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                                                                   EXHIBIT 10.31



                      Dated this 7th day of September 1998



                         HONG KONG INDUSTRIAL TECHNOLOGY
                               CENTRE CORPORATION


                                       and


                      VALENCE SEMICONDUCTOR DESIGN LIMITED




                 ----------------------------------------------

                                TENANCY AGREEMENT
                                       of
                          Unit 413 on the 4th Floor of
                     Hong Kong Industrial Technology Centre

                 ----------------------------------------------




                                   DENTON HALL
                              10/F HUTCHISON HOUSE
                                10 HARCOURT ROAD
                                     CENTRAL
                                    HONG KONG
                         Ref.: RMSK/MWYT/jm/84410.00159
                                   0124656.01

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               THIS TENANCY AGREEMENT is made the           day of           One
                                      thousand nine hundred and ninety-eight


Parties

BETWEEN HONG KONG INDUSTRIAL TECHNOLOGY CENTRE CORPORATION whose registered
office is situate at 1st Floor, Hong Kong Industrial Technology Centre, 72 Tat
Chee Avenue, Kowloon, Hong Kong (hereinafter called "the Landlord" which
expression shall include its successors in title and assigns) of the one part
and the party whose particulars are set out in the First Schedule (hereinafter
called "the Tenant") of the other part.

NOW IT IS HEREBY AGREED as follows

Premises

1.      The Landlord shall let and the Tenant shall take ALL THOSE PREMISES more
        particularly described in Part I of the Second Schedule and for
        identification purposes only shown and coloured pink on the plan annexed
        hereto ("the Premises") forming part of HONG KONG INDUSTRIAL TECHNOLOGY
        CENTRE ("the Building"), situate at the junction of Tat Chee Avenue and
        Fa Po Street, Kowloon, Hong Kong and erected on All That piece or parcel
        of ground registered in the Land Registry as New Kowloon Inland Lot No.
        6128.

Term

2.      The Tenant shall hold the Premises for the term set out in Part II of
        the Second Schedule ("the Term") Together with the right to use in
        common with the Landlord and all others having the like right the
        entrance(s) passages staircases landings accessways and lifts (if any
        and whenever the same shall be operating) of the Building without
        causing any obstruction thereto and so far as the same is necessary for
        the proper enjoyment of the Premises Subject To all casements and
        similar rights and privileges which the Premises are or may be subject
        to.

Tenant's Obligations

3.      The Tenant hereby covenants and agrees with the Landlord as follows:-



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Rent and Management Fees

        3.01    To pay to the Landlord or such person(s) as the Landlord may
                direct the rent set out in Part I of the Third Schedule ("the
                Rent") and the management fees set out in Part II of the Third
                Schedule ("the Management Fees") in advance without any
                deduction on the first day of each and every calendar month
                throughout the Term. When the term of tenancy hereby created
                does not commence on the first day of the month, the Landlord
                may at any time during the said term require the Tenant to pay
                the Rent for a particular month on a pro-rata basis, namely,
                from the commencement day to the end of the month, and
                thereafter the Tenant shall pay the Rent for each calendar month
                (including the last month of the said term also on a pro-rata
                basis) on the first day of each such calendar month.

Cost of Additional Air-Conditioning Services

        3.02    To pay to the Landlord or such person(s) as the Landlord may
                direct the costs of additional air-conditioning services (if
                any) and the costs of chilled water supply for the purpose of
                cooling the Tenant's equipment (if any) at such time and in such
                manner as provided in Clause 5.10 hereof

Rates, etc.

        3.03    To pay and discharge all rates taxes assessments duties
                impositions charges and outgoings whatsoever now or hereafter
                to be imposed or levied on the Premises or upon the owner or
                occupier in respect thereof by the Government of the Hong Kong
                Special Administrative Region or other lawful authority
                (Government Rent and Property Tax alone excepted). Without
                prejudice to the generality of this sub-clause the Tenant shall
                pay all rates imposed on the Premises in the first place to the
                Landlord who shall settle the same with the Government of the
                Hong Kong Special Administrative Region and in the event of the
                Premises not yet having been separately assessed to rates the
                Tenant shall until such time as the Premises are assessed to
                rates pay to the Landlord quarterly and in advance a sum equal
                to the rates which would have been charged by the Government of
                the Hong Kong Special Administrative Region for each quarter on
                the basis of a rateable value equal to twelve months' rent



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                payable by the Tenant hereunder, any overpayment or underpayment
                by the Tenant shall be adjusted and credited to the account of
                the Tenant or (as the case may be) paid by the Tenant to the
                Landlord immediately upon the separate assessment in respect of
                the Premises having been made in accordance with the Rating
                Ordinance (Cap. 116).

Utility Charges and Deposits

        3.04    To pay and discharge all utility deposits and charges including
                without limitation deposits and charges in respect of gas water
                electricity facsimile and telephone as may be shown by or
                operated from the Tenant's own metered supplies or by accounts
                rendered to the Tenant by the appropriate utility companies or
                otherwise in respect of all such utilities consumed on or in the
                Premises.

House rules and Regulations

        3.05    To obey and comply with and to indemnify the Landlord against
                any breach of such house rules and regulations as may from time
                to time be adopted by the Landlord or such person as may from
                time to time be appointed by the Landlord as the manager of the
                Building ("the Manager") in accordance with Clause 5.17 hereof.

No Breach of Government Grant or Deed of Mutual Covenants

        3.06    Not to do or permit or suffer to be done any act, deed, matter
                or thing whatsoever which may amount to a breach of the
                covenants terms and conditions respectively contained in
                Agreement and Conditions of Grant No. 12221 (including any
                modification or variation thereto) and the Deed of Mutual
                Covenants (if any) and Sub-Deed of Mutual Covenants (if any
                affecting the Building and to fully indemnify the Landlord
                against the consequences of any such breach.

Compliance with Ordinances

        3.07    To obey and comply with all ordinances, regulations, bye-laws,
                rules and requirements of any Governmental or other competent
                authority relating to the use and occupation of the Premises by
                the Tenant or to any other act deed matter or thing done
                permitted suffered or omitted therein or thereon by the Tenant
                or any employee, agent or licensee of the Tenant, and without
                prejudice to the foregoing to obtain any licence approval or
                permit



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                required by any Governmental or other competent authority in
                connection with the Tenant's use and occupation of the Premises
                and to maintain in force and observe and comply with the terms
                of the same during the continuance of this tenancy and to
                indemnify the Landlord against the consequences of any breach of
                this provision.

Fitting Out Decoration Refurbishing Renovation and Repairs

        3.08    (i)     To fit out the Premises at its own costs and expenses
                        and before the commencement of any fitting-out works or
                        other decoration refurbishing or renovation works or
                        repairs which are the responsibility of the Tenant
                        hereunder, at its own costs and expenses to prepare and
                        submit to the Landlord for approval ten full sets of
                        suitable drawings plans and specifications of the works
                        to be carried out by the Tenant together with schematic
                        sketches showing the Tenant's design and layout proposal
                        (hereinafter collectively called "the Tenant's Plans").
                        The Tenant's Plans shall, without limitation:-

                        (a)     include detailed drawings, plans and
                                specifications of all partition and floor
                                coverings;

                        (b)     include detailed drawings, plans and
                                specifications of all electrical installations
                                or (as the case may be) any changes thereof,

                        (c)     include detailed drawings, plans and
                                specifications of any proposed amendments,
                                additions or alterations,

                        (d)     include details of all lighting fixtures;

                        (e)     show in complete details the decorative
                                architectural mechanical and electrical
                                components; and



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                        (f)     comply with all relevant ordinances, regulations
                                and bye-laws from time to time issued by the
                                Government of the Hong Kong Special
                                Administrative Region.

                        The Landlord will consider the Tenant's Plans and may in
                        its absolute discretion accept reject or require the
                        Tenant to modify the Tenant's Plans or any part of them
                        as it thinks fit. The Landlord will notify the Tenant of
                        its decision within 30 days of receiving the Tenant's
                        Plans.

                (ii)    To modify amend and re-submit those plans as requested
                        by the Landlord within 30 days of receiving the
                        Landlord's request.

                (iii)   Upon submission of the Tenant's Plans to pay to the
                        Landlord a vetting fee at the rate as specified in Part
                        V of the Third Schedule and if the Tenant's Plans are
                        subsequently amended or modified whether pursuant to the
                        Landlord's request or otherwise, to pay to the Landlord
                        such further vetting fees as may be demanded by the
                        Landlord.

                (iv)    To be solely responsible for compliance with all
                        applicable codes ordinances and other regulations for
                        all works performed by or on behalf of the Tenant on the
                        Premises, and the Landlord's or the Landlord's agent's
                        or representative's approval of plans drawings
                        specifications or calculations contained in the Tenant's
                        Plans shall not constitute any implication
                        representation or certification by the Landlord that the
                        Tenant's Plans are in compliance with the said codes
                        ordinances and other regulations and the Landlord's
                        approval thereof shall be without prejudice to the right
                        of the Landlord to require the Tenant to stop, remove,
                        or dismantle at the cost of the Tenant any Tenant's
                        works which, in the opinion of the Landlord, may
                        prejudice the safety or security of the Building or any
                        part thereof, or may contravene any ordinance,
                        regulation, rule



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                        or requirement of any governmental or competent
                        authority. In instances where more than one standard may
                        be applicable in approving the Tenant's Plans, the
                        strictest standard shall apply.

                (v)     Not to commence any fitting-out decoration refurbishing
                        renovation or repair works before receiving notice in
                        writing from the Landlord that such works may be
                        commenced and thereafter to commence such works as soon
                        as practicable and carry such works to completion
                        expeditiously.

                (vi)    Not to make any subsequent variation or modification to
                        the Tenant's Plans as approved by the Landlord without
                        the previous approval in writing of the Landlord.

                (vii)   To employ only such contractor(s) as may from time to
                        time be nominated by the Landlord to carry out any
                        fitting-out decoration refurbishing renovation or repair
                        works on the Premises. In the absence of such nominated
                        contractor(s), the Tenant shall, upon the Landlord's
                        approval of the Tenant's Plans and prior to the
                        commencement of any of the proposed works by the Tenant,
                        submit to the Landlord a list of contractors to be
                        appointed for such proposed works. The Landlord after
                        receiving such list may in its absolute discretion
                        approve or reject the same or nominate such
                        contractor(s) in place of any of those listed in the
                        said list as the Landlord shall think fit. All such
                        nominated or approved contractors shall be employed
                        directly by the Tenant and shall for the purpose of this
                        Agreement be treated as the servants employees agents or
                        contractors of the Tenant and the Landlord shall not in
                        any way be held responsible for any loss or damage of
                        whatsoever nature directly or indirectly caused by or
                        arising from such employments.



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                (viii)  To ensure that all works are carried out strictly in
                        accordance with the Tenant's Plans as approved by the
                        Landlord and in a good and proper workmanlike fashion
                        using good quality materials and without causing any
                        damage to any part of the Building or any disturbance or
                        annoyance to the Landlord or the tenants or occupiers of
                        adjacent or neighbouring premises and observe all house
                        rules and regulations and fitting-out guides as may from
                        time to time be made imposed adopted or amended by the
                        Landlord or the Manager and to ensure that all
                        contractors and workmen employed by him shall co-operate
                        fully with the Landlord, the Manager or their respective
                        authorised representatives.

Installation of Wires Cables and Services

        3.09    Further to and without prejudice to sub-clause 3.08 of this
                Clause:-

                (i)     To install all wires pipes and cables and other services
                        serving the Premises in and through the ducts trunkings
                        and conduits in the Building provided by the Landlord
                        for such purposes and at all times in accordance with
                        the Landlord's directions and not to install any such
                        wires pipes cables or other services without first
                        providing the Landlord with full particulars and fully
                        detailed plans and drawings of such intended
                        installation and obtaining the Landlord's prior written
                        consent as provided in sub-clause 3.08.

                (ii)    To provide to the Landlord full coloured drawings of all
                        electrical wiring to be installed by the Tenant within
                        or serving or connected to the Premises and/or within
                        the ducts, trunkings or conduits provided by the
                        Landlord within the Building for the installation of
                        electrical and/or fibre-optical or other wires or cables
                        or means of passing receiving or transmitting
                        information and all telephone and other service wires
                        conduits and cables installed by or at the order of the
                        Tenant and to clearly label and in accordance with any
                        directions given by the Landlord colour-code all such
                        wires



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                        conduits and cables to the same as being the Tenant's
                        and if required by the Landlord at the expiration or
                        sooner determination of the Term at the Tenant's expense
                        to remove the same from all ducts conduits or trunkings
                        within the Building taking care not to disturb damage or
                        interfere with any wires cables or other means of
                        communication belonging to the Landlord or to other
                        tenants or occupiers of any part or parts of the
                        Building that may have been installed within any such
                        ducts conduits or trunkings and making good any damage
                        caused by the Tenant in so doing and the Tenant will
                        indemnify and hold the Landlord harmless against any
                        claim action or demand that may be brought by any person
                        suffering any loss or damage or interference with
                        business or inconvenience directly or indirectly caused
                        by or arising from the Tenant's actions in complying
                        with its obligations under this sub-clause 3.09.

Installation of Telephone Cables

        3.10    Subject to sub-clauses 3.08 and 3.09 of this Clause to make its
                own arrangements with regard to the installation of telephones
                or other communication systems in the Premises, but the
                installation of telephone and communication lines outside the
                Premises must be in the common ducting provided in the Building
                for that purpose and in all respects in accordance with the
                Landlord's directions.

Good Repair of Interior

        3.11    At its own expenses to well and sufficiently paint maintain and
                keep in good clean tenantable substantial and proper repair and
                condition (fair wear and tear excepted) to the satisfaction of
                the Landlord the non-structural interior of the Premises
                including without limitation the flooring and interior plaster
                or other finishing material or rendering to walls floors and
                ceilings and all the Landlord's fixtures fittings and additions
                therein or thereto including without limitation all doors,
                windows, light fittings, fire fighting apparatus, ducts,
                air-conditioning



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                units and fan coils and all waste drain, water and other pipes
                and sanitary apparatus and fittings therein and all painting
                papering and decoration thereof.

Repair of Electrical Wiring and Installations

        3.12    To repair or replace such electrical wiring, piping
                installations and fittings in the Premises and such wiring from
                the Tenant's meter(s) to the Premises as the same may become
                dangerous or be required to be repaired or replaced by any
                appropriate utility company or any governmental or other
                competent authority.

Permitting Landlord to Enter and View

        3.13    To permit the Landlord its agents and all persons authorised by
                the Landlord with or without workmen or others and with or
                without appliances at all reasonable times and upon prior notice
                (save in the case of an emergency) to enter into the Premises to
                view the condition thereof and to test the Tenant's electrical
                wiring piping and/or other installations and to take inventories
                of the Landlord's fixtures and fittings therein and to give or
                leave notice in writing to the Tenant or upon the Premises of
                all defects and want of repair there found if such repair is the
                responsibility of the Tenant hereunder or to carry out any work
                or repair required to be done provided that in the event of an
                emergency the Landlord its servants or agents may enter without
                notice and forcibly if need be.

Execution of Repair on Receipt of Notice

        3.14    At its own expenses, to make good all defects and wants of
                repair to the Premises for which the Tenant may be liable upon
                receipt of written notice from the Landlord to repair and make
                good the same and within such period as may be stipulated in the
                said written notice, and to pay all reasonable costs (including
                fees of professional consultants) incurred by the Landlord in
                the preparation and service of such notice, and if the Tenant
                shall fall to execute such works or repairs as aforementioned to
                permit the Landlord to enter upon the Premises and execute the
                same and the expenses thereof shall be a debt due from the
                Tenant to the Landlord and be recoverable forthwith by action.



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Paying Cost of Replacing Broken Windows

        3.15    To pay to or reimburse the Landlord the cost of replacing all
                broken or damaged windows of the Premises (or elsewhere if used
                exclusively by the Tenant) whether the same be broken or damaged
                by the negligence of the Tenant or otherwise.

To Reimburse Landlord for Making Good Damage to Building

        3.16    To pay or reimburse the Landlord immediately on demand the costs
                of repairing or making good any part of the Building or any of
                the lifts or other services and facilities installed therein or
                any property of the Landlord that may be damaged by reason of
                any act default or neglect on the part of the Tenant its agents
                servants invitees licensees employees contractors guests or
                visitors.

Giving Notice to the Landlord on Damage

        3.17    To give notice in writing to the Landlord or the Manager of any
                damage that the Premises may suffer and of any accident to or
                defects in the structure of the Premises, the water pipes, gas
                pipes, electrical wiring or installations, fixtures, fittings or
                other utility supply equipment provided by the Landlord directly
                once the Tenant becomes aware of any such damage accident or
                defect.

No Structural Alterations

        3.18    Not to make any structural alterations to the Premises or the
                Building or to erect install or alter any fixtures partitioning
                or make or carry out any works to the Premises or the Building
                or make any alterations installations in or additions to the
                air-conditioning system and/or electrical wiring and/or gas
                piping and/or fire fighting system and/or apparatus or any
                security system or install any equipment apparatus or machinery
                which requires any additional electrical wiring gas mains piping
                without the prior written consent of the Landlord which consent
                the Landlord may grant or withhold at its absolute discretion
                and if granted the Landlord may impose such conditions as it
                shall think fit.

Not to Maim or Injure

        3.19    Not without the prior written consent of the Landlord to cut,
                maim, injure, drill into, mark or deface or permit or suffer to
                be cut, maimed, injured, drilled into, marked or defaced any
                doors, windows, walls, beams,



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                air-conditioner ducts, structural members or any part of the
                fabric of the Premises nor any of the plumbing or sanitary
                apparatus or installation included therein.

Not to Erect Gates or Grilles

        3.20    Not without the prior written consent of the Landlord to erect
                or install doors, gates, grilles, shutters or other similar
                installation whatsoever whether temporary or permanent at the
                door-way or entrance to the Premises or at any of the fire exits
                therefrom or erect any such door or grille or shutter or gate
                that might in any way contravene the regulations from time to
                time in force of the Fire Services Department or other competent
                authority concerned, nor in any other respect to contravene the
                said regulations.

No Additional Locks

        3.21    Not to alter the existing locks, bolts and fittings on the
                entrance of the Premises or install any additional locks, bolts
                or fittings thereon without obtaining the prior written approval
                of the Landlord.

Installation of Machinery

        3.22    During the continuance of the Term, before installing any
                machinery in the Premises to submit to a consultant appointed by
                the Landlord for approval full particulars and information
                regarding such machinery as intended to be installed in the
                Premises including but without limitation the type and weight
                thereof, together with a general layout plan of such machinery
                showing the actual position at which each article of machinery
                is intended to be placed and to install such machinery in
                accordance with the layout plans after written approval by the
                Landlord's consultant has been obtained. The Tenant shall not
                without the prior written approval of the Landlord's consultant
                alter the position of any of the machinery installed as
                previously approved by the Landlord's consultant or replace any
                of such installed machinery with another, unless the new
                machinery is in all respects to the one to be substituted. The
                Tenant shall bear and pay the vetting or approval fees of the
                Landlord's consultant.



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Anti-Vibration or Anti-Dumping, Absorbers for Machinery

        3.23    (i)     At its own expenses to mount and equip any machinery
                        liable to produce vibration with anti-vibration
                        absorbers and anti-dumping absorbers of such types and
                        designs as first approved of in writing by the
                        Landlord's consultant and shall at its own expenses
                        comply with all directions and orders of the Landlord
                        for eliminating and reducing vibrations and dumping
                        produced by the operation and running of any of the
                        machinery installed at the Premises.

Operation of Machinery

                (ii)    In operating and running any machinery installed in the
                        Premises to do all acts and things required by and
                        conform with all ordinances, bye-laws and regulations
                        applicable thereto and also all orders and directions
                        (if any) from time to time given by the Urban Council
                        and any other competent authority.

Not to Exceed Maximum Floor Loading Capacity

        3.24    Not without the prior written consent of the Landlord to install
                or permit or suffer to be installed upon the Premises or any
                part thereof any equipment, apparatus or machinery which imposes
                a weight on any part of the flooring in excess of that for which
                it is designed and the Landlord shall be entitled to prescribe
                the maximum weight and permitted location within the Premises of
                safes and other heavy equipment, apparatus or machinery and to
                require the same to stand on supports of such dimensions and
                material to distribute the weight as the Landlord may deem
                necessary.

Not to Cause Electro-Magnetic

        3.25    To duly observe and comply with all laws, rules and regulations
                in relation to electromagnetic interference from time to time in
                force including but without limitation to those laws, rules and
                regulations prescribed by the Office Of Telecommunication
                Authority and not to carry out or suffer or permit to be carried
                out any work process or operation of whatsoever nature in the
                Premises which may cause any electro-magnetic interference to
                the Landlord or other tenants or occupiers of any adjoining or



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                neighbouring premises and the Tenant shall indemnify the
                Landlord and such other tenants or occupiers for any damage or
                loss suffered as a result of the Tenant's breach of this
                sub-clause.

Anti-Nuisance

        3.26    The Tenant shall not do or permit or suffer anything to be done
                at any time in or upon the Premises or any part thereof which
                may be or become a nuisance or annoyance or which may cause
                damage or inconvenience to the Government of the Hong Kong
                Special Administrative Region or to the owners or occupiers of
                any adjoining or neighbouring lot or lots or premises. In
                particular, the Tenant shall not cause or produce or suffer or
                permit to be produced on or in the Premises any sound or noise
                (including sound produced by broadcasting from television, radio
                and any apparatus or instrument capable of producing or
                reproducing music and sound) or any vibration or resonance or
                other form of disturbance or other acts or things in or on the
                Premises which is or are or may be or become a nuisance or
                annoyance to the Landlord or the tenants or occupiers of
                adjacent or neighbouring premises and the Tenant shall take all
                such necessary measures as may be required by and to the
                satisfaction of the Director of Environmental Protection to
                ensure that the operation of all plant and equipment installed
                or used on the Premises will not make any noise which causes
                disturbance or annoyance to the residents or occupiers of any
                adjourning premises or lot or lots or to the general public. The
                decision of the Director of Environmental Protection as to
                whether any such plant and equipment are causing disturbance or
                annoyance as aforesaid shall be final and binding on the Tenant.

No Discharge of Pollutant or Noxious, Harmful or Corrosive Matter

        3.27    Except with the prior written consent of the Director of
                Environmental Protection, not to, in or upon the Premises,
                install any machinery, furnace or boiler or any other equipment
                or use any fuel or any method or process of manufacture or
                treatment that might in any circumstances result in the
                discharge or emission of any pollutant or any noxious, harmful
                or corrosive matter, whether it be in the form of gas, smoke,
                liquid, solid or otherwise.



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Compliance with Legislation Regarding Pollution

        3.28    To comply with and observe all Ordinances, Bye-laws, Regulations
                and rules for the time being in force in Hong Kong governing the
                control of any form of pollution, air, noise, water and waste
                pollution and the protection of the environment and to comply
                with EPD Advice Note 2/89 "Application of the environmental
                impact assessment process to major private sector projects"
                issued by the Environmental Protection Department and any
                subsequent amendment thereto.


Discharge into Sewers, etc.

        3.29    (i)     Not to discharge directly or indirectly or cause or
                        permit or suffer to be discharged into any public sewer,
                        storm water drain, channel, streamcourse or sea any
                        trade effluent or foul or contaminated water or cooling
                        or hot water without the prior written consent of the
                        Director of Environmental Protection, who may as a
                        condition of granting his consent require the Tenant to
                        provide, operate and maintain at the Tenant's own
                        expense, within the Premises or otherwise and to the
                        satisfaction of the Director of Environmental Protection
                        suitable works for the treatment and disposal of such
                        trade effluent or foul or contaminated or cooling or hot
                        water.

To Reimburse Landlord for Cleaning Drains

                (ii)    Not to pass or allow to pass into the drains pipes
                        gutters ducts or watercourses channels of the Premises
                        or the Building ("the conduits") any noxious or
                        deleterious effluent or other substance which may cause
                        any obstruction or deposit in or injury to the conduits
                        and to pay on demand to the Landlord the cost incurred
                        by the Landlord in repairing cleansing and clearing any
                        of the conduits damaged choked or stopped up owing to
                        the improper or careless use of any toilet or water or
                        sanitary or drainage equipment by the Tenant or its
                        employees invitees contractors or licensees.

Removal of Waste Matters

        3.30    Not to permit any sewage, waste water or effluent containing
                sand, cement, silt or any other Suspended or dissolved material
                to flow from the Premises onto any adjoining land or allow any
                waste matter which is not



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<PAGE>   16

                part of the final product from waste processing plants to be
                deposited anywhere within the Building and/or the land on which
                the Building stands and to have all such matter removed from the
                Building and/or the land on which the Building stands in a
                proper manner to the satisfaction of the Director of
                Environmental Protection.

Disposal of Garbage

        3.31    To be responsible for the removal of refuse and garbage from the
                Premises to such location as shall be specified by the Landlord
                from time to time and to use only such type of refuse container
                as shall be specified by the Landlord from time to time. In the
                event of the Landlord providing a collection service for refuse
                and garbage the same shall be used by the Tenant to the
                exclusion of any other similar service and the Tenant shall bear
                an appropriate proportion of the cost of such service.

Cleaning and Cleaning Contractors

        3.32    To keep the Premises including without limitation all windows at
                all times in a clean and sanitary state and condition and for
                the better observance hereof the Tenant shall only employ as
                cleaners of the Premises such persons or firms as may be
                nominated or approved by the Landlord. Such cleaners shall be
                employed by and at the expense of the Tenant.

Not to Misuse Lavatories

        3.33    Not to use or permit or suffer to be used any lavatory
                facilities whether shared with other tenants or occupiers of the
                Building or reserved exclusively for the use of the Tenant for
                any purpose other than that for which they are intended and not
                to throw or permit or suffer to be thrown into any W.C. pan,
                urinal, basin sink or other lavatory fitting any foreign or
                deleterious substance of any kind and to keep such lavatory
                facilities clean tidy and in a hygienic condition at all times
                during the Term and in the Landlord's absolute discretion either
                to make good any breakage, blockage or damage of any such
                lavatory facilities resulting from the breach by the Tenant of
                this sub-clause or to pay to the Landlord on demand the cost of
                making good such breakage, blockage or damage.



                                      -15-
<PAGE>   17

Infestation

        3.34    At the Tenant's expenses to take all such steps and precautions
                to the satisfaction of the Landlord as shall be necessary to
                prevent the Premises or any part thereof from becoming infested
                by termites rats mice roaches or any other pests or vermin and
                for the better observance hereof the Landlord may require the
                Tenant to employ at the Tenant's cost such pest extermination
                contractors as the Landlord may nominate at such intervals as
                the Landlord may direct.

Fuel

        3.35    The Tenant shall not use any fuel on the Premises other than
                town gas, liquefied petroleum gas, natural gas, kerosene or
                other conventional liquid fuel with a sulphur content not
                exceeding 0.5% by weight and a viscosity of not more than 6
                centistokes at 40 degree Celsius, or a conventional solid fuel
                with a sulphur content not exceeding 1% by weight.

Storage of Merchandise and Hazardous Goods

        3.36    Not to use the Premises for the manufacture of goods or
                merchandise or for the storage of goods or merchandise other
                than in small quantities consistent with the nature of the
                Tenant's trade or business by way of samples and exhibits and
                not to keep or store or cause permit or suffer to be kept or
                stored any arms ammunitions gunpowder saltpetre petrol kerosene
                liquified petroleum gas butane gas or other explosive or
                combustible substances or dangerous hazardous or prohibited
                goods, within the meaning of the Dangerous Goods Ordinance
                (Cap.295) and the regulations made thereunder or any statutory
                modification or re-enactment thereof from time to time in force
                (save those which are solely and exclusively for the business of
                the Tenant and approved by the Landlord and duly authorized by
                the Police Department and any other government department as may
                be necessary) or unlawful goods and shall not at any time during
                the Term use or allow the Premises or any part thereof to be
                used in any way entailing a fine forfeiture or penalty against
                the Landlord under any law in force in Hong Kong



                                      -16-
<PAGE>   18

Restriction on Use of Water Supply

        3.37    Except with the prior written consent of the Water Authority, no
                water from Government mains and/or the mains maintained by the
                Landlord shall be used for any heating, cooling or
                humidification purpose.

User

        3.38    Not to use the Premises for any purpose other than for such
                purposes and to conduct its business in the manner as stated in
                the Fourth Schedule and unless with the prior written consent of
                the Landlord not to change the use thereof or to carry on any
                other trade or business therein, and in particular but without
                prejudice to the generality of the foregoing, not to use or
                allow the Premises or any part thereof to be used as domestic
                premises within the meaning of any ordinance for the time being
                in force or as sleeping quarters or for any religious purpose or
                the performance of any religious ceremony.

No Illegal or Immoral Use

        3.39    Not to use or cause suffer or permit to be used the Premises or
                any part thereof for any illegal immoral or improper purposes.

Security System

        3.40    To ensure that its own security system within and at the
                entrance of the Premises (if any) is at all times compatible
                with the security system for the Building (if any) provided and
                operated by the Landlord.

Protection from Typhoon

        3.41    To take all necessary and appropriate precautions to protect the
                interior of the Premises from heavy rainfall storm or typhoon
                damage.

No Auction

        3.42    Not to conduct or allow any auction to be held on the Premises
                without the Landlord's prior written approval.

No Pets or Animals

        3.43    Not to keep or permit or suffer to be kept any pets, livestock
                or animals in the Premises without the prior written approval of
                the Landlord.



                                      -17-
<PAGE>   19

No Preparation of Food and Prevention of Odours

        3.44    Not to prepare or permit or suffer to be prepared any food in
                the Premises or cause or permit any offensive or unusual odours
                to be produced upon, permeate through or emanate from the
                Premises.

Signs

        3.45    Not to paint affix display or exhibit any writing sign signboard
                or other device whether illuminated or not upon or outside the
                windows or external walls of the Premises or inside the Premises
                which may be visible from outside or in at or above any common
                area landings or corridors of the Building except the display of
                a name plate of the Tenant in such form and size as may be
                previously approved by the Landlord at the entrance of the
                Premises.

Directory Boards

        3.46    To pay the Landlord immediately upon demand the cost of affixing
                repairing or replacing as necessary the name of the Tenant in
                lettering to the directory board (if any) at the entrance(s) to
                the Building and to the directory board (if any) on the floor on
                which the Premises are situated.

Obstructions to Outside Windows

        3.47    Not to block up, darken or obstruct or obscure any of the
                windows or lights belonging to the Premises.

Obstructions in Passages

        3.48    Not to place or leave or suffer or permit to be placed or left
                by any contractor employee invitee licensee or agent of the
                Tenant any boxes furniture articles or rubbish in any passage
                ways lift staircases landings entrances exits of the Building
                used in common with other tenants and occupiers and/or the
                Landlord or otherwise obstruct or encumber the same, and if any
                such obstruction or encumbrance shall happen and the Tenant
                shall fail to remove the same immediately upon request by the
                Landlord either to the Tenant or to the person then in charge of
                the Premises on the Tenant's behalf the Landlord his employee
                servant or



                                      -18-
<PAGE>   20

                agents may remove or dispose of the same at the Tenant's
                expenses without incurring any liability whether contractual or
                tortious to the Tenant or any other person whomsoever.

Fire-Prevention

        3.49    To install all necessary fire fighting equipments at the
                Tenant's expenses and take all necessary fire precautions and in
                general to comply with all directives from time to time given by
                the Fire Services Department.

Access for Fire Service Appliances and Personnel

        3.50    (i)     At his own expense and to the satisfaction of the
                        Director of Fire Services to provide in the Premises
                        suitable means of access for the passage of fire service
                        appliances and fire service personnel to any part of the
                        Building and at all times permit such fire service
                        personnel and fire service appliances the free and
                        uninterrupted use of such means of access and shall
                        maintain such means of access and keep the same free
                        from obstruction.

                (ii)    To permit the Director of Fire Services, his officers,
                        servants or agents at all reasonable times with or
                        without notice to enter upon the Premises or any part
                        thereof for the purpose of inspecting the same so as to
                        ensure that the relevant requirements referred to in
                        sub-clause (i) of this Clause have been complied with.

Parking

        3.51    Not to park any vehicle or otherwise use or permit any vehicle
                to be parked or otherwise used by any employee agent licensee or
                contractor of the Tenant at any place other than in accordance
                with the house rules and regulations from time to time made by
                the Landlord or the Manager.

Loading and Unloading of Goods

        3.52    To load and unload furniture, machinery, goods, merchandise, raw
                materials or other large objects only at such places and at such
                times and through such entrances and by such cargo/service lifts
                as shall be designated by the Landlord for the purpose of
                loading and unloading and to use the loading and unloading areas
                designated by the Landlord only for the purpose of loading and
                unloading. The Tenant shall not use the



                                      -19-
<PAGE>   21

                passenger lifts for the conveyance of furniture, machinery,
                goods, merchandise, raw materials or other large objects or load
                or permit or suffer to be loaded into any cargo/service lift or
                passenger lift in the Building a weight greater than such lift
                is designed or permitted to carry.

Not to Assign or Underlet

        3.53    Not to assign underlet or otherwise part with the possession of
                the Premises or any part thereof in any way whether by way of
                sub-letting lending sharing or other means whereby any person or
                persons not a party to this Tenancy Agreement obtains the use or
                possession of the Premises or any part thereof irrespective of
                whether any rental or other consideration is given for such use
                or possession and in the event of any such transfer sub-letting
                sharing assignment or parting with the possession of the
                Premises (whether for monetary consideration or not) this
                Tenancy Agreement shall at the Landlord's discretion absolutely
                determine and the Tenant shall forthwith vacate the Premises on
                notice to that effect from the Landlord. The tenancy hereby
                created shall be personal to the Tenant named in the First
                Schedule of this Tenancy Agreement and without in any way
                limiting the generality of the foregoing each of the following
                acts and events shall unless approved in writing by the Landlord
                be deemed to be a breach of this Clause:-

                (i)     In the case of a tenant which is a partnership the
                        taking in of one or more new partners whether on the
                        death or retirement of an existing partner or otherwise;

                (ii)    In the case of a tenant who is an individual (including
                        a sole surviving partner of a partnership tenant) the
                        death insanity or disability of that individual to the
                        intent that no right to use possess occupy or enjoy the
                        Premises or any part thereof shall vest in the executors
                        administrators personal representatives next of kin
                        trustee or committee of any such individual;



                                      -20-
<PAGE>   22

                (iii)   In the case of a tenant which is a corporation any
                        take-over reconstruction amalgamation merger voluntary
                        liquidation or change in the person or persons who owns
                        or own a majority of its voting shares or who otherwise
                        has or have effective control thereof;

                (iv)    The giving by the Tenant of a Power of Attorney or
                        similar authority whereby the donee of the Power of
                        Attorney obtains the right to use possess occupy or
                        enjoy the Premises or any part thereof or does in fact
                        use possess occupy or enjoy the same; and

                (v)     The change of the Tenant's business name.

Yielding Up

        3.54    To yield up the Premises with all the Landlord's fixtures
                fittings and additions therein and thereto at the expiration or
                sooner determination of this Tenancy Agreement in good clean
                tenantable substantial and proper repair and condition (fair
                wear and tear excepted) together with all keys giving access to
                all parts of the Premises Provided That where the Tenant has
                made any alterations or installed any fixtures fittings or
                additions in or to the Premises and notwithstanding that the
                Landlord's consent for so doing may have been obtained or have
                been given or be deemed to have been given at the Tenant's sole
                cost and expense to reinstate or remove or do away with all or
                any such alterations fixtures fittings or additions or any part
                or portion thereof as shall be directed by the Landlord and to
                make good and repair in a proper and workmanlike manner any
                damage to the Premises and the Landlord's fixtures fittings and
                additions therein and thereto as a result of such reinstatement
                or removal before delivering up the Premises to the Landlord.

Injury or Damage to Person and Property and Insurance

        3.55    To be wholly responsible for any loss damage or injury or death
                caused to any person whomsoever or to any property whatsoever
                directly or indirectly through the defective or damaged
                condition or operation of any



                                      -21-
<PAGE>   23
                part of the interior of the Premises or any machinery plant
                fixtures or fittings or wiring or piping therein for the repair
                of which the Tenant is responsible hereunder or in any way
                caused by or owing to the spread of fire fumes or smoke or the
                leakage or overflow of water of whatsoever origin from the
                Premises or any part thereof as a result of the act default or
                neglect of the Tenant its servants agents licensees contractors
                employees guests Invitees visitors or customers and to make good
                the same by payment or otherwise and to indemnify the Landlord
                against all losses damages costs claims demands actions and
                legal proceedings whatsoever made upon or against the Landlord
                by any person in respect of any such loss damage or injury or
                death and all costs and expenses incidental thereto AND for the
                better observance of the Tenant's obligations in regard to the
                foregoing TO INSURE or at the discretion of the Landlord to
                permit the Landlord at the Tenant's expense and in the name of
                the Tenant to effect and maintain insurance cover to the
                satisfaction of the Landlord with such reputable insurance
                company as shall be nominated or approved by the Landlord in
                respect of all such risks as aforesaid including without
                limitation adequate fire, water and third party insurance in
                respect of the Premises (including without limitation the full
                replacement value of all furniture fixtures fittings goods
                chattels samples personal effects contents and stock therein)
                and the Policy of Insurance so effected to be endorsed to show
                the interest of the Landlord therein and to be in such amount as
                may be determined by the Landlord and to contain a provision
                that the insurance cover thereby effected and the terms and
                conditions thereof may not be altered modified restricted or
                cancelled without the express prior written consent of the
                Landlord and in the event of such insurance being effected by
                the Tenant itself in pursuance of its obligations hereunder
                whenever required so to do by the Landlord to produce to the
                Landlord as and when required by the Landlord such policy of
                insurance together with a receipt for the last payment of
                premium.



                                      -22-
<PAGE>   24

Tenant Liable for its Employees, etc.

        3.56    To be liable for any act default negligence or omission of the
                Tenant's agents, contractors, employees, invitees, guests,
                visitors, servants or licensees as if it were the act default
                negligence or omission of the Tenant and to indemnify the
                Landlord against all losses damages costs claims demands
                expense, or liability arising directly or indirectly from the
                aforesaid act default negligence or omission. For the purpose of
                this Tenancy Agreement any act default neglect or omission of
                any guest visitor servant contractor employee agent invitee or
                licensee of the Tenant shall be deemed to be the act default
                neglect or omission of the Tenant.

Not to Render Insurance Policy Void

        3.57    Not to cause or suffer or permit to be done any act or thing
                whereby the policy or policies of insurance on the Premises or
                the Building against damage by fire or any other insured risks
                or liability to third parties for the time being substituting
                may become void or voidable or whereby the rate of premium or
                premia thereon may be increased, and to repay to the Landlord on
                demand all sums paid by the Landlord by way of increased premium
                or premia thereon and all expenses incurred by the Landlord in
                and about any renewal of such policy or policies arising from or
                rendered necessary by a breach of this sub-clause by the Tenant.

     4.      The Landlord hereby agrees with the Tenant as follows:-

Quiet Enjoyment

        4.01    That the Tenant duly paying the rent rates management fees and
                other payments hereby stipulated on the days and in the manner
                herein provided for payment of the same and performing and
                observing the Tenant's agreements, Covenants, stipulations,
                terms, conditions and obligations herein contained may peaceably
                hold and enjoy the Premises without any interruption by the
                Landlord or any person lawfully claiming through under or in
                trust for the Landlord.

Pay Government Rent

        4.02    To pay all Government rent and property tax payable in respect
                of the Premises.



                                      -23-
<PAGE>   25

Roof and Main Structure

        4.03    To maintain and keep the main structure roofs main electricity
                supply cables main drains water pipes main walls and exterior
                window frames of the Building therein and all concealed
                electrical installations and wirings and pipings of the Landlord
                in the Premises in a proper and substantial state of repair and
                condition Provided that the Landlord shall not be liable for
                breach of this sub-clause unless and until written notice of any
                defect or want of repair thereof shall have been given to the
                Landlord by the Tenant and the Landlord shall have failed to
                take reasonable steps to repair or remedy the same within a
                reasonable period after the service on it of such notice.

5.      Provided Always that and it is hereby expressly agreed as follows:-

Default

        5.01    If the Rent and/or the rates and/or the Management Fees and/or
                any other moneys payable hereunder or any part thereof shall be
                in arrear for fifteen (15) days after the same shall have become
                payable (whether formally demanded or not) or if there shall be
                any breach or nonperformance or non-observance of any of the
                stipulations conditions terms and agreements herein contained
                and on the part of the Tenant to be observed or performed or if
                the Tenant shall stop or suspend payment of its debts or be
                unable to or admit inability to pay its debts as they fall due
                or enter into any scheme of arrangement with its creditors or
                have an encumbrancer taking possession of any of its assets in
                circumstances in which the Landlord shall have reasonable
                grounds for believing that the ability of the Tenant to pay the
                rentals and other charges hereby reserved and to observe and
                perform its obligations under this Tenancy Agreement shall have
                been prejudiced or put at risk or have a receiving order made
                against it or in such circumstance as aforesaid fail to satisfy
                any judgement that may be given in any action against it after
                final appeal or go into liquidation (save for the purposes of
                amalgamation or reconstruction) or become bankrupt or if the
                Tenant shall suffer execution to be levied upon the Premises or
                otherwise on the Tenant's goods or if in



                                      -24-
<PAGE>   26

                such circumstances as aforesaid the Tenant shall suspend or
                cease or threaten to suspend or cease to carry on its business
                or should any event occur or proceeding be taken with respect to
                the Tenant in any jurisdiction to which the Tenant is subject
                which has an effect equivalent or similar to any of the events
                or circumstances described above then and in any such case it
                shall be lawful for the Landlord at any time thereafter to
                re-enter on and upon the Premises or any part thereof in the
                name of the whole and thereupon this Tenancy Agreement shall
                absolutely determine but without prejudice to any right of
                action or other remedy of the Landlord against any breach,
                non-observance or non-performance by the Tenant of any of the
                terms of this Tenancy Agreement. A written notice served by the
                Landlord on the Tenant in manner hereinafter provided to the
                effect that the Landlord thereby exercises the power of
                determination and/or re-entry herein before contained shall be a
                full and sufficient exercise of such power without physical
                entry on the part of the Landlord notwithstanding any statutory
                or common law provision to the contrary. All costs and expenses
                incurred by the Landlord in demanding payment of the Rent,
                rates, Management Fees and other charges payable hereunder (if
                the Landlord elects to demand) and in exercising its rights
                and/or remedies or in attempting to do so shall be paid by the
                Tenant and shall be recoverable from the Tenant as a debt.

Interest

        5.02    Notwithstanding anything herein contained in the event of
                default in payment of the Rent and/or rates and/or the
                Management Fees and/or other monies payable by the Tenant
                hereunder or any part thereof for a period of fifteen (15) days
                from the date when such payment is due (whether formally
                demanded or not) the Tenant shall pay to the Landlord on demand
                daily interest on all such sums outstanding at the monthly rate
                of two percent (2%) calculated from the date on which the same
                shall be due for payment (in accordance with the provisions
                contained in that behalf herein) until the date of payment as
                liquidated damages and not as penalty provided that the demand
                and/or receipt by the Landlord of interest pursuant to this
                sub-clause shall be without prejudice to and shall



                                      -25-
<PAGE>   27

                not affect the right of the Landlord to exercise any other right
                or remedy hereof or otherwise (including but without prejudice
                to the generality of the foregoing the right of re-entry
                exercisable under the terms of this Tenancy Agreement).

Condonation Not a Waiver

        5.03    No condoning, excusing or overlooking by the Landlord of any
                default, breach or non-observance or nonperformance by the
                Tenant at any time or times of any of the agreements
                stipulations terms and conditions herein contained shall operate
                as a waiver of the Landlord's rights hereunder in respect of any
                continuing or subsequent default, breach or non-observance or
                non-performance or so as to defeat or affect in any way the
                rights and remedies of the Landlord hereunder in respect of any
                such continuing or subsequent default or breach and no waiver by
                the Landlord shall be inferred from or implied by anything done
                or omitted by the Landlord, unless expressed in writing and
                signed by the Landlord. Any consent given by the Landlord shall
                operate as a consent only for the particular matter to which it
                relates and shall in no way be considered as a waiver or release
                of any of the provisions hereof nor shall it be construed as
                dispensing with the necessity of obtaining the specific written
                consent of the Landlord in the future, unless expressly so
                provided.

Acceptance of Rent

        5.04    The acceptance of any of the Rent by the Landlord shall not be
                deemed to operate as a waiver by the Landlord of any right to
                proceed against the Tenant in respect of any breach
                non-observance or non-performance by the Tenant of any of the
                agreements stipulations terms and conditions herein contained
                and on the part of the Tenant to be observed and performed.

Distraint

        5.05    For the purposes of Part III of the Landlord and Tenant
                (Consolidation) Ordinance (Cap.7) and of these presents, the
                Rent payable in respect of the Premises shall be and be deemed
                to be in arrear if not paid in advance at the times and in the
                manner herein provided for payment thereof.



                                      -26-
<PAGE>   28

Deposit

        5.06    (i)     The Tenant shall on the signing hereof deposit with the
                        Landlord the sum or sums specified in Part III of the
                        Third Schedule hereto being the aggregate of THREE (3)
                        months' Rent and THREE (3) months' Management Fees to
                        secure the due observance and performance by the Tenant
                        of the agreements stipulations obligations terms and
                        conditions herein contained and on the part of the
                        Tenant to be observed and performed which said deposit
                        shall be held by the Landlord throughout the currency of
                        this Tenancy Agreement free of any interest to the
                        Tenant with the right for the Landlord (without
                        prejudice to any other right or remedy hereunder or
                        otherwise) to deduct therefrom the amount of any Rent
                        rates Management Fees and other charges payable
                        hereunder in case of default on the part of the Tenant
                        in making any of such payments and any costs expenses
                        loss or damage sustained by the Landlord as the result
                        of any non-observance or non-performance by the Tenant
                        of any of the said agreements, stipulations obligations
                        terms and conditions. In the event of any deduction
                        being made by the Landlord from the said deposit in
                        accordance herewith during the currency of this Tenancy
                        Agreement the Tenant shall forthwith on demand by the
                        Landlord make a further deposit with the Landlord equal
                        to the amount so deducted and failure by the Tenant so
                        to do shall entitle the Landlord forthwith to re-enter
                        upon the Premises and to determine this Tenancy
                        Agreement as hereinbefore provided.

                (ii)    Notwithstanding any provision to the contrary contained
                        herein, it is hereby expressly agreed by the parties
                        hereto that:-

                        (a)     Upon the signing of this Agreement the sum of
                                HK$319,131.90 being the deposit ("the previous
                                deposit") held by the Landlord under the Tenancy
                                Agreement dated 1st September 1995 made between
                                the Landlord and the Tenant in respect of
                                Premises ("the previous Tenancy Agreement")
                                shall be transferred and carried over to this
                                Agreement as payment of the said deposit and the
                                sum of



                                      -27-
<PAGE>   29

                                HK$68,862.50 shall be refunded by the Landlord
                                to the Tenant.

                        (b)     In the event that the Tenant shall (either
                                before or after the date hereof) have breached
                                any of the terms and conditions contained in the
                                previous Tenancy Agreement which on the part of
                                the Tenant is to be observed and performed up to
                                and inclusive of the date of the expiration of
                                the contractual term or sooner determination of
                                the previous Tenancy Agreement, then the
                                Landlord shall be entitled to deduct from the
                                said deposit such amount as may be required
                                towards remedying the same insofar as it may be
                                possible (without prejudice to any other rights
                                or remedies available to the Landlord for breach
                                of the previous Tenancy Agreement) and in such
                                circumstances and as a condition precedent to
                                the commencement of this Agreement the Tenant
                                shall forthwith on demand by the Landlord pay a
                                further sum to the Landlord (to be held as part
                                of the said deposit) equal to the amount so
                                deducted and failure by the Tenant so to do
                                shall entitle the Landlord to forfeit the
                                tenancy hereby created or maintained and to
                                re-enter upon the Premises and to determine this
                                Agreement (and/or the previous Tenancy Agreement
                                (as appropriate)) without prejudice to any other
                                right which the Landlord may have against the
                                Tenant and the balance of the said deposit (if
                                any) shall be absolutely forfeited as and for
                                liquidated damages (and not as penalty).

                        (c)     For the avoidance of doubt this Agreement shall
                                take effect subject to and with the benefit of
                                the previous Tenancy Agreement until expiry of
                                the contractual term or sooner determination of
                                the previous Tenancy Agreement and so that any
                                breach in the obligations and restrictions on
                                the



                                      -28-
<PAGE>   30

                                part of the Tenant in the previous Tenancy
                                Agreement shall be a breach of this Agreement
                                and vice versa.

Increase of Management Fees

        5.07    By reasons of any increase in the costs of providing the
                necessary services to the Premises and/or managing the Building,
                the Landlord and/or the Manager shall be entitled at any time
                and from time to time to increase the Management Fees after
                giving the Tenant one month's notice of such increase. The
                Landlord's and/or the Manager's assessment of any increase in
                the said costs shall be conclusive.

Increase in Deposit

        5.08    If and whenever the Management Fees shall be increased pursuant
                to sub-clause 5.07 of this Clause, the amount of the said
                deposit shall be increased accordingly following such increase
                in the Management Fees so as to bring at all times the amount of
                the said deposit equal to the aggregate of THREE (3) months'
                Rent and THREE (3) months' Management Fees for the time being
                payable by the Tenant hereunder and the Tenant shall make
                payment to the Landlord of such additional sum as shall be
                required to bring the said deposit up to the appropriate amount
                within fifteen (15) days from the date of the Tenant's receipt
                of the Landlord's or the Manager's notice of increase of the
                Management Fees as aforesaid.

Refund of Deposit

        5.09    Subject as aforesaid the said deposit and any further deposits
                paid shall be refunded to the Tenant by the Landlord without
                interest within thirty (30) days after the expiration or sooner
                determination of this Tenancy Agreement and delivery of vacant
                possession of the Premises to the Landlord or after settlement
                of the last outstanding claim by the Landlord against the Tenant
                for any arrears of Rent rates Management Fees and other charges
                and for any breach non-observance or non-performance of any of
                the agreements stipulations terms and conditions herein
                contained and on the part of the Tenant to be observed or
                performed, whichever shall be the later.



                                      -29-
<PAGE>   31

Air-conditioning

        5.10    (i)     The Landlord shall provide and maintain air-conditioning
                        for the Premises during the hours referred to in Part IV
                        of the Third Schedule hereto ("the Normal
                        Air-Conditioning Hours") whenever the air-conditioning
                        system shall be operating. The costs of such
                        air-conditioning shall be included in the management
                        fees payable by the Tenant as set out in Part II of the
                        Third Schedule hereto. If the Tenant shall require a
                        supply of air-conditioning outside the Normal
                        Air-Conditioning Hours, the same will be supplied by the
                        Landlord on reasonable advance notice to the Landlord
                        and at such costs per hour and per square feet of gross
                        floor area of the Premises as the Landlord may in
                        absolute discretion from time to time charge.

                (ii)    If the Tenant shall require a supply of chilled water
                        for the purpose of cooling its equipment, the same will
                        be supplied by the Landlord on reasonable advance notice
                        to the Landlord and at such costs as the Landlord may in
                        its absolute discretion from time to time charge based
                        on the Tenant's actual consumption of such chilled
                        water.

                (iii)   The Tenant shall pay the costs of such additional
                        air-conditioning services and/or such chilled water
                        supply immediately upon receipt of the demand note
                        therefor which may be rendered at such intervals as the
                        Landlord may in its absolute discretion decide.

Exclusion of Landlord's Liability

        5.11    The Landlord and/or the Manager shall not in any circumstances
                other than those arising from their respective gross negligence
                or willful default be under any liability whatsoever to the
                Tenant or the Tenant's agents, contractors, servants, visitors,
                guests, employees, licensees, invitees or any other person
                whomsoever in respect of any loss of profit or of business or
                loss of life or loss, injury or damage to person or property or
                for any disruption or inconvenience or for the security or
                safekeeping of the Premises or any contents therein caused to or
                suffered or sustained by



                                      -30-
<PAGE>   32

                the Tenant or any other person caused by or through or in any
                way owing to or arising out of or connected with anything
                whatsoever including (without limitation):-

                (i)     any failure breakdown malfunction defect interruption of
                        or in or to the operation of or non-availability of any
                        common services and facilities fire-fighting equipment
                        or system or lifts or any other services rendered or to
                        be rendered to the Tenant or such other person;

                (ii)    any act neglect or default of the other tenants and
                        occupiers of the Building and their respective visitors
                        guests licensees invitees employees contractors servants
                        and agents;

                (iii)   any failure breakdown malfunction defect or interruption
                        of or in the supply of gas electricity water or
                        air-conditioning to the Premises or any part of the
                        Building;

                (iv)    any fire storm tempest flood typhoon heavy rainfall
                        landslide subsidence of the ground Act of God or other
                        inevitable accident escape of fire smoke fumes or any
                        other substance or thing or overflow or leakage of water
                        or electric current from or through any part of the
                        Premises or the Building or otherwise or the dropping or
                        falling of any article or vibrations from any part of
                        the Building;

                (v)     any defective or damaged condition of the Premises the
                        Building or part(s) thereof or the Landlord's fixtures
                        and fittings and additions therein and thereto;

                (vi)    any use of the Premises any designated car parking space
                        or other areas or parts of the Building; and



                                      -31-
<PAGE>   33

                (vii)   the provision by the Landlord or the Manager of watchmen
                        and caretakers (if any),

                nor shall any of the Rent rates Management Fees and any other
                sums reserved to be payable by the Tenant hereunder abate or
                cease to be payable on account thereof.

Notice to be Given to Landlord on Failure to Perform Obligations

        5.12    The Landlord shall not in any event be liable to the Tenant in
                respect of any failure of the Landlord to perform any of its
                obligations to the Tenant hereunder unless and until the Tenant
                has notified the Landlord such failure and the Landlord has
                failed within a reasonable length of time to remedy the same and
                then in such case the Landlord shall be liable to compensate the
                Tenant only for loss or damage sustained by the Tenant after
                such reasonable time shall have lapsed.

No Compensation or Abatement of Rent

        5.13    The Tenant shall not be entitled to any compensation or
                abatement of the Rent if the light and/or air to the Premises is
                in any way obstructed by adjoining buildings or otherwise.

Power to Enter in Emergency

        5.14    In the event of fire, typhoon or any other contingencies or
                emergencies which in the opinion of the Landlord may cause or
                threaten to cause damage or injury to the Premises and/or any
                part of the Building, the Landlord shall have power in the
                absence of the Tenant to break open any doors or windows of the
                Premises and to do such other things as may be necessary to
                prevent the Premises and/or any part of the Building from being
                damaged or injured or further damaged or injured and in such
                event the Landlord shall not be answerable to the Tenant for any
                loss or damage which the Tenant may sustain thereby.

Abatement of Rent and Management

        5.15    If the Premises or the Building or any part thereof shall at any
                time during the Term be destroyed or damaged or become
                inaccessible owing to fire, water, storm, typhoon, defective
                construction, white ants, earthquake



                                      -32-
<PAGE>   34

                subsidence of the ground, act of God, force majeure or any
                calamity beyond the control of the Landlord so as to render the
                Premises unfit for use or inaccessible and the same is in no way
                attributable directly or indirectly to any act neglect or
                default of the Tenant, its agents, guests, invitees, visitors,
                servants, employees, contractors or licensees or if at any time
                during the continuance of this tenancy the Premises or the
                Building or any part thereof shall be condemned as a dangerous
                structure or a demolition order or closing order shall become
                operative in respect of the Premises or the Building or any part
                thereof then the Rent and Management Fees hereby reserved or a
                fair proportion thereof according to the nature and extent of
                the damage sustained or order made shall be suspended until the
                Premises shall again be rendered accessible and fit for use
                PROVIDED THAT the Landlord shall be under no obligation to
                repair or reinstate the Premises or the Building if, in its
                opinion, it is not reasonably economical or practicable so to do
                and PROVIDED FURTHER THAT in circumstances when the whole or
                substantially the whole of the Premises have been rendered
                inaccessible or unfit for use and should the Premises not have
                been reinstated in the meantime either the Landlord or the
                Tenant may at any time after two (2) months from the occurrence
                of such damage or destruction or order give to the other of them
                notice in writing to determine this Tenancy Agreement and
                thereupon the same and everything herein contained shall cease
                and be void as from the date of the occurrence of such
                destruction or damage or order or of the Premises becoming
                inaccessible or unfit for use but without prejudice to the
                rights and remedies of either party against the other in respect
                of any antecedent claim or breach of the agreements,
                stipulations, terms and conditions herein contained or of the
                Landlord in respect of the Rent and Management Fees payable
                hereunder prior to the coming into effect of the suspension.



                                      -33-
<PAGE>   35

No Warranty as to Fitness

        5.16    The Landlord does not in anyway warrant that the Premises are
                fit or suitable for the operation of the trade business or
                activities of the Tenant and the Tenant shall make his own
                investigation and enquiries in this connection. In the event of
                any governmental authority in any way prohibiting the use of the
                Premises for the trade business or activities for the time being
                carried on by the Tenant, the Landlord shall have power to
                determine the Term hereby created at any time by giving notice
                to the Tenant of a length and effect equivalent to that of the
                notice (if any) given by the relevant governmental authority
                (and if such governmental notice is subsequently extended the
                Landlord's said notice to the Tenant shall be extended pro
                tanto). On the expiration of such notice by the Landlord to the
                Tenant the Term of this tenancy shall accordingly be determined
                and the Landlord shall not be required to pay any compensation
                for the loss of profit or goodwill or loss or damage of any kind
                to the Tenant for such determination provided that nothing in
                this sub-clause shall prejudice the continuation of the Term
                granted hereunder if the prohibition aforesaid shall be waived
                by the relevant governmental authority during the notice period.

Introduction of House Rules and Regulations

        5.17    (i)     The Landlord and/or the Manager shall be entitled from
                        time to time and by notice to the Tenant to make
                        introduce and subsequently amend adopt or abolish if
                        necessary such house rules and regulations as it may
                        reasonably consider necessary for the proper operation
                        management and maintenance of the Building.

Conflict

                (ii)    Such rules and regulations shall be supplementary to the
                        terms and conditions contained in this Tenancy Agreement
                        and shall not in any way derogate from such terms and
                        conditions. In the event of conflict between such rules
                        and regulations and the terms and conditions of this
                        Tenancy Agreement the terms and conditions of this
                        Tenancy Agreement shall prevail.



                                      -34-
<PAGE>   36

Name of Building

        5.18    The Landlord reserves the right to rename the Building with any
                such name or style as it in its sole discretion may determine
                and at any time and from time to time to change, alter,
                substitute or abandon any such name without thereby becoming
                liable to compensate the Tenant for any loss expense or
                inconvenience caused to the Tenant as a consequence thereof
                provided that the Landlord shall give the Tenant and the Postal
                and other relevant governmental authorities not less than three
                months' notice of its intention so to do.

Alterations to the Building

        5.19    Without prejudice to any provisions herein contained the
                Landlord reserves the right from time to time to improve extend
                add to or reduce the Building or in any manner whatsoever and to
                alter or deal with the Building (other than the Premises)
                Provided always that in exercising such right the Landlord will
                endeavour to cause as little inconvenience to the Tenant as is
                practicable in the circumstances and make good any damage caused
                to the Premises within a reasonable period of time.

Letting or Sale Notices and Entry

        5.20    During the three (3) months immediately preceding the expiration
                or sooner determination of the Term the Landlord shall be at
                liberty to affix and place without interference upon any
                external part of the Premises a notice or notices stating that
                the Premises are to be let and/or sold and such other
                information in connection therewith as the Landlord shall
                require and the Tenant shall permit persons with written
                authority from the Landlord or the Landlord's agents at
                reasonable times of the day upon prior appointment to enter and
                view the Premises or any part or parts thereof.

Notice

        5.21    Any notice required to be served under this Tenancy Agreement
                shall be in writing and any notice to be served on the Tenant
                shall be sufficiently served if sent by pre-paid registered post
                to or left at the Tenant's registered office or principal place
                of business in Hong Kong or the Premises and any notice to be
                served on the Landlord shall be sufficiently served if sent to
                the Landlord by pre-paid registered post to or left at the



                                      -35-
<PAGE>   37

                Landlord's registered office in Hong Kong. A notice delivered by
                hand is duly served at the time of delivery and a notice sent by
                registered post shall be deemed to be duly served forty-eight
                (48) hours after the date of posting.

No Fine or Premium or Key Money

        5.22    The Tenant hereby expressly declares that for the grant of the
                Term no premium key money or consideration money or other
                valuable consideration other than the Rent and other payments
                herein expressly reserved and expressed to be payable has been
                paid or will be payable by the Tenant to the Landlord or any
                other person.

Costs and Stamp Duty

        5.23    (i)     The Tenant shall bear half of Messrs. Denton Hall, the
                        Landlord's solicitors' scale charge as stipulated by the
                        Law Society of Hong Kong for the preparation and
                        completion of this Agreement. Notwithstanding the above,
                        it is expressly declared by the parties that Messrs.
                        Denton Hall is acting as solicitors for the Landlord
                        only and the Tenant is advised to seek independent legal
                        advice on the approval of this Agreement.

                (ii)    The stamp duty and registration fees payable on this
                        Agreement and their counterparts shall be borne by the
                        Landlord and the Tenant in equal shares.

Special Conditions

        5.24    The parties hereto shall respectively be bound by and entitled
                to the benefit of the Special Conditions (if any) set forth in
                the Fifth Schedule.

Fixtures and Fittings

        5.25    The Landlord shall provide those fixtures and fittings details
                of which are listed in the Sixth Schedule hereto.

Marginal Notes

        5.26    The marginal notes, headings and index (if any) are intended for
                guidance only and do not form a part of this Tenancy Agreement
                nor shall any of the provisions of this Tenancy Agreement be
                construed or interpreted by reference thereto or in any way
                affected or limited thereby.



                                      -36-
<PAGE>   38

Interpretation

        5.27    In this Tenancy Agreement if the context permits or requires
                words importing the singular number shall include the plural
                number and vice versa and words importing the masculine feminine
                or neuter gender, shall include the others of them.

Entire Agreement

        5.28    This Tenancy Agreement sets out the full agreement between the
                parties. No warranties or representations express or implied of
                any kind other than those set out herein (if any) are or have
                been made or given by the Landlord or by anybody on his behalf
                and if any such warranties or representations express or have
                been made, the same are withdrawn or deemed to have been
                withdrawn immediately before the execution of this Tenancy
                Agreement.

        AS WITNESS the hands of the parties hereto the day and year first above
written.



                                      -37-
<PAGE>   39

                                 FIRST SCHEDULE



The Tenant

Name                       :  VALENCE SEMICONDUCTOR DESIGN LIMITED
                              [CHINESE CHARACTERS]

Registered Office          :  Unit 413, 4/F., Hong Kong Industrial Technology
                              Centre, 72 Tat Chee Avenue, Kowloon Tong, Kowloon,
                              Hong Kong

Business Registration No.  :  18907543


                                 SECOND SCHEDULE


                                     Part I


The Premises               :  Unit 413 on the 4th Floor of the Hong Kong
                              Industrial Technology Centre

                                     Part II


The Term                   :  Two (2) years commencing on the 1st day of
                              September 1998 and expiring on the 31st day of
                              August 2000 (both days inclusive)



                                      -38-
<PAGE>   40

                                 THIRD SCHEDULE


                                     Part I

The Rent                   :  HONG KONG DOLLARS SIXTY SEVEN THOUSAND AND SIXTY
                              EIGHT ONLY (HK$67,068.00) per month exclusive of
                              rates, management fees and other outgoings


                                     Part II


Management Fees            :  HONG KONG DOLLARS SIXTEEN THOUSAND AND TWENTY ONE
                              AND CENTS EIGHTY ONLY (HK$16,021.80) per month

                                    Part III

The Deposit                :  HONG KONG DOLLARS TWO HUNDRED FORTY NINE THOUSAND
                              TWO HUNDRED AND SIXTY NINE AND CENTS FORTY ONLY
                              (HK$249,269.40)

                                     Part IV

Normal Air-Conditioning    :  Monday - Friday            8:00 a.m. - 6:00 p.m.
Hours                         Saturday                   8:00 a.m. - 2:00 p.m.
                              Sunday and                 no air-conditioning
                              Public Holiday             will be provided

                                                             Part V

Vetting Fee                :  HK$1.60 per square foot of the total gross floor
                              area of the Premises or HK$3,000.00 whichever is
                              the greater



                                      -39-
<PAGE>   41

                                 FOURTH SCHEDULE

User                       :  (1)   Subject to Paragraph (2) of this Fourth
                                    Schedule, to use the Premises as an office
                                    only.

                              (2)   The Tenant shall carry out R&D activities on
                                    full-custom chip design especially on
                                    system-on-a-chip solution and to develop
                                    system multimedia solutions based on MPEG 2
                                    standard. The Tenant plans to continue
                                    employing about 30 staff at the Premises, 15
                                    of whom will carry out the aforesaid R&D
                                    activities and the balance carry out
                                    marketing and administration activities.



                                      -40-
<PAGE>   42

                                 FIFTH SCHEDULE

                               Special Conditions

Restriction of Gross Floor Area by Director-General of Industry:-

(a)     The Tenant hereby declares that he is fully aware of the existence and
        implications of Special Condition (12)(b) in the Particulars and
        Conditions of Grant of New Kowloon Inland Lot No.6128 which provides,
        inter alia, that the Director-General of Industry may in his absolute
        discretion from time to time during the term thereby granted restrict
        the proportion of the gross floor area of the Building which may be
        underlet by the Landlord and in that event may stipulate that any
        underletting by the Landlord shall be for a term not exceeding three (3)
        years. The Director-General of Industry in exercising his discretion
        shall not cause any premature termination of any underletting and/or
        licensing entered in accordance with the said Special Condition (12)(b).

(b)     In the event the Director-General of Industry shall exercise his power
        under the said Special Condition (12)(b) to restrict the gross floor
        area of the Building as aforesaid the Landlord shall be entitled upon
        giving reasonable notice at any time after the date of this Agreement
        and/or during the Term to require the Tenant to vacate and surrender:-

        (i)     a part of the Premises - the Tenant shall then at the direction
                of the Landlord vacate such part of the Premises within a
                reasonable period and deliver vacant possession of the same to
                the Landlord, this Agreement shall remain in full force and
                effect with respect to that part of the Premises not required to
                be surrendered by the Tenant. In the event of a partial
                surrender the rent for the remaining part of the Premises shall
                be reduced on a pro-rata basis for the remainder of the Term and
                a pro-rata refund of the rental deposit shall be made by the
                Landlord to the Tenant; or

        (ii)    the whole of the Premises - the Tenant shall vacate the whole of
                the Premises within a reasonable period and deliver vacant
                possession of the same to the Landlord, this Agreement shall
                become null and void but without prejudice to either party's
                right of action against the other for any breach of the terms
                and covenants of this Agreement prior to termination.

                Provided Always that in the event of a requirement for the
                Tenant to vacate a part of the Premises the Tenant shall at its
                absolute discretion be entitled to surrender the whole of the
                Premises in which event the provisions of sub-clause (b)(ii) of
                this Condition shall apply.



                                      -41-
<PAGE>   43

                                 SIXTH SCHEDULE


Fixtures and Fittings


1. Screed floor finishing

2. Perimeter dry wall, mini-blind on windows (where applicable)

3. Ceiling tile in lay in grid

4. Fluorescence lighting fixture, main circuit control board

5. Air diffuser and fan coil unit(s)



The fixtures and fittings listed above will be in accordance with the standard
laid down by the Landlord for such items.



                                      -42-
<PAGE>   44

SIGNED BY Dr. James Liu, CEO            )    For and on behalf of
                                        }    HONG KONG INDUSTRIAL TECHNOLOGY
for and on behalf of the Landlord in    )    CENTRE CORPORATION
the presence of:- Eddy Chan             )

/s/ EDDY CHAN                                /s/ JAMES LIU
--------------------------------             -----------------------------------
                                                            Authorized Signature



SIGNED BY WAN WAH TONG, THOMAS          )    For and on behalf of
DIRECTOR                                }    VALENCE SEMICONDUCTOR DESIGN
for and on behalf of the Landlord in    )    LIMITED
the presence of:- Reivlin Cham          )

/s/ REIVLIN CHAM                             /s/ WAN WAH TONG
--------------------------------             -----------------------------------
                                                         Authorized Signature(s)


Received the day and year first         )    For and on behalf of
above written of and from the           )    HONG KONG INDUSTRIAL TECHNOLOGY
Tenant the sum of HONG KONG DOLLARS     )    CENTRE CORPORATION
TWO HUNDRED FORTY NINE THOUSAND TWO     )
HUNDRED AND SIXTY NINE AND FORTY        )    /s/ JAMES LIU
CENTS ONLY shall be transferred         )    -----------------------------------
from the Previous Tenancy Agreement     )                   Authorized Signature
being the deposit payable herein        )HK$249,269.40



                                                       -------------------------
                                                             the Landlord



                                      -43-