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 Section 240.14a-11(c) or
Section 240.14a-12
DRAGON PHARMACEUTICAL INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] 125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] 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:
2) Aggregate number of securities to which transaction applies:
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):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] 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: _________________________________________
2) Form, Schedule or Registration Statement No.: ____________________
3) Filing Party: ___________________________________________________
4) Date Filed: ______________________________________________________
DRAGON PHARMACEUTICAL INC.
543 Granville Street, Suite 1200
Vancouver, British Columbia
Canada V6C 1X8
Telephone (604) 669-8817
To Our Stockholders:
You are cordially invited to attend the annual meeting of the stockholders
of Dragon Pharmaceutical Inc. to be held at 10:00 a.m. local time, on December
17, 2001, at our principal executive offices located at 543 Granville Street,
Suite 1200, Vancouver, British Columbia.
At the meeting, you will be asked to elect six nominees to the Board of
Directors and to approve the 2001 Stock Option Plan. We hope you will plan to
attend the stockholders' meeting. However, 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, whether or not you plan to attend the
meeting in person.
/s/ Longbin Liu
Longbin Liu
President
November 22, 2001
DRAGON PHARMACEUTICAL INC.
543 Granville Street, Suite 1200
Vancouver, British Columbia
Canada V6C 1X8
Telephone (604) 669-8817
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 17, 2001
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Dragon
Pharmaceutical Inc. ("Dragon" or "Company"), a Florida corporation, will be held
at the Company's principal executive offices located at 543 Granville Street,
Suite 1200, Vancouver, British Columbia, on Monday, December 17, 2001, at 10:00
a.m. local time, for the purpose of considering and acting on the following:
1. To elect the six nominees named in the proxy statement as directors to
serve for one-year terms or until their successors have been elected
and qualified;
2. To approve the 2001 Stock Option Plan; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on November 14, 2001,
are entitled to receive notice of and to vote at the meeting. Stockholders 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.
By Order of the Board of Directors
/s/ Matthew Kavanagh
Secretary
November 22, 2001
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT
IN THE ENCLOSED ENVELOPE.
2
DRAGON PHARMACEUTICAL INC.
543 Granville Street, Suite 1200
Vancouver, British Columbia
Canada V6C 1X8
Telephone (604) 669-8817
PROXY STATEMENT
We are furnishing this proxy statement to you in connection with our 2001
annual meeting to be held on Monday, December 17, 2001, at 10:00 a.m. local time
at the principal executive offices of the Company located at 543 Granville
Street, Suite 1200, Vancouver, British Columbia, and at any adjournment thereof.
The matters to be considered and acted upon are (1) the election of six nominees
as directors, (2) to approve the 2001 Stock Option Plan, and (3) such other
business as may properly come before the meeting.
The enclosed proxy is solicited on behalf of our board of directors and may
be revocable by you at any time prior to 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.
Our annual report for the year 2000, including financial statements, is
accompanying this proxy statement. Such report and financial statements are not
a part of this proxy statement except as specifically incorporated herein.
This proxy statement is being mailed on or about November 22, 2001.
ABOUT THE MEETING
What is the purpose of the Annual Meeting?
At the annual meeting, you will vote on the matters outlined in the
accompanying Notice of Annual Meeting of Stockholders, including election of the
directors and approval of the 2001 Stock Option Plan.
Who is entitled to vote?
Only stockholders of record at the close of business on the record date,
November 14, 2001 (the Record Date), are entitled to vote at the annual 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 and FOR the approval
of the 2001 Stock Option Plan.
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 stockholder and attend the meeting, you may deliver your completed
proxy card in person.
3
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.
Can I change my vote after I return my proxy card?
Yes. You have the right to revoke your proxy at any time before the meeting
by notifying the Secretary of the Company in writing, voting in person or
returning a later-dated proxy card.
Who will count the vote?
The Secretary will count the votes and act as the inspector of election.
Our transfer agent, Interwest Transfer Company Inc., will tally 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, Interwest Transfer Company Inc. ((801)
272-9294), 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 20,331,000 shares of common stock as of the Record Date. Every
stockholder is entitled to one vote for each share of common stock held. The
Company has no other voting securities outstanding.
What is a "quorum"?
A "quorum" is a majority of the outstanding shares entitled to vote. They
may be present 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 is required to approve each proposal?
For the election of the directors, once a quorum has been established, the
nominees for director who receive the plurality of votes will become our
directors. To ratify the approval of the 2001 Stock Option Plan, a majority of
the shares represented at the annual meeting, either in person or by proxy, must
be voted in favor of the proposal.
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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. For proposals requiring an affirmative vote of a majority of
the shares present, an abstention is equivalent to a "no" vote.
How will we solicit proxies?
We will distribute the proxy materials 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 stockholders. Proxies may also be solicited in person, by
telephone, or by facsimile by our directors, officers and employees without
additional compensation.
5
STOCK OWNERSHIP
How much stock do our directors, executive officers, principal stockholders own?
The following table shows the amount of our common stock (symbol: DRUG)
beneficially owned (unless otherwise indicated) by each stockholder known by us
to be the beneficial owner or 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 November 14,
2001.
Shares Beneficially
Owned(1)
---------------------
Name & Address of Beneficial Owner Number Percent
- ---------------------------------- ------ -------
Zhibin Cai and Yu Fongmei(2)
18 Main Street
Votian
Hubei, China 1,899,000 9.3%
Arbora Portfolio Management(3)
Gartenstrasse 38
Zurich, Switzerland 1,062,500 5.2%
Goldpac Investment Partners Ltd.
P. O. Box 3321
Road Town, Tortola
BVI 1,110,000 5.5%
Chow Tail Fook Nominee Limited(3)
31F New World Tower
16-18 Queens Road Central
Hong Kong 2,000,000 9.8%
Hiu Min Liu(4)
5 Lin Hui City
Guan Zhen Lao Zheng Street
Hunan, China 2,000,000 9.8%
Longbin Liu,
President, Chief Executive Officer and Director 700,000(5) 3.3%
Ken Cai,
Chief Financial Officer and Director 500,000(5) 2.4%
Matthew Kavanagh
Secretary -0- -0-
Greg Hall,
Director 400,000(5) 1.9%
Philip Yuen,
Director 837,500(6) 4.1%
Alexander Wick,
Director 175,000(5) *
Yiu Kwong Sun,
Director 775,000(7) 3.8%
All directors (8 persons) and executive
officers as a group 3,417,500(8) 15.2%
6
* 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) Zhibin Cai is the father of Mr. Ken Cai, one of our directors. Yu Fong Mei
is the mother of Mr. Ken Cai. They do not reside with Mr. Ken Cai.
(3) We have been unable to obtain information regarding the identity of the
principals and affiliates of Arbora Portfolio Management, Goldpac
Investment Partners Ltd. and Chow Tail Fook Nominee Limited.
(4) Hiu Min Liu is the sister of Dr. Longbin Liu, one of our officers and
directors. She does not reside with Dr. Liu.
(5) Represents options exercisable within sixty days.
(6) Includes 62,500 shares of common stock owned and 175,000 shares of common
stock subject to options. Also includes 600,000 shares of common stock
owned by Global Equities Overseas Ltd. for which Mr. Yuen serves as a
director.
(7) Includes 175,000 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 a director.
(8) Includes options and warrants to acquire 2,155,000 shares of common stock.
SECTION 16 TRANSACTIONS
Section 16(a) of the Exchange Act requires our executive officers and
directors to file reports of ownership and changes in ownership of our common
stock with the SEC. Executive officers and directors are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file.
Based on a review of the forms filed during 2000, we believe that our
executive officers and directors complied with all applicable filing
requirements.
PROPOSAL 1--ELECTION OF DIRECTORS
We currently have six directors. The term of office for the directors
elected at this meeting will expire at the next annual meeting of stockholders
to be held in 2002 or until his earlier death, resignation or removal. Unless
otherwise instructed, the proxyholders will vote the proxies received by them
for the six 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. We have no reason to believe that any nominee, if elected,
will be unable to serve as director. Each director has agreed to serve as
director, if elected.
The following indicates the age, principal occupation or employment for the
last five years, and the year the director was first elected, for each nominee
as director.
Dr. Longbin Liu, M.D. Director since September 1998
Dr. Liu, 39, is our President and Chief Executive Officer. He has 16 years
of biotechnology experience in North America, Japan and China, most recently as
an Assistant Professor of Medicine in the Division of Cardiovascular Medicine of
the University of Massachusetts Medical Centre where he had served since 1995,
before joining us in September 1998. Dr. Liu earned his medical degree from
Hunan Medical University in 1983.
7
Dr. Ken Z. Cai Director since July 1998
Dr. Cai, 36, is the Chairman of the Board of Directors. He was our Chief
Financial Officer from September 1998 until March 2001. Dr. Cai has a Ph.D in
Mineral Economics from Queen's University in Kingston, Ontario, as well as 16
years of experience in mining, public company administration and financing.
Since February 1996, he has been a Director and the President and Chief
Executive Officer of Minco Mining and Metals Corporation, a Toronto Stock
Exchange-listed company involved in mining exploration in China and whose shares
are registered under the Securities and Exchange Act of 1934. Dr. Cai has
extensive experience in conducting business in China for the past 16 years and
is currently the Chairman of the Board of four Sino-foreign joint ventures.
Mr. Greg Hall Director since 1998
Mr. Hall, 44, is a stockbroker with 18 years of corporate finance and
public offerings experience. Since April, 1999, Mr. Hall has been a Senior Vice
President of Yorkton Securities Inc. in Vancouver, Canada. Prior to joining
Yorkton Securities, Mr. Hall was with Canaccord Capital for ten years. He is a
former member/seat holder of the Vancouver Stock Exchange. Prior to joining
Canaccord Capital, Mr. Hall was the Co-Founder of both Pacific International
Securities and Georgia Pacific Securities Corporation.
Dr. Alexander Wick Director since September 1998
Dr. Wick, 63, 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 32 years of biotechnology and
pharmaceuticals experience and is currently the President of Sylachim, a
chemicals and pharmaceuticals producer located in France, which position he has
held since 1995.
Mr. Philip Yuen Pak Yiu Director since November 1999
Mr. Yuen, 65, has been a legal practitioner in Hong Kong since graduating
from law school in London, England in 1961. In 1965, he established the law firm
of Yung, Yu, Yuen and Co. and is now the principal partner of the firm. Mr. Yuen
has over 30 years experience in the legal field and has been a director of
several large listed companies in various industries. He is a director of the
Association of China-appointed Attesting Officers Limited in Hong Kong, a
standing committee member of the Chinese General Chamber of Commerce in Hong
Kong, a member of the National Committee of the Chinese People Political
Consultative Conference and an arbitrator for the China International Economic
and Trade Arbitration Commission.
Dr. Yiu Kwong Sun Director since November 1999
Dr. Sun, 63, 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 Fellowship Committee of Management of the
University of Hong Kong Faculty of Medicine since 1997.
8
Recommendation of the Board
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE NOMINEES
LISTED ABOVE.
How are directors compensated?
Directors do not receive cash compensation for their services but do
receive stock options for serving as such.
How often did the Board meet during fiscal 2000?
The Board of Directors met two times during fiscal 2000. All directors
attended both meetings.
What committees has the Board established?
The Board of Directors has established an Audit Committee.
The Audit Committee is comprised of Messrs. Wick, Cai and Hall. As part of
its responsibilities, the Audit Committee provides assistance to the Directors
in fulfilling their responsibility to the shareholders, potential shareholders
and the investment community relating to the Company's accounting, reporting
practices of the Company, the quality and integrity of the financial statements
of the Company, and the capital requirements of the Company. In order to assist
the Audit Committee and to more effectively communicate the purpose and
functions of the Audit Committee to the Board of Directors, management,
employees and our shareholders, the Audit Committee has adopted an Audit
Committee charter which is attached as Appendix "A."
Until March 2001, Mr. Cai served as the Company's Chief Financial Officer.
Because Mr. Cai was an officer of the Company during the fiscal year 2000, he is
not deemed an independent director as defined by the NASD rules.
The Board of Directors has evaluated the above-described non-independent
relationship and has determined in its business judgment that the best interest
of the Company and its shareholders will be served by Mr. Cai's appointment to
the Audit Committee. In light of the limited number of directors, that Mr. Cai
resigned as Chief Financial Officer in March 2001, and that Mr. Cai was not
compensated for serving as Chief Financial Officer, the Board of Directors has
determined, in its business judgment, that Mr. Cai's relationship does not
interfere with his exercise of independent judgment.
In accordance with SEC regulations, the following is the Audit Committee
Report. Such report is not deemed to be filed with the SEC.
Report of the Audit Committee
The Audit Committee oversees the financial reporting process for the
Company 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 and filed with the Securities and Exchange
Commission as well as the unaudited financial statements filed with the
Company's quarterly reports on Form 10-Q.
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
9
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 Dragon and its
management, including the matters in the written disclosures required by
Independence Standards Board Standard No. 1.
The Audit Committee has also met and discussed with Dragon's management,
and its independent auditors, issues related to the overall scope and objectives
of the audits conducted, the internal controls used by Dragon, and the selection
of Dragon's independent auditors. In addition, the Audit Committee discussed
with 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 the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-K for the fiscal year
ended December 31, 2000, for filing with the Securities and Exchange Commission.
Executive Officers of Dragon
The names, ages and background for at least the past five years for each
person who served as an executive officer during the past fiscal year is as
follows:
Name Position Age Period
- ---- -------- --- ------
Longbin Liu President, Chief Executive 39 September 1998 - present
Officer and Director
Ken Z. Cai Director, Former Chief 36 September 1998 - March 2001
Financial Officer
Matthew Kavanagh Secretary, Principal 46 July 2001 - present
Financial and Accounting
Officer
Anna Liu Controller 33 September 1998 - present
Shaun Maskerine Former Secretary 33 July 1998 - August 2001
Dr. Longbin Liu, M.D. See "Election of Directors."
Dr. Ken Z. Cai. See "Election of Directors."
Mr. Shaun Maskerine was Secretary and Treasurer of Dragon. From July 7,
1998, to November 23, 1999, he was also a director. From July 7, 1998, to
September 18, 1998, Mr. Maskerine was President of Dragon. Since January 1999,
Mr. Maskerine has been the President and Director of Aquarius Ventures Inc., a
resource based company. From March 1998 to January 1999, Mr. Maskerine was Vice
President of Finance of Aquarius Ventures. He is also the President and Director
of Global Petroleum Inc., another resource based company. He has held these
positions since September 1998. Aquarius Ventures Inc. and Global Petroleum Inc.
are both listed on the Canadian Venture Exchange. Prior to March 1998, Mr.
Maskerine was a management consultant in the hotel/tourism industry. Mr.
Maskerine resigned as Secretary and Treasurer effective August 31, 2001.
Mr. Matthew Kavanagh is Director of Finance and Corporate Compliance
(Principal Accounting and Financial Officer) and Secretary of the Company. Mr.
Kavanagh joined Dragon in July 2001 and brings 14 years experience as a
10
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.
Ms. Anna Liu is the Controller for the Company. Ms. Liu is a Certified
General Account Candidate and has been working as an accountant for North
American companies with Chinese operations for five years. Ms. Liu received her
Masters in Economics from the University of British Columbia.
Report on Executive Compensation
The Board of Directors 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 2000 is summarized below.
Compensation for each of the persons named in the Executive Compensation
Table, as well as other senior executives, consists of a base salary, an annual
bonus, and long-term incentive compensation. 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.
EXECUTIVE COMPENSATION
The following table is a summary of certain information concerning the
compensation earned by Dragon's chief executive officer during the last three
fiscal years. No officer received compensation in excess of $100,000 during the
last fiscal year.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payout
Other Annual Restricted Securities LTIP All Other
Bonus Compensation Stock Underlying Payout Compensation
Name Year Salary ($) ($) Award(s) Options (#) ($) ($)
- --------------------------------------------------------------------------------------------------------------
Longbin Liu 2000 $72,000 -0- -0- -0- 400,000 -0- -0-
President 1999 $72,000 -0- -0- -0- -0- -0- -0-
1998 $36,000 -0- -0- -0- 300,000 -0- -0-
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Stock Option Plan
We have no stock option plan. However, the Board of Directors has approved
the issuance of individual stock options to our employees, directors, officers
and consultants. Unless otherwise provided by the Board, all options are
exercisable for a term of five years. As of September 30, 2001, there were
options to acquire 2,939,500 shares of common stock outstanding. If proposal 2
is adopted, the 2001 Stock Option Plan will assume the 2,939,500 stock options.
The following table sets forth the stock options granted to Mr. Liu during
the past fiscal year:
OPTIONS GRANTED IN THE YEAR ENDED DECEMBER 31, 2000
Number of % of Total
Securities Option Granted Exercise of
Underlying to Employees in Base Price
Name Options Granted Fiscal Year 2000 ($/share) Expiration Date
in 2000
- -------------------------------------------------------------------------------------------
Longbin Liu 400,000 23% 3.125 November 13, 2005
The following table sets forth the option value for Mr. Liu as of December
31, 2000. As of December 31, 2000, the per share price of one share of common
stock was $1.63 as quoted on the OTC Bulletin Board.
FISCAL YEAR END OPTION VALUE (DECEMBER 31, 2000)
Number of Securities
Underlying Unexercised Value of Unexercised in the
Options/SARs at Fiscal Year Money Options/SARs at Fiscal
End (#) Year End
Name Exercisable/Unexercisable Exercisable/Unexercisable
Options at December 31, 2000 Options at December 31, 2000
- ---------------------------------------------------------------------------------------------
Longbin Liu 700,000 / 0 $339,000 / 0
Employment Agreements
We have entered into an oral consulting agreement with Dr. Liu pursuant to
which he provides administrative services to us. As of April 1, 2001, Dr. Liu,
as President, is paid an annual salary of $96,000. This consulting agreement is
terminable at will.
Effective April 2001, the Company will pay Mr. Cai $72,000 per year for
consulting services, relating to investment opportunities and investor
relations.
CERTAIN TRANSACTIONS
Except as otherwise indicated below, we have not been a party to any
transaction, proposed transaction, or series of transactions in which the amount
involved exceeds $60,000, and in which, to our knowledge, any of our directors,
executive officers, five percent beneficial security holders, or any member of
the immediate family of the foregoing persons has had or will have a direct or
indirect material interest.
In August 1998, pursuant to a share exchange agreement, we issued 7,000,000
shares of our common stock and warrants to purchase 1,000,000 shares of our
common stock in exchange for all of the outstanding shares of Allwin Newtech
12
Ltd. At the time of this transaction, Messrs. Liu, Cai and Yuen were officers or
directors of Allwin Newtech. However, none of these individuals listed in the
foregoing sentence held any positions or owned shares of First Geneva
Investments, Inc., our predecessor. As a result of the acquisition; (i) the
former shareholders of Allwin Newtech became 87.5% shareholders of First Geneva
and Allwin Newtech became a wholly-owned subsidiary of First Geneva; (ii) the
President of First Geneva, Mr. Maskerine, continued as our President (until
September, 1998); and (iii) Messrs. Liu, Cai and Cheng, who were President and
directors of Allwin Newtech, became our directors. With the exception of Mr.
Maskerine, all of the other principal stockholders listed above acquired their
shares in this exchange transaction.
We currently rent space for our executive offices from Minco Mining and
Metals Corporation for CDN $2,500 per month. Mr. Cai, one of our directors, is
President of Minco Mining. We believe that this rent is competitive with rent
that would be charged by a non-affiliated landlord for comparable space.
Messrs. Ken Cai, Jackson Cheng and Longbin Liu served as directors of Sanhe
Kailong at the time of entering into our joint venture with Sinoway Biotech.
Sanhe Kailong was formed, however, for the purpose of developing a joint venture
with Sinoway Biotech. Subsequent to the joint venture formation, Mr. Cheng
resigned from the Board of Sanhe Kailong and was replaced by Mr. Greg Hall. They
continue to serve as directors of Sanhe Kailong. Messrs. Ken Cai, Philip Yuen
and Longbin Liu also serve as officers and directors of Allwin Newtech, our
wholly-owned subsidiary. Messrs. Ken Cai, Longbin Liu and Philip Yuen had served
prior to the joint venture and continue to serve as three of the five directors
of Nanjing Huaxin, a joint venture in which we own a 75% interest.
A finder's fee of $763,150 was paid in conjunction with the sale of Units
of common stock and warrants in December, 1999. Of this amount, $175,000 was
paid to the law firm of Yung, Yu, Yuen and Company of which Mr. Philip Yuen, a
director of Dragon, is a partner.
On April 19, 1999, 135,000 shares of Dragon's common stock were issued to
four lenders as compensation for making certain loans to Dragon. One of the
lenders was Hui Min Liu, the sister of Dr. Longbin Liu, who received 22,500
shares of common stock.
On October 6, 2000, we entered into an acquisition agreement with Alphatech
Bioengineering Limited, a Hong Kong corporation owned by Mr. Longbin Liu and Mr.
Philip Yuen. Mr. Liu is our president and one of our directors and Mr. Yuen is
one of our directors. Under the terms of the acquisition agreement, we have
agreed to purchase Alphatech Bioengineering's rights and technology relating to
the production of Hepatitis B vaccine through the application of genetic
techniques on hamster ovary cells including the culturing of such cells, 14
which act as a host expression system for the production of Hepatitis B vaccine
protein, and the purification of Hepatitis B vaccine protein from the culture of
such cells. In connection with entering into the acquisition agreement,
Alphatech Bioengineering has made certain representations regarding the
development of a cell-line of hamster ovary cells which act as a host expression
system for the production of Hepatitis B vaccine protein including: (a) the
cell-line of hamster ovary cells has been developed to the stage where the
hamster ovary cells have the capacity to express Hepatitis B vaccine protein at
levels in excess of 5 mg/liter; (b) the technology includes industrial scale
fermentation and purification methods that are suitable for use in the
commercial production of Hepatitis B vaccine protein for incorporation in a
Hepatitis B vaccine for humans; and (c) within three months of a production
facility of sufficient capacity being fully operational for industrial
production, to the reasonable satisfaction of Alphatech Bioengineering, and
staffed and equipped with a bioreactor system and purification process for the
Hepatitis B vaccine protein: (i) the technology will have the capacity to
support a sustained production at the production facility of at least 1,000,000
doses per year of Hepatitis B vaccine protein; (ii) production facility of
Hepatitis B vaccine protein will yield at least 5 mg/liter from the bioreactor
and the recovery of the purified Hepatitis B vaccine protein of acceptable
13
commercial quality meeting the standard of the State Drug Administration of
China from media which would yield at least 50% or 2.5 mg/liter in the first
three batches of commercial production; and (iii) the direct production costs in
China, based upon current prices, for the first one million does of Hepatitis B
vaccine, including all costs directly associated with the manufacture of
Hepatitis B vaccine protein, will be less than US$1.00 per dose. In the event
any of the representations and warranties made by Alphatech Bioengineering are
breached by Alphatech Bioengineering, we will have the right to require
Alphatech Bioengineering to reimburse us for the $4 million purchase price.
Alphatech Bioengineering's rights and technology relating to the production of
Hepatitis B vaccine is in the developmental stage, and Alphatech Bioengineering
has no commercial production of or sales of Hepatitis B vaccine. The acquisition
of Alphatech Bioengineering's rights and technology relating to the development
of Hepatitis B vaccine is subject to customary representations and conditions.
Pursuant to an amended agreement dated March 22, 2001, in the event that
the Company failed to find a joint venture partner, establish a production
facility for the vaccine project or sell the project to a third party within
nine months from the date of this amended agreement, Dr. Longbin Liu will have
the right to repurchase the project from the Company. The repurchase price will
be $4.0 million payable as follows: (i) $500,000 at the date of repurchase; and
(ii) the balance to be paid within eighteen (18) months of the date of
repurchase with interest at 6% per annum. The interest will be accrued from six
months after the date of repurchase.
Further, Dr. Liu also has a 90% interest in RecomGen, a private company
registered in China. RecomGen is developing tPA for treating heart attacks and
strokes. RecomGen was incorporated by Dr. Liu, and Dr. Liu's involvement in
RecomGen began prior to our establishment. We are currently in discussion with
Dr. Liu regarding the possible acquisition of technology and/or biotech products
from RecomGen. However, there is no understanding, commitment or agreement to
make such acquisition and no assurance can be given that any acquisition or
transaction with RecomGen will occur.
During fiscal year 2000, the Company 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 and its principals agreed to
refund the $400,000 before September 30, 2001.
Pursuant to an agreement dated August 15, 1999, the Company entered into a
joint research project for the development of rhTPO drug ("rhTPO") with Shenzhen
Kelong Chuang Jian Enterprise Co. Ltd. ("Kelong"), a company incorporated in
China. Dr. Longbin Liu is a principal shareholder of Kelong. The Company's
maximum commitment to this project is US$543,540 (RMB 4,500,000). Under the
terms of the agreement, Kelong and the Company will jointly own the drug licence
of rhTPO. Kelong and the Company will then obtain its own individual production
permit of the rhTPO drug product. The Company paid $483,140 (RMB 4,000,000)
towards the early development phase of this project in fiscal year 2000 and the
amount has been accounted for as research expense. The Company has to pay the
remaining US$60,400 (RMB 500,000) for clinical testing of the rhTPO drug after
the clinical testing permit has been issued by the regulatory authorities.
14
STOCK PERFORMANCE GRAPH
The stock price performance graph below is required by the Securities and
Exchange Commission. It shall not be deemed to be incorporated by reference by
any general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933, or under the Securities Exchange Act of
1934, except to the extent that we specifically incorporates this information by
reference, and shall not otherwise be deemed soliciting material or filed under
such acts.
The following graph compares, beginning at the fiscal year end 1998, which
represents the first fiscal year in which the Company's common stock was quoted
on the OTC Bulletin Board under the symbol DRUG, the cumulative stockholders
return for the (i) the Company, (ii) the Amex Biotech Index, and (iii) the
Standard & Poor's Drug Index. The graph assumes the investment of $100 on
December 31, 1998, in the Company's common stock, the Amex Biotech Index, and
the Standard & Poor's Drug Index, and further assumes no payment or reinvestment
of dividends. Further, the graph does not reflect price fluctuations that may
have occurred during the year. Finally, the historical stock price performance
of the Company's common stock in the graph is not necessarily indicative of
future stock price performance.
Dragon Pharmceutical vs. Amex Biotech, S&P Drug
[LINE GRAPH OMITTED]
12/31/98 12/31/99 12/31/00
-------- -------- --------
Dragon Pharmaceutical $100.00 $491.65 $266.66
Amex Biotech $100.00 $211.59 $342.87
S & P Drug $100.00 $82.31 $114.36
15
PROPOSAL 2--2001 STOCK OPTION PLAN
The stockholders are being asked to approve the adoption of our 2001 Stock
Option Plan. If adopted, the 2001 Stock Option Plan will assume our existing
option grants that have been previously made. The 2001 Stock Option Plan will
become effective immediately upon stockholder approval. It is anticipated that,
if approved by the stockholders, the 2001 Stock Option Plan will be used going
forward in lieu of option grants outside of plans.
The Board of Directors believes that stock options have been very effective
for these purposes over time and have proven to be an important component of the
Company's overall compensation and incentive strategy for employees, directors,
officers and consultants. The Company is committed to broad-based participation
in the stock option program by employees at all levels and by directors,
officers and consultants. The Company believes that the stock option program is
important in order to maintain the Company's culture, employee motivation, and
continued success.
DESCRIPTION OF THE 2001 PLAN
Structure. The 2001 Stock Option Plan consists a discretionary option grant
program under which eligible individuals in our employ or service as directors,
officers or consultants may, at the discretion of the Plan Administrator, be
granted options to purchase our shares of common stock. The principal features
of the program are described below.
Administration. The Board of Directors will serve as the Plan Administrator
with respect to the 2001 Stock Option Plan. The term "Plan Administrator" as
used in this summary means the Board of Directors and any other appointed
committee acting within the scope of its administrative authority under the 2001
Stock Option Plan. The Plan Administrator has the authority to interpret the
2001 Stock Option Plan and the rights underlying any grants made subject to the
2001 Stock Option Plan. Any decision or action of the Plan Administrator in
connection with the 2001 Stock Option Plan is final and binding.
No member of the committee shall be liable for any action, excepting
willful misconduct and gross negligence, arising out of or related to the 2001
Stock Option Plan provided the committee member was acting in good faith and for
a purpose believed to have been in our best interests or our subsidiaries.
Eligibility. Employees, directors, officers, and consultants and advisors
in the service of the Company or any parent or subsidiary corporation (whether
now existing or subsequently established) are eligible to participate in the
2001 Stock Option Plan. Eligible persons include, in the case of an incentive
stock option, employees of the Company or a subsidiary, and in the case of a
non-qualified stock option, employees, directors, officers and consultants of
the Company or a subsidiary. Determinations as to eligibility shall be made by
the Plan Administrator.
Share Reserve. The 2001 Stock Option Plan will be funded with 4,500,000
shares of common stock reserved for issuance under the 2001 Stock Option Plan
including stock options to acquire 2,939,500 shares of common stock that will be
assumed under the 2001 Stock Option Plan. The shares issuable under the 2001
Stock Option 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 2001 Stock Option Plan which expire or terminate
prior to exercise will be available for subsequent issuance.
Valuation. For purposes of establishing the option price and for all other
valuation purposes under the 2001 Stock Option Plan, the fair market value per
share of common stock on any relevant date under the 2001 Stock Option Plan is a
function of the closing bid and asked price per share of common stock on that
16
date, as such price is quoted on the OTC Bulletin Board, or the preceding day in
which such prices were quoted.
Terms and Conditions of Option Grants. One or more options may be granted
to each eligible person. The options granted under the 2001 Stock Option Plan
will be evidenced by an option agreement, which will expressly identify the
option as an incentive stock option or a non-qualified stock option. The Plan
Administrator shall specify the grant date, exercise price, terms and conditions
for the exercise of the options. No option under the 2001 Stock Option Plan
shall terminate later than ten years after the date of grant subject to the
following provision. In the case of an incentive stock option when the optionee
owns more than 10% of the total combined voting power of all classes of stock,
the option shall expire not later than five years after the date of grant.
Shareholder approval of this Proposal will also constitute approval of that
limit for purposes of Internal Revenue Code Section 162(m).
Exercise of the Option. Options may be exercised by delivery to us of a
written stock option exercise agreement together with payment in full of the
exercise price for the number of shares being purchased. Unless otherwise
determined by the Plan Administrator, the exercise price shall be 100% of the
fair market value of the shares on the date of grant. The exercise price of any
incentive stock option granted to a ten percent shareholder will not be less
than 110% of the fair market value of the share on the date of grant. Payment
for shares purchased pursuant to the 2001 Stock Option Plan may be made in cash,
or, where approved by the Plan Administrator, in any of the following manners.
Payment may be made by 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. With respect to the exercise of an option, payment may be made 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.
Payment may also be by 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. Payment may also be made by
"immaculate cashless exercise" in which the optionee exercises by forfeiting the
option shares at their exercise price or by a loan by the Company.
Reload Option. The Plan Administrator of the 2001 Stock Option Plan may, in
its discretion, grant optionee a reload option. An optionee with a reload
option, who pays for his or her stock in whole or in part with stock owned by
the optionee may be granted another option to purchase the number of shares
tendered at a price no less than fair market value of the shares at the date the
additional option is granted. The purpose of the reload option is to encourage
insiders to own stock in the Company.
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 guardian or legal representative may exercise
an option. The Plan Administrator may provide for transfer of an option (other
than an incentive stock option) without payment of consideration to designated
family members and certain other entities specified in the 2001 Stock Option
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.
17
Termination of Employment. If optionee's employment is terminated, vested
incentive 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, but if the options held are
incentive stock options and employee exercises after three months of termination
of employment, the options will not be treated as incentive stock options.
Notwithstanding the foregoing, a stock option agreement may provide for the
exercise of a stock option during the term of such stock option even though a
person is no longer an employee or consultant to the Company.
Retirement, Death or Permanent Disability. If an optionee in the 2001 Stock
Option 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 the optionee does not exercise within
three months of retirement, no option shall qualify as an incentive stock option
if it was otherwise so qualified. 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 twelve months after the termination of
employment as a result of the disability or death, but in no event after the
expiration of the option as set forth in the option agreement.
Current or Former Directors. Current or former directors may exercise
vested options at any time during the maximum term of the option.
Suspension or Termination of Options. If the Plan Administrator reasonably
believes that the 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 optionee has committed an act of embezzlement, fraud, dishonesty,
nonpayment of an obligation owed to the Company, breach of fiduciary duty or
deliberate disregard of the Company's rules, or if optionee makes an
unauthorized disclosure of any Company trade secret or confidential information,
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.
Option Transferability. Options are not assignable or transferable other
than by will or the laws of inheritance following optionee's death, and during
the optionee's lifetime, the option may only be exercised by the optionee.
However, the Plan Administrator may establish procedures pursuant to which
non-statutory options may be transferred or assigned during the optionee's
lifetime to one or more members of the optionee's family or to certain other
entities specified in the 2001 Stock Option Plan.
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 you of adequate consideration as specified in the 2001 Stock Option
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 outstanding options.
In the event a change of control of the Company as defined in the 2001
Stock Option Plan occurs, 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 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 2001 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.
Special Tax Election. The Plan Administrator may, in its discretion,
provide one or more holders of outstanding options under the 2001 Stock Option
Plan with the right to have the Company withhold a portion of the shares of
common stock otherwise issuable to such individuals in satisfaction of the
income and employment withholding taxes to which they become subject in
connection with the exercise of those options. Alternatively, the Plan
Administrator may allow such individuals to deliver existing shares of common
stock in satisfaction of such withholding tax liability.
Amendment and Termination. The Board may amend, suspend or terminate the
2001 Stock Option 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
stockholders even if such approval is not expressly required by the 2001 Stock
Option Plan or by law.
Unless sooner terminated by the Board, the 2001 Stock Option Plan will in
all events terminate in 2011. Any options outstanding at the time of such
termination will remain in force in accordance with the provisions of the
instruments evidencing such grants.
Predecessor Option Agreements. All outstanding options under any
predecessor option agreement continues to be governed solely by the terms of the
documents evidencing such options, and no provisions of the 2001 Stock Option
Plan affect or otherwise modify the rights or obligations of the holders of
those options.
Securities Laws. No option shall be effective unless made in compliance
with all federal and state securities laws, rules and regulations, and in
compliance with any rules on any exchange on which shares are quoted.
19
Other Provisions. The option agreements may contain such other terms,
provisions and conditions not inconsistent with the 2001 Stock Option Plan as
may be determined by the board or the Plan Administrator
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS GRANTED UNDER THE 2001
STOCK OPTION PLAN
Options. Options granted under the 2001 Stock Option Plan may be either
incentive stock options which satisfy the requirements of Section 422 of the
Internal Revenue Code or non-statutory options which are not intended to meet
such requirements. The Federal income tax treatment for the two types of options
differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For Federal tax purposes, dispositions are
divided into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two (2) years after the option grant date and
more than one (1) year after the exercise date. If either of these two holding
periods is not satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for those shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of the
shares on the exercise date over (ii) the exercise price paid for those shares
will be taxable as ordinary income to the optionee. Any additional gain or loss
recognized upon the disposition will be taxable as a capital gain or loss.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will, in general, recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to forfeiture in the event of the optionee's termination of
service, the optionee will not recognize any taxable income at the time of
exercise but will have to report as ordinary income, as and when the Company's
forfeiture lapses, an amount equal to the excess of (i) the fair market value of
the shares on the date the forfeiture to the Company lapses over (ii) the
exercise price paid for the shares. The optionee may, however, elect under
Section 83(b) of the Internal Revenue Code to include as ordinary income in the
year of exercise of the option an amount equal to the excess of (i) the fair
market value of the purchased shares on the exercise date over (ii) the exercise
price paid for such shares. If the Section 83(b) election is made, the optionee
will not recognize any additional income as and when the forfeiture lapses.
20
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options will qualify as performance-based
compensation for purposes of Code Section 162(m) and will not have to be taken
into account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid with respect to those options
will remain deductible by the Company without limitation under Code Section
162(m).
ACCOUNTING TREATMENT
Option grants with an exercise price per share equal to 100% of the fair
market value of the shares at the time of grant will not result in any direct
charge to the Company's earnings. However, the fair value of those options 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 options would have upon the Company's reported earnings were the
value of those options at the time of grant treated as compensation expense. In
addition, the number of outstanding options may be a factor in determining the
Company's earnings per share on a diluted basis.
On March 31, 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, clarifying APB Opinion 25 ("FIN 44"), "Accounting for
Stock Issued to Employees." FIN 44 provides and interpretation of APB Opinion 25
on accounting for employee stock compensation and describes its application to
certain transactions. It applies on a prospective basis to events occurring
after July 1, 2000, except for certain transaction involving options granted to
nonemployees, repriced fixed options, and modifications to add reload option
features, which apply to options granted after December 31, 1998. FIN 44
clarifies the following:
- the definition of an employee for purposes of applying APB Opinion No.
25;
- the criteria for determining whether a plan qualifies as a
noncompensatory plan;
- the accounting consequences of various modifications to the terms of
the previously fixed stock options; and
- the accounting for an exchange of stock options in a business
combination.
For example under FIN 44, option grants made to non-employee consultants
(but not non-employee board members) will result in a direct charge to the
Company's reported earnings based upon the fair value of the option measured
initially as of the grant date and then subsequently on the vesting date of each
installment of the underlying option shares (if vesting applies). Such charge
will accordingly include the appreciation in the value of the option shares over
the period between the grant date of the option and the vesting date of each
installment of the option shares (if vesting applies).
SHAREHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 2001 annual meeting,
together with the affirmative vote of a majority of the required quorum, is
required for approval of the 2001 Stock Option Plan.
Recommendation of the Board
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE 2001 STOCK OPTION
PLAN UNDER "PROPOSAL 2" ON THE PROXY CARD.
Independent Accountants
The firm of Moore Stephens Ellis Foster Ltd., Chartered Accountants served
as our independent accountants for the year ended December 31, 2000, and during
the course of that fiscal year they were also engaged by us to provide certain
non-audit services.
Audit fees. The aggregate fees paid to Moore Stephens Ellis Foster Ltd. for
the annual audit and/or the review of our financial statements included in our
Form 10-K for the year ended December, 31, 2000, amounted to approximately
$74,559.
Financial Information Systems Design and Implementation Fees. During the
year ended December 31, 2000, we paid no fees to Moore Stephens Ellis Foster
Ltd., related to the design or implementation of a hardware or software system
to compile source data underlying our financial statements or generate
information significant to our financial statements.
All Other Fees. The aggregate fees paid for other non-audit services,
including fees for tax related services, rendered by Moore Stephens Ellis Foster
Ltd., during our most recent fiscal year ended December 31, 2000, amounted to
approximately $30,730.
A representative of Moore Stephens Ellis Foster will be at the meeting to
respond to questions.
Proposals of Stockholders
Proposals by stockholders intended to be presented at Dragon 2002 annual
meeting of stockholders must be received by Dragon not later than December 31,
2001, for consideration for possible inclusion in the proxy statement relating
to that meeting.
Annual Report to Stockholders
The Annual Report to the SEC on Form 10-K for the fiscal year ended
December 31, 2000, including audited consolidated financial statements, is being
mailed to the stockholders concurrently herewith, but such report is not
incorporated in this proxy statement and is not deemed to be a part of the proxy
solicitation material.
Additional copies of the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, will be provided to stockholders without charge upon
request to the Secretary of the Company.
22
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 in respect
thereof in accordance with the recommendations of the board of directors.
By Order of the Board of Directors
/s/ Matthew Kavanagh
Secretary
Dated: November 22, 2001
A-1
APPENDIX A
DRAGON PHARMACEUTICAL INC.
Audit Committee Charter
Preamble
Dragon Pharmaceutical Inc. ("Company"), as part of its continuous improvement
efforts, desires to strengthen its board oversight of accounting and reporting
functions through this Charter setting forth the duties and authority of the
Company's audit committee.
Organization
The audit committee of the board of directors shall be comprised of at least
three directors. All audit committee members will be financially literate, by
experience or otherwise, and at least one member will have accounting or related
financial management expertise.
Statement of Policy
The audit committee shall provide assistance to the Board of Directors in
fulfilling the members' responsibility to the stockholders, potential
stockholders, and the investment community relating to corporate accounting and
reporting practices of the Company, and the quality and integrity of financial
reports of the Company. In so doing, it is the responsibility of the audit
committee to maintain free and open communication between the members of the
Board of Directors, the independent auditors, and the Company's principal
financial officer.
Responsibilities
In carrying out its responsibilities, the audit committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the Board of Directors and stockholders that the
corporate accounting and reporting practices of the company are in accordance
with all requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee will:
o Obtain the full board of directors' approval of this Charter and review and
reassess this Charter as conditions dictate, but no less frequently than
annually following the review of the Company's annual report on Form 10-K.
o Review and recommend to the Board of Directors the selection of independent
auditors to audit the financial statements of the Company.
o Have a clear understanding with the independent auditors that the
independent auditors are ultimately accountable to the Board of Directors
and the audit committee, as the stockholders' representatives, who have the
ultimate authority in deciding to engage, evaluate, and if appropriate,
terminate their services.
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o Review and concur with management's appointment, termination, or
replacement of the Chief Financial Officer.
o Meet with the independent auditors and financial management of the Company
to review the scope of the proposed audit and timely quarterly reviews for
the current year and the procedures to be utilized, the adequacy of the
independent auditor's compensation, and at the conclusion thereof review
such audit or review, including any comments or recommendations of the
independent auditors.
o Review with the independent auditors, the Company's principal financial
officer, and financial and accounting personnel, the adequacy and
effectiveness of the accounting and financial controls of the company, and
elicit any recommendations for the improvement of such internal controls or
particular areas where new or more detailed controls or procedures are
desirable. Particular emphasis should be given to the adequacy of internal
controls to expose any payments, transactions, or procedures that might be
deemed illegal or otherwise improper.
o Review reports received from regulators and other legal and regulatory
matters that may have a material effect on the financial statements or
related company compliance policies.
o Review the internal audit function of the company including the
independence and authority of its Chief Financial Officer in meeting the
Company's reporting obligations, the proposed audit plans for the coming
year, and the coordination of such plans with the independent auditors.
o Inquire of management, the internal auditor, and the independent auditors
about significant risks or exposures and assess the steps management has
taken to minimize such risks to the Company.
o Direct the independent auditors to communicate directly to each member of
the audit committee with respect to any disagreement with the Company on
any financial treatment or accounting practice that is reflected in the
quarterly reports on Form 10-Q upon review.
o Receive prior to each meeting, a summary of findings from completed
internal audits and a progress report on the proposed internal audit plan,
with explanations for any deviations from the original plan.
o Review the quarterly financial statements with financial management prior
to the filing of the Form 10-Q (or prior to the press release of results,
if possible) to determine that the independent auditors do not take
exception to the disclosure and content of the financial statements, and
discuss any other matters required to be communicated to the committee by
the independent auditors. The chair of the committee may represent the
entire committee for purposes of this review and any required discussions
with the independent auditor.
o Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine that
the independent auditors are satisfied with the disclosure and content of
the financial statements to be presented to the shareholders. Review with
financial management and the independent auditors the results of their
timely analysis of significant financial reporting issues and practices,
including changes in, or adoptions of, accounting principles and disclosure
practices, and discuss any other matters required to be communicated to the
committee by the auditors. Also review with financial management and the
independent auditors their judgments about the quality, not just
acceptability, of accounting principles and the clarity of the financial
disclosure practices used or proposed to be used, and particularly, the
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degree of aggressiveness or conservatism of the organization's accounting
principles and underlying estimates, and other significant decisions made
in preparing the financial statements.
o Provide sufficient opportunity for the Company's principal accounting
officer and the independent auditors to meet with the members of the audit
committee without members of management present. Among the items to be
discussed in these meetings are the independent auditors' evaluation of the
company's financial, accounting, and auditing personnel, and the
cooperation that the independent auditors received during the course of
audits.
o Review accounting and financial human resources and succession planning
within the Company.
o Report the results of the annual audit to the board of directors. If
requested by the board, invite the independent auditors to attend the full
board of directors meeting to assist in reporting the results of the annual
audit or to answer other directors' questions (alternatively, the other
directors, particularly the other independent directors, may be invited to
attend the audit committee meeting during which the results of the annual
audit are reviewed).
o On an annual basis, obtain from the independent auditors a written
communication delineating all their relationships and professional services
as required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees. In addition, review with the independent
auditors the nature and scope of any disclosed relationships or
professional services and take, or recommend that the board of directors
take, appropriate action to ensure the continuing independence of the
auditors.
o Review the report of the audit committee in the annual report to
shareholders and the Annual Report on Form 10-K disclosing whether or not
the committee had reviewed and discussed with management and the
independent auditors, as well as discussed within the committee (without
management or the independent auditors present), the financial statements
and the quality of accounting principles and significant judgments
affecting the financial statements. In addition, disclose the committee's
conclusion on the fairness of presentation of the financial statements in
conformity with GAAP based on those discussions.
o Submit the minutes of all meetings of the audit committee to, or discuss
the matters discussed at each committee meeting with, the board of
directors.
o Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in
its judgment, that is appropriate.
o Review the Company's disclosure in the proxy statement for its annual
meeting of shareholders that describes that the Committee has satisfied its
responsibilities under this Charter for the prior year. In addition,
include a copy of this Charter in the annual report to shareholders or the
proxy statement at least triennially or the year after any significant
amendment to the Charter.
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APPENDIX B
DRAGON PHARMACEUTICAL INC.
2001 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain
and motivate Eligible Persons whose present and potential contributions are
important to the success of the Company, or a Subsidiary of the Company, by
offering them an opportunity to participate in the Company's future performance
through Options. Capitalized terms not defined in the text are defined in
Section 22.
2. ADOPTION AND STOCKHOLDER APPROVAL. This Plan shall be approved by the
shareholders of the Company, consistent with applicable laws, after the date
this Plan is adopted by the Board. No Option shall be granted after termination
of this Plan but all Options granted prior to termination shall remain in effect
in accordance with their terms. The Effective Date of this Plan will coincide
with the shareholders approval. So long as the Company is subject to Section
16(b) of the Exchange Act, the Company will comply with the requirements of Rule
16b-3 (or its successor), as amended.
3. TERM OF PLAN. Unless earlier terminated as provided herein, this Plan will
terminate ten (10) years from the date this Plan is adopted by the Board.
4. SHARES SUBJECT TO THIS PLAN.
4.1. Number of Shares Available. Subject to Section 4.2, the total number
Shares reserved and available for grant and issuance pursuant to this Plan will
be four million five hundred thousand (4,500,000), which will include stock
options to purchase 2,939,500 shares of common stock outstanding prior to the
adoption of the Plan. Outstanding shares of the Company shall, for the purposes
of such calculation, include the number of shares of Stock into which other
securities or instruments issued by the Company are currently convertible (e.g.,
convertible preferred stock, convertible debentures, or warrants for common
stock, but not outstanding Options to acquire Stock.
a. Subject to Sections 4.2, Shares that are subject:
i. to issuance upon exercise of an Option but cease to be subject to
such Option for any reason other than exercise of such Option;
ii. to an Option granted hereunder but are forfeited; or
iii. to an Option that otherwise terminates without Shares being
issued,
will again be available for grant and issuance in connection with future Options
under this Plan. However, in the event that prior to the Option's forfeiture,
termination, expiration or lapse, the holder of the Option at any time received
one or more elements of "beneficial ownership" pursuant to such Option (as
defined by the SEC, pursuant to any rule or interpretations promulgated under
Section 16 of the Exchange Act), the Shares subject to such Option shall not
again be made available for regrant under the Plan.
b. At all times, the Company shall reserve and keep available a sufficient
number of Shares as shall be required to satisfy the requirements of all
outstanding Options granted under this Plan. The Shares to be issued hereunder
upon exercise of an Option may be either authorized but unissued, or
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previously issued and subsequently reacquired. However, when the exercise price
for an Option granted under this Plan is paid in an "immaculate" or "cashless"
exercise with previously outstanding shares or with the shares underlying the
Option which is being exercised, the total number of Shares for which Options
granted under this Plan may thereafter be exercised shall be irrevocably reduced
by the total number of Shares for which such Option is thus exercised without
regard to the number of shares received or retained by the Company in connection
with that exercise. The following rules shall apply for purposes of the
determination of the number of Shares available for grant under the Plan:
i. The grant of an Option shall reduce the Shares available for
grant under the Plan by the number of Shares subject to such
Option.
ii. While an Option is outstanding, it shall be counted against the
authorized pool of Shares regardless of its vested status.
4.2 Adjustments. Should any change be made to the Stock of the Company by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Company's receipt of consideration, the
Administrator shall make appropriate adjustments to (i) the maximum number
and/or class of securities issuable under the 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; provided however, that the number of Shares subject to any Option
shall always be a whole number and the Administrator shall make such adjustments
as are necessary to insure Options of whole Shares.
5. ADMINISTRATION OF THIS PLAN.
5.1 Authority. Authority to control and manage the operation and
administration of this Plan shall be vested in the Board, which may delegate
such responsibilities in whole or in part to a committee or subcommittee
consisting of two (2) or more members of the Board, all of whom are Outside
Directors and who satisfy the requirements under the Exchange Act for
administering this Plan (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
The Board at any time may abolish the Committee and reinvest in the Board the
administration of this Plan. As used herein, the term "Administrator" means the
Board or, with respect to any matter as to which responsibility has been
delegated to the Committee, the term Administrator shall mean the Committee.
5.2. Interpretation. Subject to the express provisions of this Plan, the
Administrator shall have the authority to construe and interpret this Plan and
any agreements defining the rights and obligations of the Company and
Participants under this Plan; to select Participants; determine the form and
terms of Options; determine the number of Shares or other consideration subject
to Options; determine whether Options will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to, other Options
under this Plan or any other incentive or compensation plan of the Company; to
further define the terms used in this Plan; to correct any defect or supply any
omission or reconcile any inconsistency in this Plan or in any Option Agreement;
to provide for rights of refusal and/or repurchase rights; to amend outstanding
Option Agreements to provide for, among other things, any change or modification
which the Administrator could have provided for upon the grant of an Option or
in furtherance of the powers provided for herein; to prescribe, amend and
rescind rules and regulations relating to the administration of this Plan; to
determine the duration and purposes of leaves of absence which may be granted to
Participants without constituting a termination of their employment for purposes
of this Plan; to accelerate the vesting of any Option; and to make all other
determinations necessary or advisable for the administration of this Plan.
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Any decision or action of the Administrator in connection with this Plan or
Options granted or shares of Stock purchased under this Plan shall be final and
binding. The Administrator shall not be liable for any decision, action or
omission respecting this Plan, or any Options granted or shares of Stock sold
under this Plan.
5.3 Limitation on Liability. To the extent permitted by applicable law in
effect from time to time, no member of the Committee or the Board of Directors
shall be liable for any action or omission of any other member of the Committee
or the Board of Directors nor for any act or omission on the member's own part,
excepting only the member's own willful misconduct or gross negligence, arising
out of or related to this Plan. The Company shall pay expenses incurred by, and
satisfy a judgment or fine rendered or levied against, a present or former
director or member of the Committee or Board in any action against such person
(whether or not the Company is joined as a party defendant) to impose liability
or a penalty on such person for an act alleged to have been committed by such
person while a director or member of the Committee or Board arising with respect
to this Plan or administration thereof or out of membership on the Committee or
Board or by the Company, or all or any combination of the preceding, provided,
the director or Committee member was acting in good faith, within what such
director or Committee member reasonably believed to have been within the scope
of his or her employment or authority and for a purpose which he or she
reasonably believed to be in the best interests of the Company or its
stockholders. Payments authorized hereunder include amounts paid and expenses
incurred in settling any such action or threatened action. The provisions of
this section shall apply to the estate, executor, administrator, heirs, legatees
or devisees of a director or Committee member, and the term "person" as used on
this section shall include the estate, executor, administrator, heirs, legatees,
or devisees of such person.
6. GRANT OF OPTIONS; TERMS AND CONDITIONS OF GRANT.
6.1. Grant of Options. One or more Options may be granted to any Eligible
Person. Subject to the express provisions of this Plan, the Administrator shall
determine from the Eligible Persons those individuals to whom Options under this
Plan may be granted. Each Option granted under this Plan will be evidenced by an
Option Agreement, which will expressly identify the Option as an Incentive Stock
Option or a Non-qualified Stock Option.
Further, subject to the express provisions of this Plan, the Administrator
shall specify the Grant Date, the number of Shares covered by the Option, the
exercise price and the terms and conditions for exercise of the Options. If the
Administrator fails to specify the Grant Date, the Grant Date shall be the date
of the action taken by the Administrator to grant the Option. As soon as
practicable after the Grant Date, the Company will provide the Participant with
a written Option Agreement in the form approved by the Administrator, which sets
out the Grant Date, the number of Shares covered by the Option, the exercise
price and the terms and conditions for exercise of the Option.
The Administrator may, in its absolute discretion, grant Options under this
Plan at any time and from time to time before the expiration of this Plan.
6.2. General Terms and Conditions. Except as otherwise provided herein, the
Options shall be subject to the following terms and conditions and such other
terms and conditions not inconsistent with this Plan as the Administrator may
impose:
6.2.1. Exercise of Option. The Administrator may determine in its
discretion whether any Option shall be subject to vesting and the terms and
conditions of any such vesting. The Option Agreement shall contain any such
vesting schedule.
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6.2.2. Option Term. Each Option and all rights or obligations thereunder
shall expire on such date as shall be determined by the Administrator, but not
later than ten years after the grant of the Option (five years in the case of an
Incentive Stock Option when the Optionee owns more than 10% of the total
combined voting power of all classes of stock of the Company ("Ten Percent
Stockholder")), and shall be subject to earlier termination as hereinafter
provided.
6.2.3. Exercise Price. The Exercise Price of any Option shall be determined
by the Administrator when the Option is granted and unless otherwise determined
by the Administrator, may not be less than one hundred percent (100%) of the
Fair Market Value of the Shares on the date of grant, and the Exercise Price of
any Incentive Stock Option granted to a Ten Percent Stockholder will not be less
than one hundred ten percent (110%) of the Fair Market Value of the Shares on
the date of grant. Payment for the Shares purchased shall be made in accordance
with Section 7 of this Plan. The Administrator is authorized to issue Options,
whether Incentive Stock Options or Non-qualified Stock Options, at an Option
price in excess of the Fair Market Value on the date the Option is granted (the
so-called "Premium Price" Option) to encourage superior performance.
6.2.4. Method of Exercise. Options may be exercised only by delivery to the
Company of a written stock option exercise agreement (the "Exercise Agreement")
in a form approved by the Administrator (which need not be the same for each
Participant), stating the number of Shares being purchased, the restrictions
imposed on the Shares purchased under such Exercise Agreement, if any, and such
representations and agreements regarding the Participant's investment intent and
access to information and other matters, if any, as may be required or desirable
by the Company to comply with applicable securities laws, together with payment
in full of the Exercise Price for the number of Shares being purchased.
6.2.5. Transferability of Options. Except as otherwise provided below for
Non-qualified Stock Options, no Option shall be transferable other than by will
or by the laws of descent and distribution and during the lifetime of a
Participant, only the Participant, his guardian or legal representative may
exercise an Option. A Participant may designate a beneficiary to exercise his or
her Options after the Participant's death. At its discretion, the Administrator
may provide for transfer of an Option (other than an Incentive Stock Option),
without payment of consideration, to the following family members of the
Participant, including adoptive relationships: a child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, sister-in-law, niece, nephew,
former spouse (whether by gift or pursuant to a domestic relations order), any
person sharing the employee's household (other than a tenant or employee), a
family-controlled partnership, corporation, limited liability company and trust,
or a foundation in which family members heretofore described control the
management of assets. The assigned portion may only be exercised by the person
or persons who acquire a proprietary interest in the Option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the Option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Administrator may deem
appropriate. A request to assign an Option may be made only by delivery to
Company of a written stock option assignment request (the "Assignment Request")
in a form approved by the Administrator, stating the number of Options and
Shares underlying Options requested for assignment, that no consideration is
being paid for the assignment, identifying the proposed transferee, and
containing such other representations and agreements regarding the Participant's
investment intent and access to information and other matters, if any, as may be
required or desirable by Company to comply with applicable securities laws.
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6.2.6. Exercise After Certain Events.
i. Termination of Employment - Employee/Officer
(1) Incentive Stock Options.
(a) Termination of All Services. If for any reason other
than retirement (as defined below), permanent and total
disability (as defined below) or death, a Participant Terminates
employment with the Company or a Subsidiary (including employment
as an officer of Company or a Subsidiary), vested Incentive Stock
Options held at the date of such termination (to the extent then
exercisable) may be exercised, in whole or in part, at any time
within three (3) months after the date of such Termination or
such lesser period specified in the Option Agreement (but in no
event after the earlier of (i) the expiration date of the
Incentive Stock Option as set forth in the Option Agreement, and
(ii) ten years from the Grant Date (five years for a Ten Percent
Stockholder)).
(b) Continuation of Services as Consultant/Advisor. If a
Participant granted an Incentive Stock Option terminates
employment but continues as a consultant, advisor or in a similar
capacity to the Company or a Subsidiary, Participant need not
exercise the Incentive Stock Option within three months of
termination of employment but shall be entitled to exercise
within three (3) months of termination of services to Company or
the Subsidiary (one (1) year in the event of permanent and total
disability or death) or such lesser period specified in the
Option Agreement (but in no event after the earlier of (i) the
expiration date of the Incentive Stock Option as set forth in the
Option Agreement, and (ii) ten years from the Grant Date).
However, if Participant does not exercise within three (3) months
of termination of employment, the Option will not qualify as an
Incentive Stock Option.
(2) Non-Qualified Stock Options.
(a) Termination of All Services. If for any reason other
than Retirement (as defined below), permanent and total
disability (as defined below) or death, a Participant Terminates
employment with the Company or a Subsidiary (including employment
as an Officer of the Company or a Subsidiary), vested
Non-qualified Stock Options held at the date of such Termination
(to the extent then exercisable) may be exercised, in whole or in
part, at any time within three (3) months of the date of such
Termination or such lesser or longer period specified in the
Option Agreement (but in no event after the earlier of (i) the
expiration date of the Option as set forth in the Option
Agreement, and (ii) ten years from the Grant Date).
(b) Continuation of Services as Consultant/Advisor. If a
Participant granted a Non-qualified Stock Option Terminates
employment but continues as a consultant, advisor or in a similar
capacity to the Company or a Subsidiary, Participant need not
exercise the Option within three (3) months of Termination but
shall be entitled to exercise within three (3) months of
termination of services to the Company or the Subsidiary (one (1)
year in the event of permanent and total disability or death) or
such lesser period specified in the Option Agreement (but in no
event after the earlier of (i) the expiration date of the Option
as set forth in the Option Agreement, and (ii) ten years from the
Grant Date).
ii. Retirement. If a Participant granted an Option ceases to be an
employee of Company or Subsidiary (including as an officer of Company or
Subsidiary) as a result of Retirement, Participant need not exercise the
Option within three (3) months of Termination of employment but shall be
entitled to exercise the Option within the maximum term of the Option to
the extent the Option was otherwise exercisable at the date of Retirement.
However, if Participant does not exercise within three (3) months of
termination of employment, the Option will not qualify as an Incentive
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Stock Option if it otherwise so qualified. The term "Retirement" as used
herein means such Termination of employment as shall entitle the
Participant to early or normal retirement benefits under any then existing
pension or salary continuation plans of Company or Subsidiary excluding
401(k) participants (except as otherwise covered under other pension or
salary continuation plans).
iii. Permanent Disability and Death of Employee/Officer. If a
Participant becomes permanently and totally disabled (within the meaning of
Section 22(e)(3) of the Code), or dies, while employed by Company or
Subsidiary (including as an officer of Company or Subsidiary), vested
Options, whether Incentive Stock Options or Non-qualified Options, then
held (to the extent then exercisable) may be exercised by the Participant,
the Participant's personal representative, or by the person to whom the
Option is transferred by will or the laws of descent and distribution, in
whole or in part, at any time within one (1) year after the termination of
employment because of such disability or death or any lesser period
specified in the Option Agreement (but in no event after the earlier of (i)
the expiration date of the Option as set forth in the Option Agreement, and
(ii) ten years from the Grant Date (five years for a Ten Percent
Stockholder if the option is an Incentive Option)).
iv. Termination of Directorship. If for any reason, including
permanent and total disability or death, a Participant ceases to be a
director of Company or Subsidiary, vested Options held at the date of such
termination (to the extent then exercisable) may be exercised, in whole or
in part, at any time during the maximum term of the Option (but in no event
after the earlier of (i) the expiration date of the Option as set forth in
the Option Agreement, and (ii) ten years from the Grant Date (five years
for a Ten Percent Stockholder if the option is an Incentive Stock Option)).
However, if Participant holds Incentive Stock Options and does not exercise
within three (3) months of Termination of employment, the Options will not
qualify as Incentive Stock Options.
6.2.7. Suspension and Cancellation of Options. In the event the
Administrator reasonably believes a Participant has committed an act of
misconduct including, but limited to acts specified below, the Administrator may
suspend the Participant's right to exercise any Option granted hereunder pending
final determination by the Board. If a Participant is determined by the Board to
have:
i. committed an act of embezzlement, fraud, dishonesty, breach of
fiduciary duty to Company or a Subsidiary;
ii. deliberately disregarded the rules of Company or a Subsidiary
which resulted in loss, damage or injury to Company or a Subsidiary;
iii. made any unauthorized disclosure of any trade secret or
confidential information of Company or a Subsidiary;
iv. induced any client or customer of Company or a Subsidiary to break
any contract with Company or a Subsidiary or induced any principal for whom
Company or a Subsidiary acts as agent to terminate such agency relations;
or
v. engaged in any substantial conduct which constitutes unfair
competition with Company or a Subsidiary, neither the Participant nor his
estate shall be entitled to exercise any Option hereunder.
The determination of the Board shall be final and conclusive. Without limiting
the generality of the foregoing, the Agreement may provide that the Participant
shall also pay to Company any gain realized by the Participant from exercising
all or any portion of the Options hereunder during a period beginning six (6)
months prior to such suspension or cancellation.
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The Administrator may provide in the Agreement that cancellation of the
Option shall also apply if the Participant is determined by the Board to have:
i. engaged in any commercial activity in competition with any part of
the business of Company or a Subsidiary;
ii. diverted or attempted to divert from Company or a Subsidiary
business of any kind, including, without limitation, interference with any
business relationship with suppliers, customers, licensees, licensors or
contractors;
iii. made, or caused or attempted to cause any other person to make,
any statement, either written or oral, or conveying any information about
Company or a Subsidiary which is disparaging or which in any way reflects
negatively upon Company or a Subsidiary;
iv. engaged in any other activity that is inimical, contrary or
harmful to the interests of Company or a Subsidiary, including influencing
or advising any person who is employed by or in the service of Company or a
Subsidiary to leave such employment or service to compete with Company or a
Subsidiary or to enter into the employment or service of any actual or
prospective competitor of Company or a Subsidiary, or to have influenced or
advised any competitor of Company or a Subsidiary to employ or to otherwise
engage the services of any person who is employed by Company or in the
service of Company, or improperly disclosed or otherwise misused any
confidential information regarding Company or a Subsidiary; or
v. refused or failed to provide, upon the request of Company or a
Subsidiary, a certification, in a form satisfactory to Company or a
Subsidiary, that he or she is in full compliance with the terms and
conditions of this Plan.
Should any provision to this Section 6.2.7. be held to be invalid or
illegal, such illegality shall not invalidate the whole of this Section 6, but,
rather, this Plan shall be construed as if it did not contain the illegal part
or narrowed to permit its enforcement, and the rights and obligations of the
parties shall be construed and enforced accordingly.
6.3. Limitations on Grant of Incentive Stock Options.
6.3.1. The aggregate Fair Market Value (determined as of the Grant Date) of
the Stock for which Incentive Stock Options may first become exercisable by any
Participant during any calendar year under this Plan, together with that of
Shares subject to Incentive Stock Options first exercisable (other than as a
result of acceleration pursuant to Section 17) by such Participant under any
other plan of the Company or any Subsidiary, shall not exceed $100,000. For
purposes of this Section 6.3.1, all Shares in excess of the $100,000 threshold
shall be treated as Non-qualified Stock Options.
6.3.2. There shall be imposed in the Option Agreement relating to Incentive
Stock Options such terms and conditions as are required in order that the Option
be an "incentive stock option" as that term is defined in Code Section 422.
6.3.3. No Incentive Stock Option may be granted to any person who is not an
employee of the Company or a Subsidiary of the Company.
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7. PAYMENT FOR SHARE PURCHASES.
7.1. Payment. Payment for Shares purchased pursuant to this Plan may be
made in cash (by check) or, where expressly approved for the Participant at the
discretion of the Administrator and where permitted by law:
7.1.1. by cancellation of indebtedness of the Company to the Participant;
7.1.2. by surrender of shares of Stock of the Company that either: (1) have
been owned by the Participant for more than six (6) months (and, if such shares
were purchased from the Company by use of a promissory note, such note has been
fully paid with respect to such shares); or (2) were obtained by the Participant
in the public market;
7.1.3. by tender of a full recourse promissory note having such terms as
may be approved by the Administrator and bearing interest at a rate sufficient
to avoid imputation of income under Code Sections 483 and 1274; provided,
however, that Participants who are not employees or directors of the Company
will not be entitled to purchase Shares with a promissory note unless the note
is adequately secured by collateral other than the Shares;
7.1.4. with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
i. through a "same day sale" commitment from the Participant and a
broker-dealer that is a member of the National Association of Securities
Dealers (a "NASD Dealer") whereby the Participant 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 irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly to the
Company; or
ii. through a "margin" commitment from the Participant and a NASD
Dealer whereby the Participant irrevocably elects to exercise the 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
7.1.5. by forfeiture of Option shares equal to the value of the exercise
price pursuant to a so-called "immaculate cashless exercise," or
7.1.6. by any combination of the foregoing methods of payment or any other
consideration or method of payment as shall be permitted by applicable corporate
law.
The Administrator may provide, in an Agreement or otherwise, that a
Participant who exercises an Option and pays the Exercise Price in whole or in
part with Stock then owned by the Participant will be entitled to receive
another Option covering the same number of shares tendered and with a price of
no less than Fair Market Value on the date of grant of such additional Option
("Reload Option"). Unless otherwise provided in the Agreement, a Participant, in
order to be entitled to a Reload Option, must pay with Stock that has been owned
by the Participant for at least the preceding six (6) months.
7.2. Loan Guarantees. At its sole discretion, the Administrator may help
the Participant pay for Shares purchased under this Plan by authorizing a
guarantee by the Company of a third-party loan to the Participant.
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8. WITHHOLDING TAXES.
8.1. Withholding Generally. Whenever Shares are to be issued in
satisfaction of Options granted under this Plan, or are forfeited pursuant to an
"immaculate cashless exercise," the Company may require the Participant to remit
to the Company an amount sufficient to satisfy federal, state and local taxes
and FICA withholding requirements prior to the delivery of any certificate or
certificates for such Shares. When, under applicable tax laws, a Participant
incurs tax liability in connection with the exercise or vesting of any Option,
the disposition by a Participant or other person of Options of Shares of an
Option prior to satisfaction of the holding period requirements of Section 422
of the Code, or upon the exercise of a Non-qualified Stock Option, the Company
shall have the right to require such Participant or such other person to pay by
cash, or check payable to the Company, the amount of any such withholding with
respect to such transactions. Any such payment must be made promptly when the
amount of such obligation becomes determinable (the "Tax Date").
8.2. Stock for Withholding. To the extent permissible under applicable tax,
securities and other laws, the Administrator may, in its sole discretion and
upon such terms and conditions as it may deem appropriate, permit a Participant
to satisfy his or her obligation to pay any such withholding tax, in whole or in
part, with Stock up to an amount not greater than the Company's minimum
statutory withholding rate for federal and state tax purposes, including payroll
taxes, that are applicable to such supplemental taxable income. The
Administrator may exercise its discretion, by (a) directing the Company to apply
shares of Stock to which the Participant is entitled as a result of the exercise
of an Option, or (b) delivering to the Company shares of Stock owned by the
Participant (other than in connection with an option exercise triggering
withholding taxes within the last six (6) months). The shares of Stock so
applied or delivered for the withholding obligation shall be valued at their
Fair Market Value as of the date of measurement of the amount of income subject
to withholding.
9. NO PRIVILEGES OF STOCK OWNERSHIP. No Participant will have any of the rights
of a stockholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will be
a stockholder and have all the rights of a stockholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are restricted stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; and provided, further, that the Participant will have no right
to retain such stock dividends or stock distributions with respect to Shares
that are repurchased at the Participant's Exercise Price or Purchase Price
pursuant to Section 10. Subject to Sections 17 and 18, no adjustment shall be
made for dividends or other rights for which the record date is prior to the
date title to the shares of Stock has been acquired by the Participant.
10. RESTRICTION ON SHARES. At the discretion of the Administrator, the Company
may reserve to itself and/or its assignee(s) in the Option Agreement a right to
repurchase at the Exercise Price of the Shares acquired under an Option or
impose other restrictions on such Shares during a period not to exceed one
hundred eighty (180) days from the date of exercise or purchase. After one
hundred eighty (180) days, at the discretion of the Administrator, the Company
may reserve to itself and/or its assignee(s) in the Option Agreement a right to
repurchase the Shares acquired under an Option at the Fair Market Value at the
time of repurchase. The terms and conditions of any such rights or other
restrictions shall be set forth in the Option Agreement evidencing the Option.
11. CERTIFICATES. All certificates for Shares or other securities delivered
under this Plan will be subject to such stock transfer orders, legends and other
restrictions as the Administrator may deem necessary or advisable, including
restrictions under any applicable federal, state or foreign securities law, or
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any rules, regulations and other requirements of the SEC or any stock exchange
or automated quotation system upon which the Shares may be listed or quoted.
12. ESCROW, PLEDGE OF SHARES. To enforce any restrictions on a Participant's
Shares, the Administrator may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Administrator, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Administrator may
cause a legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of such Participant's obligation
to the Company under the promissory note; provided, however, that the
Administrator may require or accept other or additional forms of collateral to
secure the payment of such obligation and, in any event, the Company will have
full recourse against the Participant under the promissory note notwithstanding
any pledge of the Participant's Shares or other collateral. In connection with
any pledge of the Shares, the Participant will be required to execute and
deliver a written pledge agreement in such form, as the Administrator will from
time to time approve. The Shares purchased with the promissory note may be
released from the pledge on a pro rata basis as the promissory note is paid.
13. EXCHANGE AND BUYOUT OF OPTIONS. The Administrator may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Options in exchange for the surrender and
cancellation of any or all outstanding Options. The Administrator may at any
time buy from a Participant an Option previously granted with payment in cash,
Shares (including restricted stock) or other consideration, based on such terms
and conditions as the Administrator and the Participant may agree.
14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Option will not be
effective unless such Option is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Option and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal laws or rulings
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so. Upon exercising all or any portion of an Option, a Participant may be
required to furnish representations or undertakings deemed appropriate by the
Company to enable the offer and sale of the Shares or subsequent transfers of
any interest in such shares to comply with applicable securities laws. Evidences
of ownership of Shares acquired pursuant to an Option shall bear any legend
required by, or useful for purposes of compliance with, applicable securities
laws, this Plan or the Option Agreement.
15. RIGHTS OF EMPLOYEES.
15.1. No Obligation to Employ. Nothing in this Plan or any Option granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or to limit in any way the right of the Company to terminate such
Participant's employment or other relationship at any time, with or without
cause.
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15.2. Compliance with Code Section 162(m). At all times when the
Administrator determines that compliance with Code Section 162(m) is required or
desired, all Options granted under this Plan to Named Executive Officers shall
comply with the requirements of Code Section 162(m). In addition, in the event
that changes are made to Code Section 162(m) to permit greater flexibility with
respect to any Option or Options under this Plan, the Administrator may, subject
to this Section 15, make any adjustments it deems appropriate.
16. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. The existence of outstanding
Options shall not affect the Company's right to effect adjustments,
recapitalizations, reorganizations or other changes in its or any other
corporation's capital structure or business, any merger or consolidation, any
issuance of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock, the dissolution or liquidation of the Company's or any
other corporation's assets or business or any other corporate act whether
similar to the events described above or otherwise. Shares shall be adjusted
pursuant to Section 4.2.
17. DISSOLUTION, LIQUIDATION, MERGER.
17.1. Company Not the Survivor. In the event of a dissolution or
liquidation of the Company, a merger, consolidation, combination or
reorganization in which the Company is not the surviving corporation, or a sale
of substantially all of the assets of the Company (as determined in the sole
discretion of the Board of Directors), the Administrator, in its absolute
discretion, may cancel each outstanding Option upon payment in cash to the
Participant of the amount by which any cash and the fair market value of any
other property which the Participant would have received as consideration for
the Shares covered by the Option if the Option had been exercised before such
liquidation, dissolution, merger, consolidation, combination, reorganization or
sale exceeds the exercise price of the Option or negotiate to have such option
assumed by the surviving corporation. In addition to the foregoing, in the event
of a dissolution or liquidation of the Company, or a merger, consolidation,
combination or reorganization in which the Company is not the surviving
corporation, or a sale or transfer of all or substantially all of the Company's
assets, the Administrator, in its absolute discretion, may accelerate the time
within which each outstanding Option may be exercised, provided however, that
the Change of Control provisions of Section 18.1 will control with respect to
acceleration in vesting in the event of a merger, consolidation, combination or
reorganization that results in change of control as so defined.
17.2. Company is the Survivor. In the event of a merger, consolidation,
combination or reorganization in which the Company is the surviving corporation,
the Board of Directors shall determine the appropriate adjustment of the number
and kind of securities with respect to which outstanding Options may be
exercised, and the exercise price at which outstanding Options may be exercised.
The Board of Directors shall determine, in its sole and absolute discretion,
when the Company shall be deemed to survive for purposes of this Plan.
18. CHANGE OF CONTROL.
18.1. Definition. If there is a "change of control" in the Company, all
outstanding Options shall fully vest immediately upon the Company's public
announcement of such a change. A "change of control" shall mean an event
involving one transaction or a related series of transactions, in which (i) the
Company issues securities equal to 50% or more of the Company's issued and
outstanding voting securities, determined as a single class, to any individual,
firm, partnership, limited liability company, or other entity, including a
"group" within the meaning of SEC Exchange Act Rule 13d-3, (ii) the Company
issues voting securities equal to 50% or more of the issued and outstanding
voting stock of the Company in connection with a merger, consolidation other
business combination, (iii) the Company is acquired in a merger, consolidation,
combination or reorganization in which the Company is not the surviving company,
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or (iv) all or substantially all of the Company's assets are sold or
transferred. The Administrator, in its discretion, may adjust the percentage of
securities the Company may issue to constitute a change of control under (i) and
(ii) in an individual Option Agreement.
18.2. Limitation on Options. Notwithstanding any other provisions of this
Plan and unless provided otherwise in the Option Agreement, if the right to
receive or benefit from an Option under this Plan, either alone or together with
payments that a Participant has a right to receive from the Company, would
constitute a "parachute payment" (as defined in Code Section 280G), all such
payments shall be reduced to the largest amount that will result in no portion
being subject to the excise tax imposed by Code Section 4999.
19. TERMINATION; AMENDMENT. The Board may amend, suspend or terminate this 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 may, in its discretion, determine that any amendment should be effective
only if approved by the Stockholders even if such approval is not expressly
required by this Plan or by law.
20. DEFERRALS. The Administrator may permit a Participant to defer to another
plan or program such Participant's receipt of Shares that would otherwise be due
to such Participant by virtue of the exercise of an Option. If any such deferral
election is required or permitted, the Administrator shall, in its sole
discretion, establish rules and procedures for such deferrals.
21. GOVERNING LAW. This Plan and the rights of all persons under this Plan shall
be construed in accordance with and under applicable provisions of the laws of
the State of Florida.
22. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
22.1 "Board" means the Board of Directors of the Company.
22.2 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
22.3 "Committee" means the Committee appointed by the Board to administer
this Plan, or if no such committee is appointed, the Board.
22.4 "Company" means Dragon Pharmaceutical Inc., a Florida corporation and
its subsidiaries, or any successor corporation.
22.5 "Disability" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
22.6 "Effective Date" has the meaning set forth in Section 2.
22.7 "Eligible Person" means, in the case of the grant of an Incentive
Stock Option, all employees of the Company or a subsidiary of the Company and,
in the case of a Non-qualified Stock Option, any director, officer or employee
of the Company or other person who, in the opinion of the Board, is rendering
valuable services to the Company, including without limitation, an independent
contractor, outside consultant, or advisor to the Company.
22.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time and any successor statute.
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22.9 "Exercise Price" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
22.10 "Fair Market Value" means (i) if the Stock is listed or admitted to
trade on a national securities exchange, the closing price of the Stock on the
Composite Tape, as published in the Western Edition of the Wall Street Journal,
of the principal national securities exchange on which the Stock is so listed or
admitted to trade, on such date, or, if there is no trading of the Stock on such
date, then the closing price of the Stock as quoted on such Composite Tape on
the next preceding date on which there was trading in such Stock; (ii) if the
Stock is not listed or admitted to trade on a national securities exchange, the
closing price for the Stock on such date, as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through the NASDAQ National
Market System or a similar organization if the NASD is no longer reporting such
information; (iii) if the stock is not reported on the National Market System,
the mean between the closing bid and asked prices for the stock on such date, as
furnished by the NASD, and if no bid and asked prices are quoted on such date,
the bid and asked prices on the next preceding day on which such prices were
quoted; and (iv) if the stock is not reported on the National Market System and
if bid and asked prices for the stock are not furnished by the NASD or a similar
organization, the value established by the Administrator for purposes of
granting options under this Plan.
22.11 "Incentive Stock Option" means an option, which is an option within
the meaning of Section 422 of the Code, the Option of which contains such
provisions as are necessary to comply with that section.
22.12 "Named Executive Officer" means, if applicable, a Participant who, as
of the date of vesting and/or payout of an Option is one of the group of
"covered employees," as defined in the regulations promulgated under Code
Section 162(m), or any successor statute.
22.13 "NASD Dealer" means a broker-dealer that is a member of the National
Association of Securities Dealers.
22.14 "Non-qualified Stock Option" means an option, which is designated a
Non-qualified Stock Option.
22.15 "Officer" means an officer of the Company and an officer who is
subject to Section 16 of the Exchange Act.
22.16 "Option" means an option to purchase Shares pursuant to Section 6.
22.17 "Option Agreement" means, with respect to each Option, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Option.
22.18 "Optionee" means the holder of an Option.
22.19 "Outside Director" means any director who is not (a) a current
employee of the Company; (b) a former employee of the Company who is receiving
compensation for prior services (other than benefits under a tax-qualified
pension plan); (c) a current or former officer of the Company; or (d) currently
receiving compensation for personal services in any capacity, other than as a
director, from the Company; and as may otherwise be defined in regulations
promulgated under Section 162(m) of the Code
22.20 "Participant" means a person who receives an Option under this Plan.
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22.21 "Plan" means this 2001 Stock Option Plan, as amended from time to
time.
22.22 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange
Act, as amended from time to time, and any successor rule.
22.23 "SEC" means the Securities and Exchange Commission.
22.24 "Securities Act" means the Securities Act of 1933, as amended from
time to time.
22.25 "Shares" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Section 4, and any successor
security.
22.26 "Stock" means the Common Stock, $0.001 par value, of the Company, and
any successor entity.
22.27 "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of granting of an
Option, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
22.28 "Termination" or "Terminated" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor or advisor of the Company. An employee will not be deemed to have
ceased to provide services in the case of (i) sick leave, (ii) military leave,
or (iii) any other leave of absence approved by the Administrator; provided,
that such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute or unless provided otherwise pursuant to formal policy adopted from time
to time by the Company and issued and promulgated to employees in writing. In
the case of any employee on an approved leave of absence, the Administrator may
make such provisions respecting suspension of vesting of the Option while on
leave from the employ of the Company as it may deem appropriate, except that in
no event may an Option be exercised after the expiration of the term set forth
in the Option Agreement. The Administrator will have sole discretion to
determine whether a Participant has ceased to provide services and the effective
date on which the Participant ceased to provide services (the "Termination
Date").
22.29 "Unvested Shares" means "Unvested Shares" as defined in the Option
Agreement.
22.30 "Vested Shares" means "Vested Shares" as defined in the Option
Agreement.
22.31 "Vesting Date" means the date on which an Option becomes wholly or
partially exercisable, as determined by the Administrator in its sole
discretion.
PROXY PROXY
DRAGON PHARMACEUTICAL INC.
543 Granville Street, Suite 1200
Vancouver, British Columbia
Canada V6C 1X8
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Dr. Longbin Lui and Ken Z. Cai as proxies, each
with full power to appoint substitutes, and hereby authorizes them or either of
them to represent and to vote as designated below, all the shares of common
stock of Dragon Pharmaceutical Inc. held of record by the undersigned as of
November 14, 2001, at the Annual Meeting of Stockholders to be held at the
principal executive office of the Company, 543 Granville Street, Suite 1200,
Vancouver, British Columbia, at 10:00 a.m., Pacific Time, on Monday, December
17, 2001, and any adjournments or postponements thereof, and hereby ratifies all
that said attorneys and proxies may do by virtue hereof.
PLEASE MARK VOTE IN BRACKET IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
Proposal 1: To elect directors to serve for the ensuing year and until their
successors are elected.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees
below). listed below.
Nominees: Dr. Longbin Liu, M.D., Dr. Ken Z. Cai, Mr. Greg Hall, Dr. Alexander
Wick, Mr. Philip Yuen Pak Yiu, and Dr. Yiu Kwong Sun
To withhold authority to vote for any nominee(s) write such nominee(s)' name(s)
below:
Proposal 2: To approve the 2001 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Proposal 3: TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING AND ANY ADJOURNMENTS THEREOF.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on the other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS ONE, TWO AND THREE.
THIS PROXY ALSO DELEGATES DISCRETIONARY AUTHORITY TO VOTE WITH RESPECT TO OTHER
BUSINESS WHICH PROPERLY MAY COME BEFORE THE MEETING, OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF. In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the meeting.
PLEASE READ, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND
PROXY STATEMENT FURNISHED IN CONNECTION THEREWITH.
Dated: ____________________, 2001
_______________________________
Signature
_______________________________
Signature
Please sign exactly as name appears at left. When shares are held by joint
tenants or more than one person, all owners should sign. When signing as
attorney, as executor, administrator, trustee, or guardian, please give full
title as such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign in partnership name
by authorized person.