Lee Pharmaceutical : ACQUISITION OF EQUITY INTEREST IN THE TARGET COMPANY AND DEEMED DISPOSALS OF EQUITY INTEREST IN WTI

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Lee's Pharmaceutical Holdings Limited ҽˤɽᖹᅀછٰϞࠢʮ̡*

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 950)

DISCLOSEABLE TRANSACTIONS

ACQUISITION OF EQUITY INTEREST

IN THE TARGET COMPANY AND

DEEMED DISPOSALS OF EQUITY INTEREST IN WTI

ACQUISITION

On 21 December 2018 (after trading hours), WTI, Merger Sub (a wholly-owned subsidiary of WTI) and the Target Company entered into the Merger Agreement, pursuant to which the Company (through WTI) shall acquire approximately 50.42% equity interest of the Target Company by way of a merger of Merger Sub with the Target Company, with the Target Company becoming the sole surviving entity immediately after the Merger and an indirect non-wholly-owned subsidiary of the Company.

FIRST DEEMED DISPOSAL

Immediately before the Merger Closing, the Group holds approximately 74.80% of the entire issued shares of WTI, and Merger Sub is a wholly-owned subsidiary of WTI. The Company (through CCF) also holds approximately 49.58% of the entire issued shares of the Target Company.

Upon the Merger Closing, the Group's equity interest in WTI would be reduced from approximately 74.80% to 54.46% as a result of the Conversion and the Group is therefore deemed to have disposed of approximately 20.34% equity interest in WTI under the Listing Rules.

SUBSCRIPTION

On 21 December 2018 (after trading hours), WTI and the Investors entered into the Securities Purchase Agreement, pursuant to which WTI has agreed to sell, and the Investors, severally and not jointly, have agreed to purchase the Subscription Shares at the Subscription Price.

SECOND DEEMED DISPOSAL

Immediately after the Merger Closing and before the Subscription Closing, the Group holds approximately 54.46% of the entire issued shares of WTI. Upon the Subscription Closing and the allotment of 114,415 shares of common stock of WTI for the settlement of placement fee of approximately US$421,000 payable by WTI to a placing agent under the Securities Purchase Agreement, the Group's equity interest in WTI would be reduced from approximately 54.46% to 39.90% as a result of the Subscription and the allotment of 114,415 shares of common stock of WTI for the settlement of placement fee of approximately US$421,000 payable by WTI to a placing agent under the Securities Purchase Agreement, and the Group is therefore deemed to have disposed of approximately 14.56% equity interest in WTI under the Listing Rules.

LISTING RULES IMPLICATIONS

As the highest applicable percentage ratio under the Listing Rules for each of the Acquisition and the Deemed Disposals is more than 5% but less than 25%, each of the Acquisition and the Deemed Disposals constitutes a discloseable transaction of the Company under the Listing Rules and is subject to the reporting and announcement requirements but is exempt from the circular (including independent financial advice) and shareholders' approval requirements of the Listing Rules.

ACQUISITION

Major terms of the Merger Agreement are set out below.

Date

21 December 2018 (after trading hours)

Parties

• (1) WTI;

• (2) Merger Sub; and

• (3) the Target Company.

As at the date of this announcement and immediately before the Merger Closing, the Group holds approximately 49.58% and 74.80% of the entire issued shares of the Target Company and WTI respectively. Immediately before the Merger Closing, Merger Sub is a wholly-owned subsidiary of WTI.

Save for the above and to the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, each of WTI, Merger Sub, the Target Company and its ultimate beneficial owner(s) are Independent Third Parties.

Subject matter

WTI, Merger Sub (a wholly-owned subsidiary of WTI) and the Target Company entered into the Merger Agreement, pursuant to which the Company (through WTI) shall acquire approximately 50.42% equity interest of the Target Company by way of a merger of Merger Sub with the Target Company in accordance with Cayman Companies Law, with the Target Company becoming the sole surviving entity immediately after the Merger and an indirect non-wholly-owned subsidiary of the Company.

Upon the Merger Closing, the following conversion of shares (altogether, the "Conversion") shall take place:

• (a) any ordinary shares of the Target Company owned as treasury stock of the Target Company or owned by WTI or by any direct or indirect wholly-owned subsidiary of WTI immediately prior to the Merger Closing shall be automatically cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor;

• (b) each ordinary share of the Target Company (including all accrued but unpaid dividends thereon (if any)) outstanding immediately before the Merger Closing (excluding shares to be cancelled pursuant to (a) above) shall be cancelled and automatically converted solely into the right to receive a number of shares of common stock of WTI equal to the Exchange Ratio; and

• (c) each ordinary share of Merger Sub issued and outstanding immediately before the Merger Closing shall be automatically converted into and exchanged for one validly issued, fully paid and non-assessable ordinary share of the Target Company as the surviving entity.

The Exchange Ratio is determined with reference to (a) the value of each ordinary share issued by the Target Company immediately prior to the Merger Closing (i.e. US$1.4577) which is calculated on the basis that the Agreed Value is US$67,500,000 while the total number of ordinary shares issued by the Target Company immediately prior to the Merger Closing is 46,306,968 shares; and (b) the market closing price of WTI as at 20 December 2018 (i.e. US$4.15 per common stock of WTI). The Agreed Value was determined after arm's length negotiations between the parties to the Merger Agreement on normal commercial terms with reference to, among other things, the stage of developments and market potential of the pipeline assets of the Target Group.

As a result of the Conversion, the Company (through CCF) and Other Shareholders would obtain 8,063,861 and 8,201,199 common stock of WTI, representing approximately 39.98% and 40.66% of the total number of issued common stock of WTI respectively as enlarged by the issue of the Conversion Shares in exchange for their shares in the Target Company.

The common stock of WTI converted from shares of the Target Company held by the Other Shareholders calculated by the Exchange Ratio under the Conversion (i.e. 8,201,199 common stock of WTI) amounted to approximately US$34,035,000 calculated with reference to the market closing price of WTI as at 20 December 2018.

Immediately before the Merger Closing, the Group holds approximately 74.80% of the entire issued shares of WTI, while the Company (through CCF) holds approximately 49.58% of the entire issued shares of the Target Company and the Other Shareholders hold approximately 50.42% of the entire issued shares of the Target Company. Upon the Merger Closing, the Group would hold approximately 54.46% of the entire issued shares of WTI, which in turn holds 100% equity interest of the Target Company. The Target Company would then become a non-wholly-owned subsidiary of the Company for the purpose of the Listing Rules.

Completion

The Merger Closing shall take place concurrently with the execution and delivery of the Merger Agreement.

At the Merger Closing, among other things, the parties shall cause the execution and filing with the Registrar of Companies of the Cayman Islands a plan of merger with respect to the Merger in accordance with the applicable requirements of the Cayman Companies Law.

Representations and warranties

Each of the Target Company and WTI has given in the Merger Agreement certain customary representations and warranties in relation to the Target Group and the Merger Sub respectively which are commonly found in an agreement of similar nature and size.

Additional ancillary matters

In connection with the Merger, WTI and the Target Company will attend to certain ancillary matters in relation to filing and registration under the U.S. Securities Act, provision of indemnification to directors and officers, tax, etc.

Lock-up arrangements

For the purpose of the Merger, each of the shareholders of the Target Company immediately before the Merger Closing (including CCF) agrees that it will not during the period commencing on the Merger Closing Date and ending on the one year anniversary of the Merger Closing Date, subject to certain exceptions, (a) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any common stock of WTI received in the Merger; or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock of WTI received in the Merger.

Indemnification

The Company, as the ultimate holding company of CCF, which is the single largest shareholder of each of the Target Company and WTI, shall for a period of twelve months from the Merger Closing Date indemnify the holders of issued and outstanding shares of common stock of WTI as of the day prior to the Merger Closing Date (other than the Company, LPH I and LPH II) (the "Indemnitees") for any loss, liability, damage or expense, including reasonable attorney's fees and expenses incurred by WTI in connection with or, as a result of, any material inaccuracy in any representation or warranty made by the Target Company in the Merger Agreement. The Company shall have no obligation to indemnify the Indemnitees unless and until the total amount of all losses exceeds US$500,000 in the aggregate, in which event the Company shall only be obligated to indemnify the Indemnitees for losses in excess of US$500,000. The liability of the Company under such indemnification shall be limited to the distribution of 984,000 share of common stocks of WTI which are to be issued to CCF pursuant to the Merger Agreement, representing an approximately 12.20% of the total number of 8,063,861 common stock of WTI as obtained by CCF as a result of the Conversion (the "Escrow Shares") to the Indemnitees. To the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, each of the Indemnitees and its ultimate beneficial owner(s) are Independent Third Parties.

To secure the Company's performance of its indemnity obligations above, on the Merger Closing Date, WTI shall deposit with an escrow agent (the "Escrow Agent") mutually acceptable to WTI and the Company the Escrow Shares. The Escrow Shares shall be held pursuant to the terms of an indemnification agreement and a mutually agreed upon escrow agreement to be executed by the Escrow Agent, WTI and the Company.