BAIOO Family Interactive Limited — Proxy Solicitation & Information Statement 2007

Oct 24, 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant, or other professional advisers.

If you have sold or transferred all your shares in Datronix Holdings Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee, or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

DATRONIX HOLDINGS LIMITED 連達科技控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 889)

INDEPENDENT SHAREHOLDERS’ APPROVAL FOR CONTINUING CONNECTED TRANSACTIONS

Independent Financial Adviser to the Independent Board Committee

Menlo Capital Limited

A letter from the Board is set out on pages 1 to 6 of this circular. A letter from the Independent Board Committee is set out on page 7 of this circular. A letter from Menlo Capital Limited dated 24 October 2007 containing its advice to the Independent Board Committee and Independent Shareholders is incorporated and set out on pages 8 to 14 of this circular.

A notice convening the Special General Meeting to be held at 19th Floor, North Point Industrial Building, 499 King’s Road, North Point, Hong Kong on Tuesday, 13 November 2007 at 11:00 a.m. is set out on page 19 of this circular. Whether or not you are able to attend the Special General Meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return it to Hong Kong Registrars Limited at Rooms 1712-16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding such meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting should you so wish.

* For identification purposes only

24 October 2007

CONTENTS

	Page
CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	i
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
2. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
3. THE CONTINUING CONNECTED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . .	2
4. REASON FOR THE CONTINUING CONNECTED TRANSACTIONS . . . . . . . . . . .	4
5. INDEPENDENT SHAREHOLDERS’ APPROVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
6. RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
7. SPECIAL GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . .	7
LETTER FROM MENLO CAPITAL LIMITED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
NOTICE OF SPECIAL GENERAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19

i

DEFINITIONS

In this circular, unless the context otherwise requires, the following words and expressions shall have the following meanings:

• “2nd Master Supply Agreement”

the agreement entered into by Datatronic and Datatronics Romoland on 7 April 2004

“3rd Master Supply Agreement” the agreement entered into by Datatronic and Datatronics Romoland on 1 August 2005

“4th Master Supply Agreement” the agreement entered into by Datatronic and Datatronics Romoland on 24 September 2007

• “Board”

the board of directors of the Company

“Cap Amounts” the annual limits of the aggregate consideration of the Continuing Connected Transactions

• “Company” Datronix Holdings Limited, an exempted company incorporated in Bermuda with limited liability and the shares of which are listed on the Stock Exchange

• “Continuing Connected Transactions”

the transactions under the 4th Master Supply Agreement

• “Datatronic” Datatronic Limited, a company incorporated in Hong Kong with limited liability and a subsidiary of the Company

• “Datatronics Romoland” Datatronics Romoland, Inc., a company incorporated in the US with limited liability and is a company owned as to approximately 96.5% by Mr. Siu Paul Y.

• “Group” the Company and its subsidiaries

• “HK$” Hong Kong dollar(s)

• “Independent Board Committee” an independent board committee of the Company comprising Mr. Chung Pui Lam, Mr. Lam Tak Shing, Harry and Mr. Chan Fai Yue, Leo

• “Independent Shareholders” shareholders other than Mr. Siu Paul Y. and his associates as defined in the Listing Rules

• “Latest Practicable Date” 16 October 2007, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein

ii

DEFINITIONS

“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Master Supply Agreement”	the agreement entered into by Datatronic and Datatronics
	Romoland on 6 June 2001
“Mr. Siu Paul Y.”	Mr. Siu Paul Y., the chairman and the controlling shareholder of
	the Company who together with his spouse hold 72.8% of the
	issued shares of the Company through Onboard Technology
	Limited
“SFO”	Securities and Futures Ordinance of Hong Kong, Chapter 571 of
	the laws of Hong Kong
“Shareholder(s)”	holder(s) for the time being of the share(s) of the Company
“Special General Meeting”	the special general meeting of the Company to be convened on
	Tuesday, 13 November 2007 for the purpose of considering and
	approving the Continuing Connected Transactions and the Cap
	Amount
“Stock Exchange”	the Stock Exchange of Hong Kong Limited
“subsidiary”	shall have the meaning as defined in the Companies Ordinance of
	Hong Kong, Chapter 32 of the laws of Hong Kong
“US”	the United States of America
“US$”	US dollars

iii

LETTER FROM THE BOARD

DATRONIX HOLDINGS LIMITED 連達科技控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 889)

Executive Directors: SIU Paul Y. alias Siu Paul Yin Tong (Chairman) SHUI Wai Mei (Vice Chairman) SHEUNG Shing Fai SIU Nina Margaret

Independent Non-executive Directors: CHUNG Pui Lam LAM Tak Shing, Harry CHAN Fai Yue, Leo

Non-executive Director: SIU Ronald

Registered Office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Principal place of business in Hong Kong: 19th Floor North Point Industrial Building 499 King’s Road North Point Hong Kong

24 October 2007

To the Shareholders

Dear Sir or Madam,

INDEPENDENT SHAREHOLDERS’ APPROVAL FOR CONTINUING CONNECTED TRANSACTIONS

1. INTRODUCTION

The Company made disclosure by announcement dated 29 August 2005 of the continuing connected transactions to be taken place under the 3rd Master Supply Agreement in the three years ending 31 December 2005, 2006 and 2007 for the cap amounts of HK$86 million, HK$125 million and HK$133 million respectively. It is expected that further Continuing Connected Transactions will continue in the three years ending 31 December 2008, 2009 and 2010. Such Continuing Connected Transactions are subject to Independent Shareholders’ approval.

The Independent Board Committee has been formed to consider the Continuing Connected Transactions and the Cap Amounts for the three years ending 31 December 2008, 2009 and 2010. The letter from the Independent Board Committee to the Independent Shareholders is included in this circular. An independent financial adviser Menlo Capital Limited has been appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Continuing Connected Transactions, including the Cap Amounts for the three years ending 31 December 2008, 2009 and 2010, and its letter of advice to the Independent Board Committee and Independent Shareholders is included in this circular.

* For identification purposes only

1

LETTER FROM THE BOARD

The purpose of this circular is to provide you with further information in relation to the Continuing Connected Transactions, to set out the recommendations of the Independent Board Committee and the letter of advice from Menlo Capital Limited to the Independent Board Committee and the Independent Shareholders.

A resolution to approve the Continuing Connected Transactions and the Cap Amounts will be proposed at the Special General Meeting to be held on Tuesday, 13 November 2007. In accordance with the Listing Rules, Mr. Siu Paul Y. and his associates (as defined by the Listing Rules) will be required to abstain from voting on the resolution to approve the Continuing Connected Transactions and the Cap Amounts.

2. BACKGROUND

The Group is principally engaged in manufacturing and trading of magnetic components. Datatronics Romoland is a supplier of high reliability and military magnetics to the military and aerospace industries in the US. Datatronic and Datatronics Romoland entered into the Master Supply Agreement on 6 June 2001, the 2nd Master Supply Agreement on 7 April 2004 and the 3rd Master Supply Agreement on 1 August 2005 in respect of supply of magnetic products to Datatronics Romoland. The 4th Master Supply Agreement for a term of three years from 1 January 2008 and on effectively the same terms and conditions of the Master Supply Agreement, the 2nd Master Supply Agreement and the 3rd Master Supply Agreement was entered into on 24 September 2007. As Datatronics Romoland is a company owned as to approximately 96.5% by Mr. Siu Paul Y., who is the chairman and the controlling shareholder of the Company who together with his spouse hold 72.8% of the issued shares of the Company through Onboard Technology Limited, the Continuing Connected Transactions constitute connected transactions for the Company under Chapter 14A of the Listing Rules.

The Company made disclosure by announcement dated 29 August 2005 of the continuing connected transactions to be taken place under the 3rd Master Supply Agreement in the three years ending 31 December 2005, 2006 and 2007 for the cap amounts of HK$86 million, HK$125 million and HK$133 million respectively.

None of the directors of the Company and their respective associates are interested in any business apart from the business of the Company, which competes or is likely to compete, either directly or indirectly, with the business of the Company.

3. THE CONTINUING CONNECTED TRANSACTIONS

3.1 Terms of the Continuing Connected Transactions

The major terms and conditions of the Master Supply Agreement have been summarized in page 50 of the Company’s prospectus dated 12 June 2001:

The Master Supply Agreement is for an initial term of three years from 1 January 2001 and shall continue thereafter until terminated by either party giving to the other party not less than three months’ written notice. Pursuant to the Master Supply Agreement, the selling prices of the magnetics under the Master Supply Agreement are to be agreed between Datatronic and Datatronics

2

LETTER FROM THE BOARD

Romoland. The Group will determine the price of the magnetics required by Datatronics Romoland according to its pricing policy of obtaining a reasonable profits margin for its sales in accordance with the prevailing market conditions, on normal commercial terms and at arm’s length basis. The Group is granted a first refusal right by Datatronics Romoland to the effect that if Datatronic declines to supply the magnetics, Datatronics Romoland may source the same from any third-party supplier, provided that the terms of purchase shall not be more favourable than those offered to Datatronic.

The terms and conditions of the 4th Master Supply Agreement are effectively the same, except that the term is a fixed term of three years ending 31 December 2010 with no provision for automatic extension.

The Group currently offers credit sales to Datatronics Romoland with a term of payment of 90 days payable by Telegraphic Transfer, which is the same to other customers. The payment term and other terms of the Continuing Connected Transactions offered by the Group are no less favourable to the Group than those offered to other customers of the Group and those available from other third parties. The balances of accounts receivable from Datatronics Romoland was approximately HK$5.8 million, HK$24.8 million and HK$21.0 million as at 31 December 2004, 2005 and 2006 respectively, which are generally in line with the growth in sales to Datatronics Romoland.

3.2 The amounts of the continuing connected transactions for the years 2004, 2005 and 2006

Set out below are the amounts of the continuing connected transactions for the years 2004, 2005 and 2006.

	Financial year	Financial year	Financial year
	ended 31	ended 31	ended 31
	December 2004	December 2005	December 2006
	HK$’000	HK$’000	HK$’000
Aggregate consideration of	38,985	74,422	81,724
the continuing connected
transactions
Total turnover of the Group	184,490	208,644	272,131
Percentage of aggregate	approx. 21%	approx. 36%	approx. 30%
consideration of the
continuing connected
transactions to total
turnover of the Group
Annual cap amount	39,000	86,000	125,000

3

LETTER FROM THE BOARD

4. REASON FOR THE CONTINUING CONNECTED TRANSACTIONS

There has been a progressive growth in the purchase orders of magnetics placed by Datatronics Romoland with the Group relative to the other customers of the Group as a whole. During the year ended 31 December 2004, the Group received purchase orders of magnetics from Datatronics Romoland in the total amount of approximately HK$38.99 million, representing about 21% of the total turnover of the Group. During the year ended 31 December 2005, the Group received purchase orders of magnetics from Datatronics Romoland in the total amount of approximately HK$74.42 million, representing about 36% of the total turnover of the Group. During the year ended 31 December 2006, the Group received purchase orders of magnetics from Datatronics Romoland in the total amount of approximately HK$81.72 million, representing about 30% of the total turnover of the Group. For the period from 1 January 2007 up to the Latest Practicable Date, Datatronics Romoland placed purchase orders in the total amount of approximately HK$63 million for the Group’s magnetics. The annual cap amount for the whole year ended 31 December 2007 is HK$133 million. Based on the current financial projections and the information on the value of purchase orders on hands provided by Datatronics Romoland, the Board expects that additional purchase orders of magnetics will be placed by Datatronics Romoland during the remainder of the year ending 31 December 2007 and onward and further holds the view that the total amount of purchase orders placed by Datatronics Romoland in the whole year ended 31 December 2007 will be within the cap amount of HK$133 million.

As far as the Board is aware, Datatronics Romoland is one of the few suppliers of high reliability and military magnetics to the US military and aerospace industries and the Group is the sole supplier of high reliability and military magnetic components to Datatronics Romoland. The continuation of regional military conflicts and instabilities will result in the US government purchasing more high-technology weapons like missiles and fighters, the manufacturing and maintenance of which requires high reliability magnetic components. Furthermore, Datatronics Romoland is continually increasing its share of business in the medical as well as the satellite applications.

Under the 4th Master Supply Agreement, the Group is granted a first refusal right by Datatronics Romoland to the effect that only if the Group declines to supply the magnetics, Datatronics Romoland may source the same from any third-party supplier, provided that the terms of purchase shall not be more favourable than those offered to the Group. In view of the above, the Board believes that Datatronics Romoland will continue to purchase from the Group and the volume will continue to grow.

Besides Datatronics Romoland, the Group’s customers are mainly in the telecommunication and networking industries. Due to the slowing down in demand for the Group’s products in these industries, the sales to customers in these industries by the Group grows relatively slowly as compare to the growth in the sales to Datatronics Romoland. Therefore, there is an increase in the proportion of sales to Datatronics Romoland relative to the total turnover of the Group experienced in the past years.

4

LETTER FROM THE BOARD

Based on the above and on the projection provided by Datatronics Romoland, the Board expects that the sales to be made to Datatronics Romoland will continue to grow for the three years ending 31 December 2008, 2009 and 2010 respectively. The Group shall seek to continue to expand its market with other customers and shall keep the proportion of sales to Datatronics Romoland at an optimal level in that the Board will ensure that not too much reliance shall be placed upon one particular customer. The projected amounts of the Continuing Connected Transactions for those three years are as follows:

Projection for the year Projection for the year Projection for the year ending 31/12/2008 ending 31/12/2009 ending 31/12/2010 HK$133,000,000 HK$145,000,000 HK$160,000,000

The Board is of the view that the 4th Master Supply Agreement has been entered into on normal commercial terms, in the ordinary and usual course of business of the Group with terms no less favourable than those offered to other customers of the Group and is fair and reasonable to the Shareholders taken as a whole and it is in the interest of the Company to continue the Continuing Connected Transactions upon the terms and conditions set out in the 4th Master Supply Agreement. Based on the above projection, the Board proposes that the Cap Amounts of the Continuing Connected Transactions for the three years ending 31 December 2008, 2009 and 2010 be HK$133 million, HK$145 million and HK$160 million respectively. The Board considers that the Cap Amounts are fair and reasonable.

Up to the Latest Practicable Date, the utilization rate of the Group’s existing production capacity is approximately 54%. The Group plans to invest in equipment, machinery, production set-ups and others for high automation in production to improve efficiency and increase productivity. In the premises, the Board is of the view that the Group’s existing production capacity is able to cope with the expected increase of the purchase orders for the three years ending 31 December 2008, 2009 and 2010.

5. INDEPENDENT SHAREHOLDERS’ APPROVAL

As Datatronics Romoland is a company owned as to approximately 96.5% by Mr. Siu Paul Y., the Continuing Connected Transactions constitute connected transactions for the Company under Chapter 14A of the Listing Rules and would require approval of the Independent Shareholders of the Company pursuant to rule 14A.48 of the Listing Rules.

The Company will ensure that the Continuing Connected Transactions are in compliance with the provisions of Chapter 14A of the Listing Rules and in particulars rules 14A.35 to 14A.41 and 14A.46 governing continuing connected transactions.

The Company would seek approval of the Independent Shareholders of the Continuing Connected Transactions and the Cap Amounts for the three years ending 31 December 2008, 2009 and 2010 pursuant to rules 14A.35 and 14A.48 of the Listing Rules.

Mr. Siu Paul Y. and his associates will abstain from voting at the Special General Meeting.

Mr. Siu Paul Y. and his associates are entitled to exercise control over the voting rights in their respective shares in the Company.

5

LETTER FROM THE BOARD

6. RECOMMENDATIONS

The Board has appointed the Independent Board Committee to consider and advise the Independent Shareholders on the terms of the Continuing Connected Transactions and the Cap Amounts for the three years ending 31 December 2008, 2009 and 2010.

The Independent Board Committee, having taken into account the advice of Menlo Capital Limited, considers that the terms of the Continuing Connected Transactions and the Cap Amounts are fair and reasonable insofar as the Independent Shareholders are concerned. Accordingly, it recommends that the Independent Shareholders vote in favour of the resolution to approve the Continuing Connected Transactions and the Cap Amounts.

7. SPECIAL GENERAL MEETING

A Special General Meeting of the Company will be convened to approve the Continuing Connected Transactions and the Cap Amounts for the three years ending 31 December 2008, 2009 and 2010 by the way of poll.

An independent financial adviser Menlo Capital Limited has been appointed to advise the Independent Board Committee and the Independent Shareholders.

Pursuant to Bye-law 66 of the Company, a poll may be demanded by the chairman of the meeting or by at least 3 members present in person (or in case of a member being a corporation by its duly authorized representative) or by proxy for the time being entitled to vote at the meeting or by a member or members present in person (or in case of a member being a corporation by its duly authorized representative) or by proxy and representing not less than one-tenth of the total voting rights of all members having the right to vote at the meeting or by a member or members present in person (or in case of a member being a corporation by its duly authorized representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right. The vote will be taken by poll.

A notice convening the Special General Meeting to be held at 19th Floor, North Point Industrial Building, 499 King’s Road, North Point, Hong Kong on Tuesday, 13 November 2007 at 11:00 a.m. is set out on page 19 of this circular. Whether or not you are able to attend the Special General Meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return it to Hong Kong Registrars Limited at Rooms 1712-16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding such meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting should you so wish.

Yours faithfully,

By order of the Board Sheung Shing Fai Executive Director

6

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

DATRONIX HOLDINGS LIMITED 連達科技控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 889)

24 October 2007

To the Independent Shareholders

Dear Sir or Madam,

APPROVAL FOR CONTINUING CONNECTED TRANSACTIONS

We refer to the circular of the Company to the Shareholders dated 24 October 2007 (the “Circular”), of which this letter forms part. Terms defined therein shall have the same meaning when used in this letter unless the context otherwise requires.

We have been appointed by the Board as the Independent Board Committee to advise the Independent Shareholders as to whether the terms of the Continuing Connected Transactions and the Cap Amounts for the three years ending 31 December 2008, 2009 and 2010 are fair and reasonable so far as the Independent Shareholders are concerned. Details of the Continuing Connected Transactions and the Cap Amounts are set out in the letter from the Board contained in the Circular on pages 1 to 6. Menlo Capital Limited has been appointed as the independent financial adviser to advise us in respect of the Continuing Connected Transactions. We wish to draw your attention to the letter of advice from Menlo Capital Limited dated 24 October 2007, which is incorporated and set out on pages 8 to 14 of the Circular.

Having considered the terms of the Continuing Connected Transactions and the Cap Amounts, and having taken into account the advice and recommendations of Menlo Capital Limited contained in its letter, we are of the opinion that the Continuing Connected Transactions are in the ordinary and usual course of business of the Company and the terms and conditions of the Continuing Connected Transactions, including the Cap Amount for the three years ending 31 December 2008, 2009 and 2010, are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Independent Shareholders as a whole. We therefore advise and recommend that the Independent Shareholders should vote in favour of the resolution to approve the Continuing Connected Transactions and the Cap Amounts to be proposed at the Special General Meeting.

Yours faithfully,

For and on behalf of the Independent Board Committee

Chung Pui Lam Lam Tak Shing, Harry Chan Fai Yue, Leo

Independent Non-executive Directors

* For identification purposes only

7

LETTER FROM MENLO CAPITAL LIMITED

The following is the text of a letter from Menlo in connection with the continuing connected transactions which has been prepared for the purpose of inclusion in this circular:

Menlo Capital Limited

Unit 06, 1st Floor, Beautiful Group Tower 77 Connaught Road Central Hong Kong

24 October 2007

To the Independent Board Committee and the Independent

Shareholders of Datronix Holdings Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on whether (i) the Continuing Connected Transactions contemplated under the 4th Master Supply Agreement in respect of supply of magnetic products to Datatronics Romoland are in the interest of the Company and the Independent Shareholders as a whole; (ii) the 4th Master Supply Agreement are entered into on normal commercial terms and within the ordinary and usual course of businesses of the Company and (iii) the terms of the Continuing Connected Transactions in respect of supply of magnetic products to Datatronics Romoland and the Cap Amounts contemplated under the 4th Master Supply Agreement are fair and reasonable, details of which are set out in the “Letter from the Board” in the circular (the “Circular”) issued by the Company to the Shareholders dated 24 October 2007 of which this letter forms part. Capitalised terms used in this letter shall have the same meanings ascribed to them in the Circular unless the context otherwise requires.

Datatronic and Datatronics Romoland entered into the Master Supply Agreement on 6 June 2001, the 2nd Master Supply Agreement on 7 April 2004 and the 3rd Master Supply Agreement on 1 August 2005 in respect of supply of magnetic products to Datatronics Romoland. The 4th Master Supply Agreement for a term of three years from 1 January 2008 and on effectively the same terms and conditions of the Master Supply Agreement, the 2nd Master Supply Agreement and the 3rd Master Supply Agreement was entered into on 24 September 2007. As Datatronics Romoland is a company owned as to approximately 96.5% by Mr. Siu Paul Y., who is the chairman and the controlling shareholder of the Company who together with his spouse hold 72.8% of the issued shares of the Company through Onboard Technology Limited, the Continuing Connected Transactions constitute connected transactions for the Company under Chapter 14A of the Listing Rules.

8

LETTER FROM MENLO CAPITAL LIMITED

In formulating our opinion, we have relied on the accuracy of the information and representations contained in the Circular which have been provided to us by the Directors and which the Directors consider to be complete and relevant, and have assumed that the statements made were true, accurate and complete at the time they were made and continue to be true on the date of the Circular. We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due and careful enquiry and are based on honestly-held opinions. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and we have been advised by the Directors that no material facts have been omitted from the information and representations provided in and referred to in the Circular.

We consider that we have received sufficient information to enable us to reach an informed view and to justify our reliance on the accuracy of the information and representations contained in the Circular and to provide a reasonable basis for our view and recommendation. We have no reason to suspect that any material information has been withheld by the Company or by the Directors. We have not, however, carried out any independent investigation into the business and affairs of the Group. We have taken all reasonable steps pursuant to rule 13.80 of the Listing Rules which include the following:

• (a) obtaining all the information and documents relevant to an assessment of the fairness and reasonableness of the terms of the Continuing Connected Transactions and the Cap Amounts, including but not limited to, the announcement of the Company dated 4 October 2007, the Letter from the Board, the 4th Master Supply Agreement, the analysis of the sales transactions to Datatronics Romoland (the “Sales Analysis”) and sample sales transactions to independent third parties provided by the Company, the annual report of the Company for the year ended 31 December 2006 and the interim report of the Company for six months ended 30 June 2007 respectively;

• (b) reviewing the performance and financial situation of the Company as well as the reasons and background of the Continuing Connected Transactions;

• (c) reviewing the terms of the 4th Master Supply Agreement;

• (d) reviewing the orders on hand and the projected amounts of the Continuing Connected Transactions for those three years ended 31 December; and

• (e) reviewing the Sales Analysis and sample sales transactions to independent third parties of certain magnetic products.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion regarding whether the Continuing Connected Transactions contemplated under the 4th Master Supply Agreement are in the interest of the Company and the Independent Shareholders as a whole and whether the terms of the Continuing Connected Transactions in respect of supply of magnetic products to Datatronics Romoland and the Cap Amounts contemplated under the 4th Master Supply Agreement are fair and reasonable, we have considered the following principal factors and reasons:

9

LETTER FROM MENLO CAPITAL LIMITED

REASONS FOR ENTERING INTO THE 4TH MASTER SUPPLY AGREEMENT

The Group is principally engaged in manufacturing and trading of magnetic components. Datatronics Romoland is a supplier of high reliability and military magnetics to the military and aerospace industries in the US.

The Company made disclosure by announcement dated 29 August 2005 of the continuing connected transactions to be taken place in the three years ending 31 December 2005, 2006 and 2007 for the cap amounts of HK$86 million, HK$125 million and HK$133 million respectively. It is expected that further Continuing Connected Transactions will continue in the three years ending 31 December 2008, 2009 and 2010.

Having reviewed the analysis of sales transactions to Datatronics Romoland, we note that there has been a progressive growth in the purchase orders of magnetics placed by Datatronics Romoland with the Group relative to the other customers of the Group as a whole:

• During the year ended 31 December 2004, the Group received purchase orders of magnetics from Datatronics Romoland in the total amount of approximately HK$38.99 million, representing about 21% of the total turnover of the Group;

• During the year ended 31 December 2005, the Group received purchase orders of magnetics from Datatronics Romoland in the total amount of approximately HK$74.42 million, representing about 36% of the total turnover of the Group;

• During the year ended 31 December 2006, the Group received purchase orders of magnetics from Datatronics Romoland in the total amount of approximately HK$81.72 million, representing about 30% of the total turnover of the Group; and

• For the period from 1 January 2007 up to 30 June 2007, Datatronics Romoland placed purchase orders in the total amount of approximately HK$40.1 million for the Group’s magnetics.

The annual cap amount for the whole year ended 31 December 2007 is HK$133 million. Based on the current financial projections and the information on the value of purchase orders on hands provided by Datatronics Romoland, the Board expects that additional purchase orders of magnetics will be placed by Datatronics Romoland during the remainder of the year ending 31 December 2007 and onward and further holds the view that the total amount of purchase orders placed by Datatronics Romoland in the whole year ended 31 December 2007 will be within the cap amount of HK$133 million.

10

LETTER FROM MENLO CAPITAL LIMITED

BACKGROUND INFORMATION

We have reviewed the nature of business of the Group set out in the annual report of the Company for 2006 and the interim report of the Company for six months ended June 2007 and note that the manufacturing and selling of the magnetic products is the main business of the Group. We have also reviewed the Company’s prospectus dated 12 June 2001 in relation to the magnetic products and note that the Continuing Connected Transactions has been commenced for years since 2001. Accordingly, we are of the view that the Continuing Connected Transactions for the period from 1 January 2008 to 31 December 2010 are the ordinary and usual course of businesses of the Company.

Based on the Sales Analysis, we note that the Continuing Connected Transactions were approximately 21%, 36% and 30% of the total sales turnovers of the Group for 2004, 2005 and 2006 respectively to Company and that the Continuing Connected Transactions are expected to contribute to the sales turnovers of the Group for 2008, 2009 and 2010 respectively to Company. We are of the view that the Continuing Connected Transactions being expected to contribute to the sales turnover of the Company in the 2008, 2009 and 2010 is in the interest of the Company and the Independent Shareholders as a whole.

THE 4TH MASTER SUPPLY AGREEMENT

Terms of the Continuing Connected Transactions

The major terms and conditions of the Master Supply Agreement have been summarized in page 50 of the Company’s prospectus dated 12 June 2001:

The Master Supply Agreement is for an initial term of three years from 1 January 2001 and shall continue thereafter until terminated by either party giving to the other party not less than three months’ written notice. Pursuant to the Master Supply Agreement, the selling prices of the magnetics under the Master Supply Agreement are to be agreed between Datatronic and Datatronics Romoland. The Group will determine the price of the magnetics required by Datatronics Romoland according to its pricing policy of obtaining a reasonable profits margin for its sales in accordance with the prevailing market conditions, on normal commercial terms and at arm’s length basis. The Group is granted a first refusal right by Datatronics Romoland to the effect that if Datatronic declines to supply the magnetics, Datatronics Romoland may source the same from any third-party supplier, provided that the terms of purchase shall not be more favourable than those offered to Datatronic.

The Group currently offers credit sales to Datatronics Romoland with a term of payment of 90 days payable by telegraphic transfer, which is the same to other customers. The payment term and other terms of the Continuing Connected Transactions offered by the Group are no less favourable than those offered to other customers of the Group. The balances of accounts receivable from Datatronics Romoland was approximately HK$5.8 million, HK$24.8 million and HK$21.0 million as at 31 December 2004, 2005 and 2006 respectively, which are generally in line with the growth in sales to Datatronics Romoland.

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LETTER FROM MENLO CAPITAL LIMITED

We have reviewed the 4th Master Supply Agreement. No irregular terms are noted. Based on the existing terms including but not limited to, (i) the Group being granted a first refusal right by Datatronics Romoland to the effect that if Datatronic declines to supply the magnetics, Datatronics Romoland may source the same from any third-party supplier; (ii) the terms of purchase not be more favourable than those offered to Datatronic; (iii) the Group offering credit sales to Datatronics Romoland with a term of payment of 90 days same as to other customers; and (iv) the payment term and other terms of the Continuing Connected Transactions offered by the Group to be no less favourable than those offered to other customers of the Group, we are of the view that the terms of the 4th Master Supply Agreement are on normal commercial basis and fair and reasonable.

PROPOSED CAP AMOUNTS

The amounts of the continuing connected transactions for the years 2004, 2005 and 2006

	Financial year	Financial year	Financial year
	ended 31	ended 31	ended 31
	December 2004	December 2005	December 2006
	HK$’000	HK$’000	HK$’000
Aggregate consideration	38,985	74,422	81,724
of the continuing
connected transactions
Total turnover of the Group	184,490	208,644	272,131
Percentage of aggregate	approx. 21%	approx. 36%	approx. 30%
consideration of the
continuing connected
transactions to total
turnover of the Group
Annual cap amount	39,000	86,000	125,000

Cap Amounts

In arriving at the above Cap Amounts, the Company has made reference to the expected completion date of the Company’s manufacturing facilities for the production of the magnetic products, the historical information of the demand for the magnetic products from the Group’s customers, the actual purchase orders received and magnetic products delivered in the past years, the orders and purchase forecasts received from Datatronics Romoland.

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LETTER FROM MENLO CAPITAL LIMITED

As far as the Board is aware, Datatronics Romoland is one of the few suppliers of high reliability and military magnetics to the US military and aerospace industries and the Group is the sole supplier of high reliability and military magnetic components to Datatronics Romoland. The continuation of regional military conflicts and instabilities will result in the US government purchasing more high-technology weapons like missiles and fighters, the manufacturing and maintenance of which requires high reliability magnetic components. Furthermore, Datatronics Romoland is continually increasing its share of business in the medical as well as the satellite applications.

Under the 4th Master Supply Agreement, the Group is granted a first refusal right by Datatronics Romoland to the effect that only if the Group declines to supply the magnetics, Datatronics Romoland may source the same from any third-party supplier, provided that the terms of purchase shall not be more favourable than those offered to the Group. As a result, the Board believes that Datatronics Romoland will continue to purchase from the Group and the volume will continue to grow.

Besides Datatronics Romoland, the Group’s customers are mainly in the telecommunication and networking industries. Due to the slowing down in demand for the Group’s products in these industries, the sales to customers in these industries by the Group grows relatively slowly as compare to the growth in the sales to Datatronics Romoland. Therefore, there is an increase in the proportion of sales to Datatronics Romoland relative to the total turnover of the Group experienced in the past years.

Based on the above and on the projection provided by Datatronics Romoland, the Board expects that the sales to be made to Datatronics Romoland will continue to grow for the three years ending 31 December 2008, 2009 and 2010 respectively. The Group shall seek to continue to expand its market with other customers and shall keep the proportion of sales to Datatronics Romoland at an optimal level in that the Board will ensure that not too much reliance shall be placed upon one particular customer. The projected amounts of the Continuing Connected Transactions for those three years are as follows:

Projection for the year	Projection for the year	Projection for the year
ending 31/12/2008	ending 31/12/2009	ending 31/12/2010
HK$133,000,000	HK$145,000,000	HK$160,000,000

Based on the above projection, the Board proposes that the Cap Amounts of the Continuing Connected Transactions for the three years ending 31 December 2008, 2009 and 2010 be HK$133 million, HK$145 million and HK$160 million respectively. We are of the view that the Cap Amounts are fair and reasonable.

We have also reviewed the 2008, 2009 and 2010 sales forecast of the magnetic products prepared by the Company to arrive at the proposed Cap Amounts and note that the assumptions adopted by the Company in preparing the forecast are based the annual sales records of 2004, 2005 and 2006 in relation to Continuing Connected Transactions, the confirmed orders and indications received from Datatronics Romoland. We are of the view that the assumptions adopted by the Company in preparing the forecast are fair and reasonable.

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LETTER FROM MENLO CAPITAL LIMITED

RECOMMENDATION

Having taken into account of the factors and reasons set out in the above sections, we are of the view that (i) the entering into the 4th Master Supply Agreement and the Continuing Connected Transactions contemplated thereunder relating to the purchase of the magnetic products are in the interest of the Company and the Independent Shareholders as a whole; (ii) the 4th Master Supply Agreement are entered into on normal commercial terms and within the Company’s ordinary and usual course of business; and (iii) the terms of the Continuing Connected Transactions relating to the purchase of the magnetic products and the Cap Amounts contemplated under the 4th Master Supply Agreement are fair and reasonable so far as the Company and the Independent Shareholders are concerned.

Accordingly, we recommend the Independent Board Committee and the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the Special General Meeting to approve to enter into the 4th Master Supply Agreement, the terms of the Continuing Connected Transactions relating to the purchase of the magnetic products contemplated thereunder and the proposed Cap Amounts.

Yours faithfully, For and on behalf of Menlo Capital Limited Michael Leung Director

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

(a) Directors’ interests in share capital

As at the Latest Practicable Date, the interests or short positions of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, were as follows:

(i) the Company

		Ordinary shares of HK$0.1 each	Ordinary shares of HK$0.1 each	Ordinary shares of HK$0.1 each
							Percentage in
	Personal	Family	Corporate	Other		Total no.	total share
Name	interests	interests	interests	interest		of shares	capital
Mr. Siu Paul Y.	–	–	233,000,000		–	233,000,000	72.8%
			(note 1)
Associated corporation – Datatronic
		Non-voting deferred shares of HK$1.00 each
	Personal	Family	Corporate			Other	Total no.
Name	interests	interests		interests		interest	of shares
Mr. Siu Paul Y.	1	–		199,999		–	200,000
				(note 2)

• (ii) Associated corporation – Datatronic

Notes:

1. These shares are held by Onboard Technology Limited, a company incorporated in the British Virgin Islands, and in which Mr. Siu Paul Y. and Ms. Shui Wai Mei, spouse of Mr. Siu Paul Y., hold 90% and 10% of its issued share capital respectively.

2. These shares are held by Data Express Limited, a company incorporated in the Republic of Liberia, whose entire issued share capital is owned by Mr. Siu Paul Y..

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GENERAL INFORMATION

APPENDIX

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company or their respective associates had any interests or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO) or which were required to be kept under section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies.

(b) Substantial Shareholders

As at the Latest Practicable Date, the Directors are not aware of any other person who has an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who is interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group.

Under the Company’s share option scheme adopted in 2001, the Company may grant options to executive directors and full-time employees of the Group to subscribe for shares in the Company, subject to a maximum of 10% of the issued share capital of the Company, from time to time, excluding for this purpose shares issued on exercise of share options. The subscription price is to be determined by directors, and is not to be less than the higher of (i) the nominal value of the Company’s shares, and (ii) 80% of the average of the closing price of the Company’s shares quoted on the Stock Exchange of Hong Kong Limited on the five trading days immediately preceding the date of grant. Upon acceptance of options, the grantee shall pay HK$1 to the Company as consideration for the grant.

No options have been granted since the adoption of the share option scheme.

3. DIRECTORS’ INTERESTS IN CONTRACTS

• (a) Amongst the executive Directors, Mr. Siu Paul Y., Ms. Shui Wai Mei and Mr. Sheung Shing Fai have each entered into a service contract with the Company for an initial fixed term of three years commencing from 22 June 2001 while Ms. Siu Nina Margaret has entered into a service contract with the Company for an initial fixed term of three years commencing from 7 July 2005. Such contracts will continue thereafter until terminated by not less than three month’s notice in writing served by either party on the other. Each of these Directors is entitled to a basic salary, which is determined on the basis of his/her qualification, experience, involvement in and contribution to the Company and by reference to the market rate, (subject to annual increment which notice shall not expire until after the fixed term of not more than 15% of the annual salary of the relevant Directors immediately prior to such increase).

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GENERAL INFORMATION

APPENDIX

In addition, the executive Directors are also entitled to a management bonus of a sum at the discretion of the Directors, provided that the aggregate amount of management bonuses payable to all the executive Directors shall not be more than 5% of the audited consolidated or combined net profit of the Group (after taxation and minority interest and the payment of such bonus but excluding extraordinary items and the payment of such bonus) in respect of each financial year of the Company. An executive Director may not vote on any resolution of the Directors regarding the amount of the management bonus payable to him. The current basic annual salaries of the executive Directors under their service contracts as follows:

Name of Director	Annual basic salary
Mr. Siu Paul Y.	HK$1,000,000.00
Ms. Shui Wai Mei	HK$250,000.00
Mr. Sheung Shing Fai	HK$900,000.00
Ms. Siu Nina Margaret	HK$450,000.00

Save as aforesaid, none of the Directors has any existing or proposed service contracts with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

• (b) Mr. Siu Paul Y. is interested in the Continuing Connected Transactions as disclosed in this circular.

• (c) Save as disclosed in 3(b) above, as at the Latest Practicable Date, none of the Directors or the independent financial adviser Menlo Capital Limited has any direct or indirect interest in any assets which have been, since 31 December 2006, the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by, or leased to the Company or any member of the Group, or are proposed to be acquired or disposed of by, or leased to, any member of the Group.

• (d) Save as disclosed in 3(a) and 3(b) above, as at the Latest Practicable Date, none of the Directors is materially interested in any contract or arrangement subsisting at the date of the circular and which is significant in relation to the business of the Group.

4. CONSENT AND QUALIFICATION OF EXPERT

• (a) Menlo Capital Limited is a deemed licensed corporation under SFO.

• (b) As at the Latest Practicable Date, Menlo Capital Limited has no shareholding interest in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities of any member of the Group.

• (c) Menlo Capital Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name, in the form and context in which they respectively appear.

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GENERAL INFORMATION

APPENDIX

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2006, being the date to which the latest published audited consolidated financial statements of the Company were made up.

6. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principal place of business of the Company during normal business hours from the date of this circular up to and including 13 November 2007:

• (a) the Master Supply Agreement;

• (b) the 2nd Master Supply Agreement;

• (c) the 3rd Master Supply Agreement;

• (d) the 4th Master Supply Agreement;

• (e) the service agreements with the Directors referred to in section 3(a) of this appendix;

• (f) the letter from the Independent Board Committee as set out in this circular;

• (g) the letter from Menlo Capital Limited as set out in this circular; and

• (h) the written consent of Menlo Capital Limited referred to in section 4(c) of this appendix.

7.

MISCELLANEOUS

• (a) The secretary of the Company is Leung Sau Fong, ACIS, LLB(Hons).

• (b) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.

• (c) The head office and principal place of business of the Company is situated at 19th Floor, North Point Industrial Building, 499 King’s Road, North Point, Hong Kong.

• (d) The branch share registrar of the Company in Hong Kong is Hong Kong Registrars Limited at Rooms 1712-16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (e) The English text of this circular shall prevail over the Chinese text for the purpose of interpretation.

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NOTICE OF SPECIAL GENERAL MEETING

DATRONIX HOLDINGS LIMITED 連達科技控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 889)

NOTICE IS HEREBY GIVEN that a special general meeting of the shareholders of Datronix Holdings Limited (the “Company”) will be held at 19th Floor, North Point Industrial Building, 499 King’s Road, North Point, Hong Kong on Tuesday, 13 November 2007 at 11:00 a.m. for the purpose of considering and, if thought fit, passing the following resolutions, with or without modification, as ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT :

• (a) the Continuing Connected Transactions and the Cap Amounts (as defined in a circular dated 24 October 2007 of the Company (the “Circular”)) be and are hereby approved and confirmed; and

• (b) the board of directors of the Company be and is hereby authorized to do all such further acts and things and execute such further documents and take all such steps which in its opinion may be necessary, desirable and expedient to implement and/or give effect to the Continuing Connected Transactions (as defined in the Circular).”

By order of the Board Leung Sau Fong Company Secretary

Hong Kong, 24 October 2007

Notes:

1. A member who is the holder of two or more shares in the Company may appoint one or more proxies. A proxy need not be a member of the Company but must be present to represent the member.

2. In the case of the joint holders of shares in the Company, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the vote(s) of the other joint holder(s), seniority being determined by the order in which names stand in the register of members. In order to be valid, the form of proxy must be in writing under the hand of the appointor or of his attorney duly authorised in writing, or, if the appointor is a corporation, either under seal, or under the hand of an officer or attorney or other person duly authorised, and must be deposited with the Hong Kong branch share registrar of the Company, Hong Kong Registrars Limited at Rooms 1712-16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong (together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof) not less than 48 hours before the time fixed for holding of the special general meeting or any adjournment thereof.

3. A form of proxy for use at the special general meeting is enclosed.

4. For identification purposes only

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