SAF Tehnika                                                  12.10.2005.



Terms of increase of share capital of JSC “SAF Tehnika” (draft)



AS "SAF Tehnika" registration No.40003474109, address: Riga, Ganību 

dambis 24a, LV-1005 

Terms of Increase of Share Capital (hereafter the "Terms")



1. PURPOSE OF INCREASE OF SHARE CAPITAL 

1.1. The purpose of the issue of shares is to increase the share capital 

of the joint stock company "SAF Tehnika" (hereinafter the "Company") in order 

to grant to the employees and members of the Management Board of the Company 

(hereafter the "Employees") employee shares in accordance with these Terms, 

as a result of which the Employees would be entitled to receive dividend of 

the Company and to secure their participation in the share capital of the

 Company. 



1.2. The increase of share capital by issuance of employee shares shall be 

performed for a  special purpose to gain elevated interest of employees and

 members of the Management Board of the Company in the activities of the 

Company, thus assigning the employee shares only to these employees and

 members of the Management Board of the Company  determined pursuant to 

Section 5 of these Terms and in accordance with Articles 254 and 255 of the

 Commercial Law of Latvia. 



2.CURRENT SHARE CAPITAL, CATEGORIES OF SHARES, TYPES, NUMBER AND PAR VALUE OF SHARES 



2.1. The current share capital of the Company at the date of approval of 

these Terms is  LVL 2'970'180.00.



2.2. The share capital of the Company is composed of 2'970'180 dematerialized 

presenter shares with the par value of each share equal to  LVL 1.00 (one lat).

All 2'970'180 shares are one type and category shares without preference rights 

and with unrestricted voting power. 



2.3. The current share capital of the Company has been fully paid up. 



3. INCREASE OF SHARE CAPITAL 



3.1. The share capital shall be increased by issuance of one category 60'000 

(sixty thousand) dematerialized title employee shares without voting rights, 

with the par value of each share equal to  LVL 1.00 (one lat).



3.2. The share capital of the Company shall be increased to LVL 3'030'180.



3.3. The new issue employee shares of the Company shall not be included in 

the regulated capital markets. 



3.4. The owner of employee shares shall have the right to receive dividend of 

the Company equally to the right of owners of other categories of shares of the 

Company. Dividend shall be paid in proportion to the total par value of shares 

owned by the respective shareholder. 



3.5. Employee share shall not give its holder any voting rights at the shareholders 

meeting of the Company and it shall not grant any right to its holder to receive 

the winding-up proceeds of the Company. 

3.6. The rights pertaining to the employee shares shall be attributable to the 

person entered into the share ledger of the Company. The share ledger of employee 

shares shall be maintained by the Management Board of the Company and the Board 

shall make all entries in accordance with the applicable laws and regulations and 

these Terms. 

3.7. The owners of new issue employee shares shall participate in the right to 

receive dividend as of the date the share ownership is recorded in the share ledger. 

3.8. The current shareholders of the Company in accordance with Article 253 and 

254(2) subsection 6 of the Commercial Law shall have no preemptive right to 

purchase the new issue employee shares of the Company. 

3.9. The new issue employee shares shall not be distributed through public offering. 



4. PAR VALUE AND PRICE OF NEW ISSUE EMPLOYEE SHARES 



4.1.  The par value of the new issue employee shares shall be LVL 1.00 (one lat) 

per each share. 

4.2. The new issue employee shares shall be paid entirely by the Company from the 

proceeds of non-distributed profit in the amount of LVL 60'000 for financial year 2004/2005. 

4.3. The new issue employee shares shall be transferred to employees and members of 

the Management Board for no charge. 

4.4. The property right to the new issues employee shares shall only be acquired to 

indivisible shares, and no joint ownership shall be permitted. If pursuant to the 

law or court judgment any joint ownership is instituted to any employee shares, the 

Company shall have the right to repurchase the shares. 



5. MEMBERS OF MANAGEMENT BOARD AND EMPLOYEES ENTITLED TO ACQUIRE EMPLOYEE SHARES 



5.1. The new issue employee shares may be acquired only by the members of the 

Management Board and employees of the Company whose list shall be prepared  by 

the Management Board and approved by the Supervisory Council of the Company based 

on the following criterion: 



(a) the employee shall have uninterrupted employment with the Company for no less 

than 1 year, except if the Management Board decides otherwise;  



(b) the employee has entered into employment agreement with the Company for 

indefinite term. 



(c) the employee has been assigned significant scope of duties material to the 

Company and its core activities. 



5.2. The assignment of new issue employment shares is not related to any specific 

job description of any employee or job title, and the Management Board of the 

Company shall have the right at its discretion to decide on assignment of the employee 

shares to any employee who complies with the criterion described above as part of the 

motivation scheme.



6. SUBSCRIPTION FOR SHARES AND SIGNING OF AGREEMENT 



6.1. All new issue employee shares shall be subscribed for and paid up by the 

Company and offered to be transferred into the ownership of the employees and 

members of the Management Board of the Company determined in accordance with 

these Terms for no charge. 



6.2. All owners of employee shares shall enter into an agreement with the Company 

on  employee share acquisition and repurchase (hereafter the "Agreement"). Based 

on the presumption that the acquirers of employee shares are not subject to consumer 

protection legislation, the terms and conditions of the Agreement shall not be 

changed, and equal Agreements shall be executed with all acquirers of the employee 

shares. 



6.3. The Company shall assign to the determined employees and Management Board 

members of the Company the employee shares each year 4 (four) times only within 

14 day intervals of share assignment which shall commence on the following dates:

 (a) January 1; (b) April 1; (c) July 1; and (d) October 1. The shares not assigned

 shall remain property of the Company until the next assignment period, but no later

 than until the date determined in accordance with the Commercial Law. 



6.4. The issues of assignment and repurchase of the new issue employee shares shall 

be administrated by the Management Board of the Company which activities shall be 

supervised by the Supervisory Council. Employees and members of the Management Board 

shall have the right to submit complaints directly to the Chairman of the Supervisory 

Council. 



6.5. The Management Board of the Company shall have the right to delegate the 

administration function of repurchase activity to a professional member of the market 

of financial instruments (including investment bank, broker company, financial 

consultant, etc.), subject to consent of the Supervisory Council. 



7. RESTRICTION ON ALIENATION OF SHARES 



7.1. With respect to all new issue employee shares there shall be a restriction 

imposed in accordance with the Charter of the Company stating that the employee 

shares may only alienated for the benefit of the Company. 



7.2. The Company shall have the right to acquire its employee shares in accordance 

with these Terms and the Agreement. The employee shares owned by the Company are 

not entitling the Company to any rights, and these rights should not be considered 

for distribution of profit. 



7.3. The new issue employee shares shall not be inherited, and they may not be 

owned by any other person but the employees and members of the Management Board of 

the Company, or the Company itself. In case of death of the owner of employee shares

title to these shares shall automatically be transferred to the Company and the 

Company shall pay to the heirs of employee share owner the repurchase amount in 

accordance with the terms of the Agreement. 



7.4. Enforcement against employee shares shall be performed by premature 

repurchase by the Company of all of such employee shares in accordance with the 

Agreement. 



8. REPURCHASE OF SHARES 



8.1. The holders of employee shares of the Company shall have the right to 

request the Company to repurchase the shares owned by them. Such request may not 

be submitted earlier than 18 months as of the date of acquisition of the shares 

(date of entry of the share ownership with the share ledger). 



8.2. The Company shall repurchase the employee shares annually  4 times within 

specific repurchase periods of 14 days to commence on the following dates: 

(a) January 1; (b) April 1; (c) July 1; and (d) October 1. 



8.3. Commencing on the date which occurs 18 months as of the date of acquisition 

of ownership to the employee shares recorded in the share ledger, the shareholder 

shall have the right within the next 12 months in the repurchase period sell to 

the Company not more than 20% of the shares owned. 



8.4. Within each following 12 months periods the owner of new issue employee 

shares shall have the right to increase the amount of shares to be sold by 20% 

of the total shares owned, notwithstanding on the fact whether the right of 

repurchase has been used before in the preceding repurchase periods (e.g. up to 

20% within the first 12 months, up to 40% in the following 12 months, up to 60% 

in the following 12 months etc.). Thus, the new issue employee shares may be 

sold by the shareholder back to the Company within 66 (sixty-six) months as of 

the date of acquisition of ownership to the shares. 



8.5. The Company and respective employee may agree in the Agreement on any 

additional repurchase terms, exceptions and other conditions that the parties 

consider relevant and which are not contradictory to the effective legal norms. 



8.6. The guarantee provided to the Employees to repurchase the employee shares 

shall be valid only with a condition precedent that the Employee without 

interruption has maintained employment with the Company or has been a member of 

the Management Board prior to the respective repurchase period. 



9. REPURCHASE PRICE OF SHARES 



9.1. Within each repurchase period the repurchase price of shares shall be 

determined by assuming that the initial price for the employee shares is equal 

to the weighted average price of the other shares of the Company included in 

the regulated market at AS Rigas Fondu Birza  (ISIN code: LV0000101129, stock 

exchange ticker: SAF1R) at the Official List for 1 month before the date when 

the shares are assigned to the respective employee or member of the Management 

Board of the Company (hereafter the "Initial Price"). 



9.2. Upon repurchase of the employee shares, the Company shall pay to the owner 

of such shares the repurchase price which shall be equal to the average weighted 

price for the other Company shares included in the official list of AS Rigas Fondu

 Birza for the last 1 month prior to the first day of the repurchase period, less 

the Initial Price (hereafter the "Repurchase Price"). 



9.3. If the Repurchase Price is less or equal to 0 and the shareholder of the 

Company has expressed intention to sell the employee shares to the Company, the 

Company shall acquire the new issue employee hares without charge. 



9.4. The Repurchase Price shall be paid by the Company by bank transfer of the 

respective amount to the seller of shares no later than 5 business days as of the 

date when the change of shareholding has been entered into the share ledger of the 

Company. 



10. CONSEQUENCE OF REPURCHASE 



10.1. Following the repurchase of shares the shareholders meeting of the Company 

shall in accordance with the proposal of the Management Board of the Company decide 

either on assignment of the shares to other employees or members of the Management 

Board of the Company, or to the previous shareholders, or on cancellation of the 

shares and respective decrease of the share capital of the Company for the total 

par value of the shares concerned. 



10.2. The conditions of repurchase of shares are provide by these Terms and the 

Agreement between the Company and owners of the new issue employee shares. 

The shareholders meeting shall have no right to modify or terminate any terms of 

the executed Agreement without the prior consent of all other owners of the 

employee shares.

_______________________ 

Didzis Liepkalns

Vice-Chairman of the Management Board

of the joint stock company "SAF Tehnika"