China Feihe : CONNECTED TRANSACTION IN RELATION TO THE DISPOSAL OF 100% EQUITY INTERESTS IN FEIHE E-COMMERCE AND CONTRACTUAL ARRANGEMENTS

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China Feihe Limited ʕ਷࠭ᚲϞࠢʮ̡

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 6186)

CONNECTED TRANSACTION

IN RELATION TO THE DISPOSAL OF

100% EQUITY INTERESTS IN FEIHE E-COMMERCE

AND

CONTRACTUAL ARRANGEMENTS

INTRODUCTION

The Board is pleased to announce that, to enable the Group (through Feihe E-Commerce) to tap into the businesses in the PRC which are currently subject to foreign investment restrictions, on 2 March 2021, the Group went through a series of restructuring steps which included (i) the Connected Transaction between Feihe HLJ, Mr. Leng, Mr. Liu, and Mr. Cai in relation to the disposal of 100% equity interests in Feihe E-Commerce, and (ii) the Contractual Arrangements between Feihe HLJ, Feihe E-Commerce, Mr. Leng, Mr. Liu, and Mr. Cai. The Connected Transaction will enable PRC residents to become shareholders of Feihe E-Commerce, which will qualify Feihe E-Commerce for applying for value-added telecommunications business operation licenses. The Contractual Arrangements will enable the Company (through Feihe HLJ) to have effective control over the operations and the entire economic interests and benefits of Feihe E-commerce.

Upon completion of the Connected Transaction and establishment of the Contractual Arrangements, the financial results of Feihe E-commerce will remain consolidated in the financial statements of the Group, and Feihe E-commerce will remain a subsidiary of the Company.

LISTING RULES IMPLICATIONS

Connected Transaction in Relation to the Disposal of 100% Equity Interests in Feihe E-Commerce

Given that Mr. Leng is a controlling Shareholder and Director of the Company, and that each of Mr. Liu and Mr. Cai is a Director of the Company, therefore, Mr. Leng, Mr. Liu and Mr. Cai are connected persons of the Company under Chapter 14A of the Listing Rules. In addition, Feihe HLJ is a wholly-owned subsidiary of the Company. Accordingly, the Connected Transaction constitutes a connected transaction of the Company.

Given that the maximum applicable percentage ratio (as defined in Rule 14.07 of the Listing Rules) of the Connected Transaction is less than 0.1%, the Connected Transaction is fully exempt under Rule 14A.76 of the Listing Rules.

Contractual Arrangements

Given that Mr. Leng is a controlling Shareholder and Director of the Company, and that each of Mr. Liu and Mr. Cai is a Director of the Company, therefore, Mr. Leng, Mr. Liu and Mr. Cai are connected persons of the Company under Chapter 14A of the Listing Rules. In addition, Feihe HLJ is a wholly-owned subsidiary of the Company. Accordingly, transactions contemplated under the Contractual Arrangements constitute continuing connected transactions of the Company.

As no consideration is involved in the continuing connected transactions under the Contractual Arrangements, the maximum applicable percentage ratio (as defined in Rule 14.07 of the Listing Rules) of the continuing connected transactions contemplated under the Contractual Arrangements is less than 0.1%, the continuing connected transactions contemplated under the Contractual Arrangements are fully exempt under Rule 14A.76 of the Listing Rules.

INTRODUCTION

The Board is pleased to announce that, to enable the Group (through Feihe E-Commerce) to tap into the businesses in the PRC which are currently subject to foreign investment restrictions, on 2 March 2021, the Group went through a series of restructuring steps which included (i) the Connected Transaction between Feihe HLJ, Mr. Leng, Mr. Liu, and Mr. Cai in relation to the disposal of 100% equity interests in Feihe E-Commerce and (ii) the Contractual Arrangements between Feihe HLJ, Feihe E-Commerce, Mr. Leng, Mr. Liu, and Mr. Cai. The Connected Transaction will enable PRC residents to become shareholders of Feihe E-Commerce, which will qualify Feihe E-Commerce for applying for value-added telecommunications business operation licenses. The Contractual Arrangements will enable the Company (through Feihe HLJ) to have effective control over the operations and the entire economic interests and benefits of Feihe E-commerce.

Upon completion of the Connected Transaction and establishment of the Contractual Arrangements, the financial results of Feihe E-commerce will remain consolidated in the financial statements of the Group, and Feihe E-commerce will remain a subsidiary of the Company.

CONNECTED TRANSACTION IN RELATION TO THE DISPOSAL OF 100% EQUITY INTERESTS IN FEIHE E-COMMERCE

Background

On 2 March 2021, Feihe HLJ, a wholly-owned subsidiary of the Company, entered into the Share Transfer Agreement with Mr. Leng, Mr. Liu, and Mr. Cai. Pursuant to the Share Transfer Agreement, Feihe HLJ agreed to sell, and Mr. Leng, Mr. Liu, and Mr. Cai agreed to acquire 100% equity interests in Feihe E-Commerce, a wholly-owned subsidiary of Feihe HLJ immediately prior to the Connected Transaction. Upon execution of the Share Transfer Agreement, each of Mr. Leng, Mr. Liu and Mr. Cai, as a shareholder of Feihe E-Commerce, shall enjoy shareholder's rights and assume shareholder's obligations of Feihe E-Commerce in accordance with relevant PRC laws and regulations and the articles of association of Feihe E-Commerce.

Consideration

The consideration for the acquisition of 100% equity interests in Feihe E-Commerce by Mr. Leng, Mr. Liu, and Mr. Cai was RMB10 million. Such consideration was determined by Feihe HLJ, Mr. Leng, Mr. Liu, and Mr. Cai after arm's length negotiation with reference to (i) the registered capital of RMB10 million of Feihe E-Commerce as at 2 March 2021, and (ii) the net assets of RMB8,923,381 of Feihe E-Commerce as stated in its unaudited management accounts for the year ended 31 December 2020.

The Directors, including the independent non-executive Directors, are of the view that the terms of the Share Transfer Agreement are entered into on normal commercial terms in the ordinary and usual course of business of the Company and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

CONTRACTUAL ARRANGEMENTS

Background

On 2 March 2021, Feihe E-Commerce and the PRC Equity Owners entered into the Structured Contracts with Feihe HLJ for the purpose of establishing the Contractual Arrangements. The Contractual Arrangements would give the Company (through Feihe HLJ) effective control over the operations and the entire economic interests and benefits of Feihe E-Commerce. Upon establishment of the Contractual Arrangements, the financial results of Feihe E-Commerce will remain consolidated in the financial statements of the Group, and Feihe E-Commerce will remain a subsidiary of the Company.

The Structured Contracts consist of: (1) the Business Cooperation Agreement; (2) the Exclusive Service Agreement; (3) the Exclusive Call Option Agreement; (4) the Shareholders' Rights Entrustment Agreement and the relevant Shareholders' Power of Attorney; (5) the Equity Pledge Agreement; (6) the Loan Agreement; and (7) the Spouse's Undertakings. A summary of terms is set out below:

• (1) Business Cooperation Agreement

  Date:

  2 March 2021

  Parties:

  • (a) Feihe HLJ;

  • (b) Feihe E-Commerce; and

  • (c) The PRC Equity Owners

  Term:

  The Business Cooperation Agreement has an initial term of three years and can be renewed upon expiration.

  Subject matter:

  Mr. Leng, Mr. Liu, Mr. Cai, Feihe HLJ, and Feihe E-Commerce agree to establish a comprehensive and close cooperative relationship through entering into the Structured Contracts, which includes but is not limited to Feihe HLJ providing comprehensive technical services and consulting services to Feihe E-Commerce.

  Mr. Leng, Mr. Liu, and Mr. Cai shall procure their respective spouse to enter into the Spouse's Undertakings.

• (2) Exclusive Service Agreement

Date:	2 March 2021
Parties:	(a) Feihe HLJ; and
(b) Feihe E-Commerce
Term:	The Exclusive Service Agreement has an initial term of three
years and can be renewed upon expiration.
Subject matter:	Feihe HLJ shall have the exclusive right to provide
comprehensive technical services and consulting services to
Feihe E-Commerce.
- 4 -

The technical services include but are not limited to:

• (a) design, development, update and maintenance of software and websites;

• (b) maintenance of information system;

• (c) provision of technical consulting services;

• (d) provision of technical training to employees of Feihe E-Commerce;

• (e) on-site technical support as and when necessary; and

• (f) other reasonable technical services as requested by Feihe E-Commerce.

The consulting services include but are not limited to:

• (a) provision of recruitment, business training and management training services;

• (b) consulting services in relation to business management, strategic planning, internal organization setting and annual budgeting;

• (c) consulting services in relation to financial management framework and internal management framework;

• (d) provision of services in relation to public relations;

• (e) assisting the establishment of sales network; and

• (f) other reasonable consulting services as requested by Feihe E-Commerce.

The annual service fees payable by Feihe E-Commerce to Feihe HLJ in respect of the technical services and consulting services equal to all of the net profit of Feihe E-Commerce (when determining the net profit, the service fees payable by Feihe E-Commerce to Feihe HLJ hereunder shall be disregarded) or such other amount considered appropriate by Feihe HLJ.

Subject to relevant PRC laws and regulations, Feihe HLJ has the exclusive proprietary rights to all intellectual property rights developed or created during the performance of the Exclusive Service Agreement.

Without the prior written consent of Feihe HLJ, Feihe E-Commerce shall not engage or cooperate with any third party for the provision of the same or similar services contemplated under the Exclusive Service Agreement.

(3) Exclusive Call Option Agreement

Date:

2 March 2021

Parties:

• (a) Feihe HLJ;

• (b) Feihe E-Commerce; and

• (c) The PRC Equity Owners

Term:

The Exclusive Call Option Agreement has an initial term of three years and can be renewed upon expiration.

Subject matter:

The PRC Equity Owners irrevocably grant to Feihe HLJ or any person(s) designated by Feihe HLJ, the exclusive option(s) to purchase, to the extent permitted by the PRC laws and regulations, the PRC Equity Owners' equity interests (entire or partially) in Feihe E-Commerce at a consideration of an amount equivalent to the entire or the corresponding proportion of the registered capital of Feihe E-Commerce. If the minimum price permitted by relevant PRC laws and regulations is higher than the entire or the corresponding proportion of the registered capital of Feihe E-Commerce, then the consideration shall be the minimum price permitted by the relevant PRC laws and regulations.

If there are any changes in relevant laws and regulations in the PRC which would allow Feihe HLJ, the Company or any other offshore entity designated by the Company to have direct or indirect shareholding in Feihe E-Commerce and to operate the relevant business engaged by Feihe E-Commerce through Feihe E-Commerce, Feihe HLJ shall, as soon as practicable, exercise the option.

The consideration for the transfer of equity interests shall be used to offset loan repayment from the PRC Equity Owners to Feihe HLJ under the Loan Agreement. If there are any remaining funds in the consideration for the transfer of equity interests after the aforesaid offset, the PRC Equity Owners shall unconditionally return the remaining funds to Feihe HLJ or any person(s) designated by Feihe HLJ in full, subject to the relevant PRC laws and regulations.

(4) Shareholders' Rights Entrustment Agreement and relevant Shareholders' Power of Attorney

Date:

2 March 2021

Parties:

• (a) Feihe HLJ;

• (b) Feihe E-Commerce; and

• (c) The PRC Equity Owners

Term:

The Shareholders' Rights Entrustment Agreement and the relevant Shareholders' Power of Attorney have an initial term of three years since the execution of the agreement and can be renewed upon expiration.

Subject matter:

Each of the PRC Equity Owners irrevocably authorized Feihe HLJ or any person or entity designated by Feihe HLJ to, among other things:

• (a) exercise his voting rights and all other rights as a shareholder of Feihe E-Commerce, including but not limited to selling, transferring, pledging or otherwise dealing with all or part of equity interests in Feihe E-Commerce; and

• (b) exercise his voting rights on matters which require resolutions on the general meeting, including but not limited to: election and change/appointment of directors; review and approval of the company's annual financial budget plan and final account; review and approval of the company's profit distribution plan and loss recovery plan; resolutions on the increase or decrease of the company's registered capital; resolutions on the corporate merger, division, dissolution, liquidation or change of the corporate form; amendments to the articles of association of the company; and confirmation to the liquidation plan and liquidation report proposed by the liquidation team.

(5)

Equity Pledge Agreement
Date:	2 March 2021
Parties:	(a) PRC Equity Owners;
(b) Feihe HLJ; and
(c) Feihe E-Commerce
Term:	The Equity Pledge Agreement has an initial term of three
years and it can be renewed upon expiration until:
Subject matter:

• (a) Feihe HLJ or the person(s) designated by Feihe HLJ has/have acquired all equity interests of the PRC Equity Owners pursuant to the Exclusive Call Option Agreement; or

• (b) Feihe HLJ has realized its pledge rights in the pledged equity interests of Feihe E-Commerce pursuant to the Equity Pledge Agreement.

The PRC Equity Owners agree to pledge all of their equity interests in Feihe E-Commerce to Feihe HLJ to secure the due performance of their obligations and the obligations of Feihe E-Commerce in accordance with all Structured Contracts under the Contractual Arrangements.

In addition, each of the PRC Equity Owners undertakes to Feihe HLJ, among other things, not to transfer his/her interests in Feihe E-Commerce and not to create any pledge thereon without Feihe HLJ's prior written consent.

• (6) Loan Agreement

  Date:

  2 March 2021

  Parties:

  • (a) Feihe HLJ; and

  • (b) The PRC Equity Owners

  Term:

  The Loan Agreement has an initial term of three years and can be renewed upon expiration.

  Subject matter:

• (7) Spouse's Undertakings

  Date:

  Feihe HLJ provides the PRC Equity Owners with interest-free loans, which shall be used by the latter for settling the consideration for the acquisition of 100% equity interests in Feihe E-Commerce with Feihe HLJ.

  2 March 2021

  Subject matter:

Each of the spouses of the PRC Equity Owners had executed a spousal confirmation to Feihe HLJ, pursuant to which she undertook, among other things, that:

• (a) she has been fully aware of and agreed to her spouse's signing of the Structured Contracts, and that she has been fully informed of and agreed, independently and irrevocably, to the arrangements involving the interests of her spouse in Feihe E-Commerce under the Structured Contracts;

• (b) she will not participate in the operation, management, liquidation or dissolution of Feihe E-Commerce; and

• (c) she will not take any action or omission that may be in conflict with the Contractual Arrangements.

Illustrative Diagram of the Contractual Arrangements

The following diagram illustrates the Contractual Arrangements.

Company100%Offshore

Onshore

Contractual

Feihe HLJ

Mr. LengMr. LiuMr. Cai

Contractual Arrangements

90%

5%

5%Feihe E-Commerce

Risk Factors Relating to Contractual Arrangements

Feihe HLJ will not have any direct equity ownership in Feihe E-Commerce and will rely on the Structured Contracts to control, operate and be entitled to the economic benefits from the Proposed Business conducted through Feihe E-Commerce. As such, there are risks associated with the use of the Contractual Arrangements, including:

There is no assurance that the Structured Contracts could comply with future changes in the regulatory requirements in the PRC and the PRC government may determine that the Structured Contracts do not comply with applicable regulations

Despite there is currently no indication that the Structured Contracts will be interfered or objected by any PRC regulatory authorities, there is a possibility that the relevant PRC regulatory authorities may have different opinions on the interpretation of the relevant regulations and would not agree that the Structured Contracts comply with the current PRC laws, regulations or rules or those that maybe adopted in future, and the authorities may deny the validity, effectiveness and enforceability of the Structured Contracts.

If the PRC regulatory authorities deny the validity, effectiveness and enforceability of the Structured Contracts, the Group would lose control of Feihe E-Commerce, and would be unable to consolidate the financial results of Feihe E-Commerce, or properly safeguard, awarded or control the assets of Feihe E-Commerce, which would, in turn, result in a material adverse effect on the Group's business, financial condition and results of operations.

The Contractual Arrangements may not be as effective in providing control over and entitlement to the economic benefits in Feihe E-Commerce as compared to direct ownership

The Contractual Arrangements may not be as effective as direct ownership in providing Feihe HLJ with control over and entitlement to the economic benefits in Feihe E-Commerce. Under the Contractual Arrangements, the Group will have to rely on Feihe HLJ's contractual rights under the Structured Contracts to effect changes in the management of Feihe E-Commerce and exercise influence over on its business decision-making, as opposed to exercising its rights directly as a shareholder. If Feihe HLJ or the PRC Equity Owners refuse to cooperate, Feihe HLJ may have difficulties in effecting control over Feihe E-Commerce through the Contractual Arrangements and may be required to take legal actions which is time-consuming and costly, which would, in turn, result in a material adverse effect on the Group's business, financial condition and results of operations.

The PRC Equity Owners may potentially have a conflict of interests with the Group

The Group's control over Feihe E-Commerce is based on the Contractual Arrangements under the Structured Contracts. The interests of the PRC Equity Owners may not be in line and may conflict with that of the Group. There is no assurance that when such conflict arises, the PRC Equity Owners will act completely in the Group's interests or that the conflict of interests will be resolved in the Group's favour. If any of the PRC Equity Owners did not act in the Group's interests and/or breached the Structured Contracts, the Group may be required to exercise its option to acquire equity interests and appoint another PRC citizen as registered owner which may, in turn, result in a material adverse effect on the Group's business, financial condition and results of operations.

Economic risks of the Company

As the primary beneficiary of Feihe E-Commerce, the Group will bear the economic risks which may arise from the business of Feihe E-Commerce and may lose all of its investment in Feihe E-Commerce. Although the Group is not obliged to provide financial support to Feihe E-Commerce, in the event that Feihe E-Commerce requires financial assistance, the Group may, at its sole discretion, provide financial support for Feihe E-Commerce in order to maintain its sound operation. In such case, the Group's business, financial condition and results of operations may be adversely affected.

The exercise of options to acquire equity interests may be subject to substantial costs

Although pursuant to the Exclusive Call Option Agreement, Feihe HLJ has been granted the option to purchase from the PRC Equity Owners all or part of the equity interests in Feihe E-Commerce, at the consideration of an amount equivalent to the entire or the corresponding proportion of the registered capital of Feihe E-Commerce (if the minimum price permitted by relevant PRC laws and regulations is higher than the entire or the corresponding proportion of the registered capital of Feihe E-Commerce, the consideration shall be the minimum price permitted by the relevant PRC laws and regulations). Feihe HLJ may be required to bear substantial expenses, such as legal costs, taxes or other fees and obligations under the then prevailing PRC laws, should Feihe HLJ exercise the exclusive call option. In such case, the Group's business, financial condition and results of operations may be adversely affected.

The Contractual Arrangements may be subject to scrutiny of the PRC tax authorities, transfer pricing adjustments and additional taxes

Under the laws and regulations of PRC, arrangements and transactions among related parties may be subject to audit and/or challenge by the PRC tax authorities. The Group could face material adverse tax consequences if the PRC tax authorities determine that the Contractual Arrangements do not reflect the arm's length negotiations between the parties and consequently adjust the income and expenses of Feihe HLJ and/or Feihe E-Commerce for PRC tax purposes in the form of a transfer pricing adjustment. A transfer pricing adjustment could adversely affect the Group's financial position by increasing the relevant tax liabilities of Feihe HLJ without reducing those of Feihe E-Commerce or vice versa. In addition, the PRC tax authorities may impose late payment fees and other penalties on Feihe HLJ and/or Feihe E-Commerce for any unpaid taxes. As a result, any transfer pricing adjustment could have a material adverse effect on the Group's financial position and results of operations.

The Company does not have any insurance which covers the risks relating to the Contractual Arrangements

The Group does not have insurance to cover the risks relating to the Contractual Arrangements and the Group cannot identify appropriate insurance product to cover such risks. If there is any loss arising from the Contractual Arrangements in the future, such as the legal costs for enforcing the Structured Contracts, the Group may be required to bear such costs and the results of operations of the Group may be adversely affected.

Dispute Resolutions, Succession and Liquidation under the Contractual Arrangements

Dispute resolutions

Each of the Structured Contracts contains dispute resolution clauses which provide that (i) any dispute shall be submitted to China International Economic and Trade Arbitration Commission in Beijing for arbitration; (ii) subject to the PRC laws and regulations and the then effective arbitration rules, the arbitral tribunal and the arbitrators may award remedies over the equity interests or assets of Feihe E-Commerce, or injunctive relief or order the winding up of Feihe E-Commerce; and (iii) subject to the PRC laws and regulations and the then effective arbitration rules, the courts of the Cayman Islands, the PRC, Hong Kong and the places where the Company and/or Feihe E-Commerce's principal assets are located have the jurisdictions to grant interim injunctive relief or other interim remedies in support of the arbitration pending formation of the arbitration tribunal or in appropriate cases.

Protection measures for PRC Equity Owners after death or divorce

According to the Spouse's Undertakings, the spouse of each PRC Equity Owners has irrevocably undertook, among other things, to authorize each PRC Equity Owners and/or his authorized person to sign all necessary documents and perform all necessary procedures for and on behalf of the spouse from time to time, to protect the rights and interests of Feihe HLJ to achieve the purpose of the Structured Contracts; confirms and agrees that, unless being determined otherwise in writing by Feihe HLJ, any undertaking, confirmation, agreement and authorization shall remain effective during the period of validity of Structured Contracts.

In addition, according to the Business Cooperation Agreement, PRC Equity Owners undertook to Feihe HLJ that in the event of death, incapacity or limitation, divorce or other circumstances that may affect their exercise of the rights and interests in Feihe E-Commerce, they should have made all necessary arrangements and signed all necessary documents, so that their respective heirs, guardians, spouses, and any other persons who may obtain interests or related rights as a result of the above events, will not impair or hinder the validity and enforceability of the Structured Contracts.

Protective measures for Feihe E-Commerce after dissolution, liquidation, reorganization or bankruptcy

In the event of Feihe E-Commerce's liquidation, reorganization or bankruptcy, Feihe HLJ or person(s) designated by Feihe HLJ have the right to exercise all shareholder rights on behalf of the PRC Equity Owners. Where permitted by PRC laws and regulations, PRC Equity Owners shall return all residual assets obtained from the dissolution, bankruptcy or liquidation of Feihe E-Commerce after deduction of the repayment of the loans owed to Feihe HLJ by PRC Equity Owners under the Loan Agreement of the Contractual Arrangements to Feihe HLJ or person(s) designated by Feihe HLJ at nil consideration. Under the circumstances that Feihe HLJ or person(s) designated by Feihe HLJ shall obtain the aforesaid residual assets at a consideration pursuant to the then effective PRC laws and regulations, in addition to directly delivering the aforesaid residual assets, the shareholders of Feihe E-Commerce shall fully return such consideration to Feihe HLJ or any person(s) designated by Feihe HLJ in an appropriate manner.

Conflict of interests

The Company confirms that appropriate arrangements have been made to address the potential conflict of interests between Mr. Leng, Mr. Liu, and Mr. Cai and the Group. In particular, Mr. Leng, Mr. Liu, and Mr. Cai had undertaken that they will neither, directly or indirectly, participate or engage in any business which is or maybe in competition with the business of Feihe E-Commerce or its associate companies, or acquire or hold any such business, nor carry on any activities which may lead to any conflict of interests between themselves and Feihe HLJ.

Internal Control Policies

The Structured Contracts contained certain provisions in order to exercise effective control over and to safeguard the assets of Feihe E-Commerce. In addition to the internal control measures under the Structured Contracts, it is the intention of the Company, through Feihe HLJ to adopt additional internal control measures against Feihe E-Commerce as appropriate, having taking into considerations of the internal control measures to be adopted by the Group from time to time, which may include but not limited to:

Management control measures

• (a) the Group will appoint a Representative to act as an executive director of Feihe E-Commerce. The Representative is required to conduct quarterly reviews on the operations of Feihe E-Commerce and shall submit the quarterly review report to the Board. The Representative is also required to check the authenticity of the monthly management accounts of Feihe E-Commerce;

• (b) the Representative shall work at Feihe E-Commerce and shall be actively involved in various aspects of the daily management and operation of Feihe E-Commerce;

• (c) the Representative shall report any major events of Feihe E-Commerce to the Board of the Company;

• (d) the Directors of the Company shall conduct regular site visits to Feihe E-Commerce and conduct personnel interviews annually and submit reports to the Board; and

• (e) all seals, chops, incorporation documents and all other legal documents, to the extent permitted by the PRC laws, of Feihe E-Commerce shall be kept at the office of Feihe HLJ.

Financial control measures

• (a) the chief financial officer of the Company shall collect monthly management accounts, bank statements and cash balances and major operational data of Feihe E-Commerce for review. Upon discovery of any suspicious matters, the chief financial officer of the Company must report to the Board;

• (b) if the payment of the services fees by Feihe E-Commerce to Feihe HLJ is delayed, the chief financial officer of the Company shall meet with the shareholder(s) of Feihe E-Commerce to investigate, and report any suspicious matters to the Board. In extreme cases, the registered shareholder(s) of Feihe E-Commerce will be removed and replaced;

• (c) Feihe E-Commerce shall submit copies of latest bank statements for every bank accounts of Feihe E-Commerce within 30 days after the end of each month; and

• (d) Feihe E-Commerce shall assist with and facilitate the Company's on-site internal audit.

Legal review

• (a) the Representative should consult the Company's PRC legal adviser from time to time to check if there are any legal developments in the PRC affecting the arrangements contemplated under the Structured Contracts, and should immediately report to the Board so as to allow the Board to determine if any modification or amendment is required to be made;

• (b) as part of the internal control measures, major issues arising from implementation and performance of the Structured Contracts will be reviewed by the Board on a regular basis, at least twice a year. The Board will determine, as part of its periodic review process, whether there is a need to employ legal advisors and/or other professionals to assist the Group to deal with specific issues arising from the Contractual Arrangements;

• (c) matters relating to compliance and regulatory enquiries from governmental authorities, if any, should be discussed by the Board on a regular basis, at least twice a year; and

• (d) the relevant business units and operation divisions of the Group should report regularly, at least once a month, to the senior management of the Company on the compliance and performance under the Structured Contracts and other related matters.

Compliance of the Contractual Arrangements with PRC Laws and Regulations

As confirmed by the management of Feihe E-Commerce, as of the date of this announcement, Feihe E-Commerce has not encountered any interference or encumbrance from any PRC governing bodies in operating its businesses through Feihe E-Commerce under the Contractual Arrangements.

The Board's view on the Contractual Arrangements

On the basis of the above, the Directors believe that the Contractual Arrangements, after becoming effective and upon the completion of equity pledge registration, will provide a mechanism which enables the Group to exercise effective control over and enjoy the economic interests and benefits of Feihe E-Commerce.

The Directors, including the independent non-executive Directors, are of the view that the terms of the Structured Contracts are entered into on normal commercial terms in the ordinary and usual course of business of the Company and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Consolidation of the Financial Results of Feihe E-Commerce

The Contractual Arrangements, upon becoming effective, would enable the Group to control over Feihe E-Commerce and receive all of the economic interests and returns generated by Feihe E-Commerce. It is currently expected that, after the Contractual Arrangements take effect, the financial results of Feihe E-Commerce will remained consolidated in the consolidated financial statements of the Group, and Feihe E-Commerce will remain the Group's subsidiary.

REASONS FOR AND BENEFITS OF THE CONNECTED TRANSACTION AND CONTRACTUAL ARRANGEMENTS

As at the date of this announcement, Feihe E-Commerce is mainly engaged in e-commerce services, including the operation of official accounts on social media, e-commerce platforms, and online customer services of the Group. The Group plans to develop online stores and online forums operations via Feihe E-Commerce, including specifically, (i) online maternal and child stores for members to shop online or redeem their membership points for products; (ii) maternal and child forums on which users are allowed to post text, pictures, videos and other information and to comment on the information posted by others; (iii) organization and management of member activities; and (iv) other functions, such as advertising.

However, as advised by the PRC Legal Adviser, the abovementioned Proposed Business falls within the scope of value-added telecommunications business and according to current PRC laws and regulations, and there are certain restrictions for foreign companies to invest in such businesses. The Connected Transaction will enable PRC residents to become shareholders of Feihe E-Commerce, which will qualify Feihe E-Commerce for applying for value-added telecommunications business operation licenses. By entering into the Contractual Arrangements, the Company could (through Feihe HLJ) have effective control over the operations and the entire economic interests and benefits of Feihe E-Commerce held by Mr. Leng, Mr. Liu, and Mr. Cai. Upon completion of the Connected Transaction and establishment of the Contractual Arrangements, the financial results of Feihe E-Commerce will remain consolidated in the financial statements of the Group, and Feihe E-Commerce will remain a subsidiary of the Company.

LISTING RULES IMPLICATIONS

Connected Transaction in Relation to the Disposal of 100% Equity Interests in Feihe E-Commerce

Given that Mr. Leng is a controlling Shareholder and Director of the Company, and that each of Mr. Liu and Mr. Cai is a Director of the Company, therefore, Mr. Leng, Mr. Liu and Mr. Cai are connected persons of the Company under Chapter 14A of the Listing Rules. In addition, Feihe HLJ is a wholly-owned subsidiary of the Company. Accordingly, the Connected Transaction constitutes a connected transaction of the Company.

Given that the maximum applicable percentage ratio (as defined in Rule 14.07 of the Listing Rules) of the Connected Transaction is less than 0.1%, the Connected transaction is fully exempt under Rule 14A.76 of the Listing Rules.

Contractual Arrangements

Given that Mr. Leng is a controlling Shareholder and Director of the Company, and that each of Mr. Liu and Mr. Cai is a Director of the Company, therefore, Mr. Leng, Mr. Liu and Mr. Cai are connected persons of the Company under Chapter 14A of the Listing Rules. In addition, Feihe HLJ is a wholly-owned subsidiary of the Company. Accordingly, the transactions contemplated under the Contractual Arrangements constitute continuing connected transactions of the Company.

As no consideration is involved in the continuing connected transactions under the Contractual Arrangements, the maximum applicable percentage ratio (as defined in Rule 14.07 of the Listing Rules) of the continuing connected transactions contemplated under the Contractual Arrangements is less than 0.1%, the continuing connected transactions contemplated under the Contractual Arrangements are fully exempt under Rule 14A.76 of the Listing Rules.

INFORMATION OF THE GROUP, FEIHE HLJ, FEIHE E-COMMERCE, MR. LENG, MR. LIU AND MR. CAI

The Group

The Company is an exempted company incorporated in the Cayman Islands with limited liability on 26 October 2012, and has its shares listed on the Main Board of the Stock Exchange. The Group is primarily engaged in the production and sales of a broad range of infant milk formula products.

Feihe HLJ

Feihe HLJ is a company incorporated in the PRC and an indirect wholly-owned subsidiary of the Company. It is mainly engaged in production and sales of a broad range of infant formula products.

Feihe E-Commerce

Feihe E-Commerce is a company incorporated in the PRC and will become wholly owned by Mr. Leng, Mr. Liu, and Mr. Cai upon completion of the Connected Transaction. As at the date of this announcement, Feihe E-Commerce is a wholly-owned subsidiary of Feihe HLJ and is mainly engaged in the e-commerce services, including the operation of official accounts on social media, e-commerce platforms, and online customer services of the Group.

Mr. Leng

Mr. Leng is a PRC citizen and the executive Director, chairman of the Board and chief executive officer of the Company. Upon completion of the Connected Transaction, Mr. Leng will be the registered owner of 90% equity interests in Feihe E-Commerce.

Mr. Liu

Mr. Liu is a PRC citizen and executive Director of the Company. Upon completion of the Connected Transaction, Mr. Liu will be the registered owner of 5% equity interests in Feihe E-Commerce.

Mr. Cai

Mr. Cai is a PRC citizen and executive Director of the Company. Upon completion of the Connected Transaction, Mr. Cai will be the registered owner of 5% equity interests in Feihe E-Commerce.

DEFINITIONS

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

"Board"	the board of directors of the Company
"Company"	China Feihe Limited, an exempted company incorporated in
the Cayman Islands with limited liability on 26 October 2012
"Connected Transaction"	the connected transaction in relation to the disposal of
100% equity interests of Feihe E-Commerce by Feihe HLJ
to Mr. Leng, Mr. Liu, and Mr. Cai under the Share Transfer
Agreement dated 2 March 2021
"Contractual Arrangements"	the contractual arrangements established by entering into the
Structured Contracts, enabling the Group to have effective
control over the operation of and the overall economic
interests and benefits in Feihe E-Commerce
"Director(s)"	director(s) of the Company
"Feihe E-Commerce"	Heilongjiang Feihe E-Commerce Co., Limited* (ලᎲϪ࠭ᚲ
ཥɿਠਕϞࠢʮ̡)
"Feihe HLJ"	Heilongjiang Feihe Dairy Co., Limited* (ලᎲϪ࠭ᚲԪุϞ
ࠢʮ̡), a wholly-owned subsidiary of the Company as of
the date of this announcement
"Group"	the Company and its subsidiaries
"Hong Kong"	the Hong Kong Special Administrative Region of the PRC
"Hong Kong Stock Exchange"	The Stock Exchange of Hong Kong Limited
or "Stock Exchange"
"Listing Rules"	the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited
"Mr. Cai"	Mr. Cai Fangliang (ᇹ˙Ԅ), an executive Director of the
Company. Upon completion of the Connected Transaction,
Mr. Cai will become the registered owner of 5% equity
interest in Feihe E-Commerce

"Mr. Leng"

Mr. Leng Youbin (иʾⅳ), an executive Director, the chairman of the Board and the chief executive officer of the Company. Upon completion of the Connected Transaction, Mr. Leng will be the registered owner of 90% equity interest in Feihe E-Commerce

"Mr. Liu"

Mr. Liu Hua (ᄎശ), an executive Director of the Company. Upon completion of the Connected Transaction, Mr. Liu will become the registered owner of 5% equity interest in Feihe E-Commerce

"PRC" or "China"

the People's Republic of China excluding, for the purposes of this announcement, Hong Kong, the Macau Special Administrative Region and Taiwan

"PRC Equity Owners"

Mr. Leng, Mr. Liu, and Mr. Cai, who holds 90%, 5% and 5% equity interests in Feihe E-Commerce upon completion of the Connected Transaction, respectively

"PRC Legal Adviser"

Jingtian & Gongcheng, the legal adviser to the Company as to the PRC laws

"Proposed Business"

"Representative"

the Group's proposed online stores and online forums operations to be developed via Feihe E-Commerce, including specifically, (i) online maternal and child stores for members to shop online or redeem their membership points for products; (ii) maternal and child forums on which users are allowed to post text, pictures, videos and other information

and to comment on the information posted by others; (iii)

organization and management of member activities; and (iv) other functions, such as advertising

a representative appointed by the Group to act as the executive director of Feihe E-Commerce

"Share Transfer Agreement"

"Shareholder(s)"

the share transfer agreement dated 2 March 2021 entered into by Feihe HLJ, Mr. Leng, Mr. Liu, and Mr. Cai shareholder(s) of the Company

"Structured Contracts"

collectively, (i) the Business Cooperation Agreement; (ii) the Exclusive Service Agreement; (iii) the Exclusive Call Option Agreement; (iv) the Shareholders' Rights Entrustment Agreement and the relevant Shareholders' Power of Attorney; (v) the Equity Pledge Agreement; (vi) the Loan Agreement; and (vii) the Spouse's Undertakings; and

"%"

Per cent.

*

For identification purpose only

In addition, the terms "substantial shareholder(s)", "connected person(s)", "connected transaction(s)" and "subsidiary(ies)" shall have the meanings ascribed thereto in the Listing Rules.

By Order of the Board

China Feihe Limited

LENG Youbin

Chairman

Beijing, China, 2 March 2021

As at the date of this announcement, the executive directors of the Company are Mr. LENG Youbin, Mr. LIU Hua, Mr. CAI Fangliang, Ms. Judy Fong-Yee TU and Mr. CHEUNG Kwok Wah; the non-executive directors are Mr. GAO Yu and Mr. Kingsley Kwok King CHAN; and the independent non-executive directors are Ms. LIU Jinping, Mr. SONG Jianwu, Mr. FAN Yonghong and Mr. Jacques Maurice LAFORGE.