Xiao Nan Guo Restaurants : Announcements and Notices - Continuing Connected Transaction Supplemental Agreement to Procurement Framework Agreement and Revision of Annual Cap

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小南國餐飲控股有限公司

(Incorporated in the Cayman Islands with limited liability)

The Board hereby announces that, on 31 July 2017, the Company and Zhongmin Supply Chain entered into a supplemental agreement to the Procurement Framework Agreement dated 1 June 2017 to reduce the annual maximum purchase amount from RMB150 million to RMB30 million.

The annual cap for the transactions contemplated under the Procurement Framework Agreement (as amended by the Supplemental Agreement) is hence revised from RMB150 million to RMB30 million.

As mentioned in the announcement of the Company dated 1 June 2017, the transactions contemplated under the Procurement Framework Agreement originally constituted continuing connected transactions of the Company which were subject to the reporting, announcement and Independent Shareholders' approval requirements) under Chapter 14A of the Listing Rules.

As one or more of the applicable percentage ratios in respect of the Revised Annual Cap regarding the Procurement Framework Agreement (as amended by the Supplemental Agreement) are 1% or higher but less than 5%, the Procurement Framework Agreement (as amended by the Supplemental Agreement) shall be subject to the reporting and announcement requirements (instead of being subject to the reporting, announcement and Independent Shareholders' approval requirements) under Chapter 14A of the Listing Rules. Hence, no circular containing further details about the Procurement Framework Agreement and the transactions contemplated thereunder will be despatched to the Shareholders and no EGM will be held to approve the same as mentioned in the Announcement.

References are made to the announcement of the Company dated 1 June 2017 (the "Announcement") and 21 June 2017 in relation to the Procurement Framework Agreement and the transactions contemplated thereunder which constitutes continuing connected transaction of the Company under the Listing Rules. Unless otherwise defined, terms used in this announcement shall have the same meaning as those defined in the Announcement. It is clarified that (i) the term "raw food ingredients" referred to in the English version of the Announcement shall read "food ingredients" instead; and (ii)

the term "食材原材料" referred to in Chinese version of the Announcement shall read "食材" instead

due to clerical error.

The Board announces that on 31 July 2017, the Company (for itself and on behalf of its subsidiaries and associated companies) and Zhongmin Supply Chain (for itself and on behalf of its subsidiaries and associated companies) entered into a supplemental agreement to the Procurement Framework Agreement in relation to the procurement of food ingredients and other non-food items by the Company from Zhongmin Supply Chain (the "Supplemental Agreement"). Pursuant to the Supplemental Agreement, the annual maximum transaction amount during the term of the Procurement Framework Agreement (from 1 June 2017 to 31 May 2018) shall be revised from RMB150 million to RMB30 million.

Zhongmin Supply Chain acknowledges that, in order to maintain long term relationship with the Group, the Group may have free access to the information of various suppliers on the Zhongmin Platform for sourcing of food ingredients and other non-food items directly from such suppliers by the Group, where the Group may contact, liaise, order, settle payments and have business relationship directly with such suppliers as the Group considers appropriate.

Save for the aforementioned amendments, all other terms of the Procurement Framework Agreement remain unchanged.

Based on the above, the annual cap for the transactions contemplated under the Procurement Framework Agreement (as amended by the Supplemental Agreement) is hence revised from RMB150 million to RMB30 million (the "Revised Annual Cap").

As mentioned in the Announcement, the aggregate procurement amount under the Previous Procurement Framework Agreement was approximately RMB64.56 million during the year ended 31 May 2017. There was no transaction incurred under the Procurement Framework Agreement after it was entered into by the parties on 1 June 2017. Having considered the latest information on the business needs of the Group in respect of procurement of food ingredients and non-food items as

further elaborated below and the market conditions of the catering businesses and the conclusion of the Supplemental Agreement, the Board proposed to revise the Annual Cap from RMB150 million to RMB30 million.

The Revised Annual Cap of the transactions contemplated under the Procurement Framework Agreement (as amended by the Supplemental Agreement) was determined with reference to the factors as set out in the Announcement and the following additional factors:

1. in order to standardize our quality of food and dishes, enhance the efficiency of food preparation process and save costs (such as labour costs), we commenced sourcing more semi- processed food ingredients in 2017 and consider to increase the proportion of semi-processed food ingredients procurement as compared to raw food ingredients procurement. Detailed negotiation on the specification, processed steps and quality of semi-processed food ingredients with the supplier are required. To the best information and knowledge of the Directors, although Zhongmin Supply Chain may spend additional resources on the segments for offering semi- processed food ingredients in the future, the types of the semi-processed food ingredients currently available for direct purchase from Zhongmin Supply Chain may not be able to meet our expected business needs for during the term of the Procurement Framework Agreement. Due to the change in planning for the Group's need in food ingredients mix, the total amount of expected direct purchases (which is mainly for raw food ingredients and non-food items) from Zhongmin Supply Chain is hence expected to be reduced; and

2. our management's decision to avoid heavy reliance on direct procurement from Zhongmin Supply Chain to approximately 5% of the total procurement amount of the Group (for reference purpose, RMB30 million represents 5.29% of the total procurement amount of the Group for the year ended 31 December 2016).

The Directors (including the independent non-executive Directors) consider that the terms of the Supplemental Agreement and the Revised Annual Cap are fair and reasonable and in the interests of the company and the Shareholders as a whole.

The internal control measures relating to the pricing of the transactions under the Procurement Framework Agreement (as amended by the Supplemental Agreement) as disclosed in the Announcement remain unchanged, which include among others, the Group will take into account factors of price, food hygiene, business qualification and source of the products and will select suppliers and obtain the quotation from other independent third party suppliers of similar products and order quality based on the existing procurement system and procedures to confirm the prevailing market price. To supplement, the Group would purchase from Zhongmin Supply Chain under the Procurement Framework Agreement (as amended by the Supplemental Agreement) only if (i) the food ingredients or non-food items at the quantity we need are available for direct purchase, the

overall terms are not less favourable than other independent third party suppliers (including those identified from the Zhongmin Platform); and (ii) the accumulated purchase amount from Zhongmin Supply Chain would not exceed the Revised Annual Cap upon making the relevant purchases.

As mentioned above, in order to standardize our quality of food and dishes, enhance the efficiency of food preparation process and save costs (such as labour costs), we commenced sourcing more semi- processed food ingredients in 2017 and consider to increase the proportion of semi-processed food ingredients procurement as compared to raw food ingredients procurement in the near future. To the best information and knowledge of the Directors, although Zhongmin Supply Chain may spend additional resources on the segments for offering semi-processed food ingredients in the long run, the types of the semi-processed food ingredients available for direct purchase (which is mainly for raw food ingredients and non-food items) from Zhongmin Supply Chain may not be able to meet our expected business needs during the term of the Procurement Framework Agreement.

In order to maintain good business relationship with the Group, Zhongmin Supply Chain was willing to acknowledge that, the Group may have free access to the information of various suppliers on the Zhongmin Platform for sourcing of food ingredients and other non-food items directly from such suppliers by the Group, where the Group may contact, liaise, order, settle payments and have business relationship directly with such suppliers as the Group considers appropriate.

Taking into account of the above, to avoid heavy reliance on direct procurement from Zhongmin Supply Chain, and the Group's ability to leverage on the information accessible at Zhongmin Platform for identifying suppliers to suit our needs, the Directors (excluding all the independent non- executive Directors) are of the view that (i) the Procurement Framework Agreement (as amended by the Supplemental Agreement) is on normal commercial terms and on terms no less favourable than those provided by the independent third parties to the Company and in the course of the ordinary and usual business of the Company; (ii) the terms of the Procurement Framework Agreement (as amended by the Supplemental Agreement) are fair and reasonable and in the interests of the Company and its Shareholders as a whole; and (iii) the revised Annual Cap for procurement under the Procurement Framework Agreement (as amended by the Supplemental Agreement) are fair and reasonable.

Each of Ms. Wang, the chairlady, the chief executive officer, executive Director and a Controlling Shareholder of the Company, and Ms. Zhu, an executive Director, holds 48.75% equity interests in Shanghai Zhongmin Investment, which in turn holds 100% equity interests in Zhongmin Supply Chain. Therefore, Zhongmin Supply Chain is a connected person of the Company and the entering into of the Procurement Framework Agreement (as amended by the Supplemental Agreement) and the transactions contemplated thereunder by the Company constitutes a continuing connected transaction for the Company under the Listing Rules.