THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or as to the action to be taken, 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 securities in Beijing Yu Sheng Tang Pharmaceutical Group Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the stockbroker, other registered dealer in securities, the bank or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase, or subscribe for the securities of the Company.

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.

==> picture [117 x 50] intentionally omitted <==

**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)

PROPOSED SHARE CONSOLIDATION; PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; CHANGE IN BOARD LOT SIZE;

PROPOSED RIGHTS ISSUE ON THE BASIS OF FIVE RIGHTS SHARES FOR EVERY ONE CONSOLIDATED SHARE HELD ON THE RECORD DATE WITH BONUS WARRANTS ON THE BASIS OF ONE BONUS WARRANT FOR EVERY FIVE RIGHTS SHARES TAKEN UP; AND NOTICE OF SPECIAL GENERAL MEETING

Underwriters CHUNG NAM SECURITIES LIMITED GLOBAL WEALTHY LIMITED

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

==> picture [33 x 35] intentionally omitted <==

普頓資本有限公司 PROTON CAPITAL LIMITED

Capitalised terms used in this cover page have the same meanings as defined in this circular.

It should be noted that the Consolidated Shares will be dealt on an ex-rights basis from Friday, 3 February 2012. Dealings in the Rights Shares in the nil-paid form will take place from Monday, 20 February 2012 to Monday, 27 February 2012 (both dates inclusive). If the conditions of the Underwriting Agreement are not fulfilled or waived (as appropriate) or the Underwriting Agreement is terminated by Chung Nam, the Rights Issue and the Bonus Warrant Issue will not proceed. Any Shareholders or other persons contemplating selling or purchasing Rights Shares in the nil-paid Rights Shares during the period from Monday, 20 February 2012 to Monday, 27 February 2012 (both dates inclusive) who are in any doubt about their position are recommended to consult their professional advisers. Any Shareholders or other persons dealing in the Shares up to the date on which all the conditions to which the Rights Issue and the Bonus Warrant Issue is subject are fulfilled (and the date on which Chung Nam’s right of termination of the Underwriting Agreement ceases) and any persons dealing in the nil-paid Rights Shares during the period from Monday, 20 February 2012 to Monday, 27 February 2012 (both dates inclusive) will accordingly bear the risk that the Rights Issue and the Bonus Warrant Issue may not become unconditional or do not proceed. Any Shareholders or other persons contemplating dealing in the Shares or the Consolidated Shares and/or the Rights Shares in their nil-paid form are recommended to consult their own professional advisers .

A letter of advice from Proton Capital Limited , the independent financial adviser to the Independent Board Committee and the Independent Shareholders is set out on pages 38 to 55 of this circular and a letter of recommendation from the Independent Board Committee to the Independent Shareholders is set out on page 37 of this circular.

A notice convening the SGM to be held at Plaza 1 and 2, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong at 9:00 a.m. on Wednesday, 1 February 2012 is set out on pages 87 to 90 of this circular. Whether or not you are able to attend the meeting in person, you are requested to complete and sign the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for holding the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof should you so wish and in such event, the form of proxy shall be deemed to be revoked.

It should be noted that the Underwriting Agreement in respect of the Rights Issue and the Bonus Warrant Issue contains provisions entitling Chung Nam (after prior consultation with Global Wealthy Limited) by notice in writing to the Company at any time prior to 4:00 p.m. on Tuesday, 6 March 2012 to terminate the obligations of the Underwriters thereunder on the occurrence of certain events including force majeure. These events are set out under the section headed “Termination or Rescission of the Underwriting Agreement” on pages 27 to 29 of this circular. If Chung Nam terminates the Underwriting Agreement in accordance with the terms thereof, the Rights Issue and the Bonus Warrant Issue will not proceed. In addition, the Rights Issue and the Bonus Warrant Issue are conditional on all conditions set out on pages 24 to 25 of this circular being fulfilled or waived (as appropriate). If such conditions have not been satisfied or waived (as appropriate) in accordance with the Underwriting Agreement on or before the time and dates specified therein, all liabilities of the parties to the Underwriting Agreement shall cease and determine and none of the parties shall have any claim against the other save that all such reasonable costs, fees and other out of pocket expenses as have been properly incurred by the Underwriters in connection with the underwriting of the Underwritten Shares by the Underwriters (excluding the underwriting commission, sub-underwriting fees and related expenses) shall, to the extent agreed by the Company, be borne by the Company. In such event, the Rights Issue and the Bonus Warrant Issue will not proceed.

13 January 2012

* For identification purpose only

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
EXPECTED TIMETABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . . 37
LETTER FROM PROTON CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
APPENDIX I – FINANCIAL AND OTHER INFORMATION OF
THE GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
APPENDIX II – UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
APPENDIX III – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
APPENDIX IV – SUMMARY OF TERMS OF THE BONUS WARRANTS. . . . . . . . . . . . . 77
NOTICE OF SPECIAL GENERAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

DEFINITIONS

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

“acting in concert” has the meaning ascribed to it under the Takeovers Code “associate(s)” has the meaning ascribed to it in the Listing Rules “Announcement” the announcement of the Company dated 20 December 2011 in relation to, among other things, the Share Consolidation, the Increase in Authorised Share Capital the Rights Issue and the Bonus Warrant Issue
“Board” board of Directors “Bonus Warrant(s)” bonus warrant(s) to be issued by the Company to the successful applicants of the Rights Shares pursuant to the Rights Issue on the basis of one (1) bonus warrant for every five (5) Rights Shares taken up, conferring rights on the holder(s) thereof to subscribe for the Bonus Warrant Shares at the Exercise Price of HK$0.10 per Consolidated Share (subject to adjustments)
“Bonus Warrant Issue” the proposed issue of the Bonus Warrants on the basis of one Bonus Warrant for every five Rights Shares taken up under the Rights Issue
“Bonus Warrant Share(s)” Consolidated Share(s) to be issued by the Company upon exercise of the subscription rights attaching to the Bonus Warrants
“Bonus Warrants Subscription the period commencing from the date of issue of the Bonus Period” Warrants, which is currently expected to be on or about Friday, 9 March 2012 and expire at 4:30 p.m. on the Business Day immediately preceding the date which is 24 months after such date, which is currently expected to be on or about Friday, 7 March 2014
“Business Day” a day (other than a Saturday, a Sunday or days on which a typhoon signal no. 8 or above or black rainstorm signal is hoisted in Hong Kong between 9:00 a.m. to 5:00 p.m.) on which banks in Hong Kong are generally open for business

“Bye-Laws” the bye-laws of the Company

“CCASS” The Central Clearing and Settlement System established and operated by HKSCC
“Chung Nam” Chung Nam Securities Limited, a corporation licensed to carry out type 1 (dealing in securities) regulated activities within the meaning of the SFO

DEFINITIONS

“Company”	Beijing Yu Sheng Tang Pharmaceutical Group Limited (Stock
	Code: 1141), a company incorporated in Bermuda with limited
	liability and the shares of which are listed on main board of the
	Stock Exchange
“Companies Act”	Companies Act 1981 of Bermuda
“Companies Ordinance”	the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)
“connected person(s)”	has the meaning ascribed to it in the Listing Rules
“Consolidated Share(s)”	consolidated share(s) of HK$0.10 each in the issued and unissued
	share capital of the Company immediately after the completion of
	the Share Consolidation
“Director(s)”	director(s) of the Company
“EAF(s)”	the form(s) of application for use by the Qualifying Shareholders
	who wish to apply for excess Rights Shares, being in such
	usual form as may be agreed between the Company and the
	Underwriters
“Exercise Price”	the price payable for each Bonus Warrant Share on exercise of
	the subscription rights attached to the Bonus Warrants, which
	is initially set at HK$0.10 per Consolidated Share (subject to
	adjustments)
“Excelsior Kingdom”	Excelsior Kingdom Limited, a company incorporated in the
	British Virgin Islands with limited liability, whose entire issued
	capital is beneficially owned by Mr. Suen
“Global Wealthy”	Global Wealthy Limited, a company incorporated in the British
	Virgin Islands with limited liability, is a wholly owned subsidiary
	of Excelsior Kingdom, which in turn is wholly owned by Mr.
	Suen, an Executive Director and the Chairman of the Company
	and is a Shareholder of the Company as at the Latest Practicable
	Date. The ordinary business of Global Wealthy does not include
	underwriting

“Group” the Company and its subsidiaries
“HKSCC” Hong Kong Securities Clearing Company Limited
“Hong Kong” the Hong Kong Special Administrative Region of the PRC

DEFINITIONS

“Increase in Authorised Share Capital”
“Independent Board Committee”
“Independent Shareholders”
“Irrevocable Undertakings”
“Last Trading Day”
“Latest Time for Acceptance”
“Latest Time for Termination”
“Latest Practicable Date”
“Listing Committee”
“Listing Rules”
the proposed increase in the authorised share capital of the Company from HK$100,000,000 divided into 1,000,000,000 Consolidated Shares to HK$1,000,000,000 divided into 10,000,000,000 Consolidated Shares

a committee of the Board, comprising all the Independent Nonexecutive Directors, namely Mr. Wong Kwok Tai, Mr. Weng Yixiang and Mr. Lu Xinsheng, has been formed to advise the Independent Shareholders in relation to the Rights Issue and the Bonus Warrant Issue

the Shareholder(s), other than the Directors (excluding the Independent Non-executive Directors), the chief executive of the Company and their respective associates, including but not limited to, Mr. Suen and parties acting in concert with him, who are not involved in, nor interested in, the Underwriting Agreement and the Irrevocable Undertakings

irrevocable undertakings dated 20 December 2011 under which Mr. Suen, Excelsior Kingdom and Global Wealthy provided the irrevocable undertakings to the Company and Chung Nam as described under the section headed “Irrevocable Undertakings” in this circular
Tuesday, 20 December 2011, being the last trading day of the Shares on the Stock Exchange prior to the publication of the Announcement
4:00 p.m. on Thursday, 1 March 2012 or such later time or date as may be agreed between the Company and the Underwriters, being the latest time for acceptance of and payment for, the Rights Shares and the application for excess Rights Shares in the manner as set out in the Prospectus (or such other time or date as the Underwriters and the Company may agree in writing)
4:00 p.m. on Tuesday, 6 March 2012 or such later time or date as may be agreed between the Company and the Underwriters, being the latest time to terminate the Underwriting Agreement
10 January 2012, being the latest practicable date prior to the despatch of this circular for ascertaining certain information for inclusion in this circular
the listing sub-committee of the board of the Stock Exchange
the Rules Governing the Listing of Securities on Stock Exchange

DEFINITIONS

“Mr. Suen”

Mr. Suen Cho Hung, Paul, an Executive Director and the Chairman of the Company

“Non-Qualifying Shareholder(s)”
Shareholders whose names appear on the register of members of the Company as at the close of business on the Record Date and whose addresses as shown on such register are outside Hong Kong where the Directors, based on opinions provided by its legal advisers, consider it necessary or expedient not to offer the Rights Shares and the Bonus Warrants to such Shareholders on account either of legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place
“Overseas Shareholders” the Shareholders with registered addresses on the register of members of the Company which are outside Hong Kong on the Record Date
“PAL”
the renounceable provisional allotment letter(s) proposed to be issued to the Qualifying Shareholders in connection with the Rights Issue
“PRC”
The People’s Republic of China but, for the purpose of this circular, excludes the Macau Special Administrative Region of the PRC, Hong Kong and Taiwan region
“Prospectus”
the prospectus to be despatched to the Shareholders on the Prospectus Posting Date in connection with the Rights Issue and the Bonus Warrant Issue in such form as may be agreed between the Company and the Underwriters
“Prospectus Documents” the Prospectus, PAL and EAF
“Prospectus Posting Date” Wednesday, 15 February 2012 or such later date as may be agreed between the Underwriters and the Company for the despatch of the Prospectus Documents
“Proton Capital” or
“Independent Financial Adviser”

Proton Capital Limited, a corporation licensed to carry on type 6 (advising on corporate finance) regulated activity under the SFO, has been appointed by the Company and approved by the Independent Board Committee to advise the Independent Board Committee and the Independent Shareholders in relation to the Rights Issue and the Bonus Warrant Issue

“Qualifying Shareholder(s)” the Shareholder(s), other than the Non-Qualifying Shareholders, whose name(s) appear(s) on the register of members of the Company as at the close of business on the Record Date

DEFINITIONS

“Record Date”	Monday, 13 February 2012, or such other date as may be agreed
	by the Company and the Underwriters, being the date by reference
	to which entitlements to the Rights Issue will be determined
“Rights Issue”	the proposed rights issue on the basis of five (5) Rights Shares for
	every one (1) whole Consolidated Share in issue and held on the
	Record Date at the Subscription Price
“Rights Shares”	2,471,087,850 Consolidated Shares proposed to be offered to the
	Qualifying Shareholders for subscription on the basis of five (5)
	Rights Shares for every one (1) whole Consolidated Share held at
	the Record Date pursuant to the Rights Issue
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“SGM”	the special general meeting of the Company to be convened and
	held at Plaza 1 and 2, Lower Lobby, Novotel Century Hong Kong,
	238 Jaffe Road, Wanchai, Hong Kong on Wednesday, 1 February
	2012 at 9:00 a.m. to consider and approve, among other things, the
	proposed Share Consolidation, the Increase in Authorised Share
	Capital, the Rights Issue and the Bonus Warrant Issue
“Share(s)”	ordinary share(s) of HK$0.01 each in the share capital of the
	Company prior to the implementation of the Share Consolidation
“Shareholder(s)”	holder(s) of the Shares or the Consolidated Shares, as the case
	may be
“Share Consolidation”	the proposed consolidation of every ten issued and unissued
	Shares of HK$0.01 each into one Consolidated Share of HK$0.10
“Share Options”	the share options granted under the share option scheme adopted
	by the Company on 30 December 2002
“Specified Event”	an event occurring or matter arising on or after the date of
	the Underwriting Agreement and prior to the Latest Time for
	Termination which if it had occurred or arisen before the date
	hereof would have rendered any of the warranties contained in
	the Underwriting Agreement untrue or incorrect in any material
	respect
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription Price”	HK$0.13 per Rights Share under the Rights Issue

DEFINITIONS

“Takeovers Code” the Hong Kong Code on Takeovers and Mergers “Underwritten Shares” 2,247,370,920 Rights Shares (total 2,471,087,850 Rights Shares less 223,716,930 Rights Shares to be provisionally allotted to Global Wealthy and Mr. Suen and will be taken up by them pursuant to the Irrevocable Undertakings) to be fully underwritten by the Underwriters pursuant to the terms and conditions of the Underwriting Agreement

“Underwriters”	Global Wealthy and Chung Nam
“Underwriting Agreement”	the underwriting agreement dated 20 December 2011 entered into
	between the Company and the Underwriters in relation to the
	underwriting arrangement in respect of the Rights Issue
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“%”	per cent.

Certain English translations of the Chinese/Japanese names with * are included in this circular for information purpose only and shall not be regarded as the official translations of such Chinese/Japanese names.

EXPECTED TIMETABLE

The expected timetable for the Rights Issue and the Bonus Warrant Issue set out below is for indicative purposes only assuming that the Rights Issue and the Bonus Warrant Issue will be approved by the Independent Shareholders at the SGM. The expected timetable is subject to change, and any such changes will be announced in a separate announcement by the Company as and when appropriate.

	2012
Latest time for lodging proxy forms for the SGM . . . . . . . . . . . . . .	. . 9:00 a.m. on Monday, 30 January
Expected date of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9:00 a.m. on Wednesday, 1 February
Announcement of the results of SGM . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . Wednesday, 1 February
Effective date of the Share Consolidation . . . . . . . . . . . . . . . . . . . . 5:00 p.m. on Wednesday, 1 February
Dealing in the Consolidated Shares commences . . . . . . . . . . . . . . . .	. . 9:00 a.m. on Thursday, 2 February
Original counter for trading in Shares in existing share
certificates in board lots 8,000 Shares temporarily closes . . . . . . .	. . 9:00 a.m. on Thursday, 2 February
Temporary counter for trading in Consolidated Shares
in board lots of 800 Consolidated Shares (in the form
of existing share certificates) opens . . . . . . . . . . . . . . . . . . . . . . .	. . 9:00 a.m. on Thursday, 2 February
First day of free exchange of existing certificates for
the Shares into new certificates for the Consolidated Shares . . . .	. . . . . . . . . . . . Thursday, 2 February
Last day of dealings in Consolidated Shares
on a cum-entitlement basis to the nil-paid
Rights Shares and the Bonus Warrants . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . Thursday, 2 February
First day of dealings in Consolidated Shares on
an ex-entitlement basis to the nil-paid Rights
Shares and the Bonus Warrants . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . Friday, 3 February
Latest time for lodging transfer of Shares in
order to be qualified for the Rights Issue and	4:30 p.m. on Monday,
the Bonus Warrant Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . 6 February
Closure of register of members of	Tuesday, 7 February to
the Company (both dates inclusive) . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . Monday, 13 February

EXPECTED TIMETABLE

2012

Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 13 February Register of members of the Company re-opens . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 14 February Despatch of Prospectus Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 15 February Designated broker starts to stand in the market to provide for matching services for the sale and purchase 9:00 a.m. on Thursday, of odd lots of Consolidated Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 February Parallel trading in the Consolidated Shares 9:00 a.m. on Thursday, (represented both existing and new certificates) commences. . . . . . . . . . . . . . . . . . . . . . . . 16 February Original counter for trading in Consolidated Shares in board lots of 10,000 Consolidated Shares (only new certificates for the Consolidated Shares can be traded at 9:00 a.m. on Thursday, this counter) re-opens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 February First day of dealings in nil-paid Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 20 February Latest time for splitting of nil-paid Rights Shares . . . . . . . . . . . . . 4:30 p.m. on Wednesday, 22 February Last day of dealings in nil-paid Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 27 February Latest time for acceptance of, and payment for, the Rights Shares and the application for excess Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Thursday, 1 March Latest time to terminate the Underwriting Agreement and for the Rights Issue to become unconditional . . . . . . . . . . . . . . . . 4:00 p.m. on Tuesday, 6 March Temporary counter for trading in Consolidated Shares in board lots of 800 Consolidated Shares (in the form of existing share certificates) closes . . . . . . . . . . . . . . . 4:00 p.m. on Wednesday, 7 March Designated brokers ceases to stand in the market to provide matching service . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Wednesday, 7 March Parallel trading in the Consolidated Shares (represented both existing and new certificates) ends . . . . . . . . . . . . 4:00 p.m. on Wednesday, 7 March

EXPECTED TIMETABLE

2012

Announcement of results of the Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 8 March
Refund cheques to be despatched in relation to
wholly or partially unsuccessful applications
for excess Rights Shares on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 9 March
Certificates for fully paid Rights Shares and
Bonus Warrants to be despatched on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 9 March

Last day of free exchange of existing

certificates for the Shares into new
certificates for the Consolidated Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 12 March

Commencement of dealings in fully-paid

Rights Shares and the Bonus Warrants . . . . . . . . . . . . . . . . . . . . . . . . 9:00 a.m. on Tuesday, 13 March

Effect of bad weather on the latest time for acceptance of and payment for the Rights Issue and for application and payment for excess Rights Shares

If there is a “black” rainstorm warning or a tropical cyclone warning signal number 8 or above:–

(i) in force in Hong Kong at any local time before 12:00 noon and no longer in force after 12:00 noon on Thursday, 1 March 2012, the latest time of acceptance of and payment for the Rights Shares and the application for excess Rights Shares will not take place at 4:00 p.m. on Thursday, 1 March 2012, but will be extended to 5:00 p.m. on the same day instead; and
(ii) in force in Hong Kong at any local time between 12:00 noon and 4:00 p.m. on Thursday, 1 March 2012, the latest time of acceptance of and payment for the Rights Shares and the application for excess Rights Shares will not take place on Thursday, 1 March 2012, but will be rescheduled to 4:00 p.m. on the following business day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m..

If the latest time for acceptance of and payment for the Rights Shares and the application for excess Rights Shares does not take place on Thursday, 1 March 2012, the dates mentioned in the timetable contained in this section may be affected. An announcement will be made by the Company in such event.

LETTER FROM THE BOARD

==> picture [117 x 50] intentionally omitted <==

**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)

Executive Directors: Mr. Suen Cho Hung, Paul (Chairman) Mr. Sue Ka Lok (Chief Executive Officer) Mr. Bai Jianjiang Ms. Lee Chun Yeung, Catherine

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Independent Non-executive Directors:

Mr. Wong Kwok Tai Mr. Weng Yixiang Mr. Lu Xinsheng

Head office and principal place of business in Hong Kong: Suite 1501, 15th Floor Great Eagle Centre 23 Harbour Road Wanchai Hong Kong

13 January 2012

To the Shareholders

Dear Sir or Madam,

PROPOSED SHARE CONSOLIDATION; PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; CHANGE IN BOARD LOT SIZE;

1. INTRODUCTION

The Company intends to put forward a proposal to the Shareholders to effect the Share Consolidation which involves the consolidation of every ten issued Shares of HK$0.01 each into one issued Consolidated Share of HK$0.10 and the consolidation of every ten unissued Shares of HK$0.01 each into one unissued Consolidated Share of HK$0.10. As at the Latest Practicable Date, the Company had an authorised share capital of HK$100,000,000 divided into 10,000,000,000 Shares of HK$0.01 each,

* For identification purpose only

LETTER FROM THE BOARD

of which 4,942,175,712 Shares have been issued. Upon the Share Consolidation becoming effective, the authorised share capital of the Company will be HK$100,000,000 divided into 1,000,000,000 Consolidated Shares of HK$0.10 each, of which, based on the information available as at the Latest Practicable Date, up to 494,217,570 whole Consolidated Shares will be in issue given that fractional Consolidated Shares will be disregarded and not be issued to the Shareholders.

The Company proposes to increase the Company’s authorised share capital (subject to the Share Consolidation becoming effective) from HK$100,000,000 divided into 1,000,000,000 Consolidated Shares to HK$1,000,000,000 divided into 10,000,000,000 Consolidated Shares by the creation of an additional 9,000,000,000 unissued Consolidated Shares which shall rank pari passu in all respects with the then existing Consolidated Shares. The Increase in Authorised Share Capital is subject to and conditional upon the Share Consolidation becoming effective and the passing of an ordinary resolution by the Shareholders at the SGM.

The board lot size for trading in the Shares is 8,000 Shares at present. The Company proposes to change the board lot size for trading in the Consolidated Shares to 10,000 Consolidated Shares, conditional upon the Share Consolidation becoming effective.

Conditional upon, among others, the Share Consolidation and the Increase in Authorised Share Capital becoming effective, the Company proposes to raise approximately HK$321.2 million, before expenses, by issuing 2,471,087,850 Rights Shares to the Qualifying Shareholders by way of a rights issue on the basis of five Rights Shares for every one whole Consolidated Share held on the Record Date at the Subscription Price of HK$0.13 per Rights Share. On the basis that 494,217,570 whole Consolidated Shares will be in issue after the Share Consolidation, 2,471,087,850 Rights Shares will be allotted and issued under the Rights Issue, representing approximately 83.33% of the issued share capital of the Company as enlarged by the allotment and issue of the Rights Shares.

Subject to the fulfillment or waiver (as appropriate) of the conditions to the Rights Issue and Bonus Warrant Issue, successful applicants of the Rights Shares will receive one Bonus Warrant for every five Rights Shares taken up. On the basis of 2,471,087,850 Rights Shares to be issued under the Rights Issue, the total number of Bonus Warrants to be issued will be 494,217,570. Each of the Bonus Warrants will entitle the holder(s) thereof to subscribe for one Consolidated Share at the Exercise Price of HK$0.10 per Consolidated Share (subject to adjustments), at any time between the date of issue of the Bonus Warrants and the Business Day immediately preceding the date which is 24 months after the date of issue.

Details of the intended use of proceeds are set out in the paragraph headed “Reasons for the Rights Issue and the Bonus Warrant Issue and intended use of proceeds” below.

The Rights Issue (other than the Rights Shares that will be provisionally allotted to Global Wealthy and Mr. Suen as Qualifying Shareholders and will be taken up by them pursuant to the Irrevocable Undertakings) will be fully underwritten by the Underwriters on the terms and subject to the conditions set out in the Underwriting Agreement.

The Independent Board Committee has been formed to advise the Independent Shareholders in respect of the Underwriting Agreement, the Rights Issue and the Bonus Warrant Issue and Proton Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among others, (i) further details of the Share Consolidation, the Increase in Authorised Share Capital, the Rights Issue and the Bonus Warrant Issue; (ii) a letter from the Independent Board Committee to the Independent Shareholders in respect of the Rights Issue and the Bonus Warrant Issue; (iii) a letter from Proton Capital to the Independent Board Committee and the Independent Shareholders in respect of the Rights Issue and the Bonus Warrant Issue; and (iv) a notice convening the SGM with respect to the Share Consolidation, the Increase in Authorised Share Capital, the Rights Issue and the Bonus Warrant Issue.

2. PROPOSED SHARE CONSOLIDATION

Effects of the Share Consolidation

For illustrative purpose only, the following table sets out the effect of the Share Consolidation on the share capital of the Company (i) immediately before the Share Consolidation, and assuming that no further Shares are issued or repurchased between the date of the Latest Practicable Date and the date of the SGM and (ii) immediately after the Share Consolidation:

Immediately before the Immediately after the Share Consolidation Share Consolidation Nominal value per share HK$0.01 per Share HK$0.10 per Consolidated Share Authorised share capital HK$100,000,000 divided HK$100,000,000 divided of the Company into 10,000,000,000 into 1,000,000,000 Shares of HK$0.01 each Consolidated Shares of HK$0.10 each Issued and paid-up share HK$49,421,757.12 divided HK$49,421,757.00 capital of the Company into 4,942,175,712 divided into 494,217,570 Shares of HK$0.01 each whole Consolidated Shares of HK$0.10 each (Note)

Note: The maximum whole Consolidated Shares in issue after the Share Consolidation will be 494,217,570 disregarding the fractional Consolidated Shares arising from the Share Consolidation. Please refer to the shareholding table on page 32 of this circular for details.

Upon the Share Consolidation becoming effective, the Consolidated Shares will rank pari passu in all respects with each other in accordance with the Bye-Laws. Fractional Consolidated Shares will not be issued by the Company to the Shareholders. Fractional entitlements of the Consolidated Shares will be aggregated and sold for the benefit of the Company, if a premium (net of expenses) can be obtained.

LETTER FROM THE BOARD

Other than the relevant expenses incurred, the implementation of the Share Consolidation will have no effect on the consolidated net asset value of the Group, nor will it alter the underlying assets, business, operations, management or financial position of the Company or the interests of the Shareholders as a whole, save that any fractional Consolidated Share to which a Shareholder may be entitled. The Board believes that the Share Consolidation will not have any material adverse effect on the financial position of the Group and that on the date the Share Consolidation is to be effected, there are no reasonable grounds for believing that the Company is, or after the Share Consolidation would be, unable to pay its liabilities as they become due. The Share Consolidation will not involve any diminution of any liability in respect of any unpaid capital of the Company or the repayment to the Shareholders of any unpaid capital of the Company nor will it result in any change in the relative rights of the Shareholders.

Reasons for the Share Consolidation

Based on the closing price of HK$0.083 per Share as quoted on the Stock Exchange on the Last Trading Day, the value per board lot of 8,000 Shares and 10,000 Consolidated Shares are HK$664 and HK$8,300 respectively. After the Share Consolidation becoming effective, the transaction costs per dollar value of each Consolidated Share will be significantly lower.

The Share Consolidation will increase the nominal value of the shares of the Company. It is expected that the Share Consolidation would bring about corresponding upward adjustments in the trading price of the Consolidated Shares on the Stock Exchange and the Board believes that it may attract more investors and extend the shareholders base of the Company.

The Board therefore believes that the Share Consolidation is in the interests of the Company and the Shareholders as a whole.

Conditions of the Share Consolidation

The Share Consolidation (which will be effected in accordance with the Bye-Laws and the Companies Act) is conditional upon:

(a) the passing of the necessary resolution(s) by the Shareholders to approve the Share Consolidation at the SGM to be convened by the Company; and
(b) the Listing Committee of the Stock Exchange granting the listing of and permission to deal in, the Consolidated Shares in issue arising from the Share Consolidation.

Assuming the above conditions are fulfilled, it is expected that the Share Consolidation will become effective at 5:00 p.m. on the same date after the passing of the relevant resolution approving the Share Consolidation. Subject to the passing of the requisite resolution at the SGM approving the Share Consolidation, the Share Consolidation will comply with the laws of Bermuda. The Share Consolidation is not conditional upon resolution(s) have been passed at the SGM approving the Increase in Authorised Share Capital, the Rights Issue and/or the Bonus Warrant Issue. To the best information, knowledge and belief of the Directors having made all reasonable enquiries, as at the Latest Practicable Date, no Shareholder has an interest in the Share Consolidation that is materially different from the other Shareholders. Therefore, no Shareholder is required to abstain from voting on the resolution to be proposed at the SGM to approve the Share Consolidation.

LETTER FROM THE BOARD

Listing and Dealings

Application will be made to the Listing Committee of the Stock Exchange for the granting of the listing of, and permission to deal in, the Consolidated Shares arising from the Share Consolidation and the Consolidated Shares which may fall to be issued upon exercise of the subscription rights attaching to the Share Options. Subject to the granting of the listing of, and permission to deal in, the Consolidated Shares on the Stock Exchange, the Consolidated Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Consolidated Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Free Exchange of Consolidated Share Certificates and Trading Arrangement

Subject to the Share Consolidation becoming effective, Shareholders may submit certificates for the existing Shares in yellow colour, to the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong for exchange from Thursday, 2 February 2012 to Monday, 12 March 2012 (both dates inclusive), at the expense of the Company for certificates of the Consolidated Shares in red colour. Thereafter, certificates for the existing Shares will be accepted for exchange only on payment of a fee of HK$2.50 (or such higher amount as may from time to time be allowed by the Stock Exchange) for each share certificate of the existing Shares cancelled or each new share certificate issued for the Consolidated Shares, whichever number of certificates cancelled/ issued is higher. The existing certificates will be valid for trading and settlement up to 4:00 p.m. on Wednesday, 7 March 2012, being the latest time for trading in board lot of 800 Consolidated Shares in the form of existing certificates (or such other date which will be announced by the Company) and will continue to be good evidence of legal title after the Share Consolidation has become effective and may be exchanged for certificates of the Consolidated Shares at any time in accordance with the foregoing.

Arrangement for Matching Service for Odd Lots

In order to facilitate the trading of odd lots (if any) of the Consolidated Shares arising from the Share Consolidation, the Company has procured Chung Nam to stand in the market to provide matching services regarding the purchase and sale of odd lots of the Consolidated Shares at the relevant market price per Consolidated Share for the period from 9:00 a.m. on Thursday, 16 February 2012 to 4:00 p.m. on Wednesday, 7 March 2012 (both dates inclusive). Holders of the odd lots of the Consolidated Shares who wish to take advantage of this matching facility either to dispose of their odd lots of the Consolidated Shares or to top up to board lots of 10,000 Consolidated Shares, may contact Mr. Bon Cheng of Chung Nam Securities Limited of 26/F., China United Centre, 28 Marble Road, North Point, Hong Kong at telephone number (852) 3198 0804 during office hours.

LETTER FROM THE BOARD

Holders of odd lots of the Consolidated Shares should note that successful matching of the sale and purchase of odd lots of the Consolidated Shares is not guaranteed. Any Shareholder, who is in any doubt about the odd lot arrangement, is recommended to consult his/her/its own professional advisers.

3. INCREASE IN AUTHORISED SHARE CAPITAL

In order to accommodate for the Rights Issue, issue of Bonus Warrant Shares upon exercise of the Bonus Warrants under the Bonus Warrant Issue and any possible future equity fund raising exercises for the future expansion and growth of the Group, the Company proposes to increase the Company’s authorised share capital (subject to the Share Consolidation becoming effective) from HK$100,000,000 divided into 1,000,000,000 Consolidated Shares to HK$1,000,000,000 divided into 10,000,000,000 Consolidated Shares by the creation of an additional 9,000,000,000 unissued Consolidated Shares which shall rank pari passu in all respects with the then existing Consolidated Shares.

The Increase in Authorised Share Capital is subject to and conditional upon the Share Consolidation becoming effective and the passing of an ordinary resolution by the Shareholders at the SGM. To the best information, knowledge and belief of the Directors having made all reasonable enquiries, as at the Latest Practicable Date, no Shareholder has an interest in the Increase in Authorised Share Capital that is materially different from the other Shareholders. Therefore, no Shareholder is required to abstain from voting on the resolution to be proposed at the SGM to approve the Increase in Authorised Share Capital. The Directors currently have no intention to allot and issue new Consolidated Shares other than the Rights Shares and the Bonus Warrant Shares.

4. CHANGE IN BOARD LOT SIZE

The Company proposes to change the board lot size for trading in the Shares from 8,000 Shares to 10,000 Consolidated Shares per board lot immediately after the Share Consolidation becoming effective. The change in board lot size of the Shares is not conditional upon the Rights Issue and the Bonus Warrant Issue and is not subject to the Shareholders’ approval at the SGM.

5. PROPOSED RIGHTS ISSUE

The Company proposes to raise approximately HK$321.2 million (before expenses) by way of a rights issue on the basis of five Rights Shares for every one Consolidated Share held on the Record Date at the Subscription Price of HK$0.13 per Rights Share.

LETTER FROM THE BOARD

Issue Statistics

Basis of the Rights Issue:

Five (5) Rights Shares for every one (1) Consolidated Share held on the Record Date with Bonus Warrants on the basis of one (1) Bonus Warrant for every five (5) Rights Shares taken up

Number of Shares in issue as at the Latest Practicable Date:

4,942,175,712 Shares

Number of Consolidated Shares after the Share Consolidation becoming effective:

494,217,570 whole Consolidated Shares (assuming that no further Shares are issued or repurchased between the Latest Practicable Date and the date of the SGM)

Number of Rights Shares:

2,471,087,850 Rights Shares (on the basis of 494,217,570 whole Consolidated Shares in issue after the Share Consolidation and assuming there shall be no further issue of new Shares or repurchase of Shares on or before the Record Date)

The aggregate nominal value HK$247,108,785.00 of the Rights Shares:

Subscription Price:

HK$0.13 per Rights Share

Number of Bonus Warrants:

494,217,570 Bonus Warrants (on the basis of 2,471,087,850 Rights Shares will be issued under the Rights Issue)

Underwriters: Global Wealthy and Chung Nam

As at the Latest Practicable Date, the Company has 16,000,000 Share Options outstanding. Save as disclosed, no outstanding convertible securities, options or warrants in issue which confer any right to subscribe for, convert or exchange into Shares other than the Share Options.

Assuming there shall be no further issue of new Shares or repurchase of Shares on or before the Record Date, the 2,471,087,850 nil-paid Rights Shares proposed to be provisionally allotted represent:

(i) 500% of the number of Consolidated Shares immediately upon completion of the Share Consolidation (based on the Company’s existing issued share capital as at the Latest Practicable Date); and
(ii) approximately 83.33% of the Company’s issued share capital as enlarged by the issue of the Rights Shares.

LETTER FROM THE BOARD

Qualifying Shareholders and Non-Qualifying Shareholders

The Rights Issue and the Bonus Warrant Issue are only available to the Qualifying Shareholders. To qualify for the Rights Issue and the Bonus Warrant Issue, a Shareholder must:

(1) be registered as a member of the Company at the close of business on the Record Date; and
(2) not be a Non-Qualifying Shareholder.

Closure of Register of Members

The register of members of the Company will be closed from Tuesday, 7 February 2012 to Monday, 13 February 2012 (both days inclusive) for ascertaining entitlements of the Shareholders under the Rights Issue and the Bonus Warrant Issue. In order to be registered as a member of the Company on the Record Date, holders of Shares or Consolidated Shares (as the case may be) must lodge all transfers of the Shares or Consolidated Shares (as the case may be) (together with the relevant share certificate(s)) with the Company’s branch share registrar and transfer office in Hong Kong by 4:30 p.m. (Hong Kong time) on Monday, 6 February 2012. The Company’s branch share registrar and transfer office in Hong Kong is:

Tricor Tengis Limited 26th Floor, Tesbury Centre, 28 Queen’s Road East Wanchai, Hong Kong

The Company will, on or before the Prospectus Posting Date, post the Prospectus Documents to the Qualifying Shareholders and the Prospectus stamped “For information only” to the NonQualifying Shareholders for information purpose.

Basis of the Provisional Allotment

The basis of the provisional allotment shall be five Rights Shares for every one whole Consolidated Share held on the Record Date, being 2,471,087,850 Rights Shares at the Subscription Price of HK$0.13 per Rights Share. Application for all or any part of a Qualifying Shareholder’s provisional allotment should be made by completing the PAL and lodging the same with a remittance for the Rights Shares being applied for.

Rights of the Overseas Shareholders

The Prospectus Documents are not intended to be registered under the applicable securities legislation of any jurisdiction other than Hong Kong and Bermuda.

In compliance with the necessary requirements of the Listing Rules, the Company will make enquiries regarding the feasibility of extending the Rights Issue and the Bonus Warrant Issue to the Overseas Shareholders (if any). If, based on legal opinions, the Directors consider that it is necessary or expedient not to offer the Rights Shares and the Bonus Warrants to the Overseas Shareholders on account either of the legal restrictions under the laws of the relevant place or the

LETTER FROM THE BOARD

requirements of the relevant regulatory body or stock exchange in that place, the Rights Issue and the Bonus Warrant Issue will not be available to such Overseas Shareholders. Further information in this connection will be set out in the Prospectus Documents containing, among other things, details of the Rights Issue and the Bonus Warrant Issue, to be despatched to the Qualifying Shareholders as soon as practicable. The Company will send copies of the Prospectus to the NonQualifying Shareholders for their information only, but will not send any PAL and EAF to them. The Non-Qualifying Shareholders will be entitled to attend and vote at the SGM.

Arrangements will be made for the Rights Shares which would otherwise have been provisionally allotted to the Non-Qualifying Shareholders to be sold in the market in their nil-paid form as soon as practicable after dealings in the Rights Shares in their nil-paid form commence and before dealings in the Rights Shares in their nil-paid form ends, if a premium (net of expenses) can be obtained. The proceeds of such sale, less expenses, of more than HK$100 will be paid pro rata to the Non-Qualifying Shareholders. The Company will retain individual amounts of HK$100 or less for the benefits of the Company. Any unsold entitlements of Non-Qualifying Shareholders, together with any Rights Shares provisionally allotted but not accepted by the Qualifying Shareholders or otherwise not subscribed for by transferees of nil-paid Rights Shares, will be made available for excess application on EAFs by Qualifying Shareholders.

According to the register of members of the Company as at the Latest Practicable Date, there was one Shareholder with address located in the PRC. Based on the advice provided by the Company’s legal advisers on the laws of PRC, it would be lawful for the Company to offer the Rights Shares and the Bonus Warrants to the Shareholder with address located in the PRC, even though the Prospectus Documents will not be registered in the PRC. Therefore, the Directors have decided to extend the Rights Issue and the Bonus Warrant Issue to such Overseas Shareholder with registered address located in the PRC as shown on the register of members of the Company as at the Record Date. The Company will continue to ascertain whether there are any other Overseas Shareholders on the Record Date and will, if necessary, make further enquiries with legal adviser(s) in other overseas jurisdiction(s) regarding the feasibility of extending the Rights Issue and the Bonus Warrant Issue to such other Overseas Shareholders on the Record Date and make relevant disclosures in the Prospectus.

Overseas Shareholders should note that they may or may not be entitled to the Rights Issue and the Bonus Warrant Issue, subject to the results of enquiries made by the Directors pursuant to Rule 13.36(2)(a) of the Listing Rules. Accordingly, Overseas Shareholders should exercise caution when dealing in the securities of the Company.

Application for Excess Rights Shares

The Qualifying Shareholders shall be entitled to apply for any unsold entitlements of the Non-Qualifying Shareholders and any Rights Shares provisionally allotted but not accepted or otherwise not subscribed for by the transferees of nil-paid Rights Shares. Application may be made by completing the EAFs for application for excess Rights Shares and lodging the same with a separate remittance for the excess Rights Shares being applied for. The Directors will allocate the excess Rights Shares at their discretion, but on a fair basis in accordance with the Listing Rules on the following principles:

LETTER FROM THE BOARD

(i) preference will be given to applications for less than a board lot of Rights Shares where they appear to the Directors that such applications are made to round up oddlot holdings to whole-lot holdings and that such applications are not made with the intention to abuse this mechanism; and
(ii) subject to availability of excess Rights Shares after allocation under principle (i) above, the excess Rights Shares will be allocated based on a sliding scale with reference to the number of excess Rights Shares applied by them (i.e. applications for a smaller number of Rights Shares are allocated with a higher percentage of successful application but will receive lesser number of Rights Shares; whereas applications for a larger number of Rights Shares are allocated with a smaller percentage of successful application but will receive greater number of Rights Shares).

Any persons holding Shares or Consolidated Shares through a nominee company should note that the Company will regard the nominee company as a single Shareholder according to the register of members of the Company. Accordingly, such Shareholders should note that the aforesaid arrangement in relation to the allocation of excess Rights Shares will not be extended to beneficial owners individually. Beneficial owners who hold their Shares or Consolidated Shares through a nominee company are advised to consider whether they would like to arrange registration of their Shares or Consolidated Shares in their own names prior to the Record Date.

For the Shareholders whose Shares or Consolidated Shares are held by their nominee(s) and would like to have their names registered on the register of members of the Company, they must complete the relevant registration with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, by 4:30 p.m. on Monday, 6 February 2012.

Subscription Price

The Subscription Price is HK$0.13 per Rights Share, which shall be payable in full by the Qualifying Shareholders upon acceptance of the provisional allotment of the Rights Shares or, where applicable, upon application for any of the excess Rights Shares, or when a transferee of nilpaid Rights Shares applies for the Rights Shares.

The Subscription Price represents:

(i) a discount of approximately 84.3% to the adjusted closing price of HK$0.83 per Consolidated Share based on the closing price of HK$0.083 per Share as quoted on the Stock Exchange on the Last Trading Day and adjusted for the effect of the Share Consolidation;
(ii) a discount of approximately 85.1% to the adjusted average closing price of approximately HK$0.87 per Consolidated Share, based on the average closing price of approximately HK$0.087 as quoted on the Stock Exchange for the 5 consecutive trading days up to and including the Last Trading Day and adjusted for the effect of the Share Consolidation;

LETTER FROM THE BOARD

(iii) a discount of approximately 48% to the theoretical ex-rights price of approximately HK$0.25 per Consolidated Share after the Rights Issue based on the closing price of HK$0.083 per Share as quoted on the Stock Exchange on the Last Trading Day and adjusted for the effect of the Share Consolidation; and
(iv) a discount of approximately 62.9% to the adjusted closing price of HK$0.35 per Consolidated Share based on the closing price of HK$0.035 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The net price per Rights Share (after deduction of expenses, including the commission to be paid to the Underwriters) will be approximately HK$0.126.

Bonus Warrant Issue

Subject to the fulfillment or waiver (as appropriate) of the conditions to the Rights Issue and the Bonus Warrant Issue, Bonus Warrants will be issued to those Qualifying Shareholders and such other persons who have taken up the Rights Shares on the basis of one Bonus Warrant for every five Rights Shares taken up. Each of the Bonus Warrants will entitle the holder(s) thereof to subscribe for one Consolidated Share at the Exercise Price of HK$0.10 per Consolidated Share (subject to adjustments).

The Bonus Warrants Subscription Period will commence from the date of issue of the Bonus Warrants, which is currently expected to be on or about Friday, 9 March 2012 and expire at 4:30 p.m. on the Business Day immediately preceding the date which is 24 months after such date, which is currently expected to be on or about Friday, 7 March 2014.

On the basis of 2,471,087,850 Rights Shares to be issued under the Rights Issue, the total number of the Bonus Warrants to be issued will be 494,217,570 entitling holders thereof to subscribe for a total of 494,217,570 Bonus Warrants Shares at the Exercise Price. Assuming there shall be no further issue of new Shares or repurchase of Shares on or before the Record Date, the Bonus Warrant Shares to be issued upon full exercise of the Bonus Warrants will represent approximately 14.29% of issued share capital of the Company as enlarged by the allotment and issue of the Rights Shares and the Bonus Warrant Shares.

Other than the proposed Bonus Warrant Issue and the outstanding Share Options granted to Mr. Suen, the Company does not have any other equity securities which are convertible into Shares upon the exercise of the subscription rights attaching thereto. As at the Latest Practicable Date and based on the information currently available, the Company confirms that the Bonus Warrant Shares to be issued upon the exercise of the subscription rights attaching to the Bonus Warrants will not exceed 20% of the issued share capital of the Company at the time the Bonus Warrants are issued in compliance with Rule 15.02(1) of the Listing Rules.

LETTER FROM THE BOARD

The Exercise Price of each Bonus Warrant represents:

(i) a discount of approximately 88% to the adjusted closing price of HK$0.83 per Consolidated Share based on the closing price of HK$0.083 per Share as quoted on the Stock Exchange on the Last Trading Day and adjusted for the effect of the Share Consolidation;
(i) a discount of approximately 88.5% to the adjusted average closing price of approximately HK$0.87 per Consolidated Share based on the average closing price of approximately HK$0.087 per Share as quoted on the Stock Exchange for the 5 consecutive trading days ending on the Last Trading Day and adjusted for the effect of the Share Consolidation;
(iii) a discount of approximately 60% to the theoretical ex-rights price of approximately HK$0.25 per Consolidated Share after the Rights Issue based on the closing price of HK$0.083 per Share as quoted on the Stock Exchange on the Last Trading Day and adjusted for the effect of the Share Consolidation; and
(iv) a discount of approximately 71.4% to the adjusted closing price of HK$0.35 per Consolidated Share based on the closing price of HK$0.035 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

Assuming all the Bonus Warrants are exercised, estimated gross proceeds (before expenses) and estimated net proceeds of approximately HK$49.4 million and HK$49.2 million respectively will be raised. The net price per Bonus Warrant Share is therefore approximately HK$0.099. As the Bonus Warrants and the Bonus Warrant Shares will only be issued after the Share Consolidation has become effective, the aggregate nominal value of all the Bonus Warrant Shares that may fall to be issued is approximately HK$49.4 million.

Basis of determining the Subscription Price and the Exercise Price

The Subscription Price and the Exercise Price were arrived at after arm’s length negotiation between the Company and the Underwriters with reference to the market price of the Shares and the prevailing market conditions. The Directors consider that the discount would encourage Shareholders to participate in the Rights Issue and accordingly maintain their shareholdings in the Company and participate in the future growth of the Group. In view of the prevailing market conditions of the capital market in Hong Kong and the benefits of the Rights Issue, the Directors (including the Independent Non-executive Directors) consider that the terms of the Rights Issue and the Bonus Warrant Issue are fair and reasonable and in the best interests of the Company and the Shareholders as a whole.

LETTER FROM THE BOARD

Fractions of the Rights Shares and the Bonus Warrants (if any)

The Company will not provisionally allot fractions of Rights Shares in nil-paid form or allot fractions of the Bonus Warrants. All fractions of nil-paid Rights Shares and the Bonus Warrants will be aggregated (rounded down to the nearest whole number) and allotted to a nominee appointed by the Company and all nil-paid Rights Shares and Bonus Warrants arising from such aggregation will be sold in the market, if a premium (net of expenses) can be achieved, and the Company will retain the proceeds from such sale(s) for its benefit. Any unsold nil-paid Rights Shares will be made available for excess application by the Qualifying Shareholders.

Certificates for the Rights Shares, the Bonus Warrants and Refund Cheques

Subject to the fulfillment or waiver (as appropriate) of the conditions of the Rights Issue and the Bonus Warrant Issue, certificates for the fully-paid Rights Shares and certificates for the Bonus Warrants are expected to be posted on or before Friday, 9 March 2012 by ordinary post to those Qualifying Shareholders and applicants who have accepted or (as the case may be) applied and paid for the Rights Shares, at their own risks.

Refund cheques in respect of wholly or partially unsuccessful applications for excess Rights Shares (if any) are expected to be posted on or before Friday, 9 March 2012 by ordinary post to the applicants at their own risks.

Status of the Rights Shares and the Bonus Warrant Shares

The Rights Shares and the Bonus Warrant Shares, when fully paid and issued, will rank pari passu in all respects with the Consolidated Shares then in issue, including the right to receive all future dividends and distributions which may be declared, made or paid on or after the date of allotment of the Rights Shares in their fully-paid form or the Bonus Warrant Shares (as the case may be).

Specific Mandate to Allot and Issue the Bonus Warrant Shares

The Company will allot and issue the Bonus Warrant Shares upon exercise of the rights attaching to the Bonus Warrants. The Board proposed to seek the grant of a specific mandate from the Shareholders to allot and issue the Bonus Warrant Shares at the SGM.

Application for Listing

The Company will apply to the Listing Committee for the listing of, and permission to deal in, the Rights Shares (in both nil-paid and fully-paid forms), the Bonus Warrants and the Bonus Warrant Shares.

No part of the securities of the Company is listed or dealt in or on which listing or permission to deal is being or is proposed to be sought on any other stock exchange.

LETTER FROM THE BOARD

Subject to the granting of the listing of, and permission to deal in, the Rights Shares (in both their nil-paid and fully-paid forms), the Bonus Warrants and the Bonus Warrant Shares on the Stock Exchange, the Rights Shares (in both their nil-paid and fully-paid forms), the Bonus Warrants and the Bonus Warrant Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from their respective commencement dates of dealings in the Rights Shares in each of their nil-paid and fully-paid forms, the Bonus Warrants and the Bonus Warrant Shares on the Stock Exchange or such other dates as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Nil-paid Rights Shares and Bonus Warrants are both expected to be traded in board lots of 10,000. Dealings in the Rights Shares (in both nil-paid and fully-paid forms), the Bonus Warrants and the Bonus Warrant Shares will be subject to the payment of stamp duty, Stock Exchange trading fee, Securities and Futures Commission transaction levy or any other applicable fees and charges in Hong Kong.

Irrevocable Undertakings

As at the Latest Practicable Date, Global Wealthy is a Shareholder interested in 437,433,866 Shares, representing approximately 8.85% of the existing issued share capital of the Company. Global Wealthy is a wholly owned subsidiary of Excelsior Kingdom, which in turn is wholly and beneficially owned by Mr. Suen. Mr. Suen is directly interested in 10,000,000 Shares and is indirectly through Global Wealthy interested in 437,433,866 Shares, together being 447,433,866 Shares in aggregate, representing approximately 9.05% of the existing issued share capital of the Company and Mr. Suen holds the Share Options entitling him to subscribe for 16,000,000 Shares.

Global Wealthy as a Shareholder, Excelsior Kingdom as sole owner of Global Wealthy and Mr. Suen as the ultimate beneficial owner of Global Wealthy, a Shareholder and a holder of the Share Options, have given the Irrevocable Undertakings to the Company and Chung Nam that:

(i) Global Wealthy will, Excelsior Kingdom will procure, and Mr. Suen will and will procure that the applications in respect of 218,716,930 Rights Shares by Global Wealthy and 5,000,000 Rights Shares by Mr. Suen comprising their respective entitlements under the Rights Issue will be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, with payment in full therefor in cash, by no later than the Latest Time for Acceptance and otherwise in accordance with the instructions printed on the PAL(s);
(ii) the Consolidated Shares comprising Mr. Suen’s and Global Wealthy’s current shareholding beneficially owned by him/it shall remain beneficially owned by him/ it from the date of their undertakings up to and including the date on which dealings in the fully-paid Rights Shares are expected to commence on the Stock Exchange (or such later date as may be agreed with the Company in writing); and

LETTER FROM THE BOARD

(iii) Global Wealthy will not, and Mr. Suen will not, and he and Excelsior Kingdom will procure Global Wealthy not to apply for any additional Rights Shares, by way of excess application.

Mr. Suen further undertakes to the Company and Chung Nam that he will not exercise the subscription rights attaching to the Share Options on or before the Latest Time for Termination.

6. CONDITIONS PRECEDENT TO THE RIGHTS ISSUE, THE BONUS WARRANT ISSUE AND THE UNDERWRITING AGREEMENT

The Rights Issue, the Bonus Warrant Issue and the underwriting obligations of the Underwriters under the Underwriting Agreement are conditional upon the following:

(i) the Share Consolidation and the Increase in Authorised Share Capital having become effective;
(ii) the passing of the necessary resolution(s) by the Shareholders (where applicable, the Independent Shareholders) at the SGM to approve, among others, the Share Consolidation, the Increase in Authorised Share Capital, the Rights Issue and the Bonus Warrant Issue, and the transactions contemplated thereunder;
(iii) the delivery to the Stock Exchange for authorisation and the registration with the Registrar of Companies in Hong Kong respectively of one copy of each of the Prospectus Documents duly signed by two Directors (or by their agents duly authorised in writing) as having been approved by resolution of the Directors (and all other documents required to be attached thereto) and otherwise in compliance with the Listing Rules and the Companies Ordinance not later than the Prospectus Posting Date;
(iv) the filing of one copy of the Prospectus Documents with the Registrar of Companies in Bermuda prior to or as soon as reasonably practicable after publication of the Prospectus Documents in compliance with the Companies Act;
(v) the posting of the Prospectus Documents to the Qualifying Shareholders and the posting of the Prospectus stamped “For information only” to the Non-Qualifying Shareholders, if any, for their information purpose on or before the Prospectus Posting Date;
(vi) the Listing Committee granting or agreeing to grant (subject to allotment) the listing of, and permission to deal in, the Rights Shares (in both their nil-paid and fully-paid forms), the Bonus Warrants and the Bonus Warrant Shares, either unconditionally or subject to such conditions as the Underwriters may in their absolute discretion accept and the satisfaction of such conditions (if any and where relevant) before 8:00 a.m. on the first date of dealings in nil-paid Rights Shares, the Bonus Warrants and the Bonus Warrant Shares on the Stock Exchange and not having withdrawn or revoked such listing and permission on the first day of their dealings;

LETTER FROM THE BOARD

(vii) if necessary, the obtaining of the consent or permission from the Bermuda Monetary Authority in respect of the issue of the Rights Shares and the Bonus Warrant Issue on or before the Prospectus Posting Date;
(viii) compliance with and performance by the Company of all the undertakings and obligations under the terms of the Underwriting Agreement;
(ix) compliance with and performance of all undertakings and obligations of Mr. Suen and Global Wealthy under the Irrevocable Undertakings;
(x) compliance with and performance of all undertakings and obligations of the Underwriters pursuant to the terms and conditions of the Underwriting Agreement; and
(xi) the obligations of the Underwriters under the Underwriting Agreement not being terminated by the Underwriters in accordance with the terms thereof.

Where any condition relates to compliance with applicable laws, rule and regulations, it cannot be waived. Subject to the foregoing sentence, the above conditions (i) to (vii) cannot be waived, the Company may waive the condition (x), and the Underwriters may waive the condition (viii).

In the event that the above conditions have not been satisfied or waived on or before 4:00 p.m. on Tuesday, 6 March 2012 (or such other date as the Underwriters and the Company may agree in writing), the obligations of the parties to the Underwriting Agreement shall cease and determine and no party shall have any claim against the other party save for any antecedent breach of the Underwriting Agreement and save that all legal fees as well as such other out of pocket expenses of the Underwriters shall continue to be borne by the Company, and the Rights Issue and the Bonus Warrant Issue will not proceed.

7. UNDERWRITING ARRANGEMENT

The Underwriting Agreement

Date:	20 December 2011
Underwriters:	(1) Global Wealthy, a Shareholder of the Company as at the
	Latest Practicable Date; and
	(2) Chung Nam, to the best of the knowledge, information
	and belief of the Directors having made all reasonable
	enquiries, Chung Nam and its ultimate beneficial owners
	are independent third parties. As at the Latest Practicable
	Date, Chung Nam and its associates are not interested in
	any Shares or securities of the Company
Number of Rights Shares	The Underwriters have conditionally agreed pursuant to
underwritten:	the Underwriting Agreement and subject to the Irrevocable
	Undertakings to underwrite the Underwritten Shares, being
	2,247,370,920 Rights Shares, on a fully underwritten basis in the
	following priority:

LETTER FROM THE BOARD

(1) Firstly, Global Wealthy shall underwrite up to a maximum of 601,000,000 Underwritten Shares; and
(2) Secondly, Chung Nam shall underwrite the balance of the Underwritten Shares up to a maximum of 1,646,370,920 Right Shares.

Total number of Bonus 494,217,570 Bonus Warrants Warrants:

Commission: 2.50% of the aggregate Subscription Price in respect of the number of Underwritten Shares to be underwritten by the Underwriters

The commission rate was determined after arm’s length negotiation between the Company and the Underwriters by reference to the existing financial position of the Group, the size of the Rights Issue, and the current and expected market condition. The Directors (including the Independent Non-executive Directors) consider the terms of the Underwriting Agreement including the commission rate are fair and reasonable so far as the Company and the Shareholders are concerned. Mr. Suen has abstained from voting at the meeting of the Board approving the Rights Issue and the Bonus Warrant Issue and all matters contemplated thereunder.

Pursuant to the Underwriting Agreement, Chung Nam undertakes and warrants to the Company that:

(i) it shall use all reasonable endeavours to procure that each of the subscribers of the Underwritten Shares (including any direct and indirect sub-underwriters) shall be third party independent of, not acting in concert with and not connected with the Directors, chief executive or substantial shareholders of the Company (within the meaning of the Listing Rules) or any of its subsidiaries and their respective associates;
(ii) in performing its undertaking obligations under the Underwriting Agreement, no subscriber or sub-underwriter (including any direct and indirect sub-underwriters) of the Underwritten Shares will, together with any party acting in concert with it or its associates (within the meaning of the Takeovers Code), become a Shareholder holding 10% or more of the voting rights of the Company immediately upon completion of the Rights Issue;
(iii) it shall use all reasonable endeavours to ensure that no subscriber or sub-underwriter (including any direct and indirect sub-underwriters) of the Underwritten Shares will, together with any party acting in concert with it or its associates (within the meaning of the Takeovers Code), become a Shareholder holding 30% or more of the voting rights of the Company immediately upon completion of the Rights Issue;
(iv) it shall not, together with any party acting in concert with it or its associates (within the meaning of the Takeovers Code), become a Shareholder holding 30% or more of the voting rights of the Company immediately upon completion of the Rights Issue; and

LETTER FROM THE BOARD

(v) it shall use all reasonable endeavours to ensure that each of the subscribers or sub-underwriters of the Underwritten Shares procured by it shall be third parties independent of and not parties acting in concert with Global Wealthy, Excelsior Kingdom, their respective directors and shareholders or their associates and are not a connected person of the Company such that the Company will be able to comply with the minimum public float requirement set out in Rule 8.08(1) of the Listing Rules.

In the event that no Shareholders (except Mr. Suen and Global Wealthy) take up their entitlements of the Rights Shares, it is expected that Mr. Suen and Global Wealthy will hold up to 869,460,316 Consolidated Shares representing approximately 29.32% of the enlarged issued share capital of the Company upon completion of the Rights Issue. Save that, it is expected that (i) no subscriber or purchaser of the Underwritten Shares will become a substantial shareholder (as defined in the Listing Rules) immediately after completion of the Rights Issue; (ii) Chung Nam and its associates, together with any party acting in concert (within the meaning of the Takeovers Code) with it will not become a Shareholder holding 20% or more of the voting rights of the Company immediately after completion of the Rights Issue.

Save as disclosed above, the Board has not received any information or irrevocable undertakings, other than the Irrevocable Undertakings from Global Wealthy and Mr. Suen, from any Shareholders of their intention to take up their assured entitlements under the Rights Issue.

Termination or Rescission of the Underwriting Agreement

If, prior to the Latest Time for Termination:

(1) in the reasonable opinion of Chung Nam (after prior consultation with Global Wealthy), the success of the Rights Issue and the Bonus Warrant Issue would be materially and adversely affected by:
(a) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may, in the reasonable opinion of Chung Nam (after prior consultation with Global Wealthy), materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or is materially adverse in the context of the Rights Issue and the Bonus Warrant Issue; or
(b) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date thereof) of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the reasonable opinion of Chung Nam (after prior consultation with Global Wealthy), materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or materially and

LETTER FROM THE BOARD

adversely prejudice the success of the Rights Issue or otherwise makes it inexpedient or inadvisable to proceed with the Rights Issue and the Bonus Warrant Issue; or

(c) any material adverse change in the business or in the financial or trading position of the Group as a whole; or
(2) any material adverse change in market conditions (including without limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction or trading in securities) occurs which in the reasonable opinion of Chung Nam (after prior consultation with Global Wealthy) are likely to materially or adversely affect the success of the Rights Issue or otherwise makes it inexpedient or inadvisable to proceed with the Rights Issue and the Bonus Warrant Issue; or
(3) there is any change in the circumstances of the Company or any member of the Group which in the reasonable opinion of Chung Nam (after prior consultation with Global Wealthy) will adversely affect the prospects of the Company, including without limiting the generality of the foregoing the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any of member of the Group or the destruction of any material asset of the Group; or
(4) any suspension in the trading of securities generally or the Company’s securities on the Stock Exchange for a period of more than ten consecutive Business Days, excluding any suspension in connection with the clearance of the Announcement, or the Prospectus Documents or other announcements or circulars in connection with the Rights Issue and the Bonus Warrant Issue; or
(5) the circular, prospectus or announcements of the Company (including any amendments or supplements thereto) published since the date of the Underwriting Agreement when published contain information (either as to business prospects or the condition of the Group or as to its compliance with any laws, Listing Rules, Takeovers Code or any applicable regulations) which has not prior to the date of the Underwriting Agreement been publicly announced or published by the Company and which in the reasonable opinion of Chung Nam (after prior consultation with Global Wealthy) are material to the Group as a whole and is likely to affect materially and adversely the success of the Rights Issue or might cause a prudent investor not to accept the Rights Issue provisionally allotted to it,

then, Chung Nam shall (after prior consultation with Global Wealthy) at its reasonable discretion be entitled by notice in writing to the Company (which shall be binding on Global Wealthy), served prior to the Latest Time for Termination, to terminate the Underwriting Agreement.

Chung Nam (after prior consultation with Global Wealthy) shall be entitled by notice in writing to the Company to rescind the Underwriting Agreement if prior to the Latest Time for Termination:

LETTER FROM THE BOARD

(1) any material breach of any of the representations, warranties or undertakings of the Company contained in the Underwriting Agreement that comes to the knowledge of Chung Nam; or
(2) any Specified Event comes to the knowledge of Chung Nam, provided that Chung Nam shall have given prior notice of its intention to rescind to Global Wealthy. Any such notice of recission shall be served by Chung Nam to the Company (which shall be binding on Global Wealthy) prior to the Latest Time for Termination.

Upon termination or rescission of the Underwriting Agreement, the Rights Issue and the Bonus Warrant Issue will not proceed, and the obligations of all parties under the Underwriting Agreement shall terminate and no party shall have any claim against any other party save for any antecedent breaches.

8. REASONS FOR THE RIGHTS ISSUE AND THE BONUS WARRANT ISSUE AND INTENDED 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.

The estimated gross proceeds (before expenses) and the estimated net proceeds from the Rights Issue (after deduction of expenses, including the commission to be paid to the Underwriters) will be approximately HK$321.2 million and HK$311.7 million respectively. The Company intends to apply the net proceeds from the Rights Issue for the following purposes:

(i) not less than 50% of the net proceeds on potential and future investments in energy and resources related business or other suitable/attractive business opportunities by way of trading or acquisitions of business or assets, in particular, the Company is conducting feasibility studies on the business of methanol and may pursue business opportunities in that area; and
(ii) the remaining balance of the net proceeds will be applied for general corporate and working capital of the Group.

Methanol is an important raw material for the chemical industry and has wide industrial applications including production of synthetic fibre, plastic, pharmaceutical, pesticides, dye and synthetic protein and can also be used to produce fuel which is commonly considered as an alternative energy source. The Company is currently exploring the feasibility of importing methanol from overseas into the PRC and carrying out research regarding market demand, government policies and regulatory framework for methanol in the PRC and the logistic arrangements for such operations. The business of trading of methanol requires pledging of cash with bank(s) for the purpose of issuing letter(s) of credit. Given the value of each trading contract, substantial amounts have to be reserved for this purpose. The Company expects to commit not less than HK$150 million for the methanol business when it is materialized. Having been focused on carrying out the feasibility studies of methanol business, at present the Company has not yet identified other investments opportunities or acquisition targets in the energy and resources related business.

LETTER FROM THE BOARD

Assuming all the Bonus Warrants are exercised, estimated gross proceeds (before expenses) and estimated net proceeds of approximately HK$49.4 million and HK$49.2 million respectively will be raised. The Company intends to apply such net proceeds as general corporate and working capital of the Group for its future business development.

The Board considers that it is prudent to finance the Group’s long-term growth by long-term financing, preferably in the form of equity after considered other fund raising alternatives for the Group, such as bank borrowings and issuance of convertible securities, after taking into account the benefits and cost of each alternatives. The Rights Issue allows the Group to strengthen its financial position without raising debts and bearing interests. Taken into account the terms of the Rights Issue, the Board considers that the Rights Issue are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Furthermore, it also offers all the Qualifying Shareholders an equal opportunity to participate in the enlargement of the capital base of the Company and enables the Qualifying Shareholders to maintain their proportionate interests in the Company to participate in the future development of the Company should they wish to do so. However, those Qualifying Shareholders who do not take up the Rights Shares to which they are entitled should note that their shareholdings in the Company will be diluted .

As at 30 September 2011, the Group had cash and bank balances of approximately HK$444,695,000 and net proceeds of approximately HK$74,400,000 had been raised in the placing of Shares completed on 1 November 2011. According to the Group’s operational plan, most of the cash resources have been designated to finance the existing operations of the Group where (i) approximately HK$250 million have been designated to be pledged with bank(s) from time to time for trade facilities granted by banks to finance the operation of the Group’s supply and procurement division; (ii) approximately HK$165 million have been designated for settlement of the balance of purchase price for the acquisition of an intellectual property rights to a Chinese medicine known as Jinhua Qinggan and as additional working capital for the Group’s pharmaceutical division; and (iii) the remaining cash resources of approximately HK$104 million have been designated to finance the Group’s other operating activities. Having considered the cash position of the Group and the intended usages of the available cash resources, the Board considers that the current capital raising activities are appropriate and beneficial for the long term development of the Group.

9. POSSIBLE ADJUSTMENT TO THE SHARE OPTIONS

As at the Latest Practicable Date, there are 16,000,000 Share Options outstanding entitling Mr. Suen to subscribe for 16,000,000 Shares. As a result of the proposed Share Consolidation, Rights Issue and Bonus Warrant Issue, adjustments will need to be made to the exercise price and/or the number of Shares or Consolidated Shares (as the case may be) to be issued upon exercise of the Share Options in accordance with the terms and conditions of the Share Options. The Company will appoint an independent financial adviser to certify the adjustments, if any, to the 16,000,000 Share Options and will notify Mr. Suen regarding adjustments to be made and further announcement will be made by the Company in respect of such adjustments as and when appropriate.

LETTER FROM THE BOARD

10. FUND RAISING EXERCISES OF THE COMPANY DURING THE PAST 12 MONTHS

The Company’s equity fund raising exercises over the past 12-month period immediately preceding the Latest Practicable Date are set out below:

Date of		Net proceeds raised
announcement	Fund raising activity	(approximately)	Use of net proceeds	Actual use of net proceeds
24 October 2011	Placing of 823,695,952	HK$74.4 million	General working capital	Used as intended
	new Shares at a price of
	HK$0.093 per Share under
	general mandate, completed
	on 1 November 2011
10 November 2010	Placing of 1,000,000,000	HK$311.2 million	For (i) general working	Used as intended
	new Shares at a price		capital; (ii) repayment of	(approximately HK$124
	of HK$0.32 per Share		debts of the Group and/or	million used as general
	under specific mandate,		(iii) funding of appropriate	working capital of the
	completed on 8 February		investment opportunities if	Group and approximately
	2011		arise	HK$187.2 million used
				to repurchase convertible
				notes issued by the
				Company)

Save for the above, the Company has not carried out other capital raising activities in the 12 months immediately preceding the Latest Practicable Date.

LETTER FROM THE BOARD

11. EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY

Set out below is the shareholding structure of the Company assuming that there is no change in the shareholding structure of the Company from the Latest Practicable Date until such date falling immediately after completion of the Share Consolidation, the Rights Issue and the Bonus Warrant Issue, and assuming there shall be no further issue of new Shares or repurchase of Shares on or before the Record Date.

As at the Latest Practicable Date Number of Approx. Shareholders Shares % Substantial Shareholders Global Wealthy_(Note 1) 437,433,866 8.85% Global Wealthy as Underwriter N/A N/A Director Mr. Suen 10,000,000 0.20% Public Chung Nam and/or subscribers procured by it(Note 2)_ N/A N/A Other public Shareholders 4,494,741,846 90.95% Total 4,942,175,712 100.00%	As at the Latest Practicable Date Number of Approx. Shareholders Shares % Substantial Shareholders Global Wealthy_(Note 1) 437,433,866 8.85% Global Wealthy as Underwriter N/A N/A Director Mr. Suen 10,000,000 0.20% Public Chung Nam and/or subscribers procured by it(Note 2)_ N/A N/A Other public Shareholders 4,494,741,846 90.95% Total 4,942,175,712 100.00%	Before full exercise of Bonus Warrants None of the Rights Shares are subscribed by the Immediately after the Share Qualifying Shareholders Consolidation but before (except Mr. Suen and the completion of All Rights Shares are Global Wealthy) Rights Issue and subscribed by the and all taken up Bonus Warrant Issue Qaulifying Shareholders by the Underwriters Number of Number of Number of Consolidated Approx. Consolidated Approx. Consolidated Approx. Shares % Shares % Shares % 43,743,386 8.85% 262,460,316 8.85% 262,460,316 8.85% (Note 3) N/A N/A N/A N/A 601,000,000 20.27% 1,000,000 0.20% 6,000,000 0.20% 6,000,000 0.20% N/A N/A N/A N/A 1,646,370,920 55.52% 449,474,184 90.95% 2,696,845,104 90.95% 449,474,184 15.16% (Note 3) 494,217,570 100.00% 2,965,305,420 100.00% 2,965,305,420 100.00% (Note 3)	Before full exercise of Bonus Warrants None of the Rights Shares are subscribed by the Immediately after the Share Qualifying Shareholders Consolidation but before (except Mr. Suen and the completion of All Rights Shares are Global Wealthy) Rights Issue and subscribed by the and all taken up Bonus Warrant Issue Qaulifying Shareholders by the Underwriters Number of Number of Number of Consolidated Approx. Consolidated Approx. Consolidated Approx. Shares % Shares % Shares % 43,743,386 8.85% 262,460,316 8.85% 262,460,316 8.85% (Note 3) N/A N/A N/A N/A 601,000,000 20.27% 1,000,000 0.20% 6,000,000 0.20% 6,000,000 0.20% N/A N/A N/A N/A 1,646,370,920 55.52% 449,474,184 90.95% 2,696,845,104 90.95% 449,474,184 15.16% (Note 3) 494,217,570 100.00% 2,965,305,420 100.00% 2,965,305,420 100.00% (Note 3)	After full exercise of Bonus Warrants None of the Rights Shares are subscribed by the Qualifying Shareholders (except Mr. Suen and All Rights Shares are Global Wealthy) subscribed by the and all taken up Qualifying Shareholders by the Underwriters Number of Number of Consolidated Approx. Consolidated Approx. Shares % Shares % 306,203,702 8.85% 306,203,702 8.85% N/A N/A 721,200,000 20.85% 7,000,000 0.20% 7,000,000 0.20% N/A N/A 1,975,645,104 57.11% 3,146,319,288 90.95% 449,474,184 12.99% 3,459,522,990 100.00% 3,459,522,990 100.00%	After full exercise of Bonus Warrants None of the Rights Shares are subscribed by the Qualifying Shareholders (except Mr. Suen and All Rights Shares are Global Wealthy) subscribed by the and all taken up Qualifying Shareholders by the Underwriters Number of Number of Consolidated Approx. Consolidated Approx. Shares % Shares % 306,203,702 8.85% 306,203,702 8.85% N/A N/A 721,200,000 20.85% 7,000,000 0.20% 7,000,000 0.20% N/A N/A 1,975,645,104 57.11% 3,146,319,288 90.95% 449,474,184 12.99% 3,459,522,990 100.00% 3,459,522,990 100.00%
	100.00%		100.00%		100.00%

LETTER FROM THE BOARD

Notes:

Global Wealthy, a company incorporated in the British Virgin Islands with limited liability, is a wholly owned subsidiary of Excelsior Kingdom, which in turn is wholly owned by Mr. Suen, an Executive Director and the Chairman of the Company.
Chung Nam undertakes and warrants to the Company that in performing its obligations under the Underwriting Agreement, no subscriber or sub-underwriter (including any direct or indirect sub-underwriters) of the Underwritten Shares will, together with any party acting in concert with it or its associates, become a Shareholder holding 10% or more of the voting rights of the Company immediately after completion of the Rights Issue.
Fractional Consolidated Shares will not be issued to the Shareholders. For illustration purposes, the aggregate whole Consolidated Shares after the Share Consolidation becoming effective will be 494,217,570 Consolidated Shares and 494,217,570 Consolidated Shares has been adopted to calculate the aggregate number of Rights Shares and Bonus Warrants under the Rights Issue and the Bonus Warrant Issue.
As at the Latest Practicable Date, the outstanding Share Options that can subscribe for 16,000,000 Shares under the share option scheme of the Company held by Mr. Suen remain unexercised and Mr. Suen undertakes to the Company not to exercise the Share Options on or before the Latest Time for Termination.
For illustration purposes only, in the event that, upon completion of the Rights Issue, no Qualifying Shareholders (except Global Wealthy and Mr. Suen) take up any Rights Shares, the Underwriters will be required to subscribe for or procure subscribers of the Underwritten Shares, which will result in Global Wealthy taking up 601,000,000 Rights Shares such that the total shareholding of Global Wealthy, together with parties acting in concert with it (including Mr. Suen), will increase to an aggregate of 869,460,316 Consolidated Shares, representing approximately 29.32% of the entire issued share capital of the Company as enlarged by the Rights Issue immediately after completion of the Rights Issue, and assuming all of the Bonus Warrants have been exercised, an aggregate of 1,034,403,702 Consolidated Shares, representing approximately 29.90% of the entire issued share capital of the Company as enlarged by the Rights Issue and full exercise of the Bonus Warrants.

Shareholders and public investors should note that the above changes in shareholding structure of the Company are for illustration purpose only and the actual change in the shareholding structure of the Company upon completion of the Rights Issue and the full exercise of the Bonus Warrants are subject to various factors including, among other things, the results of acceptance of the Rights Issue and the exercising of the Bonus Warrants.

12. WARNING OF THE RISKS OF DEALING IN THE SHARES AND THE NIL-PAID RIGHTS SHARES AND/OR TAKING UP THE RIGHTS SHARES

The last day of dealing in the Shares on a cum-rights basis is Thursday, 2 February 2012. The Shares will be dealt in on an ex-rights basis commencing from Friday, 3 February 2012. Dealings in the Rights Shares in the nil-paid form are expected to take place from Monday, 20 February 2012 to Monday, 27 February 2012 (both dates inclusive). Shareholders and potential investors should note that dealing in the Shares and/or nil-paid Rights Shares will take place while the conditions to which the Underwriting Agreement is subject remain unfulfilled. If the conditions of the Underwriting Agreement are not fulfilled or the Underwriting Agreement is terminated by the Underwriters, the Rights Issue and the Bonus Warrant Issue will not proceed.

Any dealings in the Shares up to 4:00 p.m. on Tuesday, 6 March 2012, being the time and date by which all the conditions of the Rights Issue and the Bonus Warrant Issue are to be fulfilled and when the right of the Underwriters to terminate the Underwriting Agreement is to lapse, and any dealings in the Rights Shares in their nil-paid form between Monday, 20 February 2012 to Monday, 27 February 2012, both days inclusive, are accordingly subject to the risk that the Rights Issue and the Bonus Warrant Issue may not proceed. Shareholders and potential investors should therefore exercise caution when dealing in the Shares or the Rights Shares in their nil-paid form and, if they are in any doubt about their position, they should consult their professional adviser(s).

LETTER FROM THE BOARD

13. IMPLICATION UNDER THE LISTING RULES

As at the Latest Practicable Date, Global Wealthy is a Shareholder interested in 437,433,866 Shares, representing approximately 8.85% of the existing issued share capital of the Company. Mr. Suen, the sole ultimate beneficial owner of Global Wealthy, is directly interested in 10,000,000 Shares and is indirectly through Global Wealthy interested in 437,433,866 Shares, together being 447,433,866 Shares in aggregate, representing approximately 9.05% of the existing issued share capital of the Company. Global Wealthy is therefore a connected person of the Company under Chapter 14A of the Listing Rules. Accordingly, the transactions (including the commission payment) contemplated under the Underwriting Agreement (a party to which is Global Wealthy) constitute connected transactions under Chapter 14A of the Listing Rules. Any issue of the Rights Shares to Global Wealthy under the Underwriting Agreement is exempt from the reporting, announcement and independent shareholders’ approval requirements pursuant to Rule 14A.31(3)(c) of the Listing Rules. As the commission payment to be received by Global Wealthy as one of the Underwriters on normal commercial terms pursuant to the Underwriting Agreement is approximately HK$1.95 million and the relevant percentage ratios (other than the profits ratio) as defined in the Listing Rules are less than 5%, the commission payment to Global Wealthy constitutes a connected transaction that is only subject to the reporting and announcement requirements but is exempt from independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Pursuant to the requirements of the Listing Rules, the Share Consolidation, the Increase in Authorised Share Capital, the Rights Issue, the Bonus Warrant Issue are conditional upon the approval by the Shareholders (where applicable, the Independent Shareholders) by way of poll at the SGM. Pursuant to Rule 7.19(6) of the Listing Rules, any controlling Shareholders and their associates or, where there are no controlling Shareholders, the Directors (excluding the Independent Non-executive Directors), the chief executive of the Company and their respective associates shall abstain from voting in favour of the resolution relating to the Rights Issue and the Bonus Warrant Issue.

As at the Latest Practicable Date, the Company does not have any controlling Shareholders and, save for Mr. Suen, none of the Directors holds any Shares of the Company and shall be required to abstain from voting in favour of the resolution relating to the Rights Issue and the Bonus Warrant Issue at the SGM. Mr. Suen and Global Wealthy together with their respective associates are interested in an aggregate of approximately 9.05% of the existing issued share capital of the Company and Mr. Suen also holds the outstanding Share Options that can subscribe for 16,000,000 Shares (subject to adjustments). Global Wealthy and Mr. Suen, having a material interest in the Rights Issue and the Bonus Warrant Issue, to the extent they hold Shares at the SGM, Mr. Suen and Global Wealthy together with their respective associates, will be required to abstain from voting at the SGM in favour of the resolution approving the Rights Issue and the Bonus Warrant Issue.

To the best information, knowledge and belief of the Directors having made all reasonable enquiries, as at the Latest Practicable Date, no Shareholder had an interest in the Share Consolidation or Increase in Authorised Share Capital that is materially different from the other Shareholders. Therefore, no Shareholder is required to abstain from voting on the resolutions to be proposed at the SGM to approve the Share Consolidation and the Increase in Authorised Share Capital.

LETTER FROM THE BOARD

14. SGM

A notice convening the SGM of the Company to be held at Plaza 1 and 2, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong on Wednesday, 1 February 2012 at 9:00 a.m. for the purpose of considering, and if thought fit, the passing of the ordinary resolutions approving the Share Consolidation, the Increase in Authorised Share Capital, the Rights Issue and the Bonus Warrant Issue is set out on pages 87 to 90 of this circular. The ordinary resolutions approving the Share Consolidation and the Increase in Authorised Share Capital will be put forward to the Shareholders, and the ordinary resolution approving the Rights Issue and the Bonus Warrant Issue will be put forward to the Independent Shareholders at the SGM to vote by poll.

There is enclosed a form of proxy for use at the SGM. Whether or not the Shareholders intend to be present at the SGM, they are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time fixed for holding of the SGM or any adjourned meeting thereof (as the case may be). Completion and delivery of the form of proxy will not prevent the Shareholders from attending and voting at the SGM or adjourned meeting thereof (as the case may be) if they so wish and in such event, the form of proxy shall be deemed to be revoked.

15. RECOMMENDATION

You are advised to read carefully the letter from the Independent Board Committee and the letter from the Independent Financial Adviser set out on page 37 and pages 38 to 55 respectively of this circular.

The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the terms of the Underwriting Agreement, the Rights Issue and the Bonus Warrant Issue are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned and the Rights Issue and the Bonus Warrant Issue are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the proposed resolution approving the Underwriting Agreement, the Rights Issue and the Bonus Warrant Issue at the SGM.

Having considered the letters from the Independent Board Committee and the Independent Financial Adviser, the Directors consider that the terms of the Underwriting Agreement, the Rights Issue and the Bonus Warrant Issue are fair and reasonable, on normal commercial terms and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the relevant resolution to be proposed at the SGM.

Having considered the reasons as set out herein, the Directors consider that the terms of the Share Consolidation and the Increase in Authorised Share Capital are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the relevant resolutions to be proposed at the SGM.

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

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

Yours faithfully, On behalf of the Board Suen Cho Hung, Paul Chairman

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [117 x 50] intentionally omitted <==

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)

13 January 2012

To the Independent Shareholders

Dear Sir or Madam,

PROPOSED SHARE CONSOLIDATION; PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; CHANGE IN BOARD LOT SIZE; AND

PROPOSED RIGHTS ISSUE ON THE BASIS OF FIVE RIGHTS SHARES FOR EVERY ONE CONSOLIDATED SHARE HELD ON THE RECORD DATE WITH BONUS WARRANTS ON THE BASIS OF ONE BONUS WARRANT FOR EVERY FIVE RIGHTS SHARES TAKEN UP

We refer to the circular of the Company dated 13 January 2012 (the “ Circular ”) of which this letter forms part. Unless the context specifies otherwise, capitalized terms used herein have the same meanings as defined in the Circular.

We have been appointed by the Board to advise the Independent Shareholders as to whether the terms of the Underwriting Agreement, the Rights Issue and Bonus Warrant Issue are fair and reasonable insofar as the Independent Shareholders are concerned and whether the Rights Issue and the Bonus Warrant Issue are in the interests of the Company and the Shareholders as a whole and to advise the Independent Shareholders on how to vote. Proton Capital has been appointed as the independent financial adviser to advise you and us in this respect.

Having taken into account the principal reasons and factors considered by, and the advice of Proton Capital as set out in its letter of advice to you and us on pages 38 to 55 of the Circular, we are of the opinion that the terms of the Underwriting Agreement, the Rights Issue and the Bonus Warrant Issue are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned and the Rights Issue and the Bonus Warrant Issue are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Underwriting Agreement, the Rights Issue and the Bonus Warrant Issue and the respective transactions contemplated thereunder.

Yours faithfully, For and on behalf of the Independent Board Committee

Mr. Wong Kwok Tai Independent Non-executive Director

Mr. Weng Yixiang Independent Non-executive Director

Mr. Lu Xinsheng Independent Non-executive Director

* For identification purpose only

LETTER FROM PROTON CAPITAL

The following is the full text of a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Rights Issue and the Bonus Warrant Issue, which has been prepared for inclusion in this circular.

==> picture [32 x 35] intentionally omitted <==

普頓資本有限公司 PROTON CAPITAL LIMITED

Suites 06-07, 28th Floor, Shui On Centre 6-8 Harbour Road, Wanchai, Hong Kong

13 January 2012

To: The independent board committee and the independent shareholders

of Beijing Yu Sheng Tang Pharmaceutical Group Limited

Dear Sirs,

PROPOSED RIGHTS ISSUE ON THE BASIS OF FIVE RIGHTS SHARES FOR EVERY ONE CONSOLIDATED SHARE HELD ON THE RECORD DATE AT HK$0.13 PER RIGHTS SHARE WITH BONUS WARRANTS ON THE BASIS OF ONE BONUS WARRANT FOR EVERY FIVE RIGHTS SHARES TAKEN UP

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 Rights Issue, and the Bonus Warrant Issue details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the circular dated 13 January 2012 issued by the Company 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.

On 20 December 2011, the Company proposed, conditional upon, among others, the Share Consolidation and the Increase in Authorised Share Capital becoming effective, to raise approximately HK$321.2 million, before expenses, by issuing 2,471,087,850 Rights Shares to the Qualifying Shareholders by way of a rights issue on the basis of five Rights Shares for every one Consolidated Share held on the Record Date at the Subscription Price of HK$0.13 per Rights Share. Under the Rights Issue, 2,471,087,850 Rights Shares (assuming that no further issue of new Shares or repurchase of Shares on or before the Record Date) will be allotted and issued, representing (i) 500% of the number of Consolidated Shares immediately upon completion of the Share Consolidation (based on the Company’s existing issued share capital as at the Latest Practicable Date); and (ii) approximately 83.33% of the issued share capital of the Company as enlarged by the allotment and issue of the Rights Shares.

LETTER FROM PROTON CAPITAL

Subject to the fulfillment or waiver (as appropriate) of the conditions to the Rights Issue and Bonus Warrant Issue, Bonus Warrants will be issued to Shareholders and such other persons who have taken up the Rights Shares on the basis of one Bonus Warrant for every five Rights Shares taken up. On the basis of 2,471,087,850 Rights Shares to be issued under the Rights Issue, the total number of the Bonus Warrants to be issued will be 494,217,570 entitling holder(s) thereof to subscribe for one Consolidated Share at the Exercise Price of HK$0.10 per Consolidated Share (subject to adjustments) at the Bonus Warrants Subscription Period which will commence from the date of issue of the Bonus Warrants and the Business Day immediately preceding the date which is 24 months after the date of issue of the Bonus Warrants.

The Rights Issue (other than the Rights Shares that will be provisionally allotted to Global Wealthy and Mr. Suen as Qualifying Shareholders and will be taken up by them pursuant to the Irrevocable Undertakings) will be fully underwritten by Global Wealthy and Chung Nam, the Underwriters, in the priority that, firstly, Global Wealthy shall underwrite up to a maximum of 601,000,000 Underwritten Shares and secondly, Chung Nam shall underwrite the balance of the Underwritten Shares up to a maximum of 1,646,370,920 Rights Shares. The Directors confirmed that the terms of the Rights Issue were agreed after arm’s length negotiations between the Company and the Underwriters.

The Rights Issue and the Bonus Warrant Issue is conditional upon, among other things, approval from the Independent Shareholders on a vote taken by way of poll at the SGM and the Share Consolidation and the Increase in Authorised Share Capital becoming effective. Pursuant to Rule 7.19(6) of the Listing Rules, any controlling Shareholders and their associates or, where there are no controlling Shareholders, the Directors (excluding the Independent Non-executive Directors), the chief executive of the Company and their respective associates shall abstain from voting in favour of the resolution relating to the Rights Issue and the Bonus Warrant Issue. As at the Latest Practicable Date, the Company does not have any controlling Shareholders and, save for Mr. Suen, none of the Directors holds any Shares of the Company and shall be required to abstain from voting in favour of the resolution relating to the Rights Issue and the Bonus Warrant Issue at the SGM. Mr. Suen and Global Wealthy together with their respective associates are interested in an aggregate of approximately 9.05% of the existing issued share capital of the Company and Mr. Suen also holds the outstanding Share Options that can subscribe for 16,000,000 Shares (subject to adjustments). Global Wealthy and Mr. Suen, having a material interest in the Rights Issue and the Bonus Warrant Issue, to the extent they hold Shares at the SGM, Mr. Suen and Global Wealthy together with their respective associates, will be required to abstain from voting at the SGM in favour of the resolution approving the Rights Issue and the Bonus Warrant Issue.

An Independent Board Committee comprising Mr. Wong Kwok Tai, Mr. Weng Yixiang and Mr. Lu Xinsheng, all being independent non-executive Directors, has been formed to advise the Independent Shareholders on (i) whether the terms of the Underwriting Agreement, the Rights Issue and the Bonus Warrant Issue are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the Rights Issue and the Bonus Warrant Issue are in the interests of the Company and the Shareholders as a whole; and (iii) how the Independent Shareholders should vote on the relevant resolution to approve the Underwriting Agreement, the Rights Issue and Bonus Warrant Issue and the respective transactions contemplated thereunder at the SGM. We, Proton Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

LETTER FROM PROTON CAPITAL

BASIS OF OUR OPINION

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

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in the Circular misleading.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, the Underwriters or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Rights Issue. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company. Where information in this letter has been extracted from published or otherwise publicly available sources, the sole responsibility of Proton Capital is to ensure that such information has been correctly extracted from the relevant sources.

LETTER FROM PROTON CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Rights Issue and the Bonus Warrant Issue, we have taken into consideration the following principal factors and reasons:

(1) Background of and reasons for the Rights Issue and the Bonus Warrant Issue and intended use of proceeds

Business overview of the Group

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

Set out below are the financial information of the Group for the six months ended 30 September 2011 and each of the two years ended 31 March 2011 as extracted from the Company’s interim report for the six months ended 30 September 2011 (the “ 2011 Interim Report ”) and the Company’s annual report for the year ended 31 March 2011 (the “ 2011 Annual Report ”):

	For the
	six months	For the	For the
	ended	year ended	year ended
	30 September	31 March	31 March
	2011	2011	2010
	HK$’000	HK$’000	HK$’000
Turnover	775,758	1,878,475	859,758
– Supply and procurement	747,427	1,857,066	853,816
– Pharmaceutical	11,452	15,791	267
– Provision of finance	1,784	3,289	1,920
– Securities Investment	15,095	2,329	3,755
Loss for the period/year attributable to
owners of the Company	(238,427)	(120,373)	(16,762)
	As at	As at	As at
	30 September	31 March	31 March
	2011	2011	2010
	HK$’000	HK$’000	HK$’000
Net assets	1,040,415	1,296,825	946,726
Bank balances and cash
(excluding pledged bank deposits)	444,695	509,938	669,153

From the above table, we noted that the Group’s turnover for the year ended 31 March 2011 was increased by approximately 118.49% as compared to the year ended 31 March 2010.

LETTER FROM PROTON CAPITAL

Notwithstanding the increase of the Group’s turnover in the year ended 31 March 2011, the Group recorded loss attributable to owners of the Company of HK$120,373,000 (2010: HK$16,762,000). According to the 2011 Annual Report, such loss was mainly attributed to the loss incurred by the Group’s securities investment division. During the financial year, the Hong Kong stock market was volatile largely brought by the sovereign debts crises in Europe, the uncertainties of the United States economy, the financial tightening measures imposed by the People’s Republic of China government on the banking and property sector and the tri-catastrophe crises in Japan. Investor confidence and market sentiments were weak for most part of the year and pressed down prices of listed equity securities invested by the Group. For the period ended 30 September 2011, the Group recorded loss attributable to owners of the Company of HK$238,427,000 which was mainly attributed to the loss incurred by the Group’s securities investment division during the period.

Reasons for the Rights Issue and the Bonus Warrant Issue and intended use of proceeds

According to the Board Letter, the estimated gross proceeds (before expenses) and the estimated net proceeds from the Rights Issue (after deduction of expenses, including the commission to be paid to the Underwriters) will be approximately HK$321.2 million and HK$311.7 million respectively. The Company intends to apply the net proceeds from the Rights Issue for the following purposes:

(i) not less than 50% of the net proceeds on potential and future investments in energy and resources related business or other suitable/attractive business opportunities by way of trading or acquisitions of business or assets, in particular, the Company is conducting feasibility studies on the business of methanol and may pursue business opportunities in that area; and
(ii) the remaining balance of the net proceeds will be applied for general corporate and working capital of the Group.

As elaborated in the Board Letter, Methanol is an important raw material for the chemical industry and has wide industrial applications including production of synthetic fibre, plastic, pharmaceutical, pesticides, dye and synthetic protein and can also be used to produce fuel which is commonly considered as an alternative energy source. The Company is currently exploring the feasibility of importing methanol from overseas into the PRC and carrying out research regarding market demand, government policies and regulatory framework for methanol in the PRC and the logistic arrangements for such operations. The business of trading of methanol requires pledging of cash with bank(s) for the purpose of issuing letter(s) of credit. Given the value of each trading contract, substantial amounts have to be reserved for this purpose. The Company expects to commit not less than HK$150 million for the methanol business when it is materialized. Having been focused on carrying out the feasibility studies of methanol business, at present the Company has not yet identified other investments opportunities or acquisition targets in the energy and resources related business.

Assuming all the Bonus Warrants are exercised, estimated gross proceeds (before expenses) and estimated net proceeds of approximately HK$49.4 million and HK$49.2 million respectively will be raised. The Company intends to apply such net proceeds as general corporate and working capital of the Group for its future business development.

LETTER FROM PROTON CAPITAL

As at 30 September 2011, the Group had cash and bank balances of approximately HK$444,695,000 and net proceeds of approximately HK$74,400,000 had been raised in the placing of Shares completed on 1 November 2011. According to the Group’s operational plan as set out in the Board Letter, most of the cash resources have been designated to finance the existing operations of the Group where (i) approximately HK$250 million have been designated to be pledged with bank(s) from time to time for trade facilities granted by banks to finance the operation of the Group’s supply and procurement division; (ii) approximately HK$165 million have been designated for settlement of the balance of purchase price for the acquisition of an intellectual property rights to a Chinese medicine known as Jinhua Qinggan and as additional working capital for the Group’s pharmaceutical division; and (iii) the remaining cash resources of approximately HK$104 million have been designated to finance the Group’s other operating activities. Having considered the cash position of the Group and the intended usages of the available cash resources, the Board considers that the current capital raising activities are appropriate and beneficial for the long term development of the Group.

We have enquired with the Company for the rationale of raising funds by issuing the Bonus Warrants, instead of by issuing more Rights Shares and was given to understand that the Board considered that the Bonus Warrant Issue will be able to give additional incentives to the Qualifying Shareholders to participate in the Rights Issue for the reasons that (i) the Bonus Warrants will be freely transferable and listed on the Stock Exchange, and holders of the Bonus Warrants are therefore able to choose to dispose of the same in the market for profit (if any) (ii) or alternatively, choose to subscribe for the Consolidated Shares at a discount (if any) to the then prevailing market prices during the Bonus Warrants Subscription Period. The Company is therefore providing more options to the Qualifying Shareholders on their investments in the Company and believes that these options will provide additional incentives to the Qualifying Shareholders to participate in the Rights Issue.

Given the above, we are of the opinion that the reasons for the Rights Issue and the Bonus Warrant Issue are fair and reasonable.

Financing alternatives available to the Group

As stated in the Board Letter, the Board considers that it is prudent to finance the Group’s long-term growth by long-term financing, preferably in the form of equity after considered other fund raising alternatives for the Group, such as bank borrowings and issuance of convertible securities, after taking into account the benefits and cost of each alternatives. The Rights Issue allows the Group to strengthen its financial position without raising debts and bearing interests. Taken into account the terms of the Rights Issue, the Board considers that the Rights Issue are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Furthermore, it also offers all the Qualifying Shareholders an equal opportunity to participate in the enlargement of the capital base of the Company and enables the Qualifying Shareholders to maintain their proportionate interests in the Company to participate in the future development of the Company should they wish to do so.

LETTER FROM PROTON CAPITAL

(2) Principal terms of the Rights Issue and the Bonus Warrant Issue

The table below summarises the major terms of the Rights Issue and the Bonus Warrant Issue:

Basis of the Rights Issue:

Five (5) Rights Shares for every one (1) Consolidated Share held on the Record Date with Bonus Warrants on the basis of one (1) Bonus Warrant for every five (5) Rights Shares taken up

Number of Shares in issue as at the Latest Practicable Date:

4,942,175,712 Shares

Number of Consolidated Shares after the Share Consolidation becoming effective:

494,217,570 whole Consolidated Shares (assuming that no further Shares are issued or repurchased between the Latest Practicable Date and the date of the SGM)

Number of Rights Shares:

The aggregate nominal value of HK$247,108,785.00 the Rights Shares:

Subscription Price: HK$0.13 per Rights Share

Number of Bonus Warrants: 494,217,570 Bonus Warrants (on the basis of 2,471,087,850 Rights Shares will be issued under the Rights Issue)

The Subscription Price of HK$0.13 per Rights Share represents:

(i) a discount of approximately 84.3% to the adjusted closing price of HK$0.83 per Consolidated Share based on the closing price of HK$0.083 per Share as quoted on the Stock Exchange on the Last Trading Day and adjusted for the effect of the Share Consolidation;
(ii) a discount of approximately 85.1% to the adjusted average closing price of approximately HK$0.87 per Consolidated Share, based on the average closing price of approximately HK$0.087 as quoted on the Stock Exchange for the 5 consecutive trading days up to and including the Last Trading Day and adjusted for the effect of the Share Consolidation;

LETTER FROM PROTON CAPITAL

(iii) a discount of approximately 48% to the theoretical ex-rights price of approximately HK$0.25 per Consolidated Share after the Rights Issue based on the closing price of HK$0.083 per Share as quoted on the Stock Exchange on the Last Trading Day and adjusted for the effect of the Share Consolidation; and
(iv) a discount of approximately 62.9% to the adjusted closing price of HK$0.35 per Consolidated Share based on the closing price of HK$0.035 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Exercise Price of each Bonus Warrant represents:

(i) a discount of approximately 88% to the adjusted closing price of HK$0.83 per Consolidated Share based on the closing price of HK$0.083 per Share as quoted on the Stock Exchange on the Last Trading Day and adjusted for the effect of the Share Consolidation;
(ii) a discount of approximately 88.5% to the adjusted average closing price of approximately HK$0.87 per Consolidated Share based on the average closing price of approximately HK$0.087 per Share as quoted on the Stock Exchange for the 5 consecutive trading days ending on the Last Trading Day and adjusted for the effect of the Share Consolidation;
(iii) a discount of approximately 60% to the theoretical ex-rights price of approximately HK$0.25 per Consolidated Share after the Rights Issue based on the closing price of HK$0.083 per Share as quoted on the Stock Exchange on the Last Trading Day and adjusted for the effect of the Share Consolidation; and
(iv) a discount of approximately 71.4% to the adjusted closing price of HK$0.35 per Consolidated Share based on the closing price of HK$0.035 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

According to the Board Letter, the Subscription Price and the Exercise Price were determined at after arm’s length negotiation between the Company and the Underwriters with reference to the market price of the Shares and the prevailing market conditions. The Directors consider that the discount would encourage Shareholders to participate in the Rights Issue and accordingly maintain their shareholdings in the Company and participate in the future growth of the Group. In view of the prevailing market conditions of the capital market in Hong Kong and the benefits of the Rights Issue, the Directors consider that the terms of the Rights Issue and the Bonus Warrant Issue are fair and reasonable and in the best interests of the Company and the Shareholders as a whole.

LETTER FROM PROTON CAPITAL

Analyses on the Subscription Price and the Exercise Price

In order to assess the fairness and reasonableness of the Subscription Price and the Exercise Price, we set out the following informative analyses for illustrative purpose:

(i) Review on Share prices

The highest and lowest closing prices and the average daily closing price of the Shares (before the Share Consolidation) as quoted on the Stock Exchange in each month during the period commencing from 3 January 2011 up to and including the Last Trading Day (the “ Review Period ”) are shown as follows:

			Average	No. of
	Highest	Lowest	daily	trading
	closing	closing	closing	days in
Month	price	Price	price	each month
2011	HK$	HK$	HK$
January	0.330	0.290	0.313	21
February	0.300	0.265	0.287	18
March	0.270	0.240	0.251	23
April	0.265	0.170	0.224	18
May	0.168	0.137	0.147	20
June	0.149	0.120	0.132	21
July	0.145	0.123	0.133	20
August	0.157	0.113	0.128	23
September	0.130	0.102	0.120	20
October	0.118	0.090	0.108	20
November	0.117	0.092	0.106	22
December (up to and
including the Last
Trading Day)	0.100	0.083	0.092	14

Source: the Stock Exchange web-site (www.hkex.com.hk)

During the Review Period, the average daily closing price of the Shares ranged from HK$0.092 to HK$0.313 per Share in each month. The highest and lowest closing prices of the Shares as quoted on the Stock Exchange were HK$0.330 per Share recorded on 3 January 2011, 4 January 2011, 6 January 2011 and 24 January 2011 and HK$0.083 per Share recorded on 19 December 2011 and 20 December 2011 respectively. The price of the Shares showed a sliding trend during the Review Period.

LETTER FROM PROTON CAPITAL

(ii) Review on trading liquidity of the Shares

The average daily number of the Shares (before the Share Consolidation) traded per month, and the respective percentages of the Shares’ monthly trading volume as compared to (i) the total number of issued Shares held by the public as at the Last Trading Day; and (ii) the total number of issued Shares as at the Last Trading Day during the Review Period are tabulated as follows:

		% of the
		Average
		Volume	% of the
		to total	Average
	Average	number of	Volume to
	daily	issued Shares	total number
	trading	held by the	of issued
	volume (the	public as at	Shares as at	No. of trading
	“Average	the Last	the Last	days in
	Volume”)	Trading Day	Trading Day	each month
Month	Number	(Note 1)	(Note 2)
2011	of Shares	%	%
January	40,501,548	0.901	0.820	21
February	16,375,111	0.364	0.331	18
March	14,194,630	0.316	0.287	23
April	50,209,889	1.117	1.016	18
May	33,219,200	0.739	0.672	20
June	7,372,952	0.164	0.149	21
July	13,397,965	0.298	0.271	20
August	13,773,435	0.306	0.279	23
September	5,204,200	0.116	0.105	20
October	6,516,800	0.145	0.132	20
November	6,022,545	0.134	0.122	22
December
(up to and
including the
Last Trading
Day)	1,533,171	0.034	0.031	14

Source: the Stock Exchange web-site (www.hkex.com.hk)

Notes:

Based on 4,494,741,846 Shares held in public hands as at the Last Trading Day.
Based on 4,942,175,712 Shares in issue as at the Last Trading Day.

LETTER FROM PROTON CAPITAL

The above table illustrates that the average daily trading volume of the Shares per month had been thin during the Review Period. Save for the month of April 2011, the volume of Shares traded during the Review Period was below 1% of (i) the total number of issued Shares held by the public as at the Last Trading Day; and (ii) the total number of issued Shares as at the Last Trading Day. Since the Shares were generally illiquid in the open market and the price of the Shares showed a sliding trend during the Review Period, we concur with the Directors that the discount would encourage Shareholders to participate in the Rights Issue and accordingly maintain their shareholdings in the Company and participate in the future growth of the Group. For this reason, we are of the view that the discount to the Share price as represented by the Subscription Price and the Exercise Price is justifiable.

(iii) Comparison with other rights issue transactions

As part of our analyses, we have identified those rights issue transactions with fixed subscription price (the “ Comparables ”) from 21 July 2011 (i.e. in the second half of 2011) up to the Last Trading Day, being the five-month period prior to and including the Last Trading Day, by companies (excluding those joint stock limited companies incorporated in the PRC (the “ PRC Companies ”)) listed on the main board of the Stock Exchange. In view of the recent volatility of the Hong Kong stock market especially in the second half of 2011, we consider that it is more appropriate to consider Comparables which are more recent. Since the PRC Companies may conduct rights issue for both A shares and H shares simultaneously, the terms of H shares rights issue will be affected by the A shares rights issue. In such case, the basis between the rights issue of the PRC Companies and the Rights Issue will be differ for comparison purpose.

To the best of our knowledge, we found 10 transactions which met the said criteria in which 2 transactions had bonus warrants as well. However, Shareholders should note that the businesses, operations and prospects of the Company are not the same as the Comparables and thus the Comparables are only used to provide a general reference for the common market practice in recent rights issue transactions by main board listed companies in Hong Kong. Summarised below is our relevant finding:

LETTER FROM PROTON CAPITAL

						Discount of the		Discount of
						subscription		the exercise
						price of rights		price of bonus
						share to the		warrant to
					Discount of the	theoretical	Discount of the	the theoretical
					subscription	ex-rights price	exercise price of	ex-rights price
					price of rights	per share based	bonus warrant	per share based
					share to closing	on the closing	to closing	on the closing
					price per share	price per share	price per share	price per share
					on the last	on the last	on the last	on the last
					trading day	trading day	trading day	trading day
					prior to/on the	prior to/on the	prior to/on the	prior to/on the
					date of the	date of the	date of the	date of the
					announcement/	announcement/	announcement/	announcement/
					agreement in	agreement in	agreement in	agreement in
			Basis of		relation to	relation to	relation to the	relation to the
		Date of	allotment of	Basis for	the respective	the respective	respective bonus	respective bonus
Company name	Stock code	announcement	rights shares	bonus warrants	rights issue	rights issue	warrants issue	warrants issue
					%	%	%	%
Heritage International	412	11 August 2011	22 for 1	1 bonus warrant	(86.52)	(22.50)	(82.61)	(50)
Holdings Limited				for every 5 rights
shares taken up
Quam Limited	952	17 August 2011	1 for 4	N/A	(2.00)	Nil	N/A	N/A
New World	17	18 October 2011	1 for 2	N/A	(36.89)	(28.04)	N/A	N/A
Development
Company Limited
New World China	917	18 October 2011	1 for 2	N/A	(33.48)	(25.14)	N/A	N/A
Land Limited
Sino Golf Holdings	361	21 October 2011	1 for 2	N/A	(4.9)	(3.2)	N/A	N/A
Limited
Success Universe	487	25 October 2011	2 for 1	N/A	(24)	(15.93)	N/A	N/A
Group Limited
Qin Jia Yuan Media	2366	27 October 2011	4 for 1	N/A	(85.7)	(68.6)	N/A	N/A
Services Company
Limited
Dragonite International	329	3 November 2011	2 for 1	N/A	(68.75)	(42.31)	N/A	N/A
Limited
Radford Capital	901	7 November 2011	1 for 4	1 bonus warrant	(7.40)	(29.25)	(89.13)	(76.42)
Investment Limited				for every 4 rights
				shares taken up
Lai Sun Development	488	8 November 2011	12 for 5	N/A	(43)	(35)	N/A	N/A
Company Limited

Source: the relevant announcements posted on the Stock Exchange web-site (www.hkex.com.hk)

LETTER FROM PROTON CAPITAL

As shown by the above table, the subscription prices of the rights share of the Comparables ranged from discounts of approximately 2.00% to 86.52% to the respective closing prices of their shares on the last trading days prior to/on the date of the release of the respective rights issue announcement/agreement in relation to the respective rights issue (the “ SP LTD Market Range ”). The discount of approximately 84.3% to the adjusted closing price of the Consolidated Shares on the Last Trading Day as represented by the Subscription Price (the “ SP LTD Discount ”) falls within the SP LTD Market Range.

On the other hand, the subscription prices of the rights share of the Comparables ranged from discounts of approximately Nil to 68.6 % to the respective theoretical exrights prices of their shares on the last trading days prior to/on the date of the release of the respective rights issue announcement/agreement in relation to the respective rights issue (the “ SP TERP Market Range ”). The discount of approximately 48% to the theoretical ex-rights Price as represented by the Subscription Price (the “ SP TERP Discount ”) falls within the SP TERP Market Range

Whereas for exercise price of bonus warrants, the above table shown that the exercise prices of the bonus warrants of the Comparables ranged from discounts of approximately 82.61% to 89.13% to the respective closing prices of their shares on the last trading days prior to/on the date of the release of the respective rights issue announcement/agreement in relation to the respective rights issue (the “ EP LTD Market Range ”). The discount of approximately 88% to the adjusted closing price of the Consolidated Shares on the Last Trading Day as represented by the Exercise Price (the “ EP LTD Discount ”) falls within the EP LTD Market Range.

On the other hand, the exercise prices of the bonus warrants of the Comparables ranged from discounts of approximately 50% to 76.42% to the respective theoretical exrights prices of their shares on the last trading days prior to/on the date of the release of the respective rights issue announcement/agreement in relation to the respective rights issue (the “ EP TERP Market Range ”). The discount of approximately 60% to the theoretical ex-rights Price as represented by the Exercise Price (the “ EP TERP Discount ”) falls within the EP TERP Market Range.

In light of that (i) the SP LTD Discount falls within the SP LTD Market Range; (ii) the SP TERP Discount falls within the SP TERP Market Range; (iii) the EP LTD Discount falls within the EP LTD Market Range; (iv) the EP TERP Discount falls within the EP TERP Market Range; and (v) the price of the Shares showed a sliding trend during the Review Period, we concur with the Directors that the Subscription Price and the Exercise Price is fair and reasonable so far as the Independent Shareholders are concerned.

We have also noted from the Comparables that (i) the basis of allotment ranges from 1 rights share for every 4 shares held to 22 rights shares for every 1 share held; and (ii) the basis of bonus issue ranges 1 bonus warrants for every 4 rights shares taken up to 1 bonus warrants for every 5 rights shares taken up. As such, we consider that the basis of allotment of the Rights Issue of 5 Rights Shares for every 1 Consolidated Share held with 1 Bonus Warrant for every 5 Rights Shares taken up be fair and reasonable.

LETTER FROM PROTON CAPITAL

(3) The Irrevocable Undertaking of Global Wealthy the underwriting arrangements

The Rights Issue is fully underwritten by Global Wealthy and Chung Nam as the Underwriters.

With reference to the Board Letter, as at the Latest Practicable Date, Global Wealthy is a Shareholder interested in 437,433,866 Shares, representing approximately 8.85% of the existing issued share capital of the Company. Global Wealthy is a wholly owned subsidiary of Excelsior Kingdom, which in turn is wholly and beneficially owned by Mr. Suen. Mr. Suen is directly interested in 10,000,000 Shares and is indirectly through Global Wealthy interested in 437,433,866 Shares, together being 447,433,866 Shares in aggregate, representing approximately 9.05% of the existing issued share capital of the Company and Mr. Suen holds the Share Options entitling him to subscribe for 16,000,000 Shares.

(i) Global Wealthy will, Excelsior Kingdom will procure, and Mr. Suen will and will procure that the applications in respect of 218,716,930 Rights Shares by Global Wealthy and 5,000,000 Rights Shares by Mr. Suen comprising their respective entitlements under the Rights Issue will be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, with payment in full therefor in cash, by no later than the Latest Time for Acceptance and otherwise in accordance with the instructions printed on the PAL(s);
(ii) the Consolidated Shares comprising Mr. Suen’s and Global Wealthy’s current shareholding beneficially owned by him/it shall remain beneficially owned by him/it from the date of their undertakings up to and including the date on which dealings in the fully-paid Rights Shares are expected to commence on the Stock Exchange (or such later date as may be agreed with the Company in writing); and
(iii) Global Wealthy will not, and Mr. Suen will not, and he and Excelsior Kingdom will procure Global Wealthy not to apply for any additional Rights Shares, by way of excess application.

Mr. Suen further undertakes to the Company and Chung Nam that he will not exercise the subscription rights attaching to the Share Options on or before the Latest Time for Termination.

To the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, Chung Nam and its ultimate beneficial owners are independent third parties. As at the Latest Practicable Date, Chung Nam and its associates are not interested in any Shares or securities of the Company.

LETTER FROM PROTON CAPITAL

The Underwriters have conditionally agreed pursuant to the Underwriting Agreement and subject to the Irrevocable Undertakings to underwrite the Underwritten Shares, being 2,247,370,920 Rights Shares, on a fully underwritten basis in the following priority:

(1) firstly, Global Wealthy shall underwrite up to a maximum of 601,000,000 Underwritten Shares; and
(2) secondly, Chung Nam shall underwrite the balance of the Underwritten Shares up to a maximum of 1,646,370,920 Right Shares,

with an underwriting commission of 2.50% of the aggregate Subscription Price in respect of the number of Underwritten Shares to be underwritten by the Underwriters (the “ Underwriting Commission ”).

As the commission payment to be received by Global Wealthy as one of the Underwriters pursuant to the Underwriting Agreement of approximately HK$1.95 million was determined on normal commercial terms and the relevant percentage ratios (other than the profits ratio) as defined in the Listing Rules are less than 5%, the commission payment to Global Wealthy constitutes a connected transaction that is only subject to the reporting and announcement requirements but is exempt from independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. Accordingly, we consider that the terms of the Rights Issue and the Underwriting Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

We have also reviewed the other major terms of the Underwriting Agreement and are not aware of any major terms which are uncommon. Based on the information as set out above, we consider that the terms of the Rights Issue and the Bonus Warrant Issue (including the Subscription Price and the Exercise Price) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

(4) Application for excess Rights Shares

As stated in the Board Letter, the Qualifying Shareholders shall be entitled to apply for any unsold entitlements of the Non-Qualifying Shareholders and any Rights Shares provisionally allotted but not accepted or otherwise not subscribed for by the transferees of nil-paid Rights Shares. Application may be made by completing the EAFs for application for excess Rights Shares and lodging the same with a separate remittance for the excess Rights Shares being applied for. The Directors will allocate the excess Rights Shares at their discretion, but on a fair basis in accordance with the Listing Rules on the following principles: (i) preference will be given to applications for less than a board lot of Rights Shares where they appear to the Directors that such applications are made to round up odd-lot holdings to whole-lot holdings and that such applications are not made with the intention to abuse this mechanism; and (ii) subject to availability of excess Rights Shares after allocation under principle (i) above, the excess Rights Shares will be allocated based on a sliding scale with reference to the number of excess Rights Shares applied by them (i.e. applications for a smaller number of Rights Shares are allocated with a higher percentage of successful application but will receive lesser number of Rights Shares; whereas applications for a larger number of Rights Shares are allocated with a smaller percentage of successful application but will receive greater number of Rights Shares).

LETTER FROM PROTON CAPITAL

(5) Potential dilution of the shareholding interests of the public Shareholders

All Qualifying Shareholders are entitled to subscribe for the Rights Shares. For those Qualifying Shareholders who take up their entitlements in full under the Rights Issue, their proportional shareholding interests in the Company will remain unchanged after the Rights Issue. Qualifying Shareholders who do not accept the Rights Issue can, subject to the then prevailing market conditions, consider selling their nil-paid rights to subscribe for the Rights Shares in the market. In such case where all Qualifying Shareholders (except for Mr. Suen and Global Wealthy in view of the Irrevocable Undertakings) do not accept the Rights Issue and hence the Underwriters are obligated to take up the unsubscribed Rights Shares, the proportional shareholding interests of the Qualifying Shareholders in the Company will be diluted. Details of such dilution effect are presented in the section headed “EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY” in the Board Letter.

Meanwhile, those Qualifying Shareholders who wish to increase their proportional shareholding interests in the Company through the Rights Issue may (i) subject to availability, acquire additional nilpaid rights in the market; and (ii) apply for the excess Rights Shares since the Rights Issue also allows for excess application of the Rights Shares.

We are aware of the aforementioned potential dilution to the Independent Shareholders’ proportional shareholding interests in the Company. Nonetheless, we consider that the foregoing should be balanced against by the following factors:

Independent Shareholders are offered a chance to express their views on the terms of the Rights Issue and the Underwriting Agreement through their votes at the SGM;
Qualifying Shareholders have their choice whether to accept the Rights Issue or not;
Qualifying Shareholders have the opportunity to realise their nil-paid rights to subscribe for the Rights Shares in the market;
the Rights Issue offers the Qualifying Shareholders a chance to subscribe for their pro-rata Rights Shares for the purpose of maintaining their respective existing shareholding interests in the Company at a relatively low price as compared to the historical and prevailing market price of the Shares; and
those Qualifying Shareholders who choose to accept the Rights Issue in full can maintain their respective existing shareholding interests in the Company after the Rights Issue.

Having considered the above, we consider the potential dilution effect on the shareholding interests of the Qualifying Shareholders (except for Mr. Suen and Global Wealthy in view of the Irrevocable Undertakings), which may only happen when the Qualifying Shareholders do not subscribe for their prorata Rights Shares, to be acceptable.

LETTER FROM PROTON CAPITAL

(6) Financial effects of the Rights Issue

Effect on NTAV

An unaudited pro forma statement of adjusted consolidated net tangible assets of the Group attributable to owners of the Company based on the unaudited consolidated net tangible asset value (“ NTAV ”) of the Group attributable to owners of the Company as at 30 September 2011 as if (i) the Rights Issue had taken place on 30 September 2011; and (ii) the Rights Issue had taken place and all the Bonus Warrants were fully exercised on 30 September 2011 are set out in Appendix II to the Circular (the “ Statement ”).

The unaudited pro forma adjusted consolidated NTAV of the Group was approximately HK$875.87 million as at 30 September 2011 according to the Statement. Upon completion of the Rights Issue, the unaudited pro forma adjusted consolidated NTAV of the Group would increase to not less than approximately HK$1,187.57 million, according to the Statement. Upon completion of the Rights Issue and issuance of the Bonus Warrant Shares in full, the unaudited pro forma adjusted consolidated NTAV of the Group would increase to not less than approximately HK$1,236.77 million, according to the Statement.

Effect on gearing position

The Group’s gearing ratio, calculated on the basis of total indebtedness divided by total indebtedness and equity attributable to the Company’s owners, was approximately 23% as at 30 September 2011. The shareholders fund of the Group would be enlarged upon completion of the Rights Issue. As part of the net proceeds from the Rights Issue will be applied as additional working capital and/or for retirement of debts, the net borrowings of the Group is expected to decrease due to the Rights Issue and to decrease further upon issuance of the Bonus Warrant Shares. Consequently, the gearing position of the Group would be lowered.

Effect on liquidity

With reference to the 2011 Interim Report, the bank balances and cash of the Group (excluding pledged bank deposits) were approximately HK$444.70 million as at 30 September 2011. As part of the net proceeds from the Rights Issue may be applied as additional working capital of the Group, the Group’s liquidity position would be improved upon completion of the Rights Issue and further improved with the issue of the Bonus Warrant Shares.

It should be noted that the aforementioned analyses are for illustrative purpose only and does not purport to represent how the financial position of the Group will be upon completion of the Rights Issue.

LETTER FROM PROTON CAPITAL

RECOMMENDATION

Having taken into account the above principal factors and reasons, we consider that the terms of the Underwriting Agreement, the Rights Issue and the Bonus Warrant Issue are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned. Furthermore, the Rights Issue and the Bonus Warrant Issue are in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to advise the Independent Shareholders, and we advise the Independent Shareholders to vote in favour of the relevant resolution at the SGM to approve the Underwriting Agreement, the Rights Issue, the Bonus Warrant Issue and the respective transactions contemplated thereunder.

Yours faithfully, For and on behalf of

Proton Capital Limited Josephine Lau Director – Corporate Finance

FINANCIAL AND OTHER INFORMATION OF THE GROUP

APPENDIX I

1. THREE-YEAR FINANCIAL INFORMATION

The audited consolidated financial statements of the Company for each of the three years ended 31 March 2009, 2010 and 2011 are disclosed in the annual reports of the Company for the years ended 31 March 2009 (pages 35 to 131), 2010 (pages 28 to 107) and 2011 (pages 25 to 107) respectively, which are published on both the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company (www.beijingyst.com). The auditors of the Company have not issued any qualified opinion on the Group’s financial statements for the financial years ended 31 March 2009, 2010 and 2011.

2. UNAUDITED INTERIM RESULTS

The unaudited condensed consolidated financial statements of the Company for the six months ended 30 September 2011 are disclosed in the interim report of the Company for the six months ended 30 September 2011 (pages 7 to 25), which are published on both the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company (www.beijingyst.com).

3. INDEBTEDNESS

At the close of business on 30 November 2011, being the latest practicable date for the purpose of ascertaining the indebtedness of the Group prior to the printing of this circular, the Group had outstanding borrowings totalling approximately HK$272,505,000, comprising bank loans of approximately HK$31,079,000 and bank advances for discounted bills of approximately HK$241,426,000.

Save as disclosed above, the Group, apart from intra-group liabilities, did not have any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptance (other than normal trade bills), or acceptance credits, debentures, mortgages, charges, finance leases, hire purchase commitments, guarantees or other material contingent liabilities as at 30 November 2011.

4. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the present available financial resources, the existing banking facilities available and the estimated net proceeds from the Rights Issue, the Group will have sufficient working capital for its present requirements and for at least 12 months from the date of this circular in the absence of unforeseen circumstances.

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 March 2011, being the date to which the latest published audited consolidated financial statements of the Company were made up, save as disclosed in the interim report of the Company for the six months ended 30 September 2011.

FINANCIAL AND OTHER INFORMATION OF THE GROUP

APPENDIX I

6. BUSINESS REVIEW FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011

Operations Review

For the six months ended 30 September 2011, the Group continued to register growth of its revenue and gross profit primarily as a result of the management’s continuous efforts in developing the business of the Group. The Group reported revenue of HK$775,758,000, representing a growth of 91% from the previous period (30 September 2010: HK$406,077,000), and gross profit of HK$24,073,000, showing a 2.1 times increase over the previous period (30 September 2010: HK$7,750,000). The significant increase in the Group’s revenue was mainly contributed by the growth of the Group’s supply and procurement business, whereas the rise of the Group’s gross profit was primarily attributed to the increase in dividend income from the Group’s listed equity investments.

During the period under review, the Group’s supply and procurement division continued to focus on the sourcing, transporting and supplying of metal minerals. When compared to the previous period, the division continued to achieve encouraging business results by reporting an 87% increase in revenue to HK$747,427,000 (30 September 2010: HK$400,629,000) and a 21% increase in operating profit to HK$3,275,000 (30 September 2010: HK$2,710,000). The increase in the division’s revenue was mainly attributed to the strong demand of the division’s steel mill customers in Mainland China during the first half of the financial year. Nevertheless, the division’s operating profit grew at a much lesser rate mainly because a loss of approximately HK$8 million was incurred by the division due to the deviation of minerals content of a shipment of metal minerals transacted during the period. The Group has already initiated an arbitration claim against the supplier of that shipment, owing to uncertainty of the outcome of the arbitration, the compensation recoverable from the supplier has not been recognised in the Group’s financial statements. During the previous period a claim of similar nature of approximately HK$5 million was made against another supplier, a large part of such claim was recovered during the current period and partly offset the effect of the HK$8 million loss mentioned. Owing to the series of financial tightening measures that have been imposed by the Chinese government on the property sector of the economy, the metal minerals market in the Mainland has been very volatile and there are signs that the demand of various metal minerals has slowed down which may affect the division’s performance in the remainder of the financial year.

APPENDIX I

FINANCIAL AND OTHER INFORMATION OF THE GROUP

The Group continued to develop its pharmaceutical business that was acquired in early 2010. For the review period, the division reported revenue of HK$11,452,000 which represented an increase of 3.1 times over the previous period (30 September 2010: HK$2,788,000). The revenue of the division mainly comprised product sales of Jinhua Qinggan, which is a Chinese medicine for healing patients who have been infected with Influenza A (H1N1) and other types of influenza. Currently, Jinhua Qinggan is selling as a prescription drug to designated medical institutions in Beijing. The Group is in the process of applying for a new drug certificate for Jinhua Qinggan from the relevant authorities in the Mainland, whereupon the issuance of such certificate, the Group will be able to market Jinhua Qinggan as a non-prescription drug to the general public. The Group is still awaiting for the results of such application. For the review period, the division incurred operating loss of HK$6,261,000 (30 September 2010: HK$4,252,000) primarily due to the reasons that the sales volume of Jinhua Qinggan has not yet reached a scale that can cover operating costs of the division, in particular the high start-up costs in its early stage of operation.

The financing division continued to provide a stable income source to the Group for the period under review. When compared with the previous period, the interest income and operating profit generated by the financing division were up by 19% to HK$1,784,000 (30 September 2010: HK$1,502,000) and 18% to HK$1,698,000 (30 September 2010: HK$1,443,000). Such increases were mainly due to the higher average amount of loans advanced to customers over the previous period. The loan portfolio held by the Group amounted to HK$26,440,000 (31 March 2011: HK$20,000,000) at the period end.

The Group’s securities investment division recorded revenue of HK$15,095,000 (30 September 2010: HK$1,158,000) representing mainly dividend from equity securities investments received during the period. As a whole, the division reported a loss of HK$229,101,000 (30 September 2010: HK$66,483,000) primarily as a result of the loss incurred from investing in Hong Kong listed equity securities, and that loss incurred comprised mainly unrealised holding loss of HK$229,502,000 (30 September 2010: HK$58,546,000) for listed equity securities measured at fair values at the period end date. During the review period, the Hong Kong stock market was very volatile largely caused by the continuance of the sovereign debts crises in Europe, the fear that the United States economy would go into a “double-dip” recession and the financial tightening measures imposed by the Chinese government on the banking and property sector of the economy. Investor confidence and market sentiments were weak for most part of the period and pressed down prices of listed securities invested by the Group. The Group’s securities portfolio at the period end comprised mainly listed equity securities in conglomerate company, infrastructure company, property company, mining and resources company, industrial materials company, consumer goods retail company, health care services company, agricultural machinery company and financial services company. At the period end, the Group’s securities portfolio was valued at HK$496,032,000 (31 March 2011: HK$487,676,000). The management expects that the division will perform better when investor confidence and positive market sentiments are restored in the stock markets.

FINANCIAL AND OTHER INFORMATION OF THE GROUP

APPENDIX I

For the period ended 30 September 2011, the Group recorded loss attributable to owners of the Company of HK$238,427,000 (30 September 2010: HK$82,979,000) and basic loss per share of HK5.79 cents (30 September 2010: HK3.22 cents). The overall loss incurred by the Group was mainly attributed to the loss incurred by the Group’s securities investment division during the period.

Financial Review

At 30 September 2011, the Group had current assets of HK$1,435,734,000 (31 March 2011: HK$1,642,903,000) and liquid assets comprising cash and short-term securities investment of HK$940,727,000 (31 March 2011: HK$997,614,000) (excluding pledged bank deposits for trade facilities granted by banks). The Group’s current ratio, calculated based on current assets of HK$1,435,734,000 (31 March 2011: HK$1,642,903,000) over current liabilities of HK$619,129,000 (31 March 2011: HK$398,749,000), was at a strong ratio of 2.3 at the period end (31 March 2011: 4.1).

The Group’s finance costs for the current period included a notional interest on convertible notes of HK$7,890,000 (30 September 2010: HK$7,525,000) calculated in accordance with the Group’s accounting policy on financial instruments, such notional interest required no cash outlay whereas interest requiring cash settlement amounted to HK$912,000 for the period (30 September 2010: HK$948,000). As announced by the Company on 23 September 2011, the Company repurchased all outstanding convertibles notes in the aggregate principal amount of HK$189,100,000 at the price of HK$187,209,000, representing a discount of 1% on the aggregate principal amount of such notes. The net gain on repurchase of the convertible notes amounted to HK$2,159,000.

At the period end, equity attributable to owners of the Company amounting to HK$1,041,968,000 (31 March 2011: HK$1,297,559,000) and is equivalent to an attributable amount of HK$0.25 (31 March 2011: HK$0.32) per share of the Company. At the period end, the Group’s indebtedness comprised of bank advances for discounted bills and bank loans totalling HK$306,991,000 (31 March 2011: HK$197,019,000 (including fair value of convertible notes)). The Group’s gearing ratio, calculated on the basis of total indebtedness divided by total indebtedness and equity attributable to the Company’s owners, was at a moderate ratio of 23% at the period end (31 March 2011: 13%). All bank loans were repayable within one year, denominated in Renminbi and bore interest at floating rates.

With the amount of liquid assets on hand as well as credit facilities granted by banks, the management is of the view that the Group has sufficient financial resources to meet its ongoing operational requirements.

APPENDIX I

FINANCIAL AND OTHER INFORMATION OF THE GROUP

The monetary assets and liabilities and business transactions of the Group are mainly carried and conducted in Hong Kong dollars, Renminbi and US dollars. The Group maintains a prudent strategy in its foreign currency risk management, to a large extent, foreign exchange risks are minimized via balancing the foreign currency monetary assets versus the corresponding currency liabilities, and foreign currency revenues versus the corresponding currency expenditures. In light of the above, it is considered that the Group’s exposure to foreign exchange risks is not significant and no hedging measure has been undertaken by the Group.

At 30 September 2011, bank deposits of HK$26,399,000 (31 March 2011: HK$248,028,000) were pledged to secure credit facilities granted to the Group.

At 30 September 2011, buildings and prepaid lease payments of carrying amount of HK$30,378,000 (31 March 2011: HK$30,127,000) and HK$34,095,000 (31 March 2011: HK$33,643,000) respectively were pledged to secure for bank loans of the Group.

At 30 September 2011, the Group had no significant contingent liability (31 March 2011: nil).

At 30 September 2011, the Group had capital commitment in respect of upgrading works of its medicine production plant in Beijing of HK$108,000 (31 March 2011: HK$105,000).

Human Resources and Remuneration Policy

At 30 September 2011, the Group had about 130 (30 September 2010: 100) employees including directors. Total staff costs for the review period, including directors’ remuneration, was HK$5,664,000 (30 September 2010: HK$5,063,000). Remuneration packages for employees and directors are structured by reference to market conditions and individual performance. Benefits plans maintained by the Group include provident fund scheme, medical insurance, share option scheme and discretionary bonuses.

Business and Trading Prospects

In light of the uncertainties and challenges face by the world major economies and investment markets, the Group will continue to manage its businesses in a prudent manner for the remainder of the financial year. In light of new investments, the Group will continue with its cautious approach in identifying new investment opportunities with the view to create new value and a stable prospect to shareholders.

7. MAJOR ACQUISITION OF THE GROUP AFTER THE DATE OF THE LATEST PUBLISHED ACCOUNTS OF THE COMPANY

No major acquisition of the Group after the date of the latest published accounts of the Company.

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

For illustrative purposes only, set out below is the unaudited pro forma statement of adjusted consolidated net tangible assets of the Group after completion of the Rights Issue and the Bonus Warrant Issue.

1. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group prepared in accordance with Rule 4.29 of the Listing Rules is set out below to illustrate the effect on the unaudited consolidated net tangible assets of the Group for (i) the Rights Issue in the proportion of five Rights Shares for every one Consolidated Share held on the record date at HK$0.13 per Rights Share and (ii) the Bonus Warrant Issue in the proportion of one Bonus Warrant for every five Rights Shares taken up at the Exercise Price of HK$0.10 per Consolidated Share as if the Rights Issue and the Bonus Warrant Issue had taken place on 30 September 2011. Capitalised terms used herein have the same meanings as those defined in the Circular unless the context otherwise requires.

The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group has been prepared for illustrative purposes only, and because of its hypothetical nature, it may not give a true picture of the financial position of the Group as at 30 September 2011 or at any future date.

The following unaudited pro forma statement of adjusted consolidated net tangible assets of the Group is based on the unaudited consolidated net tangible assets of the Group as at 30 September 2011 and adjusted to reflect the effect of the Rights Issue and the Bonus Warrant Issue:

					Unaudited		Unaudited pro
					consolidated	Unaudited pro	forma adjusted
		Unaudited pro		Unaudited pro	net tangible assets	forma adjusted	consolidated
		forma adjusted		forma adjusted	of the Group	consolidated net	net tangible
		consolidated net		consolidated net	attributable to	tangible assets	assets of the Group
		tangible assets		tangible assets	the owners of the	of the Group per	per Consolidated
Unaudited		of the Group		of the Group	Company per	Consolidated Share	Share attributable
consolidated		attributable to the		attributable to the	Shares as at	attributable to the	to the owners
net tangible assets	Estimated	owners of the	Estimated	owners of the	30 September 2011	owners of the	of the Company
of the Group	proceeds	Company upon	proceeds	Company upon	prior to the	Company upon	upon completion of
attributable to the	less related	completion of the	less related	completion of the	completion of the	completion of the	the Rights Issues
owners of the	expenses	Rights Issue but	expenses from	Rights Issue	Rights Issue and	Rights Issue but	and the
Company as at	from the	before the Bonus	the Bonus	and the Bonus	and the Bonus	before the Bonus	Bonus Warrant
30 September 2011	Rights Issue	Warrant Issue	Warrant Issue	Warrant Issue	Warrant Issue	Warrant Issue	Issue
HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$	HK$	HK$
Note (a)	Note (b)		Note (c)		Note (d)	Note (e)	Note (f)
875,873	311,700	1,187,573	49,200	1,236,773	0.21	0.48	0.43

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Notes:

(a) The unaudited consolidated net tangible assets of the Group as at 30 September 2011 is calculated based on the capital and reserves attributable to the owners of the Company as at 30 September 2011 of approximately HK$1,041,968,000 and after deducting goodwill of approximately HK$9,935,000 and intangible assets of approximately HK$156,160,000 as at 30 September 2011 as extracted from the interim report of the Company for the six months ended 30 September 2011.
(b) The estimated proceeds less related expenses from the Rights Issue of approximately HK$311,700,000 are calculated based on 2,471,087,850 Rights Shares to be issued at the Subscription Price of HK$0.13 per Rights Share and after deducting estimated related expenses which are directly attributable to the Rights Issue, include among others, underwriting commission, financial advisory fee and other professional fees, of approximately HK$9,500,000.
(c) The estimated proceeds less related expenses from exercise of the Bonus Warrants of approximately HK$49,200,000 are calculated based on 494,217,570 Bonus Warrants to be issued and fully exercised at the Exercise Price of HK$0.10 per Consolidated Share and after deducting estimated related expenses which are directly attributable to the Bonus Warrant Issue, include among others, financial advisory fee and other professional fees, of approximately HK$200,000.
(d) The number of shares used for the calculation of the unaudited consolidated net tangible assets of the Group per Share attributable to the owners of the Company as at 30 September 2011 prior to completion of the Rights Issue and the Bonus Warrant Issue is based on 4,118,479,760 Shares in issue as at 30 September 2011.
(e) The number of shares used for the calculation of the unaudited pro forma adjusted consolidated net tangible assets of the Group per Consolidated Share attributable to the owners of the Company as at 30 September 2011 after completion of the Rights Issue but prior to completion of the Bonus Warrant Issue is based on 2,471,087,856 Consolidated Shares which represents the sum of:
(i) 411,847,976 Consolidated Shares, which is calculated based on 4,118,479,760 issued shares of the Company as at 30 September 2011 as stated in note (d) and taking into account the proposed Share Consolidation which will consolidate every ten issued and unissued Shares of HK$0.01 each into one Consolidated Share of HK$0.10; and
(ii) 2,059,239,880 Rights Shares to be issued, which is calculated based on 411,847,976 Consolidated Shares as referred to in (e)(i) above and on the basis of five (5) Rights Shares for every one (1) Consolidated Share.
(f) The number of shares used for the calculation of the unaudited pro forma adjusted consolidated net tangible assets of the Group per Consolidated Share attributable to the owners of the Company as at 30 September 2011 after completion of the Rights Issue and the Bonus Warrant Issue is based on 2,882,935,832 Consolidated Shares which represents the sum of:
(i) 2,471,087,856 Consolidated Shares, which is calculated based on 411,847,976 Consolidated Shares and 2,059,239,880 Rights Shares as stated in note (e); and
(ii) 411,847,976 Bonus Warrant Shares to be issued, which is calculated based on 2,059,239,880 Rights Shares as stated in note (e)(ii) and on the basis of one (1) Bonus Warrant for every five (5) Rights Shares taken up.
(g) No adjustment has been made to reflect any trading results or other transactions of the Group (including a share placement of 823,695,952 Shares which took place in November 2011) entered into subsequent to 30 September 2011.

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

2. ACCOUNTANTS’ REPORT ON THE UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

The following is the text of a report received from HLB Hodgson Impey Cheng, Certified Public Accountants, in respect of the unaudited pro forma financial information of the Group for the sole purpose of incorporation in this circular.

==> picture [182 x 68] intentionally omitted <==

31/F., Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

13 January 2012

The Board of Directors Beijing Yu Sheng Tang Pharmaceutical Group Limited Suite 1501, 15th Floor Great Eagle Centre 23 Harbour Road Wanchai Hong Kong

Dear Sirs,

Beijing Yu Sheng Tang Pharmaceutical Group Limited (the “Company”)

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of the Company and its subsidiaries (hereinafter collectively referred to as the “Group”) as set out in Appendix II to the circular (the “Circular”) dated 13 January 2012, which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed rights issue and the bonus warrant issue of the shares of the Company might have affected the financial information of the Company presented. The basis of preparation of the Unaudited Pro Forma Financial Information of the Group is set out on page 61 to page 62 to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with Rules 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). It is our responsibility to form an opinion, as required by Rule 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion solely to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 30 September 2011 or any future date.

Opinion

In our opinion:

a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
b) such basis is consistent with the accounting policies of the Group; and
c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully

HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants

Hong Kong

GENERAL INFORMATION

APPENDIX III

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. SHARE CAPITAL

The authorised and issued share capital of the Company (i) as at the Latest Practicable Date; (ii) immediately following the completion of the Share Consolidation and Increase in Authorised Share Capital (assuming no further issue of new Shares or repurchase of Shares on or before the Record Date); (iii) immediately following the completion of the Rights Issue and the Bonus Warrant Issue and none of the Bonus Warrants are exercised in full (assuming no further issue of new Shares or repurchase of Shares on or before the Record Date) and (iv) immediately following the completion of the Rights Issue and the Bonus Warrant Issue and all of the Bonus Warrants are exercised (assuming no further issue of new Shares or repurchase of Shares on or before the Record Date) were as follows:

(i) As at the Latest Practicable Date

Authorised: HK$ 10,000,000,000 Shares of HK$0.01 each 100,000,000 Issued and fully paid: 4,942,175,712 Shares 49,421,757.12

(ii) Immediately following the completion of the Share Consolidation and Increase in Authorised Share Capital (assuming no further issue of new Shares or repurchase of Shares on or before the Record Date)

Authorised: 1,000,000,000 Consolidated Shares of HK$0.10 each upon completion of the Share Consolidation Authorised: 10,000,000,000 Consolidated Shares of HK$0.10 each upon completion of the Increase in Authorised Share Capital Issued and fully paid: 494,217,570 Consolidated Shares	HK$ 100,000,000

	HK$ 1,000,000,000

	49,421,757

GENERAL INFORMATION

APPENDIX III

Note: Fractional Consolidated Shares will not be issued to the Shareholders. For illustration purposes, the aggregate whole Consolidated Shares after the Share Consolidation becoming effective will be 494,217,570 Consolidated Shares.
(iii) Immediately following the completion of the Rights Issue and the Bonus Warrant Issue and none of the Bonus Warrants are exercised in full (assuming no further issue of new Shares or repurchase of Shares on or before the Record Date)

Authorised: 10,000,000,000 Consolidated Shares of HK$0.10 each Issued and to be issued: 494,217,570 Consolidated Shares in issue before completion of the Rights Issue 2,471,087,850 Rights Shares to be allotted and issued under the Rights Issue 2,965,305,420 Consolidated Shares	HK$ 1,000,000,000

	49,421,757 247,108,785
	296,530,542

Note: Fractional Consolidated Shares will not be issued to the Shareholders. For illustration purposes, the aggregate whole Consolidated Shares after the Share Consolidation becoming effective will be 494,217,570 Consolidated Shares and 494,217,570 Consolidated Shares will be adopted to calculate the aggregate number of Rights Shares and Bonus Warrants under the Rights Issue and the Bonus Warrant Issue.
(iv) Immediately following the completion of the Rights Issue and the Bonus Warrant Issue and all of the Bonus Warrants are exercised (assuming no further issue of new Shares or repurchase of Shares on or before the Record Date)

Authorised: 10,000,000,000 Consolidated Shares of HK$0.10 each Issued and to be issued: 494,217,570 Consolidated Shares in issue before completion of the Rights Issue 2,471,087,850 Rights Shares to be allotted and issued under the Rights Issue 494,217,570 Bonus Warrant Shares to be allotted and issued under the Bonus Warrant Issue 3,459,522,990 Consolidated Shares	HK$ 1,000,000,000

	49,421,757 247,108,785 49,421,757
	345,952,299

GENERAL INFORMATION

APPENDIX III

Note: Fractional Consolidated Shares will not be issued to the Shareholders. For illustration purposes, the aggregate whole Consolidated Shares after the Share Consolidation becoming effective will be 494,217,570 Consolidated Shares and 494,217,570 Consolidated Shares will be adopted to calculate the aggregate number of Rights Shares and Bonus Warrants under the Rights Issue and the Bonus Warrant Issue.

All of the Rights Shares and the Bonus Warrant Shares, once issued and fully paid, will rank pari passu in all respects, including, in particular, as to dividends, voting rights and capital with each other and with all the Consolidated Shares in issue as at the date of allotment and issue of the Rights Shares and the Bonus Warrant Shares (as the case may be). The Rights Shares, the Bonus Warrants and the Bonus Warrant Shares to be issued will be listed on the Stock Exchange.

No part of the share capital or any other securities of the Company is listed or dealt in on any stock exchange other than the Stock Exchange and no application is being made or is currently proposed or sought for the Consolidated Shares or Rights Shares, the Bonus Warrants, the Bonus Warrant Shares or any other securities of the Company to be listed or dealt in on any other stock exchange.

As at the Latest Practicable Date, the Company has no outstanding options, convertible securities or warrants which confer any right to subscribe for or convert or exchange into the Shares except for 16,000,000 Share Options outstanding entitling Mr. Suen to subscribe for 16,000,000 Shares.

3. DISCLOSURE OF INTERESTS BY DIRECTORS AND CHIEF EXECUTIVE

As at the Latest Practicable Date, the interests or short positions of the Directors and chief executive of the Company in the Shares, underlying Shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required (i) to be notified to the Company and the Stock Exchange pursuant to the Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) pursuant to the “Model Code for Securities Transactions by Directors of Listed Issuers” contained in the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

(i) Interests in the Company

Long positions in Shares of the Company:

				Approximate
				percentage
				of the
	Capacity and			Company’s
	nature of	Number of	Total	issued
Name of director	interest	Shares held	interests	share capital
Mr. Suen	Interest held by	437,433,866	–	–
	controlled corporation	(Note 1)
	Directly beneficially owned	10,000,000	447,433,866	9.05%

GENERAL INFORMATION

APPENDIX III

Long position in Share Options of the Company:

			Approximate
			percentage
			of the
	Capacity and	Number of	Company’s
	nature of	underlying	issued
Name of director	interest	Shares	share capital
Mr. Suen	Directly beneficially	16,000,000_(Note 2)_	0.32%
	owned

Notes:

These Shares were held by Global Wealthy, which was a wholly owned subsidiary of Excelsior Kingdom which in turn was wholly owned by Mr. Suen. Accordingly, Mr. Suen was deemed to be interested in 437,433,866 Shares under the SFO.
This represented the interest of Mr. Suen in 16,000,000 underlying Shares issuable under the share options granted by the Company to him on 1 September 2009 under the share option scheme of the Company adopted by the shareholders of the Company on 30 December 2002. The consideration paid by Mr. Suen on acceptance of the share options granted was HK$1.00. The exercise price of the share options is HK$0.272 per Share and the exercise period is between 1 September 2009 and 31 August 2012.
Mr. Suen was also interested in 601,000,000 Consolidated Shares, which represent the maximum number of the Rights Shares underwritten by Global Wealthy pursuant to the Underwriting Agreement.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interests or short positions in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required (i) to be notified to the Company and the Stock Exchange pursuant to the Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) pursuant to the “Model Code for Securities Transactions by Directors of Listed Issuers” contained in the Listing Rules, to be notified to the Company and the Stock Exchange.

4. INTERESTS OF SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors or chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had 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 who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

GENERAL INFORMATION

APPENDIX III

(i) Long positions in Shares of the Company:

				Approximate
				percentage
				of the
	Capacity			Company’s
Name of	and nature	Number of	Total	issued
Shareholder	of interest	Shares held	interests	share capital
Excelsior Kingdom	Interest held by controlled	437,433,866	437,433,866	8.85%
	corporation	(Note 1)
Global Wealthy	Directly beneficially owned	437,433,866	437,433,866	8.85%
		(Note 1)

Notes:

These Shares were held by Global Wealthy, which was a wholly owned subsidiary of Excelsior Kingdom which in turn was wholly owned by Mr. Suen. Accordingly, Mr. Suen and Excelsior Kingdom were deemed to be interested in 437,433,866 Shares under the SFO.
Global Wealthy and Excelsior Kingdom were also interested in 601,000,000 Consolidated Shares, which represent the maximum number of the Rights Shares underwritten by Global Wealthy pursuant to the Underwriting Agreement.

(ii) Interest in other members of the Group

As at the Latest Practicable Date, so far as is known to the Directors or chief executive of the Company, the following persons (other than a Director or chief executive of the Company) were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of members of the Group other than the Company:

Name of non-wholly			Percentage of the
owned subsidiary	Name of substantial		subsidiary’s issued
of the Company	shareholder	Total interests	share capital
Beijing Yu Sheng	Beijing Yu Sheng	Renminbi 180,000	30%
Tang Chinese Medicine	Tang Investment Group
Clinic Company Limited*	Limited * (北京御生堂
(北京御生堂中醫門診部	投資集團有限公司)
有限公司)

Save as disclosed above, as at the Latest Practicable Date, so far as is known to the Directors or chief executive of the Company, no person (other than a Director or chief executive of the Company) had 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 who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or any options in respect of such capital.

GENERAL INFORMATION

APPENDIX III

5. DIRECTORSHIP OR EMPLOYMENT OF DIRECTORS IN SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as known to the Directors and chief executive of the Company and based on the register maintained by the Company under Section 336 of the SFO, Mr. Suen is the sole director of Global Wealthy and Excelsior Kingdom. Save as disclosed, none of the Directors were the directors or employees of Shareholders whose interest in the Shares and underlying shares of the Company would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

6. DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS AND OTHER INTERESTS

As at the Latest Practicable Date, none of the Directors has, or has had, any direct or indirect interest in any assets which have been acquired, disposed of or leased to or which are proposed to be acquired, disposed of or leased to the Company or any of its subsidiaries, respectively, since 31 March 2011, the date to which the latest published audited consolidated financial statements of the Company were made up.

Save for the Underwriting Agreement, there is no contract or arrangement entered into by any member of the Group, subsisting as at the Latest Practicable Date in which any of the Directors is materially interested and which is significant in relation to the business of the Group as a whole.

7. EXPERTS

The following are the qualifications of the experts who have given opinions or advice, which are contained in this circular:

Name Qualification Proton Capital Limited a licensed corporation to carry on type 6 (advising on corporate finance) regulated activity under the SFO HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants

As at the Latest Practicable Date, none of the above experts had any direct or indirect shareholdings in any member of the Group, or any right to subscribe for or to nominate persons to subscribe for shares in any member of the Group, or any interests, directly or indirectly, in any assets which have been acquired, disposed of or leased to or which are proposed to be acquired, disposed of or leased to the Company or any of their respective subsidiaries, respectively, since 31 March 2011, the date to which the latest published audited consolidated financial statements of the Company were made up.

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion therein of its reports and references to its name in the form and context in which they appear.

GENERAL INFORMATION

APPENDIX III

8. SERVICE CONTRACTS

There is no service contract between the Directors and members of the Group which does not expire or is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

9. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation, claim or arbitration of material importance and there was no litigation, claim or arbitration of material importance known to the Directors to be pending or threatened against any member of the Group.

10. MATERIAL CONTRACTS

The following contracts had been entered into by the Group (not being contracts entered into in the ordinary course of business) within the two years immediately preceding the Latest Practicable Date and are or may be material:

(a) the sale and purchase agreement dated 29 January 2010 entered into among Poly Fortune Enterprises Limited, a wholly-owned subsidiary of the Company as purchaser, BAI’s Holdings Limited, Fordland Global Investments Limited and Deluxe Dynamic Limited as vendors and certain vendors’ guarantors named therein for the acquisition of the entire issued share capital of Beijing Yu Sheng Tang Holdings Limited;
(b) the equity transfer agreement dated 10 February 2010 entered into among 維康依感(北京)科技發展有限公司 (Weikang Yigan (Beijing) Technology Development Company Limited), an indirect wholly-owned subsidiary of the Company as purchaser, 魏舒文女士 (Ms. Wei Shuwen) and 魏小兵女士 (Ms. Wei Xiaobing) as vendors for the acquisition of the entire equity interest in 聚協昌(北京)藥業有限公司 (Ju Xie Chang (Beijing) Pharmaceutical Company Limited), formerly known as 北京協和康友製藥有限公司 (Beijing Unioncom Pharmaceutical Company Limited *);
(c) the placing and subscription agreement dated 9 March 2010 entered into among the Company, Global Wealthy as vendor and CCB International Capital Limited as placing agent in respect of placing an aggregate of up to 425,912,000 existing Shares beneficially owned by Global Wealthy and subscription of Shares by Global Wealthy;
(d) memorandum of understanding dated 10 May 2010 entered into between 株式會社 PURE (Corporation PURE) as proposed seller and Beijing Yu Sheng Tang Holdings Limited, an indirect wholly-owned subsidiary of the Company as proposed purchaser for the acquisition of 70% equity interest in the entire shareholdings of 日本製藥工業株式會社 (Nihon Seiyaku Kogyo Co., Ltd.);
(e) the conditional placing agreement dated 28 September 2010 entered into between the Company and Radland International Limited as placing agent for the placing of an aggregate of 517,000,000 Shares in the Company;

GENERAL INFORMATION

APPENDIX III

(f) the conditional placing agreement dated 10 November 2010 entered into between the Company and Radland International Limited as placing agent for the placing of an aggregate of 1,000,000,000 Shares in the Company;
(g) the placing agreement dated 24 October 2011 entered into between the Company and Chung Nam Securities Limited as placing agent for the placing of an aggregate of 823,695,952 Shares in the Company; and
(h) the Underwriting Agreement.

11. CORPORATE INFORMATION

Registered office of the Company Clarendon House 2 Church Street Hamilton HM 11 Bermuda Head office of the Company Suite 1501, 15th Floor Great Eagle Centre 23 Harbour Road Wanchai Hong Kong Principal place of business of Suite 1501, 15th Floor the Company in Hong Kong Great Eagle Centre 23 Harbour Road Wanchai Hong Kong Branch share registrar and Tricor Tengis Limited transfer office of the Company 26th Floor, Tesbury Centre in Hong Kong 28 Queen’s Road East Wanchai Hong Kong Authorised representatives Mr. Sue Ka Lok Ms. Chan Yuk Yee Legal advisers to the Company (as to Hong Kong laws) Troutman Sanders 34th Floor, Two Exchange Square 8 Connaught Place Central, Hong Kong

GENERAL INFORMATION

APPENDIX III

	(as to Bermuda laws in respect
	of the Rights Issue)
	Conyers Dill & Pearman
	2901 One Exchange Square
	8 Connaught Place, Central
	Hong Kong
Auditors	HLB Hodgson Impey Cheng
	Chartered Accountants
	Certified Public Accountants
	31/F., Gloucester Tower
	The Landmark
	11 Pedder Street, Central
	Hong Kong
Principal bankers	Bank of Communications Co., Ltd.,
	Hong Kong Branch
	Bank of China (Hong Kong) Limited
	BNP Paribas Hong Kong Branch
	Rabobank International Hong Kong Branch

Particulars of Directors

EXECUTIVE DIRECTORS

Mr. Suen Cho Hung, Paul , Chairman

Aged 50, joined the Company as an Executive Director and the Chairman of the Company in November 2007 and is also a director of various members of the Group. Mr. Suen holds a Master of Business Administration degree from the University of South Australia. Mr. Suen has extensive experience in managing metal, minerals and raw materials, energy and property business ventures as well as in strategic planning and corporate management of business enterprises in Hong Kong and the PRC. Mr. Suen is a Shareholder of the Company as disclosed in above section headed “Disclosure of Interests by Directors and Chief Executive”. Mr. Suen is also an executive director and the chairman of BEP International Holdings Limited (stock code: 2326), a listed company in Hong Kong. Mr. Suen was also an executive director and the chairman of China Yunnan Tin Minerals Group Company Limited (stock code: 263) until 16 September 2009.

GENERAL INFORMATION

APPENDIX III

Mr. Sue Ka Lok , Chief Executive Officer

Aged 46, joined the Company as an Executive Director in November 2007 and appointed as the Chief Executive Officer of the Company in November 2009. Mr. Sue is also a director of various members of the Group. Mr. Sue holds a Bachelor of Economics degree from the University of Sydney in Australia and a Master of Science in Finance degree from the City University of Hong Kong. Mr. Sue is a fellow member of the Hong Kong Institute of Certified Public Accountants, a certified practising accountant of the CPA Australia, a fellow member of both the Hong Kong Institute of Chartered Secretaries and the Institute of Chartered Secretaries and Administrators and a member of the Hong Kong Securities Institute. Mr. Sue has extensive experience in corporate management, finance, accounting and company secretarial practice. Mr. Sue is also an executive director and the chief executive officer of BEP International Holdings Limited (stock code: 2326) and a non-executive director and the chairman of China Tycoon Beverage Holdings Limited (“China Tycoon”) (stock code: 209), both are listed companies in Hong Kong. Mr. Sue was also an executive director and the chief executive officer of China Yunnan Tin Minerals Group Company Limited (stock code: 263) until 18 January 2010, a listed company in Hong Kong.

Mr. Bai Jianjiang

Aged 48, joined the Company as an Executive Director in February 2010 and is a director of various members of the Group. Mr. Bai graduated from Henan College of Chinese Medicine[] (河南中醫學院) in the PRC and is the 13th generation successor of Bai’s Yu Sheng Tang[] (白氏御生堂第十三代傳人). Mr. Bai has been the curator of Beijing Yu Sheng Tang Chinese Medicine Museum[] (北京御生堂中醫藥博物館館長) since 1999. Mr. Bai is currently the deputy chairman & deputy secretary-general of Chinese Medicine Professional Committee of Beijing Association of Chinese Medicine[] (北京中醫學會中醫藥專業委員會副會長兼副秘書長), a parttime professor of Henan College of Chinese Medicine[] (河南中醫學院兼職教授), a director of Beijing Association of Chinese Medicine[] (北京中醫藥學會理事), a youth committee member of Chinese Medical History Association[] (中華醫史學會青年委員), a committee member of Museum Association of China[] (中國博物館協會委員), a committee member of Beijing International Forum of Chinese Medicine[] (北京中醫藥國際論壇委員) and a member of Beijing Museum Association[] (北京博物館學會會員). Mr. Bai has profound knowledge in tradition, history and culture of Chinese medicine and also has extensive management experience in modern Chinese medicine business. Mr. Bai oversees the Group’s pharmaceutical operation in the PRC.

Ms. Lee Chun Yeung, Catherine

Aged 43, joined the Group in February 2009 and was appointed as an Executive Director in October 2010. Ms. Lee is also a director of various members of the Group. Ms. Lee holds a Bachelor of Arts degree from Guangdong University of Foreign Studies (formerly known as Guangzhou Institute of Foreign Languages) and a Master in Business Administration degree from the University of South Australia. Ms. Lee has extensive experience in international trading of metal minerals and commodities and oversees the Group’s operation of supply and procurement of metal minerals and recyclable metal materials. Prior to joining the Group, Ms. Lee worked as an economist in a major commercial bank and a senior executive in a state-owned trading group in the PRC.

GENERAL INFORMATION

APPENDIX III

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. Wong Kwok Tai

Aged 73, joined the Company as an Independent Non-executive Director in August 2001. Mr. Wong graduated from the Deakin University in Geelong, Australia and holds a Diploma of Commerce. Mr. Wong is a Practising Certified Public Accountant and a fellow member of the CPA Australia and the Hong Kong Institute of Certified Public Accountants. Mr. Wong is the director of W. Wong CPA Limited and has more than 45 years of financial experience. Mr. Wong is also an independent non-executive director of China Power New Energy Development Company Limited (stock code: 735), New Century Group Hong Kong Limited (stock code: 234), China Tycoon and Takson Holdings Limited (stock code: 918), all being listed companies in Hong Kong.

Mr. Weng Yixiang

Aged 53, joined the Company as an Independent Non-executive Director in October 2007. Mr. Weng graduated from China Central Radio and TV University specialising in law and is also qualified as a senior economist in the PRC. Mr. Weng has over 20 years of experience in banking, investment and finance and had served as senior executive in government authorities and financial institutions in the PRC. Mr. Weng is the general manager of an investment management and consulting company in the PRC.

Mr. Lu Xinsheng

Aged 44, joined the Company as an Independent Non-executive Director in October 2007. Mr. Lu graduated from Sichuan University with a Bachelor of Science degree specialising in environmental chemistry. Mr. Lu has over 20 years of experience in trading business and has held senior positions in trading and logistics companies in the PRC.

SENIOR MANAGEMENT

Ms. Chan Yuk Yee , Company Secretary

Aged 43, joined the Company as Company Secretary in November 2008. She holds a Master of Business Law degree from Monash University in Australia and is an associate member of both the Hong Kong Institute of Chartered Secretaries and the Institute of Chartered Secretaries and Administrators. Ms. Chan has over 10 years of experience in company secretarial practice. Ms. Chan is also an executive director and the company secretary of China Tycoon and an executive director of New Island Printing Holdings Limited (stock code: 377), both are listed companies in Hong Kong.

Business address of Directors and senior management

The business address of the Directors and senior management is the same as the Company’s head office and principal place of business in Hong Kong located Suite 1501, 15th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong.

GENERAL INFORMATION

APPENDIX III

12. MISCELLANEOUS

In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

13. EXPENSES

The expenses in connection with the Rights Issue, including underwriting commission, financial advisory fees, printing, registration, translation, legal and accounting fees, are estimated to be approximately HK$9.5 million and are payable by the Company.

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours from 9:00 a.m. to 12:30 noon and from 2:00 p.m. to 5:30 p.m. (other than Saturdays, Sundays and public holidays in Hong Kong) at the principal place of business of the Company in Hong Kong at Suite 1501, 15th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong from the date of this circular up to and including the date of the SGM:

(a) the memorandum of association and the Bye-Laws of the Company;
(b) the annual reports of the Company for the three financial years ended 31 March 2009, 31 March 2010 and 31 March 2011;
(c) the interim report of the Company for the six months ended 30 September 2011;
(d) the letter from the Independent Board Committee, the text of which is set out on page 37 of this circular;
(e) the letter of advice from Proton Capital, the text of which is set out on pages 38 to 55 of this circular;
(f) the letter on the unaudited pro forma financial information of the Group issued by HLB Hodgson Impey Cheng set out in appendix II to this circular;
(g) the material contracts disclosed in the paragraph under the heading “Material Contracts” in this appendix;
(h) the written consents referred to in the paragraph under the heading “Experts” in this appendix; and
(i) this circular.

APPENDIX IV

SUMMARY OF TERMS OF THE BONUS WARRANTS

The Bonus Warrants will be issued subject to and with benefit of an instrument by way of deed poll (the “ Instrument ”) and they will be issued in registered form and will form one class and rank pari passu in all respects with each other.

The principal terms and conditions of the Bonus Warrants (the “ Conditions ”) will be set out in the certificate(s) for the Bonus Warrant (the “ Warrant Certificate(s) ”) and will include provisions to the effect set out below. Holders of the Bonus Warrant (the “ Warrantholders ”) will be entitled to the benefit of, be bound by, and be deemed to have notice of the Conditions, copies of which will be available at the principal place of business for the time being of the Company in Hong Kong.

1. DEFINITIONS

In this Appendix, unless otherwise stipulated, the following terms shall have the following meanings:

“Equity Share Capital”

the issued share capital of the Company excluding any part thereof which does not either as respects dividends or as respects capital carry the right to participate beyond a specified amount or beyond an amount calculated by reference to a specified rate in a distribution

“Exercise Moneys”

in relation to any Bonus Warrant(s), the amount stated on the face of the Warrant Certificate issued in respect of such Bonus Warrant(s) as the amount in cash which the Warrantholder of such Bonus Warrant(s) is/are entitled to subscribe upon the exercise of the Subscription Rights represented thereby

“Shares”
ordinary share(s) of HK$0.10 each in the share capital of the Company existing on the date of the Instrument and all other (if any) stock or shares from time to time and for the time being ranking pari passu therewith and all other (if any) shares or stock in the Equity Share Capital of the Company resulting from any sub-division, consolidation or reclassification of Shares
“Subscription Date”

the close of business on any business day falling during the Subscription Period on which any of the Subscription Rights are duly exercised

“Subscription Period”

the period commencing from the date of issue of the Bonus Warrants, which is currently expected to be on or about Friday, 9 March 2012 and expire at 4:30 p.m. on the Business Day immediately preceding the date which is 24 months after such date, which is currently expected to be on or about Friday, 7 March 2014

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX IV

“Subscription Price”

the sum payable in respect of each Share upon exercise of the Subscription Rights represented thereby, initially being HK$0.10 in cash per Share (subject to adjustments)

“Subscription Rights”

the rights of the Warrantholders represented by the Bonus Warrants to subscribe in a maximum aggregate amount of HK$49,421,757 for Shares pursuant to the Bonus Warrants and, in relation to each Bonus Warrant, means the right of the relevant Warrantholder to subscribe for Shares upon and subject to the Conditions

2. EXERCISE OF SUBSCRIPTION RIGHTS

(A) Subject to the provisions hereof and to compliance with all fiscal and other laws and regulations applicable thereto the registered holder of the Bonus Warrants will have the right, which may be exercised in whole or in part at any time during the Subscription Period, to subscribe at the Exercise Moneys for one fully paid Share at the Subscription Price per Share. After the Business Day immediately preceding the date which is 24 months after the date of the issue of the Bonus Warrants any Subscription Rights which have not been exercised will lapse and the Bonus Warrants will cease to be valid for any purpose.
(B) Each Warrant Certificate will contain a Subscription Form (as defined in the Instrument). In order to exercise in whole or in part the Subscription Rights, the Warrantholder must complete and sign the Subscription Form (which shall be irrevocable) and deliver the Warrant Certificate to the Registrar (as defined in the Instrument), together with a remittance for the Exercise Moneys (or, in the case of a partial exercise, the relevant portion of the Exercise Moneys). In each case compliance must also be made with any exchange control, fiscal or other laws or regulations for the time being applicable.
(C) The number of Shares to be allotted on exercise of the Subscription Rights shall be the number of the Bonus Warrants subject to exercise as specified in the relevant Subscription Form. No fraction of a Share will be allotted but any balance representing fractions of the Exercise Moneys paid on exercise of the Subscription Rights will be paid by the Company to the Warrantholder.
(D) The Company has undertaken in the Instrument that Shares falling to be issued upon the exercise of the Subscription Rights will be issued and allotted not later than 21 days (or, if applicable, such other period as prescribed by the Stock Exchange) after the relevant Subscription Date and will rank pari passu with the fully paid Shares in issue on the relevant Subscription Date and accordingly shall entitle the holders to participate in all dividends or other distributions paid or made after the relevant Subscription Date other than any dividend or other distribution previously declared or recommended or resolved to be paid or made if the record date therefor shall be on or before the relevant Subscription Date and notice of the amount and record date for which shall have been given to the Stock Exchange prior to the relevant Subscription Date.

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX IV

(E) As soon as practicable after the relevant allotment of Shares (and not later than 21 days or, if applicable, such other period as prescribed by the Stock Exchange, after the relevant Subscription Date) there will be issued free of charge to the Warrantholder(s):
(i) a certificate (or certificates) for the relevant Shares in the name(s) of such Warrantholder(s);
(ii) (if applicable) a balancing Warrant Certificate in registered form in the name(s) of such Warrantholder(s) in respect of any Subscription Rights and remaining unexercised; and
(iii) (if applicable, and subject to any announcement published by to the Company in respect of factional entitlement) a cheque representing the fractional entitlement to Shares not allotted as mentioned in paragraph (C) of this Condition.

The certificate(s) for Shares arising on the exercise of Subscription Rights, the balancing Warrant Certificate (if any) and the cheque in respect of fractional entitlement (if any) will be sent by post at the risk of such Warrantholder(s) to the address of such Warrantholder(s) or (in the case of a joint holding) to that one of them whose name stands first on the Register (as defined in the Instrument). If the Company agrees, such certificates and cheques may by prior arrangement be retained by the Registrar (as defined in the Instrument) to await collection by the relevant Warrantholder(s).

3. ADJUSTMENTS OF SUBSCRIPTION PRICE

The Instrument contains detailed provisions relating to the adjustment of the Subscription Price. The following is a summary of, and is subject to, the adjustment provisions of the Instrument:

(A) The Subscription Price shall (except as mentioned in the proviso to (v) below and in paragraphs (B) and (C) below) be adjusted as provided in the Instrument in each of the following cases:
(i) an alteration of the nominal amount of the Shares by reason of any consolidation or subdivision;
(ii) an issue (other than in lieu of a cash dividend) by the Company of Shares credited as fully paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve);
(iii) a Capital Distribution (as defined in the Instrument) being made by the Company, whether on a reduction of capital or otherwise, to holders of its Shares in their capacity as such;

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX IV

(iv) a grant by the Company to the holders of Shares (in their capacity as such) of rights to acquire for cash assets of the Company or any of its subsidiaries;
(v) an offer or grant being made by the Company to holders of its Shares of Shares by way of rights or of options or warrants to subscribe Shares at a price which is less than 80 per cent. of the market price (calculated as provided in the Instrument) provided that no such adjustment shall be made if the Company shall also make a like offer or grant (as the case may be) at the same time to each holder of Bonus Warrants (subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory outside Hong Kong) as if he had exercised the Subscription Rights in full on the day immediately preceding the record date for such offer or grant;
(vi) an issue wholly for cash being made by the Company or any other company of securities convertible into or exchangeable for or carrying rights of subscription for new Shares, if in any case the total Effective Consideration (as defined in the Instrument) per Share is less than 80 per cent. of the market price (calculated as provided in the Instrument), or the terms of any such issue being altered so that the said total Effective Consideration is less than 80 per cent. of the market price;
(vii) an issue being made wholly for cash of Shares other than pursuant to a Share Option Scheme (as defined in the Instrument) at a price less than 80 per cent. of the market price (calculated as provided in the Instrument); and
(viii) the purchase of Shares by the Company in circumstances where the total Effective Consideration per Share (as defined in the Instrument) is more than 110 per cent. of the closing price of one Share on the Stock Exchange (calculated as provided in the Instrument).
(B) Except as mentioned in paragraph (C), the provisions set out in paragraph (A) shall not apply to:
(i) an issue of fully paid Shares upon the exercise of any conversion rights attached to securities convertible into Shares or upon the exercise of any rights (including the Subscription Rights) to acquire Shares;
(ii) an issue of Shares or other securities of the Company or any subsidiary or rights to acquire Shares to directors or employees of the Company or any subsidiaries pursuant to a share option scheme;
(iii) an issue by the Company of Shares or by the Company or any subsidiary of securities convertible into or rights to acquire Shares, in any such case in consideration or part consideration for the acquisition of any other securities, assets or business;

APPENDIX IV

SUMMARY OF TERMS OF THE BONUS WARRANTS

(iv) an issue of fully paid Shares by way of capitalisation of all or part of the Subscription Right Reserve (as defined in the Instrument) to be established in certain circumstances pursuant to the terms and conditions contained in the Instrument (or any similar reserve which has been or may be established pursuant to the terms of any other securities convertible into or rights to acquire Shares); or
(v) an issue of Shares in lieu of a cash dividend where an amount not less than the nominal amount of the Shares so issued is capitalised and the market value (calculated as provided in the Instrument) of such Shares is not more than 110 per cent. of the amount of dividend which holders of Shares could elect to or would otherwise receive in cash.
(C) Notwithstanding the provisions referred to in paragraphs (A) and (B) of this Condition, in any circumstances where the Company shall consider that an adjustment to the Subscription Price provided for under the said provisions should not be made or should be calculated on a different basis or that an adjustment to the Subscription Price should be made notwithstanding that no such adjustment is required under the said provisions, the Company may appoint an approved financial adviser to consider whether for any reason whatever the adjustment to be made (or the absence of adjustment) would not or might not fairly and appropriately reflect the relative interests of the persons affected thereby and, if such an approved financial adviser shall consider this to be the case, the adjustment shall be modified or nullified or an adjustment made instead of no adjustment in such manner (including, without limitation, making an adjustment calculated on a different basis) as shall be certified by such approved financial adviser to be in its opinion appropriate.
(D) Any adjustment to the Subscription Price shall be made to the nearest one cent so that any amount under half a cent shall be rounded down and any amount of half a cent or more shall be rounded up. No adjustment shall be made to the Subscription Price in any case in which the amount by which the same would be reduced would be less than one cent and any adjustment which would otherwise then be required shall not be carried forward. No adjustment may be made (except on a consolidation of Shares) which would increase the Subscription Price.
(E) Every adjustment to the Subscription Price will be certified to be fair and appropriate by an approved financial adviser and notice of each adjustment (giving the relevant particulars) will be given to the Warrantholders. Any such certificates of the approved financial adviser will be available at the registered office and principal office of the Company, where copies may be obtained.

4. REGISTERED WARRANTS

The Bonus Warrants will be issued in registered form. The Company shall be entitled to treat the registered holder of any Bonus Warrant as the absolute owner thereof and accordingly shall not, except as ordered by a Court of competent jurisdiction or required by law, be bound to recognise any equitable or other claim to or interest in such Bonus Warrant on the part of any other person, whether or not it shall have express or other notice thereof.

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX IV

5. TRANSFER, TRANSMISSION AND REGISTER

(A) The Subscription Rights are transferable by instrument of transfer in any usual or common form or in any other form which may be approved by the Directors. The Company shall maintain a register of Warrantholders accordingly. Transfers of the Bonus Warrants must be executed by both the transferor and the transferee. Where the transferor or the transferee is HKSCC Nominees Limited or its successor thereto (or such other companies as may be approved by the Board of Directors for this purpose), the transfers may be executed by machine imprinted signature on its behalf or under hand by its authorised person(s), as the case may be. The provisions of the Company’s Bye-Laws for the time being relating to the registration, transmission and transfer of Shares shall, mutatis mutandis, apply to the registration, transmission and transfer of the Bonus Warrants and shall have full effect as if the same had been incorporated herein.
(B) The Register may be closed from time to time, subject to the same restrictions, mutatis mutandis, as apply to the closure of the register of members of the Company under the Companies Act 1981 of Bermuda except that publication of notice of closure in appointed newspaper shall not be required. Any exercise of Subscription Rights during the period for which the Register is closed shall be deemed to be and shall be effective upon the first day upon which the Register reopens and such date shall be deemed to be the relevant Subscription Date for all purposes in respect of such exercise of Subscription Rights.
(C) Persons who hold Bonus Warrants and have not registered the Bonus Warrants in their own names and wish to exercise the Bonus Warrants may incur additional costs and expense in connection with any expedited re-registration of the Bonus Warrants prior to the transfer or exercise of the Bonus Warrants, in particular during the period commencing 10 business days (or any period from time to time prescribed by the Stock Exchange) prior to and including the last day for subscription being the Business Day immediately preceding the date which is 24 months after the date of the issue of the Bonus Warrants.
(D) Since the Bonus Warrants will be admitted to the CCASS, so far as applicable laws or regulations of relevant regulatory authorities, terms of the Instrument and circumstances permit, the Company may determine the last trading day of the Bonus Warrants to be a date at least three trading days before the date immediately preceding the date which is 24 months after the date of the issue of the Bonus Warrants.

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX IV

6. PURCHASE AND CANCELLATION

The Company or any of the subsidiaries may at any time purchase Bonus Warrants:

(i) in the open market or by tender (available to all Warrantholders alike) at any price; or
(ii) by private treaty at a price, exclusive of expenses, not exceeding 110 per cent. of the closing price on the Stock Exchange per Bonus Warrant for one or more board lots of Bonus Warrants prior to the date of purchase of the Bonus Warrants on the Stock Exchange, but not otherwise. All Bonus Warrants purchased as aforesaid shall be cancelled forthwith and may not be reissued or resold.

7. MEETINGS OF WARRANTHOLDERS AND MODIFICATION OF RIGHTS

(A) The Instrument contains provisions for convening meetings of Warrantholders to consider any matter affecting the interests of Warrantholders, including the modification by an Extraordinary Resolution (as defined in the Instrument) of the provisions of the Instrument and/or these Conditions. An Extraordinary Resolution duly passed at any such meeting shall be binding on the Warrantholders, whether present or not.
(B) All or any of the rights for the time being attached to the Bonus Warrants (including any of the provisions of the Instrument) may from time to time (whether or not the Company is being wound up) be altered or abrogated (including but without prejudice to that generality by waiving compliance with, or by waiving or authorising any past or proposed breach of, any of the provisions of these Conditions and/or the Instrument) and the sanction of an Extraordinary Resolution shall be necessary and sufficient to effect such alteration or abrogation.
(C) Where the Warrantholder is a recognised clearing house (within the meaning of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)) or its nominee(s), it may authorise such person or persons as it thinks fit to act as its representative (or representatives) or proxy (or proxies) at any Warrantholders’ meeting provided that, if more than one person is so authorised, the authorisation or proxy form must specify the number and class of warrants in respect of which each such person is so authorised. The person so authorised will be entitled to exercise the same power on behalf of the recognised clearing house as that clearing house or its nominee(s) could exercise as if such person were an individual Warrantholder of the Company.

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX IV

8. REPLACEMENT OF WARRANT CERTIFICATES

If a Warrant Certificate is mutilated, defaced, lost or destroyed, it may, at the discretion of the Company, be replaced at the principal office of the Registrars on payment of such costs as may be incurred in connection therewith and on such terms as to evidence, indemnity and/or security as the Company may require and on payment of such fee not exceeding HK$2.50 (or such higher fee as may from time to time be permitted by the Stock Exchange) as the Company may determine. Mutilated or defaced Warrant Certificates must be surrendered before replacements will be issued. The provisions of the Company’s Bye-Laws relating to replacement of share certificate shall apply, mutatis mutandis, to replacement of Warrant Certificate and shall have full effect as of the same had been incorporated therein.

In the case of lost Warrant certificates, subsections (2), (3), (4), (6), (7) and (8) of section 71A of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) shall apply as if “shares” referred to therein included Bonus Warrants.

9. PROTECTION OF SUBSCRIPTION RIGHTS

The Instrument contains certain undertakings by and restrictions on the Company designed to protect the Subscription Rights.

10. CALL

If at any time the aggregate of the amount of Exercise Moneys attached to unexercised Bonus Warrants is equal to or less than 20 per cent. of the amount of Exercise Moneys attached to the aggregate of all the Bonus Warrants issued under the Instrument then the Company may, on giving not less than 3 months’ notice, require Warrantholders either to exercise their Subscription Rights or to allow them to lapse. On expiry of such notice, all unexercised Bonus Warrants will be automatically cancelled without compensation to Warrantholders.

11. FURTHER ISSUES

The Company shall be at liberty to issue further shares or securities convertible into equity securities of the Company, including options or warrants to purchase or subscribe equity securities and other forms of convertible equity securities. The Instrument does not confer on the Warrantholders any right to participate in any distribution and/or offers of further securities made by the Company.

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX IV

12. UNDERTAKINGS BY THE COMPANY

In addition to the undertakings given by it in relation to the grant and exercise of the Subscription Rights and the protection thereof the Company has undertaken in the Instrument that:

(i) it will use its best endeavours to ensure that all Shares allotted on the exercise of Subscription Rights shall be admitted to listing on the Stock Exchange;
(ii) it will send to each Warrantholder, at the same time as the same are sent to the holders of Shares, its audited accounts and all other notices, reports and communications despatched by it to the holders of the Shares generally; and
(iii) it will pay all Hong Kong stamp duties, registration fees or similar charges in respect of the execution of the Instrument, the creation and initial issue of the Bonus Warrants in registered form, the exercise of the Subscription Rights and the issue of Shares upon exercise of the Subscription Rights.

13. NOTICES

The Instrument contains provisions relating to notices to be given to Warrantholders.

Every Warrantholder shall register with the Company an address either in Bermuda or in Hong Kong or elsewhere to which notices can be sent.

The provisions of the Company’s Bye-Laws for the time being relating to service of notices on members of the Company shall apply, mutatis mutandis, to service of notices on Warrantholders and shall have full effect as of the same had been incorporated therein.

14. OVERSEAS WARRANTHOLDERS

If a Warrantholder has a registered address in any territory other than Hong Kong where, in the opinion of the Directors, the allotment of Shares to such Warrantholder upon exercise of any Subscription Rights would or may be in the absence of compliance with registration or any other special formalities in such territory, be unlawful or impracticable under the laws of such territory or Hong Kong, then the Company will as soon as practicable after exercise by such Warrantholder of any Subscription Rights either (i) allot the Shares which would otherwise have been allotted to such Warrantholder to one or more third parties selected by the Company or (ii) allot such Shares to such Warrantholder and then, on his behalf, sell them to one or more third parties selected by the Company, in each case for the best consideration then reasonably obtainable by the Company. As soon as reasonably practicable following such allotment or allotment and sale, the Company will pay such Warrantholder an amount equal to the consideration received by it by posting the remittance to him at his risk. The Company is hereby deemed to be authorised to effect the transactions required by this Condition 14 and for this purpose the Company may appoint some person to complete and execute transfers or other documents on behalf of the relevant Warrantholders and generally may make all arrangements which appear to it to be necessary or appropriate in connection therewith.

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX IV

15. WINDING UP OF THE COMPANY

15.1 If an effective resolution is passed during the Subscription Period for the voluntary windingup of the Company for the purpose of reconstruction or amalgamation pursuant to a scheme of arrangement to which the Warrantholders, or some persons designated by them for such purpose by Extraordinary Resolution, shall be a party or in conjunction with which a proposal is made to the Warrantholders and is approved by Extraordinary Resolution, the terms of such scheme of arrangement or (as the case may be) proposal shall be binding on all the Warrantholders.
15.2 In the event a notice is given by the Company to its shareholders to convene a shareholders’ meeting for the purposes of considering, and if thought fit approving, a resolution to voluntarily wind-up the Company, the Company shall forthwith give notice thereof to each Warrantholder and thereupon, every Warrantholder shall be entitled by irrevocable surrender of his Warrant Certificate(s) to the Company (such surrender to occur not later than two business days prior to the proposed shareholders’ meeting referred to above) with the Subscription Form(s) duly completed, together with payment of the Exercise Moneys or the relative portion thereof, to exercise the Subscription Rights represented by such Warrant and the Company shall as soon as possible and, in any event, no later than the day immediately prior to the date of the proposed shareholders’ meeting, allot such number of Shares to the Warrantholders which fall to be issued pursuant to the exercise of the Subscription Rights represented by such Warrant. The Company shall give notice to the Warrantholders of the passing of such resolution within seven days after the passing thereof.
15.3 Subject to the foregoing, if the Company is wound up, all Subscription Rights which have not been exercised at the commencement of the winding up shall lapse and each Warrant Certificate will cease to be valid for any purpose.

16. GOVERNING LAW

The Instrument and the Bonus Warrants are governed by and will be construed in accordance with the laws of Hong Kong.

NOTICE OF SPECIAL GENERAL MEETING

==> picture [117 x 50] intentionally omitted <==

**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)

NOTICE IS HEREBY GIVEN that a special general meeting (the “ Meeting ”) of Beijing Yu Sheng Tang Pharmaceutical Group Limited (the “ Company ”), will be held on Wednesday, 1 February 2012 at 9:00 a.m. at Plaza 1 and 2, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong for considering and, if thought fit, passing, with or without amendments, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT conditional upon the Listing Committee of the Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) granting approval for the listing of, and permission to deal in, new shares of HK$0.10 each of the Company in issue, with effect from 5 p.m. on the day on which this resolution is passed every ten (10) existing issued and unissued ordinary shares of HK$0.01 each in the share capital of the Company be consolidated into one (1) consolidated share of HK$0.10 (each a “ Consolidated Share ”), and such Consolidated Share(s) shall rank pari passu in all respects with each other and have the rights and privileges and be subject to the restrictions in respect of ordinary shares contained in the bye-laws of the Company (the “ Share Consolidation ”), and any one of the directors of the Company (the “ Directors ”) be and is hereby authorised with full power to do all things and sign or execute all documents on behalf of the Company which he/she may in his/her sole discretion considers, necessary or desirable for the purpose of giving effect to the Share Consolidation or any matters in relation thereto”;
“ THAT subject to the Share Consolidation becoming effective in accordance with the ordinary resolution numbered 1 in the notice of the Meeting, the authorised share capital of the Company be and is hereby increased from HK$100,000,000.00 divided into 1,000,000,000 Consolidated Shares of HK$0.10 each to HK$1,000,000,000.00 divided into 10,000,000,000 Consolidated Shares by the creation of an additional 9,000,000,000 new Consolidated Shares (the “ Increase in Authorised Share Capital ”)”; and

* For identification purposes only

NOTICE OF SPECIAL GENERAL MEETING

“ THAT subject to the Share Consolidation and the Increase in Authorised Share Capital becoming effective in accordance with the ordinary resolutions numbered 1 and 2 in the notice of the Meeting:
(a) the Rights Issue (as defined below), the Bonus Warrant Issue (as defined below) and the transactions contemplated thereunder; and the execution, delivery and performance of (i) the instrument by the Company by way of deed poll for the creation of the Bonus Warrants (as defined below) (the “ Instrument ”) (a draft copy of which is produced to the meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification); (ii) the underwriting agreement dated 20 December 2011 (the “ Underwriting Agreement ”) entered into between the Company and Global Wealthy Limited and Chung Nam Securities Limited (collectively the “ Underwriters ”) (a copy of which is produced to the meeting marked “B” and signed by the Chairman of the meeting for the purpose of identification) in relation to the Rights Issue and the Bonus Warrant Issue, and the transactions contemplated thereunder and all actions taken or to be taken by the Company pursuant to or incidental to the Instrument and the Underwriting Agreement, be and are hereby approved, confirmed and ratified; and
(b) subject to the fulfillment or waiver of the conditions set out in the Underwriting Agreement, any one or more of the Directors be and is/are hereby authorised to allot and issue (i) the Rights Shares (as defined below) pursuant to and in connection with the Rights Issue, (ii) the Bonus Warrants pursuant to and in connection with the Bonus Warrant Issue in accordance with the terms and conditions of the Instrument, and (iii) the new Consolidated Shares pursuant to the exercise of the subscription rights attached to the Bonus Warrant(s) to the relevant holder(s) of the Bonus Warrant(s); and (iv) do all such acts and things, including but without limitation to the execution of all such documents under seal where applicable, as he/she may in his/her discretion consider necessary, expedient or desirable for the purpose of or in connection with the implementation of or giving effect to the Rights Issue, the Bonus Warrant Issue, the Underwriting Agreement, the Instrument and the transactions contemplated thereunder, including but without limitation, the exercise or enforcement of any of the Company’s rights under the Underwriting Agreement and to make and agree to such variations of the terms of the Underwriting Agreement as he/she may consider to be appropriate and in the interests of the Company.

For the purpose of this resolution, “ Rights Issue ” means the proposed allotment and issue of up to 2,471,087,850 new Consolidated Shares of HK$0.10 each of the Company (the “ Right Shares ”) to such holders of the Consolidated Shares (the “ Shareholders ”) whose names shall appear on the register of members of the Company on 13 February 2012, or such other date as the Company and the underwriters of the Rights Issue may agree as the record date for determination of the entitlements of the Shareholders under the Rights Issue (the “ Record Date ”) at the subscription price of HK$0.13 per Rights Share in the proportion of five (5) Rights Shares for every one (1) whole Consolidated Share held by the Shareholders on the Record Date provided that (i) no Rights Shares shall be offered to Shareholders whose addresses on the register of members of the Company are outside Hong Kong on the

NOTICE OF SPECIAL GENERAL MEETING

Record Date and whom the Directors consider it necessary or expedient to exclude such Shareholders from the Rights Issue to such Shareholders on account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place (the “ Non-Qualifying Shareholders ”) and the nil-paid Rights Shares which would otherwise have been offered to them shall be sold if a premium net of expenses is obtained and to the extent that such rights can be sold, the net proceeds of such sale (after deducting the expenses of sale) be distributed to the Non-Qualifying Shareholders pro rata to their holding of Shares on the Record Date provided further that individual amounts of HK$100 or less shall be retained for the benefit of the Company; and (ii) to the extent that the nil-paid Rights Shares referred to in (i) above are not sold as aforesaid, such nil-paid Rights Shares together with any nil-paid Rights Shares provisionally allotted but not accepted shall be offered for application under forms of application for excess Rights Shares; and together with bonus issue (the “ Bonus Warrant Issue ”) of bonus warrants (the “ Bonus Warrants ”) on the basis of one (1) Bonus Warrant for every five (5) Rights Shares taken up, conferring rights on the holder(s) thereof to subscribe for Consolidated Shares at the exercise price of HK$0.10 per Consolidated Share (subject to adjustments), as described in further detail in a circular issued by the Company dated 13 January 2012 which the notice convening this Meeting forms part.”

By Order of the Board Suen Cho Hung, Paul Chairman

Hong Kong, 13 January 2012

NOTICE OF SPECIAL GENERAL MEETING

Notes:

Any member of the Company entitled to attend and vote at the Meeting shall be entitled to appoint another person as his/her proxy to attend and vote instead of him/her. A member who is the holder of two or more Shares may appoint more than one proxy to represent him/her and vote on his/her behalf at the Meeting. A proxy need not be a member of the Company. On a poll, votes may be given either personally or by proxy.
The instrument appointing a proxy shall be in writing under the hand of the appointer or of his/her attorney duly authorised in writing or, if the appointer is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same.
The instrument appointing a proxy and (if required by the Board of Directors of the Company) the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, shall be delivered to the office of the Hong Kong branch share registrar and transfer office of the Company, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the Meeting or any adjourned meeting thereof, and in default the instrument of proxy shall not be treated as valid.
Where there are joint holders of any Shares, any one of such joint holders may vote at the Meeting, either in person or by proxy, in respect of such share as if he/she were solely entitled thereto, but if more than one of such joint holders be present at the Meeting, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.
Completion and delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the Meeting if the member so wish and in such event, the instrument appointing a proxy shall be deemed to be revoked.

AI assistant

PegBio Co., Ltd. — Proxy Solicitation & Information Statement 2012

50676_rns_2012-01-12_fd370475-9dfe-42cf-b899-57e82d51ad89.pdf

BEIJING YU SHENG TANG PHARMACEUTICAL GROUP LIMITED 北京御生堂藥業集團有限公司[*]

Underwriters CHUNG NAM SECURITIES LIMITED GLOBAL WEALTHY LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

EXPECTED TIMETABLE

2012

Effect of bad weather on the latest time for acceptance of and payment for the Rights Issue and for application and payment for excess Rights Shares

BEIJING YU SHENG TANG PHARMACEUTICAL GROUP LIMITED 北京御生堂藥業集團有限公司[*]

1. INTRODUCTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

2. PROPOSED SHARE CONSOLIDATION

Effects of the Share Consolidation

LETTER FROM THE BOARD

Reasons for the Share Consolidation

Conditions of the Share Consolidation

LETTER FROM THE BOARD

Listing and Dealings

Free Exchange of Consolidated Share Certificates and Trading Arrangement

Arrangement for Matching Service for Odd Lots

LETTER FROM THE BOARD

3. INCREASE IN AUTHORISED SHARE CAPITAL

4. CHANGE IN BOARD LOT SIZE

5. PROPOSED RIGHTS ISSUE

LETTER FROM THE BOARD

Issue Statistics

Qualifying Shareholders and Non-Qualifying Shareholders

Closure of Register of Members

Basis of the Provisional Allotment

Rights of the Overseas Shareholders

LETTER FROM THE BOARD

Application for Excess Rights Shares

LETTER FROM THE BOARD

Subscription Price

Bonus Warrant Issue

LETTER FROM THE BOARD

Basis of determining the Subscription Price and the Exercise Price

LETTER FROM THE BOARD

Fractions of the Rights Shares and the Bonus Warrants (if any)

Certificates for the Rights Shares, the Bonus Warrants and Refund Cheques

Status of the Rights Shares and the Bonus Warrant Shares

Specific Mandate to Allot and Issue the Bonus Warrant Shares

Application for Listing

LETTER FROM THE BOARD

Irrevocable Undertakings

LETTER FROM THE BOARD

6. CONDITIONS PRECEDENT TO THE RIGHTS ISSUE, THE BONUS WARRANT ISSUE AND THE UNDERWRITING AGREEMENT

7. UNDERWRITING ARRANGEMENT

The Underwriting Agreement

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Termination or Rescission of the Underwriting Agreement

LETTER FROM THE BOARD

LETTER FROM THE BOARD

8. REASONS FOR THE RIGHTS ISSUE AND THE BONUS WARRANT ISSUE AND INTENDED USE OF PROCEEDS

LETTER FROM THE BOARD

9. POSSIBLE ADJUSTMENT TO THE SHARE OPTIONS

10. FUND RAISING EXERCISES OF THE COMPANY DURING THE PAST 12 MONTHS

LETTER FROM THE BOARD

11. EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY

LETTER FROM THE BOARD

12. WARNING OF THE RISKS OF DEALING IN THE SHARES AND THE NIL-PAID RIGHTS SHARES AND/OR TAKING UP THE RIGHTS SHARES

LETTER FROM THE BOARD

13. IMPLICATION UNDER THE LISTING RULES

LETTER FROM THE BOARD

14. SGM

15. RECOMMENDATION

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

PROPOSED SHARE CONSOLIDATION; PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; CHANGE IN BOARD LOT SIZE; AND

PROPOSED RIGHTS ISSUE ON THE BASIS OF FIVE RIGHTS SHARES FOR EVERY ONE CONSOLIDATED SHARE HELD ON THE RECORD DATE WITH BONUS WARRANTS ON THE BASIS OF ONE BONUS WARRANT FOR EVERY FIVE RIGHTS SHARES TAKEN UP

PegBio Co., Ltd. Proxy Solicitation & Information Statement 2012

**BEIJING YU SHENG TANG PHARMACEUTICAL GROUP LIMITED 北京御生堂藥業集團有限公司[*]**

**BEIJING YU SHENG TANG PHARMACEUTICAL GROUP LIMITED 北京御生堂藥業集團有限公司[*]**