Extrawell Pharmaceutical Holdings Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, 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 circular.

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 stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Extrawell Pharmaceutical Holdings 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.

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(Incorporated in Bermuda with limited liability)

DISCLOSEABLE AND CONNECTED TRANSACTION

Financial Adviser to the Company

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MENLO CAPITAL LIMITED

Independent Financial Adviser to the Independent Board Committee

HANTEC CAPITAL LIMITED

A letter from Hantec Capital Limited containing its advice to the Independent Board Committee (as defined herein) is set out on pages 12 to 20 of this circular.

A notice convening the Special General Meeting (as defined herein) to be held at 10:00 a.m. on 26 July 2003 at Suites 4701–4, 47th Floor, NatWest Tower, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong is set out on pages 35 to 36 of this circular. A form of proxy is also enclosed. Whether or not you intend to be present at the Special General Meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit with the branch share registrar of the Company in Hong Kong, Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the Special General Meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Special General Meeting or any adjournment thereof should you so desire.

9 July 2003

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Letter from Hantec Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Appendix I – Valuation report on JECBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Appendix II – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Notice of the Special General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35

– i –

DEFINITIONS

In this circular, the following expressions have the meanings as set out below unless the context requires otherwise.

“Associates”	have the same meaning ascribed thereto under the Listing
	Rules
“Agreement”	the conditional agreement dated 18 June 2003 entered
	into between Extrawell BVI as purchaser and Ms Jiang
	as vendor in relation to the acquisition of the Sale Shares
“Board”	the board of Directors
“Business Day”	a day (other than a Saturday) on which banks are open
	for business in Hong Kong
“Company”	Extrawell Pharmaceutical Holdings Limited, a company
	incorporated in Bermuda with limited liability and whose
	shares having a par value of HK$0.01 each are listed on
	the main board of the Stock Exchange
“Completion”	completion of the Agreement
“Consideration”	HK$25 million, being the purchase price of the Sale
	Shares payable by Extrawell BVI under the Agreement
“Deposit”	a deposit of about HK$15.67 million paid by Extrawell
	BVI to Ms Jiang
“Director(s)”	the director(s) of the Company
“Extrawell BVI”	Extrawell (BVI) Limited, a company incorporated in the
	British Virgin Islands with limited liability and a wholly
	owned subsidiary of the Company
“Group”	the Company and its subsidiaries
“Hantec Capital”	Hantec Capital Limited, a deemed licensed corporation
	under the SFO and the independent financial adviser to
	the Independent Board Committee
“Hong Kong”	Hong Kong Special Administrative Region of the PRC

– 1 –

DEFINITIONS

“Independent Board Committee”	the independent board committee of the Company,
	comprising any two independent non-executive Directors,
	namely Fang Lin Hu, Xue Jing Lun and Chung Shui
	Ming
“Independent Valuer”	Castores Magi Asia Limited, an independent professional
	valuer, having extensive valuation experience in the
	pharmaceutical field including the pharmaceutical
	company valuation; pharmaceutical valuation;
	pharmaceutical distribution rights valuation; genes
	valuation; pharmaceutical license valuation and nutrition
	supplement products valuation for several listed
	companies in Hong Kong.
“JECBS”	Jilin Extrawell Changbaishan Pharmaceutical Co., Ltd.
	（吉林精優長白山藥業有限公司）, a wholly foreign
	owned enterprise established in the PRC on 22 April
	1999
“Latest Practicable Date”	4 July 2003, being the latest practicable date prior to the
	printing of this circular for ascertaining certain
	information contained in this circular
“Listing Rules”	The Rules Governing the Listing of Securities on the
	Stock Exchange
“Ms Jiang”	Jiang Haihong, the sole registered and beneficial owner
	of Smart Phoenix, who is a person not connected with
	any of the substantial shareholders, directors or chief
	executives of the Company or any of its subsidiaries, or
	any of their respective Associates (save for her interest
	in Smart Phoenix)
“PRC”	the People’s Republic of China
“PRC GAAP”	generally accepted accounting principles in the PRC
“Sale Shares”	100 Shares to be held by Ms Jiang immediately before
	Completion, representing the entire issued share capital
	of Smart Phoenix
“SFO”	The Securities and Futures Ordinance (Chapter 571 of
	the Laws of Hong Kong)

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DEFINITIONS

“Share(s)”	share(s) of US$1 each in the capital of Smart Phoenix
“Shareholder’s Loan”	amount owed by Smart Phoenix to Ms Jiang, the sole
	shareholder of Smart Phoenix
“Smart Phoenix”	Smart Phoenix Holdings Limited, a company incorporated
	in the British Virgin Islands with limited liability, the
	entire issued share capital of which was held by Ms
	Jiang as at the Latest Practicable Date
“Special General Meeting”	the special general meeting of the shareholders of the
	Company to be convened to consider and, if thought fit,
	approve the Agreement
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“%”	per cent

Unless otherwise specified in this circular, amounts denominated in RMB has been translated, for the purpose of illustration only, into HK$ at an exchange rate of HK$1.00 = RMB1.07.

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LETTER FROM THE BOARD

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EXTRAWELL PHARMACEUTICAL HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

Executive Directors: Mao Yu Min Ho Chin Hou Ho Yu Ling Li Qiang Yu Ying Zhou Xie Yi

Independent non-executive Directors: Fang Lin Hu Xue Jing Lun Chung Shui Ming

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Head office and principal place of business: Suites 4701–4, 47th Floor NatWest Tower, Times Square 1 Matheson Street, Causeway Bay Hong Kong

9 July 2003

To the shareholders of the Company

Dear Sir/Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION

INTRODUCTION

On 18 June 2003, Extrawell BVI, a wholly owned subsidiary of the Company, and Ms Jiang entered in to the Agreement whereby Extrawell BVI agreed to acquire and Ms Jiang agreed to sell the Sales Shares, representing the entire issued share capital of Smart Phoenix, for a total Consideration of HK$25 million.

Immediately before Completion, JECBS is a non-wholly owned subsidiary of the Company and its registered capital is owned as to 60% and 40% by the Company and Smart Phoenix respectively. Upon Completion, JECBS will become a wholly owned subsidiary of the Group. JECBS is principally engaged in the development, manufacturing and sale of pharmaceutical products.

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LETTER FROM THE BOARD

Before Completion

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THE COMPANY MS JIANG
100%
SMART PHOENIX
60% 40%
JECBS
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Upon Completion

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THE COMPANY
100%
EXTRAWELL BVI
100%
SMART PHOENIX
60% 40%
JECBS
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As the holder of the entire issued share capital of Smart Phoenix, Ms Jiang is a substantial shareholder (as defined in the Listing Rules) of JECBS and is thus a connected person of the Company under the Listing Rules. As such, the entering into of the Agreement constitutes a connected transaction for the Company under Chapter 14 of the Listing Rules and the Agreement is subject to the approval of the shareholders of the Company at the Special General Meeting.

The purpose of this circular is to give you further information on, amongst other things, the Agreement and to provide you with a notice of the Special General Meeting at which resolution will be proposed for the purpose of approving the Agreement. The circular also contains the recommendations of the Independent Board Committee, which has been formed to advise the shareholders of the Company, the advice of Hantec Capital which has been retained to advise the Independent Board Committee in relation to the Agreement, and a valuation report on JECBS from the Independent Valuer.

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LETTER FROM THE BOARD

A. THE AGREEMENT

Date

18 June 2003

Parties

Vendor: Ms Jiang

Purchaser: Extrawell BVI

Assets to be acquired

The Sale Shares, representing the entire issued share capital of Smart Phoenix which holds 40% equity interest in JECBS

Consideration

The Consideration is HK$25 million payable in cash. The Consideration was arrived at after arm’s length negotiations between the Company and Ms Jiang and taking into account, amongst others, the independent valuation on JECBS of HK$63 million as at 31 March 2003 carried out by the Independent Valuer, details of which are set out in Appendix I to this circular. The Independent Valuer has compared different valuation approaches including market approach, cost approach and income approach and considered that the income approach of using discounted cash flow method to be most suitable in valuing JECBS. The Independent Valuer confirmed that the underlying assumptions for reaching the valuation amount of the Company are fair and reasonable. The Directors are of the view that the Consideration is fair and reasonable in view of the potential income to be derived from both the existing licensed products and the potential new products.

A Deposit of HK$15,666,214.55 has been paid in cash prior to the date of the Agreement to secure the Company’s position in the negotiation of the acquisition of the 40% interest in JECBS. The Directors confirmed that, since then, Ms Jiang has not negotiated with any party other than the Company about the acquisition of the 40% interest in JECBS. However, there is no pre-emptive right agreed between the Company and Ms Jiang.

The balance of the Consideration in the amount of HK$9,333,785.45 will be payable upon Completion and will be satisfied in cash (or such other manner as the parties may agree other than the issue of new shares of the Company) by Extrawell BVI to Ms Jiang. Currently, no specific settlement method other than cash payment is being considered.

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LETTER FROM THE BOARD

The Directors consider that the terms of the Agreement (including the Consideration) and form of payment are fair and reasonable so far as the Company and its shareholders are concerned. The Directors are of the view that the Agreement is in the best interest of the Company on the basis of allowing the Group to obtain 100% ownership of JECBS, thereby strengthening the Group’s control and ability to re-engineer the operations and financial arrangements which would assist to improve the turnover and in turn improve the income base of JECBS.

Conditions

Completion of the Agreement is conditional upon:

(i) Extrawell BVI having received (a) a certificate of incumbency of Smart Phoenix issued by its registered agent in the British Virgin Islands and (b) a certificate of good standing of Smart Phoenix issued by the Registrar of Companies (or the equivalent body) in the British Virgin Islands, both in such form and substance to the satisfaction of Extrawell BVI;
(ii) Extrawell BVI being satisfied that all warranties set out in the Agreement will remain true and correct as at the date of Completion;
(iii) the Purchaser having obtained a valuation report in such form and substance to the satisfaction of the Purchaser indicating that the business value of the entire equity interest in JECBS as at 31 March 2003 is not less than HK$63 million;
(iv) the approval by the independent shareholders of the Company of the Agreement and the transactions contemplated hereby and all other consents and acts required under the Listing Rules being obtained and completed or, as the case may be, the relevant waiver from compliance with any of such rules being obtained from the Stock Exchange; and
(v) the board of Directors approving and authorizing the transactions contemplated by the Agreement.

Completion will take place on the second Business Day after the date on which the above conditions have been fulfilled, which date in any event shall not be later than 31 August 2003 (or such later date as the parties may agree). Extrawell BVI may at any time waive the condition set out in (ii) above. If, however, the above conditions cannot be fulfilled (or, as the case may be, waived by Extrawell BVI), the Agreement will lapse and Ms Jiang shall within seven Business Days after the date of such termination repay in immediately available funds to Extrawell BVI an amount equivalent to the Deposit, together with interest which shall accrue at the prevailing best lending rate of the Hongkong and Shanghai Banking Corporation Limited from the date of payment of the Deposit up to and inclusive of the date of repayment of the entire amount of the Deposit.

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LETTER FROM THE BOARD

Currently, there are five members in the board of directors of JECBS. Among them one is nominated by Smart Phoenix. Ms Jiang will resign as the director of Smart Phoenix upon Completion and the Company will nominate a person as new director of Smart Phoenix. The director nominated by Smart Phoenix in the board of directors of JECBS will resign after Completion.

B. INFORMATION ON SMART PHOENIX AND JECBS

Smart Phoenix, an investment holding company, is incorporated on 2 July 2002 in the British Virgin Islands with limited liability. Its sole investment is the holding of 40% equity interest in JECBS. As at the Latest Practicable Date, the Shareholder’s Loan amounted to approximately HK$11.0 million. All the Shareholder’s Loan will be capitalized prior to Completion by way of the allotment and issue to Ms Jiang of 99 new Shares which together with the one Share in issue as at the Latest Practicable Date will represent the entire issued share capital of Smart Phoenix immediately before Completion.

JECBS is a wholly foreign owned enterprise established in the PRC on 22 April 1999. As at the date of the Agreement, its registered capital is RMB33 million and was owned as to 60% and 40% by the Company and Smart Phoenix respectively. JECBS is principally engaged in the development, manufacturing and sales of pharmaceutical products.

Based on the audited accounts of JECBS prepared in accordance with the PRC GAAP, the net asset value of JECBS as at 31 December 2001 and 31 December 2002 amounted to about RMB48,488,252 (equivalent to approximately HK$45,316,000) and RMB46,244,225 (equivalent to approximately HK$43,219,000) respectively. Its net loss before and after taxation and extraordinary items for the year ended 31 December 2001 amounted to about RMB 3,682,386 (equivalent to approximately HK$3,441,000) and net loss before and after taxation and extraordinary items for the year ended 31 December 2002 amounted to about RMB2,244,027 (equivalent to approximately HK$2,097,000).

Upon Completion, the Group’s interest in JECBS will increase from 60% to 100%.

C. REASONS FOR AND BENEFITS OF THE ENTERING INTO OF THE AGREEMENT

The Group is principally engaged in the marketing and distribution of pharmaceutical products, health care and nutritional products, and medical appliances and equipment to customers in the PRC, and the development, manufacture and distribution of pharmaceutical products in the PRC. The Directors confirmed that the Company has the relevant licenses and permits to carry the activities in manufacturing and distribution of the existing pharmaceutical products.

– 8 –

LETTER FROM THE BOARD

The Group has been seeking investment opportunities that can broaden its asset base and the development of its core business in manufacturing and distribution of pharmaceutical products. JECBS is holding 53 registered drug licenses for production and marketing in the PRC, among which four main products are currently sold and distributed in the PRC. The drugs are used for immunological, cardiovascular and pulmonary diseases. JECBS is also marketing and distributing non-prescription drugs used for common cold, alimentary and respiratory system. The Directors consider that the acquisition of further interest in JECBS pursuant to the Agreement could strengthen the Group’s management position in JECBS and enable the Group to consolidate a full control over JECBS. The Directors are of the view that JECBS will contribute positively for the Group results in the coming years although loss were incurred previously in the past. This in turn would allow the Group to obtain 100% ownership of JECBS, thereby strengthening the Group’s control and ability to re-engineer the operations and financial arrangements which would assist to improve the turnover and in turn improve the income base of JECBS.

The Directors are of the view that the Agreement is entered into on normal commercial terms and consider that the Agreement is in the interest of the Company and the its shareholders as a whole. The Directors are of the view that the Agreement is in the best interest of the Company on the basis of allowing the Group to obtain 100% ownership of JECBS.

The Directors are optimistic of the pharmaceutical industry in the PRC. There are certain potential new products which are suitable for the manufacturing facilities of JECBS and will be exclusively available for manufacture by JECBS and may generate growth in the coming years. In the opinion of the Directors, the potential benefits so arising will outweigh the Consideration to be paid to Ms Jiang. The Directors confirmed that upon manufacturing these potential products, JECBS would ensure the availability of relevant exclusive periods, permits and licenses.

D. GENERAL

Immediately before the Completion, JECBS is a non-wholly owned subsidiary of the Company and its registered capital is owned as to 60% and 40% by the Company and Smart Phoenix respectively. As the holder of the entire issued share capital of Smart Phoenix, Ms Jiang is a substantial shareholder (as defined in the Listing Rules) of JECBS and is thus a connected person of the Company under the Listing Rules. As such, the entering into of the Agreement constitutes a connected transaction for the Company under Chapter 14 of the Listing Rules, and is subject to, inter alias , the approval of the shareholders of the Company at the Special General Meeting. The Directors confirmed that Ms Jiang presently does not hold any shares of the Company.

– 9 –

LETTER FROM THE BOARD

E. SPECIAL GENERAL MEETING

A notice convening the Special General Meeting is set out on pages 35 to 36 of this circular for the purpose of considering and, if thought fit, passing the ordinary resolution in respect of the Agreement to be proposed at the Special General Meeting.

A form of proxy for use at the Special General Meeting is enclosed. Whether or not you are able to attend the Special General Meeting in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the branch share registrar of the Company in Hong Kong, Tengis Limited, Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, as soon as possible and in any event, not less than 48 hours before the time appointed for holding the Special General Meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Special General Meeting or any adjournment thereof should you so wish.

F. ADDITIONAL INFORMATION

Your attention is also drawn to the letter from the Independent Board Committee set out on page 11 of this circular which contains its recommendation to the shareholders of the Company as to voting at the Special General Meeting in relation to the Agreement.

Your attention is also drawn to (a) the letter from Hantec Capital which contains its advice to the Independent Board Committee in relation to the Agreement and the principal factors and reasons considered by Hantec Capital in arriving at its advice; and (b) the additional information set out in the appendices to this circular.

RECOMMENDATION

Having regard to the information described above, the Directors consider that the terms of the Agreement are fair and reasonable and are in the interests of the Company and its shareholders as a whole. Accordingly, the Directors recommend the shareholders of the Company to vote in favour of the resolution to approve the Agreement as set out in the notice of the Special General Meeting.

Yours faithfully,

On behalf of the Board of

Extrawell Pharmaceutical Holdings Limited Mao Yu Min

Chairman

– 10 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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EXTRAWELL PHARMACEUTICAL HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

9 July 2003

To the shareholders of the Company

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION

We refer to the circular dated 9 July 2003 issued by the Company (the “Circular”), of which this letter forms part. Capitalised terms used in this letter shall bear the same meanings as given to them in the Circular unless the context otherwise requires.

We have been appointed as the members of the Independent Board Committee to consider the Agreement and to advise the shareholders of the Company as to the fairness and reasonableness of the Agreement and to recommend how the shareholders of the Company should vote at the Special General Meeting. Hantec Capital has been appointed to advise the Independent Board Committee in relation to the Agreement.

We wish to draw your attention to the letter from the Board, as set out on pages 4 to 10 of the Circular, and the letter from Hantec Capital to the Independent Board Committee which contains its advice to us in respect of the Agreement, as set out on pages 12 to 20 of the Circular.

Having taken into account of the advice of Hantec Capital, we consider that the terms and conditions of the Agreement and the transactions contemplated thereby to be fair and reasonable so far as the shareholders of the Company are concerned and the Agreement is in the interests of the Company and its shareholders as a whole. Accordingly, we recommend the shareholders of the Company to vote in favour of the ordinary resolution to be proposed at the Special General Meeting to approve the Agreement.

Yours faithfully,

the Independent Board Committee

Extrawell Pharmaceutical Holdings Limited Fang Lin Hu Xue Jing Lun Independent non-executive Directors

– 11 –

LETTER FROM HANTEC CAPITAL

The following is the text of a letter from Hantec Capital in connection with the Agreement which has been prepared for the purpose of inclusion in this circular:

Hantec Capital Limited

45th Floor, COSCO Tower 183 Queen’s Road Central Hong Kong

9 July 2003

To the Independent Board Committee of

Extrawell Pharmaceutical Holdings Limited

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee in respect of the Agreement. Extrawell BVI, a wholly owned subsidiary of the Company, and Ms Jiang entered into the Agreement on 18 June 2003, pursuant to which Extrawell BVI agreed to acquire and Ms Jiang agreed to sell the Sale Shares for a total consideration of HK$25 million. The Sale Shares represented the entire issued share capital of Smart Phoenix. Details of the Agreement are set out in the letter from the Board (the “Board’s Letter”) contained in the circular of the Company dated 9 July 2003 (the “Circular”) of which this letter forms part. Capitalised terms used herein without definition shall have the meanings set forth in the Circular unless the context otherwise requires.

As the holder of the entire issued share capital of Smart Phoenix, Ms Jiang is a substantial shareholder (as defined in the Listing Rules) of JECBS and is thus a connected person of the Company under the Listing Rules. As such, the Agreement between Extrawell BVI and Ms Jiang constitutes a connected transaction for the Company under Chapter 14 of the Listing Rules and is subject to the approval of the shareholders of the Company (the “Shareholders”) at the Special General Meeting. The Independent Board Committee has been formed to consider the Agreement and to make recommendations to the Shareholders.

BASIS OF OUR OPINION

In arriving at our recommendation, we have relied on the information and facts including, but not limited to, the Agreement and the valuation report of JECBS, and have assumed that any representations made to us are true, accurate and complete. We have also relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Directors and management of the

– 12 –

LETTER FROM HANTEC CAPITAL

Company. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information, representations and opinions which have been provided by the Directors and management of the Company for which they are solely responsible, are true and accurate at the time they were made and will continue to be accurate at the date of the despatch of the Circular. We have no reason to doubt the truth, accuracy and completeness of the information and presentation provided to us by the Directors.

We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We are of the view that the information provided and basis of representations made by the Company are fair and reasonable so far as the Shareholders are concerned. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading. Having made all reasonable enquiries, the Directors have further confirmed that, to the best of their knowledge, they believe there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading. We have not, however, carried out any independent verification of the information provided by the Directors and management of the Company, nor have we conducted an independent investigation into the business and affairs of the Group, JECBS and Smart Phoenix.

PRINCIPAL FACTORS CONSIDERED

In arriving at our opinion with regard to the Agreement, we have taken into account the following principal factors and reasons into consideration:

I. Background of and reasons for the Agreement

Information about the Group

The Company is an investment holding company, and the Group is principally engaged in the marketing and distribution of pharmaceutical products, health care and nutritional products, and medical appliances and equipment to customers in the PRC, and the development, manufacture and distribution of pharmaceutical products in the PRC. The Directors confirmed that the Group has the relevant licences and permits to carry out the activities in manufacturing and distribution of the existing pharmaceutical products.

The Group had audited net assets of approximately HK$227.2 million as at 31 March 2002 and unaudited net assets of approximately HK$303.4 million as at 30 September 2002. The Group had audited net profit of approximately HK$42.0 million for the year ended 31 March 2002 and unaudited net profit of approximately HK$23.7 million for the six months ended 30 September 2002.

– 13 –

LETTER FROM HANTEC CAPITAL

As stated in the Company’s annual report for the year ended 31 March 2002, over 90% of the Group’s turnover and operating results are derived from customers based in the PRC. The Group will make efforts to maximise its range of imported and self-manufactured specialty drug sales for the PRC market. As stated in the Company’s interim report for the six months ended 30 September 2002, the Group will continue to keep a lookout for new breakthroughs and new products which are suitable for distribution in the PRC.

Information about Smart Phoenix

Smart Phoenix is an investment holding company incorporated on 2 July 2002 in the British Virgin Islands with limited liability and the entire issued share capital of which was held by Ms Jiang as at the Latest Practicable Date. Its sole investment is the holding of 40% equity interest in JECBS. Smart Phoenix had the Shareholder’s Loan of approximately HK$11.0 million as at the Latest Practicable Date, which will be capitalised prior to the Completion by way of the allotment and issue of 99 new Shares to Ms Jiang.

Information about JECBS

JECBS is a wholly foreign owned enterprise established in the PRC on 22 April 1999. JECBS is principally engaged in the development, manufacturing and sales of pharmaceutical products in the PRC. As at the date of the Agreement, the registered capital of JECBS was RMB33 million, owned as to 60% and 40% by the Company and Smart Phoenix respectively. JECBS is holding 53 registered drug licenses for production and marketing in the PRC, among which four main registered drugs are currently sold and distributed in the PRC. The drugs are used for immunological, cardiovascular and pulmonary diseases. JECBS is also marketing and distributing non-prescription drugs for common cold, alimentary and respiratory system.

Based on the audited accounts of JECBS prepared in accordance with the PRC GAAP, the audited net assets of JECBS as at 31 December 2001 and 2002 were approximately RMB48.5 million (equivalent to approximately HK$45.3 million) and approximately RMB46.2 million (equivalent to approximately HK$43.2 million) respectively. Its audited net losses before and after taxation and extraordinary items for the year ended 31 December 2001 were approximately RMB3.7 million (equivalent to approximately HK$3.4 million), and audited net losses before and after taxation and extraordinary items for the year ended 31 December 2002 were approximately RMB2.2 million (equivalent to approximately HK$2.1 million).

– 14 –

LETTER FROM HANTEC CAPITAL

Pharmaceutical market in the PRC

According to the PRC State Food and Drug Administration Bureau, the industrial production value of pharmaceutical products in the PRC almost doubled in four years, from approximately RMB140 billion in 1997 to approximately RMB277 billion in 2001, and the value amounted to approximately RMB280 billion for the eleven months ended 30 November 2002, representing an increase of approximately 17% from the same period in 2001. The State Economic & Trade Commission estimates that the industry will have an increase of approximately 18% in industrial production value for the year ending 31 December 2003.

Reasons for entering into the Agreement

As stated in the Board’s Letter, the Group has been seeking investment opportunities that can broaden its asset base and the development of its core business in manufacturing and distribution of pharmaceutical products. The Directors are of the view that JECBS will contribute positively for the Group results in the coming years and that the Agreement will allow the Group to obtain 100% ownership of JECBS, thereby strengthening the Group’s control and ability to re-engineer the operations and financial arrangements of JECBS and to assist improving the turnover and income base of JECBS. The Directors are of the view that the Agreement is in the interest of the Company and Shareholders as a whole, and the terms thereof are normal commercial terms arrived at after arm’s length negotiations between the Company and Ms Jiang.

In view of that (i) the Group intends to expand its business in manufacturing and distribution of pharmaceutical products in the PRC; (ii) JECBS is principally engaged in the development, manufacturing and sales of pharmaceutical products in the PRC; (iii) JECBS is currently holding 53 registered drug licenses for production and marketing in the PRC; and (iv) the expansion of the market of pharmaceutical products in the PRC as estimated by the State Economic & Trade Commission, we are of the view that entering into the Agreement is in line with the Group’s business strategy and in the interest of the Company and the Shareholders as a whole.

II. Consideration for the Sale Shares

The Consideration for the Sale Shares is HK$25 million payable in cash. The Consideration was arrived at after arm’s length negotiations between the Company and Ms Jiang and taking into account, amongst others, the independent valuation on JECBS of HK$63 million as at 31 March 2003 carried out by the Independent Valuer, details of which can be referred to Appendix I of the Circular.

– 15 –

LETTER FROM HANTEC CAPITAL

In order to assess the fairness and reasonableness of the valuation carried out by the Independent Valuer, we have reviewed the valuation report and discussed with the Independent Valuer as to the methodology and the principal bases and assumptions adopted in the valuation report. We consider the methodology and the principal bases and assumptions adopted in the valuation report have been made with due care and objectivity on a reasonable basis as summarised below.

We understand from the Independent Valuer that the Independent Valuer has considered various appraisal approaches including market approach, cost approach and income approach. The market approach is basically a comparison method which estimates fair market value from analyzing sales and financial data and ratios of comparable public and, whenever possible, private companies. We have discussed with the Independent Valuer with respect to comparable business transactions and, to the best of our understanding, we are not aware of any purchases and sales of similar business transactions completed in Hong Kong and the PRC. The cost approach seeks to estimate the fair market value of JECBS by quantifying the amount of money that would be required to replace the manufacturing capabilities of the firm. In other words, this approach assumes that JECBS’s value is indicated by the cost of reproducing or replacing its manufacturing assets less an allowance for physical deterioration and obsolescence. The income approach focuses on the income-producing capability of JECBS. This approach’s underlying theory is that the value of JECBS can be measured by the present worth of the net economic benefit to be received. In the opinion of the Independent Valuer, the income approach is the most appropriate approach in valuing JECBS since a rational buyer normally will purchase a firm only if the present value of the expected economic benefits is at least equal to the purchase price. Likewise, a rational seller normally will not sell if the present value of the expected economic benefits is more than the selling price. Thus, a sale generally will occur only at an amount equal to the economic benefits of ownership. In view of the future development of JECBS will be relied on the new products to be launched and the growth potential of the pharmaceutical industry in the PRC as stated above, we concur with the Independent Valuer that the income approach is the most appropriate approach in valuing JECBS.

In choosing the income approach as the most appropriate method, the Independent Valuer has used the discount cash flow method (“DCF Method”) which estimates the fair market value of the equity of JECBS by discounting the future cash flows to its present value. In using the DCF Method, the Independent Valuer adopted the free cash flows to equity technique which values the enterprise by estimating the fair market value of the ownership interest (equity) of the enterprise. Given that JECBS was not profit making and did not distribute any dividend in the past, we consider that it is appropriate to use the DCF Method and free cash flows to equity technique to estimate the fair market value of JECBS.

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LETTER FROM HANTEC CAPITAL

In assessing the fair market value of JECBS by way of DCF Method, a discount rate has to be determined in discounting the future free cash flow of JECBS. The Independent Valuer derived the discount rate of JECBS by using the capital asset pricing model (“CAPM”). The CAPM derives the required rate of return of an asset by adding the risk-free rate to the risk premium of the asset. The risk-free rate used by the Independent Valuer was the return of the long bond in the US. The risk premium was determined with reference to the board market portfolio return and the non-diversifiable risk. The Independent Valuer used the Standard Industrial Classification (“SIC”) composite compound annual equity return of five years under SIC Code 2834 (comprises 94 companies which primarily engaged in manufacturing, fabricating, or processing drugs in pharmaceutical preparations for human or veterinary use) as the board market portfolio return in the CAPM computations. The non-diversifiable risk is represented by the beta of the asset and the Independent Valuer determined the beta of the asset by deriving a representative industry beta based on a select group of companies under SIC Code 2834. In addition, the Independent Valuer has added the country risk for the PRC in which JECBS operates to derive the required rate in the CAPM computations. In view of the discount rate is determined with reference to industry data adjusted by specific country risk, we consider that the way of determination of the discount rate in the CAPM computations is fair and reasonable so far as the Shareholders are concerned.

The Independent Valuer considers that a share of stock in a privately held company is usually worth less than an otherwise comparable share in a publicly held company and therefore a lack of marketability discount has to be applied in the valuation of JECBS. In view of the relatively low liquidity of private companies comparing with listed issuers, we concur with the Independent Valuer that a lack of marketability discount has to be applied in the valuation of JECBS and this application is fair and reasonable so far as the Shareholders are concerned.

The Independent Valuer confirmed that the underlying assumptions for reaching the valuation amount of the Company are fair and reasonable. The Directors are of the view that the Consideration is fair and reasonable in view of the potential income to be derived from both the existing licensed products and the potential new products. After reviewing the major assumptions and determination for the valuation of JECBS including appraisal approach, use of industry data, adjustment of country risk, lack of marketability discount, we concur with the Independent Valuer that the underlying assumptions for reaching the valuation amount of JECBS are fair and reasonable so far as the Shareholders are concerned. However, Shareholders are advised to note that the conclusions of fair market value of JECBS were based on generally accepted valuation procedures and practices that rely exclusively on the use of numerous assumptions and the consideration of uncertainties, not all of which can be easily quantified or ascertained. Failure of any such assumptions would significantly affect the valuation.

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LETTER FROM HANTEC CAPITAL

III. Satisfaction of the Consideration

The Consideration is HK$25 million payable in cash. A Deposit of HK$15,666,214.55 has been paid in cash prior to the date of the Agreement to secure the Company’s position in the negotiation of the acquisition of the 40% interest owned by Ms Jiang in JECBS. The Directors confirmed that, since then, Ms Jiang has not negotiated with any party other than the Company about the acquisition of the 40% interest in JECBS. However, there is no pre-emptive right agreed between the Company and Ms Jiang. The balance of the Consideration in the amount of HK$9,333,785.45 will be payable upon Completion and will be satisfied in cash (or such other manner as the parties may agree other than the issue of new shares of the Company) by Extrawell BVI to Ms Jiang. Currently, no specific settlement method other than cash payment is being considered.

The Directors confirmed that the Deposit was financed by internal resources of the Group. In the case that the balance of the Consideration is to be satisfied by cash, it will also be financed by internal resources of the Group. In accordance to the unaudited interim report of the Company for the six months ended 30 September 2002, the unaudited cash and bank balances of the Group were approximately HK$61.4 million as at 30 September 2002. The Consideration of HK$25 million represents approximately 40.7% of the cash and bank balances of the Group as at 30 September 2002. The unaudited net current assets of the Group were approximately HK$192.6 million as at 30 September 2002. Based on the current financial position of the Group, we are of the view that the Group has sufficient resources to satisfy the Consideration. We also consider that the satisfaction of the Consideration by internal resources, (i) will avoid any interest expenses under bank borrowings and dilution effect resulting from issue of new shares of the Company; and (ii) is in the interests of the Company and the Shareholders as a whole and fair and reasonable so far as the Shareholders are concerned.

IV. Financial effects on the Group

Net tangible assets

The Company reported unaudited net tangible assets of approximately HK$110.4 million as at 30 September 2002. Based on the audited accounts of JECBS prepared in accordance with the PRC GAAP, the net tangible asset value of JECBS as at 31 December 2002 amounted to approximately RMB33.8 million (equivalent to approximately HK$31.6 million). Upon the Completion, the pro forma unaudited net tangible assets of the Group will be decreased by approximately HK$12.4 million to approximately HK$98.0 million, representing a decrease of approximately 11%. The decrease in the Group’s pro forma unaudited net tangible assets is mainly attributable to the goodwill of approximately HK$12.4 million (based on the audited net tangible assets of JECBS as at 31 December 2002) arisen from the acquisition of 40% interests in JECBS. As no new shares of

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LETTER FROM HANTEC CAPITAL

the Company will be issued for the satisfaction of the Consideration, the net tangible asset per share of the Company will be also decreased by approximately 11% from approximately HK$0.048 before the Completion to approximately HK$0.043 after the Completion. Given that the decrease in net tangible assets of the Group was not significant and the viable positive impact to the Group’s earnings as stated below, we consider that such reduction resulting from the Agreement will not have material impact to the Group’s financial position.

The Shareholders should note that, since JECBS is a company incorporated in the PRC, the financial accounts of JECBS are audited in accordance with the PRC GAAP which might have certain deviations from the generally accepted accounting principles in Hong Kong (the “Hong Kong GAAP”). Our opinion with respect to the Agreement is based on the audited accounts of JECBS prepared in accordance with the PRC GAAP and does not make any adjustments in accordance with the Hong Kong GAAP. Any material deviation between the PRC GAAP and the Hong Kong GAAP will result in significant change in the financial position of JECBS including net tangible assets.

Earnings

For the financial year ended 31 March 2002, the Group recorded audited net profit from ordinary activities attributable to the Shareholders of approximately HK$42.0 million. The Group recorded approximately unaudited net profit from ordinary activities attributable to the Shareholders of approximately HK$23.7 million for the six months ended 30 September 2002. JECBS reported audited net losses before and after taxation and extraordinary items of approximately RMB2.2 million (equivalent to approximately HK$2.1 million) for the year ended 31 December 2002 under the PRC GAAP.

JECBS will become a wholly-owned subsidiary of the Company after the Completion. The Directors consider that the acquisition of further interest in JECBS pursuant to the Agreement could strengthen the Group’s management position in JECBS and enable the Group to consolidate a full control over JECBS. JECBS is currently holding 53 registered drug licenses for production and marketing in the PRC, and the Directors are of the view that JECBS will contribute positively for the Group results in the coming years although losses were incurred in the past. This in turn would allow the Group to obtain 100% ownership of JECBS, thereby strengthening the Group’s control and ability to re-engineer the operations and financial arrangements of JECBS which would assist to improve the turnover and in turn improve the income base of JECBS.

The Directors also confirmed that the goodwill generated upon the Completion of approximately HK$12.4 million will be amortised in a period of up to a maximum of twenty years. In the event that the goodwill is amortised in

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LETTER FROM HANTEC CAPITAL

twenty years, the annual amortisation will be approximately HK$0.62 million after the Completion. In view of the operating results of the Group for the year ended 31 March 2002 and the six months ended 30 September 2002 which amounted to approximately HK$42.0 million and HK$23.7 million respectively, we consider the amortisation of goodwill would not have material impact to the future earnings of the Group.

In view of that (i) the acquisition of further interest in JECBS could strengthen the Group’s management position in JECBS and enable the Group to consolidate a full control over JECBS; (ii) JECBS is currently holding 53 registered drug licenses for production and marketing in the PRC; and (iii) the Group is committed to re-engineer the operations and financial positions of JECBS so as to improve the turnover and income base of JECBS, we consider it a fair expectation that the Agreement would have positive impact to the earning base of the Group.

Working capital

The Consideration under the Agreement is HK$25 million payable in cash. The Directors confirmed that the Deposit was financed by internal resources of the Group. In the case that the balance of the Consideration is to be satisfied by cash, it will also be financed by internal resources of the Group.

The Company reported unaudited current assets of approximately HK$250.0 million (including cash and bank balances of approximately HK$61.4 million) and unaudited current liabilities of approximately HK$57.4 million as at 30 September 2002. Based on the Group’s financial position as at 30 September 2002, we consider that the Group has sufficient financial resources to satisfy the Consideration.

RECOMMENDATION

Taking into consideration of the above principal factors and reasons with respect to the Agreement, we are of the view that the Agreement is in the interests of the Company and the Shareholders as a whole and the terms and conditions of the Agreement are fair and reasonable so far as the Shareholders are concerned. We therefore advise the Independent Board Committee to recommend the Shareholders to vote in favour of the ordinary resolution to approve the Agreement at the Special General Meeting.

Yours faithfully, For and on behalf of

Hantec Capital Limited Thomas Lai

Director

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VALUATION REPORT ON JECBS

APPENDIX I

CASTORES MAGI ASIA LIMITED

CASTORES MAGI

Suites 402–3 Unicorn Trade Centre 131 Des Voeux Road Central Hong Kong

9 July 2003

The Directors

Extrawell Pharmaceutical Holdings Limited Suites 4701–4, 47th Floor NatWest Tower, Times Square 1 Matheson Street, Causeway Bay Hong Kong

Dear Sirs,

In accordance with your instructions, we have made an appraisal of the fair market value of a 100% equity interest of Jilin Extrawell Changbaishan Pharmaceutical Co., Ltd. (hereinafter known as “JECBS”) which is owned as to 60% by Extrawell Pharmaceutical Holdings Limited (hereinafter known as the “Company”) and 40% by Smart Phoenix Holdings Limited (hereinafter known as “Smart Phoenix”), as at 31 March 2003 (hereinafter known as “the relevant date”).

The purpose of this appraisal is to formulate and express an independent opinion on the fair market value of a 100% equity interest of JECBS at the relevant date on the premise of continued use. The term “Fair market Value” as used herein is defined as the estimated amount at which the company might be expected to exchange hands between a willing buyer and a willing seller, neither under compulsion to buy or sell, both having reasonable knowledge of the relevant facts, with equity to both, and with the buyer and seller contemplating the retention of the firm at its present location for the continuation of the current operations. We understand that the Company will use this appraisal for the acquisition purpose in JECBS. There are no other purposes are intended or should be inferred.

INTRODUCTION

JECBS, a wholly foreign owned enterprise established in the PRC on 22 April 1999, is owned as to 60% and 40% by the Company and Smart Phoenix. JECBS is principally engaged in the development, manufacturing and sale of pharmaceutical products. As at the relevant date, JECBS is holding 53 registered drug licenses for production and marketing of drugs used for immunological, cardiovascular and pulmonary diseases in the PRC.

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VALUATION REPORT ON JECBS

APPENDIX I

Based on the audited accounts of JECBS in according with the PRC GAAP, the net asset value of JECBS as at 31 December 2002 amounted to RMB46,244,225 (equivalent to approximately HK$43,219,000), with the registered capital of RMB33 million.

BASIS OF VALUATION AND ASSUMPTIONS

We have appraised the equity of JECBS on the basis of “Fair Market Value” in continued use basis. The continued use premise assumes that the company will be operated continuously under its current business purposes. Implicit in this definition is the fact that the willing buyer would not pay more to acquire the company appraised than he could reasonably expect to earn in the future from an investment in the company.

The valuation of JECBS requires consideration of all pertinent factors affecting the operations of the business and its ability to generate future investment returns. The factors considered in the appraisal including, but were not limited to, the following factors:

the history of JECBS;
the economic and industry outlooks affecting JECBS’s business;
past and projected future results of JECBS;
the capacity of JECBS in manufacturing and marketing its products;
market-derived investment returns of entities in similar line of business; and
the risks facing by JECBS.

In view of the ever-changing business environment in which JECBS is operating, we have made a number of reasonable assumptions in the course of our appraisal, which are set out as follows:

the business plan of JECBS will be executed;
the financial forecasts of JECBS will materialize;
there will be no material changes from political, legal, economic or financial aspects in the jurisdictions in which JECBS currently runs or intends to run its business which will materially affect its operation;
there will be no substantial market fluctuation in the industry in the jurisdictions or states in which JECBS currently runs or intends to run its business which will materially affect its operations and the revenues attributed to shareholders;

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VALUATION REPORT ON JECBS

APPENDIX I

there will be no substantial fluctuation in current interest rates and foreign currency exchange rates in the jurisdictions or states in which JECBS currently runs or intends to run its business which will materially affect its operations and the revenues attributed to shareholders;
JECBS has taken sufficient legal measures to protect its intellectual property rights of its products and has the relevant licenses and permits to manufacturing and distribution its products;
the management of JECBS and the Company will not make any decision which is harmful to the revenue generation ability of JECBS’s business; and
JECBS will allocate sufficient resources to keep abreast of its future expansion.

In the process of valuing the equity of JECBS, we considered the classical appraisal approaches to value, namely the Market Approach, Cost Approach and Income Approach. The Market Approach is basically a comparison method which estimates fair market value from analyzing sales and financial data and ratios of comparable public and, whenever possible, private companies. To the best of our understanding, there have not been any purchases and sales of similar business transactions that completed in Hong Kong and the PRC. Under such circumstances, we have not relied on the Market Approach in our estimate of the fair market value of JECBS.

The Cost Approach seeks to estimate the fair market value of JECBS by quantifying the amount of money that would be required to replace the manufacturing capabilities of the firm. In other words, this approach assumes that JECBS’s value is indicated by the cost of reproducing or replacing its manufacturing assets less an allowance for physical deterioration and obsolescence. We consider this approach is not appropriate in valuing JECBS as it does not capture the future growth of revenue generated from its new products.

The Income Approach focuses on the income-producing capability of JECBS. This approach’s underlying theory is that the value of JECBS can be measured by the present worth of the net economic benefit to be received. In our opinion, this approach is the most appropriate in valuing JECBS since a rational buyer normally will purchase a firm only if the present value of the expected economic benefits is at least equal to the purchase price. Likewise, a rational seller normally will not sell if the present value of the expected economic benefits is more than the selling price. Thus, a sale generally will occur only at an amount equal to the economic benefits of ownership. Based on this valuation principle, we use the Income Approach to estimate the future economic benefits of JECBS and discount these benefits to its present value using a discount rate that is appropriate for the expected risks associated with realizing those benefits.

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VALUATION REPORT ON JECBS

APPENDIX I

VALUATION METHODOLOGY

In choosing the Income Approach as the most appropriate method, we have used the Discounted Cash Flow (hereinafter known as “DCF”) Method, which estimates the fair market value of the equity of JECBS by discounting the future cash flows to its present value. This would necessitate the subtraction, from the net income, the capital expenditures and changes in working capital and the addition of depreciation in the computation of cash flow. DCF analysis reflects investment criteria and requires the appraiser to make empirical and subjective assumptions.

In using the DCF Method, we adopted the Free Cash Flows to Equity (hereinafter known as “FCFE”) Technique. The FCFE Technique values the enterprise by estimating the fair market value of the ownership interests (equity) of the enterprise. This technique requires that JECBS’s interest expenses, if any, be excluded from the free cash flows and the resulting cash flow to be discounted at the relevant rate of return required by equity. This technique then equates the value of the ownership interests as the value of the enterprise.

We derived the discount rate of JECBS by using the Capital Asset Pricing Model (hereinafter known as “CAPM”). The CAPM derives the required rate of return of an asset by adding the risk-free rate to the risk premium of the asset. The CAPM is built on the premise that the variance in returns is the appropriate measure of risk but only that portion of the variance of the returns of an asset that is not reduced by diversification has to be compensated, therefore the appropriate return required of an asset is determined by the volatility of the asset’s returns relative to the returns that can be achieved by a broad market portfolio. This measured non-diversifiable risk is represented by the beta of the asset and the risk premium of the asset is its beta multiplied to the risk premium of a broad market portfolio.

In identifying the guideline companies in the relevant industries, we have referred to Standard Industrial Classification (hereinafter known as “SIC”) Code. The SIC is the statistical classification standard underlying all establishment-based Federal economic statistics classified by industry. The SIC is used to promote the comparability of establishment data describing various facets of the U.S. economy. The classification covers the entire field of economic activities and defines industries in accordance with the composition and structure of the economy.

In the course of our valuation, we used the SIC composite compound annual equity return of 5 years (SIC Code 2834) from Ibbotson Associates as the broad market portfolio return in our CAPM computations. The category of SIC Code 2834 comprises 94 companies which primarily engaged in manufacturing, fabricating, or processing drugs in pharmaceutical preparations for human or veterinary use.

It is our opinion that the SIC composite compound annual equity return of 5 years represents the most reliable objective market rate of return to be used in valuing the Company’s equity, since it captures investors’ expectations, prevailing market conditions and the accompanying risks associated with them.

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APPENDIX I

VALUATION REPORT ON JECBS

In addition to the compound annual equity return, to derive the required cost of equity in our valuation, we have added the country risk for the PRC in which JECBS operates. Majority of the guideline companies mentioned above are based and listed in the U.S., which has a more developed and liquid capital market than in the PRC, thus it has the necessity to add the relevant country risk premiums to the compound annual equity return.

This study is fully cognizant of the fact that there are other relevant companies that are privately held, or are not listed in the stock exchange, or are not headquartered in the U.S.

In valuing the equity of JECBS, we determined an unlevered Ordinary Least Squares (OLS) beta for the Company by deriving a representative industry beta based on a select group of companies under SIC Code 2834. Some of these companies are operating the business of similar nature and have been selected as our guideline companies which included Integrated BioPharma, Inc. (INB, AMEX); Nature’s Sunshine Products, Inc. (NATR, Nasdaq); and Perrigo Company (PRGO, Nasdaq), principally engage in the manufacturing and marketing of nutritional and personal health care products. An unlevered beta is the beta a company would have if it had no debt. It removes a company’s financial decision from the beta calculation and reflects JECBS’s business risks. The OLS betas are estimated by the traditional method of running a simple regression in which excess monthly returns on a company or composite is the dependent variable and the excess return on the market is the independent variable.

The equity risk premium of JECBS were reached by multiplying the unlevered OLS beta to the difference between the SIC composite compound annual equity return of 5 years and the risk free rate.

By definition, ownership interests in closely held companies are typically not readily marketable, and, by definition not as liquid and as easily converted to cash compared to similar interest in public companies. Therefore, a share of stock in a privately held company is usually worth less than an otherwise comparable share in a publicly held company. Numerous studies have been made showing that the Lack of Marketability (hereinafter known as “LOM”) discount for a closely held stocks compared with a publicly traded counterpart averages between 10% and 50%, and many different researchers have obtained these averages over a wide span of years. We have opted to apply a LOM discount to JECBS.

GENERAL COMMENTS

For the purpose of this appraisal and in arriving at our opinion of value; we have relied to a very considerable extent on the information, statements, opinion and representations provided to us by the Company. We were furnished with JECBS’s financial statements, business plan, marketing plan, projected of revenue and expense and relevant publicly available information. These data have been utilized without further verification as correctly representing the results and future prospects of the operation and the financial condition of JECBS.

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VALUATION REPORT ON JECBS

APPENDIX I

To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others, which have been used in formulating this analysis.

We are unable to accept any responsibilities for the operation and financial information that have not been supplied to us by the Company. We have had no reason to doubt the truth and accuracy of the information provided or the reasonableness of the opinions expressed by the Company and the directors of the Company which have been provided to us. We also sought and received confirmation from the Company that no material factors have been omitted from the information provided.

In the course of our valuation, we relied on JECBS’s pro forma financial projections during the 5 years’ forecast period. We have tested this estimate against relevant data pertaining to the various economies and the replication industry, and find it is fair and reasonable.

In arriving at our opinion, we have assumed that JECBS has adopted necessary security measures and has considered several contingency plans against intellectual property rights infringement and commercial spying affecting its business.

We have assumed that the appraised equity of JECBS is freely disposable and transferable for its existing or alternative uses in the open market without payment of any tax to the government.

We have made no investigation of the legal title or any liabilities attached to JECBS. All legal documents disclosed (if any) are for reference only and no responsibility is assumed for any legal matters concerning the legal title and the rights (if any) to JECBS. We have not verified the original documents furnished to us, any responsibility for our misinterpretation of the legal documents, therefore, cannot be accepted. Besides, we are not in a position to advise and comment on the title and encumbrances to JECBS.

No allowance has been made in our valuation for any charges or amounts owing neither on JECBS nor for any expenses or taxation, which may be incurred in effecting a sale. It is assumed that JECBS will be rendered free from encumbrances, restrictions and outgoings of any onerous nature, which could affect its value.

Unless otherwise stated, the base currency of this report is Hong Kong Dollars.

OPINION OF VALUE

Based on the analysis, reasoning and data outlined as above, and on the appraisal method employed, it is our opinion that as at 31 March 2003, the Fair Market Value of 100% equity interest of JECBS is reasonably stated by the amount of HK$63,000,000 (HONG KONG DOLLARS SIXTY THREE MILLION ONLY) .

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VALUATION REPORT ON JECBS

APPENDIX I

The conclusion of value is based on generally accepted appraisal procedures and practices that rely extensively on assumptions and considerations, not all of which can be easily quantified or ascertained exactly. While we have exercised our professional judgment in arriving at the appraisal, you are urged to consider carefully the nature of such assumptions which are disclosed in this report and should exercise caution when interpreting this report.

We hereby certify that we have neither present nor prospective interest in JECBS nor the Company or the value reported.

Yours faithfully, For and on behalf of

CASTORES MAGI ASIA LIMITED Deret Au Chi Chung Philip Lo BSc., MRICS, MHKIS, RPS, MCIArb, AHKIArb B.Com, CFA Director Assistant Manager

Notes: Deret Au Chi Chung is a professional valuer and he possesses extensive experience in valuing the business of various multi-national enterprises.

Philip Lo is a CFA charterholder who has extensive experience in valuing businesses and intangible assets.

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GENERAL INFORMATION

APPENDIX II

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular with regard to the Company and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts, the omission of which would make any statement herein misleading.

SHARE CAPITAL

The authorised and issue share capital of the Company as at the Latest Practicable Date were as follows:

Authorised: 20,000,000,000 ordinary shares of HK$0.01 each Issued and full paid: 2,290,000,000 ordinary shares of HK$0.01 each 2,290,000,000	HK$ 200,000,000

	22,900,000
	22,900,000

DISCLOSURE OF INTERESTS

1. Directors’ interest

As at the Latest Practicable Date, the interests and short positions of the Directors in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which had been 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 in which they were 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

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GENERAL INFORMATION

APPENDIX II

referred to therein or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules to be notified to the Company and the Stock Exchange were as follows:

	Company/
	associated
Name of Director	corporation	Notes	Capacity	Interest in shares
Mao Yu Min	The Company	1	Interest of controlled	680,000,000
			corporation	ordinary shares
Xie Yi	The Company	1	Interest of controlled	680,000,000
			corporation	ordinary shares
Ho Yu Ling	The Company	2	Interest of controlled	102,000,000
			corporation	ordinary shares
	Extrawell Enterprise	3	Interest of controlled	100,000
	Limited		corporation	non-voting
				deferred shares
Li Qiang	The Company		Beneficial owner	15,000,000
				ordinary shares

Notes:

JNJ Investments Ltd., Biowindow Gene Development (Hong Kong) Limited, Fudan Biotech (Hong Kong) Limited and Fudan Pharmaceutical Limited hold 500,000,000 shares, 74,000,000 shares, 76,000,000 shares and 30,000,000 shares of the Company respectively.

The entire issued share capital of JNJ Investments Ltd. is owned by Biowindow Gene Development (Hong Kong) Limited, the issued share capital of which is owned as to 99.01% by United Gene Holdings Limited and as to 0.99% by Shanghai Biowindow Gene Development Co., Ltd.. The capital of Shanghai Biowindow Gene Development Co., Ltd. is 60% owned by United Gene Holdings Limited, 13.575% owned by Dr. Xie Yi, a Director and 13.575% owned by Ms. Sheng Xiao Yu, wife of Dr. Mao Yu Min. Dr. Mao Yu Min is a Director. The equity capital of United Gene Holdings Limited is beneficially owned as to 33.5% by Dr. Mao Yu Min and as to 33.5% (including direct and indirect interests) by Dr. Xie Yi.

Fudan Biotech (Hong Kong) Limited is owned as to 99% by Shanghai Fudan Biotech Limited, Shanghai Fudan Biotech Limited is owned as to 75% by Shanghai Biowindow Gene Development Co., Ltd..

Biowindow Gene Development (Hong Kong) Limited is owned as to 80% of the share capital of Fudan Pharmaceutical Limited.

These shares are owned by Well Success Limited, the entire issued share capital of which is beneficially owned by Mr. Ho Yu Ling, a Director.
100,000 non-voting deferred share of HK$10 each in Extrawell Enterprise Limited, a wholly owned subsidiary of the Company, are beneficially owned by Extrawell Holdings Limited, a related company of the Group. Mr. Ho Yu Ling, a Director, is interested in 41.6% of the entire issued share capital of Extrawell Holdings Limited and Messrs. Ho Chin Hou and Li Qiang, certain of the Directors, also have beneficial interests in Extrawell Holdings Limited.

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GENERAL INFORMATION

APPENDIX II

Save as disclosed in this circular, as at the Latest Practicable Date:

(i) none of the Directors or the chief executive of the Company had any interest in the equity or debt securities of the Company or any associated corporations (within the meaning of Part XV of the SFO) which is 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 which they were taken or deemed to have under such provisions of the SFO); or which is required pursuant to section 352 of the SFO to be entered in the register referred to therein; or any interest in warrants to subscribe for shares of the Company or any associated corporations (as so defined) which was required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies;
(ii) none of the Directors has any direct or indirect interest in any assets acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 21 June 2002 (being the date to which the latest published circular of the Company were made up);
(iii) no Director is materially interested in any contract or arrangement subsisting at the date of this circular which is significant in relation to the business of the Company; and
(iv) no benefit has been or will be given to any Director or proposed director as compensation or otherwise in connection with the Agreement.

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GENERAL INFORMATION

APPENDIX II

2. Substantial shareholders’ interest

As at the Latest Practicable Date, according to the register kept by the Company pursuant to section 336 of SFO and so far as is known to, or can be ascertained after reasonable enquiry by the Directors, save as disclosed in the paragraph headed “Disclosure of interests” in this appendix, the following persons had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, was directly or indirectly interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any members of the Group:

	Interest			Approximate percentage	Approximate percentage
Name	in ordinary shares	Note	Nature of interest	of the Company’s
				issued share capital
JNJ Investments	500,000,000	1	Beneficial owner		21.83%
Biowindow Gene	604,000,000	1	Beneficial owner and		26.38%
Development (Hong			interest of controlled
Kong) Limited			corporation
United Gene	680,000,000	1	Interest of controlled		29.69%
Holdings Limited			corporation

Note:

JNJ Investments Ltd., Biowindow Gene Development (Hong Kong) Limited, Fudan Biotech (Hong Kong) Limited and Fudan Pharmaceutical Limited hold 500,000,000 shares, 74,000,000 shares, 76,000,000 shares and 30,000,000 shares of the Company respectively.

Fudan Biotech (Hong Kong) Limited is owned as to 99% by Shanghai Fudan Biotech Limited, Shanghai Fudan Biotech Limited is owned as to 75% by Shanghai Biowindow Gene Development Co., Ltd..

Biowindow Gene Development (Hong Kong) Limited is owned as to 80% of the share capital of Fudan Pharmaceutical Limited.

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GENERAL INFORMATION

APPENDIX II

LITIGATION

Neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against the Company or any of its subsidiaries.

SERVICE CONTRACTS

Each of Messrs. Ho Chin Hou, Ho Yu Ling and Li Qiang has entered into service agreements with the Company for an initial term of three years and three months commencing on 1 January 1999. The initial term expired on 31 March 2002 but the terms of the agreements will continue thereafter until terminated by not less than three months’ written notice served by either party on the other.

EXPERTS

(a) The following is the qualification of the experts who have given their opinion or advice which are contained in this circular:

Name Qualifications Date of opinion Nature of opinion or advice Hantec Capital Deemed licensed 9 July 2003 Letter of advise to the corporation under Independent Board Committee the SFO Castores Magi Asia Independent professional 9 July 2003 Valuation report on JECBS Limited valuer

(b) Each of Hantec Capital and Castores Magi Asia Limited does not have any shareholding 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.
(c) Each of Hantec Capital and Castores Magi Asia Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they appear.
(d) The letter and recommendation given by each of Hantec Capital and Castores Magi Asia Limited are given as of the date of this circular for incorporation herein.
(e) Each of Hantec Capital and Castores Magi Asia Limited has, or has had, no direct or indirect interest in any assets which have been acquired or disposed of by, or leased to, or which are proposed to be acquired or disposed of by, or leased to, the Company or any of its subsidiaries since 31 March 2002 (being the date to which the latest published audited financial statements of the Company were made up).

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GENERAL INFORMATION

APPENDIX II

MATERIAL CHANGES

Save as disclosed herein, the Directors are not aware of any material adverse change in the financial and trading position of the Company since 21 June 2002, the date to which the latest circular of the Company were made up.

MISCELLANEOUS

(a) The secretary of the Company is Ms. Elsie Wong, who is an associate member of the Hong Kong Society of Accountants and a fellow member of the Association of Chartered Certified Accountants.
(b) The principal share registrar and transfer office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda and its head office and principal place of business in Hong Kong is at Suites 4701–4, 47th Floor, NatWest Tower, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong.
(c) The branch share registrar of the Company in Hong Kong is Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(d) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at Suites 4701–4, 47th Floor, NatWest Tower, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong, up to and including the date of the Special General Meeting:

(a) the Agreement;
(b) the memorandum of association and bye-laws of the Company;
(c) the letter of recommendation from the Independent Board Committee to the shareholders of the Company, the text of which is set out on page 11 of this circular;
(d) the letter of advice received from Hantec Capital, the text of which is set out on pages 12 to 20 of this circular;
(e) the valuation report from Castores Magi Asia Limited dated 9 July 2003 on JECBS which is set out in Appendix I of this circular;

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GENERAL INFORMATION

APPENDIX II

(f) the written consents referred to in this appendix; and
(g) the annual reports of the Company for each of the two years ended 31 March 2001 and 2002.

– 34 –

NOTICE OF THE SPECIAL GENERAL MEETING

==> picture [44 x 53] intentionally omitted <==

EXTRAWELL PHARMACEUTICAL HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that a special general meeting of Extrawell Pharmaceutical Holdings Limited (“ Company ”) will be held at Suites 4701–4, 47th Floor, NatWest Tower, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong on 26 July 2003 at 10:00 a.m., for the purpose of considering and, if thought fit, passing the following resolution as resolution:

ORDINARY RESOLUTION

“ THAT the acquisition agreement (“ Acquisition Agreement ”) dated 18 June 2003 and entered into between Extrawell (BVI) Limited (“ Extrawell BVI ”), a wholly owned subsidiary of the Company, as purchaser, and Ms Jiang Haihong as vendor in connection with the acquisition by Extrawell BVI of the entire issued share capital in Smart Phoenix Holdings Limited, (a copy of which has been produced to the meeting marked “A” and has been initialled by the chairman of the meeting for the purpose of identification) be and it is hereby approved and that all the transactions contemplated thereby be and the same are hereby approved and that any one director of the Company be and he is hereby authorised to do or execute for and on behalf of the Company all such acts and things and such other documents by hand and, where required, under the common seal of the Company together with such other director or person authorised by the board of directors of the Company, which in his or their opinion may be necessary, desirable or expedient to carry into effect or to give effect to the Acquisition Agreement and all the transaction contemplated thereby, including such changes and amendments thereto as any one director of the Company may consider necessary, desirable and expedient.”

Hong Kong, 9 July 2003

By order of the board of directors of Extrawell Pharmaceutical Holdings Limited Mao Yu Min

Chairman

– 35 –

NOTICE OF THE SPECIAL GENERAL MEETING

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Head office and principal place of business in Hong Kong: Suites 4701–4, 47th Floor NatWest Tower, Times Square 1 Matheson Street, Causeway Bay Hong Kong

Notes:

A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxy to attend and, subject to the provisions of the bye-laws of the Company, vote in his stead. A proxy need not be a member of the Company.
A form of proxy for use at the special general meeting is enclosed. In order to be valid, the form of proxy must be duly completed and signed in accordance with the instructions printed thereon and deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at the offices of the Company’s Hong Kong branch registrar, Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not later than 48 hours before the time for holding the meeting or any adjourned meeting.
Completion and return of the form of proxy will not preclude members of the Company from attending and voting in person at the meeting should he so wish.

– 36 –

AI assistant

Extrawell Pharmaceutical Holdings Limited — Proxy Solicitation & Information Statement 2003

49517_rns_2003-07-15_333e557a-f712-4159-bbe8-27d07540bae0.pdf

EXTRAWELL PHARMACEUTICAL HOLDINGS LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTION

Financial Adviser to the Company

MENLO CAPITAL LIMITED

Independent Financial Adviser to the Independent Board Committee

HANTEC CAPITAL LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXTRAWELL PHARMACEUTICAL HOLDINGS LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTION

INTRODUCTION

Before Completion

Upon Completion

A. THE AGREEMENT

Date

Parties

Assets to be acquired

Consideration

LETTER FROM THE BOARD

Conditions

B. INFORMATION ON SMART PHOENIX AND JECBS

C. REASONS FOR AND BENEFITS OF THE ENTERING INTO OF THE AGREEMENT

LETTER FROM THE BOARD

D. GENERAL

E. SPECIAL GENERAL MEETING

F. ADDITIONAL INFORMATION

RECOMMENDATION

Yours faithfully,

Extrawell Pharmaceutical Holdings Limited Mao Yu Min

EXTRAWELL PHARMACEUTICAL HOLDINGS LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTION

Hantec Capital Limited

DISCLOSEABLE AND CONNECTED TRANSACTION

BASIS OF OUR OPINION

LETTER FROM HANTEC CAPITAL

PRINCIPAL FACTORS CONSIDERED

I. Background of and reasons for the Agreement

LETTER FROM HANTEC CAPITAL

Information about Smart Phoenix

Information about JECBS

Pharmaceutical market in the PRC

Reasons for entering into the Agreement

II. Consideration for the Sale Shares

LETTER FROM HANTEC CAPITAL

LETTER FROM HANTEC CAPITAL

III. Satisfaction of the Consideration

IV. Financial effects on the Group

Net tangible assets

LETTER FROM HANTEC CAPITAL

Earnings

LETTER FROM HANTEC CAPITAL

Working capital

RECOMMENDATION

CASTORES MAGI ASIA LIMITED

INTRODUCTION

BASIS OF VALUATION AND ASSUMPTIONS

VALUATION METHODOLOGY

APPENDIX I

VALUATION REPORT ON JECBS

GENERAL COMMENTS

OPINION OF VALUE

Yours faithfully, For and on behalf of

RESPONSIBILITY STATEMENT

SHARE CAPITAL

DISCLOSURE OF INTERESTS

1. Directors’ interest

2. Substantial shareholders’ interest

LITIGATION

SERVICE CONTRACTS

EXPERTS

MATERIAL CHANGES

MISCELLANEOUS

DOCUMENTS AVAILABLE FOR INSPECTION

EXTRAWELL PHARMACEUTICAL HOLDINGS LIMITED

ORDINARY RESOLUTION

Extrawell Pharmaceutical Holdings Limited Proxy Solicitation & Information Statement 2003