Plum Biology: Sino-German Securities on the "Inquiry Letter" related to the matter of verification.

On May 24, 2016, the Shanghai Stock Exchange issued the "Inquiry Letter on matters related to the termination of the planning of the issuance of shares to purchase assets by Meihua Biotech Group Co., Ltd(Shanghai Public Letter No0538" (hereinafter referred to as "Inquiry Letter"), and Sino-German Securities has clear provisions on the verification of related matters in the "Inquiry Letter", as follows: 9jp, the relevant rules of the listed company's material asset restructuring, such as competition, performance commitment compensation and other issuesPlease indicate the reasons why, after a long suspension of trading, no agreement has been reached with the counterparty on the above issues, and whether the financial advisor has fulfilled the relevant reminder obligations in a diligent and responsible nature9jpreply: 9jp1, industry competition 9jpCompany, although the Hijie First Sugar Co., Ltd(hereinafter referred to as "Hijie first sugar" or "Hijie") outside China, there are also amino acid business in countries and regions, but for these foreign companies business scale, product varieties, capacity distribution, sales area and other information is not clearTherefore, on the issue of inter-industry competition, the company in addition to the basic trust of Hijie first sugar briefing, still need the relevant intermediaries through due diligence to obtain detailed information, and in the transaction parties and related intermediaries jointly work together to finalize the solution9jpafter the suspension of this restructuring, the two sides agreed to send intermediaries to enter the market immediately, but The first sugar of Hijie on the grounds that they were not fully prepared, to the two intermediaries on January 12, 2016 to start on-site due diligence work9jpBecause the provision of the company's relevant data and information on the subject matter of Hijie First Sugar is subject to a lengthy request process, the relevant data of its offshore amino acid assets due to business information outside the target company, The first sugar in charge of this reorganization of the team must first communicate with its headquarters to provide this information to Meihua Bio and the intermediary agencies it hires, and then through The Hage headquarters to convey the task, request overseas subsidiaries to prepare and provide relevant dataAs of February 25, 2015, Hijdge First Sugar provided data on overseas product production capacity and sales, including data on the specific products, scope and amount of the competitive business of overseas companies9jp after obtaining complete data on overseas peer competition, the intermediaries, after discussion and consultation, proposed a variety of options to Hij, and analyzed the audit risks of each programme and the further work required under the programmes Among them, mainly include: (1) Hijie first sugar will be foreign amino acid business, assets into the scope of this reorganization into the listed company, (2) through market division (including specific products and market division programs and the potential impact on the respective market share of the transaction, etc.), business custody and other ways to avoid inter-industry competition, and by Hijie first sugar in accordance with the requirements of the "Listed Company Regulatory Guidelines No 4" commitment to its overseas amino acid business, assets within a clear time limit into the listed company 9jp related recommendations submitted to Hi-Jie first sugar, listed companies and intermediaries repeatedly urged Hi-Jie first sugar feedback its initial determination of the tendental program, the response is That is The Head headquarters is considering research 9jp until April 8, 2016, Hijie's first sugar response: its main idea is to explain the different product structures of Hi-Jie and plum biology (plum smoldering-based, lysine-based; Refined as a supplement), the market focus on different (plum biology to the Chinese market, the international market as a supplement, Shijie to the international market,the Chinese market as a supplement), different sales channels (plum to distribution-oriented, Shijie to direct marketing-based), and then advocate that plum biology and Xijie do not constitute "industry competition."9jp in the face of The first sugar of Hijie this reply, listed companies and financial advisers on this issue again to Hi-Jie first sugar to explain their response to the reasons for difficult to get the approval of the China Securities Regulatory Authority, asked Hi-Jie first sugar serious consideration, including asset injection and other substantive solutions to the problem of inter-industry competition proposals 9jp on asset injection and committed asset injection, Higer First Sugar Headquarters after discussion, said that "at this stage on the cJ Indonesia legal entity incorporation or not can not give any guarantee."9jp on options to otherwise avoid inter-industry competition, Higer First Sugar said that after consulting with its legal department and professional antitrust legal counsel, Xijie First Sugar and Plum Bio can not be recognized by the antitrust court as "the same economy", by market division, business custody, etc to avoid inter-industry competition, such measures are considered to be corporate collusion (Conspiracy) behavior is high risk 9jp April 20, 2016, at the communication meeting, Hijie First Sugar said that the intermediary's proposal to split the market, commission management and other solutions to inter-industry competition, may be subject to "market manipulation, limit competition" charges, and even lead to individual operators face criminal penalties, and said that further consultation with U.S antitrust lawyers professional advice before reply 9jp from late April to early May, domestic intermediaries and the overseas anti-monopoly legal counsel hired by Hi-Jie First Sugar have repeatedly communicated with the foreign anti-monopoly legal counsel on relevant anti-monopoly legal issues (such as whether the declaration and approval of "operator concentration" behavior is related to the determination of the "same economy", and in the light of the judgment standardof of domestic and foreign accounting standards for enterprise control, to discuss whether they affect the determination of the "same economy" under the anti-monopoly regulatory system, etc.)9jp in this case, the listed company and the intermediary parties discussed, and once again put forward a new proposal, that is, Hijie first sugar reduction of old shares or the number of new share subscriptions, so that after this reorganization will not become the controlling shareholder of the listed company program After submitting it to Higer's headquarters for discussion, the proposal was rejected because Higer First Sugar believed that the scheme could not achieve the trading purposes of its holding of Plum Bio at one time 9jp Hijie first sugar said that can be adopted in the listed companies by the establishment of industry experts composed of the "fair competition audit committee", regular review of The first sugar higge to use its controlling position, the implementation of the harm to the interests of small and medium-sized shareholders of Meihua Bio unfair competition, and report to the shareholders' meeting, as a mechanism to protect the fairness of the transaction After the completion of this transaction, although The first sugar and plum biology there is a competitive situation, but The first sugar of Hi-Jie will not take unfair competition to harm the commercial interests of plum bio However, the intermediary believes that this method, because of the long-term existence of the "peer competition" situation, does not comply with the "measures for the management of major asset restructuring of listed companies" Article 43, paragraph 1 of the provisions 9jp in order to facilitate this transaction, listed companies and various intermediaries have been insisting on communication with Hi-Jie first sugar, hoping to persuade them to take effective measures to solve the problem of inter-industry competition But as of May 23, 2016, no agreement was reached on a solution to the problem of competition 9jp in summary, in the understanding and discussion of competitive issues in the industry, this independent financial adviser repeatedly communicates with Hijie various solutions to the competition problems of the industry and repeatedly analyzes and demonstrates the risks and impacts of each program, fulfilling the duty of diligence and due diligence 9jp 2, performance compensation 9jp At the beginning of the transaction negotiations, Hijie First Sugar said that the three underlying companies' net assets totaled about RMB1.8 billion, and the total net profit in 2015 was about RMB100 million Based on this oral data, both companies expect the underlying company to use the revenue method to assess a valuation of between $3.8 billion and $4 billion According to the pre-trial results of the evaluation institutions, the total net assets of the three target companies were about 1.6 billion yuan, and the total net loss in 2015 was about 260 million yuan;9jp as of March 28, 2016, the information required by the evaluation agency is basically complete, based on the earnings forecast data provided by Higer First Sugar, the initial completion of the estimates of the three target companies, on the assumption that the future year, The First Sugar of Hijie is exempt from the technical use fees of the three underlying companies, the valuation is between 3 billion to 3.2 billion On April 6, 2016, the two sides and the evaluation agencies held repeated consultations on the valuation of the underlying company, and The First Sugar reported the results to the Korea headquarters for review As of April 20, 2016, Higer First Sugar said that after discussions within its Group headquarters, it was not possible to issue a performance compensation commitment for future earnings forecasts corresponding to the $3-3.2 billion earnings valuation 9jp The controlling shareholders of Plum Bio, in order to facilitate the transaction and to solve the problem that Hi-Jie First Sugar could not issue a performance compensation commitment, proposed the valuation of the three underlying companies in accordance with the asset base method As the valuation of the asset base method and the expected valuation of the two parties originally based on the income method is relatively large, the difference part by the old share transfer party in the transfer price concessions, the transfer price of the old shares from 14 yuan / share adjusted to 11 yuan / share (the total reduction of the old shares transfer amount of 1.65 billion yuan) In subsequent on-site meetings on 29 April 2016 and in e-mails dated 11 May 2016, 14 May 2016 and 16 May 2016, Hijdge First Sugar expressed its commitment to the transaction and will do everything in its future, while expressing the hope that the desire of Higer First Sugar to adjust the price of the old shares will be fully affirmed In a letter dated May 17, 2016, the old share transfer either made another concession, stating that the transfer price of the old shares could be adjusted to 10.5 yuan/share and urging it to make a clear statement in the shortest possible time 9jp on the evening of May 20, 2016, Hijie first sugar in a reply, said, "Unlike the beginning of the negotiations, the current market environment continues to deteriorate, and the duration is expected to be very long, we believe that the adjustment of the transfer price of old shares will be inevitable, our company proposed the transfer price of the old shares of 9.5 yuan / share, this price is the highest price that Heijie can accept as an excuse for the market environment growth in the first quarter The request for a complete breakthrough in the framework agreement, the transfer price of the old shares than the original agreed price of the framework agreement reduced by 32%, more importantly, after the completion of the transaction, Mr Meng Qingshan to entrust the voting rights of his remaining shares to Hi-Jie first sugar requirements (this move will lead to Mr Meng Qingshan to become a consensus action person, Shijie first sugar in the case of the actual holding of 30.07 percent of the listed company control about 48 percent of the voting rights), May 22, 2016 to the above-mentioned views 9jp this termination of the planning of the issuance of shares to purchase assets, is due to The first sugar in the plum biology near the resumption of trading, unilaterally requested substantial modification of the framework agreement and agreement, while attaching adverse conditions to listed companies and equity transfer espoused, so that the two sides on May 23 can not sign an agreement on time and issuead a plan, resulting in the restructuring was forced to suspend 9jp In this process, the financial adviser of the listed company communicates with Hi-Jie First Sugar and its intermediaries in various forms, such as meetings, telephone calls, mails, etc., to communicate the inter-industry competition and performance compensation solutions, and to help them analyze the risks and impact of each program, fulfilling the duty of diligence and due diligence 9jp II, the company planning this reorganization suspension time of up to 5 months, during the period of overseas acquisitions and other complex reasons repeatedly applied for extension of the resumption of trading, but the relevant restructuring progress announcement has never revealed the above-mentioned risk stakes that may lead to the termination of the reorganization, please the company combined with the reorganization transaction process memorandum, explain the failure to timely reveal the above-mentioned restructuring may face termination risk 9jp Response: 9jp Company announced on April 25, 2016 "Additional Announcement on the Progress of the Suspension of Trading in the Purchase of Assets by Meihua Biotech Group Co., Ltd ( No 2016-043), the above-mentioned risks disclosed as follows: 9jp "IV, the Company considers the necessary risk tips: This transaction involves There may be conflicts in the relevant legal provisions of domestic and foreign anti-monopoly matters, the specific details involved in the transaction are more complex, while the transaction involves audit, evaluation and other work has not yet been completed, the two parties to the transaction has not signed a formal agreement, the transaction-related matters after the determination of the board of directors, the shareholders' meeting of consideration and approval, after the CSRC approval and the Ministry of Commerce of the transaction operators focused on the review and approval of strategic investment and foreign investors can be implemented As a result, there is significant uncertainty about the current transaction "9jp the above disclosure announcement has specifically suggested that the program design for this transaction (including the market division, business custody and other program design for the purpose of solving inter-industry competition issues) may conflict with the relevant legal provisions on domestic and foreign anti-monopoly matters, including the specific legal details involved (including "corporate collusion", "same economy" identification, etc.) is more complex will result in significant uncertainty in this transaction With regard to valuation and earnings commitments, the Company announced on April 25, 2016 that the "Supplementary Announcement on the Progress of the Suspension of Trading in the Issue of Shares of Meihua Biotech Group Co., Ltd ( No 2016-043) "Has not yet agreed on the difference between the underlying asset valuation and the expected difference between the two parties to the transaction, and the difference between the valuation of the underlying asset and the valuation expectations of the counterparty, according to the preliminary assessment of the appraisal institution, the transaction is not yet agreed upon." 9jp Hijie First Sugar on April 20, 2016 to return to the performance commitment, in order to meet the framework agreement between the two sides and the initial set conditions, Meihua Bio controlling shareholder Mr Meng Qingshan offered to make concessions in the transfer price of old shares to meet The First Sugar subscription of 550 million shares, 550 million shares of the old shares, holding a higher proportion of 30% of the terms of the old profit can be reduced through the transfer price 9jp but Hi-Jie First Sugar in the evening of May 20, 2016 and May 22, 2016 in the reply, unilaterally requested substantial revision of the framework agreement and agreement, while attaching adverse conditions to listed companies and equity transferees, making the two sides on May 23, 2016 unable to sign an agreement and issue a plan on time, resulting in the suspension of the reorganization 9jp , the Company has disclosed in a timely manner, as required, the main risks that may lead to the planning of the termination of the purchase of assets in this issue of shares 9jp 3, according to the announcement, the Company and the Company's controlling shareholders reserve the right to pursue the first sugar liability of Hijie Please specify the measures that the company intends to take to safeguard its legitimate rights and interests in the context of the agreed terms on liability for breach of contract in the framework agreement on the relevant transaction 9jp reply: