S.A.S. Dragon Holdings Limited — Proxy Solicitation & Information Statement 2004

Jun 11, 2004

IMPORTANT

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

If you have sold or transferred all your shares in the Company, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser(s) or transferee(s) or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s).

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.

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S.A.S. DRAGON HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 1184)

DISCLOSEABLE AND CONNECTED TRANSACTION ACQUISITION OF RDL ELECTRONIC SHARES AND RDL MACAO SHARE AND ISSUE OF CONVERTIBLE NOTES

Independent financial adviser to the Independent Board Committee and Independent Shareholders of S.A.S. Dragon Holdings Limited

South China Capital Limited

A letter from the Independent Board Committee is set out on pages 14 to 15 of this circular.

A letter from South China Capital Limited containing its advice to the Independent Board Committee and Independent Shareholders on the Transaction is set out on pages 16 to 23 of this circular.

A notice convening a special general meeting of S.A.S. Dragon Holdings Limited to be held at 10:45 a.m. on 28 June 2004 (or soon thereafter as the special general meeting of S.A.S. Dragon Holdings Limited to be held at the same place and date at 10:30 a.m. shall have been concluded) at Rose Room, Lower Level II, Kowloon Shangri-La Hotel, 64 Mody Road, Kowloon, Hong Kong is set out on pages 29 to 30 of this circular. Whether or not you are able to attend the meeting, you are requested to complete the enclosed form of proxy and return it to the Company’s branch share registrar in Hong Kong, Secretaries Limited at Ground Floor, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong in accordance with the instructions printed thereof as soon as possible but in any event not later than 48 hours before the time appointed for the holding of such meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from subsequently attending and voting in person at the special general meeting or any adjourned meeting should you so wish.

11 June 2004

CONTENT

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Information of the Group, RDL Electronic and RDL Macao . . . . . . . . . . . . . . . . .	6
Relationship between the Connected Persons, RDL Electronic,
RDL Macao and the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Terms of the Convertible Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Reason for and benefit of entering into the Transaction . . . . . . . . . . . . . . . . . . . . .	10
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . .	14
LETTER FROM SOUTH CHINA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
APPENDIX – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
NOTICE OF THE SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29

DEFINITIONS

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

“Agreement”	a sale and purchase agreement dated 18 May 2004
	between Mr. Cheung, Mr. Lock, Ms. Chan as vendors,
	S.A.S. Investment as purchaser and the Company as
	issuer;
“Announcement”	the announcement issued by the Company dated 19
	May 2004;
“associates”	the meaning ascribed to it in the Listing Rules;
“Board” or “Directors”	the board of directors of the Company;
“Bye-Laws”	the bye-laws of the Company for the time being in
	force;
“Companies Act”	Companies Act 1981 of Bermuda;
“Company”	S.A.S. Dragon Holdings Limited, whose Shares are
	listed on the Stock Exchange;
“Completion”	completion of the sale and purchase of RDL Electronic
	Shares and RDL Macao Share in accordance with the
	provisions of the Agreement;
“Convertible Notes”	the three non-redeemable convertible notes to be
	issued by the Company as consideration of the
	Transaction and a “Convertible Note” means any of
	them;
“Conversion Shares”	Shares to be issued upon exercise of the right of
	conversion under the Convertible Notes;
“Group”	the Company and its subsidiaries;
“Hong Kong”	The Hong Kong Special Administrative Region of the
	People’s Republic of China;
“Independent Board Committee”	the independent board committee of the Company
	comprising Dr. Lui Ming Wah, J.P., Chang Ping Kin,
	Wong Tak Yuen, Adrian and Liu Chun Ning, Wilfred
	who are independent non-executive Directors;
“Independent Shareholders”	the Shareholders of the Company other than Mr.
	Cheung, Mr. Lock and Ms. Chan and their associates;

– 1 –

DEFINITIONS

“Latest Practicable Date”	8 June 2004, being the latest practicable date prior to
	the printing of this circular for ascertaining certain
	information included in this circular;
“Listing Committee”	the Listing Committee of the Stock Exchange;
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange;
“Macau”	The Macau Special Administrative Region of the
	People’s Republic of China;
“Ms. Chan”	Ms. Chan Wing Mun Anita, a shareholder having 7.5%
	interest in RDL Electronic and whose spouse, Mr.
	Cheung Chin Hung is a director of RDL Electronic;
“Mr. Cheung”	Mr. Cheung Yuk Kuen, a director of and substantial
	shareholder having 15% and 30% interest in RDL
	Electronic and RDL Macao respectively;
“Mr. Lock”	Mr. Lock Shui Cheung, a director of and shareholder
	having 7.5% interest in RDL Electronic;
“Noteholder”	the holder of a Convertible Note;
“RDL China”	RDL (China) Development Company Limited, a
	company incorporated in Hong Kong, which is a
	wholly owned subsidiary of RDL Electronic;
“RDL Electronic”	RDL Electronic Company Limited, a company
	incorporated in Hong Kong, which is owned as to 70%
	by S.A.S. Investment, 15% by Mr. Cheung, 7.5% by
	Mr. Lock and 7.5% by Ms. Chan;
“RDL Electronic Group”	RDL Electronic and RDL China;
“RDL Electronic Shares”	a total number of 1,500,000 shares in RDL Electronic,
	representing 30% of its entire issued share capital, of
	which 750,000 shares, 375,000 shares and 375,000 shares
	are owned by Mr. Cheung, Mr. Lock and Ms. Chan
	respectively;
“RDL Macao”	RDL Electronic (Macao Commercial Offshore) Limited,
	a company incorporated in Macau, which is owned as
	to 70% by S.A.S. Investment and 30% by Mr. Cheung;

– 2 –

DEFINITIONS

“RDL Macao Share”	one share in RDL Macao of MOP$30,000 representing
	30% of its entire issued share capital, which is owned
	by Mr. Cheung;
“S.A.S. Investment”	S.A.S. Investment Company Limited, a company
	incorporated in Hong Kong, being a wholly owned
	subsidiary of the Company;
“SFO”	Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong);
“SGM”	the special general meeting of the Company to be held
	at 10:45 a.m. on 28 June 2004 (or soon thereafter as the
	special general meeting of the Company to be held at
	the same place and date at 10:30 a.m. shall have been
	concluded) at Rose Room, Lower Level II, Kowloon
	Shangri-La Hotel, 64 Mody Road, Kowloon, Hong
	Kong and any adjournment thereof, notice of which is
	set out on pages 29 to 30 of this circular;
“Shares”	the ordinary shares of HK$0.10 each in the ordinary
	share capital of the Company;
“Shareholders”	the holders of the Shares;
“South China”	South China Capital Limited, the independent financial
	adviser to the Independent Board Committee and
	Independent Shareholders in relation to the
	Transaction, is a deemed licensed corporation for
	carrying out types 4, 6 and 9 regulated activities under
	the SFO;
“Stock Exchange”	The Stock Exchange of Hong Kong Limited;
“Transaction”	the sale and purchase of RDL Electronic Shares and
	RDL Macao Share and the issue of the Convertible
	Notes described herein;
“Vendors”	Mr. Cheung, Mr. Lock and Ms. Chan;
“HK$” and “cents”	Hong Kong dollars and cents respectively, the lawful
	currency of Hong Kong;
“MOP$”	Macau Pataca, the lawful currency of Macau;
“%”	per cent.

– 3 –

LETTER FROM THE BOARD

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S.A.S. DRAGON HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 1184)

Executive Directors: YIM Yuk Lun, Stanley (Chairman and Managing Director) WONG Sui Chuen

Non-executive Directors:

Registered Office: Clarendon House Church Street Hamilton HM 11 Bermuda

Dr. CHANG Chu Cheng

Independent Non-executive Directors: Dr. LUI Ming Wah, J.P. CHANG Ping Kin LIU Chun Ning, Wilfred WONG Tak Yuen, Adrian

Head Office and Principal Place of Business: 6th Floor, Tower B Hunghom Commercial Centre 37 Ma Tau Wai Road Hunghom, Kowloon Hong Kong

11 June 2004

To the Shareholders

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTION ACQUISITION OF RDL ELECTRONIC SHARES AND RDL MACAO SHARE AND ISSUE OF CONVERTIBLE NOTES

INTRODUCTION

On 19 May 2004, the Company announced that the Company and S.A.S. Investment entered into a conditional sale and purchase agreement with the Vendors on 18 May 2004 whereby S.A.S. Investment will purchase and the Vendors will sell the RDL Electronic Shares and the RDL Macao Share at the total consideration of HK$12,000,000.00, which will be satisfied by way of the Convertible Notes. The Convertible Notes will be issued by the Company in the amounts of HK$6,500,000.00, HK$2,750,000.00 and HK$2,750,000.00 to Mr. Cheung, Mr. Lock and Ms. Chan respectively. After Completion, each of RDL Electronic, RDL China and RDL Macao will become a wholly owned subsidiary of the Company. The purpose of this circular is to provide you with, among other things, further information of the Transaction and to seek approval from the Independent Shareholders for the Transaction.

– 4 –

LETTER FROM THE BOARD

THE AGREEMENT

Date: 18 May 2004 Vendors: Mr. Cheung (in respect of 750,000 shares in RDL Electronic and the RDL Macao Share) Mr. Lock (in respect of 375,000 shares in RDL Electronic) Ms. Chan (in respect of 375,000 shares in RDL Electronic) Purchaser: S.A.S. Investment Issuer: The Company Assets to be acquired: RDL Electronic Shares and RDL Macao Share Consideration: The total consideration for RDL Electronic Shares is HK$11,000,000.00 of which HK$5,500,000.00, HK$2,750,000.00 and HK$2,750,000.00 are payable by S.A.S. Investment to Mr. Cheung, Mr. Lock and Ms. Chan respectively. The consideration for RDL Macao Share is HK$1,000,000.00 payable by S.A.S. Investment to Mr. Cheung. The consideration for RDL Electronic Shares and RDL Macao Share mentioned above shall be settled by the issue of the three Convertible Notes by the Company in the amounts of HK$6,500,000.00, HK$2,750,000.00 and HK$2,750,000.00 to Mr. Cheung, Mr. Lock and Ms. Chan respectively. Further details of the terms of the Convertible Notes are set out in the section headed “TERMS OF THE CONVERTIBLE NOTES”.

Conditions Precedent:

The Transaction is conditional upon all of the following conditions being fulfilled on or before 18 November 2004 or such other date as the parties to the Agreement may agree in writing:–

• (a) the Bermuda Monetary Authority granting its consent to the issue of the Convertible Notes and the Conversion Shares falling to be issued on the exercise of the conversion rights to be attached to the Convertible Notes in accordance with the requirements of the Companies Act (if necessary);

• (b) the Listing Committee granting approval of the listing of, and permission to deal in, all the Conversion Shares falling to be issued on the exercise of the conversion rights attached to the Convertible Notes either unconditionally or subject only to the condition relating to the filing of Form F (as set out in the Listing Rules) and/or such other conditions as are normally or usually imposed in relation to the issue of convertible notes by a company listed on the Stock Exchange and/or any other conditions which are not reasonably objected by the Vendors;

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LETTER FROM THE BOARD

• (c) approval of (i) the Agreement, and the transactions contemplated therein; and (ii) the issue of the Convertible Notes and the allotment and issue of the Conversion Shares upon the exercise of the conversion rights attached to the Convertible Notes, in each case by ordinary resolution passed at a special general meeting of the Company in accordance with the Companies Act, the Bye-Laws and the Listing Rules, with such Shareholders who are prohibited from voting under the Listing Rules abstaining from voting; and

• (d) Macao Trade and Investment Promotion Institute (澳門貿易投資促進局 ) granting approval for the transfer of the RDL Macao Share from Mr. Cheung to S.A.S. Investment or its nominee.

None of the parties to the Agreement has the right to waive any of the above conditions. If any of the above conditions is not fulfilled by 18 November 2004 or such other date as the parties to the Agreement may agree, the Agreement and everything therein contained shall, subject to the liability of either party to the other in respect of any antecedent breach of the terms of the Agreement, be of no effect and none of the parties shall have any further obligations and liabilities thereunder. The Company is seeking confirmation from its Bermuda legal advisers as to the necessity to obtain the consent of Bermuda Monetary Authority mentioned in condition (a) above. As at the Latest Practicable Date, none of the other conditions have been fulfilled.

INFORMATION OF THE GROUP, RDL ELECTRONIC AND RDL MACAO

The Group is principally engaged in distribution of electronic and sports goods. S.A.S. Investment, a wholly owned subsidiary of the Company, is the immediate holding company of RDL Electronic and RDL Macao holding 70% interest in each of those two companies.

RDL Electronic is an indirect 70% owned subsidiary of the Company. RDL China is a wholly owned subsidiary of RDL Electronic. Both RDL Electronic and RDL China are principally engaged in trading of electronic products.

RDL Macao is an indirect 70% owned subsidiary of the Company and principally engaged in trading of electronic products.

RELATIONSHIP BETWEEN THE CONNECTED PERSONS, RDL ELECTRONIC, RDL MACAO AND THE COMPANY

Mr. Cheung, being a director and substantial shareholder of RDL Electronic and RDL Macao and a director of RDL China, subsidiaries of the Company, is a connected person of the Company pursuant to the Listing Rules. As each of Mr. Lock and Mr. Cheung Chin Hung (the spouse of Ms. Chan) is a director of RDL Electronic and RDL China, subsidiaries of the Company, both of Mr. Lock and Ms. Chan are also connected persons of the Company pursuant to the Listing Rules.

– 6 –

LETTER FROM THE BOARD

The following diagram illustrates the relationship between the Vendors, RDL Electronic, RDL Macao and the Company before Completion:

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----- Start of picture text -----

Company
Ms. Chan
Mr. Cheung Mr. Lock S.A.S. Mr. Cheung
(director) (director) (spouse of Investment (director)
director)
15% 7.5% 7.5% 70% 70% 30%
RDL
RDL Macao
Electronic
100%
RDL China
----- End of picture text -----

Each of the boards of directors of RDL Electronic and RDL China comprises six members of which three are representatives of the Group and the remaining three are Mr. Cheung, Mr. Lock and the spouse of Ms. Chan. The board of directors of RDL Macao comprises two members, namely, Mr. Yim Yuk Lun, Stanley, the Chairman of the Company and Mr. Cheung. Each of Mr. Cheung, Mr. Lock and Mr. Cheung Chin Hung will remain a director of RDL Electronic and RDL China and Mr. Cheung will remain a director of RDL Macao after Completion and the Company has no current intention to change the composition of the board of these companies after Completion.

Each of Mr. Cheung, Mr. Lock and Ms. Chan subscribed for their respective RDL Electronic Shares and S.A.S. Investment subscribed for the 70% shareholding from RDL Electronic on or soon after the incorporation of RDL Electronic in 1997 at HK$1.00 per share with a total cost of HK$750,000 for Mr. Cheung, HK$375,000 for Mr. Lock, HK$375,000 for Ms. Chan and HK$3,500,000 for S.A.S. Investment. Mr. Cheung subscribed for the RDL Macao Share at MOP$30,000 (equivalent to approximately HK$29,126.21) and S.A.S. Investment subscribed for the 70% shareholding from RDL Macao at MOP$70,000 (equivalent to approximately HK$67,961.17) when RDL Macao was incorporated in 2002.

CONSIDERATION

The total consideration for RDL Electronic Shares is HK$11,000,000.00 of which HK$5,500,000.00, HK$2,750,000.00 and HK$2,750,000.00 are payable by S.A.S. Investment to Mr. Cheung, Mr. Lock and Ms. Chan respectively. The consideration for RDL Macao Share is HK$1,000,000.00 payable by S.A.S. Investment to Mr. Cheung. The consideration for RDL Electronic Shares and RDL Macao Share shall be settled by the issue of the Convertible Notes by the Company in the total amount of HK$12,000,000.00, of which the amounts of HK$6,500,000.00, HK$2,750,000.00 and HK$2,750,000.00 will be issued to Mr. Cheung, Mr. Lock and Ms. Chan respectively. Based on the Conversion Price of HK$1.00 per Share, the Convertible Notes are convertible into 12,000,000 Shares representing 5.21% and 4.95% of the respective issued share capital of the Company before and after full conversion of the Convertible Notes. As at the Latest Practicable Date, save and except the Shares to be issued pursuant to the share options granted by the Company under its share option scheme, there is no outstanding convertible securities issued by the Company.

– 7 –

LETTER FROM THE BOARD

The aggregate consideration of HK$12,000,000 for the acquisitions of the RDL Electronic Shares and the RDL Macao Share were determined after arm’s length negotiations between S.A.S. Investment and the Vendors with reference to the unaudited consolidated net asset value of RDL Electronic Group of HK$38,327,983.02 and the unaudited net asset value of RDL Macao of HK$3,369,979.63 as at 30 April 2004. On this basis, the consideration payable by S.A.S. Investment for the RDL Electronic Shares and the RDL Macao Share is fully backed by the attributable unaudited consolidated net assets of 30% interest in RDL Electronic and the attributable unaudited net assets of 30% interest in RDL Macao.

According to the 2003 audited reports of RDL Electronic and RDL Macao, RDL Electronic and RDL Macao reported an audited consolidated net asset value of approximately HK$30.7 million and an audited net asset value of HK$3 million respectively. Based on the above-mentioned 2003 audited reports of both RDL Electronic and RDL Macao, the attributable audited consolidated net assets of 30% interest in RDL Electronic and the attributable audited net assets of 30% interest in RDL Macao amounted to approximately HK$10.1 million. The Directors therefore consider that the consideration payable by S.A.S Investment is nearly fully backed by the audited consolidated net assets attributable to the RDL Electronic Shares and RDL Macao Share and the terms of the Transaction are fair and reasonable and the Transaction is in the best interests of the Company and the Shareholders as a whole.

FINANCIAL INFORMATION

The Group

The audited net tangible asset value of the Group as at 31 December 2003 amounted to approximately HK$301 million, or approximately HK$1.31 per Share. Upon Completion and conversion of the Convertible Notes, the asset base of the Group will be further enhanced.

Based on the 2003 audited reports for RDL Electronic and RDL Macao, the Directors considered that the amount of goodwill arising from the proposed acquisitions under the Agreement is estimated to be approximately HK$1.9 million based on the audited net asset value of RDL Electronic and RDL Macao as at 31 December 2003. However, given the favourable trading records of RDL Electronic and RDL Macao for the four months ended 30 April 2004 as mentioned in this section under the headings “RDL Electronic” and “RDL Macao” below, the Directors expect that no goodwill will arise from the proposed acquisitions. In the event that goodwill arises from the proposed acquisitions, it will be amortized on a straight-line basis over their useful economic life. In addition, according to the profitable track records and favourable growth potential of each of RDL Electronic and RDL Macao, the Directors are of the view that the proposed acquisitions will have a positive effect on the earning base of the Group taking into consideration the effect of amortisation of goodwill as mentioned above.

The conversion of the Convertible Notes will have a dilution effect on the shareholding of the Independent Shareholders. As at the Latest Practicable Date, the public shareholders were interested in approximately 51.81% of the issued shares of the Company. If the Convertible Notes is fully converted at the conversion price of HK$1.00, the public shareholders’ shareholding would be further reduced by approximately 2.57% to approximately 49.24%.

– 8 –

LETTER FROM THE BOARD

RDL Electronic

According to the audited accounts of RDL Electronic Group, its consolidated net asset value was HK$30,663,000.00 and HK$25,999,000.00 and its net profits before taxation and extraordinary items was HK$5,609,000.00 and HK$11,335,000.00 and its net profits after taxation and extraordinary items was HK$4,664,000.00 and HK$10,363,000.00 for the two financial years ended 31 December 2003 and 31 December 2002 respectively.

RDL Macao

According to the audited accounts of RDL Macao, its net tangible asset value was HK$3,009,000.00 and HK$73,000.00 and its net profits/(loss) before taxation and extraordinary items was HK$2,937,000.00 and HK$(24,000.00) and its net profits/(loss) after taxation and extraordinary items was HK$2,937,000.00 and HK$(24,000.00) for the financial year ended 31 December 2003 and the period from its date of incorporation up to 31 December 2002 respectively.

TERMS OF THE CONVERTIBLE NOTES

Maturity Date

The maturity date of the Convertible Notes will be the second anniversary of the date of the issue of the Convertible Notes (“ Maturity Date ”). The Convertible Notes will be issued upon Completion.

Interest

The interest payable under the Convertible Notes will be 0.1% per annum on the principal amount of the Convertible Notes outstanding which will be payable annually in arrears on the first and second anniversaries after the date of the issue of the Convertible Notes. No interest will be payable in respect of any principal amount converted before the interest payment date.

The interest rate was determined by the parties after arm’s length negotiation and taking into account the current low interest rate for Hong Kong Dollars deposits and the conversion rights attached to the Convertible Notes.

Payment, Redemption and Conversion

Subject to any conversion, payment of the principal in respect of the Convertible Notes will be made on the Maturity Date. Neither any Noteholder nor the Company may at any time before the Maturity Date require redemption of the Convertible Notes.

Each Noteholder shall have the right to convert the whole or part of the principal amount of his Convertible Note into Shares on any business day from time to time, from the date of issue of the Convertible Note or 1 July 2004 (whichever is later) up to and including the Maturity Date in amount of HK$100,000.00 or its integral multiple on each conversion, save that in case of conversion of the whole (but not part only) of the principal outstanding amount of his Convertible Note, the amount converted need not be HK$100,000 or its integral multiple. The conversion price of each Share shall be HK$1.00 (subject to adjustments for, among other matters, subdivision, consolidation or reclassification of Shares, bonus issues, rights issues and certain other dilutive events). Shares issued upon conversion shall rank pari passu with all other existing Shares outstanding at the date of

– 9 –

LETTER FROM THE BOARD

the conversion notice and be entitled to all dividends and other distributions the record date of which falls on a date on or after the conversion date. The Company shall have the right, by written notice to the relevant Noteholder, to compulsorily convert all outstanding principal amounts of his Convertible Note on the Maturity Date.

The Conversion Price of HK$1.00 was determined on an arm’s length basis and by reference to a premium of approximately 11% over the average closing price of the Shares for the five Stock Exchange trading days ended 17 May 2004, i.e. the date prior to suspension of trading of the Shares pending the release of the Announcement and for the 11 trading days from 1 May 2004 to 17 May 2004, both being about HK$0.90 per Share and a premium of approximately 14% over the closing price of the Shares as at the Latest Practicable Date being HK$0.88 per Share. The Directors consider that the conversion price is fair and reasonable so far as the Company and the Shareholders as a whole are concerned.

The shareholding structure of the Company as at the Latest Practicable Date and assuming full conversion of the Convertible Notes is as follows:

Before conversion No. of Shares % Yim Yuk Lun, Stanley and Unimicro Limited_(Note 1) 64,675,400 28.05 Wong Sui Chuen 202,000 0.09 Foxconn Holding Limited(Note 2)_ 46,000,000 19.95 Mr. Cheung – – Mr. Lock 222,000 0.10 Ms. Chan – – Public 119,441,320 51.81 Total 230,540,720 100.00	After conversion No. of Shares % 64,675,400 26.67 202,000 0.08 46,000,000 18.97 6,500,000 2.68 2,972,000 1.23 2,750,000 1.13 119, 441,320 49.24 242,540,720 100.00	After conversion No. of Shares % 64,675,400 26.67 202,000 0.08 46,000,000 18.97 6,500,000 2.68 2,972,000 1.23 2,750,000 1.13 119, 441,320 49.24 242,540,720 100.00
		100.00

Notes:

• (1) 59,184,400 Shares are held by a unit trust whose trustee is Unimicro Limited, a company incorporated in the British Virgin Islands, of which Mr. Yim Yuk Lun, Stanley is also a director. All units in the unit trust are beneficially owned by a discretionary trust established by Mr. Yim Yuk Lun, Stanley. The trustee of the discretionary trust is Trustcorp Limited and the beneficiaries of which include the spouse and issues of Mr. Yim Yuk Lun, Stanley.

• (2) Hon Hai Precision Industry Co., Ltd. (“ Hon Hai ”) is a listed company in Taiwan and the controlling shareholder of which is Mr. Terry T.M. Guo. Foxconn Holding Limited is a wholly owned subsidiary of Hon Hai, which is deemed to be interested in the Shares held by Foxconn Holding Limited.

The Vendors have confirmed to the Company that they are not acting in concert with existing shareholders of the Company.

The Transaction will not result in a change of control of the Company after full conversion of the Convertible Notes.

– 10 –

LETTER FROM THE BOARD

Restriction on Transfer of the Conversion Shares by the Noteholders

None of the Shares issued upon each exercise of the conversion right attached to any Convertible Note shall be transferable by the Noteholder save and except in the following manner:

• (a) 20% of the total number of Shares issued upon such exercise of conversion right may be transferred as from the later of (i) 1 January 2005 or (ii) the date of issue of such Shares;

• (b) the other 30% of the total number of Shares issued upon such exercise of conversion right may be transferred as from the first anniversary of the issue of such Convertible Note;

• (c) the remaining 50% of the total number of Shares issued upon such exercise of conversion right may be transferred as from the second anniversary of the issue of such Convertible Note.

The Company has been informed by the Vendors that each of the Vendors has no present intention to transfer any Conversion Share to a connected person of the Group.

Voting

The Noteholders will not be entitled to attend or vote at any meetings of the Company by reason only of their being the Noteholders.

Transferability

No assignment or transfer of all or any part of the Convertible Notes shall be made except with the prior written consent of the Company and the Stock Exchange.

Listing

No application will be made for a listing of, and permission to deal in, the Convertible Notes on any stock exchange. Application for the listing of, and permission to deal in, the Conversion Shares will be made to the Stock Exchange for approval.

REASON FOR AND BENEFIT OF ENTERING INTO THE TRANSACTION

The economy of Hong Kong recovered rapidly during the second half of year 2003 due to favourable global economic environment and economic policies carried out by the government of Hong Kong. The Hong Kong electronic industry is one of the beneficiaries.

In the financial year ended 31 December 2003, the audited consolidated net profit of RDL Electronic Group (after taxation and extraordinary items) was approximately HK$4.7 million, and the audited net profit of RDL Macao (after taxation and extraordinary items) was approximately HK$2.9 million. The Directors are optimistic about the future development of the business of these companies in view of the trading record of these companies.

RDL Electronic, RDL China and RDL Macao are currently indirectly owned as to 70% by the Company. The Transaction will result in RDL Electronic, RDL China and RDL Macao becoming indirect wholly owned subsidiaries of the Company and the Company

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LETTER FROM THE BOARD

will be able to increase its share in the profit contribution of RDL Electronic, RDL China and RDL Macao and will have greater flexibility in operating these companies.

As the issue of Convertible Notes will not draw on the existing cash resources of the Company and will raise permanent capital for investment in RDL Electronic and RDL Macao, the Directors considered that the payment of the consideration by way of the Convertible Notes is in the interests of the Company. The term of two years of the Convertible Notes was negotiated between the parties on arm’s length basis and considered by the Directors to be fair and reasonable.

The terms of the Agreement and the Convertible Notes are agreed after arm’s length negotiations and the executive and non-executive Directors consider that the Transaction is on normal commercial terms and that such terms are fair and reasonable and in the interests of the Shareholders as a whole.

GENERAL

As the percentage ratios of the Transaction exceed 5% and below 25%, the Transaction constitutes a discloseable transaction pursuant to Rule 14.06(2) of the Listing Rules. The Vendors are connected persons of the Company, hence, the Transaction also constitutes a connected transaction under Rule 14A.13(1)(a) of the Listing Rules.

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the Shares.

The Independent Board Committee has been appointed to advise the Independent Shareholders in relation to the Transaction. South China has been appointed as the independent financial adviser to advise the Independent Board Committee and Independent Shareholders in relation to the Transaction.

SGM

Set out on pages 29 to 30 of this circular is a notice convening the SGM to be held at 10:45 a.m. on 28 June 2004 (or soon thereafter as the special general meeting of the Company to be held at the same place and date at 10:30 a.m. shall have been concluded) at Rose Room, Lower Level II, Kowloon Shangri-La Hotel, 64 Mody Road, Kowloon, Hong Kong at which an ordinary resolution will be proposed for the approval by the Independent Shareholders by poll in relation to the Transaction.

Whether or not you are able to attend the SGM in person, you are requested to complete and return the enclosed proxy form in accordance with the instructions printed thereon to the Company’s branch share registrar in Hong Kong, Secretaries Limited at Ground Floor, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong but in any event not later than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. The completion of the enclosed proxy form will not preclude you from attending and voting at the SGM or any adjournment should you so wish.

Mr. Cheung is a director and substantial shareholder of RDL Electronic and RDL Macao and a director of RDL China. Each of Mr. Lock and Mr. Cheung Chin Hung (the spouse of Ms. Chan) is a director of RDL Electronic and RDL China. In view of the relationship between the Company and the Vendors, the Vendors are connected persons of the Company pursuant to the Listing Rules. Mr. Lock, who was interested in 222,000 Shares as at the Latest Practicable Date, will abstain from voting on the resolution regarding

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LETTER FROM THE BOARD

the Transaction at the SGM. Mr. Lock has confirmed to the Company that there is (a) no voting trust or other agreement or arrangement or understanding (other than an outright sale) entered into by or binding upon him or any of his associates; and (b) no obligation or entitlement of him or any of his associates as at the Latest Practicable Date by reference to his shareholding in the Company, whereby he or any of his associates have or may have temporarily or permanently passed control over the exercise of the voting right in respect of his Shares to a third party, either generally or on a case-by-case basis. The other Vendors have confirmed to the Company that they and their respective associates do not have any interest in the Shares.

In compliance with the Listing Rules, the votes to be taken at the SGM in respect of the Transaction will be taken by poll, the results of which will be announced after the SGM.

Under the Bye-Laws, a poll can be demanded by:–

• (a) the chairman of the SGM;

• (b) at least three Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the SGM;

• (c) a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the SGM; or

• (d) a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and holding Shares conferring a right to vote at the SGM 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 Company will procure the chairman of the SGM to demand for voting on poll and Secretaries Limited will serve as the scrutineer for the vote-taking.

RECOMMENDATION

The Independent Board Committee, having taken into account the advice of South China, considers that the terms of the Transaction are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

ADDITIONAL INFORMATION

Your attention is drawn to the letters from the Independent Board Committee and from South China which are respectively set out on pages 14 to 15 and 16 to 23 of this circular. Additional information is also set out in the Appendix of this circular for your information.

By order of the Board Yim Yuk Lun, Stanley Chairman and Managing Director

– 13 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [72 x 62] intentionally omitted <==

S.A.S. DRAGON HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 1184)

Registered Office: Clarendon House Church Street Hamilton HM 11 Bermuda

Head Office and Principal Place of Business: 6th Floor, Tower B Hunghom Commercial Centre 37 Ma Tau Wai Road Hunghom, Kowloon Hong Kong

11 June 2004

To the Independent Shareholders

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTION ACQUISITION OF RDL ELECTRONIC SHARES AND RDL MACAO SHARE AND ISSUE OF CONVERTIBLE NOTES

We refer to the circular dated 11 June 2004 issued by the Company (the “Circular”) of which this letter forms part. Terms defined in the Circular bear the same meanings herein unless the context otherwise requires.

As the percentage ratios of the Transaction exceed 5% and below 25%, the Transaction constitutes a discloseable transaction pursuant to Rule 14.06(2) of the Listing Rules. The Vendors are connected persons of the Company, hence, the Transaction also constitutes a connected transaction under Rule 14A.13(1)(a) of the Listing Rules and subject to approval by Independent Shareholders under Rule 14A.18.

We have been appointed as the members of the Independent Board Committee to consider the Transaction and to advise the Independent Shareholders as to the fairness and reasonableness of the Transaction. South China has been appointed to advise the Independent Board Committee and Independent Shareholders in this regard.

– 14 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We wish to draw your attention to the letter from the Board, as set out on pages 4 to 13 of the circular, and the letter from South China to the Independent Board Committee and Independent Shareholders which contains its opinion in respect of the Transaction as set out on pages 16 to 23 of the Circular.

The Independent Board Committee, after taking advice from South China, concurs with the views of South China and considers that the terms of the Agreement are fair and reasonable so far as the Independent Shareholders are concerned and in the best interests of the Company and its Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to approve the Transaction.

Yours faithfully, The Independent Board Committee

Dr. Lui Ming Wah, J.P. Independent non-executive Director

Chang Ping Kin Independent non-executive Director

Wong Tak Yuen, Adrian Independent non-executive Director

Liu Chun Ning, Wilfred Independent non-executive Director

– 15 –

LETTER FROM SOUTH CHINA

Set out below is the text of the letter from South China containing its opinion and recommendations to the Independent Board Committee and Independent Shareholders regarding the Transaction, which is prepared for inclusion into this circular.

South China Capital Limited 28th Floor, Bank of China Tower No. 1 Garden Road Central Hong Kong

11 June 2004

The Independent Board Committee and the Independent Shareholders S.A.S. Dragon Holdings Limited 6th Floor, Tower B Hunghom Commercial Centre 37 Ma Tau Wai Road Hong Kong

Dear Sirs,

CONNECTED TRANSACTION ACQUISITION OF RDL ELECTRONIC SHARES AND RDL MACAO SHARE AND ISSUE OF CONVERTIBLE NOTES

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and Independent Shareholders in respect of the proposed acquisitions of the RDL Electronic Shares and the RDL Macao Share at Completion. Details of the Agreement are set out in the circular of the Company dated 11 June 2004 to the Shareholders (the “Circular”), of which this letter forms part. Unless otherwise defined herein, terms used in this letter shall have the same meanings as defined in the Circular.

On 18 May 2004, the Company and S.A.S. Investment entered into a conditional sale and purchase agreement with the Vendors, namely Mr. Cheung, Ms. Chan and Mr. Lock, whereby S.A.S. Investment will purchase and the Vendors will sell the RDL Electronic Shares and the RDL Macao Share at the total consideration of HK$12,000,000.00, which will be satisfied by way of issuance of Convertible Notes. After Completion, each of RDL Electronic, RDL China and RDL Macao will become a wholly owned subsidiary of the Company.

Mr. Cheung, being a director and substantial shareholder of RDL Electronic and RDL Macao and a director of RDL China, subsidiaries of the Company, is a connected person of the Company pursuant to the Listing Rules. As each of Mr. Lock and Mr. Cheung Chin Hung (the spouse of Ms. Chan) is a director of RDL Electronic and RDL China,

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LETTER FROM SOUTH CHINA

subsidiaries of the Company, both of Mr. Lock and Ms. Chan are also connected persons of the Company pursuant to the Listing Rules. The entering into of the Agreement therefore constitutes a connected transaction of the Company for the purposes of the Listing Rules and are subject to, among other things, the approval of the Independent Shareholders.

The Independent Board Committee, comprising Dr. Lui Ming Wah, J.P., Messrs, Chang Ping Kin, Liu Chun Ning, Wilfred and Wong Tak Yuen, Adrian has been established to advise as to the fairness and reasonableness of the terms of the Agreement and to make recommendation to the Independent Shareholders thereon. We have been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders as to whether or not the terms of the Agreement is fair and reasonable so far as the Independent Shareholders are concerned.

In formulating our recommendation, we have relied on the accuracy of the information and facts supplied to us by the Company, its Directors and management. We have also assumed that all statements of belief and intention made by the Directors in the Circular were reasonably made after due enquiry. We have assumed that all information, representations and opinion made or referred to in the Circular were true at the time they were made and continued to be true at the date of the SGM. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company and its Directors and management and have been advised by the Directors that no material facts have been omitted from the information provided and referred to in the Circular.

We consider that we have been provided with, and we have reviewed, sufficient information to reach an informed view and to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have not, however, conducted any form of in-depth investigation into the business affairs, financial position or future prospects of the Group (excluding the RDL Electronic Group and RDL Macao), the RDL Electronic Group and RDL Macao nor have we carried out any independent verification of the information supplied.

PRINCIPAL FACTORS TAKEN INTO ACCOUNT

In arriving at our opinions, we have taken the following principal factors and reasons into consideration:

1. Reasons for and background of the acquisitions

The Group is principally engaged in distribution of electronic and sports goods. As mentioned in the Company’s 2003 annual report, the Group is dedicated to enhance its competitiveness and to expand its customer base for the electronic components business. In these circumstances, the Directors have been actively seeking new opportunities so as to expand its customers base and to strengthen its distribution networks. To this end, the Directors have identified RDL Electronic Group and RDL Macao with the view that (i) the businesses of RDL Electronic Group and RDL Macao are compatible with the Group’s principal business of electronic goods distribution; (ii) the trading record of RDL Electronic Group and RDL Macao are profitable; (iii) the Directors are optimistic about the future development of RDL Electronic Group and RDL Macao in terms of their business of

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LETTER FROM SOUTH CHINA

electronic components distribution; and (iv) the complete control in RDL Electronic Group and RDL Macao will give greater flexibility for the management of the Company to operate these companies.

2. Business and financial information of RDL Electronic Group and RDL Macao

Pursuant to the Agreement, S.A.S. Investment, a wholly owned subsidiary of the Company, will acquire the RDL Electronic Shares and the RDL Macao Share. Before the entering into of the Agreement, S.A.S. Investment already owned 70% shareholding interest in each of RDL Electronic and RDL Macao.

RDL Electronic Group

RDL Electronic Group have been principally engaged in the distribution of electronic products since 1997. At present, the products distributed by the RDL Electronic Group comprises mainly consumer electronic products such as power supplies and audio amplifiers. The sales of RDL Electronic Group are mainly to customers in Hong Kong, the People’s Republic of China, Taiwan and other countries in Asia.

For the financial year ended 31 December 2003, RDL Electronic reported an audited consolidated net profit before and after taxation of approximately HK$5.6 million and HK$4.7 million respectively. We are advised by the Directors that the aforesaid net profit recorded for the financial year 2003 is substantially lower than that of the financial year 2002 because of the downturn of electronic components distribution market. For the financial year ended 31 December 2002, RDL Electronic had an audited consolidated net profit before and after taxation of approximately HK$11.3 million and HK$10.4 million respectively. We are further advised by the Directors that since Hong Kong economy recovered rapidly during the second half of year 2003 due to the favourable global economic environment and the economic policies carried out by the Hong Kong Government. The Hong Kong electronic industry is one of the beneficiaries. Therefore the Directors are optimistic about the future development of the RDL Electronic Group.

RDL Macao

RDL Macao was incorporated in October 2002. Since its incorporation, RDL Macao has been principally engaged in the distribution of electronic products. At present, the products distributed by RDL Macao comprise mainly consumer electronic products such as power supplies and audio amplifiers. The sales of RDL Macao are mainly to customers in Taiwan.

For the financial year ended 31 December 2003, RDL Macao had an audited net profit of approximately HK$2.94 million. For the period from 21 October 2002 (date of incorporation) to 31 December 2002 RDL Macao recorded audit net loss of HK$24,166.

As mentioned in the letter from the Board, the Directors are optimistic about the future development of the businesses of RDL Electronic Group and

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LETTER FROM SOUTH CHINA

RDL Macao in view of their profitable records. The Directors further consider that (i) the favourable records of RDL Electronic Group and RDL Macao will probably broaden and strengthen the income base of the Group; (ii) the businesses of the RDL Electronic Group and RDL Macao are compatible with the existing business of the Group and that RDL Electronic Group and RDL Macao have the necessary distribution networks to assist the Group to further expand its customer base as mentioned in the Company’s 2003 annual report; and (iii) increase in flexibility in management of the RDL Electronic Group and RDL Macao.

3. Basis of the consideration

The aggregate consideration of HK$12,000,000 for the acquisition of the RDL Electronic Shares and the RDL Macao Share were determined after arm’s length negotiations between S.A.S. Investment and the Vendors with reference to the unaudited consolidated net asset value of RDL Electronic of HK$38,327,983.02 and the unaudited net asset value of RDL Macao of HK$3,369,979.63 as at 30 April 2004. On this basis, the consideration payable by S.A.S. Investment for the RDL Electronic Shares and the RDL Macao Share represents a discount of about 4% to the aggregate of the attributable unaudited consolidated net assets of RDL Electronic and the attributable unaudited net assets of RDL Macao of about HK$12.5 million as at 30 April 2004. We consider that such discount in the consideration is in the interest of the Company and its Shareholders as a whole.

According to the 2003 audited reports of RDL Electronic, RDL Electronic reported an audited consolidated net asset value of approximately HK$30.7 million, of which the major assets are inventories, trade and other receivables which accounted for approximately 41.8% and 43.6% respectively of its total assets of approximately HK$175 million. According to the 2003 audited report of RDL Macao, RDL Macao reported an audited net asset value of approximately HK$3 million, of which the major asset of RDL Macao is trade receivables from a related party, Hon Hai Precision Industry Company Limited (a deemed substantial shareholder of the Company under the Listing Rules) and its subsidiaries, which accounted for approximately 78.2% of its total assets of approximately HK$38 million. We are advised by the Directors that the turnover for aforesaid inventories of RDL Electronic are about 46 days which (according to the Directors’ best knowledge) is within the industry norm. For the aforesaid trade and other receivables of RDL Electronic, the Directors further advised that trade debtors are entitled to a credit period ranging from 30 days to 120 days which (according to the Directors best understanding) is also in line with the industry norm. For RDL Electronic, we are advised by the Directors that (i) the subsequent settlement of the aforesaid trade receivables of approximately 97.6% of the balance as at 31 December 2003 were subsequently settled; and (ii) the subsequent sales of the aforesaid inventories of approximately 80% of the outstanding balance as at 31 December 2003 were subsequently sold. For RDL Macao, we are advised by the Directors that its major asset, trade receivables from an related party, Hon Hai Precision Industry Company Limited (a deemed substantial shareholder of the Company under the Listing Rules) and its subsidiaries as mentioned above, was generated from the ordinary and usual course of business of RDL Macao and approximately 97.9% was subsequently settled.

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LETTER FROM SOUTH CHINA

Based on the above-mentioned 2003 audited reports of both RDL Electronic and RDL Macao, the attributable audited consolidated net assets of 30% interest in RDL Electronic and the attributable audited net assets of 30% interest in RDL Macao under the proposed acquisitions amounted to approximately HK$10.1 million. We consider the consideration payable by S.A.S Investment is nearly fully backed by the attributable consolidated net assets of RDL Electronic and attributable net assets of RDL Macao.

4. Form of consideration

Pursuant to the Agreement, the aggregate consideration of HK$12,000,000 will be satisfied by the issue of the Convertible Notes with a conversion price of HK$1.00. We consider the issue of Convertible Notes is a prudent decision and is in the interests of the Company as it will not draw on the existing cash resources of the Company and will raise permanent capital for investment in RDL Electronic and RDL Macao. Nevertheless, the issuance of Convertible Notes will have a dilution effect on the shareholding to the Independent Shareholders. Please refer to the subparagraph headed “Potential dilution to shareholding of Independent Shareholders” below for information.

5. Terms of the Convertible Notes

The principal terms of the Convertible Notes are as follows:

(a) Maturity

The Convertible Notes have a maturity period of two years from the date of its issuance.

(b) Redemption

The Convertible Notes are non-redeemable. We consider that nonredeemable features of the Convertible Notes in effect resembles quasi-equity for the Company. Upon conversion, the Convertible Notes will be converted into equity capital of the Company and will provide permanent financing to the Company, which we consider is in the interest of the Company and its Shareholders as a whole.

(c) Interest

The Convertible Notes carries interest at 0.1% per annum on the principal amount of Convertible Notes outstanding.

(d) Conversion Price

The whole or part of the outstanding principal amount of the Convertible Notes may be converted into Shares at any time from the date of issuance of the Convertible Notes or 1 July 2004 (whichever is later) up to and including

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LETTER FROM SOUTH CHINA

the Maturity Date at a conversion price of HK$1.00 per Share, subject to adjustments. The Conversion Price per Share represents:

• a premium of approximately 11% over the average closing price of the Share of HK$0.90 for the five consecutive trading days up to and including the last trading day before suspension of trading in the Shares on 17 May 2004;

• a premium of approximately 11% over the average closing price of the Share of HK$0.90 for the eleven consecutive trading days up to and including the last trading day before suspension of trading in the Shares on 17 May 2004;

• a premium of approximately 14% over the closing price of the Share of HK$0.88 as quoted on the Stock Exchange on the Latest Practicable Date; and

Based on the Company’s 2003 annual report , the Group has an audited consolidated net tangible asset value of approximately HK$301 million or HK$1.31 per Share (based on 230,140,720 Shares in issued as at 31 December 2003).

For the purpose of assessing whether the conversion price and the interest rate of the Convertible Notes are fair and reasonable, we have identified, 4 convertible notes issued by other main board listed companies in Hong Kong during the past twelve months from publicly available resources and compare the interest rate and conversion price of these convertible notes with that of the Convertible Notes. These comparables carry annual interest rates ranging from 1% to prime + 2% (as at the Latest Practicable Date, prime rate amounted to approximately 5%.) Of these 4 comparables, 1 has fixed conversion price higher than the latest closing market price of the relevant shares prior to issue, 1 has fixed conversion price a discount to the latest closing market price of the relevant shares, 1 has a fixed conversion price equal to the latest closing market price of the relevant shares and 1 has a floating conversion price higher than the latest closing market price of the relevant shares. The premium of the conversion price over the latest closing market price of the relevant shares for the above-mentioned 4 comparables ranges from 25% to -18%, with an average premium of about 4%. Based on the above, we consider that the premium of the conversion price of the Convertible Notes which is higher than the average premium of the above-mentioned comparables and the interest rate of the Convertible Notes is lower than that of the above-mentioned comparables and therefore the conversion price and the interest rate of the Convertible Notes are in the interest of the Company and it’s the Independent Shareholders as a whole. It should however be noted that the market comparables are not necessarily entirely comparable with the Convertible Notes given differences in (i) the industries and businesses in which the issuers are engaged in; (ii) the credit rating of the issuers; (iii) availabilities of securities; and (iv) issue or redemption price, conversion restrictions and/or other features.

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LETTER FROM SOUTH CHINA

6. Financial effects of the proposed acquisitions on the Group

Net tangible asset value and net tangible asset value per Share

The consolidated net tangible assets of the Group based on the audited report of the Group as at 31 December 2003 amounted to approximately HK$301 million, or approximately HK$1.31 per Share. Upon Completion and conversion of the Convertible Notes, the asset base of the Group will be further enhanced. The Convertible Notes are not redeemable, with the conversion right lapsing upon maturity unless previously exercised. In these circumstances, we believe that it is unlikely for the holders of the Convertible Notes not to convert them into Shares on or before maturity. Accordingly, it is appropriate to assess the effects of the proposed acquisitions of the RDL Electronic Shares and the RDL Macao Share on the net tangible assets of the Group on the assumption that the Convertible Notes will be converted in full into Shares during the tenure of the Convertible Notes. In this respect, we consider the improvement in the net tangible asset value of the Group and the fully diluted net tangible asset value per Share assuming conversion in full of the Convertible Notes to be in the interests of the Company and the Independent Shareholders.

• Earning

As mentioned above, S.A.S. Investment already owned 70% of each of RDL Electronic and RDL Macao before the entering into of the Agreement, and so the financial results of each of RDL Electronic and RDL Macao are already consolidated into the financial results of the Group. Based on the 2003 audited reports for RDL Electronic and RDL Macao, the Directors advised that the amount of goodwill arising from the proposed acquisitions is estimated to be approximately HK$1.9 million based on the audited net asset value of RDL Electronic and RDL Macao as at 31 December 2003. However, given the favourable trading records of RDL Electronic and RDL Macao for the four months ended 30 April 2004 as mentioned in the letter from the Board and above (of unaudited consolidated net asset value of approximately HK$38,327,983.02 and unaudited net asset value of approximately HK$3,369,979.63 respectively), there will be no goodwill arising from the proposed acquisitions. We are further advised by the Directors that in the event that goodwill will arise from the proposed acquisitions, it will be amortized on a straight-line basis over their useful economic life. In addition, according to the profitable track records and favourable growth potential of each of RDL Electronic and RDL Macao, the Directors are of the view that the proposed acquisitions will have a positive effect on the earning base of the Group taking into consideration the effect of amortisation of goodwill as mentioned above. We consider such enhancement on the earning base of the Group to be in the interests of the Company and the Independent Shareholders as a whole.

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LETTER FROM SOUTH CHINA

• Gearing ratio

Based on the audited report of the Group as at 31 December 2003, the Group has a gearing ratio (calculated on the basis of total borrowings to Shareholders’ fund) of approximately 116.55%. The gearing ratio of the Group will be increased by approximately 3.94% if none of the Convertible Notes were converted into Shares. In this regard, we consider such slight increase in the gearing ratio, in view of the possible enhancement of the asset and earning base from the proposed acquisition, to be acceptable. Upon the conversion of the Convertible Notes into Shares, the gearing ratio would be improved accordingly, which is, in our opinion, in the interests of the Group.

• Potential dilution to shareholding of Independent Shareholders

Upon the full conversion of the Convertible Notes, the Convertible Shares represent approximately 5.21% of the existing issued share capital of the Company and approximately 4.95% of the issued share capital of the Company as enlarged by full conversion of the Convertible Notes. As at the Latest Practicable Date, the Independent Shareholders and public Shareholders were interested in approximately 99.90% and 51.81% respectively of the issued shares of the Company. If the Convertible Notes are fully converted at the conversion price of HK$1.00, the Independent Shareholders’ shareholding would be reduced by approximately 4.94% to approximately 94.96% and the public’s shareholding would be reduced by 2.57% to approximately 49.24%. Taken into account that the proposed acquisitions will improve the asset base and expand the earnings base of the Group, we consider such dilution or potential dilution is, acceptable.

RECOMMENDATION

Having considered the information and representations provided to us and the above principal factors and the terms of the Agreement, we are of the opinion that the terms of the Agreement are fair and reasonable so far as the Independent Shareholders and the Company are concerned and that the proposed acquisitions are in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of

South China Capital Limited Richard Howard Gorges Managing Director

– 23 –

APPENDIX

GENERAL INFORMATION

1. RESPONSIBILITY

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 contained herein misleading.

2. SHARE CAPITAL

(i) Ordinary Shares

The authorised and issued share capital of the Company as at the Latest Practicable Date were as follows:–

Authorised:

HK$

1,454,000,000 Shares of HK$0.10 each 145,400,000.00 Issued and fully paid or credited as fully paid: 230,540,720 Shares of HK$0.10 each 23,054,072.00

Issued and fully paid or credited as fully paid:

Based on the issued share capital as at the Latest Practicable Date and upon issue of new shares of the Company, on full conversion of the Convertible Notes (based on the conversion price of HK$1.00 per Share) and full exercise of the share options as set out in subsection (iii) below, the issued share capital will be:–

230,540,720 Shares as at the Latest Practicable Date 12,000,000 Shares to be issued on full conversion of the Convertible Notes 1,000,000 Shares to be issued on full exercise of the share options 243,750,720	23,054,072.00 1,200,000.00 100,000.00
	24,354,072.00

All of the above shares rank pari passu in all aspects, including all rights as to dividend, voting and interests in capital, among themselves and with all other shares in issue on the date of issue.

(ii) Preference Shares

The authorised and issued share capital of the non-redeemable convertible preference shares of the Company as at the Latest Practicable Date were as follows:–

Authorised:		HK$
46,000,000	shares of HK$0.10 each	4,600,000.00
Issued and fully paid or credited as fully paid:
0	share of HK$0.10 each	0.00

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APPENDIX

GENERAL INFORMATION

(iii) Share Options

As at the Latest Practicable Date, there were 1,000,000 outstanding share options entitling holders thereof to subscribe for in aggregate 1,000,000 new Shares, representing approximately 0.43% of the existing issued share capital. The share options were granted under the share option scheme which was adopted on 17 September 1994 and will expire on 16 September 2004 pursuant to the terms thereof. Each option gives the holder the right to subscribe for one Share. Details of these outstanding share options were as follows:–

			Number of
	Exercise price		outstanding
Name of option holder	per Share	Exercisable period	share options
Yim Yuk Lun, Stanley	HK$3.80	29/09/1997 – 16/09/2004	1,000,000

A new share option scheme of the Company was adopted on 28 June 2002 and as at the Latest Practicable Date, no share option was granted under this share option scheme since its adoption.

3. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests and short positions 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 are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he is taken or deemed to have under such provisions of the SFO) or are required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or are required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies of the Listing Rules to be notified to the Company and the Stock Exchange were as follows:–

(i) Directors’ Interests in the issued Shares

Name of Director Capacity Yim Yuk Lun, Stanley Beneficial owner Founder of a discretionary trust_(Note)_ Wong Sui Chuen Beneficial owner	Number of Shares 5,490,000 59,185,400 64,675,400 202,000	Percentage of issued share capital of the Company 2.38% 25.67%
		28.05% 0.09%

Note: These Shares are held by a unit trust whose trustee is Unimicro Limited, a company incorporated in the British Virgin Islands, of which Mr. Yim Yuk Lun, Stanley is also a director. All units in the unit trust are beneficially owned by a discretionary trust established by Mr. Yim Yuk Lun, Stanley. The trustee of the discretionary trust is Trustcorp Limited and the beneficiaries of which include the spouse and issues of Mr. Yim Yuk Lun, Stanley.

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APPENDIX

GENERAL INFORMATION

(ii) Interest in share options

			Percentage of
			issued share
		Number of	capital of
Name	Capacity	Shares	the Company
Yim Yuk Lun, Stanley	Beneficial owner	1,000,000	0.43%

Save as disclosed herein, as at the Latest Practicable Date:

• (i) none of Directors and chief executive of the Company had any interests and short positions 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 are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he is taken or deemed to have under such provisions of the SFO) or are required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or are required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies of the Listing Rules to be notified to the Company and the Stock Exchange;

• (ii) none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group taken as a whole;

• (iii) South China did not have any shareholding, direct or indirect, in any member of the Group, or right (whether legally enforceable or not) to subscribe for or to nominate any person to subscribe for securities in any member of the Group; and

• (iv) none of the Directors or South China had any direct or indirect interest in any assets acquired or disposed of by or leased to, or which were proposed to be acquired, disposed of by or leased to, the Company or any of its subsidiaries since 31 December 2003, the date to which the latest published audited accounts of the Group were made up.

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to any Director or chief executive of the Company, the following persons (other than a Director or the chief executive of the Company) had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of the Divisions 2 and 3 of Part XV of the SFO, or who were directly or indirectly interested in

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APPENDIX

GENERAL INFORMATION

10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

				Percentage of
				issued share
	Name of		Number of	capital of
Name	company	Capacity	shares	the company
Unimicro Limited_(Note 1)_	The Company	Trustee	59,185,400	25.67%
Trustcorp Limited_(Note 1)_	The Company	Trustee	59,185,400	25.67%
Hon Hai Precision Industry
Co., Ltd. (“Hon Hai”)
(Note 2)	The Company	Corporate	46,000,000	19.95%
Foxconn Holding Limited
(“Foxconn”)(Note 2)	The Company	Beneficial owner	46,000,000	19.95 %
Mr. Cheung	RDL Electronic	Beneficial owner	750,000	15%
			(Note 3)
Mr. Cheung	RDL Macao	Beneficial Owner	1 share for	30%
			the amount of
			MOP$30,000
			(Note 3)
Wang Jin	SMartech	Beneficial owner	300,000	30%
	Electronic
	Co., Ltd.
Chan Yuk Yee	HAS Electronic	Beneficial owner	150,000	15%
	Co., Ltd

Notes:

• (1) These Shares are held by a unit trust whose trustee is Unimicro Limited, a company incorporated in the British Virgin Islands, of which Mr. Yim Yuk Lun, Stanley is also a director. All units in the unit trust are beneficially owned by a discretionary trust established by Mr. Yim Yuk Lun, Stanley. The trustee of the discretionary trust is Trustcorp Limited and the beneficiaries of which include the spouse and issues of Mr. Yim Yuk Lun, Stanley.

• (2) Hon Hai is a listed company in Taiwan and the controlling shareholder of which is Mr. Terry T.M. Guo. Foxconn is a wholly owned subsidiary of Hon Hai, which is deemed to be interested in the Shares held by Foxconn.

• (3) The shares held by Mr. Cheung in RDL Electronic and RDL Macao which are contracted to be sold to the S.A.S. Investment pursuant to the Agreement.

Save as disclosed herein, as at the Latest Practicable Date, so far as is known to any Director or chief executive of the Company, no persons (other than a Director or the chief executive of the Company) has an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of the Divisions 2 and 3 of Part XV of the SFO, or who were directly or indirectly interested in 10% or more of the nominal value of any class of share capital

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APPENDIX

GENERAL INFORMATION

carrying rights to vote in all circumstances at general meetings of any other member of the Group.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had a service contract with the Company or any of its subsidiaries which is not determinable by the Group within one year without payment of compensation, other than statutory compensation.

6. MATERIAL LITIGATION

As at the Latest Practicable Date, so far as known to the Directors, there is no litigation or claims of material importance pending or threatened against any member of the Group.

7. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading positions of the Group since 31 December 2003, being the date to which the latest published audited accounts of the Group were made up.

8. QUALIFICATION AND CONSENT

South China is a deemed licensed corporation for carrying out types 4, 6 and 9 regulated activities under the SFO.

South China has given and has not withdrawn its written consent to the issue of this circular with the inclusion of and references to its name and/or letter in the form and context in which they respectively appear.

9. MISCELLANEOUS

• (a) Mr. Shea Chun Lok, HKSA, CPA (Aust.), is the secretary and qualified accountant of the Company.

• (b) The registered office of the Company is at Clarendon House, Church Street, Hamilton HM 11, Bermuda. The branch share registrar of the Company in Hong Kong is Secretaries Limited at Ground Floor, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (c) The English text of this circular shall prevail over the Chinese text in the case of inconsistency.

10. DOCUMENT AVAILABLE FOR INSPECTION

Copy of the sale and purchase agreement dated 18 May 2004 between Mr. Cheung, Mr. Lock, Ms. Chan as vendors, S.A.S. Investment as purchaser and the Company as issuer in relation to the acquisition of the RDL Electronic Shares and RDL Macao Share and the issue of the Convertible Notes is available for inspection at the office of Messrs. Sit, Fung, Kwong & Shum at 18th Floor, Gloucester Tower, The Landmark, 11 Pedder Street, Central, Hong Kong, during normal business hours on any day up to and including the date of SGM.

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NOTICE OF THE SGM

==> picture [72 x 62] intentionally omitted <==

S.A.S. DRAGON HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 1184)

NOTICE IS HEREBY GIVEN that a special general meeting of S.A.S. Dragon Holdings Limited (the “ Company ”) will be held at 10:45 a.m. on 28 June 2004 (or soon thereafter as the special general meeting of the Company to be held at the same place and date at 10:30 a.m. shall have been concluded) at Rose Room, Lower Level II, Kowloon Shangri-La Hotel, 64 Mody Road, Kowloon, Hong Kong for the purpose of considering and, if thought fit, passing the following resolution, with or without amendments, as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT

• (a) the conditional sale and purchase agreement dated 18 May 2004 entered into between Mr. Cheung Yuk Kuen (“ Mr. Cheung ”), Mr. Lock Shui Cheung (“ Mr. Lock ”), Ms. Chan Wing Mun, Anita (“ Ms. Chan ”) as vendors, S.A.S. Investment Company Limited as purchaser and the Company as issuer (the “ Agreement ”) (a copy of which was marked “A” and has been produced to the meeting and signed by the Chairman of the meeting for the purpose of identification) in relation to sale and purchase of 30% of the entired issued share capital of each of RDL Electronic Company Limited and RDL Electronic (Macao Commercial Offshore) Limited at a total consideration of HK$12,000,000.00 which shall be settled by the issue of three 0.1% convertible notes by the Company in the total principal amount of HK$12,000,000.00 (the “ Convertible Notes ”) to Mr. Cheung (as to the principal amount of HK$6,500,000.00), Mr. Lock (as to the principal amount of HK$2,750,000.00) and Ms. Chan (as to the principal amount of HK$2,750,000.00) subject to the terms and conditions of the Agreement be and is hereby approved, confirmed and ratified and the transactions contemplated thereunder be and are hereby approved;

• (b) the directors of the Company be and are hereby authorised to issue the Convertible Notes and allot and issue shares of the Company upon the exercise of the conversion rights attached to the Convertible Notes on and subject to the terms and conditions of the Agreement;

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NOTICE OF THE SGM

• (c) any one director of the Company be and is hereby authorised for and on behalf of the Company to execute all such other documents, instruments and agreements and to do all such acts or things deemed by him to be incidental to, ancillary to or in connection with the matters contemplated under the Agreement and completion of the Agreement.”

By order of the Board Yim Yuk Lun, Stanley Chairman and Managing Director

Hong Kong, 11 June 2004

Notes:

1. Any member entitled to attend and vote at the meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member may appoint a proxy in respect of part only of his holding of shares in the Company. A proxy need not be a member of the Company.

2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same. In the case of an instrument of proxy purporting to be signed on behalf of a corporation by an officer thereof it shall be assumed, unless the contrary appears, that such officer was duly authorized to sign such instrument of proxy on behalf of the corporation without further evidence of the fact.

3. The instrument appointing a proxy and (if required by the board of directors of the Company) the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, shall be delivered to Secretaries Limited at Ground Floor, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than forty-eight (48) hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the case of a poll taken subsequently to the date of the meeting or adjourned meeting, not less than twenty-four (24) hours before the time appointed for the taking of the poll and in default the instrument of proxy shall not be treated as valid.

4. Delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.

5. Where there are joint holders of any share any one of such joint holder may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at the meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

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

Executive Directors	Independent Non-executive Directors
Yim Yuk Lun, Stanley	Dr. Lui Ming Wah,J.P.
Wong Sui Chuen	Chang Ping Kin
	Liu Chun Ning, Wilfred
Non-executive Director	Wong Tak Yuen, Adrian
Dr. Chang Chu Cheng

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