Grand Pharmaceutical Group Limited - Proxy Solicitation & Information Statement 2021

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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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)

(1) REVISION OF THE EXISTING ANNUAL CAPS REGARDING THE CONTINUING CONNECTED TRANSACTIONS; (2) PROPOSED CHANGE OF COMPANY NAME; AND (3) NOTICE OF THE SGM

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

Capitalised terms used on this cover page have the same meaning as defined in the section headed ‘‘Definitions’’ in this circular, unless the context requires otherwise.

A letter from the Board is set out on pages 5 to 15 of this circular. A letter of advice from the Independent Board Committee is set out on pages 16 to 17 to this circular. A letter of advice of Nuada Limited, the Independent Financial Adviser, containing its opinion and advice to the Independent Board Committee and the Independent Shareholders is set out on pages 18 to 33 of this circular.

A notice convening the SGM of the Company to be held at Unit 3302, The Center, 99 Queen’s Road Central, Hong Kong on Thursday, 30 September 2021 at 11:00 a.m. is set out on pages 37 to 39 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, Hopewell Centre, 183 Queen’s Road East, 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.

PRECAUTIONARY MEASURES FOR THE SGM

Please see page ii of this circular for measures being taken to try to prevent and control the spread of the Coronavirus at the SGM, including:

. compulsory temperature check and health declaration
. mandatory wearing of face mask
. prohibit attendance at the SGM if the attendee has a fever. Persons exhibiting flu-like symptoms may also be refused admittance

. prohibit attendance at the SGM if the attendee is subject to any prescribed quarantine by the Hong Kong Government or has close contact with any person under quarantine

. no distribution of corporate gift and/or refreshments served at the SGM

Any person who does not comply with these precautionary measures may be denied entry into the SGM venue. The Company encourages attendees (even without flu-like symptoms) to wear surgical masks and reminds Shareholders that they may vote by proxy or appoint the chairman of the meeting as their proxy to vote on the relevant resolutions at the SGM as an alternative to attending the SGM in person.

For identification purpose only

Hong Kong, 13 September 2021

CONTENTS

	Page
PRECAUTIONARY MEASURES FOR THE SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . .	16
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . .	18
APPENDIX — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
NOTICE OF SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37

– i –

PRECAUTIONARY MEASURES FOR THE SGM

In view of the Coronavirus Disease 2019 (‘‘COVID-19’’) situation, the Company will be taking the following precautionary measures at the SGM:

. All attendees will be required to undergo a temperature check and sign a health declaration form before entering the SGM venue.
. Every attendee is required to wear a face mask at any time within the SGM venue.
. Any person who has a fever will not be permitted to attend the SGM. Persons exhibiting flu-like symptoms may also be refused admittance at the Company’s discretion.
. Any person who is subject to any prescribed quarantine by the Hong Kong Government or has close contact with any person under quarantine will be denied entry into or be required to leave the SGM venue at the Company’s discretion.
. There will be no distribution of corporate gift and/or refreshments at the SGM.

Shareholders who are feeling unwell or have been placed on leave of absence on the date of the SGM are advised not to attend the SGM.

Shareholders who prefer not to attend or are restricted from attending the SGM, may still vote by proxy or appoint the chairman of the SGM as their proxy to vote on the relevant resolutions and are advised to take note of the last date and time for the lodgement of the Proxy Form.

As the COVID-19 situation continues to evolve, the Company will closely monitor the situation and reserves the right to take further measures as appropriate in order to minimize any risk to Shareholders and others attending the SGM and to comply with any requirements or recommendations of any government agencies from time to time.

The Company seeks the understanding and cooperation of all Shareholders to minimize the risk of community spread of COVID-19.

The SGM will commence sharply at 11:00 a.m., and Shareholders are encouraged to arrive at the SGM venue at least half an hour prior to the meeting commencement time to avoid delays from precautionary measures mentioned above in the registration process.

– ii –

DEFINITIONS

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

‘‘associates’’
has the meaning ascribed to it under the Listing Rules
‘‘Baoding Jiufu’’
保定九孚生化有限公司 (Bao Ding Jiu Fu Bio-chemical Limited*), a company established in the PRC with limited liability, principally engaged in the manufacture and sale of pharmaceutical products raw materials
‘‘Baoding Jiufu Purchase Agreement’’
the agreement dated 30 June 2020 and entered into between Grand Pharm (China) and Baoding Jiufu in respect of the purchase of raw materials from Baoding Jiufu or its related companies for the production of amino acid products and other pharmaceutical products
‘‘Board’’
the Board of Directors
‘‘Business Day(s)’’
a day (other than a Saturday or a Sunday) on which licensed banks are generally open for business in Hong Kong throughout their normal business hours
‘‘China Grand’’
China Grand Enterprises Incorporation, 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, the issued Shares of which are listed on the Stock Exchange
‘‘connected person’’
has the meaning ascribed to it under the Listing Rules
‘‘controlling shareholder(s)’’
has the meaning ascribed to it under the Listing Rules
‘‘Director(s)’’
the director(s) of the Company
‘‘Effective Date’’
the effective date of the Supplemental Baoding Jiufu Purchase Agreement, i.e. the date upon fulfilment of all conditions precedents set out in the Supplemental Baoding Jiufu Purchase Agreement
‘‘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 an indirect non-wholly owned subsidiary of the Company
‘‘Group’’
the Company and its subsidiaries

– 1 –

DEFINITIONS

‘‘Hong Kong’’
the Hong Kong Special Administrative Region of the PRC
‘‘Independent Board Committee’’
an independent board committee of the Board consisting of all independent non-executive Directors, namely Ms. So Tosi Wan, Winnie, Dr. Pei Geng and Mr. Hu Yebi, established for the purpose of advising the Independent Shareholders as to the fairness and reasonableness of the Supplemental Baoding Jiufu Purchase Agreement and the transactions contemplated thereunder
‘‘Independent Financial Adviser’’
Nudada Limited, a corporation licensed to carry out Type 6 (advising on corporate finance) regulated activity under the SFO
‘‘Independent Shareholders’’
Shareholders 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 Supplemental Baoding Jiufu Purchase Agreement
‘‘Independent Third Party(ies)’’
any person(s) or company(ies) and their respective ultimate beneficial owner(s), to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, are third party(ies) independent of and not connected with any director, chief executive or substantial shareholders or management shareholders of the Company or its subsidiaries or any of their respective associates
‘‘Last Practicable Date’’
8 September 2021, being the latest practicable date prior to the bulk printing of this circular for ascertaining certain information contained herein
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange
‘‘Mr. Hu’’
Mr. Hu Kaijiun, a controlling shareholder of the Company
‘‘Original Baoding Jiufu Purchase Caps’’
the maximum annual caps of RMB43 million and RMB45 million for the two years ending 31 December 2022, respectively
‘‘Outwit’’
Outwit Investments Limited, a company incorporated in the British Virgin Islands with limited liability, which is the controlling shareholder of the Company, holding approximately 47.09% of the total issued Shares

– 2 –

DEFINITIONS

‘‘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

‘‘Proposed Change of the proposed change of the English name of the Company Company Name’’ from ‘‘China Grand Pharmaceutical and Healthcare Holdings Limited’’ to ‘‘Grand Pharmaceutical Group Limited’’ and the proposed adoption of ‘‘遠大 醫 藥集 團有 限公 司 ’’ as the secondary name of the Company in Chinese
‘‘Revised Annual Caps’’ RMB212 million and RMB431 million, the revised annual caps for the transactions contemplated under the Supplemental Baoding Jiufu Purchase Agreement for the year ended 31 December 2021 and 31 December 2022, respectively
‘‘SFO’’ Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
‘‘SGM’’ the special general meeting of the Company to be convened and held at Unit 3302, The Center, 99 Queen’s Road Central, Hong Kong on Thursday, 30 September 2021 to consider and, if thought fit, approve the Supplemental Baoding Jiufu Purchase Agreement and the transactions contemplated thereunder, and the Proposed Change of Company Name
‘‘Share(s)’’ ordinary share(s) of HK$0.01 each in the share capital of the Company
‘‘Shareholder(s)’’ holder(s) of the Share(s)
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘subsidiary(ies)’’ has the meaning ascribed to it under the Listing Rules
‘‘substantial shareholder(s)’’ has the meaning ascribed to it under the Listing Rules
‘‘Supplemental Baoding Jiufu the supplemental agreement entered into between Grand Purchase Agreement’’ Pharm (China) and Baoding Jiufu dated 16 July 2021 in relation to the amendments of certain terms of the Baoding Jiufu Purchase Agreement, including the revision of the Original Baoding Jiufu Purchase Caps
‘‘HK$’’ Hong Kong dollars, the lawful currency of Hong Kong
‘‘RMB’’ Renminbi, the lawful currency of the PRC

– 3 –

DEFINITIONS

‘‘%’’

per cent.

In this circular:

(1) the English names of PRC nationals, entities, facilities and localities are unofficial translation or transliteration from their Chinese names and are for identification purposes only; and
(2) amounts denominated in RMB have been translated into HK$ at the rate of RMB0.81 = HK$1.00 for illustration purpose only.

– 4 –

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: Dr. Tang Weikun Dr. Shao Yan Dr. Niu Zhanqi Dr. Shi Lin

Registered Office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Independent non-executive Directors: Ms. So Tosi Wan, Winnie Dr. Pei Geng Mr. Hu Yebi

Headquarters and principal place of business in Hong Kong: Units 3302, The Center 99 Queen’s Road Central Hong Kong

13 September 2021

To the Shareholders

Dear Sir or Madam,

(1) REVISION OF THE EXISTING ANNUAL CAPS REGARDING THE CONTINUING CONNECTED TRANSACTIONS; (2) PROPOSED CHANGE OF COMPANY NAME; AND (3) NOTICE OF THE SGM

INTRODUCTION

References are made to (i) the announcement of the Company dated 30 June 2020 relating to, inter alia, the Baoding Jiufu Purchase Agreement and the continuing connected transactions contemplated thereunder; and (ii) the announcement of the Company dated 16 July 2021 regarding, inter alia, the revision of the Original Baoding Jiufu Purchase Caps under the Supplemental Baoding Jiufu Purchase Agreement and the Proposed Change of Company Name.

The purpose of this circular is to provide you with, among other things, (i) further information in relation to the Revised Annual Caps under the Supplemental Baoding Jiufu Purchase Agreement; (ii) further information in relation to the Proposed Change of Company Name; (iii) recommendation from the Independent Board Committee to the Independent Shareholders in respect of the Supplemental Baoding Jiufu Purchase Agreement and the Revised Annual Caps; (iv) the advice from the Independent Financial Adviser to the

For identification purposes only

– 5 –

LETTER FROM THE BOARD

Independent Board Committee and the Independent Shareholders in respect of the Supplemental Baoding Jiufu Purchase Agreement and the Revised Annual Caps; and (v) a notice of the SGM and the form of proxy.

(1) REVISION OF THE EXISTING ANNUAL CAPS REGARDING THE CONTINUING CONNECTED TRANSACTIONS

Relationship between the Parties

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the relationships between the parties to the Supplemental Baoding Jiufu Purchase Agreement are set out below:

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 share capital listed on the Stock Exchange.
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, a controlling shareholder of the Company, which is interested in 1,671,671,149 Shares, representing approximately 47.09% of the total issued share capital of the Company. China Grand is controlled and ultimately and beneficially owned by Mr. Hu. China Grand and its subsidiaries is a group principally engaged in various business, including but not limited to, sale of pharmaceutical products.
Baoding Jiufu 保定九孚生化有限公司 (Baoding Jiufu Bio-chemical Limited*), a company established under the laws of the PRC and owned as to approximately 71.00% by China Grand and as to approximately 29.00% by Independent Third Parties.

These Independent Third Parties are 武漢九祥生物科技合夥企業(有限合夥), a limited liability company in the PRC principally engaged in the research and development of biotechnology, holding 14.89% equity interest of Baoding Jiufu, and four PRC residents, namely, 邵新廣, 石俊杰, 韓濤 and 徐輝, holding 4.11%, 4%, 3.5% and 2.5% equity interest of Baoding Jiufu respectively.

武漢九祥生物科技合夥企業(有限合夥) is owned as to 35.71% by 錢志強, 32.14% by 劉新言 and 32.14% by 涂盛旺. 錢志強, 劉新言 and 涂盛旺 are management of various companies engaged in the production of pharmaceutical and chemical products. 徐輝 is a management of Baoding Jiufu while 邵新廣, 石俊杰 and 韓濤 are investors. By virtue of being a subsidiary of China Grand, Baoding Jiufu is considered to be a connected person to the Company.

– 6 –

LETTER FROM THE BOARD

Supplemental Baodin Jiufu Purchase Agreement

On 30 June 2020, the Group entered into the Baoding Jiufu Purchase Agreement, pursuant to which Grand Pharm (China) or its related companies shall purchase raw materials from Baoding Jiufu or its related companies for the production of amino acid products and other pharmaceutical products.

According to the recent review by the Board on the transactions under the Baoding Jiufu Purchase Agreement, the Directors found that the transactions between Grand Pharm (China) and Baoding Jiufu for the six months ended 30 June 2021 is approaching the Original Baoding Jiufu Purchase Caps for the year ending 31 December 2021. In light of this, the Supplemental Baoding Jiufu Purchase Agreement was entered into on 16 July 2021 in relation to the revision of the Original Baoding Jiufu Purchase Caps.

Except for the Revised Annual Caps for the year ending 31 December 2021 and for the year ending 31 December 2022, there is no material difference between the Baoding Jiufu Purchase Agreement and the Supplemental Baoding Jiufu Purchase Agreement. Details of the Supplemental Baoding Jiufu Purchase Agreement are set out as follows:

Date: 16 July 2021 Parties: Baoding Jiufu, as supplier Grand Pharm (China), as purchaser

Products: Grand Pharm (China) or its related companies shall purchase raw materials from Baoding Jiufu or its related companies for the production of amino acid products and other pharmaceutical products. The parties shall determine the specifications and 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 will be paid by Grand Pharm (China) or its related companies (if any) to other independent suppliers for the same or similar products. For the purpose of ascertaining the market prices, the Group will obtain and compare the quotations from two Independent Third Parties for similar products of comparable quality, quantity and specifications or compare the price quoted by Baoding Jiufu with internal production cost of the Group of the same quality and specifications.

Payment terms:

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

– 7 –

LETTER FROM THE BOARD

Term:

For the period commencing from the Effective Date until 31 December 2022.

Annual Caps: The annual caps for the Supplemental Baoding Jiufu Purchase Agreement for the year ending 31 December 2021 and 31 December 2022 are proposed to revise to RMB212 million and RMB431 million, respectively.

The table below sets out the Original Baoding Jiufu Purchase Caps, the utilization of the Original Baoding Jiufu Purchase Caps and the Revised Annual Caps:

	Original
	Baoding	Utilized	Utilization
	Jiufu	Amount	Rate
	Purchase	of the Original	Baoding	Revised
Year/Period ended/ending	Caps	Jiufu Purchase Caps		Annual Caps
		RMB
31 December 2020	41 million	15.6 million	38.0%	—
30 June 2021	—	40.2 million	93.5%
31 December 2021	43 million	—	—	212 million
31 December 2022	45 million	—	—	431 million

The Revised Annual Caps for the two years ending 31 December 2022 were determined taking into account the following factors:

(i) the actual transaction amounts under the Baoding Jiufu Purchase Agreement for the year ended 31 December 2020 and the six months ended 30 June 2021. There were 229 and 861 transactions under the Baoding Jiufu Purchase Agreement for the year ended 31 December 2020 and the six months ended 30 June 2021 respectively;
(ii) the estimated orders to be placed by the Group and the estimated prices of the products based on market prices. It is estimated that the total costs of the amino acids to be purchased would amount to approximately RMB161.1 million and RMB308.3 million for the year ended 31 December 2021 and 2022 respectively. It is estimated that the total costs of DHA to be purchased would amount to approximately RMB23.2 million and RMB66.4 million for the year ended 31 December 2021 and 2022 respectively;
(iii) the potential increase in unit price of the raw materials to be purchased by the Group in view of market condition; and
(iv) the projected growth in the demand for the relevant amino acid products and other pharmaceutical products.

– 8 –

LETTER FROM THE BOARD

Conditions Precedent

The Supplemental Baoding Jiufu Purchase Agreement shall become effective upon the fulfillment of the following conditions:

(i) the passing of the relevant resolution by the Independent Shareholders at the SGM to approve the Supplemental Baoding Jiufu Purchase Agreement and the transactions contemplated thereunder; and
(ii) all necessary consents and approvals required to be obtained by the parties to the Supplemental Baoding Jiufu Purchase Agreement in respect of the entering into of the Supplemental Baoding Jiufu Purchase Agreement and the transactions contemplated thereunder having been obtained.

None of the above conditions are capable of being waived by the parties to the Supplemental Baoding Jiufu Purchase Agreement. If any of the conditions precedent above have not been satisfied on or before 30 September 2021, the Supplemental Baoding Jiufu Purchase Agreement shall cease, and neither party thereto shall have any obligations and liabilities towards each other thereunder save for any antecedent breaches of the terms thereof.

Information about the Group and Baoding Jiufu

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

Baoding Jiufu and its subsidiaries are principally engaged in the manufacture and sale of high-end steroidal compounds.

Reasons for entering into the Supplemental Baoding Jiufu Purchase Agreement

It came to the attention of the Directors in April 2021 that a major competitor of the Group in the PRC announced that they would discontinue the production of amino acid products from July 2021 due to restructuring of their company. As amino acid products are the major products produced by the Group, the Group intends to capture further market shares resulting from the discontinuation of the production of the amino acid products of their major competitor. It is hence expected that the Group will further increase the production of amino acid products in the near future. The raw materials for producing the amino acid products are purchased from Baoding Jiufu under the Baoding Jiufu Purchase Agreement. It is estimated that the total costs of the amino acids to be purchased would amounted to approximately RMB161.1 million and RMB308.3 million for the year ended 31 December 2021 and 2022 respectively, and would account for approximately 75.9% and 71.5% of the Revised Annual Caps for each of the year ending 31 December 2021 and 2022 respectively.

In addition, according to the government authority’s order, the Group has suspended the production of DHA and DNA products since 2019 due to the occurrence of an industrial accident in a factory in the industrial area in Jiangsu province where the

– 9 –

LETTER FROM THE BOARD

Group’s factory for production of DHA was located. The Group intends to recapture the market shares of DHA products and intends to purchase DHA from Baoding Jiufu for the production of DHA products. It is estimated that the total costs of DHA to be purchased under the Supplemental Baoding Jiufu Purchase Agreement would amounted to approximately RMB23.2 million and RMB66.4 million for the year ended 31 December 2021 and 2022 respectively, and would account for approximately 10.9% and 15.4% of the Revised Annual Caps for each of the year ending 31 December 2021 and 2022 respectively. As the total costs of the raw materials for the production of amino acid products during the six months period ended 30 June 2021 have already utilised approximately 93.5% of the Original Baoding Jiufu Purchase Cap for the year ending 31 December 2021, based on the increasing number of orders and intentions received by the Group and negotiations with potential customers for the amino acid products and the DHA products as elaborated above, and allowing a 15% buffer for any potential increase in unit price of these raw materials in view of market condition and any increase in the number of expected orders from customers, and the strong intention of the Group to capture further market share in the production of amino acid and DHA products, the Directors are of the view that the Revised Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

The Board are of the view that the entering into of the Supplemental Baoding Jiufu Purchase Agreement can maintain good and consistent product quality and to ensure constant supply of raw materials of the Group, which are beneficial to implement the Group’s business strategy as disclosed above as well as to reduce its operation risks.

Based on the above, the Directors (including the independent non-executive Directors whose opinion has been provided after consideration of the advice from the Independent Financial Adviser) are of the view (i) that the Supplemental Baoding Jiufu Purchase Agreement is entered into upon arm’s length negotiations between the parties, are on normal commercial terms or better, is entered into in the ordinary course of business of the Company, and is fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (ii) the Revised Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Internal control measures

The Group has adopted the following internal control procedures to govern the continuing connected transactions of the Group under the Supplemental Baoding Jiufu Purchase Agreement and the Revised Annual Caps:

(i) the procurement department of the Group will obtain and compare the quotations from two Independent Third Parties for similar products of comparable quality, quantity and specifications. In the rare cases that Group cannot obtain from Independent Third Parties quotations of materials to be purchased due to specification, minimum ordering quantity, etc, the procurement department will compare the price quoted by Baoding Jiufu with internal production cost of the Group of the same quality and specifications;

– 10 –

LETTER FROM THE BOARD

(ii) the finance department of the Group will continuously monitor the transactions under the Supplemental Baoding Jiufu Purchase Agreement and review the pricing of products, payment terms and actual transaction amount on a monthly basis. In particular, the finance department will regularly compare the prices of the products purchased under the Supplemental Baoding Jiufu Purchase Agreement to see if any prices are not less favourable than those offered by Independent Third Parties;
(iii) the independent non-executive Directors will review the transactions under the Supplemental Baoding Jiufu Purchase Agreement annually to ensure that the relevant transactions are entered (a) in the ordinary and usual course of business of the Group; (b) on normal commercial terms or on terms no less favourable to the Group than those available from independent third parties; and (c) in accordance with the Supplemental Baoding Jiufu Purchase Agreement governing them on terms that are fair and reasonable and in the interest of the Company and Shareholders as a whole; and
(iv) the Company will engage its auditors to report on the Supplemental Baoding Jiufu Purchase Agreement annually confirming whether (a) the relevant transactions under the Supplemental Baoding Jiufu Purchase Agreement have been approved by the Board; (b) the transactions were in accordance with the pricing policies of the Group and entered in to in accordance with the Supplemental Baoding Jiufu Purchase Agreement; and (c) the continuing connected transactions have not exceed the Revised Annual Caps.

The Board believes that the above internal control measures are appropriate and can ensure that the transactions are carried out in accordance with the Supplemental Baoding Jiufu Purchase Agreement and the prices of the products purchased thereunder will not be less favourable than those available from Independent Third Parties.

Implications under the Listing Rules

As at the Latest Practicable Date, China Grand is interested in 1,671,671,149 Shares, representing approximately 47.09% of the total issued share capital of the Company and is thus a controlling shareholder of the Company. Baoding Jiufu is a connected person to the Company under Chapter 14A of the Listing Rules by virtue of being a subsidiary of China Grand.

Based on the Revised Annual Caps, the annual consideration payable by the Group to Baoding Jiufu, together with the continuing connected transactions of the Group as announced by the Company on 30 June 2020 on an aggregate basis, exceed HK$10,000,000 and are more than 5% of the applicable ratios under the Listing Rules, and thus the transactions contemplated under the Supplemental Baoding Jiufu Purchase Agreement are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

– 11 –

LETTER FROM THE BOARD

In addition, China Grand and its respective associates are interested in the Supplemental Baoding Jiufu Purchase Agreement and are therefore required to abstain from voting on the relevant resolution to approve the Supplemental Baoding Jiufu Purchase Agreement.

Save as disclosed above, no Shareholder has a material interest in the Supplemental Baoding Jiufu Purchase Agreement and the transactions contemplated thereunder and is required to abstain from voting on the relevant resolutions at the SGM.

Dr. Shao Yan was a director of Outwit and he had voluntarily abstained from voting on the board resolutions for approving the said transaction to avoid any potential conflict of interests. Save as aforesaid, the Board confirms that none of the Directors has any material interest in the transactions contemplated under the Supplemental Baoding Jiufu Purchase Agreement and is required to abstain from voting on the board resolutions for approving the Supplemental Baoding Jiufu Purchase Agreement.

Independent Board Committee

Nuada Limited has been appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Supplemental Baoding Jiufu Purchase Agreement and the Revised Annual Caps for the transactions contemplated thereunder.

The Independent Board Committee, having taken into account the advice and recommendation of Nuada Limited, consider that the terms of the Supplemental Baoding Jiufu Purchase Agreement and the transactions contemplated thereunder and the Revised Annual Caps are fair and reasonable and is in the best interests of the Company and the Shareholders as a whole, and accordingly recommends the Independent Shareholders to vote in favour of the ordinary resolution which will be proposed at the SGM for approving the Supplemental Baoding Jiufu Purchase Agreement and the Revised Annual Caps.

Recommendation

The Board (including the independent non-executive Directors composing the Independent Board Committee), having taken into account the reasons set out in the paragraph headed ‘‘Reasons for entering into the Supplemental Baoding Jiufu Purchase Agreement’’ above and the recommendations of the Independent Board Committee and the Independent Financial Adviser, considers that entering into the Supplemental Baoding Jiufu Purchase Agreement is in the ordinary course of business of the Group and that the terms therein and the Revised Annual Caps are determined on an arm’s length basis among the relevant parties and are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

– 12 –

LETTER FROM THE BOARD

Accordingly, the Board recommends the Independent Shareholders to vote in favour of the ordinary resolution which will be proposed at the SGM for approving the Supplemental Baoding Jiufu Purchase Agreement and the Revised Annual Caps.

Additional Information

Your attention is drawn to (i) the letter from the Independent Board Committee set out on pages 16 to 17 of this circular which contains its views in relation to the Supplemental Baoding Jiufu Purchase Agreement; and (ii) the letter from the Independent Financial Adviser set out on pages 18 to 33 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the Supplemental Baoding Jiufu Purchase Agreement and the principal factors and reasons considered by it in arriving its opinions.

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

(2) PROPOSED CHANGE OF COMPANY NAME

The Board proposes to change the English name of the Company from ‘‘China Grand Pharmaceutical and Healthcare Holdings Limited’’ to ‘‘Grand Pharmaceutical Group Limited’’ and to adopt ‘‘遠大醫藥集團有限公司’’ as the secondary name of the Company in Chinese.

The Proposed Change of Company Name is subject to (i) the passing of a special resolution by the Shareholders at an SGM approving the same; and (ii) the Registrar of Companies in Bermuda having approved the Proposed Change of Company Name.

The relevant filing with the Registrar of Companies in Bermuda will be made after the passing of the special resolution regarding the Proposed Change of Company Name at the SGM. Subject to the satisfaction of the conditions set out above, the Proposed Change of Company Name will take effect upon the date on which the Registrar of Companies in Bermuda registers the new English name in place of the existing English name of the Company and registers the secondary name of the Company as set out in the certificate of incorporation on change of name and the certificate of secondary name to be issued by the Registrar of Companies in Bermuda respectively. The Company will then comply with the necessary registration and/or filing procedures with the Registrar of Companies in Bermuda and the Companies Registry in Hong Kong.

Reasons for the Proposed Change of Company Name

The Board considers that the Proposed Change of Company Name will better reflect the current status of the Group’s diverse business development and its direction of future development and therefore the Proposed Change of Company Name can provide the Company with enhanced corporate image and clearer identity. The Board is of the opinion that the Proposed Change of Company Name will benefit the Company’s future business development and is in the best interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Effect of the Proposed Change of Company Name

The Proposed Change of Company Name will not affect any rights of the holders of securities of the Company or the Group’s daily business operation or its financial position.

All existing certificates of securities in issue bearing the present name of the Company shall, upon the Proposed Change of Company Name becoming effective, continue to be evidence of title to such securities and the existing share certificates will continue to be valid for trading, settlement, registration and delivery purposes.

There will not be any arrangement for exchange of the existing certificates of securities for new share certificates bearing the new name of the Company (in both English and Chinese). Subject to the confirmation of the Stock Exchange, the English and Chinese stock short names of the Company for trading of the Shares on the Stock Exchange will also be changed after the new name becomes effective.

Once the Proposed Change of Company Name becomes effective, share certificates will only be issued in the new name of the Company.

Further announcement will be made by the Company in relation to the effective dates of the Proposed Change of Company Name and the change of the English and Chinese stock short names of the Company.

As no Shareholder has a material interest in the Proposed Change of Company Name, no Shareholder will be required to abstain from voting on the special resolution to approve the Proposed Change of Company Name at the SGM.

The Directors are of the opinion that the Change of Company Name is in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend all Shareholders to vote in favour of the resolution to be proposed in the SGM.

THE SGM

Set out on pages 37 to 39 of this circular is a notice convening the SGM to be held at Unit 3302, The Center, 99 Queen’s Road Central, Hong Kong at which the relevant resolutions will be proposed at the SGM to approve, among other things, (i) the Supplemental Baoding Jiufu Purchase Agreement and the transactions contemplated thereunder; (ii) the Revised Annual Caps; and (iii) the Proposed Change of Company Name. The resolutions proposed to be approved at the SGM will be taken by poll and an announcement on the results of the SGM will be made by the Company after the SGM.

The register of members of the Company will be closed from Monday, 27 September 2021 to Thursday, 30 September 2021, both days inclusive, during which period no transfer of shares can be registered. In order to attend the SGM, all properly completed transfer forms accompanied by the relevant share certificates must be lodged with the branch share registrar

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LETTER FROM THE BOARD

and transfer office of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, Hopewell Centre, 183 Queen’s Road East, Hong Kong no later than 4:30 p.m. on Friday, 24 September 2021.

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, 17M 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.

Yours faithfully,

By order of the Board

China Grand Pharmaceutical and Healthcare Holdings Limited Dr. Tang Weikun Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [68 x 37] 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)

13 September 2021

To the Independent Shareholders

Dear Sir or Madam,

REVISION OF THE EXISTING ANNUAL CAPS REGARDING THE CONTINUING CONNECTED TRANSACTIONS

We refer to the circular of the Company dated 13 September 2021 (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 Supplemental Baoding Jiufu Purchase Agreement and the transactions contemplated thereunder and the Revised Annual Caps 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 18 to 33 of the Circular. Your attention is also drawn to the letter from the Board set out on pages 5 to 15 of the Circular and the additional information set out in the appendix of the Circular.

For identification purposes only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the terms of the Supplemental Baoding Jiufu Purchase Agreement, the principal factors and reasons considered by, and the advice and recommendation of the Independent Financial Adviser, we are of the opinion that the Supplemental Baoding Jiufu Purchase Agreement and the transactions contemplated thereunder and the Revised Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the SGM to approve Supplemental Baoding Jiufu Purchase Agreement and the Revised Annual Caps.

Yours faithfully,

Independent Board Committee of China Grand Pharmaceutical and Healthcare Holdings Limited

So Tosi Wan, Winnie Independent non-executive Director

Pei Geng Hu Yebi Independent non-executive Director Independent non-executive Director

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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 September 2021 prepared for the purpose of inclusion in this circular.

Unit 1606, 16/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16樓1606室

13 September 2021

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

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of Supplemental Baoding Jiufu Purchase Agreement and the Revised Annual Caps for the transactions contemplated 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 September 2021 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 this circular unless the context requires otherwise.

Reference is made to the announcement of the Company dated 30 June 2020, relating to, inter alia, the Baoding Jiufu Purchase Agreement.

According to the recent review by the Board on the transactions under the Baoding Jiufu Purchase Agreement, the Directors found that the transactions between Grand Pharm and Baoding Jiufu for the six months ended 30 June 2021 is approaching the Original Baoding Jiufu Purchase Caps for the year ending 31 December 2021. In light of this, the Supplemental Baoding Jiufu Purchase Agreement was entered into on 16 July 2021 and the Board proposed to seek for the approval of the Independent Shareholders, in relation to, among other matters, the revision of the Original Baoding Jiufu Purchase Caps.

As at the Latest Practicable Date, (i) Baoding Jiufu is owned as to approximately 71.00% by China Grand and as to approximately 29.00% by Independent Third Parties; and (ii) China Grand is a controlling shareholder of the Company, which is interested in 1,671,671,149 Shares, representing approximately 47.09% of the total issued share capital of the Company. Accordingly, Baoding Jiufu is a connected person to the Company under Chapter 14A of the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Listing Rules by virtue of being a subsidiary of China Grand, the transactions contemplated under the Supplemental Baoding Jiufu Purchase Agreement constitutes continuing connected transactions of the Company.

Based on the Revised Annual Caps, the annual consideration payable by the Group to Baoding Jiufu, together with the continuing connected transactions of the Group as announced by the Company on 30 June 2020 on an aggregate basis, exceed HK$10,000,000 and are more than 5% of the applicable ratios under the Listing Rules, as such, the transactions contemplated under the Supplemental Baoding Jiufu Purchase Agreement are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee has been formed to advise the Independent Shareholders as to the fairness and the reasonableness of the terms of the Supplemental Baoding Jiufu Purchase Agreement (including but not limited to the Revised Annual Caps) and the transactions contemplated thereunder and as to how to vote at the SGM. We, Nuada Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Supplemental Baoding Jiufu Purchase Agreement and the Revised Annual Caps for the transactions contemplated thereunder.

During the past two years immediately preceding and up to the date of our appointment as the Independent Financial Adviser, we have acted as an independent financial adviser to the Company for a connected transaction and set out our opinion in the corresponding announcement dated 10 October 2019. Save for this appointment as the Independent Financial Adviser in respect of the Supplemental Baoding Jiufu Purchase Agreement and the aforesaid appointment, there were no other engagements between the Group and Nuada Limited during the past two years immediately preceding and up to the date of our appointment as the Independent Financial Adviser. Apart from normal professional fees for our services to the Company in connection with the aforesaid engagement and this appointment as the Independent Financial Adviser, no other arrangement exists whereby we have received/will receive any fees and/or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence. Accordingly, pursuant to Rule 13.84 of the Listing Rules, we are independent from, and are not associated with the Company 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 Supplemental Baoding Jiufu Purchase Agreement.

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 this 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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

opinions contained or referred to in this 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 this circular, the 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 this circular and have confirmed in this circular, having made all reasonable inquiries, that to the best of their knowledge, opinion expressed in this 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 this circular misleading.

Our review and analysis were based upon, among other things, (i) the Supplemental Baoding Jiufu Purchase Agreement; (ii) the financial information of the Group for the two years ended 31 December 2019 (‘‘FY2019’’) and 31 December 2020 (‘‘FY2020’’) respectively as shown in the annual report of the Company for FY2020 (the ‘‘Annual Report’’); (iii) the financial information of the Group for the six months period ended 30 June 2020 (‘‘6M2020’’) and 30 June 2021 (‘‘6M2021’’) respectively as shown in the interim results announcement of the Company for 6M2021 (the ‘‘Interim Results’’); (iv) statement of confirmation by the independent non-executive Directors of the Company for the Baoding Jiufu Purchase Agreement; (v) the independent auditor’s assurance letter issued by the auditors of the Company for the Baoding Jiufu Purchase Agreement; (vi) the historical transaction amounts under the Baoding Jiufu Purchase Agreement; (vii) the Baoding Jiufu Purchase Master List (as defined below) and the relevant orders for purchase from or quotations from Independent Third Parties; and (viii) this circular.

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 this 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.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our recommendation in respect of the terms of the Supplemental Baoding Jiufu Purchase Agreement (including the Revised Annual Caps), we have taken into account the following principal factors and reasons:

1. Background information of the Group and the counterparties

(a) The Group and Grand Pharm (China)

The Group is principally engaged in the business of manufacture and sales of pharmaceutical products in the PRC. Grand Pharm (China) is a company established under the laws of the PRC and an indirect non-wholly owned subsidiary of the Company.

(b) Baoding Jiufu

保定九孚生化有限公司 (Baoding Jiufu Bio-chemical Limited*) is a company established under the laws of the PRC and is owned as to approximately 71.00% by China Grand and as to approximately 29.00% by Independent Third Parties. Baoding Jiufu and its subsidiaries are principally engaged in the manufacture and sale of high-end steroidal compounds.

(c) China Grand

中國遠大集團有限責任公司 (China Grand Enterprises Incorporation*) is a company established in the PRC with limited liability, a controlling shareholder of the Company, which is interested in 1,671,671,149 Shares, representing approximately 47.09% of the total issued share capital of the Company.

2. Reasons for entering into the Supplemental Baoding Jiufu Purchase Agreement

According to the management of the Company and the Company’s announcements dated 24 December 2019 and 30 June 2020, the Group carried out an one-off transaction with Baoding Jiufu in December 2019 pursuant to the purchase agreement dated 24 December 2019 entered into between Wuhan Kernel Bio-Tech Co., Ltd.* (武漢科諾生物科技股份有限公司), an indirect non-wholly owned subsidiary of the Company, and Baoding Jiufu, and the Group through Grand Pharm (China) continuously carried out transactions with Baoding Jiufu since 30 June 2020 upon entering into the Baoding Jiufu Purchase Agreement. For detailed information of the aforementioned transactions, please refer to the Company’s announcements dated 24 December 2019 and 30 June 2020 respectively.

As stated in the Letter from the Board, according to the recent review by the Board on the transactions under the Baoding Jiufu Purchase Agreement, the Directors found that the transactions between Grand Pharm (China) and Baoding Jiufu for the six months ended 30 June 2021 is approaching the Original Baoding Jiufu Purchase Caps for the year ending 31 December 2021. In light of this, the Supplemental Baoding Jiufu Purchase

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Agreement was entered into on 16 July 2021 to for the revision of the Original Baoding Jiufu Purchase Caps. The Directors (including the independent non-executive Directors after taking the advice from the independent financial adviser) are of the view that the entering into of the Supplemental Baoding Jiufu Purchase Agreement can maintain good product quality and to ensure constant supply of raw materials of the Group, which are beneficial to implement the Group’s business strategy as well as to reduce its operation risks.

Having considered the principal activities of the Group as mentioned in the paragraph headed ‘‘1. Background information of the Group and the counterparties’’ above in this letter, we are of the view and concur with the view of the management of the Company that the purchase of raw materials from Baoding Jiufu since 30 June 2020 under the Baoding Jiufu Purchase Agreement and the entering of the Supplemental Baoding Jiufu Purchase Agreement which cover the purchase of raw materials from Baoding Jiufu or its related companies for the production of amino acid products and other pharmaceutical products are in the ordinary and usual course of the Group’s business.

Based on the above, we are of the view and concur with the Directors’ view that the entering into of the Supplemental Baoding Jiufu Purchase Agreement offers the opportunity to continue the business relationship with Baoding Jiufu and purchase of raw materials for the production of amino acid products and other pharmaceutical products by the Group, and therefore the Supplemental Baoding Jiufu Purchase Agreement are in the interest of the Company and the Shareholders as a whole.

3. Financial information of the Group

The table below summarises the financial results of the Group for FY2019 and FY2020 respectively as extracted from the Annual Report and for 6M2020 and 6M2021 respectively as extracted from the Interim Results.

	For	For	For	For
	6M2021	6M2020	FY2020	FY2019
	(unaudited)	(unaudited)	(audited)	(audited)
	HK$’000	HK$’000	HK$’000	HK$’000
Revenue	4,566,530	3,255,784	6,352,919	6,590,635
Gross profit	2,892,841	2,040,589	4,035,194	4,041,365
Profit for the period/year
attributable to owners of
the Company	1,202,543	718,509	1,792,661	1,150,948

FY2020 as compared with FY2019

The Group recorded a revenue of approximately HK$6,352.9 million for FY2020, representing a slightly decrease of approximately 3.6% as compared with that of approximately HK$6,590.6 million for FY2019. As disclosed in the Annual Report and according to the management of the Company, the decrease was mainly

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

derived from the impact of COVID-19 epidemic, certain hospitals were restricted for access during a period of time and temporary suspended provision of non-emergency services, and thus put pressures in the sales of prescription drugs. In the meanwhile, the Group’s continuous expansion of the out-of-hospital market and strengthening of cooperation with various e-commerce platforms resulted a substantial growth in the sales of over-the-counter drugs on e-commerce platforms and retail pharmacies, which offset the drop of prescription drugs.

As disclosed in the Annual Report and according to the management of the Company, since the Group continued to optimize its profit structure, constantly promoted the development strategy of innovative and barrier drugs, and focused on promoting the sales of innovative high-barrier and high-margin products, the Group’s gross profit margin was approximately 63.5%, which was 2.2 per cent points more than the gross profit margin of 61.3% for the corresponding period in 2019, and thus the Group recorded similar level of gross profit of approximately HK$4,035.2 million for FY2020 as compared with that of approximately HK$4,041.4 million for FY2019.

The profit for the year attributable to owners of the Company for FY2020 amounted to approximately HK$1,792.7 million as compared with that of approximately HK$1,151.0 million for FY2019, representing an increase of approximately 55.8%. As disclosed in the Annual Report and according to the management of the Company, such increase was mainly due to (i) reduction in distribution costs by approximately HK$379.4 million; and (ii) the gain from changes in fair value of investment in Telix Pharmaceuticals Limited (‘‘Telix’’), an Australia based pharmaceutical company listed on Australian Securities Exchange, amounted to approximately HK$268.3 million.

6M2021 as compared with 6M2020

The Group recorded revenue of approximately HK$4,566.5 million for 6M2021, representing an increase of approximately 40.3% as compared to that of approximately HK$3,255.8 million for 6M2020. As stated in the Interim Results and according to the management of the Company, the increase in revenue was mainly due to the fact that (i) the Group substantially developed pharmaceutical products with market and technical barrier, exclusive and protected medical products and branded pharmaceutical products, especially in pharmaceutical preparations and medical device segments, which have recorded a significant growth; and (ii) the Group continued to enhance cooperation with major e-commerce platforms to actively expand external market and to facilitate considerable growth in the sales on e-commerce platforms and retail pharmacies. In addition, due to the effective control of COVID-19 epidemic by the PRC government, the epidemic caused no impact to the Group’s operation during the 6M2021 as compared to 6M2020.

As stated in the Interim Results and according to the management of the Company, by virtue of the Group’s further optimized earning structure and the Group’s strategy of deepening innovation and developing barrier pharmaceutical

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

products, the Group continuously promoted the sales of innovative high-barrier and high-margin products. Accordingly, the Group’s gross profit margin was approximately 63.3% for 6M2021, which was 0.6 per cent points higher than the gross profit margin of 62.7% for 6M2020.

The profit for the period attributable to owners of the Company for 6M2021 amounted to approximately HK$1,202.5 million (which includes the gain from changes in fair value of investment in Telix amounted to approximately HK$294.8 million), with an increment of approximately 67.4% as compared with that of approximately HK$705.8 million for 6M2020. If disregarding the gain from changes in fair value of investment in Telix, the profit attributable to the owners of the Company for 6M2021 increased by approximately 26.3% as compared to that for 6M2020.

Financial position

	As at	As at	As at
	30 June	31 December	31 December
	2021	2020	2019
	(unaudited)	(audited)	(audited)
	HK$’000	HK$’000	HK$’000
Current assets	6,767,129	5,318,958	3,816,323
Current liabilities	4,432,668	4,302,927	3,589,563
Net current assets	2,334,461	1,016,031	226,760
Net assets	12,245,063	11,344,209	8,511,007

As stated in the Annual Report, as at 31 December 2020, current assets of the Group amounted to approximately HK$5,319.0 million as compared with approximately HK$3,816.3 million as at 31 December 2019, while net current assets increased from approximately HK$226.8 million as at 31 December 2019 to approximately HK$1,016.0 million as at 31 December 2020. It is noted that the increase was mainly due to the increase in cash and cash equivalents by approximately HK$777.4 million and the increase in financial assets at fair value through profit or loss by approximately HK$448.9 million, and partially offset by increase in bank and other borrowings by approximately HK$600.8 million. Coupled with an increase of interest in associates by approximately HK$967.1 million, net assets of the Group increased from approximately HK$8,511.0 million as at 31 December 2019 to approximately HK$11,344.2 million as at 31 December 2020.

As stated in the Interim Results, as at 30 June 2021, current assets of the Group amounted to approximately HK$6,767.1 million as compared with approximately HK$5,319.0 million as at 31 December 2020, while net current assets further increased from approximately HK$1,016.0 million as at 31 December 2020 to approximately HK$2,334.5 million as at 30 June 2021. It is noted that the increase was mainly due to the increase in trade and other receivables by approximately HK$815.4 million and the increase in cash and cash equivalents by approximately

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

HK$500.8 million. Accordingly, net assets of the Group also increased from approximately HK$11,344.2 million as at 31 December 2020 to approximately HK$12,245.1 million as at 30 June 2021.

Taking into account that (i) despite the impact of COVID-19, the Group still recorded comparable amount of revenue and a higher gross profit margin in FY2020 and an increased level of net current assets and net assets; (ii) the satisfactory financial results as reflected by the growth of revenue and profit for the period attributable to owners of the Company for 6M2021, we are of the view and concur with the view of the management of the Company that the increase of the Revised Annual Caps as detailed in the paragraph headed ‘‘6. The Revised Annual Caps’’ below is in line with the Company’s business development.

4. Market outlook of the pharmaceutical industry in the PRC

In respect of the prospect of the pharmaceutical industry in which the Group is principally engaged, we have reviewed relevant statistics released by the National Bureau of Statistics of the PRC* (國家統計局). It is noted that the per capita health care expenditure increased from approximately RMB1,165 in 2015 to approximately RMB1,843 in 2020 with a cumulative annual growth of approximately 9.6%, while the total health expenditure (including those from government, society and individual) increase from approximately RMB4,097 billion in 2015 to approximately RMB6,584 billion in 2019 (being the latest data available) with a cumulative annual growth of approximately 12.6%. Both of these demonstrate that the general public and the society as a whole are spending more on health care related products and services.

We note that the State Council of the PRC (國務院) issued publication titled ‘‘Opinion on Strengthening Supervision of Drugs’’ (國務院辦公廳關於全面加強藥品監管能力建設的實施意見) on 10 May 2021 (the ‘‘Opinion’’). The Opinion set out a wide range of goals that the PRC government intends to achieve in order to strengthen the supervision and regulation of drugs and better protect the health of PRC citizens, which include: (i) to perfect the regulatory system regarding drugs, such as the enforcement of, among other laws, ‘‘The Drug Administration Law of the PRC’’* 《( 中華人民共和國藥品管理法》) with regular amendments thereto; (ii) to improve the review and testing of drugs and medical equipment; and (iii) to promote and improve the informatisation, digitalisation and sharing of statistics regarding testing and usage of drugs among government departments and pharmaceutical companies. While the above policies are not directly related to the development of pharmaceutical products in the PRC, we consider that it is the aim of the PRC government to better regulate the pharmaceutical industry which would improve the image of pharmaceutical enterprises and have an overall positive impact on the industry.

Taking into consideration the increasing trend on health expenditure in the PRC and the government policies in regulating the pharmaceutical industry, 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.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. Review on terms of the Supplemental Baoding Jiufu Purchase Agreement

(a) Principal terms of the Supplemental Baoding Jiufu Purchase Agreement

Products:

Grand Pharm (China) or its related companies shall purchase raw materials from Baoding Jiufu or its related companies for the production of amino acid products and other pharmaceutical products.

The parties shall determine the specifications and 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 will be paid by Grand Pharm (China) or its related companies (if any) to other independent suppliers for the same or similar products. For the purpose of ascertaining the market prices, the Group will obtain and compare the quotations from two Independent Third Parties for similar products of comparable quality, quantity and specifications or compare the price quoted by Baoding Jiufu with internal production cost of the Group of the same quality and specifications.

Payment terms:

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

Term:

For the period commencing from the Effective Date until 31 December 2022.

For detailed terms of the Supplemental Baoding Jiufu Purchase Agreement, please refer to the paragraph headed ‘‘Supplemental Baodin Jiufu Purchase Agreement’’ in the Letter from the Board.

(b) Pricing basis of the Supplemental Baoding Jiufu Purchase Agreement

We have discussed with the management of the Company regarding the pricing basis under the Supplemental Baoding Jiufu Purchase Agreement. We note that for the purpose of ascertaining the market prices, the Group will obtain and compare the quotations from two Independent Third Parties for similar products of comparable quality, quantity and specifications or compare the price quoted by Baoding Jiufu with internal production cost of the Group of the same quality and specifications. The management of the Company confirmed that the unit price to be paid by Grand Pharm (China) or its related companies (if any) to Baoding Jiufu will not be higher than (i) those quotations obtained; or (ii) in the rare cases that Grand Pharm (China)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

or its related companies (if any) cannot obtain from Independent Third Parties quotations of materials to be purchased due to specification, minimum ordering quantity, etc, the internal production cost of the Group. 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 safeguard that the prices of the products purchased from Baoding Jiufu are no less favourable to the Group than those available from other independent suppliers for the same or similar products.

(c) Our review on the pricing basis

According to the management of the Company, the Group has continuously carried out transactions with Baoding Jiufu since 30 June 2020. To ascertain whether the Company has adhered to the aforesaid pricing basis under previous transactions between the Group and Baoding Jiufu, we have requested the Company to provide the master list of all transactions conducted between Grand Pharm (China) and its related companies (being Hubei Hongyuan Industrial Investment Development Co., Ltd. (湖北弘元進出口有限公司) and Wuhan Grand Hoyo Co., Ltd (武漢遠大弘元股份有限公司), both are subsidiaries of Grand Pharm (China)) (‘‘Grand Pharm Group’’) and Baoding Jiufu for the year ended 31 December 2020 and the period from 1 January 2021 up to 30 June 2020 (involving five types of products purchased from Baoding Jiufu by Grand Pharm Group) (the ‘‘Baoding Jiufu Purchase Master List’’). The Baoding Jiufu Purchase Master List stated the details of each of the transactions conducted between Grand Pharm Group and Baoding Jiufu for FY2020 and the period from 1 January 2021 up to 30 June 2021 (‘‘6M2021’’), such as transaction date, unit price, transaction volume, total amount of each transaction and name of products sold. According to the Baoding Jiufu Purchase Master List, there were 229 and 861 transactions between Grand Pharm Group and Baoding Jiufu for FY2020 and 6M2021 respectively. The five types of raw materials purchased included four types of amino acids, namely (i) L-Citrulline; (ii) L-Citrulline-DLMalate 2:1 and L-Citrulline-DL-Malate 1:1 (two kinds of mixtures of L-Citrulline and L-Malic acid); (iii) N-Acetyl-DL-Leucine; and (iv) L-Hydroxyproline, and docosahexaenoic acid (‘‘DHA’’). As advised by the management of the Company, all of these raw materials can be used for a wide range of pharmaceutical products. We have also obtained (i) purchase orders for the same raw materials as stated above by Grand Pharm Group from Independent Third Parties; and (ii) quotations obtained by Grand Pharm Group from Independent Third Parties for pricing comparison. Based on the above information provided and after discussion with the management of the Company, we note that the unit sales prices of products purchased from Baoding Jiufu were indeed not higher than those available from Independent Third Parties based on the orders or quotations obtained and the pricings of such products followed the aforesaid pricing basis.

Based on the historical transactions carried out under the Baoding Jiufu Purchase Agreement, 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 of products paid by the Group are based on the prevailing market prices and not less favourable than those available from Independent Third Parties,

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

and therefore such pricing arrangement is on normal commercial terms and the transactions conducted under the Supplemental Baoding Jiufu Purchase Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

6. The Revised Annual Caps

The table below shows (i) the annual caps under the Baoding Jiufu Purchase Agreement for the year ended 31 December 2020 and the two years ending 31 December 2022 (the ‘‘Previous Annual Caps’’); and (ii) the proposed Revised Annual Caps for the two years ending 31 December 2022:

			For the year	For the year	For the year
			ended	ending	ending
			31 December	31 December	31 December
			2020	2021	2022
			(RMB million)	(RMB million)	(RMB million)
Previous	Annual	Caps	41.0	43.0	45.0
				For the year	For the year
				ending	ending
				31 December	31 December
				2021	2022
				(RMB million)	(RMB million)
Revised	Annual	Caps		212.0	431.0

Pursuant to the Letter from the Board, the Revised Annual Caps are determined by the Directors based on (i) the expected volume of orders for the raw materials identified by the Group; and (ii) the projected growth in the demand for the relevant amino acid products and other pharmaceutical products.

According to the management of the Company, the Previous Annual Caps will be replaced by the Revised Annual Caps upon the Supplemental Baoding Jiufu Purchase Agreement becoming effective on the Effective Date. As advised by the management of the Company, the Previous Annual Caps for the year ending 31 December 2021 has not been exceeded as at the Latest Practicable Date and the Company will continuously monitor the transactions under the Baoding Jiufu Purchase Agreement to ensure that the Previous Annual Caps will not be exceeded.

The table below summaries the historical transaction amounts and their respective utilisation rates of Baoding Jiufu Purchase Agreement (i) for the year ended 31 December 2020; and (ii) from 1 January 2021 to 30 June 2021.

– 28 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

			From
		For the year ended	1 January 2021 to
		31 December 2020	30 June 2021
Historical	transaction amount under
Baoding	Jiufu Purchase Agreement	RMB15.6 million	RMB40.2 million
Utilisation	rate	38.0%	93.5%

As shown in the above table, we noted that the utilisation rates of Previous Annual Caps were (i) approximately 38.0% for the year ended 31 December 2020; (iii) approximately 93.5% from 1 January 2021 to 30 June 2021.

The Revised Annual Caps will be significantly higher than the Original Baoding Jiufu Purchase Caps. As discussed with the management of the Company, we understand that the Revised Annual Caps are determined by the parties to the Supplemental Baoding Jiufu Purchase Agreement after negotiation with reference to, among other factors, the estimated maximum orders to be placed by Grand Pharm Group and the estimated prices of the products based on market prices. In particular, we noted that:

(i) based on the information provided by the management of the Company, one of the major competitors of the Group (the ‘‘Competitor’’) in the PRC related to production and sale of amino acid products issued a notice in April 2021 that its two subsidiaries in the PRC will discontinue production of amino acid products in July 2021 due to restructuring of their group. Based on information provided by the management of the Company and public information, we noted that the Competitor is a company listed on the Korea Exchange and is principally engaged in, among others, manufacture of food and pharmaceutical products. Amino acids were the major raw materials purchased by China Pharm Group under the Baoding Jiufu Purchase Agreement and were used to produce a variety of amino acid products. The total costs of amino acids purchased by China Pharm Group during the six months period ended 30 June 2021 have already utilised approximately 93.5% of the Previous Annual Caps for the year ending 31 December 2021. As discussed with the management of the Company, we understand that the Company intends to capture market shares of amino acid products and therefore expect to further increase in the production of amino acid products in the near future. Accordingly, it is estimated that the total costs of the amino acids to be purchased would amounted to approximately RMB161.1 million and RMB308.3 million for the year ending 31 December 2021 and 2022 respectively (please refer to the table below for details), and would account for approximately 75.9% and 71.5% of the Revised Annual Caps for each of the year ending 31 December 2021 and 2022 respectively;
(ii) in early 2019, there was an industrial accident in a factory in Yancheng, Jiangsu province, the PRC causing explosion and affecting nearby factories. Subsequently all factories in the nearby industrial area, including a factory of the Group for, among other raw materials and products, the production of DHA and DHA products, were required by the government authority to suspend

– 29 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

operations. As such, the Group has suspended the production of DHA and hence DHA products. The Company did not determine the Previous Annual Caps in June 2020 with reference to purchase of DHA as the resumption of operations of the aforesaid factory had not been approved by the government authority at the relevant time. After the Company had obtained government approval in August 2020 and had completed test runs afterwards, the aforesaid factory resumed normal operations in the first half of 2021 for some of its production lines. To recapture the market shares of DHA products, it is intended that the Group would purchase DHA from Baoding Jiufu to resume the production line of DHA products in the second half of 2021 or the first half of 2022. As discussed with the management of the Company, the estimated total costs of DHA to be purchased under the Supplemental Baoding Jiufu Purchase Agreement would amounted to approximately RMB23.2 million and RMB66.4 million for the year ending 31 December 2021 and 2022 respectively (please refer to the table below for details), and would account for approximately 10.9% and 15.4% of the Revised Annual Caps for each of the year ending 31 December 2021 and 2022 respectively; and

(iii) the management of the Company estimated the total costs of raw materials to be purchased under the Supplemental Baoding Jiufu Purchase Agreement based on the unit price recently quoted from Baoding Jiufu. As such, a 15% buffer on top of the estimated total costs of amino acids and DHA was added to accommodate potential increase in unit price in view of market condition as well as higher than expected orders of products manufactured by the Group.

For reference purpose only, the estimated amount of orders to be placed by Grand Pharm Group for the raw materials for each of the two years ending 31 December 2022 as provided by the management of the Company are set out below:

Amino acids L-Citrulline L-Citrulline-DL-Malate 2:1 L-Citrulline-DL-Malate 1:1 N-Acetyl-DL-Leucine L-Hydroxyproline DHA Total	Estimated orders to be placed for the year ending 31 December 2021 2022 (RMB million) (RMB million) 13.7 41.2 126.1 220.0 5.1 9.8 8.0 16.7 8.2 20.6 161.1 308.3 23.2 66.4 184.3 374.7	Estimated orders to be placed for the year ending 31 December 2021 2022 (RMB million) (RMB million) 13.7 41.2 126.1 220.0 5.1 9.8 8.0 16.7 8.2 20.6 161.1 308.3 23.2 66.4 184.3 374.7
		308.3 66.4
		374.7

– 30 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notwithstanding the increase of Revised Annual Caps as compared with the Original Baoding Jiufu Purchase Caps, having considered:

(i) as discussed with the management of the Company, the estimated amount of order and costs of raw materials (i.e. amino acids and DHA) to be purchased from Baoding Jiufu were determined based on the orders and intentions received by the Group and negotiations with potential clients for the products which we have obtained (a) a table that summarises the orders and intentions for products received by the Group and the corresponding estimated amount of raw materials required for production of such products; and (b) some orders and intentions on a sampling basis;
(ii) we reviewed the quotations obtained from Baoding Jiufu for determining the prices of raw materials to be purchased under the Revised Annual Caps, as well as quotations obtained from or orders placed to independent suppliers for the same products and noted that the prices available from Baoding Jiufu were lower than those from independent suppliers;
(iii) the 15% buffer on top of the estimated total costs of amino acids and DHA was added to accommodate possible increase in prices and/or expected amount of order of raw materials. In view of the increasing demand for health care in the PRC as reflected by both the cumulative annual growth rates of approximately 9.6% and 12.6% for per capita health care expenditure and total health expenditure in recent years respectively, and the satisfactory financial results for 6M2021 as reflected by the growth of both revenue and profit for the period attributable to owners of the Company for 6M2021, we consider that the 15% buffer is fair and reasonable; and
(iv) the Previous Annual Caps for the year ending 31 December 2021 was close to fully utilised with utilisation rate of approximately 93.5% as at 30 June 2021,
we are of the view and concur with the Directors’ view that the Revised Annual Caps are fair and reasonable.

7. Internal control for implementing the Supplemental Baoding Jiufu Purchase Agreement

According to the management of the Company, the Group will implement the followings measures to ensure that each of individual transactions will be conducted within the framework of the Supplemental Baoding Jiufu Purchase Agreement:

(i) The procurement department of the Group will obtain and compare the quotations from two Independent Third Parties for similar products of comparable quality, quantity and specifications. In the rare cases that Grand Pharm (China) or its related companies (if any) cannot obtain from Independent Third Parties quotations of materials to be purchased due to specification,

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

minimum ordering quantity, etc, the procurement department will compare the price quoted by Baoding Jiufu with internal production cost of the Group of the same quality and specifications.

(ii) The finance department will continuously monitor the transactions under the Supplemental Baoding of the Group Jiufu Purchase Agreement and review the pricing of products, payment terms and actual transaction amount on a monthly basis. In particular, the finance department will regularly compare the prices of the products purchased under the Supplemental Baoding Jiufu Purchase Agreement to see if any prices are not less favourable than those offered by Independent Third Parties.
(iii) The independent non-executive Directors will review the transactions under the Supplemental Baoding Jiufu Purchase Agreement annually to ensure that the relevant transactions are entered (a) in the ordinary and usual course of business of the Group; (b) on normal commercial terms or on terms no less favourable to the Group than those available from independent third parties; and (c) in accordance with the Supplemental Baoding Jiufu Purchase Agreement governing them on terms that are fair and reasonable and in the interest of the Company and Shareholders as a whole.
(iv) The Company will engage its auditors to report on the Supplemental Baoding Jiufu Purchase Agreement annually confirming whether (a) the relevant transactions under the Supplemental Baoding Jiufu Purchase Agreement have been approved by the Board; (b) the transactions were in accordance with the pricing policies of the Group and entered in to in accordance with the Supplemental Baoding Jiufu Purchase Agreement; and (c) the continuing connected transactions have not exceed the Revised Annual Caps.

Regarding items (iii) and (iv) above, we also reviewed the relevant statement and letter by the independent non-executive Directors and the auditors of the Company respectively for the previous continuing connected transactions of the Group under, among others, the Baoding Jiufu Purchase Agreement, and did not notice any anomaly. Based on the above as well as our review of the Baoding Jiufu Purchase Master List, we consider that there are adequate and enforceable internal control measures in place regarding the continuing connected transactions contemplated under the Supplemental Baoding Jiufu Purchase Agreement.

RECOMMENDATION

Having considered the above principal factors and reasons, we are of the opinion that (i) the entering of Supplemental Baoding Jiufu Purchase Agreement is in the ordinary and usual course of business of the Group; and (ii) the terms of Supplemental Baoding Jiufu Purchase Agreement (including but not limited to the Revised Annual Caps) are on normal commercial terms, 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

– 32 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

favour of the relevant resolution(s) to be proposed at the SGM to approve the Supplemental Baoding Jiufu Purchase Agreement (including but not limited to the Revised Annual Caps) and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of Nuada Limited

Po Chan Kevin Wong Executive Director Vice President

Mr. Po Chan is a person licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO and is a responsible officer of Nuada Limited who has over 18 years of experience in corporate finance industry.

Mr. Kevin Wong is a person licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO and is a responsible officer of Nuada Limited who has over 13 years of experience in corporate finance industry.

The English translation 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).

– 33 –

GENERAL INFORMATION

APPENDIX

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 DIRECTORS’ 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 and short positions of the Directors and the chief executives of the Company in the Shares, underlying Shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) (i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the ‘‘Model Code’’) contained in Appendix 10 of the Listing Rules, were as follows:

				Approximate
	Name of the			percentage or
Name of Director	company in	Number of		attributable
and chief executive	which the	the shares	Nature of	percentage of
of the Company	shares was held	held	interests	shareholding
				(%)
Tang Weikun	The Company	60,000 (L)	Beneficial owner	0.00
Shao Yan (Note)	The Company	6,019,600 (L)	Interest in spouse	0.17
Zhou Chao	The Company	56,000 (L)	Beneficial owner	0.00

(L) denotes long position

Notes: 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 6,019,000 Shares.

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

– 34 –

GENERAL INFORMATION

APPENDIX

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.

Directors’ positions in other companies

As at the Latest Practicable Date, none of the Directors was also a director or employee of a company which had an interest or short position in the Shares or underlying Shares of the Company which would fall to be disclosed to the Company pursuant to the provisions of Division 2 and 3 of Part XV of SFO.

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 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 2020, the date to which the latest published audited financial statements of the Company were made up.

None of the Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date which was 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 Qualification

Nuada Limited a corporation licensed to carry out Type 6 (advising on corporate finance) regulated activity under the SFO

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.

– 35 –

GENERAL INFORMATION

APPENDIX

6. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirmed that there is no material adverse change in the financial or trading position of the Group since 31 December 2020, being the date to which the latest audited consolidated financial statements of the Group were made up.

7. COMPETING INTERESTS

As at the Latest Practicable Date, despite the fact that Dr. Niu Zhanqi, an executive Director, is the president of Pharmaceutical Management Headquarters of China Grand and a director of Huadong Medicine Company Limited (‘‘Huadong Medicine’’), which is a company listed on the Shenzhen Stock Exchange (stock code: 000963), taking into account of the difference in products, target customers and principal activities engaged by the Group, Huadong Medicine and China Grand, the management of the Company consider that there is no competition among the business of the Group, Huadong Medicine and China Grand. As such, so far as the Directors are aware of, no Directors or their associates had any interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

8. MISCELLANEOUS

The English text of this circular and the accompanying form of proxy shall prevail over their respective texts in case of inconsistency.

9. DOCUMENTS AVAILABLE FOR INSPECTION

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

(a) the Supplemental Baoding Jiufu Purchase Agreement;
(b) the written consent as referred to under the paragraph headed ‘‘Expert and consent’’ in this appendix;
(c) the letter of recommendation from the Independent Board Committee to the Independent Shareholders, the text of which is set out in the section headed ‘‘Letter from the Independent Board Committee’’ of this circular;
(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 in the section headed ‘‘Letter from the Independent Financial Adviser’’ of this circular; and
(e) this circular.

– 36 –

NOTICE OF SGM

==> picture [68 x 37] 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 Center, 99 Queen’s Road Central, Hong Kong on Thursday, 30 September 2021 at 11:00 a.m. for the purposes of considering and, if thought fit, passing the following resolutions with or without amendments as ordinary resolution or special resolution (as the case may be) of the Company:

ORDINARY RESOLUTION

‘‘THAT:

(a) the Supplemental Baoding Jiufu Purchase Agreement (as defined and described in the circular of the Company dated 13 September 2021 (the ‘‘Circular’’), a copy of the Circular marked ‘‘A’’ together with a copy of the Supplemental Baoding Jiufu Purchase Agreement marked ‘‘B’’ are tabled before the Meeting and initialed by the chairman of the Meeting for identification purpose) and the transactions contemplated thereunder as set out in the Circular be and are hereby approved, ratified and confirmed;
(b) the Revised Annual Caps as defined and described in the Circular in respect of the consideration payable under the Supplemental Baoding Jiufu Purchase Agreement for each of the two years ending 31 December 2022 be and are hereby approved; and
(c) any one or more of the directors (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 Supplemental Baoding Jiufu Purchase Agreement and the transactions contemplated thereunder.’’

SPECIAL RESOLUTION

‘‘THAT subject to and conditional upon the necessary approval of the Registrar of Companies in Bermuda being obtained, the English name of the Company be changed from ‘‘China Grand Pharmaceutical and Healthcare Holdings Limited’’ to ‘‘Grand Pharmaceutical Group Limited’’ and the Chinese name of ‘‘遠大醫藥集團有限公司’’ be adopted as the secondary name of the Company in Chinese with effect from the date of entry of the new

For identification purposes only

– 37 –

NOTICE OF SGM

English name and secondary name of the Company in Chinese on the register maintained by the Registrar of Companies in Bermuda, and that any one director of the Company be and is hereby authorised to do all things and acts and sign all documents as they may consider necessary, desirable or expedient to implement and/or give effect to any matters relating to or in connection with the aforesaid change of Company name.’’

By order of the Board China Grand Pharmaceutical and Healthcare Holdings Limited Dr. Tang Weikun Chairman

Hong Kong, 13 September 2021

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Principal place of business in Hong Kong: Unit 3302, The Center 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 Monday, 27 September 2021 to Thursday, 30 September 2021, both days inclusive, during which period no transfer of shares can be registered. In order 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, Hopewell Centre, 183 Queen’s Road East, Hong Kong no later than 4:30 p.m. on Friday, 24 September 2021.
To be valid, the form of proxy and the power of attorney or other authority (if any) under which it is signed or a certified copy of that power of attorney or authority must be deposited at the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
Where there are joint holders of a share of the Company, any one of such holders may vote at the meeting either personally or by proxy in respect of such share as if he were solely entitled thereto, but if more than one of such holders be present at the meeting personally or by proxy, that one of such holders so presents whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
Delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the Special General Meeting and in such event, the instrument appointing a proxy shall be deemed to be revoked.

– 38 –

NOTICE OF SGM

The resolutions as set out above will be determined by way of a poll.

PRECAUTIONARY MEASURES FOR THE SGM

Please see page ii of the Circular for measures being taken to try to prevent and control the spread of the Coronavirus at the SGM, including:

. compulsory temperature check and health declaration . mandatory wearing of face mask
. prohibit attendance at the SGM if the attendee has a fever. Persons exhibiting flu-like symptoms may also be refused admittance
. prohibit attendance at the SGM if the attendee is subject to any prescribed quarantine by the Hong Kong Government or has close contact with any person under quarantine
. no distribution of corporate gift and/or refreshments served at the SGM

Any person who does not comply with these precautionary measures may be denied entry into the SGM venue. The Company encourages attendees (even without flu-like symptoms) to wear surgical masks and reminds Shareholders that they may vote by proxy or appoint the Chairman of the meeting as their proxy to vote on the relevant resolutions at the SGM as an alternative to attending the SGM in person.

As at the date of this notice, the Board comprises four executive directors, namely, Dr. Tang Weikun, Dr. Shao Yan, Dr. Niu Zhanqi and Dr. Shi Lin and three independent nonexecutive directors, namely, Ms. So Tosi Wan, Winnie, Dr. Pei Geng and Mr. Hu Yebi.

– 39 –

AI assistant

Grand Pharmaceutical Group Limited — Proxy Solicitation & Information Statement 2021

49262_rns_2021-09-13_3d62fe17-0044-498a-a636-5659d9fc18fb.pdf

CHINA GRAND PHARMACEUTICAL AND HEALTHCARE HOLDINGS LIMITED 遠大醫藥健康控股有限公司 [*]

(1) REVISION OF THE EXISTING ANNUAL CAPS REGARDING THE CONTINUING CONNECTED TRANSACTIONS; (2) PROPOSED CHANGE OF COMPANY NAME; AND (3) NOTICE OF THE SGM

PRECAUTIONARY MEASURES FOR THE SGM

DEFINITIONS

DEFINITIONS

per cent.

CHINA GRAND PHARMACEUTICAL AND HEALTHCARE HOLDINGS LIMITED 遠大醫藥健康控股有限公司[*]

(Stock Code: 00512)

(1) REVISION OF THE EXISTING ANNUAL CAPS REGARDING THE CONTINUING CONNECTED TRANSACTIONS; (2) PROPOSED CHANGE OF COMPANY NAME; AND (3) NOTICE OF THE SGM

INTRODUCTION

Relationship between the Parties

Supplemental Baodin Jiufu Purchase Agreement

Conditions Precedent

Information about the Group and Baoding Jiufu

Reasons for entering into the Supplemental Baoding Jiufu Purchase Agreement

Internal control measures

Implications under the Listing Rules

Independent Board Committee

Recommendation

Additional Information

(2) PROPOSED CHANGE OF COMPANY NAME

Reasons for the Proposed Change of Company Name

Effect of the Proposed Change of Company Name

THE SGM

Yours faithfully,

CHINA GRAND PHARMACEUTICAL AND HEALTHCARE HOLDINGS LIMITED 遠大醫藥健康控股有限公司[*]

REVISION OF THE EXISTING ANNUAL CAPS REGARDING THE CONTINUING CONNECTED TRANSACTIONS

Yours faithfully,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background information of the Group and the counterparties

(a) The Group and Grand Pharm (China)

(b) Baoding Jiufu

(c) China Grand

2. Reasons for entering into the Supplemental Baoding Jiufu Purchase Agreement

3. Financial information of the Group

FY2020 as compared with FY2019

6M2021 as compared with 6M2020

Financial position

4. Market outlook of the pharmaceutical industry in the PRC

5. Review on terms of the Supplemental Baoding Jiufu Purchase Agreement

(b) Pricing basis of the Supplemental Baoding Jiufu Purchase Agreement

(c) Our review on the pricing basis

6. The Revised Annual Caps

7. Internal control for implementing the Supplemental Baoding Jiufu Purchase Agreement

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF DIRECTORS’ INTERESTS

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

Directors’ positions in other companies

3. DIRECTORS’ SERVICE CONTRACTS

4. INTERESTS IN ASSETS, CONTRACTS OR ARRANGEMENT

5. EXPERT AND CONSENT

6. MATERIAL ADVERSE CHANGE

7. COMPETING INTERESTS

8. MISCELLANEOUS

9. DOCUMENTS AVAILABLE FOR INSPECTION

CHINA GRAND PHARMACEUTICAL AND HEALTHCARE HOLDINGS LIMITED 遠大醫藥健康控股有限公司[*]

NOTICE OF SGM

ORDINARY RESOLUTION

‘‘THAT:

SPECIAL RESOLUTION

By order of the Board China Grand Pharmaceutical and Healthcare Holdings Limited Dr. Tang Weikun Chairman

PRECAUTIONARY MEASURES FOR THE SGM

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Grand Pharmaceutical Group Limited Proxy Solicitation & Information Statement 2021

CHINA GRAND PHARMACEUTICAL AND HEALTHCARE HOLDINGS LIMITED `遠大醫藥健康控股有限公司` `[*]`