Announcements and Notices - Continuing Connected Transactions Hogs Purchase Framework Agreements

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CHINA YURUN FOOD GROUP LIMITED 中 國 雨 潤 食 品 集 團 有 限 公 司*

(Incorporated in the Bermuda with limited liability)

(Stock Code: 1068)

CONTINUING CONNECTED TRANSACTIONS HOGS PURCHASE FRAMEWORK AGREEMENTS

THE HOGS PURCHASE FRAMEWORK AGREEMENTS

As the existing purchase framework agreements will expire on 31 December 2018, the Company has on 18 December 2018 entered into the Hogs Purchase Framework Agreements with the Selling Entities for the continual sourcing of hogs from the Selling Entities and/or their subsidiaries upon expiry of the existing purchase framework agreements. The Annual Caps for the financial years ending 31 December 2019, 2020 and 2021 are RMB45.94 million, RMB48.23 million and RMB50.64 million respectively.

IMPLICATIONS UNDER THE LISTING RULES

As of the date of this announcement, Mr. Zhu is a substantial shareholder of the Company who is indirectly interested in approximately 25.82% of the issued shares of the Company, and is therefore a connected person of the Company under the Listing Rules. The Selling Entities, being entities owned and/or controlled by Mr. Zhu and his associates, are associates of Mr. Zhu and are connected persons of the Company. The transactions contemplated under the Hogs Purchase Framework Agreements therefore constitute continuing connected transactions of the Company under the Listing Rules.

As one or more of the applicable percentage ratios in respect of the Annual Caps of the Hogs Purchase Framework Agreements exceed 0.1% but are less than 5%, the transactions contemplated under the Hogs Purchase Framework Agreements are subject to the reporting, annual review and announcement requirements but are exempted from independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

THE HOGS PURCHASE FRAMEWORK AGREEMENTS

The Company refers to its announcement dated 17 December 2015 regarding its sourcing of hogs from certain entities owned and/or controlled by Mr. Zhu for a term of three years commencing on 1 January 2016.

As the existing purchase framework agreements will expire on 31 December 2018, the Company has on 18 December 2018 entered into the Hogs Purchase Framework Agreements with the Selling Entities for the continual sourcing of hogs from the Selling Entities upon expiry of the existing purchase framework agreements.

The principal terms of the Hogs Purchase Framework Agreements are described below:

Date

• : 18 December 2018

  Parties

  :

  • (i) the Company (for and on behalf of the members of the Group), as the buyer; and

  • (ii) in respect of the First Hogs Purchase Framework Agreement, Mr. Zhu's Entities, as the seller; and in respect of the Second Hogs Purchase Framework Agreement, Ms. Wu's Entity, as the seller. The Selling Entities are entities owned and/or controlled by Mr. Zhu and his associates.

  Term

• : Commencing on 1 January 2019 and ending on 31 December 2021.

  Principal terms

• : The Selling Entities shall and shall procure their respective subsidiaries to supply hogs to the Group for its production use.

  Pricing

• : The price for the sourcing of hogs shall be determined on an arm's length basis, and negotiated between the parties to the Hogs Purchase Framework Agreements with reference to the market price at the time the purchase order is placed, provided that such price shall not be higher than the average price paid by the Group to other independent third parties on an arm's length basis and normal commercial terms for the same type of products during the relevant period.

  The Group may, before it places any purchase order with the Selling Entities pursuant to the Hogs Purchase Framework Agreements, obtain price quotations from or transaction information from other suppliers who are independent third parties for the supply of the same or similar type of products required by the Group. If the Group proceeds to place a purchase order with any of the Selling Entities for hogs, the price and other conditions at which such products are to be offered by the Selling Entities shall be no less favourable than those offered by the independent third parties to the Group.

  Delivery and payment arrangements

• : The buyer shall send a purchase order to the seller specifying the quantity and types of hogs required for the coming month not less than seven days prior to the end of the month. The buyer shall settle the payment within seven days after the weight of the hogs is determined. The buyer shall notify the seller two days prior to the intended date of delivery in respect of the delivery arrangement.

  Other

• : Save for the identity of the sellers, being Mr. Zhu's Entities for the First Hogs Purchase Framework Agreement and Ms. Wu's Entity for the Second Hogs Purchase Framework Agreement, the terms of the First Hogs Purchase Framework Agreement and the Second Hogs Purchase Framework Agreement are identical.

Proposed Annual Caps

The historical purchase amounts of hogs by the Group from the Selling Entities and the Annual Caps pursuant to the Hogs Purchase Framework Agreements are set out below:

Note 1: the conversion of RMB into HK$ is based on the exchange rate used in the annual report of the

Company for the year 2016 and 2017, respectively.

Note 2: the above annual caps per year will not exceed 1% of the estimated total purchases of hogs of the

Group for 2018.

The Annual Caps are determined with reference to the actual purchase amount of hogs by the Group from the Selling Entities under the existing purchase framework agreements, taking into account the anticipated demand for hogs of the Group based on the variety of products offered by the Group and its business growth and the anticipated inflation. The Directors expected that the slaughtering volume from 2019 to 2021 will increase and the Group is more prudent on the sourcing of hogs due to the recent outbreak of African Swine Fever in the PRC. The Directors believe that sourcing hogs directly from large-scale hog breeding companies is more reliable, particularly with respect to quality control and epidemic prevention, and therefore it is for the benefit of the Group to increase the purchase from those quality hog suppliers in the market, like the Seller Entities.

REASONS FOR ENTERING INTO THE HOGS PURCHASE FRAMEWORK AGREEMENTS

The Group is one of the leading meat product suppliers in the PRC which offers a wide range of raw pork (chilled and frozen) and processed meat with a particular focus on pork products. The Group decides to continue the present arrangements with respect to its sourcing of hogs from the Selling Entities, as the Selling Entities are stable and reliable suppliers of quality raw poultry meat and poultry products, and the Directors believe it is cost-effective and efficient to source such products from the Selling Entities.

DIRECTORS' CONFIRMATION

The Directors (including the independent non-executive Directors) are of the opinion that the continuing connected transactions under the Hogs Purchase Framework Agreements will continue to be carried out in the ordinary and usual course of business of the Group, and on normal commercial terms, which (including the Annual Caps) are fair and reasonable and in the interests of the Company and the shareholders of the Company as a whole.

As none of the Directors has a material interest in the Hogs Purchase Framework Agreements, none of the Directors has abstained from voting on the board meeting approving the aforesaid transactions.

INFORMATION ON THE PARTIES

The Company

The principal activity of the Company is investment holding, and the Group is one of the leading meat product suppliers in the PRC primarily engaging in the slaughtering, production, and sale of chilled and frozen pork and processed meat products with a particular focus on pork products in the PRC.

Mr. Zhu, Ms. Wu and the Selling Entities

The controlling shareholder of Mr. Zhu's Entities is Mr. Zhu and Mr. Zhu is a substantial shareholder and a former executive director of the Company, who as at the date of this announcement is indirectly interested in approximately 25.82% of the issued shares of the Company.

The controlling shareholder of Ms. Wu's Entity is Ms. Wu and Ms. Wu is the spouse of Mr. Zhu.

The Selling Entities are entities incorporated in the PRC and Hong Kong owned and/or controlled by Mr. Zhu and his associates, which are principally engaged in the business of breeding and/or sales of hogs.

IMPLICATIONS UNDER THE LISTING RULES

As of the date of this announcement, Mr. Zhu is a substantial shareholder of the Company who is indirectly interested in approximately 25.82% of the issued shares of the Company, and is therefore a connected person of the Company under the Listing Rules. The Selling Entities, being entities owned and/or controlled by Mr. Zhu and his associates, are associates of Mr. Zhu and are connected persons of the Company. The transactions contemplated under the Hogs Purchase Framework Agreements therefore constitute continuing connected transactions of the Company under the Listing Rules.

As one or more of the applicable percentage ratios in respect of the Annual Caps of the Hogs Purchase Framework Agreements exceed 0.1% but are less than 5%, the transactions contemplated under the Hogs Purchase Framework Agreements are subject to the reporting, annual review and announcement requirements but are exempted from independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

DEFINITIONS

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