Grand Pharmaceutical Group Limited - Proxy Solicitation & Information Statement 2013

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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 China Grand Pharmaceutical and Healthcare Holdings Limited (the “Company”), 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 was effected for transmission to the purchaser or transferee.

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**China Grand Pharmaceutical and Healthcare Holdings Limited 遠大醫藥健康控股有限公司[*]**

(Incorporated in Bermuda with limited liability) (Stock Code: 00512)

(I) CONTINUING CONNECTED TRANSACTIONS;

(II) PROPOSED CHANGE OF AUDITORS; AND

(III) NOTICE OF SPECIAL GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

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Capitalised terms used in this cover page shall have the same meanings at those defined in the section headed “Definitions” of this circular.

A letter from the Board is set out on pages 8 to 28 of this circular. A letter of advice from the Independent Board Committee is set out on page 29 to this circular. A letter of advice of Nuada Limited, the Independent Financial Adviser, containing its opinion and advice to the Independent Board Committee and the Independent Shareholders is set out on pages 30 to 43 of this circular.

A notice convening the SGM of the Company to be held at Unit 3302, The Centre, 99 Queen’s Road Central, Central, Hong Kong on Tuesday, 19 February 2013 at 10:30 a.m. is set out on pages 51 to 55 of this circular.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish.

For identification purpose only

28 January 2013

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Letter from the Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Appendix I – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Notice of the SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

DEFINITIONS

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

“associates”

has the meaning ascribed to it under the Listing Rules

“Bao Ding Jiu Fu”
保定九孚生化有限公司 (Bao Ding Jiu Fu Bio-chemical Limited[#] ), a company established in the PRC with limited liability, principally engaged in manufacture and sale of pharmaceutical products raw materials
“Board”

the board of Directors

“CCT Agreements” collectively, the Grand Pharm R&D Agreements, the Grand Pharm Supply Agreement and the Xianle Purchase Agreements
“Change of Auditors”
the resignation of SHINEWING as auditors of the Group and the proposed appointment of HLB as auditors of the Group upon the approval of the Shareholders by an ordinary resolution at the SGM and to hold office until the conclusion of the next annual general meeting of the Company
“China Grand”
China Grand Enterprises Incorporation, a company established in the PRC with limited liability, which was controlled and ultimately and beneficially owned by Mr. Hu
“Company”
China Grand Pharmaceutical and Healthcare Holdings Limited 遠大醫藥健康控股有限公司[*] , a company incorporated in Bermuda with limited liability, the issued Shares of which are listed on the main board of the Stock Exchange
“connected person”
has the meaning ascribed to it under the Listing Rules
“Director(s)” the director(s) of the Company
“Grand Group Corporation” Grand Group Corporation Limited, a company established in the PRC with limited liability, engaged in various business such as logistics, trading and investment, which including the export and import of pharmaceutical products raw materials
“Grand Pharm (China)”
遠大醫藥（中國）有限公司 (Grand Pharmaceutical (China) Company Limited), a company established in the PRC with limited liability, being an indirect non-wholly owned subsidiary of the Company
“Grand Pharm R&D Agreement I”
the agreement entered into between Grand Pharm (China) and Yuan Chuang Yi Cheng dated 28 November 2012 (as supplemented by the Grand Pharm R&D Supplemental Agreement I) in respect of the provision of research and development services for Bosentan by Yuan Chuang Yi Cheng

DEFINITIONS

“Grand Pharm R&D Agreement II”

the agreement entered into between Grand Pharm (China) and Yuan Chuang Yi Cheng dated 28 November 2012 (as supplemented by the Grand Pharm R&D Supplemental Agreement II) in respect of the provision of research and development services for Trimetazidine by Yuan Chuang Yi Cheng

“Grand Pharm R&D Agreement III” the agreement entered into between Grand Pharm (China) and Yuan Nuo Wei Sheng dated 28 November 2012 (as supplemented by the Grand Pharm R&D Supplemental Agreement III) in respect of the provision of research and development services for Bimatoprost pharmaceutical raw material and Bimatoprost eyedrops by Yuan Nuo Wei Sheng
“Grand Pharm R&D Agreements”
collectively, the Grand Pharm R&D Agreement I, the Grand Pharm R&D Agreement II and the Grand Pharm R&D Agreement III
“Grand Pharm R&D Supplemental the supplemental agreement entered into between Grand Pharm Agreement I” (China) and Yuan Chuang Yi Cheng dated 21 December 2012 in relation to the amendments of certain terms of the Grand Pharm R&D Agreement I and the removal of annual cap for the transactions contemplated thereunder for the year ended 31 December 2012, details of which have been included in the announcement of the Company dated 21 December 2012
“Grand Pharm R&D Supplemental the supplemental agreement entered into between Grand Pharm Agreement II” (China) and Yuan Chuang Yi Cheng dated 21 December 2012 in relation to the amendments of and the removal of annual cap for the transactions contemplated thereunder for the year ended 31 December 2012, details of which have been included in the announcement of the Company dated 21 December 2012
“Grand Pharm R&D Supplemental the supplemental agreement entered into between Grand Pharm Agreement III” (China) and Yuan Nuo Wei Sheng dated 21 December 2012 in relation the amendments of certain terms of the Grand Pharm R&D Agreement III and the removal of annual cap for the transactions contemplated thereunder for the year ended 31 December 2012, details of which have been included in the announcement of the Company dated 21 December 2012
“Grand Pharm Supply Agreement”
the agreement entered into between Grand Pharm (China) and Huadong Medicine dated 28 November 2012 (as supplemented by the Grand Pharm Supply Supplemental Agreement) in respect of the supply pharmaceutical preparations, raw materials and technologies to Huadong Medicine

DEFINITIONS

“Grand Pharm Supply Supplemental the supplemental agreement entered into between Grand Pharm Agreement” (China) and Huadong Medicine dated 21 December 2012 in relation the amendments of certain terms of the Grand Pharm Supply Agreement and the removal of annual cap for the transactions contemplated thereunder for the year ended 31 December 2012, details of which have been included in the announcement of the Company dated 21 December 2012
“Grand Pharm First R&D Caps” the maximum annual caps of RMB3.6 million and RMB1.5 million respectively to be paid by the Group to Yuan Chuang Yi Cheng for the two years ending 31 December 2014 as contemplated under the Grand Pharm R&D Agreement I
“Grand Pharm Second R&D Caps” the maximum annual caps of RMB1.0 million and RMB1.0 million respectively to be paid by the Group to Yuan Chuang Yi Cheng for the two years ending 31 December 2014 as contemplated under the Grand Pharm R&D Agreement II
“Grand Pharm Third R&D Caps” the maximum annual caps of RMB3.5 million and RMB3.5 million respectively to be paid by the Group to Yuan Nuo Wei Sheng for the two years ending 31 December 2014 as contemplated under the Grand Pharm R&D Agreement III
“Grand Pharm R&D Caps” collectively, the Grand Pharm First R&D Caps, the Grand Pharm Second R&D Caps and the Grand Pharm Third R&D Caps
“Grand Pharm Supply Caps” the maximum annual caps of RMB18.0 million and RMB20.0 million respectively to be received by the Group from Huadong Medicine for the two years ending 31 December 2014 as contemplated under the Grand Pharm Supply Agreement
“Group” the Company and its subsidiaries
“HLB” HLB Hodgson Impey Cheng Limited
“Hong Kong” the Hong Kong Special Administrative Region of the PRC

“Huadong Medicine” Huadong Medicine Co., Ltd, a company established in the PRC with limited liability, its issued shares are listed on the Shenzhen Stock Exchange (stock code: 000963), principally engaged in manufacture and sale of pharmaceutical products

DEFINITIONS

“Independent Board Committee”
the independent committee of the Board consisting of all independent non-executive Directors, namely Ms. So Tosi Wan, Winnie, Mr. Lo Kai Lawrence and Dr. Pei Geng, which has been established to advise the Independent Shareholders as to the fairness and reasonableness of the Grand Pharm R&D Agreements, the Grand Pharm Supply Agreement, the Xianle Purchase Agreements and the transactions contemplated respectively thereunder
“Independent Financial Adviser” or “Nuada”
Nuada Limited, a licensed corporation under the SFO to conduct type 6 (advising on corporate finance) regulated activity appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the CCT Agreements and the transactions contemplated thereunder
“Independent Shareholder” Shareholders other than the Mr. Hu, Outwit and their respective associates and Shareholders who are connected to or otherwise associated with Mr. Hu, Outwit or interested in the CCT Agreements
“Independent Third Party(ies)” any person(s) or company(ies) and their respective ultimate beneficial owner(s), to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, are third party(ies) independent of and not connected with any director, chief executive or substantial shareholders or management shareholders of the Company or its subsidiaries or any of their respective associates
“Latest Practicable Date” 23 January 2013, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained therein
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Mr. Hu” Mr. Hu Kaijun, being the sole shareholder of Outwit, the substantial shareholder of the Company
“Outwit” Outwit Investments Limited, a company incorporated in the British Virgin Islands with limited liability, which is the substantial shareholder of the Company holding approximately 62.60% of the total issue Shares
“PRC” the People’s Republic of China, which, for the purpose of this circular, shall excludes Hong Kong, the Macau Special Administration Region of the PRC and Taiwan

DEFINITIONS

“SGM” the special general meeting of the Company to be convened to consider and, if thought fit, approve the Change of Auditors, the CCT Agreements and the transactions contemplated respectively thereunder
“Shareholder(s)” holder(s) of the Share(s) “Share(s)” ordinary share(s) of HK$0.01 each in the share capital of the Company
“SHINEWING” SHINEWING (HK) CPA Limited
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Supplemental Agreements” collectively, the Grand Pharm R&D Supplemental Agreement I, the Grand Pharm R&D Supplemental Agreement II, the Grand Pharm R&D Supplemental Agreement III, the Grand Pharm Supply Supplemental Agreement, the Xianle Purchase Supplemental Agreement I, the Xianle Purchase Supplemental Agreement II and the Xianle Purchase Supplemental Agreement III
“Xianle First Purchase Caps” the maximum annual caps of RMB80.0 million and RMB146.0 million respectively to be paid by the Group to Bao Ding Jiu Fu for the two years ending 31 December 2014 as contemplated under the Xianle Purchase Agreement I
“Xianle Purchase Agreement I” the agreement entered into between Zhejiang Xianle and Bao Ding Jiu Fu dated 28 November 2012 (as supplemented by the Xianle Purchase Supplemental Agreement I) in respect of the purchase raw materials for steroid hormones and intermediates from Bao Ding Jiu Fu
“Xianle Purchase Agreement II” the agreement entered into between Zhejiang Xianle and Yan Cheng Xin Yi dated 28 November 2012 (as supplemented by the Xianle Purchase Supplemental Agreement II) in respect of the purchase raw materials for steroid hormones and intermediates from Yan Cheng Xin Yi
“Xianle Purchase Agreement III” the agreement entered into between Zhejiang Xianle and Grand Group Corporation dated 28 November 2012 (as supplemented by the Xianle Purchase Supplemental Agreement III) in respect of the purchase raw materials for steroid hormones and intermediates from Grand Group Corporation
“Xianle Purchase Agreements” collectively, the Xianle Purchase Agreement I, the Xianle Purchase Agreement II and the Xianle Purchase Agreement III

DEFINITIONS

“Xianle Purchase Caps”
collectively, the Xianle First Purchase Caps, the Xianle Second Purchase Caps and the Xianle Third Purchase Caps
“Xianle Purchase Supplemental Agreement I”
the supplemental agreement entered into between Zhejiang Xianle and Bao Ding Jiu Fu dated 21 December 2012 in relation the amendments of certain terms of the Xianle Purchase Agreement I and the removal of annual cap for the transactions contemplated thereunder for the year ended 31 December 2012, details of which have been included in the announcement of the Company dated 21 December 2012
“Xianle Purchase Supplemental Agreement II”
the supplemental agreement entered into between Zhejiang Xianle and Yan Cheng Xin Yi dated 21 December 2012 in relation the amendments of certain terms of the Xianle Purchase Agreement II and the removal of annual cap for the transactions contemplated thereunder for the year ended 31 December 2012, details of which have been included in the announcement of the Company dated 21 December 2012
“Xianle Purchase Supplemental Agreement III”
the supplemental agreement entered into between Zhejiang Xianle and Grand Group Corporation Fu dated 21 December 2012 in relation the amendments of certain terms of the Xianle Purchase Agreement III and the removal of annual cap for the transactions contemplated thereunder for the year ended 31 December 2012, details of which have been included in the announcement of the Company dated 21 December 2012
“Xianle Second Purchase Caps”
the maximum annual caps of RMB60.0 million and RMB80.0 million respectively to be paid by the Group to Yan Cheng Xin Yi for the two years ending 31 December 2014 as contemplated under the Xianle Purchase Agreement II
“Xianle Third Purchase Caps”
the maximum annual caps of RMB5.0 million and RMB8.0 million respectively to be paid by the Group to Grand Group Corporation for the two years ending 31 December 2014 as contemplated under the Xianle Purchase Agreement III
“Yan Cheng Xin Yi” 鹽城信誼醫藥化工有限公司 (Yan Cheng Xin Yi Pharmaceutical Chemical Limited[#] ), a company established in the PRC with limited liability, principally engaged in manufacture and sale of pharmaceutical products raw materials
“Yuan Chuang Yi Cheng”
北京遠創易成醫藥科技有限公司 (Yuan Chuang Yi Cheng Pharmaceutical Technology Limited[#] ), a company established in the PRC with limited liability, principally engaged in research and development of pharmaceutical technology

DEFINITIONS

“Yuan Nuo Wei Sheng”	武漢遠諾維盛醫藥科技有限公司(Yuan Nuo Wei Sheng
	Pharmaceutical Technology Limited#), a company established in
	the PRC with limited liability, principally engaged in research and
	development of pharmaceutical technology
“Zhejiang Xianle”	Zhejiang Xianju Xianle Pharmaceutical Company Limited, a
	company established in the PRC with limited liability, being a
	direct non-wholly owned subsidiary of the Company
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“%”	per cent.

# The English transliteration of the Chinese name(s) in this circular, where indicated, is included for information purpose only, and should not be regarded as the official English name(s) of such Chinese name(s).

For the purpose of this circular, unless otherwise indicated, conversion of RMB into HKD is calculated at the approximate exchange rate of RMB0.805 to HKD 1.00. This exchange rate is adopted for the purpose of illustration purpose only and does not constitute a representation that any amounts have been, could have been, or may be, exchanged at this rate or any other rate at all.

For identification purpose only

LETTER FROM THE BOARD

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**China Grand Pharmaceutical and Healthcare Holdings Limited 遠大醫藥健康控股有限公司[*]**

(Incorporated in Bermuda with limited liability)

(Stock Code: 00512)

Executive Directors:

Mr. Liu Chengwei (Chairman) Mr. Hu Bo (Deputy Chairman) Dr. Shao Yan (Chief Executive Officer)

Dr. Zhang Ji

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Independent non-executive Directors:

Ms. So Tosi Wan, Winnie Mr. Lo Kai Lawrence Dr. Pei Geng

Head office and principal place of business in Hong Kong: Unit 3302, The Center 99 Queen’s Road Central Hong Kong

To the Shareholders

Dear Sir or Madam,

(I) CONTINUING CONNECTED TRANSACTIONS;

(II) PROPOSED CHANGE OF AUDITORS; AND (III) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

References are made to the announcements of the Company dated 28 November 2012 and 13 December 2012 in relation to the Change of Auditors and the continuing connected transactions. The Board announces that (i) pursuant to the Grand Pharm R&D Agreement I, Yuan Chuang Yi Cheng shall provide research and development services for Bosentan to Grand Pharm (China) or its related companies; (ii) pursuant to the Grand Pharm R&D Agreement II, Yuan Chuang Yi Cheng shall provide research and development services for Trimetazidine to Grand Pharm (China) or its related companies; (iii) pursuant to the Grand Pharm R&D Agreement III, Yuan Nuo Wei Sheng shall provide research and development services for Bimatoprost pharmaceutical raw material and Bimatoprost eyedrops to Grand Pharm (China) or its related companies; and (iv) pursuant to the Grand Pharm Supply Agreement, Grand Pharm (China) or its related companies shall supply pharmaceutical preparations, raw materials and technologies to Huadong Medicine or its related companies. The Board also announces that, pursuant to Xianle Purchase Agreement I, Xianle Purchase Agreement II and Xianle Purchase Agreement III, Zhejiang Xianle or its related companies will purchase raw materials for steroid hormones and intermediates from Bao Ding Jiu Fu, Yan Cheng Xin Yi and Grand Group Corporation respectively.

For identification purpose only

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, amongst other things, further information relating to the Change of Auditors and the CCT Agreements and the transactions contemplated respectively thereunder.

(I) CONTINUING CONNECTED TRANSACTIONS

RELATIONSHIPS BETWEEN THE PARTIES

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the relationships between the relevant parties under the CCT Agreements are set out below:

The Company

China Grand Pharmaceutical and Healthcare Holdings Limited*, a company incorporated in Bermuda with limited liability with its issued share capital listed on the Stock Exchange

Outwit the substantial shareholders of the Company, who is interested in 62.60% of the total issued share capital of the Company

Mr. Hu

Mr. Hu Kaijun, being the sole shareholder of Outwit
China Grand China Grand Enterprises Incorporation, a company established under the laws of the PRC and is owned as to (i) approximately 49.00% by 北京遠大華創投資有限公司 (Beijing Yuan Da Hua Chuang Investment Limited[#] ) and (ii) approximately 51.00% by 北京炎黃置業有限公司 (Beijing Yan Huang Zhi Ye Limited[#] ) respectively, both companies are controlled and ultimately and beneficially owned by Mr. Hu

Grand Pharm (China) 遠大醫藥（中國）有限公司 (Grand Pharmaceutical (China) Company Limited), a company established under the laws of the PRC and is owned as to approximately 75.95% by China Grand (Hong Kong) Limited, a wholly owned subsidiary of the Company and as to approximately 24.05% by Independent Third Parties

Chang Shu Lei Yun Shang

常熟雷允上制藥有限公司 (Chang Shu Lei Yun Shang Pharmaceutical Ltd.[#] ), a company established under the laws of the PRC and is a wholly owned subsidiary of Lei Yun Shang

Lei Yun Shang

雷允上藥業有限公司 (Lei Yun Shang Pharmaceutical Ltd.[#] ), a company established under the laws of the PRC and is owned as to approximately 70.00% by China Grand and as to approximately 30.00% by an Independent Third Party

LETTER FROM THE BOARD

Si Chuan Yuan Da Shu Yang
四川遠大蜀陽藥業股份有限公司 (Si Chuan Yuan Da Shu Yang Pharmaceutical Holdings Limited[#] ), a company established under the laws of the PRC and is owned as to approximately 95.00% by 北京遠大科創醫藥投資有限公司 (Beijing Yuan Da Ke Chuang Pharmaceutical Investment Limited[#] ) and as to approximately 5.00% by an Independent Third Party. 北京遠大科創醫藥投資有限公司 (Beijing Yuan Da Ke Chuang Pharmaceutical Investment Limited[#] ) is owned as to approximately 60.00% by Mr. Hu and as to approximately 40.00% by China Grand
Zhejiang Xianle
Zhejiang Xianju Xianle Pharmaceutical Company Limited, a company established under the laws of the PRC and is owned as to approximately 67.00% by the Company and as to approximately 33.00% by Independent Third Parties
Ideal Group
Lianyungang Ideal Group Co., Ltd, a company established under the laws of the PRC and is owned as to approximately 37.08% by China Grand and approximately 62.92% by Independent Third Parties
Grand Group Corporation
Grand Group Corporation Limited, a company established under the laws of the PRC and is owned as to approximately 52.00% by Ideal Group and as to approximately 48.00% by Independent Third Parties. By virtue of being a subsidiary of Ideal Group, Grand Group Corporation is considered to be a connected person to the Company
Yuan Chuang Yi Cheng
北京遠創易成醫藥科技有限公司 (Yuan Chuang Yi Cheng Pharmaceutical Technology Limited[#] ), a company established under the laws of the PRC and is owned as to approximately 57.14% by China Grand, as to approximately 14.28% by Chang Shu Lei Yun Shang, as to approximately 14.29% by Lei Yun Shang and as to approximately 14.29% by Si Chuan Yuan Da Shu Yang. By virtue of being a subsidiary of China Grand, Yuan Chuang Yi Cheng is considered to be a connected person to the Company
Yuan Nuo Wei Sheng

武漢遠諾維盛醫藥科技有限公司 (Yuan Nuo Wei Sheng Pharmaceutical Technology Limited[#] ), a company established under the laws of the PRC and is owned as to approximately 90.00% by China Grand and as to approximately 10.00% by a non-wholly owned subsidiary of the Group. By virtue of being a subsidiary of China Grand, Yuan Nuo Wei Sheng is considered to be a connected person to the Company

LETTER FROM THE BOARD

Huadong Medicine

Bao Ding Jiu Fu

Yan Cheng Xin Yi

Huadong Medicine Co., Ltd, a company established under the laws of the PRC and is owned as to approximately 35.50% by China Grand and as to approximately 64.50% by Independent Third Parties. By virtue of being an associate to Mr Hu, Huadong Medicine is considered to be a connected person to the Company

保定九孚生化有限公司 (Bao Ding Jiu Fu Bio-chemical Limited[#] ), a company established under the laws of the PRC and is owned as to approximately 51.00% by China Grand and as to approximately 49.00% by Independent Third Parties. By virtue of being a subsidiary of China Grand, Bao Ding Jiu Fu is considered to be a connected person to the Company

鹽城信誼醫藥化工有限公司 ( Y u a n C h u a n g Y i C h e n g Pharmaceutical Technology Limited[#] ), a company established under the laws of the PRC and is owned as to approximately 67.00% by China Grand and approximately 33.00% by Independent Third Party. By virtue of being a subsidiary of China Grand, Yan Cheng Xin Yi is considered to be a connected person to the Company

LETTER FROM THE BOARD

Set out below is a group chart showing the connected between the relevant parties:

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----- Start of picture text -----

60.00%
14.29% Holdings Limited)# Yang Pharmaceutical 股份有限公司四川遠大蜀陽藥業 95.00% )Investment Limited# (Beijing Yuan Da Ke 投資有限公司北京遠大科創醫藥 35.00%
(Si Chuan Yuan Da Shu Chuang Pharmaceutical 40.00% 65.00%
10.00%
珠海海灣大酒店
(Zhu Hai Hai Wan Hotel)#
)Ltd.#
Yuan Chuang Yi Cheng 有限公司 51.00% 20.00%
70.00%
14.28% Shang Pharmaceutical (Chang Shu Lei Yun 常熟雷允上制藥 100.00% )Pharmaceutical Ltd.# (Lei Yun Shang 雷允上藥業有限公司北京炎黃置業有限公司
(Beijing Yan Huang Zhi Ye Limited)# 80.00%
14.29%
57.14% 90.00%
Xin Yi China Grand
67.00%
Yan Cheng China Grand Enterprises (HK) Limited
Jiu Fu
Bao Ding 51.00% Mr Hu
Ideal Group 49.00% 100.00%
52.00% 37.08%
北京遠大華創投資有限公司
Grand Group Corporation
Medicine Huadong 35.50% (Beijing Yuan Da Hua Chuang Investment Limited)# 100.00%
90.00%
Yuan Nuo Wei Shen 10.00% 100.00%
Grand Pharm (China) 75.95% 100.00% 100.00% The Company 62.60% Outwit
Eyes Company Limited
Hubei Grand Everyday Bright
China Grand Pharmaceutical (Hong Kong) Limited Best Forward Group Limited
Zhejiang Xianle 67.00%
----- End of picture text -----

LETTER FROM THE BOARD

The Board is pleased to announce that the following continuing connected transactions were entered into by the Group:

(I) Grand Pharm R&D Agreement I

Date: 28 November 2012

Parties: Yuan Chuang Yi Cheng as supplier and Grand Pharm (China) as purchaser

Service:

Yuan Chuang Yi Cheng shall provide research and development services for Bosentan to Grand Pharm (China) or its related companies. Separate agreements shall be entered into between Yuan Chuang Yi Cheng and Grand Pharm (China) for specific details of the scope of services and the relevant technical requirements followed by arm’s length negotiations between the parties thereto on an individual basis.

Pricing basis:

All orders under the Grand Pharm R&D Agreement I are placed to Yuan Chuang Yi Cheng. The fees payable by the Group are determined based on the expected time cost, materials to be used and other independent testing and verification services which are required in each individual research and development service. Such fees will be satisfied in cash within 90 days from the date of the relevant demand note. The Directors consider that the pricing basis will be made on an arm’s length basis in the ordinary course of business and on normal commercial terms or are on terms not less favourable than those which will be paid by Grand Pharm (China) or its related companies to other independent parties for the same or similar services (if any).

Term: For the period commencing from the Effective Date until 31 December 2014.

Annual cap:

Based on the anticipated growth in demand of new products, with taking into account the possible improvement to cope with the future expansion of the business and in line with the Group’s development strategy, the Directors estimate that the total amount of services to be requested to Yuan Chuang Yi Cheng for the two years ending 31 December 2014 will not be more than RMB3.6 million and RMB1.5 million respectively (i.e. Grand Pharm First R&D Caps).

LETTER FROM THE BOARD

(II) Grand Pharm R&D Agreement II

Date: 28 November 2012

Parties:

Yuan Chuang Yi Cheng as supplier and Grand Pharm (China) as purchaser

Service:

Yuan Chuang Yi Cheng shall provide research and development services for Trimetazidine to Grand Pharm (China) or its related companies. Separate agreements shall be entered into between Yuan Chuang Yi Cheng and Grand Pharm (China) for specific details of the scope of services and the relevant technical requirements followed by arm’s length negotiations between the parties thereto on an individual basis.

Pricing basis:

All orders under the Grand Pharm R&D Agreement II are placed to Yuan Chuang Yi Cheng. The fees payable by the Group are determined based on the expected time cost, materials to be used and other independent testing and verification services which are required in each individual research and development service. Such fees will be satisfied in cash within 90 days after the date of the relevant demand note. The Directors consider that the pricing basis will be made on an arm’s length basis in the ordinary course of business and on normal commercial terms or are on terms not less favourable than those which will be paid by Grand Pharm (China) or its related companies to other independent parties for the same or similar services (if any).

Term: For the period commencing from the Effective Date until 31 December 2014.

Annual cap:

Based on the anticipated growth in demand of new products, with taking into account the possible improvement to cope with the future expansion of the business and in line with the Group’s development strategy, the Directors estimate that the total amount of services to be requested to Yuan Chuang Yi Cheng for the two years ending 31 December 2014 will not be more than RMB1.0 million and RMB1.0 million respectively (i.e. Grand Pharm Second R&D Caps).

LETTER FROM THE BOARD

(III) Grand Pharm R&D Agreement III

Date: 28 November 2012

Parties: Yuan Nuo Wei Sheng as supplier and Grand Pharm (China) as purchaser

Service:

Yuan Nuo Wei Sheng shall provide research and development services for Bimatoprost pharmaceutical raw material and Bimatoprost eyedrops to Grand Pharm (China) or its related companies. Separate agreements shall be entered into between Yuan Nuo Wei Sheng and Grand Pharm (China) for specific details of the scope of services and the relevant technical requirements followed by arm’s length negotiations between the parties thereto on an individual basis.

Pricing basis:

All orders under the Grand Pharm R&D Agreement III are placed to Yuan Nuo Wei Sheng. The fees payable by the Group are determined based on the expected time cost, materials to be used and other independent testing and verification services which are required in each individual research and development service. Such fees will be satisfied in cash within 90 days after the date of the relevant demand note. The Directors consider that the pricing basis will be made on an arm’s length basis in the ordinary course of business and on normal commercial terms or are on terms not less favourable than those which will be paid by Grand Pharm (China) or its related companies to other independent parties for the same or similar services (if any).

Term: For the period commencing from the Effective Date until 31 December 2014.

Annual cap:

Based on the anticipated growth in demand of new products, with taking into account the possible improvement to cope with the future expansion of the business and in line with the Group’s development strategy, the Directors estimate that the total amount of services to be requested to Yuan Nuo Wei Sheng for the two years ending 31 December 2014 will not be more than RMB3.5 million and RMB3.5 million respectively (i.e. Grand Pharm Third R&D Caps).

LETTER FROM THE BOARD

(IV) Grand Pharm Supply Agreement

Date: 28 November 2012

Parties: Grand Pharm (China) as supplier and Huadong Medicine as purchaser

Service: Grand Pharm (China) or its related companies shall supply pharmaceutical preparations, raw materials and technologies to Huadong Medicine or its related companies. Separate agreements shall be entered into between Grand Pharm (China) and Huadong Medicine for specific details of the scope of services and the relevant technical requirements followed by arm’s length negotiations between the parties thereto on an individual basis.

Pricing basis:

The Group has established a price list for supplying all products and such list is reviewed and adjusted by the management of the Group periodically after considering the production costs, expected profit margin and the prevailing market situation at the time being. The said price list is applicable to all customers and any prices quoted below therein would require approval from the relevant management of the Group. The fees chargeable by the Group will be satisfied in cash. As the price of the service are quoted from the said price list and no discount was approved thereto, the Directors consider that the pricing basis will be made on an arm’s length basis in the ordinary course of business and on normal commercial terms with reference to similar transactions carried out in the market or are on terms not less favourable than those which will be charged by Grand Pharm (China) or its related companies (if any) to other independent customers for the same or similar products. The Grand Pharm Supply Agreement also provides that the price and size of the products to be supplied to Huadong Medicine or its related companies shall be determined between Huadong Medicine and the Group on an order-by-order basis and credit period of 90 days will be given after delivery.

Term: For the period commencing from the Effective Date until 31 December 2014.

Annual cap:

Based on the estimated maximum orders to be placed to Grand Pharm (China) or its related companies as indicated by Huadong Medicine or its related companies, the Directors estimate that the total amount of products to be sold by Grand Pharm (China) or its related companies to Huadong Medicine or its related companies for the two years ending 31 December 2014 will not be more than RMB18.0 million and RMB20.0 million respectively. Although no maximum orders are stipulated in the Grand Pharm Supply Agreement, the estimated annual figures (i.e. Grand Pharm Supply Agreement Caps) are agreed between the parties to the Grand Pharm Supply Agreement.

LETTER FROM THE BOARD

(V) Xianle Purchase Agreement I

Date: 28 November 2012

Parties:

Bao Ding Jiu Fu, as supplier and Zhejiang Xianle as purchaser

Service:

Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediates from Bao Ding Jiu Fu or its related companies.

Pricing basis:

Zhejiang Xianle confirms that the fees to be charged by Bao Ding Jiu Fu shall be determined based on the market price and are no less favourable than terms available to independent third parties, and will be agreed upon by the parties according to the relevant individual purchase agreement. The fees payable by the Group will be satisfied in cash. The Directors consider that the pricing basis will be made on an arm’s length basis in the ordinary course of business and on normal commercial terms or are on terms not less favourable than those will be paid by Zhejiang Xianle or its related companies (if any) to other independent suppliers for the same or similar products. The Xianle Purchase Agreement I also provides that the price and size of the products to be supplied by Bao Ding Jiu Fu or its related companies will be determined between Bao Ding Jiu Fu and the Group on an order-by-order basis and credit period of 90 days will be provided after delivery.

Term:

For the period commencing from the Effective Date until 31 December 2014.

Annual cap:

It is expected that Zhejiang Xianle and its subsidiary will complete the expansion of production capacity in the coming two years with taking into account the future expansion of the business and in line with the Group’s developing strategy, the Directors estimate that the total amount of products to be purchased from Bao Ding Jiu Fu or its related companies for the two years ending 31 December 2014 will not be more than RMB80.0 million and RMB146.0 million respectively. Although no maximum orders are stipulated in the Xianle Purchase Agreement I, the estimated annual figures (i.e. Xianle First Purchase Caps) are agreed between the parties to the Xianle Purchase Agreement I.

LETTER FROM THE BOARD

(VI) Xianle Purchase Agreement II

Date: 28 November 2012

Parties:

Yan Cheng Xin Yi as supplier and Zhejiang Xianle as purchaser

Service:

Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediates from Yan Cheng Xin Yi or its related companies.

Pricing basis:

Zhejiang Xianle confirms that the fees to be charged by Yan Cheng Xin Yi shall be determined based on the market price and are no less favourable than terms available to independent third parties, and will be agreed upon by the parties according to the relevant individual purchase agreement. The fees payable by the Group will be satisfied in cash. The Directors consider that the pricing basis will be made on an arm’s length basis in the ordinary course of business and on normal commercial terms or are on terms not less favourable than those will be paid by Zhejiang Xianle or its related companies (if any) to other independent suppliers for the same or similar products. The Xianle Purchase Agreement II also provides that the price and size of the products to be supplied by Yan Cheng Xin Yi or its related companies will be determined between Yan Cheng Xin Yi and the Group on an order-by-order basis and credit period of 90 days will be provided after delivery.

Term: For the period commencing from the Effective Date until 31 December 2014.

Annual cap:

It is expected that Zhejiang Xianle and its subsidiary will complete the expansion of production capacity in the coming two years with taking into account the future expansion of the business and in line with the Group’s developing strategy, the Directors estimate that the total amount of products to be purchased from Yan Cheng Xin Yi or its related companies for the two years ending 31 December 2014 will not be more than RMB60.0 million and RMB80.0 million respectively. No maximum orders are provided in the Xianle Purchase Agreement II although the estimated annual figures (i.e. Xianle Second Purchase Caps) are agreed between the parties to the Xianle Purchase Agreement II.

LETTER FROM THE BOARD

(VII) Xianle Purchase Agreement III

Date: 28 November 2012

Parties: Grand Group Corporation as supplier and Zhejiang Xianle as purchaser

Service:

Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediates from Grand Group Corporation or its related companies.

Pricing basis:

Zhejiang Xianle confirms that the fees to be charged by Grand Group Corporation shall be determined based on the market price and are no less favourable than terms available to independent third parties, and will be agreed upon by the parties according to the relevant individual purchase agreement. The fees payable by the Group will be satisfied in cash. The Directors consider that the pricing basis will be made on an arm’s length basis in the ordinary course of business and on normal commercial terms or are on terms not less favourable than those will be paid by Zhejiang Xianle or its related companies (if any) to other independent suppliers for the same or similar products. The Xianle Purchase Agreement III also provides that the price and size of the products to be supplied by the Grand Group Corporation or its related companies will be determined between Grand Group Corporation and the Group on an order-by-order basis and credit period of 90 days will be provided after delivery.

Term:

For the period commencing from the Effective Date until 31 December 2014.

Annual cap:

It is expected that Zhejiang Xianle and its subsidiary will complete the expansion of production capacity in the coming two years with taking into account the future expansion of the business and in line with the Group’s developing strategy, the Directors estimate that the total amount of products to be purchased from Grand Group Corporation or its related companies for the two years ending 31 December 2014 will not be more than RMB5.0 million and RMB8.0 million respectively. Although no maximum orders are stipulated in the Xianle Purchase Agreement III, the estimated annual figures (i.e. Xianle Third Purchase Caps) are agreed between the parties to the Xianle Purchase Agreement III.

LETTER FROM THE BOARD

Common terms of the CCT Agreements

Each of the CCT Agreements contains the following terms:

The terms of the each of the CCT Agreements shall become effective on the date (the “ Effective Date ”) falling upon the passing of the relevant resolutions by the Independent Shareholders at the SGM and shall not be extend beyond 31 December 2014. The Group will be entitled to extend the CCT Agreements on or before 31 December 2014 and to take such action as may be appropriate to comply with the Listing Rules. Without prejudice to the right of any party to terminate the CCT Agreements pursuant to their respective terms, the CCT Agreements shall automatically terminate before 31 December 2014 (or such later date as the parties to the said agreements may agree) if:
(i) the Group consider that it is not feasible to comply with the Listing Rules at the relevant time; or
(ii) compliance with the Listing Rules would require changes to the CCT Agreements which are not acceptable to any of the parties.
All changes made to the CCT Agreements shall be subject to compliance by the Company with the Listing Rules.
The total annual consideration payable or receivable by the Group under the CCT Agreements shall be subject to a yearly cap set by the parties.
All the existing terms as contemplated under the CCT Agreements will supersede and replace the previous agreements entered into between the relevant parties (if any) upon the CCT Agreements becoming effective on the Effective Date.

Annual Caps for the CCT Agreements

Grand Pharm R&D Agreements

The annual caps for the transactions respectively contemplated under each of the Grand Pharm R&D Agreements are due to, among other matters, (i) the estimated scope of the relevant services required at different stage of the research (which will be determined after considering the general procedures and requirements of Grand Pharm (China), including but not limited to the various research, testing, verification and registration requirements under the relevant laws and regulations of each particular research project); and (ii) the estimated fees charged by Yuan Chuang Yi Cheng and Yuan Nuo Wei Sheng taking into consideration of the time, experts, testing service and other resources involved in the each of the respective Grand Pharm R&D Agreements after the consultation and valuation with the relevant experts of service providers and the engineers of the Group.

LETTER FROM THE BOARD

Grand Pharm Supply Agreement

The annual caps for the transactions contemplated under the Grand Pharm Supply Agreement is calculated based on the (i) estimated maximum orders to be placed to the Group as indicated by Huadong Medicine or its related companies; and (ii) the estimated selling price of the products by reference to the Group’s internal price list which is applicable to all customers.

Xianle Purchase Agreements

The annual caps for the transactions respectively contemplated under the Xianle Purchase Agreements are determined based on the (i) estimated total number of raw materials to be purchased by the Group from the relevant suppliers by reference to the maximum capacity of the existing production lines and the production line under construction as well as the time schedule, historical sales record and preliminary indication of quantities to be ordered by our customers; and (ii) the estimated selling price of such raw materials after evaluation by the management of the Group by reference to the existing and expected changes of market price. The expansion of the production capacity of Zhejiang Xianle and its subsidiary is at final stage and is expected to be completed in the first half of 2013, the expanded plant will have more than 5 new production lines and shall substantially increase the Group’s production volume.

INFORMATION ABOUT THE GROUP

The Group is principally engaged in business of manufacture and sales of pharmaceutical products in the PRC.

INFORMATION ABOUT THE COUNTERPARTIES OF THE CCT AGREEMENTS

The principal activities and the differentiation with the Company’s business in terms of products and target customers of each of the counterparties of the CCT Agreements are set out in the below table:

Counterparty of the Principal activities Differentiation with the Company’s business CCT Agreements in terms of products and target customers Yuan Chuang Yi research and development of • provision of various research and Cheng pharmaceutical technology in development services to different target the PRC customers, including development of new products and improvement of current technology know-how

established its own laboratory with research team
i t s t a r g e t c u s t o m e r s a r e m a i n l y pharmaceutical manufacturers in the PRC

LETTER FROM THE BOARD

Counterparty of the Principal activities CCT Agreements

Yuan Nuo Wei research and development of Sheng pharmaceutical technology in the PRC

Differentiation with the Company’s business in terms of products and target customers

provision of various research and development services to different customers, including development of new products and improvement of current technology know-how
established its own laboratory with research team
i t s t a r g e t c u s t o m e r s a r e m a i n l y pharmaceutical manufacturers in the PRC

Huadong Medicine manufacture and sale of pharmaceutical products

established its own distribution channel and retail stores in certain cities of the PRC
its major products are medicines related to diabetes, digestive system, blood and orthopaedic and traumatology, which are products acquired from other manufacturers or its own branded products whereas the major products of the Group mainly includes cerebro-cardiovascular, ophthalmic, antibacterial and antibiotics, antipyretics and analgestic

			manufacturers or its own branded products whereas the major products of the Group mainly includes cerebro-cardiovascular, ophthalmic, antibacterial and antibiotics, antipyretics and analgestic
Bao Ding Jiu Fu	manufacture and sale of	•	its products are mainly related to high
	pharmaceutical products raw		purity steroid compounds and amino
	materials		acids, which are chemicals that can
			be used in the production of steroid
			hormones
Yan Cheng Xin Yi	manufacture and sale of	•	it is specialized in the production of
	pharmaceutical products raw		hormones pharmaceutical chemicals,
	materials		which are chemicals that can be used in
			the production of steroid hormones
Grand Group	logistic, trading and investment,	•	one of its businesses is importing and
Corporation	including but not limited		trading of chemicals for the production of
	to the export and import		pharmaceutical products in according with
	pharmaceutical products raw		the request of customers
	materials

LETTER FROM THE BOARD

Taking into account of the difference in products, target customers and principal activities engaged by each of the respective counterparties of the CCT Agreements, the Directors confirm that they are not competing and is unlikely to compete with the Company’s business.

As at the Latest Practicable Date, none of the Directors or substantial Shareholder or any of their respective associates has any interest in business which competes with or may compete with the business of the Group or has any other conflict of interests which any person has or may have with the Group.

REASONS FOR ENTERING INTO THE CONTINUING CONNECTED TRANSACTIONS

As the Group aims to become one of the largest pharmaceutical and healthcare products manufacturers in the PRC, the Group intends to strengthen its capability of developing new pharmaceutical products. Compared with recruiting more research and development experts and to equip itself with advanced facilities for each specific one-off project, the Board considers it is more cost effective to leverage on the research and development capability of various service providers, so that the Group could maximise its profit margin with control in the quality of the research and development results carried out by various service providers with a definitive period.

The Group would engage different service providers in view of the specified skills and technologies required by each research and development project. At the beginning stage of negotiation, the Group may approach two to three service providers to discuss the required services and the opportunities of success on the research and development of new pharmaceutical products. After considering the specified skills, abilities, the estimated chance of success, expected time and cost of each individual service providers, a special team lead by the management will engage the most suitable service provider on project basis.

In particular, as Yuan Nuo Wei Sheng and Yuan Chuang Yu Cheng are both principally engaged in research and development of pharmaceutical technology in the PRC and taking into account of their respective established laboratory located at Wuhan and Beijing, the PRC, each operated by a team of experts totaling 18 and 37 (comprising two with doctor’s degree and 10 with master’s degree and five with doctor’s degree and 14 with master’s degree respectively).

As aforesaid, the Company had cooperated with other service providers for different research and development services in their area of expertise and the Board considered that in comparison with other service providers, the Company is expected to benefit from Yuan Chuang Yi Cheng and Yuan Nuo Wei Sheng as their specialities are more specific to the pharmaceutical products under the Grand Pharm R&D Agreements, and that they have better understanding of operations of the Group which should allow more expedient and efficient service provision. As such, the entering into of the Grand Pharm R&D Agreements are more cost efficient and in the best interest of the Group, thus enabling the Company to dedicate its resources to develop its pharmaceutical business.

LETTER FROM THE BOARD

The Group will sell and/or supply to Huadong Medicine (i) various medicines, such as cerebrocardiovascular medicines and antibiotics; (ii) certain pharmaceutical intermediates, which are chemicals and raw materials for the production of its own products; and (iii) technologies, including but not limited to technical know-how in relation to certain side-products generated during the development of new medicine by the Group which are not the principal products of the Group, for example, the technical know-how of medicine for treatment of blood-pressure. As Huadong Medicine has developed its own sales network and retail stores in many cities in the PRC, which cover over ten provinces, the Directors opined that the entering into of the Grand Pharm Supply Agreement may allow the Group to make use of the existing sales network of Huadong Medicine and to promote our product brands through such sales network.

In addition, the raw materials to be purchased by Zhejiang Xianle may include different chemicals which are used to produce various steroid hormones and intermediates. The products to be acquired from Bao Ding Jiu Fu, Yan Cheng Xin Yi and Grand Group Corporations are all different from each other, and there is no overlapping in the products supplied by the said three companies and those supplied by the Group to Huadong Medicine.

A special team will be established to be in charge of each individual project, including but not limited to the selection of suppliers. Multiple criteria will be used in the selection of suppliers, including, among others, their technical competence, track record and quality of the research and development results as well as the suitability of their services, timing and cost for the relevant project.

Further, an individual sourcing team will be established with the responsibilities to oversee and review the prices of raw materials of the suppliers and to ensure that the purchase prices under the Xianle Purchase Agreements are in the line with the market price.

The Board confirms that the payment terms under the CCT Agreements, including but not limited to the credit terms, payment methods are in the line with the market practice.

The Directors are of the view that the entering into of the Grand Pharm R&D Agreements with Yuan Chuang Yi Cheng and Yuan Nuo Wei Sheng respectively can secure a reliable provision of research and development services, which is essential for the development of new products and continuous improvement of the existing products. The Directors also consider that the outsourcing of the research and development processes to reliable suppliers can enhance the cost efficiency and minimize the business risk of the Group.

The Group is expanding its production plants with an expectation of an increase in its production capacity, and the Group aimed to explore new customers and to expand to second-tier markets with a view to fully ultilise the increased production capacities. As such, the entering into of the Grand Pharm Supply Agreement with Huadong Medicine can allow the Group to utilize the sales networks of Huadong Medicine to promote the products of the Group to different regions and enhance the brand name of the products of the Group, and the Board considers that the entering into of the Grand Pharm Supply Agreement is in the line with of our business development strategy.

Further, the entering into of the Xianle Purchase Agreements can maintain good products quality and to ensure the constant supply of raw materials, which are beneficial to implement the Group’s business strategy and to reduce its operation risks.

LETTER FROM THE BOARD

In August 2011, 北京遠大華創投資有限公司 (Beijing Yuan Da Hua Chuang Investment Limited#), a wholly owned company of Mr Hu, acquired 49% equity interest in China Grand. By virtue of his interest in China Grand, China Grand became a connected person of the Group. Although there were a few transactions entered into between the Group and the associates of China Grand in the first half of 2011 and in previous years, as the said transactions were mainly supply and/or purchase raw materials in nature, there were no other similar historical transactions between the Company and China Grand that the Board could make reference to. In addition, as mentioned above, the Group through its internal selection process would engage different service providers in view of their specified skills and technologies required by each research and development project. Due to the fact that the research and development projects previously engaged by the Group are not within the areas of expertise of the associates of China Grand and therefore, they were not selected by the Group as the most suitable service providers in the past.

It is the new business objective of the Group in 2012 to explore new markets in second-tier cities in the PRC and to develop more pharmaceutical products in the coming years, it is expected that the entering into of the CCT Agreements will enable the Group to gain advantage to the sales network of the counterparties of the CCT Agreement, in particular Huadong Medicine and to secure the source and qualities of raw materials from reliable suppliers.

In view of the above together with the implementation of the above mentioned selection processes, the Directors consider that the entering into of the CCT Agreements are in the ordinary course of business of the Group and that the terms of such agreements are determined on arm’s length basis among the relevant parties and that the terms and conditions of the CCT Agreements are fair and reasonable and were in the interests of the Company and the Shareholders as a whole.

IMPLICATIONS UNDER THE LISTING RULES

China Grand (i) directly owned approximately 57.14% equity interest of Yuan Chuang Yi Cheng; (ii) directly owned approximately 90.00% equity interest of Yuan Nuo Wei Sheng, and owned approximately 10.00% equity interest of Yuan Nuo Wei Sheng through a non-wholly owned subsidiary of the Group; (iii) directly owned approximately 35.50% equity interest of Huadong Medicine; (iv) directly owned approximately 51.00% equity interest of Bao Ding Jiu Fu; (v) directly owned approximately 67.00% equity interest of Yan Cheng Xin Yi; and (vi) indirectly owned approximately 19.28% equity interest of Grand Group Corporation, and China Grand is owned as to (i) approximately 49.00% by 北京遠大華創投資有限公司 (Beijing Yuan Da Hua Chuang Investment Limited[#] ) and (ii) approximately 51.00% by 北京炎黃置業有限公司 (Beijing Yan Huang Zhi Ye Limited[#] ) respectively. As both companies are controlled and ultimately and beneficially owned by Mr. Hu, who is the sole shareholder of Outwit which is the substantial shareholder of the Company, thus each of Yuan Chuang Yi Cheng, Yuan Nuo Wei Sheng, Huadong Medicine, Bao Ding Jiu Fu, Yan Cheng Xin Yi, and Grand Group Corporation are regarded as connected persons of the Company.

LETTER FROM THE BOARD

As Yuan Chuang Yi Cheng, Yuan Nuo Wei Sheng, Huadong Medicine, Bao Ding Jiu Fu, Yan Cheng Xin Yi and Grand Group Corporation are regarded as connected persons of the Company since they are associates of the China Grand and the subject matters of each of the CCT Agreements are similar in nature, under Chapter 14A.25 of the Listing Rules, the transactions between the Group and each of these companies should be aggregated together. As the aggregated amount of the Grand Pharm R&D Caps, the Grand Pham Supply Caps and the Xianle Purchase Caps will exceed HK$10,000,000 per annum, the transactions contemplated respectively under the CCT Agreements constitute continuing connected transactions on the part of the Company which are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The text of the letter from the Independent Board Committee is set out on page 29 of this circular, the text of the letter from Nuada containing its advice is set out on pages 30 to 43 of this circular.

(II) PROPOSED CHANGE OF AUDITORS

The Board announced on 13 December 2012 that SHINEWING had resigned as the auditors of the Group with effect from 13 December 2012. The Board proposed to appoint HLB as the new auditors of the Group to fill the casual vacancy following the resignation of SHINEWING and to hold office until the conclusion of the next annual general meeting of the Company. Pursuant to the bye-laws of the Company, the Change of Auditors will be subject to approval by the Shareholders by way of an ordinary resolution at the SGM.

The Change of Auditor shall come into effect upon the passing of such ordinary resolution by the Shareholders at the SGM.

REASON FOR THE PROPOSED CHANGE OF AUDITORS

The reason for the change of auditors’ of the Group is due to the fact that the Group and SHINEWING could not reach a consensus on the audit fees for the financial year ending 31 December 2012.

Save as disclosed above, there are no matters in connection with the Change of Auditors that need to be brought to the attention to the Shareholders and the Company has received from SHINEWING a written confirmation to that effect.

Save as disclosed above, the Board and the audit committee of the Company have confirmed that there is no matter in connection with the Change of Auditors that needs to be brought to the attention to the Shareholders or creditors of the Company and the Company has received from SHINEWING a written confirmation to that effect.

SGM

Set out on pages 51 to 55 of this circular is a notice convening the SGM to be held at Unit 3302, The Centre, 99 Queen’s Road Central, Central, Hong Kong at which the relevant resolutions will be proposed at the SGM to approve, among other things, (i) the CCT Agreements and the transactions contemplated thereunder; and (ii) the Change of Auditors. All the resolutions proposed to be approved at the SGM will be taken by poll and an announcement will be made by the Company after the SGM on the results of the SGM.

LETTER FROM THE BOARD

To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, there is (i) no voting trust or other agreement or arrangement or understanding entered into by binding upon any Shareholders; and (ii) no obligation or entitlement of any Shareholder as at the Latest Practicable Date, whereby it has or may have temporarily or permanently passed control over the exercise of the voting right in respect of its Shares to a third party, either generally or on a case-by-case basis.

In accordance with the Listing Rules, Mr Hu, Outwit and their respective associates, who in aggregate hold 1,228,275,094 Shares, representing approximately 62.60% of the entire issued share capital of the Company, are required to abstain from voting on the resolutions to approve the CCT Agreements and any vote exercised by the Independent Shareholders at the SGM shall be taken by poll. Save as disclosed above, no Shareholder has a material interest in the CCT Agreements that is required to abstain from voting and being counted towards the quorum on the relevant resolutions at the SGM. For the avoidance of doubt, no Shareholders are required to abstain from voting and being counted towards the quorum in respect of the ordinary resolution to approve the Change of Auditors.

In addition, Mr. Hu Bo, who is a nephew of Mr. Hu is considered to be interested in the transactions respectively contemplated under each of the CCT Agreements and had abstained from voting on the board resolutions for approving the said transactions. Save as aforesaid, the Board confirms that none of the Directors is a director or employee of Outwit nor has any material interests in the transactions contemplated respectively under the CCT Agreements that is required to abstain from voting on the board resolution for approving the CCT Agreements.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish.

INDEPENDENT BOARD COMMITTEE

The Indepndent Board Committee comprising Ms. So Tosi Wan, Winnie, Mr. Lo Kai Lawrence and Dr. Pei Geng, being all indepnedent non-executive Directors, has been formed to advise the Independent Shareholders as to the terms of the Grand Pharm R&D Agreements, the Grand Pharm Supply Agreement, the Xianle Purchase Agreements and the transactions contemplated respectively thereunder.

Nuada Limited has been appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Grand Pharm R&D Agreements, the Grand Pharm Supply Agreement, the Xianle Purchase Agreements and the transactions contemplated respectively thereunder.

The Independent Board Committee, having taken into account the advice and recommendation of Nuada Limited (except the fairness and reasonableness of the pricing basis under the respective Grand Pharm R&D Agreements which the Independent Financial Adviser is not in a position to opine), consider that the Grand Pharm R&D Agreements, the Grand Pharm Supply Agreement, the Xianle Purchase Agreements and the transactions contemplated respectively thereunder are fair and reasonable so far the Independent Shareholders and in the interests of the Company and the Shareholders as a whole, and

LETTER FROM THE BOARD

accordingly recommends the Independent Shareholders to vote in favour of the ordinary resolutions which will be proposed at the SGM for approving the Grand Pharm R&D Agreements, the Grand Pharm Supply Agreement, the Xianle Purchase Agreements and the transactions contemplated respectively thereunder.

The text of the letter from the Independent Board Committee is set out on page 29 of this circular and the text of the letter from the Independent Financial Adviser containing its advice is out on pages 30 to 43 of this circular.

RECOMMENDATION

The Board (including the independent non-executive Directors), having taken into account of the reasons set out in the paragraphs headed “Reasons for entering into the continuing connected transactions and connected transactions” above and the recommendations of the Independent Board Committee and the Independent Financial Adviser (except the fairness and reasonableness of the pricing basis under the respective Grand Pharm R&D Agreements which the Independent Financial Adviser is not in a position to opine), considers that the CCT Agreements and the transactions contemplated respectively thereunder are on normal commercial terms which are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the ordinary resolutions which will be proposed at the SGM for approving the CCT Agreements and the transactions contemplated thereunder.

The Directors are of the opinion that the proposed Change of Auditor is in the best interest of the Company and the Shareholders as a whole and accordingly recommend the Shareholders to vote in favour of the proposed ordinary resolution set out in the notice of SGM to approve the proposed Change of Auditor.

ADDITIONAL INFORMATION

Your attention is drawn to (i) the letter from the Independent Board Committee set out on page 29 of this circular which contains its views in relation to the CCT Agreements and the transactions contemplated thereunder; and (ii) the letter from the Independent Financial Adviser set out on pages 30 to 43 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the CCT Agreements and the transactions contemplated thereunder and the principal factors and reasons considered by it in arriving its opinions.

Your attention is also drawn to other additional information as set out in the appendix to this circular.

Yours faithfully,

For and on behalf of the Board

China Grand Pharmaceutical and Healthcare Holdings Limited

Liu Chengwei Chairman

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [52 x 61] intentionally omitted <==

**China Grand Pharmaceutical and Healthcare Holdings Limited 遠大醫藥健康控股有限公司[*]**

(Incorporated in Bermuda with limited liability) (Stock Code: 00512)

28 January 2013

To the Independent Shareholders,

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTION

We refer to the circular of the Company dated 28 January 2013 (the “ Circular ”) to the Shareholders, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

We have been appointed by the Board as members to form the Independent Board Committee and to advise you as to whether, in our opinion, the CCT Agreements and the transactions contemplated respectively thereunder are on normal commercial terms which are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

Nuada Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in these respects. Details of its advice, together with the principal factors and reasons taken into consideration in arriving at such advice, are set out on pages 30 to 43 of the Circular. Your attention is also drawn to the letter from the Board set out on pages 8 to 28 of the Circular and the additional information set out in the appendix of the Circular.

Having considered the terms and conditions of the CCT Agreements, the principal factors and reasons considered by, and the advice and recommendation of the Independent Financial Adviser (except the fairness and reasonableness of the pricing basis under the respective Grand Pharm R&D Agreements which the Independent Financial Adviser is not in a position to opine), we are of the opinion that the CCT Agreements and the transactions contemplated respectively thereunder are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the SGM to approve the CCT Agreements and the transactions contemplated respectively thereunder.

Yours faithfully,

Independent Board Committee of

China Grand Pharmaceutical and Healthcare Holdings Limited Lo Kai Lawrence So Tosi Wan, Winnie Pei Geng Independent non-executive Independent non-executive Independent non-executive Director Director Director

For identification purpose only

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice from Nuada Limited in connection with the CCT Agreements (including the Grand Pharm R&D Caps, the Grand Pharm Supply Caps and the Xianle Purchase Caps) which has been prepared for inclusion in this circular.

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19th Floor, BLINK, 111 Bonham Strand Sheung Wan, Hong Kong 香港上環文咸東街111號BLINK 19字樓

28 January 2013

To the Independent Board Committee and the Independent Shareholders of China Grand Pharmaceutical and Healthcare Holdings Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Grand Pharm R&D Agreements (including the Grand Pharm R&D Caps), the Grand Pharm Supply Agreement (including the Grand Pharm Supply Caps), the Xianle Purchase Agreements (including the Xianle Purchase Caps) and the transactions contemplated respectively thereunder, details of which have been set out in the letter from the Board (the “ Board’s Letter ”) in the circular to the Shareholders dated 28 January 2013 (the “ Circular ”), of which this letter forms part. Unless otherwise stated, terms used in this letter have the same meanings as those defined in the Circular.

On 28 November 2012, Grand Pharm (China) as purchaser entered into:

(i) the Grand Pharm R&D Agreement I with Yuan Chuang Yi Cheng as supplier, pursuant to which Yuan Chuang Yi Cheng shall provide research and development services for Bosentan to Grand Pharm (China) or its related companies;
(ii) the Grand Pharm R&D Agreement II with Yuan Chuang Yi Cheng as supplier, pursuant to which Yuan Chuang Yi Cheng will provide research and development services for Trimetazidine to Grand Pharm (China) or its related companies; and
(iii) the Grand Pharm R&D Agreement III with Yuan Nuo Wei Sheng as supplier, pursuant to which Yuan Nuo Wei Sheng shall provide research and development services for Bimatoprost pharmaceutical raw material and Bimatoprost eyedrops to Grand Pharm (China) or its related companies.

As at the date of the announcement dated 28 November 2012 issued by the Company in relation to the CCT Agreements, Grand Pharm (China) is indirectly owned as to approximately 75.95% by the Company and approximately 24.05% by Independent Third Parties. As at the Latest Practicable Date, Grand Pharm (China) is indirectly owned as to approximately 99.60% by the Company and approximately 0.40% by Independent Third Parties.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Yuan Chuang Yi Cheng is owned as to approximately 57.14% by China Grand, as to approximately 14.28% by 常熟雷允上制藥有限公司 (Chang Shu Lei Yun Shang Pharmaceutical Ltd.[#] ), as to approximately 14.29% by 雷允上藥業有限公司 (Lei Yun Shang Pharmaceutical Ltd.[#] ) and as to approximately 14.29% by 四川遠大蜀陽藥業股份有限公司 (Si Chuan Yuan Da Shu Yang Pharmaceutical Holdings Limited[#] ). Details regarding the shareholdings of 常熟雷允上制藥有限公司, 雷允上藥業有限公司 and 四川遠大蜀陽藥業股份有限公司 are set out in the section headed “Relationships between the parties” in the Board’s Letter.

Yuan Nuo Wei Sheng is owned as to approximately 90.00% by China Grand and as to approximately 10.00% by a non-wholly owned subsidiary of the Group.

By virtue of being a subsidiary of China Grand (which is indirect-wholly owned by Mr. Hu, the substantial shareholder of the Company), each of Yuan Chuang Yi Cheng and Yuan Nuo Wei Sheng is considered to be a connected person of the Company.

On 28 November 2012, Grand Pharm (China) as supplier also entered into the Grand Pharm Supply Agreement with Huadong Medicine as purchaser, pursuant to which Grand Pharm (China) or its related companies shall supply pharmaceutical preparations, raw materials and technologies to Huadong Medicine or its related companies.

Huadong Medicine is owned as to approximately 35.50% by China Grand and as to approximately 64.50% by Independent Third Parties. By virtue of being an associate of Mr. Hu, Huadong Medicine is considered to be a connected person of the Company.

On 28 November 2012, Zhejiang Xianle as purchaser entered into:

(i) the Xianle Purchase Agreement I with Bao Ding Jiu Fu as supplier, pursuant to which Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediates from Bao Ding Jiu Fu or its related companies;
(ii) the Xianle Purchase Agreement II with Yan Cheng Xin Yi as supplier, pursuant to which Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediates from Yan Cheng Xin Yi or its related companies; and
(iii) the Xianle Purchase Agreement III with Grand Group Corporation as supplier, pursuant to which Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediaries from Grand Group Corporation or its related companies.

Zhejiang Xianle is owned as to approximately 67.00% by the Company and as to approximately 33.00% by Independent Third Parties.

Bao Ding Jiu Fu is owned as to approximately 51.00% by China Grand and as to approximately 49.00% by Independent Third Parties. Yan Cheng Xin Yi is owned as to approximately 67.00% by China Grand and approximately 33.00% by Independent Third Parties. By virtue of being a subsidiary of China Grand, each of Bao Ding Jiu Fu and Yan Cheng Xin Yi is considered to be a connected person of the Company.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Grand Group Corporation is owned as to approximately 52.00% by Ideal Group (which is owned as to approximately 37.08% by China Grand and approximately 62.92% by Independent Third Parties) and as to approximately 48.00% by Independent Third Parties. By virtue of being a subsidiary of Ideal Group, Grand Group Corporation is considered to be a connected person of the Company.

Each of the CCT Agreements is subsequently supplemented by the Supplemental Agreements respectively, details of which are set out in the announcement dated 21 December 2012 of the Company.

As stated in the Board’s Letter, as Yuan Chuang Yi Cheng, Yuan Nuo Wei Sheng, Huadong Medicine, Bao Ding Jiu Fu, Yan Cheng Xin Yi and Grand Group Corporation are regarded as connected persons of the Company since they are associates of the China Grand, and the subject matters of each of the CCT Agreements are similar in nature under Chapter 14A.25 of the Listing Rules, the transactions between the Group and each of these companies should be aggregated together. As the aggregate amount of the Grand Pharm R&D Caps, the Grand Pharm Supply Caps and the Xianle Purchase Caps will exceed HK$10,000,000 per annum, the transactions contemplated respectively under the CCT Agreements constitute continuing connected transactions on the part of the Company which are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee has been formed to advise the Independent Shareholders as to the fairness and reasonableness of the terms of the Grand Pharm R&D Agreement (including but not limited to the Grand Pharm R&D Caps), the Grand Pharm Supply Agreement (including but not limited to the Grand Pharm Supply Caps), the Xianle Purchase Agreements (including but not limited to the Xianle Purchase Caps) and the transactions contemplated respectively thereunder and as to how to vote at the SGM. We have been appointed to advise the Independent Board Committee and the Independent Shareholders in those regards.

BASIS OF OUR OPINION

In formulating our opinion and recommendations, we have relied on the accuracy of the information, opinions and representations contained or referred to in the Circular and provided to us by the Company, the Directors and management of the Company, which we have assumed to be true, accurate and complete at the time when they were made and continued to be true, accurate and complete as at the date of the SGM. We have also assumed that all statements of belief, opinion and intention made by the Board in the Circular were reasonably made after due enquiries and considerations. We have no reason to doubt 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.

We consider that we have reviewed sufficient information, including the relevant information and documents provided by the Company and the Directors and the management of the Company and the information published by the Company, to enable us to reach an informed view and to justify reliance on the accuracy of the information contained in the Circular to provide a reasonable basis for our opinions and recommendations. Having made all reasonable enquiries, the Board has confirmed that, to the best of its knowledge, 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 Company and the Directors and the management of the Company, nor have we conducted an independent investigation into the business and affairs, financial condition and future prospects of the Group, Yuan Chuang Yi Cheng, Yuan Nuo Wei Sheng, Huadong Medicine, Bao Ding Jiu Fu, Yan Cheng Xin Yi and Grand Group Corporation and/or any of their respective subsidiaries and/or associated companies and the markets in which they respectively operate.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have further assumed that all material governmental, regulatory or other consents, rights, waivers, authorisations, clearances and approvals necessary for the effectiveness and implementation of the CCT Agreements have been or will be obtained and will not be withdrawn without any adverse effect on the Group, the assets and liabilities of the Group or the contemplated benefits to the Group as derived from the CCT Agreements.

In formulating our advices, our opinions are necessarily based upon the financial, economic, market, regulatory and other conditions as they existed on, and the facts, information, representations and opinions made available to us as of the Latest Practicable Date. Our opinion does not in any manner address the Company’s own decision to proceed with the CCT Agreements and the transactions contemplated thereunder. We disclaim any undertaking or obligation to advise any person of any change in any fact or matter affecting the opinion expressed herein, which may come or be brought to our attention after the Latest Practicable Date.

PRINCIPAL FACTORS CONSIDERED

In formulating our opinion regarding the CCT Agreements, we have taken into consideration the following principal factors:

Background and reasons for entering into the CCT Agreements

The Group is principally engaged in the business of manufacture and sales of pharmaceutical products in the PRC.

Yuan Chuang Yu Cheng is principally engaged in research and development of pharmaceutical technology in the PRC. As advised by the Company, Yuan Chuang Yu Cheng has its laboratory and office located at Beijing, and currently hires 37 experts and staffs, comprising five with doctor’s degree and 14 with master’s degree.

Yuan Nuo Wei Sheng is principally engaged in research and development of pharmaceutical technology in the PRC. As advised by the Company, Yuan Nuo Wei Sheng has its laboratory located at Wuhan, the PRC, and currently hires 18 experts and staffs, comprising two with doctor’s degree and 10 with master’s degree.

Huadong Medicine is principally engaged in manufacture and sale of pharmaceutical

products.

Bao Ding Jiu Fu is principally engaged in manufacture and sale of pharmaceutical products

raw materials.

Yan Cheng Xin Yi is principally engaged in manufacture and sale of pharmaceutical products raw materials.

Grand Group Corporation is principally engaged in various business such as logistics, trading and investment, which including the export and import of pharmaceutical products raw materials.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As mentioned in the section headed “Introduction” above, as Yuan Chuang Yi Cheng, Yuan Nuo Wei Sheng, Huadong Medicine, Bao Ding Jiu Fu, Yan Cheng Xin Yi and Grand Group Corporation are regarded as connected persons of the Company since they are associates of the China Grand. As advised by the Company, China Grand (which is indirect-wholly owned by Mr. Hu, the substantial shareholder of the Company) became a connected person of the Company since August 2011, and there were no transactions between China Grand or its associates and the Group since August 2011, while there were a few transactions between the Group and the associates of China Grand in the first half of 2011.

As disclosed in the Board’s Letter, the entering into the Grand Pharm R&D Agreements respectively can secure a reliable provision of research and development services, which is essential for the development of new products and continuous improvement of the existing products, and outsource the research and development processes to reliable supplier can enhance the cost efficiency and minimize the business risk of the Group. Furthermore, as noted from the management of the Company, as the preliminary pharmaceutical concepts of the subject research and development projects originated with the Group might involve inventive ideas and/ or related groundwork information which the management of the Group considers commercially confidential, the Group is reluctant to disclose such preliminary pharmaceutical concepts to a wide choice of candidates providing pharmaceutical research and development services during the selection process, and the Company intends to outsource the research and development projects to Yuan Chuang Yu Cheng and Yuan Nuo Wei Sheng respectively instead of to other independent third parties due to reasons of confidentiality and the acceptable time schedule of the projects preliminarily negotiated between the parties, and in view of the existing facilities and expertise of Yuan Chuang Yu Cheng and Yuan Nuo Wei Sheng, the outsourcing would enable the Group to save cost and time in setting up and maintaining a new research team, including but not limited to recruitment of eligible experts, expenses for deployment of staff after completion of the projects, rental, purchase and/or maintenance of laboratories/equipment, specialized in such projects.

As disclosed in the Board’s Letter, (i) the entering into of the Grand Pharm Supply Agreement can allow the Group to utilize the sales networks of Huadong Medicine to promote the products of the Group to different regions and enhance the brand name of the products of the Group; and (ii) the entering into of the Xianle Purchase Agreements can maintain good products quality and to ensure the constant supply of raw materials, which are beneficial to implement the Group’s business strategy and to reduce its operation risks.

Under the Grand Pharm Supply Agreement, the Group may sell pharmaceutical preparations to Huadong Medicine, including various medicines specific for different areas, such as cerebrocardiovascular medicines and antibiotics, and pharmaceutical intermediates to Huadong Medicine, which are chemicals and are raw materials for Huadong Medicine to manufacture its own products. Under the Xianle Purchase Agreements, the Group may purchase raw materials from the respective suppliers for the Group’s own production of steroid hormones and intermediates. As advised by the Company, the products under the Grand Pharm Supply Agreement and the Xianle Purchase Agreements are different with each other, and thus there is no overlapping of products supplied by the suppliers to the Group under the Xianle Purchase Agreement and those supplied by the Group to Huadong Medicine.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As mentioned in the Board’s Letter, taking into account of the difference in products, target customers and principal activities engaged by each of the respective counterparties of the CCT Agreements, the Directors confirm that they are not competing and is unlikely to compete with the Company’s business. As noted from the management of the Company, (i) the business of the Group is different from that of Yuan Chuang Yu Cheng and Yuan Nuo Wei Sheng as the Group does not provide any research and development services to other pharmaceutical manufacturers; (ii) the products of Huadong Medicine and that of the Group are different targeting on different customer groups in that the products of Huadong Medicine mainly includes diabetes medicines, digestive system medicines, blood medicines, orthopaedic and traumatology medicines acquired or produced by itself, while the products of the Group mainly includes cerebro-cardiovascular, ophthalmic, antibacterial and antibiotics, antipyretics and analgestic; and (iii) the principal activities and the products of Bao Ding Jiu Fu, Yan Cheng Xin Yi and Grand Group Corporation are different from that of the Group in that each of Bao Ding Jiu Fu and Yan Cheng Xin Yi is principally engaged in manufacture and sale of pharmaceutical products raw materials and Grand Group Corporation is principally engaged in various business such as logistics, trading and investment, which including the export and import of pharmaceutical products raw materials (which are chemicals), while the Group is principally engaged in manufacture and sales of pharmaceutical products. We consider that so far as the principal activities, products and target customers of the Group and that of the counterparties under the CCT Agreements are different, there is no competition between the business of the Group and that of such counterparties.

Taking into account principal business of the Group in manufacture and sales of pharmaceutical products in the PRC, we consider that the entering into of the CCT Agreements, covering business areas of research and development, sourcing as well as sales and distribution relating to pharmaceutical products and/or raw materials, are in the ordinary and usual course of business of the Group.

Principal terms of the Grand Pharm R&D Agreements

As mentioned in the section headed “Introduction” above, on 28 November 2012, Grand Pharm (China) as purchaser entered into:

(i) the Grand Pharm R&D Agreement I with Yuan Chuang Yi Cheng as supplier, pursuant to which Yuan Chuang Yi Cheng shall provide research and development services for Bosentan to Grand Pharm (China) or its related companies;
(ii) the Grand Pharm R&D Agreement II with Yuan Chuang Yi Cheng as supplier, pursuant to which Yuan Chuang Yi Cheng will provide research and development services for Trimetazidine to Grand Pharm (China) or its related companies; and
(iii) the Grand Pharm R&D Agreement III with Yuan Nuo Wei Sheng as supplier, pursuant to which Yuan Nuo Wei Sheng shall provide research and development services for Bimatoprost pharmaceutical raw material and Bimatoprost eyedrops to Grand Pharm (China) or its related companies.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Each of the Grand Pharm R&D Agreements has a term commencing from the Effective Date (being the date falling upon the passing of the relevant resolutions by the Independent Shareholders at the SGM) until 31 December 2014.

Under each of the Grand Pharm R&D Agreements, (i) separate agreements shall be entered into between Grand Pharm (China) and Yuan Chuang Yi Cheng or Yuan Nua Wei Sheng (as the case may be) for specific details of the scope of services and the relevant technical requirements followed by arm’s length negotiations between the parties thereto on an individual basis; and (ii) the fees payable by the Group will be satisfied in cash within 90 days after the date of the relevant demand note. As disclosed in the Board’s Letter, the Directors consider that the pricing basis will be made on an arm’s length basis in the ordinary and usual course of business and on normal commercial terms or are on terms not less favourable than those which will be paid by Grand Pharm (China) or its related companies to other independent third parties for the same and similar services (if any). Details regarding the terms of the Grand Pharm R&D Agreements are set out in the Board’s Letter.

The Group has not conducted any transactions similar to that under the Grand Pharm R&D Agreements with Yuan Chuang Yi Cheng or Yuan Nuo Wei Sheng (as the case may be) for the past 12 months prior to the Latest Practicable Date. For information purpose only, in accordance with the Rule 14A.37 of the Listing Rule, each year the independent non-executive directors of the Company must review the continuing connected transactions under each of the Grand Pharm R&D Agreements and confirm in the annual report and accounts that the transactions have been entered into: (i) in the ordinary and usual course of business of the Group; (ii) either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Company than terms available to independent third parties; and (iii) is in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Due to the unique and service nature of the research projects, we are given to understand from the Company that the pricing basis under the respective Grand Pharm R&D Agreements is to be determined depending on the scope of services of related requisite services at different stage of the researches and the relevant estimated fees (taking into account various factors including but not limited to the expected time, experts, resources involved and other testing services). In addition, having reviewed the expected budget in relation to conducting the relevant researches by the Group itself and the estimated fees chargeable by Yuan Chuang Yi Cheng or Yuan Nuo Wei Sheng (as the case may be), we note that the estimated fees chargeable by the Yuan Chuang Yi Cheng or Yuan Nuo Wei Sheng (as the case may be) would be less than the expected expenses for conducting the relevant researches by the Group itself, due to factors including recruitment of eligible experts, expenses for deployment of staff after completion of the projects, rental, purchase and/or maintenance of laboratories/equipment for establishing an internal research team and facilities, which also requires time for setting up. However, given the unique nature of each of the research projects under the Grand Pharm R&D Agreements and no open market information regarding similar transactions is available to us, we consider that we are not in the position to opine on the fairness and reasonableness of the pricing basis under the respective Grand Pharm R&D Agreements and whether such pricing basis is on normal commercial terms. Nevertheless, provided

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

that the outsourcing of the research projects would be more cost and time effective to the Group, we consider that the pricing basis under the respective Grand Pharm R&D Agreements is commercially justifiable, and the entering into of the Grand Pharm R&D Agreements is in the interests of the Company and the Shareholders as a whole.

The Grand Pharm R&D Caps respectively are set out below:

Year ending Year ending 31 December 2013 31 December 2014 Grand Pharm First R&D RMB3.6 million RMB1.5 million Caps under the Grand Pharm R&D Agreement I Grand Pharm Second R&D RMB1.0 million RMB1.0 million Caps under the Grand Pharm R&D Agreement II Grand Pharm Third R&D RMB3.5 million RMB3.5 million Caps under the Grand Pharm R&D Agreement III

As disclosed in the Board’s Letter, the Grand Pharm R&D Caps respectively are estimated based on the anticipated growth in demand of new products, taking into account the possible improvement to cope with the future expansion of the business and in line with the Group’s development strategy. Having reviewed the calculation of each of the Grand Pharm R&D Caps, with breakdown figures of expertise and material cost, testing and verification services fee and other miscellaneous expenses, etc, provided by the management of the Company, it is noted that the Grand Pharm R&D Caps are estimated based on estimated scope of related requisite services at different stage of the researches and the relevant estimated fees (taking into account various factors including but not limited to the expected resource cost based on estimated number of experts at different levels and research utilities and material expenses by expected number of days, expected fee for other testing and verification services and possible miscellaneous charges such as travelling and relevant registration fees) chargeable by Yuan Chuang Yi Cheng or Yuan Nuo Wei Sheng (as the case may be) during the respective term of the Grand Pharm R&D Agreements. Given the unique technical and service nature of the research projects, we consider that the determination of the Grand Pharm R&D Caps depending on the scope of services, in terms of time, expertise, resources and testing requirements, for different stage of the researches is fair and reasonable. We also consider that the entering into of the Grand Pharm R&D Agreements would enable the Group to outsource research and development projects for the improvement of existing products and possible launch of new products in line with the business development of the Group and in the ordinary and usual course of business of the Group.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Other than we consider that we are not in the position to opine on the fairness and reasonableness of the pricing basis under the respective Grand Pharm R&D Agreements and whether such pricing basis is on normal commercial terms given the unique nature of each of the research projects under the Grand Pharm R&D Agreements and no open market information regarding similar transactions is available to us, we consider that the other terms of the respective R&D Grand Pharm Agreements (including the Grand Pharm R&D Caps) are fair and reasonable, and the Grand Pharm R&D Agreements are entered into in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole as detailed above.

Principal terms of the Grand Pharm Supply Agreement

As mentioned in the section headed “Introduction” above, on 28 November 2012, Grand Pharm (China) as supplier entered into the Grand Pharm Supply Agreement with Huadong Medicine as purchaser, pursuant to which Grand Pharm (China) or its related companies shall supply pharmaceutical preparations, raw materials and technologies to Huadong Medicine or its related companies.

The Grand Pharm Supply Agreement has a term commencing from the Effective Date (being the date falling upon the passing of the relevant resolutions by the Independent Shareholders at the SGM) until 31 December 2014.

Under the Grand Pharm Supply Agreement, (i) separate agreements shall be entered into between Grand Pharm (China) and Huadong Medicine for specific details of the scope of services and the relevant technical requirements followed by arm’s length negotiations between the parties thereto on an individual basis; (ii) the price and size of the products to be supplied to Huadong Medicine or its related companies shall be determined between Huadong Medicine and the Group on an order-by-order basis and credit period of 90 days will be given after delivery; and (iii) the fees chargeable by the Group will be satisfied in cash. As disclosed in the Board’s Letter, the Directors consider that the pricing basis will be made on an arm’s length basis in the ordinary and usual course of business and on normal commercial terms with reference to similar transactions carried out in the market or are on terms not less favourable than those which will be charged by Grand Pharm (China) or its related companies to other independent customers for the same or similar services (if any). Details regarding the terms of the Grand Pharm Supply Agreement are set out in the Board’s Letter.

The Group has not conducted any transactions similar to that under the Grand Pharm Supply Agreement with Huadong Medicine for the past 12 months prior to the Latest Practicable Date. For information purpose only, in accordance with the Rule 14A.37 of the Listing Rule, each year the independent non-executive directors of the Company must review the continuing connected transactions under the Grand Pharm Supply Agreement and confirm in the annual report and accounts that the transactions have been entered into: (i) in the ordinary and usual course of business of the Group; (ii) either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Company than terms available to independent third parties; and (iii) is in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the information provided by the Company, the Group has established (i) a selling price list setting price range for each of the products, which is reviewed and updated periodically, and is applicable to all customers and any prices quoted below from the price range indicated on selling price list would requires approval from the deputy general manager in charge of the sales; and (ii) internal guidelines in respect of credit period with customers of not more than 90 days, except for customers located at the North-East, North West and South-West regions, the PRC with credit period of not more than 95 days taking into account the time for delivery. As the selling prices of the relevant products to Huadong Medicine are to be quoted from the said selling price list and, if quoted below the relevant price range, should be approved by the deputy general manager in charge of the sales, the Company believes that the actual selling prices to Huadong Medicine are based on normal commercial terms with reference to the selling prices of similar products by the Group to other customers who are independent third parties and such selling prices are not be less favorable to the Group than that to independent third parties. Given a selling price list for the products of the Group in effect from time to time is applicable all customers including Huadong Medicine and the credit period(s) offered by the Group is the same to customers located in the same region, we consider that such internal practice of the Group is sufficient to ensure that the selling prices of the relevant products and the credit period offered to Huadong Medicine will be on normal commercial terms, fair and reasonable, and not be less favourable to the Group than that to the independent third parties. Nevertheless, the Company should be fully responsible for implementing the Grand Pharm Supply Agreement in accordance with the terms of the Grand Pharm Supply Agreement, the relevant requirements under the Listing Rules and the aforesaid internal practice. We disclaim any liabilities on any non-compliance with, and/or failure or ignorance of the Group and/or any parties involving in the transactions contemplated under the Grand Pharm Supply Agreement in implementing in accordance with, the terms of the Grand Pharm Supply Agreement, the Listing Rules and the aforesaid internal practice.

The Grand Pharm Supply Caps are set out below:

	Year ending	Year ending
	31 December 2013	31 December 2014
Grand Pharm Supply	RMB18.0 million	RMB20.0 million
Caps under the Grand
Pharm Supply Agreement

As disclosed in the Board’s Letter, the Grand Pharm Supply Caps are determined based on the estimated maximum orders to be placed to the Group as indicated by Huadong Medicine or its related companies Having reviewed the estimation of the Grand Pharm Supply Caps which is calculated based on the estimated figures of maximum orders by breakdown of various medicinal products to be placed to the Group as indicated by Huadong Medicine or its related companies and the estimated selling price of the relevant types of products (which is in line with the currently intended pricing policy of the Group applicable to all customers as detailed above), we consider that the Grand Pharm Supply Caps are estimated based on the expected demand of the products by Huadong Medicine from the Group, which represents revenue to the Group, and are fair and

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

reasonable. As a reference, we also noted that the Grand Pharm Supply Caps for the year ending 31 December 2013 and the year ending 31 December 2014 represents approximately 1.09% and 1.21% of the audited revenue of the Group for the year ended 31 December 2011. We also consider that the Grand Pharm Supply Agreement represents possible stream of revenue of the Group in the ordinary and usual course of business of the Group.

Given (i) the Grand Pharm Supply Agreement is entered into in the ordinary and usual course of business of the Group, which represents possible stream revenue of the Group; (ii) the pricing basis of the transactions contemplated thereunder will be made on an arm’s length basis in the ordinary and usual course of business and on normal commercial terms or are on terms not less favourable than those which will be charged by Grand Pharm (China) or its related companies to other independent third parties for the same and similar services (if any), the proper implementation of which shall be governed by Rule 14A.37 of the Listing Rule; and (iii) basis of estimation of the Grand Pharm Supply Caps as stated above, we consider that the terms of the Grand Pharm Supply Agreement (including the Grand Pharm Supply Caps) are on normal commercial terms, and fair and reasonable so far as the Company and Independent Shareholders are concerned.

Principal terms of the Xianle Purchase Agreements

As mentioned in the section headed “Introduction” above, on 28 November 2012, Zhejiang Xianle as purchaser entered into:

(i) the Xianle Purchase Agreement I with Bao Ding Jiu Fu as supplier, pursuant to which Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediates from Bao Ding Jiu Fu or its related companies;
(ii) the Xianle Purchase Agreement II with Yan Cheng Xin Yi as supplier, pursuant to which Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediates from Yan Cheng Xin Yi or its related companies; and
(ii) the Xianle Purchase Agreement III with Grand Group Corporation as supplier, pursuant to which Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediaries from Grand Group Corporation or its related companies.

Each of the Xianle Purchase Agreements has a term commencing from the Effective Date (being the date falling upon the passing of the relevant resolutions by the Independent Shareholders at the SGM) until 31 December 2014.

Under each of the Xianle Purchase Agreements, (i) the fees payable by the Group will be satisfied in cash; and (ii) the price and size of the products to be supplied by the relevant supplier or its related companies will be determined between the relevant supplier and the Group on an orderby-order basis and credit period of 90 days will be provided after delivery. As disclosed in the Board’s Letter, the Directors consider that the pricing basis will be made on an arm’s length basis

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

in the ordinary and usual course of business and on normal commercial terms or are on terms not less favourable than those which will be paid by Zhejiang Xianle or its related companies to other independent suppliers for the same or similar services (if any). Details regarding the terms of the Xianle Purchase Agreements are set out in the Board’s Letter.

The Group has not conducted any transactions similar to that under the Xianle Purchase Agreements with Bao Ding Jiu Fu, Yan Cheng Xin Yi and/or Grand Group Corporation (as the case may be) for the past 12 months prior to the Latest Practicable Date. For information purpose only, in accordance with the Rule 14A.37 of the Listing Rule, each year the independent non-executive directors of the Company must review the continuing connected transactions under the Xianle Purchase Agreements and confirm in the annual report and accounts that the transactions have been entered into: (i) in the ordinary and usual course of business of the Group; (ii) either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Company than terms available to independent third parties; and (iii) is in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

According to the information provided by the Company, the Group has established internal procedures for management of raw material purchases, according to which the sourcing team should be responsible for selecting suppliers of raw materials by criteria of raw material quality and selling price, including soliciting and comparing quotations from suppliers. As quotations from suppliers are to be compared before making orders of the relevant raw materials, the Company believes that the actual selling prices of raw materials from the relevant counterparts to the Xianle Purchase Agreements respectively are based on normal commercial terms with reference to the selling prices of similar raw materials offered by other suppliers who are independent third parties and such selling prices are not be less favorable to the Group than that to independent third parties. Given quotations from suppliers are to be compared before making orders by the sourcing team of the Group, we consider that such internal practice of the Group is sufficient to ensure that the selling prices of the relevant raw materials to be purchased by the Group from the relevant counterparties to the Xianle Purchase Agreements respectively will be on normal commercial terms, fair and reasonable, and not be less favourable to the Group than that to the independent third parties. Nevertheless, the Company should be fully responsible for implementing the Xianle Purchase Agreements in accordance with the terms of the Xianle Purchase Agreement, the relevant requirements under the Listing Rules and the aforesaid internal practice. We disclaim any liabilities on any non-compliance with, and/or failure or ignorance of the Group and/or any parties involving in the transactions contemplated under the Xianle Purchase Agreements in implementing in accordance with, the terms of the Xianle Purchase Agreements, the Listing Rules and the aforesaid internal practice. In addition, as evidenced by contracts between the Group and other independent suppliers, the credit period offered by existing independent suppliers of the Group ranged from 7 days to 90 days. As such, we consider that the credit period of 90 days under the respective Xianle Purchase Agreements are on normal commercial terms, and fair and reasonable.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Xianle Purchase Caps respectively are set out below:

	Year ending	Year ending
	31 December 2013	31 December 2014
Xianle First Purchase	RMB80.0 million	RMB146.0 million
Caps under the Xianle
Purchase Agreement I
Xianle Second Purchase	RMB60.0 million	RMB80.0 million
Caps under the Xianle
Purchase Agreement II
Xianle Third Purchase	RMB5.0 million	RMB8.0 million
Caps under the Xianle
Purchase Agreement III

As disclosed in the Board’s Letter, the Xianle Purchase Caps are determined based on the estimated total amount of products to be purchased from Bao Ding Jiu Fu, Yan Cheng Xin Yi, Grand Group Corporation or their respective related companies (as the case may be). Having reviewed the estimation of the Xianle Purchase Caps which is calculated based on the estimated quantity of raw materials by breakdown of product types to be purchased by the Group from the relevant suppliers (based on the intended production targets of steroid hormones and intermediates of the Group taking into account factors including the historical sales figures of the products and expected launch of upgraded products, and thus the corresponding demand for the relevant raw materials) and the estimated selling price of the relevant types of raw materials (as preliminarily indicated by the relevant suppliers under the Xianle Purchase Agreements), we consider that the Xianle Purchase Caps are estimated based on the demand of the relevant raw materials from the relevant suppliers under the Xianle Purchase Agreements by the Group essential for production of its medicine products, and fair and reasonable. We also consider that the entering into of the Xianle Purchase Agreements can enable the Group to enhance constant supply of raw materials, thus reducing its operation risks, in the ordinary and usual course of business of the Group.

Given (i) the Xianle Purchase Agreements are entered into in the ordinary and usual course of business of the Group; (ii) the pricing basis of the transactions contemplated thereunder will be made on an arm’s length basis in the ordinary and usual course of business and on normal commercial terms or are on terms not less favourable than those which will be paid by Zhejiang Xianle or its related companies to other independent third parties for the same and similar services (if any), the proper implementation of which shall be governed by Rule 14A.37 of the Listing Rule; and (iii) basis of estimation of the Xianle Purchase Caps as stated above, we consider that the terms of the Xianle Purchase Agreements (including the Xianle Purchase Caps) are on normal commercial terms, and fair and reasonable so far as the Company and Independent Shareholders are concerned.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having considered the above principal factors and reasons, we are of the opinion that (i) other than we consider that we are not in the position to opine on the fairness and reasonableness of the pricing basis under the respective Grand Pharm R&D Agreements and whether such pricing basis is on normal commercial terms given the unique nature of each of the research projects under the Grand Pharm R&D Agreements and no open market information regarding similar transactions is available to us, we consider that the other terms of the respective R&D Grand Pharm Agreements (including the Grand Pharm R&D Caps) are fair and reasonable, and the Grand Pharm R&D Agreements are entered into in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole; (ii) the Grand Pharm Supply Agreement is entered into in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole, and the terms of the Grand Pharm Supply Agreement (including the Grand Pharm Supply Caps) are on normal commercial terms, fair and reasonable; and (iii) the Xianle Purchase Agreements is entered into in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole, and the terms of the Xianle Purchase Agreements (including the Xianle Purchase Caps) are on normal commercial terms, fair and reasonable. As such, we advise the Independent Shareholder, and the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the relevant resolutions to approve the CCT Agreements and the transactions contemplated thereunder (including the Grand Pharm R&D Caps, the Grand Pharm Supply Caps and the Xianle Purchase Caps) at the SGM.

Yours faithfully, For and on behalf of Nuada Limited Po Chan Executive Director

GENERAL INFORMATION

APPENDIX I

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2 DISCLOSURE OF INTERESTS

(a) Directors’ and chief executive’s interests and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, the interests or short positions of the Directors and the chief executives of the Company in the Shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required (i) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provision of the SFO); or (ii) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules, were as follows:

Interests in Shares:

			Approximate
			percentage or
			attributable
	Number of the		percentage of
Name of Director	Shares held	Nature of interests	shareholding
			(%)
Shao Yan_(Note)_	1,000,000(L)	Interest in spouse	0.05

(L) denotes long position

Note: Dr. Shao Yan is the spouse of Ms. Tian Wen Hong who is the holder of the above shares. By virtue of the SFO, Dr. Shao Yan shall be deemed to be interested in such 1,000,000 Shares.

APPENDIX I

GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company had or was deemed to have any interests or short positions in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required (i) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules.

(b) Persons who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO

So far as is known to the Directors and the chief executive of the Company, as at the Latest Practicable Date, the following persons (not being Directors or chief executive of the Company) had, or were deemed to have, interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:

	Number or		Approximate
	attributable		percentage or
	number of		attributable
	Shares held or		percentage of
Name of Shareholder	short positions	Nature of interests	shareholding
			(%)
Outwit	1,228,275,094(L)	Beneficial owner	62.60
Mr. Hu_(Note 1)_	1,228,275,094(L)	Beneficial owner	62.60
Huang Gang City	RMB4,000,000	Beneficial shareholder	10.26%
State-Owned Asset	out of	of a member
Operation Company	RMB38,990,000	of the Group
(黃岡市國有資產	registered capital(L)
經營公司)(Note 2)*

APPENDIX I

GENERAL INFORMATION

Number or Approximate attributable percentage or number of attributable Shares held or percentage of Name of Shareholder short positions Nature of interests shareholding (%) 武漢大學資產經營投資 RMB12,300,000 Beneficial shareholder 24.60% 管理有限責任公司 out of of a member (Wuhan University RMB50,000,000 of the Group Assets Operation registered capital(L) Investment Management Limited) (Note 3) 武漢市蔬菜科學研究所 RMB921,006 Beneficial shareholder 16.05% (Wuhan City out of of a member Vegetables Science RMB5,736,888 of the Group Research Institution) registered capital(L) (Note 4) 北京九州互聯農牧科技 RMB2,000,000 Beneficial shareholder 50% 有限公司(Beijing Jiu out of of an associated Zhou Hu Lian Nong RMB4,000,000 corporation of Mu Technology registered capital(L) the Company Limited*) (Note 5) Mr. Yang Li Xin (Note 6) RMB1,020,000 Beneficial shareholder 51% out of of an associated RMB2,000,000 corporation of registered capital(L) the Company Mr. Ye Bo (Note 7) RMB1,800,000 Beneficial shareholder 18% out of of a member RMB10,000,000 of the Group registered capital(L) Ms. Ye Jing Jing RMB1,500,000 Beneficial shareholder 15% (Note 8) out of of a member RMB10,000,000 of the Group registered capital(L)

Mr. Ye Bo (Note 7)

Ms. Ye Jing Jing (Note 8)

GENERAL INFORMATION

APPENDIX I

Notes:

These shares are held by Outwit, the entire issued share capital of which is wholly owned by Mr. Hu.
Huang Gang City State-Owned Asset Operation Company (黃岡市國有資產經營公司*) established in the PRC, holds approximately 10.26% (i.e. RMB4,000,000 out of RMB38,990,000 registered capital) in Hubei Grand Grand Fuchi Pharmaceutical and Chemical Company Limited .
武漢大學資產經營投資管理有限責任公司 (Wuhan University Assets Operation Investment Management Limited*) established in the PRC, holds approximately 24.60% (i.e. RMB12,300,000 out of RMB 50,000,000 registered capital) in Wuhan Grand Hoyo Company Limited.
武漢市蔬菜科學研究所 (Wuhan City Vegetables Science Research Institution*) established in the PRC, holds approximately 16.05% (i.e. RMB921,006 out of RMB5,736,888 registered capital) in Wuhan Kernel Bio Tech Company Limited.
北京九州互聯農牧科技有限公司 (Beijing Jiu Zhou Hu Lian Nong Mu Technology Limited[] ) established in the PRC, holds approximately 50% (i.e. RMB2,000,000 out of RMB4,000,000 registered capital) in 武漢智薈生物科技股份有限公司 (Wuhan Zhi Hui Bio-Technology Holdings Limited[] ), an associated corporation of the Company.
Mr. Yang Li Xin holds approximately 51% (i.e. RMB1,020,000 out of RMB2,000,000 registered capital) in 陽新富新化工有限責任公司 (Yang Xin Fu Xin Chemical Limited[*] ), an associated corporation of the Company.
Mr. Ye Bo holds approximately 18% (i.e. RMB1,800,000 out of RMB10,000,000 registered capital) in Zhejiang Xianju Xianle Pharmaceuticl Company Limited.
Ms. Ye Jing Jing holds approximately 15% (i.e. RMB1,500,000 out of RMB10,000,000 registered capital) in Zhejiang Xianju Xianle Pharmaceuticl Company Limited.

Save as disclosed above, as at the Latest Practicable Date, no other persons had, or were deemed to have, interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group. As at the Latest Practicable Date, so far as the Directors or chief executive of the Company is aware, none of the Directors is a director or employee of a company which has an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

GENERAL INFORMATION

APPENDIX I

3. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Group within the two years immediately preceding the Latest Practicable Date which are or may be material:

the share transfer agreement dated 27 December 2010 entered into between 武漢東湖創新科技投資有限公司 (Wuhan Donghu Innovation and High Tech Investments Limited) and Grand Pharm (China) relating to the acquisition of a 6.4% equity interest in the registered capital of 武漢遠大弘元股份有限公司 (Wuhan Grand Hoyo Company Limited) at a consideration of RMB5,420,000 (equivalent to approximately HK$6,287,000);
the acquisition agreement dated 22 September 2011 entered into between 武漢光谷聯合股份有限公司 (Wuhan Optics Valley Union Company Limited[#] ) and Grand Pharm (China) relating to the sale and purchase of the 46,483,880 shares of RMB1.00 each in the registered capital of 武漢科諾生物科技股份有限公司 (Wuhan Kernel Bio Tech Co., Limited[#] representing 81.0263% of the total share capital of 武漢科諾生物科技股份有限公司 (Wuhan Kernel Bio Tech Co., Limited[#] ) at a consideration of RMB110,000,000 (equivalent to approximately HK$134,146,341);
the subscription agreement dated 14 February 2012 entered into between the Company and 武漢英納威管理咨詢有限公司 (Wuhan Ying Na Wei Management Consultancy Limited[#] (the “Ying Na Wei”) relating to the subscription of 41,240,000 new shares to be allotted and issued by the Company to Ying Na Wei at HK$0.333 per shares;
the acquisition agreement dated 14 February 2012 entered into between China Grand Pharmaceutical (Hong Kong) Limited and Ying Na Wei relating to the sale and purchase of the 2.28% equity interest of Grand Pharm (China) at a consideration of approximately RMB9,660,000 (equivalent to approximately HK$11,930,000);
the acquisition agreement dated 12 November 2012 entered into between 湖北絲寶藥業有限公司 (Hubei C-Bons Pharmaceutical Co., Ltd[#] ) and Grand Pharm (China) relating to the sale and purchase of the entire share capital of 湖北舒邦藥業有限公司 (Hubei Wellness Pharmaceutical Co. Ltd[#] ) at a consideration of RMB72,000,000 (equivalent to approximately HK$89,440,994);
the CCT Agreements;
the agreement dated 28 November 2012 entered into between Yuan Chuang Yi Cheng and Grand Pharm (China) relating to the provision of research and development services for improvement of Metoprolol Tartrate tablets by Yuan Chuang Yi Cheng to Grand Pharm (China) or its related companies;
the agreement dated 28 November 2012 entered into between Zhejiang Xianle and 江蘇九陽生物制藥有限公司 (Jiang Su Jiu Yang Biological Pharmaceutical Limited[#] ) in respect of sub-contract the processing works of steroid hormones and intermediates to Jiang Su Jiu Yang;

GENERAL INFORMATION

APPENDIX I

the share transfer agreement dated 17 December 2012 entered into among 武漢和勤艾管理諮詢有限公司 (Wuhan Heqinlove Consultation Management Co., Ltd.[#] ) and Wuhan State-Owned Assets Management Limited in related to the sale and purchase of 20.26% of the entire equity interest in the registered and paid up capital of Grand Pharm (China) at a consideration of approximately RMB134,900,000 (equivalent to HK$167,600,000); and
the acquisition agreement dated 21 December 2012 entered into among 武漢和勤艾管理諮詢有限公司 (Wuhan Heqinlove Consultation Management Co., Ltd.[#] ) and 武漢開元科技創業投資有限公司 (Wuhan KeyWin Venture Capital Co., Ltd[#] ) in related to the sale and purchase of 3.39% of the entire equity interest in the registered and paid up capital of Grand Pharm (China) at a consideration of RMB20,064,000 (equivalent to approximately HK$24,924,000).

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

5. INTERESTS IN ASSETS, CONTRACTS OR ARRANGEMENT

As at the Latest Practicable Date, none of the Directors, proposed directors and Nuada Limited has, or had had, any direct or indirect interest in any assets which had been or are proposed to be acquired, disposed of by or leased to, any member of the Group since 31 December 2011, the date to which the latest published audited financial statements of the Company were made up. None of the Directors is materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Group.

6. EXPERT AND CONSENT

The following is the qualification of the expert who has given opinions or advice which are contained in this circular:

Name Qualifications

Nuada Limited A licensed corporation under the SFO to conduct type 6 (advising on corporate finance regulated activities)

Nuada Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and report and references to its name in the form and context in which it appears.

As at the Latest Practicable Date, Nuada Limited did not have any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate person to subscribe for securities in any member of the Group.

7. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was involved in any litigation or arbitration of material importance and no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

GENERAL INFORMATION

APPENDIX I

8. MATERIAL ADVERSE CHANGE

The Directors are not aware of any circumstances or events that may give rise to a material adverse change in the financial or trading position of the Group since 31 December 2011, being the date of which the latest audited financial statement of the Group were made up.

9. COMPETING INTERESTS

10. MISCELLANEOUS

(a) There is no contract or arrangement entered into by any member of the Group subsisting at the date of this circular in which any Director is materially interested and which is significant to the business of the Group.
(b) The English text of this circular and the accompanying form of proxy shall prevail over their respective texts in case of inconsistency.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours on any weekday (except for public holidays) at the head office and principal place of business of the Company in Hong Kong at Unit 3302. The Centre, 99 Queen’s Road Central, Hong Kong from the date of this circular up to and including 11 February 2013:

(a) the CCT Agreements;
(b) the memorandum of association and bye-laws of the Company;
(c) the material contracts as referred to in the paragraph headed “Material contracts” in this appendix;
(d) the written consent referred to in the paragraph headed “Expert and consent” in this appendix;
(e) the letter from the Independent Board Committee, the text of which is set out on page 29 in this circular; and
(f) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 30 to 43 in this circular.

NOTICE OF SGM

==> picture [52 x 61] intentionally omitted <==

**China Grand Pharmaceutical and Healthcare Holdings Limited 遠大醫藥健康控股有限公司[*]**

(Incorporated in Bermuda with limited liability)

(Stock Code: 00512)

NOTICE OF SGM

NOTICE IS HEREBY GIVEN that the Special General Meeting (the “ SGM ”) of China Grand Pharmaceutical and Healthcare Holdings Limited (the “Company”) will be held at Unit 3302, The Centre, 99 Queen’s Road Central, Hong Kong Tuesday, 19 February 2013 at 10:30 a.m. for the purposes of considering and, if thought fit, passing the following resolutions with or without amendments as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT
(a) the R&D agreement (the “ Grand Pharm R&D Agreement I ”) dated 28 November 2012 and entered into between 北京遠創易成醫藥科技有限公司 (Yuan Chuang Yi Cheng Pharmaceutical Technology Limited[#] )(“ Yuan Chuang Yi Cheng ”) as supplier and Grand Pharm (China) Limited (“ Grand Pharm (China) ”) as customer in respect of the provision of research and development services for Bosentan by Yuan Chuang Yi Cheng (a copy of which has been produced to the SGM marked “A” and initialed by the Chairman of the SGM for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the annual caps for the transactions contemplated under the Grand Pharm R&D Agreement I as stated in the Circular for the two years ending 31 December 2014 be and are hereby approved; and
(c) any one or more of the directors (the “ Directors ”) of the Company be and is/are hereby authorized to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Grand Pharm R&D Agreement I and the transactions contemplated thereunder.”
For identification purpose only

NOTICE OF SGM

“ THAT
(a) the R&D agreement (the “ Grand Pharm R&D Agreement II ”) dated 28 November 2012 and entered into between Yuan Chuang Yi Cheng as supplier and Grand Pharm (China) as customer in respect of the provision of research and development services for Trimetazidine by Yuan Chuang Yi Cheng (a copy of which has been produced to the SGM marked “B” and initialed by the Chairman of the SGM for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the annual caps for the transactions contemplated under the Grand Pharm R&D Agreement II as stated in the Circular for the two years ending 31 December 2014 be and are hereby approved; and
(c) any one or more of the Directors of the Company be and is/are hereby authorized to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Grand Pharm R&D Agreement II and the transactions contemplated thereunder.”
“ THAT
(a) the R&D agreement (the “ Grand Pharm R&D Agreement III ”) dated 28 November 2012 and entered into between 武漢遠諾維盛醫藥科技有限公司 (Yuan Nuo Wei Sheng Pharmaceutical Technology Limited[#] ) (“ Yuan Nuo Wei Sheng ”) as supplier and Grand Pharm (China) as customer in respect of the provision of research and development services for Bimatoprost pharmaceutical raw material and Bimatoprost eyedrops by Yuan Nuo Wei Sheng (a copy of which has been produced to the SGM marked “C” and initialed by the Chairman of the SGM for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the annual caps for the transactions contemplated under the Grand Pharm R&D Agreement III as stated in the Circular for the two years ending 31 December 2014 be and are hereby approved; and
(c) any one or more of the Directors of the Company be and is/are hereby authorized to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Grand Pharm R&D Agreement III and the transactions contemplated thereunder.”

NOTICE OF SGM

“ THAT
(a) the supply agreement (the “ Grand Pharm Supply Agreement ”) dated 28 November 2012 and entered into between Grand Pharm (China) as supplier and Huadong Medicine Co., Ltd. (“ Huadong Medicine ”) as customer in respect of the supply pharmaceutical preparations, raw materials and technologies to Huadong Medicine (a copy of which has been produced to the SGM marked “D” and initialed by the Chairman of the SGM for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the annual caps for the transactions contemplated under the Grand Pharm Supply Agreement as stated in the Circular for the two years ending 31 December 2014 be and are hereby approved; and
(c) any one or more of the Directors of the Company be and is/are hereby authorized to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Grand Pharm Supply Agreement and the transactions contemplated thereunder.”
“ THAT
(a) the purchase agreement (the “ Xianle Purchase Agreement I ”) dated 28 November 2012 and entered into between 保定九孚生化有限公司 (Bao Ding Jiu Fu Biochemical Limited[#] ) (“ Bao Ding Jiu Fu ”) as supplier and Zhejiang Xianju Xianle Pharmaceutical Company Limited (“ Zhejiang Xianle ”) as customer in respect of the purchase raw materials for steroid hormones and intermediates from Bao Ding Jiu Fu (a copy of which has been produced to the SGM marked “E” and initialed by the Chairman of the SGM for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the annual caps for the transactions contemplated under the Xianle Purchase Agreement I as stated in the Circular for the two years ending 31 December 2014 be and are hereby approved; and
(c) any one or more of the Directors of the Company be and is/are hereby authorized to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Xianle Purchase Agreement I and the transactions contemplated thereunder.”

NOTICE OF SGM

“ THAT
(a) the purchase agreement (the “ Xianle Purchase Agreement II ”) dated 28 November 2012 and entered into between 鹽城信誼醫藥化工有限公司 (Yan Cheng Xin Yi Pharmaceutical Chemical Limited[#] ) (“ Yan Cheng Xin Yi ”) as supplier and Zhejiang Xianle as customer in respect of the purchase raw materials for steroid hormones and intermediates from Yan Cheng Xin Yi (a copy of which has been produced to the SGM marked “F” and initialed by the Chairman of the SGM for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the annual caps for the transactions contemplated under the Xianle Purchase Agreement II as stated in the Circular for the two years ending 31 December 2014 be and are hereby approved; and
(c) any one or more of the Directors of the Company be and is/are hereby authorized to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Xianle Purchase Agreement II and the transactions contemplated thereunder.”
“ THAT
(a) the purchase agreement (the “ Xianle Purchase Agreement III ”) dated 28 November 2012 and entered into between Grand Group Corporation Limited (“ Grand Group Corporation ”) as supplier and Zhejiang Xianle as customer in respect of the purchase raw materials for steroid hormones and intermediates from Grand Group Corporation (a copy of which has been produced to the SGM marked “G” and initialed by the Chairman of the SGM for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the annual caps for the transactions contemplated under the Xianle Purchase Agreement III as stated in the Circular for the two years ending 31 December 2014 be and are hereby approved; and
(c) any one or more of the Directors of the Company be and is/are hereby authorized to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Xianle Purchase Agreement III and the transactions contemplated thereunder.”

NOTICE OF SGM

8. “ THAT

the resignation of SHINEWING (HK) CPA Limited be and is hereby approved and HLB Hodgson Impey Cheng Limited be and is hereby appointed as auditors of the Company and its subsidiaries to fill the vacancy created by the resignation of SHINEWING (HK) CPA Limited and to hold office until the conclusion of the next annual general meeting of the Company and the board of directors of the Company be authorised to fix their remuneration.”

By order of the Board China Grand Pharmaceutical and Healthcare Holdings Limited Liu Chengwei Chairman

Hong Kong, 28 January 2013

Registered office: Principal place of business in Clarendon House Hong Kong: 2 Church Street Unit 3302, The Centre, Hamilton HM11 99 Queen’s Road Central, Bermuda Hong Kong

Notes:

Any member entitled to attend and vote at the above meeting is entitled to appoint a proxy to attend and vote instead of him. A proxy need not be a member of the Company.
The register of members will be closed from Friday, 15 February 2013 to Tuesday, 19 February 2013, both days inclusive, during which period no transfer of shares can be registered. In order to attend the Special General Meeting, all properly completed transfer forms accompanied by the relevant share certificates must be lodged with the branch share registrar and transfer office of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, Hopewell Centre, 183 Queen’s Road East, Hong Kong no later than 4:30 p.m. on Thursday, 14 February 2013.
To be valid, the form of proxy and the power of attorney or other authority (if any) under which it is signed or a certified copy of that power of attorney or authority must be deposited at the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
Where there are joint holders of a share of the Company, any one of such holders may vote at the meeting either personally or by proxy in respect of such share as if he were solely entitled thereto, but if more than one of such holders be present at the meeting personally or by proxy, that one of such holders so presents whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
Delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the Special General Meeting and in such event, the instrument appointing a proxy shall be deemed to be revoked.

AI assistant

Grand Pharmaceutical Group Limited — Proxy Solicitation & Information Statement 2013

49262_rns_2013-01-28_6ce894c9-6241-49ca-a184-55730c7e1e9a.pdf

China Grand Pharmaceutical and Healthcare Holdings Limited 遠大醫藥健康控股有限公司[*]

(I) CONTINUING CONNECTED TRANSACTIONS;

(II) PROPOSED CHANGE OF AUDITORS; AND

(III) NOTICE OF SPECIAL GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

China Grand Pharmaceutical and Healthcare Holdings Limited 遠大醫藥健康控股有限公司[*]

(I) CONTINUING CONNECTED TRANSACTIONS;

(II) PROPOSED CHANGE OF AUDITORS; AND (III) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

(I) CONTINUING CONNECTED TRANSACTIONS

RELATIONSHIPS BETWEEN THE PARTIES

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(I) Grand Pharm R&D Agreement I

LETTER FROM THE BOARD

(II) Grand Pharm R&D Agreement II

LETTER FROM THE BOARD

(III) Grand Pharm R&D Agreement III

LETTER FROM THE BOARD

(IV) Grand Pharm Supply Agreement

LETTER FROM THE BOARD

(V) Xianle Purchase Agreement I

LETTER FROM THE BOARD

(VI) Xianle Purchase Agreement II

LETTER FROM THE BOARD

(VII) Xianle Purchase Agreement III

LETTER FROM THE BOARD

Common terms of the CCT Agreements

Annual Caps for the CCT Agreements

Grand Pharm R&D Agreements

LETTER FROM THE BOARD

Grand Pharm Supply Agreement

Xianle Purchase Agreements

INFORMATION ABOUT THE GROUP

INFORMATION ABOUT THE COUNTERPARTIES OF THE CCT AGREEMENTS

LETTER FROM THE BOARD

Counterparty of the Principal activities CCT Agreements

Differentiation with the Company’s business in terms of products and target customers

LETTER FROM THE BOARD

REASONS FOR ENTERING INTO THE CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

IMPLICATIONS UNDER THE LISTING RULES

LETTER FROM THE BOARD

(II) PROPOSED CHANGE OF AUDITORS

REASON FOR THE PROPOSED CHANGE OF AUDITORS

SGM

LETTER FROM THE BOARD

INDEPENDENT BOARD COMMITTEE

LETTER FROM THE BOARD

RECOMMENDATION

ADDITIONAL INFORMATION

China Grand Pharmaceutical and Healthcare Holdings Limited 遠大醫藥健康控股有限公司[*]

CONTINUING CONNECTED TRANSACTION

Yours faithfully,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS CONSIDERED

Background and reasons for entering into the CCT Agreements

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Principal terms of the Grand Pharm R&D Agreements

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Principal terms of the Grand Pharm Supply Agreement

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Grand Pharmaceutical Group Limited Proxy Solicitation & Information Statement 2013

**China Grand Pharmaceutical and Healthcare Holdings Limited 遠大醫藥健康控股有限公司[*]**

**China Grand Pharmaceutical and Healthcare Holdings Limited 遠大醫藥健康控股有限公司[*]**

**China Grand Pharmaceutical and Healthcare Holdings Limited 遠大醫藥健康控股有限公司[*]**

**China Grand Pharmaceutical and Healthcare Holdings Limited 遠大醫藥健康控股有限公司[*]**