China Display Optoelectrncs Tech Hld : (1) RENEWAL OF EXISTING CONTINUING CONNECTED TRANSACTIONS MASTER FINANCIAL SERVICES (2020 RENEWAL) AGREEMENT AND (2) MAJOR TRANSACTION AND ADVANCE TO AN ENTITY IN RESPECT OF THE DEPOSIT SERVICES UNDER THE MASTER FINANCIAL SERVICES (2020 RENEWAL) AGREEMENT

About this update from China Display Optoelectronics Technology Holdings Ltd

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in doubt as to any aspect about this circular, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitors, professional accountant or other professional adviser. If you have sold or transferred all your Shares in China Display Optoelectronics Technology Holdings Limited (the " Company "), you should at once hand this circular and proxy form enclosed herein to the purchaser or transferee, or to the bank or stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. The 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. This circular is for information purpose only and does not constitute an invitation or offer to acquire, purchase, or subscribe for securities. China Display Optoelectronics Technology Holdings Limited 華 顯 光 電 技 術 控 股 有 限 公 司 (Incorporated in Bermuda with limited liability) (Stock Code: 334) RENEWAL OF EXISTING CONTINUING CONNECTED TRANSACTIONS MASTER FINANCIAL SERVICES (2020 RENEWAL) AGREEMENT AND (2) MAJOR TRANSACTION AND ADVANCE TO AN ENTITY IN RESPECT OF THE DEPOSIT SERVICES UNDER THE MASTER FINANCIAL SERVICES (2020 RENEWAL) AGREEMENT Independent Financial Adviser to the Independent Board Committee and the Shareholders Halcyon Capital Limited A letter from the Board is set out on pages 8 to 39 of this circular. A letter from the Independent Board Committee containing its recommendation to the Shareholders is set out on pages 40-41 of this circular. A letter from Halcyon Capital Limited, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Shareholders is set out on pages 42 to 70 of this circular. A notice convening the SGM of the Company to be held at 8th Floor, Building 22E, Phase Three, Hong Kong Science Park, Pak Shek Kok, New Territories, Hong Kong on 24 December 2019, Tuesday at 2:00 p.m. is set out on pages 81 to 82 of this circular. If a Typhoon Signal No. 8 or above is hoisted or a Black Rainstorm Warning Signal is in force at or at any time after 12:00 noon on the date of the meeting and/or the Hong Kong Observatory has announced at or before 12:00 noon on the date of the meeting that either of the above mentioned warnings is to be issued within the next two hours, the meeting will be adjourned. The Company will publish an announcement to notify Shareholders of the date, time and place of the adjourned meeting. The meeting will be held as scheduled when an Amber or Red Rainstorm Warning Signal is in force. Shareholders should decide on their own whether they would attend the meeting under bad weather conditions bearing in mind their own situation. Whether or not you are able to attend the SGM or any adjournment thereof (as the case may be) in person, please complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Hong Kong branch share registrar of the Company, Tricor Investor Services Limited, at Level 54, Hopewell Centre 183 Queen's Road East Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the SGM or any adjournment thereof. 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 should you so wish. 9 December 2019 CONTENTS Page CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . 40 LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . . 42 APPENDIX I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 APPENDIX II - GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 NOTICE OF SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 - i - DEFINITIONS In this circular, unless the context otherwise requires, the following expressions have the following meanings: "associate(s)" "Board" "Bye-Laws" "CBIRC" "China Display Qualified Member" "Company" has the meaning ascribed to it under the Listing Rules; the board of Directors of the Company; the bye-laws of the Company as supplemented or amended or substituted from time to time; China Banking and Insurance Regulatory Commission; such member(s) of the Group which satisfies the qualification of Qualified Member(s) during the term of the Master Financial Services (2020 Renewal) Agreement; China Display Optoelectronics Technology Holdings Limited, a company incorporated in the Bermuda with limited liability, the shares of which are listed on the main board of the Stock Exchange (stock code: 00334); "connected person(s)" "CSOT" has the meanings ascribed to it under the Listing Rules; TCL China Star Optoelectronics Technology Co., Ltd.* TCL 華星光電技術有限公司） , formerly known as Shenzhen China Star Optoelectronics Technology Co., Ltd.* （深圳市華星光電技術有限公司） , a company established under the laws of the PRC with limited liability; "Deposit Services" deposit of money by member(s) of the Group which are Qualified Members with Finance Company pursuant to the Master Financial Services (2020 Renewal) Agreement; "Director(s)" the director(s) of the Company; - 1 - DEFINITIONS "Finance Company" "Finance Company (HK)" "Financing Services" "Group" "HK$" "Hong Kong" "Independent Board Committee" "Independent Financial Adviser" TCL Finance Co., Ltd.* （ TCL 集團財務有限公司） , a company owned as to 82% by TCL Corporation, as to 14% by TCL King Electrical Appliances (Chengdu) Company Limited* （ TCL 王牌電器（成都）有限公司） (an associate of TCL Corporation and an indirect wholly- owned Subsidiary of TCL Electronics Holdings Limited, a TCL Associate) and as to 4% by JRD Communication (Shenzhen) Ltd. (an indirect wholly-owned Subsidiary of TCL Communication Technology Holdings Limited, a TCL Associate); TCL Finance (Hong Kong) Co., Limited, a company incorporated in Hong Kong with limited liability; the provision of loan and credit facilities (including but not limited to unsecured loans, guarantees, receivable factoring, bill acceptance, bill discounting and secured loans) by TCL Financial Services Associates to the China Display Qualified Members pursuant to the Master Financial Services (2020 Renewal) Agreement; the Company and its Subsidiaries; Hong Kong dollars, the lawful currency of Hong Kong; the Hong Kong Special Administrative Region of the PRC; an independent committee of the Board established for the purpose of reviewing the terms of and the proposed annual caps for transactions under the Master Financial Services (2020 Renewal) Agreement; Halcyon Capital Limited, a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser appointed by the Board to advise the Independent Board Committee and the Shareholders in respect of the terms of the Master Financial Services (2020 Renewal) Agreement, the transactions contemplated thereunder and the proposed annual caps; - 2 - DEFINITIONS "Independent Third Party(ies)" "Latest Practicable Date" "LCD" "LCD Module" "Listing Rules" "Master Financial Services (2017 Renewal) Agreement" a person(s) or company(ies) which is/are independent of and not connected with any directors, chief executives, controlling shareholders and substantial shareholders of the Company or any of its Subsidiaries and their respective associates; means 4 December 2019, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular; liquid crystal display; the integrated module of liquid crystal display, integrated circuit, connector and other structural components; the Rules Governing the Listing of Securities on the Stock Exchange; the master financial services agreement dated 18 August 2017 entered into among the Company, TCL Corporation, Finance Company and Finance Company (HK) in respect of the provision of Deposit Services, Financing Services and Other Financial Services by TCL Financial Services Associates; "Master Financial Services the master financial services (2020 renewal) agreement (2020 Renewal) Agreement" dated 2 December 2019 entered into among the Company, TCL Corporation and Finance Company in respect of the provision of Deposit Services, Financing Services and Other Financial Services by TCL Financial Services Associates; - 3 - DEFINITIONS "Other Financial Services" "PBOC" "PRC" "Promotion Fee" "Promotion Services" all financial services which may be provided by TCL Financial Services Associates for the China Display Qualified Members under the Master Financial Services (2020 Renewal) Agreement other than the Deposit Services and the Financing Services, namely (i) financial management services and financing advisory services, credit verification and related consultation and agency services (including issuance of letters of credit, back-to- back letters of credit, standby letters of credit, and transfer of letters of credit); (ii) entrusted loans and entrusted investment; (iii) collection of transaction payments (including payment and disbursements on import collection bills, export and documents against acceptance bills); (iv) approved insurance agency services; (v) internal transfer and settlement, and corresponding settlement and clearance solutions advisory services; (vi) capital transaction business (including spot and all kinds of derivatives financial products); and (vii) any other services approved by the CBIRC; the People's Bank of China, the central bank of the PRC; the People's Republic of China excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan for the purposes of this circular; fee payable by TCL Financial Services Associates to the relevant members of the Group for its provision of Promotion Services; services to be provided by the relevant members of the Group to procure its suppliers and/or customers to engage TCL Financial Services Associates for their provision of services; - 4 - DEFINITIONS "Qualified Member(s)" "RMB" "SFO" "SGM" "Share(s)" "Shareholder(s)" "Shareholders' Approval Day" "Stock Exchange" "Subsidiary/Subsidiaries" "TCL Associates" all companies for which TCL Financial Services Associates will be allowed to provide services pursuant to the Administrative Measures on Group Finance Companies （企 業集團財務公司管理辦法） promulgated by the CBIRC, which shall only include TCL Corporation, any Subsidiaries of which TCL Corporation owns an equity interest of 51% or more, any company in which TCL Corporation or any of its Subsidiaries own, individually or collectively, an equity interest of over 20% and any company in which TCL Corporation or any of its Subsidiaries own less than 20% equity interest but are, individually or collectively, the largest shareholder; Renminbi, the lawful currency of the PRC; the Securities and Futures Ordinance (Cap. 571 of Laws of Hong Kong); the special general meeting of the Company to be convened and held to consider and, if thought fit, approve, among other things, the Master Financial Services (2020 Renewal) Agreement and the relevant proposed annual caps; ordinary share(s) of HK$0.10 each in the share capital of the Company; holder(s) of Share(s); the date on which the Shareholders of the Company approve the Master Financial Services (2020 Renewal) Agreement, the transactions contemplated thereunder and the proposed annual caps; The Stock Exchange of Hong Kong Limited; any entity within the meaning of the term "subsidiary" as defined in the Listing Rules and the term "Subsidiaries" shall be construed accordingly; the associate(s) of TCL Corporation; - 5 - DEFINITIONS "TCL Corp Group" "TCL Corporation" TCL Corporation, its Subsidiary(ies) and any entity(ies) that may become Subsidiary(ies) of TCL Corporation from time to time during the term of the Master Financial Services (2020 Renewal) Agreement but does not include the Group (unless otherwise specified) for the purpose of this circular; TCL Corporation （ TCL 集團股份有限公司） , a joint stock company established under the laws of the PRC, the ultimate controlling Shareholder of the Company, the shares of which are listed on Shenzhen Stock Exchange (stock code: 000100); "TCL Financial Services the existing TCL Associates and any entity that may Associate(s)" become TCL Associates from time to time during the term of the Master Financial Services (2020 Renewal) Agreement which carry on businesses in deposit, clearing, bill discounting and securities, factoring finance, financial leasing and guarantees and Other Financial Services, including but not limited to Finance Company, TCL Commercial Factoring (Shenzhen) Company Limited* （ TCL 商業保理（深圳）有限公司） , Huizhou Zhonghai TCL Smart Technology Micro-Credit Company Limited* （惠州市仲愷 TCL 智融科技小額貸款股份有限公司） , Guangzhou TCL Internet Micro-Credit Company Limited* （廣州 TCL 互聯網小額貸款有限公司） , TCL Internet Financing Services (Shenzhen) Company Limited* （ TCL 互聯網金融服務（深圳）有限公司） , and TCL Financial Leasing (Zhuhai) Company Limited* （ TCL 融資租賃（珠 海）有限公司） ; "TCL Holdings" TCL Industries Holdings Co., Ltd.* （ TCL 實業控股股份 有限公司） , formerly known as TCL Industries Holdings (Guangdong) Inc.* （ TCL 實業控股（廣東）股份有限公 司） , a company established under the laws of the PRC with limited liability; - 6 - DEFINITIONS "TCL Industries" T.C.L. Industries Holdings (H.K.) Limited, a company incorporated in Hong Kong and a wholly-owned Subsidiary of TCL Holdings; and "%" per cent. The English transliteration of the Chinese name(s) in this circular, where indicated with "*", is included for information purpose only, and should not be regarded as the official English name(s) of such Chinese names. - 7 - LETTER FROM THE BOARD China Display Optoelectronics Technology Holdings Limited 華 顯 光 電 技 術 控 股 有 限 公 司 (Incorporated in Bermuda with limited liability) (Stock Code: 334) Non-executive Director: Registered Office: LIAO Qian (Chairman) Clarendon House Executive Directors: 2 Church Street Hamilton HM 11 OUYANG Hongping (Chief Executive Officer) Bermuda WEN Xianzhen ZHAO Jun Principal Place of Business in Hong Kong: Independent Non-executive Directors: 8th Floor Building 22E HSU Wai Man, Helen Phase Three of Hong Kong Science Park XU Yan Pak Shek Kok LI Yang New Territories Hong Kong 9 December 2019 To the Shareholders Dear Sir or Madam, RENEWAL OF EXISTING CONTINUING CONNECTED TRANSACTIONS MASTER FINANCIAL SERVICES (2020 RENEWAL) AGREEMENT AND (2) MAJOR TRANSACTION AND ADVANCE TO AN ENTITY IN RESPECT OF THE DEPOSIT SERVICES UNDER THE MASTER FINANCIAL SERVICES (2020 RENEWAL) AGREEMENT INTRODUCTION Reference is made to the announcement of the Company dated 2 December 2019. As stated therein, the Company, TCL Corporation and Finance Company had on 2 December 2019 entered into the Master Financial Services (2020 Renewal) Agreement for a term, subject to Shareholders' approval, commencing from 1 January 2020 to 31 December 2022, which are on substantially similar terms of the existing Master Financial Services (2017 Renewal) Agreement with a few amendments to continue the existing continuing connected transactions thereunder. - 8 - LETTER FROM THE BOARD The purposes of this circular are to provide the Shareholders with further details regarding the Master Financial Services (2020 Renewal) Agreement; to set out the recommendation from the Independent Board Committee regarding the Master Financial Services (2020 Renewal) Agreement; to set out the advice from Halcyon Capital Limited, the Independent Financial Adviser, regarding the Master Financial Services (2020 Renewal) Agreement; and to give the Shareholders other information in accordance with the requirements of the Listing Rules. The notice of SGM is enclosed herein as part of this circular. MASTER FINANCIAL SERVICES (2020 RENEWAL) AGREEMENT The Company had entered into the Master Financial Services (2017 Renewal) Agreement on 18 August 2017, which will expire on 31 December 2019. As the Company wishes to continue the continuing connected transactions contemplated thereunder with certain modifications, on 2 December 2019 the Company entered into the Master Financial Services (2020 Renewal) Agreement, which is substantially similar in nature as the Master Financial Services (2017 Renewal) Agreement with certain amendments. The major differences between the Master Financial Services (2020 Renewal) Agreement and the Master Financial Services (2017 Renewal) Agreement are that under the Master Financial Services (2020 Renewal) Agreement (as compared to the Master Financial Services (2017 Renewal) Agreement): Finance Company (HK) is no longer a party to the Master Financial Services (2020 Renewal) Agreement; and China Display Qualified Members may deposit money with Finance Company but not with Finance Company (HK). - 9 - LETTER FROM THE BOARD As the Group no longer intends to deposit money with Finance Company (HK), Finance Company (HK) was not made a party to the Master Financial Services (2020 Renewal) Agreement. In any event, Finance Company (HK) ceased to be a connected person of the Company after the completion of the restructuring (" Restructuring ") carried out by TCL Corporation was completed on 31 March 2019. The Restructuring involved the spin off, among others, of all the equity interests held by TCL Corporation in TCL Industries, together with those equity interests in various associates (including Finance Company (HK)) to TCL Holdings, which is not a connected person of the Company. As at the Latest Practicable Date, China Star Optoelectronics International (HK) Limited and TCL Technology Investments Limited are TCL Financial Services Associates that provide Financing Services outside the PRC. Set out below are major terms of the Master Financial Services (2020 Renewal) Agreement: Date: 2 December 2019 Parties: (1) the Company (for itself and on behalf of its Subsidiaries); (2) TCL Corporation (for itself and on behalf of TCL Financial Services Associates); and (3) Finance Company. Condition Precedent and Duration: Subject to compliance with the Listing Rules by the Company in relation to the entering into of the Master Financial Services (2020 Renewal) Agreement and the transactions contemplated thereunder, including but not limited to obtaining the approval from Shareholders at the SGM, the Master Financial Services (2020 Renewal) Agreement shall become effective from 1 January 2020 to 31 December 2022 (both days inclusive) - 10 - LETTER FROM THE BOARD Major Terms: Deposit Services Any China Display Qualified Member may from time to time and in its absolute discretion deposit money with Finance Company. If Finance Company decides to accept any amount of cash deposits from a China Display Qualified Member (including current deposits, fixed deposits or any other form of deposits), the interest rates offered by Finance Company, as the case may be, shall: (1) for deposits made within the PRC, not be lower than the highest of: (i) the minimum interest rate promulgated by the PBOC for the same type of deposit services from time to time; (ii) the interest rates for the same type of deposits offered by major commercial banks of the PRC; and (iii) the interest rates for the same type of deposits offered by the Finance Company to any other members of the TCL Corp Group (including the Group); and other terms and conditions offered by Finance Company as a whole shall also not be less favourable than those offered by major commercial banks of the PRC (see Note 1) and the Finance Company to any other members of the TCL Corp Group (including the Group) and shall be on normal commercial terms; and - 11 - LETTER FROM THE BOARD for deposits made outside the PRC, not be lower than the highest of: the interest rates for the same type of deposits offered by major commercial banks located in the place where the relevant China Display Qualified Member is located; and the interest rates for the same type of deposits offered by the Finance Company to any other members of the TCL Corp Group (including the Group); and other terms and conditions offered by Finance Company as a whole shall also not be less favourable than those offered by major commercial banks located in the place where the relevant China Display Qualified Member is located (see Note 1) and the Finance Company to any other members of the TCL Corp Group (including the Group) and shall be on normal commercial terms. TCL Corporation undertakes and will procure all its TCL Financial Services Associates to jointly and severally with TCL Corporation undertake with the Group that at any time during the term of the Master Financial Services (2020 Renewal) Agreement, the maximum amount of loans, financing and guarantees available under the facility line under the Master Financial Services (2020 Renewal) Agreement provided by TCL Financial Services Associates to China Display Qualified Members shall not be less than the total amount of deposits (including normal cash deposit and deposit of cash or bank instruments as security) placed by the China Display Qualified Members with Finance Company. (see Note 2) - 12 - LETTER FROM THE BOARD If any China Display Qualified Member demands repayment of any money deposited by it with Finance Company in accordance with the relevant terms and procedures and Finance Company fails to follow the repayment demand, such China Display Qualified Member shall then have the right to: offset the relevant outstanding deposit amount against up to the same amount of any outstanding loans owed by it and/or any financing provided to it by TCL Financial Services Associates and/or TCL Corporation; and/or transfer the right mentioned in (a) above to other China Display Qualified Members, so that other China Display Qualified Members have the right to offset the relevant outstanding deposit amount against up to the same amount of any outstanding loans owed by them and/or any financing provided to them by TCL Financial Services Associates and/or TCL Corporation; and/or request TCL Corporation to repay the outstanding deposit amount on behalf of Finance Company in full. Upon enquiry from any China Display Qualified Member, Finance Company shall within one business day provide an offer specifying the interest rates and terms of Deposit Services (including but not limited to whether the deposit can be withdrawn before its maturity, as well as the notice period of such withdrawal). - 13 - LETTER FROM THE BOARD Financing Services (see Note 3) Any China Display Qualified Member may from time to time and in its absolute discretion request any Financing Services (including bills discounting services) from TCL Financial Services Associates. If any of the TCL Financial Services Associates decides to provide any Financing Services to a China Display Qualified Member within the PRC, the interest rates charged by such TCL Financial Services Associate shall not be higher than the lowest of: the maximum interest rates promulgated by the PBOC from time to time in respect of same type of financing services; the interest rates offered by major commercial banks of the PRC for same type of financing services; and the interest rates for same type of financing services provided by such TCL Financial Services Associate to any other members of the TCL Corp Group (including the Group) with the same credit rating, and the other terms and conditions offered by such TCL Financial Services Associate in respect of the Financing Services as a whole shall not be less favourable than those offered by other major commercial banks and by TCL Financial Services Associates to any other members of the TCL Corp Group (including the Group) with the same credit rating in respect of same type of financing services and shall be on normal commercial terms. - 14 - LETTER FROM THE BOARD If any of the TCL Financial Services Associates decides to provide any Financing Services to a China Display Qualified Member outside the PRC, the interest rates charged by such TCL Financial Services Associate shall not be higher than the lower of the interest rates offered by major commercial banks located in the place where the relevant China Display Qualified Member is located for same type of financing services; and the interest rates for same type of financing services provided by such TCL Financial Services Associate to any other members of the TCL Corp Group (including the Group) with the same credit rating, and the other terms and conditions offered by such TCL Financial Services Associate in respect of the Financing Services as a whole shall be on normal commercial terms and shall not be less favourable than those offered by such TCL Financial Services Associate to any other members of the TCL Corp Group (including the Group) with the same credit rating and major commercial banks located in the place where the relevant China Display Qualified Member is located in respect of same type of financing services. - 15 - LETTER FROM THE BOARD Upon enquiry from any China Display Qualified Member, the respective TCL Financial Services Associate shall within three business days provide an offer specifying the interest rates and terms of Financing Services. TCL Financial Services Associates and the relevant China Display Qualified Members may enter into specific agreements in compliance with the Listing Rules in respect of any Financing Services to be provided with a view to setting out the detailed terms of the transactions as long as such terms comply with the requirements of the Listing Rules and the Master Financial Services (2020 Renewal) Agreement. TCL Financial Services Associates may request China Display Qualified Member(s) to provide security to TCL Financial Services Associates in respect of the Financing Services provided by Finance Company. Other Financial Services Any China Display Qualified Member may from time to time and in its absolute discretion request TCL Financial Services Associates to provide Other Financial Services, including, among other things, financial advisory services, settlement advisory services, insurance agency services, agency lending and borrowings and any other services approved by relevant regulatory authority. The fees charged by TCL Financial Services Associates in respect of provision of Other Financial Services within the PRC shall not be higher than the lowest of: the fees promulgated by PBOC (if applicable) for relevant services from time to time; the fees charged by major commercial banks of the PRC in respect of relevant services; and - 16 - LETTER FROM THE BOARD the fees charged for the relevant services offered by TCL Financial Services Associates to any other members of the TCL Corp Group (including the Group) with the same credit rating. Other terms and conditions of the Other Financial Services offered by TCL Financial Services Associates within the PRC shall not be less favourable than those offered by PBOC, major commercial banks of the PRC and by TCL Financial Services Associates to any other members of the TCL Corp Group (including the Group) with the same credit rating for the relevant services and shall be on normal commercial terms. The fees charged by TCL Financial Services Associates in respect of provision of Other Financial Services outside the PRC shall not be higher than the lower of: the fees promulgated by the major commercial banks located in the place where the relevant China Display Qualified Member is located for relevant services; and - 17 - LETTER FROM THE BOARD the fees charged for the relevant services offered by TCL Financial Services Associates to any other members of the TCL Corp Group (including the Group) with the same credit rating. Other terms and conditions of the Other Financial Services offered by TCL Financial Services Associates outside the PRC shall not be less favourable than those offered by the major commercial banks located in the place where the relevant China Display Qualified Member is located and by TCL Financial Services Associates to any other members of the TCL Corp Group (including the Group) with the same credit rating for the relevant services and shall be on normal commercial terms. The relevant China Display Qualified Member may from time to time determine in its absolute discretion to use Other Financial Services provided by TCL Financial Services Associates or any other independent financial institutions. The relevant China Display Qualified Member may enter into separate written agreements with TCL Financial Services Associates in relation to the provision of the specific services under Other Financial Services with a view to setting out the detailed terms of the transactions, as long as such terms comply with the requirements of the Listing Rules and the Master Financial Services (2020 Renewal) Agreement. - 18 - LETTER FROM THE BOARD Promotion Services Any member of the Group may from time to time and in its absolute discretion provide Promotion Services to and receive Promotion Fee from TCL Financial Services Associates in accordance with the Listing Rules and the Master Financial Services (2020 Renewal) Agreement. TCL Financial Services Associates and the relevant member(s) of the Group may enter into specific agreements in respect of any Promotion Services to be provided and Promotion Fee to be received with a view to setting out the detailed terms of the transactions, as long as such terms comply with the requirements of the Listing Rules and the Master Financial Services (2020 Renewal) Agreement. Promotion Fee offered by members of the Group in respect of the Promotion Services to be provided shall not be less favourable than those offered by members of the Group to any other Independent Third Party in respect of same type of services and those offered by any other members of the TCL Corp Group to TCL Financial Services Associates in respect of same type of services and shall be on normal commercial terms. TCL Corporation's TCL Corporation undertakes with the Company, undertakings: among others, that: (1) it will procure TCL Financial Services Associates to perform its obligations under the Master Financial Services (2020 Renewal) Agreement; and - 19 - LETTER FROM THE BOARD in case TCL Financial Services Associates experience any financial difficulties, TCL Corporation will, subject to internal approvals and the applicable rules and regulations, inject capital to TCL Financial Services Associates based on the needs of TCL Financial Services Associates. Notes: The major commercial banks of PRC include (but not limited to) Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China and China Construction Bank. The major commercial banks located in the place where the relevant China Display Qualified Member is located include (but not limited to), in the case of Hong Kong, Bank of China (Hong Kong), The Hongkong and Shanghai Banking Corporation and China Construction Bank (Asia). With this undertaking, China Display Qualified Members could be assured that facilities available to them under the Master Financial Services (2020 Renewal) Agreement could be of at least the amount of deposits they maintain with Finance Company. Whilst it is not a term of the Master Financial Services (2020 Renewal) Agreement, the Group has no intention to obtain secured loans, financing and guarantees involving pledge of the Group's assets as security under the Master Financial Services (2020 Renewal) Agreement. General Settlement Terms of Services Deposit Services Generally, the agreed deposit account maintained by China Display Qualified Member(s) with Finance Company is akin to a current account, such that China Display Qualified Member(s) will make deposit and withdrawal from such account on a daily basis (provided that the deposit terms offered by Finance Company to the Group are no less favourable than those offered by Independent Third Parties). Interest for the period starting on the 22nd day of the previous month to the 21st day of the current month will be settled on the 21st day of each month. Financing Services Bills generally have a credit period of 30 to 90 days. Cash to be received by China Display Qualified Members on discounting the bills will normally be settled on the same day or the next business day. - 20 - LETTER FROM THE BOARD Other Financial Services Letters of credit are normally issued upon the supplier having submitted all requisite documents to the relevant TCL Financial Services Associate. Nature of Promotion Services The Promotion Services to be provided by the members of the Group are primarily introducing, promoting to and/or recommending its suppliers and customers who have sold/ purchased products to/from the Group to make use of the financing services of TCL Financial Services Associates and, in the process, assisting TCL Financial Services Associates to verify the authenticity of the client information and financing related materials provided by the suppliers and customers with the consent of such suppliers and customers. By way of example, relevant members of the Group may promote its suppliers who have sold products to the Group to engage TCL Financial Services Associates for provision of factoring services of the receivables they have against the Group. Internal control procedures and pricing policy for conducting transactions under the Master Financial Services (2020 Renewal) Agreement The Group will follow the following internal control procedures and pricing policies when conducting the transactions under the Master Financial Services (2020 Renewal) Agreement: Deposit Services If Finance Company decides to accept any amount of cash deposits from a Qualified Member (including current deposits, fixed deposits or any other form of deposits), the interest rates offered by Finance Company will be determined based on rates quoted by major PRC commercial banks such as Bank of China Limited for the same period, and it will not be lower or less favourable than the interest rates offered by major PRC commercial banks from time to time. Other terms and conditions offered by Finance Company as a whole shall also not be less favourable than those offered by other independent financial institutions and shall be on normal commercial terms negotiated on arm's length basis. The Group will also compare from time to time and at least every quarter the interest rates offered by Finance Company against (i) the benchmark interest rates promulgated by the PBOC (in the case of deposit made in PRC), interest rates quoted by at least three major commercial banks in the relevant jurisdiction and (iii) interest rates for similar deposit service quoted by Finance Company to other members of TCL Corp Group to ensure those offered by Finance Company is no less favourable or better than the said benchmark interest rates. - 21 - LETTER FROM THE BOARD The Group's finance department will monitor the maximum daily balance of the deposits on a daily basis to ensure that the aggregate deposits do not exceed the applicable annual caps. The Group will also maintain accounts with independent banks. Should the balance at the end of any day exceed the maximum daily balance of deposits, the excess funds will be transferred to the Group's bank accounts with an independent commercial bank. The Group will request Finance Company, TCL Financial Services Associates and TCL Corporation to provide the Group with sufficient information including various financial indicators, such as its asset size, liquidity ratios, operation ratios, level of bad assets and its risk rating assessed by CBIRC (if and when available) at the end of every year as well as annual and interim financial statements to enable the Group to monitor and review the financial condition of the Finance Company and/ or TCL Financial Services Associates. Finance Company, TCL Financial Services Associates and TCL Corporation shall notify the Group, subject to compliance with applicable laws and regulations, should it be subject to any judicial, legal or regulatory proceedings or investigations which are reasonably likely to have a material impact on the financial condition of any of them. If the Group considers that there is any material adverse change in the financial condition of Finance Company and/or TCL Financial Services Associates, the Group will take appropriate measures (for example, early uplift of deposits and a moratorium on further deposits) to protect the Group's financial position. - 22 - LETTER FROM THE BOARD Finance Company and/or TCL Financial Services Associates will also provide the Group with a monthly report on the status of the Group's deposits so as to enable the Group to monitor and ensure that the relevant annual cap under the Master Financial Services (2020 Renewal) Agreement has not been exceeded. Particularly, the Group has in place an internal control system to monitor the usage of annual cap, and Finance Company would monitor the daily ending balance of cash deposited by the Group and would issue a warning to the Group when the balance reaches 90% of the relevant annual cap. Upon receiving the warning, the Group will instruct Finance Company to transfer and deposit such amount in excess with other independent financial institutions as soon as possible within the same day and in any event no later than the next business day. The Group will also conduct a weekly forecast on its level of operating cash to determine the amount to be deposited with Finance Company in the following week, so as to ensure the maximum outstanding daily ending balance of deposits deposited with Finance Company will not exceed the relevant annual cap at any given time. If it is expected that the amount of cash to be generated from Finance Company (e.g. cash received from bills discounting service provided by Finance Company), if deposited with Finance Company, will cause the total balance of cash deposited by the Group with Finance Company exceeding the relevant annual cap, the Group will instruct Finance Company to transfer and deposit such amount in excess with other independent financial institutions in advance so as to ensure the maximum outstanding daily ending balance of deposits deposited with Finance Company will not exceed the relevant annual cap at any given time. The Group will, from time to time at its sole discretion, request for the deposits with Finance Company to be withdrawn (either in full or in part) to assess and ensure the liquidity and safety of the Group's deposits. Pursuant to the Master Financial Services (2020 Renewal) Agreement, TCL Corporation has undertaken that if Finance Company fails to make any repayment in accordance with the relevant terms and procedure, TCL Corporation shall repay any outstanding deposit amount on behalf of Finance Company in full and/or offset the relevant outstanding deposit amount against and up to the same amount of any outstanding loans owed by it to and/or any trade financing provided to it by Finance Company and/or TCL Financial Services Associates and/or TCL Corporation. Such undertaking provides indemnification for the deposits with Finance Company under the Master Financial Services (2020 Renewal) Agreement. - 23 - LETTER FROM THE BOARD The Company will prepare risk assessment reports and data in respect of the funds deposited with Finance Company every quarter which will be submitted to the Board for consideration. The contents of such risk assessment reports include the total balance and maximum daily balance of the deposits for the reporting period, a summary of the interest rates of the deposits with Finance Company during the reporting period, and the terms thereof. It will also report to the Board every six months with respect to the deposits under the Master Financial Services (2020 Renewal) Agreement including compliance with annual caps and any potential change in the risk profile of Finance Company. Bills discounting In general, the discount rate offered by TCL Financial Services Associates in respect of the bills discounting service shall not be higher than those charged by other independent financial institutions in the PRC or those offered to other members of the TCL Corp Group. Other terms and conditions offered by TCL Financial Services Associates as a whole shall also not be less favourable than those offered by other independent financial institutions or those offered to other members of the TCL Corp Group, and shall be on normal commercial terms negotiated on arm's length basis. However, in cases where the relevant bills discounting service is not provided by other independent financial institutions (other than TCL Financial Services Associates) for example where the value of the bill is small, the Group will, after taking into account such factor, assess whether the overall terms and conditions offered by TCL Financial Services Associates as a whole are no less favourable to the Group than those terms of general bills discounting services offered by other independent financial institutions or those offered to other members of the TCL Corp Group. The Group will, for every transaction, (i) obtain bill discount rates from at least three major PRC commercial banks such as Bank of China Limited in respect of bills discounting service, and (ii) obtain bill discount rates offered by TCL Financial Services Associates to other members of the TCL Corp Group, and make comparisons with those offered by TCL Financial Services Associates. Other Financial Services The fees to be charged by Finance Company and/or TCL Financial Services Associates in respect of Other Financial Services shall not be higher than the fees determined by PBOC (if applicable) and the fees charged by other independent financial institutions service providers in respect of such services. - 24 - LETTER FROM THE BOARD The Group will, for every transaction, obtain quotes of fees from at least three independent financial institutions in respect of services similar to the Other Financial Services, and make comparisons to review the fairness and reasonableness of fees charged by Finance Company and/or TCL Financial Services Associates which shall be no less favourable than those offered by Independent Third Parties. Other terms and conditions of Other Financial Services offered by Finance Company and/or TCL Financial Services Associates as a whole shall also be no less favorable than those offered by other independent financial institutions service providers and shall be on normal commercial terms. In case of such market comparable is not available, the fees to be charged by Finance Company and/or TCL Financial Services Associates shall be no less favourable to the Group than the rate charged by Finance Company and/or TCL Financial Services Associates to other members of TCL Corp Group for providing similar services in respect of Other Financial Services. Promotion Services The Promotion Fee would be charged at a certain percentage of the amount of the average outstanding facility amount that the relevant TCL Financial Services Associates provide to the suppliers and customers of the Group introduced through the Promotion Services. The exact percentage varies depending on the interest rate and exact type of facility provided by TCL Financial Services Associates to the Group's suppliers and customers and shall: be no less than the average figure of the percentage charged by other active market participants in providing similar promotion services, the information of which the Group collects from time to time and at least twice a year, where such market comparable is not available, the Promotion Fee charged by the Group shall be no less favourable than the rate charged by other members of TCL Corp Group for providing similar promotion services to TCL Financial Services Associates; be able to cover all direct and indirect costs of the Group in providing the Promotion Services; and be no higher than 10% of the average outstanding facility amount. - 25 - LETTER FROM THE BOARD Every time before reaching out to its suppliers and customers for the provision of a new kind of Promotion Services, the Finance Department of the Group would: (i) discuss in details with the relevant TCL Financial Services Associates the nature of the facility to be promoted; (ii) estimate the costs of the Group, both direct and indirect, in providing the Promotion Services; and (iii) conduct a market research on the prevailing fee charged by at least one active market participant in promoting similar facility. The Finance Director of the Finance Department would assess the minimum percentage which is no less than the average figure of the percentage charged by other active market participant(s) in providing similar promotion services and able to cover all direct and indirect costs of the Group in providing the Promotion Services. With a view to maximise the Promotion Fee as the income to be received by the Group from TCL Financial Services Associates by providing the Promotion Services, the Finance Director of the Finance Department will then negotiate with the relevant TCL Financial Services Associates on arm's length basis for a percentage reasonably obtainable which is close to and, subject to the maximum being 10% of the average outstanding facility amount. In any event, the Promotion Services must be provided on normal commercial terms and on terms no less favourable than terms available to Independent Third Party(ies). In particular, the Company's audit committee will scrutinize the implementation and enforcement of the transactions under the Master Financial Services (2020 Renewal) Agreement. If the Company's audit committee is of the view that it would be in the Company's interests to reduce the level of deposits and/or other continuing connected transactions with any TCL Financial Services Associates, the Group will take appropriate steps to implement its decision. Any material findings in the risk assessment reports, the views of the Company's audit committee on the deposits and/or other continuing connected transactions under the Master Financial Services (2020 Renewal) Agreement (including its views on how the terms of the Master Financial Services (2020 Renewal) Agreement have been complied with) and its decisions on matters in relation thereto will be disclosed in the Company's annual reports. The responsible personnel conducting the above internal control procedures are all employees of the Company who are independent to TCL Corporation, the Finance Company and their associates. - 26 - LETTER FROM THE BOARD HISTORICAL FIGURES The following table sets out the actual amounts of the continuing connected transactions under the Master Financial Services (2017 Renewal) Agreement for the years ended 31 December 2017 and 31 December 2018 and for the nine months ended 30 September 2019: For the nine months ended 30 September 2019 (unaudited) (for actual amount only)/ for the year For the year For the year ending 31 ended ended December 2019 31 December 31 December (for original 2017 2018 annual cap only) RMB'000 RMB'000 RMB'000 Master Financial Services (2017 Renewal) Agreement Actual Maximum outstanding daily ending balances of deposits (including interest receivables in respect of these deposits and deposits as security) 479,556 523,302 768,264 - Financial service charges for Other Financial Services (see Note 1) 0 0 0 - Promotion Fee to be received 0 0 0 - 27 - LETTER FROM THE BOARD For the nine months ended 30 September 2019 (unaudited) (for actual amount only)/ for the year For the year For the year ending 31 ended ended December 2019 31 December 31 December (for original 2017 2018 annual cap only) RMB'000 RMB'000 RMB'000 Original annual cap Maximum outstanding daily ending balances of deposits (including interest receivables in respect of these deposits and deposits as security) 700,000 875,000 889,000 Financial service charges for Other Financial Services 39,000 44,000 44,000 Promotion Fee to be received 1,000 2,100 2,700 Notes: 1. The amount excludes the facility amount without cash or bank instruments as security and other unsecured loans, financing and guarantees available under the facility line provided by TCL Financial Services Associates to the China Display Qualified Members which, if conducted on normal commercial terms or better, are fully exempt connected transactions under Rule 14A.90 of the Listing Rules. The Group has no intention to obtain secured loans, financing and guarantees involving pledge of the Group's assets as security under the Master Financial Services (2020 Renewal) Agreement. - 28 - LETTER FROM THE BOARD PROPOSED ANNUAL CAPS The following table sets out the respective proposed annual caps of the continuing connected transactions under the Master Financial Services (2020 Renewal) Agreement for the three years ending 31 December 2022: For the year For the year For the year ending ending ending 31 December 31 December 31 December 2020 2021 2022 RMB'000 RMB'000 RMB'000 Master Financial Services (2020 Renewal) Agreement Maximum outstanding daily ending balances of deposits (including interest receivables in respect of these deposits and deposits as security) 895,000 985,000 1,084,000 Financing Services (see Note 1) Bills Discounting (aggregate face value of bills discounted) 600,000 660,000 726,000 Financial service charges for Other Financial Services 1,300 1,500 1,600 Promotion Fee to be received (see Note 2) 2,200 2,640 3,168 Notes: 1. The amount excludes the facility amount without cash or bank instruments as security and other unsecured loans, financing and guarantees available under the facility line provided by TCL Financial Services Associates to the China Display Qualified Members which, if conducted on normal commercial terms or better, are fully exempt connected transactions under Rule 14A.90 of the Listing Rules. The Group has no intention to obtain secured loans, financing and guarantees involving pledge of the Group's assets as security under the Master Financial Services (2020 Renewal) Agreement. - 29 - LETTER FROM THE BOARD 2. The Promotion Fee to be received above is the income to be received by the Group from TCL Financial Services Associates for provision of Promotion Services by introducing, promoting to and/or recommending its suppliers and/or customers to make use of the financing services of TCL Financial Services Associates and, in the process, assisting TCL Financial Services Associates to verify the authenticity of the client information and financing related materials provided by the suppliers and/or customers with the consent of such suppliers and/or customers. By way of examples, relevant members of the Group may promote its suppliers and/or customers to engage TCL Financial Services Associates for provision of factoring services of the receivables they have against the Group. Basis for the Proposed Annual Caps The proposed annual caps in relation to the Master Financial Services (2020 Renewal) Agreement are determined by reference to the historical amounts of the relevant transactions and taking into account the following factors: Deposit Services The proposed annual cap of RMB895,000,000 for the year ending 31 December 2020 represents an approximately RMB6,000,000 or 0.67% increase from that of the year ending 31 December 2019, such increase has taken into account: The maximum daily balance of deposit that the Group placed with Finance Company and Finance Company (HK) for the year ended 31 December 2018 was approximately RMB523,302,000, which was approximately 9.1% higher than that of RMB479,556,000 for the year ended 31 December 2017. Whereas the maximum amount of cash which the Group could deposit with Finance Company and Finance Company (HK) for the nine months ended 30 September 2019 amounted to approximately RMB817,000,000, representing approximately 91.9% of the relevant annual cap. Taking into account the Group's internal control measures to keep the maximum deposit amount below 90% of the relevant annual cap (as discussed in paragraph 5 of the sub-section headed "Deposit Services" under the section headed "Internal control procedures and pricing policy for conducting transactions under the Master Financial Services (2020 Renewal) Agreement"), the proposed annual cap for the 3 years ending 31 December 2022 therefore includes a buffer of approximately 10% of the expected maximum deposit amount for the relevant year; Having been satisfied with the services and the benefits provided by Finance Company such as better interest rates than available from other financial institutions, the Group could to the greatest extent make all its deposits with Finance Company if and when the terms offered by Finance Company are favourable to the Group, hence it is expected the balance of deposits with Finance Company will increase; - 30 - LETTER FROM THE BOARD It is expected that the business of the Group would expand and as such there will be a growing need for deposit services in the PRC and Hong Kong in the following years and as a result, the capital available for deposit with Finance Company will also increase; and Considering the expansion in the scale of operation of the Group as evidenced by the 52.4% and 78.0% increase in revenue for the year ended 31 December 2018 and the nine months ended 30 September 2019, as compared to the same period last year, the Directors expect that the amount to be deposited with Finance Company will increase correspondingly, and hence it is expected that the proposed annual caps for the three years ending 31 December 2022 would increase at a rate of approximately 10% per annum. Financing Services As regards Financing Services, given the Group may request TCL Financial Services Associates to provide unsecured financing as and when needed and that such unsecured financing which will be conducted on normal commercial terms or better are fully exempt connected transactions, no proposed annual cap has been set therefor other than bills discounting; While none of the China Display Qualified Members has utilised the bills discounting service under the Master Financial Services (2017 Renewal) Agreement, it is anticipated that the Group will demand for such service from TCL Financial Services Associates under the Master Financial Service (2020 Renewal) Agreement provided that the terms offered by the relevant TCL Financial Services Associates is on normal commercial term or better, as this would allow the Group to flexibly manage its cash flow and credit risks. The annual caps in respect of bills to be assigned to TCL Financial Services Associates were determined with reference to: The aggregate face value of bills which has been discounted to independent PRC commercial banks by the Group amounted to approximately RMB1,426 million, RMB221 million and RMB1,604 million for the two years ended 31 December 2017 and 2018, and nine months ended 30 September 2019 respectively. The significant drop in aggregate face value of discounted bills for year 2018 was a result of the Group's active measures in controlling overall finance costs to cope with the Group's weaker sales performance in the first half of 2018. With the recovery of the Group's sales performance mainly driven by the orders placed by new first-tier brand customers, it is expected that the demand for bills discounting services will increase. - 31 - LETTER FROM THE BOARD TCL Financial Services Associates (including Finance Company) has been providing financial services to the Group and has a thorough understanding of the operations, development needs and customers of the Group. Furthermore, the Group may receive commercial bills which are not backed by the PRC commercial banks, and hence are generally not accepted by independent PRC commercial banks for discounting, whereas TCL Financial Services Associates are more flexible in accepting those commercial bills for discounting purpose. Provided that TCL Financial Services Associates can offer bills discounting service to the Group on terms no less favourable than those offered by Independent Third Parties, the Group will gradually shift from other major and independent PRC commercial banks to TCL Financial Services Associates as to the bill discounting services. The proposed annual cap for the bills discounting services from TCL Financial Services Associates of RMB600 million for the year ending 31 December 2020 equals to approximately 37.4% of the Group's aggregate face value of discounted bills for the nine months ended 30 September 2019. In view of the expansion in Group's business as evidenced by the 52.4% and 78.0% growth in revenue for the year ended 31 December 2018 and the nine months ended 30 September 2019 respectively, it is anticipated that the aggregate face value of bills to be discounted will increase at a rate of 10% per annum for the three years ending 31 December 2022; Financial Services Charges for Other Financial Services The proposed annual cap of RMB1,300,000 for the year ending 31 December 2020 is mainly attributable to the service fees in relation to issuance of letters of credit by TCL Financial Services Associates at a rate ranging from 0.03% to 0.08%; The historical amount for the fees in the amount of approximately RMB1,190,000, RMB319,000 and RMB371,000 paid the by the Group to other independent financial institutions for issuance of letters of credit for the two years ended 31 December 2018 and for the nine months ended 30 September 2019 respectively; The anticipated shift from other independent financial institutions to the TCL Financial Services Associates as to the service for issuance of letters of credit subject to the terms to be offered by TCL Financial Services Associates; and - 32 - LETTER FROM THE BOARD It is expected that the business of the Company will expand and there will be a growing need for Other Financial Services in the following years and as a result, the financial services charges payable to Finance Company and/or TCL Financial Services Associates for the three years ending 31 December 2022 is expected to increase at a rate of approximately 15.38% and 6.67% from 2020 to 2021 and from 2021 to 2022 respectively. Promotion Services the estimated need of the services of TCL Financial Services Associates to be promoted to the Group's suppliers and customers based on the Group's preliminary discussion with TCL Financial Services Associates; the estimated Promotion Fee which the Group could earn based on such estimated need, and the preliminary prevailing market rate of service fee of up to approximately 0.8% for similar promotion service; and the Group expects an increase in the number of suppliers and customers, and will gradually extend the promotion of financing services of TCL Financial Services Associates to a wider spectrum of its suppliers and customers, hence it is expected that the Promotion Fee to be received by the Group will grow at a rate of 20% per annum from 2020 onwards. Financial Effect of the Deposit Services Whilst the Company will be able to earn interest income from the deposits made with Finance Company, given such interest income earned from Finance Company and Finance Company (HK) for the year ended 31 December 2018 was only approximately RMB3,443,000 and represented a small proportion of the Company's earnings and net assets, the Company anticipates that the Deposit Services contemplated under the Master Financial Services (2020 Renewal) Agreement will not have any material impact on the Company's earnings, assets and liabilities. REASONS FOR AND BENEFITS OF THE CONTINUING CONNECTED TRANSACTIONS Master Financial Services (2020 Renewal) Agreement The Directors (excluding the independent non-executive Directors whose views will be set out in the circular) consider that the terms of the Master Financial Services (2020 Renewal) Agreement and the transactions contemplated thereunder are fair and reasonable, and it is in the interest of the Company and the Shareholders as a whole to enter into the Master Financial Services (2020 Renewal) Agreement and the transactions contemplated thereunder for the following reasons: - 33 - LETTER FROM THE BOARD The Master Financial Services (2020 Renewal) Agreement allows TCL Financial Services Associates to provide cost efficient finance and treasury services to all China Display Qualified Members. The Company believes that TCL Financial Services Associates, which are financial institutions duly established in or outside the PRC and the pricing policies and the operation of which are subject to guidelines issued by the CBIRC or relevant authorities where the financial institutions duly established outside the PRC, may facilitate the China Display Qualified Members to obtain cheaper financing from other financial institutions in or outside the PRC by taking advantage of the inter-bank lending rates which TCL Financial Services Associates may enjoy in respect of their own borrowings from other financial institutions. Since the credit ranking of TCL Corporation is better than that of China Display Qualified Members, TCL Financial Services Associates may obtain better financing options from the financial institutions outside through TCL Corporation by making use of its advantage in credit ranking, and in turn the TCL Financial Services Associates may offer favourable financing options to China Display Qualified Members. It is expected that the inter-bank interest rates are usually lower than the interest rates of other corporate commercial loans. Further, Finance Company has been providing financial services to the Group and has a thorough understanding of the operations and development needs of the Group. Accordingly, it is expected that TCL Financial Services Associates (including Finance Company) will be more efficient in terms of processing transactions for the Group than other financial institutions given their close relationships. By enabling members of the Group to provide the Promotion Services, the Group would be able to leverage on its relationship with its suppliers and customers to earn the Promotion Fee. The Directors consider that Deposit Services contemplated under the Master Financial Services (2020 Renewal) Agreement will not result in the Group having excessive reliance on TCL Corp Group for the following reasons: 1. China Display Qualified Members are not obliged to make deposits with Finance Company and any China Display Qualified Member shall only make such deposits if the interest rate offered by Finance Company is no less favourable than those rates offered by other independent financial institutions. And in any event, China Display Qualified Members are at liberty to withdraw any amount deposited with Finance Company pursuant to the terms of the Master Financial Services (2020 Renewal) Agreement; - 34 - LETTER FROM THE BOARD Even if Finance Company fails to provide the best interest rate to China Display Qualified Members, given cash deposit services are widely available, China Display Qualified Members can easily find alternative independent third party service providers; The Company considers that the risk associated with depositing cash with Finance Company is low: to the best knowledge and belief of the Company after making all reasonable enquiries, in order to manage the credit risks, Finance Company would carefully evaluate the operation situation and financial position of the member companies within the Group and TCL Corp Group when receiving loan application from them and only provides loans to such member companies who have sound financial position; the Finance Company has been conducting its business in compliance with the relevant applicable rules and regulations and every financial indicators of each of Finance Company is normal; as set out in the articles of association of Finance Company, in the event that Finance Company falls into financial difficulty in payments, TCL Corporation has the obligation to take all necessary steps including injecting capital into Finance Company based on its funding needs, to restore its financial position. Given TCL Corporation, a company listed on the Shenzhen Stock Exchange, is a substantial company, the Company considers that it would be extremely unlikely for Finance Company to fail to restore its financial position. LISTING RULES IMPLICATIONS TCL Corporation, the ultimate controlling Shareholder of the Company, currently indirectly holds approximately 64.21% of the number of issued Shares of the Company, and is a connected person of the Company under the Listing Rules. Finance Company, being a Subsidiary of TCL Corporation, is also a connected person of the Company. Therefore, the transactions contemplated under the Master Financial Services (2020 Renewal) Agreement constitute continuing connected transactions of the Company. - 35 - LETTER FROM THE BOARD Notwithstanding the respective interest and/or roles of certain Directors in TCL Corp Group, in particular (i) Mr. Liao Qian who also holds various positions in TCL Corp Group, namely an executive director, the chief of staff, a vice president and the secretary of the board of directors of TCL Corporation; (ii) Mr. Zhao Jun who is also a director and the general manager of Wuhan China Star Optoelectronics Technology Co., Ltd* （武漢華星光電技術有限公司） , the senior vice president, the general manager of large-size business group and the general manager of TV division of CSOT, and the vice president of TCL Corporation, and (iii) and Mr. Ouyang Hongping who is interested in 26,600 shares in TCL Corporation (representing approximately 0.0002% of the issued share capital of TCL Corporation) as at the Latest Practicable Date; as each of their respective direct interest in TCL Corp Group is either by virtue of common directorship/senior management role (in the case of Mr. Liao Qian and Mr. Zhao Jun) or the immaterial interest in shares of TCL Corp Group (in the case of Mr. Ouyang Hongping), their respective direct or indirect interests in TCL Corp Group are insignificant and that none of the TCL Associates are associates of any of the Directors, none of them is considered as having a material interest in the transactions contemplated under the Master Financial Services (2020 Renewal) Agreement, therefore all Directors are entitled to vote on the Board resolution for considering and approving the Master Financial Services (2020 Renewal) Agreement pursuant to the Company's bye-laws. As one or more of the applicable percentage ratios (other than the profits ratio) with reference to the annual caps of the Master Financial Service (2020 Renewal) Agreement exceed 5%, the continuing connected transactions contemplated thereunder are subject to the reporting, announcement, Shareholders' approval and annual review requirements under Chapter 14A of the Listing Rules. As one or more of the applicable percentage ratios in relation to the Deposit Services under the Master Financial Services (2020 Renewal) Agreement exceed 25% and the assets ratio of the Deposit Services exceeds 8%, in addition to being continuing connected transactions, the Deposit Services also constitute major transactions of the Company and are subject to the relevant major transaction requirements under Chapter 14 of the Listing Rules; and the Deposit Services further constitute advances to an entity and are subject to the relevant disclosure requirements under Chapter 13 of the Listing Rules. At the Latest Practicable Date, High Value Ventures Limited, an indirect Subsidiary of TCL Corporation is directly interested in 1,357,439,806 Shares, representing approximately 64.21% of the number of issued Shares of the Company. Hence, High Value Ventures Limited, being a TCL Associate and holder of 1,357,439,806 Shares, will abstain from voting on the resolution in respect of the Master Financial Services (2020 Renewal) Agreement to be put forward at the SGM. Save as the aforesaid, the Directors are not aware of any other Shareholders who are required to abstain from voting on the resolution in respect of the Master Financial Services (2020 Renewal) Agreement to be put forward at the SGM. - 36 - LETTER FROM THE BOARD GENERAL INFORMATION OF THE PARTIES Headquartered in the PRC, the Group is principally engaged in the research and development, manufacture, sales and distribution of LCD modules. The Group is also one of the major suppliers of small and medium sized display modules in the PRC. The Group has its manufacturing plant in the PRC and distributes its products in Asia, with focus on Hong Kong and the PRC markets. For more information on the Group, please visit its official website at www.cdoth8.com (the information that appears in this website does not form part of this circular). TCL Corporation is a major PRC conglomerate and is principally engaged in semi-conductor display and material business. For more information on TCL Corporation, please visit its official website at http://www.tcl.com (the information that appears in that website does not form part of this circular). Finance Company provides financial services including corporate finance advisory services, credit worthiness verification and related consultancy and agency services, collection and payment services, approved insurance agency services, guarantee services, agency lending and investment services, discounting bills and design of various schemes for settlement and clearing in respect of group fund transfer, and any other services approved by the CBIRC for the Qualified Members. SGM The Company will convene the SGM at 8th Floor, Building 22E, Phase Three, Hong Kong Science Park, Pak Shek Kok, New Territories Hong Kong on 24 December 2019, Tuesday at 2:00 p.m., at which resolutions will be proposed for the purposes of considering and, if thought fit, approving the Master Financial Services (2020 Renewal) Agreement and the proposed annual caps. The notice of the SGM is set out on pages 81 and 82 of this circular. A form of proxy for use at the SGM is enclosed. Whether or not you are able to attend the SGM or any adjournment thereof (as the case may be) in person, please complete the form of proxy in accordance with the instructions printed thereon and return the same to the Hong Kong branch share registrar of the Company, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting at the SGM or any adjourned meeting should you so wish. - 37 - LETTER FROM THE BOARD RECORD DATE The record date (being the last date of registration of any transfer of Shares given there will be no closure of register of members) for determining the entitlements of the Shareholders to attend and vote at the SGM is 18 December 2019, Wednesday. In order to qualify to attend and vote at the SGM, all transfers accompanied by the relevant share certificates must be lodged with the Company's branch share registrar in Hong Kong, Tricor Investor Services Limited, at Level 54, Hopewell Centre 183 Queen's Road East Hong Kong, by no later than 4:30 p.m. on 18 December 2019, Wednesday. RECOMMENDATION Your attention is drawn to (a) the letter from the Independent Board Committee set out on pages 40-41 of this circular which contains the recommendation of the Independent Board Committee to the Shareholders regarding the resolution in respect of the Master Financial Services (2020 Renewal) Agreement and the proposed annual caps to be proposed at the SGM; (b) the letter from Halcyon Capital Limited, the Independent Financial Adviser, set out on pages 42 to 70 of this circular which contains its advice to the Independent Board Committee and the Shareholders in respect of the Master Financial Services (2020 Renewal) Agreement and (c) additional information set out in the appendix to this circular. The Independent Board Committee, having taken into account the advice (together with principal factors and reasons considered in arriving at such advice) of Halcyon Capital Limited, the Independent Financial Adviser, considers that the terms of the Master Financial Services (2020 Renewal) Agreement and the transactions contemplated thereunder and the proposed annual caps are fair and reasonable, and on normal or better commercial terms and are entered in the ordinary and usual course of business, and they are in the interests of the Company and its Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM in respect of the Master Financial Services (2020 Renewal) Agreement, the transactions contemplated thereunder and the proposed annual cap. The Board considers that the terms of the Master Financial Services (2020 Renewal) Agreement and the transactions contemplated thereunder and the proposed annual cap are entered in the ordinary and usual course of business, on normal commercial terms, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole. - 38 - LETTER FROM THE BOARD The Board also considers that the resolutions proposed in the notice of SGM are in the best interests of the Company and the Shareholders and therefore recommend you to vote in favour of all the relevant resolutions to be proposed at the SGM. Yours faithfully, By order of the Board LIAO Qian Chairman - 39 - LETTER FROM THE INDEPENDENT BOARD COMMITTEE China Display Optoelectronics Technology Holdings Limited 華 顯 光 電 技 術 控 股 有 限 公 司 (Incorporated in Bermuda with limited liability) (Stock Code: 334) Date: 9 December 2019 To: the Shareholders Dear Sirs or Madam, RENEWAL OF EXISTING CONTINUING CONNECTED TRANSACTIONS MASTER FINANCIAL SERVICES (2020 RENEWAL) AGREEMENT AND (2) MAJOR TRANSACTION AND ADVANCE TO AN ENTITY IN RESPECT OF THE DEPOSIT SERVICES UNDER THE MASTER FINANCIAL SERVICES (2020 RENEWAL) AGREEMENT We refer to the circular of the Company dated 9 December 2019 (the " Circular ") to the Shareholders, of which this letter forms part. Terms defined in the Circular bear the same meanings when used in this letter unless the context otherwise requires. We have been appointed as the members of the Independent Board Committee to consider and advise the Shareholders in respect of the Master Financial Services (2020 Renewal) Agreement and their respective proposed annual caps, details of which are set out in the Circular. We wish to draw your attention to the letter from the Board and the letter of advice from Halcyon Capital Limited set out on pages 8 to 39 and pages 42 to 70 of the Circular respectively. - 40 - LETTER FROM THE INDEPENDENT BOARD COMMITTEE Having taken into account of the advice (together with principal factors and reasons considered in arriving at such advice) of Halcyon Capital Limited, the Independent Financial Adviser, we consider that the Master Financial Services (2020 Renewal) Agreement are on normal commercial terms, in the interests of the Company and the Shareholders as a whole and the terms thereof are fair and reasonable so far as the Company and the Shareholders are concerned and that the Master Financial Services (2020 Renewal) Agreement and the transactions contemplated thereunder and the proposed annual caps are entered in the ordinary and usual course of business. Accordingly, we recommend the Shareholders to vote in favour of the resolution to be proposed at the SGM in respect of the Master Financial Services (2020 Renewal) Agreement and their respective proposed annual caps. Yours faithfully, HSU Wai Man, Helen, XU Yan, LI Yang Independent Board Committee - 41 - LETTER FROM THE INDEPENDENT FINANCIAL ADVISER The following is the full text of the letter of advice from Halcyon Capital Limited to the Independent Board Committee and the independent Shareholders, which has been prepared for the purpose of the inclusion in this circular. Halcyon Capital Limited 11/F, 8 Wyndham Street, Central, Hong Kong 9 December 2019 To the Independent Board Committee and the independent Shareholders Dear Sirs, RENEWAL OF EXISTING CONTINUING CONNECTED TRANSACTIONS MASTER FINANCIAL SERVICES (2020 RENEWAL) AGREEMENT AND (2) MAJOR TRANSACTION AND ADVANCE TO AN ENTITY IN RESPECT OF THE DEPOSIT SERVICES UNDER THE MASTER FINANCIAL SERVICES (2020 RENEWAL) AGREEMENT INTRODUCTION We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the independent Shareholders in relation to the Master Financial Services (2020 Renewal) Agreement (including the proposed annual caps), details of which are set out in the letter from the Board (the " Letter from the Board ") contained in the circular of the Company dated 9 December 2019 (the " Circular ") of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires. On 2 December 2019, the Company, TCL Corporation and Finance Company entered into the Master Financial Services (2020 Renewal) Agreement for the renewal of the existing Master Financial Services (2017 Renewal) Agreement with a few amendments. - 42 - LETTER FROM THE INDEPENDENT FINANCIAL ADVISER As at the Latest Practicable Date, TCL Corporation, the ultimate controlling Shareholder, indirectly held approximately 64.21% of the number of issued Shares, and is a connected person of the Company under the Listing Rules. Finance Company, being a Subsidiary of TCL Corporation, is also a connected person of the Company. Therefore, the transactions contemplated under the Master Financial Services (2020 Renewal) Agreement constitute continuing connected transactions of the Company. As one or more of the applicable percentage ratios (other than the profits ratio) with reference to the annual caps of the Master Financial Services (2020 Renewal) Agreement exceed 5%, the continuing connected transactions contemplated thereunder are subject to the reporting, announcement, independent Shareholders' approval and annual review requirements under Chapter 14A of the Listing Rules. As one or more of the applicable percentage ratios in relation to the Deposit Services under the Master Financial Services (2020 Renewal) Agreement exceed 25%, in addition to being continuing connected transactions, the Deposit Services also constitute major transactions of the Company and are subject to the relevant major transaction requirements under Chapter 14 of the Listing Rules. The Independent Board Committee comprising all the independent non-executive Directors, namely Ms. Hsu Wai Man Helen, Mr. Xu Yan and Mr. Li Yang, has been established to advise the independent Shareholders as to whether the terms of the Master Financial Services (2020 Renewal) Agreement (including the proposed annual caps) are fair and reasonable so far as the independent Shareholders are concerned, whether they are in the interest of the Company and the independent Shareholders as a whole and how to vote on the relevant resolution in the SGM. In our capacity as the Independent Financial Adviser to the Independent Board Committee and the independent Shareholders, our role is to provide the Independent Board Committee and the independent Shareholders with an independent opinion and recommendation in this regard. BASIS OF OUR OPINION Except for being appointed as the independent financial adviser to the then independent board committee and independent Shareholders of the Company (details of which have been set out in the letter from the independent financial adviser contained in the circular of the Company dated 28 August 2019) and this appointment as the Independent Financial Adviser and normal professional fees paid or payable to us in connection therewith, no arrangements exist whereby we had received or will receive any fees or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence. We are hence independent from the Company pursuant to Rule 13.84 of the Listing Rules. - 43 - LETTER FROM THE INDEPENDENT FINANCIAL ADVISER In formulating our opinion and recommendation, we have relied on the information, financial information and facts included in the Circular and supplied to us, and the representations expressed by the Directors and/or management of the Group, and have assumed that all such information, financial information, facts and any representations made to us, or referred to in the Circular, in all material aspects, were true, accurate and complete as at the time they were made and as at the Latest Practicable Date, have been properly extracted from the relevant underlying accounting records (in the case of financial information) and made after due and careful inquiry by the Directors and/or the management of the Group. The Directors and/or the management of the Group have confirmed that, having made all reasonable enquiries and to the best of their knowledge and belief, all relevant information has been supplied to us and that no material facts have been omitted from the information supplied and representations expressed to us. We have also relied on certain information available to the public and have assumed such information to be accurate and reliable. We have no reason to doubt the completeness, truth or accuracy of the information and representations provided and we are not aware of any facts or circumstances which would render such information provided and representations made to us untrue, inaccurate or misleading. Our review and analyses were based upon, among others, the information provided by the Group including the announcements, financial reports of the Company and the Circular. We have also discussed with the Directors and/or the management of the Group with respect to the terms of and reasons for the transactions contemplated under the Master Financial Services (2020 Renewal) Agreement (including the proposed annual caps) and considered that we have reviewed sufficient information to reach an informed view and to justify reliance on the information provided and to provide a reasonable basis for our opinion. We have not, however, conducted any independent verification of the information included in the Circular and supplied to us by the Directors and/or the management of the Group nor have we conducted any form of in-depth investigation into the businesses, affairs, financial position, profitability or prospects of the Group, TCL Corporation, Finance Company, and each of their respective associates, and the parties involved in the transactions contemplated under the Master Financial Services (2020 Renewal) Agreement. - 44 - LETTER FROM THE INDEPENDENT FINANCIAL ADVISER PRINCIPAL FACTORS AND REASONS CONSIDERED In arriving at our opinion in respect of the Master Financial Services (2020 Renewal) Agreement, we have considered the following principal factors and reasons: 1. Background information of the Group As stated in the Letter from the Board, the Group is principally engaged in the research and development, manufacture, sales and distribution of LCD Modules. The Group is also one of the major suppliers of small and medium sized display modules in the PRC. The Group has its manufacturing plants in the PRC and distributes its products in Asia, with focus on Hong Kong and the PRC markets. The following table sets out the financial performance of the Group for the two years ended 31 December 2018 and 2017 as extracted from the Company's annual report for the year ended 31 December 2018 (the " 2018 Annual Report ") and the business update of the Group for the nine months ended 30 September 2019 and 2018 as extracted from the Company's announcement dated 24 October 2019 (the " 2019 3Q Business Update "): 30 September 31 December 2019 2018 2018 2017 (unaudited) (unaudited) (audited) (audited) RMB'000 RMB'000 RMB'000 RMB'000 Sale of TFT LCD Module - Non-laminated modules 652,889 520,889 900,028 1,291,789 - Laminated modules 3,641,837 2,032,666 4,380,833 2,172,784 Processing TFT LCD Module - Non-laminated modules 24,038 - - - - Laminated modules 226,716 - - - Revenue 4,545,480 2,553,555 5,280,861 3,464,573 Gross profit N/A N/A 248,257 279,819 Profit/(loss) attributable to owners of the parent of the Company N/A N/A 81,782 115,734 - 45 - LETTER FROM THE INDEPENDENT FINANCIAL ADVISER As set out in the 2018 Annual Report, the Group's revenue amounted to approximately RMB5.28 billion for the year ended 31 December 2018, representing an increase of approximately 52.4% from approximately RMB3.46 billion for the year ended 31 December 2017, primarily due to: (a) the increase of approximately 13.1% in the Group's annual sales volume of LCD Module products to approximately 60.4 million units for the year ended 31 December 2018 mainly driven by the orders placed by new first-tier brand customers in the second half of 2018; and (b) the Group's continued optimisation of its product mix with increase in proportion of high-end products, as evidenced by the rise in portion of laminated LCD Module products in terms of sales volume from approximately 40.5% for the year ended 31 December 2017 to approximately 68.9% for the year ended 31 December 2018, with the overall average selling price rising by approximately 34.7% to approximately RMB87.5. As advised by the management of the Group, despite the strong rebound of the Group's sales volume and improvement of the gross profit margin in the second half of 2018, the Group's gross profit amounted to approximately RMB248.3 million for the year ended 31 December 2018, representing a drop of approximately 11.3% from approximately RMB279.8 million for the year ended 31 December 2017, and the Group's profit attributable to owners of the parent amounted to approximately RMB81.8 million for the year ended 31 December 2018, representing a drop of approximately 29.3% from approximately RMB115.7 million for the year ended 31 December 2017, mainly as a result of the weak sales performance in the first half of 2018. As stated in the 2019 3Q Business Update, the Group recorded revenue of approximately RMB4.5 billion for the nine months ended 30 September 2019, representing a period-on-period increase of approximately 78.0% over its revenue of approximately RMB2.6 billion for the nine months ended 30 September 2018, which was mainly due to the period-on-period increase of approximately 144.1% in the Group's sales volume to approximately 79.5 million units as driven by the orders placed by new first-tier brand customers. The Group's management was of the view that the impact of trade conflicts and geopolitical tensions continued in 2019, and the volatility of the United States market has also led to the reorganization of the global smartphone market and the related supply chains. Furthermore, before the commercialization of 5G technology and the foldable active-matrix organic light-emitting diode (" AMOLED ") end products gaining wide acceptance, the imbalance between supply and demand in the semiconductor industry will intensify the market competition. Despite market uncertainties, the Group has been recognized by various global first-tier brands through deepening cooperation with its controlling Shareholder, CSOT and its operating performance has been improved since the second half of 2018 as stated above. As advised by the Group's management, the Group will continue its business strategies of optimizing the product mix, strengthening its research and development capabilities, responding quickly to market needs and adopting active cost control measures to enhance its competitiveness and strengthen its customer base. - 46 - LETTER FROM THE INDEPENDENT FINANCIAL ADVISER 2. Background to and reasons for the Master Financial Services (2020 Renewal) Agreement The Company entered into the Master Financial Services (2017 Renewal) Agreement on 18 August 2017, which will expire on 31 December 2019. As the Company wishes to continue the continuing connected transactions contemplated thereunder with certain modifications, on 2 December 2019 the Company entered into the Master Financial Services (2020 Renewal) Agreement, which is substantially similar in nature as the Master Financial Services (2017 Renewal) Agreement with certain amendments. The major differences between the Master Financial Services (2020 Renewal) Agreement and the Master Financial Services (2017 Renewal) Agreement are that under the Master Financial Services (2020 Renewal) Agreement (as compared to the Master Financial Services (2017 Renewal) Agreement): Finance Company (HK) is no longer a party to the Master Financial Services (2020 Renewal) Agreement and; China Display Qualified Members may deposit money with Finance Company but not with Finance Company (HK). We understand from the management of the Group that as the Group no longer intends to deposit money with Finance Company (HK), Finance Company (HK) was not made a party to the Master Financial Services (2020 Renewal) Agreement and in any event, Finance Company (HK) ceased to be a connected person of the Company after the completion of the restructuring carried out by TCL Corporation on 31 March 2019, which involved the spin off, among others, of all the equity interests held by TCL Corporation in TCL Industries, together with those equity interests in various associates (including Finance Company (HK)) to TCL Holdings, which is not a connected person of the Company. TCL Corporation is a major PRC conglomerate and is principally engaged in semi-conductor display and material business. Finance Company provides financial services including corporate finance advisory services, credit worthiness verification and related consultancy and agency services, collection and payment services, approved insurance agency services, guarantee services, agency lending and investment services, discounting bills and design of various schemes for settlement and clearing in respect of group fund transfer, and any other services approved by the CBIRC for the Qualified Members. - 47 - LETTER FROM THE INDEPENDENT FINANCIAL ADVISER As discussed with the Group's management, the Group requests for various financial services including deposit, bills discounting, issuance of letter of credit services in its daily operation. Through entering into the Master Financial Services (2020 Renewal) Agreement, the Group can continue to enjoy the discretion and flexibility to use the financial services provided by TCL Financial Services Associates, which are financial institutions duly established and supported by TCL Corporation. Backed by TCL Corporation, a conglomerate listed on the Shenzhen Stock Exchange, TCL Financial Services Associates may obtain better financing options from the financial institutions outside through TCL Corporation by making use of its advantage in credit ranking, and in turn the TCL Financial Services Associates may offer favourable financing options to China Display Qualified Members including the Group. Finance Company has been providing financial services to the Group and has a thorough understanding of the operations and development needs of the Group and it is expected that TCL Financial Services Associates (including Finance Company) will be more efficient in terms of processing transactions for the Group than other financial institutions given their closer relationships. Furthermore, leverage on the Group's business relationships with its suppliers and customers, the Group can earn Promotion Fee as its additional revenue through the Promotion Services under the Master Financial Services (2020 Renewal) Agreement by successfully procuring its suppliers and/or customers to engage TCL Financial Services Associates for their provision of services. As advised by the Directors, the Group is neither obliged nor committed to engage TCL Financial Services Associates for any of the services under the Master Financial Services (2020 Renewal) Agreement and any of TCL Financial Services Associates is merely one of the financial institutions which provide services to the Group. This allows the Group to have the flexibility and discretion to select the most appropriate services provider that is in the best interest of the Group. Considering the foregoing, we are of the view that the entering into of the Master Financial Services (2020 Renewal) Agreement is in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole. - 48 - LETTER FROM THE INDEPENDENT FINANCIAL ADVISER 3. Principal terms of the Master Financial Services (2020 Renewal) Agreement The principal terms of the Master Financial Services (2020 Renewal) Agreement are summarised as follows: Date: 2 December 2019 Parties: (i) the Company (for itself and on behalf of its Subsidiaries); (ii) TCL Corporation (for itself and on behalf of TCL Financial Services Associates); and (iii) Finance Company; Duration: From 1 January 2020 to 31 December 2022 (both days inclusive) Major Terms: Deposit Services Any China Display Qualified Member may from time to time and in its absolute discretion deposit money with Finance Company. If Finance Company decides to accept any amount of cash deposits from a China Display Qualified Member (including current deposits, fixed deposits or any other form of deposits), the interest rates offered by Finance Company, as the case may be, shall: (1) for deposits made within the PRC, not be lower than the highest of: (i) the minimum interest rate promulgated by the PBOC for the same type of deposit services from time to time; (ii) the interest rates for the same type of deposits offered by major commercial banks of the PRC; and - 49 - LETTER FROM THE INDEPENDENT FINANCIAL ADVISER the interest rates for the same type of deposits offered by the Finance Company to any other members of the TCL Corp Group (including the Group); and other terms and conditions offered by Finance Company as a whole shall also not be less favourable than those offered by major commercial banks of the PRC and the Finance Company to any other members of the TCL Corp Group (including the Group) and shall be on normal commercial terms; and for deposits made outside the PRC, not be lower than the highest of: the interest rates for the same type of deposits offered by major commercial banks located in the place where the relevant China Display Qualified Member is located; and the interest rates for the same type of deposits offered by the Finance Company to any other members of the TCL Corp Group (including the Group); and other terms and conditions offered by Finance Company as a whole shall also not be less favourable than those offered by major commercial banks located in the place where the relevant China Display Qualified Member is located and the Finance Company to any other members of the TCL Corp Group (including the Group) and shall be on normal commercial terms. - 50 - LETTER FROM THE INDEPENDENT FINANCIAL ADVISER TCL Corporation undertakes and will procure all its TCL Financial Services Associates to jointly and severally with TCL Corporation undertake with the Group that at any time during the term of the Master Financial Services (2020 Renewal) Agreement, the maximum amount of loans, financing and guarantees available under the facility line under the Master Financial Services (2020 Renewal) Agreement provided by TCL Financial Services Associates to China Display Qualified Members shall not be less than the total amount of deposits (including normal cash deposit and deposit of cash or bank instruments as security) placed by the China Display Qualified Members with Finance Company. If any China Display Qualified Member demands repayment of any money deposited by it with Finance Company in accordance with the relevant terms and procedures and Finance Company fails to follow the repayment demand, such China Display Qualified Member shall then have the right to: offset the relevant outstanding deposit amount against up to the same amount of any outstanding loans owed by it and/ or any financing provided to it by TCL Financial Services Associates and/or TCL Corporation; and/or transfer the right mentioned in (a) above to other China Display Qualified Members, so that other China Display Qualified Members have the right to offset the relevant outstanding deposit amount against up to the same amount of any outstanding loans owed by them and/or any financing provided to them by TCL Financial Services Associates and/or TCL Corporation; and/or request TCL Corporation to repay the outstanding deposit amount on behalf of Finance Company in full. Upon enquiry from any China Display Qualified Member, Finance Company shall within one business day provide an offer specifying the interest rates and terms of deposit service (including but not limited to whether the deposit can be withdrawn before its maturity, as well as the notice period of such withdrawal). - 51 - LETTER FROM THE INDEPENDENT FINANCIAL ADVISER Financing Services Any China Display Qualified Member may from time to time and in its absolute discretion request any Financing Services (including bills discounting services) from TCL Financial Services Associates. If any of the TCL Financial Services Associates decides to provide any Financing Services to a China Display Qualified Member within the PRC, the interest rates charged by such TCL Financial Services Associate shall not be higher than the lowest of: the maximum interest rates promulgated by the PBOC from time to time in respect of same type of financing services; the interest rates offered by major commercial banks of the PRC for same type of financing services; and the interest rates for same type of financing services provided by such TCL Financial Services Associate to any other members of the TCL Corp Group (including the Group) with the same credit rating, and the other terms and conditions offered by such TCL Financial Services Associate in respect of the Financing Services as a whole shall not be less favourable than those offered by other major commercial banks and by TCL Financial Services Associates to any other members of the TCL Corp Group (including the Group) with the same credit rating in respect of same type of financing services and shall be on normal commercial terms. If any of the TCL Financial Services Associates decides to provide any Financing Services to a China Display Qualified Member outside the PRC, the interest rates charged by such TCL Financial Services Associate shall not be higher than the lower of the interest rates offered by major commercial banks located in the place where the relevant China Display Qualified Member is located for same type of financing services; and - 52 - LETTER FROM THE INDEPENDENT FINANCIAL ADVISER the interest rates for sa...

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