11:14 SHINEWAY PHARM<02877> - Announcement (1) The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, 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 announcement. CHINA SHINEWAY PHARMACEUTICAL GROUP LIMITED (incorporated in the Cayman Islands with limited liability) (Stock Code: 2877) ANNOUNCEMENT DISCLOSEABLE AND CONNECTED TRANSACTION As disclosed in the Prospectus, the Company and Shineway Lang Fang entered into the Option Agreement on 20 November 2004 whereby Shineway Lang Fang granted to the Company and its subsidiaries the Option to acquire (or to nominate a subsidiary to acquire) all or part of the 20% equity interest held by Shineway Lang Fang in Shineway Sales. The Board announces that the Company has exercised the Option and on 30 March 2005, Yuan Da, a wholly-owned subsidiary of the Company, and Shineway Lang Fang entered into the Equity Transfer Agreement, pursuant to which Shineway Lang Fang conditionally agreed to sell and Yuan Da conditionally agreed to purchase 20% of the equity interest held by Shineway Lang Fang in Shineway Sales at the Consideration to be calculated by multiplying the Shineway Sales 2004 Profit with 20% and the PE Ratio. According to the audited financial statements of Shineway Sales for its financial year ended 31 December 2004 prepared according to International Financial Reporting Standards and the accounting policies adopted by the Company and audited by an international accounting firm, the Shineway Sales 2004 Profit is RMB39.8 million (equivalent to approximately HK$37.6 million). On such basis, the amount of the Consideration is RMB80.8 million (equivalent to approximately HK$76.2 million). Shineway Sales, currently owned as to 80% by Yuan Da and as to 20% by Shineway Lang Fang, is principally engaged in providing sales and marketing services for the distribution of products manufactured by the Group. Upon Completion, Shineway Sales will become a wholly-owned subsidiary of Yuan Da and a wholly-owned foreign invested enterprise. Mr. Li, an executive Director, is a connected person of the Company within the meaning of the Listing Rules. Mr. Li is also the controlling shareholder of Shineway Medical, which holds 70% equity interest in Shineway Lang Fang. Accordingly, Shineway Lang Fang is a connected person of the Company within the meaning of the Listing Rules. As a result, the Acquisition contemplated under the Equity Transfer Agreement constitutes a connected transaction for the Company and is subject to the reporting, announcement and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules. Further, the Acquisition also constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules. The Circular containing details of the Equity Transfer Agreement, the letter of advice from the independent financial adviser, the recommendation of the Independent Board Committee to the Independent Shareholders, together with a notice to convene the EGM, will be dispatched to the Shareholders as soon as practicable. Sinovest, the controlling shareholder of the Company which is indirectly controlled by the trustee for the benefits of the family members of Mr. Li, and Sinovest's associates will abstain from voting at the EGM to approve the Acquisition. BACKGROUND As disclosed in the Prospectus, the Company and Shineway Lang Fang entered into the Option Agreement on 20 November 2004 whereby Shineway Lang Fang granted to the Company and its subsidiaries the Option to acquire (or to nominate a subsidiary to acquire) all or part of the 20% equity interest held by Shineway Lang Fang in Shineway Sales once permitted by the PRC law and regulations during the period of 3 years from 20 November 2004. According to the Company's PRC legal adviser, it is permissible under the current PRC laws and regulations that Shineway Sales can apply to be changed to a wholly-owned foreign invested enterprise. Accordingly, Yuan Da has legal basis to acquire the remaining 20% equity interest in Shineway Sales and so as to own 100% equity interest in Shineway Sales. The Company has exercised the Option and Yuan Da has entered into with Shineway Lang Fang the Equity Transfer Agreement, pursuant to which Shineway Lang Fang shall sell to Yuan Da its 20% equity interest in Shineway Sales on and subject to the terms and conditions of the Equity Transfer Agreement. THE EQUITY TRANSFER AGREEMENT Date: 30 March 2005