Grand Pharmaceutical Group Limited - Proxy Solicitation & Information Statement 2015

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)

CONTINUING CONNECTED TRANSACTIONS

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

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 5 to 19 of this circular. A letter of advice from the Independent Board Committee is set out on page 20 of this circular. A letter of advice of the Independent Financial Adviser containing its opinion and advice to the Independent Board Committee and the Independent Shareholders is set out on pages 21 to 36 of this circular.

A notice convening the SGM to be held at Unit 3302, The Centre, 99 Queen’s Road Central, Central, Hong Kong on Friday, 4 December 2015 at 10:30 a.m. is set out on pages SGM-1 to SGM-3 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

13 November 2015

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Letter from the Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Appendix I – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Notice of the SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SGM-1

DEFINITIONS

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

“associate(s)” has the meaning ascribed to it under the Listing Rules “Beijing Yan Huang” Beijing Yan Huang Zhi Ye Limited[#] (北京炎黃置業有限公司), a company established in the PRC with limited liability
“Beijing Yuan Da” Beijing Yuan Da Hua Chuang Investment Limited[#] (北京遠大華創投資有限公司), a company established in the PRC with limited liability
“Board” the board of Directors
“CCT Agreements” collectively, the Grand Pharm Supply Agreement and the Xianle Purchase Agreements
“China Grand” China Grand Enterprises Incorporation[#] (中國遠大集團有限責任公司), a company established in the PRC with limited liability, which is 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, and the issued Shares of which are listed on the main board of the Stock Exchange
“connected person(s)” 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[#] (遠大物產集團有限公司), a company established in the PRC with limited liability, and engaged in various business such as logistics, trading and investment, including the export and import of pharmaceutical products raw materials
“Grand Pharm (China)” Grand Pharmaceutical (China) Company Limited[#] (遠大醫藥（中國）有限公司), a company established in the PRC with limited liability, being an indirect non-wholly owned subsidiary of the Company
“Grand Pharm Supply Agreement”

the agreement entered into between Grand Pharm (China) and Huadong Medicine dated 23 October 2015 in respect of the supply of pharmaceutical preparations and raw materials to Huadong Medicine

DEFINITIONS

“Grand Pharm Supply Caps”
“Group”
“Hong Kong”
“Huadong Medicine”
“Independent Board Committee”
“Independent Financial Adviser”
“Independent Shareholder(s)”
“Independent Third Party(ies)”
“Jiangsu Xin Yi”

the annual caps for the transactions contemplated under the Grand Pharm Supply Agreement for each of the periods commencing on the Effective Date until 31 December 2015 and the two years ending 31 December 2017

the Company and its subsidiaries

the Hong Kong Special Administrative Region of the PRC

Huadong Medicine Co., Ltd[#] (華東醫藥股份有限公司), a company established in the PRC with limited liability, and the issued shares of which are listed on the Shenzhen Stock Exchange, and principally engaged in manufacture and sale of pharmaceutical products

an 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, established for the purpose of advising the Independent Shareholders as to the fairness and reasonableness of the CCT Agreements and the transactions contemplated respectively thereunder

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
Shareholder(s) other than 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
any person(s) or company(ies) and their respective ultimate beneficial owner(s) who, 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 the Company or its connected persons
Jiangsu Grand Xin Yi Pharmaceutical Co., Ltd[#] (江蘇遠大信誼藥業有限公司) (formerly known as Yan Cheng Xin Yi Pharmaceutical Chemical Limited[#] (鹽城信誼醫藥化工有限公司)), a company established in the PRC with limited liability, and principally engaged in manufacture and sale of pharmaceutical products raw materials

DEFINITIONS

“Latest Practicable Date”	10 November 2015, 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, a substantial
	shareholder of the Company
“Outwit”	Outwit Investments Limited, a company incorporated in the
	British Virgin Islands with limited liability, which is a substantial
	shareholder of the Company holding approximately 62.63% of the
	total issued Shares
“PRC”	the People’s Republic of China, which, for the purpose of
	this circular, shall exclude Hong Kong, the Macau Special
	Administration Region of the PRC and Taiwan
“SFO”	the Securities and Future Ordinance (Chapter 571 of the Laws of
	Hong Kong), as amended from time to time
“SGM”	the special general meeting of the Company to be convened to
	consider and, if thought fit, approve 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
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Xianle First Purchase Caps”	the annual caps for the transactions contemplated under the Xianle
	Purchase Agreement I for each of the periods commencing from
	the Effective Date until 31 December 2015 and the two years
	ending 31 December 2017
“Xianle Purchase Agreement I”	the agreement entered into between Zhejiang Xianle and Jiangsu
	Xin Yi dated 23 October 2015 in respect of the purchase of raw
	materials for steroid hormones and intermediates from Jiangsu Xin
	Yi

DEFINITIONS

“Xianle Purchase Agreement II” the agreement entered into between Zhejiang Xianle and Grand Group Corporation dated 23 October 2015 in respect of the purchase of raw materials for steroid hormones and intermediates from Grand Group Corporation “Xianle Purchase Agreements” collectively, the Xianle Purchase Agreement I and the Xianle Purchase Agreement II “Xianle Purchase Caps” collectively, the Xianle First Purchase Caps and the Xianle Second Purchase Caps

“Xianle Second Purchase Caps” the annual caps for the transactions contemplated by the Xianle Purchase Agreement II for each of the periods commencing on the Effective Date until 31 December 2015 and the two years ending 31 December 2017
“Zhejiang Xianle” Zhejiang Xianju Xianle Pharmaceutical Company Limited[#] (浙江仙居仙樂藥業有限公司), 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 RMB0.82 to HK$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

13 November 2015

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

On 23 October 2015, the Board announced that the Group entered into the CCT Agreements, pursuant to which:

(1) Grand Pharm (China) or its related companies will supply pharmaceutical preparations and raw materials to Huadong Medicine or its related companies;
(2) Zhejiang Xianle or its related companies will purchase raw materials for steroid hormones and intermediates from Jiangsu Xin Yi or its related companies; and
(3) Zhejiang Xianle or its related companies will purchase raw materials for steroid hormones and intermediates from Grand Group Corporation or its related companies.

For identification purpose only

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, amongst other things, (i) further information relating to the CCT Agreements and the transactions contemplated respectively thereunder; (ii) the recommendation from the Independent Board Committee to the Independent Shareholders; (iii) the advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders; and (iv) a notice of the SGM and the form of proxy.

BACKGROUND

Reference is made to the announcements of the Company dated 28 November 2012 and 21 December 2012, and the circular of the Company dated 28 January 2013 in relation to, among other things, certain continuing connected transactions of the Company.

As mentioned in the Company’s circular dated 28 January 2013, on 28 November 2012, the Group entered into, among other things, the following agreements which constituted continuing connected transactions of the Company:

(1) a supply agreement under which Grand Pharm (China) or its related companies would supply pharmaceutical preparations, raw materials and technologies to Huadong Medicine or its related companies;
(2) a purchase agreement under which Zhejiang Xianle or its related companies would purchase raw materials for steroid hormones and intermediates from Jiangsu Xin Yi or its related companies; and
(3) a purchase agreement under which Zhejiang Xianle or its related companies would purchase raw materials for steroid hormones and intermediates from Grand Group Corporation or its related companies.

These three agreements expired on 31 December 2014.

Since 1 January 2015 and up to the Latest Practicable Date, Grand Pharm (China) and its related companies had supplied pharmaceutical preparations, raw materials and technologies to Huadong Medicine and its related companies on an order-by-order basis, and the aggregate amount of the goods supplied was approximately RMB1.8 million.

As explained in the paragraph headed “Implications under the Listing Rules” below, Huadong Medicine is regarded as a connected person of the Company. Accordingly, the aforesaid supply of goods to Huadong Medicine since 1 January 2015 and up to the Latest Practicable Date constitute continuing connected transactions of the Company but are exempted from the reporting, announcement and independent shareholders’ approval requirements pursuant to Rule 14A.76(1) of the Listing Rules.

Since 1 January 2015 and up to the Latest Practicable Date, Zhejiang Xianle had not entered into any transactions with Jiangsu Xin Yi or Grand Group Corporation.

With a view to continuing the purchase/supply arrangements with the aforesaid parties which are in alignment with the current development of the Group, on 23 October 2015 the Group entered into the new CCT Agreements with the aforesaid parties on terms which are disclosed in this circular.

LETTER FROM THE BOARD

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 Group

The 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 with its issued Shares listed on the Stock Exchange Grand Pharm (China) Grand Pharmaceutical (China) Company Limited[#] (遠大醫藥（中國）有限公司), a company established under the laws of the PRC and is held as to 99.84% by the Group, 0.09% by San Ming City Yan Qian Zong He Chemicals Limited[#] (三明市岩前綜合化工有限公司) and 0.07% by Qian Jiang City Qian Sheng State Owned Asset Operation Limited[#] (潛江市潛盛國有資產經營有限公司), both being Independent Third Parties Zhejiang Xianle* Zhejiang Xianju Xianle Pharmaceutical Company Limited[#] (浙江仙居仙樂藥業有限公司), a company established under the laws of the PRC and is owned as to approximately 67% by the Company and as to approximately 33% by Independent Third Parties

Parties outside the Group

Mr. Hu Mr. Hu Kaijun, being the sole shareholder of Outwit Outwit a substantial shareholder of the Company, which is interested in 62.63% of the total issued Shares China Grand China Grand Enterprises Incorporation[#] (中國遠大集團有限責任公司), a company established under the laws of the PRC and is owned as to (i) approximately 51% by Beijing Yuan Da, and (ii) approximately 49% by Beijing Yan Huang, both companies are controlled and ultimately and beneficially owned by Mr. Hu Ideal Group Lianyungang Ideal Group Co., Ltd[#] (連雲港如意集團股份有限公司), 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[#] (遠大物產集團有限公司), a company established under the laws of the PRC and is owned as to approximately 52% by Ideal Group and as to approximately 48% by Independent Third Parties

LETTER FROM THE BOARD

Huadong Medicine Huadong Medicine Co., Ltd[#] (華東醫藥股份有限公司), a company established under the laws of the PRC and is owned as to approximately 35.5% by China Grand and as to approximately 64.5% by Independent Third Parties

Jiangsu Xin Yi

Jiangsu Grand Xin Yi Pharmaceutical Co., Ltd.[#] (江蘇遠大信誼藥業有限公司) (formerly known as Yan Cheng Xin Yi Pharmaceutical Chemical Limited[#] (鹽城信誼醫藥化工有限公司)), a company established under the laws of the PRC and is owned as to approximately 67% by China Grand and approximately 33% by an Independent Third Party

The chart below illustrates the connections between the relevant parties (entities in shades are parties to the CCT Agreements):

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

Outside the Group The Group
China Grand Enterprises (HK)
Mr. Hu
Limited
10% 35% 100% 100%
珠海海灣大酒店 80%
Outwit
(Zhu Hai Hai Wan Hotel [#] ) 90%
62.63%
65% 20%
Beijing Yan Huang Beijing Yuan Da The Company
49% 51% 99.84% 67%
Grand Pharm
China Grand Zhejiang Xianle
(China)
67% 37.08% 35.5%
Jiangsu Xin Yi Ideal Group Huadong Medicine
52%
Grand Group
Corporation
----- End of picture text -----

LETTER FROM THE BOARD

CONTINUING CONNECTED TRANSACTIONS

(I) Grand Pharm Supply Agreement

Date: 23 October 2015

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

Products:

Grand Pharm (China) or its related companies shall supply pharmaceutical preparations and raw materials to Huadong Medicine or its related companies, including various medicines specific for different areas, such as cerebro-cardiovascular medicines and antibiotics, and pharmaceutical intermediates which are chemicals and raw materials for Huadong Medicine to manufacture its own products.

The parties shall determine the specifications, technical requirements, price and volume of the products supplied on an order-by-order basis.

Pricing basis:

The price of the products will be determined on an arm’s length basis in the ordinary course of business and on normal commercial terms with reference to the prevailing market prices, or 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.

For the purpose of ascertaining the market prices, the sales department will extract information from the Group’s internal sales record to ascertain the range of unit price which the Group charges for products of comparable quality, quantity and specifications which have been supplied to Independent Third Parties in the two months preceding the intended sales to Huadong Medicine. If there is no such sales record, the sales team will use the three latest sales records for products of comparable quality, quantity and specifications sold to Independent Third Parties as the reference price range for the sales to Huadong Medicine. The Group will ensure that the unit prices chargeable to Huadong Medicine will not be lower than the aforesaid price range.

Payment terms:

The fees chargeable by the Group will be satisfied in cash. A credit period of 90 days will be given after delivery.

Term:

For the period commencing from the Effective Date until 31 December 2017.

LETTER FROM THE BOARD

Annual cap:

Based on the Grand Pharm Supply Agreement, the annual caps of the amount of products to be sold by Grand Pharm (China) or its related companies to Huadong Medicine or its related companies for each of the periods commencing on the Effective Date until 31 December 2015 and for the two years ending 31 December 2017 are RMB22.0 million, RMB25.0 million and RMB29.0 million respectively.

The above annual caps are determined by the Directors based on (i) the historical amount of products purchased by Huadong Medicine; and (ii) the estimated maximum orders to be placed to Grand Pharm (China) or its related companies as indicated by Huadong Medicine or its related companies.

In particular, during the period from 1 January 2015 until the Latest Practicable Date, the Group had endeavoured to ensure that no further orders from Huadong Medicine or its related companies should be accepted unless and until all relevant requirements under Chapter 14A of the Listing Rules could be complied with. Hence the aggregate amount of the historical sales from 1 January 2015 to the Latest Practicable Date was only approximately RMB1.8 million and thus those transactions are exempted from the reporting, announcement and independent shareholders’ approval requirements pursuant to Rule 14A.76(1) of the Listing Rules. The annual cap for the period from the Effective Date until 31 December 2015 is based on the assumption that once the Grand Pharm Supply Agreement and the Grand Pharm Supply Caps are approved by the Independent Shareholders, Huadong Medicine and its related companies will soon resume making bulk orders with the Group in substantial quantity.

(II) Xianle Purchase Agreement I

Date: 23 October 2015 Parties: Jiangsu Xin Yi, as supplier Zhejiang Xianle, as purchaser

Products:

Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediates such as 17 α-Hydroxy-progesterone from Jiangsu Xin Yi or its related companies for the production of Cyproterone Acetate and Prednisolone, which are the components of medicines mainly used in the reduction of drive in sexual deviations of male adults and treatment of a variety of inflammatory and auto-immune conditions.

LETTER FROM THE BOARD

The parties shall determine the specifications, price and volume of the products to be supplied on an order-by-order basis.

Pricing basis:

The price of the products will be determined on an arm’s length basis in the ordinary course of business and on normal commercial terms with reference to the prevailing market prices, or 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.

For the purpose of ascertaining the market prices, before making an order with Jiangsu Xin Yi, the Group’s procurement department will obtain a quotation from Jiangsu Xin Yi and compare it with the quotations from two other suppliers from the Group’s approved supplier list who are Independent Third Parties for products of comparable quality, quantity and specifications. The final unit prices of the products procured from Jiangsu Xin Yi shall not be higher than the quotations from the suppliers who are Independent Third Parties.

Payment terms:

The purchase price will be satisfied in cash. A credit period of 90 days will be provided after delivery.

Term: For the period commencing from the Effective Date until 31 December 2017.

Annual cap:

Based on the Xianle Purchase Agreement I, the annual caps of the products to be purchased from Jiangsu Xin Yi or its related companies for each of the periods commencing on the Effective Date until 31 December 2015 and the two years ending 31 December 2017 are RMB80.0 million, RMB100.0 million and RMB100.0 million respectively.

The above annual caps are determined by the Directors based on (i) the completion of production capacity expansion of Zhejiang Xianle and its subsidiary in 2014; (ii) the new steroid hormone products of the Group having obtained the GMP certification in the first half of 2015 and has commenced trial production in the second half of 2015; (iii) the historical amount of products purchased from Jiangsu Yin Xi; and (iv) the future expansion of the business and the development strategy of the Group.

LETTER FROM THE BOARD

steroid hormone products is due to commence in the fourth quarter of 2015 after completion of the trial production in the second half of 2015; (ii) given the production cycle of the steroid hormone products is generally around three months and that some suppliers (including Jiangsu Yin Xi) may suspend supplies of raw materials during the Chinese New Year in February 2016, it is necessary for the Group to stock up sufficient raw materials by the end of 2015 to support the production up to the second quarter of 2016.

(III) Xianle Purchase Agreement II

Date: 23 October 2015

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

Products: Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediates such as Acetone from Grand Group Corporation or its related companies for the production of Dexamethasone, which is the component of medicine mainly used as an anti-inflammatory and immunosuppressant agent.

The parties shall determine the specifications, price and volume of the products to be supplied on an order-by-order basis.

Pricing basis: The price of the products will be determined on an arm’s length basis in the ordinary course of business and on normal commercial terms with reference to the prevailing market prices, 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.

For the purpose of ascertaining the market prices, before making an order with Grand Group Corporation, the Group’s procurement department will obtain a quotation from Grand Group Corporation and compare it with the quotations from two other suppliers from the Group’s approved supplier list who are Independent Third Parties for products of comparable quality, quantity and specifications. The final unit prices of the products procured from Grand Group Corporation shall not be higher than the quotations from the suppliers who are Independent Third Parties.

Payment terms:

The purchase price will be satisfied in cash. A credit period of 90 days will be provided after delivery.

LETTER FROM THE BOARD

Term:

For the period commencing from the Effective Date until 31 December 2017.

Annual cap:

Based on the Xianle Purchase Agreement II, the annual caps of the amount of products to be purchased from Grand Group Corporation or its related companies for each of the periods commencing on the Effective Date until 31 December 2015 and the two years ending 31 December 2017 are RMB8.0 million, RMB10.0 million and RMB10.0 million respectively.

The above annual caps are determined by the Directors based on (i) the completion of production capacity expansion of Zhejiang Xianle and its subsidiary in 2014; (ii) the new steroid hormones products of the Group having obtained the GMP certification in the first half of 2015 and has commenced trial production in the second half of 2015; (iii) the historical amount of products purchased from Grand Group Corporation; and (iv) the future expansion of the business and the development strategy of the Group.

In particular, the annual cap for the period from the Effective Date until 31 December 2015 is determined with a view to satisfying the Group’s upcoming production need after considering the following factors: (i) the Group’s commercial production of steroid hormone products is due to commence in the fourth quarter of 2015 after completion of the trial production in the second half of 2015; (ii) given the production cycle of the steroid hormone products is generally around three months and that some suppliers (including Grand Group Corporation) may suspend supplies of raw materials during the Chinese New Year in February 2016, it is necessary for the Group to stock up sufficient raw materials by the end of 2015 to support the production up to the second quarter of 2016.

Common terms of the CCT Agreements

Each of the CCT Agreements contains the following terms:

The terms of 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 expire on 31 December 2017. The Group will be entitled to extend the CCT Agreements on or before 31 December 2017 and to take such action as may be appropriate to comply with the Listing Rules. Without prejudice to the right of any parties to terminate the CCT Agreements pursuant to their respective terms, the CCT Agreements shall be

LETTER FROM THE BOARD

automatically terminated before 31 December 2017 (or such later date as the parties to the respective agreement may agree) if, among other things:

(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 an annual cap agreed by the parties.
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.

Internal control for implementing the CCT Agreements

The Group will implement the following measures to ensure that individual transactions will be conducted within the framework of the CCT Agreements:

(i) Regarding the Grand Pharm Supply Agreement, the sales department will keep up-to-date records of the unit prices of products sold by the Group so that the sales team can timely obtain the relevant pricing information to determine the price range for the products to be sold to Huadong Medicine and its related companies.
(ii) Regarding the Xianle Purchase Agreements, a special team will be established to take charge of each individual production project, and it will be responsible for the selection of suppliers. Suppliers will be selected from the Group’s approved supplier list, which is reviewed by the Group’s management annually with reference to the suppliers’ track record as to technical competence, quality of research and development results, product quality, production capacity, delivery time and pricing competitiveness.
(iii) Regarding the Xianle Purchase Agreements, the procurement team will oversee and regularly review the prices of the raw materials offered by the suppliers and to ensure that the purchase prices under the Xianle Purchase Agreements are in line with the market price.
(iv) The finance department will continuously monitor the transactions under the CCT Agreements and review the pricing terms, payment arrangements and actual transaction amount on a quarterly basis. In particular, the finance department will regularly compare the prices of the products supplied or purchased (as the case may be) under the CCT Agreements to see if the purchase or supply prices are not less favourable than those offered by Independent Third Parties.

LETTER FROM THE BOARD

(v) The independent non-executive Directors and the auditors of the Company will review the transactions under the CCT Agreements annually to ensure that the relevant transactions are entered into in the Company’s ordinary and usual course of business and on normal commercial terms which are fair and reasonable and are carried out pursuant to the terms of the CCT Agreements.

INFORMATION ABOUT THE GROUP

The Group, including its PRC subsidiaries, is principally engaged in the research and development, manufacturing and sales of pharmaceutical preparations, pharmaceutical intermediates, specialised pharmaceutical raw materials and healthcare products.

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:

Differentiation with the Company’s
Counterparty of the CCT business in terms of products and Agreements Principal activities target customers Huadong Medicine Manufacture and sale of • Different target customers – pharmaceutical products Huadong Medicine has established its own distribution channel and retail stores in certain cities of the PRC
Different product category – The major products of Huadong Medicine 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 Group’s major products mainly include cerebro-cardiovascular, ophthalmic, antibacterial and antibiotics, antipyretics and analgesics

LETTER FROM THE BOARD

		•	Acts as distributor – Huadong
			Medicine does not produce
			products to be supplied by
			the Group such as cerebro-
			cardiovascular medicines and
			antibiotics and it only acts as a
			distributor of the Group for such
			products
Jiangsu Xin Yi	Manufacture and sale of	•	Different product category – It
	pharmaceutical products raw		is specialised in the production
	materials		of hormone pharmaceutical
			chemicals, which are chemicals
			that can be used in the production
			of steroid hormones
Grand Group Corporation	Logistic, trading and	•	Different nature of business –
	investment, including but not		One of its businesses is the import
	limited to the export and import		and trading of chemicals for the
	pharmaceutical products raw		production of pharmaceutical
	materials		products according to customers’
			requests

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 are unlikely to compete with the Group’s business.

As at the Latest Practicable Date, none of the Directors or the substantial Shareholders 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

The Group will sell and/or supply to Huadong Medicine (i) various medicines, such as cerebrocardiovascular medicines and antibiotics; and (ii) certain pharmaceutical intermediates, which are chemicals and raw materials for the production of its own products. 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 (excluding the independent non-executive Directors who shall provide their views after taking the advice from the Independent Financial Adviser) are of the view 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 the Group’s product brands through such sales network.

LETTER FROM THE BOARD

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

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 Jiangsu Xin Yi and Grand Group Corporations are all different from each other, and there is no overlapping in the products supplied by Jiangsu Xin Yi and Grand Group Corporations and those supplied by the Group to Huadong Medicine.

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

In view of the above, the Directors consider that the entering into of the CCT Agreements and the transactions contemplated thereunder are in the Company’s ordinary and usual course of business and that the terms of such agreements are determined on an arm’s length basis among the relevant parties and that the terms and conditions of the CCT Agreements are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

IMPLICATIONS UNDER THE LISTING RULES

As at the date of this circular, Mr. Hu is the sole shareholder of Outwit, which is a substantial shareholder of the Company. Mr. Hu, through its control and ultimate beneficial ownership of the entire registered capital of China Grand, indirectly controls the exercise of 30% or more of the voting power at the general meeting of each of Huadong Medicine, Jiangsu Xin Yi and Grand Group Corporation. Please refer to the paragraph headed “Relationships between the parties” for further details of the shareholding structure. Accordingly, each of Huadong Medicine, Jiangsu Xin Yi and Grand Group Corporation is an associate of Mr. Hu, and thus is regarded as a connected person of the Company. Hence the transactions contemplated under the CCT Agreements constitute continuing connected transactions on the part of the Company.

As Huadong Medicine, Jiangsu Xin Yi and Grand Group Corporation are connected with each other by virtue of the fact that all of them are associates of Mr. Hu, and the subject matters of each of the CCT Agreements are similar in nature, pursuant to Rule 14A.81 of the Listing Rules the transactions between the Group and each of these companies would be aggregated.

As one of the applicable percentage ratios with reference to the aggregated amount of the Grand Pharm Supply Caps and the Xianle Purchase Caps will exceed 5%, the transactions contemplated under the CCT Agreements are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

LETTER FROM THE BOARD

SGM

Set out on pages SGM-1 to SGM-3 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, the CCT Agreements and the transactions contemplated thereunder. 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.

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 or 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 1,228,775,094 Shares, representing approximately 62.63% 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.

In addition, Mr. Hu Bo, who is a nephew of Mr. Hu is considered to be interested in the transactions contemplated under each of the CCT Agreements and has abstained from voting on the board resolutions for approving the said transactions. Besides, Mr. Liu Chengwei is a director of China Grand and Huadong Medicine, and Dr. Shao Yan is a director of Outwit. Both of them had voluntarily abstained from voting on the board resolutions for approving the said transactions to avoid any potential conflict of interests. Save as aforesaid, the Board confirms that none of the Directors is a director or employee of Outwit, and none of them has any material interest in the transactions contemplated under the CCT Agreements and is required to abstain from voting on the board resolutions 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 Independent Board Committee comprising Ms. So Tosi Wan, Winnie, Mr. Lo Kai Lawrence and Dr. Pei Geng, being all independent non-executive Directors, has been formed to advise the Independent Shareholders as to the fairness and the reasonableness of the terms of the CCT Agreements (including the Grand Pharm Supply Caps and the Xianle Purchase Caps) and the transactions contemplated thereunder and as to how to vote at the SGM.

LETTER FROM THE BOARD

Nuada Limited has been appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the CCT Agreements and the transactions contemplated thereunder.

The Independent Board Committee, having taken into account the advice and recommendation of Nuada Limited, consider that the CCT Agreements and the transactions contemplated respectively thereunder are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole, and accordingly 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 respectively thereunder.

The text of the letter from the Independent Board Committee is set out on page 20 of this circular, the text of the letter from the Independent Financial Adviser containing its advice is set out on pages 21 to 36 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” above and the recommendations of the Independent Board Committee and the Independent Financial Adviser, considers that the CCT Agreements and the transactions contemplated thereunder are in the Company’s ordinary and usual course of business and 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.

ADDITIONAL INFORMATION

Your attention is drawn to (i) the letter from the Independent Board Committee set out on page 20 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 21 to 36 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

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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)

13 November 2015

To the Independent Shareholders,

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTION

We refer to the circular of the Company dated 13 November 2015 (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 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 21 to 36 of the Circular. Your attention is also drawn to the letter from the Board set out on pages 5 to 19 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, we are of the opinion that the CCT Agreements and the transactions contemplated thereunder are in the Company’s ordinary and usual course of business and 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, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the CCT Agreements and the transactions contemplated thereunder.

Yours faithfully,

Independent Board Committee of

China Grand Pharmaceutical and Healthcare Holdings Limited

So Tosi Wan, Winnie

Independent non-executive Director

Lo Kai Lawrence Independent non-executive Director

Pei Geng

Independent non-executive Director

For identification purpose only

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice to the Independent Board Committee and the Independent Shareholders from Nuada Limited dated 13 November 2015 prepared for the purpose of inclusion in this circular.

==> picture [161 x 41] intentionally omitted <==

Unit 1805-08, 18/F OfficePlus @Sheung Wan 93-103 Wing Lok Street Sheung Wan, Hong Kong 香港上環永樂街93-103號協成行上環中心18樓1805-08室

13 November 2015

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 connection with the continuing connected transactions which include the Grand Pharm Supply Agreement (with the Grand Pharm Supply Caps), the Xianle Purchase Agreements (with the Xianle Purchase Caps) and the transactions contemplated respectively thereunder, details of which are set out in the section headed “Letter from the Board” (the “ Letter from the Board ”) in the Company’s circular dated 13 November 2015 (the “ Circular ”) to the Shareholders, of which this letter forms part. Our appointment as the Independent Financial Adviser has been approved by the Independent Board Committee. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

On 23 October 2015, 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 and raw materials to Huadong Medicine or its related companies.

Grand Pharm (China) is owned as to approximately 99.84% by the Group and as to approximately 0.16% by Independent Third Parties.

Huadong Medicine is owned as to approximately 35.50% by China Grand and as to approximately 64.50% by Independent Third Parties. China Grand is owned as to (i) approximately 51.00% by Beijing Yuan Da, and (ii) approximately 49.00% by Beijing Yan Huang, both companies are controlled and ultimately and beneficially owned by Mr. Hu. By virtue of being an associate of Mr. Hu, Huadong Medicine is considered to be a connected person of the Company.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On 23 October 2015, Zhejiang Xianle as purchaser entered into:

(i) the Xianle Purchase Agreement I with Jiangsu Xin Yi as supplier, pursuant to which Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediates from Jiangsu Xin Yi or its related companies; and
(ii) the Xianle Purchase Agreement II 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.

Jiangsu Xin Yi is owned as to approximately 67.00% by China Grand and approximately 33.00% by Independent Third Party. By virtue of being an associate of Mr. Hu, Jiangsu Xin Yi is considered to be a connected person of the Company.

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. In other words, China Grand indirectly owned approximately 19.28% equity interest of Grand Group Corporation. By virtue of being an associate of Mr. Hu, Grand Group Corporation is considered to be a connected person of the Company.

As stated in the Letter from the Board, as Huadong Medicine, Jiangsu Xin Yi and Grand Group Corporation (collectively and together with their respective subsidiaries, the “ Connected Parties ”) are connected with each other by virtue of the fact that all of them are associates of Mr. Hu, and the subject matters of each of the CCT Agreements are similar in nature, pursuant to Rule 14A.81 of the Listing Rules the transactions between the Group and each of these companies would be aggregated. As one of the applicable percentage ratios (as defined under the Listing Rules) with reference to the aggregated amount of the Grand Pharm Supply Caps and the Xianle Purchase Caps will exceed 5%, the transactions contemplated under the CCT Agreements are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at the Latest Practicable Date, we are independent from, and not associated with the Company or any other party to the CCT Agreements, or their respective substantial shareholder(s) or connected person(s) as defined under the Listing Rules and accordingly, are considered eligible to give independent advice on the terms of the CCT Agreements and the transactions contemplated thereunder. During the last two years, there was no engagement between the Group and Nuada Limited. Apart from normal professional fees for our services to the Company in connection with the engagements as the Independent Financial Adviser, no other arrangement exists whereby we will receive any fees and/or benefits from the Company or any other party to the CCT Agreements, or their respective substantial shareholder(s) or connected person(s), as defined under the Listing Rules.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the accuracy of the statements, information, opinions and representations contained or referred to in the Circular and the information and representations provided to us by the Company, the Directors and the management of the Company. We have no reason to believe that any information or representation relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have assumed that all information, representations and opinions contained or referred to in the Circular, which have been provided by the Company, the Directors and the management of the Company and for which they are solely and wholly responsible, were true and accurate at the time when they were made and continue to be true up to the Latest Practicable Date and should there be any material changes after the despatch of the Circular, Shareholders would be notified as soon as possible.

The Directors have jointly and severally accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed in the Circular, having made all reasonable inquiries, that to the best of their knowledge, opinion expressed in the Circular have been arrived at after due and careful consideration and there are no other facts the omission of which would make any statement in the Circular misleading.

We consider that we have reviewed sufficient information, including relevant information and documents provided by the Company and the Directors 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. We have not, however, carried out any independent verification of the information provided by the Company and the Directors, nor have we conducted an independent in-depth investigation into the business and affairs, financial condition and future prospects of the Group, the Connected Parties 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

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 facts or matter affecting the opinion expressed herein, which may come or be brought to our attention after the Latest Practicable Date.

This letter is issued for the information for the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the CCT Agreements and the transactions contemplated thereunder and, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our recommendation in relation to the terms of the CCT Agreements and the transactions contemplated thereunder, we have taken into consideration the following principal factors and reasons:

1. Information of the Company

As stated in the Letter from the Board, the Group, including its PRC subsidiaries, is principally engaged in the research and development, manufacturing and sales of pharmaceutical preparations, pharmaceutical intermediates, specialised pharmaceutical raw materials and healthcare products. The table below summarised the financial results of the Group for the two years ended 31 December 2013 and 31 December 2014 as extracted from the annual report of the Company for the year ended 31 December 2014 (the “ Annual Report 2014 ”), and the financial results of the Group for the six-month period ended 30 June 2015 and 30 June 2014 as extracted from the interim report of the Company for the six-month period ended 30 June 2015 (the “ Interim Report 2015 ”).

	Year ended 31 December	Year ended 31 December	Six months	ended 30 June
	(Audited)		(Unaudited)
	2013	2014	2014	2015
	HK$’000	HK$’000	HK$’000	HK$’000
Revenue	2,658,282	3,122,116	1,627,705	1,576,901
Gross profit	886,530	1,193,647	580,617	616,509
Profit for the year/period	105,286	175,723	61,450	80,795

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in the Annual Report 2014 and according to the management of the Company, for the year ended 31 December 2014, the Group recorded a revenue amount of approximately HK$3,122.12 million, representing an increase of approximately 17.4% as compared with that of approximately HK$2,658.28 million for the corresponding period in 2013. The average gross profit margin of the Group was approximately 38.2% for the year ended 31 December 2014, representing an increase of approximately 4.9 percent points as compared with that of approximately 33.3% for the corresponding period in 2013. As disclosed in the Annual Report 2014, the pharmaceutical preparations are the major sources of profit of the Group, of which the core products include cerebro-cardiovascular medicines. Cerebro-cardiovascular medicines are the business growth engine of the Group. For the year ended 31 December 2014, the revenue of the cerebro-cardiovascular medicines of the Group recorded approximately RMB394.41 million, representing an increase of approximately 39.5% as compared with that for the same period in 2013.

As disclosed in the Interim Report 2015 and according to the management of the Company, for the six months ended 30 June 2015, the Group recorded a revenue of approximately HK$1,576.90 million, remaining at substantially the similar level as that for the same period of 2014, which was mainly attributable to: (i) the fact that the Group had been focusing on improving its production efficiency in the past, while in 2015 it adopted a production and operating strategy which emphasised on optimising product structure and took economic benefits of the products as a priority in order to improve the overall gross profit margin of the Group; and (ii) due to the delay in obtaining the latest Good Manufacturing Practice (“ GMP ”) certification for certain products and the slow progress in obtaining international certifications for some products, production of the aforesaid various products of the Group did not commence as scheduled, affecting the revenue during this period. As a result of the implementation of the aforesaid product structure adjustment strategy, the Group recorded an average gross profit margin of approximately 39.1% for the six months ended 30 June 2015, representing a further increase by approximately 0.9 percent point from that of approximately 38.2% for the year ended 31 December 2014 as mentioned above. Meanwhile, the revenue of cerebro-cardiovascular medicines for the six months ended 30 June 2015 was approximately RMB218.89 million, which was at a similar level as compared with that of approximately RMB218.15 million for the same period in 2014.

In view of the above, we are of the view that, despite the slight decrease in revenue of the Group for the six months ended 30 June 2015 when compared to that for the six months ended 30 June 2014, the Group has been improving its financial performance through optimisation of product structure, resulting in higher profit margins and more profits.

2. Information on the Connected Parties, background of the CCT Agreements, and reasons for entering into the CCT Agreements

Huadong Medicine and its subsidiaries are principally engaged in the manufacture and sale of pharmaceutical products.

Jiangsu Xin Yi and its subsidiaries are principally engaged in the manufacture and sale of pharmaceutical products raw materials.

Grand Group Corporation and its subsidiaries are principally engaged in the logistic, trading and investment, including but not limited to the export and import of pharmaceutical products raw materials.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In performing its ordinary course of businesses, the Company has from time to time carried out transactions with the Connected Parties. On 28 November 2012, the Group entered into, among others, (i) the agreement with Huadong Medicine in respect of the supply of pharmaceutical preparations, raw materials and technologies to Huadong Medicine (the “ Previous Grand Pharm Supply Agreement ”); (ii) the agreement with Jiangsu Xin Yi (then known as Yan Cheng Xin Yi Pharmaceutical Chemical Limited[#] (鹽城信誼醫藥化工有限公司)) (“ Previous Xianle Purchase Agreement I ”) in respect of the purchase of raw materials for steroid hormones and intermediates from Jiangsu Xin Yi; and (iii) the agreement with Grand Group Corporation in respect of the purchase of raw materials for steroid hormones and intermediates from Grand Group Corporation (“ Previous Xianle Purchase Agreement II ”, and together with the Previous Grand Pharm Supply Agreement and Previous Xianle Purchase Agreement I, the “ Previous CCT Agreements ”), respectively, for a term of not more than two years ended 31 December 2014. Pursuant to the Previous CCT Agreements, the Company would supply pharmaceutical preparations, raw materials and technologies to Huadong Medicine and purchase raw materials for steroid hormones and intermediates from Jiangsu Xin Yi and Grand Group Corporation during the said period. At the special general meeting of the Company held on 19 February 2013, the then independent Shareholders approved, among others, the Previous CCT Agreements, together with the proposed annual caps and the transactions contemplated thereunder. Details of the continuing connected transactions contemplated under the Previous CCT Agreements were disclosed in the circular of the Company dated 28 January 2013.

The Previous CCT Agreements expired on 31 December 2014. As disclosed in the Letter from the Board, since 1 January 2015 and up to the Latest Practicable Date, Grand Pharm (China) and its related companies had supplied pharmaceutical preparations and raw materials to Huadong Medicine and its related companies on an order-by-order basis, and the aggregate amount of the goods supplied was approximately RMB1.8 million. Since 1 January 2015 and up to the Latest Practicable Date, Zhejiang Xianle had not entered into any transactions with Jiangsu Xin Yi or Grand Group Corporation.

With a view to continuing the purchase/supply arrangements with the Connected Parties which are in alignment with the current development of the Group, the Group entered into the CCT Agreements respectively with the Connected Parties for a term of not more than three years commencing from the date falling upon the passing of the relevant resolutions by the Independent Shareholders at the SGM to 31 December 2017.

As disclosed in the Letter from the Board, the entering into of the Grand Pharm Supply Agreement may allow the Group to make use of the existing sales network of Huadong Medicine, which has retail stores in many cities in the PRC covering over ten provinces, and to promote the product brands of the Group through such sales network.

As disclosed in the Letter from the Board, the entering into of the Xianle Purchase Agreements can maintain merchantable products quality and a constant supply of raw materials, which are beneficial to implement the Group’s business strategy and to reduce its operation risks. 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 Jiangsu Xin Yi and Grand Group Corporations are all different from each other, and there is no overlapping in the products supplied by Jiangsu Xin Yi and Grand Group Corporations and those supplied by the Group to Huadong Medicine.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in the Letter from the Board and according to the management of the Company, 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 are unlikely to compete with the Group’s business. We also understand from the management of the Company that (i) the products of Huadong Medicine and that of the Group have different kinds of target on different customer’s groups in that the major products of Huadong Medicine includes 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 Group’s major products mainly include cerebro-cardiovascular, ophthalmic, antibacterial and antibiotics, antipyretics and analgesics; (ii) Huadong Medicine does not produce products to be supplied by the Group such as cerebro-cardiovascular medicines and antibiotics and it only acts as a distributor of the Group for such products; and (iii) the principal activities and the products of Jiangsu Xin Yi and Grand Group Corporation are different from that of the Group in that Jiangsu Xin Yi is principally engaged in manufacture and sale of pharmaceutical products raw materials, in particular the production of hormones pharmaceutical chemicals (which are chemicals that can be used in the production of steroid hormones), 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, while the Group is principally engaged in research and development, manufacturing and sales of pharmaceutical preparations, pharmaceutical intermediates, specialised pharmaceutical raw materials and healthcare products. Accordingly, we consider that so far as the principal activities, products and target customers of the Group and those of the Connected Parties are different, there is no competition between the business of the Group and that of the Connected Parties.

Taking into account the principal business of the Group in, among others, manufacturing and sales of pharmaceutical preparations, pharmaceutical intermediates, specialised pharmaceutical raw materials and healthcare products in the PRC, we consider and concur with the view of the management of the Company that the entering into of the CCT Agreements, covering business areas of sales and distribution of pharmaceutical products and raw materials, are in the ordinary and usual course of business of the Group.

3. Principal terms of the CCT Agreement

The CCT Agreements with the Connected Parties are the master agreements which set out the major terms and conditions in relation to the sales of pharmaceutical preparations and raw materials to Huadong Medicine and the purchase of raw materials from Jiangsu Xin Yi and Grand Group Corporation for the Group’s own production of steroid hormones and intermediates. We have reviewed and compared the terms of the CCT Agreements and the Previous CCT Agreements and noted that, save for the annual caps, there is no material difference between the terms of the aforesaid agreements.

(i) Principal terms of the Grand Pharm Supply Agreement

Pursuant to the Grand Pharm Supply Agreement, the Group may sell pharmaceutical preparations to Huadong Medicine, including various medicines specific for different areas, such as cerebro-cardiovascular medicines and antibiotics, and pharmaceutical intermediates to Huadong Medicine, which are chemicals and are raw materials for Huadong Medicine to manufacture its own products.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the management of the Company and under the Grand Pharm Supply Agreement, (i) the parties shall determine the specifications, technical requirements, price and volume of the products supplied on an order-by-order basis; (ii) the price of the products will be determined on an arm’s length basis in the ordinary course of business and on normal commercial terms with reference to the prevailing market prices, or 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; and (iii) the fees chargeable by the Group will be satisfied in cash where a credit period of 90 days will be given after delivery. Details regarding the terms of the Grand Pharm Supply Agreement are set out in the Letter from the Board.

We have discussed with the management of the Company and note that for the purpose of ascertaining the market prices, the sales department will extract information from the Group’s internal sales record to ascertain the range of unit price which the Group charges for products of comparable quality, quantity and specifications which have been supplied to Independent Third Parties in the two months preceding the intended sales to Huadong Medicine. If there is no such sales record, the sales team will use the three latest sales records for products of comparable quality, quantity and specifications sold to Independent Third Parties as the reference price range for the sales to Huadong Medicine. The Group will ensure that the unit prices chargeable to Huadong Medicine will not be lower than the upper limits of the aforesaid price range. Based on the above, we are of the view and concur with the view of the management of the Company that the aforesaid pricing basis can ensure that the selling price of pharmaceutical preparations to Huadong Medicine are no less favourable to the Group than those offered to Independent Third Parties.

In order to review whether the aforesaid pricing basis is feasible or not, we have requested the Company to provide the master list of all transactions conducted between Grand Pharm (China) and Huadong Medicine for the year ended 31 December 2014 (involving over 20 types of products supplied by Grand Pharm (China) to Huadong Medicine) (the “ Grand Pharm Supply Master List ”). The Grand Pharm Supply Master List stated (i) the details of each of the transactions conducted between Grand Pharm (China) and Huadong Medicine for the year ended 31 December 2014, such as date of transaction, price per unit, volume of transaction, dollar value of transaction, name of products sold; and (ii) relevant transactions conducted between the Company and Independent Third Parties used for pricing comparison, i.e. relevant products supplied to Independent Third Parties in the two months preceding the sales to Huadong Medicine or if there is no such sales record in the two months preceding the sales to Huadong Medicine, the three latest sales records for products of comparable quality, quantity and specifications sold to Independent Third Parties. Based on the Grand Pharm Supply Master List and after discussion with the management of the Company, we note that the unit selling prices of products chargeable to Huadong Medicine were not lower than those chargeable to Independent Third Parties.

Based on the above, we are of the view and concur with the view of the management of the Company that there are adequate measures in place to ensure that the fees chargeable to Huadong Medicine are in accordance with the prevailing market prices and not less favourable than those charged to Independent Third Parties and such pricing arrangement is on normal commercial terms and the transactions under the Grand Pharm Supply Agreement are fair and reasonable and in the interests of the Group and the Shareholders as a whole.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Principal terms of the Xianle Purchase Agreements

Pursuant to Xianle Purchase Agreement I, Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediates such as 17 α- Hydroxy-progesterone from Jiangsu Xin Yi or its related companies for the production of Cyproterone Acetate and Prednisolone, which are the components of medicines mainly used in the reduction of drive in sexual deviations of male adults and treatment of a variety of inflammatory and auto-immune conditions.

Pursuant to Xianle Purchase Agreement II, Zhejiang Xianle or its related companies shall purchase raw materials for steroid hormones and intermediates such as Acetone from Grand Group Corporation or its related companies for the production of Dexamethasone, which is the component of medicine mainly used as an anti-inflammatory and immunosuppressant agent.

According to the management of the Company and under the Xianle Purchase Agreements, (i) the parties shall determine the specifications, technical requirements, price and volume of the products supplied on an order-by-order basis; (ii) the price of the products will be determined on an arm’s length basis in the ordinary course of business and on normal commercial terms with reference to the prevailing market prices, or 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; and (iii) the purchase price will be satisfied in cash where a credit period of 90 days will be given after delivery. Details regarding the terms of the Xianle Purchase Agreements are set out in the Letter from the Board.

We have discussed with the management of the Company and note that for the purpose of ascertaining the market prices, before making an order with Jiangsu Xin Yi (or Grand Group Corporation), the Group’s procurement department will obtain a quotation from Jiangsu Xin Yi (or Grand Group Corporation) and compare it with the quotations from two other suppliers from the Group’s approved supplier list who are Independent Third Parties for products of comparable quality, quantity and specifications. The final unit prices of the products procured from Jiangsu Xin Yi (or Grand Group Corporation) shall not be higher than the quotations from the suppliers who are Independent Third Parties. Based on the above, we are of the view and concur with the view of the management of the Company that the aforesaid pricing basis can ensure that the selling prices of products chargeable by Jiangsu Xin Yi (or Grand Group Corporation) are no less favourable to the Group than those offered by suppliers who are Independent Third Parties.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In order to review whether the aforesaid pricing basis is feasible or not, we have requested the Company to provide the two master lists of all transactions conducted between (i) Zhejiang Xianle and Jiangsu Xin Yi (involving two types of products purchased by Zhejiang Xianle from Jiangsu Xin Yi) and (ii) Zhejiang Xianle and Grand Group Corporation (involving three types of products purchased by Zhejiang Xianle from Grand Group Corporation) respectively for the year ended 31 December 2014 (the “ Xianle Purchase Master Lists ”). The Xianle Purchase Master Lists stated (i) the details of each of the transactions conducted respectively between (a) Zhejiang Xianle and Jiangsu Xin Yi and (b) Zhejiang Xianle and Grand Group Corporation for the year ended 31 December 2014, such as date of transaction, price per unit, volume of transaction, dollar value of transaction, name of products sold; and (ii) relevant quotations obtained by the Company from suppliers who are Independent Third Parties used for pricing comparison. Based on the Xianle Purchase Master Lists and after discussion with the management of the Company, we note that the unit selling prices chargeable by Jiangsu Xin Yi and Grand Group Corporation were not higher than those quoted from the suppliers who Independent Third Parties.

Based on the above, we are of the view and concur with the view of the management of the Company that there are adequate measures in place to ensure that the prices paid by Zhejiang Xianle to Jiangsu Xin Yi and Grand Group Corporation are in accordance with the prevailing market prices and not less favourable than those quoted from suppliers who are Independent Third Parties and such pricing arrangement is on normal commercial terms and the transactions under the Xianle Purchase Agreements are fair and reasonable and in the interests of the Group and the Shareholders as a whole.

(iii) Internal control for implementing the CCT Agreements

As disclosed in the Letter from the Board and according to the management of the Group, the Group will implement the following measures to ensure that individual transactions will be conducted within the framework of the CCT Agreements:

(i) Regarding the Grand Pharm Supply Agreement, the sales department will keep upto-date records of the unit prices of products sold by the Group so that the sales team can timely obtain the relevant pricing information to determine the price range for the products to be sold to Huadong Medicine and its related companies.
(ii) Regarding the Xianle Purchase Agreements, a special team will be established to take charge of each individual production project, and it will be responsible for the selection of suppliers. Suppliers will be selected from the Group’s approved supplier list, which is reviewed by the Group’s management annually with reference to the suppliers’ track record as to technical competence, quality of research and development results, product quality, production capacity, delivery time and pricing competitiveness.
(iii) Regarding the Xianle Purchase Agreements, the procurement team will oversee and regularly review the prices of the raw materials offered by the suppliers and to ensure that the purchase prices under the Xianle Purchase Agreements are in line with the market price.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) The finance department will continuously monitor the transactions under the CCT Agreements and review the pricing terms, payment arrangements and actual transaction amount on a quarterly basis. In particular, the finance department will regularly compare the prices of the products supplied or purchased (as the case may be) under the CCT Agreements to see if the purchase or supply prices are not less favourable than those offered by Independent Third Parties.
(v) The independent non-executive Directors and the auditors of the Company will review the transactions under the CCT Agreements annually to ensure that the relevant transactions are entered into in the Company’s ordinary and usual course of business and on normal commercial terms which are fair and reasonable and are carried out pursuant to the terms of the CCT Agreements.

Having considered (i) the review of the Grand Pharm Supply Master List and the Xianle Purchase Master Lists performed by us as stated above; (ii) the internal control procedures implemented by the Group as stated above; and (iii) the annual review of transactions under the CCT Agreements by the independent non-executive Directors and the auditors of the Company in order to comply with rule 14A.55 to rule 14A.58 of the Listing Rule, we are of the view and concur with the view of the Directors that the transactions contemplated under the CCT Agreements are conducted on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

4. The proposed Annual Caps

The table below sets forth (i) the past annual caps under the Previous CCT Agreements for each of the two years ended 31 December 2014 (the “ Previous Annual Caps ”); and (ii) the proposed Grand Pharm Supply Caps and Xianle Purchase Caps (collectively, the “ Annual Caps ”) for a term commencing from the date where the terms of each of the CCT Agreements become effective (the “ Effective Date ”) to 31 December 2017:

CCT Agreements	Previous Annual Caps	Previous Annual Caps		Annual Caps
			For the
			period from the
			Effective Date
		For the year	and ending on	For the year ended
	ended 31 December		31 December		31 December
	2013	2014	2015	2016	2017
			(RMB in million)
Previous Grand Pharm
Supply Agreement/
Grand Pharm Supply
Agreement	18.0	20.0	22.0	25.0	29.0
Previous Xianle Purchase
Agreement I/Xianle
Purchase Agreement I	60.0	80.0	80.0	100.0	100.0
Previous Xianle Purchase
Agreement II/Xianle
Purchase Agreement II	5.0	8.0	8.0	10.0	10.0

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As stated in the Letter from the Board, in determining the Grand Pharm Supply Caps, the Board has primarily taken into account the following factors:

(i) the historical amount of products purchased by Huadong Medicine; and
(ii) the estimated maximum orders to be placed to Grand Pharm (China) or its related companies as indicated by Huadong Medicine or its related companies.

In particular, during the period from 1 January 2015 until the Latest Practicable Date, the Group had endeavoured to ensure that no further orders from Huadong Medicine or its related companies should be accepted unless and until all relevant requirements under Chapter 14A of the Listing Rules could be complied with. Hence the aggregate amount of the historical sales from January 2015 to the Latest Practicable Date was only approximately RMB1.8 million and thus those transactions are exempted from the reporting, announcement and independent shareholders’ approval requirements pursuant to Rule 14A.76(1) of the Listing Rules. The annual cap for the period from the Effective Date until 31 December 2015 is based on the assumption that once the Grand Pharm Supply Agreement and the Grand Pharm Supply Caps are approved by the Independent Shareholders, Huadong Medicine and its related companies will soon resume making bulk orders with the Group in substantial quantity.

As stated in the Letter from the Board, in determining the Xianle Purchase Caps, the Board has primarily taken into account the following factors:

(i) the completed expansion of production capacity of Zhejiang Xianle and its subsidiary in 2014;
(ii) the new steroid hormone products of the Group having obtained the GMP certification in the first half of 2015 and has commenced trial production in the second half of 2015;
(iii) the historical amount of products purchased from Jiangsu Yin Xi (for the case of Xianle First Purchase Caps) and Grand Group Corporation (for the case of Xianle Second Purchase Caps); and
(iv) the future expansion of the business and the developing strategy of the Group.

In particular, the annual cap for the period from the Effective Date until 31 December 2015 is determined with a view to satisfying the Group’s upcoming production need after considering the following factors: (i) the Group’s commercial production of certain new steroid hormone products is due to commence in the fourth quarter of 2015 after completion of the trial production in the second half of 2015; and (ii) given the production cycle of the steroid hormone products is generally around three months and that some suppliers (including Jiangsu Yin Xi and Grand Group Corporation) may suspend supplies of raw materials during the Chinese New Year in February 2016, it is necessary for the Group to stock up sufficient raw materials by the end of 2015 to support the production up to the second quarter of 2016.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In order to assess the fairness and reasonableness of the Annual Caps, we have discussed with the management of the Company on the bases of determination of the Annual Caps and have taken into consideration the following factors:

(i) The historical transactions between the Group and the Connected Parties

The table below summarises (i) the Previous Annual Caps under the Previous CCT Agreements; (ii) the historical transaction amounts for the two years ended 31 December 2014; and (iii) their respective utilisation rates.

	For the year ended	For the year ended
Previous CCT Agreements	31 December
	2013	2014
	(RMB in million)
Previous Grand Pharm Supply Agreement
Previous annual cap	18.0	20.0
Historical transaction amount	10	11.7
Utilisation rate	55.6%	58.5%
Previous Xianle Purchase Agreement I
Previous annual cap	60.0	80.0
Historical transaction amount	25.7	28.2
Utilisation rate	42.8%	35.3%
Previous Xianle Purchase Agreement II
Previous annual cap	5.0	8.0
Historical transaction amount	2.4	3.8
Utilisation rate	48.0%	47.5%

As shown in the table above, we noted that the utilisation rates of the Previous Annual Caps under the Previous CCT Agreements for the two years ended 2014 ranged from approximately 35.3% to 58.5%. We discussed with the management of the Company about the reasons for the lower-than-expected utilisation rates and understand that (i) the Group has carried out technological enhancement in one of the existing production plants which led to a short term decrease in production capacity; (ii) as mentioned in the paragraph headed “1. Information on the Company” above, the progress in obtaining the latest GMP certification and international certifications for certain products was behind schedule, production of those products of the Group did not commence as planned. As such, we are of the view that the lower-than-expected utilisation rates are justifiable. Furthermore, having considered that (i) the expansion of production capacity of Zhejiang Xianle and its subsidiary, including construction of a new plant and the aforesaid technological enhancement in an existing production plant, has completed in 2014; (ii) the Group has obtained a GMP certification for the new steroid hormones products in the first half of 2015 and has commenced trial production in the second half of 2015, we are of the view and concur with the view of the management of the Company that the production capacity of the Group is expected to increase in the coming years.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Outlook of pharmaceutical industry in the PRC

With reference to the statistical information released on the website of National Statistical Database[#] (國家統計資料庫) by the National Bureau of Statistics of the PRC[#] (中華人民共和國國家統計局), the per capita health expenditure in the PRC increased from approximately RMB1,490.1 in 2010 to approximately RMB2,327.4 in 2013, representing a compound annual growth rate of approximately 16.0%. We also noted from the Pharmaceutical Industry Analysis[#] (醫藥工業經濟運行分析) for year 2013 and 2014 respectively published by the Ministry of Industry and Information Technology of the PRC[#] (中華人民共和國工業和信息化部) (“ MIIT ”) that the pharmaceutical industry recorded increased revenue and profit of approximately RMB2,455.3 billion and approximately RMB246.1 billion respectively in 2014, representing a growth of approximately 13.1% and 12.6% respectively as compared with the amounts recorded in 2013. Also as disclosed in the website of MIIT, for the six months ended 30 June 2015, the pharmaceutical industry recorded increased revenue and profit of approximately RMB1,235.6 billion and approximately RMB126.2 billion respectively, representing growth of approximately 8.9% and 12.9% respectively as compared with the amounts recorded in the corresponding period in 2014.

Taking into consideration the growth trend in the pharmaceutical industry in the PRC and the increasing expenditure on healthcare and medical services in the PRC, we are of the view and concur with the view of the management of the Company that the outlook of the pharmaceutical industry in the PRC will remain positive and the business of the Group will achieve steady growth for the coming years.

(iii) Business plan of the Group

We have discussed with the management of the Company regarding the business plan of the Group for the coming years and also noted from the Interim Report 2015 that the Group has been carrying proactive business strategies, including, among others, (i) the acquisition of a company mainly engaging in research and development, manufacture and sales of ophthalmic medical devices and surgical products in December 2014, which will likely to have a synergetic effect with the Group’s existing products; (ii) the acquisition of a company principally engaged in the manufacturing and sales of pharmaceutical products in July 2015 to introduce a variety of highpotential products; and (iii) acquisition of a joint venture company in April 2015 to extend sales network in European region as well as the varieties of cardiovascular medical equipment provided by the Group, and such joint venture company will set up another joint venture company with the Group to establish product platforms and distribution network in the PRC. Such acquisitions will allow the Group to develop new potential products as well as explore international markets.

Save for the aforementioned acquisitions, the Group also focuses on improving its existing production technology and modulating the production structure to achieve a sustainable business growth. In 2014, the Group’s new production plant in Jiangsu and the newly renovated production plant in Wuhan commenced commercial operations which increased the Group’s production volume.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Also as stated in the paragraph headed “1. Information of the Company” above, the Group has adopted a production and operating strategy which emphasised on optimising product structure and taking economic benefits of the products as a priority in order to improve the overall gross profit margin of the Group. As a result, the Group recorded an increased average gross profit margin of approximately 39.1% for the six months ended 30 June 2015, representing a further increase by approximately 0.9 percent point from that of approximately 38.2% for the year ended 31 December 2014.

Taking into consideration (i) the proactive business strategies of the Group that allow the Group to develop new potential products as well as explore international markets; (ii) improving the production technology and modulating the production structure by means of, among others, the commencement of operations of the new production plants; and (iii) the product structure optimisation that further improves the gross profit margin of the Group, we are of the view and concur with the view of the management of the Company that the Group would continue to have positive financial performance in the coming three years.

(iv) Conclusion

Having reviewed the information and discussed with the management of the Company regarding the bases for determining the Annual Caps including, among other factors, (i) the historical continuing connected transaction amounts between the Group and the Connected Parties; (ii) the positive outlook of the pharmaceutical industry in the PRC in coming years; and (iii) the business plans of the Group to develop new potential products and improve production volume and production structure, we are of the view that the bases for determining the Annual Caps of the CCT Agreements for the period from the Effective Date to 31 December 2015 and the two years ending 31 December 2017 are fair and reasonable so far as the 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 the CCT Agreements are entered into in the ordinary and usual course of business of the Group based on normal commercial terms and their terms together with the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Shareholders, and the Independent Board Committee to recommend the Independent Shareholders, and we also recommend the Independent Shareholders, to vote in favour of the relevant resolution(s) to be proposed at the SGM to approve the CCT Agreements (including the Annual Caps) and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of Nuada Limited

Po Chan Kevin Wong Executive Director Vice President

Ms. Po Chan is a person licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO and a responsible officer of Nuada Limited who has over 14 years of experience in corporate finance industry, including but not limited to continuing connected transactions.

Mr. Kevin Wong is a person licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO and a responsible officer of Nuada Limited who has over 13 years of experience in corporate finance industry, including but not limited to continuing connected transactions.

For identification purpose only

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

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

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	Nature of	percentage of
Name of Director	the Shares held	interests	shareholding
			(%)
Shao Yan_(Note)_	4,640,000 (L)	Interest in spouse	0.24

(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 is deemed to be interested in such 4,640,000 Shares.

I-1

GENERAL INFORMATION

APPENDIX I

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.

3. 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)).

4. INTERESTS IN ASSETS, CONTRACTS OR ARRANGEMENT

As at the Latest Practicable Date, none of the Directors, proposed directors and the Independent Financial Adviser has, or has 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 2014, 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.

5. 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 activity

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 persons to subscribe for securities in any member of the Group.

I-2

GENERAL INFORMATION

APPENDIX I

6. 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.

7. 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 2014, being the date of which the latest audited financial statements of the Group were made up.

8. COMPETING INTERESTS

As at the Latest Practicable Date, Mr. Liu Chengwei, the chairman of the Board and an executive Director is a director of some pharmaceutical companies in the PRC (including China Grand and Huadong Medicine). Save as aforesaid, so far as the Directors are aware of, no Directors or their associates have any interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

9. 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.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection (i) 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, Central, Hong Kong from the date of this circular up to and including 4 December 2015:

(a) the CCT Agreements;
(b) the written consents referred to in the paragraph headed “Expert and consent” in this appendix;
(c) the letter from the Independent Board Committee, the text of which is set out on page 20 of this circular; and
(d) 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 21 to 36 in this circular.

I-3

NOTICE OF SGM

==> picture [119 x 52] 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 on Friday, 4 December 2015 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 supply agreement (the “ Grand Pharm Supply Agreement ”) dated 23 October 2015 entered into between Grand Pharm (China) Company Limited (“ Grand Pharm (China) ”) as supplier and Huadong Medicine Co., Ltd. (“ Huadong Medicine ”) as purchaser in respect of the supply of pharmaceutical preparations and raw materials to Huadong Medicine by Grand Pharm (China) (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 Supply Agreement as stated in the circular of the Company dated 13 November 2015 for the three years ending 31 December 2017 be and are hereby approved; and
(c) any one or more of the Directors of the Company be and is/are hereby authorised 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.”
For identification purpose only

SGM-1

NOTICE OF SGM

“ THAT
(a) the purchase agreement (the “ Xianle Purchase Agreement I ”) dated 23 October 2015 entered into between Jiangsu Grand Xin Yi Pharmaceutical Co., Ltd (“ Jiangsu Xin Yi ”) as supplier and Zhejiang Xianju Xianle Pharmaceutical Company Limited (“ Zhejiang Xianle ”) as purchaser in respect of the purchase of raw materials for steroid hormones and intermediates from Jiangsu Xin Yi by Zhejiang Xianle (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 Xianle Purchase Agreement I as stated in the circular of the Company dated 13 November 2015 for the three years ending 31 December 2017 be and are hereby approved; and
(c) any one or more of the Directors of the Company be and is/are hereby authorised 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.”
“ THAT
(a) the purchase agreement (the “ Xianle Purchase Agreement II ”) dated 23 October 2015 entered into between Grand Group Corporation Limited (“ Grand Group Corporation ”) as supplier and Zhejiang Xianju Xianle Pharmaceutical Company Limited (“ Zhejiang Xianle ”) as purchaser in respect of the purchase of raw materials for steroid hormones and intermediates from Grand Group Corporation by Zhejiang Xianle (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 Xianle Purchase Agreement II as stated in the circular of the Company dated 13 November 2015 for the three years ending 31 December 2017 be and are hereby approved; and
(c) any one or more of the Directors of the Company be and is/are hereby authorised 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.”

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

Hong Kong, 13 November 2015

SGM-2

NOTICE OF SGM

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Principal place of business in Hong Kong: Unit 3302, The Centre, 99 Queen’s Road Central, 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 Wednesday, 2 December 2015 to Friday, 4 December 2015, both days inclusive, during which no transfer of shares can be registered. In order to qualify to attend the SGM, 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, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong no later than 4:30 p.m. on Tuesday, 1 December 2015.
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, 17th Floor, 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 SGM and in such event, the instrument appointing a proxy shall be deemed to be revoked.

As at the date of this notice, the Board comprises four executive Directors, namely Mr. Liu Chengwei, Mr. Hu Bo, Dr. Shao Yan and Dr. Zhang Ji; and three independent non-executive Directors, namely Ms. So Tosi Wan, Winnie, Mr. Lo Kai Lawrence and Dr. Pei Geng

SGM-3

AI assistant

Grand Pharmaceutical Group Limited — Proxy Solicitation & Information Statement 2015

49262_rns_2015-11-12_887f5cbb-e118-47f9-9ed6-f2036b4818bc.pdf

China Grand Pharmaceutical and Healthcare Holdings Limited

遠大醫藥健康控股有限公司[*]

CONTINUING CONNECTED TRANSACTIONS

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

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

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

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM THE BOARD

BACKGROUND

RELATIONSHIPS BETWEEN THE PARTIES

The Group

Parties outside the Group

LETTER FROM THE BOARD

Jiangsu Xin Yi

LETTER FROM THE BOARD

CONTINUING CONNECTED TRANSACTIONS

(I) Grand Pharm Supply Agreement

LETTER FROM THE BOARD

(II) Xianle Purchase Agreement I

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(III) Xianle Purchase Agreement II

LETTER FROM THE BOARD

Common terms of the CCT Agreements

Internal control for implementing the CCT Agreements

LETTER FROM THE BOARD

INFORMATION ABOUT THE GROUP

INFORMATION ABOUT THE COUNTERPARTIES OF THE CCT AGREEMENTS

LETTER FROM THE BOARD

REASONS FOR ENTERING INTO THE CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE BOARD

IMPLICATIONS UNDER THE LISTING RULES

LETTER FROM THE BOARD

SGM

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,

Independent Board Committee of

China Grand Pharmaceutical and Healthcare Holdings Limited

So Tosi Wan, Winnie

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Information of the Company

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Information on the Connected Parties, background of the CCT Agreements, and reasons for entering into the CCT Agreements

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Principal terms of the CCT Agreement

(i) Principal terms of the Grand Pharm Supply Agreement

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) Internal control for implementing the CCT Agreements

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. The proposed Annual Caps

(iii) Business plan of the Group

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) Conclusion

RECOMMENDATION

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

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

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

Interests in Shares:

3. DIRECTORS’ SERVICE CONTRACTS

Grand Pharmaceutical Group Limited Proxy Solicitation & Information Statement 2015

**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[*]**