台 和 商 事 控 股 有 限 公 司 (Incorporated in Bermuda with limited liability)

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to any aspect of this circular or as to the action you should take, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in Daiwa Associate Holdings Limited, you should at once hand this circular and the enclosed proxy form to the purchaser or the transferee, or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or transferee. 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 on the whole or any part of the contents of this circular. This circular is for information purpose only and does not constitute an invitation of offer to acquire, purchase or subscribe for the Shares or other securities in the Company. DAIWA ASSOCIATE HOLDINGS LIMITED * 台 和 商 事 控 股 有 限 公 司 (Incorporated in Bermuda with limited liability) (Stock code: 1037) (1) PROPOSED CHANGE OF COMPANY NAME; (2) CONTINUING CONNECTED TRANSACTIONS; AND (3) NOTICE OF SPECIAL GENERAL MEETING Independent financial adviser to the Independent Board Committee and Independent Shareholders Capitalised terms used on this cover shall have the same meanings as those defined in this circular, unless the content requires otherwise. A letter from the Board is set out on pages 4 to 22 of this circular. A letter from the Independent Board Committee is set out on pages 23 to 24 of this circular. A letter from Gram Capital containing its advice to the Independent Board Committee and Independent Shareholders is set out on pages 25 to 40 of this circular. A notice convening the SGM to be held at Conference Hall 4, 2/F, 10 Science Park West Avenue Lakeside 2(10W), Hong Kong Science Park, N.T. Hong Kong at 11:00 a.m. on Monday, 29 February 2016 is set out on pages SGM-1 to SGM-3 of this circular. Whether or not you intend to attend the meeting or any adjournment thereof, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof to the branch share registrar of the Company in Hong Kong, Tricor Abacus Limited, Level 22, Hopewell Centre, 183 Queen s Road East, Hong Kong, for registration not later than 4:00 p.m. on Friday, 26 February Completion and return of the form of proxy will not preclude you from attending and voting at the meeting or any adjournment meeting if you so wish. * For identification purpose only 5 February 2016

2 Contents Page Definitions... 1 Letter from the Board... 4 Letter from the Independent Board Committee Letter from Gram Capital Appendix I General information... I-1 Notice of the SGM... SGM-1 i

3 Definitions In this circular, the following expressions shall have the following meanings unless the context indicates otherwise: Ancillary IT Products peripheral IT products and equipment including but not limited to video cameras, monitors, networking devices and storage devices Announcement the Company s announcement dated 23 December 2015, which disclosed, among others, the entering into of the Framework Agreements and the terms and conditions of the transactions contemplated under the Framework Agreements which constitute continuing connected transactions for the Company under the Listing Rules associate Board Build-Own-Operate Build-Own-Operate and IT Project Framework Agreement Company connected person(s) continuing connected transaction(s) controlling shareholder(s) Director(s) Effective Date has the meaning ascribed thereto under the Listing Rules the board of Directors a service model in which the Group provides project-based system integration service to its clients, fees shall primarily be paid on a monthly basis. The ownership of the IT system and the associated intellectual property rights remains with the Company the agreement dated 23 December 2015 entered into between the Company and Hon Hai as referred to under the sub-section headed (B) Build-Own-Operate and IT Project Framework Agreement of the section headed 2. CONTINUING CONNECTED TRANSACTIONS of this circular Daiwa Associate Holdings Limited, a company incorporated in Bermuda with limited liability whose shares are listed on the main board of the Stock Exchange (stock code: 1037) has the meaning ascribed to it under the Listing Rules has the meaning ascribed to it under the Listing Rules has the meaning ascribed to it under the Listing Rules the director(s) of the Company the date on which the approval by the Independent Shareholders approval has been obtained for the transactions contemplated under the Framework Agreements and the proposed annual caps thereof in the SGM 1

4 Definitions Framework Agreements the IT System Operation and Maintenance Framework Agreement, the Build-Own-Operate and IT Project Framework Agreement, the Procurement Framework Agreement and the Sales Framework Agreement FSK Holdings FSK Holdings Limited, a company incorporated in Hong Kong with limited liability and a limited partner contributing about 75% of the total commitment of Asia-IO Acquisition Fund L.P., a substantial shareholder of the Company Gram Capital or Independent Financial Adviser Gram Capital Limited, a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the transactions contemplated under the Framework Agreements and the proposed annual caps thereof Group the Company and its subsidiaries HKD Hong Kong dollar, the lawful currency of Hong Kong holding company has the meaning ascribed to it under the Listing Rules Hon Hai Hon Hai Precision Industry Company Limited, a company incorporated in Taiwan with limited liability and the shares of which are listed on the Taiwan Stock Exchange Hon Hai Group Hon Hai and its group companies Hong Kong the Hong Kong Special Administrative Region of the PRC Independent Board Committee an independent committee of the Board comprising all the independent non-executive Directors, established for the purpose of advising the Independent Shareholders in connection with the transactions contemplated under the Framework Agreements and the proposed annual caps thereof Independent Shareholders Shareholders other than Asia-IO Acquisition Fund L.P. and its associates IT information technology IT Project a service model in which the Group provides project-based system integration service to its clients. Fees shall be paid primarily based on progress billing. The ownership of the IT system will be transferred to the customers. The ownership of the intellectual property rights produced under the project shall be determined in accordance with the terms of the purchase order of the project 2

5 Definitions IT System Operation and Maintenance Framework Agreement Latest Practicable Date Listing Rules PRC Procurement Framework Agreement Proposed Change of Company Name RMB Sales Framework Agreement SGM Share(s) Shareholders Stock Exchange substantial shareholder the agreement dated 23 December 2015 entered into between the Company and Hon Hai as referred to under the sub-section headed (A) IT System Operation and Maintenance Framework Agreement of the section headed 2. CONTINUING CONNECTED TRANSACTIONS of this circular 2 February 2016, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein the Rules Governing the Listing of Securities on the Stock Exchange the People s Republic of China the agreement dated 23 December 2015 entered into between the Company and Hon Hai as referred to under the sub-section headed (C) Procurement Framework Agreement of the section headed 2. CONTINUING CONNECTED TRANSACTIONS of this circular the proposed change of the name of the Company as referred to under the section headed 1. PROPOSED CHANGE OF COMPANY NAME of this circular Renminbi, the lawful currency of the PRC the agreement dated 23 December 2015 entered into between the Company and Hon Hai as referred to under the sub-section headed (D) Sales Framework Agreement of the section headed 2. CONTINUING CONNECTED TRANSACTIONS of this circular the special general meeting of the Company to be held to consider and approve, among others, the Proposed Change of Company Name and the transactions contemplated under the Framework Agreements and the proposed annual caps thereof ordinary share(s) in the share capital of the Company holders of shares of the Company The Stock Exchange of Hong Kong Limited has the meaning ascribed to it under the Listing Rules % Per cent 3

6 Letter from the Board DAIWA ASSOCIATE HOLDINGS LIMITED * 台 和 商 事 控 股 有 限 公 司 (Incorporated in Bermuda with limited liability) (Stock code: 1037) Directors: Executive: Hui Lap Shun John (Chairman) Chien Yi-Pin Mark Tse Tik Yang Denis Ryu Young Sang James Lau Tak Wan Fung Wai Ching Independent non-executive: Tang Tin Lok Stephen Kan Ji Ran Laurie Chen Timothy Registered office: Canon s Court 22 Victoria Street Hamilton HM 12 Bermuda Head office and principal place of business: 11th Floor, Block G East Sun Industrial Centre 16 Shing Yip Street Kwun Tong, Kowloon Hong Kong 5 February 2016 To the Shareholders Dear Sir or Madam, INTRODUCTION (1) PROPOSED CHANGE OF COMPANY NAME; (2) CONTINUING CONNECTED TRANSACTIONS; AND (3) NOTICE OF SPECIAL GENERAL MEETING Reference is made to the Announcement in respect of (i) the Proposed Change of Company Name; and (ii) the Framework Agreements and the transactions contemplated thereunder. As announced by the Board, the Group has entered into the Framework Agreements with Hon Hai on 23 December As at the Latest Practicable Date, FSK Holdings is a limited partner of Asia- IO Acquisition Fund L.P. contributing to about 75% of its total commitment. Asia-IO Acquisition Fund L.P. is a substantial Shareholder of the Company holding 383,608,260 Shares, representing approximately 57.93% of the issued share capital of the Company. To the best knowledge of the Directors after having made all reasonable enquiries, Hon Hai, through Foxconn (Far East) Ltd., Foxconn Technology Company Limited, Pan- International Industrial Corporation and its related parties, indirectly holds approximately % attributable equity interests in FSK Holdings. Despite Hon Hai does not fall 4

7 Letter from the Board within the ambit of an associate of Asia-IO Acquisition Fund L.P. under the Listing Rules, the Company voluntarily complies with the reporting, announcement and Independent Shareholders approval requirements for the transactions contemplated under the Framework Agreements as if Hon Hai is a connected person of the Company under Chapter 14A of the Listing Rules. The Board also understands that the Stock Exchange is considering whether or not to deem Hon Hai as a connected person of the Company under Rule14A.19 of the Listing Rules. The Independent Board Committee has been formed to advise the Independent Shareholders in respect of the Framework Agreements and the proposed annual caps thereof. The purpose of this circular is to (i) provide the Shareholders further information in respect of the Proposed Change of Company Name; (ii) provide the Shareholders further information in respect of the Framework Agreements and the proposed annual caps thereof; (iii) set out the recommendation of the Independent Board Committee to the Independent Shareholders and the advice of Gram Capital to the Independent Board Committee and the Independent Shareholders in respect of the Framework Agreements and the proposed annual caps thereof; and (iv) give the Shareholders the notice of the SGM and other information as required under the Listing Rules. (1) PROPOSED CHANGE OF COMPANY NAME The Board proposed to change the English name of the Company from Daiwa Associate Holdings Limited to Maxnerva Technology Services Limited, and adopt the Chinese name 雲 智 匯 科 技 服 務 有 限 公 司 as the secondary name of the Company to replace the Chinese name 台 和 商 事 控 股 有 限 公 司 which was adopted for identification purpose only. Reasons for the Proposed Change of Company Name The Group is principally engaged in manufacturing and trading of diodes, electronic manufacturing services, and manufacturing of telecom and radio frequency devices, plastic components and wires. The Group has planned to expand its business operation and coverage by providing system integration service and smart manufacturing solutions to electronics manufacturers. The Board considers that the Proposed Change of Company Name may better reflect the change of Company status and provide the Company with a new corporate image and identity. The Board believes that the Proposed Change of Company Name will benefit the Company s future business development and is in the best interests of the Company and the Shareholders as a whole. Conditions for the Proposed Change of Company Name The Proposed Change of Company Name is subject to the following conditions having been satisfied: (a) the passing of a special resolution by the Shareholders at the SGM to approve the Proposed Change of Company Name; and 5

8 Letter from the Board (b) the Registrar of Companies in Bermuda approving the Proposed Change of Company Name. Subject to satisfaction of the conditions set out above, the Proposed Change of Company Name will become effective from the date of entry of the new English name of the Company and the date of entry of the new Chinese secondary name of the Company, in each case, on the register maintained by the Registrar of Companies in Bermuda. Upon taking effect of the Proposed Change of Company Name and the receipt of the Certificate of Incorporation on Change of Name and the Certificate of Secondary Name, the Company will then carry out the necessary filing procedures with the Registrar of Companies in Hong Kong. Effects of the Proposed Change of Company Name The Proposed Change of Company Name will not affect any rights of the existing holders of securities of the Company or the Company s daily business operation and its financial position. All the existing certificates of securities of the Company in issue bearing the existing name of the Company in English and, the existing Chinese name of the Company adopted for identification purpose only, will, after the Proposed Change of Company Name becoming effective, continue to be evidence of title to such securities of the Company and will continue to be valid for trading, settlement, registration and delivery for the same number of securities of the Company in the new English name and the secondary name of the Company. Accordingly, there will not be any arrangement for free exchange of the existing certificates of the securities of the Company for new share certificates of the securities bearing the new English name and the secondary name of the Company. Once the Proposed Change of Company Name has become effective, any new certificates of the securities of the Company will be issued in the new English name and secondary name of the Company. In addition, subject to the confirmation by the Stock Exchange, the English stock short name and the Chinese stock short name for trading of the shares of the Company will also be changed after the Proposed Change of Company Name has become effective. Further announcement(s) will be made by the Company in relation to the results of the SGM, the effective date of the Proposed Change of Company Name and the new stock short name for trading of the Shares as and when appropriate. SGM The SGM will be convened by the Company at 11:00 a.m. on Monday, 29 February 2016 at Conference Hall 4, 2/F, 10 Science Park West Avenue Lakeside 2(10W), Hong Kong Science Park, N.T. Hong Kong for the purpose of, among others, considering and, if thought fit, approving the Proposed Change of Company Name, by way of poll. To the best of the Directors knowledge, information and belief after having made all reasonable enquiries, none of the Shareholders has direct or indirect material interest in the Proposed Change of Company Name and accordingly, no Shareholder is required to abstain from voting on the special resolution relating to the Proposed Change of Company Name at the SGM. 6

9 Letter from the Board The notice of SGM is set out on pages SGM-1 to SGM-3 of this circular. A form of proxy for use at the SGM is also enclosed herewith. Whether or not you intend to attend the SGM, you are advised to read the notice and complete the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and return the form of proxy to the branch share registrar of the Company in Hong Kong, Tricor Abacus Limited, at Level 22, Hopewell Centre, 183 Queen s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM if you so wish. Recommendation The Board considers that the Proposed Change of Company Name is in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of the special resolution to be proposed at the SGM to approve the Proposed Change of Company Name. (2) CONTINUING CONNECTED TRANSACTIONS On 23 December 2015 (after trading hours), the Company entered into the Framework Agreements with Hon Hai. The Framework Agreements consist of (1) the IT System Operation and Maintenance Framework Agreement, (2) the Build-Own-Operate and IT Project Framework Agreement, (3) the Procurement Framework Agreement and (4) the Sales Framework Agreement. Pursuant to the Framework Agreements, the Group agreed to (i) provide IT support and maintenances services to Hon Hai Group; (ii) provide Build-Own-Operate and IT Project services to Hon Hai Group; (iii) purchase enterprise-level products including but not limited to communication software, servers and related hardware equipment from Hon Hai Group to be used primarily for the provision of various IT services; and (iv) sell Ancillary IT Products to Hon Hai Group. Principal terms of the Framework Agreements The following sets out the principal terms of the Framework Agreements: (A) IT System Operation and Maintenance Framework Agreement Date: 23 December 2015 Parties: Terms: The Company; and Hon Hai From the Effective Date to 31 March 2018 (both days inclusive) 7

10 Letter from the Board Nature of transactions: Pricing basis: The Group agreed to provide IT services to Hon Hai Group to support its existing IT infrastructure. The IT services include, among others, IT strategical planning, IT management, IT deployment and transfer, IT maintenance, IT system design and IT valued-added services. The services to be provided under the IT System Operation and Maintenance Framework Agreement will be charged on a monthly basis. The service fee will be determined based on the following factors: a) the number of IT technicians involved and their time spent for delivery of such IT services and their respective monthly charging rate is determined according to their skills, experience or grading, with reference to the market rates of IT technicians from at least two independent third parties; b) the principle of cost plus a reasonable margin with regard to the purchase of any parts, software and products which is required for delivery of such IT services. Such margin is to be determined by the management based on its experience with reference to the charge in the industry for similar products offered by independent third parties in the ordinary course of business and under normal commercial terms; c) the service fees will be arrived at after arm s length negotiations between the Group and Hon Hai Group based on the nature, scale and complexity of services and on normal commercial terms. When determining the service fee, where there are similar or comparable services in the market, management of the Company shall take into account the prices of at least two similar and comparable transactions entered into with or carried out by independent third parties in the ordinary course of business in the corresponding period for reference; and d) the Group adopts the same principle of cost plus a reasonable margin for services to be provided to both Hon Hai Group and independent customers and hence, in any event the terms and prices offered by the Group to Hon Hai Group will be no more favourable than those offered to an independent third party for the same or similar type of services. 8

11 Letter from the Board Payment terms: Condition precedent: The service fees shall be paid to the Group for each month by the 30th day of the following month. The agreement is conditional upon the Company obtaining Independent Shareholders approval at the SGM in accordance with the Listing Rules. Proposed annual caps The table below sets out the proposed annual caps for the service fees payable by Hon Hai Group to the Group pursuant to the IT System Operation and Maintenance Framework Agreement for each of the three financial years ending 31 March 2016, 2017 and 2018: Proposed annual caps for the financial year ending 31 March HKD HKD HKD Service fees payable by Hon Hai Group to the Group 26,732, ,525, ,383,000 Basis of determination of the proposed annual caps The proposed annual caps are determined based on: i) internal estimated turnover of the Group with reference to the expected level of services required by Hon Hai Group regarding IT system operation and maintenance service in different premises and factories after discussion with Hon Hai Group to understand their upcoming demand for our services; ii) iii) a buffer of 10% to allow for the increase in demand of services by Hon Hai Group for the financial years ending 31 March 2016 and 2017 as anticipated by the management; and an expected growth rate of 30% on the proposed annual cap for the year ending 31 March Such expected growth rate is with reference to the future growth prospects of the industry relating to implementation of smart solutions, according to the research results from an independent research firm. The Shareholders should note that the proposed annual caps represent the best estimate by the Directors of the amount of the relevant transactions based on the information currently available. Such caps bear no direct relationship to, nor should be taken to have any direct bearing to, the Group s financial or potential financial performance. 9

12 Letter from the Board (B) Build-Own-Operate and IT Project Framework Agreement Date: 23 December 2015 Parties: Terms: Nature of transactions: Pricing basis: The Company; and Hon Hai From the Effective Date to 31 March 2018 (both days inclusive) The Group agreed to provide project-based system integration service to Hon Hai Group, including but not limited to design and development of new systems, provision of application programming recommendations, installation, implementation, testing, auditing and integration of new systems within the IT environments; maintenance and support services; and providing cultural transitioning of workforces to new environments, including training of employees and other end users. These projects will be customized according to customer specifications and needs with reference to their business plan and development which include, among others, smart factory, smart office, video conferencing, cloud computing, enterprise application and mobile application. The Company shall provide the services based on the following pricing principles: (a) where there are similar or comparable services in the market, with reference to the market rate for provision of such project management services with comparable nature, scale or scope. When determining the relevant market rates, management of the Company shall take into account the rates of at least two similar and comparable transactions entered into with or carried out by independent third parties in the ordinary course of business in the corresponding period for reference; 10

13 Letter from the Board (b) based on the principle of cost plus a reasonable margin with regard to the purchase of any parts, software and products which is required for delivery of such project management services. Such margin is to be determined by the management based on its experience with reference to the charge in the industry for similar services and products offered by independent third parties in the ordinary course of business and under normal commercial terms. The cost will take into account of the required level of knowhow and technical expertise, the cost of equipment and software used in the project, cost of labour including but not limited to the number of IT technicians required and their time spent for the project and their respective charging rate is determined according to their skills, experience or grading, with reference to the market rates of IT technicians from at least two independent third parties; (c) the fees of individual project will be arrived at after arm s length negotiations between the Group and Hon Hai Group based on the nature, scale and complexity of the project and corresponding services and on normal commercial terms; and (d) the Group adopts the same principle of cost plus a reasonable margin for services to be provided to both Hon Hai Group and independent customers and hence, in any event the terms and prices offered by the Group to Hon Hai Group will be no more favourable than those offered to an independent third party for the same or similar type of services. Payment terms: Condition precedent: The consideration of individual projects shall be paid in accordance with the terms to be agreed prior to the commencement of such project, with reference to terms commonly adopted in the market such as payment based on progress billing or by monthly payment. The agreement is conditional upon the Company obtaining Independent Shareholders approval at the SGM in accordance with the Listing Rules. 11

14 Letter from the Board Proposed annual caps The table below sets out the proposed annual caps for the service fees payable by Hon Hai Group to the Group pursuant to the Build-Own-Operate and IT Project Framework Agreement for each of the three financial years ending 31 March 2016, 2017 and 2018: Proposed annual caps for the financial year ending 31 March HKD HKD HKD Service fees payable by Hon Hai Group to the Group 68,684, ,497, ,146,000 Basis of determination of the proposed annual caps The proposed annual caps are determined based on: i) the number of projects expected to be built or managed for Hon Hai Group in different premises and factories, which is based on the expected level of services, technological advancement required by Hon Hai Group and the corresponding time required to complete those requirements after discussion with Hon Hai Group to understand their upcoming demand for our services; ii) iii) a buffer of 10% to allow for the increase in demand of services by Hon Hai Group for the financial years ending 31 March 2016 and 2017 as anticipated by the management; and an expected growth rate of 30% on the proposed annual cap for the year ending 31 March Such expected growth rate is with reference to the future growth prospects of the industry relating to implementation of smart solutions, according to the research results from an independent research firm. The Shareholders should note that the proposed annual caps represent the best estimate by the Directors of the amount of the relevant transactions based on the information currently available. Such caps bear no direct relationship to, nor should be taken to have any direct bearing to, the Group s financial or potential financial performance. (C) Procurement Framework Agreement Date: 23 December 2015 Parties: The Company; and Hon Hai 12

15 Letter from the Board Terms: Nature of transactions: Pricing basis: Payment terms: Condition precedent: From the Effective Date to 31 March 2018 (both days inclusive) The Company (as buyer) agreed to purchase enterprise-level products directly or via its subsidiaries including but not limited to communication software, servers and related hardware equipment from Hon Hai Group (as seller). The enterprise-level products, which are manufactured or developed by Hon Hai Group and also available in the market, will be used primarily by the Group for the provision of various IT services during the term of the Procurement Framework Agreement. The prices for each purchase order are arrived at after arm s length negotiations, taking into account the then prevailing market conditions; provided that the terms and prices offered to the Group shall be no less favourable than those offered to the Group by independent third party for the same or similar type of ancillary equipment and parts and on normal commercial terms. When determining the relevant market prices, management of the Company shall take into account the quotation of at least two independent third parties for the relevant products to be procured in the corresponding period for reference. The price of the equipment/products shall be paid within 30 days after receiving an invoice from Hon Hai Group. The agreement is conditional upon the Company obtaining Independent Shareholders approval at the SGM in accordance with the Listing Rules. Proposed annual caps The table below sets out the proposed annual caps for the fees payable by the Group to Hon Hai Group pursuant to the Procurement Framework Agreement for each of the three financial years ending 31 March 2016, 2017 and 2018: Proposed annual caps for the financial year ending 31 March HKD HKD HKD Fees payable by the Group to Hon Hai Group 18,732, ,863, ,222,000 13

16 Letter from the Board Basis of determination of the proposed annual caps The proposed annual caps are determined based on: i) the estimated revenue generated from provision of the Build-Own- Operation and IT Project services after the assessment of the market prospects in Greater China based on the estimate by a global provider of market intelligence; ii) iii) the expected proportion of those enterprise-level products to be utilized by the Group for provision of IT services that could also be purchased from Hon Hai Group; and an expected growth rate of 30% on the proposed annual cap for the year ending 31 March Such expected growth rate is by reference to the future growth prospects of the industry relating to implementation of smart solutions, according to the research results from an independent research firm. The Shareholders should note that the proposed annual caps represent the best estimate by the Directors of the amount of the relevant transactions based on the information currently available. Such caps bear no direct relationship to, nor should be taken to have any direct bearing to, the Group s financial or potential financial performance. (D) Sales Framework Agreement Date: 23 December 2015 Parties: Terms: Nature of transactions: The Company; and Hon Hai From the Effective Date to 31 March 2018 (both days inclusive) The Company (as seller) agreed to sell Ancillary IT Products directly or via its subsidiaries to Hon Hai Group (as buyer) during the term of the Sales Framework Agreement. Leveraging on the Group s historical network and experience in the trading and manufacturing of electronic parts and devices, the Group considers that it may from time to time be approved or designated by Hon Hai Group to source the Ancillary IT Products in response to their needs. 14

17 Letter from the Board Pricing basis: Payment terms: Condition precedent: The prices for each sales order are arrived at after arm s length negotiations, taking into account the then prevailing market conditions; provided that the terms and prices offered by the Group shall be no more favourable than those available to an independent third party for the same or similar type of ancillary equipment and parts and on normal commercial terms. When determining the relevant market prices, management of the Company shall take into account the prices of at least two similar and comparable transactions entered into with or carried out by independent third parties in the ordinary course of business in the corresponding period for reference. The price of the equipment/products shall be paid within 30 days after receiving an invoice from the Group. The agreement is conditional upon the Company obtaining Independent Shareholders approval at the SGM in accordance with the Listing Rules. Proposed annual caps The table below sets out the proposed annual caps for the service fees payable by Hon Hai Group to the Group pursuant to the Sales Framework Agreement for each of the three financial years ending 31 March 2016, 2017 and 2018: Proposed annual caps for the financial year ending 31 March HKD HKD HKD Fees payable by Hon Hai Group to the Group 8,674, ,547, ,412,000 Basis of determination of the proposed annual caps The proposed annual caps have been determined based on: (i) approximately 10% of the total forecast revenue generated from the IT system operation and maintenance service, Build-Own-Operate and IT Project services which represents the best estimate of the Directors after discussion with Hon Hai Group to understand their upcoming demand for our services and the assessment of the market prospects in Greater China based on the estimate by a global provider of market intelligence; and 15

18 Letter from the Board (ii) an expected growth rate of 30% on the proposed annual cap for the year ending 31 March Such expected growth rate is by reference to the future growth prospects of the industry relating to implementation of smart solutions, according to the research results from an independent research firm. The Shareholders should note that the proposed annual caps represent the best estimate by the Directors of the amount of the relevant transactions based on the information currently available. Such caps bear no direct relationship to, nor should be taken to have any direct bearing to, the Group s financial or potential financial performance. Further condition on the transactions contemplated under the Framework Agreements The transactions as contemplated under the Framework Agreements between the Group and Hon Hai Group (except the Procurement Framework Agreement) are also subject to the condition that the revenue attributable to Hon Hai Group will be less than 80% of the total revenue of the Group and the remaining 20% of the total revenue of the Group will not be attributable to the associates of Hon Hai for each of the financial years ending 31 March 2016, 2017 and 2018 (the Condition ). The calculation of the above percentages will be based on the year-end financial result of the Group. For details of the internal control measures on the compliance with the Condition, please refer to the paragraph headed Internal Control of the section headed 2. continuing connected transactions of this circular. The bases for determining the Condition above are as follows: (1) the expected transaction volumes with Hon Hai Group pursuant to the Framework Agreements (except the Procurement Framework Agreement); and (2) the forecasted demand for the manufacturing business, SMS service and General IT service by other independent customers following various discussions with them and the continuing market effort of the Group. Internal Control The Company has formulated the Management Measures for Connected Transactions to ensure the transactions contemplated under the Framework Agreements are conducted in accordance with the terms of the Framework Agreements and the annual caps thereof are not exceeded. The following guidelines and mechanisms are in place in the Management Measures for Connected Transactions: (1) The finance department shall inform the relevant business departments of the Company, in writing, the approved annual caps for the continuing connected transactions. 16

19 Letter from the Board (2) Prior to entering into a transaction, the relevant business department shall, where applicable and in accordance with the pricing basis under the corresponding Framework Agreements, collect information on the market rate for the service or comparable service; obtain quotation form independent third parties; and/or compare the price offered to independent third parties. (3) The relevant business department shall compile a profit/loss statement for every transaction under the Framework Agreements. (4) The business department shall report to the finance department the revenue amount attributable to Hon Hai Group and such amount attributable to non-hon Hai Group customers on a monthly basis. If the total revenue attributable to Hon Hai Group exceeds 80% of the total revenue of the Group up to such calender month, the finance department will understand the reasons and take adequate measures in collaboration with the business department to ensure that the Condition shall be fulfilled by the end of such financial year. (5) The final price of each contract has to be reviewed and approved by the relevant department head. (6) The finance department shall conduct regular checks regarding the compliance of the terms of Framework Agreements and the Condition. (7) The relevant business department shall regularly report the progress and implementation of the relevant transactions to the finance department, who shall consolidate the information, perform auditing and report to the chief financial officer and the audit committee/independent non-executive Directors. (8) When the actual transaction amount under any one of the Framework Agreements exceeds 50% or 80% of the respective annual cap, the relevant business department shall promptly report to the finance department and the chief financial officer. (9) The auditors of the Company shall review the respective continuing connected transactions of the Company and confirm to the Board that the transactions have been entered into in accordance with the pricing policies as set forth in the relevant Framework Agreements governing such transactions. The auditors of the Company shall also confirm that the annual caps applicable to the respective continuing connected transactions entered into between the Company and its connected persons have not been exceeded. (10) The independent non-executive Directors shall conduct annual review on the continuing connected transactions and confirm that the transactions are on normal commercial terms or better; or if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Company than those available to 17

20 Letter from the Board or (if applicable) from independent third parties; and have been entered into in accordance with the relevant terms that are fair and reasonable and in the overall interests of the shareholders of the Company as a whole. Further information about the new business of the Group The new business of the Group can be broadly categorised as follows: 1. Provision of smart manufacturing solutions ( SMS ) service: SMS enable industrial companies and in particular, electronic manufacturers to upgrade and streamline their manufacturing process through the adoption of SMS service. Each SMS needs to be customized based on the specific requirements of customers and also their unique manufacturing process and hence, each SMS project is highly heterogeneous to the other. Services to be provided by the Group pursuant to the Build-Own-Operate and IT Project Framework Agreement fall within this category. 2. General IT service and maintenance and sales of Ancillary IT Products ( General IT ): as part of the new business of the Group, it also intends to provide general IT service support and maintenance to customers. Services to be provided and products to be sold pursuant to the IT System Operation and Maintenance Framework Agreement and the Sales Framework Agreement, respectively, fall within this category. Company s plans on the new business It is the current business strategy of the Group to primarily focus its market effort for the provision of SMS service to leading industrial companies in Asia (in particular electronic manufacturers), including but not limited to Hon Hai Group. The Board believes that business collaboration with the leading industrial companies such as Hon Hai Group can serve as a platform to showcase the SMS service provided by the Group to other leading industrial companies and can help to enhance the Group s clientele profile. In addition to Hon Hai Group, the Group is also in the course of actively exploring business collaborations with other leading industrial companies with respect to its SMS service. For instance, the Group has entered into a memorandum of understanding in relation to business collaboration with another leading global player in the IT industry. The Board is of the view that with the establishment of strategic cooperation with this leading global player, the Group could leverage on its global footprint in the IT industry to reach out to a wider group of customers for its SMS service. Furthermore, the Group has been devoting its efforts to capture the market opportunities arising amongst government departments/authorities or small-to-medium enterprises in the PRC. Currently, the Group has been in discussion with 24 potential independent customers for its new business. 18

21 Letter from the Board Reasons for and benefits of entering into the Framework Agreements The Group has a long historical record in trading of electronic parts and manufacturing of electronic devices and planned to expand its business operation and coverage by providing smart manufacturing solutions to electronics manufacturers. The Group is expanding its IT professional team comprising mainly IT technicians and programmers and aims to assist electronics manufacturers in the Greater China region to upgrade their manufacturing lines through system integration services utilizing Internet-of-Things ( IoT ) modules, analytics software, and other digital technologies. Hon Hai Group is a leading player in the electronics manufacturing industry, and, based on the understanding of the Company, Hon Hai Group is planning to upgrade its manufacturing lines to adopt the IoT modules supplemented with other specific IT solutions. Given Hon Hai Group is also a large supplier of enterprise-level products and this type of component such as communication software, servers and related hardware equipment are commonly adopted by the Group and its technicians during the provision of IT system integration services or designing smart manufacturing solution for its client, the Framework Agreements also allow the Group to secure the supplies should those enterprise-level products fit the specifications required by the Group s clients. The Framework Agreements allow the Group to (i) explore a long term and strategic business relationship with Hon Hai Group, which is the world s largest electronics manufacturing services provider; (ii) leverage its business relationship with Hon Hai Group to enhance the Group s clientele profile; and (iii) maintain a stable source of business order for the Group s IT services and secure a stable source of supplies for enterprise-level products from a large electronics manufacturing group like Hon Hai Group. The Board believes that business collaboration with the leading industrial companies such as Hon Hai Group can serve as a platform to showcase the SMS service provided by the Group to other leading industrial companies and can help to enhance the Group s clientele profile. The Directors (including the independent non-executive Directors) consider it beneficial to the Group to conduct the continuing connected transactions contemplated under the Framework Agreements given that they are in line with the Group s strategies to expand into the smart manufacturing solutions business, and are able to continue to generate stable revenue and income to the Group. In light of the above, the Directors (including the independent non-executive Directors) consider that the Framework Agreements and the respective annual caps thereof have been entered into/ arrived at (a) in the ordinary and usual course of the business of the Company; (b) on normal commercial terms; and (c) on terms that are fair and reasonable and in the interest of the Company and its Shareholders as a whole. Information about the parties The Group is principally engaged in manufacturing and trading of diodes, electronic manufacturing services, and manufacturing of telecom and radio frequency devices, plastic components and wires. The Group has planned to expand its business operation and coverage by providing system integration service and smart manufacturing solutions to electronics manufacturers. 19

22 Letter from the Board Hon Hai is a global manufacturing services provider in the computer, communications and consumer electronics industry whose shares are listed on the Taiwan Stock Exchange. Implications under the Listing Rules As at the Latest Practicable Date, FSK Holdings is a limited partner of Asia- IO Acquisition Fund L.P. contributing to about 75% of its total commitment. Asia- IO Acquisition Fund L.P. is a substantial Shareholder of the Company holding 383,608,260 Shares, representing approximately 57.93% of the issued share capital of the Company. To the best knowledge of the Directors after having made all reasonable enquiries, Hon Hai, through Foxconn (Far East) Ltd., Foxconn Technology Company Limited, Pan-International Industrial Corporation and its related parties, indirectly holds approximately % attributable equity interests in FSK Holdings. Despite Hon Hai does not fall within the ambit of an associate of Asia-IO Acquisition Fund L.P. under the Listing Rules, the Company voluntarily complies with the reporting, announcement and Independent Shareholders approval requirements for the transactions contemplated under the Framework Agreements as if Hon Hai is a connected person of the Company under Chapter 14A of the Listing Rules. The Board also understands that the Stock Exchange is considering whether or not to deem Hon Hai as a connected person of the Company under Rule14A.19 of the Listing Rules. As one or more of the applicable percentage ratios of the proposed annual caps of the Framework Agreements for the three financial years ending 31 March 2018 for the transactions contemplated under the Framework Agreements are expected to be higher than 5% and more than HKD10,000,000 on an annual basis, the transactions contemplated under the Framework Agreements are subject to the reporting, annual review, announcement and Independent Shareholders approval requirement under Chapter 14A of the Listing Rules. The Independent Board Committee has been established to advise the Independent Shareholders on the transactions contemplated under the Framework Agreements and the proposed annual caps thereof. Gram Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard. Chien Yi-Pin Mark is a director of Hon Hai. Hence, Mr. Chien had abstained from voting on the resolution to approve the Framework Agreements and the transactions contemplated thereunder at the relevant meeting of the Board. Save as disclosed above, none of the Directors has any material interest in the Framework Agreements and the transactions contemplated thereunder. SGM The notice of SGM is set out on pages SGM-1 to SGM-3 of this circular. The SGM will be convened by the Company at 11:00 a.m. on Monday, 29 February 2016 at Conference Hall 4, 2/F, 10 Science Park West Avenue Lakeside 2(10W), Hong Kong Science Park, N.T. Hong Kong. At the SGM, an ordinary resolution will be proposed and, if thought fit, passed to approve the Framework Agreements, the transactions contemplated thereunder and the proposed annual caps thereof by poll. Any Shareholder with a material interest in the Framework Agreements and the transactions contemplated thereunder, shall not vote on the resolution in relation to the Framework Agreements proposed at the SGM. 20

23 Letter from the Board As the Company decided to voluntarily comply with the reporting, announcement and Independent Shareholders approval requirements for the transactions contemplated under the Framework Agreements as if Hon Hai is a connected person of the Company under Chapter 14A of the Listing Rules. The Board also understands that the Stock Exchange is considering whether or not to deem Hon Hai as a connected person of the Company under Rule14A.19 of the Listing Rules. To the best of the Directors knowledge and belief having made all reasonable enquiries, as at the Latest Practicable Date, save for Asia-IO Acquisition Fund L.P. and its associates, no other Shareholder is required to abstain from voting on the resolution for approving the Framework Agreements, the transactions contemplated thereunder and the proposed annual caps thereof at the SGM. As at the Latest Practicable Date, Asia-IO Acquisition Fund L.P. held 383,608,260 Shares, representing approximately 57.93% of the issued share capital of the Company. Asia-IO Acquisition GP Limited, being the general partner of Asia- IO Acquisition Fund L.P., is deemed to be interested in 57.93% of the issued share capital of the Company. Tse Tik Yang Denis, being the controlling shareholder of Asia-IO Acquisition GP Limited, Asia-IO Holdings Limited and Asia-IO Advisors Limited, is deemed to be interested in 64.85% of the issued share capital of the Company. FSK Holdings contributes about 75% of the total commitment of Asia-IO Acquisition Fund L.P. and is deemed to be interested in 57.93% of the issued share capital of the Company. A form of proxy for use at the SGM is also enclosed herewith. Whether or not you intend to attend the SGM, you are advised to read the notice and complete the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and return the form of proxy to the branch share registrar of the Company in Hong Kong, Tricor Abacus Limited, at Level 22, Hopewell Centre, 183 Queen s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM if you so wish. Pursuant to Rule 13.39(4) of the Listing Rules, the vote of the Independent Shareholders at the SGM will be taken by poll and the announcement on the results of which will be published on the websites of the Company and of the Stock Exchange following the SGM. Recommendation Your attention is drawn to (i) the letter from the Independent Board Committee as set out on pages 23 to 24 of this circular which contains its recommendation to the Independent Shareholders on the terms of the Framework Agreements, the transactions contemplated thereunder and the proposed annual caps thereof; and (ii) the letter of advice from Gram Capital as set out on pages 25 to 40 of this circular which contains, amongst other matters, its advice to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Framework Agreements, the transactions contemplated thereunder and the proposed annual caps thereof together with the principal factors and reasons considered by it in concluding its advice. 21