Tonly Electronics : AMENDMENT OF RESTRICTED SHARE AWARD SCHEME AND NEW SHARES GRANT AND CONNECTED TRANSACTION – CONNECTED NEW SHARES GRANT

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

This announcement is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of the Company.

TONLY ELECTRONICS HOLDINGS LIMITED 通力電子控股有限公司

(the "Company")

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 01249)

AMENDMENT OF RESTRICTED SHARE AWARD SCHEME AND NEW SHARES GRANT AND CONNECTED TRANSACTION - CONNECTED NEW SHARES GRANT

Reference is made to the announcement of the Company dated 28 August 2014 in respect of adoption of the Scheme.

AMENDMENTS TO THE SCHEME

On 8 August 2017, the Board has resolved to make the Amendments to the Scheme, which include, among others, (i) allowing the allotment and issue of new Shares as Awarded Shares; (ii) giving the Selected Persons entitlement to Related Distribution;

(iii) empowering the Company to elect (but not obliged) to deduct Awarded Shares for payment of tax and expenses; (iv) revision of Scheme Limit and Individual Limit and introduction of Annual Limit; and (v) empowering the Board to accelerate the vesting of Awards where appropriate.

SCHEME MANDATE

As new Shares may be issued and allotted for making of Awards under the Scheme after the Amendments, the Company will seek its Shareholders' approval at the EGM for the Scheme Mandate for the Awarded Shares being new Shares to be issued and allotted pursuant to the Scheme. Any new Shares which may fall to be issued by the Company to satisfy Awards to be granted under the Scheme will be issued pursuant to the Scheme Mandate to be sought from the Shareholders at the EGM.

As at the date of this announcement, the number of issued shares of the Company was 260,504,823 fully paid-up Shares. On the basis that no further Shares will be allotted and issued or repurchased from the date of this announcement and up to the date of the EGM, and subject to the passing of the resolutions approving the granting of the Scheme Mandate, 26,050,482 new Shares (including the 5,705,804 Shares to be awarded pursuant to the conditional New Shares Grant) may be issued and allotted as Awarded Shares under the Scheme.

NEW SHARES GRANT

On 8 August 2017, the Board resolved to conditionally make New Shares Grant, subject to acceptance by the Grantees, on terms of the amended Scheme. This involves granting Awards for a total of 5,705,804 Awarded Shares being new Shares to 199 Grantees, who are all Employees. The New Shares Grant is subject to (i) the entering into of the Trust Deed; (ii) the approval by the Shareholders for the Scheme Mandate; and (iii) the approval by the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, such new Shares.

CONNECTED TRANSACTION - CONNECTED NEW SHARES GRANT

Out of the 199 Grantees of New Shares Grant, 11 are Connected Grantees who are conditionally granted a total of 1,467,811 Awarded Shares being new Shares. The grant of new Shares to such Connected Grantees, i.e. the Connected New Shares Grant, constitutes connected transactions and, in addition to the conditions generally applicable to the making of New Shares Grant, is also subject to the approval by the Independent Shareholders at the EGM.

LISTING RULES IMPLICATION

As new Shares may be issued and allotted for making of Awards under the Scheme, Shareholders' Approval is required pursuant to Rule 13.36(1) of the Listing Rules prior to allotting and issuing of new Shares as Awarded Shares under the Scheme. The Company will seek its Shareholders' approval at the EGM for the Scheme Mandate for the Awarded Shares being new Shares to be issued and allotted pursuant to the Scheme.

Since each of the Connected Grantees under the Connected New Shares Grant are connected persons of the Company by virtue of being a director and/or a chief executive of member(s) of the Group, the proposed Awards to them constitute connected transactions of the Company which are subject to the reporting, announcement and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee has been established to give recommendations to the Independent Shareholders on the Connected New Shares Grant to the Connected Grantees. The Company has appointed Beijing Securities as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

EGM

A proposal will be put to the Shareholders to consider and, if thought fit, to approve the Scheme Mandate and the Connected New Shares Grant. The following ordinary resolutions will be proposed at the EGM:

1. resolution for grant of the Scheme Mandate;

2. resolutions for the making of the Connected New Shares Grant to the Connected Grantees.

A circular containing, among other things, (i) further details of the Scheme Mandate sought and the Connected New Shares Grant; (ii) the recommendation of the Independent Board Committee to the Independent Shareholders on the Connected New Shares Grant; (iii) the advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders on the Connected New Shares Grant; and (iv) a notice of the EGM of the Company to be held for considering and approving, if appropriate, the Scheme Mandate and the Connected New Shares Grant, will be dispatched to the Shareholders on or before 29 August 2017.

AMENDMENT OF RESTRICTED SHARE AWARD SCHEME Introduction

Reference is made to the announcement of the Company dated 28 August 2014 in respect of adoption of the Scheme.

On 28 August 2014, the Board adopted the Scheme Rules for establishment of the Scheme. As disclosed in the annual report 2016 of the Company for the year ended 31 December 2016, the scope of the Participants was amended and approved by the Board, which was broadened from the Employees to include not only the Employees but also adviser(s), consultant(s), agent(s), contractor(s), client(s) or supplier(s) of any member(s) of the Group and employee(s) or officer(s) of any Affiliated Company(ies) whom the Board in its sole discretion considers may contribute or have contributed to the Group.

The purpose and objectives of the Scheme is to recognise and motivate the contribution of certain Participants and to incentivise them and to help the Group in retaining its existing Employees and attracting and recruiting suitable personnel as additional Employees to further the operation and development of the Group and to provide them with a direct economic interest in attaining the long-term business objectives of the Group.

Amendments to the Scheme

On 8 August 2017, pursuant to the terms of the Scheme Rules, the Board has resolved to make the Amendments to the Scheme which took effect on the same date. The Company and the Trustee will enter into the Trust Deed to reflect the Amendments. The major terms of the Amendments are set out as follows:

1. Allotment and issuance of new Shares as Awarded Shares

   Prior to the Amendments to the Scheme, the Company may only instruct the Trustee to purchase existing Shares from the market to satisfy the Awards.

   After the Amendments, as an alternative to purchase of existing Shares on the market for any awards made under the Scheme, the Company may allot and issue new Shares as Awarded Shares and the Board shall have the discretion to decide which form of Awarded Shares to be used for the Award - whether to use existing Shares purchased by the Trustee or new Shares allotted by the Company and issued to the Trustee for each particular Award. Any issue and allotment of new Shares as Awarded Shares pursuant to the Scheme shall be subject to the following conditions: (i) the passing of an ordinary resolution by the Shareholders of the Company in general meeting approving the Scheme Mandate; and (ii) the Listing Committee of the Stock Exchange granting approval of the listing of, and permission to deal in, any Shares to be allotted and issued pursuant to the Scheme and the Scheme Mandate and all applicable laws and regulations.

   Under the Scheme with Amendments, no new Shares may be allotted and issued to Eligible Persons who are not Employees.

2. Entitlement to Related Distribution

   The Amendments also provide, that in addition to the Awarded Shares, a Selected Person shall also be entitled to Related Distribution derived from the relevant Awarded Shares referable to that Selected Person the record date for entitlement of which falls within the period from the Grant Date to the Vesting Date (both dates inclusive) of such Awarded Shares, which shall however only be vested on the relevant Selected Person on the Vesting Date subject to fulfilment of vesting conditions (if any).

3. Discretion to Deduct Awarded Shares and/or Related Distribution for payment of tax and expenses

   The Amendments allow that in the event that the Company is obliged to pay for and on behalf of the relevant Selected Person any tax, levies and/or expenses under the Scheme which are to be borne by him, the Company shall be entitled, at its sole and absolute discretion, to elect either one or a combination of the following to recover such amount of tax, levies and/or expenses paid by the Company for the Selected Person as reimbursement:

4. the Company can deduct the amount paid from any salary or any other cash payment to be paid to the Selected Person by the Company; or