<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
[ ] Registration Statement Pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934
OR
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
----------------------------------
For the Fiscal Year Ended: Commission File Number:
December 31, 1995 0-16673
----------------------------------
NAM TAI ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
British Virgin Islands
(Jurisdiction of incorporation or organization)
Unit 513-520
No. 1 Hung To Road
Kwun Tong, Kowloon, Hong Kong
(Address of principal executive offices)
----------------------------------
Securities registered or to be registered pursuant to Section 12(b) of
the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common
Shares, $0.01 par value per share
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: NONE
As of December 31, 1995, there were 8,063,177 Common Shares of the
registrant outstanding.
Indicate by check mark whether the registrant: (i) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark which financial statement item the registrant
has elected to follow:
Item 17 Item 18 X
----- -----
Page 1 of ________ Pages (including Exhibits)
Exhibit Index on Page 53
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS AND CURRENCY PRESENTATION .......................................................... 2
PART I .................................................................................................. 3
Item 1. Description of Business ................................................................... 3
Item 2. Properties ................................................................................ 17
Item 3. Legal Proceedings ......................................................................... 18
Item 4. Control of the Company .................................................................... 19
Item 5. Nature of Trading Market .................................................................. 20
Item 6. Exchange Controls and Other Limitations Affecting Security Holders ........................ 20
Item 7. Taxation .................................................................................. 20
Item 8. Selected Financial Data ................................................................... 21
Item 9. Management's Discussion and Analysis of Results of Operations and Financial Condition ..... 22
Item 10. Directors and Executive Officers of the Company ........................................... 31
Item 11. Compensation of Directors and Officers .................................................... 33
Item 12. Options to Purchase Securities from the Company or its Subsidiaries ....................... 33
Item 13. Interest of Management in Certain Transactions ............................................ 33
PART II .................................................................................................. 34
Item 14. Description of Securities to be Registered ................................................ 34
PART III ................................................................................................. 34
Item 15. Defaults Upon Senior Securities ........................................................... 34
Item 16. Changes in Securities and Changes in Security For the Company's Securities ................ 34
PART IV ................................................................................................. 34
Item 17. Financial Statements ...................................................................... 34
Item 18. Financial Statements ...................................................................... 34
Consent of Independent Accountants (to incorporation of their report on
Financial Statements into the Company's Registration Statement on Form S-8) ............. 52
Item 19. Financial Statements and Exhibits ......................................................... 53
SIGNATURES ............................................................................................... 53
</TABLE>
FINANCIAL STATEMENTS AND CURRENCY PRESENTATION
The Company prepares its consolidated financial statements in
accordance with generally accepted accounting principles in the United States
of America. See "Report of Independent Accountants" included elsewhere herein.
The Company publishes its financial statements in United States dollars for the
following reasons: (i) the Company is incorporated in the British Virgin
Islands where the currency is the United States dollar; (ii) the Company
conducts the majority of its business transactions in United States dollars;
and (iii) the exchange rate between the Hong Kong dollar and the United States
dollar has been fixed at approximately 7.80 Hong Kong dollars to $1.00 since
1983. See Note 1(g) of Notes to Consolidated Financial Statements appearing in
Item 18 of this Report.
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<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
Nam Tai Electronics, Inc. (which together with its subsidiaries is
hereafter referred to as the "Company" or "Nam Tai") was incorporated as a
limited liability International Business Company under the laws of the British
Virgin Islands in August 1987. The Company's corporate administrative matters
are conducted in the British Virgin Islands through its registered agent, Citco
Trust Corporation Limited, P.O. Box 662, Road Town, Tortola, British Virgin
Islands. The Company's principal executive offices are located in Hong Kong in
Unit 513-520 No. 1 Hung To Road, Kwun Tong, Kowloon, Hong Kong.
As an International Business Company, the Company is prohibited from
doing business with persons resident in the British Virgin Islands, owning real
estate in the British Virgin Islands, or acting as a bank or insurance company.
The Company does not believe these restrictions materially affect its
operations.
Nam Tai was incorporated in the British Virgin Islands principally to
facilitate trading in its shares. The government of Hong Kong imposes stamp
duty on the transfer of shares equal to 0.3% of the value of the transaction.
There is no such stamp duty imposed by the British Virgin Islands. As the
United States securities industry is not geared toward the collection of stamp
duties for share transactions, the Company was organized in this manner to
avoid any such requirements.
RECENT DEVELOPMENTS
Inflation continues to be a problem in the People's Republic of China
(hereafter referred to as "China") although the rate of inflation fell in 1995
compared to 1994 and 1993. China's economy grew at annual rates of 10.2% in
1995, 11.8% in 1994 and 13.4% in 1993. Inflation declined to 14.8% in 1995
from 21.7% in 1994 following the application of programs such as credit control
to address major problems with the economy. Typically, countries which have
high inflation experience a currency devaluation against countries such as the
U.S. which have much lower inflation rates. However, the Chinese renminbi has
been relatively stable in value against the U.S. dollar, actually strengthening
slightly, with an average rate of 8.32 renminbi per $1.00 during 1995 and 8.45
renminbi per $1.00 during 1994. This was mainly the result of China's success
in controlling money supply. Although only 6.2% of the Company's expenses were
in Chinese renminbi in 1995, the appreciation of the renminbi against the U.S.
dollar increases the expenses of the Company when translated into U.S. dollars.
In order to expand production capacity, the Company is expanding its
factory on an adjacent site consisting of approximately 283,200 square feet of
land in Shenzhen, China. The Company purchased the right to use this site for
30 years for a total of approximately $2,450,000 in January 1994. Construction
of the approximately 400,000 square feet of new factory complex began in early
1995 and portions were completed in August 1995 to house new factory employees
that the Company is adding to expand production. Construction of the new
factory is on schedule and completion of Phase I was essentially complete at
the end of the first quarter of 1996. Phase II is anticipated to be complete
by the end of 1998. Phase I consists of a factory building of approximately
160,000 square feet, an office building of approximately 40,000 square feet as
well as new dormitories, recreation and dining facilities. In accordance with
an expansion schedule, Nam Tai intends to establish production lines and equip
the new factory on a floor-by-floor basis as required by growth in the
Company's business through 1996 and into early 1997. Phase II of the new
factory complex will consist of another factory building of approximately equal
size to the one now under construction plus a swimming pool facility for all
employees.
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<PAGE> 4
COMPANY OVERVIEW
Nam Tai Electronics, Inc. is an independent provider of high quality
manufacturing services to original equipment manufacturers ("OEMs") in the
consumer electronics industry. All of the Company's manufacturing operations
are based in China. Nam Tai assists OEMs in the design and development of
products and furnishes full turnkey manufacturing services to its OEM
customers. The Company provides the components and other materials used in the
assembly process, assembles the components into finished products or electronic
subassemblies and performs post-assembly testing. The Company manufactures a
broad line of finished products for its OEM customers, including personal
organizers, linguistic products and calculators. In addition, it manufactures
electronic components and subassemblies and is engaged in the development of
products such as integrated circuit ("IC") or smart card readers (referred to
as "IC card readers"). The electronic components and subassemblies are for
printed circuit boards ("PCBs") utilizing advanced processes such as chip on
board ("COB"), multichip modulators ("MCM"), surface mount technology ("SMT"),
tape automated bonding ("TAB") and outer lead bonding ("OLB") technologies.
These products produced by the Company include large scale integrated circuits
("LSI") bonded on PCBs that are used in the manufacture of products such as
electronic toys, and subassemblies for liquid crystal display ("LCD") modules
that are used in the manufacture of communications, camera and computer
products. The Company also provides OEMs with silk screening services for
plastic parts, polyvinyl chloride ("PVC") products and metal parts.
The Company moved its manufacturing facilities to Shenzhen, China in
1987 to take advantage of lower overhead costs and competitive labor rates and
to position itself to achieve low-cost, high volume manufacturing. The
location of Nam Tai's factory in Shenzhen is about 30 miles from Hong Kong,
providing the Company with close access to Hong Kong's infrastructure of
communication and banking. This also facilitates transportation of the
Company's products out of China through the port of Hong Kong. The Company
moved to its present facility which initially consisted of approximately
150,000 square feet from a nearby location in August 1992, permitting Nam Tai
to more than double its then production capacity. The Company reached capacity
at the then current manufacturing facility during the third quarter of 1994 and
became capacity constrained during late 1995. In planning for its future
growth, in January 1994, the Company purchased the right of use of land
adjacent to its existing factory site. Construction of the new factory
complex began in early 1995 and portions were completed in August 1995 to house
new factory employees that the Company is adding to expand production. Phase I
of the new facility was essentially complete by the end of the first quarter
of 1996 with the transfer of personnel and equipment into the new factory
commencing thereafter. This consists of a factory complex of approximately
400,000 square feet, including a 160,000 square foot manufacturing facility, an
office building of approximately 40,000 square feet and new dormitories,
recreation and dining facilities. Phase II of the factory expansion is
anticipated to be complete by the end of 1998.
The Company emphasizes high responsiveness to the needs of OEM
customers through the development and volume production of increasingly
sophisticated products. The Company seeks to build long-term relationships
with its customers through high quality standards (supported by ISO 9001/9002
Certification), competitive pricing, strong research and development support,
advanced assembly processes and high volume manufacturing, and with key
suppliers through volume purchasing and reliable forecasting of component
purchases. The Company believes that the potential for increased manufacturing
outsourcing by Japanese and U.S. OEMs in China is substantial and expects to
take advantage of it by expanding production capacity at its factory complex
in Shenzhen, China. Management believes Nam Tai's record of providing timely
delivery in volume of high-quality, high technology, low-cost products builds
close customer relationships and positions the Company to receive orders for
more complex products. As the Company grows, management will seek to maintain
a low cost structure, reduce overhead where possible, and continuously improve
its manufacturing quality and processes.
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<PAGE> 5
THE COMPANY'S SUBSIDIARIES
The Company is a holding company for Nam Tai Electronic & Electrical
Products Limited and its subsidiaries, and Nam Tai Electronics (Canada) Ltd.
The chart below illustrates the organizational structure of the Company and its
principal operating subsidiaries.
Nam Tai
Electronics, Inc.
(A British Virgin
Islands International
Business Company)
/
/
----------------------------------------------
/ /
100% 100%
Nam Tai Nam Tai
Electronics Electronic &
(Canada) Ltd. Electrical Products ---- 75%
(A Canadian Federal Ltd. /
Company) (A Hong Kong /
Limited Liability /
Company) /
/ /
------------------------ /
/ / /
100% 100% /
/
Zastron Plastic & Namtai Electronic /
Metal Products (Shenzhen) Co. /
(Shenzhen) Ltd. Ltd. /
(A Limited Liability (A Limited Liability /
People's Republic of People's of Republic /
China Foreign China Foreign /
Operation) Operation) /
/ /
/ /
/ 25%
/ /
Shenzhen-------- /
Namtek Co., Ltd.
(A Limited Liability
People's Republic
of
China Foreign
Operation)
Nam Tai Electronic & Electrical Products Limited
Nam Tai Electronic & Electrical Products Limited ("NTE&E") was
incorporated in November 1983 and is engaged in the manufacture, assembly and
marketing of electronic products. In 1991, NTE&E became the holding company
for Namtai Electronic (Shenzhen) Co. Ltd. and Zastron Plastic & Metal Products
(Shenzhen) Ltd.
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<PAGE> 6
Namtai Electronic (Shenzhen) Co. Ltd.
Namtai Electronic (Shenzhen) Co. Ltd. ("NTES") was established as
Baoan (Nam Tai) Electronic Co. Ltd. in May 1989 as a joint venture company with
limited liability in Baoan County, China, pursuant to the relevant laws of
China. The equity of NTES was owned 70% by NTE&E and 30% by a Chinese
Governmental agency. During 1992, the joint venture was dissolved and the
company changed its name to NTES. As part of such termination, the company
returned to the Chinese Governmental agency its real property and investment,
and NTES became a wholly owned subsidiary of NTE&E.
NTES is in the business of manufacturing and assembling electronic
products such as personal organizers, linguistic products and calculators. In
addition, it manufactures electronic components and subassemblies and is
engaged in the development of products such as integrated circuit or smart card
readers (referred to as "IC card readers").
Zastron Plastic & Metal Products (Shenzhen) Ltd.
Zastron Plastic & Metal Products (Shenzhen) Ltd. ("Zastron") was
incorporated in March 1992. The company has limited liability pursuant to the
relevant laws of China. Zastron is in the business of manufacturing and silk
screening metal and PVC products, much of which are used in manufactured
products by NTES.
Nam Tai Electronics (Canada) Ltd.
Nam Tai Electronics (Canada) Ltd. ("NT Canada") was incorporated in
August 1989 under the Canada Business Corporations Act. NT Canada previously
acted as a marketing arm in North America for the Company, was engaged in
research and development activities as well as the manufacture of electronic
scales, thermometers and blood pressure meters. In 1994, Nam Tai sold its
electronic scale, thermometer and blood pressure product lines. NT Canada
currently provides finance, administrative and investor relations services to
the Company.
Shenzhen Namtek Co., Ltd.
Shenzhen Namtek Co., Ltd. ("Namtek") was incorporated in December
1995. The company has limited liability pursuant to the relevant laws of
China. Namtek is in the business of developing and commercializing software
for the consumer electronics industry, particularly for products manufactured
or to be manufactured by Nam Tai. It provides the facilities and expertise to
assist in new product development and research, such that Nam Tai can offer its
customers enhanced design and development services.
PRODUCTS
For the fiscal years ended December 31, 1995, 1994 and 1993 an
aggregate of 77%, 81% and 94%, respectively, of the Company's net sales were
from various models of electronic personal organizers, linguistic products and
calculators. Currently, the Company's other products principally include
subassemblies, IC card readers and LCD modules.
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<PAGE> 7
The following table sets forth the percentage of net sales of each of
the Company's product lines for the years ended December 31, 1995, 1994 and
1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
PRODUCT LINE 1995 1994 1993
------------ ---- ---- ----
<S> <C> <C> <C>
Personal organizers and linguistic products 47% 47% 46%
Electronic calculators 30 34 48
Subassemblies and components 21 16 2
Silk screening 1 1 1
Other products and services 1 1 1
Discontinued products(1) 0 1 2
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
(1) Includes health care products, such as electronic scales, thermometers
and blood pressure meters, which were discontinued in 1994.
Personal Organizers and Linguistic Products
The Company produces various types of electronic personal organizers,
including telephone directories and business card organizers, generally with
scheduler, clock, memo pad and calculator functions.
The linguistic products manufactured by Nam Tai include electronic
spell checkers, dictionaries and language translators. One model is a
multi-language translator with a vocabulary of 3,400 words and instant
translation among the English, German, French, Spanish and Italian languages.
These models generally include a built-in calculator.
Electronic Calculators
The Company manufactures a wide range of electronic calculators with a
variety of features. These include calculators designed for different uses or
environments, including mini card, credit card, scientific, desk top, hand
held, and printer calculators.
Subassemblies and Components
In 1994, the Company commenced delivering product whereby LSIs were
bonded on PCBs utilizing advanced technological processes. These are used to
manufacture components used in products such as electronic toys. Management
believes that Nam Tai's PCB assembly process capabilities are comparable to
those currently available from the most technologically advanced U.S. and
Japanese manufacturers. It is the intention of the Company to seek to expand
this business and to have it play an expanded role in future sales.
IC Card Readers
In 1995, the Company delivered a sample run of IC card readers. These
readers are hand-held devices used to check information contained on the IC
cards which are being developed for use by certain major banks in Europe and
North America as an alternative to the use of cash. Test marketing continues
through 1996. Management believes that IC cards products are a potential
source of significant additional revenue in the years ahead.
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<PAGE> 8
Other
The Company also commenced manufacturing subassemblies for liquid
crystal display ("LCD") modules. These subassemblies display information as
part of such products as portable telephones, portable computers and facsimile
machines, and employ the same bonding technologies as are used for the other
LSI bonded PCBs. The manufacture of subassemblies has not yet contributed a
significant percentage of sales revenue but is expected to become an important
line of business over the coming years.
The sale of electronic typewriters has declined to a relatively
insignificant proportion of total sales.
Silk Screening Services
Through Zastron, the Company provides manufacturing and silk screening
services to customers for plastic parts, PVC products and metal parts. This
service is also supplied to other firms for incorporation into their finished
products.
MANUFACTURING
Quality Control
The Company maintains strict quality control programs for its
products, including use of total quality management ("TQM") systems. All
incoming raw materials and components are checked by the Company's quality
control personnel. During the production stage, Nam Tai's quality control
personnel check all work in process at several points in the production
process. Finally, after the assembly stage, the Company conducts random
testing of finished products. In addition, the Company provides office space
at its Shenzhen facility for representatives of its major customers to permit
them to monitor production of their products and to provide direct access to
the Company's manufacturing personnel. Manufactured products have a low level
of product defect, as required by the Company's OEM customers. When requested,
Nam Tai provides a limited warranty of six months to one year for products it
manufactures. To date, claims under the Company's warranty program have been
negligible.
The Company's Hong Kong and China subsidiaries have maintained ISO
9002 Certification since December 1993 and received ISO 9001 Certification in
February 1996. The "ISO", or International Organization for Standardization,
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,
required a company to gather, analyze, document, monitor and make improvements
where needed. The Company's receipt of ISO 9001 Certification demonstrates
that the Company's manufacturing operations meet the most demanding established
world standards.
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<PAGE> 9
Management believes sophisticated customers are increasingly requiring
their manufacturers to be ISO 9000 certified, and that manufacturers that are
not so qualified are increasingly looking to certified manufacturers like Nam
Tai rather than undertaking the expensive and time-consuming process of
qualifying their own operations.
Component Parts and Suppliers
The Company purchases over 100 different component parts from more
than 30 major suppliers and is not dependent upon any single supplier for any
key component. The Company purchases components for its electronic products
from suppliers in Japan and elsewhere. Orders for components are based on
forecasts that Nam Tai receives from its OEM customers, which reflect
anticipated shipments during the production cycle for a particular model.
The major component parts purchased by the Company are ICs or "chips",
LCDs, solar cells, printer heads and batteries. The Company purchases both
stock "off the shelf" chips and custom chips, the latter being the most
expensive component parts purchased by Nam Tai. At the present time, the
Company purchases most of its chips from Toshiba Corporation, Sharp Corporation
and certain of their affiliates, although there are many additional suppliers
from which the Company could purchase chips.
LCDs are readily available from many manufacturers and the Company
currently has two major suppliers, Epson Hong Kong Ltd. and Sharp Corporation.
PCBs and other circuit boards are purchased from circuit board manufacturers in
Hong Kong and solar cells are purchased from Matsushita Battery Industrial
Company Ltd. Batteries are standard "off the shelf" items, generally purchased
in Hong Kong from agents of Japanese manufacturers. Certain components,
including PCBs and LCDs, are currently subject to limited allocation by certain
of Nam Tai's suppliers. Although such shortages and allocations have not had a
material adverse effect on the Company's results of operations, there can be no
assurance that any future allocation or shortages would not have such an
effect.
In an effort to assure an adequate supply of competitively priced key
components, the Company has purchased a minority interest in its Hong Kong
supplier of plastic parts, Deswell Industries, Inc. ("Deswell"). See -
"Formation of Strategic Alliances".
CUSTOMERS AND MARKETING
General
During the last several years, the Company has concentrated on
marketing its products in Japan, North America and Europe. Approximate
percentages of net sales to customers by geographic area, based upon location
of product delivery, are set forth below for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
GEOGRAPHIC AREAS 1995 1994 1993
---------------- ---- ---- ----
<S> <C> <C> <C>
Japan 34% 24% 10%
North America 30 33 41
Hong Kong 17 23 25
Europe 13 14 17
Other 6 6 7
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
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<PAGE> 10
Six of the Company's major customers have done business with the
Company for five years or more, and management believes that Nam Tai has a
stable relationship with all of its customers. The Company places great
emphasis on providing quality service to its customers and has, as a result,
limited the number of companies for which it manufactures in an effort to
ensure quality service.
During the years ended December 31, 1995, 1994 and 1993, sales to OEM
customers accounted for 99% of total net sales in each year. Management
believes that the sale of personal organizers, linguistic products and
calculators will continue to be the principal line of business for the Company
for the next several years. The importance of subassembly and component sales
is rising, and together with the potential for manufacture of LCD modules and
IC card readers, these product lines are expected to contribute an increasing
and significant proportion of total revenue.
The Company's Hong Kong based management personnel and sales staff are
responsible for marketing products to existing customers as well as potential
new customers.
The Company has in the past marketed products under the "PEACOCK"
brand name in China. Although it has no immediate plans to re-enter the China
market, management would consider doing so if economic and other factors appear
favorable.
Major Customers
The Company's OEM customers are comprised of the following entities.
The OEM customers either market Nam Tai's products under their own brand name
or, where no brand name is shown, incorporate the Company's products into their
products:
<TABLE>
<CAPTION>
BRAND CUSTOMER
CUSTOMER NAME PRODUCT SINCE
-------- ---- ------- -----
<S> <C> <C> <C>
A&A International (Yichi-HK) Ltd. Radio Shack Calculators 1993
Canon, Inc. Canon Personal organizers, calculators 1988
Casio Computer (Hong Kong) Limited Casio Aluminum panels and PVC wallets 1994
Glorysun Graphtech Ltd. Fortec Typewriters 1990
Matsushita Battery Industrial Co. ----- IC card readers 1994
Ltd.
Nintendo, Inc. (through Sharp ----- Bonding on PCBs 1994
Corporation)
Optrex Corporation ----- Assemblies for LCD modules 1994
Premier Precision Ltd. Citizen Silk screening, aluminum panel 1993
Sanyo Electric (H.K.) Ltd. Sanyo, Casio Silk screening 1988
Seiko Instruments Inc. Seiko, SII Personal organizers, linguistic 1991
products
Sharp Corporation Sharp Personal organizers, calculators 1989
Texas Instruments Incorporated Texas Personal organizers, calculators 1989
Instruments
</TABLE>
At any given time, different customers account for a significant
portion of Nam Tai's business. Percentages of total sales by customer vary
from year to year and may fluctuate depending on the timing of production
cycles for particular products. Sales to four major customers, Sharp
Corporation, Seiko Instruments Inc., Nintendo, Inc. (which orders through Sharp
Corporation) and Texas Instruments Incorporated, aggregated approximately 92%,
90% and 86%
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<PAGE> 11
of the Company's total net sales during the years ended December 31, 1995, 1994
and 1993, respectively.
Sales to each of these customers as a percentage of the Company's
total net sales during the years ended December 31, 1995, 1994 and 1993 were
approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
CUSTOMER 1995 1994 1993
-------- ---- ---- ----
<S> <C> <C> <C>
Sharp Corporation 47.9% 47.7% 47.0%
Nintendo, Inc. (made through Sharp Corporation) 18.0 13.0 0
Seiko Instruments Inc. 13.2 19.2 20.6
Texas Instruments, Incorporated 13.2 9.8 18.6
---- ---- ----
92.3% 89.7% 86.2%
==== ==== ====
</TABLE>
Although management believes that any one of the Company's customers
could be replaced with time, the loss of any one of its major customers could
have a material adverse effect on the Company's business. It is of note that a
number of products are made for each of these customers such that the Company
is not necessarily dependent on a single product by one customer. While each
of the companies listed above is expected to continue to be a significant
customer, the Company seeks to lessen its dependence on these customers in the
future through efforts to diversify its customer and product base. There can
be no assurance, however, that such efforts will prove successful.
The Company's sales to all of its OEM customers are based on purchase
orders. Except for these purchase orders, the terms of which in a few cases
are supplemented by basic agreements dependent upon the receipt of purchase
orders, Nam Tai has no written agreements with its OEM customers. The Company
receives letters of credit to cover the next three months of orders and all the
molds, tooling and development charges (including software design) are paid by
OEM customers prior to production.
Many of Nam Tai's customers have a relationship which extends for a
number of years and consequently the Company believes its relations with these
customers are good. The Company encourages cooperation and communication with
its most important customers. For example, senior management includes a team
of Japanese professionals who provide technical experience and work closely
both with the Company's Japanese component suppliers and its Japanese
customers. Management also believes the risk of a sudden withdrawal by any of
its major customers is diminished by: (i) the lengthy production cycle,
typically over three years for each model, which is required to produce the
products sold to customers; (ii) the fact that production cycles may begin
while other products for the same customers are in progress; and (iii) the
investment in molds, tooling and development charges (including software
design) that is borne by each OEM customer.
Sales are predominately based on standard letters of credit
denominated in U.S. dollars (except for 18.0% of sales where letters of credit
are denominated in Japanese yen).
Production Scheduling and Backlog
The typical cycle for a product to be manufactured and sold to an OEM
customer is three to four years, including the development period and
production period. Initially an OEM customer gathers data from its sales
personnel as to products for which there is market interest, including features
and unit costs. The OEM then contacts the Company, and possibly other
prospective manufacturers, with forecasted total production quantities and with
design specifications or renderings. From that information, the Company in
turn contacts its suppliers and determines estimated component costs. The
Company later advises the OEM of the development costs, charges (including
molds, tooling and development costs such as software design) and a unit cost
based on the forecasted production quantities desired during the forecasted
production cycle. Once the Company and the OEM customer agree to the Company's
quotation for the development costs and the unit cost, the Company will begin
developing the product. The development period lasts
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<PAGE> 12
approximately nine to 15 months or longer if including software design. During
this time the Company will complete all molds, tooling and software required
to manufacture the product with the development costs reimbursed by the
customer. Upon completion of the molds, tooling and software, the Company will
produce samples of the product for the customer's quality testing, and once
approved, will commence mass production of the product.
The production period lasts approximately 18 to 30 months. Typically,
more advanced products have longer production runs. If total production
quantities change, the OEM customer will provide six months notice before
discontinuing orders for a product. At any point in time the Company is in
different stages of the development period and production period for the
various models it has under development or in production for OEM customers.
The Company's production is based on the forecast reconfirmation
received from OEM customers every month, covering the following six month
period, the first three months of which are basically firm with shipments
scheduled. The forecasts are reviewed and adjusted where necessary at the
beginning of each month for a rolling six month period with confirmed orders
covering the first three months. Confirmed orders are supported by letters of
credit and may not be cancelled once confirmed without the customer becoming
responsible for all costs of the remaining components included in inventory for
that order. These components will then be shipped to the customer. During the
years ended December 31, 1995, 1994 and 1993, the Company did not suffer a
material loss resulting from the cancellation of an OEM customer confirmed
order. While the Company does not believe that a change in industry practice
is imminent or contemplated, there can be no assurance that this favorable
experience will continue in every case or at all.
Backlog is defined by Nam Tai as the sales value of orders from OEM
customers for which shipments have been scheduled during the following three
months. The Company's backlog at December 31, 1995 and 1994 were approximately
$24,500,000 and $21,100,000, respectively. Although these orders are confirmed
and covered by letters of credit, there can be no assurance that the backlog
can be produced, shipped and sales recorded in its entirety during the
following three month period.
Marketing Plans for China
The Company has approval from the local Chinese government to sell up
to 20% of the products manufactured and 10% of the parts manufactured by the
Company in China. The Company does not have any immediate plans to re-enter
the China market and make domestic sales, however, the Company would consider
doing so if economic and other factors in China appear favorable.
Formation of Strategic Alliances
To support its business strategy, the Company believes that it must
continue to have stable sources of component parts it uses in its manufacturing
operations. Suppliers of these components have from time to time, in periods
of short supply, limited allocation of their production among their customers.
The Company believes that the formation of strategic alliances with certain of
its suppliers will assist the Company to satisfy its OEM customers' needs for
timely delivery of high-quality products and permit Nam Tai to have greater
control over the quality of its suppliers' components.
Consistent with this strategy, in 1994 the Company purchased and holds
approximately 10% of the outstanding common stock of Deswell of Hong Kong, one
of its plastics suppliers. Deswell is the holding company of the Hong Kong
supplier of plastic parts used in many of the Company's products. It also has
manufacturing facilities in Shenzhen.
- 12 -
<PAGE> 13
Transportation
Since the Company sells its products F.O.B. Hong Kong, its customers
are responsible for the transportation of finished products from Hong Kong to
their final destination. Transportation of components and finished products to
and from Shenzhen is by truck. Component parts purchased from Japan are
generally shipped by air. To date, the Company has not been materially
affected by any transportation problems.
TECHNOLOGY DEVELOPMENT
Between 1984 and 1994, the Company spent an average of approximately
$360,000 per annum on research and development, chiefly to advance
manufacturing technology. During the later half of this period Nam Tai
concentrated on its OEM business and expenditures fell below the average by the
end of the period. At that time the major responsibility of the Company's
product design personnel was limited to the production of design to the
satisfaction of and in accordance with the specifications provided by OEM
customers.
Increased emphasis is now being placed on research and development to
provide greater service to OEM customers and assist in design and development
work directed to future products. Research and development expenses increased
accordingly to $945,000 in 1995 from $239,000 in 1994.
COMPETITION
The Company competes with numerous other companies in the contract
electronic manufacturing industry and competition is intense. The Company's
primary competitors in its principal business, namely the manufacture for OEM
customers of personal organizers, linguistic products and calculators are Kimpo
Electronics, Inc. (formerly Cal-Comp Electronics, Inc.) and Inventa Electronic
Co. Ltd., both of Taiwan. Competition is limited by OEMs to a small number of
companies who satisfy the requirements to become approved suppliers. While
individual OEM customers are likely to prefer certain contract manufacturers,
OEMs tend to order from several different suppliers in order to reduce
dependence on any one. The competitors may have substantially greater
technical, financial and marketing resources than Nam Tai, but management
believes that no company dominates the market.
Competition for OEM sales is based primarily on unit price, product
quality and availability, promptness of service, reputation for reliability and
OEM confidence in the manufacturer. The Company believes that it competes
favorably in each of these areas.
EMPLOYEES
At December 31, 1995, Nam Tai employed 2,300 persons on a full-time
basis, of which approximately 2,250 were working in China, 40 in Hong Kong, and
10 in Canada. Of these, approximately 2,000 were engaged in manufacturing, 100
were engaged in clerical, research and development and marketing positions and
the balance in supporting jobs such as security, janitorial, and food and
medical services. The Company is not a party to any material labor contract
or collective bargaining agreement. The Company has experienced no significant
labor stoppages and believes that relations with its employees are
satisfactory.
An employee incentive compensation program is in place in China
whereby a regular bonus payment on the employee's return to work following the
Chinese New Year holiday is paid to employees following the reopening of the
factory. Management believes this method has contributed to low employee
turnover in the factory.
- 13 -
<PAGE> 14
Subject to the profitability of the Company, stock options and cash
bonuses will be considered on a year by year basis to management personnel and
employees.
As the new factory complex commences production, additional employees
will be added as required based on production and the introduction of new high
technology machines. This number is expected to reach up to an additional
1,500 to 2,000 employees during 1997.
PATENTS, LICENSES AND TRADEMARKS
The Company has no patents, licenses, franchises, concessions or
royalty agreements that are material to its business as a whole. Due to rapid
technological changes in the products manufactured, the Company does not
believe the absence of patents has had or will have a material impact on its
business.
The Company has obtained trademark registrations in Hong Kong for the
mark "FORTEC" in connection with electronic calculators and in the United
States in connection with electronic typewriters. Nam Tai has also obtained a
trademark registration in Hong Kong for the mark "SANTRON" in connection with
electronic calculators. The Company has registered the trademark "NAMTAI" in
connection with electronic calculators and electronic typewriters in Hong Kong,
in connection with calculators in the United States and in connection with
calculators in Canada. The trademark "PEACOCK" is registered in China although
no products are currently being produced under this name.
CERTAIN FOREIGN ISSUER CONSIDERATIONS
Political, Legal, Economic and Other Uncertainties of Operations in China and
Hong Kong
Internal Political and Other Risks. All of the Company's
manufacturing facilities are located in China. As a result, the Company's
operations and assets are subject to significant political, economic, legal and
other uncertainties. Changes in policies by the Chinese government resulting
in changes in laws, regulations, or the interpretation thereof, confiscatory
taxation, restrictions on imports and sources of supply, currency devaluations
or the expropriation of private enterprise could materially adversely affect
the Company. Under its current leadership, the Chinese government has been
pursuing economic reform policies including the encouragement of private
economic activity and greater economic decentralization. There can be no
assurance, however, that the Chinese government will continue to pursue such
policies, that such policies will be successful if pursued, that such policies
will not be significantly altered from time to time or that business operations
in China would not become subject to the risk of nationalization, which could
result in the total loss of investments in that country. Economic development
may be limited as well by the imposition of austerity measures intended to
reduce inflation, the inadequate development of an infrastructure and the
potential unavailability of adequate power, water supplies, transportation,
communications, raw materials and parts. If for any reason the Company were
required to move its manufacturing operations outside of China, the Company's
profitability would be substantially impaired, its competitiveness and market
position would be materially jeopardized and there can be no assurance that the
Company could continue its operations.
Uncertain Legal System and Application of Laws. The legal system of
China relating to foreign investments is both new and continually evolving, and
currently there can be no certainty as to the application of its laws and
regulations in particular instances. China does not have a comprehensive
system of laws. Enforcement of existing laws or agreements may be sporadic and
implementation and interpretation of laws inconsistent. The Chinese judiciary
is relatively inexperienced in enforcing the laws that exist, leading to a
higher than usual degree of uncertainty as to the outcome of any litigation.
Even where adequate law exists in China, it may not be possible to obtain swift
and equitable enforcement of that law.
- 14 -
<PAGE> 15
Current Dependence on Single Factory Complex. The Company's products
are manufactured exclusively at its factory complex located in Baoan County,
Shenzhen, China. The Company does not own this factory complex or the
dormitories used to house workers. It occupies the original factory and its
new factory site under agreements with the local Chinese government. In the
case of the original factory, the lease agreement covers an aggregate of
approximately 200,000 square feet of factory space and expires in August 2007.
In the case of the new facility, the Company is entitled to use the land upon
which its new factory complex is situated until 2024. These agreements and the
operations of the Company's Shenzhen factories are dependent on the Company's
relationship with the local government. The Company's operations and prospects
will be materially and adversely affected by the failure of the local
government to honor these agreements. In the event of a dispute, enforcement
of these agreements may be difficult in China.
Possible Changes and Uncertainties in Economic Policies. As part of
its economic reform, China has designated certain areas, including Shenzhen
where the Company has its manufacturing facilities, as Special Economic Zones.
Foreign enterprises in these areas benefit from greater economic autonomy and
more favorable tax treatment than enterprises in other parts of China. Changes
in the policies or laws governing special Economic Zones would have a material
adverse effect on the Company.
Recent Turbulent Relations with the U.S. In 1995, the United States
considered revocation of China's most favored nation ("MFN") trade status,
which provides China with the trading privileges available generally to trading
partners of the United States, and the United States and China have recently
been involved in controversy over the protection in China of intellectual
property rights. President Clinton extended China's MFN status until July 3,
1996. Various interest groups continue to urge that the United States not
renew China's trade status and the United States continues to threaten China
with a loss of MFN status. There can be no assurance that current or future
controversies will not arise that again threaten the status quo involving trade
between the United States and China or that the United States will not revoke
or refuse to extend China's MFN status. In any of such eventualities, the
business of the Company could be adversely affected.
Relations Between China and Taiwan. Relations between China and
Taiwan have been unresolved since Taiwan was established in 1949. The March
23, 1996 general election in Taiwan heightened tensions between them. Although
not directly a threat to Nam Tai, peaceful and normal relations between China
and its neighbors reduces the potential for events which could have an adverse
impact on the Company's business.
Operations in Hong Kong. The Company's executive and sales office,
and several of its customers and suppliers are located in Hong Kong, which is
currently a British Crown Colony. Sovereignty over Hong Kong will be
transferred effective July 1, 1997 to China. As a result, there can be no
assurance as to the continued stability of political, economic or commercial
conditions in Hong Kong.
Enforceability of Civil Liabilities
The Company is a holding corporation organized as an International
Business Company under the laws of the British Virgin Islands and its principal
operating subsidiary is organized under the laws of Hong Kong, where the
Company's principal executive offices are also located. The Company has
appointed Mr. Stephen Seung, an attorney engaged in the private practice of law
and a director of Nam Tai since 1995, of 2 Mott St., Suite 601, New York, New
York 10013 as its agent upon whom process may be served in any action brought
against the Company under the securities laws of the United States. However,
outside the United States, it may be difficult for investors to enforce
judgments against the Company obtained in the United States in any such
actions, including actions predicated upon civil liability provisions of
Federal securities laws. In addition, all of the Company's officers and most
of its directors reside outside the United States and nearly all of the assets
of these persons and of the Company 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 such persons, or to enforce against the Company
or such persons judgments predicated upon the liability provisions of the U.S.
securities laws. The Company has been advised by its Hong Kong counsel, and
its British Virgin Island counsel, that there is substantial doubt as to the
enforceability against the Company or any of its directors and officers located
outside the United States in original actions or in actions for enforcement of
judgments of U.S. courts of liabilities predicated on the civil liability
provisions of Federal securities laws.
- 15 -
<PAGE> 16
Certain Legal Consequences of Incorporation in the British Virgin Islands
The Company is organized under the laws of the British Virgin Islands.
Principles of law relating to matters affecting the validity of corporate
procedures, the fiduciary duties of the Company's management, directors and
controlling shareholders and the rights of Nam Tai's shareholders differ from,
and may not be as protective of shareholders as, those that would apply if the
Company were incorporated in a jurisdiction within the United States.
Directors of the Company have the power to take certain actions without
shareholder approval, including an amendment of the Company's Memorandum or
Articles of Association, a change in the Company's authorized capital, and
certain fundamental corporate transactions, including reorganizations, certain
mergers or consolidations, and the sale or transfer of assets. In addition,
there is doubt that the courts of the British Virgin Islands would enforce
liabilities predicated upon U.S. securities laws.
Risks of International Operations
The products of the Company are sold in the United States and
internationally, principally in Japan, Europe, Hong Kong and Canada.
International operations and sales may be subject to political and economic
risks, including political instability, currency controls and exchange rate
fluctuations, and changes in import/export regulations, tariff and freight
rates. Changes in tariffs or other trade policies could adversely affect the
Company's customers or suppliers or decrease the cost of products for Nam Tai's
competitors relative to such costs for the Company. The Company acquires some
of the components used in its products from firms located in Japan and sells
its products to OEMs, most of which have operations based in Japan. Japan's
rising trade surplus has forced revaluations of the Japanese yen and future
revaluations may increase the cost of components used by Nam Tai. In addition,
trade restrictions could be implemented to counter Japan's overseas trade
surplus.
Volatility of Share Price
The markets for equity securities have been volatile and the price of
the Company's common shares has been and could continue to be subject to wide
fluctuations in response to quarter to quarter variations in operating results,
news announcements, trading volume, sales of common shares by officers,
directors and principal shareholders of the Company, general market trends and
other factors.
- 16 -
<PAGE> 17
ITEM 2. PROPERTIES
British Virgin Islands
The registered office of the Company is located in the Citco Building,
Wickhams Cay, P.O. Box 662, Road Town, Tortola, British Virgin Islands. Only
corporate administrative matters are conducted at such office, through Nam
Tai's registered agent, Citco Trust Corporation Limited. The Company neither
owns nor leases property in the British Virgin Islands.
Hong Kong
In Hong Kong, the Company leases Unit 513-520 No. 1 Hung To Road,
from September 1994 to September 1997. These premises house Nam Tai's
principal executive and marketing offices. Rental to September 14, 1996 is
approximately $17,800 per month, and $20,500 per month thereafter to September
1997.
The Company owns a residential flat in Hong Kong which was purchased
for total consideration of $1,850,000. This property houses the Chief
Executive Officer of the Company and forms part of his overall compensation -
(See Item 11. Compensation of Directors and Officers). The Company also owns
approximately ten acres of agriculture land in Hong Kong which the Company
plans to sell.
Shenzhen, China
The Company leases approximately 150,000 square feet of manufacturing
space at its present factory site in Baoan County, Shenzhen, China which it
first occupied in August 1992. Included within the factory site are four
dormitory buildings and two cafeteria buildings for Nam Tai's employees. Also
included within the factory complex are a library, several television rooms, a
large karaoke room for 120 people, several exercise rooms, table tennis and
billiard tables, basketball and badminton courts and a medical center. The
Company has leased the factory site for 15 years and currently pays rent of
approximately $32,000 per month. This rate is fixed for five years, with a 20%
increase in years five and ten.
Nam Tai has the right to use approximately 286,600 square feet of land
adjacent to its existing factory site in Shenzhen for fifty years purchased at
a total cost of approximately $2,450,000. The Company has since constructed a
second manufacturing facility on this new site in order to expand its
production capacity in China.
During 1992, the Company purchased for development rights to leasehold
land in Baoan County, Shenzhen, China. The purchase price was approximately
$343,000. The land area consists of approximately 70,000 square feet of land
in a developed area of commercial buildings and residences. The purchase of
the leasehold land gives Nam Tai the right to use the land for fifty years. It
was the Company's intention to build a high rise office building to house its
corporate headquarters and to lease office and commercial space to third
parties. The Company subsequently reevaluated the development of this
property and concluded it preferred to concentrate on its core contract
manufacturing business. Nam Tai has determined that it will not develop the
property, except possibly with respect to the portion that it would utilize for
its own administrative operations, and will seek to have the property developed
by a third party who will be responsible for developing, financing and managing
the project.
The Company also has another facility in Shenzhen, consisting of
approximately 26,000 square feet and located approximately one mile from its
manufacturing facility, which contains 28 apartment units and which the Company
uses to house certain of its factory managers who are married with families.
The Company purchased this building for approximately $1,000,000, paying the
final instalment in June 1993.
- 17 -
<PAGE> 18
Canada
On November 1, 1995, Nam Tai Canada moved its corporate office to a
new leased premises in Vancouver, British Columbia. The Company entered into a
lease for approximately 2,637 square feet of office space at an annual rental
of $26,000. The lease expires in August 1998.
Commencing in October 1994, the Company developed a residential
property in West Vancouver, British Columbia. Prior to the end of December
1995, the Company concluded arrangements for the sale of this property to Mr.
M.K. Koo, the Chairman of the Board of the Company. The property was purchased
for its book value of $2,620,445, being the higher of the book value and the
appraised value of the property.
In 1995, the Company completed construction of an office and
manufacturing complex in Burnaby, British Columbia. The two-story building
consists of approximately 7,000 square feet of office space and 8,000 square
feet of factory area. Construction was completed in mid 1995 at a cost of
approximately $2,400,000 including the cost of land. The property is currently
listed for sale.
General
The Company believes that its existing offices and manufacturing
facilities, including the new manufacturing facility, with expansion of the
factory facilities, are adequate for the operation of its business for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any legal proceedings other than routine
litigation incidental to its businesses and there are no material legal
proceedings pending with respect to the property of the Company other than as
described below.
In September 1993, Tele-Art, Inc., a shareholder of Nam Tai, commenced
an action against the Company seeking an injunction prohibiting the Company
from proceeding with a rights offering which was contemplated at that time.
Tele-Art's application was based on claims that Nam Tai may have violated
British Virgin Islands and United States law. Among other claims, Tele-Art
asserted that the Company's rights offering was part of a scheme to enrich
directors and management of Nam Tai and dilute the interest of minority
shareholders. After a hearing, a temporary injunction obtained by Tele-Art was
discharged, permitting the Company to proceed with, and complete, its rights
and standby offerings in October 1993. Tele-Art is pursuing claims against Nam
Tai for damages. In November 1993, Tele-Art applied to the Court to include
the Company's directors in the proceedings, and in March 1994 the application
was granted. The Company continues to believe that Tele-Art's claims are
without merit and plans to continue to vigorously defend them as well as to
seek from Tele-Art and its agents compensation for the damage caused by the
injunction and the proceedings that were brought to obtain it.
- 18 -
<PAGE> 19
ITEM 4. CONTROL OF THE COMPANY
The Company is not directly owned or controlled by another corporation
or by any foreign government, other than such control, if any, by Lully
Corporation Limited as may arise out of its shareholdings, as is more fully set
forth below. The following table sets forth, as of December 31, 1995, the
beneficial ownership of the Company's common shares by each person known by the
Company to own beneficially more than 10% of the common shares of the Company
outstanding as of such date and by the officers and directors of the Company as
a group.
<TABLE>
<CAPTION>
Number of
Identity of Common Shares Percent of
Persons or Groups Beneficially Owned Class
----------------- ------------------ ----------
<S> <C> <C> <C>
M. K. Koo 1,039,071 (Note 1.) 12.9%
c/o Suite 530
999 West Hastings Street
Vancouver, B.C. V6C 2W2 Canada
Lully Corporation Limited 2,346,290 (Note 2.) 29.1%
c/o 1507 Pinecrest Drive
West Vancouver, B.C. V7S 3E8 Canada
Officers and directors as a group 3,719,361 (Note 3.) 44.9%
(five persons)
</TABLE>
Notes
1. These shares are personally owned by Mr. Koo and do not
include shares owned by Lully Corporation Limited ("Lully")
(see Note 2.). A total of 738,388 common shares of the
Company beneficially owned by Mr. Koo have been pledged to
Wardley Canada Investment Fund Ltd. ("Wardley") pursuant to a
secured convertible note. The note is convertible at the
option of Wardley into 201,567 common shares of the Company
owned by Mr. Koo.
2. By virtue of his majority interest in, and positions with,
Lully, Mr. Koo may be deemed to be the beneficial owner of
these shares. If so, he would beneficially own 3,385,361 of
Nam Tai's outstanding common shares at December 31, 1995 or
41.9% of the outstanding common shares at that date.
3. Includes shares held and a total of up to 225,000 shares
issuable to officers upon exercise of employee options
exercisable at and within 60 days of December 31, 1995.
Assumes that the common shares owned by Lully are beneficially
owned by Mr. Koo (see Note 2. above).
- 19 -
<PAGE> 20
ITEM 5. NATURE OF TRADING MARKET
COMMON SHARES
The Company's common shares are traded in The Nasdaq National Market
under the symbol "NTAIF".
The following table sets forth the share prices for the quarters
during the last two years indicating the high and low last reported sale prices
as reported by The National Market.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ---- ---
<S> <C> <C>
March 31, 1994 $ 15.50 $ 9.75
June 30, 1994 14.00 10.25
September 30, 1994 13.75 10.50
December 31, 1994 13.38 9.38
March 31, 1995 9.75 7.94
June 30, 1995 10.50 9.00
September 30, 1995 17.25 9.00
December 31, 1995 13.88 10.75
</TABLE>
Of the 8,063,177 common shares of the Company outstanding as of
December 31, 1995, approximately 4,500,000 are beneficially held by holders in
the United States by approximately 1,300 record holders.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no exchange control restrictions on payments of dividends on
the Company's common shares or on the conduct of the Company's operations
either in Hong Kong, where the Company's principal executive offices are
located, or the British Virgin Islands, where Nam Tai is incorporated. Other
jurisdictions in which the Company conducts operations may have various
exchange controls. Dividend distribution and repatriation by Nam Tai's
subsidiaries in China are regulated by Chinese laws and regulations. To date
these controls have not had and are not expected to have a material impact on
the Company's financial results. There are no material British Virgin Islands
laws which impose foreign exchange controls on the Company or that affect the
payment of dividends, interest, or other payments to nonresident holders of the
Nam Tai's securities. British Virgin Islands law and the Company's Memorandum
and Articles of Association impose no limitations on the right of nonresident
or foreign owners to hold or vote such securities of the Company.
ITEM 7. TAXATION
British Virgin Islands Tax Considerations
No reciprocal tax treaty regarding withholding tax exists between the
United States and the British Virgin Islands. Under current British Virgin
Islands law, dividends, interest or royalties paid by the Company to
individuals and gains realized on the sale or disposition of shares are not
subject to tax as long as the recipient is not a resident of the British Virgin
Islands. The Company is not obligated to withhold any tax for payments of
dividends and shareholders receive gross dividends irrespective of their
residential or national status.
- 20 -
<PAGE> 21
ITEM 8. SELECTED FINANCIAL DATA
The selected financial information set forth below is derived from
consolidated financial statements of the Company. The selected information is
qualified in its entirety by reference to, and should be read in conjunction
with, such consolidated financial statements, related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this annual report.
SELECTED FINANCIAL INFORMATION
(In thousands of U.S. dollars except per share data, see Note 1.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Income Statement Data
- ---------------------
<S> <C> <C> <C> <C> <C>
Net sales $121,240 $96,564 $70,844 $57,955 $38,418
Gross margin 23,152 17,223 14,098 10,940 8,118
Income from continuing operations 11,419 8,099 5,197 2,503 1,492
Discontinued operations (see Note 2.) - - - - 1,476
Net income 11,419 8,099 5,197 2,503 2,968
Dividends paid 120 65 - 853 189
Per share amounts (Note 3.)
- ---------------------------
Income from continuing operations $ 1.40 $ 1.09 $ 0.87 $ 0.47 $ 0.38
Discontinued operations - - - - 0.38
Net income 1.40 1.09 0.87 0.47 0.76
Dividend paid 0.015 0.01 - 0.20 0.05
Balance Sheet Data
- ------------------
Current assets $ 47,011 $45,520 $31,247 $23,071 $19,543
Property, plant and equipment - net 27,635 14,624 7,396 6,337 2,852
Total assets 79,281 66,287 39,530 29,474 22,980
Current liabilities 19,108 17,838 10,644 12,475 10,128
Non current liabilities - - 609 631 678
Shareholders' equity 60,173 48,449 28,162 16,368 11,323
</TABLE>
Notes
1. Assets and liabilities are translated into United States Dollars using
the appropriate rates of exchange at the balance sheet date. Income
and expenses are translated at the average exchange rate in effect
during the year.
2. Income from the sale of property in Hong Kong in 1991.
3. The weighted average number of shares outstanding and common stock
equivalents for the years ended December 31, 1995, 1994, 1993, 1992
and 1991 were 8,171,750, 7,459,570, 5,976,136, 5,301,996, and
3,880,564, respectively.
- 21 -
<PAGE> 22
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
General
The Company derives its revenues principally from manufacturing
consumer electronic products and subassemblies for OEM customers in the
electronics industry. The Company manufactures a broad line of finished
products for its OEM customers, including personal organizers, linguistic
products and calculators. In addition, it manufactures electronic components
and subassemblies and is engaged in the development of products such as
integrated circuit or smart card readers (referred to as "IC card readers").
In 1994, the Company discontinued sales of its proprietary products, sales of
which had not been material to the Company prior to the sale of the product
lines.
The consumer electronics industry is very competitive and the Company
is continuously under pressure to lower the selling price, and therefore reduce
the gross profit margin of its existing product lines. In response to these
pressures, the Company seeks to upgrade its technology in order to be capable
of manufacturing more advanced products with higher unit prices and greater
margins. The Company believes there is less competition in more advanced
products due to the complexity involved in manufacturing.
Since 1987, when the Company moved its manufacturing operations to
China, Nam Tai has derived substantially all of its operating income from its
China operations. The Company plans to continue increasing the scope of its
operations and investment in China such that the trend of increased income from
operations in China is expected to continue.
Under current British Virgin Islands law, Nam Tai is not subject to
tax on its income. Most of the Company's operating profits accrue in China,
where its effective tax rate is 10%, and in Hong Kong, where the corporate tax
rate on assessable profits is currently 16.5%. The Company also receives tax
credits in China related to its investment there which reduces the overall tax
rate of the Company. For additional information concerning Nam Tai's income
taxes - see Note 9 of Notes to Consolidated Financial Statements.
The Company uses a standard cost system to value its inventory, which
is purchased in U.S. dollars, Japanese yen and Hong Kong dollars. At the end
of each quarter, the Company revalues its inventory based upon actual costs and
the resulting standard cost revaluation flows through cost of sales when the
inventory is sold.
- 22 -
<PAGE> 23
The first quarter is typically the Company's slowest sales period
because, as is customary in China, the Company's manufacturing facilities in
China are closed for two weeks for the Chinese New Year holidays. The
following table sets forth certain unaudited quarterly financial information
for the four quarters of 1995, 1994 and 1993.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(In thousands of U.S. dollars, except per share data)
<S> <C> <C> <C> <C>
1995
- ----
Summary of Operations
Net sales $22,443 $30,065 $35,514 $33,218
Gross profit 4,256 5,987 6,967 5,942
Income from operations 1,609 2,880 3,736 2,541
Net income 1,556 3,210 4,637 2,016
Net income per share $ 0.19 $ 0.39 $ 0.57 $ 0.25
1994
- ----
Summary of Operations
Net sales $14,888 $24,625 $32,127 $24,924
Gross profit 2,602 4,681 5,702 4,238
Income from operations 672 2,111 3,137 1,694
Net income 655 2,003 3,494 1,947
Net income per share $ 0.09 $ 0.28 $ 0.48 $ 0.24
1993
- ----
Summary of Operations
Net sales $13,398 $16,092 $23,106 $18,248
Gross profit 2,719 3,283 4,477 3,619
Income from operations 912 1,265 2,058 1,581
Net income 886 797 1,669 1,845
Net income per share $ 0.16 $ 0.14 $ 0.29 $ 0.28
</TABLE>
- 23 -
<PAGE> 24
The following table presents selected consolidated financial information
stated as a percentage of net sales for the years ended December 31, 1995, 1994
and 1993:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of sales 80.9 82.2 80.1
----- ----- -----
Gross profit 19.1 17.8 19.9
Costs and expenses
Selling, general and administrative expenses 9.4 9.7 10.9
Research and development expenses 0.8 0.2 0.8
----- ----- -----
10.2 9.9 11.7
Income from operations 8.9 7.9 8.2
Other income 0.2 0.8 (0.6)
Interest expense (0.2) (0.2) (0.2)
----- ----- -----
Income from consolidated companies before income
taxes and minority interests 8.9 8.5 7.4
----- ----- -----
Net income 9.4 8.4 7.3
----- ----- -----
</TABLE>
- 24 -
<PAGE> 25
Year ended December 31, 1995 Compared to Year Ended December 31, 1994
Nam Tai's sales increased by 26% to $121,240,000 in the year ended
December 31, 1995 compared to $96,564,000 for the year ended December 31,
1994, primarily due to increases in sales to Sharp Corporation, Nintendo, Inc.
(which orders through Sharp Corporation) and Texas Instruments Incorporated.
The Company also received additional orders from Optrex Corporation.
The Company's gross profit margin increased to $23,152,000 or 19.1% of
sales for the year ended December 31, 1995 from $17,223,000 or 17.8% of sales.
The principal reasons for the increase in profit margins were (i) low cost of
raw materials, in part the result of the weakness of the Japanese yen in
relation to the US dollar, and (ii) improvements to quality control which
resulted in a reduction of the scrap rate.
Selling, general and administrative expenses increased by 22.1% to
$11,441,000 or 9.4% of sales in the year ended December 31, 1995 from
$9,370,000 or 9.7% of sales for the year ended December 31, 1994. The increase
in absolute dollars mainly reflected additional staff and costs required to
provide services to the Company in line with growth in sales. The decrease in
such expenses as a percent of sales was the result of efficiencies obtained in
general administrative expense as the Company handled a greater level of
activity with existing resources. Other expenses included the initial start up
expenses associated with the formation of the new subsidiary operation, Namtek.
No gain or loss on disposal of fixed assets was incurred in the year
ended December 31, 1995 compared to a net loss on disposal of fixed assets of
$48,000 in the year ended December 31, 1994. Other income - net declined to
$225,000 for the year ended December 31, 1995 from $761,000 for the year ended
December 31, 1994. This income mainly consists of $1,548,000 of interest
income less a $560,000 charge relating to undepreciated cost of the Deferred
Compensation Arrangement and $376,000 associated with a one-time bonus to
staff in Hong Kong, China and Canada to recognize exceptional work in the
fourth quarter of 1995 (a period of high activity). The provision taken to
expense the Deferred Compensation Arrangement applied to certain senior
management who are the beneficiaries of such arrangement but did not involve
the payment of any funds and will eliminate the need to accrue for this expense
in the future.
Interest expense increased to $161,000 for the year ended December 31,
1995 from $129,000 for the year ended December 31, 1994.
Income from continuing operations before income taxes increased to
$10,830,000 for the year ended December 31, 1995 from $8,198,000 for the year
ended December 31, 1994. The improvement of 32.1% was primarily attributable
to higher operating income reflecting increased sales volume and higher gross
profit margins associated with 1995 sales.
The income tax benefit of $589,000 for the year ended December 31,
1995 compared to a provision for income tax expense of $173,000 for the year
ended December 31, 1994. The tax recovery resulted from the refund of $782,000
China tax paid for the year ended December 31, 1994 which was received during
the second quarter of 1995. Hong Kong tax payable was $106,000 for the year
ended December 31, 1995.
Minority interest in subsidiaries declined to nil for the year ended
December 31, 1995 from $74,000 for the year ended December 31, 1994 following
the repurchase of shares of NT Canada from a minority shareholder during 1994.
Net income increased by 41% to $11,419,000 (or 9.4% of sales) for the
year ended December 31, 1995 compared to $8,099,000 (or 8.4% of sales) for the
year ended December 31, 1994. This resulted in earnings per share for the year
ended December 31, 1995 of $1.40 compared to earnings per share of $1.09 for
the year ended December 31, 1994. The increase in net income and earnings per
share was in line with the increase in sales taking into consideration the
higher operating margins. The weighted average number of common shares
outstanding and common stock equivalents increased to 8,171,750 for the year
ended December 31, 1995 from 7,459,570 for the year ended December 31, 1994,
reflecting the exercise of warrants issued according to the 1993 Rights
Offering which occurred in September 1994.
- 25 -
<PAGE> 26
Current assets remained relatively stationary at $47,011,000 for the
year ended December 31, 1995 compared to $45,520,000 for the year ended
December 31, 1994. Cash, cash equivalents and term deposits declined to
$17,362,000 for the year ended December 31, 1995 from $23,681,000 for the year
ended December 31, 1994. This decline of $6,319,000 resulted from expenditures
on new plant construction. The increase in accounts receivable and inventories
for the year ended December 31, 1995 to the equivalent period in 1994 was in
line with the increase in sales plus additional receivables at December 31, 1995
in the amount of $2,620,000, which relates to the residential property in
West Vancouver, British Columbia, Canada. The sale of this property was
concluded as at December 31, 1995 and the title registration completed at
February 9, 1996.
Long term investment, representing primarily the investment in common
shares of Deswell remained an asset of the Company through 1995. This
investment is shown at cost, approximately 87% of the market value of Deswell
common shares as reported on The National Market as at December 31, 1995. The
increase in property, plant and equipment - net to $27,635,000 for the year
ended December 31, 1995 from $14,624,000 for the year ended December 31, 1994
reflects the expenditure of capital on new plant facilities, net of
depreciation.
Current liabilities increased by 7.1% to $19,108,000 for the year
ended December 31, 1995 from $17,838,000 for the year ended December 31, 1994.
This increase was in line with the increase in current assets and represents a
smaller increase than the increase in sales for the subject period.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Nam Tai's sales increased by 36% to $96,564,000 in the year ended
December 31, 1994 compared to $70,844,000 for the year ended December 31, 1993,
primarily due to increases in sales to Sharp Corporation and sales of PCBs to
Nintendo, Inc. which orders through Sharp Corporation. The Company also
received additional orders from Seiko Instruments, Inc.
The Company's gross profit margins decreased slightly from 19.9% in
the year ended December 31, 1993 to 17.8% in the year ended December 31, 1994.
The three principal reasons for this decline were (i) a change in product mix
whereby proportionately more personal organizers, which have a lower gross
profit, were produced; (ii) higher scrap rates in the newly expanded PCB
department; and (iii) higher labor and material costs in the fourth quarter as
a new product was introduced which required the employment of new technology
and training of the work force.
Selling, general and administrative expenses increased by 21% to
$9,370,000 (or 9.7% of sales) in the year ended December 31, 1994 from
$7,735,000 (or 10.9% of sales) in the year ended December 31, 1993. Selling
expenses increased to $1,240,000 in the year ended December 31, 1994 from
$878,000 in the year ended December 31, 1993. This increase mainly reflected
additional advertising expenses of $301,000 incurred to promote Nam Tai's own
brand name health care products, which were discontinued following the sale of
the health care product line in 1994, and increases in shipping expense and
export duties reflecting the higher sales volume for the period. Increases in
general and administrative expenses reflect increases in salaries resulting
from annual incremental salary increases and the addition of employees and
additional depreciation resulting from newly purchased assets. In spite of
these increases, selling, general and administrative expenses as a percentage
of net sales decreased to 9.7% of sales in the year ended December 31, 1994
from 10.9% of sales in the comparable period in 1993.
Research and development expenses decreased by approximately 56% to
$239,000 for the year ended December 31, 1994 compared to $547,000 for the year
ended December 31, 1993 as Nam Tai terminated its research activity in Canada
and sold its line of health care products in 1994. The Company's research and
development activities in China continue.
- 26 -
<PAGE> 27
Net loss on disposal of fixed assets was $48,000 in the year ended
December 31, 1994 compared to zero in 1993. The loss in 1994 mainly reflected
the write off of leasehold improvements and a loss on disposal of automobiles
and equipment.
Other income (loss) - net, which consists of foreign exchange gains
and losses, interest income, bank charges and miscellaneous income and expenses
(see Note 6 to Consolidated Financial Statements), was $761,000 for the year
ended December 31, 1994 compared to a loss of $413,000 for the year ended
December 31, 1993. Results for 1994 include a foreign exchange gain of
$68,000 and a gain of $594,000 on the release of the remaining deferred credit
- - (see Note 1(c) to Consolidated Financial Statements) previously included on
the Company's balance sheet. Previously, the credit was being amortized over
40 years. However, because the subsidiary to which the credit related began
liquidation proceedings, the remaining balance of $594,000 was credited to
other income in the third quarter of 1994. Results for 1993 were negatively
affected by a foreign exchange loss of $400,000.
Interest expense decreased by approximately 6% to $129,000 in the year
ended December 31, 1994 from $137,000 in the year ended December 31, 1993
because the discounted bills in 1994 were mainly in Japanese yen, which had a
much lower interest rate.
Income from continuing operations before income taxes (excluding gain
or loss on disposal of fixed assets) increased to $8,320,000 in the year ended
December 31, 1994 from $5,270,000 in the year ended December 31, 1993. This
58% improvement was primarily attributable to higher operating income of
approximately $1,800,000 reflecting increased sales volume for the period, and
the increase in other income.
Provision for income tax expense was $173,000 for the year ended
December 31, 1994 compared to $73,000 for the year ended December 31, 1993.
Income tax expense for 1994 included a refund of taxes paid of $270,000 as a
result of Nam Tai's additional investment in China. These refunds, which
consisted of $212,000 and $58,000 of taxes paid on 1993 and 1992 profits,
respectively, of the Company's China subsidiary, resulted from reinvestment of
such profits as additional equity in the subsidiary. The tax provision for
1993 benefited from the settlement of a tax dispute and release of bank
guarantees of $305,000 relating to the Company's dormant subsidiary.
Earnings per share for the year ended December 31, 1994 were $1.09
compared to $0.87 in the comparable period in 1993. Weighted average common
shares outstanding and common stock equivalents increased to 7,459,570 during
the year ended December 31, 1994, compared to 5,976,136 for the year ended
December 31, 1993. Increases in weighted average common shares and common
stock equivalents resulted primarily from the sale to shareholders and the
public of 750,000 units ("Units") in rights and standby offerings completed in
October 1993. Each Unit consisted of one and two Common Share Purchase
Warrants ("Warrants"). The Company called the Warrants for redemption in
August 1994, resulting in the issuance and sale of an additional 1,485,202
common shares in September 1994.
Accounts receivable were up 18% to $11,744,000 at December 31, 1994
compared to $9,887,000 in the previous year. This increase reflected the 37%
increase in sales in the fourth quarter 1994 compared to the fourth quarter of
1993. Days outstanding accounts receivable decreased to 44 days in 1994 from
51 days in 1993. This reflected the reduced proportion of receivables with 60
days terms at December 31, 1994 compared to December 31, 1993. Nam Tai trade
receivables are largely backed by letters of credit, therefore the Company has
incurred no bad debt expense.
Inventory increased by 36% to $9,087,000 at December 31, 1994 compared
to $6,673,000 at December 31, 1993. This increase in inventory mainly relates
to increases in raw materials and work in process and reflects the 31% increase
in orders for the first quarter of 1994 compared to the first quarter of 1993.
The 38% increase in accounts payable to $10,532,000 at December 31,
1994 compared to $7,615,000 at December 31, 1993 was primarily the result of an
increase in trade payables in 1994 reflecting the higher sales volume.
- 27 -
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES
In August 1992, Nam Tai moved to its present factory in Shenzhen,
China. This factory is leased under a 15 year agreement with an agency of the
Government of China. The lease provides for a 20% increase in rental payments
every five years. The current monthly rental is approximately $32,000. The
lease commitment is not expected to have a significant effect on future
reported earnings or cash flows as the compound annual increase in rentals
averages only 2.5% per year. The next increase is scheduled for August 1997.
During 1995, the Company commenced the expansion of its manufacturing
capacity in China and construction of its new factory complex, adjacent to the
Company's present factory, was complete by the end of the first quarter, 1996.
The Company expects to spend in excess of $20,000,000 in total to develop the
new factory and dormitory facilities and to purchase manufacturing equipment.
The Company will use its existing cash balances to finance the construction and
purchase equipment. To December 31, 1995, the Company had spent an aggregate
of approximately $15,000,000 on this project.
In September 1994, the Company agreed to a three-year lease for new
office space in Hong Kong and effective March 1, 1995 moved its principal
executive offices there. The rent for the first two years is approximately
$17,800 per month and for the final year is $20,500 per month. Rental for the
new space is not expected to have a material impact on Nam Tai's liquidity or
results of operations.
In recent years, the Company has shifted investment and operations
from Hong Kong to China as the Company has attempted to take advantage of the
lower overhead and labor costs in China. On December 31, 1995, 32% and 54% of
the Company's identifiable assets were located in Hong Kong and China,
respectively, as compared to 35% and 29%, respectively as at December 31, 1994.
Identifiable assets in Canada totalled 14% as at December 31, 1995 as compared
to 36% of total assets as at December 31, 1994. This decrease principally
resulted from decreased cash and term deposits.
The Company has traditionally relied on short-term bank borrowings to
meet its working capital requirements and to provide funds for investments in
property, plant and equipment. These borrowings have been supplemented by
internally generated funds, trade credits from suppliers and proceeds from the
sale of its equity. The average aggregate outstanding balance of short-term
bank borrowings (including notes payable) was $2,671,000 for the year ended
December 31, 1995 and $2,844,000 for the year ended December 31, 1994. As at
December 31, 1995 the Company had working capital of approximately $27,903,000.
Cash flow from operations for 1995 included net income of $11,419,000
and depreciation of $2,612,000. The net cash utilized by changes in working
capital (excluding cash and bank borrowings) was $6,250,000.
During 1995, the Company's investment activities utilized $13,696,000
in additions to property, plant and equipment, mainly consisting of capitalized
construction costs for the Company's new factory in China and additional
bonding equipment. The Company invested $3,931,000 for 14% of Deswell in 1994.
In July 1995, Deswell completed an initial public offering of its securities in
the United States and, as a result, the Company's investment amounted to
approximately 10.5% of Deswell's outstanding shares as at December 31, 1995.
Net cash utilized by financing activities was $37,000 in 1995. No
major financing was undertaken during the year.
At December 31, 1995, Nam Tai had in place general banking facilities
with three financial institutions aggregating $38,202,000. Such facilities,
which are subject to annual review, permit the Company to obtain overdrafts,
lines of credit for forward exchange contracts, letters of credit, import
facilities, trust receipt financing, shipping guarantees and working capital,
as well as fixed loans. As at December 31, 1995, the Company had utilized
approximately $10,216,000 under such general credit facilities and had
available unused credit facilities of $27,986,000. Interest on notes payable
averaged 3.6% per annum during the year ended December 31, 1995. During the
year ended December 31, 1995, the Company paid a total of $161,000 in interest
on indebtedness. During 1994, the Company
- 28 -
<PAGE> 29
arranged for a construction loan to be secured by a mortgage against the
residential building and office complex that the Company constructed in
Burnaby, British Columbia. This loan was repaid during 1995.
The Company believes that there are no material restrictions
(including foreign exchange controls) on the ability of Nam Tai's non-China
subsidiaries to transfer funds to the Company in the form of cash dividends,
loans, advances, or product/material purchases. With respect to the Company's
China subsidiaries, there are restrictions on the payment of dividends and the
removal of dividends from China. However, the Company believes that such
restrictions will not have a material effect on the Company's liquidity or cash
flow.
In the third quarter of 1991, the Company began paying dividends at
the rate of $0.025 per common share. In 1992, Nam Tai increased the quarterly
dividends to $0.05 per common share. Total dividends paid in the year ended
December 31, 1992 were $853,000 as compared to $189,000 in the year ended
December 31, 1991. Quarterly dividends were discontinued in January 1993 and
the Company resumed payment of annual dividends in 1994, paying shareholders
aggregate dividends of $65,000 ($0.01 per share) in 1994 and $120,000 (0.015
per share) in 1995.
IMPACT OF INFLATION
The Company believes that inflation has not had a material effect on
its past business. The Company has generally been able to increase the prices
of its products in order to keep pace with inflation. The Company believes
that increases in labor costs, which represent the most significant component
of the Company's production costs (other than material costs), will not
materially affect its business because of the Company's utilization of less
expensive labor through its operations in China. Moreover, the Company
believes that any possible significant increases in material costs would also
affect the entire electronics industry, and thus would not have a significant
negative impact on the Company's competitive position.
EXCHANGE RATES
The Company sells most of its products in U.S. dollars and pays for
its material components in Japanese yen, U.S. dollars and Hong Kong dollars.
It pays labor costs and overhead expenses in renminbi, the currency of China
(the basic unit of which is the yuan), Hong Kong dollars and Canadian dollars.
The exchange rate of the Hong Kong dollar to the United States dollar has been
fixed by the Hong Kong government since 1983 at approximately HK$7.80 to U.S.
$1.00 through the currency issuing banks in Hong Kong and accordingly has not
presented a currency exchange risk. Canadian operations are relatively small
with the percentage of expense in Canadian dollars representing 2.0% of the
total expenses before operating income for the year ended December 31, 1995.
Labor and overhead expenses related to Nam Tai's Chinese factory amounted to
6.2% during the year ended December 31, 1995 and 6.5% of the Company's total
expenses before operating income during the year ended December 31, 1994.
Management believes that the Company's only significant foreign
exchange risk results from material purchases made in Japanese yen.
Approximately 33%, 35% and 14% of Nam Tai's material costs have been in yen
during the years ended December 31, 1995, 1994 and 1993, respectively. Sales
made in yen have increased substantially since 1994, accounting for
approximately 18% of sales for the year ended December 31, 1995, versus 13% of
sales for the prior year. In addition, the Company believes its customers will
accept an increase in the selling price of manufactured products if the
exchange rate of the Japanese yen moves beyond a range of 5% to 10%. Oral
agreements have been reached as are customary in the industry and which do not
affect production in process. Based on the close working relationships with
its principal customers, and because management believes that similar oral
agreements exist between these OEMs and their other suppliers, the Company
believes that the oral nature of these agreements will not prevent its OEMs
from honoring them. However, there can be no assurance that such agreements
will be honored, and the refusal to honor such an agreement in the event of a
severe fluctuation of the yen at a time when sales made in yen are insufficient
to cover material purchases in yen would materially and adversely affect the
Company's operations.
- 29 -
<PAGE> 30
Effective January 1, 1994, China adopted a floating currency system
whereby the official exchange rate is equal to the market rate. Since the
market and official yuan rates were unified, the value of the yuan against the
dollar has been stable. However, China suffered significant inflation during
1994 and 1995 which placed devaluation pressure on the yuan. The Chinese
Government took steps to restrict credit to counteract these pressures, which
taken together with the net inflow of capital into China, resulted in a stable
currency against the United States dollar for the year ended December 31, 1995.
The Company believes that because its Chinese operations presently are confined
to manufacturing products for export, any devaluation of the yuan would benefit
Nam Tai provided that action or other economic pressures do not lead to
fundamental changes in the present economic climate in China.
Foreign exchange transactions involving the renminbi take place
through the Bank of China or other institutions authorized to buy and sell
foreign exchange or at an approved foreign exchange adjustment center (known as
a "swap center"). In the past, when exchanging Hong Kong dollars for
renminbi, the Company used the swap center to obtain the best rate possible.
When translating the Chinese company account into U.S. dollars, the Company
uses the same exchange rate as quoted by the Bank of China. Since January 1,
1994, when China adopted a floating currency system (whereby the official rate
is equal to the market rate), swap centers and banks in China offer essentially
the same market rates, facilitating the exchange of Hong Kong dollars for
renminbi. The adoption of a floating currency system has had no material
impact on the Company.
The Company also hedges its currency exchange risk in an effort to
minimize it. In an attempt to lower the costs of expenditures in foreign
currencies, management will periodically enter into forward contracts to buy or
sell foreign currency(ies) against the U.S. dollar through one of its banks. A
buy contract allows Nam Tai to buy a targeted currency at a fixed price for up
to one year, but which the Company normally books forward six months.
Conversely, a sale contract allows the Company to sell the currency at a fixed
price during the contract period. The type of contract and currency that the
Company enters into depends on whether management believes the currency will
rise or fall against the dollar in the succeeding period. Nam Tai will enter
into buy forward contracts if it appears the currency will rise and sell
forward contracts if it appears the currency will fall against the dollar. If
there is a fluctuation in the two currencies a gain or loss occurs between the
buy forward exchange rate and the sell forward exchange rate. The Company
enters into foreign currency contracts in order to manage foreign exchange
exposures. However, since the foreign currency contracts are not intended to
hedge identifiable foreign currency commitments, as required by generally
accepted accounting principles, the contracts are marked to the market with any
realized and unrealized gains or losses recorded as other income (loss) - net.
As at December 31, 1995, the Company had open forward contracts
amounting to $60,000 and at December 31, 1994 there were no open contracts.
During 1995, Nam Tai recorded a gain of $52,000 from hedging transactions
involving Canadian dollars. The Company's financial results have been affected
in the past due to hedging activities, resulting in foreign exchange gains of
approximately $52,000 in 1995 and $68,000 in 1994 and foreign exchange losses
of approximately $400,000 in 1993 and $350,000 in 1992. These exchange gains
and losses were caused by the difference between the buy forward rate and sell
forward rate for exchange contracts between the foreign currencies (Japanese
yen in 1992 and 1993, Canadian dollars in 1994 in 1995) entered into by the
Company. The Company is continuing to review its hedging strategy and there
can be no assurance that Nam Tai will not suffer losses in the future as a
result of currency hedging.
- 30 -
<PAGE> 31
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Management
As at January 2, 1996, the directors and executive officers of the
Company were as follows:
<TABLE>
<CAPTION>
Name Position with Company
- ---- ---------------------
<S> <C>
M.K. Koo Chairman of the Board
and Director
Tadao Murakami Chief Executive Officer, Vice-Chairman
and Director
Yoshio Inagawa Chief Operating Officer
and Director
Ronald G. Erdman Chief Financial Officer, Secretary
and Director
Maxwell Yeung Financial Controller, Treasurer
and Director
Charles Chu Director
Stephen Seung Director
</TABLE>
M.K. KOO. Mr. Koo has served as Chairman of the Board and a Director
of Nam Tai and its predecessor companies since inception. Mr. Koo serves on
the Company's audit committee. Mr. Koo received his Bachelor of Laws degree
from National Taiwan University in 1970.
TADAO MURAKAMI. Mr. Murakami has served the Company in various
executive capacities since 1984. He became Secretary and a Director of the
Company in December 1989. From June 1989, he has been employed as the
President of the Company's Hong Kong subsidiary. In July 1994, Mr. Murakami
succeeded Mr. Koo as President and in June 1995 became the Company's Chief
Executive Officer. Mr. Murakami assumed the position of Vice-Chairman in
January 1996 and is in charge of the day-to-day manufacturing and marketing
operations of the Company. Mr. Murakami graduated from Japan Electronic
Technology College in 1964.
YOSHIO INAGAWA. Mr. Inagawa joined the Company as Vice President in
June 1994, at which time he also became a Director. He assumed the position of
Chief Operating Officer in January 1996 and is responsible for managing Nam
Tai's manufacturing activities in China and overseeing the new factory
development. From 1953 to 1993, Mr. Inagawa was employed by Sharp Corporation
in various positions, his latest being the Factory Deputy General Manager of
Sharp Corporation's factory located in Nara, Japan.
RONALD G. ERDMAN. Mr. Erdman joined Nam Tai as Chief Financial
Officer, Secretary and Director in January 1996 based in Vancouver, Canada. He
also serves as President of Nam Tai Electronics (Canada) Ltd. Mr. Erdman was
employed by HSBC Capital Canada Inc. (formerly Wardley Canada Inc.), acting as
Chief Executive Officer since 1992. Mr. Erdman obtained a BSc. (Eng.) from
Queen's University, Kingston, Ontario, Canada in 1973 and M.B.A. from Cranfield
School of Management, Cranfield, United Kingdom in 1979.
- 31 -
<PAGE> 32
MAXWELL YEUNG. Mr. Yeung joined Nam Tai as Financial Controller,
Treasurer and Director with responsibility for finance and administration in
the People's Republic of China and Hong Kong. Mr. Yeung has worked in the
banking industry since 1983, most recently as Assistant General Manager of
Banque Worms in Hong Kong. Mr. Yeung obtained a B.Soc. Sc. from the University
of Hong Kong in 1983 and M.B.A. from the Chinese University of Hong Kong in
1990.
CHARLES CHU. Mr. Chu originally served as Secretary and a Director of
the Company from August 1987 to September 1989. He was reappointed a Director
in December 1992. Since July 1988, Mr. Chu has been engaged in the private
practice of law in Hong Kong. Mr. Chu serves on Nam Tai's audit committee.
Mr. Chu received his Bachelor of Laws degree and Post-Graduate Certificate of
Laws from the University of Hong Kong in 1980 and 1981, respectively.
STEPHEN SEUNG. Mr. Seung was appointed a Director of Nam Tai in 1995.
Mr. Seung is an attorney and Certified Accountant 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 serves on Nam Tai's audit committee, serves as a
Director and member of the audit committee of Deswell and serves Nam Tai as its
authorized agent in the United States.
No family relationship exists among any of the named directors,
executive officers or key employees. No arrangement or understanding exists
between any such director or officer and any other persons pursuant to which
any director or executive officer was elected as a director or executive
officer of the Company. Directors of the Company are elected each year at its
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 of the Company.
- 32 -
<PAGE> 33
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate amount of compensation (including non-cash benefits)
paid by Nam Tai and its subsidiaries during the year ended December 31, 1995 to
all directors and officers as a group for services in all capacities was
approximately $773,750. The Company also provides housing for the Chief
Executive Officer in Hong Kong.
On August 13, 1990 the Company fixed compensation for loss of office
at $500,000 for Mr. M.K. Koo and $300,000 each for Mr. Tadao Murakami and
another officer who retired from the Company in 1991. The Company also fixed
the age of retirement for directors at age 65 years. For the years prior to
and including 1995, the Company accrued $240,000 in connection with this
arrangement. A provision for the balance of $560,000 was taken at December 31,
1995.
Directors who are not employees of the Company or any of its
subsidiaries are paid $1,000 per month for services as a director, $750 per
meeting attended in person, $500 per meeting attended by telephone and are
reimbursed for all reasonable expenses incurred in connection with services as
a director.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM THE COMPANY OR ITS SUBSIDIARIES
As of December 31, 1995, the Company had outstanding options to
purchase an aggregate of 570,850 common shares. Of these options, all of which
were granted under the Company's 1993 stock option plan, 200,100, 360,750 and
10,000 options are exercisable at $5.35, $11.00 and $11.375 per share and
expire on September 9, 1998, and July 15, 1999 and July 15, 1999, respectively.
Of these options, an aggregate of 225,000 options to purchase common shares
were held by the Company's officers and directors as a group as at December 31,
1995.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
In January 1995, Nam Tai entered into an arrangement with Mr. M.K.
Koo, Chairman of the Board, requiring Mr. Koo to purchase a residential
property in West Vancouver, British Columbia, Canada no later than December 31,
1995 at the higher of book value or market value. The commitment was honored
as at December 29, 1995, with registration of transfer of ownership completed
as at February 9, 1996.
It is the Company's policy that all transactions between the Company
and any interested director or executive officer be approved by a majority of
the disinterested directors and on terms no more favorable than would be
available from an independent third party.
- 33 -
<PAGE> 34
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not Applicable.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR THE COMPANY'S
SECURITIES
Not Applicable.
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not Applicable.
ITEM 18. FINANCIAL STATEMENTS
The following financial statements are filed as part of this Report:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Statements of Income for the years ended December 31, 1995,
December 31, 1994 and December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated Balance Sheets as of December 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . 37
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1995, December 31, 1994 and December 31, 1993 . . . . . . . . . . . . . . . . . . . . 38
Consolidated Statements of Cash Flows for the years ended December 31, 1995,
December 31, 1994 and December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
All other schedules for which provisions made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
- 34 -
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
NAM TAI ELECTRONICS, INC.
We have audited the accompanying consolidated balance sheets of Nam Tai
Electronics, Inc and its subsidiaries as of December 31, 1995 and 1994, and the
related statements of income, shareholders' equity, and cash flows for each of
the three years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nam Tai Electronics, Inc. and
its subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years ended December 31,
1995, 1994 and 1993 in conformity with accounting principles generally
accepted in the United States of America.
PRICE WATERHOUSE
Certified Public Accountants
HONG KONG, March 28, 1996
- 35 -
<PAGE> 36
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. Dollars except share data)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $121,240 $ 96,564 $ 70,844
Cost of sales 98,088 79,341 57,746
------ ------ ------
Gross profit 23,152 17,223 14,098
------ ------ ------
Costs and expenses
Selling, general and
administrative expenses 11,441 9,370 7,735
Research and development expenses 945 239 547
------ ------ ------
12,386 9,609 8,282
------ ------ ------
Income from operations 10,766 7,614 5,816
(Loss) on disposal of fixed assets 0 (48) 0
Other income (loss) - net (Note 6) 225 761 (413)
Interest expense (161) (129) (137)
------ ------ ------
Income from consolidated companies
before income taxes and minority
interests 10,830 8,198 5,266
Income tax benefit (expense)(Note 9) 589 (173) (73)
------ ------ -----
11,419 8,025 5,193
Minority interests in subsidiaries 0 74 4
------ ----- -----
Net income $ 11,419 $ 8,099 $ 5,197
====== ====== ======
Earnings per share $ 1.40 $ 1.09 $ 0.87
====== ====== ======
Weighted average Common Shares
outstanding and common stock
equivalents (Note 1) 8,171,750 7,459,570 5,976,136
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
- 36 -
<PAGE> 37
NAM TAI ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. Dollars)
<TABLE>
<CAPTION>
As at December 31,
------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 13) $ 10,927 $ 23,281
Term deposit 6,435 400
Accounts receivable 17,699 11,744
Inventories (Note 4) 10,425 9,087
Prepaid expenses and deposits 1,525 1,008
------ ------
Total current assets 47,011 45,520
------ ------
Long term investment (Note 5) 3,931 3,931
------ ------
Property under development (Note 11) 0 1,887
------ ------
Property, plant and equipment, at cost 35,365 20,121
Less: Accumulated depreciation and
amortization (7,730) (5,497)
------ ------
27,635 14,624
------ ------
Other assets 704 325
------ ------
Total assets $ 79,281 $ 66,287
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings $ 273 $ 563
Notes payable 5,320 6,117
Accounts payable and accrued expenses 13,408 10,532
Income taxes payable 107 626
------ ------
Total current liabilities 19,108 17,838
------ ------
Shareholders' equity:
Common stock (Note 14) 80 80
Additional paid-in capital 28,182 27,645
Stock option grants (Note 14(b)) 467 631
Retained earnings 31,417 20,118
Foreign currency translation adjustment 27 (25)
------ ------
Total shareholders' equity 60,173 48,449
------ ------
Total liabilities and shareholder's equity $ 79,281 $ 66,287
====== ======
Commitments and contingencies (Note 12)
</TABLE>
See accompanying notes to consolidated financial statements.
- 37 -
<PAGE> 38
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands of U.S. Dollars except shares outstanding)
<TABLE>
<CAPTION>
Common Shares Foreign Total
------------- Additional Stock Currency Share-
Shares Paid-in Option Retained Translation holders'
Outstanding Amount Capital Grants Earnings Adjustment Equity
----------- ------ ------- ------ -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 5,272,098 $ 53 $ 9,417 - $ 6,887 $ 11 $16,368
Shares issued on exercise of options 476,727 4 1,188 - - - 1,192
Shares issued on Rights Offering 750,000 8 4,750 - - - 4,758
Stock options issued - - - 690 - - 690
Net income - - - - 5,197 - 5,197
Foreign currency translation adjustments - - - - - (43) (43)
--------- ----- ------ ------ ----- ------ ------
Balance at December 31, 1993 6,498,825 $ 65 $15,355 $ 690 $12,084 $ (32) $28,162
Shares issued on exercise of options 9,000 - 69 (21) - - 48
Options cancelled - - - (38) - - (38)
Warrants cancelled - - (657) - - - (657)
Shares issued on exercise of warrants 1,485,202 15 12,878 - - - 12,893
Net income - - - - 8,099 - 8,099
Dividends paid - - - - (65) - (65)
Foreign currency translation adjustments - - - - - 7 7
--------- ----- ------ ------ ------ ------ ------
Balance at December 31, 1994 7,993,027 $ 80 $27,645 $ 631 $20,118 $ (25) $48,449
Shares issued on exercise of options 70,150 - 537 (161) - - 376
Options cancelled - - - (3) - - (3)
Net income - - - - 11,419 - 11,419
Dividends paid - - - - (120) - (120)
Foreign currency translation adjustments - - - - - 52 52
--------- ----- ------ ------ ------ ------ ------
Balance at December 31, 1995 8,063,177 $ 80 $28,182 $ 467 $31,417 $ 27 $60,173
========= ===== ====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
- 38 -
<PAGE> 39
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 11,419 $ 8,099 $ 5,197
------ ------ ------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,612 2,063 1,186
Amortization of deferred credit - (15) (22)
Gain on release of deferred credit
to income - (594) -
Loss on disposal of property,
plant and equipment - 48 -
Gain on disposal of product lines - (129) -
Stock option (recovery) compensation expense - (38) 690
Minority interests - (74) (4)
Other items - 62 16
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable (5,955) (1,857) (2,601)
(Increase) decrease in inventories (1,338) (2,414) (1,566)
(Increase) decrease in prepayments
and deposits (517) (337) 475
Increase (decrease) in notes payable (797) 4,244 (221)
Increase (decrease) in accounts payable
and accrued expenses 2,876 2,917 (2,308)
(Decrease) increase in income taxes
payable (519) (140) 308
------ ------ ------
(3,638) 3,736 (4,047)
------ ------ ------
Net cash provided by operating activities 7,781 11,835 1,150
------ ------ ------
Cash flows from investing activities:
Proceeds from disposal of property,
plant and equipment 12 12 -
Proceeds from disposal of product lines - 270 -
Additions to property, plant and equipment (13,696) (10,673) (3,065)
Other assets (379) (199) (60)
Term deposit (6,035) - (400)
Purchase of long term investment - (3,931) -
------ ------ ------
Net cash used in investing activities (20,098) (14,521) (3,525)
------ ------ ------
Cash flows from financing activities:
Increase (decrease) in short-term bank
loans and overdraft (290) 173 390
(Distributed to) received from minority
interests - (41) 119
Additional shares issued (net) 373 12,284 5,950
Dividends paid (120) (65) -
------ ------ ------
Net cash (used in) provided by financing activities (37) 12,351 6,459
------ ------ ------
Net increase (decrease) in cash and cash equivalents (12,354) 9,665 4,084
Cash and cash equivalents at beginning of period 23,281 13,616 9,532
Cash and cash equivalents at end of period $ 10,927 $ 23,281 $ 13,616
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid $ 186 $ 131 $ 135
Income taxes paid $ 47 $ 313 $ 70
</TABLE>
See accompanying notes to consolidated financial statements.
- 39 -
<PAGE> 40
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. Dollars)
1 Summary of Significant Accounting Policies
a Basis of presentation
The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in
the United States of America.
b Principles of consolidation
The consolidated financial statements include the financial
statements of Nam Tai Electronics, Inc. ("the Company") and
all its subsidiaries. Intercompany accounts and transactions
have been eliminated on consolidation. The details of the
Company's subsidiaries are described in Note 10.
c Deferred credit
When a subsidiary is purchased, the excess of the fair value
of the net assets acquired over the purchase price is recorded
as a reduction to non-current assets with any remainder being
recorded as a deferred credit. If the purchase price exceeds
the fair value of net assets acquired, the excess cost is
recorded as goodwill. Any goodwill or deferred credit which
may result is amortized over its estimated useful life, not to
exceed forty years. The remaining deferred credit of $594,000
at September 30, 1994 was credited to income in 1994 as the
subsidiary to which the deferred credit related commenced
liquidation procedures.
d Inventories
Inventories are stated at the lower of cost and market value.
Cost is determined on the first-in, first-out basis.
e Property, plant and equipment
Property, plant and equipment are recorded at cost. The cost
of major improvements and betterments is capitalized whereas
the cost of maintenance and repairs is expensed in the year
incurred.
All land in Hong Kong is owned by the government which leases
the land at public auction to nongovernmental entities. With
the exception of those leases which expire after June 30, 1997
and before June 30, 2047 with no right of renewal, the
Sino-British Joint Declaration extends the terms of all
currently existing land leases for another 50 years beyond
1997. Thus, all of the Company's land leaseholds are
considered to be purchased long-term assets. The cost of such
land leaseholds is amortized on the straight-line basis over
the respective terms of the leases.
All land in the People's Republic of China ("PRC") is owned by
the 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 land leaseholds and are amortized on the
straight line basis over the respective term of the right to
use the land.
- 40 -
<PAGE> 41
1 Summary of Significant Accounting Policies (cont'd)
e Property, plant and equipment (cont'd)
Depreciation and amortization rates computed using the
straight-line method are as follows:
<TABLE>
<CAPTION>
Classification Rate
-------------- ----
<S> <C>
Long-term leasehold buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%-4.5%
Freehold buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4%
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18%-25%
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9%-25%
Molds and tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18%-25%
Motor vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 18%-25%
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25%-33%
</TABLE>
f Per share amounts
The per share amounts in the consolidated statements of income
have been computed based on the weighted average number of
Common Shares and Common stock equivalents outstanding during
each period, adjusted retroactively to reflect the stock
splits (Note 14(a)). Common stock equivalents include the
number of shares that would be issued from the exercise of in
the money stock options reduced by the number of shares that
could be purchased from the proceeds based on the average
market price of the Company's common stock.
The weighted average number of shares outstanding for the
years ended December 31, 1995, 1994 and 1993 were 8,018,252,
6,934,098 and 5,717,551, respectively. Common stock
equivalents for the years ended December 31, 1995, 1994 and
1993 were 153,498, 525,472, and 258,585, respectively. Fully
diluted earnings per share do not differ materially from the
undiluted figures.
g Foreign currency translations
The financial statements have been stated in United States
dollars, the official currency used in the British Virgin
Islands (the Company's place of incorporation). Although the
operating facilities are located in Hong Kong and the PRC, the
United States dollar is the currency of the primary economic
environment in which the Company's consolidated operations are
conducted. The exchange rate between the Hong Kong dollar and
the United States dollar has been pegged (HK$7.80 to US$1.00)
since October 1983.
All transactions in currencies other than functional
currencies during the year are translated at the exchange
rates existing on the respective transaction dates. Related
accounts payable or receivable existing at the balance sheet
date denominated in currencies other than functional
currencies are translated at the exchange rates existing on
that date. Exchange differences arising in these cases are
dealt with in the income statements.
The financial statements of all subsidiaries expressed in
currencies other than the United States dollar are translated
in accordance with Statement of Financial Accounting Standards
No. 52 "Foreign Currency Translation". Accordingly, all
assets and liabilities are translated at the rates of exchange
ruling at the balance sheet date and all income and
expenditure items are translated at the average rates of
exchange over the year. With the exception of Namtai
Electronic (Shenzhen) Co. Ltd. ("NTES") and Zastron Plastic &
Metal Products (Shenzhen) Ltd. ("Zastron"), which are
companies incorporated in the PRC, all exchange differences
arising from translation of subsidiaries' financial statements
are dealt with as a separate component of equity.
- 41 -
<PAGE> 42
1 Summary of Significant Accounting Policies (cont'd)
g Foreign currency translations (cont'd)
As NTES and Zastron act as production centers for the Company,
the Company controls their operations and the majority of
their transactions are made in Hong Kong dollars. Therefore,
the Hong Kong dollar has been determined to be the functional
currency of NTES and Zastron. Accordingly, all translation
adjustments resulting from the conversion of NTES and
Zastron's financial statements to Hong Kong dollars are taken
to the income statements. Exchange rates used to translate
and remeasure transactions and balances of NTES and Zastron
are the rates quoted by the Bank of China.
h Income taxes
The Company provides for all taxes based on income whether due
at year end or estimated to become due in future periods but
based on profits earned to date. However, under the current
tax legislation in the People's Republic of China ("PRC"), the
Company has reasonable grounds to believe that income taxes
paid in respect of any year would be refunded after the
profits earned in that year are reinvested in the business.
Deferred income taxes are provided to recognize the effect of
temporary differences between profit as computed for tax
reporting purposes and profit as stated in the accounts to the
extent that a liability or an asset is expected to be payable
or realizable in the foreseeable future.
i Staff retirement plan costs
The Company's contributions to the staff retirement plan (Note
7) are charged to the income statements as incurred.
j Deferred Compensation Arrangement costs
For the years 1990 to 1995, the liability relating to the
Deferred Compensation Arrangement (Note 8) was provided
ratably over the future employment periods of the
beneficiaries of the plan until their dates of retirement or
earlier departure from the Company. At December 31, 1995, the
remaining balance was fully provided for.
k Cash and cash equivalents
Cash includes certificates of deposit having a maturity date
of three months or less.
l Currency contracts
The Company enters into forward currency contracts in its
management of foreign currency exposures. However, since the
forward currency contracts are not intended to hedge an
identifiable foreign currency commitment, generally accepted
accounting principles require that the contracts are marked to
the market rate with the net realized or unrealized gains or
losses on forward currency contracts recognized in other
income (loss). (See Note 6).
m Property under development
Property under development is stated at the lower of cost and
market value.
- 42 -
<PAGE> 43
2 Comparative Figures
Certain expenses have been reallocated between cost of sales, selling,
general and administrative expenses and research and development
expenses. As a result, the comparative figures for prior periods have
been reclassified, where appropriate, in order to conform with the
presentation used in the current period.
3 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 equivalents are in high-quality deposits placed
with a wide array of institutions with high credit ratings. This
investment policy limits the Company's exposure to concentration 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. As a consequence,
concentrations of credit risk are limited. Letters of credit are the
principal security obtained to support lines of credit or negotiated
contracts when the financial strength of a customer is not considered
sufficient.
All of the Company's significant financial instruments at December 31,
1995 are reported in current assets or current liabilities in the
consolidated balance sheet at carrying amounts which approximate their
fair value.
From time to time, the Company hedges its currency exchange risk,
which primarily arises from materials purchased in currencies other
than the United States dollar, through the purchase and sale of
forward exchange contracts. Such contracts typically allow the
Company to buy or sell currency at a fixed price for up to one year,
but the Company normally books forward six months. At December 31,
1994, there was no open forward currency contract and at December 31,
1995, the open forward contracts amounted to $60,000.
4 Inventories
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
As at December 31,
------------------
1995 1994
---- ----
<S> <C> <C>
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,927 $ 435
Work-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,690 2,828
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,808 5,824
------ ------
$10,425 $ 9,087
====== ======
</TABLE>
5 Long Term Investment
In December 1994, the Company purchased 14.04% or 477,370 of the
outstanding common shares of Deswell Investment Holdings Limited
("Deswell"), a supplier of plastic parts to the Company, for a total
consideration of $3,931,284.
In 1995, Deswell changed its name to Deswell Industries, Inc. and
completed its initial public offering which reduced the Company's
ownership to approximately 10.5% at December 31, 1995.
- 43 -
<PAGE> 44
6 Other Income (Loss) - Net
Other income (loss) - net consists of (in thousands):
<TABLE>
<CAPTION>
As At December 31,
------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Foreign exchange gains (losses)
on forward contracts . . . . . . . . . . . . . . . . . . . . . . $ 52 $ 68 $ (400)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . 1,548 591 298
Bank charges . . . . . . . . . . . . . . . . . . . . . . . . (490) (364) (268)
Release of deferred credit (Note 1(c)) . . . . . . . . . . . . . . - 594 -
Offering costs written off . . . . . . . . . . . . . . . . . . . . (334) - -
Full provision for Deferred Compensation
Arrangement (Note 8) . . . . . . . . . . . . . . . . . . . . . . (560) - -
Special bonus . . . . . . . . . . . . . . . . . . . . . . . . (376) - -
Miscellaneous income (expenses) . . . . . . . . . . . . . . . . . 385 (128) (43)
------ ------ ------
$ 225 $ 761 $ (413)
======= ======= =======
</TABLE>
7 Staff Retirement Plan
The Company maintains staff retirement plans (defined contribution
pension plans) which cover certain of its employees. The cost of the
Company's contributions amounted to $80,545, $67,034 and $63,256 for
the years ended December 31, 1995, 1994 and 1993 respectively.
8 Deferred Compensation Arrangement
In August 1990, the Company agreed to provide compensation in the
event of loss of office, for whatever reason, for two officers. The
amount of compensation to be ultimately provided is $500,000 for Mr.
Koo and $300,000 for Mr. Murakami. A provision of $40,000 was made in
each of the years ended December 31, 1995, 1994 and 1993. At December
31, 1995, the balance of the deferred compensation arrangement, which
amounted to $560,000, was provided for.
9 Income Taxes
Under the current British Virgin Islands law, the Company's income is
not subject to taxation. In Hong Kong, the holding company of a group
of companies does not file a consolidated tax return but instead each
company having operations in Hong Kong is required to file a separate
tax return. As a consequence, income tax returns are filed on an
individual company basis.
The parent Company has no income subject to taxation. However,
subsidiaries, primarily operating in Hong Kong and the PRC, are
subject to income tax as described below.
The provision for current income taxes of the subsidiaries operating
in Hong Kong has been calculated by applying the current rate of
taxation of 16.5% (1994: 16.5% and 1993: 17.5%) to the estimated
taxable income earned in or derived from Hong Kong during the period.
Deferred tax, where applicable, is provided under the liability method
at the rate of 16.5% (1994: 16.5%, 1993: 17.5%), being the effective
Hong Kong statutory income tax rate applicable to the ensuing
financial year, on the temporary differences between taxable income
and income reported in the financial statements.
- 44 -
<PAGE> 45
9 Income Taxes (cont'd)
The basic corporate tax rate for Foreign Investment Enterprises
("FIE's") in the PRC, such as NTES and Zastron, is currently 33% (30%
state tax and 3% local tax). However, because both NTES and Zastron
are located in the designated Special Economic Zone ("SEZ") of
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 Shenzhen SEZ are not currently assessing any local
tax. Since NTES and Zastron have agreed to operate for a minimum of
ten 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 FIE's such
as NTES and Zastron 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 years in which a tax holiday is available, there is
an overall minimum tax rate of 10%. In 1990 and 1991, NTES qualified
for a tax holiday; tax was payable at the rate of 7.5% on the
assessable profits of NTES in 1992, 1993 and 1994, and 10% in 1995.
In 1992 and 1993, Zastron qualified for a tax holiday; tax was payable
at the rate of 7.5% on the assessable profits of Zastron in 1994 and
1995.
An FIE whose foreign investor directly reinvests its share of profits
obtained from that FIE 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. NTES qualified for such a refund of its 1992, 1993 and 1994
taxes as a result of the reinvestment of its 1992, 1993 and 1994
profits. In May 1994, NTES received a tax refund of $58,000 for the
reinvestment of its 1992 profits, in November 1994 received a tax
refund of $212,000 for the reinvestment of its 1993 profits, and in
August 1995 received a tax refund of $714,000 for the reinvestment of
its 1994 profit. Similarly, in August 1995, Zastron also received a
tax refund of $68,000 for the reinvestment of its 1994 profits. At
December 31, 1994, $391,000 was accrued for 1994 PRC taxes based on a
prudent approach pending the establishment of a pattern of receiving
the tax refunds to which the PRC subsidiaries were entitled. As such a
pattern has now been established, this accrual was reversed in 1995.
The Company intends to reinvest profit earned in 1995 by NTES and
Zastron and accordingly no provision for PRC taxes was made in 1995.
The Company has gained reasonable assurance through previous
experience that when profits are reinvested, PRC taxes paid are
refunded in full in the ensuing year.
The current and deferred components of the income tax (expense)
benefit are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current tax . . . . . . . $589 $(173) $(73)
Deferred tax . . . . . . . 0 0 0
---- ----- ----
$589 $(173) $(73)
==== ===== ====
</TABLE>
- 45 -
<PAGE> 46
9 Income Taxes (cont'd)
A reconciliation of the tax (expense) benefit to the amount computed by
applying the current tax rate to the income (loss) from continuing
operations before taxes in the consolidated statements of income is as
follows (in thousands except tax rate):
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Hong Kong statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . 16.5% 16.5% 17.5%
Income tax expense at current
tax rate on income from
consolidated companies before
income taxes and minority interests . . . . . . . . . . . . . . . . . . . . . . . $(1,787) $(1,353) $ (921)
Tax (expense) benefit arising from
items which are (not allowable)
assessable for tax purposes:
Gain on write-off of deferred credit
which is not taxable under Hong Kong
tax law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 98 0
Effect of difference between PRC and
Hong Kong tax applied to PRC
taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,659 873 368
Reversal of subsidiary's tax provision . . . . . . . . . . . . . . . . . . . . . 314 0 305
Income tax refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391 270 0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 (61) 175
------ ------ ------
$ 589 $ (173) $ (73)
====== ====== ======
</TABLE>
No income tax arose in the United States of America in any of the
periods presented.
In prior years, the purchase cost of patents and trademarks and
certain expenses incurred by a subsidiary, Nam Tai Supplies Ltd., were
claimed as tax deductible expenses. The Hong Kong Inland Revenue
Department ("IRD") has taken issue on the deductibility of these
expenses and issued revised assessments to recover taxes of $995,000.
In January 1994, the IRD petitioned the Hong Kong court to wind up the
subsidiary for non-payment of assessed taxes. A winding up order was
made on March 9, 1994, and the Official Receiver was appointed as
liquidator. In 1995, the tax provision of $314,000 for this
subsidiary was reversed as the subsidiary was in the process of
liquidation.
- 46 -
<PAGE> 47
10 Investment in Subsidiaries
<TABLE>
<CAPTION>
Percentage of
ownership
-------------
Consolidated Country of Principal December 31,
subsidiaries incorporation activity 1995 1994
------------ ------------- --------- ---- ----
<S> <C> <C> <C> <C>
Nam Tai Electronic &
Electrical Products
Limited Hong Kong Trading 100% 100%
Nam Tai Electronics
(Canada) Ltd. Canada Services 100% 100%
Namtai Electronic (Shenzhen)
Co. Ltd. PRC Manufacturing 100% 100%
Zastron Plastic & Metal
Products (Shenzhen) Ltd. PRC Manufacturing 100% 100%
</TABLE>
In March 1994, NTEE invested $9,944,000 in NTES to result in total
investment of $14,944,000. This investment consisted of a
reinvestment of NTES's 1993 net income of $4,162,000 and the
conversion of an intercompany loan between NTEE and NTES totalling
$5,782,000. In February 1995, NTEE invested a further $9,546,000 in
NTES by reinvesting NTES's 1994 net income. This increased NTEE's
total investment in NTES to $24,490,000.
At December 31, 1995, NTEE's investment in Zastron was $3,100,000 and
Nam Tai Electronics, Inc's investment in Nam Tai Electronics (Canada)
was $256,000.
Retained earnings are not restricted as to the payment of dividends
except to the extent dictated by prudent business practices. The
Company believes that there are no material restrictions, including
foreign exchange controls, on the ability of its non-PRC subsidiaries
to transfer surplus funds to the Company in the form of cash
dividends, loans, advances or purchases. With respect to the
Company's PRC subsidiaries, there are restrictions on the purchase of
materials by these companies, the payment of dividends and the removal
of dividends from the PRC. However, the Company believes that such
restrictions will not have a material effect on the group's liquidity
or cash flows.
11 Related Party Transactions
In June 1995, the Company completed the construction of a residential
property pursuant to an agreement dated January 13, 1995. As the
property had not been sold to a third party by December 31, 1995, Mr.
M.K. Koo, the Chairman of the Company, purchased the property for book
value of $2,620,000 being the higher of the market value and book
value of the property as required by the contract. At December 31,
1995 this amount was included in accounts receivable.
- 47 -
<PAGE> 48
12 Commitments and Contingencies
a Pursuant to the August 17, 1992 land purchase and development
agreement between NTES and Baoan County City Development
Foundation, NTES is required to construct a multi-purpose
business building of seven floors or more in Baoan City,
Shenzhen, PRC. The Company is looking for a partner to
develop, manage and finance the entire project. To date, the
Company has invested $488,000 to purchase the land and in
capitalized design fees. Should the project not proceed, the
Company expects its maximum exposure will be $488,000.
b Lease commitments
At December 31, 1995, there were annual commitments under
operating leases which relate to land and buildings as follows
(in thousands):
<TABLE>
<S> <C>
- 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 935
- 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746
- 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513
- 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481
- 2000 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . 4,907
------
$7,582
======
</TABLE>
c The Company has been advised that Tele-Art, Inc., a
shareholder of the Company, intends to pursue claims in a
court in the British Virgin Islands for damages allegedly
suffered as a result of the rights offering completed in 1993
(Note 14(c)). Management believes that the claim is without
merit and will vigorously defend it and believes that the
outcome of the case will not have a significant effect on the
financial statements.
- 48 -
<PAGE> 49
13 Banking Facilities
General banking facilities amounted to $38,202,000 at December 31,
1995, (December 31, 1994 - $24,022,000; December 31, 1993 -
$20,849,000), with interest charged based on the Hong Kong prime rate
for Hong Kong dollar transactions and banks' cost of funds rate for
transactions in other currencies (effectively 8.75% and 0.55%,
respectively at December 31, 1995).
The total amount of banking facilities utilized as at December 31,
1995 was $10,216,000 (December 31, 1994 - $8,701,000).
The notes payable, which include trust receipts, shipping guarantees
and discounted bills, 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 trust receipts will be
offset by a reduction in the same amount of outstanding letters of
credit.
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
---- ----
<S> <C> <C>
Outstanding letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,724 $ 5,789
Usance bills pending maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,159 -
Discounted bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2,349
Trust receipts and shipping guarantees . . . . . . . . . . . . . . . . . . . . . . . . . - -
Short-term bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 563
Forward Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 -
------ ------
Total banking facilities utilized . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,216 8,701
Less:
Outstanding letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,724) (5,789)
Short-term bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (273) (563)
Forward Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60) -
Plus:
Goods received but trust receipts not issued
by the bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,161 3,768
------ ------
Notes payable per balance sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,320 $ 6,117
====== ======
</TABLE>
Discounted bills normally have a term to maturity of 30 days. Trust
receipts normally have terms from 90 to 100 days. The interest rate
for the above facilities is normally prime plus 3/4% for all
currencies.
At December 31, 1994, cash and term deposits totalling $2,605,000,
certain fixed assets and a corporate guarantee were pledged to secure
the banking facilities. In the third quarter of 1995, the Company's
bankers agreed to release the charges on the pledged assets and to
provide the banking facilities with only the corporate guarantee from
Nam Tai Electronics, Inc., the parent company, and its undertaking not
to pledge any assets to any banks without the prior consent of the
Company's bankers.
- 49 -
<PAGE> 50
14 Common Shares
a Authorized shares
In July 1992, the Company effected a 2 for 1 forward stock
split, and the number of authorized Common Shares was
increased to 10,000,000. At the same time, the par value for
each Common Share decreased to $0.01. In July 1994, the Board
of Directors increased the number of authorized Common Shares
to 20,000,000.
b Stock options
In January 1988, the Company issued options at fair market
value to certain directors and shareholders. Remaining
options of 476,727 were exercised during 1993 at $2.50 per
share realizing $1,191,818 proceeds for the Company.
In August 1993, the Board of Directors approved a stock option
plan which authorized the issuance of 300,000 options to key
employees of the Company at an exercise price of $5.35. The
options expire in September 1998. Because the option's
exercise price was less than the market value of the Company's
Common Shares, the Company recorded compensation expense of
$690,000 in accordance with U.S. generally accepted accounting
principles, reflecting the fair value of the total discount of
the options at the inception date. In December 1993, the
option plan was amended and the maximum number of shares to be
issued pursuant to the exercise of options granted was
increased to 650,000. A summary of stock option activity is
as follows:
<TABLE>
<CAPTION>
Number of Option Price
Options Per Share
------- ---------
<S> <C> <C>
Outstanding at December 31, 1992 . . . . . . . . . . . . . . . . . . . . . 476,727 $2.50
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (476,727) $2.50
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 $5.35
--------
Outstanding at December 31, 1993 . . . . . . . . . . . . . . . . . . . . . 300,000 $5.35
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,000) $5.35
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365,000 $11.00
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,750) $5.35 & $ 11.00
--------
Outstanding at December 31, 1994 . . . . . . . . . . . . . . . . . . . . . 615,250 $5.35 & $ 11.00
Reissued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,750 $11.00
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (70,150) $5.35
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,000) $11.00
Reissued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 $11.38
--------
Outstanding at December 31, 1995 . . . . . . . . . . . . . . . . . . . . . 570,850
========
</TABLE>
c Rights Offering
On October 14, 1993 the Company completed a public offering of
750,000 Units at $7.65 per Unit for total proceeds of
$5,737,500. After deducting total offering expenses of
$979,500, the Company received net proceeds of $4,758,000.
Each Unit consisted of one Common Share and two identical
Common Share Purchase Warrants.
- 50 -
<PAGE> 51
15 Business Segment Information
The Company operates principally in the consumer electronic products
industry. The following is a summary of sales, income from continuing
operations and assets by geographic area (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales from operations within
Hong Kong:
Unaffiliated customers $119,417 $ 95,470 $ 70,405
Related parties - - -
Intersegment sales 353 - 969
------- ------- -------
119,770 95,470 71,374
People's Republic of China:
Unaffiliated customers 1,445 810 350
Intersegment sales 112,804 92,612 62,278
------- ------- -------
114,249 93,422 62,628
Canada:
Unaffiliated customers 378 284 89
Intersegment eliminations (113,157) (92,612) (63,247)
------- ------- -------
Total net sales $121,240 $ 96,564 $ 70,844
======= ======= =======
Income (loss) from continuing operations
within:
- Hong Kong 4,196 2,020 1,031
- People's Republic of China 10,448 7,491 4,760
- Canada (3,225) (1,412) (594)
------- ------- -------
Income from continuing operations $ 11,419 $ 8,099 $ 5,197
======= ======= =======
Identifiable assets by geographic
area:
- Hong Kong 25,505 23,463 17,912
- People's Republic of China 42,416 19,116 14,192
- Canada 11,360 23,708 7,426
------- ------- -------
Total assets $ 79,281 $ 66,287 $ 39,530
======= ======= =======
</TABLE>
Intersegment sales arise from the transfer of finished goods between
subsidiaries operating in different areas. These sales are generally
at estimated market prices.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales to customers by geographic
area:
- Japan $ 41,532 $ 23,547 $ 6,888
- North America 36,730 31,686 29,107
- Hong Kong 20,544 21,855 17,416
- Europe 16,003 13,831 12,218
- Other 6,431 5,645 5,215
------- ------ ------
Total net sales $121,240 $ 96,564 $ 70,844
======= ====== ======
</TABLE>
The Company had sales to four major customers, each individually
exceeding 10% of total sales in 1995 as follows:
<TABLE>
<CAPTION>
Customer
--------
<S> <C> <C> <C>
A $ 58,124 $ 46,032 $ 33,330
B (through A) 21,805 12,600 0
C 16,022 9,421 13,191
D 15,962 18,573 14,617
------- ------ ------
$111,913 $ 86,626 $ 61,138
======= ====== ======
</TABLE>
- 51 -
<PAGE> 52
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. See list under Item 18 of this Report.
(b) Exhibits. The following documents are filed as exhibits
herewith, unless, otherwise specified and are incorporated
herein by this reference:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<S> <C>
2.1 Tenancy agreement dated September 13, 1995 with Lord Realty Holdings
Limited for Suite 530, 999 West Hastings Street, Vancouver,
British Columbia, Canada
2.2 Letter Agreement dated July 25,1995 revising banking facilities
with The Hongkong and Shanghai Banking Corporation Limited
2.3 Letter Agreement dated September 18, 1995 revising banking facilities with
The Sanwa Bank Limited
2.4 Letter Agreement dated September 5, 1995 revising credit facilities with
Banque Worms
2.5 Construction Agreement dated March 3, 1995 with Guangdong 2nd Building
Engineering Co. for construction of the new factory in China
2.6 Construction Agreement dated May 19, 1995 with Shimizu Corporation
for construction of the new factory in China
2.7 Supply Contract dated May 19, 1995 with Shimizu Hong Kong Co., Ltd.
for Diesel Generators at the new factory in China
2.8 Contracts of Purchase and Sale dated December 29, 1995 with Mr. M.K. Koo
regarding a residential property in West Vancouver
2.9 Diagram of the Company's operating subsidiaries and affiliates - (see page five
of this Report)
</TABLE>
- 52 -
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned thereunto duly authorized.
NAM TAI ELECTRONICS, INC.
Date: April 1, 1996 By: /s/ M.K. KOO
---------------------
M.K. Koo
Chairman of the Board
- 53 -
<PAGE> 54
PRICE WATERHOUSE [LOGO]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-73954) of Nam Tai Electronics, Inc. of our
reported dated March 28, 1996 appearing in this Form 20-F.
/s/ PRICE WATERHOUSE
- -------------------------------
PRICE WATERHOUSE
Certified Public Accountants
HONG KONG, March 28, 1996
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<S> <C>
2.1 Tenancy agreement dated September 13, 1995 with Lord Realty Holdings
Limited for Suite 530, 999 West Hastings Street, Vancouver,
British Columbia, Canada
2.2 Letter Agreement dated July 25,1995 revising banking facilities
with The Hongkong and Shanghai Banking Corporation Limited
2.3 Letter Agreement dated September 18, 1995 revising banking facilities with
The Sanwa Bank Limited
2.4 Letter Agreement dated September 5, 1995 revising credit facilities with
Banque Worms
2.5 Construction Agreement dated March 3, 1995 with Guangdong 2nd Building
Engineering Co. for construction of the new factory in China
2.6 Construction Agreement dated May 19, 1995 with Shimizu Corporation
for construction of the new factory in China
2.7 Supply Contract dated May 19, 1995 with Shimizu Hong Kong Co., Ltd.
for Diesel Generators at the new factory in China
2.8 Contracts of Purchase and Sale dated December 29, 1995 with Mr. M.K. Koo
regarding a residential property in West Vancouver
2.9 Diagram of the Company's operating subsidiaries and affiliates - (see page five
of this Report)
</TABLE>
- 55 -
<PAGE> 1
EXHIBIT 2.1
999 West Hastings Street
Vancouver, British Columbia
LEASE
Landlord: LORD REALTY HOLDINGS LIMITED
acting by its attorney in fact,
POLARIS REALTY (CANADA) LIMITED
Tenant: NAM TAI ELECTRONICS (CANADA) LTD.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - BASIC TERMS
1.01 Basic Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 - PREMISES
2.01 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3 - TERM
3.01 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 4 - RENT
4.01 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.02 Adjustment of Rent when Areas are Measured or Changed . . . . . . . . . . . . . . . . . . . . . . 2
4.03 Rent Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 5 -TENANT'S COVENANTS
5.00 Tenant's Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.01 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.02 Permitted Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.03 Waste and Nuisance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.04 Insurance Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.05 Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.06 By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.07 Fire Exit Doors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.08 Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.09 Overholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.10 Signs and Directory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.11 Inspection and Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.12 Showing Leased Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 6 - LANDLORD'S COVENANTS
6.00 Landlord's Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.01 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.02 Interior Climate Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.03 Elevators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.04 Entrances; Lobbies, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.05 Washrooms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.06 Janitor Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.07 Maintenance of Common Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 7 - REPAIR AND DAMAGE AND DESTRUCTION
7.01 Landlord's Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.02 Tenant's Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.03 Abatement and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 8 - TAXES AND OPERATING COSTS
8.01 Landlord's Tax Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
8.02 Tenant's Tax Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.03 Tenant's Tax Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.04 Postponement, etc. of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.05 Receipts, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.06 Allocation of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.07 Operating Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 9 - UTILITIES AND ADDITIONAL SERVICES
9.01 Water and Telephone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9.02 Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9.03 Additional Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.04 Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 10 - LICENSES, ASSIGNMENTS AND SUBLETTINGS
10.01 Licenses, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.02 Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.03 Change in Control of Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 11 - FIXTURES AND IMPROVEMENTS
11.01 Installation of Fixtures and Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
11.02 Liens and Encumbrances on Fixtures and Improvements . . . . . . . . . . . . . . . . . . . . . . . 10
11.03 Removal of Fixtures and Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 12 - INSURANCE AND LIABILITY
12.01 Landlord's Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12.02 Tenant's Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12.03 Limitation of Landlord's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12.04 Limitation of Tenant's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12.05 Indemnity of Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 13 - SUBORDINATION, ATTORNNENT, REGISTRATION AND CERTIFICATES
13.00 Tenant's Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.01 Sale or Financing of Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.02 Subordination and Attornment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.03 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.04 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.05 Assignment by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 14 - OCCURRENCE OF DEFAULT
14.01 Unavoidable Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.02 No Admission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.03 Part Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 15 - REMEDIES OF LANDLORD AND TENANTS DEFAULT
15.01 Remedying by Landlord, Non-payment and Interest . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.02 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.03 Right of Re-entry on Default or Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.04 Termination and Re-entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.05 Payment of Rent, etc. on Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.06 Waiver of Distress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.07 Re-letting, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 16 - EVENTS TERMINATING LEASE
16.01 Cancellation of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.02 Prohibited Occupancy, Bankruptcy, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 17 - MISCELLANEOUS
17.01 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17.02 Extraneous Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17.03 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17.04 Area Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17.06 Frustration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17.07 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
17.08 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
17.09 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
17.10 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
17.11 Special Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 18 - DEFINITIONS
18.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Additional Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Cost of Additional Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(d) Fair Market Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(e) Insured Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(f) Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(g) Leased Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(h) Leasehold Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(i) Normal Business Hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(J) Operating Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(k) Operating Cost - fiscal period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(1) Rentable Area - whole floor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(m) Rentable Area - part floor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(n) Service Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(o) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(p) Tax Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(q) Tenant's Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(r) Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(s) Total Rentable Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SCHEDULES AND APPENDICES
- ------------------------
Schedule "A" Outline of Lease Premises
Schedule "B" Rules and Regulations
Schedule "C" Special Provisions
Schedule "D" Option to Renew
</TABLE>
(iii)
<PAGE> 5
THIS LEASE dated the 13th day of September, 1995 in pursuance of the Land
Transfer Form Act is made between the Landlord and the Tenant named herein who,
in consideration of the agreements herein contained, covenant and agree as
follows:
ARTICLE I
BASIC TERMS
1.01 The basic terms of this Lease are:
(a) (i) Landlord: Lord Realty Holdings Limited,
(Registration No. 25475A),
acting by its attorney in fact,
Polaris Realty (Canada) Limited
(ii) Address of Landlord: P.O. Box 12075
555 West Hastings Street
Vancouver, British Columbia
V6B 4N5
(b) (i) Tenant (legal name): NAM TAI ELECTRONICS (CANADA) LTD.
(ii) Address of Tenant: #530 - 999 West Hastings Street
Vancouver, B.C.
V6C 2W2
(iii) Individual to contact: Mr. M.K. KOO
(c) Leased Premises: Suite #530, 999 West Hastings
Street, Vancouver British Columbia,
comprising approximately 2,700
square feet of rentable Area
determined in accordance with
sections 18.01(l) and 18.01(m)
(d) (i) Term: two (2) years, eleven (11)
months and -0- days
(ii) Commencement Date: October 1, 1995
(iii) Expiry Date: August 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(e) Rent: Year of Term Per Annum Per Month Per S.F.
------------ --------- --------- --------
Oct 1/95 - Aug 31/98 $36,234.00 $3,019.50 $13.42
</TABLE>
(f) Additional Charges: The estimated additional charges payable by the Tenant
(per sections 8.02(c), 8.07 and 9.02(a)) at the Commencement Date is
$36,369.00 per annum payable monthly in advance in the amount of $3,030.75
per month.
(g) Permitted Business: a general business office only.
(h) Operating Name of Business: NAM TAI ELECTRONICS (CANADA) LTD.
(i) Deposit: The Tenant has paid a deposit of $ 13,500.00 to be credited to the
rent and additional charges for the first and last months of the Term.
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<PAGE> 6
ARTICLE 2
PREMISES
2.01 PREMISES. In consideration of the rents, covenants and agreements
hereinafter reserved and contained on the part of the Tenant to be paid,
observed and performed, the Landlord hereby demises and leases to the Tenant
the Leased Premises.
ARTICLE 3
TERM
3.01 TERM. TO HAVE AND TO HOLD the Leased Premises for the term set out in
section 1.01(d)(i) commencing on the Commencement Date set out in section
1.01(d)(ii).
ARTICLE 4
RENT
4.01 RENT. YIELDING AND PAYING THEREFOR unto the Landlord, at the office
of the Landlord's building manager, or at such other place as the Landlord may
direct in writing, during the Term in lawful money of Canada the rent set out
in section 1.01(e) in advance on the first day of each and every month during
the Term, the first instalment to be paid on or before the Commencement Date.
If the Term should commence on a day other than the first, or end on a day
other than the last day of the month, the rent for the fraction of a month
shall be calculated on a per diem basis at a rent per month equal to one three
hundred and sixty-fifth part of the annual rent.
4.02 ADJUSTMENT OF RENT WHEN AREAS ARE MEASURED OR CHANGED. The annual
rent set out in section 1.01(e) has been calculated on the basis of the
Rentable Area of the Leased Premises being as set out in section 1.01(c) at a
rate for each square foot of such Rentable Area determined by dividing such
annual rent by the Rentable Area. If the Rentable Area of the Leased Premises
was estimated by or on behalf of the Landlord for the purposes of this Lease
because the Rentable Area thereof could not be accurately determined prior to
the execution of the Lease, or if the Rentable Area of the Leased Premises
changes at any time during the Term, then, once the Rentable Area of the Leased
Premises can be accurately determined and if the estimate previously made was
not correct or has changed, the annual rent and other payments under this Lease
base on the Rentable Area shall be adjusted appropriately.
4.03 RENT REVIEW. If annual rent for that portion of the Term following
the fifth anniversary of the Commencement Date has not been specifically agreed
to by the parties, the annual rent payable under section 1.01(e) hereof shall
be reviewed by the parties each fifth anniversary of the Commencement Date to
determine if such annual rent then is the Fair Market Rent for the Leased
Premises; provided that the annual rent payable by the Tenant for such portion
of the Term shall in no event be less than the annual rent payable immediately
preceding such anniversary date. The parties shall make bona fide efforts to
agree as to the Fair Market Rent for the Leased Premises. If, however, the
parties have not agreed as to the amount of such Fair Market Rent by the date
one (1) calendar month subsequent to such anniversary date, then such Fair
Market Rent shall be determined either:
(a) by an arbitrator mutually agreed upon by the parties who
shall be a person currently active in the Province of
British Columbia as an accredited real estate appraiser
having not less than five (5) years experience as an
appraiser; or
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<PAGE> 7
(b) if the parties are unable to agree as to an arbitrator
pursuant to section 4.03(a), then such Fair Market Rent
shall be determined by a single arbitrator in accordance
with the provisions of the Commercial Arbitration Act
S.B.C. 1986, c. 3 and amendments thereto or legislation
in substitution thereof.
Until the rent has been determined as herein provided, the Tenant shall
continue to pay the monthly rent payable theretofore and upon such
determination the Landlord or the Tenant, as the case may be, shall make the
appropriate payment to the other together with interest thereon from the date
of such fifth anniversary to the date of payment at the rate specified in
section 15.01.
ARTICLE 5
TENANT'S COVENANTS
5.00 TENANT'S COVENANTS. That the Tenant covenants with the
Landlord as follows:
5.01 RENT. To pay Rent.
5.02 Permitted Use. To use the Leased Premises only for the
purpose of an office for the conduct of the Tenant's business set forth in
section 1.01(g) under the name set forth in section 1.01(h) and not to use or
permit to be used the Leased Premises or any part thereof for any other purpose
or business.
5.03 WASTE AND NUISANCE. Not to commit or permit any waste or
injury to the Leased Premises including the Leasehold Improvements and trade
fixtures therein, any overloading of the floors thereof, any nuisance therein
or any use or manner of use causing annoyance to other tenants and occupants of
the Building.
5.04 INSURANCE RISKS. Not to do, omit to do or permit to be done
or omit to be done upon the Leased Premises anything which would cause the
Landlord's cost of insurance (whether fire or liability) to be increased (and,
without waiving the foregoing prohibition the Landlord may demand, and the
Tenant shall pay to the Landlord upon demand, the amount of any such increase
of cost caused by anything so done or omitted to be done) or which shall cause
any policy of insurance to be subject to cancellation.
5.05 CONDITION. Not to permit the Leased Premises to become
untidy, unsightly or hazardous or permit unreasonable quantities of waste or
refuse to accumulate therein, and at the end of each business day to leave the
Leased Premises in a condition such as to reasonably facilitate the performance
of the Landlord's janitor and cleaning services referred to in section 6.06.
5.06 BY-LAWS. To comply at its own expense with all municipal,
federal, provincial, sanitary, fire and safety laws, by-laws, regulations and
requirements pertaining to the operation and use of the Leased Premises, the
condition of the Leasehold Improvements, trade fixtures, furniture and
equipment installed by the Tenant therein and the making by the Tenant of any
repairs, changes or improvements therein.
5.07 FIRE EXIT DOORS. To permit the installation by the Landlord
of all doors in the exterior wall of the Leased Premises necessary to comply
with the requirements of any statute, law, by-law, regulation, ordinance,
order or regulation referred to in section 5.06, and to permit ingress and
egress to and from the Leased Premises by the Landlord or by other tenants of
the Landlord or by their respective employees, servants, workmen and invitees,
by use of such doors in case of fire or emergency.
5.08 RULES AND REGULATIONS. To observe, and to cause its
employees, invitees and others over whom the Tenant can reasonably be expected
to exercise control to observe the Rules and Regulations attached as Schedule
"B" hereto, and such further and other reasonable rules and regulations and
amendments and changes therein as may hereafter be made by the Landlord of
which notice in writing shall be given to the Tenant and all such rules and
regulations shall be deemed to be incorporated into and form part of this
Lease.
3
<PAGE> 8
5.09 OVERHOLDING. That if the Tenant shall continue to occupy the
Leased Premises after the expiration of this Lease without any further written
agreement and without objection by the Landlord, the Tenant shall be a monthly
tenant at a monthly rent equal to One Hundred and Fifty Percent (150%) of the
monthly rent payable by the Tenant during the last month of the Term and
(except as to length of tenancy) on and subject to the provisions and
conditions herein set out.
5.10 SIGNS AND DIRECTORY. Not to paint, display, inscribe, place
or affix any sign, symbol, notice or lettering of any kind anywhere outside the
Leased Premises (whether on the outside or inside of the Building) or within
the Leased Premises so as to be visible from the outside of the Leased
Premises, with the exception only of a building standard identification sign at
or near the entrance of the Leased Premises and a directory listing in the main
lobby of the Building, in each case containing only the name of the Tenant, and
to be subject to the approval of the Landlord as to design, size and location.
Such identification sign and directory listing shall be installed at the
expense of the Tenant, and the Landlord reserves the right to install them as
an Additional Service.
5.11 INSPECTION AND ACCESS. To permit the Landlord at any time and
from time to time to enter and to have its authorized agents, employees and
contractors enter the Leased Premises for the purpose of inspection, window
cleaning, maintenance, providing janitor service, making repairs, alterations
or improvements to the Leased Premises or the Building, or to have access to
utilities and services (including underfloor header ducts and access panels,
which the Tenant agrees not to obstruct) or to determine the electric light and
power consumption by the Tenant in the Leased Premises and the Tenant shall
provide free and unhampered access for the purpose, and shall not be entitled
to compensation for any inconvenience, nuisance or discomfort caused thereby,
but the Landlord in exercising its rights hereunder shall proceed to the extent
reasonably possible so as to minimize interference with the Tenant's use and
enjoyment of the Leased Premises.
5.12 SHOWING LEASED PREMISES. To permit the Landlord and its
authorized agents and employees to show the Leased Premises to prospective
tenants during the Normal Business Hours of the last six (6) months of the
Term.
ARTICLE 6
LANDLORD'S COVENANTS
6.00 LANDLORD'S COVENANTS. That the Landlord covenants with the
Tenant as follows:
6.01 QUIET ENJOYMENT. For quiet enjoyment.
6.02 INTERIOR CLIMATE CONTROL. To provide to the Leased Premises
during Normal Business Hours, by means of a system for heating and cooling,
filtering and circulating air, processed air in such quantities, at such
temperatures as shall maintain in the Leased Premises conditions of reasonable
temperature and comfort in accordance with good standards of interior climate
control generally pertaining at the date of this Lease applicable to normal
occupancy of premises for office purposes, but the Landlord shall have no
responsibility for any inadequacy of performance of the said system if the
Leased Premises depart from the design criteria for such system, namely that
the occupancy will not exceed one person for every 100 square feet of floor
area, that the electrical power consumed in the Leased Premises for all
purposes shall not exceed 3.0 watts per square foot of floor area, that the
Tenant shall not have installed partitions or other installations in locations
which interfere with the proper operation of the said system, that the window
coverings on exterior windows shall be fully closed while such windows are
exposed to direct sunlight. If the use of the Leased Premises does not accord
with the said design criteria and changes in the system are feasible and
desirable to accommodate such use the Landlord may, and at the written request
of the Tenant shall, make such changes and the entire expense of such changes
will be reimbursed by the Tenant to the Landlord.
6.03 ELEVATORS. Subject to the supervision of the Landlord, to
furnish for use by the Tenant and its employees and invitees in common with
other persons entitled thereto passenger elevator service to the Leased
Premises, and to furnish for the use of the Tenant in common with others
entitled thereto at reasonable intervals and at such hours as the Landlord may
select, elevator service to the Leased Premises for the carriage of furniture,
equipment,
4
<PAGE> 9
deliveries and supplies, provided however, that if the elevators shall become
inoperative or shall be damaged or destroyed the Landlord shall have a
reasonable time within which to repair such damage or replace such elevator and
the Landlord shall repair or replace the same as soon as reasonably possible,
but shall in no event be liable for indirect or consequential damages or other
damages for personal discomfort or illness during such period of repair or
replacement.
6.04 ENTRANCES, LOBBIES, ETC. To permit the Tenant and its
employees and invitees to have the use during Normal Business Hours in common
with others entitled thereto of the common entrances, lobbies, stairways and
corridors of the Building giving access to the Leased Premises (subject to the
Rules and Regulations referred to in section 5.08 and such other reasonable
limitations as the Landlord may from time to time impose).
6.05 WASHROOMS. To permit the Tenant and its employees and
invitees in common with others entitled thereto to use the washrooms in the
Building on the floor and floors on which the Leased Premises are situate.
6.06 JANITOR SERVICE. To cause when reasonable necessary from time
to time the floors and windows of the Leased Premises to be swept and cleaned
and the desks, tables and other furniture of the Tenant to be dusted all in
keeping with a first-class office building but with the exception of the
obligation to cause such work to be done, the Landlord shall not be responsible
for any act of omission or commission on the part of the persons employed to
perform such work; such work shall be done at the Landlord's direction without
interference by the Tenant, its servants or employees.
6.07 MAINTENANCE OF COMMON AREAS. To cause the elevators, common
entrances, lobbies, stairways, corridors, washrooms and other parts of the
Building from time to time provided for common use and enjoyment to be swept,
cleaned or otherwise maintained substantially in keeping with a first-class
office building.
ARTICLE 7
REPAIR AND DAMAGE AND DESTRUCTION
7.01 LANDLORD'S REPAIRS. The Landlord covenants with the Tenant:
(a) to keep in a good and reasonable state of repair, and
consistent with the general standards of first-class
office buildings in the City of Vancouver, but
subject to section 7.03(b):
(i) the Building (other than the Leased Premises
and premises of other tenants) including the
foundation, roof, exterior walls including
glass portions thereof, the systems for
interior climate control, the elevators,
entrances, stairways, corridors and lobbies and
washrooms from time to time provided for use in
common by the Tenant and other tenants of the
Building and the systems provided for bringing
utilities to the Leased Premises;
(ii) the structural members or elements of the
Leased Premises; and
(b) to repair defects in construction performed or
installations made by the Landlord in the Leased
Premises and Insured Damage.
7.02 TENANT'S REPAIRS. The Tenant covenants with the Landlord:
(a) to keep in a good and reasonable state of repair and
consistent with the general standards of first-class
office buildings in the City of Vancouver, but
subject to section 7.03(b), the Leased Premises
including all Leasehold Improvements and all trade
fixtures therein and all glass therein other than
glass portions of exterior walls thereof, but with
the exception of structural members or elements of
the Leased Premises and defects in construction
performed or installations made by the Landlord and
Insured Damage therein;
(b) that the Landlord may enter and view the state of
repair, and that the Tenant will repair according to
notice in writing, and that the Tenant will leave the
Leased Premises in a good and reasonable state of
repair, subject always to the exceptions referred to
in section 7.02(a); and
5
<PAGE> 10
(c) that if any part of the Building including the
systems for interior climate control and for the
provision of utilities becomes out of repair, damaged
or destroyed through the negligence or misuse of the
Tenant or its employees, invitees or others over
which the Tenant can reasonably be expected to
exercise control, the expense of repairs or
replacements thereto necessitated thereby shall be
reimbursed to the Landlord promptly upon demand.
7.03 ABATEMENT AND TERMINATION. It is agreed between the Landlord
and the Tenant that:
(a) in the event of damage to the Leased Premises or to
the Building and if the damage is such that the Lease
Premises or any substantial part thereof is rendered
not reasonably capable of use and occupancy by the
Tenant for the purposes of its business for any
period of time in excess of ten (10) days, then
(i) unless the damage was caused by the fault or
negligence of the Tenant or its employees,
invitees or others under its control, from and
after the date of occurrence of the damage and
until the Leased Premises are again reasonably
capable of use and occupancy as aforesaid,
rent shall abate from time to time in
proportion to the part or parts of the Leased
Premises not reasonably capable of use and
occupancy; and
(ii) unless this Lease is terminated as hereinafter
provided, the Landlord or the Tenant, as the
case may be (according to the nature of the
damage and their respective obligations to
repair as provided in sections 7.01 and 7.02
hereof) shall repair such damage with all
reasonable diligence, but to the extent that
any part of the Leased Premises is not
reasonably capable of such use and occupancy
by reason of damage which the Tenant is
obligated to repair hereunder, any abatement
of rent to which the Tenant is otherwise
entitled hereunder shall not extend later than
the time by which, in the reasonable opinion
of the Landlord, repairs by the Tenant ought
to have been completed with reasonable
diligence; and
(b) if either:
(i) the Leased Premises; or
(ii) premises whether of the Tenant or other
tenants of the Building comprising in the
aggregate half or more of the Rentable Area of
the Building;
are substantially damaged or destroyed by any cause to
the extent such that in the reasonable opinion of the
Landlord they cannot be repaired or rebuilt within one
hundred and eighty (180) days after the occurrence of
the damage or destruction, the Landlord or the Tenant
may at its option, exercisable by written notice to
the other given thirty (30) days after the occurrence
of such damage or destruction, terminate this Lease,
in which event neither the Landlord nor the Tenant
shall be bound to repair as provided in sections 7.01
and 7.02 hereof, and the Tenant shall instead deliver
up possession of the Leased Premises to the Landlord
with reasonable expedition but in any event within
sixty (60) days after delivery of such notice of
termination, and rent shall be apportioned and paid to
the date upon which possession is so delivered up (but
subject to any abatement to which the Tenant may be
entitled under section 7.03(a) by reason of the Leased
Premises having been rendered in whole or in part not
reasonably capable of use and occupancy), but
otherwise the Landlord or the Tenant as the case may
be (according to the nature of the damage and their
respective obligations to repair as provided in
sections 7.01 and 7.02) shall repair such damage with
such reasonable diligence.
ARTICLE 8
TAXES AND OPERATING COSTS
8.01 LANDLORD'S TAX OBLIGATIONS. The Landlord covenants with the
Tenant subject to the provisions of section 8.02, to pay promptly when due to
the taxing authority or authorities having jurisdiction, all Taxes.
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8.02 TENANT'S TAX OBLIGATIONS. The Tenant covenants with the
Landlord:
(a) to pay when due, all taxes, business taxes, business
licence fees, and other taxes, rates, duties or
charges levied, imposed or assessed by lawful
authority in respect of the use and occupancy of the
Leased Premises by the Tenant, the business or
businesses carried on therein, or the equipment,
machinery of fixtures brought therein by or belonging
to the Tenant, or to anyone occupying the Leased
Premises with the Tenant's consent, or from time to
time levied, imposed or assessed in the future in
lieu thereof, and to pay to the Landlord upon demand
the portion of any tax, rate, duty or charge levied
or assessed upon the Land and Building that is
attributable to any equipment, machinery or fixtures
on the Leased Premise which are not the property of
the Landlord, or which may be removed by the Tenant;
(b) to pay to the federal, provincial or municipal
authority imposing the same all service, business
transfer, transaction value, ad valorem or other
taxes by whatever name called, if any, assessed upon
and as a direct result of the payment of rent
hereunder as often as such taxes become due and
whether or not such taxes are applicable on the date
of the execution of this Lease or become applicable
thereafter. In the event that such taxes are by
statute, by-law or regulation, imposed upon or
payable by the Landlord as recipient of the rent, the
Tenant shall reimburse the Landlord for the full
amount of such taxes within thirty (30) days of such
taxes becoming due.
(c) to pay promptly to the Landlord when demanded or
otherwise due hereunder all Taxes in respect of
all Leasehold Improvements in the Leased
Premises;
(d) to pay to the Landlord in the manner specified in
section 8.03 the Tenant's Share of the Tax Cost.
8.03 TENANT'S TAX COST. After the commencement of the Term of this
Lease and prior to the commencement of each fiscal period selected by the
Landlord thereafter which commences during the Term the Landlord shall estimate
the Tenant's Share of any Tax Cost for the ensuing fiscal period or (if
applicable) broken portion thereof, as the case may be, to become payable under
section 8.02, and notify the tenant in writing of such estimate. The amount so
estimated shall be payable in equal monthly instalments in advance over the
fiscal period or broken portion of the fiscal period in question, each such
instalment being payable on each monthly rental payment date provided in
Article 4. When the Tax Cost for the fiscal period or broken portion of the
fiscal period in question becomes finally determined the Landlord shall
recalculate the same. If the Tenant has overpaid such Tax Cost, the Landlord
shall refund any excess paid, but if any balance remains unpaid, the Landlord
shall fix monthly instalments for the then remaining balance of such fiscal
period or broken portion thereof such that, after giving credit for instalments
paid by the Tenant hereunder on the basis of such estimate, the Tenant's entire
Tax Cost will have been paid during such fiscal period or broken portion
thereof but if for any reason the Tax Cost is not finally determined within
such fiscal period or broken portion thereof, the parties shall make the
appropriate readjustment when such Tax Cost becomes finally determined.
Neither party may claim a readjustment in respect of the Tax Cost based on any
error of estimation, determination or calculation thereof unless claimed in
writing prior to the expiration of one (1) year after the fiscal period to
which the Taxes relate. Any report of the Landlord's auditor as to the Tax
Cost shall be conclusive as to the amount thereof for any period to which such
report relates.
8.04 POSTPONEMENT, ETC. OF TAXES. The Landlord may postpone
payment of any Taxes payable by it pursuant to section 8.01 and the Tenant may
postpone payment of any Taxes, rates, duties, levies and assessments payable by
it under section 8.02(a) and (b), in each case to the extent permitted by law
and if prosecuting in good faith any appeal against the imposition thereof, and
provided in the case of a postponement by the Tenant that if the Building or
any part thereof or the Landlord shall become liable to assessment,
prosecution, fine or other liability the Tenant shall have given security in a
form and of an amount satisfactory to the Landlord in respect of such liability
and such undertakings as the Landlord may reasonably require to ensure payment
thereof.
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8.05 RECEIPTS, ETC. Whenever requested by the Landlord the Tenant
will deliver to it receipts for payments of all taxes, rates, duties, levies
and assessments payable by the Tenant pursuant to sections 8.02(a) and (b)
hereof and furnish such other information in connection therewith as the
Landlord may reasonably require.
8.06 ALLOCATION OF TAXES. If a separate allocation of Taxes is not
issued by the relevant taxing authority with respect to any Leasehold
Improvements, the Landlord or the Tenant may from time to time apply to the
taxing authority for a determination of the portion of Taxes attributable to
such Leasehold Improvements, which determination shall be conclusive for the
purposes of this Article. In the event that no such determination may be
obtained from the taxing authority, the Landlord shall establish the portion of
Taxes attributable to such Leasehold Improvements using the then current
established principles of assessment used by the taxing authority, or such
other method which is fair, reasonable and equitable as determined by the
Landlord.
8.07 OPERATING COST. During the Term of the Lease the Tenant shall
pay to the Landlord in the manner set forth in this section the Tenant's Share
of the Operating Cost. Prior to the commencement of the Term of this Lease
and the commencement of each fiscal period selected by the Landlord thereafter
which commences during the Term the Landlord shall estimate the amount of the
Tenant's Share of any Operating Cost for the ensuing fiscal period or, if
applicable broken portion thereof, as the case may be, and notify the Tenant in
writing of such estimate. The amount so estimated shall be payable in equal
monthly instalments in advance over the fiscal period or broken portion thereof
in question, each such instalment being payable on each monthly rental payment
date provided in Article 4. The Landlord may from time to time alter the fiscal
period selected, in which case, and in the case where only a broken portion of
a fiscal period is included within the Term, the appropriate adjustment in
monthly payments shall be made. From time to time during a fiscal period the
Landlord may re-estimate the amount of Operating Cost in which event the
Landlord shall notify the Tenant in writing of such re-estimate and fix monthly
instalments for the then remaining balance of such fiscal period or broken
portion thereof such that, after giving credit for instalments paid by the
Tenant on the basis of the previous estimate or estimates, the Operating Cost
will have been paid during such fiscal period or broken portion thereof. As
soon as practicable after the expiration of each fiscal period the Landlord
shall make a final determination of Operating Cost for such fiscal period or
(if applicable) broken portion thereof and notify the Tenant, and the parties
shall make the appropriate readjustment. Neither party may claim a
readjustment in respect of the Operating Cost based upon error of estimation,
determination or calculation thereof unless claimed in writing prior to the
expiration of one (1) year after the fiscal period to which the Operating Cost
relates. Notices by the Landlord stating the amount of any estimate,
re-estimate or determination of Operating Cost, or monthly instalments payable
need not include particulars of Operating Cost. Any report of the Landlord's
auditor as to the Operating Cost shall be conclusive as to the amount thereof
for any period to which such report relates.
ARTICLE 9
UTILITIES AND ADDITIONAL SERVICES
9.01 WATER AND TELEPHONE. The Landlord shall furnish appropriate
ducts for bringing telephone services to the Leased Premises and shall provide
hot and cold water to washrooms available for the Tenant's use in common with
others entitled thereto.
9.02 ELECTRICITY. The Tenant shall pay throughout the Term
promptly to the Landlord when demanded:
(a) the cost of electrical light and power supplied to
the Leased Premises monthly based on the electric
light and power requirements of the Tenant on a pro
rata basis as determined from time to time during the
Term and billed by the Landlord, provided that the
Tenant or a duly authorized representative shall have
the right to verify that the method of apportionment
used is consistent with the method used for other
tenants of the Building;
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(b) the cost of cleaning, maintaining and servicing in
all respects all electrical lighting fixtures in the
Leased Premises including the cost of replacement of
electrical light bulbs, tubes, starters and ballasts
used to replace those installed at the commencement
of the said Term, such cleaning, maintaining,
servicing and replacement shall be within the
exclusive right of the Landlord.
9.03 ADDITIONAL SERVICES. The Landlord, if it shall from time to
time so elect, shall have the exclusive right, by way of Additional Services,
to provide or have its designated agents or contractors provide any janitor or
cleaning services to the Leased Premises required by the Tenant which are
additional to those required to be provided by the Landlord under section 6.06,
including the Additional Services which the Landlord agrees to provide by
arrangement and to supervise the moving of furniture or equipment of the Tenant
and the making of repairs or alterations conducted within the Leased Premises,
and to supervise or make deliveries to the Leased Premises. The cost of
Additional Services provided to the Tenant, whether the Landlord shall be
obligated hereunder or shall elect to provide them as Additional Services,
shall be paid to the Landlord by the Tenant from time to time promptly upon
receipt of invoices therefor from the Landlord. Cost of Additional Services
charges directly to the Tenant and other tenants shall be credited in computing
Operating Cost.
9.04 ALTERATIONS. Where, after substantial completion, of the
Building, the Landlord is required by law or a competent authority to make
alterations to the Leased Premises, then in each year of the Term after
completion of such alterations (but not after the cost thereof has been repaid
to the Landlord), the Tenant shall pay to the Landlord ten percent (10%) of the
cost to the Landlord of making such alterations, and if the Landlord is
required to make similar alterations to other portions or areas of the Building
the cost of so doing shall be reasonably apportioned by the Landlord to each of
the premises.
ARTICLE 10
LICENSES, ASSIGNMENTS AND SUBLETTINGS
10.01 LICENSES, ETC. The Tenant shall not suffer or permit any part
of the Leased Premises to be used or occupied by any persons other than the
Tenant, any subtenants permitted under section 10.02 and the employees of the
Tenant and any such permitted subtenant, or suffer or permit any part of the
Leased Premises to be used or occupied by any licensee, franchisee or
concessionaire, or suffer or permit any persons to be upon the Leased Premises
other than the Tenant, such permitted subtenants and their respective
employees, customers and others having lawful business with them.
10.02 ASSIGNMENT AND SUBLETTING. The Tenant shall not assign this
Lease or sublet the whole or any part of the Leased Premises, unless (1) it
shall have received or procured a bona fide written offer to take an assignment
or sublease which is not inconsistent with, and the acceptance of which would
not breach any provision of this Lease if this section is complied with and
which the Tenant has determined to accept subject to this section being complied
with, and (2) it shall have first requested and obtained the consent in writing
of the Landlord thereto. Any request for such consent shall be in writing and
accompanied by a true copy of such offer, and the Tenant shall furnish to the
Landlord all information available to the Tenant and requested by the Landlord
as to the responsibility, reputation, financial standing and business of the
proposed assignee or subtenant. Within fifteen (15) days after the receipt by
the Landlord of such request for consent and of all information which the
Landlord shall have requested hereunder (and if no such information has been
requested, within fifteen (15) days after receipt of such request for consent)
the Landlord shall have the right upon written notice to the Tenant, if the
request is to assign this Lease or sublet the whole of the Leased Premises
(unless this request is for assignment is for assignment or subletting to an
affiliate or associate or subsidiary company of the Tenant and provided the
Tenant shall not profit from an increase in the Rent or by cash payment or
inducement paid by the Assignee or Sublessee to the Tenant), to cancel and
terminate this Lease, or if the request is to sublet a part of the Leased
Premises only, to cancel and terminate this Lease with respect to such part in
each case of a termination date to be stipulated in the notice of termination
which shall not be less than sixty (60) days or more than ninety (90) days
following the giving of such notice, and in such event the Tenant shall
surrender the whole or part, as the case may be, of the Leased Premises in
accordance with such notice and rent shall be apportioned and paid to the date
of surrender and, if a part only of the Leased Premises is surrendered,
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rent payable as set forth in section 1.01(e) shall thereafter abate
proportionately. If the Landlord shall not exercise the foregoing right of
cancellation then the Landlord's consent to the Tenant request for consent to
assign or sublet shall not be unreasonably withheld and if such consent shall
be given, the Tenant shall assign or sublet, as the case may be, only upon the
terms set out in the offer submitted to the Landlord as aforesaid and not
otherwise. The Tenant further agrees that if the Landlord consents to any such
assignment or subletting, the Tenant shall be responsible for and shall hold
the Landlord harmless from any and all capital costs for Leasehold Improvements
and all other expenses, costs and charges in respect to or arising out of any
such assignment or subletting. Notwithstanding any such consent being given by
the Landlord and such assignment or subletting being effected, the Tenant
hereunder shall remain bound to the Landlord for the fulfillment of all the
terms, covenants, conditions and agreements herein contained during the Term
and any Renewal Term.
10.03 CHANGE IN CONTROL OF TENANT. If the Tenant is a private
corporation and if by the sale or other disposition of its shares or securities
the control or the beneficial ownership of such corporation is changed at any
time during the Term of this Lease, such change shall be deemed to be an
assignment of this Lease within the meaning of section 10.02. If such control
or beneficial ownership is changed without the prior written consent of the
Landlord, the Landlord may, at its option, cancel the Lease and the Term hereby
granted upon the giving of sixty (60) days notice to the Tenant of its
intention to cancel and this Lease and the Term shall thereupon be cancelled.
ARTICLE 11
FIXTURES AND IMPROVEMENTS
11.01 INSTALLATION OF FIXTURES AND IMPROVEMENTS. The Tenant will
not make, erect, install or alter any Leasehold Improvements or trade fixtures
in the Leased Premises without having requested and obtained the Landlord's
prior written approval, which the Landlord shall not unreasonably withhold. In
making, erecting, installing or altering any Leasehold Improvements or trade
fixtures the Tenant shall obtain all required building and occupancy permits
and shall not alter or interfere with any installations which have been made by
the Landlord without the prior written approval of the Landlord, and in no
event shall alter or interfere with window coverings installed by the Landlord
on exterior windows. The Tenant's request for any approval hereunder shall be
in writing and accompanied by an adequate description of the contemplated work
and, where appropriate, working drawings and specifications thereof. Any out
of pocket expenses incurred by the Landlord in connection with any such
approval shall be deemed incurred by way of Additional Service. All work to be
performed in the Leased Premises shall be performed by competent contractors
and subcontractors of whom the Landlord shall have approved (such approval not
to be unreasonably withheld, but provided that the Landlord may require that
the Landlord's contractors and subcontractors be engaged for any mechanical or
electrical work) and by workmen whose labor union affiliations are compatible
with those of workmen employed by the Landlord and its contractors and
subcontractors. All such work shall be subject to inspection by and the
reasonable supervision of the Landlord, as an Additional Service, and shall be
performed in accordance with any reasonable conditions or regulations imposed
by the Landlord and completed in good and workmanlike manner in accordance with
the description of the work approved by the Landlord.
11.02 LIENS AND ENCUMBRANCES ON FIXTURES AND IMPROVEMENTS. In
connection with the making, erection, installation or alteration of Leasehold
Improvements and trade fixtures and all other work or installations made by or
for the Tenant in the Leased Premises the Tenant shall comply with all the
provisions of The Builders Lien Act and other statutes from time to time
applicable thereto (including any provision requiring or enabling the retention
of portions of any sums payable by way of hold-backs) and except as to any such
hold-back shall promptly pay all accounts relating thereto. The Tenant will
not create any mortgage, conditional sale agreement or other encumbrance in
respect of its Leasehold Improvements or trade fixtures or permit any such
mortgage, conditional sale agreement or other encumbrance to attach to the
Leased Premises. If and whenever any mechanics' or other lien for work,
labour, services or materials supplied to or for the Tenant or for the cost of
which the Tenant may be in any way liable or claims therefor shall arise or be
filed or any such mortgage, conditional sale agreement or other encumbrance
shall attach, the Tenant shall within twenty (20) days after receipt of notice
thereof procure the discharge thereof, including any
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certificate of action registered in respect of any lien, by payment or
certificate of action registered in respect of any lien, by payment or giving
security or in such other manner as may be required or permitted by law, and
failing which the Landlord may in addition to all other remedies hereunder
avail itself of its remedy under section 15.01 and may make any payments
required to procure the discharge of any such liens or encumbrances, shall be
entitled to be reimbursed by the Tenant as provided in section 15.01, and its
right to reimbursement shall not be affected or impaired if the Tenant shall
then or subsequently establish or claim that any lien or encumbrance so
discharged was without merit or excessive or subject to any abatement, set off
or defence. This section shall not prevent the Tenant mortgaging or
encumbering its chattels, furniture and equipment not of the nature of
fixtures.
11.03 REMOVAL OF FIXTURES AND IMPROVEMENTS. All Leasehold
Improvements in or upon the Leased Premises shall immediately upon termination
of this Lease be and become the Landlord's property without compensation
therefor to the Tenant. Except to the extent otherwise expressly agreed by the
Landlord in writing, no Leasehold Improvements, trade fixtures, furniture or
equipment shall be removed by the Tenant from the Leased Premises either during
or at the expiration or sooner termination of the Term except that (1) the
Tenant may at the end of the Term remove its trade fixtures, (2) the Tenant
shall at the end of the Term remove such of its Leasehold Improvements and
trade fixtures as the Landlord shall require to be removed, and (3) the Tenant
may remove its furniture and equipment at the end of the Term, and also during
the Term in the usual and normal course of its business where such furniture or
equipment has become excess for the Tenant's purposes or the Tenant is
substituting therefor new furniture and equipment. The Tenant shall, in the
case of every removal either during or at the end of the Term, immediately make
good any damage caused to the Leased Premises by the installation and removal.
ARTICLE 12
INSURANCE AND LIABILITY
12.01 LANDLORD'S INSURANCE. The Landlord shall be deemed to have
insured (for which purpose it shall be a co-insurer, if and to the extent that
it shall not have insured) the Building and all improvements and installations
made by the Landlord in the Leased Premises, except to the extent hereinafter
specified, in respect of perils and to amounts and on terms and conditions
which from time to time are insurable at a reasonable premium and which are
normally insured by reasonably prudent owners of properties similar to the
Building, as from time to time determined at reasonable intervals (but which
need not be determined more often than annually and shall not be determined
less often than every three (3) years) by insurance advisors selected by the
Landlord, and whose written opinion shall be conclusive. Upon the request of
the Tenant from time to time the Landlord will furnish a statement as to the
perils in respect of which and the amounts to which it has insured the
Building, and the Tenant shall be entitled at reasonable times upon reasonable
notice to the Landlord to inspect copies of the relevant portions of policies
of insurance in effect and a copy of any relevant opinions of the Landlord's
insurance advisors.
12.02 TENANT'S INSURANCE. The Tenant shall take out and keep in
force in respect of any loss which might occur during the Term:
(a) comprehensive general liability (including bodily
injury, death, personal injury and property damage)
insurance on an occurrence or "claims made" form with
respect to the business carried on, in or from the
Leased Premises and the Tenant's use and occupancy
thereof of not less than $3,000,000.00 which
insurance shall include the Landlord as a named
insured and shall protect the Landlord in respect of
claims by the Tenant as if the Landlord were
separately insured; and
(b) insurance in such amounts as may be reasonably
required by the landlord in respect of fire and such
other perils, including sprinkler leakage as are from
time to time defined in the usual extended coverage
endorsement covering the Tenant's trade fixtures and
the furniture and equipment of the Tenant and (except
as to Insured Damage) all Leasehold Improvements of
the Tenant, and which insurance shall include the
Landlord as a named insured as the Landlord's
interest may appear with respect to the insured
Leasehold Improvements and provided that any proceeds
recoverable in the event
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of loss to Leasehold Improvements shall be payable
to the Landlord but the Landlord agrees to make
available such proceeds toward the repair or
replacement of the insured property if this Lease is
not terminated pursuant to any other provision hereof;
and if the Landlord shall require the same from time to time then also:
(c) Tenant's fire legal liability insurance in an amount
not less than the actual cash value of the Leased
Premises; and
(d) insurance upon all plate glass in or which forms a
boundary of the Leased Premises in an amount
sufficient to replace all such glass.
All insurance required to be maintained by the Tenant
hereunder shall be on terms and with insurers to which the Landlord has no
reasonable objection and shall provide that such insurers shall provide to the
Landlord thirty (30) days' prior written notice of cancellation or material
alteration of such terms. The Tenant shall furnish to the Landlord evidence as
to the insurance from time to time required to be effected by the Tenant and
its renewal or continuation in force either by means of a certified copy of the
policy or policies of its insurance with all amendments and endorsements or a
certificate from the Tenant's insurer which shall provide such information as
the Landlord may reasonably request. If the Tenant shall fail to take out,
renew and keep in force such insurance the Landlord may do so as the agent of
the Tenant and the Tenant shall repay to the Landlord any amounts paid by the
Landlord as premiums forthwith upon demand.
12.03 LIMITATION OF LANDLORD'S LIABILITY. The Tenant agrees that:
(a) the Landlord shall not be liable for any bodily
injury or death of, or loss or damage to any property
belonging to, the Tenant or its employees, invitees,
or licensees or any other person in, on or about the
Building unless resulting from the actual fault or
negligence of the Landlord, but in no event shall the
Landlord be liable:
(i) for any damage other than Insured Damage
which is caused by steam, water, rain or
snow which may leak into, issue or flow
from any part of the Building or from
the pipes or plumbing works thereof or
from any other place or quarter or for
any damage caused by or attributable to
the condition or arrangement of any
electric or other wiring or for any
damage caused by anything done or
omitted by any other tenant;
(ii) for any act or omission (including
theft, malfeasance or negligence) on the
part of any agent, contractor or person
from time to time employed by it to
perform janitor services, security
services, supervision or any other work
in or about the Leased Premises or the
Building; or
(iii) for loss or damage, however caused, to
money, securities, negotiable
instruments, papers or other valuables
of the Tenant; and
(b) the Landlord will have no responsibility or liability
for the failure to supply interior climate control or
elevator service when prevented from doing so by
strikes, the necessity of repairs, any order or
regulation of any body having jurisdiction, the
failure of the supply of any utility required for the
operation thereof or any other cause beyond the
Landlord's reasonable control, and shall not be held
responsible for any bodily injury, death or damage to
property arising from the use of, or any happening in
or about, any elevator.
12.04 LIMITATION OF TENANT'S LIABILITY. The Landlord releases the
Tenant from all claims or liabilities in respect of any damage which is Insured
Damage, to the extent of the cost of repairing such damage, but not from
injury, loss or damage which is consequential thereto or which arises therefrom
where the Tenant is negligent or otherwise at fault.
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12.05 INDEMNITY OF LANDLORD. Except as provided in section 12.04,
the Tenant agrees to indemnify and save harmless the Landlord in respect of all
claims for bodily injury or death, property damage or other loss or damage
arising from the conduct of any work by or any act or omission of the Tenant or
any assignee, subtenant, agent, employee, contractor, invitee or licensee of
the Tenant, and in respect of all costs, expenses and liabilities incurred by
the Landlord in connection with or arising out of all such claims, including
the expenses of any action or proceeding pertaining thereto, and in respect of
any loss, costs, expense or damage suffered or incurred by the Landlord arising
from any breach by the Tenant of any of its covenants and obligations under
this Lease.
ARTICLE 13
SUBORDINATION, ATTORNMENT, REGISTRATION AND CERTIFICATES
13.00 TENANT'S COVENANTS. The Tenant agrees with the Landlord that:
13.01 SALE OR FINANCING OF BUILDING. The rights of the Landlord
under this Lease may be mortgaged, charged, transferred or assigned to a
purchaser or to a mortgagee, or trustee for bond holders and in the event of a
sale or of default by the Landlord under any mortgage, trust deed or trust
indenture and the purchaser, mortgagee or trustee, as the case may be, duly
entering into possession of the Building or the Leased Premises, the Tenant
agrees to attorn to and become the tenant of such purchaser, mortgagee or
trustee under the terms of this Lease.
13.02 SUBORDINATION AND ATTORNMENT. If required by any mortgagee or
the holder of any trust deeds or trust indentures, this Lease and all rights of
the Tenant hereunder shall be subject and subordinate to all mortgages, trust
deeds or trust indentures now or hereafter existing which may now or hereafter
affect the Building and to all renewals, modifications, consolidations,
replacements and extensions thereof; provided that the Tenant whenever required
by any mortgagee (including any trustee under a trust deed or trust indenture)
shall attorn to such mortgagee as the tenant upon all of the terms of this
Lease. The Tenant agrees to execute promptly whenever requested by the Landlord
or by such mortgagee an instrument of subordination or attornment, as the case
may be, as may be required of it.
13.03 REGISTRATION. The Tenant covenants and agrees with the
Landlord that the Landlord shall not be obliged to provide this Lease in
registrable form and the Tenant agrees not to register this Lease, provided
that the Tenant at the request of the Landlord and at the cost and expense of
the Tenant, will cause this Lease to be registered in the Land Title Office in
the city in which title to the Leased Premises is registered. Notwithstanding
the provisions of section 13.02, in the event the Landlord requires this Lease
to be registered in priority to any mortgage, trust deed or trust indenture
which may now or any time hereafter affect in whole or in part the Leased
Premises or the Building and whether or not any such mortgage, trust deed or
trust indenture shall affect only the Leased Premises or the Building or shall
be a blanket mortgage, trust deed or trust indenture affecting other premises
as well, the Tenant covenants and agrees with the Landlord that the Tenant
shall execute promptly upon request by the Landlord any certificate, priority
agreement, or other instrument which may from time to time be requested to give
effect thereto.
13.04 CERTIFICATES. The Tenant agrees with the Landlord that the
Tenant shall promptly whenever requested by the Landlord from time to time
execute and deliver to the Landlord (and if required by the Landlord, to any
mortgagee (including any trustee under a trust deed or trust indenture) or
purchaser designated by the Landlord) a certificate in writing as to the then
status of this Lease, including as to whether it is in full force and effect,
is modified or unmodified, confirming the rental payable hereunder and the
state of the accounts between the Landlord and Tenant, the existence or
non-existence of defaults, and any other matter pertaining to this Lease as to
which the Landlord shall request a certificate.
13.05 ASSIGNMENT BY LANDLORD. In the event of the sale by the
Landlord of the Building or a portion thereof containing the Leased Premises or
the assignment by the Landlord of this Lease or any interest of the Landlord
hereunder, and to the extent that such purchaser or assignee has assumed the
covenants and obligations of the Landlord hereunder, the Landlord shall,
without further written agreement, be freed and relieved of liability upon such
covenants and obligations.
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ARTICLE 14
OCCURRENCE OF DEFAULT
14.01 UNAVOIDABLE DELAY. Except as herein otherwise expressly
provided, if and whenever and to the extent that either the Landlord or the
Tenant shall be prevented, delayed or restricted in the fulfillment of any
obligations hereunder in respect of the supply or provision of any service or
utility, the making of any repair, the doing of any work or any other thing
(other than the payment of rent or other moneys due) by reason of strikes or
work stoppages, or being unable to obtain any material, service, utility or
labour required to fulfil such obligation or by reason of any statute, law or
regulation of or inability to obtain any permission from any governmental
authority having lawful jurisdiction preventing, delaying or restricting such
fulfillment, or by reason of other unavoidable occurrence, the time for
fulfillment of such obligation shall be extended during the period in which
such circumstance operates to prevent, delay or restrict the fulfillment
thereof, and the other party to this Lease shall not be entitled to
compensation for any inconvenience, nuisance or discomfort thereby occasioned;
but nevertheless the Landlord will use its best efforts to maintain services
essential to the use and enjoyment of the Leased Premises.
14.02 NO ADMISSION. The acceptance of any rent from or the
performance of any obligation hereunder by a person other than the Tenant shall
not be construed as an admission by the Landlord of any right, title or
interest of such personas a subtenant, assignee, transferee or otherwise in the
place and stead of the Tenant.
14.03 PART PAYMENT. The acceptance by the Landlord of a part
payment of any sums required to be paid hereunder shall not constitute waiver
or release of the right of the Landlord to payment in full of such sums.
ARTICLE 15
REMEDIES OF LANDLORD AND TENANT'S DEFAULT
15.01 REMEDYING BY LANDLORD, NON-PAYMENT AND INTEREST. In addition
to all the rights and remedies of the Landlord available to it in the event of
any default hereunder by the Tenant either by any other provision of this Lease
or by statute or the general law, the Landlord:
(a) shall have the right at all times to remedy or
attempt to remedy any the Tenant, and in so doing may
make any payments due or be due by the Tenant to
third parties and may enter upon Premises to do any
work or other things therein and in all expenses of
the Landlord in remedying or attempting such default
shall be payable by the Tenant to the Landlord
forthwith upon demand; and
(b) shall have the same rights and remedies in the event
of any nonpayment by the Tenant of any amounts
payable by the Tenant under any provision of this
Lease as in the case of non-payment of rent.
If the Tenant shall fail to pay any rent or other amount from
time to time payable by it to the Landlord hereunder promptly when due, then
the Tenant shall pay interest thereon at a rate of three percent (3%) per annum
in excess of the rate of interest published from time to time by the main
branch in Vancouver, British Columbia, of the Landlord's bank, as its reference
rate for calculating interest on commercial loans of Canadian dollars and
referred to by such bank as its prime rate, from the date upon which the same
was due until actual payment thereof. Any interest payable under this section
shall be payable on the first day of each month and all arrears of interest
shall bear interest at the same rate.
15.02 REMEDIES CUMULATIVE. The Landlord may from time to time
resort to any or all of the rights and remedies available to it in the event of
any default hereunder by the Tenant, either by any provision of this Lease or
by statute or the general law, all of which rights and remedies are intended to
be cumulative and not alternative, and the express provisions hereunder as to
certain rights and remedies are not to be interpreted as excluding any other or
additional rights and remedies available to the Landlord by statute or general
law.
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15.03 RIGHT OF RE-ENTRY ON DEFAULT OR TERMINATION. Provided and it
is expressly agreed that if and whenever the rent hereby reserved or other
monies payable by the Tenant or any part thereof, whether lawfully demanded or
not, are unpaid and the Tenant shall have failed to pay such rent or other
monies within five (5) business days after the Landlord shall have given to the
Tenant notice requiring such payment, or if the Tenant shall breach or fail to
observe and perform any of the covenants, agreements, provisos, conditions,
rules or regulations and other obligations on the part of the Tenant to be
kept, observed or performed hereunder, or if this Lease shall have become
terminated pursuant to any provision hereof, or if the Landlord shall have
become entitled to terminate this Lease and shall have given notice terminating
it pursuant to any provision hereof, then and in every such case it shall be
lawful for the Landlord thereafter to enter into and upon the Leased Premises
or any part thereof in the name of the whole and the same to have again,
repossess and enjoy as of its former estate, anything in this Lease contained
to the contrary notwithstanding.
15.04 TERMINATION AND RE-ENTRY. If and whenever the Landlord
becomes entitled to re-enter upon the Leased Premises under any provision of
this Lease, the Landlord, in addition to all other rights and remedies, shall
have the right to terminate this Lease forthwith by leaving upon the Leased
Premises notice in writing of such termination.
15.05 PAYMENT OF RENT, ETC. ON TERMINATION. Upon the giving by the
Landlord of a notice in writing terminating this Lease, whether pursuant to
this or any other provision of this Lease, this Lease and the Term shall
terminate, rent and any other payments for which the Tenant is liable under
this Lease shall be computed, apportioned and paid in full to the date of such
termination, and the Tenant shall immediately deliver up possession of the
Leased Premises to the Landlord, and the Landlord may re-enter and take
possession of them.
15.06 WAIVER OF DISTRESS. The Tenant waives and renounces the
benefit of any present or future statute taking away or limiting the Landlord's
right of distress and covenants and agrees that notwithstanding any such
statute none of the goods and chattels of the Tenant on the Leased Premises at
any time during the Term shall be exempt for levy by distress for rent in
arrears. The Tenant will not sell, dispose of or remove any of the fixtures,
goods or chattels of the Tenant from or out of the Leased Premises during the
Term without the consent of the Landlord, unless the Tenant is substituting new
fixtures, goods or chattels of equal value or is bona fide disposing of
individual items which have become excess for the Tenant's purposes; and the
Tenant will be the owner of its fixtures, good and chattels and will not permit
them to become subject to any lien, mortgage, charge or encumbrance.
15.07 RE-LETTING, ETC. Whenever the Landlord becomes entitled to
re-enter upon the Leased Premises under any provision of this Lease the
Landlord in addition to all other rights it may have shall have the right as
agent of the Tenant to enter the Leased Premises and re-let them and to receive
the rent therefor and as the agent of the Tenant to take possession of any
furniture or other property thereon and to sell the same at public or private
sale without notice and to apply the proceeds thereof and any rent derived from
re-letting the Leased Premises upon account of the rent due and to become due
under this Lease and the Tenant shall be liable to the Landlord for the
deficiency, if any.
ARTICLE 16
EVENTS TERMINATING LEASE
16.01 CANCELLATION OF INSURANCE. If any policy of insurance upon
the Building from time to time effected by the Landlord shall be cancelled or
about to be cancelled by the insurer by reason of the use or occupation of the
Leased Premises by the Tenant or any assignee, subtenant or licensee of the
Tenant or anyone permitted by the Tenant to be upon the Leased Premises and the
Tenant after receipt of notice in writing from the Landlord shall have failed
to take such immediate steps in respect of such use or occupation as shall
enable the Landlord to reinstate or avoid cancellation of (as the case may be)
such policy of insurance, the Landlord may at its option terminate the Lease by
leaving upon the Leased Premises notice in writing of such termination.
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<PAGE> 20
16.02 PROHIBITED OCCUPANCY, BANKRUPTCY, ETC. In case without the
written consent of the Landlord the Leased Premises shall be used by any other
persons than the Tenant or its permitted assigns or subtenants or for any
purpose other than that for which they were leased, or occupied by any persons
whose occupancy is prohibited by this Lease, or if the Leased Premises shall be
vacated or abandoned, or remain unoccupied for fifteen (15) days or more while
capable of being occupied, or if the Term or any of the goods and chattels of
the Tenant shall at any time be seized in execution or attachment, or if the
Tenant shall make any assignment for the benefit of creditors or any bulk sale,
become bankrupt or insolvent or take the benefit of any statute now or
hereafter in force for bankrupt or insolvent debtors or (if a corporation)
shall take any steps or suffer any order to be made for its winding-up or other
termination of its corporate existence, then in any such case the Landlord may
at its option terminate this Lease by leaving upon the Leased Premises notice
in writing of such termination and thereupon, in addition to the payment by the
Tenant of rent and other payments for which the Tenant is liable under this
Lease, rent for the current month and the next ensuing three (3) months' rent
shall immediately become due and be paid by the Tenant.
ARTICLE 17
MISCELLANEOUS
17.01 NOTICES. Any notice required or contemplated by any provision
of this Lease shall be given in writing, and if to the Landlord, either
delivered to an executive officer of the Landlord or mailed by prepaid
registered mail addressed to the Landlord at the address set out in section
1.01(a); and if to the Tenant, either delivered to the Tenant personally (or to
a partner or officer of the Tenant if the Tenant is a firm or corporation) or
mailed by prepaid registered mail addressed to the Tenant at the address set
out in section 1.01(b). At the option of the Landlord any notice may be
delivered to the Tenant at the Leased Premises. Every such notice shall be
deemed to have been given when delivered or, if mailed as aforesaid upon the
day when it was mailed in Canada. The Landlord may from time to time by notice
in writing to the Tenant designate another address in Canada as the address to
which notices are to be mailed to it.
17.02 EXTRANEOUS AGREEMENTS. The Tenant acknowledges that there are
no covenants, representations warranties, agreements or conditions expressed or
implied relating to this Lease or the Leased Premises save as expressly set out
in this Lease and in any agreement to lease in writing between the Landlord and
the Tenant pursuant to which this Lease has been executed. This Lease may not
be modified except by an agreement in writing executed by the Landlord and the
Tenant.
17.03 TIME OF ESSENCE. Time shall be of the essence of this Lease.
17.04 AREA DETERMINATION. In the event that any calculation or
determination by the Landlord of the Rentable Area of any premises (including
the Leased Premises) or the Building is disputed or called into question, it
shall be calculated or determined by the Landlord's architect or surveyor from
time to time appointed for the purpose, whose certificate shall be conclusive.
17.05 SUCCESSORS AND ASSIGNS. This Lease and everything herein
contained shall enure to the benefit of and be binding upon the successors and
assigns of the Landlord and the heirs, executors and administrators and the
permitted successors and assigns of the Tenant. References to the Tenant shall
be read with such changes in gender as may be appropriate, depending upon
whether the Tenant is a male or female person or a firm or corporation, and if
the Tenant is more than one person or entity, the covenants of the Tenant shall
be deemed joint and several.
17.06 FRUSTRATION. The Landlord and the Tenant agree that
notwithstanding the occurrence or existence of any event or circumstance or the
non-occurrence of any event or circumstance and so often and for so long as the
same may occur or continue which, but for this section, would frustrate or void
this Lease, the obligations and liabilities of the Tenant hereunder shall
continue in full force and effect as if such event or circumstance has not
occurred or existed.
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17.07 WAIVER. No condoning, excusing or overlooking by the Landlord
or Tenant of any default, breach or non-observance by the Tenant or the
Landlord at any time or times in respect of any covenant, proviso or condition
herein contained shall operate as a waiver of the Landlord's or the Tenant's
rights hereunder in respect of any continuing or subsequent default, breach or
non-observance or so as to defeat or affect in any way the rights of the
Landlord or the Tenant herein in respect of any such continuing or subsequent
default or breach and no waiver shall be inferred from or implied by anything
done or omitted by the Landlord or the Tenant save only express waiver in
writing.
17.08 GOVERNING LAW. This Lease shall be governed by and construed
in accordance with the laws of the Province of British Columbia. The Landlord
and the Tenant agree that all of the provisions of this Lease are to be
construed as covenants and agreements as though the words importing such
covenants and agreements were used in each separate section hereof. Should any
provision or provisions of this Lease be illegal or not enforceable, it or they
shall be considered separate and severable from the Lease and its remaining
provisions shall remain in force and be binding upon the parties hereto as
though the said provision or provisions had never been included.
17.09 CAPTIONS. The captions appearing in this Lease have been
inserted as a matter of convenience and for reference only and in no way
define, limit or enlarge the scope or meaning of this Lease or of any provision
thereof.
17.10 NET LEASE. The Tenant acknowledges and agrees that it is
intended that this Lease shall be a completely carefree net lease for the
Landlord except as shall be otherwise provided in the specific provisions
contained in this Lease, and that the Landlord shall not be responsible during
the Term for any costs, charges, expenses and outlays of any nature whatsoever
arising from or relating to the Leased Premises, and the Tenant, except as
shall be otherwise provided in the specific provisions contained in this Lease,
shall pay all charges, impositions and costs of every nature and kind relating
to the Leased Premises whether or not referred to herein and whether or not
within the contemplation of the Landlord or the Tenant and the Tenant covenants
with the Landlord accordingly.
17.11 SPECIAL PROVISIONS. If there is a Schedule "C" to this Lease
the parties agree to each of its provisions.
ARTICLE 18
DEFINITIONS
18.01 DEFINITIONS. In this Lease the following expressions shall
have the following meanings:
(a) "Additional Service" or "Additional Services" means
the services and supervision supplied by the Landlord
and referred to in section 9.03 or in any other
provision hereof as Additional Services, and any
other services which from time to time the Landlord
supplies to the Tenant and which are additional to
the janitor and cleaning and to other services which
the Landlord has agreed to supply pursuant to the
provisions of this Lease and to like provisions of
other leases of the Building or may elect to supply
as included within the standard level of service
available to tenants generally and includes janitor
and cleaning services in addition to those normally
supplied, the provision of labour and supervision in
connection with deliveries and supervision in
connection with the moving of any furniture or
equipment of any tenant and the making of any repairs
or alterations by any tenant and maintenance or other
services not normally furnished to tenants generally;
(b) "Building" means that certain office building of
approximately nineteen storeys located on the Land;
(c) "Cost of Additional Services" shall mean in the case
of Additional Services provided by the Landlord a
reasonable charge made therefor by the Landlord which
shall not exceed the cost of obtaining such services
from independent contractors and in the case of
Additional Services provided by independent
contractors the Landlord's total cost of providing
Additional Services to the Tenant including the cost
of all labour (including salaries, wages and fringe
benefits) and materials and other direct expenses
incurred, the cost of supervision and other indirect
expenses capable of being allocated
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thereto (such allocation to be made upon a reasonable
basis) and all other out-of-pocket expenses made in
connection therewith including amounts paid to
independent contractors plus an amount equal to ten
percent (10%) thereof. A report of the Landlord's
auditor or other licensed public accountant appointed
by the Landlord for the purpose as to the amount of
any Cost of Additional Services shall be conclusive;
(d) "Fair Market Rent" means that rent that would be paid
for leases of similar duration for office space
similar to the Leased Premises in office buildings of
similar age, class, size, amenities and leasehold
improvements between persons dealing in good faith and
at arm's length.
(e) "Insured Damage" means that part of any damage
occurring to the Leased Premises of which the entire
cost of repair is actually recoverable by the Landlord
under a policy of insurance in respect of fire and
other perils from time to time effected by the
Landlord, or, if and to the extent that the Landlord
has not insured or is deemed to be a co-insurer or
self-insurer pursuant to section 12.01, would have
been recoverable had the Landlord effected insurance
in respect of perils and to amounts and on terms of
which it is deemed to be insured;
(f) "Land" means all and singular those certain parcels
or tracts of land, situate, lying and being In the
City of Vancouver, Province of British Columbia, more
particularly described as:
Lot I
Block 16
District Lot 541
Plan 17421
New Westminster District
(g) "Leased Premises" means that portion of the Building
set out in section 1.01(c), and shown outlined in red
on the Plan attached as Schedule "A" hereto. The
exterior face of the Building and any space in the
Leased Premises used for stairways or passageways to
other premises, stacks, shafts, pipes, conduits, ducts
or other building facilities, heating, electrical,
plumbing, air conditioning and other systems in the
Building are expressly excluded from the Leased
Premises;
(h) "Leasehold Improvements" means all fixtures,
improvements, installations, alterations and additions
from time to time made, erected or installed in the
Leased Premises or by other tenants in other premises
with the exception of trade fixtures and furniture and
equipment not of the nature of fixtures, but includes
all partitions however fixed (including moveable
partitions) and includes all wall-to-wall carpeting
with the exception of such carpeting where laid over
vinyl tile or other finished floor and affixed so as
to be readily removable without damage;
(i) "Normal Business Hours" means the hours from 8:00 a.m.
to 6:00 p.m Monday to Friday, inclusive, of each week,
and the hours from 8:00 a.m. to 1:00 p.m. Saturdays,
holidays excepted;
(j) "Operating Cost" means the total of all expenses,
without duplication, incurred in the complete
maintenance and operation of the Building and the
Land, whether incurred by or on behalf of any owner or
owners of parts of or interests in the Building and
the Land with whom the Landlord may from time to time
have agreements for the pooling or sharing of costs or
by or on behalf of lessees of space in the Building
with whom the Landlord may from time to time have
agreement whereby in respect of their premises such
lessees perform any cleaning, maintenance or other
work or services usually performed by the Landlord,
and which expenses if directly incurred by the
Landlord would have been included in Operating Cost.
If at any time during any fiscal period the Building
shall be less than ninety-five percent (95%) occupied
by tenants, the Landlord shall have the right to
adjust any cost incurred in the Building that is
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<PAGE> 23
related to tenant occupancy so that the Landlord
will fully recover its expenditure and Operating
Cost for such fiscal period shall be deemed to be
the amount of Operating Cost which would have been
incurred if the Building had been ninety-five
percent (95%) occupied by tenants during the whole
of the fiscal period. Operating Cost (without
limiting the generality of the foregoing):
(i) shall include (but subject to certain
deductions as hereinafter provided) the cost of
providing complete cleaning, janitor,
supervisory and all maintenance services, the
cost of operating elevators, the cost of
heating, cooling and ventilating all space
including both rentable and non-rentable areas,
the cost of providing hot and cold water,
electricity (including lighting), telephone and
other utilities and services to both rentable
and non-rentable areas, the cost of all repairs
including repairs to the Building or services
including elevators, the cost of window
cleaning and providing security and
supervision, the costs of all insurance for
liability or fire or other casualties (and if
the Landlord shall elect in whole or in part to
self-insure, the amount of reasonable
contingency reserves not exceeding the amount
of premiums which would otherwise have been
incurred in respect of the risk undertaken),
accounting costs incurred in connection with
maintenance and operation including
computations required for the imposition of
charges to tenants and audit charges required
to be incurred for the conclusive determination
of any costs hereunder, and the reasonable
rental value (having regard to the rentals
prevailing from time to time for similar space)
of space utilized by the Landlord in connection
with the operation or maintenance of the
Building and the Land, the amount of all
salaries, wages and fringe benefits paid to
employees engaged in the maintenance or
operation of the Building and the Land, amounts
paid to independent contractors for any
services in connection with such maintenance or
operation, the cost of direct supervision and
of management and other indirect expenses to
the extent allocable to the maintenance and
operation of the Building and the Land, the
cost to the Landlord of making a capital
improvement resulting in the reduction of the
Operating Cost, the cost of any management fees
and managing agent's fees and all other
expenses of every nature incurred in connection
with the maintenance and operation of the
Building and the Land;
(ii) shall exclude Taxes, debt service,
depreciation expenses properly chargeable to
capital account (except capital expenditures
that are made by the Landlord to reduce
Operating Cost), costs determined by the
Landlord from time to time to be fairly
allocable to the correction of construction
faults or initial maladjustments in operating
equipment and all management cost not allocable
to the actual maintenance and operation of the
Building (such as in connection with leasing
and rental advertising).
In computing Operating Cost there shall be credited
as a deduction the amounts of proceeds of insurance
relating to Insured Damage and other damage actually
recovered by the Landlord (or if the Landlord is
deemed to self-insure, a corresponding application
of reserves) applicable to such damage, recovery
from tenants of the costs of electricity and light
bulb and tube and ballast replacement, in each case
to the extent that the cost thereof was included
therein. Any expenses not directly incurred by the
Landlord but which are included in the Operating
Cost may be estimated by the Landlord on whatever
reasonable basis the Landlord may select if and to
the extent that the Landlord cannot ascertain the
actual amount of such expenses from the owners or
lessees who incurred them. Any report of the
Landlord's auditor or other licensed public
accountant appointed by the Landlord for the purpose
shall be conclusive as to the amount of Operating
Costs for any period to which such report relates;
(k) "Operating Cost" in any fiscal period means an amount
equal to the aggregate of all Operating Cost for such
fiscal period;
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<PAGE> 24
(l) "Rentable Area", in the case of a whole floor of the
Building, means all area within the outside walls and
shall be computed by measuring to the inside surface
of the glass outer Building walls without deduction
for columns and projections necessary for the
Building, and shall include the Service Areas serving
the floor, but shall not include stairs and elevator
shafts supplied by the Landlord for use in common
with other tenants and flues, stacks, pipe shafts and
vertical ducts with their enclosing walls;
(m) "Rentable Area", in the case of part of a floor of
the Building, means the area occupied, plus an amount
equal to the product of the fraction having as its
numerator the Rentable Area contained in the Leased
Premises on such floor (exclusive of such fraction of
the total area of the Service Areas) and as its
denominator the sum of the Rentable Area of such
floor, multiplied by the total area of Service Areas
serving such floor, and shall be computed by
measuring from the inside surface of the glass outer
Building walls to the office side of corridors or
other permanent partitions and to the centre of
partitions which separate the area occupied from
adjoining Rentable Areas without deduction for
columns and projections necessary to the Building,
but shall not include stairs and elevator shafts
supplied by the Landlord for use in common with other
tenants and flues, stacks, pipe shafts or vertical
ducts within their enclosed walls within the area
occupied;
(n) "Service Areas" shall mean the area of corridors,
elevator lobbies, service elevator lobbies,
washrooms, air-cooling rooms, fan rooms, janitor's
closets, telephone and electrical closets and other
closets on serving the Leased Premises and other
premises on a floor should the floor be a multiple
tenant floor;
(o) "Taxes" means all taxes, rates, duties, levies and
assessments whatsoever, whether municipal,
parliamentary or otherwise, levied, imposed or
assessed against the Building, the Land and the rents
payable to the Landlord by tenants of the building or
upon the Landlord in respect of the Building, the
Land, such rents or the rental of space in the
Building to such tenants or from time to time levied,
imposed or assessed in the future in lieu thereof,
including those levied, imposed or assessed for
education, schools and local improvements, and
including all costs and expenses (including legal and
other professional fees and interest and penalties on
deferred payments) incurred by the Landlord in good
faith in contesting, resisting or appealing any
taxes, rates, duties, levies or assessments, but
excluding taxes and license fees in respect of any
business carried on by tenants and occupants of the
Building (including the Landlord) and income or
profits taxes upon the income of the Landlord to the
extent such taxes are not levied in lieu of taxes,
rate, duties, levies and assessments against the
Building or the Land or upon the Landlord in respect
thereof and shall also include any and all taxes
which may in future be levied in lieu of taxes as
hereinbefore defined;
(p) "Tax Cost" for any fiscal period means an amount
equal to the aggregate of all Taxes for such
fiscal period;
(q) "Tenant's Share" means the fraction which has as its
numerator the Rentable Area of the Leased Premises
and its denominator the Total Rentable Area;
(r) "Term" means the term of this Lease set forth in
section 1.01(d)(i) and any renewal or extension
thereof and any period of permitted overholding;
(s) "Total Rentable Area" shall mean the total Rentable
Area of the Building, whether rented or not,
calculated as if the Building were entirely occupied
by tenants renting whole floors. The lobby and
entrances on the ground floor and subservice floors
used in common by tenants, mechanical equipment
areas and areas rented or to be rented for
automobile parking or for storage shall be excluded
from the foregoing calculations. The calculation of
the Total Rentable Area, whether rented or not,
shall be determined upon completion of the Building
and shall be adjusted from time to time to give
effect to any structural or fractional change
affecting the same.
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<PAGE> 25
IN WITNESS WHEREOF the Landlord and the Tenant have executed this
Lease the day and year first above written.
LORD REALTY HOLDING LIMITED, )
acting by its attorney in )
fact, POLARIS REALTY (CANADA) )
LIMITED, whose common seal )
was affixed in the presence )
of: )
)
[SIG] )
- ------------------------------ )
Title: )
------------------------ )
) C/S
[SIG] )
- ------------------------------ )
Title: Jon Hall Vice President )
Western Region
THE COMMON SEAL of the )
TENANT was affixed in the )
presence of: )
)
[SIG] )
- ------------------------------- )
Title: President )
)
- ------------------------------- ) C/S
Title: )
------------------------- )
21
<PAGE> 26
SCHEDULE "A"
PLAN OF LEASE AREA OF
THE 5th FLOOR OF THE
"B.C"E.D. CENTRE" LOCATED AT
999 W. HASTINGS ST., VANCOUVER, B.C.
[FLOOR LAYOUT]
<PAGE> 27
SCHEDULE "B" TO LEASE
RULES AND REGULATIONS
The Tenant shall observe the following Rules and Regulations
(as amended, modified or supplemented from time to time by the Landlord as
provided in the Lease):
1. The Tenant shall not use or permit the use of the Leased
Premises in such manner as to create any objectionable noises, odours or other
nuisance or hazard, or breach any applicable provisions of municipal by-law or
other lawful requirements applicable thereto or any requirements of the
Landlord's insurers, shall not permit the Leased Premises to be used for
cooking (except with the Landlord's prior written consent) or for sleeping,
shall keep the Leased Premises tidy and free from rubbish, shall deposit
rubbish in receptacles which are either designated or clearly intended for
waste and shall leave the Leased Premises at the end of each business day in a
condition such as to facilitate the performance of the Landlord's janitor
services in the Leased Premises.
2. The Tenant shall not abuse, misuse or damage the Leased
Premises or any of the improvements or facilities therein, and in particular
shall not deposit rubbish in any plumbing apparatus or use it for other than
purposes for which it is intended, and shall not deface or mark any walls or
other parts of the Leased Premises.
3. The Tenant shall not perform, patronize or (to the extent
under its control) permit any canvassing, soliciting or peddling in the
Building, shall not install in the Leased Premises any machines vending or
dispensing refreshments or merchandise and shall not permit food or beverages
to be brought to the Leased premises except by such means, at such times and by
such persons as have been authorized by the Landlord.
4. The entrances, lobbies, elevators, staircases and other
facilities of the Building are for use only for access to the Leased Premises
and other parts of the Building and the Tenant shall not obstruct or misuse
such facilities or permit them to be obstructed or misused by its agents,
employees, invitees or others under its control.
5. No safe or heavy office equipment shall be moved by or for the
Tenant unless the consent of the Landlord is first obtained and unless all due
care is taken. Such equipment shall be moved upon the appropriate steelbearing
plates, skids or platforms and subject to the Landlord's direction, and at such
times, by such means and by such persons as the Landlord shall have approved.
No furniture, freight or bulky matter of any description shall be moved in or
out of the Leased Premises or carried in the elevators except during such hours
as the Landlord shall have approved. Hand trucks and similar appliances shall
be equipped with rubber tires and other safeguards approved by the Landlord,
and shall be used only by prior arrangement with the Landlord.
6. The Tenant shall permit and facilitate the entry of the
Landlord, or those designated by it, into the Leased Premises for the purpose
of inspection, repair, window cleaning and the performance of other janitor
services, and shall not permit access to main header ducts, janitor and
electrical closets and other necessary means of access to mechanical,
electrical and other facilities to be obstructed by the placement of furniture
or otherwise. The Tenant shall not place any additional locks or other
security devices upon any doors of the Lease Premises without the prior written
approval of the Landlord and subject to any conditions imposed by the Landlord
for the maintenance of necessary access.
7. The Landlord may require that all or any persons entering and
leaving the Building at any time other than the Normal Business Hours
satisfactorily identify themselves and register in books kept for the purpose
and may prevent any person from entering the Leased Premises unless provided
with a key thereto and a pass or other authorization from the Tenant in a form
satisfactory to the Landlord and may prevent any person removing any goods
therefrom without written authorization.
8. The Tenant shall refer to the Building only by the name from
time to time designated by the Landlord for it and shall use such name only for
the business address of the Leased Premises and not for any promotion or other
purpose.
<PAGE> 28
9. The Tenant shall not interfere with window coverings installed
upon exterior windows, and shall close or (if window coverings are remotely
controlled) permit to be closed such window coverings during such hours from
dusk to dawn as the Landlord may require, and shall not install or operate any
interior drapes installed by the Tenant so as to interfere with the exterior
appearance of the Building.
The foregoing Rules and Regulations, as from time to time
amended, are not necessarily of uniform application, but may be waived in whole
or in part in respect of other tenants without affecting their enforceability
with respect to the Tenant and the Leased Premises, and may be waived in whole
or in part with respect to the Leased Premises without waiving them as to
future application to the Leased Premises, and the imposition of such Rules and
Regulations shall not create or imply an obligation of the Landlord to enforce
them or create any liability of the Landlord for their non-enforcement.
<PAGE> 29
SCHEDULE "C" TO LEASE
SPECIAL PROVISIONS
FREE BASIC RENT
The Tenant shall have a Free Basic Rent period during the first two (2) months
from the Commencement Date of this Lease. During this period the Tenant shall
pay to the Landlord its Proportionate Share of Operating Costs and Property
Taxes and abide by all other term of this Lease.
EARLY ACCESS
For the purposes of planning and constructing of its Leasehold Improvements,
the Tenant shall have early access to the Leased Premises one (1) month prior
to the Commencement Date. During this period the Tenant shall not be obligated
to pay any Basic Rent or Additional Rent, but shall abide by ALL other terms of
this Lease.
LEASEHOLD IMPROVEMENTS
The Tenant shall be responsible for providing their own leasehold improvements,
including designer fees, architectural inspection fees, demolition and
construction costs and signage, ALL in keeping with the Landlord's Tenant
Guidelines and to the prior approval of the Landlord.
<PAGE> 30
SCHEDULE "D" TO LEASE
OPTION TO RENEW
1. Provided that the Tenant shall not be in default under any of
the covenants or conditions of this Lease, the Landlord hereby
grants to the Tenant a right of renewal, exercisable by the
Tenant giving written notice to the Landlord not less than six
(6) months and not more than nine (9) months prior to the
expiration of the Term, to renew the Term of this Lease for a
further period of three (3) years (in this Lease called the
"Renewal Term").
2. There shall be no further right of renewal beyond the Renewal
Term.
3. The renewal lease shall contain the same covenants, conditions
and agreements as are contained in this Lease, except:
(a) the right of renewal already exercised shall be omitted;
(b) any section or clause of this Lease which requires
revision to state correctly the manner in which it
is to be applied during the Renewal Term shall be
so revised; and
(c) Rent for the Renewal Term shall be determined as provided
in paragraph 4 hereof.
4. The Rent payable with respect to the Renewal Term shall be the
greater of:
(a) the Rent payable during the final year of this Lease: or
(b) the Fair Market Rent (as defined in Article 18, Section
18.01 (d)) for the Leased Premises as at the commencement
date of the Renewal Term.
5. The parties shall make bona fide efforts to agree as to the
Fair Market Rent with respect to the Leased Premises as at the
commencement date of the Renewal Term. If, however, the
parties have not agreed as to the amount of rent by the
sixtieth (60th) day prior to the commencement of the Renewal
Term, then such rent shall be determined either:
(a) by an arbitrator mutually agreed upon by the parties who
shall be a person currently active in the Province of
British Columbia as an Accredited Real Estate appraiser
having not less than five years experience as an
appraiser; or
(b) if the parties are unable to agree as to an arbitrator
pursuant to clause (a) of this paragraph, then such Fair
Market Rent shall be determined by a single arbitrator in
accordance with the provisions of the Commercial
Arbitration Act S.B.C. 1986, c. 3 and amendments thereto
or legislation in substitution therefore.
<PAGE> 1
[LOGO]
EXHIBIT 2.2
HONGKONGBANK
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
Hong Kong Main Office: 1 Queen's Road Central, Hong Kong
Ref: CORPORATE & INSTITUTIONAL BANKING
TOYS & ELECTRONICS DIVISION
CONFIDENTIAL
Nam Tai Electronic &
Electrical Products Ltd
Unit 513-520
No.1 Hung To Road
Kwun Tong
KOWLOON
25 July 1995
Attention: Mr Tadao Murakami
Dear Sirs
BANKING FACILITIES
A/C NO. 600-848972-001
With reference to our recent discussion, 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 and upon the satisfactory completion of the security
detailed below. These facilities are subject to review at any time and, in any
event by 31 May 1996, and also subject to our overriding right of withdrawal
and repayment on demand, including the right to call for cash cover on demand
for prospective and contingent liabilities.
<TABLE>
<CAPTION>
New Previously
--- ----------
<S> <C> <C>
Overdraft HKD 500,000 HKD 500,000
- ---------
Interest on the overdraft facility will
continue to be charged on daily balances
at 1/2% per annum over out best lending
rate, (currently 9% per annum, but subject
to fluctuation at our discretion) and payable
monthly in arrears to the debit of your
current account.
Import/Export Facilities HKD60,000,000 HKD25,000,000
- ------------------------
Documentary Credits with import finance up
to 90 days and/or D/P bills purchased on
approved drawees.
within which (HKD60,000,000) (HKD25,000,000)
- ------------
Goods under your control and/or Trust Receipts.
</TABLE>
GPO Box 64, Hong Kong
Telephone: 2822 1111 Telex: 73205 HSBC HX Telegrams: Hongbank Hongkong
Facsimile:
Member HSBC Group
<PAGE> 2
[LOGO]
Nam Tai Electronic &
Electrical Products Ltd - 2 - 25 July 1995
- -------------------------------------------------------------------------------
Interest on the USD import and export finance will continue to be charged on a
daily basis at 1% below our board rates (published by us from time to time but
subject to fluctuation at our discretion) and payable monthly in arrears to the
debit of your current account.
New Previously
--- ----------
Foreign Exchange Line
- ---------------------
Total Spot Contract Limit - HKD5,000,000
Total Forward Contract Limit up to HKD10,000,000 HKD5,000,000
6 months.
Unless by prior arrangement, contracts entered into under this facility are not
to exceed six months in duration.
Terms and Conditions
- --------------------
Contracts may only be entered into to cover trade related exchange exposure
incurred in the normal course of business.
Foreign Exchange facilities remain subject to our overriding right to call for
cash cover on demand if in the Bank's view a negative foreign exchange position
requires such cover. Further, the Bank may, after having discussed the
position with yourselves, close out any or all of your outstanding forward
foreign exchange contracts and demand settlement of the balance due.
Foreign exchange contracts continue to be governed by the conditions appearing
on the reverse of the standard contract form. These contract forms should be
checked upon receipt and the copy signed and returned to the Bank.
Security
- --------
As requested, we are agreeable to releasing the corporate guarantee dated 7
September 1994 for HKD26,400,000 from Nam Tai Electronics Inc together with a
board resolution dated 7 September 1994, which is supported by a deposit for
USD400,000 in name of Nam Tai Electronics Inc placed with HongkongBank of
Canada and held under lien to us.
As alternative security, please let us have:-
1) A corporate guarantee for HKD65,000,000 from Nam Tai Electronics Inc
together with a supporting board resolution authorizing its issuance. We
enclose our standard form of guarantee for your completion and return.
2) A Negative Pledge from Nam Tai Electronics Inc not to pledge any of its
assets with any banks as securities without our prior consent.
<PAGE> 3
[LOGO]
Nam Tai Electronic &
Electrical Products Ltd - 3 - 25 July 1995
- -------------------------------------------------------------------------------
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 facilities are
granted.
A review fee of HKD12,000 will be charged to the debit of your current account
upon receipt of your acceptance to these facilities.
These facilities will remain open for acceptance until the close of business on
15 August 1995 and if not accepted by that date will be deemed to have lapsed.
We are pleased to be of continued assistance.
Yours faithfully We hereby confirm our acceptance
of the terms and conditions under
which the aforesaid facilities
are granted
Eden Y D Wong
Assistant Corporate Relationship Manager
by/NAMTAI
Enc
<PAGE> 1
EXHIBIT 2.3
THE SANWA BANK LIMITED
(INCORPORATED IN JAPAN)
TELEPHONE: 2843 3888 HONG KONG BRANCH CABLE ADDRESS:
TELEX: 73423 SANWA HX FAIRMONT HOUSE 'SANWABANK HONGKONG'
FACSIMILE: 2537 1669 8 COTTON TREE DRIVE CENTRAL SWIFT ADDR: SANWHKHH
HONG KONG
Our Ref: 95-OL-497
18th September, 1995
Nam Tai Electronic and Electrical Products Limited
Unit 513-520,
No. 1 Hung To Road,
Kwun Tong,
Kowloon, CONFIRMATION
Hong Kong
Dear Sirs,
Re: Banking Facilities
- ----------------------
With reference to our recent discussions, we write to confirm our agreement
that the banking facilities made available by us to your esteemed company under
the facility letter dated 6th April, 1994 shall be revised upon and subject to
the terms and conditions set out below.
1. Facilities and Amount
---------------------
(a) Import facility (including letter of credit opening, acceptance and bills
receivable provided that the tenor of each letter of credit shall not
exceed 6 months and any item under acceptance and bills receivable
together shall not exceed 100 days) of up to HK$56,000,000 with a
sub-limit for acceptance and bills receivable together of up to
HK$32,000,000.
(b) Overdraft facility of up to HK$1,000,000.
(c) Shipping guarantee facility (under letter of credit) of up to
HK$10,000,000.
(d) Bills negotiation facility (without letter of credit) of up to
HK$5,000,000 provided that this facility is restricted to bills drawn by
Canon Inc., Sharp Corp., Seiko Instruments Inc. and Toshiba Corp. only and
the minimum interest charges for this facility is 4 days' interest on each
advance.
- 1 -
<PAGE> 2
(e) Bills negotiation facility (under letter of credit) of up to HK$40,000,000.
(f) Forward foreign exchange facility of up to HK$20,000,000.
2. Interest
--------
Overdraft Interest shall be charged at 0.25% per annum above
whichever is the higher of our cost of funds or the
prevailing Hong Kong Dollars Prime Rate quoted by us
from time to time and shall be payable monthly in
arrears on the first day of each calendar month.
Bills receivable Interest shall be charged at the prevailing Hong Kong
and Dollars Prime Rate quoted by us from time to time
bills negotiation (in case of Hong Kong dollars items) or 0.75% per
annum above our cost of funds (in case of any other
currencies items).
We reserve the right to charge additional interest from the date of any default
in payment, on a daily basis, at 5% per annum above the prevailing Hong Kong
Dollars Prime Rate quoted by us from time to time or, in case of default sum
denominated other than in Hong Kong Dollars, 5% per annum above our cost of
funding the default sum.
3. Commission
----------
(a) In lieu of exchange commission and opening commission shall be charged on
the amount of each letter of credit as follows:
-1/4% on the first US$50,000 or its equivalent;
-1/8% on any amount in excess of US$50,000 and up to US$150,000 or their
respective equivalent;
-1/12% on any amount in excess of US$150,000 and up to US$250,000 or
their respective equivalent; and
-1/24% on any amount in excess of US$250,000 or its equivalent.
(b) Collection commission shall be charged as follow:
-1/8% on the first US$150,000 or its equivalent;
-1/12% on any amount in excess of US$150,000 and up to US$250,000 or
their respective equivalent; and
-1/24% on the balance, if any.
(c) The minimum commission and charges for each bills transaction shall be
determined by us from time to time at our sole discretion.
-2-
<PAGE> 3
(d) The commission scale charged on the above facilities shall always be
subject to the General Rules of The Hong Kong Association of Banks and its
amendment from time to time.
4. Repayment
---------
Any amount advanced under the overdraft facility shall be repaid on demand and
any amount advanced under other banking facilities shall be repaid on the
respective due dates applicable thereto.
5. Security
--------
The above facilities (including principal, interest and all other monies
payable hereunder or in connection with the facilities) shall continue to be
secured by an unconditional and irrevocable letter of guarantee dated 19th
August, 1991 given by Nam Tai Electronics, Inc. (the "Guarantor").
6. Availability
------------
The availability of the above facilities is subject to our having received from
you on or before 18th October, 1995 the following documents in form and
substance satisfactory to us in all respects:-
(a) the enclosed duplicate of this facility letter duly signed by you to
signify your acceptance hereof and countersigned by the Guarantor;
(b) the Overdraft Agreement duly executed by you;
(c) certified copies of the resolutions of your Board of Directors approving
the terms and conditions of this facility letter and the Overdraft
Agreement and authorizing a person or persons to sign such documents on
your behalf;
(d) certified copy of the resolution of the Board of Directors of the Guarantor
approving the countersignature of this facility letter;
(e) list of specimen signatures (authenticated to our satisfaction) of the
Directors and the person(s) authorized to act on behalf of you and the
Guarantor by the resolutions referred to in sub-clauses (c) and (d) above;
and
(f) such other necessary documents required to validate the above facilities
and the security conditions as we may specify from time to time.
- 3 -
<PAGE> 4
7. Undertakings
------------
You hereby undertake with us that so long as the above facilities being
available and/or any money remaining outstanding thereunder, you will:-
(a) submit to us satisfactory written evidence evidencing the release of all
cash deposits maintained with and charged to other banks or financial
institution before we shall release the existing mortgage over the property
situated at Flat B, 1/F, Block 5 and carpark space no. 184 on Basement 2 of
Cavendish Heights, 33 Perkins Road, Jardine's Lookout, Hong Kong; and
(b) not create or allow to exist (except in our favour) any mortgage, charge
(whether fixed or floating), security interest or other encumbrance over
any part of present or future assets of you or any of your subsidiaries
without our prior written consent.
8. Lien and Set-off
----------------
We shall be entitled to exercise, at any time without notice, our right of lien
and our rights to set-off and combine your account(s) with us in or towards
satisfaction of your indebtedness to us in respect of the facilities whenever
due or payable.
9. Expenses
--------
You shall pay to us upon demand all costs, charges and expenses (including
legal expenses on a full indemnity basis, stamp, registration or other duties)
incurred by us in connection with the preparation of the documentation
contemplated hereby, the administration of the facilities, or the enforcement
of or preservation of any rights hereunder or otherwise in connection with the
facilities.
10. Governing Law
-------------
The above facilities and this facility letter shall be governed by and
construed in accordance with the laws of Hong Kong.
11. Other Conditions
----------------
(a) The above facilities shall be subject to all other terms and conditions
which you may have agreed with us in writing.
(b) Notwithstanding any provision to the contrary contained in this facility
letter or any applicable documents, we reserve the right, at our
discretion, to modify, cancel or
- 4 -
<PAGE> 5
terminate all or part of the facilities and the terms governing thereof, on
demand, and to declare all amounts then outstanding to be immediately due
and payable and to call cash cover for your prospective and contingent
liabilities.
12. Acceptance and Agreement
------------------------
Please confirm your agreement (i) to be bound by the above terms and conditions
and (ii) that any change to the above terms and conditions which is requested
by you or your duly authorized representatives and which is approved by us will
also be binding on you by signing and returning to us the duplicate of this
facility letter together with the documents referred to in clause 6 above.
Yours faithfully,
For and on behalf of
The Sanwa Bank, Limited
Hong Kong Branch
/s/ Y. HIRANO
- ---------------------------------
Y. Hirano
Assistant General Manager
- 5 -
<PAGE> 6
To: The Sanwa Bank, Limited
Hong Kong Branch
We accept the above revised terms and conditions for your grant of the
facilities to us and agree to be bound thereby.
For and on behalf of
Nam Tai Electronic and Electrical Products Limited
/s/ TADAO MURAKAMI
- -----------------------------------
Name: Mr. Tadao Murakami
Title: Director
Date: September 29, 1995
We hereby acknowledge and agree to the above revised terms and conditions for
your grant of the facilities to Nam Tai Electronic and Electrical Products
Limited and confirm that the Continuing Guarantee dated 19th August, 1991 given
by us remains in full force, valid and effect.
For and on behalf of
Nam Tai Electronics, Inc.
/s/ M.K. KOO
- -----------------------------
Name: Mr. M.K. Koo
Title: Director
Date: September 29, 1995
- 6 -
<PAGE> 1
EXHIBIT 2.4
[LOGO]
BANQUE WORMS
HONG KONG BRANCH
39th FLOOR TELEPHONE: 28028382
CENTRAL PLAZA TELEX: 60139 WORHK HX
18 HARBOUR ROAD FAX: 28028065
HONG KONG
5 September, 1995
Nam Tai Electronic & Electrical Products Ltd
Unit 513-520
No. 1 Hung To Road
Kwun Tong, Kowloon
Attn.: Mr Tadao Murakami, President
Dear Sirs
We are pleased to advise that the following credit facilities have been made
available for NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LTD until further
notice:-
CREDIT FACILITIES
Line (01) US$7,000,000 (UNITED STATES DOLLARS SEVEN MILLION ONLY)
- For opening letters of credit.
Sublimit 01-1
US$4,000,000 (UNITED STATES DOLLARS FOUR MILLION ONLY)
- For trust receipt loans up to 90 days; and/or
- For issuing shipping guarantee under letters of credit issued by
us; and/or
- For discounting sight D/P bills drawn on customers acceptable to
us; and/or
- For short term loan up to 90 days and/or overdraft up to
HK$3,900,000.
Line (02) US$1,000,000 (UNITED STATES DOLLARS ONE MILLION ONLY)
- For negotiation of export bills under letters of credit with
discrepancies supported by your letter or guarantee; and/or
- For advance against export bills up to 30 days under letters of
credit sent for collection.
Line (03) US$4,000,000 (UNITED STATES DOLLARS FOUR MILLION ONLY)
- For booking foreign exchange contracts up to 180 days.
INCORPORATED IN FRANCE WITH LIMITED LIABILITY
<PAGE> 2
5 September, 1995
Nam Tai Electronic & Electrical Products Ltd
- 2 -
COMMISSION AND INTEREST RATE
(i) Bills Commission - 1/4% for the first US$50,000
1/8% for balance up to US$150,000
1/12% for balance up to US$250,000
1/24% for balance
(ii) Bills interest - 3/4% p.a. over cost of fund
(iii) Short term loan interest - 1% p.a. over cost of fund
(iv) Overdraft interest - 1/4% p.a. over Prime
All interest rates are subject to fluctuation at our discretion.
CONDITIONS
The availability of the credit facilities is subject to:-
(1) Corporate guarantee of Nam Tai Electronics Inc for US$8,400,000;
(2) Undertaking by Nam Tai Electronic & Electrical Products Ltd not to
pledge any of their existing or future assets to any third party;
(3) Evidence confirming the release of all existing tangible securities
currently pledged to other bankers; and
(4) Submission of audited annual and unaudited half yearly financial
statements of Nam Tai Electronic & Electrical Products Ltd and Nam Tai
Electronics Inc for our review as soon as possible but no later than
180 days and 60 days from respective closing dates.
Usage of the above facilities is subject to our availability of funds and
completion of our normal banking documentation as well as the usual requirement
that there be no materially adverse changes in the financial conditions of your
group. As a general banking practice, we reserve our overriding right of
demand for repayment of principal plus interest.
LIEN AND SET OFF
We shall be entitled to exercise, without notice, our right of lien and our
right to set off and combine your account(s) with us in or towards satisfaction
of your indebtedness to us in respect to the facilities whenever due.
EXPENSES
You shall pay to us upon demand all costs, charges and expenses (including
legal expenses on a full indemnity basis, stamp, registration, or other duties)
incurred by us in connection with the enforcement of or preservation of any
rights hereunder or in connection with the facilities.
<PAGE> 3
5 September, 1995
Nam Tai Electronic & Electrical Products Ltd
- 3 -
GOVERNING LAW
The above facilities and this letter shall be governed by and construed in
accordance with the Laws of Hong Kong.
This letter supersedes all our previous letters of facilities offer.
As a token of your understanding and acceptance of the above terms and
conditions, please sign and return the duplicate of this letter together with
your Board Resolutions authorizing borrowing from our bank under the aforesaid
terms.
We thank you for this opportunity to be of continued service to you and look
forward to a mutually beneficial relationship and closer working relationship
with your group.
Yours faithfully
per pro BANQUE WORMS HONG KONG BRANCH
/s/ MAXWELL YEUNG
Maxwell Yeung
Assistant General Manager
<PAGE> 1
EXHIBIT 2.5
Received
2-3-95
[LOGO] Namtai
NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LTD
UNIT G13-520, NO.1 HUNG TO ROAD, KWUN TONG, KOWLOON, HONG KONG
TEL: (652) 2341 0273 FAX: (652) 2341 4164
FAXGRAM
-------
<TABLE>
<S> <C>
REF: F 500 1 of 1 DATE: MARCH 27, 1995
------------ ----------------
COUNTRY OF DESTINATION: Canada FAX NO.: 604-299-3031
------------ --------------
ATTENTION: Mr. Mark Waslen FROM: Andrea Chu
-------------------------- -----------------
COMPANY: Nam Tai - Canada APPROVED BY:
---------------------------- ----------
NO. OF PAGE(S): 25
-------
(INCLUDING THIS PAGE)
</TABLE>
Dear Mark:
Re: Construction Agreement for New Factory
Faxed hereto please find a copy of the English version of the construction
agreement for the new factory for your kind attention.
Both English and Chinese copies have been faxed to Mark Klein direct.
Thank you for your kind attention.
/s/ ANDREA CHU
Andrea Chu
FAX-298
<PAGE> 2
SHENZHEN
CONSTRUCTION PROJECT CONTRACT
Project name: Namtai Electronic (Shenzhen) Co. Ltd.
Industrial Estate
Project site: Gusu Industrial Estate, Baoan Shenzhen
Invested by: Namtai Electronic (Shenzhen) Co. Ltd.
Constructed by: G.D. 2th Building Engineering Co. Shenzhen Co.
March 3, 1995
<PAGE> 3
CONTRACT
Party A: Namtai Electronic (Shenzhen) Co. Ltd.
Party B: G.D. 2th Building Engineering Co. Shenzhen Co.
This contract is drafted with reference to "The Economical Contract Law of PRC
(as amended)". "Construction Project Contract Samples" and all the relevant
regulations.
ARTICLE 1. PROJECT ITEMS
<TABLE>
<S> <C> <C>
1.1 Project Name Namtai Electronic (Shenzhen) Co. Ltd. new factory
Project Site Gusu Industrial Estate, Baoan Shenzhen
Project Content New Factory Site's Construction
Project Area 41,112.50 M2
[passways, water supply & drainage system project
complements- workshop (1 block), office, senior staff
dormitory, general staff dormitory, canteen, worker's
dormitory (3 blocks)] etc.
Contract Scope All construction items included in the drawings
designed by Shanxi Construction Designing Institute,
Shenzhen Branch; including foundation work, main
structure, interior & exterior decoration, aluminium
frame (for windows & doors), curtain wall, water
supply & drainage, electrical lighting, fire-fighting
system, passways, boundary wall, green land (within
the redline) excluding: the further decoration for office,
the installation of electrical & air-conditioning
system of factory and office (water supply & drainage
equipments installation for toilets - still under
negotiation)
Party A shall pay for expenses of such items and Party B
shall cope with them accordingly.
</TABLE>
<PAGE> 4
1.2 Construction Period:
1) Pursuant to the agreement, the Period of construction is
agreed as follows:
<TABLE>
<S> <C> <C>
workers dormitory (1 block) - July 31, 1995
workers dormitory (remaining 2 blocks) - Aug 31, 1995
staff dormitory - Aug 15, 1995
canteen - July 31, 1995
factory - Sep 15, 1995
office - Aug 15, 1995
(others shall be separately agreed upon)
</TABLE>
2) Commencing date Mar 9, 1995 Completion date
1.3 Quality Grade: Fine
1.4 Contract price (including tax): RMB51,881,938.00
The Contract price is calculated with reference to:
1) Fee standards -
o based on the working drawings & contract contents;
o with reference to the relevant norm regulations of
Guangdong Province;
o Fee standards for first class construction
enterprises of Shenzhen
o difference of Grade A wages
2) Material price difference -
In accordance with the relevant latest regulations published
by the Shenzhen Norm Control Bureau
3) Settlement -
The budget shall be prepared by Party B and checked by Party A
& approved by the Shenzhen Construction Bank or Norm Control
Bureau
4) Site Organizing Measures Fee -
According to the work organization plan, Party B shall prepare
the budget for Party A's review & approval.
5) Where change of design occurred on site, fees shall be charged
according to the aforesaid 1) & 2). If there is any variation
of contract price, both parties will settle quarterly.
<PAGE> 5
1.5 Contract manner:
1) According to the contract price including wages, materials,
schedules, quality and standard
2) Party B shall pay for all the relevant taxes which have been
included within the contract price.
ARTICLE 2. DOCUMENTS & EXPLANATION PROCEDURES
2.1 Agreement Articles
2.2 Contract Terms
2.3 Contract Appendices and Supplements
2.4 Actual Work Amount List;
Equipment & Material List; or
Project Budget, Drawings as confirmed in the contract price (approval
from Party A is required)
2.5 Minutes & Agreement for confirming the negotiation and alteration of
the rights and obligations of both parties
2.6 Standards, Regulations, Technical Requirements
ARTICLE 3. DRAWINGS
3.1 Party A shall submit 8 sets working drawings to Party B within 3 days
form the signing of this contract (including 2 sets of standard
drawings of the Designing Institute and the interim verification of
foundation and relevant information)
ARTICLE 4. SITE REPRESENTATIVE OF PARTY A
4.1 Party A shall appoint professional technical personal as its site
representative or its appointed agent Party A shall notify Party B 7
days in advance of any change of representative. The new
representative shall be fully responsible for the work of his
pre-decessor.
4.2 All the instruction or notice from Party A's representatives or its
agent shall be signed by him in writing and submitted to Party B and
shall become effective only after Party B have acknowledged and signed
on them,
4.3 List of Party A's site representative or its appointed person:
<PAGE> 6
4.4 Name and Authority the social supervision engineers and their
appointed agent authority scope:
ARTICLE 5. PARTY A'S WORK RESPONSIBILITY
5.1 Party A shall handle the formalities of the Land requisition
certificate; compensate for young crops & trees damage; remove all
unnecessary buildings & obtacles.
5.2 Party A shall get ready the followings 30 days before the commencing
date of the project;
1) water/power supply, passway (outside the red line)
2) site clearing: (within the red line)
The connecting point for water/power supply must be within 50
metres from the buildings; (50- 100m from the public supply
system). The supply load must be enough for the normal work.
5.3 Party A shall supply the accurate data for geology and underground
pips/line system within the project, site area 10 days before the
commencing date of the project.
5.4 Party A shall go through a formalities for "Construction Permission
Certificate". "Project Start Certificate", "Temporary Occupation
Certificate" 5 days before the commencing date of the project.
5.5 Party A shall provide the coodinate & datum point to Party 13 in
writing on site 10 days before the commencing date.
5.6 Within 15 days after the signing of this Contract Party A shall
organise the checking of drawings documents together with Party B's
designers and supervision contractors and distribute the minutes to
Party B in the same manner as the distribution of drawings.
5.7 Party A shall coordinate in the protection work for the underground
pipe/line system surrounding buildings and bear the relative expenses.
<PAGE> 7
ARTICLE 6. SITE REPRESENTATIVE OF PARTY B
6.1 Party B shall appoint site's chief Representative or agents and notify
Party A in writing. If there is any change, Party B shall notify
Party A 7 days' in advance, the new representative shall be fully be
responsible for the work of his predecessor.
6.2 Party B's representative shall notify Party A's representative in
writing for executing the agreed obligations and responsibilities,
requirements and notice and which shall become effective after Party B
his acknowledged and signed on them.
ARTICLE 7. PARTY B'S WORK RESPONSIBILITY
7.1 Temporary facilities of the site; Construct temporary passways;
install the water/power supply equipments.
7.2 Prepare site work organization plan or, work schedule, (work progress
schedule, facilities, materials, finished goods or goods in progress
plan) and submit to Party A.
7.3 Report progress to Party A weekly;
Submit the monthly schedule and finished work report within 4 days
after the 25th of every month, else Party A will not pay for the
instalment.
7.4 Provide & maintain lighting, guards, fence and security, etc. as
required by the project. If Party B fails to comply with the
aforesaid obligations, Party 13 shall be liable for all the property
and human damages and all other costs incurred therein.
7.5 Observe relevant government regulations concerning site traffic, site
noise control, pollution control and environmental protection. Party
A shall bear cost for necessary formalities except penalty caused by
Party B's responsibilities.
7.6 Carry out work-inspection with reference to the drawings,
specifications; minutes, design variation notices and State's
prevailing inspection regulations.
<PAGE> 8
7.7 Keep progress notes, hidden construction report and all relating
documents as records for handing over to Party A.
7.8 Enforce the site management & organization, keep the site in good
order; keep the passways clear, and up to national standards for
hygienic cities.
7.9 Be fully responsible for the site protection, before final handing
over to Party A. If any damage happens during the protection period.
Party B is responsible for amending & bear the costs therein. If the
damage is caused by Party A's advance operation without having
completed inspection & accepting procedures), Party A shall bear all
the costs.
7.10 During the guarantee period after the completion of the project, Party
B shall unconditionally make good all defects if it is caused by the
quality problem on the date of receipt of notice from Party A. If the
quality problem is caused by the design or Party A's operation and
other reasons, Party B shall amend it at the cost of Party A.
7.11 Except Party A's own responsibility all accidents during the work
shall be borne by Party B and which should be reported to Party A and
construction supervision departments of the local government.
7.12 Keep the underground pipe/line system, nearby buildings, main
passways, paths, under good protection;
Submit the necessary protection plans to Party A and local government
for approval. The costs incurred therein shall be borne by Party A.
Party B shall pay for all the loss caused by their negligence.
7.13 Clear up the site when the project is completed, (including;
unnecessary construction materials, refuse, temporary buildings and
facilities);
Clean all windows, glass floor, drainage system of toilets and
kitchens;
Dredge pipe system.
ARTICLE 8. DELAY IN COMMENCING WORK.
8. 1 Commencing date of the project shall be determined by Party A.
<PAGE> 9
8.2 If Party B fails to start the project on time, Party B shall submit
the application with reasonable explanation in written form to Party A
5 days in advance. If Party A fails to reply within 3 days, it shall
be deemed to agree to Party B's request and the work can be delayed.
Otherwise, no delay is allowed.
ARTICLE 9. SUSPENSION
9.1 If necessary , Party A's representative can notify Party B in writing
to suspend the work and give instruction 48 hours from the notice.
Party B shall observe the instruction and be responsible for the
protection of the finished work during the suspension period. After
observing the instruction, Party B shall request for work resumption.
After receiving Party A's permission. Party B must start the work as
soon as possible, or, if it receives no reply after 48 hours, Party B
can go on the construction. If Party A is responsible for the
suspension, the costs shall be borne by Party A and the project period
postpones accordingly; if Party B is responsible for the suspension,
Party B shall pay for the expenses and no delay is allowed,
9.2 If the project has to be stopped or suspended because of the change of
policy, the parties shall compromise to a reasonable state. The
responsibilities for the costs shall be settled under negotiation.
ARTICLE 10. POSTPONEMENT
10.1 If the project schedule is affected by one of the following factors,
Party B shall arrange for overtime work. Any inadequency shall be
negotiated by both parties
1) Variation of design and work amount;
2) Suspension caused by successive shortage of water/power supply
for 6 hours not caused by Party B;
3) Party A fails to clear up obstacles on the site and supply
water/power on time for commencement in accordance with the
schedule
4) Force Majeure: war, turmoil, falling down of flying objects,
explosion or not caused by either party's default. Fire,
typhoon, heavy rain, earthquake, etc.
5) Party A deliberately fails to sign the certificate and affect
the progress of the following schedule;
<PAGE> 10
6) Suspension or holding up of the work due to Party A's
insufficient fund;
7) Party A fails to pay for the downpayment or instalments in
accordance with this contract and affects the progress of
work;
8) Party A's subcontract work delays the progress;
9) The delivery delay or defects occurred in the equipments etc.
supplied by Party A.
10.2 Party B shall report to Party A in writing of details and expenses
incurred in such delay within two days from the occurrence of the
aforesaid event and Party A shall confirm within 2 days from receipt
of report.
10.3 Except for the reason indicated in above 10.1, Party B shall be liable
for breach of contract if the project fails to complete on time.
ARTICLE 11. AHEAD OF TIME
11.1 If it is necessary to complete the project earlier, two parties shall
sign on agreement to complete the schedule to an earlier date.
11.2 Party B shall pay penalty of RMB5,000/day for unreasonable delay.
ARTICLE 12. QUALITY STANDARD
12.1 The quality of work should be up to fine standards as approved by
national or professional quality evaluation departments.
12.2 If the quality fails to meet the required design standards, Party A
has the right to request Party B to stop or reconduct the unqualified
work at the cost of Party B and the project schedule will not be
postponed.
12.3 Any dispute about the quality between the parties shall be finally
settled by Shenzhen Quality Evaluation & Supervision Department. The
cost of the arbitration and the loss caused by the delay shall be
borne by the losing party.
<PAGE> 11
ARTICLE 13. INSPECTION & REWORK
13.1 Party B shall follow Party A's instruction, fully obey the relevant
regulations, requirements, designing plan; accept & cooperate with
Party A's inspections, Party B is responsible for the costs of
variation or reduction of their defects work while Party A bears the
expenses caused by other reasons.
13.2 Party B shall provide quality documents as requested by Party A, such
as: Qualified Products Outgoing Certificate for materials or
equipments, test reports, etc.
13.3 Party B shall set up quality control regulations and appoint full time
site QC.
ARTICLE 14. COVERING WORK AND INSPECTION
14.1 When the project comes to the interim inspection or covering period,
Party B shall arrange for prior inspection and inform Party A for
inspection 24 hours in advance. Only after Party A accepts the
Inspection (with signature) can Party B go on with the job. If Party
A fails to attend for inspection after 24 hours from receipt of notice
front Party B, Party A has to go through all formalities for
inspection later.
14.2 If the work has met the quality requirements. Party B can go on with
the work even though Party A has not signed the inspection in 24
hours. Party B must complete all the necessary variation within the
prescribed time and get ready for another re-inspection if the
inspection fails.
ARTICLE 15. TRIAL RUN
15.1 Party B shall arrange for trial run if the facilities instalment meets
with the necessary requirement. When the trial run is passed, both
parties shall sign on the trial run record. The project will be
completed and delivered.
15.2 If the trial run fails due to design, Party A will bear the cost of
design amendment, dismantlement reinstatement, etc.
<PAGE> 12
15.3 If the trial run fails due to Party B's construction, the
representatives of Party A will put forth amendment proposal within 24
hours after the trial run. After amendment, Party B will hold the
trial run for the second time and bear the cost of amendment and
re-trial run and the project completion date cannot be postponed.
15.4 If the trial run fails due to the facilities quality, provided that
the facilities are purchased by Party B, Party B will bear the cost of
repair, dismantlement or repurchase and reinstatement of the trial
run. The project completion date cannot be delayed. Provided that
the facilities are purchased by Party A, Party A will bear all the
economic cost mentioned above.
15.5 If Party A has not put out the amendment proposal within the specified
time or made no signature on trial run record after the trial run has
passed, the record will be effective of itself in 24 hours from the
completion of the trial run completed. Party B can continue the
construction or project completion formalities.
ARTICLE 16. ACCEPTANCE AND RE-ACCEPTANCE
16.1 If the representatives of Party A take part in the acceptance, or the
trial run on time, they must request Party B to postpone the date
provided the postponement must not exceed 2 days. If the
representatives of Party A fails to execute the foregoing Party B can
organise the acceptance or trial run themselves and Party A should
admit the acceptance or the trial run record and sign on it.
16.2 No matter whether the representatives of Party A take part in the
acceptance, if they require to recheck the concealed work which has
been completed, Party B should strip the concealed work to meet their
requirements and recover or repair the concealed work after checking.
If the checking gets passed, Party A should bear all the economic
costs and compensate Party B's loss and defer the project completion
date. If the checking is failed, Party B should bear all the economic
costs and keep the present project completion date.
ARTICLE 17. CONTRACT PRICE AND ADJUSTMENT
17.1 The contract price is conditionally adjustable by the following
issues:
(1) design change, revision and construction site certificate
approved by the representatives of Party A;
<PAGE> 13
(2) increase or decrease of construction work approved by
representatives of Party A;
(3) the price adjustment announced by the architectural chief
commission.
17.2 Upon the above occurrence, Party B will make an adjustment account
document and forward to Party A for review and then hand in the
engineering cost audit commission to confirm the increase or decrease
of contract price.
ARTICLE 18. PAYMENT OF THE PROJECT
18.1 Party A should pay 25% downpayment of the total Project cost,
equivalent to RMB12,000.000 to Party B in 5 days after the contract
becomes effective.
18.2 Upon the commencement of the project, Party A should pay 100% of the
project cost to Party B by 3 instalments after deducting the aforesaid
downpayment (RMB12,000,000) and retaining 5% balance as retention
money:-
i.e. 50% to be paid on May 1, equivalent to RMB18,600,000
35% to be paid on July 1, equivalent to RMB13,000,000
15% to be paid on August 15, equivalent to RMB5,681,986
18.3 Balance of 5% retention money (RMB2,600,000) will be paid off after
the acceptance of the project (excluding guarantee cost of 2.5%).
ARTICLE 19. VERIFICATION AND PAYMENT OF PROJECT PROGRESS COST
19.1 Party B shall deliver to Party A the completed work in progress report
within 4 days of the 25th of every month. Party A shall examine and
verify same with 3 days after receipt.
19.2 In accordance with the reviewed and approved project work and the
relevant items which make up the contract price, Party A shall pay for
the cost of work in progress to Party B within 6 days after receipt of
the report.
<PAGE> 14
19.3 After Party B has furnished the monthly work in progress report to
Party A, if Party A fails to review or pay for the work in progress
cost against the contract Party A shall compensate Party B for the
economic loss and accordingly defer the project completion date.
19.4 Party A can defer the payment date if approved by Party B in writing.
19.5 After settling 95% of the project cost by Party A, the remaining cost
will be paid off upon delivery of the completion work.
ARTICLE 20. MATERIAL, FACILITIES SUPPLY
20.1 The materials and facilities excluded in "materials and facilities
sheet supplied by Party A" will be purchased by Party B, price to be
approved by Party A.
20.2 Party A shall hold the responsibility of foreign currency for
purchasing the three major materials; regarding the decorative
material, lift, alternative power unit, air conditioners, fire
extinguishers, water and electrical equipment, etc., Party A will
bear the required foreign currency. If these materials are purchased
by Party B, the unit price must be approved by Party A.
20.3 The materials, finished products and self-finished products supplied
by both parties must be attached with the original manufacturer's
certificate and quality certificates and inspected before using,
after inspected as "accepted", the equipments can be put into use and
the supplied party will bear the inspection cost. If there is
discrepancy between the two parties, the inspection should be carried
out again, if it gets passed, the objected party will bear the fee or
the supplied party will bear it.
20.4 The materials, equipments, specification, quantity, unit price,
quality, supplied date, delivery destination, etc. supplied by Party
A are referred to the comments written in detail in "materials and
equipments sheet" supplied by Party A; which is an appendix document
of this contract and have the same force as this contract.
20.5 Upon approval by the design company and Party A, Party B can use some
substitute materials and equipments as required.
<PAGE> 15
ARTICLE 21. DESIGN CHANGE
21.1 Party B is not allowed to amend or change the original design unless
with the prior approval of Party A in accordance with the following
terms: -
(1) It must be approved by the original design ad programme
audit party and obtained the relevant approval document
on the increase of investment (including the budgeted
plan) if exceeded the original design structure and
standard;
(2) Send to the original design party for checking and get
the relevant drawings and specifications (amended notice
or drawings, specification and no. of issued copy will be
the same as the original drawing);
21.2 If Party A changes the original design they must inform Party B
before the commencement of the project and send the alteration in
writing to Party B after they have obtained the agreement of the
above 2 issues, Party B will then make changes. Otherwise, Party B
can have the right to decline the change.
21.3 No matter Party A or Party B request for alterations or change of the
original design, it can be proceeded after reporting to the original
design and programme audit commission for approval. Party A will
hear the charges and both parties will discuss and agree on the
project completion date.
21.4 Party B should bear the alteration expense if due to their
construction quality and no delay on the project is allowed.
21.5 Party B should inform Party A in writing as soon as they discover any
defects in design. Upon receipt of notice, Party A must hold
discussion with the original design commission and prepare the
revision or change design documents, and then it will be proceeded
after both parties have signed and approved, Party A should bear all
the costs, and the project completion data is under their discussion.
Before receiving the revision or change design documents, any party
is not allowed to start the project or that party will hold full
responsibilities for the consequences.
<PAGE> 16
ARTICLE 22. CONFIRMATION OF PRICE CHANGES
22.1 If the changes or modification in design as listed in Article 21
occurred, Party B should put forward the changed price at a mutually
agreed time or within 10 days after Party A received the document on
the changes (or modifications). After the changed price is approved
by Party A, Party A should submit it to concerned Department of Cost
& Price Control in Government for confirmation of the contract price
and the completion date of the project.
(1) If the changed price has been remarked in the contract
already, price should be calculated in accordance with
that provision.
(2) If the changed price is similar to the price remarked in
the contract, the changed price can be decided by that
price.
(3) If there is no applicable or similar price in the
contract as the changed price, Party B should put forward
an appropriate price for Party A's approval and Party A
should submit it to concerned Department of Cost & Price
Control in Government to confirm the cost of changed part
of the project.
ARTICLE 23. INSPECTION AND HAND-OVER OF THE COMPLETED PROJECT
23.1 If the completed project is ready for inspection, Party B should
provide the completion documents in quadruplicate and the report for
inspection and hand over 15 days before the inspection of the
project. Party A will appoint concerned Department to inspect same
within 15 days after the receipt of report, and the suggestions on
modification should be put forward within 5 days after the project
has been inspected. Party B should modify it according to the
suggestions and bear the costs for modification caused by Party B.
23.2 If Party A fails to inspect it without reasonable excuses within 15
days after receipt of the Report for Inspection and handover or
neither give suggestion for modification nor approve it within 5
days, The Report for inspection and handover will be regarded as
approved, and the final settlement can be done.
<PAGE> 17
23.3 Completion Date of the Project:
The completion date of the project follows the date when Party B put
forward The Report for Inspection and handover. If modification is
required, the completion data of the project adopts the date when
Party B submits the Report of Inspection and handover again.
23.4 If Party A fails to inspect, the project at the designated time,
Party A should bear the project's custodian fee from the last day of
the period. Custodian fee per day is 0.08% of project cost stated in
contract.
23.5 If the quality of the project is up to the National Quality Standard,
Party B shall hand it over to party A within 5 days after the
completion of the inspection. If the project hasn't been taken over
on time, Party A should be liable for all the economical loss
therein.
23.6 If the project is put to use or being used presumptuously by Party A,
the completion date of the project shall be the date when Party A
used it. Party A should then be responsible for the safety/quality
problems and economic expense/loss accordingly.
23.7 If some single items need to be transferred to Party A, the delivery
should go through intermediary procedures as the evidences of such
inspection. Party B should put forward the documents for settlement
within 20 days after completion of the inspection, and the documents
should be submitted to the related Department of Cost & Price Control
for confirmation within 10 days after being approved by Party A.
23.8 When some items are partly completed an agreement for defining
individual responsibilities should be made between the two parties.
23.9 If the completed project's quality should be up to The National
Quality Standard for Inspection, Party B can't refuse to hand over
because of economic dispute reasons.
23.10 The temporary installations and facilities for production and living
at the construction site which located by contract should be
withdrawn within 15 days after the Report for Inspection and
handover.
<PAGE> 18
ARTICLE 24. FINAL ACCOUNT FOR COMPLETED PROJECT
24.1 Party B should put forward Report for Final Account and complete all
relative information within 15 days after the delivery of the Report
of Inspection and handover. Party A should submit The Report for
Final account to concerned Department of Construction Control for
confirmation after being approved by Party A.
24.2 Final account should be settled within one month after the completion
of the project.
24.3 If the Report for Final Account is not approved and submitted to
Construction Control Department for confirmation, or the balance of
the project is not paid within 5 days after the Certificate of
Acceptance being received, Party A should pay the interest of late
payments at interest rate of extraordinary bank loan to Party A from
the 16th day from the signing of the Certificate of Acceptance.
ARTICLE 25. WARRANTY
25.1 Time limit for warranty:
The warranty term is from the date of each single item being accepted
and the Certificate of Acceptance being signed by Party A.
According to National Warranty Regulations:
o 1 year warranty for construction projects;
o 3 months warranty for High-class or second time decoration;
o 6 months warranty for installation works (one circle of service)
25.2 Warranty Guarantee conditions;
Party B's warranty covered the problems of Construction Quality,
unsuitable custody before being turned over, such as falling off,
metamorphise, lose, crack etc. However, this warranty does not
covered the factors due to Party A, such as man-made breakdown;
hidden peril from original design, defects in substitute materials
required by Party A, intentional damage or damage without intention,
and damage by natural calamity and force majeure event in the course
of the project being used.
<PAGE> 19
25.3 Warranty contents:
The warranty should cover all the projects which are paid in this
contract (including its supplements), the decisions made at the site,
the agreements in writing, changes and modification in design, and
all contents mentioned in minutes of meeting.
25.4 Warranty Charges:
Warranty charge will be deducted from the balance of the project,
accounting for 2.5% of the contract price. If accumulated warranty
charges exceed total budget for warranty, the excess part should also
be paid by Party B.
25.5 During the warranty term, Party B should appoint resident workers
there for providing warranty. (A special Room provided by Party A).
25.6 Party A must pay the balance of warranty charges to Party B at one
time within 20 days after the end of the warranty term.
ARTICLE 26. DISPUTE
26.1 If the dispute occurs in the course of fulfilling the contracts the
two parties should negotiate it friendly. If the dispute cannot be
settled by negotiation, the following solutions should be sought
(1) Apply for intercession to SHENZHEN Construction
Management Dept. or its authorised Construction Cost &
Price Control Department.
(2) Apply for arbitration to concerned authorities which
response to economic contract arbitration.
(3) Proceed legal actions at People's Court.
26.2 If the dispute is settled by the first way and the two parties accept
the intercession, the intercession should be carried out within 2
days after issue of the intercession. If the intercession is not
accepted or intercession cannot be fulfilled because of one party
refusing to carry out, any party can apply for arbitration or seek
for action at People's court.
<PAGE> 20
<PAGE> 21
ARTICLE 27 BREACH OF CONTRACT
27.1 Settlement of Breach of contract:
Any party who is not able to carry out the contract completely is
regarded as breach of contract. Default party should compensate for
the economic loss for the other part.
Responsibilities' sharing when the work schedule being delayed due to
breach of contract:
If Party A fails to observe the contract, work schedule can be
postponed;
If Party B fails to observe the contract, work schedule can't be
postponed.
27.2 Penalty for breach of Contract:
Any party without reason terminates the contract by itself shall be
regarded as the defaulting party. The defaulting party shall be
liable for all compensation for the other party's economic loss and
shall pay for the penalty to the other party equivalent to 30% of the
project cost in this contract.
27.3 Extent of compensation:
(1) Party A does not comply with the provisions of this
contract to issue necessary notices, approval or
confirmation and does not carry out the obligations,
payment and the other actions and result in the loss of
Party B.
(2) Economic loss to Party A is caused by that Party B does
not complete the project on time, the project's quality
cannot reach the requirements of the design and standard,
or the other actions according to the contract which lead
the contract cannot be fulfilled.
27.4 Calculation of damages:
Actual and direct Loss + actual and Indirect Loss + interests at the
interest rate of extraordinary loan from the bank.
27.5 Unless both parties agree to terminate this contract or this contract
cannot be implemented due to the default of either party, the
defaulting party shall fully be responsible for the loss and shall
continue to implement this contract.
<PAGE> 22
27.6 If this contract fails to carry out or one party decide to cancel the
contract, the defaulting party should inform the other party by 10
days advance notice and shall sign the termination or cancellation
agreement for approval by relevant authority.
27.7 If the termination of this contract is caused by Party B, Party A has
the right to decide whether it accepts all the facilities, materials,
equipment, tools at the construction site belonged to Party B.
ARTICLE 28 CLAIM FOR COMPENSATION
28.1 If Party A does not pay the individuals expenses, postpone the work
schedule, compensate the loss by contract, Party B can claim for
compensation on Party A according to the following regulations:
(1) The claims for compensation is legal with supporting
evidences
(2) Party A shall serve the notice of claim after 20 days of
the occurrence of such claim.
(3) Party A shall approve the claim within 10 days from the
notice or claim or request Party B to provide further
evidences or reasons. If Party A does not confirm within
10 days, the claim shall be regarded as approved by Party
A.
28.2 If Party B does not finish the construction work or does not fulfil
the obligations in this contract and cause the economic loss to Party
A, Party A can have the right to claim for compensation from Party B
in accordance with the following regulations:
(1) The claims for compensation is legal with supporting
evidences
(2) Party B shall serve the notice of claim after 20 days of
the occurrence of such claim.
(3) Party B shall approve the claim within 10 days from the
notice or claim or request Party A to provide further
evidences or reasons. If Party B does not confirm within
10 days, the claim shall be regarded as approved by Party
B.
<PAGE> 23
ARTICLE 29 SAFETY OF CONSTRUCTION WORK
29.1 Based on the relevant safety regulations prevention measures and
policies must be implemented strictly and scientifically by Party B
to keep the construction work and third party's safety, and Party B
should be liable for accidents, faults and expenses caused by Party B
or due to its negligence.
29.2 If heavy casualty accidents occur, according to relevant regulations,
Party B should report it to concerned department of construction
management and notify Party A. Party A should provide necessary
rescue conditions, but the expenses caused by it would be borne by
defaulting party,
29.3 If the construction work located at the sites for power equipments,
high-tension network, underground-pipes, sealed and quakeproof
workshops, inflammable/explosives and, vital traffic lines, etc,
Party B should notify Party A and apply for prevention and protective
measure. If the application is approved, the prevention and
protective measures can be implemented and the expenses for it will
be borne by Party A.
29.4 If the construction work is located at poisonous environment, Party A
should provide appropriate prevention protective measures and pay for
the expenses for it.
ARTICLE 30 UNDERGROUND OBSTACLES
If Party B discovers articles which are valuable for archaeological and
geological studies, such as cultural relic, ancient tomb, ancient construction
base, fossil, ancient coin etc. or underground obstacles which interfere with
the construction work, Party A should be notified within 4 hours and report
concerned department so as to implement effective protection measure for Party
B's measure should be approved by or proposals should be put forward to Party A
within 12 hours after notice being received. Party A shall be responsible for
the expenses of such protective measures, and the work schedule shall be
postponed accordingly.
ARTICLE 31 SUBCONTRACT
31.1 Terms of subcontract:
Party B cannot subcontract the construction projects listed in the
contract to the third party without the consent of Party A.
<PAGE> 24
If the third party enters the construction site, Party A has the right
to terminate the contract by notice to Party B and Party B should be
responsible for all the subsequent economic loss. Party B can
subcontract some construction projects to the third party with the
approval of Party A. Party B should submit the copy of sub-contract
agreement to Party A after the sub-contract is signed between Party B
and the subcontractor.
31.2 Subcontract's responsibility:
The obligations and duties of Party B will not be released by the
subcontract agreement. Party B should appoint supervisors to
supervise the subcontracted site to ensure that the subcontractor has
not breached any terms of this contract. The breach of contract or
negligence by the subcontractor shall be regarded as breach of
contract or negligence of Party B.
Article 32 Force majeure
32.1 The following shall be regarded as force majeure:
(1) Earthquake above level 5
(2) Typhoon no. 8 or above lasting for one day
(3) Heavy rain and storm exceeding 200mm for a continuous 6 hours.
(4) Fire disaster caused by nature
(5.) Other force majeure
32.2 If the above force majeure occur, Party B shall immediately implement
appropriate measures and report to Party A. Party B shall further
report the extent of damages, the expenses for clearing and renovating
within 3 days after the disaster ended. If disasters happen
intermittently, Party B shall report it to Party A at intervals of 3
days until the disaster ended. Party A shall provide necessary
conditions for handling disaster.
32.3 The expenses incurred by for the disaster should be shared by both
parties:
(1) The damage of construction itself, Party B's temporary
facilities at the site and the expenses for renovating should
be shared and agreed between the two parties.
<PAGE> 25
(2) Party B's equipments, machinery, vehicle etc. and the loss on
idle time and work stoppage should be borne by Party B.
(3) The expenses for clearing and renovating work shall be agreed
upon by supplemental contract.
ARTICLE 33 INSURANCE
33.1 Party A shall arrange and pay for the Insurance of persons and
properties of Party A at the construction site;
33.2 Party B shall arrange and pay for the Insurance of Party B's persons
and properties at the construction site;
33.3 Insurance of third party and its properties at the construction site
shall be arranged and paid by the third party.
33.4 If accidents occur subsequent to the insurance, the relevant insured
shall be responsible for the compensation.
ARTICLE 34 SUSPENSION OR ADJOURNMENT OF CONSTRUCTION
34.1 If the construction has to be suspended and postponed due to a change
of policy, force majeure event and the reasons out of Party A and
Party B, the two parties should sign an agreement and submit to
concerned authority for filing.
34.2 The problem regarding construction's suspension and adjournment should
be negotiated among Party A, Party B and the concerned authority.
ARTICLE 35 EFFECTIVENESS AND TERMINATION OF CONTRACT
The contract will become effective after being signed and stamped by the legal
representative or agent of the two parties, and confined by Shenzhen
Construction Cost & Price Control Department. The contract will be terminated
after the hand over of the completed project and the settlement being carried
out save and. Except the terms for warranty all other terms will be
inoperative. After the expiration of the warranty period, the terms for
warranty will be inoperative.
<PAGE> 26
ARTICLE 36 NO. OF CONTRACT COPIES
2 originals of the contract for Party A and Party B each.
12 copies will be distributed to Construction Control Dept., Cost & Price
Control Station, banks as well as Party A and Party B and which shall
simultaneously have the same effect.
Party A: Party B:
<TABLE>
<S> <C>
address :
legal representative:
appointed agent :
telephone no. :
bank's name : Bank of China,
Baoan sub-branch
bank account no. : 0115010008709
post code : 518126
date of contract : March 16, 1995
place of signing :
</TABLE>
<PAGE> 1
EXHIBIT 2.6
ENGLISH TRANSLATION
CONSTRUCTION AGREEMENT
Namtai Electronic (Shenzhen) Co. Ltd.
Additional Construction of Equipment Work for the New Factory
AND the Interior Decoration of Office
May 19,1995
Namtai Electronic (Shenzhen) Co. Ltd.
Shimizu Corporation
1
<PAGE> 2
ENGLISH TRANSLATION
AGREEMENT
Pursuant to the additional equipment work for the new factory and the interior
decoration of office of Namtai Electronic (Shenzhen) Co. Ltd. ("hereinafter
referred to as the "Work"), Namtai Electronic (Shenzhen) Co. Ltd. (hereinafter
referred to as the "Company") and Shimizu Corporation (hereinafter referred to
as the "Contractor") have entered into this Agreement in accordance with the
terms and conditions as stipulated below
(1) Name and Site of the Work
1. Name of the Work; Additional equipment work and interior
decoration work of office of the Shenzhen factory of Namtai
Electronic (Shenzhen) Co. Ltd.
2. Site: Gusu Industrial Estate, Xinan, Baoan, Shenzhen, PRC.
(2) The Work Content
1. Additional equipment work and office's interior decoration of
Shenzhen factory.
(3) Work period
1. Commencing Date : May 22, 1995
2. Completion Date: November 30, 1995
(4) Contract sum
The Company shall pay to the Contractor a total sum of HK$32,687,000,
details as set forth in the list attached hereto.
(5) Payment Schedule
The Company shall pay to the Contractor in accordance with the following
payment schedule
<TABLE>
<S> <C> <C>
Upon signing of this Agreement 20% HK$6,537,400
(May 31, 1995)
July 31, 1995 20% HK$6,537,400
September 30, 1995 25% HK$8,171,750
November 30, 1995 25% HK$8,171,750
December 31, 1995 10% HK$3,268,700
</TABLE>
2
<PAGE> 3
ENGLISH TRANSLATION
The Contractor shall pay to the Company a 5% retention for guarantee
of repair as soon as it receives the 10% balance contract sum.
(6) Payment term
1. The Company shall telex transfer to the following designated
account of the Contractor in HK$
Bank of Tokyo, Shenzhen Branch
Shimizu Corporation Shenzhen office
HK$ Account No. 500000775
2. Charges on such telex transfer shall be borne by the Company
(7) Purchase of imported equipment
Pursuant to the provisions of this Agreement, the equipments,
machineries, appliances, tools, etc. shall be solely arranged by the
Contractor. Nevertheless, if such goods have to be imported, after the
Company has confirmed the quantity and price, with the approval of the
Foreign Economic and Trade Committee, it will submit the list of
equipments to the Contractor who shall act as its agent to purchase the
designated equipments outside China. The Company shall be responsible
for its importation and the price of such equipments shall be included
in the contract sum.
(8) Miscellaneous
1. The terms and conditions of this Agreement is formulated on
the basis of the terms of agreement of Japan's "Four United
Committee" with supplemental terms that [when there is changes
in the laws, regulations of Shenzhen city and China and the
instructions from government department relating to the design
policy and drawings which affect the Work period and Contract
sum, the Work period and Contract sum shall be revised
accordingly.]
(9) Enforceability of Agreement
This Agreement shall become effective upon its signing and shall remain
in full force and effect until both the Company and the Contractor have
executed their responsibility. Provided however, if the Company or the
Contractor have not obtained China government department's approval for
implementing this Agreement, this Agreement shall become void.
Each of the Company and the Contractor shall keep a set of this Agreement.
3
<PAGE> 4
ENGLISH TRANSLATION
May 19,1995
Company:
Gusu Industrial Estate, Xinan, Baoan,
Shenzhen, PRC.
Namtai Electronic (Shenzhen) Co. Ltd.
---------------------------------------
Director/General Manager Y. Inagawa
Contractor:
Shibaura 1-2-3, Minato-ku, Tokyo, Japan
Shimzu Corporation
---------------------------------------
Manager
cons-agt
4
<PAGE> 5
ENGLISH TRANSLATION
TERMS AND CONDITIONS
(1) General
1. The Company (hereinafter referred to as "Party A") and the
Contractor (hereinafter referred to as "Party B") shall mutually
and equally execute this Agreement.
2. Party B shall comply with the terms & conditions ("the Terms")
of this Agreement and the design drawings and details of work
(hereinafter referred to as "the Design Drawing Book" and
incorporating the site specification and explanation items) to
complete and deliver the Work and Party A shall settle all the
Contract sum to Party B.
(2) Work Site etc.
1. Party A shall provide all necessary site, building ("the Work
Site") to Party B in accordance with provision of the Design
Drawing Book and ensure that the same shall be provided to Party
B prior to the required date. (if the Design Drawing Book has
specified such date, the date shall follow that date)
2. In the event of problems relating to the boundary or its
adjoining site, Party A shall settle with the assistance of
Party B.
(3) Details of Contract sum and Work schedule Party B shall submit details
of contract sum and Work schedule to Party A upon signing of this
Agreement. (hereinafter referred to as "the Contract Breakdown")
(4) Assignment and Appointment
Party B shall not assign or appoint the whole or the majority part of
the Work to any third party.
(5) Rights & Obligations on Assignment
1. Neither party shall assign any rights and obligations of this
Agreement to any third party unless with the written consent of
the other party.
2. Neither party shall assign, lent or pledge the target object and
materials to any third party unless with the written consent of
the other party.
5
<PAGE> 6
ENGLISH TRANSLATION
(6) Site responsible person
1. Party B shall designate a site responsible person and notify
Party A in writing.
2. The site responsible person shall be fully in charge of all
the Works provided that he should notify Party A on such
significant matters relating to the Site's operation as the
site management, safety measures, disaster prevention and
commencing date of Work, etc.
(7) Differences relating to the Work
Party A shall notify Party B in writing specifying the reason when it
considers that the act of the site responsible person and his workers
are not appropriate for Party B to take necessary action.
(8) Materials and machineries of the Work
1. Party B shall use the designated materials and equipment
machineries as contained in the Design Drawing Book.
Otherwise, it should use the product in accordance with the
standard of the People's Republic of China. Party A shall
request Party B to change (if it considers the same not
appropriate).
2. Party B shall test the materials and machineries if the Design
Drawing Book has specified such testing.
3. All direct cost for the above testing shall be borne by Party
B. However, all cost for testing not specified in the Design
Drawing Book shall be borne by Party A.
4. Party B shall arrange its own machineries, equipments,
tooling, etc. to facilitate the Work. Party A shall support
in the imported formalities if necessary.
(9) Payment of materials and leasing of goods
1. The goods or materials shall be inspected or duly passed by
Party B when making payment of materials or leasing of goods.
2. After Party B has paid for the materials or goods, if it
discovered any hidden defects in accordance with the aforesaid
inspection or test, it shall notify Party A for instruction.
6
<PAGE> 7
ENGLISH TRANSLATION
3. The date of delivery of goods and the payment of materials
shall be based on the Work Schedule submitted by Party B. If
the place of delivery has not been specified in the Design
Drawing Book, it shall be deemed the Site.
4. Party B shall carefully safe-keep and use all paid materials
and leased goods.
5. Unless specifically provided in the Design Drawing Book, all
usage of paid materials and residue materials shall be treated
according to the instruction of Party A.
6. lf not designated in the Design Drawing Book, the place for
returning materials not necessary to pay or used goods shall
be the Site.
(10) Prevention of damage
1. Party B shall at its own expenses protect all target object,
materials and prevent any damage to the neighboring object or
third party before yielding up the completed Work and take
necessary measures in accordance with the Design Drawing Book
and related regulations.
2. Upon confirmed by both Party A and Party B that the measures in
respect of the protection of the object attached to the Work
Site should not be responsible by Party B, such expenses shall
be borne by Party A.
3. Party B shall seek for advice of Party A in the prevention of
damage if it thinks fit. In emergency cases, Party B can take
action before liaising with Party A.
4. Party B shall comply with the requirements of Party A in taking
temporary measures.
5. The cost for the aforesaid measures shall be mutually
determined by both parties.
(11) Third Party Injury
1. Party B shall compensate for the injury of third party during
the course of Work. Nevertheless, if it is apparent that the
responsibility rests with Party A, Party A shall be liable.
7
<PAGE> 8
ENGLISH TRANSLATION
2. If Party B has taken all appropriate course of prevention of
noises, the sinking of foundations, stoppage of underground
water, etc. without success and caused injury of third party,
Party A shall be liable regardless of the aforesaid provision.
3. Any disputes with third party regarding the aforesaid provision
and other matters of the Work shall be mutually managed by both
parties.
4. The damage caused by the provision to third Party of sun
shelter, wind damage, obstruction of electronic wave, etc.
which are the responsibility of Party A shall be managed &
settled by Party A. If necessary, Party B shall assist
Party A. Compensation to third party shall be borne by
Party A.
5. Due to the aforesaid, Party A shall follow the request of Party
B to postpone the Work Period, if necessary, which date shall
be mutually determined by both parties.
(12) General damage to the Work
1. Party B shall take responsibility on all damage to the object
of this Agreement, materials or other general damage in the
course of work prior to its completion & the Work Period shall
not be delayed.
2. If the aforesaid damage falls within the following
circumstances, Party A shall be liable. If necessary, Party B
can request for postponement of Work Period.
(a) problem of Party A and hindered the Commencement Date
or Party A delayed or stopped the Work
(b) the delay in the payment of material or leased goods
and caused the waiting or suspension of the Work of
Party B
(c) the delay in payment of the deposit or installment
and result in the suspension of the Work of Party B
(d) Because of the China government, such as apparent
delay in the permission of Work import or custom
formalities and affect the Work
(e) Force Majeure as stipulated in Clause (13)
(f) other causes due to Party A's responsibility
8
<PAGE> 9
ENGLISH TRANSLATION
(13) Force Majeure
Party B shall not be responsible for the following damage as a result
of Force Majeure but shall be entitled to extend the Work Period which
cost shall be mutually determined by both parties.
(a) Significant change in international situation or war;
(b) riots or strikes;
(c) orders from governmental authorities for execution, demolition
or forbidden of transportation, etc.;
(d) the change of laws or regulations in China, Japan or Hong
Kong;
(e) natural disaster, such as earthquake, burst of volcano,
typhoon, rainstorm that caused flooding;
(f) the influence by the damage of neighbouring site;
(g) the prolonged time for unloading of imported goods;
(h) the problems of Party A on the lease of the land of the Site.
(14) Damage Insurance
Party B shall arrange for their own insurance on its responsibility
and third party insurance, etc. and notify details to Party A.
However, the overall insurance of the building shall be insured by
Party A or the owner of such building.
(15) Completion inspection
1. After the completion of the Work by Party B in accordance with
the Design Drawing Book, it shall be passed by the relevant
China departments and then request for inspection by Party A.
Party A shall accompany with Party B for inspection and
deliver up the target object.
2. If it is found that Party B has not complied with all the
necessary requirements, Party B shall rectify within the Work
Period or within the designated time stipulated by Party A for
re-inspection by Party A and relevant departments.
9
<PAGE> 10
ENGLISH TRANSLATION
3. Party B shall liaise with Party A to clear up the Site within a
designated time after completion of the Work.
4. If the clearing up of the Site as aforesaid is delayed without
reason. Party A shall take action and charge the cost to
Party B.
(16) Partly use
1. Although the Work is still in progress, if necessary, Party A
can begin using a part with the written consent of Party B and
the confirmation of relevant departments. The part that used
by Party A shall be managed by Party A.
2. Party A shall be responsible for the damages caused to the
aforesaid part used by it.
(17) Request, Payment & Settlement
1. Following the passing of the inspection as provided in clause
(15) above, Party B shall yield up the object to Party A who
shall settle all the payment in this Agreement.
2. Party A shall be entitled to settle part of the Contract sum
for the portion of object that passed the inspection.
(18) Protection of Defects
1. Party A shall request Party B to rectify the defects occurred
in the Work within the required time or to compensate the
loss in lieu thereof. Provided however, if such defect is
immaterial and the cost for making good the same is
excessively high, Party A and Party B shall negotiate mutually.
2. The guarantee of the aforesaid defects shall be calculated for
6 months from the delivery date as stipulated in sub-clause 1.
and 2. of Clause (17).
3. Regarding defects on the interior decoration and furnitures, if
Party A has requested for rectification or replacement upon the
inspection of Party A, Party B shall have no responsibility
thereof. However, hidden defects shall still remain 6 months
guarantee (wear and tear excepted)
10
<PAGE> 11
ENGLISH TRANSLATION
4. Party A shall immediately notify Party B for the defect
mentioned in 1. above upon the yielding up of the object.
Otherwise, it shall not request for rectification or
compensation notwithstanding the provision of 1. above save
and except the knowledge of Party B.
5. If Party A has not submitted the claims, within the period
provided in sub-clause 2. above for the damage or defects
affected by sub-clause 1. above within 3 months, all such
rights shall become invalid.
(19) Alteration of Work and Work Period
1. Party A shall make additional or alter the Work, if necessary.
2. Party A shall request to Party B for alteration of the Work
Period.
3. Party B shall claim for compensation for loss to Party B due to
the aforesaid sub-clauses.
4. Party B shall with reason request for extension of the Work
Period due to additional work, alteration of work, suspension
of work due to sub-clause 1 of clause 22. force majeure, etc.
Extension of time shall be mutually agreed upon.
(20) Alteration of Contract sum
1. Either party shall request for the other party to alter the
Contract sum for the following:
(a) alteration or addition of Work
(b) change of Work Period
(c) during the term of this Agreement, there is
significant consequence to this Agreement due to the
changes of laws, regulations, economic situations,
etc. that make the Contract sum becomes unreasonable.
(d) the Contract sum becomes unreasonable subsequent
to the suspension of Work or recommencement of Work
after damage.
(e) changes to the type, quantity, place of delivery of
materials or goods.
11
<PAGE> 12
ENGLISH TRANSLATION
2. The Contract sum with regards the reduction of Work shall be
completed by reference to the provision of the details or Work.
Additional work shall be calculated by reference to the
prevailing market price to be determined by both parties.
(21) Delay and Default fine
1. if Party B fails to deliver the target object due to its own
responsibility, Party A shall be entitled to a daily default
fine at 0.1% of the balance Contract sum after deducting the
completed portion, the part used by Party A pursuant to Clause
(16) and the completed inspection work material.
2. If Party A fails to comply with the provision of sub-clause 1
or 2 of Clause (17) hereof for the payment of Contract sum or
the sum equivalent to the Work, Party B shall be entitled
to the daily default fine of 0.1%.
3 . The aforesaid provision applies to the delay in settling the
deposit or installment by Party A.
4. Party B shall be entitled to reject the delivery of target
object if Party A fails to comply with the provision of 2.
above. Party B shall not be liable for any damage to the
target object if it has taken reasonable care to manage.
The cost of such management by Party B shall be borne by
Party A.
(22) Rights of termination by Party A
1. If necessary, Party A shall terminate the Work and cancel this
Agreement but shall compensate for loss to Party B.
2. Party A shall be entitled to terminate this Agreement and
claim for damages against Party B for the following
circumstances
(a) Party B fails to start the Work on the Commencement
Date without reasonable excuse.
(b) if fails to complete the Work within the Work Period
or forecast the completion in accordance with the
Work Schedule.
(c) Party B fails to comply with the provision of
Clause (4).
12
<PAGE> 13
ENGLISH TRANSLATION
(d) Party B fails to comply with the provision of
sub-clause 2 of Clause (20) without reason and fails
to settle despite the pushing of Party A.
(e) Other than the 4 items mentioned above, Party B fails
to comply with the terms and conditions of this
Agreement and which caused the failure to achieve
this Agreement.
(f) Party B fails to request for termination pursuant to
any reason provided in sub-clause 2. of Clause (23).
(23) Rights of termination by Party B
1. Party B shall be entitled to terminate this Agreement
on the following circumstances and claim for damages
against Party A despite repeated reminder
(a) Party A fails to settle deposit or installment.
(b) Party A without reason fails to observe sub-clause 4
of Clause (19) or sub-clause 2. of Clause (20).
(c) Party A fails to provide the Site as stipulated
in Clause (2), or due to force Majeure.
(d) Party A's responsibility that cause significant
delay in the Work other than 3 above items.
2. Party B shall be entitled to cancel this Agreement due to
the following:
(a) the aforesaid day or suspension of Work for
exceeding 1/4 of the Work Period.
(b) Significant reduction of Work by Party A for more
than 1/2 of the Contract sum.
(c) the non-fulfillment by Party A of the terms of this
Agreement that make it impossible to execute by
Party B.
(d) failure to pay for the Contract sum.
3. Party B can request for damages for the aforesaid
circumstances.
13
<PAGE> 14
ENGLISH TRANSLATION
(24) Method of termination
1. Party A shall accept for the completed part and the materials
and equipments purchased by party B and settle mutually
2. Pursuant to the provision of sub-clause 2. of Clause (22), all
Contract sum excessively paid by Party A shall be refunded to
Party A with interest calculated at the same rate as the short
term loan in China.
3. Both Party A and Party B shall clear up their goods on the
Site within the time agreed by both parties upon its
termination.
4. If either party fails to deal with the aforesaid despite
reminders, the other party shall take action on its behalf and
change the necessary cost.
(25 Settlement of dispute
Any disputes arising from the execution of this Agreement, the Design
Drawing Book, the Terms, etc. shall be settled pursuant to the
International Trade Laws Arbitration Rules by means of one or more
arbitrators selected therein.
(26) Other matters
1. Any terms not stipulated in this Agreement and the Terms
shall be mutually negotiated.
2. The interpretation of this Agreement applies to Japanese
version.
(27) Supplement
1. This Agreement shall become effective upon its execution.
14
<PAGE> 1
EXHIBIT 2.7
SUPPLY CONTRACT
FOR THE DIESEL GENERATORS
FOR NAM TAI ELECTRONIC (SHENZHEN) LTD.
FACTORY EXPANSION PROJECT
AT
SHENZHEN CITY, CHINA
IN MAY, 1995
BETWEEN
NAM TAI ELECTRONIC (SHENZHEN) LTD.
AND
SHIMIZU HONG KONG CO., LTD.
<PAGE> 2
Supply Contract
for
the Diesel Generators
for
Nam Tai Electronic (Shenzhen) Ltd.
Factory Expansion Project
This Supply Contract is made 19th day of May 1995
Between Nam Tai Electronic (Shenzhen) Ltd., Gusu Industrial Estate, Xinan,
Baoan, Shenzhen City, People's Republic of China (the Purchaser) of the one
part and Shimizu Hong Kong Co., Ltd, Room 3302, Central Plaza, 18 Harbour Road,
Hong Kong (the Supplier) of the other part.
Whereas
The Purchaser is desirous of procuring the Diesel Generators necessary for the
Nam Tai Electronic (Shenzhen) Factory Expansion Project, and the Supplier is
willing to supply each Generators to the Purchaser in accordance with the terms
and conditions stipulated below.
Now it is hereby agreed as follows: -
1. Supplier Obligations
The Supplier shall at its cost procure the Generators and
ancillary materials and deliver them to:
The project site at
Gusu Industrial Estate, Xinan,
Baoan, Shenzhen City
People's Republic of China
2. Contract Value
The total value of the purchase, supply and delivery of
materials and equipments shall be HK$19,016,000.00 (the
Supply Contract Price).
3. Delivery Date
The delivery dates of the Diesel Generators shall be the dates
as determined by the Purchaser.
4. Specifications for the Diesel Generators
Diesel Engine - Generator 3 Nos.
Capacity: 3 Phase 380V 1,000 rpm, 1250 KV Water Cooled Type
Cooling System, Exhaust System,
Fuel System, Lubrication System,
Generator Control Panel, Switch Board,
D.C. Panel, and Subcentral Panel for D/G Set
Manufacturer: Mitsubishi Heavy Industries Ltd.
<PAGE> 3
5. Taxes and Duties
All taxes and duties that may be applicable to the importation
of the materials and equipment shall be borne by the
Purchaser.
6. Terms of Payment
The Supplier shall provide copies of all relevant shipping
documents to the Purchaser for record purposes.
The Purchaser shall make payments to the Supplier against the
invoices by the Supplier in accordance with the agreed payment
schedule (Appendix 1). The payments shall be made by
telegraphic transfer to Supplier's bank account stated below,
and the Purchaser shall bear the related bank charge.
Supplier's Bank Account: c/o The Dai-ichi Kangyo Bank Ltd,
Hong Kong Branch
Current A/C No.: HIO-768-002981
Payee's Name: SHIMIZU HONG KONG
CO., LTD.
In Witness Whereof this Supply Contract has been prepared in duplicate and the
parties hereto have signed hereunder.
Signed for and on behalf of
Nam Tai Electronic (Shenzhen) Ltd.
[SIG]
- -------------------------------- Witness: [SIG]
Yoshio Inagawa --------------------------------
General Manager
Signed for and on behalf of
SHIMIZU Hong Kong Co., Ltd.
[SIG]
- -------------------------------- Witness: [SIG]
Kiyoshi Koshida --------------------------------
Director
<PAGE> 4
Terms and Conditions of Supply Contract
1. Acceptance
Execution of this Supply Contract constitutes unconditional
acceptance of these terms and conditions.
2. Delivery
a) Unless otherwise stated, delivery shall be made to the
destination stipulated in this Supply Contract and the
cost thereof is deemed to be included in the prices
quoted herein.
b) The delivery dates given by the Purchaser's Main
Contractor shall be strictly adhered to and the
Supplier shall give notice to the Purchaser in
writing immediately when any delay is foreseen.
3. Price
The Supply Contract price shall be a fixed lump sum subject to
adjustment agreed between the Purchaser and supplier.
4. Quality and Safe Custody
The Supplier shall be responsible for the safe custody of all
materials and equipment until delivered to the destination.
The Supplier shall be responsible for reinstating at his own
expense any materials damaged in transit or as a result of
careless handling or storage.
The quality of the materials and equipments shall conform to
the specifications in the Contract.
5. Payment
The Purchaser shall pay the Supplier the Supply Contract Price
in Hong Kong dollar in accordance with the payment terms
stipulated in this Supply Contract.
In the event the Purchaser, without legal grounds, fails to
pay against an application for payment issued by the Supplier
within the period of 28 working days from receipt of such an
application, and continues such default for a further seven
days after receipt by registered post of a notice of
termination from the Supplier, the Supplier shall be entitled
to terminate this contract forthwith.
<PAGE> 5
6. Packing
The goods and materials shall be suitably packed and protected
for transport and delivery to the destination.
7. Insurance
The Supplier shall be responsible for providing all risks
insurance coverage for the transportation and storage of all
goods and materials. The insurance coverage shall be for the
total value of the goods and materials.
8. Arbitration
All disputes, controversies or differences which may arise
between the Supplier and the Purchaser out of or in relation
to or in connection with this Supply Contract, or for breach
thereof shall be finally settled by arbitration in Hong Kong
in accordance with the United Nations Commission on
International Trade law (UNCITRAL) Arbitration Rules in force
on the date of the Contract. The appointing and administering
authority shall be the Hong Kong International Arbitration
Centre.
The award of such Arbitration shall be final and binding on
the parties.
9. Governing Law
This Supply Contract shall be governed in all respects by the
laws of Hong Kong.
<PAGE> 6
(Appendix I)
Payment Schedule
<TABLE>
<CAPTION>
Schedule % of Supply contract Price
-------- --------------------------
<S> <C> <C>
1. 31 of May, 1995 20% (HK$3,803,200.00)
2. 31 of July, 1995 20% (HK$3,803,200.00)
3. 30 of September, 1995 25% (HK$4,754,000.00)
4. 30 of November, 1995 25% (HK$4,754,000.00)
5. 31 of December, 1995 against 5% Bank Guarantee 10% (HK$1,901,600.00)
(Maintenance Bond) --------------------
Total HK$19,016,000.00
====================
</TABLE>
<PAGE> 7
PRELIMINARY
SINGLE LINE DIAGRAM
DWG NO. S6UP -XXXXX-
[DIAGRAM]
MITSUBISHI HEAVY INDUSTRIES, LTD.
SAGAMIHARA MACHINERY WORKS
[SEAL]
<PAGE> 8
PRELIMINARY
FLOW DIAGRAM
DWG NO. S6UP -XXXXX-XX
MITSUBISHI HEAVY INDUSTRIES, LTD.
SAGAMIHARA MACHINERY WORKS
[SEAL]
<PAGE> 1
EXHIBIT 2.8
CONTRACT OF PURCHASE AND SALE
Dated for reference the 29th day of December, 1995.
BETWEEN:
MING KOWN KOO Businessman, and SUI SIN CHO, Businesswoman,
both of 5339 Buckingham Street, Burnaby, British Columbia, V5E
1Z9
(hereinafter jointly and severally called the "Buyer")
OF THE FIRST PART
AND:
NAM TAI ELECTRONICS (CANADA) LTD., of #530 - 999 West Hastings
Street, Vancouver, British Columbia, V6C 2W2
(hereinafter called the "Seller")
OF THE SECOND PART
WHEREAS:
A. Nam Tai Electronics (Canada) Ltd. is the registered owner in
fee simple of the following property:
Civic address: 1507 Pinecrest Drive, West Vancouver,
British Columbia
Legal Description: Municipality of West Vancouver
Parcel Identifier: 014-577-097
Lot 15 Block 57 Capilano
Estates Extension No. 22 Plan
22343
(the "Property")
B. The Buyer are directors of the Seller.
C. The Seller has agreed to sell and the Buyer has agreed to buy
the Property on the terms and subject to the conditions
hereinafter provided.
<PAGE> 2
D. The book value of the Property consisting of land and
buildings as reflected in the financial statements of the
Seller is CDN$2,200,000.00.
E. The 1996 Property Assessment Notice prepared by the British
Columbia Assessment Authority, a copy of which is attached
hereto as Schedule "A", provides an assessed value of the land
and buildings of the Property at $1,956,000.00.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration
of the premises and of the mutual covenants and agreements hereinafter set
forth, the parties hereto agree each with the other as follows:
1. The completion date shall be on or before February 29, 1996
(the "Completion Date").
2. Upon the terms and subject to the conditions hereof, the
Seller agrees to sell and transfer to the Buyer, and the Buyer agrees to buy
from the Seller the Property at the purchase price of TWO MILLION TWO HUNDRED
THOUSAND CANADIAN DOLLARS (CDN$2,200,000.00) (the "Purchase Price").
3. The Seller shall execute and deliver in registrable form where
necessary all documents required to give effect to this Contract of Purchase
and Sale, including documents necessary for the transfer of the title to the
Property from the Seller to the Buyer and any joint owner as may be designated
by the Buyer, on the Completion Date.
4. The Seller shall deliver title to the Buyer free and clear of
all encumbrances except subsisting conditions, provisos, restrictions,
exception and reservations, including royalties, contained in the original
grant or contained in any other grant or disposition from the Crown, registered
or pending restrictive covenants and rights-of-way in favour of utilities and
public authorities, existing tenancies set out below, if any, and except as
otherwise set out herein.
5. The Possession Date shall be the same as the Completion Date.
2
<PAGE> 3
6. The Adjustment Date shall be the same as the Possession Date.
The Buyer will assume and pay all taxes, rates, local improvement assessments,
insurance, fuel, utilities and other charges from, and including the date set
for adjustments, and all adjustments both incoming and outgoing of whatsoever
nature will be made as of the Adjustment Date.
7. All buildings on the Property and all other items included in
the purchase and sale will be and remain at the risk of the Seller until 12:01
a.m. on the Completion Date. After that time, the Property and all included
items will be at the risk of the Buyer.
8. The Seller declares and represents that the Seller is a
resident of Canada as defined under the Income Tax Act.
9. The parties hereto shall execute such further assurances and
other documents and instruments and do such further and other things as may be
necessary to implement and carry out the intent of this Contract of Purchase
and Sale.
10. This Contract of Purchase and Sale shall enure to the benefit
of and be binding upon the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
IN WITNESS WHEREOF the parties hereto have hereunto set their
hands and seals as of the date first above written.
SIGNED, SEALED AND DELIVERED )
by MING KOWN KOO in the )
)
presence of: )
)
)
Name: [SIG] ) [SIG]
---------------------------) ----------------------------------
PATRICK E. LEE, Esq. ) MING KOWN KOO
Address: )
------------------------)
)
- --------------------------------)
)
Occupation: )
---------------------)
3
<PAGE> 4
SIGNED, SEALED AND DELIVERED )
)
by SUI SIN CHO in the )
presence of: )
)
)
Name: /s/ PATRICK E. LEE ) /s/ SUI SIN CHO
---------------------- ) --------------------------
PATRICK E. LEE, Esq. ) SUI SIN CHO
Barrister & Solicitor )
)
Address: Notary Public )
Suite 212 - 475 Main Street )
Vancouver, B.C. V6A 2T7 )
--------------------------- )
)
Occupation: )
------------------------- )
EXECUTED on behalf of )
NAM TAI ELECTRONICS )
(CANADA) LTD. by its )
authorized signatory: )
)
)
)
/s/ MARK WASLEN )
- ---------------------------------- )
Authorized Signatory )
- - MARK WASLEN )
4
<PAGE> 5
SCHEDULE "A"
BRITISH COLUMBIA ASSESSMENT ROLL NUMBER OFFICE USE
ASSESSMENT AUTHORITY
08-45-328-24-0306-000-000 NEIGHCD
024
District of West Vancouver 025529
1996 PROPERTY ASSESSMENT
This is your 1996 Property Assessment Notice. The purpose of this notice is to
provide you with an estimate of your property value. This information will be
used by the provincial government, municipalities, regional districts, and
hospital boards to calculate your 1996 property taxes.
PROPERTY DESCRIPTION
Your property description may consist of a property address, legal description
and the property identification (PID) number assigned by the Land Titles
Office.
1507 PINECREST DR
Lot 15, Block 57, Plan 22343, District Lot CE #22, New Westminster
Group 1 Land District.
PID-014-577-097
PROPERTY VALUE
The value of your property is determined by local real estate market
conditions. The ASSESSED VALUE is BC Assessment's estimate of the market value
(most probable selling price) for your property had it been for sale on July 1,
1995.
This value reflects the physical condition of your property as of October 31,
1995.
VALUE CLASS
LAND 709,000
BUILDINGS 1,247,000
ASSESSED VALUE $1,956,000 RESIDENTIAL
TAXABLE VALUE $1,956,000
ADDITIONAL INFORMATION
This information relates to your property and may be of interest to you.
o This is an assessment of an incomplete building or structure.
o "Residential" includes dwellings, recreational property, apartments,
condominiums, manufactured homes, farm buildings and some vacant land.
o 1995 assessed value (as of July 1, 1994) was $1,328,000
YOUR ASSESSMENT OFFICE FOR THIS PROPERTY IS:
North Shore-Squamish Valley Area
255 First St W Suite 210
North Vancouver BC V7M 3G8
08-45-328-24-0306-000-000
Local Office (604) 984-9751 or 1-800-571-1211
Fax (604) 984-9310
If you have any questions about your 1996 Property Assessment, please call your
local assessment office.
During the month of January, the office will be open between 8:30 a.m. and
5:00 p.m., Monday through Friday.
For more information, please see the back of this notice.
PLEASE NOTE THAT THE DEADLINE FOR APPEALING
YOUR ASSESSMENT IS JANUARY 31, 1996.
THE OWNER/LESSEE OF THIS PROPERTY IS:
NAM TAI ELECTRONICS LTD
530 999 HASTINGS ST W 40
VANCOUVER BC V6C 2W2
<PAGE> 6
CONTRACT
THIS AGREEMENT made as of the 29th day of December, 1995.
BETWEEN:
MING KOWN KOO, Businessman, of 5339 Buckingham Street, Burnaby,
British Columbia, V5E 1Z9
(hereinafter called "KOO")
OF THE FIRST PART
AND:
NAM TAI ELECTRONICS, INC., of Unit 513 - 520 No. 1 Hung To
Road, Kwun Tong, Kowloon, Hong Kong
(hereinafter called "NAM TAI INC.")
OF THE SECOND PART
WHEREAS:
A. Nam Tai Electronics (Canada) Ltd. ("Nam Tai Canada") is a
whollyowned subsidiary of Nam Tai Inc.
B. Nam Tai Canada and Koo have entered into contracts (the
"Contracts") for the purchase and sale of the land and
buildings (the "Property"), and the home furnishings and
accessories, household appliances and home theatre equipment
(the "Furnishings") located at:
Civic address: 1507 Pinecrest Drive,
West Vancouver, British Columbia
Legal Description:
Municipality of West Vancouver
Parcel Identifier: 014-577-097
Lot 15 Block 57 Capilano Estates
Extension No. 22 Plan 22343
1
<PAGE> 7
C. Koo agreed with Nam Tai Inc., through its subsidiary, Nam Tai
Canada to purchase the Property at the purchase price
which shall be the greater of:
(i) the appraised value of the Property as
determined by a fully qualified appraiser,
with experience in appraisals of similar
properties; and
(ii) the value of the Property as reflected in
the financial statements of Nam Tai Canada.
D. The total book value of the Property and the Furnishings as
reflected in the financial statements of Nam Tai Canada is
equal to US$2,620,444.56.
E. Canada Springfield Appraisal Consultants Ltd. has prepared an
appraisal report of the Property, a copy of which is attached
hereto as Schedule "A". The market value conclusion provided
in this appraisal is equal to US$2,063,287.40.
F. The 1996 Property Assessment Notice on the Property issued by
the British Columbia Assessment Authority is attached hereto
as Schedule "B".
G. The total purchase price (the "Total Purchase Price") payable
by Koo pursuant to the Contracts is equal to US$2,620,444.56
H. The values set out in paragraphs D, E and G are calculated at
the exchange rate of CDN$1.3652 to US$1.0000, being the
average of the buying and selling exchange rates as at the
close of December 29, 1995.
I. Nam Tai Inc. and Nam Tai Canada have represented to Koo the
following:
(i) Upon the respective completion dates in the
Contracts, Nam Tai Canada shall assign and
transfer to Nam Tai Inc. all of the rights of
Nam Tai Canada to receive from Koo the
respective purchase prices under the
Contracts (the "Transfer of Receivables");
and
(ii) Nam Tai Inc. has agreed with Nam Tai Canada
that upon the Transfer of Receivables, the
outstanding amount of the loans
2
<PAGE> 8
owed by Nam Tai Canada to Nam Tai Inc. shall
be reduced by the corresponding amount equal
to the respective purchase prices under the
Contracts (the "Partial Repayment of
Inter-company Loan").
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration
of the premises and of the mutual covenants and agreements hereinafter set
forth, the parties hereto agree each with the other as follows:
1. Nam Tai Inc. and Koo agree:
(a) on the completion dates under the Contracts, Nam Tai
Inc. will effect the Transfer of Receivables and the
Partial Repayment of Inter-company Loan on the same
date; and
(b) upon the Transfer of Receivables the Total Purchase
Price shall be converted and payable in United States
funds calculated at the exchange rate of CDN$1.3652
to US$1.00, being the average of the buying and the
selling exchange rates as at the close of December
29, 1995, resulting in a final total purchase price
of US$2,620,444.56 (the "Final Price").
2. Koo and Nam Tai Inc. further agree as follows:
(a) Koo shall waive all his rights to receive from Nam
Tai Inc. the sum of FIVE HUNDRED THOUSAND US DOLLARS
(US$500,000.00) payable to Koo as compensation for
loss of office in exchange for a discount of
US$450,000.00 on the Final Price; and
(b) pursuant to sub-paragraph 2(a) above, the Final Price
shall be reduced by FOUR HUNDRED FIFTY THOUSAND US
DOLLARS (US$450,000.00) to TWO MILLION ONE HUNDRED
SEVENTY THOUSAND FOUR HUNDRED FORTY-FOUR US DOLLARS
and FIFTY-SIX CENTS ($2,170,444.56) (the "Net
Purchase Price").
3. As partial payment in the amount of FIFTY THOUSAND US DOLLARS
(US$50,000.00) towards the Net Purchase Price, Koo shall transfer to Nam Tai
Inc. 375 shares of Series B 10% Convertible Preferred Stock of Joseph Charles &
Co., Inc., Warrant No. W-8, being a warrant for the purchase of 375 shares Of
Series B 10% Convertible Preferred Stock of Joseph Charles & Co., Inc., and the
right to receive 3.70% of all dealer warrants as evidenced by letter from
Joseph Charles & Associates, Inc. Koo and Nam Tai Inc. agree that the above
securities shall be valued at FIFTY THOUSAND US DOLLARS (US$50,000.00).
3
<PAGE> 9
4. Koo and Nam Tai Inc. further agree that:
(a) the payment term is that the balance of the Net
Purchase Price in the amount of TWO MILLION ONE
HUNDRED TWENTY THOUSAND FOUR HUNDRED FORTY-FOUR US
DOLLARS and FIFTY-SIX CENTS ($2,120,444.56) shall be
payable by Koo to Nam Tai Inc. on or before December
31, 1997, but in any event, upon Koo receiving demand
in writing from Nam Tai Inc. for such payment if Nam
Tai Inc. intends to issue securities through a
recognized stock exchange or by private placement;
and
(b) after Nam Tai Inc. has made the written demand as set
out in sub-paragraph 4(a), Nam Tai Inc. shall have the
right to cause Koo to sell as much of Koo's
shareholdings in Nam Tai Inc. as is necessary to
ensure full payment of the balance of the Net
Purchase Price as set out in sub-paragraph 4(a)
above.
5. As security for the payment of the balance of the Net Purchase
Price, Koo shall pledge to Nam Tai Inc. THREE HUNDRED THOUSAND SIX HUNDRED
EIGHTY-TWO (300,682) shares in the capital stock of Nam Tai Inc., INC. (the
"Security") and the Share certificates representing the Security shall be held
in trust by a trustee (the "Trustee") to be appointed by Nam Tai Inc. Upon the
full payment of the balance of the Net Purchase Price by Koo to Nam Tai Inc.,
Nam Tai Inc. shall cause the Trustee to return the said share certificates to
Koo. The value of the Security based on the closing price of the shares of Nam
Tai Inc. on the NASDAQ Exchange as at December 29, 1995 was US$3,533,014.00.
6. This Agreement shall enure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
IN WITNESS WHEREOF the parties hereto have hereunto set
their hands and seals as of the date first above written.
SIGNED, SEALED AND DELIVERED )
by MING KOWN KOO in the )
presence of: )
)
Name: IRENE M.C. SO )
----------------------- ) ------------------------------
) MING KOWN KOO
Address: 3006 Albion Drive )
-------------------- )
Coquitlam, BC V3B 6W9 )
Canada )
)
Occupation: Secretary )
----------------- )
4
<PAGE> 10
EXECUTED on behalf of )
NAM TAI ELECTRONICS, )
INC. by its authorized )
signatory(ies): )
)
)
)
)
)
- ------------------------------ )
Authorized Signatory )
)
)
)
)
)
- ------------------------------ )
Authorized Signatory )
5
<PAGE> 11
SCHEDULE "A"
APPRAISAL REPORT
of
1507 Pinecrest Drive
West Vancouver, B.C.
AS AT:
May 30, 1995
PREPARED FOR:
Nam Tai Electronics
Ltd. Attn: Mark Waslen
PREPARED BY:
Canada Springfield
Appraisal Consultants Ltd.
<PAGE> 12
<TABLE>
<S> <C> <C>
Lender Reference No.: APPRAISAL REPORT File No.: R506047F.SK
Lender/Client Nam Tai Electronics Ltd. HOME OWNERSHIP UNITS APPRAISER Canada Springfield
Attn: Mark Waslen ADDRESS OF PROPERTY Appraisal Consultants Ltd.
Address: 4185 Still Creek Drive 1507 Pinecrest Drive Address: #830-505 Burrard Street
Burnaby, B.C. V5C 6G9 West Vancouver, B.C. Vancouver, B.C. V7X 1M4
Tel: (____) _________ Tel: (604) 688-5675
APPLICANT NAME --
----------------------------------------------------------------
LEGAL DESCRIPTION LOT 15, BLK 57, DL CE #22, LD 37, PLN 22343, PID: 014-577-097
-------------------------------------------------------------
MUNICIPALITY OR DISTRICT District of West Vancouver
--------------------------
ASSESSMENT: LAND 657000 IMP 671000 TOTAL 1328000.00 TAXES $4,444.68-94 YEAR 1995
------ ------ ---------- ------------ ----
PURPOSE OF APPRAISAL: To estimate the market value X or as of May 30, 1995
----- ------------------
PROPERTY RIGHTS APPRAISED: Fee simple X Leasehold Condominium Co-operative Other (Specify)
----- ------ ------ ------ ------
OCCUPIED BY: Owner Tenant Vacant X
------------------------ ---------------------- -----
HIGHEST & BEST USE: Yes As improved NOTE: IF HIGHEST & BEST USE IS NOT THE CURRENT USE - SEE COMMENTS.
-----
NIEGHBOURHOOD DESCRIPTION
NATURE OF DISTRICT TREND OF DISTRICT CONFORMITY OF SUBJ. AVG. AGE OR PROPERTIES SUPPLY DEMAND
X Residential Improving Inferior IN NEIGHBOURHOOD: X Good X Good
- ----- ----- ----- ----- -----
Rural X Stable X Similar New to 35 Years Fair Fair
- ----- ----- ----- --------- ----- -----
Mixed Deteriorating Superior Area Built Up 100% Poor Poor
- ----- ----- ----- ----- -----
Transition
- ----- ----------- ----- ----- -----------
DISTANCE Elementary School 1 km Public Transportation 0.5 km Price Range in Neighbourhood
-------- -----------
TO: Secondary School 1 km Shopping Facilities 3.5 km $550,000-2,500,000
--------- ------------- ----------------------------
Downtown 12 km (Vancouver)
------------------------------- ------------------------ ----------------------------
SUMMARY: Including ADVERSE INFLUENCES IN AREA, if any (e.g. railroad tracks, commercial/industrial properties, unkempt properties,
major traffic arteries, etc.)
See addendum (1)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
SITE DESCRIPTION
SITE DIMENSIONS: 132.3X86.5/152/44.9/20.3/24.8 X PAVED ROAD X TELEPHONE X SANITARY SEWER
-------------------------------- ----- ----- -----
SITE AREA: 12,744 sq.ft. SOURCE: site plan GRAVEL ROAD X GAS SEPTIC
-------------------------------------- ----- ----- -----
TOPOGRAPHY: gently slopes up from street to* SIDEWALK X MUNICIPAL WATER X STORM SEWER
------------------------------------- ----- ----- -----
CONFIGURATION: irregular * rear X CURBS WELL-PRIVATE OPEN DITCH
---------------------------------- ----- ----- -----
ZONING: RS-3 X STREET LIGHTS X WELL-COMMUNAL
----------------------------------------- ----- ----- --------------- ----- --------------
X CABLEVISION
- ------------------------------------------------- ----- ----- --------------- ----- --------------
DOES PRESENT USE CONFORM: X YES NO (IF NO, SEE COMMENT)
----- -----
LANDSCAPING EASEMENTS DRIVEWAY
X EXCELLENT FAIR UTILITY X PRIVATE SINGLE CONCRETE X UNDERGROUND
- ----- ----- ----- ----- ----- ----- -----
GOOD POOR ACCESS MUTUAL DOUBLE ASPHALT OVERHEAD
- ----- ----- ----- ----- ----- ----- -----
AVERAGE NONE X Not known NONE Pav'g stone
- ----- ----- ----- ------- ----- ----- ------ ----- -------- ----- -----------
COMMENT ON ANY POSITIVE/NEGATIVE FEATURES: (e.g. regarding conforming of zoning, effects of easements, value trends, etc.)
The subject site is located at the corner of Pinecrest Drive and Chartwell Drive, has a view of the city and Burrard Inlet.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF IMPROVEMENTS - EXTERIOR
ESTIMATED YEAR BUILD: 1995 EFFECTIVE AGE: New ESTIMATED REMAINING LIFE: (yrs) 60 Yr
-------------------- -------------------- ---------------
CONSTRUCTION COMPLETE: No PERCENTAGE COMPLETE: 95% HOLDBACK RECOMMENDED:
------------------- -------------- -------------------------
FLOOR AREA BASEMENT TYPE OF BUILDING DESIGN CONSTRUCTION
MAIN 2498.4 X FULL X DETACHED ONE STOREY X WOOD FRAME
-------------------- ----- ----- ----- -----
2nd 1933.7 PARTIAL SEMI-DETACHED SPLIT-LEVEL BRICK
--------------------- ----- ----- ----- -----
3rd CRAWL SPACE ROW/TOWNHOUSE 1 1/2 STOREY STONE
--------------------- ----- ----- ----- -----
TOTAL 4432.1 TOTAL AREA 2108.8 APARTMENT X 2-STOREY CONCRETE
------------------- ----- ------------- ----- ----- -----
X SQ.FT. SQ.M. X SQ.FT. SQ.M.
-------------------- ----- ----- ----- ----- -----
WINDOW SASH/GLAZING EXTERIOR FINISH ROOFING MATERIAL OVERALL EXT. CONDITION
Double glazed/ BRICK VENNER WOOD SIDING ASPHALT SHINGLE X GOOD
- ------------------------- ----- ----- ----- -----
wood SOLID BRICK ALUMINUM WOOD SHINGLE AVERAGE
- ------------------------- ----- ----- ----- -----
U.F.F.I. APPARENT STONE VENEER VINYL TAR & GRAVEL FAIR
----- ----- ----- -----
YES X SOLID STONE INSULBRICK X Conc Tile POOR
- ----- ----- ----- ----- ---------
X NO X STUCCO New APPROX. AGE
- ----- ----- ----- ----------- ----- ----- ----------------
DESCRIPTION OF IMPROVEMENTS - INTERIOR
INSULATION FLOORING WALLS CEILINGS FINISH
X CEILING X W-W CARPET SHEET VINYL PLYWOOD
- ----- ----- ------------- ----- ------- --------
X WALLS SOFTWOOD VINYL TILE PLASTER
- ----- ----- ------------- ----- ------- --------
X BASEMENT HARDWOOD X CERAMIC X X GYPSUM BOARD
- ----- ----- ------------- ----- ------- --------
X CRAWL LINOLEUM
- ----- ----- ------------- ----- ------------ ------- -------- ----------------------
X Marble tile
- ----- ------------------- ----- ------------- ----- ------------ ------- -------- ----------------------
FLOOR PLAN CLOSETS BEDROOMS (#) BATHROOMS (#) OVERALL INT. CONDITION
X GOOD X GOOD 1 LARGE 2 2-Pc. X GOOD X GOOD
- ----- ----- ----- ------- ----- -----
AVERAGE AVERAGE 4 AVERAGE 1 3-Pc. AVERAGE AVERAGE
- ----- ----- ----- ------- ----- -----
FAIR FAIR SMALL 4 4-Pc. POOR FAIR
- ----- ----- ----- ------- ----- -----
POOR POOR 5-Pc. CUSTOMER POOR
- ----- ----- ----- ------- ----- -----
1 6-Pc. Upon Comp'tion
- ----- ----- ------------- ----- ------------ ------- ----- -------- -----
FORM #: CSA-USPAP 01/92 Page 1 This form was produced using CRAL by CSA, Inc., Copyright (C) 1989 - 1994
Canada Springfield Appraisal Consultants
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C>
FOUNDATION WALLS PLUMBING LINES ELECTRICAL WATER HEATER HEATING SYSTEM
X POURED CONCRETE X COPPER FUSES X GAS FORCED AIR
- --- --- --- --- ---
CONCRETE BLOCK X PVC X BREAKERS ELECTRIC GRAVITY
- --- --- --- --- ---
CONCRETE SLAB GALVANIZED X HOT WATER
- --- --- --- ------ --- ------ ---
BRICK STONE RATED CAPACITY OF MAIN N/A CAPACITY
- --- --- ------------- ---
BREAKERS 400 AMPS FUEL TYPE Gas FUEL TYPE
- --- ------------ --- ------------- ----- --- ---
BUILT-IN APPLIANCES/EXTRA FEATURES:
X STOVE X VACUUM CENTRAL AIR SAUNA X SOLARIUM X Heat Exchanger
- --- ---- --- --- --- --- ---------------------
X OVEN X GARBAGE DISPOSAL AIR CLEANER WHIRLPOOL X SKYLIGHTS X Microwave
- --- ---- --- --- --- --- ---------------------
X DISHWASHER 2-gas FIREPLACE(S) X SECURITY SYSTEM X SWIMMING POOL X GARAGE OPENER X Sub-zero Refrigerator
- --- ----- --- --- --- --- ---------------------
</TABLE>
BASEMENT FINISHES, UTILITY: See addendum (2)
GARAGES/CARPORTS: Attached triple garage.
DECKS, PATIOS, OTHER IMPROVEMENT: See addendum (3)
COMMENTS: Building, appearance, quality, condition, services including extras:
See addendum (1)
<TABLE>
<CAPTION>
ROOM ALLOCATION COST APPROACH
<S> <C> <C> <C> <C> <C>
LEVEL: MAIN SECOND THIRD BSMT. SOURCE OF COST DATA: MANUAL LOCAL CONTRACTOR X OTHER
---- ---- ---
ROOMS:
ENTRANCE 3 LAND VALUE: $750000
LIVING 1 ----------------------------------- -----------
DINING 1
KITCHEN 1+nook BUILDING COST NEW DEPRECIATED COST
FULL BATH 1-6pc 1-3pc
PART BATH 2-2pc 3-4pc 1-4pc COST 6541.00 @ $ 275.00 $ 1798775
BEDROOM 4 1 -------- -------- -----------
FAMILY 1 GARAGE: $ 18000 $
LAUNDRY 1 ----------------------- ----------- -----------
OTHER(S) pantry ** wine BASEMENT FINISH:
study media cellar --------------
room rec rm $ $
steam bar ------------------------------ ----------- -----------
room ** OTHER EXTRAS: Pool house, $ $
---------------- ----------- -----------
landscaping, fence, $ $
------------------------------ ----------- -----------
patio, walking & drive- $ $
------------------------------ ----------- -----------
way, etc. $ 250000
------------------------------ ----------- -----------
TOTAL REPLACEMENT COST: $ 2066775
------- -----------
LESS ACCRUED DEPRECIATION % $ $ 2066775
--- ----------- -----------
INDICATED VALUE: $ 2816775
---------------------------- -----------
VALUE BY THE COST APPROACH (rounded) $ 2816800
</TABLE>
DIRECT COMPARISON APPROACH
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
ITEM SUBJECT PROPERTY COMPARABLE NO. 1 COMPARABLE NO. 2 COMPARABLE NO. 3
DESCRIPTION $ ADJUST. DESCRIPTION $ ADJUST. DESCRIPTION $ ADJUST.
ADDRESS 1507 Pinecrest
Drive
West Vanc.
DATE OF SALE
SALE PRICE
SITE SIZE 12,744 sq.ft. PLEASE SEE ADDENDUM (4)
S.F.L.F.A. 4432 sf
AGE/CONDITION New / Good / / /
STYLE 2 stry w/bsmt
RMS/BEDS/BATH 13 /5/1F/2H5E / / / / / /
BASEMENT 2109 sf
GARAGE/PARK Triple garage
ADJUSTED VALUES/NET ADJUSTED TOTALS
</TABLE>
CONCLUSIONS: See addendum (5)
VALUE BY THE DIRECT COMPARISON APPROACH (ROUNDED) $2,700,000
FINAL ESTIMATE OF VALUE/COMMENT ON REASONABLE EXPOSURE TIME: See addendum (6)
COMMENT ON AND ANALYZE ANY KNOWN SALES, LISTING OR OFFER TO PURCHASE ON THE
SUBJECT PROPERTY OVER THE PAST YEAR: (Include source of information) There are
no transaction involving the subject over the past year. The last known
transaction involving the subject occurred in September 1989, when the present
owner acquired the property as is vacant for $585,000.
AS A RESULT OF MY APPRAISAL AND ANALYSIS IT IS MY OPINION THAT THE MARKET VALUE
OF THE SUBJECT PROPERTY AS AT May 30, 1995 is $2,700,000. THIS REPORT WAS
COMPLETED ON June 13, 1995.
<TABLE>
<S> <C> <C> <C>
ADDITIONAL SALES: ATTACHED SKETCH ADDENDUM: ATTACHED OTHER: (SPECIFY)
---- ----
NARRATIVE ADDENDUM: X ATTACHED PHOTO ADDENDUM: X ATTACHED ATTACHED
---- ---- ----
LIMITING
MAP ADDENDUM: X ATTACHED CONDITIONS/CERTIFICATION: ATTACHED ATTACHED
---- ---- ----
INSPECTED
PROPERTY (DATE)
APPRAISER Steven Kwan SIGNATURE /s/ STEVEN KWAN DESIGNATION 05/30/95
-------------------------------- -------------------- ------------- --------
SUPERVISORY
APPRAISER David J. Wilson B.Sc ARICS SIGNATURE /s/ DAVID J. WILSON DESIGNATION AACI
---------------------------------- -------------------- -------------
</TABLE>
This form was produced using CRAL by CSA, Inc., Copyright (C) 1989 - 1994
Form #: CSA-USPAP 01/94 Page 2
Canada Springfield Appraisal Consultants
<PAGE> 14
LENDER/CLIENT Nam Tai Electronics Ltd. ADDRESS OF PROPERTY
Attn: Mark Waslen 1507 Pinecrest Drive
ADDRESS: 4185 Still Creek Drive West Vancouver, B.C.
Burnaby, B.C. V5C 6G9
TEL: ( )
- -------------------------------------------------------------------------------
NARRATIVE ADDENDUM: APPRAISAL REPORT
- -------------------------------------------------------------------------------
(1)
A. NEIGHBOURHOOD
The subject property is located in a quiet prestigious residential known as
British Properties within the District of West Vancouver. The neighbourhood is
a developed area composed of detached single family dwellings of mixed ages.
The surrounding developments are of good quality and in well maintained
condition. The area residents are of the upper income group.
General amenities such as shopping and schools are within easy driving distance
and public transportation is within easy walking distance.
B. SITE DESCRIPTION
The subject is a freehold property. It is terraced and has a gentle slope from
the street up towards the rear. The site is an irregular-shaped corner lot
containing an area of approx. 12,744 sq.ft.
There is a good view of the city, Burrard Inlet and the ocean from the
property.
The site enjoys a full complement of municipal services. Municipal services to
the site include asphalt paved street with concrete curbs and gutter, concrete
sidewalk, hydro, natural gas, water, sanitary and storm sewers, street
lighting, cablevision, and police and fire protection.
C. IMPROVEMENT
The improvement is a two storey, full-basement dwelling. It is of wood
construction on concrete foundation. The exterior is finished with acrylic
stucco and solid granite stone facing, and the roof covering is of combination
of tar and gravel and concrete tile finish.
The total gross floor area is 6,532 square feet, comprising 2,489 square feet
on the main floor, and 1,934 square feet on the upper floor, and 2,109 square
feet of finished area in the basement.
The main floor contains a living room with a gas fireplace, dining room,
kitchen with an eating area, family room, laundry, pantry, study and two-2pc
powder room.
The upper floor contains 4 bedrooms with a 6pc ensuite in the master bedroom,
and an 4pc ensuite in each of the remaining bedroom.
The basement is fully finished and contains a recreation room with a full bar,
1 bedroom with 4pc ensuite, a 3pc bathroom with a changing area and steam room,
and a utility room. An accessory building adjacent to the garden terrace
contains a 14'x8' heated and filtered inground swimming pool.
PARKING
Parking is provided by an attached triple garage with a concrete and paving
stone paved driveway.
<PAGE> 15
- -------------------------------------------------------------------------------
LENDER/CLIENT Nam Tai Electronics ADDRESS OF PROPERTY
Ltd. Attn: Mark Waslen
ADDRESS: 4185 Still Creek Drive 1507 Pinecrest Drive
Burnaby, B.C V5C 6G9 West Vancouver, B.C.
TEL: ( )........................ ..............................
- --------------------------------- ------------------------------
- -------------------------------------------------------------------------------
NARRATIVE ADDENDUM: APPRAISAL REPORT
- -------------------------------------------------------------------------------
SPECIAL FEATURES
* 12 feet high ceiling over the living room
* Wainscotting in the dining room
* Skylights over the breakfast area, master ensuite & the secondary
staircases
* The kitchen (is of good quality) and will have siematic 7,007 RA
cabinets, gaggenau cook top & wok top, jennair built-in oven,
microwave oven, dishwasher, garburator and sub-zero refrigerator
* Good quality bathroom with jacuzzi bathtub (all Kohler brand)
* Walk-in closet in the master bedroom
* Remote control garage door openers and electronic remote control front
gate
* Heated and filtered inground swimming spa pool
* Built-in vacuum system and alarm system
* Radiant hot water heating
* Intercom with video monitor
* Extensive use of mohogary trim and panels
* Built-in wall cabinets & closet organizers
* Sound insulated media room
The subject building is currently at the final finishing stage, and we assumed
that the subject building will be in a good condition throughout upon
completion.
To the best of our knowledge, the subject property does not contain Urea
Formaldehyde insulation.
(2)
BASEMENT FINISHES, UTILITY:
The basement is finished with similar quality of finishing as the other floors,
has a recreation room with full bar, mini theatre, exercise room and steam room,
etc.
(3)
DECKS, PATIOS, OTHER IMPROVEMENT:
Slate paving terrace off the family room. Garden terrace off the study room at
rear. Detached accessory building containing a 14'x8' swimming spa pool
surrounded with tiled floor, adjacent to the garden terrace. Paving stone tile
view deck off the master ensuite and the upper floor hallway.
<PAGE> 16
- -------------------------------------------------------------------------------
LENDER/CLIENT Nam Tai Electronics ADDRESS OF PROPERTY
Ltd. Attn: Mark Waslen
ADDRESS: 4185 Still Creek Drive 1507 Pinecrest Drive
Burnaby, B.C V5C 6G9 West Vancouver, B.C.
TEL: ( )........................ ..............................
- --------------------------------- ------------------------------
- -------------------------------------------------------------------------------
NARRATIVE ADDENDUM: APPRAISAL REPORT
- -------------------------------------------------------------------------------
Addendum (4)
<TABLE>
<CAPTION>
========================================================================================================================
COMP ADDRESS LOT SIZE BUILDING SALE PRICE/
NO. (SQ.FT.) DATE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 1438 Chippendale 85.3'x128.3'/86.9'/156.7' 7,000 $2,400,000/
Road or 12,028 sq.ft. April 1995
- ------------------------------------------------------------------------------------------------------------------------
2 1322 Cammeray 135'x120'/89.98'/92.7'/42.3' 6,340 $2,300,000/
Road Dec 16, 1994
- ------------------------------------------------------------------------------------------------------------------------
3 1438 Bramwell Road 74.35'x156'/105'/170.88' 7,027 $2,210,000/
or 14,402 sq.ft. April 1995
- ------------------------------------------------------------------------------------------------------------------------
4 2558 Westhill Drive 115.6'x167.1'/54'/62.5'/19.4' 6,368 $1,920,000/
or 11,996 sf Aug 3, 1995
- ------------------------------------------------------------------------------------------------------------------------
5 1509 Chartwell Drive 97.14'x157.76'/100'/191.18' 9,000 $2,688,000
Aug 12, 1994
========================================================================================================================
</TABLE>
Addendum (5)
In preparing our estimate current market value of the subject property, a
number of current listings and sales comparables have been examined, and we
have placed most emphasis on sales of dwellings offering similar location and
quality of improvement.
Comparable No. 1 is a recent private sale, improved with a 5 year old, 2 storey
with basement, architectural design building containing a total of 7,000 square
feet livable area. It is situated on a similar size lot, slightly superior in
location, however, slightly inferior in quality of finishing, has a slightly
sloped driveway.
Comparable No. 2 is a slightly dated sale, improved with a newly constructed 2
storey with basement, architectural design building containing a total of 6,340
square feet livable area. It is situated on a similar size lot, slightly
inferior in location and quality of finishing, has a level driveway.
Comparable No. 3 is a recent exclusive sale, improved with a 6 year old, 2
storey with basement, architectural design building containing a total of 7,027
square feet livable area. It is situated on a slightly larger lot, similar in
location and quality of finishing, has a slightly sloped driveway.
Comparable No. 4 is a recent sale, improved with a 5 year old, architectural
design building containing a total of 6,368 square feet livable area. It is
situated on a similar size lot, inferior in location, has similar quality of
finishing, and a driveway moderately sloped down from street.
Comparable No. 5 is a dated sale, improved with a newly renovated and
modernized 17 year old, 2 storey with basement building containing a total of
9,000 square feet livable area. It is situated on a slightly larger but
steeply sloped lot, similar in location and quality of finishing.
These data suggested an adjusted range in value of the subject property from
$2,700,000 to $2,800,000, within this range, we feel that the lower limit is
warranted due to the current soft market condition.
Therefore based upon our inspection and analysis of limited data available, it
is our opinion that the market value of the subject property on May 30, 1995
was:-
TWO MILLION AND SEVEN HUNDRED THOUSAND DOLLARS
($2,700,000)
<PAGE> 17
- -------------------------------------------------------------------------------
LENDER/CLIENT Nam Tai Electronics ADDRESS OF PROPERTY
Ltd. Attn: Mark Waslen
ADDRESS: 4185 Still Creek Drive 1507 Pinecrest Drive
Burnaby, B.C V5C 6G9 West Vancouver, B.C.
TEL: ( )........................ ..............................
- --------------------------------- ------------------------------
- -------------------------------------------------------------------------------
NARRATIVE ADDENDUM: APPRAISAL REPORT
- -------------------------------------------------------------------------------
Addendum (6)
FINAL ESTIMATE OF VALUE
In the subject appraisal, two approaches to value have been employed with the
following results:
<TABLE>
<S> <C>
Cost Approach $2,800,000
Market Approach $2,700,000
</TABLE>
Both approaches provide the similar results. There is weakness in the Cost
Approach as the subject is a new dwelling and is difficult to estimate the
developer's profit.
In the Market Approach, truly comparable sales are scarce and a considerable
amount of adjustments for location, building and lot size, age and quality of
improvements of the comparable sales have been made. The indicated value
estimate relies somewhat on our experience and judgement. Both approaches
contain weakness but combine to provide a reasonable indication of value.
In our final analysis, we have placed more weight on the Market Approach.
Therefore, it is our opinion that the market value of the subject property as
at May 30, 1995 was $2,700,000.
The reasonable exposure time is likely in the region of three to nine months.
<PAGE> 18
- -------------------------------------------------------------------------------
LENDER/CLIENT Nam Tai Electronics ADDRESS OF PROPERTY
Ltd. Attn: Mark Waslen
ADDRESS: 4185 Still Creek Drive 1507 Pinecrest Drive
Burnaby, B.C V5C 6G9 West Vancouver, B.C.
TEL: ( )........................ ..............................
- --------------------------------- ------------------------------
- -------------------------------------------------------------------------------
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
- -------------------------------------------------------------------------------
LEGAL DESCRIPTION:
LOT 15, BLK 57, DL CE #22, LD 37, PLN 22343, PID: 014-577-097
MUNICIPALITY OR DISTRICT:
District of West Vancouver
HIGHEST AND BEST USE: Yes
SITE: SITE AREA: 12,744 sq. ft.
ZONING: RS-3
IMPROVEMENTS: ESTIMATED YEAR BUILT: 1995
EFFECTIVE AGE: New
ESTIMATED REMAINING LIFE: 60 yr
ROOMS/BEDROOMS/BATH: 13 /5/lF/2H5E
TOTAL LIVING AREA: 4432.1
REAL ESTATE TAXES ($): 4,444.68-94
DATE OF APPRAISAL: May 30, 1995
SALES INFORMATION: DATE OF SALE:
SALE PRICE:
SUMMARY OF VALUE FINDINGS
VALUATION APPROACH VALUE INDICATION ($)
COST APPROACH: 2,816,800
DIRECT COMPARISON APPROACH:
COMP 1:
COMP 2:
COMP 3:
COMP 4:
COMP 5:
COMP 6:
VALUE BY THE DIRECT COMPARISON APPROACH: 2,700,000
LAND VALUE: 750,000
MARKET VALUE CONCLUSION ($) 2,700,000
<PAGE> 19
- -------------------------------------------------------------------------------
CERTIFICATION AND STATEMENT OF LIMITING CONDITIONS - PAGE 1
- -------------------------------------------------------------------------------
DEFINITION OF MARKET VALUE: The most probable price which a property should
bring in a competitive and open market under all conditions requisite to a fair
sale, the buyer and seller, each acting prudently, knowledgeably and assuming
the price is not affected by undue stimulus. Implicit in this definition in
the consummation of a sale as of a specified date and the passing of title from
seller to buyer under conditions whereby: (1) buyer and sailor are typically
motivated; (2) both parties are well informed or well advised, with each acting
in what he considers his own best interest; (3) a reasonable time is allowed
for exposure in the open market; (4) payment is made in terms of cash in
Canadian dollars or In terms of financial arrangements comparable thereto; and
(5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions granted by
anyone associated with the sale.
CERTIFICATION AND STATEMENT OF LIMITING CONDITIONS
CONTINGENT AND LIMITING CONDITIONS: The certification that appears in the
appraisal report is subject to the following conditions:
1. Because market conditions, including economic, social and political factors
change rapidly and, an occasion, without warning, the market value estimate
expressed as of the date of this appraisal cannot be relied upon as of any
other date except with further advice from the appraiser confirmed in writing.
2. No responsibility is assumed for matters of a legal nature that affect
either the property being appraised or the title to it. It has been assumed
that the title is good and marketable and, therefore, no opinion is rendered
about the title. The subject property must comply with government regulations,
including zoning, building code and health regulations and, if it doesn't
comply, its non-compliance may affect market value. To be certain of
compliance, further investigation may be necessary. The property is appraised
on the basis of it being under responsible ownership.
3. No survey of the property has been made. Any sketch in the appraisal report
shows approximate dimensions and is included only to assist the reader of the
report in visualizing the property.
4. This report is completed on the basis that testimony or appearance in court
is not required as a result of this appraisal unless specific arrangements to
do so have bean made beforehand. Such arrangements will include, but not
necessarily be limited to, adequate time to review the appraisal report and
data related thereto and the provision of appropriate compensation.
5. Unless otherwise stated in the appraisal report, there are no known
unapparent or hidden conditions of the property (including but not limited to
its soils, physical structure, mechanical and other operating system, its
foundation etc.) or adverse environmental conditions (on it or a neighbouring
property, including the presence of hazardous wastes, toxic substances etc.)
that would make the property more or lose valuable. It has been assumed that
there are no such conditions unless they were observed at the time of
inspection or became apparent during the normal research involved in completing
the appraisal. The attached report should not be construed as an environmental
audit or a detailed property condition report, as such reporting is beyond the
scope of this report and/or the qualifications of the appraiser.
Responsibility is not accepted for any such unapparent or hidden conditions
that do exist, or for any research, testing or engineering that might be
required to discover whether such conditions exist.
6. Information, estimates, and opinions that have been expressed in the
appraisal report are obtained from sources considered to be reliable and they
are believed to be true and correct. No responsibility is assumed for the
accuracy of such items that were furnished by other parties.
7. The opinions of value and other conclusions contained herein assume
satisfactory completion of any work remaining to be completed in a good and
workmanlike manner. Further inspection may be required to confirm completion
of such work.
8. The contents of this report are considered confidential and will not be
disclosed by the author to any party except as provided for in the Standards of
Professional Practise of the Appraisal Institute of Canada and/or when properly
entered into evidence of a duly qualified judicial or quasi-judicial body.
9. Written consent from the author and supervisory appraiser must be obtained
before all (or any part) of the content of the appraisal report can be used for
any purposes by anyone except: the client specified in the report and, where
the client is the mortgages, its insurer and the borrower, if he/she paid the
appraisal fee. The author's written consent and approval must also be obtained
before the appraisal (or any pan of it) can be conveyed by anyone to any other
parties, including mortgagees other than the client and the public through
prospectus, offering memo, advertising, public relations, news, sales or other
media.
<PAGE> 20
- -------------------------------------------------------------------------------
CERTIFICATION AND STATEMENT OF LIMITING CONDITIONS - PAGE 2
- -------------------------------------------------------------------------------
APPRAISER'S CERTIFICATION: The Appraiser certifies and agrees that:
1. The subject market area has been researched and a minimum of three recent
sales of properties have been selected that are the most similar and proximate
to the subject property for consideration in sales comparison analysis and a
dollar adjustment have been made where appropriate to reflect the market
reaction to those items of significant variation. If a significant item in a
comparable property is superior to, or more favourable then, the subject
property, a negative adjustment is made to reduce the adjusted sales price of
the comparable and, it a significant item in a comparable property is inferior
to, or lose favourable than the subject property, a positive adjustment is made
to increase the adjusted sales price of the comparable.
2. All factors known to the appraiser (and to the extent that the data permits)
that have an impact on value have boon taken into consideration to the extent
felt necessary in rendering a considered opinion of value. No significant
information has been knowingly withhold from the appraisal report and it is
believed to the best of my knowledge, that all statements and information in
the appraisal report are true and correct.
3. Only my personal, unbiased, and professional analysis, opinions, and
conclusions are stated in the appraisal report. Included on this form are all
contingent and limiting conditions affecting the analysis, opinions, and
conclusions, whether they were imposed by the terms of the assignment or by the
appraiser.
4. I have no past, present or prospective interest in the property that is the
subject to this report, and I have no present or prospective personal interest
in the property or bias with respect to the parties involved.
5. The opinion of value stated within this report does not result from a
requirement to report a predetermined value or direction in value that favours
the cause of the client or any related party, the attainment of a specific
result, or the occurrence of a subsequent event in order to receive the
compensation and/or employment for performing the appraisal. The reported
value is not based on a requested minimum valuation, a specific valuation, or
the need to approve a specific mortgage loan.
6. The appraisal has been performed in conformity with the Standards of the
Appraisal Institute of Canada with the exception of the departure provision of
those Standards, which does not apply. It is acknowledged that an estimate of
a reasonable time for exposure in the open market is a condition in the
definition of market value and the estimate developed is consistent with the
marketing time noted in the appropriate section of this report unless otherwise
stated in the reconciliation section.
7. The interior and exterior of the subject property were personally inspected
on the date shown in the attached report. It is hereby certified that any
apparent or known adverse conditions have been noted herein, in the subject
improvements, on the subject site, or on any site, within the immediate
vicinity of the subject property which were apparent as of the date of
inspection and that adjustments have been made for these adverse conditions in
the analysis of the property value to the extent that market evidence was
available to support them.
8. All conclusions and opinions about the real estate were personally prepared
as same are set forth in the appraisal report. If there was reliance on
significant professional assistance from any individual or individuals in the
performance of the appraisal or the preparation of the appraisal report, such
individual(s) have been named heroin including the disclosure of specific tasks
performed by them. No authorization has been given to anyone to make a change
to any item in the report; therefore, if an unauthorized change is made to the
appraisal report, no responsibility for such changes is assumed.
SUPERVISORY APPRAISER'S CERTIFICATION: If a supervisory appraiser signed the
appraisal report, he or she certifies and agrees that: direct supervision of
the appraiser who prepared the appraisal report was performed and that the
supervisor participated in the development of the estimate of market value in
this appraisal report, reviewed the appraisal report, agree with the statements
and conclusions of the appraiser, and take full responsibility for the
appraisal report.
APPRAISER: SUPERVISORY APPRAISER (if applicable):
Signature: Signature: [SIG]
----------------------------- -------------------------
Name: Steven Kwan Name: David J. Wilson B.SC ARICS
--------------------------------- ------------------------------
Inspected Property: Yes: X No: Inspected property: Yes: No X
---- --- --- --- --- ---
Date Signed: June 14, '95 Date Signed: June 14, '95
--------------------------- -----------------------
Designation: Designation: AACI
--------------------------- ----------------------
Recertified: Yes: No: X Recertified: Yes: X No:
---- ---- ---- ---- ---- -----
<PAGE> 21
- -------------------------------------------------------------------------------
LENDER/CLIENT Nam Tai Electronics ADDRESS OF PROPERTY
Ltd. Attn: Mark Waslen
ADDRESS: 4185 Still Creek Drive 1507 Pinecrest Drive
Burnaby, B.C V5C 6G9 West Vancouver, B.C.
TEL: ( )........................ ..............................
- --------------------------------- ------------------------------
- -------------------------------------------------------------------------------
CERTIFICATION AND STATEMENT OF LIMITING CONDITIONS ADDITIONAL COMMENTS
- -------------------------------------------------------------------------------
9.
Address:
1508 Pinecrest Drive, West Vancouver, B.C.
Legal description of Property:
LOT 15, BLK 57, DL CE#22, LD 37, PLN 22343, PID: 014-577-097
Date of Inspection:
May 30, 1995
Appraisal Value:
$2,700,000
Effective Date of Valuation:
May 30, 1995
10.
That as of May 30, 1995, the effective date of this report, the subject
property identified as 1507 Pinecrest Drive, West Vancouver, B.C., has a value
Of TWO MILLION AND SEVENTY THOUSAND DOLLARS ($2,700,000), subject only to the
underlying assumptions and limiting conditions set out in this report.
11.
That the subject property was inspected on May 30, 1995 and that no one else
provided significant professional assistance to the persons signing this
report.
<PAGE> 22
- -------------------------------------------------------------------------------
LENDER/CLIENT Nam Tai Electronics ADDRESS OF PROPERTY
Ltd. Attn: Mark Waslen
ADDRESS: 4185 Still Creek Drive 1507 Pinecrest Drive
Burnaby, B.C V5C 6G9 West Vancouver, B.C.
TEL: ( )........................ ..............................
- --------------------------------- ------------------------------
- -------------------------------------------------------------------------------
BUILDING SKETCH ADDENDUM
- -------------------------------------------------------------------------------
[MAP]
<PAGE> 23
- -------------------------------------------------------------------------------
LENDER/CLIENT Nam Tai Electronics ADDRESS OF PROPERTY
Ltd. Attn: Mark Waslen
ADDRESS: 4185 Still Creek Drive 1507 Pinecrest Drive
Burnaby, B.C V5C 6G9 West Vancouver, B.C.
TEL: ( )........................ ..............................
- --------------------------------- ------------------------------
- -------------------------------------------------------------------------------
LOCATION MAP ADDENDUM
- -------------------------------------------------------------------------------
[MAP]
<PAGE> 24
- -------------------------------------------------------------------------------
LENDER/CLIENT Nam Tai Electronics ADDRESS OF PROPERTY
Ltd. Attn: Mark Waslen
ADDRESS: 4185 Still Creek Drive 1507 Pinecrest Drive
Burnaby, B.C V5C 6G9 West Vancouver, B.C.
TEL: ( )........................ ..............................
- --------------------------------- ------------------------------
- -------------------------------------------------------------------------------
SITE MAP ADDENDUM
- -------------------------------------------------------------------------------
[MAP]
<PAGE> 25
SCHEDULE "B"
ASSESSMENT ROLL NUMBER OFFICE USE
08-45-328-24-0306-000-000 NEIGHCD
DISTRICT OF WEST VANCOUVER 025529
BRITISH COLUMBIA
ASSESSMENT AUTHORITY
1996 PROPERTY ASSESSMENT
This is your 1996 Property Assessment Notice. The purpose of this notice is to
provide you with an estimate of your property value. This information will be
used by the provincial government, municipalities, regional districts, and
hospital boards to calculate your 1996 property taxes.
PROPERTY DESCRIPTION
Your property description may consist of a property address, legal description
and the property identification (PID) number assigned by the Land Titles
Office.
1507 PINECREST DR
Lot 15, Block 57, Plan 22343, District Lot CE #22, New Westminster
Group 1 Land District.
PID-014-577-097
PROPERTY VALUE
The value of your property is determined by local real estate market
conditions. The ASSESSED VALUE is BC Assessment's estimate of the market value
(most probable selling price) for your property had it been for sale on July 1,
1995.
This value reflects the physical condition of your property as of October 31,
1995.
<TABLE>
<CAPTION>
VALUE CLASS
<S> <C> <C>
LAND 709,000
BUILDINGS 1,247,000
ASSESSED VALUE $1,956,000 RESIDENTIAL
TAXABLE VALUE $1,956,000
</TABLE>
ADDITIONAL INFORMATION
This information relates to your property and may be of interest to you.
o This is an assessment of an incomplete building or structure.
o "Residential" includes dwellings, recreational property, apartments,
condominiums, manufactured homes, farm buildings and some vacant land.
o 1995 assessed value (as of July 1, 1994) was $1,328,000
YOUR ASSESSMENT OFFICE FOR THIS PROPERTY IS:
North Shore-Squamish Valley Area
255 First St W Suite 210
North Vancouver BC V7M 3G8
08-45-328-24-0306-000-000
Local Office (604) 984-9751 or 1-800-571-1211
Fax (604) 984-9310
THE OWNER/LESSEE OF THIS PROPERTY IS:
NAM TAI ELECTRONICS LTD
530 999 HASTINGS ST W 40
VANCOUVER BC V6C2W2
OFFICE HOURS
If you have any questions about your 1996 Property Assessment, please call your
local assessment office.
During the month of January, the office will be open between 8:30 a.m. and 5:00
p.m., Monday through Friday.
For more information, please see the back of this notice.
PLEASE NOTE THAT THE DEADLINE FOR APPEALING YOUR ASSESSMENT IS JANUARY 31,
1996.
