Inspur International : CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE FRAMEWORK FINANCIAL SERVICES AGREEMENT

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INSPUR INTERNATIONAL LIMITED

浪 潮 國 際 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 596)

CONTINUING CONNECTED TRANSACTIONS IN RELATION TO

THE FRAMEWORK FINANCIAL SERVICES AGREEMENT

The Board announces that, on 27 February 2020, the Company entered into the Framework Financial Services Agreement with Inspur Finance, pursuant to which Inspur Finance agrees to provide several categories of financial services including Deposit Services, Loan Facility Services, Settlement Services, and Other Financial Services on a non-exclusive basis to the Group for a term of three years ending on 31 December 2022.

IPG is a controlling shareholder of the Company holding approximately 54.58% of the issued share capital of the Company, and thus a connected person of the Company for the purposes of the Listing Rules. As at the date of this announcement, IPG is directly holding 60% of the share equity of Inspur Finance, and therefore Inspur Finance is an direct subsidiary of IPG and an associate of IPG under Chapter 14A of the Listing Rules. Accordingly, the transactions contemplated under the Framework Financial Services Agreement will constitute continuing connected transactions for the Company pursuant to Chapter 14A of the Listing Rules.

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The transactions under the Deposit Services will constitute financial assistance to be provided by the Group to a connected person, and the transactions under the Loan Facility Services will constitute financial assistance to be received by the Group from a connected person. As (i) the Loan Facility Services is conducted on normal commercial terms or better and it is not secured by the assets of the Group, the transactions under the Loan Facility Services is exempt from the independent shareholders' approval, annual review and all disclosure requirements under Rule 14A.90 of the Listing Rules; (ii) one or more of the applicable percentage ratios (as defined under Rule14.07 of the Listing Rules) in respect of the Deposit Service exceed 5%, the Deposit Services and the transactions contemplated thereunder (including the Proposed Annual Caps) are subject to the reporting, announcement, annual review, and independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

A circular containing, among other things, further information about the Framework Financial Service Agreement and the transactions contemplated thereunder (including the Proposed Annual Caps), the letter from the independent financial advisers to the independent board committee and the independent shareholders and the recommendation from the independent board committee together with the notice of the EGM will be dispatched to the Shareholders on or before 19 March 2020.

BACKGROUD

Reference is made to the announcement of the Company dated 9 May 2017 in relation to, inter alia, the establishment of Inspur Finance. As at the date of this announcement, Inspur Finance is duly established and existing in Shandong province, PRC and is principally engaged in providing financial services business in PRC.

On 27 February 2020, the Company entered into the Framework Financial Services Agreement with Inspur Finance, pursuant to which Inspur Finance agrees to provide several categories of financial services including Deposit Services, Loan Facility Services, Settlement Services, and Other Financial Services on a non-exclusive basis to the Group for a term of three years ending on 31 December 2022.

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MAJOR TERMS OF THE FRAMEWORK FINANCIAL SERVICES AGREEMENT

Date:

27 February 2020 (after trading hours)

Parties:

1. the Company; and
2. Inspur Finance

Under the Framework Financial Services Agreement, Inspur Finance will provide Deposit Services, Loan Facility Services, Settlement Services, and Other Financial Services to the Group. The Framework Financial Services Agreement will come into effect upon all necessary consent and approval having been obtained by the parties (including the independent shareholders' approval of the Company at the EGM).

Deposit Services

The Company will open a deposit account in Inspur Finance and place time deposit or demand deposit into the account. The interest rate of the deposit shall not be lower than those for most of independent commercial banks in PRC. Inspur Finance shall ensure the safety of the deposit fund.

Proposed Annual Caps

The proposed caps in respect of the maximum daily deposit balance (including any interest accrued therefrom) with Inspur Finance under the Deposit Services is as follows:

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By the date of this announcement, the Group had not engaged Inspur Finance for providing any kind of financial services. Therefore, there were no relevant historical transaction figures to be disclosed or made reference to.

The above proposed caps in respect of Deposit Services were determined after taking into account of, inter alia, the Group's amounts of cash and cash equivalent in the past years and the expected net cash flow from operating activities of the Group in the next three years.

The Directors (excluding the independent non-executive Directors, whose views are contained in the letter from the Independent Board Committee as set out in this circular after considering the advice from the Independent Financial Adviser) consider that the above proposed caps in respect of the deposit services are fair and reasonable.

Loan Facility Services

Inspur Finance will provide Loan Facility Services to the Group from time to time under the Loan Facility Services. The aggregate outstanding amount under the Loan Facility Services shall not be more than RMB500,000,000 and the interest rates shall not be higher than those for the major PRC commercial banks at the same period. Since the Loan Facility to be provided by Inspur Finance to the Company are on normal commercial terms which are similar to or even more favourable than those offered by other major commercial banks in the PRC, and that no security over the assets of the Company will be granted in respect of the loan services, the loan services are exempt under Rule 14A.90 of the Listing Rules from all reporting, announcement and independent shareholders' approval requirements.

The Directors (including the independent non-executive Directors) consider that the Loan Facility Services to be provided under the Financial Services Agreement are fair and reasonable and in the interests of the Shareholders as a whole.

Settlement Services

Inspur Finance shall, at the request of the Group, provide payment and collection settlement services and related settlement services to the Group. The settlement fees to be charged by Inspur Finance shall not be higher than (i) the charging rate for the similar settlement services published by the People's Bank of China at the same period; or (ii) the charge fees of most PRC commercial banks for providing similar services at the same period.

The Company expects that each of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the settlement fees payable by the Group to Inspur Finance for the provision of the settlement Services under the Framework Financial Services Agreement will fall within the de minimis threshold as stipulated

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under Chapter 14A of the Listing Rules. The Company will comply with the reporting, announcement and independent shareholders' approval requirements under Chapter 14A of the Listing Rules if the fees payable by the Group to Inspur Finance for the provision of the Settlement Services under the Financial Services Agreement exceed the relevant de minimis threshold.

Other Financial Services

Apart from the Deposit Services, Loan Facility Services, and Settlement Services, Inspur Finance shall from time to time, at the request of the Group, provide other financial services (including without limitation the adviser services, consulting services and agency service, etc.) which are fall within the business scope of Inspur Finance. The service fees to be charged by Inspur Finance shall not be higher than

1. the charging rate for the similar settlement services published by the People's Bank of China at the same period; or (ii) the charge fees of most PRC commercial banks for providing similar financial services at the same period.

The Company expects that each of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the fees payable by the Group to Inspur Finance for the provision of the Other Financial Services under the Framework Financial Services Agreement will fall within the de minimis threshold as stipulated under Chapter 14A of the Listing Rules. The Company will comply with the reporting, announcement and independent shareholders' approval requirements under Chapter 14A of the Listing Rules if the fees payable by the Group to Inspur Finance y for the provision of other financial services under the Financial Services Agreement exceed the relevant de minimis threshold.

Internal Control on Pricing

The interest rates for deposit and the loan facilities and the fees for settlement and the Other Financial Services are arrived at after considering the interest rates and/or service fees charged by/offered by other independent commercial banks and/or financial institutions in the PRC for provision of similar level of services.

There are stringent internal control policies with regard to financial service transactions adopted by the Company. The finance department of the Company would compare the interest rates for deposit, and loan facilities, and the fees for settlement and for other financial services quoted from Inspur Finance with the terms from other independent third parties (including at least two financial institutions and/or commercial banks in the PRC) to ensure that the most favourable terms are obtained from Inspur Finance. The finance department of the Company will review the market interest rates on a monthly basis for the Deposit Services and Loan Facility Services. Moreover, its finance department also reviews the service fees quotations for settlement and other financial services on a monthly basis.

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By adopting the policy set out above, the Company will ensure that (i) the interest rate payable for the Company's deposits shall not be lower than the interest rate offered by other independent commercial banks for comparable deposits in the PRC; and (ii) the interest rates for loans and the fees for Settlement Service and Other Financial Services to be charged by Inspur Finance shall not be higher than those charged by most independent commercial banks for providing comparable services in the PRC.

Reasons for and Benefits of Entering into the Financial Services Agreement

Before entering into the Master Financial Services Agreement, the Board has considered the reasons and benefits including the following:

1. The interest rates on deposits and loans under the Deposit Services and Loan Facility Services, and the service fees for Settlement Services and the Other Financial Services to be offered by Inspur Finance to the Group will be equal to or more favourable than those offered by other independent commercial banks in the PRC in respect of comparable services.
2. The Company is expected to benefit from Inspur Finance's better understanding of the operations of the Group which will allow more expedient and efficient services than those rendered by other PRC independent commercial banks. For example, in the event that the Company considers that it is necessary to obtain loans from Inspur Finance in view of its actual business and financial needs, it is expected that the time required for the examination and approval of such loans will be shorter than that required by other independent commercial banks.
3. By entering into the Framework Financial Services Agreement, the Company will be able to centralise its control and management over its financial resources, and therefore improve the utilisation and efficiency of fund usage. It can also accelerate the turnover of funds and reduce transaction costs and expenses, thereby further enhancing the amount and efficiency of funds utilisation.

In view of the above, the Directors (excluding the independent non-executive Directors who will express their view after receiving advice from the Independent Financial Adviser in respect of the Deposit Services) are of the view that the terms of the Financial Services Agreement (including the Proposed Annual Caps) are fair and reasonable and the Financial Services Agreement is entered into on normal commercial terms, and on terms no less favourable than those available from independent third parties under the prevailing local market conditions, in the ordinary and usual course of business of the Company and in the interests of the Company and the Shareholders as a whole. None of the Directors has a material

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interest in the transaction under the Framework Financial Services Agreement or, is required to abstain from voting on the board resolution for considering and approving the Framework Financial Services Agreement and the transactions contemplated thereunder.

INFORMATION OF THE PARTIES

The Group is principally engaged in the provision for software development, cloud services and Internet of Things (IoT).

IPG is an investment holding company established in the PRC. Inspur Group is principally engaged in software development and supply of integrated services, including system integration, cloud media platform, integrated IT solutions for government and large-scale corporations. IPG, through its wholly owned subsidiaries, is interested in approximately 54.58% of the issued ordinary share capital of the Company as at the date of this announcement and is therefore a controlling shareholder and a connected person of the Company.

Inspur Finance is a limited company incorporated in PRC and is principally engaged in providing financial services business in PRC. As at the date of this announcement, 20% of share equity of Inspur Finance is indirectly held by the Company and 60% of the share equity is directly held by IPG, the remaining 20% share equity is held by Inspur Software Co., Ltd.* (浪潮軟件股份有限公司).

LISTING RULES IMPLICATIONS

IPG is a controlling shareholder of the Company holding approximately 54.58% of the issued share capital of the Company, and thus a connected person of the Company for the purposes of the Listing Rules. As at the date of this announcement, IPG is directly holding 60% of the share equity of Inspur Finance, and therefore Inspur Finance is an indirect subsidiary of IPG and an associate of IPG under Chapter 14A of the Listing Rules. Accordingly, the transactions contemplated under the Framework Financial Services Agreement will constitute continuing connected transactions for the Company pursuant to Chapter 14A of the Listing Rules.

Deposit Services

The transactions under the Deposit Services will constitute financial assistance to be provided by the Group to a connected person. As one or more of the applicable percentage ratios (as defined under Rule14.07 of the Listing Rules) in respect of the Deposit Service exceed 5%, the Deposit Services and the transactions contemplated thereunder (including the Proposed Annual Caps) are subject to the reporting, announcement, annual review, and independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

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Loan Facility Services

The transactions under the Loan Facility Services will constitute financial assistance to be received by the Group from a connected person. As the Loan Facility Services is conducted on normal commercial terms or better and it is not secured by the assets of the Group, the transactions under the Loan Facility Services is exempt from the independent shareholders' approval, annual review and all disclosure requirements under Rule 14A.90 of the Listing Rules;

Settlement Services

The Company expects that each of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the fees payable by the Company to Inspur Finance in respect of the provision of Settlement Services under the Framework Financial Services Agreement will fall within the de minimis threshold as stipulated under Chapter 14A of the Listing Rules.

Other Financial Services

The Company expects that each of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the fees payable by the Company to Inspur Finance in respect of the provision of Other Financial Services under the Framework Financial Services Agreement will fall within the de minimis threshold as stipulated under Chapter 14A of the Listing Rules.

The Company will, if necessary, comply with the reporting, announcement and independent shareholders' approval requirements under Chapter 14A of the Listing Rules if the fees payable by the Company to Inspur Finance for the provision of Settlement Services and Other Financial Services under the Financial Services Agreement exceed the relevant de minimis threshold.

The Company will also disclose the relevant details of the Framework Financial Services Agreement in its next published annual report and accounts in accordance with the relevant requirements as set out in Rule 14A.49 of the Listing Rules.

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GENERAL

The Company will seek the approval from the independent shareholders by way of a poll in the EGM of the Framework Financial Service Agreement. Independent Board Committee comprising all of the independent non-executive Directors will be formed to advise the independent shareholders on the terms of the Framework Financial Service Agreement (including the Proposed Annual Caps) and Independent Financial Adviser has been appointed to advise the Independent Board Committee and the independent shareholders in respect of the terms of the Framework Financial Service Agreement (including the Proposed Annual Caps).

A circular containing, among other things, further information about the Framework Financial Service Agreement and the Proposed Annual Caps, the letter from the Independent Financial Adviser to the Independent Board Committee and the independent shareholders and the recommendation from the Independent Board Committee together with the notice of the EGM will be dispatched to the Shareholders on or before 19 March 2020 in accordance with the Listing Rules.

DEFINITIONS

In this announcement, unless the context otherwise requires, the following expressions having the following meanings:

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As at the date of this notice, the Board comprises Mr. Wang Xingshan, Mr. Lee Eric Kong and Mr. Jin Xiaozhou, Joe as executive Directors, Mr. Dong Hailong as non-executive Director, and Ms. Zhang Ruijun, Mr. Wong Lit Chor, Alexis, and Mr. Ding Xiangqian as independent non-executive Directors.

* For identification purpose only

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