10:15 TCL COMM<02618> - Announcement & Resumption of Trading (2) T&A SAS Reducing its Operating Costs Alcatel undertakes to take over the employment contracts of all T&A SAS employees of about 360 peoples in several steps over an 18-month period. The first transfer of employees shall take place as soon as possible from 1 July 2005. The timing for the transfer of the remaining employees and the actual number of such employees to be transferred will depend on the progress of transforming T&A SAS into the new business undertaking as described below. T&A SAS is required to compensate Alcatel for certain liabilities (such as paid vacation days, retirement indemnity and seniority award) accrued in connection with the employees to be transferred. The transfer of T&A SAS employees together with the transformation of T&A SAS into the new business undertaking as described below will substantially streamline the operating scale of T&A SAS and thus reduce its operating costs. Acquisition of Alcatel Shares The Alcatel Shares represent the shares allotted by T&A HK to Alcatel at the time of the establishment of T&A HK for its contribution of cash of 45 million (about HK$448.9 million) and its mobile handset business amounting to a value of 45 million (about HK$448.9 million) pursuant to the Subscription Agreement (details of which are set out in the Listing Document). Closing of the Subscription Agreement was completed on 31 August 2004. The Framework Agreement requires the Company to acquire from Alcatel Participations the Alcatel Shares by way of Share Swap. The Share Swap requires approval of the Listing Committee of the Stock Exchange granting the listing of and permission to deal in the Shares to be issued pursuant thereto, and failing which by 31 July 2005, the Company or its affiliate is required to acquire the Alcatel Shares for consideration of 10 million (about HK$99.76 million) by 16 August 2005. The cash payment will be funded by the Group's working capital. The acquisition is subject to the payment by Alcatel to T&A HK a sum of 1.28 million (about HK$12.77 million) in cash for the Post-closing Adjustment pursuant to the Subscription Agreement which provides that if the net asset value of Alcatel's mobile handset business injected in T&A HK as of the closing date of the Subscription Agreement is lower than the net asset value estimated by Alcatel prior to such date, Alcatel shall be required to pay the difference in cash to T&A HK (details of which are set out in the Listing Document). After the acquisition of the Alcatel Shares by the Company, T&A HK will become a wholly owned subsidiary of the Company. Accordingly, all directors of T&A HK will be appointed by the Company. T&A HK, being the sole shareholder of T&A SAS, will appoint the president of T&A SAS. Alcatel will then no longer be involved in the operation of T&A HK or T&A SAS. Save for (i) the amendment to the Pre-closing IP Agreement as mentioned under the paragraph headed ``Alcatel Cash Payment'' below and (ii) the amendment to the Alcatel mark license agreement such that the Alcatel name and logo cannot be included in the company names of the members of the Group, the entering into of the Framework Agreement will not affect the transaction documents entered into between Alcatel and T&A HK at the closing of the Subscription Agreement in relation to the licences of intellectual property and trademark and provision of transitional services by Alcatel to T&A HK (namely, the Pre-Closing IP Agreement, the post closing intellectual property licence agreement, the Alcatel mark license agreement, the trademark and domain name assignment and license agreement and the transitional services agreement, all being dated 18 June 2004, details of which are set out in the Listing Document). Currently, the involvement of Alcatel in T&A HK and T&A SAS are related to the aforesaid transaction documents only. Accordingly, the operation of T&A HK and T&A SAS will not be affected by Alcatel ceasing to be a shareholder of T&A HK and have representation in the board of T&A HK. The number of Shares to be issued pursuant to the Share Swap will be equivalent to 5% of the issued Shares on the last trading day before the Share Swap Completion Date. Based on a total of 2,827,500,000 Shares in issue as at the date of this announcement (and assuming no further Shares will be issued thereafter until the Share Swap Completion Date), 141,375,000 Shares will be issued upon completion of the Share Swap (representing about 4.76% of the enlarged issued share capital of the Company immediately after completion of the Share Swap). Based on the average closing price of HK$0.448 per Share for the 5 trading days prior to the date of this announcement, 141,375,000 Shares represent a market value of about HK$63.34 million.