S.A.S. Dragon Holdings Limited

THIS CIRCULAR IS INFORMATION 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).

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

(incorporated in Bermuda with limited liability)

(Stock Code: 1184)

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF SPECIAL GENERAL MEETING

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

A letter from the Independent Board Committee is set out on page 31 of this circular.

A letter from Gram Capital containing its advice to the Independent Board Committee and the Independent Shareholders on the Conditional Master Agreement, the Caps and the Continuing Connected Transactions contemplated thereunder is set out on pages 32 to 47 of this circular.

A notice convening the SGM to be held at 28/F., Noble Centre, No. 1006, 3rd Fuzhong Road, Futian District, Shenzhen, P.R.C. on 31 January 2019 at 11:00 a.m. is set out on pages 52 to 53 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, Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, 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.

15 January 2019

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DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM	THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . .	31
LETTER FROM	GRAM CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
APPENDIX –	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	48
NOTICE OF THE SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		52

DEFINITION

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

‘‘Announcement’’
the announcement issued by the Company dated 28 December 2018;
‘‘associate(s)’’ Have the meaning ascribed to it in the Listing Rules;
‘‘AV PRODUCTS’’
The LCD Televisions under the brand name of ‘‘SHARP’’ being produced by SHARP (or its affiliates, whether in Japan or elsewhere) or under the authority of SHARP, any accessory thereto and printed matter as well as their repair and replacement parts;
‘‘BES PRODUCTS’’
Any and all business equipment and solutions products (whether under the brand name of ‘‘SHARP’’ or any other brand name owned or controlled by SHARP) currently being produced by or for or under the authority of SHARP which shall be the integrated white board, information display panels, video wall, digital signage, copier, multifunction peripheral, document system software and consumables, and all new products;
‘‘Board’’ or ‘‘Directors’’ The board of directors of the Company;
‘‘Bye-laws’’
The bye-laws of the Company;
‘‘Caps’’
The Purchase Caps and the Sale 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;

‘‘Conditional Master Agreement’’

The conditional master agreement dated 28 December 2018 made between the Company and Hon Hai which governs the sales and purchase of electronic components and sale of other products by the Group to the Hon Hai Group and distribution of SHARP’S PRODUCTS and distribution of other brand products under the Hon Hai Group between the Group and Hon Hai and its subsidiaries for the 3 financial years from 1 January 2019 to 31 December 2021 (both dates inclusive);

‘‘connected person(s)’’

Have the meaning ascribed to it under the Listing Rules;

‘‘Continuing Connected Transactions’’

The Purchase Transactions and the Sale Transactions;

DEFINITION

‘‘Distribution Agreements’’
(1) The distributorship agreement made between FIT Taiwan and S.A.S. Electronic (as distributor) dated 2 November 2018 in relation to the non-exclusive distribution of Hon Hai’s electronic components and other products, such as connector, cable and accessory, by S.A.S. Electronic, in Taiwan, East China, South China and North China;
(2) The distributorship agreement made between Huai An City Fulitong Trading and S.A.S. Electronic (Shenzhen) (as distributor) dated 2 November 2018 in relation to the nonexclusive distribution of Hon Hai’s electronic components and other products, such as connector and cable, by S.A.S. Electronic (Shenzhen), in South China and East China;
(3) The distribution agreement made between SHARP and RSL Microelectronics (as distributor) dated 26 August 2016 in relation to the sole and exclusive distribution of EC PRODUCTS in Hong Kong and Macau and the nonexclusive distribution of EC PRODUCTS in Non-exclusive Territories by RSL Microelectronics for the purpose of distributing EC PRODUCTS and to provide appropriate repair and maintenance services for the EC PRODUCTS sold by RSL Microelectronics;
(4) The distribution agreement made between SHARP and S.A.S. Electric (as distributor) dated 26 August 2016 in relation to the sole and exclusive distribution of BES PRODUCTS in Hong Kong and Macau by S.A.S. Electric for the purpose of distributing BES PRODUCTS and to provide appropriate repair and maintenance services for the BES PRODUCTS sold by S.A.S. Electric;
(5) The distribution agreement made between SHARP and S.A.S. Electric (as distributor) dated 26 August 2016 in relation to the sole and exclusive distribution of H&P PRODUCTS in Hong Kong and Macau and any other territories, which may be agreed by SHARP and S.A.S Electric in writing, by S.A.S. Electric for the purpose of distributing H&P PRODUCTS and to provide appropriate repair and maintenance services for the H&P PRODUCTS sold by S.A.S. Electric;

DEFINITION

(6) The distribution agreement made between SHARP and S.A.S. Electric (as distributor) dated 26 August 2016 in relation to the sole and exclusive distribution of AV PRODUCTS in Hong Kong and Macau by S.A.S. Electric for the purpose of distributing AV PRODUCTS and to provide appropriate repair and maintenance services for the AV PRODUCTS sold by S.A.S. Electric;
‘‘East China’’ Zhejiang Province, Jiangsu Province, Shanghai Municipality, Shangdong Province, Fujian Province, Jiangxi Province and Anhui Province;
‘‘EC PRODUCTS’’
All Electronic Components (whether under the brand name of SHARP or any other brand name owned or controlled by SHARP) currently being produced by SHARP (or its direct or indirect subsidiaries, whether in Japan or elsewhere) or under the authority of SHARP or hereafter be produced or developed;
‘‘Electronic Components’’ All kinds of electronic components excluding displays, panels, LCD panels or LCD display. For clarification of understanding, the said electronic components do not include any finished products and photovoltaic products and any accessories, repair and replacement parts and consumables thereof;
‘‘FIT Taiwan’’
Foxconn Interconnect Technology Limited Taiwan Branch, a company incorporated in Taiwan and a non-wholly owned subsidiary of Hon Hai;
‘‘Foxconn’’
Foxconn Holding Limited, a company incorporated in the British Virgin Islands, a wholly owned subsidiary of Hon Hai and a substantial shareholder of the Company;
‘‘Group’’
The Company and its subsidiaries;
‘‘Gram Capital’’ or ‘‘Independent Financial Adviser’’
Gram Capital Limited, a licensed corporation to carry out type 6 (advising on corporate finance) regulated activities as defined under the SFO and the independent financial adviser to the independent board committee and the Independent Shareholders in relation to the Conditional Master Agreement, the Caps and the Continuing Connected Transactions contemplated thereunder;

DEFINITION

‘‘H&P PRODUCTS’’
‘‘Hon Hai’’
‘‘Hon Hai Group’’
‘‘Hong Kong’’
‘‘Huai An Fulitong Trading’’
‘‘Independent Board Committee’’
‘‘Independent Shareholder(s)’’
‘‘Latest Practicable Date’’
‘‘Listing Rules’’
‘‘Macau’’ or ‘‘Macao’’
‘‘Non-exclusive Territories’’

Home and kitchen appliances and air-conditioning products under the ‘‘SHARP’’ brand name being produced by SHARP (or its affiliates, whether in Japan or elsewhere) any accessory thereto and printed matter as well as their repair and replacement parts. The kitchen appliances products are freezer-refrigerators, microwave ovens, steam ovens, electric rice cookers and juicers. The home products are hair dryers, air purifiers, ion generators, and dehumidifiers;

Hon Hai Precision Industry Company Limited (鴻海精密工業股份有限公司), a company incorporated in Taiwan with limited liability and the shares of which are listed on the Taiwan Stock Exchange Corporation;
Hon Hai, Foxconn, FIT Taiwan, Huai An Fulitong Trading, SHARP and their respective subsidiaries and associates;
The Hong Kong Special Administrative Region of the PRC;
Huai An Fulitong Trading Company Limited (淮安市富利通貿易有限公司), a company incorporated in the PRC with limited liability, and a non-wholly owned subsidiary of Hon Hai;
An independent board committee of the Company consisting of all the independent non-executive Directors, namely Mr. Wong Tak Yuen, Adrian, Mr. Liu Chun Ning, Wilfred, Mr. Cheung Chi Kwan and Mr. Wong Wai Kin to advise the Independent Shareholders in relation to the Conditional Master Agreement, the Caps and the Continuing Connected Transactions contemplated thereunder;
Shareholder(s) other than Hon Hai, Foxconn and any of their respective associates;
11 January 2019, being the latest practicable date prior to the printing of this circular for ascertaining certain information included in this circular;
The Rules Governing the Listing of Securities on the Stock Exchange;
The Macao Special Administrative Region of the PRC;

Guangdong and Fujian Provinces and such Special Economic Zones as Shenzhen, Xiamen, Guangzhou, Zhuhai, Fuzhou and Hainan Dao;

DEFINITION

‘‘North China’’
Henan Province, Beijing Municipality, Tianjin Municipality, Shanxi Province, Inner Mongolia Autonomous Region;
‘‘percentage ratios’’
The percentage ratios calculated based on the requirements under Rule 14.07 of the Listing Rules;
‘‘Previous Master Agreement’’
The master agreement entered into between the Company and Hon Hai dated 9 November 2015 which governs the continuing connected transactions between the Group and the Hon Hai Group made and to be made during the period between 1 January 2016 and 31 December 2018 (both dates inclusive);
‘‘PRC’’
The 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$1,700 million, HK$2,200 million and HK$2,700 million for each of the three financial years ending 31 December 2019, 2020 and 2021 respectively in respect of the Purchase Transactions;
‘‘Purchase Transactions’’ The purchases of electronic components and distribution of SHARP’S PRODUCTS and distribution of other brand products under the Hon Hai Group by the Group under the Conditional Master Agreement;
‘‘RSL Microelectronics’’ RSL Microelectronics Company Limited (時保晶電有限公司), a limited company incorporated in Hong Kong and a wholly owned subsidiary of the Company;
‘‘Sales Agreement’’
The sales agreement dated 8 March 2013 made between Hon Hai and S.A.S. Electronic (Shenzhen), a wholly-owned subsidiary of the Company, in relation for sale of electronic components and other products to Hon Hai and other sale agreement(s) which may be made between the Group and Hon Hai for the purpose of selling electronic components and other products to Hon Hai;
‘‘Sale Caps’’
For the purpose of Chapter 14A of the Listing Rules, means HK$5,600 million, HK$7,200 million and HK$9,000 million for each of the three financial years ending 31 December 2019, 2020 and 2021 respectively in respect of the Sale Transactions;
‘‘Sale Transactions’’
The sale of electronic components and other products by the Group to the Hon Hai Group under the Conditional Master Agreement;

DEFINITION

‘‘S.A.S. Electric’’ S.A.S. Electric Company Limited (時捷電氣有限公司), a company incorporated in Hong Kong and a wholly owned subsidiary of the Company;
‘‘S.A.S. Electronic’’ S.A.S. Electronic Company Limited (時捷電子有限公司), a company incorporated in Hong Kong and a wholly owned subsidiary of the Company;
‘‘S.A.S. Electronic (Shenzhen)’’ S.A.S. Electronic (Shenzhen) Co. Ltd. (時捷電子科技(深圳)有限公司), a company incorporated in Shenzhen and a wholly owned subsidiary of the Company;
‘‘SFO’’ The Securities and Futures Ordinance (Cap. 571 of Hong Kong Laws);
‘‘SGM’’
the special general meeting of the Company to be held at 28/F., Noble Centre, No. 1006, 3rd Fuzhong Road, Futian District, Shenzhen, P.R.C. on 31 January 2019 at 11:00 a.m. to approve the Conditional Master Agreement, the Caps and the Continuing Connected Transactions contemplated thereunder, notice of which is set out on pages 52 to 53 of this circular;

The special general meeting of the Company to be held to approve the Conditional Master Agreement, the Caps and the Continuing Connected Transactions contemplated thereunder;

‘‘Shareholder(s)’’ Holder(s) of shares of the Company;
‘‘SHARP’’ SHARP Corporation, a company incorporated in Japan and a nonwholly owned subsidiary of Hon Hai;
‘‘SHARP’S PRODUCTS’’ AV PRODUCTS and EC PRODUCTS and H&P PRODUCTS and BES PRODUCTS;
‘‘South China’’ Guangdong Province, Guangxi Province, Hainan Province, Hong Kong and Macau;
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited;
‘‘substantial shareholder(s)’’ having the meaning ascribed to it in the Listing Rules;
‘‘HK$’’ Hong Kong dollars, the lawful currency of Hong Kong; and
‘‘%’’ Per cent.

LETTER FROM THE BOARD

S.A.S. Dragon Holdings Limited

(incorporated in Bermuda with limited liability) (Stock Code: 1184)

Executive Directors: Mr. Yim Yuk Lun, Stanley BBS JP (Chairman and Managing Director) Mr. Wong Sui Chuen Mr. Yim Tsz Kit, Jacky Mr. Wong Wai Tai

Independent Non-executive Directors: Mr. Wong Tak Yuen, Adrian Mr. Liu Chun Ning, Wilfred Mr. Cheung Chi Kwan Mr. Wong Wai Kin

Registered Office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Principal Office: 19/F., S.A.S. Tower, 55 Lei Muk Road, Kwai Chung, New Territories, Hong Kong

15 January 2019

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

Reference is made to the announcement dated 23 November 2006, 18 November 2009, 9 April 2010, 12 November 2012, 9 November 2015, 30 November 2015, 14 December 2015, 2 May 2017 and 28 December 2018 as well as the circulars dated 12 December 2006, 3 December 2009, 29 April 2010, 3 December 2012 and 18 December 2015 in relation to the Continuing Connected Transaction of the Company. Since the Previous Master Agreement dated 9 November 2015 for the sales and purchases of electronic components and other products between the Group and the Hon Hai Group has expired on 31 December 2018, in anticipation of such continuing sales and purchases of electronic components and sale of other products by the Group to the Hon Hai Group and distribution of SHARP’S PRODUCTS and distribution of other brand products under the Hon Hai Group between the Group and the Hon Hai Group in future, on 28 December 2018, the Company entered into the Conditional Master Agreement with Hon Hai which governs the sales and purchases of electronic components and distribution of SHARP’S PRODUCTS and distribution of other brand products under the Hon Hai Group to be made for the next 3 financial years during the period between 1 January 2019 and 31 December 2021 (both dates inclusive).

LETTER FROM THE BOARD

The Major terms of the Conditional Master Agreement and the Previous Master Agreement are substantially the same. The purposes of this circular are:

(i) to provide the Shareholders with further details of the Conditional Master Agreement, the Caps and the Continuing Connected Transactions contemplated thereunder;
(ii) to set out the recommendation of the Independent Board Committee to the Independent Shareholders and the advice from Gram Capital to the Independent Board Committee and the Independent Shareholders in relation to the Conditional Master Agreement, the Caps and the Continuing Connected Transactions contemplated thereunder; and
(iii) to give the Shareholders the notice of the SGM and other information in accordance with the requirements of the Listing Rules at which resolutions will be proposed to the Independent Shareholders to consider and, if thought fit, approve the Conditional Master Agreement, the Caps and the Continuing Connected Transactions contemplated thereunder.

THE CONDITIONAL MASTER AGREEMENT

The Company entered into the Conditional Master Agreement with Hon Hai on 28 December 2018 which governs the sales and purchases of electronic components and sale of other products by the Group to the Hon Hai Group and distribution of SHARP’S PRODUCTS and distribution of other brand products under the Hon Hai Group to be made for the next 3 financial years during the period between 1 January 2019 and 31 December 2021 (both dates inclusive). The principal terms of the Conditional Master Agreement are set out below:

Date: 28 December 2018 Parties: The Company Hon Hai Subject matter: sales and purchases of electronic components and sale of other products by the Group to Hon Hai Group and distribution of SHARP’S PRODUCTS and distribution of other brand products under the Hon Hai Group between the Group and the Hon Hai Group Term: from 1 January 2019 to 31 December 2021

The Conditional Master Agreement is conditional upon the approval of the Conditional Master Agreement and the Caps by the Independent Shareholders at the SGM.

Under the Conditional Master 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 the 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;

LETTER FROM THE BOARD

(b) the terms of the Continuing Connected Transactions shall be fair and reasonable and negotiated on arm’s length basis;
(c) for purchases made by the Group from the Hon Hai Group, as the members of the Hon Hai Group are the approved vendors designated by certain end-customers, the Group will review and ensure prices for products to be purchased are charged on a cost-plus basis with reasonable profit margin;
(d) for sales made by the Group to the Hon Hai Group, for the purpose of ensuring the terms of sales being fair and reasonable, the Group will review its pricing policy based on the following factors:
(i) the historical selling price of similar products;
(ii) the market information obtained from current customers or other vendors;
(iii) quotations from independent third party(ies); or
(iv) continuing to expand the Company’s customer base and obtaining market information from those customers; and
(e) 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.

Hon Hai will procure members of the Hon Hai Group to comply with the terms and conditions of the Conditional Master Agreement.

Certain members of the Group and certain members of the 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 Agreements and the Sales Agreement) made or to be made between the relevant members of the Group and relevant members of the Hon Hai Group in respect of the Continuing Connected Transactions will be subject to the Conditional Master Agreement.

SALES AND PURCHASES BETWEEN THE GROUP AND THE HON HAI GROUP

Hon Hai is a company listed on Taiwan Stock Exchange (Stock Code: 2317). The Hon Hai Group is the world’s leading computer, communication, consumer electronics manufacturing services provider which are primarily engaged in the manufacture, sales and service of connectors, case, thermal module, wired/wireless communication products, optical products, power supply modules, and assemblies for use in the IT, communications, automotive equipment, precision molding, automobile, and consumer electronics industries.

The Group is one of the suppliers of the Hon Hai Group. The Group acts as a trader between the Hon Hai Group and other suppliers to sell electronic components to the Hon Hai Group. The Group acts as a distributor of the Hon Hai Group to purchase electronic components from the Hon Hai Group and sell the same to the end-customers of the Group. In addition, the Group is a distributor of SHARP’S PRODUCTS in Hong Kong, Macau and Non-exclusive Territories.

LETTER FROM THE BOARD

The Group specialises in design, development, sourcing, quality assurance and logistics management of global proprietary electronic components and semiconductor products including chipset solutions, display panels, memory chips, power supply system solutions, multimedia system solutions, PEMCO, IoT home automation solutions, light-emitting diode (‘‘LED’’) lighting solutions and other premier solutions for a wide range of applications for mobile, consumer electronic, computer and networking, telecommunication and LED lighting products. The Group is also a distributor of SHARP’S PRODUCTS.

For sales of electronic components by the Group to the Hon Hai Group, the Hon Hai Group would conduct sourcing in advance and instruct the Group to purchase the electronic components from the designated supplier and resell the same to the Hon Hai Group. For purchases of electronic components by the Group from the Hon Hai Group, the Group’s endcustomers would instruct the Group to purchase the electronic components from the Hon Hai Group and resell the same to them. For further information on the basis for determining the prices for purchases and sales of the products, please refer to the section headed ‘‘Pricing Policy’’.

Note: The information of the products manufactured by the Hon Hai Group is extracted from the announcement of interim results for the six months ended June 30, 2018 of FIT Hong Teng at http://www3.hkexnews.hk/listedco/listconews/ sehk/2018/0814/ltn20180814643.pdf)

INTERNAL POLICIES AND PROCEDURES

Although it is not part of the provisions in the Conditional Master Agreement, the members of the Group will follow the internal policy and procedures as set out below when entering into, or deciding whether to enter into any sale or purchase transactions, with members of the Hon Hai Group.

Payment Terms of Sales made by the Group

Under the Sales Agreement, the members of the Group would set out in the settlement date in all purchase orders made by the members of the Hon Hai Group. The purchaser, being a member of the Hon Hai Group, will be required, under the Sales Agreement and as a term of the relevant purchase order, to settle the total price for all the products supplied under that purchase order within 120 days from the date of the purchase order being made. Under the two-way business partnership between the Group and the Hon Hai Group, except the payment terms for the purchases of SHARP’S PRODUCT made by the Group, the payment terms of sales and purchases made by the Group are the same. Considering upon the fact that the payment term of sales made by the Group to some independent third parties is also within 120 days from the date of the purchase order being made, the Company believes that the payment terms of sales made by the Group to the Hon Hai Group are fair and reasonable and on normal commercial terms or better and consistent with the payment terms generally included in the contracts for the supply of electronic components by the Group to customers which are independent third parties and the market practice.

LETTER FROM THE BOARD

Payment Terms of Purchases made by the Group (Not related to SHARP’S PRODUCTS)

Under the Distribution Agreements (1) and (2), the members of the Group which made purchases from the member of the Hon Hai Group would settle the price of the products within 120 days from the date of delivery of the products. Under the two-way business partnership between the Group and the Hon Hai Group, except the payment terms for the purchases of SHARP’S PRODUCT made by the Group, the payment terms of sales and purchases made by the Group are the same. Considering upon the fact that the payment terms in relation to the purchases made by the Group from some independent third parties are cash on delivery or within 15 days from the date of delivery, the Company believes that the payment terms of purchases made by the Group from the Hon Hai Group are fair and reasonable and on normal commercial terms or better and consistent with the payment terms generally included in the contracts for the purchases of electronic components by the Group from suppliers which are independent third parties and the market practice.

Payment Terms of Purchases made by the Group (Related to SHARP’S PRODUCTS)

Under the distribution agreements entered into with SHARP, which are Distribution Agreements (3), (4), (5) and (6), the members of the Group would settle the price of the products within 25 days after invoice date, i.e. around within 25 days from the date of delivery. Although the Group does not have similar purchase order to compare, the current practice is that the payment terms in relation to the purchases made by the Group from some independent third parties are cash on delivery or within 15 days from the date of delivery. Based on this fact, the Company believes that the payment terms of purchases related to SHARP’S PRODUCTS made by the Group from the Hon Hai Group are fair and reasonable.

Pricing Policies and Internal Procedures

Pricing Policy

Since the Group engages in trading, distribution, sourcing, quality assurance and logistics management of electronic and semiconductor products, the Group has been trading with various suppliers and customers and one of which is the Hon Hai Group. Generally speaking, the market competition in the electronic and semiconductor products trading is very keen and the prices of electronic and semiconductor products are highly transparent and competitive.

For sales to be transacted with the Hon Hai Group, the sale executives of the Group will have 3- party meetings with each of our main suppliers and representatives from the Hon Hai Group on a quarterly basis to discuss the overall prices and quantities for each product categories. The suppliers and representatives from the Hon Hai Group will agree upon the prices and quantities of various products to be traded. Determination of the prices for sales with Hon Hai is generally with reference to the standard price range, prevailing market prices of those or similar products, or the gross profit mark-up rate not below 2%.

For purchases of products not related to SHARP’S PRODUCTS, the Group will determine the prices for purchases of such products with Hon Hai with reference to the cost-plus basis with an overall mark-up rate not below 3%. For purchases of SHARP’S PRODUCTS, the Group will determine the prices for purchases of SHARP’S PRODUCTS with Hon Hai with reference to the cost-plus basis with an overall mark-up rate not below 4%.

LETTER FROM THE BOARD

The Group has set up internal pricing policies to ensure that the terms of the Continuing Connected Transactions are fair and reasonable and on normal commercial terms or better.

Price Policy for Sales

As the Group’s internal policy, for sales made by the Group to the Hon Hai Group, for the purpose of ensuring the terms of sales being fair and reasonable, the Group will determine the prices of products to be sold to the Hon Hai Group based on the following factors:

(i) the standard price range of all products based on current and historical selling price range of the product or similar products in different quantities maintained by the Group in our central database. The central database will be updated monthly by the sales manager in the members of the Group. The Group maintains the records of all products where information, such as inventory’s current and historical price range and historical quantities traded, is kept and updated from time to time. When determining the standard price range set out in the list of standard price, the quantity and all the direct costs associated with each of the products, including but not limited to the costs of the components, logistics costs, interest costs and other costs incurred in or incidental to the trading are taken into account. The standard price range maintained in our central database is the most often adopted factor in determination of our sale prices. When this factor (i) is inapplicable, the Group will consider factor (ii) and (iii) below in determination of our sale price. According to our records, for sales made by the Group to the Hon Hai Group, no sales price has been set lower than the standard price range;
(ii) the Group will determine the price of products to be sold to the Hon Hai Group based on the experience of the Group’s management or the dealings with other players in the market, such as referring to (i) the prevailing market price range of those similar products, (ii) two price quotations or two other contemporaneous transactions with independent third parties in respect of similar products and similar quantities (if any), and (iii) any available market information. As the market of electronic components trading is highly competitive and transparent, the pricing of products sold to the Hon Hai Group will be set at or very close within the prevailing market price range, but not below the prevailing market price range. Although there is no publicly available information or ‘‘market index’’ for the electronic components sold by the Group to the Hon Hai Group, the Group’s management together with the staff in the sales department which are of more than 200 employees who engage in the sales of products are well familiarised with market of electronic components trading as well as the prevailing market price range of those products; and
(iii) whenever the Group adopts factor (ii) above to determine the sales price or in case where none of the above is applicable, the price shall be determined by the cost-plus method, such as the Group will base on the cost of goods sold and reasonable costs, including the operating and administration costs, incurred in providing the trading services, plus a profit margin with an overall mark-up rate between 2% and 10%. Considering upon the fact that the Conditional Master Agreement governs the sales and purchase of electronic components and sale of other products by the Group to the Hon Hai Group and distribution of SHARP’S PRODUCTS and distribution of other brand products under the Hon Hai Group between the Group and Hon Hai and its subsidiaries for the next 3 financial years, i.e. from 1 January 2019 to 31 December 2021, such profit margin is determined by reference to the average gross profit margin rates of the Group in the last three financial years, i.e. 4.2%, which were 3.8%, 4.7% and 4.2% for the financial year ended 31 December 2015, 2016 and 2017 respectively. In addition to our

LETTER FROM THE BOARD

average gross profit margin rate, we also take into consideration of other pricing factors, including the quantity, the logistics costs which is affected by the location(s) of the products to be delivered and the payment terms with suppliers since shorter credit period will increase the interest expenses of the Group in associate with the need of the Group to obtain additional financing to cover the cost of purchase of the products sold to Hon Hai during the credit period. The difference in the overall gross profit mark-up rate between 2% and 10% depends on the various product lines and the quantity of goods supplied by the Group to the Hon Hai Group in which the Group supplies to the Hon Hai Group. For product lines which are of advanced technology or higher-end, the Group can achieve a higher gross profit margin while for matured products such as passive components, the Group will record a lower profit margin rate. Nonetheless, the average gross profit margin rate is a presumed reasonable profit margin rate for reference only. Considering that different products have different gross profit margin, the price shall be determined by the cost-plus method, such as base on the cost of goods sold and reasonable costs plus a profit margin with an overall mark-up rate between 2% and 10%.

The above policies shall be followed regardless of whether the purchasers of the products are independent third parties or a connected person of the Group, including the Hon Hai Group. Therefore, the prices of products supplied to the Hon Hai Group under the Conditional Master Agreement are determined in accordance with the same policies and procedures applied to determine the price of products sold to the independent third parties.

For determining the overall mark-up rate, the Group would take reference to the gross profit ratios of other competitors which (i) are also mainly doing business of purchasing and selling electronic components, such as connectors and integrated circuits, (ii) have similar size of turnover as the Group, and (iii) have no own factory to manufacture electronic components. For example, the Group has taken reference to the gross profit ratios of the Supreme Electronics Company Limited which is a company listed on Taiwan Stock Exchange (Stock Code: 8112) and Edom Technology Company Limited which is a company listed on Taiwan Stock Exchange (Stock Code: 3048).

Referring to the 3[rd] quarter reports of the Supreme Electronics Company Limited and Edom Technology Company Limited in 2018, their gross profit ratios are both around 3%. Since our average gross profit margin (4.2%) is slightly higher than the said gross profit ratios (3%) in the market, the Group believes that the transaction were on an arm’s length basis or terms no less favourable to the Group than terms available to or from independent third parties and the overall gross profit mark-up rate between 2% and 10% is fair and reasonable and on normal commercial terms or better.

Notes: (i) The 3rd quarter reports of Supreme Electronics Company Limited in 2018 is extracted from http://doc.twse.com.tw/pdf/201803_8112_AI1_20190102_113712.pdf

(ii) The 3rd quarter reports of Edom Technology Company Limited in 2018 is extracted from http://doc.twse.com.tw/pdf/201803_3048_AI1_20190102_113640.pdf

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Price Policy for Purchases

Purchases made by the Group (Not related to SHARP’S PRODUCTS)

For current price negotiation mechanism in relation to the purchases of products, which are not related to SHARP’S PRODUCTS, made by the Group from the Hon Hai Group is that the end-customers and the Hon Hai Group would first agree the price (i.e., the Group’s selling price to the end-customers), which is then followed by the Group negotiating with the Hon Hai Group on its purchase price from the Hon Hai Group with reference to the mark-up rate between 3% and 5%. As the Group’s internal policy, for purchases made by the Group from Hon Hai Group, the Group will endeavour to ensure the terms of the purchases being fair and reasonable by reviewing the prices of products to be purchased from the Hon Hai Group based on the following factors:

(i) as the members of the Hon Hai Group are the only approved vendor(s) designated by certain end-customers of the Group and the price of purchase have been pre-agreed by the endcustomer with member of the Hon Hai Group with a proposed margin between the purchase price and resale price of the products to the Group as the commission to the Group as distributor or dealer of the products. Although the purchase prices have been pre-determined between the end-customers and the member of the Hon Hai Group, the Group will review the proposed margin with the members of the Hon Hai Group to ensure such margin is of reasonable profit margin to the Group. If the Group considers such proposed margin is not profitable, the Group will counter-offer and negotiate with members of the Hon Hai Group for a higher rate, failing which the Group will reject such business; and
(ii) the Group will ensure the prices for products to be purchased from Hon Hai are sufficient to maintain reasonable profit margin after considering the target gross profit margin in respect of the types and quantities of products to be sold on a cost-plus basis with an overall mark-up rate between 3% and 5% over our purchase price of the products. Such mark-up rate is determined with reference to the fixed commission percentage pre-agreed among the Group, Hon Hai and end-customers and the average gross profit margin of the Group which was 4.2% for the three financial years ended 31 December 2015, 2016 and 2017 respectively. In addition to the average gross profit margin rate, our Group will also take into account of other factors, including the logistics costs incurred by the Group in the distribution of products from the Hon Hai Group and the payment terms with the end-customers where longer credit period will increase the interest expenses of the Group in association with the need to obtain additional financing to cover the cost of sale to the end-customers during the credit period. Nonetheless, the average gross profit margin rate is a presumed reasonable profit margin rate for reference only. Considering that different products have different gross profit margin, the price shall be determined on a cost-plus basis with an overall mark-up rate between 3% and 5% over our purchase price of the products.

The factor (i) set out above was a part of the Conditional Master Agreement for the Group to determine the purchase price of the purchases to be made by the Hon Hai Group from the Group which was specifically agreed to cater for the connected transactions to be made between the Group and the Hon Hai Group. Save for disclosed above, the Group has not purchased any similar products from independent third parties for end-customers which do not require the Hon Hai Group as the designated vendor. Put it another way, the Hon Hai Group is not the sole Vendor of the Group, but for those products that could be

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provided by the Hon Hai Group or other independent suppliers, all of our existing customers have instructed the Group to purchase the said products from the Hon Hai Group. Since the Hon Hai Group is the only vendor designated by end-customers with the purchase prices of products pre-agreed between the Hon Hai Group and end-customers, and no information regarding to the rates offered by the Hon Hai Group to other distributors is available for the Group to compare, the Group will adhere to factor (ii) above in reviewing our purchase price rather than comparing with market prices of similar products failing which the Group will reject such proposed business since the Group will consider such business is not profitable.

In engaging other distribution and trading business by the Group, the Group shall, in regardless of whether the sellers of the products which can be sourced from Hon Hai are independent third parties or a connected person of the Group, including the Hon Hai Group, adhere to factor (ii) above when reviewing the purchase prices provided by suppliers for products which can be sourced from Hon Hai. Therefore, the prices of products sourced from the Hon Hai Group under the Conditional Master Agreement are determined in accordance with the same mechanism and procedures applied to the independent third parties. Hence, the Group considers that the terms of purchase made by the Group from the Hon Hai Group are fair and reasonable and on normal commercial terms or better.

Purchases made by the Group (related to SHARP’S PRODUCTS)

For the current price negotiation practice in relation to the purchases of SHARP’S PRODUCTS, the Group has no information regarding to the mark-up rates adopted by other independent third party to compare because the Group is the exclusive distributor of SHARP’S PRODUCTS in Hong Kong and Macau. However, after putting effort in the negotiation, the Group has successfully bargained for a minimum mark-up rate of not lower than 4% over our purchase price of the SHARP’S PRODUCTS which is basically a higher mark-up rate than the rate between 3% and 5%. In this connection, the Group will ensure the products are sold on a cost-plus basis with a mark-up rate not lower than 4% over our purchase price of the SHARP’S PRODUCTS. As the Group’s internal policy, for purchases of SHARP’S PRODUCTS made by the Group from the Hon Hai Group, the Group will endeavour to ensure the terms of the purchases being fair and reasonable by reviewing the prices of products to be purchased from the Hon Hai Group based on the following factors:

(i) market situation review, such as reviewing on competitors, market prices, benchmark, and comparing products in similar model;
(ii) product line up – new models information update;
(iii) projections prepared on the purchase quantity, sales quantity, market price, reasonable gross profit ratio in future and set up fiscal budget plan;
(iv) take the final product cost provided by factories as reference;
(v) price support: bulk purchase request or special deals for tender business;
(vi) selling price: corporate sales mainly conduct review on project base while channel sales will compare with market prices, review competitors’ similar models and make gross profit ratio simulation before price set-up;

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(vii) if the Group considers such proposed margin is not profitable, the Group will counter-offer and negotiate with members of the Hon Hai Group for a higher rate, failing which the Group will reject such business opportunity; and
(viii) the Group will ensure the price for SHARP’S PRODUCTS to be purchased from Hon Hai are capable of maintaining a reasonable profit margin after taking into account of the target gross profit margin in respect of the types of SHARP’S PRODUCTS to be sold on a cost-plus basis with an overall mark-up rate not below 4% over our purchase price of the SHARP’S PRODUCTS. In addition to the reasonable profit margin, our Group will also take into account of other factors, including the logistics costs incurred by the Group in the distribution of SHARP’S PRODUCTS from the Hon Hai Group. If the Group considers such business is not profitable, the Group will reject the business opportunity.

Referring to the 3[rd] quarter reports of the Supreme Electronics Company Limited and Edom Technology Company Limited in 2018, their gross profit ratios are both around 3%. Since our average gross profit margin (4.2%) is slightly higher than the said gross profit ratios (3%) in the market, the Group believes that (i) the transaction were on an arm’s length basis or terms no less favourable to the Group than terms available to or from independent third parties, and (ii) the mark-up rate not lower than 3% over our purchase price of products not related to SHARP’S PRODUCTS is fair and reasonable and on normal commercial terms or better.

Further. the Group also considers that the terms of purchase related to SHARP’S PRODUCTS made by the Group from the Hon Hai Group, such as the mark-up rate not lower than 4% over our purchase price of SHARP’S PRODUCTS from the Hon Hai Group, are fair and reasonable and on normal commercial terms or better after consideration of the said gross profit ratios and based on the experience of the Group’s management.

Notes: (i) The 3rd quarter reports of Supreme Electronics Company Limited in 2018 is extracted from http://doc.twse.com.tw/pdf/201803_8112_AI1_20190102_113712.pdf

(ii) The 3rd quarter reports of Edom Technology Company Limited in 2018 is extracted from http://doc.twse.com.tw/pdf/201803_3048_AI1_20190102_113640.pdf

Internal Control Measures

In order to ensure that the terms of sales and purchases from the Hon Hai Group are fair and reasonable and no worse than any independent third parties, the Group has adopted the following internal control measures:

Sales Transactions

(i) in respect of the Sales Transactions, since the sales department of the Group has maintained the records of all products where information, such as inventory, current and historical prices and historical quantities traded, is kept, the sale executives, when determining the sales or purchases prices, will ensure that such prices are up to current prices and, in any case, no worse than independent third party. The information in the database will be updated monthly by our sales managers;

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(ii) for sales to be transacted with the Hon Hai Group, the sale executives of the Group will have 3-party meetings with each of our main suppliers and representatives from the Hon Hai Group on a quarterly basis to discuss the overall prices and quantities for each product categories. The suppliers and representatives from the Hon Hai Group will agree upon the prices and quantities of various products to be traded. By virtue of the participation, the Group is able to collect more updated information, such as the then industry level profit margin, technology level and popularity for each product categories. Such information would assist the Group to determine the then reasonable gross profit mark-up rate for each product categories;
(iii) Under the internal control system of the Group, the selling price to the Hon Hai Group proposed by individual sales executives are submitted to the responsible sales directors who are of extensive experience in trading and distribution and familiar with the prevailing market prices for review and approval. At the same time, the finance department of the Group, upon receiving the submitted quotation on the selling price, will then double check with the two quotations obtained from independent third parties on similar product and in similar quantity (if possible), to ensure that (i) there is no significant deviation between the two and that proper approval has been obtained for the proposed selling price, and (ii) the selling price shall not be below the standard price range, and (iii) the selling price be determined by the cost-plus method when the prevailing market price range is referred. It will also ensure that the selling price is on no less favourable rates than those available from or to independent third parties; and
(iv) the sales directors and the finance department will also ensure that a reasonable profit margin, i.e. an overall mark-up rate between 2% to 10%, is added to the estimated costs involving the cost of the components or products, logistics costs and the possible interest costs incurred in such transactions.

Purchase Transactions (Not Related to SHARP’S PRODUCTS)

(i) in respect of the Purchase Transactions not related to SHARP’S PRODUCTS, under the internal control system of the Group. The sales executives when negotiating with the Hon Hai Group will refer to the indicative prices suggested by the end-customers against the quotation given by the Hon Hai Group as well as the overall mark-up rate of 3%-5% over our purchase price of the products. The selling price to the end customers proposed by individual sales executives will then be submitted to the responsible sales directors for review and approval. Meanwhile, the finance department of the Group, upon receiving the submitted quotation on the selling price, will then double check the quotation from the Hon Hai Group to ensure that proper approval has been obtained from sales directors and the re-selling price to endcustomers is determined based on the cost-plus basis of a mark-up rate of 3% to 5% over our purchase price of the products as set out in factor (ii) in page 14 of this circular with reference to the price quote from the Hon Hai Group; and
(ii) The sales directors and financial department shall ensure that terms are in compliance with the Conditional Master Agreement after they jointly satisfied that (i) the pricing policies and internal procedures as set out in this section have been fully complied with; (ii) the transactions thereunder are on normal commercial terms; and (iii) the selling/purchase prices

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of the products are no less favourable to the Group than the prices at which such products are sold to the independent third parties, before member of the Group could accept the relevant purchase orders or confirm the purchase.

Purchase Transactions (Related to SHARP’S PRODUCTS)

(i) Regarding to the distribution of various products under the brand name of ‘‘SHARP’’, the sales department of the Group and representatives from the Hon Hai Group will agree upon the prices and quantities of various products to be traded. Under the internal control system of the Group, monthly meeting between sales team, marketing team, service person-in-charge will be held to review the sales results, make forecasts for the coming months and fix the purchase quantity for each model based on the sales forecast and orders in the past. The Group will review and make a forecast on the sales target, purchase plan and inventory by comparing with the budget and sales result in the last year. The Group will ensure that the re-selling price to the electronic retailers is determined based on the cost-plus basis which involves a mark-up rate not lower than 4% over our purchase price of the products and the price is on no less favourable rates than those available from or to independent third parties in the Non-exclusive Territory by reviewing the retail prices of SHARP’S PRODUCTS in the Non-exclusive Territory. If the Group considers the selling price of the products cannot be marked up 4% or higher than our purchase price, the Group will reject such business opportunity.

Annual Review

To further ensure that the transactions under the Conditional Master Agreement are on normal commercial terms no less favourable to the Group than to independent third parties, the external auditors of the Company will review and assess whether the transactions have been entered into in accordance with the Conditional Master Agreement. The Group has engaged external auditors to conduct annual review of the transactions under the Previous Master Agreement for the financial year ended 31 December 2017 in accordance with rule 14A.56 of the Listing Rules. The Group will continue to comply with rule 14A.56 to engage external auditors to conduct annual review of the Continuing Connected Transactions.

The Directors consider that such internal control procedures on pricing could effectively ensure that the pricing and terms of the transactions contemplated under the Condition Master Agreement are conducted on normal commercial terms no less favourable to the Group and in accordance with the pricing policy of the Group and in the interests of the Company and its shareholders as a whole. In view of the above internal control procedures, the Directors confirm that the purchase and selling prices from and to the Hon Hai Group are fair and reasonable and no less favourable than from and to independent third parties at the time of entering the transactions.

SALES AND PURCHASES CAPS

At present, the products sold by the Group to the Hon Hai Group which can be divided into following categories:

(i) semiconductors such as memory ICs, super I/O controllers, embedded controllers, etc.;

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(ii) electronic components including discrete components (such as transistors and diodes) and passive components (such as tan capacitor, multi-layer ceramic capacitors, varistors);
(iii) accessory products such as PCBs, cables and connectors, metal parts, packaging parts and semi-finished modules of wireless modules, camera modules and senor modules; and
(iv) production and testing equipments.

On the other hand, the products currently bought by the Group from the Hon Hai Group which can be divided into the following categories:

a) Products which the end-customers have designated the Hon Hai Group as the only vendor (Not related to SHARP’S PRODUCTS):
(i) cables and connectors and accessory;
(ii) keyboards parts, earphone parts, modules and clips; and
(iii) flexible print circuits.
b) Products related to SHARP’S PRODUCTS:
(i) AV PRODUCTS;
(ii) BES PRODUCTS;
(iii) H&P PRODUCTS; and
(iv) EC PRODUCTS.

The following is a summary of the approximate amounts of transactions in respect of the sales and purchases of electronic components and sale of other products by the Group to the Hon Hai Group and distribution of SHARP’S PRODUCTS and distribution of other brand products under the Hon Hai Group between the Group and the Hon Hai Group for the financial years ended 31 December 2016 and 31 December 2017 and the ten months ended 31 October 2018 respectively:

	For the	For the
	financial	financial	For the ten
	year ended	year ended	months ended
	31 December	31 December	31 October
	2016	2017	2018
	(HK$’000)	(HK$’000)	(HK$’000)
			(unaudited)
Purchases from Hon Hai Group	702,276	1,446,862	987,000
Sale to Hon Hai Group	1,059,632	3,348,266	3,197,000

LETTER FROM THE BOARD

The aggregated transaction amounts in respect of the sales and purchases of electronic components and sale of other products by the Group to the Hon Hai Group and distribution of SHARP’S PRODUCTS and distribution of other brand products under the Hon Hai Group between the Group and the Hon Hai Group for the two financial years ended 31 December 2016 and 31 December 2017 and the ten months ended 31 October 2018 respectively have not exceeded (i) the purchase caps of HK$1,300 million, HK$1,600 million and HK$2,000 million; and (ii) the sale caps of HK$2,600 million, HK$3,500 million and HK$4,700 million, for each of the three financial years ended 31 December 2016, 2017 and 2018 respectively which were approved by the Independent Shareholders at the SGM on 6 January 2016.

Sales Caps

The sale of electronic components and other products by the Group to the Hon Hai Group declined slightly from 2015 to 2016 but had been increased dramatically during both the financial year ended 31 December 2017 and the ten months period ended 31 October 2018. The Board estimates that the Sale Transactions will further increase in the next three financial years.

The following table and notes illustrate the estimate transaction amounts of the Sales Transactions for the year ending 31 December 2018 as well as the calculations to arrive the proposed Sale Caps of the Continuing Connected Transactions for each of the three financial years ending 31 December 2019, 2020 and 2021 of the Group are set out below:

Existing business New product lines: – new suppliers of the Group – existing suppliers of the Group Total of new product lines Total 10% buffer Proposed Sale Caps Note:	For the financial year ended 31 December 2018 (HK$’000) (estimated) 3,800,000 3,800,000	For the financial year ending 31 December 2019 (HK$’000) 4,128,000 650,000 Note 1 312,000 Note 1 962,000 Note 1 5,090,000 510,000 5,600,000	For the financial year ending 31 December 2020 (HK$’000) 5,357,000 819,000 Note 1 374,000 Note 1 1,193,000 Note 1 6,550,000 650,000 7,200,000	For the financial year ending 31 December 2021 (HK$’000) 6,717,000 1,023,750 Note 1 449,250 Note 1
				1,473,000 Note 1
				8,190,000 810,000
				9,000,000

For the new products lines, the estimated transaction amount is based on the expected amount of purchase orders to be placed by the Hon Hai Group to the Group due to the Hon Hai Group continue to reduce the number of its suppliers for better logistics and supply chain control as well as the introduction of new product lines by the Group. Furthermore, the Group mainly considered (i) the annual growth in the number of our suppliers which are the new suppliers of the Group under new products lines, and (ii) the forecast of sales transaction amounts upon the new business with the Hon Hai Group is obtained. Under this factor (ii), the Group forecasts the sales transaction amounts under the new products lines of existing suppliers of the Group for the years ending 31 December 2019 to 31 December 2021. For further information of the new products lines, please refer to the section headed ‘‘Sales and Purchases Caps – Sales Caps’’.

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The Sale Caps for the year ending 31 December 2020 as compared to the year ending 31 December 2019 represents an increment of around 29%, and the Sale Caps for the year ending 31 December 2021 as compared to the year ending 31 December 2020 represents an increment of around 25%. Such estimation is based on the historical growth rate of Sales Transactions that was 216% for the year ended 31 December 2017 and the estimated growth rate of 13.5% for the year ended 31 December 2018 based on the projection of actual transaction amount up to the end of October 2018 on pro rata basis, the sales turnover with the Hon Hai Group of the Group in the first ten months of 2018 and the economic condition as at the end of 2018 and the estimation amount for the financial year ending 2019, 2020 and 2021.

The Group expects that (i) there will be an increasing demand and use of smartphones, tablets, PCs and other electronic products, (ii) the data transmission is expected to be much faster in the new era of 5G mobile broadband and the multi-intelligence applications, such as smart car link system, smart medical applications, smart cities and small base stations, will begin to flourish after the information transmission rate is further improved. According to the prospectus of Xiaomi Corporation which is a company listed on the Main Board of the Stock Exchange (Stock Code: 1810), it reveals that smartphone adoption is expected to increase globally, with growth being driven by emerging markets. The key underlying growth drivers of the smartphone market include higher internet penetration driven by the roll-out of 4G/LTE and advancement of wireless technology, including 5G. Rising income levels and consumer spending have created increasing demand for better smartphones with higher hardware performance, enhancing user experience and aesthetically pleasing designs. Further, according to research published by IDC, global smartphone sales grew from US$425.8 billion to US$458.3 billion between 2015 and 2017, representing a compound annual growth rate of 3.8%. This is expected to reach US$598.0 billion by 2022, representing a compound annual growth rate of 5.5%.

Note: (i) information above, including the said research published by IDC, is extracted from the prospectus of Xiaomi Corporation http://www3.hkexnews.hk/listedco/listconews/sehk/2018/0625/ltn20180625033.pdf

In this connection, the Directors consider the growth rates of the Sales Caps set out above are a realistic reflection of (1) the increasing demand and use of smartphones, tablets, PCs and other electronic products with the effect of shortening of technology life-cycle of consumer electronics which in turn increases the demand for Hon Hai to place orders with the Group, given that the Group has been supplying parts and components used for the manufacturing of the smartphones, tablets, PCs and other electronic products; (2) the increase in sales turnover of Hon Hai Group, being the largest original equipment manufacturer (OEM) in the world in the first half of 2018, will in turn increase its demand to source parts and components from the Group. The turnovers of the Hon Hai Group for the nine months ended 30 September 2018 as compared to the year ended 31 December 2017 was increased by 17%, and the turnovers of the Hon Hai Group for the year ended 31 December 2017 as compared to the year ended 31 December 2016 was increased by 8%.[Note]

Note: The information of the sales amount of the Hon Hai Group is extracted from the market observation post system of the Taipei Stock Exchange at http://mops.twse.com.tw)

LETTER FROM THE BOARD

The increment of the existing business segment in the Sales Caps for the year 2019, 2020 and 2021 is mainly attributable to the expected growth of sale in memory chips and passive components while the growth of sales in a new product lines are mainly contributed by the launch of new product lines of the Group in the next three years. For further information on the basis for determining the cap, please refer to the section headed ‘‘Basis of the Caps – Sales Caps’’.

Our new product lines include NOR Flash, NAND Flash, NFC sensors, optical networking devices and trans-impedance amplifiers which potentially have a wide range of applications in various electronic devices including smartphones, tablets, PCs, networking devices such as routers and switches as well as telephone, transmitting stations and satellite operators.

In relation to the estimation of the sales transaction amounts under the new product lines for the year ending 31 December 2019 to 31 December 2021, the Group mainly considered (i) the annual growth in the number of our suppliers, and (ii) the forecast of sales transaction amounts upon the new business with the Hon Hai Group is obtained, and (iii) the information provided by the sale executives of the Group. For (i) the annual growth in the number of our suppliers, there has been an annual growth in the number of our suppliers since year 2015, i.e. the Group has recorded an increase of 88, 150, 197, 192 and 154 suppliers in year 2014, 2015, 2016, 2017 and 2018 respectively. The growth in the number of our suppliers represents that more types of product can be sold to the Hon Hai Group. The Group, acting as a trader between the Hon Hai Group and other suppliers, expects a year-on-year increase on the purchase orders to be placed by Hon Hai Group under their supply chain control policy. In this connection, under this factor (i), the Group forecasts the sales transaction amounts under new products lines of new suppliers of the Group for the years ending 31 December 2019, 31 December 2020 and 31 December 2021 are around HK$650,000,000, HK$819,000,000 and HK$1,023,750,000 respectively. For (ii) the forecast of sales transaction amounts upon the new business with the Hon Hai Group is obtained, the Group has suppliers which manufacture the electronic components that the Hon Hai Group is currently purchasing from its other suppliers. At this moment, the Group is pitching the Hon Hai Group to purchase the said electronic components from the Group instead of from its other suppliers. In this connection, under this factor (ii), the Group forecasts the sales transaction amounts under new products lines of existing suppliers of the Group for the years ending 31 December 2019, 31 December 2020 and 31 December 2021 are around HK$312,000,000, HK$374,000,000 and HK$449,250,000 respectively. For (iii) the information provided by the sale executives of the Group, the sale executives of the Group will receive information and forecast regarding to the demand on the new products by the Hon Hai Group in future from the representatives of the Hon Hai Group during the quarterly 3-party meetings.

Purchase Caps

A number of the members of the Hon Hai Group are the approved vendors designated by certain end-customers of the Group. The Group is required by these customers to purchase materials and components from approved vendors. In addition, the Group is a distributor of SHARP’S PRODUCTS in Hong Kong, Macau and Non-exclusive Territories. The aggregated amount of purchases of electronic components made by the Group from the Hon Hai Group increased slightly from 2015 to 2016, and increased more than two-fold from 2016 to 2017, the Board estimates that the Purchase Transactions will continue to grow in the next three financial years since the Group has expanded its customer base in 2018 employing products supplied by the Hon Hai Group.

LETTER FROM THE BOARD

The following table and notes illustrate the estimated transaction amounts of the Purchase Transactions for the year ended 31 December 2018 as well as the calculations to arrive the proposed Purchase Caps of the Continuing Connected Transactions for each of the three financial years ending 31 December 2019, 2020 and 2021 of the Group respectively are set out below:

a. Distribution of SHARP’S PRODUCTS b. Products which the end-customers have designated the Hon Hai Group as the only vendor Total of existing business New Products – earphone parts and modules and clips Total 10% buffer Proposed Purchase Caps	For the financial year ended 31 December 2018 (HK$’000) (estimated) 499,980 700,020 1,200,000 70,000 Note 1 1,270,000	For the financial year ending 31 December 2019 (HK$’000) 616,900 669,100 1,286,000 260,000 Note 2 1,546,000 154,000 1,700,000	For the financial year ending 31 December 2020 (HK$’000) 787,260 882,740 1,670,000 330,000 Note 2 2,000,000 200,000 2,200,000	For the financial year ending 31 December 2021 (HK$’000) 939,252 1,117,748
				2,057,000 400,000 Note 2
				2,457,000 243,000
				2,700,000

Notes:

The estimation is based on the projection of actual transaction amount for ten months up to the end of October 2018 on pro rata basis.
New project started on July 2018 and the estimation is based on the actual transaction amount up to October 2018 on pro rata basis and 2019 sale forecast from several customers.

The Purchase Caps for the year ending 31 December 2020 as compared to the year ending 31 December 2019 represents an increment of around 29%, and the Purchase Caps for the year ending 31 December 2021 as compared to the year ending 31 December 2020 represents an increment of around 23%. Such estimation is based on the purchase amount from the Hon Hai Group of the Group in the first ten months of 2018 and the economic condition as at the end of 2018 and the estimated amounts for the financial year ending 2019, 2020 and 2021.

The estimation of growth in the next three financial years is mainly attributable to the continuous growth of demand for consumer electronics, the expected introduction of new smartphones and earphones which employed Hon Hai connectors, modules and clips. In addition, due to the increasing expansion of product lines supplied by the Hon Hai Group in terms of variety, quantity and quality, it is expected that there will be new customers who will start to utilize the components and parts supplied by Hon Hai

LETTER FROM THE BOARD

Group. For the new products, mainly earphone parts and modules and clips, we started to purchase earphone parts and modules and clips and re-sell those parts to OEM factories. The Group expects the purchase of earphone parts and modules and clips will continue in the next three years.

FIT Hon Teng Limited (鴻騰六零八八精密科技股份有限公司) is a non-wholly owned subsidiary of Hon Hai and the Shares of which are listed on the Main Board of the Stock Exchange (stock code: 6088) (‘‘FIT Hon Teng’’). The Group purchases the connectors, earphone parts, modules and clips, and other electronic components from FIT Hon Teng and resells these products to the Group’s end-customers. According to the 2018 interim report of FIT Hon Teng dated 14 August 2018, it reveals that (i) in the six months ended June 30, 2018, they witnessed an increased sales of interconnect solutions utilized in the new smartphone products released by a brand company customer as well as in the earphones associated with such smartphone products. As a result, their revenue from the mobile and wireless devices end market increased by 29.8% in the six months ended June 30, 2018 compared to that in the same period in 2017. Therefore, they expect a growth on the selling of their earphones and associated products, (ii) the demand for mobile and wireless devices continues to expand around the world. In particular, the proliferation of mobile phones generally, and smartphones in particular, drives demand for various accessory products such as chargers, batteries, earphones, headsets and power banks, (iii) they saw a rising demand for high-end (100G) optical modules and CPU sockets from data centers and server platforms, their revenue from the communications infrastructure end market increased by 19.7% in the six months ended June 30, 2018 compared to the same period in 2017, and (iv) USB Type-C is a new trend in the connector market that has various characteristics that may make it future-proof in this end market. Also, due to product upgrades, the global mobile phone accessory market size has been growing at lower double digits in recent years, and is expected to continue to grow at a relatively high rate in the next few years. Therefore, they anticipate that this end market will continue to be their main revenue contributor, and (v) their gross profit margin increased from 17.9% for the six months ended June 30, 2017 to 18.0% for the same period in 2018, primarily due to (1) continuing improvement of the quality of our new earphone related products, (2) a higher utilization of our production facilities, and (3) a continuing optimization of our human resources allocation improving production efficiency.

Note: The above information is extracted from the website of FIT Hon Teng Limited at (http://www.fit-foxconn.com)

Further, SHARP has been continuously launching different kinds of products, such as 8KTV, washer, fridge, air cleaner, dehumidifier, etc., taking into account of SHARP’s leading position in electronic component to consumer electronic regimes, the Group expects a healthy and sustainable business growth on the distribution sales volume of various products under the brand name of ‘‘SHARP’’ in the next three financial years. The Directors consider the growth rates of the Purchase Caps set out above are a realistic estimation of the growth of purchase transactions between the Group and Hon Hai Group.

The increment of the existing business segment in the Purchases Caps is mainly accountable to the indications from our existing customers who reflected their intention to increase their demand for products supplied by the Hon Hai Group while the increases of purchases due to new product lines and new customers are estimated with reference to the purchase forecast. For further information on the basis for determining the cap, please refer to the section headed ‘‘Basis of the Caps – Purchase Caps’’.

LETTER FROM THE BOARD

BASIS OF THE CAPS

Sale Caps

In determining the proposed Sales Caps of the Continuing Connected Transactions for each of the three financial years ending 31 December 2019, 2020 and 2021 of the Group, the Board based on the following major factors:

(a) Turnover outlook of the Group

In particular, having considered the AI development in many countries, such as the US, China, Japan and Europe, the Directors expect that the sales of memorial ICs (e.g. dynamic random access memory chips and flash memory chips), radio frequency modules, larger storage memory chips, distance measurement and dust sensors and optical Couplers to be sold to the Hon Hai Group will increase drastically comparing the sales in 2017 than the expected sales in 2021.

Our largest customer is one of the 1[st] tier PRC brand mobile phone companies, which is a listed company on the Main Board of the Stock Exchange, expects their smartphone shipments for 2019 to surge over 20% on year, and we expect it will have more demands on our products than the Hon Hai Group.

Further, as disclosed in the prospectus (May 2018) published by Foxconn Industrial Internet Company Limited (‘‘FII’’), which is a connected party of the Hon Hai Group and a company listed on Shanghai Stock Exchange (Stock Code: 601138), in the next 2–3 years, FII will use the raised funds to (i) consolidate the production of existing products, (ii) maintain the scale of sales and the operational advantages of the established industrial Internet platform, (iii) actively explore the technology service market in the field of intelligent manufacturing, (iv) promote the development of their company into a smart manufacturing and technology services integrated solutions service provider under the industrial internet ecosystem, and (v) update their IT system structure and upgrade their automated assembly.

Note: The above information is extracted from prospectus (May 2018) published by Foxconn Industrial Internet Company Limited at (http://www.fii-foxconn.com/Home/InvestorRelations)

LETTER FROM THE BOARD

(b) New product lines of the Group sales to the Hon Hai Group

There has been an annual growth in the number of our suppliers since year 2015. The growth in the number of our suppliers represents that more types of product can be sold to the Hon Hai Group. The Group, acting as a trader between the Hon Hai Group and other suppliers, expects a year-on-year increase on the purchase orders to be placed by Hon Hai Group under their supply chain control policy.

The buffer of 10% for the financial year ending 31 December 2019, 2020 and 2021 respectively is to cater for the potential effect of, among other things, the unexpected increase in sale of electronic or other products, potential inflation for the next 3 years, the change in exchange rate of Hong Kong Dollars against other currencies as well as other factors which may lead to fluctuations in the estimate of factors set out above.

Under the consideration of (i) the over 20% increase on the smartphone shipments for 2019 that was expected by our largest customer which is one of the 1st tier PRC brand mobile phone companies, and (ii) the annual growth in the number of our suppliers, the Group considers that the estimation of the proposed Sales Caps of the Continuing Connected Transactions for each of the three financial years ending 31 December 2019, 2020 and 2021 of the Group are fair and reasonable.

Purchase Caps

In determining the proposed Purchase Caps of the Continuing Connected Transactions for each of the three financial years ending 31 December 2019, 2020 and 2021 of the Group, the Board based on the following major factors:

(a) Expanded customer base of the Group in 2018 which have been utilizing products supplied by the Hon Hai Group and Increasing demand for Hon Hai connectors, modules and clips

The Group has been opening up new product lines which have been utilizing products supplied by the Hon Hai Group. For example, the Group started to purchase earphone parts and modules and clips to be assembled in notebook computers from Hon Hai to our end customers which are certain OEM factories in 2018 and the Group expects to receive more orders from our end-customers in the next 3 years.

As stated earlier in the circular, FIT Hon Teng Limited has revealed in their 2018 interim report that they witnessed an increased sales of interconnect solutions utilized in the new smartphone products released by a brand company customer as well as in the earphones associated with such smartphone products. As a result, their revenue from the mobile and wireless devices end market increased by 29.8% in the six months ended June 30, 2018 compared to that in the same

LETTER FROM THE BOARD

period in 2017, and they expect a growth on the selling of their earphones and associated products. Further, they also saw demand for mobile and wireless devices continues to rise around the world. The proliferation of mobile phones, in particular smartphones, drives demand for various accessory products such as chargers, batteries, earphones, headsets and power banks.

(b) the anticipated sales growth that will be achieved from the products provided by SHARP

SHARP has launched range of new products, such as the world-first 70-inch Aquos 8K TV, a design award winning full screen Aquos S2 smartphones and innovative ultrasonic washers that received overwhelming market response and we expect to get more orders from our end-customers in the next 3 years.

The Group has recorded strong distribution volume of various products, such as (i) kitchen appliances, including freezer, refrigerators, microwave ovens, steam ovens and juicers, (ii) home & lifestyle products & appliances, including air- conditioners, hair dryers, air purifiers, ion generators and dehumidifiers, (iii) business equipment and solutions, including integrated white board, information display panels, video wall, digital signage, copier, multifunction peripheral, document system software and consumables, (iv) liquid – crystal display televisions, and (v) EC PRODUCTS, i.e. integrated circuit, under the brand name of ‘‘SHARP’’ in Hong Kong and Macau and Nonexclusive Territories.

Taking into account of SHARP’s leading position in electronic component to consumer electronic regimes, the Group expects the increase in distribution volume of various products under the brand name of ‘‘SHARP’’ will remain solid in the next three financial years.

According to the forecast of financial results of SHARP for the fiscal year ending 31 March 2019, they expect an increment of 10.8% on their net sales against the previous year.

Note: The above information is extracted from the website of SHARP at (http://www.sharp-world.com/corporate/ir/ library/financial/pdf/2019/3/1903_2Q_Release.pdf)
(c) A buffer of 10% on the estimate of factors (a) to (b) above

The buffer of 10% for the financial year ending 31 December 2019, 2020 and 2021 respectively is to cater for the possible effect of, among other things, the unexpected increase in purchases of electronic or other products, potential inflation for the next 3 years, the change in exchange rate of Hong Kong Dollars against other currencies as well as other factors which may lead to fluctuations in the estimate of factors set out above.

Under the consideration of (i) the revenue of FIT Hon Teng Limited from the mobile and wireless devices end market has increased by 29.8% in the six months ended June 30, 2018 compared to that in the same period in 2017, and (ii) an increment of 10.8% expected by SHARP on their net sales against the previous year, the Group considers that the estimation of the proposed Purchase Caps of the Continuing Connected Transactions for each of the three financial years ending 31 December 2019, 2020 and 2021 of the Group are fair and reasonable.

LETTER FROM THE BOARD

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) making necessary announcement(s) and obtaining of approval of the Independent Shareholders. The Company will also comply with the annual review and reporting requirements under Rule 14A.55 to Rule 14A.59 and Rule 14A.71 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 19.81% of the issued share capital of the Company and a substantial shareholder of the Company. FIT Taiwan, Huai An Fulitong Trading and SHARP are non-wholly owned subsidiaries of Hon Hai. Therefore, Hon Hai, Foxconn, FIT Taiwan, Huai An Fulitong Trading, SHARP 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.

INFORMATION ABOUT THE GROUP AND HON HAI GROUP

The Group specialises in design, development, sourcing, quality assurance and logistics management of global proprietary electronic components and semiconductor products including chipset solutions, display panels, memory chips, power supply system solutions, multimedia system solutions, PEMCO, IoT home automation solutions, LED lighting solutions and other premier solutions for a wide range of applications for mobile, consumer electronic, computer and networking, telecommunication and LED lighting products.

The Group is also a distributor of innovative environmental-friendly lifestyle enhancement finished products under and its owned brands of , and in the Asia Pacific region.

Hon Hai is a company listed on Taiwan Stock Exchange (Stock Code: 2317) and the Hon Hai Group is the world’s leading computer, communication, consumer electronics manufacturing services provider.

REASONS AND BENEFITS FOR THE CONTINUING CONNECTED TRANSACTIONS

The Previous Master Agreement dated 9 November 2015 between the Company and Hon Hai has expired on 31 December 2018. As a result, the Company entered into the Conditional Master Agreement which governs the Continuing Connected Transactions of sales and purchase of electronic components and sale of other products by the Group to the Hon Hai Group and distribution of SHARP’S PRODUCTS and distribution of other brand products under the Hon Hai Group between the Group and the Hon Hai Group to be made during the period between 1 January 2019 and 31 December 2021 (both dates inclusive).

The Directors (excluding the independent non-executive Directors whose views will be given after taking into account the advice from Gram Capital) consider that the 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 Sales Transactions and Purchase Transactions as long as the Sales Transactions and Purchase Transactions are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

LETTER FROM THE BOARD

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. The Directors (excluding the independent nonexecutive Directors whose views will be given after taking into account the advice from Gram Capital) are of the view that the Caps, the Conditional Master Agreement and the transactions contemplated thereunder are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

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 5% on an annual basis, the Continuing Connected Transactions constitute non-exempt continuing connected transactions of the Company and the Conditional Master Agreement and the Caps are subject to the Announcement requirements and 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 Conditional Master Agreement, the Caps and the Continuing Connected 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 shall abstain from voting in relation to the resolutions to approve the Conditional Master Agreement, the Caps, and the Continuing Connected Transactions contemplated thereunder. None of the Directors of the Company has any material interest in the Continuing Connected Transactions. Therefore, none of them is required to abstain from voting on the board resolution for approving the Caps, the Conditional Master Agreement and the transactions contemplated thereunder.

Gram Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee of the Company and the Independent Shareholders regarding the Conditional Master Agreement, the Caps, and the Continuing Connected Transactions contemplated thereunder. An Independent Board Committee of the Company will also be appointed to advise the Independent Shareholders on whether or not the Conditional Master Agreement, the Caps, and the Continuing Connected Transactions contemplated thereunder are in the interest of the Company and are fair and reasonable so far as the Independent Shareholders are concerned.

As the SGM will be convened after 1 January 2019, the Company will comply with the requirement under Rule 14A.34 of the Listing Rules and enter into written agreements for all connected transactions carried out during the period between 1 January 2019 and the date of SGM.

SPECIAL GENERAL MEETING

There is set out on pages 52 to 53 of this circular a notice convening the SGM to be held at 28/F., Noble Centre, No. 1006, 3rd Fuzhong Road, Futian District, Shenzhen, P.R.C. on 31 January 2019 at 11:00 a.m. at which an ordinary resolutions will be proposed for the approval by the Independent Shareholders by poll the Conditional Master Agreement, the Caps, and the Continuing Connected Transactions contemplated thereunder.

LETTER FROM THE BOARD

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, Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, 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 Conditional Master Agreement and the transactions contemplated thereunder will be taken by poll, the results of which will be announced after the SGM.

RECOMMENDATION

The Independent Board Committee, having taken into account the advice of Gram Capital, considers that the Conditional Master Agreement, the Caps, and the Continuing Connected 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 Conditional Master Agreement, the Caps, and the Continuing Connected Transactions contemplated thereunder.

ADDITIONAL INFORMATION

Your attention is drawn to the letters from the Independent Board Committee and from Gram Capital which are respectively set out on pages 31 and 32 to 47 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 BBS JP Chairman and Managing Director

the exchange rate illustrated in this circular is for reference only.

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

S.A.S. Dragon Holdings Limited

(incorporated in Bermuda with limited liability)

(Stock Code: 1184)

15 January 2019

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular dated 15 January 2019 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 Conditional Master Agreement, the Caps, and the Continuing Connected Transactions contemplated thereunder and to advise the Independent Shareholders as to the fairness and reasonableness of the same. Gram 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 7 to 30 of the Circular, and the letter from Gram Capital which contains its advice to the Independent Board Committee and the Independent Shareholders in respect of the Conditional Master Agreement, the Caps, and the Continuing Connected Transactions contemplated thereunder as set out on pages 32 to 47 of the Circular.

After taking into consideration the advice from Gram Capital, we concur with the views of Gram Capital and consider that the Conditional Master Agreement, the Caps, and the Continuing Connected 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 Conditional Master Agreement, the Caps, and the Continuing Connected Transactions contemplated thereunder.

Yours faithfully Wong Tak Yuen, Adrian Liu Chun Ning, Wilfred Cheung Chi Kwan Wong Wai Kin Independent Board Committee

LETTER FROM GRAM CAPITAL

Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Conditional Master Agreement and the transactions contemplated thereunder for the purpose of inclusion in this circular.

==> picture [169 x 33] intentionally omitted <==

Room 1209, 12/F. Nan Fung Tower 88 Connaught Road Central/ 173 Des Voeux Road Central Hong Kong

15 January 2019

To: The independent board committee and the independent shareholders of S.A.S. Dragon Holdings Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Conditional Master Agreement and the transactions contemplated thereunder, details of which are set out in the letter from the Board (the ‘‘Board Letter’’) contained in the circular dated 15 January 2019 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.

With reference to the Board Letter, the Previous Master Agreement dated 9 November 2015 for the sales and purchases of electronic components and other products between the Group and Hon Hai Group expired on 31 December 2018. In anticipation of such continuing sales and purchases of electronic components and other products and distribution of SHARP’S PRODUCTS and other brand products under Hon Hai Group in future, the Company entered into the Conditional Master Agreement on 28 December 2018 with Hon Hai which governs the sales and purchases of electronic components and other products and distribution of SHARP’S PRODUCTS and other brand products under Hon Hai Group to be made for the next 3 financial years during the period between 1 January 2019 and 31 December 2021 (both dates inclusive).

According to the Board Letter, the Continuing Connected Transactions constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules and the Caps, the Conditional Master Agreement and the transactions contemplated thereunder are subject to the disclosure and Independent Shareholders’ approval, annual review by the independent non-executive Directors and auditors and annual reporting requirements under Chapter 14A of the Listing Rules.

LETTER FROM GRAM CAPITAL

The Independent Board Committee comprising Mr. Wong Tak Yuen, Adrian, Mr. Liu Chun Ning, Wilfred, Mr. Cheung Chi Kwan and Mr. Wong Wai Kin (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Conditional Master Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the Conditional Master Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole and are conducted in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolution(s) to approve the Conditional Master Agreement and the transactions contemplated thereunder at the SGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

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 that 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 Latest Practicable Date. 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. Our opinion is based on the Directors’ representation and confirmation that there is no undisclosed private agreement/arrangement or implied understanding with anyone concerning the Conditional Master Agreement and the transactions contemplated thereunder. 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.

The Circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or the Circular misleading.

LETTER FROM GRAM CAPITAL

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, Hon Hai Group or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the entering into of the Conditional Master Agreement. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources while we are not obligated to conduct any independent indepth investigation into the accuracy and completeness of those information.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Conditional Master Agreement and the transactions contemplated thereunder, we have taken into consideration the following principal factors and reasons:

1. Background of and reasons for the Conditional Master Agreement

Information on the Group

With reference to the Board Letter, the Group specializes in design, development, sourcing, quality assurance and logistics management of global proprietary electronic components and semiconductor products including chipset solutions, display panel, memory chips, power supply system solutions, multimedia system solutions, PEMCO, IoT home automation solutions, LED lighting solutions and other premier solutions for a wide range of applications for mobile, consumer electronic, computer and networking, telecommunication and LED lighting products.

The Group is also a distributor of innovative environmental-friendly lifestyle enhancement finished products under and its owned brands of , and in the Asia Pacific region.

LETTER FROM GRAM CAPITAL

Set out below are the financial information of the Group for the six months ended 30 June 2018 and the two years ended 31 December 2017 as extracted from the interim report of the Company for the six months ended 30 June 2018 (the ‘‘2018 Interim Report’’) and the annual report of the Company for the year ended 31 December 2017 (the ‘‘2017 Annual Report’’):

	For the
	six months	For the year	For the year
	ended	ended	ended 31	Change
	30 June	31 December	December	from 2016
	2018	2017	2016	to 2017
	(unaudited)	(audited)	(audited)
	HK$’000	HK$’000	HK$’000	%
Revenue	13,008,736	19,461,921	10,339,603	88.23
– Distribution of electronic components
and semiconductor products	12,863,712	19,166,352	10,262,530	86.76
– Distribution of home appliances and
business equipment and provision of
related ancillary services	137,327	280,698	66,878	319.72
– Rental income from investment
properties	7,697	14,871	10,195	45.87
Gross profit	462,676	809,646	481,395	68.19
Profit for the period/year attributable to
owners of the Company	146,074	303,003	201,842	50.12

As illustrated in the above table, the revenue of the Group amounted to approximately HK$19,462 million for the year ended 31 December 2017 (‘‘FY2017’’), representing an increase of approximately 88.23% as compared with the year ended 31 December 2016 (‘‘FY2016’’). The largest revenue contributor of the Group has been the distribution of electronic components and semiconductor products. The profit attributable to owners of the Company increased by approximately 50.12% for FY2017 as compared with that of FY2016. With reference to the 2017 Annual Report, the growth of revenue was mainly due to the satisfactory performance of the Group’s broadened product lines and an increase in the average selling prices of upgraded key electronic components. The aforesaid revenue growth also led to increase in profit for FY2017 attributable to owners of the Company as compared with that of FY2016.

With reference to the 2018 Interim Report, the Group expects artificial intelligence (AI) development will be accelerated with the maturing of high-speed 5G networks and AI-enabled mobile devices and IoT-driven technology for application on mobile communication, automotive electronic and industrial electronic will deliver solid market demand of its memory chip, smart display panel and other IoT solutions. The direct impact of tariff increase on smartphone supply chain associated with the USChina trade war is limited but the Company expects some customers focusing on export business of consumer electronic products will be affected. The Group will actively control risks and seek effective measures to cushion any possible negative impacts and are conservatively positive in its business development in 2018. By leveraging on Hon Hai Group and SHARP Corporation’s leading position in electronic component to consumer electronic regimes and its over 37 years of experience, industry expertise, market recognition and brand management ability, the Group is confident to pursue a healthy and sustainable business growth and generate more returns to the Shareholders.

LETTER FROM GRAM CAPITAL

Information on Hon Hai Group

With reference to the Board Letter, Hon Hai is a company listed on Taiwan Stock Exchange (Stock code: TW2317) and Hon Hai Group is the world’s leading computer, communication, consumer electronics manufacturing services provider.

As advised by the Directors, the sales and purchases of electronic components between the Group and Hon Hai Group commenced since 1999 and at such time Hon Hai was not a connected person of the Company. In 2000, Foxconn (a wholly-owned subsidiary of Hon Hai) became a substantial Shareholder. As further 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 material complaint from Hon Hai Group in respect of the electronic components sold to Hon Hai Group nor from the end-customers of the Group (the ‘‘End-Customers’’) in respect of the electronic components purchased from Hon Hai Group and resold to the End-Customers. Moreover, the Group has not suffered from any bad debt due to its sales of the electronic components to Hon Hai Group.

Reasons of and benefits for the Continuing Connected Transactions

With reference to the Board Letter, the Previous Master Agreement dated 9 November 2015 between the Company and Hon Hai has expired on 31 December 2018. As a result, the Company entered into the Conditional Master Agreement which governs the Continuing Connected Transactions of sales and purchase of electronic components and other products by the Group to the Hon Hai Group and distribution of SHARP’S PRODUCTS and distribution of other brand products under Hon Hai Group by the Group during the period between 1 January 2019 and 31 December 2021 (both dates inclusive).

With reference to the Board Letter, Hon Hai is a company listed on Taiwan Stock Exchange (Stock code: TW2317). The Hon Hai Group is the world’s leading computer, communication, consumer electronics manufacturing services provider which are primarily engaged in the manufacture, sales and service of connectors, case, thermal module, wired/wireless communication products, optical products, power supply modules, and assemblies for use in the IT, communications, automotive equipment, precision molding, automobile, and consumer electronics industries. The Group acts as a distributor of the Hon Hai Group to purchase electronic components from the Hon Hai Group and sell the same to the End-Customers.

Purchase Transactions

With reference to the Board Letter and as advised by the Directors, a number of the members of the Hon Hai Group are the approved vendors (such as FIT Taiwan and Huai An Fulitong) designated by certain End-Customers. Hon Hai Group does not sell the materials and components required by the EndCustomers directly to them. Accordingly, the Group is required by these customers to purchase materials and components from approved vendors. The Group acts as a distributor of the Hon Hai Group to purchase electronic components from the Hon Hai Group and sell the same to the End-Customers of the Group. The Group is also a distributor of the SHARP’S PRODUCTS and other brand products under the Hon Hai Group. The products purchased by the Group under the Purchase Transactions were re-sold to the End-Customers.

LETTER FROM GRAM CAPITAL

The aggregate amount of purchases of electronic components made by the Group from Hon Hai Group increased slightly from 2015 to 2016, and increased more than two-fold from 2016 to 2017. The Board estimates that the Purchase Transactions will continue to grow in the next three financial years since the Group has expanded its customer base in 2018 which employing products supplied by Hon Hai Group.

Sale Transactions

With reference to the Board Letter, for sales of electronic components and other products by the Group to the Hon Hai Group (collectively, the ‘‘Sale Products’’), the Hon Hai Group would conduct sourcing in advance and instruct the Group to purchase the electronic components from the designated supplier and resell the same to the Hon Hai Group. The products sold by the Group to the Hon Hai Group can be divided into the following categories: (i) semiconductors such as memory ICs, super I/O controllers, embedded controllers, etc.; (ii) electronic components including discrete components (such as transistors and diodes) and passive components (such as tan capacitor, multi-layer ceramic capacitors, varistors); (iii) accessory products such as PCBs, cables and connectors, metal parts, packaging parts and semi-finished modules of wireless modules, camera modules and senor modules; and (iv) production and testing equipment.

The sale of electronic components and other products by the Group to Hon Hai Group declined slightly from 2015 to 2016 but had been increased dramatically during both the financial year ended 31 December 2017 and the ten months period ended 31 October 2018. The Board estimates that the Sale Transactions will further increase in the next three financial years.

In view of the above and that the distribution of electronic components and semiconductor products is the largest revenue contributor to the Group, we concur with the Directors that the entering into of the Conditional Master Agreement and the transactions contemplated thereunder are conducted under the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole.

2. Principal terms of the Conditional Master Agreement

The tables below summarise the major terms of the Conditional Master Agreement:

Date:		28 December 2018
Parties:		(i) The Company
		(ii) Hon Hai
Subject	matter:	Sales and purchases of electronic components and sale of other products and
		distribution of SHARP’S PRODUCTS and distribution of other brand
		products under the Hon Hai Group
Term:		From 1 January 2019 to 31 December 2021

LETTER FROM GRAM CAPITAL

The Conditional Master Agreement is conditional upon the approval of the Conditional Master Agreement and the Caps by the Independent Shareholders at the SGM.

Under the Conditional Master 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 the 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 arm’s length basis; (c) for purchases made by the Group from Hon Hai Group, as the members of the Hon Hai Group are the approved vendors designated by certain End-Customers, the Group will review and ensure prices for products to be purchased are charged on a cost-plus basis with reasonable profit margin; (d) for sales made by the Group to Hon Hai Group, for the purpose of ensuring the terms of sales being fair and reasonable, the Group will review its pricing policy based on (i) the historical selling price of similar products; (ii) the market information obtained from current customers or other vendors; (iii) quotations from independent third party(ies); or (iv) continuing to expand the Company’s customer base and obtaining market information from those customers; and (e) 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. Hon Hai will procure members of the Hon Hai Group to comply with the terms and conditions of the Conditional Master Agreement.

With reference to the Board Letter, the members of the Group will follow the internal policy and procedures (the ‘‘Internal Control Policies’’) when entering into, or deciding whether to enter into any sale or purchase transactions, with members of the Hon Hai Group. Details of the Internal Control Policies are set out under the section headed ‘‘INTERNAL POLICIES AND PROCEDURES’’ of the Board Letter.

For our due diligence purpose, we obtained the copy of the Internal Control Policies. The Directors are of the view that the above Internal Control Policies can ensure that the Continuing Connected Transactions will be conducted on normal commercial terms and will not be prejudicial to the interests of the Company and the Shareholders.

Price policy for purchases

With reference to the Board Letter, for purchases of products not related to SHARP’S PRODUCTS, the Group will determine the prices for purchases of such products with Hon Hai with reference to the cost-plus basis with an overall mark-up rate not below 3%. For purchases of SHARP’S PRODUCTS, the Group will determine the prices for purchases of SHARP’S PRODUCTS with Hon Hai with reference to the cost-plus basis with an overall mark-up rate not below 4%. Detailed price policy for purchases is set out under the section headed ‘‘Price Policy for Purchases’’ of the Board Letter.

For our due diligence purpose, we have requested the Company to provide us with certain historical purchases and sales invoices between (i) the Group and Hon Hai Group; and (ii) the Group and other independent third parties. As represented by the Company, a number of the members of Hon Hai Group are the only vendors approved by the End-Customers, the Group is thus required to purchase the products under the Purchase Transactions (the ‘‘Purchases Products’’) from Hon Hai Group only. As such, there has been no purchases record between the Company and other independent third parties for the Purchases

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Products. In addition, since the market rates of products similar to the Purchases Products supplied by other suppliers to other purchasers are not publicly available, we are unable to get access to such information. Given that a number of the members of Hon Hai Group are the only vendors approved by the End-Customers and the Group is thus required to purchase the Purchases Products from Hon Hai Group only, it is impractical to obtain quotation from other suppliers for comparison. Nevertheless, the Directors further explained to us that after receiving the purchases indication for the Purchases Products from the End-Customers, the Company would request the relevant price quotes from Hon Hai Group. In this respect, the Directors also provided us with certain historical purchases invoices between the Group and Hon Hai Group and sales invoices between the Group and the End-Customers and confirmed that the Group has been able to generate reasonable profits from the sales to the End-Customers subsequent to the purchases of the Purchases Products from Hon Hai Group. We consider that such arrangement follows the normal commercial terms.

We obtained certain sets of historical purchases invoices between the Group and Hon Hai Group on one side and sales invoices between the Group and the End-Customers on the other side. We noted from such invoices that the prices on the sales invoices were charged on a cost-plus basis with mark-up rates not below 3% over the purchase price of products not related to SHARP’S PRODUCTS and not below 4% over the purchase price of the SHARP’S PRODUCTS.

We researched for the gross profit ratios of two competitors identified by the Company (the ‘‘Comparables’’), namely Supreme Electronics Company Limited (Stock code: TW8112) and Edom Technology Company Limited (Stock code: TW3048) for the three financial years ended 31 December 2017. We noted that the Group and the Comparables are all engaging in the distribution of electronic components. In addition, the Group, Supreme Electronics Company Limited and Edom Technology Company Limited recorded revenue/sales of approximately HK$19,462 million, approximately New Taiwan Dollars (‘‘NTD’’) 123,237 million (equivalent to approximately HK$31,358 million (Note)) and approximately NTD75,980 million (equivalent to approximately HK$19,333 million (Note)) for FY2017. Having considered that (i) the similarity of the Group’s business and the Comparables’ business; and (ii) the size of the Group’s revenue is comparable to the Comparables’ sales for FY2017, we consider the Comparables to be appropriate for the purpose of providing reference for gross profit margin.

We noted that the average gross profit margin of Supreme Electronics Company Limited and Edom Technology Company Limited were approximately 2% and 3% respectively for the three financial years ended 31 December 2017. As aforementioned, for purchases of products not related to SHARP’S PRODUCTS, the Group will determine the prices for purchases of such products with Hon Hai with reference to the cost-plus basis with an overall mark-up rate not below 3%. For purchases of SHARP’S PRODUCTS, the Group will determine the prices for purchases of SHARP’S PRODUCTS with Hon Hai with reference to the cost-plus basis with an overall mark-up rate not below 4%. Such rates are comparable to the aforesaid average gross profit margin of the three financial years ended 31 December 2017.

Note: Adopting exchange rate of HK$1:NTD3.93

LETTER FROM GRAM CAPITAL

Price policy for sales

With reference to the Board Letter, for sales to be transacted with the Hon Hai Group, the sale executives of the Group will have 3-party meetings with each of its main suppliers and representatives from the Hon Hai Group on a quarterly basis to discuss the overall prices and quantities for each product categories. The suppliers and representatives from the Hon Hai Group will agree upon the prices and quantities of various products to be traded. Determination of the prices for sales with Hon Hai is generally with reference to the standard price range, prevailing market prices of those or similar products, or the gross profit mark-up rate not below 2%. Detailed price policy for sales is set out under the section headed ‘‘Price Policy for Sales’’ of the Board Letter.

As aforementioned, the average gross profit margin of Supreme Electronics Company Limited and Edom Technology Company Limited were approximately 2% and 3% respectively for the three financial years ended 31 December 2017. The above gross profit mark-up rate not below 2% is comparable to the average gross profit margin of the Comparables for the three financial years ended 31 December 2017.

With reference to the Board Letter, considering upon the fact that the Conditional Master Agreement governs the sales and purchase of electronic components and distribution of SHARP’S PRODUCTS and distribution of other brand products under the Hon Hai Group between the Group and Hon Hai and its subsidiaries for the next 3 financial years, i.e. from 1 January 2019 to 31 December 2021, such profit margin is determined by reference to the average gross profit margin rates of the Group in the last three financial years. We consider the referencing period of three years to be reasonable as it can take into account the fluctuation during the three years period.

With regard to the Sales Transactions, from the historical invoices between (i) the Group and Hon Hai Group; and (ii) the Group and other independent third parties, which we obtained, we noted that the pricing and other terms (such as payment and delivery) of products under the Sale Transactions (the ‘‘Sales Products’’) were comparable in both cases.

With reference to the 2017 Annual Report and as confirmed by the Directors, the independent nonexecutive Directors have reviewed the Continuing Connected Transactions for the year ended 31 December 2017 and, in their opinion, the Continuing Connected Transactions were entered into by the Group: (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms; and (iii) according to the agreements governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole.

The Company’s auditors were also engaged to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) ‘‘Assurance Engagements Other Than Audits or Reviews of Historical Financial Information’’ and with reference to Practice Note 740 ‘‘Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules’’ issued by the Hong Kong Institute of Certified Public Accountants. Based on the work performed, the auditors of the Company confirmed to the Board that, among other things, nothing has come to their attention that causes them to believe that the Continuing Connected Transactions for the year ended 31 December 2017 (i) had not been approved by the Board; (ii) were not, in all material respects, in accordance with the pricing policies of the Group (only applicable to the Sale Transactions); (iii) were not entered into, in all material respects, in accordance with the relevant agreement governing the Continuing Connected Transactions; and (iv) had exceeded the relevant cap disclosed previously.

LETTER FROM GRAM CAPITAL

In light of the above, we are of the view that the terms of the Conditional Master Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

3. The annual caps under the Conditional Master Agreements

With reference to the Board Letter, the Conditional Master Agreement and the transactions contemplated thereunder will be subject to, among other things, the Caps for the terms from 1 January 2019 to 31 December 2021. Set out below are (i) the historical amount of the Continuing Connected Transactions for the two years ended 31 December 2017 and the ten months ended 31 October 2018; (ii) the historical annual caps of the Continuing Connected Transactions for the three years ended 31 December 2018; and (iii) the Caps for the three years ending 31 December 2021:

	For the year	For the year	For the ten
	ended	ended	months ended
	31 December	31 December	31 October
	2016	2017	2018
	HK$’000	HK$’000	HK$’000
Historical amount of the Purchase
Transactions	702,276	1,446,862	987,000
Historical amount of the Sale Transactions	1,059,632	3,348,266	3,197,000
	For the year	For the year	For the year
	ended	ended	ended
	31 December	31 December	31 December
	2016	2017	2018
	HK$’000	HK$’000	HK$’000
Historical annual caps of the Purchase
Transactions	1,300,000	1,600,000	2,000,000
Historical annual caps of the Sale
Transactions	2,600,000	3,500,000	4,700,000
	For the year	For the year	For the year
	ending	ending	ending
	31 December	31 December	31 December
	2019	2020	2021
	HK$’000	HK$’000	HK$’000
Caps of the Purchase Transactions	1,700,000	2,200,000	2,700,000
Caps of the Sale Transactions	5,600,000	7,200,000	9,000,000

LETTER FROM GRAM CAPITAL

Analysis on the Purchase Caps

With reference to the Board Letter, in determining the proposed Purchase Caps for each of the three financial years ending 31 December 2019, 2020 and 2021, the Board based on the following major factors:

(a) expanded customer base of the Group in 2018 which have been utilizing products supplied by Hon Hai Group and increasing demand for Hon Hai connectors, modules and clips

The Group has been opening up new product lines which have been utilizing products supplied by the Hon Hai Group. For example, the Group started to purchase earphone parts and modules and clips to be assembled in notebook computers from Hon Hai to its EndCustomers which are certain OEM factories in 2018 and the Group expects to receive more orders from its End-Customers in the next 3 years.

The Group purchases the connectors, earphone parts, modules and clips, and other electronic components from FIT Hon Teng and resells these products to the Group’s end-customers. FIT Hon Teng revealed in its 2018 interim report that it witnessed increased sales of interconnect solutions utilized in the new smartphone products released by a brand company customer as well as in the earphones associated with such smartphone products. As a result, their revenue from the mobile and wireless devices end market increased by 29.8% in the six months ended 30 June 2018 compared to that in the same period in 2017, and FIT Hon Teng expects a growth on the selling of its earphones and associated products. Further, FIT Hon Teng also saw demand for mobile and wireless devices continues to rise around the world. The proliferation of mobile phones, in particular smartphones, drives demand for various accessory products such as chargers, batteries, earphones, headsets and power banks.

For our due diligence purpose, we also obtained the Company’s record on the number of the Group’s customers and we noted that the number of the Group’s customers increased by over 800 from 2017 to 2018. In addition, according to a report titled ‘‘Technology, Media and Telecommunications Predictions 2018’’ issued by Deloitte Touche Tohmatsu Limited (http:// www.deloitte.co.uk/tmtpredictions2018/assets/img/downloads/Deloitte-TMT-PredictionsReport.pdf), it was expected that smartphone sales will be 1.85 billion per years in 2023, representing an increase of 19% as compared to 2018. Such increase may lead to further demand of the Purchase Transactions.

(b) the anticipated sales growth that will be achieved from the products provided by SHARP

With reference to the Board Letter, SHARP has launched range of new products, such as the world-first 70-inch Aquos 8K TV, a design award winning full screen Aquos S2 smartphones and innovative ultrasonic washers that received overwhelming market response and the Group expects to get more orders from its end-customers in the next three years. The Group has recorded satisfactory distribution volume of various products, such as (i) kitchen appliances, including freezer, refrigerators, microwave ovens, steam ovens and juicers, (ii) home & lifestyle products & appliances, including air-conditioners, hair dryers, air purifiers, ion generators and dehumidifiers, (iii) business equipment and solutions, including integrated white board, information display panels, video wall, digital signage, copier, multifunction

LETTER FROM GRAM CAPITAL

peripheral, document system software and consumables, (iv) liquid-crystal display televisions, and (v) EC PRODUCTS, i.e. integrated circuit, under the brand name of ‘‘SHARP’’ in Hong Kong and Macau and Non-exclusive Territories.

As advised by the Directors, SHARP will launch new model products in 2019, which is expected to increase the amount of Purchase Transactions. For our due diligence purpose, we obtained introduction materials of certain new model SHARP’S PRODUCTS which also stated their launching schedule in 2019.

(c) a buffer of 10% on the estimate of factors (a) to (b) above

We noted that the utilisation of the historical cap for the year ended 31 December 2017 reached approximately 90%. Nevertheless, the historical amount of the Purchase Transactions for the ten months ended 31 October 2018 only reached approximately 49% of the historical cap for the year ended 31 December 2018. As advised by the Directors, it was mainly due to less orders received from the EndCustomers since 2018 as their sale performance were unsatisfactory as iPhone new models were launched in late 2018. For our due diligence purpose, we reviewed news relating to the sales of iPhone on the Internet. We noted from a news article published by Bloomberg on 2 November 2018 (https:// www.bloomberg.com/news/articles/2018-11-02/apple-silence-on-iphone-unit-sales-sparks-concernshows-future) that the year-on-year increases of iPhone unit sales have slowed down since 2015. As such, the Purchase Cap for the year ending 31 December 2019 was set below the historical cap for the year ended 31 December 2018.

To assess the fairness and reasonableness of the Purchase Caps, we discussed with the Directors regarding the basis of determination of the Purchase Caps as aforementioned. In this regard, we have obtained the breakdown of the purchases estimation of the Group from Hon Hai Group by categories of the Purchases Products for the year ending 31 December 2019. For the purchases estimation of each category of the Purchases Products, we have enquired into the Directors to understand the basis of the relevant estimation.

For the amount of Purchase Caps catering for ‘‘Distribution of SHARP’S PRODUCTS’’, the Group obtained purchase indications for 2019 from certain End-Customers. Such amount of purchase indications is over 60% of the amount of Purchase Caps catering for ‘‘Distribution of SHARP’S PRODUCTS’’ in 2019.

For the amount of Purchase Caps catering for ‘‘Products which the end-customers have designated the Hon Hai Group as the only vendor’’, the Company estimated the purchase demand for 2019 from the End-Customers based on the historical amount of relevant Purchase Transactions. Such estimated purchase demand represents a slight decrease as compared to that for 2018.

For the amount of Purchase Caps catering for ‘‘New Products – earphone parts and modules and clips’’, the Group obtained purchase indications in terms of unit for the first half 2019 from certain EndCustomers. The Group converted the said purchase indications in terms of monetary amount. Such amount of purchase indications is over 30% of the amount of Purchase Caps catering for ‘‘New Products – earphone parts and modules and clips’’ in 2019.

LETTER FROM GRAM CAPITAL

In light of the above, we consider that the breakdown of the purchases estimation (as the case may be) of the Group from Hon Hai Group by categories of the Purchases Products can reflects the basis of determination of the Purchase Caps as aforementioned and form a reasonable basis for the size of the proposed Purchase Cap for the year ending 31 December 2019.

As for the Purchase Caps for the years ending 31 December 2020 and 2021, we noted that they represent increment of around 29% and 23% as compared to the relevant cap for the prior financial year. As advised by the Directors, such growth is mainly attributable to (i) the continuous growth of demand for consumer electronics, the expected introduction of new smartphones and earphones which employed Hon Hai connectors, modules and clips and its PRC major smartphone manufacturers started to employ Hon Hai connectors, modules and clips. In addition, due to the increasing expansion of product lines supplied by Hon Hai Group in terms of variety, quantity and quality, it is expected that there will be new customers who will start to employ the components and parts supplied by Hon Hai Group; and (ii) the distribution business of SHARP’S PRODUCTS. Besides, for the amount of Purchase Caps catering for ‘‘Distribution of SHARP’S PRODUCTS’’, the Group also obtained purchase indications for 2020 and 2021 from certain End-Customers. Such amounts of purchase indications are over 60% of the amounts of Purchase Caps catering for ‘‘Distribution of SHARP’S PRODUCTS’’ in 2020 and 2021.

Analysis on the Sale Caps

With reference to the Board Letter, in determining the proposed Sales Caps for each of the three financial years ending 31 December 2019, 2020 and 2021, the Board based on the following major factors:

(a) turnover outlook of the Group

Given the popularity of artificial intelligence (AI) – integrated TVs, household appliances and other smart devices such as cleaning robot and drone increased, riding on the Group’s proven all-round technical support of Internet of Things (IoT) and smart home connectivity solutions and the increasing demand and use of other electronic products and with the effect of shortening of technology life-cycle of consumer electronics which rapidly phases out the old products, the Directors expect that market growth rate of the sales and purchases to and from Hon Hai will have an incremental increase in the following 3 years. In particular, having considered the AI development in many countries, such as the US, China, Japan and Europe, the Directors expect that the sales of memorial ICs (e.g. dynamic random access memory chips and flash memory chips), radio frequency modules, larger storage memory chips, distance measurement and dust sensors and optical Couplers to be sold to the Hon Hai Group will increase drastically comparing the sales in 2017 than the expected sales in 2021.

With reference to the 2018 Interim Report that the Group’s component team recorded strong sales of DRAM and NAND flash memory chips, MCP solutions and small and medium-size LCD panels and delivered satisfactory results for the six months ended 30 June 2018 and achieved record revenue of HK$12.9 billion, increased by 77% from HK$7.3 billion recorded in same period in 2017.

LETTER FROM GRAM CAPITAL

(b) new product lines of the Group sold to Hon Hai Group

The Group is negotiating with new major suppliers so that the products can be distributed by the Group to Hon Hai. Those new product lines include NOR Flash, NAND Flash, NFC sensors, optical networking devices and trans-impedance amplifiers which can have widevariety applications in various electronic devices including smartphones, tablets, PCs, networking devices such as routers and switches as well as telephone, transmitting stations and satellite operators. There has been an annual growth in the number of the Group’s suppliers since year 2015. The growth in the number of the Group’s suppliers represents that more types of product can be sold to the Hon Hai Group. The Group, acting as a trader between the Hon Hai Group and other suppliers, expects a year-on-year increase on the purchase orders to be placed by Hon Hai Group.

For our due diligence purpose, we obtained a list of suppliers of the Group and we noted that the number of suppliers of the Group increased by over 100 for 2018 as compared to 2017.

(c) a buffer of 10% on the estimate of factors (a) to (b) above

We noted that the utilisation of the historical cap for the year ended 31 December 2017 reached approximately 96%. Nevertheless, the historical amount of the Sale Transactions for the ten months ended 31 October 2018 only reached approximately 68% of the historical cap for the year ended 31 December 2018. Nevertheless, the Sale Cap for the year ending 31 December 2019 was set above the historical cap for the year ended 31 December 2018 after taking into account historical growth of the Sale Transactions (i.e. the historical amount of Sale Transactions for the year ended 31 December 2017 represented an increase of approximately 216% as compared to that for the prior year and the historical amount of Sale Transactions for the ten months ended 31 October 2018 reached approximately 95% of the historical amount of Sale Transactions for the year ended 31 December 2017.

To assess the fairness and reasonableness of the Sale Caps, we have also discussed with the Directors regarding the basis of determination of the Sale Caps as aforementioned. In this regard, we have obtained the breakdown of the sales estimation (as the case may be) of the Group to Hon Hai Group by categories of the Sales Products (as the case may be) for the year ending 31 December 2019. For the sales estimation of each category of the Sales Products (as the case may be), we have enquired into the Directors to understand the basis of the relevant estimation.

For the amount of Sale Caps catering for ‘‘Existing business’’ (being the largest component of the Sale Caps), the Group obtained purchase indications for 2019 from member of Hon Hai Group. Such amount of purchase indications is over 50% of the amount of Sale Caps catering for ‘‘Existing business’’ in 2019.

In light of the above, we consider that the breakdown of the sales estimation (as the case may be) of the Group to Hon Hai Group by categories of the Sales Products (as the case may be) can reflects the basis of determination of the Sale Caps as aforementioned and form a reasonable basis for the size of the Sale Caps for the year ending 31 December 2019.

LETTER FROM GRAM CAPITAL

As for the Sale Caps for the years ending 31 December 2020 and 2021, we noted that they represent increment of around 29% and 25% as compared to the relevant cap for the prior financial year. With reference to the Board Letter, such estimation is based on that the historical growth rate of Sales Transactions was 216% for FY2017 as compared to FY2016 and the estimated growth rate of 13.5% for the year ended 31 December 2018 based on the projection of actual transaction amount up to the end of October 2018 on pro rata basis, the sales turnover with the Hon Hai Group of the Group in the first ten months of 2018 and the economic condition as at the end of 2018 and the estimation amount for the financial year ending 2019, 2020 and 2021. As advised by the Directors, such growth is mainly attributable to the new product lines including NOR Flash, NAND Flash, NFC sensors, optical networking devices and trans-impedance amplifiers which potentially have a wide-variety applications in various electronic devices including smartphones, tablets, PCs, networking devices such as routers and switches as well as telephone, transmitting stations and satellite operators.

The Directors also advised us that the expected key drivers for the potential growth in the Sale Transactions are the followings: (i) the Company expects to get more orders placed by Hon Hai Group; (ii) the expected market growth of smartphones, tablets, PC, server, LED lighting, TVs and other electronic products manufactured by Hon Hai Group which demand the Sale Products as components; (iii) Hon Hai Group provided representative office for the Group in Hon Hai Group’s manufacturing base to facilitate the procurements from the Group; (iv) Hon Hai Group continues to reduce the number of suppliers so as to reduce its transaction costs; and (v) demand for new products from Hon Hai Group.

Besides, for the amount of Sale Caps catering for ‘‘Existing business’’ (being the largest component of the Sale Caps), the Group obtained purchase indications for 2020 and 2021 from member of Hon Hai Group. Such amount of purchase indications is over 50% of the amount of Sale Caps catering for ‘‘Existing business’’ in 2020 and 2021.

Conclusion

Having considered the above analysis, in particular, the purchase/sales estimation and the growth factors, we consider that the Caps for the three years ending 31 December 2021 are fair and reasonable so far as the Independent Shareholders are concerned.

Shareholders should note that as the Caps are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2021, and they do not represent forecasts of purchase costs/revenue/income to be incurred from the Continuing Connected Transactions. Consequently, we express no opinion as to how closely the actual purchase costs/revenue/income to be incurred from the Continuing Connected Transactions will correspond with the Caps.

4. Listing Rules implication

The Directors confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Listing Rules pursuant to which (i) the values of the Continuing Connected Transactions must be restricted by the Caps for the period concerned under the Conditional Master Agreement; (ii) the terms of the Conditional Master Agreement must be reviewed by the independent non-executive Directors annually; (iii) details of independent non-executive Directors’ annual review on the terms of the Conditional Master Agreement must be included in the Company’s subsequent published annual reports

LETTER FROM GRAM CAPITAL

and financial accounts. Furthermore, it is also required by the Listing Rules that the auditors of the Company must provide a letter to the Board confirming, among other things, whether anything has come to their attention that causes them to believe that the Continuing Connected Transactions (i) have not been approved by the Board; (ii) were not, in all material respects, in accordance with the pricing policies of the Group (only applicable to the Sale Transactions); (iii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iv) have exceeded the Caps. In the event that the total amounts of the Continuing Connected Transactions exceed the Caps, or that there is any material amendment to the terms of the Conditional Master Agreement, as confirmed by the Directors, the Company shall comply with the applicable provisions of the Listing Rules governing continuing connected transactions.

Given the above stipulated requirements for continuing connected transactions pursuant to the Listing Rules, we are of the view that there are adequate measures in place to monitor the Continuing Connected Transactions and thus the interest of the Independent Shareholders would be safeguarded.

RECOMMENDATION

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the Conditional Master Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the entering into of the Conditional Master Agreement is in the ordinary and usual course of business of the Company and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the SGM to approve the Conditional Master Agreement and the transactions contemplated thereunder and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

Yours faithfully, For and on behalf of Gram Capital Limited David Kwan Director

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(i) Directors and Chief Executive of the Company

As at the Latest Practicable Date, the interests and short positions of each director and chief executive of the Company and each of their respective associates, 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 (a) 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 (b) were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) 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
		Number of	capital of the
		shares held as	Company as
		at the Latest	at the Latest
		Practicable	Practicable
Name	Capacity	Date	Date
Yim Yuk Lun, Stanley	Beneficial owner	79,134,000	12.64%
BBS JP
	Held by controlled	227,542,800	36.36%
	corporation (Note)
Wong Sui Chuen	Beneficial owner	1,824,000	0.29%

Note: Unimicro Limited, a company incorporated in the British Virgin Islands, is wholly-owned by Yim Yuk Lun, Stanley BBS JP and therefore Yim Yuk Lun, Stanley BBS JP is deemed to be interested in the shares owned by Unimicro Limited under the SFO.

GENERAL INFORMATION

APPENDIX

(ii) 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 them 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:

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
		Practicable	Practicable
Name	Capacity	Date	Date
Hon Hai	Held by controlled	124,000,000	19.81%
	corporation (Note)
Foxconn	Beneficial owner	124,000,000	19.81%

Note: Foxconn, a company incorporated in the British Virgin Islands, is wholly-owned by Hon Hai and therefore Hon Hai is deemed to be interested in the shares owned by Foxconn under the SFO.

3. 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.

4. COMPETING INTERESTS

As at the Latest Practicable Date,

(a) none of the Directors nor any proposed director nor their respective associates had any interests in a business which competes or may compete, either directly or indirectly, with the business of the Group or any other conflicts of interests with the Group; and
(b) none of the Directors nor any proposed director nor their respective associates has any direct or indirect interest in any assets which have been, since 31 December 2017, acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

GENERAL INFORMATION

APPENDIX

5. EXPERT’S QUALIFICATION AND CONSENT

The following are the qualifications of the expert who has given its opinions and advice which are included in this circular:

Name

Qualification

Gram Capital a licensed corporation to carry out type 6 (advising on corporate finance) regulated activity under the SFO.

Gram Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or opinion (as the case may be) and all references to its name in the form and context in which they appear.

As at the Latest practicable Date, Gram Capital was not beneficially interested in the share capital of any member of the Group nor did it has any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group nor did it has any interest, either direct or indirect, in any assets which have been, since the date to which the latest published audited consolidated financial statements of the Group were made up (that is, 31 December 2017), acquired, disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

6. 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 2017, being the date to which the latest published audited financial statements of the Group were made up.

7. MISCELLANEOUS

(i) Mr. Wong Wai Tai, a Certified Public Accountant of the Hong Kong Institute of Certified Public Accountants, is the secretary of the Company.
(ii) Gram Capital is a licensed corporation to carry out type 6 (advising on corporate finance) regulated activity under the SFO and the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the Conditional Master Agreement.
(iii) Gram Capital 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.

GENERAL INFORMATION

APPENDIX

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copy of the following documents are available for inspection at the office of Messrs. Angela Ho and Associates, Unit 1405, 14/F., Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong, during normal business hours on any day up to and including the date of SGM:

(i) the Conditional Master Agreement;
(ii) the Distribution Agreements;
(iii) the Sales Agreement;
(iv) letter from the Independent Board Committee dated 15 January 2019;
(v) letter from Gram Capital dated 15 January 2019;
(vi) the written consent referred to in the paragraph headed ‘‘Expert’s qualification and consent’’ in this appendix.

NOTICE OF THE SGM

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 28/F., Noble Centre, No. 1006, 3rd Fuzhong Road, Futian District, Shenzhen, P.R.C. on 31 January 2019 at 11:00 a.m. 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 RESOLUTIONS

‘‘THAT,

(a) the Conditional Master Agreement and the Caps, each as defined and described in the circular of the Company dated 15 January 2019 (the ‘‘Circular’’) (a copy of the Conditional Master 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 Continuing Connected Transactions (as defined in the Circular) contemplated thereunder and in connection therewith, be and are hereby approved, ratified and confirmed;
(b) all Continuing Connected Transactions (as defined in the Circular) negotiated, performed or carried out during the period between 1 January 2019 and the date of this meeting be approved, ratified and confirmed; and
(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 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 Conditional Master Agreement, the Caps and the Continuing Connected Transaction contemplated thereunder and to agree to any amendment to any of the terms of Conditional Master Agreement which in the opinion of the Director(s) is/are in the interests of the Company and in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (where relevant).’’

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

Hong Kong, 15 January 2019

NOTICE OF THE SGM

Notes:

The ordinary resolutions 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.
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.
A form of proxy for use at the special general meeting is enclosed herewith.
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.
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, Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than forty-eight (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.
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.
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 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 the Company in respect of the joint holding.
As at the date hereof, the Board comprises four executive directors are Mr. Yim Yuk Lun, Stanley BBS JP, Mr. Wong Sui Chuen, Mr. Yim Tsz Kit, Jacky and Mr. Wong Wai Tai and four independent non-executive directors are Mr. Wong Tak Yuen, Adrian, Mr. Liu Chun Ning, Wilfred, Mr. Cheung Chi Kwan and Mr. Wong Wai Kin.

AI assistant

S.A.S. Dragon Holdings Limited — Proxy Solicitation & Information Statement 2019

49752_rns_2019-01-14_67394f01-1ad5-4869-9ebd-0f46be5efb5d.pdf

S.A.S. Dragon Holdings Limited

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF SPECIAL GENERAL MEETING

CONTENTS

DEFINITION

DEFINITION

DEFINITION

DEFINITION

DEFINITION

DEFINITION

LETTER FROM THE BOARD

S.A.S. Dragon Holdings Limited

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM THE BOARD

THE CONDITIONAL MASTER AGREEMENT

LETTER FROM THE BOARD

SALES AND PURCHASES BETWEEN THE GROUP AND THE HON HAI GROUP

LETTER FROM THE BOARD

INTERNAL POLICIES AND PROCEDURES

Payment Terms of Sales made by the Group

LETTER FROM THE BOARD

Payment Terms of Purchases made by the Group (Not related to SHARP’S PRODUCTS)

Payment Terms of Purchases made by the Group (Related to SHARP’S PRODUCTS)

Pricing Policies and Internal Procedures

Pricing Policy

LETTER FROM THE BOARD

Price Policy for Sales

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Price Policy for Purchases

Purchases made by the Group (Not related to SHARP’S PRODUCTS)

LETTER FROM THE BOARD

Purchases made by the Group (related to SHARP’S PRODUCTS)

LETTER FROM THE BOARD

Internal Control Measures

Sales Transactions

LETTER FROM THE BOARD

Purchase Transactions (Not Related to SHARP’S PRODUCTS)

LETTER FROM THE BOARD

Purchase Transactions (Related to SHARP’S PRODUCTS)

Annual Review

SALES AND PURCHASES CAPS

LETTER FROM THE BOARD

Sales Caps

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Purchase Caps

LETTER FROM THE BOARD

LETTER FROM THE BOARD

BASIS OF THE CAPS

Sale Caps

LETTER FROM THE BOARD

(b) New product lines of the Group sales to the Hon Hai Group

Purchase Caps

LETTER FROM THE BOARD

LETTER FROM THE BOARD

RELATIONSHIP BETWEEN THE COMPANY AND THE CONNECTED PERSONS

INFORMATION ABOUT THE GROUP AND HON HAI GROUP

REASONS AND BENEFITS FOR THE CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE BOARD

IMPLICATIONS OF THE LISTING RULES

SPECIAL GENERAL MEETING

LETTER FROM THE BOARD

RECOMMENDATION

ADDITIONAL INFORMATION

S.A.S. Dragon Holdings Limited

CONTINUING CONNECTED TRANSACTIONS

RECOMMENDATION

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM GRAM CAPITAL

BASIS OF OUR OPINION

LETTER FROM GRAM CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background of and reasons for the Conditional Master Agreement

Information on the Group

LETTER FROM GRAM CAPITAL

S.A.S. Dragon Holdings Limited Proxy Solicitation & Information Statement 2019