Sanyuan Co., Ltd. (600429) announced today that on April 2, 2010, the company and its wholly-owned subsidiary Hebei Sanyuan Food Co., Ltd. signed separate "Entrusted Operation Agreements" with Beijing Sanyuan Venture Capital Co., Ltd. (a wholly-owned subsidiary of the company's actual controller) and Sanyuan Venture.
According to the agreement, after Sanyuan Venture acquires 70% of the equity in Tangshan Sanlu Dairy Co., Ltd. (hereinafter referred to as Target Equity 1) and 70% of the equity in Tangshan Kangsheng Dairy Co., Ltd. (hereinafter referred to as Target Equity 2), it will entrust Target Equity 1 and 2 (if during the entrustment period, Sanyuan Venture increases its holdings in the aforementioned target companies, the increased portion will also be considered as target equity) and all related rights and interests to Hebei Sanyuan and Sanyuan Co., Ltd. for management. However, Sanyuan Venture retains the ownership of Target Equity 1 and 2, as well as the associated penalty and income rights.
If Tangshan Sanlu and Kangsheng Dairy are profitable during the entrustment period, Sanyuan Venture shall pay entrusted remuneration to Hebei Sanyuan and Sanyuan Co., Ltd. within the agreed relevant time limit, amounting to 15% of the net profit of Tangshan Sanlu and Kangsheng Dairy for the current year according to Sanyuan Venture's shareholding ratio. If in any accounting year during the entrustment period, Tangshan Sanlu and Kangsheng Dairy incur losses, Sanyuan Venture will no longer pay the entrusted remuneration for the current year.
Sanyuan Co., Ltd. agrees to authorize Tangshan Sanlu and Kangsheng Dairy to use the "Sanyuan" trademark and brand free of charge during the entrustment period, and to use the above-mentioned trademark and brand as the main trademarks and brands of Tangshan Sanlu and Kangsheng Dairy. If the changed names of Tangshan Sanlu and Kangsheng Dairy need to use the business name "Sanyuan", Sanyuan Co., Ltd. approves and will cooperate in handling the required procedures. In addition, Hebei Sanyuan and Sanyuan Co., Ltd. have the option to purchase Target Equity 1 and 2 at any time. If Sanyuan Venture transfers Target Equity 1 and 2 on its own, Hebei Sanyuan and Sanyuan Co., Ltd. have the right of first refusal under equal conditions. The aforementioned agreements will take effect from the date of transfer registration of Target Equity 1 and 2 to Sanyuan Venture.
In addition, Sanyuan Co., Ltd. stated that the company has also separately signed "Equity Transfer Contracts" with 15 natural persons including Han Jintang. The company will acquire a total of 5% of the equity held by these individuals in the company's controlled subsidiary Beijing Sanyuan Meiyuan Dairy Development Co., Ltd. (registered capital of RMB 12.7506 million, the company holds 40%) in cash, with the transaction price being RMB 638,100 corresponding to the equity contribution. After the completion of this equity transfer, Sanyuan Co., Ltd. will contribute RMB 5.7381 million to Sanyuan Meiyuan, holding 45% of the equity.
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