Shanghai Pharmaceuticals : CONNECTED TRANSACTION PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

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This announcement appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of Shanghai Pharmaceuticals Holding Co., Ltd.*.

上海醫藥集團股份有限公司

Shanghai Pharmaceuticals Holding Co., Ltd.*

(A joint stock company incorporated in the People's Republic of China with limited liability)

(Stock Code: 02607)

CONNECTED TRANSACTION

PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

The Board announces that, on 11 May 2021, the Board approved, among other things, the Proposed Non- public Issuance of A Shares, and the Company entered into the Shanghai Tandong Subscription Agreement and the Yunnan Baiyao Subscription Agreement with each of Shanghai Tandong and Yunnan Baiyao, respectively, pursuant to which, the Company will, subject to the fulfillment of the conditions precedent as disclosed below, issue a maximum of 187,000,000 and 665,626,796 A Shares, representing no more than 30% of the total number of Shares in issue prior to the Proposed Non-public Issuance of A Shares, to Shanghai Tandong and Yunnan Baiyao, respectively, at the Issue Price of RMB16.87 per A Share. The proceeds from the Proposed Non-public Issuance of A Shares are expected to be no more than RMB14,383,814,048.52. The Proposed Non-public Issuance of A Shares is subject to, among others, the approvals from (i) competent state-owned assets supervision and administration authorities, (ii) Shareholders at the GM, A Share Class Meeting and H Share Class Meeting, respectively, (iii) the board meeting and general meeting of Yunnan Baiyao, and (iv) the CSRC.

IMPLICATIONS UNDER THE LISTING RULES

As of the date of this announcement, Shanghai Tandong, one of the Subscribers, is a wholly-owned subsidiary of Shanghai Shangshi, a controlling shareholder of the Company, and therefore Shanghai Tandong constitutes a connected person of the Company under Rule 14A.07 of the Listing Rules. As such, according to Chapter 14A of the Listing Rules, the transaction contemplated under the Shanghai Tandong Subscription Agreement constitutes a connected transaction of the Company and is subject to the reporting, annual review and announcement requirements and the independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

For the Proposed Non-public Issuance of A Shares, a specific mandate shall be sought from the Shareholders as required under Rule 13.36 of the Listing Rules, as modified by Chapter 19A of the Listing Rules.

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GM AND CLASS MEETINGS

The Company will convene the GM, A Share Class Meeting and H Share Class Meeting for considering and, if thought fit, approving, among other things, (i) the Proposed Non-public Issuance of A Shares, (ii) the Shanghai Tandong Subscription Agreement and the Yunnan Baiyao Subscription Agreement and other related resolutions. A circular containing, among other things, the details of (i) the Proposed Non-public Issuance of A Shares, (ii) the Shanghai Tandong Subscription Agreement and the Yunnan Baiyao Subscription Agreement and other related resolutions, together with the notice of GM, A Share Class Meeting and H Share Class Meeting is expected to be dispatched to the Shareholders in due course.

As the Proposed Non-public Issuance of A Shares is subject to approvals and will only be completed after certain conditions are fulfilled, the Proposed Non-public Issuance of A Shares may or may not proceed. Shareholders and potential investors should exercise caution when dealing in the securities of the Company.

I. PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

The Board announces that, on 11 May 2021, the Board approved, among other things, the Proposed Non- public Issuance of A Shares, and the Company entered into the Shanghai Tandong Subscription Agreement and the Yunnan Baiyao Subscription Agreement with each of Shanghai Tandong and Yunnan Baiyao, respectively, pursuant to which, the Company will, subject to the fulfillment of the conditions precedent as disclosed below, issue a maximum of 187,000,000 and 665,626,796 A Shares, representing no more than 30% of the total number of Shares in issue prior to the Proposed Non-public Issuance of A Shares, to Shanghai Tandong and Yunnan Baiyao, respectively, at the Issue Price of RMB16.87 per A Share. The proceeds from the Proposed Non-public Issuance of A Shares are expected to be no more than RMB14,383,814,048.52. The Proposed Non-public Issuance of A Shares is subject to, among others, the approvals from (i) competent state-owned assets supervision and administration authorities, (ii) Shareholders at the GM, A Share Class Meeting and H Share Class Meeting, respectively, (iii) the board meeting and general meeting of Yunnan Baiyao, and (iv) the CSRC.

1. Summary of Major Terms of the Shanghai Tandong Subscription Agreement and the Yunnan Baiyao Subscription Agreement

(1) Class and Nominal Value of the Shares

The A Shares to be issued pursuant to the Proposed Non-public Issuance of A Shares are domestic listed RMB ordinary shares (A Shares) with the nominal value of RMB1.00 each.

(2) Method and Time of Issuance

The Proposed Non-public Issuance of A Shares shall be conducted by way of non-public issuance of A Shares to specific subscribers. The Company will proceed in due course during the validity period of the relevant CSRC approval on the Proposed Non-public Issuance of A Shares.

(3) Subscription Method

All Subscribers shall subscribe in cash for the A Shares to be issued pursuant to the Proposed Non-public Issuance of A Shares.

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(4) Issue Price and Pricing Principles

The Price Benchmark Date of the Proposed Non-public Issuance of A Shares shall be the date of the announcement of relevant Board resolutions, i.e. 12 May 2021. The average trading price of A Shares over the 20 trading days prior to the Price Benchmark Date is RMB21.08 per A Share.

The Issue Price is RMB16.87 per A Share, being 80% of the average trading price of A Shares over the 20 trading days prior to the Price Benchmark Date. If the Issue Price is lower than the Company's audited net assets per Share attributable to the parent company of the most recent period prior to the Proposed Non-public Issuance of A Shares, then the Issue Price will be adjusted to the Company's audited net assets per Share attributable to the parent company of the most recent period prior to the Proposed Non-public Issuance of A Shares. The final number of Shares subscribed by the Subscribers will be reduced in accordance with the percentage of the original number of Shares to be subscribed by the Subscribers to the original total number of Shares to be issued pursuant to the Proposed Non-public Issuance of A Shares.

During the period from the Price Benchmark Date to the Issuance Date, in the event of ex-entitlement and ex- dividend activities such as dividend distribution, bonus issue or conversion of capital reserve into share capital, the Issue Price shall be adjusted in accordance with the formula as follows:

Dividend Distribution：P1=P0-D

Bonus Issue or Conversion of Capital Reserve into Share Capital：P1=P0/(1+N)

Both at the Same Time：P1=(P0-D)/(1+N)

among which, P0 is the Issue Price prior to the adjustment, P1 is the Issue Price after the adjustment, D is the dividend distributed per Share, and N is the number of Shares as bonus or converted from capital reserve per Share.

If the relevant laws, regulations and regulatory documents or the CSRC's regulatory policies on the non-public issuance of A Shares have other different requirements on the Issue Price, pricing method, etc., then the Proposed Non- public Issuance of A Shares will be implemented in accordance with these requirements.

(5) Method of Payment and Payment Period

Within ten business days from the date when the Proposed Non-public Issuance of A Shares is approved by the general meeting of the Company, Shanghai Tandong shall pay a subscription deposit of RMB30 million to the Company's designated bank account. Within ten business days from the date when the Proposed Non-public Issuance of A Shares is approved by the Board and the general meeting of Yunnan Baiyao, Yunnan Baiyao shall pay a subscription deposit of RMB100 million to the Company's designated bank account.

After the Shanghai Tandong Subscription Agreement and the Yunnan Baiyao Subscription Agreement come into effective, each of Shanghai Tandong and Yunnan Baiyao shall, within ten business days since the issuance of the written subscription payment notice, remit the subscription funds in full to the specific bank account for the Proposed Non-public Issuance of A Shares . The balance after the completion of capital verification by an accounting firm engaged by the Company and the deduction of related issuance expenses will be remitted to the designated deposit account for proceeds opened by the Company.

Within ten business days after the Shanghai Tandong Subscription Agreement and the Yunnan Baiyao Subscription

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Agreement come into effect and each of Shanghai Tandong and Yunnan Baiyao have made the subscription payment in full in accordance with the Shanghai Tandong Subscription Agreement and the Yunnan Baiyao Subscription Agreement, respectively, the Company shall return the subscription deposit paid by each of Shanghai Tandong and Yunnan Baiyao and the interests accrued to their respective designated bank account.

(6) Number of Shares to be Issued and the Subscribers

The number of A Shares to be issued under the Proposed Non-public Issuance of A Shares shall be no more than 852,626,796, representing no more than 30% of the total number of the Shares in issue prior to the Proposed Non- public Issuance of A Shares. During the period from the Price Benchmark Date to the Issuance Date, in the event of ex-entitlement activities such as bonus issue, conversion of capital reserve into share capital, etc., the number of A Shares to be issued pursuant to the Proposed Non-public Issuance of A Shares shall be adjusted accordingly. The final number of Shares to be issued pursuant to the Proposed Non-public Issuance of A Shares is subject to the number of Shares approved by the CSRC.

The Proposed Non-public Issuance of A Shares has two subscribers, i.e. Shanghai Tandong and Yunnan Baiyao. Pursuant to the Shanghai Tandong Subscription Agreement and Yunnan Baiyao Subscription Agreement, details of subscription of each subscribers are as follows:

		Maximum Number of Shares of	Maximum Amount of the
No.	Subscriber	the Proposed Subscription	Proposed Subscription
		(A Shares)	(RMB)
1	Shanghai Tandong	187,000,000	3,154,690,000.00
2	Yunnan Baiyao	665,626,796	11,229,124,048.52
	Total	852,626,796	14,383,814,048.52

(7) Lock-up Period

A Shares to be subscribed by Shanghai Tandong and Yunnan Baiyao pursuant to the Proposed Non-public Issuance of A Shares shall be subject to a lock-up period of 36 months from the date of completion of the Proposed Non-public Issuance of A Shares. Any additional Shares to be acquired by the Subscribers after the completion of the Proposed Non-public Issuance of A Shares due to bonus issue, conversion of capital reserve into share capital, etc. shall also be subject to the lock-up arrangement mentioned above.

If the CSRC and the SSE have other requirements for the lock-up period for the Proposed Non-public Issuance of A Shares, the Subscribers will adjust the lock-up period in accordance with such requirements.

(8) Place of Listing

The A Shares to be issued pursuant to the Proposed Non-public Issuance of A Shares shall be listed for trading on the SSE.

1. Arrangement for the Accumulated Undistributed Profits of the Company Prior to the Proposed Non-public Issuance of A Shares

The accumulated undistributed profits of the Company prior to the Proposed Non-public Issuance of A Shares will be

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shared by the Shareholders after the completion of the Proposed Non-public Issuance of A Shares on a pro rata basis according to their respective shareholding in the Company.

(10) Conditions Precedent

The Shanghai Tandong Subscription Agreement and the Yunnan Baiyao Subscription Agreement will be executed after being signed by the legal representatives or authorized representatives of relevant parties and affixed with the official seal, and they will become effective on the date when all the following conditions are fulfilled:

1. The Board approves the Proposed Non-public Issuance of A Shares and the Shanghai Tandong Subscription Agreement / the Yunnan Baiyao Subscription Agreement;
2. The board of directors and shareholder(s) of Shanghai Tandong / Yunnan Baiyao (as the case may be) approve(s) Shanghai Tandong / Yunnan Baiyao to subscribe for the Shares to be issued pursuant to the Proposed Non-public Issuance of A Shares and/or the Shanghai Tandong Subscription Agreement / the Yunnan Baiyao Subscription Agreement;
3. The Proposed Non-public Issuance of A Shares is approved by the state-owned assets management authorities or approved by authorized state-funded enterprises;
4. The general meeting of Shareholders of the Company approves the Proposed Non-public Issuance of A Shares and the Shanghai Tandong Subscription Agreement / the Yunnan Baiyao Subscription Agreement; and
5. The Proposed Non-public Issuance of A Shares is approved by the CSRC.

2. Strategic Cooperation Agreement with Yunnan Baiyao

In addition to entering into the Yunnan Baiyao Subscription Agreement with Yunnan Baiyao, in order to build long-term and stable business development and capital cooperation relationship and fully function the synergy effect between Yunnan Baiyao and the Company, on 11 May 2021, the Company entered into the Strategic Cooperation Agreement with Yunnan Baiyao, pursuant to which, the Company and Yunnan Baiyao will carry out strategic cooperation in various business fields such as customer resource expansion, product innovation, traditional Chinese medicine industry chain, and general health.

Pursuant to the Strategic Cooperation Agreement, Yunnan Baiyao will, subject to applicable laws and regulations and the articles of association of the Company, be entitled to nominate a candidate each as an executive Director, a non-executive Director and a supervisor. Such candidates will be appointed as an executive Director, a non-executive Director or a supervisor (as the case may be) of the Company after necessary approval procedures within the Company. Pursuant to the Strategic Cooperation Agreement, the Company shall distribute profit in cash of no less than 40% of the distributable profit each year to the Shareholders if feasible after the completion of the Proposed Non-public Issuance of A Shares.

The term of the Strategic Cooperation Agreement will be three years commencing from the effective date of the Strategic Cooperation Agreement, which can be extended after mutual agreement upon its expiration.

3. Effect of the Proposed Non-public Issuance of A Shares on the Shareholding Structure of the Company

As of the date of this announcement, the total number of issued Shares of the Company is 2,842,089,322 Shares, including 919,072,704 H Shares and 1,923,016,618 A Shares. The shareholding structures of the

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