Livzon Pharmaceutical Group Inc. — Proxy Solicitation & Information Statement 2018

Apr 27, 2018

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 enclosed reply slip for attendance and 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) 2017 ANNUAL PROFIT DISTRIBUTION PLAN

• (II) ADJUSTMENT TO PROJECTS INVESTED WITH PROCEEDS FROM NON-PUBLIC ISSUANCE OF A SHARES

• (III) PROPOSED FACILITY FINANCING AND PROVISION OF FINANCING GUARANTEES TO SUBSIDIARIES

  • (IV) PROPOSED GRANT OF GENERAL MANDATE TO THE BOARD TO ISSUE SHARES

• (V) CONVENING THE ANNUAL GENERAL MEETING, THE CLASS MEETING OF A SHAREHOLDERS AND THE CLASS MEETING OF H SHAREHOLDERS

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

The letter from the Board is set out on pages 9 to 34 of this circular. A letter from the Independent Board Committee is set out on pages 35 to 36 of this circular. A letter from the Independent Financial Adviser is set out on pages 37 to 50 of this circular.

The Company will hold the Annual General Meeting, the Class Meeting of A Shareholders and the Class Meeting of H Shareholders of the Company at the Conference Room on the 3rd Floor of Headquarters Building, 38 Chuangye North Road, Jinwan District, Zhuhai, Guangdong Province, China at 2:00 p.m., 3:30 p.m. (or immediately after the conclusion of the Annual General Meeting or any adjournment) and 4:00 p.m. (or immediately after the conclusion of the Class Meeting of A Shareholders or any adjournment) respectively on Monday, 21 May 2018. Notices have been given regarding the Annual General Meeting and the Class Meeting of H Shareholders by the Company on 29 March 2018, and reply slip for attendance and proxy form for the Annual General Meeting and the Class Meeting of H Shareholders have also been dispatched on 29 March 2018 by the Company. The aforesaid documents are also available for download on the websites of Hong Kong Exchanges and Clearing Limited (www.hkexnews.hk) and the Company (www.livzon.com.cn).

If you would like to attend the Annual General Meeting and/or the Class Meeting of H Shareholders 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 (tel: (852) 2980 1333; fax: (852) 2810 8185) in person, by post or by fax in any event on or before Tuesday, 1 May 2018. If you would like to attend the Annual General Meeting and/or the Class Meeting of H Shareholders by proxy, please complete the proxy form in accordance with the instructions printed thereon and return it to the H Share registrar of the Company, Tricor Investor Services Limited as soon as possible and in any event no later than 24 hours before the holding of the Annual General Meeting and/or the Class Meeting of H Shareholders or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting at the Annual General Meeting and/or the Class Meeting of H Shareholders or any adjournment thereof in person if you so wish.

27 April 2018

• for identification purposes only

CONTENTS

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
Appendix – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	51

– i –

DEFINITIONS

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

• ‘‘2017 Annual Profit Distribution the distribution of Cash Dividend and the Bonus Issue Plan’’

• ‘‘A Share(s)’’

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

• ‘‘A Shareholder(s)’’ holder(s) of A Shares

• ‘‘Annual General Meeting’’

• the annual general meeting of the Company for the year 2017 to be held at the Conference Room on the 3rd Floor of Headquarters Building, 38 Chuangye North Road, Jinwan District, Zhuhai, Guangdong Province, China at 2:00 p.m. on Monday, 21 May 2018

• ‘‘Articles of Association’’

• the Articles of Association of Livzon Pharmaceutical Group Inc.*

• ‘‘Board’’ the board of Directors of the Company

• ‘‘Bonus Issue’’

• to issue 3 Bonus Shares for every 10 shares to all Shareholders by way of conversion of capital reserve, based on the total share capital of the Company of 553,231,369 shares as at 31 December 2017. If the total share capital of the Company changes during the period from the promulgation to implementation of the 2017 Annual Profit Distribution Plan of the Company, the aggregate distribution will be adjusted based on the total share capital as at the registration date of shareholding as determined by implementation of the 2017 Annual Profit Distribution Plan, with the distribution ratio unchanged

• ‘‘Bonus Shares’’ the shares to be issued under the Bonus Issue

• ‘‘Baiyeyuan’’ 深 圳 市 百 業 源 投 資 有 限 公 司 Shenzhen Baiyeyuan Investment Co., Ltd.*

• For identification purposes only

– 1 –

DEFINITIONS

• ‘‘Begol’’

• ‘‘Cash Dividend’’

• ‘‘CCASS’’

• ‘‘China’’ or ‘‘PRC’’

• ‘‘Class Meeting of A Shareholders’’

• ‘‘Class Meeting of H Shareholders’’

• ‘‘CMB Facilities’’

• 廣 州 市 保 科 力 貿 易 公 司 Guangzhou Begol Trading Holdings Limited*

• to distribute cash dividend of RMB20.00 (tax inclusive) for every 10 shares to all Shareholders, based on the total share capital of the Company of 553,231,369 shares as at 31 December 2017. If the total share capital of the Company changes during the period from the promulgation to implementation of the 2017 Annual Profit Distribution Plan of the Company, the aggregate distribution will be adjusted based on the total share capital as at the registration date of shareholding as determined by implementation of the 2017 Annual Profit Distribution Plan, with the distribution ratio unchanged

• the Central Clearing and Settlement System managed by HKSCC

• the People’s Republic of China, for the purpose of this circular, excluding Hong Kong, Macau Special Administrative Region of the PRC and Taiwan

• the 2018 Second Class Meeting of A Shareholders of the Company to be held at the Conference Room on the 3rd Floor of Headquarters Building, 38 Chuangye North Road, Jinwan District, Zhuhai, Guangdong Province, China at 3:30 p.m. (or immediately after the Annual General Meeting or any adjournment) on Monday, 21 May 2018

• the 2018 Second Class Meeting of H Shareholders of the Company to be held at the Conference Room on the 3rd Floor of Headquarters Building, 38 Chuangye North Road, Jinwan District, Zhuhai, Guangdong Province, China at 4:00 p.m. (or immediately after the Class Meeting of A Shareholders or any adjournment) on Monday, 21 May 2018

• the facilities up to RMB300,000,000 (or its equivalent in foreign currencies) provided by China Merchants Bank Co., Ltd., Zhuhai Branch to Livzon MAB on 8 December 2017

• For identification purposes only

– 2 –

DEFINITIONS

• ‘‘CMB Guarantee’’

• ‘‘Company’’

• ‘‘Company Law’’

• ‘‘Controlling Shareholder’’

• ‘‘CSRC’’

• ‘‘CZB Facilities’’

• ‘‘CZB Guarantee’’

• ‘‘Directors’’

• ‘‘Framework Agreement’’

• the guarantee limited up to RMB300,000,000 (or its equivalent in foreign currencies) provided by the Company on 8 December 2017 in favour of China Merchants Bank Co., Ltd., Zhuhai Branch to secure the CMB Facilities

• Livzon Pharmaceutical Group Inc.*（麗珠醫藥集團股份 有 限公司）, a joint stock limited company incorporated in the PRC in accordance with the Company Law on 25 January 1985 with limited liability, whose H Shares and A Shares are listed on the Hong Kong Stock Exchange and the Shenzhen Stock Exchange respectively

• the Company Law of the PRC, as amended, supplemented or otherwise modified from time to time

• has the meaning ascribed to it by the Hong Kong Listing Rules

• China Securities Regulatory Commission

• the facilities up to RMB300,000,000 (or its equivalent in foreign currencies) to be applied by Livzon MAB from China Zheshang Bank Co., Ltd., Shenzhen Branch

the guarantee limited up to RMB300,000,000 (or its equivalent in foreign currencies) to be provided by the Company in favour of China Zheshang Bank Co., Ltd., Shenzhen Branch to secure the CZB Facilities

• the directors of the Company

the framework agreement dated 16 April 2018 entered into between the Company and Livzon MAB pursuant to which the Company agreed to provide five guarantees of up to RMB500 million (or the equivalent in foreign currencies) in aggregate in favour of the relevant banks to secure the relevant facilities to be applied by Livzon MAB (i.e. the CZB Guarantee and the Four Guarantees) subject to the terms and conditions of the specific guarantee agreements to be entered into between the banks and the Company

– 3 –

DEFINITIONS

• ‘‘First Joincare Counter Guarantee’’ the letter of undertaking of counter guarantee dated 9 October 2017 issued by Joincare in favour of the Company pursuant to which Joincare provided and undertaken to provide counter guarantees in favour of the Company for 49% of the obligations of the Company under the CMB Guarantee and the CZB Guarantee respectively

• ‘‘Four Facilities’’ the four facilities up to RMB200,000,000 (or its equivalent in foreign currencies) in aggregate to be applied by Livzon MAB from the relevant banks

• ‘‘Four Guarantees’’

• the four guarantees limited up to RMB200,000,000 (or its equivalent in foreign currencies) in aggregate to be provided by the Company in favour of the relevant banks to secure the Four Facilities

• ‘‘General Meetings’’ the Annual General Meeting, Class Meeting of A Shareholders and Class Meeting of H Shareholders

• ‘‘Group’’

• the Company and its subsidiaries

• ‘‘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

• ‘‘H Shareholder(s)’’ holder(s) of H Shares

• ‘‘HKD’’

Hong Kong dollars, the lawful currency of Hong Kong

• ‘‘HKSCC’’ Hong Kong Securities Clearing Company Limited

• ‘‘Hong Kong’’

the Hong Kong Special Administrative Region of the PRC

• ‘‘Hong Kong Listing Rules’’

the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, as the same may be amended and supplemented or otherwise modified from time to time

• ‘‘Hong Kong Stock Exchange’’ The Stock Exchange of Hong Kong Limited

• ‘‘Haibin Pharma’’ 深圳市海濱製藥有限公司 Shenzhen Haibin Pharmaceutical Co., Ltd.*

– 4 –

DEFINITIONS

• ‘‘Independent Board Committee’’

• an independent board committee comprising all independent non-executive Directors, formed to advise the Independent Shareholders in relation to the Framework Agreement, the CZB Guarantee and the Four Guarantees

• ‘‘Independent Shareholder(s)’’ Shareholder(s) other than Joincare and its respective associates

• ‘‘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 with limited liability and listed on the Shanghai Stock Exchange in 2001 and one of the Company’s Controlling Shareholders

• ‘‘Joincare Group’’ Joincare and its subsidiaries

• ‘‘Livzon MAB’’ 珠海市麗珠單抗生物技術有限公司 Livzon MABPharm Inc.*, a controlling subsidiary of the Company

• ‘‘Livzon MAB Facilities’’ the CMB Facilities, the CZB Facilities and the Four Facilities which will amount up to RMB800,000,000 (or its equivalent in foreign currencies)

• ‘‘Livzon MAB Guarantees’’ the CMB Guarantee, the CZB Guarantee and the Four Guarantees

• ‘‘Latest Practicable Date’’ 25 April 2018, being the latest practicable date for the purpose of ascertaining certain information contained in this circular prior to its publication

• ‘‘Model Code’’ the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Hong Kong Listing Rules

• ‘‘Notice of the General Meetings’’ notice dated 29 March 2018 for convening the General Meetings

• ‘‘Record Date’’

• Tuesday, 3 July 2018, the record date set to determine the H Shareholders who are entitled to Cash Dividend and Bonus Shares

• For identification purposes only

– 5 –

DEFINITIONS

‘‘RMB’’

Renminbi, the lawful currency of the PRC

• ‘‘Shareholder(s)’’ holder(s) of share(s) of the Company

‘‘Shenzhen Listing Rules’’ the Stock Listing Rules of the Shenzhen Stock Exchange (2014 Revision)

• ‘‘Shenzhen Stock Exchange’’ the Shenzhen Stock Exchange

• ‘‘Second Joincare Counter the letter of undertaking of counter guarantee dated 30 Guarantee’’ March 2018 issued by Joincare in favour of the Company pursuant to which Joincare has undertaken to provide, subject to its shareholders’ approval, counter guarantees in favour of the Company for 49% of the obligations of the Company under the Four Guarantees

• ‘‘SFO’’ the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)

• ‘‘Topsino’’ 天誠實業有限公司 Topsino Industries Limited*

• ‘‘Zhongtai International Capital’’ or Zhongtai International Capital Limited, the independent ‘‘Independent Financial Adviser’’ financial adviser appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in relation to the entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees

• ‘‘%’’ per cent

In case of 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 purposes only

– 6 –

EXPECTED TIMETABLE

2018

Latest time for lodging transfer documents for registration of transfer of H Shares to qualify for attending and voting at the Annual General Meeting and the Class Meeting of H Shareholders . . . . . . . . . . . . . . 4:30 p.m. on Friday, 20 April Closure of register of members for transfer of H Shares to qualify for attending and voting at the Annual General Meeting and the Class Meeting of H Shareholders . . . . . . . . . . . . . . . . . From Saturday, 21 April to Monday, 21 May (both days inclusive) Latest time for returning reply slip for attendance at the Annual General Meeting and the Class Meeting of H Shareholders . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 1 May Latest time for returning proxy form for the Annual General Meeting . . . . . . . . . . . . . . . . . . . . . . 2:00 p.m. on Sunday, 20 May Latest time for returning proxy forms for the Class Meeting of H Shareholders . . . . . . . . . . . . . . . . . 4:00 p.m. on Sunday, 20 May Annual General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . 2:00 p.m. on Monday, 21 May Class Meeting of A Shareholders . . . . . . . . . . . . . . . . . . . . . 3:30 p.m. on Monday, 21 May (or immediately after the Annual General Meeting or any adjournment) Class Meeting of H Shareholders . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Monday, 21 May (or immediately after the Class Meeting of A Shareholders or any adjournment)

– 7 –

2018

EXPECTED TIMETABLE

Resumption for registration of transfer of H Shares . . . . . . . . . . . . . . . . Wednesday, 23 May
Latest time for lodging transfer documents for
registration of transfer of H Shares to qualify H Shareholders for
Cash Dividend and Bonus Shares . . . . . . . . . . . . . . . . . . .4:30 p.m. on Monday, 25 June
Closure of register of members
for transfer of H Shares to qualify H Shareholders for
Cash Dividend and Bonus Shares . . . . . . . . . . . From Tuesday, 26 June to Tuesday, 3 July
(both dates inclusive)
Record Date (to qualify H Shareholders for
Cash Dividend and Bonus Shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 3 July
Resumption for registration of transfer of H Shares . . . . . . . . . . . . . . . . . Wednesday, 4 July
Latest date for delivery of payment checks for Cash Dividend . . . . . . . . . . . Tuesday, 17 July
Date of issuing H Shares under the Bonus Issue . . . . . . . . . . . . . . . . . . . . Tuesday, 17 July
New H Shares expected to be listed on
the Hong Kong Stock Exchange . . . . . . . . . . . . . . . . . . 9:00 a.m. on Wednesday, 18 July

Note: The dates with regard to Cash Dividend and Bonus Issue are for reference only as they are subject to approval by the Shareholders and might be adjusted by the Company. If there is any such change, the Company will make announcement to inform the Shareholders.

All times and dates in this circular are Hong Kong times and dates.

– 8 –

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:

Mr. Tao Desheng (Vice Chairman and President) Mr. Fu Daotian (Vice President) Mr. Xu Guoxiang (Vice President)

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

Independent Non-executive Directors:

Mr. Xu Yanjun Mr. Guo Guoqing Mr. Wang Xiaojun Mr. Xie Yun Mr. Zheng Zhihua

Registered office: Headquarters Building, 38 Chuangye North Road, Jinwan District, Zhuhai, Guangdong Province, China

Principal place of business in Hong Kong: Room 1301, 13/F., China Evergrande Centre, 38 Gloucester Road, Wanchai, Hong Kong

27 April 2018

To the Shareholders,

Dear Sir/Madam,

(I) 2017 ANNUAL PROFIT DISTRIBUTION PLAN

(II) ADJUSTMENT TO PROJECTS INVESTED WITH PROCEEDS FROM NON-PUBLIC ISSUANCE OF A SHARES

(III) PROPOSED FACILITY FINANCING AND PROVISION OF FINANCING GUARANTEES TO SUBSIDIARIES

(IV) PROPOSED GRANT OF GENERAL MANDATE TO THE BOARD TO ISSUE SHARES

(V) CONVENING THE ANNUAL GENERAL MEETING, THE CLASS MEETING OF A SHAREHOLDERS AND THE CLASS MEETING OF H SHAREHOLDERS

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

– 9 –

LETTER FROM THE BOARD

1. 2017 Annual Profit Distribution Plan;

2. Adjustment to projects invested with proceeds from non-public issuance of A shares;

3. Proposed facility financing and provision of financing guarantees to subsidiaries; and

4. Proposed grant of general mandate to the Board to issue shares.

I. 2017 ANNUAL PROFIT DISTRIBUTION PLAN

The Company will propose special resolutions to be considered and passed as appropriate at the Annual General Meeting, Class Meeting of A Shareholders and Class Meeting of H Shareholders: (i) to distribute cash dividend of RMB20.00 (tax inclusive) for every 10 shares to all Shareholders and subject to satisfaction of the conditions set out in the paragraph headed ‘‘Conditions for Bonus Issue’’ below, to issue 3 Bonus Shares for every 10 shares to all Shareholders by way of conversion of capital reserve, based on the total share capital of the Company of 553,231,369 shares as at 31 December 2017. If the total share capital of the Company changes during the period from the promulgation to implementation of the 2017 Annual Profit Distribution Plan, the aggregate distribution will be adjusted based on the total share capital as at the registration date of shareholding as determined by implementation of the 2017 Annual Profit Distribution Plan, with the distribution ratio unchanged; and (ii) to authorize the Board to deal with all specific matters regarding the 2017 Annual Profit Distribution Plan.

Based on all the 553,231,369 issued Shares (including 363,962,601 A Shares and 189,268,768 H Shares) of the Company as of 31 December 2017 and assuming that no new shares will be allotted or issued and no shares will be repurchased before the Record Date, Shareholders whose names are listed on the register of members of the Company at close of business on the Record Date will be distributed: (i) Cash Dividend of RMB1,106,462,738 in total, and (ii) 165,969,410 new shares (including 109,188,780 new A Shares and 56,780,630 new H Shares) as Bonus Shares upon satisfaction of the conditions set out in the paragraph headed ‘‘Conditions for Bonus Issue’’ below, for which capital reserve of RMB165,969,410 will be capitalized. The above proposed Cash Dividend will be denominated in RMB, and will be distributed to A Shareholders in RMB and H Shareholders in HKD. Exchange rate for dividends to be distributed in HKD will be based on the middle rate as published by the People’s Bank of China on the date on which the General Meetings of the Company are held. The remaining undistributed profits and capital reserve will be carried forward to the next year.

– 10 –

LETTER FROM THE BOARD

Based on the existing 189,268,768 H Shares of the Company as of 31 December 2017, cash dividend in the sum of RMB378,537,536 and an aggregate of 56,780,630 new H Shares will be distributed to H Shareholders whose names are listed on the register of members of H Shares of the Company at close of business on the Record Date. The register of members for H Shares will be closed from Tuesday, 26 June 2018 to Tuesday, 3 July 2018 (both days inclusive) in order to determine the entitlement of H Shareholders to receive Cash Dividend and Bonus Shares. In order to qualify for receiving dividends and new H Shares, all transfer documents of H Shares must be lodged with the Company’s H Share registrar, Tricor Investor Services Limited at 22/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong by 4:30 p.m. on Monday, 25 June 2018 for registration.

In accordance with the ‘‘Enterprise Income Tax Law of the People’s Republic of China’’（《中華人民共和國企業所得稅法》）and the ‘‘Rules for the Implementation of the Enterprise Income Tax Law of the People’s Republic of China’’（《中華人民共和國企業所得稅法 實施條例》）, both implemented on 1 January 2008 and the ‘‘Notice of the State Administration of Taxation on Issues Relevant to the Withholding of Enterprise Income Tax on Dividends Paid by PRC Enterprises to Offshore Non-resident Enterprise Holders of H Shares’’ (Guo Shui Han 2008 No. 897)（《關於中國居民企業向境外H股非居民企業股東派發股息代扣代繳企業所得稅有關問 題的通知》（國稅函[2008]897號））promulgated on 6 November 2008, the Company is obliged to withhold and pay PRC enterprise income tax on behalf of non-resident enterprise shareholders at a tax rate of 10% when the Company distributes any dividends to non-resident enterprise shareholders whose names appear on the register of members of H Shares of the Company. As such, any H Shares which are not registered in the name(s) of individual(s) (which, for this purpose, includes H Shares registered in the name of HKSCC Nominees Limited, other nominees, trustees, or other organisations or groups) shall be deemed to be H Shares held by non-resident enterprise shareholder(s), and the PRC enterprise income tax shall be withheld from any dividends payable thereon. Non-resident enterprise shareholders may apply for a tax refund for the difference (if any) in accordance to relevant tax laws such as tax treaty (arrangement).

In accordance with the ‘‘Circular on Certain Issues Concerning the Policies of Individual Income Tax’’ (Cai Shui Zi 1994 No. 020)（《關於個人所得稅若干政策問題的通知》（財稅字[1994] 020號））promulgated by the Ministry of Finance and the State Administration of Taxation on 13 May 1994, overseas individuals are exempted from the PRC individual income tax for dividends or bonuses received from foreign-invested enterprises. As the Company is a foreign-invested enterprise, the Company will not withhold and pay the individual income tax on behalf of overseas individual shareholders whose names appear on the register of members of H Shares of the Company when the Company distributes dividends to those shareholders.

– 11 –

LETTER FROM THE BOARD

According to the relevant provisions of China Securities Depository and Clearing Co., Ltd., Shenzhen Branch and in accordance with the market practice as adopted for capitalizing capital reserve for A Shares and distribution of dividends, the Company will separately publish an announcement on distribution of Cash Dividend and Bonus Shares to A Shareholders after the General Meetings, which will set out (among others) the record date (registration date of shares) and ex-dividend date for A Shareholders.

Conditions for Bonus Issue

Upon satisfaction of (among others) the following conditions, the Bonus Issue will become unconditional:

• (i) special resolutions approving the Cash Dividend and Bonus Issue are respectively passed by the Shareholders at the General Meetings;

• (ii) the approval of the proposed Bonus Issue by the relevant authorities in the PRC (if required); and

• (iii) the Listing Committee of Hong Kong Stock Exchange has approved the listing of and dealing in the 56,780,630 new H Shares as proposed to be allotted under the Bonus Issue on the Main Board of Hong Kong Stock Exchange.

Reasons for the Bonus Issue

In recognition of the continual support of the Shareholders and to encourage the Shareholders to continue to support the Company’s future development, the Board believes that the Bonus Issue will allow the Shareholders to enjoy a pro-rata increase in the number of Shares held by them in the Company without incurring any significant costs to them nor affecting the capital available for the Company’s dividend distribution in future. Although the price per Share on an ex-entitlement basis is expected to reduce proportionately and the Bonus Issue is not expected to increase the Shareholders’ proportionate equity interests in the Company, the Bonus Issue will increase the number of Shares to be held by the Shareholders, which will afford the Shareholders holding more than 400 shares in the Company with more flexibility in managing their own investment portfolios such as giving them more convenience in disposing of a portion of the Shares and realising a cash return at their discretion. As such, since the Bonus Issue will increase the number of Shares to be held by the Shareholders and reduce the share price and the trading price of each board lot, the Board expects that the Bonus Issue would enhance the liquidity of the Shares in the market and help to attract more investors to broaden the shareholder base of the Company.

– 12 –

LETTER FROM THE BOARD

The Board has also considered alternative methods such as a sub-division of Shares to achieve the above purposes. Having considered the simple administrative procedures involved and comparatively low expenses to be incurred for the Bonus Issue, the Directors consider that the Bonus Issue is a more appropriate way of achieving the abovementioned purposes taking into account the interests of the Company and the Shareholders as a whole. Furthermore, pursuant to the opinion of the PRC legal advisor, according to the relevant PRC laws and regulations and the requirement of the Shenzhen Stock Exchange, the nominal value of the shares of a company incorporated in the PRC shall not be less than RMB1, as such, sub-division of the Shares is not feasible to the Company pursuant to the relevant requirements.

There will be no adverse effect on the Company by way of the conversion of capital reserve upon completion of the Bonus Issue, and the Board expects the Bonus Issue would not result in a reduction of capital available for distribution nor affect the dividend distribution in the future.

Status of new shares

Based on all the 553,231,369 issued shares (including 363,962,601 A Shares and 189,268,768 H Shares) of the Company as of 31 December 2017, and assuming that no new shares will be allotted or issued and no shares will be repurchased before the Record Date, Shareholders whose names are listed on the register of members of the Company at close of business on the Record Date will be distributed 165,969,410 new Shares (including 109,188,780 new A Shares and 56,780,630 new H Shares) as Bonus Shares upon satisfaction of the conditions set out in the paragraph headed ‘‘Conditions for Bonus Issue’’ above, for which capital reserve of RMB165,969,410 will be capitalized.

The 109,188,780 new A Shares proposed to be allotted under the Bonus Issue will rank pari passu in all respects with the existing A Shares, and the 56,780,630 new H Shares proposed to be allotted under the Bonus Issue will rank pari passu in all respects with the existing H Shares. Holders of new shares will be entitled to the dividends and distributions (if any) to be declared or paid after the allotment and issue of new shares.

As at the Latest Practicable Date, the issued share capital of the Company is RMB553,231,369 (i.e. 553,231,369 shares) which comprised of 189,268,768 H Shares and 363,962,601 A Shares. Immediately after the completion of the Bonus Issue, the issued share capital of the Company will increase to 719,200,779 shares, which will comprise of 246,049,398 H Shares and 473,151,381 A Shares.

– 13 –

LETTER FROM THE BOARD

Fractional Bonus Shares

No fractional Bonus Shares shall be allotted to H Shareholders of the Company and fractional entitlements (if any) will be aggregated and sold for the benefit of the Company.

For A Shareholders, according to the Operational Guideline for Interest Distribution and Rights Issue Registration of Security Issuers published by the China Securities Depository and Clearing Co., Ltd, Shenzhen Branch（《中國證券登記結算有限責任公司深 圳分公司證券發行人權益分派及配股登記業務指南》）, which requires that ‘‘any fractional part of one share arising from transfer of shares shall be arranged in the sequence of amounts and the small amount shall be carried to shareholders with larger amount so as to reach the minimum unit of one share, and any fractional part of one cent arising from cash distribution shall be refunded to the relevant listed company’’, no fractional shares will arise from the Bonus Issue for A Shareholders of the Company accordingly.

Overseas Shareholders

As at the Latest Practicable Date and based on information provided by Tricor Investor Services Limited, the H Share registrar of the Company, none of the H Shareholders as recorded on the register of members of the Company had address(es) which is/are outside Hong Kong.

Upon the Bonus Issue becoming unconditional or should there be any overseas shareholders on the Record Date, the Company will make enquiry on whether there are any Overseas Shareholders located in other jurisdictions, and if there are such overseas shareholders, then the Company will make enquiry regarding the legal restrictions (if any) under the laws of the relevant places and the requirements of the relevant regulatory bodies or stock exchanges for the relevant overseas shareholders to be eligible to take part in the Bonus Issue pursuant to the Hong Kong Listing Rules. Upon such enquiry, if the Board is of the view that the exclusion of the overseas shareholders is necessary or expedient on account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place, the Bonus Shares will not be issued to those overseas shareholders. If any such overseas shareholder is excluded, arrangements will be made for the Bonus Shares which would otherwise have been issued to the overseas shareholders to be sold in the market as soon as practicable after dealings commence, if a premium, net of expenses, can be obtained. Any net proceeds of such sale for each overseas shareholder, after deduction of expenses, of HK$100 or more will be distributed in Hong Kong dollars to the relevant overseas shareholders, by post at his/her/its own risk, unless the amount falling to be distributed to any such person is less than HK$100 in which case it will be retained for the benefit of the Company.

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LETTER FROM THE BOARD

Accordingly, overseas shareholders receiving a copy of this circular about the Bonus Issue may not be treated the same as an invitation to participate in the Bonus Issue unless invitation could lawfully be made to him/her/it without requiring the Company or such overseas shareholders to comply with any registration or other legal requirements in the relevant territory. Furthermore, any Shareholder with a registered address outside Hong Kong or otherwise residing outside Hong Kong should consult their professional advisers as to whether they are permitted to receive the Bonus Shares under the Bonus Issue and the taxation consequences of their decision. It is the responsibility of the Shareholders who wish to receive the Bonus Shares under the Bonus Issue to comply with the laws of the relevant jurisdiction(s).

Application for listing

H Shares are listed at the Hong Kong Stock Exchange, while A Shares are listed at the Shenzhen Stock Exchange. The Company will apply to the Listing Committee of Hong Kong Stock Exchange for approval on the listing of and permission to deal in the 56,780,630 new H Shares. Upon satisfaction of the conditions set out in ‘‘Conditions for Bonus Issue’’ above, the 56,780,630 new H Shares will be accepted by the HKSCC as qualified securities, which can be deposited, cleared and settled at the CCASS. The Company will make all necessary arrangements to procure the acceptance of the new H Shares by CCASS. All actions to be taken at CCASS must comply with the general rules of CCASS and CCASS Operational Procedures in force at the time. The new shares to be allotted and issued to the existing A Shareholders under the Bonus Issue will be listed at Shenzhen Stock Exchange.

Trading of new H Shares is subject to Hong Kong stamp duty.

After the Bonus Issue becomes unconditional, the certificates of new H Shares will be sent to the H Shareholders who are entitled to the new Shares by ordinary post on Tuesday, 17 July 2018 at their own risk. In case of joint shareholders, certificates of new H Shares will be posted to the person whose name appears first on the register of members of H Shareholders for such jointly-held shares. All Bonus Shares are non-renounceable. Shareholders will receive one share certificate for all the Bonus Shares being allotted.

All new H Shares will be registered at the register of members of H Shareholders kept by the Company in Hong Kong. Aside from the Hong Kong Stock Exchange, the new H Shares will not be listed at or deal in any other stock exchanges, and the Company is not currently seeking for or proposing to seek for the listing at or dealing in any other stock exchanges for the new H Shares.

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LETTER FROM THE BOARD

Further announcements on commencement of trading of the new H Shares will be published by the Company in due course according to the requirements of the Hong Kong Listing Rules.

Risk warning for trading of H Shares

H Shareholders should note that H Shares will be traded on ex-entitlement basis commencing from Friday, 22 June 2018. Bonus Issue will not be carried out until satisfaction of the conditions for Bonus Issue as set out in this circular, while distribution of Cash Dividend will be subject to the approval of Shareholders. Any person who deals in H Shares on ex-entitlement basis prior to the satisfaction of the conditions and obtaining of the approval will be subject to the risk that the relevant proposal may not become unconditional or fail to proceed. Shareholders or investors shall seek professional advice from their own professional consultants should they have any doubt on their situations.

The 2017 Annual Profit Distribution Plan has been considered and approved by the Board on 23 March 2018 and is hereby proposed at the General Meetings for consideration and approval.

Statement to be made on acquisition of shares

The Company shall ensure that all its listing documents and share certificates include the statements stipulated below and shall instruct and cause its share registrars not to register the subscription, purchase or transfer of any of its shares in the name of any particular holder unless and until such holder delivers to such share registrar a signed form in respect of such shares bearing statements to the following effect:

• (i) the acquirer of shares agrees with the Company and each of its Shareholder, and the Company agrees with each Shareholder, to observe and comply with the Company Law, the Special Regulations on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies and its Articles of Association;

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LETTER FROM THE BOARD

• (ii) the acquirer of shares agrees with the Company, each of its Shareholders, Directors, supervisors, managers and officers, and the Company acting for itself and for each Director, supervisor, manager and officer agrees with each Shareholder, to refer all differences and claims arising from its Articles of Association or any rights or obligations conferred or imposed by the Company Law or other relevant laws and administrative regulations concerning the affairs of the Company to arbitration in accordance with its Articles of Association. Any reference to arbitration will be deemed to authorize the arbitration tribunal to conduct its hearing in open session and to publish its award. Such arbitration will be final and conclusive;

• (iii) the acquirer of shares agrees with the Company and its Shareholders that H Shares are freely transferable by the holder of such Shares; and

• (iv) the acquirer of shares authorizes the Company to enter into a contract on his behalf with each Director and officer whereby such Directors and officers undertake to observe and comply with their obligations to Shareholders stipulated in its Articles of Association.

II. ADJUSTMENT TO PROJECTS INVESTED WITH PROCEEDS FROM NON-PUBLIC ISSUANCE OF A SHARES

Reference is made to the circular of the Company dated 2 June 2017 and announcement of the Company dated 19 September 2017.

(I) General Information of the Issuance and the Fund-Raising Investment Project

The non-public issuance of A Shares of the Company (the ‘‘Issuance’’) was completed as approved by the China Securities Regulatory Commission. The gross proceeds of the Issuance amounted to RMB1,457,819,970.30, net of issuance expenses totalling RMB37,519,603.53, the net proceeds were RMB1,420,300,366.77.

On 19 September 2017, the alteration to the fund-raising investment project of the non-public issuance of A Shares of the Company was considered and approved at the 2017 first extraordinary shareholders meeting of the Company, upon the completion of the alteration, the proceeds from the Issuance will be invested into the following projects in order of priority:

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LETTER FROM THE BOARD

Seq. No. Name of project to be invested 1 Deeper development and industrial upgrading of series of innovative Ilaprazole 2 Replenishment of working capital and repayment of bank loans 3 Relocation and expansion of livzon group xinbeijiang pharmaceutical manufacturing inc. (first phase) 4 Technology update of bag infusion workshop for Livzon Group Limin Pharmaceutical Manufacturing Factory 5 Construction of Research & development platform of sustained release microsphere technologies, including Microsphere Workshop Construction Project for Livzon Group Livzon Pharmaceutical Factory Total

Proceeds to be invested (RMB) 450,000,000.00 362,480,366.77 143,289,400.00 53,117,300.00 411,413,300.00 163,933,300.00

1,420,300,366.77

(II) Adjustment to the Use of Proceeds for the Fund-raising Investment Projects

1. Adjustment to the use of proceeds for the ‘‘Deeper development and industrial upgrading of series of innovative Ilaprazole’’

The project is carried out by the Group and its subsidiary, Livzon Group Livzon Pharmaceutical Factory*（麗珠集團麗珠製藥廠）, and mainly invests in deeper development and industrialization upgrade of four products in the Ilaprazole product series, namely Ilaprazole Tablet, Ilaprazole Sodium for Injection, Ilaprazole Optical Isomer Preparation and Ilaprazole Compound Preparation. The total investment amounted to RMB450,000,000.

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LETTER FROM THE BOARD

A breakdown of the investment to the project is outlined in the table below:

Unit: RMB’0,000

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

Note: The investment period of industrialization upgrade is three years.

As at 31 December 2017, an accumulated amount of RMB41,125,800 was invested in the ‘‘Deeper development and industrial upgrading of series of innovative ’’ Ilaprazole .

Due to the introduction of regulations in centralized assessment and clinical verification etc., the progress of obtaining approval of new indications of Ilaprazole Sodium for Injection and Ilaprazole Tablet did not meet the expectation, and the industrialization upgrade of the project will be carried out in phrases and postponed. Hence, the Company adjusted the use of proceeds for the fund-raising investment project and details of the use of proceeds for the fund-raising investment project after adjustment are set out below (by year):

Unit: RMB’0,000

Year 2018 2019 2020 2021 2022 2023 2024 2025 Total	R&D Equipment 700.00 700.00 700.00 500.00 500.00 400.00 300.00 300.00 4,100.00	Preclinical Research 800.00 800.00 500.00 200.00 – – – – 2,300.00	Clinical Research 320.00 840.00 1,100.00 1,640.00 2,980.00 4,180.00 3,480.00 1,280.00 15,820.00	Industrialization Development and Technical Transformation – – 100.00 300.00 500.00 – – 200.00 1,100.00	Clinical Research After Market Launch 900.00 1,800.00 1,800.00 2,000.00 2,000.00 1,500.00 – 1,000.00 11,000.00	Industrialization upgrade 1,300.00 750.00 500.00 750.00 1,300.00 700.00 750.00 517.00 6,567.00	Total 4,020.00 4,890.00 4,700.00 5,390.00 7,280.00 6,780.00 4,530.00 3,297.00
							40,887.00

Note: The industrialization upgrade will have to be carried out in phrases and it is expected to take approximately seven years to complete all investment.

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LETTER FROM THE BOARD

2. Adjustment to the use of proceeds for the ‘‘Relocation and expansion of Livzon Group Xinbeijiang Pharmaceutical Manufacturing Inc. (first phase)’’

The project is carried out by Livzon Group Xinbeijiang Pharmaceutical Manufacturing Inc.*（麗珠集團新北江製藥股份有限公司）, and the project mainly involves the construction of office building complex, research and development center, power house, dangerous goods warehouse, tank zone and pump zone, guard room, sewage treatment station (newly established pool, equipment zone, sludge dewatering zone, hazardous and wasteful material room, ancillary room), fermentation workshop 1, fermentation workshop 2, fermentation workshop 3, refining workshop 1, refining workshop 2, synthesis workshop 1, synthesis workshop 2, synthesis workshop 3, synthesis workshop 4, synthesis workshop 5, general warehouse, etc.

The construction period of the project is expected to be 2.5 years, the expected total scale of investment is RMB143,289,400. The details of the construction investment are as follows:

Sequence No. Fees 1 Engineering fee 2 Fixed assets and other fees 2.1 R&D center construction fees 2.2 Equipment purchase fees 2.3 Plant and infrastructure investment fees 3 General fees Total	Expected Total Investment Amount (RMB’0,000) 1,936.66 11,392.28 2,636.30 5,056.98 3,699.00 1,000.00
	14,328.94

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LETTER FROM THE BOARD

As at 31 December 2017, affected by the progress of environmental impact assessment, the relocation and expansion project has not yet commenced. The Company adjusted the use of proceeds for the fund-raising investment project and details of the use of proceeds for the fund-raising investment project after adjustments are set out below (by year):

Unit: RMB’0,000

Year 2018 2019 2020 Total	Engineering 992.54 337.04 607.08 1,936.66	Fixed assets and other fees 3,688.30 5,396.38 2,307.60 11,392.28	General fees 1,000.00 – – 1,000.00	Aggregate amount 5,680.84 5,733.42 2,914.68
				14,328.94

(III) The Impact of the Adjustment on the Fund-raising Investment Projects

The aforesaid adjustments are made by the Company in view of the actual progress of the projects invested with proceeds. There were only adjustments to the amount of proceeds used in each of the subsequent years of the project, without changing the use of the proceeds. Therefore, an ordinary resolution will be proposed to consider and approve the adjustment to the fund-raising investment project of the non-public issuance of A Shares of the Company. The associated Shareholders of the Company, namely Joincare, Haibin Pharma and Topsino shall abstain from voting on this resolution.

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LETTER FROM THE BOARD

III. PROPOSED FACILITY FINANCING AND PROVISION OF FINANCING GUARANTEES TO SUBSIDIARIES

In order to meet the business development needs, in 2018, the Company plans to apply for facility financing of not more than RMB5,886 million or its equivalent in foreign currencies in total from the following banks, details of which are set out in the table below:

No. Name of facility granting bank Currency 1 Industrial and Commercial Bank of China Ltd., Zhuhai Branch RMB 2 China Construction Bank Corporation, Zhuhai Branch RMB 3 Bank of Communications Co., Ltd., Zhuhai Branch RMB 4 China Merchants Bank Co., Ltd., Zhuhai Branch RMB 5 Industrial Bank Co., Ltd., Zhuhai Branch RMB 6 China Guangfa Bank Co., Ltd., Zhuhai Branch RMB 7 Hua Xia Bank Co., Limited, Zhuhai Branch RMB 8 HSBC Bank (China) Company Limited, Zhuhai Branch RMB 9 Postal Savings Bank of China Co., Ltd., Zhuhai Branch RMB 10 China Bohai Bank Co., Ltd., Guangzhou Branch RMB 11 Standard Chartered Bank (China) Limited, Zhuhai Branch RMB 12 China Zheshang Bank Co., Ltd., Shenzhen Branch RMB 13 China Minsheng Banking Corp., Ltd., Zhuhai Branch RMB 14 Bank of Guangzhou Co., Ltd, Guangdong Pilot Free Trade Zone Hengqin Branch. RMB Total RMB

Amount of credit facility applied Note (RMB) 400,000,000 or equivalent in foreign currencies 200,000,000 or equivalent in foreign currencies 700,000,000 or equivalent in foreign currencies 500,000,000 or equivalent in foreign currencies 300,000,000 or equivalent in foreign currencies 300,000,000 or equivalent in foreign currencies 150,000,000 or equivalent in foreign currencies 186,000,000 or equivalent in foreign currencies 1,000,000,000 or equivalent in foreign currencies 300,000,000 or equivalent in foreign currencies 800,000,000 or equivalent in foreign currencies 650,000,000 or equivalent in foreign currencies 200,000,000 or equivalent in foreign currencies 200,000,000 or equivalent in foreign currencies 5,886,000,000

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LETTER FROM THE BOARD

The Company plans to provide joint liability guarantee (including the CZB Guarantee and the Four Guarantees) to the following banks for the applications of facility financing of no more than RMB5,331 million or its equivalent in foreign currencies made by the following whollyowned or controlling subsidiaries, which will amount to RMB5,631 million if including the CMB Guarantee, details of which are set out below:

Guarantees to be provided to subsidiaries other than Livzon MAB

No. Guaranteed entity Shareholding of the Company Name of facility granting bank Currency 1 Livzon Group Livzon Pharmaceutical Factory （麗珠集團麗珠製藥廠） 100% Bank of Communications Co., Ltd., Zhuhai Branch RMB Industrial and Commercial Bank of China Ltd., Zhuhai Branch RMB HSBC Bank (China) Company Limited, Zhuhai Branch RMB China Merchants Bank Co., Ltd., Zhuhai Branch RMB Industrial Bank Co., Ltd., Zhuhai Branch RMB China Construction Bank Corporation, Zhuhai Branch RMB Sub-total: RMB 2 Zhuhai Livzon Diagnostic Reagents Inc. （珠海麗珠試劑股份有限公司） 51% Bank of China Ltd., Zhuhai Branch RMB Standard Chartered Bank (China) Limited, Zhuhai Branch RMB China Guangfa Bank Co., Ltd., Zhuhai Branch RMB Sub-total: RMB 3 Zhuhai FTZ Livzon Hecheng Pharmaceutical Manufacturing Co., Ltd.（珠海保稅區麗珠合成製 藥有限公司） 100% Bank of Communications Co., Ltd., Zhuhai Branch RMB China Bohai Bank Co., Ltd., Zhuhai Branch RMB Standard Chartered Bank (China) Limited, Zhuhai Branch RMB China Guangfa Bank Co., Ltd., Zhuhai Branch RMB China Merchants Bank Co., Ltd., Zhuhai Branch RMB Postal Savings Bank of China Co., Ltd., Zhuhai Branch RMB Sub-total: RMB 4 Livzon Group Fuzhou Fuxing Pharmaceutical Co., Ltd. （麗珠集團福州福興醫藥有限公司） 100% Industrial Bank Co., Ltd., Zhuhai Branch RMB Industrial and Commercial Bank of China Ltd., Zhuhai Branch RMB Standard Chartered Bank (China) Limited, Zhuhai Branch RMB Sub-total: RMB

Maximum guaranteed amount (RMB) Term of guarantee (years) Type of guarantee Note 170,000,000 1 Joint liability guarantee 150,000,000 1 Joint liability guarantee 100,000,000 1 Joint liability guarantee Quota shared with the Group 100,000,000 1 Joint liability guarantee Quota shared with the Group 100,000,000 1 Joint liability guarantee 200,000,000 1 Joint liability guarantee 820,000,000 40,000,000 1 Joint liability guarantee 100,000,000 1 Joint liability guarantee Quota shared with the Group 70,000,000 1 Joint liability guarantee Quota shared with the Group 210,000,000 200,000,000 1 Joint liability guarantee 200,000,000 1 Joint liability guarantee 100,000,000 1 Joint liability guarantee Quota shared with the Group 230,000,000 1 Joint liability guarantee Quota shared with the Group 160,000,000 1 Joint liability guarantee Quota shared with the Group 200,000,000 1 Joint liability guarantee Quota shared with the Group 1,090,000,000 30,000,000 1 Joint liability guarantee 100,000,000 1 Joint liability guarantee 100,000,000 1 Joint liability guarantee Quota shared with the Group 230,000,000

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LETTER FROM THE BOARD

No. Guaranteed entity Shareholding of the Company Name of facility granting bank Currency 5 Livzon Group Xinbeijiang Pharmaceutical Manufacturing Inc.（麗珠集團新北江製藥股份 有限公司） 92.14% Bank of Communications Co., Ltd., Zhuhai Branch RMB China Zheshang Bank Co., Ltd., Shenzhen Branch RMB Industrial and Commercial Bank of China Ltd., Zhuhai Branch RMB Standard Chartered Bank (China) Limited, Zhuhai Branch RMB Sub-total: RMB 6 Sichuan Guangda Pharmaceutical Manufacturing Co., Ltd. （四川光大製藥有限公司） 100% Industrial Bank Co., Ltd., Zhuhai Branch RMB Industrial and Commercial Bank of China Ltd., Zhuhai Branch RMB Standard Chartered Bank (China) Limited, Zhuhai Branch RMB Sub-total: RMB 7 Livzon Group Limin Pharmaceutical Manufacturing Factory （麗珠集團利民製藥廠） 100% Bank of Communications Co., Ltd., Zhuhai Branch RMB China Zheshang Bank Co., Ltd., Shenzhen Branch RMB Industrial and Commercial Bank of China Ltd., Zhuhai Branch RMB Standard Chartered Bank (China) Limited, Zhuhai Branch RMB Sub-total: RMB 8 Livzon Group Fuxing Pharmaceutical Co., Ltd. （麗珠集團寧夏福興製藥有限公司） 100% China Bohai Bank Co., Ltd., Zhuhai Branch RMB China Zheshang Bank Co., Ltd., Shenzhen Branch RMB China Merchants Bank Co., Ltd., Zhuhai Branch RMB Industrial and Commercial Bank of China Ltd., Zhuhai Branch RMB Standard Chartered Bank (China) Limited, Zhuhai Branch RMB Sub-total: RMB 9 Livzon Group Ningxia Xinbeijiang Pharmaceutical Manufacturing Co., Ltd.（麗珠集團寧夏新北江 製藥有限公司） 92.14% China Bohai Bank Co., Ltd., Zhuhai Branch RMB Industrial Bank Co., Ltd., Zhuhai Branch RMB China Merchants Bank Co., Ltd., Zhuhai Branch RMB Industrial and Commercial Bank of China Ltd., Zhuhai Branch RMB Standard Chartered Bank (China) Limited, Zhuhai Branch RMB Sub-total: RMB

Maximum guaranteed amount (RMB) Term of guarantee (years) Type of guarantee Note 40,000,000 1 Joint liability guarantee 60,000,000 1 Joint liability guarantee Quota shared with the Group 100,000,000 1 Joint liability guarantee 100,000,000 1 Joint liability guarantee Quota shared with the Group 300,000,000 80,000,000 1 Joint liability guarantee 80,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee Quota shared with the Group 210,000,000 15,000,000 1 Joint liability guarantee 30,000,000 1 Joint liability guarantee Quota shared with the Group 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee Quota shared with the Group 145,000,000 180,000,000 1 Joint liability guarantee 250,000,000 1 Joint liability guarantee Quota shared with the Group 120,000,000 1 Joint liability guarantee Quota shared with the Group 100,000,000 1 Joint liability guarantee 100,000,000 1 Joint liability guarantee Quota shared with the Group 750,000,000 100,000,000 1 Joint liability guarantee 90,000,000 1 Joint liability guarantee 100,000,000 1 Joint liability guarantee Quota shared with the Group 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee Quota shared with the Group 390,000,000

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LETTER FROM THE BOARD

No. Guaranteed entity Shareholding of the Company Name of facility granting bank Currency 10 Jiaozuo Livzon Hecheng Pharmaceutical Manufacturing Co., Ltd.（焦作麗珠合成製藥 有限公司） 100% Industrial and Commercial Bank of China Ltd., Zhuhai Branch RMB Standard Chartered Bank (China) Limited, Zhuhai Branch RMB Industrial Bank Co., Ltd., Zhuhai Branch RMB Sub-total: RMB 11 Zhuhai Livzon Pharmaceutical Trading Co., Ltd.（珠海市麗珠醫 藥貿易有限公司） 100% China Construction Bank Corporation, Zhuhai Branch RMB Industrial and Commercial Bank of China Ltd., Zhuhai Branch RMB Standard Chartered Bank (China) Limited, Zhuhai Branch RMB Shanghai Pudong Development Bank Co., Ltd, Zhuhai Branch RMB Bank of Communications Co., Ltd., Zhuhai Branch RMB Postal Savings Bank of China Co., Ltd., Zhuhai Branch RMB Hua Xia Bank Co., Limited, Zhuhai Branch RMB Agricultural Bank Of China Limited, Zhuhai Jida Sub-Branch RMB Bank of Guangzhou Co., Ltd, Guangdong Pilot Free Trade Zone Hengqin Branch. RMB China Minsheng Banking Corp., Ltd., Zhuhai Branch RMB Sub-total: RMB 12 Shanghai Livzon Pharmaceutical Manufacturing Co., Ltd. （上海麗珠製藥有限公司） 51% Industrial Bank Co., Ltd., Zhuhai Branch RMB Sub-total: RMB Total: RMB

Maximum guaranteed amount (RMB) Term of guarantee (years) Type of guarantee Note 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee Quota shared with the Group 50,000,000 1 Joint liability guarantee 150,000,000 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee Quota shared with the Group 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee Quota shared with the Group 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee 48,000,000 1 Joint liability guarantee Quota shared with the Group 48,000,000 1 Joint liability guarantee Quota shared with the Group 496,000,000 40,000,000 1 Joint liability guarantee 40,000,000 4,831,000,000

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LETTER FROM THE BOARD

Notes:

1. Zhuhai Zhenghe Co., Ltd.*,（珠海正禾有限公司）, the other shareholder of Zhuhai Livzon Diagnostic Reagents Inc.（珠海麗珠試劑股份有限公司）(‘‘Livzon Reagents’’), which holds 49% equity interests of the Livzon Reagents, has provided ‘‘Letter of Undertaking for Counter Guarantee’’, pursuant to which it has undertaken to provide a joint liability guarantee for 49% of the obligation of the Group under the guarantee provided to the Livzon Reagents and the guarantee period of which will be expired on the expiry date of the Group’s obligation under the guarantee; and

2. Ding Gongcai, the other shareholder of Shanghai Livzon Pharmaceutical Manufacturing Co., Ltd（上海麗珠 製藥有限公司）(‘‘Shanghai Livzon’’), which holds 49% equity interests of Shanghai Livzon, has provided ‘‘Letter of Undertaking for Counter Guarantee’’, pursuant to which it has undertaken to provide a joint liability guarantee for 49% of the obligation of the Group under the guarantee provided to Shanghai Livzon and the guarantee period of which will be expired on the expiry date of the Group’s obligation under the guarantee.

According to the Shenzhen Listing Rules and the Articles of Association, the above guarantees of RMB4,831 million, together with the Livzon MAB Guarantees of RMB800 million, will amount to RMB5,631 million in aggregate, representing 50.13% of the latest audited net assets (RMB11,233.6236 million), and is subject to the approval at the general meeting of the Company.

According to the Shenzhen Listing Rules and the Articles of Association, the abovementioned credit facilities, guarantees and the Livzon MAB Guarantees are subject to the approval of Shareholders of the Company by means of special resolution. It is therefore proposed at the Annual General Meeting to seek approval for the abovementioned credit facilities, guarantees and the Livzon MAB Guarantees, and to grant mandate to the Board and other persons authorized by the Board to negotiate with relevant banks regarding the amount of credit facilities, guarantees and the Livzon MAB Guarantees within the abovementioned limits during the resolution period, and to sign all relevant documents.

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LETTER FROM THE BOARD

Livzon MAB Guarantees

Reference is made to the announcement of the Company dated 8 December 2017 in relation to the CMB Guarantee.

On 16 April 2018, the Company entered into the Framework Agreement with Livzon MAB, pursuant to which the Company agreed to provide the CZB Guarantee and the Four Guarantees subject to the terms and conditions of the specific guarantee agreements to be entered into between the banks and the Company, details of which are set out below:

Guaranteed entity Shareholding of the Company Name of facility granting bank Currency Livzon MABPharm Inc. （珠海市麗珠單抗生物 技術有限公司） 51% Bank of Communications Co., Ltd., Zhuhai Branch RMB Industrial and Commercial Bank of China Ltd., Zhuhai Branch RMB Agricultural Bank Of China Limited, Zhuhai Jida Sub- Branch RMB Shanghai Pudong Development Bank Co., Ltd., Zhuhai Branch RMB Sub-total (i.e. Four Guarantees): RMB China Zheshang Bank Co., Ltd., Shenzhen Branch (i.e. CZB Guarantee) RMB Total: RMB

Maximum guaranteed amount (RMB) Type of guarantee (years) Type of guarantee Note 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee 200,000,000 300,000,000 1 Joint liability guarantee Quota shared with the Group 500,000,000

Pursuant to the Framework Agreement, the Company will not charge Livzon MAB any commissions, fees or costs in relation to the CZB Guarantee and the Four Guarantees.

Pursuant to the First Joincare Counter Guarantee, Joincare has provided and undertaken to provide counter guarantees in respect of the CMB Guarantee and the CZB Guarantee respectively in proportion to its shareholdings in Livzon MAB. In respect of the Four Guarantees, subject to the approval by its shareholders, Joincare has also undertaken to provide counter guarantees in proportion to its shareholdings in Livzon MAB pursuant to the Second Joincare Counter Guarantee. Livzon MAB will only apply and draw down the Four Facilities and hence the Company will only enter into specific guarantee agreements with the relevant banks in respect of the Four Guarantees upon the shareholders of Joincare approving the counter guarantees in respect of the Four Guarantees.

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LETTER FROM THE BOARD

Intended use of the facilities granted to Livzon MAB

The Livzon MAB Facilities are intended to be used to finance the general operation and business of Livzon MAB. The amounts of the Livzon MAB Facilities have been arrived at regarding principally the funding requirements of research and development activities for Livzon MAB according to the progress of its clinical studies in the foreseeable future. As at the Latest Practicable Date, RMB150,000,000 has been drawn down by Livzon MAB from China Merchants Bank Co., Ltd., Zhuhai Branch to finance its general operation.

Information about the Parties

The Company

The Company is principally engaged in the research and development, production and sales of Chinese and Western drug preparation products, bulk medicines and intermediates, and diagnostic reagents and equipment through its subsidiaries.

Livzon MAB

Livzon MAB is a limited liability company established in the PRC in 2010 which is indirectly held as to 51% by the Company and 49% by Joincare, which is indirectly held as to 49.86% by Mr. Zhu Baoguo, the non-executive Director and chairman of the Company. It is principally engaged in technological research and development for biopharmaceutical products and antibiotics.

Reasons for provision of the Livzon MAB Guarantees

As at the Latest Practicable Date, Livzon MAB was indirectly held as to 51% by the Company and 49% by Joincare. Livzon MAB is positioned as the key bio-pharmaceutical research and development enterprise of the Company which captures a number of key research projects and speeds up clinical progress for its potential products in recent years. For example, in 2017, Livzon MAB achieved a number of clinical phase progress: (i) a total of 13 projects are being researched, among which, six projects are undergoing clinical studies (one project has begun clinical studies in China and the United States), one project has obtained approval for and is going to enter into clinical application, one project has completed investigational new drug filing and have been submitted to Center for Drug Evaluation（國家食品藥品監督管理總局藥品評審中心）and six projects are undergoing investigational new drug research; and (ii) recombinant humanized anti-PD-1 monoclonal antibody（重組人源化抗PD-1單克隆抗體）, the first global new drug of Livzon MAB, has successfully obtained approval for clinical trial in the United States, which is a breakthrough for Livzon MAB and the Group to enter into the international market. Since Livzon MAB is still in the development stage, it is unable to generate sufficient cashflow to support its operating use, and thus, external funding is required to support its research and development activities and for the future development of Livzon MAB.

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LETTER FROM THE BOARD

In addition, as one of the leaders in the PRC pharmaceutical industry, the Company has to devote its resources to different business segments to gain development and breakthrough. With the drawdown of the Livzon MAB Facilities, the Directors consider that the Company will benefit from alleviating its capital contribution requirement into Livzon MAB and optimising its capital allocation to the other profitable business segments, therefore benefiting the overall business development and financial position of the Group.

It is also common commercial practice for banks in the PRC to require guarantee from the controlling shareholder of a borrower for financing facilities. In view that Joincare has provided and undertaken to provide counter guarantees in respect of the CMB Guarantee and the CZB Guarantee respectively in proportion to its shareholdings in Livzon MAB pursuant to the First Joincare Counter Guarantee and has, subject to approval of its shareholders, undertaken to provide counter guarantees in respect of the Four Guarantees in proportion to its shareholdings in Livzon MAB pursuant to the Second Joincare Counter Guarantee, the Directors consider that the risk exposure to the Company is relatively low. The Directors are also of the view that the terms and conditions of the Framework Agreement, the CZB Guarantee and the Four Guarantees are on normal commercial terms and are fair and reasonable, and in the interests of the Company and the Shareholders as a whole, despite that entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees are not in the ordinary and usual course of business of the Company.

Financial Effects of the Livzon MAB Guarantees to the Group

Provision of the CMB Guarantee, the CZB Guarantee and the Four Guarantees by the Company will not have any immediate adverse effect on the Group’s earnings, assets and liabilities. However, the Company will be responsible for making repayment of the principal of the loans amounting to a maximum of RMB800,000,000 with accrued interests, penalties, indemnities, damages and other expenses (if any) in case Livzon MAB defaults in making repayment for the loans.

Implication under the Hong Kong Listing Rules

As at the Latest Practicable Date, the CZB Guarantee and the Four Guarantees have not been provided. The proposed provision of the CZB Guarantee and the Four Guarantees, when executed after the approval of the Independent Shareholders is obtained at the Annual General Meeting, will constitute connected transactions for the Company under Chapter 14A of the Hong Kong Listing Rules. As at the Latest Practicable Date, Joincare directly and indirectly held approximately 44.80% of the total issued share capital of the Company, and Livzon MAB was indirectly held as to 49% by Joincare. Therefore, Livzon MAB (as an associate of Joincare) is a connected person of the Company under Chapter 14A of the Hong Kong Listing Rules.

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LETTER FROM THE BOARD

As the CMB Guarantee was entered into within a 12-month period prior to and inclusive of the date of the Framework Agreement, the transaction amounts of the CMB Guarantee, the CZB Guarantee and the Four Guarantees shall be aggregated. As the highest applicable percentage ratios (as defined in the Hong Kong Listing Rules) in respect of the Livzon MAB Guarantees (comprising the CMB Guarantee, the CZB Guarantee and the Four Guarantees) exceeds 5% but is less than 25%, the Livzon MAB Guarantees, in aggregate, constitute discloseable and connected transactions of the Company under the Hong Kong Listing Rules and are subject to reporting, announcement and Independent Shareholders’ approval requirements under the Hong Kong Listing Rules.

As the counter guarantees provided or to be provided in relation to the Livzon MAB Guarantees by Joincare, which directly and indirectly held 44.80% of the total issued share capital of the Company as at the Latest Practicable Date, are on normal commercial terms or better and will not secured by the assets of the Group, such counter guarantees will constitute connected transactions fully exempt from Independent Shareholders’ approval and all disclosure requirements under Rule 14A.90 of the Hong Kong Listing Rules.

General

Given that (i) Mr. Zhu Baoguo, the non-executive Director and chairman of the Company, is also the chairman of Joincare and indirectly holds 49.86% equity interest in Joincare and 49% equity interest in Livzon MAB as at the Latest Practicable Date; and (ii) Mr. Qiu Qingfeng, the non-executive Director, is also a director of Joincare, therefore Mr. Zhu Baoguo and Mr. Qiu Qingfeng are deemed to have material interest in the Framework Agreement, the CZB Guarantee and the Four Guarantees and abstained from voting at the relevant Board meetings. Apart from Mr. Zhu Baoguo and Mr. Qiu Qingfeng, no other Directors are required to abstain from voting at the Board meetings approving the Framework Agreement, the CZB Guarantee and the Four Guarantees.

Joincare and its associates, directly or indirectly holding approximately 44.80% of the total issued share capital of the Company, shall abstain from voting on the resolution approving the proposed Company’s facility financing and provision of financing guarantees to its subsidiaries at the Annual General Meeting.

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LETTER FROM THE BOARD

IV. PROPOSED GRANT OF GENERAL MANDATE TO THE BOARD TO ISSUE SHARES

In order to ensure flexibility and to give discretion to the Directors in the event that it becomes desirable to issue any shares, a special resolution will be proposed at the Annual General Meeting to grant the unconditional general mandate to the Board that during the period as permitted under the general mandate, to separately or concurrently distribute, issue, allot and deal with additional A Shares and H Shares of not more than 20% of each of its existing A Shares and H Shares in issue as at the date of the relevant resolution to be proposed and passed at the Annual General Meeting (the ‘‘General Mandate to Issue Shares’’).

As at the Latest Practicable Date, the Company’s issued share capital comprised 189,268,768 H Shares and 363,962,601 A Shares. Therefore, subject to the granting of the General Mandate to Issue Shares being approved and assuming that no additional shares will be issued prior to the Annual General Meeting, the Board will be entitled to issue a maximum of 37,853,753 H Shares and 72,792,520 A Shares.

The issue of new shares of the Company under the General Mandate to Issue Shares is subject to the approval of the CSRC.

The General Mandate to Issue Shares will remain in effect until the earliest of: (i) the conclusion of the next annual general meeting of the Company following the passing of this resolution; (ii) the expiration of the 12-month period following the passing of this resolution at the Annual General Meeting; or (iii) the date on which the General Mandate to Issue Shares set out in this resolution is revoked or varied by a special resolution of the Shareholders in a general meeting.

The Board shall comply with the provisions of the Hong Kong Listing Rules, the Articles of Association and applicable PRC laws and regulations when exercising powers pursuant to the General Mandate to Issue Shares.

When exercising the General Mandate to Issue Shares by the Board, voting by all Shareholders or by class Shareholders shall not apply to the issuance of H Shares and voting by class Shareholders shall not apply to the issuance of A Shares. Where it is required by relevant provisions of the laws in China, notwithstanding the grant of General Mandate to Issue Shares, general meetings should be convened for the purpose of seeking approval therein.

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LETTER FROM THE BOARD

V. CONVENING THE ANNUAL GENERAL MEETING, THE CLASS MEETING OF A SHAREHOLDERS AND THE CLASS MEETING OF H SHAREHOLDERS

Notice of the General Meetings, Reply Slip for Attendance and Proxy Form

The Annual General Meeting, the Class Meeting of A Shareholders and the Class Meeting of H Shareholders will be held at the Conference Room on the 3rd Floor of Headquarters Building, 38 Chuangye North Road, Jinwan District, Zhuhai, Guangdong Province, China at 2:00 p.m., 3:30 p.m. (or immediately after the conclusion of the Annual General Meeting or any adjournment) and 4:00 p.m. (or immediately after the conclusion of the Class Meeting of A Shareholders or any adjournment) respectively on Monday, 21 May 2018. Notice regarding the Annual General Meeting and the Class Meeting of H Shareholders has been given by the Company on 29 March 2018, and reply slip for attendance and proxy form for the Annual General Meeting and the Class Meeting of H Shareholders have also been despatched on 29 March 2018 by the Company. The aforesaid documents are also available for download on the websites of Hong Kong Exchanges and Clearing Limited (www.hkexnews.hk) and the Company (www.livzon.com.cn).

If you would like to attend the Annual General Meeting and/or the Class Meeting of H Shareholders in person or by proxy, please complete the reply slip for attendance 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 (tel: (852) 2980 1333; fax: (852) 2810 8185) in person, by post or by fax in any event on or before Tuesday, 1 May 2018. If you would like to attend the Annual General Meeting and/or the Class Meeting of H Shareholders by proxy, please complete the proxy form in accordance with the instructions printed thereon and return it to the H Share registrar of the Company, Tricor Investor Services Limited at the above address, as soon as possible and in any event no later than 24 hours before the holding of the Annual General Meeting and/or the Class Meeting of H Shareholders or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting at the Annual General Meeting and/or the Class Meeting of H Shareholders or any adjournment thereof in person if you so wish.

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LETTER FROM THE BOARD

Closure of Register of Members

For the purpose of determining the qualification of the Shareholders who are entitled to attend and vote at the Annual General Meeting and the Class Meeting of H Shareholders, the register of members of the Company will be closed from Saturday, 21 April 2018 to Monday, 21 May 2018, both days inclusive, during which no transfer of shares will be registered. In order to qualify for attending and voting at the Annual General Meeting and the Class Meeting of H Shareholders, H Shareholders are required to lodge all transfers of shares accompanied by the relevant share certificates with the Company’s H Share registrar, Tricor Investor Services Limited, for registration no later than 4:30 p.m. on Friday, 20 April 2018.

For the purpose of determining the qualification of H Shareholders who are entitled to the distribution of Cash Dividend and Bonus Shares, the H Shares register of members of the Company will be closed from Tuesday, 26 June 2018 to Tuesday, 3 July 2018, both days inclusive, during which no transfer of H Shares will be registered. In order to qualify for the distribution of Cash Dividend and Bonus Shares, H Shareholders are required to lodge all transfers of shares accompanied by the relevant share certificates with the Company’s H Share registrar, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, for registration no later than 4:30 p.m. on Monday, 25 June 2018.

For A Shareholders, the record date for Cash Dividend and Bonus Shares, dividend payment methods and time will be announced separately.

VI. RECOMMENDATIONS

The Board considers that the resolutions set out in the Notice of the Annual General Meeting in relation to (i) the 2017 Annual Profit Distribution Plan, (ii) adjustment to projects invested with proceeds from non-public issuance of A Shares, (iii) proposed facility financing and provision of financing guarantees to subsidiaries; and (iv) proposed grant of general mandate to the Board to issue shares 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 in respect of (i), (ii) and (iv) aforesaid and the Independent Shareholders to vote in favour of the resolution in respect of (iii) at the General Meetings.

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LETTER FROM THE BOARD

An Independent Board Committee comprising all the independent non-executive Directors, has been established to advise the Independent Shareholders in relation to the Framework Agreement, the CZB Guarantee and the Four Guarantees. Zhongtai International Capital has been appointed by the Company as the independent financial advisor to advise the Independent Board Committee and Independent Shareholders. Your attention is drawn to the advice of the Independent Board Committee set out in its letter on page 35 to page 36 of this circular. Your attention is also drawn to the letter of advice from Zhongtai International Capital to the Independent Board Committee and the Independent Shareholders in respect of the same set out on page 37 to page 50 in this circular.

The Independent Board Committee, having taken into account the advice of Zhongtai International Capital, considers that the terms of the Framework Agreement, the CZB Guarantee and the Four Guarantees are on normal commercial terms and are fair and reasonable and that the provision of the CZB Guarantee and the Four Guarantees is in the interests of the Company and the Shareholders as a whole. They, accordingly, recommend the Independent Shareholders to vote in favour of the resolution approving the proposed facility financing and provision of financing guarantees to subsidiaries at the Annual General Meeting.

VII. ADDITIONAL INFORMATION

Your attention is also drawn to the additional information as set out in the Appendix to this Circular.

VIII. VOTING BY POLL

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

Yours faithfully, 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

• For identification purpose only

– 34 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the full text of the letter from the Independent Board Committee prepared for the purpose of inclusion in 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)

27 April 2018

To the Independent Shareholders,

Dear Sir/Madam,

THE FRAMEWORK AGREEMENT, THE CZB GUARANTEE AND THE FOUR GUARANTEES

We refer to the circular dated 27 April 2018 issued by the Company (the ‘‘Circular’’), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Under the Hong Kong Listing Rules, the Livzon MAB Guarantees (comprising the CMB Guarantee, the CZB Guarantee and the Four Guarantees) constitute discloseable and connected transactions of the Company and are subject to reporting, announcement and Independent Shareholders’ approval requirements.

– 35 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We have been appointed by the Board to consider and advise the Independent Shareholders in connection with the terms of the Framework Agreement, the CZB Guarantee and the Four Guarantees. After taking into account the advice of the Independent Financial Adviser as set out from pages 37 to 50 of the Circular, we are of the view that the terms and conditions of the Framework Agreement, the CZB Guarantee and the Four Guarantees are on normal commercial terms and are fair and reasonable, and in the interests of the Company and the Shareholders as a whole, despite that entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees are not in the ordinary and usual course of business of the Company.

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the Annual General Meeting approving the proposed Company’s facility financing and provision of financing guarantees to its subsidiaries.

Yours faithfully,

Independent Board Committee Mr. Xu Yanjun Mr. Guo Guoqing Mr. Wang Xiaojun Mr. Xie Yun Mr. Zheng Zhihua Independent non-executive Directors

• For identification purpose only

– 36 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter of advice from Zhongtai International Capital Limited, the Independent Financial Adviser, to the Independent Board Committee and the Independent Shareholders in respect of the entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees for the purpose of incorporation into this circular.

==> picture [128 x 35] intentionally omitted <==

19th Floor Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong

27 April 2018

To the independent board committee and the independent shareholders of Livzon Pharmaceutical Group Inc.

Dear Sirs or Madams,

CONNECTED TRANSACTIONS INVOLVING ENTERING INTO FRAMEWORK AGREEMENT AND PROVISION OF THE CZB GUARANTEE AND THE FOUR GUARANTEES

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in connection with the connected transactions in relation to entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees, details of which are set out in the letter from the Board (the ‘‘Letter from the Board’’) as contained in the circular of the Company dated 27 April 2018 (the ‘‘Circular’’) of which this letter forms a part. Unless the context requires otherwise, capitalised terms used in this letter shall have the same meanings as those defined in the Circular.

As at the Latest Practicable Date, Joincare is the controlling shareholder of the Company and, together with its associates, holds approximately 44.80% of the issued shares of the Company, and Livzon MAB is held as to 51% by the Company and 49% by Joincare, therefore, Livzon MAB is a connected subsidiary of the Company under Chapter 14A of the Hong Kong Listing Rules. On 16 April 2018, the Company and Livzon MAB entered into the Framework Agreement, pursuant to which the Company agreed to provide the CZB Guarantee and the Four Guarantees subject to the terms and conditions of the specific guarantee agreements to be entered into between the Company and the banks. Since the CMB Guarantee was entered into within a

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

twelve-month period prior to and inclusive of the date of the Framework Agreement, the transaction amounts of the CMB Guarantee, the CZB Guarantee and the Four Guarantees shall be aggregated in accordance with Rule 14.22 and 14A.81 of the Hong Kong Listing Rules in order to determine the classification of the transactions. As the highest applicable percentage ratios as defined in Rule 14.07 of the Hong Kong Listing Rules in respect of the Livzon MAB Guarantees (comprising the CMB Guarantee, the CZB Guarantee and the Four Guarantees) exceed 5% but is less than 25%, the Livzon MAB Guarantees, in aggregate, constitute disclosable and connected transactions for the Company and are subject to reporting, announcement and Independent Shareholders’ approval requirements under the Hong Kong Listing Rules.

The Independent Board Committee comprising Mr. Xu Yanjun, Mr. Guo Guoqing, Mr. Wang Xiaojun, Mr. Zheng Zhihua and Mr. Xie Yun (all being the independent non-executive Directors) has been established to advise the Independent Shareholders as to (i) whether the terms of the Framework Agreement, the CZB Guarantee and the Four Guarantees are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees contemplated thereunder are conducted in the ordinary and usual course of the Group’s businesses and is in the interests of the Company and the Shareholders as a whole; and (iii) give a recommendation to the Independent Shareholders in respect of voting on the relevant resolution to approve the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees at the Annual General Meeting. We have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

BASIS OF OUR OPINION

Other than this appointment as the Independent Financial Advisor, we were not aware of any relationships or interests between Zhongtai International Capital Limited and the Company or any other parties that could be reasonably regarded as hindrance to our independence as defined under Rule 13.84 of the Hong Kong Listing Rules to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have reviewed, inter alia, the Framework Agreement, the letters of undertaking of counter guarantee provided by Joincare, the annual reports of the Company and Joincare for the two years ended 31 December 2017 and the audited financial statements of Livzon MAB for the two years ended 31 December 2017. We have relied on the information and representations as provided to us by the Directors and/or the senior management of the Company as well as the statements, information, opinions and representations contained or referred to in the Circular. We have assumed that all information and representations that have been provided by the Directors and/or the senior management of the Company, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as the date of this letter. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, that the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement in the Circular or the Circular misleading. We have no reason to doubt that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, the Directors and the senior management of the Company, which have been provided to us. We have not, however, conducted any independent investigation into the businesses and affairs of the Company, Joincare, and their respective subsidiaries or associates, including Livzon MAB, nor have we considered the taxation implication on the Group or the Shareholders as a result of entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees. Our opinion is necessary based on the financial, economic, market and other conditions in effect and the information made available to us as at the date of this letter. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the date of this letter, or to update, revise or reaffirm our opinion.

Having completed the abovementioned work done, we consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Hong Kong Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees, we have taken into consideration the following principal factors and reasons:

Principal terms of the Framework Agreement

On 16 April 2018, the Company and Livzon MAB entered into the Framework Agreement, pursuant to which the Company agreed to provide the CZB Guarantee and the Four Guarantees subject to the terms and conditions of the specific guarantee agreements to be entered into between the banks and the Company. Details of the CZB Guarantee and the Four Guarantees are set out in the following table:

Guaranteed entity Name of facility granting bank Currency Livzon MAB Bank of Communications Co., Ltd., Zhuhai Branch RMB Industrial and Commercial Bank of China Ltd., Zhuhai Branch RMB Agricultural Bank of China Limited, Zhuhai Jida Sub-Branch RMB Shanghai Pudong Development Bank Co., Ltd., Zhuhai Branch RMB Sub-total (i.e. Four Guarantees): China Zheshang Bank Co., Ltd., Shenzhen Branch (i.e. CZB Guarantee) RMB Total:

Maximum guaranteed amount (RMB) Term of guarantee (year) Type of guarantee Note 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee 50,000,000 1 Joint liability guarantee 200,000,000 300,000,000 1 Joint liability guarantee Quota shared with the Group 500,000,000

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pursuant to the Framework Agreement, the Company will not charge Livzon MAB any commissions, fees or costs in relation to the CZB Guarantee and the Four Guarantees. Joincare has provided and undertaken to provide counter guarantees in favour of the Company for 49% of the obligations of the Company under the CMB Guarantee and the CZB Guarantee respectively pursuant to the First Joincare Counter Guarantee. Subject to the approval by its shareholders, Joincare has also undertaken to provide counter guarantees under the Second Joincare Counter Guarantee for 49% of the obligations of the Company for the Four Guarantees. Joincare will also not charge Livzon MAB any commissions, fees or costs in relation to the aforementioned guarantees.

Background information of the Group, Joincare Group and Livzon MAB

Information of the Group

The Group is primarily engaged in the research and development, production and sales of pharmaceutical products. The products of the Group covered drug preparation products, bulk medicines and intermediates as well as diagnostic reagents and equipment.

As to the research and development, for the pharmaceutical preparations, the Group has consistently focused on the core technologies of the antibody technology platform, the microsphere sustained-release technology platform and other innovative research and development platforms. For the bulk medicines and intermediates, the Group’s bulk medicines division focused on improving the research and development management system and established two research and development centers for strain optimisation and synthesis research. The international certifications obtained by the Group for bulk medicines and intermediates continued to increase. By the end of year 2017, 11 products passed the on-site examination of international certification, and 5 products passed the on-site examination of FDA. The Group also continuously applied for science and technology projects and government grants.

The following tables set out the selected financial information of the Group for the three years ended 31 December 2017:

	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December
	2017	2016	2015
	RMB	RMB	RMB
Total operating income	8,530,968,596.54	7,651,775,285.49	6,620,516,536.73
Total operating costs	7,490,099,890.70	6,775,705,178.20	5,934,311,533.42
Net profit	4,487,702,383.46	829,915,508.92	659,563,377.92
Net cash flow from
operating activities	1,315,865,467.69	1,279,215,037.52	927,788,460.32

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Sale of drug preparation products represented the Group’s major source of operating income. In 2016 and 2017, the Group recorded a remarkable growth in total operating income. The growth of the Group’s total operating income in 2016 was mainly contributed by the growth in sales of western drug preparation products, bulk medicines and intermediates. The growth of the Group’s total operating income in 2017 was mainly contributed by the sales growth of drug preparation products, bulk medicines and intermediates. The Group’s total operating costs generally increased in line with the growth of its total operating income from 2015 to 2017. In 2015 and 2016, the Group’s net profit generally increased in line with the growth of its total operating income in the respective years. However, the Group recorded a significant increase in net profit in 2017, which was mainly contributed by an one-off gain on disposal of its subsidiary namely Zhuhai Weixing Shiye Co., Ltd.（珠海維星實業有限公司）. The Group’s net cash flows from operating activities generally increased in line with the increase in total operating income from 2015 to 2017.

		As at 31 December	As at 31 December
	2017		2016	2015
	RMB		RMB	RMB
Current assets	11,349,867,693.34		5,970,785,816.05	3,577,884,291.76
Non-current assets	4,547,863,024.29		4,558,477,136.36	4,499,653,498.65
Total assets	15,897,730,717.63		10,529,262,952.41	8,077,537,790.41
Current liabilities	4,411,030,586.24		3,310,641,174.79	3,154,940,003.11
Non-current liabilities	253,076,577.79		112,983,274.07	112,701,043.77
Total liabilities	4,664,107,164.03		3,423,624,448.86	3,267,641,046.88
Net current assets	6,938,837,107.10		2,660,144,641.26	422,944,288.65

The Group’s current assets recorded significant increase from 2015 to 2017 mainly contributed by the increase of cash at bank and on hand. The increase of the Group’s cash at bank and on hand from 2015 to 2017 was primarily due to the increasing cash inflows from operation, the short-term notes financing and non-public issuance of A Shares in 2016, and amount received from the transfer of the equity interest in a subsidiary in 2017. The Group’s non-current assets mainly included fixed assets, intangible assets, other non-current assets, and available-for-sale financial assets, and remained steady during the years. The Group’s current liabilities mainly included bills payables, accounts payables, tax payables and other payables. The increase of the Group’s current liabilities as at 31 December 2017 was mainly contributed by the increase in corporate income tax payable as a result of the disposal of the equity interest in a subsidiary and the increase in percentage of bills payment in its sourcing operation. The increase of the Group’s non-current liabilities as at 31 December 2017 was mainly due to the deferred gain attributable by the increased amount received from government grants. Growth of the Group’s net current assets was generally in line with its current assets from 2015 to 2017.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Information of Joincare Group

Joincare is a joint stock company established in the PRC and its shares are listed on the Shanghai Stock Exchange since 2001. Joincare Group is principally engaged in research and development, production and sales of health products, Chinese and Western drug preparation products, bulk medicines and intermediates, and diagnostic reagents and equipment through its subsidiaries. Joincare is the controlling shareholder of the Company, and it together with its associates, holds approximately 44.80% of the issued shares of the Company as at the date of this letter. The Group’s businesses comprised the most important integral parts of Joincare Group’s businesses. The financial information of the Group is consolidated into that of Joincare Group.

Apart from the Group’s businesses, other business segments of Joincare Group include business of Haibin Pharma, business of Jiaozuo Joincare Pharmaceutical Group Industry Co., Ltd.（焦作健康元生物製品有限公司）(‘‘Jiaozuo Joincare’’), as well as health care products and over-the-counter pharmaceutical products (‘‘OTC’’) business. Haibin Pharma recorded operating income of approximately RMB0.97 billion, RMB1.17 billion, and RMB1.28 billion for the three years ended 31 December 2017. Joincare Group’s net profit contributed by Haibin Pharma was approximately RMB134 million, RMB181 million and RMB206 million for the same period, respectively. Jiaozuo Joincare recorded operating income of approximately RMB0.96 billion, RMB0.90 billion and RMB1.02 billion for the three years ended 31 December 2017. Net profit contributed by Jiaozuo Joincare was approximately RMB113 million, RMB9 million and RMB90 million for the same period, respectively. Joincare Group’s health care products and OTC products business recorded operating income of approximately RMB0.38 billion, RMB0.32 billion and RMB0.33 billion for the three years ended 31 December 2017. For 2015 and 2016, approximately RMB65 million and RMB41 million of Joincare Group’s net profit was contributed by this business segment. Net profit attributable to the parent company of Joincare contributed by this business segment was approximately RMB64 million in 2017.

The following tables set out the selected financial information of the Joincare Group for the three years ended 31 December 2017:

	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December
	2017	2016	2015
	RMB	RMB	RMB
Total operating income	10,779,258,187.81	9,721,544,239.74	8,641,891,376.41
Total operating costs	9,539,356,686.74	8,815,986,651.36	7,823,035,952.67
Net profit	4,672,730,855.73	974,407,881.96	821,793,174.90
Net cash flow generated from
operating activities	1,870,376,097.49	1,644,557,267.24	1,264,582,833.80

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Joincare Group’s total operating income recorded a remarkable growth in both 2016 and 2017. In 2016, the growth in Joincare Group’s total operating income was mainly contributed by the sales growth of prescription medicine. The growth in 2017 was mainly contributed by the sales growth of chemical bulk medicine, intermediaries and chemical preparation products. Joincare Group’s total operating costs generally increased in line with the growth of its total operating income from 2015 to 2017. In 2015 and 2016, the net profit of Joincare Group generally increased in line with the growth of its total operating income. However, Joincare Group recorded a significant net profit in 2017, which was mainly contributed by the one-off gain from the Company’s disposal of its subsidiary namely Zhuhai Weixing Shiye Co., Ltd.（珠海維星 實業有限公司）. The financial results of Joincare Group from 2015 to 2017 largely reflected the financial results of the Group.

		As at 31 December	As at 31 December
	2017		2016	2015
	RMB		RMB	RMB
Current assets	14,320,657,011.11		8,188,570,911.81	6,276,999,005.92
Non-current assets	7,890,928,883.51		7,883,141,345.75	7,518,582,589.06
Total assets	22,211,585,894.62		16,071,712,257.56	13,795,581,594.98
Current liabilities	6,930,371,300.24		4,776,195,076.32	5,065,422,235.06
Non-current liabilities	1,663,364,466.15		1,960,761,222.47	1,423,038,443.36
Total liabilities	8,593,735,766.39		6,736,956,298.79	6,488,460,678.42
Net current assets	7,390,285,710.87		3,412,375,835.49	1,211,576,770.86

Joincare is the controlling shareholder of the Company, and the assets and liabilities of the Group are consolidated into Joincare Group’s consolidated balance sheet. Joincare Group’s assets and liabilities comprise mainly the Group’s assets and liabilities. Joincare Group’s non-current assets represented mainly the fixed assets, available-for-sale financial assets, intangible assets and goodwill, etc. The balance of Joincare Group’s non-current assets remained stable from 2015 to 2017. Joincare Group’s non-current liabilities represented mainly the bond payables, and the noncurrent liabilities remained relatively stable during the period. Joincare Group’s net current assets increased significantly from 2015 to 2017, and such increase reflected the continued growth of its businesses, the proceeds from disposal of its subsidiaries and the proceeds from non-public issuance of A Shares by the Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Information of Livzon MAB

Livzon MAB was jointly established by the Company and Joincare on 2 July 2010. Livzon MAB is indirectly held as to 51% by the Company and 49% by Joincare as at the Latest Practicable Date; therefore, Livzon MAB is a non-wholly owned subsidiary of the Company. Livzon MAB is principally engaged in technological research and development for biopharmaceutical products and antibiotics.

The following tables set out the selected financial information of Livzon MAB for the three years ended 31 December 2017:

	For the	year ended 31 December	year ended 31 December
	2017	2016	2015
	RMB	RMB	RMB
Total operating income	76,697.72	–	–
Total operating costs	151,622,164.37	132,768,709.08	128,446,400.38
Net loss	(127,833,701.27)	(121,299,075.18)	(100,215,161.37)
Net cash used in operating activities	(122,452,617.56)	(88,703,314.63)	(25,390,588.18)

Livzon MAB is in the development stage, and currently has no products for sale in market. The total operating income recorded by Livzon MAB in 2017 represented a handling fee returned by the tax authorities for withholding Individual Income Tax. Total operating costs of Livzon MAB comprised mainly the research and development costs incurred during the three years. The increasing trend of Livzon MAB’s total operating costs from 2015 to 2017 reflected Livzon MAB’s continuous investment in research and development activities. The net loss of Livzon MAB during the years was mainly due to the investment in the research and development activities.

Livzon MAB has recorded net cash outflow from operating activities from 2015 to 2017, which was mainly contributed by incurrence of research and development costs.

		As at 31 December
	2017	2016	2015
	RMB	RMB	RMB
Current assets	47,771,442.47	182,263,655.06	125,486,239.66
Non-current assets	291,403,959.88	264,234,242.46	229,469,965.05
Total assets	339,202,402.35	446,497,897.52	354,956,204.71
Current liabilities	60,168,370.34	31,760,262.41	10,999,960.95
Non-current liabilities	7,037,353.13	14,627,549.19	22,547,082.66
Total liabilities	67,205,723.47	46,387,811.60	33,547,043.61
Net current assets/(liabilities)	(12,396,927.87)	150,503,392.65	114,486,278.71

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Livzon MAB’s non-current assets represented mainly the fixed assets, long-term deferred expenses, other non-current assets, etc. Livzon MAB’s current assets mainly represented other receivables due from the Company, inventories and cash at bank and on hand. Livzon MAB’s current liabilities represented mainly employee benefit payables, accounts and bills payables and other payables. Livzon MAB’s non-current liabilities represented mainly deferred gain. Livzon MAB has invested continuously in research and development since its incorporation in 2010, and capitalisation of the research and development costs are subject to various conditions. Since research and development costs may not be capitalised as intangible assets, it has incurred net loss for the years. Livzon MAB has obtained funding to support its research and development activities through capital injections by its shareholders. Livzon MAB was in net current liabilities position as at 31 December 2017, so additional funding is required to support its further development.

Reasons for and benefits of provision of guarantee services

According to the Letter from the Board, the Company considers that the entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees will benefit the Group and Livzon MAB for the following reasons:

Benefit the business development of Livzon MAB

Livzon MAB is a key member of the Company specialising in technical research and development of bio-pharmaceutical products and antibody-based drugs. As one of the national research and development centers of the Company and an important part of the Company’s precision medical system and precision medical business, Livzon MAB diversified the Company’s layout of industrial chain to accelerate research and development and clinical progress, contributing to the Company’s leading position in the pharmaceutical industry in the PRC. The Company has also made a series of capital injections to Livzon MAB in order to support its research and development activities and industrialisation of Livzon MAB’s products. To strengthen the clinical trials and build up its medical-related talent team, Livzon MAB introduced some senior management staff with overseas experience in 2017 to focus on the application for on-going research projects and the progress of clinical projects. The strengthened management team will provide powerful support to the future development of Livzon MAB in the biopharmaceutical industry.

Livzon MAB is in the biotechnology industry and such industry is characterised by high growth. It is the norm that biotechnology companies without a long track record may not be profitable. In the initial phase, large capital is necessary for the research and development of products. Moreover, products of many biotechnology companies have not yet reached the commercialisation stage. Therefore, many companies in the biotechnology industry are without revenue, profit or net cash flow generated from operation.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In the early stage of its business, Livzon MAB has huge funding needs to support its research and development activities. Since Livzon MAB is still in the development stage, it is unable to generate sufficient cashflow to support its operating use, and thus, external funding is critical for Livzon MAB’s future development. Government subsidies were granted to Livzon MAB’s for its research and development and talent introduction. The latest capital increase of Livzon MAB amounting to RMB 200,000,000 was jointly injected by the Group and Joincare pursuant to the ‘‘Agreement on Capital Increase in Livzon MAB Pharm Inc.’’ on 26 September 2016. As to the borrowings, it is a common commercial practice for banks in the PRC to request for guarantees from the controlling shareholder of a borrower, which is not a listed company, to secure banking facilities granted to the borrower. Guarantees including the CZB Guarantee and the Four Guarantees provided by the Company are important for Livzon MAB to obtain facilities from the banks. The Livzon MAB Facilities are intended to be used to finance the general operation and business of Livzon MAB. The amounts of the Livzon MAB Facilities have been arrived at regarding principally the funding requirements of research and development activities for Livzon MAB according to the progress of its clinical studies in the foreseeable future.

The Company will not charge Livzon MAB any commissions, fees or costs in relation to the CZB Guarantee and the Four Guarantees, and we also understand from the senior management of the Company that it is a common commercial practice to make free charge for the guarantee by the controlling shareholder to lower the financial burden of a subsidiary with a view to facilitating its business development. To ascertain whether it is a common commercial practice of entering interest-free financial arrangement between a listed company and its subsidiaries/associated companies, we reviewed the latest annual reports of 43 pharmaceutical companies whose shares are listed on the Hong Kong Stock Exchange, and noted that amongst the 43 pharmaceutical companies, 16 of which provided its subsidiaries/associated companies or other related parties with interest-free financial support (i.e. loan, advance and amount due from subsidiaries/ associated companies, etc.). The latest annual reports of 43 companies are available at www.hkexnews.hk. Our review period for the aforementioned companies (excluding the two companies which are under prolonged suspension status) is either 2016 financial year or 2017 financial year. Therefore, we are of the view that the interest-free financial arrangement between a listed company and its subsidiaries/associated companies is not uncommon. We concur with the Directors (excluding the independent Non-executive Directors, whose views are set out in the letter from the Independent Board Committee in the Circular) that the terms and conditions of the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees contemplated therein are on normal commercial terms and are fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Benefit the overall business development of the Group

The Group is transforming from a traditional pharmaceutical enterprise to a biopharmaceutical enterprise. The Group also adopts a precision medical strategy that actively explored and planned the layout of ‘‘patient-centered’’ personalised medical business. Leveraging on the synergistic effect of the business of biological preparation and testing reagent in the precision medical field, the construction of a precision medical system of ‘‘Livzon Reagents + Livzon MAB + Livzon Shengmei + Livzon Gene’’ has laid the foundation for the Group’s future development. Livzon MAB acts an important role in the Group’s precision medical industry chain.

Livzon MAB is positioned as the key bio-pharmaceutical research and development enterprise of the Company which captures a number of key research projects and speeds up clinical progress for its potential products in recent years. In 2017, Livzon MAB achieved a number of clinical phase progress: (i) a total of 13 projects are being researched, among which, six projects are undergoing clinical studies (one project has begun clinical studies in China and the United States), one project has obtained approval for and is going to enter into clinical application, one project has completed investigational new drug filing and have been submitted to Center for Drug Evaluation（國家食品藥品監督管理總局藥品評審中心）and six projects are undergoing investigational new drug research; and (ii) recombinant humanised anti-PD-1 monoclonal antibody（重組人源化抗PD-1單克隆抗體）, the first global new drug of Livzon MAB, has successfully obtained approval for clinical trial in the United States, which is a breakthrough for Livzon MAB and the Group to enter into the international market.

In addition, as one of the leaders in the PRC pharmaceutical industry, the Company has to devote its resources to different business segments to gain development and breakthrough. With the drawdown of the Livzon MAB Facilities, the Company will benefit from alleviating its capital contribution requirement into Livzon MAB and optimising its capital allocation to the other profitable business segments, therefore benefiting the overall business development and financial position of the Group. In light of this, we concur with the Directors (excluding the independent Non-executive Directors, whose views are set out in the letter from the Independent Board Committee in the Circular) that, entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees contemplated therein are in the interests of the Company and the Shareholders as a whole, and there is no damage to the interests of minority Shareholders.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Joincare’s counter guarantee in favour of the Company in relation to the CZB Guarantee and the Four Guarantees

Livzon MAB is held as to 51% by the Company and 49% by Joincare. Livzon MAB is a non-wholly owned subsidiary of the Company. Pursuant to the Framework Agreement, the Company agreed to provide the CZB Guarantee and the Four Guarantees. Pursuant to the First Joincare Counter Guarantee, Joincare has provided and undertaken to provide counter guarantees in respect of the CMB Guarantee and CZB Guarantee respectively in proportion to its shareholdings in Livzon MAB. In respect of the Four Guarantees, subject to the approval by its shareholders, Joincare has also undertaken to provide counter guarantees in proportion to its shareholdings in Livzon MAB pursuant to the Second Joincare Counter Guarantee.

In the event that Livzon MAB defaults in making repayment for the bank loans, the Company will be responsible for making full repayment of the principal of the bank loans amounting to a maximum of RMB800 million with accrued interests, penalties, indemnities, damages and other expenses (if any). Joincare is obligated to reimburse the Company 49% of the bank repayment with relevant expenses pursuant to the First Joincare Counter Guarantee and the Second Joincare Counter Guarantee. The only possible adverse financial effect to the Company is the failure of Joincare in fulfilling its counter guarantee. We have reviewed Joincare Group’s audited financial statements contained in the annual reports for the two years ended 31 December 2017 and we noted that Joincare Group had considerable balance of net current assets and net assets of approximately RMB7,390 million and RMB13,618 million as at 31 December 2017, respectively, net profit of approximately RMB822 million, RMB974 million and RMB4,673 million for the three years ended 31 December 2017, respectively, as well as net cash inflow generated from operating activities of approximately RMB1,265 million, RMB1,645 million and RMB1,870 million for the three years ended 31 December 2017, respectively. We also noted that (i) Joincare Group’s cash at bank and on hand as at 31 December 2017 was approximately RMB9,063 million; (ii) the current ratio (being the current assets divided by current liabilities) and debt-to-assets ratio of Joincare Group as at 31 December 2017, was approximately 2.07 times and 38.69% respectively, indicating strong liquidity of Joincare Group. As at 31 December 2017, Joincare recorded net assets of approximately RMB2,965 million, net current assets of approximately RMB644 million, and cash at bank and on hand of approximately RMB945 million. Considering the aforementioned financial condition, especially cash at bank and on hand of Joincare Group and Joincare, and net assets and net current assets of Joincare Group and Joincare, are all exceeding Joincare’s counter guarantee amount (being 49% of the Livzon MAB Guarantees, amounting to approximately RMB392 million), Joincare’s fulfilling its obligation pursuant to the First Joincare Counter Guarantee and the Second Joincare Counter Guarantee is without reasonable doubt. Having considered the sound financial condition of Joincare and the market value of the Company’s shares held by it, we are of the view that possibility of Joincare’s failure in fulfilling its counter guarantee is remote. Therefore, the entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees will not have any immediate adverse effect on the Group’s earnings, assets and liabilities.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having considered the above factors and reasons, we are of the opinion that (i) the entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees by the Company is on normal commercial terms and is fair and reasonable so far as the Shareholders are concerned; and (ii) entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees, though is not in the ordinary and usual course of the Group’s businesses, is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend that the Independent Board Committee advise the Independent Shareholders to vote in favour of the relevant resolution to be proposed at the Annual General Meeting to approve the entering into the Framework Agreement and provision of the CZB Guarantee and the Four Guarantees by the Company, and we recommend that the Independent Shareholders to vote in favour of such resolution in this regard at the Annual General Meeting.

Yours faithfully, For and on behalf of Zhongtai International Capital Limited Maurice Ying Managing Director

Mr. Maurice Ying is a licensed person registered with the Securities and Futures Commission and a responsible officer of Zhongtai International Capital Limited, which is licensed under the SFO to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities. He has more than 10 years of experience in investment banking industry.

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GENERAL INFORMATION

APPENDIX

I. RESPONSIBILITY STATEMENT

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

II. DISCLOSURE OF INTERESTS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE

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

Interest in shares of the Company

Name of Director Capacity Mr. Zhu Baoguo Interest of controlled corporations Mr. Tao Desheng Beneficial owner Spouse interest Mr. Xu Guoxiang Beneficial owner	Number of Shares Interested (Long position) As a percentage to the specific class of issued shares of the Company As a percentage to the total issued shares of the Company 151,191,689 A Shares(1) (2) 41.54% 27.33% 96,665,487 H Shares(1) (3) 51.07% 17.47% 358,787 A Shares 62,868 A Shares(4) 421,655 A Shares 0.12% 0.08% 358,787 A Shares 0.10% 0.06%

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GENERAL INFORMATION

APPENDIX

Interest in shares of associated corporations of the Company

==> picture [403 x 167] intentionally omitted <==

----- Start of picture text -----

As a percentage
of the equity
Equity interest interest of
Name of associated (RMB) associated
Name of Director corporation Capacity (Long position) corporation
Mr. Zhu Baoguo Baiyeyuan Beneficial owner 72,000,000 90.00%
Joincare Beneficial owner 48,277,046
Interest of a controlled 742,415,520 [(5)]
corporation
790,692,566 49.86%
Livzon MAB Interest of a controlled 261,331,700 [(1)] [(6)] 49.00%
corporation
----- End of picture text -----

Notes:

• (1) Joincare is 47.17% held by Baiyeyuan which is in turn 90% held by Mr. Zhu Baoguo. Mr. Zhu Baoguo is deemed to be interested in the Shares of the Company and the equity interest of its associated corporations in which Joincare is or is deemed to be interested by virtue of the SFO.

• (2) Among these shares, 141,232,615 Shares and 9,959,074 Shares are held directly by Joincare and its whollyowned subsidiary, Haibin Pharma, respectively.

• (3) These shares are held directly by Topsino, a wholly-owned subsidiary of Joincare.

• (4) As Mr. Tao Desheng is the spouse of Ms. Hou Xuemei, Mr. Tao Desheng is deemed to be interested in the shares held directly by Ms. Hou Xuemei.

• (5) These shares are held by Baiyeyuan.

• (6) These shares are held by Joincare.

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

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GENERAL INFORMATION

APPENDIX

III. DISCLOSURE OF INTERESTS OF SUBSTANTIAL SHAREHOLDERS

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

Name of Shareholder Capacity Substantial shareholder	Number of the Shares interested/subject to the short position Position As a percentage of the specific class of issued share of the Company As a percentage of the total issued shares of the Company
Baiyeyuan Interest of controlled corporations Interest of controlled corporations Ms. Liu Guangxia Spouse interest Joincare Beneficial owner Interest of controlled corporations Person having a security interest in shares Interest of controlled corporations Topsino Beneficial owner Other persons	151,191,689 A Shares (1) Long position 41.54% 27.33% 96,665,487 H Shares (2) Long position 51.07% 17.47% 151,191,689 A Shares (3) Long position 41.54% 27.33% 96,665,487 H Shares (3) Long position 51.07% 17.47% 130,992,183 A Shares Long position 9,959,074 A Shares (4) Long position 10,240,432 A Shares (5) Long position 151,191,689 A Shares 41.54% 27.33% 96,665,487 H Shares (2) Long position 51.07% 17.47% 96,665,487 H Shares (2) Long position 51.07% 17.47%
UBS Group AG Person having a security interest in shares Interest of controlled corporations Interest of controlled corporations	596,630 H Shares (6) Long position 12,621,131 H Shares (6) Long position 13,217,761 H Shares 6.98% 2.39% 76,574 H Shares (7) Short position 0.04% 0.01%

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GENERAL INFORMATION

APPENDIX

Notes:

• (1) Among these shares, 141,232,615 shares and 9,959,074 shares are held directly by Joincare and its whollyowned subsidiary, Haibin Pharma.

• (2) These shares are held directly by Topsino, a wholly-owned subsidiary of Joincare.

• (3) As Ms. Liu Guangxia is the spouse of Mr. Zhu Baoguo, Ms. Liu Guangxia is deemed to be interested in Mr. Zhu Baoguo’s equities in which he is deemed to be interested.

• (4) These shares are held directly by Haibin Pharma, a wholly-owned subsidiary of Joincare.

• (5) These shares were directly transferred from, entrusted and pledged by Begol in favor of Joincare in accordance with a share transfer, custody and pledge agreement dated 2 January 2004 entered into among three parties, namely Begol, Joincare and Zhuhai Lishi Investment Co., Ltd.*（珠海市麗士投資有限公司）, as well as a share transfer and custody agreement and a share pledge agreement entered into between Begol and Joincare.

• (6) These shares include 596,630 shares with security interest and 12,621,131 shares that are interest of controlled corporations. Interest of controlled corporations is held as to 78,166 shares, 8,400 shares, 3,041,468 shares, 209,074 shares, 4,440 shares, 13,300 shares, 9,263,423 shares and 2,860 shares by its wholly-owned UBS AG, UBS Asset Management (Americas) Inc., UBS Asset Management (Hong Kong) Ltd, UBS Asset Management (Singapore) Ltd, UBS Asset Management Trust Company, UBS Asset Management (UK) Limited, UBS Fund Management (Luxembourg) S.A. and UBS Fund Management (Switzerland) AG respectively.

• (7) These short positions are derivatives settled by cash that are held by UBS AG.

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

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GENERAL INFORMATION

APPENDIX

IV. DIRECTORS’ AND SUPERVISORS’ SERVICE CONTRACTS

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

V. DIRECTORS’ AND SUPERVISORS’ INTEREST IN THE GROUP’S ASSETS AND CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date, none of the Directors or supervisors, directly or indirectly, had any interest in any assets which had since 31 December 2017 (being the date to which the latest published audited accounts of the Group were made up) been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group. There was no contract or arrangement subsisting at the Latest Practicable Date, in which any of the Directors or supervisors were materially interested and which was significant to the business of the Group.

VI. DIRECTORS’ AND SUPERVISORS’ INTEREST IN COMPETING BUSINESS

As disclosed in the section headed ‘‘Relationship with our controlling shareholders’’ in the listing document of the Company dated 14 January 2014, both of the Group and Joincare Group have been engaged in the research, development, production and/or sale of four different types of drugs, namely: (i) cardio-cerebralvascular drugs; (ii) systemic anti-infective drugs/antibiotics; (iii) blood and hemopoietic system drugs; and (iv) blood management drugs. However, the drugs researched, developed, produced and/or sold by the Group are of different categories from those of Joincare Group. Although both groups adopt similar distribution models for the sales and distribution of drug preparation products in the PRC, which is in line with the industry practice, and their targeted end customers are similar (including hospitals, clinics and pharmacies), the Directors are of the view that the Group and Joincare Group are two separate groups operating independently of each other with individual listing status. Furthermore, the sales teams of the Group are separate from and independent of Joincare Group, and the Group does not share its customer resources and databases with Joincare Group. Accordingly, the Directors are of the view that there is no substantial competition between the Group’s production and sales of products and those of Joincare Group.

Save as mentioned above, as at the Latest Practicable Date, none of the Directors or supervisors and their respective close associates (as defined in the Hong Kong Listing Rules) has any competing interests which would be required to be disclosed under Rule 8.10 of the Hong Kong Listing Rules if each of them were a controlling shareholder of the Company.

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GENERAL INFORMATION

APPENDIX

VII. NO MATERIAL ADVERSE CHANGE

The Directors confirm that as at the Latest Practicable Date, there has been no material adverse change in the Group’s financial or trading position since 31 December 2017 (being the date to which the latest published audited accounts of the Group were made up).

VIII. EXPERT’S QUALIFICATION AND CONSENT

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

Name		Qualification
Zhongtai	International	Type 1 (dealing in securities) and Type 6 (advising
Capital	Limited	on corporate finance) regulated activities under the
		SFO

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

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

As at the Latest Practicable Date, the Independent Financial Adviser did not, directly or indirectly, had any interest in any assets which had since 31 December 2017 (being the date to which the latest published audited accounts of the Group were made up) been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

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GENERAL INFORMATION

APPENDIX

IX. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s principal place of business in Hong Kong at Room 1301, 13/F., China Evergrande Centre, 38 Gloucester Road, Wanchai, Hong Kong during normal business hours on any business from the date of this circular up to and including the date of the Annual General Meeting and the Class Meeting of H Shareholders (excluding any Saturdays, Sundays and public holidays):

• (i) the First Joincare Counter Guarantee;

• (ii) the Framework Agreement;

• (iii) the letter from the Independent Board Committee, the text of which is set out on pages 35 to 36 of this circular;

• (iv) the letter from the Independent Financial Adviser, the text of which is set out on pages 37 to 50 of this circular;

• (v) the Second Joincare Counter Guarantee;

• (vi) written consents issued by the Independent Financial Adviser as referred to in the paragraph headed ‘‘VIII. EXPERT’S QUALIFICATION AND CONSENT’’ above; and

• (vii) this circular.

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