Livzon Pharmaceutical Group Inc. - Proxy Solicitation & Information Statement 2019

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.

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

(Stock code: 1513)

(I) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2020 TO 2022 (II) PROPOSED APPOINTMENT OF INDEPENDENT NON-EXECUTIVE DIRECTORS (III) PROPOSED INCREASE OF THE REGISTERED CAPITAL OF THE COMPANY (IV) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION (V) CONVENING THE EGM

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

Frontpage Capital Limited

The letter from the Board is set out on pages 6 to 20 of this circular. A letter from the Independent Board Committee containing its advice to the Independent Shareholders in connection with the transactions contemplated under the 2020 Joincare Purchases Framework Agreement is set out on page 21 of this circular. A letter from Frontpage Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, containing its advice to the Independent Board Committee and the Independent Shareholders in connection with the transactions contemplated under the 2020 Joincare Purchases Framework Agreement is set out from pages 22 to 34 of this circular.

The Company will hold the EGM 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 Tuesday, 15 October 2019. The EGM Notice has been given by the Company on Thursday, 29 August 2019, and reply slip for attendance and proxy form for the EGM have also been dispatched on Thursday, 29 August 2019 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 EGM in person or by proxy, please complete the reply slip in accordance with the instructions printed thereon and return it to the H Share registrar of the Company, Tricor Investor Services Limited, at Level 54, 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 Wednesday, 25 September 2019. If you would like to attend the EGM 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 EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting at the EGM or any adjournment thereof in person if you so wish.

For identification purpose only

5 September 2019

CONTENTS

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board
I.	Renewal of continuing connected transactions for 2020 to 2022 . . . . . . . . .	7
II.	Proposed appointment of independent non-executive Directors . . . . . . . . . .	16
III.	Proposed increase of the registered capital of the Company . . . . . . . . . . . .	17
IV.	Proposed amendments to the Articles of Association . . . . . . . . . . . . . . . . . .	17
V.	Convening the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
VI.	Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
VII.	Voting by poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
VIII.	Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . .		21
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . .		22
Appendix	– General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35

– i –

DEFINITIONS

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

“2014 Joincare Purchases Framework Agreement”
the framework agreement (as supplemented and amended by the Supplemental Agreement) entered into between the Company and Joincare on 5 September 2014 in respect of the purchase by the Group of certain products and raw materials which are mainly used for the production of antifungal and antibiotics related drug preparation products from Joincare Group for a term from 5 September 2014 to 31 December 2016
“2017 Joincare Purchases Framework Agreement”
the framework agreement entered into between the Company and Joincare on 25 October 2016 in respect of the purchase by the Group of certain products and raw materials which are mainly used for the production of antifungal and antibiotics related drug preparation products from Joincare Group for a term of three years from 1 January 2017 to 31 December 2019
“2020 Joincare Purchases Framework Agreement”
the framework agreement entered into between the Company and Joincare on 16 August 2019 in respect of the purchase by the Group of certain products and raw materials which are mainly used for the production of antifungal and antibiotics related drug preparation products from Joincare Group for a term of three years from 1 January 2020 to 31 December 2022
“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)”
the holder(s) of A Share(s)
“Announcement”
the announcement of the Company dated 16 August 2019 in relation to the 2020 Joincare Purchases Framework Agreement, the transactions contemplated thereunder and the proposed annual caps
“Articles of Association”
the articles of association of the Company
“associate(s)”
has the meaning ascribed to it under the Listing Rules

– 1 –

DEFINITIONS

“Bangladesh”

People’s Republic of Bangladesh

“Board”

the board of Directors of the Company

“Company”

麗珠醫藥集團股份有限公司 Livzon Pharmaceutical Group Inc.*, a joint stock company incorporated in the PRC in accordance with the Company Law on 25 January 1985 with limited liability, its Shares are listed on the Stock Exchange and the Shenzhen Stock Exchange

“Company Law” 《中華人民共和國公司法》Company Law of the PRC, as amended, supplemented or otherwise modified from time to time
“connected person(s)”
has the meaning ascribed to it under the Listing Rules
“controlling shareholder(s)” has the meaning ascribed to it under the Listing Rules
“Directors” the director(s) of the Company

“EGM” the 2019 Third Extraordinary General Meeting 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 2 p.m. on Tuesday, 15 October 2019

“EGM Notice”
the notice convening the 2019 Third Extraordinary General Meeting of the Company dated 29 August 2019
“Group” the Company and its subsidiaries collectively
“H Share(s)”
the ordinary shares in the registered capital of the Company with a nominal value of RMB1.00 each, which are listed and traded on the Stock Exchange
“H Shareholder(s)” the holder(s) of H Share(s)
“Haibin Pharma” 深圳市海濱製藥有限公司 Shenzhen Haibin Pharmaceutical Co., Ltd.*
“Hong Kong” the Hong Kong Special Administrative Region of the PRC

– 2 –

DEFINITIONS

“Independent Board Committee”
the independent committee of the Board comprising all the independent non-executive Directors established for the purpose of advising the Independent Shareholders on the 2020 Joincare Purchases Framework Agreement, the transactions contemplated thereunder and the proposed annual caps
“Independent Financial Adviser” or “Frontpage Capital”
Frontpage Capital Limited, a licensed corporation to registered under the SFO to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO, and is appointed as the independent financial adviser by the Independent Board Committee to advise the Independent Board Committee and the Independent Shareholders in respect of the 2020 Joincare Purchases Framework Agreement, the transactions contemplated thereunder and the proposed annual caps
“Independent Shareholders”
Shareholders other than Joincare, Haibin Pharma, Topsino and their respective associates
“India” the Republic of India
“Joincare” 健康元藥業集團股份有限公司 Joincare Pharmaceutical Industry Group Co., Ltd.* (Shanghai Stock Exchange stock code: 600380), a joint stock company incorporated in the PRC and listed on the Shanghai Stock Exchange in 2001 and one of the Company’s controlling shareholders
“Joincare Group” Joincare and its subsidiaries (for the purpose of this circular, excluding the Group)
“Latest Practicable Date” 27 August 2019, being the latest practicable date for the purpose of ascertaining certain information contained in this circular prior to its publication
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange, as amended, supplemented or otherwise modified from time to time
“Model Code”
the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules

– 3 –

DEFINITIONS

“Pakistan”

Islamic Republic of Pakistan

“PRC” or “China”

the People’s Republic of China

“Proposed Directors”

Mr. Tian Qiusheng and Mr. Wong Kam Wa, each being proposed to be an independent non-executive Director of the Company, with details of the proposed appointment as set out in this circular

“RMB” Renminbi, the lawful currency of the PRC

“Russia” the Russian Federation

“SFO”

the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

“Shares”

the A Shares and the H Shares

“Shareholders” the holder(s) of the share(s) of the Company
“Share Options Incentive Scheme”

the Share Options Incentive Scheme adopted by the Company on 5 September 2018

“Shenzhen Listing Rules” the Rules Governing Listing of Stocks on Shenzhen Stock Exchange (2019 Revision)

“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Supplemental Agreement”

the conditional supplemental agreement entered into between the Company and Joincare on 24 September 2015 to further revise the annual caps for the two years ended 31 December 2015 and 2016 under the 2014 Joincare Purchases Framework Agreement

“Securities Law of China”

the Securities Law of The People’s Republic of China

“Topsino”

天誠實業有限公司 Topsino Industries Limited

“Turkey”

Republic of Turkey

– 4 –

DEFINITIONS

“2018 Annual Profit Distribution distribution of cash dividend of RMB12.00 (tax Plan” inclusive) for every 10 Shares to all Shareholders and issuance of 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 719,050,240 Shares as at 31 December 2018. If the total share capital of the Company changes during the period from the promulgation to implementation of the 2018 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 2018 Annual Profit Distribution Plan, with the distribution ratio unchanged “%” 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

– 5 –

LETTER FROM THE BOARD

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(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock code: 1513)

Executive Directors:

Mr. Tang Yanggang (President) Mr. Xu Guoxiang (Vice Chairman and Vice President) Mr. Fu Daotian (Vice President)

Non-executive Directors:

Mr. Zhu Baoguo (Chairman) Mr. Tao Desheng (Vice Chairman) Mr. Qiu Qingfeng

Independent Non-executive Directors:

Mr. Xu Yanjun 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

5 September 2019

To the Shareholders,

Dear Sir/Madam,

(I) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2020 TO 2022 (II) PROPOSED APPOINTMENT OF INDEPENDENT NON-EXECUTIVE DIRECTORS (III) PROPOSED INCREASE OF THE REGISTERED CAPITAL OF THE COMPANY (IV) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION (V) CONVENING THE EGM

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 special resolutions in relation to the followings to be proposed at the EGM:

* For identification purpose only

– 6 –

LETTER FROM THE BOARD

I. Renewal of continuing connected transactions for 2020 to 2022;
II. Proposed appointment of independent non-executive Directors;
III. Proposed increase of the registered capital of the Company; and
IV. Proposed amendments to the Articles of Association.
I. RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2020 TO 2022

INTRODUCTION

References are made to the announcements of the Company dated 5 September 2014, 24 September 2015, 25 October 2016, 14 November 2016 and 28 November 2016 and the circulars of the Company dated 7 October 2014, 22 October 2015 and 5 December 2016, in relation to, among others, the 2014 Joincare Purchases Framework Agreement, the Supplemental Agreement and the 2017 Joincare Purchases Framework Agreement, pursuant to which Joincare Group (for the purpose of this circular, excluding the Group) shall sell certain products and raw materials that are mainly used for the production of antifungal and antibiotics related drug preparation products to some members of the Group from time to time, and revised the annual caps for the three years ended 31 December 2014, 2015 and 2016 and the three years ended 31 December 2017, 2018 and 2019.

Reference is made to the Announcement. In order to renew the 2017 Joincare Purchases Framework Agreement, which will expire on 31 December 2019, and taking into account the continuous development of the Group’s business in developing and manufacturing various kinds of antifungal and antibiotics related products and new products from time to time, the Company and Joincare entered into the 2020 Joincare Purchases Framework Agreement on 16 August 2019, pursuant to which, if approved by the Independent Shareholders at the EGM, the parties have agreed conditionally to cause Joincare Group to sell products and raw materials which are mainly used for the production of antifungal and antibiotics related drug preparation products to the Group during the term of the 2020 Joincare Purchases Framework Agreement.

THE 2020 JOINCARE PURCHASES FRAMEWORK AGREEMENT

The principal terms of the 2020 Joincare Purchases Framework Agreement are as follows:

Date

16 August 2019

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LETTER FROM THE BOARD

Parties

(i) the Company (as purchaser); and
(ii) Joincare (as supplier)

Term

From 1 January 2020 to 31 December 2022

Subject Matter

The Company and Joincare agreed conditionally to cause Joincare Group to sell products and raw materials which are mainly used for the production of antifungal and antibiotics related drug preparation products to the Group during the term of the 2020 Joincare Purchases Framework Agreement. The primary products and raw materials to be purchased by the Group from Joincare Group pursuant to the 2020 Joincare Purchases Framework Agreement include 7-ACA, D7-ACA and voriconazole （伏立康唑）, which are expected to continue to account for over 90% of the total purchases from Joincare Group under the proposed annual cap for each of the three years ending 31 December 2022.

Both 7-ACA and D7-ACA are primary raw materials used for production of the Company’s cephalosporins categories bulk medicine products （頭孢類原料藥產品）, in particular the Company’s ceftriaxone sodium （頭孢曲松鈉） and crude ceftriaxone sodium（頭孢曲松粗品）.

Voriconazole is the primary raw material used for production of the Company’s voriconazole for injection（注射用伏立康唑）. Voriconazole is a broad-spectrum triazole antifungal drug mainly used for the treatment of patients with progressive immune deficiency and potential life-threatening infections. It is applicable to treatment of severe fungal infections in immune-suppressed patients, acute invasive pulmonary aspergillosis (including pathogenic agents being aspergillus fumigatus, aspergillus flavus, aspergillus niger and aspergillus terreus), severe invasive infections caused by fluconazole-resistant yeasts (including candida krusei) and severe infections caused by scedosporium species and fusarium species.

Price, payment and other transaction terms

Detailed terms such as quantities, types, prices and payment of each order shall be specified in the separate contracts to be entered into between members of the Group and Joincare Group from time to time, provided that terms of such separate contracts shall not contravene the terms of the 2020 Joincare Purchases Framework Agreement.

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LETTER FROM THE BOARD

Conditions precedent

The 2020 Joincare Purchases Framework Agreement and the transactions contemplated thereunder are subject to the fulfillment of the following conditions:

(i) all necessary disclosures in respect of the 2020 Joincare Purchases Framework Agreement and the transactions contemplated thereunder (including the proposed annual caps) having been made by the Company in accordance with the Listing Rules; and
(ii) approval from the Independent Shareholders in respect of the 2020 Joincare Purchases Framework Agreement and the transactions contemplated thereunder (including the proposed annual caps) having been obtained by the Company in accordance with the Listing Rules.

PRICING PRINCIPLES

The prices at which the products and raw materials are to be sold by Joincare Group to the Group shall be (i) the indicative prices (if any) prescribed by the national price administration department of the PRC; (ii) where (i) is not available, the comparable market prices based on quotation(s) of the same products and raw materials with comparable order quantities and quality obtained from other third party suppliers; or (iii) where (i) and (ii) are not available, the prices to be agreed between the parties, provided that such prices and other terms and conditions shall not be less favourable than the prices and terms and conditions offered by Joincare Group to third parties for similar transactions.

As at the Latest Practicable Date, there was no indicative price prescribed by the national price administrative department of the PRC for all products and raw materials purchased by the Group from Joincare Group. Accordingly, prices for all products and raw materials to be purchased from Joincare Group will be determined by reference to the prevailing market prices and being not less favourable to comparable quotations offered by other third party suppliers. In particular, the Company expects that prices for 7-ACA and D7-ACA will be principally determined with reference to the lowest price offered from the comparable quotations by two third party suppliers whereas the prices for voriconazole will be principally determined with reference to the price offered by the other third party supplier because, to the best knowledge of the Directors, there is only one supplier other than Joincare Group which supplies the required sterile raw materials for voriconazole in the PRC.

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LETTER FROM THE BOARD

are of the view that one quotation for voriconazole and two quotations for 7-ACA and D7-ACA from independent third party suppliers are practical and sufficient to ensure that purchase orders made to Joincare Group will represent prevailing market prices. Such quotations will be reviewed and evaluated from both technical and commercial perspectives, including but not limited to prices, supply stability, product quality and credit terms, by designated personnel of the Group, comprising the officer of the procurement department, the manager of the procurement department, and the senior officer of the finance department, who are specialised in procurement functions, to ensure that the prices of the products and raw materials to be purchased from Joincare Group will be no less favourable to the prices and other terms and conditions for such products and raw materials being offered by third party suppliers.

The aforesaid pricing principles are in line with the pricing principles adopted under the 2017 Joincare Purchases Framework Agreement for the three years ending 31 December 2019.

HISTORICAL TRANSACTION AMOUNTS

The historical annual caps and the historical transaction amounts under the 2017 Joincare Purchases Framework Agreement are set out as follows:

		For the year	For the year	For the year
		ended	ended	ending
		31 December	31 December	31 December
		2017	2018	2019
		(RMB million)	(RMB million)	(RMB million)
Historical	annual caps	382.00	421.00	473.00
Historical	transaction amounts	370.48	390.36	180.63(1)

Note:

(1) Representing the transaction amounts for the six months ended 30 June 2019. As at the Latest Practicable Date, the transaction amounts under the 2017 Joincare Purchases Framework Agreement has not exceed the annual cap for the year ending 31 December 2019.

PROPOSED ANNUAL CAPS

The proposed annual caps under the 2020 Joincare Purchases Framework Agreement are set out as follows:

Proposed annual caps	For the year ending 31 December 2020 2021 2022 (RMB million) (RMB million) (RMB million) 445.00 456.00 467.00

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LETTER FROM THE BOARD

BASIS OF DETERMINATION OF PROPOSED ANNUAL CAPS

The estimated breakdown of the proposed annual caps by categories of major products and raw materials under the 2020 Joincare Purchases Framework Agreement is set out as follows:

7-ACA and D7-ACA Voriconazole Buffer Total	For the year ending 31 December 2020 2021 2022 Estimated transaction amounts (RMB million) % of total proposed annual caps Estimated transaction amounts (RMB million) % of total proposed annual caps Estimated transaction amounts (RMB million) % of total proposed annual caps 381.87 85.81% 381.87 83.74% 381.87 81.77% 47.87 10.76% 58.57 12.85% 69.28 14.84% 15.26 3.43% 15.56 3.41% 15.85 3.39% 445.00 100.00% 456.00 100.00% 467.00 100.00%	For the year ending 31 December 2020 2021 2022 Estimated transaction amounts (RMB million) % of total proposed annual caps Estimated transaction amounts (RMB million) % of total proposed annual caps Estimated transaction amounts (RMB million) % of total proposed annual caps 381.87 85.81% 381.87 83.74% 381.87 81.77% 47.87 10.76% 58.57 12.85% 69.28 14.84% 15.26 3.43% 15.56 3.41% 15.85 3.39% 445.00 100.00% 456.00 100.00% 467.00 100.00%
		100.00%

In arriving the proposed annual caps for the three years ending 31 December 2022 and the respective estimated transaction amounts for each category of products and raw materials under the 2020 Joincare Purchases Framework Agreement, the Directors have mainly taken into account the estimated growth in demand of the relevant major products and raw materials required for the Group’s production plan.

The estimated growth in demand of 7-ACA and D7-ACA and voriconazole to be purchased from Joincare Group under the 2020 Joincare Purchases Framework Agreement are determined after taking into account (i) the historical transaction amounts; (ii) the Group’s business and development plan; (iii) the prevailing market condition and demand for the Group’s products, in particular cephalosporins categories bulk medicine products and voriconazole for injection; (iv) historical growth of the PRC pharmaceutical industry; (v) the prevailing market price of the relevant products and raw materials to be procured from Joincare Group; (vi) inflation rate; and (vii) buffer for unexpected demand of purchase. In particular,

(i) As for 7-ACA and D7-ACA, based on the transaction amounts for the six months ended 30 June 2019, it is expected that the transaction amounts will reach RMB339.94 million for the year ending 31 December 2019. In the six months ended 30 June 2019, the Company has successfully procured 10 new customers in China and 15 customers in the overseas (including India, Russia, Pakistan, Bangladesh and Turkey etc.), which have contributed to 1.48% and 4.76% of the Company’s total sales of cephalosporins categories bulk medicine products, respectively. The sales of cephalosporins categories bulk medicine products from the aforesaid 15 new customers in the overseas market for the six months ended 30 June 2019 has brought approximately 13.20% of growth to the overseas market as compared to the same period in

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LETTER FROM THE BOARD

For the overseas market, sales to India and Russia have accounted for 90.09% and 6.09% of the total sales of cephalosporins categories bulk medicine products in the overseas market for the six months ended 30 June 2019. Based on the aforesaid, the Directors consider that the proposed annual caps for 7-ACA and D7-ACA for 2020 to 2022, which represents approximately 12.33% increase as compared to the expected transaction amounts for the year ending 31 December 2019, is appropriate in meeting the Group’s production needs of cephalosporins categories bulk medicine products, especially in light of the growth in sales to the overseas market. As cephalosporins categories bulk medicine products produced by the Company are generic and face competition from many producers such that the market and products are relatively mature, it is expected that the market share and demand of the Group’s cephalosporins categories bulk medicine products, and hence the Group’s demand of 7-ACA and D7-ACA from Joincare Group, will remain stable in the next three years.
(ii) As for voriconazole, the Company’s market share of voriconazole for injection in China has been continuously increasing in the past three years from approximately 18% in 2016 to approximately 21% in 2018. The Group’s sales volume of voriconazole for injection increased from approximately 1,018,400 bottles to approximately 1,557,700 bottles from the year ended 31 December 2016 to the year ended 31 December 2018. The Group’s sales of voriconazole for injection increased from RMB194.78 million to RMB231.72 million for the year ended 31 December 2018, representing an increase of 18.97% as compared to the year ended 31 December 2017. In the six months ended 30 June 2019, the Company has successfully procured 388 new customers, which have contributed to 6.06% of the Company’s total sales of voriconazole for injection. In light of the aging population in the PRC, extensive application of broad-spectrum antifungal drugs, radiotherapy and chemotherapy of tumors, intubation, organ transplantation, corticosteroids and immunosuppressive drugs, fungal has accounted for increasing portion of clinical pathogens year by year, and as voriconazole is a relatively new triazole antifungal drug increasingly used for the treatment of fungal infections including aspergillus, cryptococcus neoformans, candida krusei, fluconazole-resistant candida glabrate etc., which is recommended as the preferred drug for invasive aspergillosis, the Directors expect that the demand of voriconazole for injection will continue to grow. In addition, the Company obtained the notice of approval from the National Medical Products Administration of the PRC for a new preparation model of its voriconazole for injection in late January 2019. The new preparation model of voriconazole for injection adopts the lyophilisation process, and increases solubility of voriconazole for injection through cyclodextrin inclusion technology, which offers convenient and efficient dosage to users. The Directors expect that the demand for the Company’s upgraded voriconazole for injection will further grow.

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LETTER FROM THE BOARD

(iii) With the continuing development of the business of the Group, a small buffer of approximately 3.4% has been included for the next three years to accommodate for the growth of the Group’s products. The Group recorded an operating income generated from operating activities of RMB8,860.66 million for the year ended 31 December 2018, representing a growth of 3.86% as compared to the year ended 31 December 2017. In particular, sales of bulk medicine and intermediates for the year ended 31 December 2018 recorded an increase of 11.95% as compared to the year ended 31 December 2017 and reached RMB2,354.28 million. Going forward, the Company plans to further strengthen promotional efforts and expand its market presence by active participation in pharmaceutical trade shows to promote its products to domestic and overseas customers, increase communication frequency with customers by our salespersons to understand their needs and requests and improve appraisal system of the Company’s sales staff. The Group expects to continue to develop and increase production of antifungal and antibiotics related products, and taking into account the production capacity of the Group’s production facilities, the purchase demand of 7-ACA and D7-ACA and voriconazole from Joincare Group is expected to increase in 2020 and remain stable in 2021 and 2022, and increase continuously in the next three years respectively.

INTERNAL CONTROL MEASURES

To further ensure that the actual prices of the products and raw materials to be purchased by the Group from Joincare Group are on normal commercial terms as stated above and on terms no less favourable to the Group than that available third party suppliers, the Group adopts a series of internal control procedures for its daily operation as follows:

(i) Each purchase order to be placed under the 2020 Joincare Purchases Framework Agreement will be signed by the relevant officers of the department requesting such purchase, the quality control department, the finance department and the general manager of the Company.
(ii) The Group will conduct regular checks to review and assess whether the products and raw materials have been purchased in accordance with the terms of the 2020 Joincare Purchases Framework Agreement. Such checks will be conducted by the financial controller of the Group on a monthly basis and the secretary of the Board on a quarterly basis.
(iii) To ensure the continuing connected transactions under 2020 Joincare Purchases Framework Agreement will not exceed the proposed annual caps, each subsidiary is required to submit monthly sales figures to the financial department of the Company for consolidation and analysis. The Group will make procurement orders for products and raw materials in accordance with the annual procurement plan which is formulated by the finance department of the Group at the year end of the preceding year and is subject to quarterly review. In particular, the finance department of the Company is responsible

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LETTER FROM THE BOARD

for monitoring the actual transactions amounts with Joincare Group on a monthly basis to ensure that the proposed annual caps for the respective years will not be exceeded. In the event the amount of continuing connected transactions incurred and to be incurred for a financial year is expected to exceed the proposed annual caps, the financial controller of the Company shall report to the management of the Company for its determination as to whether revision to the annual caps is required to ensure compliance of the requirements under the Listing Rules.

(iv) The procurement department and the finance department of the Company will review the internal pricing policy or mechanism on an annual basis. In the event that the relevant departments consider adjustment to the pricing policy or mechanism is required, they shall make amendment proposals with detailed reasons and supporting materials for the management of the Company to consider and determine appropriate actions to be taken.
(v) The auditors of the Company will conduct an annual review of the transactions contemplated under the 2020 Joincare Purchases Framework Agreement.

Having considered the internal control measures mentioned above, the Directors (including the independent non-executive Directors) consider that such internal control measures are sufficient to ensure the transactions contemplated under the 2020 Joincare Purchases Framework Agreement will be entered into on normal commercial terms, and will not impair the interests of the Company and the Shareholders as a whole.

REASONS FOR ENTERING INTO THE 2020 JOINCARE PURCHASES FRAMEWORK AGREEMENT

The Company is a PRC based pharmaceutical company principally engaged in the research and development, production and sales of pharmaceutical products. Historically, the Group has commenced purchasing products and raw materials from Joincare Group which are mainly used for the production of antifungal and antibiotics related drug preparation products since the year ended 31 December 2007, and no material quality issue were found on the products and raw materials being supplied from Joincare Group. The Group has been continuously expanding its business, in order to facilitate the future growth of the Group’s business, it is anticipated that more products and raw materials are needed for the Group’s production of pharmaceutical products. Taking into account factors such as the quality, price and supply stability of products and raw materials supplied by Joincare Group and its reputation in the pharmaceutical industry, the Directors therefore consider that the continuous purchase of products and raw materials pursuant to the 2020 Joincare Purchases Framework Agreement is in the best interest of the Company in response to the Group’s business development plan and production needs.

In view of the above, the Directors (including the independent non-executive Directors) consider that the 2020 Joincare Purchases Framework Agreement (including the proposed annual caps) was entered into in the ordinary and usual course of business

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LETTER FROM THE BOARD

of the Group and on normal commercial terms on arm’s length basis, and that the terms thereof and transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

INFORMATION OF THE COMPANY

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

INFORMATION OF JOINCARE

Joincare is a joint stock company incorporated in the PRC and was listed on the Shanghai Stock Exchange in 2001. It is principally engaged in three major business segments, namely research and development, production and sales of (i) drug preparation products; (ii) bulk medicines and intermediates; and (iii) food and health-care food.

LISTING RULES IMPLICATIONS

As at the Latest Practicable Date, Joincare, being the controlling shareholder of the Company, directly and indirectly held approximately 44.81% of the total issued share capital of the Company, therefore Joincare and its associates are connected persons of the Company and the transactions contemplated under the 2020 Joincare Purchases Framework Agreement constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules. As the highest applicable percentage ratio for the proposed annual caps under the 2020 Joincare Purchases Framework Agreement exceeds 5% on an annual basis, the transactions contemplated thereunder are therefore subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. Joincare, Haibin Pharma, Topsino and their respective associates, in aggregate holding approximately 44.81% of the total issued share capital of the Company as at the Latest Practicable Date, will be required to abstain from voting on the relevant resolution to be proposed at the EGM.

Given that (i) Mr. Zhu Baoguo, the non-executive Director and the chairman of the Company, is also the chairman of Joincare and indirectly holds 50.59% equity interest in Joincare 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 were deemed to have a material interest in the 2020 Joincare Purchases Framework Agreement and transactions contemplated thereunder and had abstained from voting at the Board meetings approving the 2020 Joincare Purchases Framework Agreement. Apart from Mr. Zhu Baoguo and Mr. Qiu Qingfeng, no other Directors were required to abstain from voting at the Board meetings approving the 2020 Joincare Purchases Framework Agreement.

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LETTER FROM THE BOARD

II. PROPOSED APPOINTMENT OF INDEPENDENT NON-EXECUTIVE DIRECTORS

Given that Mr. Guo Guoqing retired as an independent non-executive Director due to expiration of his 6-year term of office on 19 July 2019, and Mr. Wang Xiaojun will retire as an independent non-executive Director with effect from 16 September 2019, due to expiration of his 6-year term of office on 16 September 2019, the Company is required to appoint two independent non-executive Directors in place in accordance with the Listing Rules, the Company Law, the Securities Law of China and other related laws and regulations, as well as relevant provisions of the Articles of Association. Accordingly, the Company proposes the following ordinary resolutions in respect of the appointment of two independent non-executive Directors to be considered and approved at the EGM:

proposed appointment of Mr. Tian Qiusheng as an independent non-executive Director of the ninth session of the Board; and
proposed appointment of Mr. Wong Kam Wa as an independent non-executive Director of the ninth session of the Board

The biographical details of Mr. Tian Qiusheng and Mr. Wong Kam Wa are set out as follows:

Mr. Tian Qiusheng, aged 64, a doctor of economics, professor and doctoral tutor. He had studied at Lanzhou University, Nankai University and Northwest University. From July 1982 to July 2005, he taught at Lanzhou University and served as deputy director of the Department of Economics and deputy head of the School of Economics and Management of Lanzhou University. Since July 2005 to present, he has taught at South China University of Technology. From October 2005 to June 2017, he served as deputy head of the School of Economics and Trade of South China University of Technology. He is currently a member of the China International Finance Society, a guest economist of China Economic Monitoring Center of National Bureau of Statistics of China, a member of the Academic Committee under the Guangdong Financial Institute, a financial consultant for Guangdong province, a vice president of the Guangdong Financial Think-tank Federation and a counselor of the Guangdong People’s Government. He has been an independent director of Zhuhai Port Co., Ltd. (000507.SZ) from December 2014 to present, an independent director of Guangzhou Lingnan Group Holdings Company Limited (000524.SZ) from August 2017 to present, and an independent non-executive director of Fineland Real Estate Services Group Limited (08376.HK) from October 2017 to present.

Mr. Wong Kam Wa, aged 48, a lawyer. Mr. Wong Kam Wa graduated from the University of Hong Kong with a Bachelor Degree of Engineering and a Certificate in Law. From May 2011 to March 2016, he worked for Loeb & Loeb LLP. From April 2016 to July 2019, he worked for Anthony Siu & Co.. Since July 2019, he has been a partner of TW Partners.

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LETTER FROM THE BOARD

Each of Mr. Tian Qiusheng and Mr. Wong Kam Wa has not taken up any other positions in the Company or any of its subsidiaries. Save as disclosed above, each of Mr. Tian Qiusheng and Mr. Wong Kam Wa has not held any current directorship in other listed companies and in the three years preceding the Latest Practicable Date.

As at the Latest Practicable Date, each of Mr. Tian Qiusheng and Mr. Wong Kam Wa (i) has no relationship with any Directors, supervisors, senior management or substantial or controlling shareholders of the Company; and (ii) has no interests in the shares or underlying shares of the Company within the meaning of Part XV of the SFO.

Upon the appointment of Mr. Tian Qiusheng and Mr. Wong Kam Wa, each of them will enter into a service contract with the Company, and each will be entitled to annual director fees of RMB96,000 during his tenure. Such fee is determined with reference to their duties and responsibilities within the Company, the Company’s remuneration policy and the market salary range for the positions. The term of Mr. Tian Qiusheng’s and Mr. Wong Kam Wa’s appointment as independent non-executive Directors shall commence on the date of approval of their respective appointment by the EGM up to the expiry of the term of the ninth session of the Board.

Saved as disclosed above, there is no other matter which needs to be brought to the attention of the Shareholders in relation to the aforesaid proposed appointment of independent non-executive Directors and there is no information required to be disclosed pursuant to any of the requirements under Rules 13.51(2)(h) to 13.51(2)(v) of the Listing Rules.

III. PROPOSED INCREASE OF THE REGISTERED CAPITAL OF THE COMPANY

As the 2018 Annual Profit Distribution Plan of the Company was considered and approved at the annual general meeting for the year 2018, the 2019 second class meeting of A Shareholders and the 2019 second class meeting of H Shareholders held on 30 May 2019, and was completed on 26 July 2019, therefore the Company’s total issued share capital increased from 719,048,212 Shares (including 472,998,814 A Shares and 246,049,398 H Shares) to 934,762,675 Shares (including 614,898,458 A Shares and 319,864,217 H Shares), and the registered capital of the Company increased from RMB719,048,212 to RMB934,762,675.

Accordingly, the Company proposes a special resolution in respect of the increase of the registered capital of the Company to reflect the changes in the total number of issued Shares and registered capital of the Company as a result of the completion of the 2018 Annual Profit Distribution Plan to be considered and approved at the EGM.

IV. PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

As the total issued share capital of the Company has been increased from 719,048,212 shares to 934,762,675 shares, and the registered capital of the Company has been increased from RMB719,048,212 to RMB934,762,675, the Company proposes to amend the Articles of Association as follows:

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LETTER FROM THE BOARD

Existing Articles of Association

Article 6 The registered capital of the Company is RMB719,048,212.

Article 21 Following the establishment of the Company, after public issuance of shares, rights issue, creation of bonus shares by transfer of capital reserve and undistributed profit and repurchase of foreign-invested shares, the share capital structure of the Company is changed as follows: 295,721,852 ordinary shares, of which 183,728,498 shares are domestic-listed domestic-invested shares, representing 62.13% of the total number of issued ordinary shares of the Company and 111,993,354 shares are domestic-listed foreign-invested shares, representing 37.87% of the total number of issued ordinary shares of the Company

.......

Approved by the board of directors of the Company with authorization of the shareholders’ general meeting, after the Company has completed the repurchase and cancellation of locked restricted shares granted to incentive participants no longer satisfying the conditions for incentive, the share capital structure of the Company is changed as follows: 719,048,212 ordinary shares, of which 472,998,814 shares are domestic-listed domestic-invested shares and 246,049,398 shares are overseas-listed foreign-invested shares (H Shares), representing 65.78% and 34.22% of the total number of issued ordinary shares of the Company respectively.

Revised Articles of Association

Article 6 The registered capital of the Company is RMB 934,762,675 .

.......

As approved by a special resolution passed at the shareholders’ general meeting, after the Company has completed the bonus issue by way of capitalising capital reserve to all shareholders, the share capital structure of the Company is changed as follows: 934,762,675 ordinary shares, of which 614,898,458 shares are domestic-listed domestic-invested shares and 319,864,217 shares are overseas-listed foreign-invested shares (H Shares), representing 65.78% and 34.22% of the total number of issued ordinary shares of the Company respectively.

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LETTER FROM THE BOARD

Save for the proposed amendments to the Articles of Association set out above, other provisions in the Articles of Association remain unchanged.

The Company confirms that the proposed amendments to the Articles of Association will not have any adverse effect to the existing businesses and operations of the Group and the Directors confirm that the proposed amendments to the Articles of Association are in compliance with the Listing Rules. As confirmed by the Company’s PRC legal adviser, the proposed amendments to the Articles of Association comply with the applicable PRC laws and regulations.

The proposed amendments to the Articles of Association are subject to the approval of Shareholders by way of special resolution at the EGM. The Articles of Association and aforesaid proposed amendments are written and prepared in Chinese, therefore the English version is a mere translation for reference purpose only. If there is any inconsistency between the English translation and the Chinese version, the Chinese version shall prevail.

V. CONVENING THE EGM

EGM Notice, Reply Slip for Attendance and Proxy Form

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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 EGM and the H Shareholders’ Class Meeting, the register of members of the Company will be closed from Saturday, 14 September 2019 to Tuesday, 15 October 2019, both days inclusive, during which no transfer of shares will be registered. In order to qualify for attending and voting at the EGM, 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, 13 September 2019.

VI. RECOMMENDATIONS

The Independent Board Committee and the Board, having taken into account the advice of the Independent Financial Adviser, consider that the 2020 Joincare Purchases Framework Agreement (including the proposed annual caps) was entered into in the ordinary and usual course of business of the Group and on normal commercial terms on arm’s length basis, and that the terms thereof and transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee and the Board recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM.

Furthermore, the Board considers that the other resolutions set out in the EGM Notice in relation to (i) the proposed appointment of independent non-executive Directors; (ii) the proposed increase of the registered capital of the Company and (iii) the proposed amendments to the Articles of Association are in the best interests of the Company and the Shareholders as a whole, and recommends Shareholders to vote in favour of the aforesaid resolutions at the EGM.

VII. VOTING BY POLL

Pursuant to Rule 13.39(4) of the Listing Rules, all resolutions put forward at the EGM 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 Listing Rules after the EGM.

VIII.ADDITIONAL INFORMATION

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

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

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock code: 1513)

5 September 2019

To the Independent Shareholders

Dear Sir or Madam,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2020 TO 2022

We refer to the circular dated 5 September 2019 issued by the Company (the “ Circular ”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

We have been appointed to advise the Independent Shareholders in connection with the terms of the 2020 Joincare Purchases Framework Agreement (including the proposed annual caps) and the transactions contemplated thereunder. Frontpage Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

After taking into account the advice of the Independent Financial Adviser as set out from pages 22 to 34 of the Circular, we are of the view that the 2020 Joincare Purchases Framework Agreement (including the proposed annual caps) was entered into in the ordinary and usual course of business of the Group and on normal commercial terms on arm’s length basis, and that the terms thereof and transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the 2020 Joincare Purchases Framework Agreement, the transactions contemplated thereunder and the proposed annual caps.

Yours faithfully,

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

* For identification purpose only

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the text of a letter received from Frontpage Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the 2020 Joincare Purchases Framework Agreement, the transactions contemplated thereunder and the proposed annual caps for the purpose of inclusion in this circular.

5 September 2019

The Independent Board Committee and the Independent Shareholders of

Livzon Pharmaceutical Group Inc.*

Dear Sirs or Madams,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2020 TO 2022

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the entering of 2020 Joincare Purchases Framework Agreement with Joincare. Details of such transactions and the annual cap are set out in the letter from the Board (the “ Board Letter ”) contained in the circular of the Company dated 5 September 2019 issued to the Shareholders (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular, unless the context requires otherwise.

In order to renew the 2017 Joincare Purchases Framework Agreement, which will expire on 31 December 2019, and taking into account the continuous development of the Group’s business in developing and manufacturing various kinds of antifungal and antibiotics related products and new products from time to time, the Company and Joincare entered into the 2020 Joincare Purchases Framework Agreement on 16 August 2019, pursuant to which, if approved by the Independent Shareholders at the EGM, the parties have agreed conditionally to cause Joincare Group to sell products and raw materials which are mainly used for the production of antifungal and antibiotics related drug preparation products to the Group during the term of the 2020 Joincare Purchases Framework Agreement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

transactions contemplated thereunder are therefore subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising Mr. Xu Yanjun, Mr. Wang Xiaojun, Mr. Zheng Zhihua and Mr. Xie Yun, being all the independent non-executive Directors, has been established to advise the Independent Shareholders in respect of the 2020 Joincare Purchases Framework Agreement (including the proposed annual caps) and the transactions contemplated thereunder. Our role as Independent Financial Adviser is to give our opinion and recommendation as to whether the 2020 Joincare Purchases Framework Agreement (including the proposed annual caps) and the transactions contemplated thereunder are on normal commercial terms, in the ordinary and usual course of business of the Company, fair and reasonable insofar as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

BASIS OF OUR OPINION

In formulating our opinion and recommendation, we have considered, among other things, (i) terms of the 2020 Joincare Purchases Framework Agreement; (ii) terms of the 2017 Joincare Purchases Framework Agreement; (iii) the 2016, 2017 and 2018 annual reports of the Company; (iv) the 2019 interim report of the Company; (v) the prospectus of the Company dated 14 January 2014; and (vi) other information as set out in the Circular.

We have also relied on all relevant information, opinions and facts supplied and representations made to us by the Company, the Directors and the representatives of the Company. We have assumed that all such information, opinions, facts and representations provided to us or contained or referred to in the Circular, for which the Directors and the representatives of the Company are fully responsible, true and accurate in all respects as at the date hereof and may be relied upon. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company, and the Company has confirmed that no material facts have been withheld or omitted from the information provided and referred to in the Circular, which would make any statement therein misleading.

We consider that we have reviewed sufficient information currently available to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis for our recommendation. We have not, however, carried out independent verification of the information provided by the Directors and the representatives of the Company, nor have we conducted any form of in-depth investigation into the businesses, affairs, operations, financial position or future prospects of the Group, Joincare Group or any of their respective subsidiaries or associates.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

OUR INDEPENDENCE

We are not connected with the Directors, chief executive and substantial shareholders of the Company, Joincare Group or any of their respective subsidiaries or associates and do not have any shareholding, direct or indirect, in any member of the Company or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Company as at the Latest Practicable Date. There is no arrangement exists whereby we will receive any benefits from the Company or the Directors, chief executive and substantial shareholders of the Company, Joincare Group or any of their respective subsidiaries or associates for our services to the Company in connection with this appointment aside from our professional fees. In 24 August 2018, we have been engaged by the Company as an independent financial adviser in relation to a continuous connected transaction which did not materialise. Despite the previous engagement, we consider our independence in regard to our engagement to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the 2020 Joincare Purchases Framework Agreement unaffected due to the fact that under the previous engagements, (i) our role was independent in nature; (ii) we were only entitled to receive normal professional fees that are comparable to market rates and in line with general market practice; and (iii) we are independent from the Company in accordance to Rule 13.84 of the Listing Rules as none of the circumstance stated therein is relevant to us. Therefore, we consider ourselves eligible to act as the Independent Financial Adviser to the Company under the requirements of the Listing Rules.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating and giving our opinion to the Independent Board Committee and the Independent Shareholders in relation to the transactions contemplated under the 2020 Joincare Purchases Framework Agreement and the proposed annual cap, we have taken into account the following principal factors and reasons:

I. Background

References are made to the announcements of the Company dated 5 September 2014, 24 September 2015, 25 October 2016, 14 November 2016 and 28 November 2016 and the circulars of the Company dated 7 October 2014, 22 October 2015 and 5 December 2016, in relation to, among others, the 2014 Joincare Purchases Framework Agreement, the Supplemental Agreement and the 2017 Joincare Purchases Framework Agreement, pursuant to which Joincare Group shall sell certain products and raw materials that are mainly used for the production of antifungal and antibiotics related drug preparation products to some members of the Group from time to time, and revised the annual caps for the three years ended 31 December 2014, 2015 and 2016 and the three years ended 31 December 2017, 2018 and 2019.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

16 August 2019, pursuant to which, if approved by the Independent Shareholders at the EGM, the parties have agreed conditionally to cause Joincare Group to sell products and raw materials which are mainly used for the production of antifungal and antibiotics related drug preparation products to the Group during the term of the 2020 Joincare Purchases Framework Agreement.

II. Information of the Company

III. Information of Joincare Group

Joincare is a joint stock company incorporated in the PRC and was listed on the Shanghai Stock Exchange in 2001. It is principally engaged in three major business segments, namely research and development, production and sales of (i) drug preparation products; (iib) bulk medicines and intermediates; and (iii) food and health-care food.

IV. 2020 Joincare Purchases Framework Agreement

Date: 16 August 2019

Parties: (i) the Company (as purchaser); and (ii) Joincare (as supplier)

Terms: From 1 January 2020 to 31 December 2022

Subject Matter

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

deficiency and potential life-threatening infections. It is applicable to treatment of severe fungal infections in immune-suppressed patients, acute invasive pulmonary aspergillosis (including pathogenic agents being aspergillus fumigatus, aspergillus flavus, aspergillus niger and aspergillus terreus), severe invasive infections caused by fluconazole-resistant yeasts (including candida krusei) and severe infections caused by scedosporium species and fusarium species.

Price, payment and other transaction terms

Conditions Precedent

The 2020 Joincare Purchases Framework Agreement and the transactions contemplated thereunder are subject to the fulfillment of the following conditions:

(i) all necessary disclosures in respect of the 2020 Joincare Purchases Framework Agreement and the transactions contemplated thereunder (including the proposed annual caps) having been made by the Company in accordance with the Listing Rules; and
(ii) approval from the Independent Shareholders in respect of the 2020 Joincare Purchases Framework Agreement and the transactions contemplated thereunder (including the proposed annual caps) having been obtained by the Company in accordance with the Listing Rules.

Pricing principles

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

price offered from the comparable quotations by two third party suppliers whereas the prices for voriconazole will be principally determined with reference to the price offered by the other third party supplier because, to the best knowledge of the Directors, there is only one supplier other than Joincare Group which supplies the required sterile raw materials for voriconazole in the PRC.

In determining the prevailing market price of the products and raw materials for a particular purchase order, subject to availability of quotations at the particular time, the Group will invite one to two quotations from third party suppliers to provide a reference on the prevailing market prices for the relevant products and raw materials to be purchased from Joincare Group. Given that, to the best knowledge of the Directors, except Joincare Group, there are only one independent third party supplier for voriconazole and no more than five independent third party suppliers for 7-ACA and D7-ACA in the PRC market that meet the requirements of the Company, the Directors are of the view that one quotation for voriconazole and two quotations for 7-ACA and D7-ACA from independent third party suppliers are practical and sufficient to ensure that purchase orders issue to Joincare Group will represent prevailing market prices. Such quotations will be reviewed and evaluated from both technical and commercial perspectives, including but not limited to prices, supply stability, product quality and credit terms, by designated personnel of the Group, comprising the officer of the procurement department, the manager of the procurement department, and the senior officer of the finance department, who are specialised in procurement functions, to ensure that the prices of the products and raw materials to be purchased from Joincare Group will be no less favourable to the prices and other terms and conditions for such products and raw materials being offered by third party suppliers.

The aforesaid pricing principles are in line with the pricing principles adopted under the 2017 Joincare Purchases Framework Agreement for the three years ending 31 December 2019.

We are of the view that the above pricing principle is fair and reasonable as the PRC government has previously fixed price of certain medicine in 1998 and subsequently adjusted the pricing in 2000, 2005 and 2006. In 2014, the PRC government promulgated the《關於改進低價藥品價格管理有關問題的通知》and the《推進藥品價格改革的意見》in 2015. As such, it is common for the PRC government to regulate the marketing and pricing of medicine, and the Group and Joincare Group will be required to comply with government rulings or regulation if they exist. In the absence of such regulations or policies, utilising the market rate as a benchmark by obtaining quotation from another supplier is fair and reasonable as the market rate will be equal to the price when the Group acquire the said materials from independent third party suppliers. As the products and raw materials sold by Joincare Group are a form of commodities or raw materials, it is unlikely there will be an absence of a market price and thus the negotiated pricing between both parties is unlikely to occur. In the unlikely event that no market price is available, and the negotiated or agreed pricing is used, it will be no less favourable than the prices and terms and conditions offered by Joincare Group to third parties thus ensuring that the pricing will always be favourable

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

to the Group. As such, we are of the view that such pricing principle is fair and reasonable, on normal commercial terms, in the ordinary and usual course of business, and in the interest of the Company and Shareholder as a whole.

In order to assess that the Group has complied with the pricing principles as stated above, we enquired and understood from the Company that all the products purchased by Group’s from Joincare Group had a market price and were not medicine regulated by the PRC government. Therefore, we have obtained and reviewed 3 random samples of quotations of 7-ACA and D7-ACA, as well as voriconazole issued by independent third party suppliers and invoices issued by the Joincare Group from each of the past 3 years where available. We consider that the sample size is sufficient and reasonable as the Company places very few orders of approximately 1 to 2 times per month for 7-ACA and D7-ACA and only approximately 3 to 4 times per year for voriconazole. As for voriconazole, the Company only quote from one independent third party supplier because of the stringent and sterile requirement that the Company requires to make voriconazole for injection as opposed to oral voriconazole. In light of the limited number of suppliers, it is reasonable for the Company to refer to only one independent third party supplier quotation as quoting from unqualified suppliers would not provide a comparative pricing as quality of their products may not be similar. In addition, the quotations are usually valid for at least 1 month and some up to almost 2 months, and thus we are of the view that the sample size is sufficient.

Based on the foresaid quotations and invoices, we noted that the prices paid by the Company to Joincare is no less favourable than the prices charge by independent third party suppliers. As such, we are satisfied that the Group has complied with the pricing principles adopted under the 2017 Joincare Purchases Framework Agreement, which is in line with the pricing principles of the 2020 Joincare Purchases Framework Agreement. As the prices charged by the Joincare Group is no less favourable than prices quoted from independent third party suppliers, we are of the view that the pricing principle of the 2020 Joincare Purchases Framework Agreement is fair and reasonable, on normal commercial terms, in the ordinary and usual course of business, and in the interest of the Company and Shareholder as a whole.

Historical transaction amounts

The historical annual caps and the historical transaction amounts under the 2017 Joincare Purchases Framework Agreement are set out as follow:

		Historical figures for the following periods:	Historical figures for the following periods:	Historical figures for the following periods:
		For the	For the	For the
		year ended	year ended	year ending
		31 December	31 December	31 December
		2017	2018	2019
		(RMB million)	(RMB million)	(RMB million)
Historical	annual caps	382.00	421.00	473.00
Historical	transaction amounts	370.48	390.36	180.63(1)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

(1) Representing the transaction amounts for the six months ended 30 June 2019. As at the Latest Practicable Date, the transaction amounts under the 2017 Joincare Purchases Framework Agreement has not exceed the annual cap for the year ending 31 December 2019.

Proposed annual caps

The proposed annual caps under the 2020 Joincare Purchases Framework Agreement are set out as follow:

For the year ending 31 December 2020 2021 2022 (RMB million) (RMB million) (RMB million) Proposed annual caps 445.00 456.00 467.00

Basis of determination of proposed annual caps

The estimated breakdown of the proposed annual caps by categories of major products and raw materials under the 2020 Joincare Purchases Framework Agreement is set out as follow:

		For the year ending 31 December	For the year ending 31 December	For the year ending 31 December	For the year ending 31 December
	2020		2021		2022
	Estimated	% of total	Estimated	% of total	Estimated	% of total
	transaction	proposed	transaction	proposed	transaction	proposed
	amounts	annual caps	amounts	annual caps	amounts	annual caps
	(RMB million)		(RMB million)		(RMB million)
7-ACA and
D7-ACA	381.87	85.81%	381.87	83.74%	381.87	81.77%
Voriconazole	47.87	10.76%	58.57	12.85%	69.28	14.84%
Buffer	15.26	3.43%	15.56	3.41%	15.85	3.39%
Total	445.00	100.00%	456.00	100.00%	467.00	100.00%

The estimated growth in demand for 7-ACA and D7-ACA and voriconazole to be purchased from Joincare Group under the 2020 Joincare Purchases Framework Agreement are determined after taking into account (i) the historical transaction amounts; (ii) the Group’s business and development plan; (iii) the prevailing market condition and demand for the Group’s products, in particular cephalosporins categories bulk medicine products and voriconazole for injection; (iv) historical growth of the PRC pharmaceutical industry; (v) the prevailing market price of the relevant products and raw materials to be procured from Joincare Group; (vi) inflation rate; and (vii) buffer for unexpected demand of purchase.

Based on the historical annual caps and proposed annual caps table above, we noted that (i) the utilisation rates of the historical annual caps were approximately 97.0% and 92.7% for the years ended 31 December 2017 and 2018, respectively; (ii) for the year ending 31 December 2019, if we annualise the historical transaction amount for the 6 months ended 30 June 2019, the utilisation rate is approximately

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

76.4%. The decline in utilisation rate for the first 6 months of 2019 is mainly attributable to the lower amount of voriconazole accounted during this period, which is further explained below; (iii) the proposed annual cap for the year ending 31 December 2020 will decrease by 5.9% as compared to the historical annual cap for the year ending 31 December 2019, and will subsequently increase by 2.5% for the year ending 2021 and 2.4% for the year ending 31 December 2022; and (iv) the proposed annual caps expected to be contributed by 7-ACA and D7-ACA remained steady at RMB381.87 million per annum for the 3 years ending 31 December 2022, while voriconazole contribution is expected to grow from 10.76% of the proposed annual caps in 2020 to 14.84% of the proposed annual caps in 2022, with estimated transaction amounts growing from RMB47.87 million per annum in 2020 to RMB69.28 per annum in 2022.

In assessing the fairness and reasonableness of the proposed annual caps under the 2020 Joincare Purchases Framework Agreement, we have discussed with the Company and conducted work done and analysis as set out below to understand the transaction amount used to arrive at the proposed annual caps used for the purchase of 7-ACA, D7-ACA and voriconazole.

As stated in the Board Letter, the proposed annual cap expected to be contributed by 7-ACA and D7-ACA is arrived by annualising the historical transaction amount of RMB169.97 million for the 6 months ended 30 June 2019 to approximately RMB339.94 million, and an additional increase of 12.33% for expected increases in demand. We noted that historically, the Group has purchased 7-ACA and D7-ACA from the Joincare Group in the amount of RMB335.71 million and RMB344.38 million for the financial years ended 31 December 2017 and 2018, respectively. Therefore, the annualised historical transaction amount of approximately RMB339.94 million is in-line with the historical amount incurred in the previous 2 years. In addition, as disclosed in the Board Letter, new customers in the PRC and overseas in the first 6 months of 2019 has contributed in aggregate of 6.24% of sales of cephalosporin bulk medicine products, and the new overseas customer has brought about 13.20% of growth to the overseas market as compared to the 6 months period ended 30 June 2018. Therefore, we are of the view that setting the proposed annual caps for the year ending 31 December 2020 based on historical amount of 7-ACA and D7-ACA purchased from Joincare together with a growth of 12.33% is fair and reasonable, and in the interest of the Company and Shareholders as a whole.

As for the proposed annual caps for 7-ACA and D7-ACA for the years ending 31 December 2021 and 2022, the Company expects the demand for their cephalosporins categories bulk medicine products to remain stable and hence proposed annual caps for both years to be the same as the amount for the year ending 31 December 2020 of RMB381.87 million. We have discussed with the Company and noted that cephalosporins categories bulk medicine products produced by the Company are generic and face competition from many producers. Although the Company is working diligently to increase the sales of their products, there is no assurance that the Company could grow its market share significantly as the market and products are relatively mature. We have performed research on cephalosporin and noted that this class of antibiotic was first discovered more than 70 years ago in 1945 and has gone

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

through various generations, with the latest being the fifth generation. Based on the website of drugs.com, the largest, most widely visited, independent medicine information website available on the internet, cephalosporin is ranked third in terms of the most common class of antibiotics used, hence a commonly used antibiotic. We have also researched a report titled “Global increase and geographic convergence in antibiotic consumption between 2000 and 2015” published by The Proceedings of the National Academy of Sciences (www.pnas.org), the official journal of the National Academy of Sciences, an authoritative source of high-impact, original research that broadly spans the biological, physical, and social sciences, which was published on 23 February 2018. According to the aforesaid report, global consumption of antibiotic is projected to increase 15% between 2015 and 2030, or approximately 1% per annum, assuming no changes in policy and the current consumption level continues. Based on the aforesaid, we concur with the Company that the growth in 7-ACA and D7-ACA will not be significant. Thus, setting the proposed annual caps for 7-ACA and D7-ACA at a constant level for the 3 years ending 31 December 2022 is fair and reasonable, and in the interest of the Company and Shareholders as a whole.

Based on the annual caps of voriconazole in the Board Letter, the Company implied the demand for voriconazole to grow at rates of 22.35% from RMB47.87 million per annum in 2020 to RMB58.57 million per annum in 2021 and 18.29% from RMB58.57 million per annum in 2021 to RMB69.28 million per annum in 2022. We noted that for the 6 months ended 30 June 2019, the amount purchased by the Company only amounted to RMB10.55 million. We have discussed with the Company on the reasons for the lower that usual purchase for voriconazole and noted that the Company has developed a new preparation model of voriconazole for injection. Once the new preparation model obtained the regulatory approval, the production of the previous preparation model had to be stopped. Before the new preparation model was launched to the market, it took time for the Company to plan the new production techniques and marketing strategies for the new preparation model. In late January 2019, the Company obtained the notice of approval from the National Medical Products Administration of the PRC for the new preparation model of voriconazole for injection and the new preparation model was launched to the market in May 2019. The aforesaid changes to the product led to the production of voriconazole for injection being delayed and orders for its raw materials were also pushed back. While only RMB10.55 million of voriconazole was accounted during the 6 months ended 30 June 2019, a similar quantity was already ordered during the same period but was not reflected in the financial reports for the 6 months ended 30 June 2019 as the order was still under testing thus order acceptance, invoicing and payment has yet to occur as at 30 June 2019. Under the new preparation model, the voriconazole for injection is expected to be more effective than the previous preparation model, and the Company expect sales under the new preparation model to perform better. Therefore, the Company expects future production levels to outperform historical level once the new preparation model of voriconazole for injection becomes increasingly popular and the demand level rises. We are of the view that the proposed annual cap for voriconazole for the year ending 31 December 2020 in the amount of RMB47.87 million is fair and reasonable as it is slightly higher than the historical transaction amount of RMB45.58 million for the year ended 31 December 2018, in anticipation for the better sales of the new preparation model of voriconazole for injection.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As for the growth of voriconazole, we have obtained sales data of the Company’s voriconazole for injection and compared it to their market data obtained from IMS Health, an American company that provides information, services and technology for the healthcare industry, which is a subsidiary of IQVIA listed on the New York Stock Exchange. Based on the sales data of the Company’s voriconazole for injection, the Company managed to grow its sales annually from 47% in 2014 to 21% in 2018 in terms of the number of bottles of voriconazole for injection sold. In terms of value amount, the sales of the voriconazole for injection of the Company grew at 24.72% for the year ended 31 December 2017 and 18.97% for the year ended 31 December 2018. When compared to the aforesaid market data, the Company’s market share for voriconazole for injection in the PRC increase from approximately 16% in 2014 to approximately 21% in 2018. As such, the growth of the Company’s voriconazole for injection was historically higher or almost in-line with the current proposed annual caps growth for voriconazole for 2021 and 2022 of 22.35% and 18.29%, respectively. In addition, based on the IMS Health data, we also noted that there are only 5 major suppliers for voriconazole for injection in the PRC, out of which includes a leading global pharmaceutical company and the Company. This small number of competitors would allow the Company to grow its sales of voriconazole for injection easily as compared to a market with large number of competitors. As a result, we are of the view that the proposed annual caps for voriconazole are fair and reasonable and in the interest of the Company and Shareholders as a whole.

In determining if the buffer used is fair and reasonable, we have looked at the amount of products and raw materials purchased from Joincare Group under their previous continuing connected transaction for the last 5 years. Specifically, we noted that for the year ended 31 December 2014, the Company had a historical transaction amount of RMB237.82 million, which has grown to RMB390.36 million for the year ended 31 December 2018. This implies a compound annual growth rate of approximately 13.2%, which is significantly higher than the proposed buffer of approximately 3.4% for each of the 3 years ending 31 December 2022. As a result, we are of the view that the proposed annual caps for the 3 years ending 31 December 2022, which were determined based on the total of the proposed annual caps for 7-ACA and D7-ACA, voriconazole, and a reasonable buffer, are fair and reasonable, and in the interest of the Company and Shareholders as a whole.

Internal control measure

The Group has adopted internal control measures and policies in respect of continuing connected transactions to provide an effective framework for corporate governance and risk management and monitoring all continuing connected transactions of the Group. We noted that the Group has implemented internal control procedures and policies on continuing connected transactions to monitor continuing connected transactions and to ensure that all continuing connected transactions are entered into in accordance with pricing policies and are fair and reasonable and in the interests of the Company and the Shareholders as a whole. For details of the internal control procedures on continuing connected transactions, please refer to the paragraph headed “Internal Control Measures” in the Board Letter.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pursuant to Rule 14A.55 of the Listing Rules, the independent non-executive Directors are required to review the Group’s continuing connected transactions annually and confirm in the Company’s annual report that they have been (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms; and (iii) in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole. In compliance with the Listing Rules, the Company will engage auditors to report on the Group’s continuing connected transactions for each of the years ending 31 December 2020, 2021 and 2022.

With reference to the 2018 Annual Report, the Company’s auditors were engaged to report on the Group’s continuing connected transactions in accordance with Accounting Standards for Business Enterprises – Basic Standard and 38 specific accounting standards issued by the Ministry of Finance of the PRC on 15 February 2006 and the Application Guidance to Accounting Standards for Business Enterprises, Interpretations of Accounting Standards for Business Enterprises and other related requirements subsequently issued. The auditors have issued an unqualified letter containing its findings and conclusions in respect of the continuing connected transactions, including transactions contemplated under the 2017 Joincare Purchases Framework Agreement, disclosed by the Group in the 2018 Annual Report in accordance with Rule 14A.56 of the Listing Rules. It is further noted from the 2018 Annual Report that the Directors, including the independent non-executive Directors, considered that all of the Group’s continuing connected transactions, including transactions contemplated under the 2017 Joincare Purchases Framework Agreement, for the year ended 31 December 2018 and their respective annual caps are fair and reasonable, and that such transactions have been and will be entered into in the ordinary and usual course of the business of the Group, on normal commercial terms, are fair and reasonable, and in the interests of the Group and Shareholder as a whole.

We have reviewed documents provided by the Company and noted that the orders were placed following procedures and checks by the relevant department and/or personnel as outlined in the paragraph headed “Internal Control Measures” in the Board Letter.

Given the above, we consider there exists appropriate procedures and arrangements to ensure that the transactions contemplated under the 2020 Joincare Purchases Framework Agreement will be conducted on terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and on normal commercial terms or better and in the ordinary and usual course of business of the Group.

V. Reasons for entering into the 2020 Joincare Purchases Framework Agreement

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

on the products and raw materials being supplied from Joincare Group. The Group has been continuously expanding its business, in order to facilitate the future growth of the Group’s business, it is anticipated that more products and raw materials are needed for the Group’s production of pharmaceutical products. Taking into account factors such as the quality, price and supply stability of products and raw materials supplied by Joincare Group and its reputation in the pharmaceutical industry, the Directors therefore considers that the continuous purchase of products and raw materials pursuant to the 2020 Joincare Purchases Framework Agreement is in the best interest of the Company in response to the Group’s business development plan and production needs.

We concur with the Director’s view that the 2020 Joincare Purchases Framework Agreement, which ensures supply chain of raw materials is constant and comes from a reliable source, will allow the Group to better control the quality and supply of the raw materials used to manufacture products sold by the Group, thus enhancing and ensuring the products sold by the Group is always maintained at high quality level, which is fair and reasonable, on normal commercial terms, in the ordinary and usual course of business and in the interest of the Company and Shareholders as a whole.

RECOMMENDATION

Based on the principal factors and reasons as set out above, in particular (i) the prices charged by Joincare will always be no less favourable than the prices that the Group could obtain from independent third party suppliers; (ii) the proposed annual caps of the 2020 Joincare Purchases Framework Agreement is within the range of the amount historically consumed by the Group; and (iii) the 2020 Joincare Purchases Framework Agreement could ensure the quality and stability of the supply of products and raw materials to the Group from Joincare Group, we consider that the terms of the 2020 Joincare Purchases Framework Agreement and the proposed annual cap contemplated thereunder are fair and reasonable insofar as the Independent Shareholders are concerned, and the entering into such agreement is on normal commercial terms, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend and we also recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the 2020 Joincare Purchases Framework Agreement and the proposed annual cap contemplated thereunder.

Yours faithfully, For and on behalf of Frontpage Capital Limited Chai Yee Choong Director

Note: Mr. Chai Yee Choong is a licensed person registered with the Securities and Futures Commission of Hong Kong and a responsible officer of Frontpage Capital Limited to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance. He has over 10 years of experience in corporate finance.

For identification purpose only

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS BY DIRECTORS, PROPOSED DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE OF THE COMPANY

As at the Latest Practicable Date, the interests and short positions of the Directors, the Proposed 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) (i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required, pursuant to the Model Code to be notified to the Company and the Stock Exchange, were as follows:

Interest in Shares, underlying Shares and debentures of the Company

			% to the
			total
			number of	% to the
			the relevant	total
			class of	number of
			Shares in	Shares in
Name of Director	Capacity	Number of Shares(1)	issue	issue
Mr. Zhu Baoguo	Interest of controlled	255,513,953 A Shares (L)(2)(4)	41.55%	27.33%
	corporations	163,364,672 H Shares (L)(3)(4)	51.07%	17.48%
Mr. Tao Desheng	Beneficial owner	801,350 A Shares (L)(5)
	Spouse interest	184,246 A Shares (L)(6)
		985,596 A Shares (L)	0.16%	0.11%
Mr. Xu Guoxiang	Beneficial owner	801,350 A Shares (L)(7)	0.13%	0.09%
Mr. Fu Daotian	Beneficial owner	156,000 A Shares (L)(8)	0.03%	0.02%
Mr. Tang	Beneficial owner	159,003 A Shares (L)(9)	0.03%	0.02%
Yanggang

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GENERAL INFORMATION

APPENDIX

Notes:

(1) The letter “L” denotes the long position in such Shares.
(2) Among these 255,513,953 A Shares, 238,683,118 A Shares and 16,830,835 A Shares were held directly by Joincare and its wholly-owned subsidiary, Haibin Pharma, respectively. Out of the 238,683,118 A Shares held by Joincare, 17,306,329 A Shares were directly transferred from, entrusted and pledged by Guangzhou Begol Trading Holdings Limited （廣州市保科力貿易公司） (“ Begol ”) in favour of Joincare in accordance with the share transfer, custody and pledge agreement with Joincare and Zhuhai Lishi Investment Co., Ltd. （珠海市麗士投資有限公司） (“ Lishi Investment ”) dated 2 January 2004, the share transfer and custody agreement and the share pledge agreement with Joincare.
(3) These H Shares were held by Topsino, a wholly-owned subsidiary of Joincare.
(4) Joincare was 50.59% held by Shenzhen Baiyeyuan Investment Co., Ltd.（深圳市百業源投資有限公司） (“ Baiyeyuan* ”), which was in turn 90% held by Mr. Zhu Baoguo. Mr. Zhu Baoguo was deemed to be interested in the Shares of the Company and the equity interest of its associated corporations in which Joincare was or was deemed to be interested by virtue of the SFO.
(5) These A Shares included 195,000 share options to subscribe 195,000 A Shares of the Company pursuant to the Share Options Incentive Scheme.
(6) These A Shares (including 78,000 share options to subscribe 78,000 A Shares of the Company pursuant to the Share Options Incentive Scheme) were held by Ms. Hou Xuemei, the spouse of Mr. Tao Desheng. Mr. Tao Desheng was deeded to be interested in the A Shares held by Ms. Hou Xuemei by virtue of the SFO.
(7) These A Shares included 195,000 share options to subscribe 195,000 A Shares of the Company pursuant to the Share Options Incentive Scheme.
(8) These A Shares are all share options to subscribe 156,000 A Shares of the Company pursuant to the Share Options Incentive Scheme.
(9) These A Shares included 156,000 share options to subscribe 156,000 A Shares of the Company pursuant to the Share Options Incentive Scheme.

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GENERAL INFORMATION

APPENDIX

Interest in shares, underlying Shares and debentures of associated corporations of the Company

					% to the	% to the
					total	number
					of shares in
					issue/equity
			Number of Shares/		interests of
Name of	Name of the associated		Equity Interests of the		the associated
Director	corporation	Capacity	associated corporation(1)		corporation
Mr. Zhu Baoguo	Baiyeyuan	Beneficial owner	RMB72,000,000 (L)			90.00%
	Joincare	Interest of controlled	980,458,782 shares (L)(2)			50.59%
		corporations
	Livzon Biologics Limited	Interest of controlled	49,000,000 ordinary shares (L)(4)			39.33%
	(“Livzon Biologics”)(3)	corporations
	Livzon Biologics Hong	Interest of controlled		1,960 shares (L)(5)		39.33%
	Kong Limited	corporations
	(“Biologics HK”)(3)
	Zhuhai Livzon	Interest of controlled	RMB122,500,000 (L)(6)			39.33%
	Biotechnology Co.,	corporations
	Limited*（珠海市麗珠
	生物醫藥科技有限公司）
	(“Livzon
	Biotechnology”)(3)
	Livzon MABPharm Inc.*	Interest of controlled	RMB555,331,700 (L)(6)			39.33%
	（珠海市麗珠單抗生物技術	corporations
	有限公司）(“Livzon
	MAB”)(3)
Mr. Tang	Livzon Group Xinbeijiang	Interest of controlled	20,238,780 shares (L)(7)			8.44%
Yanggang	Pharmaceutical	corporations
	Manufacturing Inc.*
	（麗珠集團新北江製藥股份
	有限公司）(“Xinbeijiang
	Pharma”)
Mr. Qiu	Joincare	Beneficial owner	117,409 shares (L)			0.01%
Qingfeng

Notes:

(1) The letter “L” denotes the long position in such shares or equity interests.
(2) These shares were held by Baiyeyuan.

(3) Joincare Pharmaceutical Group Industry Co., Ltd. (“ Joincare BVI ”), an indirect wholly-owned subsidiary of Joincare, held 35.75% total shares in issue of Livzon Biologics. Livzon Biologics held 100% total shares in issue of Biologics HK. Biologics HK held 100% equity interests in Livzon Biotechnology and 100% equity interests in Livzon MAB.

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GENERAL INFORMATION

APPENDIX

(4) Joincare BVI held 49,000,000 ordinary shares of Livzon Biologics, representing 39.33% of the total ordinary shares in issue and 35.75% of the total shares (including ordinary shares and series A shares) in issue of Livzon Biologics.
(5) These shares were held by Livzon Biologics.
(6) These equity interests were held by Biologics HK.
(7) Xinbeijiang Pharma was held as to 87.14% by the Company, and 8.44% (i.e.20,238,780 shares) by Zhuhai Zhong Hui Yuan Investment Partnership (Limited Partnership)*（珠海中匯源投資合夥企業（有限合夥））, which in turn was 45.50% held by Mr. Tang Yanggang.

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

3. DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to the Directors, the following persons (other than the Directors, the Proposed 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:

			% to the
			total
			number of	% to the
			the relevant	total
			class of	number of
Name of			Shares in	Shares in
Shareholder	Capacity	Number of Shares(1)	issue	issue
Substantial
Shareholders
Baiyeyuan	Interest of controlled	255,513,953 A Shares (L)(2)	41.55%	27.33%
	corporations	163,364,672 H Shares (L)(3)	51.07%	17.48%
Ms. Liu Guangxia	Spouse interest	255,513,953 A Shares (L)(4)	41.55%	27.33%
		163,364,672 H Shares (L)(4)	51.07%	17.48%

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GENERAL INFORMATION

APPENDIX

Name of Shareholder Capacity Joincare Beneficial owner Interest of controlled corporations Person having a security interest in shares Interest of controlled corporations Topsino Beneficial owner	Number of Shares(1) % to the total number of the relevant class of Shares in issue % to the total number of Shares in issue 221,376,789 A Shares (L) 16,830,835 A Shares (L)(5) 17,306,329 A Shares (L)(6) 255,513,953 A Shares (L) 41.55% 27.33% 163,364,672 H Shares (L)(3) 51.07% 17.48% 163,364,672 H Shares (L) 51.07% 17.48%

Notes:

(1) The letter “L” denotes the long position in such Shares.
(2) Among these 255,513,953 A Shares, 238,683,118 A Shares and 16,830,835 A Shares were held directly by Joincare and its wholly-owned subsidiary, Haibin Pharma, respectively.
(3) These H Shares were held by Topsino, a wholly-owned subsidiary of Joincare.
(4) Ms. Liu Guangxia, the spouse of Mr. Zhu Baoguo, was deeded to be interested that Mr. Zhu Baoguo was or was deemed to be interested by virtue of the SFO.
(5) These A Shares were held directly by Haibin Pharma, a wholly-owned subsidiary of Joincare.
(6) These A Shares were directly transferred from, entrusted and pledged by Begol in favour of Joincare in accordance with the share transfer, custody and pledge agreement with Joincare and Lishi Investment dated 2 January 2004, the share transfer and custody agreement and the share pledge agreement with Joincare.

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.

4. DIRECTORS’, PROPOSED 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, the Proposed Directors or supervisors of the Company.

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GENERAL INFORMATION

APPENDIX

5. DIRECTORS’, PROPOSED DIRECTORS’ AND SUPERVISORS’ INTERESTS IN THE GROUP’S ASSETS, CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date, none of the Directors, the Proposed Directors or supervisors of the Company, directly or indirectly, had any interest in any assets which had since 31 December 2018 (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, the Proposed Directors or supervisors of the Company were materially interested and which was significant to the business of the Group.

6. DIRECTORS’, PROPOSED DIRECTORS AND SUPERVISORS’ COMPETING INTERESTS

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-cerebrolvascular 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, the Proposed Directors, or supervisors of the Company and their respective close associates (as defined in the Listing Rules) has any competing interests which would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them were a controlling shareholder of the Company.

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GENERAL INFORMATION

APPENDIX

7. 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 2018 (being the date to which the latest published audited accounts of the Group were made up).

8. QUALIFICATIONS AND CONSENTS OF EXPERT

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

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

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

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

As at the Latest Practicable Date, the Independent Financial Adviser did not, directly or indirectly, had any interest in any assets which had since 31 December 2018 (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.

9. MISCELLANEOUS

(i) The registered office of the Company is situated at Headquarters Building, 38 Chuangye North Road, Jinwan District, Zhuhai City, Guangdong Province, China.
(ii) The principal place of business of the Company in Hong Kong is located at unit 1301, 13/F, China Evergrande Centre, 38 Gloucester Road, Wan Chai, Hong Kong.
(iii) The H share registrar of the Company is Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(iv) This circular has been prepared in both English and Chinese. In the case of any discrepancies, the Chinese texts shall prevail over their respective English texts.

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GENERAL INFORMATION

APPENDIX

10. 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 day from the date of this circular up to and including the date of the EGM (excluding any Saturdays, Sundays and public holidays):

(i) the 2020 Joincare Purchases Framework Agreement;
(ii) the letter from the Independent Board Committee as set out on page 21 of this circular;
(iii) the letter from the Independent Financial Adviser as set out from pages 22 to 34 of this circular;
(iv) the written consent from the Independent Financial Adviser as mentioned in the section headed “Qualifications and Consents of Expert” in this appendix; and
(v) this circular.

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AI assistant

Livzon Pharmaceutical Group Inc. — Proxy Solicitation & Information Statement 2019

49967_rns_2019-09-04_e848873a-0e1e-422b-84f2-9720d939a648.pdf

(I) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2020 TO 2022 (II) PROPOSED APPOINTMENT OF INDEPENDENT NON-EXECUTIVE DIRECTORS (III) PROPOSED INCREASE OF THE REGISTERED CAPITAL OF THE COMPANY (IV) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION (V) CONVENING THE EGM

Frontpage Capital Limited

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Executive Directors:

Non-executive Directors:

Independent Non-executive Directors:

Registered office:

(I) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2020 TO 2022 (II) PROPOSED APPOINTMENT OF INDEPENDENT NON-EXECUTIVE DIRECTORS (III) PROPOSED INCREASE OF THE REGISTERED CAPITAL OF THE COMPANY (IV) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION (V) CONVENING THE EGM

INTRODUCTION

THE 2020 JOINCARE PURCHASES FRAMEWORK AGREEMENT

Date

Parties

Term

Subject Matter

Price, payment and other transaction terms

Conditions precedent

PRICING PRINCIPLES

LETTER FROM THE BOARD

HISTORICAL TRANSACTION AMOUNTS

PROPOSED ANNUAL CAPS

BASIS OF DETERMINATION OF PROPOSED ANNUAL CAPS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

INTERNAL CONTROL MEASURES

REASONS FOR ENTERING INTO THE 2020 JOINCARE PURCHASES FRAMEWORK AGREEMENT

INFORMATION OF THE COMPANY

INFORMATION OF JOINCARE

LISTING RULES IMPLICATIONS

II. PROPOSED APPOINTMENT OF INDEPENDENT NON-EXECUTIVE DIRECTORS

III. PROPOSED INCREASE OF THE REGISTERED CAPITAL OF THE COMPANY

IV. PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

Existing Articles of Association

.......

Revised Articles of Association

V. CONVENING THE EGM

EGM Notice, Reply Slip for Attendance and Proxy Form

Closure of Register of Members

VI. RECOMMENDATIONS

VII. VOTING BY POLL

VIII.ADDITIONAL INFORMATION

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2020 TO 2022

Yours faithfully,

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Livzon Pharmaceutical Group Inc.*

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2020 TO 2022

INTRODUCTION

INDEPENDENT BOARD COMMITTEE

BASIS OF OUR OPINION

OUR INDEPENDENCE

PRINCIPAL FACTORS AND REASONS CONSIDERED

I. Background

II. Information of the Company

III. Information of Joincare Group

IV. 2020 Joincare Purchases Framework Agreement

Subject Matter

Price, payment and other transaction terms

Conditions Precedent

Pricing principles

Historical transaction amounts

Proposed annual caps

Basis of determination of proposed annual caps

Internal control measure

V. Reasons for entering into the 2020 Joincare Purchases Framework Agreement

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS BY DIRECTORS, PROPOSED DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE OF THE COMPANY

Interest in Shares, underlying Shares and debentures of the Company

3. DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS

4. DIRECTORS’, PROPOSED DIRECTORS’ AND SUPERVISORS’ SERVICE CONTRACTS

5. DIRECTORS’, PROPOSED DIRECTORS’ AND SUPERVISORS’ INTERESTS IN THE GROUP’S ASSETS, CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

6. DIRECTORS’, PROPOSED DIRECTORS AND SUPERVISORS’ COMPETING INTERESTS

7. MATERIAL ADVERSE CHANGE

8. QUALIFICATIONS AND CONSENTS OF EXPERT

Livzon Pharmaceutical Group Inc. Proxy Solicitation & Information Statement 2019