China ITS : CONNECTED TRANSACTION - ENTERING INTO THE NON-COMPETITION AGREEMENT

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China ITS (Holdings) Co., Ltd. 中 国 智 能 交 通 系 统（控 股）有 限 公 司

(Incorporated in the Cayman Islands with limited liability) (Stock code: 1900)

CONNECTED TRANSACTION

ENTERING INTO THE NON-COMPETITION AGREEMENT

Independent Financial Adviser to the Independent Board Committee and

the Independent Shareholders

FIRST CAPITAL INTERNATIONAL

FINANCE LIMITED

INTRODUCTION

The Group is primarily engaged in the sale of products and the provision of specialised solutions and services in the railway and electric power sectors. Beijing RHY, a company in which certain controlling shareholders of the Company and Directors are interested, is primarily engaged in the businesses of system integration, provision of technical services, equipment sale and provision of after-sale services in the trafficway (including but not limited to expressway) and urban traffic sectors. Given both the Group and the Beijing RHY Group are in the transportation industry, in order to avoid potential competition between the Group and the Beijing RHY Group and potential conflicts of interests involving the executive Directors (who have interests in both the Group and the Beijing RHY Group), the Company entered into the Non-competition Agreement with Beijing RHY pursuant to which each party agreed, among other things, it will not engage in businesses which compete or may compete with that of the other party.

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THE NON-COMPETITION AGREEMENT

On 11 May 2021, the Company and Beijing RHY entered into the Non-competition Agreement, pursuant to which the Company and Beijing RHY agreed that, among other things, each of them shall not conduct any businesses which compete or may compete with the major businesses conducted by the other party, on the terms and subject to the conditions of the Non-competition Agreement. The Non-competition Agreement is not conducted in the ordinary and usual course of business of the Company but is a one-off agreement to accommodate the particular relationship among the Group, its controlling shareholders and the Beijing RHY Group for the reasons and benefits as set out below. The principal terms of the Non-competition Agreement are as follows.

Date	: 11 May 2021

Major provisions : 1. The Company confirms and represents that the Group is currently primarily engaged in the sale of products and the provision of specialised solutions and services in the railway and electric power sectors. In the railway sector, the Group is primarily engaged in the sale of railway communication products and energy-base products, provision of value-added services such as maintenance services, network optimization and network planning, and technical consulting for the products related to the communication system for railway customers; in the electric power sector, the Group is primarily engaged in the sale of power transmission and transformation equipment, power generation equipment, etc., as well as the planning and technical consulting services of the infrastructure construction in relation to electric power such as power plant construction and power grid renovation for electric power customers, and power plant investment, construction and operation etc. (collectively, the ''China ITS Businesses'').

1. Beijing RHY confirms and represents that the Beijing RHY Group is primarily engaged in the business of system integration, provision of technical services, equipment sale and provision of after-sale services in the trafficway and urban traffic sectors (collectively, the ''Beijing RHY Businesses'').
2. The Company confirms that the Group is not engaged in any business activities which compete or may compete with the Beijing RHY Businesses, and does not own any operating assets which are engaged in the same or similar businesses as the Beijing RHY Businesses which has not been disclosed to Beijing RHY, and does not directly or indirectly own any equity interests in any enterprises which compete or may compete with the Beijing RHY Businesses.

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4. Beijing RHY confirms that the Beijing RHY Group is not engaged in any business activities which compete or may compete with the China ITS Businesses, and does not own any operating assets which are engaged in the same or similar businesses as the China ITS Businesses which has not been disclosed to the Company, and does not directly or indirectly own any equity interests in any enterprises which compete or

	may compete with the China ITS Businesses.
	5. The Company undertakes that, during the Term (as defined
	below), it and enterprises controlled by it will not directly or
	indirectly engage in any businesses which compete or may
	compete with the Beijing RHY Businesses, and will not
	establish, or directly or indirectly acquire enterprises or
	entities which engage in businesses which compete or may
	compete with the Beijing RHY Businesses.
	6. Beijing RHY undertakes that, during the Term (as defined
	below), it and enterprises controlled by it will not directly or
	indirectly engage in any businesses which compete or may
	compete with the China ITS Businesses, and will not
	establish, or directly or indirectly acquire enterprises or
	entities which engage in businesses which compete or may
	compete with the China ITS Businesses.
Term	: The Term as referred to in the undertakings of the Company and
	Beijing RHY in paragraphs 5 and 6 of the section headed ''Major
	provisions'' above, respectively, shall commence on the date of
	the satisfaction of all of the conditions precedent as set out below
	and shall end on the date on which the Company ceases to be
	controlled (as such term is defined under the Listing Rules) by the
	existing actual controllers (as such term is defined under PRC
	laws) of Beijing RHY, namely Mr. Jiang Hailin, Mr. Liao Jie, Mr.
	Liao Daoxun and Ms. Wu Yurui.

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Conditions : The Non-competition Agreement shall take effect upon: precedent

1. Beijing RHY having obtained such approval as required under its articles of association and PRC laws, which include obtaining the opinion and approval of the independent directors of Beijing RHY, approval by the board of directors of Beijing RHY, and approval by the shareholders of Beijing RHY (with the interested shareholders and interested directors having abstained from voting); and
2. the Company having obtained such approval as required under its articles of association and the Listing Rules, including approval by the independent shareholders of the Company.

As at the date of this announcement, none of the conditions precedent has been fulfilled.

Termination : The Non-competition Agreement shall automatically terminate upon the expiration of the Term, or as otherwise mutually agreed between the parties by separate agreement (if earlier).

REASONS FOR AND BENEFITS OF ENTERING INTO THE NON-COMPETITION AGREEMENT

Beijing RHY was part of the Group prior to the Group's disposal of it in 2016 (the ''2016 Disposal''). Please refer to the announcement of the Company dated 17 February 2016 and the circular of the Company dated 24 March 2016 for details of the 2016 Disposal. Since the completion of the 2016 Disposal, as a matter of the Group's strategy, the Group no longer conducts its primary businesses in the trafficway sector and the urban traffic sector, in which Beijing RHY Group primarily operates. The Company currently has no intention to re-enter into such sectors.

Likewise, as confirmed by Beijing RHY, since the 2016 Disposal, Beijing RHY Group has not conducted its primary businesses in the railway or electric power sectors, in which the Group operates. However, the Company is aware that Beijing RHY Group possesses certain licenses and qualifications such as professional contracting qualification of electronic and intelligent engineering, general contracting qualification of mechanical and electrical engineering construction, which are relevant for Beijing RHY to enter into railway and power infrastructure sectors to carry out system integration, equipment sales and such other businesses which may potentially allow it to compete with the Group.

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The Directors are of the view that the Non-competition Agreement will serve to protect the Group against any potential competition from Beijing RHY Group and to avoid potential conflict of interests due to the interests of the Company's executive Directors in Beijing RHY.

Pursuant to the 2010 Non-competition Agreement, each of the Covenantors (including Jiang Hailin, Liao Daoxun, Wu Yurui, Zhang Qian, Guan Xiong and Yuan Chuang who are shareholders of Beijing RHY) has undertaken, among other things, neither he/she/it nor any company in which he/she/it is a controlling shareholder will compete with the Group directly or indirectly, whether on its own or jointly with another entity by participating, in or providing any support to, any activities or businesses which directly or indirectly compete with our businesses in the PRC. Nonetheless, the Directors are of the view that such undertaking may no longer be sufficient to protect the Company against potential competition from Beijing RHY because:

1. since the completion of the 2016 Disposal, Beijing RHY has been further invested in by other parties and the Covenantors and their associates currently only hold approximately 42.67% of the voting power in Beijing RHY; and
2. Beijing RHY has undergone a share capital reform and become a joint-stock company, which will enable it to pursue a listing on a stock exchange and become a public company. In the event that it becomes a public company, the Covenantors' control over Beijing RHY may be subject to further restrictions and the Covenantors may not be able to control matters in which they have a material interest, such as business opportunities which may compete against the businesses of the Group.

Accordingly, the Directors (other than the independent non-executive Directors whose view will be provided in the Circular) are of the view that the terms of Non-competition Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

INFORMATION ABOUT THE GROUP AND BEIJING RHY

The Group

The Group is a provider of products, specialised solutions and services related to infrastructure technology in the railway and electric power sectors.

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