Longrun Tea Group Company Limited 龍潤茶集團有限

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Longrun Tea Group Company Limited, you should at once hand this circular and the accompanying form of proxy, to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

LONGRUN TEA GROUP COMPANY LIMITED 龍潤茶集團有限公司 (Incorporated in the Cayman Islands with limited liability) (Stock Code: 2898)

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

A letter from the Board is set out on pages 4 to 14 and a letter from the Independent Board Committee is set out on page 15 of this circular. A letter from Goldin Financial containing its advice and recommendation to the Independent Board Committee and the Independent Shareholders is set out on pages 16 to 31 of this circular.

A notice convening the EGM to be held at 11:00 a.m. on Monday, 6 June 2016 at Unit 2201, 22/F., Bank of America Tower, 12 Harcourt Road, Central, Hong Kong is set out on pages 38 and 39 of this circular. A form of proxy for use at the EGM is enclosed with this circular. If you are unable to attend the EGM, you are requested to complete the accompanying form of proxy, in accordance with the instructions printed thereon and deposit the same to the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

17 May 2016 CONTENTS

Page

Definitions ...... 1

Letter from the Board ...... 4

Letter from the Independent Board Committee ...... 15

Letter from Goldin Financial ...... 16

Appendix — General information ...... 32

Notice of EGM ...... 38

–i– DEFINITIONS

In this circular, unless the context otherwise requires, the following terms shall have the following meanings:

“Announcement” the announcement of the Company dated 3 March 2016 in relation to the Annual Caps

“Annual Caps” the annual caps of the amount of purchase of the Tea Products pursuant to the Purchase Agreement for the three financial years ending 31 March 2019

“associate(s)” has the meaning ascribed thereto in the Listing Rules

“Board” the board of Directors

“Company” LR Tea Group Company Limited 龍潤茶集團有限公司, a company incorporated in the Cayman Islands with limited liability and the shares of which are listed on the main board of the Stock Exchange

“connected person(s)” has the meaning ascribed thereto in the Listing Rules

“Director(s)” the director(s) of the Company

“Dr. Chiu” Dr. Chiu Ka Leung, the controlling Shareholder holding approximately 55.59% of the issued share capital of the Company as at the Latest Practicable Date, an executive Director and the chairman of the Company

“EGM” the extraordinary general meeting of the Company to be convened for the purpose of considering and, if thought fit, approving, among others, the Annual Caps

“Goldin Financial” or Goldin Financial Limited, a corporation licensed to “Independent Financial carry out type 6 (advising on corporate finance) Adviser” regulated activities as defined under the SFO, the independent financial adviser appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in relation to the Annual Caps

“Group” the Company and its subsidiaries

–1– DEFINITIONS

“Hong Kong” the Hong Kong Administrative Region of the PRC

“Independent Board the independent committee of the Board comprising Committee” all the independent non-executive Directors

“Independent Shareholder(s)” Shareholder(s) other than Dr. Chiu and Mr. Jiao and their respective associates

“Latest Practicable Date” 13 May 2016, being the latest practicable date prior to the printing of this circular to ascertain certain information contained herein

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

“LR Tea Group” 龍潤茶業集團有限公司 (LR Tea Group Limited*), a company incorporated in the PRC with limited liability

“Mr. Jiao” Mr. Jiao Shaoliang, an executive Director

“PRC” The People’s Republic of China which, for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan

“Purchase Agreement” the exclusive purchase agreement dated 12 May 2009 entered into between Yunnan Longrun Tea and LR Tea Group in relation to the purchase of the Tea Products of LR Tea Group

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

“Shareholder(s)” holder(s) of the ordinary share(s) in the issued share capital of the Company of HK$0.05 each

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Tea Products” the tea products and tea-related food products manufactured by LR Tea Group

–2– DEFINITIONS

“Transactions” the purchase of the Tea Products as stipulated under the Purchase Agreement

“Yunnan Longrun Tea” 雲南龍潤茶科技有限公司 (Yunnan Longrun Tea Technology Company Limited*), a company incorporated in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company

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

“%” per cent.

* For identification purposes only

–3– LETTER FROM THE BOARD

LONGRUN TEA GROUP COMPANY LIMITED 龍潤茶集團有限公司 (Incorporated in the Cayman Islands with limited liability) (Stock Code: 2898)

Executive Directors: Registered Office: Dr. Chiu Ka Leung (Chairman) Cricket Square Ms. Yeh Shu Ping (Vice-Chairman & Hutchins Drive, P.O. Box 2681 Chief Executive Officer) Grand Cayman KY1-1111 Mr. Jiao Shaoliang Cayman Islands Dr. Lu Pingguo Head Office and Principal Place of Independent Non-executive Directors: Business in Hong Kong: Mr. Lam Siu Hung Room 3007A–B Mr. Guo Guoqing Cable TV Tower Mr. Kwok Hok Lun 9 Hoi Shing Road Dr. Liu Zhonghua Tsuen Wan New Territories Hong Kong

17 May 2016

To the Shareholders

Dear Sir or Madam,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

Reference is made to the announcement of the Company dated 3 March 2016 regarding the Annual Caps.

Reference is made to the announcements of the Company dated 25 May 2009, 15 March 2011 and 27 February 2013 and the circulars of the Company dated 26 June 2009, 28 March 2011 and 15 March 2013 regarding, among others, the Purchase Agreement and the transactions contemplated thereunder.

–4– LETTER FROM THE BOARD

As the existing annual caps in respect of the transactions contemplated under the Purchase Agreement are going to expire on 31 March 2016, the Company intends to continue the transactions contemplated thereunder and set out the Annual Caps in respect of such transactions for the three financial years ending 31 March 2019.

The purpose of this circular is to provide you with, among other things, (i) further details of the Annual Caps; (ii) a letter from Goldin Financial containing its advice to the Independent Board Committee and the Independent Shareholders on the Annual Caps; (iii) recommendation of the Independent Board Committee to the Independent Shareholders; and (iv) the notice of the EGM to the Shareholders.

BACKGROUND INFORMATION

On 12 May 2009, Yunnan Longrun Tea and LR Tea Group entered into the Purchase Agreement in relation to the purchase of the Tea Products exclusively by the Group from LR Tea Group for a term of 10 years commencing from 12 May 2009, which constitutes continuing connected transactions of the Company under the Listing Rules.

On 15 March 2011, the Company announced that the annual caps formerly approved for the two financial years ended 31 March 2011 and 2012 may not be sufficient for the Group’s requirements, and proposed to revise the relevant annual caps for each of the two financial years ended 31 March 2011 and 2012 as well as to set out the annual cap for the financial year ended 31 March 2013, which were subsequently approved by the then independent shareholders of the Company on 13 April 2011.

The annual caps in respect of the transactions contemplated under the Purchase Agreement for the three financial years ended 31 March 2016 were approved by the then independent shareholders of the Company on 5 April 2013.

LR Tea Group currently has three tea production plants located in Baoshan City (保山市) and Lincang City (臨滄市) of Yunnan Province where high quality raw materials were produced in local tea farms. All of the abovementioned production plants have obtained QS 生產許可 (QS certifications*) and HACCP (Hazard Analysis and Critical Control Points) certifications. Currently over 90% of the sales of the LR Tea Group are derived from transactions under the Purchase Agreement.

The revenue generated from the distribution of tea and other food products accounted for approximately 79.2% and 73.8% of the revenue of the Group for the year ended 31 March 2014 and 2015, respectively. For the six months ended 30 September 2015, the revenue generated from the distribution of tea and other food products accounted for approximately 69.8% of the revenue of the Group.

–5– LETTER FROM THE BOARD

For the two years ended 31 March 2015, purchases from the five largest suppliers of the Group accounted for approximately 80.1% and 70.2% of the total purchases of the Group, respectively. For the six months ended 30 September 2015, purchases from the five largest suppliers of the Group accounted for approximately 61.3% of the total purchases of the Group. Save for the Purchase Agreement, the Group has not been engaging in any other long term supply contracts.

The purchases from LR Tea Group accounted for approximately 80.1% and 69.6% of the Group’s total purchases for the year ended 31 March 2014 and 2015, respectively. For the six months ended 30 September 2015, the purchases from LR Tea Group accounted for approximately 72.6% of the Group’s total purchases.

There has been a long-standing business relationship between the Group and LR Tea Group and the Group has been satisfied with the quality of the Tea Products purchased under the Purchase Agreement. In addition, LR Tea Group has received a number of awards and recognitions since its establishment, including but not limited to, the “Chinese Tea Industry Top Ten Leading (Recommended) Enterprises Award” issued by the authority of the International Tea Convention in 2013 and the recognition of its tea products as “雲南名牌農產品” (“brand-name agricultural products of Yunnan*”) by the Department of Agriculture of Yunnan Province in December 2014, demonstrating its leading position within the tea industry in the PRC. Taking into account the aforesaid, the Directors consider that LR Tea Group is a reliable business partner and continued business cooperation will be beneficial to and can provide a reliable supply of quality Tea Products to the Group.

The Company is fully aware that in the event of over-reliance on one supplier, there would be business risks to the Company such as reduced bargaining power and delay in delivery of goods, which might potentially lead to disrupted operations and adverse impacts on the financial condition of the Company. In light of such potential adverse consequences, the Company has been consistently (i) seeking other third party suppliers of tea products and tea related food products in the PRC by assessing their suitability and (ii) exploring investment opportunities in setting up its own tea production facilities in Yunnan Province with an expectation to reduce the reliance of LR Tea Group as a major supplier to about 50% of the Group’s total purchases. As at the Latest Practicable Date, the proposed setting up of production facilities in Yunnan Province is only at a preliminary stage and may or may not materialize. The Company will make further announcement as and when appropriate in accordance with the Listing Rules.

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS CONTEMPLATED UNDER THE PURCHASE AGREEMENT

–6– LETTER FROM THE BOARD

The terms of the Purchase Agreement will remain unchanged. Set out below are the principal terms of the Purchase Agreement.

Date : 12 May 2009

Parties : (i) Yunnan Longrun Tea, as the purchaser; and

(ii) LR Tea Group, as the supplier

Term : 10 years from 12 May 2009

Payment: Yunnan Longrun Tea is required to pay LR Tea Group by cash within 90 days after the delivery of Tea Products.

Principal terms of the Purchase Agreement

Grant of exclusive rights

Pursuant to the Purchase Agreement, Yunnan Longrun Tea as the sole customer of LR Tea Group, is granted an exclusive right to purchase the Tea Products from LR Tea Group for onward distribution to the customers of Yunnan Longrun Tea and to use the trademarks (including both registered and unregistered trade marks) owned by LR Tea Group and its subsidiaries.

Pursuant to the Purchase Agreement, Yunnan Longrun Tea shall have an exclusive right to use the trademarks (including both registered and unregistered trademarks) owned by LR Tea Group and its subsidiaries. LR Tea Group and its subsidiaries shall not allow any third parties (excluding third parties determined or designated by Yunnan Longrun Tea) other than Yunnan Longrun Tea to use their trademarks.

The brandname of 龍潤茶 (Longrun Tea*) was used in all the Tea Products under the Purchase Agreement. The Group intended to continue to use this well established brand name for its tea products in the future.

Determination of purchase price

Under the Purchase Agreement, the purchase price of the Tea Products shall be the lower of (i) the production costs of the Tea Products or the book value of the inventory of LR Tea Group plus a premium which does not exceed 10% of such production costs or book value; or (ii) the selling price of tea products of similar quality as the Tea Products which can be obtained by Yunnan Longrun Tea from other independent manufacturers. The premium of 10% is determined on normal commercial terms with reference to historical costs incurred by LR Tea Group to carry out its business.

–7– LETTER FROM THE BOARD

The price and specifications of the Tea Products under the Transactions shall be set out in separate purchase order in each of the Transactions. There are no prevailing market prices for the Tea Products that can be obtained from either a recognised exchange or independent organisation. The sales of Tea Products are based on a fix unit price without pre-determined formulas. The price of each of the Tea Products for each purchase order under the Transactions shall be determined with reference to, including but not limited to, the quality (vintage and quality of raw tea leaves) and the quantity of the Tea Products for the respective purchase order. Tea Products can be classified to have different grading according to the quality, origin of raw tea leaves used and the year of production. In general, Tea Products made from good quality raw tea leaves and in good vintage year are considered of a higher grading, which are sold at a higher price.

Yunnan Longrun Tea has been sourcing Pu’erh tea with different grading mainly in the form of loose tea leaves, tea cakes, tea bricks and gift sets from LR Tea Group under the Purchase Agreement. Pu’erh tea is made with leaves of “broad leaf tea” that only grow in Yunnan, making it one of the well-known local specialty products of Yunnan. All of LR Tea Group’s production facilities were located in Yunnan Province, the PRC with established quality control procedures and hygienic production environment.

A national standard for《地理標誌產品 – 普洱茶》(“product with geographical indications – Pu’erh tea*”) was approved by 國家品質監督檢驗檢疫總局 (the General Administration of Quality Supervision, Inspection and Quarantine*) on 5 August 2008 (http://www.aqsiq.gov.cn/xxgk_13386/jlgg_12538/zjgg/2008/200805/t20080521_238285.htm) (the “Standard”). The Standard, which took effect on 1 December 2008, says that only tea produced in Yunnan Province’s 639 towns in 11 prefectures and cities, including Pu’erh and Dali, can be called Pu’erh tea. It also stipulates that Pu’erh tea can only be made from leaves of a large leaf variety of tea plant growing in the defined area and then processed using a specified production technique. According to the Standard, except for those 639 towns, tea products made in other locations for example in Guangdong, the PRC, cannot be called “Pu’erh” tea anymore. The standard also prohibits Pu’erh tea with no geographical indications from sale after 30 June 2009.

According to 雲南省普洱茶協會 (Yunnan Province Pu’erh Tea Association*), an association of Pu’erh tea industry under the management of 雲南省農業廳 (Department of Agriculture of Yunnan Province*) and approved by 雲南省民政廳 (Department of Civil Affairs of Yunnan Province*), it has registered “普洱茶” (“Pu’erh tea”) as 地理標誌證明商標 (geographical indications trademark*) with 國家工商行政管理總局商標局 (Trademark Office of the State Administration for Industry & Commerce of the PRC*) (http://www.peczx.com/index.asp). LR Tea Group is a member of the Yunnan Province Pu’erh Tea Association and has been approved by Yunnan Province Pu’erh Tea Association to use “Pu’erh tea” as geographical indications trademark on its tea products (http://www.peczx.com/newsshow.asp?id=275).

–8– LETTER FROM THE BOARD

The price and the terms of the purchase order in relation to the Transactions shall be agreed after arm’s length negotiation between the parties based on normal commercial terms, and the purchase price of the Tea Products shall be in any case not higher than, i.e. no less favourable than, the prices to be charged to the Group by independent suppliers for tea products and tea-related food products of similar quality and attribute. To ensure that the purchase price of the Tea Products shall be in any case not higher than, i.e. no less favourable than, the prices to be charged to the Group by independent suppliers, officers of the finance department of Yunnan Longrun Tea will compare between quotations from independent suppliers in Yunnan Province, the PRC and quotations from LR Tea Group before approval from the head of finance department. An annual sales plan will be formulated by Yunnan Longrun Tea each year and an interim review will be made after six months. Yunnan Longrun Tea’s procurement will be implemented in accordance with its sales plan. Depending on the type of the Tea Products, the procurement lead time generally ranges from two to three months. Each year, two sets of quotations from two reputable independent suppliers in Yunnan Province, the PRC will be obtained for this purpose. Officers of the finance department will also be responsible for reviewing sample transactions of major products to ensure the prices charged by LR Tea Group represented premium of not more than 10% on an annual basis.

To ensure the Company’s conformity with the above pricing policies from time to time, the Company adopted a series of internal control procedures for its daily operation summarized as follows:

(i) the finance department of Yunnan Longrun Tea is responsible for the information gathering on and monitoring of Transactions and conducting evaluation on the fairness of the Transactions;

(ii) the auditors of the Company would be engaged to report on the pricing and annual caps in respect of the Transactions;

(iii) the independent non-executive Directors of the Company would review the report from auditors of the Company to evaluate whether the Transactions were carried out on normal commercial terms, is fair and reasonable, and is in accordance with the terms of Purchase Agreement; and

(iv) the Company will disclose the information in relation to the Transactions in its annual report and accounts.

If ad hoc procurement requirements arise, additional quotations shall be sought in accordance. The quotations obtained from independent suppliers generally may set out information such as product name, product form, weight, packaging, unit price, minimum order quantity and payment terms and shall cover all of the Tea Products under the Transactions. If the quotations offered by independent suppliers are more favourable compared to those offered by LR Tea Group, Yunnan Longrun Tea has full discretion to order from such independent suppliers to enjoy the cost savings.

–9– LETTER FROM THE BOARD

In this regard, the Directors considered that the practice of seeking quotations from independent suppliers for about every six months to be sufficient and practical for the purpose of ensuring the price offered by LR Tea Group is no less favourable to the Group than those offered by independent suppliers from time to time.

Termination rights

Pursuant to the Purchase Agreement, Yunnan Longrun Tea has the right, within the term of the Purchase Agreement, to terminate the Purchase Agreement upon giving 30 days’ prior written notice to LR Tea Group, whereas LR Tea Group shall not terminate the Purchase Agreement during the term of the Purchase Agreement. Upon expiry of the term of the Purchase Agreement, the Purchase Agreement shall be automatically renewed for a period to be determined by Yunnan Longrun Tea unless both parties agree to terminate the Purchase Agreement three months prior to the expiry of the term of the Purchase Agreement.

PROPOSED ANNUAL CAPS

Set out below are (i) the existing annual caps for the three financial years ended 31 March 2016; (ii) the historical transaction amounts under the Purchase Agreement for the two financial years ended 31 March 2015 and for the eleven months ended 29 February 2016; and (iii) the proposed Annual Caps for the three financial years ending 31 March 2019, in respect of the transactions contemplated under the Purchase Agreement:

Existing annual caps Proposed Annual Caps for the financial year for the financial year ended 31 March ending 31 March 2014 2015 2016 2017 2018 2019 HK’000 HK’000 HK’000 HK’000 HK’000 HK’000

Annual cap 150,000 170,000 190,000 148,000 166,000 186,000

Historical amount 133,814 111,658 102,725 – – – (Approximately) (For the eleven months ended 29 February 2016)

The Annual Caps are determined with reference to (i) the historical amount of purchase of the Tea Products by the Group from LR Tea Group; (ii) the projected amount of purchase of the Tea Products by the Group for the period up to 31 March 2019 having

–10– LETTER FROM THE BOARD taken into account, among others, the development plans of the Group’s tea retail business and prospect of the PRC consumer market; and (iii) a 5% buffer per year for the anticipated inflation in the PRC.

The distribution network of the tea products and tea-related food products of the Group mainly comprises traditional tea shops, mega retail outlets and direct selling platforms in the PRC. The Group is managing a network comprising a total of over 500 self-owned and franchised tea shops primarily located in the PRC, and operating four mega retail outlets with a gross total area of over 80,000 square feet in Yunnan Province, targeting both domestic and international tourists travelling to Yunnan Province.

In addition to expanding the distribution network, the Group intends to explore new sales channels or platform to reach different segments of customers and to promote brand awareness, which will benefit the Group in both medium and long term. As such, the Group started to engage in the direct selling platforms by entering into a sales agreement in April 2014 with 理想科技集團有限公司 (Ideality Technology Group Company Limited*), which possesses a direct selling operating permit issued by the Ministry of Commerce of the PRC government and is principally engaged in direct selling business in the PRC. The Group’s revenue generated through direct selling is promising for the year ended 31 March 2015. The growth rate for the first half of the financial year 2015 was approximately 50% with the second half reaching approximately 61%. The Group intended to take advantage of such business opportunity by deploying more resources in product development so as to further expand the product portfolio to be distributed through the direct selling platform. It is expected that the growth of revenue generating through direct selling shall remain robust in the financial year 2016.

Besides, the Group has also been seeking to expand its distribution network by distributing its tea products in tea exchanges in the PRC. As at the Latest Practicable Date, the Group has launched two batches of Pu’erh tea products through a tea exchange in the PRC.

Taking into account the development plans of the Group’s tea business, in particular the expansion of the existing distribution network and the exploration of new distribution channel and platform as discussed above, the Directors anticipate that there will be a stable growth in the Group’s tea business for the three years ending 31 March 2019.

In light of the above, the Directors are of the view that the setting of the proposed Annual Caps is fair and reasonable.

REASONS FOR THE RENEWAL OF THE CONTINUING CONNECTED TRANSACTIONS

The Company is an investment holding company and its subsidiaries are principally engaged in the distribution of tea and other food products and in the manufacture and

–11– LETTER FROM THE BOARD distribution of pharmaceutical products. LR Tea Group was incorporated in the PRC in August 2005 and is principally engaged in the research, manufacture and retail of Pu’erh tea products in the PRC.

Following the completion of the acquisition of Yunnan Longrun Tea in July 2009, the Group has been purchasing the Tea Products from LR Tea Group and distributed the Tea Products through its distribution network.

The transactions contemplated under the Purchase Agreement with LR Tea Group have been and will be carried out on a regular and continuing basis in the ordinary and usual course of business of the Group. The Directors believe that it is in the interests of the Company and the Shareholders as a whole to carry on the transactions with LR Tea Group to secure the exclusive supply of high quality tea products.

In light of the aforesaid, the Directors (excluding the independent non-executive Directors who will give their view after being advised by Goldin Financial) are of the view that the Annual Caps are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

IMPLICATIONS UNDER THE LISTING RULES

By virtue of Dr. Chiu, the controlling Shareholder and an executive Director, and Mr. Jiao, an executive Director are directly interested in 97.06% and 2.94% of the issued share capital of LR Tea Group respectively, LR Tea Group is an associate of Dr. Chiu and thus a connected person of the Company within the meanings of the Listing Rules. Thus, the transactions contemplated under the Purchase Agreement constitute continuing connected transactions under the Listing Rules.

Given that all of the applicable percentage ratios (other than the profits ratio) are, on an annual basis calculated with reference to the Annual Caps for the transactions contemplated under the Purchase Agreement for each of the three financial years ending 31 March 2019, more than 25%, the Annual Caps will be subject to the reporting, annual review, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Given that the duration of the Purchase Agreement exceeds the maximum period of 3 years stipulated in Rule 14A.35(1) of the Listing Rules, Goldin Financial will advise on, among others, the duration of the Purchase Agreement in accordance with Rule 14A.35(1) of the Listing Rules.

The Company will disclose the information in relation to the transactions contemplated under the Purchase Agreement in its subsequent published annual report and accounts in accordance with Rule 14A.49 of the Listing Rules.

–12– LETTER FROM THE BOARD

ESTABLISHMENT OF INDEPENDENT BOARD COMMITTEE AND APPOINTMENT OF INDEPENDENT FINANCIAL ADVISER

The Board has established an Independent Board Committee comprising all independent non-executive Directors, namely Mr. Lam Siu Hung, Mr. Guo Guoqing, Mr. Kwok Hok Lun and Dr. Liu Zhonghua to advise the Independent Shareholders in respect of the Annual Caps and to advise the Independent Shareholders on how to vote on the relevant resolution in the EGM taking into account the recommendations of Goldin Financial.

The Independent Board Committee has approved the appointment of Goldin Financial as the Independent Financial Adviser of the Company to advise the Independent Board Committee and the Independent Shareholders on the Annual Caps, and to advise the Independent Shareholders on how to vote on the relevant resolution in the EGM.

GENERAL

The EGM will be held at 11:00 a.m. on Monday, 6 June 2016 at Unit 2201, 22/F., Bank of America Tower, 12 Harcourt Road, Central, Hong Kong, at which an ordinary resolution will be proposed to consider and, if thought fit, approve the Annual Caps. The notice of the EGM is set out on pages 37 to 38 in this circular and a form of proxy for use at the EGM is enclosed.

The resolution to be put to vote at the EGM will be taken by way of poll in accordance with the Listing Rules.

As at the Latest Practicable Date, Dr. Chiu, Mr. Jiao and Dr. Lu Pingguo, being brother-in law and associate of Dr. Chiu, were interested in 805,804,500 Shares, 1,100,000 Shares and 16,880,000 Shares, respectively. Given that Dr. Chiu and Mr. Jiao have material interests in the Purchase Agreement, Dr. Chiu, Mr. Jiao and their respective associates including Dr. Lu Pingguo, holding an aggregate of 823,784,500 Shares (as at the Latest Practicable Date representing approximately 56.82% of the issued share capital) of the Company, will be required to abstain from voting in relation to the resolution to approve the Annual Caps at the EGM.

As Dr. Chiu, Mr. Jiao and Dr. Lu Pingguo are considered to have material interests in the transactions contemplated under the Purchase Agreement, they have abstained from voting on the Board resolution for approving the Annual Caps.

Whether or not you are able to attend the meeting, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Hong Kong branch share registrar and transfer office of the Company, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the meeting or any adjournment thereof should you so wish.

–13– LETTER FROM THE BOARD

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 15 in this circular which contains its recommendation to the Independent Shareholders as to voting at the EGM in relation to the Annual Caps.

Your attention is also drawn to the letter from Goldin Financial set out on pages 16 to 31 in this circular which contains its advice to the Independent Board Committee and the Independent Shareholders as regards to the Annual Caps.

The Directors (including the independent non-executive Directors) consider that the Annual Caps are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Annual Caps.

You are advised to read the letter from the Independent Board Committee and the letter from Goldin Financial mentioned above before deciding how to vote on the resolution to be proposed at the EGM.

By order of the Board Longrun Tea Group Company Limited Chiu Ka Leung Chairman

* For identification purposes only

–14– LETTER FROM THE INDEPENDENT BOARD COMMITTEE

LONGRUN TEA GROUP COMPANY LIMITED 龍潤茶集團有限公司 (Incorporated in the Cayman Islands with limited liability) (Stock Code: 2898)

17 May 2016

To the Independent Shareholders

Dear Sir or Madam,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

We refer to the circular of the Company to the Shareholders dated 17 May 2016 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall bear the same meanings when used herein unless the context requires otherwise.

We have been appointed to form the Independent Board Committee to consider and advise the Independent Shareholders on whether the Annual Caps, are fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole. Goldin Financial has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

Your attention is drawn to the letter from the Board and the letter from Goldin Financial containing its advice to us and the Independent Shareholders as set out in this circular respective.

Having considered, among other things, the factors and reasons considered by, and the opinion of Goldin Financial, we are of the opinion that the Annual Caps, are fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the EGM.

Yours faithfully Mr. Lam Siu Hung Mr. Guo Guoqing Mr. Kwok Hok Lun Dr. Liu Zhonghua Independent Board Committee

–15– LETTER FROM GOLDIN FINANCIAL

The following is the full text of the letter from Goldin Financial setting out the advice to the Independent Board Committee and the Independent Shareholders in relation to Purchase Agreement (including the proposed Annual Caps) and the transactions contemplated thereunder, which has been prepared for the purpose of inclusion in this circular.

Goldin Financial Limited 22/F Two International Finance Centre 8 Finance Street Central Hong Kong

17 May 2016

To: The Independent Board Committee and the Independent Shareholders of Longrun Tea Group Company Limited

Dear Sirs and Madams,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the renewal of the continuing connected transactions contemplated under the Purchase Agreement and the proposed Annual Caps for the three financial years ending 31 March 2019, details of which are set out in the “Letter from the Board” contained in the circular of the Company dated 17 May 2016 (the “Circular”), of which this letter forms part. Unless the context otherwise requires, capitalised terms used in this letter shall have the same meanings as defined in the Circular.

References are made to the announcements of the Company dated 25 May 2009, 15 March 2011, 27 February 2013 and 3 March 2016, respectively, and the circulars of the Company dated 26 June 2009, 28 March 2011 and 15 March 2013, respectively. On 12 May 2009, Yunnan Longrun Tea and LR Tea Group entered into the Purchase Agreement in relation to the purchase of the Tea Products exclusively by the Group from LR Tea Group for a term of ten years commencing from 12 May 2009, which constitutes continuing connected transactions of the Company under the Listing Rules. On 3 March 2016, it was announced by the Company that as the existing annual caps in respect of the transactions contemplated under the Purchase Agreement are going to expire on 31 March 2016, the Company intends to continue the transactions contemplated thereunder and set out the annual caps in respect of such transactions for the three financial years ending 31 March 2019. The terms of the Purchase Agreement shall remain unchanged.

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By virtue of Dr. Chiu, the controlling Shareholder and an executive Director, and Mr. Jiao, an executive Director are interested in 97.06% and 2.94% of the issued share capital of LR Tea Group, respectively, LR Tea Group is an associate of Dr. Chiu and thus a connected person of the Company within the meanings of the Listing Rules. Thus, the transactions contemplated under the Purchase Agreement constitute continuing connected transactions under the Listing Rules. Given that all applicable percentage ratios (other than the profit ratio) (as defined under Rule 14.07 of the Listing Rules) relating to the proposed Annual Caps exceeds 25%, the proposed Annual Caps will be subject to the reporting, annual review, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Directors will convene the EGM to seek the approval of the Independent Shareholders on, among others, the proposed Annual Caps by way of poll in accordance with the requirements under the Listing Rules. Given each of Dr. Chiu and Mr. Jiao has material interest in the Purchase Agreement, Dr. Chiu, Mr. Jiao, and their respective associates will be required to abstain from voting in relation to the resolution to approve the proposed Annual Caps at the EGM.

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising all the independent non-executive Directors, being Mr. Lam Siu Hung, Mr. Guo Guoqing, Mr. Kwok Hok Lun and Dr. Liu Zhonghua, has been formed to advise the Independent Shareholders in respect of the proposed Annual Caps, and how to vote at the EGM on the resolution in respect of the proposed Annual Caps, after taking into account the recommendations of the Independent Financial Adviser.

We, Goldin Financial, have been appointed by the Company as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the proposed Annual Caps for the transactions contemplated under the Purchase Agreement and make a recommendation as to, among others, whether the proposed Annual Caps for the transactions contemplated under the Purchase Agreement are fair and reasonable so far as the Independent Shareholders are concerned, are in the interests of the Company and the Shareholders as a whole, and as to voting in respect of the relevant resolution at the EGM. Our appointment has been approved by the Independent Board Committee.

As at the Latest Practicable Date, Goldin Financial did not have any relationships or interests with the Company or any other parties that could reasonably be regarded as relevant to the independence of Goldin Financial. In the last two years, Goldin Financial has been appointed as the independent financial adviser to the then Independent Board Committee and the then independent shareholders of the Company, details of such appointments are set out in the circulars of the Company dated 28 November 2014 and 27 October 2015, respectively. Apart from the normal professional fees paid to us in connection with the aforesaid appointments, no arrangements exist whereby we had

–17– LETTER FROM GOLDIN FINANCIAL received any fees or benefits from the Company or any other party to the transactions, therefore we consider such relationship would not affect our independence.

We are independent under Rule 13.84 of the Listing Rules to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in connection with the proposed Annual Caps for the transactions contemplated under the Purchase Agreement.

BASIS OF OUR ADVICE

In formulating our opinion and recommendations, we have reviewed, inter alia, the Purchase Agreement, the annual report of the Company for the financial year ended 31 March 2015 (the “Annual Report 2015”), the interim report of the Company for the six months ended 30 September 2015 (the “Interim Report 2015”), the announcements of the Company dated 25 May 2009, 15 March 2011, 27 February 2013 and 3 March 2016, respectively, the circulars of the Company dated 26 June 2009, 28 March 2011 and 15 March 2013, respectively. We have also reviewed certain information provided by the management of the Company relating to the operations, financial conditions and prospects of the Group. We have also (i) considered such other information, analyses and market data which we deemed relevant, and (ii) conducted verbal discussions with the management of the Company regarding the terms of the Purchase Agreement, the businesses and future outlook of the Group. We have taken reasonable steps to ensure that such information and statements, and any representation made to us, which we have relied upon in formulating our opinions, are true, accurate and complete in all material respects as of the date hereof and the Shareholders will be notified of any material changes (if any) as soon as possible.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement herein or in the Circular misleading. We consider that we have been provided with, and we have reviewed, all currently available information and documents which are available under present circumstances to enable us to reach an informed view regarding the proposed Annual Caps to justify reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis of our opinion. We have no reasons to suspect that any material information has been withheld by the Directors or management of the Company, or is misleading, untrue or inaccurate. We have not, however, for the purpose of this exercise, conducted any independent detailed investigation or audit into the business or affairs or future prospects of the Group. Our opinion is necessarily based on financial, economic, market and other conditions in effect, and the information made available to us, at the Latest Practicable Date.

This letter is issued for the information for the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the

–18– LETTER FROM GOLDIN FINANCIAL proposed Annual Caps for the transactions contemplated under the Purchase Agreement, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the proposed Annual Caps and our recommendation to the Independent Board Committee and the Independent Shareholders, we have taken the following principal factors and reasons into consideration:

1. Background to and the reasons for the renewal of the continuing connected transactions contemplated under the Purchase Agreement

The Company is an investment holding company and its subsidiaries are principally engaged in the distribution of tea and other food products and the manufacture and distribution of pharmaceutical products. LR Tea Group was incorporated in the PRC in August 2005 and is principally engaged in the research, manufacture and retail of Pu’erh tea products in the PRC.

Following completion of the acquisition of Yunnan Longrun Tea in July 2009, the Group has been purchasing the Tea Products from LR Tea Group of which Yunnan Longrun Tea is the sole customer of the Tea Products pursuant to the Purchase Agreement, and distributing the Tea Products under the brandname of 龍潤茶 (Longrun Tea*) through the Group’s distribution network. On 12 May 2009, Yunnan Longrun Tea and LR Tea Group entered into the Purchase Agreement in relation to the purchase of the Tea Products by the Group from LR Tea Group for a term of ten years commencing from 12 May 2009, which constitutes continuing connected transactions of the Company under the Listing Rules. The Purchase Agreement and the annual caps in respect of the transactions contemplated under the Purchase Agreement for the three financial years ended 31 March 2012 were approved by the then independent shareholders of the Company on 14 July 2009. On 15 March 2011, the Company announced that the annual caps formerly approved for the two financial years ended 31 March 2012 may not be sufficient for the Group’s requirements, and proposed to revise the relevant annual caps for each of the two financial years ended 31 March 2012 as well as to set out the annual cap for the financial year ended 31 March 2013, which were subsequently approved by the then independent shareholders of the Company on 13 April 2011. On 27 February 2013, the Company announced its intention to continue the transactions contemplated under the Purchase Agreement and set out the annual caps in respect of the transactions for the three financial years ended 31 March 2016 (the “Existing Annual Caps”), which were approved by the then independent shareholders of the Company on 5 April 2013. Accordingly, the Purchase Agreement has been conducted in the ordinary and usual course of the respective businesses of the Group and LR Tea Group.

As advised by the management of the Company, the distribution network of the tea products and tea-related food products of the Group mainly comprises traditional tea

–19– LETTER FROM GOLDIN FINANCIAL shops, mega retail outlets and direct selling platforms adopted by the Group since 2014. As at the Latest Practicable Date, the Group managed a network comprising a total of over 500 self-owned and franchised tea shops primarily located in the PRC and operated four mega retail outlets targeting both domestic and international tourists in Yunnan Province in the PRC. On the other hand, according to the Interim Report 2015, among others, the Group intends to focus on brand building in the future. In view of the Group’s business focus and in order to facilitate its ongoing distribution business, it is essential for the Group to secure a stable supply of high quality tea products and tea-related food products. As the sole customer having more than six years of business relationship with LR Tea Group, the Group has been satisfied with the quality of the Tea Products purchased under the Purchase Agreement. In addition, LR Tea Group has received a number of awards and recognitions since its establishment, including but not limited to, the “Chinese Tea Industry Top Ten Leading (Recommended) Enterprises Award” issued by the authority of the International Tea Convention in 2013 and the recognition of its tea products as “雲南名牌農產品” (“brand-name agricultural products of Yunnan*”) by the Department of Agriculture of Yunnan Province in December 2014, demonstrating its leading position within the tea industry in the PRC. Taking into account the aforesaid, we are of the view that the renewal of the continuing connected transactions contemplated under the Purchase Agreement would provide the Group with an exclusive stable supply of high quality tea products and tea-related food products in the future.

In light of the foregoing, we are of the view that the transactions contemplated under the Purchase Agreement have been and will be conducted in the ordinary and usual course of business of the Group, and that the renewal of such continuing connected transactions is fair, reasonable and in the interests of the Company and the Shareholders as a whole.

2. Principal terms of the Purchase Agreement

The Purchase Agreement was entered into between Yunnan Longrun Tea as the purchaser and LR Tea Group as the supplier on 12 May 2009 for a term of ten years commencing from 12 May 2009. Principal terms of the Purchase Agreement as summarised below will remain unchanged.

Grant of exclusive rights

Pursuant to the Purchase Agreement, Yunnan Longrun Tea, as the sole customer of LR Tea Group, is granted an exclusive right to purchase the Tea Products from LR Tea Group for its onward distribution to the customers.

In addition, pursuant to the Purchase Agreement, Yunnan Longrun Tea shall have an exclusive right to use the trademarks (including both registered and unregistered trademarks) owned by LR Tea Group and its subsidiaries. LR Tea Group and its subsidiaries shall not allow any third parties (excluding third parties determined or designated by Yunnan Longrun Tea) other than Yunnan Longrun Tea to use their trademarks.

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Determination of purchase price

Under the Purchase Agreement, the purchase price of the Tea Products shall be the lower of (i) the production costs of the Tea Products or the book value of the inventory of LR Tea Group plus a premium which does not exceed 10% of such production costs or book value (the “Adjusted Production Costs”); or (ii) the selling price of tea products of similar quality as the Tea Products which can be obtained by Yunnan Longrun Tea from other independent manufacturers (the “Independent Quotations”). The premium of 10% is determined on normal commercial terms with reference to historical costs incurred by LR Tea Group to carry out its business.

Termination rights

With respect to the exclusive rights under the Purchase Agreement, the exclusivity to the purchase of the Tea Products from LR Tea Group allows Yunnan Longrun Tea to exclusively sell the Tea Products in the market, thereby eliminating the potential competition with other third-party sellers while retaining the flexibility to source from other suppliers. In addition, in view of the recognition of LR Tea Group within the tea industry as mentioned above in the section headed “Background to and the reasons for the renewal of the continuing connected transactions contemplated under the Purchase Agreement”, we are of the view that the exclusive rights to use the trademarks owned by LR Tea Group granted under the Purchase Agreement would be beneficial to the Group.

As at the Latest Practicable Date, the Group has not entered into any agreements with independent third-party suppliers in relation to the purchase of tea products and tea-related food products of similar quality and attribute to that of the Tea Products. According to the Letter from the Board, it has been Yunnan Longrun Tea’s practice to formulate an annual sales plan each year, which shall be followed by an interim review after six months. In view of the large quantity of the Tea Products demanded through the well-established distribution network of the Group as set out in the previous section and the procurement lead time of the Tea Products,

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which ranges from approximately two to three months, Yunnan Longrun Tea generally procure the Tea Products in accordance with the predetermined sales plan and obtain the Independent Quotations from two independent tea suppliers twice in every year in order to aggregate the purchase quantity for obtaining a relatively competitive price. Upon enquiry with the management of the Company, we learnt that each of the aforesaid independent tea suppliers must be a reputable tea manufacturer in Yunnan Province with membership of《雲南省普洱茶協會》 (“Yunnan Province Pu’erh Tea Association*”) providing tea products and tea-related products of quality and attribute similar to that of the underlying Tea Products in terms of, among others, product name and product type. It is the responsibility of the finance department of Yunnan Longrun Tea (the “Finance Department”) to review and control over the execution of the Purchase Agreement. In general, officers from the Finance Department collect the Independent Quotations twice in every year and compare them against the quotations provided by LR Tea Group for the corresponding Tea Products. Approval on the purchase transactions under the Purchase Agreement would only be granted by the head of the Finance Department subsequent to the aforesaid price comparison and in the event that the quotation under the Purchase Agreement is not higher than each of the prevailing latest Independent Quotations obtained. Various measures are in place within the Company in order to ensure the following of the above procedures as well as the accordance with the terms of the Purchase Agreement. Such measures include, but are not limited to, engagement with the auditor and annual review by the independent non-executive Directors, further details of which are set out in the section headed “Annual review of the continuing connected transactions”. In view of the above, we are of the view that the practice of obtaining the Independent Quotations including the implementation frequency, which is approximately parallel with that of the procurement of the Tea Products and expected to help obtain a relatively competitive purchase price, is commercially justifiable for ensuring the price offered by LR Tea Group is no less favourable than those offered by independent third-party suppliers from time to time in the absence of any significant price fluctuation of the Tea Products, which is a rare phenomenon within a short time period based on the experience of the management of the Company.

In assessing the fairness and reasonableness of the pricing mechanism adopted, we have randomly selected and reviewed five sample invoices for the transactions conducted under the Purchase Agreement throughout the period between 1 April 2015 and the Latest Practicable Date (the “Review Period”), and compared the purchase prices on those sample invoices against the Independent Quotations obtained by the Group at the respective corresponding points of time. Upon review on the Independent Quotations, we noted that each of the underlying suppliers is an independent tea product supplier in the PRC with membership of 《雲南省普洱茶協會》(“Yunnan Province Pu’erh Tea Association*”), and information including product name, product type, unit and weight of the tea products on each of the Independent Quotations is identical to those of the Tea Products on the corresponding sample invoices. Given (i) the Review Period is

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approximately parallel with the period of time for the Existing Annual Caps; (ii) the Independent Quotations obtained represent the purchase prices that Yunnan Longrun Tea would have been charged by other third-party suppliers; and (iii) the tea products and tea-related products under the Independent Quotations are of the quality and attribute similar to that of the Tea Products under the Purchase Agreement, we consider the reviewed sample invoices and the Independent Quotations are fair and representative. Based on our review, we noted that the purchase prices under the reviewed sample invoices are lower than the corresponding Independent Quotations, being consistent with the pricing mechanism under the Purchase Agreement that the purchase price of the Tea Products shall be in any case not higher than, i.e. no less favourable than, the prices to be charged to the Group by independent third-party suppliers for tea products and tea-related food products of similar quality and attribute.

Having considered the aforesaid, we are of the view that the terms of the Purchase Agreements are normal commercial terms and are fair, reasonable and in the interests of the Company and the Shareholders as a whole.

3. The proposed Annual Caps

Set out below summarises (i) the Existing Annual Caps for the three financial years ended 31 March 2016; (ii) the historical transaction amounts under the Purchase Agreement for the two financial years ended 31 March 2015 and the 11 months ended 29 February 2016; and (iii) the proposed Annual Caps for the three financial years ending 31 March 2019, in respect of the transactions contemplated under the Purchase Agreement.

Existing Annual Caps Proposed Annual Caps for the financial year for the financial year ended 31 March ending 31 March 2014 2015 2016 2017 2018 2019 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Annual cap 150,000 170,000 190,000 148,000 166,000 186,000 Historical Purchase 133,814 111,658 102,725 ––– Amount (For the (approximate) eleven months ended 29 February 2016)

–23– LETTER FROM GOLDIN FINANCIAL

As stated in the Letter from the Board, the proposed Annual Caps were determined with reference to (i) the historical amount of purchase of the Tea Products by the Group from LR Tea Group (the “Historical Purchase Amounts”); (ii) the projected amount of purchase of the Tea Products by the Group (the “Projected Purchase Amounts’) for the three years up to 31 March 2019 having taken into account, among others, the development plans of the Group’s tea retail business and the prospect of the PRC consumer market; and (iii) a 5% buffer (the “Buffer”) per year for the anticipated inflation in the PRC.

3.1 The Historical Purchase Amounts

As shown above, the Historical Purchase Amounts for the two financial years ended 31 March 2015 and the 11 months ended 29 February 2016 are approximately HK$133.81 million, approximately HK$111.66 million and approximately HK$102.73 million (representing approximately HK$112.07 million on an annualised basis), respectively, therefore representing respective utilisation rates (the “Utilisation Rates”) of the corresponding Existing Annual Caps of approximately 89.21%, approximately 65.68% and approximately 54.07% (representing approximately 58.98% on an annualised basis). As such, both the Historical Purchase Amounts and the Utilisation Rates decreased across the two years ended 31 March 2015, demonstrating a trend consistent with that of the Group’s revenue of the segment of distribution of tea and other food products, which, according to the Annual Report 2015, decreased from approximately HK$229.92 million for the financial year ended 31 March 2014 to approximately HK$192.22 million for the financial year ended 31 March 2015. As advised by the management of the Company, the decrease in the Historical Purchase Amount across the two financial years ended 31 March 2015 was mainly attributable to the poor spending sentiment and confidence of consumer in the PRC during the period. On the other hand, despite a slight decrease in the Utilisation Rate, we noted that the Historical Purchase Amount experienced a modest increase on an annualised basis in the financial year ended 31 March 2016 as compared to that for the financial year ended 31 March 2015. We were advised that such increase was mainly due to the introduction of direct selling platforms to the Group’s distribution network since mid-2014, impacts of which began to come into effect during the financial year ended 31 March 2016. Taking into account the aforesaid trends, the management of the Company decided to set the proposed Annual Cap for the financial year ending 31 March 2017 at a relatively conservative level of HK$148.00 million, which is below the Existing Annual Cap of HK$190.00 million and above the annualised Historical Purchase Amount of approximately HK$112.07 for the financial year ended 31 March 2016, which would then increase at approximately 12% in each of the two years ending 31 March 2019.

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3.2 The Projected Purchase Amounts

In recent years, the Group has been proactively exploring different distribution channels in order to achieve a more diverse distribution network. Its distribution network currently comprises relatively long adopted channels (the “Traditional Channels”) including traditional tea shops and tourist-targeting mega retail outlets, direct selling platform(s) adopted since 2014 and a tea exchange (the “Tea Exchange”) in the PRC since 2016. We noted that the Projected Purchase Amounts for the three years ending 31 March 2019 were primarily estimated with reference to (i) the estimated purchase amount of the Tea Products of the Group to be distributed through the Traditional Channels (the “Traditional Channels PA”); (ii) the estimated purchase amount of the Tea Products of the Group to be sold to direct selling platform(s) (the “Direct Selling PA”); and (iii) the estimated purchase amount of the Tea Products of the Group to be sold through the Tea Exchange (the “Tea Exchange PA”).

(i) Estimation of the Traditional Channels PA

The Traditional Channels PA is expected to account for approximately 58% of the proposed Annual Cap for the year ending 31 March 2017. The estimated annual Traditional Channels PA is expected to remain stable during each of the three years ending 31 March 2019, which is a trend consistent with that throughout the year ended 31 March 2016. In assessing the estimation of the Traditional Channels PA, we have primarily taken into account (i) the future economic outlook and prospect of the consumer market in the PRC; and (ii) the future prospect of the tourism industry in Yunnan Province.

Future economic outlook and prospect of the consumer market in the PRC

The economic development in the PRC has been gradually decelerating in recent years and such trend is expected to persist in the near future. According to the National Bureau of Statistics of China (http://data.stats.gov.cn/), the gross domestic product in the PRC during the fourth quarter of 2015 amounted to approximately 18,937.2 billion renminbi (“RMB”), demonstrating a quarter-on-quarter growth of approximately 1.6%. Such quarter-on-quarter growth rate is slightly below the market consensus of 1.7% and represents the weakest growth since the first quarter of 2014. On a full year basis, the gross domestic product in the PRC during 2015 amounted to approximately RMB67,670.8 billion, representing a year-on-year growth of approximately 6.9%, which is slightly lower than the target rate predetermined by the PRC government of 7.0% and the actual growth rate of approximately 7.3% in 2014. According to the monthly report issued in January 2016 by International Monetary Fund (http://www.imf.org/), being an organisation established in 1945 governed by 188 countries in order to

–25– LETTER FROM GOLDIN FINANCIAL promote global sustainable economic growth, the gross domestic product in the PRC is expected to slow down to approximately 6.3% in 2016 and further to approximately 6.0% in 2017 due to the continuous rebalancing of the Chinese economy.

On the other hand, the performance of the consumer market in the PRC has been fluctuating. According to the National Bureau of Statistics of China (http://data.stats.gov.cn/), the total annual retail sales of consumer goods in the PRC amounted to approximately RMB27,189.6 billion in 2014, representing a year-on-year growth of approximately 12.0% for the year. Despite the aforesaid year-on-year growth, the annual growth rate in the total retail sales of consumer goods in the PRC has been declining since the high level of approximately 18.3% in 2010, signalling a continuous slowdown in the consumer market activities in the PRC. Regarding 2015, the growth rate in the total monthly retail sales of consumer goods in the PRC fluctuated in a range between approximately -1.48% and approximately 11.90% during the nine months period ended December 2015.

As such, it is expected that the economic slowdown in the PRC would continue and the prospect of the consumer market in the PRC would remain uncertain in the future.

Future prospect of the tourism industry in Yunnan Province

As stated in the Interim Report 2015, the Group operates four mega retail outlets with a gross total area of over 80,000 square feet in Yunnan Province, targeting both domestic and international tourists travelling to Yunnan Province. Hence, we have conducted a study on the future prospect of the tourism industry in Kunming Municipal, being the capital of and the largest city in Yunnan Province, and Yunnan Province in general. According to the statistics published by the Kunming Municipal Tourism Development Commission (http://www.kmta.gov.cn/), the development of tourism industry in Kunming Municipal shows a continuous growth over the previous years in spite of the recent economic slowdown in the PRC. The respective total annual numbers of visitors in Kunming Municipal were approximately 560.22 million, approximately 626.88 million and approximately 691.14 million in 2013, 2014 and 2015, showing a compound annual growth rate of approximately 11.07% during the period. Also, the tourism revenue of Kunming Municipal was approximately RMB72.35 billion in 2015, representing a significant increase of approximately 17.68% from 2014.

The PRC government has established a series of policies in order to further stimulate the tourism development in the PRC in the future. With reference to an article published by the China National Tourism Administration (http://www.cnta.com/) in 2015, tourism industry will

–26– LETTER FROM GOLDIN FINANCIAL continue to be a main national focus during 2016 to 2020. The PRC government aims to integrate the tourism development plans of different provinces and municipalities with《全國旅遊業十三五發展規劃》(“The National Thirteenth Five Tourism Development Planning*”) in order to enhance the cohesiveness of the overall tourism development in the PRC. Furthermore,《「旅遊+互聯網」行動計畫》(“The Action Plan of Tourism + Internet*”) was launched by the China National Tourism Administration in September 2015 to boost the tourism development in the PRC through the assimilation of the Internet applications. In addition, various supporting schemes and constructions were launched in Yunnan Province in 2015 in order to enhance the tourist experience in Yunnan Province in the future. For instance, according to an article published by 雲南省旅遊發展委員會 (The Yunnan Provincial Tourism Development Committee*) (http://www.ynta.gov.cn/) in August 2015, supervision and regulations on tourism practitioners such as hotels, restaurants, shops etc., in the areas nearby the Old Town of Lijiang in Lijiang City, Yunnan Province, being a city where one of the Group’s mega retail outlets is located in, will be strengthened in order to safeguard the tourists’ interests and foster the tourism market order. Furthermore, construction plans of tourist facilities such as tourist toilets and 龍瑞高速公路 (the Long Rui Highway*) were launched in 2015 to further improve the tourist experience in Yunnan Province.

Taking into account (i) the continuous economic slowdown and uncertainty in the consumer market in the PRC; and (ii) the expected positive prospect of the tourism industry in Yunnan Province in view of the strong statistics and local supporting policies and schemes in place, we are of the view that the net effect on the sales performance of the Tea Products through the Traditional Channels would be generally neutral in the future and hence, the estimation of the Traditional Channels PA, which are projected to remain stable during the three years ending 31 March 2016, is justifiable.

(ii) Estimation of the Direct Selling PA

On the other hand, the Group started to adopt direct selling platforms by entering into a sales agreement on 16 April 2014 (as subsequently supplemented by a supplemental sales agreement dated 30 October 2014) (the “Sales Agreement”) with 理想科技集團有限公司 (Ideality Technology Group Company Limited*, or “Ideality Group”), being a company principally engaged in direct selling business in the PRC. Pursuant to the Sales Agreement, Yunnan Longrun Tea agreed to sell and Ideality Group agreed to purchase the Tea Products for a term from 16 April 2014 to 31 March 2017. According to the Interim Report 2015, sales of the Tea Products to Ideality Group for the six months ended 30 September 2015 recorded a significant growth of approximately 49.67% from the corresponding period in 2014 despite the decline in the segment revenue of the Group’s distribution of tea and other food products over the same period. As emphasised in the Annual

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Report 2015, the Group intends to expand its distribution network in the future by, among others, further cooperating with Ideality Group in order to utilise its direct selling capabilities to distribute the Tea Products. We noted that the estimated annual Direct Selling PA is expected to increase in parallel with the expected annual sales of the Tea Products to Ideality Group during each of the three years ending 31 March 2019. The Direct Selling PA is expected to account for approximately 26% of the proposed Annual Cap for the year ending 31 March 2017, and such proportion is expected to increase by a range of between approximately 4% and approximately 9% annually during the three years ending 31 March 2019.

In assessing the estimation of the Direct Selling PA, in addition to the reference made to the growth in historical sales of the Tea Products to Ideality Group, we have also conducted research on the PRC direct selling market from the public domain. The direct selling business in the PRC has been growing. With reference to the industry report issued by the World Federation of Direct Selling Associations (http://www.wfdsa.org/) detailing the statistics of the global direct selling industry in 2014, the sales generated from direct selling in the PRC amounted to approximately 30.22 billion US dollars in 2014, representing a year-on-year growth of approximately 18.6% and a three-year cumulative annual growth rate of approximately 18.7%. Consistent with the aforesaid trend, based on《直銷行業10年發展報告》(“The Report on the Ten-Year Development of the Direct Selling Industry*”) issued by the Ministry of Commerce of the People’s Republic of China in November 2015, both the number of direct selling enterprises and sales generated from direct selling businesses in the PRC have increased successively in the previous years.

Taking into account (i) the satisfactory historical sales performance of the Tea Products conducted under the Sales Agreement; (ii) the Group’s intention to further cooperate with Ideality Group; and (iii) the growth in the direct selling industry in the PRC, we are of the view that the estimation of the Direct Selling PA, which are expected to increase annually during the three years ending 31 March 2019 and increasingly account for the respective corresponding annual proposed Annual Caps, is fair and reasonable in order to cater the future demand for the Tea Products.

(iii) Estimation of the Tea Exchange PA

The Group recently started to distribute the Tea Products through the Tea Exchange, being an online trading platform which enables individuals and corporations to participate in trading of tea products in the PRC. It is expected that the Tea Exchange PA will generally follow an increasing trend during the three years ending 31 March 2019, with the annual estimated Tea Exchange PA respectively accounting for approximately 11% of the total respective corresponding annual proposed Annual Caps.

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In assessing the estimation of the Tea Exchange PA, among others, we have mainly made reference to the sales of the Tea Products by the Group through the Tea Exchange secured to date and the increasing popularity of the internet, being the form of trading provided by the Tea Exchange, in the PRC. As advised by the management of the Company, approximately half of the expected sales of the Tea Products through the Tea Products for the year ending 31 March 2017 was secured as at the Latest Practicable Date. In addition, based on our research, we noted that the popularity of the internet in the PRC has been growing rapidly in recent years. According to the research report of “China entertainment and media outlook 2015-2019” issued by PricewaterhouseCoopers (http://www.pwccn.com/) in 2015, both the mobile internet access and the fixed broadband access in the PRC are expected to increase across 2016 to 2019. Moreover, with the recent launch of the national scheme of “互聯網+” (“Internet +*”), it is expected that the internet will be gradually integrated into different industries in the PRC. As stated in《國務院關於積極推進“互聯網+”行動的指導意見》(The Guiding Opinions of the State Council on the Action of Actively Promoting the “Internet +*) issued by the State Council in July 2015 (http://www.gov.cn/), it is targeted that the integration of economic and social development of the internet in various fields would be deepened by 2018 and the new form of society would be initially created by 2025, demonstrating the continuous intention of the PRC government to promote internet application across the PRC in the next few years as well as in the long run.

Taking into account (i) the secured sales of the Tea Products through the Tea Exchange as at the Latest Practicable Dates; and (ii) the increasing popularity of the internet in the PRC, which is expected to stimulate the trading of the Tea Products through the Tea Exchange, we are of the view that the estimation of the Tea Exchange PA is fair and reasonable.

3.3 The anticipated inflation rate in the PRC

Upon review on the calculations of the proposed Annual Caps, we noted that a buffer percentage of approximately 5% has been taken into account when determining the proposed Annual Caps in order to lessen the impact of, among others, inflation in the PRC. According to the monthly economic overview for the PRC as issued by PricewaterhouseCoopers in April 2016 (http://www.pwccn.com/), the anticipated inflation rate in the PRC is expected to be approximately 1.8% during 2016 and 2017 and then further increase to approximately 2.8% from 2018 onwards. As such, we are of the view that it is justifiable to factor in the Buffer in order to allow for potential movement of the unit sale price of the Tea Products in the proposed Annual Caps over the three years ending 31 March 2019.

–29– LETTER FROM GOLDIN FINANCIAL

3.4 Conclusion

Taking into consideration (i) the trends of the Historical Purchase Amounts; (ii) the Projected Purchase Amounts based on the assessments of the estimated purchase amount of the Tea Products of the Group to be distributed through different categories of distribution channels; and (iii) the anticipated trend of the future inflation rate in the PRC; we are of the view that the determination of the proposed Annual Caps is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Shareholders should note that since the proposed Annual Caps were determined based on various factors relating to future events and assumptions which may or may not remain valid for the entire period up to 31 March 2019, they do not represent forecasts of revenue to be generated from the operations of the Group. Consequently, we express no opinion as to how closely the actual amounts to be received by the Group will correspond with the proposed Annual Caps.

ANNUAL REVIEW OF THE CONTINUING CONNECTED TRANSACTIONS

The proposed Annual Caps will be subject to the annual review by the independent non-executive Directors, details of which must be included in the Company’s subsequent published annual report and accounts. In addition, pursuant to the Listing Rules, the auditors of the Company must provide a letter to the Board confirming, among others, that the transactions contemplated under the Purchase Agreement are conducted in accordance with their terms and that the proposed Annual Caps not being exceeded. Moreover, pursuant to the Listing Rules, the Company shall publish an announcement if it knows or has reason to believe that the independent nonexecutive Directors and/or its auditors will not be able to confirm the terms of such transactions or the proposed Annual Caps not being exceeded. In view of the above, we are of the view that there are appropriate measures in place to govern the conduct of the transactions contemplated under the Purchase Agreement and safeguard the interests of the Independent Shareholders.

–30– LETTER FROM GOLDIN FINANCIAL

RECOMMENDATIONS

Having considered the above principal factors and reasons, we are of the view that the transactions contemplated under the Purchase Agreement have been and will be conducted in the ordinary and usual course of business of the Group and that the terms of the Purchase Agreement, including the proposed Annual Caps, are normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the resolution to approve the proposed Annual Caps at the EGM.

Yours faithfully,For and on behalf of Goldin Financial Limited Billy Tang Director

* For identification purposes only

Note:

Mr. Billy Tang is a licensed person registered with the Securities and Futures Commissions and a responsible officer of Goldin Financial to carry out type 6 (advising on corporate finance) regulated activity under the SFO (Chapter 571 of the Laws of Hong Kong). He has over 10 years of experience in the corporate finance profession.

–31– APPENDIX GENERAL INFORMATION

RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement therein or this circular misleading.

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN THE SECURITIES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS

As at the Latest Practicable Date, the interests of the Directors in the Shares which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he/she was deemed or taken to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”), to be notified to the Company and the Stock Exchange, were as follows:

Long position in Shares

Percentage+ of the Company’s Nature of Number of issued share Name of Director interests Shares held capital

Dr. Chiu Ka Leung Beneficial owner 805,804,500 55.59 Ms. Yeh Shu Ping Beneficial owner 43,895,500 3.03 Dr. Lu Pingguo Beneficial owner 16,880,000 1.16 Mr. Jiao Shaoliang Beneficial owner 1,100,000 0.07

+ The percentage represents the number of Shares interested divided by the number of the Company’s issued Shares as at the Latest Practicable Date.

In addition to the above, as at the Latest Practicable Date, Dr. Chiu held one ordinary share in each of Long Far Herbal Medicine Manufacturing (Hong Kong) Limited, International Health Association (HK) Limited, Long Far Health Products Limited and Hong Kong Health Journal Limited (in all cases in trust for Long Far Pharmaceutical (BVI) Limited and all of which are indirect wholly-owned subsidiaries of the Company) in a non-beneficial capacity, solely for the purpose of complying with the then minimum company membership requirement.

–32– APPENDIX GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had registered an interest or a short position in the shares or underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he/she was deemed or taken to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, so far as was known to the Directors, none of the Directors was also directors or employees of a company which has an interest or short position in the Shares and underlying Shares, which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into or proposed to enter into any service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

COMPETING INTERESTS

As at the Latest Practicable Date, the following Director was considered to have an interest in a business which competes or is likely to compete, either directly or indirectly, with the businesses of the Group, as defined in the Listing Rules, details of which are set out below:

Dr. Chiu has a controlling interest in 雲南盤龍雲海藥業有限公司 (Yunnan Panlong Yunhai Pharmaceutical Company Limited) (‘‘YPYP”) which is principally engaged in the development, manufacture and distribution of Chinese pharmaceutical products in the PRC.

One of the products of YPYP named Health & Beauty InnerPure Capsules (排毒養顏膠囊) was developed by YPYP which obtained approvals from the relevant authorities in the PRC for its manufacture in 1995. Health & Beauty InnerPure Capsules (排毒養顏膠囊) is targeted to improve conditions such as constipation, hypertension, insomnia, abdominal swelling, overweight, skin pigmentation as well as to tonify the functions of the spleen and kidney.

–33– APPENDIX GENERAL INFORMATION

Although containing a different medicinal formula to that of the Group’s Beauty and Healthy (排毒美顏寶), the symptoms which are targeted by both Beauty and Healthy (排毒美顏寶) and Health & Beauty InnerPure Capsules (排毒養顏膠囊), to improve conditions such as constipation, abdominal swelling, overweight, skin pigmentation, as well as to tonify the functions of the spleen and kidney are similar. There is a possibility that Health & Beauty InnerPure Capsules (排毒養顏膠囊) can be used as a substitute for Beauty and Healthy (排毒美顏寶) for such conditions.

Since YPYP had only distributed Health & Beauty InnerPure Capsules (排毒養顏膠囊) in the PRC since its launching in 1995 while the Group distributed Beauty and Healthy (排毒美顏寶) under the Group’s brand name of 「龍發製藥」(Long Far) in Hong Kong, Southeast Asia and other Asian regions outside Mainland China, the Directors consider that the operations of YPYP will not affect the Group’s business. Save as disclosed herein, the Directors confirm that none of the existing products of YPYP is or may be in direct or indirect competition with the Group’s products.

Save as disclosed above, the Directors confirm that none of them and their respective associates have any interests in a business apart from the Group’s business which directly competes with and will have material adverse impact on the Group.

DIRECTORS’ INTERESTS IN CONTRACTS AND ASSETS

(a) On 12 May 2009, Yunnan Longrun Tea and LR Tea Group entered into the Purchase Agreement in relation to the purchase of the Tea Products exclusively by the Group from LR Tea Group for a term of 10 years commencing from 12 May 2009. Pursuant to the Purchase Agreement, Yunnan Longrun Tea as the sole customer of LR Tea Group, is granted an exclusive right to purchase the Tea Products from LR Tea Group for onward distribution to the customers of Yunnan Longrun Tea and to use the trademarks (including both registered and unregistered trade marks) owned by LR Tea Group and its subsidiaries. LR Tea Group and its subsidiaries shall not allow any third parties (excluding third parties determined or designated by Yunnan Longrun Tea) other than Yunnan Longrun Tea to use their trademarks.

The Purchase Agreement and the annual caps in respect of the transactions contemplated under the Purchase Agreement for the three financial years ended 31 March 2012 were approved by the then independent shareholders of the Company on 14 July 2009. On 15 March 2011, the Company announced that the annual caps formerly approved for the two financial years ended 31 March 2011 and 2012 may not be sufficient for the Group’s requirements, and proposed to revise the relevant annual caps for each of the two financial years ended 31 March 2011 and 2012 as well as to set out the annual cap for the financial year ended 31 March 2013, which were subsequently approved by the then independent shareholders of the Company on 13 April 2011. The annual caps in respect of the transactions contemplated under the Purchase Agreement for the three financial years ended 31 March 2016 were approved by the then independent shareholders of the Company on 5 April 2013.

–34– APPENDIX GENERAL INFORMATION

Longrun Tea Group is owned as to 97.06% and 2.94% by Dr. Chiu and Mr. Jiao, respectively.

(b) On 16 April 2014, Yunnan Longrun Tea, an indirect wholly-owned subsidiary of the Company, entered into a sales agreement (the “Sales Agreement”) with 理想科技集團有限公司 (Ideality Technology Group Company Limited*, “Ideality Group”), being a connected person of the Company within the meaning of the Listing Rules since Dr. Chiu and Mr. Jiao were directly interested in 85.5% and 14.5%, respectively, of the issued share capital of Ideality Group, for a term from 16 April 2014 to 31 March 2015. Pursuant to the Sales Agreement, Yunnan Longrun Tea would sell the tea products and other food products manufactured by Longrun Tea Group (the “Tea Products”) to Ideality Group.

As the demand of the Tea Products from Ideality Group is higher than the Group’s prior estimation, the annual cap in respect of transactions contemplated under the Sales Agreement may not be sufficient for the Group’s future requirements. On 30 October 2014, Yunnan Longrun Tea entered into a supplemental sales agreement (the “Supplemental Sales Agreement”) with Ideality Group. Pursuant to the Supplemental Sales Agreement, Yunnan Longrun Tea would continue to sell the Tea Products to Ideality Group with the revised annual cap for the period from 16 April 2014 to 31 March 2015 and for a further term of two years up to the financial year ending 31 March 2017.

(c) On 5 October 2015, Winlead Investment Limited, being an indirect wholly-owned subsidiary of the Company, entered into a sale and purchase agreement with 雲南龍潤投資有限公司 (Yunnan Longrun Investment Company Limited*), pursuant to which Winlead Investment Limited has conditionally agreed to sell and Yunnan Longrun Investment Company Limited has conditionally agreed to purchase the 100% equity interest in 雲南龍發製藥有限公司 (Yunnan Long Far Pharmaceutical Company Limited*), at a total consideration of HK$52.00 million.

Yunnan Longrun Investment Company Limited is beneficially owned as to 90% by Dr. Chiu and as to 10% by Mr. Jiao.

Save as disclosed above, none of the Directors was materially interested in any contract or arrangement subsisting as at the Latest Practicable Date and significant in relation to the businesses of the Group.

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been, since 31 March 2015, being the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by, or leased to the Company or any member of the Group, or were proposed to be acquired or disposed of by, or leased to, any member of the Group.

–35– APPENDIX GENERAL INFORMATION

EXPERT AND CONSENT

The following is the qualification of the expert, who has given opinions contained in and referred to in this circular:

Name Qualification

Goldin Financial A corporation licensed to carry out type 6 (advising on corporate finance) regulated activities under the SFO

As at the Latest Practicable Date, Goldin Financial had no shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

Goldin Financial has given and has not withdrawn its written consent to the issue of this circular, with the inclusion of the references to its name and/or its opinions in the form and context in which they are included.

Goldin Financial has no direct or indirect interest in any assets which had been acquired, or disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group since 31 March 2015, the date to which the latest published audited consolidated financial statements of the Group were made up.

The letter from Goldin Financial is given as of the date of this circular for incorporation herein.

MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirm that there was no material adverse change in the financial or trading position of the Group since 31 March 2015, the date to which the latest published audited consolidated financial statements of the Group were made up.

–36– APPENDIX GENERAL INFORMATION

MISCELLANEOUS

(a) The registered office of the Company is situated at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.

(b) The head office and principal place of business of the Company in Hong Kong is Room 3007A–B, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan, New Territories, Hong Kong.

(c) Tricor Tengis Limited, the Hong Kong branch share registrar and transfer office of the Company, is located at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

(d) In the event of any inconsistency, the English language text of this circular shall prevail over the Chinese language text.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours (except Saturdays and public holidays) at Unit 2201, 22/F., Bank of America Tower, 12 Harcourt Road, Central, Hong Kong for a period of 14 days from the date of this circular:

(a) this circular;

(b) the Purchase Agreement;

(d) the letter from the Independent Board Committee as set out in this circular; and

(e) the written consent of Goldin Financial.

–37– NOTICE OF EGM

LONGRUN TEA GROUP COMPANY LIMITED 龍潤茶集團有限公司 (Incorporated in the Cayman Islands with limited liability) (Stock Code: 2898)

NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting (the “EGM”) of Longrun Tea Group Company Limited (the “Company”) will be held at 11:00 a.m. on Monday, 6 June 2016 at Unit 2201, 22/F., Bank of America Tower, 12 Harcourt Road, Central, Hong Kong to consider and, if thought fit, pass with or without amendments, the following ordinary resolution:

“THAT the annual caps of the amount of purchase of the tea products and tea-related food products (“Tea Products”) manufactured by 龍潤茶業集團有限公司 (LR Tea Group Limited*) (“LR Tea Group”) pursuant to the exclusive purchase agreement (“Purchase Agreement”) dated 12 May 2009 entered into between 雲南龍潤茶科技有限公司 (Yunnan Longrun Tea Technology Company Limited*) and LR Tea Group in relation to the purchase of the Tea Products of LR Tea Group for the three financial years ending 31 March 2019 of HK$148 million, HK$166 million and HK$186 million, respectively, in relation to the transactions contemplated under the Purchase Agreement be and are hereby confirmed and approved; and the directors of the Company be and are hereby authorised to execute such other documents, do all other acts and things and take such action as they may consider necessary, desirable or expedient to implement and/or give effect to or otherwise in connection with the Purchase Agreement and any or all the matters contemplated in the Purchase Agreement.”

By order of the Board of Longrun Tea Group Company Limited Chiu Ka Leung Chairman

Hong Kong, 17 May 2016

* For identification purposes only

–38– NOTICE OF EGM

Notes:

1. Any member of the Company entitled to attend and vote at the above meeting is entitled to appoint a proxy to attend and vote instead of him/her/it. A proxy need not be a member of the Company. A member who is the holder of two or more shares of the Company may appoint more than one proxy to represent him/her/it to attend and vote on his/her/its behalf. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.

2. To be effective, a form of proxy together with the power of attorney or other authority, if any, under which it is signed or a certified copy of that power or authority, must be deposited at the branch share registrar of the Company in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the meeting or any adjournment thereof. Delivery of the form of proxy shall not preclude a member of the Company from attending and voting in person at the meeting and, in such event, the instrument appointing a proxy shall be deemed to be revoked.

–39–