The rights and interest held by the Group (whether as owner, licensee or otherwise) in Intellectual Property comprises all the rights and interests necessary or convenient for the carrying on of the business of each member of the Group in and to the extent which it is presently conducted. 18.6 The processes employed and the products and services dealt in by a member of the Group both now and at any time within the last six years do and did not use, embody or infringe any rights or interests of third parties in Intellectual Property in any respect (other than those belonging to or licensed to a member of the Group and no claims of infringement of any such rights or interests have been made or threatened by any third party. 18.7 All licences and agreements to which any member of the Group is a party (including all amendments, novations, supplements or replacements to those licences and agreements) are in full force and effect, no notice having been given on any party to terminate them; the obligations of the parties thereto thereunder have been fully complied with; and no disputes have arisen or are foreseeable in respect thereof; and where such licences are of such a nature that they could be registered with the appropriate authorities and where such registration would have the effect of strengthening the Group's rights, they have been so registered. 21 19 INFORMATION TECHNOLOGY 19.1 For the purpose of this paragraph 19, "INFORMATION TECHNOLOGY" means all computer systems, communications systems, software and hardware owned, used or licensed by or to any member of the Group. 19.2 The Information Technology comprises all the information technology systems and related rights necessary to run the business of the Group. 19.3 All Information Technology which has been or which is necessary for the business of any member of the Group is either legally and beneficially owned by the relevant member of the Group or lawfully used under valid licences granted by the registered proprietor(s) or beneficial owner(s) thereof and such licences are in full force and effect and have not been revoked or terminated and to the best knowledge, belief, awareness and information of the Warrantors after due and careful enquiry, there are no grounds on which they might be revoked or terminated. 19.4 All the records and systems (including but not limited to Information Technology) material to the business of the Group taken as a whole and all data and information of each member of the Group are maintained and operated by a member of the Group and are not wholly or partially dependent on any facilities not under the exclusive ownership or control of a member of the Group. 19.5 To the best knowledge, information, belief and awareness of the Warrantors after due and careful enquiry, there are no bugs or viruses, logic bombs or other contaminants (including without limitation, "worms" or "trojan horses") in or failures or breakdowns of any computer hardware or software or any other Information Technology equipment used in connection with the business of any member of the Group which have caused any substantial disruption or interruption in or to the business of any member of the Group. 19.6 In the event that the persons providing maintenance or support services for the Group's Information Technology cease or are unable to do so, the members of the Group have all the necessary rights and information to continue to maintain and support or have a third party maintain or support the Information Technology which is material for the operations of the Group as a whole. 19.7 Each member of the Group has in place procedures to prevent unauthorised access and the introduction of viruses. 19.8 Each member of the Group has in place adequate back-up policies and disaster recovery arrangements which enable its Information Technology and the data and information stored thereon to be replaced and substituted without material disruption to the business of the Group taken as a whole. 19.9 To the best knowledge, information, belief and awareness of the Warrantors after due and careful enquiry, there are no defects relating to the Information Technology owned or used by the business of any member of the Group and the Information Technology owned or used by any member of the Group has the capacity and performance necessary to fulfil the present and foreseeable requirements of the business of any member of the Group. 20 DATA PROTECTION 20.1 Each member of the Group has complied in all material respects with all applicable data protection legislation, guidelines and industry standards. 22 20.2 No member of the Group has received any notice (including without limitation any enforcement notice, de-registration notice or transfer prohibition notice), letter, complaint or allegation from the relevant data protection regulator alleging breach or non-compliance by it of the applicable data protection legislation, guidelines and industry standards or prohibiting the transfer of data to a place outside the territory. 20.3 No member of the Group has received a claim for compensation from any individual in respect of its business under the applicable data protection legislation, guidelines and industry standards in respect of inaccuracy, loss, unauthorised destruction or unauthorised disclosure of data in the previous three years and there is no outstanding order against any member of the Group in respect of the rectification or erasure of data. 20.4 No warrant has been issued authorising the data protection regulator (or any of his officers or servants) to enter any of the premises of any member of the Group for the purposes of, inter alia, searching them or seizing any documents or other material found there. 21 ENVIRONMENTAL MATTERS 21.1 For the purposes of this paragraph 21: 21.1.1 "ENVIRONMENT" means all or any part of the air (including, without limitation, air within buildings or natural or man-made structures whether above or below ground), water (including, without limitation, territorial, ocean, coastal and inland waters, surface water, groundwater and drains and sewers) and land (including, without limitation, sea bed or river bed under any water as described above, surface land and sub-surface land, and any natural or man-made structures), and also includes human, animal and plant life; and 21.1.2 "ENVIRONMENTAL LAW" means any treaty, national, state, federal or local law, common law rule or other rule, regulation, ordinance, by-law, code, decree, demand or demand letter, injunction, judgement, notice or notice demand, code of practice, order or plan issued, promulgated or approved thereunder or in connection therewith pertaining to the protection of the Environment or to health and safety matters (and shall include, without limitation, laws relating to workers and public health and safety). 21.2 Each member of the Group has complied and is complying with all Environmental Laws that are applicable to its business. 21.3 There is no civil, criminal or administrative action, claim, investigation or other proceeding or suit pending or threatened against any member of the Group arising from or relating to Environmental Law which is material in the context of the Group as a whole and there are no circumstances existing which may lead to any such action, claim, investigation, proceeding or suit. 21.4 Each member of the Group conducts its operations so as not to lead to a breach of Environmental Law and in accordance with good operating practice of the industry in relation to all matters, practices and activities which could affect or cause harm to the Environment. 21.5 None of the members of the Group occupies, leases, owns, uses or has previously used, owned, leased or occupied, any property such that it is or may be wholly or partly responsible for the costs of any clean-up or other corrective action to any site or any part of the Environment. 23 21.6 There are no circumstances which require or may require any member of the Group to incur significant expenditure which is material in the context of the Group as a whole in respect of the Environment or under Environmental Law. 22 TAXATION 22.1 All returns, reports or filings which ought to have been made by or in respect of each of the existing member of the Group for taxation purposes have been made and all such returns are up to date, correct and prepared with due care and skill and on a proper basis and are not the subject of any dispute with the relevant revenue or other appropriate authorities and there are no present circumstances likely to give rise to any such dispute and the provisions included in the audited combined results of the Group as at the Accounts Date referred to in paragraph 4.1 above were sufficient to cover all taxation (if any) in respect of all accounting periods ended on or before the Accounts Date for which the Group was then liable, and the provisions included in the unaudited management accounts of the Group for the 2 months ended 29 February 2004 referred to in paragraph 4.2 above were sufficient to cover all taxation in respect of the period of 2 months ended on 29 February 2004 for which the Group was then liable]. There is no tax deficiency that has been asserted against any member of the Group. 22.2 All information and statements concerning taxation and its application to members of the Group in the Prospectus, Preliminary Offering Circular and the Final Offering Circular are true and accurate and not misleading. 22.3 Save as disclosed in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular (and subject to any reservation made therein), no tax or duty (including, without limitation, any stamp or issuance or transfer tax or duty and any tax or duty on capital gains or income, whether chargeable on a withholding basis or otherwise) is payable to any Governmental Authority in Hong Kong or the Cayman Islands in connection with: 22.3.1 the transfer of the Offer Shares; 22.3.2 the execution, delivery and performance of the Underwriting Documents; 22.3.3 the delivery by the Selling Shareholder of the Offer Shares to or for the respective accounts of the Public Offer Underwriters and the International Placing Underwriters or to the initial purchasers thereof (as the case may be) or from the International Placing Underwriters to the placees of the International Placing in the manner contemplated in the Underwriting Documents; 22.3.4 the payment by the Company to, and the receipt by shareholders of, any dividend in respect of Shares; and 22.3.5 the sale, transfer or other disposition or delivery of any Shares, including any realised or unrealised capital gains arising in connection with such sale, transfer or other disposition. 23 IMMUNITY None of the Warrantors nor any of their respective assets or revenues are entitled to any right of immunity on the grounds of sovereignty from any legal action, suit or proceedings, from set-off or counterclaim, from the jurisdiction of any court, from service of process, from attachment prior to or in aid of execution of judgement, or from other legal process or proceedings for the giving of any relief or for the enforcement of any judgement. The 24 irrevocable and unconditional waiver and agreement of the Warrantors in Clause 10.14 hereof not to plead or claim any such immunity in any legal action, suit or proceeding based on this Agreement is valid and binding under all applicable laws. 24 LAW AND JURISDICTION 24.1 Under the applicable Laws, the courts of the applicable jurisdiction of each party will recognise and give effect to the choice of law and dispute resolution provisions set forth in this Agreement and will enforce judgements of Hong Kong courts obtained against the other parties to enforce this Agreement, provided that the judgement: (i) is not obtained by fraud; (ii) is final and conclusive; (iii) in the opinion of the relevant court after its review of such judgement pursuant to international treaties concluded or acceded to by the relevant jurisdictions or in accordance with the principle of reciprocity, does not contradict the basic principles of Law of the relevant jurisdictions; (iv) in the opinion of the relevant court after its review of such judgement pursuant to international treaties concluded or acceded to by the relevant jurisdictions or in accordance with the principle of reciprocity, does not violate state sovereignty, security or social and public interest; and (v) is for a definite sum of money. 25 UNITED STATES ASPECTS 25.1 None of the Warrantors, nor any of its affiliates (as defined in Rule 501(b) of Regulation D nor any person acting on its or their behalf (i) has made offers or sales of any security, or has solicited or will solicit offers to buy, or otherwise has negotiated or will negotiate in respect of, any security, under circumstances that would require the registration of the Offer Shares under the US Securities Act; or (ii) has engaged or will engage in any form of "general solicitation or general advertising" (within the meaning of Regulation D) in connection with any offer or sale of the Offer Shares in the United States. 25.2 The Shares are not of the same class (within the meaning of Rule 144A) as securities listed on a national securities exchange registered under Section 6 of the US Exchange Act or quoted on a US automated inter-dealer quotation system. 25.3 None of the Warrantors nor any of its affiliates (as defined in Rule 405 under the US Securities Act), nor any person acting on its or their behalf has engaged or will engage in any "directed selling efforts" (as defined in Regulation S) with respect to the Offer Shares. 25.4 The Company is not an open-end investment company, unit investment trust or face amount certificate company that is or is required to be registered under Section 8 of the US Investment Company Act; and the Company is not, and as a result of the offer and sale of the Offer Shares contemplated herein will not be, an "investment company" under, and as such term is defined in, the US Investment Company Act. 25.5 The Company is not, and does not intend to become, and as a result of the receipt and application of the proceeds of the sale of the Offer Shares contemplated hereby will not become, a "passive foreign investment company" within the meaning of Section 1297 of the United States Internal Revenue Code of 1986, as amended. 25 25.6 The Company is a "foreign issuer" (as such term is defined in Regulation S) which reasonably believes that there is no "substantial US market interest" (as such term is defined in Regulation S) in the Shares or in any securities of the same class as the Shares. 25.7 The Company has implemented the necessary "offering restrictions" (as such term is defined in Regulation S). 25.8 None of the Warrantors, nor any of their respective affiliates (as defined in Rule 405 under the US Securities Act), nor any person acting on its or their behalf has taken or will take, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to cause or result in, the stabilization in violation of applicable Laws or manipulation of the price of any security of the Company to facilitate the sale or resale of the Offer Shares. PART 2 1 PROFESSIONAL INVESTOR The Company has read and understood the Professional Investor Treatment Notice and acknowledges and agrees to the representations, waivers and consents contained in the Professional Investor Treatment Notice. For the purpose of this provision, the words "you" and "your" in the Professional Investor Treatment Notice shall mean "the Company" and "the Company's" respectively. PART 3 1 CAPACITY The Selling Shareholder has been duly incorporated and is validly existing under the laws of its place of incorporation and is capable of suing and being sued. 2 THE GLOBAL OFFERING 2.1 The Selling Shareholder has good and valid title to, and is and will, prior to the transfer of the International Placing Shares to the purchasers thereof under the Global Offering, be the legal and beneficial owner of, the International Placing Shares to be sold by it under the Global Offering, free and clear of all Encumbrances and with the benefit of all rights attached thereto and thereafter accruing thereto including the right to receive all dividends or other distributions which may be declared, paid or made thereon at or after the Placing Closing Date. 2.2 The execution and delivery by or on behalf of the Selling Shareholder of, and compliance by the Selling Shareholder with, the terms of this Agreement, the performance by the Selling Shareholder of its obligations under the Global Offering; the sale and transfer of the Offer Shares; and the issue, publication, distribution or making available of the Public Offer Documents, the Formal Notice and the Placing Documents have been duly authorised and do not and will not:- 2.2.1 result in a breach of any provision of the memorandum or articles of association or bye-laws (or equivalent constitutive documents) of the Selling Shareholder; or 2.2.2 result in a breach of, or constitute a default under, any indenture, mortgage, charge, trust, lease, agreement, instrument or obligation to which the Selling 26 Shareholder is a party or by which the Selling Shareholder or any of the Selling Shareholder's assets is bound; 2.2.3 result in a breach of any Laws to which the Selling Shareholder is subject or by which the Selling Shareholder or any of its assets is bound; 2.2.4 except as disclosed in the Prospectus, the Preliminary Offering Circular and the Final Offering Circular, require any Approval from any Governmental Authority or the sanction or consent of its shareholders; or 2.2.5 result in the creation or imposition of any Encumbrance or other restriction upon any assets of the Selling Shareholder. 2.3 All Approvals required for the performance by the Selling Shareholder of its obligations under the Global Offering; the sale and transfer of the International Placing Shares; and the issue, publication, distribution or making available of each of the Public Offer Documents and the International Placing Documents have been or will (prior to the Prospectus Date) be irrevocably and unconditionally obtained and are in full force and effect. 3 PROFESSIONAL INVESTOR The Selling Shareholder has read and understood the Professional Investor Treatment Notice and acknowledges and agrees to the representations, warranties and consents contained in the Professional Investor Treatment Notice. For the purpose of this provision, the words "you" or "your" in the Professional Investor Treatment Notice shall mean "the Selling Shareholder" and "the Selling Shareholder's" respectively. 27 SIGNATURE PAGE THE COMPANY SIGNED by for and on behalf of } NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LIMITED THE SELLING SHAREHOLDER SIGNED by for and on behalf of } NAM TAI ELECTRONICS, INC. THE EXECUTIVE DIRECTORS SIGNED by WONG KUEN LING } SIGNED by GUY JEAN FRANCOIS BINDELS } 28 HSBC SIGNED by Jonathan Orders for and on behalf of } THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED THE INTERNATIONAL PLACING UNDERWRITERS SIGNED by Jonathan Orders of THE HONGKONG AND SHANGHAI } BANKING CORPORATION LIMITED as the duly authorised agent or attorney of: BNP PARIBAS PEREGRINE CAPITAL LIMITED NOMURA INTERNATIONAL (HONG KONG) LIMITED CAZENOVE ASIA LIMITED DBS ASIA CAPITAL LIMITED VC CEF CAPITAL LIMITED 29 30 EX-4.16 11 u99587exv4w16.txt EX-4.16 PRICING DETERMINATION AGREEMENT EXHIBIT 4.16 [HSBC LOGO] PRICE DETERMINATION AGREEMENT To: Nam Tai Electronics,Inc. ' Mcw. Todman & Co. McNamara Chambers PO BOX 3342 Road Town Tonola British Virgin Islands 22 APRIL 2004 Dear Sirs Global Offering of 180,000,000 Shares OF HK$0.10 each (210,000,000 Shares If the Over-allotment Option is exercised in full) of Nam Tai Electronic & Electrical Products Limited (the "Company") We refer to the Public Offer Underwriting Agreement dated 16 April 2004 between the Company, yourselves, ourselves and others relating to the Global Offering. Terms defined In the Public Offer Underwriting Agreement have the some meanings when used in this letter This letter confirms the agreement reached today between yourselves (after conversation with the Company) and ourselves that the offer Price shall be HK$3.88 per Share (exclusive of brokerage. Hong Kong Stock Exchange trading fee, SFC transaction levy and Investor compensation levy). Yours faithfully, For itself and on behalf of each of the Public Offer Underwriters The Hongkong and Shanghel Banking Corporation Limited /s/ Jonathan Orders - ------------------------ Name: Jonathan Orders Title: Head of Equity Captial Markets Managing Director, Corporate Finance and Advisory,Asia-Pacific CONFIRMED AND ACCEPTED as of the date first above written For and on behalf of For and on behalf of Nam Tai Electronics, Inc. Nam Tai Electronic & Electrical Products Umited /s/ KOO MING KOWN /s/ WONG KUEN LING - ------------------------ ------------------------ Name: KOO MING KOWN Name: WONG KUEN LING Title: CFO Title: CHAIRMAN & CEO THE HONGKONG AND SHANGHAI BANKING, CORPORATIONS LIMITED CORPORATE INVESMENT BANKING AND MARKETS LEVEL 15.)QUEEN'S ROAD CENTRAL, HONG KONG TEL:(852)9848888 FAX:(852)28455654 EX-4.17 12 u99587exv4w17.txt EX-4.17 STOCK BORROWING AGREEMENT EXHIBIT 4.17 Dated 22 April 2004 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED and NAM TAI ELECTRONICS, INC. STOCK BORROWING AGREEMENT relating to the Shares issued by Nam Tai Electronic & Electrical Products Limited LINKLATERS 10th Floor, Alexandra House Chater Road Hong Kong Telephone (852) 2842 4888 Facsimile (852) 2810 8133/2810 1695
TABLE OF CONTENTS Page 1 Interpretation............................................................ 1 2 Loans of Shares........................................................... 3 3 Delivery of Loaned Shares................................................. 4 4 Rights and Title.......................................................... 4 5 Dividends and Distributions............................................... 5 6 Re-delivery of Equivalent Shares.......................................... 5 7 Taxation.................................................................. 6 8 Representations and Warranties............................................ 6 9 Additional Representations and Warranties of the Borrower in relation to Hong Kong Stock........................................................... 7 10 Borrower's Obligations.................................................... 7 11 Miscellaneous............................................................. 7 12 Remedies.................................................................. 8 13 Notices................................................................... 8 14 Severability.............................................................. 8 15 Time Of Essence........................................................... 9 16 Counterparts.............................................................. 9 17 Governing Law............................................................. 9 SCHEDULE Professional Investor Treatment Notice................................... 11
THIS AGREEMENT is made on 22 April 2004 BETWEEN: (1) THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, a company incorporated under the laws of Hong Kong whose registered office is at 1 Queen's Road Central, Hong Kong (the "BORROWER"); and (2) NAM TAI ELECTRONICS, INC., a company incorporated under the laws of British Virgin Islands whose registered office is at McW. Todman & Co., McNamara Chambers, PO Box 3342, Road Town, Tortola, British Virgin Islands (the "LENDER"). RECITALS: (A) The Lender (as defined below) proposes to offer for sale certain Shares (as defined below) and the Company proposes to list the Shares on the main board of the Stock Exchange by way of a global offering (the "OFFERING"). The Borrower has been appointed the global coordinator and bookrunner and the sponsor and lead manager of the Offering. The parties wish to enter into stock borrowing and lending arrangements in respect of certain Shares (as defined below) subject to, and on the terms and conditions of, this Agreement. NOW IT IS HEREBY AGREED as follows: 1 INTERPRETATION 1.1 DEFINITIONS In this Agreement (including the Recitals and the Schedules) the following expressions shall, unless defined otherwise or the context otherwise requires, have the following meanings: "BORROWING REQUEST" means a request in writing made by the Borrower to the Lender in respect of a proposed borrowing of Shares pursuant to Clause 2.1 specifying the description, title and amount of the Shares proposed to be borrowed by the Borrower, the proposed Settlement Date and duration of such borrowing and the date (being a Business Day), time, mode and place of delivery which shall, where relevant, include the bank agent clearing or settlement system and account to which delivery of the Shares is to be made or details of the relevant CCASS participant name, CCASS participant I.D. and CCASS stock account number if delivery of the Shares is to be effected through CCASS; "BUSINESS DAY" means any day (other than a Sunday) on which licensed banks in Hong Kong are open for business generally; "CCASS" means the Central Clearing and Settlement System established and operated by Hong Kong Securities Clearing Company Limited; "COLLECTOR" means the Collector of Stamp Revenue appointed under section 3 of the Ordinance; "COMPANY" means Nam Tai Electronic & Electrical Products Limited, a company incorporated under the laws of the Cayman Islands; "EQUIVALENT SHARES" means shares of an identical class, nominal value, description, rights attached thereto and amount as any Loaned Shares and includes any certificates and other documents of or evidencing title thereto and transfer thereof; "HK$" means Hong Kong dollars, the lawful currency of Hong Kong; "HONG KONG" means the Hong Kong Special Administrative Region of the People's Republic of China; "HONG KONG STOCK" has the meaning set out in section 2 of the Ordinance; "LOAN" means a loan of Shares under this Agreement; "LOANED SHARES" means the Shares delivered under a Loan hereunder and includes the certificates and other documents of or evidencing title and transfer thereof; "OFFER PRICE" means the price per Share (exclusive of brokerage, SFC transaction levy, SFC investor compensation levy and Stock Exchange trading fee) at which the Shares are to be sold pursuant to the Offering, to be determined as described under the section headed "Structure and Conditions of the Global Offering - Pricing and Allocation" of the Prospectus; "ORDINANCE" means the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong); "OUTSTANDING LOANED SHARES" means, as at any particular point in time, the aggregate of the number of Loaned Shares hereunder which have not been redelivered in accordance with this Agreement; "OVER-ALLOTMENT OPTION" has the same meaning ascribed thereto in the Prospectus; "PARTIES" means the parties to this Agreement, and the term "PARTY" shall mean any party to this Agreement; "PROSPECTUS" means the prospectus to be issued by the Company relating to the offering of Shares in Hong Kong to be dated on or about 16 April 2004; "RULES" means the rules for the time being of, or issued or promulgated by the SFC, the Stock Exchange and/or other regulatory authority whose rules and regulations shall from time to time affect the activities of the Parties pursuant to this Agreement including but not limited to regulations and guidance notes relating to stock lending for the time being in force of any relevant tax authority and any associated procedures required pursuant thereto; "SETTLEMENT DATE" means the date (being a Business Day) upon which Loaned Shares are or are to be transferred to the Borrower in accordance with this Agreement which date shall be two (2) Business Days after the date of the Borrowing Request; "SFC" means The Securities and Futures Commission of Hong Kong; "SHARES" means ordinary shares with a par value of HK$0.01 each in the Company; and "STOCK EXCHANGE" means The Stock Exchange of Hong Kong Limited. 1.2 MARKET TERMINOLOGY Notwithstanding the use of expressions such as "borrow", "lend", or "redeliver" or other cognate expressions which are used to reflect terminology used in the market for transactions of the kind provided for in this Agreement, title to Loaned Shares "borrowed" or "lent" provided in accordance with this Agreement shall pass from one Party to another as provided for in this Agreement, the Party obtaining such title being obliged to redeliver Equivalent Shares. 1.3 OTHER INTERPRETATION In this Agreement, unless otherwise specified:- 1.3.1 references to "RECITALS", "SECTIONS", "CLAUSES", "PARAGRAPHS" and "SCHEDULES" are to recitals, sections, clauses, paragraphs of and schedules to this Agreement; 1.3.2 a reference to any statute or statutory provision shall be construed as a reference to the same as it may have been, or may from time to time be, amended, modified or re-enacted; 1.3.3 references to a "COMPANY" shall be construed so as to include any company, corporation or other body corporate, whenever and however incorporated or established; 1.3.4 references to a "PERSON" shall be construed so as to include any individual, firm, company, government, state or agency of a state or any joint venture, association or partnership (whether or not having separate legal personality); 1.3.5 references to writing shall include any modes of reproducing words in a legible and non-transitory form; 1.3.6 references to times of the day are, unless otherwise specified, to Hong Kong time; 1.3.7 headings to Clauses, sections and Schedules are for convenience only and do not affect the interpretation of this Agreement; 1.3.8 the Schedules form part of this Agreement and shall have the same force and effect as if expressly set out in the body of this Agreement, and any reference to this Agreement shall include the Schedules; and 1.3.9 words in the singular shall include the plural (and vice versa) and words importing one gender shall include the other two genders. 2 LOANS OF SHARES 2.1 Subject to the Offering becoming unconditional and to the terms and conditions of this Agreement, the Borrower may, at any time, orally or in writing initiate a transaction whereby the Borrower may borrow Shares from the Lender. The Lender shall, upon receipt of a Borrowing Request from the Borrower no later than two Business Days prior to the Settlement Date stated in such Borrowing Request, lend the number of Shares as set out in the Borrowing Request to the Borrower, and the Borrower shall borrow such number of Shares from the Lender. 2.2 The Borrower has the right to reduce the amount of Shares referred to in a Borrowing Request provided that the Borrower has notified the Lender in accordance with Clause 13 of such reduction no later than 12:00 noon on the Business Day prior to the proposed Settlement Date set out in the Borrowing Request unless otherwise agreed between the Parties. 2.3 Notwithstanding the provisions in this Agreement with respect to when a Loan occurs, a Loan hereunder shall not occur until the relevant Shares shall have been delivered to the Borrower in accordance with the delivery instructions set out in the Borrowing Request or otherwise agreed between the Parties. 2.4 The Parties agree that in respect of each Loan, the Borrower is not required to pay the Lender any interest or consideration. The Parties further agree that no collateral (cash or otherwise) shall be provided by the Borrower to the Lender. 3 DELIVERY OF LOANED SHARES The Lender shall deliver or procure the delivery of the Shares to the Borrower in accordance with the relevant Borrowing Request by: 3.1 delivering certificates representing such Shares together with duly executed stock transfer forms and such other instruments as may be required to vest full right, title and interest thereto in the Borrower; or 3.2 causing such Shares to remain or be credited to the Borrower's nominated account and debited to the Lender's nominated account at any appropriate clearing or settlement system or depository as may be agreed by the Parties and such crediting and debiting shall result in notice of the transaction being given to the Borrower; or 3.3 any other method of delivery as shall be agreed upon by the Parties, and on the happening of any of such event in respect of Shares that are the subject of a Borrowing Request, the Loaned Shares shall be deemed to have been "delivered" to the Borrower in accordance with this Agreement and the relevant Borrowing Request. 4 RIGHTS AND TITLE 4.1 The Parties shall execute and deliver all necessary documents and give all necessary instructions to procure that all right, title and interest in: 4.1.2 (in the case of the Lender) any Shares borrowed pursuant to Clause 2; and 4.1.2 (in the case of the Borrower) any Equivalent Shares redelivered pursuant to Clause 6 shall, subject to the provisions of this Agreement, pass from one Party to the other on delivery or redelivery of the same in accordance with this Agreement, free from all liens, equities, charges, encumbrances claims and third party rights. The Party acquiring such right, title and interest shall have no obligation to return or redeliver any of the assets so acquired but, in so far as any Loaned Shares delivered, the Borrower shall be obliged, subject to the terms of this Agreement, to redeliver Equivalent Shares. 4.2 In the case of Loaned Shares and Equivalent Shares title to which is registered in a computer based system the transfer of title thereof shall take place in accordance with the rules and procedures of such system as are in force from time to time. 4.3 Each Party hereby undertakes to use all reasonable endeavours to procure that all reasonable instructions received from the other Party in respect of conversions, subdivisions, consolidations, redemptions, takeovers, pre-emotions, options or other rights, are complied with in respect of such Loaned Shares provided that each Party shall use all reasonable endeavours to notify the other of its instructions in writing no later than seven Business Days prior to the date upon which such actions are to be taken. 4.4 In the event of any alteration to the nominal value of the Shares as a result of any consolidation or sub-division of Shares taking place whilst there are Outstanding Loaned Shares, the number of Shares to be redelivered by the Borrower to the Lender pursuant to Clause 6 shall from time to time be adjusted by multiplying the number of the Outstanding Loaned Shares by the following fraction: A B where: A is the nominal value of one Share immediately before such alteration; and B is the nominal value of one Share immediately after such alteration. Such adjustment shall become effective immediately after such consolidation or sub-division takes effect. 5 DIVIDENDS AND DISTRIBUTIONS 5.1 The Lender shall be entitled to receive and retain such amounts as are equal to the amounts of all dividends, entitlements or other distributions or payments of any kind whatsoever accrued or made on or in respect of the Loaned Shares as if the Loan had not occurred, the payment dates or record dates (as the case may be) for which occur between the date of the delivery of Loaned Shares by the Lender to the Borrower and the date of the redelivery to the Lender of the entirety of the Equivalent Shares by the Borrower. 5.2 Any cash dividends, distributions, payments or interest made on or in respect of the Loaned Shares which the Lender is entitled to receive pursuant to this Clause 5 shall be paid to the Lender by the Borrower as soon as practicable after the date of receipt of the dividend or distribution by the Company as if the Loan has not occurred or such other date as the Lender and the Borrower may from time to time agree. Non-cash distributions on the Loaned Shares shall be added to the Loaned Shares and shall be considered as such for all purposes, except that, if the Loan is terminated, the Borrower shall forthwith deliver the same to the Lender. 5.3 In the case of any dividend or distribution made on or in respect of Loaned Shares comprising a payment, the amount payable by the Borrower to the Lender hereunder shall be equal to the amount of the relevant dividend or distribution. 6 RE-DELIVERY OF EQUIVALENT SHARES 6.1 The Borrower undertakes to redeliver or procure the redelivery of Equivalent Shares together with all rights, title and interests attaching thereto and therein free from all liens, charges, equities and encumbrances in accordance with this Agreement and the terms of the relevant Borrowing Request provided always that such redelivery shall be made on or before five Business Days following the last date which The Hongkong and Shanghai Banking Corporation Limited can exercise the Over-allotment Option or (if earlier) the date on which the Over-allotment Option is exercised in full (the "RETURN DATE"). The Borrower shall notify the Lender by giving at least one Business Day's prior notice of each redelivery. The Lender agrees that the Borrower shall have the right to redeliver Equivalent Shares through CCASS or by such other means as the Parties may agree. The Lender further agrees that the Borrower shall be entitled to redeliver Equivalent Shares by instalments provided that all Equivalent Shares must be redelivered on or before the Return Date. For the avoidance of doubt, any reference herein or in any other agreement or communication between the Parties (howsoever expressed) to an obligation to redeliver or account for or act in relation to Loaned Shares shall accordingly be construed as a reference to an obligation to redeliver or account lor or act in relation to Equivalent Shares. 6.2 The Borrower shall be entitled at any time to terminate a particular Loan and to redeliver all and any Equivalent Shares due and outstanding to the Lender in accordance with the Lender's instructions. The Lender shall accept such redelivery so long as the mode of such redelivery is in accordance with the terms of this Agreement. 7 TAXATION The Borrower hereby undertakes promptly to pay and account for and indemnify the Lender against any transfer or similar duties and/or taxes and levies chargeable in Hong Kong in connection with any transfers or transactions effected pursuant to or contemplated by this Agreement, and any claim, liability, penalty, expenses or costs incurred by the Lender as a result of the Borrower's failure to pay such duties and/or taxes and levies. 8 REPRESENTATIONS AND WARRANTIES 8.1 Each of the Parties represents and warrants to and for the benefit of the other that during the term of any Loan hereunder: 8.1.1 it is duly incorporated, established or constituted (as the case may be) and validly existing under the laws of its country of incorporation, establishment or constitution (as the case may be); 8.1.2 it has the power to execute and deliver this Agreement; 8.1.3 it has the power to enter into, and it is not restricted under the terms of its constitution or in any other manner from entering into, the transactions contemplated hereunder and to perform its respective obligations hereunder; 8.1.4 it has taken all necessary action to authorise such execution, delivery and performance hereof; 8.1.5 this Agreement constitutes its legal, valid and binding obligations, enforceable in accordance with its terms; 8.1.6 (in the case of the Lender) as to all Loaned Shares, it is absolutely entitled to pass full legal and beneficial ownership of such Loaned Shares provided or delivered by it hereunder to the Borrower free and clear of all liens, charges or encumbrances; and 8.1.7 (in the case of the Borrower) it is or will be absolutely entitled to pass full legal and beneficial ownership of all Equivalent Shares provided or delivered by it hereunder to the Lender or its nominee free and clear of all liens, charges, encumbrances claims and third party rights. 8.2 Each Party accepts liability as principal with respect to its obligations hereunder. 8.3 Each Party represents and warrants that the execution, delivery and performance by it of this Agreement and each transaction contemplated hereunder will to its knowledge comply with all applicable laws, rules and regulations including but not limited to those of Hong Kong. 8.4 The Lender agrees that it is a professional investor and agrees to being so treated in the terms set out in the Schedule to this Agreement. 9 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE BORROWER IN RELATION TO HONG KONG STOCK The Borrower is borrowing or will borrow Hong Kong Stock under this Agreement only for one or more of the specified purposes as permitted by Section 19 of the Ordinance. 10 BORROWER'S OBLIGATIONS 10.1 The Borrower hereby undertakes to the Lender that the Borrower shall: 10.1.1 before the expiry of 30 days after the Loan is effected provide the Collector with: (i) a duly executed copy or a certified true copy of this Agreement (or in such other form thereof as may be acceptable to the Collector), (ii) such fees and duties as may be specified from time to time by the Financial Secretary for Hong Kong for the purpose of the Ordinance in respect of borrowings of Hong Kong Stock; and (iii) such other document, particulars and information in the possession of the Borrower as the Collector may require; and 10.1.2 promptly comply with all filing and reporting obligations and do all other acts and things as may be required to be performed by the Borrower from time to time by the Collector and any applicable rules and regulations for the time being in force. 10.2 In the event that the Borrower is in breach of its undertaking under Clauses 10.1.1 or 10.1.2 above, the Lender may (but shall not be obliged to) submit the Agreement, pay such fee and provide such other documents, particulars and information to the Collector, and do all other acts and things in relation thereto as the Lender may consider necessary or desirable, at the cost and expense of and on behalf of the Borrower, without prejudice to the provisions of Clause 7. 10.3 The Borrower shall, as appropriate, comply with the provisions of the Ordinance in relation to borrowing of Loaned Shares, in particular as to its obligation to make a stock return as defined in section 19 of the Ordinance in accordance with the terms of this Agreement. 11 MISCELLANEOUS 11.1 Notwithstanding any provision of the Agreement, it is hereby acknowledged, confirmed and agreed for all purposes that, until the Loaned Shares shall have been delivered to the Borrower, no interest whatsoever in the Loaned Shares shall pass to the Borrower and no Loan shall occur. 11.2 This Agreement shall not be assignable by either Party without the prior written consent of the other Party and shall be binding upon and shall enure to the benefit of the Parties and their respective successors and assigns. 11.3 This Agreement sets out the entire agreement between the Parties in relation to the subject matter hereof and shall not be amended or supplemented except by instrument in writing signed by each of the Parties. 11.4 Either Party shall have the right to terminate this Agreement if the Underwriting Agreements (as defined in the Prospectus) fail to become unconditional. Subject to the foregoing, this Agreement shall be effective for the period commencing on the date of hereof and, except for Clauses 7 and 10 of this Agreement which shall survive termination or expiry of this Agreement, will expire upon redelivery of all Equivalent Shares due and outstanding to the Lender in accordance with Clause 6 of this Agreement. 12 REMEDIES 12.1 No delay or omission on any Party's part in exercising any right, power, privilege or remedy hereunder shall impair such right, power, privilege or remedy or be construed as a waiver thereof nor shall any single or partial exercise of any such right, power, privilege or remedy preclude any further exercise thereof or the exercise of any other right, power, privilege or remedy. 12.2 The rights, powers, privileges and remedies herein provided are cumulative and not exclusive of any rights, powers, privileges or remedies provided by law. All remedies hereunder shall survive the termination of the relevant Loan, redelivery of Equivalent Shares and termination of this Agreement. 12.3 Without prejudice to any other rights it may have, each Party agrees that in relation to legal proceedings, it will not seek specific performance of the other Party's obligations to deliver or redeliver Shares or Equivalent Shares in circumstances where the Shares of the Company are suspended from trading on the Stock Exchange. 13 NOTICES Any notice or other communication given or made under this Agreement shall be in writing and may be delivered by hand or given by facsimile. If delivered by hand, such notice or communication shall be deemed to have been received on the date of despatch. If given by facsimile, such notice or communication shall be deemed to have been received on receipt of confirmation of successful transmission. Any such notice or communication shall be sent to the party to whom it is addressed as follows: To the Lender: Nam Tai Electronics, Inc. 15th Floor, China Merchants Tower Shun Tak Centre Nos. 168-200 Connaught Road Central Hong Kong Attention: Mr. Jackie Wah FAX No. (852)2263 1223 To the Borrower: The Hongkong and Shanghai Banking Corporation Limited Level 15,1 Queen's Road Central Hong Kong Attention: Mr. Ronald Tham Fax No. (852)2845 5654 14 SEVERABILITY If any of the provisions of this Agreement is found by any court or other competent authority to be void or unenforceable, such provision shall be deemed to be deleted from this Agreement and the remaining provisions of this Agreement shall continue in full force and effect. Notwithstanding the foregoing the Parties shall thereupon negotiate in good faith in order to agree the terms of a mutually satisfactory provision to be substituted for the provisions so found to be void or unenforceable. To the extent permitted by applicable law, each Party hereby waives any provision of law which would otherwise render any provision of this Agreement unenforceable or invalid. 15 TIME OF ESSENCE Time shall be of the essence of this Agreement. 16 COUNTERPARTS This Agreement may be executed in any number of counterparts and by the Parties hereto on separate counterparts, each of which when so executed shall be an original but all of which shall together constitute one and the same instrument. 17 GOVERNING LAW 17.1 This Agreement and all rights obligations and liabilities hereunder shall be governed by and construed in accordance with the laws of Hong Kong and the Parties hereby irrevocably submit to the non-exclusive jurisdiction of the courts of Hong Kong. 17.2 The Lender irrevocably appoints Mr. Jackie Wah of c/o 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong as its authorised agent for the service of process in Hong Kong in connection with this Agreement. Service of process upon Mr. Jackie Wah at the above address shall be deemed, for all purposes, to be due and effective service, and shall be deemed completed whether or not forwarded to or received by any such appointer. If for any reason such agent shall cease to be the Lender's agent for the service of process, the Lender shall forthwith appoint a new agent for the service of process in Hong Kong acceptable to the Borrower and deliver to the Borrower a copy of the new agent's acceptance of that appointment within 14 days, failing which the Borrower shall be entitled to appoint such new agent for and on behalf of the Lender and such appointment shall be effective upon the giving notice of such appointment to the Lender. Nothing in this Agreement shall affect the right to serve process in any other manner permitted by law. IN WITNESS whereof this agreement has been entered into on the date first stated above. SIGNED by /s/ Li Shi Yuen, Joseph For and on behalf of NAM TAI ELECTRONICS, INC. for and on behalf of NAM TAI ELECTRONICS, INC. /s/ T. Murakami in the presence of: ------------------------- Authorized Signature 24HA SIGNED by:/s/ [ILLEGIBLE] for and on behalf of THE HONGKONG AND SHANGAI BANKING CORPORATION LIMITED in the presence of: /s/ Jonathan Orders /s/ [ILLEGIBLE] Woo Ling Candice Linklaters Solicitor, Hong Kong SAR SCHEDULE PROFESSIONAL INVESTOR TREATMENT NOTICE 1 The Lender is a Professional Investor by reason of the Lender being within a category of person described in the Securities and Futures (Professional Investor) Rules as follows: 1.1 a trust corporation having been entrusted with total assets of not less than HK$40 million (or equivalent) as stated in its latest audited financial statements prepared within the last 16 months, or in the latest audited financial statements prepared within the last 16 months of the relevant trust or trusts of which it is trustee, or in custodian statements issued to the trust corporation in respect of the trust(s) within the last 12 months; 1.2 a high net worth individual having, alone or with associates on a joint account, a portfolio of at least HK$8 million (or equivalent) in securities and/or currency deposits, as stated in a certificate from an auditor or professional accountant or in custodian statements issued to the individual within the last 12 months; 1.3 a corporation the sole business of which is to hold investments and which is wholly owned by an individual who, alone or with associates on a joint account, falls within paragraph 1.2 above; and 1.4 a high net worth corporation or partnership having total assets of at least HK$40 million (or equivalent) or a portfolio of at least HK$8 million (or equivalent) in securities and/or currency deposits, as stated in its latest audited financial statements prepared within the last 16 months or in custodian statements issued to the corporation or partnership within the last 12 months. The Borrower has categorised the Lender as a Professional Investor based on information the Lender has given to the Borrower. The Lender will inform the Borrower promptly in the event any such information ceases to be true and accurate. The Lender will be treated as a Professional Investor in relation to all investment products and markets. 2 As a consequence of categorisation as a Professional Investor, the Borrower is not required to fulfil certain requirements under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the "Code") and other Hong Kong regulations. While the Borrower may in fact do some or all of the following in providing services to the Lender, the Borrower has no regulatory responsibility to do so: 2.1 Client agreement The Borrower is not required to enter into a written agreement complying with the Code relating to the services that are to be provided to the Lender. 2.2 Risk disclosures The Borrower is not required by the Code to provide the Lender with written risk warnings in respect of the risks involved in any transactions entered into with the Lender, or to bring those risks to your attention. 2.3 Information about the Borrower The Borrower is not required to provide the Lender with information about its business or the identity and status of employees and others acting on its behalf with whom the Lender will have contact. 2.4 Prompt confirmation The Borrower is not required by the Code to promptly confirm the essential features of a transaction after effecting a transaction for the Lender. 2.5 Information about clients The Borrower is not required to establish the Lender's financial situation, investment experience or investment objectives, except where the Borrower is providing advice on corporate finance work. 2.6 Nasdaq-Amex Pilot Program If the Lender wishes to deal through the Stock Exchange in securities admitted to trading on the Stock Exchange under the Nasdaq-Amex Pilot Program, the Borrower is not required to provide the Lender with documentation on that program. 2.7 Suitability The Borrower is not required to ensure that a recommendation or solicitation is suitable for the Lender in the light of the Lender's financial situation, investment experience and investment objectives. 3 The Lender has the right to withdraw from being treated as a Professional Investor at any time in respect of all or any investment products or markets on giving written notice to the Compliance Department of the Borrower. 4 By entering into this Agreement, the Lender represents and warrants to the Borrower that it is knowledgeable and has sufficient expertise in the products and markets that it is dealing in and is aware of the risks in trading in the products and markets that it is dealing in. 5 By entering into this Agreement, the Lender hereby agrees and acknowledges that it has read and understood and has had explained to it the consequences of consenting to being treated as a Professional Investor and the right to withdraw from being treated as such as set out herein and that the Lender hereby consents to being treated as a Professional Investor. 6 By entering into this Agreement, the Lender hereby agrees and acknowledges that the Borrower will not provide the Lender with any contract notes, statements of account or receipts under the Hong Kong Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules where such would otherwise be required. EX-4.18 13 u99587exv4w18.txt EX-4.18 AMENDED 2001 OPTION PLAN EXHIBIT 4.18 AMENDED AND RESTATED 2001 STOCK OPTION PLAN OF NAM TAI ELECTRONICS, INC. (As adopted on May 4, 2001, amended and restated on July 30, 2004) 1. PURPOSE The purpose of the Nam Tai Electronics, Inc. 2001 stock option plan (the "Plan") is to promote the growth and general prosperity of Nam Tai Electronics, Inc., (the "Company") and its subsidiaries. The granting of options will help the Company attract and retain the best available persons for positions of substantial responsibility and will provide employees, directors, consultants and advisors with an additional incentive to contribute to the success of the Company and its subsidiaries. The Board of Directors of the Company believes the plan will promote continuity of management and increased incentive and personal interest in the welfare of the Company by those who are primarily responsible for shaping and carrying out the long-range plans of the Company and securing its continued growth and financial success. 2. EFFECTIVE DATE OF THE PLAN The plan shall become effective on May 4, 2001, the date originally adopted by the Board of Directors; provided, however, that no options may be granted under this Plan to any officer or director of the Company unless and until the Plan has been approved by holders of the outstanding common shares of the Company. 3. STOCK SUBJECT TO PLAN The maximum number of common shares which may be issued pursuant to the exercise of options granted under the Plan is one million shares (1,000,000) subject to the adjustments provided in paragraph 16 below. One million of the authorized but unissued common shares of the Company as of May 4, 2001 will be reserved for issue upon exercise of options granted under the Plan subject to the adjustments provided in paragraph 14 below; provided, however, that the number of such authorized but unissued shares so reserved may from time to time be reduced to the extent that a corresponding amount of issued and outstanding stock has been purchased by the Company and set aside for issue upon the exercise of options granted under the Plan; and provided, further, however, that subject to the provisions of Section12 hereof, at no time shall there be any options granted under this Plan at any time when the total number of common shares covered by outstanding options granted under this Plan and all other compensatory stock options plans of the Company, the primary purpose of which is to benefit employees or directors of the Company, exceed ten percent (10%) of the then outstanding common shares of the Company. If any options shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for further grants under the Plan. 4. ADMINISTRATION The Board of Directors or a Committee referred to in paragraph 5 (hereinafter referred to as the "Committee") shall administer the Plan. Subject to the express provisions of the Plan, the Board of Directors or the Committee, if so appointed, shall have complete authority, in its discretion, to determine those key employees, directors, consultants and advisors (hereinafter referred to as "participants") to whom, and the price at which options shall be -1- granted, the option periods and the number of shares to be subject to each option. The Board of Directors or the Committee, if so appointed, shall also have the authority in its discretion to prescribe the time or times at which the options may be exercised and limitations upon the exercise of options (including limitations effective upon the death or termination of employment, directorship or consultancy of the participant), and the restrictions, if any, to be imposed upon the transferability of shares acquired upon exercise of options. In making such determinations, the Board of Directors or the Committee, if so appointed, may take into account the nature of the services rendered by respective participants, their present and potential contributions to the success of the Company or its subsidiaries, and such other factors as the Board of Directors or the Committee, if so appointed, in its discretion shall deem relevant. Subject to the excess provisions of the Plan, the Board of Directors or the Committee, if so appointed, shall also have complete authority to interpret the Plan, to prescribe, amend and rescind rules and relations relating to the Plan, to determine the terms and provisions of the respective option agreements (which need not be identical), to determine whether the shares delivered upon exercise of stock options will be treasury shares or will be authorized but previously unissued shares, and to make all other determinations necessary or advisable for the administration of the Plan. The determinations of Board of Directors or the Committee, if so appointed, on the matters referred to in this paragraph 4 shall be conclusive. 5. COMMITTEE The Committee, if so appointed, shall consist of not less than three members of the Board of Directors of the Company. The Committee, if so appointed, shall be appointed from time to time by the Board of Directors, which may from time to time appoint members of the Committee in substitution for members previously appointed and may fill vacancies, however caused, in the Committee. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by at least a majority of its members. Any decision or determination reduced to writing and signed by all of the members shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. The Committee shall also have express authorization to hold committee meetings by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. 6. ELIGIBILITY (a) Except for an annual grant of options to directors as provided in Section 6(b) below, an option may be granted under the Plan only to officers or other key employee, consultants or advisors of the Company and of its present and future subsidiary corporations. (b) At each annual meeting of shareholders, each non-employee director elected at the meeting shall thereupon be granted options to purchase 15,000 shares(*) ("Directors' Options"). Such Directors Options shall be granted only to the extent they have not been granted under other compensatory stock option plans of the Company. The option price of Directors' Options shall be equal to 100% of the fair market value of the shares on the date of grant and the Directors Options shall have a term of three years, subject to earlier termination as provided for Optionees generally under "Exercise of Options." (c) The granting of an option to any participant shall not confer upon that participant any right to continue in the employ, directorship, consultancy or other relationship of or with the Company or of any such subsidiary and shall not interfere in any way with the -2- right of the Company or of any such subsidiary to terminate the employment, consultancy or other relationship of the participant at any time. 7. OPTION PRICE Except with respect to Directors Options, the Board of Directors or the Committee, if so appointed, in its discretion, will determine the option price at the time the option is granted. While the Board of Directors or the Committee, if so appointed, shall have complete and sole discretion in determining the option price and it shall be the policy of the Company not to grant options that are exercisable at less than 100% of the fair market value of the common stock on the date of grant as shall reasonably be determined by the Board of Directors or the Committee, if so appointed, except in the most unusual circumstances as shall be determined by the Board of Directors or the Committee, if so appointed, at the time of specific grants. Unless such action is approved by shareholders or results from adjustments pursuant to Section 16 of the Plan, the option price applicable to any outstanding option shall not be reduced. 8. DATE OF OPTION GRANT An option shall be considered granted on the date the Board of Directors or the Committee, if so appointed, acts to grant the option, or such date thereafter as the Board of Directors or the Committee, if so appointed, shall specify. 9. TERM OF PLAN The Board of Directors, without further approval of the shareholders may terminate the Plan at any time, but no termination shall, without the participant's consent, alter or impair any of the rights under any option theretofore granted to him under the Plan. 10. TERM OF OPTIONS The term of each option granted under the Plan will be for such period (hereinafter referred to as the "option period") not exceeding ten (10) years as the Board of Directors or the Committee, if so appointed, shall determine. Each option shall be subject to earlier termination as described under "exercise of options." 11. RULES APPLICABLE TO CERTAIN DISPOSITIONS (a) Notwithstanding the foregoing pro-visions of Section 10, in the event the Company or the shareholders of the Company enter into an agreement to dispose of all or substantially all of the assets or capital stock of the Company by means of a sale, merger, consolidation, reorganization, liquidation, or otherwise, each option (whether or not then exercisable by its terms) shall become immediately exercisable with respect to the full number of shares subject to that option during the period commencing as of the date of execution of such agreement and ending as of the earlier of: (i) the expiration date of the option; or (ii) the date on which the disposition of assets or capital stock contemplated by the agreement is consummated. The exercise of any option that was made exercisable solely be reason of this Subsection 11(a) shall be conditioned upon the consummation of the disposition of assets or stock under the above referenced agreement. Upon the consummation of any such disposition of assets or stock, the Plan and any unexercised options issued hereunder (or any unexercised portion thereof) shall terminate and cease to be effective. b) Notwithstanding the foregoing, in the event that any such agreement shall be terminated without consummating the disposition of said stock or assets: (i) any unexercised installments of any option that had become exercisable solely by reason of the provisions of -3- Subsection 11(a) shall again become unexercisable as of said termination of such agreement, and (ii) the exercise of any option that had become exercisable solely by reason of this Subsection 11(a) shall be deemed ineffective and such option installments shall again become unexercisable as of said termination of such agreement. (c) Notwithstanding the provisions set forth in Subsection 11(a), the Board of Directors or the Committee, if so appointed, may, at its election and subject to the approval of the corporation purchasing or acquiring the stock or assets of the Company (the "surviving corporation"), arrange for the optionee to receive upon surrender of optionee's option a new option covering shares of the surviving corporation in the same proportion, at an equivalent option price and subject to the same terms and conditions as the old option. For purposes of the preceding sentence, the excess of the aggregate fair market value of the shares subject to such new option immediately after consummation of such disposition of stock or assets over the aggregate option price of such shares of the surviving corporation shall not be no more than the excess of the aggregate fair market value of all shares subject to the old option immediately before consummation of such disposition of stock or assets over the aggregate option price of such shares of the Company, and the new option shall not give the optionee additional benefits which such optionee did not have under the old option or deprive the optionee of benefits which the optionee had under the old option. If such substitution of options is effectuated, the optionee's rights under the old option shall thereupon terminate. 12. MERGERS AND ACQUISITIONS If the Company at any time should succeed to the business of another corporation through a merger or consolidation, or through the acquisition of stock or assets of such corporation, options may be granted under the Plan to option holders of such corporation or its subsidiaries, in substitution for options or rights to purchase stock of such corporation held by them at the time of succession. The Board of Directors or the Committee, if so appointed, shall have sole and absolute discretion to determine the extent to which such substitute options shall be granted (if at all), at the person or persons within the eligible group to receive such substitute options (who need not be all option holders of such corporation), the number of options to be received by each such person, the option price of such option, and the terms and conditions of such substitute option. The provisions of the second proviso of the second sentence of Section 3 shall not be applicable to such substituted options. 13. EXERCISE OF OPTIONS Each option granted under the Plan will be exercisable on such date or dates and during such period and for such number of shares as shall be determined pursuant to the provisions of the option agreement evidencing such option. Subject to the express provisions of the Plan, the Board of Directors or the Committee, if so appointed, shall have compete authority, in its discretion, to determine the extent, if any, and the conditions under which an option may be exercised in the event of the death of the participant or in the event the participant leaves the employ of the Company or has his employment terminated by the Company. An option may be exercised, by (a) written notice of intent to exercise the option with respect to a specified number of shares of stock, and (b) payment to Company in U.S. dollars or the Hong Kong dollar equivalent of the -4- amount of the option purchase price for the number of shares of stock with respect to which the option is then exercised. 14. NONTRANSFERABILITY Options under the Plan are not transferable otherwise than by will or the laws of descent or distribution, and may be exercised during the lifetime of a participant only by such participant. 15. AGREEMENTS Options granted pursuant to the Plan shall be evidenced by stock option agreements in such form as the Board of Directors or the Committee, if so appointed, shall from time to time adopt. 16. ADJUSTMENT OF NUMBER OF SHARES (a) Authority of the Company and Stockholders (*) The existence of the Plan, an option certificate and any option granted hereunder shall not affect or restrict in any way the right or power of the Company or the shareholders of the Company to make or authorize any adjustment, recapitalization, re-organization or other change in the Company's capital structure or business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the common shares or the rights thereof or which are convertible into or exchangeable for common shares, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) Change in Capitalization (*) Notwithstanding any provision of the Plan, the number and kind of shares authorized for issuance under Section 3, the number of options to be granted to non-employee directors pursuant to Section 6(b), may be equitably adjusted in the sole discretion of the Board of Directors or the Committee, if so appointed, in the event of a stock split, stock dividend, recapitalization, reorganization, merger, consolidation, extraordinary dividend, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase common shares at a price substantially below fair market value or other similar corporate event affecting the common shares in order to preserve, but not increase, the benefits or potential benefits intended to be made available under the Plan. In addition, upon the occurrence of any of the foregoing events, the number of outstanding options and the number and kind of shares subject to any outstanding option and the exercise price per share under any outstanding option (including any Directors' Option) may be equitably adjusted (including by payment of cash to a participant) in the sole discretion of the Board of Directors or the Committee, if so appointed, in order to preserve the benefits or potential benefits intended to be made available to participants granted options. Such adjustments shall be made -5- by the Board of Directors or the Committee, if so appointed, in its sole discretion, whose determination as to what adjustments shall be made, and the extent thereof, shall be final. Unless otherwise determined by the Board of Directors or the Committee, if so appointed, such adjusted options shall be subject to the same restrictions and the same vesting schedule to which the underlying option is subject." 17. AMENDMENTS Except as otherwise provided herein, the Board of Directors, without approval of the shareholders, may from time to time amend the Plan in such respects as the board may deem advisable. Notwithstanding the foregoing, the Board of Directors shall not, without shareholder approval, amend the Plan to (i) increase the maximum aggregate number of shares which may be optioned and sold under the Plan, (ii) change the manner of determining the option price or, except for adjustments resulting from the operation of Section 16 of the Plan, permit the reduction of the option price of an outstanding option, (iii) change the classes of persons eligible to receive options under the Plan or (iv) grant any options under the Plan to directors otherwise than as expressly set forth herein. No amendment shall, without the participant's consent, alter or impair any of the rights or obligations under any option theretofore granted to him under the Plan. (*) AMENDED PURSUANT TO A BOARD RESOLUTION DATED JULY 30, 2004 IN WITNESS WHEREOF, the Board of Directors of the Company has amended and restated this Plan, as originally adopted on May 4, 2001 and amended on July 30, 2004. NAM TAI ELECTRONICS, INC. By:_____________________ Tadao Murakami Chairman of the Board -6- EX-4.19 14 u99587exv4w19.txt EX-4.19 ACCESSION AGREEMENT EXHIBIT 4.19 THIS ACCESSION AGREEMENT is made on , 2004 and entered into by Mr. Alain Jolivet, acting on behalf of the existing parties to the Shareholders Agreement (defined below) and Welcome Success Technology Ltd., a company incorporated in the British Virgin Islands, with its registered address at Trident Trust Company (B.V.I.) Limited, Trident Chambers - P.O. Box 146, Road Town, Tortola, British Virgin Islands ("WELCOME SUCCESS"). WHEREAS this Accession Agreement is entered into pursuant to a shareholders agreement (the "SHAREHOLDERS AGREEMENT"), executed on November 28, 2003, December 9, 2003 and December 10, 2003 made by and among Mr. Andre Jolivet, Mr. Alain Jolivet, Remote Reward, AGF Innovation 3, AGF Innovation 4, AGF Innovation 5, Mighty Wealth Group Limited and Nam Tai Electronics, Inc. ("Nam Tai"), in the presence of Stepmind S.A. (the "COMPANY"), as amended. WHEREAS in connection with the transfer by Nam Tai to Welcome Success of all of the Securities held by Nam Tai, Welcome Success agrees pursuant to the terms hereof to become a party to the Shareholders Agreement. NOW IT IS AGREED that: 1. Capitalized terms used in this Accession Agreement without definition shall have the same meanings as applied to them in the Shareholders Agreement. 2. Welcome Success hereby confirms and acknowledges that it has been supplied with a copy of the Shareholders Agreement. 3. Welcome Success hereby agrees, as contemplated in Section 13.4 of the Shareholders Agreement, to become a party to the Shareholders Agreement and henceforth to be bound by all of the obligations thereunder, as if it were an original signatory thereof. 4. Welcome Success shall as a consequence of the foregoing be entitled to all of the rights under the Shareholders Agreement as if it were an original signatory thereof. 5. Welcome Success shall be deemed to be an "Investor" under the Shareholders Agreement. 6. If at any time Welcome Success shall cease to be an Affiliate of Nam Tai, Welcome Success shall provide notice thereof to the other Parties to the Shareholders Agreement. 7. This Accession Agreement shall become effective upon its countersignature by the President of the Company, on behalf of the Parties to the Shareholders Agreement, in accordance with Section 13.4 thereof. 8. Welcome Success represents and warrants to the other Parties to the Shareholders Agreement that: - - it is wholly owned by Nam Tai Electronics, Inc.; - - it is duly established under the law of the jurisdiction in which it is established and is in good standing in such jurisdiction; - - it has full power and authority to execute and deliver this Accession Agreement and to become a party to the Shareholders Agreement; 1 - - the execution and delivery of this Accession Agreement and the performance by it of all of its obligations set forth herein and in the Shareholders Agreement has been duly authorized and approved by all requisite corporate action; - - that this Accession Agreement represents the valid and binding obligation of it in accordance with its terms and will not breach any legal or regulatory provisions nor any organizational documents of it; and - - that the execution and delivery of this Accession Agreement do not conflict with and will not result in any default, violation, modification, suspension or termination of any contract or undertaking to which it is a party. 9. Any notification to Welcome Success pursuant to the Shareholders Agreement shall be to the following: Address: c/o 15/F, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong Attention: Mr. Joseph Li Tel: (852) 2263 1218 Fax: (852) 2263 1223 10. This Accession Agreement shall in all respects (including its validity, construction and performance) be governed by and interpreted in accordance with the laws of France. Any dispute arising out of or relating to this Agreement shall be submitted to the jurisdiction of the competent court in the jurisdiction of the Court of Appeals of Paris, to which the Parties hereby irrevocably agree. Executed in ten (10) original counterparts. WELCOME SUCCESS TECHNOLOGY LTD. By: _____________________ Name: KOO Ming Kown Date: July , 2004 Place: Hong Kong - ----------------- Alain Jolivet, on behalf the Parties to the Shareholders Agreement Date: 2 EX-4.20 15 u99587exv4w20.txt EX-4.20 ESCROW AGREEMENT EXHIBIT 4.20 THIS ESCROW AGREEMENT (this "AGREEMENT") is made on August 18, 2004 BY AND AMONG 1. NAM TAI ELECTRONICS INC., a company incorporated in the British Virgin Islands with its registered office at McW. Todman & Co., McNamara Chambers, P.O. Box 3342, Road Town, Tortola, British Virgin Islands ("NAM TAI"); 2. WELCOME SUCCESS TECHNOLOGY LIMITED, a company duly incorporated in the British Virgin Islands, with its registered office at Trident Trust Company (B.V.I.) Ltd., Trident Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Islands. ("WELCOME SUCCESS") 3. REMOTE REWARD SAS, a French Societe par Actions simplifiee with its registered office at 4 ter rue de l'ouest, 92100 Boulogne (the "RR"); 4. JOHNSON STOKES & MASTER, 16th - 19th Floors, Prince's Building, 10 Chater Road, Central Hong Kong (the "ESCROW AGENT"); 5. ANDRE JOLIVET, of a French National born on July 4, 1962, in Quimper, France, residing at 47 rue Henri Tariel, 92130 Issy les Moulineaux, France. (the "DIRECTOR"); and 6. ALAIN JOLIVET, the director General of Stepmind, a French National born on April 14, 1949, in Plogastel Saint-Germain, France, residing at rue de General Gouraud, 92190 Meudon, France (the "DIRECTOR GENERAL"). WHEREAS (A) Nam Tai and RR are, together with the Director, the Director General and AGF Innovation 3, AGF Innovation 4, AGF Innovation 5 (together "AGF PE"), and Mighty Wealth Group Limited ("MWGL"), parties to the Amended and Restated Investment Agreement relating to Stepmind and dated 22 March 2004 (the "INVESTMENT AGREEMENT"). Nam Tai have agreed to proceed with their subscription for 647,874 ABSA Shares 2, consisting of 647,874 class B shares in the capital of Stepmind, with one Warrant (as defined in Article 2.4 of the Investment Agreement) attached to each such class B share (the "SHARES") on the condition that Remote Reward will purchase Nam Tai and Welcome Success' entire share holding (including all warrants) in Stepmind. (B) Nam Tai and Welcome Success agree to deposit with the Escrow Agent (i) a subscription form (bulletin de souscription) in the form as provided by the Investment Agreement, duly signed by Nam Tai and dated as of August 16, 2004 whereby it agrees to subscribe for the Shares (the "SUBSCRIPTION FORM") and (ii) share transfer orders (ordres de mouvement) (the "SHARE TRANSFER FORMS"), in the forms attached hereto, duly executed by Nam Tai and Welcome Success and dated as of August 17, 2004, whereby each transfers to RR all of the shares and warrants of Stepmind respectively held by them immediately following the subscription for the Shares, namely 809,846 ABSA Shares 1, consisting of 809,846 class B shares in the capital of Stepmind, with one anti-dilution warrant and one BSA1 warrant attached to each such class B share (all currently held by Welcome Success) and the Shares (the "TRANSFERRING SHARES") and (iii) a letter, signed by Welcome Success and Mr. Jackie Wah pursuant to which Welcome Success, whose permanent representative is Mr. Wah, resigns as a member of the board of -2- directors of Stepmind as of August 17, 2004 (the "RESIGNATION LETTER", and together with the Subscription Forms and Transfer Forms, the "ESCROW DOCUMENTS") (C) RR has agreed to deposit a sum of Euro 4,253,301.98 (the "PAYMENT AMOUNT"), which represents the purchase price payable by RR for the purchase of the Transferring Shares from Nam Tai and Welcome Success, with the Escrow Agent, within three calendar days of the execution of this Agreement, which shall be released by the Escrow Agent in accordance with the terms of this Agreement. (D) RR shall be responsible for procuring all necessary consents and waivers of pre-emption rights, for the transfer of the Transferring Shares, whether required pursuant to Stepmind's Articles of Association, the Shareholders' agreement entered into in respect of Stepmind on November 28, December 9 and 10, 2003, and as subsequently amended on 22 March 2004 ("SHAREHOLDERS' AGREEMENT") or otherwise. (E) RR have agreed to procure that the directors nominated by them to the board of Stepmind shall, and the Director and the Director General have agreed that they shall, vote against the Third Capital Increase. NOW IT IS WITNESSED as follows: 1. DEFINITIONS Unless the context otherwise requires or if otherwise defined in this Agreement, capitalised terms used in this Agreement shall have the meanings attributed to them in the Investment Agreement. 2. DEPOSIT OF SUBSCRIPTION AGREEMENT Simultaneously with the execution and delivery of this Agreement, Nam Tai and Welcome Success shall deliver the Escrow Documents, all duly executed and dated as provided in the recitals above, to the Escrow Agent. 3. PAYMENT OF THE PAYMENT AMOUNT AND RELEASE OF THE ESCROW DOCUMENTS 3.1 As soon as possible following the execution of this Agreement, and in any event within three (3) calendar days of its execution, RR shall remit by telegraphic transfer in immediately available funds, the Payment Amount to the Escrow Agent, to the following account (which shall not be interest bearing) (the "NOMINATED ACCOUNT"): Bank Name : The Hongkong & Shanghai Banking Corporation Limited ("HSBC") Bank Address: 1 Queen's Road Central, Hong Kong A/C Name : Johnson Stokes & Master -3- A/C Number : 004-002-226173-220 SWIFT : HSBCHK HHHKH Reference : MSR/67152882 Beneficiary : Remote Reward SAS In the event that the Payment Amount has not been received by the Escrow Agent prior to 17:00 hrs on the third calendar day following the execution of this Agreement, Nam Tai shall be entitled to terminate this Agreement with effect from such date, by giving written notice to each of the parties. Upon such termination, the Escrow Documents shall themselves terminate and shall be deemed to cease to have effect, and the Escrow Agent shall return the Escrow Documents to Nam Tai at such address as it notifies in writing to the Escrow Agent. 3.2 The Escrow Agent shall regularly inquire to HSBC as to whether the Payment Amount has been credited to the Nominated Account. As soon as reasonably practicable after the Escrow Agent learns, to its reasonable satisfaction, that the Payment Amount has been credited to the Nominated Account, but in no event later than four hours thereafter, the Escrow Agent shall release to RR the Escrow Documents by hand delivery of the originals to Mr. Philippe Rechsteiner, the authorised representative of RR, at the offices of the Escrow Agent or if requested in writing by Mr. Rechsteiner (or if Mr. Rechsteiner is not present at the offices of the Escrow Agent at such time, to his counsel Mr. Greg Liu at the Hong Kong offices of Paul Weiss Rifkind Wharton & Garrison. As soon as reasonably practicable following the release of the Escrow Documents to RR, the Escrow Agent shall remit to Nam Tai the Payment Amount, by transferring it to the following account: Bank Name : The Hongkong and Shanghai Banking Corporation Limited (Macau Office) Bank Address: 639 Avenida da Praia Grande, Macau A/C Number : 001-046507-151 Beneficiary : Nam Tai Electronics, Inc. 3.3 As soon as reasonably practicable following the release of the Escrow Documents to RR as described in Clause 3.2 above, RR shall procure the receipt of the consent of MWGL and AGF PE (or alternatively the waiver of their pre-emption rights) to the transfer of the Transferring Shares pursuant to the Shareholders' Agreement, as well as any consent to the transfer of the Transferring Shares that may be required pursuant to the articles of association of Stepmind or as may be required pursuant to any other relevant document or provision. 3.4 Furthermore, RR agrees to comply with the provisions of Section 4.2 of the Shareholders' Agreement, and shall comply with, and perform Nam Tai and Welcome Success's obligations as a "Transferor" pursuant to Section 4.2 of the Shareholders' Agreement, including, but not limited to, selling the "Transferred Shares" to such other shareholders in Stepmind that wish to exercise their pre-emption rights pursuant to Section 4.2. -4- 3.5 In addition RR shall, if it is lawfully required to do so, comply with its and Nam Tai and Welcome Success's obligations pursuant to Section 4.4 of the Shareholders' Agreement and RR hereby undertakes to purchase any shares or warrants of Stepmind that it is lawfully required to purchase pursuant to the provisions of Section 4.4 of the Shareholders' Agreement. 3.6 If either Nam Tai or RR (the "PAYEE") produces a judgment of a court of competent jurisdiction to the effect that the Payee is entitled to be paid the amount stated in such judgment from the Nominated Account, provided such judgment is not the subject of any appeal within fourteen (14) days thereof, the Escrow Agent shall pay or hold the amount stated in such judgment to or for the Payee or in the manner directed in the Payee's written instructions (provided such instructions are consistent with such judgment), on the fourteenth (14th) calendar day following receipt by the Escrow Agent of the relevant judgment. 3.7 The Director and the Director General hereby represent and undertake that they shall not exercise any right of pre-emption or tag along right, which they may be entitled to pursuant to Sections 4.2 and 4.4 of the Shareholders' Agreement. 4. THE THIRD CAPITAL INCREASE 4.1 RR, the Director and Director General hereby agree that they shall vote against, or (in the case of RR) procure that the director appointed by it shall vote against, the Third Capital Increase at any meeting of the board of directors of Stepmind called to discuss the same, so that Nam Tai shall not be required to subscribe for any ABSA Shares 4 pursuant to Article 2.4 of the Investment Agreement. In addition, RR, the Director and the Director General agree to use their best efforts to procure that the Third Capital Increase does not occur. 4.2 If, notwithstanding the provisions of Clause 4.1 above and 5.3 below, the Third Capital Increase is approved by the board of directors of Stepmind, RR agrees to assume responsibility for Nam Tai's proportionate share of the Third Capital Increase pursuant to Clause 2.4 of the Investors Agreement, together with Nam Tai's obligation to underwrite and subscribe for any part of the Third Capital Increase which any other Investor declines to subscribe for. In addition, RR hereby agrees to indemnify Nam Tai and Welcome Success against each and every claim, loss, liability and cost which they may suffer or incur and which arises in any way in relation to the Third Capital Increase. 5. CONSEQUENCES OF EXIT OF NAM TAI AND WELCOME SUCCESS 5.1 Following the release of the Escrow Documents and the Payment Amount pursuant to Clause 3.2 above, the Director, the Director General, and RR hereby agree and acknowledge that Nam Tai and Welcome Success shall by virtue of the transfer of the Transferring Shares to RR, no longer be parties to the Shareholders' Agreement, and they shall be discharged of all their obligations under the Shareholders' Agreement and Investment Agreement (except for any confidentiality obligations set forth therein) and in -5- return, Nam Tai and Welcome Success renounce all rights that they may have under the Investment Agreement or the Shareholders' Agreement. 5.2 Each of Nam Tai and Welcome Success agree to, and to cause its representatives to, keep as confidential all information, including without limitation product information, technical information, market information and customer information, relating to Stepmind and its products, that it learned by virtue of its shareholding in and representation on the board of Stepmind. Nam Tai and Welcome Success acknowledge the importance to Stepmind of maintaining the confidentiality of all such information. This provision shall survive for a period of three (3) years. 5.3 In connection with the transactions and matters contemplated by this Agreement, and assuming the due execution by Nam Tai and Welcome Success of their obligations under this Agreement, in addition to the indemnification obligations set forth in Clauses 3.4 and 4.2 above, RR shall indemnify and hold harmless Nam Tai and Welcome Success against each and every claim, loss, liability and cost ("LIABILITY") which they may suffer or incur and which arises in any way pursuant to the transactions and matters contemplated by this Agreement , including: (a) the settlement of any such Liability; (b) the costs of any legal proceedings relating to such Liability; and (c) the enforcement of any such settlement or legal proceedings. 5.4 Following the termination of this Agreement in accordance with Clause 7(a) below, RR, the Director and the Director General, undertake to Nam Tai and Welcome Success, and in return Nam Tai and Welcome Success undertake to RR, the Director and the Director General, that neither of them shall bring any claims against the other in relation to their investment in, or involvement with, Stepmind save and except as provided in this Agreement. 6. THE ESCROW AGENT 6.1 In order to induce the Escrow Agent to act hereunder, RR and Nam Tai expressly acknowledge and agree that: (a) this Agreement expressly sets forth all of the Escrow Agent's duties with respect to any and all matters pertinent hereto. No implied duties or obligations shall be read into this Agreement against the Escrow Agent and it shall not be bound by the provisions of any other agreement between the parties hereto (whether or not they have any knowledge thereof), except this Agreement; (b) the Escrow Agent shall be entitled to rely upon any order, judgment, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine the authenticity or the correctness of any fact stated therein or the propriety or validity or the service thereof. The Escrow Agent may act in reliance upon any instrument or signature believed by it to be genuine and -6- may assume that any person purporting to give notice or receipt or advance or make any statement or execute any document in connection with the provisions hereof has been duly authorized to do so; and (c) they shall not bring any claim against the Escrow Agent in respect of any exercise of its powers or functions under this letter and they severally agrees to indemnify it and hold it harmless fully against all costs, claims, actions, damages, liabilities and losses whatsoever and howsoever arising in connection with it holding the Escrow Documents or the Payment Amount or acting pursuant to or as contemplated in this Agreement, save in the case of its willful default or dishonesty. 7. TERMINATION OF ESCROW AGREEMENT Subject to the provisions of Clauses 4, 5, 7, 8 and 9, which shall continue in full force and effect, this Agreement shall terminate upon the earlier of: (a) the release of the Escrow Documents and the Payment Amount pursuant to Clauses 3.2 and 3.3 above; or (b) 31 August 2004, if the Escrow Documents and the Payment Amount have not been released pursuant to Clauses 3.2 above, prior to such date, upon which date the Escrow Agent shall return (i) the Escrow Documents to Nam Tai and, (ii) upon notification in writing to the Escrow Agent from RR of the details of its nominated bank account, the Payment Amount to RR. 8. FEES Each party shall be responsible for it own costs in connection with the execution of this Agreement and the matters contemplated by it, save and except that Nam Tai shall be responsible for the fees, costs, expenses and disbursements of the Escrow Agent. 9. TERMS AND CONDITIONS 9.1 This Agreement shall be governed by the laws of the Hong Kong Special Administrative Region of the People's Republic of China ("HONG KONG"), and the parties submit to the non-exclusive jurisdiction of the courts of Hong Kong. 9.2 Except as otherwise permitted herein, this Agreement may be modified only by a written amendment signed by all the parties hereto, and no waiver of any provision hereof shall be effective unless expressed in writing signed by the party to be charged. 9.3 This Agreement shall constitute the entire agreement of the parties with respect to the subject matter and supersedes all prior oral or written agreements in regard thereto. 9.4 The provisions of this Section 9 shall survive termination of this Agreement and/or the resignation or removal of the Escrow Agent. -7- 9.5 This Agreement may be executed by each of the parties hereto in any number of counterparts, each of which counterpart, when so executed and delivered, shall be deemed to be an original and all such counterparts shall together constitute one and the same agreement. IN WITNESS WHEREOF, each of the parties have caused this Agreement to be executed as of the day and year first written above. NAM TAI ELECTRONICS INC By:__________________________ Name: Title: WELCOME SUCCESS TECHNOLOGY LIMITED By:__________________________ Name: Title REMOTE REWARD SAS By:__________________________ Name: Title: JOHNSON STOKES & MASTER By:__________________________ Name: Title: _____________________________ ANDRE JOLIVET ____________________________ ALAIN JOLIVET EX-4.21 16 u99587exv4w21.txt EX-4.21 SUBSCRIPTION AGREEMENT Exhibit 4.21 English Translation DATED the 19th day of August, 2004 Among T.C.L. INDUSTRIES HOLDINGS (H.K.) LIMITED and TCL INTERNATIONAL HOLDINGS LIMITED and CHEERFUL ASSET INVESTMENTS LIMITED and JASPER ACE LIMITED and MATE FAIR GROUP LIMITED and TCL COMMUNICATION TECHNOLOGY HOLDINGS LIMITED ------------------------------------------------------- SHARE SUBSCRIPTION AGREEMENT ------------------------------------------------------ Cheung, Tong & Rosa, Solicitors, Rooms 1621-33, Sun Hung Kai Centre, 30 Harbour Road, Hong Kong. Tel: (852) 2868 0393 Fax: (852) 2810 0556 This Agreement is entered into among the following parties on the 19th day of August, 2004 in Hong Kong: (1) T.C.L. INDUSTRIES HOLDINGS (H.K.) LIMITED, a limited liability company registered and incorporated in Hong Kong, with its registered address at Room 1102, 11th Floor, Chinachem Tsuen Wan Plaza, No. 457 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong ("Industries Holdings"); (2) TCL INTERNATIONAL HOLDINGS LIMITED, a limited liability company registered and incorporated in Cayman Islands, with its registered address at Ugland House, South Church Street, P.O. Box 300, George Town, Grand Cayman, Cayman Islands, British West Indies, and whose shares are listed on the Main Board of the Stock Exchange of Hong Kong Limited ("TCL International"). (3) CHEERFUL ASSET INVESTMENTS LIMITED, a limited liability company registered and incorporated in British Virgin Islands, with its registered address at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands ("Cheerful"). (4) JASPER ACE LIMITED, a limited liability company registered and incorporated in British Virgin Islands, with its registered address at Sea Meadow House, Blackburne Highway, Road Town, Tortola, British Virgin Islands ("Jasper"). (5) MATE FAIR GROUP LIMITED, a limited liability company registered and incorporated in British Virgin Islands, with its registered address at Sea Meadow House, Blackburne Highway, Road Town, Tortola, British Virgin Islands ("Mate Fair"). (The companies in (1) to (5) above are collectively referred to as the "Subscribers".) (6) TCL COMMUNICATION TECHNOLOGY HOLDINGS LIMITED, a limited liability company registered and incorporated in Cayman Islands, with its registered address at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, Cayman Islands, British West Indies ("TCL Communication"). Recitals (A) "TCL Communication" is a limited liability company registered and incorporated in Cayman Islands and its current statutory share capital is HK$380,000, divided into 3,800,000 Communication Shares, each at a par value of HK$0.10 and, as of the date hereof, its issued share capital is HK$100, divided into 1,000 Communication Shares, which are fully paid-up shares, each at a par value of HK$0.10. Set forth below is the status of shareholdings of the existing shareholders in TCL Communication: 1
% Shareholding in No. of issued share capital of Shareholders Communication Shares TCL Communication - ------------------- -------------------- ----------------------- Industries Holdings 360 shares 36% TCL International 480 shares 40.8% Cheerful 100 shares 10% Jasper 90 shares 9% Mate Fair 42 shares 4.2% --------- ----------- ---- Total 1000 shares 100%
(B) "Huizhou TCL Mobile" and its holding company (collectively "Mobile Group") propose to carry out an organizational restructuring. In order to effect such restructuring, the Subscribers agree to subscribe to, and TCL Communication agrees to issue and allocate to the Subscribers, the Communication Shares upon the terms hereof. (C) After the completion of the foregoing subscription, the percentage of the shareholdings of the Subscribers in TCL Communication shall be the same as their percentage of shareholdings before the subscription. Set forth below is the status of shareholdings after the completion of the subscription:
% Shareholding in No. of issued share capital of Shareholders Communication Shares TCL Communication - ------------------- -------------------- ----------------------- Industries Holdings 1,017,900,000 shares 36% TCL International 1,153,620,000 shares 40.8% Cheerful 282,750,000 shares 10% Jasper 254,475,000 shares 9% Mate Fair 118,755,000 shares 4.2% - ------------------- -------------------- ---- Total 2,827,500,000 shares 100%
2 The Parties agree as follows: Definitions 1. In this Agreement, the following terms, unless otherwise indicated, shall be defined as follows: "Closing" shall mean the completion of the transactions under this Agreement pursuant to Articles 7, 8 and 9 hereof; "Closing Date" shall mean the 3rd Business Day after the full satisfaction of all conditions precedent specified in Article 7 hereof or such other closing date as agreed upon in writing between the Parties; "Huizhou TCL Mobile" shall mean Huizhou TCL Mobile Communications Co., Ltd., a wholly foreign-owned enterprise established in the PRC; "Communication Shares" shall mean the ordinary shares of TCL Communications at par value of HK$0.10 per share; "Dividends Obligees" shall mean TLC International, Cheerful, Jasper and Mate Fair; "Subscription shall mean the subscription consideration Consideration" given by the Subscribers to TCL Communication as set forth in the 3rd column in Annex 1 hereof for the subscription of the Communication Shares pursuant to Article 6 hereof; "Receivable Mobile shall mean the Mobile Dividends which the Dividends Dividends Obligees are entitled to receiving but have not yet received from Huizhou TCL Mobile as at the date hereof, and the amounts of the Receivable Mobile Dividends of the Dividends Obligees are set forth in the 3rd column of the Annex 1 hereof against their respective names; "Mobile Dividends" shall mean the dividends totaling RMB1,458,700,219.40 declared by Huizhou TCL Mobile to its shareholders in proportion to their percentage of shareholders on March 8, 2004; "Warranties" shall mean the representations, warranties and 3 undertakings set forth in Annex 2 hereof. "Business Day" shall mean a day (other than a Saturday, Sunday or public holiday) on which Hong Kong licensed banks are open for general business; "Hong Kong" shall mean the Hong Kong Special Administrative Region of the People's Republic of China; "PRC" shall mean the People's Republic of China, excluding, for the purposes of this Agreement, Hong Kong, Macau Special Administrative Region of the People's Republic of China and Taiwan; "Hong Kong Dollars" or shall mean the lawful currency of "HK$" Hong Kong; "RMB" or "Renminbi" shall mean the lawful currency of the PRC. 2. In this Agreement, unless the context indicates otherwise: 2.1 References to Articles, Annexes, Schedules and Appendices are to articles, annexes, schedules and appendices to this Agreement; 2.2 Words importing the singular shall include the plural and vice versa and terms importing a gender shall include each other gender; 2.3 References to persons include bodies, whether corporate or non-corporate; 2.4 Article headings are for ease of reference only and do not affect the interpretation of this Agreement; 2.5 TCL Communication and the Subscribers shall include their respective successors and permitted assigns. 2.6 References to laws, regulations or statutory provisions shall include the existing laws, regulations or statutory provisions and their consolidations, modifications or re-enactments as made from time to time and such regulations or provisions which have been replaced by any regulations or statutory provisions. 3. The Annexes, Schedules and Appendices to this Agreement are constituent parts of this Agreement. 4 Share Subscription 4. The Subscribers agree to subscribe to the Communication Shares from TCL Communication upon the terms hereof and the number of the Communication Shares subscribed to by them are set forth in the 2nd column of Annex 1 hereof against their respective names, and TCL Communication agrees to issue and allocate such Communication Shares to the Subscribers upon the terms hereof and book such shares as fully paid-up shares at par value. 5. The Parties expressly agree and indicate their understanding that the subscription of all the Communication Shares under this Agreement shall be wholly effected on one-time and simultaneous basis. Subscription Consideration 6. The Subscribers and TCL Communication agree that the Subscribers shall transfer to or pay to TCL Communication the Subscription Consideration as set forth in the 3rd column of Annex 1 hereof against their respective names as the consideration for their subscription of the relevant Communication Shares (The number of the Communication Shares subscribed to by the Subscribers are set forth in the 2nd column of Annex 1 hereof against their respective names). Conditions Precedent 7. The subscription of all the Communication Shares under this Agreement shall be subject to the satisfaction of the following conditions precedent: 7.1 The Board of Directors of each of the Subscribers has passed a resolution approving the execution and performance of this Agreement and the subscription of the relevant Communication Shares under this Agreement; 7.2 The Board of Directors of TCL Communication has passed a resolution approving the execution and performance of this Agreement and the issuance and allocation of the Communication Shares to the Subscribers upon the terms hereof; and 7.3 Approvals of all transactions under this Agreement have been obtained from all relevant PRC government authorities (if applicable). Closing 8. The Closing shall be completed on the Closing Date. At the closing, each Party shall have fulfilled all (not only part) of its obligations set forth in Annex 2. 9. If any Party fails to deliver the documents which it is required to deliver to another Party at the Closing due to any cause, such another Party shall have the 5 right (which right shall be in addition to, and shall not affect, its other original rights or remedies) to elect to rescind this Agreement, or proceed with the Closing to the largest extent under the practicable circumstances dependent upon the condition of the breach occurred, or fix a new closing date (but such a new closing date shall not be later than 28 days after the Closing Date), provided that such another Party shall notify the other Parties of its election so as to ensure that the subscription of all the Communication Shares shall be completed wholly on one-time and simultaneous basis. Warranties and Indemnification 10. Each Subscriber hereby makes warranties and provides undertakings to TCL Communication as set forth in Section A of Annex 2. 11. Each Subscriber undertakes to TCL Communication that if any losses, costs, expenses or liabilities are sustained by or caused to TCL Communication arising out of the following events or as a result of the following events, the relevant Subscriber shall indemnify TCL Communication against such losses, costs, expenses or liabilities: 11.1 Any of the warranties set forth in Section A of Annex 2 is untrue or misleading or breached; 11.2 Settlement reached on any claim arising from the matters referred to in Article 11.1 above; 11.3 Legal proceedings instituted with respect to any claim arising from the matters referred to in Article 11.1 above; or 11.4 Enforcement of any settlement or judgment with respect to Articles 11.2 and 11.3 above. 12. TCL Communication hereby makes warranties and provides undertakings to each Subscriber as set forth in Section B of Annex 2. 13. TCL Communication undertakes to the Subscribers that if any losses, costs, expenses or liabilities are sustained by or caused to the Subscribers arising out of the following events or as a result of the following events, the relevant Subscriber shall indemnify each Subscriber against such losses, costs, expenses or liabilities: 13.1 Any of the warranties set forth in Section B of Annex 2 is untrue or misleading or breached; 13.2 Settlement reached on any claim arising from the matters referred to in Article 13.1 above; 6 13.3 Legal proceedings instituted with respect to any claim arising from the matters referred to in Article 13.1 above; or 13.4 Enforcement of any settlement or judgment in relation to Articles 13.2 and 13.3 above. 14. Each warranty, representation and undertaking given by each Party to the other Parties shall survive the completion of the Closing. 15. Each warranty, representation and undertaking given by each Party to the other Parties shall be independent warranty, representation and undertaking and shall not be restricted by the provisions of any other representations, warranties and undertakings. 16. Each Party agrees and acknowledges that: 16.1 Except for the provisions or warranties expressly indicated in this Agreement, when it entered into this Agreement and the documents referred to herein, it did not rely on any representations, statements, warranties or undertakings given (whether or not given negligently or unintentionally) by any person (whether or not a party to this Agreement), and it shall not have the right to seek for indemnification or relief with respect to such representations, statements, warranties or understandings; 16.2 The indemnification or relief to which it is entitled to in case of breach of a "warranty" by another Party is merely the indemnification or relief to which it is entitled to as a result of the breach of a provision hereof. 16.3 This Article 16 shall not be deemed a restriction on or waiver of the liabilities arising from the fraudulent act of any Party. Termination and Breach 17. If the Subscribers become aware of the following matters at any time prior to the Closing, the Subscribers shall immediately give written notice to TCL Communication of the relevant matters and, whereupon, TCL Communication shall have the right, within 14 days after receipt of such notice, to give written notice to the Subscribers to rescind this Agreement: 17.1 The warranties made by the Subscribers are inconsistent with any facts or events in any material respects; 17.2 Any facts which cause a person to think that any facts warranted by the Subscribers may be inconsistent with the facts or misleading in any material respects; 7 18. If at any time prior to the Closing, TCL Communication finds that any of the warranties, undertakings or liabilities of any Subscriber is untrue in any material respects or may not or cannot (as reasonably deemed by TCL Communication) be fulfilled in any material respects, TCL Communication shall have the right to give written notice to such Subscriber with a copy to other Parties to rescind this Agreement. 19. If TCL Communication becomes aware of the following matters prior to the Closing, TCL Communication shall immediately give written notice to the Subscribers of the relevant matters and, whereupon, the Subscribers shall have the right, within 14 days after receipt of such notice, to give written notice to TCL Communication to rescind this Agreement: 19.1 The warranties made by TCL Communication are inconsistent with any facts or events in any material respects; 19.2 Occurrence of any event which implies that any matters warranted by TCL Communication are inconsistent with the facts in any material respects; 20. If at any time prior to the Closing, any Subscriber finds that any of the warranties, undertakings or liabilities of TCL Communication is untrue in any material respects or may not or cannot (as reasonably deemed by such Subscriber) be fulfilled in any material respects, such Subscriber shall have the right to give written notice to TCL Communication with a copy to other Parties to rescind this Agreement. Notice and Service of Legal Process 21. Each notice, demand and other communication given or made under this Agreement and all legal process (whether or not the originating legal process) shall be in writing and delivered to the recipients at their addresses or facsimile numbers set forth below (provided that if a recipient had given written notice of its other address or facsimile number in Hong Kong to the sender, the sender shall deliver the relevant notice to such other address or facsimile number): 21.1 In the case of Industries Holding to: Address: Room 1102, 11th Floor, Chinachem Tsuen Wan Plaza, No. 457 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong. Facsimile No.: (852) 2402-2602 21.2 In the case of TCL International to: 8 Address: 13th Floor, TCL Industrial Centre, No. 8 Tai Chung Road, Tsuen Wan Plaza, New Territories, Hong Kong. Facsimile No.: (852) 2405-8400 21.3 In the case of Cheerful to: Address: Room 904, Tower 1, China Hong Kong City, No. 33 Canton Road, Tsimshatsui, Kowloon, Hong Kong. Facsimile No.: (852) 2302-0996 21.4 In the case of Jasper to: Address: 15th Floor, China Merchants Building, Shun Tak Center, Nos. 168-200 Connaught Road Central, Hong Kong. Facsimile No.: (852) 2263-1223 21.5 In the case of Mate Fair to: Address: Room 904, Tower 1, China Hong Kong City, No. 33 Canton Road, Tsimshatsui, Kowloon, Hong Kong. Facsimile No.: (852) 2202-0996 21.6 In the case of TCL Communication to: Address: Room 904, Tower 1, China Hong Kong City, No. 33 Canton Road, Tsimshatsui, Kowloon, Hong Kong. Facsimile No.: (852) 2202-0996 22. Each notice, demand or other communication and all legal process (whether or not originating legal process) given or made under this Agreement may be delivered by post, in person or by facsimile transmission. A notice shall be deemed to have been delivered upon actual delivery if personally delivered, 48 hours after it is sent if delivered by post, and upon complete transmission if delivered by facsimile. In case evidence of delivery of a notice by post is required, it shall be sufficient to only evidence that the sender has properly written the recipient's address on the envelope containing such notice and affixed stamp on such notice and sent by post; in case evidence of delivery of a notice by facsimile is required, it shall be sufficient to only evidence that the transmission report as shown in the sender's facsimile machine indicates a complete transmission to the recipient. 9 Costs and Expenses 23. All stamp duty (if any) payable on the documents in relation to the issuance and allotment of the Communication Shares shall be borne by TCL Communication and the relevant Subscriber in equal shares. 24. Each Party shall bear its own costs and expenses (including legal and professional costs) incurred in the negotiation, drafting, printing, execution, registration, completion and performance of this Agreement. General Provisions 25. Timing: Time shall be of the essence of this Agreement. 26. Successors and Assigns: This Agreement is binding on and inure to the benefit of the Parties and their respective successors and permitted assigns. 27. Entire Agreement: This Agreement and the documents referred to herein constitute the entire agreement and understanding between the Parties with respect to the subject matter hereof, and shall supersedes all prior proposals, representations, warranties, agreements or undertakings with respect to the subject matter hereof (whether such proposals, representations, warranties, agreements or undertakings are made orally, in writing or otherwise), and any Party has not relied upon any of such proposals, representations, warranties, agreements or undertakings and shall not make a claim with respect to the agreement which was superseded by this Agreement. 28. Further Assurance: Each Party assures to the other Parties that it shall further execute such other deeds or documents and take such other actions as reasonably and legitimately required by the other Parties for completion of the proposed transactions under this Agreement and/or for perfection of the interests of the Parties under this Agreement. 29. Amendment: Any amendment to this Agreement shall become legally effective only after the written consents of the Parties have been obtained. 30. Waiver of Rights: In case of breach of this Agreement by any Party, unless this Agreement stipulates otherwise, another Party's exercise or non-exercise of any of its rights or remedies available to it with respect to such breach shall not be deemed a waiver of its other rights or remedies which may be available to it with respect to such breach. 31. Cumulative Remedies: In case of breach of this Agreement by any Party, any rights or remedies available to the other Parties with respect to such breach under this Agreement (including, but not limited to, any rights or remedies available to 10 such other Parties due to the breach by the breaching Party of any representation or warranty made by it) shall be additional to, and shall not affect, other rights or remedies available to such other Parties with respect to such breach. 32. Effectiveness after the Closing: If any provision hereof can be implemented after the Closing, but is not implemented at or before the Closing, such provision shall remain in full force after the Closing. All representations and warranties made and other undertakings provided by the Parties under or pursuant to this Agreement shall remain in full force after the Closing. 33. Illegality: In the event that any one or more of the provisions hereof is or becomes invalid, illegal or unenforceable, or cannot be implemented in any respect, the validity, legality, enforceability and implementation of the remaining provisions hereof shall not be in any way affected or impaired. 34. Confidentiality: With respect to all confidential information disclosed by any Party to another Party pursuant to a provision hereof and/or in the course of its implementation of such provision, such another Party shall maintain the confidentiality and, unless prior written consent of the disclosing Party of such information has been obtained, such another Party shall not use and/or disclose to a third party any contents hereof and/or such information, with the exceptions for its disclosure of the contents hereof and/or the information obtained by it as required to be made under the law or other rules of the regulatory bodies, or made as a result of its consultations with legal or financial advisors. 35. Execution of this Agreement: This Agreement may be executed by the Parties in any number of counterparts or copies and any of such counterparts or copies shall be deemed an original, provided that such counterparts or copies together shall constitute a single and the only original of this Agreement. Governing Law 36. This Agreement shall be governed by and constructed in accordance with the laws of Hong Kong and the Parties agree to submit to the non-exclusive jurisdiction of courts of Hong Kong. 11 Signature Page IN WITNESS WHEREOF, the Parties have executed this Agreement on the date first written. T.C.L. INDUSTRIES HOLDINGS (H.K.) )For and on behalf of LIMITED )T.C.L. INDUSTRIES (H.K.) LIMITED ) Signed by authorized Director, [Lui Chung Lai] )[signed] )-------------------------------- )Authorized Signature(s) Witness: ) TCL INTERNATIONAL HOLDINGS LIMITED )For and on behalf of )TCL INTERNATIONAL HOLDINGS Signed by authorized Director, [Lui Chung Lai] )LIMITED ) Witness: )[signed] -------------------------------- Authorized Signature(s) CHEERFUL ASSET INVESTMENTS LIMITED )For and on behalf of )CHEERFUL ASSET INVESTMENTS Signed by authorized Director, [Yuen Ping] )LIMITED ) Witness: )[signed] -------------------------------- Authorized Signature(s) JASPER ACE LIMITED )For and on behalf of )JASPER ACE LIMITED Signed by authorized Director, [Wong Do Yuen] ) ) Witness: )[signed] -------------------------------- Authorized Signature(s) 12 MATE FAIR GROUP LIMITED )For and on behalf of )MATE FAIR GROUP LIMITED Signed by authorized Director, [Wong Do Yuen] ) ) Witness: )[signed] -------------------------------- Authorized Signature(s) TCL COMMUNICATION TECHNOLOGY )For and on behalf of HOLDINGS LIMITED )TCL COMMUNICATION TECHNOLOGY )HOLDINGS LIMITED Signed by authorized Director, [Wong Do Yuen] ) )[signed] )-------------------------------- Witness: )Authorized Signature(s) 13 Annex 1 Communication Shares to be Subscribed and Subscription Consideration
2nd Column 1st Column No. of Communication Shares to be 3rd Column Subscribers Subscribed Subscription Consideration - ------------------- --------------------------------- --------------------------- Industries Holdings 1,017,899,640 shares Totaling RMB525,132,079 in cash TCL International 1,153,619,592 shares Receivable Mobile Dividends totaling RMB595,149,689 Cheerful 282,749,900 shares Receivable Mobile Dividends totaling RMB145,870,022 Jasper 254,474,910 shares Receivable Mobile Dividends totaling RMB131,283,020 Mate Fair 118,754,958 shares Receivable Mobile Dividends totaling RMB61,265,409 Total: 2,827,499,000 shares
14 Annex 2 Requirements and Arrangements for the Closing Obligations of the Subscribers 1. On the Closing Date, the Subscribers shall deliver to, or cause to be delivered to, TCL Communication all the following documents: 1.1 Board resolutions of each Subscriber (or a certified true copy thereof) approving (a) the execution and performance of this Agreement by the relevant Subscriber; and (b) the subscription of the relevant Communication Shares by the relevant Subscriber pursuant to this Agreement; 1.2 Documents evidencing payment by Industries Holdings of the Subscription Consideration pursuant to Article 6 hereof; 1.3 Deeds of transfer executed by the Dividends Obligees for transfer of the Receivable Mobile Dividends to TCL Communication for the Subscription Consideration as stipulated under Article 6 hereof; and 1.4 Documents evidencing procurement of all PRC government approvals (if applicable) as stipulated under Article 7.3 hereof. Obligations of TCL Communication 2. On the Closing Date, TCL Communication shall deliver to, or cause to be delivered to, each Subscriber all the following documents: 2.1 Board resolutions of TCL Communication (or a certified true copy thereof) approving (a) the execution and performance of this Agreement by TCL Communication; and (b) the issuance and allotment of the relevant Communication Shares by TCL Communication to each Subscriber pursuant to this Agreement; 2.2 Share certificate(s) evidencing issuance and allotment of the Communication Shares by TCL Communication to the relevant Subscriber pursuant to this Agreement. 15 Annex 2 Warranties Section A 1. Each Subscriber makes warranties and representations and provides undertakings to TCL Communication as follows: 1.1 The Subscriber is a limited liability company legally registered and organized and validly existing, and has the full authority to enter into this Agreement and carry out its obligations under this Agreement. 1.2 This Agreement shall be binding on the relevant Subscriber upon execution. 1.3 The execution and performance of this Agreement by the Subscriber will not result in any breach, rescission or termination, or constitute a default, of any agreement or undertaking to which it is a party, or violate any applicable laws, and the Subscriber has obtained all approvals of the governmental or regulatory authorities in the relevant jurisdictions necessary for the execution and performance of this Agreement (if applicable). 1.4 The facts contained in the Recitals of this Agreement are true and will be true at the Closing. 1.5 All warranties and undertakings set forth in Section A of this Annex 2 shall remain true as of the Closing. Section B 2. TCL Communication makes warranties and representations and provides undertakings to each Subscriber as follows: 2.1 TCL Communication is a limited liability company duly registered and organized and validly existing under the laws of Cayman Islands, and has the full authority to enter into this Agreement and carry out its obligations under this Agreement. 2.2 This Agreement shall be binding on TCL Communication upon execution. 2.3 The execution and performance of this Agreement by TCL Communication will not result in any breach, rescission or termination, or constitute a default, of any agreement or undertaking to which it is a party, or violate any applicable laws. 2.4 The facts contained in the Recitals of this Agreement are true and will be true at the Closing. 2.5 All warranties and undertakings set forth in Section B of this Annex 2 shall remain true as of the Closing. 16 EX-4.22 17 u99587exv4w22.txt EX-4.22 DEED OF ASSIGNMENT OF TRADEMARKS EXHIBIT 4.22 DEED OF ASSIGNMENT This Deed of Assignment (the "Deed") is entered into as of the day of September 2004 by and between NAMTAI ELECTRONIC (SHENZHEN) CO., LTD., a company existing and incorporated under the laws of the Peoples' Republic of China ("PRC") with registered address at Gu Su Industrial Estate, Xixiang, Baoan, Shenzhen, PRC (the "ASSIGNOR"); and NAM TAI ELECTRONICS, INC., an International Business Company incorporated in the British Virgin Islands, in accordance with Part V, Section 51 of the International Business Companies Ordinance, 1984 (the "ASSIGNEE"). WHEREAS, 1. The Assignor is the registered owner in PRC of trademark numbers 3465621 and 3465622, particulars of which are set out in the Schedule hereto ("TRADEMARKS"); and 2. The Assignor desires to assign to the Assignee all the property, right, title and interest in and to the Trademarks in accordance with the terms and conditions of this Deed. NOW THIS DEED WITNESSES AND IT IS AGREED as follows: 1. Assignment of Rights The Assignor hereby assigns and transfers to the Assignee all of its property, right, title and interest in and to the Trademarks, and the Assignee hereby accepts such assignment (the "ASSIGNMENT"). 2. Effective Date Subject to approval of the Assignment by the Trademark Office of PRC, the Assignment shall take effect from the date of publication of the approval of the Assignment. 3. Undertaking by Assignee The Assignee hereby undertakes to the Assignor that all goods pursuant to which the Trademarks are licensed to be used shall conform to the standards of quality and specifications as laid down by the Assignor. 4. Miscellaneous 4.1 This Assignment constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes any previous expression of intent, undertaking or agreement with respect to this transaction. 4.2 This Assignment may be executed in any number of counterparts and by the parties to this Assignment on separate counterparts, each of which when executed and delivered shall be an original but all the counterparts shall together constitute one and the same instrument. 5. Governing Law This Assignment shall be governed by and construed in accordance with the laws of PRC. EXECUTED as a deed under seal by the parties. THE SCHEDULE PRC
Goods and Services in respect of which the Trademark Registration Number Class Trademarks are registered - --------------- ------------------- ----- ------------------------- Namtai & device (English) 3465622 9 Calculators, electronic dictionaries, video camera, digital camera, batteries, headphone, connector (data processing equipment), computer, reader (data processing equipment), mobile phone, peripheral products of computers, interface of computers Namtai & device (Chinese) 3465621 9 Calculators, electronic dictionaries, video camera, digital camera, batteries, headphone, connector (data processing equipment), computer, reader (data processing equipment), mobile phone, peripheral products of computers, interface of computers
SIGNED SEALED AND DELIVERED) by Wong Kuen Ling ) as the lawful attorney of ) Namtai Electronic (Shenzhen) Co., Ltd. ) Witnessed by: ___________________________________________ Name: Title: Signed by ) For and on behalf of ) Nam Tai Electronics, Inc. ) Witnessed by: ___________________________________________ Name: Title: EX-4.23 18 u99587exv4w23.txt EX-4.23 BANKING FACILITIES LETTER EXHIBIT 4.23 [HSBC LOGO] Commercial Banking - Division A (Level 10) Ref: (CARM Serial No. 040827) 'CONFIDENTIAL Nam Tai Group Management Ltd 15/F China Merchants Tower Shun Tak Centre 168-200 Connaught Road Central Hong Kong 24 September 2004 Attn: Mr. T. Murakami / Mr. S. K. Cheung Dear Sirs BANKING FACILITIES A/C NO. 500-815287 With reference to our recent discussions, we are pleased to advise that we have reviewed your banking facilities and offer a renewal within the following revised limits which will be made available on the specific terms and conditions outlined below. These revised facilities are subject to review at any time, and in any event by 31 May 2005, and also subject to our overriding right of suspension, withdrawal and repayment on demand, including the right to call for cash cover on demand for prospective and contingent liabilities. This letter supersedes our previous letter dated 9 September 2004 which should be returned to us for cancellation.
New Limit Previous Limit --------- -------------- Overdraft HKD500,000.- HKD500,000.- Interest on the overdraft facility will be charged on daily balances AT OUR HKD BEST LENDING RATE (PREVIOUSLY at 0.5% per annum over our HKD best lending rate), which is currently 5.125% per annum, but subject to fluctuation at our discretion and payable monthly in arrears to the debit of your current account. Treasury Facilities USD30,000,000.- USD30,000,000.- within which: Foreign Exchange: (USD30,000,000.-) (USD30,000,000.-) - For booking forward exchange contracts with individual contracts up to a maximum of 6 months' duration. Currency Option- (USD30,000,000.-) (USD30,000,000.-) - maximum maturity: up to a maximum of 6 months forward
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED Hong Kong Main Office: 1 Queen's Road Central, Hong Kong Tel: 2822 1111 Fax: Telex: 73205 HSBC HX Telegrams: Hongbank Hongkong Web: www.hsbc.com.hk [HSBC LOGO] Nam Tai Group Management Ltd - 2 - 24 September 2004 Terms and Conditions Contracts for treasury products may only be entered into under these facilities to cover exchange rate exposure incurred in the normal course of your business. All treasury product facilities remain subject to our overriding right to call for cash cover on demand if in the Bank's view your mark-to-market position with us requires such cover. Further, the Bank may, after having made reasonable attempts to discuss the position with yourselves, close out any or all of your outstanding treasury products contracts and demand settlement of the balance due. All spot and forward foreign exchange transactions and all currency option transactions shall be subject to the terms of a Master Agreement in form published by the International Swaps and Derivatives Association ("ISDA").
New limit Previous Limit --------- -------------- Corporate Card HKD1,100,000- HKDl,100,000.- at our Card Centre (The terms and conditions governing the Corporate Card Facility are detailed in our HSBC Corporate Card Programme - Employer's Participation Agreement duly signed by you) IMPORT/EXPORT FACILITIES NIL HKD60,000,000. - Documentary Credits with import finance up to 90 days, less any usance/credit periods granted by your suppliers, and/or D/P bills purchased on approved drawees. WITHIN WHICH NIL (HKD60,000.000.-) Goods under your control and/or Trust Receipts. Default Interest - -
Please note that interest will be payable on sums which are overdue, drawings which are in excess of agreed limits and amounts demanded and not paid, at the maximum rate stipulated in the Bank's Tariff which is accessible at http://www.hsbc.com.hk/Hk/'business/tool/pdf/c_tariff.pdf. The Bank will provide you with a hard copy of the Tariff at your request. Interest at the applicable rate will be payable monthly in arrears to the debit of your current account. Accrual of Interest and Other Sums Please note that interest and other sums expressed to be chargeable or payable on a periodic basis will nonetheless accrue from day to day and amounts so accrued may be demanded at any time. [HSBC LOGO] Nam Tai Group Management Ltd -3- 24 September 2004 In addition, all costs and expenses (including legal fees) incurred by us in connection with the extension of these facilities and any matters arising are to be reimbursed by you on demand. Security As security, we continue to hold an Unlimited Corporate Guarantee dated 26 April 2001 from Nam Tai Electronics Inc, covering facilities to Nam Tai Group Management Ltd, together with a supporting board resolution dated 26 April 2001 authorizing its issuance. AS DISCUSSED, WE ARE AGREEABLE TO THE RELEASE OF THE NEGATIVE PLEDGE TOGETHER WITH A SUPPORTING BOARD RESOLUTION BOTH DATED 8 AUGUST 1995 FROM NAM TAI ELECTRONICS INC UNDERTAKING NOT TO PLEDGE ANY SECURITY WITH ANY BANKS WITHOUT OUR PRIOR APPROVAL. IT SHALL BE RETURNED TO YOU FOR CANCELLATION. Please arrange for the AUTHORIZED SIGNATORIES OF YOUR COMPANY, in accordance with the terms of the mandate given to the Bank, to sign and return to us the duplicate copy of this letter to signify your confirmation as to the correctness of the security held, and your continued understanding and acceptance of the terms and conditions under which these revised facilities are granted. These revised facilities will remain open for acceptance until the close of business on 14 October 2004 and if not accepted by that date will be deemed to have lapsed. We are pleased to be of continued assistance. Yours faithfully /s/ PETER CHOI For and on behalf of Peter Choi NAM TAI GROUP MANAGEMENT LIMITED Relatoinship Manager /s/ T. MURAKAMI ------------------------------- Authorized signature 24F Encl EX-4.24 19 u99587exv4w24.txt EX-4.24 SHARE TRANSFER AGREEMENT EXHIBIT 4.24 S&S Comments 9/3/05 SHARE TRANSFER AGREEMENT Transferor: J.I.C. Enterprises (Hong Kong) Limited ("Party A") Address: 15th Floor, China Merchants Tower, Shun Tak Centre, Nos. 168-200 Connaught Road Central, Hong Kong Legal Representative: Chui Kam Wai Position: Chairman Transferee: J.I.C. Technology Company Limited ("Party B") Address: Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, Cayman Islands, British West Indies Legal Representative: Seitaro Furukawa Position: Chairman

Jetup Electronic (Shenzhen) Company Limited (the "Company") was established upon the approval by the Shenzhen People's Government on 15th April 1993 and wholly owned by Party A. The registered capital is HK$158,500,000 and the paid-up capital is HK$105,878,396. Amongst which, Party A holds 100% shareholding of the Company. After the meeting of the board of directors of the Company passed the relevant resolution, Party A is willing to transfer its 100% shareholding in the Company to Party B. Now, after negotiation, Party A and Party B have agreed as follows regarding the transfer of shares in accordance with the requirements under the Contract Laws of the People's Republic of China:- SECTION 1 CONSIDERATION, PERIOD AND FORM OF SHARE TRANSFER 1. Party A holds 100% of the shareholding in the Company. In accordance with the Articles of Association of the Company, Party A shall contribute a registered capital of HK$158,500,000. The amount which was actually contributed was HK$105,878,396. Now, Party A shall transfer its 100% shareholding in the Company to Party B with a consideration of HK$105,878,396. 2. Party B shall make a one-time payment to Party A in the currency and amount as stipulated in clause 1 of Section 1 within 30 days after this Agreement takes effect. SECTION 2 Party A warrants that it has the absolute right to dispose of the shares to be transferred to Party B (the "Shares"), the Shares are free from any mortgage, the Shares have not been distrained and the Shares are free from third party's claims. Otherwise, Party A 1 S&S Comments 9/3/05 shall be responsible for all economic and legal liabilities as a result of thereof. SECTION 3 SHARING OF PROFITS AND LOSS (INCLUDING CLAIMS AND LIABILITIES) OF THE COMPANY 1. After this Agreement takes effect, Party B shall share the profits of the Company in accordance with the proportion of shareholding it has purchased, and shall share the relevant risks and losses. 2. At the time when Party A signs this Agreement, if it has not truly informed Party B of the debts of the Company before the transfer of share, and as a result thereof, Party B suffers loss after it has become a shareholder of the Company, Party B shall have the right to make a claim against Party A. SECTION 4 LIABILITY FOR BREACH OF THE AGREEMENT 1. After this Agreement takes effect, both parties shall not breach this Agreement. Each party to this Agreement shall not amend or cancel this Agreement before obtaining the consent of the other side. Otherwise, the party in default shall compensate the other party for their economic loss. 2. If Party B is unable to pay the consideration of the share transfer on time, Party B shall pay compensation, being 1/10,000 of the total amount in arrears per each day of delay. If Party B breaches this Agreement and as a result thereof, Party A suffers loss and the amount of compensation payable by Party B is less than the loss actually suffered by Party A, Party B shall separately make up for the loss. 3. For reasons attributable to Party A, if Party B is unable to apply for change in the registration record on time or if Party B is seriously affected in realizing the purpose of this Agreement, Party A shall pay compensation, being 1/10,000 of the consideration of the share transfer already paid by Party B. If Party A is in breach of this Agreement and as a result thereof Party B suffers loss and the amount of compensation payable by Party A is less than the loss actually suffered by Party B, Party A shall separately make up for the loss. 2 S&S Comments 9/3/05 SECTION 5 AMENDMENT AND CANCELLATION OF THE AGREEMENT If agreement is reached after negotiation, Party A and Party B may amend and cancel this Agreement. For any amendment or cancellation of this Agreement after negotiation, both parties shall execute a separate amendment or cancellation agreement, which shall be notarized by the notary public of Bao'an District of Shenzhen. SECTION 6 BEARING THE RELEVANT FEES Party B shall bear the relevant fees (fees of notary public, assessment or audit, change of registration record with the Administration for Industry and Commerce, etc.) incurred during the course of this share transfer. SECTION 7 SETTLEMENT OF DISPUTE For any dispute which arises as a result of implementing this Agreement, Party A and Party B shall first resolve the matter amicably by negotiation. If no settlement can be reached, either of the Parties may take legal proceedings in the local people's court. SECTION 8 EFFECTIVE DATE This Agreement shall take effect after it has been executed by Party A and Party B, imprinted with company chop, notarized by the notary public, and on the date after it has been submitted to and approved by the Shenzhen People's Government, and after the procedures as to the change of registration record with the Administration for Industry and Commerce have been completed. SECTION 9 This Agreement has eight counterparts. Party A and Party B shall each keep one counterpart. The notary public shall keep one counterpart. All of the rest of the counterparts are to be submitted to the relevant departments. All of the counterparts have equal force of law. 3 S&S Comments 9/3/05 (This page contains no text) Party A: J.I.C. Enterprises (Hong Kong) Limited Legal Representative: (Sd.) Chui Kam Wai (company chop) Party B: J.I.C. Technology Company Limited Legal Representative: (Sd.) Seitaro Furukawa (company chop)

~~15th October 2004 in Shenzhen 4~~ EX-12.1 20 u99587exv12w1.txt EX-12.1 CERTIFICATION TO SECTION 302 EXHIBIT 12.1 CERTIFICATIONS I, Joseph Li, in my capacity as Chief Executive Officer, certify that: 1. I have reviewed this annual report on Form 20-F of Nam Tai Electronics, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this annual report; 4. The company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15(d) to 15(f)) for the company and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluations; and d. Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting. 5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the company's auditors and the 1 audit committee of company's Board of Directors (or persons performing the equivalent Function): a. All Significant deficincies and material weakneses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the company's ability to record, process ,summarize and report financial information; and b. Any fraud, whether or not material, that involve management or other employees who have a significant role in the company's internal controls over financial reporting. /s/ Joseph Li ____________________________ Joseph Li Chief Execuative Officer Date: March 15, 2005 EX-12.2 21 u99587exv12w2.txt EX-12.2 CERTIFICATION TO SECTION 302 EXHIBIT 12.2 CERTIFICATIONS I, Joseph Li, in my capacity as Chief Financial Officer, certify that: 1. I have reviewed this annual report on Form 20-F of Nam Tai Electronics, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d) to 15(f)) for the company and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluations; and d. Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting. 5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the company's auditors and the 1 audit committee of company's Board of Directors (or persons performing the equivalent Function): a. All Significant deficeiencies and material weakneses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involve management or other employees who have a significant role in the company's internal controls over financial reporting. /s/ Joseph Li ____________________________ Joseph Li Chief Financial Officer Date: March 15, 2005 EX-14.1 22 u99587exv14w1.txt EX-14.1 CODE OF ETHICS EXHIBIT 14.1 [NAMTAI LOGO] NAM TAI ELECTRONICS, INC. CODE OF BUSINESS CONDUCT AND ETHICS FOR ALL EMPLOYEES Nam Tai Electronics, Inc. (the "Company") is committed to conducting its business in compliance with the highest standards of ethical conduct and all applicable laws, rules and regulations, and in particular to full and accurate financial disclosure. This Code of Business Conduct and Ethics is applicable to all employees and members of the Board of Director (the "Board") of the Company. The Company will insist on full compliance with this Code of Business Conduct and Ethics. - - COMPLIANCE WITH LAWS, RULES AND REGULATIONS All employees are required to comply with all applicable laws, rules and regulations including insider trading laws as stipulated in the Employee Selling / Buying Stock Guidelines that govern the conduct of the Company's business and to report any suspected violations in accordance with the section below entitled "Compliance with Code of Business Conduct and Ethics". - - CONFLICTS OF INTEREST A conflict of interest occurs when an employee's private interests interfere in any way, or even appear to interfere, with the interests of the Company. All employees have the obligation to conduct the Company's business in an honest and ethical manner, including the ethical handling of actual or apparent conflicts of interest. Before making any investment, accepting any position or benefits, participating in any transaction or business arrangement, such as giving or receiving gifts or otherwise acting in a manner that creates or appears to create a conflict of interest, all employees must make full disclosure of all facts and circumstances to, and obtain the written approval of the Nominating/Corporate Governance Committee ("CGC"), or if the CGC is not available within a reasonable period of time, the approval of the Audit Committee. No employee shall pay or offer to pay bribes or illicit payments to government officials or candidates, or other parties in order to obtain or retain business. - - PROTECTION AND PROPER USE OF COMPANY ASSETS / COMPANY INFORMATION All employees shall protect the Company's assets and ensure their efficient use at all times during their employment with the Company. Theft of the Company's assets includes, but is not limited to, theft of confidential information, technical information, trade secrets, confidential operations, processes, know-how and design, and will lead to summary dismissal without compensation. All employees shall also take reasonable measures to otherwise safeguard and protect confidential Company assets. All employees shall protect and keep confidential all Company assets, whether written or non-written, and shall not for whatever reason during the employment and for a period of six months after employment disclose to any person, including friends and family members, firm or company or otherwise make use of such information. All employees shall fully indemnify the Company for all losses and damages to the Company and / or the Nam Tai Group of Companies arising from such employee's default of their confidentiality obligation. - - DISCLOSURES It is Company's policy to make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws and regulations in all reports and documents that the Company files with, or submits to, the United States Securities and Exchange Commission and the New York Stock Exchange, and in all other public communications made by the Company. All employees are required to abide by Company standards, policies and procedures designed to promote compliance with this policy. - - FAIR DEALING All employees are required to deal fairly with the company's customers, suppliers, competitors and employees, and should not take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair business practices. - - COMPLIANCE WITH THE CODE OF BUSINESS CONDUCT AND ETHICS Violations of this Code of Business Conduct and Ethics may result in disciplinary action, up to and including discharge. The CGC or, in the absence of the CGC, the Audit Committee shall determine, or shall designate appropriate persons to determine, appropriate actions in response to violations of this Code of Business Conduct and Ethics. If an employee knows of or suspects a violation of applicable laws, rules or regulations or this Code of Business Conduct and Ethics, he/she must immediately report that information to the CGC, or in the absence of CGC, the Audit Committee. No one will be subject to retaliation because of a good faith report of a suspected violation. - - WAIVERS OF THE CODE OF BUSINESS CONDUCT AND ETHICS If an employee would like to seek a waiver of the Code of Business Conduct and Ethics, he/she must make full disclosure of his/her particular circumstances to the CGC, or in the absence of CGC, the Audit Committee. All employees Grade 3 or above must signify their acknowledgment of this Code of Business Conduct and Ethics by signing and returning the attached "Acknowledgment Form" within 1 month from the approval date of this Code. All other employee will receive an electronic copy of this Code through email as notification. - - NO RIGHTS CREATED This Code of Business Conduct and Ethics is a statement of certain fundamental principles, policies and procedures that govern the Company's employees. It is not intended to and does not create any rights in any employee, customer, supplier, competitor, shareholder or any other person or any other person or entity. [NAMTAI LOGO] ACKNOWLEDGMENT FORM I have received and read the Code of Business Conduct and Ethics for all employees, and I understand its contents. I agree to comply fully with the standards contained in the Code of Business Conduct and Ethics and the Company's related policies and procedures as well as applicable laws, rules and regulations. I understand that I have an obligation to report to the Corporate Governance Committee ("CGC"), or in the absence of CGC, to the Audit Committee, any suspected violations of the Code of Business Conduct and Ethics. -------------------------------- -------------------------------- Name (Please Print) -------------------------------- Date 5 EX-23.1 23 u99587exv23w1.txt EX-23.1 CONSENT OF DELOITTE TOUCHE TOHMATSU EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-76940 of Nam Tai Electronics, Inc. on Form S-8 and on Registration Statement No, 333-58468 of Nam Tai Electronics, Inc. on Form F-3, of our report dated March [-], 2005 appearing in the annual report on Form 20-F of Nam Tai Electronics, Inc. for the year ended December 31, 2004. /s/ Deloitte Touche Tohmatsu Hong Kong March [14], 2004 EX-99.1 24 u99587exv99w1.txt EX-99.1 CERTIFICATION TO SECTION 906 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED PURSUANT TO SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002 Nam Tai Electronics, Inc. (the "Company") is filing with the U.S. Securities and Exchange Commission on the date hereof, its annual report on Form 20-F for the fiscal year ended December 31, 2004 (the "Report"). I, Joseph Li, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (i) the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Joseph Li _____________________________ Joseph Li Chief Executive Officer March 15, 2005 A signed original of this written statement required by Section 906 has been provided to Nam Tai Electronics, Inc., and will be retained by Nam Tai Electronics, Inc. and furnished to the U.S. Securities and Exchange Commission or its staff upon request. This certification will not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. This certification will not be deemed to be incorporated by reference into any filing under Securities Act of 1933 or the Securities Exchange Act of 1934 even if the document with which it is submitted to the U.S. Securities and Exchange Commission is so incorporated by reference. EX-99.2 25 u99587exv99w2.txt EX-99.2 CERTIFICATION TO SECTION 906 EXHIBIT 99.2 CETIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED PURSUANT TO SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002 Nam Tai Electronics, Inc. (the "Company") is filing with the U.S. Securities and Exchange Commission on the date hereof, its annual report on Form 20-F for the fiscal year ended December 31, 2004 (the "Report"). I, Joseph Li, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (i) the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Joseph Li _____________________________ Joseph Li Chief Financial Officer March 15, 2005 A signed original of this written statement required by Section 906 has been provided to Nam Tai Electronics, Inc., and will be retained by Nam Tai Electronics, Inc. and furnished to the U.S. Securities and Exchange Commission or its staff upon request. This certification will not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. This certification will not be deemed to be incorporated by reference into any filing under Securities Act of 1933 or the Securities Exchange Act of 1934 even if the document with which it is submitted to the U.S. Securities and Exchange Commission is so incorporated by reference. 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PART I
Item 1. Identity of Directors, Senior Management and Advisors — Not applicable			3
Item 2. Offer Statistics and Expected Timetable — Not applicable			3
Item 3. Key Information			3
Item 4. Information on the Company			14
Item 5. Operating and Financial Review and Prospects			27
Item 6. Directors, Senior Management and Employees			43
Item 7. Major Shareholders and Related Party Transactions			48
Item 8. Financial Information			50
Item 9. The Listing			54
Item 10. Additional Information			55
Item 11. Quantitative and Qualitative Disclosure about Market Risk			60
Item 12. Description of Securities Other than Equity Securities — Not applicable			61
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies — Not applicable			62
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds — Not applicable			62
Item 15. Controls and Procedures			62
Item 16. *[Reserved]*			62
Item 16 A. Audit Committee Financial Expert			62
Item 16 B. Code of Ethics			63
Item 16 C. Principal Accountant Fees and Services			63
Item 16 D. Purchases of Equity Securities by the Issuer and Affiliated Purchasers			64
PART III
Item 17. Financial Statements — Not applicable			64
Item 18. Financial Statements			64
Item 19. Exhibits
EX-4.3 EQUITY INTEREST TRANSFER AGREEMENT
EX-4.7 LAND TITLE RIGHTS
EX-4.9 MEMO OF UNDERSTANDING
EX-4.10 SALE AND PURCHASER AGREEMENT
EX-4.11 TRADEMARK LICENSE AGREEMENT
EX-4.12 DEED OF INDEMNITY
EX-4.13 UNDERWRITING AGREEMENT DATED APRIL 15, 2004
EX-4.14 SUPPLEMENTAL AGREEMENT
EX-4.15 UNDERWRITING AGREEMENT DATED APRIL 22, 2004
EX-4.16 PRICING DETERMINATION AGREEMENT
EX-4.17 STOCK BORROWING AGREEMENT
EX-4.18 AMENDED 2001 OPTION PLAN
EX-4.19 ACCESSION AGREEMENT
EX-4.20 ESCROW AGREEMENT
EX-4.21 SUBSCRIPTION AGREEMENT
EX-4.22 DEED OF ASSIGNMENT OF TRADEMARKS
EX-4.23 BANKING FACILITIES LETTER
EX-4.24 SHARE TRANSFER AGREEMENT
EX-12.1 CERTIFICATION TO SECTION 302
EX-12.2 CERTIFICATION TO SECTION 302
EX-14.1 CODE OF ETHICS
EX-23.1 CONSENT OF DELOITTE TOUCHE TOHMATSU
EX-99.1 CERTIFICATION TO SECTION 906
EX-99.2 CERTIFICATION TO SECTION 906

•	the timing, cancellation or postponement of orders;

•	the type of product and related margins;

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

•	the life cycles of our customers’ products;

•	our timing of expenditures in anticipation of future orders;

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

•	the mix of orders filled.

•	utilization of advances in technology;

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

•	delivery of efficient and cost-effective services; and

•	timely completion of the manufacture of new products.

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

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

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

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

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

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

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

•	changes in international and domestic customs regulations;

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

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

•	difficulties in managing or overseeing foreign operations; and

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

•	Difficulties in staffing and managing international operations;

•	Compliance with laws and regulations, including environmental laws, which vary from country to country and over time, increasing the costs of compliance and potential risks of non-compliance;

•	Exposure to political and financial instability, leading to currency exchange losses, collection difficulties or other losses;

•	Exposure to fluctuations in the value of local currencies;

•	Changes in value-added tax or VAT reimbursement;

•	Imposition of currency exchange controls; and

•	Delays from customs brokers or government agencies.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

•	$13.8 million for new factory expansion;

•	$7.7 million for the expansion of an LCD factory (which included 5.8 million paid as a deposit for fixed assets);

•	$0.7 million for the expansion of our high-resolution color LCD module production capacity;

•	$14.5 million for machineries used mainly for FPC sub-assemblies;

•	$5.6 million for other capital equipment; and

•	$2.1 million for construction work in relation to the electricity supply for Nam Tai Electronic (Shenzhen) Co., Ltd.

•	$6.0 million for machinery for manufacturing RF modules;

•	$1.2 million for new factory expansion;

•	$0.4 million for machinery on FPC sub-assemblies;

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

•	$6.7 million for other capital equipment; and

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

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

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

•	$ 8.0 million for land purchase;

•	$16.5 million for new factory expansion;

•	$14.0 million for machinery; and

•	$4.5 million for other equipment.

•	A Bluetooth^TM wireless headset accessory for cellular phones, which we began manufacturing in March 2004.

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

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

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

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

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

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

•	Cellular phones in SKD form.

•	FPC sub-assemblies which we began manufacturing in March 2003 for integration into various LCD modules.

•	Front light panels for handheld video game devices.

•	Back light panels for handheld video game devices, which we began manufacturing in August 2004.

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

•	Chip on Film, or COF, is an assembly method for bonding integrated circuit chips and other components onto a flexible printed circuit. This process allows for greater compression of the size of a product when assembled enabling the production and miniaturization of small form factor devices like cellular phones, PDAs, digital cameras and notebook PCs. As of December 31, 2004, we had 14 COF machines. These machines connect the bump of large scale integrated, or LSI, driver onto FPC pattern with anisotropic conductive film, or ACF, and mount chip resister cap components to FPC through surface mount technology, or SMT, is available. These COF machines have the ability to pitch fine to 38 micrometers and a total production capacity of up to 4,000,000 chips per month.

•	Chip On Glass, or COG, is a process that connects integrated circuits directly to LCD panels without the need for wire bonding. We apply this technology to produce advanced LCD modules for high-end electronic products, such as cellular phones and PDAs. As of December 31, 2004, we had 21 COG lines in our principal manufacturing facilities. These machines provide an LCD of dimension of up to 200 millimeters (length) x 150 (width) x 2.2 (height), a process time per chip of five seconds, a pin pitch fine to 38 micrometers and a total production capacity of up to 4,000,000 chips per month. During 2004, our subsidiary, Jetup Electronic (Shenzhen) Co. Ltd., or Jetup, also started manufacturing COG LCD modules. As of December 31, 2004, Jetup had five COG lines and is capable of bonding 1,000,000 pieces of COG LCD modules a month. They are able to bond LCD panels up to sizes of 100 millimeters x 100 millimeters x 2.2 millimeters thick, with an accuracy of five microns’ tolerence, in a cycle time of 12-15 seconds per piece.

•	Chip On Board, or COB, is a technology that utilizes wire bonding to connect large-scale integrated circuits directly to printed circuit boards. We use COB in the assembly of consumer products such as calculators, personal organizers and linguistic products. As of December 31, 2004, we had 52 COB machines. These machines are fully automatic bonding machines and use ultrasonic mounting technology. The bonding time, pressure, power and each wire loop are under machine programmable control. These machines provide a high speed chip mounting time of per 2 millimeters wire per 0.25 second, a bond pad fine to 75 micrometers and a total production capacity of up to 3,000,000 chips per month.

•	Outer Lead Bonding, or OLB, is an advanced technology used to connect PCBs and large-scale integrated circuits with a large number of connectors. We use this technology to manufacture complex miniaturized products, such as high-memory PDAs. As of December 31, 2004, we had three OLB machines. The machines include multi-pinned tape carrier packaged large scale integrated circuit, or TCP LSIC, bonding which is up to 280 pins, which also provide ultra thin assembly with module thickness to around one millimeter and high accuracy bonding with pin pitch to 100 micrometers. The total production capacity is 12,000 units per month.

•	Tape Automated Bonding with Anisotropic Conductive Film, or TAB with ACF, is an advanced heat sealing technology that connects a liquid crystal display component with an integrated circuit in very small LCD modules, such as those used in cellular phones and pagers. As of December 31, 2004, we had 35 systems of TAB with ACF machines. The machines provide process time of 24 to 25 seconds per component, a pin pitch fine to 200 micrometers and a total production capacity of up to 3,660,000 components per month. During 2004, Jetup also started manufacturing TAB LCD modules. As of December 31, 2004, Jetup had two TAB lines and is capable of bonding 250,000 pieces of TAB LCD modules a month. They are able to bond LCD panels up to sizes of 120 millimeters x 120 millimeters x 2.2 millimeters thick, with an accuracy of 10 microns’ tolerence in a cycle time of 20-25 seconds per piece.

•	Fine Pitch Heat Seal Technology, or FPHS technology, allows us to connect LCD displays to PCBs produced by COB and outer lead bonding that enables very thin connections. This method is highly specialized and is used in the production of finished products such as PDAs. As of December 31, 2004, we had eight machines utilizing FPHS technology. The machines provide a pin pitch fine to 260 micrometers and a total production capacity of up to 268,000 units per month.

•	Surface Mount Technology, or SMT, is a process by which electronic components are mounted directly on both sides of a printed circuit board, increasing board capacity, facilitating product miniaturization and enabling advanced automation of production. We use SMT for products such as electronic linguistic devices. As of December 31, 2004, we had 29 SMT productions lines. The production time per chip ranges from 0.072 second per chip to 0.8 second per chip and high precision ranging from +/-0.05 millimeter to +/-0.1 millimeter. The components size ranges from 0.6 millimeter (length) x 0.3 millimeter (width) to 55 millimeters (length) x 55 millimeters (width). Ball grid array, or BGA, ball pitch is 0.5 millimeter and ball diameter is 0.2 millimeter. The total production capacity is 670,000,000 resistor capacitor chips per month.

•	Twisted Nematic LCDs, or TN type LCD, is the most conventional and economical and is suitable for low information content display systems such as those found in calculators, watches, car audio, car clusters and other medical instruments. As of December 31, 2004, J.I.C. had two TN LCD lines capable of total capacity of about 100,000 pairs of glass panels (each sheet of glass of 360 millimeters x 400 millimeters size) per month.

•	Super-Twisted Nematic LCDs, or STN, type LCDs capable of providing higher information content display systems are found in applications such as cordless phones, mobile phones, MP3 players, pocket games and PDAs. J.I.C. started producing STN LCDs in 2002 and, as of December 31 2004, was equiped with a automated line capable of capacity 50,000 pairs of glass (each sheet of glass of 360 millimeters x 400 millimeters size) panels per month.

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

•	LCD panels, which are available from many manufacturers. In 2004, we purchased LCD panels from Epson Hong Kong Ltd., Toshiba Matsushita Display Technology Co. Ltd., Optrex Corporation and Sharp Corporation for LCD panels and in the future we may produce some LCD supplies internally;

•	CMOS sensors, which we purchase mainly from Omnivision Technologies Inc.;

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

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

	•	Persuasive evidence of an arrangement exists;

	•	Delivery has occurred or services have been rendered;

	•	Price to the customer is fixed or determinable; and

	•	Collectibility is reasonably assured.

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

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

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

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

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

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

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

•	you are a corporation or other exempt recipient, or

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


	Page(s)
Report of Independent Registered Public Accounting Firm		F-2

Consolidated Statements of Income for the years ended December 31, 2002, 2003 and 2004		F-3

Consolidated Balance Sheets as of December 31, 2003 and 2004		F-4

Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the years ended December 31, 2002, 2003 and 2004		F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2003 and 2004		F-6 – F-7

Notes to Consolidated Financial Statements		F-8 – F-36

1.	Company Information

	Nam Tai Electronics, Inc. and subsidiaries (the “Company” or “Nam Tai”) is an electronics manufacturing and design services provider to a selected group of the world’s leading original equipment manufacturers, or OEMs, of telecommunication and consumer electronic products. Through its electronics manufacturing services, or EMS, operations, the Company manufactures electronic components and subassemblies, including liquid crystal display, or LCD, panels, LCD modules, radio frequency, or RF, modules, flexible printed circuit subassemblies and image sensors modules. These components are used in numerous electronic products, including cellular phones, laptop computers, digital cameras, copiers, fax machines, electronic toys, handheld video game devices and microwave ovens. The Company also manufactures finished products, including cellular phones, palm-sized PC’s, personal digital assistants, electronic dictionaries, calculators, digital camera accessories and Bluetooth^™ wireless headset accessory for use with cellular phones.

	The Company was founded in 1975 and moved its manufacturing facilities to the People’s Republic of China (the “PRC”) in 1980 to take advantage of lower overhead costs, lower material costs and competitive labor rates available and subsequently relocated to Shenzhen, PRC in order to capitalize on opportunities offered in Southern China. The Company was reincorporated as a limited liability International Business Company under the laws of the British Virgin Islands (“BVI”) in August 1987. The Company’s principal manufacturing and design operations are based in Shenzhen, the PRC, approximately 30 miles from the Hong Kong Special Administrative Region (“Hong Kong”). Its PRC headquarters are located in the Macao Special Administrative Region (“Macao”). Some of the subsidiaries’ offices are located in Hong Kong and Macao, which provides it access to Hong Kong’s and Macao’s infrastructure of communication and banking and facilitates management of its PRC operations. The Company’s principal manufacturing operations are conducted in the PRC. The PRC resumed sovereignty over Hong Kong and Macao effective July 1, 1997 and December 20, 1999, respectively, and politically Hong Kong and Macao are integral parts of China. However, for simplicity and as a matter of definition only, our references to PRC in these consolidated financial statements means the PRC and all of its territories excluding Hong Kong and Macao.

	In 2004, Nam Tai’s operations were re-organized into three reportable segments consisting of consumer electronics and communication products (“CECP”), telecommunication components assembly (“TCA”) and LCD panels (“LCDP”). In 2003, CECP and TCA were classified as a single reportable segment as consumer electronic products (“CEP”) while LCDP also comprised the transformers operations and collectively referred to as LCD panels and transformers (“LPT”). Through the disposal of a subsidiary in 2003, the Company discontinued its transformers operations, details of which are set out in note 3(b)(iii).

2.	Summary of Significant Accounting Policies

	(a)	Principles of consolidation

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

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

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

	(b)	Cash and cash equivalents

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

	(c)	Marketable securities

		Marketable securities at December 31, 2004 are principally equity securities and are classified as available-for-sale. Securities classified as available-for-sale are stated at fair value with unrealized gains and losses recorded as a separate component of accumulated other comprehensive income (loss). Realized gains and losses on the sale of the available-for-sale securities are determined using the specific-identification method and are reflected in other income (expenses).

	(d)	Inventories

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

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

		For the Company’s LCDP segment, due to the nature of the business, LCDP customers do not always place orders advance enough to enable the Company to order inventory from suppliers based on firm customer orders. Nonetheless, management reviews its inventory balance on a regular basis and writes down all inventory over six months old if it is determined that the relevant inventory can not be utilized in the foreseeable future.

	(e)	Property, plant and equipment

		Property, plant and equipment are recorded at cost and include interest on funds borrowed to finance construction. No interest was capitalized for the years ended December 31, 2002, 2003 and 2004. The cost of major improvements and betterments is capitalized whereas the cost of maintenance and repairs is expensed in the year incurred. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. Gains and losses for the disposal of leasehold land are included in other income (expenses) while gains and losses from the disposal of other property, plant and equipment are included in income from operations.

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

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

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

	(f)	Goodwill and licenses

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

		With effect from January 1, 2002, the Group adopted Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. Under this statement goodwill and other intangible assets with indefinite lives will not be amortized, but will be tested for impairment at the reporting unit level on at least an annual basis. A reporting unit is an operating segment or one level below an operating segment (i.e. a component) as defined in SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information”. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. Through May 2002, the Company operated in two reporting units, which were its then operating segments of CEP and LPT. Beginning in June 2002, the Company segregated its then LPT segment into two reporting units: LCD panels and transformers. In June 2003, the Company disposed of its transformers operation through the disposal of a subsidiary, details of which are set out in note 3(b)(iii). Effective April 2004, the Company operated in three reporting units which were its reportable segments of CECP, TCA and LCDP.

		The evaluation of goodwill for impairment involves two steps: (1) the identification of potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill and (2) the measurement of the amount of goodwill loss by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill and recognizing a loss by the excess of the latter over the former. For future impairment tests, the Company will measure fair value based either on internal models or independent valuations.

	(g)	Impairment or disposal of long-lived assets

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

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

	(h)	Revenue recognition

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

	(i)	Shipping and handling costs

		Shipping and handling costs are classified as to cost of sales for material purchased and selling expenses for those costs incurred in the delivery of finished products. During the years ended December 31, 2002, 2003, and 2004, shipping and handling costs classified as costs of sales were $536, $466 and $536, respectively. During the years ended December 31, 2002, 2003 and 2004, shipping and handing costs classified as selling expenses were $808, $870 and $767, respectively.

	(j)	Research and development costs

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

	(k)	Advertising expenses

		The Company expenses advertising costs as incurred. Advertising expenses were $528, $261 and $265 for the years ended December 31, 2002, 2003 and 2004, respectively.

	(l)	Staff retirement plan costs

		The Company’s costs related to the staff retirement plans (see note 14) are charged to the consolidated statement of income as incurred.

	(m)	Income taxes

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

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

	(n)	Foreign currency transactions and translations

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

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

		The exchange rate between the Hong Kong dollar and the U.S. dollar were approximately 7.7989,7.7643 and 7.7732 as of December 31, 2002, 2003 and 2004, respectively. The exchange rate between the Chinese Renminbi and the U.S. dollar is based on the applicable rate of exchange quoted by the People’s Bank of China prevailing at the balance sheet date and were approximately 8.2773, 8.2767 and 8.2765 as of December 31, 2002, 2003 and 2004, respectively.

	(o)	Earnings per share

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

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

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

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

	(p)	Stock options

		The Company does not recognize compensation expense for employee stock-based compensation if the strike-price is equal to or greater than the market price of the stock at the date of grant. The Company’s policy is to generally grant stock-based compensation to employees with a stock price equal to the market price of the stock on the date of grant. The Company continues to account for stock-based compensation arrangements under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and provides additional financial statement disclosure in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation". The Company recognizes compensation expense for all stock-based compensation granted to non-employees by estimating the fair value of the stock-based compensation utilizing the Black-Scholes option-pricing model. See note 11.

		The Company has two stock-based employee compensation plans, as more fully described in note 11(b). Stock-based employee compensation costs are not reflected in net income when options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant.

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