CONTINUING CONNECTED TRANSACTION: INFORMATION SERVICE FRAMEWORK AGREEMENTS

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CONTINUING CONNECTED TRANSACTION:

INFORMATION SERVICE FRAMEWORK AGREEMENTS

NAN HAI INFORMATION SERVICE FRAMEWORK AGREEMENT

On 31 December 2019 (after trading hours), the Company and Nan Hai entered into the Nan Hai Information Service Framework Agreement, pursuant to which the Company and/ or its subsidiaries agreed to provide certain information products and services to Nan Hai Group from 1 January 2020 to 31 December 2022.

GD CINEMA CIRCUIT INFORMATION SERVICE FRAMEWORK AGREEMENT

On 31 December 2019 (after trading hours), the Company and GD Cinema Circuit also entered into the GD Cinema Circuit Information Service Framework Agreement, pursuant to which the Company and/or its subsidiaries agreed to provide certain information products and services to GD Cinema Circuit Group from 1 January 2020 to 31 December 2022.

LISTING RULES IMPLICATIONS

As Nan Hai is the holding company of the Company, Nan Hai is a connected person of the Company. Therefore, the transactions under the Nan Hai Information Service Framework Agreement constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As at the date of this announcement, Ms. Liu, a director of both the Company and Nan Hai, owns 80% interest of Dadi Century Beijing, which directly owns 82.49% equity interest of GD Cinema Circuit, and effectively controls 12.95% equity interest of GD Cinema Circuit through Dadi Legend, which is an associate of Ms. Liu. In addition, Mr. YCH, an associate of Mr. YPH (a director of both the Company and Nan Hai), owns 20% interest of Dadi Century Beijing. Given the foregoing, GD Cinema Circuit is a connected person of the Company and the GD Cinema Circuit Information Service Framework Agreement constitutes a continuing connected transaction of the Company under Chapter 14A of the Listing Rules.

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As Nan Hai and GD Cinema Circuit are connected with each other and the Nan Hai Information Service Framework Agreement and the GD Cinema Circuit Information Service Framework Agreement are of a similar nature, the annual caps of the continuing connected transactions under the above-mentioned agreements will be aggregated for the purpose of calculating the percentage ratios in accordance with Rule 14A.81 of the Listing Rules. As the applicable percentage ratios for the transactions contemplated under the Information Service Framework Agreements exceed 0.1% but less than 5%, the transactions contemplated under the Nan Hai Information Service Framework Agreement and the GD Cinema Circuit Information Service Framework Agreement are subject to the reporting, annual review and announcement requirements but are exempt from the circular (including independent financial advice) and independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

As referred to the announcement of the Company dated 30 May 2018, the Company and Nan Hai entered into the former information service framework agreement on 30 May 2018, pursuant to which the Company and/or its subsidiaries agreed to provide certain information products and services to Nan Hai Group from 1 June 2018 to 31 December 2019. The above- mentioned agreement expired on 31 December 2019.

As referred to the announcement of the Company dated 10 January 2017, on 10 January 2017, Xinnet entered into the former GD Cinema Circuit information service framework agreement with GD Cinema Circuit. Further, as referred to the announcement of the Company dated 30 August 2017 (''August 2017 Announcement''), on 30 August 2017, Xinnet and GD Cinema Circuit entered into the GD Cinema Circuit Supplemental Agreement (as defined in the August 2017 Announcement) to increase the annual caps. The above-mentioned agreement expired on 31 December 2019.

As the relevant parties intend to carry out transactions of a similar nature from time to time after 31 December 2019, the Company entered into the Information Service Framework Agreements.

1. NAN HAI INFORMATION SERVICE FRAMEWORK AGREEMENT
   On 31 December 2019 (after trading hours), the Company and Nan Hai entered into the Nan Hai Information Service Framework Agreement, details of which are set out below:
   Date
   31 December 2019
   Parties
2. 1. the Company; and
   2. Nan Hai

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Information Products and Services

Pursuant to the Nan Hai Information Service Framework Agreement, the Company agreed to provide (or procure its subsidiaries to provide) certain information products and services to Nan Hai Group, including enterprise postal services, office internet connection services, server co-location, ISP (internet service provider), IDC (internet data center) related services, cloud services and cloud value-added services, software technology and development and other technical services. The Company and/or its subsidiaries will enter into individual information service agreements with members of Nan Hai Group, setting out specific terms including term, consideration for the information products and services and payment terms. Such terms will be consistent with the principles and terms of the Nan Hai Information Service Framework Agreement.

Term

The Nan Hai Information Service Framework Agreement will be effective for a term of three years commencing from 1 January 2020 to 31 December 2022 (both days inclusive). The exact term of each individual information service agreement to be entered into under the Nan Hai Information Service Framework Agreement will be determined by each individual agreement.

Pricing Policy and Payment

The products and services fees of the transactions contemplated under the Nan Hai Information Service Framework Agreement shall be determined by arm's length commercial negotiations according to the principles of fairness and reasonableness between relevant parties with reference to the market price for sales of similar information products and services to independent third parties during the same period.

The products and services fees shall be paid by cash in accordance with the terms of each individual information service agreement to be entered into under the Nan Hai Information Service Framework Agreement.

Historical Figures and the Annual Caps

The following table sets out the historical information products and services fees paid by Nan Hai Group to the Group for the three years ended 31 December 2019:

For the year ended 31 December

2017 2018 2019

HK$'000 HK$'000 HK$'000

Note 1: Since the audited figures for the information products and services fees paid by Nan Hai Group to the Group for the year ended 31 December 2019 are not yet available, it is only an estimated figure. The Company expects that the information products and services fees paid by Nan Hai Group to the Group for the year ended 31 December 2019 will not exceed its annual cap.

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The following table sets out the proposed annual caps of the transaction amounts in respect of the information products and services to be provided to Nan Hai Group by the Company and/or its subsidiaries under the Nan Hai Information Service Framework Agreement:

For the year ending 31 December

2020 2021 2022

HK$'000 HK$'000 HK$'000

The annual caps are determined with reference to:

1. the historical transaction amounts for the information products and services between the Group and Nan Hai Group in the past;
2. the type of information products and services to be provided by the Group to Nan Hai Group and the change in costs of the information products/services; and
3. the estimated demand of Nan Hai Group for information products and services.

The Directors (including the independent non-executive Directors) consider that the above proposed annual caps under the Nan Hai Information Service Framework Agreement are fair and reasonable.

1. GD CINEMA CIRCUIT INFORMATION SERVICE FRAMEWORK AGREEMENT
   On 31 December 2019 (after trading hours), the Company and GD Cinema Circuit entered into the GD Cinema Circuit Information Service Framework Agreement, details of which are set out below:
   Date
   31 December 2019
   Parties
2. 1. the Company; and
   2. GD Cinema Circuit

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Information Products and Services

Pursuant to the GD Cinema Circuit Information Service Framework Agreement, the Company agreed to provide (or procure its subsidiaries to provide) certain information products and services to GD Cinema Circuit Group, including enterprise postal services, office internet connection services, server co-location, ISP (internet service provider), IDC (internet data center) related services, cloud services and cloud value-added services, software technology and development and other technical services. The Company and/or its subsidiaries will enter into individual information service agreements with members of GD Cinema Circuit Group, setting out specific terms including term, consideration for the information products and services and payment terms. Such terms will be consistent with the principles and terms of the GD Cinema Circuit Information Service Framework Agreement.

Term

The GD Cinema Circuit Information Service Framework Agreement will be effective for a term of three years commencing from 1 January 2020 to 31 December 2022 (both days inclusive). The exact term of each individual information service agreement to be entered into under the GD Cinema Circuit Information Service Framework Agreement will be determined by each individual agreement.

Pricing Policy and Payment

The products and services fees of the transactions contemplated under the GD Cinema Circuit Information Service Framework Agreement shall be determined by arm's length commercial negotiations according to the principles of fairness and reasonableness between relevant parties with reference to the market price for sales of similar information products and services to independent third parties during the same period.

The products and services fees shall be paid by cash in accordance with the terms of each individual information service agreement to be entered into under the GD Cinema Circuit Information Service Framework Agreement.

Historical Figures and the Annual Caps

The following table sets out the historical information products and services fees paid by GD Cinema Circuit Group to the Group for the three years ended 31 December 2019:

For the year ended 31 December

2017 2018 2019

HK$'000 HK$'000 HK$'000

Note 2: Since the audited figures for the information products and services fees paid by GD Cinema Circuit Group to the Group for the year ended 31 December 2019 are not yet available, it is only an estimated figure. The Company expects that the information products and services fees paid by GD Cinema Circuit Group to the Group for the year ended 31 December 2019 will not exceed its annual cap.

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The following table sets out the proposed annual caps of the transaction amounts in respect of the information products and services to be provided to GD Cinema Circuit Group by the Company and/or its subsidiaries under the GD Cinema Circuit Information Service Framework Agreement:

For the year ending 31 December

2020 2021 2022

HK$'000 HK$'000 HK$'000

The annual caps are determined with reference to:

1. the historical transaction amounts for the information products and services provided by the Group to GD Cinema Circuit Group in the past;
2. the type of information products and services to be provided by the Group to GD Cinema Circuit Group and the change in costs of the information products/services; and
3. the estimated demand of GD Cinema Circuit Group for information products and services.

The Directors (including the independent non-executive Directors) consider that the above proposed annual caps under the GD Cinema Circuit Information Service Framework Agreement are fair and reasonable.

1. REASONS FOR AND BENEFITS OF ENTERING INTO THE INFORMATION SERVICE FRAMEWORK AGREEMENTS
2. 1. 
      The Company and/or its subsidiaries will be able to earn stable income through the provision of certain information products and services pursuant to the Information Service Framework Agreements.
      The terms of the Nan Hai Information Service Framework Agreement and the GD Cinema Circuit Information Service Framework Agreement have been agreed upon arm's length negotiations between the Company and Nan Hai and between the Company and GD Cinema Circuit, respectively.
      The Directors (including the independent non-executive Directors) are of the view that
   2. the continuing connected transactions contemplated under the terms of Information Service Framework Agreements are on normal commercial terms or better and in the ordinary and usual course of business of the Group; (ii) the terms of the Information Service Framework Agreements are fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (iii) the proposed annual caps of the transactions contemplated under the Information Service Framework Agreements are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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IV. INTERNAL CONTROL MEASURES FOR THE CONTINUING CONNECTED TRANSACTIONS

To safeguard the interests of the Group, the Group will adopt the following internal control measures:

1. 1. the relevant personnel of the Group will closely monitor all transactions of the Group under the Information Service Framework Agreements to ensure that the total consideration does not exceed the stipulated annual caps;
   2. prior to entering into an information service agreement contemplated under the Information Service Framework Agreements, the relevant personnel of the Group will ensure the products and services fees are negotiated on arm's length basis, with reference to the prevailing products and services fees of comparable information products and services provided to at least two independent third parties during the same period;
   3. the management of the Company and/or its subsidiaries, with reference to the terms of agreements in respect of comparable information products and services provided to other independent third parties, will examine each information product and service agreement entered into with Nan Hai Group and GD Cinema Circuit Group, and ensure the products and services fees are fair and reasonable, on normal commercial terms and on terms not less favourable than those entered into with independent third parties;
   4. the relevant personnel of the Group will conduct regular checks to review and assess whether the transactions contemplated under the relevant continuing connected transactions are conducted in accordance with the terms set out in the respective Information Service Framework Agreements and whether the considerations for the transactions are fair and reasonable and in accordance with the pricing policies set out in the Information Service Framework Agreements;
   5. the Company's external auditors will conduct an annual review of the transactions entered into under the Information Service Framework Agreements to ensure the transactions amount are within the annual caps and the transactions are conducted in accordance with the terms set out in the Information Service Framework Agreements; and
   6. the Company's independent non-executive Directors will conduct an annual review of the status of the information products and services provided by the Group to ensure the Group has complied with internal approval process, the terms of the Information Service Framework Agreements and the relevant Listing Rules.
2. INFORMATION ON THE PARTIES The Company
   The Company is an investment holding company, the securities of which are listed and traded on the Main Board of the Stock Exchange. The Group is principally engaged in the provision of enterprise cloud services.

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Nan Hai

Nan Hai is an investment holding company, the securities of which are listed and traded on the Main Board of the Stock Exchange. Nan Hai Group is principally engaged in (i) culture and media services (mainly in cinemas business on a nationwide basis in the PRC and other media related businesses); (ii) property development; and (iii) enterprise cloud services (through the Group). In the meantime, Nan Hai Group has also tapped into the business sectors in news media and innovative business. As at the date of this announcement, Nan Hai, through a number of wholly-owned subsidiaries, holds approximately 59.11% of the issued share capital of the Company.

GD Cinema Circuit

To the best information, knowledge and belief of the Board, GD Cinema Circuit is a company incorporated in the PRC with limited liability. Its business scope includes motion picture distribution (cinema circuit); design, production, publication and agency of various advertisements; sales, installation and maintenance of motion picture projection equipment and other cinema operation facilities; motion picture projection technical services; and leasing of equipment and premises. GD Cinema Circuit has obtained a permit of cross-province cinema circuit issued by the relevant authority.

VI. LISTING RULES IMPLICATIONS

As Nan Hai is the holding company of the Company, Nan Hai is a connected person of the Company. Therefore, the transactions under the Nan Hai Information Service Framework Agreement constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As at the date of this announcement, Ms. Liu, a director of both the Company and Nan Hai, owns 80% interest of Dadi Century Beijing, which directly owns 82.49% equity interest of GD Cinema Circuit, and effectively controls 12.95% equity interest of GD Cinema Circuit through Dadi Legend, which is an associate of Ms. Liu. In addition, Mr. YCH, an associate of Mr. YPH (a director of both the Company and Nan Hai), owns 20% interest of Dadi Century Beijing. Given the foregoing, GD Cinema Circuit is a connected person of the Company and the GD Cinema Circuit Information Service Framework Agreement constitutes a continuing connected transaction of the Company under Chapter 14A of the Listing Rules.

As Nan Hai and GD Cinema Circuit are connected with each other and the Nan Hai Information Service Framework Agreement and the GD Cinema Circuit Information Service Framework Agreement are of a similar nature, the annual caps of the continuing connected transactions under the above-mentioned agreements will be aggregated for the purpose of calculating the percentage ratios in accordance with Rule 14A.81 of the Listing Rules. As the applicable percentage ratios for the transactions contemplated under the Information Service Framework Agreements exceed 0.1% but less than 5%, the transactions contemplated under the Information Service Framework Agreements are subject to the reporting, annual review and announcement requirements but are exempt from the circular (including independent financial advice) and independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

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VII. APPROVAL BY THE BOARD

The Board has approved the Nan Hai Information Service Framework Agreement. Since Mr. YPH has a material interest in the Nan Hai Information Service Framework Agreement, he has abstained from voting on the Board resolution to approve the Nan Hai Information Service Framework Agreement.

The Board has also approved the GD Cinema Circuit Information Service Framework Agreement. Since Ms. Liu has a material interest in GD Cinema Circuit, she has abstained from voting on the Board resolution to approve the GD Cinema Circuit Information Service Framework Agreement. For good corporate governance purposes, Mr. YPH has also abstained from voting on the Board resolution to approve the GD Cinema Circuit Information Service Framework Agreement.

VIII. DEFINITIONS

In this announcement, the following expressions have the meanings set out below unless the context otherwise requires:

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As at the date of this announcement, the directors of the Company are as follows:

• For identification purposes only

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