China Shengmu Organic Milk : Announcements and Notices - (1) Investment Agreements and Formation of Joint Venture with Inner Mongolia Mengniu Dairy (group) Co., Ltd. and Major Transaction in Relation to Deemed Disposal of A Subsidiary and (2) Issue of Unlisted Warrants under Specific Mandate

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

This announcement appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of the Company.

CHINA SHENGMU ORGANIC MILK LIMITED ʕ਷໋ىϞዚุ̲Ϟࠢʮ̡

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1432)

(1) INVESTMENT AGREEMENTS AND FORMATION OF JOINT VENTURE WITH

INNER MONGOLIA MENGNIU DAIRY (GROUP) CO., LTD.

AND

MAJOR TRANSACTION IN RELATION TO

DEEMED DISPOSAL OF A SUBSIDIARY

AND

(2) ISSUE OF UNLISTED WARRANTS UNDER SPECIFIC MANDATE

INVESTMENT AGREEMENTS

The Board is pleased to announce that on 23 December 2018, among other parties, the Company and Inner Mongolia Mengniu entered into the Investment Agreements pursuant to which Inner Mongolia Mengniu has agreed to purchase the Sale Shares in the Target Company.

Pursuant to the Share Purchase Agreement, Shengmu Holding agreed to sell to Inner Mongolia Mengniu 26.67% interest in the Target Company, and Shengmu High-tech agreed to sell to Inner Mongolia Mengniu 24.33% interest in the Target Company. Upon completion of the Share Purchase Agreement, Inner Mongolia Mengniu and the Company will hold 51% and 49% interests in the Target Company respectively. The Target Company will cease to be recognised as a subsidiary in the consolidated financial statements of the Company, and is expected to be recognised as a subsidiary of Inner Mongolia Mengniu in their consolidated financial statements. The Company will retain an equity interest of 49% in the Target Company upon completion of the Share Purchase Agreement.

The consideration for the sale and purchase of the Sale Shares under the Share Purchase Agreement is RMB303,419,400 (equivalent to approximately HK$345,061,411.09) and Inner Mongolia Mengniu shall pay RMB158,650,667 (equivalent to approximately HK$180,424,267.62) and RMB144,768,733 (equivalent to approximately HK$164,637,143.47) to Shengmu Holding and Shengmu High-tech respectively. Among which RMB273,419,400 will be paid within five Business Days after the date of the Payment Confirmation Certificate and the remaining RMB30,000,000 will be paid within five Business Days from the first anniversary date of the Payment Confirmation Certificate, and both tranches of the consideration shall be paid to Shengmu High-tech and Shengmu Holding in accordance with their respective shareholdings in the Sale Shares.

WARRANT SUBSCRIPTION AGREEMENTS

The Board is also pleased to announce that on 23 December 2018, the Company entered into

(i) the Warrant Subscription Agreement A with the Subscriber A in consideration of Inner Mongolia Mengniu's granting the Loan Facilities to Shengmu High-tech, pursuant to which the Company has agreed, subject to the fulfilment of certain conditions precedent, to issue the Warrants A to the Subscriber A. Taken into account the Consideration Shares proposed to be issued under the Equity Transfer Framework Agreement, the Warrants A shall be issued in two tranches (including 1,080,248,000 Warrants in tranche 1 (the "Tranche 1 Warrants A") and 117,079,890 Warrants in tranche 2 (the "Tranche 2 Warrants A")) which confer the Subscription Rights of Warrants A on the Subscriber A to subscribe for up to 1,197,327,890 Warrant Shares A during the Subscription Period of Warrants A at the Subscription Price of Warrants A (subject to Adjustment of Warrants A); and

(ii) the Warrant Subscription Agreement B with the Subscriber B in consideration of HK$0.0427 per Warrant B, pursuant to which the Company has agreed, subject to the fulfilment of certain conditions precedent, to issue the Warrants B to the Subscriber B. Taken into account the Consideration Shares proposed to be issued under the Equity Transfer Framework Agreement, the Warrants B shall be issued in two tranches (including 127,088,000 Warrants in tranche 1 (the "Tranche 1 Warrants B") and 13,774,105 Warrants in tranche 2 (the "Tranche 2 Warrants B")) which confer the Subscription Rights of Warrants B on the Subscriber B to subscribe for up to 140,862,105 Warrant Shares B during the Subscription Period of Warrants B at the Subscription Price of Warrants B (subject to Adjustment of Warrants B).

No application will be made for the listing of the Warrants on any stock exchange. Application will be made by the Company to the Stock Exchange for the listing of, and permission to deal in, the Warrant Shares.

LISTING RULES IMPLICATIONS

Upon completion of the Share Purchase Agreement, the assets, liabilities and other financial results of the Target Company will no longer be consolidated into the consolidated financial statements of the Group. Accordingly, adopting 100% of the assets, revenue and profits of the Target Company in calculating the applicable percentage ratios set out in Rule 14.07 of the Listing Rules, the ratios are more than 25% but less than 75%, the Disposal constitutes a major transaction of the Company, and is subject to the reporting, announcement, shareholders' approval and circular requirements under Chapter 14 of the Listing Rules.

The issue of Warrants is in compliance with Rule 15.02 of the Listing Rules.

Pursuant to Rule 13.36(7) of the Listing Rules, the Company may not issue warrants to subscribe for (i) any new Shares of the Company or (ii) any securities convertible into new Shares of the Company, for cash consideration pursuant to a general mandate given under Rule 13.36(2)(b) of the Listing Rules. Therefore, the Warrant Shares to be issued upon exercise of the Warrants will be issued and allotted pursuant to the Specific Mandate to be sought from the Shareholders at the EGM.

IRREVOCABLE UNDERTAKINGS

Each of Nong You Co., Ltd., Yao Tongshan, Zhang Jiawang, Guo Yunfeng, Wang Zhen, Sequoia Capital 2010 CGF Holdco, Ltd., Gao Lingfeng, Wang Fuzhu and Wu Jianye has given an irrevocable undertaking in favour of the Company, China Mengniu, Inner Mongolia Mengniu and the Subscriber A that all voting rights attached to the Shares for which it/he/she is the sole beneficial owner of or is otherwise able to control the exercise of as at the date of the respective Irrevocable Undertakings A, are exercised in favour of the resolutions to approve the Share Purchase Agreement and the Warrant Subscription Agreement A.

The number of Shares held by Nong You Co., Ltd., Yao Tongshan, Zhang Jiawang, Guo Yunfeng, Wang Zhen, Sequoia Capital 2010 CGF Holdco, Ltd., Gao Lingfeng, Wang Fuzhu and Wu Jianye and which are the subject of the Irrevocable Undertakings A amounted to 3,033,691,000 Shares, representing approximately 47.74% of the total issued Shares of the Company as at the date of this announcement.

In addition, each of Nong You Co., Ltd., Yao Tongshan, Zhang Jiawang, Guo Yunfeng, Wang Zhen, Gao Lingfeng, Wang Fuzhu and Wu Jianye has given an irrevocable undertaking in favour of the Company that all voting rights attached to the Shares for which it/he/she is the sole beneficial owner of or is otherwise able to control the exercise of as at the date of the respective Irrevocable Undertakings B, are exercised in favour of the resolution to approve the Warrant Subscription Agreement B.

The number of Shares held by Nong You Co., Ltd., Yao Tongshan, Zhang Jiawang, Guo Yunfeng, Wang Zhen, Gao Lingfeng, Wang Fuzhu and Wu Jianye and which are the subject of the Irrevocable Undertakings B amounted to 2,655,371,000

Shares, representing approximately 41.79% of the total issued Shares of the Company as at the date of this announcement.

EGM

The Company will convene an EGM for the purpose of, among other things, obtaining the Shareholders' approval for the Share Purchase Agreement and the Warrant Subscription Agreements and the transactions contemplated thereunder. In accordance with the Listing Rules, the Subscriber A, which is interested in 4.25% shares in the Company as at the date of this announcement, and its associates will abstain from voting for the ordinary resolutions proposed at the EGM to approve the Share Purchase Agreement and the Warrant Subscription Agreements. In addition, the Warrant Subscription Agreement B is inter conditional to the Warrant Subscription Agreement A, the Subscriber B, which is interested in 6.22% shares in the Company as at the date of this announcement, and its associates will also abstain from voting for the ordinary resolutions proposed at the EGM to approve the Share Purchase Agreement and the Warrant Subscription Agreements.

DESPATCH OF CIRCULAR

A circular containing, among other things, (1) further information regarding the details of the Investment Agreements; (2) further information regarding the details of the Warrant Subscription Agreements; and (3) a notice of the EGM and other information as required under the Listing Rules is expected to be despatched to the Shareholders on or before 4 January 2019.

As each of the Share Purchase Agreement, the Warrant Subscription Agreement A and Warrant Subscription Agreement B is subject to the fulfilment of certain conditions precedent as set out in this announcement, the Share Purchase Agreement, the Warrant Subscription Agreement A and Warrant Subscription Agreement B may or may not become unconditional or be completed. Shareholders and potential investors should exercise caution when dealing in the Shares.

INTRODUCTION

The Board is pleased to announce that on 23 December 2018, the Company entered into (i) the Investment Agreements, among other parties, with Inner Mongolia Mengniu, pursuant to which Inner Mongolia Mengniu has agreed to purchase the Sale Shares in the Target Company; (ii) the Warrant Subscription Agreement A with the Subscriber A, pursuant to which the Company has agreed to issue to the Subscriber A, and the Subscriber A has agreed to subscribe for the Warrants A; and (iii) the Warrant Subscription Agreement B with the Subscriber B, pursuant to which the Company has agreed to issue to the Subscriber B, and the Subscriber B has agreed to subscribe for the Warrants B.

(1) THE INVESTMENT AGREEMENTS

THE SHARE PURCHASE AGREEMENT

Set out below is a summary of the principal terms of the Share Purchase Agreement:

Date:

23 December 2018

Parties:

• (1) Inner Mongolia Mengniu (as purchaser);

• (2) Shengmu Holding (as co-seller);

• (3) Shengmu High-tech (as co-seller);

• (4) the Target Company; and

• (5) the Company.

To the best of the Directors' knowledge, information and belief having made all reasonable enquiry, other than the 4.25% interest in the Company held by Subscriber A (which is a direct wholly-owned subsidiary of China Mengniu, which in turn held the entire equity interest in Inner Mongolia Mengniu) as at the date of this announcement, Inner Mongolia Mengniu and its ultimate beneficial owners are considered as third parties independent of and not connected with the Company and its connected persons.