Bloks Group Limited — M&A Activity 2001

Jul 24, 2001

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

HONG KONG PHARMACEUTICAL HOLDINGS LIMITED

香 港 葯 業 集 團 有 限 公 司*

(Incorporated in Bermuda with limited liability)

Possible Discloseable Transaction (including issue of convertible notes)

and Resumption of Trading

On 20 July 2001, the Company entered into a memorandum of understanding with the Vendors whereby the Vendors have agreed to sell and the Company has agreed to purchase the 51% shareholding interest owned by the Vendors in Ensure at the total consideration of HK$15,254,400 to be satisfied by cash payment of HK$3,000,000 and the issue to the Vendors of HK$12,254,400 convertible notes convertible into 8.88 million shares of the Company, subject to the satisfaction of certain conditions. The Company and the Vendors have undertaken with one another that for a period of two months they will not discuss or enter into any agreement with any third parties in relation to matters similar to those contained in the memorandum of understanding.

The Proposed Acquisition is subject to further negotiations and may or may not proceed. Shareholders and investors are advised to exercise caution when dealing in the shares of the Company. If the Proposed Acquisition proceeds on the above basis, it will constitute a discloseable transaction for the Company under the Listing Rules. Further announcement will be made upon the signing of the formal sale and purchase agreement and a circular setting out details of the acquisition will be despatched to shareholders of the Company.

Trading in the shares of the Company on the Stock Exchange was suspended from 10 a.m. on 23 July 2001. The Company has applied for trading in its shares to resume on the Stock Exchange from 10 a.m. on 24 July 2001.

THE MEMORANDUM OF UNDERSTANDING

On 20 July 2001, the Company entered into a memorandum of understanding with the Vendors pursuant to which the Vendors have agreed to sell, and the Company has agreed to purchase in aggregate the 51% shareholding interest owned by the Vendors in Ensure pro rata to their existing shareholdings at the total consideration of HK$15,254,400 to be satisfied by cash payment of HK$3,000,000 and the issue to the Vendors of HK$12,254,400 convertible notes convertible at HK$1.38 per share into 8.88 million shares of the Company to the Vendors pro rata to the interests in Ensure transferred by each of them to the Company. The conversion right under the convertible notes may be exercised on the 365th day after completion of the formal sale and purchase agreement in respect of 2.88 million shares in the Company and on the 730th day in respect of the balance of 6 million shares. If all such conversion rights are exercised by the Vendors, the Vendors will hold 0.64% of the enlarged issued share capital of the Company. The parties will discuss further as to whether any interest is payable by the Company on the convertible notes and as to the other detailed terms.

TRANSFER OF OFFICE PREMISES

The Vendors have also agreed to procure the transfer of title to an office in Guizhou to Ensure. When the Company is satisfied after investigation that title to the office has been properly transferred to Ensure, the Company will pay additional cash of HK$500,000 to the Vendors within 7 days of completion of such transfer. The transfer of the office is not a condition to the Proposed Acquisition.

CONSIDERATION

The consideration for the Proposed Acquisition is agreed by the parties after arm’s length negotiations and is based on the preliminary financial due diligence on Ensure. The cash payment of HK$3,000,000 will be financed by the Company’s internal resources and is expected to be made within 7 business days after the formal sale and purchase agreement has been signed by the parties.

CONDITIONS

The Proposed Acquisition is conditional on the injection of the entire interests held by the Vendors in貴州全順醫藥有限公司Guizhou Quan Shun Medicine Company Limited (a PRC company engaged in the wholesale of pharmaceutical products and owned as to 83.3% by Ensure and as to 16.7% by six of the Vendors) and a related internet website “一樹醫藥網站” into Ensure by the Vendors within 50 days from the date of the memorandum of understanding and confirmation by the Vendors’ PRC lawyers that the issue of the convertible notes to the Vendors is permitted under PRC laws. The parties have agreed that the formal sale and purchase agreement will be signed before 30 September 2001. The memorandum of understanding does not provide for the consequences where no formal agreement can be reached between the parties before 30 September 2001. Pursuant to the terms of the memorandum, the parties will have to enter into a supplemental agreement to extend the date by which the formal agreement can be signed or the agreement will lapse automatically on 30 September 2001. The Directors expect that the formal sale and purchase agreement will be made conditional upon the acquisition being approved by the relevant PRC authorities. The detailed terms of the Proposed Acquisition including the composition of the board of directors of Ensure after completion of the Proposed Acquisition are subject to finalisation by the Company and the Vendors. The Company and the Vendors have undertaken with one another for a period of two months from the date of the memorandum of understanding that they will not discuss or enter into any agreement with any third parties in relation to matters similar to those contained in the memorandum of understanding.

BACKGROUND INFORMATION

The Company is an investment holding company. Its subsidiaries are principally engaged in the manufacture of pharmaceutical products, wholesale and retail of Chinese and other medicines, health products and dried seafoods and property investment. The principal activities of Ensure are retail of Chinese and western medicine. The registered capital of Ensure is RMB10 million (approximately HK$9,425,000). Both the Vendors and Ensure are independent of and not connected with the Company, its directors, chief executive, substantial shareholders, subsidiaries or any associates (as defined in the Listing Rules) of any of them. Neither of them has any prior shareholding interest in the Company.

REASONS FOR THE PROPOSED ACQUISITION

The Directors believe that the Proposed Acquisition would provide an opportunity for the Company to expand and develop the distribution network of its pharmaceutical business in the PRC and the issue of the convertible notes would enable the Company to complete the acquisition without reducing its working capital resources or affecting its gearing and to broaden its shareholders base.

CAUTION

The Proposed Acquisition is subject to further negotiations and may or may not proceed. Shareholders and investors are advised to exercise caution when dealing in the shares of the Company. If the Proposed Acquisition proceeds on the above basis, it will constitute a discloseable transaction for the Company under the Listing Rules. Further announcement will be made upon the signing of the formal sale and purchase agreement and a circular setting out details of the acquisition will be despatched to shareholders of the Company.

RESUMPTION OF TRADING

Trading in the shares of the Company on the Stock Exchange was suspended from 10 a.m. on 23 July 2001. The Company has applied for trading in its shares to resume on the Stock Exchange from 10 a.m. on 24 July 2001.

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

“Company”	Hong Kong Pharmaceutical Holdings Limited, a company incorporated in Bermuda with limited liability and whose securities are listed on the Stock Exchange
“Directors”	the directors of the Company
“Ensure”	貴州一樹連鎖葯業有限公司Gui Zhou Ensure Chain Pharmaceutical Company Limited, a limited liability company incorporated in the PRC on 11 March 1999
“Listing Rules”	The Rules Governing the Listing of Securities on Stock Exchange
“PRC”	the People’s Republic of China
“Proposed Acquisition”	the acquisition of 51% interest in Ensure by the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Vendors”	王春雷Wang Chun Lei, 方正Fang Zheng, 李彤Li Tong, 劉一勞 Liu Yi Lao, 熊筱兵Xiong Xiao Bing, 王明康Wang Ming Kang and 夏仲強Xia Zhong Qiang who are interested in 29.81%, 23.10%, 20.11%, 6%,7.58%, 7.82% and 5.58% respectively in Ensure

By Order of the Board of Directors

Hong Kong Pharmaceutical Holdings Limited

Huang Shuyun

Deputy Chairman and Managing Director

Hong Kong, 23 July, 2001

* For identification only

Please also refer to the published version of this announcement in the i Mail dated 24/7/2001.