Dong-A Pharmaceutical Co Ltd (000640 Ks) Urges Shareholders to Vote against the Kang-Korea Alcohol Nominees at the October 31 EGM

    --  Election Of Kang-Korea Alcohol Nominees Would Imperil The Continued
Success Of Dong-A's Strategic Plan

    --  Commences Distribution Of Proxy Materials Urging Shareholders To Vote
Against The Kang-Korea Alcohol Nominees

    SEOUL, SOUTH KOREA, October 12 /CNW/ - Dong-A Pharmaceuticals Co Ltd
(000640 KS), the largest Korean pharmaceutical company, is urging its
shareholders to vote against the five candidates nominated by Moon-Seok Kang,
Dong-A's former CEO, and Korea Alcohol Industries at the October 31, 2007 EGM
called by Mr. Kang and Korea Alcohol for the sole purpose of adding five new
directors to the existing seven member Board. Election of the Kang-Korea
Alcohol slate would give the proponents control of the Board since Mr. Kang
and one of his associates are currently Board members.

    In a letter to shareholders, Dong-A warned that the election of the
Kang-Korea Alcohol nominees would imperil the continued success of
management's Strategic Plan to turn the company into a world class, R&D driven
pharmaceutical company focused on Dong-A's core competencies. A Kang-Korea
Alcohol controlled Board would not have the same interests as all other
shareholders in increasing the value of Dong-A, the letter continues and notes
that since the removal of Mr. Kang as CEO in December 2004, Dong-A's stock
price has increased by 295%, from 24,026 Won on December 30, 2004 to 94,800
Won as of October 9, 2007.

    The shareholder letter, the Reference Document for the EGM, a detailed
description of the Strategic Plan, as well as other information concerning the
company, are available at and

    The full text of the letter to shareholders follows:

    October 10, 2007

    Dear Shareholders,

    A group led by Moon-Seok Kang, Dong-A's former CEO, and Korea Alcohol
Industries is attempting to seize control of Dong-A Pharmaceutical's Board of
Directors at the October 31, 2007 EGM. Mr. Kang and Korea Alcohol are seeking
to add five (5) of their associates to the Board at the EGM. If successful,
Mr. Kang and Korea Alcohol would control seven (7) of the twelve (12) Board
seats since Mr. Kang and his associate, Chung-Sik Yoo, Dong-A's former Vice
Chairman, are currently Directors.

    We believe that turning over control of the Board to Mr. Kang and Korea
Alcohol would greatly harm the interests of Dong-A shareholders. As described
below, a Kang-Korea Alcohol controlled Board would not have the same interests
as all other shareholders in increasing the value of Dong-A. Such a Board
could prevent current management from continuing to execute on its successful
Strategic Plan to become a world class, R&D driven pharmaceutical company
focused on our core competencies. Consider that since Mr. Kang was removed as
CEO in December 2004, Dong-A's stock price has increased by 295%, from 24,026
Won on December 30, 2004 to 94,800 Won as of October 9, 2007.

    The Board has already determined to add up to two (2) new outside
directors at next year's AGM. Those new directors will be selected from a
group of candidates chosen by an Advisory Council of shareholders and industry
experts who understand the skills and experience necessary to direct the
continued development and implementation of our successful Strategic Plan
described below. That is the appropriate way to select new Directors for a
company - not through an EGM featuring nominees hand picked by a failed former
CEO and a company seeking to benefit itself from our profitable technology and

    We strongly urge all shareholders to safeguard the value of their
investment in Dong-A by voting AGAINST the election of the five (5) nominees
chosen by Mr. Kang and Korea Alcohol. Please mark the enclosed proxy card with
a vote AGAINST all items and then sign and return it as soon as possible.


    --  Mr. Kang Generated Enormous Losses And Focused On Declining, Diverse
Businesses During His Tenure At Dong-A.

    --  Dong-A Was Recently Assessed 37.8bn Won In Additional Taxes And
Penalties Due To Various Improper Activities During Mr. Kang's Tenure,
Including Diverting 1.4bn Won In Company Assets To Himself.

    --  A Return To Mr. Kang's Leadership Would Harm The Shareholders'
Investment In Dong-A.

    As CEO, Mr. Kang generated the following enormous losses for Dong-A's

    --  112.54bn Won through investments in and support for subsidiaries
which did not generate any meaningful returns.

    --  20bn Won in unrecoverable bad loans from an export agency business
unrelated to the company's core activities.

    --  4.6bn Won through the purchase of real estate far in excess of its
value without first examining its development potential.

    In addition, the Korean tax authorities recently assessed the company
37.8bn Won in additional taxes and liabilities for various improper activities
during Mr. Kang's tenure. Among other items, the tax authorities found that
Mr. Kang had improperly diverted 1.4bn Won of company assets for his own
benefit and taxed such payments as "constructive bonuses."

    Dong-A recently filed a complaint against Mr. Kang with the Seoul Western
District Prosecutors' Office alleging that he embezzled 1.76bn Won from the
company. The complaint also alleges that Mr. Kang took 850mm Won in profits
from stock transactions with Dong-A's affiliates using internal information in

    Mr. Kang simply did not understand the profitable potential of Dong-A's
business. Rather than focus on Dong-A's core competencies in the high margin
ethical drug business, as current management has done, Mr. Kang focused the
company on low margin over-the-counter products, an export-import business
that generated enormous losses, as noted above, and failed investments in
various unrelated businesses.

    By contrast, as more fully described below, current management is
successfully implementing a new Strategic Plan to turn the company into a
world class, research and development driven pharmaceutical company focused on
its core competencies. The success of the Strategic Plan and the consequent
dramatic increase in the price of our stock would be imperiled if Mr. Kang
controlled the Company's Board of Directors, given his poor track record
running Dong-A.


    --  Korea Alcohol Wants To Benefit From Our Assets And Technology.

    --  Korea Alcohol's Interests Are Not The Same As Yours.

    To protect their best interests, shareholders also need to vote AGAINST
the Kang-Korea Alcohol slate because Korea Alcohol, which is supporting these
nominees, at least two (2) of whom are directly affiliated with Korea Alcohol,
is looking to serve its own interests, not those of the other Dong-A

    As Korea Alcohol itself admitted on pp.55-56 of its 2006 Business Report:

         We considered it necessary to diversify (Korea Alcohol's)
         business into IT chemicals based on nano-technologies ....
         Accordingly, we invested in Dong-A, which, as the leading
         domestic pharmaceutical company, has brand power and strengths in
         the consumer distribution division.

    Turning over control of the Board of Directors to the Kang-Korea Alcohol
slate will serve the interests of Korea Alcohol and its shareholders, not your


    --  The Kang-Korea Alcohol Nominees Do Not Have the Qualifications And
Experience Needed To Oversee The Development And Implementation Of The
Strategic Plan.

    Mr. Kang and Korea Alcohol have selected five (5) nominees to further
their efforts to seize control of the Dong-A Board. None of these nominees
would serve the interests of the Dong-A shareholders because they are close
affiliates of Mr. Kang and/or Korea Alcohol or they do not have the
appropriate qualifications to continue the development and implementation of
our successful Strategic Plan.

    Yong Seok Jee  Currently CEO of Korea Alcohol Industries.

                   While he is a medical doctor, his experience seems to
                    be in gynecology, which is not a prime focus of our
                    R&D program.

    Sun Keun Park  Served as General Manager of Dong-A's International
                    Business Division and as Department Manager of its OTC
                    Business Department during Mr. Kang's tenure at Dong-

                   During his tenure as its General Manager, the
                    International Business Division ran up bad debts of
                    14bn Won on non-pharmaceutical import/export
                    transactions that lacked appropriate due diligence and

                   During his tenure as its Department Manager, the OTC
                    Business Department generated significant losses due
                    to overstated sales.

    Eun-Sub Jung   Mr. Jung is an attorney who has represented Mr. Kang,
                    Korea Alcohol and Mr. Kang's current company, Sooseok

    Joon-Haeng Lee While Professor Lee is a well respected economist, his
                    areas of expertise, derivatives and other stock market
                    products, do not correspond to our needs as we develop
                    into a global pharmaceutical company.

    Jeong Sam Park While CEO of HK Mutual Savings Bank, he engaged in
                    several unreasonable transactions such as a rights
                    offering that resulted in numerous lawsuits. As a
                    result, four (4) outside directors (out of eight (8)
                    directors) were suspended by court order, and Mr. Park
                    was discharged as CEO within 5 months after assuming
                    the office.


    --  Current Management's Strategic Plan To Develop Dong-A Into A World
Class R&D Focused Pharmaceutical Company Is Creating Shareholder Value.

    --  Election Of The Kang Korea Alcohol Nominees Will Imperil The
Shareholders' Investment.

    Current management has developed a Strategic Plan strikingly different
from, and more successful than, Mr. Kang's failed focus on multiple, unrelated
businesses and diversions of corporate assets for his own use. We are
developing Dong-A into a world class, R&D focused pharmaceutical company. That
effort is directly led by CEO Won Bae Kim who had previously been head of
Research & Development and pushed through many of our successful drug products
against the objections of Mr. Kang.

    A detailed description of the Strategic Plan, entitled "Strategy and
Commitment for Shareholder Value Maximization" is available on our website,

    The Strategic Plan will shift more of our business into high margin ETC
drugs. We expect that by 2011, 61% of our revenue will come from such drugs,
significantly reducing our marginal cost. We are ramping up our R&D
expenditures which will be focused on our core competencies: new chemical
entities for quality of life drugs and phytomedicines for anti-inflammatory
disorders, as well as biosimilars, in addition to generic drugs targeted for
mega markets with high growth and innovatively modified supergeneric drugs.

    Naturally, we need to expand our export business and have already met
with success in that area. We are targeting North Asia for phytomedicines,
Europe and South America for biosimilars and the world market for blockbuster
new chemical entities.

    For example, Stillen, a phytomedicine originally developed by Dong-A, has
been extremely successful, going from 6.2bn Won in sales in 2003 to estimated
sales of 55bn in 2007. We are introducing Stillen into North Asian markets
that are very receptive to phytomedicines. Unfortunately Mr. Kang, while CEO,
did not support the development of this blockbuster drug. Similarly, in little
more than a year, Zydena, our originally produced erectile dysfunction drug
(EDS), has approximately the same market share in Korea as Cialis, previously
the second biggest selling EDS drug in Korea. We are now in the process of
introducing Zydena into other markets around the world.

    We realize that we need to seek partners to accomplish this goal.
Accordingly, we are approaching certain Japanese and Chinese companies for
co-promotion deals, Indian and Chinese companies for API in manufacturing and
several multinationals in the area of R&D.

    We are also considering developing new high growth healthcare businesses,
such as diabetes care, cancer care, geriatric care and cancer equipment
leasing. These areas fall within our core competencies and will be the
continued subject of analysis to ensure that entry into any of these areas
will produce significant shareholder returns.

    Finally, we are in the process of restructuring our businesses by
improving business and cost structures at the pharmaceutical/beverage
businesses we are retaining, while disposing of non-related businesses.

    Our Strategic Plan is working. As noted above, the stock price has
increased by 295% since current management took over in January 2005. There
are still challenges ahead, however. Dong-A's ability to continue to create
shareholder value will be imperiled if Mr. Kang and Korea Alcohol seize
control of the Board of Directors. Mr. Kang's track record at Dong-A
demonstrates that he does not understand the company's real potential to build
value for the shareholders, and Korea Alcohol is looking at Dong-A to serve
its interests, not those of the Dong-A and its shareholders.

    To continue to prosper, Dong-A needs Directors with the skills and
experience to continue the development and implementation of the Strategic
Plan, not Directors hand picked by a failed former CEO and a company pursuing
its own interests at the expense of Dong-A's shareholders.


    --  The Recent Issuance Of Exchangeable Bonds Enabled Dong-A To Pay The
37.8bn Won Tax Liability Arising From Improper Activities During Mr. Kang's
Tenure And Other Capital Needs.

    --  The Exchangeable Bonds Were The Most Efficient, Practical And
Shareholder Friendly Way To Address The Pressing Need To Pay The Tax

    The Company recently raised 65.6bn Won(1) through the issuance of zero
coupon exchangeable bonds in order to pay the 37.8bn Won tax liability that,
as discussed above, arose from various improper activities during Mr. Kang's
tenure, including the diversion of 1.4bn Won of company assets for his own use
that the tax authorities characterized as a "constructive bonus". We were
notified of the amount of the tax liability in April 2007 and needed to pay it
in installments in April, May and July 2007, with a final payment later this
year. Since our cash on hand was insufficient to pay this amount, the company
raised the money through the issuance of exchangeable bonds.

    Mr. Kang and Korea Alcohol have attempted to mislead the shareholders
into thinking that the exchangeable bond was merely a device to help current
management. They have resorted to various untruths in their efforts to
mislead. As discussed below, the exchangeable bond was in fact the most
efficient, practical and shareholder friendly way to address our pressing
capital needs.

    The exchangeable bonds were structured as follows:

    Dong-A sold 748,400 shares of its treasury stock at then market price to
special purpose companies (SPCs) incorporated in Labuan, Malaysia. Dong-A had
been repurchasing its shares in the open market since 2000 to help stabilize
the stock price. Under such circumstances, Korean law prohibits Dong-A from
retiring those shares - they must remain as treasury shares until the company
sells them or disposes of them other than through retirement.

    The SPCs then issued zero coupon exchangeable bonds in the amount of 112%
of the amount it paid for the treasury shares to non-Korean investors
unrelated to Dong-A. We believe that it is important to attract additional
foreign investors into our stock to achieve maximum valuation. The foreign
based SPCs provided tax advantages, described below, to non-Korean investors
that made the exchangeable bonds very attractive to such investors.

    There were two exchangeable bonds, a five year bond at 3.95% annual
interest and a 10 year bond at 4.1% interest. Both bonds also contained rights
to purchase the treasury shares held by the SPCs at an exercise price of 115%
of the price paid by the SPCs for the treasury shares. The exchangeable bonds
were sold to non-Korean investors who are independent of the company and its

    Exchangeable bond transactions of this type are a common Korean market
practice. Among the companies that have issued similar exchangeable bonds are
Kia, INI Steel, SK Telecom and Daelim Industrial.

    The fees and expenses incurred in connection with the issuance of the
exchangeable bonds were customary for this type of transaction.

    The exchangeable bonds served the best interests of the shareholders in
the following ways:

    --  Lower Interest Rates The exchangeable bonds had interest rates of
3.95% and 4.1%, significantly lower than the 5.5% to 6% rates on the short
term debt retired with part of the proceeds from the exchangeable bond. Our
outside investment bankers estimated that annual interest rates on a new debt
financing in the amount raised would have been above 7%.

    --  Minimized Dilution Financial analysts and other market professionals
had included the treasury shares in their EPS calculations because, as noted
above, they could not be retired under Korean law. Consequently, the overhang
on the market caused by the treasury shares was a drag on the company's stock
price. If we had tried to raise the necessary capital through the issuance of
new stock, either as a direct placement or the issuance of convertible bonds,
the stock price would have suffered significantly due to the double dilution
caused by the existing treasury shares as well as the new issuance shares.

    By contrast, the stock price rose after the announcement that the
exchangeable bonds had been issued, a common phenomenon among Korean companies
after selling treasury shares. Korean companies frequently sell treasury
shares into the market. According to a story in the October 4, 2007 Financial
News, 81 Korean companies sold a total of 48,590,000 treasury shares in the
first 9 months of this year, an increase of approximately 23% over the same
period last year. In most instances, stock prices rose after such sales.

    While there was a tax imposed on the sale of the treasury shares to the
SPCs, the tax cost was outweighed by avoiding the harm to the stock price
arising from the double dilution resulting from an issuance of new stock or
convertible bonds, as well as the dramatically lower interest costs described

    --  Premium Pricing As noted above, the SPCs raised 112% of the purchase
price of the treasury shares. The SPCs lent the additional cash raised to
Dong-A so that the entire net proceeds of the exchangeable bonds were provided
to the company. In addition, the exercise price of the warrants was set at
115% of the market price of Dong-A's shares on the date of the issuance of the

    By contrast, if we had issued new stock, our outside bankers estimated
that we would have had to sell the stock at a 15-25% discount to account for
the additional dilution described above.

    --  Foreign Investment The use of foreign SPCs made the exchangeable
bonds more attractive to foreign holders, a group of investors we need to
attract to maximize our stock value. At present, only about 12% of our shares
are held by non-Korean institutional investors, excluding the SPCs.

    In particular, the holders of the exchangeable bonds are not subject to
Korean income or withholding taxes on the interest paid with respect to the
bonds. In addition, the foreign SPCs also provide foreign investors with
additional protection with respect to the treasury shares as collateral in the
event of a bankruptcy.

    --  Timely As noted above, we had very little time to pay the 37.8bn tax
liability. The exchangeable bonds were able to be consummated in sufficient

    --  No Manipulation of Voting Rights Mr. Kang and Korea Alcohol would
like you to believe that the exchangeable bonds were issued primarily to
provide the voting rights over those shares to current management. In fact,
the exchangeable bonds are structured to avoid that situation.

    Each bond carries the right to direct the SPC to vote the holder's
proportionate share of the treasury stock. If the holder does not direct the
SPC how to vote, the SPC is required to vote such shares in proportion to the
shares voted by all other Dong-A shareholders, or to "shadow vote". As noted
above, the exchangeable bonds are freely transferable and are held by
non-Korean investors who are independent of the company and its current
management. Consequently, given that the voting rights are held by independent
third parties who can sell their investment to additional third parties and
that shadow voting will apply if no instructions are given to the SPC, the
exchangeable bonds are simply not conducive to manipulation of voting rights
by current management.

    Please act today to protect the value of your investment in Dong-A by
signing and dating your proxy card with a vote AGAINST all of the Kang-Korea
Alcohol nominees.

    Thank you for your continued support.

    /s/_____________________ Won Bae Kim Representative Director & CEO


    (1) The exchangeable bonds are dollar-denominated. Exchange rate of 935.1
Won to $1USD on July 30, 2007.

For further information:

For further information: Dong-A Pharm. Co., LTD. Theodore Kim,

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