PegBio Co., Ltd. — Capital/Financing Update 2012

Sep 7, 2012

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

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BEIJING YU SHENG TANG PHARMACEUTICAL GROUP LIMITED 北京御生堂藥業集團有限公司[*] (Incorporated in Bermuda with limited liability) (Stock Code: 1141)

VERY SUBSTANTIAL DISPOSAL

THE DISPOSAL

The Board announces that on 7 September 2012 (after trading hours), the Vendor, a direct wholly-owned subsidiary of the Company and the Purchaser entered into the S&P Agreement, pursuant to which (i) the Vendor has agreed to sell and the Purchaser has agreed to purchase the Sale Share, being the entire issued share capital of the Disposal Company, an indirect wholly-owned subsidiary of the Company, for a cash consideration of HK$1 and (ii) the Vendor shall assign and procure the Company to assign to the Purchaser and the Purchaser shall purchase all the right, title and interest of the Vendor and the Company in the Sale Loans with effect from Completion for a consideration of HK$99,999,999.

GENERAL

As certain applicable percentage ratio for the Disposal under the Listing Rules is more than 75%, the Disposal constitutes a very substantial disposal for the Company under Rule 14.08 of the Listing Rules and is subject to announcement, reporting and Shareholders’ approval requirements under the Listing Rules.

A SGM will be convened and held for the Shareholders to consider and, if thought fit, approve the S&P Agreement and the transactions contemplated thereunder. A circular containing further details of the Disposal and a notice of the SGM will be despatched by the Company to the Shareholders as soon as possible, but not later than 28 September 2012.

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THE S&P AGREEMENT

Date 7 September 2012 (after trading hours)

Parties

Vendor: the Vendor, a direct wholly-owned subsidiary of the Company

Purchaser: the Purchaser, an investment holding company

To the best of the Directors’s knowledge, information and belief, after having made all reasonable enquiry, the Purchaser and its ultimate beneficial owner(s) are third parties independent of and not connected with the Company and its connected persons, and they have no current or prior relationship or business arrangements/transactions with the Company and the Directors.

Assets to be disposed

Sale Share: 1 share of US$1.00 each of the Disposal Company, being the entire issued share capital of the Disposal Company

Sale Loans: being the loans owing by the Disposal Group to the Vendor and the Company as at the date of Completion, as at 31 March 2012, such loans amounting to approximately HK$116,452,000 in total

The consideration for the Sale Share

The aggregate consideration for the Sale Share and the Sale Loans of HK$100,000,000 shall be payable by the Purchaser to the Vendor (or as it may direct) in cash in the following manner:

• (i) HK$15,000,000 as refundable deposit was paid upon signing of the S&P Agreement; and

• (ii) the balance of HK$85,000,000 to be paid upon Completion.

The HK$15,000,000 deposit shall be refunded to the Purchaser if the conditions to Completion have not been fulfilled on or before 31 December 2012 or such other date as the parties to the S&P Agreement may agree.

The aggregate consideration for the Sale Share and the Sale Loans was arrived at after arm’s length negotiations between the Vendor and the Purchaser and also represents a premium of approximately 1.05% over the aggregate of the unaudited deficiency in equity attributable to owner of the Disposal Company as at 31 March 2012 of approximately HK$17,488,000 and the Sale Loans of approximately HK$116,452,000 in total as at 31 March 2012 which amounted to approximately HK$98,964,000.

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Having considered the above and the factors described under the section headed “Reasons for the Disposal and use of proceeds” below, the Directors (including the independent non-executive Directors) consider that the aggregate consideration for the Sale Share and the Sale Loans is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Condition and Completion

Completion shall be conditional upon and is subject to:–

• (i) the approval of the S&P Agreement and transactions contemplated hereunder by the Shareholders at the SGM in accordance with the Listing Rules (if required); and

• (ii) a written confirmation from the Purchaser to the Vendor that it is satisfied with the results of the due diligence review within 45 business days from the date of the S&P Agreement.

If the above conditions have not been satisfied on or before 31 December 2012 (or such later date as the Vendor and the Purchaser may agree) and the Purchaser gives notice to terminate the S&P Agreement, the S&P Agreement shall thereupon terminate and the Vendor shall return the deposit without interest to the Purchaser and the parties shall thereafter have no further claims against the other under the S&P Agreement for costs, damages, compensation or otherwise, save in respect of antecedent breaches.

Completion shall take place on the seventh business day (or if such day is not a business day, the next business day) after the date on which the conditions of the S&P Agreement shall have been satisfied (or such later date as the parties may agree in writing).

INFORMATION ON THE DISPOSAL GROUP

The Disposal Company is a company incorporated in the British Virgin Islands on 18 June 2009 with an authorised share capital of US$50,000 divided into 50,000 ordinary shares of US$1.00 each, of which 1 ordinary share has been issued. As at the date of this announcement, the Disposal Company is wholly owned by the Vendor. The Disposal Company is an investment holding company and the main asset of which is the entire interest in Beijing YST.

Beijing YST is a company incorporated in Hong Kong on 8 December 2009 with an authorised share capital of HK$10,000 divided into 10,000 ordinary shares of HK$1.00 each, of which 10,000 ordinary shares have been issued. As at the date of this announcement, Beijing YST is wholly owned by the Disposal Company. Beijing YST is an investment holding company and the main asset of which is the entire interest in Beijing YST (PRC).

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Beijing YST (PRC) is a company established in the PRC with limited liability with registered capital of RMB80 million. Its approved business scope covering, among other things, consultation, development and transfer of modern Chinese medicine, biomedicine, health care product, cosmetics and electronic medical device. As at the date of this announcement, Beijing YST (PRC) is wholly owned by Beijing YST and the main asset of Beijing YST (PRC) is (i) the intellectual properties in relation to Jinhua Qinggan that includes but not limited to the patent on its composition and manufacturing knowhow, the intellectual property and the processing and production rights relating to its prescription formulae for clinical use, approval for its clinical trial results and the new drug certificate; and (ii) the entire interest in Weikang Yigan.

Weikang Yigan is a company established in the PRC with limited liability with registered capital of RMB1 million. Weikang Yigan is a holding company and the main asset of which is the 70% equity interests in YST Clinic and the entire interest in Ju Xie Chang.

YST Clinic is a company established in the PRC with limited liability with registered capital of RMB600,000. YST Clinic is principally engaged in the provision of Chinese medicine consultation and its approved business scope covers medical examination and Chinese medicine consultation.

Ju Xie Chang is a company established in the PRC with limited liability with registered capital of RMB25 million. Ju Xie Chang is principally engaged in the manufacture of Chinese medicines and health care products and owns and occupies a GMP compliant medicine production plant and other ancillary warehouse structures and office buildings, all housed under a parcel of land with site area of approximately 56,268 square meters.

Set out below is the structure of the Disposal Group:

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

Disposal Company
100%
Beijing YST
100%
Beijing YST (PRC)
100%
Weikang Yigan
70% 100%
YST Clinic Ju Xie Chang
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Set out below is the summary of unaudited consolidated financial information of the Disposal Company for the two years ended 31 March 2012:

	For the year ended	For the year ended
	31 March 2012	31 March 2011
	(unaudited)	(unaudited)
	HK$’000	HK$’000
Turnover	34,490	15,791
Loss before taxation	(33,744)	(7,668)
Loss after taxation	(28,266)	(7,495)
(Deficiency in equity)/total equity
attributable to owner of the
Disposal Company	(17,488)	6,231

FINANCIAL EFFECTS OF THE DISPOSAL

Based on the calculation of the consideration of HK$100,000,000 for the Disposal less (i) the unaudited deficiency in equity attributable to owner of the Disposal Company as at 31 March 2012 of approximately HK$17,488,000; (ii) the assignments of the Sale Loans of approximately HK$116,452,000 in total by the Vendor and the Company to the Purchaser; (iii) realisation of translation reserve of the Disposal Group of approximately HK$8,081,000; and (iv) the related expenses of approximately HK$800,000, it is expected that, upon Completion, for illustrative purpose, an unaudited gain before taxation of approximately HK$8,317,000 will be recognised from the Disposal.

The actual gain or loss arising from the Disposal shall be determined based on the deficiency in equity attributable to owner of the Disposal Company, the amount of the Sale Loans and translation reserve of the Disposal Group as at the date of Completion, and the amount of expenses incidental to the Disposal which may be different from the above.

Upon Completion, each members of the Disposal Group shall cease to be subsidiaries of the Company. Their profit and loss and the assets and liabilities will no longer be consolidated into the Group’s consolidated financial statements.

REASONS FOR THE DISPOSAL AND USE OF PROCEEDS

The Group is principally engaged in the business of supply and procurement of metal minerals, pharmaceutical products, provision of finance and securities investment.

As mentioned in the annual report of the Company for the year ended 31 March 2012, Jinhua Qinggan is selling as a prescription drug to designated medical institutions in Beijing, and the Group’s pharmaceutical division will only be able to market the medicine as a non-prescription drug to public subject to the issuance of a new drug certificate from the relevant authorities in the PRC. The division has submitted medicine tests results in connection with the application of such certificate and has been awaiting for feedback and results of its application.

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However, as the issuance date of such certificate is uncertain and substantial promotional expenses had been incurred in marketing Jinhua Qinggan and that sales volume of the medicine had not yet reached a scale that could cover the division’s operating costs, in particular, the high start-up costs in its early stage of operation, the division had been incurring losses in the past two financial years, the Board therefore believes that the Disposal will enable the Group to deploy resources in other business with better prospects.

In view of the net proceeds of approximately HK$99,200,000 to be received from the Disposal, the Directors consider that the Disposal represents a good opportunity for the Company to strengthen its cash position. The Directors (including the independent nonexecutive Directors) consider that the S&P Agreement are on normal commercial terms and the terms of the S&P Agreement are fair and reasonable and the Disposal is in the interests of the Company and the Shareholders as a whole.

Upon Completion, the Group will cease the operation of the pharmaceutical business and continue to engage in the three remaining businesses, namely supply and procurement, provision of finance and securities investment. The net proceeds of approximately HK$99,200,000 will be applied as working capital and for the development of the Group’s three remaining businesses, in particular, the Group has recently expanded its supply and procurement business to timber logs trading and presently intends to allocate the proceeds of approximately HK$30,000,000 for the development of this new segment of business. The Group has no negotiations or arrangements relating to intended acquisitions up to the date of this announcement. Nevertheless, the Directors consider that the cash resources made available after Completion will enable the Group to capture attractive business and investment opportunities should they arise. Looking forward, the Group will continue to engage in the three remaining businesses after the Disposal and will continue to look for investment opportunities in energy and resources related businesses or other attractive business opportunities by way of trading or acquisition of business or assets.

GENERAL

As certain applicable percentage ratio for the Disposal under the Listing Rules is more than 75%, the Disposal constitutes a very substantial disposal for the Company under Rule 14.08 of the Listing Rules and is subject to announcement, reporting and Shareholders’ approval requirements under the Listing Rules.

A SGM will be convened and held for the Shareholders to consider and, if thought fit, approve the S&P Agreement and the transaction contemplated thereunder. To the best knowledge, information and belief of the Directors having made all reasonable enquiries, as at the date of this announcement, the Purchaser and its associates do not hold any Shares and no Shareholders and their associates have a material interest in the Disposal. No Shareholder is required to abstain from voting on the resolution(s) in respect of the S&P Agreement at the SGM. A circular containing further details of the Disposal and a notice of the SGM will be despatched by the Company to the Shareholders as soon as possible, but not later than 28 September 2012.

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DEFINITIONS

“Beijing YST”

Beijing Yu Sheng Tang Holdings Limited, a company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of the Company

• “Beijing YST (PRC)” 北京御生堂文化傳播有限公司 (Beijing Yu Sheng Tang Cultural Broadcasting Company Limited*), a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company

• “Board” board of Directors

• “Company” Beijing Yu Sheng Tang Pharmaceutical Group Limited, a company incorporated in Bermuda with limited liability, whose Shares are listed on the Main Board of the Stock Exchange

• “Completion” completion of the Disposal

• “connected person” has the meaning ascribed to it in the Listing Rules

• “Director(s)” director(s) of the Company

• “Disposal” the disposal of the entire issued share capital of the Disposal Company and the assignments of the Sale Loans as stipulated in the S&P Agreement

• “Disposal Company” Poly Fortune Enterprises Limited, a company incorporated in the British Virgin Islands with limited liability and an indirect wholly-owned subsidiary of the Company

• “Disposal Group” the Disposal Company and its subsidiaries

• “Group” the Company and its subsidiaries

• “Hong Kong” the Hong Kong Special Administrative Region of the PRC

• “Jinhua Qinggan” 金花清感 (Jinhua Qinggan), a Chinese medicine aimed at treating patients who have been infected with Influenza A (H1N1) and other types of influenza

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“Ju Xie Chang” 聚協昌（北京）藥業有限公司 (Ju Xie Chang (Beijing) Pharmaceutical Company Limited*), a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

• “PRC” the People’s Republic of China, excluding Hong Kong, Taiwan and Macau Special Administrative Region of the PRC

• “Purchaser” Victory Land Investments Limited, a company incorporated in the British Virgin Islands with limited liability

• “S&P Agreement” the conditional sale and purchase agreement dated 7 September 2012 entered into between the Vendor and the Purchaser in relation to the sale and purchase of the Sale Share and the assignments of the Sale Loans

• “Sale Loans” the loans owing by the Disposal Group to the Vendor and the Company as at the date of Completion

• “Sale Share” one share of US$1.00 of the Disposal Company, being the entire issued share capital of the Disposal Company

• “SGM” a special general meeting to be convened by the Company to consider and approve the S&P Agreement and the transactions contemplated thereunder

• “Share(s)” ordinary share(s) of HK$0.10 each in the issued share capital of the Company

• “Shareholder(s)” holder(s) of Shares

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Vendor” Able Market Profits Limited, a company incorporated in the British Virgin Islands with limited liability and a direct wholly-owned subsidiary of the Company

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“Weikang Yigan” 維康依感（北京）科技發展有限公司 ( W e i k a n g Yigan (Beijing) Technology Development Company Limited*), a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company

“YST Clinic” 北京御生堂中醫門診部有限公司 (Beijing Yu Sheng Tang Chinese Medicine Clinic Company Limited*), a company established in the PRC with limited liability and an indirect 70% owned subsidiary of the Company

• “HK$” Hong Kong dollars, the lawful currency of Hong Kong

• “RMB” Renminbi, the lawful currency of the PRC

• “US$” United States dollars, the lawful currency of the United States

“%” per cent.

By Order of the Board Suen Cho Hung, Paul Chairman

Hong Kong, 7 September 2012

As at the date of this announcement, the Board comprises Mr. Suen Cho Hung, Paul (Chairman), Mr. Sue Ka Lok (Chief Executive Officer), Mr. Bai Jianjiang and Ms. Lee Chun Yeung, Catherine as Executive Directors and Mr. Wong Kwok Tai, Mr. Weng Yixiang and Mr. Lu Xinsheng as Independent Non-executive Directors.

• For identification purpose only

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