Livzon Pharmaceutical Group Inc. - Proxy Solicitation & Information Statement 2016

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, 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)

(I) FULFILLMENT OF THE CONDITIONS OF THE NON-PUBLIC ISSUANCE OF A SHARES

(II) ADJUSTMENTS TO THE PROPOSAL OF THE NON-PUBLIC ISSUANCE OF A SHARES

(III) AMENDMENTS TO FEASIBILITY REPORT

(IV) RISK WARNING ON THE DILUTION ON CURRENT RETURNS OF THE NON-PUBLIC ISSUANCE OF A SHARES AND IMPLEMENT REMEDIAL MEASURES FOR IMMEDIATE RETURNS (V) UNDERTAKINGS BY RELEVANT ENTITIES IN RELATION TO THE CONCRETE IMPLEMENTATION OF THE REMEDIAL MEASURES FOR THE RETURNS BY THE COMPANY

(VI) AMENDMENTS TO THE CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES

(VII) AUTHORIZATION ON THE NON-PUBLIC ISSUANCE OF A SHARES

(VIII) ISSUANCE OF ULTRA SHORT-TERM DEBENTURES (IX) NOTICES OF THE EGM

A letter from the Board is set out from pages 4 to 31 this circular.

The Initial Notice convening the EGM to be held at the Conference Room on the 2nd Floor of Livzon Building, 132 Guihua North Road, Gongbei, Zhuhai, Guangdong Province, China at 2 p.m. on Monday, 25 April 2016, the reply slip for attendance and proxy form for the EGM (the ‘‘Initial Proxy Form’’) were despatched by the Company on 9 March 2016. The Supplementary Notice and revised proxy form for the EGM (the ‘‘Revised Proxy Form’’) were despatched by the Company on 6 April 2016. The aforesaid documents 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).

If you would like to attend the EGM in person or by proxy, please complete the reply slip 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 in any event on or before Tuesday, 5 April 2016. Any Shareholder who intends to appoint a proxy to attend the EGM and have not lodged the Initial Proxy Form which was sent together with the Initial Notice is required to complete and lodge the Revised Proxy Form which was sent together with the Supplementary Notice in accordance with the instructions printed thereon and lodging the Initial Proxy Form is not required. Shareholder(s) who have lodged the Initial Proxy Form are also required to complete and lodge the Revised Proxy Form in accordance with the instructions printed thereon. For the holders of H Shares of the Company, the Revised Proxy Form should be lodged to the Company’s H Share Registrar, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong. The Revised Proxy Form should be lodged no less than 24 hours before the time appointed for the holding of the EGM (or any adjournment thereof). Completion and lodge of the Revised Proxy Form will not preclude you from attending and voting at the EGM or any adjournment thereof in person if you so wish.

8 April 2016

for identification purposes only

		Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		4
I.	Fulfillment of the Conditions of the Non-public Issuance of A Shares . . . . . . . .	5
II.	Adjustments to the Proposal of the Non-public Issuance of A Shares . . . . . . . . .	6
III.	Amendments to Feasibility Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
IV.	Risk Warning on the Dilution on Immediate Returns of
	the Non-public Issuance of A Shares and
	Implement Remedial Measures for Immediate Returns . . . . . . . . . . . . . . . . . . . . .	10
V.	Undertakings by Relevant Entities in relation
	to the Concrete Implementation of the Remedial Measures
	for the Returns by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
VI.	Amendments to the Contingency Plan of
	Non-public Issuance of A Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
VII.	Authorization on the Non-public Issuance of A Shares . . . . . . . . . . . . . . . . . . . . .	27
VIII.	Issuance of Ultra Short-term Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
IX.	Notices of the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
X.	Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Appendix I	– Feasibility Report (Revision) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II – Contingency Plan of Non-public Issuance of
	A Shares (Revision) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1

– i –

DEFINITIONS

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

‘‘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 in accordance with the Company Law on 25 January 1985 with limited liability, its shares are listed on the Hong Kong Stock Exchange and the Shenzhen Stock Exchange
‘‘Group’’

the Company and its subsidiaries collectively

‘‘Board’’

the board of Directors of the Company

‘‘Director(s)’’ the director(s) of the Company
‘‘Supervisory Committee’’
The supervisory committee of the Company
‘‘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

‘‘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 Hong Kong Stock Exchange
‘‘Shareholder(s)’’ holder(s) of the share(s) of the Company
‘‘A Shareholders’’
holder(s) of A Share(s)
‘‘H Shareholders’’ holder(s) of H Share(s)
‘‘Articles of Association’’ the articles of association of 麗珠醫藥集團股份有限公司 Livzon Pharmaceutical Group Inc.*
‘‘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 Company’s Controlling Shareholders
‘‘Livzon MAB’’ 珠海市麗珠單抗生物技術有限公司Livzon MABPharm Inc.*, a subsidiary of the Company
For identification purpose only

– 1 –

DEFINITIONS

‘‘Livzon Diagnostics’’ 珠海麗珠試劑股份有限公司 Zhuhai Livzon Diagnostics Inc.*
‘‘PRC’’ The People’s Republic of China
‘‘Hong Kong’’ The Hong Kong Special Administrative Region of the PRC
‘‘RMB’’ Renminbi, the lawful currency of the PRC
‘‘CSRC’’ China Securities Regulatory Commission
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘Shenzhen Stock Exchange’’ the Shenzhen Stock Exchange
‘‘Company Law’’ PRC Company Law（《中華人民共和國公司法》）, as amended, supplemented or otherwise modified from time to time
‘‘Hong Kong Listing Rules’’ The Rules Governing the Listing of Securities on the Stock Exchange, as the same may be amended and supplemented or otherwise modified from time to time
‘‘Shenzhen Listing Rules’’ the Stock Listing Rules of the Shenzhen Stock Exchange （《深圳證券交易所股票上市規則（ 2014 年修訂）》）(as amended in 2014)
‘‘EGM’’
the 2016 Second Extraordinary General Meeting of the Company to be held at the Conference Room on the 2nd Floor of Livzon Building, 132 Guihua North Road, Gongbei, Zhuhai, Guangdon Province, China at 2 p.m. on Monday, 25 April 2016
‘‘Initial Notice’’
The initial notice convening the 2016 Second Extraordinary General Meeting of the Company despatched on 9 March 2016
‘‘Supplementary Notice’’

The supplementary notice convening the 2016 Second Extraordinary General Meeting of the Company despatched on 6 April 2016

For identification purpose only

– 2 –

DEFINITIONS

‘‘Notices of the EGM’’
The Initial Notice and Supplementary Notice convening the 2016 Second Extraordinary General Meeting of the Company dispatched on 9 March 2016 and 6 April 2016 respectively
‘‘Contingency Plan of Non-public The ‘‘Contingency Plan of Non-public Issuance of A Issuance of A Shares’’ S h a r e s o f 麗珠醫藥集團股份有限公司 L i v z o n Pharmaceutical Group Inc.*’’ being considered and approved at the 2015 Third Extraordinary General Meeting of the Company
‘‘Feasibility Report’’ The ‘‘Feasibility Analysis Report on the Usage of the Funds raised by the Non-public Issuance of A Shares of 麗珠醫藥集團股份有限公司 Livzon Pharmaceutical Group Inc.*’’ being considered and approved at the 2015 Third Extraordinary General Meeting of the Company
‘‘Controlling Shareholder’’ has the meaning given to it under the Hong Kong Listing Rules
‘‘%’’ per cent

If there is any inconsistency between the Chinese names of the PRC entities mentioned in this circular and their English translations, the Chinese names shall prevail.

For identification purpose only

– 3 –

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) Headquarters Building, Mr. Fu Daotian (Vice President) 38 Chuangye North Road, Mr. Yang Daihong (Vice President) Jinwan District, Zhuhai, Guangdong Province, Non-executive Directors: China Mr. Zhu Baoguo (Chairman) Mr. Qiu Qingfeng Principal place of business in Hong Kong: Mr. Zhong Shan Flat 02, 17/F, Bayfield Building, Independent non-executive Directors: 99-101 Hennessy Road, Wanchai, Mr. Xu Yanjun Hong Kong Mr. Guo Guoqing Mr. Wang Xiaojun Mr. Xie Yun Mr. Zheng Zhihua

To the Shareholders

Dear Sir/Madam,

(I) FULFILLMENT OF THE CONDITIONS OF THE NON-PUBLIC ISSUANCE OF A SHARES (II) ADJUSTMENTS TO THE PROPOSAL OF THE NON-PUBLIC ISSUANCE OF A SHARES (III) AMENDMENTS TO FEASIBILITY REPORT

(IV) RISK WARNING ON THE DILUTION ON IMMEDIATE RETURNS OF THE NON-PUBLIC ISSUANCE OF A SHARES AND IMPLEMENT REMEDIAL MEASURES FOR IMMEDIATE RETURNS

(V) UNDERTAKINGS BY RELEVANT ENTITIES IN RELATION TO THE CONCRETE IMPLEMENTATION OF THE REMEDIAL MEASURES FOR THE RETURNS

BY THE COMPANY

(VI) AMENDMENTS TO THE CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES

(VII) AUTHORIZATION ON THE NON-PUBLIC ISSUANCE OF A SHARES

(VIII) ISSUANCE OF ULTRA SHORT-TERM DEBENTURES

(IX) NOTICES OF THE EGM

For identification purpose only

– 4 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with the Notices of the EGM and relevant information to enable you to make informed decisions in voting on the special resolutions and ordinary resolution in relation to (among others) the followings to be proposed at the EGM:

Fulfillment of the Conditions of the Non-public Issuance of A Shares
Adjustments to the Proposal of the Non-public Issuance of A Shares
Amendments to Feasibility Report
Risk Warning on the Dilution on Immediate Returns of the Non-public Issuance of A Shares and Implement Remedial Measures for Immediate Returns
Undertakings by Relevant Entities in relation to the Concrete Implementation of the Remedial Measures for the Returns by the Company
Amendments to the Contingency Plan of Non-public Issuance of A Shares
Authorization on the Non-public Issuance of A Shares
Issuance of Ultra Short-term Debentures

I. FULFILLMENT OF THE CONDITIONS OF THE NON-PUBLIC ISSUANCE OF A SHARES

A special resolution will be proposed at the EGM to approve the Company’s fulfillment of the conditions of the non-public issuance of A Shares, details are as follows:

Pursuant to the requirements under the Company Law, Securities Law of The People’s Republic of China, Administrative Measures for the Issuance of Securities by Listed Companies and the Implementation Rules for the Non-public Issue of Shares by Listed Companies issued by China Securities Regulatory Commission and other rules and regulations, after thorough internal inspection, the Company confirmed that it has a sustainable governance structure, profitable outlook, sound financial status and it has no record of having filed any false financial and accounting documents or any other major legal irregularity, proceeds investment project proposals comply with the relevant requirements of the state and shall not be subject to any of the following circumstances:

(1) The application documents of the current issuance contain any false information, misleading statements or material omissions;
(2) The rights and interests of the Company have been severely infringed upon by the Controlling Shareholder(s) or actual controller(s) and such damage has not been removed;

– 5 –

LETTER FROM THE BOARD

(3) The Company and its subsidiaries have provided guarantees in violation of regulations and that such guarantees have not been annulled;
(4) Incumbent Director(s), senior management member(s) have been subjected to administrative penalties of the CSRC within the last 36 months, or have been subjected to public censure of a stock exchange within the last 12 months;
(5) The Company, or its incumbent Director(s) or senior management member(s) is/are under investigation by the judicial authorities due to suspected criminal offences or under investigation by the CSRC for suspected violation of laws or regulations;
(6) Certified public accountants have issued a qualified opinion, an adverse opinion or a disclaimer of opinion in their auditing reports in the last year and on the latest financial statement;
(7) Other circumstances that seriously infringes upon the lawful rights and interests of the investors and the public interests of the society.

In accordance with the above regulations and with reference to the Company’s actual situation, the Company has fulfilled all conditions of the non-public issuance of A Shares to specific subject.

II. ADJUSTMENTS TO THE PROPOSAL OF THE NON-PUBLIC ISSUANCE OF A SHARES

Reference is made to the circular of the Company dated 26 November 2015. The Contingency Plan of Non-public issuance of A Shares to raise an amount of not more than RMB1,457.82 million by the Company was being considered and approved at the seventeenth meeting of the Eighth Board and the 2015 Third Extraordinary General Meeting held on 2 November 2015 and 21 December 2015 respectively. In view of the substantial changes to the domestic securities market and in order to ensure success of the non-public issuance of A Shares, pursuant to the requirements under the Company Law, Securities Law of The People’s Republic of China, Administrative Measures for the Issuance of Securities by Listed Companies and the Implementation Rules for the Non-public Issue of Shares by Listed Companies, the Company proposed, after careful consideration, adjustments to the amount to be issued, the pricing method and issuing price of the Contingency Plan of Non-public issuance of A Shares, with all other contents of the plan remaining the same.

– 6 –

LETTER FROM THE BOARD

As disclosed in the announcement of the Company dated 8 March 2016, the Board has approved the adjustments to the Contingency Plan of Non-public issuance of A Shares. A special resolution will be proposed at the EGM to approve the adjustments to the plan on the Contingency Plan of Non-public issuance of A Shares, details are as follows:

I. Adjustment to the amount to be issued

Before the adjustment:

‘‘2. Amount to be Issued

The aggregate funding to be raised from the non-public issuance of A Shares of the Company will not exceed RMB1,457,820,000. The upper limit of the total number of A Shares of the Company to be issued will not exceed the maximum funding to be raised divided by the issue price, and will not exceed 20% (i.e. 38,000,000 shares, inclusive) of the total number of A Shares of the Company as of the date when the general mandate to issue shares was granted to the Board as resolved at the 2014 General Meeting of the Company. The General Meeting has authorized the Board to finalize the number of shares to be issued after discussing with the Sponsor (the Lead Underwriter) and considering relevant facts.

Where any change in the Company’s share capital arises out of dividend payments, offering of bonus shares, capitalisation of capital reserve or other exdividend and ex-right reasons over the period between the pricing base date and the offering date, the upper limit to the number of A Shares to be issued shall be adjusted accordingly.’’

After the adjustment:

‘‘2. Amount to be Issued

The upper limit of the total number of A Shares of the Company to be issued will not exceed 20% (i.e. 38,000,000 shares, inclusive) of the total number of A Shares of the Company as of the date when the general mandate to issue shares was granted to the Board as resolved at the 2014 General Meeting of the Company. The General Meeting has authorized the Board to finalize the number of shares to be issued after discussing with the Sponsor (the Lead Underwriter) and considering relevant facts.

Where any change in the Company’s share capital arises our of dividend payments, offering of bonus shares, capitalization of capital reserve or other exdividend and ex-right reasons over the period between the pricing base date and the offering date, the upper limit to the number of A Shares to be issued shall be adjusted accordingly.’’

– 7 –

LETTER FROM THE BOARD

II. Adjustments to the pricing method and issuing price

Before the adjustment:

‘‘5. Pricing Method and Issuing Price

The pricing base date for the issue is 22 December 2015, the day on which the resolution of the EGM considering the non-public issuance was announced. According to Measures on the Administration of Issuance of Securities by Listed Companies, and Detailed Implementation Rules for the Non-public issuance by Listed Companies, the offering price must be no lower than 90% of the average price of the Company’s stock traded during 20 trading days preceding the pricing base date. Depending on the market conditions and the needs of successful completion of the issue, and in compliance with the relevant laws, regulations and necessary procedure requirements, the Company shall adjust the price determination date, with an alteration to it to amend the day on which the resolution of the meeting of the Board was announced to the contingency plan of non-public issuance of A Shares, or amend the day on which the resolution of the General Meeting was announced to the Contingency Plan.

The final offering price shall be determined by auction in accordance with Detailed Implementation Rules for the Non-Public Issuance by Listed Companies after the issue is approved by the CSRC.

Average stock price traded during 20 trading dayspreceding the pricing base date=Total turnover of stock trading/Total number of shares traded during 20 trading days preceding the pricing base date.

The floor price for the issue shall be adjusted accordingly in the event of dividend payments, offering of bonus shares or capitalisation of capital reserve, among other ex-dividend and ex-right matters, over the period between the pricing base date and the offering date.’’

After the adjustment:

‘‘5. Pricing Method and Issuing Price

The pricing base date for the issue is 9 March 2016, the day on which the resolution of this Board meeting was announced. The offering price of the non-public issuance must be no lower than 38.36 yuan/share, and the floor price must not be lower than 90% of the average price of the Company’s stock traded during 20 trading days preceding the pricing base date. The final offering price shall be determined by auction in accordance with Detailed Implementation Rules for the Non-Public Issuance by Listed Companies after the issue is approved by the CSRC.

– 8 –

LETTER FROM THE BOARD

Average stock price traded during 20 trading days preceding the pricing base date=Total turnover of stock trading/Total number of shares traded during 20 trading days preceding the pricing base date

III. AMENDMENTS TO FEASIBILITY REPORT

The Company has received environmental impact assessment and filing documents for the fund raising investment projects related to this non-public issuance of A Shares, and the Board has updated the relevant content in the Feasibility Report accordingly. The major amendments are set out below:

To revise the original statement ‘‘The land needed for the project is made available. The project approval and environmental impact assessment are underway. Marketing of new medicine to be produced under the project requires approval of the drug administration.’’ under ‘‘6. Land Use, Project Approval and Environmental Impact Assessment’’ of ‘‘Project I: Deeper Development and Industrialization Upgrade of the innovative Ilaprazole product series’’ to ‘‘Section II Feasibility Study on Projected Investments of the Proceeds’’ as ‘‘The Project has been filed and obtained an approval reply (Document No.: 2015-440404-27-03-008210) from the Reform, Development and Statistics Department of Jinwan District. The land needed for the project has been made available. The Environmental Protection Bureau of Jinwan District of Zhuhai City has approved the environmental impact assessment of the Project by issuing the Reply on the Environmental Impact Report for Depth Development and Industrialized Upgrade of the Innovative Ilaprazole Product Series of Livzon Pharmaceutical Group Inc. (Document No.: ZJHJ [2015] No. 104). The marketing of new medicine to be produced under the project requires approval of the drug administration.’’

To revise the original statement ‘‘The land needed for ‘Therapeutic Antibody-based Drugs Research & Development and Industrialization Development Project’ has been obtained. The project approval and environmental impact assessment are underway. Marketing of new medicine to be produced under the project requires approval of the drug administration.’’ under ‘‘7. Land Use, Project Approval and Environmental Impact Assessment’’ of ‘‘Item II: Capital injections to Livzon MAB for its investment in the construction of ‘Research & Development and Industrialization of therapeutic antibody-based drugs’’’ to ‘‘Section II Feasibility Study on Projected Investments of the Proceeds’’ as ‘‘The ‘Therapeutic Antibody-based Drugs Research & Development and Industrialization Development Project’ has been filed and obtained an approval reply (Document No.: 2015-440404-27-03-011092) from the Reform, Development and Statistics Department of Jinwan District. The land needed for the project has been made available. The Environmental Protection Bureau of Jinwan District of Zhuhai City has approved the environment impact assessment of the project by issuing the Reply on Environmental Impact Report for 21.87 KG/a AT132 and 36.45 KG/a LZM002 Production Project of Zhuhai Livzon Monoclonal Antibody Biotech Company Ltd. (Document No. ZJHJ [2013] No. 066) and Opinions on the Filing of Environmental Impact Post-Assessment Report of Zhuhai Livzon Monoclonal Antibody Biotech Company Ltd. (Therapeutic Antibody-based Drugs Research & Development and Industrialization Development Project). The Marketing of new medicine to be produced under the project requires approval of the drug administration.’’

– 9 –

LETTER FROM THE BOARD

To revise the original statement ‘‘The land needed for the project is obtained. The project approval and environmental impact assessment are underway. Marketing of new medicine to be produced under the project requires approval of the drug administration.’’ under ‘‘6. Land Use, Project Approval and Environmental Impact Assessment’’ of ‘‘Item III: Construction of Research & Development Platform of sustained release Microsphere Technologies’’ to ‘‘Section II Feasibility Study on Projected Investments of the Proceeds’’ as ‘‘The Project has been filed and obtained an approval reply (Document No.: 2015-440404-27-03-008186) from the Reform, Development and Statistics Department of Jinwan District. The land needed for the project has been made available. The Environmental Protection Bureau of Jinwan District of Zhuhai City has approved the environmental impact assessment of the Project by issuing the Reply on Environmental Impact Report for Depth Development and Industrialized Upgrade of the Innovative Ilaprazole Product Series of Livzon Pharmaceutical Group Inc. (Document No.: ZJHJ [2015] No. 103). The marketing of new medicine to be produced under the project requires approval of the drug administration.’’

A special resolution will be proposed at the EGM to approve the revised Feasibility Report. The Feasibility Report (revision) to be approved is set out in Appendix I of this circular.

The associated Shareholders of the Company, namely Joincare, Shenzhen Haibin Pharmaceutical Co., Ltd.（深圳市海濱製藥有限公司）and Topsino Industries Limited（天誠實業有限公司）shall abstain from voting on this resolution. IV. RISK WARNING ON THE DILUTION ON IMMEDIATE RETURNS OF THE NONPUBLIC ISSUANCE OF A SHARES AND IMPLEMENT REMEDIAL MEASURES FOR IMMEDIATE RETURN

As required by Opinions of the General Office of the State Council on Further Strengthening the Protection of Legal Rights and Interests of Small and Medium Investors in the Capital Market (GBF [2013] No. 110), Opinions of the State Council on Further Promoting the Healthy Development of the Capital Market (GBF [2014] No. 17) and Guiding Opinions on Matters Concerning the immediate return dilution by IPO, Refinancing and Material Asset Reorganization (CSRC Announcement [2015] No. 31), the Company has carefully analyzed the influence of the issue on the main financial indicators of the Company and makes the following commitments on the measures to be taken against the immediate return dilution after the completion of the issue so as to ensure the interests of small and medium investors:

I. Influence of the non-public issuance on the main financial indicators of the Company

(I) Primary assumptions

Assume that there is no material adverse change in the macroeconomic environment and the market of the industry where the Company operates.

– 10 –

LETTER FROM THE BOARD

Assume that the non-public issuance will be completed in August 2016. This is only an estimated time. The real time should be the actual completion time of the non-public issuance as endorsed by the CSRC.
Assume that the number of shares to be issued in the non-public issuance is 38,000,000, the upper limit of the total number of shares to be issued under the Contingency Plan as approved by the Board and the General Meeting. The real number should be the number of shares actually issued with the approval of the CSRC.
Assume that the total funding to be raised from the non-public issuance is RMB1,457,820,000, the upper limit of the total funding amount to be raised from the non-public issuance, without considering the influence of issuing costs.
As of 2014, the audited net profits attributable to common Shareholders of the Company and the net profits less non-recurring profit and loss and attributable to the Shareholders of the listed company are respectively RMB515,978,400 and RMB463,031,500. Given that 2015 audit report hasn’t been prepared yet, we hereby assume that the audited net profits attributable to common Shareholders of the Company and the net profits less non-recurring profit and loss and attributable to the Shareholders of the listed company as of 2015 increase by 15% when compared to that of 2014. Assume the circumstance that the net profits attributable to common Shareholders of the Company and the net profits less non-recurring profit and loss and attributable to the Shareholders of the listed company as of 2016 are flat with that of 2015 as ‘‘Circumstance 1’’. Assume the circumstance that the net profits attributable to common Shareholders of the Company and the net profits less non-recurring profit and loss and attributable to the shareholders of the listed company as of 2016 increase by 20% when compared with that of 2015 as ‘‘Circumstance 2’’. This assumption does not constitute a profit forecast of the Company and should not be taken as the basis for investors to make investment decisions. The Company will not be liable for any loss caused by any investment decision made by investor on the basis of this assumption.
RMB326,160,100 of the cumulative profit distribution in cash made by the Company from 2012 to 2014 accounts for 22.57% of total cumulative distributable profits (net profits attributable to equity holders of the parent company in the Consolidated Financial Statements) realized in these three years.

Assume that the 2015 cash dividend will be paid in July 2016. As the ratio of cash dividends is 22.57%, the 2015 cash dividend is RMB133,924,800 (namely, net profits attributable to the shareholders of the parent company (RMB593,375,200) of the 2015FY × 22.57%).

– 11 –

LETTER FROM THE BOARD

The influence of the receipt of funds raised from the non-public issuance on the production, operation, financial position (financial costs and return on investment) and other aspects of the Company in terms of production, operation, financial position (financial costs and return on investment) is not taken into consideration.
The net assets of the Company are estimated without consideration of the influences of factors other than funds raised, net profits and profit distribution.
The basic EPS and the weighted average ROE are calculated as required by Rule No. 9 on Compiling the Information Disclosure of the Company that Issues Shares Publicly – Calculation and Disclosure of ROE and EPS (2010 Revision).
(II) Influence of the immediate return dilution caused by the issue on the main financial indicators of the Company

Based on the above assumptions, the comparison result of the influences of the non-public issuance on the main financial indicators of the company is stated as follows:

			2016/December	31, 2016
			Without	With
		2015/	consideration of	consideration of
		December 31,	the non-public	the non-public
Item		2015	issuance	issuance
Total	equity (shares)	396,889,547	396,889,547	434,889,547
Total	amount to be raised (yuan)		1,457,820,000

Item	Item	Item		2016/December 31, 2016	2016/December 31, 2016
	Item		2015/ December 31, 2015	2016/December 31, 2016
				Without consideration of the non-public issuance	With consideration of the non-public issuance
	Total equity (shares)		396,889,547	396,889,547	434,889,547
	Total amount to be raised (yuan)		1,457,820,000
Circumstance 1: Assume that the net profits attributable to equity holders of the parent company and the net profits less non-recurring profit and loss and attributable to equity holders of the parent company as of 2016 are flat with that of 2015
	Circumstance 1: Assume that the net profits attributable to equity holders of the parent company and the net profits less non-recurring profit and loss and attributable to equity holders of the parent company as of 2016 are flat with that of 2015
	Net profits attributable to equity holders of the parent company (yuan)		593,375,196.59	593,375,196.59	593,375,196.59
	Net profits less non-recurring profit and loss and attributable to equity holders of the parent company (yuan)		532,486,192.92	532,486,192.92	532,486,192.92
	Basic EPS (yuan/share)		1.51	1.50	1.45
	Diluted EPS (yuan/share)		1.51	1.50	1.45
	Less non-recurring profit and loss	Basic EPS (yuan/share)	1.35	1.34	1.30
		Diluted EPS (yuan/share)	1.35	1.34	1.30
	Weighted average ROE		14.31%	13.03%	11.78%
	Weighted average ROE (less non-recurring profit and loss)		12.84%	11.70%	10.57%

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LETTER FROM THE BOARD

Circumstance 2: Assume that the net profits attributable to equity holders of the parent company and the net profits less non-recurring profit and loss and attributable to equity holders of the parent company as of 2016 increase by 20% when compared with that of 2015	Circumstance 2: Assume that the net profits attributable to equity holders of the parent company and the net profits less non-recurring profit and loss and attributable to equity holders of the parent company as of 2016 increase by 20% when compared with that of 2015	Circumstance 2: Assume that the net profits attributable to equity holders of the parent company and the net profits less non-recurring profit and loss and attributable to equity holders of the parent company as of 2016 increase by 20% when compared with that of 2015	Circumstance 2: Assume that the net profits attributable to equity holders of the parent company and the net profits less non-recurring profit and loss and attributable to equity holders of the parent company as of 2016 increase by 20% when compared with that of 2015	Circumstance 2: Assume that the net profits attributable to equity holders of the parent company and the net profits less non-recurring profit and loss and attributable to equity holders of the parent company as of 2016 increase by 20% when compared with that of 2015
Circumstance 2: Assume that the net profits attributable to equity holders of the parent company and the net profits less non-recurring profit and loss and attributable to equity holders of the parent company as of 2016 increase by 20% when compared with that of 2015
Net profits attributable to equity holders of the parent company (yuan)		593,375,196.59	712,050,235.91	712,050,235.91
Net profits less non-recurring profit and loss and attributable to equity holders of the parent company (yuan)		532,486,192.92	638,983,431.50	638,983,431.50
Basic EPS (yuan/share)		1.51	1.79	1.74
Diluted EPS (yuan/share)		1.51	1.79	1.74
Less non-recurring profit and loss	Basic EPS (yuan/share)	1.35	1.61	1.56
	Diluted EPS (yuan/share)	1.35	1.61	1.56
Weighted average ROE		14.31%	15.44%	13.97%
Weighted average ROE (less non-recurring profit and loss)		12.84%	13.86%	12.53%

II. Risk of immediate return dilution caused by the non-public issuance

With the payment of the raised funds after the completion of the non-public issuance, the total equity and net assets of the Company will increase. It takes time to construct the proposed project, and no profit is created in such construction period. If the profitability of the existing businesses of the Company isn’t improved accordingly, the ROE and EPS will decrease. The Company hereby reminds investors of the risk that the immediate return of the Company may be shortly diluted in the year when the funds raised from the issue are paid.

Meanwhile, the assumptions made by the Company for the analysis on the influence of the issue on the immediate return dilution do not constitute the profit forecast of the Company, and the detailed measures established by the Company to fill diluted return do not equal to guarantees of future profits of the Company. Investors shall not make investment decisions based on such assumptions and measures. The Company will not be liable for any loss caused by any investment decision made by investor on the basis of these assumption and measures. The implementation of the measures to fill the diluted immediate return and the fulfillment of commitments of related parties will be disclosed continuously in regular statements by the Company.

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LETTER FROM THE BOARD

III. Necessity and rationality of the non-public issuance

(I) Necessity of the non-public issuance of A Shares

1. Fulfill the long-term strategic development goals of the Company

New technologies and products are guarantees to the competitiveness and sustainable growth of a business. The Company has a vision of itself as a leading specialized pharmaceutical business group in China capable of independent innovations and able to compete in the international market in production, technologies and management. With this in mind, the Company spent RMB201 mn, RMB233 mn, RMB290 mn and RMB273 mn on R&D from 2012 to 2015 Q3, representing 5.11%, 5.05%, 5.23% and 5.67% of its operating revenue in the corresponding years, respectively. The Company also saw consistent growth of net profits from 2012 to 2014, posting RMB475 mn, RMB524 mn and RMB554 mn, respectively, on the basis of generous R&D expenditure and mature production, technological and management capabilities.

The Company will use the proceeds from the non-public issuance to invest ‘‘deeper development and industrial upgrading of Ilaprazole-series innovative products’’, ‘‘R&D and industrialization of therapeutic antibody-based drugs’’, and ‘‘construction of R&D platform of prolonged-action microsphere technologies’’. Through these investments, the Company will enhance its own independent innovation capability and increase its production and management capabilities through capacity expansion projects. The antibody drug project will help the expansion to the field of new pharmaceuticals, enhance the innovation, technology and management of relevant products, maintain the competitive advantages of the Company, and further the fulfillment of the long-term strategic development goals.

2. Increase production and R&D inputs, and improve the product mix

On the basis of the mature R&D infrastructure and the highly competent R&D team of Livzon Group, the Company will use the proceeds from the nonpublic issuance to input more resources into production and research, optimize its product mix, and sharpen the competitive edge of its products. In this way, it will be able to obtain an advantage and develop core competitiveness in an ever changing environment.

The Company is going to invest in the ‘‘deeper development and industrial upgrading of series of innovative Ilaprazole’’ project. On the basis of the existing ilaprazole tablet products, the Company will carry out innovative product research and industrial upgrading, maintain its technical advantages, make it becoming a series of products, and increase its production capacity and market share.

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LETTER FROM THE BOARD

Capital injections to Livzon MAB on its investment in the construction of ‘‘research & development and industrialization of therapeutic antibody-based drugs’’ are also projected. Recombinant humanized anti-TNF-α monoclonal antibody, a new cure invented for arthritis pauperum, and humanized anti-ErbB2 antibody, a new effective therapy for HER2-positive BC patients, will be studied, to ensure the Company succeed in its transition to the biomedicine sector and consolidate its presence in international biomedicine and biotech studies.

The investment in ‘‘construction of R&D platform of prolonged-action microsphere technologies’’ is proposed to conduct innovative studies on the basis of prolonged-action microsphere sustained-released agents technologies by drawing upon the existing R&D achievements and industrial experience in Leuprorelin Acetate Microspheres for Injection which is already marketed, to sharpen the competitive strength of prolonged-action microsphere sustainedreleased agents technologies, break technical barriers, heighten the localization rate of microsphere formulations and drive technological advancement of the entire industry.

Optimize the assets and liabilities structure and financial condition of the Company

The proceeds from the non-public issuance will also be used to top up the Company’s working capital and repay bank loans. The proceeds will be used properly to replenish capital adequacy, reduce financial expenses, lower the asset-to-liability ratio, raise the liquidity ratio and quick ratio, optimize the assetliability structure and financial performance, strengthen stability of the asset structure, enhance risk tolerance and continued profitability, and foster robust business growth of the Company.

(II) Rationality of the non-public issuance of A Shares

The proceeds from the non-public issuance will be used to invest ‘‘deeper development and industrial upgrading of Ilaprazole-series innovative products’’, ‘‘R&D and industrialization of therapeutic antibody-based drugs’’, and ‘‘construction of R&D platform of prolonged-action microsphere technologies’’. These proposed projects are based on main activities of the Company and all belong to the development fields actively promoted by policies such as 12th Five-Year Plan for the Pharmaceuticals Industry, Development Plan for Strategic Emerging Industries during the 12th FiveYear Period and Made in China 2025. They will help to enhance the innovation, technology and management of relevant products, maintain the competitive advantages of the Company, and power the fulfillment of the long-term strategic development goals.

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LETTER FROM THE BOARD

After the proposed projects are completed, a variety of pharmaceutical preparation products will be developed. The launch of new products will help the Company to grab the strategic opportunity arising from the growing pharmaceuticals industry, develop advantages in specialist fields, enrich relevant product lines, capture a bigger market share, optimize the product mix, take the product quality and technical processes to the next level and build up its capabilities of comprehensive R&D and independent innovation. The Company thereby will become more competitive, sustainable and risk tolerant, and long-term interests of the Shareholders will be fulfilled and protected.

Meeting the industrial policies of China and the overall strategic development direction of the Company, the proposed projects with high profitability will have positive effect on the activities of the Company, help to improve the core competitiveness and development sustainability, and realize and protect the long-term interests of the Shareholders.

In addition, the Company recorded operating revenue to the tune of RMB3,944 mn, RMB4,619 mn and RMB5,544 mn in 2012, 2013 and 2014, respectively. Continued business growth gives rise to a proportional increase in demand for working capital. In the other hand, the Company will need to inject more resources into R&D consistently to build up its R&D capabilities in all sectors. This will also give rise to additional demand for working capital. The proceeds from the non-public issuance will be used to top up the working capital, repay bank borrowings and strengthen capital adequacy of the Company. This will effectively relieve the Company from much of the financial strain caused by market development and R&D expenses and make the Company more risk tolerant and profitable.

IV. Relation between the proposed projects and the existing businesses, and preparations in terms of human resources, technologies and market made by the Company for the proposed projects

(I) Relation between the proposed projects and the existing businesses

The proposed projects are all developed on the basis of the existing business activities of the Company, and they help the Company to enhance innovation, technology, production and management capabilities, maintain its competitive advantages, and promote the realization of long-term strategic development goals, with details as follows:

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LETTER FROM THE BOARD

The project of deeper development and industrial upgrading of Ilaprazole-series innovative products is based on the existing product – ‘‘Ilaprazole Enteric-coated Tablet’’ (trade name: Ilaprazole). Through the implementation of this project and via the original research and development, the Company will develop Ilaprazole Tablet of new specifications for the new applications, Ilaprazole sodium for injection, Ilaprazole optical isomer preparation and Ilaprazole compound preparation, etc. Developing a complete Ilaprazole collection helps the Company to increase the technical level of the Ilaprazole series products, raise the imitation barriers, prolong product life cycle, and keep its competitive edge in the field of Ilaprazole series products.

The Company focuses on biomedicine for the treatment of autoimmune diseases and cancer. The project of R&D and industrialization of therapeutic antibody-based drugs includes two subprojects, which are monoclonal antibody-based drugs for the treatment of autoimmune diseases and cancers respectively. The implementation of the project will help the Company to improve the product mix.

The project of construction of R&D platform of prolonged-action microsphere technologies is proposed to realize industrialization of prolonged-action sustainedrelease microsphere formulations and develop innovative types of microspheres by using the findings in the research, on the basis of the existing R&D achievements and industrialization experience in Leuprorelin Acetate Microspheres for Injection.

By reasonably utilizing the proceeds from the non-public issuance, the capital strength of the Company can be enhanced. Also, this effectively reduces the Company’s expenditure associated with bank borrowings and finance costs, lowers the Company’s gearing ratio, increases the Company’s current ratio and quick ratio, optimizes the Company’s assets and liabilities structure and financial condition, stabilizes the Company’s assets structure, enhances the Company’s ability to cope with risks, enhances the Company’s earnings sustainability and promotes stable development of the Company’s businesses.

(II) Preparations in terms of human resources, technologies and market made by the Company for the proposed projects

1. Human resources

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LETTER FROM THE BOARD

overseas strategic alliance and attraction of leading innovators. Only in 2014 has the biological medicine R&D team attracted 9 oversea-background senior experts in the field of biological pharmacy, and some of them are experts having more than 15 years of R&D and industrialization experience in world leading biopharmaceutical enterprises.

In addition, the Company has established a scientific and perfect internal training system to help employees to improve themselves continuously, thereby improving the overall quality of the staff to make contributions to the promotion of the proposed projects. In a word, with a strong advantage in preparation of human resources, the Company can meet the talent demand of the proposed project through internal training and introduction of external talents.

2. Technology

The pharmaceuticals mainly rely on new technologies and products to realize their competitiveness and sustainable growth. After more than thirty years of development, Livzon Group has become a large high-tech business group engaged in research, development, production and sale of medicine and related products. About 5% of the total operating revenue is spent on research and development in last three years. With the sufficient investment in research and development, the Company now has powerful research and development strength and made great achievements in research and development. As of 31 December 2015, the Company has obtained more than 400 product approvals, and participated 8 national and provincial ‘‘Torch Program’’ projects and 6 national ‘‘863 Program’’ projects. In terms of intellectual property and international licensing, Livzon Group and its subsidiaries in China, as of 31 December 2015, has obtained 2 software copyrights, 287 patents (including 129 patents of invention in China, 103 patents of design in China and 28 utility models), 27 international parents granted by Hong Kong, USA, Japan, other regions and countries and PCT. All of these patents are valid. Recently, the invention of the Company ‘‘A Ilaprazole Enteric-Coated Tablet and the preparation method thereof’’ (Patent No. ZL201010610953.1) won the 17th Chinese Patent Award. Now, the Company has three national technical centers, namely, ‘‘National Engineering Research Center for Modernization of Traditional Chinese Medicine’’, ‘‘National-Recognized Enterprise Technology Center’’ and ‘‘National-Local United Engineering Research Center for Prolonged-Action Microsphere Technology’’. The Company has powerful research and development strength and made great achievements in research and development, providing a solid technical foundation for the implementation of the proposed project.

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LETTER FROM THE BOARD

3. Market Reserve

The Company has set up a marketing network covering the domestic market, established a stable and good business relationship with main business channels and thousands of hospitals, and enjoyed a good market reputation.

The Company has formed perfect a marketing network and sales mode. Active pharmaceutical ingredients (API) are sold to clients by manufacturing companies subordinate to the Livzon Group, and other preparation medicines are sold solely by the Livzon Group. The sales of preparation medicines and diagnostic reagents and equipment are basically covered by commercial distribution terminals, and main cooperators include Huadong Medicines Co., Ltd., Shanghai Siful Medicines Co., Ltd., Yunan Pharmaceutical Co., Ltd. and local leading pharmaceutical companies. The Company also runs a marketing network covering major medical institutions, chain pharmacies, pharmaceutical manufacturers, centers of disease control, health departments and other terminals nationwide, thus forming a mature marketing system which is dominated by its own sales teams and supplemented by external agencies. After more than 30 years of development, the Company has laid a solid foundation for the implementation of the proposed projects by establishing a mature and perfect marketing network, accumulating rich marketing experiences, developing good brand reputation and capturing big market share.

V. Measures taken by the Company to fill the diluted immediate return by the issue

(I) Operational status, development trend, main risks of the existing business and improvement measures

The Group has been specializing in the pharmaceutical manufacturing field, and its products can be mainly divided into four categories: western medicine preparation, traditional Chinese medicine preparation, APIs & pharmaceutical intermediates, and diagnostic reagents & equipment. In 2012, 2013, 2014 and the period from Jan. to Sep. 2015, the Company recorded an operating revenue to the tune of RMB3,943,525,300, RMB4,618,680,000, RMB5,544,233,800 and RMB4,886,738,000 respectively, and a net profit to the tune of RMB475,223,100, RMB523,986,500, RMB553,622,200 and RMB541,648,100. The compound growth rate of the operating revenue from 2012 to 2014 is 18.57%. This shows the stable growth and strong competitiveness of the Company. With the implementation of the proposed projects and the continuous enhancement of the core competitiveness in future, the risk resistance and operational sustainability of the Company will be enhanced continuously.

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LETTER FROM THE BOARD

The national policies concerning the pharmaceutical industry are adjusted continuously in recent years. On 22 January 2013, Ministry of Industry and Information Technology joins other departments to issue the Guiding Opinions on Advancing the Merger and Reorganization of Enterprises in Key Industries (GXBLCY [2013] No. 16) which pointed out that the merger and reorganization of enterprises shall be advanced to promote the optimization and upgrading of industrial structure. On 7 March 2014, the State Council released the Opinions of the State Council on Further Optimizing the Market Environment for the Merger and Reorganization of Enterprises (GF [2014] No. 14) which stressed that the policies concerning the finance, tax, land and staff resettlement shall be further improved to promote the merge and reorganization of enterprises, enhance industrial competitiveness, increase allocation efficiency and optimize the industrial structure continuously. On the other hand, with the gradual lifting of national policies, more enterprises both at home and abroad may enter these fields in future. Due to these factors, the competition in the industry will be intensified, and the Company will have risks of market competition.

Facing the increasingly fierce market competition, the Livzon Group continues its exploration and innovation, promotes industrial development, improves the quality of the products, and develops good brand reputation and market position in the industry. In the future, the Company will continue to give full play to its advantages in product mix, marketing channel, new medicine R&D and product quality, expand its business scale and consolidate its core competitiveness by continuously increase research investment and strengthen the existing prescription drugs, diagnostic reagents, reproduction specialist team, and advantageous sales channels and teams.

(II) Measures taken by the Company to fill diluted immediate return caused by the non-public issuance

To ensure the effective use of the funds raised, effectively prevent the risk of immediate return dilution and improve the future return ability, the Company intends to take the following measures to fill the diluted immediate returns:

Strengthen the management of funds raised and prevent risks concerning use of such funds

The Company will strictly comply with the regulations concerning the deposit, use, change of use, supervision and management of the funding amount which are stipulated in the Securities Law of the People’s Republic of China, Administrative Measures for the Issuance of Securities by Listed Companies, No. 2 Guideline for the Supervision of Listed Companies – Regulatory Requirements for the Management and Use of Funds Raised by Listed Companies, Guidelines of the Shenzhen Stock Exchange for Standardized Operation of Companies Listed on the Main Board and Stock Listing Rules of the Shenzhen Stock Exchange.

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LETTER FROM THE BOARD

To use the funds raised in a standardized, effective and planned way after the funds raised are paid, the Board of the Company will continue to supervise whether the Company deposits the funds raised in a special account, ensure the funds raised are used for specified investment projects, actively assist in the inspection and supervision by the regulating bank and the Sponsor, ensure the reasonable and standardized use of the funds raised, take reasonable measures to present risks concerning the use of funds raised, give full play of the benefits of the funds raised, and protect the interests of investors.

Give full play to the existing competitive advantage, and speed up the progress of equity investment projects

Relying on the existing competitive advantage, the Company will defend its market advantages with diversified product mix and core products taking the leading market share, promote the steady growth of its assets, income and profits by mature marketing network and promotion capability, enhance its core competitiveness and risk resistance and increase its comprehensive profits. With increasingly growing profitability from 2012 to 2014, the Company recorded EPS less non-recurring profit and loss to the tune of 1.03 yuan, 1.20 yuan and 1.21 yuan. This shows that the Company has strong competitiveness and the existing products has good profitability.

In addition, the proposed projects are all based on the main business activities of the Company, pass rigorous scientific verification, obtain the approval from the Board and the General Meeting of the Company and meet the development planning of the Company. After the funds raised are paid, the Company will accelerate the progress of the proposed projects, promote the smooth construction of the projects, and give returns to the Shareholders as soon as possible. At the same time, the Company actively explore and dig external opportunities and find new profit growth points by acquisition and cooperation.

Further improve and strictly implement the cash dividend policy, and strengthen investor return mechanism

In accordance with documents such as Notice on Further Implementing Matters concerning Cash Dividends of Listed Companies and No. 3 Regulatory Guideline for Listed Companies – Cash Dividends of Listed Companies released by the CSRC, the Company has amended the terms and conditions concerning profit distribution policies specified in the Articles of Association. The Profit Distributions Plan of the Company will be implemented strictly according to the Articles of Association so that the dividend standard and ratio will be correct and clear, relevant decision-making procedures and mechanisms are complete, the independent Director fulfill his/her duties and play an effective role, medium and small Shareholders have the opportunities to fully express their views and aspirations, and the legal rights and interests of medium and small Shareholders are protected earnestly.

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LETTER FROM THE BOARD

In addition, to improve and perfect the dividend decision and supervision mechanism of the Livzon Group, actively repay investors, and guide investors to establish a long-term and rational investment philosophy, the Board of the Company will establish the Dividend Payment Plan for the Coming Three Years (2015-2017) according to documents such as Notice on Further Implementing Matters concerning Cash Dividends of Listed Companies (ZJF [2012] No. 37) and No. 3 Regulatory Guideline for Listed Companies – Cash Dividends of Listed Companies (ZGZJHGG [2013] No. 43) and other regulations on the dividend distribution policies by the Articles of Association. This dividend distribution plan has been passed by the resolution of the 15th meeting of the Eighth Board and the second Extraordinary General Meeting of 2015, and it specifies the detailed dividend distribution plans from 2015 to 2017.

The Company will strictly enforce the relevant provisions, earnestly safeguard the investor’s legitimate rights and interests, strengthen the mechanism for the protection of the rights and interests of small and medium investors, actively promote the profit distribution and cash dividends to Shareholders in combination with the operation and development planning and under proper circumstances, and try to repay Shareholders.

Constantly improve the corporate governance, and provide institutional support for the development of the Company

Strictly following laws, regulations and normative documents such as the Company Law, the Securities Law of the People’s Republic of China and the Code of Corporate Governance for Listed Companies in China, the Company constantly improves the corporate governance structure, and ensures that Shareholders can fully exercise their rights, that the Board can exercise their powers and make scientific, timely and prudent decisions according to provisions of laws, regulations and the Articles of Association, and that the independent Director can perform his/her duties to protect the overall interests of the Company, especially the legal rights and interests of small and medium Shareholders. The Company also ensures that the Board of Supervisors can exercise theirs rights to independently and effectively supervise and inspect the financial positions of the Directors, managers, other senior management members and the Company and provide institutional guarantee for the development of the Company.

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VI. Commitments made by Directors, senior management members, Controlling Shareholder and actual controller of the Company
(I) Commitments made by Directors and senior management members as to the implementation of measures to fill the diluted immediate return

To give full protection to the interests of the Company and the public investors after the completion of this non-public issuance, the Directors and senior management members of the Company make the following commitments as to the implementation of measures to fill the diluted immediate return:

‘‘1. Never transfer interests to any other organizations or individuals for free or in an unfair way, and never damage the interests of the Company by any other means.
Restrain the duty consumption of Directors and senior management members.
Never use the assets of the Company for any investment or consumption activities irrelevant with the performance of their duties.
Connect the remuneration system established by the Board or the Remuneration Committee with the implementation of measures to fill the diluted return.
Combine the right exercising conditions under future stock option incentive with the implementation of measures to fill the diluted return.’’
(II) Commitments made by the Controlling Shareholder and the actual controller as to the implementation of measures to fill the diluted immediate return

According to the regulations of the CSRC on the implementation of refinancing measures to fill the diluted immediate return, the Controlling Shareholder, Joincare, and the actual controller, Mr. Zhu Baoguo, undertake that they will never go beyond their authorities to intervene the management activities of the Company or encroach the interests of the Company.’’

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LETTER FROM THE BOARD

VII. Procedures for considering and passing the measures and commitments to fill the diluted immediate return by the issue

The analysis of the immediate return dilution by the non-public issuance, the measures to fill the diluted immediate return, the commitments of related parties and other relevant matters have been approved at the twenty-first meeting of the Eighth Board held on March 8, 2016, and a special resolution will be proposed at the EGM to approve this proposal.

V. UNDERTAKINGS BY RELEVANT ENTITIES IN RELATION TO THE CONCRETE IMPLEMENTATION OF THE REMEDIAL MEASURES FOR THE RETURNS BY THE COMPANY

As required by Opinions of the General Office of the State Council on Further Strengthening the Protection of Legal Rights and Interests of Small and Medium Investors in the Capital Market (GBF [2013] No. 110) and Guiding Opinions on Matters Concerning the immediate return dilution by IPO, Refinancing and Material Asset Reorganization (CSRC Announcement [2015] No. 31), the Company has analyzed the influence of the non-public issuance of A Shares on the immediate return dilution and proposed the specific remedial measures for the returns by the Company. Being the responsible subject, the Directors, senior management members, actual controller and Controlling Shareholder made the following commitments to ensure the concrete implementation of the remedial measures for the returns by the Company:

I. Commitments made by Directors and senior management members as to the concrete implementation of measures to fill the diluted immediate return:
Never transfer interests to any other organizations or individuals for free or in an unfair way, and never damage the interests of the Company by any other means.
Restrain the duty consumption of Directors and senior management members.
Never use the assets of the Company for any investment or consumption activities irrelevant with the performance of their duties.
Connect the remuneration system established by the Board or the Remuneration Committee with the implementation of measures to fill the diluted return.
Combine the right exercising conditions under future stock option incentive (if any) with the implementation of measures to fill the diluted return.

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LETTER FROM THE BOARD

II. Commitments made by the actual controller, Mr. Zhu Baoguo, and the Controlling Shareholder, Joincare, as to the implementation of measures to fill the diluted immediate return: never go beyond their authorities to intervene the management activities of the Company or encroach the interests of the Company.

A special resolution will be proposed at the EGM to approve this proposal.

The associated Shareholders of the Company, namely Joincare Pharmaceutical Industry Group Co., Ltd.*（健康元藥業集團股份有限公司）, Shenzhen Haibin Pharmaceutical Co., Ltd.（深圳市海濱製藥有限公司）and Topsino Industries Limited（天誠實業有限公司）shall abstain from voting on this resolution.

VI. AMENDMENTS TO THE CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES

Given the Company proposed to adjust the amount to be issued, the pricing method and issuing price of the plan of the non-public issuance of A Shares, pursuant to the requirements set out in the Guiding Opinions on Matters Concerning the immediate return dilution by IPO, Refinancing and Material Asset Reorganization (CSRC Announcement [2015] No. 31), the Company has amended the Contingency Plan of Non-public Issuance of A Shares accordingly. The major amendments are set out below:

Section Content Amendment(s)

‘‘IMPORTANT NOTES’’ ‘‘IMPORTANT NOTES’’ 1. Added a disclosure on that the non-public issuance of the Company has been considered and passed by the 2015 Third Extraordinary General Meeting; adding a disclosure on that the adjustment of the plan on the non-public issuance of the Company has been considered and passed by the Board on the twenty-first meeting of the Eighth Board, but not by the 2016 Second Extraordinary General Meeting (EGM) yet; adding a disclosure on that the non-public issuance of the Company is still subject to the approval by the CSRC.
1. Adjusted the amount to be issued, the pricing method and issuing price of the plan on the non-public issuance;
2. Added a new item to important notes, being ‘‘X. The Company reminds investors that: the assumption and analysis of EPS and ROE made by the Company in the Contingency Plan does not constitute the profit forecast of the Company, and measures established by the Company to fill diluted immediate return do not equal to a guarantee of future profits of the Company. The non-pubic issuance carries a variety of risks that investors need to be aware of. For details on the analysis of the immediate return dilution by the non-public issuance and the countermeasures to fill the diluted return, please see Section V ‘‘Risks of Immediate Return Dilution and Countermeasures’’.
For identification purpose only

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LETTER FROM THE BOARD

Section	Content	Amendment(s)
‘‘DEFINITIONS’’	‘‘DEFINITIONS’’	Amended the definition ‘‘Pricing Base Date’’.
‘‘SECTION I OVERVIEW OF	‘‘I. ABOUT THE ISSUER’’	Amended the registered address and registered capital of the
THE CONTINGENCY		Company; updated ‘‘Business License Registration Number of
PLAN OF NON-PUBLIC		Corporate Entity’’, ‘‘Organization Code’’ and ‘‘Tax
ISSUANCE OF A		Registration Number’’ to be ‘‘Unified Social Credit Code’’.
SHARES’’
	‘‘IV. OVERVIEW OF THE	Updated and disclosed the amount to be issued, the pricing
	PLAN OF NON-PUBLIC	method and issuing price of the non-public issuance.
	ISSUANCE’’
	‘‘VII. WILL THE ISSUE	Updated and disclosed the shareholding percentage of the
	CAUSE A CHANGE IN THE	Controlling Shareholders prior to the non-public issuance.
	CONTROLLING INTEREST
	IN THE COMPANY’’
	‘‘VIII. APPROVAL	Updated and disclosed the approval (endorsement) obtained and to
	(ENDORSEMENT) OF THE	be obtained for the plan on the non-public issuance and the
	ISSUE OBTAINED OR TO	adjustments to the plan.
	BE OBTAINED FROM THE
	AUTHORITIES’’
‘‘SECTION II FEASIBILITY	‘‘II. FEASIBILITY STUDY ON	Updated and disclosed the approval of the filing and
STUDY ON USE OF THE	PROJECTED	environmental impact assessment obtained for projected
PROCEEDS BY THE	INVESTMENTS OF THE	investments of the proceeds of the non-public issuance.
BOARD’’	PROCEEDS’’
‘‘SECTION III DISCUSSION	‘‘VI. RISK FACTORS	Updated and disclosed the risk factors relating to the adjustments
AND ANALYSIS OF THE	RELATING TO THE NON-	to the plan of the non-public issuance.
IMPACT OF THE NON-	PUBLIC ISSUANCE’’
PUBLIC ISSUANCE ON
THE COMPANY BY THE
BOARD’’
‘‘SECTION IV PROFIT	‘‘I. PROFIT DISTRIBUTION	Added the disclosure that The Three-Year Shareholder Returns
DISTRIBUTIONS’’	POLICY OF THE	Plan (2015-2017) of 麗珠醫藥集團股份有限公司Livzon
	COMPANY’’	Pharmaceutical Group Inc.* was considered and passed at the
		2015 Second Extraordinary General Meeting of the Company.
‘‘SECTION V RISK OF	‘‘SECTION V RISK OF	Added the disclosure that the Company has analyzed the influence
IMMEDIATE RETURN	IMMEDIATE RETURN	of the issuance on the main financial indicators of the
DILUTION AND	DILUTION AND	Company, and described the immediate return dilution upon
COUNTERMEASURES’’	COUNTERMEASURES’’	completion of the issuance, the measures proposed to be taken
		and the undertakings made by the Company.

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LETTER FROM THE BOARD

A special resolution will be proposed at the EGM to approve the Contingency Plan of Nonpublic Issuance of A Shares (Revision). The Contingency Plan of Non-public Issuance of A Shares (Revision) to be approved is set out in Appendix II of this circular.

VII. AUTHORIZATION ON THE NON-PUBLIC ISSUANCE OF A SHARES

Pursuant to the arrangement of the Company in conducting the non-public issuance of A Shares to specific target investors, in order to ensure that the non-public issuance of shares can be carried out lawfully and efficiently, pursuant to the the Company Law, Securities Law of The People’s Republic of China, Administrative Measures for the Issuance of Securities by Listed Companies and other laws and regulations and relevant requirements of the Articles of Association, the Company will propose a special resolution at the EGM, to grant full authorization to the Board to handle all matters relating to the non-public issuance of A Shares, including but not limited to:

Authorize the Board to formulate and implement the detailed proposal for the nonpublic issuance of A Shares with reference to the actual circumstances, including but not limited to the the time of issuance, number of shares to be issued, issue period, subscription price, specific methods of subscription, proportion of subscription, proceeds amount, setting up of specific account for proceeds and other matters related to the non-public issuance of A Shares;
Authorize the Board to sign on major contracts and reporting documents in the operational process of the investment project for the non-public issuance of A Shares;
Authorize the Board to handle the reporting matters in relation to the non-public issuance of A Shares;
Decide and appoint the sponsors (lead underwriter) and other intermediary institutions for the non-public issuance of A Shares;

For identification purpose only

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LETTER FROM THE BOARD

Pursuant to the requirements of the laws and regulations, the requirements of relevant regulatory authorities and actual progress of the specific project, make adjustments to the specific plan in terms of the amount of capital injection, priority and other matters within the scope of the resolutions at the general meeting;
Amend the relevant terms of the Articles of Association according to the actual outcome of the non-public issuance of A Shares, and to file to industry and commerce changes registration and other related filing;
Authorize the Board to handle matters related to the listing of A Shares of the nonpublic issuance issued on Shenzhen Stock Exchange, registration of shares at the Shenzhen Branch of China Securities Depository and Clearing Corporation Limited and other relevant matters after the completion of non-public issuance of A Shares;
In the event that there are new provisions regarding the non-public issuance by securities regulatory authorities, authorize the Board to make corresponding amendments on the issuance plan in accordance with the new provisions of the securities regulatory authorities; regulatory documents, and the securities regulatory authorities;
Authorize the Board to handle other matters related to the non-public issuance, reporting and listing within the scope of laws, regulations, regulatory documents and Articles of Association;
The authorization is effective for 12 months after being passed at the general meeting (the Second Extraordinary General Meeting 2016).

VIII. ISSUANCE OF ULTRA SHORT-TERM DEBENTURES

In order to ensure sufficient liquidity of the Company in the future and further optimize the debt structure, the Company, based on comparative analysis of factors such as scale of financing, fund cost and controllable time, intends to apply for registration for the issuance of ultra shortterm debentures or no more than RMB1 billion (inclusive) to the National Association of Financial Market Institutional Investors. The details of proposed issuance of ultra short-term debentures are as follows:

Issuance Amount: The proposed issuance amount of ultra short-term debentures will be no more than RMB1 billion (inclusive), issued by rolling stages within the valid period of registration.
Issuance Time: The issuance time will be selected as appropriate within the valid period of registration with the National Association of Financial Market Institutional Investors.

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LETTER FROM THE BOARD

Interest Rate: The interest rate of the ultra short-term debentures will be determined based on market condition.
Issuance Object: The ultra short-term debentures applied for issuance will be issued to the financial market institutional investors nationwide (excluding buyers prohibited by state laws and regulations).
Use of Proceeds: The proceeds obtained from the ultra short-term debentures will mainly be used to repay bank loans and supplement for liquidity.
Underwriting Institution: The Bank of Communications Co., Ltd. will serve as and be the main underwriter for the registered issuance of the ultra short-term debentures, and be in charge of underwriting by organizing an underwriting group.
Effective Period of Resolution: Issuance of the ultra short-term debentures will remain effective throughout the valid period of registration.
We request the general meeting to authorize the Board to handle affairs related to the issuance of ultra short-term debentures, including but not limited to:
(1) To request the general meeting to permit the Board to authorize the management of the Company to, upon approval of competent authority, handle affairs related to issuance of ultra short-term debentures with full authority according to change of market and interest rate and the Company’s need of funding, including but not limited to determining the specific time of issuance, amount of issuance, number of phases, interest rate and handling necessary formalities.
(2) To request the Board to authorize the Board to make adjustment to the affairs related to the specific plan of the issuance according to opinion of competent authority when there is change to relevant policies or market condition, except for matters which shall be re-determined in the general meeting of the Company under relevant laws and regulations and the Articles of Association of the Company.
(3) To request the general meeting to authorize the chairman and/or other persons authorized by the chairman of the Company to execute necessary documents (including but not limited to manual of offering, issuance announcement, underwriting agreement and undertaking related to the Company’s issuance of debt financing instruments) and handle necessary formalities during the Company’s issuance of ultra short-term debentures.

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LETTER FROM THE BOARD

This issuance of ultra short-term debentures needs to be registered with the National Association of Financial Market Institutional Investors. The final issuance plan shall be based on the registration notice from the National Association of Financial Market Institutional Investors.

An ordinary resolution will be proposed at the extraordinary general meeting to pass the issuance of ultra short-term debentures.

IX. NOTICES OF THE EGM

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LETTER FROM THE BOARD

X. RECOMMENDATION

The Board considers that the resolutions set out in the Notices of the EGM in relation to (I) Fulfillment of the Conditions of the Non-public Issuance of A Shares; (II) Adjustments to the Proposal of the Non-public Issuance of A Shares; (III) Amendments to Feasibility Report; (IV) Risk Warning on the Dilution on Immediate Returns of the Non-public Issuance of A Shares and Implement Remedial Measures for Immediate Returns; (V) Undertakings by Relevant Entities in relation to the Concrete Implementation of the Remedial Measures for the Returns by the Company; (VI) Amendments to the Contingency Plan of Non-public Issuance of A Shares; (VII) Authorization on the Non-public Issuance of A Shares; and (VIII) Issuance of Ultra Short-term Debentures are in the best interests of the Company and the Shareholders of the Company as a whole, and recommends Shareholders to vote in favour of the relevant resolutions at the EGM.

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

Zhuhai, China 8 April, 2016

As at the date of this circular, the Executive Directors of the Company are Mr. Tao Desheng (Vice Chairman and President), Mr. Fu Daotian (Vice President) and Mr. Yang Daihong (Vice President); the Non-Executive Directors of the Company are Mr. Zhu Baoguo (Chairman), Mr. Qiu Qingfeng and Mr. Zhong Shan; and the Independent Non-Executive Directors of the Company are Mr. Xu Yanjun, Mr. Guo Guoqing, Mr. Wang Xiaojun, Mr. Zheng Zhihua and Mr. Xie Yun.

For identification purpose only

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FEASIBILITY REPORT (REVISION)

APPENDIX I

The Feasibility Report (Revision) is written in Chinese and have no official English version. Therefore, any English version is for reference only, and in case of any discrepancy, the Chinese version shall prevail. Details are as follows:

FEASIBILITY ANALYSIS REPORT ON THE USAGE OF THE FUNDS RASISED BY THE NON-PUBLIC ISSUANCE OF A SHARES OF LIVZON PHARMACEUTICAL GROUP INC. (Revision)

Section I Planned Use of the Proceeds

The non-public issuance of A Shares is expected to raise no more than RMB1,457,820,000 (including issuing expenses). The proceeds net of issuing expenses are planned to be invested in the following projects:

Seq. No. Project 1 Deeper development and industrialization upgrade of the innovative Ilaprazole product series 2 Capital injections to Livzon MAB for its investment in the construction of ‘‘Research & development and industrialization of therapeutic antibody-based drugs’’ 3 Construction of Research & development platform of sustained release microsphere technologies 4 Working capital top-up and repayment of bank loans Total	Total Investment Amount (RMB10,000) 45,000 30,600 30,182 40,000 145,782	Investment Amount with non-public issuance proceeds (RMB10,000) 45,000 30,600 30,182 40,000
		145,782

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FEASIBILITY REPORT (REVISION)

APPENDIX I

Note: The total investment amount for ‘‘Research & development and industrialization of therapeutic antibodybased drugs’’ is RMB600,000,000, and the Company intends to use the proceeds from the non-public issuance of A Shares and inject RMB306,000,000 into Livzon MAB by way of capital increase, Joincare will made a pro rata additional capital injection to Livzon MAB.

If the actual net proceeds received are less than the total sum of employed proceeds in the preceding table, the Company will, based on the actual amount of net proceeds received and the importance and emergency of the projects, adjust and finally determine the specific investment projects, priorities of the projects and investment amounts thereof, with the shortfall to be make up by the Company by using its own funds or other financing methods.

If the Company has made upfront investment in these projects with its own funds before receiving the proceeds from the non-public issuance as it deems necessary based on its business results and development plan, such amount shall be replaced with proceeds from the non-public issuance later.

Section II Feasibility Study on Projected Investments of the Proceeds

Project I: Deeper Development and Industrialization Upgrade of the innovative Ilaprazole product series

1. Project Overview

The project is about deeper development of the existing product, Ilaprazole Enteric-coated Tablet (‘‘trade name: Ilaprazole（壹麗安）’’), which is used for duodenal ulcer treatment and available in 5mg enteric-coated tablet.

The project includes new dosage forms and indications of Ilaprazole enteric-coated tablet and Ilaprazole Sodium for injection, post-marketing clinical research (including phase IV clinical trial and pharmacoeconomic studies), quality standard improvement and industrialization development, technical reconstruction and expansion of production capacity and etc, as well as preclinical research, clinical research, post-marketing clinical research, industrialization development and technical reconstruction of Ilaprazole optical isomer preparation and Ilaprazole compound preparation.

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FEASIBILITY REPORT (REVISION)

APPENDIX I

2. Main Projected Investments

The project is entirely carried out by Livzon Pharmaceutical Group Inc., which mainly invest in deeper development and industrialization upgrade of the Ilaprazole product series. A total investment of RMB450 mn is projected. A breakdown of the projected investment is outlined in the table below.

RMB10,000

Item	Item						Industrialization Upgrade (Construction and Equipment)
	Item	Deeper Development					Industrialization Upgrade (Construction and Equipment)
		R&D Equipment	Preclinical research	Clinical research	Industrialization Development and Technical Reconstruction	Post-marketing Clinical Research
	Ilaprazole	3,000	–	300	600	6,800	4,100
	Ilaprazole Sodium for Injection		–	2,500	500	6,800	4,900
	Ilaprazole Optical Isomer Preparation		650	3,300	400	3,400	–
	Ilaprazole/Ilaprazole Optical Isomer Compound Preparation		650	3,300	400	3,400	–
Total	Total	3,000	1,300	9,400	1,900	20,400	9,000

Note: (1) Clinical trial of Ilaprazole Enteric-coated Tablet for the new indication, reflux esophagitis, has been completed and the application for production has been submitted for approval; future clinical research will focus on research and development of new dosage forms. (2) Clinical trials of Ilaprazole Sodium for Injection has been finished and the application for production has been submitted for approval; future clinical research will focus on research and development of new indications.

3. Necessity of the Project

(1) Deepen product development and keeping firm grip on leading-edge technologies

Chronic duodenal ulcer is a worldwide prevalent disease of the digestive system. With a protracted course of disease, slow onset, high relapse rate and difficulty in complete healing, it causes big trouble to the patients in both work and life. Proton pump inhibitor is a preferred cure for chronic duodenal ulcer currently. At present, the Company has developed and produced Ilaprazole enteric-coated tablets, a new generation of proton pump inhibitors, and the first class 1.1 new drug registered under the digestive category that was invented by a Chinese medicine producer and launched after completion of clinical trials.

The Company is now devoted to deeper development of Ilaprazole products in order to keep a firm grip on these leading-edge technologies. As for the project, studies on higher quality standard, technical improvement and intellectual property protection, among other things, will be conducted to advance the technologies of the Ilaprazole family, raise the bar to prevent imitation, lengthen the life cycle of the product and keep the competitive edge of a complete Ilaprazole collection of the Company.

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FEASIBILITY REPORT (REVISION)

APPENDIX I

(2) Form a complete collection and capture a bigger slice of the market

The incidence of digestion-related diseases is going higher year by year, because of quicker-paced life and growing pressure from life and work in the modern society. Sales of proton pump inhibitor expanded consistently in China (2012 to 2014), with a 14% growth per annum on average. The Company saw a compound annual growth of about 79.57% of Ilaprazole Enteric-coated Tablet sales revenue from 2012 to 2014. The product is fast growing and well recognized in the market.

There is only a single Ilaprazole product for the Company. Through the implementation of this project and the originality of the research and development, the Company will obtain Ilaprazole Tablet for the new indication and products with new specifications, Ilaprazole sodium for injection, Ilaprazole optical isomer preparation and Ilaprazole compound preparation etc. Developing a complete Ilaprazole collection for the Company helps to keep its competitive edge and capture a bigger slice of the market share.

(3) Ramp up production capacity by industrialization upgrade

The existing production facilities have been running at full capacity in recent years, owing to a growing market share of the Company’s products and the consistently expanding demand for proton pump inhibitors. The Company’s output of Ilaprazole Enteric-coated Tablet is about 3,000,000 tablets, 5,200,000 tablets and 8,500,000 tablets from 2012 to 2014, respectively, the growth is very fast, and the growth of output is estimated to continue in 2015. In future, with the a complete Ilaprazole collection having new specifications and new indications and other products forms obtained from research and development entering the market, the Company’s production capacity will be put under pressure and likely to be insufficient.

Hence, the Company needs to upgrade its mass production lines, ramp up production capacity, provide quality assurance and defend its technical advantage and market advantage.

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FEASIBILITY REPORT (REVISION)

APPENDIX I

4. Feasibility of the Project

(1) The Ilaprazole family enjoys a promising market

Ilaprazole, as a new-generation proton pump inhibitor, features unique pharmacological characters built on the same mechanism of action as its old- generation, and therefore is highly competitive.

Ilaprazole Enteric-coated Tablet has been included in the local medical insurance catalogues of many provinces. The operating revenue of this product has grown from RMB33,080,000 in 2012 to RMB106,670,000 in 2014, with a compound annual growth of 79.57%. Livzon Group is the sole pharmaceutical company that produces and sells Ilaprazole Enteric-coated Tablet in the country. Being innovative and well recognized, sales of Ilaprazole Enteric-coated Tablet are expected to keep growing in the coming years.

In the meantime, after the project is implemented, the Company will not only develop a complete Ilaprazole collection, but also ramp up its production capacity quickly. A promising market and supply capacity assures successful implementation of the project.

(2) The Company boasts powerful and fruitful R&D efforts

Since its founding in 1985, the Company has grown into a large high-tech business group engaged in research, development, production and sale of medicine and related products. About 5% of the total operating revenue is spent on research and development every year, with the sufficient investment in research and development, the Company now has powerful research and development strength and made great achievements in research and development. The Company runs some 400-plus types of products, including 71 national new products, 8 national and provincial Torch Program projects and 6 national 863 Program projects. In terms of intellectual property and international licensing, Livzon Group applied for 37 patents of invention in China and one international patent, and obtained 18 patents of invention at home and abroad as of the end of 2014.

The Company has powerful research and development strength and made great achievements in research and development, providing a solid foundation for the implementation of the project.

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FEASIBILITY REPORT (REVISION)

APPENDIX I

(3) The Company has a technical advantage in the R&D of the Ilaprazole family

The Company has made extensive original innovations in the Ilaprazole products since 2002 and accumulated rich experience and made a lot of achievements in fundamental research. The Company has deepened its knowledge of Ilaprazole and built a net of patents for Ilaprazole, from bulk medicines ingredients to preparation methodology and production processes. At this stage, the Company has a total of 15 related patents for Ilaprazole, and 10 international patents for Ilaprazole optical isomers. Ilaprazole Enteric-coated Tablet, as an effective cure for duodenal ulcer developed by the Company, has been sold for many years and its efficacy is lauded widely by the public. The Company has strong technological advantages and proven research experience on research and development of the Ilaprazole collection, it is believed to be a low-risk project.

Among research and development activities on the agenda of the project, clinical trial of Ilaprazole Enteric-coated Tablet for the new indication, reflux esophagitis (registered class 1.6), the first of its kind in the world, was completed by May 2014. The approval of production is expected to be obtained in 2016. The applications for production research and for production of Ilaprazole Sodium for Injection were completed by August 2015, and the approval of production is expected to be obtained by the end of 2016.

5. Yield Forecast

The project construction will take 36 months. Annual average sales revenue after reaching designed capacity in the estimated period is at RMB723,550,000, annual average net profit at RMB234,420,000, IRR (after-tax) at 41.61% and the static payback period (including the construction phase) at 5.42 years.

6. Land Use, Project Approval and Environmental Impact Assessment

The Project has been filed and obtained an approval reply (Document No.: 2015-440404-2703-008210) from the Reform, Development and Statistics Department of Jinwan District. The land needed for the project has been made available. The Environmental Protection Bureau of Jinwan District of Zhuhai City has approved the environmental impact assessment of the Project by issuing the Reply on the Environmental Impact Report for Depth Development and Industrialized Upgrade of the Innovative Ilaprazole Product Series of Livzon Pharmaceutical Group Inc. (Document No.: ZJHJ [2015] No. 104). The marketing of new medicine to be produced under the project requires approval of the drug administration.

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FEASIBILITY REPORT (REVISION)

APPENDIX I

Project II: Capital injections to Livzon MAB for its investment in the construction of ‘‘Research & Development and Industrialization of therapeutic antibody-based drugs’’

1. Project Overview

‘‘Research & Development and Industrialization of therapeutic antibody-based drugs’’ is intended to bring into full play the research and development capabilities of the Company and tap into the field of new strategic medicine. Research & development and industrialization of therapeutic antibody-based drugs will be implemented by engaging innovative technicians, acquiring state-of-the-art R&D apparatus and equipment and building GMP-compliant production facilities. Two monoclonal antibody-based drugs for the treatment of autoimmune diseases and cancer will be developed and industrialized.

(1) Recombinant humanized anti-TNF-α monoclonal antibody

A principal indication of ‘‘Recombinant humanized anti-TNF-α monoclonal antibody’’ is arthritis pauperum, a chronic systemic autoimmune disease with arthropathy at its core. It is often associated with very high incidence, disability rate and mortality rate, yet extremely low clinical remission rate. The incidence of this disease in China is reported at 0.32%0.36% in the Chinese Journal of Health Statistics. Without timely and effective treatment, the disability rate of patients is around 70% after two years. The disease is estimated to shorten the life expectancy by 10-15 years.

TNF-α stimulates and amplifies inflammations during the development of arthritis pauperum. Recombinant humanized anti-TNF-α monoclonal antibody for injection is a newly invented cure for arthritis pauperum targeting TNF-α. Phase I clinical trial is going on at Peking Union Medical College Hospital. The first indication is arthritis pauperum. The outcome of first trial is as satisfactory as expected. The new drug product is expected to come into the market in 2018.

(2) Humanized anti-ErbB2 antibody

A principal indication of ‘‘Humanized anti-ErbB2 antibody’’ is HER2-positive breast cancer (BC). Over-expression of the HER2 gene may cause cell over-proliferation and malignant phenotype transformation. HER2 is therefore a key target examined in the development of BC medicine. Monoclonal antibody-based drugs can be used to kill tumor cells accurately, with minimal adverse reactions.

A report on clinical research of humanized anti-HER2 monoclonal antibody developed under the project has been filed. The antibody proves to have strong affinity and minimal toxic and side-effect. The project, if successfully implemented, will fill a gap in the Chinese market and satisfy some market demand. HER2-positive BC patients will benefit from a new and effective cure. The drug product is expected to come into the market in 2021.

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FEASIBILITY REPORT (REVISION)

APPENDIX I

2. Main Projected Investments

‘‘Research & Development and Industrialization of Therapeutic Antibody-based Drugs’’, with a total investment of RMB600 mn, will be implemented by Zhuhai-based Livzon Monoclonal Antibody Biotech Co., Ltd, a subsidiary controlled by the Company. Livzon Group has planned to invest RMB306 mn in Livzon MAB in the form of capital increase with proceeds from the nonpublic issuance. Joincare’s capital increase for LIVZON MABPHARM INC. is in proportion to its original shareholding percentage. Upon completion of the capital increase, the shareholding structure of Livzon MAB remains the same as before.

A breakdown of each item of investment and its shares of total investment in respect of the ‘‘Research & Development and Industrialization of Therapeutic Antibody-based Drugs’’ are as follows:

RMB10,000

Seq. No. Item I Construction investment 1 Engineering cost 1.1 Construction cost 1.2 Equipment investment 2 Other expenses 3 Basic budget allowance II R&D expenditure 1 Recombinant humanized anti-TNF-α monoclonal antibody 2 Humanized anti-ErbB2 antibody III Initial capital and reserve Total	Total Investment 35,000 30,800 16,800 14,000 2,000 2,200 22,000 10,500 11,500 3,000 60,000	% 58.33% 51.33% 28.00% 23.33% 3.33% 3.67% 36.67% 17.50% 19.17% 5.00%
		100%

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FEASIBILITY REPORT (REVISION)

APPENDIX I

General Information of Zhuhai Livzon MAB Biological Technology Company Ltd.

Name of the company: Z H U H A I L I V Z O N M A B B I O L O G I C A L TECHNOLOGY COMPANY LTD.

Address of the company: Monoclonal building, 38 Chuangye North Road, Jinwan District, Zhuhai

Registered Capital: 500 mn Legal Representative: Zhu Baoguo

Scope of Operation: Technological research and development on biopharmaceutical products and antibody-based drugs. (For items requiring legal approval, operational activities can only be commenced with the approvals of relevant authorities)

Details of the subscription and capital contribution amount of shareholders and shareholding percentage are as follows:

Name of shareholder Livzon Group Joincare Total	Subscription and capital contribution project (,0000) 25,500 24,500 50,000	Shareholding percentage 51% 49%
		100%

4. Necessity of the Project

(1) Meet the market demand for antibody-based drugs

Given that the development of biomedicine industry can help mankind get rid of many diseases that are incurable now, in the coming decade, more efficacious drugs will be derived from bio-pharmaceutical technologies against prevalent dread diseases. The biomedicine market will maintain growth momentum.

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FEASIBILITY REPORT (REVISION)

APPENDIX I

Currently, antibody-based drugs play a pivotal role in and point to the mega trend of the biomedicine industry. Global sales of antibody-based drugs were worth nearly $60 bn but the sales in China were less than RMB5 bn in 2012. The Chinese market demand is estimated to be worth RMB25 bn in the future. The project can help the Company capture the growing demand for antibody-based drugs.

(2) Conform to the need of the country to grow the industry

The biomedicine industry of China is booming and promising. This fast-growing hightech sector has drawn extensive attention from the government, the science & technology and business communities. Regarding the development of antibody-based drugs, the Chinese government proposed in The Development Plan for the Biomedicine Industry for the 12th Five-Year period to ‘‘accelerate the research & development and industrialization of protein and polypeptide drugs including therapeutic antibodies’’, and ‘‘to support mass production of antibodies’’, so as to satisfy the ever growing market demand. The biomedicine industry is also given top priority in the Development Plan for Strategic Emerging Industries during the 12th Five-Year Period and Made in China 2025, among other government-led initiatives. The project conforms to the need of the country to grow the industry.

(3) Fulfil the need of the Company for strategic transition

The biomedicine industry is a high-tech sector that can drive the pharmaceuticals industry of China. Although there is a higher upfront cost associated with the biomedicine industry, huge economic benefits can generally be generated given the growing market demand and good efficacy of the relevant products. Currently, taking the realization of longterm strategic development, optimization of product mix and economic benefits into consideration, the Company needs to realize its strategic transition into the biomedicine sector.

In implementing the project, the Company will engage innovative technicians, acquire state-of-the-art R&D apparatus and equipment, build GMP-compliant production facilities and phase in a monoclonal antibody-based drug R&D platform, as a means of support to its strategic transition to the biomedicine sector. The research and development and launch of the products of the project will help the Company realize strategic transition.

(4) Need for optimization of product mix of the Company

The Company focuses on biomedicine for the treatment of autoimmune diseases and cancer. The project includes two R&D projects, which are autoimmune diseases and monoclonal antibody-based drugs for the treatment of cancer respectively.

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APPENDIX I

FEASIBILITY REPORT (REVISION)

An indication of recombinant humanized anti-TNF-α monoclonal antibody is arthritis pauperum. Patients of arthritis pauperum in China is estimated at approximately five million, inferring from the reported incidence of approximately 0.32%-0.36%. The market demand is expanding consistently because of population growth, quick-paced life and income increase. Rheumatism-oriented biological preparations currently used in China are mostly imported drugs. These drugs are not covered by medical insurance and are therefore expensive. The project, if successfully implemented, will turn out proprietary antibody-based drugs. As a result, original innovations in therapeutic antibodies will be boosted, while the Company will be better recognized in biomedicine and biotech studies by the international community and able to provide an effective and affordable cure for patients with arthritis pauperum.

One is threatened by a 22% chance of getting malignant tumor in one’s life, a disease with a high incidence up to 2.35‰ and a high mortality rate of 1.49‰, according to China Annals of Tumor 2014. Cancer poses a grave challenge to the development of anti-tumor drugs in the world, because of the difficulty in early diagnosis, low curability during the middle and terminal stages and short survival period. There is a dire need for effective therapies and the market holds enormous potential. An indication of humanized anti-ErbB2 antibody is HER2-positive BC. The incidence of BC is growing in China at a speed double the world average annual growth rate, according to A Report on Breast Cancer in China released in June 2014. We may infer from this that the number of BC patients in China will grow to 2,500,000 by 2021. The domestic market has a gap that needs to be filled desperately by new effective therapy for HER2-positive MBC patients.

5. Feasibility of the Project

(1) Relevant policies of the State supporting the development of the biomedicine industry

At the state level, the State Council promulgated The Development Plan for Strategic Emerging Industries During the 12th Five-Year Period, which pointed out the importance of ‘‘enhancing biomedicine research and development capabilities, developing new drugs, encouraging biomedicine technologies and products, doubling efforts on bio-breeding, boosting mass production of biomedicine and putting in place a world-class modern bioindustry.’’ In August 2015, the State Council promulgated ‘‘Opinions on Reforming the Evaluation and Approval System of Drugs and Medical Equipment’’, which highlights that the process of evaluating and approving various innovative drugs for the prevention of malignant tumours and those drugs with obvious treatment benefits has to be quickened. It was also highlighted that regarding innovative drugs, a special evaluation and approval system is implemented. The realization of such opinion can greatly speed up the advancement of the project and fuel the overall R&D activities of the Company.

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APPENDIX I

influence of the Pearl River Delta in the biomedicine industry and viewed optimizing the industrial mix in the region as a task of top priority in The 12th Five-Year Plan for the Pharmaceuticals Industry.

Supportive state-level policies combined with region-specific policies create an opportunity for the biomedicine industry that the project cannot afford to miss.

(2) Growing demand for biomedicine

Made-in-China biomedicine holds tremendous growth potential. ‘‘Sales income from biomedicine has kept growing by more than 15% per annum for consecutive years, more than double the growth of total sales income from all drugs. By 2020, sales income from biomedicine will exceed one-third of total sales income from all drugs,’’ data in The 12th Five-Year Plan for the Pharmaceuticals Industry shows.

Sales of antibody-based drugs have expanded consistently to hit more than $60 bn by 2012 from $17.6 bn in 2005. The compound annual growth rate between 2005 and 2012 is 16.6%, dwarfing that of the world pharmaceuticals industry. China is a latecomer in the development of antibody-based drugs. The market is small-sized relatively and skewed towards cancer treatment. The use in the treatment of autoimmune diseases is limited. As the patent terms of flagship monoclonal antibodies in the world are about to lapse, the immense potential of the Chinese antibody-based drug market will be unleashed in the future.

Continued release of enormous biomedicine demand in China provides a solid market base for the project.

(3) The availability of a talent pool and sound governance system in the Company

The R&D team of the project, led by Dr. Fu Daotian and Dr. Kan Ziyi, experts recruited under The Recruitment Program of Global Experts, is honored as The Third Innovative Science and Tech Teams Recruited by Guangdong and The Third Key Overseas Chinese Startup Teams of the State Council. All team members have graduated from leading universities, and have extensive management and R&D experience and the ability to develop and industrialize new antibody-based drugs.

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APPENDIX I

FEASIBILITY REPORT (REVISION)

An in-house Tech Committee is set up to take charge of project organization, implementation, management, coordination, control and capital arrangement. A robust governance system and running mechanism are put in place, along with well-designed incentives and constraints, to bring into full play the experience of the team in R&D, practice and industrialization. Within an efficient governance framework, a succession plan is mapped out and an in-house core tech team and management team are put together. Meanwhile, along with the implementation and progress of the project, more talents of high caliber at home and abroad will be attracted and retained to support and guarantee sustainability of the project and the Company.

(4) Strong sales backed by marketing network and brand awareness

The Company has its products concentrated on gastroenterology, anti-infection (antibiosis and antivirus) and cardiovascular, plus some important fields such as antitumor, immunoregulation, reproductive endocrinology, neurology, urology, dermatology and pediatrics. The Company has captured a considerable share of the market by laying out a widespread marketing network, accumulating rich marketing experience and building brand awareness. All of these may contribute to success of the project.

6. Economic benefits of the project

The development of ‘‘Therapeutic Antibody-based Drugs Research & Development and Industrialization Development Project’’ will take 24 months. Annual average sales revenue for the period is estimated at RMB621,270,000, annual average net profit at RMB346,320,000, IRR (after-tax) at 40.89% and the static payback period (including the construction phase) at 4.94 years.

7. Land Use, Project Approval and Environmental Impact Assessment

The ‘‘Therapeutic Antibody-based Drugs Research & Development and Industrialization Development Project’’ has been filed and obtained an approval reply (Document No.: 2015440404-27-03-011092) from the Reform, Development and Statistics Department of Jinwan District. The land needed for the project has been made available. The Environmental Protection Bureau of Jinwan District of Zhuhai City has approved the environmental impact assessment of the project by issuing the Reply on the Environmental Impact Report for Annual Production of 21.87 KG/a AT132 and 36.45 KG/a LZM002 by Zhuhai Livzon Monoclonal Antibody Biotech Company Ltd. (Document No. ZJHJ [2013] No. 066) and the Opinions on the Filing of Environmental Impact Post-Assessment Report of Zhuhai Livzon Monoclonal Antibody Biotech Company Ltd. (Therapeutic Antibody-based Drugs Research & Development and Industrialization Development Project). The Marketing of new medicine to be produced under the project requires approval of the drug administration.

I – 13

FEASIBILITY REPORT (REVISION)

APPENDIX I

Project III: Construction of Research & Development Platform of Sustained Release Microsphere Technologies

1. Project Overview

In respect of prolonged-action sustained-release microsphere formulation, pharmaceuticals can be released at certain speed during a number of weeks or months. Prolonged-action and sustained-release can be achieved through a reduced frequency of drug delivery. The Company obtained the approval (State Medicine Approval Number H20093852) for the production of Leuprorelin Acetate Microspheres for Injection in 2009 following years of research and development efforts on prolonged-action sustained-release microsphere formulation technologies. In the project, the Company intends to dig into some common problems arising from the development of microsphere formulations and develop innovative types of microspheres formulations by using the findings in the research, on the basis of the existing R&D achievements and industrialization experience in the launched Microspheres. The project implementation is broken down into three parts:

(1) Build the platform of prolonged-action sustained-release microsphere technologies: For this purpose, the Company is going to create a new lab of ingredients and excipients, a lab of pharmacology and toxicology and a lab of clinical research in the R&D building, acquire a whole set of cutting-edge laboratory, processing and testing devices, build a new workshop and sharpen its skills in microsphere formulation platform experiment, testing and preparation.
(2) Develop new varieties: It is intended that the following 10 types of microsphere will be researched and developed and gradually produced and launched: Triptorelin Acetate Sustained-release Microspheres for Injection (1 month), Goserelin Acetate Sustainedrelease Microspheres for Injection (1 month), Leuprorelin Acetate Sustained-release Microspheres for Injection (3 months), Triptorelin Acetate Sustained-release Microspheres for Injection (3 months), Octreotide Sustained-release Microspheres for Injection (1 month), Octreotide Sustained-release Microspheres for Injection (3 months), NGF Sustained-release Microspheres for Injection (14 days), Risperidone Sustained-release Microspheres for Injection (1 month), Aripiprazole Sustained-release Microspheres for Injection (14 days) and Gonadorelin Sustained-release Microspheres for Injection (1 month).
(3) Develop a pilot plant and a production plant: The Engineering Research Center is going to develop two mass production lines to make samples for clinical use and commercialized products at a later time.

I – 14

FEASIBILITY REPORT (REVISION)

APPENDIX I

2. Main Projected Investments

The project will be implemented by Livzon Pharmaceutical Group Inc.. A total investment of RMB301,820,000 is projected for preclinical research, clinical research, acquisition of apparatus and equipment and decoration of pilot plant. A breakdown of projected investments is outlined in the table below.

RMB10,000

	Apparatus		Decoration	Initial
Preclinical	and	Clinical	of Pilot	Capital and
Research	Equipment	Research	Plant	Reserve	Total
14,430	4,052	9,700	1,000	1,000	30,182

The project implementation plan is described as follows:

RMB10,000

		Total	Total
		Preclinical	Clinical
Item	Description of R&D	Expenses	Expenses
Triptorelin Acetate Sustained-	Microsphere is superior to the spray-drying	–	2,000
release Microspheres for	process in terms of both dosage form and
Injection (1 month)	stability, and can be used in subcutaneous
	injection, providing alternative route of
	administration
Goserelin Acetate Sustained-	The finished product can be used in	1,000	2,000
release Microspheres for	subcutaneous and intramuscular injection
Injection (1 month)	with ordinary syringes, and the injection
	process is gentle and minimally invasive
Leuprorelin Acetate	The product is expected to be the first of its	1,500	2,500
Sustained-release	kind in China which can enrich the
Microspheres for Injection	reproductive health collection
(3 months)
Triptorelin Acetate Sustained-	The product is expected to be the first of its	1,700	–
release Microspheres for	kind in China which can enrich the
Injection (3 months)	reproductive health collection
Octreotide Sustained-release	The preparation process is optimized	1,900	–
Microspheres for Injection
(1 month)

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FEASIBILITY REPORT (REVISION)

APPENDIX I

RMB10,000

Item Description of R&D Octreotide Sustained-release Microspheres for Injection (3 months) A shot of Octreotide preparation is needed every month, now improved to be a shot every three months NGF Sustained-release Microspheres for Injection (14 days) Change from ordinary formulation to sustained-release formulation, with additional indications (class 1.6 new drug) Risperidone Sustained-release Microspheres for Injection (1 month) Innovated dosage form, 2-week sustained release in the past, now 1-month sustained release enabled by prescription improvement Aripiprazole Sustained-release Microspheres for Injection (14 days) The product is expected to be the first of their kind in China which can enrich the psychotropic collection Gonadorelin Sustained-release Microspheres for Injection (1 month) Change from ordinary formulation to sustained-release formulation, with additional indications (class 1.6 new drug) Total	Total Preclinical Expenses 2,500 2,100 1,400 1,430 900 14,430	Total Clinical Expenses 900 – 1,000 1,300 –
		9,700

Note: 14 days, 1 month and 3 months refer to the length of release, that is, the period of time for which the action of an injection lasts.

3. Necessity of the Project

(1) Sharpen core competitive strength of the industry

Prolonged-action sustained-release microsphere formulation is technically demanding. The Company obtained the production approval of Leuprorelin Acetate Microspheres for Injection in 2009 following years of research efforts. In the project, the Company intends to realize industrialization of prolonged-action sustained-release microsphere formulations and develop innovative types of microspheres by using the findings in the research, on the basis of the existing R&D achievements and industrialization experience in Leuprorelin. A good command of core technologies in this field will largely sharpen the competitive strength of the Company in the area of Prolonged-action sustained-release microsphere formulation, break technical barriers, heighten the localization rate of microsphere formulations and drive technological advancement of the entire industry.

I – 16

FEASIBILITY REPORT (REVISION)

APPENDIX I

(2) Beneficial to the cultivation of top-class technicians in the area of microsphere formulation

Prolonged-action sustained-release microsphere formulation is widely applied across the world, almost encompassing all chronic diseases and diseases that require repeated medication. Global sales in 2014 of this category have exceeded $100 bn, reported by Life Times, a subsidiary of Global Times. By contrast, sales in China are less than RMB10 bn. A market of enormous potential is unfolding before pharmaceutical companies. Given the huge demand, there is a shortage of top-class technicians in this industry.

This project seeks to commercialize technical achievements and become an important source of innovations in microsphere technologies and a platform supporting innovations by enterprises, by fostering exchanges of the domestic and international academic communities and cooperation among businesses, universities and research institutes and driving crossdiscipline development. The technological strength and the strength of the research team established under the project in the area of microsphere are beneficial to the cultivation of top-class technicians for the Company in the area of microsphere formulation.

4. Feasibility of the Project

(1) Constantly intensifying policy support

The MIIT called for taking preparation production to the next level in the 12th FiveYear Plan for the Pharmaceuticals Industry, saying ‘‘give priority to the development of prolonged action, sustained release and controlled release, among other formulation technologies in biomedicine’’ and ‘‘study oral sustained-release and controlled-release formulations, prolonged-action formulations, related excipients and process control and promote industrialized application of relevant drug release technologies to meet the demand for chronic disease treatment’’.

Chinese drug makers cannot match their foreign competitors. It takes time to change the situation of the sustained-release formulation industry in China. Against the backdrop of policy support and profit driver, however, the sustained-release formulation industry of China will pick up.

(2) Wide-ranging application of prolonged-action sustained-release microsphere formulations

Prolonged-action sustained-release microsphere formulation is widely applied across the world, almost encompassing all chronic diseases and diseases that require repeated medication, since the first prolonged-action sustained-release microsphere formulation secured clearance. Global sales income from sustained-release formulations amounted to $100 bn, but the counterpart in China was less than RMB10 bn in 2014. The great potential of the sustained-release formulation market is tangible in China.

I – 17

FEASIBILITY REPORT (REVISION)

APPENDIX I

In the future, with new products coming forth, microsphere formulations will capture a bigger market share in the pharmaceutical industry, creating an ideal market opportunity for the project.

(3) Experienced R&D team and well-prepared production conditions

The Company has an experienced R&D responsible for the area of microsphere formulations. The technical head of the project is Dr. Xu Peng, a veteran in microspheres. He has many years of experience in medicine R&D and project management. He completed R&D and marketing of prolonged-action Leuprorelin Acetate Microspheres for Injection and gelata. Besides a team of experienced experts in microsphere formulation technologies, the Company has top-notch versatile managers and first-class creative technicians who assure success of the project.

Drawing on its Leuprorelin Acetate Microspheres for Injection products (launched in the market), the Company has established mature technologies and conditions for the production of microsphere products and is self-sufficient on the major raw materials and supplementary materials needed for the production of microsphere products. The above conditions assure the smooth implementation of the project.

5. Yield Forecast

This is a technological R&D platform development project. It does not yield economic results directly, but will help boost the brand influence of the Company. By developing patented new microsphere products, the Company will be more competitive in the microsphere formulation market, become a pace-setter in industrialized technological R&D and innovations and achieve constant growth of operating results.

6. Land Use, Project Approval and Environmental Impact Assessment

The Project has been filed and obtained an approval reply (Document No.: 2015-440404-2703-008186) from the Reform, Development and Statistics Department of Jinwan District. The land needed for the project has been made available. The Environmental Protection Bureau of Jinwan District of Zhuhai City has approved the environmental impact assessment of the Project by issuing the Reply on Environmental Impact Report for Depth Development and Industrialized Upgrade of the Innovative Ilaprazole Product Series of Livzon Pharmaceutical Group Inc. (Document No.: ZJHJ [2015] No. 103). The marketing of new medicine to be produced under the project requires approval of the drug administration.

I – 18

FEASIBILITY REPORT (REVISION)

APPENDIX I

Project IV: Working Capital Top-up and Repayment of bank borrowings

1. Project Overview

RMB400 mn of the proceeds from the non-public issuance (including issuing expenses) will be injected into working capital and be used to repay bank borrowings to strengthen capital adequacy of the Company.

2. Necessity of the Project

(1) Optimize the assets and liabilities structure and financial condition of the Company

(2) Enhance capital strength and secure funds for the Company’s rapid development

The Company recorded operating revenue to the tune of RMB3,944 million, RMB4,619 million and RMB5,544 mn in 2012, 2013 and 2014, respectively. Continued business growth warrants a proportional increase in working capital.

By doubling the efforts on market development, the Company will capture a bigger slice of the market and see constant business growth. As a result, required working capital will grow accordingly. Moreover, the Company will need to inject more resources into R&D consistently to build up its capabilities in all sectors. This will also give rise to additional requirement for working capital. In a word, the Company must prepare sufficient working capital to meet day-to-day needs. The proceeds from the issue will relieve the Company much of the financial strain caused by market development and R&D expenses and enlarge working capital as a percentage of equity capital. Then, the business will become more risk tolerant and profitable.

I – 19

FEASIBILITY REPORT (REVISION)

APPENDIX I

Section III Impact of Use of the Proceeds on the Business Management and Financial Performance of the Company

1. Impact of the Non-public issuance on Business

Through the non-public issuance, the Company may grab the strategic opportunity arising from the growing pharmaceuticals industry, expand production and capture a bigger market share. The Company may also optimize the product mix, take the product quality and technical processes to the next level and build up its capabilities of comprehensive R&D and independent innovation, the Company will thus become more competitive, sustainable and risk tolerant, and long-term interests of the shareholders will be fulfilled and protected. Replenishing working capital and repaying bank loans will contribute to safe business operations, fund capacity expansion and business integration, reduce interest expenses and the short-term asset-to-liability ratio and improve profitability of the Company.

2. Impact of the Non-public issuance on Financial Performance

After the issue is completed, total assets and net assets of the Company will both increase, the asset-to-liability ratio will be lower, liquidity ratio and quick ratio will be higher. These can mitigate financial risks and enhance robust operations of the Company. Moreover, after the proposed projects become operational and begin to pay off, the Company will see business expansion and profit growth and the business will be more sustainable.

In conclusion, use of the proceeds from the non-public issuance is compliant with the applicable laws and regulations and in the interest of all shareholders, the Company and its vision. It accords with the Company’s need to fund continued stable growth and may help the Company become more competitive and risk tolerant and achieve healthy growth in the long run.

By order of the Board LIVZON PHARMACEUTICAL GROUP INC.

March 9, 2016

I – 20

CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

APPENDIX II

The Contingency Plan of Non-public Issuance of A Shares (Revision) is written in Chinese and have no official English version. Therefore, any English version is for reference only, and in case of any discrepancy, the Chinese version shall prevail.

CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES OF LIVZON PHARMACEUTICAL GROUP INC. (Revision)

STATEMENT

I. Livzon Pharmaceutical Group Inc. (the ‘‘Company’’) and all members of the Board guarantee the truthfulness, accuracy and completeness of the information presented in the Contingency Plan of Non-Public Issuance (the ‘‘Contingency Plan’’) and confirm that the Contingency Plan is free from any false record, misleading statement or material omission.
II. Upon completion of the said non-public issuance, the Company shall be liable for any change in its business profile and profitability; while investors are expected to invest in the non-public issuance entirely at their own risk.
III. The Contingency Plan contains representations made by the Board as to the non-public issuance, and any statement that goes against the Contingency Plan is assumed to be misrepresented.
IV. Investors should obtain independent professional advice from their stock brokers, lawyers, accountants or any other advisor, if they are in any doubt about any of the contents of the Contingency Plan.
V. The matters covered in the Contingency Plan do not constitute any material judgment, confirmation or approval of the non-public issuance given by the regulator. The effectiveness and completion of such matters related to the non-public issuance as introduced in the Contingency Plan is subject to the approval or endorsement of the regulator.

IMPORTANT NOTES

I. The Contingency Plan has been considered and passed by the Board on the seventeenth meeting of the Eighth Board and the 2015 Third Extraordinary General Meeting of the Company. The adjustment of the Contingency Plan has been considered and passed by the Board on the twenty-first meeting of the Eighth Board, but is yet to be approved by the 2016 Second Extraordinary General Meeting of the Company. The non-public issuance is still subject to the approval by the CSRC.

II – 1

APPENDIX II

CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

II. The shares will be privately placed to no more than 10 chosen investors, which could be equity fund managers, securities companies, trust firms, financial firms, insurance firms, Qualified Foreign Institutional Investors (QFIIs) and other accredited investors under the applicable laws and regulations. Where two funds or more managed by the same equity fund manager subscribe for the shares, they are taken as one subscriber. Trust firms may only make subscriptions with their own funds. The final investors shall be chosen by auction in accordance with Detailed Implementation Rules for the Non-Public Issuance by Listed Companies after the issue is endorsed by the China Securities Regulatory Commission (the CSRC).
III. The upper limit of the total number of A Shares of the Company to be issued will not exceed 20% (i.e. 38,000,000 shares, inclusive) of the total number of A-shares of the Company as of the date when the general mandate to issue shares was granted to the directors as resolved at the 2014 General Meeting of the Company. The General Meeting has authorized the Board to finalize the number of shares to be issued after discussing with the Sponsor (the Lead Underwriter) and considering relevant facts. Where any change in the Company’s share capital arises out of dividend payments, offering of bonus shares, capitalization of capital reserve or other ex-dividend and ex-right reasons over the period between the pricing base date and the offering date, the upper limit to the number of A Shares to be issued shall be adjusted accordingly.
IV. The pricing base date for the issue is March 9, 2016, the day on which the resolution of the twenty-first meeting of the Eighth Board was announced. The offering price of the nonpublic issuance must be no lower than 38.36 yuan/share (the upper limit of the aggregate funding to be raised/the upper limit of the total number of shares to be issued), and the floor price must not be lower than 90% of the average price of the Company’s stock traded during 20 trading days preceding the pricing base date. The final offering price shall be determined by auction in accordance with Detailed Implementation Rules for the Non-Public Issuance by Listed Companies after the issue is approved by the CSRC.

Average stock price traded during 20 trading days preceding the pricing base date=Total turnover of stock trading/Total number of shares traded during 20 trading days preceding the pricing base date

The floor price for the issue shall be adjusted accordingly in the event of dividend payments, offering of bonus shares or capitalization of capital reserve, among other exdividend and ex-right matters, over the period between the pricing base date and the offering date.

II – 2

CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

APPENDIX II

V. The non-public issuance of A Shares is expected to raise no more than RMB1,457,820,000 (including issuing expenses). The proceeds net of issuing expenses are planned to be invested in the following projects:

Seq. No. Project 1 Deeper development and industrialization upgrade of series of innovative Ilaprazole 2 Capital injections to Livzon MAB on its investment in the construction of ‘‘Research & development and industrialization of therapeutic antibody-based drugs’’ 3 Research & development platform of prolonged- action microsphere technologies 4 Working capital top-up and repayment of bank loans Total	Total Investment Amount (RMB10,000) 45,000 30,600 30,182 40,000 145,782	Investment Amount (RMB10,000) 45,000 30,600 30,182 40,000
		145,782

Note: The total investment amount for ‘‘Research & development and industrialization of therapeutic antibodybased drugs’’ is RMB600,000,000, and the Company intends to use the proceeds from the non-public issuance of A Shares and inject RMB306,000,000 into Livzon MAB by way of capital increase, Joincare will made a pro rata additional capital injection to Livzon MAB.
VI. Following completion of the issue, old and new shareholders of the Company will share retained earnings of the Company accumulated before that in a fair manner.
VII. The Company follows a consistent and stable profit distribution policy and may distribute dividends in cash, shares or by combining these two. For details on the profit distribution policy, profit distributions from 2012 to 2014 and use of retained earnings, please see Section IV. Profit Distributions of the Contingency Plan.
VIII. The Contingency Plan is required under the applicable laws and regulations to be considered and passed on a General Meeting and be endorsed by the CSRC.
IX. The non-public issuance will not give rise to any circumstance of incompliance of the Company’s ownership mix with the listing conditions.

II – 3

APPENDIX II

CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

X. The Company reminds investors that: the assumption and analysis of EPS and ROE made by the Company in the Contingency Plan does not constitute the profit forecast of the Company, and measures established by the Company to fill diluted immediate return do not equal to a guarantee of future profits of the Company. The non-pubic issuance carries a variety of risks that investors need to be aware of. For details on the analysis of the immediate return dilution by the non-public issuance and the countermeasures to fill the diluted return, please see Section V ‘‘Risks of Immediate Return Dilution and ’’
Countermeasures .

II – 4

APPENDIX II

CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . .	II-1
IMPORTANT NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . . . . . . . . .	II-1
TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . . . . . . . . .	II-5
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . . . . . . . . .	II-7
SECTION I OVERVIEW OF THE CONTINGENCY PLAN OF
NON-PUBLIC ISSUANCE OF A SHARES . . . . . . . . . . . . . . . . .		. . . . . . . . . . . . . . . . . .	II-9
I.	ABOUT THE ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . .	II-9
II.	BACKGROUND AND PURPOSE OF THE NON-PUBLIC ISSUANCE . . . . . . . . . .		II-10
III.	TARGET INVESTORS AND THEIR RELATIONS WITH THE COMPANY . . . . .		II-14
IV.	OVERVIEW OF THE CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE . . .		II-14
V.	USE OF THE PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . .	II-18
VI.	IS THE ISSUE A RELATED PARTY TRANSACTION . . . . .	. . . . . . . . . . . . . . . . . .	II-19
VII.	WILL THE ISSUE CAUSE A CHANGE IN THE CONTROLLING INTEREST
	IN THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . .	II-19
VIII.	APPROVAL (ENDORSEMENT) OF THE ISSUE OBTAINED	OR
	TO BE OBTAINED FROM THE AUTHORITIES . . . . . . . . .	. . . . . . . . . . . . . . . . . .	II-19
SECTION II FEASIBILITY STUDY ON USE OF THE PROCEEDS
BY	THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . .	II-20
I.	PLANNED USE OF THE PROCEEDS . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . .	II-20
II.	FEASIBILITY STUDY ON PROJECTED INVESTMENTS OF	THE PROCEEDS .	II-21
III.	IMPACT OF USE OF THE PROCEEDS ON THE BUSINESS	MANAGEMENT
	AND FINANCIAL PERFORMANCE OF THE COMPANY	. . . . . . . . . . . . . . . . . .	II-39
SECTION III DISCUSSION AND ANALYSIS OF THE IMPACT OF
THE NON-PUBLIC ISSUANCE ON THE COMPANY BY THE BOARD . . . . . . . .			II-40
I.	DOES THE LISTED COMPANY HAVE A PLAN TO MERGE ASSETS OR
	BUSINESS, AMEND THE ARTICLES OF ASSOCIATION AFTER THE ISSUE;
	PREDICT CHANGES IN THE OWNERSHIP MIX, SENIOR	MANAGEMENT
	AND BUSINESS MIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . .	II-40
II.	CHANGES IN FINANCIAL POSITION, PROFITABILITY AND CASH FLOW OF
	THE LISTED COMPANY AFTER THE ISSUE . . . . . . . . . .	. . . . . . . . . . . . . . . . . .	II-41

II – 5

APPENDIX II

CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

III.	CHANGES IN BUSINESS RELATIONS, MANAGEMENT RELATIONS,
	RELATED PARTY TRANSACTIONS AND HORIZONTAL COMPETITION
	BETWEEN THE LISTED COMPANY AND THE CONTROLLING
	SHAREHOLDER AND ITS CONNECTED PERSONS AFTER THE ISSUE . . . .	II-41
IV.	WILL THE CAPITAL OR ASSETS OF THE LISTED COMPANY
	BE MISAPPROPRIATED BY THE CONTROLLING SHAREHOLDER OR
	ITS CONNECTED PERSONS, OR THE LISTED COMPANY PROVIDE ANY
	FORM OF GUARANTEE TO THE CONTROLLING SHAREHOLDER
	OR ITS CONNECTED PERSONS AFTER THE ISSUE . . . . . . . . . . . . . . . . . . . . .	II-42
V.	IS THE ASSET-LIABILITY STRUCTURE OF THE LISTED COMPANY
	APPROPRIATE; IS IT POSSIBLE THAT THE ISSUE WILL INDEBT THE
	LISTED COMPANY HEAVILY (INCLUDING CONTINGENT LIABILITIES);
	DOES SUCH A SITUATION AS OVERLY LOW DEBT RATIO OR
	INAPPROPRIATE FINANCIAL COST EXIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-43
VI.	RISK FACTORS RELATING TO THE NON-PUBLIC ISSUANCE . . . . . . . . . . . . .	II-43
SECTION IV PROFIT DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		II-45
I.	PROFIT DISTRIBUTION POLICY OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . .	II-45
II.	PROFIT DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-49
III.	USE OF RETAINED EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-49
SECTION V RISK OF IMMEDIATE RETURN DILUTION AND
COUNTERMEASURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		II-50
I.	INFLUENCE OF THE NON-PUBLIC ISSUANCE ON THE MAIN FINANCIAL
	INDICATORS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-50
II.	RISK OF IMMEDIATE RETURN DILUTION CAUSED BY
	THE NON-PUBLIC ISSUANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-53
III.	NECESSITY AND RATIONALITY OF THE NON-PUBLIC ISSUANCE . . . . . . . .	II-53
IV.	RELATION BETWEEN THE PROPOSED PROJECTS AND THE EXISTING
	BUSINESSES, AND PREPARATIONS IN TERMS OF HUMAN RESOURCES,
	TECHNOLOGIES AND MARKET MADE BY THE COMPANY
	FOR THE PROPOSED PROJECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-56
V.	MEASURES TAKEN BY THE COMPANY TO FILL THE DILUTED
	IMMEDIATE RETURN BY THE ISSUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-59
VI.	COMMITMENTS MADE BY DIRECTORS, SENIOR MANAGEMENT
	MEMBERS, CONTROLLING SHAREHOLDER AND
	ACTUAL CONTROLLER OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-62
VII.	PROCEDURES FOR CONSIDERING AND PASSING THE MEASURES AND
	COMMITMENTS TO FILL THE DILUTED IMMEDIATE RETURN
	BY THE ISSUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-63

II – 6

APPENDIX II

CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

Definitions

The following abbreviated expressions shall have the following meanings for the purpose of the Contingency Plan unless otherwise specified:

The Issuer, the Company, the Livzon Pharmaceutical Group Inc. Listed Company, Livzon Group The Articles of Association The Articles of Association of Livzon Pharmaceutical Group Inc. The Non-Public Issuance of A The non-public issuance of A Shares to select investors Shares, the Non-public issuance, proposed by Livzon Pharmaceutical Group Inc. the Issue A Share(s) Ordinary share(s) with a nominal value of RMB1.00 each The Sponsor, the Lead Underwriter Minsheng Securities Co., Ltd. Joincare, the Controlling Joincare Pharmaceutical Industry Group Co., Ltd. Shareholder Livzon MAB Zhuhai Livzon Monoclonal Antibody Biotech Company Ltd. The Contingency Plan The Contingency Plan of Non-Public Issuance of A Shares of Livzon Pharmaceutical Group Inc. CSRC China Securities Regulatory Commission IMS Health IMS Health Holdings, Inc., a listing company in the New York Stock Exchange, its ticker symbol is IMS.N, which is one of the global leading market research company Pricing Base Date The day on which the resolution of the twenty-first meeting of the Eighth Board considering the non-public issuance was announced RMB, RMB10,000, RMB100 mn RMB, RMB10,000, RMB100 million SETC The State Economic and Trade Commission MIIT the Ministry of Industry and Information Technology of the People’s Republic of China

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GMP

Good Manufacturing Practices

Registered Class 1.1

APIs and its pharmaceutical preparations in the national chemicals registered class which is not listed in the sales of the domestic and abroad market by synthetic or semisynthetic method

Registered Class 1.6

Pharmaceutical preparations which is listed in the sales of the domestic market, to increase new indications not being approved at home and abroad

Proton Pump Inhibitors

A currently advanced drug for treating peptic ulcer, which treats ulcers quickly
Monoclonal Antibody

Monoclonal antibody, a specific antigen epitope of antibodies

HER2 Human epidermal growth factor receptor 2

TNF-α Tumor Necrosis Factor α. a pro inflammatory cytokine, it is rheumatism, one of the most important cytokines especially in the pathogenesis of rheumatoid arthritis

Long-term Microsphere Sustained Release Preparations/Microsphere Agents
New drug delivery technology, which may reduce the administration frequency, decrease side effects, make drug consistence in blood steady and obtain the treat response

Note: Any discrepancies in any table for the Contingency Plan between the total shown and the sum of the amounts listed are due to rounding.

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Section I Overview of the Contingency Plan of Non-Public Issuance of A Shares

I. About the Issuer

Name:

Livzon Pharmaceutical Group Inc.

Nature:

incorporated company (a joint venture by Taiwan, Hong Kong, Macao and mainland investors, and a listed company)

Date of Inception:

26 January 1985

Registered Address:

Headquarters Building, No. 38 Chuangye North Road, Jinwan District, Zhuhai, Guangdong

Primary Office Address:

Legal Representative:

Livzon Building, No. 132 Guihua North Road, Gongbei, Zhuhai, Guangdong Zhu Baoguo

Registered Capital: RMB396,889,547

Unified Social Credit Code: 914404006174883094

Place of Listing:

Shenzhen Stock Exchange, the Stock Exchange of Hong Kong Limited

Stock Name:

Stock Name: LIVZON GROUP, LIVZON PHARMA (LIVZON H- share) Stock Code: 000513, 01513(299902)

Zip Code: 519020 Tel.: 86-756-8135888

Fax: 86-756-8886002

Email: [email protected] Website: www.livzon.com.cn

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Business Activities:

production and sale of raw materials of Chinese and western medicine, pharmaceutical intermediates, Chinese herbal medicine, Chinese medicine decoction pieces and medical devices, sanitary materials, functional food, cosmeceuticals, Chinese and western patent medicine and biochemical reagents, chemicals, food and information technology, and bulk medicines; imports and exports of products made by the Company and related technologies; wholesale of Chinese patent medicine, chemical bulk medicines and preparations, antibiotics bulk medicines and preparations, biological products (excluding preventative biological products) and biochemical medicine. (For merchandise subject to quota or special rules, such rules shall be followed; any other required license from the government shall be obtained before any activity begins.)

II. Background and Purpose of the Non-Public Issuance

(I) Background

More supportive policies to the pharmaceuticals industry

The pharmaceuticals industry is an essential part of the Chinese economy and plays an important role in protecting the health and life of the people. The government has stepped up policy support in recent years, paving the way for continued rapid development of the pharmaceuticals industry. The State Council released the Decision to Launch the Urban Employee Basic Medical Insurance System on December 1998, marking the official start of the medical insurance reform in China. The government has introduced a raft of healthcare reforms since then. Some reforms closely related to the pharmaceuticals industry include the basic medical insurance system, drug classification system, GMP certification, centralized procurement bid of drugs. State Economic and Trade Commission unveiled the 10th Five-Year Plan for the Pharmaceuticals Industry on June 2001, to shed light on key fields of development and the direction of restructuring and assure healthy and rapid growth of the pharmaceuticals industry. The Ministry of Industry and Information Technology (MIIT) released the 12th Five-Year Plan for the Pharmaceuticals Industry in January 2012, setting the target for the 12th Five-Year period at ‘‘a 20% growth of gross output per annum and a 16% growth of industrial added value per annum on average

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for the pharmaceuticals industry’’, and also aiming at ‘‘expanding essential drug production, heightening the degree of intensification, meeting clinical demand and driving technical innovations’’.

These policies have fuelled growth of the pharmaceuticals industry of China and China has become the world’s third largest consumer of medicine. The demand for pharmaceuticals will expand further during the 12th Five-Year period, creating an ideal opportunity for the Company to grow its business. China will overtake Japan to become the world’s second largest consumer of medicine only next to the USA by 2020, IMS Health forecasted.

2. Fast growing medicine demand

A combination of factors, such as the large population, accelerating urbanization and population ageing and fast growth of disposable personal income, have together contributed to consistent growth of medicine demand in China. The pharmaceuticals industry has stepped into a New Normal phase of medium-/high-speed growth and is playing an increasingly important role in the national economy. Fast growth of disposable income of both urban and rural residents means the purchasing power of the people is higher. More healthcare and health demand arises and needs to be satisfied. China is one of the fastest growing consumers of medicine in the world. Moreover, to drive the healthcare reform, the government has increased the supply of healthcare resources, a direct stimulus to medicine demand. Pharmaceutical companies thus enjoy immense growth potential.

Pharmaceutical companies above designated size posted main operating revenue worth RMB2,455,316 mn in 2014, a 13.05% increase year-on-year, outperforming the 6.05% year-on-year growth of the secondary industry as a whole; between January and June of 2015, pharmaceutical companies above designated size yielded main operating revenue worth RMB1,235,561 mn, a 8.91% increase year-on-year, again beating the 7.51% year-on-year growth of the secondary industry as a whole, according to data provided by the MIIT. These figures point to the significant growth momentum of the pharmaceuticals industry.

3. Strategic opportunity for invention and production of new drugs

‘‘To sharpen the capability of new drug invention and production’’ is one of important issues for the pharmaceuticals sector to take a huge leap forward. The 12th Five-Year Plan for the Pharmaceuticals Industry proposes to ‘‘upgrade the biomedicine industry and consistently drive the research and development of innovative drugs; combine original innovations, innovations in integration and innovations based on existing technologies, encourage the development and industrialization of innovative drugs and improve the technical content and quality of innovative drugs in relation to

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dread diseases such as malignant tumor, cardiovascular diseases, neurodegenerative diseases, diabetes and infectious diseases, frequently-occurring diseases with the respiratory system and digestive system, rare diseases and medicine for children.’’

The State Council unveiled the Development Plan for Strategic Emerging Industries During the 12th Five-Year Period in July 2012, which includes the bioindustry in seven strategic emerging industries and proposes to ‘‘sharpen biomedicine research and development skills and develop new drugs’’. Then in May 2015, the State Council released Made in China 2025, highlighting biomedicine and high-performance medical devices as one of ten sectors of top priority. It proposes to ‘‘develop chemical medicine, traditional Chinese medicine and biomedicine intended to treat dread diseases, with the focus on new-mechanism and new-target chemical medicine, antibody-based drugs, antibody-drug conjugates, novel protein structure-based and polypeptide drugs, new vaccines, innovative traditional Chinese medicine with clinical advantage and medicine for individualized treatment.’’ The pharmaceuticals industry is facing a strategic opportunity for invention and production of new drugs.

Chinese pharmaceutical companies are more aware of the importance of research and development and have sharpened their R&D skills in recent years. A lot of stateof-the-art R&D platforms and core technologies have been developed. There were 148 approved new drug clinical trials, 4 new drug certificates, 66 approval numbers and 45 new drug certificates and approval numbers in 2013, according to data provided by China Food and Drug Administration (CFDA). In 2014, there were 344 approved new drug clinical trials, 1 new drug certificate, 72 approval numbers and 77 new drug certificates and approval numbers. A better market environment is created for new drugs with the Opinions on Driving the Reform of Drug Prices and the Opinions on the Reform of the Examination and Approval System of Drugs and Medical Devices, among other healthcare reform policies, introduced in 2015. New possibilities arise after the government lifts the control over drug pricing, quickens the examination and approval of drugs and pushes forward the reform of public hospitals. All of these are of significance to long-term stability and growth of the pharmaceuticals industry.

(II) Purpose

1. Fulfill the vision of the Company

Livzon Group knows the importance of new technologies and products to the competitiveness and sustainable growth of a business. The Company has a vision of itself as a leading specialized pharmaceutical business group in China capable of independent innovations and able to compete in the international market in production, technologies and management. With this in mind, the Company spent RMB201 mn, RMB233 mn and RMB290 mn on R&D from 2012 to 2014, representing 5.11%,

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5.03% and 5.23% of its operating revenue in the corresponding year, respectively. The Company also saw consistent growth of net profits from 2012 to 2014, posting RMB475 mn, RMB524 mn and RMB554 mn, respectively, on the basis of generous R&D expenditure and mature production, technological and management capabilities.

The Company will use the proceeds from the non-public issuance to invest in series of Ilaprazole products, microsphere products, antibody drugs, enhance its own independent innovation capability, increase its production and management capabilities through capacity expansion projects, the antibody drugs project will help to expand the field of new pharmaceuticals, and to enhance its innovations, technological and management capabilities, enhance innovations, technologies, production and management of relevant products, stay competitive and push fulfilling its vision.

2. Persevere in innovations and R&D and optimize the product mix

On the basis of the mature R&D infrastructure and the highly competent R&D team of Livzon Group, the Company will use the proceeds from the non-public issuance to input more resources into production and research, optimize its product mix, and sharpen the competitive edge of its products. In this way, it will be able to obtain an advantage and develop core abilities in an ever changing environment.

The Company is going to invest in the ‘‘deeper development and industrialization upgrade of series of innovative Ilaprazole’’ project. On the basis of the existing ilaprazole tablet products, the Company will carry out innovative product research and industrialization upgrade, maintain its technical advantages and make it becoming a series of products, increase its production capacity and market share.

Capital injections to Livzon MAB on its investment in the construction of ‘‘research & development and industrialization of therapeutic antibody-based drugs’’ is also projected. Recombinant humanized anti-TNF-α monoclonal antibody, a new cure invented for arthritis pauperum, and humanized anti-ErbB2 antibody, a new effective therapy for HER2-positive BC patients, will be studied, to ensure the Company succeed in its transition to the biomedicine sector and consolidate its presence in international biomedicine and biotech studies.

The investment in ‘‘research & development platform of prolonged-action microsphere technologies’’ is proposed to conduct innovative studies on the basis of prolonged-action microsphere sustained-released agents technologies by drawing upon the existing R&D achievements and industrialization experience in Leuprorelin Acetate Microspheres for Injection which is already marketed, to sharpen the competitive strength of prolonged-action microsphere sustained-released agents technologies, break technical barriers, heighten the localization rate of microsphere formulations and drive technological advancement of the entire industry.

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Top up working capital and repay bank loans, and optimize the asset-liability structure and financial performance of the Company

The proceeds from the non-public issuance will be used to top up the Company’s working capital and repay bank loans. The proceeds will be used properly to replenish capital adequacy, reduce financial expenses, lower the asset-to-liability ratio, raise the liquidity ratio and quick ratio, optimize the asset-liability structure and financial performance, strengthen stability of the asset structure, enhance risk tolerance and continued profitability and foster robust business growth of the Company.

III. Target Investors and Their Relations with the Company

The shares will be privately placed to no more than 10 chosen investors, which could be equity fund managers, securities companies, trust firms, financial firms, insurance firms, QFIIs and other accredited investors under the applicable laws and regulations. Where two funds or more managed by the same equity fund manager subscribe for the shares, they are taken as one subscriber. Trust firms may only make subscriptions with their own funds.

The target investors of the issue are not connected to the Company in any way or by any means. The final investors shall be chosen by auction in accordance with Detailed Implementation Rules for the Non-public issuance by Listed Companies after the issue is endorsed by the CSRC.

IV. Overview of the Contingency Plan of Non-Public Issuance

(I) Types and Par Value of Shares to be Issued

Mainland-listed Renminbi common stock (A Share) is issued at a nominal value of RMB1.00 per share.

(II) Amount to be Issued

The upper limit of the total number of A Shares of the Company to be issued will not exceed 20% (i.e. 38,000,000 shares, inclusive) of the total number of A-shares of the Company as of the date when the general mandate to issue shares was granted to the directors as resolved at the 2014 General Meeting of the Company. The General Meeting has authorized the Board to finalize the number of shares to be issued after discussing with the Sponsor (the Lead Underwriter) and considering relevant facts.

Where any change in the Company’s share capital arises out of dividend payments, offering of bonus shares, capitalization of capital reserve or other ex-dividend and ex-right reasons over the period between the pricing base date and the offering date, the upper limit to the number of A Shares to be issued shall be adjusted accordingly.

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(III) Method and Time of Issuance

It is a non-public issue, with shares privately placed to select investors within six months after it is endorsed by the CSRC.

(IV) Targets of Issuance and Subscription Method

All subscriptions shall be made in cash for the purpose of the issue.

(V) Pricing Method and Issuing Price

The pricing base date for the issue is March 9, 2016, the day on which the resolution of the twenty-first meeting of the Eighth Board was announced. The offering price of the non-public issuance must be no lower than 38.36 yuan/share (the upper limit of the aggregate funding to be raised/the upper limit of the total number of shares to be issued), and the floor price must not be lower than 90% of the average price of the Company’s stock traded during 20 trading days preceding the pricing base date. The final offering price shall be determined by auction in accordance with Detailed Implementation Rules for the NonPublic Issuance by Listed Companies after the issue is approved by the CSRC.

Average stock price traded during 20 trading days preceding the pricing base date=Total turnover of stock trading/Total number of shares traded during 20 trading days preceding the pricing base date

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(VI) Restricted Period

Transfer of the shares subscribed by select investors is banned within 12 months from the date the non-public issuance is completed. After a 12-month lockup period, relevant rules of the CSRC and Shenzhen Stock Exchange shall be followed.

(VII)Place of Listing

The Shares will be listed and traded on the Shenzhen Stock Exchange upon expiration of the lock-up period.

(VIII) Use of the Proceeds and Amounts

Seq. No. Project 1 Deeper development and industrialization upgrade of series of innovative Ilaprazole 2 Capital injections to Livzon MAB on its investment in the construction of ‘‘Research & development and industrialization of therapeutic antibody-based drugs’’ 3 Research & development platform of prolonged- action microsphere technologies 4 Working capital top-up and repayment of bank loans Total	Total Investment Amount (RMB10,000) 45,000 30,600 30,182 40,000 145,782	Investment Amount (RMB10,000) 45,000 30,600 30,182 40,000
		145,782

Note: The total investment amount for ‘‘Research & development and industrialization of therapeutic antibody-based drugs’’ is RMB600,000,000, and the Company intends to use the proceeds from the non-public issuance of A Shares and inject RMB306,000,000 into Livzon MAB by way of capital increase, Joincare will made a pro rata additional capital injection to Livzon MAB.

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(IX) Ownership of Undistributed Profits of the Company Accrued before this NonPublic Issuance

The Company’s undistributed profits accumulated prior to the non-public issue of the Shares shall be shared by all the new and existing Shareholders of the Company after the non-public issuance of the Shares according to the proportion of the total shares in issue.

(X) Valid Period of the Resolution

This resolution on the non-public issuance of A Shares shall be effective for a period of 12 months from the date of approval at the General Meeting. Where there are new policies and regulations of the state laws and regulations on the non-public issuance, the Company will adjust accordingly in accordance with the new policies.

The non-public issuance of A Shares shall be subject to consideration and approval at a general meeting of the Company, and subject to the approval of CSRC in accordance with the relevant procedures, its final Contingency Plan shall be the one approved by CSRC.

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V. Use of the Proceeds

Seq. No. Project 1 Deeper development and industrialization upgrade of series of innovative Ilaprazole 2 Capital injections to Livzon MAB on its investment in the construction of ‘‘Research & development and industrialization of therapeutic antibody-based drugs’’ 3 Research & development platform of prolonged-action microsphere technologies 4 Working capital top-up and repayment of bank loans Total	Total Investment Amount (RMB10,000) 45,000 30,600 30,182 40,000 145,782	Investment Amount (RMB10,000) 45,000 30,600 30,182 40,000
		145,782

Note: The total investment amount for ‘‘Research & development and industrialization of therapeutic antibodybased drugs’’ is RMB600,000,000, and the Company intends to use the proceeds from the non-public issuance of A Shares and inject RMB306,000,000 into Livzon MAB by way of capital increase, Joincare will made a pro rata additional capital injection to Livzon MAB.

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VI. Is the Issue a Related Party Transaction

The non-public issuance is a related party transaction. One of the projects to be invested after this non-public issuance is the ‘‘Capital injections to Livzon MAB on its investment in the construction of ‘‘Research & development and industrialization of therapeutic antibody-based drug’’. ‘‘Research & development and industrialization of therapeutic antibody-based drugs’’ will be carried on by Livzon MAB, a company jointly invested by the Livzon Group and its controlling shareholder Joincare, its shareholding of the Company and Joincare in Livzon MAB represents 51% and 49%, respectively. The Company intends to use such proceeds for the investment in Livzon MAB by way of capital increase, Joincare will made a pro rata additional capital injection to Livzon MAB.

VII. Will the Issue Cause a Change in the Controlling Interest in the Company

Before the issue happens, Joincare held a 45.90% stake, or 182,159,367 shares, in the Company, making it the controlling shareholder. According to the non-public issuance Contingency Plan, following the completion of the issue, there will be no change in the controlling interest in the Company, with Joincare still being the controlling shareholder and Zhu Baoguo the actual controller of the Company.

VIII. Approval (Endorsement) of the Issue Obtained or To Be Obtained From the Authorities

The issue has been considered and passed by the seventeenth meeting of the Eighth Board and the 2015 Third Extraordinary General Meeting. The adjustment of the Contingency Plan has been considered and passed by the Board on the twenty-first meeting of the Eighth Board, but not by the 2016 Second Extraordinary General Meeting (EGM) yet. The non-public issuance is still subject to the approval by the CSRC.

According to the ‘‘Contingency Plan on Requesting the General Meeting to Grant General Mandate to the Board to Issue Shares’’ considered and passed at the 2014 General Meeting, the General Meeting has agreed to authorize the Board to distribute, issue and deal with the Company’s domestic shares and/or foreign shares listed overseas, and determine the terms and conditions for the issuance. The Board is not required to convene class meeting of shareholders in exercising this authorization to issue domestic shares. In case General Meeting of all shareholders is required even if the general mandate to issue shares is obtained under any relevant provisions of regulations in China, approval from General Meeting of all shareholders has to be obtained. The current issuance of A-shares by non-public issuance is in compliance with this authorization, and the Company is not required to convene class meeting of shareholders.

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Section II Feasibility Study on Use of the Proceeds by the Board

I. Planned Use of the Proceeds

Seq. No. Project 1 Deeper development and industrialization upgrade of the innovative Ilaprazole product series 2 Capital injections to Livzon MAB for its investment in the construction of ‘‘Research & development and industrialization of therapeutic antibody-based drugs’’ 3 Construction of Research & development platform of sustained release microsphere technologies 4 Working capital top-up and repayment of bank loans Total	Total Investment Amount (RMB10,000) 45,000 30,600 30,182 40,000 145,782	Investment Amount with non-public issuance proceeds (RMB10,000) 45,000 30,600 30,182 40,000
		145,782

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II. Feasibility Study on Projected Investments of the Proceeds
(I) Deeper Development and Industrialization Upgrade of the innovative Ilaprazole product series

1. Project Overview

The project is about deeper development of the existing product, Ilaprazole Enteric-coated Tablet(trade name: Ilaprazole (壹麗安)), which is used for duodenal ulcer treatment and available in 5mg enteric-coated tablet.

The project includes new dosage forms and indications of Ilaprazole entericcoated tablet and Ilaprazole Sodium for injection, post-marketing clinical research (including phase IV clinical trial and pharmacoeconomic studies), quality standard improvement and industrialization development, technical reconstruction and expansion of production capacity and etc, as well as preclinical research, clinical research, post-marketing clinical research, industrialization development and technical reconstruction of Ilaprazole optical isomer preparation and Ilaprazole compound preparation.

2. Main Projected Investments

RMB10,000

Item	Item						Industrialization Upgrade (Construction and Equipment)
	Item	Deeper Development					Industrialization Upgrade (Construction and Equipment)
		R&D Equipment	Preclinical research	Clinical research	Industrialization Development and Technical Reconstruction	Post-marketing Clinical Research
	Ilaprazole Enteric-coated Tablet	3,000	–	300	600	6,800	4,100
	Ilaprazole Sodium for Injection		–	2,500	500	6,800	4,900
	Ilaprazole Optical Isomer Preparation		650	3,300	400	3,400	–
	Ilaprazole/Ilaprazole Optical Isomer Compound Preparation		650	3,300	400	3,400	–
Total	Total	3,000	1,300	9,400	1,900	20,400	9,000

Note: (1) Clinical trial of Ilaprazole Enteric-coated Tablet for the new indication, reflux esophagitis, has been completed and the application for production has been submitted for approval; future clinical research will focus on research and development of new dosage forms. (2) Clinical trials of Ilaprazole Sodium for Injection have been finished and the application for production has been submitted for approval; future clinical research will focus on research and development of new indications.

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Necessity of the Project
(1) Deepen product development and keeping firm grip on leading-edge technologies

The Company is now devoted to deeper development of Ilaprazole products in order to keep a firm grip on the leading-edge technologies. As for the project, studies on higher quality standard, technical improvement and intellectual property protection, among other things, will be conducted to advance the technologies of the Ilaprazole family, raise the bar to prevent imitation, lengthen the life cycle of the product and keep the competitive edge of a complete Ilaprazole collection of the Company.

(2) Form a complete collection and capture a bigger slice of the market

The incidence of digestion-related diseases is going higher year by year, because of quicker-paced life and growing pressure from life and work in the modern society. Sales of proton pump inhibitor expanded consistently in China (2012 to 2014), with a 14% growth per annum on average. The Company saw a compound annual growth of about 79.57% of Ilaprazole Enteric-coated Tablet operating income from 2012 to 2014. The product is fast growing and well recognized in the market.

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(3) Ramp up production capacity by industrialization upgrade

Hence, the Company needs to upgrade its mass production lines, ramp up production capacity, provide quality assurance and defend its technical advantage and market advantage.

4. Feasibility of the Project

(1) The Ilaprazole family enjoys a promising market

Ilaprazole, as a new-generation proton pump inhibitor, features unique pharmacological characters built on the same mechanism of action as its oldgeneration, and therefore is highly competitive.

Ilaprazole Enteric-coated Tablet has been included in the local medical insurance catalogues of many provinces. The sales have grown rapidly, and the operating income has grown from RMB33,080,000 in 2012 to RMB106,670,000 in 2014 at a compound annual growth rate of 79.57%. Livzon Group is the sole pharmaceutical company that produces and sells Ilaprazole Enteric-coated Tablet in the country. Being innovative and well recognized, sales of Ilaprazole Entericcoated Tablet are expected to keep growing in the coming years.

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(2) The Company boasts powerful and fruitful R&D efforts

The Company has powerful research and development strength and made great achievements in research and development, providing a solid foundation for the implementation of the project.

(3) The Company has a technical advantage in the R&D of the Ilaprazole family

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5. Yield Forecast

6. Land Use, Project Approval and Environmental Impact Assessment

The Project has been filed and obtained an approval reply (Document No.: 2015-440404-27-03-008210) from the Reform, Development and Statistics Department of Jinwan District. The land needed for the project has been made available. The Environmental Protection Bureau of Jinwan District of Zhuhai City has approved the environment impact assessment of the Project by issuing the Reply on Environmental Impact Report for Deeper Development and Industrialization Upgrade of the Innovative Ilaprazole Product Series of Livzon Pharmaceutical Group Inc. (Document No.: ZJHJ [2015] No. 104). Marketing of new medicine to be produced under the project requires approval of the drug administration.

(II) Capital injections to Livzon MAB for its investment in the construction of

‘‘Research & Development and Industrialization of therapeutic antibody-based drugs’’

1. Project Overview

(1) Recombinant humanized anti-TNF-α monoclonal antibody

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Chinese Journal of Health Statistics. Without timely and effective treatment, the disability rate of patients is around 70% after two years. The disease is estimated to shorten the life expectancy by 10-15 years.

(2) Humanized anti-ErbB2 antibody

A principal indication of ‘‘Humanized anti-ErbB2 antibody’’ is HER2positive breast cancer (BC). Over-expression of the HER2 gene may cause cell over-proliferation and malignant phenotype transformation. HER2 is therefore a key target examined in the development of BC medicine. Monoclonal antibodybased drugs can be used to kill tumor cells accurately, with minimal adverse reactions.

2. Main Projected Investments

‘‘Research & Development and Industrialization of Therapeutic Antibody-based Drugs’’, with a total investment of RMB600 mn, will be implemented by Zhuhai-based Livzon Monoclonal Antibody Biotech Co., Ltd., a subsidiary controlled by the Company. Livzon Group has planned to invest RMB306 mn in Livzon MAB in the form of capital increase with proceeds from the non-public issuance. Joincare’s capital increase for LIVZON MABPHARM INC. is in proportion to its original shareholding percentage. Upon completion of the capital increase, the shareholding structure of Livzon MAB remains the same as before.

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RMB10,000

Seq. No. Item I Construction investment 1 Engineering cost 1.1 Construction cost 1.2 Equipment investment 2 Other expenses 3 Basic budget allowance II R&D expenditure 1 Recombinant humanized anti-TNF-α monoclonal antibody 2 Humanized anti-ErbB2 antibody III Initial capital and reserve Total	Total Investment 35,000 30,800 16,800 14,000 2,000 2,200 22,000 10,500 11,500 3,000 60,000	% 58.33% 51.33% 28.00% 23.33% 3.33% 3.67% 36.67% 17.50% 19.17% 5.00%
		100%

General Information of Zhuhai Livzon MAB Biological Technology Company Ltd.

Name of the company:

Z H U H A I L I V Z O N M A B B I O L O G I C A L TECHNOLOGY COMPANY LTD.

Address of the company:

Monoclonal building, 38 Chuangye North Road, Jinwan District, Zhuhai

500 mn

Registered Capital: 500 mn Legal Representative: Zhu Baoguo Scope of Operation: Technological research and development on biopharmaceutical products and antibody-based drugs. (For items requiring legal approval, operational activities can only be commenced with the approvals of relevant authorities)

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Details of the subscription and capital contribution amount of shareholders and shareholding percentage are as follows:

Name of shareholder Livzon Group Joincare Total	Subscription and capital contribution project (RMB10,000) 25,500 24,500 50,000	Shareholding percentage 51% 49%
		100%

Necessity of the Project
(1) Meet the market demand for antibody-based drugs

(2) Conform to the need of the country to grow the industry

The biomedicine industry of China is booming and promising. This fastgrowing high-tech sector has drawn extensive attention from the government, the science & technology and business communities. Regarding the development of antibody-based drugs, the Chinese government proposed in The Development Plan for the Biomedicine Industry for the 12th Five-Year period to ‘‘accelerate the research & development and industrialization of protein and polypeptide drugs including therapeutic antibodies’’, and ‘‘to support mass production of antibodies’’, so as to satisfy the ever growing market demand. The biomedicine industry is also given top priority in the Development Plan for Strategic

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APPENDIX II

Emerging Industries during the 12th Five-Year Period and Made in China 2025, among other government-led initiatives. The project conforms to the need of the country to grow the industry.

(3) Fulfill the need of the Company for strategic transition

The biomedicine industry is a high-tech sector that can drive the pharmaceuticals industry of China. Although there is a higher upfront cost associated with the biomedicine industry, huge economic benefits can generally be generated given the growing market demand and good efficacy of the relevant products. Currently, taking the realization of long-term strategic development, optimization of product mix and economic benefits into consideration, the Company needs to realize its strategic transition into the biomedicine sector.

In implementing the project, the Company will engage innovative technicians, acquire state-of-the-art R&D apparatus and equipment, build GMPcompliant production facilities and phase in a monoclonal antibody-based drug R&D platform, as a means of support to its strategic transition to the biomedicine sector. The research and development and launch of the products of the project will help the Company realize strategic transition.

(4) Need for optimization of product mix of the Company

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One is threatened by a 22% chance of getting malignant tumor in one’s life, a disease with a high incidence up to 2.35% and a high mortality rate of 1.49%, according to China Annals of Tumor 2014. Cancer poses a grave challenge to the development of anti-tumor drugs in the world, because of the difficulty in early diagnosis, low curability during the middle and terminal stages and short survival period. There is a dire need for effective therapies and the market holds enormous potential. An indication of humanized anti-ErbB2 antibody is HER2positive BC. The incidence of BC is growing in China at a speed double the world average annual growth rate, according to A Report on Breast Cancer in China released in June 2014. We may infer from this that the number of BC patients in China will grow to 2,500,000 by 2021. The domestic market has a gap that needs to be filled desperately by new effective therapy for HER2-positive MBC patients.

Feasibility of the Project
(1) Relevant policies of the State supporting the development of the biomedicine industry

At the Zhuhai level, the municipal government of Zhuhai approved The Development Plan of Zhuhai for the Biomedicine Industry (2011-2020) in 2013, a guidebook for robust growth of the biomedicine industry in Zhuhai. The MIIT recognized the unique strength and influence of the Pearl River Delta in the biomedicine industry and viewed optimizing the industrial mix in the region as a task of top priority in The 12th Five-Year Plan for the Pharmaceuticals Industry.

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Supportive state-level policies combined with region-specific policies create an opportunity for the biomedicine industry that the project cannot afford to miss.

(2) Growing demand for biomedicine

Continued release of enormous biomedicine demand in China provides a solid market base for the project.

(3) The availability of a talent pool and sound governance system in the Company

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the implementation and progress of the project, more talents of high caliber at home and abroad will be attracted and retained to support and guarantee sustainability of the project and the Company.

(4) Strong sales backed by marketing network and brand awareness

The Company has its products concentrated on gastroenterology, antiinfection (antibiosis and antivirus) and cardiovascular, plus some important fields such as antitumor, immunoregulation, reproductive endocrinology, neurology, urology, dermatology and pediatrics. The Company has captured a considerable share of the market by laying out a widespread marketing network, accumulating rich marketing experience and building brand awareness. All of these may contribute to success of the project.

6. Economic benefits of the project

7. Land Use, Project Approval and Environmental Impact Assessment

The ‘‘Therapeutic Antibody-based Drugs Research & Development and Industrialization Development Project’’ has been filed and obtained an approval reply (Document No.: 2015-440404-27-03-011092) from the Reform, Development and Statistics Department of Jinwan District. The land needed for the project has been made available. The Environmental Protection Bureau of Jinwan District of Zhuhai City has approved the environment impact assessment of the project by issuing the Reply on Environmental Impact Report for 21.87 KG/a AT132 and 36.45 KG/a LZM002 Production Project of Zhuhai Livzon Monoclonal Antibody Biotech Company Ltd. (Document No. ZJHJ [2013] No. 066) and Opinions on the Filing of Environmental Impact Post-Assessment Report of Zhuhai Livzon Monoclonal Antibody Biotech Company Ltd. (Therapeutic Antibody-based Drugs Research & Development and Industrialization Development Project). The Marketing of new medicine to be produced under the project requires approval of the drug administration.

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(III) Construction of Research & Development Platform of sustained release Microsphere Technologies

1. Project Overview

(1) Build the platform of prolonged-action sustained-release microsphere technologies: For this purpose, the Company is going to create a new lab of ingredients and excipients, a lab of pharmacology and toxicology and a lab of clinical research in the R&D building, acquire a whole set of cuttingedge laboratory, processing and testing devices, build a new workshop and sharpen its skills in microsphere formulation platform experiment, testing and preparation.
(2) Develop new varieties: It is intended that the following 10 types of microsphere will be researched and developed and gradually produced and launched: Triptorelin Acetate Sustained-release Microspheres for Injection (1 month), Goserelin Acetate Sustained-release Microspheres for Injection (1 month), Leuprorelin Acetate Sustained-release Microspheres for Injection (3 months), Triptorelin Acetate Sustained-release Microspheres for Injection (3 months), Octreotide Sustained-release Microspheres for Injection (1 month), Octreotide Sustained-release Microspheres for Injection (3 months), NGF Sustained-release Microspheres for Injection (14 days), Risperidone Sustained-release Microspheres for Injection (1 month), Aripiprazole Sustained-release Microspheres for Injection (14 days) and Gonadorelin Sustained-release Microspheres for Injection (1 month).
(3) Develop a pilot plant and a production plant: The Engineering Research Center is going to develop two mass production lines to make samples for clinical use and commercialized products at a later time.

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2. Main Projected Investments

The project will be implemented by Livzon Pharmaceutical Group Inc. A total investment of RMB301,820,000 is projected for preclinical research, clinical research, acquisition of apparatus and equipment and decoration of pilot plant. A breakdown of projected investments is outlined in the table below.

RMB10,000

Preclinical Research 14,430	Apparatus and Equipment 4,052	Clinical Research 9,700	Decoration of Pilot Plant 1,000	Initial Capital and Reserve 1,000	Total 30,182

The project implementation plan is described as follows:

RMB10,000

		Total	Total
		Preclinical	Clinical
Item	Description of R&D	Expenses	Expenses
Triptorelin Acetate	Microsphere is superior to the spray-drying
Sustained-release	process in terms of both dosage form and
Microspheres for	stability, and can be used in subcutaneous
Injection (1 month)	injection, providing alternative route of
	administration	–	2,000
Goserelin Acetate	The finished product can be used in
Sustained-release	subcutaneous and intramuscular injection with
Microspheres for	ordinary syringes, and the injection process is
Injection (1 month)	gentle and minimally invasive	1,000	2,000
Leuprorelin Acetate	The product is expected to be the first of its
Sustained-release	kind in China which can enrich the
Microspheres for	reproductive health collection
Injection (3 months)		1,500	2,500
Triptorelin Acetate	The product is expected to be the first of its
Sustained-release	kind in China which can enrich the
Microspheres for	reproductive health collection
Injection (3 months)		1,700	–

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RMB10,000

Item Description of R&D Octreotide Sustained- release Microspheres for Injection (1 month) The preparation process is optimized Octreotide Sustained- release Microspheres for Injection (3 months) A shot of Octreotide preparation is needed every month, now improved to be a shot every three months NGF Sustained-release Microspheres for Injection (14 days) Change from ordinary formulation to sustained- release formulation, with additional indications (class 1.6 new drug) Risperidone Sustained- release Microspheres for Injection (1 month) Innovated dosage form, 2-week sustained release in the past, now 1-month sustained release enabled by prescription improvement Aripiprazole Sustained- release Microspheres for Injection (14 days) The product is expected to be the first of their kind in China which can enrich the psychotropic collection Gonadorelin Sustained- release Microspheres for Injection (1 month) Change from ordinary formulation to sustained- release formulation, with additional indications (class 1.6 new drug) Total	Total Preclinical Expenses 1,900 2,500 2,100 1,400 1,430 900 14,430	Total Clinical Expenses – 900 – 1,000 1,300 –
		9,700

Note: 14 days, 1 month and 3 months refer to the length of release, that is, the period of time for which the action of an injection lasts.

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3. Necessity of the Project

(1) Sharpen core competitive strength of the industry

(2) Beneficial to the cultivation of top-class technicians in the area of microsphere formulation

This project seeks to commercialize technical achievements and become an important source of innovations in microsphere technologies and a platform supporting innovations by enterprises, by fostering exchanges of the domestic and international academic communities and cooperation among businesses, universities and research institutes and driving cross-discipline development. The technological strength and the strength of the research team established under the project in the area of microsphere are beneficial to the cultivation of top-class technicians for the Company in the area of microsphere formulation.

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4. Feasibility of the Project

(1) Constantly intensifying policy support

The MIIT called for taking preparation production to the next level in the 12th Five-Year Plan for the Pharmaceuticals Industry, saying ‘‘give priority to the development of prolonged action, sustained release and controlled release, among other formulation technologies in biomedicine’’ and ‘‘study oral sustainedrelease and controlled-release formulations, prolonged-action formulations, related excipients and process control and promote industrialized application of relevant drug release technologies to meet the demand for chronic disease treatment’’. Chinese drug makers cannot match their foreign competitors. It takes time to change the situation of the sustained-release formulation industry in China. Against the backdrop of policy support and profit driver, however, the sustained-release formulation industry of China will pick up.

(2) Wide-ranging application of prolonged-action sustained-release microsphere formulations

Prolonged-action sustained-release microsphere formulation is widely applied across the world, almost encompassing all chronic diseases and diseases that require repeated medication, since the first prolonged-action sustainedrelease microsphere formulation secured clearance. Global sales income from sustained-release formulations amounted to $100 bn, but the counterpart in China was less than RMB10 bn in 2014. The great potential of the sustained-release formulation market is tangible in China.

In the future, with new products coming forth, microsphere formulations will capture a bigger market share in the pharmaceutical industry, creating an ideal market opportunity for the project.

(3) Experienced R&D team and well-prepared production conditions

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5. Yield Forecast

6. Land Use, Project Approval and Environmental Impact Assessment

The project has been filed and obtained an approval reply (Document No.: 2015440404-27-03-008186) from the Reform, Development and Statistics Department of Jinwan District. The land needed for the project has been made available. The Environmental Protection Bureau of Jinwan District of Zhuhai City has approved the environment impact assessment of the project by issuing the Reply on Environmental Impact Report for Construction Project of Research & development Platform of Prolonged-Action Microsphere Technologies of Livzon Pharmaceutical Group Inc. (Document No. ZJHJ [2015] No. 103). Marketing of new medicine to be produced under the project requires approval of the drug administration.

(IV) Working Capital Top-up and Repayment of bank borrowings

1. Project Overview

2. Necessity of the Project

(1) Optimize the assets and liabilities structure and financial condition of the Company

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lowers the Company’s gearing ratio, increases the Company’s current ratio and quick ratio, optimizes the Company’s assets and liabilities structure and financial condition, stabilizes the Company’s assets structure, enhances the Company’s ability to cope with risks, enhances the Company’s earnings sustainability and promotes stable development of the Company’s businesses.

(2) Enhance capital strength and secure funds for the Company’s rapid development

The Company recorded operating revenue to the tune of RMB3,944 mn, RMB4,619 mn and RMB5,544 mn in 2012, 2013 and 2014, respectively. Continued business growth warrants a proportional increase in working capital.

III. Impact of Use of the Proceeds on the Business Management and Financial Performance of the Company

(I) Impact of the Non-public issuance on Business

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(II) Impact of the Non-public issuance on Financial Performance

Section III Discussion and Analysis of the Impact of the Non-Public Issuance on the Company by the Board

I. Does the Listed Company have a Plan to Merge Assets or Business, Amend the Articles of Association after the Issue; Predict Changes in the Ownership Mix, Senior Management and Business Mix
(I) Does the Listed Company have a Plan to Merge Assets or Business after the Issue

The issue will neither give rise to any change in main business activities of the Listed Company nor involve any plan to merge assets or business.

(II) Impact on the Articles of Association

The non-public issuance of A Shares is intended to raise total proceeds of not more than RMB1,457.82 million. The Company’s share capital will increase accordingly following completion of the issue. The Company will amend the clauses pertaining to share capital in the Articles of Association and finish filing with the authority.

(III) Impact on the Ownership Mix

The issue will cause some changes in the ownership mix of the Listed Company. For one, an amount equivalent to the number of shares placed this time will be added to the number of restricted common shares outstanding. For the other, existing shareholders of the Company will see a shrinkage in their shareholdings, but no change will happen to the controlling shareholder and controlling interest in the Company after the issue.

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(IV) Impact on the Senior Management

As of the Contingency Plan date, the Company has no plan to reshuffle the senior management. The issue will not give rise to material changes in the senior management. The Company must follow the required legal procedures and perform its information disclosure obligation if it changes the senior management in the future.

(V) Impact on the Business Mix

All of the proposed projects are closely connected to main activities of the Company and will be implemented without causing any material change in the business mix of the Company.

II. Changes in Financial Position, Profitability and Cash Flow of the Listed Company after the Issue

Total assets and net assets of the Company will grow, while the asset-to-liability ratio and financial expenses will fall after the proceeds are paid in.

The Company will be more profitable, competitive and risk tolerant after the proposed projects are completed and become operational. They will contribute to robust business growth in the long run. Before these projects generate expected profits, however, it is possible that ROE and EPS, among other financial indicators, may decline as a result of a larger share capital.

After the issue is completed, there will be a significant increase in cash inflow generated by financing activities. After the proceeds from the issue are put into use, a significant increase in cash flow generated by investing activities will ensue. After the proposed projects are completed, the cash flow from operating activities will increase.

III. Changes in Business Relations, Management Relations, Related Party Transactions and Horizontal Competition between the Listed Company and the Controlling Shareholder and its Connected Persons after the Issue

(I) Changes in Business Relations between the Listed Company and the Controlling Shareholder and its connected Persons after the Issue

The issue will not give rise to any change in business relations between the Listed Company and the controlling shareholder and its connected persons.

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(II) Changes in Management Relations between the Listed Company and the Controlling Shareholder and its Connected Persons after the Issue

The issue will not give rise to any change in management relations between the Listed Company and the controlling shareholder and its connected persons.

(III) Changes in Related Party Transactions between the Listed Company and the Controlling Shareholder and its Connected Persons after the Issue

The issue will not give rise to any change in related party transactions between the Listed Company and the controlling shareholder and its connected persons.

(IV) Changes in Horizontal Competition between the Listed Company and the Controlling Shareholder and its Connected Persons after the Issue

The issue will not give rise to any change in horizontal competition between the Listed Company and the controlling shareholder and its connected persons.

IV. Will the Capital or Assets of the Listed Company be Misappropriated by the Controlling Shareholder or its Connected Persons, or the Listed Company Provide any Form of Guarantee to the Controlling Shareholder or its Connected Persons after the Issue

(I) Capital or Assets of the Listed Company Misappropriated by the Controlling Shareholder or its Connected Persons after the Issue

The issue will not cause the capital or assets of the Listed Company being misappropriated by the controlling shareholder or its connected persons.

(II) Guarantee Provided by the Listed Company to the Controlling Shareholder or its Connected Persons after the Issue

The issue does not involve any form of guarantee provided by the Listed Company to the controlling shareholder or its connected persons.

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V. Is the Asset-Liability Structure of the Listed Company Appropriate; Is It Possible that the Issue will Indebt the Listed Company Heavily (Including Contingent Liabilities); Does such a Situation as Overly Low Debt Ratio or Inappropriate Financial Cost Exist

As of 30 September 2015, the asset-to-liability ratio of the Company (the Parent Company) is 69.93% and the asset-to-liability ratio reported on the consolidated financial statements is 41.74%. The ratio is higher than that of its peers. After the issue is completed, the financial structure of the Company will be stronger and more risk tolerant. Meanwhile, the maneuverability of debt financing will be improved, giving solid support to future business growth of the Company.

The issue will not result in such a situation as overly low or high debt ratio or inappropriate financial cost.

VI. Risk Factors Relating to the Non-Public Issuance

(I) Risks Relating to Industrial Policies

The pharmaceuticals industry is an important, yet highly regulated sector in China, as pharmaceutical products concern the health and safety of the public. Government organs having power over the pharmaceuticals industry include National Development and Reform Commission, National Health and Family Planning Commission, China Food and Drug Administration, the Ministry of Human Resources and Social Security and General Administration of Quality Supervision, Inspection and Quarantine. Significant changes in policies relating to the industry, if any, will have material impact on investment and financing, supply and demand of the industry, as well as business models, operations, R&D and product pricing of pharmaceutical companies. There could be material adverse impact on the Company’s operations, if it fails to take effective countermeasures against significant changes in policies relating to the pharmaceuticals industry or to stay competitive all the time.

(II) Risks Relating to Loss of Core Technicians

The pharmaceuticals industry the Company operates in is a talentand technology-intensive industry. An R&D team of high caliber is essential and crucial for the Company to compete in the market. A huge loss of core technicians never happened to Livzon Group during the track record period. That said, there could be adverse impact on its operations, should a loss of core technicians occur in the future because of talent competition in the industry, inadequate incentives or other reasons.

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(III) Risks Relating to New Drug R&D

New drug R&D is implemented step by step, including preclinical research, clinical research phase I to phase III and approval by the drug administration. Hence, new drug R&D involves a prolonged project life cycle, huge investment and many uncertainties beyond control. The Company may be unable to recover its investment or realize expected yield, if it fails to move from the preclinical research step to the clinical trial step, fails in clinical trial, fails to secure clearance from the drug administration for new drugs, or has to cut back on the production of new drugs because of intensifying competition or poor sales, among other reasons.

(IV) Risks In Implementation of Investment Projects Financed by Raised Funds

It takes time to carry out the proposed projects, that is, ‘‘deeper development and industrialization upgrade of Ilaprazole-series innovative products’’, ‘‘capital injection in Livzon MAB for investment in the development project of research & development of therapeutic antibody-based drugs and development project of industrialization’’, ‘‘research & development platform of prolonged-action microsphere technologies’’. There are uncertainties over whether these projects can be implemented on schedule and whether the products will be turned out as expected, if the proceeds from the issue are not paid in timely, or there are material adverse changes in external conditions, such as testing results, regulatory approvals and investment cost.

(V) Risks Relating to Failure to Achieve Expected Results

Despite elaborate research and prudent argumentation of the market prospect for the purpose of the issue and good preparations in terms of technologies, human resources and sales channels made by the Company, there are many uncertainties over the expected yield of those proposed projects, for example, whether the Company is able to implement those proposed projects on schedule, or turn out products that meet market demand at reasonable costs, or sell those products successfully, or whether there will be violent fluctuations of product prices, or material changes in the demand and competition conditions. Hence, there is a risk that those proposed projects may not pay off as expected.

(VI) Risks Relating to Required Approval

The adjustment of the Contingency Plan still needs to be approved at the General Meeting of the Company. The issue is still subject to the endorsement by the CSRC. There is a risk that the adjustment may be vetoed at the General Meeting or that the issue may be disapproved by the CSRC. There are uncertainties as to whether or when the required approval or endorsement can be obtained.

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Section IV Profit Distributions

I. Profit Distribution Policy of the Company

(I) Profit Distribution Policy As Required by the Articles of Association

The Articles of Association has specified a profit distribution policy described as follows, in order to perfect the Company’s profit distribution policy, assure transparent profit distribution, protect the legitimate rights and interests of individual investors and improve corporate governance, in accordance with Notice of Matters Relating to Cash Dividends of Listed Companies (CSRC Announcement [2013] No. 43) released by the CSRC on 4 May 2012, and Regulatory Guidelines for Listed Companies No. 3-Cash Dividends of Listed Companies and Guidelines for Articles of Association of Listed Companies (Revised 2014) released by the CSRC on 30 November 2013.

1. Form of Profit Distribution

Dividends can be paid in cash, shares of company stock or these two combined or any other form permitted by the laws and regulations.

Conditions of Cash Dividends
(1) The Company has realized a positive profit available for distribution in the financial year (after-tax profit after deficits are covered and reserve funds are set aside); and
(2) The auditors have issued an auditor’s report with Unqualified Opinion about the Company’s financial report for the financial year.
Ratio of Cash Dividends

The Company should offer cash dividends whenever possible as long as it has enough cash to fund normal operations and long-term growth, and make sure the cumulative profit distribution in cash for any last three-year period is no less than 30% of the average annual distributable profits for the same three-year period.

The Company should come up with a differentiated cash dividend policy for the following circumstances in accordance with legal procedures, after taking into consideration nature of the industry, development phase, business model, profitability, investment and expenditure, among other factors:

(1) Cash dividends should represent a minimum of 80% of the profit distribution when the Company is at the mature phase and has no major capital expenditure under contemplation;

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(2) Cash dividends should represent a minimum of 40% of the profit distribution when the Company is at the mature phase and has major capital expenditure under contemplation;
(3) Cash dividends should represent a minimum of 20% of the profit distribution when the Company is at the growth phase and has major capital expenditure under contemplation.
Frequency of Cash Dividend Payment

In principle, the Company arranges for profit distribution on an annual basis, but interim cash dividends may be paid when appropriate.

Stock Dividends

The Company may issue stock dividends where its operating revenue and net profit are growing rapidly and the Board confirms appropriateness of the share capital size and ownership mix of the Company, provided that the conditions of cash dividends are satisfied.

Profit Distribution Decision-making Procedure
(1) The Company’s management and the Board shall come up with a dividend payment Contingency Plan and plan based on profit realization, funding requirement and the shareholder returns plan. The profit distribution plan will then be submitted to the General Meeting for approval after being considered and passed by the Board. Independent directors shall give an independent opinion on the profit distribution plan.

The Board should carefully and thoroughly examine and discuss the timing, conditions and minimum ratio of cash dividends, conditions for adjustment and decision-making procedure, among other things, and independent directors should give a clear opinion before the cash dividend plan is finalized.

Independent directors may seek feedback from minority shareholders and put forward a dividend payment Contingency Plan to the Board.

(2) Before the cash dividend plan is put to the consideration of a General Meeting, the Company should seek inputs from shareholders, especially minority shareholders, by varied means, listen to the opinions and appeals of the mass shareholders extensively and respond to their doubts and concerns in a timely manner.

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The opinions and appeals of the mass shareholders must be heard when the cash dividend plan is put to the consideration of a General Meeting. The Board, independent directors and qualified shareholders may collect votes from the Company’s shareholders at a General Meeting.

(3) Where the Company does not propose a cash dividend plan though the conditions of cash dividends are satisfied, the management needs to provide detailed explanations in writing to the Board, including the reasons for no dividend payment, the purpose and the plan to use retained earnings. Then independent directors shall give an independent opinion on the profit distribution plan and disclose it to the public. The profit distribution plan will be put to the vote of a General Meeting by special resolution after it is considered and passed by the Board. The Company should enable an online voting platform for shareholders when a General Meeting is held.
(4) The Company should strictly follow the cash dividend policy specified in the Articles of Association and the cash dividend plan voted through at a General Meeting. Where the Company has to adjust or amend the profit distribution policy as a result of material changes in the external environment or its business performance, the Board shall form a resolution after careful consideration and discussion. Independent directors shall give an independent opinion and disclose the resolution to the public. Then it shall be put to the vote of a General Meeting by special resolution.

7. Adjustment of Profit Distribution Policy

Profit distributions should be well contemplated to provide fair returns on investment to shareholders, without compromising sustainable growth of the Company. Consistency and stability of the profit distribution policy is of paramount importance. Where any shareholder misappropriates the Company’s capital, cash dividends payable to the shareholder shall be retained to pay back the capital occupied thereby first.

8. Information Disclosure Policy for Profit Distribution

The Company should disclose the formulation and implementation of its cash dividend policy in its annual report in details and explain the following matters in particular:

(1) Whether it complies with the rules set forth in the Articles of Association or the requirements in the resolution of General Meeting;
(2) Whether the standard and ratio of dividends are made clear;

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APPENDIX II

(3) Whether a sound decision-making procedure and mechanism are in place;
(4) Whether independent directors have performed their duties and played their role properly; and
(5) Whether the mass shareholders get the chance to voice their opinions and appeals without reservation and whether their legitimate rights and interests are fully protected.

Where the cash dividend policy is adjusted or amended, detailed explanations as to the compliance and transparency of the conditions and procedures of such adjustment or amendment should also be provided.

Where the Company does not propose a cash dividend plan though the conditions of cash dividends are satisfied, the annual report should specify the reasons for no dividend payment, the purpose and the plan to use retained earnings.

(II) Dividend Payment Plan for the Coming Three Years

Livzon Group has mapped out The Three-Year Shareholder Returns Plan (2015-2017), in accordance with the profit distribution policy specified in The Articles of Association of Livzon Pharmaceutical Group Inc. and other policies released by the CSRC. The plan was considered and passed at the fifteenth meeting of the Eighth Board and the 2015 Second Extraordinary General Meeting.

The Three-Year Shareholder Returns Plan (2015-2017) has specified the rules of adjustment to the profit distribution decision-making procedure and mechanism and the profit distribution policy in the next three years and reinforced the mechanism of protecting the legitimate rights and interests of minority shareholders. After the deal is closed, the Company shall strictly follow the dividend payment policy currently in force, drive profit distributions and maximize returns to shareholders as long as the profit distribution conditions are satisfied.

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APPENDIX II

II. Profit Distributions

(I) Profit Distributions Plan of the Company

The Company has adopted an active profit distribution policy since its listing. Profit distributions from 2012 to 2014 are described as follows:

Dividend payment in 2012: a cash dividend of RMB5.00 (tax included) per 10 shares to all shareholders on 295,721,852 shares of common stock outstanding

Dividend payment in 2013: a cash dividend of RMB5.00 (tax included) per 10 shares to all shareholders on 295,721,852 shares of common stock outstanding (including 183,728,498 A-shares and 111,993,354 H Shares)

Profit distribution in 2014: a cash dividend of RMB1.00 (tax included) per 10 shares to all shareholders on 304,382,252 shares of common stock outstanding, plus 3 bonus shares per 10 shares issued to all shareholders with capital reserve

(II) Cash Dividends Paid

					Net Profit	Cash Dividends
					Attributable to	As a Percentage of
					Shareholders of	Net Profit
					the Listed	Attributable to
					Company in the	Shareholders of
					Consolidated	the Listed
					Financial	Company in the
				Total Amount of	Statements for the	Consolidated
		Cash Dividend		Cash Dividends	Dividend Payment	Financial
Financial	Year	Per 10 Shares		Paid	Year	Statements
			(RMB)	(RMB)	(RMB)
		(Tax Included)		(Tax Included)
2012			5.00	147,860,926.00	441,671,519.69	33.48%
2013			5.00	147,860,926.00	487,502,351.80	30.33%
2014			1.00	30,438,225.20	515,978,431.82	5.90%

III. Use of Retained Earnings

The Company used retained earnings attributable to owners of the parent company realized in the last three years as part of working capital for the day-to-day production and operation activities.

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APPENDIX II

CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

Section V Risks of Immediate Return Dilution and Countermeasures

I. Influence of the non-public issuance on the main financial indicators of the Company

(I) Primary assumptions

Assume that there is no material adverse change in the macroeconomic environment and the market of the industry where the Company operates.
Assume that the non-public issuance will be completed in August 2016. This is only an estimated time. The real time should be the actual completion time of the non-public issuance as endorsed by the CSRC.
Assume that the number of shares to be issued in the non-public issuance is 38,000,000, the upper limit of the total number of shares to be issued under the Contingency Plan as approved by the Board and the General Meeting. The real number should be the number of shares actually issued with the approval of the CSRC.
Assume that the total funding to be raised from the non-public issuance is RMB1,457,820,000, the upper limit of the total funding amount to be raised from the non-public issuance, without considering the influence of issuing costs.
As of 2014, the audited net profits attributable to common shareholders of the Company and the net profits less non-recurring profit and loss and attributable to the shareholders of the listed company are respectively RMB515,978,400 and RMB463,031,500. Given that 2015 audit report hasn’t been prepared yet, we hereby assume that the audited net profits attributable to common shareholders of the Company and the net profits less non-recurring profit and loss and attributable to the shareholders of the listed company as of 2015 increase by 15% when compared to that of 2014. Assume the circumstance that the net profits attributable to common shareholders of the Company and the net profits less non-recurring profit and loss and attributable to the shareholders of the listed

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APPENDIX II

company as of 2016 are flat with that of 2015 as ‘‘Circumstance 1’’. Assume the circumstance that the net profits attributable to common shareholders of the Company and the net profits less non-recurring profit and loss and attributable to the shareholders of the listed company as of 2016 increase by 20% when compared with that of 2015 as ‘‘Circumstance 2’’. This assumption does not constitute a profit forecast of the Company and should not be taken as the basis for investors to make investment decisions. The Company will not be liable for any loss caused by any investment decision made by investor on the basis of this assumption.

The cumulative profit distribution in cash made by the Company from 2012 to 2014 accounts for 22.57% of total cumulative distributable profits (net profits attributable to equity holders of the parent company in the Consolidated Financial Statements) realized in these three years.
Assume that the 2015 cash dividend will be paid in July 2016. As the ratio of cash dividends is 22.57%, the 2015 cash dividend is RMB133,924,800 (namely, net profits attributable to the shareholders of the listed company (RMB593,375,200) of the 2015FY × 22.57%).
The influence of the receipt of funds raised from the non-public issuance on the production, operation, financial position (financial costs and return on investment) and other aspects of the Company in terms of production, operation, financial position (financial costs and return on investment) is not taken into consideration.
The net assets of the Company are estimated without consideration of the influences of factors other than funds raised, net profits and profit distribution.
The basic EPS and the weighted average ROE are calculated as required by Rule No. 9 on Compiling the Information Disclosure of the Company that Issues Shares Publicly – Calculation and Disclosure of ROE and EPS (2010 Revision).

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CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

APPENDIX II

(II) Influence of the immediate return dilution caused by the issue on the main financial indicators of the Company

Based on the above assumptions, the comparison result of the influences of the nonpublic issuance on the main financial indicators of the company is stated as follows:

Item	Item		2016/December 31, 2016	2016/December 31, 2016
Item		2015/ December 31, 2015	2016/December 31, 2016
			With consideration of the non-public issuance	Without consideration of the non- public issuance
Total equity (shares)		396,889,547	396,889,547	434,889,547
Total amount to be raised (yuan)		1,457,820,000
Circumstance 1: Assume that the net profits attributable to equity holders of the parent company and the net profits less non-recurring profit and loss and attributable to equity holders of the parent company as of 2016 are flat with that of 2015
Net profits attributable to equity holders of the parent company (yuan)		593,375,196.59	593,375,196.59	593,375,196.59
Net profits less non-recurring profit and loss and attributable to equity holders of the parent company (yuan)		532,486,192.92	532,486,192.92	532,486,192.92
Basic EPS (yuan/share)		1.51	1.50	1.45
Diluted EPS (yuan/share)		1.51	1.50	1.45
Less non-recurring profit and loss	Basic EPS (yuan/share)	1.35	1.34	1.30
	Diluted EPS (yuan/share)	1.35	1.34	1.30
Weighted average ROE		14.31%	13.03%	11.78%
Weighted average ROE (less non-recurring profit and loss)		12.84%	11.70%	10.57%
Circumstance 2: Assume that the net profits attributable to equity holders of the parent company and the net profits less non-recurring profit and loss and attributable to equity holders of the parent company as of 2016 increase by 20% when compared with that of 2015
Net profits attributable to equity holders of the parent company (yuan)		593,375,196.59	712,050,235.91	712,050,235.91
Net profits less non-recurring profit and loss and attributable to equity holders of the parent company (yuan)		532,486,192.92	638,983,431.50	638,983,431.50
Basic EPS (yuan/share)		1.51	1.79	1.74
Diluted EPS (yuan/share)		1.51	1.79	1.74
Less non-recurring profit and loss	Basic EPS (yuan/share)	1.35	1.61	1.56
	Diluted EPS (yuan/share)	1.35	1.61	1.56
Weighted average ROE		14.31%	15.44%	13.97%
Weighted average ROE (less non-recurring profit and loss)		12.84%	13.86%	12.53%

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CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

APPENDIX II

II. Risk of immediate return dilution caused by the non-public issuance

III. Necessity and rationality of the non-public issuance

(I) Necessity of the non-public issuance

1. Fulfill the vision of the Company

New technologies and products are guarantees to the competitiveness and sustainable growth of a business. The Company has a vision of itself as a leading specialized pharmaceutical business group in China capable of independent innovations and able to compete in the international market in production, technologies and management. With this in mind, the Company spent RMB201 mn, RMB233 mn and RMB290 mn on R&D from 2012 to 2015 Q3, representing 5.11%, 5.03% and 5.23% of its operating revenue in the corresponding years, respectively. The Company also saw consistent growth of net profits from 2012 to 2014, posting RMB475 mn, RMB524 mn and RMB554 mn, respectively, on the basis of generous R&D expenditure and mature production, technological and management capabilities.

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CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

APPENDIX II

new pharmaceuticals, enhance the innovation, technology and management of relevant products, maintain the competitive advantages of the Company, and power the fulfillment of the long-term strategic development goals.

2. Increase production and R&D inputs, and improve the product mix

The investment in ‘‘construction of R&D platform of prolonged-action microsphere technologies’’ is proposed to conduct innovative studies on the basis of prolonged-action microsphere sustained-released agents technologies by drawing upon the existing R&D achievements and industrial experience in Leuprorelin Acetate Microspheres for Injection which is already marketed, to sharpen the competitive strength of prolonged-action microsphere sustained-released agents technologies, break technical barriers, heighten the localization rate of microsphere formulations and drive technological advancement of the entire industry.

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APPENDIX II

CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

Optimize the assets and liabilities structure and financial condition of the Company

The proceeds from the non-public issuance will also be used to top up the Company’s working capital and repay bank loans. The proceeds will be used properly to replenish capital adequacy, reduce financial expenses, lower the asset-to-liability ratio, raise the liquidity ratio and quick ratio, optimize the asset-liability structure and financial performance, strengthen stability of the asset structure, enhance risk tolerance and continued profitability, and foster robust business growth of the Company.

(II) Rationality of the non-public issuance

The proceeds from the non-public issuance will be used to invest ‘‘deeper development and industrial upgrading of Ilaprazole-series innovative products’’, ‘‘R&D and industrialization of therapeutic antibody-based drugs’’, and ‘‘construction of R&D platform of prolonged-action microsphere technologies’’. These proposed projects are based on main activities of the Company and all belong to the development fields actively promoted by policies such as 12th Five-Year Plan for the Pharmaceuticals Industry, Development Plan for Strategic Emerging Industries during the 12th Five-Year Period and Made in China 2025. They will help to enhance the innovation, technology and management of relevant products, maintain the competitive advantages of the Company, and power the fulfillment of the longterm strategic development goals.

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CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

APPENDIX II

working capital, repay bank borrowings and strengthen capital adequacy of the Company. This will effectively relieve the Company from much of the financial strain caused by market development and R&D expenses and make the Company more risk tolerant and profitable.

IV. Relation between the proposed projects and the existing businesses, and preparations in terms of human resources, technologies and market made by the Company for the proposed projects

(I) Relation between the proposed projects and the existing businesses

The project of deeper development and industrial upgrading of Ilaprazole-series innovative products is based on the existing product – Ilaprazole Enteric-coated Tablet (trade name: Ilaprazole). Through the implementation of this project and via the original research and development, the Company will develop Ilaprazole Tablet of new specifications for the new applications, Ilaprazole sodium for injection, Ilaprazole optical isomer preparation and Ilaprazole compound preparation, etc. Developing a complete Ilaprazole collection helps the Company to increase the technical level of the Ilaprazole series products, raise the imitation barriers, prolong product life cycle, and keep its competitive edge in the field of Ilaprazole series products.

The project of construction of R&D platform of prolonged-action microsphere technologies is proposed to realize industrialization of prolonged-action sustained-release microsphere formulations and develop innovative types of microspheres by using the findings in the research, on the basis of the existing R&D achievements and industrialization experience in Leuprorelin Acetate Microspheres for Injection.

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CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

APPENDIX II

liabilities structure and financial condition, stabilizes the Company’s assets structure, enhances the Company’s ability to cope with risks, enhances the Company’s earnings sustainability and promotes stable development of the Company’s businesses.

(II) Preparations in terms of human resources, technologies and market made by the Company for the proposed projects

1. Human resources

Operating in the pharmaceutical manufacturing industry for more than thirty years, the Company has a large professional talent pool. Most of senior management members and core technicians work in the pharmaceutical manufacturing industry for many years, get deep understanding and rick operating experience in key links of the industrial chain, and have good judgment on the industry and market development tendency. In addition to mature R&D teams responsible for the R&D of chemical and TCM preparations, biological medicines and diagnostic reagents, the Company pool talents by overseas strategic alliance and attraction of leading innovators. Only in 2014 has the biological medicine R&D team attracted 9 oversea-background senior experts in the field of biological pharmacy, and some of them are experts having more than 15 years of R&D and industrialization experience in world leading bio-pharmaceutical enterprises.

2. Technology

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APPENDIX II

patents of invention in China, 103 patents of design in China and 28 utility models), 27 international parents granted by Hong Kong, USA, Japan, other regions and countries and PCT. All of these patents are valid. Recently, the invention of the Company ‘‘A Ilaprazole Enteric-Coated Tablet and the preparation method thereof’’ (Patent No. ZL201010610953.1) won the 17th Chinese Patent Award. Now, the Company has three national technical centers, namely, ‘‘National Engineering Research Center for Modernization of Traditional Chinese Medicine’’, ‘‘National-Recognized Enterprise Technology Center’’ and ‘‘National-Local United Engineering Research Center for Prolonged-Action Microsphere Technology’’. The Company has powerful research and development strength and made great achievements in research and development, providing a solid technical foundation for the implementation of the proposed project.

3. Market

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APPENDIX II

CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

V. Measures taken by the Company to fill the diluted immediate return by the issue

(I) Operational status, development trend, main risks of the existing business and improvement measures

Livzon Group has been specializing in the pharmaceutical manufacturing field, and its products can be mainly divided into four categories: western medicine preparation, traditional Chinese medicine preparation, APIs & pharmaceutical intermediates, and diagnostic reagents & equipment. In 2012, 2013, 2014 and the period from Jan. to Sep. 2015, the Company recorded an operating revenue to the tune of RMB3,943,525,300, RMB4,618,680,000, RMB5,544,233,800 and RMB4,886,738,000 respectively, and a net profit to the tune of RMB475,223,100, RMB523,986,500, RMB553,622,200 and RMB541,648,100. The compound growth rate of the operating revenue from 2012 to 2014 is 18.57%. This shows the stable growth and strong competitiveness of the Company. With the implementation of the proposed projects and the continuous enhancement of the core competitiveness in future, the risk resistance and operational sustainability of the Company will be enhanced continuously.

The national policies concerning the pharmaceutical industry are adjusted continuously in recent years. On January 22, 2013, Ministry of Industry and Information Technology joins other departments to issue the Guiding Opinions on Advancing the Merger and Reorganization of Enterprises in Key Industries (GXBLCY [2013] No. 16) which pointed out that the merger and reorganization of enterprises shall be advanced to promote the optimization and upgrading of industrial structure. On March 7, 2014, the State Council released the Opinions of the State Council on Further Optimizing the Market Environment for the Merger and Reorganization of Enterprises (GF [2014] No. 14) which stressed that the policies concerning the finance, tax, land and staff resettlement shall be further improved to promote the merge and reorganization of enterprises, enhance industrial competitiveness, increase allocation efficiency and optimize the industrial structure continuously. On the other hand, with the gradual lifting of national policies, more enterprises both at home and abroad may enter these fields in future. Due to these factors, the competition in the industry will be intensified, and the Company will have risks of market competition.

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CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

APPENDIX II

(II) Measures taken by the Company to fill diluted immediate return caused by the non-public issuance

Strengthen the management of funds raised and prevent risks concerning use of such funds

To use the funds raised in a standardized, effective and planned way after the funds raised are paid, the directors of the Company will continue to supervise whether the Company deposits the funds raised in a special account, ensure the funds raised are used for specified investment projects, actively assist in the inspection and supervision by the regulating bank and the Sponsor, ensure the reasonable and standardized use of the funds raised, take reasonable measures to present risks concerning the use of funds raised, give full play of the benefits of the funds raised, and protect the interests of investors.

Give full play to the existing competitive advantage, and speed up the progress of equity investment projects

Relying on the existing competitive advantage, the Company will defend its market advantages with diversified product mix and core products taking the leading market share, promote the steady growth of its assets, income and profits by mature marketing network and promotion capability, enhance its core competiveness and risk resistance and increase its comprehensive profits. With increasingly growing profitability from 2012 to 2014, the Company recorded EPS less non-recurring profit and loss to the tune of 1.03 yuan, 1.20 yuan and 1.21 yuan. This shows that the Company has strong competitiveness and the existing products has good profitability.

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APPENDIX II

In addition, the proposed projects are all based on the main business activities of the Company, pass rigorous scientific verification, obtain the approval from the directors and the General Meeting and meet the development planning of the Company. After the funds raised are paid, the Company will accelerate the progress of the proposed projects, promote the smooth construction of the projects, and give returns to the shareholders as soon as possible. At the same time, the Company actively explore and dig external opportunities and find new profit growth points by acquisition and cooperation.

Further improve and strictly implement the cash dividend policy, and strengthen investor return mechanism

In accordance with documents such as Notice on Further Implementing Matters concerning Cash Dividends of Listed Companies and No. 3 Regulatory Guideline for Listed Companies – Cash Dividends of Listed Companies released by the CSRC, the Company has amended the terms and conditions concerning profit distribution policies specified in the Articles of Association. The Profit Distributions Plan of the Company will be implemented strictly according to the Articles of Association so that the dividend standard and ratio will be correct and clear, relevant decision-making procedures and mechanisms are complete, the independent director fulfill his/her duties and play an effective role, medium and small shareholders have the opportunities to fully express their views and aspirations, and the legal rights and interests of medium and small shareholders are protected earnestly.

In addition, to improve and perfect the dividend decision and supervision mechanism of the Livzon Group, actively repay investors, and guide investors to establish a long-term and rational investment philosophy, the directors of the Company will establish the Dividend Payment Plan for the Coming Three Years (2015-2017) according to documents such as Notice on Further Implementing Matters concerning Cash Dividends of Listed Companies (ZJF [2012] No. 37) and No. 3 Regulatory Guideline for Listed Companies – Cash Dividends of Listed Companies (ZGZJHGG [2013] No. 43) and other regulations on the dividend distribution policies by the Articles of Association. This dividend distribution plan has been passed by the resolution of the 15th meeting of the Eighth Board and the second Extraordinary General Meeting of 2015, and it specifies the detailed dividend distribution plans from 2015 to 2017.

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APPENDIX II

CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES (REVISION)

The Company will strictly enforce the relevant provisions, earnestly safeguard the investor’s legitimate rights and interests, strengthen the mechanism for the protection of the rights and interests of small and medium investors, actively promote the profit distribution and cash dividends to shareholders in combination with the operation and development planning and under proper circumstances, and try to repay shareholders

Constantly improve the corporate governance, and provide institutional support for the development of the Company

Strictly following laws, regulations and normative documents such as the Company Law of the People’s Republic of China, the Securities Law of the People’s Republic of China and the Code of Corporate Governance for Listed Companies in China, the Company constantly improves the corporate governance structure, and ensures that shareholders can fully exercise their rights, that the directors can exercise their powers and make scientific, timely and prudent decisions according to provisions of laws, regulations and the Articles of Association, and that the independent director can perform his/her duties to protect the overall interests of the Company, especially the legal rights and interests of small and medium shareholders. The Company also ensures that the Board of Supervisors can exercise theirs rights to independently and effectively supervise and inspect the financial positions of the directors, managers, other senior management members and the Company and provide institutional guarantee for the development of the Company.

VI. Commitments made by directors, senior management members, controlling shareholder and actual controller of the Company

(I) Commitments made by directors and senior management members as to the implementation of measures to fill the diluted immediate return

To give full protection to the interests of the Company and the public investors after the completion of this non-public issuance, the directors and senior management members of the Company make the following commitments as to the implementation of measures to fill the diluted immediate return:

‘‘1. Never transfer interests to any other organizations or individuals for free or in an unfair way, and never damage the interests of the Company by any other means;
Restrain the duty consumption of directors and seniors;
Never use the assets of the Company for any investment or consumption activities irrelevant with the performance of their duties;

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APPENDIX II

Connect the remuneration system established by the Board or the Remuneration Committee with the implementation of measures to fill the diluted return; and
Combine the right exercising conditions under future stock option incentive (if any) with the implementation of measures to fill the diluted return.’’

(II) Commitments made by the controlling shareholder and the actual controller as to the implementation of measures to fill the diluted immediate return

According to the regulations of the CSRC on the implementation of refinancing measures to fill the diluted immediate return, the controlling shareholder, Joincare Pharmaceutical Industry Group Co., Ltd., and the actual controller, Mr. Zhu Baoguo, undertake that they will never go beyond their authorities to intervene the management activities of the Company or encroach the interests of the Company.’’

VII. Procedures for considering and passing the measures and commitments to fill the diluted immediate return by the issue

The analysis of the immediate return dilution by the non-public issuance, the measures to fill the diluted immediate return, the commitments of related parties and other relevant matters have been approved at the twenty-first meeting of the Eighth Board held on March 8, 2016, and have been submitted for the approval by the second Extraordinary General Meeting of 2016 to be held on April 25, 2016.

The implementation of the measures to fill the diluted immediate return and the fulfillment of commitments of related parties will be disclosed continuously in regular statements by the Company.

Board of Directors

Livzon Pharmaceutical Group Inc.

March 9, 2016

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AI assistant

Livzon Pharmaceutical Group Inc. — Proxy Solicitation & Information Statement 2016

49967_rns_2016-04-07_c482f04f-6992-4831-a1d4-1106e721fea9.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

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

I. FULFILLMENT OF THE CONDITIONS OF THE NON-PUBLIC ISSUANCE OF A SHARES

II. ADJUSTMENTS TO THE PROPOSAL OF THE NON-PUBLIC ISSUANCE OF A SHARES

LETTER FROM THE BOARD

I. Adjustment to the amount to be issued

‘‘2. Amount to be Issued

‘‘2. Amount to be Issued

II. Adjustments to the pricing method and issuing price

‘‘5. Pricing Method and Issuing Price

‘‘5. Pricing Method and Issuing Price

III. AMENDMENTS TO FEASIBILITY REPORT

LETTER FROM THE BOARD

I. Influence of the non-public issuance on the main financial indicators of the Company

(I) Primary assumptions

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

II. Risk of immediate return dilution caused by the non-public issuance

LETTER FROM THE BOARD

III. Necessity and rationality of the non-public issuance

(I) Necessity of the non-public issuance of A Shares

1. Fulfill the long-term strategic development goals of the Company

2. Increase production and R&D inputs, and improve the product mix

LETTER FROM THE BOARD

(II) Rationality of the non-public issuance of A Shares

LETTER FROM THE BOARD

IV. Relation between the proposed projects and the existing businesses, and preparations in terms of human resources, technologies and market made by the Company for the proposed projects

(I) Relation between the proposed projects and the existing businesses

LETTER FROM THE BOARD

(II) Preparations in terms of human resources, technologies and market made by the Company for the proposed projects

1. Human resources

LETTER FROM THE BOARD

2. Technology

LETTER FROM THE BOARD

3. Market Reserve

V. Measures taken by the Company to fill the diluted immediate return by the issue

(I) Operational status, development trend, main risks of the existing business and improvement measures

LETTER FROM THE BOARD

(II) Measures taken by the Company to fill diluted immediate return caused by the non-public issuance

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

V. UNDERTAKINGS BY RELEVANT ENTITIES IN RELATION TO THE CONCRETE IMPLEMENTATION OF THE REMEDIAL MEASURES FOR THE RETURNS BY THE COMPANY

LETTER FROM THE BOARD

VI. AMENDMENTS TO THE CONTINGENCY PLAN OF NON-PUBLIC ISSUANCE OF A SHARES

LETTER FROM THE BOARD

LETTER FROM THE BOARD

VII. AUTHORIZATION ON THE NON-PUBLIC ISSUANCE OF A SHARES

LETTER FROM THE BOARD

VIII. ISSUANCE OF ULTRA SHORT-TERM DEBENTURES

LETTER FROM THE BOARD

LETTER FROM THE BOARD

IX. NOTICES OF THE EGM

LETTER FROM THE BOARD

X. RECOMMENDATION

FEASIBILITY ANALYSIS REPORT ON THE USAGE OF THE FUNDS RASISED BY THE NON-PUBLIC ISSUANCE OF A SHARES OF LIVZON PHARMACEUTICAL GROUP INC. (Revision)

Section I Planned Use of the Proceeds

Section II Feasibility Study on Projected Investments of the Proceeds

1. Project Overview

2. Main Projected Investments

3. Necessity of the Project

(1) Deepen product development and keeping firm grip on leading-edge technologies

(2) Form a complete collection and capture a bigger slice of the market

(3) Ramp up production capacity by industrialization upgrade

4. Feasibility of the Project

(2) The Company boasts powerful and fruitful R&D efforts

(3) The Company has a technical advantage in the R&D of the Ilaprazole family

5. Yield Forecast

6. Land Use, Project Approval and Environmental Impact Assessment

1. Project Overview

(1) Recombinant humanized anti-TNF-α monoclonal antibody

Livzon Pharmaceutical Group Inc. Proxy Solicitation & Information Statement 2016

**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.[*]**