S.A.S. Dragon Holdings Limited — Proxy Solicitation & Information Statement 2006

Dec 12, 2006

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 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)

CONTINUING CONNECTED TRANSACTIONS

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

South China Capital Limited

A letter from the Independent Board Committee is set out on pages 12 to 13 of this circular.

A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders on the Caps, the Agreement and the transactions contemplated thereunder is set out on pages 14 to 26 of this circular.

A notice convening the SGM to be held at 6/F., Tower B, Hunghom Commercial Centre, 37 Ma Tau Wai Road, Hunghom, Kowloon, Hong Kong on 28 December 2006 at 11:30 a.m. (or as soon thereafter as the special general meeting of the Company to be held at the same place and date at 11:00 a.m. shall have been concluded or adjourned) or any adjournment thereof (as the case may be) is set out on pages 32 to 33 of this circular. Whether or not you are able to attend and/or vote at the SGM in person, 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 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong in accordance with the instructions printed thereon as soon as possible but in any event not later than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from subsequently attending and voting in person at the SGM or any adjournment thereof (as the case may be) should you so wish.

12 December 2006

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Determination of the proposed Caps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Relationship between the Company and the connected persons . . . . . . . . . . . . . . . . . . .	8
Information of the Group and Hon Hai Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Reasons and benefits for the Continuing Connected Transactions . . . . . . . . . . . . . . . . .	9
Implications of the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . .	12
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER. . . . . . . . . . . . . . . . . . . .	14
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
NOTICE OF THE SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32

– i –

DEFINITIONS

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

“Agreement”	the conditional master agreement dated 21 November 2006
	entered into between the Company and Hon Hai in respect
	of the Continuing Connected Transactions for the three
	financial years ending 31 December 2009;
“Announcement”	the announcement issued by the Company dated 23
	November 2006;
“associate(s)”	has the meaning ascribed to it under the Listing Rules;
“Board” or “Directors”	the board of directors of the Company;
“Caps”	the Purchase Caps and the Sales Caps;
“Company”	S.A.S. Dragon Holdings Limited, a company incorporated
	in Bermuda with limited liability, the shares of which are
	listed on the Stock Exchange;
“connected person(s)”	has the meaning ascribed to it under the Listing Rules;
“Continuing Connected	the Purchase Transactions and the Sales Transactions;
Transactions”
“Distribution Agreement”	a distribution agreement between Hon Hai and S.A.S.
	Electronic dated 1 January 2005 in relation to the non-
	exclusive distribution of Hon Hai’s products by S.A.S.
	Electronic and certain other members of the Group in Hong
	Kong, Taiwan and certain regions in the PRC;
“Existing Waiver”	the waiver granted by the Stock Exchange on 27 November
	2003 which provided that, inter alia, the aggregate value of
	the sale and purchase of electronic components between
	the Group and Hon Hai and its subsidiaries for each of the
	three financial years ending 31 December 2004, 2005 and
	2006 shall not exceed HK$362,250,000, HK$416,588,000
	and HK$479,076,000 respectively;

– 1 –

DEFINITIONS

“Foxconn”	Foxconn Holding Limited, a wholly owned subsidiary of
	Hon Hai and a substantial shareholder of the Company;
“Group”	the Company and its subsidiaries;
“Hon Hai”	Hon Hai Precision Industry Company Limited, a company
	incorporated in Taiwan with limited liability, the shares of
	which are listed on the Taiwan Stock Exchange Corporation;
“Hon Hai Group”	Hon Hai, Foxconn and their respective subsidiaries and
	associates;
“Hong Kong”	Hong Kong Special Administrative Region of the People’s
	Republic of China;
“Independent Board Committee”	an independent board committee of the Company comprising
	Mr. Cheung Chi Kwan, Mr. Liu Chun Ning, Wilfred, Dr. Lui
	Ming Wah_SBS J.P._, and Mr. Wong Tak Yuen, Adrian to
	advise the Independent Shareholders in relation to the Caps,
	the Agreement and the transactions contemplated
	thereunder;
“Independent Shareholder(s)”	Shareholder(s) other than Hon Hai, Foxconn and any of
	their respective associates;
“Latest Practicable Date”	6 December 2006, being the latest practicable date prior to
	the printing of this circular for ascertaining certain
	information included in this circular;
“Listing Rules”	Rules Governing the Listing of Securities on the Stock
	Exchange;
“Materials Agreement”	a materials purchasing agreement between Foxconn
	Technology Co., Ltd. and S.A.S. Electronic dated 7 January
	2005 in relation to the sale of components, parts, raw
	materials, etc. by S.A.S. Electronic to Foxconn Technology
	Co., Ltd.;
“percentage ratios”	the percentage ratios calculated based on the requirements
	under Rule 14.07 of the Listing Rules;

– 2 –

DEFINITIONS

“PRC”	People’s Republic of China excluding Hong Kong, Macau
	Special Administrative Region and Taiwan;
“Purchase Caps”	for the purpose of Chapter 14A of the Listing Rules, means
	the annual caps of HK$45,000,000, HK$49,500,000 and
	HK$54,450,000 for each of the three financial years ending
	31 December 2007, 2008 and 2009 respectively in respect
	of the Purchase Transactions;
“Purchase Transactions”	the purchases of electronic components by the Group from
	Hon Hai Group under the Agreement;
“Sales Caps”	for the purpose of Chapter 14A of the Listing Rules, means
	HK$373,440,000, HK$483,120,000 and HK$601,392,000,
	being the annual caps for each of the three financial years
	ending 31 December 2007, 2008 and 2009 respectively in
	respect of the Sales Transactions;
“Sales Transactions”	the sales of electronic components (including distribution
	arrangements) by the Group to Hon Hai Group under the
	Agreement;
“S.A.S. Electronic”	S.A.S. Electronic Co., Ltd., a company incorporated in Hong
	Kong and 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
	6/F., Tower B, Hunghom Commercial Centre, 37 Ma Tau
	Wai Road, Hunghom, Kowloon, Hong Kong on 28 December
	2006 at 11:30 a.m. (or as soon thereafter as the special
	general meeting of the Company to be held at the same
	place and date at 11:00 a.m. shall have been concluded or
	adjourned) to approve the Caps, the Agreement and the
	transactions contemplated thereunder, notice of which is
	set out on pages 32 to 33 of this circular;
“Shareholder(s)”	holder(s) of shares of the Company;

– 3 –

DEFINITIONS

“South China Capital” or	South China Capital Limited, being a deemed licensed
“Independent Financial Adviser”	corporation to carry out type 6 (advising on corporate
	finance) regulated activity as set out in Schedule 5 to the
	SFO, the independent financial adviser to the Independent
	Board Committee and the Independent Shareholders in
	relation to the Caps, the Agreement and the transactions
	contemplated thereunder;
“Stock Exchange”	The Stock Exchange of Hong Kong Limited;
“substantial shareholder(s)”	has the meaning ascribed to it under the Listing Rules;
“3C”	computer, communication and consumer electronics;
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong; and
“%”	per cent.

– 4 –

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: Registered Office: Mr. Yim Yuk Lun, Stanley J.P. Clarendon House (Chairman and Managing Director) 2 Church Street Mr. Wong Sui Chuen Hamilton HM11 Bermuda

Non-executive Directors: Dr. Chang Chu Cheng Principal Office: 6th Floor, Tower B Independent Non-executive Directors: Hunghom Commercial Centre Mr. Cheung Chi Kwan 37 Ma Tau Wai Road Mr. Liu Chun Ning, Wilfred Hunghom Dr. Lui Ming Wah SBS J.P. Kowloon Mr. Wong Tak Yuen, Adrian Hong Kong 12 December 2006

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

BACKGROUND

Reference is made to an announcement and a circular of the Company dated 26 November 2003 and 8 December 2003 respectively. The Existing Waiver for the sales and purchases of electronic components between the Group and Hon Hai and its subsidiaries will expire on 31 December 2006. As a result, the Company further announced in the Announcement that the Company had entered into the Agreement with Hon Hai on 21 November 2006 to govern the sales and purchases of electronic components between the Group and Hon Hai Group.

– 5 –

LETTER FROM THE BOARD

The purpose of this circular is (i) to provide you with further information on the Caps, the Agreement and the transactions contemplated thereunder; (ii) to set out the recommendation from the Independent Board Committee; (iii) to set out the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders; and (iv) to give the Shareholders notice of the SGM and other information required by the Listing Rules.

THE AGREEMENT

The Company entered into the Agreement with Hon Hai on 21 November 2006 to govern the Continuing Connected Transactions for the three financial years ending 31 December 2009. The principal terms of the Agreement are set out below:

Date: 21 November 2006 Parties: The Company Hon Hai Subject matter: Sales and purchases of electronic components between the Group and Hon Hai Group Term: From 1 January 2007 to 31 December 2009

The Agreement is conditional upon the approval of the Agreement and the Caps by the Independent Shareholders.

Under the Agreement, the parties agree that the Continuing Connected Transactions shall be on normal commercial terms and in particular:–

• (a) the members of the Group who are parties to the Continuing Connected Transactions shall receive or pay such consideration for the transactions with members of Hon Hai Group based on market rates or rates which are no less favourable than those available from or to (as appropriate) independent third parties;

• (b) the terms of the Continuing Connected Transactions shall be fair and reasonable and negotiated on an arm’s length basis; and

• (c) the total amount of the Continuing Connected Transactions shall not exceed the applicable Caps or such other caps as approved by the Independent Shareholders from time to time.

– 6 –

LETTER FROM THE BOARD

Hon Hai will procure Hon Hai Group to comply with the provisions of the Agreement.

Certain members of the Group and certain members of Hon Hai Group have entered or may from time to time enter into agreements to provide for more detailed terms on certain Continuing Connected Transactions. Any such agreements (including the Distribution Agreement and the Materials Agreement) made or to be made between the relevant members of the Group and relevant members of Hon Hai Group in respect of the Continuing Connected Transactions will be subject to the Agreement.

At present, the electronic components sold by the Group to Hon Hai Group mainly include memory IC, super IO IC, transistor and diode mainly for computer and handset products and the electronic components sold by Hon Hai Group to the Group mainly include cable and connector for a wide range of electronic products.

DETERMINATION OF THE PROPOSED CAPS

The following is a summary of the approximate amounts of historical transactions in respect of the sales and purchases of electronic components between the Group and Hon Hai and its subsidiaries for the two years ended 31 December 2005 and the nine months ended 30 September 2006:–

Purchases from Hon Hai and its subsidiaries Sales to Hon Hai and its subsidiaries Total	For the financial year ended 31 December 2004 (HK$’000) 76,783 178,514 255,297	For the financial year ended 31 December 2005 (HK$’000) 92,499 178,891 271,390	For the nine months ended 30 September 2006 (HK$’000) 28,505 171,609
			200,114

The aggregate transaction amounts in respect of the sales and purchases of electronic components between the Group and Hon Hai and its subsidiaries for the two years ended 31 December 2005 and the nine months ended 30 September 2006 have not exceeded the caps of HK$362,250,000, HK$416,588,000 and HK$479,076,000 for each of the three financial years ending 31 December 2004, 2005 and 2006 respectively under the Existing Waiver.

– 7 –

LETTER FROM THE BOARD

The proposed Caps of the Continuing Connected Transactions for each of the three financial years ending 31 December 2007, 2008 and 2009 of the Group are set out below:–

	For	the financial year ending	the financial year ending
	31 December 2007	31 December 2008	31	December 2009
	(HK$’000)	(HK$’000)		(HK$’000)
Purchase Caps	45,000	49,500		54,450
Sales Caps	373,440	483,120		601,392

In determining the proposed Caps of the Continuing Connected Transactions for each of the three financial years ending 31 December 2007, 2008 and 2009 of the Group, the Board based on the following major factors:–

• (a) projections of the sales and purchases of electronic components between the Group and Hon Hai Group plus a buffer of 10%;

• (b) turnover outlook of the Group;

• (c) indications from certain other members of Hon Hai Group in respect of purchase of electronic components from the Group which represents new business opportunities to the Group; and

• (d) potential sales to Hon Hai Group by Hi-Level Technology Limited, the 51% of the issued share capital of which is proposed to be acquired by the Group as described in the announcement of the Company dated 16 November 2006.

If the amounts of the Continuing Connected Transactions shall exceed the respective Caps or upon the expiry of the Caps or where there is a material change to the terms of the Continuing Connected Transactions, the Company will re-comply with all applicable requirements under the Listing Rules, including (where required) the obtaining of approval of the Independent Shareholders. The Company will also comply with the annual review and reporting requirements of Rule 14A.37 to Rule 14A.41 and Rule 14A.45 to Rule 14A.47 in relation to the Continuing Connected Transactions.

RELATIONSHIP BETWEEN THE COMPANY AND THE CONNECTED PERSONS

Foxconn, being a wholly owned subsidiary of Hon Hai, is interested in 18.97% of the issued share capital of the Company and a substantial shareholder of the Company. Therefore, Hon Hai, Foxconn and their respective associates are connected persons of the Company and the Continuing Connected Transactions constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

– 8 –

LETTER FROM THE BOARD

INFORMATION OF THE GROUP AND HON HAI GROUP

The Group is principally engaged in distribution of electronic components and semiconductors products.

Hon Hai Group is a global manufacturing service provider in the 3C industries.

REASONS AND BENEFITS FOR THE CONTINUING CONNECTED TRANSACTIONS

The Existing Waiver for the sales and purchases of electronic components between the Group and Hon Hai and its subsidiaries will expire on 31 December 2006. As a result, the Company entered into the Agreement to govern the sales and purchases of electronic components between the Group and Hon Hai Group.

Purchase Transactions

A number of the members of the Hon Hai Group are vendors approved by certain end customers of the Group. The Group is required by these customers to purchase materials and components from approved vendors. The Directors estimate that the Purchase Transactions will continue and be stable in near future.

Sales Transactions

The continued growth of the sales of electronic components by the Group to Hon Hai Group has contributed significantly to the Group’s results over the past two financial years ended 31 December 2005 and the nine months ended 30 September 2006. The Directors consider that Hon Hai Group is a reliable source of business for the Group and it is in its best interests to generate incremental income by carrying out product sales to Hon Hai Group. The Directors also confirm that there had been no bad debt arising from the Sales Transactions for the Group in the past. Having taken into account also on the existing strong business operations and financial strength of Hon Hai Group, the Directors believe that Hon Hai Group would be able to maintain its creditability in the future.

The Directors are of the view that building long term business relationship with such a reputable group would be beneficial to the Group as it might enable the Group to get involved in potential business opportunities with other worldwide companies.

The Directors (including the independent non-executive Directors) confirm that the Continuing Connected Transactions will be conducted in the usual and ordinary course of business of the Group, and based on normal commercial terms and on terms no less favourable to the Group than terms available to or from (as appropriate) other independent third parties.

– 9 –

LETTER FROM THE BOARD

IMPLICATIONS OF THE LISTING RULES

As the Continuing Connected Transactions constitute continuing connected transactions and the applicable percentage ratios for the Purchase Caps and the Sales Caps are expected to exceed 2.5% on an annual basis, the Continuing Connected Transactions constitute non-exempt continuing connected transactions of the Company and the Agreement and the Caps are subject to the reporting and independent shareholders’ approval requirements under Rule 14A.35 of the Listing Rules. The SGM will be convened for the Independent Shareholders to approve the Caps, the Agreement and the transactions contemplated thereunder by poll.

In view of the interests of Hon Hai and Foxconn in the Company, Hon Hai and Foxconn and their respective associates will abstain from voting in relation to the resolutions to approve the Caps, the Agreement and the transactions contemplated thereunder.

SGM

There is set out on pages 32 to 33 of this circular a notice convening the SGM to be held at 6/F., Tower B, Hunghom Commercial Centre, 37 Ma Tau Wai Road, Hunghom, Kowloon, Hong Kong at on 28 December 2006 at 11:30 a.m. (or as soon thereafter as the special general meeting of the Company to be held at the same place and date at 11:00 a.m. shall have been concluded or adjourned) at which an ordinary resolution will be proposed for the approval by the Independent Shareholders by poll the Caps, the Agreement and the transactions contemplated thereunder.

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 26/F, Tesbury Centre, 28 Queen’s Road East, 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 thereof should you so wish.

In compliance with the Listing Rules, the votes to be taken at the SGM in respect of the Caps, the Agreement and the transactions contemplated thereunder will be taken by poll, the results of which will be announced after the SGM.

Under the bye-laws of the Company, a poll can be demanded at the SGM by:–

• (a) the chairman of the SGM; or

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

– 10 –

LETTER FROM THE BOARD

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

• (d) a member or members present in person (or in the case of a member being a corporation by its duly authorised representative) or by proxy and holding shares in the Company 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 the shares conferring that right; or

• (e) if required by the Listing Rules, by a Director or Directors who, individually or collectively, hold proxies in respect of shares representing five per cent. (5%) or more of the total voting rights at the SGM.

The Company will procure the chairman of the SGM to demand for voting on poll and Secretaries Limited, the branch share registrar of the Company in Hong Kong, will serve as the scrutineer for the vote-taking.

RECOMMENDATION

The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the Caps, the Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned. The Independent Board Committee therefore recommends the Independent Shareholders to vote in favour of the resolutions to be proposed in the SGM to approve the Caps, the Agreement and the transactions contemplated thereunder.

ADDITIONAL INFORMATION

Your attention is drawn to the letters from the Independent Board Committee and from the Independent Financial Adviser which are respectively set out on pages 12 to 13 and 14 to 26 of this circular. Additional information is also set out in the Appendix of this circular for your information.

By Order of the Board S.A.S. Dragon Holdings Limited Yim Yuk Lun, Stanley J.P. Chairman and Managing Director

– 11 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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S.A.S. Dragon Holdings Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 1184)

12 December 2006

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular dated 12 December 2006 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.

We have been appointed as the members of the Independent Board Committee to consider the Caps, the Agreement and the transactions contemplated thereunder and to advise the Independent Shareholders as to the fairness and reasonableness of the same. South China Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

RECOMMENDATION

We wish to draw your attention to the letter from the Board, as set out on pages 5 to 11 of the Circular, and the letter from the Independent Financial Adviser which contains its advice to the Independent Board Committee and the Independent Shareholders in respect of the Caps, the Agreement and the transactions contemplated thereunder as set out on pages 14 to 26 of the Circular.

– 12 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

After taking into consideration the advice from the Independent Financial Adviser, we concur with the views of the Independent Financial Adviser and consider that the Continuing Connected Transactions, the Caps, the Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to be proposed in the SGM to approve the Caps, the Agreement and the transactions contemplated thereunder.

Yours faithfully

Cheung Chi Kwan Liu Chun Ning, Wilfred Lui Ming Wah SBS J.P.

Wong Tak Yuen, Adrian Independent Board Committee

– 13 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the text of the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders prepared for inclusion in this circular.

South China Capital Limited

28th Floor, Bank of China Tower, No. 1 Garden Road, Central, Hong Kong 12 December 2006

To: The Independent Board Committee and the Independent Shareholders

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment by the Company as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Continuing Connected Transactions and the respective annual caps, details of which are set out in the letter from the Board (the “Board Letter”) contained in the circular dated 12 December 2006 issued by the Company to the Shareholders (the “Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

Reference is made to an announcement and a circular of the Company dated 26 November 2003 and 8 December 2003 respectively. The Existing Waiver for the sales and purchases of electronic components between the Group and Hon Hai and its subsidiaries will expire on 31 December 2006. As a result, on 21 November 2006, the Company entered into a conditional master agreement with Hon Hai to govern the sales and purchases of electronic components between the Group and Hon Hai Group for the three years ending 31 December 2009.

Foxconn, being a wholly-owned subsidiary of Hon Hai, is interested in 18.97% of the issued share capital of the Company and a substantial shareholder of the Company. Therefore, Hon Hai, Foxconn and their respective associates are connected persons of the Company and the Continuing Connected Transactions constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

– 14 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As the applicable percentage ratios for the Purchase Caps and the Sales Caps are higher than 2.5% on an annual basis, the Continuing Connected Transactions constitute non-exempt continuing connected transactions of the Company and the Caps, the Agreement and the transactions contemplated thereunder are subject to the disclosure and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

In accordance with the Listing Rules, Hon Hai, Foxconn and their respective associates shall abstain from voting on the ordinary resolutions to approve the Caps, the Agreement and the transactions contemplated thereunder at the SGM.

The Board has appointed the Independent Board Committee, comprising Mr. Cheung Chi Kwan, Mr. Liu Chun Ning, Wilfred, Dr. Lui Ming Wah SBS J.P. , and Mr. Wong Tak Yuen, Adrian, (all being independent non-executive Directors) to make a recommendation to the Independent Shareholders regarding the Caps, the Agreement and the transactions contemplated thereunder. Accordingly, we, South China Capital Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholders as to (i) whether or not the transactions contemplated under the Agreement are on normal commercial terms, in the ordinary and usual course of business and in the interests of the Company and the Shareholders as a whole; (ii) whether or not the terms of the Agreement and the Caps are fair and reasonable so far as the Company and the Independent Shareholders are concerned; and (iii) whether or not the Independent Shareholders should vote in favour of the ordinary resolutions to approve the Caps, the Agreement and the transactions contemplated thereunder at the SGM.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions, and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations which have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the date hereof. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Listing Rules.

– 15 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Directors have collectively and individually accepted full responsibility for the accuracy of the information and representations contained in the Circular and have confirmed, having made all reasonable enquires, which to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in the Circular misleading. We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, or their respective subsidiaries or associated companies.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Continuing Connected Transactions and the Caps, we have taken into consideration the following principal factors and reasons:

I. Reasons for and benefits of the Continuing Connected Transactions

1. Business overview of the Group

The Group is principally engaged in the distribution of (i) electronic components and semiconductors; and (ii) sports products. During the year ended 31 December 2005, the Group focused on the business of distributing electronic components to provide customers with a large variety of products, such as mobile phones, consumer electronics, computers and communication devices. During the six months ended 30 June 2006, due to the enhancement of system solution design and the improvement in the quality of the Group’s logistics service to help the customers to shorten time-tomarket of their products, the Group was able to continue to achieve reasonable profit margin from the distribution of electronic components and semiconductor products.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following table shows the breakdown in total turnover of the Group by product types for each of the two years ended 31 December 2005 and the six months ended 30 June 2006 as extracted from the Company’s annual report for the year ended 31 December 2005 and the Company’s interim report for the six months ended 30 June 2006 (the “Interim Report”):

For the six months ended 30 June 2006 (unaudited) (HK$’000) Electronic products (comprising electronic components and semiconductor products) 1,067,047 Sports products 13,346 Total Turnover 1,080,393	For the year ended 31 December 2005 2004 (audited) (audited) (HK$’000) (HK$’000) 2,354,442 2,313,346 99,196 93,742 2,453,638 2,407,088	For the year ended 31 December 2005 2004 (audited) (audited) (HK$’000) (HK$’000) 2,354,442 2,313,346 99,196 93,742 2,453,638 2,407,088
		2,407,088

As illustrated by the above table, the Group recorded an audited total turnover of approximately HK$2,453.64 million for the year ended 31 December 2005, representing an increase of approximately 1.93% as compared to that for the year ended 31 December 2004. During the same said financial year, the total turnover from distribution of electronic products also increased from approximately HK$2,313.35 million to HK$2,354.44 million, representing a growth of approximately 1.78%. According to the Interim Report, the Directors expected that there would be persistent rise in the sales of the Group’s electronic products, which are derived from the robust demand for mobile phones, consumer electronics, computers and communication devices. In addition, since the Group is well recognized by suppliers and customers as a leading electronic component distributor and having considered the prospect of the electronic products industry, the Group will implement a series of strategies to expand its business scale and secure a bigger market share in this industry in the coming future.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Information on Hon Hai Group

Hon Hai Group is a global manufacturing service provider in the 3C industries. With reference to the information as disclosed on the internet web page of Hon Hai Group, Hon Hai Group is the largest manufacturer of connectors for use in PCs in Taiwan, and a leading manufacturer of connectors and cable assemblies in the world. Major customers of Hon Hai Group include Nokia, Motorola, Sony Ericsson, Canon, IBM, Dell and HP.

As confirmed by the Directors, the Group commenced the sales and purchases of electronic components with Hon Hai Group since 1999, at such time Hon Hai was not a connected person (as defined in the Listing Rules) of the Company. Furthermore, as confirmed by the Directors, since the commencement of business between the Group and Hon Hai Group, the Group has maintained good business relationship with Hon Hai Group and the Group has neither received any significant complaint from Hon Hai Group in respect of the electronic components it sold to Hon Hai Group nor from the end customers in respect of the electronic components it purchased from Hon Hai Group and resold to the end customers.

3. Purchase Transactions

As extracted from the Board Letter, at present, the electronic components the Group purchases from Hon Hai Group mainly include cable and connector for a wide range of electronic products.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following table illustrates the comparison between the total purchase from Hon Hai and its subsidiaries and the total cost of sales of the Group for each of the two years ended 31 December 2005 and the nine months ended 30 September 2006:

For the nine months ended 30 September 2006 (unaudited) (HK$’000) Total purchase from Hon Hai and its subsidiaries 28,505 (38,007 if annualised) Total cost of sales of the Company and its subsidiaries 1,584,870 % of total purchase from Hon Hai Group to total cost of sales for Group 1.80	For the year ended 31 December 2005 2004 (unaudited) (unaudited) (HK$’000) (HK$’000) 92,499 76,783 2,286,754 2,250,138 4.04 3.41	For the year ended 31 December 2005 2004 (unaudited) (unaudited) (HK$’000) (HK$’000) 92,499 76,783 2,286,754 2,250,138 4.04 3.41
		3.41

We note from the above table that the historical purchases of electronic components by the Group from Hon Hai Group represented a relatively minimal percentage of the total cost of sales of the Group, ranging from 1.80% to 4.04%. As advised by the Directors, purchase from Hon Hai Group is mainly carried out by S.A.S. Electronic Company Limited, a wholly owned subsidiary of the Group. As a number of members of Hon Hai Group remains to be the vendors being approved by certain end customers of the Group, the Directors estimate that the Purchase Transactions will be continue and be stable in near future.

4. Sales Transactions

As referred to the Board Letter, further to the Purchase Transactions, at present, the Group has been supplying electronic components such as memory IC, super IO IC, transistor and diode mainly for computer and handset products to Hon Hai Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following table illustrates the comparison between the total sales to Hon Hai and its subsidiaries and the total turnover of the Group from distribution of electronic products for each of the two years ended 31 December 2005 and the nine months ended 30 September 2006:

For the nine months ended 30 September 2006 (unaudited) (HK$’000) Total sales to Hon Hai and its subsidiaries 171,609 (228,812 if annualised) Total turnover of the Group from distribution of electronic products 1,681,404 % of total sales to Hon Hai and its subsidiaries to total turnover of the Group from distribution of electronic products 10.21%	For the year ended 31 December 2005 2004 (unaudited) (unaudited) (HK$’000) (HK$’000) 178,891 178,514 2,354,442 2,313,346 7.60% 7.72%	For the year ended 31 December 2005 2004 (unaudited) (unaudited) (HK$’000) (HK$’000) 178,891 178,514 2,354,442 2,313,346 7.60% 7.72%
		7.72%

We note from the above table that the historical sales of electronic components by the Group to Hon Hai Group represented a constant percentage of the Group’s total turnover deriving from the distribution of electronic products, being at around 7.6% to 10.21%. The Directors consider that Hon Hai Group is a reliable source of business for the Group. In addition, we also note from the above table that the Group’s sales of electronic components to Hon Hai Group has demonstrated an increase of approximately 27.91% from the year ended 31 December 2005 to the year ending 31 December 2006 (if annualised). As advised by the Directors, such increase will continue in the coming future due to the reasons as to be detailed in the section headed “Basis of the new caps” of this letter.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. Reasons for and benefits of the Continuing Connected Transactions

As aforementioned, Hon Hai Group is the largest manufacturer of connectors for use in PCs in Taiwan, and a leading manufacturer of connectors and cable assemblies in the world. Therefore, the Directors are of the view that building long term business relationship with such a reputable group would be beneficial to the Group as it might enable the Group to get involved in potential business opportunities with other worldwide companies.

Furthermore, as also mentioned above, the Group has a prolonged satisfactory business relationship with Hon Hai Group since 1999. In this relation, the Directors also confirmed that there had been no bad debt arising from the Sales Transactions for the Group in the past. Having taken into account also on the existing strong business operations and financial strength of Hon Hai Group, the Directors believe that Hon Hai Group would be able to maintain its creditability in the future.

On 27 November 2003, the Company was granted a waiver by the Stock Exchange from strict compliance with the approval and disclosure requirements under the then subsisting Chapter 14 of the Listing Rules relating to the continuing connected transactions constituted by the sales and purchases with Hon Hai and its subsidiaries for the period of three years commencing on 1 January 2004 and expiring on 31 December 2006. The aggregate transaction amounts in respect of the sales and purchases of electronic components between the Group and Hon Hai Group for the two years ended 31 December 2005 and the nine months ended 30 September 2006 have not exceeded the caps of HK$362,250,000, HK$416,588,000 and HK$479,076,000 for each of the two years ended 31 December 2004, 2005 and the year ending 31 December 2006 respectively under the Existing Wavier. The Existing Wavier is due to expire on 31 December 2006. As aforementioned, it is anticipated that the Group would continue the sales and purchases with Hon Hai and its subsidiaries on a recurring basis after the expiration of the Existing Waiver. As a result, on 21 November 2006, the Company entered into a conditional master agreement with Hon Hai to govern the sales and purchases of electronic components between the Group and Hon Hai Group for the three financial years ending 31 December 2009.

Having considered (i) the future plan of expansion in business of the Group in the electronic products industry; (ii) Hon Hai Group’s existing strong business operations; (iii) the historical record of the Purchase Transactions and the Sales Transactions; and (iv) the reasons for and benefits of the Continuing Connected Transactions, we concur with the Directors that the Continuing Connected Transactions are on normal commercial terms, in the ordinary and usual course of business and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

II. Terms of the Agreement

According to the Board Letter, the Directors have confirmed that the Continuing Connected Transactions will be based on normal commercial terms and on terms no less favourable to the Group than terms available to or from (as appropriate) other independent third parties. The below table tabulates a summary of the major terms of the Agreement (details of which are contained on page six and page seven of the Circular):

The Agreement

Date 21 November 2006 Parties The Company and Hon Hai Subject Sales and purchases of electronic components between the Group and Hon Hai Group

Term From 1 January 2007 to 31 December 2009

Major terms of Under the Agreement, the parties agree that the Continuing the Agreement Connected Transactions shall be on normal commercial terms and in particular:

• (a) the members of the Group who are parties to the Continuing Connected Transactions shall receive or pay such consideration for the transactions with members of Hon Hai Group based on market rates or rates which are no less favourable than those available from or to (as appropriate) independent third parties;

• (b) the terms of the Continuing Connected Transactions shall be fair and reasonable and negotiated on an arm’s length basis; and

• (c) the total amount of the Continuing Connected Transactions shall not exceed the applicable Caps or such other caps as approved by the Independent Shareholders from time to time.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In view of the aforementioned terms of the Agreement, in particular that the purchase price and selling price of the electronic components at the time of the placing purchasing/sales orders will be determined based on the market rates or rates which are no less favourable than those available from or to (as appropriate) independent third parties and the terms offered to the Group by Hon Hai Group/to Hon Hai Group by the Group shall be fair and reasonable and negotiated on an arm’s length basis, we are of the opinion that the terms of the Agreement are fair and reasonable so far as the Company and the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

III. Basis of the new caps

As extracted from the Board Letter, the proposed Caps of the Continuing Connected Transactions for each of the three years ending 31 December 2007, 2008 and 2009 of the Group are set out as below:

	For	the financial year ending	the financial year ending
	31 December 2007	31 December 2008	31	December 2009
	(HK$’000)	(HK$’000)		(HK$’000)
Purchase Caps	45,000	49,500		54,450
Sales Caps	373,440	483,120		601,392

The proposed annual cap values of the Purchase Transactions and the Sales Transactions for the next three financial years have been arrived by the Directors by reference to: (i) projections of the sales and purchases of electronic components between the Group and Hon Hai Group plus a buffer of 10%; (ii) turnover outlook of the Group; (iii) indications of certain other members of Hon Hai Group in respect of purchase of electronic components from the Group which represents new business opportunities to the Group; and (iv) potential sales to Hon Hai Group by Hi-Level Technology Limited, the 51% of the issued share capital of which was proposed to be acquired by the Group as described in the announcement of the Company dated 16 November 2006.

In order to better assess the basis of the purchase cap and the sales cap for the year ending 31 December 2007, we tried to annualise the amount of the Group’s actual purchases/ sales of electronic components from/to Hon Hai Group respectively during the nine months ended 30 September 2006. However, as advised by the Directors, the electronic products industry tends to be more active in the second half of the year and thus it is likely that the Group’s actual purchases/ sales of electronic components from/to Hon Hai Group would be rather higher than the respective annualised figures as estimated by us.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Purchase Caps

The purchase cap of HK$45,000,000 for the year ending 31 December 2007 represents an increase of approximately 18.40% from the annualised actual purchases of electronic components by the Group from Hon Hai Group of HK$38,007,000 for the year ending 31 December 2006. Thereafter, the purchase cap increases by 10% annually for the years ending 31 December 2008 and 31 December 2009. The Directors advised that such increase is mainly due to the positive turnover outlook of the Group after discussion with its major customers regarding expected sales orders in the coming years in relation to the distribution of electronic components plus a buffer of 10%. In light of the past promising business performance of the Group and the fact that Hon Hai Group is the designated vendor for electronic components of certain end customers of the Group whom the Group is confident to maintain future business relationship with, we are of the opinion that the proposed annual Purchase Caps of HK$45,000,000, HK$49,500,000 and HK$54,450,000 for the three years ending 31 December 2009 respectively are fair and reasonable so far as the Company and the Independent Shareholders are concerned.

The Sales Caps

The sales cap of HK$373,400,000 for the year ending 31 December 2007 represents an increase of approximately 63.19% from the annualized actual sales of electronic components from the Group to Hon Hai Group of HK$228,812,000 for the year ending 31 December 2006. Thereafter, the sales cap increases by approximately 29% and 24% respectively for the years ending 31 December 2008 and 31 December 2009. As advised by the Directors, the said significant rise in the sales cap for the year ending 31 December 2007 is based on (i) continuous sales growth of Hon Hai Group, (ii) the Group has received indication from other subsidiaries of Hon Hai Group, including certain subsidiaries engaging in production of handsets, which have no business relationship with the Group before, and this might attract more business opportunity between the Group and Hon Hai Group; (iii) the planned expansion in production of PC board and HDD related products of Hon Hai Group in Shandong province, the PRC starting from Jan 2007, which would require more electronic components from the Group; and (iv) the potential sales to Hon Hai Group by Hi-Level Technology Limited, the 51% of the issued share capital of which is proposed to be acquired by the Group as described in the announcement of the Company dated 16 November 2006. Based on the reasons put forward by the Directors as just mentioned and the sales indication which we have been provided, we consider that the sales cap for the year ending 31 December 2007 to be reasonably determined and is fair and reasonable so far as the Company and the Independent Shareholders are concerned. As the Directors estimate that the aforementioned changes would continue to have a

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

positive impact on the Group’s sales of electronic components to Hon Hai Group for the years ending 31 December 2008 and 31 December 2009, the Directors estimate the annual increase in the sales caps of the year ending 31 December 2008 and the year ending 31 December 2009 to be approximately 29% and 24% respectively. In light of this and as aforementioned, we are of the opinion that the sales caps for the years ending 31 December 2007, 31 December 2008 and 31 December 2009 are fair and reasonable so far as the Company and the Independent Shareholders are concerned.

IV. Listing Rules’ implications

As confirmed by the Directors, the Company will comply with the annual review requirements of Rules 14A.37 to 14A.41 of the Listing Rules, including but not limited to the restriction of the value of the Continuing Connected Transactions by way of annual cap for each of the three years ending 31 December 2009, and the annual review by the independent non-executive Directors of the terms of the transactions contemplated under the Agreement and the relevant annual caps not being exceeded, details of which must be included in the Company’s subsequent published annual reports and financial accounts. In addition, pursuant to the Listing Rules, the auditors of the Company must provide a letter to the Board confirming, amongst others, that the Continuing Connected Transactions are carried out in accordance with the pricing policies of the Company and that the respective annual caps are not being exceeded. As confirmed by the Directors in the Board Letter, the Company will also comply with the applicable provisions of the Listing Rules governing continuing connected transactions in the event that the total amount of the transactions contemplated under the Agreement exceed the respective annual caps, or that there is any material amendment to the terms of the Agreement.

In light of the above conditions for the Continuing Connected Transactions, we are of the view that there are appropriate measures in place to monitor the Continuing Connected Transactions and protect the interest of the Independent Shareholders.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having considered the above factors and reasons, we are of the opinion that the transactions contemplated under the Agreement is on normal commercial terms, in the ordinary and usual course of business and in the interests of the Company and the Shareholders as a whole, and the terms of the Agreement as well as the Caps are fair and reasonable so far as the Company and the Independent Shareholders are concerned. Accordingly, we recommend that the Independent Shareholders, and advise the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the resolution to be proposed at the SGM to approve the Caps, the Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of

South China Capital Limited Graham Lam Director

– 26 –

GENERAL INFORMATION

APPENDIX

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. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests and short positions of each director and chief executive 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 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 was taken or deemed to have under such provisions of the SFO) or were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or were required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules to be notified to the Company and the Stock Exchange were as follows:

Long positions in shares of the Company

			Percentage
			of issued
			share capital of
		Number of shares	the Company as
		held as at the Latest	at the Latest
Name	Capacity	Practicable Date	Practicable Date
Yim Yuk Lun,	Beneficial owner	8,094,000	3.34%
Stanley_J.P_.
	Held by controlled	63,771,400	26.29%
	corporation_(Note)_
Wong Sui Chuen	Beneficial owner	462,000	0.19%

Note: These shares were 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 J.P . was also a director. All units in the unit trust were beneficially owned by a discretionary trust established by Mr. Yim Yuk Lun, Stanley J.P .. The trustee of the discretionary trust was Trustcorp Limited and the beneficiaries of which included the spouse and issues of Mr. Yim Yuk Lun, Stanley J.P. .

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GENERAL INFORMATION

APPENDIX

As at the Latest Practicable Date:–

• (i) save as disclosed above and other than certain nominee shares in subsidiaries held by certain Directors in trust for the Company, none of the 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 were 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 was taken or deemed to have under such provisions of the SFO) or were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or were required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers 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) none of the Directors and their respective associates had any interest in a business which competed or was likely to compete, either directly or indirectly, with the business of the Company;

• (iv) none of the Directors and the Independent Financial Adviser 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 2005, the date to which the latest published audited accounts of the Group were made up; and

• (v) the Independent Financial Adviser 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.

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GENERAL INFORMATION

APPENDIX

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was 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 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 carrying rights to vote in all circumstances at general meetings of any other member of the Group:

(i) Long positions in shares of the Company

			Percentage
			of issued share
		Number of	capital of the
		Shares held as	Company as
		at the Latest	at the Latest
Name	Capacity	Practicable Date	Practicable Date
Hon Hai	Held by controlled	46,000,000	18.97%
	corporation_(Note 1)_
Foxconn	Beneficial owner	46,000,000	18.97%
Unimicro Limited	Trustee_(Note 2)_	63,771,400	26.29%
Trustcorp Limited (“Trustcorp”)	Trustee_(Notes 2 and 3)_	63,771,400	26.29%
Newcorp Ltd. (“Newcorp”)	Held by controlled	63,771,400	26.29%
	corporation_(Note 3)_
Newcorp Holdings Ltd.	Held by controlled	63,771,400	26.29%
(“Newcorp Holdings”)	corporation_(Note 3)_
David Henry Christopher Hill	Held by controlled	63,771,400	26.29%
	corporation_(Notes 3 and 4)_
Rebecca Ann Hill	Family interest_(Note 5)_	63,771,400	26.29%
David William Roberts	Held by controlled	63,771,400	26.29%
	corporation_(Notes 3 and 6)_

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GENERAL INFORMATION

APPENDIX

Notes:

• (1) Hon Hai owned 100% interest in Foxconn and was accordingly deemed to be interested in those shares beneficially owned by Foxconn.

• (2) These shares were held by a unit trust whose trustee was Unimicro Limited, a company incorporated in the British Virgin Islands, of which Mr. Yim Yuk Lun, Stanley J.P. was also a director. All units in the unit trust were beneficially owned by a discretionary trust established by Mr. Yim Yuk Lun, Stanley J.P. . The trustee of the discretionary trust was Trustcorp and the beneficiaries of which included the spouse and issues of Mr. Yim Yuk Lun, Stanley J.P. .

• (3) Trustcorp was a wholly owned subsidiary of Newcorp which was in turn a wholly owned subsidiary of Newcorp Holdings. By virtue of the SFO, the interests of Trustcorp in those shares of the Company were deemed to be the interests of Newcorp and Newcorp Holdings.

• (4) Since Mr. David Henry Christopher Hill was indirectly interested in 35% of the issued share capital of Newcorp Holdings, the interests of Trustcorp were deemed to be the interests of Mr. Hill by virtue of the SFO.

• (5) Mrs. Rebecca Ann Hill was the spouse of Mr. David Henry Christopher Hill. By virtue of the SFO, Mrs. Hill was deemed to be interested in the shares held by Mr. Hill.

• (6) Since Mr. David William Roberts was indirectly interested in 35% of the issued share capital of Newcorp Holdings, the interests of Trustcorp were deemed to be the interests of Mr. Roberts by virtue of the SFO.

(ii) Long positions in shares of the subsidiaries of the Company

			Percentage of issued
		Number of shares	share capital
Name of subsidiary	Name of	held as at the Latest	of the subsidiary
of the Company	shareholder	Practicable Date	of the Company
SMartech Electronic Co., Ltd.	Wang Jin	290,000	29%
HAS Electronic Co., Ltd.	Chan Yuk Yee	150,000	15%

Save as disclosed herein, as at the Latest Practicable Date, so far as was known to any director or chief executive of the Company, no 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 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 carrying rights to vote in all circumstances at general meetings of any other member of the Group.

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GENERAL INFORMATION

APPENDIX

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had a service contract or a proposed 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.

5. 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 2005, being the date to which the latest published audited financial statements of the Group were made up.

6. MISCELLANEOUS

• (i) Mr. Wong Wai Tai, a Certified Public Accountant of the Hong Kong Institute of Certified Public Accountants, is the secretary and qualified accountant of the Company.

• (ii) The Independent Financial Adviser is a deemed licensed corporation to carry out type 6 (advising on corporate finance) regulated activity as set out in Schedule 5 to the SFO.

• (iii) The Independent Financial Adviser 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.

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

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copy of the following documents are available for inspection at the office of Messrs. Sit, Fung, Kwong & Shum, 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:–

• (i) the Agreement;

• (ii) the Distribution Agreement;

• (iii) the Materials Agreement;

• (iv) letter from the Independent Board Committee dated 12 December 2006; and

• (v) letter from the Independent Financial Adviser dated 12 December 2006.

– 31 –

NOTICE OF THE SGM

==> picture [68 x 58] 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 6/F., Tower B, Hunghom Commercial Centre, 37 Ma Tau Wai Road, Hunghom, Kowloon, Hong Kong on 28 December 2006 at 11:30 a.m. (or as soon thereafter as the special general meeting of the Company to be held at the same place and date at 11:00 a.m. shall have been concluded or adjourned) or at any adjournment thereof for the purpose of considering and, if thought fit, passing the following resolution, with or without amendments, as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT ,

• (a) the Agreement and the proposed Caps, each as defined and described in the circular of the Company dated 12 December 2006 (the “ Circular ”), a copy of the Agreement marked “A” together with a copy of the Circular marked “B” being tabled before the meeting and initialled by the chairman of the meeting for identification purpose, and all transactions contemplated thereunder and in connection therewith, be and are hereby approved, ratified and confirmed; and

• (b) any one director of the Company be and is hereby authorised for and on behalf of the Company to execute all such other documents 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.”

By Order of the Board

S.A.S. Dragon Holdings Limited Yim Yuk Lun, Stanley J.P. Chairman and Managing Director

Hong Kong, 12 December 2006

– 32 –

NOTICE OF THE SGM

Notes:

1. The ordinary resolution to be considered at the meeting will be decided by poll. On voting by poll, each member shall have one vote for each share held in the Company.

2. A 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.

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

4. The instrument appointing a proxy shall 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, attorney or other person authorized to sign the same.

5. To be valid, the proxy form, together with the power of attorney or other authority (if any) under which it is signed, or a certified copy thereof must be lodged at the Company’s branch share registrar in Hong Kong, Secretaries Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, not less than fortyeight (48) hours before the time appointed for holding the meeting or any adjourned meeting thereof (as the case maybe) and in default thereof the proxy form and such power or authority shall not be treated as valid.

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

7. Where there are joint holders of any share of the Company, any one of such joint holders may vote at any meeting, 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 personally or by proxy, the person so present whose name stands first on the register of the Company in respect of such share shall alone be entitled to vote in respect thereof.

8. As at the date hereof, the Board comprises seven directors of which Messrs. Yim Yuk Lun, Stanley J.P. and Wong Sui Chuen are executive directors; Dr. Chang Chu Cheng is non-executive director and Mr. Cheung Chi Kwan, Mr. Liu Chun Ning, Wilfred, Dr. Lui Ming Wah SBS J.P. , and Mr. Wong Tak Yuen, Adrian are independent nonexecutive directors.

– 33 –