HannStar Board International Holdings Limited

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 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 in HannStar Board International Holdings Limited, you should hand this circular to the purchaser or transferee or 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. The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. HannStar Board International Holdings Limited (Incorporated in the Cayman Islands with limited liability) (Stock Code: 667) NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS Financial adviser to HannStar Board International Holdings Limited Independent financial adviser to the Independent Board Committee and the Independent Shareholders A letter from the Board is set out on pages 4 to 10 of this circular and a letter from the Independent Board Committee is set out on page 11 of this circular. A letter from Altus Capital, the independent financial adviser, containing its advice in respect of the Non-exempt Continuing Connected Transactions to the Independent Board Committee and the Independent Shareholders is set out on pages 12 to 16 of this circular. A notice convening the EGM to be held at Falcon Room I, Luk Kwok Hotel, 72 Gloucester Road, Wan Chai, Hong Kong on Friday, 28 December 2007 at 10:00 a.m. is set out on pages 21 to 22 of this circular. Whether or not you intend to attend the meeting, please complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company s principal place of business in Hong Kong at Level 28, Three Pacific Place, 1 Queen s Road East, Hong Kong as soon as possible but in any event not later than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM and at any adjournment thereof if you so wish. 12 December 2007

2 CONTENTS Page Definitions... 1 Letter from the Board... 4 Letter from the Independent Board Committee Letter from Altus Capital Appendix General Information Notice of EGM i

3 DEFINITIONS In this circular, the following words have the following meanings unless the context requires otherwise: Altus Capital associate Board Altus Capital Limited, a licensed corporation under the SFO and engages in Types 4, 6 and 9 regulated activities, which has been appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Non-exempt Continuing Connected Transactions has the meaning ascribed to it under the Listing Rules the board of Directors Company HannStar Board International Holdings Limited, a company listed on the main board of the Stock Exchange controlling shareholder Directors EGM Group has the meaning ascribed to it under the Listing Rules the directors of the Company the extraordinary general meeting of the Company to be held on Friday, 28 December 2007 at 10:00 a.m. for the purpose of considering and, if thought fit, the New Master Sub-contracting Agreement the Company and its subsidiaries from time to time HannStar Precision HannStar Precision Technology (Jiangyin) Corp. ( ), a wholly foreign owned enterprise established in the PRC on 15 December 2005 and an indirectly wholly owned subsidiary of HannStar Taiwan HannStar Taiwan HannStar Board Corporation ( ), a company incorporated in Taiwan with limited liability on 22 March 1989 and owned as to approximately 57.94% by Walsin Lihwa and its associates, the shares of which are listed on the Taiwan Stock Exchange HK$ Independent Board Committee Hong Kong dollars, the lawful currency of Hong Kong the independent committee of the Board comprising Mr. Chao Yuan-san, Ms. Chen Shun Zu, Deborah, Mr. Yeh Yu-an, Ms. Chang Pi-lan and Mr. Yen Chin-chang, all of them are Independent non-executive Directors 1

4 DEFINITIONS Independent Shareholders Latest Practicable Date Licence Agreement Listing Listing Rules Master Sub-contracting Agreement Migrated Orders New Master Sub-contracting Agreement Non-exempt Continuing Connected Transactions NT$ PCB PRC Shareholders other than HannStar Taiwan and its associate who together are interested in 975,000,000 shares in the Company 7 December 2007, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining and collation of relevant information in this circular the licence agreement dated 27 March 2007 between HannStar Taiwan as licensor and Walsin Board as licensee in respect of the licence of Machinery and Equipment the listing of the Shares on the main board of the Stock Exchange since 6 October 2006 the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited the master sub-contracting agreement entered into between the Company and HannStar Taiwan on 22 September 2006 the purchase orders placed by HannStar Taiwan s customers involving delivery of products outside Taiwan to be migrated to the Group subject to the terms of Deed of Non-competition the master sub-contracting agreement entered into between the Company and HannStar Taiwan on 23 November 2007 the transactions contemplated under the New Master Sub-contracting Agreement New Taiwan dollar(s), the lawful currency of Taiwan printed circuit board, the board that the electronics is mounted on, usually made from a copper-coated insulator that has the circuit chemically etched onto one or both sides. The board is then drilled and the components are fitted into the holes and then soldered to the remaining copper the People s Republic of China 2

5 DEFINITIONS Proposed Annual Caps the proposed annual caps in respect of the Non-exempt Continuing Connected Transactions for each of the three years ending 31 December 2010 Prospectus the prospectus issued by the Company on 26 September 2006 in relation to the Listing SFO Shareholders Shares Stock Exchange Taiwan Stock Exchange the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (as amended) the shareholders of the Company ordinary shares of HK$0.10 each in the capital of the Company The Stock Exchange of Hong Kong Limited the Taiwan Stock Exchange Corporation Walsin Board Walsin Board Corporation ( ), a company incorporated in Taiwan on 20 March 2007 and a wholly-owned subsidiary of the Company Walsin Lihwa Walsin Lihwa Corporation ( ), a company incorporated in Taiwan with limited liability on 2 December 1966, the shares of which are listed on the Taiwan Stock Exchange and the largest shareholder of HannStar Taiwan which together with its associates holds approximately 57.94% of the issued share capital of HannStar Taiwan as at the date of this announcement % per cent. 3

6 LETTER FROM THE BOARD HannStar Board International Holdings Limited (Incorporated in the Cayman Islands with limited liability) (Stock Code: 667) Executive Directors: Mr. Yeh Shin-jiin Mr. Lao Li-hua Non-executive Directors: Mr. Chiao Yu-heng Mr. Ho Ai-tang, Simon Independent non-executive Directors: Mr. Chao Yuan-san Ms. Chen Shun Zu, Deborah Mr. Yeh Yu-an Ms. Chang Pi-lan Mr. Yen Chin-chang Registered office: Century Yard Cricket Square Hutchins Drive P.O. Box 2681 GT George Town, Grand Cayman British West Indies Principal place of business in Hong Kong: Level 28, Three Pacific Place 1 Queen s Road East Hong Kong 12 December 2007 To the Shareholders Dear Sir or Madam, INTRODUCTION NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS It was announced that on 23 November 2007, the Company and HannStar Taiwan entered into the New Master Sub-contracting Agreement pursuant to which the Company agreed to engage HannStar Taiwan to act as a sub-contractor for the production and processing of PCBs for the Migrated Orders when the Company has insufficient production capacity prior to 31 December It is expected that the transactions under the New Master Subcontracting Agreement will constitute Non-exempt Continuing Connected Transactions under Rule 14A.35 of the Listing Rules and thus will be subject to reporting, announcement and independent shareholders approval requirements under Rules 14A.45 to 14A.47 and 14A.48 of the Listing Rules. An Independent Board Committee has been established to advise the Independent Shareholders in respect of the Non-exempt Continuing Connected Transactions and the Proposed Annual Caps. The Company has appointed Altus Capital as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard. 4

7 LETTER FROM THE BOARD This circular gives you further information in relation to the Non-exempt Continuing Connected Transactions and contains the advice of Altus Capital to the Independent Board Committee and the Independent Shareholders in relation to the Non-exempt Continuing Connected Transactions and gives the Shareholders notice of the EGM and other information in accordance with the requirements of the Listing Rules. THE NEW MASTER SUB-CONTRACTING AGREEMENT Date 23 November 2007 Parties involved The Company and HannStar Taiwan (being the controlling Shareholder and a company incorporated in Taiwan with limited liability and owned as to approximately 57.94% by Walsin Lihwa and its associates, holding approximately 74.07% of the issued share capital of the Company, the shares of which are listed on the Taiwan Stock Exchange) Term Three years commencing from 1 January 2008 and ending on 31 December 2010 Proposed Annual Caps The sub-contracting fee payable by the Company to HannStar Taiwan for each of the three years ending 31 December 2010 is estimated with reference to the amount of US$46.4 million, being the aggregate of the actual contracted sum of the customers orders received by the Company which were sub-contracted to and delivered by HannStar Taiwan under the Sub-contracting Agreement during the three months ended 31 March 2007 and the sales amount derived by the Company from the customers orders that were processed and delivered using the Machinery and Equipment under the Licence Agreement during the six months ended 30 September Based on the historical figure mentioned above and taking into account the historical growth rate of about 10% in sales orders in the fourth quarter of 2006 compared with the third quarter of the same year, the present production capacity schedule for the three years ending 31 December 2010, the market price payable to a sub-contractor in the PCB manufacturing industry in Taiwan, the commission rate of 3% payable by the Company to its sales agents, and HannStar Taiwan will bear any potential claim relating to product liability and the delivery costs of the products, it is expected that the Proposed Annual Cap of the sub-contracting fee payable by the Company to HannStar Taiwan for each of the three years ending 31 December 2010 will be US$63.4 million. The sub-contracting fee will be payable by the Company to HannStar Taiwan upon the date of payment by the customers placing the orders to the Group. The Directors (including the Independent non-executive Directors) are of the view that the Non-exempt Continuing Connected Transactions are on normal commercial terms and in the ordinary and usual course of business of the Company and that the terms of the Non-exempt Continuing Connected Transactions and the caps set out above are fair and reasonable and in the interests of the Shareholders as a whole. 5

8 LETTER FROM THE BOARD REASONS AND BENEFITS FOR THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS Reference is made to the Prospectus in relation to the Master Sub-contracting Agreement. At the time of the Listing, the Group was not an approved vendor of the customers placing the Migrated Orders and did not have sufficient capacity to handle the Migrated Orders. In this regard, the Directors considered that the Group would have to enter into sub-contracting arrangements with sub-contractors to retain the Migrated Orders. Since HannStar Taiwan was an approved vendor of the customers placing the Migrated Orders, the Company and HannStar Taiwan entered into the Master Sub-contracting Agreement pursuant to which the Company agreed to engage HannStar Taiwan as a sub-contractor for the production and processing of PCBs for the Migrated Orders when the Group had insufficient production capacity prior to 31 March It was stated in the Prospectus that in the event the Group was required to enter into sub-contracting arrangements with sub-contractors in respect of accepting the Migrated Orders, the Directors did not expect that there would be any impact on the Group s turnover and gross margin as the portion of the contracted sum of the Migrated Orders to be retained by the Group was expected to be recorded as other operating revenue of the Group. As such, the Directors expected that the operating margin, operating profits, net margin and net profits of the Group would increase as a result of accepting the Migrated Orders which the Group would sub-contract to the sub-contractors. During the period commencing from 22 September 2006 (being the date of the Master Sub-contracting Agreement) and ending on 31 March 2007, the Group had recorded income resulted from accepting the Migrated Orders that were subsequently sub-contracted to HannStar Taiwan, as other revenue of the Group and had paid an aggregate amount of sub-contracting fee of approximately US$23.9 million to HannStar Taiwan. The Directors confirmed that the operating margin, operating profits, net margin and net profits of the Group had increased as a result of accepting the Migrated Orders which the Group had subcontracted to HannStar Taiwan during the term of the Master Sub-contracting Agreement. Overall, the Directors considered that the arrangements under the Master Sub-contracting Agreement had a positive effect on the Group s financial and cash position and it enabled the Group to retain the Migrated Orders. After the expiration of the Master Sub-contracting Agreement on 31 March 2007, the Group had been exploring other alternatives to increase the Group s production capacity and secure the customers placing purchase orders for whom the Group was not an approved vendor so as to maintain its market share. To this end, Walsin Board, a wholly owned subsidiary of the Company, and HannStar Taiwan entered into the Licence Agreement pursuant to which HannStar Taiwan has agreed to grant a licence to Walsin Board to use the Machinery and Equipment for a term of one year commenced on 1 April 2007 and ending on 31 March Pursuant to the Licence Agreement, HannStar Taiwan had also agreed to provide the technical and consulting services to support Walsin Board in the operation, maintenance and repair of the Machinery and Equipment during the term of the Licence Agreement. Details of the Licence Agreement were set out in the announcement of the Company dated 27 March

9 LETTER FROM THE BOARD Under the terms of the Licence Agreement, the monthly production capacity derived from the Machinery and Equipment that were licenced to the Group represented approximately 20% of the entire monthly production capacity of HannStar Taiwan. In consideration for the licence granted and services provided by HannStar Taiwan to the Company under the Licence Agreement, the Group was required to pay HannStar Taiwan the aggregate fixed monthly Transaction fees of US$631,812. For the six months ended 30 September 2007, the Group paid an aggregate amount of Transaction fees of US$3,790,872. The Directors confirmed that the average monthly utilisation rate of the Group s production facilities for the 10 months ended 31 October 2007 had been over 96% and the average monthly amount of purchase orders received by the Group has been increasing and has exceeded a level that the Group can handle. In view of the insufficient production capacity of the Group and the increasing customer demand which may fluctuate on a seasonal basis due to the seasonality of the PCB industry, the Directors have re-evaluated the terms of the Licence Agreement and considered that the Licence Agreement may not address the current production requirement of the Group. Furthermore, the Licence Agreement only allows a fixed production capacity of HannStar Taiwan to be licenced to Walsin Board and requires the Group to pay a fixed sum of Transaction Fees regardless whether the production capacity of HannStar Taiwan licenced to Walsin Board under the Licence Agreement has been utilised. Having considered these factors and reasons, the Directors believe that the arrangements under the New Master Sub-contracting Agreement would provide the flexibility to the Group that would not be able to be provided by the Licence Agreement. Furthermore, the Directors considered the financial impact of the Licence Agreement on the Group. The Directors confirmed that net profit margin of Walsin Board for the six months ended 30 September 2007 was approximately 2%. On the assumption that the same amount of sale orders received by Walsin Board were accepted by the Group and were subsequently sub-contracted to HannStar Taiwan under the New Master Sub-contracting Agreement, the Directors estimate that the Group will earn approximately 3% of the same amount of sale orders based on the current price available. As such, by comparing the historical profit contribution to the Group as a result of the Licence Agreement and the Master Subcontracting Agreement, the Directors project that the potential profit contribution to the Group from the New Master Sub-contracting Agreement is expected to exceed that from the Licence Agreement. Having considered the flexibility of the terms of New Master Sub-contracting Agreement over the Licence Agreement and the additional potential financial benefits the New Master Sub-contracting Agreement may generate to the Group, the Directors believe that entering into the New Master Sub-contracting Agreement would be beneficial to the Group and is in the interests of the Group and the Shareholders as whole. LISTING RULES IMPLICATIONS As each of the percentage ratios calculated on an annual basis exceeds 2.5% and the Proposed Annual Cap is greater than HK$10 million, the transactions under the New Master Sub-contracting Agreement will constitute non-exempt continuing connected transactions under Rule 14A.35 of the Listing Rules and thus will be subject to reporting, announcement and independent shareholders approval requirements under Rules 14A.45 to 14A.47 and 14A.48 of the Listing Rules. 7

10 LETTER FROM THE BOARD The Company will seek the approval of the Independent Shareholders on the New Master Sub-contracting Agreement and the Proposed Annual Caps. The Company will comply with the relevant provisions of the Listing Rules in relation to the Non-exempt Continuing Connected Transactions. INFORMATION OF THE GROUP The Group is one of the leading manufacturers of PCBs for the notebook computer industry worldwide. The Group produces a wide range of double-sided PCBs and multi-layer PCBs of up to 12 layers, which are principally used in notebook computers. The Group also supplies PCBs for the consumer electronics and communication industries for the use in game consoles, set-top boxes, servers and mobile phones. INFORMATION OF HANNSTAR TAIWAN HannStar Taiwan was incorporated as a limited liability company in Taiwan on 22 March It is currently listed on the Taiwan Stock Exchange. As at the date of this circular, the largest shareholder of HannStar Taiwan is Walsin Lihwa, which together with its associates holds approximately 57.94% of the entire issued capital of HannStar Taiwan. The principal business of HannStar Taiwan has been the production and sale of PCBs since its establishment. At present, HannStar Taiwan has two PCB production plants in Taiwan with an aggregate monthly production capacity of 450,000 sq.ft. of PCBs. EGM A notice convening the extraordinary general meeting of HannStar Board International Holdings Limited (the Company ) is set out on pages 21 to 22 of this circular. Whether or not you intend to attend the meeting, please complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company s principal place of business in Hong Kong at Level 28, Three Pacific Place, 1 Queen s Road East, Hong Kong as soon as possible but in any event not later than 10:00 a.m. on Wednesday, 26 December Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting and at any adjournment thereof if you so wish. The New Master Sub-contracting Agreement and the Proposed Annual Caps are subject to the approval of the Independent Shareholders in accordance with the Listing Rules. HannStar Taiwan and its associates, together interested in 975,000,000 shares in the Company, representing approximately 74.07% in the issued share capital and voting rights of the Company, will abstain from voting in the EGM. The voting at the EGM will be taken by a poll by the Independent Shareholders. The Company will make an announcement of the poll result in accordance with the Listing Rules. RECOMMENDATIONS An Independent Board Committee comprising Independent non-executive Directors has been formed to consider the terms of the New Master Sub-contracting Agreements and the Proposed Annual Caps. Altus Capital has been appointed to advise the Independent Board 8

11 LETTER FROM THE BOARD Committee and the Independent Shareholders on, inter alia, the terms of the New Master Sub-contracting Agreements and the Proposed Annual Caps. Your attention is drawn to the letter from the Independent Board Committee on page 11 and the letter from Altus Capital on pages 12 to 16 of this circular, containing their recommendations and advice in connection with the Non-exempt Continuing Connected Transactions. The Independent Board Committee, having taken into account the advice of Altus Capital and the principal factors and reasons considered by the Altus Capital, is of the view that the New Master Sub-contracting Agreement is made on normal commercial terms, and is also fair and reasonable so far as the Company and the Independent Shareholders are concerned and is in the interests of the Company and its Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolution to approve the New Master Sub-contracting Agreement at the EGM. Accordingly, the Directors as a whole consider that the terms and conditions of the New Master Sub-contracting Agreement is fair and reasonable and in the interests of the Company and Shareholders as a whole. The Board recommends the Shareholders to vote in favour of the ordinary resolution to approve the New Master Sub-contracting Agreement at the EGM. PROCEDURE FOR DEMANDING A POLL BY SHAREHOLDERS Under the articles of association of the Company, at any general meeting of Shareholders, a resolution shall be decided on a show of hands unless voting by way of a poll is required by the Listing Rules or (before or on the declaration of the results of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded: (a) (b) (c) (d) (e) by the chairman of the meeting; or by at least three Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or by one or more Shareholder(s) present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or by one or more Shareholder(s) present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and holding Shares in the Company conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right; or if required by the Listing Rules, by any Director or Directors who, individually or collectively, hold proxies in respect of Shares representing five percent. (5%) or more of the total voting rights at such meeting. 9

12 LETTER FROM THE BOARD ADDITIONAL INFORMATION Your attention is drawn to the additional information set out in the appendix to this circular. Yours faithfully, For and on behalf of the board of directors of HannStar Board International Holdings Limited Chiao Yu-heng Chairman 10

13 LETTER FROM THE INDEPENDENT BOARD COMMITTEE HannStar Board International Holdings Limited (Incorporated in the Cayman Islands with limited liability) (Stock Code: 667) 12 December 2007 NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS To the Independent Shareholders Dear Sir or Madam, We have been appointed as the Independent Board Committee to advise you in connection with the Non-exempt Continuing Connected Transactions and the Proposed Annual Caps, details of which are set out in the section headed Letter from the Board as set out in the circular dated 12 December 2007 issued by the Company to the Shareholders (the Circular ), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires. Altus Capital has been appointed as the independent financial adviser to advise us and the Independent Shareholders as to whether the terms of the New Sub-contracting Agreement and the Proposed Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned. Having taken into account the Non-exempt Continuing Connected Transactions (together with the Proposed Annual Caps), the principal factors and reasons considered by Altus Capital and its advice in relation to the Non-exempt Continuing Connected Transactions, we consider that the terms of the Non-exempt Continuing Connected Transactions and the Proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole. We therefore recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Non-exempt Continuing Connected Transactions and the Proposed Annual Caps. Chao Yuan-san Independent non-executive Director Yours faithfully, Chen Shun Zu, Deborah Independent non-executive Director Yeh Yu-an Independent non-executive Director Yen Chin-chang Independent non-executive Director Chang Pi-lan Independent non-executive Director 11

14 LETTER FROM ALTUS CAPITAL The following is the text of a letter of advice from Altus Capital, 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 of the Company in respect of the Non-Exempt Continuing Connected Transactions with HannStar Taiwan. 8/F Hong Kong Diamond Exchange Building 8 Duddell Street, Central Hong Kong 12 December 2007 The Independent Board Committee and the Independent Shareholders HannStar Board International Holdings Limited Level 28, Three Pacific Place 1 Queen s Road East Hong Kong Dear Sirs, NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS INTRODUCTION We refer to our appointment as independent financial adviser to the Independent Board Committee and Independent Shareholders in respect of the transactions contemplated under the New Master Sub-contracting Agreement and the Proposed Annual Caps ( Non-Exempt Continuing Connected Transactions ). Details of the Non-Exempt Continuing Connected Transactions are set out in the Letter from the Board ( Letter ) contained in the circular of the Company dated 12 December 2007 (the Circular ) to the Shareholders, of which this letter forms part. Capitalised terms used in this letter have the same meanings ascribed to them in the Circular unless the context otherwise requires. The Independent Board Committee has been established to give advice and recommendation to the Independent Shareholders in relation to the Non-Exempt Continuing Connected Transactions and the Proposed Annual Caps thereto. The Independent Board Committee comprises the independent non-executive Directors namely Messrs. Chao Yuan-san, Chen Shun Zu, Deborah, Yeh Yu-an, Chang Pi-lan and Yen Chin-chang. We have been appointed to advise the Independent Board Committee and the Independent Shareholders as to whether the terms of the New Master Sub-contracting Agreement and the related Proposed Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned, and to give our opinion to the Independent Board Committee in relation to the Non-Exempt Continuing Connected Transactions for their consideration in making a recommendation to the Independent Shareholders. 12

15 LETTER FROM ALTUS CAPITAL BASIS OF OUR OPINION In formulating our opinion and recommendation with regard to the Non-Exempt Continuing Connected Transactions, we have relied to a considerable extent on the information, statements, opinions and representations supplied to us by the Company and the Directors 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 of the Directors as set out in the Letter were reasonably made after due and careful inquiry. 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. We have also relied on certain publicly available information and we have assumed such information to be accurate and reliable, and we have not carried out any independent verification on the accuracy of such information. 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 such information and the information contained in the Circular to provide a reasonable basis of our opinions. We have no reason 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 and accuracy of the information, facts, and representation provided, or the reasonableness of the opinions expressed by the Company, its representatives and the Directors. We consider that we have reviewed sufficient information which enables us to form a reasonable basis for our opinion. We also consider that we have performed all reasonable steps as required under Rule of the Listing Rules to ascertain the reliability of the information provided to us and to form our opinion. 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. PRINCIPAL FACTORS AND REASONS CONSIDERED In arriving at our opinion and recommendation with regard to the Non-Exempt Continuing Connected Transactions, we have considered the following principal factors and reasons: 1. The Group s production capacity and qualification as an approved vendor We have reviewed the Group s historical production capacity and utilization schedule provided by its management. For the 10 months ended 31 October 2007, the average monthly utilisation rate of the Group s production facilities had been over 96% and the average monthly amount of purchase orders received by the Group has been increasing and has exceeded a level that the Group can handle. Contingency plans are also necessary due to the seasonality of the PCB industry which may result in periods where production capacity will not be able to cope with customers demands. 13

16 LETTER FROM ALTUS CAPITAL The management also noted while HannStar Taiwan was an approved vendor of the customers placing the Migrated Orders, the Group has not been qualified as an approved vendor for all such customers. Under such circumstances, there will be instances where the Group would have to enter into sub-contracting arrangements with approved sub-contractors, such as HannStar Taiwan, in order to retain the Migrated Orders. Based on the considerations above, we believe that the entering into of the New Master Sub-contracting Agreement allows the Group to capture businesses which otherwise it will have to forego given its limited production capacity or its non-qualification by certain customers. Given the guaranteed profit margin as further discussed below, this will only serve to enhance the Group s profitability and is favourable to the Group. Hence, we are of the view that it is fair and reasonable that the Company engages HannStar Taiwan as a sub-contractor for the production and processing of PCBs for the Migrated Orders when the Group had insufficient production capacity or if the Company is not an approved vendor of such customers. The entering into of the New Master Sub-contracting Agreement is in the ordinary course of business of the Group and is in line with its business objectives and strategies. 2. Terms of the New Master Sub-contracting Agreement Tenure The New Master Sub-contracting Agreement is for three years commencing 1 January 2008 and ending on 31 December 2010 where the Company agreed to engage HannStar Taiwan to act as a sub-contractor for the production and processing of PCBs for the Migrated Orders when the Group has insufficient production capacity during this period. It is noted that the Group will only enter into such arrangement when its production capacity is insufficient. This will ensure that the Group s resources will first be considered before the sub-contracting arrangement with HannStar Taiwan is conducted, hence ensuring that the utilisation of the Group s production facilities is optimised. Sub-contracting fee and other terms The Group will pay 97% of the contracted sum as sub-contracting fee to HannStar Taiwan and shall retain the balance 3% as its profits. We have compared this commission rate and found that there are within the range of fees generally payable to sales agents in the PCB manufacturing industry in Taiwan for sourcing business for manufacturers such as HannStar Taiwan. In this respect, we have reviewed sample agreements among HannStar Taiwan and several independent third party sales agents. 14

17 LETTER FROM ALTUS CAPITAL Under the New Master Sub-contracting Agreement, HannStar Taiwan will bear any potential claim relating to product liability and the delivery costs of the products. This ensures the Group will not be liable for any claims such as those resulting from defective products or delay in deliveries. It also saves the Group from the necessary logistical and transportation arrangements. In short, the Group has minimal responsibilities and liabilities under the New Master Sub-contracting Agreement. Based on our review and having considered the Group s limited responsibilities and liabilities, we are of the view that the margin of 3% retained by the Group is fair and reasonable. 3. Proposed Annual Caps The Proposed Annual Caps for the sub-contracting fee payable by the Company to HannStar Taiwan for each of the three years ending 31 December 2010 are as follows: Period Proposed Annual Caps % change 1 January 2008 to 31 December 2008 US$63.4million 1 January 2009 to 31 December 2009 US$63.4million 1 January 2010 to 31 December 2010 US$63.4million The Company has expected that sub-contracting fees payable to HannStar Taiwan would remain stable during the three-year period despite expected growth in business orders. This is consistent with the intention of the Company to be progressively qualified as an approved vendor for customers of the Migrated Orders, thereby reducing the need to sub-contract to HannStar Taiwan. While we noted that, on a like with like basis, the Proposed Annual Caps of US$63.4 million is comparatively higher than the amount of US$23.9 million recorded between 22 September 2006 (being the commencement date of the previous Master Subcontracting Agreement) and 31 March 2007, we believe this is to take into account the fact that orders of the Group has been increasing since the aforesaid period. When determining the Proposed Annual Caps, the Company has taken into account: (i) the actual orders for the 9-month period ended 30 September 2007; (ii) historical seasonal factors where orders in the fourth quarter of 2006 were 10% higher than the third quarter of 2006; (iii) the Group s production capacity and schedule for the three-year period. We believe given that the Company has been dealing with the customers for the Migrated Orders in the past, it is reasonable to use historical orders as the basis for determining the annual caps. To this end, we have reviewed the historical orders which were subsequently sub-contracted to HannStar Taiwan and have verified the seasonal factors as mentioned above. We have also reviewed the projected production schedule of the Group where production facilities are expected to be occupied by increasing customers demand in addition to the Migrated Orders. In summary, the findings are consistent with the above and we believe the Proposed Annual Caps have been reasonably arrived at. 15

18 LETTER FROM ALTUS CAPITAL CONCLUSION AND RECOMMENDATION Having considered the above principal factors, we are of the view that the New Master Sub-contracting Agreement are in the ordinary and usual course of business of the Group and its terms and conditions are on normal commercial terms, are fair and reasonable and are no less favourable than those available from independent third party, if any. We are also of the view that the Proposed Annual Caps have been fairly and reasonably arrived at. As such, we believe the New Master Sub-contracting Agreement is fair and reasonable and is in the interests of the Company and the Shareholders as a whole. We would therefore advise the Independent Shareholders, and the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the resolution to be proposed at the EGM. Yours faithfully, For and on behalf of Altus Capital Limited Arnold Ip Executive Director 16

19 APPENDIX GENERAL INFORMATION 1. RESPONSIBILITY STATEMENT This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The directors of the Company collectively and individually accept full responsibility for the accuracy of the information contained in this circular concerning the Company and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts not contained in this circular the omission of which would make any statement herein misleading. 2. DISCLOSURE OF DIRECTORS INTEREST As at the Latest Practicable Date, the interests of the directors and their associates in the Shares and underlying Shares and the shares and underlying shares of its associated corporations, as recorded in the register maintained by the Company pursuant to Section 352 of the SFO and Divisions 7 and 8 of Part XV of the Securities and Futures Ordinance, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, were as follows: Long positions Ordinary shares of the associated corporation of the Company: Name of director Capacity Name of associated corporation Number of issued ordinary shares held Shareholding percentage Mr. LAO Li-hua Beneficial owner HannStar Taiwan 32, % Mr. CHIAO Yu-heng Beneficial owner HannStar Taiwan 2,054, % Other than as disclosed above, none of the directors nor their associates had any interests or short positions in any shares or underlying shares of the Company or any of its associated corporations as at the Latest Practicable Date. 17

20 APPENDIX GENERAL INFORMATION 3. SUBSTANTIAL SHAREHOLDERS As at Latest Practicable Date, the register of substantial shareholders maintained by the Company pursuant to Section 336 of the Securities and Futures Ordinance and under the provision of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance shows that the following shareholders had notified the Company of relevant interests in the issued share capital of the Company: Long positions Name of shareholder Capacity Number of issued ordinary shares held Percentage of the issued share capital of the Company HannStar Board (BVI) Holdings Corp. ( HannStar BVI ) HannStar Board Corporation ( HannStar Taiwan ) Walsin Lihwa Corporation ( Walsin Lihwa ) Beneficial owner Held by controlled corporation (Note) Held by controlled corporation (Note) 975,000, % 975,000, % 975,000, % Note: HannStar BVI is wholly-owned by HannStar Taiwan. Walsin Lihwa beneficially owns approximately 57.94% of the issued share capital of HannStar Taiwan. HannStar Taiwan and Walsin Lihwa were deemed to be interested in 975,000,000 shares in the Company which are held by HannStar BVI. Mr. Chiao Yu-heng is also a director of Walsin Lihwa and HannStar BVI. Other than as disclosed above, the Company has not been notified of any other notifiable interests or short positions in the issued share capital of the Company as at 30 June SERVICE CONTRACTS As at the Latest Practicable Date, none of the directors of the Company had a service contract with any member of the Group nor was there any proposed service contract which was not determinable within one year without payment of compensation (other than statutory compensation). 18

21 APPENDIX GENERAL INFORMATION 5. INTERESTS IN ASSETS, CONTRACTS AND OTHER INTERESTS As at the Latest Practicable Date, none of the directors and supervisors of the Company had any direct or indirect interest in any assets which have been acquired, disposed of or leased to, or which are proposed to be acquired, disposed of or leased to, the Company or any of its subsidiaries since 31 December 2006, the date to which the latest published audited accounts of the Group were made up. As at the Latest Practicable Date, there is no contract or arrangement subsisting in which any director or supervisor of the Company is materially interested and which is significant in relation to the business of the Group. As at the Latest Practicable Date, none of the directors and their associates had interests in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group. 6. MATERIAL ADVERSE CHANGE The Board confirms that there was no material adverse change in the financial or trading position of the Company since 31 December 2006, being the date of the latest published audited accounts of the Company. 7. CONSENT AND EXPERT Altus Capital is a corporation licensed to carry out type 6 (advising on corporate finance) regulated activities under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders of the Company regarding the New Master Sub-contracting Agreements and the Proposed Annual Caps. Altus Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and reference to its name in the form and context in which they appear. As at the Latest Practicable Date, Altus Capital was not beneficially interested in the share capital of any member of the Group nor did it has any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group nor did it have any interest, either direct or indirect, in any assets which have been, since 31 December 2006, being the date to which the latest published audited account of the Company, were made up, acquired, disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group. 8. LITIGATION None of the members of the Group was engaged in any litigation or arbitration or claims of material importance which is known to the directors of the Company to be pending or threatened by or against either the Company or any of its subsidiaries as at the Latest Practicable Date. 19

22 APPENDIX GENERAL INFORMATION 9. GENERAL (a) The company secretary of the Company is Ms. Cheng Pik Yuk. Ms. Cheng is a Fellow Member of the Institute of Chartered Secretaries and Administrators and the Hong Kong Institute of Chartered Secretaries. Ms. Cheng graduated from The Hong Kong Polytechnic in (b) The qualified accountant of the Company is Ms. To Suen Fan. Ms. To is a Practising Member and an Associate Member of the Hong Kong Institute of Certified Public Accountants and a Fellow Member of the Association of Chartered Certified Accountants. Ms. To graduated from The City University of Hong Kong with a bachelor of arts degree in accountancy in (c) The Company s Share Registrars in Hong Kong is Computershare Hong Kong Investor Services Limited at Shops , 17th Floor, Hopewell Centre, 183 Queen s Road East, Wan Chai, Hong Kong. (d) The Company s principal place of business in Hong Kong is at Level 28, Three Pacific Place, 1 Queen s Road East, Hong Kong. (e) The English text of this circular prevails over the Chinese text. 10. 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 Level 28, Three Pacific Place, 1 Queen s Road East, Hong Kong during normal business hours on any weekday (except public holidays) from the date of this circular up to and including 27 December 2007: (a) memorandum and articles of association of the Company; (b) the letter from Altus Capital, the text of which is set out on pages 12 to 16 of this circular; (c) the consent letter issued by Altus Capital as referred to in the paragraph headed Expert in this appendix; and (d) New Master Sub-contracting Agreement. 20

23 NOTICE OF EGM HannStar Board International Holdings Limited (Incorporated in the Cayman Islands with limited liability) (Stock Code: 667) NOTICE OF EXTRAORDINARY GENERAL MEETING NOTICE IS HEREBY GIVEN THAT the extraordinary general meeting (the EGM ) of HannStar Board International Holdings Limited (the Company ) will be held at Falcon Room I, Luk Kwok Hotel, 72 Gloucester Road, Wan Chai, Hong Kong on Friday, 28 December 2007 at 10:00 a.m. for the purpose of considering and, if thought fit, passing (with or without amendments) the following as an ordinary resolution of the Company: ORDINARY RESOLUTION THAT: (a) the terms of the agreement dated 23 November 2007 entered into between HannStar Board International Holdings Limited (the Company ) and HannStar Board Corporation ( HannStar Taiwan ) pursuant to which the Company agreed to engage HannStar Taiwan to act as a sub-contractor for the production and processing of PCBs (as defined in the circular of the Company dated 12 December 2007) on and subject to the terms thereof (the Master Sub-contracting Agreement, a copy of which has been produced to this meeting marked A and initialled by the chairman of this meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, ratified and confirmed; and (b) the directors of the Company be and are hereby authorised to do all such acts and things and execute further documents which in their opinion may be necessary, desirable or expedient to implement and/or give effect to the terms of the Master Sub-contracting Agreement and the transactions contemplated thereunder. By Order of the Board HannStar Board International Holdings Limited Chiao Yu-heng Chairman Hong Kong, 12 December

24 NOTICE OF EGM Notes: 1. Any shareholder of the Company ( Shareholder ) entitled to attend and vote at the EGM is entitled to appoint another person as his/her proxy to attend and vote on his/her behalf in accordance with the articles of association of the Company. A Shareholder who is the holder of two or more Shares may appoint more than one proxy to attend on the same occasion. A proxy need not be a Shareholder. 2. A form of proxy for use at the EGM is enclosed. In order to be valid, the form of proxy together with the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, must be lodged with the Company s principal place of business in Hong Kong, at Level 28, Three Pacific Place, 1 Queen s Road East, Hong Kong not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. 3. Where there are joint registered holders of any Share(s), any one of such joint holders may attend and vote at the EGM, either in person or by proxy, in respect of such Share(s) as if he/she was solely entitled thereto, but if more than one of such joint holders are present at the EGM or any adjourned meeting thereof (as the case may be), the most senior shall alone be entitled to vote, whether in person or by proxy. For this purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding. 4. Completion and return of the form of proxy will not preclude a Shareholder from attending and voting in person at the EGM or any adjournment thereof if he/she so desires. If a Shareholder attends the EGM after having deposited the form of proxy, his/her form of proxy will be deemed to have been revoked. 5. Voting of the ordinary resolution as set out in this notice will be taken by poll. As at the date hereof, the Board comprised two executive Directors, namely Mr. Yeh Shin-jiin and Mr. Lao Li-hua, two Non-executive Directors, namely Mr. Chiao Yu-heng and Mr. Ho Ai-tang, Simon, and five Independent non-executive Directors, namely Mr. Chao Yuan-san, Ms. Chen Shun Zu, Deborah, Mr. Yeh Yu-an, Ms. Chang Pi-lan and Mr. Yen Chin-chang. 22