Magnus Concordia Group Limited - Proxy Solicitation & Information Statement 2014

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

If you have sold or transferred all your shares in Yue Yuen Industrial (Holdings) Limited (the “ Company ”), you should at once hand this circular and the enclosed form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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YUE YUEN INDUSTRIAL (HOLDINGS) LIMITED 裕元工業（集團）有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 00551)

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

Independent Financial Adviser to the Independent Board Committee and Independent Shareholders

SOMERLEY CAPITAL LIMITED

A notice convening a special general meeting of the Company to be held at Orchid Room I and II, 4/F, Marco Polo Hongkong Hotel, 3 Canton Road, Tsimshatsui, Hong Kong on 27 November 2014 at 10:00 a.m. is set out on pages 69 to 72 of this circular. A form of proxy for use at the special general meeting is also enclosed with this circular.

If you are not able to attend the meeting, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Company’s principal place of business at Suites 3307-09, 33/F., Tower 6, The Gateway, 9 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the special general meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the special general meeting or at any adjournment thereof, should you so wish.

11 November 2014

For identification purposes only

CONTENTS

			Page
Definitions	. . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from	the Board . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from	the Independent Board	Committee . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
Letter from	Somerley Capital Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		31
Appendix –	General information	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	59
Notice of Special General Meeting		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	69

– i –

DEFINITIONS

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

“Associate” the meaning ascribed thereto in the Listing Rules
“Board” the board of Directors
“Caps”

the respective annual caps for the Continuing Connected Transactions in respect of each of the three years ending 31 December 2017

“Company”

Yue Yuen Industrial (Holdings) Limited, a company incorporated in Bermuda with limited liability and whose securities are listed on the Stock Exchange

“Continuing Connected Transactions”

the transactions carried out under the following agreements: GBD Management Service Agreement, PCC Management Service Agreement, PCC Services Agreement, PCC Connected Sales Agreement, PCC Connected Purchases Agreement, Godalming Tenancy Agreement and Pou Yuen Lease Agreement

“Directors”

directors of the Company

“Fourth Supplemental PCC Connected Purchases Agreement”
the agreement dated 21 October 2014 entered into between the Group and the PCC Group supplemental to the PCC Connected Purchases Agreement
“Fourth Supplemental PCC Connected Sales Agreement”
the agreement dated 21 October 2014 entered into between the Group and the PCC Group supplemental to the PCC Connected Sales Agreement
“Fourth Supplemental Pou Yuen Lease Agreement”
the agreement dated 21 October 2014 entered into between Pou Yuen and Yue Dean supplemental to the Pou Yuen Lease Agreement
“Fifth Supplemental GBD Management Service Agreement”
the agreement dated 21 October 2014 entered into between Highmark and GBD supplemental to the GBD Management Service Agreement
“Fifth Supplemental Godalming Tenancy Agreement”
the agreement dated 21 October 2014 entered into between subsidiaries of Godalming as landlords and subsidiaries and a joint venture of the Company as tenants supplemental to the Godalming Tenancy Agreement

– 1 –

DEFINITIONS

“Fifth Supplemental PCC Management Service Agreement”
“Fifth Supplemental PCC Services Agreement”
“GBD”
“GBD Group”
“GBD Management Service Agreement”
“Godalming”
“Godalming Group”
“Godalming Tenancy Agreement”
“Group”
“Highmark”
“Hong Kong”
the agreement dated 21 October 2014 entered into between Highmark and PCC supplemental to the PCC Management Service Agreement
the agreement dated 21 October 2014 entered into between the Company and PCC supplemental to the PCC Services Agreement
Golden Brands Developments Limited, a company incorporated in the British Virgin Islands, which is owned as to 94.12% by a discretionary trust set up by Mr. Tsai, for the benefits of certain members of his family which include, among others, Ms. Tsai and Mr. Tsai Chi Neng, a former Director of the Company, and 5.88% by PCC
GBD and its subsidiaries
the management service agreement dated 13 December 2001 entered into between Highmark and GBD, as amended and supplemented
Godalming Industries Limited, a company incorporated in the British Virgin Islands with limited liability and is owned as to 85.45% by a discretionary trust set up for the benefits of Mr. Tsai and certain members of his family which include, among others, Ms. Tsai and Mr. Tsai Chi Neng, a former Director of the Company
Godalming and its subsidiaries
the tenancy agreement dated 8 June 1992 entered into between Yue Yuen International and subsidiaries of Godalming, as amended and extended
the Company and its subsidiaries
Highmark Services Limited, a limited liability company incorporated in the British Virgin Islands and wholly owned by the Company
the Hong Kong Special Administrative Region of the PRC

– 2 –

DEFINITIONS

“IFA” or “Independent Financial Adviser”
“Independent Board Committee”
“Independent Shareholders”
“Industrial Estate”
“Latest Practicable Date”
“Listing Rules”
“Mr. Tsai”
“Ms. Tsai”
“New Continuing Connected Transactions Agreements”
“NT$”
Somerley Capital Limited, a corporation licensed to conduct type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO, is the independent financial adviser to the Independent Board Committee and Independent Shareholders in relation to the Continuing Connected Transactions
a board committee comprising the independent non-executive Directors to be constituted to make recommendations to the Independent Shareholders in respect of the terms of the Continuing Connected Transactions (including their respective Caps)
the Shareholders other than PCC, GBD, Godalming (to the extent they hold any Shares), Mr. Tsai and their respective Associate who are required to abstain from voting on the Continuing Connected Transactions at the SGM
the Yue Yuen Industrial Estate, situated in the He Lu Industrial Area, Huang Jiang Town, Dongguan, Guangdong Province, the PRC
5 November 2014, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
the Rules Governing the Listing of Securities on the Stock Exchange
Mr. Tsai Chi Jui, a substantial shareholder of the Company for the purposes of the SFO
Ms. Tsai Pei Chun, Patty, the managing Director of the Company and a daughter of Mr. Tsai
The respective agreements for the Continuing Connected Transactions in respect of each of the three years ending 31 December 2017
the lawful currency of Taiwan

– 3 –

DEFINITIONS

“Original Pou Yuen Lease Agreement”
“PCC”
“PCC Connected Purchases Agreement”
“PCC Connected Sales Agreement”
“PCC Group”
“PCC Management Service Agreement”
“PCC Services Agreement”
“Pou Chien”
“Pou Yuen”
“Pou Yuen Lease Agreement”
“PRC”
“RMB”
“SFO”
the lease agreement dated 10 September 2002 between Pou Yuen and Pou Chien or such other subsidiary of the Group as nominated by the Company
Pou Chen Corporation, a controlling shareholder of the Company
the agreement dated 9 January 2007 entered into between the Group and the PCC Group for the purchase of raw materials, production tools and shoe-related products as amended and supplemented
the agreement dated 9 January 2007 entered into between the Group and the PCC Group for the sale of leather, moulds, finished and semi-finished shoe products and packaging boxes as amended and supplemented
PCC and its subsidiaries and associates other than members of the Group
the management service agreement dated 13 December 2001 entered into between Highmark and PCC, as amended and supplemented
the services agreement dated 22 February 1997 entered into between the Company and PCC, as amended and supplemented
Pou Chien Chemical Company Limited, a wholly-owned subsidiary of the Company
Pou Yuen Technology Co., Ltd., a company which is beneficially owned as to 99.804% by PCC
the lease agreement dated 9 January 2007 entered into between Pou Yuen and Yue Dean as amended and supplemented
The People’s Republic of China
Renminbi, the lawful currency of PRC
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

– 4 –

DEFINITIONS

“SGM” the special general meeting of the Company to be convened on 27 November 2014 at Orchid Room I and II, 4/F, Marco Polo Hongkong Hotel, 3 Canton Road, Tsimshatsui, Hong Kong to approve the Continuing Connected Transactions

“Share(s)” share(s) of HK$0.25 each in the share capital of the Company

“Shareholder(s)” holder(s) of Shares

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“US$” the lawful currency of the United States

“Yue Dean” 裕典科技股份有限公司 (Yue Dean Technology Corporation), a company incorporated in Taiwan and a wholly-owned subsidiary of the Company

“Yue Yuen International” Yue Yuen International Limited, a previously wholly-owned subsidiary of the Company

Unless otherwise specified in this circular, translations of US$ and NT$ into HK$ and US$ into NT$ are made in this circular, for illustration only, at the rate of US$1.00 to HK$7.80 and NT$1.00 to HK$0.261 and US$1.00 to NT$29.90. No representation is made that any amounts in US$, NT$ or HK$ could have been or could be converted at that rate or at any other rate.

– 5 –

LETTER FROM THE BOARD

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YUE YUEN INDUSTRIAL (HOLDINGS) LIMITED 裕元工業（集團）有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 00551)

Board of Directors:

Executive Directors: Lu Chin Chu (Chairman) Tsai Pei Chun, Patty (Managing Director) Kuo Tai Yu Kung Sung Yen Chan Lu Min Li I Nan, Steve Lee Shao Wu Tsai Ming-Lun, Ming George Hong-Chih Liu

Registered Office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Principal Place of Business:

Suites 3307-09, 33/F., Tower 6 The Gateway 9 Canton Road Tsim Sha Tsui Kowloon, Hong Kong

Independent Non-executive Directors: Leung Yee Sik Huang Ming Fu Chu Li-Sheng Yen Mun-Gie (also known as Teresa Yen) Hsieh, Yung Hsiang (also known as Alfred Hsieh)

11 November 2014

To the Shareholders,

Dear Sir or Madam,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

Reference is made to the Company’s announcement dated 21 October 2014. For the purpose of continuing smooth operations of the Group, the Company has entered into various conditional agreements with the relevant connected parties to amend and formalise certain terms of the Continuing Connected Transactions. The purpose of this circular is (i) to provide you with more information on these transactions; (ii) to provide you with advice from the IFA and the Independent Board Committee; and (iii) to provide you with notice of SGM.

For identification purposes only

– 6 –

LETTER FROM THE BOARD

I. SUMMARY OF CONTINUING CONNECTED TRANSACTIONS

The Continuing Connected Transactions can be broadly divided into the following categories:

(A) Transactions between PCC Group and the Group

PCC Management Service Agreement

Under the PCC Management Service Agreement, Highmark (a member of the Group) agreed to provide PCC with management services in respect of some factories operated by the PCC Group and situated in the Industrial Estate.

The parties have entered into the Fifth Supplemental PCC Management Service Agreement to amend and extend the term for three years to 31 December 2017.

PCC Services Agreement

Under the PCC Services Agreement, PCC agreed to provide research and development, know-how, technical and marketing services and to source raw materials and recruit staff in relation to the production and sale of the Group’s products.

The parties have entered into the Fifth Supplemental PCC Services Agreement to amend and extend the term for three years to 31 December 2017.

PCC Connected Sales Agreement

Under the PCC Connected Sales Agreement, members of the Group agreed to sell leather, moulds, finished and semi-finished shoe products and packaging boxes to the PCC Group.

The parties have entered into the Fourth Supplemental PCC Connected Sales Agreement to amend and extend the term for three years to 31 December 2017.

PCC Connected Purchases Agreement

Under the PCC Connected Purchases Agreement, members of the Group agreed to purchase from the PCC Group raw materials, production tools and shoe-related products for its production needs.

The parties have entered into the Fourth Supplemental PCC Connected Purchases Agreement to amend and extend the term for three years to 31 December 2017.

– 7 –

LETTER FROM THE BOARD

Pou Yuen Lease Agreement

Under the Pou Yuen Lease Agreement, Yue Dean (a member of the Group) agreed to lease from Pou Yuen (a member of the PCC Group) a property in Taiwan which consists of buildings and land, for the purpose of running its manufacturing businesses.

The parties have entered into the Fourth Supplemental Pou Yuen Lease Agreement to amend and extend the term for three years to 31 December 2017.

(B) Transactions between the GBD Group and the Group

GBD Management Service Agreement

Under the GBD Management Service Agreement, Highmark agreed to provide GBD and its subsidiaries with management services in the Industrial Estate.

The parties have entered into the Fifth Supplemental GBD Management Service Agreement to amend and extend the term for three years to 31 December 2017.

(C) Transactions between Godalming Group and the Group

Godalming Tenancy Agreement

Under the Godalming Tenancy Agreement, subsidiaries of Godalming agreed to lease to members of the Group certain premises in the PRC for production purposes, including shoe and sole factory buildings and dormitories for workers.

The parties have entered into the Fifth Supplemental Godalming Tenancy Agreement to amend and extend the term for three years to 31 December 2017.

II. BUSINESS OF THE GROUP

The Company is an investment holding company. The principal activities of the Group are the manufacturing (as original equipment manufacturer and original design manufacturer) and sales of athletic footwear, athletic style leisure footwear, casual and outdoor footwear. The Group, through Pou Sheng International (Holdings) Limited (whose shares are also listed on the Stock Exchange), also engages in wholesales and retail business of shoes and sportswear.

– 8 –

LETTER FROM THE BOARD

III. GBD MANAGEMENT SERVICE AGREEMENT AND PCC MANAGEMENT SERVICE AGREEMENT

On 13 December 2001, Highmark, a wholly-owned subsidiary of the Company, entered into the GBD Management Service Agreement and the PCC Management Service Agreement with GBD and PCC respectively to provide them with management services. On 9 January 2007, the parties entered into supplemental agreements to vary the terms of the original agreements. Under each of the agreements, Highmark agreed to provide management services to members of the GBD Group and of the PCC Group respectively. The parties subsequently entered into supplemental agreements to extend the terms to 31 December 2014. On 21 October 2014, Highmark entered into the Fifth Supplemental GBD Management Service Agreement and the Fifth Supplemental PCC Management Service Agreement to further extend the respective term for three years to 31 December 2017.

Highmark principally engages in management of the Industrial Estate which houses factories belonging to the Group and others. It is not a utility provider although the management services it provides to occupants of the Industrial Estate include the management of electricity supply (which involves the maintenance of a power station for the provision of electricity in the event of insufficient electricity supply by the public sector), water supply, steam supply and general up-keeping of the common areas, provision of security and up-keep of all drains in common areas and the Group receives fees for these services. Highmark also provides accommodation, housekeeping and laundry services in the Industrial Estate from time to time as requested by PCC.

The principal business of GBD is investment holding. Through its subsidiaries, it was previously principally engaged in the manufacturing and trading of computer hardware, computer accessories and components. The GBD Group ceased its manufacturing business in 2010 and became property investment holding. A number of factory buildings in the Industrial Estate owned by members of the GBD Group are now either in vacant situation or leased to third parties. The PCC Group operates some factories in the Industrial Estate. The Industrial Estate is situated in He Lu Industrial Area, Huang Jiang Town, Dongguan, Guangdong Province, PRC.

– 9 –

LETTER FROM THE BOARD

A summary of the principal terms of the agreements is set out below.

The GBD Management Service Agreement and the PCC Management Service Agreement

GBD Management Service Agreement

Dates

GBD Management Service 13 December 2001 (as amended and restated under Agreement: supplemental agreements to 31 December 2017)

Third Supplemental GBD 25 August 2011 Management Service Agreement:

Fourth Supplemental GBD 15 September 2014 Management Service Agreement:

Fifth Supplemental GBD 21 October 2014 Management Service Agreement:

Parties

Highmark:

a wholly-owned subsidiary of the Company

GBD:

a company incorporated in the British Virgin Islands, which is owned as to 94.12% by a discretionary trust set up by Mr. Tsai, for the benefits of certain members of his family which include Ms. Tsai and Mr. Tsai Chi Neng, a former Director of the Company, and 5.88% by PCC.

Payment terms

45 days from date of invoice.

– 10 –

LETTER FROM THE BOARD

According to the unaudited consolidated financial statements of the Group for the year ended 31 December 2012, the audited consolidated financial statements of the Group for the year ended 31 December 2013 and the unaudited consolidated accounts of the Group for the six months ended 30 June 2014, the relevant transaction amounts are:

2014 (six months Financial year end ended 31 December (except 2014) 2012 2013 30 June) Transaction amount (US$’000) 60 55 28

PCC Management Service Agreement

Dates

PCC Management Service 13 December 2001 (as amended and restated under Agreement: supplemental agreements to 31 December 2017)

Third Supplemental PCC 25 August 2011 Management Service Agreement:

Fourth Supplemental PCC 15 September 2014 Management Service Agreement: Fifth Supplemental PCC 21 October 2014 Management Service Agreement:

Parties

Highmark:

a wholly-owned subsidiary of the Company

PCC:

a controlling shareholder of the Company indirectly owns or controls approximately 49.98% of the Company’s issued share capital and PCC, and through its subsidiaries, is principally engaged in the (i) manufacturing of footwear and garment; (ii) sportswear retail and brand licensing businesses; and (iii) other businesses including real estate development and hotel operation.

– 11 –

LETTER FROM THE BOARD

Payment terms

45 days from date of invoice.

			2014
			(six months
Financial year end			ended
31 December (except 2014)	2012	2013	30 June)
Transaction amount
(US$’000)	317	324	165

Term

The GBD Management Service Agreement and the PCC Management Service Agreement has respectively been amended by the Fifth Supplemental GBD Management Service Agreement and the Fifth Supplemental PCC Management Service Agreement to continue in force for a period of three years from 1 January 2015 for both the GBD Group and the PCC Group as users of the services.

Management fees

The fees charged under the above agreements are either on the same basis for all users of the Industrial Estate or no less favourable to Highmark than that charged by Highmark to independent third party users of the Industrial Estate. A breakdown of the management fees under both of the GBD Management Service Agreement and the PCC Management Service Agreement and the basis on which the management fees are charged is set out below.

PCC Management Service Agreement

(a) Common services (security and maintenance of common areas)

Charges for common services are calculated by dividing the total cost base by the number of factories pro rata to their size in the Industrial Estate. The total cost base is calculated by adding all the costs incurred by Highmark in the provision of the common services (i.e. the costs of hiring security staff and the costs of up-keeping the common area) and adding a margin of 10% for the aggregate costs incurred. Highmark charges the PCC Group at rates same as those charged to independent third party users for common services.

– 12 –

LETTER FROM THE BOARD

(b) Individual services for the supply of electricity

Electricity is provided by the public sector (the price of which is less affected by changes in oil price) to PCC. Highmark will generate and supply electricity to PCC in the event that the electricity supplied by the public sector is insufficient to meet the operational needs of PCC in the Industrial Estate. The charges for supply of electricity are by reference to consumption (as per meters in each factory) of PCC. This is based on a fixed price per unit of electricity consumed. The unit price for electricity generated and supplied by Highmark is 105% of the cost of oil consumed and the relevant overhead incurred for generating the electricity. In respect of electricity provided by the public sector, a service fee of RMB0.16 for each kilowatt-hour unit of electricity is charged in addition to the price charged by the public sector. Highmark charges the PCC Group and independent third party users on the same basis for supply of electricity.

(c) Individual services other than electricity

The charges for individual services (for example supply of water, etc.) other than electricity are by reference to consumption (as per meters in each factory) of PCC and the price charged by the local authority for such utilities. Highmark charges the PCC Group and independent third party users on the same basis for these individual services other than electricity.

(d) Accommodation-related services

Accommodation-related services (which include provision of accommodation, housekeeping and laundry services) are subject to a service charge calculated on a profit margin over cost which profit margin will be no less favourable to Highmark than that charged by Highmark to independent third parties for similar services.

The following internal control procedures have been and will be adopted to (i) determine the price and terms of the accommodation-related services so as to ensure that the transactions to be conducted on normal commercial terms and not prejudicial to the Group and to its Independent Shareholders’ interests and (ii) ensure that the pricing mechanism regarding the provision of accommodation-related services has been followed:

(i) the China administrative team of the Group is required to submit costs and transaction records relating to the provision of similar services to independent third parties for internal assessment and evaluation of the profit margins earned from the provision of accommodation-related services under the PCC Management Service Agreement as compared to the profit margins earned from similar services to independent third parties on the market; and

– 13 –

LETTER FROM THE BOARD

(ii) the Group will periodically gather market intelligence from other third party service providers in China for analysis.

By implementing the above procedures, the Directors considers that the Group has established sufficient internal control measures to ensure that the pricing basis of the accommodation-related services will be on market terms and will be fair and reasonable as a whole to the Group.

GBD Management Service Agreement

(a) Common services (security and maintenance of common areas)

Charges for common services are calculated by dividing the total cost base by the number of factories pro rata to their size in the Industrial Estate. The total cost base is calculated by adding all the costs incurred by Highmark in the provision of the common services (i.e. the costs of hiring security staff and the costs of up-keeping the common area) and adding a margin of 10% for the aggregate costs incurred. Highmark charges the GBD Group at rates same as those charged to independent third party users for common services.

IV. PCC SERVICES AGREEMENT

On 22 February 1997, the Company and PCC entered into the PCC Services Agreement. Since then the parties have entered into supplemental agreements to amend and extend the terms of the agreement. The parties have on 21 October 2014 entered into the Fifth Supplemental PCC Services Agreement to further extend the term for three years to 31 December 2017. A summary of the principal terms is set out below.

Dates

PCC Services Agreement:

22 February 1997 (as amended and extended to 31 December 2017)

Third Supplemental PCC 25 August 2011 Services Agreement:

Fourth Supplemental PCC 15 September 2014 Services Agreement:

Fifth Supplemental PCC 21 October 2014 Services Agreement:

Parties

The Company for itself and on behalf of each member of the Group and PCC.

– 14 –

LETTER FROM THE BOARD

Terms

The services agreed upon in the PCC Services Agreement include, inter alia, PCC providing research and development, know-how, technical and marketing services and to source raw materials and recruit staff in relation to the production and sale of the Group’s products. The services may be provided by or through any member of the PCC Group, but PCC remains fully liable for the provision of these services. The obligations of the Company under the agreement may be performed through other members of the Group but PCC’s only recourse under the agreement is to the Company itself.

The term of the PCC Services Agreement was extended by various supplemental agreements. The Fifth Supplemental PCC Services Agreement extends the term for another three years to 31 December 2017.

Services fees

The Company will pay to PCC the following fees in respect of:

(i) the Group’s products developed by the PCC Group and sold by the Group, 0.5% of the net invoiced amounts of such products;
(ii) materials, machinery and other goods purchased by shipment arranged for and inspected by the PCC Group on behalf of the Group from within Taiwan, 1% of the merchandise cost invoiced to the PCC Group; and
(iii) materials, machinery and other goods sourced by the PCC Group on behalf of the Group in Taiwan or overseas whereby purchases are directly handled by the Group, 0.5% of the cost of merchandise invoiced to the Group.

Reimbursement of costs and expenses

The Company is also obliged to reimburse PCC in respect of the following costs and expenses:

(i) in respect of the purchase of materials, machinery and other goods purchased by shipment arranged for and inspected by the PCC Group on behalf of the Group from within Taiwan, the Company will reimburse the cost of merchandise paid by the PCC Group to the suppliers on a 45 days credit period basis; and

– 15 –

LETTER FROM THE BOARD

(ii) in respect of all the reasonable expenses and other related costs directly incurred or charged by the PCC Group in the provision of services of research and development, sourcing of materials, marketing, recruitment and other general services relating to remuneration of personnel as defined in the PCC Services Agreement, the Company shall pay to PCC, in advance, an amount equivalent to PCC’s estimate of the relevant monthly expenses and costs and any balances arising as a result of actual expenses and costs, in respect of which PCC shall render statements of account, shall be settled between PCC and the Company within 45 days after the end of relevant month.

Reimbursement of the costs and expenses under the agreement is made on normal commercial terms and as part of the ordinary and usual course of business of the Group relating to the use of services provided by PCC.

The Group will implement the following procedures over the monitoring of pricing basis of the services received from the PCC Group and reimbursements of costs and expenses:

(i) The sales and costing units of the Group will review the sales and costs invoices to assess whether the invoices qualify for service fees payable to PCC and if so, the correct amount of pre-agreed service fee percentage is applied to the correct invoice; the sales and costing units of the Group will also review the costs and expenses as submitted by the PCC Group;
(ii) The accounting department of the Group will periodically review the service fees paid to the PCC Group to ensure that the correct amount of service fees as agreed under the PCC Services Agreement are paid to the PCC Group; the accounting department of the Group will also review the reimbursement of the costs and expenses incurred by the PCC Group to ensure that any additional balance is settled between the Company and PCC; and
(iii) The Group will periodically gather market information from other third parties with regard to similar services for its analysis.

Payment terms

30 to 45 days for services fees and 45 days for others, payable from date of invoice.

– 16 –

LETTER FROM THE BOARD

			2014
			(six months
Financial year end			ended
31 December (except 2014)	2012	2013	30 June)
Transaction amount
(US$’000)	366,657	400,356	190,025

V. PCC CONNECTED SALES AGREEMENT

Since 1988, the Group has sold semi-finished shoe products to PCC. On 4 July 1996, PCC became a substantial shareholder of the Company, and these transactions have since then become connected party transactions. These continuing connected transactions were approved by Independent Shareholders at a shareholders’ meeting on 11 September 1996. On 9 January 2007, the parties formalised the arrangements between them by entering into the PCC Connected Sales Agreement, which was approved by the Independent Shareholders.

A summary of the principal terms of the agreement is set out below.

Dates

PCC Connected Sales 9 January 2007 (as amended and extended to 31 Agreement: December 2017) Second Supplemental PCC 25 August 2011 Connected Sales Agreement: Third Supplemental PCC 15 September 2014 Connected Sales Agreement: Fourth Supplemental PCC 21 October 2014 Connected Sales Agreement: Parties Purchaser: the PCC Group Supplier: the Group

– 17 –

LETTER FROM THE BOARD

Terms

Under the PCC Connected Sales Agreement, the PCC Group may place its requirements for leather, moulds, finished and semi-finished shoe products and packaging boxes with the Group. The PCC Group is required to specify the terms of purchase in each order. The Group is required to supply such leather, moulds, finished and semi-finished shoe products and packaging boxes as may be ordered by the PCC Group on the terms of each order accepted by the Group. For semi-finished shoe products, the selling price is based on costs (including all related fixed and variable costs for production and sale of the semi-finished shoe products) with a profit margin of 10% or higher of the selling price. For leather, moulds, finished shoe products and packaging boxes, the selling price shall be calculated on a profit margin over cost which profit margin will be no less favourable to the Group than those made available by the Group to independent third parties. The management of the Group reviews and monitors the terms and selling prices offered to the PCC Group by comparing with the terms and prices offered to independent third parties for comparable products with similar features and quantities, in order to ensure that the terms and selling prices shall be no less favourable to the Group than those available by the Group to independent third parties.

The Group will implement the following procedures over the pricing basis of the sales to the PCC Group:

(i) the sales and costing units of the Group are required to submit costs and transaction records relating to the sale transactions of identical or similar products to independent third parties for internal assessment and evaluation by the accounting department of the Group;
(ii) the accounting department of the Group will periodically review the profit margins earned from the sales transactions under the PCC Connected Sales Agreement as compared to the profit margins earned from the sale of similar products to independent third parties on the market; and
(iii) the Group will periodically gather market information from other third parties with regard to similar finished products in the same geographical market for its analysis.

The term of the PCC Connected Sales Agreement were extended by various supplemental agreements to 31 December 2014. The Fourth Supplemental PCC Connected Sales Agreement extends the term for a further three years to 31 December 2017.

Payment terms

45 days from date of invoice.

– 18 –

LETTER FROM THE BOARD

			2014
			(six months
Financial year end			ended
31 December (except 2014)	2012	2013	30 June)
Transaction amount
(US$’000)	10,291	7,627	3,127

VI. PCC CONNECTED PURCHASES AGREEMENT

Since 1988, the Group has purchased raw materials, production tools and shoe-related products for its production needs from PCC. On 4 July 1996, PCC became a substantial shareholder of the Company, and these transactions have since then become connected party transactions. These continuing connected purchase transactions were approved by Independent Shareholders at shareholders’ meeting on 11 September 1996 and 27 March 1997 respectively. These purchase transactions have been conducted at price(s) based on open market rates and are no less favourable to the Group than those available from independent third parties. On 9 January 2007, the parties formalised the arrangements between them by entering into the PCC Connected Purchases Agreement, which was approved by the Independent Shareholders. A summary of the principal terms of the agreement is set out below.

Dates

PCC Connected Purchases Agreement:

9 January 2007 (as amended and extended to 31 December 2017)

Second Supplemental PCC Connected Purchases Agreement:

25 August 2011

Third Supplemental PCC Connected Purchases Agreement:

15 September 2014

Fourth Supplemental PCC Connected Purchases Agreement:

21 October 2014

– 19 –

LETTER FROM THE BOARD

Parties

Purchaser: the Group Supplier: the PCC Group

Terms

Under the PCC Connected Purchases Agreement, the Group may place its requirements for raw materials, production tools or shoe-related products for its production needs with the PCC Group. The Group is required to specify the terms of purchase in each order. To ensure that the terms of purchase are no less favourable to the Group than those available from independent third parties, the management of the Group will determine the terms by comparing with those offered by independent third parties for products with similar features and quantities. The PCC Group is required to supply its own products of raw materials, production tools or shoe-related products ordered by the Group on the terms of each order accepted by the PCC Group. The Group is free to place an order with any supplier (including independent third parties) it may choose.

The Group will implement the following procedures over the pricing basis of the purchase from the PCC Group:

(i) the procurement unit of the Group will obtain quotations which may be in writing and/or oral form from at least two unrelated third parties for products in similar quantities and features to determine whether the price and terms offered by the PCC Group are fair and reasonable and comparable to those offered by unrelated third parties;
(ii) the procurement unit of the Group will compare the terms (including price, payment term and quality of products) offered by the PCC Group against the quotations offered by unrelated third parties to ensure the products are charged no less favourable to the Group than those available from independent third parties;
(iii) the manager-in-charge of the procurement unit of the Group will approve the purchase from the PCC Group as proposed by the procurement unit after the above quotation comparison procedures and evaluating the price of the relevant products against other quotations provided by other unrelated third parties are made; once the manager-in-charge approves the purchase from the PCC Group, the staff in the procurement unit of the Group will proceed with placing purchase orders with the PCC Group; and
(iv) a monthly report on those purchase from the PCC Group will be submitted to the management for monitoring purposes.

– 20 –

LETTER FROM THE BOARD

The PCC Connected Purchases Agreement was in force for a period of three years from 1 October 2005. The parties entered into various supplemental agreements to extend the term to 31 December 2014. The parties have entered into the Fourth Supplemental PCC Connected Purchases Agreement to further extend the term for three years to 31 December 2017.

Payment terms

45 days from date of invoice.

			2014
			(six months
Financial year end			ended
31 December (except 2014)	2012	2013	30 June)
Transaction amount
(US$’000)	1,822	450	338

VII. GODALMING TENANCY AGREEMENT

On 8 June 1992, Yue Yuen International entered into the Godalming Tenancy Agreement with subsidiaries of Godalming. The original agreement was supplemented with three supplemental memoranda all dated 13 June 1997 to cover additional premises and tenants who are wholly-owned subsidiaries and a joint venture of the Company. The original agreement as supplemented was renewed and varied by various supplemental agreements. The parties have entered into the Fifth Supplemental Godalming Tenancy Agreement to further extend the term for three years to 31 December 2017. A summary of the principal terms of the agreements is set out below.

Dates

Godalming Tenancy Agreement:	8 June 1992 (as amended and extended to 31
	December 2017)
Three supplemental	13 June 1997
memoranda:
Third Supplemental Godalming	25 August 2011
Tenancy Agreement:

– 21 –

LETTER FROM THE BOARD

Fourth Supplemental Godalming Tenancy Agreement:

15 September 2014

Fifth Supplemental Godalming Tenancy Agreement:

21 October 2014

Parties

Tenants:

wholly-owned subsidiaries and a joint venture of the Company

Landlords:

wholly-owned subsidiaries of Godalming

Godalming is owned as to 85.45% by a discretionary trust set up for the benefits of Mr. Tsai and certain members of his family which include Ms. Tsai and Mr. Tsai Chi Neng, a former director of the Company. Godalming’s principal business activity is property investment in the PRC.

Premises

Name of properties	Nature of building	No. of Blocks
Yue Yuen Industrial Estate,	Factory	15
Gaobu Town, Dongguan,	Dormitory	25
Guangdong Province,	Office	5
the PRC.	Auxiliary	25
Pou Yuen Industrial Estate, Di Chung,	Factory	8
Gaobu Town, Dongguan,	Dormitory	6
Guangdong Province,	Office	2
the PRC.	Auxiliary	10
An industrial complex,	Factory	9
Baishi Industrial Area,	Auxiliary	13
Sanxiang Town, Zhongshan,
Guangdong Province,
the PRC.
Block 11, Cui Jing Garden,	Dormitory	1
Qianshan, Jidai, Zhuhai,
Guangdong Province,
the PRC.

The properties above are leased to the Group as may from time to time required by the Group. These properties are leased to the Group for production purposes, and include shoe and sole factory buildings and dormitories for workers.

– 22 –

LETTER FROM THE BOARD

Terms

The rentals on the premises paid to Godalming (which shall not exceed US$5,200,000 per year) are based on the open market rates, which are referenced to valuations performed by independent professional valuers by comparing market rent. The parties have entered into the Fifth Supplemental Godalming Tenancy Agreement to further extend the term for three years to 31 December 2017. The current monthly rentals on the premises shall not be higher than the prevailing market rent as valued by an independent professional valuer.

Payment terms

First day of each month.

			2014
			(six months
Financial year end			ended
31 December (except 2014)	2012	2013	30 June)
Transaction amount
(US$’000)	7,021	5,682	2,466

VIII. POU YUEN LEASE AGREEMENT

Pou Yuen and Pou Chien entered into the Original Pou Yuen Lease Agreement on 10 September 2002. Following a group re-organisation, Yue Dean was nominated by the Company to replace Pou Chien under the Original Pou Yuen Lease Agreement by entering into the Pou Yuen Lease Agreement with Pou Yuen on 9 January 2007. The parties entered into a supplemental agreement, which does not include the leasing of facilities and equipment under the Pou Yuen Lease Agreement, for a term of three years starting from 1 October 2008. The parties entered into supplemental agreements to extend the term to 31 December 2014. A summary of the principal terms of the agreements is set out below.

Dates

Original Pou Yuen Lease Agreement:

10 September 2002

Pou Yuen Lease Agreement:

9 January 2007 (as amended and extended to 31 December 2017)

– 23 –

LETTER FROM THE BOARD

Second Supplemental Pou Yuen Lease Agreement:

25 August 2011

Third Supplemental Pou Yuen Lease Agreement:

15 September 2014

Fourth Supplemental Pou Yuen Lease Agreement:

21 October 2014

Parties

Landlord:

Pou Yuen, a company which is beneficially owned by PCC as to 99.804% and is principally engaged in research and development of shoe moulds

Tenant:

Yue Dean, a wholly-owned subsidiary of the Company and is engaged in research and development and production of shoe moulds

Premises under the Fourth Supplemental Pou Yuen Lease Agreement:

台灣彰化縣福興鄉福工路4號 (No. 4, Fu Kung Road, Fu Hsin Hsian, Chang Hua, Taiwan), which consists of building and land. The floor area for the buildings and land is approximately 6,422 m[2] and 3,956 m[2] respectively.

Terms

Under the Original Pou Yuen Lease Agreement, Pou Yuen leased to Pou Chien the assets (including the premises mentioned above), facilities and equipment owned by Pou Yuen for the research and development and production purpose of shoe moulds for a period of 36 months from 1 October 2002 to 30 September 2005. The parties terminated the Original Pou Yuen Lease Agreement and Yue Dean entered into the Pou Yuen Lease Agreement with Pou Yuen on 9 January 2007, which was approved by the Independent Shareholders, to formalise the rental and term of the tenancy, for a period of three years commencing from 1 October 2005. The parties entered into supplemental agreements, which do not include the leasing of facilities and equipment under the Pou Yuen Lease Agreement, to extend the term to 31 December 2014.

– 24 –

LETTER FROM THE BOARD

The parties have entered into the Fourth Supplemental Pou Yuen Lease Agreement for a further term of three years to 31 December 2017. The rental under the Fourth Supplemental Pou Yuen Lease Agreement is NT$1,472,767 (equivalent to approximately HK$384,392) per month which is based on market rental value as valued by an independent professional valuer using valuation method commonly adopted in valuing market rents of similar properties in Taiwan in similar circumstances.

Payment terms

No later than the 16th day of each month.

			2014
			(six months
Financial year end			ended
31 December (except 2014)	2012	2013	30 June)
Transaction amount
(US$’000)	697	699	343

IX. REASONS AND BENEFITS FOR THE CONTINUING CONNECTED TRANSACTIONS

The Company, through its subsidiaries, engages in the manufacturing (as original equipment manufacturer and original design manufacturer) and sales of athletic footwear, athletic style leisure footwear, casual and outdoor footwear. The Group, through Pou Sheng International (Holdings) Limited (whose shares are also listed on the Stock Exchange), also engages in the wholesales and retail of shoes and sportswear. The Continuing Connected Transactions have been taking place for a long period of time and are essential for the continued operation and growth of the business of the Group. Without them, the Group would have to conduct these transactions with other business partners. This will involve identifying companies and renegotiating all terms of the transactions. Accordingly, the Directors (including the independent non-executive Directors) believe that the terms of the Continuing Connected Transactions for the three years ending 31 December 2017 are fair and reasonable and are in the interest of and are beneficial to the Group and Shareholders as a whole; and the Continuing Connected Transactions are in the ordinary and usual course of business of the Group and on normal commercial terms or on terms no less favourable to members of the Group than terms available to or from independent third parties.

– 25 –

LETTER FROM THE BOARD

X. CONNECTED PERSONS, ANNUAL CAPS AND SPECIAL GENERAL MEETING

PCC indirectly owns or controls approximately 49.98% of the Company’s issued share capital. GBD has no shareholding in the Company but is owned as to 94.12% by a discretionary trust set up by Mr. Tsai, for the benefits of certain members of his family which include, among others, Ms. Tsai and Mr. Tsai Chi Neng, a former Director of the Company, and 5.88% by PCC. Godalming has no shareholding in the Company but is owned as to 85.45% by a discretionary trust set up for the benefits of Mr. Tsai and certain members of his family which include, among others, Ms. Tsai and Mr. Tsai Chi Neng, a former Director of the Company. PCC, GBD and Godalming are therefore connected persons of the Company within the meaning of the Listing Rules.

For purposes of compliance with the Listing Rules, in terms of future annual review of the Continuing Connected Transactions, the auditors of the Company will be asked to confirm whether the Continuing Connected Transactions have been conducted within the Caps. Based on historical amounts and estimated future business needs, the proposed Caps for each group of connected transactions in the three years ending 31 December 2017 are set out below.

Connected Group PCC Fifth Supplemental PCC Management Services Agreement# Fifth Supplemental PCC Services Agreement Fourth Supplemental PCC Connected Sales Agreement Fourth Supplemental PCC Connected Purchases Agreement Fourth Supplemental Pou Yuen Lease Agreement Sub-Total*:	1 January 2015 to 31 December 2015 (US$’000) 545 430,972 5,910 774 592 438,793	1 January 2016 to 31 December 2016 (US$’000) 601 465,558 5,910 844 592 473,505	1 January 2017 to 31 December 2017 (US$’000) 664 503,038 5,910 920 592
			511,124

– 26 –

LETTER FROM THE BOARD

Connected Group GBD Fifth Supplemental GBD Management Service Agreement Sub-Total: Godalming Fifth Supplemental Godalming Tenancy Agreement Sub-Total: Total	1 January 2015 to 31 December 2015 (US$’000) 60 60 5,200 5,200 444,053	1 January 2016 to 31 December 2016 (US$’000) 66 66 5,200 5,200 478,771	1 January 2017 to 31 December 2017 (US$’000) 73
			73
			5,200
			5,200
			516,397

Each of the Continuing Connected Transactions in each connected group will be subject to the respective caps for each Continuing Connected Transaction.
As a result of the Dongguan local government’s plan to reduce and to periodically suspend the supply of electricity, it is anticipated that the level of electricity generated and supplied by Highmark will increase substantially when compared to the past. The per unit price for each kilowatt-hour of the electricity generated and supplied by Highmark is estimated to be over RMB2 while the service fee charged for each kilowatt-hour of the public sector electricity is RMB0.16. As such, it is anticipated that the transaction amount under the PCC Management Service Agreement will increase in year 2015.

The aggregate values of the relevant Continuing Connected Transactions for each of the two years ended 31 December 2013 and the six months ended 30 June 2014 were approximately US$386,865,000, US$415,193,000 and US$196,492,000 respectively. For the purpose of continuing compliance with the Listing Rules, each of these Continuing Connected Transactions will be subject to respective annual caps under each Continuing Connected Transaction. The consideration under each of the Continuing Connected Transactions have been and will be satisfied from internal resources of the Group. The Directors (including the independent non-executive Directors) believe that the terms of the Continuing Connected Transactions for the three years ending 31 December 2017 and the Caps are fair and reasonable; and are in the interest of and are beneficial to the Group and Shareholders as a whole, and the Continuing Connected Transactions are in the ordinary and usual course of business of the Group and on normal commercial terms or on terms no less favourable to members of the Group than terms available to or from independent third parties.

– 27 –

LETTER FROM THE BOARD

XI. GENERAL

An Independent Board Committee has been constituted to make a recommendation to the Independent Shareholders in respect of the resolution to approve the Continuing Connected Transactions. Its advice is contained in the “Letter from the Independent Board Committee” in this circular. The Independent Financial Adviser has been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to whether the terms of the Continuing Connected Transactions (including the proposed Caps) are fair and reasonable so far as the Shareholders are concerned.

The SGM will be held on 27 November 2014 for the purpose of, among other things, obtaining approval from the Independent Shareholders in respect of the Continuing Connected Transactions by way of poll. As at the Latest Practicable Date, PCC directly and indirectly owns and is entitled to exercise control of 49.98% of the voting rights in respect of the issued share capital of the Company and is hence a connected person of the Company as defined under the Listing Rules. As far as the Company is aware, GBD and Godalming do not hold any Shares and they do not control or are not entitled to exercise control in any Shares. Mr. Tsai and his Associates are interested or deemed interested in 115,321,998 Shares representing approximately 6.99% of the total issued share capital of the Company. In accordance with the Listing Rules, any connected person and any Shareholder and their respective Associates with a material interest in the Continuing Connected Transactions will not vote on the resolutions in respect of the Continuing Connected Transactions. Each of PCC, GBD and Godalming (to the extent they hold any Shares), Mr. Tsai and their respective Associates who are Shareholders will abstain from voting on the resolution to approve the relevant New Continuing Connected Transactions Agreements (including the proposed Caps) at the SGM.

Ms. Tsai and her Associate (Mr. Tsai Ming-Lun, Ming, a Director of the Company) have abstained from voting on the resolutions approving the Continuing Connected Transactions at the Board meeting held to consider the Continuing Connected Transactions.

In accordance with the requirements of Rule 14A.55 of the Listing Rules, the independent non-executive Directors will review the Continuing Connected Transactions and confirm in the Company’s annual report that the transactions have been entered into:

(a) in the ordinary and usual course of business of the Group;
(b) on normal commercial terms or better; and
(c) in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole.

– 28 –

LETTER FROM THE BOARD

XII. RECOMMENDATIONS

The Directors (including the independent non-executive Directors) consider that the terms of the Continuing Connected Transactions and the proposed caps are fair and reasonable and they are in the interest of the Company and the Shareholders as a whole. Accordingly, the Directors (including the independent non-executive Directors) recommend that the Independent Shareholders vote in favour of all resolutions to be proposed at the SGM in respect of the Continuing Connected Transactions and the proposed Caps. Your attention is drawn to the letter from the Independent Board Committee, the letter from Somerley Capital Limited and the appendix to this circular.

Your faithfully, For and on behalf of Yue Yuen Industrial (Holdings) Limited Lu Chin Chu Chairman

– 29 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [56 x 56] intentionally omitted <==

YUE YUEN INDUSTRIAL (HOLDINGS) LIMITED 裕元工業（集團）有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 00551)

11 November 2014

To the Independent Shareholders

Dear Sir or Madam,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders of Yue Yuen Industrial (Holdings) Limited in respect of the resolutions to approve the Continuing Connected Transactions (including the proposed Caps), details of which are set out in the “Letter from the Board” contained in this circular of the Company (the “ Circular ”) of which this letter forms part. Unless the context otherwise requires, terms defined in the Circular shall have the same meanings when used in this letter.

Your attention is drawn to the “Letter from the Board” and to the advice of the IFA in its capacity as the IFA to the Independent Board Committee and the Independent Shareholders in respect of whether the terms of the Continuing Connected Transactions (including the proposed Caps) are fair and reasonable and in the interest of the Company and its Independent Shareholders as a whole, as set out in the “Letter from Somerley Capital Limited” as well as other additional information set out in other parts of the Circular.

Having taken into account the advice of, and the principal factors and reasons considered by the IFA in relation thereto as stated in its letter, we consider the terms of the Continuing Connected Transactions (including the proposed Caps) to be fair and reasonable and are in the interests of the Company and the Independent Shareholders as a whole, and the Continuing Connected Transactions are in the ordinary and usual course of business of the Group and on normal commercial terms. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM in respect of the Continuing Connected Transactions (including the proposed Caps).

Yours faithfully, For and on behalf of

the Independent Board Committee Leung Yee Sik, Huang Ming Fu, Chu Li-Sheng, Yen Mun-Gie and Hsieh, Yung Hsiang Independent Non-executive Directors of Yue Yuen Industrial (Holdings) Limited

For identification purposes only

– 30 –

LETTER FROM SOMERLEY CAPITAL LIMITED

The following is the letter of advice from Somerley Capital Limited to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

SOMERLEY CAPITAL LIMITED 20[th] Floor China Building 29 Queen’s Road Central Hong Kong

11 November 2014

To: the Independent Board Committee and the Independent Shareholders

Dear Sirs,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on the terms of the Continuing Connected Transactions entered into between the Group and (i) the PCC Group, (ii) the Godalming Group and (iii) the GBD Group. Details of the Continuing Connected Transactions and their respective Caps for each of the three years ending 31 December 2017 are set out in the “Letter from the Board” contained in the circular of the Company dated 11 November 2014 (the “ Circular ”), of which this letter forms a part. Unless otherwise defined, capitalised terms used in this letter shall have the same meanings as those defined in the Circular.

PCC is the controlling shareholder of the Company indirectly holds an aggregate of 824,143,835 Shares, representing approximately 49.98% of the issued share capital of the Company. Godalming is owned as to approximately 85.45% by a discretionary trust, the beneficiaries of which include, among others, Mr. Tsai, Ms. Tsai and Mr. Tsai Chi Neng, a former director of the Company and a brother of Mr. Tsai. GBD is beneficially owned as to approximately 94.12% by a discretionary trust setup by Mr. Tsai, and the beneficiaries of which include, among others, Ms. Tsai and Mr. Tsai Chi Neng. As such, PCC, Godalming and GBD are connected persons of the Company within the meaning of Chapter 14A of the Listing Rules.

As the Caps on an annual basis and their respective applicable percentage ratios exceed HK$10 million and 5% respectively, the Continuing Connected Transactions constitute non-exempt continuing connected transactions of the Company and are subject to approval by the Independent Shareholders at the SGM under Chapter 14A of the Listing Rules. PCC, Godalming, GBD, Mr. Tsai and their respective Associates shall abstain from voting on the resolutions approving the Continuing Connected Transactions at the SGM.

– 31 –

LETTER FROM SOMERLEY CAPITAL LIMITED

The Independent Board Committee, comprising all the five independent non-executive Directors, namely Mr. Leung Yee Sik, Mr. Huang Ming Fu, Mr. Chu Li-Sheng, Ms. Yen Mun-Gie (also known as Teresa Yen) and Mr. Hsieh, Yung Hsiang (also known as Alfred Hsieh), has been established to make recommendation to the Independent Shareholders as to (i) whether the terms of the Continuing Connected Transactions and the Caps are fair and reasonable; (ii) whether the Continuing Connected Transactions are on normal commercial terms or better and in the ordinary and usual course of business of the Group; (iii) whether the Continuing Connected Transactions are in the interests of the Company and the Shareholders as a whole; and (iv) how to vote on the Continuing Connected Transactions. We, Somerley Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in the same regard.

Save for the appointment as described above, we have no relationships with or interests in the Company or any other parties to the Continuing Connected Transactions that could reasonably be regarded as relevant to our independence. Apart from normal professional fees payable to us in connection with our independent advisory services, no arrangements exist whereby we will receive any fees or benefits from the Company or any other parties to the Continuing Connected Transactions.

In formulating our opinion and recommendation, we have reviewed, among others, the agreements entered into between the Group and the PCC Group, the Godalming Group and the GDB Group to govern the conduct of the Continuing Connected Transactions, the valuation reports prepared by independent professional valuers in relation to the Fourth Supplemental Pou Yuen Lease Agreement and the Fifth Supplemental Godalming Tenancy Agreement and the 2013 annual report and 2014 interim report of the Company. We have also discussed with the management of the Group the basis for estimating the Caps and have performed research on transactions with similar nature to certain of the Continuing Connected Transactions conducted by other listed companies in Hong Kong. In assessing the reasonableness of the estimated market rents of the properties concerned with the Continuing Connected Transactions, we have discussed with the respective valuers the bases and assumptions adopted in the valuation reports.

We have relied on the information and facts supplied, and the opinions expressed to us, by the management of the Group which have been assumed to be true, accurate, complete and not misleading in all material aspects at the time they were made. We have also sought and received confirmation from the Company that no material facts have been omitted from the information supplied and opinions expressed to us. We have no reason to believe that any material information has been withheld from us, or to doubt the truth, accuracy or completeness of the information provided. We have relied on such information and consider that the information we have received is sufficient for us to reach an informed view. We have not, however, conducted any independent investigation into the business and affairs of the Group, the PCC Group, the Godalming Group and the GBD Group, nor have we carried out any independent verification of the information supplied.

– 32 –

LETTER FROM SOMERLEY CAPITAL LIMITED

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation as regards the Continuing Connected Transactions, we have taken into account the principal factors and reasons set out below:

1. Background to and reasons for the Continuing Connected Transactions

Introduction

The Group is engaged in the (i) manufacturing of footwear, which mainly includes athletic and casual/outdoor shoes, for international brand name customers with principal production facilities located in the PRC, Vietnam and Indonesia; and (ii) selling of international brand name footwear and apparel in the Greater China region through the retail and wholesale businesses run by its listed subsidiary, Pou Sheng International (Holdings) Limited.

In the ordinary and usual course of its business, the Group has been carrying out the Continuing Connected Transactions with the PCC Group, the Godalming Group and the GBD Group, subject to the annual/period caps and the terms as specified in the respective agreements. The purpose of conducting the Continuing Connected Transactions is to facilitate the Group in running its business in a flexible and efficient manner.

On 28 September 2011, the Independent Shareholders have approved the relevant supplemental agreements of the Continuing Connected Transactions and their respective period caps for the 3-year period ended 30 September 2014. In view of the expiration of the aforementioned agreements, the Company has entered into the respective supplemental agreements on 15 September 2014 to extend the terms of those continuing connected transactions for a 3-month period ending 31 December 2014. This arrangement was resulted from the change of the Company’s financial year end from 30 September to 31 December taken place in 2012, through which those period caps up to 30 September 2014 were brought in line with the Company’s coming financial year end of 31 December 2014.

– 33 –

LETTER FROM SOMERLEY CAPITAL LIMITED

In order to regulate the conduct of the Continuing Connected Transactions beyond 2014 and therefore facilitate the ongoing operations of the Group, the Group has, on 21 October 2014, entered into various supplemental agreements to extend the Continuing Connected Transactions for a term of three years commencing from 1 January 2015 and ending on 31 December 2017. A summary of the Continuing Connected Transactions is set out below:

A. Transactions with the PCC Group

PCC is the controlling shareholder of the Company, the shares of which are listed on Taiwan Stock Exchange Corporation. As disclosed in the 2013 annual report of PCC, PCC, and through its subsidiaries, is principally engaged in the (i) manufacturing of footwear and garment; (ii) sportswear retail and brand licensing businesses; and (iii) other businesses including real estate development and hotel operation.

Being the controlling shareholder of the Company, PCC has provided a non-competition undertaking (the “ Undertaking ”) in favour of the Group. Pursuant to the Undertaking, the PCC Group shall not be engaged or interested in any business (other than through the Company) which is engaged in the production on a commercial scale of raw materials, components, machinery, moulds and tools for shoes outside Taiwan and in such places where the Company or its Associates have operations and/or sales.

The Group shall continue to conduct the transactions with the PCC Group under the following agreements:

(a) PCC Services Agreement and the Fifth Supplemental PCC Services Agreement (the “ PCC Services Agreements ”)

Pursuant to the PCC Services Agreements, the Company shall, on an exclusive basis, engage the PCC Group to provide research and development, know-how, technical, marketing, procurement and recruitment services in relation to the production and sales of the Group’s products.

(b) PCC Connected Sales Agreement and the Fourth Supplemental PCC Connected Sales Agreement (the “ PCC Connected Sales Agreements ”)

Under the PCC Connected Sales Agreements, the Group shall supply leather, moulds, packaging boxes, semi-finished and finished shoe products to the PCC Group, by which the Group shall be able to deploy better management in utilising its production facilities.

– 34 –

LETTER FROM SOMERLEY CAPITAL LIMITED

(c) PCC Connected Purchases Agreement and the Fourth Supplemental PCC Connected Purchases Agreement (the “ PCC Connected Purchases Agreements ”)

Pursuant to the PCC Connected Purchases Agreements, the Group shall purchase raw materials, manufacturing equipment and tools and shoe-related products from the PCC Group for its production needs.

(d) PCC Management Service Agreement and the Fifth Supplemental PCC Management Service Agreement (the “ PCC Management Service Agreements ”)

Highmark, a wholly-owned subsidiary of the Company, is a property management company principally engaged in the management of the Industrial Estate. Highmark provides certain management services to the occupants of the Industrial Estate such as the management of electricity and water supply, general up-keeping of common areas and provision of security services. Highmark also provides accommodation-related services including accommodation, housekeeping and laundry services in the Industrial Estate.

The PCC Group operates a number of factories in the Industrial Estate and has entered into the PCC Management Service Agreements with Highmark, pursuant to which Highmark shall manage the supply of electricity and water, provide general up-keeping of common areas and security services and furnish accommodation-related services to the PCC Group.

(e) Pou Yuen Lease Agreement and the Fourth Supplemental Pou Yuen Lease Agreement (the “ Pou Yuen Lease Agreements ”)

Pursuant to the Pou Yuen Lease Agreements, Pou Yuen, a subsidiary of PCC, shall lease to Yue Dean, a wholly-owned subsidiary of the Company, a property situated in Taiwan, for the purpose of running its manufacturing business.

B. Transaction with the Godalming Group – Godalming Tenancy Agreement and the Fifth Supplemental Godalming Tenancy Agreement (the “ Godalming Tenancy Agreements ”)

The principal business activity of Godalming is property investment in the PRC.

– 35 –

LETTER FROM SOMERLEY CAPITAL LIMITED

Pursuant to the Godalming Tenancy Agreements, the Godalming Group shall lease certain properties in Guangdong Province, the PRC to certain subsidiaries and a joint venture of the Company as factories and workers’ dormitories.

C. Transaction with the GBD Group – GBD Management Service Agreement and the Fifth Supplemental GBD Management Service Agreement (the “ GBD Management Service Agreements ”)

The GBD Group was previously engaged in the manufacturing and trading of computer hardware, computer accessories and components in the Industrial Estate. However, the GBD Group ceased this business in 2010 and is now principally engaged in property investment holding business.

Pursuant to the GBD Management Service Agreements, Highmark shall provide the GBD Group with certain management services, including security services and general up-keeping of common areas, in respect of a number of properties situated in the Industrial Estate.

Reasons for, and benefit of, the Continuing Connected Transactions

The management of the Group considers that the Continuing Connected Transactions are advantageous to the Group given the facts that (i) the Group is able to leverage on the PCC Group’s abundant experience in the industry and its research and development expertise through the PCC Services Agreements; and (ii) the Group is able to have better management on the utilisation of its production facilities for the PCC Connected Sales Agreements.

Moreover, the Continuing Connected Transactions have been taking place over periods ranging from 7 to 22 years on an ongoing basis and have been facilitating the conducting of the ordinary business operation of the Group. Without them, the Group would have to identify new business partners and renegotiate all terms and conditions in order to continue such transactions and ensure a smooth operation of the Group’s business.

Having considered the factors above, we concur with the Directors that the Continuing Connected Transactions are conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole.

– 36 –

LETTER FROM SOMERLEY CAPITAL LIMITED

2. Assessment of the principal terms of the Continuing Connected Transactions

A. PCC Services Agreements

Term

Extended by the Fifth Supplemental PCC Services Agreement to cover a 3-year period ending 31 December 2017.

Parties

The Company and PCC.

Subject matter

The PCC Group shall provide research and development, know-how, technical, marketing, procurement and recruitment services in relation to the production and sales of the Group’s products.

Reimbursement of costs and expenses and service fees

In consideration of the services to be provided by the PCC Group, the Group shall reimburse the PCC Group (i) all costs for the materials, machinery and other goods to be purchased by the PCC Group on behalf of the Group and (ii) all reasonable expenses to be incurred by the PCC Group for rendering research and development, know-how, technical, procurement, marketing and recruitment services to the Group pursuant to the PCC Services Agreements. In addition, the Group shall pay the PCC Group the following fees:

(a) 0.5% of the net invoiced amounts for the Group’s products to be developed by the PCC Group and sold by the Group;
(b) 1% of the merchandise cost to be invoiced to the PCC Group where materials, machinery and other goods are to be purchased by, and inspection and shipment arrangements are to be handled by, the PCC Group on behalf of the Group in Taiwan; and
(c) 0.5% of the cost of merchandise to be invoiced to the Group where the PCC Group shall identify the suppliers of materials, machinery and other goods in Taiwan or overseas, whereby purchases are to be directly handled by the Group.

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LETTER FROM SOMERLEY CAPITAL LIMITED

In considering the pricing basis for the research and development services to be provided by the PCC Group (i.e. item (a) as mentioned above), we have made reference to a number of contractual agreements in relation to the provision of research and development services by one party to another, involving companies listed on the Stock Exchange and primarily engage in manufacturing businesses (the “ R&D Comparable Transactions ”) that we are able to identify from the website of the Stock Exchange during the period from 1 January 2013 to the Latest Practicable Date. We note that the R&D Comparable Transactions do not include listed companies which are engaged in shoe manufacturing business, as in the case of the Company. However, in our opinion, the nature of services, as against the nature of business of listed companies, is in the present circumstances a more relevant criterion in selecting the R&D Comparable Transactions, given shoe products or related raw materials are not differentiated or specialised products. The table below summarises the terms of the R&D Comparable Transactions:

Date of public
No. Parties Nature of transaction Pricing basis documents 1. Shunfeng Photovoltaic Grant of a licence to use certain 30% of profit generated 25 August International Limited logos, rights, technologies, by the use of TCN 2014 (“ Shunfeng ”) (stock code: products and know-how in Technology 1165) and Taiwan Carbon relation to the seawater power Nanotude Technology generation business and the Corporation (“ TCN ”) and construction and operation of sea Gold Coin Global Limited power plants (“ TCN (“ GCG ”) Technology ”) to a subsidiary of Shunfeng by TCN and GCG
1. Advanced Semiconductor Transfer of relevant knowledge and 3% of the net selling 11 August Manufacturing Corporation experience; grant of a licence to price of relevant 2014 Limited (“ ASMC ”) (stock manufacture and sell products; products code: 3355) and NXP B.V. provision of technical assistance; and provision of technical training to ASMC by NXP B.V.
1. ASMC and NXP Grant of a licence to ASMC by NXP 10% of the net selling 11 August Semiconductors Semiconductors over certain price of relevant 2014 Netherlands B.V. (“ NXP intellectual property rights for products Semiconductors ”) use in manufacturing certain products

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LETTER FROM SOMERLEY CAPITAL LIMITED

Date of public documents

No. Parties Nature of transaction Pricing basis documents 4. Vietnam Manufacturing and Grant of an exclusive licence to use 4% of the annual net 29 April 2014 Export Processing the technology, know-how, trade selling price of (Holdings) Limited secrets and production products (“ VMEPH ”) (stock code: information in connection with manufactured using 422) and Sanyang Industry the manufacture and sales of such technology from Co., Limited (“ Sanyang ”) motorbikes and related parts to a Sanyang and sold by subsidiary of VMEPH by the subsidiary of Sanyang VMEPH
1. Vedan International Provision of technological support 1% of turnover of the 15 April 2014 (Holdings) Limited services in developing two subsidiaries of (“ Vedan ”) (stock code: polyglutamic acid products and Vedan 2317) and Vedan Enterprise other advanced fermentation Corporation (“ Vedan technology to Vedan and its Corp ”) subsidiaries by Vedan Corp
1. Tonly Electronics Holdings Grant of a licence to use the 0.25% of the revenue of 17 March Limited (“ Tonly ”) (stock general technology support Tonly and its 2014 code: 1249) and TCL services and trade name to Tonly subsidiaries and Corporation and its subsidiaries by TCL subject to downward Corporation and its subsidiaries revision
1. CIMC Enric Holdings Limited Grant of a right to Holvrieka by – 3.33% of gross 15 May 2013 (“ CIMC ”) (stock code: CIMC to use the know-how, sales volume for 3899) and Holvrieka trade names, trademarks and each product (China) Company Limited copyrights within the PRC; built by (“ Holvrieka ”) provision of related technical Holvrieka based and commercial services on know-how of CIMC
– A fixed know-how fee payable annually
– A fixed management fee payable annually

Source: The announcements, circulars or annual reports of the respective companies

As illustrated in the table above, the licence or service fees charged in the R&D Comparable Transactions are largely based on a percentage of sales price (except for item no. 1 above which is charged based on profit) of the relevant products, the range of which was from 0.25% to 10%. As the fees to be charged by the PCC Group for the

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LETTER FROM SOMERLEY CAPITAL LIMITED

research and development services to be provided to the Group fall within the lower end of this range, we consider the pricing basis in respect of the research and development services pursuant to the PCC Services Agreements reasonable.

To assess the pricing basis of the procurement services to be provided by the PCC Group (i.e. items (b) and (c) as mentioned above), we have reviewed a number of contractual agreements in relation to the provision of procurement services by one party to another, involving companies listed on the Stock Exchange and primarily engage in manufacturing businesses (the “ Procurement Comparable Transactions ”) that we are able to identify from the website of the Stock Exchange during the period from 1 January 2013 to the Latest Practicable Date. We note that the Procurement Comparable Transactions do not include listed companies which are engaged in shoe manufacturing business, as in the case of the Company. However, in our opinion, the nature of services, as against the nature of business of the listed companies, is in the present circumstances a more relevant criterion in selecting the Procurement Comparable Transactions, given shoe products or related raw materials are not differentiated or specialised products. The table below summarises the terms of the Procurement Comparable Transactions:

No. Parties

Nature of transaction

Pricing basis

Date of public documents

BYD Electronic Provision of purchasing 0.32% of total costs of 31 July 2014 (International) Company service relating to purchase excluding value Limited (“ BYD ”) (stock production equipment, added tax or other code: 285) and BYD machineries and raw applicable taxes, (H.K.) Co., Ltd (“ BYD materials to BYD and its discounts, allowances or HK ”) subsidiaries by BYD HK returns
Lisi Group (Holdings) Provision of import agency 0.6% of gross transaction 30 July 2014 Limited (“ Lisi ”) (stock services including amount code: 526) and Lisi handling government Import and Export applications, settlement Company Limited services, provision of (“ LIE ”) guarantees and other liaison services to a wholly-owned subsidiary of Lisi by LIE

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LETTER FROM SOMERLEY CAPITAL LIMITED

Date of public
No. Parties Nature of transaction Pricing basis documents 3. Tonly Electronics Holdings Acting as the intermediary 1% of the import cost 17 July 2013 Limited (“ Tonly ”) (stock to import the required code: 1249) and TCL articles, things, parts or Corporation (“ TCL ”) components for Tonly and its subsidiaries by TCL and its subsidiaries
1. YuanSengTai Dairy Farm Provision of milk powder 1% of total indent sales 22 April Limited (“ YST ”) (stock sourcing services to HFF 2014 code: 1431) and by a subsidiary of YST Heilongjiang Feihe Fulaien Trading Co. Ltd. (“ HFF ”)
1. Junefield Department Store Acting as exclusive 2% of invoice price of 20 January Group Limited sourcing agent to purchase orders 2014 (“ Junefield ”) (stock procure the supply of code: 758) and Ecuaming mineral concentrates or Mineral S.A. its related products for a (“ Ecuaming ”) subsidiary of Junefield by Ecuaming
1. Jolimark Holdings Limited Provision of import 1% of contract price 8 November (“ Jolimark ”) (stock code: services including 2013 2028) and Jiangmen materials, equipment and Kong Yue Information technology to Jolimark Product Import Export and its subsidiaries by Ltd. (“ JKY ”) JKY

Source: The announcements, annual reports or listing documents of the respective companies

As shown in the table above, the service fees for the Procurement Comparable Transactions are either charged on the basis of mark-ups on costs (items no. 1, 2, 3, 5 and 6) or sales (item no. 4). The fees to be charged by the PCC Group for the purchasing and sourcing services to be provided to the Group fall within the range of 0.32% to 2% for those Procurement Comparable Transactions charged with mark-ups on costs, we therefore consider the pricing basis in respect of the procurement services pursuant to the PCC Services Agreements reasonable.

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LETTER FROM SOMERLEY CAPITAL LIMITED

B. PCC Connected Sales Agreements

Term

Extended by the Fourth Supplemental PCC Connected Sales Agreement to cover a 3-year period ending 31 December 2017.

Parties

Purchaser: the PCC Group Supplier: the Group

Subject matter

The Group may sell leather, moulds, finished and semi-finished shoe products and packaging boxes to the PCC Group at the request of the PCC Group.

Pricing policy

(a) Semi-finished shoe products

The selling price shall be based on costs (including costs for production and sale of semi-finished shoe products) with a profit margin of 10% or higher of the selling price.

We were advised by the management of the Group that, in determining the profit margin of 10% or higher, they have made reference to the operating profit margin of the Group of approximately 5.7% and 6.1% for the year ended 31 December 2013 and 2012 respectively. We concur with the Directors’ view that a mark-up of 10% or higher for the above transaction is acceptable.

(b) Leather, moulds, finished shoe products and packaging boxes

The sale transactions shall be at market price and in any event be no less favourable to the Group than those made available by the Group to independent third parties. In any event, such transactions shall be made on normal commercial terms or better.

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LETTER FROM SOMERLEY CAPITAL LIMITED

We understand that the management of the Group reviews and monitors the terms including selling prices offered to the PCC Group by comparing with those offered to independent third parties for comparable products with similar features and quantities, in order to ensure that the terms shall be no less favourable to the Group than those available to independent third parties. Besides, transactions under the PCC Connected Sales Agreements during the 15-month period ended 31 December 2012 and the year ended 31 December 2013 have been reviewed by the independent non-executive Directors and auditors of the Company and they have confirmed, among others, that such transactions were entered into in accordance with the terms of the PCC Connected Sales Agreements. Such transactions will be subject to on-going annual review by the independent non-executive Directors and auditors of the Company as required by the Listing Rules.

In view of the above, we consider the terms of PCC Connected Sales Agreements fair and reasonable.

C. PCC Connected Purchases Agreements

Term

Extended by the Fourth Supplemental PCC Connected Purchases Agreement to cover a 3-year period ending 31 December 2017.

Parties

Purchaser: the Group Supplier: the PCC Group

Subject matter

The Group may purchase raw materials, manufacturing equipment and tools or shoe-related products for its production needs from the PCC Group.

Pricing policy

To ensure that the terms of purchase are no less favourable to the Group than those available from independent third parties, the management of the Group will determine the terms in its purchase orders by comparing with those offered by independent third parties for products with similar features and quantities. Besides, transactions under the PCC Connected Purchases Agreements during the 15-month period ended 31 December 2012 and the year ended 31 December 2013

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LETTER FROM SOMERLEY CAPITAL LIMITED

have been reviewed by the independent non-executive Directors and auditors of the Company and they have confirmed, among others, that such transactions were entered into in accordance with the terms of the PCC Connected Purchases Agreements. Such transactions will be subject to on-going annual review by the independent non-executive Directors and auditors of the Company as required by the Listing Rules.

As confirmed by the management of the Group, the Group is not obligated to purchase the relevant products exclusively from the PCC Group under the PCC Connected Purchases Agreements and is free to make purchases with any independent third party supplier with which the best terms are offered to the Group. We therefore consider the terms of the PCC Connected Purchases Agreements fair and reasonable.

D. PCC Management Service Agreements

Term

Extended by the Fifth Supplemental PCC Management Service Agreement to cover a 3-year period ending 31 December 2017.

Parties

Highmark and PCC.

Subject matter

Provision of management services in respect of a number of factories being operated by the PCC Group situated in the Industrial Estate.

Pricing policy

The service fees to be charged to the PCC Group shall be either on the same basis to other occupants of the Industrial Estate (for service items (a), (b) and (c) below) or no less favourable to Highmark than that charged by Highmark to independent third party occupants of the Industrial Estate (for service item (d) below). Further details of the service fees are set out below.

(a) Common services (security and maintenance of common areas)

Fees for common services are determined with reference to (i) the costs for the provision of relevant services (i.e. the remuneration to security staff and the costs for the up-keeping of common areas) and (ii) a 10% margin on top of the total costs incurred.

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LETTER FROM SOMERLEY CAPITAL LIMITED

(b) Supply of electricity

In respect of electricity provided by the public sector, a service fee of RMB0.16 for each kilowatt-hour unit of electricity is charged in addition to the price charged by the public sector.

In respect of electricity generated and supplied by Highmark, the unit price is 105% of the cost of generating the electricity (i.e. oil consumed and the relevant overhead incurred).

(c) Individual services other than electricity

The charges for individual services (e.g. supply of water, etc.) other than electricity are determined by reference to the actual consumption and the price charged by local authority for such utilities.

(d) Accommodation-related services

Accommodation-related services (which include provision of accommodation, housekeeping and laundry services) are subject to a service charge no less favourable to the Group than that charged to independent third parties. In order to ensure such pricing basis is adhered to, the Group adopts the following procedures in determining the service charges for the accommodation-related services:

(i) the China administrative team of the Group is required to submit the costs and transaction records relating to the provision of accommodation-related services for internal assessment and evaluation of profit margins as regards the provision of accommodation-related services under the PCC Management Service Agreements and those profit margins of similar services rendered to independent third parties; and
(ii) the Group will periodically gather market intelligence from other third party service providers in China to carry out relevant analysis.

By implementing the above procedures, the Directors consider that the Group has established sufficient internal control measures to ensure that the pricing basis of the accommodation-related services will be fair and reasonable as a whole to the Group. Besides, transactions under the PCC Management Service Agreements during the 15-month

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LETTER FROM SOMERLEY CAPITAL LIMITED

period ended 31 December 2012 and the year ended 31 December 2013 have been reviewed by the independent non-executive Directors and auditors of the Company and they have confirmed, among others, that such transactions were entered into in accordance with the terms of the PCC Management Service Agreements. Such transactions will be subject to on-going annual review by the independent non-executive Directors and auditors of the Company as required by the Listing Rules.

As the service fees charged to the PCC Group are either on exactly the same basis for all occupants of the Industrial Estate or on terms no less favourable to the Group than those offered by the Group to independent third party occupants, we consider the terms of the PCC Management Service Agreements fair and reasonable.

E. Pou Yuen Lease Agreements

Term

Extended by the Fourth Supplemental Pou Yuen Lease Agreement to cover a 3-year period ending 31 December 2017.

Parties

Landlord: Pou Yuen Tenant: Yue Dean

Subject matter

The leasing of a property in Chang Hua, Taiwan by Yue Dean from Pou Yuen for running its manufacturing businesses (the “ Taiwan Property ”).

Rent

NT$1,472,767 (equivalent to approximately HK$384,392) per month.

The monthly rent is set with reference to market rental value of the Taiwan Property as valued by an independent professional valuer on 31 July 2014.

In connection with the aforesaid valuation, we have reviewed, among others, the engagement letter of the independent professional valuer, the accreditations of the valuer’s professional qualifications and the valuation report.

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LETTER FROM SOMERLEY CAPITAL LIMITED

We understand from the engagement letter of the independent professional valuer that it would perform a valuation of the market rental value of the Taiwan Property, which is the basis of determining the rent for the Taiwan Property under the Pou Yuen Lease Agreements.

According to the credentials of the independent professional valuer who signed the valuation report, he possesses (i) required professional qualifications including a real estate appraiser practising licence with which a person could undertake appraisal of land and buildings in Taiwan; and (ii) 9 years of experience in the industry during which he completed approximately 1,800 valuations.

Besides, we have conducted an interview with the valuer as regards the methodologies adopted and assumptions involved in the valuation report of the Taiwan Property; and whether the valuer is independent of the Group and the PCC Group.

We were advised that the valuer has performed the required procedures in accordance with its internal compliance guidelines to confirm its independence with each of the Group and the PCC Group before accepting this valuation engagement. Separately, a statement of independence was included in the valuation report where the valuer confirmed, among other things, that it is independent of the PCC Group and the Group.

We were further advised that, the valuer has adopted the relevant valuation method as stipulated in the “Regulations on Real Estate Appraisal” under the laws of Taiwan, which is commonly adopted in valuing the market rents of properties similar to the Taiwan Property in similar circumstances. In view of the aforementioned, we consider the rent for the Taiwan Property under the Pou Yuen Lease Agreements, which are determined with reference to its market rental value as valued by an independent professional valuer, to be fair and reasonable.

F. Godalming Tenancy Agreements

Term

Extended by the Fifth Supplemental Godalming Tenancy Agreement to cover a 3-year period ending 31 December 2017.

Parties

Landlords: wholly-owned subsidiaries of Godalming Tenants: certain subsidiaries and a joint venture of the Company

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LETTER FROM SOMERLEY CAPITAL LIMITED

Subject matter

The leasing of four properties in Guangdong, the PRC by the Group from the Godalming Group for production purposes, including factory buildings and dormitories for workers (the “ Guangdong Properties ”).

Rent

The monthly rent for each of the relevant properties is based on the respective market rent as valued by an independent professional valuer on 31 August 2014.

In connection with the aforesaid valuation, we have reviewed, among other things, the engagement letter of the independent professional valuer and the valuation report.

We understand from the engagement letter of the independent professional valuer that they would perform a valuation of the market rental value of each of the Guangdong Properties, which is the basis of determining the respective rent of each of the Guangdong Properties under the Godalming Tenancy Agreement.

We have also checked to the official website of The Hong Kong Institute of Surveyors as to the professional qualification of the valuer who signed the valuation report and noted that he is a registered professional surveyor in accordance with the Surveyors Registration Ordinance (Cap 417) of Hong Kong. In addition, we were advised that he possesses 21 years’ experience in valuation of properties in Hong Kong, Macau, and Asia Pacific region and 18 years’ experience in valuation of properties in the PRC.

Besides, we have conducted an interview with the valuer as regards the methodologies adopted and assumptions involved in the valuation report of the Guangdong Properties; and whether the valuer is independent of the Group and the Godalming Group. The valuer has confirmed to us that (i) it has complied with the requirements set out in the HKIS Valuation Standards (2012 Edition) issued by The Hong Kong Institute of Surveyors in performing the valuation; (ii) the “direct comparison approach” adopted in this valuation is the most common valuation approach for valuing properties by reference to comparable market transactions, which the valuer considers to be appropriate and (iii) it is independent to each of the Group and the Godalming Group in accordance with the aforementioned standards. In view of the aforementioned, we consider the respective rents for the Guangdong Properties, which are determined with reference to their respective market rental values as valued by an independent professional valuer, to be fair and reasonable.

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LETTER FROM SOMERLEY CAPITAL LIMITED

G. GBD Management Service Agreements

Term

Extended by the Fifth Supplemental GBD Management Service Agreement to cover a 3-year period ending 31 December 2017.

Parties

Highmark and GBD.

Subject matter

Provision of common services (security and maintenance of common areas) in respect of a number of factories owned by the GBD Group situated in the Industrial Estate, which are either leased to third parties or left vacant currently.

Pricing policy

The service fees charged to the GBD Group shall be on the same basis as that charged by Highmark to independent third party occupants of the Industrial Estate. In particular, the fees for common services are determined with reference to (i) the costs for the provision of relevant services (i.e. the remuneration to security staff and the costs for the up-keeping of common areas) and (ii) a 10% margin on top of the total costs incurred.

Transactions under the GBD Management Service Agreements during the 15-month period ended 31 December 2012 and the year ended 31 December 2013 have been reviewed by the independent non-executive Directors and auditors of the Company and they have confirmed, among others, that such transactions were entered into in accordance with the terms of the GBD Management Service Agreements. Such transactions will be subject to on-going annual review by the independent non-executive Directors and auditors of the Company as required by the Listing Rules.

We consider the services fees to be paid by the GBD Group pursuant to the GBD Management Service Agreement are fair and reasonable as they are charged on the exact basis as those charged to independent third party occupants of the Industrial Estate.

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LETTER FROM SOMERLEY CAPITAL LIMITED

H. Payment terms of the Continuing Connected Transactions

The table below summarises the payment terms of the relevant agreements:

Agreements

Payment terms

PCC Services Agreements 30 to 45 days for services fees; 45 days for others; both payable from date of invoice PCC Connected Sales 45 days from date of invoice Agreements PCC Connected Purchases 45 days from date of invoice Agreements PCC Management Service 45 days from date of invoice Agreements Pou Yuen Lease Agreements No later than the 16th day of each month Godalming Tenancy Agreements 1st day of each month GBD Management Service 45 days from date of invoice Agreements

As disclosed in the 2013 annual report of the Company, the credit periods for the Group’s purchases or sales range from 30 days to 90 days. We regard the above payment terms reflect normal commercial credit terms commonly adopted by the Group.

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LETTER FROM SOMERLEY CAPITAL LIMITED

3. The Caps

The historical transaction amounts for each of the Continuing Connected Transactions for the two years ended 31 December 2013 and the six months ended 30 June 2014 and the caps for the Continuing Connected Transactions for each of the three years ending 31 December 2017 are set out below:

		Historical figures	Historical figures	Historical figures			Caps
			(in US$’000)				(in US$’000)
					For the
					6 months
		For the	year ended		ended
		31 December			30 June	For the year ending 31		December
Agreements		2012		2013	2014	2015	2016	2017
(a)	with PCC Group
	PCC Services
	Agreements	366,657	400,356		190,025	430,972	465,558	503,038
	PCC Connected
	Sales Agreements	10,291		7,627	3,127	5,910	5,910	5,910
	PCC Connected
	Purchases
	Agreements	1,822		450	338	774	844	920
	PCC Management
	Service
	Agreements	317		324	165	545	601	664
	Pou Yuen Lease
	Agreements	697		699	343	592	592	592
	Sub-total	379,784	409,456		193,998	438,793	473,505	511,124
(b)	with GBD Group
	GBD Management
	Service
	Agreements	60		55	28	60	66	73
(c)	with Godalming
	Group
	Godalming Tenancy
	Agreements	7,021		5,682	2,466	5,200	5,200	5,200
Total		386,865	415,193		196,492	444,053	478,771	516,397

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LETTER FROM SOMERLEY CAPITAL LIMITED

We have discussed with the management of the Group about the bases on which the Caps are determined and they are summarised as follows:

A. Based on projected transaction amounts in the year ending 31 December 2014

In respect of the PCC Services Agreements, the PCC Connected Sales Agreements and the PCC Connected Purchases Agreements, the estimation of the Caps are principally based on (i) the projected transaction amounts of the relevant agreements for the year ending 31 December 2014 by reference to the actual transaction amounts incurred during the year, and (ii) the estimated annual growth rate for the coming three years.

(a) PCC Services Agreements

In arriving at the Caps for the PCC Services Agreements, the management of the Group has taken into account an expected growth rate of 8% for the service fees and the cost and expense reimbursement in relation to the various services to be provided by the PCC Group to the Group for each of the three years ending 31 December 2017. The 8% growth rate is determined mainly with reference to the historical growth rate of approximately 9.2% of the amount of transactions under the PCC Services Agreements in 2013 as compared to that of 2012. We noted that the transaction amount decreased by 15.5 % in 2012 as compared to that of 2011. As advised by the management of the Company, such decrease was primarily attributable to a relatively high amount of procurement of machineries made through the PCC Group in 2011 as compared to that in 2012. The management further advised that such higher demand for new machineries was driven by the expansion of production capacity of the Group outside the Pearl River Delta taken place in 2011. On the other hand, such services incurred are mainly for the purpose of research and development and procurement, which are indirectly driven by turnover, and we noted that the Group recorded revenue growth of approximately 6.8% and 4.1% for the six months ended 30 June 2014 and the year ended 31 December 2013 respectively, which demonstrates a steady acceleration on the revenue growth of the Group and on the possible need for future services from the PCC Group.

In view of the above, we agree with the management of the Group that the 8% estimated growth rate for the coming three years provides flexibility to the Group’s business development and therefore consider such estimated growth rate reasonable.

(b) PCC Connected Sales Agreements

The historical transaction amounts of the PCC Connected Sales Agreements recorded decrease of approximately 25.9% for the year ended 31 December 2013. When arriving at the Caps for the PCC Connected Sales Agreements, the management of the Group assumed a

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LETTER FROM SOMERLEY CAPITAL LIMITED

fall of 10% for the year ending 31 December 2015 as referenced to the estimated transaction value for 2014, which is in turn based on the actual transactions taken place during the year. The Caps for 2016 and 2017 will remain the same as that for 2015. We concur with the management of the Group that projecting a deceleration rate of 10% for the year 2015 may be expedient to the Group as such caps have taken into account the recent decelerating trend of the transactions concerned and at the same time provide certain degree of flexibility to meet additional demand from the PCC Group in the coming three years.

(c) PCC Connected Purchases Agreements

The Caps for the PCC Connected Purchases Agreements are estimated with reference to an annual growth rate of 9% in the transaction amounts for the three years ending 31 December 2017, which is in turn determined based on the estimated compound annual growth rate of approximately 6.8% of the Group’s revenue over the two-year period ending 31 December 2014, which we consider reasonable. We concur with the management of the Group that the transactions under the PCC Connected Purchases Agreements, which are predominantly related to the Group’s production activities, may grow in line with the Group’s revenue and therefore consider such estimated growth rate reasonable.

B. Based on estimated usage by occupants in the Industrial Estate

(a) PCC Management Service Agreements

The Caps for the PCC Management Service Agreements are determined mainly with reference to the expected areas to be occupied by the PCC Group in the Industrial Estate, the expected usages of water and electricity, the expected unit prices of water and electricity and the number of staff of the PCC Group expected to utilise the accommodation-related services.

In respect of the provision of security service and maintenance service of common areas in the Industrial Estate pursuant to the PCC Management Service Agreements, the Caps have taken into account the areas occupied by the PCC Group in the Industrial Estate in June 2014 as the base for the areas to be occupied by the PCC Group and an estimated annual growth of approximately 7% in the service fees charged to the PCC Group for the subsequent three years which, in the view of the Directors, provides a certain degree of flexibility for the Group to adjust the service fees charged to the PCC Group in the coming three years.

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LETTER FROM SOMERLEY CAPITAL LIMITED

The expected usages of water and electricity for the three years ending 31 December 2017 are determined with reference to the projected usages for the year ending 31 December 2014 based on the actual usages for the six months ended 30 June 2014 and an estimated annual growth of approximately 5% which has taken into account a certain degree of flexibility which the Directors consider necessary for the Group to cater for additional demand from the PCC Group in the coming three years.

The expected unit prices of water for the three years ending 31 December 2017 are determined with reference to the current unit price charged by the local authority, taking into account the anticipated increases of water price to be taken place for the subsequent three years, which are based on historical pattern of water price adjustment made by the local authority. As for the unit prices of electricity to be generated by the Group for the three years ending 31 December 2017, they are determined based on the current unit price charged by the Group and an increase of approximately 5% annually in the cost of the oil to be consumed and the overheads to be incurred for generating electricity in the coming three years. In respect of electricity provided by the public sector, for the three years ending 31 December 2017, a service fee of RMB0.16 for each kilowatt-hour of electricity is to be charged by the Group to the PCC Group on top of the electricity cost separately charged by the public sector. As advised by the Directors, the Group will continue to generate and supply electricity to the occupants in the Industrial Estate in the event that the electricity supplied by the public sector is insufficient to meet the operational requirements of the occupants in the Industrial Estate.

In fact, in arriving at the Caps for the PCC Management Service Agreements for the three years ending 31 December 2017, we understand from the management of the Group that they have taken into account the expected transaction value for the provision of electricity to be generated by the Group (“ Self-generated Electricity ”). The annual cap for 2015 is much higher than the historical transaction amounts for the year ended 31 December 2013 and the six months ended 30 June 2014 because no provision of Self-generated Electricity has been made over such period. The Group was informed by the local authority in July 2014 that there was shortage in electricity supply and the Industrial Estate may be subject to suspension of electricity supply from public sector occasionally. Such suspension in effect have occurred in July and August 2014. In view of the vital importance of stable electricity supply to the occupants of the Industrial Estate for their manufacturing needs, the management expects that there will be demand for Self-generated Electricity from the occupants over the coming three years and therefore necessary to provide such transaction amounts in estimating the corresponding caps.

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LETTER FROM SOMERLEY CAPITAL LIMITED

The calculation of the cap for 2015 was based on the (i) expected usage by occupants in the Industrial Estate and (ii) the estimated fees for the relevant services. In respect of provision of electricity, the expected usage of Self-generated Electricity accounted for approximately 6% of the total expected electricity usage only. However, the price for Self-generated Electricity, which is estimated to be over RMB2 per kilowatt-hour, is much higher than the service charge for electricity from public sector of RMB0.16 per kilowatt-hour. As a result, the expected transaction amount and therefore the annual cap for 2015, grows at a rate higher than the 5% annual growth of the total expected electricity usage.

The Caps for the accommodation-related services are principally determined with reference to (i) the expected number of the PCC Group’s staff to be accommodated in the Industrial Estate for the coming three years ending 31 December 2017; and (ii) the relevant service fees to be charged to the PCC Group for the accommodation-related services, taken into account the relevant service fees charged to the PCC Group in June 2014.

(b) GBD Management Service Agreements

The Caps for the GBD Management Service Agreements are principally determined with reference to the areas occupied by the GBD Group in the Industrial Estate in June 2014 as the base for the areas expected to be occupied by the GBD Group and an estimated annual growth of approximately 7% in the service fees charged to the GBD Group for the subsequent three years which, in the view of the Directors, provides a certain degree of flexibility for the Group to adjust the service fees charged to the GBD Group in the coming three years.

C. Rental agreements

(a) Pou Yuen Lease Agreements

The rent payable by the Group pursuant to the Pou Yuen Lease Agreements are fixed with reference to the market rental value when the relevant agreement is entered into by the parties. The Caps represent the US$ equivalent of the fixed NT$ denominated rent as agreed under the Fourth Supplemental Pou Yuen Lease Agreement.

(b) Godalming Tenancy Agreements

The Godalming Tenancy Agreements have not prescribed the exact areas to be leased to the subsidiaries and joint venture of the Company during the three-year term. The Caps for the Godalming Tenancy Agreements are based on the areas expected to be occupied by

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LETTER FROM SOMERLEY CAPITAL LIMITED

the subsidiaries and joint venture of the Company in the coming three years and the relevant market rental value of the properties concerned as assessed by an independent professional valuer.

As advised by the management of the Company, in arriving at the Caps, the expected areas to be occupied by the subsidiaries and joint venture of the Company under the Godalming Tenancy Agreements for the three years ending 31 December 2017 are substantially the same as the actual areas the subsidiaries and joint venture of the Company has been occupying for the six months ended 30 June 2014. We were further advised that the management does not foresee significant change in the usages by the subsidiaries and joint venture of the Company or the required area in the properties concerned to carry on their respective manufacturing businesses. As such, we consider the calculation of the Caps reasonable.

Generally speaking, in our opinion, it is in the interests of the Group for the Caps to be as accommodating to the Group as possible (within reason). Provided that the terms for the Continuing Connected Transactions are fair and reasonable and the conduct of those transactions are subject to annual review by the independent non-executive Directors and auditors of the Company (as discussed below) as required under the Listing Rules, the Group would have flexibility in conducting its businesses if the Caps are tailored to future business growth. In assessing the reasonableness of the Caps, we have discussed with the management of the Group their projected growth in revenue and the bases of the calculation and the factors contributing to the fixing of the Caps, which we consider reasonable. Based on the above analysis, we are of the view that the caps for the Continuing Connected Transactions are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Shareholders should note that the Caps should not be construed as an assurance or forecast by the Group of its future revenues.

4. Annual review of the Continuing Connected Transactions

Pursuant to Rules 14A.55 to 14A.59 of the Listing Rules, the Continuing Connected Transactions are subject to the following annual review requirements:

(a) the independent non-executive Directors must review the Continuing Connected Transactions every year and confirm in the annual report that whether the Continuing Connected Transactions have been entered into:
in the ordinary and usual course of business of the Group;
on normal commercial terms or better; and
according to the agreements governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole.

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LETTER FROM SOMERLEY CAPITAL LIMITED

(b) the Company must engage its auditors to report on the Continuing Connected Transactions every year and the Company’s auditors must provide a letter to the Board confirming whether anything has come to their attention that causes them to believe that the Continuing Connected Transactions:
has not been approved by the Board;
was not, in all material respects, in accordance with the pricing policies of the Group if the transactions involve the provision of goods or services by the Group;
was not entered into, in all material respects, in accordance with the relevant agreements governing the transactions; and
has exceeded the Caps.
(c) The Company must provide a copy of the letter from the Company’s auditors to the Stock Exchange at least 10 business days before the bulk printing of its annual report.
(d) the Company must allow, and ensure that the counterparties to the Continuing Connected Transactions to allow, the Company’s auditors to have sufficient access to their records for the purpose of reporting on the Continuing Connected Transactions.
(e) the Company must promptly notify the Stock Exchange and publish an announcement if the independent non-executive Directors and/or the auditors of the Company will not be able to confirm the matters as required.

The independent non-executive Directors and the auditors of the Company have reviewed the then continuing connected transactions conducted for the 15-month period ended 31 December 2012 and the year ended 31 December 2013 and have provided the relevant confirmations as required under the Listing Rules, details of which are contained in the Company’s annual reports of 2012 and 2013. The required confirmations in respect of the relevant continuing connected transactions conducted during the year ending 31 December 2014 will be included in the Company’s annual report for the year ending 31 December 2014.

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LETTER FROM SOMERLEY CAPITAL LIMITED

In light of the reporting requirements for the Continuing Connected Transactions, in particular, (a) the restriction of the values of the Continuing Connected Transactions by way of the Caps; and (b) the requirement under the Listing Rules for ongoing review by the independent non-executive Directors and the auditors of the Company of the terms of the Continuing Connected Transactions and the Caps, we are of the view that there exist appropriate measures to govern the conduct of the Continuing Connected Transactions and to safeguard the interests of the Independent Shareholders.

OPINION AND RECOMMENDATION

Taking into account the above principal factors and reasons, we consider that the Continuing Connected Transactions are on normal commercial terms, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole. We also consider the terms of the Continuing Connected Transactions and the Caps are fair and reasonable. Accordingly, we advise the Independent Board Committee to recommend, and we ourselves recommend, the Independent Shareholders to vote in favour of the relevant ordinary resolutions to be proposed at the SGM.

Yours faithfully, for and on behalf of SOMERLEY CAPITAL LIMITED David Ching Director

Mr. David Ching is a licensed person and a responsible officer of Somerley Capital Limited registered with the SFC to carry out type 1 (Dealing in Securities) and type 6 (advising on corporate finance) regulated activities under the SFO and has participated in the provision of independent financial advisory services for various transactions involving companies listed in Hong Kong.

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APPENDIX

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

I. Interests of Directors

As at the Latest Practicable Date, the interests and/or short positions of the Directors and chief executive of the Company in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in appendix 10 of the Listing Rules, to be notified to the Company and the Stock Exchange are as follows:

(a) Long position in the Shares and underlying Shares of the Company

			Percentage of
			the issued
		Number of	share capital of
Name of director	Capacity	Shares held	the Company
Lu Chin Chu	Beneficial owner	45,000	0.00%
	(Note 1)
Tsai Pei Chun,	Beneficiary of	101,126,262	6.13%
Patty	a trust (Note 2)
Lee Shao Wu	Beneficial owner	45,000	0.00%
	(Note 1)
George Hong-Chih	Beneficial owner	45,000	0.00%
Liu	(Note 1)

Notes:

Each of Mr. Lu Chin Chu, Mr. Lee Shao Wu and Mr. George Hong-Chih Liu is interested in 45,000 ordinary shares, which were granted by the Company with vesting conditions pursuant to the share award scheme of the Company adopted on 28 January 2014.
Ms. Tsai Pei Chun, Patty is deemed to be interested in 101,126,262 ordinary shares by virtue of her capacity as a beneficiary of a discretionary trust.

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APPENDIX

GENERAL INFORMATION

(b) Long position in shares of HK$0.01 each of Pou Sheng International (Holdings) Limited (“ Pou Sheng ”), an associated corporation within the meaning of Part XV of the SFO

			Percentage of
			the issued
		Number of	share capital
Name of director	Capacity	shares held	of Pou Sheng
Chan Lu Min	Beneficial owner	851,250	0.01%
Tsai Pei Chun,	Beneficial owner	19,523,000	0.36%
Patty
George Hong-Chih	Interest of child	350,000	0.01%
Liu	under 18 or
	spouse

II. Interests of Shareholders discloseable pursuant to the SFO

As at the Latest Practicable Date, so far as is known to the Directors or chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group:

(a) Interests in the Shares

		Current
		percentage
	Number of	interest in
	ordinary shares	the issued share
	beneficially	capital of
Name of substantial shareholder	held	the Company
Long Position
Pou Chen Corporation (“PCC”)	824,143,835	49.98%
(Note a)
Wealthplus Holdings Limited	773,156,303	46.88%
(“Wealthplus”) (Note a)

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APPENDIX

GENERAL INFORMATION

		Current
		percentage
	Number of	interest in
	ordinary shares	the issued share
	beneficially	capital of
Name of substantial shareholder	held	the Company
Long Position
Mr. Tsai Chi Jui (Note b)	115,321,998	6.99%
Ms. Tsai Huang Shu Man (Note b)	115,321,998	6.99%
Royal Bank of Canada Trust	101,126,262	6.13%
Company (Cayman) Limited
(Note c)
Accord Management Limited	101,126,262	6.13%
(Note d)
Mr. Tsai Chi Neng (Note e)	101,126,262	6.13%
Ms. Tsai Hsu Li Min (Note e)	101,126,262	6.13%
Mr. David N.F. Tsai (Note e)	101,126,262	6.13%
Ms. Tsai Hsu Shu Chun (Note e)	101,126,262	6.13%
Merrill Lynch & Co. Inc. (Note f)	99,315,703	6.02%
Citigroup Inc. (Note g)	101,965,294	6.18%
Short Position
Merrill Lynch & Co. Inc. (Note f)	109,341,792	6.63%
Citigroup Inc. (Note g)	92,497,155	5.60%
Notes:

(a) Of the 824,143,835 ordinary shares beneficially owned by PCC, 773,156,303 ordinary shares were held by Wealthplus as listed above and 50,987,532 ordinary shares were held by Win Fortune Investments Limited (“ Win Fortune ”). Both Wealthplus and Win Fortune are wholly-owned subsidiaries of PCC. Mr. Lu Chin Chu and Mr. Chan Lu Min, who are directors of the Company are also directors of PCC. Ms. Tsai Pei Chun, Patty, Mr. Chan Lu Min, Mr. Kuo Tai Yu and Mr. Kung Sung Yen (who are directors of the Company) are directors of Wealthplus. Mr. Chan Lu Min is a director of Win Fortune.

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APPENDIX

GENERAL INFORMATION

(b) Mr. Tsai Chi Jui, the elder brother of Mr. Tsai Chi Neng, is deemed to be interested in (i) 101,126,262 ordinary shares held by six discretionary trusts by virtue of his capacity as a founder of such discretionary trusts and (ii) 13,875,736 ordinary shares held directly by Moby Dick Enterprises Limited (“ Moby Dick ”) by virtue of his interest in more than one-third of the voting shares of Moby Dick. Moby Dick is wholly-owned by Max Creation Industrial Limited (“ Max Creation ”), which is in turn 56.068% owned by World Future Investments Limited, which is in turn wholly-owned by Mr. Tsai Chi Jui. Mr. Tsai Chi Jui also holds 320,000 ordinary shares directly. Mr. Tsai Chi Neng, who was a director of the Company up to 30 May 2014, is a director of Moby Dick and Max Creation. Mr. David N.F. Tsai, who was a director of the Company up to 28 June 2013, is a director of Max Creation. Ms. Tsai Huang Shu Man, being the spouse of Mr. Tsai Chi Jui, is deemed to be interested in the 115,321,998 ordinary shares in which Mr. Tsai Chi Jui is interested by virtue of the SFO.
(c) Royal Bank of Canada Trust Company (Cayman) Limited is deemed to be interested in 101,126,262 ordinary shares by virtue of its capacity as a trustee of six discretionary trusts.
(d) Accord Management Limited is wholly-owned by Royal Bank of Canada Trust Company (Cayman) Limited. Accord Management Limited is deemed to be interested in 80,494,822 ordinary shares held directly by Quicksilver Profits Limited (“ Quicksilver ”) and 20,631,440 ordinary shares held directly by Red Hot Investments Limited (“ Red Hot ”) by virtue of its interest in more than one-third of the voting shares in Quicksilver and Red Hot respectively. Mr. Tsai Chi Neng, who was a director of the Company up to 30 May 2014, is also a director of Quicksilver and Red Hot.
(e) Each of Mr. Tsai Chi Neng and Mr. David N.F. Tsai is deemed to be interested in 101,126,262 ordinary shares of the Company by virtue of his capacity as a beneficiary of a discretionary trust. Each of Ms. Tsai Hsu Li Min, being the spouse of Mr. Tsai Chi Neng, and Ms. Tsai Hsu Shu Chun, being the spouse of Mr. David N.F. Tsai, is deemed to be interested in the 101,126,262 ordinary shares in which each of Mr. Tsai Chi Neng and Mr. David N.F. Tsai is interested by virtue of the SFO. Mr. Tsai Chi Neng was a director of the Company up to 30 May 2014.
(f) Merrill Lynch & Co. Inc. is deemed to be interested in 35,000 ordinary shares (long position) held directly by Merrill Lynch Portfolio Managers Limited under the SFO by virtue of its interest in more than one-third of the voting shares in Merrill Lynch Portfolio Managers Limited. Merrill Lynch Portfolio Managers Limited is wholly-owned by ML Invest, Inc., which is in turn wholly-owned by Merrill Lynch Group, Inc., which is in turn wholly-owned by Merrill Lynch & Co. Inc..

Merrill Lynch & Co. Inc. is also deemed to be interested in 5,985,785 ordinary shares (long position) and 2,620,000 ordinary shares (short position) held directly by Blackrock, Inc. (for discretionary clients) under the SFO by virtue of its interest in more than one-third of the voting shares in Blackrock, Inc.. Merrill Lynch & Co. Inc. owns 49.8% of Blackrock, Inc. through various subsidiaries, namely, Princeton Services, Inc., Princeton Administrators, L.P., Merrill Lynch Investment Managers, L.P. and Fund Asset Management, L.P., which are all 99% owned by Merrill Lynch & Co. Inc. except for Princeton Services, Inc., which is wholly-owned by Merrill Lynch Group, Inc.. Merrill Lynch Group, Inc., which is wholly-owned by Merrill Lynch & Co. Inc., is also deemed to be indirectly interested in the 5,985,785 ordinary shares (long position) and 2,620,000 ordinary shares (short position) held directly by Blackrock, Inc..

In light of the above, Merrill Lynch & Co. Inc. is deemed to be interested in an aggregate of 6,020,785 ordinary shares (long position) and 2,620,000 ordinary shares (short position).

Merrill Lynch & Co. Inc. is also deemed to be interested in 93,294,918 ordinary shares (long position) and 106,721,792 ordinary shares (short position) held directly by Merrill Lynch International under the SFO by virtue of its interest in

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APPENDIX

GENERAL INFORMATION

more than one-third of the voting shares in Merrill Lynch International. Merrill Lynch & Co. Inc. holds Merrill Lynch International through six wholly-owned subsidiaries namely, Merrill Lynch International Incorporated, Merrill Lynch International Holdings Inc., Merrill Lynch Europe Plc, Merrill Lynch Europe Intermediate Holdings, Merrill Lynch Holdings Limited and ML UK Capital Holdings. ML UK Capital Holdings is wholly-owned by Merrill Lynch Holdings Limited, which is in turn wholly-owned by Merrill Lynch Europe Intermediate Holdings, which is in turn wholly-owned by Merrill Lynch Europe Plc, which is in turn wholly-owned by Merrill Lynch International Holdings Inc., which is in turn wholly-owned by Merrill Lynch International Incorporated, which is in turn wholly-owned by Merrill Lynch & Co. Inc.. Merrill Lynch International is 97.2% owned by ML UK Capital Holdings. The above have been prepared based on the disclosure of interest form filed with the Company.

The 101,965,294 ordinary shares (long position) are held as to 92,638,750 ordinary shares as corporate interest, 9,308,044 ordinary shares in the capacity as Custodian Corporation/approved lending agent and 18,500 ordinary shares as security interest. Further, 92,497,155 ordinary shares in short position are held as corporate interest. Of the 101,965,294 ordinary shares in long position, 92,247,920 ordinary shares represent underlying interests in physically settled unlisted derivatives. Of the 92,497,155 ordinary shares in short position, 92,247,920 ordinary shares represent underlying interests in cash settled unlisted derivatives.

Of the 101,965,294 ordinary shares (long position) held by Citigroup Inc., 92,256,212 ordinary shares (long position) are directly held by Citigroup Global Markets Hong Kong Limited, 246,622 ordinary shares (long position) are directly held by Citigroup Global Markets Limited, 81,286 ordinary shares (long position) are directly held by Citigroup Global Markets Inc., 9,308,044 ordinary shares (long position) are directly held by Citibank N.A., 630 ordinary shares (long position) are directly held by Citigroup Trust South Dakota, and 72,500 ordinary shares (long position) are directly held by Citigroup Global Markets Asia Limited.

Of the 92,497,155 ordinary shares (short position) interested by Citigroup Inc., 92,252,134 ordinary shares (short position) are directly interested by Citigroup Global Markets Hong Kong Limited, and 245,021 ordinary shares (short position) are directly interested by Citigroup Global Markets Limited.

Each of Citigroup Global Markets Hong Kong Limited and Citigroup Global Markets Inc. is wholly-owned by Citigroup Financial Products Inc.. Citigroup Global Markets Limited is wholly-owned by Citigroup Global Markets Europe Limited, which is in turn owned as to 30.83% by Citigroup Financial Products Inc., 18.74% by Citigroup Global Markets International LLC and 50.16% by Citigroup Global Markets (International) Finance AG. Each of Citigroup Global Markets International LLC and Citigroup Global Markets (International) Finance AG is wholly-owned by Citigroup Financial Products Inc.. Citigroup Global Markets Asia Limited is wholly-owned by Citigroup Global Markets Hong Kong Holdings Limited, which is in turn wholly-owned by Citigroup Global Markets Overseas Finance Limited, which is in turn owned as to 51.86% by Citigroup Global Markets (International) Finance AG and 48.14% by Citigroup Global Markets Switzerland Holding GmbH. Citigroup Global Markets Switzerland Holding GmbH is wholly-owned by Citigroup Financial Products Inc.. Citigroup Financial Products Inc. is therefore deemed to be interested in an aggregate of 92,656,620 ordinary shares (long position) and 92,497,155 ordinary shares (short position). Citigroup Financial Products Inc. is wholly-owned by Citigroup Global Markets Holdings Inc., which is in turn wholly-owned by Citigroup Inc..

Citicorp Trust South Dakota is wholly owned by Citibank N.A., which is in turn wholly-owned by Citicorp Holdings Inc., which is in turn wholly-owned by Citigroup Inc.. Citicorp Holdings Inc. is therefore deemed to be interested in an aggregate of 9,308,674 ordinary shares (long position).

In light of the above, Citigroup Inc. is deemed to be interested in an aggregate of 101,965,294 ordinary shares (long position) and 92,497,155 ordinary shares (short position). The above has been prepared based on the disclosure of interest form filed with the Company.

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APPENDIX

GENERAL INFORMATION

Other than the interests disclosed above, the Company has not been notified of any other relevant interests or short positions in the shares or underlying shares of the Company as at the Latest Practicable Date.

(b) Substantial Shareholders of other members of the Group

As at the Latest Practicable Date, so far as is known to the Directors of the Company, the following parties, other than a Director, are directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the other members of the Group:

		% of the
		issued share
		capital in
		the relevant
Name of subsidiary	Name of shareholder	subsidiary
Bestample Investments	L & K Engineering	15
Limited	Co., Ltd.
Highbourne Enterprises	Haggar Clothing Co.	38
Limited
Lucky Crown Group Limited	Good Work	20
	International Limited
Ontime Ventures Limited	Mr. Yen Ming Ho	10
Orisol Holding Limited	Authentic Trading Limited	25
Prodigy Management	Substantial Industries	10
Limited	Limited
PT Pou Chen Indonesia	Inn Chu Trading Co.	10
	Limited
Top Units Developments	Charm Life Ltd.	49
Limited
Valuable Developments	South East Asia	49
Limited	Holdings Limited
PT. Suksespermata Indonusa	Mr. Yen Ming Ho	10

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APPENDIX

GENERAL INFORMATION

Save as disclosed above, the Directors are not aware that there is any party (not being a Director) who, as at the Latest Practicable Date, had an interest or short positions in the Shares and underlying Shares which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO, or who is, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group or had any options in respect of such shares.

III. Interests in competing business

The Company has an investment in Symphony. The principal activities of Symphony Holdings Limited (“ Symphony ”) and its subsidiaries (collectively the “ Symphony Group ”) had included the manufacturing and sales of footwear products before Symphony disposed of its manufacturing unit of its footwear products on 31 August 2013 (“ Symphony Disposal ”). Symphony Group also engages in retail and wholesale business of apparel and footwear as well as outlet mall operation in the PRC. Therefore, prior to the completion of the Symphony Disposal, the manufacturing of casual and outdoor footwear of the Group potentially competed with the business of Symphony. Mr. Li I Nan, Steve, who is a director of the Company, was a non-executive director of Symphony prior to his retirement on 11 June 2014. Mr. George Hong-Chih Liu, who is a director of the Company, has been a non-executive director of Symphony since 20 August 2014. Prior to the completion of the Symphony Disposal, common directors of Symphony and the Company might have an interest in a competing business by virtue of their directorships in Symphony. As Symphony is and has been operating under separate and independent management, the directors of the Company believe that the Company is capable of carrying on its business independent of, and at arms length from, Symphony. After the completion of the Symphony Disposal, it is expected that there will not be any competition between Symphony Group and the Group in terms of the Group’s footwear manufacturing business. As the Company’s listed subsidiary, Pou Sheng, through its subsidiaries, engages in the retail and wholesale sales of sportswear and footwear in the PRC, the above common director may still have an interest in a competing business by virtue of his directorship in Symphony.

The Company also holds indirectly 38.42% of the issued share capital of Eagle Nice (International) Holdings Limited (“ Eagle Nice ”) whose shares are listed on the main board of the Stock Exchange. As the principal business activities of Eagle Nice and its subsidiaries are the manufacturing and trading of sportswear and garments, the retail and wholesale business of sportswear of the Group through Pou Sheng potentially competes with the businesses of Eagle Nice. Mr. Kuo Tai Yu, who is a director of the Company, is also a director of Eagle Nice. As Eagle Nice and the Company are operated under separate and independent management, the directors of the Company believe that the Company is capable of carrying on its business independent of, and at arms length from, Eagle Nice.

Save as described above, at the Latest Practicable Date, none of the Directors had any interest in a business which may compete with that of the Group and which is required to be disclosed pursuant to Rule 8.10 of the Listing Rules.

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APPENDIX

GENERAL INFORMATION

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into or proposed to enter into any service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

4. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or claims of material importance and, so far as the Directors are aware, no litigation or claims of material importance were pending or threatened by or against any member of the Group.

5. MATERIAL ADVERSE CHANGE

Save for an expected negative effect on the Group’s financial results as a result of recognition of employee benefit payments as disclosed in the Company’s announcement dated 5 August 2014, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2013, being the date up to which the latest published audited financial statements of the Group were made up.

6. EXPERT

(a) The following is the qualification of Somerley Capital Limited, the IFA, which has given its opinion or advice which is contained in this circular:

Name Qualification

Somerley Capital Limited

a corporation licensed under the SFO to conduct type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities

(b) As at the Latest Practicable Date, Somerley Capital Limited did not have any shareholding, direct or indirect, in any member of the Group or 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, direct or indirect, in any assets which had, since 31 December 2013, being the date up to which the latest published audited financial statements of the Group were made up, been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

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APPENDIX

GENERAL INFORMATION

(c) Somerley Capital Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name included in this circular in the form and context in which they appear.

7. DIRECTOR’S INTERESTS IN ASSETS/CONTRACTS AND OTHER INTERESTS

(a) None of the Directors has any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2013, being the date up to which the latest published audited financial statements of the Group were made.
(b) None of the Directors is materially interested in any contract or arrangement entered into by any member of the Group subsisting at the date of this circular which is significant in relation to the business of the Group.

8. MISCELLANEOUS

(a) The secretary of the Company is Chau Chi Ming, Dickens. He is a member of The Hong Kong Institute of Certified Public Accountants, a Fellow of The Association of Chartered Certified Accountants of the UK and the Director of Finance & Treasury of the Group.
(b) The principal place of business of the Company in Hong Kong is at Suites 3307-09, 33/F., Tower 6, The Gateway, 9 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong. The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The branch share registrar and transfer office of the Company is Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(c) As at the date of this circular, Mr. Lu Chin Chu, Ms. Tsai Pei Chun, Patty, Mr. Kuo Tai Yu, Mr. Kung Sung Yen, Mr. Chan Lu Min, Mr. Li I Nan, Steve, Mr. Lee Shao Wu, Mr. Tsai Ming-Lun, Ming and Mr. George Hong-Chih Liu are the Executive Directors, and Mr. Leung Yee Sik, Mr. Huang Ming Fu, Mr. Chu Li-Sheng, Ms. Yen Mun-Gie (also known as Teresa Yen) and Mr. Hsieh, Yung Hsiang (also known as Alfred Hsieh) are the Independent Non-executive Directors.
(d) The English text of this document and the form of proxy shall prevail over the Chinese text.

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APPENDIX

GENERAL INFORMATION

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours on any weekday (except public holidays) at the office of the Company situated at Suites 3307-09, 33/F., Tower 6, The Gateway, 9 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong, from the date of this circular, until the date of the SGM:

(a) this circular;
(b) the Memorandum of Association and Bye-laws of the Company;
(c) the letter from the Independent Board Committee, the text of which is set out on page 30 of this circular;
(d) the letter from Somerley Capital Limited, the text of which is set out on pages 31 to 58 of this circular;
(e) the written consent of Somerley Capital Limited referred to in the section headed “Expert” in this Appendix; and
(f) the agreements in respect of the Continuing Connected Transactions referred to in this circular.

– 68 –

NOTICE OF SPECIAL GENERAL MEETING

==> picture [56 x 56] intentionally omitted <==

YUE YUEN INDUSTRIAL (HOLDINGS) LIMITED 裕元工業（集團）有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 00551)

SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of Yue Yuen Industrial (Holdings) Limited (the “ Company ”) will be held at Orchid Room I and II, 4/F, Marco Polo Hongkong Hotel, 3 Canton Road, Tsimshatsui, Hong Kong on 27 November 2014 at 10:00 a.m. for the purpose of considering and, if thought fit, passing the following resolutions, with or without amendments, which will be proposed as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

(A) THAT the fifth supplemental agreement (the “ Fifth Supplemental PCC Management Service Agreement ”) dated 21 October 2014 between Highmark Services Limited (“ Highmark ”) and Pou Chen Corporation (“ PCC ”) (which is a supplemental to the PCC Management Service Agreement (as defined in the Company’s circular dated 11 November 2014) under which Highmark agreed to provide PCC with management services in respect of a number of factories situated in the Industrial Estate operated by PCC and its subsidiaries (the “ PCC Group ”)) be and is hereby approved, confirmed and ratified and that the annual caps in respect of such transactions as set out in the Fifth Supplemental PCC Management Service Agreement (the details of which are summarised in the circular of the Company dated 11 November 2014) and the transactions contemplated therein be and are hereby approved, confirmed and ratified and that the directors of the Company be and are hereby authorised to take all actions and execute all documents which they deem necessary, required or appropriate, in order to implement and validate anything related to the Fifth Supplemental PCC Management Service Agreement;
(B) THAT the fifth supplemental agreement (the “ Fifth Supplemental PCC Services Agreement ”) dated 21 October 2014 between the Company and PCC (which is a supplemental to the PCC Services Agreement (as defined in the Company’s circular dated 11 November 2014) under which PCC agreed to provide research and development, know-how, technical and marketing services and to source raw materials and recruit staff in relation to the production and sale of products of the Company and its subsidiaries (the “ Group ”)) be and is hereby approved, confirmed and ratified and that the annual caps in respect of such transactions as set out in the Fifth Supplemental PCC Services Agreement (the details of which are summarised
For identification purposes only

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NOTICE OF SPECIAL GENERAL MEETING

in the circular of the Company dated 11 November 2014) and the transactions contemplated therein be and are hereby approved, confirmed and ratified and that the directors of the Company be and are hereby authorised to take all actions and execute all documents which they deem necessary, required or appropriate, in order to implement and validate anything related to the Fifth Supplemental PCC Services Agreement;

(C) THAT the fourth supplemental agreement (the “ Fourth Supplemental PCC Connected Sales Agreement ”) dated 21 October 2014 between the Company and PCC (which is a supplemental to the PCC Connected Sales Agreement (as defined in the Company’s circular dated 11 November 2014) under which the Group agreed to sell leather, moulds, finished and semi-finished shoe products and packaging boxes to the PCC Group) be and is hereby approved, confirmed and ratified and that the annual caps in respect of such transactions as set out in the Fourth Supplemental PCC Connected Sales Agreement (the details of which are summarised in the circular of the Company dated 11 November 2014) and the transactions contemplated therein be and are hereby approved, confirmed and ratified and that the directors of the Company be and are hereby authorised to take all actions and execute all documents which they deem necessary, required or appropriate, in order to implement and validate anything related to the Fourth Supplemental PCC Connected Sales Agreement;
(D) THAT the fourth supplemental agreement (the “ Fourth Supplemental PCC Connected Purchases Agreement ”) dated 21 October 2014 between the Company and PCC (which is a supplemental to the PCC Connected Purchases Agreement (as defined in the Company’s circular dated 11 November 2014) under which the Group agreed to purchase from the PCC Group raw materials, production tools and shoe-related products for its production needs) be and is hereby approved, confirmed and ratified and that the annual caps in respect of such transactions as set out in the Fourth Supplemental PCC Connected Purchases Agreement (the details of which are summarised in the circular of the Company dated 11 November 2014) and the transactions contemplated therein be and are hereby approved, confirmed and ratified and that the directors of the Company be and are hereby authorised to take all actions and execute all documents which they deem necessary, required or appropriate, in order to implement and validate anything related to the Fourth Supplemental PCC Connected Purchases Agreement;
(E) THAT the fourth supplemental agreement (the “ Fourth Supplemental Pou Yuen Lease Agreement ”) dated 21 October 2014 between Pou Yuen Technology Co., Ltd. (“ Pou Yuen ”) and Yue Dean Technology Corporation (“ Yue Dean ”) (which is a supplemental to the Pou Yuen Lease Agreement (as defined in the Company’s circular dated 11 November 2014) under which Pou Yuen agreed to lease to Yue Dean properties in Taiwan which consist of buildings and land, for the purpose of running its manufacturing businesses) be and is hereby approved, confirmed and ratified and that the annual caps in respect of such transactions as set out in the Fourth Supplemental Pou Yuen Lease Agreement (the details of which are summarised in the circular of the Company dated 11 November 2014) and the transactions contemplated therein be and are hereby approved, confirmed and

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NOTICE OF SPECIAL GENERAL MEETING

ratified and that the directors of the Company be and are hereby authorised to take all actions and execute all documents which they deem necessary, required or appropriate, in order to implement and validate anything related to the Fourth Supplemental Pou Yuen Lease Agreement;

(F) THAT the fifth supplemental agreement (the “ Fifth Supplemental GBD Management Service Agreement ”) dated 21 October 2014 between Highmark and Golden Brands Developments Limited (“ GBD ”) (which is a supplemental to the GBD Management Service Agreement (as defined in the Company’s circular dated 11 November 2014) under which Highmark agreed to provide GBD with management services in respect of a number of factories situated in the Industrial Estate operated by GBD and its subsidiaries) be and is hereby approved, confirmed and ratified and that the annual caps in respect of such transactions as set out in the Fifth Supplemental GBD Management Service Agreement (the details of which are summarised in the circular of the Company dated 11 November 2014) and the transactions contemplated therein be and are hereby approved, confirmed and ratified and that the directors of the Company be and are hereby authorised to take all actions and execute all documents which they deem necessary, required or appropriate, in order to implement and validate anything related to the Fifth Supplemental GBD Management Service Agreement;
(G) THAT the fifth supplemental agreement (the “ Fifth Supplemental Godalming Tenancy Agreement ”) dated 21 October 2014 between the wholly-owned subsidiaries of Godalming Industries Limited (“ Godalming ”) as landlords and certain wholly-owned subsidiaries and a joint venture of the Company as tenants (which is a supplemental to the Godalming Tenancy Agreement (as defined in the Company’s circular dated 11 November 2014) under which Godalming agreed to lease to members of the Group and a joint venture certain premises in the PRC for production purposes, including shoe and sole factory buildings and dormitories for workers) be and is hereby approved, confirmed and ratified and that the annual caps in respect of such transactions as set out in the Fifth Supplemental Godalming Tenancy Agreement (the details of which are summarised in the circular of the Company dated 11 November 2014) and the transactions contemplated therein be and are hereby approved, confirmed and ratified and that the directors of the Company be and are hereby authorised to take all actions and execute all documents which they deem necessary, required or appropriate, in order to implement and validate anything related to the Fifth Supplemental Godalming Tenancy Agreement.

By Order of the Board Lu Chin Chu Chairman

Hong Kong, 11 November 2014

Principal Place of Business: Suites 3307-09, 33/F. Tower 6, The Gateway 9 Canton Road, Tsim Sha Tsui Kowloon, Hong Kong

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NOTICE OF SPECIAL GENERAL MEETING

Notes:

A form of proxy for use at the SGM or any adjournment thereof is enclosed.
A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint a proxy or proxies (if such member is the holder of two or more shares) to attend and, in the event of a poll, vote in his stead. A proxy need not be a member of the Company. In order to be valid, the form of proxy must be deposited at the Company’s principal place of business in Hong Kong together with a power of attorney or other authority, if any, under which it is signed or a certified copy of that power or authority, not less than 48 hours before the time for holding the meeting or adjourned meeting.
Delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.
Where there are joint holders of any share any one of such joint holder may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at any meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same. In the case of an instrument of proxy purporting to be signed on behalf of a corporation by an officer thereof it shall be assumed, unless the contrary appears, that such officer was duly authorized to sign such instrument of proxy on behalf of the corporation without further evidence of the fact.

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AI assistant

Magnus Concordia Group Limited — Proxy Solicitation & Information Statement 2014

49743_rns_2014-11-10_b1b1de8e-a97b-4a66-947b-fd51c67acfdd.pdf

YUE YUEN INDUSTRIAL (HOLDINGS) LIMITED 裕元工業（集團）有限公司[*]

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

SOMERLEY CAPITAL LIMITED

YUE YUEN INDUSTRIAL (HOLDINGS) LIMITED 裕元工業（集團）有限公司[*]

(Stock Code: 00551)

Board of Directors:

Registered Office:

Principal Place of Business:

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

I. SUMMARY OF CONTINUING CONNECTED TRANSACTIONS

(A) Transactions between PCC Group and the Group

PCC Connected Sales Agreement

(B) Transactions between the GBD Group and the Group

(C) Transactions between Godalming Group and the Group

II. BUSINESS OF THE GROUP

III. GBD MANAGEMENT SERVICE AGREEMENT AND PCC MANAGEMENT SERVICE AGREEMENT

The GBD Management Service Agreement and the PCC Management Service Agreement

Dates

Parties

Payment terms

Dates

Parties

Payment terms

Term

Management fees

PCC Management Service Agreement

(b) Individual services for the supply of electricity

(c) Individual services other than electricity

(d) Accommodation-related services

GBD Management Service Agreement

IV. PCC SERVICES AGREEMENT

Dates

Parties

Terms

Services fees

Reimbursement of costs and expenses

Payment terms

V. PCC CONNECTED SALES AGREEMENT

Dates

Terms

Payment terms

VI. PCC CONNECTED PURCHASES AGREEMENT

Dates

Parties

Terms

Payment terms

VII. GODALMING TENANCY AGREEMENT

Dates

Parties

Premises

Terms

Payment terms

VIII. POU YUEN LEASE AGREEMENT

Dates

Parties

Terms

Payment terms

IX. REASONS AND BENEFITS FOR THE CONTINUING CONNECTED TRANSACTIONS

X. CONNECTED PERSONS, ANNUAL CAPS AND SPECIAL GENERAL MEETING

XI. GENERAL

XII. RECOMMENDATIONS

YUE YUEN INDUSTRIAL (HOLDINGS) LIMITED 裕元工業（集團）有限公司[*]

(Stock Code: 00551)

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background to and reasons for the Continuing Connected Transactions

Introduction

A. Transactions with the PCC Group

Reasons for, and benefit of, the Continuing Connected Transactions

Term

Parties

Subject matter

Reimbursement of costs and expenses and service fees

No. Parties

Nature of transaction

Pricing basis

Magnus Concordia Group Limited Proxy Solicitation & Information Statement 2014