Kingsoft Corporation Limited — Proxy Solicitation & Information Statement 2014

Dec 4, 2014

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action you should take, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Kingsoft Corporation Limited , you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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.

Kingsoft Corporation Limited 金山軟件有限公司

(Continued into the Cayman Islands with limited liability)

(Stock Code: 03888)

CONTINUING CONNECTED TRANSACTIONS: PROVISION OF CLOUD SERVICES AND PROMOTION SERVICES BY THE GROUP TO XIAOMI GROUP; CONNECTED TRANSACTIONS:

GRANT OF LOAN FACILITY BY THE COMPANY TO KINGSOFT CLOUD AND GRANT OF XIAOMI OPTION BY KINGSOFT CLOUD TO XIAOMI; AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

A letter from the Board is set out on pages 4 to 22 of this circular and a letter from the Independent Board Committee to the Independent Shareholders is set out on page 23 of this circular. A letter of advice from Gram Capital to the Independent Board Committee and the Independent Shareholders is set out on pages 24 to 41 of this circular.

A notice convening the EGM of the Company to be held at Kingsoft Tower, No. 8 Lianshan Alley, Jingshan Road, Jida, Zhuhai, Guangdong, the PRC on Friday, 26 December 2014 at 1:30 p.m. is set out on pages 47 to 48 of this circular.

Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting (as the case may be) should you so wish.

Hong Kong, 5 December 2014

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . .	23
LETTER FROM GRAM CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
APPENDIX — GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
NOTICE OF EXTRAORDINARY GENERAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47

— i —

DEFINITIONS

In this circular, the following expressions shall have the following meanings unless the context requires otherwise:

• “associate” has the meaning as ascribed thereto in the Listing Rules “Board” the board of the Directors “Company” Kingsoft Corporation Limited, an exempted limited liability company incorporated in the British Virgin Islands on 20 March 1998 and discontinued in the British Virgin Islands and continued into the Cayman Islands on 15 November 2005, with its shares listed on the Stock Exchange

• “Comprehensive Services” the various services provided by the Group to Xiaomi Group under the Framework Agreement, mainly including the cloud services and the promotion services

• “connected person” has the meaning as ascribed thereto in the Listing Rules “connected subsidiary” has the meaning as ascribed thereto in the Listing Rules “Deed of Charge” the deed of charge entered into among KSC Partner, Kingsoft Cloud and the Company on 1 December 2014, pursuant to which KSC Partner agreed to pledge its entire shares in Kingsoft Cloud to secure certain outstanding principal amount of the Loan Facility and the accrued interests, being 139,500,000 ordinary shares of Kingsoft Cloud

• “Director(s)” the director(s) of the Company “EGM” the extraordinary general meeting of the Company to be held at Kingsoft Tower, No. 8 Lianshan Alley, Jingshan Road, Jida, Zhuhai, Guangdong, the PRC on Friday, 26 December 2014 at 1:30 p.m.

“Framework Agreement” the agreement entered into between the Company and Xiaomi on 1 December 2014, pursuant to which (i) the Group will provide the various services to Xiaomi Group, mainly including the promotion services and the cloud services; (ii) Xiaomi Group will provide various services to the Group, mainly including the promotion services; (iii) the Group will jointly operate games with Xiaomi Group; and (iv) the Group will purchase Xiaomi Group’s products (please refer to the announcement of the Company dated 1 December 2014 for details)

• “Gram Capital” or “Independent Gram Capital Limited, a corporation licensed to carry out Type 6 Financial Adviser” (advising on corporate finance) regulated activity under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the provision of the Comprehensive Services, the Proposed Annual Caps, the Loan Agreement and the transactions contemplated thereunder (including the grant of Loan Facility and the grant of Xiaomi Option)

— 1 —

DEFINITIONS

• “Group”

the Company and its subsidiaries

• “HK$”

Hong Kong dollars, the lawful currency of Hong Kong

• “Hong Kong”

• Hong Kong Special Administrative Region of the People’s Republic of China

• “Independent Board Committee” a committee of the Board comprising all the independent nonexecutive Directors formed by the Company to advise the Independent Shareholders in respect of the provision of the Comprehensive Services, the Proposed Annual Caps, the Loan Agreement and the transactions contemplated thereunder (including the grant of Loan Facility and the grant of Xiaomi Option)

• “Independent Shareholders” the shareholders of the Company who are not required to abstain from voting in respect of the provision of the Comprehensive Services, the Proposed Annual Caps, the Loan Agreement or the transactions contemplated thereunder (including the grant of Loan Facility and the grant of Xiaomi Option) at the EGM

• “Kingsoft Cloud” Kingsoft Cloud Holdings Limited, a limited liability company organized under the laws of the Cayman Islands and a connected subsidiary of the Company as at the Latest Practicable Date

• “Kingsoft Cloud Group” Kingsoft Cloud and its subsidiaries

• “Kingsoft Option” the option granted by Kingsoft Cloud to the Company under the Loan Agreement (for details, please refer to the paragraph headed “3.2 Principal terms of the Loan Agreement — Options” in the letter from the Board of this circular)

• “KSC Partner” KSC Partner Holdings Limited, a company incorporated under the laws of the British Virgin Islands and a substantial shareholder of Kingsoft Cloud as at the Latest Practicable Date

• “Latest Practicable Date” 1 December 2014, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange (as amended from time to time)

• “Loan Agreement” the loan agreement entered into among the Company, Kingsoft Cloud and Xiaomi on 1 December 2014 in relation to the grant of Loan Facility by the Company to Kingsoft Cloud

• “Loan Facility” the loan facility in an amount equivalent to US$500 million to be granted by the Company to Kingsoft Cloud under the Loan Agreement

• “PBOC”

the People’s Bank of China

— 2 —

DEFINITIONS

“PRC” or “China”	the People’s Republic of China which, for the purpose of this circular
	only, does not include Hong Kong, the Macau Special Administrative
	Region and Taiwan
“Proposed Annual Caps”	the proposed annual caps for the two years ending 31 December 2016
	in respect of the fees payable by Xiaomi Group for the provision of the
	Comprehensive Services by the Group
“RMB”	Renminbi, the lawful currency of the PRC
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“Shareholder(s)”	the shareholder(s) of the Company
“subsidiary”	has the meaning as ascribed thereto in the Listing Rules
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“US$”	United States dollars, the lawful currency of the United States
“Xiaomi”	Xiaomi Corporation, a limited liability company organized under the
	laws of the Cayman Islands
“Xiaomi Group”	Xiaomi and its subsidiaries
“Xiaomi Option”	the option granted by Kingsoft Cloud to Xiaomi under the Loan
	Agreement (for details, please refer to the paragraph headed “3.2
	Principal terms of the Loan Agreement — Options” in the letter from
	the Board of this circular)
%	percent

Certain amounts and percentage figures included in this circular have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures preceding them

— 3 —

LETTER FROM THE BOARD

Kingsoft Corporation Limited 金山軟件有限公司

(Continued into the Cayman Islands with limited liability) (Stock Code: 03888)

Directors:

Executive Directors Mr. HongJiang ZHANG Mr. Yuk Keung NG Mr. Tao ZOU

Non-Executive Directors Mr. Jun LEI (Chairman) Mr. Pak Kwan KAU Mr. Chi Ping LAU

Independent Non-Executive Directors Mr. Shun Tak WONG Mr. David Yuen Kwan TANG Ms. Wenjie WU

Registered Office Clifton House 75 Fort Street P.O. Box 1350 GT George Town Grand Cayman KY1-1108 Cayman Islands

Principal Place of Business in Hong Kong Unit 1309A, 13/F Cable TV Tower No. 9 Hoi Shing Road Tsuen Wan, N.T. Hong Kong

Hong Kong, 5 December 2014

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS: PROVISION OF CLOUD SERVICES AND PROMOTION SERVICES BY THE GROUP TO XIAOMI GROUP; CONNECTED TRANSACTIONS:

GRANT OF LOAN FACILITY BY THE COMPANY TO KINGSOFT CLOUD

AND

GRANT OF XIAOMI OPTION BY KINGSOFT CLOUD TO XIAOMI

1. INTRODUCTION

Reference is made to the announcement of the Company dated 1 December 2014 in relation to the Framework Agreement and the announcement of the Company dated 1 December 2014 in relation to the Loan Agreement.

On 1 December 2014, the Company entered into the Framework Agreement with Xiaomi to regulate the ongoing transactions between the two parties. On the same day, the Company entered into the Loan Agreement with Kingsoft Cloud and Xiaomi to provide the Loan Facility to Kingsoft Cloud.

— 4 —

LETTER FROM THE BOARD

The purpose of this circular is to provide you with information, among others, (i) further details of the Framework Agreement in relation to the provision of the Comprehensive Services and the Loan Agreement; (ii) the letter of recommendation from Independent Board Committee; (iii) the letter from Gram Capital to the Independent Board Committee and the Independent Shareholders; and (iv) a notice of the EGM, and to provide you with all the information reasonably necessary to enable you to make an informed decision on whether to vote for or against the proposed resolution(s) at the EGM.

2. THE FRAMEWORK AGREEMENT

2.1 Background

The Group has set up a stable long-term business relationship with Xiaomi Group. To regulate the various ongoing transactions between the two parties, such as provision of cloud services, provision of promotion services, joint operation in games and purchase of products, the Company and Xiaomi entered into a cooperation framework agreement on 24 April 2013, which was further amended through four supplemental agreements dated 21 August 2013, 27 December 2013, 1 April 2014 and 18 November 2014, respectively (together with the cooperation framework agreement, the “ Previous Framework Agreements ”). For details, please refer to the announcements of the Company dated 24 April 2013, 21 August 2013, 27 December 2013, 1 April 2014 and 18 November 2014 in relation to the continuing connected transactions between the Group and Xiaomi Group.

In order to further strengthen the business cooperation between the Group and Xiaomi Group and promote mutual business developments, and to better regulate the continuing connected transactions between the two parties, on 1 December 2014 the Company and Xiaomi entered into the Framework Agreement to replace the Previous Framework Agreements. The Previous Framework Agreements will be terminated immediately upon the effective date of the Framework Agreement and the transactions under the Previous Framework Agreements for the year ending 31 December 2015 (where applicable) will be governed by the Framework Agreement.

Pursuant to the Framework Agreement, (i) the Group will provide the Comprehensive Services to Xiaomi Group, mainly including the cloud services and promotion services; (ii) Xiaomi Group will provide various services to the Group, mainly including the promotion services; (iii) the Group will jointly operate games with Xiaomi Group; and (iv) the Group will purchase Xiaomi Group’s products. For details of the Framework Agreement, please refer to the announcement of the Company dated 1 December 2014.

The highest percentage ratio (as defined in the Listing Rules) in respect of the proposed annual caps in relation to the provision of the Comprehensive Services by the Group exceeds 5%. As such, such transactions are subject to the announcement, reporting, annual review and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. In respect of other continuing connected truncations under the Framework Agreement, each of the highest percentage ratios (as defined in the Listing Rules) with reference to the proposed annual caps exceeds 0.1% but is less than 5%, such transactions are subject to the announcement, reporting and annual review requirements but exempted from the independent shareholders’ approval under Chapter 14A of the Listing Rules.

In order to enable the Independent Shareholder to make an informed decision, the Company hereby provides further details of the Comprehensive Services (mainly including the cloud services and promotion services) to be provided by the Group under the Framework Agreement.

— 5 —

LETTER FROM THE BOARD

• 2.2 Principal terms of the Framework Agreement in relation to the provision of Comprehensive Services by the Group

Date:

Parties:

1 December 2014 the Company; and

Xiaomi

Terms:

two years from 1 January 2015 to 31 December 2016

Conditions precedent:

The Framework Agreement is subject to the Independent Shareholders’ approval.

Scope of Comprehensive Services:

The Group will provide Xiaomi Group the Comprehensive Services, mainly including (i) the cloud services developed by the Group, including but not limited to the cloud storage and cloud computing services; and (ii) the promotion services via the Group’s products and websites for the sale of Xiaomi Group’s smart devices and related products.

Pricing principle:

The fees for the Comprehensive Services (mainly including the cloud services and promotion services) shall be determined based on the following principles:

With respect to cloud services:

• (i) the fees charged for cloud services are calculated with reference to the cloud storage space provided and the volume of cloud data transferred;

• (ii) the fees shall be determined after arm’s length negotiation with Xiaomi Group after taking into account the costs for providing the services, the volume of the services rendered and a reasonable profit of the Group;

• (iii) the fees shall be no more favorable to Xiaomi Group than those provided to independent third parties for services rendered on similar technical specifications and volume.

As the cloud service is an emerging technology under starting-up stage in the PRC, there is limited number of major players in the PRC “business-to-business” cloud service market. As such, it is currently unpractical to establish a “prevailing market price” for cloud services.

— 6 —

LETTER FROM THE BOARD

The Company does not have a pre-determined formula for the fee proposal. The sales department of the Group is responsible for the initial determination of the pricing of the cloud services. When Xiaomi Group approaches the Group in respect of the potential services, the sales department of the Group will recommend a fee proposal with primary reference to the costs and number of users and purchase volume. Other factors, such as resources and technology required will also be considered. Upon final review by the president, Chief Executive Officer and/or sales director of the relevant subsidiary of the Company who are independent of Xiaomi Group, the fee proposal will be proposed to Xiaomi Group for consideration and negotiation.

With respect to promotion services:

• (i) the fees shall be determined with reference to a number of factors including the position of the advertisement, the features selected, the term of the promotion, website traffic and data flow of the Group’s products and websites;

• (ii) such fees should also be applicable to all clients for the same kind of services.

As there are many variables in determining the price of promotion services, such as the popularity of the products that carry the advertisement, the position of the advertisement, volume, features selected, term of the promotion and website traffic and data flow, it is difficult to set a benchmark for comparable promotional services offered by different providers, not to mention the determination of a “prevailing market price” in this regard.

The Company does not have a pre-determined formula for the fee proposal. The sales department of the Group is responsible for the initial determination of the pricing of the promotion services. When Xiaomi Group approaches the Group in respect of the potential services, the sales department of the Group will recommend a fee proposal with primary reference to the position of the advertisement and the features selected. Other factors, such as the term of the promotion, website traffic and data flow of the Group’s products and websites will also be considered. Upon final review by the sales director and Chief Marketing Officer of the relevant subsidiary of the Company who are independent of Xiaomi Group, the fee proposal will be proposed to Xiaomi Group for consideration and negotiation.

— 7 —

LETTER FROM THE BOARD

The Company will also compare the price with at least two transactions of comparable nature (if any) with independent third party clients to ensure the fees charged are fair and reasonable and no more favorable to Xiaomi Group than those offered to independent third parties. At this stage, the Company does not have substantial number of customers for its cloud services and promotion services of similar nature. The Company considers that choosing two available transactions of comparable nature with independent third parties as benchmarks is sufficient to ensure fees charged to Xiaomi are fair and reasonable and no more favorable to Xiaomi Group than those offered to independent third parties. If the minimum number of comparable transactions from independent third party clients is not obtained, the Company will simply follow the pricing principles as disclosed in the circular in determining the price.

The Directors are of the view that the aforementioned pricing terms are on normal commercial terms and are fair and reasonable and in the interests of the Company and its Shareholders as a whole.

Payment terms:

The payment terms shall be based on the individual agreements with reference to similar transactions in the market.

2.3 Proposed Annual Caps

The table below sets out the historical amounts for the two years ended 31 December 2013 and the nine months ended 30 September 2014, the annual cap for the year ending 31 December 2014 as disclosed in the previous announcements of the Company and the Proposed Annual Caps for the two years ending 31 December 2016 for the fees payable by Xiaomi Group in respect of the provision of the Comprehensive Services by the Group under the Framework Agreement:

				Annual
	Historical transaction amounts			caps*	Proposed	Annual Caps
						RMB: million
			For the nine
	For the year	For the year	months	For the year	For the year	For the year
	ended 31	ended 31	ended 30	ending 31	ending 31	ending 31
	December	December	September	December	December	December
	2012	2013	2014	2014	2015	2016
Cloud services	0.82	4.98	32	80	450	1,400
Promotion services	—	2.72	4.07	15	50	100
Total	0.82	7.7	36.07	95	500	1,500

• The annual cap for cloud services for the year ending 31 December 2014 is identical to the existing annual cap for 2014 as stated in the announcement of the Company dated 18 November 2014.

— 8 —

LETTER FROM THE BOARD

The annual cap for promotion services for the year ending 31 December 2014 is identical to the existing annual cap for 2014 as stated in the announcement of the Company dated 1 April 2014.

The Company further confirms that the total amount of Comprehensive Service fees receivable up to the Latest Practicable Date has not exceeded the existing annual caps for the year 2014. The finance department of the Company works with the business department to monitor the transaction amount each month and predict future transaction volume, so that the Company can control the amount of transactions with Xiaomi Group before existing annual caps are breached. As such, the Company is able to ensure that the existing annual caps will not be breached.

The Proposed Annual Caps are determined with reference to the following factors:

• (i) the historical amounts for the two years ended 31 December 2013 and the nine months ended 30 September 2014

The cloud service is an emerging technology under starting-up stage in the PRC. The past two years ended 31 December 2013 and the nine months ended 30 September 2014 witnessed a sharp increase in the historical amount of the fees payable by Xiaomi Group to the Group for the provision of the Comprehensive Services. The Comprehensive Service fee for the year 2013 amounted to RMB7.7 million, which represented an eightfold increase as compared with that for the year 2012. The Comprehensive Service fee for the nine months ended 30 September 2014 amounted to RMB36.07 million, which is approximately five times of the annual transaction amount of the entire year of 2013. For the remaining months of 2014, considering the recent “11 November” shopping festival in the PRC, during which period Xiaomi has recorded massive sale of Xiaomi devices including new model of Xiaomi smartphones, and the coming shopping season in December 2014, it is expected that the demand for Xiaomi devices will remain strong. With the recent rapid growth of the number of users of Xiaomi devices, the demand for cloud services by Xiaomi will expect to see substantial growth in the remaining months of 2014. With the cloud business develops, the Company believes that such historical growth rate will continue in the remaining months of 2014 and the two years ending 31 December 2016.

For the nine months ended 30 September 2014, the monthly compound growth rate of the service fee in respect of the cloud services is approximately 23%. The Company believes that the fees in respect of the cloud services provided by the Group to Xiaomi Group will keep such strong growth momentum in the remaining months of 2014 and the two years ending 31 December 2016 after taking into account (a) the aforementioned past growth trend for the two years ended 31 December 2013 and the nine months ended 30 September 2014; (b) the deepened business cooperation between Xiaomi Group and the Group as further elaborated in the paragraph headed “the estimated growth in Xiaomi’s demand for the cloud services”; and (c) the Group’s great confidence in the future development of cloud business.

Based on the historical transaction amounts and the historical growth rate, it is expected that the services fees for the two years ending 31 December 2016 will keep increasing dramatically.

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LETTER FROM THE BOARD

(ii) the estimated growth in Xiaomi’s demand for the cloud services

Based on the stable business relationship between the Group and Xiaomi Group, the two parties decided to further strengthen their cooperation, especially in the cloud business area. Pursuant to the shareholders’ agreement of Kingsoft Cloud dated 21 August 2014, Xiaomi agreed to procure that 70% of the cloud storage and cloud computing services used by Xiaomi Group in their MIUI image storage business shall be purchased from the Group, provided that the quality of such services is satisfactory and the fees charged for such services are reasonable. For details, please refer to the announcement of the Company dated 21 August 2014.

The MIUI image storage business of Xiaomi is an essential service for Xiaomi cell phones. It is expected that the number of users of Xiaomi cell phones will keep growing as the sale volume of Xiaomi cell phones will continue to increase sharply. As such, the number of end users for the Group’s cloud services via Xiaomi cell phones is expected to increase substantially, which in turn leads to a dramatic growth in Xiaomi’s demands for the Group’s cloud services.

As mentioned in the above paragraph, Xiaomi cell phones provide MIUI image storage services to the users, which is very user-friendly. A user of a Xiaomi cell phone will use more and more MIUI image storage service to upload, download or store pictures and other data after he starts to use the phone. As time goes on, the usage of Mi cloud storage services by a Xiaomi user will raise dramatically, which will lead to a growth in Xiaomi’s demand for the Group’s cloud services. For the nine months ended 30 September 2014, the monthly compound growth rate of the usage of the cloud services by end users via Xiaomi is approximately 28%. The Company believes that such usage volume of cloud services will keep strong growth momentum in the remaining months of 2014 and the two years ending 31 December 2016.

Apart from Xiaomi cell phones, Mi Pad, Mi TV and other smart devices of Xiaomi will also use the cloud services of the Group. As such, it is expected that the fees payable by Xiaomi Group in respect of the cloud services will increase in line with the growth of the sales volume of the other smart devices.

Taking the aforementioned factors into account, the Company expects that Xiaomi Group’s demand for the cloud services will increase dramatically.

(iii) the adequate buffer for the Group in case of unanticipated transactions

As the internet industry is changing rapidly, the Group and Xiaomi Group have to keep adjusting their businesses. It is possible that some unanticipated transactions which require promotion services or cloud services will arise. As Xiaomi’s business develops, more applications and businesses of Xiaomi will use the cloud services of the Group. Besides, the cloud business is a dynamic business in the internet industry. It is highly like that the cloud business will grow dramatically in the foreseeable future and the transactions in respect of the provision of cloud services by the Group to Xiaomi Group may significantly increase. As such, the Group would like to have an adequate buffer of around 10% to 20% on average for the two years ending 31 December 2016 for the Comprehensive Services, mainly including the cloud services and promotion services.

— 10 —

LETTER FROM THE BOARD

2.4 Reasons for and benefits of the provision of Comprehensive Services

The Group has been proactively looking for new opportunities in the areas of Internet based software development, provision of services, and distribution of games in an effort to broaden its income sources and obtain greater market share. Xiaomi Group has long been a cooperation partner of the Group in business operation and development, especially in the realm of mobile applications. Riding on the reputation and widening acceptance of Xiaomi’s series of smart phones in China, which are renowned for their advanced specifications and competitive pricing, the Directors believe that by providing the Comprehensive Services (including but not limited to the promotion services and cloud services), the Group will not only benefit from increased revenue arising from the services rendered to Xiaomi Group, but will also be able to utilize Xiaomi’s smart phone platform as an additional channel to promote the Group’s online services and products to the ultimate mobile phone users. The Company does not consider the provision of Comprehensive Services to Xiaomi Group has any manifest disadvantage to the Group.

2.5 Implications under the Listing Rules

Xiaomi is an associate of Mr. Jun LEI, a Director and substantial Shareholder of the Company. As such, Xiaomi is a connected person of the Company. Therefore, the provision of Comprehensive Services by the Group to Xiaomi Group under the Framework Agreement will become continuing connected transactions of the Company under the Listing Rules.

As the highest applicable percentage ratio (as defined in the Listing Rules) in respect of the Proposed Annual Caps is higher than 5%, the provision of the Comprehensive Services under the Framework Agreement and the Proposed Annual Caps are subject to the reporting, announcement, annual review and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

3. THE LOAN AGREEMENT

3.1 Background

On 1 December 2014, the Company entered into the Loan Agreement with Kingsoft Cloud and Xiaomi pursuant to which, among others, the Company agreed to grant a Loan Facility in an amount of US$500 million to Kingsoft Cloud.

As at the Latest Practicable Date, Kingsoft Cloud had total issued ordinary shares of 947,500,000 shares, out of which 669,000,000 shares, 139,500,000 shares, 91,000,000 shares and 48,000,000 shares were owned by the Company, KSC Partner, Xiaomi and the trustee of awarded shares to the eligible employees of Kingsoft Cloud under the share incentive scheme, respectively. Kingsoft Cloud also had total issued series A preferred shares of 269,480,000 shares, out of which 107,792,000 shares and 161,688,000 shares were owned by the Company and Xiaomi, respectively. One series A preferred share of Kingsoft Cloud carries the same voting right as that attached to one ordinary share and may be converted into the ordinary share of Kingsoft Cloud on an initial and current conversion rate of 1:1. As such, as at the Latest Practicable Date, Kingsoft Cloud was controlled as to approximately 63.83% by the Company, 20.76% by Xiaomi, 11.46% by KSC Partner and 3.94% by the trustee of awarded shares (on the assumption that the series A preferred shares are converted into the ordinary share of Kingsoft Cloud on the conversion rate of 1:1).

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LETTER FROM THE BOARD

As at the Latest Practicable Date, Kingsoft Cloud also had outstanding options for the issue of an aggregate of 116,920,000 ordinary shares of Kingsoft Cloud and an aggregate of 13,500,000 ordinary shares of Kingsoft Cloud to be issued under the employee stock ownership plans.

• 3.2 Principal terms of the Loan Agreement

Date: 1 December 2014

Parties:

the Company (the lender)

Kingsoft Cloud (the borrower)

Xiaomi (the guarantor)

Principal amount:

The Company will grant a loan facility to Kingsoft Cloud in Renminbi and/or Hong Kong dollar in an aggregate principal amount equivalent to US$500 million.

Drawdown period:

The entire amount of the Loan Facility will be drawn in multiple tranches within a three-year period commencing from 1 January 2015 to 31 December 2017, subject to the default and acceleration clause as described below.

Annual drawdown amount:

The annual drawdown amount shall be determined by the Board at its sole discretion based on the business plan and financial needs of the Company and the business development of Kingsoft Cloud. Kingsoft Cloud shall withdraw the loan in one or multiple times each year within the annual drawdown amount to be determined by the Board.

Conditions precedent:

Drawdown of the loan is subject to the satisfaction of or waiver by the Company of the following conditions precedent:

• (i) all the representations and warranties made by Kingsoft Cloud being true, complete, accurate and not misleading;

• (ii) Kingsoft Cloud having performed its obligations under the Loan Agreement and the Deed of Charge;

• (iii) the Loan Agreement and the Deed of Charge being duly executed and delivered;

• (iv) all the approvals and authorizations in relation to the Loan Agreement and the Deed of Charge having been obtained;

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LETTER FROM THE BOARD

• (v) the Letter of Undertaking (as defined below) being duly executed by any and all the existing participants of Kingsoft Cloud’s share option plan and other equity incentive plans and delivered to the Company.

Interest:

For the loan advanced in Renminbi, the interest rate is 1.1 times of the applicable Renminbi loan datum interest rate published by PBOC with the same term on the drawdown date. In the event that the aforementioned interest rate is not available, the higher of (a) the interest rate same as that applicable to the loan advanced in Renminbi immediately before the drawdown date; or (b) 6% per annum.

For the loan advanced in Hong Kong dollar, the interest rate is 6% per annum. Such interest rate was determined by references to the prevailing interest rate of three-yearterm Hong Kong dollar bonds obtainable by companies with comparable risk profile in Hong Kong market. Due consideration has also been given to the financial situations and potential development risks of Kingsoft Cloud.

The Directors are of the view that the aforementioned applicable interest rates are fair and reasonable.

The aforementioned applicable interest on the unpaid balance shall be compounded annually.

Repayment:

The interest accrued shall be paid by Kingsoft Cloud on a quarterly basis.

Subject to the default and acceleration clause as described below, the outstanding principal amount of the loan and the accrued but unpaid interest shall be paid by Kingsoft Cloud on the third anniversary date of its drawdown date.

Pledges and guarantees by other shareholders of Kingsoft Cloud:

(i) KSC Partner Pledge

KSC Partner, a substantial shareholder of Kingsoft Cloud, agreed to pledge its entire equity interest in Kingsoft Cloud, being 139,500,000 ordinary shares of Kingsoft Cloud, to secure certain outstanding principal amount of the Loan Facility (the “ KSC Secured Principal Amount ”) and the accrued interests for Kingsoft Cloud under the Deed of Charge (the “ KSC Partner Pledge ”). The KSC Secured Principal Amount shall be calculated by the formula same as that applicable to the calculation of the Xiaomi Guaranteed Principal Amount, mutatis mutandis, as provided below.

— 13 —

LETTER FROM THE BOARD

(ii) Pledges to be provided by Eligible Persons

Each parties hereby agrees and commits (and Kingsoft Cloud shall cause and procure each of its shareholders to agree and commit) that in the event that any person (the “ Eligible Person ”) proposes to acquire, subscribe for, or hold any share of Kingsoft Cloud pursuant to Kingsoft Cloud’s share option plan and other equity incentive plans, it shall use its best effort to procure certain outstanding principal amount of the Loan Facility (the “ ESOP Secured Principal Amount ”) and the accrued interests to be secured by a first charge over any and all shares of Kingsoft Cloud held by such Eligible Person on the terms and conditions set forth in the Deed of Charge, mutatis mutandis. The ESOP Secured Principal Amount shall be calculated by the formula same as that applicable to the calculation of the Xiaomi Guaranteed Principal Amount, mutatis mutandis, as provided below.

Kingsoft Cloud shall cause and procure all existing and future participants of Kingsoft Cloud’s share option plan and other equity incentive plans to execute a letter of undertaking in connection with such share charge substantially in the form attached hereto (the “ Letter of Undertaking ”). Unless otherwise mutually approved by the parties to this agreement, none of the parties shall take any action which leads and/or will lead to the holding of any share in Kingsoft Cloud by such Eligible Person without the completion of such share charge.

(iii) Xiaomi Guarantee

Xiaomi, another substantial shareholder of Kingsoft Cloud, unconditionally and irrevocably agreed to guarantee the punctual repayment of certain outstanding principal amount of the Loan Facility (“ Xiaomi Guaranteed Principal Amount ”) and the accrued interests (“ Xiaomi Guarantee ”). In the event that Kingsoft Cloud has failed to repay the due and payable amount hereunder, Xiaomi shall be liable for and pay the Xiaomi Guaranteed Principal Amount and the accrued interests within 10 days upon receiving the Company’s first written demand for the same.

The Xiaomi Guaranteed Principal Amount is calculated according to the following formula:

Xiaomi Guaranteed Principal Amount = A*B

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LETTER FROM THE BOARD

A refers to the outstanding principal amount of the Loan Facility.

B refers to Xiaomi’s direct and indirect shareholding percentage in Kingsoft Cloud as of the date on which the Company claims to Xiaomi in connected with the Xiaomi Guaranteed Principal Amount.

(iv) Guarantees to be provided by Third Party

Each parties hereby agrees and commits (and Kingsoft Cloud shall cause and procure each of its shareholders to agree and commit) that in the event that any person other than the current shareholders of Kingsoft Cloud as of the execution date of this agreement and the Eligible Persons (the “ Third Party ”) proposes to acquire, subscribe for, or hold any share of Kingsoft Cloud, it shall use its best effort to procure such Third Party to make guarantee same as that made by Xiaomi under this agreement based on such Third Party’s direct and indirect shareholding percentage in Kingsoft Cloud, mutatis mutandis, upon completion of such share acquisition or subscription by such Third Party. Unless otherwise mutually approved by the parties to this agreement, none of the parties shall take any action which leads and/or will lead to the holding of any share in Kingsoft Cloud by such Third Party without such Third Party’s making of the abovementioned guarantee.

For the avoidance of doubt, the direct and indirect shareholding percentage in Kingsoft Cloud for a shareholder who has committed to guarantee shall be a fraction the numerator of which is the number of shares of Kingsoft Cloud held by such shareholder on an as-converted basis and the denominator of which is the total number of issued and outstanding shares of Kingsoft Cloud on an as-converted basis (disregarding any shares issued to and held by trustees for and on behalf of Kingsoft Cloud, and any options issued or issuable, pursuant to Kingsoft Cloud’s share option plan and other equity incentive plans).

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LETTER FROM THE BOARD

Options:

(i) Kingsoft Option

In the event that Kingsoft Cloud fails to repay any outstanding principal amount of the Loan Facility and the accrued interests, the Company shall have the option to, at any time no later than the full payment of the outstanding principal amount and the accrued but unpaid interests by Kingsoft Cloud, convert the outstanding principal amount and accrued but unpaid interest which has not been secured as mentioned in the above paragraph headed “Pledges and guarantees by other shareholders of Kingsoft Cloud”, or has not been realized by such security measures, in whole or in part, into certain number of fully-paid and non-assessable preferred shares of Kingsoft Cloud.

The conversion formula shall be as follows:

Number of preferred shares of Kingsoft Cloud = Outstanding amount that the Company elects to convert/ the applicable purchase price per share

The applicable purchase price per share refers to (i) in the event that the latest private financing is taken place within six months before the applicable Conversion Notice Date (as defined below), the purchase price per share applicable in the latest private financing as of the applicable Conversion Notice Date; or (ii) in the event that the latest private financing is taken place more than six months before the applicable Conversion Notice Date, the fair market price appraised by a qualified and independent third party and confirmed and approved by the Company, Xiaomi and the board of Kingsoft Cloud.

(ii) Xiaomi Option

In the event that Xiaomi repays the Xiaomi Guaranteed Principal Amount and the accrued interests, Xiaomi shall have the option to, at any time no later than the full payment of the outstanding principal amount and the accrued but unpaid interest Kingsoft Cloud, convert such amount, in whole or in part, into certain number of fully-paid and non-assessable preferred shares of Kingsoft Cloud.

The conversion formula shall be as follows:

Number of preferred shares of Kingsoft Cloud = the amounts paid by Xiaomi and elected by Xiaomi to convert/the applicable purchase price per share

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LETTER FROM THE BOARD

The applicable purchase price per share refers to (i) in the event that the latest private financing is taken place within six months before the applicable Conversion Notice Date, the purchase price per share applicable in the latest private financing as of the applicable Conversion Notice Date; or (ii) in the event that the latest private financing is taken place more than six months before the applicable Conversion Notice Date, the fair market price appraised by a qualified and independent third party and confirmed and approved by the Company, Xiaomi and the board of Kingsoft Cloud.

The “Conversion Notice Date” refers to the date on which the Company or Xiaomi issues written notice to Kingsoft Cloud requesting to convert all or any part of the outstanding principal amount and accrued but unpaid interests as mentioned above (the “ Conversion Notice ”).

The Company considers the current provision in determining the conversion price under the Loan Agreement is fair and reasonable and in the interest of the Company’s shareholders as a whole.

For the avoidance of doubt, the parties acknowledge and agree that upon the issuance of the Conversion Notice from the Company and/or Xiaomi, Kingsoft Cloud shall not repay any corresponding outstanding principal amount and/or Xiaomi Guaranteed Principal Amount and accrued interests, and shall use its best efforts to complete the conversion as soon as practicable.

Kingsoft Cloud shall be obligated to repay all the principal amount and the accrued interests which (i) has been due and outstanding and has not be converted by the Company pursuant to the Kingsoft Option, (ii) has been repaid by KSC Partner and/or the Eligible Persons by cash or by realization of security, and (iii) has been repaid but has not been converted by Xiaomi pursuant to the Xiaomi Option, as soon as practicable according to the cash flow and business operation of Kingsoft Cloud Group; and shall repay such principal amount and accrued interests to the Company, KSC Partner, Eligible Persons and Xiaomi on a pro rata basis, calculated based on the total amount payable to each such person.

Such preferred shares of Kingsoft Cloud shall rank pari passu with the newly issued preferred shares of Kingsoft Cloud in the latest private financing.

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LETTER FROM THE BOARD

Use of the loan:

The loan provided by the Company shall be used only for the capital expenditure in the ordinary business operation of the Kingsoft Cloud Group and/or the repayment of the outstanding principal amount of the loan due and payable as provided herein.

For the avoidance of doubt, without prior written consent of the Company, the loan provided by the Company shall not be used to recover the operating loss of Kingsoft Cloud Group or pay any interest accrued on the principal amount of the Loan Facility.

Default and acceleration:

If any event of default under the Loan Agreement occurs, the interest shall accrue at a rate of 0.1% per day for the period from the date of the occurrence of such event of default to the date when all outstanding principal amounts (together with the interests) are fully paid off. The events of default include but not limited to (a) Kingsoft Cloud failing to pay the Loan Facility or any amounts due; (b) Kingsoft Cloud Group applying any portion of the Loan Facility for the purposes other than those as described in the above paragraph headed “Use of the loan”.

If any event of default or any event of acceleration under the Loan Agreement occurs, all outstanding principal amounts shall become due and payable immediately. Kingsoft Cloud shall repay such amount in full together with all accrued but unpaid interests within five calendar days from the date of the occurrence of such termination event. The events of acceleration include but not limited to (a) the aggregate shareholding of the Company in Kingsoft Cloud being less than 50%; (b) the aggregate shareholding of Xiaomi in Kingsoft Cloud being less than 15%.

3.3 Reasons for and benefits of the Loan Agreement

The Company believes that the grant of Loan Facility by the Company to Kingsoft Cloud is in the best interest of the Group and its Shareholders as a whole due to the following reasons:

(i) to support the development of the Group’s cloud business

Kingsoft Cloud Group is engaged in the research, development and provision of cloud technology and services, which plays an important role in the Group’s cloud business. The cloud business is a dynamic area in the internet market. Other major internet Chinese players are also focusing on developing their own cloud technologies. The Group decided to finance Kingsoft Cloud Group to boost the development and research capability of its cloud technology and services. It is estimated that the aggregate current and future investment of the Group in the cloud business may reach up US$1 billion, including the loan financing and other investments made by the Group as disclosed previously.

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LETTER FROM THE BOARD

(ii) to meet the business needs of Kingsoft Cloud

As mentioned in Section 2 of this letter, Xiaomi shall procure that 70% of the cloud storage and cloud computing services used by Xiaomi Group in their MIUI image storage business are sourced from the Group, provided that the quality of such services is satisfactory and fees charged for such services are reasonable. Xiaomi Group’s demand on the Group’s cloud services is expected to increase dramatically. Kingsoft Cloud Group, as the major subsidiary group of the Group in the cloud business, will provide substantial cloud services to Xiaomi Group under the Framework Agreement. As such, it is expected that Kingsoft Cloud Group will requires more equipment, devices or other fixed assets for it to continue such ongoing transactions. To meet the business needs of Kingsoft Cloud Group, the Group agreed to provide the Loan Facility to Kingsoft Cloud Group in the area of capital expenditure.

The grant of Loan Facility by the Company also provides Kingsoft Cloud alternative means to obtain funding. Relying on the strong financial support from the Company, Kingsoft Cloud will focus on the development of its business, which will bring long-term shareholder value to the Company as the controlling shareholder of Kingsoft Cloud.

(iii) to better utilize the idle cash of the Group and ensure stable income from the Loan Facility

Kingsoft Cloud is a subsidiary of the Group. The intergroup loan is to facilitate the Group’s financing channel and better utilize the idle cash of the Group. Pursuant to the Loan Agreement, Kingsoft Cloud shall pay the interests accrued to the Group on a quarterly basis. As such, the grant of the Loan Facility will provide a stable income on the Company’s financial resources which is beneficial to the Company and the Group.

The Loan Facility will be financed from the Group’s internal cash resource.

The major disadvantage of the grant of Loan Facility to Kingsoft Cloud lies in the risk of Kingsoft Cloud being unable to repay the Loan Facility as it falls due. However, such risk is inherent in all transactions involving granting a loan and not specific to this transaction. The actual capacity of Kingsoft Cloud to repay the Loan Facility largely depends on its business development in the future as cloud service is an emerging technology under starting-up stage in the PRC. Further, as Kingsoft Cloud is a subsidiary of the Company, the Company is able to control the management of Kingsoft Cloud. The management of the Company is able to constantly monitor the business operation, performance, cash flows and other financial conditions of Kingsoft Cloud. As such, the Company is able to assess the ability of Kingsoft Cloud to repay outstanding loan amounts under the Loan Agreement from time to time.

3.4 Implication under the Listing Rules

Kingsoft Cloud is a subsidiary of the Company. As at the Latest Practicable Date, Xiaomi, the associate of Mr. Jun Lei, holds more than 10% voting power in Kingsoft Cloud and Mr. Jun Lei is a substantial shareholder of the Company. Therefore, Kingsoft Cloud is a connected subsidiary of the Company by virtue of Rule 14A.16 of the Listing Rules.

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LETTER FROM THE BOARD

As such, (i) the provision of Loan Facility by the Company to Kingsoft Cloud, (ii) the provision of guarantee by Xiaomi, (iii) the grant of Kingsoft Option by Kingsoft Cloud to the Company, and (iv) the grant of Xiaomi Option by Kingsoft Cloud to Xiaomi under the Loan Agreement, will constitute connected transactions of the Company under the Listing Rules.

(i) the provision of Loan Facility by the Company to Kingsoft Cloud

As the highest applicable percentage ratio (as defined in the Listing Rules) in respect of the grant of the Loan Facility is higher than 5%, the grant of Loan Facility under the Loan Agreement is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

(ii) the provision of guarantee by Xiaomi

As the provision of guarantee by Xiaomi is on normal commercial terms and is in the interest of the Group. No security over the assets of the Group is provided either. The provision of guarantee by Xiaomi is fully exempted from the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

(iii) the grant of Kingsoft Option by Kingsoft Cloud to the Company

The grant of Kingsoft Option by Kingsoft Cloud to the Company constitutes a transaction under Chapter 14 of the Listing Rules. In the event that the Company fully exercises the Kingsoft Option, the maximum outstanding amount that the Company may elect to convert shall be US$500 million together with the accrued interests. As the highest applicable percentage ratio (as defined in the Listing Rules) in respect of the grant of Kingsoft Option by Kingsoft Cloud is less than 5%, the grant of Kingsoft Option by Kingsoft Cloud is exempted from the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

The grant of Kingsoft Option by Kingsoft Cloud also constitutes a connected transaction. As the highest applicable percentage ratio (as defined in the Listing Rules) in respect of the grant of Kingsoft Option by Kingsoft Cloud exceeds 0.1% but is less than 5%, the grant of Kingsoft Option by Kingsoft Cloud is subject to the reporting and announcement requirements but exempted from independent shareholders’ approval under Chapter 14A of the Listing Rules.

For the exercise of Kingsoft Option by the Company, the Company will comply with the relevant requirements under the then Listing Rules at the time of exercise.

(iv) the grant of Xiaomi Option by Kingsoft Cloud to Xiaomi

The grant of Xiaomi Option by Kingsoft Cloud to Xiaomi constitutes a transaction under Chapter 14 of the Listing Rules. In the event that Xiaomi fully exercises the Xiaomi Option, the maximum amount that Xiaomi may possibly elect to convert shall be US$500 million together with the accrued interests. As the highest applicable percentage ratio (as defined in the Listing Rules) in respect of the grant of Xiaomi Option by Kingsoft Cloud exceeds 5% but is less than 25%, the grant of Xiaomi Option by Kingsoft Cloud to Xiaomi constitutes a discloseable transaction, which is subject to the reporting and announcement requirements but exempted from the shareholders’ approval under Chapter 14 of the Listing Rules.

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LETTER FROM THE BOARD

The grant of Xiaomi Option by Kingsoft Cloud also constitutes a connected transaction. As the highest applicable percentage ratio (as defined in the Listing Rules) in respect of the grant of Xiaomi Option by Kingsoft Cloud exceeds 5%, the grant of Xiaomi Option by Kingsoft Cloud is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

4. GENERAL INFORMATION

The Group is a leading internet based software developer, distributor and service provider and principally engaged in research, development and operation of online games and office application software, information security software, internet browser, mission critical mobile applications, and provision of cloud storage, cloud computation, online marketing services and internet value-added services across device.

Kingsoft Cloud Group is engaged in the research, development and provision of cloud technology and services.

KSC Partner is a company wholly-owned by the relevant employees of Kingsoft Cloud. Aside from holding shareholding interest in Kingsoft Cloud, KSC Partner does not have any other business activities.

Xiaomi Group is one of the leading providers of smart devices in the PRC. It is principally engaged in the design, research, development and sales of smart devices and the provision of mobile internet services.

5. EGM

The EGM which will be held at 1:30 p.m. on Friday, 26 December 2014 at Kingsoft Tower, No. 8 Lianshan Alley, Jingshan Road, Jida, Zhuhai, Guangdong, the PRC , to consider and, if thought fit, approve, among other matters, (i) the provision of the Comprehensive Services;(ii) the Proposed Annual Caps; and (iii) the Loan Agreement and the transactions contemplated thereunder (including the grant of Loan Facility and the grant of Xiaomi Option).

Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting (as the case may be) should you so wish.

Pursuant to the Listing Rules, Shareholders with a material interest in the provision of Comprehensive Services and the Loan Agreement and their respective associates shall abstain from voting on the relevant respective resolution(s). Xiaomi is an associate of Mr. Jun LEI, a Director and substantial shareholder of the Company. As at the Latest Practicable Date, Mr. Jun LEI and his associates can exercise control over the voting right in respect of 317,532,194 Shares at the Company’s general meeting, representing 26. 80% equity interest in the Company. Among these 317,532,194 Shares, the 142,714,003 Shares are exercised by Mr. Jun LEI under a voting trust arrangement. Mr. Pak Kwan KAU and Mr. Shuen Lung CHEUNG, together holding 142,714,003 Shares, entered into a voting consent agreement with Mr. Jun LEI to vest their entire voting power in respect of the 142,714,003

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LETTER FROM THE BOARD

Shares at the Company general meeting to Mr. Jun LEI. As such, Mr. Jun LEI and his associates, holding an aggregate of 26. 80 % voting rights of the Company will abstain from voting on all the ordinary resolutions at the EGM.

In view of his interest in Xiaomi, Mr. Jun LEI has abstained from voting on the Board resolution approving the Framework Agreement and the Loan Agreement. Mr. HongJiang ZHANG and Mr. Yuk Keung NG have abstained from voting on the Board resolution approving the Loan Agreement as they are the directors of Kingsoft Cloud. Save as disclosed above, none of the Directors has a material interest in the transactions contemplated under the Framework Agreement or the Loan Agreement and none of them has abstained from voting on the relevant Board resolution.

Pursuant to Rule 13.39(4) of the Listing Rules, all votes of the Shareholders at the EGM must be taken by poll. The Chairman of the EGM will demand a poll for the resolutions to be proposed at the EGM in accordance with the memorandum and articles of association of the Company. The results of the voting will be announced in accordance with Rule2.07C of the Listing Rules after conclusion of the EGM.

6. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 23 of this circular. Your attention is also drawn to the letter of advice from Gram Capital to the Independent Board Committee and the Independent Shareholders set out on pages 24 to 41 of this circular.

The Board (including the independent non-executive Directors), having taken into account the advice of Gram Capital, considers that (i) the provision of the Comprehensive Services is in ordinary and usual course of business of the Group; (ii) the terms of the Framework Agreement and the terms of the Loan Agreement are on normal commercial terms; (iii) the terms of the Framework Agreement in relation to the provision of the Comprehensive Services, the Proposed Annual Caps and the terms of the Loan Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board (including the Independent Board Committee) recommends that the Independent Shareholders should vote in favour of the ordinary resolutions for approving the Framework Agreement, the Loan Agreement and the Proposed Annual Caps.

7. ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the appendix to this circular.

Yours faithfully, By Order of the Board Kingsoft Corporation Limited Jun LEI Chairman of the Board

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Kingsoft Corporation Limited 金山軟件有限公司

(Continued into the Cayman Islands with limited liability)

(Stock Code: 03888)

Hong Kong, 5 December 2014

To the Independent Shareholders

Dear Sir or Madam,

PROVISION OF CLOUD SERVICES AND PROMOTION SERVICES BY THE GROUP TO XIAOMI GROUP; GRANT OF LOAN FACILITY BY THE COMPANY TO KINGSOFT CLOUD AND GRANT OF XIAOMI OPTION BY KINGSOFT CLOUD TO XIAOMI

We refer to the circular dated 5 December 2014 issued by the Company to the Shareholders (the “ Circular ”) of which this letter forms part. Terms defined in the Circular shall have the same meanings when used in this letter, unless the context otherwise requires.

We have been appointed by the Board as members of the Independent Board Committee to advise the Independent Shareholders on whether the terms of the Framework Agreement in relation to the provision of the Comprehensive Services, the Proposed Annual Caps and the Loan Agreement are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

Gram Capital has been appointed as the Independent Financial Adviser to advise us and the Independent Shareholders in this respect. We wish to draw your attention to the letter of advice issued by Gram Capital which is set out on pages 24 to 41 of the Circular.

Having considered the terms of the Framework Agreement and the Loan Agreement, and taken into account the advice of Gram Capital, we are of the view that the terms of the Framework Agreement in relation to the provision of the Comprehensive Services and the Loan Agreement are on normal commercial terms, the terms of the Framework Agreement in relation to the provision of the Comprehensive Services, the Proposed Annual Caps and the terms of the Loan Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. We therefore recommend that the Independent Shareholders should vote in favour of the proposed ordinary resolutions to approve the Framework Agreement, the Proposed Annual Caps and the Loan Agreement and the transactions contemplated thereunder (including the grant of Loan Facility, the grant of Xiaomi Option and other related transactions) to be proposed at the EGM.

Yours faithfully,

For and on behalf of the Independent Board Committee

Mr. Shun Tak WONG

Mr. David Yuen Kwan TANG Ms. Wenjie WU Independent non-executive Directors

— 23 —

LETTER FROM GRAM CAPITAL

Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the provision of the Comprehensive Services (including the Proposed Annual Caps) and the grant of the Loan Facility and the Xiaomi Option for the purpose of inclusion in this circular.

Room 1209, 12/F. Nan Fung Tower 173 Des Voeux Road Central Hong Kong

5 December 2014

• To: The independent board committee and the independent shareholders of Kingsoft Corporation Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTION: PROVISION OF CLOUD SERVICES AND PROMOTION SERVICES BY THE GROUP TO XIAOMI GROUP; AND

CONNECTED TRANSACTIONS:

GRANT OF LOAN FACILITY BY THE COMPANY TO KINGSOFT CLOUD AND

GRANT OF XIAOMI OPTION BY KINGSOFT CLOUD TO XIAOMI

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the provision of the Comprehensive Services (including the Proposed Annual Caps) and the grant of the Loan Facility and the Xiaomi Option, details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the circular dated 5 December 2014 issued by the Company to the Shareholders (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

The provision of the Comprehensive Services

The Company and Xiaomi entered into a cooperation framework agreement on 24 April 2013, which was subsequently amended through four supplemental agreements dated 21 August 2013, 27 December 2013, 1 April 2014 and 18 November 2014, respectively. In order to further strengthen the business cooperation between the Group and Xiaomi Group and promote mutual business developments, and to better regulate the continuing connected transactions between the two parties, the Company and Xiaomi entered into the Framework Agreement on 1 December 2014, pursuant to which, among other things, the Group will provide the Comprehensive Services to Xiaomi Group, mainly including the cloud services and the promotion services. With reference to the Board Letter, as Xiaomi is a connected person of the Company, the provision of the Comprehensive Services constitutes a continuing connected transaction for the Company under Chapter 14A of the Listing Rules, and is subject to the reporting, announcement and independent shareholders’ approval requirements.

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LETTER FROM GRAM CAPITAL

The grant of the Loan Facility

On 1 December 2014, the Company entered into the Loan Agreement with Kingsoft Cloud and Xiaomi pursuant to which the Company agreed to grant the Loan Facility in the amount of US$500 million to Kingsoft Cloud. With reference to the Board Letter, as Kingsoft Cloud is a connected subsidiary of the Company, the grant of the Loan Facility constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules and is subject to the reporting, announcement and independent shareholders’ approval requirements.

The grant of the Xiaomi Option

Pursuant to the Loan Agreement, Xiaomi has unconditionally and irrevocably agreed to guarantee the punctual repayment of certain outstanding principal amount of the Loan Facility (the “ Xiaomi Guaranteed Principal Amount ”) and the accrued interests (the “ Xiaomi Guarantee ”). In the event that Xiaomi repays the Xiaomi Guaranteed Principal Amount, Xiaomi shall have the option to convert such amount, in whole or in part, into certain number of fully-paid and non-assessable preferred shares of Kingsoft Cloud. With reference to the Board Letter, the grant of the Xiaomi Option constitutes a discloseable and connected transaction for the Company under Chapters 14 and 14A of the Listing Rules respectively, and is subject to the reporting, announcement and independent shareholders’ approval requirements.

The Independent Board Committee comprising Mr. Shun Tak Wong, Mr. David Yuen Kwan Tang and Ms. Wenjie Wu (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Framework Agreement in relation to the provision of the Comprehensive Services (including the Proposed Annual Caps) and the terms of the Loan Agreement (including the grant of the Xiaomi Option) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the provision of the Comprehensive Services and the grant of the Loan Facility with the Xiaomi Option are in the interests of the Company and the Shareholders as a whole and are conducted in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolutions to approve the Framework Agreement and the Loan Agreement at the EGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. Our opinion is based on the Directors’ representation and confirmation that there are no undisclosed private agreements/arrangements or implied understanding with anyone concerning the provision of the Comprehensive Services and the grant of the Loan Facility and the Xiaomi Option. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Listing Rules.

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LETTER FROM GRAM CAPITAL

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, that the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement in the Circular or the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, Xiaomi Group, Kingsoft Cloud Group, KSC Partner or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Framework Agreement and the Loan Agreement. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources while we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information.

OUR INDEPENDENCE

As at the Latest Practicable Date, we were not aware of any relationships or interests between Gram Capital and the Company or any other parties that could be reasonably regarded as hindrance to Gram Capital’s independence as defined under Rule 13.84 of the Listing Rules to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the provision of the Comprehensive Services (including the Proposed Annual Caps) and the grant of the Loan Facility and the Xiaomi Option.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the provision of the Comprehensive Services (including the Proposed Annual Caps) and the grant of the Loan Facility and the Xiaomi Option, we have taken into consideration the following principal factors and reasons:

(A) THE PROVISION OF THE COMPREHENSIVE SERVICES

1. Background of and reasons for the provision of the Comprehensive Services

Business overview of the Group

As referred to in the Board Letter, the Group is a leading internet based software developer, distributor and service provider and is principally engaged in research, development and operation of online games and office application software, information security software, internet browser, mission critical mobile applications, and provision of cloud storage, cloud computation, online marketing services and internet value-added services across device.

— 26 —

LETTER FROM GRAM CAPITAL

Set out below are the consolidated financial results of the Group for the six months ended 30 June 2014 and the two years ended 31 December 2013, as extracted from the Company’s 2014 interim report (the “ 2014 Interim Report ”) and its 2013 annual report (the “ 2013 Annual Report ”), respectively:

	For the
	six months	For the year	For the year
	ended	ended 31	ended 31
	30 June	December	December	Year on
	2014	2013	2012	year change
	(unaudited)	(audited)	(audited)
	RMB’000	RMB’000	RMB’000	%
Revenue	1,426,131	2,173,269	1,411,161	54.0
— Entertainment software	602,448	1,095,913	860,651	27.3
— Information security and internet services	646,442	741,782	336,741	120.3
(for the six months ended 30 June 2014)/
Information security software (for each of the
two years ended 31 December 2013)
— Office software and others (for the six months ended	177,241	335,574	213,769	57.0
30 June 2014)/
Other application software (for each of the two years
ended 31 December 2013)
Profit for the period/year	379,687	753,874	466,434	61.6

For the year ended 31 December 2013, the total revenue of the Group amounted to approximately RMB2,173 million, representing a substantial increase of approximately 54% as compared to the prior year. In particular, revenue from the information security software segment and the other application software segment recorded significant jumps of approximately 120% and approximately 57% as compared to the previous year, respectively. As disclosed in the 2013 Annual Report, the online game business of the Group grew at an annual rate of approximately 29% and the segment derived its revenue primarily from its flagship game, JX Online III, which recorded a year-on-year growth of approximately 92% in revenue to approximately RMB456.7 million in 2013. As for the information security and other application software segments, the growth in revenue was mainly attributable to: (i) the strong growth in revenue from online marketing and game platform of Cheetah Mobile Inc. (formerly known as Kingsoft Internet Software Holdings Limited) as a result of the strengthened monetisation capability; (ii) the emerging and accelerated growth of mobile marketing revenue and mobile game operation revenue as a result of the initial success of KIS mobile monetisation; and (iii) the strong sales of WPS Office stimulated by the favorable intellectual property rights protection environment and emerging value-added revenue derived from the monetisation of free user traffic of Kingsoft WPS Office.

In 2013, the Group’s business expanded into the enterprise data storage services and cloud storage platform services. According to the 2014 Interim Report, the Group’s enterprise data storage services has accelerated in growth, which was driven by the rapid increase of users’ data from Xiaomi and WPS, and the daily upload of data into the Group’s storage services was approximately 250 terabytes at the end of June 2014. Going forward, the Group will continue to invest heavily on mobile and cloud services and the Group will optimise the underlying storage framework to provide its users with stable, secure and cost-efficient storage services.

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As further referred to in the quarterly results announcement of the Company for the three months ended 30 September 2014, the Group recorded revenue of approximately RMB304.2 million and profit of approximately RMB286.3 million for the three months ended 30 September 2014, representing significant jumps of approximately 12% and 61%, respectively as compared to the corresponding period in 2013.

Information on Xiaomi

As referred to in the Board Letter, Xiaomi Group is one of the leading providers of smart devices in the PRC. It is principally engaged in the design, research, development and sales of smart devices and the provision of mobile internet services.

Reasons for and possible benefits of the provision of the Comprehensive Services

With reference to the Board Letter, the Group has been proactively looking for new opportunities in the areas of internet based software development, provision of services, and distribution of games with an effort to broaden its income sources and obtain greater market share. Xiaomi Group has been a cooperation partner of the Group in business operation and development, especially in the realm of mobile applications. Riding on the reputation and widening acceptance of Xiaomi’s series of smart phones in the PRC, which are renowned for their advanced specifications and competitive pricing, the Directors believe that by providing the Comprehensive Services (mainly including the cloud services and the promotion services), the Group will not only benefit from increased revenue arising from the services rendered to Xiaomi Group, but will also be able to utilise Xiaomi’s smart phone platform as an additional channel to promote the Group’s online services and products to the ultimate mobile phone users.

In light of the above reasons for and possible benefits of the provision of the Comprehensive Services, we concur with the Directors that the provision of the Comprehensive Services is in the interests of the Company and the Shareholders as a whole and is conducted in the ordinary and usual course of business of the Group.

2. Principal terms of the Framework Agreement in relation to the provision of the Comprehensive Services

Highlighted below are the principal terms of the Framework Agreement in relation to the provision of the Comprehensive Services:

Date: 1 December 2014 Parties: The Company and Xiaomi Term: Two years from 1 January 2015 to 31 December 2016 Scope of the Comprehensive The Group will provide Xiaomi Group the Comprehensive Services: Services, mainly including: (i) the cloud services developed by the Group, including but not limited to cloud storage and cloud computing services; and (ii) the promotion services via the Group’s products and websites for the sale of Xiaomi Group’s smart devices and related products.

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Pricing principle:

The fees for the Comprehensive Services (mainly including the cloud services and the promotion services) shall be determined based on the following principles:

With respect to the cloud services:

• (i) the fees charged for the cloud services are calculated with reference to the cloud storage space provided and the volume of cloud data transferred;

• (ii) the fees shall be determined after arm’s length negotiations with Xiaomi Group , after taking into account the costs for providing the services, the volume of the services rendered and a reasonable profit of the Group; and

• (iii) the fees shall be no more favorable to Xiaomi Group than those provided to independent third party clients for services rendered on similar technical specifications and volume.

According to the Directors, as the cloud service is an emerging technology under starting-up stage in the PRC, there is limited number of major players in the PRC’s “business-to-business” cloud service market. As such, it is currently unpractical to establish a “prevailing market price” for the cloud services.

According also to the Directors, the Company does not have a predetermined formula for the fee proposal. The sales department of the Group is responsible for the initial determination of the pricing of the cloud services. When Xiaomi Group approaches the Group in respect of the potential services, the sales department of the Group will recommend a fee proposal with primary reference to the costs and number of users and purchase volume. Other factors, such as resources and technology required, will also be considered. Upon final review by the president, Chief Executive Officer and/ or sales director of the relevant subsidiary of the Company who are independent of Xiaomi Group, the fee proposal will be proposed to Xiaomi Group for consideration and negotiation.

With respect to the promotion services:

• (i) the fees shall be determined with reference to a number of factors including the position of the advertisement, the features selected, the term of the promotion, website traffic and data flow of the Group’s products and websites; and

• (ii) such fees should also be applicable to all clients for the same kind of services.

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According to the Directors, as there are many variables in determining the price of the promotion services, such as the popularity of the products that carry the advertisement, the position of the advertisement, volume, features selected, term of the promotion and website traffic and data flow, it is difficult to set a benchmark for comparable promotional services offered by different providers, not to mention the determination of a “prevailing market price” in this regard.

According also to the Directors, the Company does not have a predetermined formula for the fee proposal. The sales department of the Group is responsible for the initial determination of the pricing of the promotion services. When Xiaomi Group approaches the Group in respect of the potential services, the sales department of the Group will recommend a fee proposal with primary reference to the position of the advertisement and the features selected. Other factors, such as the term of the promotion, website traffic and data flow of the Group’s products and websites, will also be considered. Upon final review by the sales director and Chief Marketing Officer of the relevant subsidiary of the Company who are independent of Xiaomi Group, the fee proposal will be proposed to Xiaomi Group for consideration and negotiation.

The Company will also compare the price with at least two transactions of comparable nature (if any) with independent third party clients to ensure the fees charged are fair and reasonable and no more favorable to Xiaomi Group than those offered to independent third party clients. At this stage, the Company does not have substantial number of customers for its cloud services and promotion services of similar nature. The Company considers that choosing two available transactions of comparable nature with independent third party clients as benchmarks are sufficient to ensure fees charged to Xiaomi are fair and reasonable and no more favorable to Xiaomi Group than those offered to independent third party clients. If the minimum number of comparable transactions from independent third party clients is not obtained, the Company will simply follow the pricing principles as disclosed above in determining the price.

Payment terms:

The payment terms shall be based on the individual agreements with reference to similar transactions in the market.

For our due diligence purpose, we have reviewed the past individual agreements entered into (i) between the Group (as service provider) and independent third party clients; and (ii) between the Group (as service provider) and Xiaomi Group for the provision of the cloud services and the promotion services. From those individual agreements, we noted that the major terms (including the pricing principle and payment terms) provided by the Group to Xiaomi Group are generally comparable with those provided to independent third party clients previously having taken into account differences in purchase volume. Furthermore, we also noted that after taking into account factors like differences in purchase volume and

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past business relationships, the fees of the cloud services provided by the Group to Xiaomi Group were primarily based on the market prices the Group set for the public users. As advised by the Directors, the Company did not have substantial number of customers for its cloud services and promotion services of similar nature as at the Latest Practicable Date and hence may not have the minimum number of comparable transactions from independent third party clients to compare for the fees charged. Nonetheless, the Directors confirmed that the Company will follow the pricing principles as disclosed above in determining the price which will be identical to those apply to independent third party clients. In this relation, we consider the pricing principles to be acceptable as the relatively feasible method to determine the fees charged for the Comprehensive Services.

In light of (i) the aforementioned stipulations under the Framework Agreement in relation to the determination of the fees for the Comprehensive Services (mainly including the cloud services and the promotion services); and (ii) the results of our due diligence review as summarised in the previous paragraph, we concur with the Directors that the terms of the Framework Agreement in relation to the provision of the Comprehensive Services are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

3. The Proposed Annual Caps

Set out below are (i) the historical amounts for the two years ended 31 December 2013 and the nine months ended 30 September 2014; (ii) the annual cap for the year ending 31 December 2014 as disclosed in the previous announcements of the Company; and (iii) the Proposed Annual Caps for the two years ending 31 December 2016 for the fees payable by Xiaomi Group in respect of the provision of the Comprehensive Services by the Group under the Framework Agreement:

	Historical amounts	Historical amounts	Historical amounts	Annual cap	Proposed Annual Caps	Proposed Annual Caps
			For the
	For the	For the	nine	For the	For the	For the
	year	year	months	year	year	year
	ended 31	ended 31	ended 30	ending 31	ending 31	ending 31
	December	December	September	December	December	December
	2012	2013	2014	2014	2015	2016
	RMB’	RMB’	RMB’	RMB’	RMB’	RMB’
	million	million	million	million	million	million
Cloud services	0.82	4.98	32.00	80	450	1,400
Promotion services	—	2.72	4.07	15	50	100
Total	0.82	7.70	36.07	95	500	1,500

As confirmed by the Directors, the Proposed Annual Caps are determined with reference to: (i) the historical amounts for the two years ended 31 December 2013 and the nine months ended 30 September 2014; (ii) the estimated growth in Xiaomi’s demand for the cloud services; and (iii) the adequate buffer for the Group in case of unanticipated transactions.

The cloud service is an emerging technology under starting-up stage in the PRC. The year ended 31 December 2013 and the nine months ended 30 September 2014 witnessed a sharp increase in the historical amount of the fees payable by Xiaomi Group to the Group for the provision of the Comprehensive Services. As depicted by the above table, we noted that the actual total service fees paid by Xiaomi Group to the Group in 2013 amounted to approximately RMB7.7 million, representing an eightfold increase as compared to the previous year. The actual total service fees for the nine months ended 30 September 2014 also expanded to approximately RMB36.07 million, which is approximately five times of the annual

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transaction amount of the entire year of 2013. Based on our enquiry with the Directors, considering the recent “11 November” shopping festival in the PRC, during which Xiaomi has recorded massive sale of Xiaomi devices including new model of Xiaomi smartphones, together with the coming shopping season in December 2014, the Directors expected that the demand for Xiaomi devices will remain strong in the remaining month(s) of 2014. In this relation, we also noted that the 2014 annual caps for the provision of the cloud services and the promotion services have both been revised twice shortly since the entering into of the cooperation framework agreement between the Company and Xiaomi on 23 April 2013. The Company believes that the fees in respect of the cloud services provided by the Group to Xiaomi Group will keep the strong growth momentum in the remaining month(s) of 2014 and the two years ending 31 December 2016 after taking into account (i) the aforementioned past growth trend for the year ended 31 December 2013 and the nine months ended 30 September 2014; (ii) the deepened business cooperation between Xioami Group and the Group to be discussed below; and (iii) the Group’s great confidence in the future development of cloud business.

As confirmed by the Directors, in view of the stable business relationship between the Group and Xiaomi Group, the two parties decided to further strengthen their cooperation, especially in the cloud business area. Upon our request, we have obtained the executed copy of the shareholders’ agreement of Kingsoft Cloud dated 21 August 2014. In accordance with the said shareholders’ agreement, Xiaomi agreed to procure that 70% of the cloud storage and cloud computing services used by Xiaomi Group in their MIUI image storage business are sourced from the Group, provided that the quality of such services is satisfactory and the fees charged for such services are reasonable. The MIUI image storage business of Xiaomi is an essential service for Xiaomi cell phones. It is expected that the number of users of Xiaomi cell phones will keep growing as the sale volume of Xiaomi cell phones will continue to increase sharply. As such, the number of end users for the Group’s cloud services via Xiaomi cell phones is expected to increase substantially, which will in turn lead to a dramatic growth in Xiaomi’s demand for the Group’s cloud services. Apart from Xiaomi cell phones, Mi Pad, Mi TV and other smart devices of Xiaomi will also use the cloud services of the Group. As such, the Directors expected that the fees payable by Xiaomi Group in respect of the cloud services will increase in line with the growth of the sales volume of the other smart devices. In this relation, we have requested the Company to provide us with information and data regarding Xiaomi’s expected demand for the cloud services for the two years ending 31 December 2016 and have further discussed with the Company regarding the same.

As also represented by the Directors, given that the internet industry is changing rapidly, the Group and Xiaomi Group have to keep adjusting their business, it is possible that some unanticipated transactions which require the cloud services or the promotion services will arise. As aforementioned and as a solid proof, shortly since the entering into of the cooperation framework agreement between the Company and Xiaomi on 23 April 2013, the annual caps for the provision of the cloud services and the promotion services have both been revised twice. As Xiaomi’s business develops, the Directors expected that more applications and business of Xiaomi will use the cloud services of the Group. Moreover, the cloud business is likely to grow in the foreseeable future and the transactions in respect of the provision of the cloud services by the Group to Xiaomi Group may increase significantly. As such, the Group would like to have an adequate buffer of around 10% to 20% on average for the two years ending 31 December 2016 for its provision of the Comprehensive Services to Xiaomi Group to manage the possible growth.

From our independent study, we noted from a press release titled “IDC Forecasts Worldwide Public IT Cloud Services Spending to Reach Nearly $108 Billion by 2017 as Focus Shifts from Savings to Innovation” published by International Data Corporation on 3 September 2013, that robust growth in the cloud services was expected for the period from 2013 to 2017. International Data Corporation is a whollyowned subsidiary of International Data Group which is a global technology media, events and research

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company. According to International Data Corporation, the worldwide spending on public IT cloud services was expected to be approximately US$47.4 billion in 2013 and might grow to more than US$107 billion in 2017. Over the 2013 to 2017 forecast period, public IT cloud services would have a compound annual growth rate of approximately 23.5%, being five times that of the IT industry as a whole. With the aforesaid favorable statistics as well as the robust historical growth rate in the actual total service fees paid by Xiaomi Group to the Group as mentioned previously, we concur with the Directors that the future prospect of the cloud business would likely to be positive and hence it is reasonable for the Group to maintain an adequate buffer for its provision of the Comprehensive Services to Xiaomi Group.

In view of the foregoing basis for determination of the Proposed Annual Caps, we consider that the Proposed Annual Caps for the years concerned under the Framework Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

4. Listing Rules implication

The Directors confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Listing Rules pursuant to which (i) the values of the provision of the Comprehensive Services must be restricted by the Proposed Annual Caps for the years concerned under the Framework Agreement; (ii) the terms of the Framework Agreement in relation to the provision of the Comprehensive Services (together with the Proposed Annual Caps) must be reviewed by the independent non-executive Directors annually; (iii) details of independent non-executive Directors’ annual review on the terms of the Framework Agreement in relation to the provision of the Comprehensive Services (together with the Proposed Annual Caps) must be included in the Company’s subsequent published annual reports and financial accounts. Furthermore, it is also required by the Listing Rules that the auditors of the Company must provide a letter to the Board confirming, among other things, that the provision of the Comprehensive Services is carried out in accordance with the pricing policies of the Company, and the Proposed Annual Caps are not being exceeded. In the event that the total amounts of the provision of the Comprehensive Services exceed the Proposed Annual Caps, or that there is any material amendment to the terms of the Framework Agreement in relation to the provision of the Comprehensive Services, the Company, as confirmed by the Directors, shall comply with the applicable provisions of the Listing Rules governing continuing connected transactions.

Given the above stipulated requirements for continuing connected transactions pursuant to the Listing Rules, we are of the view that there are adequate measures in place to monitor the provision of the Comprehensive Services under the Framework Agreement (together with the Proposed Annual Caps) and thus the interest of the Independent Shareholders would be safeguarded.

RECOMMENDATION ON THE PROVISION OF THE COMPREHENSIVE SERVICES

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the Framework Agreement in relation to the provision of the Comprehensive Services (including the Proposed Annual Caps) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the provision of the Comprehensive Services is in the interests of the Company and the Shareholders as a whole and is conducted in the ordinary and usual course of business of the Group. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the EGM to approve the Framework Agreement and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

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(B) THE GRANT OF THE LOAN FACILITY AND THE XIAOMI OPTION

1. Background of and reasons for the grant of the Loan Facility

Information on Kingsoft Cloud

As referred to in the Board Letter, Kingsoft Cloud Group is engaged in the research, development and provision of cloud technology and services. As at the Latest Practicable Date, Kingsoft Cloud was controlled as to approximately 63.83% by the Company, 20.76% by Xiaomi, 11.46% by KSC Partner and 3.94% by the trustee of awarded shares on the assumption that the series A preferred shares are converted into ordinary shares of Kingsoft Cloud on the conversion rate of 1:1.

Reasons for and possible benefits of the grant of the Loan Facility

As extracted from the Board Letter, the Company believes that the grant of the Loan Facility by the Company to Kingsoft Cloud is in the best interests of the Group and its shareholders as a whole due to the following reasons:

(i) to support the development of the Group’s cloud business

Kingsoft Cloud Group is engaged in the research, development and provision of cloud technology and services, which plays an important role in the Group’s cloud business. The cloud business is a dynamic area in the internet market. Other major Chinese internet players are also focusing on developing their own cloud technologies. The Group decided to finance Kingsoft Cloud Group to boost the development and research capability of its cloud technology and services.

(ii) to meet the business needs of Kingsoft Cloud

As mentioned in the foregoing, Xiaomi shall procure that 70% of the cloud storage and cloud computing services used by Xiaomi Group in their MIUI image storage business are sourced from the Group, provided that the quality of such services is satisfactory and the fees charged for such services are reasonable. Xiaomi Group’s demand for the Group’s cloud services is expected to increase dramatically. Kingsoft Cloud Group, as the major subsidiary group of the Group in the cloud business, will provide substantial cloud services to Xiaomi Group under the Framework Agreement. As such, it is expected that Kingsoft Cloud Group will require more equipment, devices or other fixed assets for it to continue such ongoing transactions. To meet the business needs of Kingsoft Cloud Group, the Group agreed to provide the Loan Facility to Kingsoft Cloud Group in the area of capital expenditure.

The grant of the Loan Facility by the Company also provides Kingsoft Cloud alternative means to obtain funding. Relying on the strong financial support from the Company, Kingsoft Cloud will focus on the development of its business, which will bring long-term shareholder value to the Company as the controlling shareholder (as defined in the Listing Rules) of Kingsoft Cloud.

(iii) to better utilise the idle cash of the Group and ensure stable income from the Loan Facility

Kingsoft Cloud is a subsidiary of the Group. The intergroup loan is to facilitate the Group’s financing channel and better utilise the idle cash of the Group. Pursuant to the Loan Agreement, Kingsoft Cloud shall pay the accrued interests to the Group on a quarterly basis. As such, the grant of the Loan Facility will provide a stable income on the Company’s financial resources which is beneficial to the Company and the Group.

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In light of the above reasons for and possible benefits of the grant of the Loan Facility, we concur with the Directors that the grant of the Loan Facility is in the interests of the Company and the Shareholders as a whole although it is not conducted in the ordinary and usual course of business of the Group.

2. Principal terms of the Loan Agreement

Highlighted below are the principal terms of the Loan Agreement:

Date: 1 December 2014 Parties: The Company (as lender) Kingsoft Cloud (as borrower) Xiaomi (as guarantor) Principal amount: The Company will grant the Loan Facility to Kingsoft Cloud in Renminbi and/or Hong Kong dollar in an aggregate principal amount equivalent to US$500 million.

Drawdown period: The entire amount of the Loan Facility will be drawn in multiple tranches within a three-year period commencing from 1 January 2015 to 31 December 2017, subject to the default and acceleration clause.

Annual drawdown amount: The annual drawdown amount shall be determined by the Board at its sole discretion based on the business plan and financial needs of the Group and the business development of Kingsoft Cloud. Kingsoft Cloud shall withdraw the loan in one or multiple times each year within the annual drawdown amount to be determined by the Board.

Interest: For the loan advanced in Renminbi, the interest rate is 1.1 times of the applicable Renminbi loan datum interest rate published by PBOC with the same term on the drawdown date. In the event that the aforementioned interest rate is not available, the higher of (a) the interest rate same as that applicable to the loan advanced in Renminbi immediately before the drawdown date; or (b) 6% per annum.

For the loan advanced in Hong Kong dollar, the interest rate is 6% per annum. As represented by the Directors, such interest rate was determined by reference to the prevailing interest rate of threeyear-term Hong Kong dollar bonds obtainable by companies with comparable risk profile in Hong Kong market. Due consideration has also been given to the financial situations and potential development risks of Kingsoft Cloud.

The aforementioned applicable interest on the unpaid balance shall be compounded annually.

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Repayment:

The interests accrued shall be paid by Kingsoft Cloud on a quarterly basis.

Subject to the default and acceleration clause, the outstanding principal amount of the loan and the accrued but unpaid interests shall be paid by Kingsoft Cloud on the third anniversary date of its drawdown date.

Pledges and guarantees by (i) The KSC Partner Pledge other shareholders of Kingsoft Cloud:

KSC Partner, a substantial shareholder (as defined in the Listing Rules) of Kingsoft Cloud, agreed to pledge its entire equity interest in Kingsoft Cloud, being 139,500,000 ordinary shares of Kingsoft Cloud, to secure certain outstanding principal amount of the Loan Facility and the accrued interests for Kingsoft Cloud under the Deed of Charge (the “ KSC Partner Pledge ”).

(ii) Pledges to be provided by the Eligible Persons

In the event that any person (the “ Eligible Person ”) proposes to acquire, subscribe for, or hold any share of Kingsoft Cloud pursuant to Kingsoft Cloud’s share option plan and other equity incentive plans, it shall use its best effort to procure certain outstanding principal amount of the Loan Facility and the accrued interests to be secured by a first charge over any and all shares of Kingsoft Cloud held by such Eligible Person on the terms and conditions set forth in the Deed of Charge, mutatis mutandis .

Kingsoft Cloud shall cause and procure all existing and future participants of Kingsoft Cloud’s share option plan and other equity incentive plans to execute a letter of undertaking in connection with the aforesaid share charge.

(iii) The Xiaomi Guarantee

Xiaomi, another substantial shareholder of Kingsoft Cloud, unconditionally and irrevocably agreed to provide the Xiaomi Guarantee for the punctual repayment of the Xiaomi Guaranteed Principal Amount and the accrued interests. In the event that Kingsoft Cloud has failed to repay the due and payable amount under the Loan Agreement, Xiaomi shall be liable for and pay the Xiaomi Guaranteed Principal Amount within ten days upon receiving the Company’s first written demand for the same. For details, please refer to the relevant section of the Board Letter.

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(iv) Guarantees to be provided by the Third Party

In the event that any person other than the current shareholders of Kingsoft Cloud as of the execution date of the Loan Agreement and the Eligible Persons (the “ Third Party ”) proposes to acquire, subscribe for, or hold any share of Kingsoft Cloud, it shall use its best effort to procure such Third Party to make guarantee same as that made by Xiaomi under the Loan Agreement based on such Third Party’s direct and indirect shareholding percentage in Kingsoft Cloud, mutatis mutandis , upon completion of such share acquisition or subscription by such Third Party.

Options:

(i) The Kingsoft Option

In the event that Kingsoft Cloud fails to repay any outstanding principal amount of the Loan Facility and the accrued interests, the Company shall have the option to, at any time no later than the full payment of the outstanding principal amount and the accrued but unpaid interests by Kingsoft Cloud, convert the outstanding principal amount and accrued but unpaid interests which have not been secured, or has not been realised by such security measures, in whole or in part, into certain number of fully-paid and non-assessable preferred shares of Kingsoft Cloud.

The conversion formula has been set forth in the relevant section of the Board Letter.

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(ii) The Xiaomi Option

In the event that Xiaomi repays the Xiaomi Guaranteed Principal Amount and the accrued interests, Xiaomi shall have the option to, at any time no later than the full payment of the outstanding principal amount and the accrued but unpaid interests by Kingsoft Cloud, convert such amount, in whole or in part, into certain number of fully-paid and nonassessable preferred shares of Kingsoft Cloud.

The conversion formula has been set forth in the relevant section of the Board Letter.

Such preferred shares of Kingsoft Cloud shall rank pari passu with the newly issued preferred shares of Kingsoft Cloud in the latest private financing.

Kingsoft Cloud shall be obligated to repay all the principal amount and the accrued interests which (i) have been due and outstanding and have not been converted by the Company pursuant to the Kingsoft Option; (ii) have been repaid by KSC Partner and/or the Eligible Persons by cash or by realisation of security; and (iii) have been repaid but have not been converted by Xiaomi pursuant to the Xiaomi Option, as soon as practicable according to the cash flow and business operation of Kingsoft Cloud Group; and shall repay such principal amount and accrued interests to the Company, KSC Partner, the Eligible Persons and Xiaomi on a pro rata basis, calculated based on the total amount payable to each such person.

Use of the loan:

The loan provided by the Company shall be used only for the capital expenditure in the ordinary business operation of Kingsoft Cloud Group and/or the repayment of the outstanding principal amount of the loan due as provided under the Loan Agreement. For the avoidance of doubt, without prior written consent of the Company, the loan provided by the Company shall not be used to recover the operating loss of Kingsoft Cloud Group or pay any interest accrued on the principal amount of the Loan Facility.

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Default and acceleration:

If any event of default under the Loan Agreement occurs, the interest shall accrue at a rate of 0.1% per day for the period from the date of occurrence of such event of default to the date when all outstanding principal amounts (together with the interests) are fully paid off.

If any event of default or any event of acceleration under the Loan Agreement occurs, all outstanding principal amounts shall become due and payable immediately. Kingsoft Cloud shall repay such amount in full together with all accrued but unpaid interests within five calendar days from the date of occurrence of such termination event.

As confirmed by the Directors, the Company will finance the Loan Facility by its internal cash resources. Based on the 2014 Interim Report, the Group had cash and cash equivalents of approximately RMB7,178 million as at 30 June 2014, which was well above the aggregate principal amount of the Loan Facility of US$500 million. Moreover, the Board enjoys the sole discretion to determine the annual drawdown amount based on the business plan and financial needs of the Group and the business development of Kingsoft Cloud. On the other hand, the Loan Facility shall be used only for the capital expenditure in the ordinary business operation of Kingsoft Cloud Group and/or the repayment of the outstanding principal amount of the loan due as provided under the Loan Agreement, and shall not be used to recover the operating loss of Kingsoft Cloud Group or pay any interest accrued on the principal amount of the Loan Facility without prior written consent of the Company. Upon our further enquiry, we understand from the Directors that the major capital expenditure for the provision of the cloud services is the costs of building infrastructure and internet data center, which are one-time substantial expenses. As a result, it is expected that Kingsoft Cloud would require substantial capital to support its future business development. As also advised by the Directors, the Company will conduct constant review on the financial condition of Kingsoft Cloud Group and any of its expenditure above RMB1 million shall be approved by the chief executive officer and chief financial officer of the Company.

Upon our request and from the relevant information provided by the Company, we noted that in the latest quotation from banks, the annual interest rates of the Group’s existing cash and bank deposits in Renminbi and Hong Kong dollar were approximately 4.6% to 5% and 1% to 2.6% respectively. In this relation, from our research over the website of PBOC, as at the Latest Practicable Date, the Renminbi loan datum interest rates published by PBOC, which provide a general reference for determination of interest rate in the PRC financial market, ranged from 5.60% to 6.15%. On the other hand, we also noted that the Company issued 5-year maturity convertible bonds to independent institutional investors in July 2013 and April 2014 carrying annual coupon rates of 3% and 1.25% respectively which may illustrate the existing risk profile of the Company. Moreover, the Hong Kong dollar best lending rate of The Hongkong and Shanghai Banking Corporation Limited was 5% as at the Latest Practicable Date. Since the interest rates of the Group’s existing cash and bank deposits are below the benchmark loan interest rates, being 1.1 times of the applicable Renminbi loan datum interest rate published by PBOC or 6% (as the case may be) under the Loan Agreement, we are of the view that the interest rates of the Loan Facility are acceptable.

Pursuant to the Loan Agreement, the repayment of certain outstanding principal amount of the Loan Facility by Kingsoft Cloud shall be secured by pledges and guarantees by other shareholders of Kingsoft Cloud. In addition, in the event that Kingsoft Cloud fails to repay any outstanding principal amount of the Loan Facility and the accrued interests, the Company shall have the option to convert the outstanding

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principal amount and accrued but unpaid interests to preferred shares of Kingsoft Cloud. Such settlement by the preferred shares of Kingsoft Cloud would only materialise when Kingsoft Cloud fails to repay the outstanding principal amount of the Loan Facility and hence acts as a security for the recovery of the Loan Facility. Moreover, we noted from the preferred shares conversion formula that the applicable purchase price per share shall be dependent on the latest private financing taken place within six months before the applicable conversion notice date, or in the event the latest private financing is taken place more than six months before the applicable conversion notice date, the fair market price appraised by a qualified and independent third party and confirmed and approved by the Company, Xiaomi and the board of Kingsoft Cloud. We were advised by the Directors that such conversion mechanism could take into account the market value of Kingsoft Cloud when the conversion takes place and hence ensure that the Company could obtain the share of Kingsoft Cloud at a reasonable market price.

Having the foregoing being the case, we consider the KSC Partner Pledge, the pledges to be provided by the Eligible Persons and the guarantees to be provided by the Third Party to be in the interests of the Company and the Shareholders as a whole; and the settlement of the outstanding principal amount of the Loan Facility by the issuance of preferred shares of Kingsoft Cloud, including the conversion formula that takes into account the then market value of Kingsoft Cloud, to be fair and reasonable so far as the Independent Shareholders are concerned.

As also advised by the Directors, the major disadvantage of the grant of the Loan Facility to Kingsoft Cloud lies in the risk of Kingsoft Cloud being unable to repay the Loan Facility as it falls due. The actual capacity of Kingsoft Cloud to repay the Loan Facility largely depends on its business development in the future as cloud service is an emerging technology under is starting-up stage in the PRC. However, the Directors consider that such risk is inherent in all transactions involving granting a loan and is not specific to this transaction. Furthermore, as Kingsoft Cloud is a subsidiary of the Company, the Company is able to control the management and business operation of Kingsoft Cloud. The management of the Company is able to constantly monitor the business operation, performance, cash flows and other financial conditions of Kingsoft Cloud. As such, the Company is able to assess the ability of Kingsoft Cloud to repay the outstanding loan amounts under the Loan Agreement from time to time. In light of that the Company could monitor the business operation, performance, cash flows and other financial conditions of Kingsoft Cloud from time to time, we consider the repayment risk of Kingsoft Cloud to be acceptable.

The grant of the Xiaomi Option

In the event that Xiaomi repays the Xiaomi Guaranteed Principal Amount, Xiaomi is granted the Xiaomi Option to convert such amount, in whole or in part, into certain number of fully-paid and nonassessable preferred shares of Kingsoft Cloud. Concurrently, the Company is also granted the Kingsoft Option to convert the outstanding principal amount and accrued but unpaid interests which have not been secured as mentioned in the paragraph headed “Pledges and guarantees by other shareholders of Kingsoft Cloud” of this letter, or have not been realised by such security measures, in whole or in part, into certain number of fully-paid and non-assessable preferred shares of Kingsoft Cloud. The conversion formula for determination of the conversion prices for the exercise of the Xiaomi Option and the Kingsoft Option are the same. In relation to the above, we noted that (i) the Company has the option to exercise the Kingsoft Option to cover the unpaid outstanding principal amount of the Loan Facility (and the accrued interests) which have not been secured as mentioned in the paragraph headed “Pledges and guarantees by other shareholders of Kingsoft Cloud” of this letter, or have not been realised by such security measure under the Loan Facility; (ii) the exercise of the Xiaomi Option would only occur when Kingsoft Cloud fails to

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LETTER FROM GRAM CAPITAL

repay the outstanding principal amount of the Loan Facility (and the accrued interests) and Xiaomi repays the Xiaomi Guaranteed Principal Amount, and in such case the Group would be able to recover part of its loan (being the Xiaomi Guaranteed Principal Amount) granted to Kingsoft Cloud; and (iii) the conversion formula for determination of the conversion prices for the exercise of the Xiaomi Option and the Kingsoft Option are the same, we therefore concur with the Directors that the grant of the Xiaomi Option by Kingsoft Cloud to Xiaomi as a part and parcel commercial terms under the Loan Agreement is acceptable.

In view of the aforementioned principal terms of the Loan Agreement, we consider that the terms of the Loan Agreement (including the grant of the Xiaomi Option) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

RECOMMENDATION ON THE GRANT OF THE LOAN FACILITY AND THE XIAOMI OPTION

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the Loan Agreement (including the grant of the Xiaomi Option) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the grant of the Loan Facility with the Xiaomi Option is in the interests of the Company and the Shareholders as a whole although it is not conducted in the ordinary and usual course of business of the Group. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the EGM to approve the Loan Agreement, and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

Yours faithfully, For and on behalf of Gram Capital Limited Graham Lam Managing Director

Note: Mr. Graham Lam is a licensed person registered with the Securities and Futures Commission and a responsible officer of Gram Capital Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. He has around 20 years of experience in investment banking industry.

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular, for which the directors of the Company, collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the shares, underlying shares or debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (b) were required, pursuant to section 352 of the SFO, to be recorded in the register required to be kept by the Company; or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, to be notified to the Company and the Stock Exchange were as follows:

Interest in the shares and underlying shares of the Company:

			% OF ISSUED
		NUMBER	SHARE	NATURE
NAME OF		OF SHARES	CAPITAL	OF SHARES
DIRECTOR	CAPACITY	INTERESTED	(NOTE 1)	INTERESTED
Jun LEI	Interest of controlled	174,818,191	14.76	Long position
	corporation
	Other	142,714,003	12.05	Long position
		Total:	Total:
		317,532,194	26.80
		(Note 2)
Pak Kwan KAU	Interest of controlled	108,032,566	9.12	Long position
	corporation	(Note 3)
HongJiang ZHANG	Beneficial owner	11,266,044	0.95	Long position
Yuk Keung NG	Beneficial owner	2,600,000	0.22	Long position
Tao ZOU	Beneficial owner	409,307	0.03	Long position

Notes:

1. % of issued share capital was calculated on basis of the total number of issued shares of the Company as at 1 December 2014, which was 1,184,734,493 .

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GENERAL INFORMATION

APPENDIX

1. Among these 317,532,194 shares, 174,818,191 shares are held by Color Link Management Limited, a BVI company owned as to 100% by Mr. Jun LEI and the other 142,714,003 shares are deemed to be interested by Mr. Jun LEI under the SFO because under a voting consent agreement entered into by Mr. Jun LEI, Mr. Pak Kwan KAU and Mr. Shuen Lung CHEUNG, Mr. Pak Kwan KAU and Mr. Shuen Lung CHEUNG will vote in the same way as Mr. Jun LEI with these shares.

2. These shares are held by Topclick Holdings Limited, a BVI company wholly owned by Kau Management Limited. Kau Management Limited is a company indirectly owned by a discretionary trust, the beneficiaries of which include Mr. Pak Kwan KAU and his family members. As such, Mr. Pak Kwan KAU is deemed to be interested in these shares under the SFO. In addition, Mr. Jun LEI is also deemed to be interested in these shares under the SFO because under a voting consent agreement entered into by Mr. Jun LEI, Mr. Pak Kwan KAU and Mr. Shuen Lung CHEUNG, Mr. Pak Kwan KAU will vote in the same way as Mr. Jun LEI with these shares.

As at the Latest Practicable Date, Mr. Lau Chi Ping is the director of Tencent Holdings Limited. Save as disclosed above, as at the Latest Practicable Date, none of the directors of the Company is a director or employee of a company which had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

Interest in the shares and underlying shares of the associated corporation of the Company, Cheetah Mobile Inc.

			% OF ISSUED
		NUMBER	SHARE	NATURE
		OF SHARES	CAPITAL	OF SHARES
NAME OF DIRECTOR	CAPACITY	INTERESTED	(NOTE 2)	INTERESTED
Pak Kwan KAU	beneficial owner	540,160	0.20	Long Position
Jun LEI_(Note 3)_	Interest of	14,285,714	5.36	Long Position
	controlled corporation
Yuk Keung NG	beneficial owner	1,200	0	Long Position

Notes:

1. Cheetah Mobile Inc. is a non-wholly owned subsidiary of the Company listed on the NYSE.

2. % of issued share capital in class was calculated on basis of the issued Class A ordinary shares of Cheetah Mobile Inc. (“Cheetah Shares”) as at 1 December 2014, which was 266,556,785.

3. Mr. Jun LEI held a majority of the voting power of Xiaomi Corporation, which in turn is deemed to have an interest in approximately 5.36% of the Cheetah Shares under the SFO.

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GENERAL INFORMATION

APPENDIX

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, as far as the Directors are aware of, the following, other than the Directors and chief executive of the Company, had an interest in the shares or underlying shares in the Company which would fall to be disclosed to the Company under the provision of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept by the Company under section 336 of the SFO, or who was, directly or indirectly, interested in 5% or more of the issued capital of the Company:

			% OF ISSUED
NAME OF		NUMBER	SHARE	NATURE
SUBSTANTIAL		OF SHARES	CAPITAL	OF SHARES
SHAREHOLDER	CAPACITY	INTERESTED	(NOTE 1)	HELD
Color Link Management	Beneficial owner	174,818,191	14.76	Long position
Limited_(Note 2)_
Tencent Holdings Limited	Interest of controlled	149,082,572	12.58	Long position
(Note 3)	corporation
Topclick Holdings Limited	Beneficial owner	108,032,566	9.12	Long position
(Note 4)
Credit Suisse Trust Limited	Trustee	108,032,566	9.12	Long position
(Note 4)
Kau Management Limited	Interest of controlled	108,032,566	9.12	Long position
(Note 4)	corporation
The Kau’s Family Trust	Interest of controlled	108,032,566	9.12	Long position
(Note 4)	corporation
Morgan Stanley	Interest of controlled	82,082,689	6.93	Long position
	corporation
		67,245,545	5.68	Short position

Notes:

1. % of issued share capital was calculated on basis of the total number of issued shares of the Company as at 1 December 2014, which was 1,184,734,493.

2. Mr. Jun LEI is deemed to be interested in Color Link Management Limited’s interest in the Company pursuant to Part XV of the SFO because Color Link Management Limited is wholly owned by Mr. Jun LEI.

3. These shares are held by TCH Saffron Limited, which is in turn, held by Tencent Holdings Limited.

4. These shares are held by Topclick Holdings Limited, a BVI company wholly owned by Kau Management Limited which is in turn, held by Credit Suisse Trust Limited as the trustee of The Kau’s Family Trust. The Kau’s Family Trust is a discretionary trust established by Mr. Pak Kwan KAU as settlor and Credit Suisse Trust Limited as trustee in January 2012. The beneficiaries of The Kau’s Family Trust include Mr. Pak Kwan KAU and his family members. Mr. Pak Kwan KAU is deemed to be interested in the 108,032,566 shares held by Topclick Holdings Limited pursuant to Part XV of the SFO.

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GENERAL INFORMATION

APPENDIX

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into any service contract with the Company or any member of the Group, excluding contracts expiring or determinable by the employer within one year without payment of compensation other than statutory compensation.

5. ARRANGEMENT AFFECTING DIRECTORS

As at the Latest Practicable Date:

• (a) None of the Directors is interested, directly or indirectly, in any assets which have, since 31 December 2013, the date to which the latest published audited financial statements of the Company were made up, been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

• (b) None of the Directors is materially interested in any contract or arrangement subsisting at the Latest Practicable Date as entered into by any member of the Group and which is significant in relation to the business of the Group.

• (c) None of the Directors and his/her associates had any competing interests that would be required to be disclosed under Rule 8.10 of the Listing Rules if he was a controlling shareholder of the Company.

6. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial and trading position of the Group since 31 December 2013, the date to which the latest published audited consolidated financial statements of the Group were made up.

7. EXPERT AND CONSENTS

The following is the qualification of the expert who has given opinions or advices contained in this circular:

Name Qualification

Gram Capital Limited A corporation licensed to carry on Type 6 (advising on corporate finance) regulated activity under the SFO

As at the Latest Practicable Date, Gram Capital did not have any shareholding directly or indirectly in any member of the Group or the right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, Gram Capital had no direct or indirect interest in any assets which had been, since 31 December 2013 (the date to which the latest published audited financial statements of the Company were made up), acquired, disposed of by, or leased to any member of the Group, or were proposed to be acquired, disposed of by, or leased to any member of the Group.

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GENERAL INFORMATION

APPENDIX

Gram Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which it appears.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for at least 14 days for inspection during normal business hours on any weekday (except public holidays) at 14th Floor, Hutchison House 10 Harcourt Road, Central Hong Kong from the date of this circular up to and including the date of the EGM:

• (a) the Framework Agreement;

• (b) the Loan Agreement;

• (c) the letter from the Independent Board Committee to the Independent Shareholders dated 5 December 2014, the text of which is set out on page 23 of this circular;

• (d) the letter from Gram Capital to the Independent Board Committee and the Independent Shareholders dated 5 December 2014, the text of which is set out on page 24 to 41 of this circular; and

• (e) the written consent referred to in the section headed “Expert and Consents” in this appendix.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Kingsoft Corporation Limited 金山軟件有限公司

(Continued into the Cayman Islands with limited liability)

(Stock Code: 03888)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Extraordinary General Meeting (the “ EGM ”) of Kingsoft Corporation Limited (the “ Company ”) will be held at Kingsoft Tower, No. 8 Lianshan Alley, Jingshan Road, Jida, Zhuhai, Guangdong, the PRC on Friday, 26 December 2014 at 1:30 p.m. to consider and, if thought fit, passing the following ordinary resolutions of the Company. Unless otherwise indicated, capitalized terms used in this notice shall have the same meanings as those defined in the circular of the Company dated 5 December 2014 (the “ Circular ”):

AS ORDINARY RESOLUTIONS:

1. THAT the Framework Agreement dated 1 December 2014 and entered into between the Company and Xiaomi and the provision of the Comprehensive Services (mainly including the cloud services and promotion services) contemplated thereunder (including the Proposed Annual Caps) be and are hereby approved and confirmed, and the directors of the Company be and are hereby authorised, for and on behalf of the Company, to take all steps and do all acts and things as they consider to be necessary, appropriate or expedient in connection with and to implement or give effect to the Framework Agreement and provision of the Comprehensive Services (including the Proposed Annual Caps), and to execute all such other documents, instruments and agreements (including the affixation of the Company’s common seal) deemed by them to be incidental to, ancillary to or in connection with the Framework Agreement and the provision of the Comprehensive Services (including the Proposed Annual Caps)

2. THAT the Loan Agreement dated 1 December 2014 and entered into among the Company, Xiaomi and Kingsoft Cloud and the transactions contemplated thereunder (including the grant of Loan Facility, the grant of Xiaomi Option and other related transactions) be and are hereby approved and confirmed, and the directors of the Company be and are hereby authorised, for and on behalf of the Company, to take all steps and do all acts and things as they consider to be necessary, appropriate or expedient in connection with and to implement or give effect to the Loan Agreement and the transactions contemplated thereunder (including the grant of Loan Facility, the grant of Xiaomi Option and other related transactions), and to execute all such other documents, instruments and agreements (including the affixation of the Company’s common seal) deemed by them to be incidental to, ancillary to or in connection with the Loan Agreement and the transactions contemplated thereunder (including the grant of Loan Facility, the grant of Xiaomi Option and other related transactions)

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Details related to the above resolutions are set out in the Circular.

By Order of the Board Kingsoft Corporation Limited Jun LEI Chairman of the Board

Hong Kong, 5 December 2014

Principal place of business in Hong Kong: Unit 1309A 13/F Cable TV Tower No. 9 Hoi Shing Road Tsuen Wan, N.T.

Hong Kong

Notes:

1. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same. In the case of an instrument of proxy purporting to be signed on behalf of a corporation by an officer thereof it shall be assumed, unless the contrary appears, that such officer was duly authorised to sign such instrument of proxy on behalf of the corporation without further evidence of the fact.

2. A member entitled to attend and vote at the EGM is entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a member of the Company but must attend the meeting in person to represent you.

3. To be valid, a form of proxy and the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority, must be deposited at the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or the adjourned meeting (as the case may be).

4. Delivery of the form of proxy will not preclude a member from attending and voting in person at the meeting or any adjourned meeting thereof (as the case may be) should they so wish and in such event, the form of proxy shall be deemed to be revoked.

5. Where there are joint holders of any share(s), any one of such joint holders may vote at the meeting, either in person or by proxy, in respect of such share(s) as if he were solely entitled thereto, but if more than one of such joint holders be present at the meeting, the vote of the senior who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the votes of the other joint holders. For this purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

6. The votes of members at the above meeting to approve the ordinary resolutions will be taken on a poll.

7. The translation into Chinese language of this notice is for reference only. In case of any inconsistency, the English version shall prevail.

As at the date of this announcement, the executive Directors are Messrs. HongJiang ZHANG, Yuk Keung NG and Tao ZOU; the non-executive Directors are Messrs. Jun LEI, Pak Kwan KAU and Chi Ping LAU; the independent non-executive Directors are Messrs. Shun Tak WONG, David Yuen Kwan TANG, and Ms. Wenjie WU.

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