CSPC Pharmaceutical Group Limited — M&A Activity 2002

Apr 23, 2002

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

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

CHINA PHARMACEUTICAL ENTERPRISE AND

INVESTMENT CORPORATION LIMITED

中 國 製 藥 企 業 投 資 有 限 公 司

(Incorporated in Hong Kong with limited liability)

Connected and Discloseable Transaction and Ongoing Connected Transactions

SUMMARY On 22nd April, 2002, the Company has entered into the Acquisition Agreement with its controlling shareholder (namely SPG) and one of SPG's indirectly wholly-owned subsidiaries (namely Ouyi), pursuant to which the Company will acquire the entire issued share capital of PRC Co, which will be established in the PRC to engage principally in the manufacture of pharmaceutical preparation products, for an aggregate consideration of RMB216,000,000 (equivalent to about HK$203.8 million). The consideration will be satisfied by way of the issuance and allotment of 219,111,382 Shares at the issue price of HK$0.93 per Share. Following Completion, the Group will enter into the Ongoing Connected Transactions with SPG or its associates in connection with the pharmaceutical preparation manufacturing business and will terminate the Existing Lease Agreement in connection with the existing bulk pharmaceutical manufacturing business. The Directors believe that the Acquisition will allow the Company to capture the opportunities in the PRC pharmaceutical market, greatly eliminate the existing ongoing connected transactions between the Group and SPG Group and integrate the Group's manufacturing process of the existing bulk pharmaceutical business. The terms of the Acquisition, the Ongoing Connected Transactions and the Termination Agreement were negotiated on an arm's length basis. The Directors believe that the Acquisition represents a good investment opportunity to the Company and is in the interest of the Group and the Shareholders as a whole. For the purpose of the Listing Rules, the Acquisition constitutes a discloseable transaction to the Company. As SPG is the controlling shareholder of the Company, the Acquisition, the Ongoing Connected Transactions and the entering into of the Termination Agreement also constitute connected transactions to the Company. The Acquisition and the Non-exempted Ongoing Connected Transaction are subject to, among other things, the approval of the Independent Shareholders at the EGM whereby SPG and its associates will abstain from voting. The Company will apply to the Stock Exchange for conditional waivers from strict compliance with the disclosure and∕or independent shareholders' approval requirements of Chapter 14 of the Listing Rules in respect of each type of the Ongoing Connected Transactions. A circular containing, among other things, information on the Acquisition and the Ongoing Connected Transactions, the letter of an independent financial adviser and the recommendation of the Independent Board Committee in relation to the Acquisition and the Non-exempted Ongoing Connected Transaction, and a notice convening the EGM will be despatched to the Shareholders as soon as practicable. Details of the Termination Agreement will be set out in the Company's next annual report.

ACQUISITION AGREEMENT DATED 22ND APRIL, 2002

Parties

Purchaser: the Company

Vendors: SPG and its indirectly wholly-owned subsidiary, Ouyi

Assets to be acquired

The entire issued share capital of PRC Co, whose principal business will be the manufacture of pharmaceutical preparation products in the PRC. PRC Co will be established in the PRC as a limited liability company with equity interests to be held as to about 97% and 3% by SPG and Ouyi respectively. The principal assets of PRC Co will be:

(i) the Preparation Production Lines \ the production lines (including production facilities and certain relevant property interests (i.e., land and factory buildings where the production lines are located)) principally for the manufacture of pharmaceutical preparation products;

(ii) the Bulk Production Property Interests \ the property interests in connection with the manufacture of bulk pharmaceutical products, part of which the Group is currently leasing from HPF; and

(iii) an amount of RMB10,963,408 (equivalent to about HK$10.4 million) in cash as general working capital.

Details of the above assets are set out in the paragraph headed ``Information of the acquiring assets'' below.

Consideration and payment terms

RMB216,000,000 (equivalent to about HK$203.8 million), which will be satisfied by way of the issuance and allotment of 219,111,382 Shares effectively to SPG or its nominees (as Ouyi has directed these Shares to be paid to SPG or its nominees as consideration for the Acquisition of its interest in PRC Co) credited as fully paid at the issue price of HK$0.93 per Share. Save for not having the right to receive the final dividend declared in respect of the year ended 31st December, 2001, the Consideration Shares on allotment will rank pari passu in all respects with the then existing issued Shares. The Consideration Shares represent about 17.7% of the existing issued share capital of the Company and about 15.0% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares.

The issue price of the Consideration Shares represents the average closing price of the Shares at HK$0.93 for the ten trading days up to the date of the Acquisition Agreement. Such issue price also represents a 7.9% discount to the closing price of the Shares at HK$1.01 on 22nd April, 2002, being the date of the Acquisition Agreement.

The consideration was determined after arm's length negotiations among the Company, SPG and Ouyi. The consideration represents the aggregate amount of:

(i) RMB 205,036,592 (equivalent to about HK$193.4 million) (comprising the Preparation Production Lines of RMB 103,759,712 (equivalent to about HK$97.9 million) and the Bulk Production Property Interests of RMB 101,276,880 (equivalent to about HK$95.5 million)), which represents a discount of about 0.3% to an indicative valuation of the Preparation Production Lines and the Bulk Production Property Interests amounting to about RMB 205,647,015 as at 28th February, 2002 prepared by Vigers, a firm of independent valuers; and

(ii) RMB 10,963,408, which represents the actual amount of cash to be injected into PRC Co as its general working capital upon its establishment.

Warranties

Pursuant to the Acquisition Agreement, SPG and Ouyi will provide the Company with, among others, warranties in the following aspects:

Completion Asset Value

In the event that the Completion Asset Value is less than RMB205,036,592 (i.e., the aggregate consideration in connection with the Preparation Production Lines and the Bulk Production Property Interests), SPG and Ouyi will pay (within 5 days after the Completion Asset Value becomes available) to PRC Co an amount that is equivalent to the shortfall in cash.

Completion Result

In the event that PRC Co has incurred an accumulated loss for the period from its establishment to the date of Completion (i.e., the Completion Result being a negative number), SPG and Ouyi will pay (within 5 days after the Completion Result becomes available) to PRC Co an amount equivalent to the Completion Result in cash.

Liquidity Position

In the event that the aggregate amount of Completion Current Assets and any cash to be paid by SPG and Ouyi to PRC Co as defined in the paragraphs headed Completion Asset Value'' andCompletion Result'' above is less than the Completion Liabilities, SPG and Ouyi will pay (within 5 days after the Completion Current Assets and Completion Liabilities become available) to PRC Co an amount equivalent to the shortfall in cash.

The independent Directors will confirm whether the above-mentioned requirements have been achieved and, if any of the requirements is not met, the independent Directors will opine on whether each of SPG and Ouyi has fulfilled its obligations under the warranty arrangements and such opinion will be disclosed in the annual report of the Company.

Conditions

Completion is conditional upon, among other things, the following conditions being fulfilled or waived (if applicable) by the Company on or before 27th January, 2003 or such other date as the parties to the Acquisition Agreement may otherwise agree:

i) the passing by the Independent Shareholders of an ordinary resolution at the EGM to approve the Acquisition and the Non-exempted Ongoing Connected Transaction;

ii) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the Consideration Shares (subject to conditions which neither the Company nor SPG or Ouyi may reasonably object);

iii) the establishment of PRC Co and completion of a due diligence review on PRC Co (covering without limitation to the state of affairs, assets and liabilities, financial position of PRC Co) underlying the Acquisition to the absolute satisfaction of the Company;

iv) all relevant approvals and consents for Completion from the relevant governmental authorities in the PRC and other third party consents, which are necessary, or are reasonably required by the legal advisers of the Company have been obtained; and

v) the receipt by the Company of legal opinions issued by a firm of qualified lawyers in the PRC on the date of the Acquisition Agreement and on Completion in such form and substance satisfactory to the Company in respect of the Acquisition and the Ongoing Connected Transactions.

Shareholding structure of the Company

The following table sets out the shareholding structures of the Company before and immediately after Completion:

As at the date of the

Acquisition Agreement Immediately after Completion

Number Number

of Shares % of Shares %

SPG 651,054,779 (note) 52.49 870,166,161 59.62

Public Shareholders 589,392,500 47.51 589,392,500 40.38

—————— ————— —————— —————

Total 1,240,447,279 100.00 1,459,558,661 100.00

Note: Of the 651,054,779 Shares held by SPG, 25,000,000 Shares are held by Mr. Ding Er Gang, an executive Director, as trustee for SPG and 16,729,762 Shares are held by China Charmaine Pharmaceutical Company Limited, a wholly-owned subsidiary of SPG.

INFORMATION OF THE ACQUIRING ASSETS

Pursuant to the Acquisition, the Group will acquire the entire issued share capital of PRC Co., whose principal assets will be:

Asset type Descriptions

Preparation Production Lines

Production facilities Machinery, equipment and other facilities principally for the purpose of manufacture of various forms (powder injections, tablets, capsules, etc) of antibiotic preparation products, such as penicillin, amoxicillin, cefazolin and cefoperazone products. The aggregate production capacity is estimated to be about 2,100 million units per annum.

Property interests Land with site area of about 21,333 sq.m. and factory buildings with an aggregate gross floor area of about 25,781 sq.m. located at No. 47 Fengshou Road, Shijiazhuang, Hebei Province, the PRC.

Bulk Production Property Interests

Property interests Land with site area of about 86,392 sq.m. and factory buildings with an aggregate gross floor area of about 42,679 sq.m. located at No. 47 Fengshou Road, Shijiazhuang, Hebei Province, the PRC, of which about 49,682 sq.m. of the site area and about 31,585 sq.m. of the gross floor area are currently being leased by the Company from HPF pursuant to the Existing Lease Agreement, which will be terminated upon Completion. Details of the Termination Agreement is set out in the section headed ``Termination of the Existing Lease Agreement'' herebelow.

General working capital

RMB10,963,408 Cash as general working capital for PRC Co

REASONS FOR THE ACQUISITION

The Group principally engages in the manufacture and sale of bulk pharmaceutical products including vitamins, penicillin antibiotics and cephalorsporin antibiotics. The Directors believe that the Acquisition is necessary for the implementation of the Company's strategy to be the leading player in the PRC pharmaceutical industry.

The Acquisition allows the Company to capture the opportunities in the PRC pharmaceutical market. The Directors believe that the PRC pharmaceutical market will be one of the fastest growing industries in the PRC and will have potential for enormous growth for the following reasons: (i) large population size of over 1.3 billion but per capita expenditure in pharmaceutical products is substantially lower than that of developed countries; (ii) from 1990 to 2000, the PRC pharmaceutical industry achieved a compound annual growth rate of 19.5% in terms of output value; and (iii) with a total output of about RMB233.2 billion (equivalent to about HK$220.0 billion) in 2000, the PRC is one of the major manufacturers of pharmaceutical products in the world.

After Completion, the Group's product portfolio will diversify from bulk pharmaceutical products to both bulk and finished products and with addition of preparation manufacturing capability, the Group will be able to expand its customer base by gaining direct access to hospitals. The Directors believe that the diversification of products and the expanded customer base will enable the Group to better position itself to capture the opportunities in the pharmaceutical market and therefore, expand the Group's earning base.

The Acquisition will also greatly eliminate the existing ongoing connected transactions between the Group and SPG Group since the Directors expect that, following Completion, the Group will not have any sales of penicillin, amoxicillin, ampicillin and ampicillin sodium products in bulk form to SPG Group.

The Directors expect the acquisition of the Bulk Production Property Interests will vertically integrate the manufacturing process of the Group's existing bulk pharmaceutical business and, with the Termination Agreement, will increase the cashflow of the Company. After taking into account the market potential of the pharmaceutical preparation products and the Group's prevailing position in the bulk pharmaceutical products, the Directors consider that the Acquisition is beneficial to the Company and its Shareholders as a whole.

ONGOING CONNECTED TRANSACTIONS

Following establishment, PRC Co will (i) enter into two lease agreements with each of SPG and Ouyi; (ii) enter into a composite services agreement with Ouyi; and (iii) demand for certain processing services from an associate of SPG (namely, Second Pharmaceutical). These transactions will constitute connected transactions to the Company under the Listing Rules upon Completion.

A.Lease agreements

Transaction nature

PRC Co will enter into two lease agreements with each of SPG and Ouyi. Pursuant to:

(i) Lease agreement I

PRC Co will lease from SPG 4 factory buildings with an aggregate gross floor area of about 12,613 sq.m. and a piece of land with an aggregate site area of about 24,469 sq.m. which is located at No. 6 Huaxing Road, Zhonghuanan Main Street, Shijiazhuang, Hebei Province, the PRC; and

(ii) Lease agreement II

PRC Co will lease from Ouyi a factory building with an aggregate gross floor area of about 4,603 sq.m. and a piece of land with an aggregate site area of about 3,079 sq.m. which is located at No. 276 Zhongshan West Road, Shijiazhuang, Hebei Province, the PRC.

Each of the lease agreements will be effective for a period of 20 years from Completion.

Rental payable to SPG and Ouyi

An aggregate of about RMB 1.58 million (equivalent to about HK$1.49 million) comprising:

(i) Lease agreement I

About RMB1.11 million (equivalent to about HK$1.05 million) per annum to SPG; and

(ii) Lease agreement II

About RMB0.47 million (equivalent to about HK$0.44 million) per annum to Ouyi.

Each of the two lease agreements is subject to a rental adjustment every three years during the term of the relevant agreement in accordance with the market rate to be confirmed by a firm of independent valuers. The terms of the relevant lease agreement have been negotiated on an arm's length basis between the parties and Vigers, a firm of independent property valuers, has confirmed that the each of the rentals is not higher than the fair market rental value as at 28th February, 2002.

B. Provision of composite services by connected person

Transaction nature

Pursuant to a composite service agreement to be entered into between the PRC Co and Ouyi , PRC Co will demand from Ouyi the provision of certain composite services for its daily operation, including utilities (such as electricity and water), fire safety services, medical services, security services, storage, employee canteen services and environment protection services. The Directors believe that entering into the transaction could enable PRC Co to save its expenditure on investing in facilities which are ancillary to its core production process.

The composite service agreement will be effective for a period of 20 years from Completion.

Pricing basis

The composite service fee payable by PRC Co to Ouyi for all composite services (other than the provision of utilities) will be based on the actual cost of the services provided .

The composite service fee payable by PRC Co to Ouyi for the provision of utilities will be based on the actual cost of the utilities supplied to PRC Co plus a 2% handling charge .

C. Provision of processing services by connected person

Transaction nature

It is envisaged that Second Pharmaceutical will provide processing services (i.e., the Non-exempted Ongoing Connected Transaction) to PRC Co principally in connection with the manufacture of ampicillin and ampicillin related products in the form of powder injection.

As such, PRC Co will have more flexibility to access the market potential of ampicillin and ampicillin related products without incurring additional capital expenditure for the installation of relevant processing facilities.

Pricing basis

The fee payable in connection with the processing services will be based on the actual cost of such services.

BENEFITS OF THE ONGOING CONNECTED TRANSACTIONS

The Ongoing Connected Transactions will be conducted in the ordinary and usual course of business of the Group. The terms of the Ongoing Connected Transactions will be agreed on an arm's length basis with terms that are fair and reasonable to the Group. The Directors consider it to be in the interests of the Group to engage in the Ongoing Connected Transactions as these transactions will facilitate the operation of the Group's business after Completion.

DISCLOSURE REQUIREMENT AND WAIVER SOUGHT

For the purpose of the Listing Rules, the Ongoing Connected Transactions would normally require disclosure by way of press announcement and∕or prior independent shareholders' approval at an extraordinary general meeting each time as such transaction occurs.

The Directors consider that strict compliance with the disclosure and∕or independent shareholders' approval requirements in respect of the Ongoing Connected Transactions would be impractical and unduly onerous on the part of the Group as they are of a regular and continuing nature. The Directors expect that the annual transaction amount of (a) the Non-exempted Ongoing Connected Transaction (i.e., provision of processing services by connected person) may exceed the higher of HK$10,000,000 or 3% of the net tangible asset value of the Group; and (b) each of the transactions in connection with the lease agreements and the receipt of composite services may exceed the higher of HK$1,000,000 or 0.03% of the net tangible asset value of the Group but below the higher of HK$10,000,000 or 3% of the net tangible asset value of the Group. As such, the Company will apply to the Stock Exchange (a) in connection with the Non-exempted Ongoing Connected Transaction, a conditional waiver from strict compliance with the disclosure and independent shareholders' approval requirements as required under the Listing Rules in respect of each of the three financial years ended 31st December, 2004; and (b) in connection with the Ongoing Connected Transactions which fall within Rule 14.25(1) of the Listing Rules (i.e., the lease arrangement and receipt of composite services as set out in paragraphs (A) and (B) under the section headed ``Ongoing Connected Transactions''), a conditional and continuous waiver from strict compliance with the disclosure requirement as required under the Listing Rules in respect of each financial year. The waivers are subject to the conditions that:

(a) the Independent Shareholders approve the Non-exempted Ongoing Connected Transaction and the relevant cap at the EGM;

(b) the transaction amount of each of the Ongoing Connected Transactions does not exceed the relevant annual caps set forth below:

Types of transactions Annual cap

A Lease agreements For each financial year, the higher of HK$10 million or 3% of the Group's net tangible asset value as at the end of each corresponding financial year

B Receipt of composite services For each financial year, the higher of HK$10 million or 3% of the Group's net tangible asset value as at the end of each corresponding financial year

C Receipt of processing services For each financial year up to 31st December, 2004, 6% of the Group's turnover for each of the corresponding financial year

(c) details of the Ongoing Connected Transactions will be disclosed in the Company's annual report as prescribed by Rule 14.25(1)(A) to (D) of the Listing Rules;

(d) the independent non-executive Directors shall review the Ongoing Connected Transactions annually and confirm in the relevant annual report of the Company that the relevant Ongoing Connected Transactions have been entered into:

(i) in the ordinary and usual course of business of the Group;

(ii) on normal commercial terms;

(iii) on terms that are fair and reasonable and in the interests of the Shareholders as a whole;

(iv) in respect of the lease agreements and receipt of composite services, in accordance with the relevant agreement governing them; and

(v) in the manner as stated in (b) above.

(e) Ouyi and Second Pharmaceutical shall provide an undertaking to the Stock Exchange to provide the Company's auditors with full access to the relevant records for the purpose of auditors' review of the Ongoing Connected Transactions as referred to in paragraph (b)(B) and (b)(C) above; and

(f) the auditors of the Company shall review the Ongoing Connected Transactions annually and confirm in a letter (``Letter'') to the Board, a copy of which shall be provided to the Listing Division of the Stock Exchange, confirming that each of the Ongoing Connected Transactions:

(i) has received the Board's approval;

(ii) in respect of the lease agreements and receipt of composite services, has been entered into in accordance with the terms of the relevant agreement governing them;

(iii) in respect of the receipt of processing services, has been entered in accordance with the pricing basis that fee charged to PRC Co is at the actual cost of the services provided; and

(iv) has not exceeded the relevant cap amount set out in paragraph (b) above.

Where, for whatever reason, the auditors decline to accept the engagement or are unable to provide the Letter, the Directors shall contact the Stock Exchange as soon as practicable;

The Directors (including the independent non-executive Directors) consider that the Ongoing Connected Transactions will be conducted on an arm's length basis, on normal commercial terms and in the usual and ordinary course of business of the Group.

In the event of any amendment on the terms of agreements (unless as provided for under the terms of the agreement) governing the transactions referred to in paragraph (b)(A) or (b)(B) above or any of the Ongoing Connected Transactions exceeds the relevant annual cap, the Company will fully comply with the disclosure ∕ independent shareholders' approval requirements provided in Chapter 14 of the Listing Rules in respect of the connected transactions unless the Company has obtained a separate waiver from the Stock Exchange.

In the event of any future amendments to the Listing Rules imposing more stringent requirements than those as at the date of the proposed waiver application on transactions of the kind to which the Ongoing Connected Transactions belong, including, but not limited to, a requirement that such transactions be made conditional on approval by the independent Shareholders, the Company will take immediate steps to ensure compliance with such requirements within a reasonable period of time.

TERMINATION OF THE EXISTING LEASE AGREEMENT

Pursuant to the Existing Lease Agreement entered in 1996, one of the Company's subsidiaries (namely Zhongkang) leases from HPF, the land use right for the land with an aggregate site area of about 49,682 sq.m., together with the factory buildings with an aggregate gross floor area of about 31,585 sq.m. which form part of the Bulk Production Property Interests. The term of the Existing Lease Agreement is 30 years commencing from 16th August, 1995. The rentals payable under the Existing Lease Agreement is RMB4,249,390 (equivalent to about HK$4.0 million) per annum at present and is subject to a rental adjustment every three years according to market rate to be confirmed by a firm of independent valuers during the term of the lease. In December 1996, the Stock Exchange granted a waiver from strict compliance with the announcement requirement as required under the Listing Rules up to the end of the term of the Existing Lease Agreement.

As the Company intends to acquire the Bulk Production Property Interests from SPG, on 22nd April, 2002, Zhongkang and HPF have entered into the Termination Agreement to terminate the Existing Lease Agreement with effect from Completion. As HPF is wholly-owned by SPG (i.e., an associate of the controlling shareholder of the Company), the entering into the Termination Agreement constitutes a connected transaction under Listing Rules. As the annual rental amount under the Termination Agreement is less than 3% of the latest net tangible assets of the Group, no independent shareholders' approval is required. Details of the Termination Agreement will be included in the Company's next published annual report.

APPROVAL BY INDEPENDENT SHAREHOLDERS

For the purpose of the Listing Rules, the Acquisition constitutes a discloseable transaction to the Company. As SPG beneficially owns an aggregate of about 52.49% of the issued share capital of the Company, the Acquisition, the Ongoing Connected Transactions and the entering into of the Termination Agreement also constitute connected transactions to the Company. The Acquisition and Non-exempted Ongoing Connected Transaction are subject to, among other things, the approval of the Independent Shareholders at the EGM whereby SPG and its associates will abstain from voting.

In view of SPG's interests in the Acquisition, an Independent Board Committee will be appointed to advise the Independent Shareholders on whether or not the terms of the Acquisition and Non-exempted Ongoing Connected Transaction are in the interest of the Company and are fair and reasonable so far as the Independent Shareholders are concerned. An independent financial adviser will be appointed to advise the Independent Board Committee in respect of the Acquisition and the Non-exempted Ongoing Connected Transaction.

EGM

The EGM will be convened as soon as practicable at which an ordinary resolution will be proposed to approve the Acquisition and the Non-exempted Ongoing Connected Transaction. In view of SPG's interests in the Acquisition and the Non-exempted Ongoing Connected Transaction, SPG and its associates will abstain from voting at the EGM in the relevant regards.

GENERAL

A circular containing, among other things, information on the Acquisition and the Ongoing Connected Transactions, the letter from the independent financial adviser containing its advice to the Independent Board Committee and the recommendation of the Independent Board Committee in relation to the Acquisition and the Non-exempted Ongoing Connected Transaction, and a notice convening the EGM to consider and, if thought fit, to approve, among others, the Acquisition and the Non-exempted Ongoing Connected Transaction will be dispatched to the Shareholders as soon as practicable

The Company will make an application to the Listing Committee for the listing of and permission to deal in the Consideration Shares to be issued under the Acquisition Agreement.

As the Acquisition may or may not proceed (depending on the fulfillment of the conditions of the Acquisition Agreement), Shareholders and investors are reminded to exercise caution when

dealing in the shares of the Company.

DEFINITIONS

``Acquisition'' the transaction contemplated under the Acquisition Agreement

``Acquisition Agreement'' the conditional sale and purchase agreement dated 22nd April, 2002 entered into between the Company, as the purchaser, and SPG and Ouyi, as the vendors in relation to the entire issued share capital of PRC Co

``associate(s)'' Has the meaning ascribed to it under the Listing Rules

``Board'' The board of Directors

``Bulk Production Property Interests'' Land and factory buildings located at No. 47 Fengshou Road, Shijiazhuang, Hebei Province, the PRC, part of which are currently being leased by the Company from HPF for the manufacture of bulk pharmaceutical products

``Company'' China Pharmaceutical Enterprise and Investment Corporation Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on the main board of the Stock Exchange

Completion'' Completion of the Acquisition, which is subject to, among others, the conditions as set out in the paragraph headedConditions'' above being fulfilled or waived (if applicable) by the Company

``Completion Asset Value'' The value of the Preparation Production Lines and the Bulk Production Property Interests (excluding the accumulated depreciation and amortisation) to be shown in the management account of PRC Co as at the date of Completion

``Completion Current Assets'' The value of total current assets of PRC Co to be shown in the management account of PRC Co as at the date of Completion

``Completion Liabilities'' The value of total liabilities (including current liabilities and non-current liabilities) of PRC Co to be shown in the management account of PRC Co as at the date of Completion

``Completion Result'' The profit or loss after taxation to be shown in the management account of PRC Co for the period from its establishment to the date of Completion

``Consideration Shares'' The issuance and allotment of 219,111,382 Shares at the issue price of HK$0.93 each for the settlement of the consideration payable under the Acquisition Agreement

``Director(s)'' The director(s) of the Company

``EGM'' The extraordinary general meeting of the Company to be convened as soon as practicable to consider and approve, among others, the Acquisition and the Non-exempted Ongoing Connected Transaction including any adjourned meeting thereof

``Existing Lease Agreement'' The lease agreement dated 11th December, 1996 entered into between Zhongkang and HPF in connection with certain Bulk Production Property Interests, details of which was disclosed in the Company's announcement dated 11th December, 1996

``Group'' The Company together with its subsidiaries

``Hong Kong'' The Hong Kong Special Administrative Region of the PRC

``HPF'' Shijiazhuang Pharmaceutical Group Company Limited Hebei Pharmaceutical Factory (石 家 庄 制 藥 集 團 有 限 公 司 河 北 制 藥 分廠), which is established in the PRC and wholly-owned by SPG

``Independent Board Committee'' An independent committee of the Board to be appointed by the Board to advise the Independent Shareholders in respect of the Acquisition and the Non-exempted Ongoing Connected Transaction in connection with the receipt of processing services

``Independent Shareholders'' Shareholders other than SPG and its associates

``Listing Rules'' The Rules Governing the Listing of Securities on the Stock Exchange

``Non-exempted Ongoing

Connected Transaction'' The provision of processing services by an associate of SPG to PRC Co, which the Directors expect the annual transaction amount may exceed the higher of HK$10,000,000 or 3% of the net tangible asset value of the Group and whose details are set out in paragraph (C) under the section headed ``Ongoing Connected Transactions'' in this announcement

Ongoing Connected Transactions'' the connected transactions (including the Non-exempted Ongoing Connected Transaction), as described in paragraph headedOngoing Connected Transactions'' in this announcement, which will constitute connected transactions to the Company and are subject to disclosure∕independent shareholders' approval under the Listing Rules

``Ouyi'' Shijiazhuang Pharmaceutical Group Ouyi Pharmaceutical Company Limited (石家庄制 藥 集 團 歐 意 藥 業 有 限 公 司), a limitedliability company established in the PRC, whose entire issued share capital is beneficially wholly-owned by SPG

``PRC'' The People's Republic of China, for the purpose of this announcement, excluding Hong Kong, the Macau Special Administrative Region and Taiwan

``PRC Co'' a limited liability company to be established in the PRC, whose principal assets will be the Preparation Production Lines, the Bulk Production Property Interests and general working capital of RMB10,963,408, which will be owned as to about 97% and 3% by SPG and Ouyi respectively before Completion and will become a wholly-owned subsidiary of the Company after Completion

``Preparation Production Lines'' the production lines (including production facilities and certain relevant property interests (i.e., land use rights and factory buildings where the production lines are located)) principally for the manufacture of pharmaceutical preparation products, such as penicillin, amoxicillin, cefazolin and cefoperazone products

``Second Pharmaceutical'' Shijiazhuang Municipal Second Pharmaceutical Factory (石家庄市第二制藥 廠), a limited liability company established in the PRC, which is an associate of SPG and hence a connected person to the Company pursuant to the Listing Rules

``Share(s)'' share(s) of HK$0.10 each in the share capital of the Company

``Shareholder(s)'' the shareholder(s) of the Company

``SPG'' Shijiazhuang Pharmaceutical Group Company Limited (石家庄制藥集團有限 公 司), a limited liability company established in the PRC and the controlling shareholder of the Company

``SPG Group'' SPG together with its subsidiaries excluding the Group

``Stock Exchange'' The Stock Exchange of Hong Kong Limited

``Termination Agreement'' the agreement dated 22nd April, 2002 entered into between Zhongkang and HPF in connection with the termination of the Existing Lease Agreement upon Completion

``Vigers'' Vigers Hong Kong Limited, a firm of independent land, building, plant and machinery valuers

``Zhongkang'' Hebei Zhongkang Pharmaceutical Company Limited (河北中抗制藥有限公司), a limited liability company established in the PRC and a subsidiary of the Company which is effectively owned as to 99% by the Company and 1% by SPG

``HK$'' Hong Kong dollars, the lawful currency of Hong Kong

``RMB'' Renminbi, the lawful currency of the PRC

``sq.m.'' square metre

``%'' per cent.

Note:For information purpose only, the translation of RMB to HK$ in this announcement is based at the rate of RMB1.06 to HK$1.00.

By order of the Board

CAI Dong Chen

Chairman

Hong Kong, 22nd April, 2002

Please also refer to the published version of this announcement in the South China Morning Post.