THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about this circular or as to the action to be taken, you should consult your stockbroker, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Kingworld Medicines Group Limited, you should at once hand this circular, together with the enclosed form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or 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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Kingworld Medicines Group Limited 金活醫藥集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 01110)

CONTINUING CONNECTED TRANSACTIONS

PROPOSED ANNUAL CAPS FOR THE THREE YEARS ENDING 31 DECEMBER 2015

AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

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

A letter from the Board is set out on pages 5 to 18 of this circular.

A letter from the Independent Board Committee, containing its recommendation to the Independent Shareholders, is set out on pages 19 to 20 of this circular.

A letter from Quam Capital Limited, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 21 to 38 of this circular.

A notice convening the EGM to be held at the Conference Room, Units 1906-1907, 19th Floor, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong on Thursday, 27 December 2012 at 9:00 a.m. is set out on pages 44 to 45 of this circular. A form of proxy for use at the EGM is enclosed in this circular. Whether or not you are able to attend such meeting, please complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible, and in any event not less than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

7 December 2012

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Appendix — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44

— i —

DEFINITIONS

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

“Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products”

pharmaceutical and healthcare products manufactured by SZ Kingworld Lifeshine, other than the Kingworld Product Range and Imada Red Flower Oil. Such products include products for (i) ENT anti-inflammatory; (ii) skin; (iii) diabetes; (iv) lipid; (v) anti-aging healthcare; (vi) anti-radiation healthcare; (vii) fatigue healthcare; and (viii) beauty healthcare

“Additional Yuen Tai Pharmaceutical and Healthcare Products”

pharmaceutical and healthcare products manufactured by Yuen Tai, other than Fengbao Jianfu Capsule. Such products include products for (i) common cold; and (ii) digestion

“Announcement”

the announcement of the Company dated 28 March 2011 in relation to the purchase and distribution of additional pharmaceutical and healthcare products

“associates” has the meaning ascribed to it under the Listing Rules “Board” the board of directors of the Company “BVI” the British Virgin Islands “Company” Kingworld Medicines Group Limited (金活醫藥集團有限公司), a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Main Board of the Stock Exchange “connected person(s)” has the meaning ascribed to it under the Listing Rules “Controlling Shareholder(s)” has the meaning ascribed to it under the Listing Rules “Director(s)” the director(s) of the Company “Dual-Specification” a classification of pharmaceutical product which can be sold pursuant to the requirement as for either prescription or OTC pharmaceutical products

“EGM” the extraordinary general meeting of the Company to be held at the Conference Room, Units 1906-1907, 19th Floor, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong on Thursday, 27 December 2012 at 9:00 a.m. (or any adjournment thereof) for the purposes of approving the transactions under each of the New Master Distribution Agreements and their respective proposed annual caps for the three years ending 31 December 2015

— 1 —

DEFINITIONS

“Fengbao Jianfu Capsule”

鳳寶牌健婦膠囊 (Fengbao Jianfu Capsule), a Dual-Specification pharmaceutical product manufactured in Hong Kong and imported from Yuen Tai

“Fengbao Jianfu Capsule the fengbao jianfu capsule distribution agreement dated 21 Distribution Agreement” October 2010 entered into between SZ Kingworld and Yuen Tai
“Golden Land” Golden Land International Limited (金國國際有限公司), a limited liability company incorporated under the laws of the BVI
“Golden Morning” Golden Morning International Limited (金辰國際有限公司), a limited liability company incorporated under the laws of the BVI
“Group” the Company and its subsidiaries
“Hong Kong” The Hong Kong Special Administrative Region of the PRC

“Imada Red Flower Oil” 依馬打正紅花油 (Imada Red Flower Oil), a prescribed pharmaceutical product distributed by the Group “Imada Red Flower Oil the imada red flower oil distribution agreement dated 21 Distribution Agreement” October 2010 entered into between SZ Kingworld and SZ Kingworld Lifeshine

“Independent Board Committee”
a committee of the Board comprising all the independent non-executive Directors, namely, Mr. Duan Jidong, Mr. Zhang Jianqi and Mr. Wong Cheuk Lam
“Independent Financial Advisor”

Quam Capital Limited, a licensed corporation to conduct type 6 (advising on corporate finance) regulated activities under the SFO, who is appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the New Master Distribution Agreements and the proposed annual caps for the transactions under each of these agreements

“Independent Shareholders”

the shareholders of the Company, except Mr. Zhao, Golden Land, Golden Morning and their respective associate(s)

“Kingworld Product Range”

all products under the brand name of “Kingworld” which are manufactured and supplied by SZ Kingworld Lifeshine and distributed by the Group, namely, Kingworld Gan Mao Qing Capsule (金活感冒清膠囊), Kingworld American Ginseng Capsule (金活洋參膠囊), Kingworld American Ginseng Tablets (金活洋參含片) and Gen-seng Capsule (西洋參膠囊)

— 2 —

DEFINITIONS

“Kingworld Product Range the kingworld product range distribution agreement dated 21 Distribution Agreement” October 2010 entered into between SZ Kingworld and SZ Kingworld Lifeshine
“Latest Practicable Date” 6 December 2012, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular
“Listing Date” the date of commencement of trading of the shares of the Company on the Stock Exchange, i.e. 25 November 2010
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Main Board” the stock market operated by the Stock Exchange which excludes the Growth Enterprise Market of the Stock Exchange and the options market
“Memorandum and Articles” the memorandum and articles of association of the Company
“Morning Gold” Morning Gold Medicine Company Limited (金辰醫藥有限公司), a limited liability company incorporated under the laws of Hong Kong
“Mr. Zhao”
“Ms. Chan”
Zhao Li Sheng (趙利生), the chairman, an executive Director, a co-founder and Controlling Shareholder of the Company Chan Lok San (陳樂燊), an executive Director, a co-founder and Controlling Shareholder of the Company
“New Master Distribution Agreements”
(i) the Yuen Tai Master Distribution Agreement; and (ii) the SZ Kingworld Lifeshine Master Distribution Agreement
“Old Master Distribution Agreements”
(i) the Fengbao Jianfu Capsule Distribution Agreement; (ii) the Yuen Tai Master Pharmaceutical and Healthcare Products Distribution Agreement; (iii) the Kingworld Product Range Distribution Agreement; (iv) the Imada Red Flower Oil Distribution Agreement; and (v) the SZ Kingworld Lifeshine Master Pharmaceutical and Healthcare Products Distribution Agreement
“OTC” over the counter, a classification of pharmaceutical product which can be obtained without any doctors’ prescriptions. In the PRC, OTC products are further classified into “OTC (A)” and “OTC (B)”
“PRC” the People’s Republic of China, including Taiwan, Hong Kong and Macao

— 3 —

DEFINITIONS

“Prospectus” the Company’s prospectus dated 12 November 2010
“RMB” Renminbi, the lawful currency of the PRC

“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time

“Shareholders” the holders of the shares of the Company

“Stock Exchange” The Stock Exchange of Hong Kong Limited “SZ Industry” 深圳市金活實業有限公司 (Shenzhen Kingworld Industry Company Limited), a company established in the PRC with limited liability “SZ Kingworld” 深圳市金活醫藥有限公司 (Shenzhen Kingworld Medicine Company Limited), a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company

“SZ Kingworld”
“SZ Kingworld Lifeshine”
深圳金活利生藥業有限公司 (Shenzhen Kingworld Lifeshine Pharmaceutical Company Limited), a company established in the PRC with limited liability
“SZ Kingworld Lifeshine Master Distribution Agreement”

the SZ Kingworld Lifeshine master distribution agreement dated 16 November 2012 entered into between the Company and SZ Kingworld Lifeshine

“SZ Kingworld Lifeshine Master Pharmaceutical and Healthcare Products Distribution Agreement”
the SZ Kingworld Lifeshine master pharmaceutical and healthcare products distribution agreement dated 28 March 2011 entered into between SZ Kingworld Lifeshine and SZ Kingworld
“Yuen Tai”
Yuen Tai Pharmaceuticals Limited (遠大製藥廠有限公司), a limited liability company incorporated under the laws of Hong Kong
“Yuen Tai Master Distribution Agreement”
the Yuen Tai master distribution agreement dated 16 November 2012 entered into between the Company and Yuen Tai
“Yuen Tai Master Pharmaceutical and Healthcare Products Distribution Agreement”
the Yuen Tai master pharmaceutical and healthcare products distribution agreement dated 28 March 2011 entered into between Yuen Tai and SZ Kingworld
“%”

per cent

— 4 —

LETTER FROM THE BOARD

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Kingworld Medicines Group Limited 金活醫藥集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 01110)

Executive Directors: Registered Office: Mr. Zhao Li Sheng Clifton House Ms. Chan Lok San 75 Fort Street Mr. Zhou Xuhua PO Box 1350 Mr. Lin Yusheng Grand Cayman KY 1-1108 Independent Non-executive Directors : Cayman Islands

Mr. Duan Jidong Mr. Zhang Jianqi Principal Place of Business in Hong Kong: Mr. Wong Cheuk Lam Units 1906-1907, 19th Floor Shui On Centre 6-8 Harbour Road Wanchai Hong Kong

7 December 2012

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

PROPOSED ANNUAL CAPS FOR THE THREE YEARS ENDING 31 DECEMBER 2015

AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

(1) INTRODUCTION

Reference is made to the Company’s announcement headed “Continuing Connected Transactions Proposed Annual Caps For The Three Years Ending 31 December 2015” dated 16 November 2012.

— 5 —

LETTER FROM THE BOARD

The main purpose of this circular is to provide you with, among other things:

(i) further information as is necessary to enable you to make an informed decision on whether to vote for or against the resolutions to be proposed at the EGM relating to the transactions under each of the New Master Distribution Agreements and their respective proposed annual caps for the three years ending 31 December 2015 (the “ Proposed Transactions ”);
(ii) the letter of recommendation from the Independent Board Committee relating to the Proposed Transactions;
(iii) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders;
(iv) the notice of the EGM; and
(v) other information required by the Listing Rules.

(2) THE NEW MASTER DISTRIBUTION AGREEMENTS

BACKGROUND

Reference is made to the Prospectus and the Announcement in respect of a series of continuing connected transactions and their respective annual caps for the two years ended 31 December 2011 (as the case may be) and for the year ending 31 December 2012.

The Board announces that on 16 November 2012, the Company has entered into the New Master Distribution Agreements with the relevant connected persons in order to renew the Old Master Distribution Agreements and expand the types of products to be purchased and the parties to be involved in the transactions and proposes to renew their respective annual caps for the three years ending 31 December 2015. Details of the New Master Distribution Agreements are as follows:

A. YUEN TAI MASTER DISTRIBUTION AGREEMENT

Date: 16 November 2012
Parties:
(a) Company
(b) Yuen Tai
Description of the transactions:

As previously disclosed in the Prospectus, SZ Kingworld entered into the Fengbao Jianfu Capsule Distribution Agreement with Yuen Tai on 21 October 2010, pursuant to which SZ Kingworld agreed to purchase Fengbao Jianfu Capsule from Yuen Tai and act as the exclusive distributor for distribution in the PRC for a term commencing on the Listing Date and expiring on 31 December 2012.

— 6 —

LETTER FROM THE BOARD

Also, as previously disclosed in the Announcement, SZ Kingworld entered into the Yuen Tai Master Pharmaceutical and Healthcare Products Distribution Agreement with Yuen Tai on 28 March 2011, pursuant to which SZ Kingworld conditionally agreed to purchase Additional Yuen Tai Pharmaceutical and Healthcare Products from Yuen Tai and act as the exclusive distributor of Yuen Tai for distribution of such pharmaceutical and healthcare products in the PRC for a period commencing from 24 May 2011 (being the date of approval of the Independent Shareholders) and expiring on 31 December 2012.

Due to the expansion of our distribution network and the expected increase in the demand for different pharmaceutical and healthcare products by our customers, we have expanded the parties to be involved in and the types of products to be purchased under the Yuen Tai Master Distribution Agreement, such that members of the Group will purchase pharmaceutical and healthcare products from Yuen Tai and act as the exclusive distributor for distribution of such pharmaceutical and healthcare products in the PRC.

It is currently anticipated that the types of pharmaceutical and healthcare products to be purchased from Yuen Tai under the Yuen Tai Master Distribution Agreement will at least cover the Fengbao Jianfu Capsule and the Additional Yuen Tai Pharmaceutical and Healthcare Products that are currently purchased under the Fengbao Jianfu Capsule Distribution Agreement and the Yuen Tai Master Pharmaceutical and Healthcare Products Distribution Agreement.

4. Condition Precedent:

The Yuen Tai Master Distribution Agreement shall take effect subject to and conditional upon obtaining the Independent Shareholders’ approval in respect of the Yuen Tai Master Distribution Agreement and the proposed annual caps for the transactions under the agreement.

5. Term and termination:

The Yuen Tai Master Distribution Agreement is for a term of three years with effect from 1 January 2013 and ending on 31 December 2015 (both days inclusive).

6. Terms and pricing:

The Yuen Tai Master Distribution Agreement was negotiated and entered into on an arm’s length basis and on normal commercial terms. The terms and conditions (including but not limited to the prices) on which the pharmaceutical and healthcare products are to be purchased by members of the Group should be on normal commercial terms and no less favourable than those obtained from independent third parties by such member of the Group.

40% of the purchase price shall be paid in advanced by the relevant member of the Group within 3 days after such member of the Group has placed an order for each batch of products and the remaining purchase price shall be paid upon delivery of the products and the passing of the product examination. The purchase price payable by the Group under the Yuen Tai Master Distribution Agreement will be satisfied by the Group’s working capital.

— 7 —

LETTER FROM THE BOARD

7. Historical figures

Set out below are (a) the actual transaction amounts from the Listing Date to 31 December 2011, or from 24 May 2011 to 31 December 2011 (as the case may be) and the nine months ended 30 September 2012; and (b) the annual caps for the three years ending 31 December 2012 in respect of the purchase and distribution of Fengbao Jianfu Capsule and Additional Yuen Tai Pharmaceutical and Healthcare Products under the Fengbao Jianfu Capsule Distribution Agreement and the Yuen Tai Master Pharmaceutical and Healthcare Products Distribution Agreement respectively:

	Audited
	transaction					Unaudited
	amount for the			Audited		transaction
	period			transaction		amount for
	commencing	Annual	cap	amount for	Annual cap	the nine	Annual cap
	from the Listing	for the year		the year	for the year	months	for the year
	Date and ended	ended 31		ended 31	ended 31	ended 30	ending 31
	31 December	December		December	December	September	December
	2010	2010		2011	2011	2012	2012
Purchase of	RMB0	RMB2,898,700		RMB391,875	RMB9,662,400	RMB1,088,000	RMB14,493,600
Fengbao Jianfu
Capsule
Purchase of	N/A		N/A	RMB0	RMB2,300,000	RMB0	RMB3,500,000
Additional				(since 24	(since 24
Yuen Tai				May 2011)	May 2011)
Pharmaceutical
and Healthcare
Products

Although it was the Company’s plan to market and sell the Additional Yuen Tai Pharmaceutical and Healthcare Products in Hong Kong since May 2011, registration of such products with the Department of Health in Hong Kong has not been completed up to the Latest Practicable Date. As such, the annual caps for the Additional Yuen Tai Pharmaceutical and Healthcare Products since 24 May 2011 (being the date of approval of the Independent Shareholders) up to the Latest Practicable Date have not been utilized.

— 8 —

LETTER FROM THE BOARD

Proposed Annual Caps:

Set out below are the proposed annual caps under the Yuen Tai Master Distribution Agreement for the three years ending 31 December 2015:

Annual cap for Annual cap for Annual cap for the year ending the year ending the year ending 31 December 31 December 31 December 2013 2014 2015 Purchase of pharmaceutical and healthcare products RMB17,390,000 RMB25,220,000 RMB33,520,000

In arriving at the above proposed annual caps, the Directors have taken into account the following factors:

(i) SZ Kingworld has entered into an exclusive distributorship agreement with an independent sub-distributor, pursuant to which, the sub-distributor agreed and guaranteed to distribute 2,000,000, 3,000,000 and 3,300,000 boxes of Fengbao Jianfu Capsule (which is equivalent to the purchase amount of RMB13,600,000, RMB20,400,000 and RMB22,440,000 respectively from Yuen Tai) for the three years ending 31 December 2015 respectively;
(ii) The historical figures of the actual transaction values of the transactions contemplated under the Fengbao Jianfu Capsule Distribution Agreement and the Yuen Tai Master Pharmaceutical and Healthcare Products Distribution Agreement from the Listing Date to 31 December 2011 and for the nine months ended 30 September 2012;
(iii) The expected expansion of the size of the Group and the expansion of our distribution network and business scale resulting in a possible increase in the number and value of transactions to be entered into between the Group and Yuen Tai. As disclosed in the interim report of the Company for the six months ended 30 June 2012, the Group plans to add 1,485 new display booths during the second half of the year, through which the total number of display booths will exceed 4,000. The total number of display booths is expected to further increase to over 7,000 by the end of 2015. With respect to the Group’s retail outlets, it is expected that the total number of which will reach 60,000 by the end of 2012 and will further increase to over 90,000 by the end of 2015;
(iv) The expected increase in the number of our customers and their demand for different pharmaceutical and healthcare products;
(v) The expansion of the types of products to be covered under the Yuen Tai Master Distribution Agreement;
(vi) The expected growth of the pharmaceutical distribution industry in the PRC, based on the steady growth of the size of the pharmaceutical manufacturing and retail industries in the PRC;

— 9 —

LETTER FROM THE BOARD

(vii) The expected growth in the prices of the pharmaceutical and healthcare products during the three years ending 31 December 2015 after taking into account the following factors: (a) the general trend in the growth of the pharmaceutical and healthcare products industry in the PRC; and (b) the inflated raw material prices as a result of the increased labour costs and decreased yield of raw materials; and
(viii) The expected increase in the pharmaceutical consumption in the PRC as a result of the recently announced social security policy in the PRC that allows for PRC residents to claim medical reimbursement for medical services used over different cities in the PRC.
Implementation Agreements:

It is envisaged that from time to time and as required, individual written implementation agreements may be entered into between members of the Group and Yuen Tai. Each implementation agreement will set out the specific pharmaceutical and healthcare products requested by the relevant member of the Group and other specifications (including without limitation, the payment terms) which may be relevant to those products. As the implementation agreements are simply further elaborations on the purchase of pharmaceutical and healthcare products as contemplated by the Yuen Tai Master Distribution Agreement, as such, they do not constitute new connected transactions under the Listing Rules.

B. SZ KINGWORLD LIFESHINE MASTER DISTRIBUTION AGREEMENT

Date: 16 November 2012
Parties:
(a) Company
(b) SZ Kingworld Lifeshine
Description of the transactions:

As previously disclosed in the Prospectus, SZ Kingworld entered into the Kingworld Product Range Distribution Agreement and the Imada Red Flower Oil Distribution Agreement with SZ Kingworld Lifeshine on 21 October 2010, pursuant to which SZ Kingworld agreed to purchase Kingworld Product Range and Imada Red Flower Oil from SZ Kingworld Lifeshine and act as the exclusive distributor for distribution in the PRC for a term commencing on the Listing Date and expiring on 31 December 2012.

Also, as previously disclosed in the Announcement, SZ Kingworld entered into the SZ Kingworld Lifeshine Master Pharmaceutical and Healthcare Products Distribution Agreement with SZ Kingworld Lifeshine on 28 March 2011, pursuant to which SZ Kingworld conditionally agreed to purchase Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products

— 10 —

LETTER FROM THE BOARD

from SZ Kingworld Lifeshine and act as the exclusive distributor of SZ Kingworld Lifeshine for distribution of such pharmaceutical and healthcare products in the PRC for a period commencing from 24 May 2011 (being the date of approval of the Independent Shareholders) and expiring on 31 December 2012.

Due to the expansion of our distribution network and the expected increase in the demand for different pharmaceutical and healthcare products by our customers, we have expanded the parties to be involved in and the types of products to be purchased under the SZ Kingworld Lifeshine Master Distribution Agreement, such that members of the Group will purchase pharmaceutical and healthcare products from SZ Kingworld Lifeshine and act as the exclusive distributor for distribution of such pharmaceutical and healthcare products in the PRC.

It is currently anticipated that the types of pharmaceutical and healthcare products to be purchased from SZ Kingworld Lifeshine under the SZ Kingworld Lifeshine Master Distribution Agreement will at least cover the Kingworld Product Range, the Imada Red Flower Oil and the Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products that are currently purchased under the Kingworld Product Range Distribution Agreement, the Imada Red Flower Oil Distribution Agreement and the SZ Kingworld Lifeshine Master Pharmaceutical and Healthcare Products Distribution Agreement.

4. Condition Precedent:

The SZ Kingworld Lifeshine Master Distribution Agreement shall take effect subject to and conditional upon obtaining the Independent Shareholders’ approval in respect of the SZ Kingworld Lifeshine Master Distribution Agreement and the proposed annual caps for the transactions under the agreement.

Term and termination:

The SZ Kingworld Lifeshine Master Distribution Agreement is for a term of three years with effect from 1 January 2013 and ending on 31 December 2015 (both days inclusive).

6. Terms and pricing:

The SZ Kingworld Lifeshine Master Distribution Agreement was negotiated and entered into on an arm’s length basis and on normal commercial terms. The terms and conditions (including but not limited to the prices) on which the pharmaceutical and healthcare products are to be purchased by members of the Group should be on normal commercial terms and no less favourable than those obtained from independent third parties by such member of the Group.

40% of the purchase price shall be paid in advanced by the relevant member of the Group within 3 days after such member of the Group has placed an order for each batch of products and the remaining purchase price shall be paid upon delivery of the products and the passing of the product examination. The purchase price payable by the Group under the SZ Kingworld Lifeshine Master Distribution Agreement will be satisfied by the Group’s working capital.

— 11 —

LETTER FROM THE BOARD

7. Historical figures

Set out below are (a) the actual transaction amounts from the Listing Date to 31 December 2011, or from 24 May 2011 to 31 December 2011 (as the case may be) and the nine months ended 30 September 2012; and (b) the annual caps for the three years ending 31 December 2012 in respect of the purchase and distribution of Kingworld Product Range, Imada Red Flower Oil and Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products under theKingworld Product Range Distribution Agreement, the Imada Red Flower Oil Distribution Agreement and the SZ Kingworld Lifeshine Master Pharmaceutical and Healthcare Products Distribution Agreement respectively:

Audited
transaction				Unaudited
amount for the		Audited		transaction
period		transaction		amount for
commencing	Annual cap	amount for	Annual cap	the nine	Annual cap
from the Listing	for the year	the year	for the year	months	for the year
Date and ended	ended 31	ended 31	ended 31	ended 30	ending 31
31 December	December	December	December	September	December
2010	2010	2011	2011	2012	2012

Purchase of RMB558,682 RMB5,922,576 RMB2,641,470 RMB6,583,876 RMB463,108 RMB7,634,691 Kingworld Product Range

Purchase of Imada RMB0 RMB11,538,450 RMB17,054,297 RMB24,999,975 RMB15,698,173 RMB32,564,070 Red Flower Oil Purchase of N/A N/A RMB152,228 RMB22,000,000 RMB0 RMB32,000,000 Additional SZ (since 24 (since 24 Kingworld May 2011) May 2011) Lifeshine Pharmaceutical and Healthcare Products

Proposed Annual Caps:

Set out below are the proposed annual caps under the SZ Kingworld Lifeshine Master Distribution Agreement for the three years ending 31 December 2015:

— 12 —

LETTER FROM THE BOARD

In arriving at the above proposed annual caps, the Directors have taken into account the following factors:

(i) The Company will proactively promote the sales of Imada Red Flower Oil and other SZ Kingworld Lifeshine products by entering into more distributorship agreements with sub-distributors and organising other promotional activities, especially in undeveloped markets including Dongbei Province, Hebei Province, Tianjin and Inner Mongolia;
(ii) On 25 May 2012, the State Food and Drug Administration of the PRC sampled the pharmaceutical and healthcare products with capsules re-launched on 1 May 2012 and all such samples passed the quality check. Accordingly, the Company expects the consumers’ confidence on the pharmaceutical and healthcare products with capsules will gradually build up afterwards;
(iii) The Company is advised that SZ Kingworld Lifeshine is planning to file the application for registration of some of the Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products with the Department of Health in Hong Kong in the first half of 2013 and SZ Kingworld Lifeshine expects that the registration applications will be approved by the second half of 2013;
(iv) The historical figures of the actual transaction values of the transactions contemplated under the Kingworld Product Range Distribution Agreement, the Imada Red Flower Oil Distribution Agreement and the SZ Kingworld Lifeshine Master Pharmaceutical and Healthcare Products Distribution Agreement from the Listing Date to 31 December 2011 and for the nine months ended 30 September 2012;
(v) The expected expansion of the size of the Group and the expansion of our distribution network and business scale resulting in a possible increase in the number and value of transactions to be entered into between the Group and SZ Kingworld Lifeshine. As disclosed in the interim report of the Company for the six months ended 30 June 2012, the Group plans to add 1,485 new display booths during the second half of the year, through which the total number of display booths will exceed 4,000. The total number of display booths is expected to further increase to over 7,000 by the end of 2015. With respect to the Group’s retail outlets, it is expected that the total number of which will reach 60,000 by the end of 2012 and will further increase to over 90,000 by the end of 2015;
(vi) The expected increase in the number of our customers and their demand for different pharmaceutical and healthcare products;
(vii) The expansion of the types of products to be covered under the SZ Kingworld Lifeshine Master Distribution Agreement;

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LETTER FROM THE BOARD

(viii) The expected growth of the pharmaceutical distribution industry in the PRC, based on the steady growth of the size of the pharmaceutical manufacturing and retail industries in the PRC;
(xi) The expected growth in the prices of the pharmaceutical and healthcare products during the three years ending 31 December 2015 after taking into account the following factors: (a) the general trend in the growth of the pharmaceutical and healthcare products industry in the PRC; and (b) the inflated raw material prices as a result of the increased labour costs and decreased yield of raw materials; and
(x) The expected increase in the pharmaceutical consumption in the PRC as a result of the recently announced social security policy in the PRC that allows for PRC residents to claim medical reimbursement for medical services used over different cities in the PRC.
Implementation Agreements:

It is envisaged that from time to time and as required, individual written implementation agreements may be entered into between members of the Group and SZ Kingworld Lifeshine. Each implementation agreement will set out the specific pharmaceutical and healthcare products requested by the relevant member of the Group and other specifications (including without limitation, the payment terms) which may be relevant to those products. As the implementation agreements are simply further elaborations on the purchase of pharmaceutical and healthcare products as contemplated by the SZ Kingworld Lifeshine Master Distribution Agreement, as such, they do not constitute new connected transactions under the Listing Rules.

C. REASONS FOR AND BENEFITS IN ENTERING INTO THE NEW MASTER DISTRIBUTION AGREEMENTS

The distribution of pharmaceutical and healthcare products in the PRC is the principal business of the Group. The pharmaceutical and healthcare products distributed by the Group are supplied by various suppliers including Yuen Tai and SZ Kingworld Lifeshine. The Directors consider that a long term and steady relationship with these suppliers are of importance to the Group as it enables stability in the supply to the Group which in turn avoids any unnecessary disruption to the Group’s business and guarantees a smooth operation of the Group. By entering into the New Master Distribution Agreements, the Group can maintain a long term relationship with Yuen Tai and SZ Kingworld Lifeshine.

In addition, through the New Master Distribution Agreements, the Group could widen the types of products to be distributed by the Group, such that there would be an increase in the source of income and revenue of the Company. The additional types of products to be purchased from Yuen Tai and SZ Kingworld Lifeshine under the respective New Master Distribution Agreements shall depend on, inter alia, the demand of such products in the market, the

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LETTER FROM THE BOARD

availability and the prices offered by these two companies, and the profitability of such products from the Group’s perspective. As at the Latest Practicable Date, the Company does not have any plan on the additional types of products to be purchased under the New Master Distribution Agreements during the three years ending 31 December 2015, but will explore these products from time to time.

Furthermore, under the New Master Distribution Agreements, the products to be purchased by the Group are on an exclusive basis and the prices of such products should be on normal commercial terms and no less favourable than those obtained from independent third parties. These can provide the Group with advantages in costs and competitiveness. As the Group will act as the exclusive distributor for distribution of such products in the PRC, this can also allow the Group to avoid competition with other distributors with respect to the same products in the market.

In light of the above factors, the Board (including the independent non-executive Directors whose opinion is formed after taking into account the advice provided by the Independent Financial Adviser) considers that the terms under each of the New Master Distribution Agreements and their respective proposed annual caps for the three years ending 31 December 2015 are fair and reasonable, and that it is in the interests of the Company and the Shareholders as a whole to enter into such continuing connected transactions with Yuen Tai and SZ Kingworld Lifeshine respectively.

D. GENERAL INFORMATION

Principal Business Activities

(a) Company

The Company is principally engaged in the distribution of pharmaceutical and healthcare products in the PRC.

(b) Yuen Tai

Yuen Tai is principally engaged in the manufacturing of pharmaceutical and healthcare products.

SZ Kingworld Lifeshine is principally engaged in the manufacturing of pharmaceutical and healthcare products.

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LETTER FROM THE BOARD

E. IMPLICATIONS UNDER THE LISTING RULES

Both Yuen Tai and SZ Kingworld Lifeshine are companies wholly-owned by Morning Gold, an investment holding company, which in turn is held as to 51% and 49% by Mr. Zhao and Ms. Chan respectively. Mr. Zhao and Ms. Chan are executive Directors and Controlling Shareholders of the Company. Therefore, each of Yuen Tai and SZ Kingworld Lifeshine is a connected person of the Company and the transactions under each of the New Master Distribution Agreements constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

Given that the transactions contemplated under the New Master Distribution Agreements are to be made with Yuen Tai and SZ Kingworld Lifeshine, and these two companies are indirectly wholly-owned by Mr. Zhao and Ms. Chan, such transactions shall be aggregated in accordance with Rule 14A.25 of the Listing Rules.

Since one or more of the applicable percentage ratios in respect of the aggregate of the proposed annual caps for transactions contemplated under the New Master Distribution Agreements exceed 5%, the transactions thereunder are subject to the announcement, reporting and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Company confirms that the transactions contemplated under the New Master Distribution Agreements are of a revenue nature in the ordinary and usual course of business of the Company and therefore are exempted from the requirements under Chapter 14 of the Listing Rules.

Mr. Zhao and Ms. Chan have abstained from voting in the Board resolutions approving the transactions under the New Master Distribution Agreements. Other than Mr. Zhao and Ms. Chan, no Director is materially interested in these transactions and is required to abstain from voting on the said Board resolutions.

Mr. Zhao, Ms. Chan, Golden Land and Golden Morning are Controlling Shareholders of the Company, therefore each of them and their respective associate(s) are connected persons (as defined under the Listing Rules) of the Company. Golden Land and Golden Morning are investment holding companies. Pursuant to Rule 14A.59(5) of the Listing Rules, where independent shareholders’ approval is required with regard to a connected transaction, any connected person with a material interest in such transaction and any shareholder with a material interest in such transaction and its associates, will not vote on such transaction. Accordingly, Mr. Zhao, Ms. Chan, Golden Land and Golden Morning and their respective associate(s) shall at the EGM abstain from voting in respect of the resolutions to approve the Proposed Transactions, which will be taken on a poll as required under the Listing Rules.

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LETTER FROM THE BOARD

As at the Latest Practicable Date, Mr. Zhao, Ms. Chan, Golden Land and Golden Morning and their respective associates controlled or were entitled to exercise control over the voting rights in respect of 456,108,000 shares in the Company, representing approximately 73.27% of the entire issued share capital of the Company. To the extent that the Company is aware having made all reasonable enquiries, as at the Latest Practicable Date:

(i) there was no voting trust or other agreement, arrangement or understanding entered into by or binding upon Mr. Zhao, Ms. Chan, Golden Land and Golden Morning;
(ii) each of Mr. Zhao, Ms. Chan, Golden Land and Golden Morning was not subject to any obligation or entitlement whereby he/it had or might have temporarily or permanently passed control over the exercise of the voting right in respect of his/its shares in the Company to a third party, whether generally or on a case-by-case basis; and
(iii) it was not expected that there would be any discrepancy between each of Mr. Zhao’s, Ms. Chan’s, Golden Land’s or Golden Morning’s beneficial shareholding interest in the Company, and the number of shares in the Company in respect of which he/it would control or would be entitled to exercise control over the voting right at the EGM.

As far as the Directors are aware, other than Mr. Zhao, Ms. Chan, Golden Land and Golden Morning and their respective associate(s), no other Shareholder has a material interest in the Proposed Transactions and has to abstain from voting at the EGM in respect of the resolutions to approve the Proposed Transactions.

The Independent Board Committee has been established to advise the Independent Shareholders on the transactions under each of the New Master Distribution Agreements and their respective proposed annual caps for the three years ending 31 December 2015.

The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the transactions under each of the New Master Distribution Agreements and their respective proposed annual caps for the three years ending 31 December 2015. The letter from the Independent Board Committee and its recommendations to the Independent Shareholders are set out on pages 19 to 20 of this circular, and the opinion letter from the Independent Financial Adviser is set out on pages 21 to 38 of this circular.

(3) EXTRAORDINARY GENERAL MEETING AND PROXY ARRANGEMENT

A notice convening the EGM to be held at the Conference Room, Units 1906-1907, 19th Floor, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong on Thursday, 27 December 2012 at 9:00 a.m. is set out on pages 44 to 45 of this circular. At the EGM, ordinary resolutions will be proposed to approve the transactions under each of the New Master Distribution Agreements and their respective proposed annual caps for the three years ending 31 December 2015.

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LETTER FROM THE BOARD

A form of proxy for use at the EGM is enclosed in this circular. Whether or not you are able to attend such meeting, please complete, sign and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

Pursuant to Rules 13.39(4) of the Listing Rules, all votes of the Shareholders at the EGM must be taken by poll. The Chairman of the meeting will therefore demand a poll for every resolution to be passed at the EGM pursuant to the Memorandum and Articles. The Company will announce the results of the poll in the manner prescribed under Rule 13.39(5) of the Listing Rules.

(4) RECOMMENDATIONS

Your attention is drawn to (i) the letter from the Independent Board Committee as set out on pages 19 to 20 of this circular and (ii) the letter from the Independent Financial Adviser as set out on pages 21 to 38 of this circular.

The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that (i) the transactions under each of the New Master Distribution Agreements are fair and reasonable, and that it is in the interests of the Company and the Shareholders as a whole to enter into the Proposed Transactions with Yuen Tai and SZ Kingworld Lifeshine respectively; and (ii) the proposed annual caps for the three years ending 31 December 2015 for each of the New Master Distribution Agreements are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends all Independent Shareholders to attend and vote at the EGM in favour of the ordinary resolutions set out in the notice of the EGM.

(5) ADDITIONAL INFORMATION

Your attention is also drawn to the general information as set out in the Appendix to this circular.

By order of the Board Kingworld Medicines Group Limited Zhao Li Sheng Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [49 x 47] intentionally omitted <==

Kingworld Medicines Group Limited 金活醫藥集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 01110)

7 December 2012

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

PROPOSED ANNUAL CAPS FOR THE THREE YEARS ENDING 31 DECEMBER 2015

We refer to the circular dated 7 December 2012 (the “ Circular ”) to the shareholders of Kingworld Medicines Group Limited (the “ Company ”) of which this letter forms part. Unless otherwise specified, terms defined in the Circular shall have the same meanings when used in this letter.

We have been appointed as members of the Independent Board Committee, which has been established to advise the Independent Shareholders in respect of the transactions under each of the New Master Distribution Agreements and their respective proposed annual caps for the three years ending 31 December 2015 (the “ Proposed Transactions ”), details of which are set out in the letter from the Board contained in the Circular. None of us has a material interest in the Proposed Transactions.

Both Yuen Tai and SZ Kingworld Lifeshine are companies wholly-owned by Morning Gold, which in turn is held as to 51% and 49% by Mr. Zhao and Ms. Chan respectively. Mr. Zhao and Ms. Chan are executive Directors and Controlling Shareholders of the Company. Therefore, each of Yuen Tai and SZ Kingworld Lifeshine is a connected person of the Company. The Proposed Transactions constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

Quam Capital Limited has been appointed as the Independent Financial Adviser to advise us in respect of the Proposed Transactions. We wish to draw your attention to the opinion letter from Quam Capital Limited as set out on pages 21 to 38 of the Circular.

As members of the Independent Board Committee, we have taken into account the principal factors and reasons considered by Quam Capital Limited in forming its opinion in relation to the Proposed Transactions.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

On the basis of the above, we consider, and agree with the view of Quam Capital Limited, that the transactions under each of the New Master Distribution Agreements are fair and reasonable, and that it is in the interests of the Company and the Shareholders as a whole to enter into the Proposed Transactions with Yuen Tai and SZ Kingworld Lifeshine respectively.

We further consider, and agree with the view of Quam Capital Limited, that the proposed annual caps for the three years ending 31 December 2015 for each of the New Master Distribution Agreements are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM in respect of the Proposed Transactions.

Yours faithfully,

Mr. Duan Jidong , Mr. Zhang Jianqi and Mr. Wong Cheuk Lam Independent Board Committee of Kingworld Medicines Group Limited

— 20 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter of advice from Quam Capital Limited, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of incorporation into this circular, setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the terms of the New Master Distribution Agreements and their respective proposed annual caps.

7 December 2012

To the Independent Board Committee and the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to our appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of the New Master Distribution Agreements and their respective proposed annual caps for each of the three financial years ending 31 December 2013, 2014 and 2015 (the “ Annual Caps ”). Details of the terms of the New Master Distribution Agreements and the Annual Caps are set out in the “Letter from the Board” contained in the circular (the “ Letter from the Board ”) issued by the Company to the Shareholders dated 7 December 2012 (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

Both Yuen Tai and SZ Kingworld Lifeshine are companies wholly-owned by Morning Gold, which in turn is held as to 51% and 49% by Mr. Zhao and Ms. Chan respectively. Mr. Zhao and Ms. Chan are executive Directors and Controlling Shareholders. Therefore, each of Yuen Tai and SZ Kingworld Lifeshine is a connected person of the Company and the transactions contemplated under each of the New Master Distribution Agreements (collectively, the “ Continuing Connected Transactions ”) constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

Since one or more of the applicable percentage ratios in respect of the aggregate of the Annual Caps for each of the three years ending 31 December 2015 is/are more than 5% on an annual basis, the Continuing Connected Transactions are subject to the announcement, reporting and Independent Shareholders’ approval requirements under Rules 14A.45 to 14A.48 of the Listing Rules.

Mr. Duan Jidong, Mr. Zhang Jianqi and Mr. Wong Cheuk Lam, the independent non-executive Directors, have been appointed as members of the Independent Board Committee to advise the Independent Shareholders as to whether (i) the New Master Distribution Agreements have been entered into by the Group within its ordinary and usual course of business based on normal commercial terms and their respective terms and conditions, are fair and reasonable and in the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

interests of the Company and the Shareholders as a whole; (ii) the Annual Caps are reasonable and in the interests of the Company and the Shareholders as a whole; and (iii) to advise the Independent Shareholders whether to vote in favour of the New Master Distribution Agreements and the Annual Caps. As the Independent Financial Adviser, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders in this regard.

Quam Capital Limited is independent of and not connected with any members of the Group or any of their substantial shareholders, directors or chief executives, or any of their respective associates, and is accordingly qualified to give an independent advice in respect of the New Master Distribution Agreements and the Annual Caps.

BASIS OF OUR OPINION

In formulating our recommendations, we have relied on the information and facts contained or referred to in the Circular and the Company’s announcements, circulars and financial reports, and the information and facts supplied by the Company and its advisers, and the opinions expressed by and the representations of the Directors and the management of the Company. We have assumed that all the information and representations contained or referred to in the Circular are true and accurate in all respects as at the date thereof and may be relied upon. We have also assumed that all statements contained and representations made or referred to in the Circular are true at the time they were made and continue to be true at the date thereof and all such statements of belief, opinions and intention of the Directors and those as set out or referred to in the Circular were reasonably made after due and careful enquiry. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company and its advisers and the Directors. The Directors have confirmed to us that no material facts have been withheld or omitted from the information provided and referred to in the Circular, which would make any statements therein misleading.

We consider that we have reviewed the relevant information currently available to reach an informed view regarding the Continuing Connected Transactions and the Annual Caps and to justify our reliance on the accuracy of the information provided to us and those contained in the Circular so as to provide a reasonable basis for our recommendations. We have not, however, carried out any independent verification of the information and/or document provided by the Company, representations made or opinions expressed by the Directors, the Company or its advisers, nor have we conducted any form of in-depth investigation into the business, affairs, operations, financial position or future prospects of the Company, Yuen Tai and SZ Kingworld Lifeshine, or any of their respective subsidiaries or associates.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendation in respect of the New Master Distribution Agreements and the Annual Caps, we have taken into consideration the following principal factors and reasons:

1. Background of and reasons for entering into of the New Master Distribution Agreements

As disclosed in the Letter from the Board, the Group is principally engaged in the distribution of pharmaceutical and healthcare products in the PRC.

SZ Kingworld Lifeshine and Yuen Tai are principally engaged in the manufacturing of pharmaceutical and healthcare products. The Group has been purchasing certain pharmaceutical and healthcare products from SZ Kingworld Lifeshine and Yuen Tai pursuant to the Kingworld Product Range Distribution Agreement, the Imada Red Flower Oil Distribution Agreement, the SZ Kingworld Lifeshine Master Pharmaceutical and Healthcare Products Distribution Agreement, the Fengbao Jianfu Capsule Distribution Agreement and the Yuen Tai Master Pharmaceutical and Healthcare Products Distribution Agreement with SZ Kingworld Lifeshine and Yuen Tai respectively.

On 21 October 2010, SZ Kingworld entered into the Fengbao Jianfu Capsule Distribution Agreement with Yuen Tai, and the Kingworld Product Range Distribution Agreement and the Imada Red Flower Oil Distribution Agreement with SZ Kingworld Lifeshine for the purchase and exclusive distribution of certain pharmaceutical and healthcare products for a term commencing on the Listing Date and expiring on 31 December 2012, details of which are set out in the Prospectus.

Since both Yuen Tai and SZ Kingworld Lifeshine intended to sell and distribute their respective pharmaceutical and healthcare products through SZ Kingworld gradually, SZ Kingworld entered into the Yuen Tai Master Pharmaceutical and Healthcare Products Distribution Agreement with Yuen Tai and the SZ Kingworld Lifeshine Master Pharmaceutical and Healthcare Products Distribution Agreement with SZ Kingworld Lifeshine respectively on 28 March 2011, pursuant to which SZ Kingworld conditionally agreed to purchase the Additional Yuen Tai Pharmaceutical and Healthcare Products from Yuen Tai and the Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products from SZ Kingworld Lifeshine respectively and act as the exclusive distributor of Yuen Tai and SZ Kingworld Lifeshine for distribution of such pharmaceutical and healthcare products in the PRC for a period commencing from 24 May 2011 (being the date of approval of the then Independent Shareholders) and expiring on 31 December 2012, details of which are set out in the Announcement and the Company’s circular dated 18 April 2011.

In view of the expiry of the Kingworld Product Range Distribution Agreement, the Imada Red Flower Oil Distribution Agreement, the SZ Kingworld Lifeshine Master Pharmaceutical and Healthcare Products Distribution Agreement, the Fengbao Jianfu Capsule Distribution Agreement and the Yuen Tai Master Pharmaceutical and Healthcare Products Distribution Agreement, the Company has entered into the New Master Distribution Agreements with SZ Kingworld Lifeshine and Yuen Tai respectively in order to renew the above mentioned distribution agreements for a term of three years with effect from 1 January 2013 to 31 December 2015.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the annual report of the Company for the year ended 31 December 2011, as at 31 December 2011, the Group managed a portfolio of 49 products including 12 pharmaceutical products, 7 healthcare products, 28 general foodstuffs and 2 medical products which are manufactured in Japan, Canada, Hong Kong, Taiwan, Thailand and the PRC and sourced from 13 different suppliers (including Yuen Tai and SZ Kingworld Lifeshine). As disclosed in the Letter from the Board, a long term and steady relationship with these suppliers are of importance to the Group as it enables stability in the supply to the Group which in turn avoids any unnecessary disruption to the Group’s business and guarantees a smooth operation of the Group. By entering into the New Master Distribution Agreements, the Group can maintain a long term relationship with Yuen Tai and SZ Kingworld Lifeshine.

As stated in the Letter from the Board, due to the expansion of the Group’s distribution network and the expected increase in the demand for different pharmaceutical and healthcare products by its customers, the Company has expanded the parties to be involved in and the types of products to be purchased under the New Master Distribution Agreements, such that the members of the Group will purchase pharmaceutical and healthcare products with Yuen Tai and SZ Kingworld Lifeshine respectively and act as the exclusive distributor for distribution of such pharmaceutical and healthcare products in the PRC. We are advised by the Company that Yuen Tai and SZ Kingworld Lifeshine intend that certain of the pharmaceutical and healthcare products purchased by the Group under the New Master Distribution Agreements will be distributed by the Group in Hong Kong. The entering into of the New Master Distribution Agreements enables the Group to widen its product range for distribution in the PRC and Hong Kong, and it is the expectation of the Directors that there would be an increase in the source of income and revenue of the Company as a result thereof.

Furthermore, under the New Master Distribution Agreements, the products to be purchased by the Group are on an exclusive basis and the prices of such products shall be on normal commercial terms and no less favourable than those obtained from independent third parties. These can provide the Group with advantages in cost control and competitiveness. As the Group will act as the exclusive distributor for distribution of such products in the PRC, this can also allow the Group to avoid competition with other distributors with respect to the same products in the market. According to New Master Distribution Agreements, the Company has no obligation to purchase any pharmaceutical or healthcare products from each of the Yuen Tai and SZ Kingworld Lifeshine. The Group may source its products from other independent third parties if it considers that it is in its interest to do so.

Having considered the above, and particularly, the entering into the New Master Distribution Agreements (i) maintains the Group’s long term relationship with Yuen Tai and SZ Kingworld Lifeshine and enables the stability in the supply to the Group which in turn ensures a smooth operation of the Group’s distribution business; (ii) widens the product coverage for exclusive distribution; and (iii) enhances the Group’s competitiveness and advantages in costs, we are of the view that the entering into of the New Master Distribution Agreements, together with the adoption of the Annual Caps, are conducted in the ordinary and usual course of the Group’s business and are in the interests of both the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Given the nature of the Continuing Connected Transactions, it is reasonable to expect that such transactions will continue to take place on a regular and frequent basis and in the ordinary and usual course of business of the Group during the term of the New Master Distribution Agreements. It would be impractical for the Company to strictly comply with the Listing Rules requirements regarding “connected transactions” on each occasion when it arises. As such, we are of the view that the entering into of the New Master Distribution Agreements and the adoption of the Annual Caps are essential for the Group in ensuring the continued smooth operation of the relevant transactions with Yuen Tai and SZ Kingworld Lifeshine respectively for the term of the New Master Distribution Agreements.

2. Principal terms of the New Master Distribution Agreements

It should be noted that the purpose of the New Master Distribution Agreements is to provide a framework of the agreed general terms and conditions governing the Continuing Connected Transactions contemplated under the New Master Distribution Agreements, and each of such transactions to be undertaken by the Group will be subject to specific terms and conditions (including the pricing terms) under the relevant implementation agreement to be entered into between the Group and Yuen Tai or SZ Kingworld Lifeshine (as the case may be). The terms and conditions of such implementation agreement(s) will be determined based on the principles contained in the New Master Distribution Agreements and are subject to mutual agreement between the relevant parties.

Set out below are the principal terms of the New Master Distribution Agreements:

(a) Yuen Tai Master Distribution Agreement

Nature of the transactions

Pursuant to the Yuen Tai Master Distribution Agreement, the Group shall purchase pharmaceutical and healthcare products from Yuen Tai and act as the exclusive distributor for distribution of such pharmaceutical and healthcare products in the PRC. The Company currently anticipates that the types of pharmaceutical and healthcare products to be purchased from Yuen Tai under the Yuen Tai Master Distribution Agreement (the “ Yuen Tai Products ”) will at least include Fengbao Jianfu Capsule and the Additional Yuen Tai Pharmaceutical and Healthcare Products that are currently purchased under the Fengbao Jianfu Capsule Distribution Agreement and the Yuen Tai Master Pharmaceutical and Healthcare Products Distribution Agreement respectively.

Term

The Yuen Tai Master Distribution Agreement is for a term of three years with effect from 1 January 2013 and ending on 31 December 2015 (both days inclusive).

Pricing basis and payment terms

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

parties by such member of the Group. As advised by the Company, in ensuring that the terms and conditions on which the Yuen Tai Products to be purchased by the Group are no less favourable than those obtained from independent third parties, the Group will compare the purchase prices to be offered by Yuen Tai with those of the same pharmaceutical or healthcare products or (if not available) similar pharmaceutical or healthcare products with similar usage and/or efficacy as the Yuen Tai Products available in the market. If the terms and conditions to be offered by Yuen Tai are not favourable to the Group, the Group has no obligation to purchase the relevant pharmaceutical or healthcare products from Yuen Tai.

As advised by the Company, it expects that the prices of the Yuen Tai Products are not subject to any price controls imposed by the PRC Government given that all of such products are not listed in the State Basic Medical Insurance Catalogue (國家基本醫療保險藥品目錄) issued by the Ministry of Labour and Social Security of the PRC (中華人民共和國勞動和社會保障部) on 25 May 2000 and updated on 13 September 2004 (the “ Medical Insurance Catalogue ”). Therefore, it is expected that there is no price control imposed by the PRC Government affecting the price setting of the Yuen Tai Products under the Yuen Tai Master Distribution Agreement.

A deposit of 40% of the purchase price of the Yuen Tai Products shall be satisfied by the Group three days upon the order of the relevant products by the Group. The remaining of the purchase price shall be satisfied by the Group upon the delivery of the relevant products. As advised by the Directors, since the Group is the sole distributor of the Yuen Tai Products, Yuen Tai only manufactures and sells its pharmaceutical and healthcare products to the Group. Therefore, the deposit of the purchase price is necessary for Yuen Tai to procure raw materials and for the payment of expenses in relation to the manufacturing of the pharmaceutical and healthcare products. In addition, we have reviewed the payment terms of the Group’s purchases from other independent suppliers and noted that some independent suppliers also require the payment of deposits upon ordering from the Group. Therefore, we consider the payment term of the Yuen Tai Master Distribution Agreement is reasonable.

(b) SZ Kingworld Lifeshine Master Distribution Agreement

Nature of the transactions

Pursuant to the SZ Kingworld Lifeshine Master Distribution Agreement, the Group shall purchase pharmaceutical and healthcare products from SZ Kingworld Lifeshine and act as the exclusive distributor for distribution of such pharmaceutical and healthcare products in the PRC. The Company currently anticipates that the types of pharmaceutical and healthcare products to be purchased from SZ Kingworld Lifeshine (the “ SZ Kingworld Lifeshine Products ”) under the SZ Kingworld Lifeshine Master Distribution Agreement will at least include the Kingworld Product Range, Imada Red Flower Oil and the Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products that are currently purchased under the Kingworld Product Range Distribution Agreement, the Imada Red Flower Oil Distribution Agreement and the SZ Kingworld Lifeshine Master Pharmaceutical and Healthcare Products Distribution Agreement respectively.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Term

The SZ Kingworld Lifeshine Master Distribution Agreement is for a term of three years with effect from 1 January 2013 and ending on 31 December 2015 (both days inclusive).

Pricing basis and payment terms

The terms and conditions (including but not limited to the prices) on which the pharmaceutical and healthcare products are to be purchased by members of the Group should be on normal commercial terms and no less favourable than those obtained from independent third parties by such member of the Group. As advised by the Company, in ensuring that the terms and conditions on which the SZ Kingworld Lifeshine Products to be purchased by the Group are no less favourable than those obtained from independent third parties, the Group will compare the purchase prices to be offered by SZ Kingworld Lifeshine with those of the same pharmaceutical or healthcare products or (if not available) similar pharmaceutical or healthcare products with similar usage and/or efficacy as the SZ Kingworld Lifeshine Products available in the market. If the terms and conditions to be offered by SZ Kingworld Lifeshine are not favourable to the Group, the Group has no obligation to purchase the relevant pharmaceutical or healthcare products from SZ Kingworld Lifeshine.

As advised by the Company, except for 金活感冒清膠囊 (Kingworld Common Cold Capsule), it expects that the prices of the SZ Kingworld Lifeshine Products are not subject to any price controls imposed by the PRC Government given that all of such products are not listed in the Medical Insurance Catalogue. Therefore, except for Kingworld Common Cold Capsule, it is expected that there is no price control imposed by the PRC Government affecting the price setting of the SZ Kingworld Lifeshine Products under the SZ Kingworld Lifeshine Master Distribution Agreement. Under the notification from Guangdong Province Price Bureau (廣東省物價局) on 12 February 2007, the retail price of Kingworld Common Cold Capsule shall be capped at RMB3.30 per box.

A deposit of 40% of the purchase price of the SZ Kingworld Lifeshine Products shall be satisfied by the Group three days upon the order of the relevant products by the Group. The remaining of the purchase price shall be satisfied by the Group upon the delivery of the relevant products. As advised by the Directors, since the Group is the sole distributor of the SZ Kingworld Lifeshine Proudcts, SZ Kingworld Lifeshine only manufactures and sells its pharmaceutical and healthcare products to the Group. Therefore, the deposit of the purchase price is necessary for SZ Kingworld Lifeshine to procure raw materials and for the payment of expenses in relation to the manufacturing of the pharmaceutical and healthcare products. In addition, we have reviewed the payment terms of the Group’s purchases from other independent suppliers and noted that some independent suppliers also require the payment of deposits upon ordering from the Group. Therefore, we consider the payment term of the SZ Kingworld Lifeshine Master Distribution Agreement is reasonable.

(c) Conclusion

In light of the foregoing, in particular the measures in place for price comparison, we are of the opinion that the terms of the New Master Distribution Agreements (including the pricing basis) are on normal commercial terms, fair and reasonable so far as the Company and the Independent Shareholders are concerned, and in the interests of both the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Requirements of the Listing Rules

For each financial year of the Company during the terms of the New Master Distribution Agreements, the Continuing Connected Transactions will be subject to review by the independent non-executive Directors and the Company’s auditors as required by the provisions of Rules 14A.37 and 14A.38 of the Listing Rules respectively. The independent non-executive Directors must confirm in the annual report and accounts that the Continuing Connected Transactions have been entered into:

in the ordinary and usual course of business of the Company;
either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Company than terms available to or from (as appropriate) independent third parties; and
in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Furthermore, the Listing Rules require that the Company’s auditors must provide a letter to the Board (with a copy provided to the Stock Exchange at least ten business days prior to the bulk printing of the annual report of the Company), confirming that the Continuing Connected Transactions:

have received the approval of the Board;
are in accordance with the pricing policies of the Company if the transactions involve provision of goods or services of services by the Company;
have been entered into in accordance with the relevant agreement governing the transactions; and
have not exceeded the annual caps disclosed in its previous announcement.

Given the above, we are of the view that there will be sufficient procedures and arrangements in place to ensure that the Continuing Connected Transactions contemplated under the New Master Distribution Agreements will be conducted on terms that are fair and reasonable and on normal commercial terms as far as the Independent Shareholders are concerned.

4. The Annual Caps

(a) In relation to the Yuen Tai Master Distribution Agreement

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

respect of the purchase of Fengbao Jianfu Capsule and the Additional Yuen Tai Pharmaceutical and Healthcare Products under the Fengbao Jianfu Capsule Distribution Agreement and the Yuen Tai Master Pharmaceutical and Healthcare Products Distribution Agreement respectively:

Audited	Annual cap	Audited	Annual cap	Unaudited	Annual cap
transaction	for the year	transaction	for the year	transaction	for the year
amount for	ended 31	amount for	ended 31	amount for	ending 31
the period	December	the year	December	the nine	December
commencing	2010	ended 31	2011	months	2012
from the Listing		December		ended 30
Date and ended		2011		September
31 December				2012
2010

Purchase of RMB0 RMB2,898,700 RMB391,875 RMB9,662,400 RMB1,088,000 RMB14,493,600 Fengbao Jianfu Capsule

Purchase of N/A N/A RMB0 RMB2,300,000 RMB0 RMB3,500,000 the (since 24 (since 24 Additional May 2011) May 2011) Yuen Tai Pharmaceutical and Healthcare Products

Set out below are the annual caps for the purchase amounts of the Yuen Tai Products (the “ Yuen Tai Annual Caps ”) under the Yuen Tai Master Distribution Agreement for the three years ending 31 December 2015:

						Annual cap for	Annual cap for	Annual cap for
						the year ending	the year ending	the year ending
						31 December	31 December	31 December
						2013	2014	2015
Purchase	of	the	Yuen	Tai	Products	RMB17,390,000	RMB25,220,000	RMB33,520,000

We noted that, save for Fengbao Jianfu Capsule, SZ Kingworld has not purchased any other pharmaceutical and healthcare products from Yuen Tai since the Listing Date and up to 30 September 2012. Therefore, there is no historical amount of purchase of the Additional Yuen Tai Pharmaceutical and Healthcare Products for such period. In addition, we noted that SZ Kingworld did not purchase any Fengbao Jianfu Capsule during the year ended 31 December 2010 and the purchase amounts for the year ended 31 December 2011 and the nine months ended 30 September 2012 were significantly less than the respective annual caps.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in the Prospectus, SZ Kingworld did not purchase any Fengbao Jianfu Capsule from Yuen Tai during the year ended 31 December 2010 due to the expiration of the Pharmaceutical Product Registration Certificate of Fengbao Jianfu Capsule since August 2008. The Group had obtained the Import Drugs Approval Notice from the State Food and Drug Administration of the PRC (國家食品藥品監督管理局) (“ SFDA ”), with an effective term of no more than six months, on 5 June 2010 and relied on such permit as an interim arrangement to import pharmaceuticals into the PRC for the distribution of Fengbao Jianfu Capsule in order to ensure the continuation of supply of Fengbao Jianfu Capsule prior to the renewal of the Pharmaceutical Product Registration Certificate for Fengbao Jianfu Capsule. Subsequently, the renewed Pharmaceutical Product Registration Certificate of Fengbao Jianfu Capsule was issued on 30 October 2010.

Further, Yuen Tai commenced the modification of its facilities and other modification procedures for the purpose of obtaining the good manufacturing practice requirements since April 2010. Therefore, it has not manufactured Fengbao Fujian Capsule since 2010 and thus, did not supply such products to SZ Kingworld. At the time that the Directors proposed the annual cap of the purchase of Fengbao Jianfu Capsule for the year ended 31 December 2010, Yuen Tai advised that it expected that the modification of its facilities would be completed by the end of October 2010. Subsequently, such modification was completed in September 2012. As a result of the foregoing, SZ Kingworld did not purchase any Fengbao Jianfu Capsule from Yuen Tai during the year ended 31 December 2010 and the purchase amounts for the year ended 31 December 2011 and the nine months ended 30 September 2012 were substantially lower than the respective annual caps. SZ Kingworld has increased its purchases of Fengbao Jiangu Capsule from Yuen Tai since September 2012 after the completion of the modification of Yuen Tai’s facilities. The purchase amount for September 2012 alone amounted to RMB1,088,000.

The Group did not utilise the annual caps for the Additional Yuen Tai Pharmaceutical and Healthcare Products. The Additional Yuen Tai Pharmaceutical and Healthcare Products were targeted to be marketed and sold in Hong Kong. However, the registration of such Additional Yuen Tai Pharmaceutical and Healthcare Products with the Department of Health in Hong Kong were not completed up to the Latest Practicable Date.

In our assessment of the reasonableness of the Yuen Tai Annual Caps, we have reviewed the estimation of the Group on the total purchases of the Yuen Tai Products from Yuen Tai for the three financial years ending 31 December 2015 and the underlying bases and assumptions respectively. As stated in the Letter from the Board, the Directors have taken into account the following factors in arriving at the Yuen Tai Annual Caps:

(i) SZ Kingworld has entered into an exclusive distributorship agreement with an independent sub-distributor, pursuant to which, the sub-distributor agreed and guaranteed to distribute 2,000,000, 3,000,000 and 3,300,000 boxes of Fengbao Jianfu Capsule (which is equivalent to purchase amount of RMB13,600,000, RMB20,400,000 and RMB22,440,000 respectively from Yuen Tai) for the three years ending 31 December 2015 respectively;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) the historical figures of the actual transaction values of the transactions contemplated under the Fengbao Jianfu Capsule Distribution Agreement and the Yuen Tai Master Pharmaceutical and Healthcare Products Distribution Agreement from the Listing Date to 30 September 2012;
(iii) the expected expansion of the size of the Group and the expansion of its distribution network and business scale resulting in a possible increase in the number and value of transactions to be entered into between the Group and Yuen Tai. As disclosed in the interim report of the Company for the six months ended 30 June 2012, the Group plans to add 1,485 new display booths during the second half of the year, through which the total number of display booths will exceed 4,000. The total number of display booths is expected to further increase to over 7,000 by the end of 2015. With respect to the Group’s retail outlets, it is expected that the total number of which will reach 60,000 by the end of 2012 and will further increase to over 90,000 by the end of 2015;
(iv) the expected increase in the number of the Group’s customers and their demand for different pharmaceutical and healthcare products;
(v) the expansion of the types of products to be covered under the Yuen Tai Master Distribution Agreement;
(vi) the expected growth of the pharmaceutical distribution industry in the PRC, based on the steady growth of the size of the pharmaceutical manufacturing and retail industries in the PRC;
(vii) the expected growth in the prices of the pharmaceutical and healthcare products during the three years ending 31 December 2015 after taking into account the following factors: (a) the general trend in the growth of the pharmaceutical and healthcare products industry in the PRC; and (b) the inflated raw material prices as a result of the increased labour costs and decreased yield of raw materials; and
(viii) the expected increase in the pharmaceutical consumption in the PRC as a result of the recently announced social security policy in the PRC that allows for PRC residents to claim medical reimbursement for medical services used over different cities in the PRC.

We have discussed with the Company regarding the above factors and concur with the Company’s view that it is reasonable and in the interests of both the Company and the Shareholders to set the Yuen Tai Annual Caps at the proposed levels, after taking into consideration the following:

(i) the purchase amounts pursuant to the exclusive distributorship agreement entered into between SZ Kingworld and an independent sub-distributor represented approximately 78.2%, 80.9% and 66.9% of the Yuen Tai Annual Caps for the three years ending 31 December 2015 respectively;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Yuen Tai has filed applications for registration of the Additional Yuen Tai Pharmaceutical and Healthcare Products with the Department of Health in Hong Kong in May 2011 for marketing and sales of such products in Hong Kong and the Company is advised that the registration applications are expected to be approved by the first half of 2013;
(iii) the estimated purchase price of the Yuen Tai Products are determined with reference to the purchase price of similar products offered by independent third parties. The Company expects purchase price of the Yuen Tai Products to increase by 5% annually during the three years ending 31 December 2015 taking into account (a) the general trend in the growth of the pharmaceutical and healthcare products industry in the PRC; and (b) the inflated raw material prices as a result of the increased labour costs and decreased yield of raw materials;
(iv) as advised by the Directors, the prices of the Yuen Tai Products are not subject to any government restrictions;
(v) as disclosed in the interim report of the Company for the six months ended 30 June 2012, the Group’s distribution network expanded quickly with product display booths amounted to 2,515 and the retail outlets amounted to 50,000 at the end of June 2012. We are advised by the Company that the total number of product display booths is targeted to increase to over 4,000 by the end of 2012 and over 7,000 by the end of 2015. The total number of retail outlets is targeted to increase by 10,000 per annum to reach over 90,000 by the end of 2015;
(vi) that the Company should maintain sufficient stocks of the Yuen Tai Products for consumption based on its belief that its customers, being distribution customers/sub-distributors/retailers, generally tend to purchase more upon the launch of new products to ensure an adequate level of stocks for their onward sale;
(vii) the estimated growth of the demand of the Yuen Tai Products for the three years ending 31 December 2015 in view of (a) the general trend in the growth of the pharmaceutical and healthcare products industry in the PRC as discussed in point (ix) below; and (b) the current plan to expand the Group’s distribution network in the PRC as discussed in point (v) above;
(viii) as advised by the Company, upon the expiry of the current Pharmaceutical Product Registration Certificate of Fengbao Jianfu Capsule on 29 October 2015, Yuen Tai will apply for an Import Drugs Approval Notice, an one-off permit from the SFDA for the importation of Fengbao Jianfu Capsule into the PRC during the re-registration of the Pharmaceutical Product Registration Certificate. Therefore, it is expected that the supply of Fengbao Jianfu Capsule will not be affected prior to the renewal of the Pharmaceutical Product Registration Certificate of Fengbao Jianfu Capsule; and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ix) according to the statistics from the National Development and Reform Commission of the PRC, the total output value of medicines was approximately RMB164.1 billion during the first three quarters in 2012, representing an increase of approximately 23.9% over the same period in 2011. The output value of Chinese medicine industry consistently increased by more than 20% per annum from 2006 to 2010.

(b) In relation to the SZ Kingworld Lifeshine Master Distribution Agreement

Set out below are (a) the actual transaction amounts from the Listing Date to 31 December 2011, or from 24 May 2011 to 31 December 2011 (as the case may be) and the nine months ended 30 September 2012; and (b) the annual caps for the three years ending 31 December 2012, in respect of the purchase and distribution of the Kingworld Product Range, Imada Red Flower Oil and the Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products under the Kingworld Product Range Distribution Agreement, the Imada Red Flower Oil Distribution Agreement and the SZ Kingworld Lifeshine Master Pharmaceutical and Healthcare Products Distribution Agreement respectively:

Audited	Annual cap	Audited	Annual cap	Unaudited	Annual cap
transaction	for the year	transaction	for the year	transaction	for the year
amount for	ended 31	amount for	ended 31	amount for	ending 31
the period	December	the year	December	the nine	December
commencing	2010	ended 31	2011	months	2012
from the Listing		December		ended 30
Date and ended		2011		September
31 December				2012
2010

Purchase of RMB558,682 RMB5,922,576 RMB2,641,470 RMB6,583,876 RMB463,108 RMB7,634,691 Kingworld Product Range

Purchase of Imada RMB0 RMB11,538,450 RMB17,054,397 RMB24,999,975 RMB15,698,173 RMB32,564,070 Red Flower Oil Purchase of the N/A N/A RMB152,228 RMB22,000,000 RMB0 RMB32,000,000 Additional SZ (since 24 (since 24 Kingworld May 2011) May 2011) Lifeshine Pharmaceutical and Healthcare Products

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below are the annual caps for the purchase amounts of the SZ Kingworld Lifeshine Products (the “ SZ Kingworld Lifeshine Annual Caps ”) under the SZ Kingworld Lifeshine Master Distribution Agreement for the three years ending 31 December 2015:

	Annual cap for	Annual cap for	Annual cap for
	the year ending	the year ending	the year ending
	31 December	31 December	31 December
	2013	2014	2015
Purchase of the SZ
Kingworld Lifeshine
Products	RMB56,440,000	RMB67,730,000	RMB81,270,000

We noted that the utilisation of the annual caps for the purchase of Kingworld Product Range and the Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products was approximately 40.1% and 0.7% respectively for the year ended 31 December 2011 and approximately 6.1% and 0% respectively for the nine months ended 30 September 2012. As advised by the Directors, the low utilisation rates were mainly due to (i) some of the Kingworld Product Range and the Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products are in capsule form. In April 2012, there were news reporting which revealed that the capsules of some pharmaceutical and healthcare products manufactured by other manufacturers in the market used poisonous raw materials (the “ Poisonous Capsules Incidence ”). Such incidence raised the concern on the quality of capsules and the sales of the Kingworld Product Range and Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products in capsules were adversely impacted; and (ii) some of the Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products were targeted to be marketed and sold in Hong Kong. However, SZ Kingworld Lifeshine has yet to file the application for the registration of such Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products with the Department of Health in Hong Kong up to the Latest Practicable Date in view of the market sentiment on capsule products. SZ Kingworld did not place any orders for Imada Red Flower Oil during the short period from the Listing Date (i.e. 25 November 2010) to 31 December 2010.

In our assessment of the reasonableness of the SZ Kingworld Lifeshine Annual Caps, we have reviewed the estimation of the Group on the total purchases of the SZ Kingworld Lifeshine Products from SZ Kingworld Lifeshine for the three financial years ending 31 December 2015 and the underlying bases and assumptions respectively. As stated in the Letter from the Board, the Directors have taken into account the following factors in arriving at the SZ Kingworld Lifeshine Annual Caps:

(i) the Company will proactively promote the sales of Imada Red Flower Oil and other SZ Kingworld Lifeshine Products by entering into more distributorship agreements with sub-distributors and other promotional activities, especially in undeveloped markets including Dongbei Province, Hebei Province, Tianjin and Inner Mongolia;
(ii) on 25 May 2012, the State Food and Drug Administration of the PRC sampled the pharmaceutical and healthcare products in capsules re-launched on 1 May 2012 and all samples passed the quality check. Accordingly, the Company expects the consumers’ confidence on the pharmaceutical and healthcare products in capsules will gradually build up afterwards;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) the Company is advised that SZ Kingworld Lifeshine is planning to file the application for registration of some of the Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products with the Department of Health in Hong Kong in the first half of 2013 and SZ Kingworld Lifeshine expects that the registration applications will be approved by the second half of 2013;
(iv) the historical figures of the actual transaction values of the transactions contemplated under the Kingworld Product Range Distribution Agreement, the Imada Red Flower Oil Distribution Agreement and the SZ Kingworld Lifeshine Master Pharmaceutical and Healthcare Products Distribution Agreement from the Listing Date to 30 September 2012;
(v) the expected expansion of the size of the Group and the expansion of its distribution network and business scale resulting in a possible increase in the number and value of transactions to be entered into between the Group and SZ Kingworld Lifeshine. As disclosed in the interim report of the Company for the six months ended 30 June 2012, the Group plans to add 1,485 new display booths during the second half of the year, through which the total number of display booths will exceed 4,000. The total number of display booths is expected to further increase to over 7,000 by the end of 2015. With respect to the Group’s retail outlets, it is expected that the total number of which will reach 60,000 by the end of 2012 and will further increase to over 90,000 by the end of 2015;
(vi) the expected increase in the number of the Group’s customers and their demand for different pharmaceutical and healthcare products;
(vii) the expansion of the types of products to be covered under the SZ Kingworld Lifeshine Master Distribution Agreement;
(viii) the expected growth of the pharmaceutical distribution industry in the PRC, based on the steady growth of the size of the pharmaceutical manufacturing and retail industries in the PRC;
(ix) the expected growth in the prices of the pharmaceutical and healthcare products during the three years ending 31 December 2015 after taking into account the following factors: (a) the general trend in the growth of the pharmaceutical and healthcare products industry in the PRC; and (b) the inflated raw material prices as a result of the increased labour costs and decreased yield of raw materials; and
(x) the expected increase in the pharmaceutical consumption in the PRC as a result of the recently announced social security policy in the PRC that allows for PRC residents to claim medical reimbursement for medical services used over different cities in the PRC.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have discussed with the Company regarding the above factors and concur with the Company’s view that it is reasonable and in the interests of both the Company and the Shareholders to set the SZ Kingworld Lifeshine Annual Caps at the proposed levels, after taking into consideration the following:

(i) that the Company’s proactive promotion of Imada Red Flower Oil and other SZ Kingworld Lifeshine Products by entering into more distributorship agreements with sub-distributors and other promotional activities is expected to increase the sales of such products, particularly in the undeveloped markets. In 2012, the Group has entered into more than 300 distributorship agreements. The distributorship agreements are renewed annually. Pursuant to the distributorship agreements, the distributors and sub-distributors agreed to sell a targeted amount of SZ Kingworld Lifeshine Products in each year. Their distributor rights may be revoked by the Group if such distributors or sub-distributors cannot meet the annual targeted sales amount. The total targeted sales amount of SZ Kingworld Lifeshine Products of all distributors and sub-distributors aggregated at more than RMB56 million in 2012. Such targeted sales amount is expected to increase by more than 20% each year in line with the general growth trend of the pharmaceutical and medicine industry in the PRC as discussed in point (xi) below;
(ii) the consumers’ confidence on the pharmaceutical and healthcare products in capsules is expected to gradually build up;
(iii) according to 國食藥監注[2012]322號文 (the Medical Circular 322 published in 2012) published by the SFDA, Imada Red Flower Oil was reclassified into non-prescription medicine from prescription medicine. Upon such reclassification, the Group can expand the distribution channels of Imada Red Flower Oil through marketing as an OTC product at any shop, instead of only limited to licensed pharmacies, hospitals, etc.;
(iv) certain Additional SZ Kingworld Lifeshine Pharmaceutical and Healthcare Products are expected to be launched in the second half of 2013 after the completion of the registration in Hong Kong;
(v) the estimated purchase price of the SZ Kingworld Lifeshine Products are determined with reference to the purchase price of similar products offered by independent third parties. The Company expects purchase price of the SZ Kingworld Lifeshine Products to increase by 5% annually during the three years ending 31 December 2015 taking into account (a) the general trend in the growth of the pharmaceutical and healthcare products industry in the PRC; and (b) the inflated raw material prices as a result of the increased labour costs and decreased yield of raw materials;
(vi) as advised by the Directors, except for Kingworld Common Cold Capsule, the prices of the SZ Kingworld Lifeshine Products are not subject to any government restrictions. The purchase price of Kingworld Common Cold Capsule is determined with reference to the purchase price of similar products offered by independent third parties and as stipulated by the requirement of the PRC Government;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(vii) as disclosed in the interim report of the Company for the six months ended 30 June 2012, the Group’s distribution network expanded quickly with product display booths amounted to 2,515 and retail outlets amounted to 50,000 at the end of June 2012;
(viii) as disclosed in the interim report of the Company for the six months ended 30 June 2012, the Group plans to conduct marketing activities, including product advertisements, store promotions, products discounts, at the product display booths so as to increase the consumers’ desire in purchases. During the second half of the year, it is planned that 1,485 new display booths will be added, following which the total number of display booths will exceed 4,000. We are further advised by the Company that the total number of product display booths is targeted to increase to over 7,000 by the end of 2015 and the total number of retail outlets is targeted to increase by 10,000 per annum to reach over 90,000 by the end of 2015;
(ix) the Company should maintain sufficient stocks of the SZ Kingworld Lifeshine Products for consumption based on its belief that its customers, being distribution customers/sub-distributors/retailers, generally tend to purchase more upon the launch of new products to ensure an adequate level of stocks for their onward sale;
(x) the estimated growth of the demand of the SZ Kingworld Lifeshine Products for the three years ending 31 December 2015 in view of (a) the general trend in the growth of the pharmaceutical and healthcare products industry in the PRC as discussed in point (xi) below; and (b) the current plan to expand the Group’s distribution network in the PRC as discussed in point (viii) above; and
(xi) according to the statistics from the National Development and Reform Commission of the PRC, the total output value of medicines was approximately RMB164.1 billion during the first three quarters in 2012, representing an increase of approximately 23.9% over the same period in 2011. The output value of Chinese medicine industry consistently increased by more than 20% per annum from 2006 to 2010.

(c) Conclusion

Based on the factors and reasons discussed above, we are of the view that the Annual Caps were set by the Company after due and careful consideration and are reasonable so far as the Shareholders are concerned and in the interests of both the Company and the Shareholders as a whole.

RECOMMENDATION

Having considered the principal factors and reasons discussed above and in particular the following (which should be read in conjunction with and interpreted in the full context of this letter):

the background of and reasons for the Continuing Connected Transactions;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

that the Continuing Connected Transactions are in line with the Group’s principal business activities;
that the pricing basis as provided under the New Master Distribution Agreements are fair and reasonable so far as the Company and Independent Shareholders are concern;
the control and review procedures and arrangements in place to safeguard the interests of the Company and the Shareholders in relation to the Continuing Connected Transactions; and
that the Annual Caps have been set by the Company, after due and careful considerations, at the proposed levels which are in the interests of both the Company and the Shareholders, in view of the factors as discussed in details in section (4) above,

we consider that (i) the New Master Distribution Agreements have been entered into within the ordinary and usual course of the Group’s business based on normal commercial terms and their respective terms are fair and reasonable so far as the Company and the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole and (ii) the Annual Caps are reasonable 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, to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the New Master Distribution Agreements and the Annual Caps.

Yours faithfully, For and on behalf of Quam Capital Limited Gary Mui

Managing Director

— 38 —

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 in this circular misleading.

2. INTERESTS AND SHORT POSITIONS OF DIRECTORS AND CHIEF EXECUTIVE IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO), which were required (i) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and 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) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, to be notified to the Company and the Stock Exchange, were as follows:

(I) Interests in the Shares in the Company

			Approximate
			percentage of the
			Company’s total
		Number of Shares	issued share
Name of Directors	Nature of Interest	held	capital
Mr. Zhao (Note 1)	Beneficial owner	6,108,000 Shares	0.98%
	Interest of a controlled	450,000,000 Shares	72.29%
	corporation, interest of
	spouse
Ms. Chan (Note 2)	Interest of a controlled	456,108,000 Shares	73.27%
	corporation, interest of
	spouse
Zhou Xuhua (Note 3)	Interest of spouse	1,916,000 Shares	0.31%

Notes:

Mr. Zhao is deemed (by virtue of the SFO) to be interested in 450,000,000 Shares. These Shares are held in the following capacity:

(a) 360,000,000 Shares are held by Golden Land. Mr. Zhao is the beneficial owner of the entire issued share capital of Golden Land, therefore, Mr. Zhao is deemed to be interested in the 360,000,000 Shares held by Golden Land. Mr. Zhao is also the sole director of Golden Land.

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GENERAL INFORMATION

APPENDIX

(b) 90,000,000 Shares are held by Golden Morning. Ms. Chan, the spouse of Mr. Zhao, is the beneficial owner of the entire issued share capital of Golden Morning, therefore, Mr. Zhao is also deemed to be interested in the 90,000,000 Shares held by Golden Morning.
Ms. Chan is deemed (by virtue of the SFO) to be interested in 456,108,000 Shares. These Shares are held in the following capacity:
(a) 90,000,000 Shares are held by Golden Morning. Ms. Chan is the beneficial owner of the entire issued share capital of Golden Morning, therefore, Ms. Chan is deemed to be interested in the 90,000,000 Shares held by Golden Morning. Ms. Chan is also the sole director of Golden Morning.
(b) 6,108,000 Shares are held by Mr. Zhao, the spouse of Ms. Chan, in his own name and 360,000,000 Shares are held by Golden Land. Mr. Zhao is the beneficial owner of the entire issued share capital of Golden Land, therefore, Ms. Chan is also deemed to be interested in the 6,108,000 Shares held by Mr. Zhao and the 360,000,000 Shares held by Golden Land.
Zhao Xuhua is deemed (by virtue of the SFO) to be interested in 1,916,000 Shares held by his spouse, Huang Xiaoli.

(II) Interests in the shares of the associated corporations of the Company

	Name of associated	Capacity/	Percentage of
Name of Directors	corporations	Nature of Interest	shareholding
Mr. Zhao	Golden Land	Beneficial Owner	100%
Ms. Chan	Golden Morning	Beneficial Owner	100%

As at the Latest Practicable Date, save as disclosed above, none of the Directors or chief executive of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required (i) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including any 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) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, to be notified to the Company and the Stock Exchange.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors is a director or employee of a company which has an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. INTERESTS IN THE GROUP’S ASSETS OR CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date, save as the following leases by SZ Kingworld from SZ Industry, an indirect wholly-owned subsidiary of Kingkok Investment Holdings Limited (金國投資控股有限公司), which is held as to 80% by Mr. Zhao and 20% by Ms. Chan, none of the Directors or

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APPENDIX

GENERAL INFORMATION

proposed Directors had any direct or indirect interest in any assets which have been, since 31 December 2011 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group:

(i) the external wall on 4/F of the west side of Jin Shi Jie Business Center, Dongmen, Shenzhen (深圳東門金世界商業中心西面四樓外牆), with a site area of approximately 27 sq.m., for advertising purpose, for a term commencing from 15 January 2012 to 30 June 2013 at a monthly rental of RMB12,000;
(ii) Room 201, Building 331, Lian Tang Gang Lian Er Cun, Shenzhen (深圳市蓮塘港蓮二村331 棟201室), with a site area of approximately 78 sq.m., as accommodation for senior executives, for a term commencing from 1 March 2012 to 30 June 2013 at a monthly rental of RMB1,170;
(iii) Rooms 1001-1008, Block A and Room 1505, Block C, Tian An International Building, Shenzhen (深圳市天安國際大廈A座1001-1008室及C座1505室), with a total site area of approximately 935 sq.m., for office use, for a term commencing from 1 July 2012 to 30 June 2013 at a total monthly rental of RMB51,500;
(iv) Rooms 703-704, Middle Tower, Tao Jin Building, Guangzhou (廣州市淘金大廈中塔703-704室), with a site area of approximately 200 sq.m., for office use, for a term commencing from 1 July 2012 to 30 June 2013 at a monthly rental of RMB5,000; and
(v) Room 303, Building 7, Huan Bi Zhuang Middle District, Shantou (汕頭市環碧莊中區7 棟303房), with a site area of approximately 89 sq.m., for office use, for a term commencing from 1 July 2012 to 30 June 2013 at a monthly rental of RMB800.

Save as the continuing connected transactions disclosed in the section headed “Connected Transactions” of the Prospectus, the Announcement and this circular, as at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement, subsisting at the date of this circular, which is significant in relation to the business of the Group.

4. INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors and their respective associates were interested in any business, apart from the Group’s business, which competes or is likely to compete, either directly or indirectly, with the businesses of the Group, other than those businesses where the Directors were appointed as directors to represent the interests of the Company and/or the Group.

5. SERVICE CONTRACT

As at the Latest Practicable Date, there was no existing or proposed service contract between any of the Directors and the Company or any of its subsidiaries (other than contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

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GENERAL INFORMATION

APPENDIX

6. LANGUAGE

The English text of this circular shall prevail over the Chinese text in case of any inconsistency.

7. EXPERT AND CONSENT

The following is the qualification of the expert whose letter or advice is contained in this circular:

Name Qualification

Quam Capital Limited a licensed corporation to carry out type 6 (advising on corporate finance) regulated activities under the SFO

Quam Capital Limited, the Independent Financial Adviser, has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name included in the form and context in which they respectively appear.

As at the Latest Practicable Date, the Independent Financial Adviser was not interested in any right or shareholding in any member of the Group nor did it have any right or option (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any securities in any member of the Group.

As at the Latest Practicable Date, the Independent Financial Adviser did not have any direct or indirect interest in any assets which have been, since 31 December 2011 (being the date to which the latest published audited accounts of the Group were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

8. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2011, being the date to which the latest published audited accounts of the Group were made up.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the Company’s principal place of business in Hong Kong at Units 1906-1907, 19th Floor, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong for a period of 14 days (excluding Saturdays) from the date of this circular:

(i) the Yuen Tai Master Distribution Agreement;
(ii) the SZ Kingworld Lifeshine Master Distribution Agreement;

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GENERAL INFORMATION

APPENDIX

(iii) the letter dated 7 December 2012 from the Independent Board Committee to the Independent Shareholders, the text of which is set out on pages 19 to 20 of this circular;
(iv) the opinion letter dated 7 December 2012 from the Independent Financial Adviser, the text of which is set out on pages 21 to 38 of this circular; and
(v) the written consent issued by the Independent Financial Adviser as referred in the paragraph headed “Expert and Consent” in this Appendix.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [49 x 47] intentionally omitted <==

Kingworld Medicines Group Limited 金活醫藥集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 01110)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of Kingworld Medicines Group Limited (the “ Company ”) will be held on Thursday, 27 December 2012 at 9:00 a.m. for the following purposes, and unless otherwise defined herein, the terms herein shall have the same meanings as defined in the circular to the shareholders of the Company dated 7 December 2012 (the “ Circular ”):

As a special business, to consider and, if thought fit, pass, with or without amendments, the following resolutions as ordinary resolutions:

To consider and approve the transactions under the Yuen Tai Master Distribution Agreement and the proposed annual caps for the three years ending 31 December 2015, details of which are set out in the Circular.
To consider and approve the transactions under the SZ Kingworld Lifeshine Master Distribution Agreement and the proposed annual caps for the three years ending 31 December 2015, details of which are set out in the Circular.
To generally and unconditionally authorize any one director of the Company or any other person(s) authorized by the directors to do all such acts and things, to sign and execute all such further documents for and on behalf of the Company, and to take such steps as he/she may in his/her absolute discretion consider necessary, appropriate, desirable or expedient to give effect to the New Master Distribution Agreements and the transactions contemplated thereunder.

By order of the Board Kingworld Medicines Group Limited Zhao Li Sheng Chairman

Hong Kong, 7 December 2012

Notes:

A shareholder entitled to attend and vote at the meeting convened by the above notice is entitled to appoint another person as his/her proxy to attend and vote instead of him/her. A shareholder who is the holder of two or more shares in the Company may appoint more than one proxy to represent him/her and vote on his/her behalf at the meeting. A proxy need not be a member of the Company but must be present in person to represent him/her.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

To be valid, the form of proxy together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power or authority must be deposited at the offices of the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited (“ Branch Registrar ”) at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong no later than 48 hours before the time appointed for holding of the meeting or any adjournment thereof.
Completion and return of the form of proxy will not preclude a shareholder from attending and voting in person at the meeting or any adjournment thereof and in such event, the instrument appointing a proxy shall be deemed to be revoked.
In the case of joint registered holders of a share in the Company, any one of such joint holders may vote, either personally or by proxy, in respect of such share as if he/she were solely entitled thereto, but if more than one of such joint holders are present at the meeting personally or by proxy, that one of the said persons so present 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.

As at the date of this notice, the executive Directors are Mr. Zhao Li Sheng, Ms. Chan Lok San, Mr. Zhou Xuhua and Mr. Lin Yusheng, and the independent non-executive Directors are Mr. Duan Jidong, Mr. Zhang Jianqi and Mr. Wong Cheuk Lam.

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AI assistant

Kingworld Medicines Group Limited — Proxy Solicitation & Information Statement 2012

49693_rns_2012-12-07_1147f070-2cc2-49cc-8fbf-ad4cd1bc15e0.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Kingworld Medicines Group Limited 金活醫藥集團有限公司

CONTINUING CONNECTED TRANSACTIONS

AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Kingworld Medicines Group Limited 金活醫藥集團有限公司

CONTINUING CONNECTED TRANSACTIONS

PROPOSED ANNUAL CAPS FOR THE THREE YEARS ENDING 31 DECEMBER 2015

AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

(1) INTRODUCTION

LETTER FROM THE BOARD

(2) THE NEW MASTER DISTRIBUTION AGREEMENTS

BACKGROUND

A. YUEN TAI MASTER DISTRIBUTION AGREEMENT

LETTER FROM THE BOARD

4. Condition Precedent:

5. Term and termination:

6. Terms and pricing:

LETTER FROM THE BOARD

7. Historical figures

LETTER FROM THE BOARD

LETTER FROM THE BOARD

B. SZ KINGWORLD LIFESHINE MASTER DISTRIBUTION AGREEMENT

LETTER FROM THE BOARD

4. Condition Precedent:

6. Terms and pricing:

LETTER FROM THE BOARD

7. Historical figures

LETTER FROM THE BOARD

LETTER FROM THE BOARD

C. REASONS FOR AND BENEFITS IN ENTERING INTO THE NEW MASTER DISTRIBUTION AGREEMENTS

LETTER FROM THE BOARD

D. GENERAL INFORMATION

LETTER FROM THE BOARD

E. IMPLICATIONS UNDER THE LISTING RULES

LETTER FROM THE BOARD

(3) EXTRAORDINARY GENERAL MEETING AND PROXY ARRANGEMENT

LETTER FROM THE BOARD

(4) RECOMMENDATIONS

(5) ADDITIONAL INFORMATION

Kingworld Medicines Group Limited 金活醫藥集團有限公司

CONTINUING CONNECTED TRANSACTIONS

PROPOSED ANNUAL CAPS FOR THE THREE YEARS ENDING 31 DECEMBER 2015

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background of and reasons for entering into of the New Master Distribution Agreements

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Principal terms of the New Master Distribution Agreements

(a) Yuen Tai Master Distribution Agreement

Nature of the transactions

Term

Pricing basis and payment terms

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) SZ Kingworld Lifeshine Master Distribution Agreement

Nature of the transactions

Term

Pricing basis and payment terms

(c) Conclusion

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Requirements of the Listing Rules

(a) In relation to the Yuen Tai Master Distribution Agreement

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Kingworld Medicines Group Limited Proxy Solicitation & Information Statement 2012