<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
------------------------
FORM F-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NAM TAI ELECTRONICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
BRITISH VIRGIN ISLANDS 3578 NONE
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
<TABLE>
<S> <C>
UNIT 9,15/F., TOWER 1, CHINA HONG KONG CITY, STEPHEN SEUNG
33 CANTON ROAD 2 MOTT ST., SUITE 601
KOWLOON, HONG KONG NEW YORK, NEW YORK 10013
(852) 2341-0273 (212) 732-0030
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, TELECOPY: (212) 227-5097
INCLUDING (NAME, ADDRESS, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C>
MARK A. KLEIN, ESQ. SCOTT W. ALDERTON, ESQ.
FRESHMAN, MARANTZ, ORLANSKI, TROOP MEISENGER STEUBER & PASICH, LLP
COOPER & KLEIN 10940 WILSHIRE BOULEVARD
9100 WILSHIRE BOULEVARD, 8-EAST 8TH FLOOR
BEVERLY HILLS, CALIFORNIA 90212-3480 LOS ANGELES, CALIFORNIA 90024-3902
(310) 285-1635 (310) 824-7000
TELECOPY: (310) 274-8357 TELECOPY: (310) 443-8569
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE(1)
<TABLE>
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======================================================================================================================
PROPOSED MAXI- PROPOSED MAXI-
MUM OFFERING MUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT(2) PRICE(2) FEE
- ----------------------------------------------------------------------------------------------------------------------
Rights to purchase Units ("Rights").............. 3,000,000 Rts. -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Units, consisting of one Common Share $0.01 par
value (a "Common Share") and one Common Share
Purchase Warrant (collectively the "Warrants"),
issuable upon exercise of the Rights........... 3,000,000 Uts... $20.50 $61,500,000 $18,634.50(3)
- ----------------------------------------------------------------------------------------------------------------------
Common Shares issuable upon exercise of the
Warrants included in the Units................. 3,000,000 Shs. $24.60 $73,800,000 22,361.40(4)
- ----------------------------------------------------------------------------------------------------------------------
Representative's and Counsel's Warrants(5)....... 130,000 Wts. $24.60 $ 3,198,000 968.99(4)
- ----------------------------------------------------------------------------------------------------------------------
Units issuable upon exercise of the
Representative's and Counsel's Warrants........ 130,000 Uts. $24.60 $ 3,198,000 968.99(4)
- ----------------------------------------------------------------------------------------------------------------------
Common Shares issuable upon exercise of Warrants
included in the Units underlying the
Representative's and Counsel's Warrants........ 130,000 Shs. $24.60 $ 3,198,000 968.99(4)
- ----------------------------------------------------------------------------------------------------------------------
Total............................................................................................... $43,907.27
======================================================================================================================
</TABLE>
(1) In United States Dollars.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Calculated pursuant to Rule 457(e).
(4) Calculated pursuant to Rule 457(g).
(5) To be sold to the Representative of the Standby Underwriters (120,000) and
Counsel to the Company (10,000).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 22, 1997
3,000,000 UNITS
EACH UNIT CONSISTING OF ONE COMMON SHARE AND
ONE REDEEMABLE COMMON SHARE PURCHASE WARRANT
[NAMTAI LOGO]
Nam Tai Electronics, Inc. (the "Company") is distributing to each holder of
its Common Shares, $0.01 par value ("Common Shares"), on , 1997 (the
"Record Date"), nontransferable rights (the "Rights") to subscribe for one Unit
(collectively the "Units") for every three Common Shares owned on the Record
Date. The subscription price is $ per Unit. Each Unit consists of one
Common Share and one redeemable Common Share Purchase Warrant (singly a
"Warrant" and collectively the "Warrants") and each Warrant is exercisable to
purchase one Common Share at a price of $ per share at any time from the
date of their issuance until , 2000. The Common Shares and the
Warrants included in the Units will be separately transferable immediately. The
Warrants are redeemable by the Company at any time at $.05 per Warrant if the
average closing sale price of the Common Shares for 20 consecutive trading days
within the 30-day period preceding the date the notice is given equals or
exceeds $ per share. See "Description of Securities."
The rights will expire at 9:00 a.m. Los Angeles time on , 1997
(the "Expiration Date"). Shareholders who exercise their Rights will have the
right to oversubscribe for Units at the Subscription Price, in an amount not
exceeding 40% of the number of Units initially subscribed for by such holder
(the "Oversubscription Privilege"), subject to pro rata allocation among
oversubscribers if there are insufficient Units to fill all oversubscriptions
(the "Rights Offering"). Subject to the terms and conditions of the Standby
Underwriting Agreement, any Units not subscribed for pursuant to the Rights
Offering will be sold to the standby underwriters (the "Standby Underwriters")
at the lower of the Subscription Price per Unit or the closing bid price per
Common Share as reported on The Nasdaq National Market on the Expiration Date.
The Standby Underwriters will initially offer to sell such Units (or the Common
Shares and Warrants included in the Units) to the public at the price paid by
the Standby Underwriters (the "Standby Offering"). See "The Rights Offering" and
"Standby Underwriting."
Mr. M. K. Koo, the Company's Chairman of the Board, and Mr. Tadao Murakami,
the Company's Chief Executive Officer, have agreed to exercise all of their
Rights pursuant to which they will purchase an aggregate of 802,906 Units,
assuming no exercise of their Oversubscription Privilege. Mr. Koo and Mr.
Murakami have advised the Company that they intend to fully exercise their
Oversubscription Privilege as well. See "The Rights Offering."
Since the Rights are not transferable, there will be no trading market for
the Rights. Prior to this offering, there has been no public market for the
Units or the Warrants. The Common Shares are included in The Nasdaq National
Market under the symbol "NTAIF." On September 22, 1997, the last reported sales
price of the Common Shares as reported on The Nasdaq National Market was $22.13
per share. The Subscription Price for the Units and the exercise price and other
terms of the Warrants were determined by negotiations between the Company and
Joseph Charles & Associates, Inc., the representative (the "Representative") of
the Standby Underwriters based in part upon the most recent bid price of the
Common Shares. See "Price Range of Common Shares" and "Standby Underwriting." It
is anticipated that upon consummation of this offering, the Warrants will be
included on The NASDAQ National Market under the symbol "NTAWF."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING AT PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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=====================================================================================================================
SUBSCRIPTION PRICE PROCEEDS TO
AND PRICE TO PUBLIC STANDBY FEES(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------------------
Per Unit.............................................. $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Total................................................. $ $ $
=====================================================================================================================
</TABLE>
(1) Excludes a non-accountable expense allowance to the Representative of
$ and the value of warrants to purchase up to 120,000 Units. The
Company has agreed to indemnify the Standby Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Standby Underwriting."
(2) Before deducting expenses of the Company estimated at $ , including
the Representative's non-accountable expense allowance.
Any Units offered by the Standby Underwriter are offered subject to prior
sale, when, as and if delivered to, and accepted by, the Standby Underwriter and
subject to its right to reject any order in whole or in part and to certain
other conditions. It is expected that certificates for the Units will be
available for delivery, against payment therefor, at the offices of Joseph
Charles & Associates, Inc. Beverly Hills, California or through the facilities
of Depository Trust Company on or about the fourth business day following the
Expiration Date.
JOSEPH CHARLES & ASSOCIATES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
AVAILABLE INFORMATION
The Company files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such materials filed by the Company with
the Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511
and 7 World Trade Center, New York, New York 10048. Copies of such materials can
also be obtained by written request to the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Common Stock is quoted on The Nasdaq National Market.
Reports and other information concerning the Company may be inspected at the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed a Registration Statement under the Securities Act
with the Commission with respect to the Securities offered hereby. This
Prospectus, which constitutes part of the Registration Statement, omits certain
of the information contained in the Registration Statement and the exhibits
thereto on file with the Commission pursuant to the Securities Act and the rules
and regulations of the Commission. Statements contained in this Prospectus such
as the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. A copy of
the Registration Statement, including the exhibits thereto, may be inspected
without charge at the Commission's principal office at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and copies of all or any part thereof
may be obtained from the Commission upon the payment of certain fees prescribed
by the Commission. The Commission also maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission. The address of the site is http://www.sec.gov.
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 Stephen
Seung, 2 Mott St., Suite 601, New York, New York 10013 as its agent upon whom
process may be served in any action brought against it 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 the Federal securities laws. In addition, all of the Company's
officers and most of its directors reside outside the United States and 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 Wilkinson & Grist, its
Hong Kong counsel, and McW. Todman & Co., its British Virgin Islands 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 the Federal securities laws.
------------------------
NOTICE TO RESIDENTS OF ONTARIO (CANADA)
The Company became a reporting issuer in the Province of Ontario on
December 12, 1996. Common Shares and Warrants issuable to shareholders resident
in Ontario upon exercise of the Rights are subject to resale restrictions
pursuant to the Securities Act (Ontario). PLEASE CONSULT WITH YOUR FINANCIAL OR
LEGAL ADVISOR IN CONNECTION THEREWITH.
------------------------
IN CONNECTION WITH THE STANDBY OFFERING, THE STANDBY UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE COMMON SHARES AND/OR THE WARRANTS OFFERED HEREBY AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTION MAY BE
EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON SHARES ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED (THE "EXCHANGE ACT"). SEE "STANDBY UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the factors discussed in "Risk Factors" and elsewhere
in this Prospectus.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
THE COMPANY
Nam Tai 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 the
People's Republic of China ("China"). Nam Tai assists OEMs in the design and
development of products and furnishes full turnkey manufacturing services to its
OEM customers utilizing advanced processes such as chip on board ("COB"),
surface mount technology ("SMT"), tape automated bonding ("TAB") and outer lead
bonding ("OLB") technologies. The Company provides hardware and software design,
plastic molding, component purchasing, assembly into finished products or
electronic subassemblies, post-assembly testing and shipping. The Company
manufactures a broad line of finished products for its OEM customers, including
personal organizers, linguistic products, calculators, integrated circuit ("IC")
or smart card readers (referred to as "IC card readers"). It also manufactures
electronic components and subassemblies for printed circuit boards ("PCBs").
These products 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 in turn used
in the manufacture of communications, camera and computer products. In addition,
Nam Tai 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 as well as facilitating transportation of the Company's products out of
China through the port of Hong Kong.
The Company emphasizes high responsiveness to the needs of OEM customers
through the development and volume production of increasingly sophisticated and
specialized products. The Company seeks to build long-term relationships with
its customers through high quality standards (supported by ISO 9001
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. Nam Tai believes that the potential for increased manufacturing
outsourcing by Japanese and U.S. OEMs in China is substantial especially through
its expanded production capacity and experience. Management believes Nam Tai's
record of providing timely delivery in volume of highquality, 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 strive to improve its manufacturing quality and processes.
The Company was incorporated as an International Business Company in the
British Virgin Islands in 1987. The Company's principal executive offices are
located in Hong Kong in Unit 9,15/F., Tower 1, China Hong Kong City, 33 Canton
Road, Kowloon, Hong Kong and its telephone and fax numbers are (852) 2341-0273
and (852) 2341-4164, respectively. The Company maintains the following toll-free
telephone number for United States investor relations: (800) 661-8831. Unless
the context otherwise requires, references to "Nam Tai" or the "Company" are to
Nam Tai Electronics, Inc. and its subsidiaries.
Except where otherwise indicated, all share and per share information in
this Prospectus (a) assumes no exercise of the Warrants included in the Units
offered hereby, the Representative's Warrants to purchase up to
3
<PAGE> 5
120,000 Units, warrants to purchase 10,000 Units to be sold to the Company's
counsel upon conclusion of the Standby Offering ("Counsel's Warrants") and
options to purchase up to an aggregate of 486,633 Common Shares that are
outstanding or reserved for future grant under the Company's Stock Option Plan
and (b) reflect a 2-for-1 stock split effected on July 16, 1992.
THE OFFERING
Securities offered......... Rights to subscribe for 3,000,000 Units; each Unit
consisting of one Common Share and one three-year
Warrant, each Warrant is exercisable to purchase
one Common Share at $ per share.
Subscription Price......... $ per Unit.
Last reported sales price
of
Common Shares.............. $22.13 per share on September 22, 1997.
Record Date................ , 1997
Terms of Rights Offering... Common Shareholders will be issued nontransferable
rights entitling them to purchase one Unit for each
three Common Shares held on the Record Date (the
"Basic Subscription Privilege." Fractional Rights
will not be issued. See "The Rights Offering."
Expiration Date............ The rights will expire at 9:00 a.m. Los Angeles
time on , 1997.
Oversubscription
Privilege.................. Shareholders who exercise their Rights will have
the right to oversubscribe for Units at the
Subscription Price, in an amount not exceeding 40%
of the number of Units initially subscribed for by
such holder, subject to pro rata allocation among
oversubscribers if there are insufficient Units to
fill all oversubscriptions. See "The Rights
Offering -- Subscription Privileges."
Standby Purchase
Commitment................. The Standby Underwriters, through the
Representative, have agreed, subject to the terms
and conditions of the Standby Underwriting
Agreement, to purchase that number of Units equal
to 3,000,000 less the number of Units purchased
through the exercise of Rights (the "Underwritten
Units"), at the lower of the Subscription Price per
Unit or the closing bid price per Common Share as
reported on The Nasdaq National Market on the
Expiration Date. The Standby Underwriters will
initially offer to sell such Units (or the Common
Shares and Warrants included in the Units) to the
public at the price paid by the Standby
Underwriters (the "Standby Offering"). See "Standby
Underwriting."
Transferability of
Rights..................... The Rights are nontransferable.
Method of Exercising
Rights..................... Rights may be exercised by delivery to U.S. Stock
Transfer Corporation (the "Rights Agent"), 1745
Gardena Avenue, 2nd Floor, Glendale CA 91204,
U.S.A., on or prior to the Expiration Date of
Rights certificates (which contain a subscription
form), properly completed and with full payment for
all Units subscribed for (including Units
subscribed for pursuant to the exercise of the
Oversubscription Privilege) by cash, certified
check, bank draft, wire transfer or money order
payable to the order of the Rights Agent. The wire
transfer address for the Rights Agent is Nam Tai
Electronics, Inc. Rights Offering Account, c/o
.
The Rights
4
<PAGE> 6
Agent will hold in custody all payments received
upon exercise of Rights until the Expiration Date
and the number of Units subscribed for is
determined. Holders will be refunded, without
interest, any amounts paid upon exercise of the
Oversubscription Privilege to the extent Units are
not available to fill all such oversubscriptions.
The Rights Agent will also accept a written or
telegraphic guarantee received prior to the
Expiration Date from a commercial bank or trust
company having an office in the United States, or a
member of the New York Stock Exchange or the
National Association of Securities Dealers, Inc.
which states the name of the subscriber, the number
of Rights represented by the Rights Certificate,
and the number of Units subscribed for, and which
guarantees that the Rights certificate and
appropriate payment will be promptly delivered to
the Rights Agent. See "The Rights Offering --
Exercise of Rights."
Additional Information..... Additional information relating to the method of
subscription and requests for additional copies of
this Prospectus should be directed to the Syndicate
Department at Joseph Charles & Associates, Inc.,
telephone ( ) .
Issuance of Units.......... Certificates evidencing the Common Shares and
Warrants composing the Units will be delivered to
subscribers as soon as practicable after the fourth
business day following the Expiration Date.
Common Shares Outstanding:
Before Offering....... 8,196,227 Common Shares(1)
After Offering........ 11,196,227 Common Shares(1)
Use of proceeds............ For working capital and general corporate purposes,
including possible acquisitions. See "Use of
Proceeds."
Risk Factors............... This offering involves a high degree of risk. See
"Risk Factors."
Nasdaq National Market
symbols --
Common Shares......... NTAIF
Warrants.............. NTAWF (proposed)
- ---------------
(1) Based on 8,196,227 Common Shares outstanding at August 31, 1997.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income statement data:
Net sales.................... $ 57,955 $ 70,844 $ 96,564 $ 121,240 $ 108,234 $ 50,242 $71,596
Gross margin................. 10,940 14,098 17,223 23,152 22,185 9,943 19,840
Net income................... 2,503 5,197 8,099 11,419 9,416 3,742 13,333(2)
Dividends paid............... 853 -- 65 120 243 243 786
Per share amounts:
Net income................... $ 0.47 $ 0.87 $ 1.09 $ 1.40 $ 1.16 $ 0.46 $ 1.68(2)
Dividend paid................ 0.20 -- 0.01 0.02 0.03 0.03 0.10
Weighted average common
shares outstanding and
common stock equivalents... 5,302 5,976 7,460 8,172 8,142 8,213 7,947
</TABLE>
<TABLE>
<CAPTION>
AT JUNE, 1997
AT DECEMBER 31, ------------------
------------------------------------------------ AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(3)
-------- -------- -------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Current assets.................. $ 23,071 $ 31,247 $ 45,520 $ 47,011 $ 46,609 $ 66,187
Property, plant and
equipment -- net.............. 6,337 7,396 14,624 27,635 36,487 32,287
Total assets.................... 29,474 39,530 66,287 79,281 88,391 102,333
Current liabilities............. 12,475 10,644 17,838 19,108 21,401 20,909
Non current liabilities......... 631 609 -- -- -- --
Shareholders' equity............ 16,368 28,162 48,449 60,173 66,990 81,424
</TABLE>
- ---------------
(1) The Company's Consolidated Financial Statements are prepared in accordance
with generally accepted accounted principles in the United States of America
and are stated in U.S. dollars.
(2) Includes other income -- net of $2,611,000, primarily consisting of a gain
of $2,648,000 from the sale of a portion of a long-term investment. See Note
5 of Notes to Consolidated Financial Statements for June 30, 1996 and 1997
included elsewhere herein.
(3) As adjusted to reflect the sale of the Units offered hereby at the assumed
price of $ per Unit and the addition of the net proceeds to working
capital. See "Use of Proceeds" and "Capitalization."
6
<PAGE> 8
RISK FACTORS
INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER INFORMATION
APPEARING IN THIS PROSPECTUS, THE FOLLOWING FACTORS, AMONG OTHERS, IN EVALUATING
THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE UNITS OFFERED BY THIS
PROSPECTUS.
POLITICAL, LEGAL, ECONOMIC AND OTHER UNCERTAINTIES OF OPERATIONS IN CHINA AND
HONG KONG
Internal Political and Other Risks. The Company's single manufacturing
complex is located in China. As a result, the Company's operations and assets
are subject to significant political, economic, legal and other uncertainties
associated with doing business in China. 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,
import duties, corruption, currency revaluations or the expropriation of private
enterprise could materially and adversely affect the Company. Over the past
several years, the Chinese government has pursued economic reform policies
including the encouragement of private economic activity and greater economic
decentralization. There can be no assurance 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 investment in that
country. Economic development may be limited as well by the imposition of
austerity measures intended to reduce inflation, the inadequate development of
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.
Current Dependence on Single Factory Complex. The Company's products are
manufactured exclusively at its complex located in Baoan County, Shenzhen,
China. The Company does not own the land underlying its factory complex. It
occupies the site under agreements with the local Chinese government. In the
case of its original facility, the lease agreement covers an aggregate of
approximately 150,000 square feet of factory space and expires in August 2007.
In the case of the newer facility, the Company is entitled to use the land upon
which it is situated until 2044. 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 would 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 could be
difficult in China. Moreover, firefighting and disaster relief or assistance in
China is primitive by Western standards. Material damage to, or the loss of, the
Company's factory complex due to fire, severe weather, flood, or other act of
God or cause, even if covered by insurance, would have a material adverse effect
on the Company's financial condition, business and prospects.
Possible Changes and Uncertainties in Economic Policies. As part of its
economic reform, China has designated certain areas, including Shenzhen where
the Company's manufacturing complex is located, 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
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governing Special Economic Zones could have a material adverse effect on the
Company. Moreover, economic reforms and growth in China have been more
successful in certain provinces than others, and the continuation or increase of
such disparities could affect the political or social stability of China.
Inherent Risks of Business in China. Conducting business in China is
inherently risky. Corruption, extortion, bribery, pay-offs, theft, and other
fraudulent practices are common in China. The Company has attempted to implement
safeguards to prevent losses from such practices, but there can be no assurance
that despite these safeguards the Company will not suffer losses relating to
such practices.
Recent 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 generally available to trading partners of the
United States, and in 1996 the United States and China were involved in
controversy over the protection in China of intellectual property rights. In
1996, China and the United States reached an agreement on copyright protection
and the United States has extended China's MFN status to July 3, 1998. Various
interest groups continue to urge that the United States not renew China's trade
status. There can be no assurance that future controversies will not arise that
threaten trade relations 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 general election in
Taiwan in 1996 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, formerly a
British Crown Colony. Sovereignty over Hong Kong was transferred effective July
1, 1997 to China. The Company prepared for this transition in Hong Kong by
increasing the role and capability of its personnel in China to manage a number
of responsibilities previously managed through the Hong Kong office. Certain
other responsibilities have been transferred to the Company's office in
Vancouver, British Columbia, Canada. While the Company does not believe that the
transfer of sovereignty over Hong Kong to China will have a material adverse
effect on the Company's business, there can be no assurance as to the continued
stability of political, economic or commercial conditions in Hong Kong, and any
instability could have an adverse impact on the Company's business.
The Hong Kong dollar and the United States dollars have been fixed at
approximately 7.80 Hong Kong dollars to $1.00 since 1983. The Chinese government
has expressed its intention in the Basic Law to maintain the stability of the
Hong Kong currency after the sovereignty of Hong Kong was transferred to China.
There can be no assurance that this will continue and the Company could face
increased currency risks if the current exchange rate mechanism is changed. See
"-- Exchange Rate Fluctuations."
CUSTOMER CONCENTRATION; DEPENDENCE ON ELECTRONICS INDUSTRY
Sales to four major customers, Sharp Corporation, Texas Instruments
Incorporated, Nintendo, Inc. (which orders through Sharp Corporation) and Seiko
Instruments Inc. aggregated approximately 89.7%, 92.3% and 90.3% of the
Company's total net sales during the years ended December 31, 1994, 1995 and
1996. For information disclosing sales to each of these customers during these
years, see "Business -- Customers and Marketing." The Company's sales
transactions to all its OEM customers are based on purchase orders received by
the Company from time to time. 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, the Company has no written agreements with its OEM
customers. Although management believes that any one of its OEM customers could
be replaced eventually, the loss of any one of its major customers could have a
material adverse effect on the Company's business. See "Management's Discussion
of Results of Operations and Financial Condition."
Virtually all of the Company's sales are to customers in the electronics
industry, which is subject to rapid technological change and product
obsolescence. The factors affecting the electronics industry in general, or
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any of the Company's major customers in particular, could have a material
adverse effect on the Company's results of operations.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially and adversely affect net sales, gross
profit and profitability. This could result from any one or a combination of
factors such as the cancellation or postponement of orders, the timing and
amount of significant orders from the Company's largest customers, customers'
announcement and introduction of new products or new generations of products,
evolutions in the life cycles of customers' products, the Company's timing of
expenditures in anticipation of future orders, effectiveness in managing
manufacturing processes, changes in cost and availability of components, mix of
orders filled, adverse effects to the Company's financial statements resulting
from, or necessitated by, possible future acquisitions, and changes or
anticipated changes in economic conditions. The volume and timing of orders
received during a quarter are difficult to forecast. The Company's customers
from time to time encounter uncertain and changing demand for their products.
Customers generally order based on their forecasts. If demand falls below such
forecasts or if customers do not control inventories effectively, they may
reduce or postpone shipments of orders.
The Company's expense levels during any particular period are based, in
part, on expectations of future sales. If sales in a particular quarter do not
meet expectations, operating results could be materially adversely affected. In
addition, the Company's operating results are affected by seasonality during the
third quarter in anticipation of the Christmas buying season and in the first
quarter resulting from both the closing of the Company's factory in China for
one-half of a month for the Chinese New Year holidays and the general reduction
in sales following the holiday season. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The market segments served by
the Company are also subject to economic cycles and have in the past
experienced, and are likely in the future to experience, recessionary periods. A
recessionary period affecting the industry segments served by the Company could
have a material adverse effect on the Company's results of operations. Results
of operations in any period should not be considered indicative of results to be
expected in any future period, and fluctuations in operating results may also
result in fluctuations in the market price of the Company's Common Shares.
TECHNOLOGICAL CHANGES AND PROCESS DEVELOPMENT
The market for the Company's manufacturing services is characterized by
rapidly changing technology and continuing process development. The Company is
continually evaluating the advantages and feasibility of new manufacturing
processes, such as COB, SMT, TAB and OLB. The Company believes that its future
success may depend upon its ability to develop and market manufacturing services
which meet changing customer needs, maintain technological leadership and
successfully anticipate or respond to technological changes in manufacturing
processes on a cost-effective and timely basis. There can be no assurance that
the Company's process development efforts will continue to prove successful.
RISKS FROM POSSIBLE ACQUISITIONS
An important element of the Company's strategy is to review acquisition
prospects that would complement the Company's existing products and services,
augment its market coverage and sales ability or enhance its technological
capabilities. While the Company has no current agreements or understandings with
respect to any acquisitions, the Company may acquire businesses, products or
technologies in the future. See "Use of Proceeds." Future acquisitions by the
Company could result in accounting charges, potentially dilutive issuance of
equity securities, the incurrence of debt and contingent liabilities and
amortization expenses related to goodwill and other intangible assets, any of
which could materially adversely affect the Company's business, financial
condition and results of operations and/or the price of the Company's Common
Stock. Acquisitions entail numerous risks, including the assimilation of the
acquired operations, technologies and products, diversion of management's
attention to other business concerns, risks of entering markets in which the
Company has no or limited prior experience and potential loss of key employees
of acquired organizations. Management has no experience in assimilating acquired
organizations. There can be no
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assurance as to the ability of the Company to successfully integrate the
products, technologies or personnel of any business that might be acquired in
the future, and the failure of the Company to do so could have a material
adverse effect on the Company's business, financial condition and results of
operations.
EXCHANGE RATE FLUCTUATIONS
The Company sells most of its products in United States dollars and
Japanese yen and pays expenses in United States dollars, yen, Hong Kong dollars,
Canadian dollars and Chinese renminbi. The Company is subject to a variety of
risks associated with changes among the relative value of the United States
dollar, yen, Hong Kong dollar, Canadian dollar and Chinese renminbi, but
management believes that the most significant exchange risk results from
material purchases made in yen. Approximately 35%, 33% and 28% of Nam Tai's
material costs have been in yen during the years ended December 31, 1994, 1995
and 1996. Sales made in yen accounted for approximately 15% of sales for the
year ended December 31, 1996, 18% of sales for 1995 and 13% of sales for 1994.
The net exposure has been declining as material costs in Japanese yen decrease
and sales increase. Based on oral agreements with its customers which are
customary in the industry, the Company believes its customers will accept an
increase in the selling price of manufactured products if the exchange rate of
the Japanese yen appreciates beyond a range of 5% to 10% although such customers
may also request a decrease in selling price in the event of a depreciation of
the Japanese yen. There can be no assurance its customers will accept such price
increase and the refusal to accept such price increase in the event of a severe
fluctuation of the Japanese 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.
Although only 9.3% of the Company's expenses were in Chinese renminbi in
1996, the appreciation of the renminbi against the U.S. dollar increases the
expenses of the Company when translated into U.S. dollars. There can be no
assurances that the renminbi will not increase significantly in value relative
to the U.S. dollar in the future.
From time to time, the Company attempts to hedge its currency exchange
risk. 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. The Company continually reviews its
hedging strategy but there can be no assurance that Nam Tai will not suffer
losses in the future as a result of currency hedging.
COMPETITION
Competition in the contract electronic manufacturing industry is intense.
The Company's primary competitors in the manufacture of its principal product
lines of calculators, personal organizers and linguistic products, are Kinpo
Electronics, Inc. (formerly Cal-Comp Electronics, Inc.) and Inventec Co. Ltd.,
both of Taiwan. While an OEM may prefer its approved suppliers, management
believes that OEMs tend to order from several suppliers in order to lessen
dependence on any one of them. Certain competitors may have substantially
greater technical, financial and marketing resources than the Company.
DEPENDENCE ON KEY PERSONNEL
The Company depends to a large extent on the abilities and continued
participation of Mr. M. K. Koo, its Chairman of the Board, and Mr. Tadao
Murakami, its Chief Executive Officer and President, who is in charge of the
Company's day-to-day manufacturing and marketing operations in China. The loss
of the services of Mr. Koo or Mr. Murakami could have a material adverse effect
on Company's business.
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 in New York
and a director of Nam Tai since 1995, as its agent upon whom process may be
served in any action brought against the Company under the securities
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<PAGE> 12
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 a majority 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 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.
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 SALES
The products of the Company are sold in the United States and
internationally, principally in Japan, Europe and Hong Kong. International 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.
EXEMPTIONS UNDER THE EXCHANGE ACT AS A FOREIGN PRIVATE ISSUER
The Company is a foreign private issuer within the meaning of rules
promulgated under the Exchange Act. As such, and though its Common Shares are
registered under Section 12(g) of the Exchange Act, it is exempt from certain
provisions of the Exchange Act applicable to United States public companies
including: the rules under the Exchange Act requiring the filing with the
Commission of quarterly reports on Form 10-Q or current reports on Form 8-K; the
sections of the Exchange Act regulating the solicitation of proxies, consents or
authorizations in respect to a security registered under the Exchange Act; and
the sections of the Exchange Act requiring insiders to file public reports of
their stock ownership and trading activities and establishing insider liability
for profits realized from any "short-swing" trading transaction (i.e., a
purchase and sale, or sale and purchase, of the issuer's equity securities
within six months or less). Because of the exemptions under the Exchange Act
applicable to foreign private issuers, shareholders of the Company are not
afforded the same protections or information generally available to investors in
public companies organized in the United States.
AGREEMENT TO EXERCISE RIGHTS BY MR. M. K. KOO AND MR. TADAO MURAKAMI.
Mr. M. K. Koo, the Company's Chairman of the Board, and Mr. Tadao Murakami,
the Company's Chief Executive Officer, have agreed to fully exercise their Basic
Subscription Privilege pursuant to which they will purchase an aggregate of
802,906 Units, assuming no exercise of their Oversubscription Privilege. Mr. Koo
and Mr. Murakami have advised the Company that they intend to fully exercise
their Oversubscription Privilege as well.
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SECURITIES MARKET FACTORS
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, general market trends and other factors. See
"Price Range of Common Shares." These same factors could be expected to affect
the market price of the Company's Warrants following this offering. There can be
no assurance that the Company's Common Shares and Warrants together will trade
in the future at market prices in excess of the Subscription Price. Certain
events, such as the issuance of Common Shares upon the exercise of the Warrants
included in the Units and the exercise of the Representative's Warrants and
Counsel's Warrants could also adversely effect the prevailing market prices of
the Company's securities. See "Description of Securities.
REDEMPTION OF WARRANTS
From and after the Expiration Date, the Warrants are redeemable by the
Company at $.05 per Warrant on 30 days' written notice provided the average
market price of the Common Shares for 20 consecutive trading days within the
30-day period preceding the date of the notice of redemption equals or exceeds
$ . In the event the Company exercised the right to redeem the
Warrants, a holder would be forced either to sell or exercise the Warrants
within 30 days of the notice of redemption, or accept the redemption price. See
"Description of Securities -- Warrants."
VOTING DILUTION TO SHAREHOLDERS NOT EXERCISING RIGHTS
The voting dilution to persons who do not exercise their subscription
rights in the Rights Offering is approximately 36.6%. See "The Rights Offering"
and "Standby Underwriting."
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing to all holders of its outstanding Common Shares
of record on the Record Date nontransferable Rights to purchase one Unit for
every three Common Shares owned on the Record Date. The Subscription Price is
$ per Unit. Fractional Rights will not be issued and any shareholder
holding a number of Common Shares on the Record Date that is not divisible by
three will receive a number of Rights equal to the number of Common Shares held
on the Record Date divided by three, rounded down to the nearest whole number.
Each Unit consists one Common Share and one Warrant and each Warrant is
exercisable to purchase one Common Share at a price of $ per share at
any time from the Expiration Date until , 2000. The Common Shares
and the Warrants included in the Units will be separately transferable
immediately. The Warrants are redeemable by the Company at any time after their
issuance at $.05 per Warrant if the average closing sale price of the Common
Shares for 20 consecutive trading days within the 30-day period preceding the
date the notice is given equals or exceeds $ . See "Description of
Securities."
The issuance by the Company of the Units pursuant to the Rights Offering is
not conditioned upon the subscription of any minimum number of Units by holders
of the Rights. Mr. M. K. Koo, the Company's Chairman of the Board, and Mr. Tadao
Murakami, the Company's Chief Executive Officer, have agreed to exercise all of
their Rights pursuant to which they will purchase an aggregate of 802,906 Units,
assuming no exercise of their Oversubscription Privilege. Mr. Koo and Mr.
Murakami have also advised the Company that they intend to fully exercise their
Oversubscription Privilege as well. The Standby Underwriters have committed to
purchase from the Company and will reoffer to the public all Units that are not
purchased upon exercise of Rights. See "Standby Underwriting." Subject to
satisfaction of the terms and conditions of the Standby Underwriting Agreement
and the performance by the Standby Underwriter of its obligations thereunder,
the Company is assured of selling all of the Units offered in the Rights
Offering.
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The Subscription Price for the Units and the exercise price and other terms
of the Warrants included therein were determined by negotiations between the
Company and the Representative based in part upon the most recent bid price of
the Common Shares. See "Standby Underwriting."
EXPIRATION DATE
The Rights expire at 9:00 a.m., Los Angeles time, on , 1997.
The Company will not be obligated to honor any purported exercise of Rights
received by the Rights Agent after the Expiration Date, regardless of when
documents relating to such exercise were sent, except pursuant to the Guaranteed
Delivery Procedures described below.
RIGHTS AGENT
The Rights Agent is U.S. Stock Transfer Corp., 1745 Gardena Avenue, 2nd
Floor, Glendale CA 91204, telephone (818) 502-1404 and fax (818) 502-0674.
SUBSCRIPTION PRIVILEGES
Basic Subscription Privilege. Each Right will entitle the holder thereof to
receive, upon payment of the Subscription Price, one Unit. Certificates
representing the Common Shares and Warrants composing the Units purchased
pursuant to the Basic Subscription Privilege will be delivered to subscribers as
soon as practicable after the Expiration Date.
Oversubscription Privilege. Subject to the allocation described below, each
Right also carries the right to subscribe at the Subscription Price for up to
that number of additional Units equal to the product of .40 times the number of
Rights exercised by the holder pursuant to the Basic Subscription Privilege (the
"Oversubscription Privilege").
To the extent that any Units are not sold through the Basic Subscription
Privilege, Units will be available for purchase pursuant to the Oversubscription
Privilege. To the extent such excess Units ("Excess Units") are not sufficient
to satisfy all subscriptions pursuant to the Oversubscription Privilege, the
Excess Units will be allocated pro rata (subject to the elimination of
fractional Units) among those holders of Rights exercising the Oversubscription
Privilege, in proportion to the number of Units each beneficial holder
exercising the Oversubscription Privilege has purchased pursuant to the Basic
Subscription Privilege (as opposed to the number of Units requested pursuant to
the Oversubscription); provided, however, that if such pro rata allocation
results in any Rights holder being allocated a greater number of Excess Units
than such holder subscribed for pursuant to the exercise of such holder's
Oversubscription Privilege, then such holder will be allocated only such number
of Excess Units as such holder subscribed for and the remaining Excess Units
will be allocated among all other holders exercising the Oversubscription
Privilege. No fractional Units will be issued. Fractional Units otherwise
issuable upon exercise of the Oversubscription Privilege will be rounded down to
the nearest whole number. All beneficial holders who exercise the Basic
Subscription Privilege will be entitled to exercise the Oversubscription
Privilege. Certificates representing Units purchased pursuant to the
Oversubscription Privilege will be delivered to subscribers as soon as
practicable after the Expiration Date and after all prorations have been
effected.
Banks, brokers and other nominee holders of Rights who exercise the Basic
Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Rights Agent and
the Company, in connection with the exercise of the Oversubscription Privilege,
as to the aggregate number of Rights that have been exercised and the number of
Units that are being subscribed for pursuant to the Oversubscription Privilege
by each beneficial owner of Rights on whose behalf such nominee holder is
acting.
METHOD OF EXERCISING RIGHTS
Rights may be exercised by completing and signing the Subscription Form on
the reverse side of the Rights certificate and mailing or delivering the Rights
certificate, together with payment in full (in United
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States dollars) by cash, certified check, bank draft, wire transfer or money
order payable to the order of "U.S. Stock Transfer Corporation" of the
Subscription Price for each Unit subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege, which must be
received by the Rights Agent before 9:00 a.m., Los Angeles time, on the
Expiration Date. The wire transfer address for the Rights Agent is Nam Tai
Electronics, Inc. Rights Offering Account, c/o Bank, ,
Phone number ( ) ABA# Account# .
Holders of Rights must follow all instructions for due exercise of their
Rights. Questions relating to the method of subscription and requests for
additional copies of this Prospectus should be directed to the Syndicate
Department at Joseph Charles & Associates, Inc., telephone ( ) .
All issues with respect to the validity, form and eligibility of the exercise of
any Rights will be resolved solely by the Company. The Company in its sole
discretion may waive any defect or irregularity, permit a defect or irregularity
to be corrected within such time as it may determine, or reject the exercise of
any Right. Subscriptions will not be deemed to have been made until all
irregularities have been waived or cured. Neither the Company nor the Rights
Agent will be under any duty to give notification of defects in subscription,
nor will either incur any liability for failure to give such notification. The
risk of delivery of all documents and payment is on subscribers, not the Company
or the Rights Agent. The Subscription Price will be deemed to have been received
by the Rights Agent only upon (i) clearance of any uncertified check, (ii)
receipt by the Rights Agent of any certified check or bank draft drawn upon a
U.S. bank or of any postal, telegraphic or express money order or (iii) receipt
of good funds in the Rights Agent's account designated above. IF PAYING BY
UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID THEREBY MAY TAKE AS
MANY AS 10 BUSINESS DAYS OR MORE TO CLEAR. ACCORDINGLY, HOLDERS OF RIGHTS WHO
WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE
URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE
THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE AND ARE URGED TO CONSIDER
PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER
OF FUNDS.
The address to which the Subscription Form and payment of the Subscription
Price should be delivered is:
U.S. STOCK TRANSFER CORP.
1745 Gardena Avenue
2nd Floor
Glendale CA 91204
If a Rights holder wishes to exercise Rights, but time will not permit such
holder to cause the Subscription Form evidencing such Rights to reach the Rights
Agent on or prior to the Expiration Date, such Rights may nevertheless be
exercised by following the Guaranteed Delivery Procedures described below.
Funds received in payment of the Subscription Price for Excess Units
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account in custody pursuant to an agreement among the Rights Agent,
the Company and Bank pending issuance of such Excess Units. If a
Rights holder exercising the Oversubscription Privilege is allocated less than
all of the Units which such holder wished to subscribe for pursuant to the
Oversubscription Privilege, the excess funds paid by such holder in respect of
the Subscription Price for Units not issued will be returned by mail without
interest or deduction as soon as practicable after the Expiration Date.
Unless a Subscription Form (i) provides that the Units to be issued
pursuant to the exercise of Rights represented thereby are to be delivered to
the record holder of such Rights or (ii) is submitted for the account of an
Eligible Institution, signatures on such Subscription Form must be guaranteed by
an Eligible Institution.
Holders who hold Common Shares for the account of others, such as brokers,
trustees or depositaries for securities, should notify the respective beneficial
owners of such shares as soon as possible to ascertain such beneficial owners'
intentions and to obtain instructions with respect to the Rights. If the
beneficial owner so instructs, the record holder of such Rights should complete
Subscription Forms and submit them to the Rights Agent with the proper payment.
In addition, beneficial owners of Common Shares or Rights held through such a
holder should contact the holder and request the holder to effect transactions
in accordance with the beneficial owner's instructions.
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The instructions accompanying the Subscription Forms should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION FORMS TO THE COMPANY.
THE METHODS OF DELIVERY OF SUBSCRIPTION FORMS AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE RIGHTS AGENT WILL BE AT THE ELECTION AND RISK OF THE
RIGHTS HOLDERS. IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND
PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE RIGHTS AGENT AND CLEARANCE OF PAYMENT PRIOR TO 9:00 A.M., LOS ANGELES TIME
ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST
FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR
PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER
OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
will be final and binding. The Company in its sole discretion may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted until
all irregularities have been waived or cured within such time as the Company
determines in its sole discretion. Neither the Company nor the Rights Agent will
be under any duty to give notification of any defect or irregularity in
connection with the submission of Subscription Forms or incur any liability for
failure to give such notification.
GUARANTEED LATE DELIVERY OF PAYMENT AND RIGHTS CERTIFICATES
Late subscriptions will be accepted subject to withholding certificates for
the Units until receipt of the duly completed and executed Rights certificate
and payment of the Subscription Price, provided that the following conditions
(the "Guaranteed Delivery Procedures") are met: prior to the Expiration Date,
the holder must deliver to the Rights Agent a written or telegraphic guarantee
from a commercial bank or trust company having an office in the United States,
or a member of the New York Stock Exchange, the American Stock Exchange or the
National Association of Securities Dealers, Inc., stating the name of the
subscriber, the number of Rights represented by the Rights certificates and the
number of Units subscribed for, and guaranteeing that the Rights certificate and
the appropriate payment will be promptly delivered to the Rights Agent; and a
properly completed Rights certificate, along with payment for all Rights
exercised must be received by the Rights Agent within five business days
following the Expiration Date. A form of Guaranteed Delivery is included along
with the Rights Certificate and this Prospectus.
RIGHTS OF SUBSCRIBERS
Subscribers will have no rights as shareholders of the Company with respect
to the Common Shares included in the Units until certificates representing the
Units are issued to them. Subscribers will have no right to revoke their
subscriptions after delivery to the Rights Agents.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES RESPECTING THE RIGHTS
The following summary describes certain United States Federal income tax
considerations affecting holders of Common Shares receiving Rights in the Rights
Offering. This summary is based upon laws, regulations, rulings and decisions
currently in effect. This summary does not discuss all aspects of Federal
taxation that may be relevant to a particular investor or to certain types of
investors subject to special treatment under the Federal tax laws (for example,
banks, dealers in securities, life insurance companies, tax-exempt organizations
and foreign persons), nor does it discuss any aspect of state, local or foreign
tax laws. HOLDERS OF COMMON SHARES SHOULD THEREFORE CONSULT THEIR OWN TAX
ADVISORS CONCERNING THEIR INDIVIDUAL TAX SITUATIONS AND THE TAX CONSEQUENCES OF
THE RIGHTS OFFERING UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND
UNDER ANY APPLICABLE STATE, LOCAL OR FOREIGN TAX LAWS.
15
<PAGE> 17
The Distribution of the Rights to Buy Units. When the Company distributes
the nontransferable right to buy Units to its shareholders, the value to such
right is not includable in the gross income of such shareholders by virtue of
section 305(a) of the INTERNAL REVENUE CODE OF 1986 (the "Code").
A Shareholder's Tax Basis in the Rights. As a general rule under section
307(a) of the Code if a shareholder of a corporation receives rights to acquire
its stock such as the Rights, in a distribution to which section 305(a) of the
Code applies, then, if such rights are exercised or sold (the Rights issued by
the Company are nontransferable, and thus cannot be sold) the basis of the stock
respect to which the rights were distributed (the "old stock"), and the basis in
the rights, respectively, shall be determined by an allocation between the old
stock and the rights, pro rata according to their respective fair market values.
Section 307(b) of the Code provides an exception to this general rule when the
fair market value of the rights at the time of the distribution is less than
fifteen percent (15%) of the fair market value of the old stock at the time of
the distribution. In such cases no allocation is required and the tax basis of
the rights is zero, unless the shareholder elects to determine the tax basis of
the old stock and the rights. The election, if made by a shareholder, must be
made with respect to all the rights received by him or her in a particular
distribution and with respect to all of the stock of the same class owned by him
in the corporation at the time of the distribution. If the old stock was
acquired at different times and for different prices, and the shareholder can
identify each separate lot, then the basis of each lot of old stock can be used
separately in the allocation. If the shareholder cannot identify each lot, then
the shareholder must use the first-in first-out tracing approach; use of the
average cost of all lots for basis is not permitted. The Company believes that
the fair market value of the Rights will be negligible compared to the value of
the Common Shares at the time they are distributed, and thus no distributee
shareholder will have an obligation to make the allocation. Instead they will
have the election to allocate described herein.
If a shareholder allows the Rights to lapse, he or she realizes neither
gain nor loss, and any basis previously allocated to the Rights will revert to
the underlying shares.
Exercise of Rights. A holder of Rights will not recognize gain or loss upon
the exercise of the Rights. A holder of Rights who receives Units upon such
exercise will acquire a basis in those Units equal to the Subscription Price
plus any basis previously allocated to the Rights. The holding period of Units
and their components received on exercise of the Rights will begin on the date
the Rights are exercised. For information concerning certain United States
Federal Income Tax Considerations to holders of the Units after the Rights are
exercised, see "DESCRIPTION OF SECURITIES -- Certain United States Federal
Income Tax Consequences Respecting the Units."
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of 3,000,000 Units offered
hereby (at an assumed price of $ per Unit) are estimated to be
approximately $ , after deducting the Standby Fees and
expenses and other offering expenses of the Company.
The Company intends to use the net proceeds for working capital and general
corporate purposes. A portion of the net proceeds may also be used for the
possible acquisitions of businesses, products or technologies that are
complementary to those of the Company. From time to time, the Company evaluates
potential acquisitions of such businesses, products or technologies; however,
the Company has no current understandings, agreements or commitments with
respect to any such transaction. Pending such uses, the Company intends to
invest the net proceeds in short-term, high-quality, interest-bearing
obligations. Any additional proceeds received upon exercise of the Warrants and
the Representative's Warrants and Counsel's Warrants, as well as income from
investments, will be added to working capital.
DIVIDEND POLICY
In the past Nam Tai paid quarterly dividends on its Common Shares, but such
dividends were discontinued in January 1993. In 1994, the Company began paying
annual dividends, paying shareholders aggregate dividends of $65,000 ($0.01 per
share) in 1994, $120,000 (0.015 per share) in 1995 and $243,000 ($0.03 per
share) in 1996 and $786,000 ($0.10 per share in 1997). It is the current policy
of Nam Tai to determine the actual amount of future dividends based upon the
Company's growth during the preceding year and to limit cash dividends to less
than 20% of net cash flow in order to have sufficient cash to finance growth.
Future dividends will be in the form of cash or stock or a combination of both.
There can be no assurance that any dividend on the Common Shares will be
declared or, if declared, what the amounts of dividends will be or whether such
dividends, once declared, will continue for any future period.
17
<PAGE> 19
PRICE RANGE OF COMMON SHARES
The Company's Common Shares are traded on The Nasdaq National Market under
the symbol "NTAIF". The following table sets forth the high and low closing sale
prices in U.S. dollars ("US$") as reported by The Nasdaq National Market during
each of the quarters indicated.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------------------------------------------------- ------- -------
<S> <C> <C>
March 31, 1995......................................... US$9.75 US$7.94
June 30, 1995.......................................... 10.50 9.00
September 30, 1995..................................... 17.25 9.00
December 31, 1995...................................... 13.88 10.75
March 31, 1996......................................... 13.13 9.25
June 30, 1996.......................................... 13.88 10.50
September 30, 1996..................................... 11.50 8.63
December 31, 1996...................................... 10.63 7.25
March 31, 1997......................................... 11.88 8.13
June 30, 1997.......................................... 16.63 9.63
September 30, 1997 (through September 22, 1997)........ 31.63 16.75
</TABLE>
The 8,196,227 Common Shares of the Company outstanding as of August 31,
1997 were held by approximately 1,134 holders of record worldwide, including
1,106 holders of record in the United States. Management believes that holders
of record hold for approximately 2,700 beneficial holders. On September 22,
1997, the closing sale price of a Common Share as reported on The Nasdaq
National Market was $22.13.
On December 12, 1996, the Company listed its shares on The Toronto Stock
Exchange under the symbol "NMT." The following table sets forth the high and low
closing sale prices in Canadian dollars ("Cdn.$") as reported by the Toronto
Stock Exchange for the periods indicated:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
--------------------------------------------------- ---------- ----------
<S> <C> <C>
December 31, 1996 (from December 12, 1996)......... Cdn.$12.25 Cdn.$10.85
March 31, 1997..................................... 15.00 11.75
June 30, 1997...................................... 23.00 13.50
September 30, 1997 (through September 22, 1997).... 41.00 23.00
</TABLE>
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1997 and as adjusted to reflect the sale of 3,000,000 Units offered hereby
at the assumed price of $ per Unit (assuming no part of the price is
allocated to the Warrants). The table should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in the
Prospectus. Dollar amounts are in thousands.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
Long-term debt.......................................... $ -- $ --
Shareholders equity:
Common Shares, $0.01 par value per share:
20,000,000 shares authorized, 8,065,627 shares
issued and outstanding, and 10,065,627 shares to be
issued and outstanding as adjusted(1).............. 81 111
Additional paid in capital............................ 30,725
Stock option grants................................... 47 47
Retained earnings..................................... 50,544 50,544
Foreign currency translation adjustment............... 27 27
-------- --------
TOTAL SHAREHOLDERS EQUITY AND TOTAL CAPITALIZATION...... $ 81,424 $
======== ========
</TABLE>
- ---------------
(1) Between July 1, 1997 and August 31, 1997, the Company issued 130,600 Common
Shares upon exercise of options granted under its Stock Option Plan.
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for 1992 through 1996 set forth
below are derived from the audited Consolidated Financial Statements of the
Company and Notes thereto. The Consolidated Financial Statements at December 31,
1995 and 1996 for the years ended December 31, 1994, 1995 and 1996 have been
audited by Price Waterhouse and appear elsewhere in this Prospectus. The
selected consolidated financial data set forth below at June 30, 1997 and for
the six months ended June 30, 1996 and 1997 are derived from the Company's
unaudited consolidated financial statements and, in the opinion of management,
include all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation of these data. Operating results
for the six months ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. The selected
consolidated financial data are qualified in their entirety by reference to, and
should be read in conjunction with, the Consolidated Financial Statements and
related notes and "Management's Discussion and Analysis of Results of Operations
and Financial Condition" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales................................ $57,955 $70,844 $96,564 $121,240 $108,234 $50,242 $71,596
Cost of sales............................ 47,015 56,746 79,341 98,088 86,049 40,299 51,756
------- ------- ------- -------- -------- ------- -------
Gross profit........................... 10,940 14,098 17,223 23,152 22,185 9,943 19,840
Costs and expenses
Selling, general and administrative
expenses............................. 7,595 7,735 9,370 11,441 12,702 6,323 7,664
Research and development expenses........ 598 547 239 945 950 412 541
------- ------- ------- -------- -------- ------- -------
8,193 8,282 9,609 12,386 13,652 6,735 8,205
Income from operations................... 2,747 5,816 7,614 10,766 8,533 3,208 11,635
Gain (loss) on disposal of fixed
assets............................... 42 -- (48) -- (123) -- (634)
Other income (loss) -- net............. 165 (413) 761 225 1,253 617 2,611(1)
Interest expense....................... (132) (137) (129) (161) (89) (19) (37)
------- ------- ------- -------- -------- ------- -------
Income from consolidated companies before
income taxes and minority interests.... 2,822 5,266 8,198 10,830 9,574 3,806 13,575
Benefit (provision) for taxes on
income................................. (219) (73) (173) 589 (158) (64) (242)
------- ------- ------- -------- -------- ------- -------
2,603 5,193 8,025 11,419 9,416 3,742 13,333
Minority interests in subsidiaries....... (100) 4 74 -- -- -- --
------- ------- ------- -------- -------- ------- -------
Net income............................... $ 2,503 $ 5,197 $ 8,099 $ 11,419 $ 9,416 $ 3,742 $13,333(1)
======= ======= ======= ======== ======== ======= =======
Dividend paid............................ $ 853 $ -- $ 65 $ 120 $ 243 $ 243 $ 786
======= ======= ======= ======== ======== ======= =======
Weighted average Common Shares
outstanding and common stock
equivalents............................ 5,302 5,976 7,460 8,172 8,142 8,213 7,947
PER SHARE AMOUNTS
Net income............................. $ 0.47 $ 0.87 $ 1.09 $ 1.40 $ 1.16 $ 0.46 $ 1.68(1)
Dividend paid.......................... $ 0.20 $ -- $ 0.01 $ 0.02 $ 0.03 $ 0.03 $ 0.10
</TABLE>
<TABLE>
<CAPTION>
AT
AT DECEMBER 31, JUNE 30,
--------------------------------------------------- --------
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........................................... $23,071 $31,247 $45,520 $47,011 $46,609 $ 66,187
Property, plant and equipment -- net..................... 6,337 7,396 14,624 27,635 36,487 32,287
Total assets............................................. 29,474 39,530 66,287 79,281 88,391 102,333
Current liabilities...................................... 12,475 10,644 17,838 19,108 21,401 20,909
Non current liabilities.................................. 631 609 -- -- -- --
Shareholders' equity..................................... 16,368 28,162 48,449 60,173 66,990 81,424
</TABLE>
- ---------------
(1) Includes for the six months ended June 30, 1997 a gain of $2,648,000 from
the sale of a portion of a long-term investment. See Note 5 of Notes to
Consolidated Financial Statements for June 30, 1996 and 1997 included
elsewhere herein.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This section contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under the "Risk Factors" section of this Prospectus.
This section should be read in conjunction with the Company's Consolidated
Financial Statements included elsewhere herein.
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, calculators and
IC card readers. In addition, it manufactures electronic components and
subassemblies. In 1994, the Company discontinued sales of its proprietary
products, sales of which had not been material to the Company's operating
results prior to the sale of the product lines.
During each of the years ended December 31, 1994, 1995 and 1996, sales to
OEM customers accounted for 99% of total net sales. Management believes that
sales of personal organizers, linguistic products and calculators to its OEM
customers will continue to be an important line of business for the Company for
the next several years. The importance of sales of subassemblies and components
and other products to total revenues has been rising, and management expects
these products, particularly LCD modules and IC card readers, to contribute an
increasing proportion of total revenue. See "Business -- Customers and
Marketing."
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 and specialized products with higher unit margins.
It also strives to improve customer relations and quality. The Company believes
there is less competition in more advanced and specialized products due to the
complexity involved in manufacturing and the lower numbers of direct
competitors.
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.
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 receives tax credits in China
related to its reinvestment of profits on China operations, which reduces the
overall tax payable by the Company. 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.
21
<PAGE> 23
The first quarter is typically the Company's slowest sales period because,
as is customary in China, the Company's factories in China are closed for two
weeks for the Chinese New Year holidays. The following table sets forth certain
selected operating data for the quarters indicated. This information has been
derived from the unaudited consolidated financial statements of the Company
which in the opinion of management contain all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of such information.
These operating results are not necessarily indicative of results for any future
period and results may fluctuate significantly from quarter to quarter in the
future.
<TABLE>
<CAPTION>
1994 1995
------------------------------------- -------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
------- ------- ------- ------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................................... $14,888 $24,625 $32,127 $24,924 $22,443 $30,065 $35,514 $33,218
Gross profit.................................. 2,602 4,681 5,702 4,238 4,256 5,987 6,967 5,942
Net income.................................... 655 2,003 3,494 1,947 1,556 3,210 4,637 2,016
Net income per share.......................... $ 0.09 $ 0.28 $ 0.48 $ 0.24 $ 0.19 $ 0.39 $ 0.57 $ 0.25
</TABLE>
<TABLE>
<CAPTION>
1996 1997
------------------------------------- -----------------
Q1 Q2 Q3 Q4 Q1 Q2
------- ------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales...................................................... $25,357 $24,885 $28,005 $29,987 $31,152 $40,444
Gross profit................................................... 5,036 4,907 6,344 5,898 7,246 12,594
Net income..................................................... 2,333 1,409 3,318 2,356 5,570 7,763
Net income per share........................................... $ 0.29 $ 0.17 $ 0.40 $ 0.30 $ 0.71 $ 0.97
</TABLE>
The following table presents selected consolidated financial information
stated as a percentage of net sales for the years ended December 31, 1994, 1995
and 1996 and the six months ended June 30, 1996 and 1997:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................................... 82.2 80.9 79.5 80.2 72.3
Gross profit........................................... 17.8 19.1 20.5 19.8 27.7
----- ----- ----- ----- -----
Costs and expenses
Selling, general and administrative expenses........... 9.7 9.4 11.7 12.6 10.7
Research and development expenses...................... 0.2 0.8 0.9 0.8 0.8
----- ----- ----- ----- -----
9.9 10.2 12.6 13.4 11.5
Income from operations................................. 7.9 8.9 7.9 6.4 16.2
Gain (loss) on disposal of fixed assets................ 0.0 0.0 (0.1) 0.0 (0.9)
Other income (loss) -- net............................. 0.8 0.2 1.1 1.2 3.6
Interest expense....................................... (0.2) (0.2) (0.1) 0.0 0.0
----- ----- ----- ----- -----
Income from consolidated companies before income taxes
and minority interests............................... 8.5 8.9 8.8 7.6 18.9
Benefit (provision) for taxes on income................ (0.2) 0.5 (0.1) (0.1) (0.3)
Minority interests in subsidiaries..................... 0.1 0.0 0.0 0.0 0.0
----- ----- ----- ----- -----
Net income............................................. 8.4 9.4 8.7 7.5 18.6
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Nam Tai's sales increased by 42.5% to $71,596,000 in the six months ended
June 30, 1997 compared to $50,242,000 for the six months ended June 30, 1996,
primarily due to increases in sales to Texas Instruments Incorporated and Seiko
Instruments.
The Company's gross profit margin increased to $19,840,000 or 27.2% of
sales for the six months ended June 30, 1997 from $9,943,000 or 19.8% of sales.
The principal reasons for the increase in profit margins were
22
<PAGE> 24
(i) the production of new, higher margin products, (ii) lower cost of raw
materials, in part the result of the weakness of the Japanese yen in relation to
the U.S. dollar, and (iii) improvements in quality control which resulted in the
reduction of the scrap rate.
Selling, general and administrative expenses increased by 21.2% to
$7,664,000 in the six months ended June 30, 1997 from $6,323,000 for the six
months ended June 30, 1996. As a percentage of sales, selling, general and
administrative expenses decreased to 10.7% of sales in the six months ended June
30, 1997 from 12.6% of sales for the six months ended June 30, 1996. The
increase in absolute dollars principally 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 expenses as the Company handled a greater
level of activity with existing resources.
Research and development expenses increased to $541,000 in the six months
ended June 30, 1997 from $412,000 in 1996. Namtek, the Company's
software-development subsidiary which began operations in early 1996, accounted
for approximately 36% and 34% of the research and development expenses in the
six months ended June 30, 1996 and 1997, respectively. These expenses were
substantially recovered from fees paid by third parties.
Loss on disposal of fixed assets was $634,000 in the six months ended June
30, 1997 as compared to zero for the six months ended June 30, 1996. The loss in
1997 principally related to the sale of certain of the Company's real property
in Burnaby, British Columbia, Canada.
Other income -- net increased to $2,611,000 during the six months ended
June 30, 1997 from $617,000 for the six months ended June 30, 1996. This income
increased principally as a result of a gain of $2,648,000 from the sale of a
portion of the Company's equity interest in Deswell in early 1997 and dividend
income from its ownership of Deswell's common shares. The overall increase for
the six months ended June 30, 1997 was reduced by increases of approximately
$209,000 in miscellaneous expenses over such expenses in the six months ended
June 30, 1996 and decreases in interest income of approximately $107,000 from
interest income during the six months ended June 30, 1996.
Income before income taxes increased to $13,575,000 for the six months
ended June 30, 1997 from $3,806,000 for the six months ended June 30, 1996. The
improvement of approximately 257% was primarily attributable to higher operating
income reflecting increased sales volume and higher gross profit margins
associated with 1997 sales.
The income tax expense of $242,000 for the six months ended June 30, 1997
compares to an income tax expense of $64,000 for the six months ended June 30,
1996. For further information on income taxes payable by the Company see, Note 8
of Notes to Consolidated Financial Statements relating to the six months ended
June 30, 1996 and 1997.
Net income increased by 256% to $13,333,000 (or 18.6% of sales) for the six
months ended June 30, 1997 compared to $3,742,000 (or 7.5% of sales) for the six
months ended June 30, 1996. This resulted in earnings per share for the six
months ended June 30, 1997 of $1.68 compared to earnings per share of $0.46 for
the six months ended June 30, 1996. 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 decreased to 7,947,421 for the six
months ended June 30, 1997 from 8,212,954 for the six months ended June 30,
1996, reflecting the repurchase by the Company of 273,500 shares, principally in
the latter half of 1996, through the Company share repurchase program offset by
issuances of 229,400 Common Shares in the first half of 1997 upon exercise of
stock options granted under the Company's stock option plan.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Nam Tai's sales declined by 11% to $108,234,000 for the year ended December
31, 1996 compared to $121,240,000 for the year ended December 31, 1995. A
reduction in orders from certain OEM customers, particularly Sharp Corporation,
caused the decline in sales. Management believes the reduction in orders was the
result of forecasts of year-end sales levels by certain of the Company's OEM
customers which had caused
23
<PAGE> 25
them to place extensive orders with the Company for production during the third
and fourth quarters of 1995. Lower than expected year-end 1995 sales by these
OEM customers caused them to curtail orders for production in 1996. The decline
in orders from Sharp Corporation during 1996 was partially offset by a
substantial increase in sales to certain other OEM customers, particularly Texas
Instruments Incorporated.
The Company's gross profit decreased 4.2% to $22,185,000 for the year ended
December 31, 1996 from $23,152,000 for 1995. The principal reason for the
decrease in gross profit was the decrease in sales. Also contributing to the
decrease in gross profit was an increase in the cost of sales resulting from a
net write-off of $415,000 of inventory. During the course of the audit of its
financial statements for the year ended December 31, 1996, the Company confirmed
that certain components included in its raw material inventory were not likely
to be used in connection with future production, and due to the passage of time,
could not be charged to customers who would have otherwise been responsible for
the reimbursement of cost. Consequently, the Company elected to write-off the
cost of such inventory.
Despite the reduction in sales and additions to costs of sales, Nam Tai's
gross profit margin improved to 20.5% in 1996 from 19.1% in 1995. This was
principally because of lower component costs and efficiencies implemented to
reduce manufacturing costs. Lower component costs were attributable to the
general decline in the cost of certain components as well as the decline in the
value of the yen relative to the U.S. dollar. The latter benefitted the Company
as it purchases a substantial volume of components from Japanese companies which
are paid in yen.
Selling, general and administrative expenses increased by 11.0% to
$12,702,000 or 11.7% of sales in the year ended December 31, 1996 from
$11,441,000 or 9.4% of sales for the year ended December 31, 1995. The increase
in absolute dollars was principally the result of costs associated with the
addition of management personnel to the Company's operations in China, Hong Kong
and Canada, plus certain one-time expenses relating to the opening of Phase I of
the Company's the new factory.
Research and development expenses increased marginally to $950,000 in 1996
from $945,000 in 1995. Namtek, the Company's software-development subsidiary
which began operations in early 1996, accounted for approximately 40% of the
research and development expenses in 1996. These expenses were substantially
recovered from fees paid by third parties.
Loss on disposal of fixed assets was $123,000 in the year ended December
31, 1996 as compared to zero for the year ended December 31, 1995. The loss in
1996 principally related to $120,000 of leasehold improvements Nam Tai had made
to its former principal executive offices in Hong Kong under a lease which was
prematurely terminated as of the end of 1996. See the discussion regarding this
lease, its termination and Nam Tai's relocation of its principal executive
offices in Hong Kong to new premises under "Liquidity and Capital Resources."
below.
Other income (net) increased to $1,253,000 for the year ended December 31,
1996 from $225,000 for the year ended December 31, 1995. This income consisted
chiefly of interest income of $1,092,000 on the Company's cash balances and
$294,000 of income from dividends paid by Deswell to the Company as a
shareholder. In 1995, other income was reduced as a result of fourth quarter
charges totaling $936,000 in regard to a provision for the Company's
compensation for loss of office arrangement and a one-time bonus to workers.
Interest expense decreased to $89,000 for the year ended December 31, 1996
from $161,000 for the year ended December 31, 1995 as a result of the reduction
in the Company's borrowings under its banking facilities.
Income from continuing operations before income tax was $9,574,000 for the
year ended December 31, 1996 as compared to $10,830,000 for the year ended
December 31, 1995. The decrease of 11.6% was primarily due to decreased 1996
sales.
The income tax expense of $158,000 for the year ended December 31, 1996
compares to a recovery of $589,000 for the prior year. The income tax expense in
1996 relates to income taxes on Hong Kong operations and is comparable to 1995
income taxes paid with respect to Hong Kong operations. In 1995, the Company
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reversed a provision of $705,000 against income taxes owing from China
operations following receipt of a refund of 1994 income taxes on China
operations. The refund in 1995 of 1994 China income taxes resulted in an overall
recovery of total income taxes paid for 1995. As a result of expected refunds of
income taxes attributable to China operations, the Company made no provision for
such income taxes in either 1995 or 1996. The refund of 1995 income taxes on
China operations was received in 1996 and the refund of 1996 income taxes from
such operations is expected in 1997.
Net income decreased by 17.5% to $9,416,000 (or 8.7% of sales) for the year
ended December 31, 1996 compared to $11,419,000 (or 9.4% of sales) for the year
ended December 31, 1995. This resulted in earnings per share for the year ended
December 31, 1996 of $1.16 compared to earnings per share of $1.40 for the year
ended December 31, 1995. The decrease in net income and earnings per share was
in line with the decrease in sales taking into consideration the higher
operating margins.
The weighted average number of Common Shares outstanding and common stock
equivalents decreased to 8,142,131 for the year ended December 31, 1996 from
8,171,750 for the year ended December 31, 1995, reflecting the repurchase by the
Company of 273,500 shares through its share repurchase program in effect from
September 11, 1996 to December 4, 1996.
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 compensation for loss of
office 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
compensation for loss of office arrangement applied to certain senior management
who were 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.
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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.
LIQUIDITY AND CAPITAL RESOURCES
Current assets remained relatively stationary at $46,609,000 for the year
ended December 31, 1996 compared to $47,011,000 for the year ended December 31,
1995. Cash, cash equivalents and term deposits were also relatively stationary
at $17,741,000 for the year ended December 31, 1996 versus $17,362,000 for the
year ended December 31, 1995. At June 30, 1997, current assets were $66,187,000
and cash and cash equivalents and term deposits were $31,057,000. The principal
reasons for the increase in current assets, cash and cash equivalents and term
deposits were increased cash generated from operations and increases in accounts
receivable, each resulting from increased sales, and cash received from the
proceeds of the sale of a portion of the Company's equity interest in Deswell.
Accounts receivable at December 31, 1996 decreased by 6.3% from the level at
December 31, 1995, essentially corresponding to the decrease in sales during
1996. Accounts receivable at June 30, 1997 increased by 40% over levels at
December 31, 1996, reflecting the increases in sales during 1997. Inventories at
December 31, 1996 increased by 0.8% from levels at December 31, 1995, reflecting
an inventory turnover period of 45 days in 1996 versus 37 days for 1995. The
increase in the inventory turnover was principally the result of Nam Tai's
transfer of responsibility for accounts payable on China deliveries from the
Hong Kong office to personnel at the Company's China factory complex.
Inventories at June 30, 1997 decreased by 8.7% from levels at December 31, 1996,
reflecting.
Total current assets increased modestly to $47,011,000 at ended December
31, 1995 compared to $45,520,000 at 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
compared to 1994 was in line with the increase in sales during 1995 over 1994
plus additional receivables at December 31, 1995 in the amount of $2,620,000
which related to the residential property in West Vancouver, British Columbia,
Canada. The sale of this property was concluded as at December 31, 1995.
In December 1994, the Company invested $3,931,000 for approximately 14% of
Deswell's then outstanding capital stock. In July 1995, Deswell completed an
initial public offering of its securities in the United States and the Company's
investment was diluted to approximately 10.5% of Deswell's outstanding shares as
at December 31, 1995. In July 1996, the Company exercised warrants to purchase
an additional 12,000 shares of Deswell for $119,000. As at December 31, 1996,
this investment was shown at cost and was approximately 87% of the market value
of Deswell common shares as reported on The Nasdaq National Market at December
31, 1996. Subsequent to the end of the year, the market price of the Deswell
shares rose substantially on The Nasdaq National Market and the Company elected
to sell a portion of its investment in Deswell, reducing its stake in Deswell to
approximately 5.8% of its shares reported outstanding at December 31, 1996. The
Company realized a gain of $2,648,000 on sales of 230,000 shares for total gross
proceeds of
26
<PAGE> 28
$4,553,000. In July 1997, the Company sold an additional 160,000 shares of
Deswell for $4,164,000, realizing an additional gain of $2,840,000, and further
reducing its stake in Deswell to approximately 1.9% of its shares reported
outstanding at June 30, 1997.
The increases in property, plant and equipment -- net $36,487,000 as at
December 31, 1996 from $27,635,000 as at December 31, 1995 principally reflects
the expenditure of capital on new plant facilities during 1996. A total of
$9,904,000 was expended finalizing the construction of the new facility
resulting in a total expenditure, excluding land and production equipment, of
$21,812,000. In addition, $1,100,000 of new production equipment costs were
incurred during 1996. 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.
At December 31, 1996, 28% and 51% of the Company's identifiable assets were
located in Hong Kong and China, respectively, as compared to 32% and 54%,
respectively, at December 31, 1995. At June 30, 1997, 25% and 41% of the
Company's identifiable assets were located in Hong Kong and China, respectively.
In 1996, the Company implemented a new policy of holding surplus funds in
Canada. Consequently, cash and cash equivalents and term deposits representing
93% and 53% of the total cash and cash equivalents and term deposits of
$31,057,000 and $17,741,000 were held by the Company in Canada at June 30, 1997
and December 31, 1996, respectively, versus nil as at December 31, 1995. As a
result, identifiable assets in Canada represented 34% and 21% of total assets at
June 30, 1997 and December 31, 1996, respectively, as compared to 14% of total
assets at December 31, 1995.
In the past, the Company used short-term bank borrowings to assist it to
meet its working capital requirements and to provide funds for investment in
property, plant and equipment. Short-term bank borrowings totaled $273,000 as at
December 31, 1995. During 1996 and the first half of 1997, the Company's capital
requirements were financed from internally generated funds and short-term
borrowings were reduced to nil at December 31, 1996 and were zero at June 30,
1997.
At both December 31, 1996 and June 30, 1997, Nam Tai had in place general
banking facilities with six financial institutions aggregating $49,200,000. 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, 1996 and June 30, 1997, the
Company had utilized approximately $7,629,000 and $5,220,000, respectively,
under such general credit facilities and had available unused credit facilities
of $41,571,000 and $43,980,000. Interest on notes payable averaged 5.1% per
annum during the year ended December 31, 1996. During the year ended December
31, 1996 and the six months ended June 30, 1997, the Company paid a total of
$89,000 and $37,000 in interest on indebtedness.
Accounts payable increased by 20.7% to $16,184,000 for the year ended
December 31, 1996 from $13,408,000 for the year ended December 31, 1995,
principally as a result of changes to policy regarding the payment of vendors
associated with the transfer, during 1996, of responsibility for accounts
payable on China deliveries from the Hong Kong office to personnel at the
Company's China factory complex. Accounts payable increased by 8.2% to
$17,523,000 for the six months ended June 30, 1997 from the level at December
31, 1996 because of the increase in sales. The Company had no long term debt
during 1995, 1996 or the first six months of 1997.
Cash flow from operations for 1996 included net income of $9,416,000 and
depreciation of $2,676,000. The net cash addition due to changes in working
capital (excluding cash and bank borrowings) was $3,347,000. During 1996, the
Company's investment activities utilized $11,650,000 in additions to property,
plant and equipment, mainly consisting of capitalized construction costs for the
Company's new factory and additional equipment costing $1,100,000.
During 1995, the Company commenced the expansion of its complex in China,
including the construction of Phase I of its new manufacturing facility adjacent
to the Company's original factory. The Company used existing cash balances to
finance the construction. Construction was substantially completed in May 1996
and the Company began to utilize portions of the facility during the period from
June 1 through December 31,
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1996. As a result of the partial use of the new facility during the last seven
months of 1996, the Company recorded a depreciation expense of $346,000 for the
year ended December 31, 1996.
In September 1994, the Company agreed to a three-year lease for office
space in Hong Kong and effective March 1, 1995 moved its principal executive and
marketing offices there. The rent for the first two years was approximately
$17,800 per month. As a result of zoning regulations which limited the use that
the Company could make of the space comprising its Hong Kong headquarters, Nam
Tai was required to terminate its existing lease and relocate its principal
executive and Hong Kong marketing offices prior to the expiration of the lease
term. Accordingly, in February 1997, the Company leased new premises for its
principal executive offices in Hong Kong. The rent for the new space is
approximately $17,900 per month for the first two years and is to be
renegotiated for the third year. The Company moved into the new premises in late
March 1997. The Company recorded a charge of $120,000 for the year ended
December 31, 1996 in regard to leasehold improvements Nam Tai had made in the
terminated leasehold.
Net cash utilized by financing activities was $2,873,000 in 1996 and net
cash provided by financing activities was $1,140,000 for the six months ended
June 30, 1997. No major financing was undertaken during 1996. Financing
activities during the first six months of 1997 consisted of the issuances of
Common Shares upon exercise of stock options and payment of dividends.
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 due to the Company's reinvestment program for tax purposes, however,
the Company believes that such restrictions will not have a material effect on
the Company's liquidity or cash flow.
In the past Nam Tai paid quarterly dividends on its Common Shares, but such
dividends were discontinued in January 1993. In 1994, the Company began paying
annual dividends, paying shareholders aggregate dividends of $65,000 ($0.01 per
share) in 1994, $120,000 (0.015 per share) in 1995, $243,000 ($0.03 per share)
in 1996 and $786,000 ($0.10 per share) in the first six months of 1997. It is
the current policy of Nam Tai to determine the actual amount of future dividends
based upon the Company's growth during the preceding year and to limit cash
dividends to less than 20% of net cash flow in order to have sufficient cash to
finance growth. Future dividends will be in the form of cash or stock or a
combination of both. There can be no assurance that any dividend on the Common
Shares will be declared or, if declared, what the amounts of dividends will be
or whether such dividends, once declared, will continue for any future period.
Management believes that cash flow from operations and the net proceeds of
this offering will be sufficient to fund the Company's capital requirements for
at least the next 12 months.
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 price 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. Labor and overhead expenses related to Nam
Tai's Chinese factory amounted to 8.7% of the Company's total expenses before
operating income during the year ended December 31, 1996 and 6.2% during the
year ended December 31, 1995, the increase principally resulting from the
expansion of the facility.
EXCHANGE RATES
The Company sells a majority 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
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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 $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% of the total expenses
for the year ended December 31, 1996.
Management believes that the Company's most significant foreign exchange
risk results from material purchases made in Japanese yen. Approximately 28%,
33% and 35% of Nam Tai's material costs have been in yen during the years ended
December 31, 1996, 1995 and 1994, respectively. Sales made in yen account for
approximately 15% of sales for the year ended December 31, 1996, 18% of sales
for 1995 and 13% of sales for 1994. The net currency exposure has been declining
as material costs in yen decrease and sales in yen increase. The Company also
believes its customers will accept an increase in the selling price of
manufactured products if the exchange rate of the yen appreciates beyond a range
of 5% to 10% although such customers may also request a decrease in selling
price in the event of a depreciation of the Japanese yen. This Company's belief
is based on oral agreements with its principal customers which management
believes are customary between OEMs and their suppliers. 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.
Effective January 1, 1994, China adopted a floating currency system whereby
the official exchange rate equaled the market rate. Since the market and
official renminbi rates were unified, the value of the renminbi against the
dollar has been stable. This is in spite of significant inflation during 1994
and 1995 which placed devaluation pressure on the renminbi. 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 stability
of the currency against the United States dollar. This stability was maintained
through 1996. The Company believes that because its Chinese operations presently
are confined to manufacturing products for export, any devaluation of the
renminbi would benefit Nam Tai by reducing its costs in China 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 a
swap center to obtain the best possible rate. 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.
On April 1, 1996, new regulations on foreign exchange were implemented by
the China government. Trade-related foreign exchange receipts and disbursements
are generally not subject to restriction in accordance with the provisions on
settling, selling or buying foreign exchange. Capital account foreign exchange
receipts and disbursements are subject to control and organizations in China are
restricted in foreign currency transactions which must take place through
designated banks.
The Company may elect to hedge its currency exchange risk when it judges
such action may be required. 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
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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, 1996, the Company had no open forward contracts while at
December 31, 1995 there were open forward contracts amounting to $60,000. During
1996, Nam Tai recorded no gain from hedging transactions. 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 and 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.
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BUSINESS
Nam Tai 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 the
People's Republic of China ("China"). Nam Tai assists OEMs in the design and
development of products and furnishes full turnkey manufacturing services to its
OEM customers utilizing advanced processes such as chip on board ("COB"),
surface mount technology ("SMT"), tape automated bonding ("TAB") and outer lead
bonding ("OLB") technologies. The Company provides hardware and software design,
plastic molding, component purchasing, assembly into finished products or
electronic subassemblies, post-assembly testing and shipping. The Company
manufactures a broad line of finished products for its OEM customers, including
personal organizers, linguistic products, calculators, integrated circuit ("IC")
or smart card readers (referred to as "IC card readers"). It also manufactures
electronic components and subassemblies for printed circuit boards ("PCBs").
These products 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 in turn used
in the manufacture of communications, camera and computer products. In addition,
Nam Tai 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 available
and to position itself to achieve low-cost, high volume manufacturing. The
location of Nam Tai's factory in Shenzhen, about 30 miles from Hong Kong, also
permits the Company to manage easily manufacturing operations from Hong Kong,
and facilitates transportation of the Company's products out of China through
the port of Hong Kong.
INDUSTRY OVERVIEW
As a result of the recognition by OEMs in the electronics industry of the
rising costs of operating a manufacturing site and the need to add more
sophisticated and expensive manufacturing processes and equipment, OEMs have
turned increasingly to outside contract manufacturers. By doing so, OEMs are
able to focus on research, product design and development, marketing and
distribution, and to rely on the production expertise of contract manufacturers.
Other benefits to OEM's of using contract manufacturing include: access to
manufacturers in regions with low labor and overhead costs and with leading-edge
technology, such as COB, TAB and OLB, reduced time to market, reduced capital
investment (which is increasingly important in view of the introduction of TAB
and OLB, both of which are capital intensive technologies), improved inventory
management, improved purchasing power and improved product quality. In addition,
the use of contract manufacturers has helped OEMs manage production in view of
increasingly shorter product life cycles. The Company believes that many OEMs
now view contract manufacturers as an integral part of their business and
manufacturing strategy, rather than as a backup source to in-house manufacturing
capacity during peak periods.
Nam Tai believes that factors underlying an OEMs selection of a particular
manufacturers are quality, price and technological know-how. Consequently, the
Company expects continued growth in outsourcing to contract manufacturers that
have attained ISO 9000 certification, that are located in regions such as China,
which offer abundant low cost labor, land and construction resources, and that
are capable of high levels of technological know-how.
THE COMPANY'S STRATEGY
The Company emphasizes high responsiveness to the needs of OEM customers
through the development and volume production of increasingly sophisticated and
specialized 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. Nam Tai believes that the potential for increased manufacturing
outsourcing by Japanese and U.S. OEMs in China is substantial and that it is in
a position to take advantage of this because
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of its expanded production capacity and experience. 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 has
grown, management has sought to maintain a low cost structure, reduce overhead
where possible and continuously strive to improve its manufacturing quality and
processes. Nam Tai's growth strategy is comprised of the following key elements:
- Low Cost Manufacturing. Nam Tai believes that its ability to be
competitive in its markets stems from its commitment to production in
China where it can manufacture in high volumes at low cost. The Company
has access to abundant pools of low cost labor, and believes that because
it offers its workers better living and working conditions than those
typically available for comparable workers in China, the Company enjoys
greater production efficiency and less turnover among workers. Due to the
low labor, land and construction costs in Shenzhen, the Company believes
that the location of its production facilities in China contribute
significantly to the Company's ability to lower its production costs.
- Close Customer Relationships. Nam Tai has long-standing relationships
with its major OEM customers, who work closely in the design and
manufacture of new products with the Company's Japanese senior managers.
It is common for Sharp Corporation, Seiko Instruments Inc., Canon Inc.
and other of Nam Tai's customers to maintain representatives at the
Company's China factory. These customers transfer important manufacturing
process technology and know-how to the Company's engineers. The Company
believes that OEM customers will increasingly use contract manufacturers
that have a high degree of technological know-how to produce uniformly
high quality products. The Company seeks to leverage its existing
customer base to expand orders, and to leverage its manufacturing
sophistication to enter markets for more sophisticated products.
- Concentration on New Products and Advanced Assembly Processes. The
Company utilizes its product development staff to assist OEMs to develop
new products that employ specific feature sets and price points, as well
as engineer products and production designs that permit cost-efficient
manufacturing. To position itself to manufacture more sophisticated
products, the Company has made advances in its use of SMT, TAB and OLB
technologies that the Company believes make its PCB assembly process
capabilities comparable to those currently available from the most
technologically advanced Japanese and U.S. manufacturers. The Company has
been pursuing a plan to enhance the technological capability of its
engineering and production staff through various means. This plan has
permitted the Company to penetrate markets for more technologically
sophisticated products as its own manufacturing techniques have become
more advanced. Nam Tai has, for example, recruited new factory management
personnel with extensive experience in engineering, production and
management and who, through know-how gained from their prior experience,
assist the Company to implement the advanced process technology
transferred to the Company from its OEM customers.
- Excellence in Manufacturing. The Company is committed to excellence in
manufacturing and continually strives for improvements in its processes.
In December 1993, the Company's operations in China achieved
certification under the international quality management standard ISO
9002. Management believes sophisticated customers increasingly are
requiring their manufacturers to be ISO 9000-certified and that
manufacturers of equipment that are not so qualified are increasingly
looking to manufacturers like Nam Tai that have done so, rather than
undertaking the expensive and timeconsuming process of qualifying their
own operations. The Company achieved ISO 9001 certification in February
1996, which added design and development to the standards Nam Tai had
already achieved in the areas of production, installation, servicing
procedures, final inspection and product testing.
- Close Relationships with Key Suppliers/Strategic Alliance. The Company
believes that the ability to obtain a steady and sufficient supply of key
components is a critical factor in remaining competitive. The Company
believes its ability to purchase components in volume and to provide
accurate purchasing forecasts has played a pivotal role in building close
relationships with key component suppliers. In addition, in order to
expand production, enter markets for more advanced products, and
32
<PAGE> 34
maintain quality and reliability, the Company has pursued strategic
alliances with certain suppliers of components the Company deems critical
to its operations. To that end, the Company has made a material equity
investment in its key plastics supplier with operations in China, and
intends to continue to evaluate its participation in similar strategic
alliances in the future.
PRODUCTS
The following table sets forth the percentage of net sales of each of the
Company's product lines for the years ended December 31, 1994, 1995 and 1996 and
the six months ended June 30, 1997:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------- JUNE 30,
PRODUCT LINE 1994 1995 1996 1997
------------------------------------------------- ----- ----- ----- -----------
<S> <C> <C> <C> <C>
Personal organizers and linguistic products...... 47% 47% 36% 27%
Electronic calculators........................... 34 30 35 55
Subassemblies, components and other products..... 17 22 28 17
Silk screening................................... 1 1 1 1
Discontinued products(1)......................... 1 0 0 0
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
</TABLE>
- ---------------
(1) Includes proprietary 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,
particularly telephone directories and business card organizers with scheduler,
clock, memo pad and calculator functions. The linguistic products manufactured
by Nam Tai include electronic spell checkers, dictionaries and language
translators. 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,
including mini card, scientific, desk top, hand held, graphical and printer
calculators.
Subassemblies, Components and Other Products
In 1994, the Company began manufacturing and delivering subassemblies
consisting of LSIs bonded on PCBs utilizing advanced technological processes.
These products are used to manufacture components which are incorporated into
such products as electronic toys and games. In 1995, the Company expanded is
subassembly manufacturing business into 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 LSI bonded PCBs. In 1995, the Company delivered a sample run of IC card
balance readers and in 1996 began volume shipments of these products. 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. In 1996, the Company again
expanded the component products it offers by completing development and shipping
control panel modules for microwave ovens. These products are incorporated into
microwave ovens manufactured by a division of Sharp Corporation, which,
management believes, is a leading manufacturer of microwave ovens worldwide.
33
<PAGE> 35
Silk Screening Services
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 the 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 China manufacturing 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 ISO 9001 Certification since February
1996. The "ISO," or International Organization for Standardization, is a
Genevabased organization dedicated to the development of worldwide standards for
quality management guidelines and quality assurance. ISO 9000, which was the
first quality system standard to gain worldwide recognition, requires a company
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 of the established world
standards.
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.
In 1996, the Company received notice that it had been awarded the Texas
Instruments Supplier Excellence Award for commitment to excellence and support
of Texas Instruments' quality leadership. In early 1997, the Company again
received notice that it received the award for a second year. Texas Instruments,
one of the Company's largest OEM customers, has advised the Company that only a
select group of its suppliers which have demonstrated an unwavering commitment
to the principle of total quality are recognized with this award and that it was
unusual for a company to be so honored in two consecutive years.
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
34
<PAGE> 36
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 may be 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 plastic
components, the Company maintains a minority interest in a Hong Kong supplier of
plastic parts, Deswell ("Deswell") (see "Formation of Strategic Alliances").
CUSTOMERS AND MARKETING
General
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>
SIX
YEAR ENDED DECEMBER MONTHS
31, ENDED
---------------------- JUNE 30,
GEOGRAPHIC AREAS 1994 1995 1996 1997
------------------------------------------- ---- ---- ---- --------
<S> <C> <C> <C> <C>
Japan...................................... 24% 34% 28% 21%
North America.............................. 33 30 34 56
Hong Kong.................................. 23 17 18 6
Europe..................................... 14 13 12 14
Other...................................... 6 6 8 3
=== === === ===
100% 100% 100% 100%
=== === === ===
</TABLE>
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. Five of the Company's major customers have done business with the
Company for over 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.
35
<PAGE> 37
Major Customers
The Company's OEM customers include 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 and calculators 1988
Casio Computer (Hong Kong) Casio Aluminum panels and PVC wallets 1994
Matsushita Battery Industrial Co. Ltd. -- IC card readers 1994
Nintendo, Inc. (through Sharp Corp.) -- Bonding on PCBs 1994
Optrex Corporation -- Assemblies for LCD modules 1994
Premier Precision Ltd. Citizen Silk screening and aluminum panel 1993
Sanyo Electric (H.K.) Ltd. Sanyo, Casio Silk screening 1988
Seiko Instruments Inc. Seiko, SII Personal organizers and linguistic
products 1991
Sharp Corporation Sharp Personal organizers, calculators and
control panel modules 1989
Texas Instruments Incorporated Texas Instruments Personal organizers and calculators 1989
</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, Texas
Instruments Incorporated, Nintendo, Inc.(which orders through Sharp Corporation)
and Seiko Instruments Inc., aggregated approximately 90%, 92%, 90% and 91% of
the Company's total net sales during the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1997, respectively, as follows:
<TABLE>
<CAPTION>
SIX
YEAR ENDED DECEMBER MONTHS
31, ENDED
---------------------- JUNE 30,
CUSTOMER 1994 1995 1996 1997
--------------------------------------------------- ---- ---- ---- --------
<S> <C> <C> <C> <C>
Sharp Corporation.................................. 47.7% 47.9% 38.4% 29.6%
Texas Instruments Incorporated..................... 9.8 13.2 22.3 43.8
Nintendo, Inc. (through Sharp Corporation)......... 13.0 18.0 16.1 5.1
Seiko Instruments Inc.............................. 19.2 13.2 13.5 12.9
---- ---- ---- ----
89.7% 92.3% 90.3% 91.4%
==== ==== ==== ====
</TABLE>
A number of products are made for its major customers such that the Company
is not necessarily dependent on a single product for one customer. 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, particularly one or more
of its top four customers, could have a material adverse effect on the Company's
business. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition." While each of the companies listed above is expected to
continue to be a significant customer, the Company continually tries to lessen
its dependence on large customers 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. In many cases, 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
charged to the account of OEM customers prior to production.
36
<PAGE> 38
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. In particular, senior management includes a team
of Japanese professionals who provide technical experience and work closely with
both 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) which is borne by
each OEM customer.
Sales are predominately based on standard letters of credit denominated in
either U.S. dollars or Japanese yen.
Production Scheduling
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 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 unit cost based on the forecasted production
quantities desired during the expected 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 begins the product development. This development
period lasts approximately nine to 15 months, or longer if software design is
included. During this time the Company completes 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
produces samples of the product for the customer's quality testing, and, once
approved, commences mass production of the product.
The production period usually lasts approximately 18 to 30 months.
Typically, more advanced products have longer production runs. If total
production quantities change, the OEM customer often provides 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 forecasts received from OEM customers
covering the next six month period, the first three months of which are
scheduled shipments. These forecasts are reviewed and adjusted where necessary
at the beginning of each month with confirmed orders covering the first three
months. In many cases, confirmed orders are supported by letters of credit and
may not be canceled once confirmed without the customer becoming responsible for
all costs of the remaining components included in inventory for that order.
During the years ended December 31, 1995 and 1994, the Company did not suffer a
material loss resulting from the cancellation of an OEM customer confirmed
order. However, during the course of the audit of its financial statements for
the year ended December 31, 1996, the Company confirmed that certain components
included in its raw material inventory were not likely to be used in connection
with future production, and due to the passage of time, could not be charged to
customers who would have otherwise been responsible for the reimbursement of
cost. While the Company believes that it may in the future be able to use some
portion of the components in connection with future production, the Company
elected to write-off the cost of such inventory during 1996 in the net amount of
$415,000.
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
37
<PAGE> 39
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.
MARKETING PLANS FOR CHINA
The Company has Chinese government approval 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 continually evaluates economic and
other factors in China to determine whether doing so would be favorable to its
operating results.
FORMATION OF STRATEGIC ALLIANCE
The Company strives to maintain stable sources for quality components 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 assists the Company to satisfy its OEM
customers' needs for timely delivery of high-quality products and permits Nam
Tai to have greater control over the quality of its suppliers' components.
Consistent with this strategy, in December 1994, the Company invested
$3,931,000 for approximately 14% of Deswell's then outstanding capital stock. In
July 1995, Deswell completed an initial public offering of its securities in the
United States and the Company's investment was diluted to approximately 10.5% of
Deswell's outstanding shares as at December 31, 1995. In July 1996, the Company
exercised warrants to purchase an additional 12,000 shares of Deswell for
$119,000. As at December 31, 1996, this investment was shown at cost and was
approximately 87% of the market value of Deswell common shares as reported on
The Nasdaq National Market at December 31, 1996. Subsequent to the end of the
year, the market price of the Deswell shares rose substantially on The Nasdaq
National Market and the Company elected to sell a portion of its investment in
Deswell, reducing its stake in Deswell to approximately 5.8% of its shares
reported outstanding at December 31, 1996. The Company realized a gain of
$2,648,000 on sales of 230,000 shares for total gross proceeds of $4,553,000. In
July 1997, the Company sold an additional 160,000 shares of Deswell for
$4,164,000, realizing an additional gain of $2,840,000, and further reducing its
stake in Deswell to approximately 1.9% of its shares reported outstanding at
June 30, 1997.
TECHNOLOGY DEVELOPMENT
Between 1984 and 1994, the Company spent an average of approximately
$360,000 per year 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 to the satisfaction of and in accordance with the
specifications provided by OEM customers.
Since 1995, the Company has placed increased emphasis on research and
development which provides greater service to OEM customers and assists in
design and development of future products. Research and development expenses
increased marginally to $950,000 in 1996 from $945,000 in 1995. Namtek, the
Company's software development subsidiary which began operations in early 1996
accounted for approximately 40% of the research and development expenses in 1996
and these expenses were substantially recovered from fees paid by third parties.
COMPETITION
The Company competes with numerous other companies in the contract
electronic manufacturing industry and competition is intense. Competition has
been 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. Competition for OEM sales is
based primarily on unit price, product quality and
38
<PAGE> 40
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 June 30, 1997, Nam Tai employed approximately 2,170 persons on a
full-time basis, of which approximately 2,134 were working in China, 25 in Hong
Kong, and 11 in Canada. Of these, approximately 1,850 were engaged in
manufacturing, 280 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. The nature of its arrangement with its manufacturing
employees is such that it can increase or reduce staffing levels without
significant difficulty, cost or penalty.
An employee incentive compensation program is in place in China whereby a
regular bonus is paid to employees on the employee's return to work following
the Chinese New Year holiday. Management believes this method has contributed to
low employee turnover in the factory.
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 change 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. 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 in Hong Kong, the United States and
Canada. The trademark "PEACOCK" is registered in China although no products are
currently being produced under this name.
PROPERTIES
British Virgin Islands
As of January 17, 1997, the registered office of the Company was
transferred to McNamara Chambers, P.O. Box 3342, Road Town, Tortola, British
Virgin Islands. Only corporate administrative matters are conducted at such
office, through Nam Tai's registered agent, McW. Todman & Co. The Company
neither owns nor leases property in the British Virgin Islands.
Hong Kong
In February 1997 the Company leased new premises at Unit 9, 15/F., Tower 1,
China Hong Kong City, 33 Canton Road, TST, Kowloon, Hong Kong for a term of
three years. Rental is approximately $17,900 per month for the first two years,
and will be renegotiated in the third year. The Company moved its principle
executive and marketing offices into these new premises in late March 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 land in Hong Kong which
the Company plans to sell. This land has been held since 1984 and is carried on
the books of the Company at its cost of approximately $523,000. In February
1997, the Company was notified that the Hong Kong government intends to
expropriate 0.55 acres of this land and has offered compensation of
approximately $240,000. In September 1997, the Company sold approximately 3.2
acres of land at a price of $2,651,000, realizing a gain of $2,478,000.
39
<PAGE> 41
Shenzhen, China
Nam Tai's manufacturing complex is located in Baoan County, Shenzhen,
China. It includes the original facility and Phase I of the factory expansion
which was completed in May 1996. At December 31, 1996, the total combined
capacity utilization of the original factory and Phase I of the factory
expansion was 60%.
The original facility consists of 150,000 square feet of manufacturing
space under a 15 year lease expiring in 2007. The rental rate is approximately
$32,000 per month due to increase by 20% in August 1997 and a further 20% in
August 2002.
Phase I of the complex expansion is located on 286,600 square feet of
leasehold land adjacent to the original facility. The lease for this land was
purchased for approximately $2,450,000 in 1994 and has a term of 50 years.
Construction of the approximately 437,000 square feet new facility began in
early 1995 and portions were completed in August 1995 to house new factory
employees needed to expand production at that time. Nam Tai's Phase I complex
expansion was completed on schedule in May 1996. The expanded new facility is
adjacent to the Company's original facility and consists of 160,000 additional
square feet of manufacturing space, 39,000 square feet of offices, 212,000
square feet of new dormitories, 26,000 square feet of full service cafeteria and
recreation facilities and a swimming pool. The total cost of the new factory
complex, excluding land, was approximately $21,800,000. In addition, during 1996
Nam Tai purchased $1,100,000 of new production equipment for the new factory. It
has also transferred equipment from the original factory to the new factory. In
accordance with an expansion schedule, Nam Tai intends to establish production
lines and purchase additional equipment as required by growth in the Company's
business through 1997 and into early 1998.
The Company also has a 26,000 square feet facility in Shenzhen located
approximately one mile from its complex. This contains 28 apartment units which
the Company uses to house certain of its factory managers who are married and
have families. The Company purchased this building for approximately $1,000,000,
paying the final instalment in June 1993.
During 1992, the Company purchased the development rights to a further
parcel of 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. The Company reviewed the construction of a high rise office
building to house its corporate headquarters and subsequently decided to
concentrate on its core contract manufacturing business. In January 1997, Nam
Tai entered into a Land Development Agreement with Shenzhen Baoheng (Group) Co.
Ltd. which is expected to result in the eventual sale of the property and the
recovery of the original purchase price. There can be no assurance that the sale
will occur.
Canada
On November 1, 1995, Nam Tai Canada moved its corporate office to new
leased premises in Vancouver, British Columbia. The Company entered into a lease
for 2,637 square feet of office space at an annual rental of $26,000. The lease
expires in August 1998.
In 1995, the Company completed construction of a building in Burnaby,
British Columbia in which it intended to house both manufacturing operations and
its Canadian administration and finance office. The two-story building consists
of approximately 7,000 square feet of office space and 8,000 square feet of
manufacturing space. Construction was completed in mid 1995 at a cost of
approximately $2,400,000, including the cost of land. The prospects for
manufacturing have been re-evaluated and the property was sold in May 1997 for
approximately $1,846,00 resulting in a loss of approximately $515,000.
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<PAGE> 42
General
The Company believes that its existing manufacturing and office facilities
are adequate for the operation of its business for the foreseeable future.
LEGAL PROCEEDINGS
The Company is not party to any legal proceedings other than routine
litigation incidental to its business, 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 in the British
Virgin Islands 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. In May 1996, the Court ordered the parties to
make discovery by exchanging lists of documents and to-date this exchange has
not occurred. 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.
41
<PAGE> 43
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
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 Chief Financial Officer,
Secretary and Director
Tadao Murakami Chief Executive Officer, Vice-Chairman and Director
Hidekazu Amishima General Manager
Jerry Chang Vice General Manager
Charles Chu Director
Stephen Seung Director
Robert McNamara 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 and assumed the roles as Chief
Financial Officer and Secretary of the Company in April 1997. 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.
HIDEKAZU AMISHIMA. Mr. Amishima joined the Company in August 1996 as Vice
General Manager and assumed the responsibility for overseeing day-to-day factory
operations of the Company's Shenzhen, China manufacturing complex as General
Manager in November 1996. From 1964 until joining the Company, Mr. Amishima was
employed by Kanda Tsushin Industrial Co. Ltd., a Japanese electronics
manufacturer.
JERRY CHANG. Mr. Chang joined the Company in 1995 and assumed the position
of Vice General Manager in late 1996. Mr. Chang is in charge of production at
the Company's Shenzhen, China manufacturing facility. Prior to joining Nam Tai
he was General Manager of R.C. Centronix Electronics (M) SDN BHD, a Malaysian
electronics manufacturer.
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 Public 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 and acts as Nam Tai's
authorized agent in the United States.
ROBERT MCNAMARA. Mr. McNamara served as a consultant to Nam Tai during 1995
and joined the Board of Directors of the Company effective May 18, 1996. He is
currently Managing Director of Broadview Associates, LLC of Fort Lee, New
Jersey. Prior to joining Broadview Associates, LLC. in 1995, Mr. McNamara spent
fifteen years in the investment banking business with Smith Barney Inc. and
Salomon
42
<PAGE> 44
Brothers Inc., most recently as head of Salomon Brothers' Technology Group in
New York. Mr. McNamara also serves as director of EFTC Corporation.
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.
COMPENSATION
The aggregate amount of compensation paid by Nam Tai and its subsidiaries
during the year ended December 31, 1996 to all directors and the five highest
paid officers as a group for services in all capacities was approximately
$1,574,000, including the benefit provided in lieu of compensation for loss of
office described below. The Company also provides additional compensation in the
form of housing for Mr. Murakami in Hong Kong.
In August 1990, the Company fixed compensation for loss of office at
$500,000 for Mr. M.K. Koo and $300,000 for Mr. Tadao Murakami. The Company also
fixed the age of retirement for directors at age 65 years. At December 31, 1995,
the Company had accrued the entire $800,000.
Directors who are not employees of the Company nor 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. In addition they are
reimbursed for all reasonable expenses incurred in connection with services as a
director.
OPTIONS TO PURCHASE SECURITIES FROM THE COMPANY OR ITS SUBSIDIARIES.
As at September 5, 1997, the Company had outstanding options to purchase an
aggregate of 80,000 Common Shares. These options are held by Mr. M.K. Koo, were
granted under the Company's 1993 stock option plan on January 12, 1996, vest in
three equal annual installments commencing January 12, 1997, are exercisable at
$10.50 per share (which was the fair market value on the date of grant) and
expire on January 11, 2001.
CERTAIN TRANSACTIONS.
In January 1995, Nam Tai entered into an arrangement with Mr. M.K. Koo,
Chairman of the Company, requiring him 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. At December 29, 1995, Mr. Koo purchased
the property for book value in the amount of $2,620,445 delivering to the
Company a promissory note due on December 31, 1997. In August 1997, Mr. Koo paid
the promissory note in full to the Company.
It is the Company's policy that all future 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.
43
<PAGE> 45
PRINCIPAL SHAREHOLDERS
The Company is not directly owned or controlled by another corporation or
by any foreign government. The following table sets forth certain information
regarding the ownership of the Company's Common Shares by (i) each person known
by the Company to be the beneficial owner of more than 5% of the outstanding
Common Shares, (ii) each of the Company's directors owing Common Shares, (iii)
all of the Company's directors and officers as a group as of the date of this
Prospectus.
<TABLE>
<CAPTION>
AMOUNT OF COMMON SHARES
BENEFICIALLY OWNED
BEFORE OFFERING(1)
-----------------------------
PERCENTAGE OF
NUMBER OF OUTSTANDING
NAME OF BENEFICIAL OWNER COMMON SHARES SHARES
--------------------------------------------------- ------------- -------------
<S> <C> <C>
M. K. Koo(2)....................................... 1,990,656 24.2%
Tadao Murakami..................................... 418,061 5.1%
Stephen Seung...................................... 12,000 *
Robert McNamara.................................... 2,000 *
Officers and directors as a group (5 persons)(2)... 2,422,717 29.5%
</TABLE>
- ---------------
* Less than 1%.
(1) The maximum voting dilution to persons who do not exercise their
subscription rights in the Rights Offering is approximately 36.6%. To the
extent that Common Shareholders other than Mr. Koo and the Company's other
officers and directors do not exercise their Rights in the Rights Offering,
the control of the Company by Mr. Koo and the Company's other officers and
directors, as compared to the Company's other shareholders prior to the
Rights Offering, will be proportionately increased in such instances where
the former exercise their rights. See "The Rights Offering" and "Standby
Underwriting."
(2) Includes options to purchase 26,667 Common Shares that were exercisable
within 60 days of the date of this Prospectus.
44
<PAGE> 46
DESCRIPTION OF SECURITIES
UNITS
Each Unit offered by this Prospectus consists of one Common Share and one
Warrant, each Warrant to purchase one Common Share for $ . The Common
Shares and Warrants will be separately transferable immediately.
COMMON SHARES
The Company's authorized capital consists of 20,000,000 Common Shares, $.01
par value per share.
Holders of Common Shares are entitled to one vote for each whole share on
all matters to be voted upon by shareholders, including the election of
directors. Holders of Common Shares do not have cumulative voting rights in the
election of directors. All Common Shares are equal to each other with respect to
liquidation and dividend rights. Holders of Common Shares are entitled to
receive dividends if and when declared by Nam Tai's Board of Directors out of
funds legally available therefor under British Virgin Islands law. In the event
of the liquidation of the Company, all assets available for distribution to the
holders of the Common Shares are distributable among them according to their
respective holdings. Holders of Common Shares have no preemptive rights to
purchase any additional, unissued Common Shares. All of the outstanding Common
Shares are, and the Common Shares offered hereby will be when issued upon
payment of the consideration set forth in this Prospectus, duly authorized,
validly issued, fully paid and nonassessable.
The Company is organized under the laws of the British Virgin Islands.
Pursuant to the Company's Memorandum and Articles of Association and pursuant to
the laws of the British Virgin Islands, the Board of Directors may amend the
Company's Memorandum and Articles of Association without shareholder approval.
This includes, but is not limited to, amendments increasing or reducing the
authorized capital stock of the Company and increasing or reducing the par value
of its shares. In addition, the Board of Directors may approve certain
fundamental corporate transactions, including reorganizations, certain mergers
or consolidations and the sale or transfer of assets, without shareholder
approval. The ability of the Company to amend its Memorandum and Articles of
Association without shareholder approval could have the effect of delaying,
deterring or preventing a change in control of Nam Tai without any further
action by the shareholders including, but not limited to, a tender offer to
purchase the Common Shares at a premium over then-current market prices.
Under U.S. law, management, directors and controlling shareholders
generally have certain "fiduciary" responsibilities to the minority
shareholders. Shareholder action must be taken in good faith and actions by
controlling shareholders which are obviously unreasonable may be declared null
and void. The British Virgin Islands law protecting the interests of minority
shareholders differs from, and may not be as protective of shareholders as, the
law protecting minority shareholders in jurisdictions in the United States.
While British Virgin Islands law does permit a shareholder of a British Virgin
Islands company to sue its directors derivatively, i.e., in the name of and for
the benefit of the Company, and to sue Nam Tai and its directors for his or her
benefit and the benefit of others similarly situated, the circumstances in which
any such action may be brought and the procedures and defenses that may be
available in respect of any such action may result in the rights of shareholders
of a British Virgin Islands company being more limited than those rights of
shareholders in a company incorporated in a jurisdiction within the United
States.
WARRANTS
In connection with this offering, the Company has authorized the issuance
of up to 3,130,000 Warrants (including 130,000 Warrants that may be issued upon
exercise of the Standby Underwriter's Warrants and Counsel's Warrants) and has
reserved an equivalent number of Common Shares for issuance upon exercise of
such Warrants. Each Warrant will entitle the holder to purchase one Common Share
at a price of $ per share from the date of issuance until ,
2000. The Warrants are redeemable by the Company, at $.05 per Warrant, upon 30
days' notice, at any time after the Expiration Date if the average closing sale
price per Common Share for 20 consecutive trading days within the 30-day period
prior to the date notice of redemption is given equals or exceeds $ per
share. In the event the Company gives notice of its
45
<PAGE> 47
intention to redeem, a holder would be forced either to exercise his or her
Warrant within 30 days of the notice of redemption or accept the redemption
price.
The Warrants will be issued in registered form under a Warrant Agreement
between the Company and U.S. Stock Transfer Corporation, as warrant agent (the
"Warrant Agent"). The Common Shares underlying the Warrants, when issued upon
exercise of a Warrant, will be fully paid and nonassessable, and the Company
will pay any transfer tax incurred as a result of the issuance of Common Share
to the holder upon its exercise.
The Warrants contain provisions that protect the holders against dilution
by adjustment of the exercise price in certain events, such as stock dividends
and distributions, stock splits, recapitalizations, mergers or consolidations.
The Company is not required to issue fractional shares upon the exercise of a
Warrant. The holder of a Warrant will not possess any rights as a shareholder of
the Company until such holder exercises the Warrant. A copy of the form of
Warrant Agreement is filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
Upon completion of the Standby Offering, the Company will sell, for $0.001
per warrant, (i) to the Representative warrants (the "Representative's
Warrants") to purchase up to 120,000 Units and (ii) to the Company's counsel
warrants ("Counsel's Warrants") to purchase up to 10,000 Units, each at an
exercise price equal to 120% of the Subscription Price of the Units. Such
warrants will be exercisable for a two-year period, commencing one year after
the Expiration Date.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS RESPECTING UNITS
The following summary of certain United States federal income tax aspects
is based on current law, is in general terms, and is not intended as tax advice
to any particular prospective purchaser. This discussion does not purport to
deal with all aspects of taxation that may be relevant to particular taxpayers
subject to special treatment under the federal income tax laws (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States).
EACH PROSPECTIVE PURCHASER OF THE UNITS OFFERED HEREBY IS ADVISED TO
CONSULT HIS OR HER OWN TAX ADVISORS CONCERNING THE SPECIFIC TAX CONSEQUENCES TO
HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE OF SUCH UNITS, OR THE COMMON
SHARES OR WARRANTS COMPRISING THE UNITS, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP OR SALE.
Basis in Units. If a shareholder exercises Rights, his or her basis in the
Units will be the cost of the Units plus any amount previously allocated to the
Rights. Each holder will allocate basis in the Units between the Common Shares
and the Warrants, which are the component parts of the Units, pro rata in
accordance with their values on the date of the exercise of the Rights.
Holding Period for Common Shares and Warrants. A shareholder exercising
Rights will commence a holding period for each component part of the Units as of
the day after his or her date of acquisition of the Units. The holding period of
the Common Shares acquired through the Warrants begins with the date of exercise
of the Warrants.
Disposition of Common Shares or Warrants. If the Common Shares and Warrants
composing Units are sold or exchanged, the holder of such Unit will recognize
gain or loss equal to the difference between the amount realized on such sale or
exchange and the tax basis of the Unit. Similarly, if either the Common Share or
the Warrant comprising the Unit is sold or exchanged (and in most cases if it is
redeemed) separately, gain or loss will be recognized in an amount equal to the
difference between the amount realized on such sale or exchange and the tax
basis of the Common Share or Warrant sold. If a Warrant expires unexercised, the
holder generally will recognize a capital loss in the amount of the holder's tax
basis for the Warrant.
All gains or losses recognized upon the sale or exchange of the Common
Shares or Warrants will be capital gain or loss, provided that the security was
a capital asset in the hands of the holder. A gain will be
46
<PAGE> 48
short term, mid-term, long term, depending on whether the security itself was
held for less than one year (short term), between twelve and eighteen months
(mid-term), or more than eighteen months (long term), (as noted above, holders
acquiring Common Shares by exercising Warrants commence a new holding period for
those Shares). The length of the holding period may have a substantial impact on
the tax rate applied to a gain. For assets held more than five years, even lower
rates may apply: 18% on assets purchased after December 31, 2000, and 8% on
assets sold after December 31, 2000, for those in the 15% tax bracket.
The anti-dilution provisions of the Warrant Agreement require that the
number of Common Shares purchasable upon exercise of Warrants or the exercise
price of the Warrants will be adjusted in the event of certain transactions. As
to certain types of adjustments, holders of Warrants may be deemed to have
received a constructive distribution under Sections 301 and 305 of the Internal
Revenue Code of 1986, as amended, which may be taxable.
For purposes of the limitations on passive activity losses, dividends, if
any, declared on the Common Shares as well as gain from the sale or exchange of
Units, Common Shares, or Warrants, will constitute "portfolio income" rather
than income from a passive activity. Passive losses and credits generally may
not be applied against portfolio income.
TRANSFER AND WARRANT AGENT
U.S. Stock Transfer Corporation , 1745 Gardena Avenue, 2nd Floor, Glendale
CA 91204, U.S.A., is the United States transfer agent and registrar for the
Common Shares and the Warrant Agent for the Warrants. Montreal Trust Company of
Canada, 151 Front Street, 8th Floor, Toronto, Ontario, M5J 2N2, Canada is the
Canadian transfer agent and registrar for the Common Shares.
REPORTS TO SECURITY HOLDERS
The Company furnishes annual reports to shareholders which include audited
financial statements reported on by its independent accountants. The Company
will continue to comply with the periodic reporting requirements imposed on
foreign issuers by the Exchange Act. In addition, the Company furnishes
quarterly reports to shareholders containing unaudited financial statements for
each quarter of each fiscal year. The Company plans to furnish the same annual
and quarterly reports to holders of its Warrants.
U.S. FEDERAL INCOME TAXATION OF DIVIDENDS.
No reciprocal tax treaty regarding withholding 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 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.
Dividends, if any, paid to any U.S. resident or citizen shareholder will be
treated as dividend income for U.S. federal income tax purposes. Such dividends
would not be eligible for the dividend exclusion allowed to individuals under
Section 1216 of the United States Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code") or for the 80% dividends-received deduction allowed to
U.S. corporations under Section 243 of the Internal Revenue Code. Various
Internal Revenue Code provisions impose special taxes in certain circumstances
on non-U.S. corporations and their shareholders. Shareholders of the Company are
urged to consult their tax advisors with regard to the applicability of any such
provisions and their own tax situation.
In addition to U.S. Federal income taxation, shareholders may be subject to
state and local taxes upon their receipt of dividends.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SHAREHOLDERS
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
47
<PAGE> 49
offices are located, or the British Virgin Islands, where the company is
incorporated. Other jurisdictions in which the company conducts operations may
have various exchange controls. Dividend distribution and repatriation by the
Company's Chinese subsidiaries 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
Company's securities. As to the Company'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.
48
<PAGE> 50
STANDBY UNDERWRITING
Pursuant to the terms and conditions of the Standby Underwriting Agreement
between the Company and the Standby Underwriters, for whom Joseph Charles &
Associates, Inc. is acting as Representative, the Company has agreed to sell to
the Standby Underwriters, at the lower of the Subscription Price per Unit
appearing on the cover page of this Prospectus or the closing bid price per
Common Share as reported on closing of the The Nasdaq National Market on the
Expiration Date, the number of Units equal to 3,000,000 Units minus the number
of Units purchased upon exercise of Rights (the "Underwritten Units") and the
Standby Underwriters have severally agreed to purchase from the Company that
percentage of the Underwritten Units set forth opposite its name below:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF
UNDERWRITTEN
STANDBY UNDERWRITERS UNITS
------------------------------------------------------------------ ---------------------
<S> <C>
Joseph Charles & Associates, Inc..................................
---
Total................................................... 100%
===
</TABLE>
The Standby Underwriters will receive a fee of four percent (4%) of the
gross proceeds of the Rights and Standby Offerings, regardless of whether the
Standby Underwriter is required to purchase any Units. In addition, the Company
has agreed to pay the Representative a non-accountable expense allowance of one
percent (1%) of the gross proceeds of the Rights and Standby Offerings.
The Standby Underwriter will initially offer any Underwritten Units it
purchases to the public at the price it has paid the Company therefor as soon
after the Expiration Date of the Rights Offering as the number of Underwritten
Units can be determined. The Standby Underwriter has also agreed to act as the
agent of the Company to assist the Company in connection with the Rights
Offering. The Company has been advised by the Standby Underwriter that it may
offer Units to certain dealers at a concession not in excess of $ per Unit,
and may pay such dealers an amount equal to $ per Unit upon exercise of
Rights evidenced by Subscription Forms tendered by or through such dealers.
The officers and directors of the Company have agreed, for a period of 90
days from the closing of the Standby Offering, that they will not offer, sell or
otherwise dispose of any Common Shares owned by them to the public without the
prior written consent of the Representative.
The Company has agreed to sell to the Representative, at a price of $.001
each, warrants (the "Representative's Warrants") to purchase 120,000 Units at an
exercise price per Unit equal to 120% of the Subscription Price of the Units
offered pursuant to the Rights Offering. The Representative's Warrants, which
have a term coextensive with the Warrants included in the Units offered pursuant
to the Rights Offering, are not exercisable prior to the first anniversary date
of the issuance of the Representative Warrants and are not transferable prior to
the first anniversary date of the Representative's Warrants other than to
officers, directors, partners, employees and other affiliates of the
Representatives. The exercise price and the number of Common Shares underlying
the Units obtainable upon exercise of the Representative's Warrants are, under
certain circumstances, subject to adjustment pursuant to anti-dilution
provisions.
For information concerning the warrants the Company plans to sell to its
counsel upon the closing of the Standby Offering, see "Legal Matters."
The Company has agreed to indemnify the Standby Underwriters against
certain liabilities, losses and expenses, including liabilities under the
Securities Act of 1933, or to contribute to payments that the Standby
Underwriters may be required to make in respect thereof.
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<PAGE> 51
The Company has agreed with the Representative not to solicit Warrants
exercises other than through the Representative. Upon exercise of any Warrants,
commencing one year from the Expiration Date, the Company will pay the
Representative a fee of one percent (1%) of the aggregate exercise price, if (i)
the market price of the Company Common Shares on the date the Warrant is
exercised is greater than the then exercise price of the Warrants; (ii) the
exercise of the Warrant was solicited by a member of the National Association of
Securities Dealers, Inc.; (iii) the Warrant is not held in a discretionary
account; (iv) disclosure of compensation arrangements was made both at the time
of the offering and at the time of exercise of the Warrant; and (v) the
solicitation of the exercise of the Warrant was not in violation of Rule 10b-6
promulgated under the Exchange Act.
Prior to this offering, there has been a public market for the Common
Shares of the Company, but no public market for the Units or the Warrants. The
Subscription Price of the Units and the exercise price and other term of the
Warrants have been determined by negotiations between the Company and the
Representative. The principal factors considered in determined the Subscription
Price of the Units were the bid price of the Company Common Shares at the time
of the offering, the recent price history of the Common Shares and the general
condition of the securities markets at the time of the offering.
Certain persons participating in this offering may engage in passive market
making transactions in the Common Shares on the Nasdaq National Market in
accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103
permits, upon the satisfaction of certain conditions, underwriting and selling
group members participating in a distribution that are also registered Nasdaq
market makers in the security being distributed (or a related security) to
engage in limited passive market making transactions during the period.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by McW. Todman & Co., Road Town, Tortola, British Virgin Islands, who
has also advised the Company on all matters of British Virgin Island law
contained in this Prospectus. Wilkinson & Grist, Hong Kong, has advised the
Company on all matters of Hong Kong law contained in this Prospectus. United
States counsel to the Company is Freshman, Marantz, Orlanski, Cooper & Klein, a
law corporation, Beverly Hills, California. The Company plans to sell to
Freshman, Marantz, Orlanski, Cooper & Klein, at a price of $.001 each, warrants
(Counsel's Warrants") to purchase 10,000 Units at an exercise price per Unit
equal to 120% of the Subscription Price of the Units offered pursuant to the
Rights Offering. See "Description of Securities -- Warrants." Freshman, Marantz,
Orlanski, Cooper & Klein frequently acts as counsel to Joseph Charles &
Associates, Inc. in connection with other financings. Troop Meisenger Steuber &
Pasich, LLP, Los Angeles, California, has acted as counsel to the Standby
Underwriters with respect to certain legal matters in connection with the Rights
and Standby Offerings.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996, and for each of the three years in the period ended December 31,
1996 included in this Prospectus have been so included in reliance upon the
report of Price Waterhouse, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
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<PAGE> 52
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are hereby incorporated herein by reference:
1. The Company's Annual Report on Form 20-F for the year ended
December 31, 1996 filed with the Commission on April 2, 1997; and
2. The Company's Form 8-A filed with the Commission on April 7, 1988,
its Form 8-A/A1 (Amendment No. 1) filed with the Commission on April 18,
1995 and its Form 8-A filed with the Commission on , 1997.
All subsequent annual reports filed on Form 20-F, Form 40-F or Form 10-K,
and all subsequent filings on Forms 10-Q and 8-K filed by the Company with the
Commission under the Securities Exchange Act of 1934 (the "Exchange Act"), prior
to the termination of the offering, shall be deemed to be incorporated by
reference into this Prospectus. The Company may incorporate by reference into
this Prospectus certain Forms 6-K subsequently submitted to the Commission by
identifying in such forms that they are being incorporated by reference into
this Prospectus. Any statement incorporated herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus. The Company hereby undertakes to provide without charge to each
person, including any beneficial owner, to whom a copy of this Prospectus has
been delivered, upon written or oral request of such person, a copy of any or
all of the foregoing documents incorporated herein by reference (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into such documents). Requests for such documents should be
submitted to the Company, at Suite 530 -999 West Hastings Street, Vancouver,
B.C. Canada V6C 2W2 Attention: Wendy L. Wiseman, Public Relations Secretary,
Telephone: (604) 669-7800; Fax: (604) 669-7816 toll-free telephone and fax:
(800) 661-8831.
51
<PAGE> 53
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants..................................................... F-1
Consolidated Balance Sheets as of December 31, 1995 and 1996.......................... F-2
Consolidated Statements of Income for the years ended December 31, 1994, 1995 and
1996................................................................................ F-3
Consolidated Statements of Changes in Shareholders Equity for the years ended December
31, 1994, 1995 and 1996............................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996................................................................................ F-5
Notes to Consolidated Financial Statements............................................ F-6
Consolidated Balance Sheets as of June 30, 1996 and 1997 (Unaudited).................. F-18
Consolidated Statements of Income for the six month ended June 30, 1996 and 1997
(Unaudited)......................................................................... F-19
Consolidated Statements of Changes in Shareholders Equity for the years ended December
31, 1994, 1995 and 1996 and the six months ended June 30, 1997 (Unaudited).......... F-20
Consolidated Statements of Cash Flows for the six month ended June 30, 1996 and 1997
(Unaudited)......................................................................... F-21
Notes to Consolidated Financial Statements (Unaudited)................................ F-22
</TABLE>
52
<PAGE> 54
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 1996, and the
related statements of income, shareholders' equity, and cash flows for each of
the three years ended December 31, 1994, 1995 and 1996. 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 1996, and the results of their
operations and their cash flows for each of the three years ended December 31,
1994, 1995 and 1996 in conformity with accounting principles generally accepted
in the United States of America.
PRICE WATERHOUSE
Certified Public Accountants
HONG KONG
March 31, 1997
F-1
<PAGE> 55
NAM TAI ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
ASSETS
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
--------------------
1995 1996
------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 12)................................. $10,927 $ 1,761
Term deposits....................................................... 6,435 15,980
Accounts receivable, net............................................ 17,699 16,589
Inventories (Note 3)................................................ 10,425 10,511
Prepaid expenses and deposits....................................... 1,525 1,768
------- --------
Total current assets........................................ 47,011 46,609
------- --------
Long term investment (Note 4)......................................... 3,931 4,050
------- --------
Property, plant and equipment, at cost................................ 35,365 46,751
Less: Accumulated depreciation and amortization..................... (7,730) (10,264)
------- --------
27,635 36,487
------- --------
Other assets.......................................................... 704 1,245
------- --------
Total assets.......................................................... $79,281 $ 88,391
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings.......................................... $ 273 $ 0
Notes payable....................................................... 5,320 5,186
Accounts payable and accrued expenses............................... 13,408 16,184
Income taxes payable................................................ 107 31
Total current liabilities................................... 19,108 21,401
------- --------
Shareholders' equity:
Common stock (Note 13).............................................. 80 78
Additional paid-in capital.......................................... 28,182 28,572
Stock option grants (Note 13(b)).................................... 467 305
Retained earnings................................................... 31,417 38,007
Foreign currency translation adjustment............................. 27 28
------- --------
Total shareholders' equity............................................ 60,173 66,990
------- --------
Total liabilities and shareholders' equity............................ $79,281 $ 88,391
======= ========
Commitments and contingencies (Note 11)
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 56
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.............................................. $ 96,564 $ 121,240 $ 108,234
Cost of sales.......................................... 79,341 98,088 86,049
---------- ---------- ----------
Gross profit......................................... 17,223 23,152 22,185
---------- ---------- ----------
Costs and expenses
Selling, general and administrative expenses........... 9,370 11,441 12,702
Research and development expenses.................... 239 945 950
---------- ---------- ----------
9,609 12,386 13,652
---------- ---------- ----------
Income from operations................................. 7,614 10,766 8,533
(Loss) on disposal of fixed assets................... (48) 0 (123)
Other income -- net (Note 5)......................... 761 225 1,253
Interest expense..................................... (129) (161) (89)
---------- ---------- ----------
Income from consolidated companies before income taxes
and minority interests............................... 8,198 10,830 9,574
Income tax (expense) benefit (Note 8).................. (173) 589 (158)
---------- ---------- ----------
8,025 11,419 9,416
Minority interests in subsidiaries..................... 74 0 0
---------- ---------- ----------
Net income............................................. $ 8,099 $ 11,419 $ 9,416
========== ========== ==========
Earnings per share..................................... $ 1.09 $ 1.40 $ 1.16
========== ========== ==========
Weighted average Common Shares outstanding and common
stock equivalents (Note 1(f))........................ 7,459,570 8,171,750 8,142,131
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 57
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARES OUTSTANDING)
<TABLE>
<CAPTION>
COMMON SHARES FOREIGN
-------------------- ADDITIONAL STOCK CURRENCY TOTAL
SHARES PAID-IN OPTION RETAINED TRANSLATION SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL GRANTS EARNINGS ADJUSTMENT EQUITY
----------- ------ ---------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Share buy-back program............ (273,500) (3) -- -- (2,583) -- (2,586)
Shares issued on exercise of
options......................... 47,550 1 390 (91) -- -- 300
Options cancelled................. -- -- -- (71) -- -- (71)
Net income........................ -- -- -- -- 9,416 -- 9,416
Dividends paid.................... -- -- -- -- (243) -- (243)
Foreign currency translation
adjustments..................... -- -- -- -- -- 1 1
--------- --- ------- ----- ------- ---- -------
Balance at December 31, 1996...... 7,837,227 $ 78 $ 28,572 $ 305 $38,007 $ 28 $ 66,990
========= === ======= ===== ======= ==== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 58
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 8,099 $ 11,419 $ 9,416
-------- -------- --------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation............................................. 2,063 2,612 2,676
Gain on release of deferred credit to income............. (594) -- --
Loss on disposal of property, plant and equipment........ 48 -- 123
Gain on disposal of product lines........................ (129) -- --
Minority interests in subsidiaries....................... (74) -- --
Other items.............................................. 9 -- --
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable............ (1,857) (5,955) 1,110
(Increase) in inventories............................. (2,414) (1,338) (86)
(Increase) in prepayments and deposits................ (337) (517) (243)
Increase (decrease) in notes payable.................. (4,244) (797) (134)
Increase in accounts payable and accrued expenses..... 2,917 2,876 2,776
(Decrease) in income taxes payable.................... (140) (519) (176)
-------- -------- --------
Total adjustments................................ 3,736 (3,638) 6,146
-------- -------- --------
Net cash provided by operating activities.................. 11,835 7,781 15,562
-------- -------- --------
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............... (10,673) (13,696) (11,650)
Additions to other assets................................ (199) (379) (541)
Term deposits............................................ -- (6,035) (9,545)
Purchase of long term investment......................... (3,931) -- (119)
-------- -------- --------
Net cash used in investing activities...................... (14,521) (20,098) (21,855)
Cash flows from financing activities:
Share buy-back program................................... -- -- (2,583)
Increase (decrease) in short-term bank loans and
overdraft............................................. 173 (290) (273)
(Distributed to) received from minority interests........ (41) -- --
Additional shares issued (net)........................... 12,284 373 226
Dividends paid........................................... (65) (120) (243)
-------- -------- --------
Net cash (used in) provided by financing activities........ 12,351 (37) (2,873)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 9,665 (12,354) (9,166)
Cash and cash equivalents at beginning of period........... 13,616 23,281 10,927
-------- -------- --------
Cash and cash equivalents at end of period................. $ 23,281 $ 10,927 $ 1,761
======== ======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid.............................................. $ 131 $ 186 $ 89
======== ======== ========
Income taxes paid.......................................... $ 313 $ 47 $ 234
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 59
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
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. Minority
interest is recognized in respect of earnings of less than wholly-owned
subsidiaries. The details of the Company's subsidiaries are described in Note 9.
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 and was insolvent.
Inventories
Inventories are stated at the lower of cost and market value. Cost is
determined on the first-in, first-out basis.
Property, plant and equipment
Property, plant and equipment are recorded at cost and include interest on
funds borrowed to finance construction in Canada. Capitalized interest was nil,
$12,650 and $12,650 for the years ended December 31, 1994, 1995 and 1996
respectively. 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 June 30, 1997. Thus, all of the
Company's land leaseholds in Hong Kong 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.
F-6
<PAGE> 60
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
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............................................... 3.3%-4%
Furniture and fixtures........................................... 18%-25%
Machinery and equipment.......................................... 9%-25%
Molds and tools.................................................. 18%-25%
Motor vehicles................................................... 18%-25%
Leasehold improvements........................................... 18%-33%
</TABLE>
During 1996, management reassessed the useful life of certain plant and
equipment assets and changed their estimated useful life from four to five years
effective January 1, 1996. As a result of this change, the 1996 depreciation
expense was $860,000 less than it would have been had an estimated life of four
years been used.
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. Common stock equivalents include the
number of shares that would be issued from the exercise of in- the-money stock
options reduced by the assumed 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, 1994, 1995 and 1996 were 6,934,098, 8,018,252 and 8,040,497,
respectively. Common stock equivalents for the years ended December 31, 1994,
1995 and 1996 were 525,472, 153,498 and 101,634, respectively. Fully diluted
earnings per share do not differ materially from the undiluted figures.
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 statement of income.
The financial statements of all subsidiaries with functional currencies
other than the United States dollar are translated in accordance with Statement
of Financial Accounting Standards No. 52 "Foreign Currency Translation". With
the exception of Namtai Electronic (Shenzhen) Co. Ltd. ("NTES"), Zastron Plastic
& Metal Products (Shenzhen) Ltd. ("Zastron") and Shenzhen Namtek Co. Ltd.
("Namtek"), which are companies incorporated in the PRC, all assets and
liabilities are translated at the rates of exchange ruling at the balance sheet
date and all income and expense items are translated at the average rates of
exchange over the year. Also with the exception of the PRC companies, all
exchange differences arising from translation of subsidiaries' financial
statements are dealt with as a separate component of equity.
F-7
<PAGE> 61
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
As NTES, Zastron and Namtek 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, Zastron and Namtek. Accordingly, all
monetary assets and liabilities are translated at the rates of exchange ruling
at the balance sheet date, non-monetary assets and liabilities are translated at
the historical rate and all income and expense items are translated at the
average rates of exchange over the year and all translation adjustments
resulting from the conversion of NTES, Zastron and Namtek'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, Zastron and Namtek
are the rates quoted by the Bank of China.
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. Accordingly, any PRC tax paid during the
year is recorded as an amount receivable at year end. Deferred income taxes are
provided to recognize the effect on the difference between the financial
statement and income tax bases of assets and liabilities.
Staff retirement plan costs
The Company's contributions to the staff retirement plan (Note 6) are
charged to the income statements as incurred.
Deferred Compensation Arrangement costs
For the years 1990 to 1995, the liability relating to the Deferred
Compensation Arrangement (Note 7) 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. Consequently, at December 31, 1996, no
provision was taken.
Cash and cash equivalents
Cash equivalents include certificates of deposit having a maturity date of
three months or less upon acquisition.
Currency contracts
The Company enters into forward currency contracts in its management of
foreign currency exposures. 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 market
with the net realized or unrealized gains or losses recognized in other income.
(Note 5).
Long term investment
Long term investment is stated at the lower of cost and market value.
Research and development costs
Research and development costs relating to the development of new products
and processes, including significant improvements and refinements to existing
products are expensed as incurred. The amounts charged against income were
$239,139, $945,333 and $949,941 for the years ended December 31, 1994, 1995 and
1996 respectively.
F-8
<PAGE> 62
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
Stock options
Financial Accounting Standards Board ("FASB") Statement No. 123 allows
companies which have stock-based compensation arrangements with employees to
adopt a new fair-value basis of accounting for stock options and other equity
instruments, or to continue to apply the existing accounting rules under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", but with additional financial statement disclosure. The Company
plans to continue to account for stock-based compensation arrangements under APB
Opinion No. 25 and provides additional disclosure to that effect in Note 13 (b).
2. FINANCIAL INSTRUMENTS
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of its cash equivalents, term deposits and trade
receivables.
The Company's cash equivalents and term deposits are high-quality deposits
placed with banking 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, 1996
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, 1996, there was no open forward currency contract and at December
31, 1995, the open forward contracts amounted to $60,000 at face value.
3. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Finished goods........................................... $ 1,927 $ 576
Work-in-progress......................................... 1,690 2,548
Raw materials............................................ 6,808 7,387
------- -------
$10,425 $10,511
======= =======
</TABLE>
4. 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.
F-9
<PAGE> 63
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
In July 1996, the Company elected to exercise warrants which increased its
holdings by 12,000 shares to 489,370 or 10.6% of the outstanding common shares
of Deswell Industries, Inc.
In February 1997, the Company sold 225,000 shares of Deswell Industries
Inc. realizing a net gain of $2,564,500.
5. OTHER INCOME -- NET
Other income -- net consists of (in thousands):
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
----------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Foreign exchange gains......................................... $ 68 $ 52 $ 20
Interest income................................................ 591 1,548 1,092
Bank charges................................................... (364) (490) (406)
Release of deferred credit (Note 1(c))......................... 594 -- --
Offering costs written off..................................... -- (334) --
Full provision for Deferred Compensation Arrangement (Note
7)........................................................... -- (560) --
Special bonus.................................................. -- (376) --
Miscellaneous income (expenses)................................ (128) 385 547
----- ------ ------
$ 761 $ 225 $1,253
===== ====== ======
</TABLE>
6. 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 $67,034, $80,545 and $92,399 for the years ended
December 31, 1994, 1995 and 1996 respectively.
7. 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 and 1994. At December 31, 1995, the balance of the deferred
compensation arrangement, which amounted to $560,000, was provided for. For the
year ended December 31, 1996, pursuant to an agreement between Mr Koo and the
Company, an amount of $450,000 payable to Mr M.K. Koo was transferred from the
provision for compensation for loss of office and applied against an amount
receivable from him. (Note 10).
8. INCOME TAXES
Under the current British Virgin Islands law, the Company's income is not
subject to taxation. 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%
(1995: 16.5% and 1994: 16.5%) 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% (1995: 16.5%, 1994: 16.5%), being the effective Hong Kong
statutory income tax rate applicable to the ensuing financial year, on the
difference between the financial statement and income tax bases of assets and
liabilities.
F-10
<PAGE> 64
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
The basic corporate tax rate for Foreign Investment Enterprises ("FIE's")
in the PRC, such as NTES, Zastron and Namtek, is currently 33% (30% state tax
and 3% local tax). However, because NTES, Zastron and Namtek 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, Zastron, and Namtek 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,
Zastron and Namtek which export 70% or more of the production value of their
products, a reduction in the tax rate is available; in all cases apart from
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 and 1996. 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,
1995 and 1996. Namtek in 1996 was in its first year of operation and qualified
for a two year tax holiday.
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. 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.
NTES qualified for such refunds of its 1993, 1994 and 1995 taxes as a
result of reinvesting its profits in those years. Zastron qualified for such
refund of its 1994 taxes as a result of reinvesting its profits in that year.
The tax refunds received were as follows:
<TABLE>
<CAPTION>
TAXATION DATE
COMPANY YEAR PAID REFUNDED RECEIVED
--------------------------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C>
NTES....................... 1993 $212,000 $212,000 Nov 1994
1994 $714,000 $714,000 Aug 1995
1995 $918,727 $918,727 Dec 1996
Zastron.................... 1994 $ 68,000 $ 68,000 Aug 1995
1995 $ 30,967 -- Refund awaited
</TABLE>
The Company intends to reinvest profits earned in 1996 by NTES and Zastron
and accordingly no provision for PRC taxes was made in 1996.
The current and deferred components of the income tax (expense) benefit
appearing in the income statement are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995 1996
----- ---- -----
<S> <C> <C> <C>
Current tax......................................... $(173) $589 $(158)
Deferred tax........................................ -- -- --
------ ----- ------
$(173) $589 $(158)
====== ===== ======
</TABLE>
F-11
<PAGE> 65
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
A reconciliation of the tax (expense) benefit to the amount computed by
applying the current tax rate to the income 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,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Hong Kong statutory tax rate.................................. 16.5% 16.5% 16.5%
Income tax expense at current tax rate on income from
consolidated companies before income taxes and minority
interests................................................... $(1,353) $(1,787) $(1,580)
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.................................. 98 0 0
Effect of difference between PRC and Hong Kong tax applied
to PRC taxable income.................................... 873 1,659 1,449
Reversal of subsidiary's tax provision...................... 0 314 0
Income tax refund........................................... 270 391 0
Other....................................................... (61) 12 (27)
------- ------- -------
$ (173) $ 589 $ (158)
======= ======= =======
</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 is in the process of liquidation and is insolvent.
9. INVESTMENT IN SUBSIDIARIES
<TABLE>
<CAPTION>
PERCENTAGE OF
OWNERSHIP
-------------
COUNTRY OF DECEMBER 31,
CONSOLIDATED SUBSIDIARIES INCORPORATION PRINCIPAL ACTIVITY 1995 1996
- ---------------------------------------------- ------------- --------------------- ---- ----
<S> <C> <C> <C> <C>
Nam Tai Electronic & Electrical Products
Ltd......................................... 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%
Shenzhen Namtek Co. Ltd....................... PRC Software Development -- 100%
</TABLE>
In February 1995, NTEE invested $9,546,000 in NTES by reinvesting NTES's
1994 net income. This increased NTEE's total investment in NTES to $24,490,000.
In April 1996, NTEE invested a further $9,165,000 in NTES by reinvesting NTES's
1995 net income. This increased NTEE's total investment in NTES to $33,655,000.
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.
At December 31, 1996, NTEE's investment in
F-12
<PAGE> 66
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
Zastron and Namtek were $3,512,000 and $225,000, respectively. Nam Tai
Electronics, Inc.'s investment in Nam Tai Electronics (Canada) Ltd. 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.
10. 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.
In March 1996, Mr. M.K. Koo elected to apply $450,000 available from his
compensation for loss of office against the account receivable. The balance
outstanding at December 31, 1996 amounting to $2,120,000 is repayable by Mr.
M.K. Koo on or before December 31, 1997.
11. COMMITMENTS AND CONTINGENCIES
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. Subsequent to December 31,
1996 the Company signed an agreement with Shenzhen Baoheng (Group) Co. Ltd., a
Chinese company, which will be responsible for the design, construction and
marketing of this project.
Lease commitments
At December 31, 1996, there were annual commitments under operating leases
which relate to land and buildings as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 891
1998................................................................ 698
1999................................................................ 469
2000................................................................ 443
2001 and thereafter................................................. $3,174
------
$5,675
======
</TABLE>
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.
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.
F-13
<PAGE> 67
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
12. BANKING FACILITIES
General banking facilities amounted to $49,200,000 at December 31, 1996,
(December 31, 1995 -- $38,202,000), 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 8.50% and 0.50%, respectively at
December 31, 1996).
The total amount of banking facilities utilized as at December 31, 1996 was
$7,629,000 (December 31, 1995 -- $10,216,000).
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 1996
------- -------
<S> <C> <C>
Outstanding letters of credit............................................ $ 7,724 $ 3,688
Usance bills pending maturity............................................ 2,159 619
Discounted bills......................................................... -- --
Trust receipts and shipping guarantees................................... -- 3,322
Short-term bank borrowings............................................... 273 --
Forward exchange contracts............................................... 60 --
------- -------
Total banking facilities utilized........................................ 10,216 7,629
Less:
Outstanding letters of credit.......................................... (7,724) (3,688)
Short-term bank borrowings............................................. (273) --
Forward Contracts...................................................... (60) --
Plus:
Goods received but trust receipts not issued by the bank............... 3,161 1,245
------- -------
Notes payable per balance sheets......................................... $ 5,320 $ 5,186
======= =======
</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.
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. Throughout 1996, banking facilities bore the corporate
guarantee of Nam Tai Electronics, Inc.
13. COMMON SHARES
Authorized shares
In July 1994, the Board of Directors increased the number of authorized
Common Shares to 20,000,000. The par value of each Common Share is $0.01.
F-14
<PAGE> 68
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
Stock options
In August 1993, the Board of Directors approved a stock option plan which
authorized the issuance of 300,000 vested 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 on the date of grant, the Company recorded compensation
expense of $690,000 reflecting the excess of the fair value of the underlying
stock over the exercise price. In December 1993 and January 1996, 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 and 1,000,000 respectively.
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, 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 $11.375
--------
Outstanding at December 31, 1995................... 570,850 $5.35, $11.00 & $11.375
Exercised........................................ (47,550) $5.35 & $11.00
Granted.......................................... 170,000 $10.50
Cancelled........................................ (156,000) $5.35 & $11.00
--------
Outstanding at December 31, 1996................... 537,300 $5.35, $10.50, $11.00 & $11.375
</TABLE>
Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of FASB No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1995 1996
------ -----
<S> <C> <C> <C>
Net Income As Reported................................................. 11,419 9,416
Pro forma................................................... 11,340 9,081
Earnings per share As Reported................................................. 1.40 1.16
Pro forma................................................... 1.39 1.12
</TABLE>
The weighted-average fair value of options granted during the year was
$4.52 (1995 -- $4.03), using the Black-Scholes option-pricing model based on the
following assumptions:
<TABLE>
<CAPTION>
$11.00 OPTIONS $11.375 OPTIONS $10.50 OPTIONS
-------------- --------------- --------------
<S> <C> <C> <C>
Risk-free interest rate............... 6.0% 5.4% 5.3%
Expected life......................... 8/01/98 12/01/98 1/12/00
Expected volatility................... 44.0% 49.0% 48.0%
Expected dividends.................... .030 .030 .030
</TABLE>
F-15
<PAGE> 69
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
Share buy-back program
During 1996, the Company bought back 273,500 Common Shares of its
outstanding capital stock at an average price of $9.46 per share.
14. 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,
-----------------------------------
1994 1995 1996
-------- --------- --------
<S> <C> <C> <C>
Net sales from operations within Hong Kong:
Unaffiliated customers.................................. $ 95,470 $ 119,417 $105,170
Related parties......................................... -- -- --
Intersegment sales...................................... -- 353 --
-------- --------- ---------
95,470 119,770 105,170
People's Republic of China:
Unaffiliated customers.................................. 810 1,445 3,064
Intersegment sales...................................... 92,612 112,804 95,669
-------- --------- ---------
93,422 114,249 98,733
Canada:
Unaffiliated customers.................................. 284 378 --
Intersegment eliminations................................. (92,612) (113,157) (95,669)
-------- --------- ---------
Total net sales................................. $ 96,564 $ 121,240 $108,234
======== ========= =========
Income (loss) from continuing operations within:
-- People's Republic of China........................... 7,491 10,448 10,339
-- Hong Kong............................................ 2,020 4,196 2,921
-- Canada............................................... (1,412) (3,225) (3,844)
-------- --------- ---------
Net income................................................ $ 8,099 $ 11,419 $ 9,416
======== ========= =========
Identifiable assets by geographic area:
-- People's Republic of China........................... 19,116 42,416 44,975
-- Hong Kong............................................ 23,463 25,505 24,564
-- Canada............................................... 23,708 11,360 18,852
-------- --------- ---------
Total assets.................................... $ 66,287 $ 79,281 $ 88,391
======== ========= =========
</TABLE>
F-16
<PAGE> 70
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
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,
---------------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Net sales to customers by geographic area:
-- North America.......................... $31,686 $ 36,730 $ 36,595
-- Japan.................................. 23,547 41,532 30,483
-- Hong Kong.............................. 21,855 20,544 19,404
-- Europe................................. 13,831 16,003 13,187
-- Other.................................. 5,645 6,431 8,565
------- -------- --------
Total net sales................... $96,564 $121,240 $108,234
======= ======== ========
</TABLE>
The Company had sales to four major customers, each individually exceeding
10% of total sales in 1996 as follows:
<TABLE>
<CAPTION>
CUSTOMER
--------------------------------------------
<S> <C> <C> <C>
A........................................... $46,032 $ 58,124 $ 41,569
B (through customer A)...................... 12,600 21,805 17,395
C........................................... 9,421 16,022 24,138
D........................................... 18,573 15,962 14,642
------- -------- --------
$86,626 $111,913 $ 97,744
======= ======== ========
</TABLE>
F-17
<PAGE> 71
NAM TAI ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AS AT JUNE 30,
--------------------
1996 1997
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 12)................................... $ 1,670 $ 2,263
Term deposits......................................................... 15,191 28,794
Accounts receivable, net.............................................. 13,881 23,342
Inventories (Note 3).................................................. 9,091 9,594
Prepaid expenses and deposits......................................... 5,325 2,194
------- --------
Total current assets.......................................... 45,158 66,187
------- --------
Long term investment (Note 4)........................................... 3,931 2,157
------- --------
Property, plant and equipment, at cost.................................. 40,747 44,665
Less: Accumulated depreciation and amortization....................... (9,106) (12,378)
------- --------
31,641 32,287
------- --------
Other assets............................................................ 821 1,702
------- --------
Total assets.................................................. $81,551 $102,333
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 12)............................................... $ 5,574 $ 3,123
Accounts payable and accrued expenses................................. 11,642 17,523
Dividend payable...................................................... 243 --
Income taxes payable.................................................. 263 263
------- --------
Total current liabilities..................................... 17,583 20,909
------- --------
Shareholders' equity:
Common stock (Note 13)................................................ 81 81
Additional paid-in capital............................................ 28,572 30,725
Stock option grants (Note 13(b))...................................... 371 47
Retained earnings..................................................... 34,916 50,544
Foreign currency translation adjustment............................... 28 27
------- --------
Total shareholders' equity.................................... 63,968 81,424
------- --------
Total liabilities and shareholders' equity.................... $81,551 $102,333
======= ========
</TABLE>
Commitments and contingencies (Note 11)
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 72
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1997
---------- ----------
<S> <C> <C>
Net sales........................................................... $ 50,242 $ 71,596
Cost of sales....................................................... 40,299 51,756
--------- ---------
Gross profit...................................................... 9,943 19,840
--------- ---------
Costs and expenses Selling, general and administrative expenses..... 6,323 7,664
Research and development expenses................................. 412 541
--------- ---------
6,735 8,205
--------- ---------
Income from operations.............................................. 3,208 11,635
Loss on disposal of fixed assets.................................. -- (634)
Other income -- net (Note 5)...................................... 617 2,611
Interest expense.................................................. (19) (37)
--------- ---------
Income from consolidated companies before income taxes and minority
interests......................................................... 3,806 13,575
Income tax expense (Note 8)......................................... (64) (242)
--------- ---------
Net income.......................................................... $ 3,742 $ 13,333
========= =========
Earnings per share.................................................. $ 0.46 $ 1.68
========= =========
Weighted average Common Shares outstanding and common stock
equivalents (Note 1(f))........................................... 8,212,954 7,947,421
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 73
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARES OUTSTANDING)
<TABLE>
<CAPTION>
TOTAL
FOREIGN SHARE-
COMMON SHARES ADDITIONAL STOCK CURRENCY HOLDERS'
-------------------- SHARES PAID-IN OPTION RETAINED TRANSLATION
OUTSTANDING AMOUNT CAPITAL GRANTS EARNINGS ADJUSTMENT EQUITY
----------- ------ ---------- ------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... 8,063,177 $80 $28,182 $ 467 $31,417 $27 $60,173
Shares issued on exercise of
options.......................... 47,550 $ 1 $ 390 (91) -- -- 300
Options cancelled.................. -- -- -- (5) -- -- (5)
Net income......................... -- -- -- -- 3,742 -- 3,742
Dividends paid..................... -- -- -- -- (243) -- (243)
Foreign currency translation
adjustments...................... -- -- -- -- -- 1 1
--------- --- ------- ----- ------- --- -------
Balance at June 30, 1996........... 8,110,727 $81 $28,572 $ 371 $34,916 $28 $63,968
========= === ======= ===== ======= === =======
Share buy-back program............. (273,500) (3) -- -- (2,583) -- (2,586)
Shares issued on exercise of
options.......................... -- -- -- -- -- -- --
Options cancelled.................. -- -- -- (66) -- -- (66)
Net income......................... -- -- -- -- 5,674 -- 5,674
Foreign currency translation
adjustments...................... -- -- -- -- -- -- --
--------- --- ------- ----- ------- --- -------
Balance at December 31, 1996....... 7,837,227 $78 $28,572 $ 305 $38,007 $28 $66,990
========= === ======= ===== ======= === =======
Share buy-back program............. (1,000) -- -- -- (10) -- (10)
Shares issued on exercise of
options.......................... 229,400 $ 3 $ 2,153 (258) -- -- 1,898
Net income......................... -- -- -- -- 13,333 -- 13,333
Dividends paid..................... -- -- -- -- (786) -- (786)
Foreign currency translation
adjustments...................... -- -- -- -- -- (1) (1)
--------- --- ------- ---- ------- --- -------
Balance at June 30, 1997........... 8,065,627 $81 $30,725 $ 47 $50,544 $27 $81,424
========= === ======= ===== ======= === =======
</TABLE>
See accompanying notes to consolidated financial statement.
F-20
<PAGE> 74
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 3,742 $13,333
------- -------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation....................................................... 1,382 2,434
Loss on disposal of property, plant and equipment.................. -- 634
Gain on disposal of long term investment........................... -- (2,648)
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable....................... 3,818 (6,462)
Decrease in inventories.......................................... 1,334 917
(Increase) in prepayments and deposits........................... (3,800) (426)
(Decrease) increase in notes payable............................. 254 (2,063)
Increase (decrease) in accounts payable and accrued expenses..... (1,766) 1,302
Increase in dividends payable.................................... 243 --
Increase in income taxes payable................................. 17 232
------- -------
Total adjustments............................................. 1,482 (6,080)
------- -------
Net cash provided by operating activities............................... 5,224 7,253
------- -------
Cash flows from investing activities:
Proceeds from disposal of property, plant and equipment............... -- 1,791
Proceeds from disposal of long term investment........................ -- 4,541
Additions to property, plant and equipment............................ (5,387) (952)
Additions to other assets............................................. (117) (457)
Term deposits......................................................... (8,756) (12,814)
------- -------
Net cash used in investing activities................................... (14,260) (7,891)
------- -------
Cash flows from financing activities:
Share buy-back program................................................ -- (10)
Decrease in short-term bank loans and overdraft....................... (273) --
Additional shares issued, net......................................... 295 1,899
Dividends paid........................................................ (243) (749)
------- -------
Net cash provided by (used in) financing activities..................... (221) 1,140
------- -------
Net increase (decrease) in cash and cash equivalents.................... (9,257) 502
Cash and cash equivalents at beginning of period........................ 10,927 1,761
------- -------
Cash and cash equivalents at end of period.............................. $ 1,670 $ 2,263
======= =======
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid........................................................... $ 19 $ 37
======= =======
Income taxes paid....................................................... $ 46 $ 10
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 75
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
In the opinion of management, the financial statements at June 30, 1996 and
1997, and for each of the six-month periods then ended, reflect all normal and
recurring adjustments necessary for a fair presentation of the financial
position and results of operations for each of the periods presented. The
results of operations, cash flows and statements of changes in shareholders
equity for such periods are not necessarily indicative of results to be expected
for the full year.
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. Minority
interest is recognized in respect of earnings of less than wholly-owned
subsidiaries. The details of the Company's subsidiaries are described in Note 9.
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 and was insolvent.
Inventories
Inventories are stated at the lower of cost and market value. Cost is
determined on the first-in, firstout basis.
Property, plant and equipment
Property, plant and equipment are recorded at cost and include interest on
funds borrowed to finance construction in Canada. Capitalized interest was nil
for the six months ended June 30, 1997 and for the six months ended June 30,
1996. 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 June 30, 1997. Thus, all of the
Company's land leaseholds in Hong Kong 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.
F-22
<PAGE> 76
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
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.
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............................................. 3.3% - 4%
Furniture and fixtures......................................... 18% - 25%
Machinery and equipment........................................ 9% - 25%
Molds and tools................................................ 18% - 25%
Motor vehicles................................................. 18% - 25%
Leasehold improvements......................................... 18% - 33%
</TABLE>
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. Common stock equivalents include the
number of shares that would be issued from the exercise of in-the-money stock
options reduced by the assumed 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 six months ended
June 30, 1997 and June 30, 1996 were 7,947,421 and 8,212,954 respectively.
Common stock equivalents for the six months ended June 30, 1997 and June 30,
1996 were 88,051 and 137,500, respectively. Fully diluted earnings per share do
not differ materially from the undiluted figures.
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 statement of income.
The financial statements of all subsidiaries with functional currencies
other than the United States dollar are translated in accordance with Statement
of Financial Accounting Standards No. 52 "Foreign Currency Translation". With
the exception of Namtai Electronic (Shenzhen) Co. Ltd. ("NTES"), Zastron Plastic
& Metal Products (Shenzhen) Ltd. ("Zastron") and Shenzhen Namtek Co. Ltd.
("amtek"), which are companies incorporated in the PRC, all assets and
liabilities are translated at the rates of exchange ruling at the balance sheet
date and all income and expense items are translated at the average rates of
exchange over the year. Also with the exception of the PRC companies, all
exchange differences arising from translation of subsidiaries' financial
statements are dealt with as a separate component of equity.
F-23
<PAGE> 77
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
As NTES, Zastron and Namtek 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, Zastron and Namtek. Accordingly, all
monetary assets and liabilities are translated at the rates of exchange ruling
at the balance sheet date, non-monetary assets and liabilities are translated at
the historical rate and all income and expense items are translated at the
average rates of exchange over the year and all translation adjustments
resulting from the conversion of NTES, Zastron and Namtek'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, Zastron and Namtek
are the rates quoted by the Bank of China.
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. Accordingly, any PRC tax paid during the
year is recorded as an amount receivable at year end. Deferred income taxes are
provided to recognize the effect on the difference between the financial
statement and income tax bases of assets and liabilities.
Staff retirement plan costs
The Company's contributions to the staff retirement plan (Note 6) are
charged to the income statements as incurred.
Deferred Compensation Arrangement costs
For the years 1990 to 1995, the liability relating to the Deferred
Compensation Arrangement (Note 7) 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. Consequently, at June 30, 1996 and at
June 30, 1997, no provision was taken.
Cash and cash equivalents
Cash equivalents include certificates of deposit having a maturity date of
three months or less upon acquisition.
Currency contracts
The Company enters into forward currency contracts in its management of
foreign currency exposures. 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 market
with the net realized or unrealized gains or losses recognized in other income.
(Note 5).
Long term investment
Long term investment is stated at the lower of cost and market value.
Research and development costs
Research and development costs relating to the development of new products
and processes, including significant improvements and refinements to existing
products are expensed as incurred. The amounts charged
F-24
<PAGE> 78
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
against income were $239,139, $945,333 and $949,941 for the years ended December
31, 1994, 1995 and 1996, respectively. The amount charged against income was
$412,210 and $540,772 for the six months ended June 30, 1996 and June 30,1997,
respectively.
Stock options
Financial Accounting Standards Board ("AFASB") Statement No. 123 allows
companies which have stock-based compensation arrangements with employees to
adopt a new fair-value basis of accounting for stock options and other equity
instruments, or to continue to apply the existing accounting rules under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," but with additional financial statement disclosure. The Company
plans to continue to account for stock-based compensation arrangements under APB
Opinion No. 25 and provides additional disclosure to that effect in Note 13(b).
2. FINANCIAL INSTRUMENTS
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of its cash equivalents, term deposits and trade
receivables.
The Company's cash equivalents and term deposits are high-quality deposits
placed with banking 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, 1996
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, 1996, there was no open forward currency contract and at December
31, 1995, the open forward contracts amounted to $60,000 at face value. There
were no open forward contracts at June 30, 1997 and June 30, 1996.
3. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
AS AT JUNE 30,
-----------------
1996 1997
------ ------
<S> <C> <C>
Finished goods............................................. $ 565 $1,079
Work-in-progress........................................... 2,152 2,190
Raw materials.............................................. 6,374 6,325
------ ------
$9,091 $9,594
====== ======
</TABLE>
F-25
<PAGE> 79
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
4. 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. In July 1996, the Company elected to
exercise warrants which increased its holdings by 12,000 shares to 489,370 or
10.6% of the outstanding common shares of Deswell Industries, Inc.
For the six months ended June 30, 1997, the Company sold 230,000 shares of
Deswell Industries Inc. realizing a net gain of $2,648,100.
5. OTHER INCOME -- NET
Other income -- net consists of (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------
1996 1997
----- ------
<S> <C> <C>
Interest income.......................................................... $ 603 $ 496
Bank charges............................................................. (195) (189)
Dividend income.......................................................... -- 104
Gain on disposal of long term investment................................. -- 2,648
Miscellaneous (expenses) income.......................................... 209 (448)
----- ------
$ 617 $2,611
===== ======
</TABLE>
6. 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 $45,701 and $38,717 for the six months ended June 30,
1996 and the six months ended June 30,1997, respectively.
7. 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, 1994 and 1995. At December 31, 1995, the balance of the deferred
compensation arrangement, which amounted to $560,000, was provided for. For the
year ended December 31, 1996, pursuant to an agreement between Mr Koo and the
Company, an amount of $450,000 payable to Mr M.K. Koo was transferred from the
provision for compensation for loss of office and applied against an amount
receivable from him.(Note 10).
8. INCOME TAXES
Under the current British Virgin Islands law, the Company's income is not
subject to taxation. 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%
(16.5% for the six months ended June 30, 1996) to the estimated taxable income
earned in or derived from Hong Kong during the period.
F-26
<PAGE> 80
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
Deferred tax, where applicable, is provided under the liability method at
the rate of 16.5% (16.5% for the six months ended June 30, 1996), being the
effective Hong Kong statutory income tax rate applicable to the ensuing
financial year, on the difference between the financial statement and income tax
bases of assets and liabilities.
The basic corporate tax rate for Foreign Investment Enterprises ("FIE's")
in the PRC, such as NTES, Zastron and Namtek, is currently 33% (30% state tax
and 3% local tax). However, because NTES, Zastron and Namtek 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, Zastron, and Namtek 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,
Zastron and Namtek which export 70% or more of the production value of their
products, a reduction in the tax rate is available; in all cases apart from
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, 1996 and 1997. 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, 1995, 1996 and 1997. Namtek in 1996 was in its first year of operation and
qualified for a two year tax holiday. 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. 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.
NTES qualified for such refunds of its 1993, 1994 and 1995 taxes as a
result of reinvesting its profits in those years. Zastron qualified for such
refund of its 1994 taxes as a result of reinvesting its profits in that year.
The tax refunds received were as follows:
<TABLE>
<CAPTION>
TAXATION
COMPANY YEAR PAID REFUNDED DATE RECEIVED
-------- -------- -------- -------- --------------
<S> <C> <C> <C> <C>
NTES.... 1993 $212,000 $212,000 Nov 1994
1994 $714,000 $714,000 Aug 1995
1995 $918,727 $918,727 Dec 1996
1996 $844,530 -- Refund awaited
Zastron.. 1994 $ 68,000 $ 68,000 Aug 1995
1995 $ 30,967 -- Refund awaited
</TABLE>
The Company intends to reinvest profits earned in 1997 by NTES and Zastron
and accordingly no provision for PRC taxes was made for the six months ended
June 30, 1997 (nil for the six months ended June 30,1996).
F-27
<PAGE> 81
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
The current and deferred components of the income tax (expense) benefit
appearing in the income statement are as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------
1996 1997
---- -----
<S> <C> <C>
Current tax................................................ $(64) $(242)
Deferred tax............................................... -- --
---- -----
$(64) $(242)
</TABLE>
A reconciliation of the tax (expense) benefit to the amount computed by
applying the current tax rate to the income from continuing operations before
taxes in the consolidated statements of income is as follows (in thousands
except tax rate):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1996 1997
----- -------
<S> <C> <C>
Hong Kong statutory tax rate.............................................. 16.5% 16.5%
Income tax expense at current tax rate on income from consolidated
companies before income taxes and minority interests.................... $(628) $(2,240)
Tax (expense) benefit arising from items which are not (allowable)
assessable for tax purposes:
Effect of difference between PRC and Hong Kong tax applied to PRC taxable
income.................................................................. 570 1,931
Other................................................................... (6) 67
----- -------
$ (64) $ (242)
===== =======
</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 is in the process of liquidation and is insolvent.
9. INVESTMENT IN SUBSIDIARIES
<TABLE>
<CAPTION>
PERCENTAGE OF
OWNERSHIP
AS AT JUNE
30,
CONSOLIDATED COUNTRY OF PRINCIPAL -------------
SUBSIDIARIES INCORPORATION ACTIVITY 1996 1997
- ------------ ------------- -------------- ---- ----
<S> <C> <C> <C> <C>
Nam Tai Electronic & Electrical Products Hong Kong Trading 100% 100%
Ltd.........................................
Nam Tai Electronics (Canada) Ltd.............. Canada Services 100% 100%
Namtai Electronic (Shenzhen) Co. Ltd.......... PRC Manufacturing 100% 100%
Zastron Plastic & Metal Products (Shenzhen) PRC Manufacturing 100% 100%
Ltd.........................................
Shenzhen Namtek Co. Ltd....................... PRC Software -- 100%
Development
</TABLE>
In February 1995, NTEE invested $9,546,000 in NTES by reinvesting NTES's
1994 net income. This increased NTEE's total investment in NTES to $24,490,000.
In April 1996, NTEE invested a further $9,165,000 in NTES by reinvesting NTES's
1995 net income. This increased NTEE's total investment in
F-28
<PAGE> 82
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
NTES to $33,655,000. In April 1997, NTEE invested a further $8,345,000 in NTES
by reinvesting NTES's 1996 net income. This increased NTEE's total investment in
NTES to $42,000,000.
At June 30, 1996, NTEE's investment in Zastron and Namtek were $3,512,000
and $225,000 respectively, Nam Tai Electronics, Inc's investment in Nam Tai
Electronics (Canada) was $256,000. At June 30, 1997, NTEE's investment in
Zastron and Namtek were $3,512,000 and $225,000 respectively. Nam Tai
Electronics, Inc.'s investment in Nam Tai Electronics (Canada) Ltd. 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.
10. 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.
In March 1996, Mr M.K. Koo elected to apply $450,000 available from his
compensation for loss of office against the account receivable. In August 1997,
Mr. Koo reversed his election regarding the compensation for loss of office and
paid the Company the gross amount outstanding of $2,570,000
11. COMMITMENTS AND CONTINGENCIES
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. On January 13, 1997, the
Company signed an agreement with Shenzhen Baoheng (Group) Co. Ltd., a Chinese
company, which will be responsible for the design, construction and marketing of
this project.
Lease commitments
At June 30, 1997, there were annual commitments under operating leases
which relate to land and buildings as follows (in thousands):
<TABLE>
<S> <C>
1997 (from July to December)...................................... $ 439
1998.............................................................. 698
1999.............................................................. 469
2000.............................................................. 443
2001 and thereafter............................................... 3,174
------
$5,223
======
</TABLE>
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
F-29
<PAGE> 83
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
completed in 1993. 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.
12. BANKING FACILITIES
General banking facilities amounted to $49,200,000 at June 30, 1997 (as at
June 30, 1996 - $55,200,000) 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 8.50% and 0.50%, respectively at
June 30, 1997).
The total amount of banking facilities utilized as at June 30, 1997 was
$5,220,000. (as at June 30, 1996 -- $9,865,000).
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>
AS AT JUNE 30,
-----------------
1996 1997
------- -------
<S> <C> <C>
Outstanding letters of credit (including usance bills
pending maturity)........................................................ $ 7,685 2,577
Trust receipts and shipping guarantees..................................... 2,180 2,643
Short-term bank borrowings................................................. -- --
Forward exchange contracts................................................. -- --
------- -------
Total banking facilities utilized.......................................... 9,865 5,220
Less:
Outstanding letters of credit............................................ (6,329) (2,577)
Short-term bank borrowings............................................... -- --
Forward contracts........................................................ -- --
Plus:
Goods received but trust receipts not issued by the bank................. 2,038 480
------- -------
Notes payable per balance sheets........................................... $ 5,574 $ 3,123
======= =======
</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.
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. Throughout 1996 and for the six months ended June 30,
1997, banking facilities bore the corporate guarantee of Nam Tai Electronics,
Inc.
13. COMMON SHARES
Authorized shares
In July 1994, the Board of Directors increased the number of authorized
Common Shares to 20,000,000. The par value of each Common Share is $0.01.
F-30
<PAGE> 84
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
Stock options
In August 1993, the Board of Directors approved a stock option plan which
authorized the issuance of 300,000 vested 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 on the date of grant, the Company recorded compensation
expense of $690,000 reflecting the excess of the fair value of the underlying
stock over the exercise price. In December 1993 and January 1996, 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 and 1,000,000 respectively.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
OPTION NUMBER OF OPTIONS PER
PRICE SHARE
-------- ------------------------
<S> <C> <C>
Outstanding at December 31, 1993.......................... 300,000 $5.35
Exercised............................................... (90,000) $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 $11.375
--------
Outstanding at December 31, 1995.......................... 570,850 $5.35, $11.00, $11.375
Exercised............................................... (47,550) $5.35 & $11.00
Granted................................................. 170,000 $10.50
Cancelled............................................... (49,500) $5.35 & $11.00
--------
Outstanding at June 30, 1996.............................. 643,000 $5.35, $10.50,
$11.00 & $11.375
Exercised............................................... 0 $5.35, & $11.00, $11.375
Granted................................................. 0
Cancelled............................................... (106,500) $5.35, $10.50, $11.00
--------
Outstanding at December 31, 1996.......................... 537,300 $5.35, $10.50, $11.00 &
$11.375
Exercised............................................... (229,400) $5.35, $11.00, $11.375
Granted................................................. 0
Cancelled............................................... (97,300) $5.35, $10.50, $11.00
--------
Outstanding at June 30, 1997.............................. 210,600 $5.35, $10.50, $11.00
========
</TABLE>
F-31
<PAGE> 85
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of FASB No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1997
------ -------
<S> <C> <C> <C>
Net Income (in thousands) As reported..................................... $3,742 $13,333
Pro forma....................................... 3,407 13,077
Earnings per share As reported..................................... 0.46 1.68
Pro forma 0.41 1.68
</TABLE>
The weighted-average fair value of options granted in 1996 was $4,52
(1995 -- $4.03), using the Black-Scholes option-pricing model based on the
following assumptions:
<TABLE>
<CAPTION>
$11.00 OPTIONS $11.375 OPTIONS $10.50 OPTIONS
-------------- --------------- --------------
<S> <C> <C> <C>
Risk-free interest rate............... 6.0% 5.4% 5.3%
Expected life......................... 8/01/98 12/01/98 1/12/00
Expected volatility................... 44.0% 49.0% 44.0%
Expected dividends.................... 0.30 0.30 0.30
</TABLE>
Share buy-back program
During the six months ended June 30, 1997, the Company bought back 1,000
Common Shares of its outstanding capital stock at an average price of $9.49 per
share.
F-32
<PAGE> 86
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
14. 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>
SIX MONTHS ENDED
JUNE 30,
---------------------
1996 1997
-------- --------
<S> <C> <C>
Net sales from operations within Hong Kong:
Unaffiliated customers................................. $ 49,352 $ 70,496
Intersegment sales..................................... -- --
-------- --------
49,352 70,496
People's Republic of China:
Unaffiliated customers............................... 890 1,100
Intersegment sales................................... 45,675 66,217
-------- --------
67,317 46,565
Canada:
Unaffiliated customers............................... -- --
Intersegment eliminations............................ (45,675) (66,217)
-------- --------
Total net sales.............................. $ 50,242 $ 71,596
======== ========
Income (loss) from continuing operations within:
-- People's Republic of China.......................... 3,921 10,326
-- Hong Kong........................................... 2,009 2,505
-- Canada.............................................. (2,188) 502
-------- --------
Net income............................................. $ 3,742 $ 13,333
======== ========
Identifiable assets by geographic area:
-- People's Republic of China.......................... $ 42,981 $ 42,034
-- Hong Kong........................................... 21,735 25,658
-- Canada.............................................. 16,835 34,641
-------- --------
Total assets................................. $ 81,551 $102,333
======== ========
</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>
SIX MONTHS ENDED
JUNE 30,
-------------------
1996 1997
------- -------
<S> <C> <C>
Net sales to customers by geographic area:
-- North America......................................... $17,145 $40,395
-- Japan................................................. 15,073 15,035
-- Hong Kong............................................. 6,923 4,409
-- Europe................................................ 7,585 9,811
-- Other................................................. 3,516 1,946
------- -------
Total net sales................................ $50,242 $71,596
======= =======
</TABLE>
F-33
<PAGE> 87
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
The Company has sales to four major customers, each individually exceeding
10% of total sales for six months ended June 30, 1997 as follows:
<TABLE>
<CAPTION>
CUSTOMER
---------------------------------------------------------
<S> <C> <C>
A........................................................ $22,045 $21,221
B (through customer A)................................... 8,920 3,713
C........................................................ 10,399 31,388
D........................................................ 4,721 9,236
------- -------
$46,085 $65,558
======= =======
</TABLE>
F-34
<PAGE> 88
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, OR BY THE STANDBY UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................. 2
Enforceability of Civil Liabilities... 2
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Rights Offering................... 12
Use of Proceeds....................... 17
Dividend Policy....................... 17
Price Range of Common Shares.......... 18
Capitalization........................ 19
Selected Consolidated Financial
Data................................ 20
Management's Discussion and Analysis
of
Results of Operations and Financial
Condition........................... 21
Business.............................. 31
Management............................ 42
Principal Shareholders................ 44
Description of Securities............. 45
Standby Underwriting.................. 49
Legal Matters......................... 50
Experts............................... 50
Incorporation of Certain Documents by
Reference........................... 51
Index to Consolidated Financial
Statements.......................... 52
=============================================
</TABLE>
======================================================
[NamTai Logo]
$3,000,000 UNITS,
EACH UNIT CONSISTING OF
ONE COMMON SHARE AND
ONE REDEEMABLE COMMON SHARE
PURCHASE WARRANT
------------------------
PROSPECTUS
------------------------
JOSEPH CHARLES &
ASSOCIATES, INC.
, 1997
======================================================
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of the Common Stock being registered
hereby, other than underwriting commissions and discounts, all of which are
estimated except for the SEC and NASD filing fees.
<TABLE>
<CAPTION>
ITEM AMOUNT
------------------------------------------------------------------ --------
<S> <C>
SEC registration fee.............................................. $ 43,908
NASD filing fee................................................... 14,990
Representative's Non-accountable expense allowance................
Nasdaq National Market Additional Listing Fee (for Common
Shares).........................................................
Nasdaq National Market Listing Fee (for Warrants).................
Blue Sky fees and expenses........................................
Printing and engraving expenses...................................
Legal fees and expenses...........................................
Accounting fees and expenses......................................
Transfer, Warrant and Rights Agent and registrar fees.............
Miscellaneous expenses............................................
--------
Total...................................................
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to its Articles of Association and subject to British Virgin
Islands law, the Company may indemnify a director or officer out of the assets
of the Company against all losses or liabilities which the director or officer
may have incurred in or about the execution of the duties of his office or
otherwise in relation thereto. No director or officer is liable for any loss,
damage or misfortune which may have been incurred by the Company in the
execution of the duties of his office, or in relation thereto provided the
director or officer acted honestly and in good faith with a view to the best
interest of the Company and except for his own wilful misconduct or negligence.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------------------------------------------------------------------------
<C> <S>
1.1 Form of Standby Underwriting Agreement
3.1 Memorandum of Association and Articles of Association of the Registrant,
as amended (incorporated by reference to Exhibit 1 to registrant's Form
8-A/A1 (Amendment No. 1) filed with the Commission on April 18, 1995.)
4.1 Form of Warrant Agreement between the Company and U.S. Stock Transfer
Corp., as Warrant Agent.
4.2 Form of Warrant Certificate
4.3* Form of Rights Certificate
4.4* Form of Common Share Certificate
4.5 Form of Standby Underwriter's Warrant Agreement
4.6 Form of Counsel's Warrant Agreement
5.1* Opinion of McW. Todman & Co.
</TABLE>
II-1
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
24.1 Consent of Price Waterhouse
24.2* Consent of McW. Todman & Co.
24.3* Consent of Wilkinson and Grist
25 Powers of Attorney of Directors and Executive Officers (contained on
signature page)
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such posteffective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To file a post-effective amendment to the registration statement
to include any financial statements required by Regulation sec. 210.3-19 of
this chapter at the start of any delayed offering or throughout a
continuous offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of the prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial
II-2
<PAGE> 91
information required to be presented by Article 3 of Regulation S-X are not set
forth in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such interim
financial information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form F-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vancouver, British Columbia, Canada, on the 22nd day
of September, 1997.
NAM TAI ELECTRONICS, INC.
By: /s/ M. K. KOO
------------------------------------
M. K. KOO
Chairman of the Board
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes M.K. Koo, Lorne J. Waldman and Stephen Seung, and each of
them, to file one or more amendments (including post-effective amendments) to
this Registration Statement, which amendments may make such changes as any of
such persons deems appropriate, and each such person, individually and in each
capacity stated below, hereby appoints each of such persons as attorney-in-fact
to execute in his name and on his behalf any of such amendments to the
Registration Statement. Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ----------------------- -------------------
<C> <S> <C>
/s/ M. K. KOO Chairman of the Board September 22, 1997
- ----------------------------------------------- and Chief Financial
M. K. Koo Officer and a Director
(Principal Executive
Officer, Principal
Financial and Principal
Accounting Officer)
/s/ TADAO MURAKAMI Chief Executive September 22, 1997
- ----------------------------------------------- Officer,
Tadao Murakami Vice-Chairman and
Director
/s/ CHARLES CHU Director September 22, 1997
- -----------------------------------------------
Charles Chu
/s/ STEPHEN SEUNG Director and United September 22, 1997
- ----------------------------------------------- States Representative
Stephen Seung
/s/ ROBERT MCNAMURA Director September 22, 1997
- -----------------------------------------------
Robert McNamura
</TABLE>
II-4
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE NO.
- ------- ------- ------------
<C> <S> <C>
1.1 Form of Standby Underwriting Agreement....................................
3.1 Memorandum of Association and Articles of Association of the Registrant,
as amended (incorporated by reference to Exhibit 1 to registrant's Form
8-A/A1 (Amendment No. 1) filed with the Commission on April 18, 1995.)....
4.1 Form of Warrant Agreement between the Company and U.S. Stock Transfer
Corp., as Warrant Agent...................................................
4.2 Form of Warrant Certificate...............................................
4.3* Form of Rights Certificate................................................
4.4* Form of Common Share Certificate..........................................
4.5 Form of Standby Underwriter's Warrant Agreement...........................
4.6 Form of Counsel's Warrant Agreement.......................................
5.1* Opinion of McW. Todman & Co. .............................................
24.1 Consent of Price Waterhouse...............................................
24.2* Consent of McW. Todman & Co. .............................................
24.3* Consent of Wilkinson and Grist............................................
25 Powers of Attorney of Directors and Executive Officers (contained on
signature page)...........................................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
NAM TAI ELECTRONICS, INC.
-----------------
STANDBY UNDERWRITING AGREEMENT
_________ ___, 1997
Joseph Charles & Associates, Inc.
As Representative of the Several Underwriters
9701 Wilshire Blvd.
Beverly Hills, California 90212
Dear Sirs:
Nam Tai Electronics, Inc., a British Virgin Islands international business
company (the "Company") is distributing to each holder of its Common Shares, par
value $0.01 per share, on _______ __, 1997 (the "Record Date"), nontransferable
rights (the "Rights") to subscribe for one Unit (individually, a "Unit" and
collectively, the "Units") for every three Common Shares outstanding on the
Record Date. Each shareholder who exercises the Rights granted to him will have
the right to oversubscribe for Units (the "Oversubscription Right") in an amount
not exceeding fourty (40%) of the number of Units actually subscribed for by
that shareholder (the right to subscribe for Units, including the
Oversubscription Right, is hereinafter referred to as the "Rights Offering").
The Company proposes to issue and sell to you that number of Units equal to
3,000,000 Units less the number of Units purchased by the Company's shareholders
in the Rights Offering and to sell to you, at a price of $0.001 per warrant,
warrants (the "Standby Underwriter's Warrants") to purchase 120,000 Units, which
sale of Standby Underwriter's Warrants will be consummated in accordance with
the terms and conditions of the Standby Underwriter's Warrant Agreement (the
"Standby Underwriter's Warrant Agreement") filed as an exhibit to the
Registration Statement described below.
The Company has also agreed to sell to Freshman, Marantz, Orlanski, Cooper
& Klein, a law corporation, at a price of $0.001 per warrant, warrants (the
"Counsel's Warrants") to purchase 10,000 Units, which sale of Counsel's Warrants
will be consummated in accordance with the terms and conditions of the Counsel's
Warrant Agreement (the "Counsel's Warrant Agreement") filed as an exhibit to the
Registration Statement described below. Each Unit shall consist of one Common
Share, par value $0.01 of the Company (each, a "Common Share" and collectively,
the "Common Shares") and one three-year Common Share purchase warrants (the
"Warrants") exercisable on or before ________ __, 2000 in accordance with the
terms and conditions of the Warrant Agreement (the "Warrant Agreement") attached
as an exhibit to the Registration Statement described below. The Units to be
purchased by the Standby Underwriter pursuant to this Standby Underwriting
Agreement will be referred to herein as the "Underwritten Units." Unless the
context otherwise provides, references in this Agreement to "Unit" shall refer
to the Units issuable upon exercise of the Rights and the Units issuable upon
exercise of the Standby Underwriter's Warrants; references to "Warrants" shall
refer to the Warrants, the Standby Underwriter's Warrants and the Counsel's
Warrants, references to "Common Shares" shall refer to the Common Shares of the
Company outstanding on the Record Date or underlying the Units and the Warrants
as the context indicates and "Securities" shall refer to the Units, the Warrants
and the Common Shares.
This is to confirm the agreement concerning the Underwriter's purchase of
the underwritten Units from the Company.
1. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to,
and agrees with, the Underwriter that:
(a) A registration statement on Form F-3 (File No. 333-_______) with
respect to (i) the Rights, (ii) the Units, (iii) the Standby Underwriter's
Units, (iv) the Counsel's Warrants and (v) the
- --------------------------------------
Troop Meisinger Steuber & Pasich, llp
<PAGE> 2
Common Shares issuable upon exercise the Warrants, has been prepared by
the Company in conformity with the requirements of the Securities Act of
1933 (the "Securities Act"), and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder and has
been filed with the Commission. Copies of such registration statement and
any amendments, and all forms of the related prospectuses contained
therein, have been delivered to you or will be delivered to you
concurrently with their filing with the Commission. Such registration
statement, including the prospectus constituting a part thereof, Part II
and all financial schedules and exhibits thereto, and any documents
incorporated by reference therein, as amended at the time when it becomes
effective, is herein referred to as the "Registration Statement," and the
prospectus included as part of the Registration Statement on file with the
Commission that discloses all the information that was omitted from the
prospectus on the effective date pursuant to Rule 430A of the Rules and
Regulations (as defined below), with any changes contained in any
prospectus filed with the Commission by the Company with your consent
after the effective date of the Registration Statement, is herein referred
to as the "Final Prospectus." The prospectus included as part of the
Registration Statement on the date when the Registration Statement became
effective and the prospectus included in any post-effective amendment to
such Registration Statement is referred to herein as the "Effective
Prospectus"; any prospectus included in the Registration Statement and in
any amendments thereto prior to the effective date of the Registration
Statement is referred to herein as a "Pre-Effective Prospectus." The
Pre-Effective Prospectus, the Effective Prospectus and the Final
Prospectus may sometimes hereinafter be referred to collectively as the
"Prospectus." For purposes of this Agreement, "Rules and Regulations"
means the rules and regulations adopted by the Commission under either the
Securities Act or the Securities Exchange Act of 1934 (the "Exchange
Act"), as applicable.
(b) No order preventing or suspending the use of any Pre-Effective
Prospectus has been issued by the Commission, and each Pre-Effective
Prospectus, at the time of filing thereof, did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that
the foregoing shall not apply to statements in, or omissions from, any
Pre-Effective Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by you or on your behalf specifically
for use in the preparation thereof.
(c) When the Registration Statement becomes effective, and at all
times subsequent thereto, the Registration Statement, any post-effective
amendment thereto and the Effective Prospectus and the Final Prospectus,
each as amended or supplemented, shall comply in all material respects
with the requirements of the Securities Act and the Rules and Regulations.
No such document shall contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of circumstances under which they
were made, not misleading, except that the foregoing shall not apply to
statements in, or omissions from, any such document in reliance upon, and
in conformity with, written information furnished to the Company by you or
on your behalf, specifically for use in the preparation thereof. There is
no contract or document required to be described in the Registration
Statement or the Prospectus, or to be filed as an exhibit to the
Registration Statement, which is not described or filed as required.
(d) Price Waterhouse, whose report appears in the Effective
Prospectus, are independent public accountants as required by the
Securities Act and the Rules and Regulations. The consolidated financial
statements and Schedules (including the related notes) included in the
Registration Statement or any Prospectus, present fairly, on the basis
stated therein, the financial condition, the results of the operations and
statements of cash flows of the entities purported to be shown thereby at
the dates and for the periods indicated and have been prepared in
accordance with generally accepted accounting principles ("GAAP"), applied
on a consistent basis throughout the periods indicated. The selected
consolidated financial data and summary consolidated financial information
included in the Registration Statement and
- --------------------------------------
Troop Meisinger Steuber & Pasich, llp
2
<PAGE> 3
any Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with the audited financial statements
included in the Registration Statement and the Prospectus.
(e) Each of the Company and its Subsidiaries (as defined in Section
12 hereof) has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
organization, with full power and authority (corporate and other) to own
or lease its properties and conduct its business as described in the
Prospectus, and is duly qualified to do business and is in good standing
in each jurisdiction in which the character of the business conducted by
it or the location of the properties owned or leased by it makes such
qualification necessary, except to the extent that the failure to so
qualify will not have a material adverse effect upon the business,
condition (financial or other), operations or prospects upon the Company
and its Subsidiaries taken as a whole (a "Material Adverse Effect"), and
each of the Company and its Subsidiaries holds all material licenses,
certificates, permits, consents, orders and approvals or other
authorizations from governmental authorities necessary to lease or own, as
the case may be, and to operate their property and conduct their business
as now conducted. Except as set forth in the Prospectus, the expiration of
any such licenses, certificates and permits would not materially affect
the operation of the Company and its Subsidiaries, taken as a whole. None
of the activities or businesses of the Company or any of its Subsidiaries
is in violation of any law, rule, regulation or order of the United
States, Canada, the Colony of Hong Kong, the British Virgin Islands, the
People's Republic of China, or any state, county, province, municipality
or locality thereof, or of any agency or body of the United States,
Canada, the Colony of Hong Kong, the British Virgin Islands, the People's
Republic of China, or of any state, county, province, municipality or
locality thereof or of any other foreign jurisdiction of which the Company
or any of its Subsidiaries may be subject, other than violations which
would not have a Material Adverse Effect.
(f) The capitalization of the Company as of June 30, 1997 is as set
forth under the caption "Capitalization" in the Prospectus, and the
Rights, the Units, the Warrants and the Common Shares conform to the
descriptions thereof contained under the caption "Description of
Securities" in the Final Prospectus; the outstanding Common Shares of the
Company have been, and the Common Shares underlying the Warrants, upon
issuance and delivery to the holders thereof and payment therefor in the
manner described in the Effective and Final Prospectus will be, duly
authorized, validly issued, fully paid and nonassessable, free and clear
of any liens, encumbrances, equities and claims. Except as disclosed in or
contemplated by this Agreement or the Lock-Up Agreement (as defined in
Section 4(f) hereof), there are no preemptive rights or other rights to
subscribe for or to purchase from the Company. or any restriction upon the
voting or transfer of, any Common Shares of the Company pursuant to the
Company's Memorandum of Association, Articles of Association or other
governing documents or any agreement or other instrument to which the
Company is a party or by which it is bound. Except as contemplated by this
Agreement, the Warrant Agreement, the Standby Underwriter's Warrant
Agreement or the Counsel's Warrant Agreement, none of the filing of the
Registration Statement, the distribution of the Rights nor the offering or
sale of the Securities as contemplated by this Agreement, the Warrant
Agreement, the Standby Underwriter's Warrant Agreement or the Counsel's
Warrant Agreement gives rise to any rights, other than those which have
been waived or satisfied, for or relating to the registration of any
shares of capital stock of the Company, or any warrants, options or rights
to acquire such capital stock. Except as set forth in Exhibit 22 of the
Registration Statement, the Company owns all of the issued and outstanding
shares of capital stock of each of the Subsidiaries and there are no
rights to subscribe for or to purchase from the Company or any of its
Subsidiaries any shares of capital stock of any of the Subsidiaries.
(g) Except as described in or contemplated by the Effective and
Final Prospectus, there has not been any material adverse change in, or
any adverse development that materially affects, the business, properties,
financial condition, results of operations or prospects of the Company and
its Subsidiaries, taken as a whole, from the date as of which information
is given in the applicable Prospectus; and except as
- --------------------------------------
Troop Meisinger Steuber & Pasich, llp
3
<PAGE> 4
described in or contemplated by the Effective and Final Prospectus,
neither the Company nor any Subsidiary has, directly or indirectly,
incurred any material liabilities or obligations, direct or contingent,
not in the ordinary course of business, other than obligations related to
the offer and sale of the Securities, or entered into any transactions not
in the ordinary course of business, which are material to the business of
the Company or such Subsidiary and required to be disclosed in the
Prospectus. Except as described in or contemplated by the Final
Prospectus, there has not been any material change in the capital stock
of, or any incurrence of long-term debt by, the Company or its
Subsidiaries, or any issuance or grant of options, warrants or rights to
purchase the capital stock of the Company, or any declaration or payment
of any dividend on the capital stock of the Company from the date as of
which information is given in the Prospectus.
(h) Neither the Company nor any of its Subsidiaries is, nor with the
giving of notice or lapse of time or both would be, in violation of or in
default under, nor will the execution or delivery of this Agreement, the
Warrant Agreement, the Standby Underwriter's Warrant Agreement or the
Counsel's Warrant Agreement or consummation of the transactions
contemplated hereby or thereby result in a violation of, or constitute a
default under, the Memorandum of Association, Articles of Association or
other governing documents of the Company or any of its Subsidiaries, or
any agreement, indenture or other instrument, to which the Company or any
of its Subsidiaries is a party or by which any of them is bound, or to
which any of their respective properties is subject, nor will the
performance by the Company of its obligations hereunder, under the Warrant
Agreement, the Standby Underwriter's Warrant Agreement or the Counsel's
Warrant Agreement violate any law, rule, administrative regulation or
decree of any court or any governmental agency or body have jurisdiction
over the Company, its Subsidiaries or any of their properties, or result
in the creation or imposition of any lien, charge, claim or encumbrance
upon any property or asset of the Company or any of its Subsidiaries,
other than a lien, claim or encumbrance that would not have a Material
Adverse Effect. Except for permits and similar authorizations required
under the Securities Act and the securities or "blue sky" laws of certain
jurisdictions and for such permits and authorizations which have been
obtained, no consent, approval, authorization or order of any court,
governmental agency or body or financial institution is required in
connection with the consummation of the transactions contemplated by this
Agreement, the Warrant Agreement, the Standby Underwriter's Warrant
Agreement or the Counsel's Warrant Agreement.
(i) Each of this Agreement, the Warrant Agreement, the Standby
Underwriter's Warrant Agreement and the Counsel's Warrant Agreement has
been duly authorized by the Company; this Agreement has been duly executed
and delivered by the Company; this Agreement constitutes and, when
executed and delivered, the Warrant Agreement, the Standby Underwriter's
Warrant Agreement and the Counsel's Warrant Agreement will constitute, the
valid and binding agreement of the Company and each are enforceable
against the Company in accordance with their respective terms except as
rights to indemnity and/or contribution may be limited by federal or state
securities laws or the public policy underlying such laws, and except as
enforcement (i) may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting creditor's rights generally and (ii) is
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(j) The Company and its Subsidiaries have good and marketable title
to all real and personal property owned by them, free and clear of all
liens, encumbrances and defects except such as are described or referred
to in the Prospectus or such as do not materially affect the value of such
property or do not materially interfere with the use made or proposed to
be made of such property by the Company or such Subsidiaries. Any real
property and buildings held under lease by the Company or any of its
Subsidiaries are held by them under valid and existing and enforceable
leases subject to such exceptions as are not material or do not interfere
with the use made or proposed to be made of such property and buildings by
the Company or such Subsidiaries or such exceptions that take into account
the inherent difficulties of enforcing them because of the nature of the
legal system governing the leases.
- --------------------------------------
Troop Meisinger Steuber & Pasich, llp
4
<PAGE> 5
(k) The Company and the Subsidiaries, taken as a whole, have not
sustained since June 30, 1997 any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Effective Prospectus and the Final Prospectus; and, since the
respective dates as of which information is given in the Registration
Statement and the Effective Prospectus and the Final Prospectus, there has
not been any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, business prospects, financial position, shareholders' equity
or results of operations of the Company and the Subsidiaries, taken as a
whole, otherwise than as set forth or contemplated in the Effective
Prospectus and the Final Prospectus.
(l) Except as described in the Prospectus, there is no litigation or
governmental proceeding to which the Company or any of its Subsidiaries is
a party or to which any property of the Company or such Subsidiaries is
subject or which is pending in which the Company has been served or, to
the knowledge of the Company, is otherwise pending or threatened against
the Company or any of its Subsidiaries which would have a Material Adverse
Effect, or which is required to be disclosed in the Prospectus, and to the
Company's knowledge no labor disturbance by the employees of the Company
or any of its Subsidiaries exists or is imminent which would have a
Material Adverse Effect, or which is required to be disclosed in the
Effective Prospectus and the Final Prospectus.
(m) Neither the Company nor any Subsidiary is in violation of any
law, ordinance, governmental rule or regulation or court decree to which
any of them may be subject which violation would have a Material Adverse
Effect.
(n) The Company has not taken and shall not take, directly or
indirectly, any action resulting in a violation of Regulation M under the
Exchange Act, or designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Common Shares of the Company to
facilitate the sale of or resale of the Units or Securities covered
thereby.
(o) The Company and its Subsidiaries have timely (giving effect to
permitted extensions) and properly prepared and filed all necessary
income, franchise and other required tax returns whether required by the
United States, Canada, the British Virgin Islands, the Colony of Hong Kong
or the People's Republic of China or any other jurisdiction, and has paid
all taxes shown as due thereon (other than such taxes, if any, owing by
certain of the Subsidiaries that are dormant and without assets, the
nonpayment of which would not have a Material Adverse Effect), and the
Company has no knowledge of any tax deficiency that has been or might be
asserted against the Company or its Subsidiaries which would have a
Material Adverse Effect.
(p) None of the Company, any of its Subsidiaries, nor to the
Company's knowledge any officer, director, employee or agent acting on
behalf of the Company or any of its Subsidiaries has at any time (i) made
any contributions to any candidate for political office in violation of
applicable law, or failed to disclose fully any contributions to any
candidate for political office in accordance with any applicable statute,
rule, regulation or ordinance requiring such disclosure, (ii) made any
payment to any local, state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi-public
duties, other than payments required or allowed by applicable law, (iii)
made any payment outside the ordinary course of business to any purchasing
or selling agent or person charged with similar duties of any entity to
which the Company or any of its Subsidiaries sells or from which the
Company or any of its Subsidiaries buys products for the purpose of
influencing such agent or person to buy products from or sell products to
the Company or any of its Subsidiaries, or (iv) except as set forth in the
Prospectus, engaged in any transaction, maintained any bank account or
used any corporate funds except for
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<PAGE> 6
transactions, bank accounts and funds which have been and are reflected in
the normally maintained books and records of the Company.
(q) Except as set forth in the Prospectus, the Company does not know
of any claims for services in the nature of a finder's fee, consulting fee
or brokerage fee with respect to this offering for which the Company, its
Subsidiaries or the Standby Underwriter may be responsible.
(r) The properties of the Company and its Subsidiaries are
adequately insured against loss or damage by fire and there is maintained
on such properties such other insurance as is prudent or customarily
maintained by companies in the same or similar business and in the same or
similar locality.
(s) Except as described in the Effective and Final Prospectus, the
Company or its Subsidiaries owns or possesses adequate rights to use all
material patents, patent rights, inventions, trademarks, service marks,
trade names and copyrights necessary for the conduct of its business as
described in the Effective and Final Prospectus; except as set forth in
the Effective and Final Prospectus, neither the Company nor such
Subsidiaries have received any notice of infringement of or conflict with,
and to the best knowledge of the Company neither the Company nor its
Subsidiaries is infringing or in conflict with, asserted rights of others
with respect to any patents, patent fights, inventions, trademarks,
service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect.
(t) The Warrants, the Standby Underwriter's Warrants and the
Counsel's Warrants have been duly and validly authorized by the Company
and upon delivery to you in accordance herewith will be duly issued and
legal, valid and binding obligations of the Company.
(u) The Common Shares underlying the Warrants, the Standby
Underwriter's Warrants and the Counsel's Warrants have been duly
authorized and reserved for issuance upon the exercise of the Warrants,
the Standby Underwriter's Warrants and the Counsel's Warrants and when
issued upon payment of the exercise price therefor will be validly issued,
fully paid and nonassessable Common Shares, free and clear of all liens,
encumbrances, equities and claims.
(v) There are no outstanding loans or advances or guarantees of
indebtedness by the Company or any of its Subsidiaries to or for the
benefit of any of the officers or directors of the Company or any of its
Subsidiaries, or any of the members of the families of any of them, which
are required by the Rules and Regulations to be described in the
Registration Statement, Effective Prospectus and Final Prospectus except
such that are so described.
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorizations (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorizations;
and (iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2. PURCHASE BY THE UNDERWRITERS.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, and subject to the terms and conditions
herein set forth, the Company agrees to issue and sell to the Standby
Underwriter and the Standby Underwriter agrees to purchase from the
Company. the Underwritten Units, at a price per Underwritten Unit equal to
the lesser of per Unit, (x) $_________ per Unit,
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<PAGE> 7
and (y) the closing bid price of the Common Shares on the NASDAQ National
Market System on _______, 1997, the Expiration Date of the Rights Offering
(the "Expiration Date"). The Standby Underwriter agrees to offer the
Underwritten Units to the public as set forth in the Final Prospectus.
(b) On the Closing Date, simultaneously with the purchase of the
Underwritten Units, if any, by the Standby Underwriter, the Company shall
pay to the Underwriter a Standby fee equal to four percent (4%) of the
total gross proceeds (before payment of any fees or commissions payable
hereunder or to any other third party) received by the Company from the
sale of Units in the Rights Offering and from the sale of the Underwritten
Units pursuant to this Agreement.
3. DELIVERY OF AND PAYMENT FOR UNITS. Delivery of certificates for the
Units to be purchased by the Standby Underwriter from the Company and payments
therefor, shall be made at the offices of Joseph Charles & Associates, Inc.,
9701 Wilshire Boulevard, 9th Floor, Beverly Hills, California 90212 (or such
other place as mutually may be agreed upon), before 7:00 A.M., California time,
on the sixth full Business Day following the Expiration Date or at such other
date, not later than ten Business Days after such date, as shall be determined
by agreement of the Company and the Standby Underwriter (the "Closing Date").
Delivery of certificates representing the Underwritten Units shall be made
by or on behalf of the Company to you, against payment of the purchase price
therefor by certified or official bank check payable in Los Angeles Clearing
House funds. The Certificates shall be registered in such names and
denominations as you shall have requested at least two full Business Days prior
to the Closing Date, and shall be made available for checking and packaging at a
location as may be designated by you at least one full Business Day prior to the
Closing Date. Time shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Standby Underwriter.
4. COVENANTS. The Company covenants and agrees with the Standby
Underwriter that:
(a) The Company shall use its best efforts to comply with the
provisions of and make all requisite filings with the Commission pursuant
to the Rules and Regulations and to notify you promptly (in writing, if
requested) of all such filings. The Company shall notify you promptly of
any request by the Commission for any amendment of or supplement to the
Registration Statement or the Effective or Final Prospectus or for
additional information; the Company shall prepare and file with the
Commission, promptly upon your request, any amendments of or supplements
to the Registration Statement or Effective or Final Prospectus which, in
your reasonable opinion, may be necessary or advisable in connection with
the distribution of the Units; the Company shall prepare and file with the
Commission from time to time any amendments of or supplements to the
Registration Statement or Effective or Final Prospectus (or in lieu
thereof, at the Company's option, a separate registration statement) which
may be necessary or advisable to comply with the requirements imposed upon
it by the Securities Act, as now and hereafter amended, and by the Rules
and Regulations as from time to time in force, so far as is necessary to
permit the continuance of sales of Common Shares upon exercise of the
Warrants and Standby Underwritten Warrants, until such time as all of the
Warrants have been exercised or redeemed and all of the Units underlying
the Standby Underwriter's Warrants and Counsel's Warrants have been issued
and sold (but not more than three years, six months after the Closing
Date); and the Company shall not file any amendment of or supplement to
the Registration Statement or the Effective or Final Prospectus which is
not approved by you after reasonable notice thereof, such approval not to
be unreasonably withheld or delayed. The Company shall advise you promptly
of the issuance by the Commission or any state or other regulatory body of
and stop order or other order suspending the effectiveness of the
Registration Statement, suspending or preventing the use of any
Pre-Effective Prospectus or the Effective or Final Prospectus or
suspending the qualification of the Securities for offering or sale in any
jurisdiction, or of the institution of any proceedings for any such
purpose, and the Company shall use its best efforts to prevent the
issuance of any stop order or other such order and, should a stop order or
other such order be issued, to obtain as
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<PAGE> 8
soon as possible the lifting thereof.
(b) The Company shall furnish to the Standby Underwriter, from time
to time and without charge, a reasonable number of copies of the
Registration Statement of which one for the Standby Underwriter and one
for counsel to the Standby Underwriter shall be signed and shall include
exhibits and all amendments and supplements to any such Registration
Statement, in each case as soon as available and in such quantities as you
may from time to time reasonably request.
(c) Within the time during which a Final Prospectus relating to the
Securities is required to be delivered under the Securities Act, the
Company shall comply with all requirements imposed upon it by the
Securities Act, as now and hereafter amended, and by the Rules and
Regulations as from time to time in force, so far as is necessary to
permit the continuance of sales of or dealings in the Securities as
applicable, as contemplated by the provisions hereof and the Final
Prospectus. If during such period any event occurs as a result of which
the Final Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances then existing, not misleading, or if during such period it
is necessary to amend the Registration Statement or supplement the Final
Prospectus to comply with Securities Act, the Company shall promptly
notify you and the Company shall amend the Registration Statement or
supplement the Final Prospectus (at the expense of the Company) so as to
correct such statement or omission or effect such compliance.
(d) The Company shall take or cause to be taken all necessary action
and furnish to whomever you may direct such information as may be required
in qualifying the Securities for sale under the laws of such jurisdictions
which you shall designate and to continue such qualifications in effect
for as long as may be necessary for the distribution of the Securities,
except that in no event shall the Company be obligated in connection
therewith to qualify as a foreign corporation, or to execute a general
consent for service of process, or subject itself to taxation as doing
business in such jurisdiction.
(e) The Company shall make generally available to its security
holders, in the manner contemplated by Rule 158(b) under the Securities
Act, as soon as practicable but in any event not later than 45 days after
the end of its fiscal quarter in which the first anniversary date of the
effective date of the Registration Statement occurs, an earnings statement
satisfying the requirements of Section 11(a) of the Securities Act
covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
(f) For a period of 90 days following the Closing Date, the Company
shall not, without your prior written consent, (i) purchase any Common
Shares or other equity securities of the Company, or (ii) offer, issue,
sell, transfer or otherwise dispose of, for value or otherwise, directly
or indirectly (whether through the grant of options, warrants or
otherwise), any Common Shares or other equity securities of the Company
except (A) the Rights or the Securities, (B) in connection with
acquisitions by the Company or pursuant to a stock option plan of the
Company providing for the issuance of up to [300,000] Common Shares and
the grant of options to officers, directors and employees under such plan
at an exercise price no less than the exercise price of the Rights or (C)
in a transaction which results in the shares so issued, sold, transferred
or disposed of constituting "restricted securities" for purposes of Rule
144 of the Rules and Regulations. At or before the Closing Date, you shall
receive from the officers, directors and certain principal shareholders
designated by you, a written agreement (the "Lock-Up Agreement") not to
offer, sell, transfer or otherwise dispose of, directly or indirectly, any
of the Common Shares or other equity securities of the Company now owned,
for a period of 90 days following the Closing Date, without your prior
written consent; provided, however, that such persons may make private
dispositions or gifts of such securities if such securities constitute
"restricted securities" within the meaning of Rule 144 of the Rules and
Regulations, in the hands of the acquiring persons, and if the acquiring
persons agree in writing to be
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<PAGE> 9
bound by the foregoing restrictions on transfer.
(g) The Company shall not solicit Warrant exercises other than
through the Standby Underwriter. Upon exercise of any Warrant by the
holder thereof, the Company shall pay to the Standby Underwriter a fee in
an amount equal to one percent (1%) of the aggregate exercise price of the
Warrants so exercised, provided, that, (i) the market price of the Common
Shares on the date the Warrant is exercised is greater than the
then-exercise price of the Warrants; (ii) the exercise of the Warrants was
solicited by a member of the National Association of Securities Dealers,
Inc.; (iii) the Warrant being exercised is not held in a discretionary
account; (iv) disclosure of the compensation arrangements was made both at
the time of the Rights Offering and at the time of the exercise of the
Warrant; and (v) the solicitation of the exercise of the Warrant was not
in violation of Regulation M promulgated under the Exchange Act.
(h) The Company shall apply the net proceeds of the sale of the
Units as set forth in the Effective and Final Prospectus.
(i) The Company shall pay or cause to be paid (i) all expenses
(including stock transfer taxes) incurred in connection with the
distribution of the Rights and the purchase, sale and delivery of the
Units to its shareholders and the Standby Underwriter, as applicable, (ii)
all fees and expenses (including, without limitation, fees and expenses of
the Company's accountants and counsel, but excluding fees and expenses of
counsel for the Standby Underwriter not related to the matters set forth
in Section 4(i)(iii) below)) in connection with the preparation, printing,
filing, delivery and shipping of the Registration Statement (including the
financial statements therein and all amendments and exhibits thereto),
each Pre-Effective Prospectus, the Effective and Final Prospectus as
amended or supplemented and the printing, delivery and shipping of this
Standby Underwriting Agreement and Selected Dealer Agreements and any
letters transmitting the offering material to the Standby Underwriter or
selling group members (including costs of mailing and shipment), (iii) all
filing fees and up to $[2,500] for the payment of fees and disbursements
of counsel to the Standby Underwriter incurred in connection with the
qualification of the Units and the Securities under state securities laws
as provided in Section 4(d) hereof; (iv) the filing fee of the National
Association of Securities Dealers, Inc., (v) any applicable listing fees,
(vi) the cost of printing certificates representing the Warrants and the
Common Shares, (vii) the cost and charges of any transfer agent or
registrar, (viii) the costs of a tombstone advertisement relating to the
Rights Offering in the Wall Street Journal, national edition and The
Investment Reporter, in each case in form and substance satisfactory to
the Standby Underwriter, and of advertising undertaken at the Company's
request, including all graphic slide costs (ix) the costs of preparing,
printing and distributing bound volumes for the Standby Underwriter and
its counsel, (x) all costs and expenses incurred by the Company in
connection with travelling and attending meetings on the "road show" or
other marketing expenses incurred in connection with distribution of the
Rights and the Securities, (xi) the fee set forth in Section 2(b), and
(xii) all other costs and expenses incident to the performance of the
obligations of the Company hereunder which are not otherwise provided for
in this section. In addition, the Company shall also pay to you, at the
Closing Date, a nonaccountable expense allowance equal to $ ________. If
the sale of the Underwritten Units provided for herein is not consummated
by reason of acts of the Company pursuant to Section 7(a) hereof which
prevent this Agreement from becoming effective, or by reason of any
failure, refusal or inability on the part of the Company to perform any of
its agreements on its part to be performed or because any other condition
of the Standby Underwriter's obligations hereunder is not fulfilled, the
Company shall reimburse the Standby Underwriter for all reasonable
out-of-pocket disbursements (including reasonable fees and disbursements
of counsel) actually incurred by the Standby Underwriter in connection
with the investigation, preparing to market and marketing of the Units or
in contemplation of performing their obligations hereunder. If the sale of
the Underwritten Units is not consummated because you determine, in your
sole judgment, that market conditions are unsuitable for such offering, or
if information comes to your attention (other than information contrary to
the representations, warranties and covenants of the Company contained
herein)
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<PAGE> 10
relating to the Company, its Subsidiaries, their respective management
personnel, or their position in the industry which could, in your sole
judgment. preclude a successful offering of the Underwritten Units to the
public, then the maximum amount to which you shall be entitled to
reimbursement for your out-of-pocket expenses shall be $________. The
Company shall not in any event be liable to the Standby Underwriter for
loss of anticipated profits from the transactions covered by this Standby
Underwriting Agreement. It is understood and agreed, however, that except
as provided in this Section 4, the Standby Underwriter shall pay all of
its expenses and costs, including the fees of its own counsel and
advertising expenses or other expenses connected with any offers and/or
sales of Underwritten Units they may make.
(j) The Company, at its expense, shall furnish its shareholders with
an annual report containing audited financial statements prepared in
accordance with GAAP that have been reported on by its independent
accountants, and, as soon as practicable after the end of each of the
first three quarters of each fiscal year, a balance sheet, a statement of
the Company's cash flows for such quarter, and a statement of the
Company's operations for such quarter (which may be in condensed form),
all in reasonable detail, and for five years after the Closing Date, at
its expense, shall furnish you, (i) as soon as practicable after the end
of each fiscal year, a balance sheet of the Company and any Subsidiaries
as at the end of such fiscal year, together with statements of income or
operations, shareholders' equity and cash flows of the Company and any
consolidated Subsidiaries, and of any non-consolidated significant
Subsidiary, for such fiscal year, all in reasonable detail and accompanied
by a copy of the certificate or report thereon of independent certified
public accountants; (ii) as soon as they are available, a copy of all
reports (financial or other) mailed to security holders; (iii) as soon as
they are available, a copy of all reports and financial statements
furnished to or filed with the Commission; and (iv) such other information
as you may from time to time reasonably request.
(k) So long as the Company has an active subsidiary or subsidiaries,
the financial statements provided for in Section 4(j) will be on a
consolidated basis to the extent the accounts of the Company and its
Subsidiary or Subsidiaries are consolidated in reports furnished to its
shareholders generally, separate financial statements shall be furnished
for all Subsidiaries whose accounts are not consolidated but which at the
time are "significant subsidiaries" as defined in Rule 405 of the Rules
and Regulations.
(l) The Company maintains and shall continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorization; (ii) transactions are recorded as necessary in
order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability
for assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(m) The Company shall comply with all registration, filing and
reporting requirements of the Exchange Act which may from time to time be
applicable to the Company.
(n) The Company shall make all filings required, including
registration under the Exchange Act, to obtain and maintain the listing of
the Units on the NASDAQ Interdealer Quotation System and the Warrants and
the Common Shares on the NASDAQ National Market System, in each case upon
the effectiveness of the Registration Statement.
(o) The Company shall make reasonable efforts to acquire and
maintain, for a period of three years from the Closing Date, officer and
director liability insurance, at reasonable cost (as determined in the
reasonable judgment of the Board) and in reasonable amounts from a
responsible issuer.
(p) The Company shall use its reasonable efforts to maintain in
place the executive officers
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<PAGE> 11
of the Company who are identified in the Registration Statement for a
reasonable period of time after the Closing Date.
5. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the Standby
Underwriter hereunder to purchase and pay for the Underwritten Units, and to
perform each of its other obligations set forth herein, are subject to the
accuracy, as of the date hereof and the Closing Date (as if made at the Closing
Date), of the representations and warranties of the Company contained herein, to
the performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made within the
time period required by the Rules and Regulations; no stop order
suspending the effectiveness of the Registration Statement or any
amendment or supplement thereto shall have been issued; no proceedings for
the issuance of such an order shall have been initiated or threatened; and
any request of the Commission for additional information (to be included
in the Registration Statement or the Final Prospectus or otherwise) shall
have been disclosed to you and complied with to your satisfaction.
(b) You shall not have advised the Company that the Registration
Statement or Effective or Final Prospectus, or any amendment or supplement
thereto, contains an untrue statement of fact which, in your opinion, is
material, or omits to state a fact which, in your opinion, is material and
is required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) On or prior to the Closing Date, you shall have received from
Troop Meisinger Steuber & Pasich, LLP, counsel for the Standby
Underwriter, such opinion or opinions with respect to the sufficiency of
all corporate proceedings and other legal matters relating to this
Agreement and the transactions contemplated hereby as you reasonably may
require, and such counsel shall have received such papers and information
as they request to enable them to pass upon such matters.
(d) On the Closing Date, there shall have been furnished to you the
opinion (addressed to the Underwriter) of McW. Todman & Co., counsel for
the Company with respect to certain matters of the law of the British
Virgin Islands, dated the Closing Date and in form and substance
satisfactory to counsel for the Underwriter and stating that it may be
relied upon by counsel for the Underwriter in giving their opinion, to the
effect that:
(i) The Company is a corporation duly organized and validly
existing and in good standing under the laws of the British Virgin
Islands. The Company has all corporate power and authority, and all
material permits of and from all British Virgin Islands' public,
regulatory or governmental officials and bodies, to own, lease and
operate its properties and conduct its business as now being
conducted and as described in the Prospectus and, to the best
knowledge of such counsel, there are no proceedings pending or
threatened relating to the revocation or modification of any such
permit, nor is there any basis therefor, nor has any event occurred
that allows (or which with notice or lapse of time, or both, would
allow) revocation or termination thereof or result in any other
impairment of the rights of the holder of any such permit.
(ii) The Company has all requisite corporate power and
authority to execute, deliver and perform each of this Agreement,
the Standby Underwriter's Warrant Agreement, the Counsel's Warrant
Agreement and the Warrant Agreement. Each of this Agreement, the
Standby Underwriter's Warrant Agreement, the Counsel's Warrant
Agreement and the Warrant Agreement have been duly and validly
authorized, executed and delivered by the Company, and constitute
the
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legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its respective terms, except
as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights
generally from time to time in effect and the availability of
equitable remedies (regardless of whether enforceability is
considered in a proceeding at law or in equity).
(iii) None of the execution, delivery and performance of this
Agreement, the Standby Underwriter's Warrant Agreement, the
Counsel's Warrant Agreement and the Warrant Agreement, the
consummation of the transactions herein or therein contemplated by
the Company, including the issuance, sale and delivery of the
Securities provided for thereunder, nor compliance with the terms
and provisions hereof and thereof, will: (A) to the best of such
counsel's knowledge, conflict with or result in a breach of any of
the terms and provisions of, or constitute a default (or an event
that with notice or lapse of time, the Counsel's Warrants, or both,
would constitute a default) or require consent under, or result in
the creation or imposition of any lien, encumbrance, security
interest, claim or other restriction of any nature whatsoever upon
any property or assets of the Company or any of the Subsidiaries,
pursuant to the terms of any oral or written agreement or
understanding, instrument or permit known to such counsel to which
the Company or any of the Subsidiaries is a party or by which any of
their respective properties or assets may be bound; or (B) violate
or conflict with any provisions of the charter of the Company or any
of the Subsidiaries, or any statute, rule or regulation, or to the
best of such counsel's knowledge, any permit, judgment, decree,
order of any court, arbitrator or similar person or any British
Virgin Islands' public, governmental or other regulatory agency or
body having jurisdiction over the Company or any of the Subsidiaries
or any of their respective properties or assets. No consent,
approval, authorization or permit of or with any court, arbitrator
or similar person or any British Virgin Islands' public,
governmental or regulatory agency or body having jurisdiction over
the Company or any of the Subsidiaries or any of their respective
properties or assets is required for the execution, delivery and
performance of this Agreement, the Standby Underwriter's Warrant
Agreement, the Counsel's Warrant Agreement or the Warrant Agreement,
and the consummation of the transactions herein or therein
contemplated, including, without limitation, the issuance, sale and
delivery of any of the Units or the Securities.
(iv) The authorized, issued and outstanding capital stock of
the Company, is as set forth under the caption "Capitalization" in
the Effective Prospectus. The Units, the Common Shares and the
Warrants, the Standby Underwriter's Warrants, the Counsel's Warrant
Agreement and each other authorized class of capital stock of the
Company conforms in all material respects to all statements in
relation thereto contained in the Effective Prospectus. The Company
has a sufficient number of authorized but unissued Common Shares to
enable the Company to issue, without further stockholder action, all
of the Common Shares underlying the Warrants, the Standby
Underwriter's Warrants and the Counsel's Warrants. The Company has
reserved out of the authorized but unissued Common Shares all of the
shares underlying the Units and Warrants. All of the issued and
outstanding Common Shares have been duly and validly authorized and
issued and are fully paid and nonassessable, with no personal
liability attaching to the ownership thereof. The shares to be
issued or sold in accordance with the terms of this Agreement, the
Units and the Warrants when paid for in accordance with this
Agreement, and the Warrant Agreement, as applicable, will be duly
and validly issued, fully paid and nonassessable, with no personal
liability attaching to the ownership thereof. There are no
preemptive fights or other rights to subscribe for or to purchase,
or any restrictions upon the voting or transfer of, any Common
Shares pursuant to the Company's charter or, to the best knowledge
of such counsel, any other agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries is bound.
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<PAGE> 13
(v) To the best of such counsel's knowledge, there is no
litigation, arbitration, action, suit, proceeding or investigation
before or by any court, arbitrator or similar party or by or before
any governmental agency or body, pending or threatened: (A) to which
the Company, or any of the Subsidiaries is a party or which any
property or assets of the Company, or any of the Subsidiaries is the
subject that is required to be disclosed in the Registration
Statement or the Prospectus that is not described as required; or
(B) to which the Company or any of the Subsidiaries is a party or
which any property or assets of the Company or any of the
Subsidiaries is the subject that, if adversely determined, could
individually or in the aggregate, have a material effect on the
business, operations, earnings, prospects, properties or condition
(financial or otherwise) of the Company, or any of the Subsidiaries.
(vi) To the best of such counsel's knowledge, neither the
Company, nor any of the Subsidiaries is in violation of, or in
default with respect to, its charter or any British Virgin Islands'
law, rule, permit, regulation, order, judgment or decree applicable
to or binding upon the Company or any Subsidiary or by which any of
their respective assets or properties may be bound or affected,
except such as are described in the Effective Prospectus and Final
Prospectus or such as, individually or in the aggregate, do not now
have, and in the future do not pose a significant risk of having a
material adverse effect upon the business, operations, earnings,
properties or condition (financial or otherwise) of the Company or
any of the Subsidiaries.
(vii) To the best of such counsel's knowledge, no default
exists, and no event has occurred that with notice or lapse of time,
or both, would constitute a default in the due performance and
observance of any term, covenant or condition of any material
indenture, mortgage, deed of trust, note, bank loan or credit
agreement, lease, permit, authorization or any other material oral
or written agreement or instrument to which the Company or any of
the Subsidiaries is a party or by which any of them or any of their
respective properties or assets may be bound or affected.
(viii) The form of certificates for the Warrants attached to
the Registration Statement as an exhibit has been duly adopted by
the Company and conforms to all legal requirements of the British
Virgin Islands.
(ix) To the best of such counsel's knowledge, there are no
outstanding options, warrants, calls, rights or other agreements or
commitments with respect to the purchase of any capital shares of
the Company, other than as disclosed in the Registration Statement.
(x) The descriptions contained in the Registration Statement
of British Virgin Islands statutes, British Virgin Islands legal and
governmental proceedings or British Virgin Islands laws are accurate
and complete in all material respects.
(xi) Under the laws of the British Virgin Islands, the
submission by the Company to the jurisdiction of any Federal or
State court sitting in the State of California, and the designation
of the law of the State of California to apply to this Agreement is
binding upon the Company and would be enforceable in any judicial or
administrative proceeding in the British Virgin Islands if properly
brought to the attention of the Court or administrative body in
accordance with the laws of the British Virgin Islands.
(xii) Any judgment obtained in the Federal Courts of the
United States or any State Court in the United States against the
Company for a definite sum would be treated by the High Court of the
British Virgin Islands as a cause of action in itself so that no
retrial of the issues would be necessary provided that:
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<PAGE> 14
(A) the Federal Court of or the State court in the
United States had jurisdiction in the matter:
(B) the judgment given by the Federal Court of or the
State Court in the United States was final and
conclusive;
(C) the judgment given by the Federal Court of or the
State Court in the United States was not in
respect of penalties, taxes, fines or similar
fiscal or revenue obligations;
(D) in obtaining the judgment there was no fraud on
the part of the person in whose favor the judgment
was given or on the part of the Federal Court of
or the State Court in the United States;
(E) recognition or enforcement of the judgment in the
British Virgin Islands would not be contrary to
public policy; and
(F) the proceedings pursuant to which judgment was
obtained were not contrary to natural justice.
In rendering such opinion, such counsel may rely, as to matters of fact,
to the extent it deems proper, on statements or certificates of responsible
officers of the Company or the Subsidiaries, certificates of public officials,
and certificates or other written statements of officers of departments of
various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company and the Subsidiaries, provided that
copies of any such statements or certificates shall be delivered to the Standby
Underwriter's counsel upon request.
(e) On the Closing Date, there shall have been furnished to you the
opinion (addressed to the Underwriters) of Wilkinson & Grist, counsel for
the Company with respect to certain matters of Hong Kong law, dated the
Closing Date and in form and substance satisfactory to counsel for the
Standby Underwriter and stating that it may be relied upon by counsel for
the Standby Underwriter in giving their opinion, to the effect that:
(i) Each of Nam Tai Management Services Limited, Nam Tai
Electronic & Electrical Products Limited, Nam Tai Supplies Limited,
Nam Tai Electronic Co. Limited, Nam Taft Electronic Manufacturing
Limited, Nam Tai Finance Services Limited, and Zastron Limited
(collectively, the "HK Subsidiaries") are corporations duly
organized and validly existing under the laws of the Colony of Hong
Kong. Except for such of the HK Subsidiaries that are dormant and
without assets, each of the HK Subsidiaries has full corporate power
and authority, and all material permits of and from all Hong Kong
public, regulatory or governmental officials or bodies, to own,
lease and operate its respective properties and conduct its
respective business in the manner currently conducted and as
proposed to be conducted and, to the best of our knowledge, except
for such of the HK Subsidiaries that are dormant and without assets,
there are no proceedings pending or threatened relating to the
revocation or modification of any such permit, nor is there any
basis therefor, nor has any event occurred that allows (or which
with notice or lapse of time, or both, would allow) revocation or
termination thereof or result in any other impairment of the right
of the holder of any such permit.
(ii) All of the issued and outstanding capital stock of each
of the HK Subsidiaries has been duly and validly authorized and
issued, is fully paid and nonassessable, has not been issued and is
not owned or held in violation of any preemptive rights contained in
the Articles of Association of the relevant HK Subsidiary and is
owned directly by the Company or by one of the
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<PAGE> 15
Company's wholly owned Hong Kong subsidiaries, to the best of our
knowledge, free and clear of any lien, encumbrance, claim security
interest, restriction on transfer (except for restrictions imposed
under the Securities Act or applicable state or foreign securities
laws).
(iii) The descriptions contained in the Registration Statement
of Hong Kong statutes, Hong Kong legal and governmental proceedings
or Hong Kong laws are accurate and complete in all material
respects.
(iv) Under the laws of the Colony of Hong Kong, the submission
by the Company or any HK Subsidiary to the jurisdiction of any
Federal or State court sitting in the State of California, and the
designation of the law of the State of California to apply to the
Standby Underwriting Agreement is binding upon the Company and each
HK Subsidiary and would be enforceable in any judicial or
administrative proceeding in the Colony of Hong Kong if properly
brought to the attention of the Court or administrative body in
accordance with the laws of the Colony of Hong Kong.
(v) To the best of our knowledge (based upon examination of
each of the HK Subsidiaries' statutory books, records maintained by
the Registrar of Companies and available for inspection in respect
of each of the HK Subsidiaries, and our files), there are no
outstanding options, warrants, calls, fights or other agreements or
commitments with respect to the purchase of any capital stock of any
of the HK Subsidiaries, other than as disclosed in the Registration
Statement.
In rendering such opinion, such counsel may rely, as to matters of fact,
to the extent it deems proper on statements or certificates of responsible
officers of the Company or the Subsidiaries, certificates of public officials,
and certificates or other written statements of officers of departments of
various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company and the Subsidiaries, provided that
copies of any such statements or certificates shall be delivered to the Standby
Underwriter's counsel upon request.
(f) On the Closing Date, there shall have been furnished to you the
opinion (addressed to the Standby Underwriter) of Ladner Downs, counsel
for the Company's Canadian subsidiary with respect to certain matters of
Canadian law, dated the Closing Date and in form and substance
satisfactory to counsel for the Standby Underwriter and stating that it
may be relied upon by counsel for the Standby Underwriter in giving their
opinion, to the effect that:
(i) Nam Tai Electronics (Canada) Limited ("NOT Canada"), is a
corporation duly organized and validly existing under the federal
laws of Canada. NOT Canada has full corporate power and authority to
own, lease and operate its properties and conduct its business as
described in the Registration Statement.
(ii) NOT Canada's authorized share capital consists of an
unlimited number of shares. NOT Canada's issued share capital
consists of 450,000. All of the issued and outstanding capital stock
of NOT Canada has been duly and validly authorized and issued, is
fully paid and nonassessable and has not been issued and is not
owned or held in violation of any preemptive rights contained in its
Articles of Information or under the Canada Business Corporation
Act. Of the issued and outstanding share capital of NOT Canada, the
Company is the registered owner of 300,000 shares.
(iii) To the best of such counsel's knowledge, there are no
outstanding options, warrants, calls, rights or other agreements or
commitments with respect to the purchase of any capital stock of NOT
Canada, other than as disclosed in the Registration Statement.
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<PAGE> 16
(iv) To the best of such counsel's knowledge, NOT Canada has
all material permits of and from all Canadian public, regulatory or
governmental officials or bodies, to own, lease and operate its
properties and conduct is business as described in the Registration
statement and there are no proceedings pending or threatened
relating to the revocation or modification of any such permit nor is
there any basis therefor, nor has any event occurred that allows (or
with which notice or lapse of time, or both, would allow) revocation
or termination thereof or result in any other impairment of the
rights of the holder of any such permit.
(v) NOT Canada is not in breach or violation of (i) its
memorandum or articles of association, (ii) any agreement,
instrument, order, writ, judgment or decree to which such
corporation is a party or to which its assets or property are
subject, or (iii) any consent, approval, authorization or other
similar action required under Canadian law in connection with the
conduct of its business.
(vi) Under the laws of British Columbia and the federal laws
of Canada applicable therein, the submission by the Company or NOT
Canada to the jurisdiction of any Federal or State court sitting in
the State of California, and the designation of the law of the State
of California to apply to this Agreement is binding upon the Company
and NOT Canada and would be enforceable in any judicial or
administrative proceeding in Canada if properly brought to the
attention of the Court or administrative body in accordance with the
laws of Canada.
(vii) Subject to certain time limitations, a Canadian court
may declare a civil judgment rendered outside of Canada enforceable.
In rendering such opinion, such counsel may rely, as to matters of fact,
to the extent it deems proper, on statements or certificates of responsible
officers of the Company or the Subsidiaries, certificates of public officials,
and certificates or other written statements of officers of departments of
various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company and the Subsidiaries, provided that
copies of any such statements or certificates shall be delivered to the Standby
Underwriter's counsel upon request.
(g) On the Closing Date, there shall have been furnished to you the
opinion (addressed to the Underwriters) of counsel for the Company
licensed in the People's Republic of China, dated the Closing Date and in
form and substance satisfactory to counsel for the Underwriters and
covering such matters concerning the Company's Chinese subsidiaries,
assets and property, as well as matters of Chinese law, as may be
reasonably requested by the Standby Underwriter.
In rendering such opinion, such counsel for the Company shall state that
it has reviewed the Registration Statement and the Prospectus, and no facts have
come to the attention of such counsel to give such counsel reason to believe
that the Registration Statement, at the time it became effective (or if any
amendment thereof or supplement thereto is made prior to the Closing Date, as of
the date of such amendment or supplement), contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that the
Prospectus, at the time the Registration Statement became effective (or if any
amendment thereof is made prior to the Closing Date, as of the date of such
amendment) and at the Closing Date contained an untrue statement of a material
fact or omitted to state a material fact necessary, in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading (it being understood that such counsel need express no belief or
opinion with respect to the financial statements and schedules and other
financial statistical data included therein).
In rendering such opinion, such counsel may rely, as to matters of fact,
to the extent it deems proper, on statements or certificates of responsible
officers of the Company or the Subsidiaries, certificates of public officials,
and certificates or other written statements of officers of departments of
various jurisdictions having custody of
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<PAGE> 17
documents respecting the corporate existence or good standing of the Company and
the Subsidiaries, provided that copies of any such statements or certificates
shall be delivered to the Standby Underwriter's counsel upon request.
(h) On the Closing Date, there shall have been furnished to you the
opinion (addressed to the Underwriter) of Freshman, Marantz, Orlanski,
Cooper & Klein, counsel for the Company, dated the Closing Date and in
form and substance satisfactory to counsel for the Standby Underwriter and
stating that it may be relied upon by counsel for the Standby Underwriter
in giving their opinion, to the effect that:
(i) Each of the Company and its Subsidiaries is duly qualified
or licensed and in good standing as a foreign corporation in each
jurisdiction of the United States in which the character or location
of its properties (owned, leased or licensed) or the nature or
conduct of its business makes such qualification or licensing
necessary, except where such failures so to qualify or be sc
licensed in the aggregate would not have a material adverse effect
on the business, operations, earnings, properties or condition
(financial or otherwise) of the Company and its Subsidiaries taken
as a whole ("Material Adverse Effect").
(ii) Neither the execution, delivery and performance of this
Agreement, the Warrant Agreement, Standby Underwriter's Warrant
Agreement or the Counsel's Warrant Agreement, the consummation of
the transactions herein or therein contemplated by the Company
including the distribution of the Rights, the issuance, sale and
delivery of the Units to be sold hereunder or under the Standby
Underwriter's Warrant Agreement or the Counsel's Warrant Agreement,
nor compliance with the terms and provisions hereof and thereof,
will: (A) to the best of such counsel's knowledge, conflict with or
result in a breach of any of the terms and provisions of, or
constitute a default (or an event that with notice or lapse of time,
or both, would constitute a default) or require consent under, or
result in the creation or imposition of any lien, encumbrance,
security interest, claim or other restriction of any nature
whatsoever upon any property or assets of the Company or any of the
Subsidiaries, pursuant to the terms of any oral or written agreement
or understanding, instrument or permit known to such counsel to
which the Company or any of the Subsidiaries is a party or by which
any of their respective properties or assets may be bound; or (B)
violate or conflict with any provisions, or any applicable statute,
rule or regulation of the United States or any state thereof, or to
the best of such counsel's knowledge, any permit, judgment, decree,
order of any court, arbitrator or similar person or any public,
governmental or other regulatory agency or body having jurisdiction
over the Company or any of the Subsidiaries or any of their
respective properties or assets. No consent, approval, authorization
or permit of or with any court, arbitrator or similar person or any
United States public, governmental or regulatory agency or body
having jurisdiction over the Company or any of the Subsidiaries or
any of their respective properties or assets is required for the
execution, delivery and performance of this Agreement, the Warrant
Agreement, the Standby Underwriter's Warrant Agreement or the
Counsel's Warrant Agreement, and the consummation of the
transactions herein or therein contemplated, including, without
limitation, the distribution of the Rights, the issuance, sale and
delivery of the Units, the Warrants and the Common Shares except the
registration of the Rights and the Securities under the Securities
Act and the delivery of a prospectus required by Section 10(a)(3) of
the Securities Act and such permits as may be required by the NASD,
or under state and foreign securities or "Blue Sky" laws in
connection with the purchase and distribution of the Underwritten
Units by the Standby Underwriter (as to which such counsel need
express no opinion).
(iii) To the best of such counsel's knowledge, the Units, the
Common Shares and the Warrants, the Standby Underwriter's Warrants,
the Counsel's Warrants and each other authorized class of capital
stock of the Company conforms in all material respects to all
statements in relation thereto contained in the Effective
Prospectus. Except for the rights and options to purchase up to
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<PAGE> 18
[300,000] Common Shares that may be granted under the Company's
employee benefit plans, there are no preemptive rights or other
rights to subscribe for or to purchase, or any restrictions upon the
voting or transfer of, any Common Shares set forth in the Company's
charter or, to the best knowledge of such counsel, any other
agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries is bound.
(iv) To the best of such counsel's knowledge, there is no
litigation, arbitration, action, suit, proceeding or investigation
before or by any court, arbitrator or similar party or by or before
any governmental agency or body, domestic or foreign, pending or
threatened: (A) to which the Company, or any of the Subsidiaries is
a party or which any property or assets of the Company, or any of
the Subsidiaries is the subject that is required to be disclosed in
the Registration Statement or the Prospectus that is not described
as required; or (A) to which the Company or any of the Subsidiaries
is a party or which any property or assets of the Company or any of
the Subsidiaries is the subject that, if adversely determined, could
individually or in the aggregate, have a Material Adverse Effect.
(v) Nothing has come to such counsel's attention that causes
them to believe that either the Company, or any of the Subsidiaries
is in violation of, or in default with respect to, its charter or
bylaws or any law, rule, permit, regulation, order, judgment or
decree applicable to or binding upon the Company or any Subsidiary
or by which any of their respective assets or properties may be
bound or affected, except such as are described in the Registration
Statement and the Effective Prospectus or such as, individually or
in the aggregate, do not now have, and in the future do not pose a
significant risk of having a Material Adverse Effect.
(vi) To the best of such counsel's knowledge, all contracts,
agreements, leases or licenses, oral or written, and other documents
required to be described in or filed as exhibits to the Registration
Statement or the Prospectus have been so described or filed in the
Registration Statement and the Effective Prospectus, or an amendment
or supplement thereto.
(vii) To the best of such counsel's knowledge, no default
exists, and no event has occurred that with notice or lapse of time,
or both, would constitute a default in the due performance and
observance of any term, covenant or condition of any material
indenture, mortgage, deed of trust, not, bank loan or credit
agreement, lease, permit, authorization or any other material oral
or written agreement or instrument to which the Company or any of
the Subsidiaries is a party or by which any of them or any of their
respective properties or assets may be bound or affected.
(viii) This Standby Underwriting Agreement, the Warrant
Agreement, the Standby Underwriter's Warrant Agreement and the
Counsel's Warrant Agreement have each been duly authorized, executed
and delivered by the Company and each constitutes the valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as rights to indemnify and/or
contribution may be limited by federal or state securities laws or
the public policy underlying such laws and except as enforcement (A)
may be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally, and (B) is subject to
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(ix) The Registration Statement and the Final Prospectus and
any amendments or supplements thereto (other than the financial
statements and schedules and other financial and statistical data
included therein, as to which such counsel need express no opinion),
on the date the Registration Statement became effective and upon the
filing of the Final Prospectus and any
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<PAGE> 19
amendments or supplements thereto complied as to form in all
material respects with the requirements of the Securities Act and
the Rules and Regulations promulgated thereunder.
(x) The Registration Statement and all post-effective
amendments thereto filed prior to the Closing Date have become
effective under the Act and, to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereof has
been issued and no proceedings therefor have been initiated or
threatened by the Commission or any "Blue Sky" or securities
authority of any jurisdiction.
In rendering such opinion, such counsel for the Company shall state that
in participating the preparation of the Registration Statement and the Final
Prospectus, and in conferences with the officers and other representatives of
and accountants for the Company and with the Representatives and Underwriter's
Counsel, at which conferences the contents of the Registration Statement and the
Final Prospectus and related matters were discussed, no facts have come to the
attention of such counsel to give such counsel reason to believe that the
Registration Statement, at the time it became effective (or if any amendment
thereof is made prior to the Closing Date, as of the date of such amendment),
and at the Closing Date contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading (it being understood that such counsel need express no
belief or opinion with respect to the financial statements and schedules and
other financial statistical data included therein).
In rendering such opinion, such counsel may rely, as to matters of fact
(except such firm's knowledge), to the extent it deems proper, on statements or
certificates of responsible officers of the Company or the Subsidiaries,
certificates of public officials, and certificates or other written statements
of officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company and the
Subsidiaries, provided that copies of any such statements or certificates shall
be delivered to the Standby Underwriter's counsel upon request.
(i) There shall have been furnished to you a certificate, dated the
Closing Date and addressed to you, signed by the President and by the
Financial Controller of the Company to the effect that (i) the
representations and warranties of the Company contained in this Standby
Underwriting Agreement are true and correct as if made at and as of the
Closing Date, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at
or prior to the Closing Date; (ii) no stop order suspending the
effectiveness of the Registration Statement has been issued, and no
proceedings for that purpose have been initiated or threatened; (iii) all
filings required by Rule 424 and Rule 430A of the Rules and Regulations
have been made; (iv) the signers of said certificate have carefully
examined the Registration Statement and the Effective Prospectus and the
Final Prospectus, and any amendments or supplements thereto, and such
documents contain all statements and information required to be included
therein, and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;, and (v) since the effective date of the
Registration Statement, there has occurred no event required to be set
forth in an amendment or supplement to the Registration Statement or the
Effective Prospectus and the Final Prospectus which has not been so set
forth.
(j) Since the effective date of the Registration Statement, the
Company shall not have sustained any loss by fire, flood, accident or
other calamity, nor shall it have become a party to or the subject of any
litigation, individually or in the aggregate, which is material to the
Company, nor shall there have been a material adverse change in the
general affairs, business, key personnel, capitalization, financial
position or net worth of the Company, whether or not arising in the
ordinary course of business, which loss, litigation or change, in your
judgment, shall render it inadvisable to proceed with the delivery and
purchase of the Standby Underwriter's Warrants, the Counsel's Warrants or
the Underwritten Units.
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<PAGE> 20
(k) On the date of this Standby Underwriting Agreement and on the
Closing Date you shall have received a letter from Price Waterhouse
independent accountants, dated such date and Closing Date, respectively,
addressed to you as Representative, to the effect that:
(i) It is an independent certified public accountant with
respect to the Company within the meaning of the Securities Act and
the applicable Rules and Regulations.
(ii) In its opinion, the financial statements and notes
thereto of the Company examined by it and contained in the Effective
and Final Prospectus comply as to form in all material respects with
the applicable accounting requirements of the Securities Act and the
Rules and Regulations.
(iii) On the basis of its procedures and inquiries as
specified in its letters, nothing has come to its attention to cause
it to believe that:
(1) The unaudited financial statements of the Company
contained in the Effective and Final Prospectus (x) do not
comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the Rules
and Regulations, or (y) are not in conformity with generally
accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements:
(2) The data included in the Effective and Final
Prospectus under the caption "Selected Financial Data" do not
agree with the corresponding amounts in the audited and
unaudited financial statements for an ad as to the end of each
of the periods then ended; and
(3) At a specified date not more than five business days
prior to the date of such letter, (x) there was any change in
the capital stock or long-term debt of the Company or any
decrease in net current assets or net assets or shareholders'
equity, in each ease as compared with the corresponding
amounts shown in the June 30, 1997 balance sheet contained in
the Effective and Final Prospectus, or (y) for the period from
__________ __, 199_ to the specified date referred to above,
as compared with the corresponding period in the prior year,
there was any decrease in sales, net income or income per
share, except in all instances for changes or decreases which
the Effective and Final Prospectus discloses have occurred or
may occur, or if there was any change or decrease, setting
forth the amount of such change or decrease.
(iv) It has compared the information expressed in amounts,
dollar amounts and percentages derived therefrom, and other
financial information pertaining to the Company set forth in the
Effective and Final Prospectus specified by you, in each case to the
extent such information was obtained or derived from the general
accounting records of the Company, with the results obtained from
the application of specified readings, inquiries and other
appropriate procedures set forth in such letters, and found by it to
be in agreement.
(l) At or prior to the Closing Date, you shall have received the
Lock-Up Agreements described in the last sentence of Section 4(f) hereof.
(m) You shall have been furnished all additional documents and
certificates as you may reasonably request.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only
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<PAGE> 21
if they are reasonably satisfactory in form and substance to you and to counsel
for the Standby Underwriter. The Company shall furnish you with such conformed
copies of such opinions, certificates, letters and other documents as you shall
reasonably request. If any of the conditions specified in this Section 5 shall
not have been fulfilled when and as required by this Standby Underwriting
Agreement and all obligations of the Underwriters hereunder may be cancelled at,
or at any time prior to, the Closing Date, by you. Any such cancellation shall
be without liability of the Standby Underwriters to the Company. Notice of such
cancellation shall be given to the Company in writing, or by telegraph or
telephone and confirmed in writing.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company shall indemnify and hold harmless the Standby
Underwriter, each of its Subsidiaries, officers, directors, employees,
agents and counsel, and each person, if any, who controls the Standby
Underwriter within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act, against any loss, claim, damage or liability, joint
or several, to which such Standby Underwriter may become subject, under
the Securities Act or otherwise, insofar as such loss, claim, damage or
liability (or action with respect thereto) arises out of or is based upon
(i) any untrue statement or alleged untrue statement of a material fact
made by the Company in Section 1 or 2 hereof, or (ii) any untrue statement
or alleged untrue statement of a material fact contained (A) in the
Effective or Final Prospectus or any amendment or supplement thereto, or
(B) in any blue sky application or other document executed by the Company
specifically for that purpose or based upon information furnished by the
Company filed in any state or other jurisdiction in order to qualify any
or all of the Securities under the securities laws thereof (any such
application, document or information being hereinafter called a "Blue Sky
Application"), or (iii) the omission or alleged omission to state in the
Registration Statement. any Pre-Effective Prospectus, the Effective or
Final Prospectus or any amendment or supplement thereto or in any Blue Sky
Application a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading; and the Company shall reimburse the
Standby Underwriter for any reasonable legal or reasonable other expenses
as incurred by the Standby Underwriter in connection with investigating or
defending against or appearing as a third party witness in connection with
any such loss, claim, damage, liability or action, notwithstanding the
possibility that payments for such expenses might later be held to be
improper, in which case the person receiving them shall promptly refund
them; provided, however, that the Company shall not be liable in any such
case to the extent, but only to the extent, that any such loss, claim,
damage or liability arising out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with written information furnished to the Company
by or on behalf of the Standby Underwriter specifically for use in the
preparation of the Registration Statement, any Pre-Effective Prospectus,
the Effective or Final Prospectus or any amendment or supplement thereto,
or any Blue Sky Application; and provided further, that with respect to
any untrue statement or omission or alleged untrue statement or omission
made in any Pre-Effective Prospectus, the indemnity agreement contained in
this paragraph shall not inure to the benefit of any Standby Underwriter
to the extent that any such loss, claim, damage, liability or expense of
the Standby Underwriter or controlling person results from the fact that a
copy of the Final Prospectus was not sent or given to such person at or
prior to the written confirmation of sale of the Underwritten Securities
as required by the Securities Act, and if the untrue statement or omission
has been corrected in the Final Prospectus, unless such failure to deliver
the Final Prospectus was a result of noncompliance by the Company with its
obligations under Section 4(c) hereof.
(b) The Standby Underwriter shall indemnify and hold harmless the
Company against any loss, claim, damage or liability to which the Company
may become subject, under the Securities Act or otherwise, insofar as such
loss, claim, damage or liability (or action with respect thereof) arises
out of or is based upon (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in the Registration Statement,
the Pre-Effective Prospectus, the Effective or Final Prospectus or any
amendment
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<PAGE> 22
or supplement thereto, or (B) in any Blue Sky Application, or (ii) the
omission or alleged omission to state in the Registration Statement, any
Pre-Effective Prospectus, the Effective or Final Prospectus or any
amendment or supplement thereto or in any Blue Sky Application a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that such indemnification shall be available in each
such case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
to the Company by you specifically for use in the preparation thereof; and
the Standby Underwriter shall reimburse any legal or other expenses as and
when reasonably incurred by the Company in connection with investigating,
defending against, settling, compromising or paying any such loss, claim,
damage, liability or action. This indemnity agreement will be in addition
to any liability which the Standby Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of any claim or the commencement of any action,
the indemnified party shall, if a claim with respect thereto is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the claim or the commencement of that
action; and the failure to notify the indemnifying party shall not relieve
it from any liability that it may have to an indemnified party otherwise
than under such subsection. If any such claim or action is brought against
an indemnified party, it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be
liable to the indemnified party under such subsection for any legal or
other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, except that you shall have the right to employ counsel to
represent you against the Company under such subsection if, in your
reasonable judgment, it is advisable for you to be represented by separate
counsel, and in that event the reasonable legal fees and expenses of one
such separate counsel shall be paid by the Company.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection 6(a) or (b) above, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a
result of the losses, claims, damages or liabilities referred to in
subsection (a) or (b) above (c) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Standby
Underwriter from the offer and sale of the Securities, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand, and the Standby Underwriter, on the other
hand, in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative respective benefits received by the
Company and the Standby Underwriter shall be deemed to be in the same
proportion that the total net proceeds from the offer and sale of the
Underwritten Securities (before deducting expenses) received by the
Company, on the one hand, and the total standby fees received by the
Standby Underwriter, on the other hand, bear to one another, in each ease
as set forth in the table on the cover page of the Final Prospectus. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company, or the Standby Underwriter and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The Company and
the Standby Underwriter agree that it would not be just and equitable if
contributions pursuant to this subsection 6(d) were to be determined by
pro rata allocation or by any other method of allocation which does not
take into account the equitable considerations referred to in the first
sentence of this subsection (d). The amount paid by an indemnified party
as a result of the losses, claims, damages or
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<PAGE> 23
liabilities referred to in the first sentence of this subsection (d) shall
be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending
against any action or claim which is the subject of this subsection (d).
Notwithstanding the provisions of this subsection (d), the Standby
Underwriter shall not be required to contribute any amount in excess of
the amount by which the total price at which the Underwritten Units
purchased by it and distributed to the public exceeds the amount of any
damages that the Standby Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11 of the Securities Act) shall be entitled to
contributions from any person who was not guilty of such fraudulent
misrepresentation. Each party entitled to contribution agrees that upon
the service of a summons or other initial legal process upon it in any
action instituted against it with respect to which contribution may be
sought, it shall promptly give written notice of such service to the party
or parties from whom contribution may be sought, but the omission so to
notify such party or parties of any such service shall not relieve the
party from whom contribution may be sought from any obligation it may have
hereunder or otherwise (except as specifically provided in Section 6(c)
above).
(e) The obligations of the Company under this Section 6 shall be in
addition to any liability that the Company may otherwise have, and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Standby Underwriter within the meaning of the Securities Act.
The obligations of the Standby Underwriter under this Section 6 shall be
in addition to any liability that the Standby Underwriter may otherwise
have, and shall extend, upon the same terms and conditions, to each
director of the Company (including any person who, with his consent, is
named in the Registration Statement as about to become a director of the
Company), to each officer of the Company who has signed the Registration
Statement and to each person, if any, who controls the Company within the
meaning of the Securities Act.
7. EFFECTIVE DATE AND TERMINATION.
(a) This Standby Underwriting Agreement shall become effective at
8:00 A.M., Los Angeles time, on the earlier of (i) the first full Business
Day following the date the Registration Statement becomes effective. or
(ii) the day on which you release the Underwritten Units for sale to the
public. You shall notify the Company immediately after you have taken any
action that causes this Standby Underwriting Agreement to become
effective. Until this Standby Underwriting Agreement is effective, it may
be terminated by the Company by giving notice as hereinafter provided to
you or by you by giving notice as hereinafter provided to the Company,
except that the provisions of Section 4(i) and Section 6 shall at all
times be effective. For purposes of this Standby Underwriting Agreement,
the release of the Underwritten Units for sale to the public shall be
deemed to have been made when you release, by telegram or otherwise, firm
offers of the Underwritten Units to securities dealers or release for
publication a newspaper advertisement relating to the Units, whichever
occurs first.
(b) Until the Closing Date, this Standby Underwriting Agreement may
be terminated by you by giving notice as hereinafter provided to the
Company, if (i) the Company shall have failed, refused or been unable, at
or prior to the Closing Date, in material respects to perform any
agreement on its part to be performed hereunder, (ii) any other material
condition of the obligations of the Standby Underwriter hereunder is not
fulfilled; (iii) trading in or reporting of securities generally on the
New York Stock Exchange, the NASDAQ National Market System or the
over-the-counter market shall have been suspended or minimum prices shall
have been established on either of such exchanges or such market by the
Commission or by such exchange or other regulatory body or governmental
authority having jurisdiction; (iv) a general banking moratorium shall
have been declared by federal or state authorities; or (v) if in your sole
judgment there shall have been such a material adverse change in general
economic, political or financial conditions or if in your sole judgment
there shall have been a material adverse change in
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<PAGE> 24
international conditions, the effect of which on the financial market in
the United States shall be such as makes it inadvisable to proceed with
the delivery of any of the Underwritten Units. Any termination of this
Underwriting Agreement pursuant to this Section 7 shall be without
liability on the part of the Company or the Standby Underwriter, except as
otherwise provided in Section 4(i) and Section 6 hereof.
Any notice referred to above may be given at the address specified in
Section 9 hereof in writing or by telegraph or telephone, and if by telegraph or
telephone, shall be immediately confirmed in writing.
8. SURVIVAL OF INDEMNITIES, CONTRIBUTION, WARRANTIES AND REPRESENTATIONS.
The indemnity and contribution agreements contained in Section 6 and the
representations, warranties and agreements of the Company in Sections 1, 2, 4
and 5 shall survive the delivery of the Warrants or Units to the Underwriters
hereunder and shall remain in full force and effect, regardless of any
termination or cancellation of this Underwriting Agreement or any investigation
made by or on behalf of any indemnified party.
9. NOTICES. Except as otherwise provided in this Underwriting Agreement,
whenever notice is required by the provisions hereof to be given to: (a) the
Company, such notice shall be in writing addressed to the Company at 9/F, Houtex
Industrial Building, 16 Hung To Road, Kwun Tong, Kowloon, Hong Kong, Attention:
__________, President with a copy to Nam Tai Electronics (Canada) Ltd., 999 West
Hastings Street, Suite 530, Vancouver, British Columbia V6C 2W2, Canada,
Attention: M. K. Koo; and (b) to the Standby Underwriter, such notice shall be
in writing addressed to Joseph Charles & Associates, Inc., 9701 Wilshire
Boulevard, 9th Floor, Beverly Hills, California 90212, Attention: Richard A.
Rappaport.
10. INFORMATION FURNISHED BY UNDERWRITERS. The statements set forth (i) on
the front cover page with respect to price, Standby Fees and terms of the
offering, the last paragraph on the inside front cover page with respect to
stabilization, that the Standby Underwriter has no policy of permitting waivers
of lock-up agreements and under the caption "Standby Underwriting" in any
Pre-Effective Prospectus and in the Effective Prospectus and the Final
Prospectus, and (ii) the portion of the amount reflected under "Blue Sky" fees
and expenses (including those of counsel included in "Legal Fees") in Item 13 of
Part H of the Registration Statement representing the blue sky filing fees and
estimated legal fees and expenses of counsel for the Standby Underwriter in
connection with registration of the Securities for sale in various states,
constitute the written information furnished by or on behalf of any Standby
Underwriter referred to in paragraphs Co) and (c) of Section 1 hereof and in
paragraphs (a) and Co) of Section 6 hereof, and are true and correct in all
material respects.
11. PARTIES. Except for the provisions of Section 14, which provisions
alone are intended to benefit persons who purchase the Underwritten Units
directly from the Standby Underwriter, this Standby Underwriting Agreement is
made solely for the benefit of the Standby Underwriter and the Company and may
officer, director or controlling person referred to in Section 6 hereof, and
their respective successors and assigns, and no other person shall acquire or
have any right by virtue of this Standby Underwriting Agreement. The term
'successors and assigns," as used in this Standby Underwriting Agreement, shall
not include any purchaser of any of the Underwritten Units from the Standby
Underwriter under this Agreement merely by reason of such purchase.
12. DEFINITION OF "BUSINESS DAY "AND "SUBSIDIARY." For purposes of this
Standby Underwriting Agreement, (a) "Business Day" means any day on which the
New York Stock Exchange, Inc. is open for trading, and Co) "Subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
13. GOVERNING LAW. THIS STANDBY UNDERWRITING AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
GIVING EFFECT TO THE CHOICE OF LAW OR CONFLICT OF LAWS PRINCIPLES THEREOF.
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<PAGE> 25
14. SUBMISSION TO JURISDICTION AND WAIVER OF IMMUNITY AND INCONVENIENT
FORUM. The Company acknowledges, consents and agrees that any and all disputes
arising in connection with this Standby Underwriting Agreement and the
transactions contemplated by this Standby Underwriting Agreement, including the
offer and sale of the Units, may be brought in any state or federal court of
record in located in Los Angeles County, State of California. By its signature
to this Standby Underwriting Agreement, the Company irrevocably submits to the
jurisdiction of the state and federal courts located in Los Angeles County,
State of California in any legal action or proceeding relating to this Standby
Underwriting Agreement and the transactions contemplated by this Standby
Underwriting Agreement, including the offer and sale of the Underwritten Units.
The Company irrevocably waives all immunity from jurisdiction, attachment
and execution, whether on the basis of sovereignty or otherwise, to which it
might otherwise be entitled in any legal action or proceeding in any state or
federal court located in Los Angeles County, State of California. The Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to any suit, action or proceeding relating to this
Standby Underwriting Agreement and the transactions contemplated by this Standby
Underwriting Agreement, including the offer and sale of the Securities being
brought in the federal or state courts located in Los Angeles County, State of
California, and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.
The provisions of this Section 14 are also intended to benefit those
persons who acquire the Underwritten Units directly from the Standby
Underwriter.
15. COUNTERPARTS. This Standby Underwriting Agreement may be signed in one
or more counterpart, each of which shall constitute an original and all of which
together shall constitute one and the same agreement. Please confirm, by signing
and returning to us counterparts of this Standby Underwriting Agreement, that
the foregoing correctly sets forth the agreement among the Company and the
Standby Underwriter.
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<PAGE> 26
Very truly yours,
"COMPANY"
NAM TAI ELECTRONICS, INC.
By:
--------------------------------
M.K. Koo
Its: Chief Executive Officer and
President
Confirmed and accepted as of the date first above mentioned:
JOSEPH CHARLES & ASSOCIATES, INC.
By:
-------------------------------------
Its:
-------------------------------------
In consideration of the execution of this Agreement by H.J. Meyers & Co.,
Inc., the Undersigned hereby agree to exercise in full all of our Rights
(without regard to any oversubscription fights we may have).
-------------------------------------
M.K. Koo
-------------------------------------
Tadao Murakami
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<PAGE> 1
EXHIBIT 4.1
NAM TAI ELECTRONICS, INC.
WARRANT AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of __________ __, 1997, is
between NAM TAI ELECTRONICS, INC., a British Virgin Islands international
business company (the "Company"), and U.S. STOCK TRANSFER CORPORATION, as
warrant agent (the "Warrant Agent").
WHEREAS, in connection with an offering (the "Offering") of
non-transferable subscription rights (the "Rights") to the existing shareholders
of the Company to purchase up to 3,000,000 units (the "Units") at a price equal
to $______(the "Unit Purchase Price"), each Unit consisting of one of the
Company's common shares, $.01 par value (the "Common Shares"), and one Common
Share purchase warrant (the "Warrants"), the issuance to Joseph Charles &
Associates, Inc. ("JCA") or its designees of warrants (the "Standby
Underwriter's Warrants") to purchase up to 120,000 Units, and the issuance to
Freshman, Marantz, Orlanski, Cooper & Klein, a law corporation, or its designees
of warrants (the "Counsel's Warrants") to purchase up to 10,000 Units, the
Company will issue up to 3,130,000 Warrants evidencing the right to purchase an
aggregate of 3,130,000 Common Shares as constituted on the date hereof; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfer, exchange, exercise and redemption of the
Warrants;
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein set forth, the parties agree as follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the
Warrant Agent to act as agent of the Company for the Warrants, and the Warrant
Agent hereby accepts such appointment and agrees to perform the same in
accordance with the terms and conditions set forth in this Agreement.
SECTION 2. WARRANTS AND FORM OF WARRANT CERTIFICATES.
2.1 Each Warrant shall initially entitle the registered holder of the
certificate representing such Warrant to purchase at the Warrant Price therefor
one Common Share, subject to the adjustments provided for in Section 9 hereof,
at any time prior to 5:00 p.m. Eastern time on _________ __, 2000.
2.2 The Warrant certificates shall be in registered form only. The text of
the Warrant certificate and the form of election to exercise a Warrant on the
reverse side thereof shall be substantially in the form of Exhibit A attached
hereto. Each Warrant certificate shall be dated as of the date of issuance
thereof by the Warrant Agent (whether upon initial issuance or upon transfer or
exchange), and shall be executed on behalf of the Company by the manual or
facsimile signature of its President or a Vice President, under its corporate
seal, affixed or in facsimile, and attested to by the manual or facsimile
signature of its Secretary or an Assistant Secretary. In case any officer of the
Company who shall have signed any Warrant certificate shall cease to be such
officer of the Company prior to the issuance thereof, such Warrant certificate
may nevertheless be issued and delivered with the same force and effect as
though the person who signed the same had not ceased to be such officer of the
Company. Any such Warrant certificate may be signed on behalf of the Company by
persons who, at the actual date of execution of such Warrant certificate, are
the proper officers of the Company, although at the nominal date of such Warrant
certificate any such person shall not have been such officer of the Company.
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2.3 Upon execution of this Agreement, warrant certificates representing
3,000,000 Warrants to purchase up to 3,000,000 Common Shares (subject to
modification and adjustment as provided in Section 9) shall be countersigned,
issued and delivered by the Warrant Agent upon written order by the Company.
2.4 Upon exercise of the Standby Underwriter's Warrants as provided
therein, warrant certificates representing 120,000 Warrants to purchase up to
120,000 Common Shares (subject to modification and adjustment as provided in
Section 9 hereof and in the Standby Underwriter's Warrant Agreement) shall be
countersigned, issued and delivered by the Warrant Agent.
2.5 Upon exercise of the Counsel's Warrants as provided therein, warrant
certificates representing 10,000 Warrants to purchase up to 10,000 Common Shares
(subject to modification and adjustment as provided in Section 9 hereof and in
the Counsel's Warrant Agreement) shall be countersigned, issued and delivered by
the Warrant Agent.
SECTION 3. EXERCISE OF WARRANTS, DURATION AND WARRANT PRICE. Subject to
the provisions of this Agreement, each registered holder of one or more Warrant
certificates shall have the right, which may be exercised as expressed in such
Warrant certificates to purchase from the Company (and the Company shall issue
and sell to such registered holder) the number of Common Shares to which the
Warrants represented by such certificates are at the time entitled hereunder.
Each Warrant not exercised by its expiration date shall become void, and
all rights thereunder and all rights in respect thereof under this Agreement
shall cease on such date.
A Warrant may be exercised by the surrender of the certificate
representing such Warrant to the Company, at the office of the Warrant Agent, or
at the office of a successor to the Warrant Agent, with the subscription form
set forth on the reverse thereof duly executed and properly endorsed with the
signatures properly guaranteed, and upon payment in full to the Warrant Agent
for the account of the Company of the Warrant Price (as hereinafter defined) for
the number of Common Shares as to which the Warrant is exercised. Such Warrant
Price shall be paid in full in cash, by certified check or bank draft payable in
United States currency to the order of the Warrant Agent.
The price per Common Share at which the Warrants may be exercised (the
"Warrant Price") shall be $_____ (adjusted in accordance with Section 9 hereof,
taking into account prior adjustments).
Subject to the further provisions of this Section 3 and of Section 6
hereof, upon such surrender of Warrant certificates and payment of the Warrant
Price as aforesaid, the Company shall issue and cause to be delivered, with all
reasonable dispatch to or upon the written order of the registered holder of
such Warrants and in such name or names as such registered holder may designate,
a certificate or certificates for the number of securities purchased upon the
exercise of such Warrants, together with cash, as provided in Section 10 of this
Agreement, in respect of any fraction of a share or security otherwise issuable
upon such surrender. All Common Shares issued upon the exercise of a Warrant
shall be validly issued, fully paid and nonassessable and shall be listed on any
and all national securities exchanges, or listed for quotation on any
inter-dealer quotation system, upon which any other Common Shares or securities
otherwise issuable are then listed.
Certificates representing such securities shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such securities as of the date of the surrender of
such Warrants and payment of the Warrant Price as aforesaid; provided, however,
that if, at the date of surrender of such Warrants and payment of such Warrant
Price, the transfer books for the Common Shares or other securities purchasable
upon the exercise of such Warrants shall be closed, the certificates for the
securities in respect of which such Warrants are then exercised shall be
issuable as of the date on which such books shall next be opened and until such
date the Company shall be under no duty to deliver any certificate for such
securities.
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The rights of purchase represented by each Warrant certificate shall be
exercisable, at the election of the registered holders thereof, either as an
entirety or from time to time for part of the number of securities specified
therein and, in the event that any Warrant certificate is exercised in respect
of less than all of the securities specified therein at any time prior to the
expiration date of the Warrant certificate, a new Warrant certificate or
certificates will be issued to such registered holder for the remaining number
of securities specified in the Warrant certificate so surrendered.
The Company shall not solicit the exercise of any Warrant other than
through JCA. If at the time of exercise of any Warrant, (i) the market price of
the Company's Common Shares is greater than the then Warrant Price of the
Warrant, (ii) the exercise of the Warrant was solicited by a member of the
National Association of Securities Dealers, Inc. ("NASD"), (iii) the Warrant was
not held in a discretionary account, (iv) disclosure of the compensation
arrangements has been made in documents provided to customers both as part of
the original offering and at the time of exercise and (v) the solicitation of
the exercise of the Warrant was not in violation of Regulation M (as such
regulation or any successor regulation may be in effect as of such time of
exercise) promulgated under the Securities Exchange Act of 1934, then the
Company, immediately upon its receipt of the Warrant Price, or if it receives
the Warrant Price, the Warrant Agent, simultaneously with the distribution of
proceeds to the Company upon exercise of the Warrant(s) so exercised, shall pay
a fee of one percent (1%) of the Warrant Price to JCA (a portion of which may be
reallowed to the dealer who solicited the exercise, which may also be JCA). The
acceptance by JCA of such fee shall, in each case, constitute the certification
by JCA (and the other dealer if any portion of the fee is reallowed) to the
Company and the Warrant Agent that the Warrant was not held in a discretionary
account, that disclosure of the compensation arrangement has been made in
documents provided to the customer both as part of the original offering and at
the time of exercise and that the solicitation of the exercise of the Warrant
was not in violation of Regulation M (as such regulation or any successor
regulation may be in effect as of such time of exercise) promulgated under the
Securities Exchange Act of 1934. Within five days after exercise, the Warrant
Agent shall send JCA a copy of the reverse side of each Warrant exercised. In
addition, JCA and the Company may at any time during business hours, examine the
records of the Warrant Agent, including its ledger of original Warrant
Certificates returned to the Warrant Agent upon exercise of Warrants. JCA shall
reimburse the Warrant Agent, upon request, for its reasonable expenses relating
to the Warrant Agent's compliance with provisions of this paragraph. The
provisions of this paragraph and Section 13 are intended for the benefit of JCA
and may not be modified, amended or deleted without the prior written consent of
JCA.
SECTION 4. COUNTERSIGNATURE AND REGISTRATION. The Warrant Agent shall
maintain books (the "Warrant Register") for the registration and the
registration of transfer of the Warrants. Upon the initial issuance of the
Warrants, the Warrant Agent shall issue and register the Warrants in the names
of the respective holders thereof in such denominations and otherwise in
accordance with instructions delivered to the Warrant Agent by the Company. The
Warrant certificates shall be countersigned manually or by facsimile by the
Warrant Agent (or by any successor to the Warrant Agent then acting as such
under this Agreement) and shall not be valid for any purpose unless so
countersigned. Warrant certificates may be so countersigned, however, by the
Warrant Agent and delivered by the Warrant Agent, notwithstanding that the
persons whose manual or facsimile signatures appear thereon as proper officers
of the Company shall have ceased to be such officers at the time of such
countersignature or delivery.
Prior to due presentment for registration of transfer of any Warrant
certificate, the Company and the Warrant Agent may deem and treat the person in
whose name such Warrant certificate shall be registered upon the Warrant
Register (the "registered holder") as the absolute owner of such Warrant
certificate and of each Warrant represented thereby (notwithstanding any
notation of ownership or other writing on the Warrant certificate made by anyone
other than the Company or the Warrant Agent), for the purpose of any exercise
thereof, of any distribution or notice to the holder thereof, and for all other
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice to the contrary.
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<PAGE> 4
SECTION 5. TRANSFER AND EXCHANGE OF WARRANTS. The Warrant Agent shall
register the transfer, from time to time, of any outstanding Warrant upon the
Warrant Register, upon surrender of the certificate evidencing such Warrant for
transfer, properly endorsed with signatures properly guaranteed and accompanied
by appropriate instructions for transfer. Upon any such transfer, a new Warrant
certificate representing an equal aggregate number of Warrants shall be issued
to the transferee and the surrendered Warrant certificate shall be cancelled by
the Warrant Agent. The Warrant certificates so cancelled shall be delivered by
the Warrant Agent to the Company from time to time upon request.
Warrant certificates may be surrendered to the Warrant Agent, together
with a written request for exchange, and thereupon the Warrant Agent shall issue
in exchange therefor one or more new Warrant certificates as requested by the
registered holder of the Warrant certificate or certificates so surrendered,
representing an equal aggregate number of Warrants.
The Warrant Agent shall not be required to effect any registration of
transfer or exchange which will result in the issuance of a Warrant certificate
for a fraction of a Warrant.
No service charge shall be made for any exchange or registration of
transfer of Warrant certificates.
The Warrant Agent is hereby authorized to countersign and to deliver, in
accordance with the terms of this Agreement, the new Warrant certificates
required to be issued pursuant to the provisions hereof, and the Company,
whenever required by the Warrant Agent, will supply the Warrant Agent with
Warrant certificates duly executed on behalf of the Company for such purpose.
SECTION 6. PAYMENT OF TAXES. The Company will pay any documentary stamp
taxes attributable to the initial issuance of the Common Shares issuable upon
the exercise of Warrants; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for Common Shares in a
name other than that of the registered holder of Warrants in respect of which
such shares are issued, and in such case neither the Company nor the Warrant
Agent shall be required to issue or deliver any certificate for Common Shares or
any Warrant certificate until the person requesting the same has paid to the
Company the amount of such tax or has established to the Company's satisfaction
that such tax has been paid.
SECTION 7. MUTILATED OR MISSING WARRANTS. In case any of the Warrant
certificates shall be mutilated, lost, stolen or destroyed, the Company may in
its discretion issue, and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant
certificate, or in lieu of and substitution for the Warrant certificate lost,
stolen or destroyed, a new Warrant certificate representing an equal aggregate
number of Warrants, but only upon receipt of evidence satisfactory to the
Company and the Warrant Agent of such loss, theft or destruction of such Warrant
certificate and reasonable indemnity, if requested, also satisfactory to them.
Applicants for such substitute Warrant certificates shall also comply with such
other reasonable conditions and pay such reasonable charges as the Company or
the Warrant Agent may prescribe.
SECTION 8. RESERVATION OF COMMON SHARES. There have been reserved, and the
Company shall at all times keep reserved, out of the authorized and unissued
Common Shares, a number of shares sufficient to provide for the exercise of the
rights of purchase represented by the Warrants then outstanding (or issuable
upon exercise of the Standby Underwriter's Warrants or Counsel's Warrants), and
the transfer agent for the Common Shares and every subsequent transfer agent for
any shares of the Company's capital stock issuable upon the exercise of any of
the rights of purchase aforesaid are hereby irrevocably authorized and directed
at all times to reserve such number of authorized and unissued shares as shall
be requisite for such purpose.
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<PAGE> 5
Prior to the issuance of any Common Shares upon exercise of the Warrants,
the Company shall secure the listing of such shares on any and all national
securities exchanges upon which any of the other Common Shares are then listed.
So long as any unexpired Warrants remain outstanding, the Company will file such
post-effective amendments to the Registration Statement or supplements to the
Prospectus filed pursuant to the Securities Act of 1933, as amended (the "Act"),
with respect to the Warrants (or such other registration statements or
post-effective amendments or supplements) as may be necessary to permit trading
in the Warrants and to permit the Company to deliver to each person exercising a
Warrant a Prospectus meeting the requirements of Section 10(a)(3) of the Act,
and otherwise complying therewith; and the Company will, from time to time,
furnish the Warrant Agent with such Prospectuses in sufficient quantity to
permit the Warrant Agent to deliver such a Prospectus to each holder of a
Warrant upon the exercise thereof. The Company will use its best efforts to
obtain appropriate approvals or registrations under state "blue sky" securities
laws to permit lawful exercise of the Warrants. Notwithstanding anything herein,
Warrants may not be exercised by, or Common Shares issued to, any registered
holder of Warrants in any state or under any circumstance in which such exercise
would be unlawful. The Company will keep a copy of this Agreement on file with
the transfer agent for the Common Shares and with every subsequent transfer
agent for any shares of the Company's capital stock issuable upon the exercise
of the rights of purchase represented by the Warrants.
The Warrant Agent is hereby irrevocably authorized to requisition from
time to time from such transfer agent stock certificates required to honor
outstanding Warrants. The Company will supply such transfer agent with duly
executed certificates for such purpose and will itself provide or otherwise make
available any cash as provided in Section 10 of this Agreement. All Warrant
certificates surrendered in the exercise of the rights thereby evidenced shall
be cancelled by the Warrant Agent and shall thereafter be delivered to the
Company, and such cancelled Warrant certificates shall constitute sufficient
evidence of the number of Common Shares which have been issued upon the exercise
of such Warrants. Promptly after the expiration date of the Warrants, the
Warrant Agent shall certify to the Company the aggregate number of such Warrants
which expired unexercised, and after the expiration date of the Warrants, no
Common Shares shall be subject to reservation in respect of such Warrants.
SECTION 9. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF COMMON SHARES. The
number and kind of securities purchasable upon the exercise of the Warrants and
the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
9.1 Adjustments. The number of Common Shares purchasable upon the
exercise of each Warrant and the Warrant Price shall be subject to adjustment as
follows:
(a) In case the Company shall (i) pay a dividend in Common Shares or
make a distribution in Common Shares, (ii) subdivide its outstanding Common
Shares, (iii) combine its outstanding Common Shares into a smaller number of
Common Shares, or (iv) issue, by reclassification of its Common Shares, other
securities of the Company, the number of Common Shares purchasable upon exercise
of a Warrant immediately prior thereto shall be adjusted so that the holder of a
Warrant shall be entitled to receive the kind and number of Common Shares or
other securities of the Company which such holder would have owned or would have
been entitled to receive immediately after the happening of any of the events
described above, had the Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this subsection 9.1(a) shall become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event.
(b) In case the Company shall issue rights, options, warrants or
convertible securities to all or substantially all holders of its Common Shares,
without any charge to such holders, entitling them to subscribe for or purchase
Common Shares at a price per share which is lower at the record date mentioned
below than the then Current Market Price (as defined in Section 10 hereof), the
number of Common Shares thereafter
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<PAGE> 6
purchasable upon the exercise of each Warrant shall be determined by multiplying
the number of Common Shares thereafter purchasable upon exercise of a Warrant by
a fraction, of which the numerator shall be the number of Common Shares
outstanding immediately prior to the issuance of such rights, options, warrants
or convertible securities plus the number of additional Common Shares offered
for subscription or purchase, and of which the denominator shall be the number
of Common Shares outstanding immediately prior to the issuance of such rights,
options, warrants or convertible securities plus the number of shares which the
aggregate offering price of the total number of shares offered would purchase at
such Current Market Price. Such adjustment shall be made whenever such rights,
options, warrants or convertible securities are issued, and shall become
effective immediately and retroactive to the record date for the determination
of shareholders entitled to receive such rights, options, warrants or
convertible securities.
(c) In case the Company shall distribute to all or substantially all
holders of its Common Shares, evidences of its indebtedness or assets (excluding
cash dividends or distributions out of earnings) or rights, options, warrants or
convertible securities containing the right to subscribe for or purchase Common
Shares (excluding those referred to in subsection 9.1(b) above), then in each
case the number of Common Shares thereafter purchasable upon the exercise of
each Warrant shall be determined by multiplying the number of Common Shares
theretofore purchasable upon exercise of such Warrant by a fraction, of which
the numerator shall be the then Current Market Price on the date of such
distribution, and of which the denominator shall be such Current Market Price on
such date minus the then fair value (determined as provided in subparagraph (f)
below) of the portion of the assets or evidences of indebtedness so distributed
or of such subscription rights, options, warrants or convertible securities
applicable to one share. Such adjustment shall be made whenever any such
distribution is made and shall become effective on the date of distribution
retroactive to the record date for the determination of shareholders entitled to
receive such distribution.
(d) No adjustment in the number of Common Shares purchasable
pursuant to the Warrants shall be required unless such adjustment would require
an increase or decrease of at least one percent in the number of Common Shares
then purchasable upon the exercise of the Warrants or, if the Warrants are not
then exercisable, the number of Common Shares purchasable upon the exercise of
the Warrants on the first date thereafter that the Warrants become exercisable;
provided, however, that any adjustments which by reason of this subsection
9.1(d) are not required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
(e) Whenever the number of Common Shares purchasable upon the
exercise of a Warrant is adjusted as herein provided, the Warrant Price payable
upon exercise of the Warrant shall be adjusted by multiplying such Warrant Price
immediately prior to such adjustment by a fraction, of which the numerator shall
be the number of Common Shares purchasable upon the exercise of such Warrant
immediately prior to such adjustment, and of which the denominator shall be the
number of Common Shares so purchasable immediately thereafter.
(f) To the extent not covered by subsections 9.1(b) or (c) hereof,
in case the Company shall sell or issue Common Shares or rights, options,
warrants or convertible securities containing the right to subscribe for or
purchase Common Shares at a price per share (determined, in the case of such
rights, options, warrants or convertible securities, by dividing (i) the total
amount received or receivable by the Company in consideration of the sale or
issuance of such rights, options, warrants or convertible securities, plus the
total consideration payable to the Company upon exercise or conversion thereof,
by (ii) the total number of shares covered by such rights, options, warrants or
convertible securities) lower than the then Current Market Price in effect
immediately prior to such sale or issuance, then the Warrant Price shall be
reduced to a price (calculated to the nearest cent) determined by dividing (I)
an amount equal to the sum of (A) the number of Common Shares outstanding
immediately prior to such sale or issuance multiplied by the then existing
Warrant Price, plus (B) the consideration received by the Company upon such sale
or issuance, by (II) the total number of Common Shares outstanding immediately
after such sale or issuance. The number of shares of Common Shares purchasable
upon the exercise
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<PAGE> 7
of a Warrant shall thereafter be that number determined by multiplying the
number of shares of Common Shares issuable upon exercise immediately prior to
such adjustment by a fraction, of which the numerator shall be the Warrant Price
in effect immediately prior to such adjustment and the denominator shall be the
Warrant Price as so adjusted. For the purposes of such adjustments, the Common
Shares which the holders of any such rights, options, warrants or convertible
securities shall be entitled to subscribe for or purchase shall be deemed issued
and outstanding as of the date of such sale or issuance and the consideration
received by the Company therefor shall be deemed to be the consideration
received by the Company for such rights, options, warrants or convertible
securities, plus the consideration or premiums stated in such rights, options,
warrants or convertible securities to be paid for the Common Shares covered
thereby. In case the Company shall sell or issue Common Shares or rights,
options, warrants or convertible securities containing the right to subscribe
for or purchase Common Shares for a consideration consisting, in whole or in
part, of property other than cash or its equivalent, then, in determining the
"price per share" of the Common Shares and the "consideration received by the
Company" for purposes of the first sentence of this subsection 9.1(f), the Board
of Directors shall determine the fair value of said property, and such
determination, if reasonable and based upon the Board of Directors' good faith
business judgment, shall be binding upon the registered holders. In determining
the "price per share" of the Common Shares, any underwriting discounts or
commissions shall not be deducted from the price received by the Company for
sales of securities registered under the Act. There shall be no adjustment of
the Warrant Price pursuant to this subsection 9.1(f) if the amount of such
adjustment would be less than $.05 per Common Shares; provided, however, that
any adjustment which by reason of this provision is not required to be made
immediately shall be carried forward and taken into account in any subsequent
adjustment.
(g) Whenever the number of Common Shares purchasable upon the
exercise of a Warrant or the Warrant Price is adjusted as herein provided, the
Company shall cause to be promptly mailed to the Warrant Agent and each
registered holder of a Warrant by first class mail, postage prepaid, notice of
such adjustment or adjustments and, with regard to the Warrant Agent only, a
certificate of the chief financial officer of the Company setting forth the
number of Common Shares purchasable upon the exercise of a Warrant and the
Warrant Price after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
(h) For the purpose of this Section 9, the term "Common Shares"
shall mean (i) the class of stock designated as the Common Shares of the Company
at the date of this Agreement, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Shares consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value. In the event that at any time, as a result of an adjustment made
pursuant to this Section 9, a registered holder shall become entitled to
purchase any securities of the Company other than Common Shares, (i) if the
registered holder's right to purchase is on any other basis than that available
to all holders of the Company's Common Shares, the Company shall obtain an
opinion of an investment banking firm valuing such other securities and (ii)
thereafter the number of such other securities so purchasable upon exercise of a
Warrant and the Warrant Price of such securities shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Shares contained in this Section 9.
(i) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the number of
Common Shares purchasable upon exercise of a Warrant and the Warrant Price, to
the extent a Warrant has not then been exercised, shall, upon such expiration,
be readjusted and shall thereafter be such as they would have been had they been
originally adjusted (or had the original adjustment not been required, as the
case may be) on the basis of (A) the fact that the only Common Shares so issued
were the Common Shares, if any, actually issued or sold upon the exercise of
such rights, options, warrants or conversion privileges, and (B) the fact that
such Common Shares, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the consideration, if any,
actually received by the Company for the issuance, sale or grant of all such
privileges, options, warrants or conversion privileges whether or not
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<PAGE> 8
exercised; provided, however, that no such readjustment shall have the effect of
increasing the Warrant Price by an amount in excess of the amount of the
adjustment initially made in respect of the issuance, sale or grant of such
rights, options, warrants or conversion privileges.
9.2 No Adjustment for Dividends. Except as provided in Section 9.1 hereof,
no adjustment in respect of any dividends or distributions out of earnings shall
be made during the term of a Warrant or upon the exercise of a Warrant.
9.3 No Adjustment in Certain Cases. No adjustments shall be made pursuant
to Section 9 hereof in connection with the distribution of the Rights, the
issuance of the Units (or the Common Shares included therein), the Warrants (or
the underlying Common Shares), the Standby Underwriter's Warrants (or any of the
underlying securities) or the Counsel's Warrants (or any of the underlying
securities). No adjustments shall be made pursuant to Section 9 hereof in
connection with the grant or exercise of presently authorized or outstanding
options to purchase, or the issuance of shares, aggregating up to [300,00]
Common Shares under the Company's existing or future stock option plans.
9.4 Preservation of Purchase Rights upon Reclassification, Consolidation,
etc. In case of any consolidation of the Company with or merger of the Company
into another corporation or in case of any sale or conveyance to another
corporation of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation, as the case may be, shall execute with the Warrant Agent an
agreement that the registered holders of the Warrants shall have the right
thereafter, upon payment of the Warrant Price in effect immediately prior to
such action, to purchase, upon exercise of each Warrant, the kind and amount of
shares and other securities and property which it would have owned or have been
entitled to receive after the happening of such consolidation, merger, sale or
conveyance had each Warrant been exercised immediately prior to such action. In
the event of a merger described in Section 368(a)(2)(E) of the Internal Revenue
Code of 1986, as amended, in which the Company is the surviving corporation, the
right to purchase Common Shares under the Warrants shall terminate on the date
of such merger and thereupon the Warrants shall become null and void, but only
if the controlling corporation shall agree to substitute for the Warrants its
warrants which entitle the holders thereof to purchase upon their exercise the
kind and amount of shares and other securities and property which they would
have owned or been entitled to receive had the Warrants been exercised
immediately prior to such merger. Any such agreements referred to in this
subsection 9.4 shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section 9
hereof. The provisions of this subsection 9.4 shall similarly apply to
successive consolidations, mergers, sales or conveyances.
9.5 Par Value of Shares of Common Shares. Before taking any action which
would cause an adjustment reducing the Warrant Price below the then par value of
the Common Shares issuable upon exercise of the Warrants, the Company will take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Common Shares at such adjusted Warrant Price.
9.6 Independent Public Accountants. The Company may retain a firm of
independent public accountants of recognized national standing (which may be any
such firm regularly employed by the Company) to make any computation required
under this Section 9, and a certificate signed by such firm shall be conclusive
evidence of the correctness of any computation made under this Section 9.
9.7 Statement on Warrant Certificates. Irrespective of any adjustments in
the Warrant Price or the number of securities issuable upon exercise of
Warrants, Warrant certificates theretofore or thereafter issued may continue to
express the same price and number of securities as are stated in the similar
Warrant certificates initially issuable pursuant to this Agreement. However, the
Company may, at any time in its sole discretion (which shall
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<PAGE> 9
be conclusive), make any change in the form of Warrant certificate that it may
deem appropriate and that does not affect the substance thereof; and any Warrant
certificate thereafter issued, whether upon registration of transfer of, or in
exchange or substitution for, an outstanding Warrant certificate, may be in the
form so changed.
9.8 No Rights as Stockholder; Notices to Holders of Warrants. If, at any
time prior to the expiration of a Warrant and prior to its exercise, any one or
more of the following events shall occur:
(a) any action which would require an adjustment pursuant to
subsection 9.1 or 9.4 hereof; or
(b) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of its property,
assets and business as an entirety or substantially as an entirety) shall
be proposed;
then the Company shall give notice in writing of such event to the registered
holders of the Warrants, as provided in Section 18 hereof, at least 20 days
prior to the date fixed as a record date or the date of closing the transfer
books for the determination of the shareholders entitled to any relevant
dividend, distribution, subscription rights or other rights or for the
determination of shareholders entitled to vote on such proposed dissolution,
liquidation or winding up. Such notice shall specify such record date or the
date of closing the transfer books, as the case may be. Failure to mail or
receive such notice or any defect therein shall not affect the validity of any
action taken with respect thereto.
SECTION 10. FRACTIONAL INTERESTS. The Company shall not be required to
issue fractional interests in the Common Shares on the exercise of a Warrant. If
any fraction of a Common Share would, except for the provisions of this Section
10, be issuable on the exercise of a Warrant (or specified portion thereof), the
Company shall in lieu thereof pay an amount in cash equal to the then Current
Market Price multiplied by such fraction. For purposes of this Agreement, the
term "Current Market Price" shall mean (i) if the Common Shares are traded in
the over-the-counter market and not in the NASDAQ National Market System nor on
any national securities exchange, the average of the per share closing bid
prices of the Common Shares on the 30 consecutive trading days immediately
preceding the date in question, as reported by NASDAQ or an equivalent generally
accepted reporting service, or (ii) if the Common Shares are traded in the
NASDAQ National Market System or on a national securities exchange, the average
for the 30 consecutive trading days immediately preceding the date in question
of the daily per share closing prices of the Common Shares in the NASDAQ
National Market System or on the principal stock exchange on which it is listed,
as the case may be. For purposes of clause (i) above, if trading in the Common
Shares are not reported by NASDAQ, the bid price referred to in said clause
shall be the lowest bid price as reported in the "pink sheets" published by
National Quotation Bureau, Incorporated. The closing price referred to in clause
(ii) above shall be the last reported sale price or, in the case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices, in either case in the NASDAQ National Market System or on the
national securities exchange on which the Common Shares are then listed.
SECTION 11. REDEMPTION.
(A) The then outstanding Warrants may be redeemed, at the option of the
Company, at $.05 for each Common Share purchasable upon exercise of such
Warrants, at any time after the Daily Market Price per Common Share for a period
of at least 20 consecutive trading days ending not more than 10 days prior to
the date of the notice given pursuant to Section 11(B) hereof has equaled or
exceeded $_____ per share, and prior to expiration of the Warrants. The Daily
Market Price of the Common Shares shall be determined by the Company in the
manner set forth in Section 11(E) as of the end of each trading day (or, if no
trading in the Common Shares occurred on such day, as of the end of the
immediately preceding trading day in which trading occurred) and verified to the
Warrant Agent before the Company may give notice of redemption. All outstanding
Warrants must
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<PAGE> 10
be redeemed if any are redeemed, and any right to exercise an outstanding
Warrant shall terminate at 5:00 p.m. (Eastern Time) on the business day
immediately preceding the date fixed for redemption. A trading day shall mean a
day in which trading of securities occurred on the New York Stock Exchange.
(B) The Company may exercise its right to redeem the Warrants only by
giving the notice set forth in the following sentence by the end of the tenth
day after the provisions of Section 11(A) have been satisfied. In case the
Company shall exercise its right to redeem, it shall give notice to the Warrant
Agent and the registered holders of the outstanding Warrants, by mailing to such
registered holders a notice of redemption, first class, postage prepaid, at
their addresses as they shall appear on the records of the Warrant Agent. Any
notice mailed in the manner provided herein shall be conclusively presumed to
have been duly given whether or not the registered holder actually receives such
notice.
(C) The notice of redemption shall specify the redemption price, the date
fixed for redemption (which shall be between the thirtieth and forty-fifth day
after such notice is mailed), the place where the Warrant certificates shall be
delivered and the redemption price shall be paid, and that the right to exercise
the Warrant shall terminate at 5:00 p.m. (Eastern Time) on the business day
immediately preceding the date fixed for redemption.
(D) Appropriate adjustment shall be made to the redemption price and to
the minimum Daily Market Price prerequisite to redemption set forth in Section
11(A) hereof, in each case on the same basis as provided in Section 9 hereof
with respect to adjustment of the Warrant Price.
(E) For purposes of this Agreement, the term "Daily Market Price" shall
mean (i) if the Common Shares are traded in the over-the-counter market and not
in the NASDAQ National Market System nor on any national securities exchange,
the closing bid price of the Common Shares on the trading day in question, as
reported by NASDAQ or an equivalent generally accepted reporting service, or
(ii) if the Common Shares are traded in the NASDAQ National Market System or on
a national securities exchange, the daily per share closing price of the Common
Shares in the NASDAQ National Market System or on the principal stock exchange
on which it is listed on the trading day in question, as the case may be. For
purposes of clause (i) above, if trading in the Common Shares are not reported
by NASDAQ, the bid price referred to in said clause shall be the lowest bid
price as reported in the "pink sheets" published by National Quotation Bureau,
Incorporated. The closing price referred to in clause (ii) above shall be the
last reported sale price or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices, in either case in
the NASDAQ National Market System or on the national securities exchange on
which the Common Shares are then listed.
SECTION 12. RIGHTS AS WARRANTHOLDERS. Nothing contained in this Agreement
or in any of the Warrants' shall be construed as conferring upon the holders
thereof, as such, any of the rights of shareholders of the Company, including,
without limitation, the right to receive dividends or other distributions, to
exercise any preemptive rights, to vote or to consent or to receive notice as
shareholders in respect of the meetings of shareholders or the election of
directors of the Company or any other matter. Anything herein to the contrary
notwithstanding, the Company shall cause copies of all financial statements and
reports, proxy statements and other documents as it shall send to its
shareholders to be sent by the same class mail as sent to its shareholders,
postage prepaid, on the date of the mailing to such shareholders, to each
registered holder of Warrants at his address appearing on the Warrant Register
as of the record date for the determination of the shareholders entitled to such
documents.
SECTION 13. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS. The Warrant
Agent shall account promptly to the Company with respect to Warrants exercised,
and shall promptly pay to the Company all monies received by it upon the
exercise of such Warrants (net of any fees remitted to JCA pursuant to the last
paragraph of Section 3), and shall keep copies of this Agreement available for
inspection by holders of Warrants during normal business hours.
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<PAGE> 11
SECTION 14. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT.
Any corporation into which the Warrant Agent may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Warrant Agent shall be a party, or any corporation succeeding to
the corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Warrant Agent under
the provisions of Section 16 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement and any of the Warrant certificates shall have been countersigned but
not delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent and deliver such Warrant
certificates so countersigned; and in case at that time any of the Warrant
certificates shall not have been countersigned, any successor to the Warrant
Agent may countersign such Warrant certificates either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant Agent, and in
all such cases the Warrants represented by such Warrant certificates shall have
the full force provided in the Warrant certificates and in this Agreement. Any
such successor Warrant Agent shall promptly give notice of its succession as
Warrant Agent to the Company and to the registered holder of each Warrant
certificate.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrant certificates shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrant certificates so countersigned; and in case at that time any
of the Warrant certificates shall not have been countersigned, the Warrant Agent
may countersign such Warrant certificates either in its prior name or in its
changed name; and in all such cases the Warrants represented by such Warrant
certificates shall have the full force provided in the Warrant certificates and
in this Agreement.
SECTION 15. DUTIES OF WARRANT AGENT. The Warrant Agent hereby undertakes
the duties and obligations imposed by this Agreement upon the following terms
and conditions, all of which shall bind the Company and the holders of Warrants
by their acceptance thereof:
(A) The statements of fact and recitals contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrants
except as herein expressly provided.
(B) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrants to be complied with by the Company.
(C) The Warrant Agent may consult at any time with counsel satisfactory to
it (who may be counsel for the Company) and the Warrant Agent shall incur no
liability or responsibility to the Company or to any holder of any Warrant in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in accordance with the opinion or the advice of such counsel.
(D) The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant for any action taken in reliance on any
notice, resolution, waiver, consent, order, certificate or other paper, document
or instrument believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(E) The Company agrees to pay to the Warrant Agent reasonable compensation
for all services rendered by the Warrant Agent in connection with the execution
of, and performance of its services as Warrant Agent under, this Agreement, to
reimburse the Warrant Agent for all expenses, taxes and governmental charges and
other charges incurred by the Warrant Agent in the execution of this Agreement
and to indemnify the Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and reasonable counsel fees,
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<PAGE> 12
for anything done or omitted by the Warrant Agent in the execution of this
Agreement, except as a result of the Warrant Agent's negligence, willful
misconduct or bad faith.
(F) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action on behalf of the
Company or any registered holder, but this provision shall not affect the power
of the Warrant Agent to take such action as the Warrant Agent may consider
proper. All rights of action under this Agreement or under any of the Warrants
may be enforced by the Warrant Agent without the possession of any of the
Warrants or the production thereof at any trial or other proceeding relative
thereto, and any such action, suit or proceeding instituted by the Warrant Agent
shall be brought in its name as Warrant Agent, and any recovery of judgment
shall be for the ratable benefit of all the registered holders of the Warrants,
as their respective rights or interests may appear.
(G) The Warrant Agent and any stockholder, director, officer or employee
of the Warrant Agent may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Warrant Agent
under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.
(H) The Warrant Agent shall act hereunder solely as agent and not in a
ministerial capacity, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Agreement, except for its
own negligence, willful misconduct or bad faith.
(I) Any request, direction, election, order or demand of the Company shall
be sufficient if evidenced by an instrument signed in the name of the Company by
its President, a Vice President or chief financial officer (unless other
evidence in respect thereof is therein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Warrant Agent by a
copy thereof certified by the Secretary or an Assistant Secretary of the
Company.
SECTION 16. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving the Company at least
30 days' prior notice in writing, and by mailing notice in writing to the
registered holders at their addresses appearing on the Warrant Register, of such
resignation, specifying a date when such resignation shall take effect. The
Warrant Agent may be removed by like notice to the Warrant Agent from the
Company and by like mailing of notice to the registered holders of the Warrants.
If the Warrant Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Warrant Agent.
If the Company shall fail to make such appointment within 30 days after such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by the registered
holder of a Warrant (who shall, with such notice, submit his Warrant certificate
for inspection by the Company), then the registered holder of any Warrant may
apply to any court of competent jurisdiction for the appointment of a successor
to the Warrant Agent. Any successor Warrant Agent, whether appointed by the
Company or by such a court, shall be registered and otherwise authorized to
serve as a transfer agent pursuant to the Securities Exchange Act of 1934, as
amended. If at any time the Warrant Agent shall cease to be eligible in
accordance with the provisions of this Section 16, it shall resign immediately
in the manner and with the effect specified in this Section 16. After acceptance
in writing of the appointment, the successor Warrant Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Warrant Agent without further act or deed; but the former
Warrant Agent shall deliver and transfer to the successor Warrant Agent any
property at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Upon request of
any successor Warrant Agent, the Company shall make, execute, acknowledge and
deliver any and all instruments in writing for more fully and effectually
vesting in and confirming to such successor Warrant Agent all such powers,
rights, duties and
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<PAGE> 13
responsibilities. Failure to file or mail any notice provided in this Section
16, however, or any detect therein, shall not affect the legality or validity of
the resignation or removal of the Warrant Agent or the appointment of the
successor Warrant Agent, as the case may be.
SECTION 17. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment of
any transfer agent for the Common Shares or of any subsequent transfer agent for
Common Shares or other shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants, the Company will
file with the Warrant Agent a statement setting forth the name and address of
such transfer agent.
SECTION 18. NOTICES. All notices, requests and other communications
pursuant to this Agreement shall be in writing and shall be sufficiently given
or made when delivered or mailed by first class mail, postage prepaid, addressed
as follows:
(a) if to the Company, to (until another address is filed in writing
by the Company with the Warrant Agent):
Nam Tai Electronics, Inc.
c/o Nam Tai Electronics (Canada) Ltd.
Suite 530
999 West Hastings Street
Vancouver, B.C. Canada V6C 2W2
Attention: Mr. M. K. Koo, President
(b) if to the Warrant Agent, to (until another address is filed in
writing by the Warrant Agent with the Company):
U.S. Stock Transfer Corp.
1745 Gardena Street
2nd Floor
Glendale, CA 91204
Attn: Mr. Henry Artaza
(c) if to the registered holder of a Warrant, to the address of such
holder as shown in the Warrant Register.
SECTION 19. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement without the approval of
any holders of Warrants (i) in order to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provision herein, or (ii) to make any other provisions in regard
to matters or questions arising hereunder which the Company and the Warrant
Agent may deem necessary or desirable and which shall not be inconsistent with
the provisions of the Warrants, or (iii) subject to the provisions of the last
paragraph of Section 3, to make amendments which shall not adversely affect the
interests of the holders of Warrants (including reducing the Warrant Price or
extending the redemption or expiration date).
SECTION 20. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Warrant Agent or the registered
holders of the Warrants shall bind and inure to the benefit of their respective
successors and assigns hereunder.
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<PAGE> 14
SECTION 21. GOVERNING LAW. This Agreement shall be deemed to be a contract
made under the laws of the State of California and for all purposes shall be
construed in accordance with the laws of said State applicable to contracts
entered into and performed in said State, and without regard to any conflicts of
laws principles thereof.
SECTION 22. BENEFITS OF THIS AGREEMENT. Except as provided in the last
paragraph of Section 3, nothing in this Agreement shall be construed to give to
any person or corporation other than the Company, the Warrant Agent and the
registered holders of the Warrants any legal or equitable right, remedy or claim
under this Agreement. Except as provided in the last paragraph of Section 3,
this Agreement shall be for the sole and exclusive benefit of the Company, the
Warrant Agent and the registered holders of the Warrants.
SECTION 23. COUNTERPARTS. This Agreement may be executed in counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
SECTION 24. DESCRIPTIVE HEADINGS. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.
NAM TAI ELECTRONICS, INC.
By:
----------------------------------
M. K. Koo
Chairman of the Board
U.S. STOCK TRANSFER CORP.
By:
----------------------------------
John Stein
President
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<PAGE> 1
EXHIBIT 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED,
HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH
SECTION 1 OF THE AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED.
Warrant Certificate No. _______
STANDBY UNDERWRITER'S WARRANT TO PURCHASE 10,000 UNITS, EACH UNIT
CONSISTING OF ONE COMMON SHARE AND TWO WARRANTS EACH EXERCISABLE TO
PURCHASE ONE COMMON SHARE
VOID AFTER 5:00 P.M.,
PACIFIC TIME, ON _____________, 2000
NAM TAI ELECTRONICS, INC.
This certifies that, for value received, Freshman, Marantz, Orlanski,
Cooper & Klein, a law corporation, the registered holder hereof or assigns (the
"Warrantholder"), is entitled to purchase from NAM TAI ELECTRONICS, INC. (the
"Company"), at any time during the period commencing at 9:00 a.m., Pacific Time,
on _________ ___, 1998, and before 5:00 p.m., Pacific Time, on _____________ __,
2000, at the purchase price per Unit of $______ (the "Warrant Price"), the
number of Units of the Company set forth above (the "Units"). The number of
Common Shares of the Company included in the Units purchasable upon exercise of
each Warrant evidenced hereby shall be subject to adjustment from time to time
as set forth in the Standby Underwriter's Warrant Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature guarantee as provided thereon) and simultaneous
payment of the Warrant Price at the principal office of the Company. Payment of
such price shall be made at the option of the Warrantholder in cash or by check.
The Warrants evidenced hereby represent the right to purchase an aggregate
of up to 10,000 Units and are issued under and in accordance with a Standby
Underwriter's Warrant Agreement, dated as of ____________ ___, 1997 (the
"Standby Underwriter's Warrant Agreement"), between the Company and Freshman,
Marantz, Orlanski, Cooper & Klein, a law corporation, and are subject to the
terms and provisions contained in the Standby Underwriter's Warrant Agreement,
to all of which the Warrantholder by acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall be
signed and issued to the Warrantholder a new Warrant Certificate in respect of
the Units as to which the Warrants evidenced hereby shall not have been
exercised. These Warrants may be exchanged at the office of the Company by
surrender of this Warrant Certificate properly endorsed for one or more new
Warrants of the same aggregate number of Units as here evidenced by the Warrant
or Warrants exchanged. No fractional Shares will be issued upon the exercise of
rights to purchase the Units hereunder, but the Company shall pay the cash value
of any fraction upon the exercise of one or more Warrants. These Warrants are
transferable at the office of the Company in the manner and subject to the
limitations set forth in the Standby Underwriter's Warrant Agreement.
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<PAGE> 2
This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a stockholder of the Company.
NAM TAI ELECTRONICS, INC.
By__________________________________
Dated:__________ ___, 1997 M.K. Koo,
President
ATTEST: [Seal]
- ---------------------------------
Secretary
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<PAGE> 3
NAM TAI ELECTRONICS, INC.
PURCHASE FORM
NAM TAI ELECTRONICS, INC.
999 West Hastings Street, Suite 530
Vancouver, B.C. Canada V6C 2W2
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ____________ Units (the "Units") provided for therein, and requests
that certificates for the Units be issued in the name of:
--------------------------------------------------------------
(Please Print or Type Name, Address and Social Security Number
--------------------------------------------------------------
--------------------------------------------------------------
and, if said number of Units shall not be all the Units purchasable hereunder,
that a new Warrant Certificate for the balance of the Units purchasable under
the within Warrant Certificate be registered in the name of the undersigned
Warrantholder or his Assignee as below indicated and delivered to the address
stated below.
Dated: _______________________
Name of Warrantholder
or Assignee:_____________________________________________
(Please Print)
Address:_________________________________________________
_________________________________________________
Signature:____________________________________
Note: The above signature must correspond with the name as written upon the face
of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
Signature Guaranteed:______________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
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<PAGE> 4
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(Name and Address of Assignee Must Be Printed or Typewritten)
-------------------------------------------
-------------------------------------------
-------------------------------------------
the within Warrants, hereby irrevocably constituting and appointing
____________________ Attorney to transfer said Warrants on the books of the
Company, with all power of substitution in the premises.
Dated:_______________ ________________________________________________________
Signature of Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:____________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
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<PAGE> 5
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED,
HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH
SECTION 1 OF THE AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED.
Warrant Certificate No. _______
STANDBY UNDERWRITER'S WARRANT TO PURCHASE 120,000 UNITS, EACH UNIT
CONSISTING OF ONE COMMON SHARE AND TWO WARRANTS EACH EXERCISABLE TO
PURCHASE ONE COMMON SHARE
VOID AFTER 5:00 P.M.,
PACIFIC TIME, ON _________ __, 2000
NAM TAI ELECTRONICS, INC.
This certifies that, for value received, Joseph Charles & Associates,
Inc., the registered holder hereof or assigns (the "Warrantholder"), is entitled
to purchase from NAM TAI ELECTRONICS, INC. (the "Company"), at any time during
the period commencing at 9:00 a.m., Pacific Time, on _________ __, 1998, and
before 5:00 p.m., Pacific Time, on ________ __, 2000, at the purchase price per
Unit of $______(the "Warrant Price"), the number of Units of the Company set
forth above (the "Units"). The number of Common Shares of the Company included
in the Units purchasable upon exercise of each Warrant evidenced hereby shall be
subject to adjustment from time to time as set forth in the Standby
Underwriter's Warrant Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature guarantee as provided thereon) and simultaneous
payment of the Warrant Price at the principal office of the Company. Payment of
such price shall be made at the option of the Warrantholder in cash or by check.
The Warrants evidenced hereby represent the right to purchase an aggregate
of up to 120,000 Units and are issued under and in accordance with a Standby
Underwriter's Warrant Agreement, dated as of _______ __, 1997, (the "Standby
Underwriter's Warrant Agreement") between the Company and Joseph Charles &
Associates, Inc., and are subject to the terms and provisions contained in the
Standby Underwriter's Warrant Agreement, to all of which the Warrantholder by
acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall be
signed and issued to the Warrantholder a new Warrant Certificate in respect of
the Units as to which the Warrants evidenced hereby shall not have been
exercised. These Warrants may be exchanged at the office of the Company by
surrender of this Warrant Certificate properly endorsed for one or more new
Warrants of the same aggregate number of Units as here evidenced by the Warrant
or Warrants exchanged. No fractional Shares will be issued upon the exercise of
rights to purchase the Units hereunder, but the Company shall pay the cash value
of any fraction upon the exercise of one or more Warrants. These Warrants are
transferable at the office of the Company in the manner and subject to the
limitations set forth in the Standby Underwriter's Warrant Agreement.
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<PAGE> 6
This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a stockholder of the Company.
NAM TAI ELECTRONICS, INC.
By__________________________________
Dated:_______ __, 1997 M.K. Koo,
President
ATTEST: [Seal]
- ---------------------------------
Secretary
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<PAGE> 7
NAM TAI ELECTRONICS, INC.
PURCHASE FORM
NAM TAI ELECTRONICS, INC.
999 West Hastings Street
Suite 530
Vancouver, B.C. Canada V6C 2W2
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ____________ Units (the "Units") provided for therein, and requests
that certificates for the Units be issued in the name of:
--------------------------------------------------------------
(Please Print or Type Name, Address and Social Security Number
--------------------------------------------------------------
--------------------------------------------------------------
and, if said number of Units shall not be all the Units purchasable hereunder,
that a new Warrant Certificate for the balance of the Units purchasable under
the within Warrant Certificate be registered in the name of the undersigned
Warrantholder or his Assignee as below indicated and delivered to the address
stated below.
Dated: _______________________
Name of Warrantholder
or Assignee:_____________________________________________
(Please Print)
Address:_________________________________________________
-------------------------------------------------
Signature:____________________________________
Note: The above signature must correspond with the name as written upon the face
of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
Signature Guaranteed:______________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
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<PAGE> 8
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(Name and Address of Assignee Must Be Printed or Typewritten)
-------------------------------------------
-------------------------------------------
-------------------------------------------
the within Warrants, hereby irrevocably constituting and appointing
____________________ Attorney to transfer said Warrants on the books of the
Company, with all power of substitution in the premises.
Dated:_______________ ________________________________________________________
Signature of Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:____________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
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<PAGE> 1
EXHIBIT 4.5
- ------------------------------------------------------------------------------
NAM TAI ELECTRONICS, INC.
AND
JOSEPH CHARLES & ASSOCIATES, INC.
---------------------
STANDBY UNDERWRITER'S WARRANT AGREEMENT
DATED AS OF ________ __, 1997
- ------------------------------------------------------------------------------
<PAGE> 2
STANDBY UNDERWRITER'S WARRANT AGREEMENT
THIS STANDBY UNDERWRITER'S WARRANT AGREEMENT (the "Agreement"), dated as
of ___________ __, 1997 is made and entered into by and between NAM TAI
ELECTRONICS, INC., a British Virgin Islands international holding corporation
(the "Company") and JOSEPH CHARLES & ASSOCIATES., INC., a Florida corporation
(the "Warrantholder").
The Company agrees to issue and sell, and the Warrantholder agrees to
purchase, for the price of $.001 per warrant, warrants, as hereinafter described
(the "Warrants"), to purchase up to an aggregate of up to 120,000 units (the
"Units"), each Unit consisting of (i) one (subject to adjustment pursuant to
Section 8 hereof) share (the "Shares") of the Company's Common Shares, $.01 par
value (the "Common Shares") and (ii) one common share purchase warrant (the
"Unit Warrants") exercisable to purchase one Common Share, in connection with a
public offering by the Company to its stockholders of non-transferable
subscription rights (the "Rights") to purchase up to 3,000,000 Units pursuant to
a standby underwriting agreement (the "Underwriting Agreement"), dated as of
___________ __, 1997, between the Company and the Warrantholder. Common Shares
purchasable upon exercise of the Unit Warrants are hereinafter referred to as
the "Unit Warrant Stock.") The purchase and sale of the Warrants shall occur on
the Closing Date, as defined in the Underwriting Agreement, and be subject to
the conditions to the Underwriters' obligations to purchase Units thereunder, if
any. The Unit Warrants shall be subject to all of the terms and conditions of
the warrant agreement, dated _________ __, 1997 between the Company and
U.S. Stock Transfer Corp., as Warrant Agent (the "Warrant Agreement").
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrants and the respective rights and obligations
thereunder, the Company and the Warrantholder, for value received, hereby agree
as follows:
SECTION 1. TRANSFERABILITY AND FORM OF WARRANTS.
1.1 Registration. The Warrants shall be numbered and shall be
registered on the books of the Company when issued.
1.2 Transfer. The Warrants shall be transferable only on the books
of the Company maintained at its principal office, wherever its principal office
may then be located, upon delivery thereof duly endorsed by the Warrantholder or
by its duly authorized attorney or representative, accompanied by proper
evidence of succession, assignment or authority to transfer. Upon any
registration of transfer, the Company shall execute and deliver new Warrants to
the person entitled thereto.
1.3 Limitations on Transfer of the Warrants. The Warrants shall
not be sold, transferred, assigned or hypothecated by the Warrantholder until
________ __, 1998, except to (i) one or more persons, each of whom on the date
of transfer is an officer or shareholder of the Warrantholder; (ii) a successor
to the Warrantholder in merger or consolidation; (iii) a purchaser of all or
substantially all of the Warrantholder's assets; or (iv) any person receiving
the Warrants from one or more of the persons listed in this subsection 1.3 at
such person's or persons' death pursuant to will, trust or the laws of intestate
succession. The Warrants may be divided or combined, upon request to the Company
by the Warrantholder, into a certificate or certificates representing the right
to purchase the same aggregate number of Units. Unless the context indicates
otherwise, the term "Warrantholder" shall include any transferee or transferees
of the Warrants pursuant to this subsection 1.3, and the term "Warrants" shall
include any and all warrants outstanding pursuant to this Agreement, including
those evidenced by a certificate or certificates issued upon division, exchange,
substitution or transfer pursuant to this Agreement.
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1.4 Form of Warrants. The text of the Warrants and of the form of
election to purchase Units shall be substantially as set forth in Exhibit A
attached hereto. The number of Shares per Unit issuable upon exercise of the
Warrants is subject to adjustment upon the occurrence of certain events, all as
hereinafter provided. The Warrants shall be executed on behalf of the Company by
its President or by a Vice President, attested to by its Secretary or an
Assistant Secretary. A Warrant bearing the signature of an individual who was at
any time the proper officer of the Company shall bind the Company,
notwithstanding that such individual shall have ceased to hold such office prior
to the delivery of such Warrant or did not hold such office on the date of this
Agreement.
The Warrants shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
SECTION 2. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate may be
exchanged for another certificate or certificates entitling the Warrantholder to
purchase a like aggregate number of Units as the certificate or certificates
surrendered then entitled such Warrantholder to purchase. Any Warrantholder
desiring to exchange a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, with
signatures guaranteed, the certificate evidencing the Warrant to be so
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant certificate as so requested.
SECTION 3. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Subject to the terms of this Agreement, the Warrantholder
shall have the right, at any time during the period commencing at 9:00 a.m.,
Pacific Time, on __________ __, 1998 and ending at 5:00 p.m., Pacific Time, on
____________ __, 2000 (the "Termination Date"), to purchase from the Company up
to the number of Units to which the Warrantholder may at the time be entitled to
purchase pursuant to this Agreement, upon surrender to the Company, at its
principal office, of the certificate evidencing the Warrants to be exercised,
together with the purchase form on the reverse thereof duly filled in and
signed, with signatures guaranteed, and upon payment to the Company of the
Warrant Price (as defined in and determined in accordance with the provisions of
this section 3 and sections 7 and 8 hereof), for the number of Units in respect
of which such Warrants are then exercised, but in no event for less than 100
Units (unless less than an aggregate of 100 Units are then purchasable under all
outstanding Warrants held by a Warrantholder).
(b) Payment of the aggregate Warrant Price shall be made in
cash or by check, or any combination thereof.
Upon such surrender of the Warrants and payment of such Warrant Price as
aforesaid, the Company shall issue and cause to be delivered with all reasonable
dispatch to or upon the written order of the Warrantholder and in such name or
names as the Warrantholder may designate a certificate or certificates for the
number of Units so purchased upon the exercise of the Warrant, together with
cash, as provided in Section 9 hereof, in respect of any fractional Shares
otherwise issuable upon such surrender. Such certificate or certificates shall
be deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such securities as of the
date of surrender of the Warrants and payment of the Warrant Price, as
aforesaid, notwithstanding that the certificate or certificates representing
such securities shall not actually have been delivered or that the stock
transfer books of the Company shall then be closed. The Warrants shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part and, in the event that a certificate evidencing the Warrants is
exercised in respect of less than all of the Units specified therein at any time
prior to the Termination Date, a new certificate evidencing the remaining
portion of the Warrants will be issued by the Company.
SECTION 4. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants or the
securities comprising the Units; provided, however, the Company shall
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<PAGE> 4
not be required to pay any tax which may be payable in respect of any secondary
transfer of the Warrants or thesecurities comprising the Units.
SECTION 5. MUTILATED OR MISSING WARRANTS. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and in substitution for the
certificate or certificates lost, stolen or destroyed, a new Warrant certificate
or certificates of like tenor and representing an equivalent right or interest,
but only upon receipt of evidence satisfactory to the Company of such loss,
theft or destruction of such Warrant and a bond of indemnity, if requested, also
satisfactory in form and amount at the applicant's cost. Applicants for such
substitute Warrants certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
SECTION 6. RESERVATION OF SHARES. There has been reserved, and the Company
shall at all times keep reserved so long as the Warrants remain outstanding, out
of its authorized Common Shares, such number of shares of Common Shares as shall
be subject to purchase under the Warrants (including such number of shares of
Unit Warrant Stock subject to purchase upon exercise of the Unit Warrants).
Every transfer agent for the Common Shares and other securities of the Company
issuable upon the exercise of the Warrants will be irrevocably authorized and
directed at all times to reserve such number of authorized shares and other
securities as shall be requisite for such purpose. The Company will keep a copy
of this Agreement and the Warrant Agreement on file with every transfer agent
for the Common Shares and other securities of the Company issuable upon the
exercise of the Warrants. The Company will supply every such transfer agent with
duly executed stock and other certificates, as appropriate, for such purpose and
will provide or otherwise make available any cash which may be payable as
provided in Section 9 hereof.
SECTION 7. WARRANT PRICE. The price per Unit at which Units shall be
purchasable upon the exercise of the Warrants (the "Warrant Price") shall be
$_____, subject to further adjustment pursuant to Section 8 hereof.
SECTION 8. ADJUSTMENT OF NUMBER OF SHARES. The number and kind of
securities purchasable upon the exercise of the Warrants and the Warrant Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
8.1 Adjustments. The number of Shares purchasable upon the
exercise of the Warrants shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in Common
Shares or make a distribution in Common Shares, (ii) subdivide its outstanding
Common Shares, (iii) combine its outstanding Common Shares into a smaller number
of shares of Common Shares, or (iv) issue by reclassification of its Common
Shares other securities of the Company, the number of Shares purchasable upon
exercise of the Warrants immediately prior thereto shall be adjusted so that the
Warrantholder shall be entitled to receive the kind and number of Shares or
other securities of the Company which it would have owned or would have been
entitled to receive immediately after the happening of any of the events
described above, had the Warrants been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this subsection 8.1(a) shall become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event.
(b) In case the Company shall issue rights, options, warrants
or convertible securities to all or substantially all holders of its Common
Shares, without any charge to such holders, entitling them to subscribe for or
purchase Common Shares at a price per share which is lower at the record date
mentioned below than the then Current Market Price (as defined in Section 9),
the number of Shares thereafter purchasable upon the
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<PAGE> 5
exercise of each Warrant shall be determined by multiplying the number of Shares
theretofore purchasable upon exercise of the Warrant by a fraction, of which the
numerator shall be the number of shares of Common Shares outstanding immediately
prior to the issuance of such rights, options, warrants or convertible
securities plus the number of additional shares of Common Shares offered for
subscription or purchase, and of which the denominator shall be the number of
shares of Common Shares outstanding immediately prior to the issuance of such
rights, options, warrants or convertible securities plus the number of shares
which the aggregate offering price of the total number of shares offered would
purchase at such Current Market Price. Such adjustment shall be made whenever
such rights, options, warrants or convertible securities are issued, and shall
become effective immediately and retroactive to the record date for the
determination of stockholders entitled to receive such rights, options, warrants
or convertible securities.
(c) In case the Company shall distribute to all or
substantially all holders of its Common Shares evidences of its indebtedness or
assets (excluding cash dividends or distributions out of earnings) or rights,
options, warrants or convertible securities containing the right to subscribe
for or purchase Common Shares (excluding those referred to in subsection 8.1(b)
above), then in each case the number of Shares thereafter purchasable upon the
exercise of the Warrants shall be determined by multiplying the number of Shares
theretofore purchasable upon exercise of the Warrants by a fraction, of which
the numerator shall be the then Current Market Price on the date of such
distribution, and of which the denominator shall be such Current Market Price on
such date minus the then fair value (determined as provided in subparagraph (e)
below) of the portion of the assets or evidences of indebtedness so distributed
or of such subscription rights, options, warrants or convertible securities
applicable to one share. Such adjustment shall be made whenever any such
distribution is made and shall become effective on the date of distribution
retroactive to the record date for the determination of shareholders entitled to
receive such distribution.
(d) No adjustment in the number of Shares purchasable pursuant
to the Warrants shall be required unless such adjustment would require an
increase or decrease of at least one percent in the number of Shares then
purchasable upon the exercise of the Warrants or, if the Warrants are not then
exercisable, the number of Shares purchasable upon the exercise of the Warrants
on the first date thereafter that the Warrants become exercisable; provided,
however, that any adjustments which by reason of this subsection 8.1(d) are not
required to be made immediately shall be carried forward and taken into account
in any subsequent adjustment.
(e) Whenever the number of Shares purchasable upon the
exercise of the Warrant is adjusted, as herein provided, the Warrant Price
payable upon exercise of the Warrant shall be adjusted by multiplying such
Warrant Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and of which the denominator shall
be the number of Shares so purchasable immediately thereafter.
(f) To the extent not covered by subsections 8.1(b) or (c)
hereof, in case the Company shall sell or issue Common Shares or rights,
options, warrants or convertible securities containing the right to subscribe
for or Common Shares at a price per share (determined, in the case of such
rights, options, warrants or convertible securities, by dividing (i) the total
amount received or receivable by the Company in consideration of the sale or
issuance of such rights, options, warrants or convertible securities, plus the
total consideration payable to the Company upon exercise or conversion thereof,
by (ii) the total number of shares covered by such rights, options, warrants or
convertible securities) lower than the then Current Market Price in effect
immediately prior to such sale or issuance, then the number of Shares thereafter
purchasable upon the exercise of the Warrants shall be determined by multiplying
the number of Shares theretofore purchasable upon exercise of the Warrants by a
fraction, of which the numerator shall be the Warrant Price and the denominator
shall be that price (calculated to the nearest cent) determined by dividing (I)
an amount equal to the sum of (A) the number of Common Shares outstanding
immediately prior to such sale or issuance multiplied by the Warrant Price, plus
(B) the consideration received by the Company upon such sale or issuance, by
(II) the total number of Common Shares
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<PAGE> 6
outstanding immediately after such sale or issuance. For the purposes of such
adjustments, the Common Shares which the holders of any such rights, options,
warrants or convertible securities shall be entitled to subscribe for or
purchase shall be deemed issued and outstanding as of the date of such sale or
issuance and the consideration received by the Company therefor shall be deemed
to be the consideration received by the Company for such rights, options,
warrants or convertible securities, plus the consideration or premiums stated in
such rights, options, warrants or convertible securities to be paid for the
Common Shares covered thereby. In case the Company shall sell or issue Common
Shares or rights, options, warrants or convertible securities containing the
right to subscribe for or purchase Common Shares for a consideration consisting,
in whole or in part, of property other than cash or its equivalent, then in
determining the "price per share" of Common Shares and the "consideration
received by the Company" for purposes of the first sentence of this subsection
8.1(f), the Board of Directors shall determine the fair value of said property,
and such determination, if reasonable and based upon the Board of Directors'
good faith business judgment, shall be binding upon the Warrantholder. In
determining the "price per share" of the Common Shares, any underwriting
discounts or commissions shall not be deducted from the price received by the
Company for sales of securities registered under the Act.
(g) Whenever the number of Shares purchasable upon the
exercise of the Warrants is adjusted as herein provided, the Company shall cause
to be promptly mailed to the Warrantholder by first class mail, postage prepaid,
notice of such adjustment and a certificate of the chief financial officer of
the Company setting forth the number of Shares purchasable upon the exercise of
the Warrants after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
(h) For the purpose of this subsection 8.1, the term 'Common
Shares' shall mean (i) the class of stock designated as the Common Shares of the
Company at the date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Shares
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 8, the Warrantholder shall become
entitled to purchase any securities of the Company other than Common Shares and
Unit Warrants, (i) if the Warrantholder's right to purchase is on any other
basis than that available to all holders of the Company's Common Shares, the
Company shall obtain an opinion of an independent investment banking firm
valuing such other securities and (ii) thereafter the number of such other
securities so purchasable upon exercise of the Warrants shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Shares contained in this
Section 8.
(i) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the number of
Shares purchasable upon exercise of the Warrants, to the extent the Warrants
have not then been exercised, shall, upon such expiration, be readjusted and
shall thereafter be such as they would have been had they been originally
adjusted (or had the original adjustment not been required, as the case may be)
on the basis of (A) the fact that the only Common shares so issued were the
Common Shares, if any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion privileges, and (B) the fact that such shares of
Common Shares, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the consideration, if any,
actually received by the Company for the issuance, sale or grant of all such
rights, options, warrants or conversion privileges whether or not exercised;
provided, however, that no such readjustment shall have the effect of decreasing
the number of Shares purchasable upon exercise of the Warrants by an amount in
excess of the amount of the adjustment initially made in respect of the
issuance, sale or grant of such rights, options, warrants or conversion
privileges.
8.2 No Adjustment for Dividends. Except as provided in subsection
8.1, no adjustment in respect of any dividends or distributions out of earnings
shall be made during the term of the Warrants or upon the exercise of the
Warrants.
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<PAGE> 7
8.3 No Adjustment in Certain Cases. No adjustments shall be made
pursuant to Sections 3 or 8 hereof in connection with the issuance of Units,
Shares, Unit Warrants or Unit Warrant Stock sold as part of the public sale and
issuance of Units pursuant to the Underwriting Agreement or the issuance of
Units, Shares, Unit Warrants or Unit Warrant Stock upon exercise of the
Warrants. No adjustments shall be made pursuant to Sections 3 or 8 hereof in
connection with the grant or exercise of presently authorized or outstanding
options to purchase, or the issuance of shares, aggregating up to [300,000]
Common Shares under the Company's existing stock option plans.
8.4 Preservation of Purchase Rights upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the Warrantholder
an agreement that the Warrantholder shall have the right thereafter upon payment
of the Warrant Price in effect immediately prior to such action to purchase,
upon exercise of the Warrants, the kind and amount of shares and other
securities and property which it would have owned or have been entitled to
receive after the happening of such consolidation, merger, sale or conveyance
had the Warrants (and each underlying security) been exercised immediately prior
to such action. In the event of a merger described in Section 368(a)(2)(E) of
the Internal Revenue Code of 1986, as amended, in which the Company is the
surviving corporation, the right to purchase Units under the Warrants shall
terminate on the date of such merger and thereupon the Warrants shall become
null and void, but only if the controlling corporation shall agree to substitute
for the Warrants its warrant which entitles the holder thereof to purchase upon
its exercise the kind and amount of shares and other securities and property
which it would have owned or been entitled to receive had the Warrants been
exercised immediately prior to such merger. Any such agreements referred to in
this subsection 8.4 shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section 8
hereof. The provisions of this subsection 8.4 shall similarly apply to
successive consolidations, mergers, sales or conveyances.
8.5 Par Value of Common Shares. Before taking any action which
would cause an adjustment effectively reducing the portion of the Warrant Price
allocable to each Share below the then par value per Common Shares issuable upon
exercise of the Warrants, the Company will take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable Common Shares upon
exercise of the Warrants.
8.6 Independent Public Accountants. The Company may retain a firm
of independent public accountants of recognized national standing (which may be
any such firm regularly employed by the Company) to make any computation
required under this Section 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
Section 8.
8.7 Statement on Warrant Certificates. Irrespective of any
adjustments in the number of securities issuable upon exercise of Warrants,
Warrant certificates theretofore or thereafter issued may continue to express
the same number of securities as are stated in the similar Warrant certificates
initially issuable pursuant to this Agreement. However, the Company may, at any
time in its sole discretion (which shall be conclusive), make any change in the
form of Warrant certificate that it may deem appropriate and that does not
affect the substance thereof; and any Warrant certificate thereafter issued,
whether upon registration of transfer of, or in exchange or substitution for, an
outstanding Warrant certificate, may be in the form so changed.
SECTION 9. FRACTIONAL INTERESTS; CURRENT MARKET PRICE. The Company shall
not be required to issue fractional Shares on the exercise of the Warrants. If
any fraction of a Share would, except for the provisions of this Section 9, be
issuable on the exercise of the Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the then Current Market Price
multiplied by such fraction. For purposes of this Agreement, the term "Current
Market Price" shall mean (i) if the Common Shares are traded in the
over-the-counter
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<PAGE> 8
market and not in the NASDAQ National Market System nor on any national
securities exchange, the average of the per share closing bid prices of the
Common Shares on the 30 consecutive trading days immediately preceding the date
in question, as reported by NASDAQ or an equivalent generally accepted reporting
service, or (ii) if the Common Shares are traded in the NASDAQ National Market
System or on a national securities exchange, the average for the 30 consecutive
trading days immediately preceding the date in question of the daily per share
closing prices of the Common Shares in the NASDAQ National Market System or on
the principal stock exchange on which it is listed, as the case may be. For
purposes of clause (i) above, if trading in the Common Shares is not reported by
NASDAQ, the bid price referred to in said clause shall be the lowest bid price
as reported in the "pink sheets" published by National Quotation Bureau,
Incorporated. The closing price referred to in clause (ii) above shall be the
last reported sale price or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices, in either case in
the NASDAQ National Market System or on the national securities exchange on
which the Common Shares are then listed.
SECTION 10. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Warrantholder or its transferees any rights as a stockholder of the
Company, including the right to vote, receive dividends, consent or receive
notices as a stockholder in respect of any meeting of stockholders for the
election of directors of the Company or any other matter. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, any
one or more of the following events shall occur:
(a) any action which would require an adjustment pursuant to
Section 8.1 or 8.4; or
(b) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger or sale of its property,
assets and business as an entirety or substantially as an entirety) shall be
proposed;
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 11 hereof, at least 20 days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to any relevant dividend,
distribution, subscription rights or other rights or for the determination of
stockholders entitled to vote on such proposed dissolution, liquidation or
winding up. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to mail or receive such notice
or any defect therein shall not affect the validity of any action taken with
respect thereto.
SECTION 11. NOTICES. Any notice pursuant to this Agreement by the Company
or by a Warrantholder, a holder of Shares, Unit Warrants or Unit Warrant Stock
shall be in writing and shall be deemed to have been duly given if delivered or
mailed by certified mail, return receipt requested:
(a) If to a Warrantholder or a holder of Shares, Unit Warrants
or Unit Warrant Stock, addressed to Joseph Charles & Associates, Inc., 9701
Wilshire Blvd., 9th Floor, Beverly Hills, California 90212; Attention: Corporate
Finance Department.
(b) If to the Company addressed to it at 999 West Hastings
Street, Suite 530, Vancouver, B.C. Canada V6C 2W2, Attention: Mr. M.K. Koo,
President.
Each party may from time to time change the address to which notices to it
are to be delivered or mailed hereunder by notice in accordance herewith to the
other party.
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<PAGE> 9
SECTION 12. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company, the Warrantholders, or the holders of
Shares, Unit Warrants or Unit Warrant Stock shall bind and inure to the benefit
of their respective successors and assigns hereunder.
SECTION 13. MERGER OR CONSOLIDATION OF THE COMPANY. The Company will not
merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless the provisions
of Section 8.4 are complied with.
SECTION 14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in any schedule, exhibit, certificate or other instrument delivered by
or on behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf of
the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
SECTION 15. GOVERNING LAW. This Agreement shall be deemed to be a contract
made under the laws of the State of California and for all purposes shall be
construed in accordance with the laws of said State applicable to contracts
entered into and performed in said State, and without regard to any conflicts of
laws principles thereof.
SECTION 19. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrantholders and the holders of Shares, Unit Warrants or Unit Warrant Stock
any legal or equitable right, remedy or claim under this Agreement. This
Agreement shall be for the sole and exclusive benefit of the Company, the
Warrantholders and the holders of Shares, Unit Warrants and Unit Warrant Stock.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
NAM TAI ELECTRONICS, INC.
By____________________________________
M.K. Koo, President
JOSEPH CHARLES & ASSOCIATES, INC.
By____________________________________
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<PAGE> 10
Exhibit A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED,
HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH
SECTION 1 OF THE AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED.
Warrant Certificate No.
STANDBY UNDERWRITER'S WARRANT TO PURCHASE 120,000 UNITS, EACH UNIT
CONSISTING OF ONE COMMON SHARE AND TWO WARRANTS EACH EXERCISABLE TO
PURCHASE ONE COMMON SHARE
VOID AFTER 5:00 P.M.,
PACIFIC TIME, ON _____________ __, 2000
NAM TAI ELECTRONICS, INC.
This certifies that, for value received, ____________________, the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from NAM TAI ELECTRONICS, INC. (the "Company"), at any time during the
period commencing at 9:00 a.m., Pacific Time, on __________ __ , 1998, and
before 5:00 p.m., Pacific Time, on ___________ __, 2000, at the purchase price
per Unit of $_____ (the "Warrant Price"), the number of Units of the Company set
forth above (the "Units"). The number of Common Shares of the Company included
in the Units purchasable upon exercise of each Warrant evidenced hereby shall be
subject to adjustment from time to time as set forth in the Standby
Underwriter's Warrant Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature guarantee as provided thereon) and simultaneous
payment of the Warrant Price at the principal office of the Company. Payment of
such price shall be made at the option of the Warrantholder in cash or by check.
The Warrants evidenced hereby represent the right to purchase an aggregate
of up to 120,000 Units and are issued under and in accordance with a Standby
Underwriter's Warrant Agreement, dated as of _______ __, 1997 (the "Standby
Underwriter's Warrant Agreement"), between the Company and Joseph Charles &
Associates, Inc. and are subject to the terms and provisions contained in the
Standby Underwriter's Warrant Agreement, to all of which the Warrantholder by
acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall be
signed and issued to the Warrantholder a new Warrant Certificate in respect of
the Units as to which the Warrants evidenced hereby shall not have been
exercised. These Warrants may be exchanged at the office of the Company by
surrender of this Warrant Certificate properly endorsed for one or more new
Warrants of the same aggregate number of Units as here evidenced by the Warrant
or Warrants exchanged. No fractional Shares will be issued upon the exercise of
rights to purchase the Units hereunder, but the Company shall pay the cash value
of any fraction upon the exercise of one or more Warrants. These Warrants are
transferable at the office of the Company in the manner and subject to the
limitations set forth in the Standby Underwriter's Warrant Agreement.
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<PAGE> 11
This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a stockholder of the Company.
NAM TAI ELECTRONICS, INC.
By__________________________________
Dated:________________, 1997 M.K. Koo,
President
ATTEST: [Seal]
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Secretary
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NAM TAI ELECTRONICS, INC.
PURCHASE FORM
NAM TAI ELECTRONICS, INC.
999 West Hastings Street, Suite 530
Vancouver, B.C. Canada V6C, 2W2
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ____________ Units (the "Units") provided for therein, and requests
that certificates for the Units be issued in the name of:
--------------------------------------------------------------
(Please Print or Type Name, Address and Social Security Number
--------------------------------------------------------------
--------------------------------------------------------------
and, if said number of Units shall not be all the Units purchasable hereunder,
that a new Warrant Certificate for the balance of the Units purchasable under
the within Warrant Certificate be registered in the name of the undersigned
Warrantholder or his Assignee as below indicated and delivered to the address
stated below.
Dated: _______________________
Name of Warrantholder
or Assignee:_____________________________________________
(Please Print)
Address:_________________________________________________
-------------------------------------------------
Signature:____________________________________
Note: The above signature must correspond with the name as written upon the face
of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
Signature Guaranteed:______________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
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<PAGE> 13
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(Name and Address of Assignee Must Be Printed or Typewritten)
-------------------------------------------
-------------------------------------------
-------------------------------------------
the within Warrants, hereby irrevocably constituting and appointing
____________________ Attorney to transfer said Warrants on the books of the
Company, with all power of substitution in the premises.
Dated:_______________ ________________________________________________________
Signature of Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:____________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
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<PAGE> 1
EXHIBIT 4.6
- ------------------------------------------------------------------------------
NAM TAI ELECTRONICS, INC.
AND
FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN,
A LAW CORPORATION
---------------------
COUNSEL'S WARRANT AGREEMENT
DATED AS OF __________ __, 1997
- ------------------------------------------------------------------------------
<PAGE> 2
COUNSEL'S WARRANT AGREEMENT
THIS COUNSEL'S WARRANT AGREEMENT (the "Agreement"), dated as of
_____________ __, 1997 is made and entered into by and between NAM TAI
ELECTRONICS, INC., a British Virgin Islands international holding corporation
(the "Company") and FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN, a law
corporation (the "Warrantholder").
The Company agrees to issue and sell, and the Warrantholder agrees to
purchase, for the price of $.001 per warrant, warrants, as hereinafter described
(the "Warrants"), to purchase up to an aggregate of up to 10,000 units (the
"Units") , each Unit consisting of (i) one (subject to adjustment pursuant to
Section 8 hereof) share (the "Shares") of the Company's Common Shares, $.01 par
value (the "Common Shares") and (ii) one common share purchase warrant (the
"Unit Warrants") exercisable to purchase one Common Share, in connection with a
public offering by the Company to its stockholders of non-transferable
subscription rights (the "Rights") to purchase up to 3,000,000 Units pursuant to
a standby underwriting agreement (the "Underwriting Agreement"), dated as of
______________ __, 1997, between the Company and Joseph Charles & Associates,
Inc. Common Shares purchasable upon exercise of the Unit Warrants are
hereinafter referred to as the "Unit Warrant Stock.") The purchase and sale of
the Warrants shall occur on the Closing Date, as defined in the Underwriting
Agreement, and be subject to the conditions to the Underwriters' obligations to
purchase Units thereunder, if any. The Unit Warrants shall be subject to all of
the terms and conditions of the warrant agreement, dated _________ __, 1997
between the Company and U.S. Stock Transfer Corp., as Warrant Agent
(the "Warrant Agreement").
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrants and the respective rights and obligations
thereunder, the Company and the Warrantholder, for value received, hereby agree
as follows:
SECTION 1. TRANSFERABILITY AND FORM OF WARRANTS.
1.1 Registration. The Warrants shall be numbered and shall be
registered on the books of the Company when issued.
1.2 Transfer. The Warrants shall be transferable only on the books
of the Company maintained at its principal office, wherever its principal office
may then be located, upon delivery thereof duly endorsed by the Warrantholder or
by its duly authorized attorney or representative, accompanied by proper
evidence of succession, assignment or authority to transfer. Upon any
registration of transfer, the Company shall execute and deliver new Warrants to
the person entitled thereto.
1.3 Limitations on Transfer of the Warrants. The Warrants shall
not be sold, transferred, assigned or hypothecated by the Warrantholder until
____________ __, 1998, except to (i) one or more persons, each of whom on the
date of transfer is a shareholder of the Warrantholder; (ii) a successor to the
Warrantholder in merger or consolidation; (iii) a purchaser of all or
substantially all of the Warrantholder's assets; or (iv) any person receiving
the Warrants from one or more of the persons listed in this subsection 1.3 at
such person's or persons' death pursuant to will, trust or the laws of intestate
succession. The Warrants may be divided or combined, upon request to the Company
by the Warrantholder, into a certificate or certificates representing the right
to purchase the same aggregate number of Units. Unless the context indicates
otherwise, the term "Warrantholder" shall include any transferee or transferees
of the Warrants pursuant to this subsection 1.3, and the term "Warrants" shall
include any and all warrants outstanding pursuant to this Agreement, including
those evidenced by a certificate or certificates issued upon division, exchange,
substitution or transfer pursuant to this Agreement.
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1.4 Form of Warrants. The text of the Warrants and of the form of
election to purchase Units shall be substantially as set forth in Exhibit A
attached hereto. The number of Shares per Unit issuable upon exercise of the
Warrants is subject to adjustment upon the occurrence of certain events, all as
hereinafter provided. The Warrants shall be executed on behalf of the Company by
its President or by a Vice President, attested to by its Secretary or an
Assistant Secretary. A Warrant bearing the signature of an individual who was at
any time the proper officer of the Company shall bind the Company,
notwithstanding that such individual shall have ceased to hold such office prior
to the delivery of such Warrant or did not hold such office on the date of this
Agreement.
The Warrants shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
SECTION 2. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate may be
exchanged for another certificate or certificates entitling the Warrantholder to
purchase a like aggregate number of Units as the certificate or certificates
surrendered then entitled such Warrantholder to purchase. Any Warrantholder
desiring to exchange a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, with
signatures guaranteed, the certificate evidencing the Warrant to be so
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant certificate as so requested.
SECTION 3. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Subject to the terms of this Agreement, the Warrantholder
shall have the right, at any time during the period commencing at 9:00 a.m.,
Pacific Time, on ____________ __, 1998 and ending at 5:00 p.m., Pacific Time, on
_____________ __, 2000 (the "Termination Date"), to purchase from the Company up
to the number of Units to which the Warrantholder may at the time be entitled to
purchase pursuant to this Agreement, upon surrender to the Company, at its
principal office, of the certificate evidencing the Warrants to be exercised,
together with the purchase form on the reverse thereof duly filled in and
signed, with signatures guaranteed, and upon payment to the Company of the
Warrant Price (as defined in and determined in accordance with the provisions of
this section 3 and sections 7 and 8 hereof), for the number of Units in respect
of which such Warrants are then exercised, but in no event for less than 100
Units (unless less than an aggregate of 100 Units are then purchasable under all
outstanding Warrants held by a Warrantholder).
(b) Payment of the aggregate Warrant Price shall be made in
cash or by check, or any combination thereof.
Upon such surrender of the Warrants and payment of such Warrant Price as
aforesaid, the Company shall issue and cause to be delivered with all reasonable
dispatch to or upon the written order of the Warrantholder and in such name or
names as the Warrantholder may designate a certificate or certificates for the
number of Units so purchased upon the exercise of the Warrant, together with
cash, as provided in Section 9 hereof, in respect of any fractional Shares
otherwise issuable upon such surrender. Such certificate or certificates shall
be deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such securities as of the
date of surrender of the Warrants and payment of the Warrant Price, as
aforesaid, notwithstanding that the certificate or certificates representing
such securities shall not actually have been delivered or that the stock
transfer books of the Company shall then be closed. The Warrants shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part and, in the event that a certificate evidencing the Warrants is
exercised in respect of less than all of the Units specified therein at any time
prior to the Termination Date, a new certificate evidencing the remaining
portion of the Warrants will be issued by the Company.
SECTION 4. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants or the
securities comprising the Units; provided, however, the Company shall
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<PAGE> 4
not be required to pay any tax which may be payable in respect of any secondary
transfer of the Warrants or the securities comprising the Units.
SECTION 5. MUTILATED OR MISSING WARRANTS. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and in substitution for the
certificate or certificates lost, stolen or destroyed, a new Warrant certificate
or certificates of like tenor and representing an equivalent right or interest,
but only upon receipt of evidence satisfactory to the Company of such loss,
theft or destruction of such Warrant and a bond of indemnity, if requested, also
satisfactory in form and amount at the applicant's cost. Applicants for such
substitute Warrants certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
SECTION 6. RESERVATION OF SHARES. There has been reserved, and the Company
shall at all times keep reserved so long as the Warrants remain outstanding, out
of its authorized Common Shares, such number of shares of Common Shares as shall
be subject to purchase under the Warrants (including such number of shares of
Unit Warrant Stock subject to purchase upon exercise of the Unit Warrants).
Every transfer agent for the Common Shares and other securities of the Company
issuable upon the exercise of the Warrants will be irrevocably authorized and
directed at all times to reserve such number of authorized shares and other
securities as shall be requisite for such purpose. The Company will keep a copy
of this Agreement and the Warrant Agreement on file with every transfer agent
for the Common Shares and other securities of the Company issuable upon the
exercise of the Warrants. The Company will supply every such transfer agent with
duly executed stock and other certificates, as appropriate, for such purpose and
will provide or otherwise make available any cash which may be payable as
provided in Section 9 hereof.
SECTION 7. WARRANT PRICE. The price per Unit at which Units shall be
purchasable upon the exercise of the Warrants (the "Warrant Price") shall be
$_____, subject to further adjustment pursuant to Section 8 hereof.
SECTION 8. ADJUSTMENT OF NUMBER OF SHARES. The number and kind of
securities purchasable upon the exercise of the Warrants and the Warrant Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
8.1 Adjustments. The number of Shares purchasable upon the
exercise of the Warrants shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in Common
Shares or make a distribution in Common Shares, (ii) subdivide its outstanding
Common Shares, (iii) combine its outstanding Common Shares into a smaller number
of shares of Common Shares, or (iv) issue by reclassification of its Common
Shares other securities of the Company, the number of Shares purchasable upon
exercise of the Warrants immediately prior thereto shall be adjusted so that the
Warrantholder shall be entitled to receive the kind and number of Shares or
other securities of the Company which it would have owned or would have been
entitled to receive immediately after the happening of any of the events
described above, had the Warrants been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this subsection 8.1(a) shall become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event.
(b) In case the Company shall issue rights, options, warrants
or convertible securities to all or substantially all holders of its Common
Shares, without any charge to such holders, entitling them to subscribe for or
purchase Common Shares at a price per share which is lower at the record date
mentioned below than the then Current Market Price (as defined in Section 9),
the number of Shares thereafter purchasable upon the
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<PAGE> 5
outstanding immediately prior to such sale or issuance multiplied by the Warrant
Price, plus (B) the consideration received by the Company upon such sale or
issuance, by (II) the total number of Common Shares exercise of each Warrant
shall be determined by multiplying the number of Shares theretofore purchasable
upon exercise of the Warrant by a fraction, of which the numerator shall be the
number of shares of Common Shares outstanding immediately prior to the issuance
of such rights, options, warrants or convertible securities plus the number of
additional shares of Common Shares offered for subscription or purchase, and of
which the denominator shall be the number of shares of Common Shares outstanding
immediately prior to the issuance of such rights, options, warrants or
convertible securities plus the number of shares which the aggregate offering
price of the total number of shares offered would purchase at such Current
Market Price. Such adjustment shall be made whenever such rights, options,
warrants or convertible securities are issued, and shall become effective
immediately and retroactive to the record date for the determination of
stockholders entitled to receive such rights, options, warrants or convertible
securities.
(c) In case the Company shall distribute to all or
substantially all holders of its Common Shares evidences of its indebtedness or
assets (excluding cash dividends or distributions out of earnings) or rights,
options, warrants or convertible securities containing the right to subscribe
for or purchase Common Shares (excluding those referred to in subsection 8.1(b)
above), then in each case the number of Shares thereafter purchasable upon the
exercise of the Warrants shall be determined by multiplying the number of Shares
theretofore purchasable upon exercise of the Warrants by a fraction, of which
the numerator shall be the then Current Market Price on the date of such
distribution, and of which the denominator shall be such Current Market Price on
such date minus the then fair value (determined as provided in subparagraph (e)
below) of the portion of the assets or evidences of indebtedness so distributed
or of such subscription rights, options, warrants or convertible securities
applicable to one share. Such adjustment shall be made whenever any such
distribution is made and shall become effective on the date of distribution
retroactive to the record date for the determination of shareholders entitled to
receive such distribution.
(d) No adjustment in the number of Shares purchasable pursuant
to the Warrants shall be required unless such adjustment would require an
increase or decrease of at least one percent in the number of Shares then
purchasable upon the exercise of the Warrants or, if the Warrants are not then
exercisable, the number of Shares purchasable upon the exercise of the Warrants
on the first date thereafter that the Warrants become exercisable; provided,
however, that any adjustments which by reason of this subsection 8.1(d) are not
required to be made immediately shall be carried forward and taken into account
in any subsequent adjustment.
(e) Whenever the number of Shares purchasable upon the
exercise of the Warrant is adjusted, as herein provided, the Warrant Price
payable upon exercise of the Warrant shall be adjusted by multiplying such
Warrant Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and of which the denominator shall
be the number of Shares so purchasable immediately thereafter.
(f) To the extent not covered by subsections 8.1(b) or (c)
hereof, in case the Company shall sell or issue Common Shares or rights,
options, warrants or convertible securities containing the right to subscribe
for or Common Shares at a price per share (determined, in the case of such
rights, options, warrants or convertible securities, by dividing (i) the total
amount received or receivable by the Company in consideration of the sale or
issuance of such rights, options, warrants or convertible securities, plus the
total consideration payable to the Company upon exercise or conversion thereof,
by (ii) the total number of shares covered by such rights, options, warrants or
convertible securities) lower than the then Current Market Price in effect
immediately prior to such sale or issuance, then the number of Shares thereafter
purchasable upon the exercise of the Warrants shall be determined by multiplying
the number of Shares theretofore purchasable upon exercise of the Warrants by a
fraction, of which the numerator shall be the Warrant Price and the denominator
shall be that price (calculated to the nearest cent) determined by dividing (I)
an amount equal to the sum of (A) the number of Common Shares
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<PAGE> 6
outstanding immediately after such sale or issuance. For the purposes of such
adjustments, the Common Shares which the holders of any such rights, options,
warrants or convertible securities shall be entitled to subscribe for or
purchase shall be deemed issued and outstanding as of the date of such sale or
issuance and the consideration received by the Company therefor shall be
deemed to be the consideration received by the Company for such rights,
options, warrants or convertible securities, plus the consideration or
premiums stated in such rights, options, warrants or convertible securities
to be paid for the Common Shares covered thereby. In case the Company shall
sell or issue Common Shares or rights, options, warrants or convertible
securities containing the right to subscribe for or purchase Common Shares for
a consideration consisting, in whole or in part, of property other than cash
or its equivalent, then in determining the "price per share" of Common Shares
and the "consideration received by the Company" for purposes of the first
sentence of this subsection 8.1(f), the Board of Directors shall determine the
fair value of said property, and such determination, if reasonable and based
upon the Board of Directors' good faith business judgment, shall be binding
upon the Warrantholder. In determining the "price per share" of the Common
Shares, any underwriting discounts or commissions shall not be deducted from
the price received by the Company for sales of securities registered under
the Act.
(g) Whenever the number of Shares purchasable upon the
exercise of the Warrants is adjusted as herein provided, the Company shall cause
to be promptly mailed to the Warrantholder by first class mail, postage prepaid,
notice of such adjustment and a certificate of the chief financial officer of
the Company setting forth the number of Shares purchasable upon the exercise of
the Warrants after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
(h) For the purpose of this subsection 8.1, the term 'Common
Shares' shall mean (i) the class of stock designated as the Common Shares of the
Company at the date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Shares
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 8, the Warrantholder shall become
entitled to purchase any securities of the Company other than Common Shares and
Unit Warrants, (i) if the Warrantholder's right to purchase is on any other
basis than that available to all holders of the Company's Common Shares, the
Company shall obtain an opinion of an independent investment banking firm
valuing such other securities and (ii) thereafter the number of such other
securities so purchasable upon exercise of the Warrants shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Shares contained in this
Section 8.
(i) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the number of
Shares purchasable upon exercise of the Warrants, to the extent the Warrants
have not then been exercised, shall, upon such expiration, be readjusted and
shall thereafter be such as they would have been had they been originally
adjusted (or had the original adjustment not been required, as the case may be)
on the basis of (A) the fact that the only Common shares so issued were the
Common Shares, if any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion privileges, and (B) the fact that such shares of
Common Shares, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the consideration, if any,
actually received by the Company for the issuance, sale or grant of all such
rights, options, warrants or conversion privileges whether or not exercised;
provided, however, that no such readjustment shall have the effect of decreasing
the number of Shares purchasable upon exercise of the Warrants by an amount in
excess of the amount of the adjustment initially made in respect of the
issuance, sale or grant of such rights, options, warrants or conversion
privileges.
8.2 No Adjustment for Dividends. Except as provided in subsection
8.1, no adjustment in respect of any dividends or distributions out of earnings
shall be made during the term of the Warrants or upon the exercise of the
Warrants.
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<PAGE> 7
8.3 No Adjustment in Certain Cases. No adjustments shall be made
pursuant to Sections 3 or 8 hereof in connection with the issuance of Units,
Shares, Unit Warrants or Unit Warrant Stock sold as part of the public sale and
issuance of Units pursuant to the Underwriting Agreement or the issuance of
Units, Shares, Unit Warrants or Unit Warrant Stock upon exercise of the
Warrants. No adjustments shall be made pursuant to Sections 3 or 8 hereof in
connection with the grant or exercise of presently authorized or outstanding
options to purchase, or the issuance of shares, aggregating up to [300,000]
Common Shares under the Company's existing stock option plans.
8.4 Preservation of Purchase Rights upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the Warrantholder
an agreement that the Warrantholder shall have the right thereafter upon payment
of the Warrant Price in effect immediately prior to such action to purchase,
upon exercise of the Warrants, the kind and amount of shares and other
securities and property which it would have owned or have been entitled to
receive after the happening of such consolidation, merger, sale or conveyance
had the Warrants (and each underlying security) been exercised immediately prior
to such action. In the event of a merger described in Section 368(a)(2)(E) of
the Internal Revenue Code of 1986, as amended, in which the Company is the
surviving corporation, the right to purchase Units under the Warrants shall
terminate on the date of such merger and thereupon the Warrants shall become
null and void, but only if the controlling corporation shall agree to substitute
for the Warrants its warrant which entitles the holder thereof to purchase upon
its exercise the kind and amount of shares and other securities and property
which it would have owned or been entitled to receive had the Warrants been
exercised immediately prior to such merger. Any such agreements referred to in
this subsection 8.4 shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section 8
hereof. The provisions of this subsection 8.4 shall similarly apply to
successive consolidations, mergers, sales or conveyances.
8.5 Par Value of Common Shares. Before taking any action which
would cause an adjustment effectively reducing the portion of the Warrant Price
allocable to each Share below the then par value per Common Shares issuable upon
exercise of the Warrants, the Company will take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable Common Shares upon
exercise of the Warrants.
8.6 Independent Public Accountants. The Company may retain a firm
of independent public accountants of recognized national standing (which may be
any such firm regularly employed by the Company) to make any computation
required under this Section 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
Section 8.
8.7 Statement on Warrant Certificates. Irrespective of any
adjustments in the number of securities issuable upon exercise of Warrants,
Warrant certificates theretofore or thereafter issued may continue to express
the same number of securities as are stated in the similar Warrant certificates
initially issuable pursuant to this Agreement. However, the Company may, at any
time in its sole discretion (which shall be conclusive), make any change in the
form of Warrant certificate that it may deem appropriate and that does not
affect the substance thereof; and any Warrant certificate thereafter issued,
whether upon registration of transfer of, or in exchange or substitution for, an
outstanding Warrant certificate, may be in the form so changed.
SECTION 9. FRACTIONAL INTERESTS; CURRENT MARKET PRICE. The Company shall
not be required to issue fractional Shares on the exercise of the Warrants. If
any fraction of a Share would, except for the provisions of this Section 9, be
issuable on the exercise of the Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the then Current Market Price
multiplied by such fraction. For purposes of this Agreement, the term "Current
Market Price" shall mean (i) if the Common Shares are traded in the
over-the-counter
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<PAGE> 8
market and not in the NASDAQ National Market System nor on any national
securities exchange, the average of the per share closing bid prices of the
Common Shares on the 30 consecutive trading days immediately preceding the date
in question, as reported by NASDAQ or an equivalent generally accepted reporting
service, or (ii) if the Common Shares are traded in the NASDAQ National Market
System or on a national securities exchange, the average for the 30 consecutive
trading days immediately preceding the date in question of the daily per share
closing prices of the Common Shares in the NASDAQ National Market System or on
the principal stock exchange on which it is listed, as the case may be. For
purposes of clause (i) above, if trading in the Common Shares is not reported by
NASDAQ, the bid price referred to in said clause shall be the lowest bid price
as reported in the "pink sheets" published by National Quotation Bureau,
Incorporated. The closing price referred to in clause (ii) above shall be the
last reported sale price or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices, in either case in
the NASDAQ National Market System or on the national securities exchange on
which the Common Shares are then listed.
SECTION 10. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Warrantholder or its transferees any rights as a stockholder of the
Company, including the right to vote, receive dividends, consent or receive
notices as a stockholder in respect of any meeting of stockholders for the
election of directors of the Company or any other matter. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, any
one or more of the following events shall occur:
(a) any action which would require an adjustment pursuant to
Section 8.1 or 8.4; or
(b) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger or sale of its property,
assets and business as an entirety or substantially as an entirety) shall be
proposed;
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 11 hereof, at least 20 days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to any relevant dividend,
distribution, subscription rights or other rights or for the determination of
stockholders entitled to vote on such proposed dissolution, liquidation or
winding up. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to mail or receive such notice
or any defect therein shall not affect the validity of any action taken with
respect thereto.
SECTION 11. NOTICES. Any notice pursuant to this Agreement by the Company
or by a Warrantholder, a holder of Shares, Unit Warrants or Unit Warrant Stock
shall be in writing and shall be deemed to have been duly given if delivered or
mailed by certified mail, return receipt requested:
(a) If to a Warrantholder or a holder of Shares, Unit Warrants
or Unit Warrant Stock, addressed to Freshman, Marantz, Orlanski, Cooper & Klein,
a law corporation, Eighth Floor, East Tower, 9100 Wilshire Blvd., Beverly Hills,
California 90212; Attention: Mark A. Klein.
(b) If to the Company addressed to it at 999 West Hastings
Street, Suite 530, Vancouver, B.C. Canada V6C 2W2, Attention: Mr. M.K. Koo,
President.
Each party may from time to time change the address to which notices to it
are to be delivered or mailed hereunder by notice in accordance herewith to the
other party.
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<PAGE> 9
SECTION 12. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company, the Warrantholders, or the holders of
Shares, Unit Warrants or Unit Warrant Stock shall bind and inure to the benefit
of their respective successors and assigns hereunder.
SECTION 13. MERGER OR CONSOLIDATION OF THE COMPANY. The Company will not
merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless the provisions
of Section 8.4 are complied with.
SECTION 14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in any schedule, exhibit, certificate or other instrument delivered by
or on behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf of
the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
SECTION 15. GOVERNING LAW. This Agreement shall be deemed to be a contract
made under the laws of the State of California and for all purposes shall be
construed in accordance with the laws of said State applicable to contracts
entered into and performed in said State, and without regard to any conflicts of
laws principles thereof.
SECTION 19. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrantholders and the holders of Shares, Unit Warrants or Unit Warrant Stock
any legal or equitable right, remedy or claim under this Agreement. This
Agreement shall be for the sole and exclusive benefit of the Company, the
Warrantholders and the holders of Shares, Unit Warrants and Unit Warrant Stock.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
NAM TAI ELECTRONICS, INC.
By____________________________________
M.K. Koo, President
FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN
a law corporation
By____________________________________
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<PAGE> 10
Exhibit A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED,
HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH
SECTION 1 OF THE AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED.
Warrant Certificate No.
STANDBY UNDERWRITER'S WARRANT TO PURCHASE 10,000 UNITS, EACH UNIT
CONSISTING OF ONE COMMON SHARE AND TWO WARRANTS EACH EXERCISABLE TO
PURCHASE ONE COMMON SHARE
VOID AFTER 5:00 P.M.,
PACIFIC TIME, ON _________________ __, 2000
NAM TAI ELECTRONICS, INC.
This certifies that, for value received, ____________________, the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from NAM TAI ELECTRONICS, INC. (the "Company"), at any time during the
period commencing at 9:00 a.m., Pacific Time, on ____________ __, 1998, and
before 5:00 p.m., Pacific Time, on _____________ __, 2000, at the purchase price
per Unit of $____ (the "Warrant Price"), the number of Units of the Company set
forth above (the "Units"). The number of Common Shares of the Company included
in the Units purchasable upon exercise of each Warrant evidenced hereby shall be
subject to adjustment from time to time as set forth in the Standby
Underwriter's Warrant Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature guarantee as provided thereon) and simultaneous
payment of the Warrant Price at the principal office of the Company. Payment of
such price shall be made at the option of the Warrantholder in cash or by check.
The Warrants evidenced hereby represent the right to purchase an aggregate
of up to 10,000 Units and are issued under and in accordance with a Standby
Underwriter's Warrant Agreement, dated as of _________ __, 1997 (the "Standby
Underwriter's Warrant Agreement"), between the Company and Freshman, Marantz,
Orlanski, Cooper & Klein, a law corporation, and are subject to the terms and
provisions contained in the Standby Underwriter's Warrant Agreement, to all of
which the Warrantholder by acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall be
signed and issued to the Warrantholder a new Warrant Certificate in respect of
the Units as to which the Warrants evidenced hereby shall not have been
exercised. These Warrants may be exchanged at the office of the Company by
surrender of this Warrant Certificate properly endorsed for one or more new
Warrants of the same aggregate number of Units as here evidenced by the Warrant
or Warrants exchanged. No fractional Shares will be issued upon the exercise of
rights to purchase the Units hereunder, but the Company shall pay the cash value
of any fraction upon the exercise of one or more Warrants. These Warrants are
transferable at the office of the Company in the manner and subject to the
limitations set forth in the Standby Underwriter's Warrant Agreement.
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This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a stockholder of the Company.
NAM TAI ELECTRONICS, INC.
By__________________________________
Dated:________________, 1997 M.K. Koo,
President
ATTEST: [Seal]
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Secretary
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<PAGE> 12
NAM TAI ELECTRONICS, INC.
PURCHASE FORM
NAM TAI ELECTRONICS, INC.
999 West Hastings Street, Suite 530
Vancouver, B.C. Canada V6C 2W2
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ____________ Units (the "Units") provided for therein, and requests
that certificates for the Units be issued in the name of:
--------------------------------------------------------------
(Please Print or Type Name, Address and Social Security Number
--------------------------------------------------------------
--------------------------------------------------------------
and, if said number of Units shall not be all the Units purchasable hereunder,
that a new Warrant Certificate for the balance of the Units purchasable under
the within Warrant Certificate be registered in the name of the undersigned
Warrantholder or his Assignee as below indicated and delivered to the address
stated below.
Dated: _______________________
Name of Warrantholder
or Assignee:_____________________________________________
(Please Print)
Address:_________________________________________________
-------------------------------------------------
Signature:____________________________________
Note: The above signature must correspond with the name as written upon the face
of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
Signature Guaranteed:______________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
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ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(Name and Address of Assignee Must Be Printed or Typewritten)
-------------------------------------------
-------------------------------------------
-------------------------------------------
the within Warrants, hereby irrevocably constituting and appointing
____________________ Attorney to transfer said Warrants on the books of the
Company, with all power of substitution in the premises.
Dated:_______________ ________________________________________________________
Signature of Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:____________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
- -------------------------------------
Troop Meisinger Steuber & Pasich, llp
ii
<PAGE> 1
EXHIBIT 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form F-3 of our report dated March 31, 1997 related to
the consolidated financial statements of Nam Tai Electronics, Inc. which report
appears in such Prospectus. We hereby further consent to the reference to use
under the heading "Experts" in the Prospectus included as part of the
Registration Statement.
/s/ Price Waterhouse
PRICE WATERHOUSE
Certified Public Accountants
Hong Kong
September 22, 1997
