EX-99.13

Exercise Price
(RMB per Share)

Number of
Outstanding
Options

EX-99.13 14 d571167dex9913.htm EX-99.13 EX-99.13

Exhibit 99.13

EXECUTION VERSION

IRREVOCABLE UNDERTAKING

To:

(1)	China Mengniu International Company Limited (the “Offeror”); and

(2)	China Mengniu Dairy Company Limited (“Mengniu”)

June 17, 2013

Dear Sirs:

We, CA Dairy Holdings (referred to herein as “we”, “us” or “our”), understand that the Offeror intends to make an offer to acquire all the issued share capital of Yashili International Holdings Limited (the “Company”) other than those shares already held by the Offeror and persons acting in concert with it) (the “Offer”), including shares to be issued upon exercise of share options which have been granted pursuant to the rules of the share options scheme adopted by the Company on October 8, 2010, as amended from time to time, which replaces the share options originally granted by Guangdong Yashili Group Co., Ltd. to the grantees on January 1, 2009 and August 1, 2010 and the share option scheme adopted by the Company on October 8, 2010, as amended from time to time, which is valid and effective for a period of 10 years from November 1, 2010 (the “Share Option Schemes”), substantially on the same terms of the attached announcement (the “Offer Announcement”) and otherwise as described in this undertaking. This undertaking sets out the terms and conditions on which we will accept the Offer when it is made.

1.	Shareholdings. We warrant to the Offeror and Mengniu that:

1.1.

we are the registered holder and beneficial owner of 853,631,240 ordinary shares in the capital of the Company (the “Relevant Shares”) and that we hold these shares free of any mortgage, charge, pledge, lien, option, restriction, right of first refusal, right of pre-emption, third-party right or interest, or other encumbrance or security interest having similar effect (“Encumbrance”); and

1.2.

we have no options, warrants or other rights to subscribe for, purchase or otherwise acquire any securities of the Company.

2.	Undertaking to accept the Offer. In consideration of the Offeror’s undertakings in Paragraph 6 (Offeror’s undertakings), we irrevocably undertake to the Offeror and Mengniu that we shall:

2.1.

as soon as possible and in any event by 4:00 p.m. on the business day after the date of despatch of the offer document in respect of the Offer (the “Offer Document”) and the formal document containing the proposal made by the Offeror to holders of the outstanding share options in compliance with Rule 13 of the Hong Kong Codes on Takeovers and Mergers (the “Codes”) (the “Despatch Date”), duly accept the Offer in respect of the Relevant Shares in accordance with the terms of the Offer and our obligations under this undertaking, and in doing so, sell as the beneficial owner, the Relevant Shares free and clear of any Encumbrance and together with all rights of any nature attaching thereto and shall

surrender the relevant share certificate(s) at the time of such acceptance by forwarding them to the Offeror (or providing a form of indemnity acceptable to the directors of the Company in respect of any lost certificate(s) at the time of such acceptance) or deliver or cause to be delivered to the Offeror irrevocable instructions to deliver the Relevant Shares to the Offeror or on its behalf through CCASS in accordance with the terms and conditions set out in the Offer Document;

2.2.

in accepting the Offer, elect for the Cash Option (as such term is defined in the Offer Announcement); and

2.3.

upon the Offer becoming or being declared unconditional in all respects, procure that Zhang Chi and Chang Herman Hsiu-Guo shall each resign as a director of the Company with effect from the earliest time permitted under the Codes or by the Securities and Futures Commission (the “SFC”), without any claim for compensation for loss of office.

No withdrawal of the Offer. We irrevocably undertake to the Offeror and Mengniu that we will not withdraw any acceptance of the Offer in respect of the Relevant Shares, notwithstanding any withdrawal rights that may be afforded to shareholders of the Company under the Codes or in the terms and conditions of the Offer.

4.	Dealings. We further irrevocably undertake to the Offeror and Mengniu that we shall not, before the Offer closes, lapses or is withdrawn, other than pursuant to the Offer:

4.1.

sell, transfer, charge, encumber, grant any option over (or cause the same to be done) or otherwise dispose of (whether directly or indirectly) any interest in the Relevant Shares (other than to the Offeror);

4.2.

acquire, directly or indirectly, any additional shares, securities or other interests of the Company. If despite the foregoing sentence, we voluntarily or involuntarily receive, are allotted, or otherwise acquire any additional interest in shares, securities or other interests of the Company, such shares, securities or interests shall be deemed to be Relevant Shares for the purpose of this undertaking; or

4.3.

take any action or enter into any agreement or arrangement, including through its representation on the Company’s board of directors (and whether or not legally binding or subject to any condition or which is to take effect after the Offer closes or lapses), or permit any agreement or arrangement to be entered into or authorize or incur any obligation which, in relation to the Relevant Shares, would or might restrict or impede its accepting the Offer.

Documentation. Provided that we have a reasonable opportunity to review the drafts of the Offer Announcement and the Offer Document, we consent to the issue of the Offer Announcement and Offer Document incorporating references to us and to this undertaking and our holdings of, and dealings in, relevant securities of the Company and Mengniu (reflecting such changes as we may reasonably request) and we acknowledge that, if the Offer is made, this undertaking will be made available for inspection during the offer period and the particulars of it will be contained in the Offer Document to the extent required by the Codes and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). We shall, as soon as reasonably practicable, give you all information and assistance as you may reasonably require for the preparation of the Offer Document and all related ancillary documents in order to comply with the requirements of the Codes, the SFC, The Stock Exchange of Hong Kong Limited (“Stock Exchange”) and any other legal regulatory requirement or body.

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6.	Offeror’s undertakings. The Offeror irrevocably undertakes to us, and Mengniu agrees to procure, that the Offeror shall, subject to Paragraphs 2 (Undertaking to accept the Offer) and 10 (Revised Offer):

6.1.

at the Offeror’s own costs and in accordance with the Codes, publish the Offer Announcement substantially in the form contained in Schedule 1 (including a Cash Option of HK$3.50 per share and a condition to the Offer that valid acceptances of the Offer are received by 4.00 p.m. on the Closing Date (as defined in the Offer Announcement) (or such later time or date as the Offeror may, subject to the rules of the Codes, decide) in respect of such number of shares which will result in the Offeror and persons acting in concert with it holding at least seventy- five per cent. (75%) of the voting rights in the Company) as soon as reasonably practicable following the signing of this undertaking and clearance from the SFC and the Stock Exchange to publish the Offer Announcement;

6.2.

at the Offeror’s own costs and in accordance with the Listing Rules, despatch to the shareholders of Mengniu as soon as reasonably practicable a circular containing, among other things, details of the Offer and a notice convening an extraordinary general meeting of Mengniu for the purpose of considering and, if thought fit, approving the making of the Offer as a “major transaction” under the Listing Rules; and

6.3.

at the Offeror’s own costs and in accordance with the Codes, despatch the Offer Document in respect of the Offer to the shareholders of the Company on the Despatch Date.

7.	Warranties.

7.1.

We hereby warrant to the Offeror in the terms of the Warranties set out in Schedule 2 as at the date of this undertaking and as at the date on which the Offer becomes wholly unconditional, by reference to the facts and circumstances existing as at the respective dates.

7.2.

The Offeror and Mengniu hereby warrant to us in the terms of the Warranties set out in Schedule 3 as at the date of this undertaking and as at the date on which the Offer becomes wholly unconditional, by reference to the facts and circumstances existing as at the respective dates.

8.	Termination.

8.1.

This undertaking shall terminate immediately if:

8.1.1.

the Offeror fails to publish the Offer Announcement in accordance with Paragraph 6.1 within one business day of the date of this undertaking;

8.1.2.

the Offeror fails to despatch the Offer Document on the Despatch Date in accordance with Paragraph 6.3; or

8.1.3.

the Offer lapses.

8.2.

If either:

8.2.1.

the shareholders of Mengniu fail to approve the making of the Offer as a “major transaction” pursuant to the Listing Rules at the extraordinary general meeting convened in accordance with Paragraph 6.2; or

8.2.2.

the Offer has not become wholly unconditional by 10 September 2013,

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we may, in our sole discretion, terminate this undertaking by providing written notice to each of the Offeror and Mengniu.

8.3.

In the event of the termination of this undertaking in accordance with its terms, this undertaking shall terminate in all respects with immediate effect, and neither we nor yourselves shall have any claim under this undertaking against the other party, save that Paragraphs 9 (Confidential Information) and 13 (Governing Law) shall continue to apply in full force and effect thereafter.

Confidential Information. Each party to this undertaking hereby undertakes that except as required by the applicable laws and regulations, it shall keep secret the possibility, terms and conditions of the Offer and the existence and terms of this undertaking until the Offer Announcement is released; provided that it may disclose the same to its employees, affiliates, affiliates’ employees and advisers in which case it shall procure that they each observe secrecy in the same terms.

10.	Revised Offer

10.1.

Without prejudice to the provisions of Paragraph 2 (Undertaking to accept the Offer), this undertaking will extend to any revised or improved cash offer or cash offers by or on behalf of the Offeror and all references to the “Offer” in this undertaking shall be construed accordingly. The Offeror shall not revise or amend those terms and conditions of the Offer set out in the Offer Announcement without our prior consent.

11.	In accordance with Rule 16.1 of the Codes, if, in the course of the Offer, the Offeror revises the terms of the Offer, we, whether or not we have already accepted the Offer, will be entitled to the revised or improved terms of the Offer.

12.

Specific Performance. Each party agrees that, if it fails to perform any of the undertakings under Paragraphs 2 (Undertaking to accept the Offer), 3 (No withdrawal of the Offer), 4 (Dealings), 6 (Offeror’s undertakings), 9 (Confidential Information) or 10 (Revised Offer), or breaches any of its obligations thereunder, damages would not be an adequate remedy and accordingly the parties to whom any such unperformed or breached obligation is owed shall be entitled to the remedy of specific performance.

13.

Further assurance. Each of the Offeror and Mengniu shall from time to time and at their own expense use their respective reasonable endeavours to do, execute and deliver or procure to be done all such further acts, documents and things as may reasonably be required to cause the Offer to become wholly unconditional on or before 10 September 2013.

14.	Assignment. This undertaking is personal to the parties to it. Neither ourselves nor yourselves shall assign, transfer, declare a trust of the benefit of or in any other way alienate any of its rights under this undertaking whether in whole or in part.

15.

Costs

15.1.

Except where this undertaking provides otherwise, each party shall pay its own costs relating to the negotiation, preparation, execution and performance by it of this undertaking.

15.2.

Any stamp duty payable in connection with the acceptance of the Offer in respect of the Relevant Shares shall be borne by the Offeror and ourselves in equal shares.

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16.

Entire Agreement. This undertaking, the Offer Announcement and the Offer Document constitute the entire agreement and supersede any previous agreement between the Offeror and/or any of its agents or advisers (on the one hand) and ourselves and our agents or advisers (on the other hand), in each case, relating to the Offer.

17.	General

17.1.

Variation or amendment

A variation of or amendment to this undertaking is only valid if it is in writing and signed by or on behalf of each party.

17.2.

Failure or delay in exercise of rights

The failure to exercise or delay in exercising a right or remedy provided by this undertaking or by law does not impair or constitute a waiver of the right or remedy or an impairment of or a waiver of other rights or remedies. No single or partial exercise of a right or remedy provided by this undertaking or by law prevents further exercise of the right or remedy or, the exercise of another right or remedy.

17.3.

Severability

If at any time any provision of this undertaking is or becomes illegal, invalid or unenforceable under the laws of any jurisdiction, that provision shall not affect:

17.3.1.

the legality, validity or enforceability in that jurisdiction of any other provision of this undertaking; or

17.3.2.

the legality, validity or enforceability under the law of any other jurisdiction of that or another provision of this undertaking.

17.4.

Counterparts

This undertaking may be executed in any number of counterparts and by the parties on separate counterparts, each of which is an original but all of which together constitute one and the same instrument. Delivery of a counterpart of this undertaking by e-mail attachment or telecopy shall be an effective mode of delivery.

18.

Governing Law and Jurisdiction. This undertaking is governed by Hong Kong law. The courts of Hong Kong have exclusive jurisdiction to settle any dispute arising from or connected with this undertaking including a dispute regarding the existence, validity or termination of this undertaking or the consequences of its nullity. Process by which any proceedings are begun may be served on us by being served on Carlyle Asia Investment Advisors Limited at Level 28, Two Pacific Place, 88 Queensway, Hong Kong, marked for the attention of Mr. Wayne Bannon. Process by which any proceedings are begun may be served on the Offeror by being served on China Mengniu Dairy Co. Ltd., marked for the attention of the Company Secretary.

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SCHEDULE 1

OFFER ANNOUNCEMENT

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S&C Draft of June 17, 2013

PRIVILEGED AND CONFIDENTIAL

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 is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of the Target or the Offeror nor shall there be any sale, purchase or subscription for securities of the Target or the Offeror in any jurisdiction in which such offer, solicitation or sale would be unlawful absent the filing of a registration statement or the availability of an applicable exemption from registration or other waiver. This announcement is not for release, publication or distribution in or into any jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction.




China Mengniu Dairy Company Limited		Yashili International Holdings Ltd
(Incorporated in the Cayman Islands with limited liability)		(Incorporated in the Cayman Islands with limited liability)
(Stock Code: 2319)		(Stock Code: 1230)

China Mengniu International Company Limited

(Incorporated in the British Virgin Islands with limited liability)

JOINT OFFER ANNOUNCEMENT

(1) VOLUNTARY GENERAL OFFER ON BEHALF OF

CHINA MENGNIU INTERNATIONAL COMPANY LIMITED

FOR YASHILI INTERNATIONAL HOLDINGS LTD

(2) MAJOR TRANSACTION OF

CHINA MENGNIU DAIRY COMPANY LIMITED

(3) RESUMPTION OF TRADING IN THE SHARES OF

YASHILI INTERNATIONAL HOLDINGS LTD AND

CHINA MENGNIU DAIRY COMPANY LIMITED, RESPECTIVELY

[(4) APPOINTMENT OF INDEPENDENT FINANCIAL ADVISER

TO THE INDEPENDENT BOARD COMMITTEE OF

YASHILI INTERNATIONAL HOLDINGS LTD]

Lead Financial Adviser to the Offeror Group

LOGO


Joint Financial Adviser to the Offeror Group		Joint Financial Adviser to the Offeror Group

LOGO

[Independent Financial Adviser to the Independent Board Committee]

[Target to coordinate with Somerley to provide Somerley’s logo]

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INTRODUCTION

The Offeror Parent, the Offeror and the Target jointly announce that UBS will, on behalf of the Offeror, make a voluntary general offer (i) to acquire all of the outstanding Shares in the issued share capital of the Target; and (ii) to cancel all of the outstanding Options of the Target.

On June [17], 2013, each of Zhang International, the controlling shareholder of the Target, and CA Dairy, a company wholly owned by Carlyle Asia Partners III L.P. and CAP III Co-investment L.P., executed an irrevocable undertaking in favour of the Offeror and the Offeror Parent, pursuant to which Zhang International has irrevocably undertaken to the Offeror and the Offeror Parent to accept the Share Offer in respect of all of the 1,826,808,760 Shares owned by Zhang International and CA Dairy has irrevocably undertaken to the Offeror and the Offeror Parent to accept the Share Offer in respect of all of the 853,631,240 Shares owned by CA Dairy.

THE OFFERS

The Offers will be made by UBS on behalf of the Offeror on the following basis:

The Share Offer:

Under the Share Offer, Shareholders accepting the Share Offer will have a choice of either:

(a) for each Share, HK$[3.50] in cash (the “Cash Option”); or

(b) for each Share, HK$[2.82] in cash and [0.681] Offeror Share in the Offeror, which is a private company set up by the Offeror Parent for the sole purpose of holding Shares in the Target (the “Cash and Share Option”).

The Shares to be acquired under the Share Offer shall be fully paid and shall be acquired free from all liens, charges, encumbrances, rights of pre-emption and any other third party rights of any nature and together with all rights attaching to them as at the Closing Date or subsequently becoming attached to them, including the right to receive in full all dividends and other distributions, if any, declared, made or paid on or after the Closing Date.

The Offeror Shares to be issued under the Share Offer will be issued free from all encumbrances, credited as fully-paid, non-assessable, and will rank pari passu with all issued shares in the Offeror, including the Subscriber Share, including the right to receive in full all dividends and other distributions, if any, declared, made or paid on or after the date of their issue. Fractions of Offeror Shares are to be rounded up to the nearest whole number.

The Share Offer Price of HK$[3.50] per Share represents a premium of approximately [9.4]% over the closing price of HK$[3.20] per Share as quoted on the Stock Exchange on the Last Trading Date.

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The Option Offer:

Under the Option Offer, appropriate offers will be made to the Optionholders in accordance with Rule 13 of the Takeovers Code to cancel all outstanding Options in exchange for cash:


(A)	In respect of Options with an exercise price of RMB0.11:

	For cancellation of each such Option	HK$	[3.361] in cash	*

(B)	In respect of Options with an exercise price of HK$1.50:

	For cancellation of each such Option	HK$	[2.00] in cash

(C)	In respect of Options with an exercise price of RMB1.84:

	For cancellation of each such Option	HK$	[1.171] in cash	*

The Option Offer will be conditional upon the Share Offer becoming or being declared unconditional in all respects. Further information on the Option Offer will be set out in the formal document in respect of the Option Offer which will be sent to Optionholders on the Despatch Date.

*	The exchange rate of HK$[1.266] to RMB1.00 as at June [—], 2013 quoted on Factset

Value of the Offers

On the assumption that no outstanding Options are exercised prior to the Closing Date and on the assumption that all Shareholders accept the Share Offer and opt for the Cash Option (other than Zhang International, which has committed, pursuant to the Zhang Irrevocable Undertaking, to opt for the Cash and Share Option for all of the Shares held by it), the Offers are valued at approximately HK$[11,350,410,155] and [1,244,056,766] Offeror Shares in aggregate.

On the assumption that all of the outstanding Options are exercised in full prior to the Closing Date and on the assumption that all Shareholders accept the Share Offer and opt for the Cash Option (other than Zhang International, which has committed, pursuant to the Zhang Irrevocable Undertaking, to opt for the Cash and Share Option for all of the Shares held by it), the Offers are valued at approximately HK$[11,398,684,966] and [1,244,056,766] Offeror Shares in aggregate on a fully-diluted basis.

CONDITIONS TO THE SHARE OFFER

The Share Offer is subject to the following Conditions:

(a)

valid acceptances of the Share Offer being received (and not, where permitted, withdrawn) by 4:00 p.m. on the Closing Date (or such later time or date as the Offeror may, subject to the rules of the Takeovers Code, decide) in respect of such number of Shares which will result in the Offeror and persons acting in concert with it holding at least 75% of the voting rights in the Target;

(b)

the Shares remaining listed and traded on the Stock Exchange up to the Closing Date (or, if earlier, the Unconditional Date) save for any temporary suspension(s) of trading of the Shares as a result of the Offers and no indication being received on or before the Closing Date (or, if earlier, the Unconditional Date) from the SFC and/or the Stock Exchange to the effect that the listing of the Shares on the Stock Exchange is or is likely to be withdrawn, other than as a result of either of the Offers or anything done or caused by or on behalf of the Offeror Parent, the Offeror or their respective Concert Parties;

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(c)

(i) all Consents as are necessary for the consummation of the transactions contemplated in the Irrevocable Undertakings and the Offers and in connection with, including, without limitation, any change in the direct or indirect shareholder(s) or ultimate controlling shareholder(s) of any member of the Target Group that has been granted the Consents to carry out its operations having been obtained and remaining in full force and effect without material variation from all Relevant Authority(ies) and all conditions (if any) to such Consents having been fulfilled; (ii) each member of the Target Group possessing or having obtained all Consents from the Relevant Authority(ies) that are necessary to carry on its business; and (iii) all mandatory Consents from third parties having been obtained for the acquisition of the Shares under the Offers;

(d)	no event having occurred which would make the Offers or the acquisition of any of the Shares under the Share Offer void, unenforceable or illegal or prohibit implementation of the Offers or the transactions contemplated under the Irrevocable Undertakings;

(e)

no Relevant Authority(ies) in the PRC, Hong Kong, Cayman Islands and the British Virgin Islands having taken or instigated any action, proceeding, suit, investigation or enquiry, or enacted or made or proposed, and there not continuing to be outstanding, any statute, regulation, demand or order that would make the Offers or the acquisition of any of the Shares under the Offers void, unenforceable or illegal or prohibit the implementation of, or which would impose any material conditions, limitations or obligations with respect to, the Offers or the transactions contemplated under the Irrevocable Undertakings (other than such items or events above as would not have a material adverse effect on the legal ability of the Offeror to proceed with or consummate the Offers and the transactions contemplated under the Irrevocable Undertakings);

(f)

since the date of the last audited consolidated financial statements of the Target, there having been no change, effect, fact, event or circumstance which has had or would reasonably be expected to have a material adverse effect on, or to cause a material adverse change in, the general affairs, management, financial position, business, prospects, conditions (whether financial, operational, legal or otherwise), earnings, solvency, current or future consolidated financial position, shareholders’ equity or results of operations of the Target Group as a whole, whether or not arising in the ordinary course of business;

(g)	no changes having been made to any terms of the Pre-IPO Share Option Scheme or the Share Option Scheme (either formally or as a result of the exercise by the Target’s remuneration committee of its discretion) from the date of this announcement;

(h)

other than the final dividend of the Target of RMB11.31 cents per Share declared for the year ended December 31, 2012 and the special dividend of RMB28.25 cents per Share declared for the year ended December 31, 2012 by the Target, no dividends having been declared or paid by the Target and, save in respect of any indebtedness incurred in relation to projects of the Target Group that have been publicly announced prior to the date of this announcement, no indebtedness being incurred by the Target other than in the ordinary course of business consistent with the Target’s past practices; and

(i)	with respect to the Offeror Parent, the obtaining of approval at an EGM of the Offeror Parent in relation to the making of the Offers (including the signing and completion of the Irrevocable Undertakings) as a “major transaction” pursuant to the Listing Rules.

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The Offeror reserves the right to waive, in whole or in part, all or any of the Conditions set out above save that (i) Condition (a) may only be waived if the Offeror receives acceptances in respect of the Share Offer which would result in the Offeror Parent, the Offeror and their respective Concert Parties holding more than 50% of the voting rights in the Target; and (ii) Conditions (d) and (i) cannot be waived.

Pursuant to Note 2 to Rule 30.1 of the Takeovers Code, the Offeror should not invoke any of the Conditions so as to cause the Offers to lapse unless the circumstances which give rise to the right to invoke any such Condition are of material significance to the Offeror and the Offeror Parent in the context of the Offers.

In accordance with Rule 15.3 of the Takeovers Code, the Offeror must publish an announcement when the Share Offer becomes or is declared unconditional as to acceptances and when the Share Offer becomes or is declared unconditional in all respects. The Offers must also remain open for acceptance for at least fourteen (14) days after the Offers become unconditional. Shareholders and Optionholders are reminded that the Offeror does not have any obligation to keep the Offers open for acceptance beyond this 14-day period.

WARNING: Shareholders, Optionholders and potential investors should be aware that the Share Offer is subject to the satisfaction or waiver (where applicable) of the Conditions, and the Option Offer is subject to and conditional upon the Share Offer becoming or being declared unconditional in all respects. Accordingly, the Offers may or may not become unconditional. Shareholders, Optionholders and potential investors should therefore exercise caution when dealing in the Shares, exercising the Options or other rights in respect of any of them. Persons who are in doubt as to the action they should take should consult their stockbroker, bank manager, solicitor or other professional advisers.

IRREVOCABLE UNDERTAKINGS

[Offeror to confirm]

On June [17], 2013, each of Zhang International (owner of 1,826,808,760 Shares, representing approximately [51.3%] of the issued share capital of the Target as at the date of the Zhang Irrevocable Undertaking) and CA Dairy (owner of 853,631,240 Shares, representing approximately [24.0%] of the issued share capital of the Target as at the date of the CA Dairy Irrevocable Undertaking) executed an irrevocable undertaking in favour of the Offeror and the Offeror Parent (respectively, the Zhang Irrevocable Undertaking and the CA Dairy Irrevocable Undertaking), pursuant to which Zhang International has irrevocably undertaken to the Offeror and the Offeror Parent to accept the Share Offer in respect of all of the 1,826,808,760 Shares owned by Zhang International and CA Dairy has irrevocably undertaken to the Offeror and the Offeror Parent to accept the Share Offer in respect of all of the 853,631,240 Shares owned by CA Dairy, in each case as soon as possible and in any event by 4:00 p.m. on the Business Day after the Despatch Date.

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Zhang International has committed to accept the Cash and Share Option in respect of all of the 1,826,808,760 Shares owned by it as at the date of the Zhang Irrevocable Undertaking.

CA Dairy has committed to accept the Cash Option in respect of all of the 853,631,240 Shares owned by it as at the date of the CA Dairy Irrevocable Undertaking.

Accordingly, pursuant to the Share Offer, the Offeror will acquire from Zhang International 1,826,808,760 Shares for a total consideration of approximately HK$[5,151,600,703] and [1,244,056,766] Offeror Shares, and from CA Dairy 853,631,240 Shares for a total consideration of approximately HK$[2,987,709,340].

The Irrevocable Undertakings will be terminated and the respective obligations of Zhang International and CA Dairy under the Irrevocable Undertakings (as applicable) shall lapse and terminate if (i) the Offeror fails to despatch the Composite Document on the Despatch Date; or (ii) the Share Offer lapses.

[Each of Zhang International and CA Dairy may, in its respective sole decision, terminate its Irrevocable Undertaking with immediate effect if (i) the shareholders of the Offeror Parent fail to approve the making of the Offers (including the signing and completion of the Irrevocable Undertakings) as a “major transaction” pursuant to the Listing Rules; or (ii) the Offers are not declared unconditional in all respects by September 10, 2013.]

INTENTIONS OF THE OFFEROR PARENT IN RELATION TO THE TARGET GROUP

The Offeror is set up by the Offeror Parent for the sole purpose of holding Shares in the Target and will not engage in any business other than acting as the holding company of the Target.

After completion of the Offers, the Offeror Parent will review the businesses of the Target Group, including among others, the Target Group’s relationships with its distributors and suppliers, portfolio of products, assets, corporate and organizational structure, capitalization, operations, policies, management and personnel to consider and determine what changes, if any, would be necessary, appropriate or desirable, long term and short term, in order to best organize and optimize the businesses and operations of the Target Group and to integrate the same within the Offeror Group. The Offeror Parent intends that the Target Group will continue to operate its business in substantially its current state. However, the Offeror Parent reserves the right to make any changes that it deems necessary or appropriate to the Target Group’s businesses and operations to better integrate, generate maximum synergy and achieve enhanced economies of scale with the other operations of the Offeror Group.

If the Target continues to maintain its listing status on the Stock Exchange following closing of the Offers, the Offeror Parent expects that the dividend policy of the Target will be substantially consistent with its past practices since its listing on the Stock Exchange.

LOCK-UP PERIOD

Other than through the re-listing of the business of the Target as described in the section headed “Compulsory Acquisition and Withdrawal of Listing” and the charging or pledging of shares in the

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Offeror by the Offeror Parent in connection with the financing of the Offers, for a period of three (3) years following the Unconditional Date (the “Lock-Up Period”), the shareholders of the Offeror may not dispose of, or enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the Offeror Shares issued to it under the Offers or otherwise (together, the “Lock-Up Restrictions”) unless otherwise approved by the board of directors of the Offeror in writing. In addition, the Shares acquired by shareholders of the Offeror through the repurchase option set out in the section headed “Listing Status of the Target” shall be subject to the same restrictions as the Lock-Up Restrictions during the Lock-Up Period. If either (a) the repurchase of Offeror Shares as set out in the sections headed “Listing Status of the Target”, “Compulsory Acquisition and Withdrawal of Listing” and “Right to exit in Change of Control” is not permitted by applicable laws or regulations or (b) there is a Change of Control of the Offeror or the Target, then the Lock-Up Restrictions shall lapse.

Zhang International has also undertaken in the Zhang Irrevocable Undertaking that from the date of the Zhang Irrevocable Undertaking until a period of three (3) years from the date of Completion, it will not register the transfer of any of its issued share capital or otherwise issue, allot or agree to issue or allot any shares, securities or other interests in its share capital or loan capital or otherwise recognize any economic interests in its equity asserted by a person other than any member of the Zhang’s Family (the “Zhang International Lock-Up”). If the Lock-Up Restrictions lapse, then the Zhang International Lock-Up shall also lapse. The Zhang International Lock-Up forms part of the Zhang Irrevocable Undertaking and will terminate in the event that the Zhang Irrevocable Undertaking is terminated in accordance with its terms.

LISTING STATUS OF THE TARGET

If the Offeror does not acquire the requisite percentage of the Shares to enable it to compulsorily acquire all the issued Shares under Cayman Islands Companies Law and the Takeovers Code as detailed in the section headed “Compulsory Acquisition and Withdrawal of Listing” within four (4) months after posting of the Composite Document, its intention is to maintain the listing status of the Target on the Stock Exchange. Accordingly, assuming the Share Offer becomes or is declared unconditional in all respects but the Offeror does not effect the compulsory acquisition, the Offeror will undertake to the Stock Exchange to take appropriate steps following the close of the Offers to ensure that such number of Shares as may be required by the Stock Exchange are held by the public within the prescribed time frame. Any future transactions between the Target Group and the Offeror Group will be carried out on an arm’s length basis and in compliance with the Listing Rules.

[In the event that the Target continues to maintain its listing status on the Stock Exchange following the close of the Offers, each shareholder of the Offeror (other than the Offeror Parent) will have an option to, at any time, require the Offeror to, and upon exercise of such option by any such shareholder the Offeror shall, repurchase the Offeror Shares held by the such shareholder by exchanging all (but not part only) of the Offeror Shares to be repurchased with such shareholder’s proportionate interest in the Target held through the Offeror, subject to applicable laws and regulations in relation to the repurchase of its own shares by the Offeror. As described in the section headed “Lock-Up Period” in this announcement, the Shares as exchanged and to be held by such shareholder shall be subject to the same restrictions as the Lock-Up Restrictions during the Lock-Up Period.] [Offeror to confirm] Details of the procedures for such exchange will be set out in the Composite Document.

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[COMPULSORY ACQUISITION AND WITHDRAWAL OF LISTING

To the extent applicable and pursuant to the compulsory acquisition power under section 88 of the Cayman Islands Companies Law, if the Offeror, within four months of the posting of the Composite Document, acquires not less than 90% of the Shares, the Offeror intends to (but is not obliged to) compulsorily acquire those Shares not acquired by the Offeror under the Share Offer. If the Offeror decides to exercise such right and completes the compulsory acquisition, the Target will become a wholly-owned subsidiary of the Offeror and an application will be made for the withdrawal of the listing of the Shares from the Stock Exchange pursuant to Rule 6.15 of the Listing Rules.

Pursuant to Rule 2.11 of the Takeovers Code, except with the consent of the Executive, where the Offeror seeks to acquire or privatize the Target by means of the Share Offer and the use of compulsory acquisition rights, such rights may only be exercised if, in addition to satisfying any requirement imposed by the Cayman Islands Companies Law, acceptance of the Share Offer and purchases made by the Offeror and its Concert Parties during the four months after posting of the Composite Document total 90% or more of the disinterested Shares (as defined in the Takeovers Code).

[The Offeror Parent undertakes (for itself and the Offeror Group) that if the Offeror exercises its right of compulsory acquisition and the Target withdraws its listing status on the Stock Exchange, the Offeror Parent will use its commercially reasonable efforts to effect a re-listing of the business of the Target Group within five (5) years from the date on which the Target withdraws its listing status on the Stock Exchange. If the Target withdraws its listing status on the Stock Exchange and there is to be a re-listing of the Target Group’s business (whether alone or together with any other assets or businesses) at any time while a person still holds Offeror Shares (such shareholder a “Relevant Shareholder”), then prior to the listing of the entity that holds all or a substantial part of the Target Group’s business (“New Listco”), each Relevant Shareholder shall have the right at any time to require the Offeror to, and the Offeror shall, repurchase the Offeror Shares held by the Relevant Shareholder (the “Relevant Offeror Shares”) by exchanging all (but not part only) of the Relevant Offeror Shares with such number of shares in New Listco as represent a fair valuation of the Relevant Offeror Shares; provided that, if there is a pre-IPO restructuring in which the Offeror Shares held by the Offeror Parent are exchanged for shares in New Listco, then each Relevant Shareholder shall have the right to exchange its Relevant Offeror Shares for shares in New Listco at the same exchange ratio as the Offeror Parent and that shall be deemed to be a fair valuation of the Relevant Offeror Shares.]

If the Offeror exercises its right of compulsory acquisition and the Target withdraws its listing status on the Stock Exchange, for a period from the expiry of the Lock-Up Period until the earlier of (i) ten (10) years from the date of the expiry of the Lock-up Period; and (ii) the date of the listing of New Listco, each shareholder of the Offeror shall have the right to, upon the expiry of the Lock-Up Period, at any time require the Offeror to, and the Offeror shall, repurchase all (but not part only) of the Offeror Shares such shareholder holds at a price per Offeror Share which is equivalent to twenty (20) times of the earnings per Offeror Share for the financial year immediately preceding the shareholder’s exercise of such right. Such earnings per Offeror Share shall be calculated by dividing the audited net income of the Offeror during the financial year immediately preceding the shareholder’s exercise of such right by the weighted average number of Offeror Shares in issue during such period, subject to applicable laws and regulations in relation to repurchase of its own shares by the Offeror.]

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WARNING: If the listing status of the Target on the Stock Exchange is withdrawn, there is no assurance that all or a substantial part of the businesses of the Target Group will be re-listed on any stock exchange within five (5) years from the date on which the Target withdraws its listing status on the Stock Exchange, or ten (10) years from the date of the expiry of the Lock-Up Period or at all. Shareholders who accept the Share Offer should therefore exercise full care and caution in determining, and should give careful consideration as to, whether the Cash and Share Option is suitable for them.

WARNING: If the level of acceptances of the Share Offer reaches the prescribed level under the Cayman Islands Companies Law required for compulsory acquisition and the requirements of Rule 2.11 of the Takeovers Code are satisfied, dealings in the Shares will be suspended from the Closing Date up to the withdrawal of listing of the Shares from the Stock Exchange pursuant to Rule 6.15 of the Listing Rules.

FINANCING RESOURCES AVAILABLE TO THE OFFEROR

The Offeror intends to finance the consideration payable by the Offeror under the Offers from external financing to be provided to the Offeror Group. UBS has been appointed as the lead financial adviser, and HSBC and Standard Chartered have been appointed as joint financial advisers, to the Offeror Group in respect of the Offers. UBS, HSBC and Standard Chartered are satisfied that sufficient financial resources are, and will remain, available to the Offeror to satisfy full acceptance of the Offers.

INDEPENDENT BOARD COMMITTEE [AND INDEPENDENT FINANCIAL ADVISER]

An Independent Board Committee of the Target, which comprises all of the independent non-executive directors of the Target, has been established by the Target Board to make a recommendation to the Shareholders as to whether the Share Offer is, or is not, fair and reasonable and as to acceptance and to the Optionholders as to its views on the Option Offer. [In addition, as approved by the Independent Board Committee, an independent financial adviser, [Somerley Limited], has been appointed to advise the Independent Board Committee in connection with the Share Offer and the Option Offer. / An independent financial adviser will be appointed (with the approval of the Independent Board Committee) to advise the Independent Board Committee in connection with the Share Offer and the Option Offer.]

LISTING RULES IMPLICATIONS FOR THE OFFEROR PARENT

Based on the calculation of the relevant percentage ratios under Chapter 14 of Listing Rules, the Offers will constitute a major transaction for the Offeror Parent as at least one of the applicable percentage ratios is 25% or more but less than 100%. Therefore, the making of the Offers are subject to the reporting, announcement and shareholders’ approval requirements of Chapter 14 of the Listing Rules.

The EGM will be held to consider and, if thought fit, pass the requisite resolution(s) to approve the making of the Offers (including the Irrevocable Undertakings and the transactions contemplated thereunder). So far as the Offeror Parent is aware, none of its shareholders will be required to abstain from voting at the EGM.

A circular containing, among other things, details of the Offers (including the Irrevocable Undertakings) and the notice convening the EGM will be despatched to the shareholders of the Offeror Parent on or before [June 30], 2013.

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RESUMPTION OF TRADING

At the requests of the Target and the Offeror Parent, respectively, trading in the Shares and the shares of the Offeror Parent has been suspended with effect from 1:18 p.m. on June 13, 2013 and 1:00 p.m. on June 13, 2013, respectively, pending the release of this announcement. An application has been made by each of the Target and the Offeror Parent to the Stock Exchange for the resumption of trading in the Shares and the shares of the Offeror Parent, respectively, with effect from [—] on [—], 2013.

Notice to US holders of Shares:

The Share Offer will be made for the securities of a Cayman Islands company and is subject to Hong Kong disclosure requirements, which are different from those of the United States. The Share Offer will be made in the United States pursuant to an exemption from US tender offer rules and otherwise in accordance with the requirements of the SFO. Accordingly, the Share Offer will be subject to disclosure and other procedural requirements, including with respect to withdrawal rights, offer timetable, settlement procedures and timing of payments, that are different from those applicable under US domestic tender offer procedures and law.

The receipt of cash pursuant to the Share Offer by a US holder of Shares may be a taxable transaction for US federal income tax purposes and under applicable state and local, as well as foreign and other tax laws. Each holder of Shares is urged to consult his independent professional adviser immediately regarding the tax consequences of acceptance of the Share Offer.

It may be difficult for US holders of Shares to enforce their rights and claims arising out of the US federal securities laws, since the Target is located in a country other than the United States, and some or all of its officers and directors may be residents of a country other than the United States. US holders of Shares may not be able to sue a non-US company or its officers or directors in a non-US court for violations of the US securities laws. Further, it may be difficult to compel a non-US company and its affiliates to subject themselves to a US court’s judgment.

In accordance with normal Hong Kong practice and pursuant to Rule 14e-5(b) of the US Exchange Act, the Offeror or its nominees, or its brokers (acting as agents), may from time to time make certain purchases of or arrangements to purchase, Shares outside of the United States, other than pursuant to the Share Offer, before or during the period in which the Share Offer remains open for acceptance. These purchases may occur either in the open market at prevailing prices or in private transactions at negotiated prices. Any information about such purchases will be reported to the SFC and will be available on the SFC website at http://www.sfc.hk/.

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INTRODUCTION

As at the Last Trading Date, there are 3,559,170,222 Shares in issue and outstanding Options in respect of 52,519,756 Shares. The respective exercise prices of the outstanding Options and the respective periods in which they are exercisable are set out below:

Pre-IPO Share Option Scheme


Exercise Price (RMB per Share)		Number of Outstanding Options

0.11		26,256,211

1.84		6,308,661

All Options granted under the Pre-IPO Share Option Scheme were vested or will be vested and may only be exercised in the following manner:

•

one fifth of the Options were vested on the First Vesting Date;

•

one fifth of the Options were vested on the first anniversary of the First Vesting Date;

•

one fifth of the Options were vested on the second anniversary of the First Vesting Date;

•

one fifth of the Options shall be vested on the third anniversary of the First Vesting Date;

•

one fifth of the Options shall be vested on the fourth anniversary of the First Vesting Date; and

each Option granted under the Pre-IPO Share Option Scheme is exercisable within fifteen (15) days from the date on which such Option becomes vested.

Share Option Scheme


Exercise Price (HK$ per Share)		Number of Outstanding Options

1.50		19,954,884

An Option granted under the Share Option Scheme may be exercised in accordance with the terms of the Share Option Scheme at any time during a period as determined by the Target Board and not exceeding ten (10) years from the date of the grant. There is no minimum period for which an Option must be held before it can be exercised.

Save as disclosed in this section headed “Introduction” in this announcement, the Target has no other outstanding Shares, options, warrants, derivatives or other securities that are convertible or exchangeable into Shares or other types of securities in the Target.

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THE OFFERS

The Offers will be made by UBS on behalf of the Offeror on the following basis:

The Share Offer:

Consideration of the Share Offer

Under the Share Offer, Shareholders accepting the Share Offer will have a choice of either:

(a) for each Share, HK$[3.50] in cash (the “Cash Option”); or

The Share Offer Price of HK$[3.50] per Share represents a premium of approximately [9.4]% over the closing price of HK$[3.20] per Share as quoted on the Stock Exchange on the Last Trading Date.

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The Cash Option

Comparisons of value

The value which the Share Offer under the Cash Option attributes to each Share represents:


	Share price of the Target HK$			Premium/(Discount) of the offer price to the share price %

Closing price on the Last Trading Date		[3.20	]		[9.4	]

Average closing price for the last 5 trading days as quoted on the Stock Exchange immediately prior to and including the Last Trading Date		[3.51	]		[(0.2	)]

Average closing price for the last 10 trading days as quoted on the Stock Exchange immediately prior to and including the Last Trading Date		[3.62	]		[(3.4	)]

Average closing price for the last 20 trading days as quoted on the Stock Exchange immediately prior to and including the Last Trading Date		[3.59	]		[(2.5	)]

Average closing price for the last 30 trading days as quoted on the Stock Exchange immediately prior to and including the Last Trading Date		[3.46	]		[1.1	]

Average closing price for the last 60 trading days as quoted on the Stock Exchange immediately prior to and including the Last Trading Date		[3.07	]		[13.9	]

Highest and lowest Share prices

During the six-month period preceding the Last Trading Date and including the Last Trading Day, the highest closing price of the Shares as quoted on the Stock Exchange was HK$[3.78] on [May 31, 2013] and the lowest closing price of the Shares as quoted on the Stock Exchange was HK$[2.04] on [31 December, 2012]. Total Consideration

On the basis of the consideration of HK$[3.50] per Share under the Cash Option, the entire issued share capital of Target is valued at approximately HK$[ 12,457,095,777].

The Cash and Share Option

Nature of Offeror Shares

For the Shareholders who choose the Cash and Share Option, unlike the Shares, the Offeror Shares which they receive will not be readily tradeable and will be shares of an unlisted company incorporated under the laws of the British Virgin Islands. The transfer of such Offeror Shares will be strictly regulated pursuant to the New Articles and the rights of shareholders in the Offeror will primarily be governed by the British Virgin Islands Companies Law and British Virgin Islands law. The transfer of the Offeror Shares will also be subject to the Lock-Up Restrictions.

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Comparison of the Cash Option and the Cash and Share Option

Under the Share Offer, a Shareholder holding one board lot of [1,000] Shares will be entitled to the following consideration depending on the choice of such Shareholder:


	Cash Option			Cash and Share Option

Cash	HK$	[3,500	]	HK$	[2,820	]

Offeror Shares		N/A			[681	]

Each Shareholder (except HKSCC Nominees Limited) who accepts the Share Offer may choose either the Cash Option or the Cash and Share Option in respect of his entire holding of Shares. HKSCC Nominees Limited may elect to choose the Cash Option for part of its holding of Shares and the Cash and Share Option for the remainder of its holding of Shares.

The Option Offer:

The Offeror will make (or procure to be made on its behalf) appropriate offers to the Optionholders in accordance with Rule 13 of the Takeovers Code to cancel all outstanding Options (whether vested or not) in exchange for cash:


(A)	In respect of Options with an exercise price of RMB0.11:

	For cancellation of each such Option	HK$	[3.361	] in cash*

(B)	In respect of Options with an exercise price of HK$1.50:

	For cancellation of each such Option	HK$	[2.00	] in cash

(C)	In respect of Options with an exercise price of RMB1.84:

	For cancellation of each such Option	HK$	[1.171	] in cash*

*	The exchange rate of HK$[1.266] to RMB1.00 as at June [—], 2013 quoted on Factset

The Option Offer will be conditional upon the Share Offer becoming or being declared unconditional in all respects. Further information on the Option Offer will be set out in the formal document containing details of the Option Offer which will be sent to Optionholders on the Despatch Date.

Following acceptance of the Option Offer, the relevant Options together with all rights attaching thereto will be entirely cancelled and renounced.

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Holdings of Shares and Options by the Offeror Parent, the Offeror and their Concert Parties

[HSBC, the joint financial adviser to the Offeror Group, and its affiliates (other than those members having the status as an exempt principal trader or exempt fund manager) (the “HSBC Group”), are presumed to be acting in concert with the Offeror and the Offeror Parent under the Takeovers Code. As at the date of this announcement, HSBC holds [—] Shares representing approximately [—]% of the issued share capital of the Target. Details of the holdings, borrowings and lending of Shares (or options, rights over Shares, warrants or derivatives in respect of any of them) (if any) held by or entered into by other affiliates within the HSBC Group will be obtained and separately announced as soon as possible in accordance with Note 1 to Rule 3.5 of the Takeovers Code. Accordingly, the statements in this announcement as to the holdings, borrowings and lending of Shares (or options, rights over Shares, warrants or derivatives in respect of any of them) by the Offeror Parent, the Offeror and their respective Concert Parties are subject to further information of the holdings, borrowings and lending (if any) of the other affiliates within the HSBC Group which is to be announced in due course.]

As of the date of this announcement, Standard Chartered, being the joint financial adviser to the Offeror Group and the Offeror’s Concert Party, holds [—] Shares, representing approximately [—]% of the issued share capital of the Target.

[Save as disclosed in the sections headed “Introduction” and “Irrevocable Undertakings” of this announcement and as of the date of this announcement, the Offeror Parent, the Offeror and their respective Concert Parties do not hold or have control or direction over any Shares or hold any convertible securities, warrants or options in respect of any Shares, nor have the Offeror Parent, the Offeror and their respective Concert Parties received any other irrevocable commitment to accept the Offers.] [Offeror to confirm]

Dealings in securities in the Target

[The Offeror Parent, the Offeror and their respective Concert Parties (not including any exempt fund manager or exempt principal trader of UBS, HSBC and Standard Chartered, respectively) had not dealt in the Shares, convertible securities, warrants, options or derivatives of the Target during the six-month period ended on the date of this announcement.] [Offeror to confirm]

Settlement of consideration

Settlement of consideration in respect of acceptances of the Offers will be made as soon as possible but in any event within seven (7) Business Days of the date of receipt of a complete and valid acceptance in respect of the Offers or of the Unconditional Date, whichever is the later.

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No fractions of a cent will be payable and the amount of cash consideration payable to a Shareholder or Optionholder (as the case may be) who accepts the Share Offer or the Option Offer (as the case may be) will be rounded up to the nearest cent. Fractions of Offeror Shares are to be rounded up to the nearest whole number.

VALUE OF THE OFFERS

As at the Last Trading Date, there are 3,559,170,222 Shares in issue. On the basis of the Share Offer Price of HK$[3.50] per Share and assuming that no outstanding Options are exercised prior to the Closing Date:

(a)

the Share Offer is valued at approximately HK$[11,214,865,820] and [1,244,056,766] Offeror Shares assuming all Shareholders accept the Share Offer and opt for the Cash Option (apart from Zhang International, which has committed, pursuant to the Zhang Irrevocable Undertaking, to opt for the Cash and Share Option for all of the [1,826,808,760] Shares held by it); and

(b)

the Share Offer is valued at approximately HK$[ 10,617,329,269] and [1,842,472,047] Offeror Shares assuming all Shareholders accept the Share Offer and opt for the Cash and Share Option (apart from CA Dairy, which has committed, pursuant to the CA Dairy Irrevocable Undertaking, to opt for the Cash Option for all of the [853,631,240] Shares held by it).

As at the date of this announcement, there are a total of 26,256,211, 6,308,661 and 19,954,884 Options outstanding entitling the Optionholders to subscribe for, pursuant to the Pre-IPO Share Option Scheme or the Share Option Scheme, Shares at an exercise price of RMB0.11, RMB1.84 and HK$1.50 per Share, respectively.

Assuming none of the outstanding Options are exercised prior to the Closing Date, the total amount required to satisfy the cancellation of all the outstanding Options is HK$[135,544,335].

Based on the above and assuming that no outstanding Options are exercised prior to the Closing Date, the Offers are valued at approximately (i) HK$[11,350,410,155] and [1,244,056,766] Offeror Shares in aggregate assuming all Shareholders accept the Share Offer and opt for the Cash Option (apart from Zhang International, which has committed, pursuant to the Zhang Irrevocable Undertaking, to opt for the Cash and Share Option for all of the Shares held by it) or (ii) HK$[ 10,752,873,604] and [1,842,472,047 ] Offeror Shares in aggregate assuming all Shareholders accept the Share Offer and opt for the Cash and Share Option (apart from CA Dairy, which has committed, pursuant to the CA Dairy Irrevocable Undertaking, to opt for the Cash Option for all of the [853,631,240] Shares held by it).

In the event all of the outstanding Options are exercised in full by the Optionholders prior to the Closing Date, the Target will have to issue [52,519,756] new Shares, representing approximately [1.45]% of the enlarged issued share capital of the Target. The maximum value of the Share Offer will be increased to (i) approximately HK$[11,398,684,966] and

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[1,244,056,766] Offeror Shares assuming all Shareholders accept the Share Offer and opt for the Cash Option (apart from Zhang International, which has committed, pursuant to the Zhang Irrevocable Undertaking, to opt for the Cash and Share Option for all of the Shares held by it) or (ii) approximately HK$[10,765,434,981] and [1,878,238,001 ] Offeror Shares assuming all Shareholders accept the Share Offer and opt for the Cash and Share Option (apart from CA Dairy, which has committed, pursuant to the CA Dairy Irrevocable Undertaking, to opt for the Cash Option for all of the 853,631,240 Shares held by it) on a fully diluted basis.

CONFIRMATION OF FINANCIAL RESOURCES

Assuming that all the outstanding Options are exercised before the close of the Offers, (i) under the Cash Option (assuming all Shareholders accept the Share Offer and opt for the Cash Option (apart from Zhang International, which has committed, pursuant to the Zhang Irrevocable Undertaking, to opt for the Cash and Share Option for all of the Shares held by it)), the financial resources required by the Offeror to satisfy its obligations in respect of the Offers amount to approximately HK$[11,398,684,966] and (ii) under the Cash and Share Option (assuming all the Shareholders accept the Share Offer and opt for the Cash and Share Option (apart from CA Dairy, which has committed, pursuant to the CA Dairy Irrevocable Undertaking, to opt for the Cash Option for all of the [853,631,240] Shares held by it)), the financial resources required by the Offeror to satisfy its obligations in respect of the Offers amount to approximately HK$[ 10,765,434,981].

Assuming that no Option is exercised before the close of the Offers, the financial resources required by the Offeror to satisfy its obligations in respect of the Offers under (i) the Cash Option (assuming all the Shareholders accept the Share Offer and opt for the Cash Option (apart from Zhang International, which has committed, pursuant to the Zhang Irrevocable Undertaking, to opt for the Cash and Share Option for all of the Shares held by it), amount to approximately HK$[11,350,410,155] and (ii) the Cash and Share Option (assuming all the Shareholders accept the Share Offer and opt for the Cash and Share Option (apart from CA Dairy, which has committed, pursuant to the CA Dairy Irrevocable Undertaking, to opt for the Cash Option for all of the [853,631,240] Shares held by it), amount to approximately HK$[ 10,752,873,604].

CONDITIONS TO THE SHARE OFFER

The Share Offer is subject to the following Conditions:

(a)	valid acceptances of the Share Offer being received (and not, where permitted, withdrawn) by 4:00 p.m. on the Closing Date (or such later time or date as the

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Offeror may, subject to the rules of the Takeovers Code, decide) in respect of such number of Shares which will result in the Offeror and persons acting in concert with it holding at least 75% of the voting rights in the Target;

(b)

(c)

(d)	no event having occurred which would make the Offers or the acquisition of any of the Shares under the Share Offer void, unenforceable or illegal or prohibit implementation of the Offers or the transactions contemplated under the Irrevocable Undertakings;

(e)

(f)

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earnings, solvency, current or future consolidated financial position, shareholders’ equity or results of operations of the Target Group as a whole, whether or not arising in the ordinary course of business;

(g)	no changes having been made to any terms of the Pre-IPO Share Option Scheme or the Share Option Scheme (either formally or as a result of the exercise by the Target’s remuneration committee of its discretion) from the date of this announcement;

(h)

(i)	with respect to the Offeror Parent, the obtaining of approval at an EGM of the Offeror Parent in relation to the making of the Offers (including the signing and completion of the Irrevocable Undertakings) as a “major transaction” pursuant to the Listing Rules.

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other rights in respect of any of them. Persons who are in doubt as to the action they should take should consult their stockbroker, bank manager, solicitor or other professional advisers.

IRREVOCABLE UNDERTAKINGS

[Offeror to provide]

Zhang Irrevocable Undertaking


Date:		[June 17, 2013]

Parties:		Zhang International, Offeror Parent and Offeror

CA Dairy Irrevocable Undertaking


Date:		[June 17, 2013]

Parties:		CA Dairy, Offeror Parent and Offeror

Undertaking to accept the Share Offer

Zhang International and CA Dairy had each executed an irrevocable undertaking (the Zhang Irrevocable Undertaking and the CA Dairy Irrevocable Undertaking respectively) in favour of the Offeror Parent and the Offeror, pursuant to which each of Zhang International and CA Dairy has irrevocably undertaken to the Offeror and the Offeror Parent to accept, or procure the acceptance of, the Share Offer in respect of the Relevant Shares as soon as possible and in any event by 4:00 p.m. on the Business Day after the Despatch Date.

Zhang International has committed to accept the Cash and Share Option for all of the 1,826,808,760 Shares held by it as at the date of the Zhang Irrevocable Undertaking. CA Dairy has committed to accept the Cash Option in respect of all of all of the 853,631,240 Shares owned by it as at the date of the CA Dairy Irrevocable Undertaking.

Prior to the closing, lapsing or withdrawal of the Share Offer, each of Zhang International and CA Dairy has undertaken not to, among other things, (i) sell, transfer, charge, encumber, grant any option over (or cause the same to be done) or otherwise dispose of any interest in the Relevant Shares (other than to the Offeror); (ii) acquire, directly or indirectly, any additional shares, securities or other interests of the Target; or (iii) take any action or enter into any agreement or arrangement, including through its representation on the Target’s board of directors (and whether or not legally binding or subject to any condition or which is to take effect after the Share Offer closes or lapses), or permit any agreement or arrangement to be entered into or authorize or incur any obligation which, (x) in relation to the Relevant Shares, would or might restrict or impede its accepting the Offers or (y) would otherwise be prejudicial to the successful outcome of the Share Offer.

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No withdrawal

Each of Zhang International and CA Dairy has irrevocably undertaken that it will not withdraw any acceptance of the Share Offer in respect of the Relevant Shares.

Termination

[Each of Zhang International and CA Dairy may, in its sole decision, terminate its Irrevocable Undertaking with immediate effect if (i) the shareholders of the Offeror Parent fail to approve the making of the Offers (including the signing and completion of the Irrevocable Undertakings) as a “major transaction” pursuant to the Listing Rules; or (ii) the Offers are not declared unconditional in all respects by September 10, 2013.]

Non-Competition and Non-Solicitation

Zhang International has undertaken that, save for any shareholding in the Offeror or any shares which are swapped in exchange for Offeror Shares, it shall not and shall procure that its Affiliates shall not (whether alone or jointly with another and whether directly or indirectly), during the Restricted Period:

(a)	carry on, operate, develop or be engaged or concerned or interested economically or otherwise in any manner in any Competing Business in the PRC, Hong Kong, Taiwan, Macau and New Zealand; and

(b)	use or display any trademark, business name or mark, domain name or any website containing (i) the word(s) “Yashili (in Chinese: )”, “Scient” (in Chinese: )”, other than in respect of the use of such name by the Zhang’s Family in its investment holding ventures.

Notwithstanding the above, Zhang International and its Affiliates may be interested in, engaged in, acquire or hold interest in, any Competing Business with the written consent of the Offeror Parent or in cooperation with or in conjunction with the Offeror Parent or any of its Affiliates.

Zhang International has further undertaken that it shall not and shall procure that its Affiliates shall not solicit, hire or encourage or seek to encourage any director, officer, employee or distributor of any member of the Target Group to leave his/her current employment or consultancy or to breach the terms of their contract for services or distributorship or solicit the business of any client or customer of any member of the Target

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Group in relation to the Competing Business. This undertaking does not affect Zhang International’s or its Affiliates’ ability to hire in the aggregate no more than five employees of the Target Group; provided that only one of such five employees may be a member of the senior management of the Target Group. Zhang International or its Affiliates may also hire any member(s) of Zhang’s Family or enter into any other arrangements with them. In addition, Mr. Zhang Lidian, the chairman of the Target, may consider remaining as a member of the senior management of the Target Group following the Completion.

Revised Offers

The Irrevocable Undertakings will extend to any revised or improved offer or offers by or on behalf of the Offeror. In accordance with Rule 16.1 of the Takeover Code, if the Offeror revises the terms of the Share Offer or the Option Offer, each of Zhang International and CA Dairy, any other Shareholder or Optionholder (as the case may be), whether or not it has already accepted the Share Offer or the Option Offer, will be entitled to the revised or improved terms of the Share Offer or the Option Offer (as the case may be).

INDEPENDENT BOARD COMMITTEE [AND INDEPENDENT FINANCIAL ADVISER OF THE TARGET]

[In addition, as approved by the Independent Board Committee, an independent financial adviser, [Somerley Limited], has been appointed to advise the Independent Board Committee in connection with the Share Offer and the Option Offer. / An independent financial adviser will be appointed (with the approval of the Independent Board Committee) to advise the Independent Board Committee in connection with the Share Offer and the Option Offer.]

The members of the Independent Board Committee will make a recommendation to the Shareholders as to whether the Share Offer is, or is not, fair and reasonable and as to acceptance, and to the Optionholders as to its views on the Option Offer after considering the advice of the Independent Financial Adviser.

INFORMATION ON THE OFFEROR PARENT

The Offeror Parent was incorporated in the Cayman Islands and its shares are listed on the Stock Exchange (stock code: 2319). The Offeror Group is one of the leading dairy product manufacturers in China, principally engaged in manufacturing and distribution of quality dairy products.

The Offeror Group’s diversified products range includes liquid milk products, such as UHT milk, milk beverages and yogurt, ice cream and other dairy products such as milk powder. In December 2012, the Offeror Group’s annual production capacity of dairy products reached 7.58 million tons.

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Further information in relation to the Offeror Parent and the Offeror Group will be contained in the Composite Document.

INFORMATION ON THE OFFEROR

Incorporation

The Offeror was incorporated in the British Virgin Islands by the Offeror Parent for the sole purpose of making the Offers and holding Shares. Assuming the Share Offer becomes unconditional in all respects, the Offeror will be the new holding company of the Target upon close of the Offers.

[The Offeror was incorporated on June 4, 2013. As of the date of this announcement, there is one (1) Offeror Share in issue which was the Subscriber Share, and the Offeror is a wholly-owned subsidiary of the Offeror Parent. In order to facilitate acceptance of the Share Offer, the board of directors of the Offeror has resolved to increase the maximum number of shares the Offeror is authorized to issue to include 200,000,000,000 Offeror Shares of HK$1.00 par value each.] [Offeror to confirm]

The Offeror has not carried on any business since incorporation, other than matters in connection with the Offers. The Offeror will not engage in any business other than acting as the holding company of the Target.

Share Capital

As part of the Offers, the Offeror will issue such number of Offeror Shares to the Offeror Parent for a consideration which is equivalent to the aggregate sum of the consideration payable (being the cash payable under the Cash Option and the Cash and Share Option) by the Offeror to the Accepting Shareholders and the consideration payable by the Offeror to the Optionholders who accept the Option Offer. The Offeror will use such cash consideration and issue Offeror Shares to Shareholders who opt for the Cash and Share Option to finance the acquisition of the Shares from the Accepting Shareholders and the cancellation of the Options.

[A Shareholder who chooses the Cash and Share Option will receive [0.681] Offeror Share in respect of each Share, which represents an indirect interest in [0.19] Shares in the Target held through the Offeror. Zhang International, which pursuant to the Zhang Irrevocable Undertaking will accept the Cash and Share Option, will upon close of the Offers hold [1,244,056,766] Offeror Shares, representing an indirect [10]% interest in the entire issued share capital of the Target held through the Offeror. This percentage of indirect interest in the Target to be held by Zhang International will be unaffected by the Subscriber Share, the number of Offeror Shares issued to the Offeror Parent to finance the Offers as described in this section or the level of elections for the Cash and Share Option by other Shareholders, as any Shareholder (including Zhang International) who elects the Cash and Share Option will receive 0.681 Offeror Share and HK$2.82 in cash and the Offeror Share portion represents 19.5% of the aggregate consideration of HK$3.50. Such percentage is determined by Zhang International’s 10% interest in the Target divided by Zhang International’s current [51.3]% total shareholding in the Target.]

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On the above basis, and assuming that (i) no outstanding Options are exercised prior to the close of the Offers, and (ii) all Shareholders accept the Share Offer and opt for the Cash and Share Option (apart from CA Dairy, which has committed, pursuant to the CA Dairy Irrevocable Undertaking, to opt for the Cash Option for all of the [853,631,240] Shares held by it), a Maximum Interest of approximately [1,842,472,047] Offeror Shares representing [14.8]% of the Offeror’s enlarged issued share capital may be held by the Accepting Shareholders. The Subscriber Share is excluded for the purpose of that calculation as the intention is for the Subscriber Share to be repurchased by the Offeror at [US$1.00] as and when appropriate. [Target to confirm]

WARNING: The Offeror Shares upon their issue will not be listed on the Stock Exchange or any other recognized stock exchange. Further, the transfer of the Offeror Shares will be subject to the Lock-Up Restrictions. Therefore, Shareholders who accept the Cash and Share Option should expect that they will not be able to sell, transfer or otherwise disposal of their Offeror Shares at least during the Lock-Up Period. In the event that the Offeror does exercise the right of compulsory acquisition and withdraw the listing status of the Target on the Stock Exchange, there is no assurance that all or a substantial part of the businesses of the Target will be re-listed on any stock exchange. Shareholders who accept the Share Offer should therefore exercise care and caution in determining, and should give careful consideration as to, whether the Cash and Share Option is suitable for them.

Corporate Structure

If the Share Offer becomes unconditional in all respects, the Offeror will become the new holding company of the Target upon close of the Offers. The shareholding interest of the Offeror in the Target upon completion of the Offers will depend on the level of acceptances in respect of the Share Offer and the level of exercise of Options before the Closing Date.

The corporate chart below indicates the levels of possible shareholding interest in the Offeror and the Target following the Share Offer if it becomes unconditional in all respects.

Post Offers Shareholding Structure

Set out below are charts showing the shareholding structure of the Target as at the Last Trading Date and the Unconditional Date.

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As at the Last Trading Date:

LOGO

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As at the Closing Date:

Assuming the listing status of the Target on the Stock Exchange is maintained and the acceptance level for the Offers is such that the public float of the Target is maintained at the minimum public float of [23.42]% as permitted by the Stock Exchange

LOGO

Assuming the Target does not maintain its listing status on the Stock Exchange and only Zhang International opts for the Cash and Share Option

LOGO

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Assuming the Target does not maintain its listing status on the Stock Exchange and all Shareholders (other than CA Dairy) opt for the Cash and Share Option

LOGO

Note: The above shareholding structure assumes none of the outstanding Options is exercised.

Corporate Matters

As the Offeror is incorporated in the British Virgin Islands, its governance will primarily be subject to British Virgin Islands law. The Articles contain the types of provisions which are generally found in other unlisted exempted companies incorporated under the British Virgin Islands Companies Law.

A more detailed summary of the major provisions of the Memorandum, the Articles and the New Articles of the Offeror and certain aspects of the British Virgin Islands Companies Law will be set out in the Composite Document.

INFORMATION ON THE TARGET GROUP

The Target is a company incorporated in the Cayman Islands with limited liability, whose Shares have been listed on the Main Board of the Stock Exchange since November 1, 2010. The Target Group is principally engaged in production and sales of pediatric milk formula products and nutrition food.

FINANCIAL INFORMATION OF THE TARGET GROUP

The financial information of the Target Group was prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standard Board.

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As of December 31, 2012, the audited consolidated total assets and net assets of the Target Group amounted to approximately RMB5,569,869,000 and RMB4,082,346,000, respectively.

As of December 31, 2011, the audited consolidated total assets and net assets of the Target Group amounted to approximately RMB4,643,569,000 and RMB3,803,999,000, respectively.

As of December 31, 2012, the audited consolidated net profits before and after taxation and extraordinary items of the Target Group were approximately RMB646,324,000 and RMB470,468,000, respectively.

As of December 31, 2011, the audited consolidated net profits before and after taxation and extraordinary items of the Target Group were approximately RMB375,389,000 and RMB308,425,000, respectively.

REASONS FOR THE OFFERS AND THE EXPECTED BENEFITS

The PRC dairy market has continued to grow over the past few years driven by macro factors such as strong economic growth, increasing disposable income and rising rates of urbanization, as well as industry-specific factors including increasing health awareness, consumer preferences and improved dairy product distribution.

As one of the key components of the PRC dairy market, the pediatric milk formula market has been expanding rapidly as well. The increasing trend towards double income families and the related increase in the number of working mothers in the PRC, coupled with the convenience and comprehensive nutritional benefits offered by infant formula products, has resulted in a growing popularity among mothers in the PRC to choose infant formulas for their children. In recent years, pediatric milk formula powder brands with high quality raw milk sourcing from overseas and quality local large-scale farms have secured increasingly large market shares, especially in the high-end pediatric milk formula powder segment. For the dairy industry, the government and society continue to reinforce regulated development through both stringent supervision and increased media coverage.

Establishing a partnership between the Offeror Parent’s Mengniu, the leading dairy brand in the PRC and the Target’s Yashili, one of the most successful pediatric milk powder brands in the PRC would enable both parties to leverage each other’s capabilities and resources in product offering, product innovation, upstream sourcing, distribution and sales channel development, product quality control and consumer marketing to capture the rapid growth of pediatric milk formula market in the PRC. [While the Offeror Group will explore and leverage each other’s strengths in the dairy industry and explore aforementioned areas of cooperation to create synergy, the Offeror Group intends to maintain the Target Group’s independent operating platform for the pediatric milk powder business.] [Offeror to confirm]

The Offeror Parent is one of the best-known dairy companies in China and one of the largest dairy companies engaged in manufacturing and distributing quality dairy products in China. The Target is a renowned domestic brand and a leading domestic pediatric milk powder manufacturer in China. [The Target’s business model integrates high brand recognition,

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100% imported premium dairy raw materials and a proprietary formula, and unwavering commitment to establish a high standard of quality supervision and quality assurance system. The Offeror Parent envisions no change in the Target’s sourcing policy to ensure that consumers continue to enjoy unchanged quality commitment and brand value from the Target’s products. The Offeror Parent believes that, through this cooperation, both companies will be able to offer more consumers with more choices in dairy products that are safe, healthy and of the highest quality.]

INTENTIONS OF THE OFFEROR PARENT IN RELATION TO THE TARGET GROUP

The Offeror is set up by the Offeror Parent for the sole purpose of holding Target Shares and will not engage in any business other than acting as the holding company of the Target.

LOCK-UP PERIOD

Other than through the re-listing of the business of the Target as described in the section headed “Compulsory Acquisition and Withdrawal of Listing” and the charging or pledging of shares in the Offeror by the Offeror Parent in connection with the financing of the Offers, for a period of three (3) years following the Unconditional Date (the “Lock-Up Period”), the shareholders of the Offeror may not dispose of, or enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the Offeror Shares issued to it under the Offers or otherwise (together, the “Lock-Up Restrictions”) unless otherwise approved by the board of directors of the Offeror in writing. In addition, the Shares acquired by shareholders of the Offeror through the repurchase option set out in the section headed “Listing Status of the Target” shall be subject to the same restrictions as the Lock-Up Restrictions during the Lock-Up Period. If either (a) the repurchase of Offeror Shares as set out in the sections headed “Listing Status of the Target”, “Compulsory Acquisition and Withdrawal of Listing” and “Right to exit in Change of Control” is not permitted by applicable laws or regulations or (b) there is a Change of Control of the Offeror or the Target, then the Lock-Up Restrictions shall lapse.

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LISTING STATUS OF THE TARGET

WARNING:

If the level of acceptances of the Share Offer reaches the prescribed level under the Cayman Islands Companies Law required for compulsory acquisition and the requirements of Rule 2.11 of the Takeovers Code are satisfied, dealings in the Shares will be suspended from the Closing Date up to the withdrawal of listing of the Shares from the Stock Exchange pursuant to Rule 6.15 of the Listing Rules.

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COMPULSORY ACQUISITION AND WITHDRAWAL OF LISTING

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RIGHTS OF SHAREHOLDERS OF THE OFFEROR

[Upon close of the Offers, the transfer of the Offeror Shares issued will be subject to the Lock-Up Restrictions, and shareholders of the Offeror will have the following shareholder rights pursuant to the New Articles.

Right to nominate directors

A shareholder of the Offeror who beneficially owns 8% or more of the issued share capital of the Offeror or more shall be entitled to, from time to time, nominate and maintain one director to the board of directors of the Offeror and the Offeror shall exercise its rights as a shareholder of the Target to nominate such director to the Target Board.

Right to receive dividends and other distributions

Shareholders of the Offeror shall be entitled to receive dividends and other distributions (if any) duly declared, made or paid by the Offeror, on a pro-rata basis. The Offeror will, after close of the Offers, adopt a dividend policy pursuant to which it will distribute, on a pro-rata basis and subject to applicable laws and regulations, all of its distributable profits (after deducting the administrative expenses incurred and withholding taxes (if required by applicable laws)) as of the end of each financial year.

Reserved matters

After the close of the Offers, the Offeror shall take no action in respect of the following matters unless such matter is resolved to be approved by in excess of 92% of the votes of shareholders of the Offeror who are present and voting at a general meeting of the Offeror:

(a)	any amendment to the Memorandum, Articles or New Articles;

(b)	any change in the share capital of the Offeror or the creation, allotment or issue of any shares or of any other securities of the Offeror or the grant of any option or rights to subscribe for or to convert or exchange any instrument into such shares or securities;

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(c)

any reduction of the share capital or variation of the rights attaching to any class of shares of the Offeror or securities of the Offeror or any redemption, purchase or other acquisition of any shares or securities of the Offeror (including the Offeror Shares and the Subscriber Share other than as set out in this announcement or the Composite Document);

(d)

the filing of a petition for the winding-up of the Offeror or any of its subsidiaries, a resolution being passed for the winding up of the Offeror or any of its subsidiaries, or the appointment of a liquidator, receiver or administrator over any of the Offeror’s assets or undertakings or any of its subsidiaries’ assets or undertakings;

(e)	[the incurrence of any indebtedness other than ordinary course expenses, taxes, salaries and bonuses that are incurred solely for the purposes of the Offeror’s holding of Shares];

(f)

[the creation of any charge or other security over any assets of the Offeror, other than in relation to the financing of the Offers but only to the extent that such charge or security is created over such number of Shares as represents the Offeror Parent’s attributable interest in the issued share capital of the Target];

(g)

[the disposal of any Shares or other assets of the Offeror, other than for the purposes of (i) giving security permitted under paragraph (f) above or (ii) any disposal by the chargee pursuant to the exercise of its power of sale, provided that such disposal under (ii) shall be deemed to be a Change of Control of the Target;

(h)	the authorisation or approval of the disposal of all or substantially all of the assets of the Target or any other member of the Target Group;

(i)

[where the Target maintains its listing status on the Stock Exchange, the Offeror completing any transaction with the Target Group which constitutes a Connected Transaction for the Target under Chapter 14A of the Listing Rules, except where all the applicable requirements under Chapter 14A of the Listing Rules in respect of such transaction have been complied with;]

(j)

[where the Target has withdrawn its listing status from the Stock Exchange, the Offeror completing any transaction with the Target Group which would have constituted a Connected Transaction for the Target under Chapter 14A of the Listing Rules had the Target been a company listed on the Stock Exchange, except where the transaction had been conducted on “normal commercial terms” in the “ordinary course of business” (as those terms are defined under Chapter 14A of the Listing Rules) of the Target Group, and such conclusions regarding the transaction have been made by an financial adviser which is independent from both the Offeror Group and the Target Group];

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(k)

[the Offeror completing any transaction with any person (other than a member of the Target Group) which would have constituted a Connected Transaction for the Offeror under Chapter 14A of the Listing Rules had the Offeror been a company listed on the Stock Exchange, except where the transaction had been conducted on “normal commercial terms” in the “ordinary course of business” (as those terms are defined under Chapter 14A of the Listing Rules) of the Offeror, and such conclusions regarding the transaction have been made by an financial adviser which is independent from the Offeror Group]; and

(l)	declaring, making or paying any dividends other than dividends payable to all the Offeror’s shareholders on a pro-rata basis.

Tag-along rights

The Offeror Parent may only sell part or all of its Offeror Shares to a third party provided that the other shareholders of the Offeror may elect to sell, and the third party agrees to acquire from such electing shareholders of the Offeror, such amount of Offeror Shares as is pro rata to the proportion of the Offeror Shares being sold by the Offeror Parent. Any such sale by an electing shareholder of the Offeror shall be at the same price and otherwise on no less favourable terms as those proposed between the Offeror Parent and the third party.

To the extent that any sale of Offeror Shares by the Offeror Parent would result in a Change of Control in the Offeror, the Offeror Parent shall only be permitted to sell such Offeror Shares if the third party agrees to acquire from the other electing shareholders of the Offeror all of their Offeror Shares at the same price and otherwise on no less favourable terms as those proposed between the Offeror Parent and the third party. Any such Change of Control in the Offeror may give rise to an obligation for the new controlling shareholder of the Offeror to make an offer for the outstanding shares of the Target pursuant to Note 8 to Rule 26.1 of the Takeovers Code, provided that the Target maintains its listing status on the Stock Exchange after close of the Offers.

Any sale of Offeror Shares pursuant to the provisions described in this section shall be notwithstanding the Lock-Up Restrictions.

Right to exit in the event of Change of Control

In the event of a Change of Control of the Offeror or of the Target (other than a Change of Control referred to in sub-section headed “Tag-along rights” under the section headed “Rights of Shareholders of the Offeror” of this announcement), the Lock-Up Restrictions shall immediately lapse and each shareholder of the Offeror (other than the shareholder whose change in shareholding in the Offeror or the Target leads to the Change in Control) shall have the right to, for a period from the Unconditional Date until the earlier of (i) ten (10) years from the Unconditional Date; and (ii) the date of the re-listing of the businesses of the Target, require the Offeror to, and the Offeror shall, repurchase all (but not part only) of the Offeror Shares it holds at a price per Offeror Share which is equivalent to twenty (20) times of the earnings per Offeror Share for the financial year immediately preceding the

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relevant shareholder’s exercise of such right. Such earnings per Offeror Share shall be calculated by dividing the audited net income of the Offeror during the financial year immediately preceding the relevant shareholder’s exercise of such right by the weighted average number of Offeror Shares in issue during such period, subject to applicable laws and regulations in relation to repurchase of its own shares by the Offeror.] [Offeror to confirm]

WARNING: The Offeror is set up by the Offeror Parent for the sole purpose of holding Shares in the Target and will not engage in any business other than acting as the holding company of the Target and will derive its income solely from the distributions by the Target (if any).

FURTHER TERMS OF THE OFFERS

In addition to the Conditions set out in this announcement, the Share Offer is made on the basis that acceptance of the Share Offer by any person will constitute a warranty by such person or persons to the Offeror that the Shares acquired under the Share Offer are sold by such person or persons free from all third party rights, liens, charges, equities, adverse interests and encumbrances whatsoever and together with all rights attaching thereto as at the Closing Date or subsequently becoming attached to them, including the right to receive all dividends (whether final or interim) and other distributions, if any, declared, made or paid on or after the Closing Date.

In addition, the Option Offer will be subject to and conditional upon the Share Offer becoming or being declared unconditional in all respects.

The Offers will be made in compliance with the Takeovers Code which is administered by the Executive.

Sellers’ ad valorem stamp duty arising in connection with acceptance of the Share Offer will be payable by each Accepting Shareholder at the rate of HK$1.00 for every HK$1,000 or part thereof of the consideration payable by the Offeror for such person’s Shares and will be deducted from the cash amount due to such Accepting Shareholder.

The Offeror will pay the buyer’s ad valorem stamp duty in relation to the Share Offer on its own behalf. No stamp duty is payable in connection with the Option Offer.

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GENERAL MATTERS RELATING TO THE OFFERS

Availability of the Offers

The Offeror intends to make the Share Offer and Option Offer available to all Shareholders and Optionholders, respectively, including those who are not resident in Hong Kong. The availability of the Share Offer and Option Offer to persons who are not resident in Hong Kong may be affected by the laws of the relevant overseas jurisdictions. Persons who are not resident in Hong Kong should inform themselves about and observe any applicable requirements and restrictions in their own jurisdictions, including the obtaining of any governmental, exchange control or other consents which may be required, or the compliance with the other necessary formalities and the payment of any issue, transfer or other fares due in such jurisdiction.

In the event that the receipt of the Composite Document by overseas Shareholders or Optionholders is prohibited by any applicable laws and regulations or may only be effected upon compliance with conditions or requirements in such overseas jurisdictions that would be unduly burdensome, the Composite Document, subject to the Executive’s consent, will not be despatched to such overseas Shareholders or Optionholders. The Offeror will apply for any waivers as may be required by the Executive pursuant to Note 3 to Rule 8 of the Takeovers Code at such time.

Any arrangements for overseas Shareholders and Optionholders to collect the Composite Document or the formal document containing details of the Option Offer, respectively, will be set out in a further announcement.

Composite Document

The Composite Document containing, among other things, details of the Share Offer and an expected timetable in relation to the Offers, a letter from the Independent Board Committee and a letter from the Independent Financial Adviser in respect of the Share Offer and Option Offer, together with forms of acceptance will be despatched to the Shareholders as soon as practicable and in compliance with the requirements of the Takeovers Code. The formal document containing details of the Option Offer will also be sent to Optionholders on the Despatch Date.

Further agreements or arrangements

[Offeror to confirm]

[As at the date of this announcement:

(i)	save as disclosed in the section headed “Irrevocable Undertakings” in this announcement, the Offeror Parent, the Offeror and their Concert Parties have not received any other irrevocable commitment to accept the Offers;

(ii)	the Offeror Parent, the Offeror and their respective Concert Parties do not hold any Shares, convertible securities, warrants or options in the Target;

(iii)

there is no outstanding derivative in respect of the securities in the Target which has been entered into by the Offeror Parent, the Offeror or any of their Concert Parties;

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(iv)	save as disclosed in the section headed “Irrevocable Undertakings” in this announcement, there is no arrangement (whether by way of option, indemnity or otherwise) in relation to the shares of the Offeror Parent, the Offeror or the Target and which might be material to the Offers;

(v)

save as disclosed in the sections headed “Conditions to the Share Offer” and “Irrevocable Undertakings”, there is no agreement or arrangement to which the Offeror or the Offeror Parent is a party which relates to circumstances in which the Offeror may or may not invoke or seek to invoke a condition to the Offers; and

(vi)	there are no relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Target which the Offeror Parent, the Offeror or any of their respective Concert Parties have borrowed or lent.]

Completion of the Offers

The latest time on which the Offeror can declare the Share Offer unconditional as to acceptances is 7:00 p.m. on the 60th day after the posting of the Composite Document (or such later date to which the Executive may consent).

If all the Conditions are satisfied (or, if permissible, waived), Shareholders and Optionholders will be notified by way of an announcement in accordance with the Takeovers Code and the Listing Rules as soon as practicable thereafter.

DEALINGS DISCLOSURE

In accordance with Rule 3.8 of the Takeovers Code, associates (as defined under the Takeovers Code and including a person who owns or controls 5% or more of any class of relevant securities) of the Target and the Offeror are hereby reminded to disclose their dealings in any securities of the Target and/or the Offeror pursuant to the Takeovers Code.

For this purpose, the full text of Note 11 to Rule 22 of the Takeovers Code is reproduced below:

“Stockbrokers, banks and others who deal in relevant securities on behalf of clients have a general duty to ensure, so far as they are able, that those clients are aware of the disclosure obligations attaching to associates and other persons under Rule 22 and that those clients are willing to comply with them. Principal traders and dealers who deal directly with investors should, in appropriate cases, likewise draw attention to the relevant Rules. However, this does not apply when the total value of dealings (excluding stamp duty and commission) in any relevant security undertaken for a client during any 7-day period is less than HK$1 million.

This dispensation does not alter the obligation of principals, associates and other persons themselves to initiate disclosure of their own dealings, whatever total value is involved.

Intermediaries are expected to co-operate with the Executive in its dealings enquiries. Therefore, those who deal in relevant securities should appreciate that stockbrokers and other intermediaries will supply the Executive with relevant information as to those dealings, including identities of clients, as part of that co-operation.”

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The Offeror, its nominees or brokers or associates may from time to time make certain purchases of, or arrangements to purchase Shares other than pursuant to the Share Offer, before or during the period in which the Share Offer remains open for acceptance in compliance with the Takeovers Code. These purchases may occur either in the open market at prevailing prices or in private transactions at negotiated prices. Any information about such purchases will be reported to the SFC and will be available on the SFC website at http://www.sfc.hk/.

GENERAL

The Offeror Group has appointed UBS as its lead financial adviser, and HSBC and Standard Chartered as joint financial advisers in connection with the Offers.

MAJOR TRANSACTION FOR THE OFFEROR PARENT

Please refer to the sections headed “Introduction”, “The Offers”, “Value of the Offers”, “Confirmation on Financial Resources”, “Irrevocable Undertakings”, “Information on the Offeror Parent”, “Information on the Offeror”, “Information on the Target Group”, “Financial Information of the Target Group” and “Reasons for the Offers and the Expected Benefits” for the terms and conditions and other information of the Offers.

Assuming that no outstanding Options are exercised prior to the close of the Offers, the Offers are valued at approximately (i) HK$[11,350,410,155] and [1,244,056,766] Offeror Shares in aggregate assuming all Shareholders accept the Share Offer and opt for the Cash Option (apart from Zhang International, which has committed, pursuant to the Zhang Irrevocable Undertaking, to opt for the Cash and Share Option for all of the Shares held by it) or (ii) HK$[10,752,873,604] and [1,842,472,047] Offeror Shares in aggregate assuming all Shareholders accept the Share Offer and opt for the Cash and Share Option (apart from CA Dairy, which has committed, pursuant to the CA Dairy Irrevocable Undertaking, to opt for the Cash Option for all of the [853,631,240] Shares held by it).

In the event all of the outstanding Options are exercised in full by the Optionholders prior to the Closing Date and as a result of the exercise of the Options, the Target will have to issue [52,519,756] new Shares, representing approximately [1.45]% of the enlarged issued share capital of the Target. In that case, no amount will be payable by the Offeror under the Option Offer. Accordingly, the Offers are valued at (i) approximately HK$[11,398,684,966] and [1,244,056,766] Offeror Shares assuming all Shareholders accept the Share Offer and opt for the Cash Option (apart from Zhang International, which has committed, pursuant to the Zhang Irrevocable Undertaking, to opt for the Cash and Share Option for all of the Shares held by it) or (ii) approximately HK$[10,765,434,981] and [1,878,238,001] Offeror Shares assuming all Shareholders accept the Share Offer and opt for the Cash and Share Option (apart from CA Dairy, which has committed, pursuant to the CA Dairy Irrevocable Undertaking, to opt for the Cash Option for all of the [853,631,240] Shares held by it) on a fully-diluted basis.

The consideration required for the acquisition of the Shares and the cancellation of the Options and therefore, the consideration required of the Offeror Group in respect of the

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Offers, are determined by the Offeror Group taking into account factors including the trend of the closing price of the Shares, the market position, historical financial information of the Target and the prevailing market conditions and sentiments as well as the business prospects and development potential of the Target Group The Offeror intends to finance the consideration payable by the Offeror under the Offers from external financing to be provided to the Offeror Group.

To the best of the Offeror Parent’s knowledge, information and belief having made all reasonable enquiry, each of the Target, the Shareholders, the Optionholders, Zhang International and CA Dairy and their respective ultimate beneficial owners are third parties independent of the Offeror Parent and its Connected Persons.

LISTING RULES IMPLICATIONS FOR THE OFFEROR PARENT

The directors (including the independent non-executive directors) of the Offeror Parent confirm that the terms and conditions of the Offers, the Irrevocable Undertakings and the transactions contemplated thereunder are fair and reasonable and negotiated on an arm’s length basis upon normal commercial terms. Having considered the terms and conditions of the Offers and the benefits that are expected to accrue to the Offeror Parent as a result of the Offers and the Irrevocable Undertakings and the transactions contemplated thereunder, the directors (including the independent non-executive directors) of the Offeror Parent further confirm that the Offers, the Irrevocable Undertakings and the transactions contemplated thereunder are in the interests of the Offeror Parent and its shareholders as a whole.

RESUMPTION OF TRADING

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DEFINITIONS

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


“Accepting Shareholders”		means the Shareholders who accept the Share Offer;

“Affiliates”		means in relation to a party, (i) an entity which is directly or indirectly controlled by, or under common control with, or (whether acting alone or jointly and in concert with another) in control of, such Party, and (ii) an individual (whether acting alone or jointly and in concert with another) which directly or indirectly controls such Party. For the purpose of this definition, the term “control” means (i) the ownership of fifty per cent (50%) or more of the voting shares or the registered capital of an entity, (ii) being the single largest owner of the voting shares or the registered capital of an entity, (iii) having the power to appoint or elect a majority of the directors or the power to direct the management of an entity. For the avoidance of doubt, an Affiliate of Zhang International shall include each member of the Zhang’s Family and the entities which are controlled by (whether alone or jointly with another) any member of the Zhang’s Family;

“Articles”		means the articles of association of the Offeror as at the date of this announcement;

“associates”		has the meaning ascribed to it in the Takeovers Code;

“British Virgin Islands Companies Law”		means the BVI Business Companies Act 2004, as amended from time to time;

“Business Day”		means a full day on which the Stock Exchange is open for business of dealing in securities;

“CA Dairy”		means CA Dairy Holdings, a company incorporated under the laws of the Cayman Islands which is wholly owned by Carlyle Asia Partners III L.P. and CAP III Co-investment L.P.;

-41-


“CA Dairy Irrevocable Undertaking”		means the irrevocable undertaking dated June [—], 2013 given by CA Dairy in favour of the Offeror Parent and the Offeror;

“Cash and Share Option”		means the option to accept the Share Offer for consideration partly in cash and partly in Offeror Shares as defined in the section headed “The Offers” in this announcement;

“Cash Option”		means the option to accept the Share Offer for consideration fully in cash as defined in the section headed “The Offers” in this announcement;

“Cayman Islands Companies Law”		means the Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands;

“Change of Control”		means, in respect of the Offeror, where the Offeror Parent ceases to have control of the Offeror and, in respect of the Target, when the Offeror ceases to have control of the Target. For the purposes of this definition, the term “control” means: (i) the ownership of fifty per cent (50%) or more of the voting shares of the Offeror or the Target (as the case requires), or (ii) having the power to appoint or elect a majority of the directors or the power to direct the management of the Offeror or of the Target (as the case requires);

“Closing Date”		means the date to be stated in the Composite Document as the first closing date of the Share Offer or any subsequent closing date as may be announced by the Offeror and approved by the Executive;

“Completion”		means the completion of the sale and purchase of the Relevant Shares held by Zhang International and CA Dairy pursuant to the Share Offer;

“Competing Business”		means the sourcing, manufacture, sale, distribution and promotion of dairy or dairy-based products, and the sourcing, manufacture, sale, distribution and promotion of soy milk or soy milk-based products in the PRC, Hong Kong, Taiwan, Macau and New Zealand during the Restricted Period;

“Composite Document”		means the composite document to be issued jointly by the Offeror Parent, the Offeror and the Target to all Shareholders and Optionholders in connection with the Share Offer and the Option Offer and in accordance with the Takeovers Code which will contain, inter alia, details of the Share Offer, the terms and conditions of the Share Offer, a letter from the Independent Board Committee and a letter from the Independent Financial Adviser in respect of the Share Offer and the Option Offer;

-42-


“Concert Parties”		means parties acting in concert with the person or party as specified as determined in accordance with the Takeovers Code;

“Conditions”		means the conditions of the Share Offer, as set out under the section headed “Conditions to the Share Offer” of this announcement;

“Connected Person”		has the meaning ascribed to it under Chapter 14A of the Listing Rules;

“Connected Transaction”		has the meaning ascribed to it under Chapter 14A of the Listing Rules;

“Consent(s)”		means any consent, approval, authorisation, qualification, waiver, permit, grant, franchise, concession, agreement, licence, exemption or order of, registration, certificate, declaration or permission from, or filing with, or report or notice to, any Relevant Authority(ies) or third parties, including those required under or in relation to any concession rights or licences granted by the Relevant Authority(ies) or third parties to the Target Group to carry out its operations, whether under applicable laws or regulations, any agreement or arrangement with such Relevant Authority(ies) or third parties, or otherwise;

“Despatch Date”		means the date of despatch of the Composite Document and the formal document containing details of the Option Offer;

“EGM”		means an extraordinary general meeting of the Offeror Parent to be convened for the purpose of considering and, if thought fit, approving the making of the Offers, the Irrevocable Undertaking and the transactions contemplated thereunder;

“Executive”		means the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director;

“First Vesting Date”		means January 1, 2011;

“HK$”		means Hong Kong dollar(s), the lawful currency of Hong Kong;

“Hong Kong”		means the Hong Kong Special Administrative Region of the PRC;

“HSBC”		means The Hongkong and Shanghai Banking Corporation Limited, an institution registered under the SFO to conduct type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities), type 5 (advising on futures

-43-


		contracts) and type 6 (advising on corporate finance) regulated activities as defined under the SFO and a licensed bank under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong), one of the joint financial advisers to the Offeror Group in relation to the Offers;

“HSBC Group”		means HSBC, the joint financial adviser to the Offeror Group, and its affiliates (other than those members having the status as an exempt principal trader or exempt fund manager);

“Independent Board Committee”		means an independent committee of the Target Board comprising all the independent non-executive directors of the Target, namely, Mr. Yu Shimao, Mr. Chen Yongquan, Mr. Samuel King On Wong and Mr. Liu Jinting;

[“Independent Financial Adviser”		means [Somerley Limited], the independent financial adviser to the Independent Board Committee in connection with the Share Offer and Option Offer. [ ]is a corporation licensed to carry on [Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance), Type 7 (providing automated trading services) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong);]

“Irrevocable Undertakings”		means, collectively, the CA Dairy Irrevocable Undertaking and the Zhang Irrevocable Undertaking and “Irrevocable Undertaking” means any one of them;

“Last Trading Date”		means June 11, 2013, being the last full trading date prior to the suspension of trading in the Shares on the Stock Exchange pending the publication of this announcement;

“Listing Rules”		means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;

“Maximum Interest”		means the maximum interest in the Offeror’s enlarged issued share capital that may be held by the Accepting Shareholders;

“Memorandum”		means the memorandum of association of the Offeror;

“New Articles”		means the new articles of association of the Offeror to be adopted on or before close of the Offers which are required to give effect to the rights of the lenders under the external financing agreement in respect of the Offers to be entered into by such lenders and the Offeror Parent;

“New Listco”		has the meaning ascribed to it in the section headed “Compulsory Acquisition and Withdrawal of Listing” in this announcement;

-44-


“Offer Period”		has the meaning given to it in the Takeovers Code;

“Offeror”		means China Mengniu International Company Limited;

“Offeror Group”		means the Offeror Parent and its subsidiaries including, in particular, the Offeror;

“Offeror Parent”		means China Mengniu Dairy Company Limited, a company incorporated in the Cayman Islands with limited liability with its shares listed on the Main Board of the Stock Exchange (stock code: 2319);

“Offeror Share”		means each ordinary share in the issued share capital of the Offeror, details of which are set out in the section headed “Information on the Offeror” of this announcement; *[Offeror to confirm]*

“Offers”		means the Share Offer and the Option Offer;

“Option Offer”		means the proposal to be made by the Offeror in compliance with Rule 13 of the Takeovers Code to cancel all the outstanding Options in accordance with the terms and conditions set out in this announcement;

“Optionholders”		means the holders of the Options;

“Options”		means share options granted by the Target pursuant to the Pre-IPO Share Option Scheme or the Share Option Scheme, whether vested or not;

“PRC”		means the People’s Republic of China (excluding Hong Kong, Macau and Taiwan);

“Pre-IPO Share Option Scheme”		means the share option scheme adopted by the Target on October 8, 2010, as amended from time to time, which replaces the share options originally granted by Yashili (Guangdong) to the grantees on January 1, 2009 and August 1, 2010;

“Relevant Authority(ies)”		means any relevant government, governmental, quasi-governmental, statutory or regulatory authority, body, agency, tribunal, court or institution;

“Relevant Shareholders”		has the meaning ascribed to it in the section headed “Compulsory Acquisition and Withdrawal of Listing” in this announcement;

-45-


“Relevant Offeror Shares”		has the meaning ascribed to it in the section headed “Compulsory Acquisition and Withdrawal of Listing” in this announcement;

“Relevant Shares”		means the 1,826,808,760 Shares held by Zhang International and the 853,631,240 Shares held by CA Dairy as at the date of the Irrevocable Undertakings, collectively representing approximately 75.3% of the issued share capital of the Target, as at the Last trading Date;

“Restricted Period”		means the period commencing immediately after Completion during which a person who has been proposed by Zhang International and appointed as a director of the Target remains as a director of the Target and for two (2) years from the date that such person ceases to be a director of the Target;

“SFC”		means the Securities and Futures Commission of Hong Kong;

“Share Offer”		means the conditional voluntary offer by the Offeror to acquire all of the outstanding Shares in accordance with the terms and conditions set out in this announcement;

“Share Offer Price”		means the price at which the Cash Option of the Share Offer will be made available to Shareholders as part of the terms of the Share Offer, being HK$[3.50] per Share;

“Share Option Scheme”		means the share option scheme adopted by the Target on October 8, 2010, as amended from time to time, under which an Option may be exercised during a period not exceeding ten (10) years from the date of the relevant grant;

“Shareholder”		means a registered holder for the time being of Share(s);

“Shares”		means ordinary shares of HK$0.10 each in the issued share capital of the Target;

“Standard Chartered”		means Standard Chartered Bank (Hong Kong) Limited, one of the joint financial advisers to the Offeror Group in relation to the Offers, a licensed corporation under the Securities and Futures Ordinance, licensed to carry out for Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities;

“Stock Exchange”		means The Stock Exchange of Hong Kong Limited;

-46-


“Subscriber Share”		means the one (1) share in the Offeror that was subscribed by the Offeror Parent upon the incorporation of the Offeror;

“subsidiaries”		has the meaning ascribed to it in the Listing Rules;

“Takeovers Code”		means The Codes on Takeovers and Mergers and Share Repurchases published by the SFC;

“Target”		means Yashili International Holdings Ltd, a company incorporated in the Cayman Islands with limited liability with its shares listed on the Main Board of the Stock Exchange (stock code: 1230);

“Target Board”		means the board of directors of the Target;

“Target Group”		means the Target and its subsidiaries;

“UBS”		means UBS AG, acting through its Hong Kong branch, an institution licensed to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance), Type 7 (providing automated trading services) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong), the lead financial adviser to the Offeror Group in relation to the Offers;

“Unconditional Date”		means the date on which the Offers become or are declared unconditional in all respects;

“Yashili (Guangdong)”		means (Guangdong Yashili Group Company Limited), a subsidiary of the Target incorporated in the PRC;

“Zhang’s Family”		means, collectively, Mr. Zhang Lihui ( ), Mr. Zhang Likun ( ), Mr. Zhang Liming ( ), Mr. Zhang Lidian ( ), Mr. Zhang Libo ( ), Mr. Zhang Yanpeng ( ) and Ms. She Lifang ( );

“Zhang International”		means Zhang International Investment Ltd. ( ), a limited liability company incorporated on May 25, 2010 under the laws of the British Virgin Islands, owned as to 18% by Mr. Zhang Lihui, 18% by Mr. Zhang Likun, 18% by Mr. Zhang Liming, 18% by Mr. Zhang Lidian, 18% by Mr. Zhang Libo and 10% by Ms. She Lifang, and engages in investment holding;

“Zhang International Lock-Up”		has the meaning ascribed to it under the section headed “Lock-Up Period” of this announcement;

-47-


“Zhang Irrevocable Undertaking”		means the irrevocable undertaking dated June [16], 2013 given by Zhang International in favour of the Offeror Parent and the Offeror; and

“%”		means per cent.

-48-


By order of the		By order of the
board of directors of		board of directors of
China Mengniu Dairy Company Limited		Yashili International Holdings Ltd

Sun Yiping		Zhang Lidian
Chief Executive Officer and Executive		Chairman
Director

By order of the board of directors of
China Mengniu International Company
Limited
Wu Jingshui
Director

Hong Kong, June [18], 2013

The directors of Offeror Parent jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that relating to the Target Group) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement (other than that expressed by the Target Group) have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statements in this announcement misleading.

The directors of Offeror jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that relating to the Target Group) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement (other than that expressed by the Target Group) have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statements in this announcement misleading.

The directors of the Target jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that relating to the Offeror Parent, the Offeror and their Concert Parties) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement (other than that expressed by the Offeror Parent, the Offeror and their Concert Parties) have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statements in this announcement misleading.

As at the date of this announcement, the board of the Offeror Parent comprises: Ms. Sun Yiping, Mr. Bai Ying, Mr. Wu Jingshui and Mr. Ding Sheng as executive directors, Mr. Ning Gaoning, Mr. Yu Xubo, Mr. Niu Gensheng, Mr. Ma Jianping, Mr. Tim Ørting Jorgensen, Mr. Finn S. Hansen and Ms. Liu Ding as nonexecutive directors, Mr. Jiao Shuge (alias Jiao Zhen), Mr. Julian Juul Wolhardt, Mr. Liu Fuchun, Mr. Zhang Xiaoya, Mr. Andrew Y. Yan and Mr. Wu Kwok Keung Andrew as independent non-executive directors.

As at the date of this announcement, the board of directors of the Offeror comprises of Mr. Wu Jingshui and Mr. Kwok Wai Cheong.

As at the date of this announcement, the executive directors of the Target are Mr. Zhang Lidian (Chairman), Mr. Zhang Likun, Mr. Zhang Liming, Mr. Zhang Libo and Mr. Zhang Yanpeng; the non-executive directors of the Company are Mr. Chang Herman Hsiu-Guo and Mr. Zhang Chi; and the independent non-executive directors of the Target are Mr. Yu Shimao, Mr. Chen Yongquan and Mr. Samuel King On Wong and Mr. Liu Jinting.

-49-

* For identification purposes only

-50-

SCHEDULE 2

SHAREHOLDER’S WARRANTIES

1.	The Relevant Shares

(a)	The Relevant Shares have been validly allotted and issued and are fully paid or credited as fully paid.

(b)

We are the sole owner of the Relevant Shares, free and clear of all Encumbrances and any other third party rights whatsoever. We are entitled to sell and transfer or procure the sale and transfer of the full legal and beneficial ownership of the Relevant Shares to the Offeror free and clear from all Encumbrances on the terms set out in this undertaking and with all rights attaching thereto (including the right to all dividends and other distribution, if any, declared, made or paid after the date of this undertaking).

2.	Capacity and relevant authorization

(a)

We are duly incorporated, validly existing and in good standing under the laws of the Cayman Islands and we are not insolvent, in liquidation or receivership. We have not taken any step to enter liquidation and there is no grounds on which a petition or application could be based for our winding up or the appointment of a receiver in respect of us. We have full power and authority to own our properties and to conduct our business.

(b)

We:

have the requisite power and authority to enter into, and to perform its obligations under this undertaking; and

ii.

have obtained or satisfied all corporate, regulatory and other approvals, necessary to execute and perform its obligations under this undertaking.

(c)	This undertaking constitutes a legal, valid and binding agreement of us and enforceable against us in accordance with its terms.

(d)	We are a wholly owned by Carlyle Asia Partners III L.P. and CAP III Co-investment L.P..

3.	Consummation of the Transactions

Other than compliance with the applicable requirements under the Codes and the Listing Rules in respect of the Offer, the execution, delivery and performance by us of this undertaking will not:

(a)	contravene, conflict with, or result in any violation or breach of any provision of our memorandum and articles of association (or any equivalent organizational documents); or

(b)	result in the creation or imposition of any Encumbrance on the Relevant Shares.

4.	No Inside Information

As at the date of this undertaking, except for information relating to the Offer or this undertaking, we are not in possession of any “inside information” (as such term is defined under the Securities and Futures Ordinance (“SFO”)) relating to the Company which may enable us to counsel or procure another person to commit an offence of insider dealing in securities of the Company under section 270 of the SFO.

-7-

SCHEDULE 3

OFFEROR’S AND MENGNIU’S WARRANTIES

The Offeror is duly incorporated, validly existing and in good standing under the laws of the British Virgin Islands. Mengniu is duly incorporated, validly existing and in good standing under the laws of the Cayman Islands. Neither the Offeror nor Mengniu are insolvent, in liquidation or receivership. Neither the Offeror nor Mengniu have taken any step to enter liquidation and there are no grounds on which a petition or application could be based for the winding up or the appointment of a receiver in respect of either the Offeror or Mengniu. The Offeror and Mengniu have full power and authority to own their respective properties and to conduct their respective businesses.

2.	The Offeror and Mengniu:

(a)	have the requisite power and authority to enter into, and to perform each of their obligations under this undertaking; and

(b)	have obtained or satisfied all corporate, regulatory and other approvals, necessary to execute and perform each of their respective obligations under this undertaking.

3.	This undertaking constitutes a legal, valid and binding agreement of each of the Offeror and Mengniu and is enforceable against each of the Offeror and Mengniu in accordance with its terms.

As at the date of this undertaking, except for information relating to the Offer or this undertaking, neither the Offeror or Mengniu is in possession of any “inside information” (as such term is defined under the Securities and Futures Ordinance (“SFO”)) relating to the Company which may enable the Offeror or Mengniu, respectively, to counsel or procure another person to commit an offence of insider dealing in securities of the Company under section 270 of the SFO.

-8-



Signed for and on behalf of		)
CA DAIRY HOLDINGS		)
		)
By:	WAYNE BANNON
Title:	DIRECTOR

Signed for and on behalf of		)
CHINA MENGNIU INTERNATIONAL		)
COMPANY LIMITED		)
		)
By:		)
Title:

Signed for and on behalf of		)
CHINA MENGNIU DAIRY COMPANY LIMITED		)
		)
		)
By:
Title:

IRREVOCABLE UNDERTAKING (CA DAIRY)


Signed for and on behalf of				)
CA DAIRY HOLDINGS				)
				)
By:
Title:

Signed for and on behalf of				)
CHINA MENGNIU INTERNATIONAL				)
COMPANY LIMITED				)
				)
By:				)
Title:

Signed for and on behalf of				)
CHINA MENGNIU DAIRY COMPANY LIMITED				)
				)
				)
By:
Title:

IRREVOCABLE UNDERTAKING (CA DAIRY)

EXECUTION VERSION

ZHANG INTERNATIONAL INVESTMENT LTD.

AND

CHINA MENGNIU INTERNATIONAL COMPANY LIMITED

AND

CHINA MENGNIU DAIRY COMPANY LIMITED

PROJECT FUTURE

IRREVOCABLE UNDERTAKING

relating to 1,826,808,760

ordinary shares of

Yashili International Holdings Ltd.

DATE: JUNE 17, 2013

Table of Contents


		Page

1.	INTERPRETATION		3

2.	SHAREHOLDER’S UNDERTAKINGS		8

3.	TOTAL CONSIDERATION AND OTHER TERMS OF THE OFFER		11

4.	OFFEROR’S AND MENGNIU’S UNDERTAKINGS		13

5.	THE SHAREHOLDER’S WARRANTIES		13

6.	OFFEROR’S WARRANTIES		14

7.	TERMINATION		14

8.	CONFIDENTIAL INFORMATION AND ANNOUNCEMENT		14

9.	REVISED OFFER		15

10.	SPECIFIC PERFORMANCE		15

11.	ASSIGNMENT		15

12.	COSTS		15

13.	ENTIRE AGREEMENT		15

14.	GENERAL		15

15.	NOTICES		16

16.	GOVERNING LAW AND JURISDICTION		17

SCHEDULE 1 LIST OF SUBSIDIARIES			18

SCHEDULE 2 OFFER ANNOUNCEMENT			20

SCHEDULE 3 SHAREHOLDER’S WARRANTIES			21

SCHEDULE 4 LIMITATIONS ON SHAREHOLDER’S LIABILITIES			28

SCHEDULE 5 OFFEROR’S WARRANTIES			31

SCHEDULE 6 INTELLECTUAL PROPERTY			32

SCHEDULE 7 PROPERTIES			33

SCHEDULE 8 DETAILS OF SHARE OPTIONS SCHEMES			38

SCHEDULE 9 INSURANCE POLICIES			39

THIS UNDERTAKING is made on June 17, 2013

BETWEEN:

(1)	ZHANG INTERNATIONAL INVESTMENT LTD., a company incorporated under the laws of the British Virgin Islands whose registered office is at Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands (the “Shareholder”);

(2)	CHINA MENGNIU INTERNATIONAL COMPANY LIMITED, a company incorporated under the laws of the British Virgin Islands (the “Offeror”); and

(3)	CHINA MENGNIU DAIRY COMPANY LIMITED, a company incorporated under the laws of the Cayman Islands whose registered office is at P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands (“Mengniu”);

together, the “Parties” and each a “Party”.

WHEREAS:

(A)

The Company is a company incorporated under the laws of the Cayman Islands and publicly listed on the Stock Exchange with stock code 1230 whose registered office is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The Shareholder is the registered and beneficial holder of 1,826,808,760 Shares as of the date of this Undertaking, representing approximately 52.19% of the Company’s entire issued share capital.

(B)	The Offeror intends to make an offer to acquire the entire issued share capital of the Company substantially on the terms and conditions set out in the Offer Announcement and otherwise as described in this Undertaking.

(C)	The Offeror is a wholly-owned subsidiary of Mengniu.

(D)	Upon the terms and subject to the conditions contained in this Undertaking, the Offeror irrevocably undertakes to make the Offer, and the Shareholder irrevocably undertakes to accept the Offer in respect of the Relevant Shares.

(E)	This Undertaking sets out the terms and conditions on which the Shareholder will accept the Offer when it is made.

THE PARTIES AGREE as follows:

1.	INTERPRETATION

1.1	In this Undertaking:

“Accounts Date” means December 31;

“Accounts” means the audited consolidated statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows of the Group, in each case, as at and for the period ended on the Accounts Date, together with the auditors’ reports and directors’ reports on and the notes to such accounts;

“Affiliates” means in relation to a Party, (i) an entity which is directly or indirectly controlled by, or under common control with, or (whether acting alone or jointly and in concert with another) in control of, such Party, and (ii) an individual (whether acting alone or jointly and in concert with another) which directly or indirectly controls such Party. For the purpose of this definition, the term “control” means (i) the ownership of more than

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fifty per cent (50%) of the voting shares or the registered capital of an entity, (ii) being the single largest owner of the voting shares or the registered capital of an entity, (iii) having the power to appoint or elect a majority of the directors or the power to direct the management of an entity. For the avoidance of doubt, an Affiliate of the Shareholder shall include each member of the Zhang’s Family and the entities which are controlled by (whether alone or jointly and in concert with another) any member of the Zhang’s Family;

“Anti-Bribery Laws” means Applicable Laws which have the effect of prohibiting corruption or bribery, including all Applicable Laws with respect to corrupt practices in the procurement by government entities of dairy food products and services;

“Applicable Laws” means with respect to any person, any laws, rules, regulations, judgments, decrees, orders, rulings or decisions of any governmental or regulatory authority or stock exchange or any food safety standards put in place by any relevant Governmental Authority that are applicable to such person;

“Board” means board of directors of the Company;

“Business Day” means a full day on which the Stock Exchange is open for the business of dealing in securities;

“CCASS” means the Central Clearing and Settlement System operated by Hong Kong Securities Clearing Company Limited;

“Codes” means the Hong Kong Codes on Takeovers and Mergers and Share Repurchases; “Company” means Yashili International Holdings Ltd.;

“Completion” means completion of the sale and purchase of the Relevant Shares pursuant to the Offer (including, for the avoidance of doubt, the receipt of the Total Consideration by the Shareholder);

“Connected Person(s)” shall have the meaning ascribed to it under listing rules 14A.11 and 14A.12 of the Listing Rules;

“Despatch Date” means the date of despatch of the Offer Document and the formal document containing the proposal made by the Offeror to holders of the outstanding Share Options in compliance with Rule 13 of the Codes;

“Director” means a director of the Board;

“Disclosure Letter” means the letter dated the date hereof and given by the Shareholder and addressed to the Offeror and Mengniu;

“Encumbrance” means a mortgage, charge, pledge, lien, option, restriction, right of first refusal, right of pre-emption, third-party right or interest, or other encumbrance or security interest having similar effect;

“Environmental and Food Safety Laws” means any Applicable Laws relating to the environment, food safety, natural resources, pollutants, contaminants or, solely as it relates to exposure to Hazardous Substances, human health and safety;

“Environmental and Food Safety Permits” means all permits, licenses, franchises, certificates, approvals and other similar authorizations of Governmental Authorities required by Environmental and Food Safety Laws for the operation of the business of the Group;

-4-

“Final Cash Balance” means the cash and cash equivalent available in the Group’s accounts as at the Unconditional Date, and deducting the following items in each case as at such date:

(a)

all outstanding indebtedness for borrowed moneys;

(b)

fees and expenses outstanding to any adviser or otherwise incurred in connection with the Transactions, to the extent such sums remain unpaid; and

(c)

any proceeds received by the Company in respect of the exercise of any Share Option by an optionholder between the date of this Undertaking and the Unconditional Date.

“Governmental Authority” means any transnational, domestic or foreign, federal, state or local governmental, regulatory or administrative authority, department, court, agency or official, or instrumentality including any political subdivision thereof;

“Group” means the Company and each Subsidiary;

“Group Company” means the Company or a Subsidiary;

“Hazardous Substance” means any toxic, radioactive or otherwise hazardous substance, pollutant, contaminant, product, by-product, waste or material that in the relevant form and concentration, is listed, classified or regulated under or forming the basis for liability or standards of conduct under any Environmental and Food Safety Law as such;

“HK$” means Hong Kong dollars, the lawful currency of Hong Kong;

“Hong Kong” means the Hong Kong Special Administrative Region of the PRC;

“Intellectual Property” means patents, trademarks, service marks, logos, trade names, internet domain names, copyrights, database rights, utility models, rights in designs, rights in inventions, rights in know-how and other intellectual property rights, in each case whether registered or unregistered, and all rights or forms of protection having equivalent or similar effect anywhere in the world and “registered” includes registrations and applications for registration;

“Last Accounts Date” means December 31, 2012;

“Last Accounts” means the audited consolidated statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows of the Group, in each case, as at and for the period ended on the Last Accounts Date, together with the auditors’ reports and directors’ reports on and the notes to such accounts;

“Listing Rules” means the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited;

“Major Transaction Circular” means the circular containing, among other things, details of the Offer and a notice convening an extraordinary general meeting of Mengniu for the purpose of considering and, if thought fit, approving the making of the Offer as a “major transaction” of Mengniu under the Listing Rules;

“Material Contract” means:

(i)

a debt instrument that is binding on a Group Company whereby either (A) the standalone principal value of such instrument or (B) in the case of related instruments, the aggregate principal value, exceeds RMB50,000,000;

-5-

(ii)

a contract that involves the performance of services or delivery of goods, products, supplies, materials or developmental, consulting or other services by or to any Group Company the value of each of which exceeds RMB5,000,000, or a contract that involves the distribution or promotion of the Group’s products the value of each which exceeds RMB2,000,000, in each case, other than contracts terminable by a Group Company on no more than 90 days’ notice or in connection with an annual renewal without liability or financial obligation to any Group Company; and

(iii)

a contract (A) pursuant to which a Group Company grants any exclusive rights to any third party, including any exclusive license or supply or distribution agreement or other exclusive rights or (B) pursuant to which a Group Company grants any rights of first refusal or rights of first negotiation with respect to any product or service, except in the case of each of clauses (A) and (B) for such rights and provisions that are not material to the Group;

“Offer” means the proposed conditional voluntary cash and share offer to be made by or on behalf of the Offeror to acquire all the Shares (other than those Shares already held by the Offeror and persons acting in concert with the Offeror) in accordance with the Codes and on the terms and conditions set out in this Undertaking and the Offer Announcement;

“Offer Announcement” means the joint announcement to be published by the Offeror and the Company pursuant to Rule 3.5 of the Codes in respect of the Offer, the form of which is set out in Schedule 2;

“Offer Document” means the composite offer document (which shall contain the offeree board circular) and the accompanying form of acceptance and transfer to be despatched in accordance with Clause 4.1.2 by the Offeror and the Company in connection with the Offer on the Despatch Date;

“Offer Period” has the meaning given to it in the Codes;

“Offeror Shares” means the ordinary shares in the capital of the Offeror.

“Offeror’s Group” means the Offeror and any company which is, at the date of this Undertaking, a subsidiary or holding company of the Offeror or a subsidiary of a holding company of the Offeror and includes, for the avoidance of doubt, after the date of Completion, each Group Company, and a “member of the Offeror’s Group” shall be construed accordingly;

“Offeror’s Warranties” means the statements contained in Schedule 5;

“PRC” means the People’s Republic of China;

“Properties” means the properties owned by the Group as set out in Schedule 7;

“Relevant Shares” means:

(i)

1,826,808,760 Shares directly owned by the Shareholder, representing approximately 52.19% of the Company’s entire issued share capital as at the date of this Undertaking; and

(ii)

all other Shares received, allotted to, or otherwise acquired by the Shareholder after the date of this Undertaking;

“Restricted Period” means the period commencing immediately after Completion during which a person who has been proposed by the Shareholder and appointed as a Director by the Board remains as a Director and for two (2) years from the date that such Director ceases to be a Director;

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“RMB” means Renminbi, the lawful currency of the PRC;

“Senior Management” means the employees listed under the heading “senior management” of the section “Directors and Management Biographies” in the 2012 annual report of the Company filed with the Stock Exchange on April 25, 2013.

“SFC” means the Securities and Futures Commission of Hong Kong;

“SFO” means the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong);

“Share Option Schemes” means the share option scheme adopted by the Company on October 8, 2010, as amended from time to time, which replaces the share options originally granted by Guangdong Yashili Group Company Limited to the grantees on January 1, 2009 and August 1, 2010, and the share option scheme adopted by the Company on October 8, 2010, as amended from time to time, which is valid and effective for a period of 10 years from November 1, 2010;

“Share Option” means each option to purchase Shares under the Share Option Schemes;

“Shares” means the ordinary shares in the capital of the Company;

“Stock Exchange” means The Stock Exchange of Hong Kong Limited;

“Subsidiary” means any one of the subsidiaries of the Company, a list of which is set out in Schedule 1;

“Tax Return” means any report, return, filing, declaration, claim for refund, or information return or statement in connection with the determination, assessment, collection or imposition of any Taxes or otherwise related to Taxes, including any schedule or attachment, and including any amendment thereof;

“Tax” means any form of taxation and any levy, duty, charge, contribution, withholding or impost in the nature of taxation (including any related fine, penalty, or interest) imposed, collected or assessed by, or payable to, a tax authority having appropriate jurisdiction;

“Taxing Authority” means any Governmental Authority responsible for the imposition or collection of any Tax;

“Title Warranties” means those Warranties set out in Section 1 (The Relevant Shares) and Section 2 (Capacity of the Shareholder and relevant authorization) of Schedule 3;

“Total Consideration” means the total consideration to be paid to the Shareholder in accordance with the Codes upon the Offer becoming unconditional in all respects;

“Transaction Documents” means this Undertaking, the Disclosure Letter, the Offer Announcement and the Offer Document;

“Transactions” means the transactions contemplated in the Transaction Documents and “Transaction” shall be construed accordingly;

“Unconditional Date” means the date on which the Offer becomes unconditional in all respects;

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“Warranties” means those statements contained in Schedule 3 and “Warranty” means any one of them; and

“Zhang’s Family” means, collectively, Mr. Zhang Lidian ( LOGO ), Mr. Zhang Likun ( LOGO ), Mr. Zhang Liming ( LOGO ), Mr. Zhang Libo ( LOGO ), Mr. Zhang Lihui ( LOGO ), Mr. Zhang Yanpeng ( LOGO ) and Ms. She Lifang ( LOGO ).

1.2	In this Undertaking, a reference to:

1.2.1

the words “holding company” and “subsidiary” shall have the same meanings in this Undertaking as their respective definitions in the Companies Ordinance, Chapter 32 of the Laws of Hong Kong;

1.2.2

a statutory provision includes a reference to the statutory provision as modified or re-enacted or both from time to time before the date of this Undertaking and any subordinate legislation made under the statutory provision (as so modified or re-enacted) before the date of this Undertaking;

1.2.3

a “person” includes, unless the context otherwise requires, a reference to any individual, firm, company, corporation, body or other body corporate, government, state or agency of a state or any joint venture, association or partnership, works council or employee representative body (whether or not having separate legal personality);

1.2.4

a person includes a reference to that person’s legal personal representatives, successors and permitted assigns;

1.2.5

a “Party” includes a reference to that Party’s successors and permitted assigns;

1.2.6

a clause, paragraph or Schedule, unless the context otherwise requires, is a reference to a clause or paragraph of, or Schedule to, this Undertaking;

1.2.7

any phrase introduced by the terms including, include, in particular or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms; and

1.2.8

time of the day is to Hong Kong time.

1.3	The headings in this Undertaking do not affect its interpretation.

1.4	The Schedules to this Undertaking are and form part of this Undertaking as if they were included in the body of this Undertaking.

1.5	Any statement in this Undertaking qualified by the expression to the best of the Shareholder’s knowledge or so far as the Shareholder is aware or any similar expression shall mean the actual knowledge of each member of Zhang’s Family and Mr. Wu Xiaonan ( ).

2.	SHAREHOLDER’S UNDERTAKINGS

2.1	Acceptance of the Offer. In consideration of the Offeror’s undertakings in Clause 4.1, the Shareholder irrevocably undertakes to the Offeror and Mengniu that the Shareholder shall:

2.1.1

as soon as possible and in any event by 4:00 p.m. on the Business Day after the Despatch Date, duly accept the Offer in respect of the Relevant Shares in accordance with the terms of the Offer and the Shareholder’s obligations under this Undertaking, and in doing so, sell as the beneficial owner, the Relevant Shares

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free and clear of any Encumbrance and together with all rights of any nature attaching thereto and shall surrender the relevant share certificate(s) at the time of such acceptance by forwarding them to the Offeror (or providing a form of indemnity acceptable to the Directors in respect of any lost certificate(s) at the time of such acceptance) or deliver or cause to be delivered to the Offeror irrevocable instructions to deliver the Relevant Shares to the Offeror or on its behalf through CCASS in accordance with the terms and conditions set out in the Offer Document;

2.1.2

in accepting the Offer, elect for the Cash and Share Option (as such term is defined in the Offer Announcement);

2.1.3

procure that the following members of the Board shall resign as Directors and as directors of each relevant Group Company with effect from Completion, without any claim for compensation for loss of office: Mr. Zhang Likun, Mr. Zhang Liming, Mr. Zhang Libo and Mr. Zhang Lidian; and

2.1.4

cause its appointees to the Board to convene a meeting of the Board prior to Completion and to cause its appointees to the Board to exercise their voting rights as Directors, subject to their fiduciary duties, to approve the appointment of those persons to be designated by the Offeror and Mengniu to become Directors with effect from Completion.

2.2

No withdrawal of the Offer. The Shareholder irrevocably undertakes to the Offeror and Mengniu that it will not withdraw any acceptance of the Offer in respect of the Relevant Shares, notwithstanding any withdrawal rights that may be afforded to shareholders of the Company under the Codes or in the terms and conditions of the Offer.

2.3	No encumbrance or other third party rights over the Relevant Shares. The Shareholder irrevocably undertakes to the Offeror and Mengniu that it shall not, before the Offer closes, lapses or is withdrawn, other than pursuant to the Offer:

2.3.1

2.3.2

acquire, directly or indirectly, any additional shares, securities or other interests of the Company. If despite the foregoing sentence, it voluntarily or involuntarily receives, is allotted, or otherwise acquires any additional interest in shares, securities or other interests of the Company, such shares, securities or interests shall be deemed to be Relevant Shares for the purpose of this Undertaking; or

2.3.3

take any action or enter into any agreement or arrangement, including through its representation on the Board (and whether or not legally binding or subject to any condition or which is to take effect after the Offer closes or lapses), or permit any agreement or arrangement to be entered into or authorize or incur any obligation which in relation to the Relevant Shares, would or might restrict or impede its accepting the Offer.

2.4	Shareholder to remain solvent. The Shareholder irrevocably undertakes to the Offeror and Mengniu that during the Restricted Period, it will remain solvent and able to pay its debts as they fall due and will not be wound up or be subject to any petition or resolution for voluntary winding up.

2.5

Pre-completion undertakings. The Shareholder irrevocably undertakes to the Offeror and Mengniu that during the period from the date of this Undertaking until the Unconditional Date, it shall cause its appointees to the Board to exercise their rights as Directors, subject to their fiduciary duties, to:

2.5.1

ensure that the affairs of the Group are conducted only in the ordinary and usual course of the Group’s business;

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2.5.2

cause all reasonable steps to be taken to preserve and retain the goodwill of the Group (including the existing relationships of the Group with its employees, customers and suppliers);

2.5.3

ensure that no Group Company enters into any transaction with any Connected Person, other than the renewal of such transactions that has been disclosed by the Company as of the date of this Undertaking;

2.5.4

ensure that no Group Company will (or will be caused to) take any step or action which may give rise to any circumstance that could result in a breach of Rule 4 and General Principle 9 of the Codes, unless with the consent of the Offeror; and

2.5.5

as soon as reasonably practicable, give the Offeror and Mengniu all information and assistance as they may reasonably require for the preparation of the Offer Document and all related ancillary documents in order to comply with the requirements of the Codes, the SFC, the Stock Exchange and any other legal regulatory requirement or body in relation to the Offer. It shall promptly notify Offeror and Mengniu in writing of any material change in the accuracy of any information previously given to them.

2.6

Non-competition. Following the date of Completion, save for its shareholding in the Offeror or any shares which are swapped in exchange for shares in the Offeror, the Shareholder shall not and shall procure that its Affiliates shall not (whether alone or jointly with another and whether directly or indirectly), during the Restricted Period:

2.6.1

carry on, operate, develop or be engaged or concerned or interested economically or otherwise in any manner in any Competing Business in the Protected Territories;

2.6.2

use or display any trademark, business name or mark, domain name or any website containing (i) the word(s) “Yashili (in Chinese: LOGO

)”, “Scient” (in Chinese: LOGO

)”, other than in respect of the use of such name by the Zhang’s Family in its investment holding ventures.

For the purpose of this 2.6:

2.6.3

“Competing Business” means (i) the sourcing, manufacture, sale, distribution and promotion of dairy or dairy-based products, and (ii) the sourcing, manufacture, sale, distribution and promotion of soy milk or soy milk-based products; and

2.6.4

“Protected Territories” means the PRC and New Zealand. For the purpose of this Clause 2.6, PRC shall be construed to include Hong Kong, Taiwan and Macau.

Notwithstanding anything to the contrary in this Clause 2.6, the Shareholder and its Affiliates may be interested in, engaged in, acquire or hold interest in, any Competing Business with the written consent of Mengniu or in cooperation with or in conjunction with Mengniu or any of its Affiliates.

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2.7	Non-Solicitation. Following the date of Completion, the Shareholder shall not and shall procure that each of its Affiliates shall not, during the Restricted Period:

2.7.1

directly or indirectly solicit, hire or encourage or seek to encourage any person who is a director, officer, employee or distributor of any member of the Group to leave his/her current employment or consultancy or to breach the terms of any contract or conclude any contract for services with any such person, other than a person who has not been a director, officer, employee or distributor of any member of the Group for at least 180 days and whom neither the Shareholder nor any of its Affiliates directly or indirectly solicited or so encouraged or sought to encourage or who was terminated by any member of the Group; and

2.7.2

directly or indirectly solicit the business of any client or customer of any member of the Group in relation to the Competing Business, or directly or indirectly induce or influence the clients, customers or suppliers of any member of the Group for them to restrict or cancel the business relationship with any member of the Group.

Notwithstanding anything to the contrary in this Clause 2.7, (a) the Shareholder or its Affiliates may, in aggregate, hire no more than five employees of any Group Company; provided that only one of such five employees may be a member of the Senior Management, and (b) the restrictions in this Clause 2.7 do not apply to the hiring by the Shareholder or its Affiliates of any member(s) of Zhang’s Family or any other arrangements entered into between them.

2.8	Mr. Zhang Lidian. The Parties acknowledge that Mr. Zhang Lidian may consider remaining as a member of the senior management of the Group following Completion.

3.	TOTAL CONSIDERATION AND OTHER TERMS OF THE OFFER

3.1

Terms of the Offer. The Offer shall be made upon and subject to the terms and conditions set out in the Offer Announcement. The Parties understand and agree that the Offer Document will contain further terms on the procedures for acceptance of the Offer and such other terms and conditions as are customarily contained in an offer document for a general offer of all the issued share capital of a company listed on the Stock Exchange.

3.2	Total Consideration. For each Relevant Share the Shareholder sell to the Offeror, the Shareholder shall be entitled to receive a consideration of:

3.2.1

HK$2.82 in cash per Share; and

3.2.2

0.68 Offeror Shares.

Upon Completion, and subject to the terms and conditions of the Offer, the Shareholder shall receive a Total Consideration of HK$5,151,600,703.20 in cash and 1,242,229,957 Offeror Shares.

3.3	Lock-up

3.3.1

Other than as permitted in the articles of association of the Offeror, the Shareholder shall not, during the period of three years from the date of Completion, dispose of, or enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the Offeror Shares issued to it under this Undertaking, unless otherwise approved by the board of directors of the Offeror.

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3.3.2

The Shareholder further undertakes that from the date of this Undertaking until a period of three years from the date of Completion or earlier, if the restrictions under Clause 3.3.1 falls away in accordance with the provisions of the Offeror’s articles of association, it will not register the transfer of any of its issued share capital or otherwise issue, allot or agree to issue or allot any shares, securities or other interests in its share capital or loan capital or otherwise recognize any economic interests in its equity asserted by a person other than the Zhang’s Family.

3.4	Conditions to Closing of the Offer. The closing of the Offer shall be subject to the conditions as set out in the section titled “Conditions to the Offers” in the Offer Announcement.

3.5	Further assurance

3.5.1

The Parties undertake that each of them will, and the Shareholder agrees to cause its appointees to the Board to exercise their rights as Directors, subject to their fiduciary duties, to cause the Company to comply with the Codes in relation to the Offer and they will each use all reasonable endeavors to supply such information that relates to each of them as may be reasonably necessary to be included in the documents to be despatched or the announcements to be issued pursuant to the Codes and the Listing Rules in connection with the Offer, take respective responsibility for such information and authorize the publication, despatch and/or release of such documents and announcements and in respect of the Offeror and Mengniu only, use all commercial reasonable endeavours to obtain the approval of the Transactions by the shareholders of Mengniu as a “major transaction” under the Listing Rules.

3.5.2

The Parties undertake that each of them will and the Shareholder agrees to cause its appointees to the Board to exercise their rights as Directors, subject to their fiduciary duties, to cause the Company to:

(a)

participate in a reasonable number of meetings, assist with the collection, preparation and drafting of the sections of the Major Transaction Circular and the Offer Document that relates to each of them (including, as promptly as reasonably practicable, furnishing the necessary financial statements and other financial and other information regarding each of them and their respective businesses); and

(b)

obtain such cooperation of their respective directors, officers, employees and advisers, as may be reasonable,

in connection with the preparation and despatch of the Major Transaction Circular and the Offer Document.

3.6

Other further assurance. The Offeror and Mengniu shall, from time to time and at their own expense use their respective reasonable endeavours to do, execute and deliver or procure to be done all such further acts, documents and things as may reasonably be required to cause the Offer to become wholly unconditional on or before September 10, 2013.

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4.	OFFEROR’S AND MENGNIU’S UNDERTAKINGS

4.1	The Offeror irrevocably undertakes to the Shareholder, and Mengniu agrees to procure, that the Offeror shall:

4.1.1

at the Offeror’s own costs and in accordance with the Codes, publish the Offer Announcement substantially in the form contained in Schedule 2 (including a Cash and Share Option (as defined in the Offer Announcement) of HK$2.82 and 0.68 share of the Offeror per share and a condition to the Offer that valid acceptances to the Offer are received by 4.00 p.m. on the Closing Date (as defined in the Offer Announcement, or such later time or date as the Offeror may, subject to the rules of the Takeovers Code, decide, in respect of such number of shares which will result in the Offeror and persons acting in concert with it holding at least seventy-five per cent. (75%) of the voting rights in the Company) as soon as reasonably practicable following the signing of this Undertaking and clearance from the SFC and the Stock Exchange to publish the Offer Announcement; and

4.1.2

at the Offeror’s own costs and in accordance with the Codes, despatch the Offer Document in respect of the Offer to the shareholders of the Company on the Despatch Date.

4.2	Mengniu irrevocably undertakes to the Shareholder that it shall, at Mengniu’s own costs and in accordance with the Listing Rules, despatch to the shareholders of Mengniu as soon as reasonably practicable the Major Transaction Circular.

5.	THE SHAREHOLDER’S WARRANTIES

5.1

The Shareholder makes the Warranties to the Offeror set out in Schedule 3 as at the date of this Undertaking and as at the Unconditional Date, subject to the limitations set out in Schedule 4, by reference to the facts and circumstances existing as at the respective dates. Each Warranty shall be separate and independent and (except as expressly otherwise provided) no Warranty shall be limited by reference to any other Warranty.

5.2	The Shareholder acknowledges that the Offeror has entered into this Undertaking in reliance upon the Warranties.

5.3

If it has been finally determined by a court of competent jurisdiction that (i) there is a breach of a Warranty (“Warranty Breach”) and (ii) the Warranty Breach is attributable to a set of facts or matters (the “Underlying Defect(s)”) at one or more of the Group Company(s) (the “Relevant Group Company”), then the Shareholder agrees to pay, on a dollar for dollar basis, to the Relevant Group Company the amount necessary to cure or make good on the Underlying Defect, subject always to the limitations and other provisions set out in Schedule 4 (the “Defect Amount”). If the Shareholder fails to pay the Defect Amount to the Relevant Group Company as required under this Clause 5.3, the Offeror may recover the Defect Amount from the Shareholder (again subject to the limitations and other provisions set out in Schedule 4); provided that it shall hold the Defect Amount on trust for (and pay such amount to) the Relevant Group Company. Payment of the Defect Amount shall be in full and final satisfaction of any and all claims by the Offeror in respect of the relevant Warranty Breach or the associated Underlying Defects.

5.4	The Shareholder’s liability shall be subject to the limitations set out in Schedule 4.

5.5	Nothing in this Undertaking shall limit or exclude the liability of the Offeror or the Shareholder to the extent that such liability arises as a result of its own fraud.

5.6

The Shareholder undertakes to, until the Unconditional Date, notify the Offeror in writing promptly if it becomes aware of any circumstance arising after the date of this Undertaking, which would cause any Warranty (as if the Warranties were repeated with reference to the facts and circumstances then existing) to become untrue or inaccurate or misleading in any material respect.

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6.	OFFEROR’S WARRANTIES

6.1	The Offeror and Mengniu jointly and severally warrant to the Shareholder in the terms of the Offeror’s Warranties set out in Schedule 5 as at the date of this Undertaking and as at the Unconditional Date, by reference to the facts and circumstances existing as at the respective dates.

7.	TERMINATION

7.1	This Undertaking shall terminate immediately if:

7.1.1

the Offeror fails to publish the Offer Announcement in accordance with Clause 4.1.1 within one Business Day of the date of this Undertaking;

7.1.2

the Offeror fails to despatch the Offer Document on the Despatch Date in accordance with Clause 4.1.2; or

7.1.3

the Offer lapses.

7.2	If either:

7.2.1

the shareholders of Mengniu fail to approve the Transaction as a “major transaction” pursuant to the Listing Rules at the extraordinary general meeting convened in accordance with Clause 4.2; or

7.2.2

the Offers have not become wholly unconditional by September 10, 2013;

the Shareholder may, in its sole discretion, terminate this Undertaking with immediate effect by providing written notice to each of the Offeror or Mengniu.

7.3	In the event of the termination of this Undertaking in accordance with its terms, this Undertaking shall terminate in all respects with immediate effect, and no Party shall have any claim under this Undertaking against any other Party, save that:

7.3.1

the provisions of Clauses 1 (Interpretation), 7.3 (Termination), 8 (Confidential Information), 10 (Specific Performance), 11 (Assignment), 12 (Costs), 13 (Entire Agreement), 14 (General), 15 (Notices) and 16 (Governing Law and Jurisdiction) hereof shall continue to apply in full force and effect thereafter; and

7.3.2

such termination shall be without prejudice to a Party’s accrued rights and remedies, obligations and liabilities under this Undertaking as at the date of such termination (other than in respect of a breach of Warranty or a breach of Clauses 2.5, 5, 6, Schedule 3 or Schedule 5, whereby in each case, the respective Parties’ liability arising from such breaches shall accrue only after Completion has taken place).

8.	CONFIDENTIAL INFORMATION AND ANNOUNCEMENT

8.1

Each Party hereby undertakes that except as required by the Applicable Laws, it shall keep secret the possibility, terms and conditions of the Offer and the existence and terms of this Undertaking until the Offer Announcement is released; provided that it may disclose the same to its employees, Affiliates, Affiliate’s employees and advisers in which case it shall procure that they each observe secrecy in the same terms. The obligations in this Clause 8 shall survive the termination of this Undertaking.

8.2	Provided that the Shareholder has a reasonable opportunity to review the drafts of the Offer Announcement, it consents to the issue of the Offer Announcement incorporating references to it and to the Transaction Documents and the Shareholder acknowledges that,

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if the Offer is made, this Undertaking (for the avoidance of doubt, but not the Disclosure Letter) will be made available for inspection during the Offer Period and the particulars of it will be contained in the Offer Document to the extent required by the Codes and/or the Listing Rules.

9.	REVISED OFFER

9.1

Without prejudice to the provisions of Clause 2, this Undertaking will extend to any revised or improved offer or offers by or on behalf of the Offeror and all references to the “Offer” in this Undertaking shall be construed accordingly. The Offeror shall not revise or amend those terms and conditions of the Offer set out in the Offer Announcement without the prior written consent of the Shareholder.

9.2	In accordance with Rule 16.1 of the Codes, if, in the course of the Offer, the Offeror revises the terms of the Offer, the Shareholder, whether or not it has already accepted the Offer, will be entitled to the revised or improved terms of the Offer.

10.	SPECIFIC PERFORMANCE

Each Party agrees that, if it fails to perform any of the undertakings under Clauses 2, 3.5, 3.6, 4, 8 and 9, or breaches any of its obligations under Clauses 2, 3.5, 3.6, 4, 8 and 9, damages would not be an adequate remedy and accordingly the Parties to whom any such unperformed or breached obligation is owed shall be entitled to the remedy of specific performance.

11.	ASSIGNMENT

This Undertaking is personal to the parties to it. None of the Parties shall assign, transfer, declare a trust of the benefit of or in any other way alienate any of its rights under this Undertaking whether in whole or in part.

12.

COSTS

12.1	Except where this Undertaking provides otherwise, each Party shall pay its own costs relating to the negotiation, preparation, execution and performance by it of this Undertaking.

12.2	Any stamp duty payable in connection with the Transactions in respect of the Relevant Shares shall be borne by the Offeror and the Shareholder in equal shares.

13.	ENTIRE AGREEMENT

The Transaction Documents constitute the entire agreement and supersede any previous agreement between the Offeror and/or any of its agents or advisers (on the one hand) and the Shareholder and its agents or advisers (on the other hand), in each case, relating to the Transactions.

14.	GENERAL

14.1	Variation or amendment

A variation of or amendment to this Undertaking is only valid if it is in writing and signed by or on behalf of each Party.

14.2	Failure or delay in exercise of rights

The failure to exercise or delay in exercising a right or remedy provided by this Undertaking or by law does not impair or constitute a waiver of the right or remedy or an impairment of or a waiver of other rights or remedies. No single or partial exercise of a right or remedy provided by this Undertaking or by law prevents further exercise of the right or remedy or, the exercise of another right or remedy.

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14.3	Effect of Completion

14.3.1

Except to the extent that they have been performed and except to the extent otherwise expressly provided in this Undertaking, the rights and remedies of the Parties under this Undertaking shall not be affected, and the liabilities of each Party under this Undertaking shall not be released, discharged or impaired by (i) the Offer becoming or being declared unconditional, or (ii) Completion.

14.3.2

Notwithstanding Completion: (i) each provision of this Undertaking and any other Transaction Document not performed at or before Completion but which remains capable of performance, (ii) the Warranties and the Offeror’s Warranties, and (iii) all covenants, indemnities and other undertakings and assurances contained in or entered into pursuant to this Undertaking or any other Transaction Document, will remain in full force and effect and (except as otherwise expressly provided) without limit in time.

14.4	Severability

If at any time any provision of this Undertaking is or becomes illegal, invalid or unenforceable under the laws of any jurisdiction, that shall not affect:

14.4.1

the legality, validity or enforceability in that jurisdiction of any other provision of this Undertaking; or

14.4.2

the legality, validity or enforceability under the law of any other jurisdiction of that or another provision of this Undertaking.

14.5	Counterparts

This Undertaking may be executed in any number of counterparts and by the Parties on separate counterparts, each of which is an original but all of which together constitute one and the same instrument. Delivery of a counterpart of this Undertaking by e-mail attachment or telecopy shall be an effective mode of delivery.

15.	NOTICES

15.1	A notice or other communication under or in connection with this Undertaking (a “Notice”) shall be:

15.1.1

in writing;

15.1.2

in the English or Chinese language; and

15.1.3

delivered personally or sent by registered post (or air mail if overseas) or by fax to the Party due to receive the Notice to the address set out in Clause 15.3 or to another address, person or fax number specified by a Party by not less than seven days’ written notice to the other Parties received before the Notice was despatched.

15.2	Unless there is evidence that it was received earlier, a Notice is deemed given if:

15.2.1

delivered personally, when left at the address referred to in Clause 15.1.3;

15.2.2

sent by mail, except air mail, one (1) Business Day after posting it;

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15.2.3

sent by air mail, three (3) Business Days after posting it; and

15.2.4

sent by fax, when confirmation of its error-free transmission has been recorded by the sender’s fax machine,

provided that in each case where delivery by hand or by fax occurs after 6:00 p.m. on a Business Day or on a day which is not a Business Day, service shall be deemed to occur at 9:00 a.m. on the next following Business Day.

References to time in this Clause 15.2 are to local time in the country of the addressee.

15.3	For the purposes of this Clause 15, notices should be sent as follows:

15.3.1

in the case of the Offeror, to the Offeror at Suite 1602, 16th Floor, Top Glory Tower, 262 Gloucester Road, Causeway Bay, Hong Kong, marked for the attention of the Company Secretary;

15.3.2

in the case of Mengniu, to Mengniu at Suite 1602, 16th Floor, Top Glory Tower, 262 Gloucester Road, Causeway Bay, Hong Kong, marked for the attention of the Company Secretary;

15.3.3

in the case of the Shareholder, to the Shareholder at Unit B, 19th Floor, Success Commercial Building, 245-251 Hennessy Road, Hong Kong. Documents should be marked for the attention of Zhang Li Dian.

16.	GOVERNING LAW AND JURISDICTION

16.1	This Undertaking is governed by Hong Kong law.

16.2	The courts of Hong Kong have exclusive jurisdiction to settle any dispute arising from or connected with this Undertaking (a “Dispute”) including a dispute regarding the existence, validity or termination of this Undertaking or the consequences of its nullity.

16.3	The Parties agree that the courts of Hong Kong are the most appropriate and convenient courts to settle any Dispute and, accordingly, that they will not argue to the contrary.

16.4	Process by which any proceedings are begun may be served on the Shareholder by being served on Unit B, 19th Floor, Success Commercial Building, 245-251 Hennessy Road, Hong Kong, marked for the attention of Zhang Li Dian.

16.5	Process by which any proceedings are begun may be served on the Offeror by being served on China Mengniu Daily Co. Ltd., marked for the attention of the Company Secretary.

16.6	The Parties agree that the documents which start any proceedings and any other documents required to be served in relation to those proceedings may be served on the relevant Party in accordance with Clause 15. These documents may, however, be served in any other manner allowed by Applicable Laws.

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SCHEDULE 1

LIST OF SUBSIDIARIES

LOGO

-18-

LOGO

-19-

SCHEDULE 2

OFFER ANNOUNCEMENT

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S&C Draft of June 17, 2013

PRIVILEGED AND CONFIDENTIAL




China Mengniu Dairy Company Limited		Yashili International Holdings Ltd

(Incorporated in the Cayman Islands with limited liability)		(Incorporated in the Cayman Islands with limited liability)
(Stock Code: 2319)		(Stock Code: 1230)

China Mengniu International Company Limited

(Incorporated in the British Virgin Islands with limited liability)

JOINT OFFER ANNOUNCEMENT

(1) VOLUNTARY GENERAL OFFER ON BEHALF OF

CHINA MENGNIU INTERNATIONAL COMPANY LIMITED

FOR YASHILI INTERNATIONAL HOLDINGS LTD

(2) MAJOR TRANSACTION OF

CHINA MENGNIU DAIRY COMPANY LIMITED

(3) RESUMPTION OF TRADING IN THE SHARES OF

YASHILI INTERNATIONAL HOLDINGS LTD AND

CHINA MENGNIU DAIRY COMPANY LIMITED, RESPECTIVELY

[(4) APPOINTMENT OF INDEPENDENT FINANCIAL ADVISER

TO THE INDEPENDENT BOARD COMMITTEE OF

YASHILI INTERNATIONAL HOLDINGS LTD]

Lead Financial Adviser to the Offeror Group

LOGO


Joint Financial Adviser to the Offeror Group		Joint Financial Adviser to the Offeror Group

(Independent Financial Adviser to the Independent Board Committee]

[Target to coordinate with Somerley to provide Somerley’s logo]

-2-

INTRODUCTION

THE OFFERS

The Offers will be made by UBS on behalf of the Offeror on the following basis:

The Share Offer:

Under the Share Offer, Shareholders accepting the Share Offer will have a choice of either:

(a) for each Share, HK$[3.50] in cash (the “Cash Option”); or

The Share Offer Price of HK$[3.50] per Share represents a premium of approximately [9.4]% over the closing price of HK$[3.20] per Share as quoted on the Stock Exchange on the Last Trading Date.

-3-

The Option Offer:

Under the Option Offer, appropriate offers will be made to the Optionholders in accordance with Rule 13 of the Takeovers Code to cancel all outstanding Options in exchange for cash:


(A)	In respect of Options with an exercise price of RMB0.11:

	For cancellation of each such Option	HK$	[3.361] in cash	*

(B)	In respect of Options with an exercise price of HK$1.50:

	For cancellation of each such Option	HK$	[2.00] in cash

(C)	In respect of Options with an exercise price of RMB1.84:

	For cancellation of each such Option	HK$	[1.171] in cash	*

*	The exchange rate of HK$[1.266] to RMB1.00 as at June [—], 2013 quoted on Factset

Value of the Offers

CONDITIONS TO THE SHARE OFFER

The Share Offer is subject to the following Conditions:

(a)

(b)

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(c)

(d)	no event having occurred which would make the Offers or the acquisition of any of the Shares under the Share Offer void, unenforceable or illegal or prohibit implementation of the Offers or the transactions contemplated under the Irrevocable Undertakings;

(e)

(f)

(g)	no changes having been made to any terms of the Pre-IPO Share Option Scheme or the Share Option Scheme (either formally or as a result of the exercise by the Target’s remuneration committee of its discretion) from the date of this announcement;

(h)

other than the final dividend of the Target of RMB 11.31 cents per Share declared for the year ended December 31, 2012 and the special dividend of RMB28.25 cents per Share declared for the year ended December 31, 2012 by the Target, no dividends having been declared or paid by the Target and, save in respect of any indebtedness incurred in relation to projects of the Target Group that have been publicly announced prior to the date of this announcement, no indebtedness being incurred by the Target other than in the ordinary course of business consistent with the Target’s past practices; and

-5-

(i)	with respect to the Offeror Parent, the obtaining of approval at an EGM of the Offeror Parent in relation to the making of the Offers (including the signing and completion of the Irrevocable Undertakings) as a “major transaction” pursuant to the Listing Rules.

IRREVOCABLE UNDERTAKINGS

[Offeror to confirm]

-6-

Zhang International has committed to accept the Cash and Share Option in respect of all of the 1,826,808,760 Shares owned by it as at the date of the Zhang Irrevocable Undertaking.

CA Dairy has committed to accept the Cash Option in respect of all of the 853,631,240 Shares owned by it as at the date of the CA Dairy Irrevocable Undertaking.

INTENTIONS OF THE OFFEROR PARENT IN RELATION TO THE TARGET GROUP

The Offeror is set up by the Offeror Parent for the sole purpose of holding Shares in the Target and will not engage in any business other than acting as the holding company of the Target.

LOCK-UP PERIOD

Other than through the re-listing of the business of the Target as described in the section headed “Compulsory Acquisition and Withdrawal of Listing” and the charging or pledging of shares in the

-7-

LISTING STATUS OF THE TARGET

-8-

[COMPULSORY ACQUISITION AND WITHDRAWAL OF LISTING

-9-

FINANCING RESOURCES AVAILABLE TO THE OFFEROR

INDEPENDENT BOARD COMMITTEE [AND INDEPENDENT FINANCIAL ADVISER)

LISTING RULES IMPLICATIONS FOR THE OFFEROR PARENT

-10-

RESUMPTION OF TRADING

Notice to US holders of Shares:

-11-

INTRODUCTION

Pre-IPO Share Option Scheme

All Options granted under the Pre-IPO Share Option Scheme were vested or will be vested and may only be exercised in the following manner:

•

one fifth of the Options were vested on the First Vesting Date;

•

one fifth of the Options were vested on the first anniversary of the First Vesting Date;

•

one fifth of the Options were vested on the second anniversary of the First Vesting Date;

•

one fifth of the Options shall be vested on the third anniversary of the First Vesting Date;

•

one fifth of the Options shall be vested on the fourth anniversary of the First Vesting Date; and

each Option granted under the Pre-IPO Share Option Scheme is exercisable within fifteen (15) days from the date on which such Option becomes vested.

Share Option Scheme

-12-

THE OFFERS

The Offers will be made by UBS on behalf of the Offeror on the following basis:

The Share Offer:

Consideration of the Share Offer

Under the Share Offer, Shareholders accepting the Share Offer will have a choice of either:

(a) for each Share, HK$[3.50] in cash (the “Cash Option”); or

The Share Offer Price of HK$[3.50] per Share represents a premium of approximately [9.4]% over the closing price of HK$[3.20] per Share as quoted on the Stock Exchange on the Last Trading Date.

The Cash Option

Comparisons of value

The value which the Share Offer under the Cash Option attributes to each Share represents:


	Share price of the Target			Premium/(Discount) of the offer price to the share price
	HK$			%

Closing price on the Last Trading Date		[3.20	]		[9.4	]

Average closing price for the last 5 trading days as quoted on the Stock Exchange immediately prior to and including the Last Trading Date		[3.51	]		[(0.2)	]

Average closing price for the last 10 trading days as quoted on the Stock Exchange immediately prior to and including the Last Trading Date		[3.62	]		[(3.4)	]

Average closing price for the last 20 trading days as quoted on the Stock Exchange immediately prior to and including the Last Trading Date		[3.59	]		[(2.5)	]

Average closing price for the last 30 trading days as quoted on the Stock Exchange immediately prior to and including the Last Trading Date		[3.46	]		[1.1	]

Average closing price for the last 60 trading days as quoted on the Stock Exchange immediately prior to and including the Last Trading Date		[3.07	]		[13.9	]

-13-

Highest and lowest Share prices

On the basis of the consideration of HK$[3.50] per Share under the Cash Option, the entire issued share capital of Target is valued at approximately HK$[ 12,457,095,777].

The Cash and Share Option

Nature of Offeror Shares

-14-

Comparison of the Cash Option and the Cash and Share Option

Under the Share Offer, a Shareholder holding one board lot of [1,000] Shares will be entitled to the following consideration depending on the choice of such Shareholder:


	Cash Option			Cash and Share Option

Cash	HK$	[3,500	]	HK$	[2,820	]

Offeror Shares		N/A			[681	]

The Option Offer:


(A)	In respect of Options with an exercise price of RMB0.11:

	For cancellation of each such Option	HK$	[3.361] in cash	*

(B)	In respect of Options with an exercise price of HK$1.50:

	For cancellation of each such Option	HK$	[2.00] in cash

(C)	In respect of Options with an exercise price of RMB1.84:

	For cancellation of each such Option	HK$	[1.171] in cash	*

*	The exchange rate of HK$[1.266] to RMB1.00 as at June [—], 2013 quoted on Factset

The Option Offer will be conditional upon the Share Offer becoming or being declared unconditional in all respects. Further information on the Option Offer will be set out in the formal document containing details of the Option Offer which will be sent to Optionholders on the Despatch Date.

Following acceptance of the Option Offer, the relevant Options together with all rights attaching thereto will be entirely cancelled and renounced.

-15-

Holdings of Shares and Options by the Offeror Parent, the Offeror and their Concert Parties

Dealings in securities in the Target

Settlement of consideration

-16-

VALUE OF THE OFFERS

(a)

(b)

Assuming none of the outstanding Options are exercised prior to the Closing Date, the total amount required to satisfy the cancellation of all the outstanding Options is HK$[135,544,335].

Based on the above and assuming that no outstanding Options are exercised prior to the Closing Date, the Offers are valued at approximately (i) HK$[11,350,410,155] and [1,244,056,766] Offeror Shares in aggregate assuming all Shareholders accept the Share Offer and opt for the Cash Option (apart from Zhang International, which has committed, pursuant to the Zhang Irrevocable Undertaking, to opt for the Cash and Share Option for all of the Shares held by it) or (ii) HK$[10,752,873,604] and [1,842,472,047 ] Offeror Shares in aggregate assuming all Shareholders accept the Share Offer and opt for the Cash and Share Option (apart from CA Dairy, which has committed, pursuant to the CA Dairy Irrevocable Undertaking, to opt for the Cash Option for all of the [853,631,240] Shares held by it).

-17-

[1,244,056,766] Offeror Shares assuming all Shareholders accept the Share Offer and opt for the Cash Option (apart from Zhang International, which has committed, pursuant to the Zhang Irrevocable Undertaking, to opt for the Cash and Share Option for all of the Shares held by it) or (ii) approximately HK$[10,765,434,981] and [1,878,238,001] Offeror Shares assuming all Shareholders accept the Share Offer and opt for the Cash and Share Option (apart from CA Dairy, which has committed, pursuant to the CA Dairy Irrevocable Undertaking, to opt for the Cash Option for all of the 853,631,240 Shares held by it) on a fully diluted basis.

CONFIRMATION OF FINANCIAL RESOURCES

CONDITIONS TO THE SHARE OFFER

The Share Offer is subject to the following Conditions:

(a)

valid acceptances of the Share Offer being received (and not, where permitted, withdrawn) by 4:00 p.m. on the Closing Date (or such later time or date as the

-18-

(b)

(c)

(d)

no event having occurred which would make the Offers or the acquisition of any of the Shares under the Share Offer void, unenforceable or illegal or prohibit implementation of the Offers or the transactions contemplated under the Irrevocable Undertakings;

(e)

(f)

-19-

(g)

no changes having been made to any terms of the Pre-IPO Share Option Scheme or the Share Option Scheme (either formally or as a result of the exercise by the Target’s remuneration committee of its discretion) from the date of this announcement;

(h)

other than the final dividend of the Target of RMB 11.31 cents per Share declared for the year ended December 31, 2012 and the special dividend of RMB28.25 cents per Share declared for the year ended December 31, 2012 by the Target, no dividends having been declared or paid by the Target and, save in respect of any indebtedness incurred in relation to projects of the Target Group that have been publicly announced prior to the date of this announcement, no indebtedness being incurred by the Target other than in the ordinary course of business consistent with the Target’s past practices; and

(i)

with respect to the Offeror Parent, the obtaining of approval at an EGM of the Offeror Parent in relation to the making of the Offers (including the signing and completion of the Irrevocable Undertakings) as a “major transaction” pursuant to the Listing Rules.

-20-

other rights in respect of any of them. Persons who are in doubt as to the action they should take should consult their stockbroker, bank manager, solicitor or other professional advisers.

IRREVOCABLE UNDERTAKINGS

[Offeror to provide]

Zhang Irrevocable Undertaking


Date:		[June 17, 2013]

Parties:		Zhang International, Offeror Parent and Offeror

CA Dairy Irrevocable Undertaking


Date:		[June 17, 2013]

Parties:		CA Dairy, Offeror Parent and Offeror

Undertaking to accept the Share Offer

-21-

No withdrawal

Each of Zhang International and CA Dairy has irrevocably undertaken that it will not withdraw any acceptance of the Share Offer in respect of the Relevant Shares.

Termination

Non-Competition and Non-Solicitation

(a)

carry on, operate, develop or be engaged or concerned or interested economically or otherwise in any manner in any Competing Business in the PRC, Hong Kong, Taiwan, Macau and New Zealand; and

(b)

use or display any trademark, business name or mark, domain name or any website containing (i) the word(s) “Yashili (in Chinese: LOGO

)”, “Scient” (in Chinese: LOGO

)”, other than in respect of the use of such name by the Zhang’s Family in its investment holding ventures.

-22-

Revised Offers

INDEPENDENT BOARD COMMITTEE [AND INDEPENDENT FINANCIAL ADVISER OF THE TARGET)

INFORMATION ON THE OFFEROR PARENT

-23-

Further information in relation to the Offeror Parent and the Offeror Group will be contained in the Composite Document.

INFORMATION ON THE OFFEROR

Incorporation

Share Capital

-24-

Corporate Structure

The corporate chart below indicates the levels of possible shareholding interest in the Offeror and the Target following the Share Offer if it becomes unconditional in all respects.

-25-

Post Offers Shareholding Structure

Set out below are charts showing the shareholding structure of the Target as at the Last Trading Date and the Unconditional Date.

As at the Last Trading Date:

LOGO

-26-

As at the Closing Date:

LOGO

Assuming the Target does not maintain its listing status on the Stock Exchange and only Zhang International opts for the Cash and Share Option

LOGO

-27-

Assuming the Target does not maintain its listing status on the Stock Exchange and all Shareholders (other than CA Dairy) opt for the Cash and Share Option

LOGO

Note: The above shareholding structure assumes none of the outstanding Options is exercised.

Corporate Matters

INFORMATION ON THE TARGET GROUP

FINANCIAL INFORMATION OF THE TARGET GROUP

The financial information of the Target Group was prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standard Board.

-28-

As of December 31, 2012, the audited consolidated total assets and net assets of the Target Group amounted to approximately RMB5,569,869,000 and RMB4,082,346,000, respectively.

As of December 31, 2011, the audited consolidated total assets and net assets of the Target Group amounted to approximately RMB4,643,569,000 and RMB3,803,999,000, respectively.

As of December 31, 2012, the audited consolidated net profits before and after taxation and extraordinary items of the Target Group were approximately RMB646,324,000 and RMB470,468,000, respectively.

As of December 31, 2011, the audited consolidated net profits before and after taxation and extraordinary items of the Target Group were approximately RMB375,389,000 and RMB308,425,000, respectively.

REASONS FOR THE OFFERS AND THE EXPECTED BENEFITS

-29-

INTENTIONS OF THE OFFEROR PARENT IN RELATION TO THE TARGET GROUP

The Offeror is set up by the Offeror Parent for the sole purpose of holding Target Shares and will not engage in any business other than acting as the holding company of the Target.

LOCK-UP PERIOD

-30-

LISTING STATUS OF THE TARGET

WARNING:

-31-

COMPULSORY ACQUISITION AND WITHDRAWAL OF LISTING

-32-

RIGHTS OF SHAREHOLDERS OF THE OFFEROR

Right to nominate directors

Right to receive dividends and other distributions

Reserved matters

(a)

any amendment to the Memorandum, Articles or New Articles;

(b)

any change in the share capital of the Offeror or the creation, allotment or issue of any shares or of any other securities of the Offeror or the grant of any option or rights to subscribe for or to convert or exchange any instrument into such shares or securities;

-33-

(c)

(d)

(e)

[the incurrence of any indebtedness other than ordinary course expenses, taxes, salaries and bonuses that are incurred solely for the purposes of the Offeror’s holding of Shares];

(f)

(g)

(h)

the authorisation or approval of the disposal of all or substantially all of the assets of the Target or any other member of the Target Group;

(i)

(j)

-34-

(k)

(l)

declaring, making or paying any dividends other than dividends payable to all the Offeror’s shareholders on a pro-rata basis.

Tag-along rights

Any sale of Offeror Shares pursuant to the provisions described in this section shall be notwithstanding the Lock-Up Restrictions.

Right to exit in the event of Change of Control

-35-

FURTHER TERMS OF THE OFFERS

In addition, the Option Offer will be subject to and conditional upon the Share Offer becoming or being declared unconditional in all respects.

The Offers will be made in compliance with the Takeovers Code which is administered by the Executive.

The Offeror will pay the buyer’s ad valorem stamp duty in relation to the Share Offer on its own behalf. No stamp duty is payable in connection with the Option Offer.

-36-

GENERAL MATTERS RELATING TO THE OFFERS

Availability of the Offers

Composite Document

Further agreements or arrangements

[Offeror to confirm]

[As at the date of this announcement:

(i)

save as disclosed in the section headed “Irrevocable Undertakings” in this announcement, the Offeror Parent, the Offeror and their Concert Parties have not received any other irrevocable commitment to accept the Offers;

(ii)

the Offeror Parent, the Offeror and their respective Concert Parties do not hold any Shares, convertible securities, warrants or options in the Target;

(iii)

there is no outstanding derivative in respect of the securities in the Target which has been entered into by the Offeror Parent, the Offeror or any of their Concert Parties;

-37-

(iv)

save as disclosed in the section headed “Irrevocable Undertakings” in this announcement, there is no arrangement (whether by way of option, indemnity or otherwise) in relation to the shares of the Offeror Parent, the Offeror or the Target and which might be material to the Offers;

(v)

(vi)

there are no relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Target which the Offeror Parent, the Offeror or any of their respective Concert Parties have borrowed or lent.]

Completion of the Offers

DEALINGS DISCLOSURE

For this purpose, the full text of Note 11 to Rule 22 of the Takeovers Code is reproduced below:

This dispensation does not alter the obligation of principals, associates and other persons themselves to initiate disclosure of their own dealings, whatever total value is involved.

-38-

GENERAL

The Offeror Group has appointed UBS as its lead financial adviser, and HSBC and Standard Chartered as joint financial advisers in connection with the Offers.

MAJOR TRANSACTION FOR THE OFFEROR PARENT

Assuming that no outstanding Options are exercised prior to the close of the Offers, the Offers are valued at approximately (i) HK$[11,350,410,155] and [1,244,056,766] Offeror Shares in aggregate assuming all Shareholders accept the Share Offer and opt for the Cash Option (apart from Zhang International, which has committed, pursuant to the Zhang Irrevocable Undertaking, to opt for the Cash and Share Option for all of the Shares held by it) or (ii) HK$[10,752,873,604] and [1,842,472,047 ] Offeror Shares in aggregate assuming all Shareholders accept the Share Offer and opt for the Cash and Share Option (apart from CA Dairy, which has committed, pursuant to the CA Dairy Irrevocable Undertaking, to opt for the Cash Option for all of the [853,631,240] Shares held by it).

The consideration required for the acquisition of the Shares and the cancellation of the Options and therefore, the consideration required of the Offeror Group in respect of the

-39-

LISTING RULES IMPLICATIONS FOR THE OFFEROR PARENT

RESUMPTION OF TRADING

-40-

DEFINITIONS

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


“Accepting Shareholders”		means the Shareholders who accept the Share Offer;

“Affiliates”		means in relation to a party, (i) an entity which is directly or indirectly controlled by, or under common control with, or (whether acting alone or jointly and in concert with another) in control of, such Party, and (ii) an individual (whether acting alone or jointly and in concert with another) which directly or indirectly controls such Party. For the purpose of this definition, the term “control” means (i) the ownership of fifty per cent (50%) or more of the voting shares or the registered capital of an entity, (ii) being the single largest owner of the voting shares or the registered capital of an entity, (iii) having the power to appoint or elect a majority of the directors or the power to direct the management of an entity. For the avoidance of doubt, an Affiliate of Zhang International shall include each member of the Zhang’s Family and the entities which are controlled by (whether alone or jointly with another) any member of the Zhang’s Family;

“Articles”		means the articles of association of the Offeror as at the date of this announcement;

“associates”		has the meaning ascribed to it in the Takeovers Code;

“British Virgin Islands Companies Law”		means the BVI Business Companies Act 2004, as amended from time to time;

“Business Day”		means a full day on which the Stock Exchange is open for business of dealing in securities;

“CA Dairy”		means CA Dairy Holdings, a company incorporated under the laws of the Cayman Islands which is wholly owned by Carlyle Asia Partners III L.P. and CAP III Co-investment L.P.;

-41-



“CA Dairy Irrevocable Undertaking”		means the irrevocable undertaking dated June [—], 2013 given by CA Dairy in favour of the Offeror Parent and the Offeror;

“Cash and Share Option”		means the option to accept the Share Offer for consideration partly in cash and partly in Offeror Shares as defined in the section headed “The Offers” in this announcement;

“Cash Option”		means the option to accept the Share Offer for consideration fully in cash as defined in the section headed “The Offers” in this announcement;

“Cayman Islands Companies Law”		means the Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands;

“Change of Control”		means, in respect of the Offeror, where the Offeror Parent ceases to have control of the Offeror and, in respect of the Target, when the Offeror ceases to have control of the Target. For the purposes of this definition, the term “control” means: (i) the ownership of fifty per cent (50%) or more of the voting shares of the Offeror or the Target (as the case requires), or (ii) having the power to appoint or elect a majority of the directors or the power to direct the management of the Offeror or of the Target (as the case requires);

“Closing Date”		means the date to be stated in the Composite Document as the first closing date of the Share Offer or any subsequent closing date as may be announced by the Offeror and approved by the Executive;

“Completion”		means the completion of the sale and purchase of the Relevant Shares held by Zhang International and CA Dairy pursuant to the Share Offer;

“Competing Business”		means the sourcing, manufacture, sale, distribution and promotion of dairy or dairy-based products, and the sourcing, manufacture, sale, distribution and promotion of soy milk or soy milk-based products in the PRC, Hong Kong, Taiwan, Macau and New Zealand during the Restricted Period;

“Composite Document”		means the composite document to be issued jointly by the Offeror Parent, the Offeror and the Target to all Shareholders and Optionholders in connection with the Share Offer and the Option Offer and in accordance with the Takeovers Code which will contain, inter alia, details of the Share Offer, the terms and conditions of the Share Offer, a letter from the Independent Board Committee and a letter from the Independent Financial Adviser in respect of the Share Offer and the Option Offer;

-42-



“Concert Parties”		means parties acting in concert with the person or party as specified as determined in accordance with the Takeovers Code;

“Conditions”		means the conditions of the Share Offer, as set out under the section headed “Conditions to the Share Offer” of this announcement;

“Connected Person”		has the meaning ascribed to it under Chapter 14A of the Listing Rules;

“Connected Transaction”		has the meaning ascribed to it under Chapter 14A of the Listing Rules;

“Consent(s)”		means any consent, approval, authorisation, qualification, waiver, permit, grant, franchise, concession, agreement, licence, exemption or order of, registration, certificate, declaration or permission from, or filing with, or report or notice to, any Relevant Authority(ies) or third parties, including those required under or in relation to any concession rights or licences granted by the Relevant Authority(ies) or third parties to the Target Group to carry out its operations, whether under applicable laws or regulations, any agreement or arrangement with such Relevant Authority(ies) or third parties, or otherwise;

“Despatch Date”		means the date of despatch of the Composite Document and the formal document containing details of the Option Offer;

“EGM”		means an extraordinary general meeting of the Offeror Parent to be convened for the purpose of considering and, if thought fit, approving the making of the Offers, the Irrevocable Undertaking and the transactions contemplated thereunder;

“Executive”		means the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director;

“First Vesting Date”		means January 1, 2011;

“HK$”		means Hong Kong dollar(s), the lawful currency of Hong Kong;

“Hong Kong”		means the Hong Kong Special Administrative Region of the PRC;

“HSBC”		means The Hongkong and Shanghai Banking Corporation Limited, an institution registered under the SFO to conduct type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities), type 5 (advising on futures

-43-



		contracts) and type 6 (advising on corporate finance) regulated activities as defined under the SFO and a licensed bank under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong), one of the joint financial advisers to the Offeror Group in relation to the Offers;

“HSBC Group”		means HSBC, the joint financial adviser to the Offeror Group, and its affiliates (other than those members having the status as an exempt principal trader or exempt fund manager);

“Independent Board Committee”		means an independent committee of the Target Board comprising all the independent non-executive directors of the Target, namely, Mr. Yu Shimao, Mr. Chen Yongquan, Mr. Samuel King On Wong and Mr. Liu Jinting;

[“Independent Financial Adviser”		means [Somerley Limited], the independent financial adviser to the Independent Board Committee in connection with the Share Offer and Option Offer. [ ] is a corporation licensed to carry on [Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance), Type 7 (providing automated trading services) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong);]

“Irrevocable Undertakings”		means, collectively, the CA Dairy Irrevocable Undertaking and the Zhang Irrevocable Undertaking and “Irrevocable Undertaking” means any one of them;

“Last Trading Date”		means June 11, 2013, being the last full trading date prior to the suspension of trading in the Shares on the Stock Exchange pending the publication of this announcement;

“Listing Rules”		means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;

“Maximum Interest”		means the maximum interest in the Offeror’s enlarged issued share capital that may be held by the Accepting Shareholders;

“Memorandum”		means the memorandum of association of the Offeror;

“New Articles”		means the new articles of association of the Offeror to be adopted on or before close of the Offers which are required to give effect to the rights of the lenders under the external financing agreement in respect of the Offers to be entered into by such lenders and the Offeror Parent;

“New Listco”		has the meaning ascribed to it in the section headed “Compulsory Acquisition and Withdrawal of Listing” in this announcement;

-44-



“Offer Period”		has the meaning given to it in the Takeovers Code;

“Offeror”		means China Mengniu International Company Limited;

“Offeror Group”		means the Offeror Parent and its subsidiaries including, in particular, the Offeror;

“Offeror Parent”		means China Mengniu Dairy Company Limited, a company incorporated in the Cayman Islands with limited liability with its shares listed on the Main Board of the Stock Exchange (stock code: 2319);

“Offeror Share”		means each ordinary share in the issued share capital of the Offeror, details of which are set out in the section headed “Information on the Offeror” of this announcement; *[Offeror to confirm]*

“Offers”		means the Share Offer and the Option Offer;

“Option Offer”		means the proposal to be made by the Offeror in compliance with Rule 13 of the Takeovers Code to cancel all the outstanding Options in accordance with the terms and conditions set out in this announcement;

“Optionholders”		means the holders of the Options;

“Options”		means share options granted by the Target pursuant to the Pre- IPO Share Option Scheme or the Share Option Scheme, whether vested or not;

“PRC”		means the People’s Republic of China (excluding Hong Kong, Macau and Taiwan);

“Pre-IPO Share Option Scheme”		means the share option scheme adopted by the Target on October 8, 2010, as amended from time to time, which replaces the share options originally granted by Yashili (Guangdong) to the grantees on January 1, 2009 and August 1, 2010;

“Relevant Authority(ies)”		means any relevant government, governmental, quasi-governmental, statutory or regulatory authority, body, agency, tribunal, court or institution;

“Relevant Shareholders”		has the meaning ascribed to it in the section headed “Compulsory Acquisition and Withdrawal of Listing” in this announcement;

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“Relevant Offeror Shares”		has the meaning ascribed to it in the section headed “Compulsory Acquisition and Withdrawal of Listing” in this announcement;

“Relevant Shares”		means the 1,826,808,760 Shares held by Zhang International and the 853,631,240 Shares held by CA Dairy as at the date of the Irrevocable Undertakings, collectively representing approximately 75.3% of the issued share capital of the Target, as at the Last trading Date;

“Restricted Period”		means the period commencing immediately after Completion during which a person who has been proposed by Zhang International and appointed as a director of the Target remains as a director of the Target and for two (2) years from the date that such person ceases to be a director of the Target;

“SFC”		means the Securities and Futures Commission of Hong Kong;

“Share Offer”		means the conditional voluntary offer by the Offeror to acquire all of the outstanding Shares in accordance with the terms and conditions set out in this announcement;

“Share Offer Price”		means the price at which the Cash Option of the Share Offer will be made available to Shareholders as part of the terms of the Share Offer, being HK$[3.50] per Share;

“Share Option Scheme”		means the share option scheme adopted by the Target on October 8, 2010, as amended from time to time, under which an Option may be exercised during a period not exceeding ten (10) years from the date of the relevant grant;

“Shareholder”		means a registered holder for the time being of Share(s);

“Shares”		means ordinary shares of HK$0.10 each in the issued share capital of the Target;

“Standard Chartered”		means Standard Chartered Bank (Hong Kong) Limited, one of the joint financial advisers to the Offeror Group in relation to the Offers, a licensed corporation under the Securities and Futures Ordinance, licensed to carry out for Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities;

“Stock Exchange”		means The Stock Exchange of Hong Kong Limited;

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“Subscriber Share”		means the one (1) share in the Offeror that was subscribed by the Offeror Parent upon the incorporation of the Offeror;

“subsidiaries”		has the meaning ascribed to it in the Listing Rules;

“Takeovers Code”		means The Codes on Takeovers and Mergers and Share Repurchases published by the SFC;

“Target”		means Yashili International Holdings Ltd, a company incorporated in the Cayman Islands with limited liability with its shares listed on the Main Board of the Stock Exchange (stock code: 1230);

“Target Board”		means the board of directors of the Target;

“Target Group”		means the Target and its subsidiaries;

“UBS”		means UBS AG, acting through its Hong Kong branch, an institution licensed to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance), Type 7 (providing automated trading services) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong), the lead financial adviser to the Offeror Group in relation to the Offers;

“Unconditional Date”		means the date on which the Offers become or are declared unconditional in all respects;

“Yashili (Guangdong)”		means (Guangdong Yashili Group Company Limited), a subsidiary of the Target incorporated in the PRC;

“Zhang’s Family”		means, collectively, Mr. Zhang Lihui , Mr. Zhang Likun , Mr. Zhang Liming , Mr. Zhang Lidian , Mr. Zhang Libo , Mr. Zhang Yanpeng and Ms. She Lifang ;

“Zhang International”		means Zhang International Investment Ltd. , a limited liability company incorporated on May 25, 2010 under the laws of the British Virgin Islands, owned as to 18% by Mr. Zhang Lihui, 18% by Mr. Zhang Likun, 18% by Mr. Zhang Liming, 18% by Mr. Zhang Lidian, 18% by Mr. Zhang Libo and 10% by Ms. She Lifang, and engages in investment holding;

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“Zhang International Lock-Up”		has the meaning ascribed to it under the section headed “Lock-Up Period” of this announcement;

“Zhang Irrevocable Undertaking”		means the irrevocable undertaking dated June [16], 2013 given by Zhang International in favour of the Offeror Parent and the Offeror; and

“%”		means per cent.

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By order of the		By order of the
board of directors of		board of directors of
China Mengniu Dairy Company Limited		Yashili International Holdings Ltd

Sun Yiping		Zhang Lidian
Chief Executive Officer and Executive		Chairman
Director

By order of the board of directors of
China Mengniu International Company
Limited
Wu Jingshui
Director

Hong Kong, June [18], 2013

As at the date of this announcement, the board of the Offeror Parent comprises: Ms. Sun Yiping, Mr. Bai Ying, Mr. Wu Jingshui and Mr. Ding Sheng as executive directors, Mr. Ning Gaoning, Mr. Yu Xubo, Mr. Niu Gensheng, Mr. Ma Jianping, Mr. Tim Ørting Jorgensen, Mr. Finn S. Hansen and Ms. Liu Ding as non-executive directors, Mr. Jiao Shuge (alias Jiao Zhen), Mr. Julian Juul Wolhardt, Mr. Liu Fuchun, Mr. Zhang Xiaoya, Mr. Andrew Y. Yan and Mr. Wu Kwok Keung Andrew as independent non-executive directors.

As at the date of this announcement, the board of directors of the Offeror comprises of Mr. Wu Jingshui and Mr. Kwok Wai Cheong.

*	For identification purposes only

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SCHEDULE 3

SHAREHOLDER’S WARRANTIES

1.	The Relevant Shares

(a)	The Relevant Shares have been validly allotted and issued and are fully paid or credited as fully paid.

(b)

The Shareholder is the sole owner of the Relevant Shares, free and clear of all Encumbrances. The Shareholder is entitled to sell and transfer or procure the sale and transfer of the full legal and beneficial ownership of the Relevant Shares to the Offeror free and clear from all Encumbrances on the terms set out in this Undertaking and with all rights attaching thereto at Completion (including the right to all dividends and other distribution, if any, declared, made or paid after the date of the Completion).

2.	Capacity of the Shareholder and relevant authorization

(a)	The Shareholder is duly incorporated, validly existing and in good standing under the laws of the British Virgin Islands.

(b)	The Shareholder:

has the requisite power and authority to enter into, and to perform its obligations under this Undertaking; and

ii.

has obtained or satisfied all corporate, regulatory and other approvals from all applicable Governmental Authorities, necessary to execute and perform its obligations under this Undertaking.

(c)	The Undertaking constitutes a legal, valid and binding agreement of the Shareholder and enforceable against the Shareholder in accordance with its terms.

3.	Corporate Existence and Power of the Group to Conduct its Business

(a)	Schedule 1 sets forth a complete and correct list, as of the date of this Undertaking, of each Subsidiary of the Company and its place of incorporation and form of organization and there is no Encumbrance in relation to any share in the capital of a Subsidiary held by a Group Company.

(b)

Each Group Company has been duly organized, is validly existing and (where applicable) in good standing under the laws of its jurisdiction of organization and has all corporate power and authority and all necessary governmental licenses, authorizations, permits, consents and approvals to own, lease, operate and use its properties and assets and to carry on the business of the Group other than any licenses, authorizations, permits, consents and approvals the absence of which would not have a material adverse effect on the business of the Group. All such governmental licenses, authorizations, permits, consents and approvals are valid and subsisting and so far as the Shareholder is aware, no facts or circumstance exists which would reasonably be expected to cause their revocation, withdrawal, suspension, non-renewal or modification. So far as the Shareholder is aware, the PRC government has not, since October 20, 2010, taken any action to exclude or materially restrict any Group Company in any manner from participation in any PRC government program related to dairy products.

(c)	Other than such clearances, approvals and/or consents required by the Offeror or the Company in connection with the Offer, all filings and registrations with Governmental

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Authorities required to be made in respect of each Group Company and their respective operations since October 20, 2010, including the registrations with the PRC Ministry of Commerce, the State Administration of Industry and Commerce, the State Administration of Foreign Exchange, the Hong Kong Companies Registry, the Stock Exchange, the SFC and the relevant Taxing Authorities have been duly completed in accordance with the relevant Applicable Laws, other than any filings and registrations the absence of which would not have a material adverse effect on the Group.

4.	Capitalization of each Group Company

(a)	Schedule 1 sets forth the issued share capital or the registered capital (as applicable) of each Group Company.

(b)	All outstanding shares of each Group Company have been, and all shares that may be issued pursuant to the Share Option Schemes will be, when issued in accordance with the respective terms thereof, validly allotted and issued and fully paid or credited as fully paid.

(c)

Other than the Share Option Schemes, no Group Company has constituted any scheme or plan and no Group Company has issued, reserved for issuance or outstanding securities which (i) would give any person the right (exercisable now or in the future and whether contingent or not) to call for the allotment or issue of any share or loan capital in any Group Company; or (ii) are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any Shares of or other securities of the Company.

5.	Consummation of the Transactions

Other than compliance with the applicable requirements under the Codes and the Listing Rules in respect of the Offer, the execution, delivery and performance by the Shareholder of the Undertaking will not (i) contravene, conflict with, or result in any violation or breach of any provision of the memorandum and articles of association (or any equivalent organizational documents) of any Group Company or any Applicable Law; (ii) constitute a default, or an event that, with or without notice or lapse of time or both, would constitute a default, or cause or permit the termination, cancellation, acceleration or other change of any material right or material obligation or the loss of any material benefit to which any Group Company is entitled under any provision of any Material Contract; or (iii) result in the creation or imposition of any Encumbrance on any material asset of any Group Company.

6.	Accounts and Accounting Records

(a)	The Accounts for each of the last three (3) financial years ended on the Last Accounts Date:

(i)

show a true and fair view of the assets, liabilities and state of affairs of the Group as at the relevant Accounts Date and of the profits and losses of the Group for the financial year ended on the relevant Accounts Date;

(ii)

have been prepared and audited on a consistent basis in accordance with all Applicable Laws and applicable standards, principles and practices; and

(iii)

were not affected by any extraordinary or exceptional item or by any other factor, in each case not already disclosed in the Accounts, rendering such results for all or any of those periods unusually high or low.

(b)	The Group’s statutory books, accounting records and other records are in its possession or under its control together with all documents of title and executed copies of all existing agreements which are necessary for the proper conduct of the business of the Group and

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to which the relevant Group Company is a party, and during the last three (3) financial years ended on the Last Accounts Date, have been recorded and maintained in all material respects in accordance with Applicable Laws and with relevant generally accepted accounting practices on a consistent basis.

(c)	The Final Cash Balance is at least RMB1.2 billion.

7.	Absence of Certain Changes

Since the Last Accounts Date:

(a)	the business of the Group has been conducted in the ordinary course consistent with past practice so as to maintain it as a going concern;

(b)	there has been no change in accounting principles in preparing the consolidated accounts of the Group; and

(c)

save for the Share Options granted under the Share Option Schemes or otherwise as disclosed by the Company through public announcements or other documents published on the website of the Stock Exchange, no Group Company has created, allotted, issued, acquired, repaid or redeemed share or loan capital or made an agreement or arrangement or undertaken an obligation to do any of those things.

8.	No Undisclosed Material Liabilities

There are no material actual or contingent liabilities of any Group Company except for (i) liabilities disclosed or provided for in the Last Accounts, (ii) liabilities not required under the applicable accounting standards to be shown in the Last Accounts for reasons other than the contingent nature thereof or the difficulty in determining the amount thereof, or (iii) liabilities incurred in the ordinary and usual course of the business of the Group since the Last Accounts Date which, taken together, are not material in the context of the Group, or (iv) liabilities disclosed in the Disclosure Letter.

9.	Information provided to the Offeror for Due Diligence Purposes

Except for information relating to the Offer or this Undertaking, no Group Company is in possession of information which having regard to the facts and circumstances existing at the date of this Warranty is given, would be regarded as “inside information” (as such term is defined in the SFO) which has not been disclosed in the Offer Announcement or by the Company through public announcements or other documents published on the website of the Stock Exchange.

10.	Compliance with Laws

(a)

Each Group Company is in compliance with all Applicable Laws other than any non-compliance which would not have a material adverse effect on the business of the Group and is not under any current or pending or so far as the Shareholder is aware, threatened investigation, audit or review by any Governmental Authority where such investigation, audit or review would have a material adverse effect on the business of the Group.

(b)	The Company, the Shareholder and the directors of each Group Company have been, since October 20, 2010, in compliance in all material respects with all requirements under the Listing Rules, the Codes and the SFO.

(c)	All information publicly disclosed by the Company in compliance with the requirements under the Listing Rules, the Codes and the SFO is true, accurate and complete in all material respects.

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11.	No Violation of Anti-Bribery Laws

(a)

The Group has, since October 20, 2010 conducted its businesses in compliance in all material respects with all Anti-Bribery Laws and has instituted and maintained policies and procedures designed to ensure, compliance therewith and that violations of Anti-Bribery Laws will be prevented, detected and deterred.

(b)

No Group Company and so far as the Shareholder is aware, no member of senior management or director of any Group Company, in each case in connection with the activities and affairs relating to the Group, has received, since October 20, 2010, any written notice of any non-compliance or of actual or threatened investigation by any Governmental Authority for any violation of Anti-Bribery Laws.

12.	Products

(a)	No Group Company has carried out any voluntary or mandatory recall or withdrawal of products or issued any product warning to customers and/or end consumers since October 20, 2010.

(b)

No Group Company has, since October 20, 2010, received any written notice that any Governmental Authority has commenced, or threatened to initiate, any action that would reasonably be expected to have the effect of disrupting the manufacture, promotion or distribution of any product that is produced in the course of the business of the Group where such disruption would have a material adverse effect on the business of the Group.

13.	Litigation

(a)	There is no action, suit, investigation or proceeding pending or, so far as the Shareholder is aware, threatened against any Group Company, that would have a material adverse effect on the business of the Group.

(b)	So far as the Shareholder is aware, there is no action, suit, investigation or proceeding pending or threatened against any member of senior management or director of any Group Company that would have a material adverse effect on the business of the Group.

14.	Intellectual Property

(a)	Schedule 6 of this Undertaking set out the complete and accurate list of all material Intellectual Property in respect of which a Group Company is the registered owner or applicant for registration (“Company IP”).

(b)

Each Company IP is subsisting, valid and enforceable and the Shareholder is not aware of any facts or circumstances which has materially impaired or would reasonably be expected to have the effect of materially impairing or entitling any person to cancel, forfeit, materially modify or consider abandoned, any Company IP or give any person any rights with respect thereto. Each Company IP is either exclusively owned, granted the right to use by, or registered under the name of a Group Company. So far as the Shareholder is aware, no Company IP has been infringed, misappropriated or otherwise violated by any third party since October 20, 2010.

15.	Real Estate

(a)	The properties set out in Schedule 7 of this Undertaking comprise all of the land and premises vested in, occupied or used by, or in the possession of, the Group and the information contained therein concerning the Properties are true and accurate in all material respects.

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(b)	A Group Company has good title to, or valid leasehold interests in, each of the Properties, free and clear of all Encumbrance.

(c)

There are no contractual or legal restrictions that preclude or restrict the ability to use any of the Properties by the Group for the purposes for which it is currently being used where such restriction would have a material adverse effect on the business of the Group. There are no latent defects or adverse physical conditions affecting the Properties, and improvements thereon where such defects or conditions would have a material adverse effect on the business of the Group.

16.	Inventories

The inventories of the Group consist of items of a quantity and quality usable or saleable for the operation of the business of the Group and are properly valued in the books of account and other financial records of the Group at the lower of cost and net realizable value in accordance with the Hong Kong Financial Reporting Standards.

17.	Taxes and Tax Status

(a)

All Tax Returns required by Applicable Laws to be filed with any Taxing Authority by a Group Company, since October 20, 2010, have been properly filed when due, and all such Tax Returns were, at the time of filing, true, accurate and complete in all material respects. The Group has, since October 20, 2010, complied with all applicable rules and regulations of all applicable Taxing Authority other than any non-compliance which would not have a material adverse effect on the Group.

(b)	The Group has, since October 20, 2010, paid or has withheld and remitted to the appropriate Taxing Authority all material Taxes due and payable, other than such Taxes that are being contested in good faith by appropriate proceedings.

(c)	No Group Company is involved in any dispute or investigation in relation to Tax involving any Tax Authority where such dispute or investigation would have a material adverse effect on the business of the Group.

18.	Share Option Schemes

(a)	Schedule 8 of this Undertaking contains an accurate and complete copy of the Share Option Schemes. Each grant of Share Options was validly granted in accordance and in compliance with all Applicable Laws and the terms of the Share Option Schemes.

(b)

Schedule 8 of this Undertaking sets forth the following information with respect to each Share Option outstanding as of the date of this Undertaking: (i) the name and principal location of employment of the Share Option recipient; (ii) the number of Shares underlying such Share Option; (iii) the exercise or purchase price of such Share Option; (iv) the date on which such Share Option was granted; (v) the applicable conditions on vesting, including applicable performance criteria, and vesting schedule; and (vi) the date on which such Share Option expires.

(c)	Apart from the Share Option Schemes, there are no other employee benefits plans currently in place.

19.	Employees

There is no employment contract between any Group Company and any of its employees which cannot be terminated by the Group Company by giving twelve months’ notice or less without giving rise to a claim for damages or compensation (other than a statutory redundancy payment or statutory compensation for unfair dismissal) or in accordance with Applicable Laws.

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20.	Insurance Policies

Schedule 9 of this Undertaking contains a complete and accurate list of all insurance policies maintained by any Group Company.

21.	Environmental and Food Safety Matters

(a)

Each Group Company is and has been in compliance with Environmental and Food Safety Laws since October 20, 2010, other than any non-compliance which would not have a material adverse effect on the business of the Group. There are no circumstances which would reasonably be expected to give rise to any liability, obligation or duty under Environmental and Food Safety Laws where such liability, obligation or duty would have a material adverse effect on the Group. None of the Group Company has, since October 20, 2010, received any notice in relation to any claim, proceeding, notice, complaint, action or investigation against any Group Company with respect to any allegations of such non-compliance with, or such liability (whether actual or prospective), obligation or duty under, Environmental and Food Safety Laws nor, so far as the Shareholder is aware, have any such claims, proceedings, notices, complaint, actions or investigations been threatened.

(b)

The Group has, since October 20, 2010, obtained and currently maintains all necessary Environmental and Food Safety Permits required for the conduct of the business of the Group other than any Environmental and Food Safety Permits the absence of which would not have a material adverse effect on the business of the Group, and all such Environmental and Food Safety Permits are being and have, since October 20, 2010, been complied with other than any non-compliance which would not have a material adverse effect on the business of the Group, are valid and are in full force and effect and the Shareholder is not aware of any facts or circumstances which would reasonably be expected to result in any such Environmental and Food Safety Permits being terminated, revoked, suspended, varied or modified or which would reasonably be expected to prejudice its renewal.

(c)

There has been, since October 20, 2010, no release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge or dispersal into or through the environment of any Hazardous Substance by any Group Company, which had given rise or would reasonably be expected to give rise to any liability or obligation or duty (whether actual or contingent) under Environmental and Food Safety Laws where such liability, obligation or duty would have a material adverse effect on the business of the Group and, since October 20, 2010, none of the Properties has been contaminated with any Hazardous Substance that has resulted in, or would reasonably be expected to result in, any obligation to conduct any remedial action on the part of any Group Company under or pursuant to any such Environmental and Food Safety Law where such action would have a material adverse effect on the Group.

22.	Material Contracts

(a)

Each Material Contract (unless it has terminated or expired (in each case according to its terms)) is in full force and effect. Since December 31, 2012, no Group Company has received any notice in writing to terminate or not renew, in whole or in part, any Material Contract. No Group Company or, so far as the Shareholder is aware, any other party thereto is in default or breach under the terms of any Material Contract where such default or breach would have a material adverse effect on the business of the Group, and so far as the Shareholder is aware, no event or circumstance has occurred that, with notice or lapse of time or both, would constitute any event of default thereunder where such event of

-26-

default would have a material adverse effect on the business of the Group. No Material Contract has been or is required to be amended or otherwise modified in any material respect in connection with obtaining any third party consent or approval required in connection with the Offer.

(b)	All loan obligations of Connected Person(s) due and payable to the Group have been repaid in full. No loans or other similar obligations remain outstanding to or from the Connected Person(s) to the Group and no Group Company is obliged to make any further loans to any Connected Person.

23.	Winding up; Insolvency; Administration

(a)	Winding up: No petition has been presented, no order has been made, or resolution passed for the winding up of any Group Company or for the appointment of a liquidator or provisional liquidator to any Group Company.

(b)	Insolvency: No Group Company is insolvent or is “unable to pay its debts” as they fall due.

(c)

Administration: No administrator has been appointed in relation to a Group Company and no petition or application has been presented by any Group Company or its representative for the appointment of an administrator and no notice has been given to any Group Company with an intention to appoint an administrator. So far as the Shareholder is aware, no petition or application or notice has been presented, given or filed by any third party for the appointment of an administrator in respect of any Group Company.

(d)	Receivership: No receiver or administrative receiver has been appointed in respect of any Group Company. No notice has been received by any Group Company in connection with the appointment of any such person, over the whole or part of any Group Company’s business or assets.

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SCHEDULE 4

LIMITATIONS ON SHAREHOLDER’S LIABILITIES

The Shareholder shall not be liable for a breach of any Warranty or otherwise in connection with Clause 5 or Schedule 3 in respect of any claim unless a notice of the claim is given by the Offeror or Mengniu to the Shareholder specifying in reasonable detail the legal and factual basis of the claim and the evidence on which the Offeror or Mengniu relies and setting out the Offeror’s or Mengniu’s estimate of the amount of the claim within two (2) years after the Unconditional Date, except that there shall be no time limitation for giving notice of any claim with respect to a breach of the Title Warranties.

The Shareholder shall not be liable for a breach of any Warranty or otherwise in connection with Clause 5 or Schedule 3 (other than a Title Warranty) in respect of any claim unless the aggregate amount of all claims for which the Shareholder would otherwise be liable for breach of any Warranty or otherwise in connection with Clause 5 or Schedule 3 exceeds RMB10,000,000.

3.	(a) The aggregate liability of the Shareholder in respect of all breaches of the Warranties or otherwise in connection with Clause 5 or Schedule 3 (other than the Title Warranties) shall not exceed 10% of the Total Consideration received by the Shareholder.

(b) The aggregate liability of the Shareholder in respect of all breaches of the Title Warranties shall not exceed 100% of the Total Consideration received by the Shareholder.

4.	The Shareholder shall not be liable for a breach of any Warranty or otherwise in connection with Clause 5 or Schedule 3 in respect of any loss of profit, loss of goodwill or indirect or consequential losses.

The Shareholder shall not be liable for a breach of any Warranty or otherwise in connection with Clause 5 or Schedule 3 in respect of any matter, act, omission or circumstance (or any combination thereof), including the aggravation of a matter or circumstance and any losses arising therefrom, to the extent that the same would not have occurred but for (a) the announcement or completion of the Offer, (b) any matter or thing done or omitted to be done as provided for under this Undertaking, in connection with the Offer, or (c) any matter or thing done or omitted to be done by or at the request in writing or with the approval in writing of the Offeror, Mengniu or any of their respective Affiliates or any of their respective directors or officers.

The Shareholder shall not be liable for breach of any Warranty or otherwise in connection with Clause 5 or Schedule 3 in respect of any matter, act, omission or circumstance (or any combination thereof), including the aggravation of a matter or circumstance and any losses arising therefrom, to the extent that the liability results from:

(a)

the passing of, or any change in, after the date of this Undertaking, any Applicable Law, policy or administrative practice of any Government Authority or any change after the date of this Undertaking of any generally accepted interpretation or application of any Applicable Law;

(b)

any changes in the accounting standard after the date of this Undertaking, under which any Group Company’s accounts are then prepared or changes in the regulatory accounting requirements applicable to the industry in which any Group Company operates in; or

(c)

any force majeure event.

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7.	The Shareholder shall not be liable for a breach of any Warranty or otherwise in connection with Clause 5 or Schedule 3 to the extent that the liability results from an event that occurs after the date of this Undertaking:

(a)

which is beyond the control of the Group or the respective directors, officers, or employees of each Group Company; or

(b)

which has a material adverse effect on the dairy industry in the PRC,

unless, in each of (a) and (b) above, the relevant Group Company is disproportionately affected by such event when compared with its peers in the dairy industry in the PRC, New Zealand or France in which case the Shareholder shall be liable for the breach of Warranty to the extent the liability results from the disproportionate effect such event has on the relevant Group Company.

8.	The Shareholder shall not be liable for a breach of any Warranty or otherwise in connection with Clause 5 or Schedule 3 in respect of any claim to the extent that the losses in respect of which such claim is made:

(a)

are covered by a policy of insurance; or

(b)

would have been covered if the policies of insurance for the benefit of the Group in force at the date of the Unconditional Date had been maintained after the Unconditional Date on no less favourable terms.

The Shareholder shall not be liable in respect of any claim for breach of any Warranty or otherwise in connection with Clause 5 or Schedule 3 to the extent that (a) proper allowance, provision or reserve is made in the Accounts for the matter giving rise to the claim, or (b) the facts, matters or circumstances giving rise to the relevant claim were fully and fairly disclosed in the Disclosure Letter.

10.

If the Offeror, Mengniu or any of their respective Affiliates receives any amounts from any other Person for any losses in connection with a breach by the Shareholder of any Warranty or otherwise in connection with Clause 5 or Schedule 3, subsequent to a payment by the Shareholder regarding such losses, then the Offeror and Mengniu shall, within 20 Business Days of the receipt of such payment, reimburse the Shareholder for any such payment received by the Offeror and Mengniu from the Shareholder up to the amount received by the Offeror, Mengniu or any of its Affiliates from such other Person(s) or shall procure such payment to be paid to the Shareholder.

11.

The Offeror shall procure that all reasonable steps are taken and all reasonable assistance is given to avoid or mitigate any losses which in the absence of mitigation might give rise to a liability in respect of any claim for breach of any Warranty or otherwise in connection with Clause 5 or Schedule 3.

-29-

12.	In respect of any claim for breach of any Warranty or otherwise in connection with Clause 5 or Schedule 3, all of the limitations in this Schedule 4 shall apply irrespective of the cause of action pursued or remedy sought against the Shareholder.

-30-

SCHEDULE 5

OFFEROR’S WARRANTIES

1. Each of the Offeror and Mengniu:

1.1 has the requisite power and authority to enter into and to perform its obligations under this Undertaking; and

1.2 has obtained or satisfied all corporate, regulatory and other approvals from all applicable Governmental Authorities, or any other conditions, necessary to execute, and perform its obligations under this Undertaking.

2. This Undertaking constitutes legal, valid and binding obligations of the Offeror and Mengniu enforceable against the Offeror and Mengniu in accordance with its terms.

3. As at the date of this Undertaking, except for information relating to the Offer or this Undertaking, neither the Offeror or Mengniu is in possession of any “inside information” (as such term is defined under the SFO) relating to the Company which may enable the Offeror or Mengniu, respectively, to counsel or procure another person to commit an offence of insider dealing in securities of the Company under section 270 of the SFO.

4. The Offeror is duly incorporated, validly existing and in good standing under the laws of the British Virgin Islands. Mengniu is duly incorporated, validly existing and in good standing under the laws of the Cayman Islands. Neither the Offeror nor Mengniu are insolvent, in liquidation or receivership. Neither the Offeror nor Mengniu have taken any step to enter liquidation and there are no grounds on which a petition or application could be based for the winding up or the appointment of a receiver in respect of either the Offeror or Mengniu. The Offeror and Mengniu have full power and authority to own their respective properties and to conduct their respective businesses

-31-

SCHEDULE 6

INTELLECTUAL PROPERTY

-32-

LOGO

SCHEDULE 8

DETAILS OF SHARE OPTIONS SCHEMES

-38-

“C”

Director

YASHILI INTERNATIONAL HOLDINGS LTD

(incorporated in the Cayman Islands with limited liability)

(the “Company”)

SHARE OPTION SCHEME

Adopted by ordinary resolution of

all members of the Company

passed on 8 October 2010

ORRICK, HERRINGTON & SUTCLIFFE

43/F., Gloucester Tower

The Landmark

11 Pedder Street, Central

Hong Kong

Tel: 2218-9100

Fax: 2218-9200

YASHILI INTERNATIONAL HOLDINGS LTD

SHARE OPTION SCHEME

1.	DEFINITIONS

1.1	In this Scheme the following expressions have the following meanings:-


“Acceptance Date”		the date upon which an offer of an Option must be accepted by the relevant Eligible Person, being a date not later than 28 days after the Offer Date;

“Adoption Date”		8 October 2010, subject to the fulfilment of the conditions set out in para 3.1;

“Affiliate Company”		a Controlling Shareholder of the Company or a Subsidiary or an Associate of a Controlling Shareholder;

“Allotment Date”		the date on which Shares are allotted to a Grantee (or his legal representatives) pursuant to the Option granted and exercised hereunder;

“Articles of Association”		the articles of association of the Company as amended from time to time;

“Associate”		shall have the same meaning ascribed to it under the Listing Rules;

“Auditors”		the auditors or independent financial advisor appointed by the Company;

“Bankruptcy Ordinance”		the Bankruptcy Ordinance (Chapter 6 of the laws of Hong Kong) as amended from time to time;

“Board”		the board of directors of the Company or a duly authorised committee thereof;

“Board Lot”		the board lot in which the Stock Exchange is open for the business of dealing in securities;


“Business Day”		any day on which the Stock Exchange is open for the business of dealing in securities;

“Commencement Date”		in respect of any particular Option, the Business Day on which the Option is deemed to be granted and accepted in accordance with Clause 5.6 of the Scheme;

“Companies Ordinance”		the Companies Ordinance (Chapter 32 of the laws of Hong Kong) as amended from time to time;

“Company”		Yashili International Holdings Ltd, a company incorporated in the Cayman Islands with limited liability on 3 June 2010;

“Controlling Shareholder”		shall have the meaning ascribed to it under the Listing Rules;

“Culpable Termination”		termination of the employment of an Executive on the grounds that he has been guilty of serious misconduct, or there exists grounds allowing his summary dismissal under his employment contract or under common law, or he is unable or has no reasonable prospects of being able to pay his debts within the meaning of the Bankruptcy Ordinance or any other applicable law, or he has become otherwise insolvent or has made any arrangement or composition with his creditors generally, or he has been convicted of any criminal offence involving his integrity or honesty;

“Directors”		directors of the Company;


“Eligible Person”	Means any of the following persons:		R17.03(2)

	(a)	an Executive;

	(b)	a director or proposed director (including an independent non-executive director) of any member of the Group;

	(c)	a direct or indirect shareholder of any member of the Group;

	(d)	a supplier of goods or services to any member of the Group;

	(e)	a customer, consultant, business or joint venture partner, franchisee, contractor, agent or representative of any member of the Group;

	(f)	a person or entity that provides design, research, development or other support or any advisory, consultancy, professional or other services to any member of the Group; and

	(g)	an Associate of any of the foregoing persons;

“Employee”	any executive director of, manager of, or other employee holding an executive, managerial, supervisory or similar position in any member of the Group;

“Executive”	any proposed Employee, any full-time or part-time Employee, or a person for the time being seconded to work full-time or part-time for any member of the Group;

“Expiry Date”	in respect of an Option, such date of the expiry of the Option as the Board may in its absolute discretion determine and which shall not exceed 10 years from the Commencement Date but subject to the provisions for early termination thereof contained herein;		R17.03(5)


“financial year”		a year or other period for which the Company’s accounts are made up;

“Grantee”		any Eligible Person who accepts the offer of the grant of an Option in accordance with the terms of the Scheme or (in the case of an Eligible Person being an individual and where the context so permits) the legal personal representative(s) entitled to any such Option in consequence of the death of the Eligible Person;

“Group”		the Company and its Subsidiaries (as defined under the Listing Rules);

“Hong Kong”		the Hong Kong Special Administrative Region of the PRC;

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

“Non-Executive Director Retirement”		a non-executive director of the Company who retires pursuant to the Company’s Articles of Association and who notifies the Company that he is not offering himself for re-election at the Company’s annual general meeting;

“Offer Date”		the date of the Board resolution approving the grant of Options, which must be a Business Day;

“Option”		an option to subscribe for Shares granted pursuant to the Scheme and for the time being subsisting;

“Option Period”		in respect of an Option, the period commencing immediately after the Commencement Date and expiring on the Expiry Date for such option;

“Option Shares”		Shares to which any particular Option relates;

“PRC”		the People’s Republic of China;


“Scheme”	this share option scheme, the rules of which are set out in this document in its present or any amended form;

“Shares”	ordinary shares of HK$0.10 each in the capital of the Company, or, if there has been a sub-division, consolidation, reclassification of or reconstruction of the share capital of the Company, shares forming part of the ordinary share capital of the Company;

“Stock Exchange”	The Stock Exchange of Hong Kong Limited;

“Subscription Price”	the price per Share at which a Grantee may subscribe for Shares on the exercise of an Option pursuant to the Scheme;	R17.03(9)

“Subsidiary”	a subsidiary (within the meaning of the Companies Ordinance as amended from time to time) of the Company from time to time;

“Takeovers Code”	The Hong Kong Code on Takeovers and Mergers approved by the Securities and Futures Commission from time to time;

“Underwriting Agreements)”	the underwriting agreement(s) to be entered into, among others, the Company and the underwriters relating to the proposed initial public offering of the Company;

“HK$”	Hong Kong dollars.

1.2

Paragraph headings are inserted for convenience of reference only and shall be ignored in the interpretation of the Scheme. References to paragraphs are to paragraphs of the Scheme. Unless the context otherwise requires, words importing the singular include the plural and vice versa, words importing a gender include every gender and references to persons include bodies corporate or unincorporated.

2.	PURPOSE OF THE SCHEME AND ELIGIBILITY


2.1		The purpose of the Scheme is to motivate Eligible Persons to optimise their future contributions to the Group and/or to reward them for their past contributions, to attract and retain or otherwise maintain on-going relationships with such Eligible Persons who are significant to and/or whose contributions are or will be beneficial to the performance, growth or success of the Group, and additionally in the case of Executive, to enable the Group to attract and retain individuals with experience and ability and/or to reward them for their past contributions.				R17.03(1)


2.2	Subject to the terms of the Scheme, the Board shall be entitled at any time during the life of the Scheme to offer the grant of any Option to any Eligible Person as the Board may in its absolute discretion select.

2.3	The basis of eligibility shall be determined by the Board from time to time.		R17.03(2)

3.	CONDITIONS PRECEDENT

3.1	The Scheme shall come into effect on the date on which the following conditions are fulfilled:

	(a)	the approval of all the shareholders of the Company for the adoption of the Scheme;	R17.02(1)(a)

	(b)	the approval of the Stock Exchange for the listing of and permission to deal in, the Shares (representing the initial Scheme Mandate Limit (as defined in paragraph 8.1)) to be allotted and issued pursuant to the exercise of the Options in accordance with the terms and conditions of the Scheme;

	(c)	the commencement of dealing in the Shares on the Stock Exchange; and

	(d)	the obligations of the underwriters under the Underwriting Agreement(s) becoming unconditional and not being terminated in accordance with the terms thereof or otherwise.

3.2	If the permission referred to in Clause 3.1(b) is not granted within two calendar months after the Adoption Date:

	(i)	the Scheme will forthwith determine;

	(ii)	any Option granted or agreed to be granted pursuant to the Scheme and any offer of such a grant shall be of no effect;

	(iii)	no person shall be entitled to any rights or benefits or be under any obligations under or in respect of the Scheme or any Option; and

	(iv)	the Board may further discuss and devise another share option scheme that is applicable to a private company for adoption by the Company.

4.	DURATION AND ADMINISTRATION

4.1	Subject to the fulfilment of the conditions to Clause 3 and the termination provisions to Clause 14, the Scheme shall be valid and effective for a period of		R17.03(11)


	10 years commencing on the Adoption Date. Upon the expiry of the Scheme as aforesaid, no further Options will be offered but the provisions of the Scheme shall remain in force and effect in all other respects. All Options granted prior to such expiry and not then exercised shall continue to be valid and exercisable subject to and in accordance with the Scheme.

4.2	The Scheme shall be subject to the administration of the Board whose decision on all matters arising in relation to the Scheme or its interpretation or effect shall (save as otherwise provided in the Scheme) be final and binding on all parties. The Board may delegate any or all of its powers in relation to the Scheme to any of its committees.

5.	GRANT OF OPTIONS

5.1	Subject to the terms of the Scheme, the Board shall be entitled at any time within 10 years after the Adoption Date to offer the grant of an Option to any Eligible Person as the Board may in its absolute discretion select to subscribe at the Subscription Price for such number of Shares as the Board may (subject to Clause 8) determine provided that:

	(a)	no Options shall be granted under this Scheme after the termination of the Scheme in accordance with Clause 14;

	(b)	no Options shall be granted if the Company would be required to issue a prospectus or offer document in respect of such grant under relevant laws or regulations applicable to the Company;

	(c)	no Options shall be granted if the grant would result in a breach by the Company or its directors of relevant laws or regulations (including those relating to securities); and

	(d)	any Option, once issued, shall not be reissued under the Scheme.

5.2	The Board may in its absolute discretion when offering the grant of an Option impose any conditions, restrictions or limitations in relation thereto in addition to those set forth in the Scheme as the Board may think fit (to be stated in the letter containing the offer of the grant of the Option) including (without prejudice to the generality of the foregoing) qualifying and/or continuing eligibility criteria, conditions, restrictions or limitations relating to the achievement of performance, operating or financial targets by the Company and/or the Grantee, the satisfactory performance or maintenance by the Grantee of certain conditions or obligations or the time or period when the right to exercise the Option in respect of all or some of the Option Shares shall vest provided that such terms or conditions shall not be inconsistent with any other terms or conditions of this Scheme. For the avoidance of doubt, subject to such terms and conditions as the Board may determine as aforesaid (including such terms and conditions in relation to their vesting, exercise or otherwise) there is no performance target which need to be achieved by the Grantee before the Option can be exercised.		R17.03(7)


5.3	Subject to Clause 8 below, but only insofar as and for so long as the Listing Rules require, where any offer of an option is proposed to be made to a director, chief executive or a substantial shareholder of the Company or any of their respective associates, such offer must first be approved by the independent non-executive directors of the Company (excluding the independent non-executive director who or whose associates is the grantee of an option).			R17.04

	Where any grant of options to a substantial shareholder or an independent non-executive director of the Company, or any of their respective associates, would result in the securities issued and to be issued upon exercise of all options already granted and to be granted (including options exercised, cancelled and outstanding) to such person in the 12-month period up to and including the date of such grant:

	(a)	representing in aggregate over 0.1% of the relevant class of securities in issue; and

	(b)	(where the securities are listed on the Stock Exchange), having an aggregate value, based on the closing price of the securities at the date of each grant, in excess of HK$5 million,

	such further grant of options must be approved by shareholders of the Company.

	Approval from the shareholders of the Company is required for any change in the terms of options granted to a participant who is a substantial shareholder or an independent non-executive director of the Company, or any of their respective associates.

5.4	The Board shall not offer the grant of an Option to any Eligible Person:

	(a)	after a price sensitive development has occurred or a price sensitive matter has been the subject of a decision, until such price sensitive information has been announced pursuant to the requirements of the Listing Rules; or		R17.05

	(b)	during the period commencing one month immediately preceding the earlier of:

		(i)	the date of the board meeting (as such date is first notified to the Stock Exchange in accordance with the Listing Rules) for the approval of the Company’s results for any year, half-year, quarterly or any other interim period (whether or not required under the Listing Rules); and

		(ii)	the deadline for the Company to publish an announcement of its results for any year or half-year under the Listing Rules, or quarterly or any other interim period (whether or not required under the Listing Rules),

			and ending on the date of the results announcement.


5.5	If in accordance with Clause 5.1 the Board determines to offer the grant of an Option to an Eligible Person, the Board shall forward to the relevant Eligible Person an offer letter specifying:

	(i)	the Eligible Person’s name, address and occupation;

	(ii)	the Offer Date;

	(iii)	the Acceptance Date;

	(iv)	the number of Shares in respect of which the Option is offered;

	(v)	the Subscription Price and the manner of payment of the Subscription Price of the Shares on and in consequence of the exercise of the Option;

	(vi)	how the Expiry Date in relation to that Option is ascertained;

	(vii)	the method of acceptance of the Option which shall, unless the Board otherwise determines, be as set out in Clause 5.6;

	(viii)	the method of exercise of the Option which shall, unless the Board otherwise determines, be as set out in Clause 7.1; and

	(ix)	such other terms and conditions relating to the offer of the Option which in the opinion of the Board are fair and reasonable but not being inconsistent with the rules and procedures applicable to the Scheme

	and requiring the Eligible Person to undertake to hold the Option on the terms on which it is to be granted and to be bound by the provisions of the Scheme.

5.6	An offer of the grant of an Option shall remain open for acceptance by the Eligible Person concerned for a period of 28 days from the Offer Date provided that no such grant of an Option may be accepted after the expiry of the effective period of the Scheme stated in Clause 4.1. An Option shall be deemed to have been granted and accepted by the Eligible Person and to have taken effect when the duplicate offer letter comprising acceptance of the offer of the Option duly signed by the Grantee together with a remittance in favour of the Company of HK$1.00 by way of consideration for the grant thereof is received by the Company on or before the Acceptance Date. Such remittance shall in no circumstances be refundable.		R17.03(8)

5.7	Any offer of the grant of an Option may be accepted in respect of less than the number of Shares in respect of which it is offered provided that it is accepted in respect of board lots for dealing in Shares on the Stock Exchange or an integral multiple thereof and such number is clearly stated in the duplicate offer letter comprising acceptance of the offer of the Option in the manner as


	set out in Clause 5.6 above. To the extent that the offer of the grant of an Option is not accepted by the Acceptance Date, it will be deemed to have been irrevocably declined.

6.	SUBSCRIPTION PRICE

6.1	The Subscription Price in respect of any particular Option shall be such price as the Board may in its absolute discretion determine at the time of grant of the relevant Option (and shall be stated in the letter containing the offer of the grant of the Option) but the Subscription Price shall not be less than whichever is the highest of:		R17.03(9)

	(a)	the nominal value of a Share;

	(b)	the closing price of a Share as stated in the Stock Exchange’s daily quotations sheet on the Offer Date; and

	(c)	the average closing price of a Share as stated in the Stock Exchange’s daily quotation sheets for the five Business Days immediately preceding the Offer Date.

7.	EXERCISE OF OPTIONS

7.1	An Option shall be exercised in whole or in part (but if in part only, in respect of a Board Lot or any integral multiple thereof) within the Option Period in the manner as set out in Clauses 7.3 and 7.4 by the Grantee (or his legal personal representative(s)) by giving notice in writing to the Company stating that the Option is thereby exercised and specifying the number of Shares in respect of which it is exercised. Each such notice must be accompanied by a remittance for the full amount of the aggregate Subscription Price for the Shares in respect of which the notice is given. Within 30 days after receipt of the notice and, where appropriate, receipt of the Auditors’ certificate pursuant to Clause 12, the Company shall accordingly allot and issue the relevant number of Shares to the Grantee (or his legal personal representative(s)) credited as fully paid with effect from (but excluding) the relevant exercise date and issue to the Grantee (or his legal personal representative(s)) share certificate(s) in respect of the Shares so allotted.

7.2	The exercise of any Option shall be subject to the members of the Company in general meeting approving any necessary increase in the authorised share capital of the Company.

7.3	Subject as hereinafter provided, an Option may be exercised by the Grantee at any time during the Option Period, provided that:

	(a)	in the event that the Grantee dies or becomes permanently disabled before exercising an Option (or exercising it in full), he (or his legal representative(s)) may exercise the Option up to the Grantee’s


	entitlement (to the extent not already exercised) within a period of 12 months following his death or permanent disability or such longer period as the Board may determine;

(b)	in the event that the Grantee ceases to be an Executive by reason of his retirement pursuant to such retirement scheme applicable to the Group at the relevant time, his Option (to the extent not already exercised) shall be exercisable until the expiry of the relevant Option Period;

(c)	in the event that the Grantee ceases to be an Executive by reason of his transfer of employment to an Affiliate Company, his Option (to the extent not already exercised) shall be exercisable until the expiry of the relevant Option Period unless the Board in its absolute discretion otherwise determines in which event the Option (or such remaining part thereof) shall be exercisable within such period as the Board has determined;

(d)	in the event that the Grantee ceases to be an Executive for any reason (including his employing company ceasing to be a member of the Group) other than his death, permanent disability, retirement pursuant to such retirement scheme applicable to the Group at the relevant time or the transfer of his employment to an Affiliate Company or the termination of his employment with the relevant member of the Group by resignation or Culpable Termination, the Option (to the extent not already exercised) shall lapse on the date of cessation of such employment and not be exercisable unless the Board otherwise determines in which event the Option (or such remaining part thereof) shall be exercisable within such period as the Board may in its absolute discretion determine following the date of such cessation;

(e)	in the event that the Grantee ceases to be an Executive by reason of the termination of his employment by resignation or Culpable Termination, the Option (to the extent not already exercised) shall lapse on the date on which the notice of termination is served (in the case of resignation) or the date on which the Grantee is notified of the termination of his employment (in the case of Culpable Termination) and not be exercisable unless the Board otherwise determines in which event the Option (or such remaining part thereof) shall be exercisable within such period as the Board may in its absolute discretion determine following the date of such service or notification. A resolution of the Board resolving that the Executive’s Option has lapsed pursuant to this Clause 7.3(e) shall be final and conclusive;

(f)	if a Grantee being:

	(i)	an executive director of the Company ceases to be an Executive but remains a non-executive director, his Option (to the extent not already exercised) shall be exercisable until the expiry of the relevant Option Period unless the Board in its absolute discretion otherwise determines in which event the Option (or such remaining part thereof) shall be exercisable within such period as the Board has determined; or


	(ii)	a non-executive director of the Company ceases to be a director:

		(1)	by reason of Non-Executive Director Retirement, his Option (to the extent not already exercised) shall be exercisable until the expiry of the relevant Option Period unless the Board in its absolute discretion otherwise determines in which event the Option (or such remaining part thereof) shall be exercisable within such period as the Board has determined; or

		(2)	for reasons other than Non-Executive Director Retirement, his Option (to the extent not already exercised) shall lapse on the date of cessation of such appointment and not be exercisable unless the Board otherwise determines in which event the Option (or such remaining part thereof) shall be exercisable within such period as the Board may in its absolute discretion determine following the date of such cessation;

(g)	if:

	(i)	the Board in its absolute discretion at any time determines that a Grantee has ceased to be an Eligible Person; or

	(ii)	a Grantee has failed to or no longer satisfies or complies with such criteria or terms and conditions that may be attached to the grant of the Option or which were the basis on which the Option was granted,

	the Option (to the extent not already exercised) shall lapse on the date on which the Grantee is notified thereof (in the case of (i)) or on the date on which the Grantee has failed to or no longer satisfies or complies with such criteria or terms and conditions as aforesaid (in the case of (ii)) and not be exercisable unless the Board otherwise determines in which event the Option (or such remaining part thereof) shall be exercisable within such period as the Board may in its absolute discretion determine following the date of such notification or the date of such failure, non-satisfaction or non-compliance. In the case of (i), a resolution of the Board resolving that the Grantee’s Option has lapsed pursuant to this Clause 7.3(g) shall be final and conclusive;

(h)	if a Grantee (being a corporation):

	(i)	has a liquidator or receiver appointed anywhere in the world in respect of the whole or any part of the assets or undertaking of the Grantee; or


	(ii)	has suspended, ceased or threatened to suspend or cease business; or

	(iii)	is unable to pay its debts; or

	(iv)	otherwise becomes insolvent; or

	(v)	suffers a change in its constitution, management, directors or shareholding which in the opinion of the Board is material; or

	(vi)	commits a breach of any contract entered into between the Grantee or his Associate and any member of the Group,

	the Option (to the extent not already exercised) shall lapse on the date of appointment of the liquidator or receiver or on the date of suspension or cessation of business or on the date when the Grantee is deemed to be unable to pay its debts as aforesaid or on the date of notification by the Company that the said change in constitution, management, directors or shareholding is material or on the date of notification by the Company of the said breach of contract (as the case may be) and not be exercisable unless the Board otherwise determines in which event the Option (or such remaining part thereof) shall be exercisable within such period as the Board may in its absolute discretion determine following the date of such occurrence. A resolution of the Board resolving that the Grantee’s Option has lapsed pursuant to this Clause 7.3(h) by reason of breach of contract or material change in the constitution, management, directors or shareholding as aforesaid shall be final and conclusive;

(i)	if a Grantee (being an individual):

	(i)	is unable or has no reasonable prospects of being able to pay his debts within the meaning of the Bankruptcy Ordinance or any other applicable law or has otherwise become insolvent; or

	(ii)	has made any arrangement or composition with his creditors generally; or

	(iii)	has been convicted of any criminal offence involving his integrity or honesty; or

	(iv)	commits a breach of any contract entered into between the Grantee or his Associate and any member of the Group,

	the Option (to the extent not already exercised) shall lapse on the date on which he is deemed unable or to have no reasonable prospects of being able to pay his debts as aforesaid or on the date on which a petition for bankruptcy has been presented in any jurisdiction or on the date on which he enters into the said arrangement or composition with his creditors or on the date of his conviction or on the date of the said


	breach of contract (as the case may be) and not be exercisable unless the Board otherwise determines in which event the Option (or such remaining part thereof) shall be exercisable within such period as the Board may in its absolute discretion determine following the date of such occurrence. A resolution of the Board resolving that the Grantee’s Option has lapsed pursuant to this Clause 7.3(i) for breach of contract as aforesaid shall be final and conclusive;

(j)	if a general offer is made to all holders of Shares and such offer becomes or is declared unconditional (in the case of a takeover offer) or is approved by the requisite majorities at the relevant meetings of shareholders of the Company (in the case of a scheme of arrangement), the Grantee shall be entitled to exercise the Option (to the extent not already exercised) at any time (in the case of a takeover offer) within one month after the date on which the offer becomes or is declared unconditional or (in the case of a scheme of arrangement) prior to such time and date as shall be notified by the Company;

(k)	if a compromise or arrangement between the Company and its members or creditors is proposed for the purpose of or in connection with a scheme for the reconstruction of the Company or its amalgamation with any other company, the Company shall give notice thereof to the Grantees who have Options unexercised at the same time as it despatches notices to all members or creditors of the Company summoning the meeting to consider such a compromise or arrangement and thereupon each Grantee (or his legal representatives or receiver) may until the expiry of the earlier of:

	(i)	the Option Period;

	(ii)	the period of two months from the date of such notice; or

	(iii)	the date on which such compromise or arrangement is sanctioned by the court,

	exercise in whole or in part his Option. Except insofar as exercised in accordance with this Clause 7.3 (k), all Options outstanding at the expiry of the relevant period referred to in this Clause 7.3(k) shall lapse. The Company may thereafter require each Grantee to transfer or otherwise deal with the Shares issued on exercise of the Option to place the Grantee in the same position as would have been the case had such Shares been the subject of such compromise or arrangement; and

(l)	in the event a notice is given by the Company to its members to convene a general meeting for the purposes of considering, and if thought fit, approving a resolution to voluntarily wind-up the Company, the Company shall on the same date as or soon after it despatches such notice to each member of the Company give notice thereof to all Grantees and thereupon, each Grantee (or his legal personal representative(s)) shall be entitled to exercise all or any of his options


		at any time not. later than two Business Days prior to the proposed general meeting of the Company by giving notice in writing to the Company, accompanied by a remittance for the full amount of the aggregate Subscription Price for the Shares in respect of which the notice is given whereupon the Company shall as soon as possible and, in any event, no later than the business day immediately prior to the date of the proposed general meeting referred to above, allot the relevant Shares to the Grantee credited as fully paid.

7.4	The Shares to be allotted upon the exercise of an Option will be subject to all the provisions of the Articles of Association and the laws of the Cayman Islands from time to time and shall rank pari passu in all respects with the then existing fully paid Shares in issue on the Allotment Date or, if that date falls on a day when the register of members of the Company is closed, the first date of the re-opening of the register of members, and accordingly will entitle the holders to participate in all dividends or other distributions paid or made on or after the Allotment Date or, if that date falls on a day when the register of members of the Company is closed, the first day of the re-opening of the register of members, other than any dividend or other distribution previously declared or recommended or resolved to be paid or made if the record date herefore shall be before the Allotment Date.

7.5	A Share issued upon the exercise of an Option shall not carry rights until the registration of the Grantee (or any other person) as the holder thereof.

8.	MAXIMUM NUMBER OF SHARES AVAILABLE FOR SUBSCRIPTION

8.1	The maximum number of Shares which may be issued upon exercise of all options to be granted under the Scheme and any other schemes of the Group shall not in aggregate exceed 10 per cent, of the Shares in issue as at the date of listing of the Shares on the Main Board of the Stock Exchange (the “Scheme Mandate Limit”) provided that:		R17.03(3)

	(a)	the Company may at any time as the Board may think fit seek approval from its shareholders to refresh the Scheme Mandate Limit, save that the maximum number of Shares which may be issued upon exercise of all options to be granted under the Scheme and any other schemes of the Company shall not exceed 10 per cent, of the Shares, in issue as at the date of approval by the shareholders of the Company in general meeting where the Scheme Mandate Limit is refreshed. Options previously granted under the Scheme and any other schemes of the Company (including those outstanding, cancelled, lapsed or exercised in accordance with the terms of the Scheme or any other schemes of the Company) shall not be counted for the purpose of calculating the Scheme Mandate Limit as refreshed. The Company shall send to its shareholders a circular containing the details and information required under the Listing Rules; and


	(b)	the Company may seek separate approval from its shareholders in general meeting for granting Options beyond the Scheme Mandate Limit, provided that the Options in excess of the Scheme Mandate Limit are granted only to the Eligible Person specified by the Company before such approval is obtained. The Company shall issue a circular to its shareholders containing the details and information required under the Listing Rules.

8.2	Notwithstanding Clause 8.1(a), the maximum number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Scheme and any other schemes of the Group shall not exceed 30 per cent, of the Shares in issue from time to time.

8.3	The maximum number of Shares issued and to be issued upon exercise of the Options granted to any one Eligible Person (including exercised and outstanding Options) in any 12-month period shall not exceed 1 per cent, of the Shares in issue from time to time. Where any further grant of Options to such an Eligible Person would result in the Shares issued and to be issued upon exercise of all Options granted and to be granted to such Eligible Person (including exercised, cancelled and outstanding Options) in the 12-month period up to and including the date of such further grant representing in aggregate over 1 per cent, of the Shares in issue, such further grant shall be separately approved by the shareholders of the Company in general meeting with such Eligible Person and his Associates abstaining from voting. The Company shall send a circular to its shareholders disclosing the identity of the Eligible Person, the number and terms of the Options to be granted (and Options previously granted) to such Eligible Person, and containing the details and information required under the Listing Rules. The number and terms (including the Subscription Price) of the Options to be granted to such Eligible Person must be fixed before the approval of the Company’s shareholders and the date of the Board meeting proposing such grant shall be taken as the Offer Date for the purpose of calculating the Subscription Price of those Options.		R17.03(4)

8.4	The maximum numbers set out in Clauses 8.1 to 8.3 above shall be adjusted, in such manner as the Auditors shall certify in writing to the Board to be fair and reasonable in the event of any alteration to the capital structure of the Company in accordance with Clause 15 below whether by way of capitalization of profits or reserves, rights issue, consolidation, reclassification, reconstruction, subdivision or reduction of the share capital of the Company but shall not in any event exceed the limits imposed by the Listing Rules.		R17.03(13)

9.	TRANSFERABILITY OF OPTIONS

9.1	An Option shall be personal to the Grantee and shall not be assignable and no Grantee shall in any way sell, transfer, charge, mortgage, encumber or create any interest (legal or beneficial) in favour of any third party over or in relation to any Option or attempt so to do (save that the Grantee may nominate a nominee in whose name the Shares issued pursuant to the Scheme may be registered), except with the prior written consent of the Board from time to time. Any breach of the foregoing shall entitle the Company to cancel any outstanding Option or part thereof granted to such Grantee.		R17.03(17)


10.	LAPSE OF OPTION

10.1	An Option shall lapse automatically and not be exercisable (to the extent not already exercised) on the earliest of::		R17.03(12)

	(a)	the expiry of the Option Period;

	(b)	the expiry of any of the period referred to Clause 7.3;

	(c)	subject to Clause 7.3(1), the date of the commencement of the winding- up of the Company;

	(d)	there is an unsatisfied judgement, order or award outstanding against the Grantee or the Board has reason to believe that the Grantee is unable to pay or to have no reasonable prospect of being able to pay his/its debts;

	(e)	there are circumstances which entitle any person to take any action, appoint any person, commence proceedings or obtain any order of the type mentioned in Clauses 7.3(h) or 10.1(d); or

	(f)	a bankruptcy order has been made against any director or shareholder of the Grantee (being a corporation) in any jurisdiction.

	No compensation shall be payable upon the lapse of any Option, provided that the Board shall be entitled in its discretion to pay such compensation to the Grantee in such manner as it may consider appropriate in any particular case.

11.	CANCELLATION OF OPTIONS

11.1	The Board shall be entitled for the following causes to cancel any Option in whole or in part by giving notice in writing to the Grantee stating that such Option is thereby cancelled with effect from the date specified in such notice (the “Cancellation Date”):

	(a)	the Grantee commits or permits or attempts to commit or permit a breach of Clause 9.1 or any terms or conditions attached to the grant of the Option;

	(b)	the Grantee makes a written request to the Board for the Option to be cancelled; or

	(c)	if the Grantee has, in the opinion of the Board, conducted himself in any manner whatsoever to the detriment of or prejudicial to the interests of the Company or a Subsidiary.


11.2	The Option shall be deemed to have been cancelled with effect from the Cancellation Date in respect of any part of the Option which has not been exercised as at the Cancellation Date. No compensation shall be payable upon any such cancellation, provided that the Board shall be entitled in its discretion to pay such compensation to the Grantee in such manner as it may consider appropriate in any particular case.		R17.03(14)

12.	REORGANISATION OF CAPITAL STRUCTURE

12.1	In the event of any alteration to the capital structure of the Company while any Option remains exercisable, whether by way of capitalization of profits or reserves, open offer, rights issue, consolidation, reclassification, reconstruction, sub-division or reduction of the share capital of the Company, the Board may, if it considers the same to be appropriate, direct that adjustments be made to:

	(a)	the maximum number of Shares subject to the Scheme; and/or

	(b)	the aggregate number of Shares subject to the Option so far as unexercised; and/or

	(c)	the Subscription Price of each outstanding Option.

	Where the Board determines that such adjustments are appropriate (other than an adjustment arising from a capitalization issue), the Auditors appointed by the Company shall certify in writing to the Board that any such adjustments are in their opinion fair and reasonable, provided that:

	(a)	any such adjustments shall be made on the basis that the aggregate Subscription Price payable by the Grantee on the full exercise of any Option shall remain as nearly as practicable the same as (but shall not be greater than) as it was before such event;

	(b)	no such adjustments shall be made the effect of which would be to enable a Share to be issued at less than its nominal value;

	(c)	any such adjustments shall be made in accordance with the provisions as stipulated under Chapter 17 of the Listing Rules and supplementary guidance on the interpretation of the Listing Rules issued by the Stock Exchange from time to time; and

	(d)	the issue of securities as consideration in a transaction shall not be regarded as a circumstance requiring any such adjustments.

	The capacity of the Auditors in Clause 12.1 is that of experts and not arbitrators and their certification shall be final and binding on the Company and the Grantees in the absence of manifest error. The costs of the Auditors shall be borne by the Company.


12.2	If there has been any alteration in the capital structure of the Company as referred to in Clause 12, the Company shall, upon receipt of a notice from the Grantee in accordance with Clause 7.1, inform the Grantee of such alteration and shall either inform the Grantee of the adjustment to be made pursuant to the certificate of the Auditors obtained by the Company for such purpose, or if no such certificate has yet been obtained, inform the Grantee of such fact and instruct the Auditors to issue a certificate in that regard in accordance with Clause 12.

13.	SHARE CAPITAL

13.1	Subject to Clause 7.2, the Board shall at all times set aside for the purposes of the Scheme, out of the authorized but unissued share capital of the Company, such number of Shares as the Board may from time to time determine to be sufficient to meet subsisting requirements for the exercise of the Option.

14.	TERMINATION

14.1	The Company may by resolution in general meeting at any time terminate the operation of the Scheme. Upon termination of the Scheme as aforesaid, no further Options shall be offered but the provisions of the Scheme shall remain in force and effect in all other respects. All Options granted prior to such termination and not then exercised shall continue to be valid and exercisable subject to and in accordance with the Scheme.		R17.03(16)

15.	ALTERATION OF THE SCHEME

15.1	Subject to Clause 15.2, the Scheme may be altered in any respect by a resolution of the Board.		R17.03(18)

15.2	The following shall not be carried out except with the prior sanction of an ordinary resolution of the shareholders of the Company in general meeting:

	(a)	any material alteration to its terms and conditions or any change to the terms of Options granted (except where the alterations take effect under the existing terms of the Scheme);

	(b)	any alteration to the provisions of the Scheme in relation to the matters set out in Rule 17.03 of the Listing Rules to the advantage of Grantee;

	(c)	any change to the authority of the Board or any person or committee delegated by the Board pursuant to clause 4.2 to administer the day-to- day running of the Scheme; and

	(d)	any alteration to Clause 15

	provided always that the amended terms of the Scheme shall comply with the applicable requirements of the Listing Rules.


16.	DISPUTES

16.1	Any dispute arising in connection with the Scheme (whether as to the number of Shares the subject of an Option, the amount of the Subscription Price or otherwise) shall be referred to the decision of the Auditors who shall act as experts and not as arbitrators and whose decision shall, in the absence of manifest error, be final and conclusive and binding on all persons who may be affected thereby.

17.	MISCELLANEOUS

17.1	The Company shall bear the costs of establishing and administering the Scheme (including the costs of the Auditors).

17.2	A Grantee shall be entitled to inspect copies of all notices and other documents sent by the Company to its members at the same time or within a reasonable time of such notices or documents being sent, which shall be made available to him during normal office hours at the principal office of the Company in Hong Kong.

17.3	Any notices, documents or other communication between the Company and a Grantee shall be in writing and may be sent by prepaid post or by personal delivery to, in the case of the Company, its principal office in Hong Kong and, in the case of the Grantee, his address in Hong Kong as notified to the Company from time to time.

17.4	Any notice or other communication served:

	(a)	by the Company shall be deemed to have been served 24 hours after the same was put in the post or if delivered by hand, when delivered; and

	(b)	by the Grantee shall not be deemed to have been received until the same shall have been received by the Company.

17.5	All allotments and issues of Shares pursuant to the Scheme shall be subject to any necessary consents under the relevant laws, enactments or regulations for the time being in force in the Cayman Islands or elsewhere and a Grantee shall be responsible for obtaining any governmental or other official consent that may be required by any country or jurisdiction in order to permit the grant or exercise of his Option. By accepting an Offer or exercising his Option, the Grantee thereof is deemed to have represented to the Company that he has obtained all such consents. A Grantee shall indemnify the Company fully against all claims, demands, liabilities, actions, proceedings, fees, costs and expenses which the Company may suffer or incur (whether alone or jointly with other party or parties) for or in respect of any failure on the part of the


		Grantee to obtain any necessary consent or to pay tax or other liabilities referred therein. The Company shall not be responsible for any failure by a Grantee to obtain any such consent or for any tax or other liability to which a Grantee may become subject as a result of his participation in the Scheme.

17.6		A Grantee shall pay all taxes and discharge all other liabilities to which he may become subject as a result of his participation in the Scheme or the exercise of any Option.

17.7		The Scheme shall not confer on any person any legal or equitable rights (other than those constituting the Options themselves) against the Company directly or indirectly or give rise to any cause of action at law or in equity against the Company.

17.8		The Scheme shall not form part of any contract of employment between the Company or any Subsidiary and any Executive and the rights and obligations of any Executive under the terms of his office or employment shall not be affected by his participation in it and the Scheme shall afford such an Executive no additional rights to compensation or damages in consequence of the termination of such office or employment for any reason.

18.		GOVERNING LAW

18.1		The Scheme and all Options granted hereunder shall be governed by and construed in accordance with the laws of Hong Kong.

LOGO


EXECUTED by the Parties:
Signed for and on behalf of ZHANG INTERNATIONAL INVESTMENT LTD. By: Title:		) ) ) )

Signed for and on behalf of		)
CHINA MENGNIU INTERNATIONAL COMPANY		)
LIMITED		)
		)
		)
By:
Title:

Signed for and on behalf of		)
CHINA MENGNIU DAIRY COMPANY LIMITED		)
		)
		)
By:
Title:

IRREVOCABLE UNDERTAKING (ZHANG INT’L)