BYD Electronic International : · BYD ELECTRONIC REVISION OF MAXIMUM RATE OF PURCHASING SERVICE FEE FOR CONTINUING CONNECTED TRANSACTIONS (2016-11-18)

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(incorporated in Hong Kong under the Companies Ordinance with limited liability)

(Stock code: 285)

Website: http://www.byd-electronic.com

ANNOUNCEMENT REVISION OF MAXIMUM RATE OF PURCHASING SERVICE FEE FOR CONTINUING CONNECTED TRANSACTIONS

This announcement is made by the Company pursuant to Rule 14A.54(2) of the Listing Rules.

Reference is made to the announcement of the Company dated 6 November 2015 in relation to, among others, the New Supply Chain Management Service Agreement, pursuant to which BYD Group agrees to provide purchasing service to the Group during the period from 1 January 2016 to 31 December 2018. Under this arrangement, BYD Group shall provide purchase order execution and logistic support to the Group, including but not limited to consolidation of purchase orders from the Group in respect of production equipment, machineries and raw materials for the Group's production of handset components and modules, selection of appropriate suppliers, negotiation with suppliers for bulk purchase discount and delivery schedule, as well as quality control and inspection and provide legal and other consultation services to the Group on matters in relation to purchasing.

Under the original New Supply Chain Management Service Agreement, BYD Group would charge a purchasing service fee not exceeding 0.32% of the purchase amount of the relevant goods (excluding value added tax or other applicable taxes, discounts, allowances or returns). The rate of the purchasing service fee was determined with reference to the expenses to be incurred by BYD Group in rendering the purchasing service to the Group, plus a margin taking into account the benefit available to the Group from BYD Group's services.

The Board hereby announces that on 18 November 2016, the Company and BYD entered into the Supplemental Agreement to adjust the aforesaid maximum rate of the purchasing service fee with effect from the date of the Supplemental Agreement. Pursuant to the Supplemental Agreement, the total purchasing service fees payable per calendar year under the New Supply Chain Management Service Agreement during the period from the date of the Supplemental Agreement to 31 December 2018 shall not exceed 0.5% of the total purchase amount of all the goods purchased during the relevant calendar year (excluding value added tax or other applicable taxes, discounts, allowances or returns). The rate of the purchasing service fee will continue to be determined with reference to the expenses to be incurred by BYD Group in rendering the purchasing service to the Group, plus a margin taking into account the benefit available to the Group from BYD Group's services.

IMPLICATIONS UNDER THE LISTING RULES

As BYD is the controlling Shareholder of the Company indirectly interested in approximately 65.76% of the issued share capital of the Company as at the date of the Supplemental Agreement, BYD and its subsidiaries are connected persons of the Company. Therefore, the transactions contemplated under the Supplemental Agreement constitute continuing connected transactions of the Group under Chapter 14A of the Listing Rules.

Since one or more of the applicable percentage ratios stipulated under Rule 14.07 of the Listing Rules in respect of the annual caps under the New Supply Chain Management Service Agreement (as supplemented by the Supplemental Agreement) for the three years ending 31 December 2018 exceed 0.1% but do not exceed 5%, the continuing connected transactions under the New Supply Chain Management Service Agreement (as supplemented by the Supplemental Agreement) are subject to the reporting, announcement and annual review requirements, but exempt from the independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

INTRODUCTION

This announcement is made by the Company pursuant to Rule 14A.54(2) of the Listing Rules.

Reference is made to the announcement of the Company dated 6 November 2015 in relation to, among others, the New Supply Chain Management Service Agreement, pursuant to which BYD Group agrees to provide purchasing service to the Group during the period from 1 January 2016 to 31 December 2018. Under this arrangement, BYD Group shall provide purchase order execution and logistic support to the Group, including but not limited to consolidation of purchase orders from the Group in respect of production equipment, machineries and raw materials for the Group's production of handset components and modules, selection of appropriate suppliers, negotiation with suppliers for bulk purchase discount and delivery schedule, as well as quality control and inspection and provide legal and other consultation services to the Group on matters in relation to purchasing.

REVISION OF MAXIMUM RATE OF PURCHASING SERVICE FEE UNDER THE NEW SUPPLY CHAIN MANAGEMENT SERVICE AGREEMENT

Under the original New Supply Chain Management Service Agreement, BYD Group would charge a purchasing service fee not exceeding 0.32% of the purchase amount of the relevant goods (excluding value added tax or other applicable taxes, discounts, allowances or returns). The rate of the purchasing service fee was determined with reference to the expenses to be incurred by BYD Group in rendering the purchasing service to the Group, plus a margin taking into account the benefit available to the Group from BYD Group's services.

The Board hereby announces that on 18 November 2016, the Company and BYD entered into the Supplemental Agreement to adjust the aforesaid maximum rate of the purchasing service fee with effect from the date of the Supplemental Agreement. Pursuant to the Supplemental Agreement, the total purchasing service fees payable per calendar year under the New Supply Chain Management Service Agreement during the period from the date of the Supplemental Agreement to 31 December 2018 shall not exceed 0.5% of the total purchase amount of all the goods purchased during the relevant calendar year (excluding value added tax or other applicable taxes, discounts, allowances or returns).The rate of the purchasing service fee will continue to be determined with reference to the expenses to be incurred by BYD Group in rendering the purchasing service to the Group, plus a margin taking into account the benefit available to the Group from BYD Group's services.

Save as disclosed above, all other terms and conditions of the New Supply Chain Management Service Agreement and the annual caps for the transactions contemplated thereunder for the three years ending 31 December 2018 as set out in the announcement of the Company dated 6 November 2015 (i.e. RMB47,929,000, RMB53,543,000 and RMB59,723,000, respectively) remain unchanged.

The adjustment to the maximum rate of purchasing service fee under the New Supply Chain Management Service Agreement pursuant to the Supplemental Agreement was determined based on arm's length negotiations between BYD and the Company primarily with reference to the following factors:

1. the increase in BYD Group's costs and expenses in providing the purchasing service to the Group, rendering the purchasing service fee under the New Supply Chain management Service Agreement insufficient to cover the increased costs and expenses of BYD Group;

2. the benefit available to the Group from BYD Group's services. In particular:

3. the continuation of the provision of purchasing service by BYD Group to the Group will enable the Group to save time and costs in negotiation with suppliers individually as BYD Group can negotiate with various suppliers on a centralised basis for both the BYD Group and the Group;

4. the Group will also continue to benefit from bulk purchasing arrangement under the purchasing service, which enable the Group to enjoy more favourable terms than if members of the Group and the BYD Group were to undertake their purchasing individually; and

5. under the purchasing service arrangement, procurement of products by the Group could be better coordinated and transacted in a more efficient manner.

6. REASONS FOR THE CONTINUING CONNECTED TRANSACTIONS ELABORATED

   The Group has continuously and actively considered different means to control or minimize its production costs, so as to maintain or enhance its competitiveness. Taking into account the benefit available to the Group from BYD Group's services under the New Supply Chain Management Service Agreement as explained in the paragraph above and due to the historical friendly relationship between the Company and BYD and the proximity of the factories and premises of the Group and the BYD Group, the Directors (including the independent non-executive Directors) consider it beneficial to the Group to enter into the Supplemental Agreement and continue to conduct the transactions under the New Supply Chain Management Service Agreement in order to ensure and maximize the operating efficiency and stability of the operations of the Company.

   The Group will continue to monitor the amount of transactions under the New Supply Chain Management Service Agreement (and as supplemented by the Supplemental Agreement) on a regular basis in order to comply with the requirements regarding the maximum rate of purchasing service fee and the annual caps. The Group will also continue to obtain and check records of relevant expenses incurred by BYD Group and the management of the Group will review the aforesaid pricing policy on a regular basis to ensure that the transactions contemplated under the New Supply Chain Management Service Agreement (as supplemented by the Supplemental Agreement) will be conducted on normal commercial terms and not prejudicial to the interest of the Company's minority Shareholders.

   IMPLICATIONS UNDER THE LISTING RULES

   As BYD is the controlling Shareholder of the Company indirectly interested in approximately 65.76% of the issued share capital of the Company as at the date of the Supplemental Agreement, BYD and its subsidiaries are connected persons of the Company. Therefore, the transactions contemplated under the Supplemental Agreement constitute continuing connected transactions of the Group under Chapter 14A of the Listing Rules.

   Since one or more of the applicable percentage ratios stipulated under Rule 14.07 of the Listing Rules in respect of the annual caps under the New Supply Chain Management Service Agreement (as supplemented by the Supplemental Agreement) for the three years ending 31 December 2018 exceed 0.1% but do not exceed 5%, the continuing connected transactions under the New Supply Chain Management Service Agreement (as supplemented by the Supplemental Agreement) are subject to the reporting, announcement and annual review requirements, but exempt from the independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

   The Directors (including the independent non-executive Directors) considered the transactions contemplated under the Supplemental Agreement are in the ordinary and usual course of business of the Group and on normal commercial terms, fair and reasonable and in the interests of the Company and its Shareholders as a whole.

   Mr. WANG Chuan-fu, a non-executive Director of the Company, is also an executive director and chairman of the board of directors of BYD and is interested in approximately 18.96% of the total issued share capital of BYD as at the date of the Supplemental Agreement. Mr. WU Jing-sheng, a non-executive Director of the Company, is also the vice president and chief financial officer of BYD and is interested in approximately 0.16% of the total issued share capital of BYD as at the date of the Supplemental Agreement. Accordingly, Mr. WANG Chuan-fu and Mr. WU Jingsheng, being Directors who may have a material interest, have voluntarily abstained from voting on the board resolutions of the Company concerning the Supplemental Agreement.

   INFORMATION ON THE GROUP AND BYD GROUP

   The Group is principally engaged in the business of manufacture and sales of handset components and modules, the provision of handset design and assembly services, and the provision of parts and assembly services of other electronic products.

   The BYD Group is principally engaged in rechargeable battery and photovoltaic business, handset components and assembly services, as well as automobile business which includes traditional fuel-engined vehicles and new energy vehicles while taking advantage of its technological superiority to actively develop business relating to the area of new energy products.