Sinco Pharmaceuticals Holdings Limited - Proxy Solicitation & Information Statement 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, you should consult a 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 of Sino Biopharmaceutical Limited you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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(Incorporated in the Cayman Islands with limited liability)

Website: www.sinobiopharm.com (Stock code: 1177)

CONNECTED AND DISCLOSEABLE TRANSACTIONS

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

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Kingsway Capital Limited
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A letter from the Independent Board Committee and a letter from the independent financial adviser, Kingsway Capital Limited, containing its advice to the Independent Board Committee and the Independent Shareholders are set out on pages 17 to 18 and pages 19 to 30 of this circular respectively.

A notice convening an extraordinary general meeting of Sino Biopharmaceutical Limited to be held at 7th Floor, Board Room, The Dynasty Club Limited, South West Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong on Monday, 18 June, 2007 at 10:20 a.m. (or such later time as the annual general meeting of the Company convened to be held on the same day and at the same place has been concluded or adjourned) is set out on pages 40 to 41 of this circular.

Whether or not you are able to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the Meeting or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting at the EGM or any adjournment hereof should you so wish.

1 June, 2007

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
The Jiangsu Qingjiang Acquisition and
the Jiangsu Qingjiang Capital Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Reasons for the Jiangsu Qingjiang Acquisition and
the Jiangsu Qingjiang Capital Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Effect of the Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Compliance with the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Further Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Letter from Kingsway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Appendix I – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40

– i –

DEFINITIONS

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

“Articles”
the articles of association of the Company
“associate(s)” has the meaning ascribed to it under the Listing Rules
“Board” the board of Directors
“Company”
Sino Biopharmaceutical Limited ( ), a company incorporated in the Cayman Islands whose shares are listed and traded on the Main Board of the Stock Exchange
“connected person”
has the meaning ascribed to it under the Listing Rules
“CT Green Continent” (Beijing Chia Tai Green Continent Pharmaceutical Co., Ltd.), a sino-foreign equity joint venture established in the PRC on 22 October, 2002, the registered capital of which is held as to 75% by a wholly-owned subsidiary of the Company and as to 25% by Mr. Qu Yunzhi, an Independent Third Party
“Directors” the directors of the Company
“EGM”
the extraordinary general meeting of the Company to be held on 18 June, 2007 for approving the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution
“Fine Enterprise”

Fine Enterprise Investment Limited ( ), a limited liability company incorporated in Hong Kong, which is a wholly-owned subsidiary of the Company

“Group” the Company and its subsidiaries
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC

“Huaian Hongda” (Huaian Hongda Investment Consulting Centre), a company incorporated in the PRC principally engaged in investment management and consultancy services, which is an Independent Third Party

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DEFINITIONS

“Independent Board Committee”
“Independent Shareholders”
“Independent Third Party(ies)”
“JCTT”
the committee appointed by the Board, consisting of Mr. Lu Zhengfei, Mr. Li Dakui and Ms. Li Jun, being all the independent non-executive Directors, to advise the Independent Shareholders in respect of the terms of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution
shareholders of the Company excluding any connected person with a material interest in the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution and his/her associates
an independent person not connected with the Group or any of the directors, chief executives, substantial shareholders of the Company or any of its subsidiaries or any of their respective associates

(Jiangsu Chia

Tai-Tianqing Pharmaceutical Co., Ltd.), a sino-foreign joint stock limited company incorporated in the PRC on 16 April, 1997, which is held as to 60% by Chia Tai Pharmaceutical (Lianyungang) Company Limited, a limited liability company incorporated in the British Virgin Islands and a wholly-owned subsidiary of the Company, 33.5% by Jiangsu Agribusiness, 5% by (Lianyungang Bida Consultation Centre) (which is owned as to 3.5% by each of Mr. Zhang Baowen and Mr. Tse Hsin (both are executive Directors), as to 10% by Mr. Tao Huiqi (also an executive Director), and as to 83% by Independent Third Parties), 1% by (Jiangsu Xintaike Technology Development Limited), an Independent Third Party, and 0.5% by (China Pharmaceutical University Science and Technology Industrial (Group) Corporation), an Independent Third Party

“Jiangsu Agribusiness”

(Jiangsu State Agribusiness Group Corporation Limited), a state-owned enterprise established in the PRC principally engaged in cultivation, plantation and processing of agricultural products and the business of investment management

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DEFINITIONS

“Jiangsu Juxin”
“Jiangsu Qingjiang”
“Jiangsu Qingjiang Acquisition”
“Jiangsu Qingjiang Agreement”
“Jiangsu Qingjiang Capital Contribution”
“Jiangsu Qingjiang Sale Shares”

(Jiangsu Juxin Investment Management Corporation Limited), a limited liability company incorporated in the PRC, which is owned as to approximately 51% by Jiangsu Agribusiness and approximately 49% by (Jiangsu State Agribusiness Group Corporation Limited (Labour Union Committee)), in which Mr. Tao Huiqi (an executive Director) has an approximately 1.286% interest, with Independent Third Parties holding the balance

(Jiangsu Qingjiang
Pharmaceutical Co., Ltd.), a limited liability company incorporated in the PRC on 28 February, 2001, which is owned as to 39.2% by Jiangsu Agribusiness, 16.8% by Jiangsu Juxin, 24% by Huaian Hongda and 20% by CT Green Continent, respectively. Pursuant to the New JV Contract and the New Articles, the name will be changed to (Jiangsu Chia Tai Qingjiang Pharmaceutical Co., Ltd.)
the acquisition of the Jiangsu Qingjiang Sale Shares by Fine Enterprise

the share transfer agreement dated 10 May, 2007 entered into between CT Green Continent, Jiangsu Juxin and Huaian Hongda (as the vendors) and Fine Enterprise (as the purchaser) in relation to the Jiangsu Qingjiang Acquisition

the contribution of the aggregate amount of RMB10,530,000 (approximately HK$10,424,700) by Fine Enterprise to Jiangsu Qingjiang pursuant to the New JV Contract

the 20%, 16.8% and 0.48% equity interests in the registered capital of Jiangsu Qingjiang held by CT Green Continent, Jiangsu Juxin and Huaian Hongda, respectively (37.28% in aggregate)

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DEFINITIONS

”Kingsway” Kingsway Capital Limited, a deemed licensed corporation holding a licence under the Securities and Futures Commission of Hong Kong to conduct type 6 (advising on corporate finance) regulated activities as set out in Schedule 5 of the SFO, which has been appointed as independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution
“Latest Practicable Date” 31 May, 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information which is contained in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“New Articles” the new articles of association of Jiangsu Qingjiang relating to the New JV Contract dated 10 May, 2007 entered into between Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda
“New JV Contract” the new joint venture contract of Jiangsu Qingjiang dated 10 May, 2007 entered into between Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda
“New JV Contract”
“PRC”
the People’s Republic of China (for the purpose of this circular, excluding Hong Kong, the Macau Special Administrative Region and Taiwan)
“SFO”
Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Shareholders” shareholders of the Company
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“subsidiary”
has the meaning ascribed thereto under the Companies Ordinance (Chapter 32, Laws of Hong Kong)
“HK$”
Hong Kong dollars, the lawful currency of Hong Kong

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DEFINITIONS

“RMB”	Renminbi, the lawful currency of the PRC
“US$”	United States dollars, the lawful currency of the United
	States of America
“%”	per cent

For the purpose of this circular, the following exchange rates have been used for the conversion into the relevant currency for indication only: RMB1.00 to HK$0.99; and US$1.00 to HK$7.80

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LETTER FROM THE BOARD

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(Incorporated in the Cayman Islands with limited liability) Website: www.sinobiopharm.com

(Stock code: 1177)

Executive Directors: Mr. Tse Ping (Chairman) Mr. Tao Huiqi Mr. He Huiyu Ms. Cheng Cheung Ling Ms. Zhao Yanping Mr. Tse Hsin Mr. Zhang Baowen

Registered office: Codan Trust Company (Cayman) Limited Century Yard Cricket Square Hutchins Drive P.O. Box 2681 GT George Town Grand Cayman British West Indies

Independent non-executive Directors:

Mr. Lu Zhengfei Mr. Li Dakui Ms. Li Jun

Head office and principal place of business: Unit 09, 41st Floor Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong 1 June, 2007

To the Shareholders

Dear Sirs,

CONNECTED AND DISCLOSEABLE TRANSACTIONS

INTRODUCTION

The Directors announced on 10 May, 2007 that, Fine Enterprise (as the purchaser) entered into the Jiangsu Qingjiang Agreement with CT Green Continent (a 75%-owned indirect subsidiary of the Company), Jiangsu Juxin and Huaian Hongda (as the vendors) in relation to the acquisition of the Jiangsu Qingjiang Sale Shares at a total consideration of RMB9,870,000 (approximately HK$9,771,300) on 10 May, 2007.

In addition, on 10 May, 2007, in order to increase its equity interests in Jiangsu Qingjiang to 51%, Fine Enterprise entered into the New JV Contract and the New Articles with Jiangsu Agribusiness and Huaian Hongda pursuant to which Fine Enterprise has agreed to contribute RMB10,530,000 (approximately HK$10,424,700) to Jiangsu Qingjiang after the

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LETTER FROM THE BOARD

conditions of the completion of the Jiangsu Qingjiang Capital Contribution have been satisfied. Out of such capital contribution, the sum of RMB5,250,000 (approximately HK$5,197,500) will be used to increase the registered capital of Jiangsu Qingjiang and the balance of RMB5,280,000 (approximately HK$5,227,200) will be contributed to the capital reserve of Jiangsu Qingjiang. Upon completion of the capital increase, the registered capital of Jiangsu Qingjiang will be increased from the existing amount of RMB18,750,000 (approximately HK$18,562,500) to RMB24,000,000 (approximately HK$23,760,000).

CT Green Continent, Jiangsu Juxin, Jiangsu Agribusiness and Huaian Hongda are the existing equity holders of Jiangsu Qingjiang holding 20%, 16.8%, 39.2% and 24% equity interests in its registered capital, respectively. Jiangsu Agribusiness and Huaian Hongda hold 39.2% and 23.52% (reduced from 24% as a result of the Jiangsu Qingjiang Acquisition) of the registered capital of Jiangsu Qingjiang, amounting to RMB7,350,000 (approximately HK$7,276,500) and RMB4,410,000 (approximately HK$4,365,900), respectively, which will represent 30.62% and 18.38%, respectively, of the enlarged registered capital of Jiangsu Qingjiang. The enlarged registered capital of Jiangsu Qingjiang of RMB24,000,000 (approximately HK$23,760,000) will then be owned as to 51%, 30.62% and 18.38% by Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda, respectively, and hence Jiangsu Qingjiang will become a subsidiary of the Company and its financial results will be consolidated into the Company’s accounts.

Given that Jiangsu Agribusiness has a 33.5% equity interests in JCTT, which is a 60% owned subsidiary of the Company, and that Jiangsu Juxin is a 51% owned subsidiary of Jiangsu Agribusiness, Jiangsu Juxin is an associate of Jiangsu Agribusiness and is a connected person of the Company. The entering into of the Jiangsu Qingjiang Agreement and the New JV Contract and the New Articles constitute connected transactions of the Company under Rule 14A.13(1)(a) of the Listing Rules.

Since the applicable percentage ratios set out in Rule 14.07 of the Listing Rules in respect of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution (on an aggregate basis) exceed 5% but are below 25%, the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution also constitute a discloseable transaction for the Company under Rule 14.06(2) of the Listing Rules. The Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution are conditional upon, among other things, the approval of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution by the Independent Shareholders at the EGM to be convened for this purpose. The vote of the Independent Shareholders at the EGM shall be taken by poll and any Shareholder with a material interest in the transaction must abstain from voting.

The purpose of this circular is to provide you with information regarding the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, to set out the advice from Kingsway to the Independent Board Committee and the Independent Shareholders and the recommendation of the Independent Board Committee in respect of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution and to give notice to the Independent Shareholders to convene the EGM to consider and, if thought fit, to approve the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution.

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LETTER FROM THE BOARD

THE JIANGSU QINGJIANG ACQUISITION AND THE JIANGSU QINGJIANG CAPITAL CONTRIBUTION

The Jiangsu Qingjiang Agreement

Date:

10 May, 2007

Parties:

(i) Fine Enterprise (as the purchaser);
(ii) CT Green Continent;
(iii) Jiangsu Juxin; and
(iv) Huaian Hongda ((ii), (iii) and (iv) collectively as the vendors).

Pursuant to the Jiangsu Qingjiang Agreement, Fine Enterprise has agreed to purchase and each of CT Green Continent, Jiangsu Juxin and Huaian Hongda has agreed to sell the Jiangsu Qingjiang Sale Shares. The Jiangsu Qingjiang Sale Shares represent 37.28% of the equity interests of Jiangsu Qingjiang. CT Green Continent, Jiangsu Juxin, Jiangsu Agribusiness and Huaian Hongda are the existing equity holders of Jiangsu Qingjiang holding 20%, 16.8%, 39.2% and 24% equity interests in its registered capital, respectively.

Consideration

The consideration payable by Fine Enterprise to CT Green Continent, Jiangsu Juxin and Huaian Hongda for the Jiangsu Qingjiang Sale Shares is RMB4,500,000 (approximately HK$4,455,000), RMB5,220,000 (approximately HK$5,167,800) and RMB150,000 (approximately HK$148,500), respectively. Fine Enterprise will pay CT Green Continent RMB2,000,000 (approximately HK$1,980,000) within 30 business days after the conditions of the completion of the Jiangsu Qingjiang Acquisition have been satisfied. Fine Enterprise will further pay CT Green Continent RMB1,000,000 (approximately HK$990,000) within 15 business days upon completion of registration in the name of Jiangsu Qingjiang of any four out of the 10 pharmaceutical products which had previously been transferred to Jiangsu Qingjiang by CT Green Continent as its capital contribution to Jiangsu Qingjiang in 2005. For each of the 10 pharmaceutical products that has obtained the relevant approval from The State Food and Drug Administration, Fine Enterprise will pay CT Green Continent RMB150,000 (approximately HK$148,500) within 15 business days upon obtaining the relevant approval documents from The State Food and Drug Administration. The consideration payable by Fine Enterprise to Jiangsu Juxin and Huaian Hongda will be satisfied by way of cash within 30 business days after the conditions of completion of the Jiangsu Qingjiang Acquisition have been satisfied. The consideration was determined and agreed between the respective parties after arm’s length negotiations and taking the following factors into account. A valuation of Jiangsu Qingjiang as at 31 October, 2006 on cost approach basis was carried out by an independent valuer in the PRC in late 2006 as

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LETTER FROM THE BOARD

required by the relevant PRC regulations in connection with the disposal of the entire equity interests in Jiangsu Qingjiang held by Jiangsu Juxin. The consideration payable to Jiangsu Juxin and Huaian Hongda was determined by reference to the above-mentioned valuation and their respective portion of equity interest in Jiangsu Qingjiang represented by the relevant Jiangsu Qingjiang Sales Shares. The consideration payable to CT Green Continent was determined based on the audited book value of the intangible assets of Jiangsu Qingjiang as at 31 December, 2006 of RMB4,500,000 (approximately HK$4,455,000), being the technical know-how in relation to the 10 pharmaceutical products which had previously been transferred to Jiangsu Qingjiang by CT Green Continent as its capital contribution to Jiangsu Qingjiang in 2005. The original purchase cost of the 20% and 16.8% equity interests in Jiangsu Qingjiang held by CT Green Continent and Jiangsu Juxin was RMB4,500,000 (approximately HK$4,455,000) and RMB3,150,000 (approximately HK$3,118,500) respectively.

Fine Enterprise intends to finance the Jiangsu Qingjiang Acquisition by the Group’s internal resources.

Conditions of the completion of the Jiangsu Qingjiang Acquisition

Completion of the Jiangsu Qingjiang Acquisition is conditional upon the fulfillment of the following conditions:

(i) the receipt of relevant approvals or consent from the relevant PRC authorities in relation to the Jiangsu Qingjiang Agreement; and
(ii) the passing of an ordinary resolution by the Independent Shareholders at the EGM to approve the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution.

The conditions of the completion of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution have not been fulfilled as at the date hereof.

The New JV Contract and New Articles

Date:

10 May, 2007

Parties:

(i) Fine Enterprise;
(ii) Jiangsu Agribusiness; and
(iii) Huaian Hongda.

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LETTER FROM THE BOARD

Capital Contribution to Jiangsu Qingjiang

Pursuant to the New JV Contract, Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda have agreed to contribute to the total investment value of RMB40,000,000 (approximately HK$39,600,000) in proportion to their respective interest in the enlarged registered capital upon completion of the Jiangsu Qingjiang Capital Contribution and satisfy such contribution by way of injection of their share of assets in Jiangsu Qingjiang as represented by their respective equity interests in the existing registered capital of Jiangsu Qingjiang and cash of an amount being the balance of their respective required contribution over their share of assets in Jiangsu Qingjiang. The amount of cash contribution by each of Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda is RMB10,530,000 (approximately HK$10,424,700), RMB77,000 (approximately HK$76,000), RMB50,000 (approximately HK$49,500), respectively.

In order to increase its equity interests in Jiangsu Qingjiang to 51%, Fine Enterprise has agreed to contribute RMB10,530,000 (approximately HK$10,424,700) to Jiangsu Qingjiang after the conditions of the completion of the Jiangsu Qingjiang Capital Contribution have been satisfied. Out of such capital contribution, the sum of RMB5,250,000 (approximately HK$5,197,500) will be used to increase the registered capital of Jiangsu Qingjiang and the balance of RMB5,280,000 (approximately HK$5,227,200) will be contributed to the capital reserve of Jiangsu Qingjiang. Upon completion of the capital increase, the registered capital of Jiangsu Qingjiang will be increased from the existing amount of RMB18,750,000 (approximately HK$18,562,500) to RMB24,000,000 (approximately HK$23,760,000). Jiangsu Agribusiness and Huaian Hongda hold 39.2% and 23.52% (reduced from 24% as a result of the Jiangsu Qingjiang Acquisition) of the registered capital of Jiangsu Qingjiang, amounting to RMB7,350,000 (approximately HK$7,276,500) and RMB4,410,000 (approximately HK$4,365,900), respectively, which will represent 30.62% and 18.38%, respectively, of the enlarged registered capital of Jiangsu Qingjiang.

Fine Enterprise has agreed to inject an aggregate of RMB10,530,000 (approximately HK$10,424,700) into Jiangsu Qingjiang within 30 business days after the conditions of the completion of the Jiangsu Qingjiang Capital Contribution have been satisfied. Save as mentioned above, Fine Enterprise is not required to make any other capital contribution (including any other cash contribution) to Jiangsu Qingjiang. The amount of contribution was determined by commercial negotiations between the relevant parties to the New JV Contract on an arm’s length basis with reference to (i) the total investment value of RMB40,000,000 (approximately HK$39,600,000) of Jiangsu Qingjiang and the respective proportions to be contributed by each party according to their equity interest in Jiangsu Qingjiang upon completion of the Jiangsu Qingjiang Capital Contribution; (ii) the aggregate value of the Jiangsu Qingjiang Sale Shares acquired from Jiangsu Juxin, Huaian Hongda and CT Green Continent under the Jiangsu Qingjiang Acquisition; and (iii) the assessment of the business growth potential of Jiangsu Qingjiang in the production of pharmaceutical products in the PRC.

Fine Enterprise intends to finance the Jiangsu Qingjiang Capital Contribution by the Group’s internal resources.

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LETTER FROM THE BOARD

Conditions of the completion of the Jiangsu Qingjiang Capital Contribution

The completion of the Jiangsu Qingjiang Capital Contribution shall take effect upon the fulfillment of the following conditions:

(i) the Jiangsu Qingjiang Acquisition has been completed;
(ii) all necessary approvals from the relevant PRC authorities of the transactions contemplated in the New JV Contract and New Articles have been obtained, including but not limited to, the delivery of all necessary certified permissions and approvals in respect of the registration of the change in shareholding structure of Jiangsu Qingjiang; and
(iii) the passing of an ordinary resolution by the Independent Shareholders at the EGM to approve the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution.

Completion of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution

Upon completion of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, the enlarged registered capital of Jiangsu Qingjiang will be RMB24,000,000 (approximately HK$23,760,000), which will be owned as to 51%, 30.62% and 18.38% by Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda, respectively.

Upon completion of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, the board of directors of Jiangsu Qingjiang will comprise five directors, three of whom will be appointed by Fine Enterprise, one by Jiangsu Agribusiness and one by Huaian Hongda.

The total amount payable by Fine Enterprise under the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution will be RMB20,400,000 (approximately HK$20,196,000).

Information on CT Green Continent, Jiangsu Juxin and Huaian Hongda

CT Green Continent was established in 2002. It is principally engaged in the research and development of pharmaceutical products such as dripping pills, fast release, sustained release and controlled release preparations for the treatment of cardiovascular disease and respiratory diseases.

Jiangsu Juxin is a limited liability company incorporated in the PRC and is principally engaged in the business of investment management.

Huaian Hongda is a company incorporated in the PRC and is principally engaged in investment management and consultancy services.

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LETTER FROM THE BOARD

Information on Jiangsu Qingjiang

Jiangsu Qingjiang was established in the PRC on 28 February, 2001 as a limited liability company. The registered capital of Jiangsu Qingjiang is RMB18,750,000 (approximately HK$18,562,500). Jiangsu Qingjiang is presently owned as to 39.2% by Jiangsu Agribusiness, 24% by Huaian Hongda, 20% by CT Green Continent and 16.8% by Jiangsu Juxin. Jiangsu Qingjiang is principally engaged in the production and sale of pharmaceutical products, in particular, treatment for adhesive capsulipis and osteoarthritis.

The table below sets out selected financial information on Jiangsu Qingjiang based on its audited accounts (prepared in accordance with the PRC accounting standards) for the two years ended 31 December, 2005 and 31 December, 2006:

	Year ended	Year ended
	31 December, 2006	31 December, 2005
	RMB’000	RMB’000
Turnover	52,430	47,334
Profit before taxation	4,129	1,848
Taxation	643	–
Profit after taxation	3,486	1,848

The net tangible asset value of Jiangsu Qingjiang as at 31 December, 2006 was RMB14,482,000 (approximately HK$14,337,180) and the intangible asset value of Jiangsu Qingjiang as at 31 December, 2006 was RMB7,238,000 (approximately HK$7,165,620) and the total asset value of Jiangsu Qingjiang as at 31 December, 2006 was RMB21,720,000 (approximately HK$21,502,800) (based on audited accounts prepared in accordance with PRC accounting standards).

Pursuant to the New JV Contract and the New Articles, the name of Jiangsu Qingjiang will be changed to (Jiangsu Chia Tai Qingjiang Pharmaceutical Co., Ltd.). The registered capital will be increased to RMB24,000,000 (approximately HK$23,760,000), which will be owned as to 51%, 30.62% and 18.38% by Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda, respectively.

REASONS FOR THE JIANGSU QINGJIANG ACQUISITION AND THE JIANGSU QINGJIANG CAPITAL CONTRIBUTION

The business carried on by Jiangsu Qingjiang, as referred to in the section headed “Information on Jiangsu Qingjiang” in this circular, is similar and complementary to that carried on by the Group. As the Group is not presently involved in the production of

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LETTER FROM THE BOARD

pharmaceutical products with respect to the treatment for adhesive capsulipis and osteoarthritis, the Jiangsu Qingjiang Acquisition will also widen the therapeutic categories of pharmaceutical products supplied by the Group. Based on Jiangsu Qingjiang’s upward profit trend, the Board is optimistic towards its future development. The Board believes that the Jiangsu Qingjiang Capital Contribution is consistent with the Group’s business objective relating to the establishment and increase of business alliances with pharmaceutical enterprises. Further, through the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, the Company will be able to consolidate its control of Jiangsu Qingjiang, allowing Jiangsu Qingjiang to become a subsidiary of the Company and its financial results to be consolidated into the Company’s accounts.

The Directors (excluding the independent non-executive Directors comprising the Independent Board Committee, whose views are referred to and set out under the section “Letter from the Independent Board Committee” in this circular) are of the view that the terms of the Jiangsu Qingjiang Agreement, the New JV Contract, the New Articles, the Jiangsu Qingjiang Capital Contribution and the transactions contemplated therein are on normal commercial terms and such terms are fair and reasonable and in the interests of the Company and its shareholders as a whole.

EFFECT OF THE TRANSACTIONS

In view of the Company’s indirect interest in Jiangsu Qingjiang prior to the completion of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, Jiangsu Qingjiang was treated as an associate of the Company and was accounted for by using equity method in the Company’s accounts.

Upon completion of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, the total assets and total liabilities of the enlarged Group will be increased as a result of consolidation of the financial results of Jiangsu Qingjiang into the Company’s consolidated accounts but the net asset value of the equity attributable to the Shareholders will remain the same and that there will be no immediate material effect on the earnings of the Group as a result of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution.

COMPLIANCE WITH THE LISTING RULES

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LETTER FROM THE BOARD

Acquisition and the Jiangsu Qingjiang Capital Contribution is conditional upon, among other things, the approval of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution by the Independent Shareholders at the EGM to be convened for this purpose.

The vote of the Independent Shareholders at the EGM shall be taken by poll and any Shareholder with a material interest in the transaction must abstain from voting.

Mr. Tao Huiqi, an executive Director and shareholder of the Company who holds 6,000,000 shares in the Company and controls and is entitled to exercise control over the voting right in respect of 0.27% of the issued share capital of the Company, has an approximately 1.286% interest in the issued share capital of (Jiangsu State Agribusiness Group Corporation Limited (Labour Union Committee)) which holds approximately 49% in Jiangsu Juxin. Mr. Tao Huiqi who is interested in 0.27% of the issued share capital of the Company will abstain from voting on the ordinary resolution to approve the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution. Apart from Mr. Tao Huiqi, the Company is not aware of any other shareholders who have a material interest in the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution.

To the best of the Company’s knowledge, information and belief, and after making reasonable enquiry, none of Mr. Qu Yunzhi, Jiangsu Juxin (its beneficial owners and their associates) and Huaian Hongda (its beneficial owners and their associates) hold any shareholding interest in the Company.

EGM

A notice convening the EGM is set out on pages 40 to 41 of this circular. The EGM is being convened for the purpose of considering and, if thought fit, passing the ordinary resolution to approve the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution. The vote of the Independent Shareholders at the EGM shall be taken by poll and any Shareholder with a material interest in the transaction must abstain from voting.

A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the meeting in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the principal place of business of the Company in Hong Kong at Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong as soon as possible but in any event not later than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish.

Pursuant to Article 66 of the Articles, a resolution put to the vote of a meeting shall be decided on a show of hands unless a poll is required under the rules of the Stock Exchange or (before or on the declaration of the result of the show of hands or on withdrawal of any other demand for a poll) a poll is demanded:–

(a) by the chairman of such meeting; or

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LETTER FROM THE BOARD

(b) by at least three Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or
(c) by any Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or
(d) by a Shareholder or Shareholders present in person or in case of a Shareholder being a corporation by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid equal to not less than one-tenth of the total sum paid up on all shares conferring that right; or
(e) by any of the Directors who individually or collectively (including the chairman of the relevant meeting of the Company) hold proxies in respect of shares representing 5% or more of the total voting rights at a particular meeting of the Company, and if on a show of hands such meeting votes in the opposite manner to that instructed in those proxies, such Directors shall have the right to demand a poll. If a poll is required under these circumstances, the chairman of the meeting should disclose to the meeting of the Company the total number of votes represented by all proxies held by Directors indicating an opposite vote to the votes cast at the meeting on a show of hands.

As indicated above, the chairman of the EGM will demand that a poll be taken in respect of the ordinary resolution to be proposed at the EGM for the approval of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution.

RECOMMENDATION

The Independent Board Committee has been established to consider whether the terms of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution are fair and reasonable so far as the Independent Shareholders are concerned and Kingsway has been appointed to advise the Independent Board Committee and the Independent Shareholders in that connection.

The text of the letter of Kingsway containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 19 to 30 of this circular and the text of the letter from the Independent Board Committee to the Independent Shareholders is set out on pages 17 to 18.

The Independent Board Committee, having taken into account the opinion of Kingsway, considers the terms of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution to be fair and reasonable and is in the interest of the Company and the Shareholders as a whole and accordingly, recommends the Independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the EGM.

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LETTER FROM THE BOARD

FURTHER INFORMATION

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

Yours faithfully, For and on behalf of the Board SINO BIOPHARMACEUTICAL LIMITED Tse Ping Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Incorporated in the Cayman Islands with limited liability) Website: www.sinobiopharm.com (Stock code: 1177)

1 June, 2007

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED AND DISCLOSEABLE TRANSACTIONS

We refer to the circular dated 1 June, 2007 issued to the Shareholders (the “Circular”) of which this letter forms part. Capitalized terms used herein shall have the same meanings as defined in the Circular unless otherwise requires.

As independent non-executive Directors who are independent of the parties (a) to the Jiangsu Qingjiang Acquisition and (b) the Jiangsu Qingjiang Capital Contribution ((a) and (b) collectively, the “Transaction”) or any transaction contemplated under the Jiangsu Qingjiang Agreement, the New JV Contract and the New Articles, we have been appointed by the Board to advise you as to whether, in our opinion, the terms and conditions of the Transaction are fair and reasonable so far as the Shareholders as a whole are concerned.

Kingsway has been appointed by the Company as the independent financial adviser to advise us regarding the fairness and reasonableness of the terms and conditions of the Transaction. Details of its advice, together with the principal factors and reasons taken into consideration in arriving at such opinion, are set out on pages 19 to 30 of the Circular. Your attention is also drawn to the letter from the Board set out on pages 6 to 16 of the Circular and the additional information set out in the appendices to the Circular.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the opinion of and the principal factors and reasons considered by Kingsway as stated in its letter of advice, we consider that the terms and conditions of the Transaction are fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole. We therefore recommend the Independent Shareholders to vote in favour of the resolution in relation to the Transaction to be proposed at the EGM.

Yours faithfully, For and on behalf of the Independent Board Committee Lu Zhengfei Li Dakui Li Jun Independent Non-executive Director Independent Non-executive Director Independent Non-executive Director

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LETTER FROM KINGSWAY

The following is the full text of a letter received from Kingsway setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution for inclusion in this Circular.

==> picture [96 x 38] intentionally omitted <==

5/F., Hutchison House, 10 Harcourt Road, Central, Hong Kong. Tel. No: (852) 2877-1830 Fax. No.: (852) 2283-7322

1 June, 2007

To the Independent Board Committee and the Independent Shareholders of Sino Biopharmaceutical Limited

Dear Sirs,

CONNECTED AND DISCLOSEABLE TRANSACTION

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution. Details of the Jiangsu Qingjiang Agreement, the New JV Contract and the New Articles are set out in a circular (the “Circular”) of Sino Biopharmaceutical Limited to the Shareholders dated 1 June, 2007, of which this letter forms part. Unless otherwise defined, expressions used in this letter have the same meanings as defined in the Circular.

The Company announced that Fine Enterprise (as purchaser), its wholly-owned subsidiary, entered into the Jiangsu Qingjiang Agreement on 10 May, 2007 with CT Green Continent, Jiangsu Juxin and Huaian Hongda (as vendors) to acquire the Jiangsu Qingjiang Sale Shares at a total consideration of RMB9,870,000 (approximately HK$9,771,300).

On the same day, Fine Enterprise also entered into the New JV Contract with Jiangsu Agribusiness and Huaian Hongda pursuant to which Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda have conditionally agreed to contribute RMB20,400,000 (approximately HK$20,196,000), RMB12,248,000 (approximately HK$12,126,000) and RMB7,352,000 (approximately HK$7,278,000) respectively to Jiangsu Qingjiang and the aforesaid capital to be contributed by each joint venture partner comprise (i) their respective share of assets in Jiangsu Qingjiang; and (ii) cash of an amount being the balance of their respective required contribution over their share of assets in Jiangsu Qingjiang contributed as aforesaid. Upon

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LETTER FROM KINGSWAY

completion of the Jiangsu Qingjiang Acquisition and Jiangsu Qingjiang Capital Contribution, Jiangsu Qingjiang will be owned as to 51% by Fine Enterprise and will therefore become an indirect subsidiary of the Company.

Jiangsu Agribusiness has a 33.5% equity interests in JCTT, which is a 60% owned subsidiary of the Company. Jiangsu Juxin is a 51% owned subsidiary of Jiangsu Agribusiness and therefore is an associate of Jiangsu Agribusiness. Accordingly, Jiangsu Agribusiness and Jiangsu Juxin are connected persons of the Company. The applicable percentage ratios set out in Rule 14.07 of the Listing Rules in respect of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution (on an aggregate basis) exceed 5% but are below 25%. Hence, the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution constitute connected and discloseable transactions of the Company under Rules 14A.13(1)(a) and 14.06(2) of the Listing Rules respectively.

Completion of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution is conditional upon, among other things, the approval of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution by the Independent Shareholders voting by poll at the EGM. Any Shareholder with a material interest in the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution must abstain from voting. Hence, Mr. Tao Huiqi, an executive Director who holds 6,000,000 shares representing 0.27% of the issued share capital of the Company, has an approximately 1.286% interest in the issued share capital of (Jiangsu State Agribusiness Group Corporation Limited (Labour Union Committee)), which holds approximately 49% equity interest in Jiangsu Juxin, will abstain from voting on the resolutions to approve the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution.

The Independent Board Committee, comprising Mr. Lu Zhengfei, Mr. Li Dakui and Ms. Li Jun, all being independent non-executive Directors and none of them has any interest in the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, has been established to advise the Independent Shareholders as to whether the terms of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution are fair and reasonable and are in the interests of the Shareholders and the Company as a whole. We have been appointed to advise the Independent Board Committee and the Independent Shareholders in this respect.

BASIS OF OUR OPINION

In formulating our view and recommendation to the Independent Board Committee and the Independent Shareholders in relation to the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, we have relied on the information and representations provided to us by the Directors, which the Directors consider to be complete and relevant.

We have also relied on the information and representations contained in the Circular and have assumed that all statements of belief, opinion and intention made by the Directors in the Circular were true, accurate and complete at the time they were made and continue to be true and accurate on the date of the Circular. We have assumed that all statements of

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LETTER FROM KINGSWAY

belief, opinion and intention made by the Directors in the Circular were reasonably made after due enquiry. We consider that we have reviewed sufficient information to reach an informed view and have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors. We have been advised by the Directors that no material facts have been withheld or omitted from the information provided and referred to in the Circular.

We have not, however, carried out any independent verification of the information provided by the management of the Company and the Directors, nor have we conducted any independent investigation into the business and affairs of the Group (including CT Green Continent), Jiangsu Juxin, Huaian Hongda, Jiangsu Agribusiness and Jiangsu Qingjiang or any of their respective subsidiaries or associates.

PRINCIPAL REASONS AND FACTORS CONSIDERED

In arriving at our recommendation to the Independent Board Committee and the Independent Shareholders in respect of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, we have considered the following principal reasons and factors:

(i) Background to and reasons for the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution

The pharmaceutical market in the PRC has been growing in the previous year. According to the statistics released by the National Development and Reform Commission of the PRC (the “NDRC”), the cumulative production value of the PRC pharmaceutical industry amounted to RMB553.7 billion in 2006, representing an increase of 18.4% over that in 2005. Sales income and net profit in the industry amounted to RMB526.8 billion and RMB41.3 billion in 2006, representing an increase of 19.4% and 11.1% respectively over that in 2005. The Directors advised that factors such as continuous development of the Chinese economy, increasing level of medicine consumption per capita, the growing population and the aging trend are driving the continuous expansion in the PRC pharmaceutical market. As forecasted by the NDRC, the growth of both the production value and sales income will maintain at about 18% in 2007. However, pressures from price cut and increasing production cost of pharmaceutical products in 2006 is expected to continue in 2007.

In light of the opportunities and challenges ahead, it is the Group’s business strategy, as set out in the 2006 Annual Report and the quarterly results announcement for the first quarter in 2007 of the Company, to establish new income streams and gain prominence in the pharmaceutical industry through establishment and increase of business alliances with pharmaceutical enterprises. Hence, in addition to the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, the Group also entered into an agreement on 10 May, 2007 in respect of the acquisition of interest in (Nanjing Chia Tai Tianqing Pharmaceutical Co., Ltd.) which is principally engaged in the manufacturing of modernized Chinese and chemical medicines for the treatment of cardio-cerebral diseases and tumors in Nanjing City, the PRC.

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LETTER FROM KINGSWAY

Jiangsu Qingjiang is a company incorporated in the PRC with limited liability, which is owned as to 39.2% by Jiangsu Agribusiness, 24% by Huaian Hongda, 20% by CT Green Continent and 16.8% by Jiangsu Juxin, respectively. Jiangsu Qingjiang is principally engaged in the production and sale of pharmaceutical products for the treatment for adhesive capsulipis and osteoarthritis. According to the audited financial statements of Jiangsu Qingjiang for the year ended 31 December, 2006, the turnover and the net profit after tax of Jiangsu Qingjiang was approximately RMB52.4 million (approximately HK$51.9 million) and approximately RMB3.5 million (approximately HK$3.4 million) in 2006, representing an increase of about 10.8% and 88.9% respectively over that in 2005. The Directors advised that such increase was mainly due to the effective sales policy and the adoption of an effective control of sales expense which brings about a decrease in sales expenses.

The Group is principally engaged in the research, development, production and sale of a series of modernized Chinese medicines and chemical medicines for the treatment of hepatitis and cardio-cerebral diseases, and the development of medicines for treating oncology, analgesia, respiratory system, diabetes and digestive system diseases. As the Group is not presently involved in the production of pharmaceutical products for the treatment for adhesive capsulipis and osteoarthritis, the Directors consider that the Jiangsu Qingjiang Acquisition will enable the Group to widen the therapeutic categories of pharmaceutical products of the Group and the business of Jiangsu Qingjiang is complementary to that of the Group. Further, the Directors consider that the acquisition of a majority interest in Jiangsu Qingjiang (together with the Jiangsu Qingjiang Capital Contribution) allows the Group to consolidate the control of the enterprise under the Company and enables the Company to consolidate the financial results of Jiangsu Qingjiang to that of the Company. The Directors advise that they are optimistic towards the future development of Jiangsu Qingjiang based on its upward profit trend from 2005 to 2006 as described above.

Having considered (i) the opportunities and challenges in the PRC pharmaceutical industry; (ii) the business of Jiangsu Qingjiang is considered complementary to that of the Group; (iii) the upward profit trend of Jiangsu Qingjiang; (iv) the Jiangsu Qingjiang Acquisition enables the Group to widen the therapeutic categories of pharmaceutical products; and (v) the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution is consistent with the Group’s business objective and strategy of establishing and increasing its business alliances with pharmaceutical enterprises, we are of the view that the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution are in line with the business strategy of the Group and is in the interest of the Company and its Shareholders as a whole.

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LETTER FROM KINGSWAY

(ii) Principal terms of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution

The Jiangsu Qingjiang Acquisition

The Jiangsu Qingjiang Agreement

On 10 May, 2007, Fine Enterprise entered into the Jiangsu Qingjiang Agreement with CT Green Continent, Jiangsu Juxin and Huaian Hongda to acquire the Jiangsu Qingjiang Sale Shares. The Jiangsu Qingjiang Sale Shares represent 37.28% in aggregate of the existing interests in the registered capital of Jiangsu Qingjiang, of which 20%, 16.8% and 0.48% were acquired from CT Green Continent, Jiangsu Juxin and Huaian Hongda respectively. Upon completion, Jiangsu Qingjiang will be owned as to 39.2% by Jiangsu Agribusiness, 37.28% by Fine Enterprise and 23.52% by Huaian Hongda, respectively.

The total consideration for the Jiangsu Qingjiang Sale Shares is RMB9,870,000 (approximately HK$9,771,300), of which RMB4,500,000 (approximately HK$4,455,000), RMB5,220,000 (approximately HK$5,167,800) and RMB150,000 (approximately HK$148,500) will be paid by Fine Enterprise in cash to CT Green Continent, Jiangsu Juxin and Huaian Hongda, respectively.

Basis of consideration

The consideration was determined and agreed between the parties to the Jiangsu Qingjiang Agreement after arm’s length negotiations.

As advised by the Directors, for the purpose of transferring state-owned assets held in Jiangsu Qingjiang by Jiangsu Juxin, a valuation of Jiangsu Qingjiang by an independent valuer in the PRC is required under the relevant PRC regulations. According to the aforesaid independent valuation of Jiangsu Qingjiang as at 31 October, 2006 (the “Valuation”) which was prepared on cost approach basis, the value of Jiangsu Qingjiang was approximately RMB31,047,200 (approximately HK$30,737,000).

The consideration payable to each of Jiangsu Juxin and Huaian Hongda was determined by reference to the Valuation and their respective portion of equity interest in Jiangsu Qingjiang as represented by the relevant Jiangsu Qingjiang Sales Shares. The consideration payable to CT Green Continent was determined based on the audited book value of the intangible assets of Jiangsu Qingjiang as at 31 December, 2006 of RMB4,500,000, being the technical know-how of 10 pharmaceutical products (the “10 Pharmaceutical Products”) which were transferred to Jiangsu Qingjiang by CT Green Continent as its capital contribution to Jiangsu Qingjiang in 2005.

We noted the basis for determination of the consideration payable to CT Green Continent is different from the basis of determination of the consideration payable to Jiangsu Juxin and Huaian Hongda. We have discussed with the management of the Group on the basis of such Jiangsu Qingjiang Acquisition and are given to understand

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LETTER FROM KINGSWAY

that the aforesaid difference in basis was due to the fact that CT Green Continent transferred to Jiangsu Qingjiang the technical know-how of the 10 Pharmaceutical Products as its capital contribution to the registered capital of Jiangsu Qingjiang in 2005 whereas Jiangsu Juxin and Huaian Hongda contributed their then share of registered capital of Jiangsu Qingjiang in cash. As at the date of the Jiangsu Qingjiang Agreement, the 10 Pharmaceutical Products have yet been granted the relevant approvals for production from the PRC authorities.

Payment terms

The consideration payable by Fine Enterprise to Jiangsu Juxin and Huaian Hongda will be satisfied by way of cash within 30 business days after the conditions of completion of the Jiangsu Qingjiang Acquisition have been satisfied.

As set out in the Letter from the Board of this Circular, Fine Enterprise will pay CT Green Continent RMB2,000,000 (approximately HK$1,980,000) within 30 business days after the conditions of the completion of the Jiangsu Qingjiang Acquisition have been satisfied. Fine Enterprise will further pay CT Green Continent RMB1,000,000 (approximately HK$990,000) within 15 business days upon completion of registration of any 4 of the 10 Pharmaceutical Products in the name of Jiangsu Qingjiang. Upon obtaining the relevant approval from The State Food and Drug Administration for the 10 Pharmaceutical Products, Fine Enterprise will pay CT Green Continent RMB150,000 (approximately HK$148,500) within 15 business days from obtaining such approval documents, which totaled to the remaining consideration of RMB1,500,000 when the approval of all the 10 Pharmaceutical Products were obtained from The State Food and Drug Administration.

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LETTER FROM KINGSWAY

(a) Price-to-earning (P/E) ratio analysis

In order to assess the fairness and reasonableness of the consideration for the Jiangsu Qingjiang Acquisition, we have compared the P/E ratio in relation to the acquisition of the portion of Jiangsu Qingjiang Sale Shares from Jiangsu Juxin, Huaian Hongda and CT Green Continent to (i) the P/E ratios of those companies which are listed on the main board of the Stock Exchange and are principally engaged in the production of pharmaceutical products (the “Comparable Companies”); and (ii) the P/E ratio of the Company. To our best knowledge, we have identified 8 Comparable Companies, including the Company.

		Market
		capitalisation	Latest
		as at the	published
		Latest	full year	Latest		Price to
Stock		Practicable	net profit	published	Historical	NAV
code	Company	Date (“A”)	(“B”)	NAV (“C”)	P/E (=A/B)	(=A/C)
		HK$	HK$	HK$
		million	million	million	times	times
858	Extrawell Pharmaceutical Holdings Limited	3,732.7	4.7	500.8	794.2	7.5
1093	China Pharmaceutical Group Limited	4,614.4	15.7	2,650.8	293.9	1.7
719	Shangdong Xinhua Pharmaceutical Company Limited	1,477.1	22.6	1,372.5	65.4	1.1
1889	Wuyi International Pharmaceutical Company Limited	2,684.3	118.6	192.4	22.6	14.0
2005	Lijun International Pharmaceutical (Holding) Co., Ltd.	1,435.1	83.8	497.3	17.1	2.9
899	Asia Resources Holdings Limited	1,030.4	(182.7)	444.8	n.a.	2.3
1180	Paradise Entertainment Limited	1,017.8	(47.7)	214.0	n.a.	4.8
	(Formerly known as Lifetec Group Limited)
1177	Sino Biopharmaceutical Limited	3,214.8	141.2	2,031.5	22.8	1.6
				High	794.2	14.0
				Low	17.1	1.1
				Average	202.7	4.5
		RMB	RMB	RMB
		million	million	million	times	times
		(Note 1)	(Note 2)	(Note 3)
	The Jiangsu Qingjiang Acquisition, comprising
	consideration payable to
	(a) Jiangsu Juxin	5.220	0.586	3.649	8.9	1.4
	(b) Huaian Hongda	0.150	0.0167	0.104	8.9	1.4
	(c) CT Green Continent	4.500	0.697	4.344	6.5	1.0
	Total	9.80	1.3	8.1	7.5	1.2

Source: Bloomberg

Notes:

The figures represent the consideration for the portion of Jiangsu Qingjiang Sale Shares acquired from each of Jiangsu Juxin, Huaian Hongda and CT Green Continent.
The figures represent the share of the audited net profit after tax of Jiangsu Qingjiang for the year ended 31 December, 2006 by the respective equity interest in Jiangsu Qingjiang of Jiangsu Juxin, Huaian Hongda and CT Green Continent as represented by the relevant Jiangsu Qingjiang Sale Shares.
The figures represent the share of the audited net asset value of Jiangsu Qingjiang as at 31 December, 2006 by the respective equity interest in Jiangsu Qingjiang of Jiangsu Juxin, Huaian Hongda and CT Green Continent as represented by the relevant Jiangsu Qingjiang Sale Shares.

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LETTER FROM KINGSWAY

As illustrated in the table above, the consideration for the acquisition of the portion of Jiangsu Qingjiang Sale Shares from Jiangsu Juxin, Huaian Honda and CT Green Continent and their respective share (i.e. 16.8%, 0.48% and 20%) of the audited net profit after tax of Jiangsu Qingjiang for the year ended 31 December, 2006 represents a P/E ratio of 8.9 times, 8.9 times and 6.5 times respectively. Further, the consideration for the acquisition of Jiangsu Qingjiang Sale Shares as a whole and the 37.28% share of the audited net profit after tax of Jiangsu Qingjiang for the year ended 31 December, 2006 represents a P/E ratio of 7.5 times. All the P/E ratios as calculated above are lower than the P/E ratio of all the Comparable Companies and the P/E ratio of the Company of 22.8 times.

(b) Price-to-net asset value (P/NAV) analysis

We have also compared the P/NAV ratio as represented by the consideration for the Jiangsu Qingjiang Acquisition to that of (i) the Comparable Companies; and (ii) the Company. As illustrated in the table above, the P/NAV ratios for the acquisition of the relevant Jiangsu Qingjiang Sale Shares from Jiangsu Juxin, Huaian Honda and CT Green Continent respectively (i.e. by dividing the relevant consideration by 16.8%, 0.48% and 20% share respectively of the audited net asset value of Jiangsu Qingjiang as at 31 December, 2006) are 1.4 times, 1.4 times and 1.0 time. Further, the P/NAV ratio for the acquisition of the Jiangsu Qingjiang Sale Shares as a whole (i.e. by dividing the consideration by 37.28% of the audited net asset value of Jiangsu Qingjiang as at 31 December, 2006) is 1.2 times. Each of the P/NAV ratio as calculated above falls within the range of, or is lower than, the P/NAV ratio of the Comparable Companies and is lower than the P/NAV ratio of the Company of 1.6 times.

Taking into account (i) the consideration of the Jiangsu Qingjiang Acquisition was agreed on an arm’s length basis between the relevant parties; (ii) the consideration for the acquisition of the relevant Jiangsu Qingjiang Sale Shares from Jiangsu Juxin (a connected person of the Company) and Huaian Hongda (an Independent Third Party) were determined with reference to the same basis, ie, the Valuation in proportion to their respective equity interest in Jiangsu Qingjiang as represented by the relevant Jiangsu Qingjiang Sale Shares; (iii) the different basis of consideration payable to Jiangsu Juxin, Huaian Hongda and CT Green Continent due to the reason as described above is considered acceptable; and (iv) the P/E analysis and P/NAV analysis as shown above, we are of the view that the basis of the consideration for Jiangsu Qingjiang Acquisition is fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders.

The Jiangsu Qingjiang Capital Contribution

The New JV Contract and the New Article

Further to the Jiangsu Qingjiang Acquisition, Fine Enterprise intends to increase its equity interests in Jiangsu Qingjiang to 51% by way of Jiangsu Qingjiang Capital Contribution. On 10 May, 2007, Fine Enterprise entered into the New JV Contract with Jiangsu Agribusiness and Huaian Hongda. Upon completion of the Jiangsu Qingjiang Capital Contribution, Jiangsu Qingjiang will be owned as to 51%, 30.62% and 18.38% by Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda respectively.

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LETTER FROM KINGSWAY

Pursuant to the New JV Contract and the New Article, (i) the total investment value of Jiangsu Qingjiang will be RMB40,000,000 (approximately HK$39,600,000); (ii) the registered capital of Jiangsu Qingjiang will be increased from RMB18,750,000 (approximately HK$18,562,500) to RMB24,000,000 (approximately HK$23,760,000); (iii) Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda shall contribute to the total investment value in proportion to their respective interest in the enlarged registered capital as a result of the Jiangsu Qingjiang Capital Contribution; and (iv) Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda shall satisfy such contribution by way of their share of assets in Jiangsu Qingjiang as represented by their respective equity interests in the existing registered capital of Jiangsu Qingjiang, valued at RMB9,870,000 (approximately HK$9,771,300), RMB12,171,000 (approximately HK$12,049,290) and RMB7,302,000 (approximately 7,229,000) respectively, and cash of an amount being the balance of their respective required contribution over their share of assets in Jiangsu Qingjiang contributed as aforesaid (i.e. RMB10,530,000 (approximately HK$10,424,700), RMB77,000 (approximately HK$76,000) and RMB50,000 (approximately HK$49,500) respectively). RMB5,250,000 (approximately HK$5,197,500) of the total cash contribution to Jiangsu Qingjiang by Fine Enterprise will be injected as new registered capital and the balance of RMB5,280,000 (approximately HK$5,227,200) will be contributed as capital reserve. The cash contribution to Jiangsu Qingjiang by Jiangsu Agribusiness and Huaian Hongda will be contributed as capital reserve.

Basis of Jiangsu Qingjiang Capital Contribution & payment terms

The value of the relevant assets of Jiangsu Qingjiang to be applied by Jiangsu Agribusiness and Huaian Hongda as their capital contribution will be determined based on the Valuation. The value of the relevant assets of Jiangsu Qingjiang to be applied by Fine Enterprise as its capital contribution will be valued base on its investment cost of the Jiangsu Qingjiang Sale Shares under the Jiangsu Qingjiang Acquisition. As set out in the paragraph headed “The Jiangsu Qingjiang Agreement” above, the total consideration for the Jiangsu Qingjiang Sale Shares is RMB9,870,000 (approximately HK$9,771,300), of which RMB4,500,000 (approximately HK$4,455,000) are based on the audited book value of the intangible asset, being the technical know-how of the 10 Pharmaceutical Products, as at 31 December, 2006 and the balance of RMB5,370,000 (approximately HK$5,316,000) are determined by reference to the Valuation and in proportion to the respective equity interests in Jiangsu Qingjiang as represented by the relevant Jiangsu Qingjiang Sale Shares acquired from Jiangsu Juxin and Huaian Hongda.

We note that if the relevant assets of Jiangsu Qingjiang to be applied by Fine Enterprise as its capital contribution were to be valued base solely on the Valuation, its value would be RMB11,574,000 (approximately HK$11,458,000), which is different from RMB9,870,000 (approximately HK$9,771,300). We have discussed with the management of the Group on the basis of such Jiangsu Qingjiang Capital Contribution and are given to understand that the aforesaid difference in the value of Jiangsu Qingjiang Capital Contribution was due to the fact that part of the assets of Jiangsu Qingjiang to be contributed by Fine Enterprise, being the assets as represented by the relevant Jiangsu Qingjiang Sale Shares from CT Green Continent, a 75% owned

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LETTER FROM KINGSWAY

subsidiary of the Group, is determined based on the audited book value of the intangible assets. Such intangible assets are the technical know-how of the 10 Pharmaceutical Products transferred to Jiangsu Qingjiang by CT Green Continent as its capital contribution to Jiangsu Qingjiang in late 2005, whereas the other joint venture partners satisfied their capital contribution by cash. The audited book value of the technical know-how of these 10 Pharmaceutical Products has been valued based on the assumption that the approval for all the 10 Pharmaceutical Products from the relevant PRC authorities having been obtained.

As at the date of the New JV Contract, all the 10 Pharmaceutical Products have yet been granted the relevant approval documents from the PRC authorities and hence, Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda agreed that such part of assets to be contributed by Fine Enterprise as represented by CT Green Continent’s original equity interest in Jiangsu Qingjiang is to be valued at their audited book value as at 31 December, 2006. Given the reason above and taking into consideration the inherent uncertainty in obtaining the relevant approval from the relevant PRC authorities for the 10 Pharmaceutical Products, we consider that the different basis of Jiangsu Qingjiang Capital Contribution adopted is acceptable to the Group.

Taking into account (i) the basis of capital contribution to Jiangsu Qingjiang by each party was determined by commercial negotiations between the joint venture partners on an arm’s length basis; (ii) the joint venture partners are to contribute to the total investment value in proportion to their respective equity interest in Jiangsu Qingjiang upon completion of the Jiangsu Qingjiang Capital Contribution; and (iii) the different basis of capital contribution by Fine Enterprise. Jiangsu Agribusiness and Huaian Hongda due to the reason as described above is considered acceptable, we are of the view that the basis and terms of Jiangsu Qingjiang Capital Contribution by Fine Enterprise are fair and reasonable.

(iii) Financial effects on the Company

Prior to the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, Jiangsu Qingjiang is an associate of the Company and was accounted for by using equity method in the financial results of the Group. Upon completion of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, Jiangsu Qingjiang will be owned as to 51% by Fine Enterprise and will become an indirect subsidiary of the Group. As such, the financial results of Jiangsu Qingjiang will be consolidated to that of the Group.

Effect on net asset value

As at 31 December, 2006, Jiangsu Qingjiang had net asset value of approximately RMB21,720,000 (approximately HK$21,503,000). Upon completion of the capital contribution, the net asset value of Jiangsu Qingjiang would be increased by RMB10,657,000 (approximately HK$10,550,000), being the cash portion of the capital to be contributed by all the joint venture partners under the Jiangsu Qingjiang Capital Contribution. As the financial results of Jiangsu Qingjiang will be consolidated to that

– 28 –

LETTER FROM KINGSWAY

of the Group upon completion of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, the Directors estimate that the net asset value of the Group, being equity attributable to the Shareholders, will remain unchanged.

Effect on earnings

The Directors estimate that there will be no immediate material effect on the earnings of the Group as a result of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution. In future, the earnings of Jiangsu Qingjiang will contribute as a new income stream to the earnings of the Group.

Effect on working capital and gearing position

The Directors expect that the working capital of the Group will be decreased by the amount of consideration to be paid under the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution, which will be partly offset by the cash and cash equivalent balance of Jiangsu Qingjiang upon completion as the financial results of Jiangsu Qingjiang will then be consolidated into the Group’s accounts. As at 31 December, 2006, Jiangsu Qingjiang has cash and cash equivalents of approximately RMB2.3 million (approximately HK$2.2 million).

The Directors also expect that the gearing ratio of the Group, as calculated by dividing the total liabilities by the total asset, to increase slightly as a result of the consolidation of total assets and total liabilities of Jiangsu Qingjiang. However, taken into account (i) the expected benefit of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution as discussed above, in particular, the product scope of Jiangsu Qingjiang will widen the therapeutic categories of pharmaceutical products of the Group and thus is considered complementary to that of the Group; and (ii) the Group will gain majority control over Jiangsu Qingjiang which are in line with the Group’s business strategy, the Directors consider that the decrease in working capital and the increase in gearing ratio is acceptable.

Taken into account of the aforesaid, we consider that the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution would not have material adverse impact on the net asset value and the earnings of the Group. We noted that the working capital of the Group is expected to be decreased slightly and the gearing ratio of the Group is expected to be increased slightly as a result of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution. But having considered (i) the product scope of Jiangsu Qingjiang will widen the therapeutic categories of pharmaceutical products of the Group; and (ii) obtaining majority control in Jiangsu Qingjiang is in line with the Group’s business strategy, we are of the view that the impact of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution on the working capital position and the gearing of the Group to be acceptable.

– 29 –

LETTER FROM KINGSWAY

RECOMMENDATION

Having considered the above principal factors and reasons, we consider that the Jiangsu Acquisition and the Jiangsu Qingjiang Capital Contribution are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders, and advise the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the resolutions to be proposed at the EGM to approve the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution.

Yours faithfully, For and on behalf of Kingsway Capital Limited Chu Tat Hoi Director

– 30 –

GENERAL INFORMATION

APPENDIX I

A. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

B. DISCLOSURE OF INTERESTS

(i) Save as disclosed below, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interest or short position in the shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which would have to be notified to the Company and the Stock Exchange pursuant to the provisions under Divisions 7 and 8 of Part XV of the SFO (including the interests and short positions which he would be deemed or taken to have under Sections 344 and 345 of the SFO) or the Model Code for Securities Transactions by Directors of Listed Companies, or which would have to be, pursuant to Section 352 of the SFO, entered in the register referred to therein:

Long positions in ordinary shares of the Company

			Number of shares	held, capacity and	held, capacity and	nature of interest	nature of interest	nature of interest
									Percentage
									of the
		Capacity/	Directly	Through					Company’s
		Nature of	beneficially	controlled		Through			issued share
Name of director	Notes	Interest	owned	corporations			spouse	Total	capital (%)
Mr. Tse Ping	(1)	Beneficial	45,000,000	1,035,488,908			–	1,080,488,908	47.73
		owner
Ms. Cheng Cheung	(2)	Deemed	–	–	1,080,488,908			1,080,488,908	47.73
Ling		interest
Mr. Tao Huiqi		Beneficial	6,000,000	–			–	6,000,000	0.27
		owner
Ms. Zhao Yanping		Beneficial	636,000	–			–	636,000	0.03
		owner
Mr. Tse Hsin		Beneficial	25,800,000	–			–	25,800,000	1.14
		owner
Mr. Zhang Baowen		Beneficial	1,200,000	–			–	1,200,000	0.05
		owner

Notes:

(1) Mr. Tse Ping held 1,035,488,908 shares through Remarkable Industries Limited and Validated Profits Limited. The entire issued share capital in each of these companies is owned by Mr. Tse Ping.
(2) Ms. Cheng Cheung Ling is the spouse of Mr. Tse Ping and is therefore deemed to be interested in the same shares in which Mr. Tse Ping has an interest.

– 31 –

GENERAL INFORMATION

APPENDIX I

Long position in shares of an associated corporation of the Company

					Percentage
				Number of	of
Name of Director Name of associated			corporation Capacity	Shares	shareholding
					(%)
Mr. Tse Hsin			Beneficial	173,250	0.18
Jiangsu Chia	Tai-Tianqing owner
Pharmaceutical		Co., Ltd.
(“JCTT”)(1)			Beneficial	39,592	0.78
Nanjing Chia Tai Tianqing owner
Pharmaceutical		Co., Ltd.
(“NJCTT”)(2)
Mr. Zhang Baowen JCTT			Beneficial	173,250	0.18
			owner
NJCTT			Beneficial	39,592	0.78
owner Lianyungang Chia Tai Tianyi Beneficial owner				18,624	1.92
Medicine Co., Ltd.
(“CT Tianyi”)(3)

Notes:

(1) JCTT is owned as to 60% by a wholly-owned subsidiary of the Company.
(2) NJCTT is owned as to 51% by JCTT.
(3) CT Tianyi is a wholly-owned subsidiary of JCTT.

– 32 –

GENERAL INFORMATION

APPENDIX I

(ii) Save as disclosed below, the Directors or chief executive of the Company are not aware of any other person who (not being a Director or the chief executive of the Company), as at the Latest Practicable Date, had an interest or short position in the Shares or the 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 interested, directly or indirectly, 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:

Long position in shares and/or underlying shares

			Number of	Approximate
			shares	percentage
			and/or	of issued
			underlying	share capital
		Capacity/Nature of	shares of the	of the
Name	Notes	interest	Company	Company
				(%)
Validated Profits Limited	(1)	Beneficial owner	795,488,908	35.14
Remarkable Industries Limited	(1)	Beneficial owner	240,000,000	10.60
The Goldman Sachs Group, Inc.	(2)	Interest of controlled	215,828,000	9.53
		corporations
Conspicuous Group Limited		Beneficial owner	142,431,091	6.29
Chia Tai Development Investment	(3)	Interest of a controlled	142,431,091	6.29
Company Limited		corporation
Mr. Dhanin Chearavanont	(4)	Interest of a controlled	142,431,091	6.29
		corporation

Notes:

(1) Each of Validated Profits Limited and Remarkable Industries Limited is an investment holding company wholly-owned by Mr. Tse Ping who is also the sole director of each of these companies and a Director.
(2) The 215,828,000 shares were held as to 215,280,000 shares by Goldman Sachs (Asia) Finance (“Goldman Finance”) and 548,000 shares by Goldman Sachs International (“Goldman International”). Based on the disclosure of interests filing received by the Company, Goldman Finance is a controlled corporation of Goldman Sachs (Asia) Finance Holdings L.L.C., which in turn is a controlled corporation of Goldman Sachs & Co., which in turn is a controlled corporation of The Goldman Sachs Group, Inc., all of which are deemed under SFO to be interested in the same 215,280,000 shares. Goldman International is a controlled corporation of Goldman Sachs Holdings (U.K.), which in turn is a controlled corporation of Goldman Sachs Group Holdings (U.K.), which in turn is a controlled corporation of Goldman Sachs U.K. L.L.C., which in turn is a controlled corporation of The Goldman Sachs Group Inc., all of which are deemed under SFO to be interested in the same 548,000 shares.
(3) Chia Tai Development Investment Company Limited (“CT Development”) has declared an interest in the same 142,431,091 shares in which Conspicuous Group Limited has declared an interest, by virtue of its shareholding in Conspicuous Group Limited.
(4) Mr. Dhanin Chearavanont has declared an interest in the same 142,431,091 shares in which CT Development has declared an interest for the purpose of the SFO as mentioned in Note (3) above, by virtue of his shareholding in CT Development.

– 33 –

GENERAL INFORMATION

APPENDIX I

C. COMPETING INTEREST

The following Director is considered to have interests in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group, as defined in the Listing Rules.

Mr. Tse Ping owns controlling interests in (Xian C.P. Pharmaceutical Co., Ltd.) (“CT Xian”), (Ankang Chia Tai Pharmaceutical Co., Ltd.) (“CT Ankang”), (Hainan Tigerlily Pharmaceutical Co., Ltd.) (“HTPC”), ABH Nature’s Products Inc. (ABH ) (“ABH”) and (Jiangsu Chia Tai Fenghai Pharmaceutical Company Limited) (“CT Fenghai”) and (Yancheng Suhai Pharmaceutical Company Limited) (“YSPC”).

CT Xian is a medicine producing enterprise principally engaged in the production and distribution of anti-cancer medicines, gastrointestinal medicines, gynaecological medicines and dermatitis medicine for psoriasis. Mr. Tse Ping owns an indirect interest of 60% in CT Xian through Chia Tai Pharmaceutical (Xian) Co., Ltd. ( ) whose sole asset and business is its holding of shares in CT Xian.

CT Ankang is principally engaged in the production and distribution of a medicine reducing blood-fat level, gynaecomastia medicines, medicines for treating cardiovascular disease and other chemical medicines. CT Ankang acquired a PRC pharmaceutical company which has one product for the treatment of cardiovascular disease namely, Puerain injections, which may compete with an existing product namely, Spring (Puerain glucose injections) produced by the Group. Mr. Tse Ping owns an indirect interest of 30% in CT Ankang through Chia Tai Pharmaceutical (Ankang) Co., Ltd. ( ) whose sole asset and business is its holding of shares in CT Ankang.

HTPC is a trading company engaged in the import and export of medicines, including vitamins, anti-biotics and gastro medicines from Europe, the United States, Korea and other countries. Mr. Tse Ping owns an indirect interest of 95% in HTPC through Peacever Pharmaceutical Products Company Limited ( ) whose sole asset and business is its holding of shares in HTPC.

ABH is principally engaged in the re-processing of natural medicines and vitamins in the United States. Mr. Tse Ping owns an indirect interest of 40% in ABH through Hong Kong Natural Products Company Limited whose sole asset and business is its holding of shares in ABH.

CT Fenghai is principally engaged in the production and distribution of drug products and synthetic raw drugs. CT Fenghai is indirectly owned as to 51% by Mr. Tse Ping and 2.47% by Mr. Zhang Baowen.

YSPC is principally engaged in the production and distribution of raw drug of anti-biotics. YSPC is indirectly owned as to 51% by Mr. Tse Ping and 2.47% by Mr. Zhang Baowen.

– 34 –

APPENDIX I

GENERAL INFORMATION

There is no law or regulation or agreement which prohibits or restricts the entry of the above enterprises into any business which may compete directly or indirectly with the Group. Mr. Tse Ping entered into a deed of non-competition undertaking in favour of the Company on 9 September, 2003 (the “Undertaking”) pursuant to which Mr. Tse Ping has undertaken to the Company that, for so long as (i) Mr. Tse Ping, together with his associates, shall remain beneficially interested, directly or indirectly, in shares with at least 30% of the voting rights of the Company (from time to time); and (ii) the shares of the Company shall remain traded on the Main Board of the Stock Exchange, neither Mr. Tse Ping nor any of the companies or other entities more than 50% of the issued shares of which or equity of other nature carrying voting rights of which are directly or indirectly owned by Mr. Tse Ping, or in respect of which Mr. Tse Ping is entitled to control the board of directors or management body of similar nature will, within the PRC (including Hong Kong), carry on, or become engaged or otherwise become interested in, any business which falls within the definition of “Restricted Business”, which is defined to mean:–

(i) the research and development, production and sale of biopharmaceutical products for the medical treatment of ophthalmia and osteoarthritis, biopharmaceutical products for external use for the medical treatment of skin disease, modernized Chinese medicines, chemical medicines and modern health-care products or the medical treatment of hepatitis and angiopathy of cardio-cerebral; and
(ii) the research and development of new medicines and modern health-care products for the medical treatment of cardiovascular and respiratory disease.

To date, none of the above enterprises carries on or has become engaged or otherwise become interested in any “Restricted Business”. Although CT Xian produces and distributes dermatitis medicine, the Group does not consider that CT Xian competes with the business of the Group as the Group has, since its disposal of Sino Concept Technology Limited, ceased to produce or distribute dermatitis medicine. Further, CT Xian had already been producing and distributing dermatitis medicine before the incorporation of the Company.

Apart from the information disclosed above, none of the Directors have interests in businesses which compete or is likely to compete with the business of the Group.

D. INTEREST IN CONTRACTS

Save as disclosed below, as at the Latest Practicable Date, none of the Directors had any material interest in any contract or arrangement which is significant in relation to the business of the Group:

Pursuant to a lease agreement between Ledo Properties Limited, a company in which Mr. Tse Ping (the Chairman of the Company) and his wife Ms. Cheng Cheung Ling, each owns 50% shareholdings, and the Company dated 8 September, 2000 and a supplemental lease agreement dated 1 June, 2006, Ledo Properties Limited has agreed to lease to the Company an office premises situated at Unit F (also known as Unit 09), 41st Floor, Office Tower, Convention Plaza, No. 1 Harbour Road, Wanchai, Hong Kong. The premises has a saleable area of 1,547 sq.ft. and is leased to the Company on normal commercial terms for a fixed

– 35 –

GENERAL INFORMATION

APPENDIX I

term of two years from 1 June, 2006 to 31 May, 2008. The total annual rental amounts to HK$780,000 with monthly rental of HK$65,000. All monthly rentals are exclusive of rates and management fees. The Company is required to pay a monthly management fee of HK$9,486.

Pursuant to a master supply agreement between CT Fenghai and CT Tianyi dated 18 September, 2006, CT Tianyi has agreed to purchase anti-bacterial and anti-inflammatory medicines and cardio-cerebral medicines from CT Fenghai, a company owned as to 51% by a company beneficially owned by Mr. Tse Ping. The term of this agreement is from 18 September, 2006 to 31 December, 2007. The proposed caps under the agreement for the three and a half month period from 18 September, 2006 to 31 December, 2006 and for the financial year ending 31 December, 2007 will not exceed RMB750,000 and RMB1,800,000, respectively.
Mr. Tse Ping owns an approximately 80% shareholding interest in Chia Tai Coal Chemical Limited ( ), which holds a 29% equity interest in (Shaanxi New Coal Chemical Science and

Technology Development Co., Ltd.), a party under the agreement dated 30 August, 2006 entered into between Chia Tai Refined Chemical Industry Limited ( ), a wholly-owned subsidiary of the Company, (Shaanxi Coal Chemical Industry Limited),

(Shaanxi Province Investment Group Limited) and (Shaanxi New Coal Chemical Science and

Technology Development Co., Ltd.) for the establishment of (Shaanxi Xinxing Energy Chemical Industry Limited).

E. INTEREST IN ASSETS

As at the Latest Practicable Date, none of the Directors or Kingsway had any direct or indirect interest in any asset which has been acquired or disposed of by or leased to any member of the Group since 31 December, 2006 (the date to which the latest published audited consolidated financial statements of the Group were made up to) or proposed to be so acquired, disposed of or leased to any member of the Group.

F. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into or proposed to enter into a service contract with any members of the Group which is not expiring or determinable by the relevant employer within one year without payment of compensation (other than statutory compensation).

G. MATERIAL LITIGATION

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

– 36 –

GENERAL INFORMATION

APPENDIX I

H. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading positions of the Group since 31 December, 2006 (the date to which the latest published audited consolidated accounts of the Group were made up).

I. QUALIFICATION AND CONSENT OF EXPERT

The following are the qualifications of the expert (the “Expert”) who have given its letters for the inclusion in this circular:

		Nature of opinion or
Name	Qualifications	advice	Date of opinion
Kingsway	A licensed corporation	Letter to the Independent	1 June, 2007
	under the SFO permitted	Board Committee and the
	to carry out type 6	Independent Shareholders
	(advising on corporate
	finance) regulated activity
	(as defined under the
	SFO)

The Expert have given and have not withdrawn its written consents to the issue of this circular with the inclusion of its letter and references to its names in the form and context in which they respectively appear.

As at the Latest Practicable Date, the Expert did not have any shareholding in the Company or any other member of the Group or the right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in the Company or any other member of the Group.

J. MATERIAL CONTRACTS

Apart from those disclosed below, the Company has not entered into any material contracts, not being contracts entered into in the ordinary course of business, which were entered into by the Group within the two years immediately preceding the Latest Practicable Date:

(i) the joint venture agreement and the articles of association both dated 27 May, 2005 entered into by Chia Tai Pharmaceutical (Lianyungang) Company Limited, a wholly-owned subsidiary of the Company (“CTL”), (Lianyungang Runzi Consultation Centre) (“LRCC”) and Jiangsu Juxin regarding the setting up of CT Tianyi. Jiangsu Juxin is owned as to approximately 51% by Jiangsu Agribusiness which holds a 33.5% equity interest in JCTT. Hence Jiangsu Juxin is a connected person of the Company within the meaning of the Listing Rules. CT Tianyi is held as to 60% by CTL, 24% by LRCC and 16% by Jiangsu

– 37 –

GENERAL INFORMATION

APPENDIX I

Juxin. The total registered capital of CT Tianyi is approximately HK$7,566,000 which was contributed as to approximately HK$4,543,500 by CTL, HK$1,804,800 by LRCC and HK$1,203,200 by Jiangsu Juxin.

Under the terms of the joint venture agreement, the joint venture company would be engaged in the wholesale distribution of modernized Chinese medicines, chemical medicines and modern health-care products produced by the Group;

(ii) the sale and purchase agreement dated 2 July, 2005 entered into between the Company and Bausch & Lomb Incorporated (“Bausch & Lomb”), an independent third party unrelated to the Group. Under the terms of the sale and purchase agreement, the Company sold the entire issued share capital of Sino Concept Technology Limited to Bausch & Lomb for a consideration of US$200,000,000. Upon completion of the sale and purchase, Sino Concept Technology Limited ceased to be a subsidiary of the Company;
(iii) the joint venture agreement dated 30 August, 2006 (the “JV Agreement”) entered into between Chia Tai Refined Chemical Industry Limited ( ) (“CTRC”), (Shaanxi Coal Chemical Industry Limited) (“SCC”), (Shaanxi Province Investment Group Limited) (“SPI”) and (Shaanxi New Coal Chemical Science and Technology Development Co., Ltd. (“SNC”) for the establishment of (Shaanxi Xinxing Energy Chemical Industry Limited) (the “JV Company”). Pursuant to the terms and conditions of the JV Agreement, the JV Company is owned as to 43% by CTRC, 36% by SCC, 16% by SPI and 5% by SNC upon establishment. The registered capital of the JV Company is RMB1,750,000,000 which was contributed as to RMB752,500,000 by CTRC, RMB630,000,000 by SCC, RMB280,000,000 by SPI and RMB87,500,000 by SNC, in proportion to their respective equity interests in the JV Company;
(iv) the acquisition agreement dated 10 May, 2007 entered into between CTL and Golden Bloom Pharmaceutical Company Limited (“Golden Bloom”) whereby CTL has agreed to acquire and Golden Bloom has agreed to sell 4.6% equity interests in the registered capital of (Nanjing Chia Tai Tianqing Pharmaceutical Co., Ltd.) for a consideration of US$303,200;
(v) the Jiangsu Qingjiang Agreement as discussed on page 8 of this circular; and
(vi) the New JV Contract as discussed on page 9 of this circular.

K. GENERAL

(i) Save as disclosed under the section “Interest in Contracts” in this circular, as at the Latest Practicable Date, none of the Directors was materially interested in any subsisting contract or arrangement which is significant to the business of the Group.

– 38 –

GENERAL INFORMATION

APPENDIX I

(ii) The secretary of the Company is Ms. Leung Sau Fung, Fanny. Ms. Leung is an associate member of both The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries.
(iii) The qualified accountant of the Company is Ms. Yu Chau Ling. Ms. Yu is a fellow member and an associate member of the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants, respectively.
(iv) The Company’s registered office is at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, British West Indies.

The principal place of business of the Company in Hong Kong is Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.

(v) The branch share registrar and transfer office of the Company in Hong Kong is Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(vi) The English text of this circular shall prevail over the Chinese text.

L. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong up to and including 18 June, 2007:

(i) the letter from the Independent Board Committee, the text of which is set out on pages 17 to 18 of this circular;
(ii) the letter from Kingsway, the text of which is set out on pages 19 to 30 of this circular;
(iii) the written consent of Kingsway referred to in paragraph headed “Qualification and Consent of Expert” in this Appendix;
(iv) the Jiangsu Qingjiang Agreement, the New JV Contract and the New Articles; and
(v) the contracts referred to under the paragraph headed “Material Contracts” in this Appendix.

– 39 –

NOTICE OF EGM

==> picture [236 x 88] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability) Website: www.sinobiopharm.com (Stock code: 1177)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Sino Biopharmaceutical Limited (the “Company”) will be held at 10:20 a.m. (or such later time as the annual general meeting of the Company convened to be held on the same day and at the same place has been concluded or adjourned) on Monday, 18 June, 2007, at 7th Floor, Board Room, The Dynasty Club Limited, South West Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolution:

ORDINARY RESOLUTION

“ THAT:

(a) the share transfer agreement dated 10 May, 2007 (the “Jiangsu Qingjiang Agreement”) entered into between (Beijing Chia Tai Green Continent Pharmaceutical Co., Ltd. (“CT Green Continent”) (Jiangsu Juxin Investment Management Corporation
Limited) (“Jiangsu Juxin”) and (Huaian Hongda Investment Consulting Centre) (“Huaian Hongda”) (as the vendors) and Fine Enterprise Investment Limited (“Fine Enterprise”) (as the purchaser) (a copy of which marked “A” is tabled at the meeting and initialed by the chairman of the meeting for identification purpose) pursuant to which CT Green Continent, Jiangsu Juxin and Huaian Hongda have agreed to sell and Fine Enterprise has agreed to purchase their respective 20%, 16.8% and 0.48% equity interests in the registered capital of (Jiangsu Qingjiang Pharmaceutical Co., Ltd.) (“Jiangsu Qingjiang”) and further particulars of which are set out in the circular of the Company dated 1 June, 2007 (a copy of which marked “B” is tabled at the meeting and initialed by the chairman of the meeting for identification purpose) (the “Circular”), and the transactions contemplated under the Jiangsu Qingjiang Agreement and the implementation thereof be and are hereby approved, ratified and confirmed;
(b) the new joint venture contract of Jiangsu Qingjiang dated 10 May, 2007 (the “New JV Contract”) entered into between Fine Enterprise, (Jiangsu State Agribusiness Group Corporation Limited) (“Jiangsu Agribusiness”) and Huaian Hongda (a copy of which marked “C” is tabled at the meeting and initialed by the chairman of the meeting for identification purpose) and the new articles of association of Jiangsu Qingjiang dated 10 May, 2007 (the “New Articles”) entered into between Fine Enterprise, Jiangsu Agribusiness and Huaian

– 40 –

NOTICE OF EGM

Hongda (a copy of which marked “D” is tabled at the meeting and initialed by the chairman of the meeting for identification purpose), pursuant to which Fine Enterprise shall make the contribution of the aggregate amount of RMB10,530,000 (approximately HK$10,424,700) to Jiangsu Qingjiang and further particulars of which are set out in the Circular and the transactions under the New JV Contract, the New Articles and the implementation thereof be and are hereby approved, ratified and confirmed; and

(c) any one director of the Company be and is hereby authorised for and on behalf of the Company to do all such acts and things deemed by him to be incidental to, ancillary to, or in connection with the matters contemplated in the Jiangsu Qingjiang Agreement, the New JV Contract and the New Articles.”

By Order of the Board Leung Sau Fung, Fanny Company Secretary

Hong Kong, 1 June, 2007

Notes:

A shareholder entitled to attend and vote at the meeting convened by the above notice is entitled to appoint proxies to attend and vote in his stead. A proxy need not be a shareholder of the Company.
In order to be valid, the form of proxy must be deposited at the principal place of business of the Company at Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong together with a power of attorney or other authority, if any, under which it is signed or a certified copy of that power of attorney or authority not less than 48 hours before the time appointed for the holding of the meeting.
Pursuant to Article 66 of the Articles of Association of the Company, a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on withdrawal of any other demand for a poll) a poll is demanded:
(a) by the chairman of the meeting; or
(b) by at least three shareholders present in person or in the case of a shareholder being a corporation by its duly authorized representative or by proxy for the time being entitled to vote at the meeting; or
(c) by any shareholder or shareholders present in person or in the case of a shareholder being a corporation by its duly authorized representative or by proxy and representing not less than one-tenth of the total voting rights of all shareholders having the right to attend and vote at the meeting; or
(d) by a shareholder or shareholders present in person or in case of a shareholder being a corporation by its duly authorized representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on an aggregate sum has been paid equal to not less than one-tenth of the total sum paid up on all shares conferring that right; or
(e) by any of the Directors who individually or collectively (including the chairman of the relevant meeting of the Company) hold proxies in respect of shares representing 5% or more of the total voting rights at a particular meeting of the Company, and if on a show of hands such meeting votes in the opposite manner to that instructed in those proxies, such Directors shall have the right to demand a poll. If a poll is required under these circumstances, the chairman of the meeting should disclose to the meeting of the Company the total number of votes represented by all proxies held by Directors indicating an opposite vote to the votes cast at the meeting on a show of hands.

– 41 –

AI assistant

Sinco Pharmaceuticals Holdings Limited — Proxy Solicitation & Information Statement 2007

51056_rns_2007-06-01_abc6ab98-4665-4011-80fd-289732b35726.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

CONNECTED AND DISCLOSEABLE TRANSACTIONS

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Independent non-executive Directors:

CONNECTED AND DISCLOSEABLE TRANSACTIONS

INTRODUCTION

LETTER FROM THE BOARD

THE JIANGSU QINGJIANG ACQUISITION AND THE JIANGSU QINGJIANG CAPITAL CONTRIBUTION

The Jiangsu Qingjiang Agreement

Date:

Parties:

Consideration

LETTER FROM THE BOARD

Conditions of the completion of the Jiangsu Qingjiang Acquisition

The New JV Contract and New Articles

Date:

Parties:

Capital Contribution to Jiangsu Qingjiang

Conditions of the completion of the Jiangsu Qingjiang Capital Contribution

Completion of the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution

Information on CT Green Continent, Jiangsu Juxin and Huaian Hongda

Information on Jiangsu Qingjiang

REASONS FOR THE JIANGSU QINGJIANG ACQUISITION AND THE JIANGSU QINGJIANG CAPITAL CONTRIBUTION

LETTER FROM THE BOARD

EFFECT OF THE TRANSACTIONS

COMPLIANCE WITH THE LISTING RULES

LETTER FROM THE BOARD

EGM

RECOMMENDATION

FURTHER INFORMATION

CONNECTED AND DISCLOSEABLE TRANSACTIONS

LETTER FROM KINGSWAY

CONNECTED AND DISCLOSEABLE TRANSACTION

INTRODUCTION

LETTER FROM KINGSWAY

BASIS OF OUR OPINION

LETTER FROM KINGSWAY

PRINCIPAL REASONS AND FACTORS CONSIDERED

(i) Background to and reasons for the Jiangsu Qingjiang Acquisition and the Jiangsu Qingjiang Capital Contribution

LETTER FROM KINGSWAY

The Jiangsu Qingjiang Acquisition

The Jiangsu Qingjiang Agreement

Basis of consideration

LETTER FROM KINGSWAY

Payment terms

(a) Price-to-earning (P/E) ratio analysis

LETTER FROM KINGSWAY

(b) Price-to-net asset value (P/NAV) analysis

The Jiangsu Qingjiang Capital Contribution

The New JV Contract and the New Article

LETTER FROM KINGSWAY

Basis of Jiangsu Qingjiang Capital Contribution & payment terms

LETTER FROM KINGSWAY

(iii) Financial effects on the Company

Effect on net asset value

LETTER FROM KINGSWAY

Effect on earnings

Effect on working capital and gearing position

LETTER FROM KINGSWAY

RECOMMENDATION

A. RESPONSIBILITY STATEMENT

B. DISCLOSURE OF INTERESTS

Long positions in ordinary shares of the Company

Long position in shares of an associated corporation of the Company

APPENDIX I

Long position in shares and/or underlying shares

C. COMPETING INTEREST

APPENDIX I

GENERAL INFORMATION

D. INTEREST IN CONTRACTS

E. INTEREST IN ASSETS

F. SERVICE CONTRACTS

Sinco Pharmaceuticals Holdings Limited Proxy Solicitation & Information Statement 2007