Livzon Pharmaceutical Group Inc. - Proxy Solicitation & Information Statement 2015

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in 麗珠醫藥集團股份有限公司 Livzon Pharmaceutical Group Inc.*, you should at once hand this circular together with the proxy form to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or transferee.

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

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock code: 1513)

PROPOSED ADOPTION OF RESTRICTED A SHARES INCENTIVE SCHEME AND PROPOSED GRANT AND CONNECTED TRANSACTIONS

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

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A letter from the Board is set out from pages 5 to 21 of this circular. A letter from the Independent Board Committee containing its advice to the independent Shareholders is set out on pages 22 to 23 of this circular. A letter from Guoyuan Capital (Hong Kong) Limited, the Independent Financial Adviser to the Independent Board Committee and the independent Shareholders, containing its advice to the Independent Board Committee and the independent Shareholders is set out from pages 24 to 44 of this circular.

The notices convening the EGM and the H Shareholders’ Class Meeting of the Company to be held at the Conference Room on the 2nd Floor of Livzon Building, 132 Guihua North Road, Gongbei, Zhuhai, Guangdong Province, China on Friday, 13 March 2015 at 2:00 p.m. and 4:00 p.m. (or immediately after the conclusion or adjournment of the EGM and the A Shareholders’ Class Meeting), respectively were given by the Company on 26 January 2015. The reply slips for attendance and proxy forms for the EGM and the H Shareholders’ Class Meeting, which were also despatched by the Company on 26 January 2015, are also available at the website of Hong Kong Exchanges and Clearing Limited (www.hkexnews.hk) and the website of the Company (www.livzon.com.cn).

Whether or not you are able to attend the EGM and the H Shareholders’ Class Meeting in person or by proxy, you are requested to complete the reply slips in accordance with the instructions printed thereon and return it to the H Share Registrar of the Company, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong in person, by post or by fax not later than twenty (20) days before the holding of the said meetings, i.e. in any event on or before Saturday, 21 February 2015. If you would like to attend the EGM and the H Shareholders’ Class Meeting by proxy, please complete the proxy form(s) in accordance with the instructions printed thereon and return it to the H Share Registrar of the Company, Tricor Investor Services Limited, as soon as possible and in any event no later than 24 hours before the holding of the relevant meetings or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting at the EGM and the H Shareholders’ Class Meeting or any adjournment thereof (as the case may be) in person if you so wish.

5 February 2015

For identification purpose only

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Appendix I – The Restricted A Shares Incentive Scheme . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II – Administrative Measures for the Appraisal System . . . . . . . . . . . .	II-1
Appendix III – The Proposed Grant and the Mandate to the Board regarding
the Restricted A Shares Incentive Scheme . . . . . . . . . . . . . . . . . .	III-1
Appendix IV – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1

– i –

DEFINITIONS

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

‘‘A Share(s)’’

the ordinary shares in the registered capital of the Company with a nominal value of RMB1.00 each, which are listed and traded on the Shenzhen Stock Exchange

‘‘A Shareholder(s)’’
holder(s) of A Shares
‘‘A Shareholders’ Class Meeting’’
the first class meeting of A Shareholders in 2015 to be held on Friday, 13 March 2015 at 3:00 p.m. (or immediately after the conclusion or adjournment of the EGM) (or any adjournment thereof)
‘‘Administrative Measures’’
the Administrative Measures on Share Incentives of Listed Companies (Trial)（《上市公司股權激勵管理辦法（試行）》）
‘‘Administrative Measures for the Appraisal System’’
Administrative Measures for Appraisal System of the Share Incentive Scheme of Livzon Pharmaceutical Group Inc. (Revised)*（《麗珠醫藥集團股份有限公司股權激勵計劃實施考核管理辦法（修訂稿）》）
‘‘associate(s)’’
has the meaning ascribed to it under the Hong Kong Listing Rules
‘‘Board’’
the board of the Directors
‘‘Company’’
麗珠醫藥集團股份有限公司 Livzon Pharmaceutical Group Inc.*, a joint stock company incorporated in the PRC with limited liability and listed on the Shenzhen Stock Exchange and the Stock Exchange
‘‘Company Law’’ the Company Law of the PRC（《中華人民共和國公司法》）, as amended, supplemented or otherwise modified from time to time
‘‘connected person(s)’’
has the meaning ascribed to it under the Hong Kong Listing Rules
‘‘CSRC’’
China Securities Regulatory Commission
‘‘Director(s)’’
the director(s) of the Company

– 1 –

DEFINITIONS

‘‘EGM’’

the first extraordinary general meeting of the Company in 2015 to be held on Friday, 13 March 2015 at 2 p.m. (or any adjournment thereof) for the Shareholders to consider, and if thought fit, to approve, among others, the proposed adoption of the Restricted A Shares Incentive Scheme, the Proposed Grant, the Administrative Measures for the Appraisal System and the mandate to be granted to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme

‘‘First Grant’’
the proposed grant of 9,000,000 Restricted Shares to the Incentive Participants pursuant to the Restricted A Shares Incentive Scheme
‘‘Group’’
the Company and its subsidiaries collectively
‘‘H Share(s)’’
the ordinary shares in the registered capital of the Company with a nominal value of RMB1.00 each, which are listed and traded on the Stock Exchange
‘‘H Share Registrar’’ Tricor Investor Services Limited
‘‘H Shareholder(s)’’

holder(s) of H Shares

‘‘H Shareholders’ Class Meeting’’
the first class meeting of H Shareholders in 2015 to be held on Friday, 13 March 2015 at 4:00 p.m. (or immediately after the conclusion or adjournment of the EGM and the A Shareholders’ Class Meeting) (or any adjournment thereof)
‘‘Hong Kong’’
the Hong Kong Special Administrative Region of the PRC
‘‘Hong Kong Listing Rules’’
the Rules Governing the Listing of Securities on the Stock Exchange, as amended, supplemented or otherwise modified from time to time
‘‘Incentive Participant(s)’’
the persons(s) to be granted the Restricted Share(s) under the Restricted A Shares Incentive Scheme

– 2 –

DEFINITIONS

‘‘Independent Board Committee’’
the independent board committee of the Company formed for the purpose to consider the terms of the Restricted A Shares Incentive Scheme, the Proposed Grant, the Administrative Measures for the Appraisal System and the mandate to be granted to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme
‘‘Independent Director’s Proxy Form(s)’’
the proxy form(s) for the solicitation of votes by independent non-executive Directors sent out by Mr. Xu Yanjun, an independent non-executive Director, to solicit votes from the Shareholders on the special resolutions in respect of the Restricted A Shares Incentive Scheme and its related matters at the EGM, A Shareholders’ Class Meeting and H Shareholders’ Class Meeting
‘‘Independent Financial Adviser’’ or ‘‘Guoyuan Capital’’
Guoyuan Capital (Hong Kong) Limited, a corporation licensed to carry on type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser to the Independent Board Committee and the independent Shareholders in relation to the Restricted A Shares Incentive Scheme, the Proposed Grant and the Administrative Measures for the Appraisal System
‘‘Joincare’’
健康元藥業集團股份有限公司 (Joincare Pharmaceutical Industry Group Co., Ltd.*) (Shanghai Stock Exchange stock code: 600380), a joint stock company incorporated in the PRC and listed on the Shanghai Stock Exchange in 2001 and one of the Group’s controlling Shareholders
‘‘Joincare Group’’

Joincare and its subsidiaries (other than the Group)

‘‘Latest Practicable Date’’
2 February 2015, being the latest practicable date prior to the printing of this circular for ascertaining certain information herein
‘‘Memorandum’’ No. 1 – No. 3 of the Memorandum on the Issues Concerning Equity Incentives（《股權激勵有關事項備忘錄 1-3號》）

‘‘PRC’’

the People’s Republic of China (excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan)

– 3 –

DEFINITIONS

‘‘Proposed Grant’’	the proposed grant of the Restricted Shares to the	Incentive
	Participants under the Restricted A Shares	Incentive
	Scheme
‘‘Restricted Share(s)’’	the A Share(s) to be granted to (a) Incentive Participant(s)
	under the Restricted A Shares Incentive Scheme
‘‘Restricted A Shares Incentive	the proposed restricted A Shares incentive scheme (revised
Scheme’’	draft) of the Company, the full text of which is	set out in
	Appendix I to this circular
‘‘RMB’’	Renminbi, the lawful currency of the PRC
‘‘Securities Law’’	the Securities Law of the PRC（《中華人民共和國証券
	法》）, as amended, supplemented or otherwise	modified
	from time to time
‘‘SFO’’	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
‘‘Shareholder(s)’’	holder(s) of the share(s) of the Company
‘‘Shanghai Stock Exchange’’	上海證券交易所(the Shanghai Stock Exchange)
‘‘Shenzhen Stock Exchange’’	深圳證券交易所(the Shenzhen Stock Exchange)
‘‘Stock Exchange’’	The Stock Exchange of Hong Kong Limited
‘‘%’’	per cent

In this circular, the English names of the PRC entities and regulations are translation of their Chinese names, and are included herein for identification purpose only. In the event of any inconsistency, the Chinese names shall prevail.

For identification purpose only

– 4 –

LETTER FROM THE BOARD

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock code: 1513)

Executive Directors: Registered office: Mr. Tao Desheng (Vice Chairman and President) Administration and Research Building, Mr. Fu Daotian (Vice President) 38 Chuangye North Road, Mr. Yang Daihong (Vice President) Shuang Linpian Area, Liangang Industrial Zone, Non-executive Directors: Hongqi Town, Mr. Zhu Baoguo (Chairman) Jinwan District, Zhuhai, Mr. Qiu Qingfeng Guangdong Province, Mr. Shan China

Non-executive Directors: Mr. Zhu Baoguo (Chairman) Mr. Qiu Qingfeng Mr. Zhong Shan

Independent non-executive Directors: Mr. Xu Yanjun Mr. Yang Bin Mr. Guo Guoqing Mr. Wang Xiaojun Mr. Yu Xiong

Principal place of business in Hong Kong: Flat 02, 17/F, Bayfield Building, 99-101 Hennessy Road, Wanchai, Hong Kong 5 February 2015

To the Shareholders

Dear Sir or Madam,

PROPOSED ADOPTION OF RESTRICTED A SHARES INCENTIVE SCHEME AND PROPOSED GRANT AND CONNECTED TRANSACTIONS

I. INTRODUCTION

The purpose of this circular is to provide you with information regarding the proposed adoption of the Restricted A Shares Incentive Scheme, the Proposed Grant, the Administrative Measures for the Appraisal System and the mandate to be granted to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme.

For identification purpose only

– 5 –

LETTER FROM THE BOARD

II. RESTRICTED A SHARES INCENTIVE SCHEME

Reference is made to the announcement of the Company dated 15 December 2014 regarding the adoption of the initial draft of the Restricted A Shares Incentive Scheme, the Proposed Grant and the mandate to be granted to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme.

(a) Proposed Adoption of the Restricted A Shares Incentive Scheme

(i) Background information

On 15 December 2014 and 23 January 2015, the Board considered and approved the proposal to adopt the Restricted A Shares Incentive Scheme and the Proposed Grant, and the revised contents of the Restricted A Shares Incentive Scheme and the Proposed Grant, respectively.

The Incentive Participants include Directors, mid and senior-level management, core technical (business) personnel, and relevant staff, who in the opinion of the Board, are eligible for incentives at the time of implementation of the Restricted A Shares Incentive Scheme by the Company. Independent Directors and supervisors of the Company are not included in the scope of Incentive Participants.

Pursuant to the Restricted A Shares Incentive Scheme, the total number of the Restricted Shares to be granted under the Restricted A Shares Incentive Scheme shall be 10,000,000 A Shares, representing approximately 3.38% of the Company’s total issued share capital and approximately 5.44% of the total number of A Shares in issue as at the Latest Practicable Date. 9,000,000 A Shares will be granted under the First Grant, representing approximately 3.04% of the Company’s total issued share capital as at the Latest Practicable Date and 1,000,000 A Shares will be reserved, representing approximately 0.34% of the Company’s total issued share capital as at the Latest Practicable Date, respectively.

The Restricted A Shares Incentive Scheme shall be effective for no longer than five (5) years, commencing from the date of the Proposed Grant and ending on the date on which all the Restricted Shares granted have been unlocked or otherwise repurchased and cancelled pursuant to the terms and conditions of the Restricted A Shares Incentive Scheme. Full text of the terms of the Restricted A Shares Incentive Scheme and the Administrative Measures for the Appraisal System are set out in Appendix I and Appendix II to this circular.

– 6 –

LETTER FROM THE BOARD

The Company was notified on 13 January 2015 that the CSRC has confirmed it has no objection and has filed the registration of the initial draft of the Restricted A Shares Incentive Scheme and its revised contents submitted by Company. The Restricted A Shares Incentive Scheme and the Administrative Measures for the Appraisal System are subject to approval by the Shareholders at the EGM, A Shareholders’ Class Meeting and H Shareholders’ Class Meeting of the Company.

(ii) Payment and control of the Restricted Shares

Within 30 days after the approval of the Shareholders at the EGM, A Shareholders’ Class Meeting and H Shareholders’ Class Meeting of the Company, the Incentive Participants will pay for the Restricted Shares granted to them with their own funds by bank transfer to the bank account of the Company. The Restricted Shares will therefore be issued by the Company and held in the individual securities account of the Incentive Participants. The Restricted Shares that have not been unlocked will not entitle the Incentive Participants to any voting rights.

The Restricted Shares shall be locked up immediately upon granting. The Restricted Shares granted under the Restricted A Shares Incentive Scheme shall have no less than 12-month lock-up period commencing on the date of grant.

The Directors, having made all reasonable enquiries, confirm that the Restricted Shares registered in an Incentive Participant’s name after the granting are not shown in his/her securities account, and they are not available for dealing purposes by the Incentive Participant before unlocking. Only the Company could tender an application to Shenzhen Stock Exchange to unlock the Restricted Shares. After the Shenzhen Stock Exchange has granted its permission for unlocking, the Shenzhen branch of China Securities Depository and Clearing Corporation Limited (‘‘CSDC’’) will proceed to release those Restricted Shares which are permitted to be unlocked. The unlocked Restricted Shares will thus be shown in the securities account of the relevant Incentive Participant and he/she will then be free to dispose of such Restricted Shares.

On the unlocking date, the Company shall handle all matters required for the unlocking of the Restricted Shares once the Incentive Participants have fulfilled the conditions for unlocking the Restricted Shares. The Restricted Shares held by Incentive Participants who have not fulfilled the conditions for unlocking their Restricted Shares shall be repurchased and cancelled by the Company.

– 7 –

LETTER FROM THE BOARD

The repurchase and cancellation procedures of Restricted Shares are as follows:

The Company contacts and notifies the Shenzhen Stock Exchange and CSDC in advance for the repurchase and cancellation.
The Company tenders an application to the Shenzhen Stock Exchange for unlocking the relevant Restricted Shares and pays the Incentive Participants for the repurchase.
The Company registers the transfer of the Restricted Shares with CSDC and cancels the Restricted Shares.

The Directors confirm that the unlocking, repurchase and cancellation of Restricted Shares are subject to: (1) approval of the Board; (2) approval of the Shenzhen Stock Exchange on the application which could be tendered only by the Company; and (3) the procedures to be handled by CSDC. Therefore the Company could ensure that it could repurchase the Restricted Shares from the Incentive Participants if the conditions of unlocking are not fulfilled.

(iii) Termination of the Restricted A Shares Incentive Scheme

The Restricted A Shares Incentive Scheme shall be terminated if any of the following events occur to the Company:

(i) change in control of the Company:

Change in control of the Company means that there is reduction of shareholding in the Company by its controlling shareholder which makes it/ he/she (1) has effective control of less than 30% of voting rights of the Company; or (2) cannot determine the appointment of more than half of the members of the Board; or (3) does not have control of adequate voting rights to exert influential power on resolutions of general meetings and to decide the Company’s financial and operation policies;

– 8 –

LETTER FROM THE BOARD

(ii) merger and spin-off of the Company:

Merger of the Company means a lawful action which the Company jointly forms a new company with other company(ies) by entering into a merger agreement in accordance with the requirements and procedures stipulated under the Company Law; and spin-off of the Company is a lawful action where a company is divided into two or more independent companies in accordance with the relevant provisions stipulated under the Company Law and upon successful division, the assets and property of the said company shall be separated accordingly;

(iii) issue of an auditors’ report with adverse opinion or which indicates an inability to give opinion by a certified public accountant with respect to the financial report of the Company for its most recent accounting year;
(iv) imposition of administrative penalties by the CSRC within the most recent year due to material non-compliance of laws or regulations; and
(v) any other circumstances as determined by the CSRC.

When the Company terminates the Restricted A Shares Incentive Scheme due to any of the above reasons, those Restricted Shares that have been granted to the Incentive Participants but not yet unlocked can no longer be unlocked, and the Company will repurchase and cancel such Restricted Shares in accordance with the provisions of the Restricted A Shares Incentive Scheme.

(b) The Proposed Grant

(i) Quantity of the Proposed Grant

The total number of Restricted Shares that may be granted under the Restricted A Shares Incentive Scheme shall not exceed 10,000,000 A Shares, representing approximately 3.38% of the Company’s total share capital of 295,721,852 shares as at the Latest Practicable Date, of which 9,000,000 A Shares will be granted under the First Grant, representing approximately 3.04% of the Company’s total issued share capital as at the Latest Practicable Date and 1,000,000 A Shares will be reserved, representing approximately 0.34% of the Company’s total issued share capital as at the Latest Practicable Date, respectively. The 9,000,000 Restricted Shares will be issued as new A Shares to the Incentive Participants on the date of the First Grant. Such Restricted Shares will be held by the Incentive Participants subject to the locking period as stipulated under the Restricted A Shares Incentive Scheme.

– 9 –

LETTER FROM THE BOARD

The Company’s current share capital structure is set out in its articles of association. The Company’s total share capital shall increase after issue of any Restricted Shares (or shall decrease if the Company is required to repurchase and cancel any Restricted Shares pursuant to provisions of the Restricted A Shares Incentive Scheme). A mandate to the Board to, among other things, making appropriate amendments to the articles of association of the Company, will be proposed at the EGM, the A Shareholders’ Class Meeting and the H Shareholders’ Class Meeting. Further announcement will be made by the Company if any amendment to the articles of association of the Company takes place.

(ii) Maximum grant to Incentive Participant(s)

The number of Restricted Shares to be granted to an Incentive Participant under the Proposed Grant will be subject to the criteria and conditions specified in the Restricted A Shares Incentive Scheme. Further details of the conditions of grant are set out in the section headed ‘‘Chapter VIII Conditions of Granting and Unlocking Restricted Shares’’ in Appendix I to this circular.

The aggregate number of Restricted Shares to be issued to any Incentive Participant pursuant to the Restricted A Shares Incentive Scheme shall not exceed 1% of the total issued share capital of the Company.

(iii) Allocation of the Restricted Shares under the First Grant

The total number of Incentive Participants under the First Grant is 484. Incentive Participants include Directors, mid and senior-level management, core technical (business) personnel, and relevant staff, who in the opinion of the Board, are eligible for incentives at the time of implementation of the Restricted A Shares Incentive Scheme by the Company, but excluding independent Directors and supervisors.

– 10 –

LETTER FROM THE BOARD

Out of the 484 Incentive Participants under the First Grant, an aggregate of 1,089,200 Restricted Shares out of 9,000,000 Restricted Shares under the First Grant are proposed to be allocated to 15 Incentive Participants who are connected persons of the Company for the purpose of the Hong Kong Listing Rules, including Directors and senior management of the Group. Details of which are set out in the table below.

Serial number Name Position 1 Tao Desheng Executive Director, Vice Chairman and President 2 Yang Daihong Executive Director and Vice President 3 Xu Guoxiang# Vice President 4 Lu Wenqi# Vice President 5 Si Yanxia# Vice President 6 Yang Liang# Secretary to the Board and Company Secretary 7 Hou Xuemui Senior management of the research institute 8 Wangrui General manager of subsidiaries 9 Cai Xinfu General manager of subsidiaries 10 Zeng Yongqing General manager of subsidiaries 11 Dong Wei General manager of subsidiaries 12 Tang Yanggang General manager of subsidiaries 13 Zhang Maohua General manager of subsidiaries 14 HuYu General manager of subsidiaries 15 Zhang Jigang* General manager of subsidiaries 16 Mid-level management and core technical (business) personnel (469 personnel)	Number of Restricted Shares to be granted under the First Grant (A Shares) 212,300 135,800 212,300 135,800 84,900 40,400 37,200 37,800 36,900 38,000 33,800 30,000 25,000 18,000 11,000 7,910,800 9,000,000	% of Restricted Shares to be granted (approximate) % of total issued share capital as at the Latest Practicable Date (approximate) % of total number of A Shares in issue as at the Latest Practicable Date (approximate) 2.359% 0.072% 0.116% 1.509% 0.046% 0.074% 2.359% 0.072% 0.116% 1.509% 0.046% 0.074% 0.943% 0.029% 0.046% 0.449% 0.014% 0.022% 0.413% 0.013% 0.020% 0.420% 0.013% 0.021% 0.410% 0.012% 0.020% 0.422% 0.013% 0.021% 0.376% 0.011% 0.018% 0.333% 0.010% 0.016% 0.278% 0.008% 0.014% 0.200% 0.006% 0.010% 0.122% 0.004% 0.006% 87.898% 2.675% 4.306% 100%

Notes:

Connected person grantees:

Directors and chief executive of the Company and subsidiaries and their respective associates

Senior management of the Company

– 11 –

LETTER FROM THE BOARD

In determining the number of Restricted Shares proposed to be granted to each of the Incentive Participant, the Board has given due consideration to various factors, including the importance of work position, contribution level, individual performance and years of services of each Incentive Participant. In respect of the five Incentive Participants who are connected persons, the main reasons for the Proposed Grant are as follows:

(1) Mr. Tao Desheng, an executive Director and a vice president of the Company, has been serving the Group for 30 years. He is responsible for the overall management of the general operation of the Company, and has an important role in the Group;
(2) Mr. Xu Guoxiang, a vice president of the Company, has been serving the Group for 8 years. He is mainly responsible for managing the pharmaceutical sales business of the Company, and has made substantial contribution in achieving annual operating results of the Company;
(3) Mr. Yang Daihong, an executive Director and a vice president of the Company, has been serving the Company for 18 years. He is mainly responsible for managing the general production and quality control of the Company, and has made positive contribution to the Company in assuring the quality of the Company’s products, and thus enhancing its competitiveness;
(4) Mr. Lu Wenqi, a vice president of the Company, has been serving the Group for 9 years. He is responsible for managing the scientific research of the Company, and has made positive contribution to the successful roll-out of all research projects of the Group, thus has helped the Group in pursuing its future strategic targets; and
(5) Ms. Si Yanxia, a vice president of the Company, has been serving the Company for 22 years. She is mainly responsible for managing the overall finance function of the Company, and has a relatively important role in the Company.

Based on the above factors, the Board proposed to grant a relatively large amount of Restricted Shares to the above five connected persons, which ranges from 84,900 Restricted Shares to 212,300 Restricted Shares.

– 12 –

LETTER FROM THE BOARD

In respect of the other 10 Incentive Participants who are connected persons, the Board has also considered the importance of their respective position in the Company, such as being a general manager of subsidiaries of the Company. Due consideration has also been given to the profit contribution to the Group attributable to the subsidiary which he/she serves, and other factors (such as their respective years of service) has also been considered. The Board proposed to grant Restricted Shares ranging from 11,000 Restricted Shares to 40,400 Restricted Shares to such 10 connected persons.

(iv) Date of grant

Subject to filing of the Restricted A Shares Incentive Scheme with the CSRC and no objection raised and within 30 days after the approval by the Shareholders at the EGM, the A Shareholders’ Class Meeting and H Shareholders’ Class Meeting, the Board shall determine the date of grant on which the Board shall grant to the Incentive Participants the Restricted Shares and the relevant procedures with respect to registration and announcement of the Restricted A Shares Incentive Scheme shall be completed. The reserved Restricted Shares must be granted within 12 months upon completion of the First Grant.

The dates of grant must be a trading day and must not fall within any of the following periods:

the period commencing from 30 days prior to the publication of periodic reports of the Company and ending on the second trading day after the publication of the reports, or in the event of delay in publishing the reports for special reasons, 30 days prior to the original date of publication;
the period commencing from 10 days prior to the publication of the announcement of estimated results and preliminary results of the Company and ending on the second trading day after the publication of such announcement;
the period commencing from the time at which a major transaction or major event is subject to decision and ending on the second trading day after such event is announced; and
the period commencing from the date of other material event that may influence the share price and ending on the second trading day after such material event is announced.

– 13 –

LETTER FROM THE BOARD

(v) Grant price and basis of determination

The grant price of the Restricted Shares under the First Grant shall be RMB25.20 per A Share, being 50% of the average trading price of the A Shares of RMB50.40 for the last 20 trading days (i.e. the total trading value of the A Shares for the last 20 trading days up to and including 8 December 2014 divided by the total trading volume of the A Shares for the last 20 trading days up to and including 8 December 2014) immediately preceding the date of announcement of the Board resolution for the passing of the Restricted A Shares Incentive Scheme on 15 December 2014. Upon fulfillment of grant conditions, each Incentive Participant is entitled to acquire A Shares newly issued and allocated to him/her by the Company under the First Grant at the price of RMB25.20 per A Share.

The grant price of the reserved Restricted Shares will be 50% of the average trading price of the A Shares for the last 20 trading days, which is the total trading value of the A Shares for the last 20 trading days divided by the total trading volume of the A Shares for the last 20 trading days, preceding the date of announcement of the Board resolution for the grant of reserved Restricted Shares.

The grant price of the Restricted Shares and the reserved Restricted Shares was determined by the Board after taking into consideration (i) the requirements of the Memorandum issued by the CSRC, which states that the grant price shall not be less than 50% of the average trading price of the A Shares for the last 20 trading days before the reference date; and (ii) the discount of the grant prices of restricted shares under similar restricted share incentive schemes adopted by companies listed on the main board of the Shenzhen Stock Exchange. Furthermore, the Directors have applied the same grant price to all Incentive Participants, who have been selected in accordance with the criteria of the Restricted A Shares Incentive Scheme. Therefore the Directors consider that the grant price being a discount of 50% on the average trading price of the A Shares is fair and reasonable and in the interest of the Company and its Shareholders as a whole.

Details of the resolution in relation to the Proposed Grant and the mandate to be granted to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme are set out in Appendix III to this circular.

(c) Information on the Group

The Group is a PRC-based pharmaceutical company and is mainly engaged in research, development, production and sales of pharmaceutical products.

– 14 –

LETTER FROM THE BOARD

(d) Advantages and Disadvantages of the Restricted A Shares Incentive Scheme

The Restricted A Shares Incentive Scheme is developed in order to further establish and improve the Company’s long-term incentive mechanism, attract and retain outstanding employees, fully motivate the Group’s core staffs, and effectively integrate Shareholders’ interests, the Company’s interests and managers’ individual interests so that the parties will make joint efforts for the Company’s long-term development. The Restricted A Shares Incentive Scheme is developed on the precondition of fully safeguarding Shareholders’ interests, in line with the principle of benefits being in proportion to contributions and in accordance with provisions of the relevant laws, regulations and regulatory documents, such as the Company Law, the Securities Law, the Administrative Measures, the Memorandum and the articles of association of the Company.

Despite the benefits of adopting the Restricted A Shares Incentive Scheme mentioned above, the Restricted A Shares Incentive Scheme and the Proposed Grant will result in an insignificant dilution to the shareholding of all Shareholders due to the new issue of Restricted Shares. Furthermore, the Company will have to recognise the costs of the Restricted A Shares Incentive Scheme as an administrative expense that may have a negative impact on the earnings of the Company.

(e) Accounting treatment of the Restricted A Shares Incentive Scheme

According to the provision of ‘‘Accounting Standards for Enterprise No.11 – Sharebased Payment’’, the Company shall adjust the estimated number of Restricted Shares to be unlocked on the date of the balance sheet at each reporting period and within the lock-up period based on the latest subsequent information, such as the changes in the number of personnel who are entitled to unlock their shares and the performance targets set to be achieved, and the services rendered by the Incentive Participants in that period shall also be accounted for in the relevant costs or expenses and capital reserve at the fair value of Restricted Shares as at the date of grant. The accounting treatments of the Restricted A Shares Incentive Scheme are summarised below:

(i) Date of grant

The share capital and capital reserve will be recognised.

(ii) Lock-up period

The services rendered by the Incentive Participants will be included in the costs or expenses on the date of balance sheet during the lock-up period of the Restricted Shares and will recognise as capital reserve accordingly.

– 15 –

LETTER FROM THE BOARD

(iii) Unlocking date

On the unlocking date of the Restricted Shares, if the conditions for unlocking the Restricted Shares are fulfilled, the Restricted Shares can be unlocked; otherwise all or part of the Restricted Shares that cannot be unlocked shall be repurchased and cancelled by the Company and shall be handled in accordance with the accounting principles and the relevant requirements.

(f) Financial Effect of the Restricted A Shares Incentive Scheme

Earnings

The Company shall adjust the estimated number of Restricted Shares to be unlocked on the date of the balance sheet and within the lock-up period based on the latest subsequent information, such as the changes in the number of Incentive Participants who are entitled to unlock their Restricted Shares and the performance targets set to be achieved. Based on the initial grant of 9,000,000 Restricted Shares, it is estimated by the Company preliminarily that the relevant costs or expenses of the Restricted Shares should be amounted to approximately RMB68,531,700 (exact amount is subject to the fair value of Restricted Shares as at the date of grant of the Restricted Shares), and should be recognised in 3 instalments as administrative expenses on the consolidated income statement of the Company in the proportion of 40%:30%:30% within the corresponding periods and will in turn lead to a decrease in earnings of the Company. Assuming the date of grant of the Restricted Shares is in April 2015, the amortisation cost of the Restricted Shares from 2015 to 2018 is set out as follows:

	Total
Restricted	costs to be
Shares granted	amortised	2015	2016	2017	2018
(0’000 shares)	(RMB0’000)	(RMB0’000)	(RMB0’000)	(RMB0’000)	(RMB0’000)
900	6,853.17	3,340.92	2,398.61	942.31	171.33

Based on the information available, the Company expects that, the amortisation costs of the Restrictive A Shares Incentive Scheme shall have limited impact on the earnings of the Company during the validity period. Taking into consideration the positive impact of the Restricted A Shares Incentive Scheme on the development of the Company, including but not limited to, motivating the management team, increasing the operating efficiency and reducing the agency costs, the Company expects the improvement on the results of the Company due to the Restricted A Shares Incentive Scheme shall be far exceed the increase in costs.

– 16 –

LETTER FROM THE BOARD

Assets and Liabilities

Save for the increase in cash at bank upon issue of Restricted Shares and the decrease in cash at bank upon repurchase of Restricted Shares, the Company expects the Restricted A Shares Incentive Scheme to have no material effect on the assets and liabilities of the Company.

(g) Hong Kong Listing Rules Implications

The Restricted A Shares Incentive Scheme does not constitute a share option scheme pursuant to Chapter 17 of the Hong Kong Listing Rules and is a discretionary scheme of the Company.

The grant of the Restricted Shares under the Restricted A Shares Incentive Scheme to an Incentive Participant who is a connected person of the Company for the purpose of the Hong Kong Listing Rules under the First Grant will constitute a non-exempt connected transaction of the Company and will be subject to, among other things, reporting, announcement and independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules. The Company will also comply with the applicable rules under the Hong Kong Listing Rules in relation to grant of reserved Restricted Shares if any of the Incentive Participants under such further grant is a connected person of the Company. Mr. Tao Desheng and Mr. Yang Daihong, both being executive Directors and proposed Incentive Participants under the First Grant, have abstained from voting at the Board meeting to approve the adoption of the Restricted A Shares Incentive Scheme, the Administrative Measures for the Appraisal System, the Proposed Grant and the mandate to be granted to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme.

An Independent Board Committee comprising all the independent non-executive Directors, namely Mr. Xu Yanjun, Mr. Yang Bin, Mr. Guo Guoqing, Mr. Wang Xiaojun and Mr. Yu Xiong, has been established to advise the independent Shareholders in respect of the Restricted A Shares Incentive Scheme, the Administrative Measures on the Appraisal System, the Proposed Grant and the mandate to be granted to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme. Guoyuan Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the independent Shareholders in this respect.

– 17 –

LETTER FROM THE BOARD

III. EGM, A SHAREHOLDERS’ CLASS MEETING AND H SHAREHOLDERS’ CLASS MEETING

The notices convening the EGM and H Shareholders’ Class Meeting to be held at Conference Room on the 2nd Floor of Livzon Building, 132 Guihua North Road, Gongbei, Zhuhai, Guangdong Province, China on Friday, 13 March 2015 at 2:00 p.m. and 4:00 p.m. (or immediately after the conclusion or adjournment of the EGM and the A Shareholders’ Class Meeting), respectively were given by the Company on 26 January 2015. The reply slips and forms of proxy for use at the EGM and H Shareholders’ Class Meeting, which were also despatched by the Company on 26 January 2015, are also available on the websites of the Hong Kong Exchanges and Clearing Limited (www.hkexnews.hk) and of the Company (www.livzon.com.cn).

Please note that Mr. Xu Yanjun, an independent non-executive Director, has sent out the Independent Director’s Proxy Forms in accordance with the relevant regulations of the PRC to solicit votes from the Shareholders on the special resolutions in respect of the Restricted A Shares Incentive Scheme and its related matters at the EGM, A Shareholders’ Class Meeting and H Shareholders’ Class Meeting. Should you wish to appoint Mr. Xu Yanjun as your proxy to vote for you and on your behalf at the EGM and/or the H Shareholders’ Class Meeting on the special resolutions regarding the Restricted A Shares Incentive Scheme and its related matters, please complete the Independent Director’s Proxy Forms. Alternatively, if you wish to appoint any person other than Mr. Xu Yanjun as your proxy to vote for you and on your behalf at the EGM and/or the H Shareholders’ Class Meeting on the special resolutions regarding the Restricted A Shares Incentive Scheme and its related matters, you may simply disregard the Independent Director’s Proxy Forms and complete and return the proxy forms instead. The report on the solicitation of voting rights by the independent non-executive Directors prepared by Mr. Xu Yanjun has also been published on the websites of the Hong Kong Exchanges and Clearing Limited (www.hkexnews.hk) and the Company (www.livzon.com.cn) by an announcement of the Company dated 26 January 2015.

– 18 –

LETTER FROM THE BOARD

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, each of the following A Shareholders, also being Incentive Participants under the First Grant and thus having interests in the resolutions to be proposed at the EGM and the A Shareholders’ Class Meeting, will abstain from voting at the EGM and the A Shareholders’ Class Meeting:

Name Position 1 Ding Xiaoxu Deputy general manager of subsidiary 2 Cai Xinfu General manager of subsidiary 3 Liang Huaying Department head of the Company 4 Yang Jue Department manager of the Company 5 Liu Qiping Department manager of subsidiary 6 Hu Zhenxiang Department director of subsidiary 7 Huang Huibin Department director of subsidiary 8 Xie Guocai Department manager of subsidiary 9 Shan Lianmin Department manager of subsidiary 10 Chu Xuntao Department director of subsidiary 11 Xian Yufei Department manager of the Company 12 Wei Yongyu Department director of the Company 13 Chen Huifang Department head of subsidiary 14 Lin Yingyong Department manager of the Company 15 Zhao Yichun Department director of the Company	Number of A Shares held as at the Latest Practicable Date 1,000 888 100 751 1,000 1,700 200 900 3,301 2,300 100 5,000 600 1 1,600
	19,441

Name
Position
1
Ding Xiaoxu
Deputy general manager of subsidiary
2
Cai Xinfu
General manager of subsidiary
3
Liang Huaying
Department head of the Company
4
Yang Jue
Department manager of the Company
5
Liu Qiping
Department manager of subsidiary
6
Hu Zhenxiang
Department director of subsidiary
7
Huang Huibin
Department director of subsidiary
8
Xie Guocai
Department manager of subsidiary
9
Shan Lianmin
Department manager of subsidiary
10
Chu Xuntao
Department director of subsidiary
11
Xian Yufei
Department manager of the Company
12
Wei Yongyu
Department director of the Company
13
Chen Huifang
Department head of subsidiary
14
Lin Yingyong
Department manager of the Company
15
Zhao Yichun
Department director of the Company

Number of A
Shares held as at
the Latest
Practicable Date
1,000
888
100
751
1,000
1,700
200
900
3,301
2,300
100
5,000
600
1
1,600

19,441

To the best of the Directors’ knowledge, information and belief, save for the aforementioned A Shareholders, no Shareholder is required to abstain from voting at the EGM, the A Shareholders’ Class Meeting and the H Shareholders’ Class Meeting.

– 19 –

LETTER FROM THE BOARD

IV. CLOSURE OF REGISTER OF MEMBERS

For the purpose of determining the entitlement of H Shareholders to attend and vote at the EGM and H Shareholders’ Class Meeting, the register of members of the Company for H Shares will be closed from Wednesday, 11 February 2015 to Friday, 13 March 2015, both days inclusive. In order to qualify for attending and voting at the EGM and H Shareholders’ Class Meeting, unregistered H Shareholders should ensure that all transfer documents for H Shares together with the relevant share certificates should be lodged for registration with the Company’s H Share Registrar, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong no later than 4:30 p.m. on Tuesday, 10 February 2015.

Whether or not you are able to attend the EGM and the H Shareholders’ Class Meeting in person or by proxy, you are requested to complete the reply slips in accordance with the instructions printed thereon and return it to the H Share Registrar of the Company, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong in person, by post or by fax not later than twenty (20) days before the holding of the said meetings, i.e. in any event on or before Saturday, 21 February 2015. If you would like to attend the EGM and the H Shareholders’ Class Meeting by proxy, please complete the proxy form(s) in accordance with the instructions printed thereon and return it to the H Share Registrar of the Company, Tricor Investor Services Limited, as soon as possible and in any event no later than 24 hours before the holding of the relevant meetings or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting at the EGM and the H Shareholders’ Class Meeting or any adjournment thereof (as the case may be) in person if you so wish.

V. VOTING BY POLL

Pursuant to Rule 13.39(4) of the Hong Kong Listing Rules, all resolutions put forward at the EGM and the H Shareholders’ Class Meeting will be voted on by poll except where the chairman of the meeting, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands. Poll results will be announced by the Company by means set out in Rule 13.39(5) of the Hong Kong Listing Rules after the EGM and the H Shareholders’ Class Meeting.

VI. RECOMMENDATION

The Board considers that terms of the Restricted A Shares Incentive Scheme, the Administrative Measures for the Appraisal System, the Proposed Grant and the mandate to be granted to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme are fair and reasonable so far as the independent Shareholders are concerned, and in the interests of the Group and the Shareholders as a whole. Accordingly, the Board recommends the independent Shareholders to vote in favour of the resolutions to be proposed at the EGM and H Shareholders’ Class Meeting.

– 20 –

LETTER FROM THE BOARD

The Independent Board Committee, having considered the Restricted A Shares Incentive Scheme, the Administrative Measures for the Appraisal System, the Proposed Grant and the mandate to be granted to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme, and the factors and reasons considered by the Independent Financial Adviser and its opinion as stated in its letter of advice, considers that the Restricted A Shares Incentive Scheme, the Administrative Measures for the Appraisal System and the Proposed Grant are fair and reasonable so far as the independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM to approve the Restricted A Shares Incentive Scheme, the Administrative Measures for the Appraisal System, the Proposed Grant and the mandate to be granted to the Board to deal with matters regarding to the Restricted A Shares Incentive Scheme.

VII. ADDITIONAL INFORMATION

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

By order of the Board 麗珠醫藥集團股份有限公司 Livzon Pharmaceutical Group Inc.* Yang Liang

Company Secretary

– 21 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock code: 1513)

5 February 2015

To the Independent Shareholders

Dear Sir or Madam,

PROPOSED ADOPTION OF RESTRICTED A SHARES INCENTIVE SCHEME AND PROPOSED GRANT AND CONNECTED TRANSACTIONS

We refer to the circular dated 5 February 2015 issued by the Company (the ‘‘Circular’’), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

We have been appointed by the Board as the Independent Board Committee to advise the independent Shareholders on whether the Restricted A Shares Incentive Scheme, the Administrative Measures for the Appraisal System, the Proposed Grant and the mandate to be granted to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme are fair and reasonable so far as the independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole.

We wish to draw your attention to the letter of advice from the Independent Financial Adviser as set out on pages 24 to 44 of the Circular and the letter from the Board as set out on pages 5 to 21 of the Circular.

– 22 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the Restricted A Shares Incentive Scheme, the Administrative Measures for the Appraisal System, the Proposed Grant and the mandate to be granted to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme, and the factors and reasons considered by the Independent Financial Adviser and its opinion as stated in its letter of advice, we are of the view that the terms of the Restricted A Shares Incentive Scheme, the Administrative Measures for the Appraisal System, the Proposed Grant and the mandate to be granted to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme are fair and reasonable so far as the independent Shareholders are concerned, and in the interests of the Group and the Shareholders as a whole.

Accordingly, we recommend the independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM to approve the Restricted A Shares Incentive Scheme, the Administrative Measures for the Appraisal System, the Proposed Grant and the mandate to be granted to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme.

Yours faithfully,

Independent Board Committee Mr. Xu Yanjun Mr. Yang Bin Mr. Guo Guoqing Mr. Wang Xiaojun Mr. Yu Xiong Independent non-executive Directors

For identification purpose only

– 23 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the text of a letter from Guoyuan Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

==> picture [15 x 15] intentionally omitted <==

22/F., CCB Tower, 3 Connaught Road Central, Hong Kong

5 February 2015

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

PROPOSED ADOPTION OF RESTRICTED A SHARES INCENTIVE SCHEME CONNECTED TRANSACTION – PROPOSED GRANT

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Shareholders other than those who have a material interest in the Proposed Grant and are required to abstain from voting on the relevant resolutions at the EGM (the ‘‘Independent Shareholders’’) in relation to the Restricted A Shares Incentive Scheme, the Administrative Measures for the Appraisal System and the Proposed Grant, which constitutes connected transactions for the Company. Details of the terms and the Proposed Grant are set out in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 5 February 2015 (the ‘‘Circular’’), of which this letter forms a part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context requires otherwise.

Our role as Independent Financial Adviser is to give our opinion as to whether the terms of the Restricted A Shares Incentive Scheme, the Administrative Measures for the Appraisal System and the Proposed Grant to certain Incentive Participants who are directors and/or supervisors of the Company and/or its subsidiaries are connected persons of the Company (collectively, the ‘‘Connected Participants’’) are in the interests of the Company, on normal commercial terms, are fair and reasonable insofar as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as whole.

The Proposed Grant to the Connected Participants constitutes connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules. Therefore, the Proposed Grant is subject to the requirements of reporting, announcement and the approval by the Independent Shareholders under the Hong Kong Listing Rules. The Proposed Grant is conditional upon the approval of the Independent Shareholders by way of poll at the EGM.

– 24 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee, comprising Mr. Xu Yanjun, Mr. Yang Bin, Mr. Guo Guoqing, Mr. Wang Xiaojun and Mr. Yu Xiong, being all the independent non-executive Directors, has been established to (i) advise the Independent Shareholders as to whether the Restricted A Shares Incentive Scheme, the Administrative Measures for the Appraisal System and the Proposed Grant are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole; and (ii) advise the Independent Shareholders on how to vote in respect of the above and whether to grant a mandate to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme.

BASIS OF OUR OPINION

In formulating our opinion, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors and the senior management of the Company. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so up to the date of the EGM. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Hong Kong Listing Rules.

During the past two years, there were no engagements between the Company and Guoyuan Capital (Hong Kong) Limited. As at the Latest Practicable Date, there were no relationships or interests between (i) Guoyuan Capital (Hong Kong) Limited and (ii) the Company and its subsidiaries and associates that could reasonably be regarded as relevant to affect 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 connected transactions contemplated under the Proposed Grant as detailed in the Circular.

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, that the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement in the Circular or the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.

– 25 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent verification of the information included in the Circular and the information provided to us by the Directors and the senior management of the Group, nor have we conducted any form of in-depth investigation into the business, affairs, financial position or prospects of the Group.

PRINCIPAL FACTORS TAKEN INTO CONSIDERATION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders in respect of in respect of the terms of the Proposed Grant to the Connected Participants, we have taken into consideration the following principal factors and reasons:

1. Background of the Group

The Group is a PRC based pharmaceutical company mainly engaged in research, development, production and sales of pharmaceutical products. The Group’s H Shares were listed on the main board of the Hong Kong Stock Exchange since 16 January 2014 and its A Shares were listed on the main board of the Shenzhen Stock Exchange since 28 October 1993.

2. Background to and reasons for the adoption of the Restricted A Shares Incentive Scheme and the Proposed Grant

Reference is made to the announcement of the Company dated 15 December 2014, in relation to, among other things, the proposed adoption of the Restricted A Shares Incentive Scheme, the Proposed Grant and the mandate to be granted to the Board regarding the Restricted A Shares Incentive Scheme (the ‘‘Announcement’’).

On 15 December 2014 and 23 January 2015, the Board considered and approved a resolution which proposed to adopt the Restricted A Shares Incentive Scheme and the Proposed Grant and the revised contents of the Restricted A Shares Incentive Scheme and the Proposed Grant, respectively. The Restricted A Shares Incentive Scheme shall become effective upon no objection filing by CSRC and approval by the Shareholders at the EGM, the A Shareholders’ Class Meeting and the H Shareholders’ Class Meeting. On 13 January 2015, CSRC has confirmed to the Company that it has no objection and has filed the registration of the initial draft of the Restricted A Shares Incentive Scheme and its revised contents submitted by the Company.

The Restricted A Shares Incentive Scheme shall be effective from the Date of Grant of Restricted Shares and end on the date on which all the Restricted Shares granted have been unlocked or otherwise repurchased and cancelled.

– 26 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Full text of the terms of the Restricted A Shares Incentive Scheme and the Administrative Measures for the Appraisal System of the Restricted A Shares Incentive Scheme are set out in Appendix I and Appendix II to the Circular, respectively.

The Restricted A Shares Incentive Scheme is developed in order to further establish and improve the Company’s long-term incentive mechanism, attract and retain outstanding employees, fully motivate Livzon Pharmaceutical Group Inc.*’s core staffs, and effectively integrate Shareholders’ interests, the Company’s interests and managers’ individual interests so that the parties will make joint efforts for the Company’s long-term development. The Restricted A Shares Incentive Scheme is developed on the precondition of fully safeguarding Shareholders’ interests, in line with the principle of benefits being in proportion to contributions and in accordance with provisions of the relevant laws, regulations and regulatory documents, such as the Company Law, the Securities Law, the Administrative Measures, No. 1 – No. 3 of the Memorandum on the Issues Concerning Equity Incentives and the Articles of Association.

3. Payment and control of the Restricted Shares

The Restricted Shares shall be locked up immediately upon granting. The Restricted Shares granted under the Restricted A Shares Incentive Scheme shall have no less than 12month lock-up period commencing on the Date of Grant.

The Directors, having made all reasonable enquiries, confirm that the Restricted Shares registered in an Incentive Participant’s name after the granting are not shown in his/her securities account, and they are not available for dealing purposes by the Incentive Participant before unlocking. Only the Company could tender an application to the Shenzhen Stock Exchange to unlock the Restricted Shares. After the Shenzhen Stock Exchange has granted its permission for unlocking, the Shenzhen branch of China Securities Depository and Clearing Corporation Limited (‘‘CSDC’’) will proceed to release those Restricted Shares which are permitted to be unlocked. The unlocked Restricted Shares will thus be shown in the securities account of the relevant Incentive Participant and he/she will then be free to dispose of such Restricted Shares.

– 27 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The repurchase and cancellation procedures of the Restricted Shares are as follows:

The Company contacts and notifies the Shenzhen Stock Exchange and CSDC in advance for the repurchase and cancellation.
The Company tenders an application to the Shenzhen Stock Exchange for unlocking the relevant Restricted Shares and pays the Incentive Participants for the repurchase.
The Company registers the transfer of the Restricted Shares with CSDC and cancels the Restricted Shares.

The Directors confirm that the unlocking, repurchase and cancellation of the Restricted Shares are subject to: (1) approval of the Board; (2) approval of the Shenzhen Stock Exchange on the application which could be tendered only by the Company; and (3) the procedures to be handled by CSDC. Therefore the Company could ensure that it could repurchase the Restricted Shares from the Incentive Participants if the conditions of unlocking are not fulfilled.

4. Termination of the Restricted A Shares Incentive Scheme

The Restricted A Shares Incentive Scheme shall be terminated if any of the following events occur to the Company:

(i) Change in control of the Company:

Change in control of the Company means that there is reduction of shareholding in the Company by its controlling shareholder which makes it/he/she (1) has effective control of less than 30% of voting rights of the Company; or (2) cannot determine the appointment of more than half of the members of the Board; or (3) does not have control of adequate voting rights to exert influential power on resolutions of general meetings and to decide the Company’s financial and operation policies;

– 28 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Merger and spin-off of the Company:

(iii) issue of an auditors’ report with adverse opinion or which indicates an inability to give opinion by a certified public accountant with respect to the financial report of the Company for its most recent accounting year;
(iv) imposition of administrative penalties by the CSRC within the most recent year due to material non-compliance of laws or regulations; and
(v) any other circumstances as determined by the CSRC.

5. Basis for selecting the Incentive Participants and the Proposed Grant

According to the Company, the Incentive Participants under the Restricted A Shares Incentive Scheme shall be determined by taking into account of the Company’s actual conditions, in accordance with relevant provisions of the relevant laws, regulations and regulatory documents, such as the Company Law, the Securities Law, the Administrative Measures, No. 1 – No. 3 of the Memorandum on the Issues Concerning Equity Incentives and the Articles of association.

The Incentive Participants under the Restricted A Shares Incentive Scheme comprise the Company’s Directors, mid and senior-level management, core technical (business) personnel, and relevant staff eligible for incentives in the opinion of the Board, but excluding independent Directors and supervisors. Among the Incentive Participants, the Directors and senior executives shall be elected by the general meeting of the Company or appointed by the Board. All the Incentive Participants shall have employment or service relationship with the Company or a subsidiary of the Company during the evaluation period of the Restricted A Shares Incentive Scheme.

– 29 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The reserved Incentive Participants, who are not determined when the Restricted A Shares Incentive Scheme is approved but are included during the validity period of the Scheme (the ‘‘Reserved Incentive Participants’’), shall be determined by the Board within 12 months from the initial Date of Grant and they shall be proposed by the Board and confirmed by the Supervisory Committee. The Company shall also promptly and accurately disclose the relevant information in relation to the Reserved Incentive Participants on the designated website pursuant to the relevant requirements. The standards for determining the Reserved Incentive Participants should be the same as the standards for the initial grant.

As advised by the Company, the Board has not determined whether the 1,000,000 reserved Restricted Shares will be granted to Reserved Incentive Participants who are connected persons of the Company or not as at the Latest Practicable Date. The grant of the 1,000,000 reserved Restricted Shares to Reserved Incentive Participants may or may not constitute a connection transaction depending on whether the Reserved Incentive Participants is a connected person of the Company. In view of the above, we understand from the Directors that the Company will comply with the relevant disclosure, reporting and/or shareholders’ approval requirements under the Hong Kong Listing Rules as and when required.

6. The key terms of the Restricted A Shares Incentive Scheme

(i) Number of the Restricted Shares

The shares of the Company to be granted under the Restricted A Shares Incentive Scheme comprise only the Company’s A Shares. Pursuant to the Restricted A Shares Incentive Scheme, the total number of Restricted Shares that shall be granted is 10,000,000 A Shares, representing approximately 3.38% of the total issued share capital of the Company and approximately 5.44% of the total number of A Shares in issue as at the Latest Practicable Date, of which 9,000,000 A Shares will be initially granted and 1,000,000 A Shares will be reserved for the Reserved Incentive Participants. The number of the Restricted Shares to be granted to the Connected Participants only represents (i) approximately 12.102% of the total Restricted Shares to be granted; and (ii) approximately 0.369% of the total issued share capital of the Company as at the Latest Practicable Date.

– 30 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Except that the Restricted Shares cannot be disposed of during the lock-up period under the Restricted A Shares Incentive Scheme, Restricted Shares granted to the Incentive Participants will rank pari passu in all respect with other Company’s A Shares in the event of any alteration in the capital structure of the Company, including but not limited to capitalisation, bonus issues, share subdivision and consolidation, reduction of share capital or pro rata share allotment.

(ii) Maximum grant to the Incentive Participants

According to the Proposed Grant, the total amount of Restricted Shares to be granted to an Incentive Participant under the Restricted A Shares Incentive Scheme shall not exceed 1% of the total number of shares of the Company.

(iii) Allocation of the Restricted Shares under the proposed First Grant

As stated in the ‘‘Letter from the Board’’ set out in the Circular, an aggregate of 1,089,200 Restricted Shares out of 9,000,000 Restricted Shares are proposed to be allocated to 15 Connected Participants under the First Grant. The remaining Restricted Shares of 7,910,800 under the First Grant will be initially granted to 469 Incentive Participants who are not connected persons of the Company under the definition of the Hong Kong Listing Rules.

Details of the proposed First Grant are set out in the table below.

				% of total
				issued share
				capital of the
		Number of	% of	Company as
		Restricted	Restricted	at the Latest
		shares to be	Shares to be	Practicable
Name	Position	granted	granted	Date
Tao Desheng（陶德勝）*	Executive Director, Vice	212,300	2.359%	0.072%
	Chairman and President
Yang Daihong（楊代宏）*	Executive Director and	135,800	1.509%	0.046%
	Vice President
Xu Guoxiang（徐國祥）#	Vice President	212,300	2.359%	0.072%
Lu Wenqi（陸文岐）#	Vice President	135,800	1.509%	0.046%
Si Yanxia（司燕霞）#	Vice President	84,900	0.943%	0.029%
Yang Liang（楊亮）#	Secretary to the Board and	40,400	0.449%	0.014%
	Company Secretary

– 31 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Name Position Hou Xuemei（侯雪梅） Senior management of the research institute Wang Rui（王銳） General manager of subsidiaries Cai Xinfu（蔡信福） General manager of subsidiaries Zeng Yongqing（曾永清） General manager of subsidiaries Dong Wei（董巍） General manager of subsidiaries Tang Yanggang（唐陽剛） General manager of subsidiaries Zhang Maohua（張茂華） General manager of subsidiaries Hu Yu（胡玉） General manager of subsidiaries Zhang Jigang（張吉剛）* General manager of subsidiaries Mid-level management and core technical (business) personnel (469 persons) Total Notes:	Number of Restricted shares to be granted 37,200 37,800 36,900 38,000 33,800 30,000 25,000 18,000 11,000 7,910,800 9,000,000	% of Restricted Shares to be granted 0.413% 0.420% 0.410% 0.422% 0.376% 0.333% 0.278% 0.200% 0.122% 87.898% 100.000%	% of total issued share capital of the Company as at the Latest Practicable Date 0.013% 0.013% 0.012% 0.013% 0.011% 0.010% 0.008% 0.006% 0.004% 2.675%
			3.044%

Connected Participants:

Directors and chief executive of the Company and subsidiaries and their respective associates

Senior management of the Company

– 32 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As set out in the ‘‘Letter from the Board’’ in the Circular and after discussed with the management of the Company, we understand that the Board has given due consideration to various factors, including the importance of work position, contribution level, individual performance and years of services of each Incentive Participant in determining the number of the Restricted Shares to be granted. The main reasons for the grant to the five Connected Participants listed below are as follows:

(1) Mr. Tao Desheng, an executive Director and a vice president of the Company, has been serving the Group for 30 years. He is responsible for the overall management of the general operation of the Company, and has an important role in the Group;
(2) Mr. Xu Guoxiang, a vice president of the Company, has been serving the Group for 8 years. He is mainly responsible for managing the pharmaceutical sales business of the Company, and has made substantial contribution in achieving annual operating results of the Company;
(3) Mr. Yang Daihong, an executive Director and a vice president of the Company, has been serving the Company for 18 years. He is mainly responsible for managing the general production and quality control of the Company, and has made positive contribution to the Company in assuring the quality of the Company’s products, and thus enhancing its competitiveness;
(4) Mr. Lu Wenqi, a vice president of the Company, has been serving the Group for 9 years. He is responsible for managing the scientific research of the Company, and has made positive contribution to the successful roll-out of all research projects of the Group, thus has helped the Group in pursuing its future strategic targets; and
(5) Ms. Si Yanxia, a vice president of the Company, has been serving the Company for 22 years. She is mainly responsible for managing the overall finance function of the Company, and has a relatively important role in the Company.

Based on the above factors, the Board proposed to grant a relatively large amount of the Restricted Shares to the above five Connected Participants, which ranges from 84,900 Restricted Shares to 212,300 Restricted Shares.

– 33 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In respect of the other 10 Connected Participants who are connected persons, the Board has also considered their ranking of their positions in the Group, such as being a general manager of subsidiaries of the Company. Due consideration has also been given to the profit contribution to the Group attributable to the respective subsidiary which he/she serves, and other factors (such as their respective years of service in the Group) has also been considered. The Board proposed to grant the number of the Restricted Shares ranging from 11,000 to 40,400 shares to such other 10 Connected Participants. We have also reviewed the appraisals of the 15 Connected Participants for the year 2014 and noted that the individual performance of each of the Connected Participants had achieved a score range of above 80, which regarded as a ‘‘pass’’ grade under the Administrative Measures for the Appraisal System.

In light of the above, we are of the view that the Proposed Grant to the Connected Participants is fair and reasonable as the Board has taken into consideration of (i) the Connected Participants’ ranking of their position, seniority and contribution level; and (ii) the individual performance of each of the Connected Participants in determining the quantity of the Restricted Shares to be granted to each Connected Participant.

Under the proposed First Grant, the Restricted Shares to 1,089,200 Connected Participants represents 0.369% of the total issued share capital of the Company as at the Latest Practicable Date. Accordingly, the Independent Shareholders are subject to a dilution of existing shareholding interests of approximately 0.369% arising solely from the proposed First Grant to the Connected Participants. Given such low magnitude of shareholding dilution, and given that the Restricted Shares are subject to a lock-up period of one year and an unlocking period of three years, we consider that the number of Restricted Shares to be initially granted to the Incentive Participants is not of a significant amount and therefore will not cause substantive impact to the existing shareholding structure of the Company.

(iv) Date of the Proposed Grant and life of the Restricted A Shares Incentive Scheme

Subject to the filing of the Restricted A Shares Incentive Scheme with the CSRC and no objection raised and within 30 days after the approval of the Shareholders at the EGM, the A Shareholders’ Class Meeting and H Shareholders’ Class Meeting, the Board shall determine the Date of Grant on which the Board subject to the registration and announcement of the Restricted A Shares Incentive Scheme to be completed. The reserved Restricted Shares of 1,000,000 A Shares must be granted within 12 months upon completion of the First Grant.

– 34 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The validity period of the Restricted A Shares Incentive Scheme shall commence on the date of the Proposed Grant of the Restricted Shares and end on the date on which all the Restricted Shares granted have been unlocked or otherwise repurchased and cancelled.

(v) Administrative Measures and Unlocking Conditions

The Restricted A Shares Incentive Scheme includes administrative measures, namely the Administrative Measures for the Appraisal System, to govern the operations of the Restricted A Shares Incentive Scheme, as well as the grant conditions of the Scheme. The remuneration and assessment committee of the Board shall be responsible for organising and carrying out the appraisal work of the Connected Participants, the passing of which is one of the unlocking conditions for the Restricted Shares. Details of the performance target at individual level are set out in the Chapter VIII headed ‘‘Conditions for Granting and Unlocking Restricted Shares’’ in Appendix I to the Circular.

In addition, the Incentive Participants shall not exercise the Restricted Shares granted, if they:

(1) have been subject to any public censure or declaration as an ineligible personnel by a stock exchange in the past three years;
(2) have been imposed with administrative penalties by the CSRC in the last three years due to material non-compliance;
(3) are prohibited from acting as a director, supervisor or a member of the senior management of the Company pursuant to the relevant company law; and
(4) have materially breached the relevant requirements of the Company as determined by the Board.

The Restricted Shares shall be locked up with a 12-month lock-up period immediately upon granting. On the unlocking date, the Company shall handle all matters required for the grant and unlocking of the Restricted Shares once the Incentive Participants have fulfilled the conditions for unlocking the Restricted Shares. The Restricted Shares held by the Incentive Participants who have not satisfied the conditions for unlocking the Restricted Shares shall be repurchased and cancelled by the Company. The unlock arrangements and performance targets for the Restricted Shares are set out as below:

– 35 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Restricted Shares granted under the First Grant:

		% of unlock
		Shares to the
		total Restricted
Unlock arrangement	Duration	Shares granted	Performance targets
First unlock period	Commencing from the first	40%	The net profit growth rate
	trading day after expiry of the		for the year 2015
	12-month period from the		should not be lower
	initial Date of Grant and		than 15% as compared
	ending on the last trading day		to year 2014.
	of the 24-month period from
	the Date of Grant
Second unlock period	Commencing from the first	30%	The net profit growth rate
	trading day after expiry of the		for the year 2016
	24-month period from the		should not be lower
	initial Date of Grant and		than 38% as compared
	ending on the last trading day		to year 2014.
	of the 36-month period from
	the Date of Grant
Third unlock period	Commencing from the first	30%	The net profit growth rate
	trading day after expiry of the		for the year 2017
	36-month period from the		should not be lower
	initial Date of Grant and		than 73% as compared
	ending on the last trading day		to year 2014.
	of the 48-month period from
	the Date of Grant

The reserved Restricted Shares if granted in 2015:

% of unlock Shares to the total Restricted Unlock arrangement Duration Shares granted Performance targets First unlock period Commencing from the first 40% The net profit growth rate trading day after expiry of the for the year 2015 12-month period from the should not be lower initial Date of Grant and than 15% as compared ending on the last trading day to year 2014. of the 24-month period from the Date of Grant

– 36 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

		% of unlock
		Shares to the
		total Restricted
Unlock arrangement	Duration	Shares granted	Performance targets
Second unlock period	Commencing from the first	30%	The net profit growth rate
	trading day after expiry of the		for the year 2016
	24-month period from the		should not be lower
	initial Date of Grant and		than 38% as compared
	ending on the last trading day		to year 2014.
	of the 36-month period from
	the Date of Grant
Third unlock period	Commencing from the first	30%	The net profit growth rate
	trading day after expiry of the		for the year 2017
	36-month period from the		should not be lower
	initial Date of Grant and		than 73% as compared
	ending on the last trading day		to year 2014.
	of the 48-month period from
	the Date of Grant

The reserved Restricted Shares if granted in 2016:

% of unlock Shares to the total Restricted Unlock arrangement Duration Shares granted Performance targets First unlock period Commencing from the first 50% The net profit growth rate trading day after expiry of the for the year 2016 12-month period from the should not be lower initial Date of Grant and than 38% as compared ending on the last trading day to year 2014. of the 24-month period from the Date of Grant Second unlock period Commencing from the first 50% The net profit growth rate trading day after expiry of the for the year 2017 24-month period from the should not be lower initial Date of Grant and than 73% as compared ending on the last trading day to year 2014. of the 36-month period from the Date of Grant

– 37 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having considered (i) the Company has incorporated administrative measures that would ensure the Company would achieve a certain growth rates before the Incentive Participants are entitled to the benefits of the Restricted Shares granted; (ii) the Restricted Shares will not be unlocked and will be repurchased and cancelled by the Company if individual appraisal is not satisfactory and performance targets are not reached; (iii) the locking arrangements can provide incentives for the Incentive Participants to further contribute to the growth of the Company; and (iv) the Connected Participants are subject to the same terms and conditions under the Restricted A Shares Incentive Scheme and the Administrative Measures for the Appraisal System, we are of the view that the Administrative Measures for the Appraisal System and the unlocking arrangements are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(vi) Grant price of the Restricted Shares

The grant price of the Restricted Shares under the First Grant is RMB25.20 per A Share, being 50% of the average trading price of the A Shares of RMB50.40 for the last 20 trading days up to and including 8 December 2014 immediately preceding the date of the announcement of the Board resolution for the passing of the Restricted A Shares Incentive Scheme.

The grant price of the reserved Restricted Shares will be 50% of the average trading price of A Shares of the Company for the last 20 trading days, preceding the date of announcement in relation to the grant of reserved Restricted Shares under the approval by the Board.

Comparison with the grant prices of restricted shares under similar schemes

In formulating our view on the grant price of the Restricted Shares, we have considered the market norm by studying the grant prices offered to restricted shares under the restricted share incentive schemes of the companies listed on the main board of the Shenzhen Stock Exchange adopted in the 3 months immediately precedent to the date of the Announcement. To the best of our knowledge and as far as we are aware of, we found 4 listed companies in the main board of the Shenzhen Stock Exchange (the ‘‘Comparable Shenzhen Listed Companies’’) which met the said criteria and they are exhaustive. Shareholders should note that the businesses, operations and prospects of the Company are not the same as the subject companies of the Comparable Shenzhen Listed Companies and we have not conducted any in-depth investigation into such respect. In addition, (i) all the restricted share incentive schemes under the Comparable Shenzhen Listed Companies have granted restricted shares to connected persons of the respective issuers; and (ii) the grant price of all the respective restricted share incentive schemes is under the requirements of No. 1 of the Memorandum on the Issues Concerning Equity Incentives issued by CSRC that the grant price shall not be less than 50% of the average share price for the 20 days

– 38 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

immediately before the reference date, we consider the Comparable Shenzhen Listed Companies to be fair and representative as they reflect the general recent trend of the restricted share incentive schemes in the open market.

			Percentage of the
			grant price to the	Restricted
			average stock price	shares granted
			for the shares being	to connected
			granted under	persons of the
			restricted share	respective
Date of announcement	Stock code	Name	incentive schemes	issuers
10 December 2014	SHE:000530	Dalian Refrigeration Co., Limited*	50%	Yes
		（大連冷凍機股份有限公司）
14 November 2014	SHE:000851	Gohigh Data Networks Technology Co	50%	Yes
		Limited*（大唐高鴻數據網絡技術
		股份有限公司）
4 November 2014	SHE:000716	Nanfang Black Sesame Group	50%	Yes
		Company Limited*（南方黑芝麻集
		團股份有限公司）
22 September 2014	SHE:000501	Wuhan Wushang Group Co., Limited*	50%	Yes
		（武漢武商集團股份有限公司）

Source: The restricted share incentive schemes of the respective companies

Based on the restricted share incentive scheme of the companies listed above, we are of the view that the initial grant price of the Restricted Shares which represents 50% of the average share price is in line with the market practice for shares that are offered under similar restricted share incentive schemes.

As advised by the Company, in determining the calculation of the grant price of the Restricted Shares, the Company has considered, among other things, (i) the requirements under Memorandum No.1 on Issues Relating to Incentive Share Options issued by the CSRC that the grant price shall not be less than 50% of the average share price for the 20 days immediately before the reference date; (ii) the Restricted Shares granted to the Connected Participants at the same grant price as other Incentive Participants; and (iii) similar schemes of listed companies on the main board of the Shenzhen Stock Exchange.

– 39 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having considered the above factors, we concur with the Board’s view that the terms of the Restricted A Shares Incentive Scheme, the Proposed Grant and the grant price of the Restricted Shares to the Connected Participants are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(vii) Adjustment methods

(1) Adjustment methods for the number of the Restricted Shares

As stated in Appendix 1 of the Circular, the Restricted A Shares Incentive Scheme set out the adjustment methods for the number of the Restricted Shares in the event of any (a) capitalisation issue, bonus issue and sub-division of share capital; (b) rights issue/open offer; or (c) share consolidation as follows:

(a) Capitalisation issue, bonus issue and sub-division of share capital
Q = Q0 x (1 + n)

n represents the rate of increase per share resulting from capitalisation issue, bonus issue and sub-division of share capital.

(b) Rights issue/Open offer

Q = Q0 x P1 x (1+n) / (P1 + P2 x n)

P1 represents the closing price of Shares on the record date; and P2 represents the price of rights issue/open offer; and n represents the ratio of rights issue/open offer.

Q = Q0 x n

n represents the ratio of share consolidation.

In all the above scenarios, Q0 represents the number of the Restricted Shares prior to the adjustment and Q represents the number of the Restricted Shares after the adjustment.

– 40 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the above formulas under different scenarios, the respective percentage of the adjusted number of the Restricted Shares / the adjusted total share capital of the Company will be the same as the respective percentage of number of the Restricted Shares / the total share capital of the Company before the adjustment. Accordingly, the adjustments will give the Incentive Participant the same proportion of the equity capital as that person was previously entitled and there will not be an increase in the magnitude of dilution to the Independent Shareholders. We are of the view that the adjustment methods for the number of the Restricted Shares are fair and reasonable.

(2) Adjustment methods for the grant price of the Restricted Shares
(a) Capitalisation issue, bonus issue and sub-division of share capital
- P = P0 ÷ (1 + n)

n represents the rate of increase per share resulting from capitalisation issue, bonus issue and sub-division of share capital.

(b) Rights issue/Open offer

P = P0 x (P1 + P2 x n) / [P1 x (1+n)]

P1 represents the closing price of Shares on the record date; P2 represents the price of rights issue/open offer; and n represents the ratio of rights issue/open offer.

P = P0 ÷ n

n represents the ratio of share consolidation.

(d) Declaration of dividends

P = P0 – V

V represents the dividend rate per share and P must remain greater than 1 after the adjustment.

– 41 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(e) New issue

In the event of new issue of shares, no adjustment shall be made to the number of the Restricted Shares and the grant price of the Restricted Shares.

In all the above scenarios, P0 represents the grant price of the Restricted Shares prior to the adjustment and P represents the grant price of the Restricted Shares after the adjustment.

For scenario (a), (b) and (c), there will be also adjustments on the number of the Restricted Shares in the same magnitude of the adjustments in the grant price of the Restricted Shares based on the above formulas under different scenarios. It will be resulted in (i) the respective percentage of the adjusted number of the Restricted Shares / the adjusted total share capital will be the same with the respective percentage of number of the Restricted Shares before the adjustments of the number of the Restricted Shares and the their grant price; and (ii) the subscription money payable from the Incentive Participant will be unchanged. Accordingly, the adjustments will give the Incentive Participant the same proportion of the equity capital as that person was previously entitled and there will not be an increase in the magnitude of dilution to the Independent Shareholders.

For scenario (d), the equity capital of the Company is expected to decrease after the payment of a dividend and the grant price will be adjusted for dividend for every Share and will reflect the change in the equity capital.

For scenario (e), there will be no adjustment to the number of the Restricted Shares and the grant price of the Restricted Shares.

In light of the above, we are of the view that the adjustment methods of the grant price of the Restricted Shares are fair and reasonable.

7. Financial effect of the Proposed Grant on the Group

(i) Assets

Upon completion of the subscription of the Restricted Shares by the Incentive Participants, the cash level of the Group will be increased by the consideration for the Proposed Grant of approximately RMB252 million. As such, the Proposed Grant is expected to have a positive impact on the assets of the Group.

– 42 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Liabilities

There should be no material effect on the liabilities of the Group under the Proposed Grant.

(iii) Earnings

As stated in the ‘‘Letter of Board’’ set out in the Circular, the Company estimated that the relevant costs or expenses of the initial grant of 9,000,000 Restricted Shares would be amounted to approximately RMB68.53 million (exact amount is subject to the fair value of the Restricted Shares as at the Date of Grant). The estimated costs of the initial grant of the Restricted Shares would be recognised in 3 instalments as administrative expenses on the consolidated financial statements of the Company in the proportion of 40%, 30% and 30% within the corresponding periods and will in turn lead to a decrease in the earnings of the Company. Pursuant to the Restricted A Shares Incentive Scheme, the Restricted Shares will only be unlocked by the Company when the performance targets as discussed in the above section have been met. Accordingly, the Proposed Grant should have positive effect on the Group’s earnings despite of the administrate expenses to be recognised in the consolidated financial statements of the Company.

(iv) Working Capital

RECOMMENDATION

Having considered the principal factors and reasons as discussed above, in particular (i) the experience and contribution provided by the Connected Participants who could help the Company in sustaining its future growth; (ii) the Company has incorporated administrative measures that would ensure the Company would achieve a certain growth rates before the Incentive Participants are entitled to the benefits of the Restricted Shares granted; (iii) the lock-up period for term of one to three years would help the Company to retain dedicated and performing Connected Participants; and (iv) the Connected Participants are subject to the same terms and conditions under the Restricted A Shares Incentive Scheme and the Administrative Measures for the Appraisal System, we are of the opinion that, the Proposed Grant to the Connected Participants is on normal commercial terms which are fair and reasonable and in the interest of the Company and the Shareholders as whole.

– 43 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Accordingly, we advise the Independent Shareholders and the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolutions to approve the Restricted A Shares Incentive Scheme, the Administrative Measures for the Appraisal System, the mandate to be granted to the Board regarding the Restricted A Shares Incentive Scheme and the Proposed Grant to the Connected Participants at the EGM.

Yours faithfully, For and on behalf of Guoyuan Capital (Hong Kong) Limited Andy Chan Managing Director

Mr. Andy Chan is a licensed person under the SFO to engage in Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities and as a responsible officer of Guoyuan Capital (Hong Kong) Limited. He has over 10 years of experience in investment banking and corporate finance.

– 44 –

RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

The full text of the proposed draft of the Restricted A Shares Incentive Scheme is set out as follows:

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock code: 1513)

RESTRICTED A SHARES INCENTIVE SCHEME (REVISED DRAFT) AND ITS SUMMARY JANUARY 2015

DECLARATION

The Company and all its Directors and supervisors guarantee that the Scheme and the summary thereof do not contain any false representation, misleading statement or material omission, and jointly and severally accept full legal responsibility for the truthfulness, accuracy and completeness of its contents.

SPECIAL NOTICE

The share incentive scheme (‘‘Scheme’’) is formulated in accordance with the Company Law of the People’s Republic of China (‘‘PRC’’), the Securities Law of the PRC, the Administrative Measures on Share Incentives of Listed Companies (Trial), the No. 1 – No. 3 of the Memorandum on the Issues Concerning Equity Incentives and the relevant laws, regulations and regulatory documents, as well as the articles of association of Livzon Pharmaceutical Group Inc.* (hereinafter referred to as ‘‘Livzon Group’’ or the ‘‘Company’’).
For identification purpose only

I – 1

RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

The form of incentive adopted by the Scheme is restricted shares (‘‘Restricted Shares’’). The source of the shares shall be new shares issued to the incentive participants (‘‘Incentive Participants’’) by the Company.

Pursuant to the Scheme, the Incentive Participants will be granted 10,000,000 Restricted A Shares, representing 3.38% of the Company’s total share capital of approximately 295,721,900 shares when the Scheme was signed, of which 9,000,000 shares will be granted initially (‘‘First Grant’’), representing 3.04% of the Company’s total share capital, and 1,000,000 shares, the remaining 10% of the Restricted Shares, will be reserved. The number of Restricted Shares to be granted to any Incentive Participants under the Scheme will not exceed 1% of the Company’s total share capital prior to the presentation of the Scheme at the shareholders’ general meeting.

The price of Restricted Shares granted by the Company to the Incentive Participants shall be RMB25.20 per share. The grant price is determined based on 50% of the average share price of the Company of RMB50.40 for the last 20 trading days (i.e. the total trading value of shares divided by the total trading volume of shares for the last 20 trading days) immediately preceding the announcement of the Scheme.
In the event of any capitalisation issue, bonus issue, share sub-division, share consolidation, rights issue or dividend distribution or other events occurring during the period from the date of the announcement of the Scheme to the date on which the Incentive Participants complete the registration of the Restricted Shares, the grant price and the number of Restricted Shares granted shall be adjusted accordingly.
The validity period of the Scheme shall not exceed 5 years and shall commence from the date of grant (‘‘Date of Grant’’) of Restricted Shares to the date on which all the Restricted Shares granted to Incentive Participants are unlocked or otherwise repurchased and cancelled.

I – 2

RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

Restricted Shares shall be locked up immediately upon granting. The Restricted Shares granted under the Scheme shall have a 12-month lock-up period commencing from the Date of Grant.

For the Restricted Shares granted under the First Grant, the unlocking arrangement is as follows:

		Percentage of
		unlock shares
		to the total
		Restricted
Unlock period	Duration	Shares granted
First unlock period	Commencing from the first trading day after expiry of	40%
	the 12-month period from the initial Date of Grant
	and ending on the last trading day of the 24-month
	period from the Date of Grant
Second unlock period	Commencing from the first trading day after expiry of	30%
	the 24-month period from the initial Date of Grant
	and ending on the last trading day of the 36-month
	period from the Date of Grant
Third unlock period	Commencing from the first trading day after expiry of	30%
	the 36-month period from the initial Date of Grant
	and ending on the last trading day of the 48-month
	period from the Date of Grant

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APPENDIX I

The unlock arrangement for reserved Restricted Shares is as follows:

(1) If the reserved Restricted Shares are granted in 2015, the unlock arrangement for the Restricted Shares is as follows:

		Percentage of
		unlock shares
Unlock period		to the total
for the reserved		Restricted
Restricted Shares	Duration	Shares granted
First unlock period for	Commencing from the first trading day after	40%
the reserved	expiry of the 12-month period from the Date of
Restricted Shares	Grant of reserved Restricted Shares and ending
	on the last trading day of the 24-month period
	from the relevant Date of Grant
Second unlock period	Commencing from the first trading day after	30%
for the reserved	expiry of the 24-month period from the Date of
Restricted Shares	Grant of reserved Restricted Shares and ending
	on the last trading day of the 36-month period
	from the relevant Date of Grant
Third unlock period for	Commencing from the first trading day after	30%
the reserved	expiry of the 36-month period from the Date of
Restricted Shares	Grant of reserved Restricted Shares and ending
	on the last trading day of the 48-month period
	from the relevant Date of Grant

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APPENDIX I

(2) If the reserved Restricted Shares are granted in 2016, the unlock arrangement for the Restricted Shares is as follows:

		Percentage of
		unlock shares
Unlock period		to the total
for the reserved		Restricted
Restricted Shares	Duration	Shares granted
First unlock period for	Commencing from the first trading day after	50%
the reserved	expiry of the 12-month period from the Date of
Restricted Shares	Grant of reserved Restricted Shares and ending
	on the last trading day of the 24-month period
	from the relevant Date of Grant
Second unlock period	Commencing from the first trading day after	50%
for the reserved	expiry of the 24-month period from the Date of
Restricted Shares	Grant of reserved Restricted Shares and ending
	on the last trading day of the 36-month period
	from the relevant Dater of Grant

Conditions of unlocking Restricted Shares

For the Restricted Shares granted under the First Grant, the annual performance targets are as follows:

Unlock Period Performance Target

First unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2015 shall not be lower than 15%;

Second unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2016 shall not be lower than 38%;

Third unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2017 shall not be lower than 73%.

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RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

For the reserved Restricted Shares, the annual performance targets are as follows:

(1) If the reserved Restricted Shares are granted in 2015, the performance targets for the reserved Restricted Shares are as follows:

Unlock Period

for the reserved Restricted Shares Performance Target

First unlock period

On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2015 shall not be lower than 15%;

Second unlock period

  - On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2016 shall not be lower than 38%;

Third unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2017 shall not be lower than 73%.
(2) If the reserved Restricted Shares are granted in 2016, the performance targets for the reserved Restricted Shares are as follows:

Unlock Period for the

reserved Restricted Shares Performance Target

First unlock period

On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2016 shall not be lower than 38%;

Second unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2017 shall not be lower than 73%.

The ‘‘growth rate of net profit’’ as stated above is calculated based on the net profit attributable to the shareholders of the listed company after excluding extraordinary gains or losses.

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APPENDIX I

Both net profit attributable to the shareholders of the listed company and net profit (excluding the extraordinary gains or losses) attributable to the shareholders of the listed company during the lock-up period shall not be less than the average of the last three accounting years prior to the Date of Grant and shall not be negative.

The incentive cost of the Scheme will be recorded as administrative expenses.

In the event the conditions for unlocking are not satisfied in the respective period, the Company shall repurchase and cancel the Restricted Shares that can be unlocked during that year in accordance with the relevant provisions of the Scheme.

The Company undertakes that no substantial shareholders or ultimate beneficial owners together with their respective spouses and direct close relatives hold shares representing more than 5% or above interests of the Company has participated in the Scheme. All Incentive Participants of the Scheme have not concurrently participated in equity incentive schemes of two or more listed companies.
The Company undertakes that it will not provide any loan and any other forms of financial assistance to Incentive Participants (including providing guarantee for their loans) to acquire the Restricted Shares of the Scheme.
The implementation of the Scheme is subject to the following conditions: no objection filing of the Scheme with the China Securities Regulatory Commission and obtaining approvals from shareholders of the Company at the Company’s general meeting and the class meetings of the holders of A shares and H shares.
Within 30 days after the approval of the Scheme at the general meeting of the Company and the class meetings of the holders of A shares and H shares, the Company shall convene a meeting of the board of directors to grant the Restricted Shares to the Incentive Participants and complete the relevant procedures such as registration and announcement of the Scheme in accordance with the relevant provisions.
The implementation of the Scheme will not result in any non-compliance with the listing requirements with respect to shareholding distribution.

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APPENDIX I

I.	Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-9
II.	Purposes of the Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-10
III.	Administrative Body of the Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-10
IV.	Basis for Determining the Incentive Participants and
	the Scope of Incentive Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-11
V.	Source, Number and Allocation of Restricted Shares . . . . . . . . . . . . . . . . . . . . . .	I-12
VI.	Validity Period, Date of Grant, Lock-up Period, Unlocking Date and
	Black Out Period of the Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-14
VII.	Grant Price of the Restricted Shares and Basis for Determination . . . . . . . . . .	I-18
VIII.	Conditions of Granting and Unlocking Restricted Shares . . . . . . . . . . . . . . . . . . .	I-19
IX.	Adjustment Methods and Procedures of the Scheme . . . . . . . . . . . . . . . . . . . . . . .	I-23
X.	Accounting Treatment for Restricted Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-25
XI.	Procedures of Grant and Unlocking under the Scheme . . . . . . . . . . . . . . . . . . . . .	I-26
XII.	Rights and Obligations of the Company and
	Incentive Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-27
XIII.	Handling Unusual changes to the Company and Incentive Participants . . . . . .	I-28
XIV.	Principles of Repurchasing and Cancelling of Restricted Shares . . . . . . . . . . . .	I-30
XV.	Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-32

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APPENDIX I

CHAPTER I. DEFINITIONS

Unless the context specifies otherwise, the following expressions shall have the following meanings herein:

‘‘Livzon Group’’ or

Livzon Pharmaceutical Group Inc.*

‘‘the Company’’
‘‘Incentive Scheme’’ or
‘‘the Scheme’’
a long-term incentive scheme for the Company’s core employees with the subject matter being RMB-denominated ordinary shares of the Company
‘‘Restricted Shares’’
RMB-denominated ordinary shares of the Company granted to Incentive Participants at agreed prices by the Company pursuant to the conditions stipulated under the Scheme
‘‘Incentive Participants’’
the directors, mid and senior-level management, core technical (business) personnel and relevant staff of the Company whom the board of directors want to motivate, to be granted the Restricted Shares pursuant to the Scheme
‘‘Date of Grant’’
the date on which the Company grants the Restricted Shares to the Incentive Participants and which must be a trading day
‘‘Grant Price’’
the price of each Restricted Share to be granted by the Company to Incentive Participants
‘‘Lock-up Period’’
the period during which Incentive Participants are prohibited to transfer the Restricted Shares granted under the Scheme
‘‘Unlocking Date’’ the date on which the Restricted Shares held by Incentive Participants shall be unlocked upon the fulfillment of the Unlocking Conditions stipulated under the Scheme
‘‘Unlocking Conditions’’

the conditions to be fulfilled for unlocking the Restricted Shares held by Incentive Participants under the Scheme

‘‘Company Law’’

the Company Law of the People’s Republic of China

‘‘Securities Law’’
the Securities Law of the People’s Republic of China

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RESTRICTED A SHARES INCENTIVE SCHEME

‘‘Administrative Measures’’ the Administrative Measures on Share Incentives of Listed Companies (Trial) ‘‘Articles of Association’’ the articles of association of Livzon Pharmaceutical Group Inc.* ‘‘CSRC’’ China Securities Regulatory Commission ‘‘SSE’’ Shenzhen Stock Exchange ‘‘RMB’’ Renminbi

CHAPTER II. PURPOSES OF THE SCHEME

The Scheme is developed in order to further establish and improve the Company’s long-term incentive mechanism, attract and retain outstanding employees, fully motivate the core staff of Livzon Pharmaceutical Group Inc.* and effectively integrate shareholders’ interests, the Company’s interests and managers’ individual interests so that the parties will make joint efforts for the Company’s long-term development. The Scheme is developed on the precondition of fully safeguarding shareholders’ interests, in line with the principle of benefits being in proportion to contributions and in accordance with provisions of the relevant laws, regulations and regulatory documents, such as the Company Law, the Securities Law, the Administrative Measures, the No. 1 – No. 3 of the Memorandum on the Issues Concerning Equity Incentives and the Articles of Association.

CHAPTER III. ADMINISTRATIVE BODY OF THE SCHEME

The shareholders’ general meeting, as the ultimate authority of the Company, shall be responsible for considering and approving the implementation, modification and termination of the Scheme.
The board of directors shall act as the executive and administrative body for the Scheme, under which the remuneration and assessment committee (hereinafter referred to as ‘‘Remuneration Committee’’) shall be responsible for drafting and revising the Scheme, submitting the Scheme for approval at the general meeting of the Company and the class meetings for holders of A shares and H shares, submitting the same to competent authorities for review and handling matters relating to the Scheme within its scope of authority delegated at the general meeting.
The supervisory committee shall act as the supervisory authority for the Scheme and shall be responsible for verifying the list of Incentive Participants and supervising the implementation of the Scheme as to whether it is in compliance with the relevant laws, administrative regulations, departmental rules and operational rules of the SSE.

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APPENDIX I

The independent directors shall give independent advice as to whether the Scheme is beneficial to the Company’s sustainable development or is significantly detrimental to the interests of the Company and the shareholders as a whole, and shall solicit voting rights by proxy from all shareholders in respect of the Scheme.

CHAPTER IV. BASIS FOR DETERMINING THE INCENTIVE PARTICIPANTS AND THE SCOPE OF INCENTIVE PARTICIPANTS

1. Basis for determining the Incentive Participants

(i) Basis for determining the Incentive Participants

The Incentive Participants of the Scheme is determined after taking into account the circumstances of the Company and in accordance with the requirements of the relevant laws, regulations and regulatory documents, such as the Company Law, the Securities Law, the Administrative Measures, the No. 1 – No. 3 of the Memorandum on the Issues Concerning Equity Incentives and the Articles of Association.

(ii) Functional basis for determining the Incentive Participants

The Incentive Participants of the Scheme shall include the Company’s directors, mid and senior-level management, core technical (business) personnel and relevant staff whom the board of directors want to motivate, but excluding independent directors and supervisors.

2. Scope of the Incentive Participants

The Incentive Participants of the Scheme comprise the following 484 persons (excluding independent directors and supervisors):

(i) Directors and senior management of the Company;
(ii) Middle management of the Company;
(iii) Core technical (business) personnel of the Company; and
(iv) Relevant staff whom the board of directors of the Company want to motivate.

Among the above Incentive Participants, directors and senior executives shall be elected at the general meeting of the Company or appointed by the board of directors. All Incentive Participants shall have employment or service relationship with the Company or a subsidiary of the Company during the appraisal period of the Scheme.

Reserved Incentive Participants refer to participants who are not determined when the Scheme is approved at the general meeting of Company but are included in the Scheme during the validity period and include Incentive Participants whom the board of directors consider necessary

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RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

to increase their incentives. Reserved Incentive Participants shall be determined by the board of directors within 12 months from the initial Date of Grant. Following the proposals from the board of directors and further verification by the supervisory committee, the Company shall promptly and accurately disclose the relevant information in relation to such Incentive Participants on the designated website pursuant to the relevant requirements. The criteria for determining the reserved Incentive Participants shall be identical to the criteria for the First Grant.

3. Verification of Incentive Participants

The supervisory committee of the Company shall verify the list of Incentive Participants and report the results of such verification at the Company’s general meeting and the class meetings for holders of A shares and H shares.

CHAPTER V. SOURCE, NUMBER AND ALLOCATION OF RESTRICTED SHARES

1. Source of shares of the Scheme

The shares under the Scheme comprise the Company’s shares to be issued to the Incentive Participants.

2. Number of shares of the Scheme

Under the Scheme, Incentive Participants will be granted 10,000,000 Restricted Shares which are ordinary shares denominated in RMB, representing 3.38% of the Company’s total share capital of approximately 295,721,900 shares when the Scheme was signed, of which 9,000,000 shares will be granted under the First Grant, representing 3.04% of the Company’s total share capital, and 1,000,000 shares, representing the remaining 10% of the Restricted Shares, will be reserved.

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APPENDIX I

RESTRICTED A SHARES INCENTIVE SCHEME

3. Allocation of Restricted Shares to be granted to the Incentive Participants

The allocation details of the Restricted Shares to be granted to each Incentive Participant are as follows (the following percentages rounded up to the nearest two decimal places):

Name Position Tao Desheng（陶德勝） Vice Chairman and President Yang Daihong（楊代宏）Executive Director and Vice President Xu Guoxiang（徐國祥） Vice President Lu Wenqi（陸文岐） Vice President Si Yanxia（司燕霞） Vice President Yang Liang（楊亮） Secretary of the board of directors Mid-level management and core technical (business) personnel (478 persons) Reserved Total	Number of Restricted Shares to be granted (0’000 shares) 21.23 13.58 21.23 13.58 8.49 4.04 817.85 100 1,000	Percentage to the total number of Restricted Shares to be granted 2.12% 1.36% 2.12% 1.36% 0.85% 0.40% 81.79% 10% 100%	Percentage to the current total share capital 0.07% 0.05% 0.07% 0.05% 0.03% 0.01% 2.77% 0.34%
			3.38%

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APPENDIX I

Notes:

Incentive Participants under the Scheme shall not concurrently participate in equity incentive schemes of two or more listed companies. None of the substantial shareholders or ultimate beneficial owners together with their respective spouses and direct close relatives hold shares representing more than 5% or above interest of the Company has participated in the Scheme.
Shares granted to any of the Incentive Participants under the Scheme shall not exceed 1% of the Company’s existing share capital.
Prior to each grant of the reserved Restricted Shares, the board of directors shall convene a meeting to determine the number of shares to be granted, the list of Incentive Participants and the Grant Price. Upon the verification of the supervisory committee of the Company, the Company shall promptly and accurately disclose a summary of the grant and the relevant information in relation to such Incentive Participants on the designated website pursuant to the relevant requirements. Reserved Restricted Shares shall be granted within 12 months after the completion of the First Grant.

CHAPTER VI. VALIDITY PERIOD, DATE OF GRANT, LOCK-UP PERIOD, UNLOCKING DATE AND BLACK OUT PERIOD OF THE SCHEME

1. Validity Period of the Scheme

The validity period of the Scheme shall commence from the Date of Grant of the Restricted Shares and ending on the date on which all the Restricted Shares granted to the Incentive Participants have been unlocked or otherwise repurchased and cancelled, which shall not be longer than 5 years.

2. Date of Grant of the Scheme

Subject to no objection filing of the Scheme with the CSRC and obtaining approvals from shareholders of the Company at the Company’s general meeting and the class meetings of the holders of A shares and H shares, the board of directors shall determine the Date of Grant. The Date of Grant shall be within 30 days from the date on which the Scheme has been considered and approved by the shareholders of the Company at the Company’s general meeting and the class meetings of the holders of A shares and H shares, on which the Company shall convene a meeting of the board of directors to grant the Restricted Shares to the Incentive Participants and complete the relevant procedures such as registration and announcement. The reserved Restricted Shares must be granted within 12 months upon completion of the First Grant.

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APPENDIX I

The Date of Grant must be a trading day and shall not fall within any of the following periods:

(1) the period commencing from 30 days prior to the publication of periodic reports of the Company and ending on the second trading day after the publication of the reports, or in the event of delay in publishing the reports for special reasons, 30 days prior to the original date of publication;
(2) the period commencing from 10 days prior to the publication of the announcement of estimated results and preliminary results of the Company and ending on the second trading day after the publication of such announcement;
(3) the period commencing from the time at which a major transaction or major event is subject to decision and ending on the second trading day after such event is announced;
(4) the period commencing from the date of other material event that may influence the share price and ending on the second trading day after such material event is announced.

3. Lock-up Period of the Scheme

The Restricted Shares shall be locked up immediately upon granting. The Restricted Shares granted under the Scheme shall have a 12-month lock-up period commencing on the Date of Grant. On the Unlocking Date, the Company shall handle all matters required for unlocking of the Restricted Shares once the Incentive Participants have fulfilled the conditions for unlocking the Restricted Shares. Restricted Shares held by Incentive Participants who have not fulfilled the conditions for unlocking the Restricted Shares shall be repurchased and cancelled by the Company.

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APPENDIX I

4. Unlock Period of the Scheme

For the Restricted Shares granted under the First Grant, the unlocking arrangement is as follows:

		Percentage of
		unlock shares
		to the total
		Restricted
Unlock Period	Duration	Shares granted
First unlock period	Commencing from the first trading day after expiry of	40%
	the 12-month period from the initial Date of Grant
	and ending on the last trading day of the 24-month
	period from the Date of Grant
Second unlock period	Commencing from the first trading day after expiry of	30%
	the 24-month period from the initial Date of Grant
	and ending on the last trading day of the 36-month
	period from the Date of Grant
Third unlock period	Commencing from the first trading day after expiry of	30%
	the 36-month period from the initial Date of Grant
	and ending on the last trading day of the 48-month
	period from the Date of Grant

The unlock arrangement for reserved Restricted Shares is as below:

(1) If the reserved Restricted Shares are granted in 2015, the unlock arrangement for the reserved Restricted Shares is as follows:

		Percentage of
		unlock shares
Unlock Period		to the total
for the reserved		Restricted
Restricted Shares	Duration	Shares granted
First unlock period	Commencing from the first trading day after	40%
	expiry of the 12-month period from the Date of
	Grant of reserved Restricted Shares and ending
	on the last trading day of the 24-month period
	from the relevant Date of Grant

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APPENDIX I

		Percentage of
		unlock shares
Unlock Period		to the total
for the reserved		Restricted
Restricted Shares	Duration	Shares granted
Second unlock period	Commencing from the first trading day after	30%
	expiry of the 24-month period from the Date of
	Grant of reserved Restricted Shares and ending
	on the last trading day of the 36-month period
	from the relevant Date of Grant
Third unlock period	Commencing from the first trading day after	30%
	expiry of the 36-month period from the Date of
	Grant of reserved Restricted Shares and ending
	on the last trading day of the 48-month period
	from the relevant Date of Grant
If the reserved Restricted Shares are granted in 2016, the unlock arrangement for the
reserved Restricted	Shares is as follows:
		Percentage of
		unlock shares
Unlock Period		to the total
for the reserved		Restricted
Restricted Shares	Duration	Shares granted
First unlock period	Commencing from the first trading day after	50%
	expiry of the 12-month period from the Date of
	Grant of reserved Restricted Shares and ending
	on the last trading day of the 24-month period
	from the relevant Date of Grant
Second unlock period	Commencing from the first trading day after	50%
	expiry of the 24-month period from the Date of
	Grant of reserved Restricted Shares and ending
	on the last trading day of the 36-month period
	from the relevant Date of Grant

(2) If the reserved Restricted Shares are granted in 2016, the unlock arrangement for the reserved Restricted Shares is as follows:

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APPENDIX I

5. Black Out Period of the Scheme

The restricted sale arrangement under the Scheme shall be implemented in accordance with the Company Law, the Securities Law and the relevant laws, regulations and regulatory documents as well as the Articles of Association. Specific provisions are as follows:

(i) Where an Incentive Participant is a director or a member of the senior management of the Company, the number of shares of the Company which may be transferred by the Incentive Participant each year during his term of office shall not exceed 25% of the total number of the shares of the Company held by him. No shares of the Company held by him shall be transferred within six months after his termination of office.
(ii) Where an Incentive Participant is a director or a member of the senior management of the Company and he disposes of any shares of the Company within six months after acquisition or buys back such shares within six months after disposal, all gains arising therefrom shall be vested with the board of directors for the benefit of the Company.
(iii) If, during the validity period of the Scheme, there is any amendment to the requirements regarding transfer of shares by a director and a member of the senior management of the Company under the Company Law, the Securities Law and the relevant laws, regulations, regulatory documents and the Articles of Association, such amended requirements under the Company Law, the Securities Law and the relevant laws, regulations, regulatory documents and the Articles of Association shall apply to the shares transferred by the Incentive Participants during the relevant times.

CHAPTER VII. GRANT PRICE OF RESTRICTED SHARES AND BASIS FOR DETERMINATION

1. Grant Price of Restricted Shares

The price of the Restricted Shares granted under the First Grant shall be RMB25.20 per share, at which the Incentive Participants may purchase the Restricted Shares of the Company specially issued to them by the Company after the conditions for granting are met.

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APPENDIX I

2. Basis of determination on the Grant Price of Restricted Shares

The Grant Price of the Restricted Shares under the First Grant shall be RMB25.20 per share, being 50% of the average trading price of the Company’s shares of RMB50.40 for the last 20 trading days (i.e the total trading value of the shares divided by the total trading volume of the shares for the last 20 trading days) immediately preceding the announcement of the summary of the draft Scheme.

3. Basis of determination of the Grant Price of reserved Restricted Shares

Prior to each granting of reserved Restricted Shares, the Company shall convene a meeting of the board of directors and disclose a summary of the grant. The Grant Price shall be 50% of the average trading price of the Company’s shares for the last 20 trading days (i.e the total trading value of the shares divided by the total trading volume of the shares for the last 20 trading days) prior to the disclosure of the summary.

CHAPTER VIII. CONDITIONS OF GRANTING AND UNLOCKING RESTRICTED SHARES

1. Conditions of granting Restricted Shares

Incentive Participants may only be awarded with the Restricted Shares upon satisfaction of all of the following conditions. In other words, Restricted Shares cannot be granted if the conditions of granting are not satisfied.

(i) There is no occurrence of any of the following events on the part of the Company:
issue of an auditors’ report with adverse opinion or which indicates an inability to give opinion by a certified public accountant with respect to the financial report of the Company for its most recent accounting year;
imposition of administrative penalties by the CSRC within the most recent year due to material non-compliance of laws or regulations;
any other circumstances as determined by the CSRC.

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APPENDIX I

(ii) There is no occurrence of any of the following events on the part of the Incentive Participant:
being subject to any public censure or declaration as an ineligible personnel by a stock exchange in the last three years;
imposition of administrative penalties by the CSRC in the last three years due to material non-compliance of laws or regulations;
circumstances under which the Incentive Participant is prohibited from acting as a director and a member of the senior management of the Company pursuant to the Company Law;
any other material breach of relevant requirements of the Company as determined by the board of directors of the Company.

2. Conditions of unlocking Restricted Shares

During the unlock period, the Restricted Shares granted to the Incentive Participants may only be unlocked upon satisfaction of all of the following conditions.

(i) There is no occurrence of any of the following events on the part of the Company:
issue of an auditors’ report with adverse opinion or which indicates an inability to give opinion by a certified public accountant with respect to the financial report of the Company for its most recent accounting year;
imposition of administrative penalties by the CSRC within the most recent year due to material non-compliance of laws or regulations;
any other circumstances as determined by the CSRC.
(ii) There is no occurrence of any of the following events on the part of the Incentive Participant:
being subject to any public censure or declaration as an ineligible personnel by a stock exchange in the last three years;
imposition of administrative penalties by the CSRC in the last three years due to material non-compliance of laws or regulations;

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APPENDIX I

circumstances under which the Incentive Participant is prohibited from acting as a director and a member of the senior management of the Company pursuant to the Company Law;
any other material breach of relevant requirements of the Company as determined by the board of directors of the Company.
(iii) Performance target at the Company’s level as unlocking conditions

For the Restricted Shares granted under the First Grant, the annual performance targets are as follows:

Unlock period Performance target First unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2015 shall not be lower than 15%;

Second unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2016 shall not be lower than 38%;

Third unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2017 shall not be lower than 73%.

For the reserved Restricted Shares, the annual performance targets are as follows:

(1) If the reserved Restricted Shares are granted in 2015, the performance targets for the reserved Restricted Shares are as follows:

Unlock period for

the reserved

Restricted Shares Performance target

First unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2015 shall not be lower than 15%;

Second unlock On the basis of the Company’s net profit in 2014, the period growth rate of net profit of the Company for 2016 shall not be lower than 38%;

Third unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2017 shall not be lower than 73%.

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APPENDIX I

(2) If the reserved Restricted Shares are granted in 2016, the performance targets for the reserved Restricted Shares are as follows:

Unlock period for

the reserved

Restricted Shares Performance target

First unlock period

On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2016 shall not be lower than 38%;

Second unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2017 shall not be lower than 73%.

The ‘‘growth rate of net profit’’ as stated above is calculated based on the net profit attributable to the shareholders of the listed company after excluding extraordinary gains or losses.

Both net profit attributable to the shareholders of the listed company and net profit (excluding the extraordinary gains or losses) attributable to the shareholders of the listed company during the Lock-up Period shall not be less than the average of the last three accounting years prior to the Date of Grant and shall not be negative.

The incentive cost of the Scheme will be recorded as administrative expenses.

(iv) Performance target at individual level

Pursuant to the Administrative Measures for Appraisal System of the Share Incentive Scheme of Livzon Pharmaceutical Group Inc.* formulated by the Company, if the performance appraisal of an individual Incentive Participant was a grade of A, B or C in his/her appraisal for the preceding year, the performance of such Incentive Participant in the preceding year shall be regarded as ‘‘pass’’ and the Restricted Shares held by those Incentive Participants shall be unlocked in accordance with relevant unlock ratio for the individual that corresponds to the scores received from annual appraisal.

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RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

For Incentive Participants who received a grade of D in their individual appraisal for the preceding year, the performance of such Incentive Participant in the preceding year shall be regarded as ‘‘fail’’. The Company shall repurchase and cancel the Restricted Shares granted to such Incentive Participants that are subject to be unlocked for the respective period in accordance with the relevant provisions of the Scheme.

CHAPTER IX. ADJUSTMENT METHODS AND PROCEDURES OF THE SCHEME

1. Adjustment methods for the number of Restricted Shares

In the event of any capitalisation issue, bonus issue, sub-division, rights issue or consolidation of the share capital or other events during the period from the date of the announcement of the Scheme to the date on which the registration of Restricted Shares for Incentive Participants is completed, the number of Restricted Shares shall be adjusted accordingly. The adjustment methods are as follows:

(1) Capitalisation issue, bonus issue and sub-division of share capital

Q = Q0 x (1 + n)

Where: Q0 represents the number of Restricted Shares prior to the adjustment; n represents the rate of increase per share resulting from capitalisation issue, bonus issue and sub-division of share capital (i.e. the increase in number of shares upon capitalisation issue, bonus issue and sub-division of share capital); Q represents the number of Restricted Shares after the adjustment.

(2) Rights issue/Open offer

Q = Q0 x P1 x (1 + n)/(P1 + P2 x n)

Where: Q0 represents the number of Restricted Shares prior to the adjustment; P1 represents the closing price of shares on the record date; P2 represents the price of rights issue; n represents the ratio of rights issue, (i.e. the number of shares to be issued under rights issue to the total number of shares of the Company prior to rights issue); Q represents the number of Restricted Shares after the adjustment.

(3) Share consolidation

Q = Q0 x n

Where: Q0 represents the number of Restricted Shares prior to the adjustment; n represents the ratio of share consolidation (i.e. one share of the Company shall be consolidated into n shares); Q represents the number of Restricted Shares after the adjustment.

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RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

2. Adjustment methods for the Grant Price of Restricted Shares

In the event of declaration of dividend or any capitalisation issue, bonus issue, sub-division, rights issue or consolidation of the share capital or other events during the period from the date of the announcement of the Scheme to the date on which the registration of Restricted Shares for Incentive Participants is completed, the Grant Price of Restricted Shares shall be adjusted accordingly. The adjustment methods are as follows:

(1) Capitalisation issue, bonus issue and sub-division of share capital

P = P0 ÷ (1 + n)

Where: P0 represents the Grant Price prior to the adjustment; n represents the rate of increase per share resulting from capitalisation issue, bonus issue and sub-division of share capital; P represents the Grant Price after the adjustment.

(2) Rights issue/Open offer

P = P0 x (P1 + P2 x n)/[P1 x (1 + n)]

Where: P0 represents the Grant Price prior to the adjustment; P1 represents the closing price of shares on the record date; P2 represents the price of rights issue; n represents the ratio of rights issue (i.e. the number of shares to be issued under rights issue to the total share capital of the Company prior to rights issue); P represents the Grant Price after the adjustment.

(3) Share consolidation

P = P0 ÷ n

Where: P0 represents the Grant Price prior to the adjustment; n represents the ratio of share consolidation; P represents the Grant Price after the adjustment.

(4) Declaration of dividends

P = P0 – V

Where: P0 represents the Grant Price prior to the adjustment; V represents the dividend rate per share; P represents the Grant Price after the adjustment. P must remain greater than 1 after the adjustment.

(5) New issue

In the event of new issue of shares of the Company, no adjustment shall be made to the number and the Grant Price of Restricted Shares.

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RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

3. Adjustment procedures of the Scheme

The board of directors will be authorised by a general meeting of the Company to adjust the Grant Price and the number of Restricted Shares upon the occurrence of any of the above circumstances. The legal adviser shall give professional advice to the board of directors whether such adjustment is in compliance with the Administrative Measures, the Articles of Association and the requirements of the Scheme.

CHAPTER X. ACCOUNTING TREATMENT FOR RESTRICTED SHARES

According to the provision of ‘‘Accounting Standards for Enterprise No. 11 – Share-based Payment’’, the Company shall adjust the estimated number of Restricted Shares to be unlocked on the date of the balance sheet at each year and within the Lock-up Period based on the latest subsequent information, such as the changes in the number of personnel who are entitled to unlock their shares and the performance targets set to be achieved, and the services rendered by the employees in that period shall also be accounted for in the relevant costs or expenses and capital reserve at the fair value of Restricted Shares as at the Date of Grant.

The Company shall recognise the total costs based on 9,000,000 Restricted Shares amounting to approximately RMB68,531,700. The amount will be amortised in 3 instalments in the proportion of 40%:30%:30% by the Company within the corresponding years during the Lockup Period of the Scheme and the capital reserve amount will correspondingly increase. Assuming the Date of Grant is in April 2015, the amortisation cost of the Restricted Shares from 2015 to 2018 is set out as follows:

	Total costs
	to be
Restricted Shares granted	amortised	2015	2016	2017	2018
(0’000 shares)	(RMB0’000)	(RMB0’000)	(RMB0’000)	(RMB0’000)	(RMB0’000)
900	6,853.17	3,340.92	2,398.61	942.31	171.33

The costs of the Scheme shall be recognised as administrative expenses. Based on the information available, the Company expects that, without taking into account the effects of the Scheme on the results of the Company, the amortisation costs of the Restrictive A Shares Incentive Scheme shall have limited impact on the annual net profit during the validity period. Taking into consideration the positive impact of the Scheme on the development of the Company, including but not limited to, motivating the management team, increasing the operating efficiency and reducing the agency costs, the improvement on the results of the Company due to the Scheme shall be far exceed the increase in costs.

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RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

CHAPTER XI. PROCEDURES OF GRANT AND UNLOCKING UNDER THE SCHEME

Upon receiving the no objection filing from the CSRC, the Scheme will be presented to the shareholders of the Company at a general meeting and class meetings of holders of A shares and H shares for approval. During the voting of the Scheme at such meetings of the Company, independent directors shall solicit the proxy voting rights for the Scheme from all shareholders, and the Company will provide the voting choice by way of on-site or on-line voting (on-line voting is applicable to A shareholders only).
Upon approval of the Scheme at the general meeting of the Company and the class meetings of the holders of A shares and H shares, the Company will grant the Restricted Shares to Incentive Participants within a specific period in compliance with the requirements of the Scheme. The Date of Grant must be a trading day and shall comply with the relevant requirements.
Procedures of granting and unlocking Restricted Shares:
(i) Grant of Restricted Shares

Upon the approval of the Scheme at the Company’s general meeting and the class meetings of the holders of A shares and H shares, the board of directors of the Company shall grant the Restricted Shares based on the authority conferred to them at such meetings.

(ii) Procedures of unlocking Restricted Shares
Prior to an Unlocking Date, the Company shall confirm whether the Incentive Participants have fulfilled the conditions for unlocking the Restricted Shares. As to the Incentive Participants who have fulfilled the conditions for unlocking, the Company shall proceed to handle all unlocking matters; For the Incentive Participants who failed to fulfill the unlocking conditions, the Company shall repurchase and cancel the Restricted Shares held by them that are subject to unlock.
Incentive Participants may transfer their unlocked Restricted Shares whilst the transfer of the shares held by the Company’s directors and senior management shall comply with the requirements of the relevant laws, regulations and regulatory documents.

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RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

CHAPTER XII. RIGHTS AND OBLIGATIONS OF THE COMPANY AND INCENTIVE PARTICIPANTS

Rights and obligations of the Company
(i) The Company shall have the right to construe and execute the Scheme and shall evaluate the performance of Incentive Participants based on the Scheme. In the event that Incentive Participant fails to fulfill the unlocking conditions stipulated under the Scheme, the Company shall repurchase and cancel the Restricted Shares held by the Incentive Participants which have not been unlocked in accordance with the relevant provisions of the Scheme.
(ii) The Company undertakes not to provide any loans and any other forms of financial assistance to Incentive Participants (including providing guarantee for their loans) to acquire the Restricted Shares under the Scheme).
(iii) The Company shall discharge its obligations in relation to timely reporting and information disclosure under the Scheme in accordance with the relevant requirements.
(iv) The Company shall proactively procure the unlocking of Restricted Shares for the Incentive Participants who have fulfilled the unlocking conditions pursuant to the Scheme and the relevant requirements of the CSRC, stock exchanges and China Securities Depository and Clearing Corporation Limited. The Company shall not be held liable for losses suffered by the Incentive Participants for failing to unlock their Restricted Shares due to reasons caused by the CSRC, stock exchanges and China Securities Depository and Clearing Corporation Limited.

2. Rights and Obligations of Incentive Participants

(i) Incentive Participants shall, based on the Company’s requirements of the position, perform their responsibilities diligently in compliance with professional ethics and strive to contribute to the development of the Company.
(ii) Incentive Participants shall lock up their Restricted Shares granted to them according to the requirements of the Scheme.
(iii) The source of funding of Incentive Participants shall derive from their own funds.
(iv) Cash dividends derived from the granted Restricted Shares of the Incentive Participants shall be held in escrow as dividends payable to Incentive Participants upon unlocking by the Company. Scrip dividends derived from the granted Restricted Shares of the Incentive Participants shall be locked-up and shall not be disposed or transferred in any manner in the secondary market. The unlocking period of such scrip dividends is the same as that of the Restricted Shares.

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RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

(5) Gains from the Incentive Scheme earned by Incentive Participants shall be subject to individual income tax and other taxation in accordance with the tax laws and regulations of the PRC.
(6) Other relevant rights and obligations as stipulated under laws and regulations.

CHAPTER XIII. HANDLING UNUSUAL CHANGES TO THE COMPANY AND INCENTIVE PARTICIPANTS

The Scheme shall be terminated if any of the following events occurs to the Company:
(i) change in control of the Company;
(ii) merger and spin-off of the Company;
(iii) issue of an auditors’report with adverse opinion or which indicates an inability to give opinion by a certified public accountant with respect to the financial report of the Company for its most recent accounting year;
(iv) imposition of administrative penalties by the CSRC within the most recent year due to material non-compliance of laws or regulations;
(v) any other circumstances as determined by the CSRC.

When the Company terminates the Scheme due to any of the above reasons, the Restricted Shares of the Incentive Participants that have been granted but not yet unlocked cannot be unlocked, and the Company will repurchase and cancel such Restricted Shares in accordance with the provisions of the Scheme.

2. Change in personal particulars of the Incentive Participant

(i) In case an Incentive Participant has a change in job title but still works in the Company or a branch or a subsidiary of the Company, the Restricted Shares granted to him will be fully regulated by the procedures specified in the Scheme before the change of his job title.

However, in case an Incentive Participant has a job title change because he is not qualified for his job, violates laws, disobeys professional ethics, reveals confidential information of the Company, fails to discharge his duties or has wilful misconduct, causing damages to the interest or reputation of the Company; or the Company terminates his employment contract for any of the above reasons, the board of directors may refuse to unlock the Restricted Shares granted but not yet unlocked from the occurrence date of such event, and repurchase and cancel such Restricted Shares according to the provisions of the Scheme.

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RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

(ii) In case an Incentive Participant leaves the Company due to resignation or redundancy, the board of directors may refuse to unlock the Restricted Shares granted but not yet unlocked from the occurrence date of such event, and repurchase and cancel such Restricted Shares according to the provisions of the Scheme.
(iii) In case an Incentive Participant leaves the Company due to retirement, the Restricted Shares will be fully regulated by the procedures under the provisions of the Scheme before his retirement, and the board of directors may determine not to take his personal performance targets as unlocking conditions from the occurrence date of such event.
(iv) In case an Incentive Participant leaves the Company due to loss of ability to work, then:
In case the Incentive Participant loses his ability to work due to occupational injury and leaves the Company, the Restricted Shares will be fully regulated by the procedures under the provisions of the Scheme before his loss of ability to work, and the board of directors may determine not to take his personal performance targets as unlocking conditions from the occurrence date of such event;
In case the Incentive Participant loses his ability to work and leaves the Company for reasons other than occupational injury, the unlocking of the Restricted Shares granted but not yet unlocked would not be allowed, and such Restricted Shares shall be repurchased and cancelled by the Company according to the provisions of the Scheme from the occurrence date of such event.
(v) In the case of death of an Incentive Participant:

In case an Incentive Participant dies during performance of his duties, the Restricted Shares are to be held by his designated heir or legal heir on his behalf, and are regulated by the procedures under the provisions of the Scheme before his death. In addition, the board of directors may determine not to take his personal performance targets as unlocking conditions from the occurrence date of such event.

In case an Incentive Participant dies due to other reasons, the unlocking of the Restricted Shares granted but not yet unlocked would not be allowed, and such Restricted Shares shall be repurchased and cancelled by the Company according to the provisions of the Scheme from the occurrence date of such event.

(vi) Other unspecified circumstances and the handling of which shall be determined by the remuneration and assessment committee under the board of directors.

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RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

CHAPTER XIV. PRINCIPLES OF REPURCHASING AND CANCELLING OF RESTRICTED SHARES

The Restricted Shares which are to be repurchased by the Company pursuant to the requirements of the Scheme shall be repurchased at a repurchase price equal to the Grant Price, unless adjustment to the repurchase price is required pursuant to the Scheme.

1. Adjustment methods for the repurchase price

In the event of dividend declaration, capitalisation issue, bonus issue, sub-division, rights issue or consolidation of the share capital or other events which affect the Company’s total share capital or share price after the registration of Restricted Shares granted to Incentive Participants is completed, the repurchase price of Restricted Shares not yet unlocked shall be adjusted by the Company accordingly. The adjustment methods are as follows:

(1) Capitalisation issue, bonus issue, sub-division of the share capital:

P = P0 ÷ (1 + n)

Where: P represents the repurchase price per Restricted Share after adjustment; P0 represents the Grant Price per Restricted Share; n represents the rate of increase per share resulting from capitalisation issue, bonus issue and sub-division of the share capital (i.e. the increase in number of shares upon capitalisation issue, bonus issue and sub-division of the share capital from each share).

(2) Share consolidation:

P = P0 ÷ n

Where: P represents the repurchase price per Restricted Share after adjustment; P0 represents the Grant Price per Restricted Share; n represents the consolidation ratio per share (i.e. one share of the Company shall be consolidated into n shares).

(3) Rights issue:

P = P0 x (P1 + P2 x n)/[P1 x (1 + n)]

Where: P1 represents the closing price of the share on the record date; P2 represents the price of rights issue; n represents the ratio of rights issue (i.e. the number of shares to be issued under rights issue to the total share capital of the Company prior to rights issue).

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RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

(4) Declaration of dividends:
P = P0 – V

Where: P0 represents the Grant Price prior to the adjustment; V represents the dividend rate per share; P represents the repurchase price after the adjustment. P must remain greater than 1 after the adjustment.

In case the Company issues additional shares to the public or to specific targets, Restricted Shares shall be repurchased and cancelled under the provisions of this Scheme. There will be no adjustment to the repurchase price.

2. Procedures of adjusting the repurchase price

(i) The board of directors of the Company shall be authorised by a general meeting to adjust the repurchase price of Restricted Shares based on the abovementioned reasons. The board of directors shall issue an announcement in a timely manner after adjusting the repurchase price pursuant to the abovementioned requirements.
(ii) Any adjustment to the repurchase price of Restricted Shares for other reasons shall be approved by the board of directors, the shareholders at a general meeting of the Company and class meetings of the holders of A shares and H shares.

3. Repurchase and Cancellation Procedures

If the Company repurchases Restricted Shares pursuant to the requirements of the Scheme, applications shall be made to the SSE to unlock such Restricted Shares. The Company shall pay the proceeds from the repurchase to the Incentive Participants, complete the transfer procedures for such shares through the depository and clearing corporation within 30 working days after the unlock, and cancel such shares within a reasonable time after completion of the transfer.

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RESTRICTED A SHARES INCENTIVE SCHEME

APPENDIX I

CHAPTER XV. MISCELLANEOUS

The Scheme shall become effective upon no objection filing with the CSRC and obtaining approvals from shareholders of the Company at a general meeting and class meetings of the holders of A shares and H shares;
The Scheme is subject to interpretation of the board of directors of the Company.

Livzon Pharmaceutical Group Inc.* The Board of Directors

23 January 2015

Note: If there is any inconsistency between the English and Chinese versions, the Chinese version shall prevail.

For identification purpose only

I – 32

ADMINISTRATIVE MEASURES FOR THE APPRAISAL SYSTEM

APPENDIX II

The full text of the Administrative Measures for the Appraisal System is set out as follows:

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock code: 1513)

ADMINISTRATIVE MEASURES FOR APPRAISAL SYSTEM OF THE SHARE INCENTIVE SCHEME (REVISED)

These measures are formulated in accordance with the relevant requirements of the PRC and the actual situation of Livzon Pharmaceutical Group Inc.* (hereinafter referred to as the ‘‘Company’’) in order to ensure satisfactory implementation of the share incentive scheme of the Company, to further refine the corporate governance structure of the Company, to develop a good and balanced value distribution system, to motivate the Company’s core staff members to work diligently so as to ensure steady growth of the Company’s performance and realisation of the Company’s development strategy and business objectives.

I. PURPOSE OF APPRAISAL

The purpose of the appraisal is to further refine the corporate governance structure of the Company, establish and optimise the Company’s incentive mechanism, ensure satisfactory implementation of the Share Incentive Scheme and maximise the benefits of the Share Incentive Scheme so as to ensure the realisation of the Company’s development strategy and business objectives.

II. PRINCIPLES OF APPRAISAL

The appraisal must be conducted according to the principles of righteous, open and fair and in strict compliance with these measures based on the performance of appraisees so as to realise the linkage between the Share Incentive Scheme and the performance and contribution of the appraisees. This will in turn improve the management performance and maximise the interests of the Company and all its shareholders.

For identification purpose only

II – 1

ADMINISTRATIVE MEASURES FOR THE APPRAISAL SYSTEM

APPENDIX II

III. SCOPE OF APPRAISAL

These measures are applicable to all the incentive participants as determined under the Share Incentive Scheme, including but not limited to directors, mid and senior-level management, core technical (business) personnel and relevant staff whom the board of directors want to motivate.

IV. APPRAISAL INSTITUTION

The remuneration and assessment committee of the Company’s board of directors shall be responsible for leading and organising the appraisal work as well as carrying out assessment of the incentive participants.

V. TARGETS AND STANDARD OF PERFORMANCE APPRAISAL

(I) Performance target at the Company level

An individual granted with restricted shares (‘‘Restricted Shares’’) under the Share Incentive Scheme will be assessed annually and the unlocking shall be conducted annually, subject to the incentive participant achieves the performance target as the condition of unlocking the restricted shares.

For the Restricted Shares granted under the First Grant, the annual performance targets are as follows:

Unlock period

Performance target

First unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2015 shall not be lower than 15%;

Second unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2016 shall not be lower than 38%;

Third unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2017 shall not be lower than 73%.

II – 2

ADMINISTRATIVE MEASURES FOR THE APPRAISAL SYSTEM

APPENDIX II

For the reserved Restricted Shares, the annual performance targets are as follows:

If the reserved Restricted Shares are granted in 2015, the performance targets for the reserved Restricted Shares are as follows:

Unlock period for the reserved Restricted Shares Performance target

First unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2015 shall not be lower than 15%;

Second unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2016 shall not be lower than 38%;

Third unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2017 shall not be lower than 73%.

If the reserved Restricted Shares are granted in 2016, the performance targets for the reserved Restricted Shares are as follows:

Unlock period for the reserved Restricted Shares Performance target

First unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2016 shall not be lower than 38%;

Second unlock period On the basis of the Company’s net profit in 2014, the growth rate of net profit of the Company for 2017 shall not be lower than 73%.

The ‘‘growth rate of net profit’’ set out above is calculated based on the net profit attributable to the shareholders of the listed company after excluding extraordinary gains or losses.

II – 3

APPENDIX II

ADMINISTRATIVE MEASURES FOR THE APPRAISAL SYSTEM

Both net profit attributable to the shareholders of the listed company and net profit (excluding the extraordinary gains or losses) attributable to the shareholders of the listed company during the lock-up period shall not be less than the average of the three financial years prior to the date of grant and shall not be negative.

The incentive cost of the Share Incentive Scheme will be recorded as administrative expenses.

(II) Performance target at individual level

According to the Administrative Measures for the Appraisal System formulated by the Company, the performance results of individual appraisees shall be categorised into four grades, namely A, B, C and D, as shown below:

	A	B	C	D
Grade	Excellent	Good	Fair	Poor
Score range	Above 90	80~90	60~80	Below 60
Unlock ratio	100%		80%	0%

If an individual incentive participant received a grade of A, B or C in his/her appraisal for the preceding year, the performance of such incentive participant in the preceding year shall be regarded as ‘‘pass’’ and the Restricted Shares held by those incentive participants shall be unlocked in accordance with relevant unlock ratio for the individual that corresponds to the scores received from the annual appraisal.

For incentive participants who received a grade of D in their individual appraisal for the preceding year, the performance of such an incentive participant in the preceding year shall be regarded as ‘‘fail’’. The Company shall repurchase and cancel the Restricted Shares granted to such incentive participants that are subject to be unlocked for the respective period in accordance with the relevant provisions of the Share Incentive Scheme.

VI. APPRAISAL PERIOD AND FREQUENCY

1. Appraisal period

The appraisal period is the preceding financial year of the grant or unlocking of the relevant Restricted Shares for an incentive participant.

II – 4

ADMINISTRATIVE MEASURES FOR THE APPRAISAL SYSTEM

APPENDIX II

2. Appraisal frequency

The appraisal will be conducted once a year under the Share Incentive Scheme.

VII. APPRAISAL PROCEDURES

The Company’s human resources department shall be responsible for the specific appraisal work under the guidance of the remuneration and assessment committee of the board of directors. It shall keep records of the appraisal results, formulate a performance appraisal report based on the results and submit it to the remuneration and assessment committee of the board of directors.

The remuneration and assessment committee of the board of directors will determine the conditions for unlocking and the number of Restricted Shares to be unlocked for incentive participants based on the performance appraisal report.

VIII. FEEDBACK AND APPLICATION OF THE APPRAISAL RESULTS

Every appraisee shall have the right to be informed of his/her appraisal results. The remuneration and assessment committee of the board of directors shall inform the appraisee of the appraisal results within five working days from completion of the appraisal;
In the event that the appraisee has objection to the appraisal results, he/she may appeal to the remuneration and assessment committee of the board of directors within five working days from receipt of the appraisal results notice. The remuneration and assessment committee may review the appraisal results according to the actual circumstances and revise the appraisal results based on the result of the review;
The appraisal results shall form the basis for unlocking the Restricted Shares.

IX. MISCELLANEOUS

These measures are formulated, interpreted and amended by the board of directors and shall become effective subject to the consideration and approval of the shareholders at the Company’s general meeting and the class meetings of the holders of A shares and H shares.

LIVZON PHARMACEUTICAL GROUP INC.*

The Board of Directors

23 January 2015

Note: If there is any inconsistency between the English and Chinese versions, the Chinese version shall prevail.

For identification purpose only

II – 5

APPENDIX III

THE PROPOSED GRANT AND THE MANDATE TO THE BOARD REGARDING THE RESTRICTED A SHARES INCENTIVE SCHEME

Details of the resolution in relation to the approval of the Proposed Grant and granting of mandate to the Board to deal with matters regarding the Restricted A Shares Incentive Scheme are set out as follows:

To implement the Company’s Restricted A Shares Incentive Scheme, the Board put forward to the shareholders’ meetings of the Company to authorise the Board to deal with matters regarding to the Restricted A Shares Incentive Scheme:

to authorise the Board to determine the date of grant of the Restricted A Shares Incentive Scheme;
to authorise the Board to adjust the number of Restricted Shares and the number of shares involved in the Scheme accordingly in the event of capitalisation issue, bonus issue, sub-division or consolidation of the share capital, rights issue or other events in accordance with the manners stipulated under the Restricted A Shares Incentive Scheme;
to authorise the Board to adjust the Grant Price accordingly in the event of capitalisation issue, bonus issue, sub-division or consolidation of the share capital, rights issue and dividend payment in accordance with the manners stipulated under the Restricted A Shares Incentive Scheme;
to authorise the Board to grant the Restricted Shares to the Incentive Participant(s) who has (have) satisfied the required conditions and to handle all matters relating to the grant of the Restricted Shares;
to authorise the Board to review and determine the eligibility and conditions for unlocking the Restricted Shares for the Incentive Participants and to authorise the remuneration and assessment committee of the Board to exercise such power;
to authorise the Board to determine whether the Incentive Participant(s) has (have) satisfied the conditions for unlocking the Restricted Shares;
to authorise the Board to handle all necessary matters relating to the unlocking of Incentive Participants’ Restricted Shares, including but not limited to, tendering applications to the stock exchange to unlock the Restricted Shares, tendering applications to the depository and clearing corporation to handle the relevant depository and clearing matters, making necessary amendment to the articles of association of the Company and tendering applications to the industry and commerce department to make registration of the change of registered capital of the Company;
to authorise the Board to handle matters of locking up Restricted Shares which have not been unlocked;

III – 1

APPENDIX III THE PROPOSED GRANT AND THE MANDATE TO THE BOARD REGARDING THE RESTRICTED A SHARES INCENTIVE SCHEME

to authorise the Board to determine matters relating to the change and termination of the Restricted A Shares Incentive Scheme, including but not limited to, disqualifying the eligibility of Incentive Participants of having Restricted Shares unlocked, repurchasing and cancelling Restricted Shares of Incentive Participants that have not been unlocked, handling compensation and inheritance matters relating to Restricted Shares that have not been unlocked held by any deceased Incentive Participant and terminating the Restricted A Shares Incentive Scheme;
to authorise the Board to manage the Company’s Restricted A Shares Incentive Scheme;
to authorise the Board to execute other matters relating to the Restricted A Shares Incentive Scheme which are necessary, with exception to the rights exercised by shareholders’ general meetings expressly provided by relevant documents.

This resolution has been considered and approved at the sixth meeting of the eighth session of the Board, and it is submitted to the general meeting for consideration and approval.

III – 2

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Group. 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 BY DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE OF THE COMPANY

As at the Latest Practicable Date, the interests and short positions of the Directors, supervisors and chief executive of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of the Part XV of the SFO) (1) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (2) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (3) which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Hong Kong Listing Rules (‘‘Model Code’’) to be notified to the Company and the Stock Exchange, were as follows:

(1) Interest in shares of the Company

			As a percentage	As a percentage
			of the specific	of the total
			class of issued	issued share
		Number of shares interested	share capital of	capital of the
Name of Director	Capacity	(Long position)	the Company	Company
			(%)	(%)
Mr. Zhu Baoguo	Interest of controlled	89,462,538 A Shares(1) (2)	48.69%	30.25%
（朱保國）	corporations	50,660,052 H Shares(1) (3)	45.23%	17.13%

IV – 1

APPENDIX IV

GENERAL INFORMATION

(2) Interest in shares of associated corporations of the Company

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As a percentage
of the equity
interest of
Name of associated associated
Name of Director Capacity corporation Equity Interest corporation
(RMB) (%)
Mr. Zhu Baoguo Beneficial owner Shenzhen Baiyeyuan 72,000,000 90.00%
（朱保國） Investment Co., Ltd.
（深圳市百業源投資
有限公司）(‘‘Baiyeyuan’’)
Interest of controlled Joincare [(4)] 742,415,520 48.03%
corporation
Interest of controlled Livzon MABPharm Inc. 245,000,000 49.00%
corporations （珠海市麗珠單抗生物技術
有限公司） [(1)(5)]
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Notes:

(1) Joincare is 48.30% held by Baiyeyuan which is in turn 90% held by Mr. Zhu Baoguo（朱保國）. Mr. Zhu Baoguo（朱保國）is deemed to be interested in the shares of the Company and the equity interest of its associated corporations in which Joincare is or is deemed to be interested by virtue of the SFO.
(2) Among these shares, 83,569,595 shares and 5,892,943 shares are held directly by Joincare and its wholly-owned subsidiary, Shenzhen Haibin Pharmaceutical Co., Ltd.（深圳市海濱製藥有限公司） (‘‘Shenzhen Haibin’’), respectively.
(3) These shares are directly held by Topsino Industries Limited (‘‘Topsino’’), a wholly-owned subsidiary of Joincare.
(4) These shares are held by Baiyeyuan.
(5) These shares are held by Joincare.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, supervisors and chief executive of the Company had any interest or short position in shares, underlying shares or debentures of the Company or any of its associated corporations which were recorded in the register required to be kept under Section 352 of the SFO or notified to the Company and the Stock Exchange pursuant to the Model Code.

Save as disclosed above, as at the Latest Practicable Date, so far as was known to the Directors, none of the Directors was 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 under provisions of Divisions 2 and 3 of Part XV of the SFO.

IV – 2

GENERAL INFORMATION

APPENDIX IV

3. DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to the Directors, the following persons (other than the Directors, supervisors or chief executive of the Company) has interests or short positions in the shares or underlying shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register of substantial shareholders required to be kept by the Company under section 336 of the SFO.

			As a percentage	As a percentage
			of the specific	of the total
			class of issued	issued share
		Number of shares held	share capital of	capital of the
Name of Shareholder	Capacity	(Long position)	the Company	Company
			(%)	(%)
Baiyeyuan	Interest of controlled	89,462,538 A Shares(1)	48.69%	30.25%
	corporations
	Interest of controlled	50,660,052 H Shares(2)	45.23%	17.13%
	corporations
Ms. Liu Guangxia（劉廣霞）	Interest of spouse	89,462,538 A Shares(3)	48.69%	30.25%
		50,660,052 H Shares (3)	45.23%	17.13%
Joincare	Beneficial owner	77,510,167 A Shares	42.19%	26.21%
	Interest of controlled	5,892,943 A Shares(4)	3.20%	1.99%
	corporation
	Person having a	6,059,428 A Shares(5)	3.30%	2.05%
	security interest
	in shares
	Interest of controlled	50,660,052 H Shares(2)	45.23%	17.13%
	corporation
Topsino	Beneficial owner	50,660,052 H Shares(2)	45.23%	17.13%
Notes:

(1) Among these shares, 83,569,595 shares and 5,892,943 shares are held directly by Joincare and its whollyowned subsidiary, Shenzhen Haibin, respectively.
(2) These shares are held directly by Topsino, a wholly-owned subsidiary of Joincare.
(3) Ms. Liu Guangxia（劉廣霞）is the spouse of Mr. Zhu Baoguo（朱保國）, and so she is deemed to be interested in the shares in which Mr. Zhu Baoguo is deemed to be interested.
(4) These shares are held directly by Shenzhen Haibin, a wholly-owned subsidiary of Joincare.

IV – 3

GENERAL INFORMATION

APPENDIX IV

(5) These shares were directly transferred from, entrusted and pledged by Guangzhou Begol Trading Corporation （廣州市保科力貿易公司）(‘‘Begol’’) in favor of Joincare in accordance with a share transfer, custody and pledge agreement entered into among three parties, namely Begol, Joincare and Zhuhai Lishi Investment Co., Ltd.（珠海市麗士投資有限公司）, as well as a share transfer and custody agreement and a share pledge agreement entered into between Begol and Joincare on 2 January 2004.

Save for the shareholders as disclosed herein, the Directors are not aware of any persons, who, as at the Latest Practicable Date, were entitled to exercise or control the exercise of 5% or more of the voting power at the general meeting of the Company and were also, a practicable matter, able to direct or influence the management of the Company.

4. DIRECTORS’ AND SUPERVISORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, no service contract that cannot be terminated within one year without payment of compensation (other than statutory compensation) has been or proposed to be entered into between the Company and the Directors or the supervisors of the Company.

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

As at the Latest Practicable Date, none of the Directors or proposed Directors, directly or indirectly, had any interest in any assets which had since 31 December 2013 (being the date to which the latest published audited accounts of the Group were made up) been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

There was no contract or arrangement subsisting at the Latest Practicable Date, in which any of the Directors were materially interested and which was significant to the business of the Group.

6. COMPETING INTERESTS

As disclosed in the section headed ‘‘Relationship with our controlling shareholders’’ in the listing document of the Company dated 14 January 2014, the Group and the Joincare Group research, develop, produce and/or sell four different types of drugs, namely (i) cardio-cerebralvascular drugs; (ii) systemic anti-infective drugs/antibiotics; (iii) blood and hemopoietic system drugs; and (iv) blood management drugs. However the drugs that the Group researches, develops, produces and/or sells are of different categories from those researched, developed, produced and/ or sold by Joincare Group. Although both groups use similar distribution models for the sales and distribution of drug preparation products in the PRC which is in line with the industry norm, and their targeted end customers are similar such as hospitals, clinics and pharmacies, the Directors are of the view that the Group and the Joincare Group are two separate groups operating independently of each other with separate listing status. Furthermore the sales teams of the Group are separate and independent of the Joincare Group and the Group does not share its customer

IV – 4

GENERAL INFORMATION

APPENDIX IV

resources and databases. Accordingly the Directors are of the view that there is no substantial competition between the Group’s production and sales of products with that of the Joincare Group.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or proposed Directors or their respective close associates had any interest in a business which competes or may compete with the businesses of the Group (as would be required to be disclosed under Rule 8.10 of the Hong Kong Listing Rules if each of them was a controlling shareholder of the Company).

7. MATERIAL ADVERSE CHANGE

Save and except for the listing expenses incurred for the listing of the Company on the main board of the Stock Exchange on 16 January 2014, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2013, the date to which the latest published audited accounts of the Group were made up.

8. QUALIFICATIONS AND CONSENTS OF EXPERT

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

Name	Qualification
Guoyuan Capital (Hong Kong)	a corporation licensed to carry out type 1 (dealing in
Limited	securities) and type 6 (advising on corporate finance)
	regulated activities under the SFO

The Independent Financial Adviser has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or reference to its name or opinion in the form and context in which it appears.

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

As at the Latest Practicable Date, the Independent Financial Adviser did not, directly or indirectly, had any interest in any assets which had since 31 December 2013 (being the date to which the latest published audited accounts of the Group were made up) 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.

IV – 5

GENERAL INFORMATION

APPENDIX IV

9. GENERAL

(a) The joint company secretaries of the Company are Mr. Yang Liang and Ms. Cheng Pik Yuk. Ms. Cheng is a fellow of both The Institute of Chartered Secretaries and Administrators in United Kingdom and The Hong Kong Institute of Chartered Secretaries.
(b) The registered office of the Company is located at Administration and Research Building, 38 Chuangye North Road, Shuang Linpian Area, Liangang Industrial Zone, Hongqi Town, Jinwan District, Zhuhai, Guangdong Province, PRC.
(c) The principal place of business of the Company in Hong Kong is Flat 02, 17th Floor, Bayfield Building, 99-101 Hennessy Road, Wanchai, Hong Kong.
(d) The H Share Registrar of the Company in Hong Kong is Tricor Investor Services Limited of Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during business hours at the Company’s principal place of business in Hong Kong at Flat 02, 17/F, Bayfield Building, 99101 Hennessy Road, Wanchai, Hong Kong from the date of this circular up to and including the date of the EGM:

(a) the memorandum and articles of association of the Company;
(b) the Restricted A Shares Incentive Scheme;
(c) the letter from the Independent Board Committee as set out from pages 22 to 23 of this circular;
(d) the letter from the Independent Financial Adviser as set out from pages 24 to 44 of this circular;
(e) the written consent from the Independent Financial Adviser as referred to under the section headed ‘‘Qualifications and Consents of Expert’’ in this appendix; and
(f) this circular.

IV – 6

AI assistant

Livzon Pharmaceutical Group Inc. — Proxy Solicitation & Information Statement 2015

49967_rns_2015-02-04_da46ea60-d459-488d-8a57-2457ca022880.pdf

麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]

PROPOSED ADOPTION OF RESTRICTED A SHARES INCENTIVE SCHEME AND PROPOSED GRANT AND CONNECTED TRANSACTIONS

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]

PROPOSED ADOPTION OF RESTRICTED A SHARES INCENTIVE SCHEME AND PROPOSED GRANT AND CONNECTED TRANSACTIONS

I. INTRODUCTION

LETTER FROM THE BOARD

II. RESTRICTED A SHARES INCENTIVE SCHEME

(a) Proposed Adoption of the Restricted A Shares Incentive Scheme

(i) Background information

LETTER FROM THE BOARD

(ii) Payment and control of the Restricted Shares

(iii) Termination of the Restricted A Shares Incentive Scheme

LETTER FROM THE BOARD

(b) The Proposed Grant

(i) Quantity of the Proposed Grant

LETTER FROM THE BOARD

(ii) Maximum grant to Incentive Participant(s)

(iii) Allocation of the Restricted Shares under the First Grant

LETTER FROM THE BOARD

Senior management of the Company

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(iv) Date of grant

LETTER FROM THE BOARD

(v) Grant price and basis of determination

(c) Information on the Group

LETTER FROM THE BOARD

(d) Advantages and Disadvantages of the Restricted A Shares Incentive Scheme

(e) Accounting treatment of the Restricted A Shares Incentive Scheme

(i) Date of grant

(ii) Lock-up period

(iii) Unlocking date

(f) Financial Effect of the Restricted A Shares Incentive Scheme

Earnings

Assets and Liabilities

(g) Hong Kong Listing Rules Implications

LETTER FROM THE BOARD

III. EGM, A SHAREHOLDERS’ CLASS MEETING AND H SHAREHOLDERS’ CLASS MEETING

LETTER FROM THE BOARD

LETTER FROM THE BOARD

IV. CLOSURE OF REGISTER OF MEMBERS

V. VOTING BY POLL

VI. RECOMMENDATION

LETTER FROM THE BOARD

VII. ADDITIONAL INFORMATION

麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]

PROPOSED ADOPTION OF RESTRICTED A SHARES INCENTIVE SCHEME AND PROPOSED GRANT AND CONNECTED TRANSACTIONS

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Yours faithfully,

PROPOSED ADOPTION OF RESTRICTED A SHARES INCENTIVE SCHEME CONNECTED TRANSACTION – PROPOSED GRANT

INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS TAKEN INTO CONSIDERATION

1. Background of the Group

2. Background to and reasons for the adoption of the Restricted A Shares Incentive Scheme and the Proposed Grant

3. Payment and control of the Restricted Shares

4. Termination of the Restricted A Shares Incentive Scheme

5. Basis for selecting the Incentive Participants and the Proposed Grant

6. The key terms of the Restricted A Shares Incentive Scheme

(i) Number of the Restricted Shares

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Maximum grant to the Incentive Participants

(iii) Allocation of the Restricted Shares under the proposed First Grant

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Senior management of the Company

(iv) Date of the Proposed Grant and life of the Restricted A Shares Incentive Scheme

(v) Administrative Measures and Unlocking Conditions

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(vi) Grant price of the Restricted Shares

Livzon Pharmaceutical Group Inc. Proxy Solicitation & Information Statement 2015

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**