Symphony Holdings Limited - Proxy Solicitation & Information Statement 2012

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

If you have sold or transferred all your shares in Symphony Holdings Limited, you should at once hand this circular together with the accompanying 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 transferee.

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SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 01223 )

MAJOR AND CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF PROPERTY AND CONTINUING CONNECTED TRANSACTION

Financial Adviser to the Company

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

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Capitalised terms used on this cover shall have the same meanings as those defined in this circular.

A letter from the Board is set out on pages 5 to 13 of this circular. A letter from the Independent Board Committee is set out on page 14 of this circular. A letter from Hercules containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 15 to 28 of this circular. A notice convening the SGM to be held at 10:00 a.m. on Wednesday, 7 November 2012 at 10th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong is set out on pages 48 to 49 of this circular. A form of proxy for use at the SGM is enclosed.

Whether or not you are able to attend the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the office of the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at 26th Floor of Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the appointed time for holding of the SGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof (as the case may be) if you so wish.

For identification only

22 October 2012

	Pages
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from Hercules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Appendix I – Financial information of the Group . . . . . . . . . . . . . . . . . . .	29
Appendix II – Valuation report on the Property . . . . . . . . . . . . . . . . . . . . .	32
Appendix III – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	48

– i –

DEFINITIONS

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

“Annual Caps” the proposed annual caps in respect of sums under the Lease payable by the Group under the Lease Agreement “associates” the meaning ascribed thereto under the Listing Rules “Board” the board of Directors “Business Day(s)” any day(s) except a Saturday, Sunday or a day on which commercial banking institutions in Hong Kong or the PRC are authorized or required by law or executive order to close

“BVI” British Virgin Islands “Closing” closing of the Disposal under the Disposal Agreement “Closing Date” the date on which Closing takes place “Company” Symphony Holdings Limited, a company incorporated in Bermuda with limited liability, the issued Shares of which are listed on the Main Board of the Stock Exchange (Stock code: 01223) “connected persons” the meaning ascribed to it in the Listing Rules “Director(s)” director(s) of the Company “Disposal” the proposed disposal of the Property by the Seller to the Purchaser pursuant to the Disposal Agreement

“Disposal Agreement” the conditional sale and purchase agreement dated 27 September 2012 entered into between the Seller and the Purchaser in relation to the Disposal “GFA” gross floor area “Group” the Company and its subsidiaries

– 1 –

DEFINITIONS

“Hercules”
“Hong Kong”
“Independent Board Committee”
“Independent Shareholders”
“Land”
“Latest Practicable Date”
“Lease”
“Lease Agreement”
“Leased Property”

Hercules Capital Limited, a corporation licensed to carry out type 6 regulated activity as defined under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Disposal Agreement and the Lease Agreement, and the Annual Caps

the Hong Kong Special Administrative Region of the PRC
the committee of the Board comprising all the independent non-executive Directors established for the purpose of giving recommendations to the Independent Shareholders on the terms of the Disposal Agreement and the Lease Agreement, and the Annual Caps
Shareholders other than Mr. Chang, the Purchaser and their respective associates
four pieces of land with land title documents numbered 國 (2002) 151579, 國 (2004) 150012, 國 (2002) 150792 and 國 (2002) 151574 located at Zhangjiabian Village, Zhongshan City, the PRC, with a total site area of approximately 108,171 sq. m.
18 October 2012, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
the right to be granted by the Purchaser to the Seller to occupy and use the Leased Property before Closing and the lease of the Leased Property by the Seller from the Purchaser after Closing
the agreement creating the Lease signed by the Seller and Purchaser contemporaneously upon their entering into of the Disposal Agreement
the portions of the Property with an aggregate GFA of 33,211 sq. m. which will be occupied and used by the Seller after the Disposal under the terms of the Lease Agreement

– 2 –

DEFINITIONS

“License Fee” the licence fee of RMB265,688 (equivalent to approximately HK$324,140) per month to be paid by the Seller to the Purchaser for occupying the Leased Property as specified in the Lease Agreement after possession of the Property is delivered to the Purchaser but before Closing

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Mr. Chang”
Mr. Chang Tsung Yuan, an executive Director
“PRC”
The People’s Republic of China, excluding Hong Kong, the Macau Special Administrative Region and Taiwan
“Property”
an industrial complex with an aggregate GFA of approximately 82,949 sq. m. erected on the Land together with the land use rights of the Land
“Prudential” Prudential Surveyors (Hong Kong) Limited, independent professional valuers
“Purchaser”
福建威霖實業有限公司 (Fujian Weilan Company Limited*), a company incorporated in the PRC with limited liability
“Rent” the rent of RMB265,688 (equivalent to approximately HK$324,140) per month to which the Purchaser will be entitled in relation to the Lease after Closing pursuant to the Lease Agreement
“Seller”
中山精美鞋業有限公司 (Zhongshan Jingmei Footwear Company Limited*), a wholly foreign-owned enterprise in the PRC with limited liability and an indirect whollyowned subsidiary of the Company

“SFO”

the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

* For identification only

– 3 –

DEFINITIONS

“SGM”	the special general meeting of the Company to be	the special general meeting of the Company to be	the special general meeting of the Company to be
	convened and held for the Independent Shareholders to
	consider and, if thought fit, approve	the	Disposal
	Agreement, the Lease Agreement, and the	Annual Caps,
	notice of which is set out at the end of this circular
“Share(s)”	ordinary share(s) of HK$0.10 each in the share		capital of
	the Company
“Shareholder(s)”	holder(s) of the Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Well Success”	Well Success Investment Limited,	a	company
	incorporated in the BVI with limited liability
“HK$”	Hong Kong dollars, the lawful currency of	Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“sq. m.”	square metres
“US$”	United States dollars, the lawful currency	of the United
	States of America
“%”	per cent.

For ease of reference, sums in US$, HK$ and RMB in this circular are translated at the rates of US$1 = HK$7.78 and RMB1.0 = HK$1.22 respectively. This does not mean that HK$ could be converted into US$ and RMB, or vice versa, based on such exchange rates.

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LETTER FROM THE BOARD

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SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 01223 )

Executive Directors: Mr. Chan Ting Chuen (Chairman) Mr. Sze Sun Sun Tony (Deputy Chairman & Managing Director)

Mr. Chang Tsung Yuan (Deputy Chairman) Mr. Chan Lu Min Ms. Chen Fang Mei Dr. Ho Ting Seng

Non-executive Director: Mr. Li I Nan

Independent non-executive Directors: Mr. Cheng Kar Shing Mr. Feng Lei Ming Mr. Ho Shing Chak Mr. Huang Shenglan

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Head office and principal place of business in Hong Kong: 10th Floor, Island Place Tower 510 King’s Road, North Point Hong Kong

22 October 2012

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF PROPERTY AND CONTINUING CONNECTED TRANSACTION

INTRODUCTION

On 27 September 2012, the Company announced that after trading hours of the Stock Exchange on 27 September 2012, the Seller (an indirect wholly-owned subsidiary of the Company) and the Purchaser entered into the Disposal Agreement pursuant to which, amongst other things, the Seller conditionally agreed to sell and the Purchaser conditionally agreed to

* For identification only

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LETTER FROM THE BOARD

purchase the Property for an aggregate consideration of RMB143.0 million (equivalent to approximately HK$174.5 million). In addition to the consideration under the Disposal Agreement, the Purchaser also reimbursed the interior decoration, renovation and improvement costs of the Property in the amount of approximately US$2.38 million (equivalent to approximately HK$18.5 million) upon signing of the Disposal Agreement.

Pursuant to the Disposal Agreement, the Seller and the Purchaser entered into the Lease Agreement pursuant to which the Purchaser (as landlord) agrees to lease the Leased Property to the Seller (as tenant) at a monthly Rent of RMB265,688 (equivalent to approximately HK$324,140) for an initial term of 12 months commencing on the Closing Date. After possession of the Property is delivered to the Purchaser but before Closing, the Purchaser shall allow the Seller to continue to use the Leased Property and the Seller shall pay the Licence Fee to the Purchaser calculated at the same rate as the Rent under the Lease Agreement.

The Disposal constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. As at the Latest Practicable Date, the Purchaser is wholly owned by family members of Mr. Chang and is an associate of Mr. Chang, an executive Director. The Disposal therefore also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules.

The Lease constitutes a continuing connected transaction of the Company pursuant to the Listing Rules.

The purpose of this circular is to provide you with, among other things, (i) details of the Disposal Agreement and the Lease Agreement; (ii) the recommendation of the Independent Board Committee to the Independent Shareholders; (iii) the letter of advice of Hercules to the Independent Board Committee and the Independent Shareholders; (iv) financial information of the Group; (v) the valuation report on the Property; (vi) the notice of the SGM together with the proxy form; and (vii) other information as required under the Listing Rules.

THE DISPOSAL AGREEMENT

Date: 27 September 2012

Parties:

(i) Seller: 中山精美鞋業有限公司 (Zhongshan Jingmei Footwear Company Limited); and (ii) Purchaser: 福建威霖實業有限公司 (Fujian Weilan Company Limited)

The Seller is a wholly foreign-owned enterprise in the PRC with limited liability and is principally engaged in research and development, sample production and manufacturing of footwear.

* For identification only

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LETTER FROM THE BOARD

As at the Latest Practicable Date, the Purchaser, a company incorporated in the PRC with limited liability, was wholly owned by the family members of Mr. Chang and is an associate of Mr. Chang, an executive Director. The Purchaser is principally engaged in investment holding and production of shoes and materials. Mr. Chang holds 4,500,000 Shares (representing approximately 0.34% of the issued share capital of the Company). In addition, Mr. Chang holds shares representing approximately 20.0% of the issued share capital of Well Success and Well Success, which is not his associate, in turn holds 664,677,468 Shares (representing approximately 50.81% of the issued share capital of the Company). Mr. Chang is not a director of Well Success. Save as disclosed above, the Purchaser and its beneficial owners are otherwise independent of the Company and its connected persons.

Assets to be disposed of:

Subject to the terms and conditions of the Disposal Agreement, the Seller shall sell and the Purchaser shall acquire from the Seller the Property, which consists of an industrial complex with a total GFA of approximately 82,949 sq. m. erected on the Land with an aggregate site area of approximately 108,171 sq. m. and is located at Zhangjiabian Village, Huoju Development Zone, Zhongshan City, Guangdong Province, the PRC. The Property is used for industrial purposes and the land use right of the Land has been granted for a term expiring in 2048. At present, the Property serves as the research and development centre and sample production base of the Group’s footwear business. According to the valuation report on the Property set out in Appendix II to this circular, the Property was valued at approximately RMB158.4 million (equivalent to approximately HK$193.2 million) as at 10 August 2012 by Prudential.

Consideration:

The aggregate consideration for the Property of RMB$143.0 million (equivalent to approximately HK$174.5 million) is payable in the following manner:

(i) an initial payment of RMB63.0 million (equivalent to approximately HK$76.9 million) shall be payable by the Purchaser to the Seller within seven Business Days from the date of the Disposal Agreement (or such later date as may be agreed by the parties to the Disposal Agreement in writing) and was paid on 9 October 2012;
(ii) the second installment of RMB30.0 million (equivalent to approximately HK$36.6 million) shall be payable by the Purchaser to the Seller within 14 Business Days after the Company has obtained the approval by the Independent Shareholders of the Disposal Agreement, the Lease Agreement and the Annual Caps and delivered to the Purchaser a certified copy of the Independent Shareholders’ resolutions approving the Disposal Agreement, the Lease Agreement and the Annual Caps;

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LETTER FROM THE BOARD

(iii) the remaining amount of RMB50.0 million (equivalent to approximately HK$61.0 million) shall be payable by the Purchaser to the Seller within 14 Business Days upon the fulfillment of the following conditions (or such later date as may be agreed by the parties to the Disposal Agreement in writing):
(a) the parties having executed the transfer agreements for the Property;
(b) the Seller having paid all relevant taxes (including but not limited to sales tax, land appreciation tax and stamp duty) in respect of the transfer of the Property and provided related supporting documents to the Purchaser; and
(c) the Seller having transferred to the Purchaser the documents relating to the Property in accordance with the terms of the Disposal Agreement.

In addition to the consideration under the Disposal Agreement, the Purchaser has also on the date of the Disposal Agreement made banking arrangement to transfer an amount of approximately US$2.38 million (equivalent to approximately HK$18.5 million) to the Seller on 3 October 2012 to reimburse the interior decoration, renovation and improvement costs of the Property.

The consideration was determined after arm’s length negotiations between the Seller and the Purchaser after taking into account, among other things, (i) the preliminary valuation of the Property as at 10 August 2012 of approximately RMB158.4 million (equivalent to approximately HK$193.2 million) by an independent professional valuer by adopting the depreciated replacement cost approach; and (ii) the reimbursement by the Purchaser of the interior decoration, renovation and improvement costs of the Property of approximately US$2.38 million (equivalent to approximately HK$18.5 million). The Directors (excluding Mr. Chang who has abstained from voting on the relevant Board resolutions due to his interests in the Disposal Agreement and the Lease Agreement) consider that the consideration is fair and reasonable and the Disposal is in the interests of the Company and the Shareholders as a whole.

Closing:

Possession of the Property shall be delivered to the Purchaser within three Business Days from the day the balance payment in (iii) of the paragraph headed “Consideration” above shall have been paid. Closing shall take place on the date the transfer procedures in respect of the Property are completed and all relevant title certificates are issued to the Purchaser.

Termination:

The Disposal Agreement may be terminated at any time prior to Closing (i) by the Purchaser in writing if the Seller fails to provide to the Purchaser, before the 60th day after the date of the Disposal Agreement (or such later date as may be agreed by the parties to the Disposal Agreement in writing), a certified copy of the Independent Shareholders’ resolutions approving the Disposal Agreement, the Lease Agreement and the Annual Caps; or (ii) by the

– 8 –

LETTER FROM THE BOARD

parties to the Disposal Agreement if the transfer procedures in respect of the Property are not completed and title certificates are not issued to the Purchaser within 270 days from the date of the Disposal Agreement. In the event that the Disposal Agreement is terminated, there shall be no liability on the part of either party except that the Seller shall, within seven days from termination, return to the Purchaser, without interest, all sums of consideration paid to it under the Disposal Agreement and, within 30 days from termination, the reimbursement of the interior decoration, renovation and improvement costs in the amount of approximately US$2.38 million (equivalent to approximately HK$18.5 million). The Purchaser shall return to the Seller the Licence Fee paid by the Seller (if any) within seven days from termination.

CONTINUING CONNECTED TRANSACTION

The Lease Agreement

The Seller and the Purchaser entered into the Lease Agreement in relation to the lease of the Leased Property. Set out below is a summary of the principal terms of the Lease Agreement:

Date: 27 September 2012 Tenant: the Seller Landlord: the Purchaser Premises: certain portions of the Property with an aggregate GFA of 33,211 sq. m. Term: an initial term of 12 months commencing on the Closing Date and extendable on the same terms by mutual agreement of the parties to the Lease Agreement for another 12 months

Rent: RMB265,688 (equivalent to approximately HK$324,140) per month, which was determined after arm’s length negotiations between the parties after taking into account rental payments for premises with comparable size and location

Rental deposit: RMB531,376 (equivalent to approximately HK$648,279) representing two months’ Rent Other terms: After possession of the Property is delivered to the Purchaser but before Closing, the Purchaser shall allow the Seller to continue to use the Leased Property and the Seller shall pay the Licence Fee to the Purchaser calculated at the same rate as the Rent under the Lease Agreement.

– 9 –

LETTER FROM THE BOARD

The Annual Caps

The table below sets out the proposed Annual Caps for the Licence Fee and the Rent contemplated under the Lease Agreement:

the Lease (including the Licence Fee Period and the Rent) RMB

1 January 2013 to 31 December 2013 3,188,256 (equivalent to approximately HK$3,889,673) 1 January 2014 to 31 December 2014 3,188,256 (equivalent to approximately HK$3,889,673) 1 January 2015 to 30 June 2015 1,594,128 (equivalent to approximately HK$1,944,837)

Pursuant to the Lease Agreement, the Purchaser will be entitled to (i) the License Fee after possession of the Property is delivered to the Purchaser; and (ii) the Rent after Closing. It is expected that possession of the Property will be delivered to the Purchaser in early 2013 and Closing is expected to take place by June 2013. Therefore the Annual Caps cover a period of two and a half years from 1 January 2013 to 30 June 2015.

The Annual Caps are determined based on the Licence Fee and the Rent payable of RMB265,688 (equivalent to approximately HK$324,140) per month under the Lease Agreement. The Directors (excluding Mr. Chang who has abstained from voting on the relevant Board resolutions due to his interests in the Disposal Agreement and the Lease Agreement) consider the Annual Caps to be fair and reasonable.

REASONS FOR THE DISPOSAL AND THE LEASE

The principal activities of the Group are footwear manufacturing and trading, property investment and investment holding in Hong Kong and the PRC.

As disclosed in the interim report of the Company for the six months ended 30 June 2012, the Group’s footwear manufacturing business has been facing challenges including but not limited to increasing production costs and declining gross profit margin in the past few years and the Group has recorded a loss of approximately HK$166.0 million for the period. With a view to enhancing the Group’s competitiveness, the Group has relocated its footwear manufacturing facilities to Henan Province, the PRC and Vietnam. It has also closed down five production lines in Zhongshan City, Guangdong Province, the PRC and the production lines in

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LETTER FROM THE BOARD

Panyu District, Guangdong Province, the PRC and Fujian Province, the PRC during the year ended 31 December 2011 and the six months ended 30 June 2012 respectively. As the labour costs and overheads in the PRC continue to increase, it is the long-term business strategy of the Group to close down its manufacturing operations in the PRC and relocate its production elsewhere. As disclosed in the interim report of the Group for the six months ended 30 June 2012, the Group will also concentrate its efforts in developing higher value-added and profitable activities and reducing its investment in the increasingly challenging manufacturing sector.

The Disposal is consistent with the aforesaid plan while the Lease will allow the Group to maintain its production at the Property for a transitional period and offer flexibility to the Group to close down its production lines by phases. The Directors (excluding Mr. Chang who has abstained from voting on the relevant Board resolutions due to his interests in the Disposal Agreement and the Lease Agreement) consider that the Disposal represents an excellent opportunity for the Group to realise a capital gain and enables the Group to reallocate its financial resources.

In view of the above, the Directors (excluding Mr. Chang who has abstained from voting on the relevant Board resolutions due to his interests in the Disposal Agreement and the Lease Agreement) consider that the Disposal is in the interest of the Company and the Shareholders as a whole and the terms of the Disposal Agreement and the Lease Agreement are fair and reasonable.

USE OF PROCEEDS AND FINANCIAL EFFECTS OF THE DISPOSAL

The net proceeds from the Disposal, after deducting expenses attributable to the Disposal of approximately HK$19.3 million and taking into account the reimbursement by the Purchaser of the interior decoration, renovation and improvement costs of the Property of approximately US$2.38 million (equivalent to approximately HK$18.5 million), are estimated to be approximately HK$173.7 million, of which approximately HK$100.0 million is expected to be used as repayment of bank debt and approximately HK$73.7 million is expected to be applied as general working capital of the Group. The Disposal is therefore expected to lower the debt exposure and reduce the interest expenses of the Group.

Based on (i) the consideration under the Disposal Agreement of RMB143.0 million (equivalent to approximately HK$174.5 million) and the reimbursement by the Purchaser of the interior decoration, renovation and improvement costs of the Property of approximately US$2.38 million (equivalent to approximately HK$18.5 million); (ii) the estimated expenses attributable to the Disposal of approximately HK$19.3 million; and (iii) the carrying value of the Property as of 31 August 2012 of approximately HK$125.7 million, the Company is expected to recognise a gain of approximately HK$48.0 million as a result of the Disposal. Immediately upon Closing, the total assets of the Group would increase by approximately HK$48.0 million and total liabilities of the Group would remain unchanged assuming all estimated expenses attributable to the Disposal are paid upon Closing. Total assets and total liabilities of the Group will be reduced by HK$100 million when the Group applies part of the proceeds from the Disposal to repay its bank debt after Closing. Shareholders and investors should note that the actual gain on the Disposal may be different from the above and will depend on the carrying value of the Property as of Closing and the actual expenses attributable to the Disposal.

– 11 –

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

The Disposal constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. As at the Latest Practicable Date, the Purchaser is wholly owned by the family members of Mr. Chang and is an associate of Mr. Chang, an executive Director. The Disposal therefore also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules.

The Lease constitutes a continuing connected transaction of the Company pursuant to the Listing Rules.

The Disposal and the Lease are subject to the approval of the Independent Shareholders at the SGM by way of poll. As at the Latest Practicable Date, Mr. Chang held 4,500,000 Shares, representing approximately 0.34% of the issued share capital of the Company, and he controls or is entitled to control over the voting rights in respect of these Shares. To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the Purchaser, its associates and associates of Mr. Chang did not hold any Shares as at the Latest Practicable Date. Mr. Chang shall abstain from voting at the SGM.

The Independent Board Committee has been established to give recommendations to the Independent Shareholders on the terms of the Disposal Agreement and the Lease Agreement, and the Annual Caps. Hercules has been appointed by the Company as an independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

SGM

The SGM, the notice of which is set out on pages 48 to 49 of this circular, will be convened and held at 10th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong on Wednesday, 7 November 2012 at 10:00 a.m. for the Independent Shareholders to consider and, if thought fit, approve the Disposal Agreement, the Lease Agreement and the Annual Caps. The voting at the SGM will be taken by way of poll.

Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof (as the case may be) if you so wish.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 14 of this circular which contains its recommendation to the Independent Shareholders in relation to the terms of the Disposal Agreement and the Lease Agreement, and the Annual Caps.

– 12 –

LETTER FROM THE BOARD

Your attention is also drawn to the letter from Hercules set out on pages 15 to 28 of this circular which contains its recommendations to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Disposal Agreement and the Lease Agreement, and the Annual Caps, and the principal factors and reasons taken into account in arriving at its recommendations.

The Directors (including the Independent Board Committee after taking into account the advice of Hercules) are of the opinion that the Disposal and the Lease are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Company and the Shareholders as a whole and the Annual Caps in respect of the Lease are fair and reasonable so far as the Independent Shareholders are concerned; and recommends the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Disposal Agreement, the Lease Agreement and the Annual Caps.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular and the notice of SGM.

By order of the Board Symphony Holdings Limited Chan Ting Chuen Chairman

– 13 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 01223 )

22 October 2012

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF PROPERTY AND CONTINUING CONNECTED TRANSACTION

We refer to the circular of the Company dated 22 October 2012 (the “Circular”) of which this letter forms part. Capitalised terms used herein have the same meanings as those defined in Circular unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to consider the terms of the Disposal Agreement and the Lease Agreement, and the Annual Caps.

Hercules has been appointed as the independent financial adviser to advise us and you regarding the terms of the Disposal Agreement and the Lease, and the Annual Caps. Details of its advice, together with the principal factors and reasons it has taken into consideration in giving its advice, are contained in its letter set out on pages 15 to 28 of the Circular. Your attention is also drawn to the letter from the Board and the additional information set out in the appendices to the Circular.

Having considered the terms of the Disposal Agreement and the Lease Agreement, and the Annual Caps and the advice of Hercules, we consider the Disposal and the Lease are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Company and the Shareholders as a whole and the Annual Caps in respect of the Lease are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Disposal Agreement, the Lease Agreement and the Annual Caps.

Yours faithfully,

Independent Board Committee

Mr. Cheng Kar Shing Mr. Feng Lei Ming Mr. Ho Shing Chak Mr. Huang Shenglan

Independent NonIndependent NonIndependent NonIndependent Nonexecutive Director executive Director executive Director executive Director

* For identification only

– 14 –

LETTER FROM HERCULES

The following is the full text of the letter from Hercules dated 22 October 2012 setting out their opinion in respect of the terms of the Disposal Agreement and the Lease Agreement and the Annual Caps for the purpose of inclusion in this circular.

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1503 Ruttonjee House 11 Duddell Street Central Hong Kong

22 October 2012

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF PROPERTY AND CONTINUING CONNECTED TRANSACTION

INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders with respect to the terms of the transactions contemplated under the Disposal Agreement and the Lease Agreement and the Annual Caps, details of which are set out in the letter from the Board contained in the circular dated 22 October 2012 to the Shareholders (the “Circular”), of which this letter forms part. Capitalized terms used in this letter have the same meanings as defined elsewhere in the Circular unless the context requires otherwise.

On 27 September 2012, the Seller, an indirect wholly-owned subsidiary of the Company, and the Purchaser entered into the Disposal Agreement pursuant to which, among other things, the Seller conditionally agreed to sell, and the Purchaser conditionally agreed to purchase, the Property for a consideration of RMB143.0 million (equivalent to approximately HK$174.5 million). Furthermore, the Seller and the Purchaser also entered into the Lease Agreement, pursuant to which the Purchaser, as landlord, shall lease the Leased Property to the Seller at a monthly Rent of RMB265,688 (equivalent to approximately HK$324,140) for an initial term of 12 months, commencing on the Closing Date. After possession of the Property is delivered to the Purchaser but before Closing, the Purchaser shall allow the Seller to continue to use the Leased Property and the Seller shall pay the Licence Fee to the Purchaser calculated at the same rate as the Rent under the Lease Agreement.

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LETTER FROM HERCULES

The Disposal constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. As at the Latest Practicable Date, the Purchaser was wholly-owned by the family members of Mr. Chang and is an associate of Mr. Chang, an executive Director. The Disposal therefore also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. The Lease constitutes a continuing connected transaction of the Company pursuant to the Listing Rules.

The Disposal and the Lease are subject to the approval of the Independent Shareholders at the SGM by way of poll. As at the Latest Practicable Date, Mr. Chang held 4,500,000 Shares, representing approximately 0.34% of the issued share capital of the Company, and he controls or is entitled to control over the voting rights in respect of these Shares. To the best of the Directors’ knowledge, information and belief and having making all reasonable enquiries, the Purchaser, its associates and associates of Mr. Chang did not hold any Share as at the Latest Practicable Date. Mr. Chang shall abstain from voting at the SGM.

The Independent Board Committee, comprising all independent non-executive Directors, namely Mr. Cheng Kar Shing, Mr. Feng Lei Ming, Mr. Ho Shing Chak and Mr. Huang Shenglan, has been established to advise the Independent Shareholders on the terms of the transactions contemplated under the Disposal Agreement and the Lease Agreement as well as the Annual Caps. We, Hercules Capital Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard, in particular as to whether the Disposal and the Lease are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Company and its Shareholders as a whole.

BASIS OF OUR OPINION

In formulating our opinion and recommendations, we have relied on the information and representations supplied, and the opinions expressed, by the Directors and management of the Company and have assumed that such information and statements, and representations made to us or referred to in the Circular are true, accurate and complete in all material respects as of the date hereof and will continue as such at the date of the SGM. The Directors have collectively and individually accepted full responsibility for the Circular, including particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group and having made all reasonable enquiries have confirmed that, to the best of their knowledge and belief, the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement in the Circular misleading.

We consider that we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have no reasons to suspect that any material information has been withheld by the Directors or management of the Company, or is misleading, untrue or inaccurate, and consider that they may be relied upon in formulating our opinion. We have not, however, for the purpose of this exercise, conducted any independent

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detailed investigation or audit into the businesses or affairs or future prospects of the Group and the related subject of, and parties to, the Disposal Agreement and the Lease Agreement. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change this opinion and that we do not have any obligation to update, revise or reaffirm this opinion.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion regarding the Disposal and the Lease, we have considered the following principal factors and reasons:

1. Information of the Group

The principal activities of the Group are footwear manufacturing and trading, property investment and investment holding in Hong Kong and the PRC.

The consolidated financial information of the Group for the two years ended 31 December 2011 and the six months ended 30 June 2012, which was extracted from the 2011 annual report and 2012 interim report of the Company respectively, is summarized as follows:

	For the six months	For the six months	For the year	For the year	For the year
	ended 30 June		ended 31	December
	2012	2011	2011		2010
	(unaudited)	(unaudited)	(audited)		(audited)
		(restated)
	HK$’000	HK$’000	HK$’000		HK$’000
Turnover
– Footwear
manufacturing	898,021	1,071,683	2,344,219		1,869,365
– Retailing and sourcing	71,576	59,099	126,858		71,284
– Property investment
and holding	4,263	3,238	7,203		6,824
	973,860	1,134,020	2,478,280		1,947,473
(Loss)/profit before
income tax expenses	(159,950)	36,902	57,508		126,366
(Loss)/profit for the
period/year
attributable to owners
of the Company	(172,664)	3,857	24,211		87,861

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LETTER FROM HERCULES

	As at	As at 31	December
	30 June
	2012	2011	2010
	(unaudited)	(audited)	(audited)
		(restated)
	HK$’000	HK$’000	HK$’000
Total assets	3,074,290	2,672,184	2,186,623
Total liabilities	(1,301,414)	(772,754)	(676,641)
Net assets	1,772,876	1,899,430	1,509,982


Net assets attributable to owners
of the Company	1,485,661	1,695,066	1,408,230

The turnover of the Group for the year ended 31 December 2011 was approximately HK$2,478.3 million, of which approximately 94.6% were derived from its footwear manufacturing business. The Group recorded an increase of approximately 27.3% in its turnover for the year ended 31 December 2011 as compared to the previous year after shifting the product mix of its footwear manufacturing business to a higher end product category. Furthermore, the increase in productivity of the production facilities of the Group resulted from the Group’s manufacturing restructuring also contributed to the increase in turnover of the Group. However, owing to the increase in manufacturing costs caused by inflation, appreciation of RMB and the relocation costs incurred in migration of the manufacturing facilities to Vietnam and Henan in the inner part of the PRC, the Group’s gross profit margin decreased from approximately 18.6% for the year ended 31 December 2010 to approximately 15.4% for the year ended 31 December 2011. Moreover, the drop of approximately HK$84.0 million in increase in fair value of investment properties also lowered the profit for the year ended 31 December 2011 by approximately 58.6% to approximately HK$36.3 million as compared to a profit of approximately HK$87.6 million for the year ended 31 December 2010. The profit attributable to owners of the Company also decreased by approximately 72.4% to approximately HK$24.2 million for the year ended 31 December 2011. The increase in the fair value of investment properties was lower than that of last year as the area of the new land acquired during the year ended 31 December 2011 was smaller than that acquired in the previous year and the construction of the new piece of land had not commenced yet.

The turnover of the Group for the six months ended 30 June 2012 was approximately HK$973.9 million, of which approximately 92.2% were derived from its footwear manufacturing business. The Group recorded a decrease of approximately 14.1% in its turnover for the six months ended 30 June 2012 as compared to the last corresponding period as customers from the United States of America and Europe cut their orders in view of the weak global consumer demand and the prevailing market uncertainty. With the competitive market pressure on selling price, continuous increases in the

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LETTER FROM HERCULES

manufacturing and distribution costs and the costs incurred in closure of two manufacturing plants in Fujian and Panyu, the PRC during the period, the gross profit margin of the Group further lowered to approximately 7.6% for the six months ended 30 June 2012, as compared to approximately 16.3% for the six months ended 30 June 2011. In addition to the significant drop in gross profit, the increase in administrative expenses of approximately HK$58.6 million also led to the loss of approximately HK$166.0 million for the six months ended 30 June 2012 while a profit of approximately HK$16.3 million was recorded in the previous corresponding period. The loss attributable to owners of the Company for the six months ended 30 June 2012 was approximately HK$172.7 million while profit attributable to owners of the Company of approximately HK$3.9 million was recorded for the six months ended 30 June 2011.

As at 30 June 2012, the non-current assets of the Group amounted to approximately HK$1,733.4 million, of which approximately HK$345.1 million were property, plant and equipment, approximately HK$967.1 million were investment properties, approximately HK$120.8 million were deposit paid for acquisition of an investment property and approximately HK$171.2 million were advances to jointly controlled entities, while the current assets of the Group amounted to approximately HK$1,335.9 million, which mainly consisted of inventories of approximately HK$484.9 million, trade and other receivables of approximately HK$499.8 million and bank balances and cash of approximately HK$323.6 million. The non-current liabilities of the Group amounted to approximately HK$86.2 million, being deferred tax liabilities, as at 30 June 2012. The current liabilities of the Group as at 30 June 2012 amounted to approximately HK$1,215.2 million, which mainly included trade and other payables of approximately HK$524.5 million and bank loans of approximately HK$597.4 million, of which HK$180.0 million were secured by certain land and buildings and investment properties of the Group. As at 30 June 2012, the net assets attributable to owners of the Company amounted to approximately HK$1,485.7 million.

2. Information of the Property

The Property is currently held by the Seller, which is a wholly foreign-owned enterprise in the PRC with limited liability and is principally engaged in research and development, sample production and manufacturing of footwear. The Property consists of an industrial complex with a total GFA of approximately 82,949 sq. m. erected on the Land with an aggregate site area of approximately 108,171 sq. m. and is located at Zhangjiabian Village, Huoju Development Zone, Zhongshan City, Guangdong Province, the PRC. The Property is used for industrial purpose and the land use right of the Land has been granted for a term expiring in 2048. At present, the Property serves as the research and development centre and sample production base of the Group’s footwear business. According to the valuation report on the Property set out in Appendix II to the Circular, the Property was valued at approximately RMB158.4 million (equivalent to approximately HK$193.2 million) as at 10 August 2012 by Prudential, an independent professional valuer.

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LETTER FROM HERCULES

3. Reasons for the Disposal

As disclosed in the annual report of the Company for the year ended 31 December 2011, the Group has been in the process of migrating its footwear manufacturing facilities to Henan Province, the PRC and Vietnam with a view to further enhance the competitiveness of the Group as the labour and production costs and overheads are escalating in the Southern part of the PRC. During the two years ended 31 December 2011, the Group closed down five production lines in Zhongshan City and one production line in Panyu, Guangdong Province, the PRC, and added four production lines in Vietnam.

According to the interim report of the Company for the six months ended 30 June 2012, the Group’s footwear manufacturing business has been facing challenges, the production costs continue to rise and the gross profit margin declined during the past few years. The Group further closed down its production lines in Panyu District, Guangdong Province and Fujian Province, the PRC during the first half of 2012. Currently, the Group has a factory in Henan, the PRC, where labour costs and overheads remain competitive. However, it is the long-term business strategy of the Group to close down its manufacturing operations in the PRC and relocate its production elsewhere in view of the continuous increase in labour costs and overheads in the PRC in recent years. As at 30 June 2012, the Group had a total of 23 production lines, of which five are in Xuchang, Henan, the PRC, three are in Zhongshan City, Guangdong Province, the PRC and fifteen are in Vietnam. We understand from the management of the Company that the three remaining production lines located at Zhongshan City, Guangdong Province, the PRC are mainly used for research and development purposes and sample production and the Company has planned to close down such production lines by phases in future.

Given that (i) the Disposal is consistent with the migration plan of the Group and has no material impact on the Group’s operations; and (ii) the Disposal allows the Company to realize its investment in the Property at a fair price and provides additional fund and general working capital to the Group to repay its bank loan and develop its businesses, we consider that the entering into of the Disposal Agreement is in the interests of the Company and the Shareholders as a whole.

4. Principal terms of the Disposal Agreement

On 27 September 2012, the Seller, an indirect wholly-owned subsidiary of the Company, and the Purchaser entered into the Disposal Agreement, pursuant to which, among other things, the Seller conditionally agreed to sell, and the Purchaser conditionally agreed to purchase, the Property for a consideration of RMB143.0 million (equivalent to approximately HK$174.5 million).

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LETTER FROM HERCULES

The consideration for the Property is payable in the following manner:

(i) an initial payment of RMB63.0 million (equivalent to approximately HK$76.9 million) shall be payable by the Purchaser to the Seller within seven Business Days from the date of the Disposal Agreement (or such later date as may be agreed by the parties to the Disposal Agreement in writing) and was paid on 9 October 2012;
(ii) the second installment of RMB30.0 million (equivalent to approximately HK$36.6 million) shall be payable by the Purchaser to the Seller within 14 Business Days after the Company has obtained the approval by the Independent Shareholders of the Disposal Agreement, the Lease Agreement and the Annual Caps and delivered to the Purchaser a certified copy of the Independent Shareholders’ resolutions approving the Disposal Agreement, the Lease Agreement and the Annual Caps; and
(iii) the remaining amount of RMB50.0 million (equivalent to approximately HK$61.0 million) shall be payable by the Purchaser to the Seller within 14 Business Days upon the fulfillment of the following conditions (or such later date as may be agreed by the parties to the Disposal Agreement in writing):
(a) the parties having executed the transfer agreements for the Property;
(b) the Seller having paid all relevant taxes (including but not limited to sales tax, land appreciation tax and stamp duty) in respect of the transfer of the Property and provided related supporting documents to the Purchaser; and
(c) the Seller having transferred to the Purchaser the documents relating to the Property in accordance with the terms of the Disposal Agreement.

In addition to the consideration under the Disposal Agreement, the Purchaser has also paid an amount of approximately US$2.38 million (equivalent to approximately HK$18.5 million) to the Seller on 3 October 2012 to reimburse the interior decoration, renovation and improvement costs of the Property.

The consideration was determined after arm’s length negotiation between the Seller and the Purchaser after taking into account, among other things, the preliminary valuation of the Property as at 10 August 2012 of approximately RMB158.4 million (equivalent to approximately HK$193.2 million) as valued by an independent professional valuer by adopting the depreciated replacement cost approach and the reimbursement by the Purchaser of the interior decoration, renovation and improvement costs of the Property of approximately US$2.38 million (equivalent to approximately HK$18.5 million). Possession of the Property shall be delivered to the Purchaser within three Business Days from the day the balance payment in (iii) above shall have been paid. Closing shall take place on the date the transfer procedures in respect of the Property are completed and all relevant title certificates are issued to the Purchaser.

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LETTER FROM HERCULES

In assessing the fairness and reasonableness of the consideration of the Disposal, we have reviewed the valuation report of the Property as set out in Appendix II to the Circular. As stated in the valuation report prepared by Prudential, an independent and qualified property valuer in Hong Kong with experiences in valuation of properties in the PRC, the market value of the Property as at 10 August 2012 was RMB158.4 million (equivalent to approximately HK$193.2 million).

We have discussed with Prudential and reviewed the methodology employed in the valuation and noted that the Property has been valued by using the depreciated replacement cost approach (the “DRC Approach”), which is based on an estimate of the market value for the existing use of the land in a property, and the costs to reproduce or replace in new conditions the buildings and structures being valued in accordance with current construction costs for similar buildings and structures in the locality, with allowance for accrued depreciation as evidence by observed condition or obsolescence present, whether arising from physical, functional or economic causes. We understand from Prudential that comparison approach, one of the commonly used property valuation methodologies, was not applicable in the valuation of the Property as there were no open market sales transactions in the subject locality in relation to sale of industrial properties which are similar to the Property in respect of size and scale. In the absence of sufficient comparable cases for references, Prudential considers that it is inappropriate to use the comparison approach for assessing the value of the Property. We were also advised by Prudential that neither the income approach was applied in the valuation of the Property because such method relies substantially on the use of numerous assumptions and consideration of many uncertainties, not all of which can be easily quantified or ascertained. Any inappropriate assumption made could largely influence the valuation. Prudential considers that the DRC Approach generally furnishes the most reliable indication of value for property in the absence of a known market based on comparable sales and is a common valuation method used in arriving at the valuation. Furthermore, we have reviewed certain publicly available valuation reports prepared by professional valuers regarding valuations of industrial properties in the PRC and noted that the DRC Approach is one of the commonly used methodologies among professional valuers. Based on the abovementioned, we concur with the view of Prudential that the DRC Approach is an appropriate method for valuation of the Property as compared to other valuation methods.

We have also reviewed and discussed with Prudential the key assumptions and parameters adopted in the valuation and were advised by Prudential that the assumptions and parameters applied for the valuation of the Property is consistent with market practice and the valuation of the Property has been prepared under the generally accepted valuation procedures. Moreover, we have reviewed certain publicly available valuation reports prepared by professional valuers in relation to industrial properties in the PRC and noted that the assumptions and parameters adopted by Prudential for the valuation of the Property are generally adopted by other professional valuers as well. Given the valuation procedures and practices adopted by Prudential are normal and generally accepted among professional surveyors and in accordance with The Hong Kong Institute of Surveyors Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors, we are of the opinion that the basis for determining the valuation of the Property by Prudential is appropriate and fair and reasonable.

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LETTER FROM HERCULES

We were advised by the management of the Company that the Purchaser has paid an amount of approximately US$2.38 million (equivalent to approximately HK$18.5 million) to the Seller as the reimbursement for the interior decoration, renovation and improvement costs of the Property. Having taking into account the reimbursement of approximately US$2.38 million (equivalent to approximately HK$18.5 million) and the consideration of the Property of RMB143.0 million (equivalent to approximately HK$174.5 million), the aggregate amount of approximately HK$193.0 million receivable by the Seller from the Disposal represents a slight discount of approximately 0.1% to the fair value of the Property of RMB158.4 million (equivalent to approximately HK$193.2 million).

Having considered that (i) the discount of approximately 0.1% of the aggregate amount receivable by the Seller from the Disposal to the fair value of the Property is insignificant; and (ii) the basis for determining the valuation of the Property is fair and reasonable, we consider that the consideration for the Property is fair and reasonable so far as the Independent Shareholders are concerned and it is on normal commercial terms although the aggregate amount of the consideration of the Property and the reimbursement represents a slight discount to the fair value of the Property.

5. Financial Effects of the Disposal

Earnings

Cashflow

The Group will receive, after deducting expenses attributable to the Disposal of approximately HK$19.3 million and taking into account the reimbursement by the Purchaser of the interior decoration, renovation and improvement costs of the Property of approximately US$2.38 million (equivalent to approximately HK$18.5 million), net cash proceeds of approximately HK$173.7 million from the Disposal.

Net asset value

Immediately upon Closing, the net asset value of the Group shall increase as the net cash proceeds of approximately HK$173.7 million from the Disposal is larger than the carrying value of the Property as of 31 August 2012 of approximately HK$125.7 million while the Disposal shall have no material effect on the total liabilities of the Group.

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LETTER FROM HERCULES

Gearing and working capital

The Disposal shall improve the gearing and working capital of the Group as the Company intends to use the net proceeds from the Disposal for repayment of bank borrowings and general working capital of the Group.

Based on the above, the Disposal will have a positive effect on the Group’s earnings, cash position, net assets value, gearing ratio and working capital.

6. Background and Reasons for the Lease

The Property consists of an industrial complex which mainly serves as the research and development centre and sample production base of the Group’s footwear business at present. After the Disposal, the Group shall close down the production lines in the Property by phases. In order to offer flexibility to the Group to close down its production lines by phases and enable the Group to continue the production at the Property for the transitional period, the Seller entered into the Lease Agreement with the Purchaser so as to lease the Leased Property for its production use.

In light of the above, we consider that the entering into of the Lease Agreement is conducted in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

7. Principal terms of the Lease Agreement

The Seller and the Purchaser entered into the Lease Agreement in relation to the lease of the Leased Property. Set out below is a summary of the principal terms of the Lease Agreement:

Date: 27 September 2012 Tenant: the Seller Landlord: the Purchaser Premises: certain portions of the Property with an aggregate GFA of 33,211 sq. m. Term: an initial term of 12 months, commencing on the Closing Date and extendable on the same terms by mutual agreement of the parties to the Lease Agreement for another 12 months

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LETTER FROM HERCULES

Rent:

RMB265,688 (equivalent to approximately HK$324,140) per month

Rental deposit: Other terms:

RMB531,376 (equivalent to approximately HK$648,279), representing two months’ Rent

After possession of the Property is delivered to the Purchaser but before Closing, the Purchaser shall allow the Seller to continue to use the Leased Property and the Seller shall pay the Licence Fee to the Purchaser calculated at the same rate as the Rent under the Lease Agreement.

We understand from the management of the Company that the terms of the Lease Agreement were determined after arm’s length negotiations between the parties to the Lease Agreement and on normal commercial terms, in particular the monthly fee of RMB265,688 was determined after taking into account rental payments for premises with comparable size and location.

We were advised by the management of the Company that the Company has neither leased the Property to any independent third party since its establishment nor rented from any independent third party any similar property in the area where the Property is located. As such, we were unable to compare the monthly Rent in respect of the Lease with that of independent third party. However, we have reviewed the valuation report prepared by Prudential, an independent professional valuer, as set out in Appendix II to the Circular and noted that the estimated monthly market rental of the Property with GFA of approximately 82,949 sq. m. was RMB670,000, representing approximately RMB8.1 per sq. m.. Based on the GFA of the Leased Property of 33,211 sq. m., the monthly rental under the Lease Agreement is approximately RMB8.0 per sq. m., which is comparable to the market rate estimated by Prudential.

We have also discussed with Prudential the methodology and key assumptions employed in the valuation and noted that comparison approach has been adopted to value the rental of the Property. We understand from Prudential that comparison approach has been adopted by making references to comparable market rentals as available in the subject locality of similar type of industrial property and making relevant adjustments to arrive at an acceptable and reasonable estimated market rental for the Property. Furthermore, we have reviewed the information of the comparables, such as nature, size and location of the comparable properties, used by Prudential for assessing the market rental of the Property and noted that the nature, size and location of the comparables are similar to that of the Property. Given that Prudential is an independent qualified property valuer in Hong Kong with experiences in valuation of properties in the PRC and the valuation methodology, assumptions and procedures applied by Prudential are normal and commonly used among professional asset valuers, consistent with market practices and in

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accordance with The Hong Kong Institute of Surveyors Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors, we are of the opinion that the basis for determining the valuation of the rental of the Property by Prudential is appropriate and fair and reasonable and the estimated market rental of the Property set out in the valuation report is an objective market rate for assessing the monthly Rent under the Lease.

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

8. Bases of the Annual Caps

The proposed Annual Caps for the Licence Fee and the Rent contemplated under the Lease Agreement are summarized as follows:

Table 1 – Annual Caps for the Lease (including the Licence Fee and the Rent)

Period	Annual Caps
	RMB
1 January 2013 to 31 December	3,188,256
2013	(equivalent to approximately HK$3,889,673)
1 January 2014 to 31 December	3,188,256
2014	(equivalent to approximately HK$3,889,673)
	1,594,128
1 January 2015 to 30 June 2015	(equivalent to approximately HK$1,944,837)

Pursuant to the Lease Agreement, the Purchaser will be entitled to (i) the Licence Fee after possession of the Property is delivered to the Purchaser; and (ii) the Rent after Closing. It is expected that possession of the Property will be delivered to the Purchaser in early 2013 and Closing is expected to take place by June 2013. Therefore, the Annual Caps, which are determined based on the Licence Fee and the Rent payable of RMB265,688 (equivalent to approximately HK$324,140) per month under the Lease Agreement, cover a period of two and a half years from 1 January 2013 to 30 June 2015.

Having considered that the Licence Fee and the Rent payable under the Lease Agreement are fair and reasonable, details of which are set out in the section headed “Principal terms of the Lease Agreement” above, we consider that the Annual Caps in respect of the Lease are fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM HERCULES

9. Annual review of the Continuing Connected Transaction

The Company will comply with Rule 14A.37 to Rule 14A.41 of the Listing Rules during the term of the Lease Agreement, in particular:

(a) The Annual Caps for the Continuing Connected Transaction shall not be exceeded;
(b) Each year the independent non-executive Directors will review the Continuing Connected Transaction and confirm in the annual report of the Company that such transaction has been entered into:
(i) in the ordinary and usual course of business of the Company;
(ii) either on normal commercial terms or, if there are no sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Company than terms available to or from (as appropriate) independent third parties; and
(iii) in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole;
(c) Each year the auditors of the Company must provide a letter to the Board (with a copy provided to the Stock Exchange at least 10 business days prior to the bulk printing of the Company’s annual report), confirming that the Continuing Connected Transaction:
(i) has received the approval of the Board;
(ii) has been entered into in accordance with the terms of the Lease Agreement; and
(iii) has not exceeded the Annual Caps as disclosed;
(d) The Board must state in the annual report of the Company whether its auditors have confirmed the matters as referred to in paragraph in (c) above; and
(e) Upon any variation or renewal of the Lease Agreement, the Company will comply in full with all applicable reporting, annual review, disclosure and independent shareholders’ approval requirements of Chapter 14A of the Listing Rules.

Given the aforesaid review requirements, we are of the view that the interests of the Company and the Shareholders under the Continuing Connected Transaction will be properly safeguarded.

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RECOMMENDATION

Having considered the principal factors and reasons stated above, we are of the view that the Disposal and the Lease are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Company and its Shareholders as a whole and the Annual Caps in respect of the Lease are fair and reasonable so far as the Independent Shareholders are concerned. We therefore recommend the Independent Board Committee to advise the Independent Shareholders, as well as the Independent Shareholders, to vote in favor of the resolutions to be proposed at the SGM to approve the Disposal Agreement, the Lease Agreement and the Annual Caps.

Yours faithfully, For and on behalf of

Hercules Capital Limited

Louis Koo

Managing Director

Amilia Tsang Director

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. INDEBTEDNESS STATEMENT

At the close of business on 31 August 2012, being the latest practicable date for the purpose of preparing this statement of indebtedness prior to the printing of this circular, the indebtedness of the Group was as follows:

Borrowings

At the close of business on 31 August 2012, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had total borrowings of HK$618 million. Details of the total borrowings are summarized below:

	HK$ million
Secured
Bank loans	160
Unsecured
Bank loans	434

	594
Amounts due to jointly controlled entities, unsecured
and unguaranteed	24
Total borrowings	618

The secured and unsecured bank loans amounted to HK$283.5 million are covered by cross guarantees arrangement issued by the Company and certain of its subsidiaries in respect of banking facilities granted to them.

The secured bank loans were secured by certain of the Group’s land and buildings and investment properties with a total carrying amount of HK$318.4 million as at 31 August 2012.

Contingent liabilities

As at 31 August 2012, the Group had issued a financial guarantee to a bank in respect of banking facilities granted to a jointly controlled entity. The aggregate amount that could be required to be paid if the guarantee was called upon in its entirety amounted to HK$80 million, of which HK$70.5 million had been utilised by the jointly controlled entity as at 31 August 2012.

Potential tax liabilities in connection with the dispute with Inland Revenue Department (“IRD“) as at 31 August 2012, if any, are detailed as below:

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

From 2008 to 2011, the IRD had issued protective profits tax assessments for additional profits tax to certain wholly-owned subsidiaries of the Company relating to the years of assessment of 2001/2002 to 2004/2005, i.e. for the four financial periods ended 31 December 2004.

The Group had lodged objections with the IRD against the protective profits tax assessments. The IRD agreed to hold over the additional tax claimed subject to the relevant subsidiaries’ purchases of tax reserve certificates (“TRCs”) amounted to approximately HK$23 million which the Group did. In July and August 2012, the Group purchased additional TRCs amounted to HK$10.2 million relating to the year of assessment of 2004/2005 at the request of the IRD.

In December 2011, the Deputy Commissioner of the IRD issued his written determinations. Among others, he is of the view that the wholly-owned subsidiaries referred to above are subject to Hong Kong profits tax and confirmed/revised the protective profits tax assessments for 2001/2002 to 2004/2005 in the amount of approximately HK$306 million in aggregate. In January 2012, the Group filed notices of appeal to the Board of Review objecting to these written determinations. The Group is currently awaiting the appeal to be heard.

In March 2012, the IRD also issued protective profits tax assessments for profits tax or additional profits tax for HK$90.5 million in aggregate in accordance with the written determinations referred to above to the wholly-owned subsidiaries concerned for the year of assessment 2005/2006. The Group had lodged objections with the IRD against these protective profits tax assessments. The IRD agreed to hold over the additional tax claimed subject to the Group purchasing TRCs amounted to HK$12 million which the Group did in July 2012.

The protective assessments issued by IRD according to his determination for additional profits tax in aggregate of HK$396.5 million mentioned above for the years of assessment from 2001/2002 to 2005/2006 were issued on three alternative bases on the same set of profits for each year of assessment.

In March 2011, the Group filed an application to the Court for a judicial review contending, inter alia, whether the IRD has the power to issue multiple assessments against different group companies for the same set of profits for the years of assessment of 2001/2002 to 2004/2005.

The judicial review proceedings were heard on the 1st and 2nd February of 2012. The judgment in respect of the judicial review was handed down in May 2012. Among others, the Group’s application for relief to quash each of the assessments issued by the IRD and the conditional holdovers were not granted. The Court of First Instance held that the IRD can issue multiple assessments in respect of the same set of profits to different taxpayers on alternative bases, so long as there is no double recovery of tax.

Based on the mode of operations and activities of the subsidiaries and the merit of the Group’s position, the directors are of the opinion that the group companies concerned are not subject to Hong Kong profits tax.

– 30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As the appeal to the Board of Review is to be heard, the eventual outcome of this action which is being handled by the Group’s professional advisors and the financial impact thereof on the Group, if any, cannot be readily ascertained at this stage.

Disclaimer

Save as aforesaid, and apart from intra-group liabilities and normal trade payables, the Group did not have any outstanding bank overdrafts, loans, debt securities, borrowings or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, finance lease, hire purchases commitments, which were either guaranteed, unguaranteed, secured or unsecured guarantees or other material contingent liabilities at the close of business on 31 August 2012.

2. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the present financial resources, the banking facilities presently available, the estimated net proceeds from the Disposal and the estimated net cash outflow arising from the Lease, the Group will have sufficient working capital to meet its requirements for at least 12 months from the date of this circular in the absence of unforeseen circumstances.

3. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2011, being the date to which the latest published audited financial statements of the Group were made up.

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Group is principally engaged in footwear manufacturing and trading, property investment and investment holding in Hong Kong and the PRC. During the six months ended 30 June 2012, the Group recorded a loss of approximately HK$166.0 million which was primarily attributable to the decrease in gross profit margin as well as an one-off expense of approximately HK$47.4 million recorded during the period due to closure of two manufacturing plants in the PRC. As disclosed in the interim report of the Company for the six months ended 30 June 2012, with a view to improving the profitability of the Group, the Group will concentrate its efforts in developing higher value-added and profitable activities by reducing its investment in the increasingly challenging manufacturing sector as well as devote more resources to fostering businesses with higher chance of success such as (i) focusing on brand building; and (ii) engaging in outlet mall development business.

– 31 –

VALUATION REPORT ON THE PROPERTY

APPENDIX II

The following is the full text of the letter and the valuation certificate, prepared for the purpose of incorporation in this circular received from Prudential, an independent valuer, in connection with its valuation of the Property as at 10th August 2012.

==> picture [308 x 30] intentionally omitted <==

12th Floor Asian House 1 Hennessy Road Wanchai Hong Kong

10th August 2012

The Directors Symphony Holdings Limited 10th Floor, Island Place Tower No.510 King’s Road North Point Hong Kong

Dear Sirs,

The industrial complex located at Zhangjiabian Village, Huoju Development Zone, Zhongshan City, Guangdong Province, the PRC (the “Property”)

INSTRUCTION

In accordance with the instructions from Symphony Holdings Limited (“the Company”) for us to value the Property which is held by the Company and/or its subsidiary (hereinafter collectively referred to as the “Group”), we confirm that we have carried out site inspection, made relevant enquiries and obtained such further information as we considered necessary for the purpose of providing you with our opinion of the market value of the Property as at 10 August 2012 (the “Date of Valuation”).

This letter, forming part of our valuation report, identifies the Property being valued, explains the basis and methodology of our valuation, and lists out the assumptions and the title investigation we have made in the course of our valuation, as well as limiting conditions.

BASIS OF VALUATION

In valuating the property, we have complied with the requirements set out in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the HKIS Valuation Standards on Properties (First Edition 2005) issued by the Hong Kong Institute of Surveyors.

In the course of our valuation report of the Property, we have assumed that, unless otherwise stated, the transferable land use rights of the property for its respective terms at nominal annual land use fees have granted and that any premium payable has already been fully paid.

– 32 –

APPENDIX II

VALUATION REPORT ON THE PROPERTY

We have relied on the information provided by the Group and the advice provided by Horn Law Firm Guangdong, the Group’s legal adviser, regarding the title to the Property and the interests of the Group in the Property. In valuing the Property, we have assumed that the Group has an enforceable title to the Property and has free and uninterrupted rights to use, occupy or assign the property for the whole of the respective unexpired land use term as granted.

In respect of the Property, the status of titles and grant of major certificates approvals and licences, in accordance with the information provided by the Group are set out in the notes of the respective valuation certificates.

Our valuation of the property interest in the Property is our opinion of the market value which we would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably prudently and without compulsion.”

The market value is the best price reasonably obtainable in the market by the seller and the most advantageous price reasonably obtainable in the market by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, joint ventures, management agreements, special considerations or concessions granted by anyone associated with the sale, or any element of special value. The market value of the Property is also estimated without regard to costs of sale and purchase, and without offset for any associated taxes.

Our valuation has been carried out in accordance with The Hong Kong Institute of Surveyors (“HKIS”) Valuation Standards on Properties (1st Edition 2005) issued by the HKIS and the generally accepted valuation procedures and practices of professional surveyors.

VALUATION METHODOLOGY

Due to the nature of buildings and structures constructed thereon, there are no readily identifiable market comparables; and the Property cannot be valued by comparison with open market transactions. Therefore, we have adopted the “Depreciated Replacement Cost (DRC) Approach” in arriving at the value of such property interest.

The “DRC Approach” is based on an estimate of the market value for the existing use of the land in a property, and the costs to reproduce or replace in new conditions the buildings and structures being valued in accordance with current construction costs for similar buildings and structures in the locality, with allowance for accrued depreciation as evidenced by observed condition or obsolescence present, whether arising from physical, functional or economic causes. The “DRC Approach” generally furnishes the most reliable indication of value for property in the absence of a known market based on comparable sales.

– 33 –

VALUATION REPORT ON THE PROPERTY

APPENDIX II

VALUATION ASSUMPTIONS

In valuing the property interests, we have assumed that the Company has free and uninterrupted rights to use or to assign the property interests for the whole of the unexpired term granted subject to payment of government rent and that all requisite land premium/purchase consideration otherwise payable have been fully settled.

Our valuation has also been made on the assumption that the Property are to be sold in the open market without the benefit of deferred terms contracts, leasebacks, joint ventures, management agreements or any similar arrangements that would serve to affect their values. No account has been taken of any option or right of pre-emption concerning or affecting the sale of the Property and no forced sale situation in any manner is assumed in our valuation.

No allowance have been made in our valuation for any charges, mortgages or amounts owing on the Property nor for any expenses or taxation that may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the Property are free from encumbrances, restrictions, and outgoings of an onerous nature that could adversely affect their value.

We have assumed that all consents, approvals and licenses from relevant government authorities for the buildings and structures erected or to be erected thereon have been granted. Also, we have assumed that unless otherwise stated, all buildings and structures erected on the site are held by the owners or permitted to be occupied by the owner.

It is assumed that all applicable zoning, land use regulations and other restrictions have been complied with unless a non-conformity has been stated, defined and considered in the valuation certificate. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property interests described and that no encroachment or trespass exists unless noted in the valuation certificate.

TITLE INVESTIGATION

We have been provided with copies of documents in relation to the title of the property interests. However, due to the current registration system of the PRC, no investigation has been made for the legal title or any liabilities attached to the Property. We have also not scrutinized the original documents to verify ownership or to verify any amendments which may not appear on the copies handed to us.

All legal documents disclosed in this letter and valuation certificate is for reference only and no responsibility is assumed for any legal matters concerning the legal title to the property interests set out in this letter and valuation certificate.

LIMITING CONDITIONS

We have inspected the exterior and part of the interior of the Property on 6th August 2012. However, no structural survey has been made nor have any tests been carried out on any of the services provided in the Property. We are, therefore, not able to report that the Property is free from rot, infestation or any other structural defects. Yet, in the course of our inspection, we did not note any serious defects.

– 34 –

VALUATION REPORT ON THE PROPERTY

APPENDIX II

No detailed on-site measurements have been made during our inspection. Dimensions, measurements and areas included in the valuation certificate attached are based on information contained in the documents available to us and are therefore approximations only.

We have relied to a considerable extent on the information provided by the Company and have accepted advice given to us on such matters as planning approvals, statutory notices, easements, tenure, completion dated of buildings, particulars of occupancy, site and floor plans, site and floor areas and other relevant matters in the identification of the Property in which the Company has valid interest. We have not seen original planning consents and have assumed that the Property has been erected and are being occupied and used in accordance with such consents.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Company. We were also advised by the Company that no material facts have been omitted from the information supplied. We considered that we have been provided with sufficient information to reach an informed view and have no reason to suspect that any information has been withheld.

Yours faithfully,

For and on behalf of

PRUDENTIAL SURVEYORS (HONG KONG) LIMITED Albert C H Pang

BSc (Hons) MRICS MHKIS RPS (GP) Assistant General Manager

Mr. Albert C. H. Pang is a Registered Professional Surveyor (GP) with 15 years’ experience in valuation of properties in HKSAR, Macau SAR, Mainland China and the Asia Pacific Region. Mr. Pang is a Professional Member of The Royal Institution of Chartered Surveyors and a Member of The Hong Kong Institute of Surveyors.

– 35 –

VALUATION REPORT ON THE PROPERTY

APPENDIX II

VALUATION CERTIFICATE OF PROPERTY HELD BY SYMPHONY HOLDINGS LIMITED

Property

Description

Particular of Occupancy

Market Value in existing state as at 10th August 2012

The industrial complex The subject industrial complex is located at erected on an irregular-shaped site Zhangjiabian Village, formed by four pieces of land with Huoju Development Zone, a total site area of approximately Zhongshan City, 108,170.99 sq.m. (1,164,353 sq.ft.) Guangdong Province, and is located on the eastern side the PRC (The postal of Shi Ji Avenue at its junction address: 廣東省中山市火炬 with Yi Xian Road in Huoju 開發區逸仙路14號) Development Zone, Zhongshan City.

The Property is currently owned and occupied by the Group as factories and dormitories.

Land Value ¥68,220,000.00.

Building Value ¥90,180,000.00. Total ¥158,400,000.00.

The Property comprises 2 large pieces of lands separated by Shi Ji Avenue, one mainly for factory use and other for dormitory use. The land mainly used for factory use comprises one 4-storey office building, five 2-storey workshop buildings, one 3-storey dormitory building with canteen on ground floor, one 1-storey guard house, one 7-storey dormitory building and one 3-storey dormitory building. The land mainly for dormitory use comprises one 3-storey canteen building and five 7-storey dormitory buildings. The buildings and structures were completed in the period between 2000 and 2005. One additional 6-storey dormitory building was completed in 2008.

The total gross floor area of the Property is approximately 82,949.23 sq.m. (892,866 sq.ft.)

The land use rights of the subject four pieces of land have been granted for industrial uses for terms due to expire on 16th September 2048, 16th November 2048, 9th December 2048 and 21st December 2048 respectively.

Estimated Market Rental – RMB670,000 per month

– 36 –

VALUATION REPORT ON THE PROPERTY

APPENDIX II

Notes:

(1) Pursuant to four Certificates of State-owned Land Use issued by the People’s Government of Zhongshan City, the land use rights of the subject four pieces of land have been granted to 中山精美鞋業有限公司 (Zhongshan Jingmei Footwear Company Limited*) for industrial uses. The details of the said certificates are summarized as follows:

			Expiry Date of Land	Expiry Date of Land
Certificate No.		Issuance Date	Use Right			Site Area
						(sq.m.)
a)	中府國用(2002)	2nd June 2002	16th November 2048			24,968.7
	字第151579號
	(Zhong Fu Guo
	Yong (2002) Zi
	No. 151579)
b)	中府國用(2002)	24th June 2002	21st December 2048			36,666.70
	字第151574號
	(Zhong Fu Guo
	Yong (2002) Zi
	No. 151574)
c)	中府國用(2002)	16th December 2002	9th December 2048			4,040.59
	字第150792號
	(Zhong Fu Guo
	Yong (2002) Zi
	No. 150792)
d)	中府國用(2004) 字第150012號	13th January 2004	16th September 2048			42,495.00
	(Zhong Fu Guo
	Yong (2004) Zi
	No. 150012)

			Total			108,170.99

Pursuant to three Certificates for Real Estate Ownership issued by the People’s					Government of Zhongshan
City,	the title to the Property is vested in 中山精美鞋業有限公司(Zhongshan Jingmei Footwear Company
Limited*). The details of the said certificates are			summarized as follows:
			No. of	No. of		Gross Floor
Certificate No.		Issuance Date	Buildings	Storey		Area
						(sq.m.)
e)	粵房地證字第 C1263425號	16th January 2003	6	1 to	4	44,002.82
	(Yue Fang Di
	Zheng Zi
	No. C1263425)
f)	粵房地證字第 C1263426號	16th January 2003	9	1 to	7	34,803.96
	(Yue Fang Di
	Zheng Zi
	No. C1263426)
g)	粵房地證字第 C1270783號	16th January 2003	1	3		639.33
	(Yue Fang Di
	Zheng Zi
	No. C1270783)

				Total		79,446.11

(2) Pursuant to three Certificates for Real Estate Ownership issued by the People’s Government of Zhongshan City, the title to the Property is vested in 中山精美鞋業有限公司 (Zhongshan Jingmei Footwear Company Limited*). The details of the said certificates are summarized as follows:

* For identification only

– 37 –

VALUATION REPORT ON THE PROPERTY

APPENDIX II

(3) Pursuant to the Certificate of Registration for the Completion of Building dated 4th July 2008 issued by Zhongshan City Construction Bureau, the construction works of a 6-storey dormitory building with a gross floor area of 3,503.12 sq.m. was completed.
(4) We have been provided with a legal opinion on the title to the Property issued by the Group’s PRC legal adviser which contains, inter-alias, the following information:
(a) 中山精美鞋業有限公司 (Zhongshan Jingmei Footwear Company Limited*) is in possession of a proper legal title and is entitled to transfer the Property together with the residual term of its land use rights at no extra land premium and other onerous charges payable to the government. All land premium and costs of resettlement and public utilities services have been fully settled.
(b) The design and construction of the Property are in compliance with the local planning regulations and have been approved by relevant government authorities.
(c) The Property can be disposed of freely to local purchasers.
(5) The status of title and grant of major approvals, consents or licences in accordance with the information provided to us by the Group are as follows:

Certificates for State-owned Land Use Yes Certificated for Real Estate Ownership (Part) Yes Permit for Construction Works Commencement (the newly built dormitory building) Yes

* For identification only

– 38 –

GENERAL INFORMATION

APPENDIX III

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 and based on the information provided by the Purchaser, 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 the Directors or chief executive of the Company

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

Long Positions in the Shares

			Number of		Percentage
			Shares held		of the issued
					share capital
		Beneficial	Controlled		of the
Director	Notes	owner	corporation	Total	Company
Chan Ting Chuen	1, 2	3,750,000	664,677,468	668,427,468	51.10%
Chang Tsung Yuan	4	4,500,000	–	4,500,000	0.344%
Sze Sun Sun Tony	1, 3	–	664,677,468	664,677,468	50.81%

Notes:

Well Success was directly interested in 664,677,468 Shares. First Dynamic International Limited (“ First Dynamic ”) held more than one-third of the issued share capital of Well Success. Each of Royal Pacific Limited (“ Royal Pacific ”) and Alexon International Limited (“ Alexon ”) held more than one-third of the issued share capital of First Dynamic. Accordingly, First Dynamic, Royal Pacific and Alexon were deemed to be interested in 664,677,468 Shares.
Mr. Chan Ting Chuen (“ Mr. Chan ”) had a direct interest in 3,750,000 Shares. Royal Pacific was wholly-owned by TC Chan Family Holdings Limited (“ TCCFHL ”), which in turn was wholly-owned by Mr. Chan. Accordingly, Mr. Chan was or deemed to be interested in 668,427,468 Shares.

– 39 –

GENERAL INFORMATION

APPENDIX III

Mr. Sze Sun Sun Tony was interested in the entire issued share capital of Alexon and was therefore deemed to be interested in 664,677,468 Shares.
Mr. Chang was directly interested in 4,500,000 Shares. He was also a substantial shareholder of Well Success, in which he held 20.0% of its issued share capital.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, chief executives nor their associates had or were deemed to have any interests or short positions in any shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), (a) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which the Directors or the chief executives were taken or deemed to have under such provisions of SFO); or (b) which were required, pursuant to section 352 of SFO, to be entered in the register referred to therein; or (c) which were required to be notified to the Company and the Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules.

(ii) Persons who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO and substantial shareholders of the Company

So far as is known to the Directors or the chief executive of the Company, as at the Latest Practicable Date, companies and persons who had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO were as follows:

Long Positions in the Shares

				Number of		Percentage
			ordinary Shares held			of the issued
						share capital
			Direct	Deemed	Total	of the
Shareholder	Notes	Capacity	interests	interests	interests	Company
Well Success	1	Beneficial	664,677,468	–	664,677,468	50.81%
		owner
First Dynamic	1	Interest of	–	664,677,468	664,677,468	50.81%
		controlled
		corporation
Royal Pacific	1	Interest of	–	664,677,468	664,677,468	50.81%
		controlled
		corporation

– 40 –

APPENDIX III

GENERAL INFORMATION

				Number of		Percentage	Percentage
			ordinary Shares held			of the issued
						share	capital
			Direct	Deemed	Total		of the
Shareholder	Notes	Capacity	interests	interests	interests	Company
TCCFHL	2	Interest of	–	664,677,468	664,677,468	50.81%
		controlled
		corporation
Mr. Chan	2	Beneficial	3,750,000	664,677,468	668,427,468	51.10%
		owner and
		Interest of
		controlled
		corporation
Ng Shuk Fong	2	Spouse	–	668,427,468	668,427,468	51.10%
(“Madam Ng”)
Alexon	1	Interest of	–	664,677,468	664,677,468	50.81%
		controlled
		corporation
Mr. Sze	3	Interest of	–	664,677,468	664,677,468	50.81%
		controlled
		corporation
Lau Yuk Wah	3	Spouse	–	664,677,468	664,677,468	50.81%
(“Madam Lau”)
Frensham	4	Beneficial	62,999,572	664,677,468	727,677,040	55.63%
Investments		owner and
Limited		interest of
(“Frensham”)		controlled
		corporation
Pou Yuen	4	Interest of	–	727,677,040	727,677,040	55.63%
Industrial		controlled
(Holdings)		corporation
Limited
(“Pou Yuen”)
Yue Yuen	4	Interest of	–	727,677,040	727,677,040	55.63%
Industrial		controlled
Limited		corporation
(“Yue Yuen
Industrial”)
Pou Hing	4	Interest of	–	727,677,040	727,677,040	55.63%
Industrial		controlled
Company		corporation
Limited
(“Pou Hing“)

– 41 –

APPENDIX III

GENERAL INFORMATION

				Number of		Percentage
			ordinary Shares held			of the issued
						share capital
			Direct	Deemed	Total	of the
Shareholder	Notes	Capacity	interests	interests	interests	Company
Yue Yuen	4	Interest of	–	727,677,040	727,677,040	55.63%
Industrial		controlled
(Holdings)		corporation
Limited
(“Yue Yuen”)
Wealthplus	4	Interest of	–	727,677,040	727,677,040	55.63%
Holdings		controlled
Limited		corporation
(“Wealthplus”)
Pou Chen	4	Interest of	–	727,677,040	727,677,040	55.63%
Corporation		controlled
(“Pou Chen”)		corporation
Shah Capital		Investment	206,318,375	–	206,318,375	15.77%
Management		Manager

Notes:

As at the Latest Practicable Date, Well Success was directly interested in 664,677,468 Shares. First Dynamic held more than one-third of the issued share capital of Well Success. Each of Royal Pacific and Alexon held more than one-third of the issued share capital of First Dynamic. Accordingly, First Dynamic, Royal Pacific and Alexon were deemed to be interested in 664,677,468 Shares.
Madam Ng is the wife of Mr. Chan, a Director of the Company. Royal Pacific is wholly owned by TCCFHL, which in turn is wholly owned by Mr. Chan. As at the Latest Practicable Date, Royal Pacific was deemed to be interested in 664,677,468 Shares (see Note 1), therefore both Mr. Chan and Madam Ng were deemed to be interested in 664,677,468 Shares. Furthermore, Mr. Chan was directly interested in 3,750,000 Shares. Accordingly, Madam Ng was deemed to be interested in a total of 668,427,468 Shares.
Madam Lau is the wife of Mr. Sze, a Director of the Company. As at the Latest Practicable Date, Mr. Sze was interested in the entire issued share capital of Alexon, therefore he was deemed to be interested in 664,677,468 Shares (see Note 1). Accordingly, Madam Lau was deemed to be interested in a total of 664,677,468 Shares.
Frensham was a wholly-owned subsidiary of Pou Yuen which in turn was a wholly-owned subsidiary of Yue Yuen Industrial. Yue Yuen Industrial was a wholly-owned subsidiary of Pou Hing which in turn was a wholly-owned subsidiary of Yue Yuen. Wealthplus, a wholly-owned subsidiary of Pou Chen, held over one-third of the entire issued share capital of Yue Yuen. As at the Latest Practicable Date, Frensham held more than one-third of the issued share capital of Well Success and was therefore deemed to be interested in 664,677,468 Shares. In addition, Frensham had a direct interest in 62,999,572 Shares. Accordingly, all of Frensham, Pou Yuen, Yue Yuen Industrial, Pou Hing, Yue Yuen, Wealthplus and Pou Chen were deemed to be interested in 727,677,040 Shares.

Save as disclosed above, as at the Latest Practicable Date, so far as the Directors or chief executive of the Company are aware, no person was interested in or had a short position in the shares, underlying shares or debentures of the Company which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO and none

– 42 –

GENERAL INFORMATION

APPENDIX III

of the Directors is a director or employee of a company which has 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.

3. DISCLOSURE OF OTHER INTERESTS

(i) Interests in contract or arrangement

Save for the Disposal Agreement and the Lease Agreement, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group which was subsisting as the Latest Practicable Date and which was significant in relation to the business of the Group.

(ii) Interests in assets

Save for the Disposal Agreement and the Lease Agreement, none of the Directors had any direct or indirect interests in any assets which had been acquired or disposed of by, or leased to, or which were proposed to be acquired or disposed of by, or leased to, any member of the Group since 31 December 2011, being the date to which the latest published audited accounts of the Group were made up.

(iii) Interests in competing business

As at the Latest Practicable Date, none of the Directors and their respective associates had any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or proposed to enter, into a service contract with any member of the Group.

5. MATERIAL CONTRACTS

Set out below are the contracts (not being contracts entered into in the ordinary course of business) entered into by any member of the Group within the two years immediately preceding the Latest Practicable Date that are or may be material:

(i) an agreement dated 11 November 2010 entered into between 瀋陽房地產開發有限公司 (Shenyang Real Estate Development Company Limited) and 瀋陽市規劃和國土資源局瀋北分局 (Shenyang Municipal Bureau of Planning and Land Resources Shenbei Branch) in respect of the acquisition of land use right at a consideration of approximately RMB89,931,108 (equivalent to approximately HK$104,715,952);

* For identification only

– 43 –

GENERAL INFORMATION

APPENDIX III

(ii) a confirmation agreement dated 20 January 2011 entered into between Ample Apex Limited (“Ample Apex”), a wholly-owned subsidiary of the Company, and 瀋陽市規劃和國土資源局 (Shenyang Municipal Bureau of Planning and Land Resources*) confirming the successful bid for a parcel of land in Shenyang of Ample Apex for a consideration in the amount of RMB101,826,648 (equivalent to approximately HK$124,228,511);
(iii) a confirmation agreement dated 20 January 2011 entered into between Boom Origin Limited (“Boom Origin”), a wholly-owned subsidiary of the Company, and 瀋陽市規劃和國土資源局 (Shenyang Municipal Bureau of Planning and Land Resources*) confirming the successful bid for a parcel of land in Shenyang of Boom Origin for a consideration in the amount of RMB65,727,335 (equivalent to approximately HK$80,187,349);
(iv) a joint venture agreement dated 23 February 2011 entered into amongst True Wealth Properties Limited, a wholly-owned subsidiary of the Company, Mitsubishi Estate Co. Ltd and the Company in respect of the formation of Premier Ever Group Limited for the development and operation of Park Outlet, the Group’s flagship upscale outlet mall in Shenyang, the PRC;
(v) a conditional underwriting agreement dated 11 April 2011 entered into between the Company and Well Success as the underwriter in relation to an open offer of 872,022,386 offer Shares at the subscription price of HK$0.25 per offer Share on the basis of one offer Share for every two Shares;
(vi) the Disposal Agreement; and
(vii) the Lease Agreement.

6. LITIGATION

* For identification only

– 44 –

APPENDIX III

GENERAL INFORMATION

assessments for 2001/2002 to 2004/2005 in the amount of approximately HK$306 million in aggregate. In January 2012, the Group filed notices of appeal to the Board of Review objecting to these written determinations. The Group is currently awaiting the appeal to be heard.

In March 2012, the IRD also issued protective profits tax assessments for profits tax or additional profits tax for HK$90.5 million in aggregate in accordance with the written determinations referred to above to the wholly owned subsidiaries concerned for the year of assessment 2005/2006. The Group had lodged objections with the IRD against these protective profits tax assessments. The IRD agreed to hold over the additional tax claimed subject to the Group purchasing TRCs amounted to HK$12 million which the Group did in July 2012.

Based on the mode of operations and activities of the subsidiaries and the merit of the Group’s position, the Directors are of the opinion that the Group companies concerned are not subject to Hong Kong profits tax.

Save as disclosed above, to the best of the Directors’ knowledge, information and belief, neither the Group nor any of its subsidiaries was engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened against the Group as at the Latest Practicable Date.

– 45 –

GENERAL INFORMATION

APPENDIX III

7. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given opinions or advice which are contained in this circular:

Name

Qualifications

Hercules a corporation licensed to carry out Type 6 regulated activity as defined under the SFO Prudential independent professional valuers

As at the Latest Practicable Date, none of the above experts had any direct or indirect shareholdings in any member of the Group, or any right to subscribe for or to nominate persons to subscribe for shares in any members of the Group, or any interests, directly or indirectly, in any assets which have been acquired or disposed of by or leased to or which are proposed to be acquired or disposed of by or leased to the Company or any of their respective subsidiaries since 31 December 2011, the date to which the latest published audited financial statements of the Group were made up.

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion therein of its reports and references to its name in the form and context in which they appear.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection during normal business hours on Business Days at the office of the Company at 10th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong from the date of this circular up to and including the date of the SGM:

(i) the memorandum of association and bye-laws of the Company valid as at the Latest Practicable Date;
(ii) the annual reports of the Company for each of the two financial years ended 31 December 2010 and 2011;
(iii) the interim report of the Company for the six months ended 30 June 2012;
(iv) the letter from the Independent Board Committee, the text of which is set out on page 14 of this circular;
(v) the letter of advice from Hercules, the text of which is set out on pages 15 to 28 of this circular;
(vi) the valuation report from Prudential on the Property, the text of which is set out in Appendix II to this circular;

– 46 –

GENERAL INFORMATION

APPENDIX III

(vii) the material contracts referred to in the section headed “Material contracts” in this appendix;
(viii)the written consents of the experts referred to in the section headed “Experts and consents” in this appendix;
(ix) a copy of the circular of the Company which has been issued pursuant to requirements set out in Chapter 14 of the Listing Rules since 31 December 2011 (being the date to which the latest published audited accounts of the Group were made up); and
(x) this circular.

9. MISCELLANEOUS

(i) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda and its principal place of business in Hong Kong is 10th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong.
(ii) The Company’s Hong Kong share registrar and transfer office is Tricor Tengis Limited at 26th Floor of Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(iii) The company secretary of the Company is Ms. Chow So Ying Anna, who is a solicitor (as defined in the Legal Practitioners Ordinance).
(iv) The English text of this circular and the accompanying form of proxy shall prevail over the Chinese text.

– 47 –

NOTICE OF SGM

==> picture [45 x 31] intentionally omitted <==

SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 01223 )

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT a special general meeting of the shareholders of Symphony Holdings Limited will be held at the Boardroom on the 10th Floor of Island Place Tower, 510 King’s Road, North Point, Hong Kong on Wednesday, 7 November 2012 at 10.00 a.m. for the purpose of considering and, if thought fit, passing, with or without modification, the following, which will be proposed as ordinary resolutions:

ORDINARY RESOLUTIONS

“ THAT :
(a) the conditional sale and purchase agreement dated 27 September 2012 entered into between 中山精美鞋業有限公司, an indirect wholly-owned subsidiary of the Company (the “ Seller ”), and 福建威霖實業有限公司 (the “ Purchaser ”) in relation to the proposed disposal of an industrial complex erected on the Land together with the land use rights of the Land located at Zhangjiabian Village, Huoju Development Zone, Zhongshan City, Guangdong Province, the PRC (the “ Property ”) by the Seller to the Purchaser (the “ Disposal Agreement ”), a copy of which has been produced to the meeting, marked “ A ” and initialed by the chairman of the meeting for the purpose of identification, pursuant to which, amongst other things, the Seller conditionally agreed to sell and the Purchaser conditionally agreed to purchase the Property for an aggregate consideration of RMB143.0 million, be and is hereby approved; and
(b) the lease agreement entered into pursuant to the Disposal Agreement, a copy of which has been produced to the meeting, marked “ B ” and initialed by the chairman of the meeting for the purpose of identification, be and is hereby approved.”

* For identification only

– 48 –

NOTICE OF SGM

“ THAT the proposed annual caps in respect of the rights to be granted in relation to the Lease referred to in the circular of the Company dated 22 October 2012, be and are hereby approved.”

By order of the Board Chan Ting Chuen Chairman

Hong Kong, 22 October 2012

As at the date of this notice, the directors of the Company are:

Executive Directors:

Mr. Chan Ting Chuen (Chairman) Mr. Sze Sun Sun Tony (Deputy Chairman & Managing Director) Mr. Chang Tsung Yuan (Deputy Chairman) Mr. Chan Lu Min Ms. Chen Fang Mei Dr. Ho Ting Seng

Non-executive Director: Mr. Li I Nan

Independent Non-executive Directors:

Mr. Cheng Kar Shing Mr. Feng Lei Ming Mr. Ho Shing Chak Mr. Huang Shenglan

– 49 –

AI assistant

Symphony Holdings Limited — Proxy Solicitation & Information Statement 2012

49779_rns_2012-10-22_c76a613d-4866-4c86-86dd-ba15d90c1fda.pdf

SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

MAJOR AND CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF PROPERTY AND CONTINUING CONNECTED TRANSACTION

Financial Adviser to the Company

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

MAJOR AND CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF PROPERTY AND CONTINUING CONNECTED TRANSACTION

INTRODUCTION

LETTER FROM THE BOARD

THE DISPOSAL AGREEMENT

Parties:

LETTER FROM THE BOARD

Assets to be disposed of:

Consideration:

Closing:

Termination:

LETTER FROM THE BOARD

CONTINUING CONNECTED TRANSACTION

The Lease Agreement

The Annual Caps

REASONS FOR THE DISPOSAL AND THE LEASE

LETTER FROM THE BOARD

USE OF PROCEEDS AND FINANCIAL EFFECTS OF THE DISPOSAL

LISTING RULES IMPLICATIONS

SGM

RECOMMENDATION

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

MAJOR AND CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF PROPERTY AND CONTINUING CONNECTED TRANSACTION

Yours faithfully,

Independent Board Committee

Mr. Cheng Kar Shing Mr. Feng Lei Ming Mr. Ho Shing Chak Mr. Huang Shenglan

MAJOR AND CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF PROPERTY AND CONTINUING CONNECTED TRANSACTION

INTRODUCTION

LETTER FROM HERCULES

BASIS OF OUR OPINION

LETTER FROM HERCULES

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Information of the Group

LETTER FROM HERCULES

LETTER FROM HERCULES

2. Information of the Property

3. Reasons for the Disposal

4. Principal terms of the Disposal Agreement

LETTER FROM HERCULES

5. Financial Effects of the Disposal

Earnings

Cashflow

Net asset value

Gearing and working capital

6. Background and Reasons for the Lease

7. Principal terms of the Lease Agreement

LETTER FROM HERCULES

8. Bases of the Annual Caps

9. Annual review of the Continuing Connected Transaction

RECOMMENDATION

Hercules Capital Limited

Louis Koo

1. INDEBTEDNESS STATEMENT

Borrowings

Contingent liabilities

Disclaimer

2. WORKING CAPITAL

3. MATERIAL ADVERSE CHANGE

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The industrial complex located at Zhangjiabian Village, Huoju Development Zone, Zhongshan City, Guangdong Province, the PRC (the “Property”)

INSTRUCTION

BASIS OF VALUATION

VALUATION REPORT ON THE PROPERTY

VALUATION METHODOLOGY

VALUATION ASSUMPTIONS

TITLE INVESTIGATION

LIMITING CONDITIONS

Symphony Holdings Limited Proxy Solicitation & Information Statement 2012