WEIli Holdings Limited - Proxy Solicitation & Information Statement 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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.

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

If you have sold or transferred all your Shares, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer, registered institution in securities, or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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DAIWA ASSOCIATE HOLDINGS LIMITED 台和商事控股有限公司 *

(incorporated in Bermuda with limited liability)

(Stock code: 1037)

(1) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE DEEMED DISPOSAL OF INTEREST IN DAIWA DISTRIBUTION HOLDINGS LIMITED BY ENTERING INTO AN INCENTIVE SUBSCRIPTION AGREEMENT; (2) ENTERING INTO OF A SERVICE AGREEMENT BY DAIWA DISTRIBUTION HOLDINGS LIMITED; (3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE PROVISION OF FINANCIAL ASSISTANCE; AND (4) NOTICE OF SPECIAL GENERAL MEETING

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

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

A letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, containing its advice in relation to (i) the discloseable and connected transaction contemplated under the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated respectively thereunder; and (ii) the continuing connected transactions in relation to the provision of financial assistance is set out on pages 14 to 28 of this circular.

A notice convening the SGM to be held at 11th Floor, Block G, East Sun Industrial Centre, 16 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong on Monday, 13 June 2011 at 3:00 p.m. is set out on pages 47 of this circular. A form of proxy for the SGM for use by the Shareholders is enclosed with this circular. Whether or not you are able to attend the meeting in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same at the office of the Company’s branch registrar in Hong Kong, Tricor Abacus Limited of 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish.

For identification purpose only

26 May 2011

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Letter from Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Appendix I: Valuation Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
Appendix II: General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47

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DEFINITIONS

In this circular, the following expressions have the meanings set out below unless the context otherwise requires.

“Announcement”	the announcement of the Company dated 28 April
	2011 relating to, among other things, the Incentive
	Subscription Agreement and the Service Agreement
“associates”	has the meaning ascribed to it under the Listing Rules
“Bank(s)”	independent financial institution(s) and the lenders of the
	Bank Facilities
“Bank Facilities”	the revolving banking facilities and term loan facilities in
	the sum of approximately HK$394 million available by the
	Banks
“Board”	the board of Directors of the Company
“Business Day”	any day on which the Stock exchange is open for the
	business of dealing in securities
“Cessation Date”	the date of cessation of employment which shall be
	the last actual working day on which the holder of the
	Class B Share was physically at work with DDHL or its
	subsidiary, whether salary is paid in lieu of notice or not
“Company”	Daiwa Associate Holdings Limited, a company
	incorporated in Bermuda with limited liability and the
	issued Company Shares of which are listed on the main
	board of the Stock Exchange
“Company Shares”	shares of HK$0.10 each in the capital of the Company
“Completion “	completion of the Incentive Subscription Agreement in
	accordance with its terms and conditions
“Completion Date”	the day following the third Business Day after fulfillment
	of all conditions precedent pursuant to the terms in the
	Incentive Subscription Agreement
“connected person”	has the meaning ascribed thereto under the Listing Rules
“DDHL”	Daiwa Distribution Holdings Limited, a company
	incorporated in the British Virgin Islands with limited
	liability
“DDHL Group”	DDHL and its subsidiaries

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“DDHL A-Share(s)” class A share(s) of US$1.00 each in the capital of DDHL “DDHL B-Share(s)” class B share(s) of US$1.00 each in the capital of DDHL “Director(s)” director(s) of the Company “Financial Year” financial year of the Company ending March of each calendar year “Group” Company and its subsidiaries (including DDHL) “HK$” Hong Kong Dollars, the lawful currency of Hong Kong “Hong Kong” Hong Kong Special Administrative Region of the People’s Republic of China “Incentive Subscription Agreement” the subscription agreement entered into between DDHL and the Subscriber on 27 April 2011 “Independent Board Committee” The independent board committee comprising Mr. Barry John Buttifant, Mr. Choi Yuk Fan and Mr. Liu Ngai Wing, all independent non-executive Directors, appointed to advise the Independent Shareholders in respect of the Transactions “Independent Financial Adviser” GF Capital (Hong Kong) Limited, a corporation licensed to carry on type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser to the Shareholders in relation to the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated thereunder and the provision of financial assistance

“Independent Shareholders” Shareholders other than Mr. Mak and his associates

“Latest Practicable Date” 23 May 2011, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange “Mr. Lau” Mr. Lau Tak Wan, president and an executive Director and a director of certain subsidiaries of the Company (including DDHL) “Mr. Mak” or “Subscriber” Mr. Mak Hon Kai, Stanly, an executive Director and a director of certain subsidiaries of the Company (including DDHL)

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“Service Agreement”

service agreement entered into between DDHL and Mr. Mak on 27 April 2011 (as supplemented by a supplemental agreement dated 27 April 2011)

“SGM” the special general meeting of the Company to be convened and held at 11th Floor, Block G, East Sun Industrial Centre, 16 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong on Monday, 13 June 2011 at 3:00 p.m. at which the ordinary resolutions will be proposed to approve, if thought fit, the Transactions “Shareholders” holder(s) of the issued Company Shares “Stock Exchange” The Stock Exchange of Hong Kong Limited “Subscription” the subscription of 200 DDHL B-Shares by the Subscriber pursuant to the Incentive Subscription Agreement “Transactions” the transactions including (i) the discloseable and connected transaction contemplated under the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated respectively thereunder; and (ii) the continuing connected transactions in relation to the provision of financial assistance “US$” United States Dollars, the lawful currency of the United States of America

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LETTER FROM THE BOARD

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DAIWA ASSOCIATE HOLDINGS LIMITED 台和商事控股有限公司 *

(incorporated in Bermuda with limited liability)

(Stock code: 1037)

Exective Directors: Lau Tak Wan (President) Chan Yuen Mei, Pinky (Vice-President) Wan Chor Fai Mak Hon Kai, Stanly

Independent Non-Executive Directors: Barry John Buttifant Choi Yuk Fan Liu Ngai Wing

Registered office: 11th Floor Block G East Sun Industrial Centre 16 Shing Yip Street Kwun Tong Kowloon Hong Kong

26 May 2011

To the Shareholders

Dear Sir or Madam,

(1) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE DEEMED DISPOSAL OF INTEREST IN DAIWA DISTRIBUTION HOLDINGS LIMITED BY ENTERING INTO AN INCENTIVE SUBSCRIPTION AGREEMENT; (2) ENTERING INTO OF A SERVICE AGREEMENT BY DAIWA DISTRIBUTION HOLDINGS LIMITED; AND (3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE PROVISION OF FINANCIAL ASSISTANCE

INTRODUCTION

On 28 April 2011, the Board announced that the Company proposed, among other things, to enter into a (i) discloseable and connected transaction contemplated under the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated respectively thereunder; and (ii) the continuing connected transactions in relation to the provision of financial assistance. The Incentive Subscription Agreement, the Service Agreement and the transactions contemplated thereunder would be subject to the Shareholders’ approval at the SGM by way of poll.

For identification purpose only

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The purposes of this circular are (i) to provide the Shareholders with information on the reasons and benefits for entering into the Incentive Subscription Agreement and the Service Agreement and such other information relating to the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated respectively thereunder; (ii) to provide the Shareholders with information on the continuing connected transactions in relation to the provision of finance assistance; (iii) to set out the letter of advice from the Independent Financial Adviser which contains its recommendation to the Independent Board Committee and the Independent Shareholders in respect of the Transactions; and (iv) to give notice to the Shareholders of the SGM at which ordinary resolutions will be proposed to approve the Transactions.

DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE DEEMED DISPOSAL AND ENTERING INTO OF A SERVICE AGREEMENT

Introduction

On 27 April 2011, DDHL entered into the conditional Incentive Subscription Agreement with Mr. Mak. Pursuant to the Incentive Subscription Agreement, DDHL will issue and Mr. Mak will subscribe for 200 DDHL B-Shares.

Incentive Subscription Agreement

Date

27 April 2011

Issuer

DDHL, an indirect wholly-owned subsidiary of the Company

Subscriber

Mr. Mak, an executive Director and director of various subsidiaries of the Company (including DDHL).

Subscription

DDHL has, subject to fulfillment of the conditions precedent set out below, conditionally agreed to allot and issue 200 DDHL B-Shares to the Subscriber at the consideration of US$200 which is equivalent to approximately HK$1,556.

Conditions precedent

The Completion shall be conditional upon and subject to:

(i) if necessary, the passing by the Independent Shareholders at the SGM of the Company to be convened and held of the necessary resolutions to approve the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated respectively thereunder;

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(ii) all necessary consents, licenses and approvals required to be obtained on the part of DDHL in respect of the Incentive Subscription Agreement, Service Agreement and the transactions contemplated hereunder having been obtained and remain in full force and effect; and
(iii) the Service Agreement having becoming unconditional.

Completion

Subject to the conditions precedent set out above, Completion shall take place on the Completion Date.

Information of DDHL

DDHL is an indirectly wholly-owned subsidiary of the Company and, together with its subsidiaries, are principally engaged in the distribution of electronic components. Mr. Mak is an executive Director and a director of various subsidiaries of the Company (including DDHL) and is responsible for the management and operation of DDHL.

Upon Completion, the Company will indirectly own 90% of shareholding in DDHL by the holding of 1,800 DDHL A-Shares and Mr. Mak will hold 10% of shareholding in DDHL by the holding of 200 DDHL B-Shares. DDHL will become a 90%-owned subsidiary of the Company.

Subscription price

The subscription price for the DDHL B-Shares of US$200 is equivalent to the par value of the DDHL B-Shares.

Rights and Restrictions of the DDHL B-Shares

Save as disclosed below, i.e. subject to the Redemption & the entitlement to profit sharing, the DDHL B-Shares to be allotted and issued to Mr. Mak which are transferable in nature shall carry the same voting rights and pre-emptive rights as DDHL A-Shares. For avoidance of doubt, both DDHL A-Shares & DDHL B-Shares are subject to pre-emptive rights. All holders of DDHL B-Shares shall be subject to the Redemption & the entitlement to profit sharing restrictions imposed on DDHL B-Shares as disclosed below. The dividend entitlement of the DDHL B-Shares is set out below:

Periods

Entitlement to profit sharing

Any period before 31 March 2011 Nil From 1 April 2011 and thereafter An amount (N) calculated in accordance with the following formula: N = A/B x C

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Entitlement to profit sharing

Periods

Where:

A = the total amount of dividends or distributions to which holders of the DDHL A-Shares are entitled;

B = the number of the DDHL A-Shares entitled to such dividend or distribution being declared, made or paid to the holders of the DDHL A-Shares; and

C = the number of the DDHL B-Shares entitled to the relevant dividend or distribution being declared, made or paid to the holders of the DDHL B-Shares

Redemption of the DDHL B-Shares

(a) In the event of the Subscriber is convicted of a criminal offence, becomes bankrupt, is disqualified to act as a director of DDHL, is guilty of any dishonesty, or undertakes of a competing business with the Group, DDHL can redeem all or part of the DDHL B-Shares from such holder at their aggregate nominal values upon the happening of the above events.
(b) In the event of the Subscriber ceases to be an employee of the Group, DDHL can redeem all or part of the DDHL B-Shares from such holder at a redemption amount calculated by reference to the following formula:

X = A x B

where

X = the redemption amount
A = the aggregate of (i) the product of the paid up and issued share capital of each DDHL B-Share and the number of the DDHL B-Shares; and (ii) the product of the amount of the retained earnings attributable to the each DDHL B-Share and the number of the DDHL B-Shares, both as shown in the management accounts of DDHL for such Financial Year which is immediately before the Cessation Date.
B = 50% if the Cessation Date falls on or before 1 April 2012; 60% if the Cessation Date falls on or before 1 April 2013; 70% if the Cessation Date falls on or before 1 April 2014; 80% if the Cessation Date falls on or before 1 April 2015; 90% if the Cessation Date falls on or before 1 April 2016; and 100% if the Cessation Date falls on or before 1 April 2017 and at all times thereafter

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(c) If (i) when the percentage of the aggregate shareholding of Mr. Lau together with Mr. Lau’s connected persons and the persons acting in concert with Mr. Lau in the Company reduces to less than 30%; or (ii) when the percentage shareholding of the Company in DDHL reduce to less than 50%, the Company shall have the option (but shall not be obliged) to redeem all or part of the DDHL B-Shares from such holder at a redemption amount calculated by 100% of the aggregate of (i) the paid up and issued share capital of each DDHL B-Shares; and (ii) the retained earnings attributable to the each DDHL B-Shares, both as shown in the management accounts of DDHL for such Financial Year which is immediately before the Cessation Date.

As at 31 March 2011, the unaudited net asset value of DDHL Group was approximately HK$2,970,000 and the net asset value of DDHL Group being disposed of under the deemed disposal of interest in DDHL was approximately HK$297,000 (being 10% of the total value of DDHL Group).

For the Financial Year ended 31 March 2010, the net profits before and after taxation and extraordinary items of DDHL Group were approximately HK$17,958,000 and HK$13,833,000 respectively whereas for the Financial Year ended 31 March 2011, the unaudited net profits before and after taxation and extraordinary items of DDHL Group were approximately HK$19,753,000 and HK$14,688,000 respectively.

The sale proceeds of US$200 will be used as working capital of the Group. After taking into consideration of the valuation of DDHL and the relevant expenses incurred in relation to the deemed disposal of shareholding interest in DDHL, an expenses of cash-settled share based payment of approximately HK$10 million will be recognized in the financial statement of the Group.

SERVICE AGREEMENT

Introduction

On 27 April 2011, DDHL has entered into the Service Agreement with Mr. Mak for an initial term of five years from the date of the Service Agreement and would be automatically renewed for another term of five years upon its expiry and has appointed Mr. Mak as an executive director and chief executive officer of DDHL.

The Service Agreement is conditional upon:

(a) the passing by the holders of the issued Company Shares who are not required to abstain from voting under the applicable rules, codes and regulations (including but not limited to the Listing Rules) at the SGM to be convened and held of an ordinary resolution to approve the Service Agreement and the transactions contemplated hereunder;
(b) all necessary consents, licenses and approvals required to be obtained on the part of DDHL in respect of the Service Agreement and the transactions contemplated hereunder having been obtained and remain in full force and effect; and

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(c) the entering into of a supplemental agreement by Mr. Mak and the Company to vary certain terms and conditions of the service agreement dated 28 September 2004, entered into between the Company and Mr. Mak in relation to, inter alia, the appointment of the Mr. Mak as an executive director of the Company.

Mr. Mak, aged 49, is an executive director and chief executive officer (Distribution) of the Group responsible for the Group’s overall marketing strategy and the distribution of electronic components. Mr. Mak joined the Group in 1988. He has more than 20 years of experience in the sales and marketing of electronic components. The annual remuneration payable to Mr. Mak under the Service Agreement is HK$1,200,000 which is determined by reference to the prevailing market rate and mutually agreed between DDHL and Mr. Mak.

Mr. Mak (i) has no relationship with any Directors, senior management, substantial shareholders, or controlling shareholders of the Company; (ii) has no interest in the shares of the Company within the meaning of Part XV of the Securities and Futures Ordinance; and (iii) has not held any directorships in the last three years in public companies the securities of which are listed on any securities market in Hong Kong or overseas.

Mr. Mak is an executive Director and a director of various subsidiaries of the Company (including DDHL) and is therefore a connected person of the Company. Mr. Mak has confirmed that, save as aforesaid above, there are no other matters concerning Mr. Mak that need to be brought to the attention of the Shareholders nor any information to be disclosed pursuant to the requirements of Rule 13.51(2)(h) to (v) of the Listing Rules.

In order to comply with rule 13.68 of the Listing Rules, an Independent Board Committee has been formed to review the terms of the Service Agreement and advise to the Independent Shareholders as to the fairness and reasonableness of the terms of the Service Agreement and whether the Service Agreement is in the interests of the Company and the Shareholders as a whole.

The reasons of the Incentive Subscription Agreement and the Service Agreement

The purpose of the Subscription is to provide incentives or rewards to the Subscriber for his continual contribution to DDHL and the Group. The issue of DDHL B-Shares segregates the existing rights of the Group in DDHL by holding of DDHL A-Shares from the shareholding to be held by the Subscriber by holding of DDHL B-Shares.

Mr. Mak, being the chief executive officer (Distribution) of the Group, is responsible for the Group’s overall marketing strategy and distribution of electronic components. Mr. Mak has been long serving with the Group since 1988. The Directors are satisfied with the performance of Mr. Mak and consider that Mr. Mak has provided valuable contribution to the Group’s development in the past. The Directors believe that (i) the entering into of the Incentive Subscription Agreement will give Mr. Mak incentives to make continual contributions and improve further the earnings of the DDHL Group in the future; and (ii) the entering into the Service Agreement will enhance management efficiency of Mr. Mak by providing him a better position in managing the distribution business of DDHL Group, which play a principal role of the Group’s distribution business of electronic components. The Directors will consider granting similar incentives to other key personnel of the Group in the future when appropriate.

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In view of the above, the Directors consider that the terms of the Incentive Subscription Agreement and Service Agreement and the transactions contemplated respectively thereunder are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

CONTINUING CONNECTED TRANSACATIONS IN RELATION TO THE FINANCIAL ASSISTANCE

Upon Completion of the Incentive Subscription Agreement, the Company’s equity interest in DDHL will diluted from 100% to 90% and DDHL will be a non-wholly owned subsidiary of the Company.

Borrower: DDHL Group Lenders: the Banks Guarantor: the Company Bank Facilities: revolving banking facilities and term loan facilities in the sum of approximately HK$394 million available by the Banks and revolving banking facilities are renewable on the expiry of facilities on an annual basis. Interest rates of the revolving and term loan facilities are floating rates which are with reference to either the Hong Kong dollar HIBOR rates or US dollar LIBOR rates. Most of the revolving bank facilities are repayable within three months and term loans are repayable within five years. The Directors consider that the terms of the facilities agreements in respect of the Bank Facilities are on normal commercial terms and that the interest rate thereon is comparable to the prevailing market rate. The Bank Facilities are repayable upon expiry of the term of the respective facilities agreements.

Guarantee amount: the Company provides corporate guarantee in the sum of approximately HK$507 million in favour of the Banks to secure the Bank Facilities granted to DDHL Group. In the event DDHL Group fails to repay the Bank Facilities and any interest and expenses thereon, the Company is obligated to repay such amount under the guarantees.

Annual cap amount of the guarantee provided by the Company

Interest rates of the revolving and term loan facilities are floating rates which are with reference to either the Hong Kong dollar HIBOR rates or US dollar LIBOR rates. Most of the revolving bank facilities are repayable within three months and term loans are repayable within five years. Upon Completion of the Incentive Subscription Agreement, DDHL will become a 90% owned subsidiary of the Company and owned as to 10% by Mr. Mak, being an executive Director and connected person to the Company under rule 14A.11(5) of the Listing Rules. Thus the provision of guarantee by the Company to the DDHL Group constitutes continuing connected transactions for the Company under the Listing Rules. Pursuant to the facilities agreements of the respective Banks, the maximum liability of the Company in respect of the

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banking facilities under the guarantees provided by the Company is limited to approximately HK$507 million. Thus, the proposed caps amount, being 100% of the total guaranteed amount, would be HK$507 million for each three financial years ending 31 March 2014.

Such maximum amount of the corporate guarantee has been determined with reference to the business scope, financial position and the projected capital needs of DDHL Group. Since the Company controls 90% of the voting power of DDHL after the completion of the Incentive Subscription Agreement, the Directors consider that the Company can effectively monitor and manage the borrowing activities of DDHL to ensure that the utilization of the guarantee provided by the Company.

Reasons for the guarantee provided by the Company

The guarantees are provided as security to enable DDHL Group to obtain Bank Facilities in order to support its normal commercial operations. The Directors are of the view that the rates and terms of the Bank Facilities provided by the Banks are similar to those provided by other banks and are on normal commercial terms.

It is common commercial practice for banks to require guarantee to be given by the ultimate listed holding company as they are more confident in the financial position of the listed company and therefore consider its guarantee to be better security for their banking facilities.

As the guarantees are provided on normal commercial terms and in the circumstances mentioned above, the Directors (including the independent non-executive Directors) are of the view that the terms of the guarantees provided by the Company are in the interests of the Group, on normal commercial terms and fair and reasonable so far as the Company and the Shareholders are concerned.

POSSIBLE FINANCIAL EFFECTS

To the best of knowledge, information and belief of the Directors, the Directors (including the independent non-executive Directors who had opined on the disposal after considering the advice of the Independent Financial Adviser) consider that the Incentive Subscription Agreement, the Service Agreement, the provision of financial assistance and the transaction contemplated respectively thereunder, if completed, would not have any material adverse impact on the business of the Group.

SGM

After the reconsideration of the Board, they passed for applying the wavier of the requirement of holding a general meeting to the Stock Exchange as mentioned in the announcement dated 28 April 2011. The (i) discloseable and connected transaction contemplated under the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated respectively thereunder; and (ii) continuing connected transactions in relation to the provision of financial assistance as mentioned above are subject to the passing of an ordinary resolution by the Shareholders by way of poll at the SGM. To the best knowledge, information and belief of the Directors and having made all reasonable enquiries, no Shareholders has a material interest in the Incentive Subscription Agreement, the Service Agreement, the provision of financial assistance and the transaction contemplated respectively thereunder, as such, no Shareholders will be required to abstain from voting on the relevant resolution(s) at the SGM.

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A notice of the SGM to be held at 11th Floor, Block G, East Sun Industrial Centre, 16 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong on Monday, 13 June 2011 at 3:00 p.m. is set out on pages 47 of this circular for the purpose of considering and, if thought fit, approving the above mentioned transactions. The form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the meeting in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same at the office of the Company’s branch registrar in Hong Kong, Tricor Abacus Limited of 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish.

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.

RECOMMENDATION

The Independent Board Committee comprising all the independent non-executive Directors, namely Mr. Barry John Buttifant, Mr. Choi Yuk Fan and Mr. Liu Ngai Wing has been formed to advise the Independent Shareholders in respect of the above mentioned transactions. GF Capital (Hong Kong) Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

Your attention is drawn to letter of recommendation from the Independent Board Committee to the Independent Shareholders and the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders set out on page 13 and pages 14 to 28 respectively of this circular. The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the terms of the Incentive Subscription Agreement and the Service Agreement are fair and reasonable so far as the Independent Shareholders are concerned and the transactions contemplated respectively thereunder are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the proposed resolutions approving the Incentive Subscription Agreement and the Service Agreement at the SGM. The Directors are of the view that the terms of the Incentive Subscription Agreement and the Service Agreement are fair and reasonable and the continuing connected transactions in relation to the provision of financial assistance are in the interests of the Group and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders and/or the Shareholders (as the case may be) to vote in favour of the relevant resolutions to be proposed at the SGM to approve the Incentive Subscription Agreement and Service Agreement.

By Order of the Board

Daiwa Associate Holdings Limited LAU Tak Wan President

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter of recommendation, prepared for the purpose of incorporation in this circular, from the Independent Board Committee to the Independent Shareholders regarding the Incentive Subscription Agreement and Service Agreement.

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DAIWA ASSOCIATE HOLDINGS LIMITED 台和商事控股有限公司 *

(incorporated in Bermuda with limited liability)

(Stock code: 1037)

26 May 2011

To the Independent Shareholders

Dear Sir or Madam,

We refer to the circular of the Company dated 26 May 2011 (the “Circular”), of which this letter forms part. Unless specified otherwise, capitalised terms used herein shall have the same meanings as those defined in the Circular. We have been appointed to advise the Independent Shareholders on whether the terms of the (i) Incentive Subscription Agreement; (ii) the Service Agreement; and (iii) the continuing connected transactions in relation to the provision of financial assistance are fair and reasonable to the Company and the Independent Shareholders as a whole, details of which are set out in the letter from the Board in the Circular.

GF Captial (Hong Kong) Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard. Details of their independent advice, together with the principal factors and reasons they have taken into consideration, are set out on pages 14 to 28 of the Circular.

Having taken into account of the advice of the Independent Financial Adviser, we consider that the entering into of (i) the Incentive Subscription Agreement; (ii) the Service Agreement; and (iii) the continuing connected transactions in relation to the provision of financial assistance are in the interests of the Company and the Shareholders as a whole and the terms of (i) the Incentive Subscription Agreement; (ii) the Service Agreement; and (iii) the continuing connected transactions in relation to the provision of financial assistance are fair and reasonable so far as the Company and the Independent Shareholders are concerned. We therefore recommend you to vote in favour of the ordinary resolutions to be proposed at the SGM to approve (i) the Incentive Subscription Agreement; (ii) the Service Agreement; and (iii) the continuing connected transactions in relation to the provision of financial assistance.

Yours faithfully,

Independent Board Committee

Mr. Barry John Buttifant, Mr. Choi Yuk Fan and Mr. Liu Ngai Wing

Independent non-executive Directors

For identification purpose only

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISOR

The following is the text of a letter of advice from GF Capital (Hong Kong) Limited, which has been prepared for the purpose of incorporation into this circular, setting out its opinion to the Independent Board Committee and the Independent Shareholders in connection with the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated thereunder and the provision of financial assistance.

Suites 2301-2305 & 2313, COSCO Tower 183 Queen’s Road Central Hong Kong

26 May 2011

To the Independent Board Committee and

the Independent Shareholders

of Daiwa Associate Holdings Limited

Dear Sirs,

(1) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE DEEMED DISPOSAL OF INTEREST IN DAIWA DISTRIBUTION HOLDINGS LIMITED BY ENTERING INTO AN INCENTIVE SUBSCRIPTION AGREEMENT; (2) ENTERING INTO OF A SERVICE AGREEMENT BY DAIWA DISTRIBUTION HOLDINGS LIMITED; AND

(3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE PROVISION OF FINANCIAL ASSISTANCE

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 terms of the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated thereunder and the provision of financial assistance, particulars of which are set out in the section headed “Letter from the Board” (the “ Board Letter ”) contained in the circular of the Company dated 26 May 2011 (the “ Circular ”), of which this letter forms part. Capitalized terms used in this letter shall have the same meanings ascribed to them in the Circular unless the context otherwise requires.

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On 27 April 2011, DDHL entered into the Incentive Subscription Agreement, as a form of employment incentive or reward, with Mr. Mak, an executive Director and a director of various subsidiaries of the Company (including DDHL). Pursuant to the Incentive Subscription Agreement, DDHL will issue and Mr. Mak will subscribe for 200 DDHL B-Shares at the aggregate subscription price of US$200. Upon Completion, the Company’s equity interests in DDHL will be diluted from 100% to 90%.

On 27 April 2011, DDHL also entered into the Service Agreement with Mr. Mak for an initial term of five years from the date immediately after the fulfillment of the conditions precedent of the Service Agreement and would be automatically renewed for another term of five years upon its expiry. As the Service Agreement has a term of more than three years, pursuant to rule 13.68 of the Listing Rules, the Service Agreement and the transactions contemplated thereunder would be subject to the prior approval of the Independent Shareholders.

Upon Completion, DDHL will become a 90% non-wholly owned subsidiary of the Company and Mr. Mak, a connected person, will hold 10% of DDHL. As such, DDHL will become a connected person of the Company under rule 14A.11(5) of the Listing Rules. The current guarantee provided by the Company to several Banks to secure the Bank Facilities granted to the DDHL Group in the amount of approximately HK$507 million will become deemed financial assistance to DDHL and would constitute continuing connected transactions.

INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising Mr. Barry John Buttifant, Mr. Choi Yuk Fan and Mr. Liu Ngai Wing (all being the independent non-executive Directors), has been formed to advise the Independent Shareholders as to whether the terms of the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated thereunder and the provision of financial assistance are fair and reasonable so far as the Independent Shareholders are concerned and whether the entering into of the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated thereunder and the provision of financial assistance are in the interests of the Company and the Shareholders as a whole and to advise the Independent Shareholders on how to vote. We are appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

BASIS OF OUR OPINION

In formulating our opinion, we have relied on the information, statements, opinions and representations provided to us by the Company, its representatives and the Directors for which they are solely and wholly responsible and we have assumed that all such information, statements, opinions and representations contained or referred to in the Circular were true, accurate and complete at the time they were made and continue to be true, accurate and complete at the date of the Circular. We have assumed that all statements of belief, opinion and intention made by the Company, its representatives and the Directors as set out in the Circular were reasonably made after due and careful enquiry. We have also sought and obtained confirmation from the Company that no material facts have been omitted from the information provided and referred to in the Circular. The Directors confirmed that they have provided us with all currently available information and documents which are available under present circumstances to enable us to reach an informed view and we have relied on the accuracy of such information and the information contained in the Circular to provide a reasonable basis of our opinions.

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Our review and analysis were based upon the information provided by the Company. We consider that we have reviewed sufficient information which enables us to reach an informed view and to provide us with a reasonable basis for our opinion. We have no reasons to suspect that any material facts or information which is known to the Company, its representatives and the Directors have been omitted or withheld from the information supplied or opinions expressed in the Circular nor to doubt the truth, accuracy and completeness of the information, facts, and representation provided, or the reasonableness of the opinions and representation expressed by the Company, its representatives and the Directors. We have not, however, carried out any independent verification on the information provided to us by the Company, its representatives and the Directors, nor have we conducted an independent in-depth investigation into the business affairs, assets and liabilities, and the prospects of the Group. In addition, we have not conducted any valuation or appraisal of any assets or liabilities, nor have we conducted any form of investigation into the commercial viability of the future prospects of the Group or of its underlying assets or businesses.

Our opinion is necessarily based upon the financial, economic, market, regulatory and other conditions as they existed on, and the facts, information, representations and opinions made available to us as at the Latest Practicable Date. We disclaim any undertaking or obligation to advise any person of any change in any fact or matter affecting the opinion expressed herein, which may come or be brought to our attention after the Latest Practicable Date.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion to the Independent Board Committee and the Independent Shareholders, we have considered the following principal factors and reasons:

1. Discloseable and connected transaction in relation to the deemed disposal of interest in DDHL and the entering into of the Service Agreement

Background

The Group is principally engaged in the design, development, manufacturing and distribution of electronic components, contract electronic manufacturing services and consumer electronics, and the distribution of personal computer products. In terms of business segment, the Group mainly operates four segments, namely (i) electronic components distribution, (ii) contract electronic manufacturing services, (iii) consumer electronics and electronic components manufacturing and (iv) personal computer products distribution in Hong Kong, Mainland China and North America.

DDHL is an indirect wholly-owned subsidiary of the Company and, together with its subsidiaries, are principally engaged in the distribution of electronic components. Mr. Mak is an executive Director and a director of various subsidiaries of the Company (including DDHL) and is responsible for the management and operation of DDHL.

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As disclosed in the interim report of the Company for the six months ended 30 September 2010, the Group had considerable sales growth in the electronic components distribution segment. As the result of continuous investment in engineering, well established distribution network and effective logistic foundations, the Group achieved aggressive sales target on power management devices and mobile phone solutions during the period.

The Group has maintained an array authorized distributorships with renowned suppliers of electronic components such as Toshiba, Panasonic, On Semiconductor, On Bright, Magnetic, COS, Chino-Excel Technology Corp (CET), Diodes, Rohm, Arnold Magnetics, LiteOn, Everlight, AEM and Abilis Systems.

In view of the significance of DDHL under the leadership of Mr. Mak, on 27 April 2011, DDHL entered into the Incentive Subscription Agreement as a form of employment incentive or reward with Mr. Mak. DDHL has also entered into the Service Agreement with Mr. Mak with an initial term of five years from the date immediately after the fulfillment of the conditions precedent of the Service Agreement and would be automatically renewed for another term of five years upon its expiry.

Upon Completion, Mr. Mak will hold 10% of shareholding in DDHL by holding 200 DDHL B-Shares. DDHL will become a 90% non-wholly owned subsidiary of the Company.

Reasons for and benefits of entering into of the Incentive Subscription Agreement and the Service Agreement

Mr. Mak, aged 49, is an executive Director and chief executive officer (Distribution) of the Group and is responsible for the Group’s overall marketing strategy and the distribution of electronic components. He has more than 20 years of experience in the sales and marketing of electronic components.

As stated in the Board Letter, Mr. Mak has been long serving with the Group since 1988. The Directors are satisfied with the performance of Mr. Mak and consider that Mr. Mak has provided valuable contribution to the Group’s development in the past. The Directors believe that (i) the entering into of the Incentive Subscription Agreement will give Mr. Mak incentives to make continual contributions and improve further the earnings of the DDHL Group in the future; and (ii) the entering into of the Service Agreement will enhance management efficiency of Mr. Mak by providing him a better position in managing the distribution business of the DDHL Group, which play a principal role of the Group’s distribution business of electronic components. The purpose of the Subscription is to provide incentives or rewards to Mr. Mak for his continual contribution to DDHL and the Group.

To assess the significance of DDHL to the Group, we have reviewed the latest unaudited financial statements of DDHL. As at 31 March 2011, the unaudited net asset value of the DDHL Group as at 31 March 2011 was approximately HK$2,970,000 and the net asset value of the DDHL Group being disposed of under the deemed disposal of interest in DDHL was approximately HK$297,000 (being 10% of the total value of the DDHL Group). For the financial year ended 31 March 2010, the net profits before and after

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taxation and extraordinary items of the DDHL Group were approximately HK$17,958,000 and HK$13,833,000 respectively whereas for the financial year ended 31 March 2011, the unaudited net profits before and after taxation and extraordinary items of the DDHL Group were approximately HK$19,753,000 and HK$14,688,000 respectively.

In addition, we have reviewed the financial performance of the Group’s distribution business from the interim report for the six months ended 30 September 2010 (“ Interim Report ”) and the annual report for the year ended 31 March 2010 (“ Annual Report ”) of the Company. Set out in the table below are the key financial information and segment results of the Group:

	For the six months	For the six months	For the year ended	For the year ended
	30 September		31 March
	2010	2009	2010	2009
	(Unaudited)	(Unaudited)	(Audited)	(Audited)
	HK$’000	HK$’000	HK$’000	HK$’000
The Group
Turnover	946,025	798,397	1,628,377	1,542,134
Profit/(loss)	5,533	4,553	(31,361)	6,729
Segment information of the Group
*(i) Turnover*
Distribution business
— Electronic components distribution	650,320	543,455	1,083,193	795,098
— Personal computer distribution	144,888	120,851	262,020	308,349
Manufacturing business
— Contract electronic manufacturing services	78,937	66,724	150,352	223,490
— Consumer electronics and electronic components	71,880	67,367	132,812	215,197
manufacturing
*(ii) Segment profit*
Distribution business
— Electronic components distribution	23,569	17,227	27,226	24,388
— Personal computer distribution	1,853	935	5,224	2,529
Manufacturing business
— Contract electronic manufacturing services	1,535	1,173	(2,871)	4,387
— Consumer electronics and electronic components	(9,697)	(5,867)	(42,044)	(12,372)
manufacturing

For the six months ended 30 September 2010, the Group recorded a segment turnover of approximately HK$650.3 million and HK$144.9 million for the electronic components distribution segment and personal computer distribution segment, representing approximately 68.7% and 15.3% of the turnover of the Group respectively, and a growth of approximately 19.7% and 19.9% compared with that of the same period in 2009 respectively. While the turnover of the Group increased 18.5% from HK$798.4 million to HK$946.0 million for the six months ended 30 September 2010, the distribution business of the Group, including both the electronic components distribution segment and the personal computer distribution segment, demonstrated robust growth and contributed the majority portion of revenue of the Group.

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In terms of segment profit, the Group recorded a segment profit of approximately HK$23.6 million and HK$1.9 million for the electronic components distribution segment and personal computer distribution segment for the six months ended 30 September 2010 respectively, representing a growth of approximately 36.8% and 98.2% compared with that of the same period in 2009 respectively. The distributing business of the Group demonstrated robust growth and contributed the majority portion of profit of the Group.

For the year ended 31 March 2010, the Group recorded a segment turnover of approximately HK$1,083.2 million for the electronic components distribution segment, representing approximately 66.5% of the turnover of the Group, and a growth of approximately 36.2% compared with that of the same period in 2009. While the turnover of the Group increased 5.6% from HK$1,542.1 million to HK$1,628.4 million for the year ended 31 March 2010, the electronic components distribution segment of the Group demonstrated robust growth and contributed the majority portion of revenue of the Group.

In terms of segment profit, the Group recorded a segment profit of approximately HK$27.2 million and HK$5.2 million for the electronic components distribution segment and personal computer distribution segment for the year ended 31 March 2010 respectively, representing a growth of approximately 11.6% and 106.6% compared with that of the same period in 2009 respectively. The distributing business of the Group demonstrated robust growth and contributed the majority portion of profit of the Group.

In addition, as stated in the Interim Report, since the cost of labour increased substantially in the PRC in recent years, it is the Group’s strategy to shift its business concentration from manufacturing to electronic components distribution. The Group believes that the returns in the distribution business of the Group will keep steady and continue to be the core business of the Group. It is also stated in the Annual Report that there was strong growth in the electronic components distribution segment because of the development in power supply solutions and focusing on customers of mobile phones manufacturer in East Asia and the domestic market of China. As the business outlook of the Group’s core business in distribution of electronic components is positive and DDHL will continue to represent the main distribution business of the Group in the future, the Directors believe that it is crucial for the Group to retain and utilize the experience and network of Mr. Mak, being the Director and CEO (Distribution) of the Group, to implement the Group’s overall marketing strategy and the distribution of electronic components.

Having considered (i) Mr. Mak has provided valuable contribution to the development of DDHL which contributed the majority portion of the revenue and profit of the Group; (ii) the entering into of the Incentive Subscription Agreement aims at motivating Mr. Mak and providing Mr. Mak with incentives to make continual contribution and improve the earnings of the DDHL Group in the future; and (iii) it is the Group’s strategy to shift its focus from manufacturing to electronic components distribution and DDHL will become even more important to the Group, we concur with the view of the Directors that the entering into of the Incentive Subscription Agreement and the Service Agreement is commercially justifiable and is in the interests of the Company and the Shareholders as a whole.

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Principal terms of the Incentive Subscription Agreement

Set out below are the key terms of the Incentive Subscription Agreement:

Date

27 April 2011

Issuer

DDHL, an indirect wholly-owned subsidiary of the Company

Subscription

Conditions precedent

The Completion shall be conditional upon and subject to:

(i) if necessary, the passing by the Independent Shareholders at a special general meeting of the Company to be convened and held of the necessary resolutions to approve the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated respectively thereunder;
(ii) all necessary consents, licenses and approvals required to be obtained on the part of DDHL in respect of the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated thereunder having been obtained and remain in full force and effect; and
(iii) the Service Agreement having becoming unconditional.

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Rights and restrictions of the DDHL B-Shares

The DDHL B-Shares to be allotted and issued to Mr. Mak which are transferable in nature shall carry the same voting rights and pre-emptive rights as DDHL A-Shares. However, the dividend entitlement of the DDHL B-Shares is set out below:

Periods

Entitlement

Any period before 31 March 2011 Nil From 1 April 2011 and thereafter An amount (N) calculated in accordance with the following formula:

N = A/B x C

Where:

A = the total amount of dividends or distributions to which holders of the DDHL A-Shares are entitled;

B = the number of the DDHL A-Shares entitled to such dividend or distribution being declared, made or paid to the holders of the DDHL A-Shares ; and

C = the number of the DDHL B-Shares entitled to the relevant dividend or distribution being declared, made or paid to the holders of the DDHL B-Shares

Redemption of DDHL B-Shares

(a) In the event the Subscriber is convicted of a criminal offence, becomes bankrupt, is disqualified to act as a director of DDHL, is guilty of any dishonesty, or undertakes a competing business with the Group, DDHL can redeem all or part of the DDHL B-Shares from such holder at their aggregate nominal values upon the happening of the above events.
(b) In the event the Subscriber ceases to be an employee of the Group, DDHL can redeem all or part of the DDHL B-Shares from such holder at a redemption amount calculated by reference to the following formula:

X = A x B

where

X = the redemption amount
A = the aggregate of (i) the product of the paid up and issued share capital of each DDHL B-Shares and the number of the DDHL B-Shares; and (ii) the product of the amount of the retained earnings attributable to the each DDHL B-Shares and the number of the DDHL B-Shares, both as shown in the management accounts of the DDHL for such Financial Year which is immediately before the Cessation Date

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B = 50% if the Cessation Date falls on or before 1 April 2012; 60% if the Cessation Date falls on or before 1 April 2013; 70% if the Cessation Date falls on or before 1 April 2014; 80% if the Cessation Date falls on or before 1 April 2015; 90% if the Cessation Date falls on or before 1 April 2016; and 100% if the Cessation Date falls on or before 1 April 2017 and at all times thereafter
(c) If (i) when the percentage of the aggregate shareholding of Mr. Lau together with Mr. Lau’s connected persons and the persons acting in concert with Mr. Lau in the Company reduces to less than 30%; or (ii) when the percentage shareholding of the Company in DDHL reduces to less than 50%, the Company shall have the option (but shall not be obliged) to redeem all or part of the DDHL B-Shares from such holder at a redemption amount calculated by 100% of the aggregate of (i) the paid up and issued share capital of each DDHL B-Shares; and (ii) the retained earnings attributable to the each DDHL B-Shares, both as shown in the management accounts of DDHL for such Financial Year which is immediately before the Cessation Date.

Regarding the dividend entitlement of the DDHL B-Shares, although the DDHL B-Shares to be allotted and issued to Mr. Mak carry the same voting rights as DDHL A-Shares, the dividend entitlement of the DDHL B-Shares starts from 1 April 2011 and thereafter. As stated in the Board Letter, the issue of DDHL B-Shares segregates the existing rights of the Group in DDHL by holding of DDHL A-Shares from the shareholding to be held by Mr. Mak by holding of DDHL B-Shares.

In addition, there is no mandated dividend payout ratio for DDHL and thus the amount of dividend declared or paid out by DDHL is discretionary to the board of DDHL. As advised by the management of the Company, as a wholly-owned subsidiary of the Company, the historical dividend distribution of DDHL was 100% in the past. However, there is no projected dividend return of the DDHL B-Shares. We have discussed with the management of the Company and are confirmed that upon entering into of the Incentive Subscription Agreement, the discretionary cash bonus payment to Mr. Mak by the Group will be entirely replaced by dividend entitlement of the DDHL B-Shares in subsequent financial years starting from the financial year ending 31 March 2012. As stated in the Annual Report, the discretionary bonuses for Mr. Mak for the two years ended 31 March 2009 and 2010 were HK$635,000 and HK$550,000 respectively. With reference to the unaudited net profits after taxation and extraordinary items of DDHL Group for the financial year ended 31 March 2011 of HK$14,688,000 as stated in the clarification announcement dated 3 May 2011, and assuming similar net profits level for the year ended 31 March 2012, the maximum dividend entitlement of Mr. Mak will be approximately HK$1.47 million. However, the management of the Company expects that the actual dividend payout ratio will highly probably be less than 100% and depend on the financial position and the projected working capital needs of the DDHL Group. Having considered the above factors, we are of the view that the term relating to dividend entitlement of DDHL B-Shares is fair and reasonable so far as the Independent Shareholders are concerned.

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Regarding the redemption clauses, in the event Mr. Mak is convicted of a criminal offence, becomes bankrupt, is disqualified to act as a director of DDHL, is guilty of any dishonesty, or undertakes a competing business with the Group, or ceases to be an employee of the Group, DDHL can redeem all or part of the DDHL B-Shares from such holder at their aggregate nominal values only. In addition, in the event Mr. Mak ceases to be an employee of the Group, DDHL can redeem all or part of the DDHL B-Shares from such holder at the aggregate amount of the paid up capital and the retained earnings attributable to the DDHL B-Shares times a percentage which shall increase from 50% to 100% over a period of five years until 1 April 2017. We consider that this mechanism can help retain Mr. Mak as the Service Agreement is of a term of five years.

Taking into account (i) the Incentive Subscription Agreement serves as an appropriate rewarding scheme, (ii) the segregation of rights between DDHL A-Shares and DDHL B-Shares, and (iii) redemption mechanism provides an appropriate level of protection to the Group, we therefore concur with the view of the Directors that the principal terms of the Incentive Subscription Agreement are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned.

Principal terms of the Service Agreement

In relation to the Service Agreement, according to the Board Letter, the annual remuneration payable to Mr. Mak under the Service Agreement is HK$1,200,000 which is determined by reference to the prevailing market rate and mutually agreed between DDHL and Mr. Mak. In addition, Mr. Mak will be entitled to a monthly salary of HK$5,000 which in aggregate amounted to HK$60,000 per annum under the supplemental agreement to the Service Agreement. We have reviewed the Annual Report and noted that the salaries and allowances (excluding any discretionary bonus) to Mr. Mak was HK$1.29 million for the year ended 31 March 2010. As advised by the management of the Company, upon entering into of the Service Agreement, save for the remuneration as determined by the Service Agreement (as supplemented by a supplemental agreement thereto), Mr. Mak will not be entitled to any salaries and allowances or any discretionary bonus from the Group. Instead, Mr. Mak will be given the annual remuneration of HK$1.26 million pursuant to the Service Agreement and supplemental agreement to the Service Agreement, and the dividend entitlement from DDHL B-Shares pursuant to the Incentive Subscription Agreement.

Given (i) the annual remuneration of HK$1.26 million under the Service Agreement is comparable to Mr. Mak’s existing salaries and allowances (excluding any discretionary bonus) of HK$1.29 million, and (ii) the existing discretionary bonus for Mr. Mak from the Group will be replaced by the dividend entitlement from DDHL B-Shares pursuant to the Incentive Subscription Agreement, we therefore consider that the terms of the Service Agreement (including the overall annual remuneration) is on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned.

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Possible financial impacts upon the Subscription

In order to assess the possible financial impacts on the Group upon the Subscription, we have discussed with the management of the Company and made reference to the valuation report (“ Valuation Report ”) prepared by Ascent Partners Transaction Service Limited (the “ Valuer ”), which is commissioned by the Company to determine the fair value of the DDHL B-Shares as of 31 March 2011.

As stated in the Valuation Report, the Valuer is of the opinion that the fair value of the DDHL B-Shares as of 31 March 2011 is HK$8,835,000.

In order to assess the reasonableness of the valuation approach and assumptions adopted by the Valuer in the Valuation Report, we have discussed with the Valuer and the management of the Company on the assumptions used in the Valuation Report and we were confirmed by the Valuer that those assumptions are commonly used and reasonable for valuing the DDHL B-Shares.

In addition, we have considered the reasonableness of applying the price-to-earnings ratio and price-to-EBITDA ratio in the valuation of the DDHL B-Shares and reviewed the list of comparables. As DDHL’s main operation is in the East Asia region, comparable listed entities in a similar industry operating in the same region being chosen is therefore reasonable.

(a) Effects on the income statement

According to the Directors, the entering into of the Incentive Subscription Agreement will incur share-based payment expense charged to the consolidated income statement of the Group in subsequent financial years starting from the financial year ending 31 March 2012 in accordance with the relevant accounting standards. As disclosed in the clarification announcement dated 3 May 2011, an expense of cash-settled share-based payment of approximately HK$10 million will be recognized in the financial statements of the Group. As a result, there will be a short term negative impact on the consolidated income statement of the Group.

As stated under the redemption mechanism in the Board Letter, Mr. Mak will equivalently only be entitled to 50% of DDHL B-Shares in the earliest of 1 April 2012 and he will not be fully entitled to 100% of DDHL-Shares until 1 April 2017. As such, the share-based payment expense that may be charged to the consolidated income statement of the Group will be amortized over the amortizing period in accordance with the relevant accounting standards.

We are advised by the management of the Company that in exchange for the issue of DDHL B-Shares to Mr. Mak, the Company is able to save the annual discretionary bonus to Mr. Mak in future. According to the Annual Report, the discretionary bonuses for Mr. Mak amounted to HK$635,000 and HK$550,000 for the two years ended 31 March 2009 and 2010 respectively.

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(b) Effects on working capital and net asset value

The Directors confirmed that upon the Subscription, it will generate a maximum cashflow of US$200, being the par value of the DDHL B-Shares, which is approximately HK$1,556 (before expenses) to the Company. In addition, whereas the dividend entitlement of the DDHL B-Shares of Mr. Mak will be effective from 1 April 2011, there is no dividend entitlement for any period before 31 March 2011. Accordingly, we are of the view that there will not be any material negative impact on the working capital of the Group upon completion of the Subscription.

As stated in the Incentive Subscription Agreement, although the valuation of the DDHL B-Shares is higher than the existing salaries and allowances paid to Mr. Mak, it is non-cash in nature, not freely transferrable due to rights of pre-emption and Mr. Mak will not be fully entitled to it until 1 April 2017.

In terms of profit sharing, Mr. Mak, being a minority shareholder, in fact can only enjoy 10% dividend entitlement when dividend or distribution being declared. With reference to the clarification announcement dated 3 May 2011, the unaudited net profits after taxation and extraordinary items of DDHL for the financial year ended 31 March 2011 was HK$14,688,000. Assuming similar net profits level for the year ended 31 March 2012, the maximum dividend entitlement of Mr. Mak will be approximately HK$1.47 million. However, as advised by the management of the Company, the actual dividend payout ratio will highly probably be less than 100% and depend on the financial position and the projected working capital needs of the DDHL Group. As such, there will not be any significant negative liquidity impact to the Company.

In respect of a cash-settled share-based payment expense of approximately HK$10 million as stated in the clarification announcement dated 3 May 2011, there may be a corresponding reduction in retained earnings in the consolidated balance sheet of the Company. Hence, there could be a possible negative impact to the net asset value of the Company while there would not be any material negative liquidity impact to the Company.

(c) Potential dilution effect

As stated in the Board Letter, upon completion of the Subscription, the Company will indirectly own 90% of shareholding in DDHL by holding 1,800 DDHL A-Shares and Mr. Mak will hold 10% of shareholding in DDHL by holding 200 DDHL B-Shares. As a result, the Company’s shareholding interest in DDHL will be diluted from 100% to 90% from 1 April 2011 and thereafter. As DDHL is an indirect wholly-owned subsidiary of the Company, there is a potential dilution effect to the existing Shareholders on the Company. The Directors confirmed that maximum potential dilution effect to the existing Shareholdings on the Company would not be more than 10%.

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Taking into account (i) the possible negative effect on the consolidated income statement of the Group but such effect is typical and common in share-based payment transactions, (ii) the possible negative effect of the share-based payment expenses on the consolidated income statement will be mitigated by spreading over the amortizing period, (iii) there is no negative effect on the working capital despite a possible negative impact on net asset value, (iv) the potential dilution effect on the shareholding of the existing Shareholders is acceptable, and (v) the potential further enhancement of profits of the DDHL Group attributable to the Incentive Subscription Agreement with Mr. Mak, we are of the view that the possible financial impact on the Group is acceptable.

2. Continuing connected transactions in relation to the provision of financial assistance

Background and reasons for the transactions

Upon completion of the Incentive Subscription Agreement, DDHL will become a nonwholly owned subsidiary of the Company and Mr. Mak, a connected person, will hold 10% of DDHL. As such, DDHL will become a connected person of the Company under rule 14A.11(5) of the Listing Rules. The current guarantee provided by the Company to the Banks to secure the Bank Facilities granted to the DDHL Group in the amount of approximately HK$507 million will become a deemed financial assistance to DDHL and would constitute continuing connected transactions of the Company.

Guarantee amount: the Company provides corporate guarantee in the sum of approximately HK$507 million in favour of the Banks to secure the Bank Facilities granted to the DDHL Group. In the event the DDHL Group fails to repay the Bank Facilities and any interest and expenses thereon, the Company is obligated to repay such amount under the guarantees.

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As stated in the Board Letter, the guarantees are provided as security to enable the DDHL Group to obtain banking facilities in order to support its normal commercial operations. The Directors are of the view that the rates and terms of the Bank Facilities provided by the Banks are similar to those provided by other banks and are on normal commercial terms.

It is a common commercial practice for banks to require guarantee to be given by the ultimate listed holding company as they are more confident in the financial position of the listed company and therefore consider its guarantee to be better security for their banking facilities.

We have discussed with the management of the Company and noted that the Company has been providing the existing corporate guarantee to several financial institutions under their requests in favour of certain subsidiaries of the Company (including DDHL) for the purpose of obtaining banking facilities over the past years. We are also advised that the guarantee is necessary for DDHL to obtain revolving banking facilities and term loan facilities which are crucial for the daily operation of DDHL. Given DDHL will continue to represent the main distribution business of the Group in the future and it is the Group’s strategy to focus on the development of the distribution business, we are of the view that the provision of corporate guarantee by the Company to several financial institutions for the Bank Facilities in favour of DDHL, being a valuable liquidity and financial resource to the Group, is crucial to the development of the Group.

In addition, the Directors confirmed to us that there will be no alterations in all terms, nature and substance of the provision of corporate guarantee by the Company to DDHL in respect of certain Bank Facilities upon entering into the Incentive Subscription Agreement by Mr. Mak. The fact that the provision of corporate guarantee constitutes continuing connected transactions because of Mr. Mak holding 10% shareholding in DDHL upon completion of the Incentive Subscription Agreement does not violate the genuine purpose of the corporate guarantee which are on normal commercial terms.

Given that (i) the guarantees are provided as security to enable the DDHL Group to obtain banking facilities in order to support its normal commercial operations, (ii) the Company has been providing the existing corporate guarantee in favour of certain subsidiaries of the Company including DDHL over the past years, and (iii) there will be no alterations in all terms, nature and substance of the provision of corporate guarantee by the Company to DDHL, we consider that the provision of financial assistance to DDHL is in the ordinary and usual course of business.

Based on the above, we concur with the view of the Directors that the provision of corporate guarantee is in the interests of the Company and the Shareholders as a whole.

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Annual cap amount of the guarantee provided by the Company

Pursuant to the facilities agreements of the respective Banks, the maximum liability of the Company in respect of the banking facilities under the guarantees provided by the Company is limited to approximately HK$507 million. Thus, the proposed caps amount for the guarantee by the Company would be HK$507 million for each of the three financial years ending 31 March 2014.

Such maximum amount of the corporate guarantee has been determined with reference to the business scope, financial position and the projected capital needs of the DDHL Group. Since the Company controls 90% of the voting power of DDHL after the completion of the Incentive Subscription Agreement, the Directors consider that the Company can effectively monitor and manage the borrowing activities of DDHL to ensure that the utilization of the guarantee provided by the Company.

In order to assess the fairness and reasonableness of the principal terms and annual cap amounts of guarantee provided by the Company to the DDHL Group in respect of certain Bank Facilities, we have reviewed and noted from the Bank Facilities agreements that the Company provides corporate guarantee in the sum of approximately HK$507 million in favour of the Banks to secure the Bank Facilities granted to the DDHL Group.

Having considered (i) the background and constitution of continuing connected transactions in relation to the financial assistance; (ii) it is necessary and common to provide the guarantees as security under the Banks’ requests to enable DDHL to obtain Banking Facilities for its normal commercial operations; and (iii) it is a common commercial practice for banks to require guarantee to be given by the ultimate listed holding company, we are of the view that the provision of financial assistance to DDHL is on normal commercial terms and is fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

RECOMMENDATION

Having considered the above principal factors and reasons, we consider that the provision of financial assistance to DDHL is in the ordinary and usual course of business of the Company and the terms of the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated thereunder and the provision of financial assistance are, on balance, on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned. Although the entering into of the Incentive Subscription Agreement and the Service Agreement is not in the ordinary and usual course of business of the Company, we consider that the entering into of the Incentive Subscription Agreement, the Service Agreement and the provision of financial assistance are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders and recommend the Independent Shareholders to vote in favour of the ordinary resolution(s) as set out in the notice of SGM set forth at the end of this Circular.

For and on behalf of

GF Capital (Hong Kong) Limited Danny Wan

Managing Director and Head of Corporate Finance

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VALUATION REPORT

APPENDIX I

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21 Floor, Hong Kong Trade Centre, 161-167 Des Voeux

Road Central, Hong Kong Tel: 3679-3890 Fax: 3586-0683 www.ascent-partners.com Ref: APG-BV-100921-238SM

Daiwa Associate Holdings Limited

11/F., Block G, East Sun Industrial Centre, 16 Shing Yip Street, Kwun Tung, Kowloon, Hong Kong.

Date: 4 May 2011

Dear Sir/Madam,

RE: Valuation of the B-Shares in Daiwa Distribution Holdings Limited (hereafter referred as “ DDHL B-Shares ”)

In accordance with the instruction of Daiwa Associate Holdings Limited (hereinafter referred as the “ Company ”) we have undertaken a valuation task to determine the fair value of the DDHL B-Shares .

According to the circular issued on 28 April 2011 by Daiwa Associate Holdings Limited in Hong Kong: “On 27 April 2011, DDHL entered into the Incentive Subscription Agreement, as a form of employment incentive or reward, with Mr. Mak, an executive Director and a director of various subsidiaries of the Company (including DDHL). Pursuant to the Incentive Subscription Agreement, DDHL will issue and Mr. Mak will subscribe for 200 DDHL B-Shares at the aggregate subscription price of US$200. Upon the completion of the Incentive Subscription Agreement, the Company’s equity interests in DDHL will be diluted from 100% to 90%.”

As instructed by the Company the valuation date is 31 March 2011 (hereinafter referred as “ Valuation Date ”).

This report outlines the factors considered, valuation methodology, basis and assumptions employed in formulating our opinions and our conclusion of value.

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Ascent Partners Transaction Service Limited (hereinafter referred as “ Ascent Partners ”) is an independent firm providing full range of valuation and advisory services. This report has been prepared independently. Neither Ascent Partners nor any authors of this report hold any interest in the Company or its related parties. The fee for providing this report is based on Ascent Partners’ normal professional rates, whilst expenses (if incurred) are being reimbursed at cost. Payment of fees and reimbursements are not contingent upon the conclusions drawn in this report.

For and on behalf of

Ascent Partners Transaction Service Limited

William SW Yuen

Director CFA, FRM

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1. PURPOSE OF VALUATION

The purpose of this valuation is to express an independent opinion on the fair value of the DDHL B-Shares as at the Valuation Date. This report outlines our latest findings and valuation conclusion, which is prepared for accounting purpose.

2. SCOPE OF WORK

In conducting this valuation exercise, we have

gathered all relevant information;
discussed with the management of the Company;
carried out a research in the sector concerned and collected market data from reliable sources such as Bloomberg database and the Company’s web site;
investigated into the information, and considered the basis and assumptions of our conclusion of value;
analysed the financial information of companies in a similar industry; and
designed an appropriate valuation model to analyse the market transactions and derive the estimated value of the DDHL B-Shares .

3. BACKGROUND

According to the Company’s website; Daiwa Associate Holdings Limited was established in 1979 and is listed on the Main Board of the Stock Exchange of Hong Kong since 1994. The Company is a major manufacturer and distributor of electronic components. In September 2004 by acquiring Daiwa Holdings Inc. and its subsidiaries, Daiwa Group was formed.

Daiwa Distribution Holdings Limited (DDHL) is a wholly-owned subsidiary of the Company and, together with its subsidiaries, is engaged in the distribution of electronic components. DDHL is one of the largest electronic component distributors in Southeast Asia with sales offices in Beijing, Shanghai and Shenzhen. DDHL distributes major international brands and offers the Company’s own manufactured electronic components. DDHL is an authorized distributor for Toshiba, Panasonic, On-semiconductor, Magnetics, On Bright, Liteon and Abilis Systems and markets integrated circuits, transistors, microprocessors, memory IC, discrete and passive electronic components. Electronic components distributed by DDHL is being used in audio and video products, electronic toys, power supplies, household appliances, airconditioners, personal computers and other consumer electronics. According to the Company DDHL in the past few years has observed a strong growth as a result of working closely with mobile phones manufacturers in East Asia and the domestic market of China.

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4. INTRODUCTION

This report has been prepared in accordance with instructions from Company to determine the fair value of the DDHL B-Shares as at the Valuation Date. This report outlines our latest findings and valuation conclusion.

5. BASIS OF VALUATION

Our valuation was carried out on a fair value basis. Fair value is defined as “ the amount for which an asset could be exchanged, or a liability settled, between knowledgeable , willing parties in an arm’s length transaction .”

6. BASIS OF OPINION

We have conducted our valuation in accordance with International Valuation Standards issued by International Valuation Standards Committee1. The valuation procedure includes review of the financial and economic conditions of the subject business, an assessment of key assumptions, estimates, and representations made by the Company. All matters essential to the proper understanding of the valuation are disclosed in the valuation report. Opinions of value included in the valuation report are impartial, independent, and unbiased.

The following factors also form a considerable part of our basis of opinion:

Assumptions on the market and on the subject business that are considered to be fair and reasonable;
Financial performance that shows a consistent trend of the operation of the subject business;
Consideration and analysis on the micro — and macro-economic factors; and
Analytical review of the subject business.

1“The IVSC has been in existence for more than 25 years. Its origins were in the need identified by a number of professional bodies from around the world for uniformity in the valuation approaches used in real estate markets. Over the past decade it has evolved and expanded and now produces standards for many types of assets, including plant and equipment, intangible assets and businesses. The International Valuation Standards are already recognised and accepted by a wide range of organisations including the UK Financial Services Authority, the Hong Kong Securities and Futures Commission, the Securities and Exchange Board of India and the European Public Real Estate Association amongst others. IVSC has also worked in liaison with the International Accounting Standards Board (IASB) in producing guidance on valuations required under IFRS, an increasingly important need as IFRS is adopted in more a states.” (Source: The International Valuation Standards Council (IVSC))

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We have planned and performed our valuation so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to express our opinion on the subject asset. We believe that our valuation provides a reasonable basis for our opinion.

7. SOURCES OF INFORMATION

In conducting our valuation of the subject asset, we have considered, reviewed and relied upon the following key information provided by the instructing party and the public.

Overview of the business nature of the Company;
Discussions with the management of the Company;
Historical financial report of DDHL;
Financial and Operation projections of DDHL;
Publications and private research reports regarding the related industry;
Bloomberg Database, Hong Kong Stock Exchange and other reliable sources of market data.

In arriving at our opinion, we have assumed and relied upon the accuracy and completeness of the information reviewed by us for the purpose of this valuation. In addition, we have relied upon the statements, information, opinion and representations provided to us by the Company.

We also conducted research using various sources including government statistical releases and other publications to verify the reasonableness and fairness of information provided and we believe that the information is reasonable and reliable.

Our opinion is based upon economic, market, financial and other conditions as they exist and can be evaluated on the date of this report and we assume no responsibility to update or revise our opinion based on events or circumstances occurring after the date of this report. In reaching our opinion, we have made assumptions with respect to such economic, market, financial and other conditions and other matters, many of which are beyond our control or the control of any party involved in this valuation exercise.

8. VALUATION APPROACH AND METHODOLOGY

In carrying out this valuation exercise market approach was employed. The market approach to valuation uses market data from listed companies in a similar industry to develop a measure of value of the subject company. Since a wealth of data exists for the publicly traded equity market, including the type of financial ratios applied when determining value, market approach was preferred for this valuation task. The method of the market approach that we have adopted compares the financial ratios of the target company to the average ratios of listed entities in a similar industry to develop a measure of value of the subject company. Since the performance of the business depends on the product portfolio and customer relationship of the target company which is not related to its historical cost, we believe that the cost approach

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is not the most appropriate one to be adopted. On the other hand, the electronic component business is highly volatile because of its short product life-cycle and the fact that it is very sensitive to the economy and developments in the end consumer market. Financial forecasts are therefore considered unreliable, rendering the income approach, which depends on these forecasts, unsuitable for the valuation of the target company.

The following approaches and methodologies were considered in the valuation:

Cost Approach

The cost approach considers the cost to reproduce or replace in new condition the assets appraised in accordance with current market prices for similar assets, with allowance for accrued depreciation arising from condition, utility, age, wear and tear, or obsolescence (physical, functional or economical) present, taking into consideration past and present maintenance policy and rebuilding history.

Unlike market and income approaches which either incorporate market sentiments or future earnings capacity of an asset as a function to determine its current value, cost approach considers the fundamental cost it takes to form the asset. In our opinion this method is inapplicable to the current analysis as there is no convincing association of the market value of the subject asset with its cost.

Income Approach

The income approach is the present worth of the future economic benefits of ownership. This approach is generally applied to an aggregation of assets that consists of all assets of a business enterprise including working capital and tangible and intangible assets. The value of the asset to be valued is developed through the application of the income approach technique known as discounted cash flow method to devolve the values of future income generated by the asset into a present market value.

Market Approach

The market approach to valuation uses data from comparable guideline companies to develop a measure of value for a particular subject company. Market approach is commonly adopted for business valuation and is also consist with normal market practice. There are two methods to implement the market approach.

The first method of the market approach is to use transaction data for private and public companies to compute the value. In this method, a database of bought and sold companies is used to base transaction prices and financial fundamentals on companies similar to the subject company. Assets for which there is an established market may be appraised by this approach. However, this method is not preferred in this exercise because insufficient market transaction data are available from listed companies engaged in the same business.

The second method of the market approach is to use financial data from publicly traded companies. A wealth of data exists for the publicly traded equity market, including the type of financial ratios applied when determining value using the market approach. Therefore using data derived from public companies is a preferred method for this valuation task.

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9. VALIDATION OF ASSUMPTIONS AND NOTES TO VALUATION

The assumptions considered having significant sensitivity effects in this valuation have been evaluated and validated in arriving at our assessed values.

General Assumptions

We have assumed that there will be no material change in the existing political, legal, technological, fiscal or economic conditions which might adversely affect the economy in general and the business of the Company.

Based on the International Valuation Standards assumptions are suppositions taken to be true. Assumptions involve facts, conditions, or situations affecting the subject of, or approach to, a valuation but which may not be capable or worthy of verification. They are matters that, once declared, are to be accepted in understanding the valuation. All valuations are dependent to some degree on the adoption of assumptions. In particular, the definition of Market Value incorporates assumptions to ensure consistency of approach and the Valuer may need to make further assumptions in respect of facts which cannot be known or facts which could be determined.

Other Assumptions and Notes

Implementation of the market approach using publicly traded companies typically relies on the use of financial ratios that compare the stock price of a company to its various accounting measures of fun damental data. Many ratios contain stock price or market value of equity and work well in the market approach to determining value.
In this valuation task following ratios have been considered:
Price to Earnings
Price to Cash Flow (Free Cash Flow)
Price to Book Value
Price to EBITDA
In the process of valuation we have considered that Price/Cash Flow (free cash flow: cash flow from operating activities minus total capital expenditures) ratio is not appropriate for this valuation because the free cash flows to most of the distributors of electronics companies are low or negative.
In the process of valuation we have also considered that Price/Book ratio is not appropriate for this valuation as book value is affected by inventory and is not a good indicator of the value of a company.

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DDHL is involved in distribution and trading of electronic components in the East Asia region therefore, comparable listed entities involved in distribution and trading of electronic components, operating in the East Asia region, have been chosen exhaustively, irrespective of the place where the companies are listed. The Company is not included in the comparable list because, in addition to distribution and trading of electronic components, the Company is also involved in other lines of business including production of consumer electronics and personal computers.
Based on these criteria, the following companies have been selected:

	Listing	Stock	Shares
Company	Country	Price*	Outstanding	Market cap	Earnings	EBITDA
		(HKD)
Ellipsiz Ltd.	Singapore	0.80	514,200,000	412,501,524	114,260,000	149,970,000
Hagiwara Electric Co Ltd	Japan	66.19	6,910,000	457,371,518	43,150,000	88,380,000
S.A.S. Dragon Holdings Ltd.	Hong Kong	2.56	262,140,000	671,078,400	80,440,000	115,130,000
Man Yue Int-Holdings Ltd	Hong Kong	1.86	478,390,000	889,805,400	95,540,000	212,130,000
Sakae Electronics Corp	Japan	18.87	5,090,000	96,053,899	5,500,000	14,300,000

As of 31 March 2011

Based on Bloomberg data base:

Ellipsiz Ltd. offers products and services to the semiconductor industry.
Hagiwara Electric Co., Ltd. is listed under electronics part distributor and involves in trading of electronic parts used for semiconductors.
S.A.S. Dragon Holdings Limited designs, develops, sources, and provides quality assurance and logistics management services of electronic components and semiconductors products.
Man Yue Technology Holdings Limited, through its subsidiaries, manufactures and markets capacitors and resistors.
Sakae Electronics Corporation distributes industrial electronic parts and semiconductor devices.
In this valuation task average of Price/Earnings and Price/EBITDA ratios of the peer group were considered;

Where:

(Price) shall be the price per share as at the valuation date,

(Earnings) shall be the net profit of the Company based on the financial statements of the latest financial reporting year

(Profit before tax) shall be the profit before taxation of the Company based on the financial statements of the latest financial reporting year

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(Interest expenses) shall be the interest expenses of the Company based on the financial statements of the latest financial reporting year

(Depreciation & Amortization) shall be the Depreciation & Amortization of the Company based on the financial statements of the latest financial reporting year

In the calculation of the financial ratios, the Market-Capitalization-Weighted-Average ratios of the market comparables were applied to DDHL to derive the estimated value of DDHL. Market-capitalization-weighted-average ratios were employed because it is considered that larger market capitalization companies are more representative of the industry and thus should carry more weight.
Below you will find a list of the peer group from distributor of electronics in the East Asia and their weighted average financial ratios:

			Weighted
		Weighted	Average
Ticker	Company	Average P/E	P/EBITDA
ELL SP	Ellipsiz Ltd.	0.59	0.45
7467 JP	Hagiwara Electric Co Ltd	1.92	0.94
1184 HK	S.A.S. Dragon Holdings Ltd	2.22	1.55
894 HK	Man Yue International Holdings Ltd	3.28	1.48
7567 JP	Sakae Electronics Corporation	0.72	0.28
	Weighted Average:	8.72	4.69

To solve for the implied market value of equity of the subject company, we solve for price of the subject company as follows:

PriceDDHL = EarningsDDHL PriceDDHL = EBITDADDHL	PricePeer Group EarningsPeer Group PricePeer Group
	EBITDAPeer Group

According to the paper “Marketability and Value: Measuring the Illiquidity Discount” written by Professor Aswath Damodaran of Stern School of Business, NYU; the discount for non-marketability of shares is estimated to be in the range of 25%-35%. Since DDHL is a subsidiary of a publicly listed company, a discount of 25% was applied.

10. VALUATION COMMENTS

As part of our analysis, we have reviewed the financial and business information and other pertinent data concerning DDHL as has been made available to us. Such information has been provided by the Company. We have assumed the accuracy of, and have relied on, such information to a considerable extent in arriving at our opinion of value.

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We confirm that we have made relevant searches and enquiries and obtained such further information as is considered necessary for the purposes of this valuation exercise.

The conclusion of value is based on accepted valuation procedures and practices that rely substantially on the use of numerous assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained. Further, while the assumptions and consideration of such matters are regarded by us to be reasonable, they are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Company, and Ascent Partners.

11. RISK FACTORS

Effects of the recent global financial crisis

The financial crisis in 2008 has caused big impacts to the global economy. It is very difficult to predict when the economy will be able to fully recover. Due to the uncertainties in economic situation, there is no guarantee that the expected financial performance will materialize.

Economic, political and social considerations

Any changes in global political, economic and social conditions, laws, regulations and policies may have significant impacts on the projections of the future income of the Company. In view of the current situation, the possibility of trade protectionism cannot be ruled out. None of these changes can be foreseen with certainty.

Inflation

The concurrent loosening of monetary policies by the central banks in many developed and developing countries poses a significant risk of inflation, which will erode the profitability of the Company.

Exchange rate risk

Any adverse changes in exchange rates will have severe impacts on the Company’s income.

Technological changes

Any technological developments and advancements in the related industries may have significant impacts on the Company’s future revenue streams.

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12. OPINION OF VALUE

Based on the results of our investigations and analyses outlined in this report, we are of the opinion that the fair value as at the prescribed Valuation Date, free from any encumbrances, of the DDHL B-Shares is as follows:

	DDHL		Peer Group	Peer Group	Illiquidity Discount	Market Value of DDHL Equity	B-Shares Equity Value
Earnings:	HKD	14,700,000	P/E:	8.72	25%	HKD 96,138,000	HKD 9,614,000
EBITDA:	HKD	22,900,000	P/EBITDA:	4.69	25%	HKD 80,551,000	HKD 8,055,000
					Average:	HKD 88,345,000	HKD 8,835,000

As of 31 March 2011 , the fair value of the B-Shares is HK$8,835,000 (HONG KONG DOLLAR EIGHT MILLION EIGHT HUNDRED AND THIRTY FIVE THOUSAND ONLY).

For and on behalf of

Ascent Partners Transaction Service Limited

William SW Yuen

Director

BSc(Eng), MSc(Fin), CFA, FRM

5 Years of experience in valuation of business interests, tangible and intangible assets of private and public listed companies.

Mohammad Morvotjoe

Principal

BSc(Hons), MBA

3 Years of experience in valuation of business interests, tangible and intangible assets of private and public listed companies.

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APPENDIX — LIMITING CONDITIONS

As part of our analysis, we have reviewed financial and business information from public sources together with such financial information, client representation, project documentation and other pertinent data concerning the project made available to us during the course of our valuation. We have assumed the accuracy of, and have relied on the information and client representations provided in arriving at our opinion of value.
We have explained as part of our service engagement procedure that it is the director’s responsibility to ensure proper books of accounts are maintained, and the financial statements give a true and fair view and have been prepared in accordance with the relevant companies’ ordinance.
Ascent Partners shall not be required to give testimony or attendance in court or to any government agency by reason of this valuation and with reference to the project described herein unless prior arrangements have been made.
No opinion is intended to be expressed for matters which require legal or other specialised expertise or knowledge, beyond what is customarily employed by valuers.
Our conclusions assume continuation of prudent client policies over whatever period of time that is considered to be necessary in order to maintain the character and integrity of the assets valued.
We assume that there are no hidden or unexpected conditions associated with the assets valued that might adversely affect the reported value. Further, we assume no responsibility for changes in market conditions after the date of this report.
This valuation report has been prepared solely for the use of the designated party. The valuation report should not be otherwise referred to, in whole or in part, or quoted in any document, circular or statement in any manner, or distributed in whole or in part or copied to any their party without our prior written consent.
This report is confidential to the client for the specific purpose to which it refers. In accordance with our standard practice, we must state that this report and valuation is for the use only of the party to whom it is addressed and no responsibility is accepted with respect to any third party for the whole or any part of its contents.

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GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

2. DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS

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

(a) Long positions in shares and warrants of the Company

	Number of issued	ordinary shares/underlying shares attached to derivatives	ordinary shares/underlying shares attached to derivatives	ordinary shares/underlying shares attached to derivatives	ordinary shares/underlying shares attached to derivatives
	Unlisted
	warrants		Ordinary shares in issued
	Corporate	Personal	Corporate	Other	Total
Name of Directors	interests	interests	interests	interests	Interests	Percentage
Mr. LAU Tak Wan	9,616,930	6,557,141	156,494,299	1,142,854	164,194,294	54.02%
	(Note 2)	(Note 1)	(Notes 2,3)
Ms. CHAN Yuen Mei, Pinky	9,616,930	4,042,854	156,494,299	3,657,141	164,194,294	54.02%
	(Note 2)	(Note 1)	(Notes 2,3)
Mr. WAN Chor Fai	—	50,000	—	—	50,000	0.016%
Mr. Barry John BUTTIFANT	—	100,000	—	—	100,000	0.03%

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Notes:

2,900,000 shares in the Company were jointly held by Mr. Lau Tak Wan (“Mr. Lau”) and Ms. Chan Yuen Mei, Pinky (“Ms. Chan”), the spouse of Mr. Lau.
9,616,930 warrants and 95,575,903 shares in the Company were beneficially owned by China Capital Holdings Investment Limited (“China Capital”). The issued share capital of China Capital is 60% owned by Mr. Lau, and 40% owned by Ms. Chan.
60,918,396 shares in the Company were beneficially owned by Leading Trade Limited (“Leading Trade”). The issued share capital of Leading Trade is 50% owned by Mr. Lau and 50% owned by Ms. Chan.

(b) Long position in shares of associated corporations of the Company

Dominion International Limited, which is 50% owned by Mr. Lau, and 50% owned by Ms. Chan:

	Number of non-voting
	deferred shares held
Cosmos Wires and Connectors Manufacturing Limited	50,000
Westpac Digital Limited	1
Vastpoint Industrial Limited	455,000
Daiwa Associate (H.K.) Limited	1,500,000

In addition, each of Mr. Lau and Ms. Chan beneficially owns 140,000 and 10,000 non-voting deferred shares respectively in Cosmotec Precision Industrial Limited.

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

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3. INTERESTS OF SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, to the best knowledge of the Directors and save as disclosed in paragraph headed “2. Directors’ and Chief Executives’ Interests and Short Positions in Shares, Underlying Shares and Debentures of the Company and its Associated Corporations” in this appendix, the following parties (other than Directors or chief executives of the Company), had an interest or short position in the shares, underlying shares or debentures of the Company which are required to be disclosed to the Company under the provision of Divisions 2 and 3 and Part XV of the SFO, or, who was, 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.

Interests in the shares and warrants of the Company

			Interest in
			underlying
			shares —	% of
Name of substantial		Number of	unlisted	the total
shareholder	Note	shares held	warrants	issued shares
China Capital Holdings Investment
Limited	(1)	95,575,903	9,616,930	34.61%
Leading Trade Limited	(2)	60,918,396	—	20.04%
Mr. NG Hung Sang		52,840,198	—	17.38%
Ms. NG Lai King, Pamela (spouse of
Mr. NG Hung Sang)		52,840,198	—	17.38%
Notes:

China Capital is 60% owned by Mr. Lau and 40% owned by Ms. Chan. Accordingly, China Capital, Mr. Lau and Ms. Chan were deemed by SFO to be interested in 95,575,903, 173,811,224 and 173,811,224 shares of the Company respectively.
Leading Trade is 50% owned by Mr. Lau and 50% owned by Ms. Chan. Accordingly, Leading Trade, Mr. Lau and Ms. Chan were deemed by SFO to be interested in 60,918,396, 173,811,224 and 173,811,224 shares of the Company.

Save as disclosed above, as at the Latest Practicable Date, the Directors are not aware of any other persons (other than Directors or chief executives of the Company) who have interests or short positions in the shares, underlying shares or debentures of the Company which would fall to be disclosed to the Company under the provision of Divisions 2 and 3 and Part XV of the SFO, or, who was, 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 or any options in respect of such capital.

4. COMPETING INTEREST

As at the Latest Practicable Date, so far as the Directors are aware, none of the Directors or their respective associates had any interest in a business which competes or may compete, either directly or indirectly, with the business of the Group, or have or may have any other conflicts of interest with the Group pursuant to Rule 8.10 of the Listing Rules.

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5. DIRECTORS’ SERVICE CONTRACTS

None of the Directors had entered or been proposed to enter into any service contract with the Company or any other member of the Group which is not determinable by the Group within one year without payment of compensation (other than statutory compensation) as at the Latest Practicable Date.

6. DIRECTORS’ INTERESTS IN CONTRACTS AND ASSETS

As at the Latest Practicable Date, save as (i) the discloseable and connected transaction contemplated under the Incentive Subscription Agreement, the Service Agreement and the transactions contemplated respectively thereunder; and (ii) the continuing connected transactions in relation to the provision of financial assistance, none of the Directors were materially interested in any contract or arrangement entered into by any member of the Group which was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group. As at the Latest Practicable Date, save as disclosed in this circular, none of the Directors had any interest, direct or indirect, in any assets which have been, since 31 March 2010 (being the date to which the latest published audited financial statements of the Company were made up), acquired or disposed of by or leased to any member of the Group or were proposed to be acquired or disposed of by or leased to any member of the Group.

7. MATERIAL CONTRACTS

No material contracts (not being contracts in the ordinary course of business) have been entered into by the members of the Group within the two years preceding the date of this circular.

8. QUALIFICATION OF EXPERTS

The following are the qualifications of the experts who have given their advice, letters or reports for the inclusion in this circular:

Name

Qualification

GF Capital (Hong Kong) Limited

a corporation licensed to carry on Type 6 (advising on corporate finance) regulated activities under the SFO

Ascent Partners

an independent qualified professional valuer

9. CONSENTS

(a) GF Capital (Hong Kong) Limited issued the letter from independent financial adviser dated 26 May 2011 and Ascent Partners issued the valuation report under Appendix I dated 4 May 2011, for the purpose of incorporation in this circular, in connection with its advice to the Independent Board Committee and the Independent Shareholders.

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(b) GF Capital (Hong Kong) Limited and Ascent Partners have given and have not withdrawn its respective written consents to the issue of this circular with the inclusion of its advice, letters, reports and references to their names and logos in the form and context in which it appears.
(c) As at the Latest Practicable Date, GF Capital (Hong Kong) Limited and Ascent Partners were not beneficially interested in the share capital of any member of the Group nor had any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group and did not have any interest, either directly or indirectly, in any assets which had been, since 31 March 2010 (being the date to which the latest published audited financial statements of the Company were made up), acquired or disposed of by or leased to or were proposed to be acquired or disposed of by or leased to any member of the Group.

10. LITIGATION

As at the Latest Practicable Date, neither the Company nor any other member of the Group is engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened against the Company or any of its members.

11. GENERAL

(a) The registered office of the Company is situated at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.
(b) The head office and principal place of business of the Company is situated at 11th Floor, Block G, East Sun Industrial Centre, 16 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong.
(c) The share registrar of the Company is Tricor Abacus Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(d) The company secretary of the Company is Mr. Man Wai Chuen (“Mr. Man”). Mr. Man is a fellow member of both of the Association of Chartered Certified Accountants and the Hong Kong Institute of Chartered Secretaries. Mr. Man is also an associate member of the Hong Kong Institute of Certified Public Accountants.
(e) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text thereof.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principal place of business of the Company in Hong Kong at 11th Floor Block G East Sun Industrial Centre 16 Shing Yip Street Kwun Tong Kowloon Hong Kong, during normal business hours on any business day from the date of this circular up to and including the date of the SGM:

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(a) the memorandum and articles of association of the Company;
(b) the annual reports of the Company for two years ended 31 March 2009 and 31 March 2010 respectively;
(c) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on page 13 of this circular;
(d) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 14 to 28 of this circular;
(e) the valuation report prepared by Ascent Partners, the text of which is set out in Appendix I to this circular;
(f) the written consents referred to in the paragraph headed “Experts and consents” of this Appendix II;
(g) the material contracts referred to in the paragraph headed “Material Contracts” of this Appendix II;
(h) the Incentive Subscription Agreement; and
(i) the Service Agreement.
(j) the supplemental agreement to the Service Agreement.

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NOTICE OF SGM

==> picture [112 x 34] intentionally omitted <==

DAIWA ASSOCIATE HOLDINGS LIMITED 台和商事控股有限公司 *

(incorporated in Bermuda with limited liability)

(Stock code: 1037)

NOTICE IS HEREBY GIVEN that a special general meeting of Daiwa Associate Holdings Limited (the “Company”) will be held at 11th Floor, Block G, East Sun Industrial Centre, 16 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong on Monday, 13 June 2011 at 3:00 p.m. for the purpose of considering, and, if thought fit, passing the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT the discloseable and connected transaction contemplated under the Incentive Subscription Agreement and the transactions contemplated, be and are hereby confirmed and approved.”
“ THAT the Service Agreement and the transactions contemplated respectively, be and are hereby confirmed and approved.”
“ THAT subject to and conditional upon the passing of resolutions (1) and (2), the continuing connected transactions in relation to the provision of financial assistance as mentioned above, be and are hereby confirmed and approved.”

By Order of the Board Daiwa Associate Holdings Limited LAU Tak Wan President

Hong Kong, 26 May 2011

Notes:

A member entitled to attend and vote at the meeting is entitled to appoint not more than two proxies to attend and vote instead of him. In the case of a recognized clearing house, it may authorize such person(s) as it thinks fit to act as its representative(s) at the meeting and vote in its stead. A proxy need not be a member of the Company.
In order to be valid, the form of proxy together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power or authority must be deposited to the Company’s Share registrar in Hong Kong, Tricor Abacus Limited of 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, not less than 48 hours before the time fixed for holding the meeting or any adjournment thereof.
For identification purpose only

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AI assistant

WEIli Holdings Limited — Proxy Solicitation & Information Statement 2011

50558_rns_2011-05-26_91f0f0d7-e8ca-4969-88ad-9d3d6fb5712f.pdf

DAIWA ASSOCIATE HOLDINGS LIMITED 台和商事控股有限公司 *

CONTENTS

DEFINITIONS

DAIWA ASSOCIATE HOLDINGS LIMITED 台和商事控股有限公司 *

INTRODUCTION

DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE DEEMED DISPOSAL AND ENTERING INTO OF A SERVICE AGREEMENT

Introduction

Incentive Subscription Agreement

Date

Issuer

Subscriber

Subscription

Conditions precedent

Completion

Information of DDHL

Subscription price

Rights and Restrictions of the DDHL B-Shares

Periods

Entitlement to profit sharing

Redemption of the DDHL B-Shares

SERVICE AGREEMENT

Introduction

The reasons of the Incentive Subscription Agreement and the Service Agreement

CONTINUING CONNECTED TRANSACATIONS IN RELATION TO THE FINANCIAL ASSISTANCE

Annual cap amount of the guarantee provided by the Company

Reasons for the guarantee provided by the Company

POSSIBLE FINANCIAL EFFECTS

SGM

RESPONSIBILITY STATEMENT

RECOMMENDATION

DAIWA ASSOCIATE HOLDINGS LIMITED 台和商事控股有限公司 *

Dear Sir or Madam,

Yours faithfully,

Independent Board Committee

Mr. Barry John Buttifant, Mr. Choi Yuk Fan and Mr. Liu Ngai Wing

(1) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE DEEMED DISPOSAL OF INTEREST IN DAIWA DISTRIBUTION HOLDINGS LIMITED BY ENTERING INTO AN INCENTIVE SUBSCRIPTION AGREEMENT; (2) ENTERING INTO OF A SERVICE AGREEMENT BY DAIWA DISTRIBUTION HOLDINGS LIMITED; AND

(3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE PROVISION OF FINANCIAL ASSISTANCE

INTRODUCTION

INDEPENDENT BOARD COMMITTEE

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

Background

Reasons for and benefits of entering into of the Incentive Subscription Agreement and the Service Agreement

Date

Issuer

Subscription

Conditions precedent

Periods

Entitlement

Redemption of DDHL B-Shares

Principal terms of the Service Agreement

(a) Effects on the income statement

(c) Potential dilution effect

2. Continuing connected transactions in relation to the provision of financial assistance

Background and reasons for the transactions

Annual cap amount of the guarantee provided by the Company

RECOMMENDATION

GF Capital (Hong Kong) Limited Danny Wan

Daiwa Associate Holdings Limited

RE: Valuation of the B-Shares in Daiwa Distribution Holdings Limited (hereafter referred as “ DDHL B-Shares ”)

William SW Yuen

1. PURPOSE OF VALUATION

2. SCOPE OF WORK

3. BACKGROUND

4. INTRODUCTION

5. BASIS OF VALUATION

6. BASIS OF OPINION

7. SOURCES OF INFORMATION

8. VALUATION APPROACH AND METHODOLOGY

Cost Approach

Income Approach

Market Approach

9. VALIDATION OF ASSUMPTIONS AND NOTES TO VALUATION

General Assumptions

Other Assumptions and Notes

10. VALUATION COMMENTS

11. RISK FACTORS

WEIli Holdings Limited Proxy Solicitation & Information Statement 2011