Kingworld Medicines Group Limited - Proxy Solicitation & Information Statement 2016

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, 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 to the purchaser or transferee or to the bank, licensed securities dealer 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 disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any share in Kingworld Medicines Group Limited.

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PROPOSED AMENDMENTS OF THE TERMS AND CONDITIONS OF THE CONVERTIBLE BOND AND NOTICE OF EXTRAORDINARY GENERAL MEETING

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

Grand Vinco Capital Limited

(A wholly-owned subsidiary of Vinco Financial Group Limited)

A letter from the Board is set out on pages 5 to 24 of this circular. A letter from the Independent Board Committee is set out on pages 25 to 26 of this circular. A letter from Vinco Capital, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 27 to 42 of this circular.

A notice convening the EGM to be held at 3rd Floor, Crowne Plaza Hotel & Suites Landmark Shenzhen, No. 3018 Nanhu Road, Luohu District, Shenzhen, the PRC, at 10:00 a.m. on Wednesday, 15 June 2016 is set out on pages 53 to 55 of this circular. Whether or not you intend to attend the EGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as practicable, and in any event not later than 48 hours before the time appointed for holding the EGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting (as the case may be) should you so wish.

30 May 2016

CONTENT

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . . . .	25
LETTER FROM VINCO CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
APPENDIX I — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	43
APPENDIX II — NOTICE OF THE EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	53

— i —

DEFINITIONS

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

“Amendment of Conditions”

the proposed amendment of certain terms and conditions of the Convertible Bonds pursuant to the Supplemental Deed

“associates”

has the meaning ascribed to it under the Listing Rules

“Board” the board of Directors
“Bondholder(s)”

holder(s) of the Convertible Bond, being Shine Light Investment Fund and Legend Times Corporation Limited as the nominees designated by the Subscriber to hold the Convertible Bond in the principal amount of HK$93,686,250 and HK$40,151,250, respectively as at Latest Practicable Date

“Business Day” a day (other than Saturday and days on which a tropical cyclone warning No. 8 or above or a “black rainstorm warning signal” is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m.) on which banks are open in Hong Kong for general business
“BVI” the British Virgin Islands
“Circular” the circular of the Company dated 14 November 2014 in relation to, among other things, the issue of the Convertible Bond
“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
“Conditions” the terms and conditions of the Convertible Bond
“Conversion Date”
the date on which a conversion notice is served by the Bondholder
“Conversion Period”
the period commencing from the Date of Issue and ending upon the Maturity Date
“Conversion Price” the Initial Conversion Price (subject to adjustments as set out in Conditions)
“Conversion Rights”

the rights of the Bondholder to convert the whole or any part of outstanding principal amount of the Convertible Bond held by it into Shares

— 1 —

DEFINITIONS

“Conversion Shares” new Shares failing to be allotted and issued upon an exercise of the conversion rights attaching to the Convertible Bond
“Convertible Bond” the convertible bond in the aggregate principal amount of HK$133,837,500 issued by the Company to the Bondholders on the Date of Issue pursuant to the Subscription Agreement
“Date of Issue” the date of issue of the Convertible Bond, being 17 December 2014
“Directors” the director(s) of the Company from time to time
“EGM”
the extraordinary general meeting of the Company to be convened and held to consider, and if thought fit, to approve the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate
“Golden Land” Golden Land International Limited (金國國際有限公司), a limited liability company incorporated in the BVI which holds approximately 47.84% of the issued share capital of the Company and wholly owned by Mr. Zhao as at the Latest Practicable Date
“Golden Morning” Golden Morning International Limited (金辰國際有限公司), a limited liability company incorporated in the BVI which holds approximately 14.46% of the issued share capital of the Company and wholly owned by Ms. Chan as at the Latest Practicable Date
“Group” the Company and its subsidiaries
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“Independent Board Committee”
an independent committee of the Board comprising all the independent non-executive Directors, formed for the purpose of advising the Independent Shareholders as to the terms of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Terms and the grant of the Specific Mandate

— 2 —

DEFINITIONS

“Independent Shareholders”
Shareholders other than the Subscriber, the Bondholders and their respective associates (including Sinopharm Fund) and Mr. Zhao, Ms. Chan and their respective associates (including Golden Land and Golden Morning) and those who are involved in or interested in the transactions contemplated under the Supplemental Deed who are required by the Listing Rules to abstain from voting in respect of the resolution(s) relating to the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate, at the EGM
“Initial Conversion Price” HK$2.15
“Latest Practicable Date” 26 May 2016, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information referred to in this circular
“Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
“Maturity Date” the date falling on the expiry of thirty-six (36) months commencing from the Date of Issue or if such date is not a Business Day, the Business Day immediately following such date as contemplated under the Supplemental Deed
“Mr. Zhao”
Zhao Li Sheng (趙利生), the chairman, an executive Director and co-founder of the Company and the sole shareholder of Golden Land
“Ms. Chan”
Chan Lok San (陳樂燊), an executive Director and co-founder of the Company and the sole shareholder of Golden Morning
“New Last Trading Date” 17 May 2016, being the last trading day in the Shares immediately before the date on which the Supplemented Deed was executed
“Original Last Trading Date” 12 September 2014, being the last trading day in the Shares immediately before the date on which the Subscription Agreement was signed
“Original Maturity Date”
the date falling on the expiry of eighteen (18) months commencing from the Date of Issue or if such date is not a Business Day, the Business Day immediately following such date as set out in the original Conditions

“SFO”

the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended from time to time

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DEFINITIONS

“Share(s)”

ordinary share(s) with a par value of HK$0.10 each in the share capital of the Company

“Shareholders”

holders of the Shares

“Sinopharm Fund”

Sinopharm Healthcare Fund L.P.

“Specific Mandate” the specific mandate to be granted to the Directors at the EGM for the allotment and issue of the Conversion Shares to the Subscriber or its designated party(ies) or the Bondholders upon an exercise of the Conversion Rights
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Subscriber”
“Subscription Agreement”
國藥資本管理有限公司 (formerly known as 國藥集團資本管理有限公司) (Sinopharm Capital Management Limited Company*) the subscription agreement dated 15 September 2014 (as supplemented and amended from time to time) entered into between the Company and Subscriber in relation to the subscription of the Convertible Bond
“Supplemental Deed”
the supplemental deed dated 18 May 2016 entered into among the Company, the Subscriber and the Bondholders in relation to the Amendment of Conditions
“Takeovers Code”
the Hong Kong Code on Takeovers and Mergers
“Vinco Capital” or “Independent Financial Adviser”
Grand Vinco Capital Limited, a wholly-owned subsidiary of Vinco Financial Group Limited (Stock code: 8340), a corporation licensed to carry out business in Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO and being the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate
“US$”
United States dollar, the lawful currency of the United States of America

“%”

per cent

For the purpose of this circular, unless otherwise specified or the context requires otherwise, “*” denotes an English translation of a Chinese name and is for identification purpose only, In the event of any inconsistency, the Chinese names shall prevail.

— 4 —

LETTER FROM THE BOARD

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Executive Directors: Registered Office: Mr. Zhao Li Sheng Appleby Trust (Cayman) Ltd. Ms. Chan Lok San Clifton House Mr. Zhou Xuhua 75 Fort Street PO Box 1350 Non-executive Directors: Grand Cayman Mr. Zhang Yi KY1-1108 Cayman Islands Independent Non-executive Directors: Mr. Duan Jidong Principal Place of Business in Hong Kong: Mr. Zhang Jianbin Units 1906-1907, 19th Floor Mr. Wong Cheuk Lam Shui On Centre 6-8 Harbour Road Wanchai Hong Kong 30 May 2016

To the Shareholders

Dear Sir or Madam,

PROPOSED AMENDMENTS OF THE TERMS AND CONDITIONS OF THE CONVERTIBLE BOND AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

References are made to the announcements of the Company dated 15 September 2014, 9 October 2014, 30 October 2014, 11 November 2014, 17 November 2014, 15 December 2014 and 17 December 2014 respectively, and the Circular in relation to, among other things, the issue of the Convertible Bond.

The Company entered into the Subscription Agreement with the Subscriber in relation to the issue of the Convertible Bond in an aggregate principal amount of HK$133,837,500. The Convertible

— 5 —

LETTER FROM THE BOARD

Bond will bear interest at the rate of 7.4% per annum pursuant to the original Conditions. The Convertible Bond is convertible into the Conversion Shares at the Initial Conversion Price of HK$2.15 per Share (subject to adjustments as set out in the Conditions). Closing of the subscription for the Convertible Bond took place on 17 December 2014 pursuant to the terms of the Subscription Agreement. All outstanding Convertible Bond will mature on 16 June 2016 pursuant to the original Conditions.

As at Latest Practicable Date, none of the Convertible Bonds has been redeemed nor converted, in whole or in part.

Reference is also made to the announcement of the Company dated 18 May 2016 in relation to, among other things, the Amendment of Conditions.

The main purpose of this circular is to provide you with, among other things: (i) further details of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate; (ii) a letter from the Independent Board Committee to the Independent Shareholders; (iii) a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate; and (iv) a notice of the EGM.

THE SUPPLEMENTAL DEED RELATING TO THE CONVERTIBLE BOND

On 18 May 2016 (after trading hours), the Company entered into the Supplemental Deed with the Subscriber and the Bondholders pursuant to which the Company, the Subscriber and the Bondholders agreed to amend certain terms and conditions of the Convertible Bond. Below is the comparison of differences between the original Conditions and the Amendment of Conditions as contemplated under the Supplemental Deed:

Original Conditions

Amendment of Conditions as contemplated under the Supplemental Deed

Maturity Date:

The date falling on the expiry of eighteen (18) months commencing from the Date of Issue or if such date is not a Business Day, the Business Day immediately following such date.

The date falling on the expiry of thirty-six (36) months commencing from the Date of Issue or if such date is not a Business Day, the Business Day immediately following such date.

Note: The maturity date under the original Conditions means 16 June 2016 (hereinafter referred to as the “ Original Maturity Date ”).

Note: The Conversion Period means the period commencing from the Date of Issue and ending upon the Maturity Date. The Conversion Period will accordingly be extended for 18 months as contemplated under the Supplemental Deed.

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LETTER FROM THE BOARD

Interest Rate:

Original Conditions

7.4% per annum of the outstanding principal amount of the Convertible Bond Interest shall be accrued daily on a 360 days basis and is payable by the Company to the Bondholder on bi-annual basis, with the first interest payment for the Convertible Bond to be made on the date falling on 6 months from the Date of Issue and thereafter on the last day of each successive half-yearly period up to the Original Maturity Date.

Amendment of Conditions as contemplated under the Supplemental Deed

From the Date of Issue to the Original Maturity Date, the Convertible Bond will bear interest at the rate of 7.4% per annum of the outstanding principal amount of the Convertible Bond, and shall be accrued daily on a 360 days basis and is payable by the Company to the Bondholders on bi-annual basis, with the first interest payment for the Convertible Bond to be made on the date falling on 6 months from the Date of Issue and thereafter on the last day of each successive half-yearly period up to the Original Maturity Date; and from the first date after the Original Maturity Date to the Maturity Date, the Convertible Bond will bear interest at the rate of 5.0% per annum of the outstanding principal amount of the Convertible Bond, and shall be accrued daily on a 360 days basis and is payable by the Company to the Bondholders on bi-annual basis, with the first interest payment at such rate for the Convertible Bond to be made on the date falling on 24 months from the Date of Issue and thereafter on the last day of each successive half-yearly period up to the Maturity Date.

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LETTER FROM THE BOARD

Original Conditions

Amendment of Conditions as contemplated under the Supplemental Deed

Mandatory The Bondholder shall mandatorily Conversion/Full convert the whole of the principal Conversion: moneys outstanding under the Convertible Bond into Conversion Shares on a date falling on or after the Original Maturity Date (the “ Mandatory Conversion ”).

For the avoidance of doubt, no request for the repayment of any part of the principal moneys outstanding under the Convertible Bond can be made by the Bondholder to the Company unless there is any occurrence of Events of Default prior to the Original Maturity Date.

On the Maturity Date,

(a) if both the Company and the Bondholders agree in writing to convert the whole of the principal moneys outstanding under the Convertible Bond into Conversion Shares (“ Full Conversion ”), the Bondholders shall deliver a conversion notice to the Company and the Company shall deliver the share certificates of the Conversion Shares to the Bondholders within 5 Business Days upon receipt of the conversion notice; or
(b) if either the Company or the Bondholders does not agree the Full Conversion, such party shall deliver a written notice to notify the other party of such disagreement on the Maturity Date, the Company shall, within 15 Business Days upon receipt or issue (as the case may be) of such written notice, redeem the principal moneys outstanding under the Convertible Bond together with any unpaid interest accrued up to the Maturity Date (if any).

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LETTER FROM THE BOARD

Original Conditions

Amendment of Conditions as contemplated under the Supplemental Deed

Right of	Note: As disclosed in the Circular,
Nomination of	pursuant to the Subscription
Non-Executive	Agreement, the Subscriber shall have
Director:	the one-off right to nominate one
	non-executive Director to the Board
	upon closing of the subscription for
	the Convertible Bond, and such
	nomination shall be accepted by the
	Company subject to the compliance
	of the Listing Rules in relation to the
	requirement and qualification
	imposed on the directors of a listed
	company. Such right is available to
	the Subscriber in its capacity as an
	investor upon closing of the
	subscription for the Convertible
	Bond, it is not a right attached to the
	Shares to be converted under the
	Convertible Bond and held by the
	Subscriber.

The Bondholders and/or their

respective connected person(s) (as defined in the Listing Rules) and/or person(s) acting in concert (as defined in the Takeovers Code) shall, at any time during the Conversion Period, have no right to nominate one non-executive Director to the Board and/or other positions of the Group (if applicable) when such persons hold in aggregate less than 5% of the total issued share capital of the Company and shall procure the nominated person(s) to resign from the positon of non-executive Director and other positions of the Group (if applicable) within 5 Business Days upon occurrence of such shareholding.

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LETTER FROM THE BOARD

Original Conditions

Amendment of Conditions as contemplated under the Supplemental Deed

The Subscriber and/or the Bondholders exercised such one-off nomination rights under the Subscription Agreement and nominated Mr. Zhang Yi as the non-executive Director upon closing of the subscription for the Convertible Bond on 17 December 2014. Mr. Zhang Yi is the nominated non-executive Director as at the Latest Practicable Date.

Note: Pursuant to the Supplemental Deed, the Bondholders (in the capacity of the Bondholders, or in the capacity of Shareholders upon conversion of the Convertible Bond into the Conversion Shares) will not have such one-off nomination rights. In addition, if the Bondholders and/or their respective connected person(s) (as defined in the Listing Rules) and/or person(s) acting in concert (as defined in the Takeovers Code) hold in aggregate less than 5% of the total issued share capital of the Company at any time during the Conversion Period, they shall procure the nominated person(s), being Mr. Zhang Yi as at the Latest Practicable Date, to resign from the positon of non-executive Director and other positions of the Group (if applicable) within 5 Business Days upon occurrence of such shareholding.

Pursuant to the articles of association of the Company, the number of Directors shall not be less than two (2). Pursuant to the Listing Rules, an issuer must appoint independent non-executive directors representing at least one-third of the board. As at the Latest Practicable Date, the Board consists of three (3) executive Directors, one (1) non-executive Director and three (3) independent non-executive Directors. Should the nominated non-executive Director resigns pursuant to this clause under the Supplemental Deed, the number of Directors and the composition of the Board still comply with the Company’s articles of association and the Listing Rules.

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LETTER FROM THE BOARD

Save as disclosed above, the principal terms of the Convertible Bond as disclosed in the Circular remain unchanged and are still in full force and effect.

Pursuant to the Supplemental Deed, the Amendment of Conditions is subject to the satisfaction of the following conditions:

(i) the passing by the Independent Shareholders at the EGM of the necessary resolutions to approve the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate;
(ii) the Stock Exchange having approved the Amendment of Conditions pursuant to the Listing Rules and the Listing Committee granting approval for the listing of, and permission to deal in, the Conversion Shares on the Stock Exchange and the approval not having been subsequently revoked or cancelled; and
(iii) all necessary consents and approvals required to be obtained on the part of the Company, the Subscriber and the Bondholders in respect of the Amendment of Conditions having been obtained.

None of the above conditions could be waived by the parties to the Supplemental Deed. The effective date of the Supplemental Deed shall be on the date when all its conditions precedents are fulfilled.

If the above conditions precedents are not fulfilled on or before the Original Maturity Date, the Supplemental Deed will be lapsed and the original Conditions shall remain in full force and effect.

As at the Latest Practicable Date, none of the above conditions have been satisfied.

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LETTER FROM THE BOARD

PRINCIPAL TERMS OF THE CONVERTIBLE BOND (AS AMENDED PURSUANT TO THE SUPPLEMENTAL DEED)

The principal terms of the Convertible Bond (as amended pursuant to the Supplemental Deed) are as follows:

Principal HK$133,837,500 Amount: Interest Rate: From the Date of Issue to the Original Maturity Date, the Convertible Bond will bear interest at the rate of 7.4% per annum of the outstanding principal amount of the Convertible Bond, and shall be accrued daily on a 360 days basis and is payable by the Company to the Bondholders on bi-annual basis, with the first interest payment for the Convertible Bond to be made on the date falling on 6 months from the Date of Issue and thereafter on the last day of each successive half-yearly period up to the Original Maturity Date; and from the first date after the Original Maturity Date to the Maturity Date, the Convertible Bond will bear interest at the rate of 5.0% per annum of the outstanding principal amount of the Convertible Bond, and shall be accrued daily on a 360 days basis and is payable by the Company to the Bondholders on bi-annual basis, with the first interest payment at such rate for the Convertible Bond to be made on the date falling on 24 months from the Date of Issue and thereafter on the last day of each successive half-yearly period up to the Maturity Date.

Status of the The Convertible Bond constitutes a direct, unconditional, unsecured and Convertible unsubordinated obligation of the Company and ranks pari passu and rateably Bond: without preference (with the exception of obligations in respect of taxes and certain other statutory exceptions) with all other unsecured and unsubordinated obligations of the Company.

Transfer of the The Convertible Bond may be assigned or transferred in whole or in part of Convertible its outstanding principal amount. Such transfer or assignment shall be in Bond: compliance with the terms of the Convertible Bond. Conversion The Initial Conversion Price of HK$2.15 per Conversion Share. Price: Adjustments to The Initial Conversion Price will be subject to adjustment in certain events, Conversion including: Price:

(a) an alternation of the nominal amount of the Shares by reasons of share consolidation or subdivision;
(b) an issue by the Company of Shares credited as fully paid by way of capitalization of profits or reserves (including any share premium account or capital redemption reserve fund);

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LETTER FROM THE BOARD

(c) a capital distribution made by the Company to the Shareholders (whether on a reduction of capital or otherwise) or a grant by the Company to the Shareholders of rights to acquire for cash assets of the Company or any of its subsidiaries;
(d) an offer by the Company to the Shareholders of new Shares for subscription by way of rights, or a grant of options or warrants to subscribe for new Shares to the Shareholders at a price which is less than 80% of the market price at the date of the announcement of the terms of the offer or grant;
(e) (i) an issue by the Company wholly for cash of any securities which by their terms are convertible into or exchange for or carry rights of subscription for new Shares, and the total effective consideration per Share initially receivable for such securities is less than 80% of the market price at the date of the announcement of the terms of issue of such securities; and (ii) any modification of the rights of conversion or exchange or subscription attached to any such securities as are mentioned in (i) above so that the total effective consideration per Share initially receivable for such securities shall be less than 80% of the market price at the date of announcement of the proposal for modification; and for the purposes of this sub-paragraph, the “total effective consideration” receivable for the securities issued shall be deemed to be the consideration receivable by the Company for any such securities plus the additional minimum consideration (if any) to be received by the Company upon (and assuming) the conversion or exchange thereof or the exercise of such subscription rights, and the effective consideration per Share initially receivable for such securities shall be such aggregate consideration divided by the number of Shares to be issued upon (and assuming) such conversion or exchange at the initial conversion or exchange rate or the exercise of such subscription rights at the initial subscription price, in each case without any deduction for any commissions, discounts or expenses paid, allowed or incurred in connection with the issue;
(f) an issue by the Company of any Share wholly for cash at a price per Share which is less than 80% of the market price at the date of the announcement of the terms of such issue; and
(g) an issue by the Company of any Share for the acquisition of asset at a total effective consideration per Share which is less than 80% of the market price at the date of the announcement of the terms of such issue; and for the purpose of this sub-paragraph, the “total effective consideration” shall be the aggregate consideration credited as being paid for such Shares by the Company on acquisition of the relevant asset without any deduction of any commissions, discounts or expenses paid, allowed or incurred in connection with the issue thereof, and the “total effective consideration per Share” shall be the total effective consideration divided by the number of Shares issued as aforesaid.

— 13 —

LETTER FROM THE BOARD

Conversion:

Subject to, and upon compliance with, the provisions of the Conditions, the Bondholder shall have the right to convert the whole or any part of the outstanding principal amount of the Convertible Bond (irrespective whether the Convertible Bond may be held by more than one Bondholder) into Shares at any time and from time to time during the Conversion Period provided that each conversion must be in respect of a minimum aggregate principle amount of HK$13,383,750. The price at which each Share shall be issued upon an exercise of the Conversion Rights shall be the Conversion Price in force at the relevant Conversion Date. Assuming full conversion of the Convertible Bond at the Initial Conversion Price, the Convertible Bond will be converted into approximately 62,250,000 Shares, representing approximately 10.00% of the existing issued share capital of the Company and approximately 9.09% of the issued share capital of the Company as enlarged by the full conversion of the Convertible Bond.

Pursuant to the Conditions, the Bondholder shall not have the right to convert the whole or part of the outstanding principal amount of the Convertible Bond into Shares to the extent that immediately after such conversion (a) the minimum public float requirement for the Shares as required under the Listing Rules could not be maintained; or (b) the Bondholder whether alone or together with parties acting in concert with it will, directly or indirectly, control or be interested in 30% or more of the voting rights of the Company as enlarged by such conversion (or in such other percentage lower than 30% as may from time to time be specified in the Takeovers Code being the level for triggering a mandatory general offer) (“ Conversion Restrictions ”).

Full Conversion:

On the Maturity Date,

(a) if both the Company and the Bondholders agree in writing to convert the whole of the principal moneys outstanding under the Convertible Bond into Conversion Shares (“ Full Conversion ”), the Bondholders shall deliver a conversion notice to the Company and the Company shall deliver the share certificates of the Conversion Shares to the Bondholders within 5 Business Days upon receipt of the conversion notice; or
(b) if either the Company or the Bondholders does not agree the Full Conversion, such party shall deliver a written notice to notify the other party of such disagreement on the Maturity Date, the Company shall, within 15 Business Days upon receipt or issue (as the case may be) of such written notice, redeem the principal moneys outstanding under the Convertible Bond together with any unpaid interest accrued up to and including the Maturity Date (if any).

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LETTER FROM THE BOARD

Events of If any of the following event or circumstances occurs prior to (but not after) Default: the Maturity Date, the Bondholder may give notice to the Company that the Convertible Bond is, and it shall on the giving of such notice immediately become, due and payable at its principal amount and all other sums payable under the Convertible Bond (including any accrued but unpaid interests):

(a) the Company fails to pay any amount due in respect of the Convertible Bond unless non-payment of such amount is due to administrative or technical error and payment is made within 5 Business Days of the due date thereof; or
(b) the Company defaults in the performance or observance of or compliance with any of its other obligations set out under the Convertible Bond which default is incapable of remedy or, if capable of remedy, is not remedied within 20 Business Days after notice of the occurrence of such default by the Bondholder; or
(c) an encumbrancer takes possession or a receiver, manager or other similar officer is appointed of the whole or any substantial part of the undertaking, property, assets or revenues of the Company or any of its major subsidiaries (and, where any such appointment is made in relation to a major subsidiary, the appointment is not discharged within 20 Business Days of it being made); or
(d) the Company or any of its major subsidiaries becomes insolvent or is unable to pay its debts as they fall due or applies for or consents to or suffers the appointment of any administrator, liquidator or receiver of the Company or any of its major subsidiaries or the whole or any substantial part of the undertaking, property, assets or revenues of the Company or any of its major subsidiaries (and, where any such appointment is made in relation to a major subsidiary, the appointment is not discharged or withdrawn within 20 Business Days of it being made) or takes any proceeding under any law for a readjustment or deferment of its respective obligations or any part of them or makes or enters into a general assignment or compromise with or for the benefit of its respective creditors; or

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LETTER FROM THE BOARD

(e) a petition is presented or a proceeding is commenced or an order is made or an effective resolution is passed for the winding-up, insolvency, administration or dissolution of the Company or any of its major subsidiaries (and where any such petition, proceeding or order is presented, commenced or made in relation to a major subsidiary, such petition, proceeding or order is not set aside or withdrawn within 20 Business Days of it being filed, commenced or made), except in the case of winding-up of any subsidiaries of the Company in the course of internal reorganisation without involving insolvency; or
(f) a moratorium is agreed or declared in respect of any indebtedness of the Company or any of its major subsidiaries (and, in the case of a major subsidiary, is not lifted within 20 Business Days of it being agreed or declared) or any governmental authority or agency condemns, seizes, compulsorily purchases or expropriates all or a substantial part of the assets of the Company or any of its major subsidiaries.

Voting rights: The Bondholder shall not be entitled to attend or vote at any general meetings of the Shareholders by reason only of it being the Bondholder. Listing No application will be made for the listing of, or permission to deal in, the application: Convertible Bond on the Stock Exchange or any other stock exchange. Application will be made by the Company to the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares.

As at the Latest Practicable Date, the outstanding principal amount of the Convertible Bond amounted to HK$133,837,500 and such Convertible Bond is wholly held by the Bondholders.

As disclosed in the Circular, the Initial Conversion Price is HK$2.15 per Conversion Share, representing:

(a) a discount of approximately 19.78% over the closing price of HK$2.68 per Share as quoted on the Stock Exchange on the Original Last Trading Day;
(b) a discount of approximately 16.02% over the average of the closing prices of HK$2.56 per Share as quoted on the Stock Exchange for the last five consecutive trading days of the Shares up to and including the Original Last Trading Day; and
(c) a discount of approximately 12.60% over the average of the closing prices of HK$2.46 per Share as quoted on the Stock Exchange for the last ten consecutive trading days of the Share up to and including the Original Last Trading Day.

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LETTER FROM THE BOARD

The Initial Conversion Price also represents:

(d) a premium of approximately 61.65% over the closing price of HK$1.33 per Share as quoted on the Stock Exchange on the New Last Trading Day;
(e) a premium of approximately 60.93% over the average of the closing prices of HK$1.336 per Share as quoted on the Stock Exchange for the last five consecutive trading days of the Shares up to and including the New Last Trading Day; and
(f) a premium of approximately 60.69% over the average of the closing prices of HK$1.338 per Share as quoted on the Stock Exchange for the last ten consecutive trading days of the Share up to and including the New Last Trading Day.

Despite that there has been a drop in the Share price since the Original Last Trading Date, as the Initial Conversion Price was arrived at after arm’s length negotiations between the Company and the Subscriber with reference to the prevailing market price of the Shares and the business performance of the Group under the prevailing market conditions at the time of entering into the Subscription Agreement, and the principal amount of the Convertible Bond so received and to be redeemed (together with accrued unpaid interest) and the number of Conversion Shares to be allotted and issued based on the Initial Conversion Price (subject to adjustments) was so determined at the time of entering into the Subscription Agreement, the Directors are of the view that the Initial Conversion Price is fair and reasonable. The Company is of view of that the nature of the proposed Amendment of Conditions of the Convertible Bonds is an extension in nature which improves the cashflow of the Company as the extension of the Conversion Period defers the immediate cash outflow of the Company. In addition, with the reduced interest rate during the extended period, the Company believes that the above arrangement will continue to maintain a good business relationship with the Subscriber and/or its connected persons, which is in the interest of the Company and the Shareholders.

Pursuant to the Supplemental Deed, if either the Company or the Bondholders does not agree the Full Conversion, the Company has to redeem the principal moneys outstanding under the Convertible Bond together with any unpaid interest accrued up to the Maturity Date (if any). Through this arrangement, the Company will have an option to decide whether to allow the Bondholders to have the Full Conversion or to redeem on the Maturity Date in order to have greater flexibility to suit its development needs in the future. The Company will consider the prevailing circumstances at that time and will be cautioned to exercise such option which will be in the interest of the Company and the Shareholders as a whole. In addition, by retaining the right to refuse the Full Conversion through repaying the principal moneys outstanding under the Convertible Bond so received together with accrued unpaid interest, the Company can avoid the possible dilution of the shareholding which is in the interest of the Company and the Shareholders.

REASONS FOR THE AMENDMENT OF CONDITIONS

The Group is principally engaged in the business of distribution of imported branded pharmaceutical and healthcare products in the PRC.

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LETTER FROM THE BOARD

References are made to the announcements of the Company dated 16 September 2014, 7 November 2014, 15 December 2014 and 17 December 2014 in relation to the disposal of 62,187,750 Shares from Golden Land to the Subscriber or its designated party(ies) (the “ Disposal ”). Upon completion of the Disposal on 17 December 2014, Sinopharm Fund, as the designated party of the Subscriber, holds approximately 9.99% of the total issued share capital of the Company. Upon completion of the subscription of the Convertible Bond on 17 December 2014, the Bondholders, as the designated parties of the Subscriber, hold the Convertible Bond.

The Subscriber is a limited liability company incorporated in the PRC, and is an equity investment company jointly established by 中國醫藥集團總公司 (China National Pharmaceutical Group Corporation) (“ CNPG* ”). CNPG is the medical and healthcare industrial platform in the PRC under the administration of the State-owned Assets Supervision and Administration Commission of the State Council of the PRC. As an investment platform of CNPG, the Subscriber assists its investees in becoming a leading and excellent enterprise in the medical and healthcare industry in the PRC through providing various additional services and creating strong complementary effect among industrial resources. For details of the Subscriber and CNPG, please refer to the above announcements and Circular.

The Company considers the Subscriber and/or its connected persons as strategic partners who will bring beneficial values to the development of the Group. On 19 January 2015, the Company entered into a strategic cooperation agreement with the Subscriber to set out the general principals of cooperation between the parties in order to strengthen the business relationship and to cooperate closely in various areas. For details, please refer to the announcements of the Company dated 19 January 2015. The Board believes that the close cooperation with the Subscriber and/or its connected persons will facilitate the rapid development of the Group’s business in general as the Group can utilise CNPG’s distribution capabilities and strengths to develop, strengthen and expand the Company’s marketing and distribution channels in pharmaceutical and healthcare industries in the PRC which will be beneficial to the Group and the Shareholders as a whole.

At the request of the Subscriber and the Bondholders for the proposed Amendment of Conditions, the Directors believe that the extension of the maturity date for a period of eighteen (18) months is a pragmatic approach to make the Convertible Bond more appealing for the Bondholders so as to elicit their continued support towards the Group and to allow the Company to postpone the repayment date of the outstanding principal amount of the Convertible Bond and any accrued unpaid interest in order to allow the Company have more time to consider other means of financing and fund raising activities for the possible redemption on the Maturity Date as contemplated under the Amendment of Conditions and to avoid any shortfall of cash for its business development. In view of the current global financial market, the Directors are of the view that the extension of a period of eighteen (18) months, which matches the original term of the Convertible Bond, is reasonable but not excessive and is on the normal commercial course, fair and reasonable, and in the interest of the Company and the Shareholders.

With the proposed downward adjustment to the interest rate to be payable on the outstanding principal amount of the Convertible Bond from 7.4% per annum to 5.0% per annum, which was determined with reference to the RMB benchmark loan and deposit interest rates for financial institutions for over 1 year and up to 5 years at a rate of 4.75% per annum as a benchmark, the Directors are of the view that the proposed downward adjustment of the interest rate is on the normal commercial terms, fair and reasonable, and in the interest of the Company and the Shareholders, and this can also maintain or improve the Company’s financial stability and flexibility.

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LETTER FROM THE BOARD

The Directors are of the view that the Amendment of Conditions can delay the potential dilution effect to the public Shareholders upon the Mandatory Conversion under the original Conditions which are in the interest of the Independent Shareholders. The Amendment of Conditions will not pose any significant impact on the operations of the Group and can help to maintain a long-term good cooperation relationship with such strategic partner which will be beneficial to the Group in the long run.

UPDATE ON USE OF PROCEEDS

As disclosed in the Circular, the gross proceeds raised from subscription for the Convertible Bond were HK$133,837,500, which would be used by the Company for its acquisition and other investment opportunities in the future and as general working capital of the Company.

As at the Latest Practicable Date, the Company has used HK$109,746,750 from the gross proceeds raised from subscription for the Convertible Bond.

Below sets out the proceeds raised from the issue of the Convertible Bond for the proposed usage as disclosed in the Circular and the actual usage as at the Latest Practicable Date:

Expected Use of Proceeds

as disclosed in the Circular

Actual Use of Proceeds as at the Latest Practicable Date

(a) approximately 60%, or HK$80,302,500, of the gross proceeds are expected to be used in the years of 2015 and 2016 for (i) potential acquisitions of enterprises in the pharmaceutical industry including without limitation upstream manufacturers and downstream retail chains; and (ii) if and to the extent that the existing available financial resources may be insufficient, as additional funding for the acquisition of 55% equity interest in 深圳市東迪欣科技有限公司(Shenzhen Dong Di Xin Technology Company Limited) (“ Dong Di Xin* ”) (details of which may be referred to the announcements of the Company dated 8 May 2014, 31 July 2014 and 30 September 2014 respectively). Such expected allocation of the proceeds has been formulated after taking into consideration the current financial resources available to the Company, the Company’s existing acquisition plans and progress, and the need to reserve certain degree of commercial flexibility. As such, the proportion and timing for applying the proceeds in such acquisitions will be adjusted depending on the actual progress of due diligence, negotiation and implementation processes;
(a) approximately 60%, or HK$80,302,500, of the gross proceeds have been used in the years of 2015 for the acquisition of 55% equity interest in Dong Di Xin (details of which may be referred to the announcements of the Company dated 8 May 2014, 31 July 2014, 30 September 2014, 25 November 2014, 23 January 2015 and 13 February 2015, respectively and the circular of the Company dated 31 December 2014).

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LETTER FROM THE BOARD

Expected Use of Proceeds as disclosed in the Circular

Actual Use of Proceeds as at the Latest Practicable Date

(b) approximately 30%, or HK$40,151,250, of the gross proceeds will be used each year from 2014 to 2018 in accordance with the Company’s yearly strategic plans for upgrading the specifications and outlook design of sales booths and counters for the Group’s products, and gradually increasing the number of sales counters to reach 3,300 by the end of 2018; and
(b) approximately 12%, or HK$16,060,500, of the gross proceeds have been used from 2014 up to the Latest Practicable Date in accordance with the Company’s yearly strategic plans for upgrading the specifications and outlook design of sales booths and counters for the Group’s products, and gradually increasing the number of sales counters to reach 3300 by the end of 2018; and
(c) approximately 10%, or HK$13,383,750, of the gross proceeds will be used for general working capital of the Company from time to time according to the needs of the Company in its day-to-day business operations, such as to settle payments for goods supplied by pharmaceutical manufacturers and to pay for marketing and advertising costs.
(c) approximately 10%, or HK$13,383,750, of the gross proceeds have used for general working capital of the Company from time to time according to the needs of the Company in its day-to-day business operations, such as to settle payments for goods supplied by pharmaceutical manufacturers and to pay for marketing and advertising costs.

SHAREHOLDING STRUCTURE OF THE COMPANY

To the best knowledge of the Directors, for illustrative purpose only, the shareholding structure of the Company as at the Latest Practicable Date and the changes thereto as a result of conversion in full of the Convertible Bond (assuming no other changes in the issued share capital of the Company) is as follows:

	Shareholding as at the	Latest	Shareholding upon full conversion	Shareholding upon full conversion
	Practicable Date		of the Convertible Bond
	Number of Shares	% (approx.)	Number of Shares	% (approx.)
Mr. Zhao_(Note 1)_	397,204,250	63.81	397,204,250	58.01
Ms. Chan_(Note 2)_	397,204,250	63.81	397,204,250	58.01
Mr. Zhou Xuhua_(Note 3)_	3,800,000	0.61	3,800,000	0.55
The Subscriber or its connected
persons_(Note 4)_	62,187,750	9.99	124,437,750	18.17
Public Shareholders	159,308,000	25.59	159,308,000	23.27_(Note5)_
Total:	622,500,000	100	684,750,000	100

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LETTER FROM THE BOARD

Notes:

Mr. Zhao, the chairman and an executive Director of the Company, is deemed (by virtue of the SFO) to be interested in 397,204,250 Shares. These Shares are held in the following capacities:
(a) 9,392,000 Shares are held by Mr. Zhao as beneficial owner.
(b) 297,812,250 Shares are held by Golden Land. Mr. Zhao is the beneficial owner of the entire issued share capital of Golden Land.
(c) 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.
Ms. Chan, an executive Director of the Company, is deemed (by virtue of the SFO) to be interested in 397,204,250 Shares. These Shares are held in the following capacities:
(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.
(b) 9,392,000 Shares are held by Mr. Zhao, the spouse of Ms. Chan, in his own name and 297,812,250 Shares are held by Golden Land. Mr. Zhao is the beneficial owner of the entire issued share capital of Golden Land.
Mr. Zhou Xuhua, an executive Director of the Company, is deemed (by virtue of the SFO) to be interested in 3,800,000 Shares held by his spouse, Ms. Huang Xiaoli.
After the completion of the Disposal, Sinopharm Fund, as the designated party of the Subscriber, holds 62,187,750 Shares (representing approximately 9.99% of the existing issued share capital of the Company). Upon the full conversion of the Convertible Bond at the Initial Conversion Price of HK$2.15 and assuming no other changes in the issued share capital of the Company, the Subscriber and/or its connected persons will hold 124,437,750 Shares (representing approximately 18.17% of the enlarged issued share capital of the Company).
The shareholding structure of the Company as a result of conversion in full of the Convertible Bond (assuming no other changes in the issued share capital of the Company) is for illustrative purpose only, as the Conversion Restrictions are applicable to the Mandatory Conversion under the original Conditions and will be applicable to the Full Conversion as contemplated under the Supplemental Deed.

Pursuant to the original Conditions, the Conversion Restrictions are applicable to the Mandatory Conversion, and will be applicable to the Full Conversion as contemplated under the Supplemental Deed. The Bondholder shall not have the right to request the Mandatory Conversion if it would result in the Company’s failure to fulfil the public float requirement and/or triggers general offer obligation. Neither the Company nor the Bondholders shall have the right to request the Full Conversion if it would lead to such events. The Company will not agree to any conversion if it would lead to such events.

As it is anticipated that upon the full conversion of the Convertible Bond, and assuming no other changes in the issued share capital of the Company, the number of issued Shares will be increased by 62,250,000 Conversion Shares from 622,500,000 Shares to 684,750,000 Shares, the Subscriber and/or its connected persons will hold 124,437,750 Shares (representing approximately 18.17% of the

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LETTER FROM THE BOARD

enlarged issued share capital of the Company) and the public shareholders will hold 159,308,000 Shares (representing approximately 23.27% of the enlarged issued share capital of the Company), which will lead to fall below the minimum public float requirement as set out in Rule 8.08(1)(a) of the Listing Rules.

In order to maintain or possibly restore the minimum public float as required under Rule 8.08(1)(a) of the Listing Rules, the Company will consider allowing the Bondholders to convert part of the outstanding principal amount of the Convertible Bond to the extent that the public float requirement can be maintained (which is expected to be a total principal amount of the Convertible Bond in the sum of HK$26,767,500 assuming no other changes in the issued share capital of the Company) and redeeming the remaining principal amount of the Convertible Bond (which is expected to be in the sum of HK$107,070,000) together with any accrued unpaid interest. As at 31 December 2015, the Group had cash and bank balance of approximately RMB133 million as shown in the 2015 Annual Report, which would be barely enough for the redemption of the remaining principal amount of the Convertible Bond (which is expected to be in the sum of HK$107,070,000) together with any unpaid interest accrued up to the Original Maturity Date, and the Company is actively negotiating with the bank for using the existing facilitates and/or seeking other external financing as a backup for any shortfall of cash for redemption. As an alternative, the Company will also consider to seek the non-public Shareholder(s) to dispose of sufficient number of Shares to party(ies) who is (are) independent of the Company or its connected person(s) if the Amendment of Conditions does not take effective so that the Mandatory Conversion under the original Conditions would be proceeded without triggering the Conversion Restrictions. It will be however ultimately up to such non-public Shareholder(s) to decide whether they are willing to do so and the Company has no control on their decisions on dealing in the Shares. Shareholders and potential investors are cautioned to exercise care when dealing in the Shares.

FUND RAISING ACTIVITIES IN THE PAST TWELVE MONTHS

There were no fund raising activities of the Company by way of issue of equity securities in the past 12 months immediately preceding the Latest Practicable Date.

LISTING RULES IMPLICATIONS

Pursuant to Rule 28.05 of the Listing Rules, any alteration in the terms of convertible debt securities after issue must be approved by the Stock Exchange, except where the alteration takes effect automatically under the existing terms of such convertible debt securities. The Company has obtained approval from the Stock Exchange of the Amendment of Conditions contemplated by the Supplemental Deed pursuant to Rule 28.05 of the Listing Rules.

As at Latest Practicable Date, Sinopharm Fund holds approximately 9.99% of the total issued share capital of the Company. Although Sinopharm Fund is not a substantial shareholder of the Company under the Listing Rules, given its relationship with the Subscriber and the Company, the Company is willing to follow the relevant connected transaction requirements pursuant to Chapter 14A of the Listing Rules and the Amendment of Conditions is therefore subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. The Subscriber, the Bondholders and their respective associates (including Sinopharm Fund)

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LETTER FROM THE BOARD

will abstain from voting in the EGM for approval of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate. The controlling shareholders of the Company, Mr. Zhao and his spouse, Ms. Chan (both being executive Directors) together with their respective associates (including Golden Land and Golden Morning) will also abstain from voting in the EGM for approval of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate.

Save as disclosed above, no other Shareholder will be required to abstain from voting in respect of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate.

EGM AND PROXY ARRANGEMENT

The EGM will be held for the Independent Shareholders at 3rd Floor, Crowne Plaza Hotel & Suites Landmark Shenzhen, No. 3018 Nanhu Road, Luohu District, Shenzhen, the PRC at 10:00 a.m. on Wednesday, 15 June 2016 for the Shareholders to consider and, if thought fit, approve the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate. The notice of the EGM is set out on pages 53 to 55 of this circular. The voting on such resolution will be conducted by way of poll in accordance with Rule 13.39(4) of the Listing Rules.

An Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Duan Jidong, Mr. Zhang Jianbin and Mr. Wong Cheuk Lam, has been appointed by the Board to consider and advise the Independent Shareholders in respect of the fairness and reasonableness of the terms of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate, whether the terms are in the interests of the Company and the Shareholders as a whole, after taking into account the recommendation of the Vinco Capital. In this connection, Vinco Capital has been appointed to advise the Independent Board Committee and the Independent Shareholders in the same regard, and such appointment has been approved by the Independent Board Committee.

Mr. Zhang Yi, being the non-executive Director nominated by the Subscriber upon closing of the subscription for the Convertible Bond, has abstained from voting in the board resolutions for the approval of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you propose to attend the EGM, you are requested to complete the proxy form in accordance with the instructions printed thereon and return it to the Company’s branch share registrar in Hong Kong, Tricor Investors Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof (as the case may be). 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 (as the case may be), should you so wish.

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LETTER FROM THE BOARD

RECOMMENDATION

Taking into account the reasons set out above, the Board (excluding all independent non-executive Directors, whose views are set out in the section headed ‘‘Letter from the Independent Board Committee’’ in this circular), consider that the terms of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the relevant resolutions to approve the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate at the EGM.

Your attention is drawn to the advice of the Independent Board Committee set out in its letter on pages 25 to 26 of this circular which contains its recommendation to the Independent Shareholders on the terms of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate.

Your attention is also drawn to the letter of advice from Vinco Capital, which is set out on pages 27 to 42 of this circular, to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate and the principal factors and reasons considered by Vinco Capital in arriving at its recommendations.

The Independent Board Committee, having taken into account of the advice of Vinco Capital, considered that the terms of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant resolutions to approve the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate at the EGM.

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of the Board Kingworld Medicines Group Limited Zhao Li Sheng Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

30 May 2016

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To the Independent Shareholders

Dear Sir or Madam,

PROPOSED AMENDMENTS OF THE TERMS AND CONDITIONS OF THE CONVERTIBLE BOND

We refer to the circular issued by Kingworld Medicines Group Limited (the “ Company ”) to the shareholders of the Company dated 30 May 2016 (the “ Circular ”) 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 by the Board as members of the Independent Board Committee, which has been established to consider the terms of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate, and advise the Independent Shareholders whether, in our opinion, its terms are fair and reasonable so far as the Independent Shareholders are concerned. Vinco Capital has been appointed as the independent financial adviser to advise us in this respect.

We wish to draw your attention to the letter from the Board and the letter from Vinco Capital as set out in the Circular. Having considered the principal factors and reasons considered by, and the advice of Vinco Capital as set out in its letter of advice, we consider that the terms of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

We also consider that the terms of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate, are fair and reasonable so far as the Independent Shareholders are concerned.

— 25 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate.

Yours faithfully,

Messrs. Duan Jidong, Zhang Jianbin and Wong Cheuk Lam Independent Board Committee

— 26 —

LETTER FROM VINCO CAPITAL

The following is the text of a letter of advice from Vinco Capital to the Independent Board Committee and the Independent Shareholders in connection with the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of Specific Mandate which has been prepared for the purpose of incorporation in this circular:

Grand Vinco Capital Limited Units 4909-4910, 49/F., The Center 99 Queen’s Road Central, Hong Kong

30 May 2016

To the Independent Board Committee and the Independent Shareholders of Kingworld Medicines Group Limited

Dear Sirs,

PROPOSED AMENDMENTS OF THE TERMS AND CONDITIONS OF THE CONVERTIBLE BOND

A. INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Terms and the grant of Specific Mandate, details of which are set out in the letter from the board (the “ Letter from the Board ”) contained in the circular of the Company dated 30 May 2016 (the “ Circular ”) to the Shareholders, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings ascribed to them in the Circular unless the context otherwise requires.

Reference is made to the announcement of the Company dated 18 May 2016 in relation to, among other things, the Amendment of Conditions.

References are also made to the announcements of the Company dated 15 September 2014, 9 October 2014, 30 October 2014, 11 November 2014, 17 November 2014, 15 December 2014 and 17 December 2014 respectively, and the Circular in relation to, among other things, the issue of the Convertible Bond .

The Company entered into the Subscription Agreement with the Subscriber in relation to the issue of the Convertible Bond in an aggregate principal amount of HK$133,837,500. The Convertible Bond will bear interest at the rate of 7.4% per annum pursuant to the original Conditions. The Convertible Bond is convertible into the Conversion Shares at the Initial Conversion Price of HK$2.15

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LETTER FROM VINCO CAPITAL

per Share (subject to adjustments as set out in the Conditions). Closing of the subscription for the Convertible Bond took place on 17 December 2014 pursuant to the terms of the Subscription Agreement. All outstanding Convertible Bond will mature on 16 June 2016 pursuant to the original Conditions.

As at Latest Practicable Date, none of the Convertible Bonds has been redeemed nor converted, in whole or in part.

The Independent Board Committee comprising Mr. Duan Jidong, Mr. Zhang Jianbin and Mr. Wong Cheuk Lam, all being the independent non-executive Directors, has been formed to advise the Independent Shareholders on the terms of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate.

We have been appointed and approved by the Independent Board Committee, as the independent financial adviser to advise the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate. In our capacity as the independent financial adviser to the Independent Board Committee and the Independent Shareholders for the purposes of the Listing Rules, our role is to give you an independent opinion as to whether the terms of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

As at the Latest Practicable Date, we are not connected with the Directors, chief executive and substantial shareholders of the Company or any of their respective subsidiaries or their respective associates and, as at the Latest Practicable Date, did not have any shareholding, directly or indirectly ,in any of their respective subsidiaries or their respective associates and, as at the Latest Practicable

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LETTER FROM VINCO CAPITAL

Date, did not have any shareholding, directly or indirectly, in any member of the Group or any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group. We were not aware of any relationships or interests between us and the Company or any other parties that could be reasonably be regarded as hindrance to our independence as defined under Rule 13.84 of the Listing Rules to act as the Independent Financial Adviser to the independent Board Committee and the Independent Shareholders in respect of the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate. We are eligible to give independent advice and recommendations on the terms of Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate. Apart from normal professional fees payable to us in connection with this appointment as the Independent Financial Adviser to the Independent Board Committee and Independent Shareholders, no arrangement exists whereby we will receive any fees from the Company, its subsidiaries, its associates or their respective substantial shareholders or associates. Save for our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the issue of Convertible Bond under specific mandate stated in the circular of the Company dated 14 November 2014; we have not acted as the independent financial adviser for the Company’s other transactions in the past two years. The professional fees in connection with this engagement have been fully settled. We are not aware of the existence of or change in any circumstances that would affect our independence. Accordingly, we consider that we are considered eligible to give independent advice on the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate.

B. BASIS OF OUR OPINION AND RECOMMENDATION

In forming our opinion and recommendation, we have relied on the information, facts and representations contained or referred to in the Circular and the information, facts and representations provided by, and the opinions expressed by the Directors, management of the Company and its subsidiaries. We have assumed that all information, facts, opinions and representations made or referred to in the Circular were true, accurate and complete at the time they were made and continued to be true, accurate and complete as at the date of the Circular and that all expectations and intentions of the Directors, management of the Company and its subsidiaries, will be met or carried out as the case may be. We have no reason to doubt the truth, accuracy and completeness of the information, facts, opinions and representations provided to us by the Directors, management of the Company and its subsidiaries. The Directors have confirmed to us that no material facts have been omitted from the information supplied and opinions expressed. We have no reason to doubt that any relevant material facts have been withheld or omitted from the information provided and referred to in the Circular or the reasonableness of the opinions and representations provided to us by the Directors, management of the Company and its subsidiaries.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading.

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LETTER FROM VINCO CAPITAL

We have relied on such information and opinions and have not, however, conducted any independent verification of the information provided, nor have we carried out any independent investigation into the business, financial conditions and affairs of the Group or its future prospect.

Based on the foregoing, we confirm that we have taken all reasonable steps to arrive at our opinion and recommendation, which are applicable to the terms of Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate, as referred to in Rule 13.80 of the Listing Rules (including the notes thereto).

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

C. PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation to the Independent Board Committee and the Independent Shareholders in relation to Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate, we have considered the following principal factors and reasons:

1. Background information of the Group

The Group is principally engaged in the business of distribution of imported branded pharmaceutical and healthcare products in the PRC.

Set out below is a summary of the financial information on the Group as extracted from the annual report of the Company for the year ended 31 December 2014 (the “2014 Annual Report”) and the annual report of the Company for the year ended 31 December 2015 (the “2015 Annual Report”):

	For the	For the	For the
	year ended	year ended	year ended
	31 March 2013	31 March 2014	31 March 2015
	(audited)	(audited)	(audited)
	(RMB’million)	(RMB’million)	(RMB’million)
Turnover	555	660	714
Profitattributable to owners of the Company	47	38	39
Cash and bank balance	91	230	133

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LETTER FROM VINCO CAPITAL

As stated in the 2014 Annual Report, for the year ended 31 December 2014, the turnover of the Group was approximately RMB660 million, which represents approximately 18.9% increase over the corresponding figure of approximately RMB555 million for the year ended 31 December 2013. With reference to the 2014 Annual Report, the increase was mainly due to a rise in sales of Nin Jiom Chuan Bei Pei Pa Koa. The year-on-year increase for this product was 24.1%. The profit for the year ended 31 December 2015 was approximately RMB38 million which decreased by approximately 19.1% when compared to that of approximately RMB47 million for the year ended 31 December 2013. The decrease in the profit for the year was mainly due to a decrease in net foreign exchange gain and also the decrease in valuation gain on investment properties in 2014.The cash and bank balance of the Group for the year ended 31 December 2014 was approximately RMB230 million, representing a significant increase of approximately 152.7% when compared to 2013.

As stipulated in the 2015 Annual Report, for the year ended 31 December 2015, the turnover of the Group was approximately RMB714 million, which represents approximately 8.2% increase over the corresponding figure of approximately RMB660 million in 2014. With reference to the 2015 Annual Report, the increase in the Group’s turnover was a result of the turnover consolidated from Dong Di Xin which was acquired on 13 February 2015 and the increase in sales of Culturelle which was partly off-set by the decrease in sales of Nin Jiom Chuan Bei Pei Pa Koa.The profit for the year ended 31 December 2015 was approximately RMB39.4 million as compared to a profit for the year ended 31 December 2014 of approximately RMB37.9 million, representing an increase of approximately 4%. Such increase was mainly due to the increase in share of profit of a joint venture which was partly off-set by the increase in finance costs . The cash and bank balance of the Group for the year ended 31 December 2015 was approximately RMB133 million, representing a decrease of approximately 43.5% when compared to 2014.

2. The Amendment of Conditions

As set out in the Letter from the Board, on 18 May 2016 (after trading hours), the Company entered into the Supplemental Deed with the Subscriber and the Bondholders pursuant to which the Company, the Subscriber and the Bondholders agreed to amend certain terms and conditions of the Convertible Bond as follows:

(i) the maturity date of the Convertible Bond will be extended for 18 months and the conversion period will accordingly be extended for 18 months to the Maturity Date;
(ii) from the first date after the Original Maturity Date to the Maturity Date, the Convertible Bond will bear interest at the rate of 5.0% per annum of the outstanding principal amount of the Convertible Bond;
(iii) the Company and the Bondholders has to obtain mutual agree and agree in writing to convert the whole of the principal moneys outstanding under the Convertible Bond into Conversion Shares on the Maturity Date (“ Full Conversion ”). If either the Company or the Bondholders does not agree the Full conversion, on the Maturity Date, the Company shall redeem the principal moneys outstanding under the Convertible Bond together with any unpaid interest accrued up to and including the Maturity Date (if any); and

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LETTER FROM VINCO CAPITAL

(iv) the Bondholders and/or their respective connected person(s) (as defined in the Listing Rules) and/or person(s) acting in concert (as defined in the Takeovers Code) shall, at any time during the Conversion Period, have no right to nominate one non-executive Director to the Board and/or other positions of the Group (if applicable) when such persons hold in aggregate less than 5% of the total issued share capital of the Company and shall procure the nominated person(s) to resign from the position of non-executive Director and other positions of the Group (if applicable).

Pursuant to the Supplemental Deed, the Amendment of Conditions is subject to the satisfaction of the following conditions:

a. the passing by the Independent Shareholders at the EGM of the necessary resolutions to approve the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate;
b. the Stock Exchange having approved the Amendment of Conditions pursuant to the Listing Rules and the Listing Committee granting approval for the listing of, and permission to deal in, the Conversion Shares on the Stock Exchange and the approval not having been subsequently revoked or cancelled; and
c. all necessary consents and approvals required to be obtained on the part of the Company, the Subscriber and the Bondholders in respect of the Amendment of Conditions having been obtained.

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LETTER FROM VINCO CAPITAL

3. Major terms of and information on the Convertible Bonds

The principal terms of the Convertible Bond (as amended pursuant to the Supplemental Deed) are as follows:

Principal Amount: Interest Rate:

Status of the Convertible Bond:

Transfer of the Convertible Bond:

HK$133,837,500

The Convertible Bond constitutes a direct, unconditional, unsecured and unsubordinated obligation of the Company and ranks pari passu and rateably without preference (with the exception of obligations in respect of taxes and certain other statutory exceptions) with all other unsecured and unsubordinated obligations of the Company.

The Convertible Bond may be assigned or transferred in whole or in part of its outstanding principal amount. Such transfer or assignment shall be in compliance with the terms of the Convertible Bond.

Conversion Price:

The Initial Conversion Price of HK$2.15 per Conversion Share.

Adjustments to Conversion Price:

The Initial Conversion Price will be subject to adjustment in certain events, including:

(a) an alternation of the nominal amount of the Shares by reasons of share consolidation or subdivision;

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LETTER FROM VINCO CAPITAL

(b) an issue by the Company of Shares credited as fully paid by way of capitalization of profits or reserves (including any share premium account or capital redemption reserve fund);
(c) a capital distribution made by the Company to the Shareholders (whether on a reduction of capital or otherwise) or a grant by the Company to the Shareholders of rights to acquire for cash assets of the Company or any of its subsidiaries;
(d) an offer by the Company to the Shareholders of new Shares for subscription by way of rights, or a grant of options or warrants to subscribe for new Shares to the Shareholders at a price which is less than 80% of the market price at the date of the announcement of the terms of the offer or grant;
(e) (i) an issue by the Company wholly for cash of any securities which by their terms are convertible into or exchange for or carry rights of subscription for new Shares, and the total effective consideration per Share initially receivable for such securities is less than 80% of the market price at the date of the announcement of the terms of issue of such securities; and (ii) any modification of the rights of conversion or exchange or subscription attached to any such securities as are mentioned in (i) above so that the total effective consideration per Share initially receivable for such securities shall be less than 80% of the market price at the date of announcement of the proposal for modification; and for the purposes of this sub-paragraph, the “total effective consideration” receivable for the securities issued shall be deemed to be the consideration receivable by the Company for any such securities plus the additional minimum consideration (if any) to be received by the Company upon (and assuming) the conversion or exchange thereof or the exercise of such subscription rights, and the effective consideration per Share initially receivable for such securities shall be such aggregate consideration divided by the number of Shares to be issued upon (and assuming) such conversion or exchange at the initial conversion or exchange rate or the exercise of such subscription rights at the initial subscription price, in each case without any deduction for any commissions, discounts or expenses paid, allowed or incurred in connection with the issue;

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LETTER FROM VINCO CAPITAL

(f) an issue by the Company of any Share wholly for cash at a price per Share which is less than 80% of the market price at the date of the announcement of the terms of such issue; and
(g) an issue by the Company of any Share for the acquisition of asset at a total effective consideration per Share which is less than 80% of the market price at the date of the announcement of the terms of such issue; and for the purpose of this sub-paragraph, the “total effective consideration” shall be the aggregate consideration credited as being paid for such Shares by the Company on acquisition of the relevant asset without any deduction of any commissions, discounts or expenses paid, allowed or incurred in connection with the issue thereof, and the “total effective consideration per Share” shall be the total effective consideration divided by the number of Shares issued as aforesaid.

Conversion:

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LETTER FROM VINCO CAPITAL

Pursuant to the Conditions, the Bondholder shall not have the right to convert the whole or part of the outstanding principal amount of the Convertible Bond into Shares to the extent that immediately after such conversion (a) the minimum public float requirement for the Shares as required under the Listing Rules could not be maintained; or (b) the Bondholder whether alone or together with parties acting in concert with it will, directly or indirectly, control or be interested in 30% or more of the voting rights of the Company as enlarged by such conversion (or in such other percentage lower than 30% as may from time to time be specified in the Codes on Takeovers and Mergers and Share Buy-backs being the level for triggering a mandatory general offer).

Full Conversion:

On the Maturity Date,

(a) if both the Company and the Bondholders agree in writing for Full Conversion, the Bondholders shall deliver a conversion notice to the Company and the Company shall deliver the share certificates of the Conversion Shares to the Bondholders within 5 Business Days upon receipt of the conversion notice; or
(b) if either the Company or the Bondholders does not agree the Full Conversion, such party shall deliver a written notice to notify the other party of such disagreement on the Maturity Date, the Company shall, within 15 Business Days upon receipt or issue (as the case may be) of such written notice, redeem the principal moneys outstanding under the Convertible Bond together with any unpaid interest accrued up to and including the Maturity Date (if any).

Events of Default:

If any of the following event or circumstances occurs prior to (but not after) the Maturity Date, the Bondholder may give notice to the Company that the Convertible Bond is, and it shall on the giving of such notice immediately become, due and payable at its principal amount and all other sums payable under the Convertible Bond (including any accrued but unpaid interests):

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LETTER FROM VINCO CAPITAL

(a) the Company fails to pay any amount due in respect of the Convertible Bond unless non-payment of such amount is due to administrative or technical error and payment is made within 5 Business Days of the due date thereof; or
(b) the Company defaults in the performance or observance of or compliance with any of its other obligations set out under the Convertible Bond which default is incapable of remedy or, if capable of remedy, is not remedied within 20 Business Days after notice of the occurrence of such default by the Bondholder; or
(c) an encumbrancer takes possession or a receiver, manager or other similar officer is appointed of the whole or any substantial part of the undertaking, property, assets or revenues of the Company or any of its major subsidiaries (and, where any such appointment is made in relation to a major subsidiary, the appointment is not discharged within 20 Business Days of it being made); or
(d) the Company or any of its major subsidiaries becomes insolvent or is unable to pay its debts as they fall due or applies for or consents to or suffers the appointment of any administrator, liquidator or receiver of the Company or any of its major subsidiaries or the whole or any substantial part of the undertaking, property, assets or revenues of the Company or any of its major subsidiaries (and, where any such appointment is made in relation to a major subsidiary, the appointment is not discharged or withdrawn within 20 Business Days of it being made) or takes any proceeding under any law for a readjustment or deferment of its respective obligations or any part of them or makes or enters into a general assignment or compromise with or for the benefit of its respective creditors; or

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LETTER FROM VINCO CAPITAL

(e) a petition is presented or a proceeding is commenced or an order is made or an effective resolution is passed for the winding-up, insolvency, administration or dissolution of the Company or any of its major subsidiaries (and where any such petition, proceeding or order is presented, commenced or made in relation to a major subsidiary, such petition, proceeding or order is not set aside or withdrawn within 20 Business Days of it being filed, commenced or made), except in the case of winding-up of any subsidiaries of the Company in the course of internal reorganisation without involving insolvency; or
(f) a moratorium is agreed or declared in respect of any indebtedness of the Company or any of its major subsidiaries (and, in the case of a major subsidiary, is not lifted within 20 Business Days of it being agreed or declared) or any governmental authority or agency condemns, seizes, compulsorily purchases or expropriates all or a substantial part of the assets of the Company or any of its major subsidiaries.
Voting rights: The Bondholder shall not be entitled to attend or vote at any general meetings of the Shareholders by reason only of it being the Bondholder.
Listing application: No application will be made for the listing of, or permission to deal in, the Convertible Bond on the Stock Exchange or any other stock exchange. Application will be made by the Company to the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares.

4. Reasons for the Amendment of Conditions

The Convertible Bond would have matured on 16 June 2016 unless further extended. As advised by the management of the Company, the Company considers the Subscriber and its connected persons as strategic partner who will bring beneficial values to the development of the Group. On 19 January 2015, the Company entered into a strategic cooperation agreement with the Subscriber to set out the general principals of cooperation between the parties in order to strengthen the business relationship and to cooperate closely in various areas. On 24 June 2015, the Group has committed to invest US$5 million to subscribe approximately 3.33% of the aggregate initial limited partners’ interest of Sinopharm Fund(“ the Investment ”). As stated in the Letter from the Board, the close cooperation with the Subscriber and/or its connected persons will facilitate the rapid development of the Group’s business in general as the Group can utilise CNPG’s distribution capabilities and strengths to develop, strengthen and expand the Company’s marketing and distribution channels in pharmaceutical and healthcare industries in the PRC which will be beneficial to the Group and the Shareholders as a whole. At the request of the Subscriber and the Bondholders for the proposed Amendment of Conditions, the Directors believe that the extension of the maturity date is a pragmatic approach to

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LETTER FROM VINCO CAPITAL

make the Convertible Bond more appealing for the Bondholders so as to elicit their continued support towards the Group. We note that the Subscriber is an equity investment company jointly established by 中國醫藥集團總公司 (China National Pharmaceutical Group Corporation) (“ CNPG* ”). CNPG is the medical and healthcare industrial platform in the PRC under the administration of the State-owned Assets Supervision and Administration Commission of the State Council of the PRC. As an investment platform of CNPG, the Subscriber assists its investees in becoming a leading and excellent enterprise in the medical and healthcare industry in the PRC through providing various additional services and creating strong complementary effect among industrial resources. We have reviewed the brochure of Sinopharm Fund regarding on the capital fundraising, the investing strategies of the Sinopharm Fund tends to invest in small-medium enterprises within the pharmaceutical industry in PRC and assist the small-medium pharmaceutical enterprises to look for merger and acquisition from overseas companies. Leveraging on the strong network of CNPG, we note that the Investment could provide more potential business opportunities and potential acquisitions for the Company. The financial condition of the Company might be improved by capturing such business opportunities which still on the initial stage, and it takes longer time to operate in order to general profit that contributing to the Company. Therefore, we are of the view that the Company to extend the maturity date of the Convertible Bond by 18 months could make the Convertible Bond more appealing for the Bondholders so as to elicit their continued support towards the Group which improve the Company’s stability and financial flexibility.

As stated in the Letter from the Board, from the Date of Issue to the Original Maturity Date, the Convertible Bond will bear interest at the rate of 7.4% per annum of the outstanding principal amount of the Convertible Bond. After adjusting the interest rate, from the first date after the Original Maturity Date to the Maturity Date, the Convertible Bond will bear interest at the rate of 5.0% per annum of the outstanding principal amount of the Convertible Bond. In accessing the fairness and reasonableness of the adjustment of the interest rate, we have reviewed benchmark interest rate of People’s Bank of China (“ PBC ”). According to the announcement PBC Decides to Cut Benchmark Deposit and Loan Interest Rates and Lower Reserve Requirement Ratio” dated on 27 October 2015, the PBC has decided to cut RMB benchmark loan and deposit interest rates for financial institutions, effective from 24 October 2015. After adjustment, the interest rate for loans over 1 year and up to 5 years is 4.75%. As advised by the Directors, the Company use the RMB benchmark loan and deposit interest rates for financial institutions as a benchmark for the proposed downward adjustment to the interest rate to 5.0% per annum to be payable on the outstanding principal amount of the Convertible Bond. The Directors also consider that the Amendment of Conditions will not pose any significant interest burden to the Group. Therefore, we are of the view that the proposed downward adjustment of the interest rate is on the normal commercial course, fair and reasonable, and in the interest of the Company and the Shareholders.

As at the Latest Practicable Date, the outstanding principal amount of the Convertible Bond amounted to HK$133,837,500 and such Convertible Bond is wholly held by the Bondholders. The Initial Conversion Price is HK$2.15 per Conversion Share which represents a premium of approximately 61.65% over the closing price of HK$1.33 per Share as quoted on the Stock Exchange on the New Last Trading Day As stated in the Letter from the Board, the Initial Conversion Price was arrived at after arm’s length negotiations between the Company and the Subscriber with reference to

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LETTER FROM VINCO CAPITAL

the prevailing market price of the Shares and the business performance of the Group under the prevailing market conditions at the time of entering into the Subscription Agreement. We note that the Bondholders would be unlikely to exercise the Convertible Bond if the conversion price is at premium to the market price, however, having consider that the extension of 18 months allow the Company to further develop their businesses with the network of CNPG that might raise the Share price which could make the Convertible Bond more appealing for the Bondholders. Therefore, we are of the view that maintaining the conversion price will be in the interest of the Company and Shareholders. In addition, as stated in the Letter from the Board, if either the Company or the Bondholders does not agree the Full Conversion, the Company has to redeem the principal moneys outstanding under the Convertible Bond together with any unpaid interest accrued up to the Maturity Date (if any). As confirmed by the Directors, the new business operation of the Group is still in the initial stage which require more time to evaluate the performance of its new business operation, we note that it is the intention of the Company to have an option to decide whether to allow the Bondholders to have the Full Conversion or to redeem on the Maturity Date in order to have greater flexibility to suit its development needs in the future. The Company will consider the prevailing circumstances at that time and will be cautioned to exercise such option which will be in the interest of the Company and the Shareholders as a whole. In addition, by retaining the right to refuse the Full Conversion in case the performance of its new operation exceeds its current expectation, by repaying the principal moneys outstanding under the Convertible Bond so received together with accrued unpaid interest in order to avoid the possible dilution of the shareholding. In order to assess the capability of the Group for redeeming the Convertible Bonds on or before the Maturity Date, we have reviewed, and discussed with the management of the Group, the recent financial performance and position of the Group. According to the 2015 Annual Report, without taking into accounts of any external funding and/or banking facilities, the cash and bank balance of the Group as at 31 December 2015 was approximately RMB133 million, which barely enough for the redemption of Convertible Bond together with any unpaid interest accrued up to the Maturity Date (if any). We consider that it would be for the benefit of the Company to maintain a healthy liquidity position and to retain working capital for its daily operation and future business development. As advised by the management of the Group, the new conversion arrangement in one hand allows the Company to repay the principal moneys outstanding under the Convertible Bond together with accrued unpaid interest if the Group wish to avoid any dilution of its current shareholding, on the other hand, the Amendment of Condition allows the Company to extend the maturity date and postpone the repayment date of the outstanding principal amount of the Convertible Bond for a further 18 months for additional financing.

As discussed with management of the Company, we note that the Company, the Subscriber and the Bondholders have mutually agreed that the Bondholder shall has right to nominate one non-executive Director to the Board and/or positions of the Company only when the Bondholder, after conversion of the outstanding Convertible Bond to the Conversion Shares, hold more than 5% of the total issued Shares of the Company. Given that the Bondholder would only become a substantial Shareholder of the Company under SFO if it holds more than 5% of the total issued Shares of the Company, we consider the above arrangement is acceptable.

Having consider of the above mentioned, we are of the view that the Amendment of Condition is on the normal commercial terms, fair and reasonable and in the interest of the Company and Shareholders as a whole.

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LETTER FROM VINCO CAPITAL

5. Dilution effect on the shareholding interests of the existing public Shareholders

To the best knowledge of the Directors, the shareholding structure of the Company as at the Latest Practicable Date and the changes thereto as a result of conversion in full of the Convertible Bond (assuming no other changes in the issued share capital of the Company) is as follows:

	Shareholding	Shareholding	Shareholding	upon	full
	as at the Latest		conversion of
	Practicable Date		the Convertible Bond
	Number of		Number of
	Shares	% (approx.)	Shares	% (approx.)
Mr. Zhao (Note 1)	397,204,250	63.81	397,204,250		58.01
Ms. Chan (Note 2)	397,204,250	63.81	397,204,250		58.01
Mr. Zhou Xuhua (Note 3)	3,800,000	0.61	3,800,000		0.55
The Subscriber or its connected
persons (Note 4)	62,187,750	9.99	124,437,750		18.17
Public Shareholders	159,308,000	25.59	159,308,000		23.27
Total:	622,500,000	100	684,750,000		100

Notes:

Mr. Zhao, the chairman and an executive Director of the Company, is deemed (by virtue of the SFO) to be interested in 397,204,250 Shares. These Shares are held in the following capacities:
(a) 9,392,000 Shares are held by Mr. Zhao as beneficial owner.
(b) 297,812,250 Shares are held by Golden Land. Mr. Zhao is the beneficial owner of the entire issued share capital of Golden Land.
(c) 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.
Ms. Chan, an executive Director of the Company, is deemed (by virtue of the SFO) to be interested in 397,204,250 Shares. These Shares are held in the following capacities:
(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.
(b) 9,392,000 Shares are held by Mr. Zhao, the spouse of Ms. Chan, in his own name and 297,812,250 Shares are held by Golden Land. Mr. Zhao is the beneficial owner of the entire issued share capital of Golden Land.
Mr. Zhou Xuhua, an executive Director of the Company, is deemed (by virtue of the SFO) to be interested in 3,800,000 Shares held by his spouse, Ms. Huang Xiaoli.
After the completion of the Disposal, Sinopharm Fund, as the designated party of the Subscriber, holds 62,187,750 Shares (representing approximately 9.99% of the existing issued share capital of the Company). Upon the full conversion of the Convertible Bond at the Initial Conversion Price of HK$2.15 and assuming no other changes in the issued share capital of the Company, the Subscriber and/or its connected persons will hold 124,437,750 Shares (representing approximately 18.17% of the enlarged issued share capital of the Company).

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LETTER FROM VINCO CAPITAL

As illustrated in the above table, immediately upon the full conversion of the Convertible Bond, on the assumption that there is no other change in the issued share capital and shareholding structure of the Company from the Latest Practicable Date, save for the issue of the conversion shares upon the Full Conversion of the Convertible Bond, the shareholding interests of the public Shareholders would be diluted from approximately 25.59% to approximately 23.27%. We are of the view that the Amendment of Conditions could delay the potential dilution effect to the public Shareholders and are in the interest of the Independent Shareholders.

Independent Shareholders should note that as at the Latest Practicable Date, the Subscriber and its associates aggregately hold approximately 9.99% of the total issued Shares of the Company. If the Subscriber is to convert the whole amount of the outstanding Convertible Bond, the Subscriber and its associates would then hold approximately 18.17% of the total issued Shares of the Company. Pursuant to the Conditions, the Bondholder shall not have the right to convert the whole or part of the outstanding principal amount of the Convertible Bond into Shares to the extent that immediately after such conversion (a) the minimum public float requirement for the Shares as required under the Listing Rules could not be maintained; or (b) the Bondholder whether alone or together with parties acting in concert with it will, directly or indirectly, control or be interested in 30% or more of the voting rights of the Company as enlarged by such conversion (or in such other percentage lower than 30% as may from time to time be specified in the Codes on Takeovers and Mergers and Share Buy-backs being the level for triggering a mandatory general offer).

6. Fund Raising Activities in the past

There was no fund raising activities of the Company by way of issue of equity securities in the past 12 months immediately preceding the Latest Practicable Date.

RECOMMENDATION

Having considered the principal factors and reasons above, we are of the view that the Amendment of Condition are on normal commercial terms which are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the ordinary resolution to approve the Supplemental Deed and the transactions contemplated thereunder, including the Amendment of Conditions and the grant of the Specific Mandate at the EGM.

Yours faithfully For and on behalf of

Grand Vinco Capital Limited Alister Chung Managing Director

Note: Mr. Alister Chung is a licensed person registered with the Securities and Future Commission of Hong Kong and a responsible officer of Grand Vinco Capital Limited to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and has participated in the provision of independent financial advisory services for various transactions involving companies listed in Hong Kong for over 10 years.

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GENERAL INFORMATION

APPENDIX I

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(a) 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 held by the Directors and the 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) Interest in the Shares:

			Approximate
			percentage of the
			Company’s total
			issued share capital
	Capacity/Nature	Number of	as at the Latest
Name of Director	of Interest	Shares	Practicable Date
Mr. Zhao (Note 1)	Beneficial owner	9,392,000	1.51%
	Interest of spouse	90,000,000	14.46%
	Interest of a controlled	297,812,250	47.84%
	corporation
Ms. Chan (Note 2)	Interest of spouse	307,204,250	49.35%
	Interest of a controlled	90,000,000	14.46%
	corporation
Zhou Xuhua (Note 3)	Interest of spouse	3,800,000	0.61%
Zhang Yi_(Note 4)_	Interest of a controlled	62,250,000	10.00%
	corporation

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GENERAL INFORMATION

APPENDIX I

Notes:

In addition to 9,392,000 shares which are beneficially owned by Mr. Zhao, Mr. Zhao is deemed (by virtue of the SFO) to be interested in 387,812,250 shares in the Company. These shares are held in the following capacities:
(a) 297,812,250 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 297,812,250 shares held by Golden Land. Mr. Zhao is also the sole director of Golden Land.
(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 397,204,250 shares in the Company. These shares are held in the following capacities:
(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) 9,392,000 shares are held by Mr. Zhao, the spouse of Ms. Chan, in his own name and 297,812,250 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 9,392,000 shares held by Mr. Zhao and the 297,812,250 shares held by Golden Land.
Mr. Zhou Xuhua is deemed (by virtue of the SFO) to be interested in 3,800,000 shares in the Company held by his spouse, Ms. Huang Xiaoli.
Pursuant to the subscription agreement dated 15 September 2014 (as supplemented from time to time), the Subscriber designated Shine Light Investment Fund and Legend Times Corporation Limited as its nominees to hold the Convertible Bond in the principal amount of HK$93,686,250 and HK$40,151,250, respectively. The long position represents the interests in the 62,250,000 shares to be allotted and issued upon the full exercise of the conversion rights attached to the Convertible Bond in the aggregate principal amount of HK$133,837,500 at the Initial Conversion Price of HK$2.15 issued by the Company on 17 December 2014.

Shine Light Investment Fund is deemed to be interested in 62,250,000 shares/underlying shares of the Company within the meaning of Part XV of the SFO, representing 10% of the issued share capital of the Company, by virtue of a concert party agreement with Legend Times Corporation Limited. Hwabao Trust Co. Ltd (華寶信託有限責任公司) holds 95,000 nonvoting shares in Shine Light Investment Fund, representing approximately 99.89% of the issued share capital of Shine Light Investment Fund, as the trustee of a fixed trust which the beneficiary is Shanghai Shengzhong Investments Management Partnership Enterprise (Limited Partnership) (上海聖眾投資管理合夥企業). Mr. Zhang Yi controls one-third of the voting power at matters of Shanghai Shengzhong Investments Management Partnership Enterprise (Limited Partnership). Hence, Mr. Zhang Yi is deemed to be interested in 62,250,000 shares/underlying shares of the Company within the meaning of Part XV of the SFO.

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APPENDIX I

GENERAL INFORMATION

(II) Long positions in the underlying shares — share options under share option scheme

					Approximate
					percentage
					of the
					Company’s
				Number of	total issued
				Share	share capital
				Options as at	as at the
			Exercise Price	the Latest	Latest
		Option	per Share	Practicable	Practicable
Name of Directors	Date of grant	Period(Note 4)	(HK$)(Note 5)	Date	Date
Mr. Zhao_(Note 1)_	1 June 2015	1 June 2015 to	2.54	520,000	0.08%
		31 May 2019
Ms. Chan_(Note 2)_	1 June 2015	1 June 2015 to	2.54	468,000	0.08%
		31 May 2019
Lin Yusheng_(Note 3)_	1 June 2015	1 June 2015 to	2.54	468,000	0.08%
		31 May 2019
Zhou Xuhua	1 June 2015	1 June 2015 to	2.54	468,000	0.08%
		31 May 2019
Duan Jidong	1 June 2015	1 June 2015 to	2.54	412,000	0.07%
		31 May 2019
Zhang Jianbin	1 June 2015	1 June 2015 to	2.54	412,000	0.07%
		31 May 2019
Wong Cheuk Lam	1 June 2015	1 June 2015 to	2.54	412,000	0.07%
		31 May 2019
Zhang Yi	1 June 2015	1 June 2015 to	2.54	412,000	0.07%
		31 May 2019
Total				3,572,000	0.57%

Notes

1 Mr. Zhao is also a substantial shareholder of the Company through his beneficial interest, interests of spouse and controlled corporation.
2 Ms. Chan (being the spouse of Mr. Zhao) is also a substantial shareholder of the Company through interests of spouse and controlled corporation.
3 Lin Yusheng resigned as executive director of the Company on 6 July 2015.
4 The vesting and exercise of certain Share Options are subject to the terms of the Share Option Scheme and the performance target(s) and terms set out in the respective letters of grant.
5 The closing price of the Share on the date of grant of Share Options on 1 June 2015 was HK$2.45.

— 45 —

GENERAL INFORMATION

APPENDIX I

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

			Approximate
			percentage of
			shareholding as at
	Name of associated	Capacity/Nature of	the Latest
Name of Director	corporation	interest	Practicable Date
Mr. Zhao	Golden Land	Beneficial owner	100%
Ms. Chan	Golden Morning	Beneficial owner	100%
Mr. Zhang Yi	Shine Light	Beneficial owner	33.33%
	Investment Fund

Save as disclosed above, as at the Latest Practicable Date, 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, 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 and 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.

— 46 —

GENERAL INFORMATION

APPENDIX I

(b) Substantial Shareholders’ Interests and Short Positions in the Shares and Underlying Shares of the Company

As at the Latest Practicable Date, so far as was known to the Directors, the interests or short positions held by the following persons (other than the Directors) in the shares of the Company which were required to be notified to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO or the interests or short positions recorded in the register kept by the Company under section 336 of the SFO were as follows:

Interests in the Shares:

			Approximate
			percentage of the
			Company’s total
			issued share capital
	Capacity/Nature	Number of	as at the Latest
Name of Shareholders	of Interest	Shares	Practicable Date
Golden Land	Beneficial owner	297,812,250	47.84%
Golden Morning	Beneficial owner	90,000,000	14.46%
Mr. Zhao (Note 1)	Beneficial owner	9,392,000	1.51%
	Interest of spouse	90,000,000	14.46%
	Interest of a controlled	297,812,250	47.84%
	corporation
Ms. Chan (Note 2)	Interest of spouse	307,204,250	49.35%
	Interest of a controlled	90,000,000	14.46%
	corporation
Sinopharm Healthcare	Beneficial owner	62,187,750	9.99%
Fund L.P. (Note 3)
Sinopharm Capital	Interest of a controlled	62,187,750	9.99%
Limited (Note 4)	corporation
Shine Light Investment	Interest of a party to an	62,250,000	10.00%
Fund_(Note 5)_	agreement to acquire
	interests
Shine Light Fund	Interest of a controlled	62,250,000	10.00%
Management Limited	corporation
(Note 6)
Hwabao Trust Co. Ltd.	Trustee of a trust	62,250,000	10.00%
(Note 7)

— 47 —

GENERAL INFORMATION

APPENDIX I

			Approximate
			percentage of the
			Company’s total
			issued share capital
	Capacity/Nature	Number of	as at the Latest
Name of Shareholders	of Interest	Shares	Practicable Date
上海聖眾投資管理合夥	Beneficiary of a trust (other	62,250,000	10.00%
企業(有限合夥)	than a discretionary trust)
Shanghai Shengzhong
Investments
Management
Partnership Enterprise
(Limited Partnership)
(Note 8)
Zhang Yi_(Note 9)_	Interest of a controlled	62,250,000	10.00%
	corporation
Legend Times	Interest of a party to an	62,250,000	10.00%
Corporation	agreement to acquire
Limited_(Note 5)_	interests
Chief Marine Limited	Interest of a controlled	62,250,000	10.00%
(Note 10)	corporation
CDBI Parnters Fund I,	Interest of a controlled	62,250,000	10.00%
L.P. (Note 11)	corporation
CDBI Parnters GP, Ltd	Interest of a controlled	62,250,000	10.00%
(Note 12)	corporation
Tan Ching (Note 13)	Interest of a controlled	62,250,000	10.00%
	corporation
Sun Hill Capital	Interest of a controlled	124,437,750	19.99%
Investments Limited	corporation
(Note 14)
Wu Aimin (Note 15)	Interest of a controlled	124,437,750	19.99%
	corporation

Notes:

1 In addition to 9,392,000 shares which are beneficially owned by Mr. Zhao, Mr. Zhao is deemed (by virtue of the SFO) to be interested in 387,812,250 shares in the Company. These shares are held in the following capacities:

(a) 297,812,250 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 297,812,250 shares held by Golden Land. Mr. Zhao is also the sole director of Golden Land.

— 48 —

APPENDIX I

GENERAL INFORMATION

(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.
2 Ms. Chan is deemed (by virtue of the SFO) to be interested in 397,204,250 shares in the Company. These shares are held in the following capacities:
(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) 9,392,000 shares are held by Mr. Zhao, the spouse of Ms. Chan, in his own name and 297,812,250 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 9,392,000 shares held by Mr. Zhao and the 297,812,250 shares held by Golden Land.
3 Pursuant to the share purchase agreement entered into between Golden Land and the Subscriber dated 16 September 2014 (as supplemented by the supplemental agreements dated 7 November 2014 and 15 December 2014), the Subscriber designated Sinopharm Healthcare Fund L.P. as its nominee to acquire 62,187,750 shares of the Company from Golden Land for a consideration of HK$133,703,662.5.
4 The corporate substantial shareholder notice filed by Sinopharm Capital Limited indicated that it controlled 1.91% interest in Sinopharm Healthcare Fund L.P.
5 Pursuant to the subscription agreement dated 15 September 2014 (as supplemented from time to time), the Subscriber designated Shine Light Investment Fund and Legend Times Corporation Limited as its nominees to hold the Convertible Bond in the principal amount of HK$93,686,250 and HK$40,151,250, respectively. The long position represents the interests in the 62,250,000 shares to be allotted and issued upon the full exercise of the conversion rights attached to the Convertible Bond in the aggregate principal amount of HK$133,837,500 at an initial conversion price of HK$2.15 issued by the Company on 17 December 2014.

6 The corporate substantial shareholder notice filed by Shine Light Fund Management Limited indicated that it controlled 0.11% interest in Shine Light Investment Fund.
7 The corporate substantial shareholder notice filed by Hwabao Trust Co. Ltd. indicated that it controlled 99.89% interest in Shine Light Investment Fund and is a trustee of a trust namely 華寶-境外市場投資1號系列2期QDII單一資金信託合同 (HwaBao QDII Investment in Overseas Market Contract).
8 The corporate substantial shareholder notice filed by 上海聖衆投資管理合夥企業 (有限合夥) Shanghai Shengzhong Investments Management Partnership Enterprise (Limited Partnership) indicated that it is a beneficiary of a trust namely 華寶-境外市場投資1號系列2期QDII單一資金信託合同 (HwaBao QDII Investment in Overseas Market Contract).
9 The director’s notice filed by Zhang Yi indicated that he controlled 33.33% interest in Shanghai Shengzhong Investments Management Partnership Enterprise (Limited Partnership).
10 The corporate substantial shareholder notice filed by Chief Marine Limited indicated that it controlled 100% interest in Legend Times Corporation Limited.

— 49 —

GENERAL INFORMATION

APPENDIX I

11 The corporate substantial shareholder notice filed by CDBI Parnters Fund I, L.P. indicated that it controlled 100% interest in Chief Marine Limited and indirectly controlled 100% interest in Legend Times Corporation Limited.
12 The corporate substantial shareholder notice filed by CDBI Parnters GP, Ltd indicated that it, through CDBI Parnters Fund I, L.P., indirectly controlled 100% interest in Chief Marine Limited and Legend Times Corporation Limited.
13 The individual substantial shareholder notice filed by Tan Ching indicated that he controlled 99% interest in CDBI Parnters GP, Ltd and, indirectly through CDBI Parnters Fund I, L.P., controlled 100% interest in Chief Marine Limited and Legend Times Corporation Limited.
14 The corporate substantial shareholder notice filed by Sun Hill Capital Investments Limited indicated that it controlled 100% interest in Sinopharm Capital Limited and indirectly controlled 1.91% interest in Sinopharm Healthcare Fund L.P., 100% interest in Shine Light Fund Management Limited and 0.11% interest in Shine Light Investment Fund.
15 The individual substantial shareholder notice filed by Wu Aimin indicated that he controlled 70% interest in Sun Hill Capital Investments Limited and, indirectly controlled 100% interest in Sinopharm Capital Limited, 1.91% interest in Sinopharm Healthcare Fund L.P., 100% interest in Shine Light Fund Management Limited and 0.11% interest in Shine Light Investment Fund.

Save as disclosed above, to the best knowledge of the Directors of the Company, as at the Latest Practicable Date, no person (other than the Directors) had any interests or short positions 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 Division 2 and 3 of Part XV of the SFO or any interest or short positions recorded in the register kept by the Company under section 336 of the SFO.

— 50 —

GENERAL INFORMATION

APPENDIX I

3. DIRECTORS’ INTEREST IN COMPETING BUSINESS, CONTRACTS AND ASSETS

(a) Interests in competing business

As at the Latest Practicable Date, save as disclosed herein, the Directors were not aware that any of the Directors and their respective associates had interest in any business which competes or is likely to compete, either directly or indirectly, with the businesses of the Group.

(b) Interests in assets

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which have been, since 31 December 2015 (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.

(c) Interests in contract or arrangement

On 20 November 2015, the Company entered into two master distribution agreements for the year 2016 with Shenzhen Kingworld Lifeshine Pharmaceutical Company Limited (深圳市金活利生藥業有限公司) and Yuen Tai Pharmaceuticals Limited (遠大製藥廠有限公司) respectively (collectively, the “2016 Master Distribution Agreements”). For details, please refer to the announcement of dated 20 November 2015.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or was proposing to enter, into any service contract with any member of the Group which is not expiring or determinable by such member of the Group within one year without payment of any compensation (other than statutory compensation).

5. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2015, the date on which the latest published audited accounts of the Group were made up.

6. EXPERT’S QUALIFICATION AND CONSENT

The following is the qualifications of the expert who has given an opinion or advice contained in this circular:

Name

Qualification

Vinco Capital a corporation licensed to carry out business in Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO

— 51 —

GENERAL INFORMATION

APPENDIX I

Vinco Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter as set out in this circular and references to its name in the form and context in which it appear in this circular.

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

As at the Latest Practicable Date, Vinco Capital did not have any direct or indirect interest in any assets which since 31 December 2015, being the date to which the latest published audited accounts of the Group were made up, have been 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.

7. MISCELLANEOUS

The English text of this circular shall prevail over the Chinese text.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s principal place of business in Hong Kong, which is Units 1906-1907, 19th Floor, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong, during normal business hours from 9:00 a.m. to 5:00 p.m. for a period of 14 days (other than Saturdays, Sundays, and public holidays) from the date of this circular:

(a) the Subscription Agreement;
(b) the original Conditions;
(c) the Supplemental Deed;
(d) the 2016 Master Distribution Agreements;
(e) the strategic cooperation agreement entered into between the Company and the Subscriber dated 19 January 2015;
(f) the letter of advice from Vinco Capital, the text of which is set out on pages 27 to 42 to this circular; and
(g) the written consent referred to in the paragraph headed “Experts and consent” in this appendix.

— 52 —

NOTICE OF EGM

APPENDIX II

==> picture [198 x 125] intentionally omitted <==

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT an extraordinary general meeting (the “ EGM ”) of Kingworld Medicines Group Limited (the “ Company ”) will be held at 10:00 a.m. on Wednesday, 15 June 2016 (and any adjournment thereof), at 3rd Floor, Crowne Plaza Hotel & Suites Landmark Shenzhen, No. 3018 Nanhu Road, Luohu District, Shenzhen, the PRC, for the purpose of considering and, if thought fit, passing with or without modifications the following resolution as ordinary resolution of the Company. Capitalised terms used herein without definition shall have the same meanings as in the circular issued by the Company on 30 May 2016 (the “ Circular ”), unless the context otherwise requires:

ORDINARY RESOLUTION

“ THAT :

(a) the Supplemental Deed dated 18 May 2016 entered into among the Company, the Subscriber and the Bondholders pursuant to which the Company, the Subscriber and the Bondholders agreed to amend certain terms and conditions of the Convertible Bond subject to the terms and conditions thereof, be and is hereby approved, confirmed and ratified, and all the transactions contemplated under the Supplemental Deed, including the Amendment of Conditions and the grant of the Specific Mandate be and are hereby approved, confirmed and ratified, a copy of which is produced to the meeting marked “A” and initialled by the Chairman of the EGM for the purpose of identification;
(b) subject to the Stock Exchange having approved the Amendment of Conditions pursuant to the Listing Rules and the Listing Committee granting approval for the listing of, and permission to deal in, the Conversion Shares on the Stock Exchange, the Board be and is hereby granted a Specific Mandate for the allotment and issue of the Conversion Shares to the Subscriber or its designated party(ies) or the Bondholders upon an exercise of the Conversion Rights; and

— 53 —

NOTICE OF EGM

APPENDIX II

(c) any Director be and is hereby authorised to do such acts and things, to sign and execute all such further documents (and in case of execution of documents under seal, to do so by any two directors of the Company or any two persons appointed by the board of directors of the Company for that purpose) and to take such steps as he/she may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Supplemental Deed and all transactions contemplated thereunder and all other matters incidental thereto or in connection therewith, and to agree to and make such variations, amendments or waivers of any of the matters relating thereto or in connection therewith.”

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

Hong Kong, 30 May 2016

Notes:

A shareholder entitled to attend and vote at the Meeting is entitled to appoint another person as his proxy to attend and vote instead of him. A shareholder who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at the Meeting. A proxy need not be a member of the Company but must be present in person to represent him.
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 Investors Services Limited (“ Branch Registrar ”), at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong no less 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.

— 54 —

NOTICE OF EGM

APPENDIX II

The register of members of the Company will be closed from Wednesday, 8 June 2016 to Wednesday, 15 June 2016 (both days inclusive) during which period no transfer of shares will be registered. To be qualified for attending and voting at the Meeting, all share transfer documents must be lodged with the Branch Registrar at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, for registration on or before 4:30 p.m. on Tuesday, 7 June 2016.
denotes an English translation of a Chinese name and is for identification purposes only.

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

— 55 —

AI assistant

Kingworld Medicines Group Limited — Proxy Solicitation & Information Statement 2016

49693_rns_2016-05-30_9a224a73-3d0d-46c5-bb6b-af820aeaf82f.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

PROPOSED AMENDMENTS OF THE TERMS AND CONDITIONS OF THE CONVERTIBLE BOND AND NOTICE OF EXTRAORDINARY GENERAL MEETING

Grand Vinco Capital Limited

CONTENT

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

PROPOSED AMENDMENTS OF THE TERMS AND CONDITIONS OF THE CONVERTIBLE BOND AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

THE SUPPLEMENTAL DEED RELATING TO THE CONVERTIBLE BOND

Original Conditions

Amendment of Conditions as contemplated under the Supplemental Deed

Maturity Date:

LETTER FROM THE BOARD

Original Conditions

Amendment of Conditions as contemplated under the Supplemental Deed

LETTER FROM THE BOARD

Original Conditions

Amendment of Conditions as contemplated under the Supplemental Deed

LETTER FROM THE BOARD

Original Conditions

Amendment of Conditions as contemplated under the Supplemental Deed

LETTER FROM THE BOARD

Original Conditions

Amendment of Conditions as contemplated under the Supplemental Deed

LETTER FROM THE BOARD

LETTER FROM THE BOARD

PRINCIPAL TERMS OF THE CONVERTIBLE BOND (AS AMENDED PURSUANT TO THE SUPPLEMENTAL DEED)

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

REASONS FOR THE AMENDMENT OF CONDITIONS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

UPDATE ON USE OF PROCEEDS

Expected Use of Proceeds

as disclosed in the Circular

Actual Use of Proceeds as at the Latest Practicable Date

LETTER FROM THE BOARD

Expected Use of Proceeds as disclosed in the Circular

Actual Use of Proceeds as at the Latest Practicable Date

SHAREHOLDING STRUCTURE OF THE COMPANY

LETTER FROM THE BOARD

LETTER FROM THE BOARD

FUND RAISING ACTIVITIES IN THE PAST TWELVE MONTHS

LISTING RULES IMPLICATIONS

LETTER FROM THE BOARD

EGM AND PROXY ARRANGEMENT

LETTER FROM THE BOARD

RECOMMENDATION

ADDITIONAL INFORMATION

PROPOSED AMENDMENTS OF THE TERMS AND CONDITIONS OF THE CONVERTIBLE BOND

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Yours faithfully,

PROPOSED AMENDMENTS OF THE TERMS AND CONDITIONS OF THE CONVERTIBLE BOND

A. INTRODUCTION

LETTER FROM VINCO CAPITAL

LETTER FROM VINCO CAPITAL

B. BASIS OF OUR OPINION AND RECOMMENDATION

LETTER FROM VINCO CAPITAL

C. PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background information of the Group

LETTER FROM VINCO CAPITAL

2. The Amendment of Conditions

LETTER FROM VINCO CAPITAL

LETTER FROM VINCO CAPITAL

3. Major terms of and information on the Convertible Bonds

HK$133,837,500

LETTER FROM VINCO CAPITAL

LETTER FROM VINCO CAPITAL

LETTER FROM VINCO CAPITAL

LETTER FROM VINCO CAPITAL

LETTER FROM VINCO CAPITAL

Kingworld Medicines Group Limited Proxy Solicitation & Information Statement 2016