-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MMEPC6br5e9L8XhThNi8MVB5vgCYSPQvdi4/feqkE5uk3IZfZTLnNfNyCySJ0F/w /4m0VpfPjqAqU5cTMxMhow== 0001127855-04-000381.txt : 20040630 0001127855-04-000381.hdr.sgml : 20040630 20040630172654 ACCESSION NUMBER: 0001127855-04-000381 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SINOVAC BIOTECH LTD CENTRAL INDEX KEY: 0001084201 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 000000000 STATE OF INCORPORATION: B9 FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 000-29031 FILM NUMBER: 04892222 BUSINESS ADDRESS: STREET 1: 39 SHANGDI XI ROAD STREET 2: HAIDIAN DISTRICT CITY: BEIJING STATE: F4 ZIP: 100085 BUSINESS PHONE: 86-10-82890088 MAIL ADDRESS: STREET 1: 39 SHANGDI XI ROAD STREET 2: HAIDIAN DISTRICT CITY: BEIJING STATE: F4 ZIP: 100085 FORMER COMPANY: FORMER CONFORMED NAME: NET FORCE SYSTEMS INC DATE OF NAME CHANGE: 19991110 20-F 1 sinovac20f2003.txt SINOVAC BIOTECH 20-F, 2003 ---------- Securities and Exchange Commission ---------------------------------- FORM 20-F --------- [_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934. OR [X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 2003 ................................................................................. OR [_] TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period ................................................................................. Commission File Number: 0-29031 ------------------------------- SINOVAC BIOTECH LTD. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Not Applicable - -------------------------------------------------------------------------------- (Translation of registrant's name into English) Antigua, West Indies - -------------------------------------------------------------------------------- (Jurisdiction of incorporation or organization) No. 39 Shangdi Xi Road, Haidian District, Beijing, P.R.C. 100085 - -------------------------------------------------------------------------------- (Address of principal executive offices) ---------- II Securities to be registered pursuant to Section 12(b) of the Act. None. ---- Securities to be registered pursuant to Section 12(g) of the Act. Common shares with par value $0.001 ----------------------------------- (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None. ---- Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 27,091,033 common shares (as at the financial year ended December 31, 2003) --------------------------------------------------------------------------- 34,770,233 common shares (as at May 31, 2004) --------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: Not applicable. No: Not applicable. -------------- -------------- Indicate by checkmark which financial statement item the registrant has elected to follow: Item 17: |X|. Item 18: . --- --- i FORM 20-F INDEX --------------- Item Page No. - ---- -------- FORWARD LOOKING STATEMENTS...................................................1 PART I.......................................................................1 ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS..................................................................1 ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE.............................1 A. Offer Statistics.................................................1 B. Method and Expected Timetable....................................1 ITEM 3 - KEY INFORMATION.....................................................1 A. Selected Financial Information...................................1 Exchange Rates...................................................2 B. Capitalization and Indebtedness..................................3 C. Reasons for the Offer and Use of Proceeds........................3 D. Risk Factors.....................................................3 ITEM 4 - INFORMATION ON THE COMPANY..........................................6 A. History and Development of the Company...........................6 B. Business Overview................................................7 Cash Resources and Liquidity................................7 Stated Business Objectives..................................7 Description of Business.....................................8 Principal Products.........................................14 Research and Development...................................16 Safety and Quality Assurance...............................16 Market Prospects...........................................17 The Company's Market.......................................18 Customer Types.............................................19 Marketing Strategy.........................................20 Competition................................................22 Administration.............................................23 C. Organizational Structure........................................24 D. Property, Plants and Equipment..................................24 ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS.......................26 A. The Company.....................................................26 ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.........................29 A. Directors and Senior Management.................................29 Aggregate Ownership of Securities..........................31 Other Reporting Issuers....................................31 Individual Bankruptcies....................................31 Conflicts of Interest......................................31 Other Information..........................................32 ii Item Page No. - ---- -------- B. Compensation....................................................32 The Company's Executive Compensation.......................32 Compensation of the Company's Directors....................40 C. Board Practices.................................................40 D. Employees.......................................................40 E. Share Ownership.................................................41 Directors and Officers.....................................41 Public and Insider Ownership...............................42 ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..................42 A. Major Shareholders..............................................42 B. Related Party Transactions......................................43 C. Interests of Experts and Counsel................................43 ITEM 8 - FINANCIAL INFORMATION..............................................43 A. Financial Statements and other Financial Information............43 B. Significant Changes.............................................43 ITEM 9 - THE OFFERING AND LISTING...........................................43 A. Offer and Listing Details.......................................43 B. Plan of Distribution............................................44 C. Markets.........................................................44 D. Selling Shareholders............................................44 E. Dilution........................................................44 F. Expenses of the Issue...........................................44 ITEM 10 - ADDITIONAL INFORMATION............................................44 A. Share Capital...................................................44 B. Memorandum and Articles of Association..........................45 C. Material Contracts..............................................49 D. Exchange Controls...............................................49 E. Taxation........................................................49 F. Dividends and Paying Agents.....................................51 G. Statement by Experts............................................51 H. Documents on Display............................................51 I. Subsidiary Information..........................................51 iii Item Page No. - ---- -------- ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK..............................................................51 ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...............................................................52 A. Debt Securities.................................................52 B. Warrants and Rights.............................................52 C. Other Securities................................................52 D. American Depositary Shares......................................52 PART II.....................................................................52 ITEM 13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES...................52 ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS..............................................52 ITEM 17 - FINANCIAL STATEMENTS..............................................52 ITEM 18 - FINANCIAL STATEMENTS..............................................52 ITEM 19 - EXHIBITS..........................................................53 (A) Financial Statements.............................................................53 (B) Exhibits...........................................................53 SIGNATURES..................................................................76 EXHIBIT INDEX...............................................................77 ---------- 1 FORWARD LOOKING STATEMENTS -------------------------- Sinovac Biotech Ltd. (the "Company") cautions readers that certain important factors (including, without limitation, those set forth in this Form 20-F) may affect the Company's actual results and could cause such results to differ materially from any forward-looking statements that may be deemed to have been made in this Form 20-F annual report (the "Annual Report"), or that are otherwise made by or on behalf of the Company. For this purpose any statements contained in this Annual Report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "except," believe," anticipate," "intend," "could," estimate" or "continue," or the negative or other variations of comparable terminology, are intended to identify forward-looking statements. PART 1 ------ ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not Applicable ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE Not Applicable A. Offer Statistics ---------------- This Annual Report does not relate to any offering of the Company's shares. Therefore, this section is not applicable to the Company. B. Method and Expected Timetable ----------------------------- This Annual Report does not relate to any offering of the Company's shares. Therefore, this section is not applicable to the Company. ITEM 3 - KEY INFORMATION A. Selected Financial Information ------------------------------ The following table summarizes certain selected financial information with respect to the Company on a consolidated basis as of December 31, 2003, subsequent to the acquisition of Sinovac Biotech Co., Ltd. by Net Force Systems Inc. and is qualified in its entirety by reference to the financial statements of the Company and the Notes thereto; a copy of which is attached to this Annual Report: 2
Apr. 28/01 Year Ended Year Ended (inception) Dec. 31/03 De. 31/02 Dec. 31/01 -------------------------------------------- Net Sales $ 2,838,933 $ 649,319 $ - Net Loss from Continuing Operations US GAAP $ (461,539) $ (592,208) $ (77,408) Net Loss from Continuing Operations per Share US GAAP $ (0.03) $ (0.07) $ (0.01) Total Assets US GAAP $ 14,897,716 $ 13,048,009 $ 11,052,343 Long Term Obligations Bank Loan $ 603,865 $ - $ - Weighted Average Common Shares Outstanding US GAAP 13,842,225 8,104,767 7,502,000
The following table summarizes certain selected financial information with respect to Net Force Systems Inc. (the former name of the Company prior to reverse takeover of Net Force Systems Inc. by Sinovac Biotech Co., Ltd.) up to April 30, 2003 and is qualified in its entirety by reference to the financial statements of Net Force Systems Inc. and the Notes thereto; a copy of which is incorporated by reference to audited financial statements of Net Force Systems Inc. for the fiscal year ended April 30, 2003, which were filed with Net Force Systems Inc.'s Form 20-F Annual Report on August 12, 2003:
Year Ended Year Ended Year Ended April 30/03 April 30/02 April 30/01 -------------------------------------------- Net Sales $ - $ - $ - Net Loss from Discontinued Operations US GAAP $ (125,564) $ (174,206) $ (484,597) Net Loss US GAAP $ (125,564) $ (174,206) $ (484,597) Net Loss per Share US GAAP $ (0.01) $ (0.01) $ (0.07) Total Assets US GAAP $ 130,157 $ 236,254 $ 269,194 Long Term Obligations $ - $ - $ - Weighted Average Common Shares Outstanding US GAAP 17,066,033 13,375,186 7,171,233
Exchange Rates - -------------- In this Annual Report, unless otherwise specified, all dollar amounts are expressed in United States dollars. The high and low exchange rates, the average rates (average of the exchange rates on the last day of each month during the period) and the end of the period rates for Chinese dollars, expressed in U.S. dollars, from April 28, 2001 to December 31, 2003, based on the noon buying rate 3 in New York City for cable transfers payable in Chinese dollars as certified for customs purposes by the Federal Reserve Bank of New York, were as follows: U.S. Dollars per $1.00 Yuan (RMB) --------------------------------- Year ended December 31 ---------------------- 2003 2002 2001 ---- ---- ---- High .1208 .1210 .1209 Low .1208 .1208 .1208 Average .1208 .1208 .1208 End of Period .1208 .1208 .1208
June 25, May April March Feb. Jan. Dec. 2004 2004 2004 2004 2004 2004 2003 ------------ ----------- ----------- ----------- ---------- ----------- ------------ High .1208 .1208 .1208 .1208 .1208 .1208 Low .1208 .1208 .1208 .1208 .1208 .1208 .1208
Conversion Table ---------------- For ease of reference the following conversion factors are provided: 1 mile = 1.6093 kilometres 1 metric ton = 2,205 pounds 1 foot = 0.305 metres 1 troy ounce = 31.103 grams 1 acre = 0.4047 hectare 1 imperial gallon = 4.546 litres 1 long ton = 2,240 pounds 1 imperial gallon = 1.2010 U.S. gallons B. Capitalization and Indebtedness ------------------------------- This is an Annual Report, and therefore, this information is not applicable. C. Reasons for the Offer and Use of Proceeds ----------------------------------------- This Annual Report does not relate to any offering of the Company's shares. Therefore, this section is not applicable to the Company. D. Risk Factors ------------ The following risk factors are those concerned with the business of the Company. 4 Reliance on Key Management -------------------------- The success of the Company is very much dependent on the talents and commitment of a core management team. The loss of the services of any key management figure such as Sinovac's President Dr. Yin or the CEO, Professor Pan, of Sinovac's 51% owned subsidiary, Sinovac Biotech Co. Ltd., could negatively impact the Company's progress. Regulatory Environment ---------------------- There can be no assurance that all of the clinical trials pertaining to several of Sinovac's in-development vaccines will be completed within the anticipated time frame. Furthermore, such trials may be delayed or suspended at any time by regulatory agencies if unforeseen health risks become an issue with the participants of clinical trials. Proprietary Technology ---------------------- The Company's success will largely depend on its ability to maintain trade secret protection, particularly with regards to avoiding patent infringement by other parties. The Company must also ensure that it operates without infringing on the proprietary rights of other immunology companies. Potential Product Liability --------------------------- Human vaccine products involve an inherent risk of product liability and associated adverse publicity. A product liability claim or a product withdrawal could have a material adverse effect on the Company. Political Risk -------------- The value of the Company's assets and business ventures in China could be adversely impacted by any reversal of China's longstanding policy of economic reforms. For instance, a change in leadership or social disruption could jeopardize Sinovac's business endeavors in this communist regime. Cash Flow and Requirements for New Capital ------------------------------------------ As with most companies in the biotechnology/biopharmaceutical industry, Sinovac will need to raise further funds from the capital markets to continue the development and commercialization of its product pipeline. The Company has adequate near-term cash requirements, however, the Company may need to undertake significant future financings to complete clinical trials for its SARS vaccine, as well as to facilitate the large-scale commercial rollout of its other vaccine products. The currently strong biotechnology financing environment mitigates these financial risks. However, the prospect of meeting these future financial requirements in the capital markets cannot be guaranteed. 5 Reliance on Partnerships for Promotion and Marketing of Products ---------------------------------------------------------------- The Company's first international licensing/marketing partner is the Korean immunology company, Innopath International Inc. The signing of other similar partnerships, particularly with large European and North American pharmaceutical companies, is key to achieving meaningful market share in these lucrative marketplaces. Indeed, the successful monetization of Sinovac's product pipeline will depend to an extent on how proactive these future partners are in promoting and marketing Sinovac's proprietary vaccine products. Risk of "Penny Stock" --------------------- The Company's common shares may be deemed to be "penny stock" as that term is defined in Regulation Section "240.3a51-1" of the Securities and Exchange Commission (the "SEC"). Penny stocks are stocks: (a) with a price of less than U.S. $5.00 per share; (b) that are not traded on a "recognized" national exchange; (c) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ - where listed stocks must still meet requirement (a) above); or (d) in issuers with net tangible assets of less than U.S. $2,000,000 (if the issuer has been in continuous operation for at least three years) or U.S. $5,000,000 (if in continuous operation for less than three years), or with average revenues of less than U.S. $6,000,000 for the last three years. Section "15(g)" of the United States Securities Exchange Act of 1934, as amended, and Regulation Section "240.15g(c)2" of the SEC require broker dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account. Potential investors in the Company's common shares are urged to obtain and read such disclosure carefully before purchasing any common shares that are deemed to be "penny stock.". Moreover, Regulation Section "240.15g-9" of the SEC requires broker dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker dealer to: (a) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (b) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (c) provide the investor with a written statement setting forth the basis on which the broker dealer made the determination in (ii) above; and (d) receive a signed and dated copy of such statement from the investor confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for investors in the Company's common shares to resell their common shares to third parties or to otherwise dispose of them. 6 ITEM 4 - INFORMATION ON THE COMPANY A. History and Development of the Company -------------------------------------- Incorporation - ------------- Sinovac Biotech Ltd. (the "Company") was incorporated on March 1, 1999, under the laws of Antigua under the name "Net Force Systems Inc.." By special resolution of the Company dated October 8, 2003, the Company changed its name to "Sinovac Biotech Ltd." Corporate Information - --------------------- The Company's business address and executive offices are located at No. 39 Shangdi Xi Road, Haidian District, Beijing, P.R. China 100085. The Company's telephone number is 86-10-82890088 and the Company's fax number is 86-10-62966910. The Company's agent for service in Canada is Devlin Jensen, Barristers & Solicitors, who are located at Suite 2550, 555 West Hastings Street, Vancouver, British Columbia, V6B 4N5, and who can be contacted at (604) 684-2550 or via facsimile at (604) 684-0916. On September 24, 2003, the Company and Ms. Lily Wang, a natural person of the United States entered into a share purchase agreement whereby the Company acquired a 51% ownership interest in Sinovac Biotech Co., Ltd., a company organized under the laws of the People's Republic of China, from Ms. Wang in exchange for the issuance of 10,000,000 newly issued shares of common stock of the Company at a state value of $0.60 per share for a total of $6,000,000 constituting approximately 37% of the Company's outstanding capital stock on a fully-diluted basis at that time. On January 26, 2004, the Company entered into a formal share purchase agreement (the "Share Purchase Agreement") to acquire 100% of the issued and outstanding shares of Tangshan Yian Biological Engineering Co., Ltd. ("Tangshan Yian"), a corporation organized under the laws of the People's Republic of China, through the issuance of 3,500,000 shares of common stock of the Company plus $2,200,000 in cash, which will be payable by the Company within 12 months from the date of entering into the Share Purchase Agreement, to Mr. He Ping Wang, the sole shareholder of Tangshan Yian and also a director of the Company. A the time of completion of the Share Purchase Agreement, Mr. He Ping Wang held approximately 11.45% of the Company's outstanding shares of common stock. On January 30, 2004, all of the terms and conditions of the Share Purchase Agreement had been satisfied and the acquisition of Tangshan Yian by the Company was completed. Legal Proceedings - ----------------- There are currently no legal proceedings involving Sinovac Biotech Ltd. The Company is not aware of any proceedings being contemplated by any governmental authority. 7 B. Business Overview ----------------- The Company specializes in the research, development, commercialization, and sales of human vaccines for infectious illnesses such as Hepatitis A and Hepatitis B, influenza and "SARS". The Company is one of the leading emerging biotechnology companies in China. Working closely with Chinese public health officials, the Company focuses on manufacturing and marketing human-vaccines and related products, and currently markets its vaccine for Hepatitis A. The Company is the first and currently the only company in the world to have been granted permission to begin clinical trials for a vaccine to prevent SARS. Cash Resources and Liquidity - ---------------------------- As of May 31, 2004, the Company had approximately US$2,608,368 in cash and a positive working capital position of approximately US$3,153,873. Stated Business Objectives - -------------------------- The overall strategic mission of the Company is to become a world leader in the innovation, development and manufacturing of vaccines for historical viruses such as hepatitis, influenza, and for fast-emerging viruses such as "SARS" and Avian Influenza (a.k.a. "bird flu"). The Company believes that it is possible and financially viable to provide safe, efficient vaccines to all countries regardless of wealth. Through careful financial management, low production costs and modern, innovative techniques, the Company intends to continue to produce high quality vaccines and successfully service market sectors that many pharmaceutical giants are unable to service. The following represents the Company's short-term objectives (i.e., the next 12 months) for research, development and marketing. Objectives ---------- 2004: - ----- - - Expand domestic marketing for the company's Hepatitis A vaccine, "Healive;" - - Expand Healive's regional marketing into Southeast Asian countries; - - Gain government (SFDA) licensing approval of the Company's Combined Hepatitis A&B vaccine, "Bilive" during Q3 or Q4 of 2004. Once approved, initiate marketing plan immediately; and - - The Company anticipates signing agreements for third world marketplaces that are not currently serviced by the Company, or by Innopath International Inc. 8 2005: - ----- - - In the event of a global SARS outbreak, nations worldwide would need to adopt the Company's in-development vaccine as a first line of defense; - - Develop strategic alliances with established pharmaceutical companies that have significant sales and distribution channels; - - The Company expects to gain federal-government approval and commercialize its proprietary influenza vaccine by 2005, with the additional goal of targeting the majority of other developing Southeast Asian markets within the next five years; and - - The Company expects to register and license its Hepatitis A (Healive) and Combined Hepatitis A&B (Bilive) vaccines in at least 34 countries by 2009. Marketing Objectives -------------------- The Company's marketing strategy is based on two capabilities, organic growth, augmented as necessary, and strategically beneficial acquisitions. The Company will combine and organize these capabilities into a bifurcated marketing plan (regional and global). Each branch of this plan is intended to focus on public and private sectors in order to achieve sales and growth objectives. The public sector consists of government and non-government organization ("NGO") programs, and the private sector consists of independent/ private health insurance companies and private citizens. First the Company intends to target progressive geographic expansion with its family of vaccines that target historically devastating viruses. The Company is building a sales organization in the Chinese domestic market. Concurrently with its domestic marketing plan, the Company is establishing a marketing and sales presence in South East Asia and other developing countries. The second prong of the Company's marketing strategy is contingent on creating a blockbuster vaccine for defeating emerging viruses such as SARS or the Avian Flu. In such case, the first to market advantage opens the door for sales to the international market. In such a scenario, the Company intends to enter the international market, with a worldwide sales network of professional sales teams, well-organized selling channels, a sound customer-credit management scheme, and an efficient logistics system. Description of the Business - --------------------------- General ------- The Company specializes in the research, development, commercialization, and sales of human vaccines for infectious illnesses such as Hepatitis A and Hepatitis B, influenza and "SARS". The Company is one of the leading emerging biotechnology companies in China. Working closely with Chinese public health officials, the Company focuses on manufacturing and marketing human-vaccines and related products, and currently markets its vaccine for Hepatitis A. The Company is the first and currently the only company in the world to have been granted permission to begin clinical trials for a vaccine to prevent SARS. 9 The Global Viral Environment ---------------------------- Global Viral Background ----------------------- Although `virus' and `vaccine' are common terms that most people are familiar with, several variations of both exist. To ensure a clear understanding of the Company's business and market sector some definitions and explanations are provided. Viruses: - -------- A virus is best described as an infectious agent characterized by its inability to reproduce outside of a living host cell. Viruses may subvert the host cells' normal functions, causing the cell to behave in a manner determined by the virus. When a virus attacks the body for the first time, the immune system attempts to identify and produce antibodies to fight the virus. The immune system's success depends on whether it has encountered the virus before and how aggressive the virus is. Some viruses will mutate or change vital characteristics as they migrate to a new host. This mutation can make it difficult to create new, safe vaccines or treatments that keep pace with the spread of the virus. Vaccine: - -------- Vaccines contain antigenic components. These components (live or dead parts of a virus) antagonize or stimulate the immune system to produce antibodies. By stimulating an immune response (but not the disease), vaccination leads to immunity for a certain micro-organism and protects against subsequent infection by that organism. If a virus mutates as discussed earlier, it is likely that a new vaccine will have to be created to match the characteristics of that virus. There are two types of vaccine, activated and inactivated. The key difference is that inactivated vaccines (such as those produced by Sinovac) use inactive (dead) components of the actual virus. Inactive vaccines provide enough genetic material for the body to recognize and successfully create antibodies but do not carry the obvious risk of using live or active components. A virus often needs certain basic nutrients and conditions in order to survive and replicate. The most basic of those is water, which is why viruses are most commonly transmitted through fluid, be it a water supply or bodily fluids. To give some idea of how fast and effectively a virus can spread, Hepatitis A infects between 1.5 and 10 Million people every year and more than 2 Billion people have been infected by Hepatitis B which is one hundred times more infectious than AIDS. 10 Human Suffering: - ---------------- The toll on humans is physical, emotional and of course financial. Influenza, Hepatitis and, more recently, SARS have all had a significant impact on human life. Hepatitis B leads to liver diseases that kill more than 500,000 people every year. Adding to these historical viruses are new types such as Avian Flu and SARS that are increasing the stresses, costs and losses across industry and health care sectors. Pervasive Pan-Viral Transmission Patterns: - ------------------------------------------ Because viruses like Influenza, Hepatitis and SARS spread so rapidly and effectively, international health authorities and over numerous countries have recognized that prevention through mass vaccination is more cost effective than cure. With increasing national and international travel combined with carriers that never show symptoms as well as lengthy incubation periods the need for prevention is becoming increasingly clear. World governments, medical associations and international health authorities are all pushing for increased vaccination policies to prevent the problem before it occurs. Historic Recurring Viruses -------------------------- Hepatitis A ----------- Hepatitis A is endemic in developing nations like China. Hepatitis A is a liver disease that makes the liver swell and prevents it from functioning properly. It is caused by the hepatitis A virus (HAV). Often, a person with hepatitis A shows no signs or symptoms. If symptoms are present, these may include jaundice (yellowing of eye and skin) and fever. Hepatitis A will leave a person incapacitated or weakened for a long time, up to several weeks, even months. The Hepatitis A virus is shed in the stool of an infected person during the incubation period of 15-45 days before symptoms occur and during the first week of the illness. Blood and other bodily secretions may also be infectious. Hepatitis A is contagious and can be spread by close personal contact with someone carrying the virus. Hepatitis A can also be contracted by consuming food that has been prepared by someone with the disease or by drinking water that has been contaminated by Hepatitis A (in parts of the world with poor hygiene and sanitary conditions). The virus does not remain in the body after the infection has resolved, and there is no carrier state (i.e. a person who spreads the disease to others but does not become ill). Hepatitis A can be passed to anyone but those who are more likely to contract the virus are persons who live with someone who has Hepatitis A, children who attend daycare, daycare personnel, homosexual men, people who travel to foreign countries where Hepatitis A is common and intravenous drug users. Good personal hygiene and proper sanitation, such as washing hands before eating, can help prevent hepatitis A. The safest and most effective form of protection is vaccination. 11 Hepatitis B ----------- Hepatitis B is one of the major diseases of mankind and continues to be a serious global public health issue. It is preventable with safe and effective vaccines that have been available since 1982, yet information, education and cost have often prevented the necessary mass vaccination programs that would help defeat the virus. Of the estimated 2 billion people who have been infected with the hepatitis B virus (HBV), more than 350 million have chronic (lifelong) infections. These chronically infected persons are at high risk of death from cirrhosis of the liver and liver cancer, diseases that kill about one million people each year. Although the vaccine will not cure chronic hepatitis, it is 95% effective in preventing chronic infections from developing, and is the first vaccine against a major human cancer. Unfortunately, however, the children in the poorest countries, who need the vaccine the most, have not been receiving it because their governments cannot afford it. Fortunately, a hepatitis B vaccine will soon be available in these countries with the assistance of the Global Alliance for Vaccines and Immunization (GAVI) and the Global Fund for Children's Vaccines. Sinovac's safe and effective Bilive product can be priced to support such international programs and still provide significant net profit. Influenza --------- Influenza (commonly called "the flu") is a contagious respiratory illness caused by influenza viruses. Infection with influenza viruses can result in illness ranging from mild to severe and life-threatening complications. There are three types of the virus: - Influenza A viruses that infect mammals (humans, pigs, ferrets, horses) and birds - Influenza B viruses that infect only humans - Influenza C viruses that infect only humans All type A influenza viruses, including those that regularly cause seasonal epidemics of influenza in humans, are genetically labile and well adapted to elude host defenses. Influenza viruses lack mechanisms for the "proofreading" and repair of errors that occur during replication. As a result of these uncorrected errors, the genetic composition of the viruses changes as they replicate in humans and animals, and the existing strain is replaced with a new antigenic variant. These constant, permanent and usually small changes in the antigenic composition of influenza A viruses are known as antigenic "drift". The tendency of influenza viruses to undergo frequent and permanent antigenic changes necessitates constant monitoring of the global influenza situation and annual adjustments in the composition of influenza vaccines. 12 Influenza viruses have a second characteristic of great public health concern - influenza A viruses, including subtypes from different species, can swap or "re-assort" genetic materials and merge. This re-assortment process, known as antigenic "shift", results in a novel subtype different from both parent viruses. As populations will have no immunity to the new subtype, and as no existing vaccines can confer protection, antigenic shift has historically resulted in highly lethal pandemics. For this to happen, the novel subtype needs to have genes from human influenza viruses that make it readily transmissible from person to person for a sustainable period. Research has shown that antiviral drugs are effective for both the prevention (chemoprophylaxis) and early treatment of influenza, if administered within 48 hours following the onset of illness. During normal seasonal epidemics, antivirals are considered an important adjunct to vaccination as a strategy for reducing the medical and economic burden of influenza. Their use can reduce the duration of uncomplicated disease and the likelihood of complications requiring anti-microbial treatment and possibly hospitalization. Sinovac intends to launch its Split Flu Influenza vaccine by the first quarter of the 2005 calendar year. New Viruses ----------- SARS ---- The SARS epidemic, which claimed 774 lives worldwide earlier this year, further fuelled individual interest for various vaccine shots. Demand for different vaccine shots in Beijing, for instance, went up by 10 times since the outbreak of SARS, government statistics indicate. The continuing appearance of new infectious diseases, especially the SARS outbreak in 2002, has resulted in a heightened worldwide demand for vaccines. At a convention of leading SARS researchers from 15 nations in late 2003, the greatest concern was that no country is adequately prepared to face the grave health threats posed to their urban populations by such viruses. Nor are their regional and national economies braced for the seriously negative financial impact that SARS has already caused in many places. For instance, it is estimated that SARS cost Southeast Asian nations approximately US $60 billion in economic losses in 2003. Scientists at the convention concluded that a recurrence of SARS (which spread to over 35 countries in a matter of months in 2003) could develop into a full-blown global pandemic. Avian Flu --------- Avian influenza (also known as the "bird flu") is a type of influenza virulent in birds. It was first identified in Italy in the early 1900s and is now known to exist worldwide. The causative agent is the avian influenza (AI) virus. AI viruses all belong to the influenza virus A genus of the Orthomyxoviridae family and are 13 negative-stranded, segmented RNA viruses. Avian influenza spreads in the air and in manure. Wild fowl often act as resistant carriers, spreading it to more susceptible domestic stocks. It can also be transmitted by contaminated feed, water, equipment and clothing; however, there is no evidence that the virus can survive in well cooked meat. The incubation period is 3 to 5 days. Symptoms in animals vary, but virulent strains can cause death within several days. Avian Influenza in Humans ------------------------- While avian influenza spreads rapidly among birds, it does not infect humans easily, and there is no confirmed evidence of human-to-human transmission. Of the 15 subtypes known, only subtypes H5 and H7 are known to be capable of crossing the species barrier. Conditions favorable for the emergence of antigenic shift have long been thought to involve humans living in close proximity to domestic poultry and pigs. Because pigs are susceptible to infection with both avian and mammalian viruses, including human strains, they can serve as a "mixing vessel" for the scrambling of genetic material from human and avian viruses, resulting in the emergence of a novel subtype. Recent events, however, have identified a second possible mechanism. Evidence is mounting that, for at least some of the 15 avian influenza virus subtypes circulating in bird populations, humans themselves can serve as the "mixing vessel". The symptoms of avian influenza in humans are akin to those of human influenza, ie. fever, sore throat, cough and in severe cases pneumonia. Human deaths from avian influenza were unknown until 1997, when six people in Hong Kong died from the particularly virulent H5N1 strain. In January 2004, a major new outbreak of H5N1 avian influenza surfaced again in Vietnam and Thailand's poultry industry, and within weeks spread to ten countries and regions in Asia, including Indonesia, South Korea, Japan and China. Intensive efforts were undertaken to slaughter chickens, ducks and geese, and the outbreak was contained by March, but the total human death toll in Vietnam and Thailand was 23 people. It is feared that if the avian influenza virus undergoes antigenic shift with a human influenza virus, the new subtype created could be both highly contagious and highly lethal in humans. In February 2004, avian influenza virus was detected in pigs in Vietnam, increasing fears of the emergence of new variant strains. In North America, the presence of avian influenza was confirmed at several poultry farms in British Columbia, Canada in February 2004. Avian influenza in humans can be detected reliably with standard influenza tests. Antiviral drugs are clinically effective in both preventing and treating the disease. Vaccines, however, take at least four months to produce and must be prepared for each subtype. 14 Principal Products - ------------------ The Company has one licensed product, Healive(TM), selling in China and the international community. The Company expects the Chinese FDA to approve its combined Hepatitis A&B vaccine, Bilive(TM) in the summer of 2004. The Company also expects the Chinese FDA to approve its influenza Split Flu Vaccine by 2005. In addition to these, the Company is on the leading edge of vaccine research and development for SARS and Avian flu viruses. Healive(TM) ----------- Healive(TM) - is the first high-quality Inactivated Hepatitis A (IHA) vaccine in China with private corporation intellectual property rights. Healive provides 1.3 billion Chinese citizens, with a safe, efficient, environment-friendly vaccine. The number of the potential customers keeps increasing when 20 million babies are born each year. As an IHA vaccine that meets international regulatory standards, Healive is an excellent match to meet the Chinese government's goal of eradicating Hepatitis A throughout the country. Scientific testing indicates that the safety and immunogenicity of Healive is excellent for both adults and children. Healive is produced by the Company's 51% owned subsidiary, Sinovac Biotech Co., Ltd., a company organized under the laws of the People's Republic of China. Bilive(TM) ---------- Bilive(TM) - Hepatitis B virus (HBV) infects about 50-70% of China's 1.3-billion citizens at some point in their lives. To address this problem, the Company is planning a near-term launch of its combined Hepatitis A&B vaccine, Bilive, for the domestic market and later for the international marketplace. Bilive(TM) is a combined vaccine formulated by purified inactivated Hepatitis A virus antigen and recombinant (yeast) Hepatitis B surface antigen (HBsAg), adsorbed onto aluminium hydroxide. This vaccine induces the body's immune system to generate antibodies as a reaction against Hepatitis A virus and Hepatitis B viruses. As such it can be used for prevention of infection caused by Hepatitis A virus and Hepatitis B virus. The vaccine comes in two forms based on the age of the patient. Bilive(TM) junior is suitable for use in non-immune infants, children and adolescents from one year up to and including 15 years who are at risk of both Hepatitis A and Hepatitis B infection. Bilive(TM) adult is suitable for use in non-immune adults and adolescents 16 years of age and above who are at risk of both Hepatitis A and Hepatitis B infection. Bilive(TM) can be recommended for persons who remain in the vicinity of HAV and/or HBV, users of illicit intravenous drugs, homo and bisexuals, hemophiliacs who receive therapeutic blood products, persons with nephropathy who receive dialysis treatment, and those who receive long term blood dialysis. 15 The standard primary course of vaccination with Bilive(TM) consists of three doses. The first administered at the selected date, the second one-month later and the third six months after the first dose. Once initiated, the primary course of vaccination should be completed with the same vaccine. Booster vaccination with the combined vaccine can be recommended 5years after initiation of the primary course. Bilive side effects are rare and of low intensity. The most common reactions were those at the site of injection, which included transient pain, redness and swelling. Systemic adverse events seen were fever, headache, fatigue, nausea and vomiting. These events were transient, only rarely reported and were considered by the subjects as mild. Split Flu Influenza Vaccine --------------------------- Split Flu Influenza Vaccine - The influenza vaccines used in the world include whole-particle, split and subunit vaccines. For children under 12 years whole-particle vaccine is prohibited since its has severe adverse reactions. Split vaccine is the one that will be used most widely all over the world. The Company began the development of influenza split vaccine 2 years ago. Clinical trials for this product have recently been completed and are currently being evaluated. 500,000 doses of split flu vaccine are expected to be produced in its first year after finishing the construction of the manufacturing facility, and then 2 millions doses per year thereafter. SARS ---- SARS - In May of 2003, the "Programs of Key Technology and Products Research and Development for SARS Prevention and Control" included "Inactivated SARS vaccine Research and Development" into the important "863 Plan" of China's "Tenth Five-Year Plan". One year later, on May 23, 2004 - the Company announced that it had commenced Phase I human clinical trials of its SARS vaccine. The first subjects were injected with the vaccine on the 22nd of May 2004 at the China-Japan Friendship Hospital in Beijing, China. If Phase I testing is successful, then the second phase of clinical testing will have more participants from a wider demographic range and will include double blind trials involving control groups to determine the efficacy of the trial drug in multiple trial centers. Phase III of clinical trials is expected to be much the same as Phase II but will be conducted on a much larger scale (if a major outbreak of SARS presents the opportunity for these pivotal trials). The successful completion of such an initiative could conceivably lead to the commercialization of a SARS vaccine within 18 months - one that also meets Western standards of safety and efficacy. Notably, a pharmaceutical product's approval timeline in the United States may sometimes be expedited to as little as six months if it is designed to treat or prevent a life-threatening illness for which there are few or no alternative therapies. Avian Flu --------- Avian Flu - The Chinese government assigned the task of Avian Flu R&D to the Company and the Center for Disease Control of China on the latest Key Science-Technology Project of the National 'Tenth Five-Year-Plan' of China, called "Research and Development of a New Human Influenza Vaccine". The Company 16 finished the research protocol early in 2004 and started working towards a vaccine. The leading world health authority influenza network provided the prototype bird flu virus to vaccine makers around the world. Research and Development - ------------------------ Disease prevention is a long march. The Company will strive to integrate our research & development, and marketing strategies, so as to supply more and more new products to eliminate human diseases. The Company, through the co-operation with local and internationally well-known universities, colleges and institutes, and in consideration of the need of disease control in China, researches on and develops new vaccines, takes benefits from the mature technology in the world, reconstructs the existing vaccine products, participates in world-wide competition in vaccine markets, and makes effort to achieve more abundant and perfect products. In this regard, a number of leading Chinese scientific and medical institutions, such as Beijing University and the Chinese Academy of Medical Sciences, are collaborating with the Company in the research and development of new and improved vaccine biotechnologies. In particular, the Chinese government is marshalling all of its scientific resources to the Company's aid in a collaborative effort to develop on an expedited basis a safe and effective vaccine for SARS. Safety and Quality Assurance - ---------------------------- In accordance with FDA Good Manufacturing Practice ("GMP") requirements, the Company has written and implemented a quality assurance validation plan, procedures, and a complete documentation system. The Company's manufacturing facilities for Hepatitis vaccines, HealiveTM and BiliveTM, have both received the Certificate of Good Manufacturing Practices for Pharmaceutical Products (n. 2515 and 2514) issued by Chinese State Food and Drug Administration ("SFDA"). Sinovac's facilities also meet the GMP requirements of the US Food and Drug Administration. The Company has strict control management of its staff, plant environment, support facilities, raw materials, hygiene, validation, documentation, manufacturing process, quality control, product selling, post selling, and pharma-covigilance. The Company's personnel are trained on these procedures and documentations routinely to ensure a finely running comprehensive quality assurance system and the quality of the finished products. The Company bases all its operations on its excellence in service concept. To meet the Company's high goals, the Company has established a team of nationwide well-known experts, professors and doctors to provide vaccine customers with support. This team of experts provides the core of the Company's emergency advisory response center, which promises to take action within 24 hours in case of emergency, 365-days a year. The Company's facilities are fully compliant with world advanced GMP Quality Assurance System (QAS), international standards on bio-pharmaceutical manufacturing. The design of the plant for the production of the Healive vaccine was done by a well-known European company in accordance with the U.S. FDA and EU GMP requirements, with major equipment and facilities imported from Europe, and 17 the installation and debugging processes completed in a key-handing-over way by an European pharmaceutical engineering company. The Company's plant has passed the validation done by SVS - a FDA designated GMP validation consulting company. Market Prospects - ---------------- The global statistics speak for themselves, billions infected, millions more every year and a continually growing population providing new vulnerable hosts. The massive increase in international travel through airports over the past forty years and a minimum incubation for any of the major viruses of three days means that an infected individual can pass a virus onto multiple continents before he realizes he is ill. If he only passes on the virus to one person in each continent, it's enough to start a global epidemic. This is why the leading international health authorities and governments around the world have stated that vaccination is the most cost effective way to deal with viral threat. 116 countries have now initiated childhood vaccination programs and more are following. The only barriers that stand in the way of success for these initiatives are cost and quality. There are few of the `inactive' safer vaccines available and they are costly despite significant price drops over the last 15 years. The existing vaccine suppliers use the lack of competition to keep the price high. Research and development for existing products took place many years ago with less advanced technology and as a result there are still costs to recover. Subsequently, many western pharmaceutical companies will not enter poorer countries, as their pricing structures do not give them the flexibility to make an effective bid. This means that despite global vaccination initiatives, only the more financially able countries can implement programs using western vaccine suppliers. According to the U.S. investment dealer, Merrill Lynch, the global vaccine market was worth about US $5.4 billion in 2001. Merrill Lynch forecasts that this figure will reach US $10 billion within 5 years. This represents an increase of almost 100% -- a figure that eclipses forecasts for any other pharmaceutical sector, including the prescription drug market. A key driver for the growth in vaccine sales is the fear of the emergence or new potentially lethal "super viruses" such as SARS and avian influenza. Many biotechnology and pharmaceutical companies are vying to capitalize on this booming market. Accordingly, the Company is in an enviable position in that the company is ideally positioned to be a market leader in China and elsewhere in Southeast Asia -- collectively the fastest growing and most prolific vaccine marketplaces in the world. 18 The Company's Market - -------------------- The Company has three markets, each with three subsections. The first of these, as with most companies is the local domestic market - that being China. China has a population of approximately 1.3 billion, with 15-20 million babies born each year and an increasing elderly population. These two demographic groups are the largest vaccine consumers. According to official data, the population aged 60 and over has reached 134 million with an annual rate of increase of about 3.2 %. Hence, the need to address healthcare costs to an aging population is a pressing concern of China's federal government. One of the most effective ways of containing such costs is through government-supported vaccine inoculations against such infectious diseases as hepatitis and influenza. The Chinese government has targeted disease prevention as a key sector of the country's pharmaceutical industry development plans and the reforms will further accelerate demand growth. According to Wang Hexiang, former minister of public health for China's federal government, the federal government is infusing 1.2 billion yuan (US$145 million) in 2004 to set up a nationwide disease prevention system. In 2002, government funding was only 800 million yuan (US$96.4 million.). According to studies conducted by the pharmaceutical giant, SmithKline Beecham, China's biopharmaceutical market is predicted to be the largest in the world by 2010. Moreover, the most vibrant sector in this industry is expected to be the market for immunology biotechnology. The vaccine marketplace in China can be sub divided into three different marketing channels as described below: Public market: central or local government funding for vaccines -------------- to combat common virile diseases such as Hepatitis B (for infants and school children). Private market: "Out-of-pockets" cash market for individuals who --------------- can personally afford vaccines for Hepatitis A, rabies, influenza, pneumonia and other opportunistic illnesses. Third party market: This would involve payment of inoculations for all ------------------- types of common viral illnesses by privately funded or government-assisted medical insurance programs. Local Influenza Market ---------------------- In China, the demand for influenza vaccines is growing exponentially. During the 2002/03 influenza season, a total of 6.7 million doses were sold. Last year, that figure is estimated to have more than doubled to about 15 million doses. A continued surge in demand is anticipated during the next few years as a result of a number of factors, which include new initiatives on the part of the federal government to encourage citizens to reinforce their immune systems against influenza, as well as a possible resurgence in SARS. In 19 addition, the advent of Chinese citizens having greater access to disposable income means that tens of millions of Chinese can now afford influenza shots. The Company estimates that demand could reach 20 to 30 million doses within a couple of years. A current shortage in the supply of influenza shots in China is an imperative that the Company intends to address once approval is granted for the launch of its proprietary influenza vaccine. The current Chinese supply of influenza vaccines, at approximately six million doses annually, falls far short of meeting China's demand for at least 15 million doses by 2005. At present there are several domestic suppliers and three foreign suppliers with no market leader. Southeast Asian Region and Developing Countries ----------------------------------------------- The Company's second market sector is still close to home, where there exists one of the most epidemic areas of the Hepatitis A virus, and in at least one regard, cost is equally as important as safety. Many low income or poor health infrastructure countries all require safe, efficient vaccines. Currently, the Company is preparing the registration information for each country co-ordinated with their international market developing arms. The first eight countries for which we intend to submit registration information are Thailand, Vietnam, Malaysia, Philippines, Mexico, Brazil, Indonesia and Sri Lanka. The Southeast Asian region and other developing countries together are at least equal to the local Chinese market and have similar statistics for birth rates and those above 60 years of age. Global Consumers ---------------- For many years now, health authorities, practitioners and governments in western countries have been under pressure to improve medical care and keep costs down if not reduce them. News stories in most countries complain about the ever-increasing costs, longer waiting lines and reduced quality of service. As a result, the purchasing power within these institutions is being exercised more by accountants and contract negotiators as they search for savings. This creates a growing demand for cost effective drugs and treatments that are not locally sourced. Provided the quality is seen as equivalent, more and more western medical service providers will look to source their provisions from the most cost effective source. Customer Types - -------------- Government ---------- Governments across the globe are pledging their support, financially and organizationally to vaccine initiatives. Where Rubella (measles) and Smallpox were the traditional child vaccinations, Hepatitis and Influenza are now being added to increase the scope of preventative medicine. Government sponsored programs tend to be aimed at `most at risk' groups and are often directed at children more than the elderly. 20 International Nongovernmental Organizations ------------------------------------------- Since 1991, international health authorities have urged all countries to add Hepatitis B vaccines into their national immunization programs. As of March 2000, 116 countries had included Hepatitis B vaccine in their national programs including most countries in Eastern and South- East Asia, the Pacific Islands, Australia, North and South America, Western Europe and the Middle East. However, many low income countries in sub-Saharan Africa, the Indian subcontinent and in the Newly Independent States do not use the vaccine. The price of the Hepatitis B vaccine has been one of the main obstacles to its introduction in many of these countries. An organization committed to the vaccination of children against diseases is The Global Alliance for Vaccines and Immunization (GAVI) which was created in 1999. GAVI has introduced a new approach to international health funding - the Global Fund for Children's vaccines (GFCV). This fund will help 74 low-income countries to reinforce their national vaccine programs and introduce Hepatitis B, yellow fever and hemophilia influenza type B (HIB) vaccines into their national immunization programs. The Company is planning to develop the vaccines which are on the order list of those nongovernmental organizations and EPI in order to capture the market of low-price, but big-demand vaccine. Private Citizens ---------------- Rising incomes have contributed to the increased demand for commercial vaccines. Many of those in the higher wage bracket choose to pay for vaccinations. This growing market is supplied by increasingly cost conscious physicians in private health centers. Marketing Strategy - ------------------ First the Company intends to target progressive geographic expansion with its family of vaccines that target historically devastating viruses. The Company is building a sales organization in the Chinese domestic market. Concurrently with its domestic marketing plan, the Company is establishing a marketing and sales presence in South East Asia and other developing countries through local distributors, who have over 10 years experience of commercialization and registration for vaccines and other pharmaceuticals through their well established governmental relationship and local selling channels. The second prong of the Company's marketing strategy is contingent on creating a blockbuster vaccine for defeating emerging viruses such as SARS or the Avian Flu. In such case, the first to market advantage opens the door for sales to the international market. In such a scenario, the Company intends to enter the international market, with a worldwide sales network of professional sales teams, well-organized selling channels, a sound customer-credit management scheme, and an efficient logistics system. 21 Domestic Market Strategy ------------------------ The Company's domestic marketing is greatly enhanced by Chinese government programs for inactivated Hepatitis A Vaccine, inactivated SARS vaccine and new Human Influenza vaccine. As part of the Company's private marketing strategy, it intends to continue to pursue a strategy of first launching its vaccine products in market segments in China that present the highest concentrations of people with higher earnings bases. Subsequent to this initiative, the Company intends to systematically expand its sales reach into less affluent urban areas and less populated rural provinces. Accordingly, the Company intends to penetrate these various markets in descending order with Segment A representing the most affluent, high density areas and Segment D representing lesser populated areas with the lowest per capita average incomes. These market demographics are outlined below: Segment A: Beijing / Guangdong / Jiangsu / ZhejiangTianjin Segment B: Liaoning / Hebei / Shandong / Fujian / Shanghai / Hainan / Shaanxi / Chongqing / Guangxi Segment C: Helongliang / Jilin/Shanxi / Sichuan / Yunnan / Anhui Segment D: Henan / Hunan / Jiangxi / Guizhou/ Southeast Asia Regional Market Strategy --------------------------------------- The Company intends to develop an overseas sales strategy initially targeting Southeast Asian nations by way of a joint venture licensing/marketing agreement with a successful South Korean pharmaceutical company called Innopath International ("Innopath"). Many management personnel in Innopath have over 20 years experience in international vaccine marketing and they have over 10 years working experience with distributors with many South Asian countries. International Market Strategy ----------------------------- The Company intends to register with the European Union (EU) and the U.S. Food and Drug Administration (FDA) with the goal of meeting FDA and EU approvals for one or more of its in-development vaccine biotechnologies. The most obvious candidates at this time are the Company's experimental avian flu and SARS vaccines as there are presently no viable immunology treatments to protect against SARS and avian flu in the United States or anywhere else. The prospect of being "first to market" with potentially life saving immunology biotechnologies offers the Company a clear competitive advantage in terms of gaining significant market share. The Company expects to primarily target developing nations where Western manufactured hepatitis vaccines are typically prohibitively expensive. The Company expects to be registered for the sale of its Hepatitis A and Combined Hepatitis A&B immunology biotechnologies in at least 34 countries by the year 2009. 22 Similarly, the Company expects to commercialize its proprietary human influenza vaccine by the first quarter of 2005 with the goal of also targeting the majority of other developing Southeast Asian markets within the next five years. The Company has also signed a marketing agreement with China National Medicine & Health Products Import/Export Corporation (MEHECO) to represent its products in Brazil. MEHECO is one of the largest medical import/export companies in China, specializing in pharmaceuticals, health products, hospital supplies and chemicals. It has achieved more than US$6.3 billion in sales since its inception 18 years ago. MEHECO is a global leader in vaccine sales in more than one hundred countries. The Company intends to accelerate its international market growth by placing a priority on sales agreements with companies that can take advantage of the Company's R&D capabilities. Competition - ----------- Domestic Chinese Competition ---------------------------- The existing domestic vaccine industry in China only caters to a small fraction of the Chinese population at this time. Most Chinese vaccine manufacturers are very small-scale operations that use dated biotechnologies and experience high operating costs. Furthermore, due to the technological limitations of these companies, most of their vaccines have a relatively low efficacy rate (compared to Western counterparts), as well as a significant incidence of potent side effects. For instance, cheap live attenuated Hepatitis A vaccine has poor stability profile. It requires strict conditions when delivering. When the surrounding temperature is above 8 degrees Celsius, it is very possible for the Hepatitis A vaccine to lose its efficacy. And in many undeveloped areas in China, it is unlikely to guarantee the delivery conditions for live attenuated vaccine. Therefore, when the vaccine is delivered to the destination, it has been ineffective. It is very important to notice that none of the countries in the world, except China have approved live attenuated vaccine to be used. Despite low price points for their immunology biotechnologies, combined sales for all of these manufacturers only amount to about US$60-73 million a year, as compared to the equally small US$24.2 million generated by Western vaccine manufacturers (whose products are prohibitively expensive for most Chinese citizens). Furthermore, most Chinese vaccine manufacturers are legally required to allocate up to 70% of production capacity to the manufacturing of vaccines for federal government immunology programs. The profit margins for such initiatives tend to be slender. Ultimately, the greatest limitation faced by Chinese vaccine manufacturers concerns an inability to access major financing for expansion purposes. The venture capital market is still in its infancy in China and accessing funds is problematic, particularly when these companies are marketing inferior biotechnologies. Accordingly, China suffers from a major shortfall in the supply of safe and efficacious vaccine biotechnologies. For instance, only about 1.5% - 2.5% of the Chinese population are consumers of influenza vaccines. By comparison, this figure is as high as 26% in the United States and up to 20% in 23 neighbouring South Korea. Such statistics attend to the largely untapped marketplace for the Company's anticipated soon-to-be-launched influenza vaccine. Whereas this marketing opportunity also extends to Western pharmaceutical companies with influenza vaccines that are comparable in safety and efficacy to the Company's influenza vaccine, however, the Company's lower price point offers a clear competitive advantage. Influenza vaccines may be sponsored or subsidized by many Western governments or by private medical insurance programs. However, most Chinese citizens have to pay for these vaccines out of their own pockets. Therefore, the Company believes that this price-sensitive consumer market will favour the company's influenza vaccine over more expensive Western competitors. The same rationale likely applies to the Chinese municipal governments that are beginning to allocate funds to provide influenza shots to low income municipal dwellers. Furthermore, the advent of private medical insurance programs in China also promises to benefit the Company for similar cost-related reasons. International Competition ------------------------- Competition from other biomedical companies in the global vaccine marketplace is a risk factor. In a rapidly changing field, this competition is most likely to come from well-established biopharmaceuticals with deep pockets and a proven track record for successful product development and commercialization. Therefore, there can be no assurance that such potential rivals will not develop more proficient and more affordable vaccine products. Also, the prospect of another immunology company in North America or elsewhere commercializing the world's first SARS or avian influenza vaccines is a distinct possibility. Administration - -------------- During the period commencing January to December of 2003 the average monthly administration costs are approximately US$157,059 and the total administration costs were US$1,629,118. The average monthly administration costs were as follows: 24 Category Monthly Cost -------- ------------ (Approximate) ------------- Wages, benefits and subcontractors: $ 49,208 Legal $ 6,842 (1) Marketing: $ 9,970 Travel: $ 18,577 Shareholder Information and $ 13,313 (1) Investor Relations: Audit and accounting: $ 7,105 (1) General and Administrative: $ 18,720 Occupancy costs: $ 3,531 Transfer Agent fees: $ 2,253 Advertising and promotion: $ 1,240 Filing fees: $ 2,253 Automobiles: $ 9,632 Consulting fees: $ 14,415 ----------- Total: $157,059 (2) ----- ----------- Notes: (1) These services were mainly engaged in the last three months of 2003, and therefore, the total cost for these services are presented based on the total costs divided up over the last three months of 2003, which does not necessarily indicate the average monthly administration cost over the fiscal year ended December 31, 2003. (2) Variations in the administration costs are mainly due to increases in wages and benefits, professional fees (legal and auditing), shareholder communication and regulatory compliance. C. Organizational Structure ------------------------ The Company is a 51% majority owner of Sinovac Biotech Co., Ltd., a company organized under the laws of the People's Republic of China, and a 100% owner of Tangshan Yian Biotechnology Engineering Co., Ltd., a company organized under the laws of the People's Republic of China. Therefore, the Company has two subsidiaries - one which is wholly owned and one which is majority owned. D. Property, Plants and Equipment ------------------------------ Office Space - ------------ The Company utilizes about 22,264.21 square meters of land in PKU Biocity, Beijing, China, of which 4,540.77 square meters is for the use of building constructed by Sinovac Biotech Co., Ltd. Over 1,000 square meteres is used as an office building and over 2,000 square meters is the production plant for Hepatitis A vaccine. 25 Plants - ------ The design of the Sinovac Biotech Co., Ltd. plant in Beijing for the production of the Healive vaccine was done by a well-known European company in accordance with the US FDA and EU GMP requirements. The major equipment and facilities were imported from Europe, and the installation and debugging processes were completed in a key-handing-over way by a European pharmaceutical engineering company. The plant has the validation done by SVS - a FDA designated GMP validation consulting company. The Sinovac manufacturing plant for Inactivated Hepatitis A vaccine has obtained the GMP certificate issued by the China State Food and Drug Administration (SFDA) in March 2002. Tangshan Yian Biological Engineering Co., Ltd. ("Tangshan Yian") was founded in 1993. Its facility is located in the New Hi-tech Development Zone of Tangshan City, connected by superhighways to Beijing, 150 kilometers to the east. Tangshan Yian's plant was built in accordance with the Pharmaceutical Industrial Standards and Regulations of China, which are based on international standards. The plant itself is 4300 square meters, which includes a level III Biological Safety Laboratory, Cell Culturing Workshop, Pilot Trial Production Workshop, Reagents Manufacture Workshop, and Research Lab for R&D of the Split Flu Vaccine. The plant is situated on 20,000 square meters of land, and has reserved an additional 10,000 square meters in anticipation of future expansion. Tangshan Yian provides the Company with a low-cost R&D and manufacturing base. The advantages of Tangshan Yian's state-of-the-art facilities expanded manufacturing capabilities and its talents will enhance the competitive ability of the Company on research and production. The clinical trials on split flu vaccine have been finished. A production line with GMP standards is being built at the Tangshan Yian plant. Chinese State Food and Drug Administration approved the Company to commence the clinical research on its Inactivated SARS vaccine. The Company's subsidiary, Tangshan Yian, will produce the first 20,000 doses at its world-class P3 Lab (BL3). Currently, there are only a few of such laboratories in the world. The Company will work on New Human Influenza Vaccine (Human Used Avian Flu Vaccine) Development Project with the Chinese Center for Disease Control and Prevention at its Tangshan Yian facility. The Company has already finished the research protocol and has started working towards a vaccine. Equipment - --------- Steel furring is used for the main body of the manufacturing workshop. And the architecture is concise and vivid. The manufacturing workshop is designed based on Chinese GMP requirements, which is divided into clean zone and non-clean zone. The class of cleanness are class 100,000, class 10,000, and class 100. High class facilities are selected for the establishment of the manufacturing workshop. Key facilities are overseas advanced products. And the subsidiary facilities are mainly made in China. Temperature control is designed 26 to be automatic control. And the production control is designed to be centralized. It also includes the necessary establishment, such as dressing room and air brake. The design, preparation, fire control, environment protection, labor protection, and energy saving of heating, ventilation, and air conditioning are based on GMP standards and relative domestic requirements. ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS A. The Company ----------- Year ended December 31, 2003 compared with the year ended December 31, 2002 --------------------------------------------------------------------------- Liquidity and Capital Resources - ------------------------------- Our primary liquidity requirements are for working capital, capital expenditures, research and development. Our primary sources of liquidity have been cash provided by operations, borrowings and stock plan. The availability and attractiveness of any outside source of financing will depend on a number of factors, some of which relate to our financial condition and performance, and some of which are beyond our control, such as prevailing interest rates and general economic conditions. There can be no assurance that additional financing will be available, of if available, that it will be on terms we find acceptable. Cash and cash equivalents increased by $1,107,453 to $1,420,047 in 2003, from $312,594 in 2002. Net cash provided by financing activities increased by $1,443,134 to $2,895,793 in 2003, from $1,452,659 in 2002. This increase is primarily related to the subscription received of $1,031,959. In 2003, cash used by investing activities decreased by $1,318,392 to $758,959. This cash was used to purchase plant equipment, totalling $348,190, and payment for Licenses and permits, $410,769. Cash used in operating activities decreased by $23,798 to $1,029,143 in 2003, from $1,052,941 in 2002. The decrease is primarily related to the increase of sales. Results of Operation - -------------------- Vaccine manufacturing is a special industry, which requires high open-end investment in order to establish the proper production line to meet high requirements. From building the manufacturing workshop to selling the product into the market, Good Manufacturing Practice certification is required, as well as application for New Drug Approval for commercialization. Therefore, it is expected that there will be a significant period of time from the beginning of investment until we realize return. For Sinovac, the construction of the manufacturing workshop was completed in 2002. The Hepatitis A vaccine was initially launched into the market in Q4 of 2002. Profits for the sales of this 27 vaccine were not realized by the end of 2003. However, we expect to gain profit by the end of 2004, since market share and sales numbers for HealiveTM continue to increase. Concurrently, we are going to launch the combined Hepatitis A&B vaccine in the market. Part of the production of combined vaccine is going to be completed in our manufacturing workshop for Hepatitis A vaccine, which helps to lower production costs. In 2003, total sales were $2,838,933, fourfold from $649,319 in 2002, and net cash inflow in 2003 was $1,107,453. Cost of sales was $1,085,881 in 2003, and gross margin was 61.75%, compared to the $251,711, 61.23% in 2002 respectively. Expenditures on sales and general administration was $1,629,118 compared to $792,078 in 2002. Expenditures were $354,173 for salaries and benefits compared to $218,613 in 2002, $357,503 on marketing compared to $181,935 in 2002., $399,317 on office expenses compared to $226,961 in 2002, $211,819 on travel compared to $138,147 in 2002, $40,765 on rentals compared to $24,005 in 2002 and $265,538 on professional and consulting fees compared to nil in 2002. Research and Development, Patents and Licenses, etc. - ---------------------------------------------------- Research and Development expenditures totaled $232,785 in 2003, compared to $24,535 in 2002. The increase in spending from last year primarily reflects ended Split Flu clinical development activity and Hepatitis A&B obtained new drug license. The Company's most important Research and Development achievement is the inactivate SARS vaccine. The SARS Research and Development expenditures was granted by China government for $664,251 (RMB 5,500,000) which was deducted from the total in Research and Development expenditures. Trend Information - ----------------- The Company's corporate strategy is aggressively directed towards increasing sales during 2004. There are, however, some external factors that can materially affect the final sales figures for 2004. These external factors include the government approval process, possible reoccurrence of diseases such as SARS and new competition. Understandably, government delays in the sales approval for the Company's combined Hepatitis A&B vaccine will correspondingly reduce sales figures for the 2004 period. In addition, the reoccurrence of SARS or similar viruses cannot be guaranteed and as such neither can sales of any respondent vaccine. Finally, the market sector available to the Company may be reduced if a new competitor obtains approval to sell an equivalent product into the Company's market and the Company does not increase promotional investment to compensate. 28 Net Force Systems Inc.'s Year ended April 30, 2003 compared with the year --------------------------------------------------------------------------- ended April 30, 2002 -------------------- Liquidity and Capital Resources - ------------------------------- As at April 30, 2003, available unrestricted cash on hand plus net accounts receivable due in less than 30 days amounted to $35,617 versus $84,085 for April 30, 2002, a decrease of 58%. Current assets less player deposits as at April 30, 2003 were $66,544 and current liabilities less players deposits were $104,643. Total liabilities as at April 30, 2003 were $156,280 versus $136,813 as at April 30, 2002. Approximately 75 % of the current liabilities as at April 30, 2003 consists of wages payable to Chairman , President, and Chief Executive Officer Terry G. Bowering ($53,387), customers deposits ($51,637), and stock subscription payable ($12,500). Total stockholders Equity was ($26,123) as at April 30, 2003 versus $99,441 as at April 30, 2002. The company received its trading symbol (NTFSF) from the NASD on February 21st, 2003. The Company now has a ready market for its issued shares which greatly enhance opportunities for additional equity financing in fiscal period 2004. Material Commitments for Capital Expenditures - --------------------------------------------- There were no material commitments for capital expenditures as of the end of the latest fiscal period ended April 30, 2003. The existing administrative office and computer hardware includes personal computers, printers, fax machines, and backup power supply units, which maintain operation of the electronic office equipment during short power outages. This office equipment is adequate to conduct current business operations. From this office, the Company conducts web-site design, marketing, customer service support services for the company's websites. The Company also manages corporate communications and investor relations from this office. The Company maintains access to the Internet, which requires personal computers, communications hardware and software, and backup power supply units. All of the above commitments were settled in full payment in cash from the proceeds of initial share issuances and from the proceeds from the initial promissory note issued on July 15, 1999. During the fiscal period ended April 30, 2003, no further payments were made to World Gaming under the software license agreement for the initial software setup and configuration. As stated, the major capital expenditure for software was a one-time setup and configuration fee of US$100,000 payable to Starnet Systems International (formerly Softec Systems). An initial payment of US$10,000.00 was paid upon execution of the agreement on July 15, 1999 leaving a balance of US$90,000.00 payable upon completion of the configuration/design of the software and commencement of live operations. In September of 2000, the balance of this one-time initial setup fee was subsequently negotiated to zero as a result of a compensation agreement with Starnet Systems International. During the fiscal period 2003, only monthly royalty fees (as a percentage of monthly total revenues), were paid to World Gaming. 29 Material Commitments for Resources - ---------------------------------- No material commitments of resources were made during the fiscal period ended April 30, 2003. Any material commitments of resources over the next year will be funded from an additional financing which may consist of a combination of equity financing and issuing a promissory note with a possible convertible equity component attached. Impact of Inflation - ------------------- The Company believes that inflation will not materially affect its business. ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management ------------------------------- The names, municipality of residence and principal occupations in which each of the Directors, Executive Officers and other members of management of the Company have been engaged during the immediately preceding five years are as follows:
- ----------------------------- -------------------- ---------------- ------------------- Name, Municipality Number of Shares of of Residence and Principal Occupation Director/ the Company Positions, if any, or Employment Officer of the Beneficially Owned, held with the during the Past Five Company Controlled or Company Years Since Directed(1) - ----------------------------- -------------------- ---------------- ------------------- Weidong Yin Businessman President, CEO, 6,544,833 Beijing, P.R.C. Secretary and a Director since President, CEO, Secretary September 2003 and a Director of the Company Heping Wang Businessman Director since 3,500,000 Beijing, P.R.C. September 2003 Director of the Company Lily Wang Retired CFO and a 10,000,000 Beijing, P.R.C. Businesswoman Director since September 2003 CFO and a Director of the Company 30 Dr. Kim Kiat Ong Businessman Director since Nil Singapore November 2003 Director of the Company
Notes: - ------ (1) These figures are as of May 31, 2004 The following are brief profiles of the Directors and Executive Officers of the Company: > Mr. Wei Dong Yin (age 40) has been the President, CEO, Secretary and a ----------------- Director of the Company since September 24, 2003. Mr. Yin is also the General Manager of the Company's subsidiary, Sinovac Biotech Co., Ltd. Mr. Wei Dong Yin, has been dedicated to hepatitis research for over 20 years. He is credited with developing the intellectual property that led to the development of the Company's Hepatitis A vaccine. In addition, Mr. Yin has been appointed to be the principal investigator by the Chinese Ministry of Science and Technology for many key governmental R&D programs such as "Inactivated Hepatitis A vaccine R&D", "Inactivated SARS vaccine R&D" and "New Human Influenza Vaccine (H5N1) R&D". He obtained his Masters degree in Business Administration from the Singapore State University. > Mr. Heping Wang (age 53) has been a Director of the Company since September --------------- 24, 2003. Mr. Wang graduated from Beijing University of Apparatus Technology. He has been working in real estate industry for over ten years. Mr. Wang developed the Beijing Fuhua Mansion, which is the first European style architecture in Beijing with over 200,000 square meters. Recently, Mr. Wang has started to invest in the biotech industry and the information technology industry. > Ms. Lily Wang (age 46) has been the CFO and a Director of the Company since ------------- September 24, 2003. Ms. Wang graduated from Chamnide University of Honolulu in 1992 with a Masters degree in Business Administration. Ms. Wang has been working in accounting and finance area for over 10 years since she graduated. She was an accounting manager from 1992 - 1995 with AJAX United, a US company and a Vice-President and Secretary for over nine years with Xinyu Enterprise Development Inc. Ms. Wang is also a general partner of Tiancheng International Investment Company. > Dr. Kim Kiat Ong (age 52) has been a Director of the Company since November ---------------- 12, 2003. Dr. Ong has been in the medical field for over 30 years and has specialized as a Cardiothoracic and Vascular Surgeon for 18 years. He has been a member of several national committees and is currently a Member of the Advisory Committee, for the Singapore Ministry of Health (2003-2005). As a seasoned lecturer, teacher and writer in the medical profession, Dr. Ong offers a high level of quality experience to the management team at Sinovac. 31 Aggregate Ownership of Securities - --------------------------------- There are presently an aggregate of 20,044,833 common shares of the Company owned by all of the Directors, Officers and promoters of the Company representing 57.65% of the total issued and outstanding common shares of the Company. Other Reporting Issuers - ----------------------- The following Directors, Officers, promoters or other members of management of the Company have held a position as a director, officer, promoter or other member of management of other reporting issuers within five years prior to the date of this Annual Report: Member Position with Other Reporting Issuer - -------------------------- ------------------------------------------ Weidong Yin N/A Heping Wang N/A Lily Wang N/A Dr. Kim Kiat Ong N/A Individual Bankruptcies - ----------------------- None of the Directors, Officers, promoters or members of management of the Company have, within the five years prior to the date of this Annual Report, been declared bankrupt or made a voluntary assignment in bankruptcy, made a proposal under any legislation relating to bankruptcy or insolvency, or been subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that individual. Conflicts of Interest - --------------------- Some of the Directors and Officers of the Company also serve as directors and/or officers of other companies and may be presented from time to time with situations or opportunities which give rise to apparent conflicts of interest which cannot be resolved by arm's length negotiations but only through exercise by the Directors and Officers of such judgement as is consistent with their fiduciary duties to the Company which arise under Antigua and Barbuda corporate law, especially insofar as taking advantage, directly or indirectly, of information or opportunities acquired in their capacities as Directors or Officers of the Company. All conflicts of interest will be resolved in accordance with the appropriate business corporation statute. Any transactions with Directors and Officers will be on terms consistent with industry standards and sound business practices in accordance with the fiduciary duties of those persons to the Company and, depending upon the magnitude of the transactions and the absence of any disinterested board members, may be submitted to the shareholders for their approval. 32 Other Information - ----------------- There are no family relationships between any of the Directors or Officers of the Company except for Ms. Lily Wang and Mr. Heping Wang, who are brother and sister. The approximate percentage of business time that each Director and Officer will devote to the Company's business is as follows: Name Percentage of Time -------- ------------------ Wei Dong Yin 100% Heping Wang 30% Lily Wang 50% Kim Kiat Ong 10% B. Compensation ------------ The Company's Executive Compensation - ------------------------------------ The Company's fiscal year end is the 31st day of December. The Company has created four Executive Offices, namely that of President, Secretary, CEO and CFO. In this regard the Company's named Executive Officers (collectively, the "Named Executive Officers") are as follows: Wei Dong Yin - Mr. Yin was appointed the President, CEO and Secretary of the - ------------ Company on September 24, 2003 and served as a Director since the same date. Lily Wang - Ms. Wang was appointed the CFO of the Company on September 24, 2003. - --------- For the purpose of this Annual Report, except as otherwise expressly provided or unless the context otherwise requires, the following words and phrases shall have the following meanings: "Equity security" means securities of a company that carry a residual right to participate in earnings of that company and, upon liquidation or winding up of that company, its assets; "Option" means all options, share purchase warrants and rights granted by a company or any of its subsidiaries (if any) as compensation for services rendered or otherwise in connection with office or employment; "LTIP" means a long-term incentive plan, which is any plan providing compensation intended to serve as incentive for performance to occur over a period longer than one financial year, whether the performance is measured by reference to financial performance of the company or an affiliate of the company, the price for the company's securities, or any other measure, but does not include Option or SAR plans or plans for compensation through restricted shares or restricted share units; and 33 "SAR" means stock appreciation right, which is a right granted by a company or any of its subsidiaries (if any) as condensation for services rendered or otherwise in connection with office or employment to receive a payment of cash or an issue or transfer of securities based wholly or in part on changes in the trading price of publicly traded securities. The following table details the compensation paid to the Company's Named Executive Officers during the fiscal year ended December 31, 2003:
Summary Compensation Table -------------------------- Annual Compensation Long-Term Compensation --------------------------- --------------------------------------- All other Securities and annual under Restricted Fiscal Compensation Options/ Shares or Name and Principal Year and LTIP SARS Restricted Position(1) End Salary Bonus Payouts Granted Share Units ----------- --- ------ ----- ------------ ---------- ----------- ($) ($) ($) (#) (#) - ------------------------- ------ -------- ------- ------------ ---------- ----------- Wei Dong Yin (2) 2003 $ 4,000 Nil Nil 300,000 Nil President, CEO, Secretary and a Director Lily Wang (3) 2003 $ 48,265 Nil Nil 200,000 Nil CFO and a Director Notes: (1) Refer to the disclosure found above the Summary Compensation Table hereinabove for a detailed description of the Company's Named Executive Officers. (2) Mr. Wei Dong Yin was appointed as the President, CEO and Secretary on September 24, 2003. (3) Ms. Lily Wang was appointed as the CFO on September 24, 2003.
The Company anticipates that compensation will be provided by the Company during the Company's next financial year to certain of the Named Executive Officers of the Company and in conjunction with certain management and administrative services to be provided to the Company by such Named Executive Officers. Long-term Incentive Plans - Awards in most recently completed Financial Year - ---------------------------------------------------------------------------- During its most recently completed financial year, and for the two previously completed financial years, the Company has not awarded or instituted any LTIPs in favour of its Named Executive Officers. Options/SAR Grants during the most recently completed Financial Year - -------------------------------------------------------------------- As of May 31, 2004, the Company had granted the following options to purchase common stock of the Company as follows: 34
Name of Optionee Position Number Exercise Date Expiry ---------------- Of Price Granted Date Optioned Shares - ---------------------- ------------ ---------- ------------ --------------- ------------------ Jianguo Wei Employee 20,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Yi Bao Employee 20,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Xuguang Han Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Xudong Lu Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Shuguang Huang Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Zijing Zhang Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Qian Zhang Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Zhibin Gao Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Chunyan Hu Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Fanzhuo Kong Employee 10,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Heqing Gao Employee 10,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Xiulan Zheng Employee 10,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Chen Wei Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Huiwen Wang Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Zhengyou Lu Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Yan Liu Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Lili Song Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Ran Wu Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Yi Wu Employee 500 US$1.31 Nov. 13, Nov. 13, 2008 2003 Tingting Zhang Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 35 Yulong Qu Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Linging Xu Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Li Xu Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Hongmei Sun Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Yanmei Yin Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Lin Wang Employee 5,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Weidong Yin Director 300,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Lily Wang Director 200,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Heping Wang Director 200,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 K.K. Ong Director 200,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Aihua Pan Employee 300,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Jiansan Zhang Employee 90,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Nan Wang Employee 80,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Yingqun Wang Employee 70,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Xuejie Gong Employee 80,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Changjun Fu Employee 80,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Jingling Qin Employee 60,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Jiangting Chen Employee 60,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Jingning Wang Employee 60,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Xiaomei Zhang Employee 60,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Wei Zhao Employee 60,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Zhenshan Zhang Employee 60,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 36 Liangxiang Hu Employee 40,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Jinfeng Huang Employee 40,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Zhiguo Niu Employee 40,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Xuebin Li Employee 40,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Ming Xia Employee 40,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Yuxuan Liu Employee 30,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Yingjun Wei Employee 30,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Lan Wei Employee 30,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Qiang Gao Employee 30,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Yanru Pei Employee 20,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Baoxiang Gong Employee 30,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Yanwei Zhao Employee 20,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Xu Wang Employee 20,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Ziqiang Zhang Employee 20,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Zhongshan Han Employee 20,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Jian Li Employee 20,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Jing Li Employee 20,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Yufen Liu Employee 20,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Jinshui Yin Employee 30,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Guoxing Liang Employee 30,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Xiaojun Zhou Employee 30,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Chuan Qing Employee 20,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 37 Xiaopin Dong Employee 10,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Weidong Yin Director 275,000 US$1.31 Nov. 13, Nov. 13, 2008 2003 Weidong Yin Director 500,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Xianping Wang Employee 400,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Heping Wang Director 400,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Sinoglobe Worldwide Consultant 100,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Michael Tan Consultant 100,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Technique Capital Consultant 100,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Viking Investment Consultant 100,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Jiansan Zhang Employee 13,500 US$4.55 Apr. 14, Apr. 14, 2009 2004 Nan Wang Employee 12,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Yingqun Wang Employee 12,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Xuejie Gong Employee 12,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Changjun Fu Employee 12,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Jingling Qin Employee 9,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Jianting Chen Employee 9,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Jingning Wang Employee 9,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Xiaomei Zhang Employee 9,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Wei Zhao Employee 9,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Zhenshan Zhang Employee 9,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Liangxiang Hu Employee 6,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Jinfeng Huang Employee 6,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 38 Zhiguo Niu Employee 6,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Xuebin Li Employee 6,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Ming Xia Employee 6,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Yuxuan Liu Employee 4,500 US$4.55 Apr. 14, Apr. 14, 2009 2004 Yingjun Wei Employee 4,500 US$4.55 Apr. 14, Apr. 14, 2009 2004 Lan Wei Employee 4,500 US$4.55 Apr. 14, Apr. 14, 2009 2004 Qiang Gao Employee 4,500 US$4.55 Apr. 14, Apr. 14, 2009 2004 Yanwei Zhao Employee 4,500 US$4.55 Apr. 14, Apr. 14, 2009 2004 Jianguo Wei Employee 3,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Yi Bao Employee 3,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Shujuan Zhang Employee 5,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Changjiu Zhang Employee 5,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Hanbo Chen Employee 5,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Zheng Chen Employee 5,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Lin Gao Employee 5,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Xiangjun Li Employee 5,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Maolin Peng Employee 5,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Xiaobing Wang Employee 5,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Laichun Zhang Employee 5,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Li Sun Employee 5,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Yujing Zhu Employee 5,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Wei Hu Employee 5,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 39 Guang Yang Employee 10,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Hong Gao Employee 10,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Ye Ning Employee 10,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Xiaoping Dong Employee 5,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Wei Xu Employee 3,500 US$4.55 Apr. 14, Apr. 14, 2009 2004 Jing Li Employee 4,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Xiaojuan Lian Employee 4,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Luqiu Li Employee 4,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Xuyang Feng Employee 3,500 US$4.55 Apr. 14, Apr. 14, 2009 2004 Peng Wang Employee 4,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Shaoqian Liu Employee 4,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Jia Luo Employee 4,000 US$4.55 Apr. 14, Apr. 14, 2009 2004 Guang Yang Employee 4,500 US$3.36 June 9, June 9, 2009 2004
Notes: (1) A total of 5,000,000 shares are issuable pursuant to stock options. Defined Benefit Plans - --------------------- The Company does not have, and at no time during its most recently completed financial year had, any defined benefit or actuarial plans in respect of which any of its Named Executive Officers were eligible to participate. 40 Compensation of the Company's Directors - --------------------------------------- For the Company's most recently completed fiscal year: (a) no compensation of any kind was accrued, owing or paid to any of the Company's current Directors for acting in their capacity as such; (b) no arrangements of any kind existed with respect to the payment of compensation of any kind to any of the Company's current Directors for acting in their capacity as such; (c) no compensation of any kind was accrued, owing or paid to any of the Company's current Directors for services rendered to the Company as consultants or experts; (d) no arrangements of any kind existed with respect to the payment of compensation of any kind to any of the Company's current Directors for services rendered, or proposed to be rendered, to the Company as consultants or experts; (e) no SARs or LTIPs were outstanding or in effect in favour of any of the Company's Directors; and (f) there were Options which were outstanding and in favour of certain Directors of the Company who are not also Named Executive Officers of the Company as set out in the options table above. No directors have received any compensation other than option grants and travelling expenses. C. Board Practices --------------- The Board of Directors meet quarterly to set policy and review the progress as well as review and approve budgets and expenditures. The Directors of the Company are elected by the shareholders at each annual general meeting of the Company, or, in the event of a vacancy, they are appointed by the Board of Directors then in office, to serve until the next annual general meeting of the Company or until their successors are elected and ratified. The Company's executive officers are appointed by the Board of Directors and serve at the discretion of the Board of Directors. D. Employees --------- The Company has 115 full time employees as at December 31, 2003. The following is a description of the number of employees in each department: 41 Department No. of Employees -------------------------- ---------------------- Senior Management 6 Human Resources 2 Administration 6 Financial Dept. 6 Business Development 3 R&D 1 P3 Lab 2 Clinical Research 4 Quality Assurance 3 Production 16 Quality Control 8 QA for R&D 3 Engineering and Facility 10 Sales 40 Marketing 3 Business 2 Total: 115 In addition to these employees, the Company also retains the services of certain consultants on an "as needed" basis. E. Share Ownership --------------- Directors and Officers - ---------------------- The share ownership in the Company held directly or indirectly by the Directors and Executive Officers of the Company are as indicated in the table below: Number of Name Office Shares (1) ---- ------ ------ Wei Dong Yin President, CEO, Secretary and 6,544,833 a Director Lily Wang CFO and a Director 10,000,000 Heping Wang Director 3,500,000 Dr. Kim Kiat Ong Director Nil Note: - ---- (1) These figures are as of May 31, 2004. 42 As a group the Directors and Executive Officers of the Company hold 20,044,833 common shares; which is 57.65% of the total amount of issued and outstanding common shares of the Company (see the section captioned "Options" hereinbelow for a detailed description of any and all Options held by the Directors and Executive Officers in and to the Company.) Public and Insider Ownership - ---------------------------- The Directors, Officers and insiders of the Company hold an aggregate of 20,044,833 common shares of the Company on a non-fully diluted basis, being 57.65% of the then issued and outstanding common shares of the Company, as opposed to the public owning an aggregate of 14,725,400 common shares of the Company, or 42.35% of the then issued and outstanding common shares of the Company, assuming that no Warrants to acquire common shares of the Company are exercised. ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders ------------------ To the knowledge of management of the Company, as at December 31, 2003 the following beneficially own directly or indirectly, or exercise control or direction, over common shares carrying 5% or more of the voting rights attached to any class of voting securities of the Company: Number of Common Percentage of Common Member Shares Shares ------------ -------------------- -------------------- Lily Wang 10,000,000 36.91% Wei Dong Yin 6,544,833 24.16% All the shareholders of the Company have the same voting rights. To the best of the Company's knowledge, the Company is not owned or controlled, directly or indirectly, by another corporation or by any foreign government. To the best of the Company's knowledge, there are no arrangements, the operation of which at a subsequent date will result in a change in control of the Company other than as stated in this Annual Report. 43 B. Related Party Transactions -------------------------- None of the current Directors or Officers of the Company nor any associate or affiliate of the foregoing persons, has any material interest, direct or indirect, in any transactions of the Company or in any proposed transaction which, in either case, has or will materially affect the Company, except for Ms. Lily Wang and Mr. Heping Wang. On September 24, 2003, Ms. Lily Wang and the Company entered into a share purchase agreement, whereby the Company purchased Ms. Lily Wang's 51% ownership interest in Sinovac Biotech Co., Ltd., a company organized under the laws of the People's Republic of China, for consideration of 10,000,000 shares of the Company's common stock issued to Ms. Lily Wang at a deemed price of $0.60 per share constituting approximately 37% of the Company's outstanding capital stock after such issuance. On January 26, 2004, Mr. Heping Wang and the Company entered into a share purchase agreement, whereby the Company acquired Mr. Heping Wang's 100% ownership interest in Tangshan Yian Biological Engineering Co., Ltd., a company organized under the laws of the People's Republic of China, for consideration of 3,500,000 shares of the Company's common stock issued to Mr. Heping Wang plus $2,200,000 in cash, which will be payable by the Company on or before January 26, 2005. C. Interests of Experts and Counsel -------------------------------- This section is not applicable to the Company. ITEM 8 - FINANCIAL INFORMATION A. Financial Statements and other Financial Information ---------------------------------------------------- The audited financial statements for the Company for the fiscal years ending December 31, 2003, and 2002 form a material part of this Annual Report. See Item "19" hereinbelow. B. Significant Changes ------------------- There have not been any significant changes in the Company since the date of the most recent audited financial statements other than those disclosed in this Annual Report. ITEM 9 - THE OFFERING AND LISTING A. Offer and Listing Details ------------------------- This Annual Report does not relate to any offering of the Company's shares. The following table indicates the annual high and low market prices over the last fiscal year since the Company's common stock was not listed in the OTCBB until February 21, 2003: 44 Year Annual High Annual Low ---------------- ------------------- ------------------ 2003(1) $1.80 $0.75 Notes: (1) The Company commenced trading on the OTCBB on February 21, 2003. The following table indicates the high and low market prices for each full financial quarter since February 21, 2003: Quarter Ended High Low ------------------------- ------------ ----------- Dec. 31, 2003(1) $1.80 $0.75 Sept. 30, 2003(1) $0.78 $0.75 June 30, 2003(1) No trading No trading Notes: (1) The Company commenced trading on the OTCBB on February 21, 2003. B. Plan of Distribution -------------------- This Annual Report does not relate to any offering of the Company's shares. Therefore, this section is not applicable to the Company. C. Markets ------- The Company's securities have been trading on the U.S. OTC Bulletin Board since February 21, 2003, and do not trade on any other exchange or market. D. Selling Shareholders -------------------- This Annual Report does not relate to any offering of the Company's shares. Therefore, this section is not applicable to the Company. E. Dilution -------- This Annual Report does not relate to any offering of the Company's shares. Therefore, this section is not applicable to the Company. F. Expenses of the Issue --------------------- This Annual Report does not relate to any offering of the Company's shares. Therefore, this section is not applicable to the Company. ITEM 10 - ADDITIONAL INFORMATION A. Share Capital ------------- This section is not applicable to the Company as this is an Annual Report. 45 B. Memorandum and Articles of Association -------------------------------------- Objects and Purpose - ------------------- The Company is registered at the companies registry in Antigua, and has been assigned company number 011949, having its registered office situated at No. 6 Temple Street, P.O. Box 2372, Septimus A Rhudd Law Office, St. John's, Antigua and Barbuda. The objects for which the Company is established allow at Article IV: a. To conduct any and all business activities permitted by the Laws of Antigua/Barbuda as an International Business Corporation; b. To acquire and deal with any property, real or personal, to erect buildings, and generally to do all acts and things which, in the opinion of the Corporation or the Directors, may be conveniently or profitably, or usefully, acquired and dealt with, carried on, erected or done by the Corporation in connection with said property. c. To generally have and exercise all powers, rights and privileges necessary and incident to carrying out properly the objects herein mentioned. The Company shall not engage in International banking, Trust, Insurance, Betting, and Bookmaking or any other activity which requires a Licence under the International Business Corporation Act. The Company shall be primarily engaged in research, development and commercialization of human vaccines for infectious diseases. Directors and Powers - -------------------- Bylaw 8.3 of the Corporation states a director may hold any other office or place of profit under the Corporation and he or any firm of which he is a member may act in a professional capacity for the Corporation in conjunction with his office of director of the Corporation for such period and in such terms as to remuneration and otherwise as the Board may determine. No director or intending director shall be disqualified by his office from contracting with the Corporation, either with regard thereto, as a vendor, purchaser or otherwise, nor shall any such contract, or any contract or arrangement entered into by or on behalf of the Corporation in which any director so contracting or being so interested be liable to account to the Corporation for any profit realized by any such contract or arrangement by reason of such director holding such office, or of the fiduciary relationship thereby established so long as the director notifies the Corporation in accordance with the requirements of the Act. To the extent permitted by the Act, any director may vote as a director or shareholder in respect of any such contract or arrangement; provided that such director must disclose his interest in the contract or arrangement, the contract or arrangement must be entered into by the Corporation in an Annual or Special Shareholders' Meeting, and before the contract or arrangement is so entered into, the directors must disclose their interests to the meeting. Directors of the company do not have to retire under an age limit requirement and are not required to own shares of the company in order to serve as directors. 46 Bylaw 8.2 states each of the Directors shall be paid out of the funds of the Corporation such remuneration for his services as a director as the Corporation in an Annual Shareholders' Meeting may from time to time determine. The directors may also be paid all traveling, hotel and other expenses properly incurred by them in attending and returning from meetings of the directors or any committee of the directors or meetings of the Corporation or in connection with the business of the Corporation. Bylaw 8.9 states the business of the Corporation shall be managed by the Board, who may exercise all such powers of the Corporation as are not by the Act or by these By-Laws required to be exercised by the Corporation in an Annual Shareholders' Meeting, subject nevertheless to any regulation of these By-Laws, to the provisions of the Act as may be prescribed by special resolution of the Corporation, but no regulation so made by the Corporation shall invalidate any prior act of the Board which would have been valid if such regulation had not been made. The general powers given by this by-law shall not be limited or restricted by any special authority or power given to the Board by any other By-Law. Rights and Privileges of Common Shares - -------------------------------------- Bylaw 5 states the Board may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law. Bylaw 7.8 states every shareholder shall have one vote for each share of which he is the holder. All elections for directors shall be decided by majority vote; all other questions shall be decided by majority vote except as otherwise required by the Act. Bylaw 12 states if the Corporation shall be wound up (whether the liquidation be voluntary, under the supervision of or by the Court) the Liquidator may, with the required authority, divide among the shareholders in specie or kind the whole or any part of the assets of the Corporation, and whether or not the assets shall consist of property of one kind or properties of different kinds, and may for such purpose set such value as he deems fair upon one or more or classes of property, and may determine how such different classes of shareholders. The Liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of shareholders as the Liquidator with the like authority shall think fit, and the liquidation of the Corporation may be closed and the Corporation dissolved. Article III states no share shall have a pre-emptive right. Article VII states the liability of a shareholder is limited to the amount, if any, unpaid on the shares held or subscribed to by said shareholder. The Articles and Bylaws are silent regarding redemption provisions, sinking fund provisions or any provision regarding discrimination against any existing or prospective holder of such securities as a result of such shareholder owning a substantial number of shares. A special resolution (requiring a 2/3 majority or signature of all shareholders entitled to vote) is required to amend the Company's articles in such circumstances as to change any maximum number of shares that the Company is authorized to issue, to create new classes of shares, to change the designation of all or any of its shares and add, change or remove any rights privileges, restrictions and conditions including rights to accrued dividends, in respect of all or any of its shares, whether issued or unissued pursuant to section 161 and 163 of the International Business Corporations Act of Antigua and Barbuda. 47 The conditions governing the manner in which annual general meetings and special general meetings of shareholders are convoked are contained in Bylaw 7.2 to 7.12: 7.2 Annual Shareholders' Meeting -------------------------------- An Annual Shareholders' Meeting of the Corporation shall be held every year after the incorporation of the Corporation at such time and place within Antigua and Barbuda as shall from time to time be prescribed by the Board. 7.3 Special Shareholders' Meeting --------------------------------- The Board may, whenever it thinks fit, convene a Special Shareholders' Meeting. The Board shall also on the requisition of the holders of not less than one-twentieth (1/20) of the issued share capital of the Corporation proceed to convene a special Shareholders' Meeting of the Corporation. 7.4 Proceedings --------------- All business shall be deemed special that is transacted at a Special Shareholders' Meeting, and also that is transacted at any Annual Shareholders' Meeting, with the exception of the consideration of the accounts and auditor's report, if any, the election of directors and the reappointment of any incumbent auditor. 7.5 Quorum ---------- No business shall be transacted at any shareholders' meeting unless a quorum of shareholders is present at the time when the meeting proceeds to business. Save as is herein otherwise provided, shareholders present in person or by proxy representing a majority of the Corporation's shares shall constitute a quorum. 7.6 Chairman ------------ All meetings shall be chaired by a Director appointed by the Board to act as Chairman. 7.7 Minutes ----------- Minutes of the proceedings of every Annual Shareholders' Meeting shall be kept, and shall be signed by the Chairman of the same meeting, or by the Chairman of the next succeeding meeting, and the same, when so signed, shall be conclusive evidence of all such proceedings and of the proper election of the Chairman. 7.8 Votes of Shareholders ------------------------- Subject to any rights or restrictions for the time being attached to any class or classes of shares, every shareholder shall have one vote for each share of which he is the holder. All elections for directors shall be decided by majority vote; all other questions shall be decided by majority vote except as otherwise required by the Act. 48 7.9 Informal Action by Shareholder ---------------------------------- Unless otherwise provided by law, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. 7.10 Proxies ------------ Votes may be given either personally or by proxy. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorized in writing, or if the appointer is a corporation, either under seal or under the hand of an officer or attorney duly authorized. A proxy need not be a shareholder of the Corporation. The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a certified copy of that power of attorney shall be deposited at the office or at such other place within Antigua as is specified for that purpose in the notice convening the meeting. 7.11 Notice of Meeting ---------------------- Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less that Twenty-One (21) days before the date of the meeting, either personally by mail or facsimile, to each shareholder on record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. 7.12 Waiver of Notice --------------------- Unless otherwise provided by law, whenever any notice is required to be given to any shareholder, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Article X states no securities of the Corporation will be distributed to the public in Antigua and Barbuda in contravention of Section 365 of the International Business Corporations Act, 1982. There is not Article or Bylaw that directly deals with would delay, defer or prevent a change in control of the Corporation and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Corporation. There is no Bylaw provisions governing the ownership threshold above which shareholder ownership must be disclosed. Article IV paragraph 4 describes the conditions imposed by the Articles of Incorporation governing changes in the capital. Paragraph specifically states: 49 4. The Corporation shall have the power to increase or reduce said capital, and to issue any part of its capital, original or increased, with or without any preference, priority, or special privilege, or subject to any postponement of rights, or to any conditions or restrictions, and so that, unless the conditions of issue shall otherwise expressly declare, every issue of shares, whether declared to be preference or otherwise shall be subject to the power herein contained. C. Material Contracts ------------------ During the preceding two years, the Company entered into the following material contracts: 1. Share Purchase Agreement entered into between Net Force Systems Inc. and Lily Wang, dated September 24, 2003. 2. Consulting Agreement entered into between the Company and Sinoglobe Worldwide Limited, dated November 1, 2003. 3. Consulting Agreement entered into between the Company and Michael Tan, dated November 1, 2003. 4. Consulting Agreement entered into between the Company and Technique Capital Corp., dated November 1, 2003. 5. Share Purchase Agreement entered into between the Company, Tangshan Yian Biological Engineering Co., Ltd. and Mr. Heping Wang, dated January 26, 2004. 6. Consulting Services and Finder's Fee Agreement entered into between the Company and Roberto Ebrahimi, dated April 23, 2004 D. Exchange Controls ----------------- Not applicable. E. Taxation -------- United States security holders of the registrant company are not subject to taxes or withholding provisions. Sections 271- 274 of the International Business Corporations Act, 1982, Antigua and Barbuda, Division G: Special Taxation Provisions detail the relevant tax provisions under the Act. Section 271, "Exempt corporations" states the following: "For the purposes of this Division, an exempt corporation shall mean any corporation formed or continued under this Act." Section 272, "Exemption from tax" states the following: 50 (1) No income tax, capital gains tax, or other direct tax or impost may be levied in Antigua and Barbuda upon the profits or gains of an exempt corporation, in respect of the international trade and business it carries on from within Antigua and Barbuda. (2) No income tax, capital gains tax, or other direct tax or impost may be levied in Antigua and Barbuda in respect of any securities or assets of an exempt corporation that are beneficially owned by an exempt corporation or by a person who is not a resident. (3) No estate, inheritance, succession or similar tax or impost may be levied in Antigua and Barbuda in respect of any securities or assets of an exempt corporation that are beneficially owned by an exempt corporation or by a person who is not a resident. (4) No tax, duty or other impost may be levied upon the increment in value of the property, or other assets in Antigua and Barbuda or elsewhere of an exempt corporation other than upon such of them as are distributed to residents. Section 273, "No assets transfer tax". (1) No tax, duty or other impost may be levied upon an exempt corporation, its security holders or transferees in respect of the transfer of all or any part of it's securities or other assets to another exempt corporation or to a person who is not a resident. (2) When an exempt corporation or a person who is not a resident transfers securities or assets of an exempt corporation that are held by that exempt corporation, or person to another exempt corporation, or to another person who is not a resident, the transfer is exempt from the payment of any tax, duty, or other impost thereon. (3) No income tax or capital gains tax, and no other direct tax or impost, may be levied or collected in Antigua and Barbuda, in respect of any dividends interests or other returns from any securities, deposits or borrowings of an exempt corporations or any assets managed by the exempt corporation if the dividends, interest or other returns are in respect of securities, deposits, borrowings or assets beneficially owned by another exempt corporation, or a person who is not a resident; but the onus of establishing ownership, lies upon the exempt corporation holding or managing the deposits, borrowings or assets. Section 274, "Withholding tax and report" (1) Notwithstanding, any provision of the Income Tax Ordinance, but subject to subsection (2), no exempt corporation need withhold any portion of any dividend, interest or other returns, payable of any person in respect of any borrowings of the exempt corporation from that person or in respect of securities of the exempt corporation held by that person. (2) All dividends interest or other returns attributable to the securities of, or the management of, assets by an exempt corporation that are payable to a resident who is known to be a resident, by the exempt corporation or who, with the exercise of reasonable care by the exempt corporation, could be known by him to be a resident, must be reported to the Commissioner of Inland Revenue by the exempt corporation. 51 Section 276 of the Act, "Duration of tax exemption" states the following: "Any tax exemption provided under this Act, shall continue in effect for a period of fifty years from the date of incorporation of the exempt corporation." There is no reciprocal tax treaty in existence between the United States and Antigua and Barbuda regarding withholding taxes. F. Dividends and Paying Agents --------------------------- This section is not applicable to the Company as this is an Annual Report. G. Statement by Experts -------------------- This section is not applicable to the Company as this is an Annual Report. H. Documents on Display -------------------- The above contracts respecting the Company may be inspected at the Company's Canadian counsel's office in the Province of British Columbia, located at Suite 2550, 555 West Hastings Street, Vancouver, British Columbia, V6B 4N5 for a period of 30 days following the filing of this Annual Report. I. Subsidiary Information ---------------------- The Company is a 51% majority owner of Sinovac Biotech Co., Ltd., a company organized under the laws of the People's Republic of China, and a 100% owner of Tangshan Yian Biotechnology Engineering Co., Ltd., a company organized under the laws of the People's Republic of China. Therefore, the Company has two subsidiaries - one which is wholly owned and one which is majority owned. ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is operating in China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between US dollars and the Chinese currency RMB. Financial instruments that potentially subject the Company to concentration of credit risks consist principally of cash and trade receivables, the balances of which are stated on the consolidated balance sheets. The Company places its cash in high credit quality financial institutions. The Company's customers are primarily pharmaceutical and biotechnology companies. One customer accounted for 15.83% of total sales for the year ended December 31, 2003 and two customers accounted for 41.42% of total sales for the year ended December 31, 2002. Concentration of credit risks with respect to trade receivables are limited to a degree due to the Company's large number of diverse customers in different locations in China. Ongoing credit evaluations of customers' financial condition are performed and the Company maintains provisions for potential credit losses 52 if necessary. The Company does not require collateral or other security to support financial instruments subject to credit risks. The Company is not subject to significant interest risks. ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES A. Debt Securities --------------- This section is not applicable to the Company as this is an Annual Report. B. Warrants and Rights ------------------- This section is not applicable to the Company as this is an Annual Report. C. Other Securities ---------------- This section is not applicable to the Company as this is an Annual Report. D. American Depositary Shares -------------------------- This section is not applicable to the Company as this is an Annual Report. PART II ------- ITEM 13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not applicable. ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS This Annual Report does not relate to any offering of the Company's securities. Therefore, this section is not applicable to the Company. ITEM 17 - FINANCIAL STATEMENTS The audited balance sheet of the Company as at December 31, 2003 and 2002, the statements of shareholders' equity, loss and cash flows for the three years ended December 31, 2003, 2002 and 2001 are attached hereto and form a material part of this Annual Report. ITEM 18 - FINANCIAL STATEMENTS Not applicable. 53 ITEM 19 - EXHIBITS A. Financial Statements -------------------- This Annual Report contains the following financial statements and information respecting the Company: 1. Auditors' Report for the Company's financial statements for the period ended December 31, 2003 dated February 17, 2004, except for Note 16(b) which is as of April 14, 2004. 2. Balance Sheet for the Company dated December 31, 2003. 3. Statement of Shareholders' Equity for the Company for the years ended December 31, 2003, 2002 and 2001. 4. Statement of Loss for the Company for the years ended December 31, 2003, 2002 and 2001. 5. Statement of Cash Flows for the Company for the years ended December 31, 2003, 2002, and 2001. 6. Notes to the Financial Statements for the Company. B. Exhibits -------- This Annual Report contains the following Exhibits respecting the Company: Additional Exhibits: - -------------------- 3.1 Articles of Amendment dated October 21, 2003. 10.1 Audited financial statements of Net Force Systems Inc. for the fiscal year ended April 30, 2003, 2002 and 2001.(1) 10.2 Share Purchase Agreement entered into between Net Force Systems Inc. and Lily Wang, dated September 24, 2003. 10.3 Consulting Agreement entered into between the Company and Sinoglobe Worldwide Limited, dated November 1, 2003. 10.4 Consulting Agreement entered into between the Company and Michael Tan, dated November 1, 2003. 10.5 Consulting Agreement entered into between the Company and Technique Capital Corp., dated November 1, 2003. 54 10.6 Share Purchase Agreement entered into between the Company, Tangshan Yian Biological Engineering Co., Ltd. and Mr. Heping Wang, dated January 26, 2004. 10.7 Consulting Services and Finder's Fee Agreement entered into between the Company and Roberto Ebrahimi, dated April 23, 2004. 31.1 Certification of Disclosure in Sinovac Biotech Ltd.'s Annual Report by Weidong Yin. 31.2 Certification of Disclosure in Sinovac Biotech Ltd.'s Annual Report by Lily Wang. 32.1 Certification of Weidong Yin pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Lily Wang pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Notes: (1) Incorporated by reference to the Form 20-F Annual Report filing for the period ended April 30, 2003, which included such audited financial statements of Net Force Systems Inc. and were filed with the SEC on August 12, 2003. 55 SINOVAC BIOTECH LTD. -------------------- (formerly Net-Force Systems Inc.) Consolidated Financial Statements (Expressed in U.S. Dollars) December 31, 2003 and 2002 Index ----- Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Stockholders' Equity Consolidated Statement of Operations Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 56 MOORE STEPHENS ELLIS FOSTER LTD. CHARTERED ACCOUNTANTS 1650 West 1st Avenue Vancouver, BC Canada V6J 1G1 Telephone: (604) 734-1112 Facsimile: (604) 714-5916 Website: www.ellisfoster.com - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - ------------------------------------------------------- To the Board of Directors and Stockholders of - --------------------------------------------- SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) We have audited the consolidated balance sheets of Sinovac Biotech Ltd. (formerly Net-Force Systems Inc.) ("the Company") as at December 31, 2003 and 2002, and the related consolidated statements of stockholders' equity, operations and cash flows for the years then ended and the period from April 28, 2001 (inception) to December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003, and 2002 and the results of its operations and its cash flows for the years then ended and the period from April 28, 2001 (inception) to December 31, 2001 in conformity with generally accepted accounting principles in the United States of America. Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD." February 17, 2004, except as to Chartered Accountants Note 16(b) which is as of April 14, 2004 - -------------------------------------------------------------------------------- MSAn independently owned and operated member of Moore Stephens North America, Inc. Members in principal cities throughout North America. Moore Stephens North America, Inc. is a member of Moore Stephens International Limited, members in principal cities throughout the world. 57
SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Consolidated Balance Sheets December 31, 2003 and 2002 (Expressed in U.S. Dollars) ===================================================================================================== 2003 2002 - ----------------------------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 1,420,047 $ 312,594 Accounts receivable - net 1,470,761 469,179 Inventories 1,047,920 1,355,049 Prepaid expenses and deposits 13,723 6,722 - ----------------------------------------------------------------------------------------------------- Total current assets 3,952,451 2,143,544 Property, plant and equipment 7,459,883 7,600,755 Due from related parties 947,267 982,175 Licenses and permits 2,538,115 2,321,535 - ----------------------------------------------------------------------------------------------------- Total assets $ 14,897,716 $ 13,048,009 ===================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Loans payable $ 752,415 $ 2,074,070 Accounts payable and accrued liabilities 1,483,690 1,944,596 Due to related parties 1,170,474 1,232,454 - ----------------------------------------------------------------------------------------------------- Total current liabilities 3,406,579 5,251,120 Bank loan 603,865 - - ----------------------------------------------------------------------------------------------------- Total liabilities 4,010,444 5,251,120 - ----------------------------------------------------------------------------------------------------- Minority interests 4,737,656 - - ----------------------------------------------------------------------------------------------------- Commitment (Note 13) STOCKHOLDERS' EQUITY Preferred stock - - Authorized 50,000,000 shares at par value of $0.001 each Issued and outstanding: nil Common stock 27,091 - Authorized: 100,000,000 shares at par value of $0.001 each Issued and outstanding: 27,091,033 Subscription received 1,031,959 - Additional paid in capital 5,798,220 8,466,505 Accumulated other comprehensive income 206 - Accumulated deficit (707,860) (669,616) - ----------------------------------------------------------------------------------------------------- Total stockholders' equity 6,149,616 7,796,889 - ----------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 14,897,716 $ 13,048,009 =====================================================================================================
The accompanying notes are an integral part of these financial statements. 58
SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Consolidated Statements of Stockholders' Equity (Expressed in U.S. Dollars) ============================================================================================================================== Accumulated Compre- other Common stock Additional hensive compre- -------------------------- paid in income Deficit hensive Shares Amount capital (loss) accumulated income - ------------------------------------------------------------------------------------------------------------------------------ Recapitalization as a result of reverse acquisition (Note 1) - $ - $ 8,007,871 $ - $ (77,408) $ - Constribution of drug licenses for shares at transferor's cost - - 458,634 - - - Subscriptions receivable received - - - - - - Component of Comprehensive income (loss) - - Net (loss) for the period - - - (592,208) (592,208) - - ------------------------------------------------------------------------------------------------------------------------------ Comprehensive (loss) $ (592,208) ============= Balance, December 31, 2002 - - 8,466,505 (669,616) - Debt exchange for shares (Note 10c) - - 2,608,696 - - - Recapitalization adjustment (Note 1) 10,000,000 10,000 (5,436,848) - 423,295 - Recapitalization to effect the acquisition of Net-Force (Note 1) 17,091,033 17,091 (16,991) - - - - ------------------------------------------------------------------------------------------------------------------------------ Balance after recapitalization adjustment 27,091,033 27,091 5,621,362 - (246,321) - Imputed interest on advances from related parties - - 57,277 - - - Stock-based compensation - - 119,581 - - - Subscriptions received - - - - - - Component of Comprehensive income (loss) - - Foreign currency translation - - - 206 - 206 - - Net (loss) for the period - - - (461,539) (461,539) - - ------------------------------------------------------------------------------------------------------------------------------ Comprehensive (loss) $ (461,333) ============= Balance, December 31, 2003 27,091,033 $ 27,091 $ 5,798,220 $ (707,860) $ 206 ===================================================================================== ========================= 59 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Consolidated Statements of Stockholders' Equity (con't) (Expressed in U.S. Dollars) ======================================================================= Subscrip- tions Total (receivable) stockholders' and received equity - ----------------------------------------------------------------------- Recapitalization as a result of reverse acquisition (Note 1) $(1,020,139) $ 6,910,324 Constribution of drug licenses for shares at transferor's cost - 458,634 Subscriptions receivable received 1,020,139 1,020,139 Component of Comprehensive income (loss) - - Net (loss) for the period - (592,208) - ----------------------------------------------------------------------- Comprehensive (loss) Balance, December 31, 2002 - 7,796,889 Debt exchange for shares (Note 10c) - 2,608,696 Recapitalization adjustment (Note 1) - (5,003,553) Recapitalization to effect the acquisition of Net-Force (Note 1) - 100 - ----------------------------------------------------------------------- Balance after recapitalization adjustment - 5,402,132 Imputed interest on advances from related parties - 57,277 Stock-based compensation - 119,581 Subscriptions received 1,031,959 1,031,959 Component of Comprehensive income (loss) - - Foreign currency translation - 206 - - Net (loss) for the period - (461,539) - ----------------------------------------------------------------------- Comprehensive (loss) Balance, December 31, 2003 1,031,959 $ 6,149,616 =======================================================================
The accompanying notes are an integral part of these financial statements. 60
SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Consolidated Statements of Operations (Expressed in U.S. Dollars) =========================================================================================================== April 28, 2001 Year Ended Year Ended (inception) to December 31 December 31 December 31 2003 2002 2001 - ----------------------------------------------------------------------------------------------------------- Sales $ 2,838,933 $ 649,319 $ - Cost of sales 1,085,881 251,711 - - ----------------------------------------------------------------------------------------------------------- Gross profit 1,753,052 397,608 - - ----------------------------------------------------------------------------------------------------------- Selling, general and administrative expenses 1,629,118 792,078 124,344 Stock-based compensation 119,581 - - Research and development expenses 232,785 24,535 - Interest and financing expenses 268,758 81,009 - Depreciation of property, plant and equipment and amortization of licenses and permits 271,115 143,337 9,917 - ----------------------------------------------------------------------------------------------------------- Total operation expenses 2,521,357 1,040,959 134,261 - ----------------------------------------------------------------------------------------------------------- Operating loss (768,305) (643,351) (134,261) Interest income 40,869 51,143 56,853 - ----------------------------------------------------------------------------------------------------------- Net (loss) before minority interests (727,436) (592,208) (77,408) Minority interests 265,897 - - - ----------------------------------------------------------------------------------------------------------- Net (loss) for the period $ (461,539) $ (592,208) $ (77,408) =========================================================================================================== (Loss) per share - basic and diluted $ (0.03) $ (0.07) $ (0.01) =========================================================================================================== Weighted average number of common stocks outstanding - Basic and diluted 13,842,225 8,104,767 7,502,000 ===========================================================================================================
The accompanying notes are an integral part of these financial statements. 61
SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Consolidated Statements of Cash Flows (Expressed in U.S. Dollars) ================================================================================================================= April 28, 2001 Year Ended Year Ended (inception) to December 31 December 31 December 31 2003 2002 2001 - ----------------------------------------------------------------------------------------------------------------- Cash flows from (used in) operating activities Net (loss) for the period $ (461,539) $ (592,208) $ (77,408) Adjustments to reconcile net (loss) to net cash used by operating activities: - stock-based compensation 119,581 - provision for doubtful debts 148,551 - - - imputed interest on advances received from related parties 57,277 - - - depreciation of property, plant and equipment and amortization of licenses and permits 683,795 337,099 9,917 - minority interests (265,897) - - Change in other assets and liabilities: - accounts receivable (1,150,133) (461,600) (7,579) - inventories 307,129 (1,229,140) (125,909) - prepaid expenses and deposits (7,001) (1,185) (5,537) - accounts payable and accrued liabilities (460,906) 894,093 1,050,503 - ----------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities (1,029,143) (1,052,941) 843,987 - ----------------------------------------------------------------------------------------------------------------- Cash flows from (used in) financing activities Loans proceeds 1,207,730 1,409,819 966,183 Loans repayment (1,261,269) (966,183) - Proceeds from issuance of shares - 1,020,139 7,192,421 Proceeds from shares subscribed 1,031,959 - - Government grant received - - - Advances from (to) related parties 1,917,373 (11,116) 925,646 - ------------------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 2,895,793 1,452,659 9,084,250 - ------------------------------------------------------------------------------------------------------------------ Cash flows from (used in) investing activities Restricted cash - 128,790 (128,790) Acquisition of property, plant and equipment (348,190) (2,188,025) (7,809,220) Acquisition of drug licenses and related costs (410,769) (18,116) - - ----------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (758,959) (2,077,351) (7,938,010) - ----------------------------------------------------------------------------------------------------------------- Change on cash held in foreign currency (238) - - - ----------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 1,107,453 (1,677,633) 1,990,227 Cash and cash equivalents, beginning of period 312,594 1,990,227 - - ----------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 1,420,047 $ 312,594 $ 1,990,227 ================================================================================================================= Supplemental disclosure of cash flow information: Cash paid for interest, net of interest capitalized $ 180,180 $ 1,490 $ - =================================================================================================================
The accompanying notes are an integral part of these financial statements. 62 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 1. Nature of Business and Continuation of Operation - ----------------------------------------------------- These consolidated financial statements presented are those of Sinovac Biotech Ltd., formerly Net-Force Systems Inc., ("parent company") and its 51% owned subsidiary Sinovac Biotech Co., Ltd. ("Sinovac China"). Collectively, they are referred to herein as "the Company". Sinovac China was incorporated under the laws of China on April 28, 2001. It is in the business of research and development, production and sales of pharmaceutical products in China. On September 24, 2003, Net-Force Systems Inc. ("Net-Force"), a company incorporated on March 1, 1999 under the International Business Corporations Act No. 28 of 1982 of the laws of Antigua and Barbuda, entered into a Share Exchange Agreement ("Agreement") with Sinovac China, whereby Net-Force issued 10,000,000 shares of its common stock in exchange for a 51% interest in Sinovac China. As part of the agreement, Net-Force disposed of its wholly owned subsidiary, Net Force Entertainment, Inc. and all of its assets and liabilities to a company controlled by its president and Chief Executive Officer for $100 and then become a non-operating shell company. Immediately prior to the Agreement, Net-Force had 17,091,033 shares of common stock issued and outstanding. The acquisition was accounted for as recapitalization of Sinovac China because the shareholders of Sinovac China controlled Net-Force after the acquisition. Sinovac China was treated as the acquiring entity for accounting purposes and Net-Force was the surviving entity for legal purposes. The combined company is considered to be a continuation of the operations of Sinovac China. The issued and outstanding common stock of Sinovac China prior to the completion of acquisition was restated to reflect the 10,000,000 common stock issued by Net-Force. Effective on October 21, 2003, Net-Force changed its name to Sinovac Biotech Ltd. The Company has an office in Vancouver, Canada. Net-Force had no operations between May 1, 2003 and September 23, 2003. 2. Significant Accounting Policies - ------------------------------------ (a) Base of Presentation These consolidated financial statements include the accounts of the parent company and its 51% owned subsidiary, Sinovac China. All significant inter-company transactions have been eliminated. (b) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 63 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 2. Significant Accounting Policies (continued) - ------------------------------------------------ (c) Cash and Cash Equivalents Cash equivalents usually consist of highly liquid investments that are readily convertible to cash with maturities of three months or less when purchased. (d) Inventories Inventories are stated at the lower of cost or market with cost generally determined on a first-in, first-out basis. Cost includes direct material, direct labour and overheads. (e) Property, plant and Equipment Property, plant and equipment are recorded at cost, including capitalized interest and internal engineering costs. Significant additions and improvements are capitalized, while repairs and maintenance are charged to expenses as incurred. Equipment purchased for specific research and development projects with no alternative uses are expensed. Depreciation of property, plant and equipment generally is computed using the straight-line method based on the estimated useful lives of the assets as follows: Land-use rights 49 years Plant and building 30 years Machinery and equipment 8 - 10 years Motor vehicles 5 years Office equipment and furniture 5 years Leasehold improvements Term of lease (5years) (f) Licenses and Permits Licenses and permits, in relation to the production and sales of pharmaceutical products in China, are amortized on a straight-line basis over their useful lives of ten (10) years. Carrying values of such assets are reviewed at least annually by comparing the carrying amounts to their estimated undiscounted net future cash flows. There were no impairment adjustments to the carrying value of the licenses and permits for the years ended December 31, 2003 and 2002 and the period from April 28, 2001 (inception) to December 31, 2001. 64 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 2. Significant Accounting Policies (continued) - ------------------------------------------------ (g) Impairment of Long-Lived Assets The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". Long-lived assets and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable from the future, undiscounted net cash flows expected to be generated by the asset. If the asset is not fully recoverable, an impairment loss would be recognized for the difference between the carrying value of the asset and its estimated fair value based on discounted net future cash flows or quoted market prices. There were no impairment losses recognized in 2003, 2002 and 2001. (h) Income Taxes The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. (i) Revenue Recognition Sales revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed and final, delivery has occurred and there is reasonable assurance of collection of the sales proceeds. The Company generally obtains purchase authorizations from its customers for a specified amount of products at a specified price and considers delivery to have occurred when the customer takes possession of the products. The Company provides its customers with a limited right of return. Revenue is recognized upon delivery and a reserve for sales returns is recorded. The Company has demonstrated the ability to make reasonable and reliable estimates of products returns in accordance with SFAS No. 48, Revenue Recognition When Right of Return Exists. (j) Advertising Expenses Advertising costs are expensed as incurred and included in selling expenses. Approximated advertising costs are $14,886, $77,790 and $24,802 for the years ended December 31, 2003 and 2002 and the period from April 28, 2001 (inception) to December 31, 2001, respectively. 65 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 2. Significant Accounting Policies (continued) - ------------------------------------------------ (k) Research and Development Research and development costs are charged to operations as incurred. Research and development costs are listed as a separate line item on the Company's statements of operations. Research grants are taken into income as a reduction of research and development expenses when conditions imposed by the government authorities are fulfilled. (l) Foreign Currency Transactions The parent company and its subsidiary, Sinovac China, maintain their accounting records in their functional currencies, i.e. U.S. dollars and Renminbi Yuan respectively. The Company translates foreign currency transactions into its functional currency in the following manner: At the transaction date, each asset, liability, revenue and expense is translated into the functional currency by the use of the exchange rate in effect at that date. At the period end, foreign currency monetary assets, and liabilities are re-evaluated into the functional currency by using the exchange rate in effect at the balance sheet date. The resulting foreign exchange gains and losses are included in operations. (m) Foreign Currency Translations The assets and liabilities of the foreign subsidiary, Sinovac China (whose functional currency is Renminbi Yuan), are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Revenue and expenses are translated at average exchange rate. Gain and losses from such translations are included in stockholders' equity, as a component of other comprehensive income. (n) Stock-based Compensation The Company adopted the fair value method of accounting for stock-based compensation recommended by of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-based Compensation". On November 1, 2003, the board of directors approved a stock option plan that is described more fully in Note 11. The Company did not grant stock options for the period from April 28, 2001 (inception) to December 31, 2002. 66 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 2. Significant Accounting Policies (continued) - ------------------------------------------------ (o) Comprehensive Income The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statement of Stockholders' Equity. For the years ended December 31, 2003 and 2002 and the period from April 28, 2001 (inception) to December 31, 2001, the Company's comprehensive income consists of net earnings (loss) and foreign currency translation adjustments. (p) Earnings (Loss) Per Share Basic earning (loss) per share is computed using the weighted average number of shares outstanding during the period. The Company adopted SFAS No. 128, "Earnings Per Share". Diluted loss per share is equal to the basic loss per share for the year ended December 31, 2003 because common stock equivalents consisting of options to acquire 3,000,000 common stocks that are outstanding at December 31, 2003 are anti-dilutive, however, they may be dilutive in future. (q) Financial Instruments and Concentration of Credit Risks Fair value of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgement, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values. The carrying value of cash and cash equivalents, accounts receivable, loans payable, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these instruments. The Company is operating in China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between US dollars and the Chinese currency RMB. Financial instruments that potentially subject the Company to concentration of credit risks consist principally of cash and trade receivables, the balances of which are stated on the consolidated balance sheets. The Company places its cash in high credit quality financial institutions. The Company's customers are primarily pharmaceutical and biotechnology companies. One customer accounted for 15.83% of total sales for the year ended December 31, 2003 and two customers accounted for 41.42% of total sales for the year ended December 31, 2002. Concentration of credit risks with respect to trade receivables are limited to a degree due to the Company's large number of diverse customers in different locations in China. Ongoing credit evaluations of customers' financial condition are performed and the Company maintains provision for potential credit losses if necessary. The Company does not require collateral or other security to support financial instruments subject to credit risks. The Company is not subject to significant interest risks. 67 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 2. Significant Accounting Policies (continued) - ------------------------------------------------ (r) Accounting for Derivative Instruments and Hedging Activities The Company has adopted the Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities, which requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. The Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes. The option of this pronouncement does not have an impact on its consolidated financial statements. (s) New Accounting Pronouncements In January 2003, the Financial Accounting Standard Board released FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities." FIN 46 requires that all primary beneficiaries of variable interest entities consolidate that entity. FIN 46 is effective immediately for variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest it acquired before February 1, 2003. In December 2003, the FASB published a revision to FIN 46 ("FIN 46R") to clarify some of the provisions of the interpretation and to defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities are required to apply the provisions of the interpretation in financial statements for periods ending after March 14, 2004. The Company did not create a variable interest entity after January 31, 2003 and does not have a variable interest entity as of December 31, 2003. The Company expects that the full adoption of FIN 46R does not have an impact on its financial position or results of operations 68 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 2. Significant Accounting Policies (continued) - ------------------------------------------------ (s) New Accounting Pronouncements (continued) In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 addresses certain accounting issues related to hedging activity and derivative instruments embedded in other contracts. In general, the amendments require contracts with comparable characteristics to be accounted for similarly. In addition, SFAS No. 149 provides guidance as to when a financing component of a derivative must be given special reporting treatment in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 does not have an impact on the Company's consolidated financial statements. In May 2003, the Financial Accounting Standards Board (FASB) approved SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how to classify and measure financial instruments with characteristics of both liabilities and equity. It requires financial instruments that fall within its scope to be classified as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and, for pre-existing financial instruments, as of July 1, 2003. The Company does not have any financial instruments that fall under the guidance of SFAS No. 150 and, therefore, the adoption does not have any effect on the Company's consolidated financial statements. In a December 11, 2003 speech at the American Institute of Certified Public Accountants, the Securities and Exchange Commission ("SEC") expressed that rate-lock commitments represent written put options and, therefore, be valued as a liability. The SEC expressed that they expect registrants to disclose the effect on the financial statement of recognizing the rate-lock commitments as written put options, for quarters commencing after March 15, 2004. Additionally, the SEC recently issued Staff Accounting Bulletin (SAB) No. 105. SAB No. 105 clarifies the SEC's position that the inclusion of cash flows from servicing or ancillary income in the determination of the fair value of interest rate lock commitments is not appropriate. The adoption of SAF No. 105 will not have an impact on the Company's consolidated financial statements. 3. Accounts Receivable - ------------------------ --------------------------------------------------------------------------- December 31 December 31 2003 2002 --------------------------------------------------------------------------- Trade receivables $ 1,609,209 $ 449,676 Allowance for doubtful accounts (148,551) - --------------------------------------------------------------------------- 1,460,658 449,676 Other receivables 10,103 19,503 --------------------------------------------------------------------------- $ 1,470,761 $ 469,179 =========================================================================== 69 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 4. Inventories - ---------------- --------------------------------------------------------------------------- December 31 December 31 2003 2002 --------------------------------------------------------------------------- Raw materials $ 237,974 $ 260,377 Finished goods 692,673 972,218 Work in progress 117,273 122,454 --------------------------------------------------------------------------- $ 1,047,920 $ 1,355,049 =========================================================================== 5. Property, Plant and Equipment - ---------------------------------- -------------------------------------------------------------------------- December 31, 2003 ----------------------------------------- Cost Accumulated Net book Amortization Value -------------------------------------------------------------------------- Land-use rights $ 365,510 $ 19,892 $ 345,618 Plant and building 4,191,009 189,342 4,001,667 Machinery and equipment 3,134,007 412,862 2,721,145 Motor vehicles 166,219 48,834 117,385 Office equipment and furniture 174,847 51,326 123,521 Leasehold improvements 167,274 16,727 150,547 -------------------------------------------------------------------------- $ 8,198,866 $ 738,983 $ 7,459,883 ========================================================================== -------------------------------------------------------------------------- December 31, 2002 ----------------------------------------- Cost Accumulated Net book Amortization Value -------------------------------------------------------------------------- Land-use rights $ 365,510 $ 12,433 $ 353,077 Plant and building 4,191,009 60,612 4,130,397 Machinery and equipment 3,022,536 135,806 2,886,730 Motor vehicles 112,066 19,400 92,666 Office equipment and furniture 159,556 21,671 137,885 -------------------------------------------------------------------------- $ 7,850,677 $ 249,922 $ 7,600,755 ========================================================================== Depreciation for the years ended December 31, 2003 and 2002 and the period from April 28, 2001 (inception) to December 31, 2001 was $489,452, $240,005 and $9,917, respectively. Machinery and equipment totalling $556,000 (RMB 4,600,000) are pledged as collateral for a bank loan (Note 7). 70 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 6. Licenses and Permits - ------------------------- ----------------------------------------------------------------------- 2003 2002 ----------------------------------------------------------------------- Inactive Hepatitis A $ 1,941,879 $ 1,941,879 Recombinant Hepatitis A&B 506,460 476,750 Influenza Virus HA Vaccine 381,058 - ----------------------------------------------------------------------- 2,829,397 2,418,629 Less: accumulated amortization (291,282) (97,094) ----------------------------------------------------------------------- $ 2,538,115 $ 2,321,535 ======================================================================= (a) In March 2003, Sinovac China acquired the Influenza Virus HA Vaccine drug license from a company called Tangshan Yian Biological Engineering Co., Ltd. ("Tangshan Yian") at the vendor's cost. Tangshan Yian owned an 18.75% interest in Sinovac China and there were two common directors between the companies at the time of the transaction (Also see Note 15). Sinovac China is applying for a production permit for this pharmaceutical product. The cost of the license will be amortized based on an estimated useful life of ten (10) years commencing with the production of the drug, which is expected to be in early 2005. (b) In April 2002, Sinovac China acquired the Recombinant Hepatitis A&B drug license from a company called Beijing Keding Investment Co., Ltd. ("Beijing Keding") by issuing shares equal to a 10.71% interest in Sinovac China and paying $18,116 (RMB150,000) in cash. Beijing Keding is owned by a director, president and three other senior officers of Sinovac China. As at December 31, 2003, $10,487 remained unpaid and was recorded in due to related parties (see Note 10a). Sinovac China is applying for a production permit for this pharmaceutical product. The cost of the license will be amortized based on an estimated useful life of ten (10) years commencing with the production of the drug, which is expected to be in mid-2004. The drug license was recorded at the vendor's cost. (c) The Inactive Hepatitis A drug license was contributed by Tangshan Yian in 2001 as its capital contribution to Sinovac China. The drug license was recorded at $1,941,879, which was the transferor's cost. 71 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 6. Licenses and Permits (continued) - ------------------------------------- (d) Amortization expense for the licenses and permits was $194,343, $97,094 and nil for the years ended December 31, 2003 and 2002 and the period from April 28, 2001 (inception) to December 31, 2001 respectively. The estimated amortization expenses for each of the five succeeding fiscal years are as follows: 2004 $220,000 2005 $283,000 2006 $283,000 2007 $283,000 2008 $283,000 The above amortization expense forecast is an estimate. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, changes in foreign currency exchange rates, impairment of intangible assets, accelerated amortization of licenses and permits, and other events. 7. Loans Payable - ------------------
------------------------------------------------------------------------------------- 2003 2002 ------------------------------------------------------------------------------------- Bank loan: RMB 10,000,000, bearing interest at 5.04% per annum and due on May 21, 2003 $ - $ 1,207,730 Bank loan: RMB 5,000,000, bearing interest at 5.84% per annum and due on June 26, 2004. The loan is secured by certain machinery and equipment. 603,865 - Loan payable to Beijing Xinfu Investment Co., Ltd. ("Beijing Xinfu"): RMB 5,000,000, bearing interest at 5.58% per annum and due on demand. Beijing Xinfu is a non-controlling shareholder of the Company - 603,865 Employees loan: RMB 1,230,000 (2002 - RMB 1,673,300) bearing interest at 15% per annum and due on demand. 148,550 202,089 Loan payable to Beijing PKU Weiming Biological Engineering Group ("Beijing Weiming"): RMB 500,000 bearing interest at 6.45% per annum and due on demand. Beijing Weiming is a non-controlling shareholder of the Company - 60,386 ------------------------------------------------------------------------------------- Total $ 752,415 $ 2,074,070 =====================================================================================
The weighted average interest rate was 8.52% and 5.47% for years ended December 31, 2003 and 2002 respectively. 72 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 8. Bank Loan - -------------- Bank loan in the amount of $603,865 (RMB 5,000,000) is bearing interest at 5.49% per annum. The interest is payable quarterly and the principal is due on December 19, 2005. 9. Income Taxes - ----------------- Sinovac China is subject to income taxes in China on its taxable income as reported in its statutory accounts at a tax rate in accordance with the relevant income tax laws applicable to sino-foreign investment enterprises. Pursuant to the same income tax laws, it is exempt from income tax for two years starting from its first profit-making year followed by a 15% corporation income tax rate for the next three years. No income taxes was charged on Sinovac China for each of the two years ended December 31, 2003 and the period from April 28, 2001 (inception) to December 31, 2001. The parent company is not subject to Income taxes. The tax effect of temporary differences that give rise to the Company's deferred tax asset (liability) are as follow:
--------------------------------------------------------------------------------------- 2003 2002 2001 --------------------------------------------------------------------------------------- Tax losses carried forward $ 139,000 $ 100,000 $ 12,000 Excess of tax cost over the net book value of the certain long-lived assets 711,000 753,000 611,000 Less: valuation allowance (850,000) (853,000) (623,000) --------------------------------------------------------------------------------------- $ - $ - $ - =======================================================================================
The potential tax benefits arising from the losses have not been recorded in the financial statements. The Company evaluates its valuation allowance requirements on an annual basis based on projected future operations. When circumstances change and this causes a change in management's judgement about the realizability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in current income. 73 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 10. Related Party Transactions - ------------------------------- Related party transactions not disclosed elsewhere in the consolidated financial statements are as follows: (a) Due from and to related parties consist of the following:
--------------------------------------------------------------------------------------- 2003 2002 --------------------------------------------------------------------------------------- Due from related parties (Notes 6 & 7): o Advances to Tangshan Yian, a company related by a common director, bearing interest at 5% per annum (secured by the floating charge on the property, plant and equipment of Tangshan Yian) $ 786,300 $ 982,175 o Due to Shenzhen Biological Investment Co., Ltd. ("Shenzhen Co."), a non-controlling shareholder of the Company, bearing interest at 5% per annum (paid in January 2004) 32,178 - o Due to Beijing Xinfu, a non-controlling shareholder of the Company, bearing interest at 5% per annum (paid in January 2004) 128,789 - --------------------------------------------------------------------------------------- $ 947,267 $ 982,175 ======================================================================================= Due to related parties, unsecured, interest free and no stated terms of repayment (Notes 6 & 7): o Due to Beijing Weiming, a non-controlling shareholder of the Company $ 1,135,045 $ 1,191,569 o Due to Beijing Keding, a non-controlling shareholder of the Company 10,487 10,529 o Due to Beijing Xinfu, a non-controlling shareholder of the Company - 24,728 o Due to a director 24,942 5,628 --------------------------------------------------------------------------------------- $ 1,170,474 $ 1,232,454 =======================================================================================
74 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 10. Related Party Transactions (continued) - ------------------------------------------- (b) The Company entered into the following transactions with related parties:
--------------------------------------------------------------------------------------------- Year Year April 28, 2001 Ended Ended (inception) to December 31 December 31 December 31 2003 2002 2001 --------------------------------------------------------------------------------------------- Purchased raw materials from Tangshan Yian $ - $ 403,698 $ - Interest income earned on the advances to related parties $ 38,764 $ 44,063 $ 56,853 Rent paid to Beijing Weiming $ - $ 4,019 $ 61,967 Interest expenses incurred on the advances from related parties (including interest imputed at the rate of 5% per annum on the interest-free advances received): $ 155,334 $ 34,059 $ 8,424 ---------------------------------------------------------------------------------------------
(c) In June 2003, Sinovac China completed two debt settlements, totalling $2,608,696, with corporations controlled by one of its directors by issuing shares equal to approximately 16% interest in Sinovac China. 11. Stock Option Plan - ---------------------- The board of directors approved a Stock Option Plan (the "Plan") effective on November 1, 2003, pursuant to which directors, officers, employees and consultants of the Company are eligible to receive grants of options for the Company's common stock. The plan has a life of ten (10) years and is expiring on November 1, 2023. Maximum of 5,000,000 common stocks have been reserved under the plan. Each stock option entitles its holder to purchase one common share of the Company. Options may be granted for a term not exceeding ten years from the date of grant. The Plan is administered by the board of directors. In 2003, 3,000,000 stock options under the Plan were granted to its directors, officers and employees with the exercise price of $1.31 per share, being the market price at the time of the grant. These options are vested from April 1, 2004 to July 1, 2006 and expire on November 12, 2008. 75 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 11. Stock Option Plan (continued) - ---------------------------------- A summary of the Company's stock options activities is presented below:
----------------------------------------------------------------------------------- Weighted Number of Average Common Shares Exercise Price ----------------------------------------------------------------------------------- Options outstanding at December 31, 2001 and 2002 - - Granted 3,000,000 $ 1.31 ----------------------------------------------------------------------------------- Options outstanding as at December 31, 2003 3,000,000 $ 1.31 =================================================================================== Options exercisable as at December 31, 2003 - - ===================================================================================
The Company charged $119,581 stock-based compensation to operations by applying the fair value method in accordance with SFAS No.123. The fair value of the options granted in 2003 was estimated at $0.74 per share, using the Black-Scholes Option Pricing Model with the following weighted average assumptions: risk-free interest rate of 3.42%, dividend yield of 0%, volatility of 74% and expected lives of 4 years. 12. Segmented Information - -------------------------- The Company operates exclusively in the biotech sector. The Company's business is considered as operating in one segment based upon the Company's organizational structure, the way in which the operation is managed and evaluated, the availability of separate financial results and materiality considerations. All the revenues are generated in China. The Company's assets by geographical location are as follows: ------------------------------------------------------------------------ 2003 2002 ------------------------------------------------------------------------ Assets North America $ 342,268 $ - China 14,555,448 13,048,009 ------------------------------------------------------------------------ Total $ 14,,897,716 $ 13,048,009 ======================================================================== 13. Commitment - --------------- The Company has entered into an operating lease agreement with Tangshan Yian, with respect to a laboratory, for an annual lease of $176,400 (RMB 1,460,400). The lease starts on July 1, 2003 and has a term of five years. 76 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (Expressed in U.S. Dollars) ================================================================================ 14. Non Cash Transactions - -------------------------- (a) In 2003, Sinovac China issued its shares for debt settlement in the amount of $2,608,696 (Note 10c). (b) In 2002, Sinovac China acquired the Recombinant Hepatitis A & B drug licence by issuing its shares (see Note 6b). (c) In 2001, the Inactive Hepatitis A drug licence was transferred to Sinovac China as the transferor's capital contribution (see Note 6c). 15. Acquisition of Tangshan Yian Biotech Engineering Co., Ltd. ("Tangshan - -------------------------------------------------------------------------------- Yian") - ------ On October 20, 2003, The Company signed a letter of intend to acquire 100% interest in Tangshan Yian, a company incorporated under the law of China on February 9, 1993, by issuing 3,500,000 common shares of the Company and paying $2,200,000 cash with a total approximate fair value of $4.8 Million. The $2.2 Million cash is payable on or before January 26, 2005. Tangshan Yian is in the business of research and development, production and sales of certain pharmaceutical products in China. The acquisition was completed subsequent to the year-end. Tangshan Yian is in the process of obtaining an independent valuation of certain tangible assets, thus, the allocation of the purchase price has not been finalized as at the report date. 16. Subsequent Events - ---------------------- (a) Subsequent to the year-end, the Company completed a private placement by issuing 3,800,000 units at the price of $1.25 per unit for total proceeds of $4,750,000, of which $1,031,959 were received as at December 31, 2003. Each unit consists of one share of common stock of the Company and one share purchase warrant. Each warrant entitles its holder to purchase one additional share of common stock of the Company at $1.50 per share until November 14, 2004, and receive one piggyback warrant to purchase a further one share of common stock of the Company at $3.00 per share until November 14, 2005 only if the holder thereof exercises the share purchase warrant. The Company also issued 379,200 units bearing the same terms as the aforementioned units as a finder's fee. (b) Subsequent to the year-end, the Company granted 2,000,000 stock options to its directors, officers, employees and consultants with the exercise price of $4.55 per share. These options have a term of 5 years expiring on April 13, 2009. For the stock options granted to directors, officers and consultants, 20% of which vested immediately and the remaining 80% of the options vest in equal bi-monthly proportions over a period of 16 months from the grant date. For the stock options granted to employees, 10% of which vested immediately and the remaining 90% of the options vest in equal quarterly proportions over a period of 27 months from the grant date. Each stock options entitles its holder to purchase one common share of the Company. 76 SIGNATURES ---------- The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf. ON BEHALF OF THE COMPANY, SINOVAC BIOTECH LTD. ---------------------------------------------- Per: /s/ Weidong Yin ------------------------------- Weidong Yin President, CEO and a Director Date: June 30, 2004 ------------------- 77 EXHIBIT INDEX -------------
Exhibit # Description of Exhibit Page No. ----------------- ------------------------------------------------------------ -------- 3.1 Articles of Amendment dated October 21, 2003. 77 10.2 Share Purchase Agreement entered into between Net Force Systems Inc. and Lily Wang, dated September 24, 2003. 81 10.3 Consulting Agreement entered into between the Company and Sinoglobe Worldwide Limited, dated November 1, 2003. 99 10.4 Consulting Agreement entered into between the Company and Michael Tan, dated November 1, 2003. 103 10.5 Consulting Agreement entered into between the Company and Technique Capital Corp., dated November 1, 2003. 107 10.6 Share Purchase Agreement entered into between the Company, Tangshan Yian Biological Engineering Co., Ltd. and Mr. Heping Wang, dated January 26, 2004. 111 10.7 Consulting Services and Finder's Fee Agreement entered into between the Company and Roberto Ebrahimi, dated April 23, 2004. 143 31.1 Certification of Disclosure in Sinovac Biotech Ltd.'s Annual Report by Weidong Yin. 162 31.2 Certification of Disclosure in Sinovac Biotech Ltd.'s Annual Report by Lily Wang. 165 32.1 Certification of Weidong Yin pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 168 32.2 Certification of Lily Wang pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 170
EX-3.1 2 sinovacexh3_1.txt SINOVAC BIOTECH 20-F, ARTICLES OF INC. 77 EXHIBIT 3.1 ----------- This is an Exhibit to the Form 20-F of Sinovac Biotech Ltd. ----------------------------------------------------------- Attached find the following materials: Articles of Amendment dated October 21, 2003 -------------------------------------------- End of Exhibit 3.1 --------- (SEAL) FINANCIAL SERVICES REGULATORY COMMISSION ANTIGUA AND BARBUDA CERTIFICATE OF AMENDMENT OF ARTICLES Pursuant to Section 161 (1)(a) of the International Business Corporations Act, Cap. 222, the undersigned hereby certifies that: NET-FORCE SYSTEMS INC. ---------------------- By Special Resolution of the company dated October 8th, 2003 changed its name to: SINOVAC BIOTECH LTD. -------------------- /s/ (illegible) ---------------------------------------- for Administrator Financial Services Regulatory Commission REGISTERED (SEAL) Registered at St. John's Antigua, this 21st of October, 2003 INTERNATIONAL BUSINESS CORPORATIONS ACT, CAP.222 FORM 3 ARTICLES OF AMENDMENT (Section 164) NET-FORCE SYSTEMS INC. 011949 ................................................................................. 1. Name of Corporation 2. Corporation No. ................................................................................. 3. The articles of the above-named corporation are amended as follows: ARTICLE I --------- The name of the company is changed from NET-FORCE SYSTEMS INC. to SINOVAC BIOTECH LTD. ARTICLE V --------- CORPORATE PURPOSE ----------------- The existing Article is amended by deleting it in its entirety and by replacing it with the new "Corporate Purpose" clause detailed in the attachment hereto: Oct. 20, 2003 /s/ Lily Wang SECRETARY ................................................................................. Date Signature Description of Office ................................................................................. For Ministry use only ................................................................................. File .......................... ARTICLE V --------- CORPORATE PURPOSE ----------------- The objects for which the Company is established are: a) To conduct any and all business activities permitted by the laws of the State of Antigua and Barbuda as an International Business Corporation. b) To acquire and deal with any property, real or personal, to erect any buildings, and generally to do all acts and things which, in the opinion of the Company or the Directors, may be conveniently, or profitably, or usefully, acquired and dealt with, carried on, erected or done by the Company in connection with said property. c) To generally have and exercise all powers, rights and privileges necessary and incident to carrying out properly the objects herein mentioned. The Company shall not engage in International banking, Trust, Insurance, Betting and Bookmaking or any other activity which requires a License under the International Business Corporation Act. The company shall be primarily engaged in research, development and commercialization of human vaccines for infectious diseases. EX-10.2 3 sinovacexh10_2.txt SINOVAC BIOTECH 20-F, SHARE PURCHASE AGREEMENT 79 EXHIBIT 10.2 ------------ This is an Exhibit to the Form 20-F of Sinovac Biotech Ltd. ----------------------------------------------------------- Attached find the following materials: Share Purchase Agreement entered into between Net Force Systems Inc. and ------------------------------------------------------------------------ Lily Wang, dated September 24, 2003 ----------------------------------- End of Exhibit 10.2 --------- 80 SHARE PURCHASE AGREEMENT ------------------------ THIS SHARE PURCHASE AGREEMENT (together with all schedules, exhibits and ------------------------------ all ancillary agreements contemplated herein are hereinafter referred to as this "Agreement"), is entered into as of the 24th day of September, 2003, by and between Net Force Systems Inc., a corporation organized under the laws of the Country of Antigua (the "Net Force") and Lily Wang ("Wang"), a natural person. Net Force and the Wang are referred to collectively as the "Parties". WHEREAS, Wang owns not less than 51% ownership interest in Sinovac Biotech ------- Co, Ltd ("Sinovac"), a company organized under the laws of the People's Republic of China ("PRC"); WHEREAS, Wang desires to sell and Net Force desires to acquire the Wang ------- Shares equalling 68,136,000 shares representing not less than 51% ownership interest in Sinovac in consideration for 10,000,000 newly-issued shares of common stock of Net Force, at a stated value of $0.60 per share, constituting approximately 37% of Net Force's outstanding capital stock after such issuance on a fully-diluted basis, on the terms and conditions hereinafter provided; NOW THEREFORE, on the stated premises and for and in consideration of the ------------- mutual covenants and agreements hereinafter set forth and the mutual benefits to the Parties to be derived herefrom, it is hereby agreed as follows: ARTICLE I --------- REPRESENTATIONS AND WARRANTIES ------------------------------ OF THE SINOVAC SHAREHOLDER -------------------------- The Sinovac Shareholder represents and warrants as follows: Section 1.01 - Organization of Sinovac. Sinovac is a company duly organized ----------------------- and validly existing under the laws of PRC and has the corporate power and is duly authorized, qualified, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to undertake the transactions contemplated by this Agreement, to own all of its properties and assets to carry on its business. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, violate any provision of Sinovac's articles of incorporation or bylaws (or the foreign equivalent thereof). Sinovac has taken, or will have taken prior to Closing (as described in Article III herein), all actions required by law, its articles of incorporation, or otherwise, to authorize the execution and delivery of this Agreement. Sinovac has, or will have prior to Closing (as described in Article III herein), full power, authority, and legal right and has, or will have prior to Closing (as described in Article III herein), taken all action required by law, its bylaws, articles of incorporation (or the foreign equivalent thereof) and otherwise to consummate the transactions herein contemplated. Section 1.02 - Capitalization and Outstanding Shares. The authorized ---------------------------------------- capitalization of Sinovac consists of 250,000,000 authorized common shares, $0.001 par value per share, of which 133,600,000 are issued and outstanding as of August 31, 2003. All outstanding share of Sinovac are validly issued, fully paid, and non-assessable and not issued in violation of the preemptive or other rights of any person. Section 1.03 - Options or Warrants or Subscriptions. There are no existing ------------------------------------ options, warrants, calls, subscriptions or commitments of any character relating to any authorized and unissued stock of any class of Sinovac. Section 1.04 - Ownership of Sinovac Shares. With respect to herself, the ---------------------------- Sinovac Shareholder is the legal and beneficial owner of that number of Sinovac shares set forth opposite her name in the attached Schedule A (which together 81 constitute 51% of all of Sinovac's outstanding shares), free and clear of any claims, charges, equities, liens, security interests, and encumbrances whatsoever. Section 1.05 - Shares Validly Issued. With respect to the Sinovac Shares ----------------------- issued to her the Sinovac Shares have been validly issued to the Shareholder and are fully paid, fully vested, non-assessable and not issued in violation of the pre-emptive or other rights of any person. Section 1.06 - Valid Transfer of Fully Vested Shares. With respect to ---------------------------------------- herself, the Sinovac Shareholder has full right, power, and authority to transfer, assign, convey, and deliver its Sinovac Shares. With respect to herself, delivery by the Sinovac Shareholder of such shares at the Closing (as described in Article III herein) will convey to Net Force good and marketable title to such Sinovac Shares, free and clear of any claims, charges, equities, liens, security interests, and encumbrances whatsoever. Section 1.07 - Underlying Transaction Lawful. All transactions contemplated ----------------------------- by this Agreement are lawful under the laws of Antigua and are enforceable in the courts of Antigua. This Agreement and each of its terms are lawful under the laws of Antigua and are enforceable in Antigua courts. Section 1.08 - Enforceable Obligation. The transactions contemplated by ----------------------- this Agreement are the valid and binding obligations of the Shareholder, enforceable against the respective Shareholder, by Net Force in accordance with the terms of this Agreement. Section 1.9 - No Conflicts. The execution and delivery by each Sinovac ------------- Shareholder of this Agreement, the performance by each Sinovac Shareholder of his, her or its obligations under this Agreement and the consummation of the transactions contemplated hereby do not and will not: (i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require any Sinovac Shareholder to obtain any consent, approval or action of, make any filing with or give any notice to any person as a result or under the terms of, (iv) result in or give to any person any right of termination, cancellation, acceleration or modification in or with respect to, (v) result in or give to any person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments under, or (vi) result in the creation or imposition of any lien upon any Sinovac Shareholder or any of their respective assets and properties under any contract to which any Sinovac Shareholders is bound. Section 1.10 - Voting Trusts. The Sinovac Shares are not subject to any -------------- voting trust agreement or other contract restricting or otherwise relating to the voting or disposition of the Sinovac Shares. Section 1.11 - Governmental Authorizations and Licenses. The Sinovac ------------------------------------------- Shareholder has, or will have upon Closing (as described in Article III herein), all licenses, franchises, permits, and other governmental authorizations that are legally required to enable it to conduct its business in all material respects as conducted. No authorization, approval, consent, or order of, or registration, declaration, or filing with, any court or other governmental body is required in connection with the execution and delivery by the Sinovac Shareholders of this Agreement and consummation by the Sinovac Shareholders of the transaction contemplated hereby. Section 1.12 - Compliance with Laws and Regulations. The Sinovac ----------------------------------------- Shareholder has complied with all applicable statutes and regulations of any applicable laws except to the extent that noncompliance would not result in the occurrence of any material liability for any Sinovac Shareholder. Section 1.13 - Power of Stock Transfer. The Sinovac Shareholder has duly ------------------------ executed a stock transfer power in the substantial form as set forth in Schedule B. 82 ARTICLE II ---------- REPRESENTATIONS, COVENANTS AND ------------------------------ WARRANTIES OF NET FORCE ----------------------- Net Force represents and warrants as follows: Section 2.01 - Organization and Due Authorization. Net Force is a ------------------------------------- corporation duly organized, validly existing, and in good standing under the laws of the Country of Antigua and has the corporate power and is duly authorized, qualified, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to own all of its properties and assets. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not violate any provision of Net Force's articles of incorporation or bylaws. Net Force has taken all action required by law and under its articles of incorporation, its bylaws, or otherwise to authorize the execution and delivery of this Agreement, and Net Force has full power, authority, and legal right and has taken all action required by law, its articles of incorporation, bylaws, or otherwise to consummate the transactions herein contemplated. Section 2.02 - Capitalization and Outstanding Shares. Net Force's ------------------------------------------ authorized capitalization currently consists of 100,000,000 shares of common stock, par value $.001, of which 17,066,033 shares of common stock are issued and outstanding as of the date hereof and 50,000,000 shares of preferred stock of which no shares are outstanding as of the date hereof. All issued and outstanding shares are legally issued, fully paid, non-assessable and not issued in violation of the pre-emptive or other rights of any person. Section 2.03 - Options or Warrants or Subscriptions. There are no existing ------------------------------------ options, warrants, calls, subscriptions or commitments of any character relating to the authorized and unissued stock of Net Force. Section 2.04 - Approval of Agreement. The board of directors of Net Force ---------------------- has approved this Agreement and the transactions contemplated hereby. Section 2.05 - Underlying Transaction Lawful. All transactions contemplated ----------------------------- by this Agreement are lawful under the laws of the Country of Antigua and are enforceable in the courts of Antigua. This Agreement and each of its terms are lawful under the laws of the Country of Antigua and are enforceable in Antigua courts. Section 2.06 - Enforceable Obligation. The transaction contemplated by this ---------------------- Agreement is a valid and binding obligation of Net Force, enforceable against it, by the other Parties in accordance with the terms of this Agreement. Section 2.07 - Compliance with Laws and Regulations. Net Force has complied ------------------------------------ with all applicable statutes and regulations of any applicable laws except to the extent that noncompliance would not result in the occurrence of any material liability for Net Force. Section 2.08 - No Information Statement on 14C Required. Net Force --------------------------------------------- represents and warrants to the Sinovac Shareholders that under to the laws of the Country of Antigua, Net Force is not legally required to file an information statement on Schedule 14C promulgated under the Exchange Act of 1934, as amended. ARTICLE III ----------- PLAN OF PURCHASE AND SALE OF THE SINOVAC SHARES ----------------------------------------------- Section 3.01 - The Purchase and Sale of the Sinovac Shares. ------------------------------------------- (a) Wang agrees to assign, transfer, and deliver to Net Force, free and clear of all liens, pledges, encumbrances, charges, restrictions or known claims 83 of any kind, nature, or description, 68,136,000 shares of the capital stock of Sinovac, constituting 51% of the issued and outstanding capital stock of Sinovac as of September 24, 2003. (b) Net Force agrees to issue and deliver to the Wang 10,000,000 newly-issued shares of Net Force's common stock, par value $.001 and stated value of $0.60 per share, to Wang. The shares issued by Net Force under this Section 3.01(b) shall be issued with the rights of registration contained in that certain registration rights agreement between the Wang and Net Force attached hereto as Schedule D. Section 3.02 - Closing. The closing ("Closing") of the transactions ------- contemplated by this Agreement shall occur after the signing of this Agreement, after the fulfillment of all conditions precedent set forth in Article III hereof and at such time and place as the parties may mutually agree ("Closing Date"). Section 3.03 - Closing Events. At the Closing, each of the respective --------------- Parties hereto shall execute, acknowledge, and deliver (or shall ensure to be executed, acknowledged, and delivered), as applicable, the following: (a) In the case of the Wang: (i) a completed Schedule A containing a list indicating the number of shares owned by her, and the number of shares to be transferred by her under this Agreement; (ii) a stock transfer power and authorization of designee executed by Wang listed on Schedule B in the substantial form set forth in Schedule A; and (iii) a certificate of registration issued by the office of registration of the PRC evidencing the approximate 51% ownership interest of Sinovac by Wang; (b) In the case of Net Force; (i) an opinion of counsel as required by Section 2.07 of this Agreement; and (ii) to Wang set forth on Schedule E that number of newly issued Net Force Shares set forth beside Wang's name on Schedule E. ARTICLE IV ---------- SPECIAL REPRESENTATIONS AND COVENANTS WITH RESPECT TO COMMON SHARES ------------------------------------------------------------------- ISSUED BY THE COMPANY TO THE SHAREHOLDERS ----------------------------------------- Section 4.01 - Shares Issued by Net Force to Wang Not Registered. The ----------------------------------------------------- consummation of this Agreement and the transactions herein contemplated, including the issuance of common shares by Net Force to Wang as set forth in Article III, constitute the offer and sale of securities under the Securities Act of 1933, as amended (the "Securities Act") and applicable state statutes. Wang acknowledge that the shares of Net Force to be delivered to Wang pursuant to this Agreement have not been registered under the Securities Act or the laws of any other jurisdiction, and that therefore the stock is not fully transferable except as permitted under various exemptions, if any, contained in the Securities Act and the rules of the Securities and Exchange Commission interpreting the Securities Act. Under US law, Net Force's common stock cannot be sold or transferred by Wang unless they are subsequently registered under applicable law or an exemption from registration is available. The provisions contained in this paragraph are intended to ensure compliance with the Securities Act. Section 4.02 - Regulation S Representations. For purposes of this Section ----------------------------- 4.02, "United States" includes the United States, its territories and possessions, any state, and the District of Columbia. Each Shareholder is not a "U.S. Person", defined in Rule 902(k) of the Securities Act as any one of the following: (i) any natural person resident in the United States; (ii) any partnership or corporation organized under the laws of the United States; (iii) any estate of which any executor or administrator is a U.S. person; (iv) any trust of which any trustee is a U.S. person; (v) any agency or branch of a foreign entity located in the United States; (vi) any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or the account of a U.S. person; (vii) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated or (if an individual) resident in the United States; (viii) any partnership or corporation, if such 84 entity was formed under the laws of a foreign jurisdiction by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act, unless it is organized or incorporated, and owned, by accredited investors. Each Shareholder did not receive offering materials with respect to the transactions contemplated by the Agreement. At the time of this Agreement, each Shareholder is outside of the United States. Therefore Wang agrees not to sell or otherwise dispose of any of the common shares of Net Force received pursuant to this agreement unless such Shareholder: (a) has delivered to Net Force a written legal opinion in form and substance satisfactory to counsel for Net Force to the effect that the disposition is permissible under the terms of the Securities Act and the rules and regulations promulgated thereunder; (b) has complied with the registration and prospectus requirements of the Securities Act relating to such disposition; or (c) has presented Net Force satisfactory evidence that such a disposition is exempt from registration under the Securities Act. The Net Force shall place a stop transfer order against transfers of shares until one of the conditions set forth in this paragraph have been met. Furthermore, Wang agrees that the certificates evidencing the common shares that each will receive under this Agreement will contain the following legend or one substantially similar: (begin boldface) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED (1) ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER THE ACT; OR (2) ABSENT AN OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR SUCH STATES OR THAT SUCH TRANSACTION COMPLIES WITH THE RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT OR SUCH STATES. (end boldface) Section 4.03 - Third Party Consents and Certificates. The Parties agree to ------------------------------------- cooperate with each other in order to obtain any required third party consents to this Agreement and the transactions herein and therein contemplated. Section 4.04 - Indemnification. --------------- (a) Wang hereby agrees to indemnify Net Force, its respective officers, agents and directors as of the date of execution of this Agreement against any loss, liability, claim, damage or expense (including, but not limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing, or defending against any litigation, commenced or threatened, or any claim whatsoever), to which it or they may become subject arising out of or based on any inaccuracy appearing in or misrepresentations made under Article I of this Agreement. The indemnification provided for in this paragraph shall survive the Closing and consummation of the transactions contemplated hereby and termination of this Agreement. (b) Net Force hereby agrees to indemnify Wang as of the date of execution of this Agreement against any loss, liability, claim, damage or expense (including, but not limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing, or defending against any litigation, commenced or threatened, or any claim whatsoever), to which they may become subject arising out of or based on any inaccuracy appearing in or misrepresentations made under Article II of this Agreement. The indemnification provided for in this paragraph shall survive the Closing and consummation of the transactions contemplated hereby and termination of this Agreement. 85 ARTICLE V --------- CONDITIONS PRECEDENT TO OBLIGATIONS OF NET FORCE ------------------------------------------------ The obligations of Net Force under this Agreement are subject to the satisfaction, at or before the Closing Date, of the following conditions: Section 5.01 - Accuracy of Representations. The representations and ----------------------------- warranties made by Wang in this Agreement were true when made and shall be true at the Closing Date with the same force and effect as if such representations and warranties were made at and as of the Closing Date (except for changes therein permitted by this Agreement), and Wang shall have performed or complied with all pre-closing covenants and conditions required by this Agreement to be performed or complied with by them prior to or at the Closing. Section 5.02 - No Material Adverse Change. Prior to the Closing Date, there -------------------------- shall not have occurred any material adverse change in the financial condition, business, or operations of Sinovac nor shall any event have occurred which, with the lapse of time or the giving of notice, may cause or create any material adverse change in the financial condition, business or operations of Sinovac. Section 5.03 - Deliverables. Each deliverable required to be delivered by ------------ Wang under Article I and/or Section 3.01 of this Agreement has been delivered. ARTICLE VI ---------- MISCELLANEOUS ------------- Section 6.01 - Governing Law. This Agreement shall be governed by, -------------- enforced, and construed under and in accordance with the laws of the County of Antigua. Section 6.02 - Resolution of Disputes. ---------------------- (a) Any dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation, breach, termination or validity hereof, shall first be resolved through friendly consultation, if possible. Such consultation shall begin immediately after one party has delivered to the other party a written request for such consultation (the "Consultation Date"). If the dispute cannot be resolved within 30 days following the Consultation Date, the dispute shall be submitted to arbitration upon the request of either party, with written notice to the other party. (b) Arbitration. The arbitration shall be conducted in New York, New ----------- York under the auspices of the American Arbitration Association ("AAA") in accordance with the commercial arbitration rules and supplementary procedures for international commercial arbitration of the AAA. There shall be three arbitrators--one arbitrator shall be chosen by each party to the dispute and those two arbitrators shall choose the third arbitrator. All arbitration proceedings shall be conducted in English. Each party shall cooperate with the other in making full disclosure of and providing complete access to all information and documents requested by the other party in connection with the arbitration proceedings. Arbitration shall be the sole, binding, exclusive and final remedy for resolving any dispute between the parties; 86 either party may apply to any court of competent jurisdiction in the State of New York for enforcement of any award granted by the arbitrators. (c) During the period when a dispute is being resolved, except for the matter being disputed, the parties shall in all other respects continue to abide by the terms of this Agreement. Section 6.03 - Notices. Any notice or other communications required or ------- permitted hereunder shall be sufficiently given if personally delivered to it or sent by registered mail or certified mail, postage prepaid, or by prepaid telegram addressed as follows: (a) If to Net Force, address as follows: Net Force Systems Inc. C/O Stepp Law Group 1301 Dove Street, Suite 460 Newport Beach, California 92660 Telephone: 949-660-9700 Fax: 949-660-9010 Attn: Thomas E. Stepp, Jr. (b) If to Wang, address as follows: Lily Wang Suite 202 - 300 Murchison Drive Millbrae, CA 94030 USA Telephone: 650-259-9688 Fax: or such other addresses as shall be furnished in writing by any party in the manner for giving notices hereunder, and any such notice or communication shall be deemed to have been given as of the date so delivered, mailed or telegraphed. Section 6.04 - Attorney's Fees. In the event that any party institutes any ---------------- action or suit to enforce this Agreement or to secure relief from any default hereunder or breach hereof, the breaching party or parties shall reimburse the non-breaching party or parties for all costs, including reasonable attorney's fees, incurred in connection therewith and in enforcing or collecting any judgment rendered therein. Section 6.05 - Schedules Knowledge. Each party is presumed to have full -------------------- knowledge of all information set forth in the other party's schedules delivered pursuant to this Agreement. Section 6.06 - Entire Agreement. This Agreement represents the entire ----------------- agreement between the parties relating to the subject matter thereof. Section 6.07 - Survival Termination. The representations, warranties, and -------------------- covenants of the respective parties shall survive the Closing Date and the consummation of the transactions herein contemplated for a period of three months. All rights and obligations under this entire Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators and assigns of the parties. 87 Section 6.08 - Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be deemed an original and all of which taken together shall be but a single instrument. For purposes of this Agreement, facsimile signatures may be deemed originals. Section 6.09 - Amendment or Waiver. Every right and remedy provided herein ------------------- shall be cumulative with every other right and remedy, whether conferred herein, at law, or in equity, and may be enforced concurrently herewith, and no waiver by any party of the performance of any obligation by the other shall be construed as a waiver of the same of any other default then, theretofore, or thereafter occurring or existing. At any time prior to the Closing Date, this Agreement may be amended by a writing signed by all parties hereto, with respect to any of the terms contained herein, and any term or condition of this Agreement may be waived or the time for performance may be extended by a writing signed by the party or parties for whose benefit the provision is intended. [The remainder of this page intentionally left blank] ----------------------------------------------------- 88 SIGNATURES - ---------- IN WITNESS WHEREOF the parties hereto have duly executed this Agreement. - ------------------------------------------------------------------------ NET FORCE SYSTEMS INC. ---------------------- Per: /s/ He Ping Wang - ---------------------------- --------------------- (Witness/Seal) He Ping Wang Director Per: /s/ Lily Wang - ---------------------------- --------------------- (Witness/Seal) Lily Wang Director Per: /s/ Wei Dong Yin - ---------------------------- --------------------- (Witness/Seal) Wei Dong Yin Director LILY WANG --------- /s/ Lily Wang - ---------------------------- --------------------------- (Witness/Seal) Lily Wang 89 SCHEDULE A ---------- SINOVAC SHAREHOLDER -------------------
Name and Address Number of Shares Owned Number of Shares to Be Transferred - ---------------- ---------------------- ---------------------------------- Lily Wang 68,136,000 68,136,000 Suite 202 - 300 Murchison Drive Millbrae, CA 94030 USA
90 SCHEDULE B ---------- SHAREHOLDERS' STOCK TRANSFER POWER AND -------------------------------------- AUTHORIZATION OF DESIGNEE ------------------------- FOR VALUE RECEIVED, the undersigned ("Assignor") hereby sells, transfers and assigns unto Net Force Systems Inc. ("Assignee"), a corporation organized under the laws of the Country of Antigua, 68,136,000 shares of the common stock representing not less than 51% of Sinovac, a corporation organized under the laws of the PRC and does hereby irrevocably constitute and appoint each of Net Force's officers and directors as its attorney-in-fact to transfer the said shares on the books and records of Net Force, with full power of substitution in the premises. This Stock Transfer Power shall be subject to the terms and conditions of that certain Share Purchase Agreement by and between, inter alia, Assignor and Assignee dated as of September 24, 2003. Dated: September 24, 2003 By: /s/ Lily Wang ---------------------- Name: Lily Wang 91 SCHEDULE C ---------- Stock Ownership Transfer Agreement ---------------------------------- Assignor: Sino Pharma Co., Ltd. (hereinafter referred to as "Party A") Address: Room 605-6, Chengxin Mansion, #130-136. Middle Gannuo Road, Hongkong Name of the legal representative: Li Keying Position: Chairman of the Board Nationality: Singapore Assignor: Tangshan Yian Biological Engineering Co., Ltd. (hereinafter referred to as ..Party B"). Address: the High and New Technology Development Zone in Tangshan City Name of the legal representative: Li Keying Position: Chairman of the Board Nationality: Singapore Assignor: Beijing Keding Investment Co., Ltd. (hereinafter referred to as "Party C") Address: Beijing University Biology Tower, #39, West Shangdi Road. Haidian District, Beijing Name of the legal representative: Yin Weidong Position: Chairman of the Board Nationality: China Assignee: Lily Wang (hereinafter referred to as "Party D") Nationality: America This agreement is signed by Parry A and Party B on September, 2003 in Beijing. Party A legally owns 20.95% of the stock ownership of Sinovac Biotech Co., Ltd. (hereinafter referred to as "Sinovac"). Party B legally owns 15.72% of the stock ownership of Sinovac. Party C legally owns 6.08% of the stock ownership of Sinovac. Sinovac is founded on April 28, 2001 with the approval of the Industrial and Commercial Administration of Beijing Municipality. Party A now intends to transfer all of its stock ownership of Sinovac, namely 28 million shares; Party B now intends to transfer all of its stock ownership of Sinovac, namely 21 million shares; and Party C now intends to transfer part of its stock ownership of Sinovac, namely 8.12 million shares. The transfer of the stock ownership by Party A, Party B and Party C has been agreed by other share holders of Sinovac and been approved by the board of Sinovac according to its meeting resolution. Party D herein agree to accept the 57.12 million shares (42.75%) of the stock of Sinovac transferred by Party A. Party B, and Party C. The board of Sinovac also agree to Party D's acceptance of the 57.12 million shares (42.75%) of the stock of Sinovac owned by Party A, Party B, and Party C. Based on the principle of equality and mutual benefits, Party A. Party B, Party C and Party D reached following agreements on the transfer of the 42.75% stock ownership. namely 57.12 million shares of the stock of Sinovac owned by Patty A, Party B, and Party C after friendly consultation: 92 I. Stock Ownership Transfer Price Party A, Party B, and Party C jointly agree to transfer their 57.12 million shares of the stock of Sinovac to Party D with the price of $5.0294 million USD pursuant to the terms and conditions of this agreement. Party D agree to accept the 57.12 million shares (42.75%) of the stock of Sinovac owned by Party A, Party B, and Party C with the price of $5.0294 million USD. II. Agreement Violation Liability 1. If any Party of this agreement failed to fulfill its obligations reasonably and completely pursuant to the regulations of this Agreement, the violating Party shall bear relative liabilities for the violation of the Agreement. Any obligations and damages thus brought upon the non-violation Part shall be remedied by the Party violating this Agreement. III. Modification and Termination of This Agreement If any one of the following circumstances aroused, this Agreement can be modified or terminated, however, the modification or termination shall become valid only after the signing of the modification or termination agreement by Party A, Party B, Party C and Party D. 1. It is impossible to carry out the terms and conditions of this Agreement due to force majeure, or external causes the Party cannot prevent and not resulted from the Party's negligence. 2. Party A, Party B, Party C and Party D all agree to modify or terminate this Agreement after consultation due to the change of conditions. IV. Others This Agreement is in six originals. One for Party A, Party B, Party C, Party D and Sinovac, and the rest being kept by relative government department. 93 Assignor (Party A) (Seal) [SINO PHARMA COMPANY LIMITED STAMP] Legal Representative or Authorized Trustor (singature): Date: September 17, 2003 /s/ Keying Li ------------------------------ Keying Li Assignor (Party B) (Seal) [STAMP] Legal Representative or Authorized Trustor (singature): Date: September 17, 2003 /s/ Keying Li ------------------------------ Keying Li Assignor (Party C) (Seal) [STAMP] Legal Representative or Authorized Trustor (singature): Date: September 17, 2003 /s/ Wei Dong Yin ------------------------------ Wei Dong Yin Assignor (Party D) (Seal) Legal Representative or Authorized Trustor (singature): Date: September 17, 2003 /s/ Lily Wang ------------------------------ Lily Wang 94 SCHEDULE D ---------- Stock Ownership Transfer Agreement ---------------------------------- Assignor: Shenzhen Bio-port Co., Ltd. (hereinafter referred to as "Party A") Name of the legal representative: Xianping Wang Position: Chairman of the Board Nationality: China Assignee: Lily Wang (hereinafter referred to as "Party B") Nationality: America This agreement is signed by Party A and Party B on September 17, 2003 in Beijing. Party A legally owns 12.43% of the stock ownership of Sinovac Biotech Co., Ltd. (hereinafter referred to as "Sinovac"). Sinovac is founded on April 28, 2001 with the approval of the Industrial and Commercial Administration of Beijing Municipality. Party A now intends to transfer its stock ownership of Sinovac, namely 11.016 million shares (8.25%). The transfer of the stock ownership by Party A has been agreed by other shareholders of Sinovac and has been approved by the board of Sinovac according to its meeting resolution. Party B herein agrees to accept the 11.016 million shares (8.25%) of the stock of Sinovac transferred by Party A. The board of Sinovac also agrees to Party B's acceptance of the 11.016 million shares (8.25%) of the stock of Sinovac owned by Party A. Based on the principle of equality and mutual benefits, Party A and Party B, reached the following agreements on the transfer of the 8.25% stock ownership, namely 11.016 million shares of the stock of Sinovac owned by Party A after friendly consultation. I. Stock Ownership Transfer Price Party A agrees to transfer its 11.016 million shares of the stock of Sinovac to Party B for the price of $0.9706 million USD pursuant to the terms and conditions of this agreement. Party B agrees to accept the 11.016 million shares (8.25 %) of the stock of Sinovac owned by Party A for the price of $0.9706 million USD. II. Agreement Violation Liability 1. If any Party of this agreement failed to fulfill its obligations reasonably and completely pursuant to the regulations of this Agreement, the violating Party shall bear relative liabilities for the violation of the Agreement. Any obligations and damages thus brought upon the non-violation Party shall be remedied by the Party violating this Agreement. III. Modification and Termination of This Agreement If any one of the following circumstances aroused, this Agreement can be modified or terminated, however, the modification or termination shall become valid only after the signing of the modification or termination agreement by Party A and Party B. 1.It is impossible to carry out the terms and conditions of this Agreement due to force majeure, or external causes the Party cannot prevent and not resulted from the Party's negligence. 2.Party A and Party B all agree to modify or terminate this Agreement after consultation due to the change of conditions. 95 IV. Others This Agreement is in four originals, one for Party A, Party B, and Sinovac, and the rest being kept by the relative government department. Assignor (Party A) (Seal): [stamp] Legal Representative or Authorized Trustor (signature): /s/ Xianping Wang ------------------------------ Xianping Wang Assignee (Party B) (Seal): Legal Representative or Authorized Trustor (signature): /s/ Lily Wang ------------------------------ Lily Wang 96 SCHEDULE E ---------- DESIGNEES OF THE NEWLY-ISSUED CAPITAL STOCK OF NET FORCE -------------------------------------------------------- Number of Shares to be Name Address Issued by Net Force - ---- ------- ---------------------- Lily Wang Suite 202 - 300 Murchinson Dr. 10,000,000 Millbrae, CA 94030 USA EX-10.3 4 sinovacexh10_3.txt SINOVAC BIOTECH 20-F, CONSULTING AGREEMENT, SWL 97 EXHIBIT 10.3 ------------ This is an Exhibit to the Form 20-F of Sinovac Biotech Ltd. ----------------------------------------------------------- Attached find the following materials: Consulting Agreement entered into between the Company and Sinoglobe ------------------------------------------------------------------- Worldwide Limited, dated November 1, 2003 ----------------------------------------- End of Exhibit 10.3 ----------- 98 SINOVAC BIOTECH LTD. -------------------- Suite #10-Epicurean, Woods Centre P.O. Box W-645 St. John's, Antigua, West Indies November 1, 2003 VIA FAX (604) 278-8847 - -------------------------- Sinoglobe Worldwide Limited - --------------------------- P.O. Box 3152 Road Town Tortola, British Virgin Islands Attention: Mr. Derrick Luu Dear Sirs: Re: Consulting Agreement with Sinovac Biotech Ltd. (the "Company") - ------------------------------------------------------------------- This correspondence will specify the consulting arrangement (the "Consulting Agreement") between the Company and Sinoglobe Worldwide Limited. The terms and conditions of the Consulting Agreement are as follows: 1. Services. During the Term (as hereinafter defined) of this Consulting -------- Agreement, Sinoglobe Worldwide Limited (the "Consultant") shall provide to the Company consulting services designed to assist the Company in management and marketing to develop the business of the Company. 2. Term. The term of this Consulting Agreement (the "Term) is for a period of ---- two years commencing on July 1, 2003 (the "Effective Date"). 3. Payment for Services. It is hereby agreed that the Consultant shall provide -------------------- the consulting services for a monthly fee of US$10,000 (the "Fee") with such Fee being due and payable by the Company to the Consultant on the first business day of the month in advance. In addition, it is agreed that the Consultant shall be reimbursed for all expenses incurred by the Consultant for the benefit of the Company (collectively, the "Expenses") and which Expenses shall be payable by the Company within 30 days of delivery by the Consultant of written substantiation on account of each such reimbursable Expense. 99 4. Confidentiality by the Consultant. The Consultant will not, except as ----------------------------------- authorized or required by the Consultant's duties hereunder, reveal or divulge to any person or companies any information concerning the organization, business, finances, transactions or other affairs of the Company, or of any of its subsidiaries, which may come to the Consultant's knowledge during the Term and during the continuance of this Consulting Agreement, and the Consultant will keep in complete secrecy all confidential information entrusted to the Consultant and will not use or attempt to use any such information in any manner which may injure or cause loss either directly or indirectly to the Company's respective businesses. This restriction will continue to apply after the termination of this Consulting Agreement without limit in point of time but will cease to apply to information or knowledge which may come into the public domain. 5. Indemnification. The Company agrees to indemnify and hold Consultant (the --------------- "Indemnified Person") harmless from and against losses, claims, damages, liabilities, costs, or expenses including reasonable attorney's and accountant's fees joint and several arising out of the performance of this Consulting Agreement, whether or not Consultant is a party to such dispute. The Company agrees that it shall also reimburse the Indemnified Person for any attorney's and costs incurred in enforcing this Indemnification against the Company. 6. No Indemnification. This indemnity shall not apply, however, where a court ------------------ of competent jurisdiction has made a final determination that the Consultant engaged in gross recklessness and willful misconduct in the performance of its services hereunder which gave rise to loss, claim, damage, liability, cost or exposure sought to be recovered hereunder. (But pending any such final determination, the indemnification and reimbursement provision of this Consulting Agreement shall apply and the Company shall perform its obligations hereunder to reimburse Consultant for its attorney's fees and expenses). 7. Entire Agreement. This Consulting Agreement sets forth the entire ----------------- understanding of the parties relating to the subject matter hereof, and supersedes and cancels any prior communications, understandings, and agreements between the parties. This Consulting Agreement cannot be modified or changed, nor can any of its provision be waived, except by written agreement signed by all parties. 100 If the Consultant is in accord with the forgoing, please execute a copy of this letter and the same will be binding on the parties. Yours truly, SINOVAC BIOTECH LTD. - -------------------- Per: /s/ Lily Wang - -------------------------------- LILY WANG, Director The forgoing is hereby agreed to this 1st day of November, 2003 and Sinoglobe - -------------------------------------------------------------------------------- Worldwide Limited declares itself bound to the terms. - ----------------------------------------------------- SINOGLOBE WORLDWIDE LIMITED - --------------------------- Per: /s/ Derrick Luu - -------------------------------- Derrick Luu, Director EX-10.4 5 sinovacexh10_4.txt SINOVAC BIOTECH 20-F, CONSULTING AGREEMENT, TAN 101 EXHIBIT 10.4 ------------ This is an Exhibit to the Form 20-F of Sinovac Biotech Ltd. ----------------------------------------------------------- Attached find the following materials: Consulting Agreement entered into between the Company and Michael Tan, ---------------------------------------------------------------------- dated November 1, 2003 ---------------------- End of Exhibit 10.4 ----------- 102 SINOVAC BIOTECH LTD. -------------------- Suite #10-Epicurean, Woods Centre P.O. Box W-645 St. John's, Antigua, West Indies November 1, 2003 VIA FAX 65-6732-0086 - ----------------------- Michael Tan - ----------- 4 Keng Chin Rd. #02-01 Singapore 258707 Attention: Mr. Michael Tan Dear Sirs: Re: Consulting Agreement with Sinovac Biotech Ltd. (the "Company") - ------------------------------------------------------------------- This correspondence will specify the consulting arrangement (the "Consulting Agreement") between the Company and Michael Tan. The terms and conditions of the Consulting Agreement are as follows: 1. Services. During the Term (as hereinafter defined) of this Consulting -------- Agreement, Michael Tan (the "Consultant") shall provide to the Company consulting services designed to assist the Company in management and marketing to develop the business of the Company. 2. Term. The term of this Consulting Agreement (the "Term) is for a period of ---- two years commencing on July 1, 2003 (the "Effective Date"). 3. Payment for Services. It is hereby agreed that the Consultant shall provide -------------------- the consulting services for a monthly fee of US$8,000 (the "Fee") with such Fee being due and payable by the Company to the Consultant on the first business day of the month in advance. In addition, it is agreed that the Consultant shall be reimbursed for all expenses incurred by the Consultant for the benefit of the Company (collectively, the "Expenses") and which Expenses shall be payable by the Company within 30 days of delivery by the Consultant of written substantiation on account of each such reimbursable Expense. 103 4. Confidentiality by the Consultant. The Consultant will not, except as ----------------------------------- authorized or required by the Consultant's duties hereunder, reveal or divulge to any person or companies any information concerning the organization, business, finances, transactions or other affairs of the Company, or of any of its subsidiaries, which may come to the Consultant's knowledge during the Term and during the continuance of this Consulting Agreement, and the Consultant will keep in complete secrecy all confidential information entrusted to the Consultant and will not use or attempt to use any such information in any manner which may injure or cause loss either directly or indirectly to the Company's respective businesses. This restriction will continue to apply after the termination of this Consulting Agreement without limit in point of time but will cease to apply to information or knowledge which may come into the public domain. 5. Indemnification. The Company agrees to indemnify and hold Consultant (the --------------- "Indemnified Person") harmless from and against losses, claims, damages, liabilities, costs, or expenses including reasonable attorney's and accountant's fees joint and several arising out of the performance of this Consulting Agreement, whether or not Consultant is a party to such dispute. The Company agrees that it shall also reimburse the Indemnified Person for any attorney's and costs incurred in enforcing this Indemnification against the Company. 6. No Indemnification. This indemnity shall not apply, however, where a court ------------------ of competent jurisdiction has made a final determination that the Consultant engaged in gross recklessness and willful misconduct in the performance of its services hereunder which gave rise to loss, claim, damage, liability, cost or exposure sought to be recovered hereunder. (But pending any such final determination, the indemnification and reimbursement provision of this Consulting Agreement shall apply and the Company shall perform its obligations hereunder to reimburse Consultant for its attorney's fees and expenses). 7. Entire Agreement. This Consulting Agreement sets forth the entire ----------------- understanding of the parties relating to the subject matter hereof, and supersedes and cancels any prior communications, understandings, and agreements between the parties. This Consulting Agreement cannot be modified or changed, nor can any of its provision be waived, except by written agreement signed by all parties. 104 If the Consultant is in accord with the forgoing, please execute a copy of this letter and the same will be binding on the parties. Yours truly, SINOVAC BIOTECH LTD. - -------------------- Per: /s/ Lily Wang - ---------------------------- LILY WANG, Director The forgoing is hereby agreed to this 1st day of November, 2003 and Michael Tan - -------------------------------------------------------------------------------- declares himself bound to the terms. - ------------------------------------ /s/ Michael Tan - ---------------------------- Michael Tan, Consultant EX-10.5 6 sinovacexh10_5.txt SINOVAC BIOTECH 20-F, CONSULTING AGREEMENT, TCC 105 EXHIBIT 10.5 ------------ This is an Exhibit to the Form 20-F of Sinovac Biotech Ltd. ----------------------------------------------------------- Attached find the following materials: Consulting Agreement entered into between the Company ----------------------------------------------------- and Technique Capital Corp., dated November 1, 2003 --------------------------------------------------- End of Exhibit 10.5 --------- 106 SINOVAC BIOTECH LTD. -------------------- Suite #10-Epicurean, Woods Centre P.O. Box W-645 St. John's, Antigua, West Indies November 1, 2003 VIA FAX (604) 602-1499 - ------------------------- Technique Capital Corp. - ----------------------- C/o Suite 4, Temple Building Main & Prince William Street Charlestown, Nevis St. Kitts & Nevis, West Indies Attention: Mr. Graham Taylor Dear Sirs: Re: Consulting Agreement with Sinovac Biotech Ltd. (the "Company") - ------------------------------------------------------------------- This correspondence will specify the consulting arrangement (the "Consulting Agreement") between the Company and Technique Capital Corp., a company organized under the laws of St. Kitts & Nevis. The terms and conditions of the Consulting Agreement are as follows: 1. Services. During the Term (as hereinafter defined) of this Consulting -------- Agreement, Technique Capital Corp. (the "Consultant") shall provide to the Company consulting services designed to assist the Company in investor relations and financing of the Company. 2. Term. The term of this Consulting Agreement (the "Term) is for a period of ---- two years commencing on July 1, 2003 (the "Effective Date"). 3. Payment for Services. It is hereby agreed that the Consultant shall provide -------------------- the consulting services for a monthly fee of US$10,000 (the "Fee") with such Fee being due and payable by the Company to the Consultant on the first business day of the month in advance. In addition, it is agreed that the Consultant shall be reimbursed for all expenses incurred by the Consultant for the benefit of the Company (collectively, the "Expenses") and which Expenses shall be payable by the Company within 30 days of delivery by the Consultant of written substantiation on account of each such reimbursable Expense. 107 4. Confidentiality by the Consultant. The Consultant will not, except as ----------------------------------- authorized or required by the Consultant's duties hereunder, reveal or divulge to any person or companies any information concerning the organization, business, finances, transactions or other affairs of the Company, or of any of its subsidiaries, which may come to the Consultant's knowledge during the Term and during the continuance of this Consulting Agreement, and the Consultant will keep in complete secrecy all confidential information entrusted to the Consultant and will not use or attempt to use any such information in any manner which may injure or cause loss either directly or indirectly to the Company's respective businesses. This restriction will continue to apply after the termination of this Consulting Agreement without limit in point of time but will cease to apply to information or knowledge which may come into the public domain. 5. Indemnification. The Company agrees to indemnify and hold Consultant (the --------------- "Indemnified Person") harmless from and against losses, claims, damages, liabilities, costs, or expenses including reasonable attorney's and accountant's fees joint and several arising out of the performance of this Consulting Agreement, whether or not Consultant is a party to such dispute. The Company agrees that it shall also reimburse the Indemnified Person for any attorney's and costs incurred in enforcing this Indemnification against the Company. 6. No Indemnification. This indemnity shall not apply, however, where a court ------------------ of competent jurisdiction has made a final determination that the Consultant engaged in gross recklessness and willful misconduct in the performance of its services hereunder which gave rise to loss, claim, damage, liability, cost or exposure sought to be recovered hereunder. (But pending any such final determination, the indemnification and reimbursement provision of this Consulting Agreement shall apply and the Company shall perform its obligations hereunder to reimburse Consultant for its attorney's fees and expenses). 7. Entire Agreement. This Consulting Agreement sets forth the entire ----------------- understanding of the parties relating to the subject matter hereof, and supersedes and cancels any prior communications, understandings, and agreements between the parties. This Consulting Agreement cannot be modified or changed, nor can any of its provision be waived, except by written agreement signed by all parties. 108 If the Consultant is in accord with the forgoing, please execute a copy of this letter and the same will be binding on the parties. Yours truly, SINOVAC BIOTECH LTD. - -------------------- Per: /s/ Lily Wang - ---------------------------- LILY WANG, Director The forgoing is hereby agreed to this 1st day of November, 2003 and Technique - -------------------------------------------------------------------------------- Capital Corp. declares itself bound to the terms. - ------------------------------------------------- TECHNIQUE CAPITAL CORP. - ----------------------- Per: /s/ Graham Taylor - ---------------------------- Graham Taylor, President EX-10.6 7 sinovacexh10_6.txt SINOVAC BIOTECH 20-F, SHARE PURCHASE AGREEMENT 109 EXHIBIT 10.6 ------------ This is an Exhibit to the Form 20-F of Sinovac Biotech Ltd. ----------------------------------------------------------- Attached find the following materials: Share Purchase Agreement entered into between the Company, ---------------------------------------------------------- Tangshan Yian Biological Engineering Co., Ltd. ---------------------------------------------- and Mr. Heping Wang, dated January 26, 2004 ------------------------------------------- End of Exhibit 10.6 ----------- 110 SHARE PURCAHSE AGREEMENT ------------------------ THIS SHARE PURCAHSE AGREEMENT is dated and made for reference ------------------------------- effective as fully executed on this 26th day of January, 2004. BETWEEN: - ------- SINOVAC BIOTECH LTD., a corporation organized under the laws of --------------------- Country of Antigua and having an address for notice and delivery located at Suite #10-Epicurean, Woods Centre, P.O. Box W-645, St. John's, Antigua, West Indies (the "Purchaser"); OF THE FIRST PART ----------------- AND: - --- TANGSHAN YIAN BIOLOGICAL ENGINEERING, CO., LTD., a corporation -------------------------------------------------- organized under the laws of the People's Republic of China and having an address for notice and delivery located at 120 Huoju Rd., High Tech. Developing Zone Tangshan, Hbei Provence, 063000 P.R. China (the "Company"); OF THE SECOND PART ------------------ AND: - --- THE UNDERSIGNED SHAREHOLDER OF TANGSHAN YIAN BIOLOGICAL ----------------------------------------------------------------- ENGINEERING CO., LTD., having an address for notice and delivery --------------------- located at c/o 120 Huoju Rd., High Tech. Developing Zone Tangshan, Hbei Provence, 063000 P.R. China (such shareholder being hereinafter referred to as the "Vendor"); OF THE THIRD PART ----------------- (the Vendor, the Company and the Purchaser being hereinafter singularly also referred to as a "Party" and collectively referred to as the "Parties" as the context so requires). 111 WHEREAS: ------- A. The Company is a body corporate subsisting under and registered pursuant to the laws of the People's Republic of China; B. The Company is in the business of research and development specializing in the development and manufacturing of various vaccines including flu vaccines and vaccines for Hepatitis A (collectively, the "Company's Business"); C. The Vendor is the legal and beneficial owner of all of the issued and outstanding shares in the capital of the Company (each a "Purchased Share"); the particulars of the registered and beneficial ownership of such Purchased Shares being set forth in Schedule "A" which is attached hereto and which forms a material part hereof; and D. The Parties hereto have agreed to enter into this Share Purchase Agreement (the "Agreement") which formalizes, amends and replaces, in its entirety, the Letter of Intent, dated October 30, 2003 (the "Letter of Intent") as contemplated and required by the terms of such Letter of Intent, and which clarifies their respective duties and obligations in connection with the purchase by the Purchaser from the Vendor of all of the Purchased Shares together with the further development of the Company's Business as a consequence thereof; NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the ---------------------------------------- mutual promises, covenants and agreements herein contained, THE PARTIES HERETO ------------------ COVENANT AND AGREE WITH EACH OTHER as follows: - ---------------------------------- Article 1 --------- DEFINITIONS ----------- 1.1 Definitions. For the purposes of this Agreement, except as otherwise ----------- expressly provided or unless the context otherwise requires, the following words and phrases shall have the following meanings: (a) "Agreement" means this "Share Purchase Agreement" as entered into among the Vendor, the Company and the Purchaser herein, together with any amendments thereto and any Schedules as attached thereto; (b) "Board of Directors" means, as applicable, the respective Board of Directors of each of the Parties hereto as duly constituted from time to time; 112 (c) "business day" means any day during which Canadian Chartered Banks are open for business in the City of Vancouver, Province of British Columbia; (d) "Business Documentation" means any and all records and other factual data and information relating to the Company's Business interests and assets and including, without limitation, all plans, agreements and records which are in the possession or control of Vendor or the Company in that respect; (e) "Closing" has the meaning ascribed to it in Article "6.1" hereinbelow; (f) "Closing Date" has the meaning ascribed to it in Article "6.1" hereinbelow; (g) "Commercial Arbitration Act" means the Arbitration Act of the Province of British Columbia, R.S.B.C. 1996, as amended from time to time, as set forth in Article "11" hereinbelow; (h) "Commissions" means the United States Securities and Exchange Commission; (i) "Common Shares" means the 3,500,000 shares of common stock of the Purchaser to be issued and delivered to the Vendor as part of the Purchase Price of the Purchased Shares; (j) "Company" means Tangshan Yian Biological Engineering Co., Ltd., a corporation organized under the laws of the People's Republic of China, or any successor company, however formed, whether as a result of merger, amalgamation or other action; (k) "Company's Assets" means all assets, contracts, equipment, goodwill, inventory and Intellectual Property of the Company; (l) "Company's Business" has the meaning ascribed to it in recital "B." hereinabove; (m) "Company's Financial Statements" has the meaning ascribed to it in Article "3.3(s)" hereinbelow; (n) "Defaulting Party" and "Non-Defaulting Party" have the meanings ascribed to them in Article "12" hereinbelow; (o) "Encumbrances" means mortgages, liens, charges, security interests, encumbrances and third party claims of any nature; (p) "Exchange" means the NASD Over-the-Counter Bulletin Board; (q) "Execution Date" means the actual date of the complete execution of this Agreement and any amendment thereto by all Parties hereto as set forth on the front page hereof; 113 (r) "Indemnified Party" and "Indemnified Parties" have the meanings ascribed to them in Article "7.1" hereinbelow; (s) "Intellectual Property" means, with respect to the Company, all right and interest to all patents, patents pending, inventions, know-how, any operating or identifying name or registered or unregistered trademarks and tradenames, all computer programs, licensed end-user software, source codes, products and applications (and related documentation and materials) and other works of authorship (including notes, reports, other documents and materials, magnetic, electronic, sound or video recordings and any other work in which copyright or similar right may subsist) and all copyrights (registered or unregistered) therein, industrial designs (registered or unregistered), franchises, licenses, authorities, restrictive covenants or other industrial or intellectual property used in or pertaining to the Company; (t) "Parties" or "Party" means, respectively, the Vendor, the Company and/or the Purchaser hereto, as the case may be, together with their respective successors and permitted assigns as the context so requires; (u) "person" or "persons" means an individual, corporation, partnership, party, trust, fund, association and any other organized group of persons and the personal or other legal representative of a person to whom the context can apply according to law; (v) "Purchased Shares" has the meaning ascribed to it in recital "C." hereinabove; the particulars of the registered and beneficial ownership of such Purchased Securities being set forth in Schedule "A" which is attached hereto; (w) "Purchase Price" has the meaning ascribed to it in Article "2.2" hereinbelow; (x) "Purchaser" means Sinovac Biotech Ltd., a corporation organized under the laws of the Country of Antigua, or any successor company, however formed, whether as a result of merger, amalgamation or other action; (y) "Purchaser's Initial Due Diligence" has the meaning ascribed to it in Article "5.1(b)" hereinbelow; (z) "Purchaser's Ratification" has the meaning ascribed to it in Article "5.1(a)" hereinbelow; (aa) "Takeover" means that transaction or series of transactions pursuant to which the Purchaser will acquire all of the Purchased Shares of the Company from the Vendor in exchange for the issuance from treasury by the Purchaser of the Common Shares and US$2,200,000 payable with 12 months of entering into this Share Purchase Agreement and all matters necessarily ancillary thereto; 114 (ab) "Time of Closing" means 2:00 o'clock, p.m. (Vancouver Time) on the Closing Date; (ac) "Transfer Agent" means Pacific Stock Transfer Company; and (ad) "Vendor" means the sole shareholder of the Company who has executed this Agreement as a Party hereto. 1.2 Schedules. For the purposes of this Agreement, except as otherwise --------- expressly provided or unless the context otherwise requires, the following shall represent the Schedules which are attached to this Agreement and which form a material part hereof: Schedule Description -------- ----------- Schedule "A": Purchased Shares and Vendor; and Schedule "B" Promissory Note issued by the Purchaser. 1.3 Interpretation. For the purposes of this Agreement, except as otherwise -------------- expressly provided or unless the context otherwise requires,: (a) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, section or other subdivision of this Agreement; (b) any reference to an entity shall include and shall be deemed to be a reference to any entity that is a permitted successor to such entity; and (c) words in the singular include the plural and words in the masculine gender include the feminine and neuter genders, and vice versa. Article 2 --------- PURCHASE AND SALE OF THE ALL OF THE PURCHASED SHARES ---------------------------------------------------- 2.1 Purchase and Sale. Subject to the terms and conditions hereof and based ------------------ upon the representations and warranties contained in Articles "3" and "4" hereinbelow and prior satisfaction of the conditions precedent which are set forth in Article "5" hereinbelow, the Vendor hereby agrees to assign, sell and transfer at the Closing Date (as hereinafter determined) all of his respective rights, entitlement and interest in and to the Purchased Shares to the Purchaser and the Purchaser hereby agrees to purchase all of the Purchased Shares from the Vendor on the terms and subject to the conditions contained in this Agreement. 115 2.2 Purchase Price. The total purchase price (the "Purchase Price") for all of -------------- the Purchased Shares will be satisfied by way of the issuance and delivery by the Purchaser to the Vendor, in accordance with section "2.3" hereinbelow, of an aggregate of 3,500,000 common shares in the capital of the Purchaser (each a "Common Share"), at a deemed issuance price of US$0.76 per Common Share and a promissory note issued by the Purchaser to the Vendor in the amount of US$2,200,000, which amount shall be due and payable within 12 months of the effective date of this Agreement, and which is attached hereto as Schedule "C". 2.3 Resale Restrictions. The Vendor hereby acknowledges and agrees that the -------------------- Purchaser makes no representations as to any resale or other restriction affecting the Common Shares and that it is presently contemplated that the Common Shares will be issued by the Purchaser to the Vendor in reliance upon the registration and prospectus exemptions contained in the United States Securities Act of 1933, as amended (the "Securities Act") or "Regulation S" promulgated under the Securities Act which will impose a trading restriction in the United States on the Common Shares for a period of at least 12 months from the Closing Date (as hereinafter determined). In addition, the obligation of the Purchaser to issue the Common Shares pursuant to section "2.2" hereinabove will be subject to the Purchaser being satisfied that an exemption from applicable registration and prospectus requirements is available under the Securities Act and all applicable securities laws, in respect of the Vendor and related Common Shares, and the Purchaser shall be relieved of any obligation whatsoever to purchase any Purchased Shares of the Vendor and to issue Common Shares in respect of the Vendor where the Purchaser reasonably determines that a suitable exemption is not available to it. Article 3 --------- REPRESENTATIONS, WARRANTIES AND COVENANTS ----------------------------------------- BY THE COMPANY AND THE VENDOR ----------------------------- 3.1 General Representations, Warranties and Covenants by the Company and --------------------------------------------------------------------------- Xianping Wang. In order to induce the Purchaser to enter into and consummate - -------------- this Agreement, the Company and Xianping Wang, jointly and severally, represents to, warrants to and covenants with the Purchaser, with the intent that the Purchaser will rely thereon in entering into this Agreement and in concluding the transactions contemplated herein, that, to the best of the knowledge, information and belief of each of Xianping Wang and the Company, after having made due inquiry: (a) if a corporation, it is duly organized under the laws of its respective jurisdiction of incorporation and is validly existing and in good standing with respect to all statutory filings required by the applicable corporate laws; (b) it is qualified to do business in those jurisdictions where it is necessary to fulfill its obligations under this Agreement and it has the full power and authority to enter into this Agreement and any agreement or instrument referred to or contemplated by this Agreement; (c) it has the requisite power, authority and capacity to own and use all of its respective business assets and to carry on its respective 116 business as presently conducted by it and to fulfill its respective obligations under this Agreement; (d) the execution and delivery of this Agreement and the agreements contemplated hereby have been duly authorized by all necessary action, corporate or otherwise, on its respective part; (e) there are no other consents, approvals or conditions precedent to the performance of this Agreement which have not been obtained; (f) this Agreement constitutes a legal, valid and binding obligation of it enforceable against it in accordance with its terms, except as enforcement may be limited by laws of general application affecting the rights of creditors; (g) no proceedings are pending for, and it is unaware of, any basis for the institution of any proceedings leading to its respective dissolution or winding up, or the placing of it in bankruptcy or subject to any other laws governing the affairs of insolvent companies or persons; (h) the making of this Agreement and the completion of the transactions contemplated hereby and the performance of and compliance with the terms hereof does not and will not: (i) if a corporation, conflict with or result in a breach of or violate any of the terms, conditions or provisions of its respective constating documents; (ii) conflict with or result in a breach of or violate any of the terms, conditions or provisions of any law, judgment, order, injunction, decree, regulation or ruling of any Court or governmental authority, domestic or foreign, to which it is subject, or constitute or result in a default under any agreement, contract or commitment to which it is a party; (iii)give to any party the right of termination, cancellation or acceleration in or with respect to any agreement, contract or commitment to which it is a party; (iv) give to any government or governmental authority, or any municipality or any subdivision thereof, including any governmental department, commission, bureau, board or administration agency, any right of termination, cancellation or suspension of, or constitute a breach of or result in a default under, any permit, license, control or authority issued to it which is necessary or desirable in connection with the conduct and operations of its respective business and the ownership or leasing of its respective business assets; or (v) constitute a default by it, or any event which, with the giving of notice or lapse of time or both, might constitute an event of 117 default, under any agreement, contract, indenture or other instrument relating to any indebtedness of it which would give any party to that agreement, contract, indenture or other instrument the right to accelerate the maturity for the payment of any amount payable under that agreement, contract, indenture or other instrument; and (i) neither this Agreement nor any other document, certificate or statement furnished to the Purchaser by or on behalf of any of the Vendor or the Company in connection with the transactions contemplated hereby knowingly or negligently contains any untrue or incomplete statement of material fact or omits to state a material fact necessary in order to make the statements therein not misleading which would likely affect the decision of the Purchaser to enter into this Agreement. 3.2 Representations, Warranties and Covenants by the Vendor respecting the --------------------------------------------------------------------------- Purchased Shares and the Common Shares. In order to induce the Purchaser to - ---------------------------------------- enter into and consummate this Agreement, the Vendor hereby represents to, warrants to and covenants with the Purchaser, with the intent that the Purchaser will also rely thereon in entering into this Agreement and in concluding the transactions contemplated herein, that, to the best of the knowledge, information and belief of the Vendor, after having made due inquiry: (a) save and except as set forth in Schedule "A" which is attached hereto, the Vendor has good and marketable title to and is the legal and beneficial owner of all of the Purchased Shares, and the Purchased Shares are fully paid and non-assessable and are free and clear of liens, charges, encumbrances, pledges, mortgages, hypothecations, security interests and adverse claims of any and all nature whatsoever and including, without limitation, options, pre-emptive rights and other rights of acquisition in favour of any person, whether conditional or absolute; (b) the Vendor has the power and capacity to own and dispose of the Purchased Shares, and the Purchased Shares are not subject to any voting or similar arrangement; (c) there are no actions, suits, proceedings or investigations (whether or not purportedly against or on behalf of the Vendor or the Company), pending or threatened, which may affect, without limitation, the rights of the Vendor to transfer any of the Purchased Shares to the Purchaser at law or in equity, or before or by any federal, state, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and, without limiting the generality of the foregoing, there are no claims or potential claims under any relevant family relations legislation or other equivalent legislation affecting the Purchased Shares. In addition, the Vendor is not now aware of any existing ground on which any such action, suit or proceeding might be commenced with any reasonable likelihood of success; 118 (d) no other person, firm or corporation has any agreement, option or right capable of becoming an agreement for the purchase of any of the Purchased Shares; (e) the Vendor acknowledges that the Common Shares will be issued under certain exemptions from the registration and prospectus filing requirements otherwise applicable under the Securities Act, and that, as a result, the Vendor may be restricted from using most of the remedies that would otherwise be available to the Vendor, the Vendor will not receive information that would otherwise be required to be provided to the Vendor and the Purchaser is relieved from certain obligations that would otherwise apply to the Purchaser, in either case, under applicable securities legislation; (f) the Vendor has not received, nor has the Vendor requested or does the Vendor require to receive, any offering memorandum or a similar document describing the business and affairs of the Purchaser in order to assist the Vendor in entering into this Agreement and in consummating the transactions contemplated herein; (g) the Vendor acknowledges and agrees that the Common Shares have not been and will not be qualified or registered under the securities laws of the United States or any other jurisdiction and, as such, the Vendor may be restricted from selling or transferring such Common Shares under applicable law; (h) the Vendor is resident in the jurisdiction as set forth under the Vendor's address in Schedule "A" which is attached hereto, and that all negotiations and other acts in furtherance of the execution and delivery of this Agreement by the Vendor in connection with the transactions contemplated herein have taken place and will take place solely in such jurisdiction or in the "Country of Antigua; and (i) the Purchased Shares have been issued in accordance with all applicable securities and corporate legislation and policies. 3.3 Representations, Warranties and Covenants by the Company and the Vendor --------------------------------------------------------------------------- respecting the Company. In order to induce the Purchaser to enter into and - ------------------------ consummate this Agreement, each of the Vendor and the Company hereby, jointly and severally, also represents to, warrants to and covenants with the Purchaser, with the intent that the Purchaser will also rely thereon in entering into this Agreement and in concluding the transactions contemplated herein, that, to the best of the knowledge, information and belief of each of the Vendor and the Company, after having made due inquiry: Corporate Status of the Company ------------------------------- (a) the Company is a company with limited liability duly and properly organized and validly subsisting under the laws of the People's Republic of China being the only jurisdiction where it is required to 119 be registered for the purpose of enabling it to carry on its business and own its property as presently carried on and owned; (b) the Company has good and sufficient power, authority and right to own or lease its property, to enter into this Agreement and to perform its obligations hereunder; Authorization ------------- (c) this Agreement has been duly authorized, executed and delivered by the Vendor and the Company and is a legal, valid and binding obligation of the Vendor and the Company, enforceable against the Vendor and/or the Company, as the case may be, by the Purchaser in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and except that equitable remedies may be granted only in the discretion of a court of competent jurisdiction; No Other Agreements to Purchase ------------------------------- (d) no person other than the Purchaser has any written or oral agreement or option or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement, or option for the purchase or acquisition from the Vendor of any of the Purchased Shares; Options ------- (e) no person has any agreement or option or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement, including convertible securities, warrants or convertible obligations of any nature, for the purchase, subscription, allotment or issuance of any unissued shares or other securities of the Company; Title to Shares --------------- (f) the Purchased Shares are beneficially owned by the Vendor with good and marketable title thereto free of all Encumbrances and are registered in the books of the Company in the name of the Vendor and, without limitation thereto, none of the Purchased Shares are subject to any voting trust, unanimous shareholders agreement, other shareholders agreements, pooling agreements or voting agreements; (g) upon completion of the transactions contemplated by this Agreement, all of the Purchased Shares will be owned by the Purchaser as the beneficial owner of record, with good and marketable title thereto (except for such Encumbrances as may have been granted by the Purchaser); 120 Title to Personal Property and Other Property --------------------------------------------- (h) the property and assets of the Company are, and between the date hereof and the Closing Date (as hereinafter determined), will be, owned beneficially by the Company with a good and marketable title thereto, free and clear of all Encumbrances save as previously disclosed to the Purchaser; Intellectual Property --------------------- (i) the Company has provided the Purchaser with a complete and accurate list of all trade marks, trade names, business names, patents, inventions, know-how, copyrights, service marks, brand names, industrial designs and all other industrial or intellectual property owned or used by the Company in carrying on the Company's Business and all applications therefor and all goodwill connected therewith, including, without limitation, all licenses, registered user agreements and all like rights used by or granted to the Company in connection with the Company's Business and all right to register or otherwise apply for the protection on any of the foregoing (collectively, the "Intellectual Property"); (j) the Intellectual Property comprises all trade marks, trade names, business names, patents, inventions, know-how, copyrights, service marks, brand marks, industrial designs and all other industrial or intellectual property necessary to conduct the Company's Business; (k) the Company is the beneficial owner of the Intellectual Property, free and clear of all Encumbrances, and is not a party to or bound by any contract or other obligation whatsoever that limits or impairs its ability to sell, transfer, assign or convey, or that otherwise affects, the Intellectual Property; (l) no person has been granted any interest in or right to use all or any portion of the Intellectual Property; (m) neither the Vendor nor the Company are aware of a claim of any infringement or breach of any industrial or intellectual property rights of any other person by the Company, nor have the Vendor or the Company received any notice that the conduct of the Company's Business infringes or breaches any industrial or intellectual property rights of any other person, and neither the Vendor nor the Company, after due inquiry, have any knowledge of any infringement or violation of any of their rights or the rights of the Company in the Intellectual Property; (n) the conduct of the Company's Business does not infringe upon the patents, trade marks, licenses, trade names, business names, copyright or other industrial or intellectual property rights, domestic or foreign, of any other person; 121 (o) neither the Vendor nor the Company are aware of any state of facts that casts doubt on the validity or enforceability of any of the Intellectual Property; (p) the Company has provided to the Purchaser a true and complete copy of all Contracts and amendments thereto that comprise or relate to the Intellectual Property; Financial Statements -------------------- (q) the Company's Audited Financial Statements dated June 30, 2003, have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with prior periods, are correct and complete and present fairly the assets, liabilities (whether accrued, absolute, contingent or otherwise) and financial condition of the Company as at the respective dates of and for the respective periods covered by the Company's Financial Statements; (r) for any period up to the Time of Closing the Company will not have any debts or liabilities whatsoever (whether accrued, absolute or contingent or otherwise), including any liabilities for federal, provincial, sales, excise, income, corporate or any other taxes of the Company except for; (i) the debts and liabilities disclosed on, provided for or included in the balance sheet forming a part of the most recent of the Company's Financial Statements; (ii) debts or liabilities disclosed in this Agreement or any Schedule hereto; and (iii)liabilities incurred by the Company in the ordinary course of the Company's Business subsequent to the date of the balance sheet referred to in the Company's Financial Statements; Books and Records ----------------- (s) the books and records of the Company fairly and correctly set out and disclose, in all material respects, in accordance with generally accepted accounting principles, consistently applied, the financial condition of the Company as of the date of this Master Agreement and all material financial transactions of the Company have been accurately recorded in such books and records; Corporate Records ----------------- (t) the Corporate records and minute books of the Company contain complete and accurate minutes, (duly signed by the chairman and/or secretary of the appropriate meeting) of all meetings of the directors and shareholders of the Company since its date of incorporation; 122 (u) the share certificate records, the securities register, the register of disclosures , the register of directors and officers for the Company are contained in the corporate minute book and are complete and accurate in all respects; Directors and Officers ---------------------- (v) the present directors and officers of the Company are as follows: Name Position ---- -------- Xianping Wang President and Director Accuracy of Warranties ---------------------- (w) neither this Agreement nor any document, schedule, list, certificate, declaration under oath or written statement now or hereafter furnished by the Vendor or the Company to the Purchaser in connection with the transactions contemplated by this Agreement contains or will contain any untrue statement or representation of a material fact on the part of the Vendor or the Company, or omits or will omit on behalf of the Vendor or the Company to state a material fact necessary to make any such statement or representation therein or herein contained not misleading; and Full Disclosure --------------- (x) the Vendor has no information or knowledge of any fact not communicated to the Purchaser and relating to the Company or to the Company's Business or to the Purchased Shares which, if known to the Purchaser, might reasonably be expected to deter the Purchaser from entering into this Agreement or from completing the transactions contemplated by this Agreement. 3.4 Survival of the Representations, Warranties and Covenants by each of the --------------------------------------------------------------------------- Vendor and the Company. To the extent they have not been fully performed at or - ---------------------- prior to the Time of Closing, each and every representation and warranty of the Vendor or the Company contained in this Agreement and any agreement, instrument, certificate or other document executed or delivered pursuant to this Agreement shall: (a) be true and correct on and as of the Closing Date with the same force and effect as though made or given on the Closing Date; (b) remain in full force and effect notwithstanding any investigations conducted by or on behalf of the Purchaser; and (c) survive the completion of the transactions contemplated by this Agreement until the second anniversary of the Closing Date and shall continue in full force and effect for the benefit of the Purchaser during that period, except that: 123 (i) the representations and warranties set out in section 3.2(a) to and including 3.2(i) above shall survive and continue in full force and effect without limitation of time; and (ii) a claim for any breach of any of the representations and warranties contained in this Agreement or in any agreement, instrument, certificate or other document executed or delivered pursuant hereto involving fraud or fraudulent misrepresentation may be made at any time following the Closing Date, subject only to applicable limitation periods imposed by law. (d) to the extent they have not been fully performed at or prior to the Time of Closing, each and every covenant of the Vendor contained in this Agreement and any agreement, instrument, certificate or other document executed or delivered pursuant to this Agreement shall survive the completion of the transactions contemplated by this Agreement and, notwithstanding such completion, shall continue in full force and effect for the benefit of the Purchaser. Article 4 --------- WARRANTIES, REPRESENTATIONS AND COVENANTS BY THE PURCHASER ---------------------------------------------------------- 4.1 Warranties, Representations and Covenants by the Purchaser. In order to ------------------------------------------------------------- induce the Vendor and the Company to enter into and consummate this Agreement, the Purchaser hereby warrants to, represents to and covenants with each of the Vendor and the Company, with the intent that each of the Vendor and the Company will rely thereon in entering into this Agreement and in concluding the transactions contemplated herein, that, to the best of the knowledge, information and belief of the Purchaser, after having made due inquiry: Corporate Status of the Purchaser --------------------------------- (a) the Purchaser is a company with limited liability duly and properly incorporated, organized and validly subsisting under the laws of the Country of Antigua being the only jurisdiction where it is required to be registered for the purpose of enabling it to carry on its business and own its property as presently carried on and owned; (b) the Purchaser has good and sufficient power, authority and right to own or lease its property, to enter into this Agreement and to perform its obligations hereunder; Authorization ------------- (c) this Agreement has been duly authorized, executed and delivered by the Purchaser and is a legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser, as the case may be, by the Vendor and/or the Company in accordance with its terms, except as 124 enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and except that equitable remedies may be granted only in the discretion of a court of competent jurisdiction; Share Capital ------------- (d) the authorized capital of the Purchaser consists of 100,000,000 shares of common stock of which 27,091,033 shares of common stock of the Purchaser have been duly issued and are outstanding as fully paid and non-assessable, and 50,000,000 shares of preferred stock of which no shares of preferred stock are issued and outstanding; (e) all of the issued and outstanding shares of the Purchaser are listed and posted for trading on the Exchange; (f) the Purchaser will allot and issue the Common Shares on the Closing Date in accordance with sections "2.2" and "2.3" hereinabove as fully paid and non-assessable in the capital of the Purchaser, free and clear of all actual or threatened liens, charges, security interests, options, encumbrances, voting agreements, voting trusts, demands, limitations and restrictions of any nature whatsoever, other than hold periods or other restrictions imposed under applicable securities legislation or by securities regulatory authorities; Options ------- (g) no person has any agreement or option or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement, including convertible securities, warrants or convertible obligations of any nature, for the purchase, subscription, allotment or issuance of any unissued shares or other securities of the Purchaser except for 3,000,000 stock options exercisable at US$1.31 per share which have been granted to directors, officers, employees and consultants of the Purchaser; Directors and Officers ---------------------- (h) the present directors and officers of the Purchaser are as follows: Name Position ---- -------- Wei Dong Yin Director, President and CEO; Lily Wang Director and CFO; He Ping Wang Director Kim Kiat Ong Director Full Disclosure --------------- (i) the Purchaser has no information or knowledge of any fact not communicated to the Vendor and the Company and relating to the Purchaser or to the Purchaser's business or to its issued and outstanding securities which, if known to the Vendor and/or the 125 Company, might reasonably be expected to deter the Vendor and/or the Company from entering into this Agreement or from completing the transactions contemplated by this Agreement. 4.2 Survival of the Representations, Warranties and Covenants by the Purchaser. --------------------------------------------------------------------------- To the extent they have not been fully performed at or prior to the Time of Closing, each representation and warranty of the Purchaser contained in this Agreement or in any document, instrument, certificate or undertaking given pursuant hereto shall: (a) be true and correct on and as of the Closing Date with the same force and effect as though made or given on the Closing Date; (b) remain in full force an effect notwithstanding any investigations conducted by or on behalf of the Purchaser, and (c) survive the completion of the transactions contemplated by this Agreement until the second anniversary of the Closing Date and shall continue in full force and effect for the benefit of the Vendor and the Company during that period, except that a claim for any breach of any of the representations and warranties contained in this Agreement or in any agreement, instrument, certificate or other document executed or delivered pursuant hereto involving fraud or fraudulent misrepresentation may be made at any time following the Closing Date, subject only to applicable limitation periods imposed by law. (d) To the extent they have not been fully performed at or prior to the Time of Closing, each and every covenant of the Purchaser contained in this Agreement and any agreement, instrument, certificate or other document executed or delivered pursuant to this Agreement shall survive the completion of the transactions contemplated by this Agreement and, notwithstanding such completion, shall continue in full force and effect for the benefit of the Vendor and the Company. Article 5 --------- CONDITIONS PRECEDENT TO CLOSING ------------------------------- 5.1 Parties' Conditions Precedent prior to the Closing Date. All of the rights, ------------------------------------------------------- duties and obligations of each of the Parties hereto under this Agreement are subject to the following conditions precedent for the exclusive benefit of each of the Parties to be fulfilled in all material aspects in the reasonable opinion of each of the Parties or to be waived by each or any of the Parties, as the case may be, as soon as possible after the Execution Date; however, unless specifically indicated as otherwise, not later than the Time of Closing: (a) the specific ratification of the terms and conditions of this Agreement by the Board of Directors of the Purchaser within five business days of the due and complete execution of this Agreement by each of the Parties hereto (the "Purchaser's Ratification"); 126 (b) the completion by the Purchaser of an initial due diligence and operations review of the Company's Business and operations within five (5) calendar days of the prior satisfaction by the Purchaser of the Purchaser's Ratification (the "Purchaser's Initial Due Diligence"); 5.2 Parties' Waiver of Conditions Precedent. The conditions precedent set forth --------------------------------------- in section "5.1" hereinabove are for the exclusive benefit of each of the Parties hereto and may be waived by each of the Parties in writing and in whole or in part at or prior to the Time of Closing. 5.3 The Vendor's and the Company's Conditions Precedent. The purchase and sale --------------------------------------------------- of the Purchased Securities is subject to the following terms and conditions for the exclusive benefit of the Vendor and the Company, to be fulfilled or performed at or prior to the Time of Closing: (a) the representations and warranties of the Purchaser contained in this Agreement shall be true and correct in all material respects at the Time of Closing, with the same force and effect as if such representations and warranties were made at and as of such time; (b) all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Purchaser at or before the Time of Closing shall have been complied with or performed in all material respects; (c) there shall have been obtained, from all appropriate federal, provincial, municipal or other governmental or administrative bodies, such licenses, permits, consents, approvals, certificates, registrations and authorizations as are required by law, if any, to be obtained by the Purchaser to permit the change of ownership of the Purchased Shares contemplated hereby, in each case in form and substance satisfactory to the Vendor and the Company, acting reasonably; (d) no legal or regulatory action or proceeding shall be pending or threatened by any person to enjoin, restrict or prohibit the purchase and sale of the Purchased Shares contemplated hereby; If any of the conditions contained in this section 5.3 shall not be performed or fulfilled at or prior to the Time of Closing to the satisfaction of the Vendor and the Company, acting reasonably, the Vendor and/or the Company may, by notice to the Purchaser, terminate this Agreement and the obligations of the Vendor, the Company and the Purchaser under this Agreement, other than the obligations contained in Article 8 hereinbelow, shall be terminated, provided that the Vendor and the Company may also bring an action pursuant to Article 7 against the Purchaser for damages suffered by the Vendor and/or the Company where the non-performance or non-fulfillment of the relevant condition is as a result of a breach of covenant, representation or warranty by the Purchaser. Any such condition may be waived in whole or in part by the Vendor and the Company in writing without prejudice to any claims it may have for breach of covenant, representation or warranty. 127 5.4 Purchaser's Conditions Precedent prior to the Closing Date. The sale and ------------------------------------------------------------- purchase of the Purchased Shares is subject to the following terms and conditions for the exclusive benefit of the Purchaser, to be fulfilled or performed at or prior to the Time of Closing: (a) the representations and warranties of the Vendor and the Company contained in this Agreement shall be true and correct at the Time of Closing, with the same force and effect as if such representations and warranties were made at and as of such time; (b) all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Vendor and the Company at or before the Time of Closing shall have been complied with or performed; (c) there shall have been obtained, from all appropriate federal, provincial, municipal or other governmental or administrative bodies, such licenses, permits, consents, approvals, certificates, registrations and authorizations as are required to be obtained, if any, by the Vendor and the Company to permit the change of ownership of the Purchased Shares contemplated hereby; (d) there shall have been no material adverse changes in the condition (financial or otherwise), assets, liabilities, operations, earnings, the Company's Business or prospects of the Company since the date of the Company's Financial Statements; (e) no legal or regulatory action or proceeding shall be pending or threatened by any person to enjoin, restrict or prohibit the purchase and sale of the Purchased Shares contemplated hereby; (f) no material damage by fire or other hazard to the whole or any material part of the property or assets of the Company shall have occurred from the date hereof to the Time of Closing; If any of the conditions contained in this section 5.4 shall not be performed or fulfilled at or prior to the Time of Closing to the satisfaction of the Purchaser, acting reasonably, the Purchaser may, by notice to the Vendor and the Company, terminate this Agreement and the obligations of the Vendor, the Company and the Purchaser under this Agreement, other than the obligations set forth in Article 8, shall be terminated, provided that the Purchaser may also bring an action pursuant to Article 7 against the Vendor and/or the Company for damages suffered by the Purchaser where the non-performance or non-fulfillment of the relevant condition is as a result of a breach of covenant, representation or warranty by the Vendor or the Company. Any such condition may be waived in whole or in part by the Purchaser without prejudice to any claims it may have for breach of covenant, representation or warranty. 128 Article 6 --------- CLOSING AND EVENTS OF CLOSING ----------------------------- 6.1 Closing and Closing Date. The closing (the "Closing") of the within --------------------------- purchase and delivery of the Purchased Shares, as contemplated in the manner as set forth in Article "2" hereinabove, together with all of the transactions contemplated by this Agreement shall occur on January 29, 2004 (the "Closing Date"), or on such earlier or later Closing Date as may be agreed to in advance and in writing by each of the Parties hereto, and will be closed at the offices of solicitors for the Purchaser, Devlin Jensen, Barristers and Solicitors, located at Suite 2550 - 555 W. Hastings St., Vancouver, B.C., V6B 4N5, at 2:00 p.m. (Vancouver time) on the Closing Date. 6.2 Latest Closing Date. If the Closing Date has not occurred by January 31, --------------------- 2004, subject to an extension as may be mutually agreed to by the Parties for a maximum of 14 days per extension, then the Purchaser and the Vendor shall each have the option to terminate this Agreement by delivery of written notice to the other Party. Upon delivery of such notice, this Agreement shall cease to be of any force and effect except for Article "8" hereinbelow, which shall remain in full force and effect notwithstanding the termination of this Agreement. 6.3 Documents to be delivered by the Company and the Vendor prior to the --------------------------------------------------------------------------- Closing Date. Not later than five calendar days prior to the Closing Date, and - ------------ in addition to the documentation which is required by the agreements and conditions precedent which are set forth hereinabove, the Company and the Vendor shall also execute and deliver or cause to be delivered to Purchaser's counsel all such other documents, resolutions and instruments as may be necessary, in the opinion of counsel for the Purchaser, acting reasonably, to complete all of the transactions contemplated by this Agreement and including, without limitation, the necessary transfer of all of the Purchased Shares to the Purchaser free and clear of all liens, security interests, charges and encumbrances, and in particular including, but not being limited to, the following materials: (a) all documentation as may be necessary and as may be required by the solicitors for the Purchaser, acting reasonably, to ensure that all of the Purchased Shares have been transferred, assigned and are registerable in the name of and for the benefit of the Purchaser under all applicable corporate and securities laws; (b) certificates representing the Purchased Shares registered in the name of the Vendor, duly endorsed for transfer to the Purchaser and/or irrevocable stock powers transferring the Purchased Shares to the Purchaser; (c) certificates representing the Purchased Shares registered in the name of the Purchaser; (d) a certified copy of the resolutions of the directors (and of the Vendor/shareholder, if necessary) of the Company authorizing the transfer by the Vendor to the Purchaser of the Purchased Shares; 129 (e) a copy of all corporate records and books of account of the Company and including, without limiting the generality of the foregoing, a copy of all minute books, share register books, share certificate books and annual reports of the Company; (f) all remaining Business Documentation; and (g) all such other documents and instruments as the Purchaser's solicitors may reasonably require. 6.4 Documents to be delivered by the Purchaser prior to the Closing Date. Not --------------------------------------------------------------------- later than the Closing Date, and in addition to the documentation which is required by the agreements and conditions precedent which are set forth hereinabove, the Purchaser shall also execute and deliver or cause to be delivered to the Company's and the Vendor's counsel, all such other documents, resolutions and instruments that may be necessary, in the opinion of counsel for the Company and the Vendor, acting reasonably, to complete all of the transactions contemplated by this Agreement and including, without limitation, the necessary acceptance of the transfer of all of the Purchased Shares to the Purchaser free and clear of all liens, charges and encumbrances, and in particular including, but not being limited to, the following materials: (a) a copy of the resolutions of the directors of the Purchaser providing for the approval of all of the transactions contemplated hereby; (b) an executed treasury order of the Purchaser providing for the due issuance of all of the Purchase Price Common Shares to the order and direction of the Vendor in accordance with section "2.2" and "2.3" hereinabove; and (c) all such other documents and instruments as the Company's and the Vendors' respective solicitors may reasonably require. Article 7 --------- INDEMNIFICATION AND LEGAL PROCEEDINGS ------------------------------------- 7.1 Indemnification. The Parties hereto agree to indemnify and save harmless --------------- the other Parties hereto and including, where applicable, their respective affiliates, directors, officers, employees and agents (each such party being an "Indemnified Party") harmless from and against and agree to be liable for any and all losses, claims, actions, suits, proceedings, damages, liabilities or expenses of whatever nature or kind, including any investigation expenses incurred by any Indemnified Party, to which an Indemnified Party may become subject by reason of the terms and conditions of this Agreement. 7.2 No Indemnification. This indemnity will not apply in respect of an ------------------- Indemnified Party in the event and to the extent that a court of competent 130 jurisdiction in a final judgment shall determine that the Indemnified Party was grossly negligent or guilty of willful misconduct. 7.3 Claim of Indemnification. The Parties hereto agree to waive any right they ------------------------ might have of first requiring the Indemnified Party to proceed against or enforce any other right, power, remedy, security or claim payment from any other person before claiming this indemnity. 7.4 Notice of Claim. In case any action is brought against an Indemnified Party --------------- in respect of which indemnity may be sought against any of the Parties hereto, the Indemnified Party will give the relevant Party hereto prompt written notice of any such action of which the Indemnified Party has knowledge and such Party will undertake the investigation and defense thereof on behalf of the Indemnified Party, including the prompt consulting of counsel acceptable to the Indemnified Party affected and the payment of all expenses. Failure by the Indemnified Party to so notify shall not relieve any Party hereto of such Party's obligation of indemnification hereunder unless (and only to the extent that) such failure results in a forfeiture by any Party hereto of substantive rights or defenses. 7.5 Settlement. No admission of liability and no settlement of any action shall ---------- be made without the consent of each of the Parties hereto and the consent of the Indemnified Party affected, such consent not to be unreasonably withheld. 7.6 Legal Proceedings. Notwithstanding that the relevant Party hereto will ------------------ undertake the investigation and defense of any action, an Indemnified Party will have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel will be at the expense of the Indemnified Party unless: (a) such counsel has been authorized by the relevant Party hereto; (b) the relevant Party hereto has not assumed the defense of the action within a reasonable period of time after receiving notice of the action; (c) the named parties to any such action include that any Party hereto and the Indemnified Party shall have been advised by counsel that there may be a conflict of interest between any Party hereto and the Indemnified Party; or (d) there are one or more legal defenses available to the Indemnified Party which are different from or in addition to those available to any Party hereto. 7.7 Contribution. If for any reason other than the gross negligence or bad ------------ faith of the Indemnified Party being the primary cause of the loss claim, damage, liability, cost or expense, the foregoing indemnification is unavailable to the Indemnified Party or insufficient to hold them harmless, the relevant 131 Party hereto shall contribute to the amount paid or payable by the Indemnified Party as a result of any and all such losses, claim, damages or liabilities in such proportion as is appropriate to reflect not only the relative benefits received by any Party hereto on the one hand and the Indemnified Party on the other, but also the relative fault of the Parties and other equitable considerations which may be relevant. Notwithstanding the foregoing, the relevant Party hereto shall in any event contribute to the amount paid or payable by the Indemnified Party, as a result of the loss, claim, damage, liability, cost or expense (other than a loss, claim, damage, liability, cost or expenses, the primary cause of which is the gross negligence or bad faith of the Indemnified Party), any excess of such amount over the amount of the fees actually received by the Indemnified Party hereunder. Article 8 --------- NON-DISCLOSURE -------------- 8.1 Public Announcements and Disclosure to Regulatory Authorities. All -------------------------------------------------------------------- information relating to the Agreement and the transaction contemplated therein shall be treated as confidential and no public disclosure shall be made by any Party without the prior approval of the Company and the Purchaser. Notwithstanding the provisions of this Article, the Parties hereto agree to make such public announcements and disclosure to the Regulatory Authorities of this Agreement promptly upon its execution all in accordance with the requirements of applicable securities legislation and regulations. Article 9 --------- ASSIGNMENT AND AMENDMENT ------------------------ 9.1 Assignment. Save and except as provided herein, no Party hereto may sell, ---------- assign, pledge or mortgage or otherwise encumber all or any part of its respective interest herein without the prior written consent of all of the other Parties hereto. 9.2 Amendment. This Agreement and any provision thereof may only be amended in --------- writing and only by duly authorized signatories of each of the respective Parties hereto. Article 10 ---------- FORCE MAJEURE ------------- 10.1 Events. If any Party hereto is at any time prevented or delayed in ------ complying with any provisions of this Agreement by reason of strikes, walk-outs, labour shortages, power shortages, fires, wars, acts of God, earthquakes, storms, floods, explosions, accidents, protests or demonstrations by environmental lobbyists or native rights groups, delays in transportation, breakdown of machinery, inability to obtain necessary materials in the open market, unavailability of equipment, governmental regulations restricting normal operations, shipping delays or any other reason or reasons beyond the control of 132 that Party, then the time limited for the performance by that Party of its respective obligations hereunder shall be extended by a period of time equal in length to the period of each such prevention or delay. 10.2 Notice. A Party shall, within seven calendar days, give notice to the ------ other Parties of each event of force majeure under section "10.1" hereinabove, and upon cessation of such event shall furnish the other Parties with notice of that event together with particulars of the number of days by which the obligations of that Party hereunder have been extended by virtue of such event of force majeure and all preceding events of force majeure. Article 11 ---------- ARBITRATION ----------- 11.1 Matters for Arbitration. The Parties agree that all questions or matters ----------------------- in dispute with respect to this Agreement shall be submitted to arbitration pursuant to the terms hereof. 11.2 Notice. It shall be a condition precedent to the right of any Party to ------ submit any matter to arbitration pursuant to the provisions hereof that any Party intending to refer any matter to arbitration shall have given not less than 10 calendar days' prior written notice of its intention to do so to the other Party together with particulars of the matter in dispute. On the expiration of such 10 calendar days the Party who gave such notice may proceed to refer the dispute to arbitration as provided in section "11.3" hereinbelow. 11.3 Appointments. The Party desiring arbitration shall appoint one arbitrator, ------------ and shall notify the other Party of such appointment, and the other Party shall, within two calendar days after receiving such notice, appoint an arbitrator, and the two arbitrators so named, before proceeding to act, shall, within 10 calendar days of the appointment of the last appointed arbitrator, unanimously agree on the appointment of a third arbitrator, to act with them and be chairman of the arbitration herein provided for. If the other Party shall fail to appoint an arbitrator within 10 calendar days after receiving notice of the appointment of the first arbitrator, and if the two arbitrators appointed by the Parties shall be unable to agree on the appointment of the chairman, the chairman shall be appointed under the provisions of the Commercial Arbitration Act (British Columbia) (the "Arbitration Act"). Except as specifically otherwise provided in this section, the arbitration herein provided for shall be conducted in accordance with such Arbitration Act. The chairman, or in the case where only one arbitrator is appointed, the single arbitrator, shall fix a time and place in Vancouver, British Columbia, for the purpose of hearing the evidence and representations of the Parties, and he shall preside over the arbitration and determine all questions of procedure not provided for under such Arbitration Act or this section. After hearing any evidence and representations that the Parties may submit, the single arbitrator, or the arbitrators, as the case may be, shall make an award and reduce the same to writing, and deliver one copy thereof to each of the Parties. The expense of the arbitration shall be paid as specified in the award. 133 11.4 Award. The Parties agree that the award of a majority of the arbitrators, ----- or in the case of a single arbitrator, of such arbitrator, shall be final and binding upon each of them. Article 12 ---------- DEFAULT AND TERMINATION ----------------------- 12.1 Default. The Parties hereto agree that if any Party hereto is in default ------- with respect to any of the provisions of this Agreement (herein called the "Defaulting Party"), the non-defaulting Party (herein called the "Non-Defaulting Party") shall give notice to the Defaulting Party designating such default, and within 10 calendar days after its receipt of such notice, the Defaulting Party shall either: (a) cure such default, or commence proceedings to cure such default and prosecute the same to completion without undue delay; or (b) give the Non-Defaulting Party notice that it denies that such default has occurred and that it is submitting the question to arbitration as herein provided. 12.2 Arbitration. If arbitration is sought, a Party shall not be deemed in ----------- default until the matter shall have been determined finally by appropriate arbitration under the provisions of Article "11" hereinabove. 12.3 Curing the Default. If: ------------------ (a) the default is not so cured or the Defaulting Party does not commence or diligently proceed to cure the default; or (b) arbitration is not so sought; or (c) the Defaulting Party is found in arbitration proceedings to be in default, and fails to cure it within five calendar days after the rendering of the arbitration award, the Non-Defaulting Party may, by written notice given to the Defaulting Party at any time while the default continues, terminate the interest of the Defaulting Party in and to this Agreement. 12.4 Termination. In addition to the foregoing it is hereby acknowledged and ----------- agreed by the Parties hereto that this Agreement will be terminated in the event that: 134 (a) the Purchaser's Ratification is not received within five business days of the due and complete execution of this Agreement by each of the Parties hereto; (b) the Purchaser fails to complete a successful and Purchaser's Initial Due Diligence review of the Company's business and operations within five (5) calendar days of the prior satisfaction by the Purchaser of the Purchaser's Ratification; (c) the conditions specified in section "5.1" hereinabove have not been satisfied at or prior to the Time of Closing; (d) either of the Parties hereto has not either satisfied or waived each of their respective conditions precedent at or prior to the Time of Closing in accordance with the provisions of Article "5" hereinabove; (e) either of the Parties hereto has failed to deliver or caused to be delivered any of their respective documents required to be delivered by Articles "5" and "6" hereinabove at or prior to the Time of Closing in accordance with the provisions of Articles "5" and "6"; or (f) by Closing has not occurred on or before January 31, 2004, or such later date, all in accordance with section "6.2" hereinabove; or (g) by agreement in writing by each of the Parties hereto; and in such event this Agreement will be terminated and be of no further force and effect other than the obligations under Article "8" hereinabove. Article 13 ---------- NOTICE ------ 13.1 Notice. Each notice, demand or other communication required or permitted ------ to be given under this Agreement shall be in writing and shall be sent by prepaid registered mail deposited in a post office addressed to the Party entitled to receive the same, or delivered to such Party, at the address for such Party specified above. The date of receipt of such notice, demand or other communication shall be the date of delivery thereof if delivered, or, if given by registered mail as aforesaid, shall be deemed conclusively to be the third calendar day after the same shall have been so mailed, except in the case of interruption of postal services for any reason whatsoever, in which case the date of receipt shall be the date on which the notice, demand or other communication is actually received by the addressee. 13.2 Change of Address. Either Party may at any time and from time to time ----------------- notify the other Party in writing of a change of address and the new address to which notice shall be given to it thereafter until further change. 135 Article 14 ---------- GENERAL PROVISIONS ------------------ 14.1 Entire Agreement. This Agreement constitutes the entire agreement to ---------------- date between the Parties hereto and supersedes every previous agreement, communication, expectation, negotiation, representation or understanding, whether oral or written, express or implied, statutory or otherwise, between the Parties with respect to the subject matter of this Agreement and including, without limitation, the agreement as between the Purchaser, the Vendor and the Company. 14.2 Enurement. This Agreement will enure to the benefit of and will be --------- binding upon the Parties hereto, their respective heirs, executors, administrators and assigns. 14.3 Schedules. The Schedules to this Agreement are hereby incorporated by --------- reference into this Agreement in its entirety. 14.4 Time of the Essence. Time will be of the essence of this Agreement. ------------------- 14.5 Representation and Costs. It is hereby acknowledged by each of the ------------------------ Parties hereto that, as between the Parties hereto, Devlin Jensen, Barristers and Solicitors, acts solely for the Purchaser, and that each of the Vendor and the Company have been advised by Devlin Jensen to obtain independent legal advice with respect to their respective reviews and execution of this Agreement. In addition, it is hereby further acknowledged and agreed by the Parties hereto that each Party to this Agreement will bear and pay its own costs, legal and otherwise, in connection with its respective preparation, review and execution of this Agreement, and, in particular, that the costs involved in the preparation of this Agreement, and all documentation necessarily involved thereto, by Devlin Jensen shall be at the cost of the Purchaser. 14.6 Applicable Law. The situs of this Agreement is Vancouver, British -------------- Columbia and for all purposes this Agreement will be governed exclusively by and construed and enforced in accordance with the laws and Courts prevailing in the Province of British Columbia. 14.7 Further Assurances. The Parties hereto hereby, jointly and severally, ------------------- covenant and agree to forthwith, upon request, execute and deliver, or cause to be executed and delivered, such further and other deeds, documents, assurances and instructions as may be required by the Parties hereto or their respective counsel in order to carry out the true nature and intent of this Agreement. 14.8 Severability and Construction. Each Article, section, paragraph, term ----------------------------- and provision of this Agreement, and any portion thereof, shall be considered 136 severable, and if, for any reason, any portion of this Agreement is determined to be invalid, contrary to or in conflict with any applicable present or future law, rule or regulation in a final unappealable ruling issued by any court, agency or tribunal with valid jurisdiction in a proceeding to any of the Parties hereto is a party, that ruling shall not impair the operation of, or have any other effect upon, such other portions of this Agreement as may remain otherwise intelligible (all of which shall remain binding on the Parties and continue to be given full force and agreement as of the date upon which the ruling becomes final). 14.9 Captions. The captions, section numbers, Article numbers and Schedule -------- numbers appearing in this Agreement are inserted for convenience of reference only and shall in no way define, limit, construe or describe the scope or intent of this Agreement nor in any way affect this Agreement. 14.10 Currency. Unless otherwise stipulated, all references to money amounts -------- herein shall be in lawful money of the United States. 14.11 Counterparts. This Agreement may be signed by the Parties hereto in as ------------ many counterparts as may be necessary, and via facsimile if necessary, each of which so signed being deemed to be an original and such counterparts together constituting one and the same instrument and, notwithstanding the date of execution, being deemed to bear the effective Execution Date as set forth on the front page of this Agreement. 14.12 No Partnership or Agency. The Parties hereto have not created a ------------------------- partnership and nothing contained in this Agreement shall in any manner whatsoever constitute any Party the partner, agent or legal representative of any other Party, nor create any fiduciary relationship between them for any purpose whatsoever. No Party shall have any authority to act for, or to assume any obligations or responsibility on behalf of, any other party except as may be, from time to time, agreed upon in writing between the Parties or as otherwise expressly provided. 14.13 Consents and Waivers. No consent or waiver expressed or implied by -------------------- either Party hereto in respect of any breach or default by any other Party in the performance by such other of its obligations hereunder shall: (a) be valid unless it is in writing and stated to be a consent or waiver pursuant to this section; (b) be relied upon as a consent to or waiver of any other breach or default of the same or any other obligation; (c) constitute a general waiver under this Agreement; or (d) eliminate or modify the need for a specific consent or waiver pursuant to this section in any other or subsequent instance. 137 IN WITNESS WHEREOF each of the Parties hereto has hereunto executed ------------------- this Agreement as of the Execution Date as set forth on the front page of this Agreement. SIGNED and DELIVERED by ) HE PING WANG, a Vendor ) - ------------ ) herein, in the presence of: ) ) ) Witness Signature ) /s/ He Ping Wang ) -------------------------------- ) HE PING WANG ) Witness Address ) ) ) Witness Name and Occupation ) TANGSHAN YIAN BIOLOGICAL ) - ------------------------ ) ENGINEERING CO., LTD., the Company ) - --------------------- ) herein, ) ) ) Per: /s/ Xianping Wang ) - --------------------------------- ) Authorized Signatory ) SINOVAC BIOTECH LTD., the ) - -------------------- ) Purchaser herein, ) ) ) Per: /s/ Wei Dong Yin ) - --------------------------------- ) Authorized Signatory ) 138 Schedule A ---------- This is Schedule "A" to that certain Share Purchase Agreement among Sinovac Biotech Ltd., Tangshan Yian Biological Engineering Co., Ltd. and the Vendor shareholder of Tangshan Yian Biological Engineering Co., Ltd. Purchased Securities and Vendors -------------------------------- Authorized Capital: unlimited common shares ------------------ Issued Capital: 9,335,435 common shares -------------- Vendor: ------ He Ping Wang: 9,335,435 common shares. ------------ C/o 120 Huoju Rd. High Tech. Developing Zone Tangshan, Hbei Provence 063000 P.R. China 139 Schedule B ---------- This is Schedule "B" to that certain Share Purchase Agreement among Sinovac Biotech Ltd., Tangshan Yian Biological Engineering Co., Ltd. and the Vendor shareholder of Tangshan Yian Biological Engineering Co., Ltd. Promissory Note Issued by Sinovac Biotech Ltd. to Tangshan Yian --------------------------------------------------------------- Biological Engineering Co., Ltd. -------------------------------- Refer to the materials attached hereto. --------------------------------------- ---------- 140 PROMISSORY NOTE --------------- Principal: US$2,200,000 Made and Dated at: Vancouver, B.C. Interest: 0% per annum Issuance Date: January 26, 2004 Maturity Date: January 26, 2005 Borrower: Sinovac Biotech Ltd. Lender: He Ping Wang FOR VALUABLE CONSIDERATION, receipt whereof is hereby acknowledged, the Borrower - -------------------------- hereby promises to pay to the Lender (also called the "holder"), or the authorized and registered subsequent holder of this promissory note (the "Note"), the principal sum of $2,200,000 in lawful money of the United States (hereinafter referred to as the "Principal Amount"), with no interest. The Principal Amount, as specified above, is due and payable by the Borrower on the Maturity Date. The Borrower may prepay any amount of the Principal Amount at any time prior to the Maturity Date without penalty and this Note shall be discharged in respect to the amount paid. If the Borrower fails to make payment of the Principal Amount on the Maturity Date, the balance of the Principal Amount under this Promissory Note will become immediately due and payable. To secure payment of the Principal Amount hereunder, the Borrower hereby irrevocably appoints and authorizes any representative of the holder to appear before a court of competent jurisdiction and enter judgment, without process, in favour of the holder for any unpaid Principal Amount, and the Borrower waives and releases all errors which may intervene and consents to immediate execution upon such judgment. The Borrower hereby waives demand, presentment for payment, notice of non-payment, and protest. If any provision of this Note is held to be invalid, illegal, or unenforceable, then such shall not affect or impair the validity, legality, or enforceability of the remaining provisions. WITNESS the hand and seal of the Borrower as of the 26th day of January, 2004. SINOVAC BIOTECH LTD. - -------------------- per: /s/ Wei Dong Yin - --------------------------------- Authorized Signatory EX-10.7 8 sinovacexh10_7.txt SINOVAC BIOTECH 20-F, CONSULTING/FINDERS AGREE. 141 EXHIBIT 10.7 ------------ This is an Exhibit to the Form 20-F of Sinovac Biotech Ltd. ----------------------------------------------------------- Attached find the following materials: Consulting Services and Finder's Fee Agreement entered into ----------------------------------------------------------- between the Company and Roberto Ebrahimi, dated April 23, 2004 -------------------------------------------------------------- End of Exhibit 10.7 ------------ 142 CONSULTING SERVICES ------------------- AND FINDER'S FEE AGREEMENT -------------------------- THIS CONSULTING SERVICES AND FINDER'S FEE AGREEMENT is made and dated ---------------------------------------------------- for reference as fully executed on this 23rd day of April, 2004. BETWEEN: - ------- SINOVAC BIOTECH LTD., a company incorporated under the laws of --------------------- Antigua, West Indies, and having an address for notice and delivery located at No. 6 Temple Street, P.O. Box 2372, St John's, Antigua, West Indies (the "Company"); OF THE FIRST PART ----------------- AND: - --- ROBERTO (BAHRAM) EBRAHIMI, an individual businessman having an -------------------------- address for notice and delivery located at ______________________ (the "Consultant"); OF THE SECOND PART ------------------ (the Company and the Consultant being hereinafter singularly also referred to as a "Party" and collectively referred to as the "Parties" as the context so requires). WHEREAS: ------- A. The Company is presently a reporting development stage company duly incorporated under the laws of Antigua, West Indies, whose common shares are presently listed for trading on the NASD Over-the-counter Bulletin Board; B. The Consultant specializes in providing various corporate consulting and financing services to companies and their principals and in assisting such reporting companies in securing various financing and development alternatives; 143 C. The Company is in the principal business of the development and commercialization of human vaccines for infectious illnesses such as Hepatitis A and Hepatitis B, influenza and "SARS" (each such product and potential product and the manufacture and distribution thereof being a "Project" herein), and it is the Company's present intention to seek assistance in procuring potential financiers in connection with the financing and development of all such Projects (each such procurement being a "Proposed Transaction"); and D. In the furtherance of the Consultant's proposed service to the Company on behalf of and at the direction of the Company the Company hereby wishes to formally retain the Consultant to provide certain corporate consulting services to the Company and to any of its subsidiaries and, in addition, to act as the Company's non-exclusive advisor in order to solicit offers from, and to assist in the negotiations with, potential Project financiers in order to effect a Proposed Transaction in connection with any such Project, and the Company has hereby agreed that the Consultant shall be entitled to a finder's fee from the Company in conjunction with the successful completion of any such Proposed Transaction all on the terms and conditions as set forth in this agreement (the "Agreement"); NOW THEREFORE THIS AGREEMENT WITNESSETH that, in consideration of the ---------------------------------------- mutual covenants and provisos herein contained, THE PARTIES HERETO AGREE AS ---------------------------- FOLLOWS: - ------- Article I --------- INTERPRETATION -------------- 1.1 Definitions. For all purposes of this Agreement, except as otherwise ----------- expressly provided or unless the context otherwise requires, the following words and phrases shall have the following meanings: (a) "Agreement" means this Consulting Services and Finder's Fee Agreement as from time to time supplemented or amended by one or more agreements entered into pursuant to the applicable provisions hereof; (b) "Arbitration Act" means the Commercial Arbitration Act (British Columbia), R.S.B.C. 1996, as amended, as set forth in Article "10" hereinbelow; (c) "Board of Directors" means the Board of Directors of the Company as duly constituted from time to time; 144 (d) "business day" means any day during which Canadian Chartered Banks are open for business in the City of Vancouver, Province of British Columbia; (e) "Company" means Sinovac Biotech Ltd., a company incorporated under the laws of Antigua, West Indies, or any successor company, however formed, whether as a result of merger, amalgamation or other action; (f) "Company's Non-Renewal Notice" has the meaning ascribed to it in section "3.2" hereinbelow; (g) "Company's Notice of Termination" has the meaning ascribed to it in section "3.4" hereinbelow; (h) "Completed Transaction" has the meaning ascribed to it in section "5.1" hereinbelow; (i) "Consultant" means Roberto (Bahram) Ebrahimi, an individual businessman; (j) "Effective Date" has the meaning ascribed to it in section "3.1" hereinbelow; (k) "Effective Termination Date" has the meaning ascribed to it in section "3.4" hereinbelow; (l) "Expenses" has the meaning ascribed to it in section "4.2" hereinbelow; (m) "Fee" has the meaning ascribed to it in section "4.1" hereinbelow; (n) "Finder's Fee" has the meaning ascribed to it in section "5.1" hereinbelow; (o) "General Services" has the meaning ascribed to it in section "2.1" hereinbelow; (p) "Indemnified Party" has the meaning ascribed to it in section "8.1" hereinbelow; 145 (q) "Initial Term" has the meaning ascribed to it in section "3.1" hereinbelow; (r) "Party" or "Parties" means the Company and/or the Consultant hereto, as the context so requires, together with their respective successors and permitted assigns as the context so requires; (s) "Potential Project Investor" has the meaning ascribed to it in section "2.3" hereinbelow; (t) "Project" has the meaning ascribed to it in recital "C" hereinabove; (u) "Proposed Transaction" has the meaning ascribed to it in recital "C" hereinabove; (v) "Regulatory Approval" means the acceptance for filing, if required, of the transactions contemplated by this Agreement by the Regulatory Authorities; (w) "Regulatory Authority" and "Regulatory Authorities" means, either singularly or collectively as the context so requires, such regulatory agencies who have jurisdiction over the affairs of the Company and/or the Consultant and including, without limitation, and where applicable, the British Columbia Securities Commission, the United States Securities and Exchange Commission and all regulatory authorities from whom any such authorization, approval or other action is required to be obtained or to be made in connection with the transactions contemplated by this Agreement; and (x) "subsidiary" means any company or companies of which more than 50% of the outstanding shares carrying votes at all times (provided that the ownership of such shares confers the right at all times to elect at least a majority of the directors of such company or companies) are for the time being owned by or held for that company and/or any other company in like relation to that company and includes any company in like relation to the subsidiary. 1.2 Interpretation. For the purposes of this Agreement, except as otherwise -------------- expressly provided or unless the context otherwise requires: 146 (a) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, section or other subdivision of this Agreement; (b) the headings are for convenience only and do not form a part of this Agreement nor are they intended to interpret, define or limit the scope or extent of this or any provision of this Agreement; (c) any reference to an entity shall include and shall be deemed to be a reference to any entity that is a permitted successor to such entity; and (d) words in the singular include the plural and words in the masculine gender include the feminine and neuter genders, and vice versa. Article II ---------- SERVICES AND DUTIES OF THE CONSULTANT ------------------------------------- 2.1 General Services. During the Initial Term of this Agreement the Consultant ---------------- will provide the Company with such general corporate consulting services as may be determined and required, from time to time, by the Board of Directors of the Company, in the Board of Directors' sole and absolute discretion, in connection with the Company and all of its subsidiaries, as the context may require (collectively, the "General Services"), and in this regard it is hereby expressly acknowledged and agreed by the Parties hereto that the Consultant shall commit and provide the General Services on a reasonably prioritized basis during the Initial Term and during the continuance of this Agreement for which the Company, as more particularly set forth hereinbelow, hereby agrees to provide the Consultant with the Fee and the Expense payment reimbursements (each as hereinafter determined) in accordance with the terms and conditions of this Agreement. 2.2 Specific services. Without limiting the generality of the General Services ----------------- to be provided as set forth in section "2.1" hereinabove, it is hereby acknowledged and agreed that the Consultant will provide the following specific corporate consulting services to the Company and to all of its subsidiaries, as the context may require, subject at all times to the prior direction of the Board of Directors of the Company: (a) assistance in the initiation, creation, development, coordination and administration of a program specifically targeted to maximize the investment and financial community awareness of the Company and all of its subsidiaries, as the context may require; 147 (b) assistance in the organization, preparation and dissemination of any and all news releases and special shareholder or investment reports for the Company and all of its subsidiaries, as the context so requires; (c) assistance in the review with the Company and its marketing advisors of all notable feedback for corporate communication planning respecting and via all data obtained; (d) assistance in the identification of and recruitment of the necessary or advisable resource and service providers to effect the Company's market objectives; and (e) assistance in all other corporate consulting service areas or matters as may be directed from time to time by the Board of Directors of the Company in the Board of Directors' sole and absolute discretion. 2.3 Financing services and functions. Without also limiting the generality of -------------------------------- the General Services and specific services to be provided as set forth in sections "2.1" and "2.2" hereinabove, it is hereby also acknowledged and agreed that the Consultant will also provide the following specific financing services and functions to the Company as may be necessary for and required with respect to the financing of any Project and subject, at all times, to the prior direction of the Board of Directors of the Company: (a) assistance in the analysis of debt and equity proposals delivered to the Company as compared with terms generally available in the market today; (b) assistance in the negotiation and structuring of a Proposed Transaction which will maximize the Company's interests in each subject Project together with the presentation of a written summary of said structure; provided, however, the Consultant will not be required to act as a lender or underwriter of any financing of any such Proposed Transaction; (c) assistance in the preparation by the Company of information presentations and other documents appropriate for the solicitation of expressions of interest to be made available to prospective financing candidates and purchasers (each being a "Potential Project Investor"); (d) assistance in the identification of and approaches made to Potential Project Investors and conducting discussions and negotiating terms with Potential Project Investors; 148 (e) assistance in the organization of the due diligence process, assistance in evaluating all proposals received and assistance in any further negotiations with Potential Project Investors; and (f) assisting the Company and the Company's counsel in the preparation and completion of any documentation required in order to complete a Proposed Transaction with any such Potential Project Investor. 2.4 Additional duties respecting the General Services. The Consultant hereby ------------------------------------------------- acknowledges and agrees that the Consultant will, during the continuance of this Agreement, devote such of the Consultant's time to the General Services of the Company as may be determined and required, from time to time, by the Board of Directors of the Company, in the Board of Directors' sole and absolute discretion, for the performance of said General Services faithfully, diligently, to the best of the Consultant's abilities and in the best interests of the Company and, furthermore, that the Consultant's business time will be prioritized for the Company in this regard. Article III ----------- INITIAL TERM, RENEWAL AND TERMINATION ------------------------------------- 3.1 Initial Term. The initial term of this Agreement (the "Initial Term") ------------ is for a period which is the earlier of (i) two months commencing on April __, 2004 (the "Effective Date"), or (ii) as long as the Company is contemplating procuring potential financing from a Potential Project Investor first introduced by the Consultant to the Company in connection with the financing and development of its Projects, subject at all times to the Company's prior receipt, if required, of Regulatory Approval from each of the Regulatory Authorities to the terms and conditions of and the transactions contemplated by this Agreement. 3.2 Renewal by the Company. Subject at all times to sections "3.3" and "3.4" ---------------------- hereinbelow, this Agreement shall renew automatically if not specifically terminated in accordance with the following provisions. The Company agrees to notify the Consultant in writing at least 10 calendar days prior to the end of the Initial Term of its intent not to renew this Agreement (the "Company's Non-Renewal Notice"). Should the Company fail to provide a Company's Non-Renewal Notice this Agreement shall automatically renew for a further one-month period until otherwise specifically renewed in writing by each of the Parties hereto for the next one-month period or, otherwise, terminated upon delivery by the Company of a corresponding and follow-up 10 calendar day Company's Non-Renewal Notice in connection with and within 10 calendar days prior to the end of any such one-month renewal period. Any such renewal on a one-month-to-one-month basis shall be on the same terms and conditions contained herein unless modified and agreed to in writing by the Parties. 3.3 Termination for cause by any Party. Notwithstanding any other provision ---------------------------------- of this Agreement, this Agreement may be terminated at any time by either Party upon written notice to the other Party and damages sought if: 149 (a) the other Party fails to cure a material breach of any provision of this Agreement within 10 calendar days from its receipt of written notice from said Party (unless such breach cannot be reasonably cured within said 10 calendar days and the other Party is actively pursuing to cure said breach); (b) the other Party is willfully non-compliant in the performance of its respective duties under this Agreement within 10 calendar days from its receipt of written notice from said Party (unless such willful non-compliance cannot be reasonably corrected within said 10 calendar days and the other Party is actively pursuing to cure said willful non-compliance); (c) the other Party commits fraud or serious neglect or misconduct in the discharge of its respective duties hereunder or under the law; or (d) the other Party becomes adjudged bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy, and where any such involuntary petition is not dismissed within five calendar days. 3.4 Termination without cause by the Company. Notwithstanding any other ------------------------------------------- provision of this Agreement, this Agreement may be terminated by the Company at any time after the Effective Date and during the Initial Term and during the continuance of this Agreement upon its delivery to the Consultant of prior written notice of its intention to do so (the "Company's Notice of Termination") at least 10 calendar days prior to the effective date of any such termination (the "Effective Termination Date"). In any such event the respective obligations of each of the Parties hereto under this Agreement (and including, without limitation, the Consultant's ongoing obligation to provide the General Services and the Company's ongoing obligation to provide the Fee and the Expense payment reimbursements (each as hereinafter determined)) will continue until such Effective Termination Date as provided for in the Company's Notice of Termination and, furthermore, upon the Effective Termination Date the Company will also be obligated to provide the Consultant the then balance of any Fee and Expense payment reimbursement which would then be due and owing by the Company to the Consultant to the completion of the Initial Term of this Agreement and, in addition, and if this Agreement had then been previously and automatically renewed for a further one-month period in accordance with section "3.2" hereinabove, until the end of any such further one-month period in conjunction with section "3.2". Article IV ---------- COMPENSATION OF THE CONSULTANT ------------------------------ 4.1 Fee. It is understood hereby that the Consultant shall render the --- General Services as defined hereinabove during the Initial Term and during the 150 continuance of this Agreement and shall thus be compensated on a monthly basis by the Company from the Effective Date of this Agreement to the termination of the same by way of the payment by the Company to the Consultant, or to the further order or direction of the Consultant as the Consultant may determine, in the Consultant's sole and absolute discretion, and advise the Company of prior to such payment, of a monthly fee of U.S. $10,000.00 (the "Fee"), with such Fee being due and payable by the Company to the Consultant, or to the further order or direction of the Consultant as the Consultant may determine, in the Consultant's sole and absolute discretion, and advise the Company of prior to such payment, on the first business day of the month following the then monthly period of service during the Initial Term and during the continuance of this Agreement. In this regard, and for the purposes of evidencing the Company's ongoing commitment to compensate the Consultant together with the Consultant's ongoing commitment to perform the General Services faithfully, diligently, to the best of the Consultant's abilities and in the best interests of the Company during the Initial Term and during the continuance of this Agreement, it is hereby acknowledged and agreed that the Company shall provide the Consultant, in the manner aforesaid, with the initial month's payment for the Initial Term of this Agreement on the first business day following the Effective Date of this Agreement. 4.2 Reimbursement of Expenses. It is also understood hereby that the -------------------------- Consultant shall also be reimbursed for all pre-approved, in writing, direct reasonable expenses actually and properly incurred by the Consultant for the benefit of the Company (collectively, the "Expenses"), which Expenses have first been approved by the Board of Directors of the Company, and which Expenses, it is hereby acknowledged and agreed, shall be payable by the Company to the order, direction and account of the Consultant as the Consultant may designate in writing, from time to time, in the Consultant's sole and absolute discretion, as soon as conveniently possible after the prior delivery by the Consultant of written substantiation on account of each such reimbursable Expense. Article V --------- FINANCING COMPENSATION OF THE CONSULTANT ---------------------------------------- 5.1 Finder's Fee to the Consultant During First Twelve Months. For the first --------------------------------------------------------- twelve months from the Effective Date of this Agreement, and subject to section "5.3" hereinbelow, a finder's fee (the "Finder's Fee") shall be due and payable by the Company to the Consultant in conjunction with the due and complete closing of any and all Proposed Transactions (each such Proposed Transaction then being a "Completed Transaction") which were negotiated by the Consultant on behalf of the Company, and which were accepted by the Company, in connection with any Potential Project Investors which were initially contacted and introduced by the Consultant directly or indirectly to the Company during the first twelve months from the Effective Date of this Agreement, of an aggregate of two percent (2%) in cash and two percent (2%) in securities, on the same terms as the Completed Transaction, of all of the Potential Project Investors' contracted for financing, acquisition and/or development costs and requirements associated with any Completed Transaction with the Company, with any such Finder's Fee being due and payable by the Company to the Consultant, or to the further order or direction of the Consultant as the Consultant may determine, in the Consultant's sole and absolute discretion, and advise the Company of prior 151 to any such payment, within 10 business days of any payment or incurrence by a Potential Project Investor of any financing and/or earn-in costs associated with any such Completed Transaction. 5.2 Compensation payable after the First Twelve Month Period. It is hereby ---------------------------------------------------------- also acknowledged and agreed by the Parties hereto that after the first twelve months from the Effective Date of this Agreement, and subject to section "5.3" hereinbelow, any Finder's Fee described under section "5.1" hereinabove will be reduced to an aggregate of one percent (1%) in cash and one percent (1%) in securities, on the same terms as the Completed Transaction, and will still be due and payable to the Consultant by the Company, in the manner as set forth in section "5.1" hereinabove, in the event that any Proposed Transaction is successfully closed as a Completed Transaction after the first twelve months from the Effective Date of this Agreement provided that the Potential Project Investor who is the subject of the Completed Transaction was initially contacted and introduced by the Consultant directly or indirectly to the Company. 5.3 Existing Potential Project Investors and non-exclusivity. Upon the ------------------------------------------------------------- execution of this Agreement the Consultant acknowledges and agrees that certain Potential Project Investors have already been in contact with the Company, either directly or indirectly, regarding a Proposed Transaction, and, furthermore, that the Company may, during the Initial Term and the continuance of this Agreement, continue to approach other Potential Project Investors regarding a Proposed Transaction without any participation therein by the Consultant. Correspondingly, and in the event that there is a closing of a Completed Transaction with any such Potential Project Investor during the Initial Term and during the continuance of this Agreement where said Completed Transaction is not a direct result of the introduction and efforts of the Consultant on behalf of the Company as set forth and required hereinabove, it is hereby also acknowledged and agreed that no Finder's Fee whatsoever shall be due and payable by the Company to the Consultant on the due and complete closing of any such Completed Transaction with any such Potential Project Investor. 5.4 Fees to other parties. If the Company agrees to pay a commission or fee --------------------- related to a Completed Transaction to anyone else, such commission or fee shall not reduce the Finder's Fee which may also be payable by the Company to the Consultant in accordance with the terms of this Agreement. 5.5 No other fees. The Consultant hereby covenants and agrees with the ------------- Company that, to the best of the Consultant's knowledge, information and belief, having made due enquiry, no other finder's fee or commission is or will be payable by the Company to any other party in connection with any Completed Transaction hereunder. 152 Article VI ---------- ADDITIONAL OBLIGATIONS OF THE CONSULTANT ---------------------------------------- 6.1 Confidentiality. The Consultant will not, except as authorized or --------------- required by the Consultant's duties hereunder, reveal or divulge to any person or companies any information concerning the organization, business, finances, transactions or other affairs of the Company, or of any of its subsidiaries, which may come to the Consultant's knowledge during the Initial Term and during the continuance of this Agreement, and the Consultant will keep in complete secrecy all confidential information entrusted to the Consultant and will not use or attempt to use any such information in any manner which may injure or cause loss either directly or indirectly to the Company's respective businesses. This restriction will continue to apply after the termination of this Agreement without limit in point of time but will cease to apply to information or knowledge which may come into the public domain. 6.2 Compliance with applicable laws. The Consultant will comply with all ------------------------------- Canadian, U.S. and foreign laws, whether federal, provincial or state, applicable to the Consultant's duties hereunder and, in addition, hereby represents and warrants that any information which the Consultant may provide to any person or company hereunder will, to the best of the Consultant's knowledge, information and belief, be accurate and complete in all material respects and not misleading, and will not omit to state any fact or information which would be material to such person or company. 6.3 Opinions, reports and advice of the Consultant. The Consultant ---------------------------------------------------- acknowledges and agrees that all written and oral opinions, reports, advice and materials provided by the Consultant to the Company in connection with the Consultant's engagement hereunder are intended solely for the Company's benefit and for the Company's use only, and that any such written and oral opinions, reports, advice and information are the exclusive property of the Company. In this regard the Consultant covenants and agrees that the Company may utilize any such opinion, report, advice and materials for any other purpose whatsoever and, furthermore, may reproduce, disseminate, quote from and refer to, in whole or in part, at any time and in any manner, any such opinion, report, advice and materials in the Company's sole and absolute discretion. The Consultant further covenants and agrees that no public references to the Consultant or disclosure of the Consultant's role in respect of the Company be made by the Consultant without the prior written consent of the Company in each specific instance and, furthermore, that any such written opinions, reports, advice or materials shall, unless otherwise required by the Company, be provided by the Consultant to the Company in a form and with such substance as would be acceptable for filing with and approval by any Regulatory Authority having jurisdiction over the affairs of the Company from time to time. 153 Article VII ----------- REPORTING BY THE CONSULTANT --------------------------- 7.1 Reporting. At least once in every month, or so often as may be required --------- by the Company, the Consultant will provide the Board of Directors of the Company with such information concerning the results of the Consultant's General Services and activities hereunder for the previous month as the Board of Directors of the Company may reasonably require. In addition, it is hereby further acknowledged and reaffirmed that any written information or materials provided by the Consultant to any person or company hereunder will be subject to the prior review, approval and direction of the Board of Directors of the Company. Article VIII ------------ INDEMNIFICATION AND LEGAL PROCEEDINGS ------------------------------------- 8.1 Indemnification. The Parties hereto agree to indemnify and save harmless --------------- the other Party hereto, including its respective affiliates and their respective directors, officers, employees and agents (each such party being an "Indemnified Party") harmless from and against any and all losses, claims, actions, suits, proceedings, damages, liabilities or expenses of whatever nature or kind, including any investigation expenses incurred by any Indemnified Party, to which an Indemnified Party may become subject by reason of the terms and conditions of this Agreement. 8.2 No indemnification. This indemnity will not apply in respect of an ------------------ Indemnified Party in the event and to the extent that a court of competent jurisdiction in a final judgment shall determine that the Indemnified Party was grossly negligent or guilty of willful misconduct. 8.3 Claim of indemnification. The Parties hereto agree to waive any right ------------------------ they might have of first requiring the Indemnified Party to proceed against or enforce any other right, power, remedy, security or claim payment from any other person before claiming this indemnity. 8.4 Notice of claim. In case any action is brought against an Indemnified --------------- Party in respect of which indemnity may be sought against any of the Parties hereto, the Indemnified Party will give the relevant Party hereto prompt written notice of any such action of which the Indemnified Party has knowledge and such Party will undertake the investigation and defense thereof on behalf of the Indemnified Party, including the prompt Consulting of counsel acceptable to the Indemnified Party affected and the payment of all expenses. Failure by the Indemnified Party to so notify shall not relieve any Party hereto of such Party's obligation of indemnification hereunder unless (and only to the extent that) such failure results in a forfeiture by any Party hereto of substantive rights or defenses. 154 8.5 Settlement. No admission of liability and no settlement of any action ---------- shall be made without the consent of each of the Parties hereto and the consent of the Indemnified Party affected, such consent not to be unreasonable withheld. 8.6 Legal proceedings. Notwithstanding that the relevant Party hereto will ----------------- undertake the investigation and defense of any action, an Indemnified Party will have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel will be at the expense of the Indemnified Party unless: (a) such counsel has been authorized by the relevant Party hereto; (b) the relevant Party hereto has not assumed the defense of the action within a reasonable period of time after receiving notice of the action; (c) the named parties to any such action include that any Party hereto and the Indemnified Party shall have been advised by counsel that there may be a conflict of interest between any Party hereto and the Indemnified Party; or (d) there are one or more legal defenses available to the Indemnified Party which are different from or in addition to those available to any Party hereto. 8.7 Contribution. If for any reason other than the gross negligence or bad ------------ faith of the Indemnified Party being the primary cause of the loss claim, damage, liability, cost or expense, the foregoing indemnification is unavailable to the Indemnified Party or insufficient to hold them harmless, the relevant Party hereto shall contribute to the amount paid or payable by the Indemnified Party as a result of any and all such losses, claim, damages or liabilities in such proportion as is appropriate to reflect not only the relative benefits received by any Party hereto on the one hand and the Indemnified Party on the other, but also the relative fault of the Parties and other equitable considerations which may be relevant. Notwithstanding the foregoing, the relevant Party hereto shall in any event contribute to the amount paid or payable by the Indemnified Party, as a result of the loss, claim, damage, liability, cost or expense (other than a loss, claim, damage, liability, cost or expenses, the primary cause of which is the gross negligence or bad faith of the Indemnified Party), any excess of such amount over the amount of the fees actually received by the Indemnified Party hereunder. 155 Article IX ---------- FORCE MAJEURE ------------- 9.1 Events. If either Party hereto is at any time either during this ------ Agreement or thereafter prevented or delayed in complying with any provisions of this Agreement by reason of strikes, walk-outs, labour shortages, power shortages, fires, wars, acts of God, earthquakes, storms, floods, explosions, accidents, protests or demonstrations by environmental lobbyists or native rights groups, delays in transportation, breakdown of machinery, inability to obtain necessary materials in the open market, unavailability of equipment, governmental regulations restricting normal operations, shipping delays or any other reason or reasons beyond the control of that Party, then the time limited for the performance by that Party of its respective obligations hereunder shall be extended by a period of time equal in length to the period of each such prevention or delay. 9.2 Notice. A Party shall within three calendar days give notice to the ------ other Party of each event of force majeure under section "9.1" hereinabove, and upon cessation of such event shall furnish the other Party with notice of that event together with particulars of the number of days by which the obligations of that Party hereunder have been extended by virtue of such event of force majeure and all preceding events of force majeure. Article X --------- ARBITRATION ----------- 10.1 Matters for Arbitration. The Parties agree that all questions or matters ----------------------- in dispute with respect to this Agreement shall be submitted to arbitration pursuant to the terms hereof. 10.2 Notice. It shall be a condition precedent to the right of any Party to ------ submit any matter to arbitration pursuant to the provisions hereof, that any Party intending to refer any matter to arbitration shall have given not less than five business days' prior written notice of its intention to do so to the other Party together with particulars of the matter in dispute. On the expiration of such five business days the Party who gave such notice may proceed to refer the dispute to arbitration as provided for in section "10.3" hereinbelow. 10.3 Appointments. The Party desiring arbitration shall appoint one ------------ arbitrator, and shall notify the other Party of such appointment, and the other Party shall, within five business days after receiving such notice, appoint an arbitrator, and the two arbitrators so named, before proceeding to act, shall, within five business days of the appointment of the last appointed arbitrator, unanimously agree on the appointment of a third arbitrator, to act with them and be chairman of the arbitration herein provided for. If the other Party shall fail to appoint an arbitrator within five business days after receiving notice of the appointment of the first arbitrator, and if the two arbitrators appointed by the Parties shall be unable to agree on the appointment of the chairman, the 156 chairman shall be appointed in accordance with the Arbitration Act. Except as specifically otherwise provided in this section, the arbitration herein provided for shall be conducted in accordance with such Arbitration Act. The chairman, or in the case where only one arbitrator is appointed, the single arbitrator, shall fix a time and place for the purpose of hearing the evidence and representations of the Parties, and he shall preside over the arbitration and determine all questions of procedure not provided for by the Arbitration Act or this section. After hearing any evidence and representations that the Parties may submit, the single arbitrator, or the arbitrators, as the case may be, shall make an award and reduce the same to writing, and deliver one copy thereof to each of the Parties. The expense of the arbitration shall be paid as specified in the award. 10.4 Award. The Parties agree that the award of a majority of the ----- arbitrators, or in the case of a single arbitrator, of such arbitrator, shall be final and binding upon each of them. Article XI ---------- GENERAL PROVISIONS ------------------ 11.1 Entire Agreement. This Agreement constitutes the entire agreement to ----------------- date between the Parties hereto and supersedes every previous agreement, expectation, negotiation, representation or understanding, whether oral or written, express or implied, statutory or otherwise, between the Parties with respect to the subject matter of this Agreement. 11.2 No assignment. This Agreement may not be assigned by either Party except ------------- with the prior written consent of the other Party. 11.3 Notice. Each notice, demand or other communication required or permitted ------ to be given under this Agreement shall be in writing and shall be sent by prepaid registered mail deposited in a recognized post office and addressed to the Party entitled to receive the same, or delivered to such Party, at the address for such Party specified on the front page of this Agreement. The date of receipt of such notice, demand or other communication shall be the date of delivery thereof if delivered, or, if given by registered mail as aforesaid, shall be deemed conclusively to be the third day after the same shall have been so mailed, except in the case of interruption of postal services for any reason whatsoever, in which case the date of receipt shall be the date on which the notice, demand or other communication is actually received by the addressee. Either Party may at any time and from time to time notify the other Party in writing of a change of address and the new address to which notice shall be given to it thereafter until further change. 11.4 Time of the essence. Time will be of the essence of this Agreement. ------------------- 157 11.5 Enurement. This Agreement will enure to the benefit of and will be --------- binding upon the Parties hereto and their respective heirs, executors, administrators and assigns. 11.6 Currency. Unless otherwise stipulated, all payments required to be made -------- pursuant to the provisions of this Agreement and all money amount references contained herein are in lawful currency of the United States of America. 11.7 Regulatory Authorities. This Agreement is subject to the prior Regulatory ---------------------- Approval, if required, of each of the Regulatory Authorities. 11.8 Further assurances. The Parties will from time to time after the ------------------ execution of this Agreement make, do, execute or cause or permit to be made, done or executed, all such further and other acts, deeds, things, devices and assurances in law whatsoever as may be required to carry out the true intention and to give full force and effect to this Agreement. 11.9 Representation and costs. It is hereby acknowledged by each of the ------------------------ Parties hereto that, as between the Company and the Consultant herein, Devlin Jensen acts solely for the Company, and that the Consultant has been advised by both Devlin Jensen and the Company to obtain independent legal advice with respect to the Consultant's review and execution of this Agreement. In addition, it is hereby further acknowledged and agreed by the Parties hereto that each Party to this Agreement will bear and pay its own costs, legal and otherwise, in connection with its respective preparation, review and execution of this Agreement and, in particular, that the costs involved in the preparation of this Agreement, and all documentation necessarily incidental thereto, by Devlin Jensen shall be at the cost of the Company. 11.10 Applicable law. The situs of this Agreement is Vancouver, British -------------- Columbia, and for all purposes this Agreement will be governed exclusively by and construed and enforced in accordance with the laws and courts prevailing in the Province of British Columbia. 11.11 Severability and construction. Each Article, section, paragraph, term ----------------------------- and provision of this Agreement, and any portion thereof, shall be considered severable, and if, for any reason, any portion of this Agreement is determined to be invalid, contrary to or in conflict with any applicable present or future law, rule or regulation in a final unappealable ruling issued by any court, agency or tribunal with valid jurisdiction in a proceeding to which any Party hereto is a party, that ruling shall not impair the operation of, or have any other effect upon, such other portions of this Agreement as may remain otherwise intelligible (all of which shall remain binding on the Parties and continue to be given full force and effect as of the date upon which the ruling becomes final). 158 11.12 Captions. The captions, section numbers and Article numbers appearing -------- in this Agreement are inserted for convenience of reference only and shall in no way define, limit, construe or describe the scope or intent of this Agreement nor in any way affect this Agreement. 11.13 Counterparts. This Agreement may be signed by the Parties hereto in as ------------ many counterparts as may be necessary, and via facsimile if necessary, each of which so signed being deemed to be an original and such counterparts together constituting one and the same instrument and, notwithstanding the date of execution, being deemed to bear the execution date as set forth on the front page of this Agreement. 11.14 No partnership or agency. The Parties have not created a partnership ------------------------ and nothing contained in this Agreement shall in any manner whatsoever constitute any Party the partner, agent or legal representative of the other Party, nor create any fiduciary relationship between them for any purpose whatsoever. 11.15 Consents and waivers. No consent or waiver expressed or implied by ---------------------- either Party in respect of any breach or default by the other in the performance by such other of its obligations hereunder shall: (a) be valid unless it is in writing and stated to be a consent or waiver pursuant to this section; (b) be relied upon as a consent to or waiver of any other breach or default of the same or any other obligation; (c) constitute a general waiver under this Agreement; or (d) eliminate or modify the need for a specific consent or waiver pursuant to this section in any other or subsequent instance. IN WITNESS WHEREOF the Parties hereto have hereunto set their ------------------- respective hands and seals as at the Effective Date as hereinabove determined. The CORPORATE SEAL of ) SINOVAC BIOTECH LTD., ) - --------------------- ) the Company herein, was hereunto affixed ) in the presence of: ) (C/S) ) /s/ Weidong Yin ) - -------------------------------------- ) Authorized Signatory ) 159 SIGNED and DELIVERED by ) ROBERTE EBRAHIMI, ) - ---------------- ) the Finder herein, in the presence of: ) ) ) Witness Signature ) /s/ Roberto Ebrahimi ) -------------------------- ) ROBERTO EBRAHIMI ) Witness Address ) ) ) Witness Name and Occupation ) ---------- EX-31.1 9 sinovacexh31_1.txt SINOVAC BIOTECH 20-F, CERTIFICATION 302, YIN 160 EXHIBIT 31.1 ------------ This is an Exhibit to the Form 20-F of Sinovac Biotech Ltd. ----------------------------------------------------------- Attached find the following materials: Certification of Disclosure in Sinovac Biotech Ltd.'s ----------------------------------------------------- Annual Report by Weidong Yin ---------------------------- End of Exhibit 31.1 ---------- 161 Certification of Disclosure in ------------------------------ Sinovac Biotech Ltd.'s Annual Report ------------------------------------ In connection with the Annual Report on Form 20-F of Sinovac Biotech Ltd. (the "Company") for the period ended December 31, 2003, as filed with the Securities and Exchange Commission on June 30, 2004, (the "Report"), I, Weidong Yin, President and Chief Executive Officer of the Company, hereby certify, pursuant to the Sarbanes-Oxley Act of 2002, that: (1) I have reviewed this Report being filed; (2) Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; (3) Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Report; (4) The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and have: (i) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; (ii) evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Report ( the "Evaluation Date"); and (iii) presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures based on their evaluation as of the Evaluation Date; (5) The Company's other certifying officer and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of the Company's board of directors (or persons fulfilling the equivalent function): (i) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, 162 process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and (6) The Company's other certifying officer and I have indicated in this Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 30, 2004 /s/ Weidong Yin ------------------------------------ Name: Weidong Yin Title: President and Chief Executive Officer EX-31.2 10 sinovacexh31_2.txt SINOVAC BIOTECH 20-F, CERTIFICATION 302, WANG 163 EXHIBIT 31.2 ------------ This is an Exhibit to the Form 20-F of Sinovac Biotech Ltd. ----------------------------------------------------------- Attached find the following materials: Certification of Disclosure in Sinovac Biotech Ltd.'s ----------------------------------------------------- Annual Report by Lily Wang -------------------------- End of Exhibit 31.2 --------- 164 Certification of Disclosure in ------------------------------ Sinovac Biotech Ltd.'s Annual Report ------------------------------------ In connection with the Annual Report on Form 20-F of Sinovac Biotech Ltd. (the "Company") for the period ended December 31, 2003, as filed with the Securities and Exchange Commission on June 30, 2004, (the "Report"), I, Lily Wang, Chief Financial Officer of the Company, hereby certify, pursuant to the Sarbanes-Oxley Act of 2002, that: (1) I have reviewed this Report being filed; (2) Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; (3) Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Report; (4) The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and have: (i) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; (ii) evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Report ( the "Evaluation Date"); and (iii) presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures based on their evaluation as of the Evaluation Date; (5) The Company's other certifying officer and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of the Company's board of directors (or persons fulfilling the equivalent function): (i) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, 165 process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and (6) The Company's other certifying officer and I have indicated in this Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 30, 2004 /s/ Lily Wang ----------------------------------- Name: Lily Wang Title: Chief Financial Officer EX-32.1 11 sinovacexh32_1.txt SINOVAC BIOTECH 20-F, CERTIFICATION 906, YIN 166 EXHIBIT 32.1 ------------ This is an Exhibit to the Form 20-F of Sinovac Biotech Ltd. ----------------------------------------------------------- Attached find the following materials: Certification of Weidong Yin pursuant to Section 906 ---------------------------------------------------- of the Sarbanes-Oxley Act of 2002 --------------------------------- End of Exhibit 32.1 ----------- 167 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 20-F for fiscal year ended December 31, 2003 of Sinovac Biotech Ltd., a company organized under the laws of Antigua and Barbuda (the "Company"), as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), I, Weidong Yin, President and Chief Executive Officer of the Company certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: June 30, 2004 /s/ Weidong Yin ---------------------------------------- Weidong Yin, President, CEO and Director EX-32.2 12 sinovacexh32_2.txt SINOVAC BIOTECH 20-F, CERTIFICATION 906, WANG 168 EXHIBIT 32.2 ------------ This is an Exhibit to the Form 20-F of Sinovac Biotech Ltd. ----------------------------------------------------------- Attached find the following materials: Certification of Lily Wang pursuant to Section 906 -------------------------------------------------- of the Sarbanes-Oxley Act of 2002 --------------------------------- End of Exhibit 32.2 ----------- 169 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 20-F for fiscal year ended December 31, 2003 of Sinovac Biotech Ltd., a company organized under the laws of Antigua and Barbuda (the "Company"), as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), I, Lily Wang, Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: June 30, 2004 /s/ Lily Wang --------------------------- Lily Wang, Chief Financial Officer and Director -----END PRIVACY-ENHANCED MESSAGE-----