China Health Group Inc. — Proxy Solicitation & Information Statement 2012

Sep 20, 2012

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Venturepharm Laboratories Limited (the “ Company ”), you should at once hand this circular and the enclosed form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for transmission to the purchaser or the transferee.

This circular is for information purposes only and does not constitute an offer or invitation to acquire, purchase or subscribe for securities of the Company.

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.

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VENTUREPHARM LABORATORIES LIMITED

萬全科技藥業有限公司 *

( incorporated in the Cayman Islands with limited liability) (Stock Code: 8225)

PROPOSED RESTRUCTURING OF CONVERTIBLE NOTES

A notice convening an extraordinary general meeting (the “ EGM ”) of the Company to be held at Venturepharm Tower, No. 3 Jinzhuang, Si Ji Qing, Haidian District, Beijing, the PRC on 10 October 2012 at 2:00 p.m. is set out on pages 13 of this circular. A form of proxy for use at the EGM is enclosed with this circular. Such notice and form of proxy have also been posted on the website of The Stock Exchange of Hong Kong Limited at www.hkex.com.hk. Whether or not you intend to attend and vote at the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the branch share registrar and transfer office of the Company in Hong Kong, Tricor Standard Limited, at Level 28, Three Pacific Place, 1 Queen’s Road East,Hong Kong, as soon as possible and in any event no later than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

* For identification purposes only

20 September 2012

CONTENTS

Page Characteristics of GEM ............................................................................................................... 3 Definitions .................................................................................................................................. 4 Letter from the Board .................................................................................................................. 6 Introduction .................................................................................................................................. 6 Background .................................................................................................................................. 7 Proposed Alterations .................................................................................................................... 7 Principal Terms after the Proposed Alterations ............................................................................ 8 Rationale for the Proposed Alterations ......................................................................................... 9 GEM Listing Rule Implications ..................................................................................................... 9 EGM ........................................................................................................................................... 10 Recommendation ....................................................................................................................... 10 Additional Information ................................................................................................................ 10 Appendix .................................................................................................................................... 11 Notice of Extraordinary General Meeting ............................................................................... 13

CHARACTERISTICS OF GEM

GEM has been positioned as a market designed to accommodate companies to which a high investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM.

DEFINITIONS

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

“Board”	the board of directors of the Company
“Company”	Venturepharm Laboratories Limited, a company
	incorporated in the Cayman Islands with limited
	liability and the issued Shares of which are listed on
	GEM
“Conversion Shares”	the Shares which are to be allotted and issued upon
	exercise of the conversion rights attaching to the
	Notes
“Directors”	the directors of the Company
“EGM”	the extraordinary general meeting of the Company to
	be convened to consider and, if thought fit, approve
	the Proposed Alterations and the consequential
	amendments to the Terms described in this circular
	and the issue of the Conversion Shares pursuant to
	conversion of the Notes after the Proposed
	Alterations and consequential amendments.
“GEM”	the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	the Rules Governing the Listing of Securities on the
	Growth Enterprise Market of the Stock Exchange
	made by the Stock Exchange from time to time
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region
“Noteholder Resolution”	the extraordinary resolution of the Noteholders
	passed 4 September to approve (a) to extend the
	maturity date of the Notes to 10 September 2015, (b)
	to alter the coupon applicable in the extended tenor
	from 3.5% to 4.0% and (c) to effect certain
	consequential amendments to the Terms
“Noteholders”	the holders of the Notes from time to time
“Notes”	the notes issued by the Company on 3 September
	2007, originally as CHF 15,000,000 3.5% convertible
	notes due 2012, on the terms set out in the
	Company’s circular dated 17 August 2007
“PRC”	the People’s Republic of China excluding Hong
	Kong, the Macau Special Administrative Region and
	Taiwan
“Proposed Alternations”	the proposal (a) to extend the maturity date of the
	Notes to 10 September 2015, and (b) to alter the
	coupon applicable in the extended tenor from 3.5%
	to 4.0%
“Shareholders”	the holders of Shares from time to time

“Shares”	share(s) of HK$0.10 each in the share capital of the
	Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Terms”	the terms of the Notes, a summary of which is set
	out in the Company’s circular dated 17 August 2007
“CHF”	Swiss Francs, the lawful currency of Switzerland
“HK$”	Hong Kong dollar, the lawful currency of Hong Kong
“%”	Per centum

For the purpose of this circular a conversion rate of HK$6.4 to every CHF 1 has been used.

LETTER FROM THE BOARD

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VENTUREPHARM LABORATORIES LIMITED 萬全科技藥業有限公司 *

( incorporated in the Cayman Islands with limited liability) (Stock Code: 8225)

* For identification purposes only

Executive Directors: Mr. William Xia Guo (Chairman) Dr. Maria Xue Mei Song

Non-executive Directors: Mr. Feng Tao Dr. Nathan Xin Zhang Mr. Li Jin Liang

Independent non-executive Directors: Mr. Wu Shou Yuan Mr. Paul Contomichalos Mr. Zhang Jing An

Registered office:

Scotia Centre 4th Floor, P.O. Box 2804 George Town, Grand Cayman, Cayman Islands

Head office: Venturepharm Tower, No. 3 Jinzhuang, Si Ji Qing, Haidian District, Beijing, the PRC

Principal place of business in Hong Kong: Unit B, 19/F Times Media Centre 133 Wanchai Road Wanchai, Hong Kong

20 September 2012

To the Shareholders

Dear Sir or Madam

PROPOSED RESTRUCTURING OF NOTES

INTRODUCTION

On 6 September 2012, the Company announced a proposed restructuring of the Notes.

The purpose of this circular is to provide you with, amongst other things, (i) further details of the restructuring; and (ii) notice of the EGM.

BACKGROUND

On 10 September 2007, the Company issued the Notes. The original maturity date was 10 September 2012.

PROPOSED ALTERATIONS

On 4 September 2012, the Noteholders passed the Noteholder Resolution (a) to extend the maturity date of the Notes to 10 September 2015, (b) to alter the coupon applicable in the extended tenor from 3.5% to 4.0% and (c) to effect certain consequential amendments to the Terms. The Noteholder Resolution and the consequential amendments to the Terms are binding on the Noteholders but subject to the written approval of the Company. The Noteholder Resolution reads as follows:

"That this meeting of the holders (the " Noteholders ") of the outstanding CHF 15,000,000 3.5% due 10 September 2012 with Swiss Security Number 3375442 and ISIN CH0033754422 (the " Notes ") hereby:

• (a) resolves that the maturity shall be extended from September 2012 to September 2015;

• (b) resolves that the interest rate shall be increased from 3.5% to 4.0%;

• (c) resolves that the Terms shall be amended as follows as a consequence of the modifications set out in paragraphs (a) and (b) above:

• i. Introduction Paragraph to the Terms, first sentence shall be deleted and replaced by the following sentence: "The 3.5% / 4.0% convertible notes (the " Notes ") due 10 September 2015 in the total aggregate principal amount of CHF 15,000,000 of Venturepharm Laboratories Limited (the " Company ") to which these terms of the Notes (the " Terms of the Notes ") apply were issued on the basis of the Note Purchase Agreement (the " Agreement ") between the Company and Banque Heritage S.A. (the " Lead Manager ") dated as of 27 July 2007.";

• ii. Section 3 of the Terms shall be deleted in its entirety and replaced by the following sentence: "The Notes bear interest at the rate of 3.5% per annum during the period from 10 September 2007 to 10 September 2012 and at a rate of 4.0% during the period from 10 September 2012 to 10 September 2015. The first interest payment at the rate of 3.5% will be due on 10 September 2008 in respect of the period from 10 September 2007 to 10 September 2008, and will amount to CHF 350 per Note. The first interest payment at the rate of 4.0% will be due on 10 September 2013 in respect of the period from 10 September 2012 to 10 September 2013, and will amount to CHF 400 per Note. The Notes will cease to bear interest on the due date of redemption unless payment of principal and/or premium (if any) is improperly withheld. Computations are made on the basis of a 360-day year of twelve 30-day months.";

• iii. Section 4 of the Terms, Subsection (a) shall be deleted in its entirety and replaced by the following sentence: "Unless previously redeemed, deemed to be redeemed upon exercise of the Conversion Rights incorporated therewith or purchased and cancelled as herein provided, the Company will redeem the Notes at a redemption price of 110 per cent. of the principal amount of the Notes on 10 September 2015, without any previous notice.";

• iv. Section 5 of the Terms, Subsection (a) shall be deleted in its entirety and replaced by the following sentence: "The Noteholders may at any time during the period (the " Conversion Period ") on or after 10 September 2007 (Hong Kong time) and prior to the close of banking business in Hong Kong on 5 September 2015 (Hong Kong time) or (i) if the Notes shall have been called for redemption pursuant to Section 4 (b) or (c), then up to the close of banking business in Hong Kong on the fifth Business Day preceding the date fixed for redemption (or, if later, the date of effective payment) or (ii) if the Notes become due and repayable pursuant to Section 8, then up to the time when the Notes become so due and repayable (or, if later, the date of effective payment) exercise their Conversion Rights. No Conversion Right may be exercised in part only."

Defined terms used in this Extraordinary Resolution, unless defined herein, have the meaning given to such terms in the Terms."

Apart from the Proposed Alterations, and the consequential amendments to the Terms as set out in the Noteholder Resolution reproduced above, no other alterations to the Terms are being made. In particular, no amendment is proposed with respect to the Terms relating to early redemption or conversion of the Notes.

On 6 September 2012, the Company gave its written approval to the Proposed Alterations and such consequential amendments to the Terms to take effect from the date on which they are approved by the Shareholders and the Stock Exchange. Given the original maturity date of 10 September 2012, a standstill applies until such time such approvals are obtained.

PRINCIPAL TERMS AFTER PROPOSED ALTERATIONS

The principal Terms after the Proposed Alterations and such consequential amendments are summarized below.

Principal Amount: CHF 15,000,000 (approximately HK$ 96,000,000) Form and Denomination: Bearer form in denominations of CHF 10,000 (approximately HK$ 64,000) Maturity Date: 10 September 2015 Coupon during Extended Tenor: 4.0% Redemption at Maturity: 110% of the principal amount Early Redemption: At the option of the Company, at 110% of the principal amount, if the closing price of the Shares on the Stock Exchange for a period of 30 consecutive trading days is at least 130% of the then applicable conversion price of the Notes on each such trading day Conversion: At the option of the Noteholders at any time up to maturity into Shares at the prevailing conversion price (as at the date of this circular, CHF 0.23 or approximately HK$1.48 per Share).

RATIONALE FOR THE PROPOSED ALTERATIONS

The Notes represent a valuable source of financing for the Company’s business and an extension of the tenor to 10 September 2015 on the basis set out above will benefit its financial condition and operations. The coupon of the Notes during the extended tenor will be 4%, whereas the cost of bank borrowing is currently in the region of approximately 7.2% to 7.8% in the PRC assuming the provision of security satisfactory to the lender. Such higher financing costs would impact the Group’s indebtedness and cashflow position more than the increase in coupon on the Notes from 3.5% to 4%. Even if the Company could accept such terms, the tightened bank lending policies in the PRC mean that obtaining approval for such loan sufficient to refinance the redemption amount of CHF 16,500,000 (approximately HK$ 105,600,000) is not assured. The Company also considered the possibility of equity financing in lieu of the Notes, but considering the amount that would have to be raised as net proceeds from the issue to pay such redemption amount, the time required to complete an equity fund-raising exercise, and the unstable condition of the markets and the cautious stance of institutional investors, this is not currently feasible.

The direct impact of the Proposed Alterations on Group earnings would be the incremental coupon, which will amount to an additional CHF 75,000 (approximately HK$ 480,000) per annum. However, the stable financing provided during the extended tenor for the next three years will

also strengthen the Group’s ability to compete and secure enhanced market share in the contract research organization (CRO) sector in the PRC. The assets and liabilities of Group will not be affected by the Proposed Alterations.

The Board is of the view that the Proposed Alterations are fair and reasonable and in the interest of the Company and the Shareholders as a whole and will have no significant adverse impact on the operations of the Company and its subsidiaries.

In the event that the Proposed Alterations are not approved by the Shareholders at the EGM, the Company would be required to redeem all of the Notes. As mentioned above, the Notes provide for a redemption amount of CHF 16,500,000 (approximately HK$ 105,600,000) and this amount would become immediately due. If the Company is unable to immediately repay such amount it will fall into default under the Terms and the financial and business position of the Company will be severely affected.

SHAREHOLDING OF COMPANY

The shareholding of the Company as at 17 September 2012 and after full conversion of the Notes is set out below.

	As at Latest Practicable Date	As at Latest Practicable Date	Assuming Full Conversion of the	Assuming Full Conversion of the
			Notes at	CHF 0.23
	Number of	Approximate	Number of	Approximate
	Shares	Percentage	Shares	Percentage
Shareholder		Shareholding		Shareholding
Venturepharm Holdings Inc.	149.432,583	41.02%	149.432,583	34.79%
(Note 1)
Bright Excel Assets Limited	15,966,073	4.38%	15,966,073	3.72%
(Note 2)
Mr. William Xia Guo	9,110,377	2.50%	9,110,377	2.12%
Noteholders	---	---	65,217,391	15.18%
Other Shareholders	189,799,631	52.10%	189,799,631	44.19%
TOTAL	364,308,664	100.00%	429,526,055	100.00%

Notes:

(1) Venturepharm Holdings Inc., is 47.63 % directly held by Mr. William Xia Guo and 44.94% held by Mr. William Xia Guo through Winsland Agents Limited, his wholly and beneficially owned company incorporated in the British Virgin Islands.

(2) Bright Excel Assets Limited, is 100 % beneficially owned by Venturepharm Holdings Inc.

GEM LISTING RULE IMPLICATIONS

The Notes which are convertible into Shares were issued under the specific mandate granted by the Shareholders at the extraordinary general meeting of the Company held on 3 September 2007. The Proposed Alterations and the consequential amendments to the Terms are subject to the approval of the Shareholders. As far as the Company is aware, no Shareholders have any material interest in the Proposed Alterations and consequential amendments so as to be required to abstain from voting at the EGM.

The Proposed Alterations and the consequential amendment to the Terms are also subject to the approval of the Stock Exchange under GEM Listing Rule 34.05. The Company has already applied to the Stock Exchange for such approval.

EGM

A notice of EGM set out in this circular convenes an extraordinary general meeting of the Company to be held at Venturepharm Tower, No. 3 Jinzhuang, Si Ji Qing, Haidian District, Beijing, the PRC on 10 October 2012 at 2:00 p.m. as set out on pages 13 of this circular. A form of proxy for use at the EGM is enclosed with this circular. Such notice and form of proxy have also been posted on the website of The Stock Exchange of Hong Kong Limited at www.hkex.com.hk.

Whether or not you intend to attend and vote at the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the branch share registrar and transfer office of the Company in Hong Kong, Tricor Standard Limited, at 26/F Tesbury Centre, 28 Queen’s Road East, Hong Kong, as soon as possible and in any event no later than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

RECOMMENDATION

The Board considers that the terms of the Proposed Alterations and consequential amendments to the Terms to be fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders vote in favour of the ordinary resolution as set out in the notice of EGM.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the Appendix to this circular.

Yours faithfully For and on behalf of the Board VENTUREPHARM LABORATORIES LIMITED William Xia Guo Chairman Beijing, the PRC, 20 September 2012

APPENDIX – GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept responsibility, includes particulars given in compliance with the GEM Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief: (1) the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive; (2) there are no other matters the omission of which would make any statement herein or this circular misleading; and (3) all opinions expressed in this circular have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

2. NOTEHOLDERS

The Notes are in bearer form. According to the minutes of the meeting of Noteholders held on 4 September 2012 to approve the Noteholder Resolution, Noteholders and their representatives representing Notes with an aggregate face value of CHF 13,740,000 were present, corresponding to 91.6% of all the Notes outstanding. The Company understands that 6% of the Notes were represented by an institutional proxy on behalf of Noteholders exercising their rights through member banks of the relevant clearing house, and information regarding their names is not available under Swiss banking law. As to the remainder 85.6% of the Notes, they were at the date of the meeting of Noteholders on 4 September 2012 held by seven (7) Noteholders. From the names of such Noteholders and to the best of information, knowledge and belief of the Company, such Noteholders are primarily institutional investors and they are third parties independent of and not connected with the Company and its connected persons.

3. FINANCIAL AND TRADING POSITION

On 17 February 2012, the Company issued a profit warning announcement to the effect that, based on a preliminary assessment by the management of the results of the Group, a loss was expected to be recorded for the full year ended 31 December 2011, primarily as a result of losses with regard to investments in certain financial assets. The Company expects to complete and publish its audited results for the financial year ended 31 December 2011 after the date of the EGM. As at the date hereof, the Company continues to believe that a loss will be recorded for the full year ended 31 December 2011 as disclosed in the abovementioned announcement. Save as aforesaid, there has been no other material adverse change in the financial or trading position of the Group since 31 December 2010, the date to which the last published audited accounts of the Group have been made up.

4. MISCELLANEOUS

• (1) The registered office of the Company is located at Scotia Centre, 4th Floor, P.O. Box 2804 George Town, Grand Cayman, the Cayman Islands.

• (2) The head office of the Company is located at Venturepharm Tower, No. 3 Jinzhuang, Si Ji Qing, Haidian District, Beijing, the PRC.

• (3) The principal place of business of the Company in Hong Kong is Unit B, 19/F Times Media Centre 133 Wanchai Road Wanchai, Hong Kong.

• (4) The company secretary of the Company is Mr. Leung Kwok Fai Ben Rich, who is a member of The Institute of Certified Public Accountants and The Hong Kong Institute of Chartered Secretaries.

• (5) The Hong Kong branch share registrar and transfer office of the Company is Tricor Standard Limited whose address is at Level 28, Three Pacific Place, 1 Queen’s Road East, Hong Kong.

• (6) In the event of inconsistency between the English and Chinese versions of this circular and the enclosed form of proxy, the English version shall prevail over the Chinese version.

NOTICE OF EXTRAORDINARY GENERAL MEETING

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VENTUREPHARM LABORATORIES LIMITED

萬全科技藥業有限公司 *

( incorporated in the Cayman Islands with limited liability) (Stock Code: 8225)

* For identification purposes only

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of Venturepharm Laboratories Limited (the “ Company ”) will be held at Venturepharm Tower, No. 3 Jinzhuang, Si Ji Qing, Haidian District, Beijing, the PRC on10 October 2012 at 2:00 p.m. to consider as special business and, if thought fit, to pass the following resolution as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT subject to the approval of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”):

• (a) the proposed restructuring of the CHF 15,000,000 3.5% convertible notes due 2012 issued by the Company on10 September 2007 (the “ Notes ”),comprising (a) an extension of the original maturity date of the Notes to 10 September 2015, (b) an alteration of the coupon applicable in the extended tenor from 3.5% to 4.0% and (c) certain consequential amendments to the terms and conditions of the Notes, the details of which are set out in the circular of the Company dated 20 September 2012 (the “ Circular ”) be and are hereby approved, confirmed and ratified;

• (b) the allotment and issue by the Company of the Conversion Shares (as defined in the Circular) in accordance with the terms and conditions of the Notes be and is hereby approved; and

• (c) the directors of the Company be and are hereby authorized to exercise all the powers of the Company and take all steps as might in their opinion be desirable or necessary in connection with the above including without limitation with regard to the execution, amendment, supplement, delivery, submission and implementation of any further documents or agreements.”

By order of the Board VENTUREPHARM LABORATORIES LIMITED William Xia Guo

Chairman Beijing, the PRC, 20 September 2012

Registered office:

Registered office: Head office: Principal place of business in Hong Kong: Scotia Centre 4th Floor, P.O. Box 2804 Venturepharm Tower, Unit B, 19/F George Town, Grand No. 3 Jinzhuang, Si Ji Qing, Times Media Centre Cayman, Haidian District, Beijing, the 133 Wanchai Road Cayman Islands PRC Wanchai, Hong Kong

Notes:

1. A member of the Company entitled to attend and vote at the meeting convened by the above notice is entitled to appoint another person as his proxy to attend and vote instead of him. A proxy need not be a member of the Company. A member may appoint any number of proxies to attend in his stead at any one general meeting.

2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney authorized in writing, or if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person duly authorized to sign the same on behalf of the corporation.

3. The instrument appointing a proxy and (if required by the board of directors of the Company) the power of attorney or other authority (if any), under which it is signed, or a notarially certified copy of such power or authority, shall be delivered at the Company’s branch share registrar and transfer office in Hong Kong, Tricor Standard Limited, at Level 28, Three Pacific Place, 1 Queen’s Road East,, Hong Kong, not less than 48 hours before the time fixed for holding the meeting or any adjournment thereof.

4. Completion and delivery of the form of proxy will not preclude a member from attending and voting in person at the meeting if the member so desires and in such event, the instrument appointing a proxy shall be deemed to be revoked.

5. Any voting at the meeting convened by the above notice will be taken by poll.