SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [x]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c)
or ss.240.14a-12
DRAGON PHARMACEUTICAL INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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DRAGON PHARMACEUTICAL INC.
1055 West Hastings Street, Suite 1900
Vancouver, British Columbia
Canada V6E 2E9
Telephone (604) 669-8817
To Our Shareholders:
You are cordially invited to attend the annual meeting of the shareholders
of Dragon Pharmaceutical Inc. to be held at 10:00 a.m. local time, on Friday,
August 12, 2005 at our principal executive office located at 1055 West Hastings
Street, Suite 1900, Vancouver, British Columbia V6E 2E9.
At the meeting, you will be asked to:
o elect five nominees as members of the Board of Directors to serve
until their successors are elected and qualified;
o approve an amendment to our Certificate of Incorporation to eliminate
Article VII which states a specified number of directors;
o approve an amendment to Article II, Section 1 of our Bylaws to allow
the Board of Directors to set the number of directors at not less than
one and not more than eleven directors;
o approve the adoption of the 2005 Stock Option Plan; and
o approve the adjournment of the annual meeting for any permitted
reason, including, if necessary, to solicit additional proxies in the
event that there are not sufficient votes at the time of the annual
meeting to approve the proposals.
We hope you plan to attend the annual shareholders' meeting. However,
whether or not you plan to attend the meeting in person, in order that we may be
assured of a quorum we urge you to sign and return the enclosed proxy in the
postage-paid envelope provided as promptly as possible.
/s/ Yanlin Han
----------------------------
Yanlin Han,
July 13, 2005 Chairman of the Board
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DRAGON PHARMACEUTICAL INC.
1055 West Hastings Street, Suite 1900
Vancouver, British Columbia
Canada V6E 2E9
Telephone (604) 669-8817
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on August 12, 2005
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of Dragon
Pharmaceutical Inc. (the "Company"), a Florida corporation, will be held at our
principal executive office located at 1055 West Hastings Street, Suite 1900,
Vancouver, British Columbia V6E 2E9, on Friday, August 12, 2005 at 10:00 a.m.
local time, for the purpose of considering and acting on the following
proposals:
1. Elect five nominees as members of the Board of Directors to serve until
their successors are elected and qualified;
2. Approve an amendment to our Certificate of Incorporation to eliminate
Article VII which states a specified number of directors;
3. Approve an amendment to Article II, Section 1 of the Bylaws to allow the
Board of Directors to set the number of directors at not less than one and
not more than eleven directors;
4. Adopt the 2005 Stock Option Plan; and
5. Approve the adjournment of the annual meeting for any permitted reason,
including, if necessary, to solicit additional proxies in the event that
there are not sufficient votes at the time of the annual meeting to approve
the proposals.
Only shareholders of record at the close of business on July 12, 2005, are
entitled to receive notice of and to vote at the meeting. Shareholders are
invited to attend the meeting in person.
Please sign and date the accompanying proxy card and return it promptly in
the enclosed postage-paid envelope whether or not you plan to attend the meeting
in person. If you attend the meeting, you may vote in person if you wish, even
if you previously have returned your proxy card. The proxy may be revoked at any
time prior to its exercise. If your shares are held in the name of a bank,
broker or other fiduciary, please follow the instructions on the voting
instruction card furnished by the shareholder of record. Remember, your vote is
important so please act as promptly as possible.
By Order of the Board of Directors
July 13, 2005 Maggie Deng, Secretary
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DRAGON PHARMACEUTICAL INC.
1055 West Hastings Street, Suite 1900
Vancouver, British Columbia
Canada V6E 2E9
Telephone (604) 669-8817
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PROXY STATEMENT
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We, Dragon Pharmaceutical Inc., (the "Company") are furnishing this proxy
statement to you in connection with our 2005 annual meeting to be held on
Friday, August 12, 2005, at 10:00 a.m. local time at our principal executive
office located at 1055 West Hastings Street, Suite 1900, Vancouver, British
Columbia V6E 2E9, and at any adjournment thereof.
A copy of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2004, accompanies this Proxy Statement. These proxy materials were
first mailed to shareholders on or about July 14, 2005.
At the annual meeting, shareholders will be asked to:
o Elect the five nominees as members of the Board of Directors to serve
until their successors are elected and qualified;
o Approve an amendment to our Certificate of Incorporation to eliminate
Article VII which states a specified number of directors;
o Approve an amendment to Article II, Section 1 of the Bylaws to allow
the Board of Directors to set the number of directors at not less than
one and not more than eleven directors;
o Adopt the 2005 Stock Option Plan; and
o Approve the adjournment of the annual meeting for any permitted
reason, including, if necessary, to solicit additional proxies in the
event that there are not sufficient votes at the time of the annual
meeting to approve the proposals.
The enclosed proxy is solicited on behalf of our board of directors and may
be revocable by you at any time before the voting of such proxy. All properly
executed proxies delivered pursuant to this solicitation will be voted at the
meeting and in accordance with instructions, if any.
Unless the context otherwise requires, all references to the "Company,"
"we," "us," and "our" refer to Dragon Pharmaceutical Inc. and its subsidiaries.
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QUESTIONS AND ANSWERS
ABOUT THE MEETING AND VOTING
The following are some questions that you, as a shareholder of Dragon, may
have regarding matters being considered at the annual shareholders' meeting and
the answers to those questions.
What is the purpose of the Annual Meeting?
The purpose of the annual meeting is to allow you to vote on the matters
outlined in the accompanying Notice of Annual Meeting of Shareholders, including
the election of the directors.
Who is entitled to vote?
Only shareholders of record at the close of business on July 12, 2005 (the
Record Date), are entitled to vote at the meeting, or any postponements or
adjournments of the meeting.
What are the Board's recommendations on the proposals?
The Board recommends a vote FOR each of the nominees for director and FOR
Proposals 2, 3, 4 and 5.
How do I vote?
Sign and date each proxy card you receive and return it in the
postage-prepaid envelope enclosed with your proxy materials. If you are a
registered shareholder and attend the meeting, you may deliver your completed
proxy card in person.
If your shares are held by your broker or bank, in "street name," you will
receive a form from your broker or bank seeking instructions as to how your
shares should be voted. If you do not instruct your broker or bank how to vote,
your broker or bank will vote your shares if it has discretionary power to vote
on a particular matter.
Who will count the votes?
Our Secretary will count the votes and act as the inspector of election.
Our transfer agent, Computershare Trust Company of Canada, will count the
proxies and provide this information at the time of the meeting.
What shares are included on the proxy card(s)?
The shares on your proxy card(s) represent ALL of your shares. If you do
not return your proxy card(s), your shares will not be voted.
What does it mean if I get more than one proxy card?
If your shares are registered differently and are in more than one account,
you will receive more than one proxy card. Sign and return all proxy cards to
ensure that all your shares are voted. We encourage you to have all accounts
registered in the same name and address (whenever possible). You can accomplish
this by contacting our transfer agent, Computershare Trust Company of Canada
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(604) 661-9400), or, if your shares are held in "street name," by contacting the
broker or bank who holds your shares.
How many shares can vote?
There were 62,878,004 shares of common stock issued and outstanding as of
the Record Date. Every shareholder is entitled to one vote for each share of
common stock held.
What is a "quorum"?
A "quorum" is a majority of the outstanding shares entitled to vote and
attending the meeting. They may be presented in person or represented by proxy.
For the purposes of determining a quorum, shares held by brokers or nominees for
which we receive a signed proxy will be treated as present even if the broker or
nominee does not have discretionary power to vote on a particular matter or if
instructions were never received from the beneficial owner. These shares are
called "broker non-votes." Abstentions will be counted as present for quorum
purposes.
What do I need to do now?
After you have carefully read this proxy statement, indicate on your proxy
card how you want your shares voted, then sign and mail the proxy card in the
enclosed postage-prepaid return envelope marked "Proxy" as soon as possible so
that your shares may be represented and voted at the meeting.
Can I change my vote after I have mailed my signed proxy card?
Yes. There are three ways for you to revoke your proxy and change your
vote. First, you may send a written notice to our secretary stating that you
would like to revoke your proxy. Second, you may complete and submit a new proxy
card. Third, you may vote in person at the meeting.
What is required to approve each proposal?
For the election of the directors, once a quorum has been established, the
nominees who receive the plurality of votes will be elected as our directors.
Proposals number 2 and 3 to amend our Certificate of Incorporation to eliminate
Article VII which states a specified number of directors and to amend Article
II, Section 1 of the Bylaws to allow the Board of Directors to set the number of
directors at not less than one and not more than eleven directors must be
approved by holders owning a majority of our outstanding shares of common stock.
The remaining proposals 4 and 5 to adopt the 2005 Stock Option Plan and adjourn
the annual meeting for any permitted reason must be approved by the holders of a
majority of the shares of common stock who appear in person or by proxy at the
annual meeting and vote on the proposals.
If a broker indicates on its proxy that it does not have discretionary
authority to vote on a particular matter, the affected shares will be treated as
not present and not entitled to vote with respect to that matter, even though
the same shares may be considered present for quorum purposes and may be
entitled to vote on other matters.
What happens if I abstain?
Proxies marked "abstain" will be counted as shares present for the purpose
of determining the presence of a quorum, but for purposes of determining the
outcome of a proposal, shares represented by such proxies will not be treated as
affirmative votes. To approve Proposals 2 and 3, the affirmative votes
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of a majority of the shares outstanding are required and, therefore, an
abstention is equivalent to a "no" vote. To approve Proposals 4 and 5, the
affirmative votes of a majority of the shares present and voting at the annual
meeting are required and, therefore, an abstention has no effect.
If my shares are held by a broker, will the broker vote my shares for me?
Your broker will vote your shares according to the instructions you provide
to your broker about how to vote. You should instruct your broker how to vote
your shares in accordance with the directions your broker provides. If you do
not instruct your broker how to vote, your broker will vote your shares if it
has discretionary power to vote on a particular matter. Failure to provide
instructions to your broker on items that the broker does not have discretionary
power to vote will result in your shares not being voted.
How will we solicit proxies?
The enclosed proxy is solicited on behalf of our board of directors. We
will distribute this proxy statement and solicit votes. The cost of soliciting
proxies, which will be conducted by mail, will be borne by us. These costs will
include the expense of preparing and mailing proxy solicitation materials for
the meeting and reimbursements paid to brokerage firms and others for their
reasonable out-of-pocket expenses for forwarding proxy solicitation materials to
shareholders. Proxies may also be solicited in person, by telephone, or by
facsimile by our directors, officers and employees without additional
compensation.
Whom should I contact with questions or to obtain additional copies of this
proxy statement?
Dragon Pharmaceutical Inc.
1055 West Hastings Street, Suite 1900
Vancouver, British Columbia
Canada V6E 2E9
Attention: Secretary
Telephone: 1-877-388-3784
Stock Ownership of Directors, Executive Officers and Principal Shareholders
The following table shows the amount of our common stock (symbol: TSE:DDD;
OTCBB:DRUG; Berlin: DRP) beneficially owned (unless otherwise indicated) by each
shareholder known by us to be the beneficial owner of more than 5% of our common
stock, by each of our executive officers and directors and the executive
officers and directors as a group. Except as otherwise indicated, all
information is as of July 8, 2005.
Shares Beneficially Owned(1)
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Name & Address of Beneficial Owner Number Percent
---------------------------------- ----------------- -----------
Yanlin Han
Chief Executive Officer and Director
c/o 1055 Hastings Street, Suite 1900
Vancouver, British Columbia V6E 2E9 31,151,403 47.8%
Zhanguo Weng
Vice President, China Operation and Director
c/o 1055 Hastings Street, Suite 1900
Vancouver, British Columbia V6E 2E9 8,900,401 13.7%
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Shares Beneficially Owned(1)
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Name & Address of Beneficial Owner Number Percent
---------------------------------- ----------------- -----------
Xuemei Liu
Director
c/o 1055 Hastings Street, Suite 1900
Vancouver, British Columbia V6E 2E9 4,450,200(2) 6.8%
Chow Tai Fook Nominee Limited (4)
DS Family Trust
Li & Fang Enterprises Ltd.
Chang Kuo Lung
Yukon Health Enterprises Limited
Kenny En Kai Ho
Yuang Chen Chu Kuo
Faith Equity Limited
Global Equities Overseas Limited
Goldpac Investments Partners Ltd.
Philip Pak Yiu Yuen
c/o Chow Tai Fook Nominee Limited
31F New World Tower
16-18 Queens Road Central, Hong Kong 7,050,000 10.8%
Alexander Wick,
President and Director 975,000 (3) 1.5%
Yiu Kwong Sun,
Director 975,000 (4)(5) 1.5%
Maggie Deng,
Chief Operating Officer 200,000 (6) *
Garry Wong,
Chief Financial Officer 220,000 (6) *
All directors and executive officers as a group (8 persons) 47,072,004 (7) 72.3%
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* Represents less than one percent.
(1) Except as otherwise indicated, we believe that the beneficial owners of the
common stock listed above, based on information furnished by such owners or
publicly available, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to options or warrants currently exercisable, or exercisable within sixty
days, are deemed outstanding for purposes of computing the percentage
ownership of the person holding such option or warrants, but are not deemed
outstanding for purposes of computing the percentage ownership of any other
person.
(2) Includes options to purchase 200,000 shares.
(3) Includes options to purchase 675,000 shares.
(4) Based on Chow Tai Fook Nominee Limited's Schedule 13D filed with the SEC on
October 29, 2003, which was filed as a group. Although Chow Tai Fook
Nominee Limited filed a Schedule 13D with the SEC on October 29, 2003, as a
group, such Schedule 13D has never been amended and it is unclear whether
or not the Member's agreement is still in effect.
(5) Includes 275,000 shares of common stock subject to options exercisable
within sixty days. Also includes 600,000 shares of common stock owned by
Yukon Health Enterprise for which Mr. Sun serves as director and officer.
(6) Represents options exercisable within sixty days.
(7) Includes options and warrants to acquire 1,645,000 shares of common stock.
Also includes shares owned by Yukon Health Enterprises Ltd. but does not
include shares held by other Members of the group disclosed in Note (4).
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PROPOSAL 1--ELECTION OF DIRECTORS
Our Certificate of Incorporation provides the number of Directors shall be
no less than one nor more than five. The Board has fixed the authorized number
of directors at five. The term of office for the directors elected at this
meeting will expire at the next annual meeting of shareholders or until a
director's earlier death, resignation or removal.
During 2004, the Board of Director consisted of Messrs. Wick, Sun, Longbin
Liu, Ken Cai and Philip Yuen. In connection with the acquisition of Oriental
Wave in 2005, and Messrs. Liu, Cai and Yuen did not seek re-election.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the five nominees named below. If any nominee of the
Company is unable or declines to serve as a director at the time of the annual
meeting, the proxies will be voted for any nominee designated by the present
Board of Directors to fill the vacancy. Each nominee has agreed to serve as
director, if elected.
The nominees for directors are Mr. Yanlin Han, Mr. Zhanguo Weng, Ms. Xuemei
Liu, Dr. Alexander Wick, Ph.D, and Dr. Yiu Kwong Sun, M.D. The following
indicates the age, principal occupation or employment for at least the last five
years and affiliation with the Company, if any, for each nominee as director.
Mr. Yanlin Han, age 42, is the Chief Executive Officer and the Chairman of
the Board of Director of Dragon, positions he assumed in January 2005. He has
been the Chairman of Oriental Wave and responsible for the overall strategic
planning and direction of Oriental Wave starting the date he founded the
company. Mr. Han has over 20 years of experience in the pharmaceutical industry
in many positions like material buyer, product sales and manager for state-own
companies in China and has very extensive sales and production management
experience in China. He founded his private company named Shanxi Tongling
Pharmaceutical Company in 1994, which became the vehicle to acquire state own
pharmaceutical companies through bankruptcy process or contractual management
agreements. Mr. Han set up a joint venture with a large Indian pharmaceutical
company to produce pharmaceutical intermediates with mass fermentation
technology. Mr. Han also serves as the Vice-President of Shanxi Province Foreign
Investment Enterprise Association and Vice-President of Datong City Trade
Council. Mr. Han graduated from Shanxi Institute of Economic Management in 1986.
Mr. Zhanguo Weng, age 50, had been a Director of the Company since January
2005. Mr. Weng is the Vice President, China Operation, a Director of Dragon and
the Chairman of Oriental Wave, responsible for the overall daily operations of
Shanxi Weiqida. Mr. Weng has over 25 years of experience in pharmaceutical
industry including being the General Manager for Shanxi Tongzhen Pharmaceutical
Co. Ltd. from August 1997 to January 2002 and Superintendent for Datong No. 2
Pharmaceutical Factory from June 1992 to August 1997. He graduated from the
Business Administration faculty of Shanxi Broadcasting University in 1986 and
has also participated the Senior Program of MBA (Pharmaceutical Line) of
People's University of China for two years.
Ms. Xuemei Liu, age 36, has been a Director of the Company since January
2005. Ms. Liu is currently the Chairman of Tera Science & Technology Development
Co. Ltd. which engages in a wide range of investment projects in real estate
development, coal trading and media and publishing industry. Prior to her
present position as Chairman of Tera Science & Technology Development Co. Ltd.,
Ms. Liu was the vice general manager of Beijing Chemical Baifeng Investment
Corporation Futures Broker Company from 1996 to 1999. Ms. Liu graduated from
Beijing University with a Bachelor degree in 1996 and graduated from the
Graduate School of the Chinese Academy of Social Sciences with a Master degree
in 1998.
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Dr. Alexander Wick, Ph.D., age 67, is the President and a Director of
Dragon and has been President since 2002 and a Director since 1998. Dr. Wick
holds a doctorate degree in synthetic organic chemistry from the Swiss Federal
Institute of Technology and has completed post-doctoral studies at Harvard
University. He has had leading positions in the pharmaceutical research
departments of F. Hoffmann-La Roche in the United States and Switzerland and
Synthelabo in France (Director of Chemical Research and Development) for over 25
years in the field of antibiotics, prostaglandius, vitamins, cardiovascular CNS
and AIDS. In 1995 he created the fine chemicals company Sylachim S.A., a 100%
subsidiary of Synthelabo, active in chemical intermediates and API's for the
world's largest pharmaceutical companies (turnover of over 100 million Euros)
and was its President until its acquisition by the German conglomerate mg
Technologies (Dynamit-Nobel GmbH) in 2001.
Dr. Yiu Kwong Sun, M.D., age 61, has been a Director of Dragon since 1999.
Dr. Sun graduated from the University of Hong Kong Faculty of Medicine in 1967.
He is a Founding Fellow of the Hong Kong College of Family Physicians and a
Fellow of the Hong Kong Academy of Medicine. Since 1995, he has served as the
Chairman of the Dr. Sun Medical Centre Limited, which has been operating a
network of medical centers in Hong Kong and China for the past 20 years. He is
also the Administration Partner of United Medical Practice, which manages a
large network of medical facilities throughout Hong Kong and Macau. Dr. Sun has
been a member of the Dr. Cheng Yu Tung Fellowship Committee of Management of the
University of Hong Kong Faculty of Medicine since 1997.
Recommendation of the Board
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" THE NOMINEES
LISTED ABOVE.
Information Concerning Board Compensation, Meetings and Committees
Directors are not routinely compensated for their services. However, from time
to time, Board members are awarded stock options as determined by the Board. The
exercise price of the options is based on the fair market value of the
underlying shares of common stock at the time of grant. No director received any
compensation during 2004. At a directors' meeting held on January 12, 2005, Ms.
Liu, Dr. Sun and Dr. Wick were granted options to purchase 200,000, 200,000, and
400,000 shares of common stock, respectively, at $1.18 per share which
represented the closing per share price as of that date.
The Board of Directors met five times during fiscal 2004. Drs. Wick and Sun
attended all five meetings. Messrs. Han and Weng and Ms. Liu were appointed
Directors in 2005. We do not have a formal policy regarding the attendance of
our directors at annual or special meetings of shareholders, but we encourage
directors to attend such meetings. All of our directors attended the last annual
meeting of shareholders.
During 2004, the Company previously had an audit committee that consisted of Mr.
Philip Yuen Pak Yiu and Dr. Yiu Kwong Sun. During the latter part of 2004, Mr.
Yuen resigned from the audit committee. In light of Mr. Yuen's resignation that
left one remaining member, the audit committee's functions are now handled by
the Board of Directors. Because of the Company's current size and limited access
to potential directors, the Board of Directors does not have an Audit Committee
financial expert within the meaning of Item 401 of Regulation S-B. The current
Board intends to establish an audit committee consisting of only independent
directors and in which one director will meet the requirements of a financial
expert.
The Company does not have a separate Compensation Committee. Those functions are
handled by the entire Board of Directors.
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Under the Share Purchase Agreement with Oriental Wave, we appointed Mr. Yanlin
Han, Mr. Zhanguo Weng and Ms. Xuemei Liu as directors of the Company on January
12, 2005. Currently, we do not have a nominating committee of the board and the
board believes it is appropriate not to have such a committee as a result of the
ability of the board, as a whole, to provide similar functions as to those that
would otherwise be provided by a nominating committee.
All of our directors participate in the consideration of director nominees.
Candidates may come to the board's attention through current directors,
management, shareholders or other persons. Candidates are evaluated at regular
or special meetings of the board and may be considered at any point during the
year. The board may take such measures that it considers appropriate in
connection with its evaluation of a candidate, including candidate interviews,
inquiry of the person recommending the candidate, engagement of an outside
search firm to gather additional information, or reliance on the knowledge of
the members of the board or management.
We do not have a policy with regard to the consideration of any director
candidates recommended by security holders. However, the board will review
correspondence and other communications it receives from security holders and,
therefore, is of the view that it is appropriate for us not to have such a
policy. The board will consider candidates recommended by security holders and
will do so upon their receipt of information that includes the candidates name
and qualifications. The information can be delivered to Secretary of Dragon,
1055 West Hastings Street, Suite 1900, Vancouver, British Columbia V6E 2E9.
In accordance with Securities Exchange Commission regulations, the following is
the Audit Committee Report. Such report is not deemed to be filed with the
Securities Exchange Commission.
Audit Committee Report
This section will not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any other filing
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, except to the extent we specifically incorporate this
information by reference, and will not otherwise be deemed filed under such
Acts.
The audit committee oversees the financial reporting process for us on
behalf of the board of directors. In fulfilling its oversight responsibilities,
the audit committee reviewed the annual financial statements included in the
annual report filed with the Securities and Exchange Commission as well as the
unaudited financial statements filed with our quarterly reports.
In accordance with Statements on Accounting Standards (SAS) No. 61,
discussions were held with management and the independent auditors regarding the
acceptability and the quality of the accounting principles used in the reports.
These discussions included the clarity of the disclosures made therein, the
underlying estimates and assumptions used in the financial reporting, and the
reasonableness of the significant judgments and management decisions made in
developing the financial statements. In addition, the audit committee has
discussed with the independent auditors their independence from us and our
management, including the matters in the written disclosures required by
Independence Standards Board Standard No. 1. (Independence Discussions with
Audit Committee).
The audit committee has also met and discussed with our management, and our
independent auditors, issues related to the overall scope and objectives of the
audits conducted, the internal controls used by us, and the selection of our
independent auditors. In addition, the audit committee discussed with
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the independent auditors, with and without management present, the specific
results of audit investigations and examinations and the auditor's judgments
regarding any and all of the above issues.
Pursuant to the reviews and discussions described above, the audit
committee recommended to our board of directors that the audited financial
statements be included in our annual report on Form 10-KSB for the fiscal year
ended December 31, 2004, filed with the Securities and Exchange Commission.
By the Board of Directors
Mr. Yanlin Han, Mr. Zhanguo Weng, Dr. Yiu Kwong Sun, M.D.,
Dr. Alexander Wick, Ph.D and Ms. Xuemei Liu
Report on Executive Compensation
The Board has furnished the following report on Executive Compensation.
Dragon has developed and implemented a compensation policy, plan, and
program which attempts to enhance the profitability of Dragon, and thus
shareholder value, by aligning closely the financial interests of Dragon
executive officers with those of its shareholders. For Dragon, earnings per
share growth and return on average shareholders' equity are critical elements in
the establishment of long-term incentive programs. The process involved in the
executive compensation determination for fiscal 2004 is summarized below.
Compensation for each of the persons named in the Executive Compensation
Table consists of stock options. Other senior executives compensation consists
of a base salary, an annual bonus, and stock options.
Long-term incentives of stock options.
-------------------------------------
The Board has approved a Human Resources Policy that provides a framework
to determine base salaries and annual bonuses after a subjective evaluation of
various factors, including salaries paid to senior managers with comparable
qualifications, experience, and responsibilities at other corporations,
individual job performance, local market conditions, and the Boards perception
of the overall financial performance of Dragon (particularly operating results),
without considering specific performance targets or objectives, and without
assigning particular weights to individual factors. As to executive officers
other than the Chief Executive Officer, the Board also considers the
recommendations made by the Chief Executive Officer.
By the Board of Directors
Mr. Yanlin Han, Mr. Zhanguo Weng, Dr. Yiu Kwong Sun, M.D.,
Dr. Alexander Wick, Ph.D and Ms. Xuemei Liu
Executive Officers of Dragon
The names, ages and backgrounds for at least the past five years for each
person who served as an executive officer during the past fiscal year is as
follows:
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Name Position Age Period
---- -------- ---- ------
Yanlin Han Chairman and Chief Executive 42 January 2005 - present
Officer
Dr. Alexander Wick President 67 September 2002 - present
Director September 1998 - present
Zhanguo Weng Vice President, China Operations 50 January 2005 - present
Maggie Deng Chief Operating Officer 38 January 2005 - present
Garry Wong Chief Financial Officer 34 January 2005 - present
James Harris Vice President, Marketing and 50 January 2003 - present
Sales
Matthew Kavanagh Secretary, Principal Financial 49 July 2001 - January 2005
and Accounting Officer
Mr. Yanlin Han. See "Election of Directors."
Dr. Alexander Wick. See "Election of Directors."
Mr. Zhanguo Weng. See "Election of Directors."
Ms. Maggie Deng is the Chief Operating Officer of the Company, holding
bachelor degree from Tsinghua University in China. Ms. Deng has over 10 years of
experience working in or with public companies as investment banker, mainly on
IPOs and secondary offering for Chinese companies on domestic stock exchange as
well as international ones. Ms. Deng was the senior manager of China
International Capital Corporation, a Morgan Stanley joint venture investment
banking firm in China, from 1998 to 2001. Ms. Deng moved to Canada in 2001 and
held a position of Assistant to President in a start-up biotech company in
Vancouver.
Mr. Garry Wong, CFA is the Chief Financial Officer of the Company since
January 2005. Prior to his current position, Mr. Wong served as our Executive
Assistant to President and CEO from February 2002 to January 2005. Before
joining the Company, Mr. Wong was a team member of the Global Mergers and
Acquisitions Group at Nortel Networks since 1996. He managed and executed
transactions consisted of acquisitions, divestitures, equity investments,
spin-offs, public market listing and joint ventures, and occurred in Europe,
North America, Asia and the Middle East. Mr. Wong is a Chartered Financial
Analyst who received an International MBA degree from York University with
double majors in Corporate Finance and Greater China studies and a Bachelor
degree in Business Administration from University of Hong Kong.
Mr. James Harris is the Vice President Marketing and Sales for the Company.
Mr. Harris has over 22 years of experience within the above field in several
capacities of increasing responsibility, working with various firms ranging from
large multinationals to small generic companies. Mr. Harris spent eight years
with Amgen most recently as a National Accounts Manager and ten years with Bayer
in various sales and marketing capacities.
Mr. Matthew Kavanagh, CA is the Director of Finance and Corporate
Compliance and was the Principal Accounting and Financial Officer and Secretary
of the Company. Mr. Kavanagh joined Dragon in July 2001 and brought 18 years
experience as a Chartered Accountant in both public practice and industry. For
the past eight years, Mr. Kavanagh has been the Controller and Senior Financial
Officer for a publicly listed venture capital corporation and, most recently,
for a private international auction and liquidation company.
- 13 -
The following table sets forth the compensation for fiscal years 2004, 2003
and 2002 for our President. No other officers or directors received annual
compensation in excess of $100,000 during any of the past three years.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------------------------ ------------------------------------------------------
Awards Payout
-------------------------- ----------
Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Compensation Stock Underlying Payout Compensation
($) ($) Award(s) Options (#) ($) ($)
-------------------------------------------- -------------------------- ----------------------------
Alexander Wick 2004 $0 (1) -0- -0- -0- -0- -0- -0-
President 2003 $0 (1) -0- -0- -0- 200,000 -0- -0-
2002 $0 (1) -0- -0- -0- -0- -0- -0-
(1) Dr. Wick was appointed President in September 2002. He is not paid for his
services, but is reimbursed for expenses he incurs in the course of
performing his duties for us. He received an option to purchase 200,000
shares of common stock at $0.68 per share in 2003.
Employment Agreements
The Company has no employment agreements. Dr. Wick is not drawing a salary
from the Company. In April 2003, Dr. Wick received options to acquire 200,000
shares of common stock at $0.68 per share. In addition, in January 2005, Dr.
Wick received option to purchase 400,000 of Company shares at $1.18 for his
services as an officer and director. Further, in January 2005, Ms. Deng and Mr.
Wong each received option to purchase 200,000 shares of common stock at $1.18
per share.
Equity Compensation Plan Information
The shareholders of the Company approved the share option plan at the
Annual General Meeting held on December 18, 2001. There are currently 4,500,000
shares reserved under the plan. As of July 8, 2005, there were options to
acquire 3,128,000 shares of common stock outstanding.
The following table provides aggregate information as of the end of the
fiscal year ended December 31, 2004 with respect to all compensation plans
(including individual compensation arrangements) under which equity securities
are authorized for issuance.
- 14 -
----------------------------------- -- ----------------------- -- ---------------------- -- -------------------------
A B C
----------------------- ---------------------- -------------------------
Number of securities
remaining available for
Number of securities future issuance under
to be issued upon Weighted-average equity compensation
exercise of exercise price of plans (excluding
outstanding options, outstanding options, securities reflected in
Plan Category and warrants and warrants column A)
----------------------------------- ----------------------- ---------------------- -------------------------
Equity compensation plans
approved by security holders 1,749,000 $2.36 2,475,000
Equity compensation plans not
approved by security holders 0 0
----------------------------------- -- ----------------------- -- ---------------------- -- -------------------------
Total 1,749,000 $2.36 2,475,000
----------------------------------- -- ----------------------- -- ---------------------- -- -------------------------
Certain Relationships and Related Transactions
During the past two fiscal years, we have been a party to transactions
involving certain of our directors or executive officers. See also Notes 6, 8,
9, 13 and 19(a) to our Financial Statements for the year ended December 31,
2004.
Dragon has entered into a verbal agreement with a company controlled by Dr.
Ken Cai, one of the Company's former directors. During 2002, we paid $80,000 and
during 2003, we paid $40,000 to Dr. Cai's company. The agreement was terminated
in June 2003. Dr. Cai's company provided oversight and management services to
Company for its operations in China.
On October 6, 2000, we entered into an acquisition agreement with Alphatech
Bioengineering to acquire its rights and technology relating to developing
Hepatitis B vaccine through the application of genetic techniques on hamster
ovary cells. Alphatech Bioengineering's Hepatitis B vaccine is in the
development stage. Alphatech Bioengineering is jointly owned by Dr. Longbin Liu
and Mr. Philip Yuen, two of the Company's former directors. On June 5, 2001,
Dragon amended the agreement with Alphatech to allow Dragon to pursue additional
options for the Hepatitis B Vaccine project. Under the terms of the amended
agreement, Dragon would explore different options for the Hepatitis B Vaccine
project including, but not limited to, joint venture partnerships, establishing
a production facility, and selling the project to a third party.
In the event that Dragon did not find an option regarding the Hepatitis B
Vaccine project suitable to Dragon within nine months from the date of the
Amended Agreement, Dr. Longbin Liu, one of the principals of Alphatech, would
repurchase the Hepatitis B Vaccine project for $4.0 million, which was the
purchase price that Dragon originally paid to Alphatech, and assume operational
development. Dr. Liu was the President and CEO of Dragon at the time of both
transactions. Dragon decided not to pursue the project and Dr. Liu demanded to
repurchase the project on the agreed terms. Dr. Liu has paid Dragon $500,000
with the balance of $3.5 million, plus interest accruing at 6% per annum from
September 2002, due September 5, 2003. Dr. Liu did not pay the remaining balance
of $3.5 million on the due date of September 5, 2003. As a result of the
non-payment, Dragon began legal action to collect the money.
- 15 -
During fiscal year 2000, Dragon paid $400,000 to Guanzhou Recomgen Biotech
Co. Ltd. ("Guanzhou Recomgen"), a company incorporated in China, for the funding
of its TPA research and development programs with the intention of acquiring the
technology. Guanzhou Recomgen is controlled by Dr. Longbin Liu. Subsequent to
the year-end, due to financial market and economic conditions, the Company
decided not to proceed with the funding and the acquisition. In accordance with
the agreement, Guanzhou Recomgen refunded the $400,000 to Dragon during fiscal
2002.
We have entered into a Patent Development Agreement dated January 14, 2002
with Dr. Longbin Liu and Novagen whereby we have the first right to select and
acquire one patent resulting from the discover of a new gene or protein. In
consideration of the right under the Patent Development Agreement, we paid Dr.
Liu and Novagen $500,000 in the aggregate and warrant to purchase 1,000,000
shares of our common stock at an exercise price of $2.50 per share. The $500,000
will be refunded and warrant will be cancelled if no patent applications have
been filed by January 14, 2005.
The Company has entered into a Project Development Agreement with Dr. Liu
dated January 14, 2002 whereby Dr. Liu has agreed to conduct the research and
development of G-CSF and Insulin for Dragon. Dragon will make payment for the
development of G-CSF as follows: (i)$500,000 to be provided at the commencement
of the research in the G-CSF Project; (ii) $500,000 to be provided when
cell-line and related technology is established and animal experimentation
commences in the G-CSF Project; (iii) $300,000 to be provided when a permit for
clinical trials for G-CSF has been issued by the State Drug Administration of
China ("SDA"); (iv) $200,000 to be provided when a new drug license for G-CSF is
issued to Dragon by the SDA and (v)$500,000 to be paid as a bonus if the SDA
issues the new drug license for G-CSF to Dragon before January 14, 2005.
Dragon will make payment for the development of Insulin as follows: (i)
$750,000 to be provided by at the commencement of the research in the Insulin
Project; (ii) $750,000 to be provided when cell-line and related technology is
established and animal experimentation commences in the Insulin Project; (iii)
$300,000 to be provided when a permit for clinical trials for Insulin has been
issued by the SDA; (iv) $200,000 to be provided when a new drug license for
Insulin is issued to Dragon by the SDA and (v) $500,000 to be paid as a bonus if
the SDA issues the new drug license for Insulin to Dragon before January 14,
2005.
For both the G-CSF and Insulin Projects: (i) If Dragon elects to cease
development of the project it will forfeit any payments made and lose ownership
of the Project, but it will not be obligated to make any further payments toward
the Project; and (ii) if an application for permit for clinical trials is not
submitted within three years with respect to the G-CSF Project by or four years
with respect to the Insulin Project or if the SDA rejects the Project for
technical or scientific reasons or if development of the project is terminated
by Dr. Liu, then Dr. Liu will refund to Dragon all amounts paid, without
interest or deduction, with respect to the Project within six months.
During 2002, Dragon paid a total of $1,500,000 and $500,000 towards the
Insulin and G-CSF Projects, respectively. Dragon has paid an additional $100,000
to a company controlled by Dr. Liu to produce Insulin samples for drug
registration purposes. No payments were made by Dragon in 2003 under the Project
Development Agreement.
On November 2003, we filed a complaint against Dr. Liu, our former Director
and Chairman, for payment of $3,500,000, plus interest calculated at 6% per
annum, due on September 5, 2003, pursuant to the terms of the Acquisition
Agreement related to Hepatitis B Vaccine Project entered into by us and Dr. Liu
on October 6, 2000, as amended on June 5, 2001.
On April 4, 2004, we entered into a comprehensive settlement with Dr. Liu
and Novagen, a company controlled by Dr. Liu, to settle the amount owed to us by
Dr. Liu as a result of his acquisition of
- 16 -
the Hepatitis B Project. The settlement agreement provides that the Hepatitis B
Project and Patent and Project Development agreements dated January 14, 2002, as
amended, have been cancelled. Further, pursuant to the settlement agreement, the
G-CSF, Insulin and Hepatitis B Projects, including rights of ownership and
development obligations would revert to Dr. Liu.
In exchange, Dr. Liu agreed to pay us the $3,710,000 in principal and
interest owing under the Hepatitis B Project as well as reimburse us $1,330,000
that had been paid previously under the Patent and Project Development
agreements. All amounts were due December 31, 2004 and the warrants granted to
Dr. Liu under the Patent Development agreement were cancelled. Dr. Liu agreed to
provide 2,600,000 common shares of the Company, to be held in escrow, as
security for the amounts owing with a condition of the agreement being that
2,200,000 common shares of the Company be placed in escrow by June 30, 2004.
Dr. Liu did not repay the amounts owing on December 31, 2004 and forfeited
the 2,231,000 common shares of the Company that were held in escrow for as
security for the amount owing. These shares, which were subsequently cancelled
by the Company, were valued at $2,606,486 and resulted in the Company realizing
a recovery of $2,106,486 of the amount that had been written-down in prior
years.
Dr. Liu is still indebted to the Company in the amount of approximately
$2.48 million with this debt accruing interest at the rate of 6% per annum. This
debt is carried on the Company's books at $100.
PROPOSAL 2 - AMENDMENT TO DRAGON'S
CERTIFICATE OF INCORPORATION TO ELIMINATE
ARTICLE VII WHICH SPECIFIES THE NUMBER OF DIRECTORS
The Board of Directors has approved and recommends that the shareholders
approve an amendment to our Certificate of Incorporation to remove Article VII
which sets forth the number of directors to be more than one and less than five.
As discussed in Proposal 3, Board is seeking shareholder approval to amend the
Company's Bylaws to set forth the range in number of directors between one and
eleven with the exact number to be determined by the Board of Directors within
this range.
The primary purpose of this amendment to our Certificate of Incorporation
is to allow flexibility when choosing the number of directors for the Company as
set forth in our Bylaws instead of our Certification of Incorporation. This will
allow the Board more flexibility in choosing the number of directors we feel is
needed to advise the management on the Company's business plan and objectives.
If this Proposal 2 is adopted by the shareholders, Article VII of the
Certificate of Incorporation will be removed and the number of Directors will be
set in accordance with the Company's Bylaws. A copy of Article VII to be deleted
is Attached as Exhibit A.
Recommendation of the Board
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO REMOVE ARTICLE VII WHICH STATES
A SPECIFIED NUMBER OF DIRECTORS.
PROPOSAL 3 - AMENDMENT TO THE BYLAWS
We are recommending that a new provision of our Bylaws to provide for a
range of the number of directors from one to eleven with the exact number of
directors is set by the Board.
- 17 -
As previously discussed in Proposal 2, the primary purpose of this
amendment to our Bylaws is to allow flexibility when choosing the number of
directors for the Company as set forth in our Bylaws instead of our
Certification of Incorporation. This will allow the Board more flexibility in
choosing the number of directors we feel is needed to advise the management on
the Company's business plan and objectives. If Proposals 2 and 3 are approved,
it is the intent of the Board to seek additional independent members to the
Board. However, at this time, we do not have any agreements or understandings
with any persons to subsequently serve on the Board of Director. A copy of the
proposed amendment is attached hereto as Exhibit B.
If Proposal 2 is not approved, but Proposal 3 is approved, we will not
adopt Proposal 3.
Recommendation of the Board
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
AMENDMENT TO THE BYLAWS TO CHANGE THE NUMBER OF DIRECTORS TO BE A MINIMUM OF ONE
(1) DIRECTOR BUT NO MORE THAN ELEVEN (11).
PROPOSAL 4 - RATIFICATION OF THE APPROVAL OF THE 2005 STOCK OPTION PLAN
You are being asked to ratify the approval of the 2005 Stock Option Plan
(the "2005 Plan"). Under the 2005 Plan, options to acquire up to 15,000,000
shares of common stock may be granted to the Company's directors, officers,
employees and consultants. The Board of Directors believes that stock options
are an important component of our overall compensation and incentive strategy
for employees, directors, officers and consultants. We are committed to
broad-based participation in the stock option program by employees at all levels
and by directors, officers and consultants. We believe that the stock option
program is important in order to maintain our culture, employee motivation and
continued success.
Description of the 2005 Plan
Structure. The 2005 Plan is a discretionary option grant program under
which eligible individuals in the Company's employ or service as directors,
officers, or consultants may, at the discretion of the Plan Administrator, be
granted options to purchase shares of common stock in the Company. The principal
features of the program are described below.
Administration. The Board of Directors, or if created, the Compensation
Committee of the Board of Directors, will serve as the Plan Administrator with
respect to the 2005 Plan. The term "Plan Administrator" as used in this summary
means the Board of Directors and any appointed committee acting within the scope
of its administrative authority under the 2005 Plan. The Plan Administrator has
the authority to interpret the 2005 Plan and the rights underlying any grants
made subject to the 2005 Plan. Any decision or action of the Plan Administrator
in connection with the 2005 Plan is final and binding.
Eligibility. Employees, directors, officers, and consultants in the service
of the Company or any parent or subsidiary corporation (whether now existing or
subsequently established) are eligible to participate in the 2005 Plan.
Determinations as to eligibility shall be made by the Plan Administrator.
Share Reserve. The shares issuable under the 2005 Plan may be made
available either from the Company's authorized but unissued common stock or from
common stock reacquired by the Company, including shares purchased in the open
market. In addition, shares subject to any outstanding options under the 2005
Plan that expire or terminate prior to exercise will be available for subsequent
issuance.
- 18 -
Terms and Conditions of Option Grants. One or more options may be granted
to each eligible person. The options granted under the 2005 Plan will be
evidenced by an option agreement. The Plan Administrator shall specify the grant
date, exercise price, terms and conditions for the exercise of the options. No
option under the 2005 Plan shall terminate later than ten years after the date
of grant subject to the following provision.
Exercise of the Option. Options may be exercised by delivery to the Company
of a written stock option exercise agreement together with payment in full of
the exercise price for the number of shares being purchased. The exercise price
shall be 100% of the fair market value of the shares on the date of grant. The
Plan Administrator, may, at its discretion, issue options to purchase common
stock at an exercise price less than fair market value.
Payment for shares purchased pursuant to the 2005 Plan may be made by cash
or check. The Administrator may allow other forms of payment by (i) surrender of
shares of the Company owned by the optionee more than six months, or that were
obtained by the optionee on the open market, (ii) cancellation of indebtedness
of the Company to the Participant, (iii) through a "same day sale" commitment
from the optionee and a broker-dealer that is a member of the National
Association of Securities Dealers (a "NASD dealer") whereby the optionee
irrevocably elects to exercise the option and to sell a portion of the shares so
purchased to pay for the exercise price, and whereby the NASD dealer commits to
forward the exercise price directly to the Company, (iv) a "margin" commitment
from the optionee and an NASD dealer whereby the optionee irrevocably elects to
exercise his or her option and to pledge the shares so purchased to the NASD
dealer in a margin account as security for a loan from the NASD dealer in the
amount of the exercise price, and whereby the NASD dealer irrevocably commits
upon receipt of such shares to forward the exercise price directly to the
Company or (vi) "immaculate cashless exercise" in which the optionee exercises
by forfeiting the option shares at their exercise price.
Transferability of Options. No option shall be transferable other than by
will or by the laws of descent and distribution, and during the lifetime of the
optionee, only the optionee, his or her guardian or legal representative may
exercise an option. However, the Plan Administrator may provide for transfer of
an option without payment of consideration to designated family members and
certain other entities specified in the 2005 Plan. The terms applicable to the
assigned portion shall be the same as those in effect for the option immediately
prior to such assignment. A request to assign an option may be made only by
delivery to the Company of a written stock option assignment request.
Termination of Employment. If optionee's employment is terminated, vested
stock options may be exercised at any time within three months after the date of
such termination, but in no event after the termination of the option as
specified in the option agreement. If an employee continues service to the
Company after termination of employment, the employee need not exercise the
option within three months of termination of employment, but may exercise within
three months of termination of his or her continuing service as a consultant,
advisor or work performed in a similar capacity.
Retirement, Death or Permanent Disability. If an optionee under the 2005
Plan ceases to be an employee of the Company due to retirement, the optionee may
exercise the option within the maximum term of the option as it existed on the
date of retirement. If an optionee becomes permanently and totally disabled or
dies while employed by the Company or its subsidiary, vested options may be
exercised by the optionee, the optionee's personal representative, or by the
person to whom the option is transferred by will or the laws of descent and
distribution, at any time within one (1) year after the termination of
employment resulting from the disability or death, but in no event after the
expiration of the option as set forth in the option agreement.
- 19 -
Suspension or Termination of Options. If the Plan Administrator reasonably
believes that an optionee has committed an act of misconduct, the Plan
Administrator may suspend the optionee's right to exercise any option pending a
final determination by the Plan Administrator. If the Plan Administrator
determines an optionee has committed an act of embezzlement, fraud, dishonesty,
breach of fiduciary duty; or deliberate disregard of the Company's rules; or
makes an unauthorized disclosure of any Company trade secret or confidential
information; or engages in any conduct constituting unfair competition, induces
any of the Company's customers or contracting parties to breach a contract with
the Company or induces any principal for whom the Company acts as an agent to
terminate such agency relationship, neither the optionee nor his or her estate
shall be entitled to exercise any option whatsoever. The determination of the
Plan Administrator shall be final and conclusive unless overruled by the Board
of Directors.
General Provisions
Dissolution, Liquidation, or Merger and Change of Control. In the event of
an occurrence after which the Company no longer survives as an entity, the Plan
Administrator may, in its discretion, cancel each outstanding option upon
payment to the Participant of adequate consideration as specified in the 2005
Plan. The Plan Administrator may also accelerate the time within which each
outstanding option may be exercised. After a merger, consolidation, combination
or reorganization in which the Company is the survivor, the Plan Administrator
shall determine any appropriate adjustments to the outstanding options.
In the event that a change of control of the Company, as defined in the
2005 Plan, then all outstanding options shall fully vest immediately upon the
Company's public announcement of such a change. A change of control generally
occurs when one transaction or series of transactions results in the issuance of
50% of voting securities, the Company is acquired in some form of merger or
consolidation in which the Company does not survive, or when substantially all
the assets of the Company are sold.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Changes in Capitalization. In the event of any change is made to the
outstanding shares of common stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change in
corporate structure effected without the Company's receipt of consideration,
appropriate adjustments will be made to (i) the maximum number and/or class of
securities issuable under the 2005 Plan and (ii) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits thereunder.
Shareholder Rights. No optionee will have any shareholder rights with
respect to the option shares until such optionee has exercised the option and
paid the exercise price for the purchased shares.
Amendment and Termination. The Board may amend, suspend or terminate the
2005 Plan at any time and for any reason, but no amendment, suspension or
termination shall be made which would impair the right of any person under any
outstanding options without such person's consent not unreasonably withheld.
Further, the Board of Directors may, in its discretion, determine that any
amendment should be effective only if approved by the shareholders even if such
approval is not expressly required by the 2005 Plan or by law.
- 20 -
Unless sooner terminated by the Board, the 2005 Plan will in all events
terminate on August 11, 2015. Any options outstanding at the time of such
termination will remain in force in accordance with the provisions of the
instruments evidencing such grants.
Other Provisions. The option agreements may contain such other terms,
provisions and conditions not inconsistent with the 2005 Plan as may be
determined by the Board or the Plan Administrator.
Income Tax Consequences of Options Granted Under the 2005 Plan
Because we do not intend to issue any options to any United States citizen
or resident, no United States discussion is included.
Accounting Treatment
Awards with an exercise or purchase price per share equal to 100% of the
fair market value of the shares at the time of grant generally will not result
in any direct charge to the Company's earnings. However, other provisions in the
2005 Plan, if included in a specific grant, may result in a direct charge to the
Company's earnings for that grant. The fair value of those awards that did not
result in a direct charge to the Company's earnings must be disclosed in the
notes to the Company's financial statements, in the form of pro-forma statements
to those financial statements, which demonstrates the impact those awards would
have upon the Company's reported earnings were the value of those awards at the
time of grant treated as compensation expense. In addition, the number of
outstanding awards may be a factor in determining the Company's earnings per
share on a diluted basis.
Recommendation of the Board
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" THE RATIFICATION
OF THE APPROVAL OF THE 2005 STOCK OPTION PLAN.
RELATIONSHIP WITH INDEPENDENT AUDITORS.
Moore Stephens Ellis Foster Ltd. served as our independent accountants for
the years ended December 31, 2004, and 2003. In May 2005, Moore Stephens Ellis
Foster Ltd. merged with Ernst & Young LLP. During the course of the years ended
December 31, 2004, and 2003, neither Moore Stephens Ellis Foster Ltd. nor Ernst
& Young LLP were engaged by us to provide non-audit services. During the year
ended December 31, 2004, and 2003, the following fees were paid for services
provided by Moore Stephens Ellis Foster Ltd.
Audit Fees. The aggregate fees paid for the annual audit of our financial
statements included in our Annual Report for the years ended December 31, 2004,
and 2003 and the review of our quarterly reports for such years, amounted to
approximately $80,000 and $70,000, respectively.
Audit Related Fees. For the years ended December 31, 2004, and 2003, we
paid $5,000 and $Nil for fees to Moore Stephens Ellis Foster Ltd. for other
audit related fees.
Tax Fees. For the years ended December 31, 2004, and 2003, we paid no fees
to Moore Stephens Ellis Foster Ltd. for tax services.
- 21 -
All Other Fees. For the years ended December 31, 2004, and 2003, we paid no
fees to Moore Stephens Ellis Foster Ltd. for any non-audit services.
Approval of Audit and Non-Audit Services of Independent Accountants
The full Board of Directors serves as the Audit Committee. The Board of
Directors approved 100% of the fees paid to the principal accountant for
audit-related, tax and other fees in the fiscal year 2004. The Board of
Directors pre-approves all audit and non-audit services provided by the
independent auditors. These services may include audit services, audit-related
services, tax services and other services. The independent accountants and
management are required to periodically report to the Board of Directors
regarding the extent of services provided by the independent accountants, and
the fees for the services performed to date. No non-audit services were provided
by our independent accountant in 2004. The percentage of hours expended on the
principal accountant's engagement to audit the Company's financial statements
for the most recent fiscal year that were attributed to work performed by
persons other than the principal accountant's full-time, permanent employees was
0%.
Representatives of Ernst & Young LLP (formerly Moore Stephens Ellis Foster
Ltd.) will be present at the Annual Meeting to respond to appropriate questions
from the shareholders and will be given the opportunity to make a statement
should they desire to do so.
PROPOSALS OF SHAREHOLDERS
To be considered for inclusion in Dragon's Proxy Statement and form of
proxy for next year's annual meeting, shareholder proposals must be delivered to
the Secretary of Dragon, 1055 West Hastings Street, Suite 1900, Vancouver,
British Columbia V6E 2E9, no later than 5:00 p.m. on January 16, 2006. However,
if the date of next year's annual meeting is set more than 30 days from the date
of this year's meeting, the notice must be received by the Secretary in a
reasonable time before we mail our proxy statement. All proposals must meet the
requirements of Rule 14a-8 of the Exchange Act.
For any proposal that is not submitted for inclusion in next year's proxy
statement (as described in the preceding paragraph) but is instead sought to be
presented directly at next year's annual meeting, SEC rules permit management to
vote proxies in its discretion if Dragon (a) receives notice of the proposal
before the close of business on July 12, 2005, and advises shareholders in the
next year's proxy statement about the nature of the matter and how management
intends to vote on such matter, or (b) does not receive notice of the proposal
prior to the close of business on July 12, 2005.
Notices of intention to present proposal at the 2005 Annual Meeting should
be addressed to Dragon, 1055 West Hastings Street, Suite 1900, Vancouver,
British Columbia V6E 2E9, Attention: Secretary. Dragon reserves the right to
reject, rule out of order, or take other appropriate action with respect to any
proposal that does not comply with these and other applicable requirements.
ANNUAL REPORT TO SHAREHOLDERS
The Annual Report on Form 10-KSB for the fiscal year ended December 31,
2004, including audited financial statements, was mailed to the shareholders
concurrently with this proxy statement, but such report is not incorporated in
this proxy statement and is not deemed to be a part of the proxy solicitation
material. The Form 10-K and all other periodic filings made with the Securities
and Exchange Commission are available on the Company's website at
www.dragonpharma.com.
- 22 -
WHERE YOU CAN FIND MORE INFORMATION
Dragon files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information that Dragon files at the
Commission's public reference rooms at 100 F Street, NE, Washington, D.C.,
20549. Please call the Commission at (800) SEC-0330 for further information on
the public reference rooms. The Commission also maintains an Internet World Wide
Web site at "http://www.sec.gov" at which reports, proxy and information
statements and other information regarding Dragon are available.
OTHER BUSINESS
Dragon does not know of any business to be presented for action at the
meeting other than those items listed in the notice of the meeting and referred
to herein. If any other matters properly come before the meeting or any
adjournment thereof, it is intended that the proxies will be voted by the proxy
holders in accordance with their best business judgment.
By Order of the Board of Directors
/s/ Maggie Deng
--------------------------------
Maggie Deng, Secretary
- 23 -
EXHIBIT A
If Proposal No. 2 is adopted, the following Article VII will be deleted:
ARTICLE VII
The number of Directors of this corporation shall be at least one (1) and
no more than five (5).
- 24 -
EXHIBIT B
If Proposal 3 is adopted, the following Section 1 - NUMBER AND TERM OF
OFFICE, Article II of the Company's Bylaws will adopted.
"The Board of Directors of the Corporation shall consist of not less than
one (1) nor more than eleven (11) directors, as determined by the Board of
Directors of the Corporation. Each director (whenever elected) shall hold office
until his or her successor shall have been elected and qualified unless he or
she shall resign or his or her office shall become vacant by his or her death or
removal. Directors need not be residents of the State of Florida or shareholders
of the Corporation."
- 25 -
ANNUAL MEETING OF SHAREHOLDERS OF
Dragon Pharmaceutical, Inc. (the "Company")
TO BE HELD AT Suite 1900, 1055 West Hastings Street
Vancouver, B.C. V6E 2E9
ON FRIDAY, AUGUST 12, 2005, AT 10:00 AM
The undersigned shareholder ("Registered Shareholder") of the Company hereby
appoints, Mr. Han, a Director of the Company, or failing this person, Maggie
Deng, Secretary of the Company, as proxyholder for and on behalf of the
Registered Shareholder with the power of substitution to attend, act and vote
for and on behalf of the Registered Shareholder in respect of all matters that
may properly come before the Annual Meeting of the Registered Shareholders of
the Company and at every adjournment thereof, to the same extent and with the
same powers as if the undersigned Registered Shareholder were present at the
said Annual Meeting, or any adjournment thereof.
The Registered Shareholder hereby directs the proxyholder to vote the common
stock of the Company registered in the name of the Registered Shareholder as
specified herein.
Proposals (For full detail of each item, please see the enclosed Notice of
Meeting and Proxy Statement.)
1. To elect five nominees as members of the Board of Directors to serve until
their successors are elected and qualified. Nominees:
Yanlin Han Zhanguo Weng Xuemei Liu Alexander Wick Yiu Kwong Sun
FOR ALL NOMINEES
------
AGAINST ABSTAIN
------ ------
(Instruction: To withhold authority to vote for any individual nominee,
strike a line through his name in the list above.)
2. To approve an amendment to our Certificate of Incorporation to eliminated
Article VII which states a specified number of directors.
FOR AGAINST ABSTAIN
------ ------ ------
3. To approve an amendment to Article II, Section 1 of the Bylaws to allow the
Board of Directors to set the number of directors at not less than one and
not more than eleven directors.
FOR AGAINST ABSTAIN
------ ------ ------
4. To adopt the 2005 Stock Option Plan.
FOR AGAINST ABSTAIN
------ ------ ------
5. To approve the adjournment of the annual meeting for any permitted reason,
including, if necessary, to solicit additional proxies in the event that
there are not sufficient votes at the time of the annual meeting to approve
the proposals.
FOR AGAINST ABSTAIN
------ ------ ------
The undersigned Registered Shareholder hereby revokes any proxy previously given
to attend and vote at said Annual Meeting.
SIGN HERE:
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Please Print Name:
-------------------------------------------------------------
Date:
-------------------------------------------------------------
Number of Shares
Represented by Proxy:
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THIS PROXY FORM IS NOT VALID UNLESS IT IS SIGNED AND DATED.
SEE IMPORTANT INFORMATION AND INSTRUCTIONS ON REVERSE
INSTRUCTIONS FOR COMPLETION OF PROXY
1. This Proxy is solicited by the Board of Directors of the Company.
2. This form of proxy ("Instrument of Proxy") must be signed by you, the
Registered Shareholder, or by your attorney duly authorized by you in
writing, or, in the case of a corporation, by a duly authorized officer or
representative of the corporation; and if executed by an attorney, officer,
or other duly appointed representative, the original or a notarial copy of
the instrument so empowering such person, or such other documentation in
support as shall be acceptable to the Chairman of the Meeting, must
accompany the Instrument of Proxy.
3. If this Instrument of Proxy is not dated in the space provided, authority
is hereby given by you, the Registered Shareholder, for the proxyholder to
date this proxy seven (7) calendar days after the date on which it was
mailed to you, the Registered Shareholder, by the proxyholder.
4. A Registered Shareholder who wishes to attend the Annual Meeting and vote
on the proposals in person, may simply register with the scrutineers before
the Meeting begins.
5. A Registered Shareholder who is not able to attend the Annual Meeting in
person but wishes to vote on the proposals, may do so by dating and signing
the proxy card.
6. The securities represented by this Instrument of Proxy will be voted or
withheld from voting in accordance with the instructions of the Registered
Shareholder on any poll of a proposal that may be called for and, if the
Registered Shareholder specifies a choice with respect to any matter to be
acted upon, the securities will be voted accordingly. Further, the
securities will be voted by the appointed proxyholder with respect to any
amendments or variations of any of the proposals set out on the Instrument
of Proxy or matters which may properly come before the Meeting as the
proxyholder in its sole discretion sees fit.
If a Registered Shareholder has submitted an Instrument of Proxy, the Registered
Shareholder may still attend the Meeting and may vote in person. To do so, the
Registered Shareholder must record his/her attendance with the scrutineers
before the commencement of the Meeting and revoke, in writing, the prior votes.
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To be represented at the Meeting, this proxy form must be received at the office
of Computershare Trust Company of Canada by mail or by fax prior to the time of
the Meeting, or adjournment thereof or may be accepted by the Chairman of the
Meeting prior to the commencement of the Meeting. The mailing address is:
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Computershare Trust Company of Canada
Proxy Dept. 100 University Avenue 9th Floor
Toronto Ontario M5J 2Y1
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Fax: Within North American: 1-866-249-7775 Outside North America: (416) 263-9524
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