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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_CONFIDENTIAL,]FOR USE OF THE
[_]Preliminary Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
SALIX PHARMACEUTICALS, LTD.
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(Name of Registrant as Specified In Its Charter)
SALIX PHARMACEUTICALS, LTD.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_]Fee paid previously with preliminary materials.
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[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO OF SALIX PHARMACEUTICALS, LTD.]
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1998
----------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of SALIX
PHARMACEUTICALS, LTD., a corporation organized under the laws of the British
Virgin Islands (the "Company"), will be held on Tuesday, May 12, 1998 at 8:00
a.m. (local time) at The Newstead Hotel, 27 Harbour Road, Paget, Bermuda PG 02
for the following purposes:
1. To elect seven (7) directors to serve until the next Annual Meeting of
Shareholders and until their successors are duly elected and qualified;
2. To approve the amendment and restatement of the Company's 1996 Stock
Option Plan, including an increase in the number of Common Shares
reserved for issuance thereunder by 600,000 thereby increasing to
1,750,000 the maximum aggregate number of shares reserved for issuance
thereunder;
3. To ratify the appointment of Ernst & Young LLP as independent
accountants of the corporation for the fiscal year ending December 31,
1998; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only shareholders of record at the close
of business on March 20, 1998 are entitled to notice of and to vote at the
meeting.
All shareholders are cordially invited to attend the meeting in person. To
assure your representation at the meeting, however, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. YOU MAY REVOKE YOUR PROXY
IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME BEFORE
IT HAS BEEN VOTED AT THE ANNUAL MEETING. ANY SHAREHOLDER ATTENDING THE MEETING
MAY VOTE IN PERSON EVEN IF HE OR SHE HAS RETURNED A PROXY.
For the Board of Directors,
SALIX PHARMACEUTICALS, LTD.
/s/ Randy W. Hamilton
Randy W. Hamilton
Chairman, President and Chief
Executive Officer
Palo Alto, California
March 31, 1998
YOUR VOTE IS IMPORTANT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE.
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SALIX PHARMACEUTICALS, LTD.
----------------
PROXY STATEMENT
1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1998
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INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of SALIX
PHARMACEUTICALS, LTD. (the "Company") for use at the Annual Meeting of
Shareholders to be held Tuesday, May 12, 1998 at 8:00 a.m., local time (the
"Annual Meeting"), or at any adjournment or postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at The Newstead Hotel, 27
Harbour Road, Paget, Bermuda PG 02. The Company's principal executive offices
are located at 3600 West Bayshore Road, Suite 205, Palo Alto, California
94303, and its telephone number at that location is (650) 856-1550.
These proxy solicitation materials and the Annual Report to Shareholders for
the year ended December 31, 1997, including financial statements, were first
mailed on or about March 31, 1998 to all shareholders entitled to vote at the
Annual Meeting.
The purposes of the Annual Meeting are (i) to elect seven (7) directors to
serve for the ensuing year and until their successors are duly elected and
qualified; (ii) to approve an amendment and restatement of the Company's 1996
Stock Option Plan, including an increase in the number of Common Shares
reserved for issuance thereunder by 600,000 thereby increasing to 1,750,000
the maximum aggregate number of shares reserved for issuance thereunder; (iii)
to ratify the appointment of Ernst & Young LLP as independent accountants of
the Company for the fiscal year ending December 31, 1998; and (iv) to transact
such other business as may properly come before the meeting or any adjournment
thereof. When proxies are properly dated, executed, and returned, the shares
they represent will be voted at the Annual Meeting in accordance with the
instructions of the shareholder. If no specific instructions are given, the
shares will be voted for the election of the nominees for directors set forth
herein, for the amendment and restatement of the Company's 1996 Stock Option
Plan as described herein, including an increase by 600,000 in the number of
Common Shares reserved for issuance thereunder, for the ratification of the
appointment of Ernst & Young LLP as independent auditors as set forth herein,
and, at the discretion of the proxy holders, upon such other business as may
properly come before the Annual Meeting or any adjournment or postponement
thereof.
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on March 20, 1998 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting.
The Company has two authorized classes of capital stock, Common Shares, no par
value, and Preferred Shares, no par value. At the Record Date, 10,192,838
Common Shares of the Company were issued and outstanding, and no Preferred
Shares of the Company were issued or outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Chief Financial Officer of the Company at or before the taking of the
vote at the Annual Meeting a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a later dated proxy relating to the same
shares and delivering it to the Chief Financial Officer of the Company at or
before the taking of the vote at the Annual Meeting, or (iii) attending the
Annual Meeting and voting in person (although attendance at the Annual Meeting
will not in and of itself constitute a revocation of a proxy). Any written
notice of revocation or subsequent proxy should be delivered to Salix
Pharmaceuticals,
<PAGE>
Ltd. at 3600 West Bayshore Road, Suite 205, Palo Alto, California 94303,
Attention: Chief Financial Officer, or hand-delivered to the Chief Financial
Officer of the Company at or before the taking of the vote at the Annual
Meeting.
VOTING
Each holder of Common Shares is entitled to one vote for each share held as
of the Record Date with respect to all matters that may be considered at the
Annual Meeting. Shareholders' votes will be tabulated by persons appointed by
the Board of Directors to act as inspectors of election for the Annual
Meeting. Abstentions are considered shares present and entitled to vote and,
therefore, have the same legal effect as a vote against a matter presented at
the Annual Meeting. Any shares held in street name for which the broker or
nominee receives no instructions from the beneficial owner, and as to which
such broker or nominee does not have discretionary voting authority, will be
considered as shares not entitled to vote and will therefore not be considered
in the tabulation of the votes but will be considered for purposes of
determining the presence of a quorum.
SOLICITATION OF PROXIES
The expense of soliciting proxies in the enclosed form will be borne by the
Company. In addition, the Company may reimburse banks, brokerage firms, and
other custodians, nominees, and fiduciaries representing beneficial owners of
shares for their expenses in forwarding soliciting materials to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers, and employees, personally or by telephone, telegram,
facsimile, or other means of communication. No additional compensation will be
paid for such services.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Shareholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the proxy rules promulgated by
the United States Securities and Exchange Commission. Proposals of
shareholders of the Company which are intended to be presented for
consideration at the Company's 1999 Annual Meeting of Shareholders must be
received by the Company at the Company's principal executive offices no later
than November 27, 1998 in order to be considered for inclusion in the proxy
statement and form of proxy relating to that meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of seven (7) directors is to be elected at the Annual Meeting.
Unless a proxy is marked as to withhold authority so to vote, the proxy
holders will vote the proxies received by them for the Company's seven
nominees named below, all of whom are presently directors of the Company. In
the event that any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who shall be designated by the present Board of Directors to fill the
vacancy. It is not expected that any nominee will be unable or will decline to
serve as a director. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received
by them in such a manner (in accordance with cumulative voting) as will assure
the election of as many of the nominees listed below as possible, and, in such
event, the specific nominees to be voted for will be determined by the proxy
holders. The term of office of each person elected as a director will continue
until the next Annual Meeting of Shareholders or until a successor has been
elected and qualified.
The Articles of Association of the Company provide that a shareholder shall
be entitled to cumulate votes with respect to the election of directors (i.e.,
cast for any candidate a number of votes greater than the number of
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votes which such shareholder normally is entitled to cast) if the candidates'
names have been placed in nomination prior to commencement of the voting and
the shareholder has given notice prior to commencement of the voting of the
shareholder's intention to cumulate votes. The form of proxy for use in
connection with the Annual Meeting may be used to give the Company such
notice. If any shareholder has given such a notice, then every shareholder
entitled to vote may cumulate votes for candidates in nomination either (i) by
giving one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which that shareholder's shares
are normally entitled or (ii) by distributing the shareholder's votes on the
same principle among any or all of the candidates, as the shareholder thinks
fit. The candidates receiving the highest number of affirmative votes, up to
the number of directors to be elected, shall be elected; votes against any
candidate and votes withheld shall have no legal effect. For example, if a
shareholder holds 100 Shares (1 vote each) and desires to vote them for the
election of directors, the shareholder would be entitled to cast 700 votes, a
number arrived at by multiplying the total number of votes attached to the
shares held by the shareholder (100) by the number (7) of directors to be
elected. The 700 votes resulting from such multiplication (100 x 7) could be
cast in favour of one nominee or distributed among any number of nominees in
any portion desired. If a shareholder votes for more than one nominee without
specifying the distribution of his votes among the nominees, he will be deemed
to have distributed his votes equally among the nominees for whom he voted. If
the number of persons nominated for director exceeds the number of positions
to be filled, the nominees who receive the least number of votes shall be
eliminated until the number of nominees remaining equals the number of
positions to be filled. A separate vote of shareholders shall be taken with
respect to each person nominated for director.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE SEVEN NOMINEES
LISTED BELOW.
The name of and certain information regarding each nominee is set forth
below, which information is based on data furnished to the Company by the
nominees. There are no family relationships among any directors or executive
officers of the Company.
<TABLE>
<CAPTION>
POSITION(S) WITH THE DIRECTOR
NAME AGE(1) COMPANY SINCE
---- ------ -------------------- --------
<C> <C> <S> <C>
Randy W. Hamilton........... 43 Chairman of the Board of December 1993
Directors, President and
Chief Executive Officer
Lorin K. Johnson, Ph.D. .... 45 Vice President, Research December 1993
(Salix Pharmaceuticals,
Inc.) and Director
Lily Baxendale, F.R.S.C. ... 73 Director July 1995
Lawrance A. Brown, 70 Director October 1994
Jr.(2)(3)..................
John F. Chappell(2)(3)...... 61 Director December 1993
Nicholas M. Ediger(3)....... 69 Director February 1997
David E. Lauck, Sr. ........ 62 Director December 1993
</TABLE>
- --------
(1) As of March 20, 1998.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
Randy Hamilton is a co-founder of the Company and has served as Chairman of
its Board of Directors and President and Chief Executive Officer since
December 1993. From November 1989 to December 1993, Mr. Hamilton served as
President and Chief Executive Officer and as a director of Salix
Pharmaceuticals, Inc., which is now a wholly owned subsidiary of the Company.
Prior to 1989, Mr. Hamilton served as Director of Planning and Business
Development with SmithKline Diagnostics, Inc., a medical diagnostic subsidiary
of SmithKline Beecham plc, a pharmaceutical company, and as head of Asian
business development for California Biotechnology Inc. (now Scios, Inc.), a
biotechnology company.
Lorin K. Johnson, Ph.D. is a co-founder of the Company and has served as the
Company's Vice President, Research, and as a member of its Board of Directors
since December 1993. From November 1989 to present, Dr. Johnson held the same
positions at Salix Pharmaceuticals, Inc. Prior to co-founding Salix, Dr.
Johnson served
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as Director of Scientific Operations at California Biotechnology Inc. Prior to
joining California Biotechnology, Dr. Johnson was assistant Professor of
Pathology at Stanford University Medical Center.
Lily Baxendale, F.R.S.C., has served as a director of the Company since July
1995. Miss Baxendale has served since 1983 as Managing Director of Biorex
Laboratories, Ltd., a pharmaceutical development company headquartered in
England, which she co-founded in 1950. Prior to 1983, Miss Baxendale served as
a director and secretary of Biorex. Miss Baxendale is a Fellow of the Royal
Society of Chemists.
Lawrance A. Brown, Jr. has served as a director of the Company since October
1994 and as a member of its audit and compensation committees since December
1994. Since 1992, Mr. Brown has been a self-employed consultant. Prior to
1992, Mr. Brown was a General Partner of Continental Capital and,
subsequently, a consultant to MBW Ventures. Before his venture capital
activities, Mr. Brown worked for SmithKline Corporation, a pharmaceutical
company, retiring as a Group Vice President.
John F. Chappell has served as a director of the Company since December 1993
and as a member of its audit and compensation committees since December 1994.
Since December 1990, Mr. Chappell has been President of Plexus Ventures, Inc.,
a private consulting firm specializing in advising early stage pharmaceutical
companies. Prior to 1990, Mr. Chappell served in various capacities at
SmithKline Beecham plc, most recently as Chairman, Worldwide Pharmaceuticals
and a member of its Board of Directors. Mr. Chappell also serves as a director
of Neurex Corporation.
Nicholas M. Ediger has served as a director of the Company since February
1997 and as a member of its Compensation Committee since December 1997. Since
October 1988, Mr. Ediger has served as Managing Director of Sentinel
Associates, a finance and energy consulting firm. Prior to joining Sentinel,
Mr. Ediger served for 14 years as President and Chief Executive Officer of
Eldorado Resources Ltd., an energy and mineral company. Prior to joining
Eldorado, Mr. Ediger worked for 25 years with Gulf Oil Corporation, including
as Chief Operating Officer of Gulf Minerals Canada Ltd.
David E. Lauck, Sr. is a co-founder of the Company and has served as a
director since December 1993. Mr. Lauck served as the Company's Vice
President, Development from February 1994 until June 1997 and has been working
as a part time employee with the Company since such time. From December 1993
to January 1994, he was the Company's Director of European Development. Prior
to December 1993, Mr. Lauck served as an officer and director of Salix
Pharmaceuticals, Inc., including in the positions of Director/Europe from
October 1992 to December 1993 and Vice President of Regulatory Affairs from
November 1989 to September 1992.
REQUIRED VOTE
The seven nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be
elected as directors. Votes withheld from any director are counted for
purposes of determining the presence or absence of a quorum for the
transaction of business, but they have no legal effect under British Virgin
Islands law.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of 10 meetings during the
fiscal year ended December 31, 1997. No director, during the time he or she
was a member of the Board of Directors, attended fewer than 75% of the
aggregate of all meetings of the Board of Directors, or its committees on
which he or she served which occurred during fiscal 1997. The Board has an
Audit Committee and a Compensation Committee. It does not have a nominating
committee or a committee performing the functions of a nominating committee.
The Audit Committee is responsible for (i) recommending engagement of the
Company's independent auditors, (ii) approving the services performed by such
auditors, (iii) consulting with such auditors and reviewing with them the
results of their examination, (iv) reviewing and approving any material
accounting policy changes
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affecting the Company's operating results, (v) reviewing the Company's control
procedures and personnel, and (vi) reviewing and evaluating the Company's
accounting principles and its system of internal accounting controls. The
Audit Committee held one meeting during fiscal 1997. The Audit Committee
currently consists of Lawrance A. Brown, Jr. and John F. Chappell.
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for executive officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee held one meeting during fiscal 1997.
The Compensation Committee currently consists of Lawrance A. Brown, Jr., John
F. Chappell, and Nicholas M. Ediger. Mr. Ediger became a member of the
Compensation Committee in December 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal 1997 were Lawrance
A. Brown, Jr. and John F. Chappell. Neither Mr. Brown nor Mr. Chappell was at
any time during the Company's 1997 fiscal year or at any other time an officer
or employee of the Company. Randy W. Hamilton, President and Chief Executive
Officer of the Company, participates in all discussions and decisions
regarding salaries and incentive compensation for all executive officers of
the Company, except that he is excluded from discussions regarding his own
salary and incentive stock compensation. No interlocking relationship exists
between any member of the Company's Compensation Committee and any member of
any other company's board of directors or compensation committee.
COMPENSATION OF DIRECTORS
The Company reimburses each member of the Company's Board of Directors for
out-of-pocket expenses incurred in connection with attending Board meetings.
In addition, directors Nicholas M. Ediger and Lawrance A. Brown are
compensated $1,000 for each meeting of the Board they attend in person. Other
than Messrs. Ediger and Brown, all directors are either employed by the
Company and/or hold a substantial equity position in the Company, and no
member of the Board of Directors currently receives any additional cash
compensation for his or her service as director. In February 1997, Mr. Ediger
was granted a non-qualified stock option under the Company's 1996 Stock Option
Plan to purchase 10,000 Common Shares at an exercise price equal to the fair
market value of the Common Shares on the date of grant. Such option vests at
the rate of 1/36th of the shares subject to option per month. In addition, the
Company paid Mr. Brown $11,500 during the year ended December 31, 1997 in
connection with a consulting arrangement with the Company. Directors may from
time to time provide services as consultants that may provide for additional
consulting services at agreed upon rates.
5
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PROPOSAL TWO
AMENDMENT AND RESTATEMENT OF 1996 STOCK OPTION PLAN
At the Annual Meeting, the shareholders are being asked to approve the
amendment and restatement of the Company's 1996 Stock Option Plan (the
"Plan"), including an increase in the number of Common Shares reserved for
issuance thereunder by 600,000 thereby increasing to 1,750,000 the maximum
aggregate number of shares reserved for issuance thereunder. The amendment and
restatement of the Plan was approved by the Board of Directors in March 1998.
As of March 20, 1998, options to purchase an aggregate of 675,500 Common
Shares were outstanding under the Plan with a weighted average exercise price
of $5.36 per share, no Common Shares had been issued upon exercise of options
granted under the Plan, and 49,945 shares were available for future grant. The
Plan authorizes the Board of Directors to grant incentive and nonstatutory
stock options to eligible employees, directors and consultants of the Company.
The closing price of the Company's Common Shares on The Toronto Stock
Exchange on the Record Date was Cdn. $7.50 for the Common Shares traded under
the symbol "SLX.s" and Cdn. $7.45 for the Common Shares traded under the
symbol "SLX." The Bank of Canada noon rate of exchange for Canadian dollars
into United States dollars was Cdn. $1.418 per U.S. $1.00 on the Record Date.
Beginning in May 1998, all the Company's outstanding Common Shares available
for sale on The Toronto Stock Exchange will trade under the symbol "SLX."
The proposed amendment and restatement of the Plan is intended to update the
Plan to (i) reflect the Company's status as a public reporting Company under
United States securities laws and (ii) take advantage of the revision of
certain rules and regulations of the United States Securities and Exchange
Commission under Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), relating to the administration of the Plan. In addition,
the restatement will result in an increase by 600,000 shares in the number of
Common Shares reserved for issuance under the Plan. As a result of the share
increase, a maximum aggregate of 1,750,000 Common Shares (subject to certain
limitations) will be reserved for issuance under the Plan, which represents
approximately 17% of the issued and outstanding Common Shares of the Company
on the Record Date. Of such maximum, 675,500 shares are subject to outstanding
options under the Plan, 198,600 are subject to outstanding options under the
1994 Plan and are not available for grant under the Plan unless such options
are canceled or otherwise terminated without exercise, and an additional
225,955 shares issued pursuant to the exercise of options granted under the
1994 Plan are not available for grant under the Plan. See "Shares Reserved for
Issuance under the Plan" below. As a result of these limitations, upon
shareholder approval of the amendment and restatement, 649,945 Common Shares
will be immediately available for grant.
The Plan authorizes the Board of Directors to grant stock options to
eligible employees, directors, and consultants of the Company and is
structured to allow the Board of Directors broad discretion in creating equity
incentives. Stock option grants made under the Plan constitute an important
incentive for key technical and managerial employees of the Company. Option
grants are a significant part of the Company's ability to attract, retain and
motivate people whose skills and performance are critical to the Company's
success. The Company has a standing practice of linking key employee
compensation to corporate performance because it believes that this increases
employee motivation to improve shareholder value. The Company has, therefore,
consistently included equity incentives as a significant component of
compensation for a broad range of the Company's employees.
As of the Record Date, the Company had only 16 employees and expects that
number to increase substantially if the Company obtains regulatory approvals
in the United States for its current products and if the Company successfully
in-licenses additional products. Particularly in light of the Company's
strategic objectives, the Board of Directors believes that the 49,945
remaining Common Shares available for grant under the Plan are insufficient to
accomplish the purposes of the Plan as described above. The Company
anticipates that in order to hire additional employees during the next fiscal
year and beyond, it will be necessary to offer equity incentives to attract,
motivate, and retain these individuals. The Company's business operations are
conducted principally
6
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in Palo Alto, California, and the Company faces extremely intense competition
for qualified employees from other Silicon Valley-based corporations, almost
all of which also use equity incentives as a means to attract and retain
employees. In addition, in order to retain the services of valuable employees
as the Company matures and its employee base grows larger, it may be necessary
to grant additional options to current employees as older options become fully
vested.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required to
approve the amendment and restatement of the Plan. For this purpose, the
"Votes Cast" are defined to be the shares of the Company's Common Shares
represented and voting at the Annual Meeting. In addition, the affirmative
votes must constitute at least a majority of the required quorum, which quorum
is a majority of the shares outstanding at the Record Date. Votes that are
cast against the proposal will be counted for purposes of determining both (i)
the presence or absence of a quorum and (ii) the total number of Votes Cast
with respect to the proposal. Abstentions will be counted for purposes of
determining both (i) the presence or absence of a quorum and (ii) the total
number of Votes Cast with respect to the proposal. Accordingly, abstentions
will have the same effect as a vote against the proposal. Broker non-votes, if
any, will be counted for purposes of determining the presence or absence of a
quorum for the transaction of business, but will not be counted for purposes
of determining the number of Votes Cast with respect to this proposal. The
Company has been advised by The Toronto Stock Exchange that a disinterested
shareholders vote is not required in connection with the amendment and
restatement of the Plan.
FOR THESE REASONS, THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE AMENDMENT AND RESTATEMENT OF THE PLAN,
INCLUDING AN INCREASE BY 600,000 SHARES OF THE NUMBER OF COMMON SHARES
RESERVED FOR ISSUANCE THEREUNDER.
The essential terms of the Plan are summarized as follows:
PURPOSE
The purposes of the Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to employees, directors and consultants of the Company and to
promote the success of the Company's business.
ADMINISTRATION
The Plan provides for administration by the Board of Directors of the
Company or by a committee of the Board. The Board or the committee appointed
to administer the Plan are referred to in this description as the
"Administrator." The Administrator determines the terms of options granted,
including the exercise price, number of shares subject to the option and the
exercisability thereof. All questions of interpretation are determined by the
Administrator and its decisions are final and binding upon all participants.
Members of the Board receive no additional compensation for their services in
connection with the administration of the Plan.
ELIGIBILITY
The Plan provides that either incentive or nonstatutory stock options may be
granted to employees (including officers and employee directors) of the
Company or any of its designated subsidiaries. In addition, the Plan provides
that nonstatutory stock options may be granted to consultants (including
directors) of the Company or any of its designated subsidiaries. The
Administrator selects the optionees and determines the number of shares to be
subject to each option. In making such determination, the Administrator takes
into account the duties and responsibilities of the optionee, the value of the
optionee's services, the optionee's present and potential contribution to the
success of the Company and other relevant factors. The Plan provides a limit
of $100,000 on the aggregate fair market value of shares subject to all
incentive options which are exercisable for the first time in any one calendar
year. The Plan provides that a maximum of 250,000 shares (750,000 shares if in
connection with initial employment) may be granted to any one individual
during any fiscal year of the Company. In addition, not more than 50% of the
total number of shares reserved under the Plan may be allocated to any one
7
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participant in any 12 calendar month period. The Plan limits the maximum
number of shares which may be reserved for issuance to all officers under the
Plan to not more than 10% of the issued and outstanding shares of Common Stock
at the time of grant. The maximum number of shares which may be issued to
officers in any 12 month period may not exceed 10% of the issued and
outstanding Common Stock at the time of grant and the maximum number of shares
which may be issued to any one officer and such officer's associates under the
plan in any 12 month period may not exceed 5% of the issued and outstanding
Common Stock at the time of grant (excluding shares issued pursuant to the
Plan or any other share compensation arrangements over the preceding 12-month
period).
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the Company and
the optionee to whom such option is granted and is subject to the following
additional terms and conditions:
(1) Exercise of the Option: The Administrator determines when options
granted under the Plan may be exercised. An option is exercised by giving
written notice of exercise to the Company, specifying the number of shares
of Common Stock to be purchased and tendering payment to the Company of the
purchase price. Payment for shares issued upon exercise of an option may
consist of cash, check, delivery of already-owned shares of the Company's
Common Stock subject to certain conditions, pursuant to a cashless exercise
procedure under which the optionee provides irrevocable instructions to a
brokerage firm to sell the purchased shares and to remit to the Company,
out of the sale proceeds, an amount equal to the exercise price plus all
applicable withholding taxes, any combination of the foregoing methods of
payment, or such other consideration and method of payment to the extent
permitted under applicable laws. Options may be exercised at any time on or
following the date the options are first exercisable. An option may not be
exercised for a fraction of a share.
(2) Option Price: The option price of all incentive stock options under
the Plan may not be less than the fair market value of the Common Stock on
the date the option is granted. In the case of a nonstatutory stock option
granted to a person who at the time of grant of such option is a named
executive of the Company, the per share exercise price shall be no less
than 100% of the fair market value. For purposes of the Plan, fair market
value is defined as the closing sale price per share of the Common Stock on
the date of grant as reported on The Toronto Stock Exchange. In the case of
an incentive stock option granted to an optionee who at the time of grant
owns stock representing more than 10% of the voting power of all classes of
stock of the Company, the option price must be not less than 110% of the
fair market value on the date of grant.
(3) Termination of Employment or Consulting Relationship: The Plan
provides that if the optionee's employment or consulting relationship with
the Company is terminated for any reason, other than death or disability,
the period of time during which an option may be exercised following such
termination is 30 days (or such other period of time as the Administrator
may determine, not exceeding three months in the case of an incentive stock
option, subject to certain conditions, or six months in the case of a
nonstatutory stock option). Options may be exercised only to the extent
they were exercisable on the date of termination and in no event later than
the expiration of the term of the option. To the extent that an option is
not exercisable at the date of such termination, or if the option is not
exercised within the specified time, the option expires.
(4) Death: If an optionee should die while an employee or a consultant of
the Company (or during such period of time not exceeding three months, as
determined by the Administrator following termination of the optionee's
employment or consultancy), options may be exercised at any time within six
months (or such shorter time period determined by the Administrator),
following the date of death (but not later than the date of expiration of
the option), by the optionees estate or by a person who acquired the right
to exercise the option by bequest or inheritance. Such exercise is
permitted only to the extent of the right to exercise that would have
accrued had the optionee continued living and remained an employee or
consultant for three months after the date of death, subject to certain
limitations.
8
<PAGE>
(5) Disability: If an optionee's employment is terminated due to a
disability, options may be exercised at any time within twelve months (or
such shorter period determined by the Administrator) from the date of such
termination, but only to the extent that the options were exercisable on
the date of termination of employment and in no event later than the
expiration of the term of such option as set forth in the Notice of Grant.
To the extent that an option is not exercisable at the date of such
termination, or if the option is not exercised within the specified time,
the option expires.
(6) Termination of Options: The term of each option is fixed by the
Administrator and may not exceed ten years from the date of grant in the
case of incentive stock options. However, incentive stock options granted
to an optionee who, at the time the option is granted, owned more than 10%
of the total combined voting power of all classes of stock of the Company
or a parent or subsidiary corporation, may not have a term of more than
five years. No option may be exercised by any person after such expiration.
(7) Nontransferability of Options: Unless determined otherwise by the
Administrator, an option is nontransferable by the optionee, other than by
will or the laws of descent and distribution, and is exercisable only by
the optionee during his or her lifetime or, in the event of death, by a
person who acquires the right to exercise the option by bequest or
inheritance or by reason of the death of the optionee.
SHARES RESERVED FOR ISSUANCE UNDER THE PLAN
The maximum aggregate number of shares that may be optioned and sold under
the Plan is 1,750,000; provided that in no event shall the number of shares
that may be optioned and sold exceed the sum of (i) 1,311,175 shares of Common
Stock plus (ii) such number of shares as are subject to outstanding and
unexercised stock options under the Company's 1994 Stock Plan, as of the date
of adoption of the Plan by the shareholders, which options are thereafter
canceled or otherwise terminated without exercise.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization which results in an increase or decrease in the
number of outstanding shares of Common Stock without receipt of consideration
by the Company, an appropriate adjustment shall be made in the option price
and in the number of shares subject to each option. In the event of a merger
of the Company with or into another corporation, all outstanding options may
either be assumed or an equivalent option may be substituted by the surviving
entity or, if such options are not assumed or substituted, such options shall
become exercisable as to all of the shares subject to the options, including
shares as to which would not otherwise be exercisable. In the event that
options become exercisable in lieu of assumption or substitution, the
Administrator shall notify optionees that all options shall be fully
exercisable for a period of 10 days, after which such options shall terminate.
AMENDMENT AND TERMINATION
The Board of Directors may amend or terminate the Plan at any time or from
time to time. The Company shall obtain stockholder approval of any Plan
amendment to the extent necessary and desirable to comply with laws governing
the Plan. However, no action by the Board of Directors or shareholders may
alter or impair any option previously granted under the Plan without the
consent of the optionee. In any event, the Plan will terminate in May 2006.
TAX INFORMATION
Options granted under the Plan may be either "incentive stock options," as
defined in Section 422 of the United States Internal Revenue Code of 1986, as
amended, or nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the
9
<PAGE>
option exercise or (ii) the sale price of the shares. A different rule for
measuring ordinary income upon such a premature disposition may apply if the
optionee is also an officer, director, or 10% shareholder of the Company.
Generally, the Company will be entitled to a deduction in the same amount as
the ordinary income recognized by the optionee. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income will be characterized as long-term or short-term capital gain
or loss, depending on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any
taxable income at the time he is granted a nonstatutory option. However, upon
its exercise, the optionee will recognize ordinary income generally measured
as the excess of the then fair market value of the shares purchased over the
purchase price. Any taxable income recognized in connection with an option
exercise by an optionee who is also an employee of the Company will be subject
to tax withholding by the Company. Upon resale of such shares by the optionee,
any difference between the sales price and the optionee's purchase price, to
the extent not recognized as taxable income as described above, will be
treated as long-term or short-term capital gain or loss, depending on the
holding period. Generally, the Company will be entitled to a tax deduction in
the same amount as the ordinary income recognized by the optionee with respect
to shares acquired upon exercise of a nonstatutory option.
The foregoing is only a summary of the effect of United States federal
income taxation upon the optionee and the Company with respect to the grant
and exercise of options under the Plan, does not purport to be complete, and
does not discuss the tax consequences of the optionee's death or the income
tax laws of any municipality, state or foreign country in which an optionee
may reside.
PARTICIPATION IN THE PLAN
The grant of options under the Plan to executive officers, including the
officers named in the Summary Compensation Table below, is subject to the
discretion of the Administrator. As of the date of this proxy statement, there
has been no determination by the Administrator with respect to future awards
under the Plan. Accordingly, future awards are not determinable.
The table of option grants under "Executive Compensation and Other Matters--
Option Grants in Last Fiscal Year" provides information with respect to the
grant of options under the Plan to the Named Executive Officers during fiscal
1997. During fiscal 1997, all current executive officers as a group, all
directors as a group, and all other employees as a group were granted options
to purchase 360,000 shares, 10,000 shares and 110,500 shares, respectively,
pursuant to the Plan.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Ernst & Young LLP, independent
accountants, to audit the consolidated financial statements of the Company for
the fiscal year ending December 31, 1998 and recommends that shareholders vote
for ratification of such appointment. Notwithstanding the selection, the
Board, in its discretion, may direct the appointment of new independent
accountants at any time during the year, if the Board feels that such a change
would be in the best interests of the Company and its shareholders. In the
event of a negative vote on ratification, the Board of Directors will
reconsider its selection.
Ernst & Young LLP has audited the Company's financial statements annually
since 1992. Representatives of Ernst & Young LLP are expected to be present at
the meeting with the opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT ACCOUNTANTS.
10
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of Common Shares of the Company as of March 20, 1998 for the
following: (i) each person or entity known by the Company to own beneficially
more than 5% of the outstanding shares of the Company's Common Shares, (ii)
each director of the Company, (iii) each of the executive officers named in
the Summary Compensation table and (iv) all directors and executive officers
as a group:
<TABLE>
<CAPTION>
SHARES PERCENTAGE
FIVE PERCENT SHAREHOLDERS, BENEFICIALLY BENEFICIALLY
DIRECTORS AND EXECUTIVE OFFICERS (1) OWNED (2) OWNED
- ------------------------------------ ------------ ------------
<S> <C> <C>
Randy W. Hamilton(3)................................. 1,038,982 10.2%
David Boyle (4)...................................... 37,500 *
Lorin K. Johnson (5)................................. 745,693 7.3
Robert P. Ruscher (6)................................ 81,518 *
James G. Shook, Ph.D. (7)............................ 43,334 *
Lily Baxendale (8)................................... 323,124 3.2
Lawrance A. Brown, Jr. (9)........................... 37,668 *
John F. Chappell (10)................................ 879,494 8.6
Nicholas M. Ediger (11).............................. 4,167 *
David E. Lauck, Sr. ................................. 300,000 2.9
All executive officers and directors as a group (12
persons) (12)....................................... 3,629,134 34.5
</TABLE>
- --------
* Less than one percent.
(1) The address of each listed shareholder is c/o Salix Pharmaceuticals,
Ltd., 3600 West Bayshore Road, Suite 205, Palo Alto, California 94303.
(2) Applicable percentage ownership is based on 10,192,838 Common Shares
outstanding as of March 20, 1998, together with applicable options for
such shareholder. Beneficial ownership is determined in accordance with
the rules of the United States Securities and Exchange Commission, based
on factors including voting and investment power with respect to shares,
subject to community property laws, where applicable. Common Shares
subject to options or warrants currently exercisable, or exercisable
within 60 days after March 20, 1998, are deemed outstanding for the
purpose of computing the percentage ownership of the person holding such
options or warrants, but are not deemed outstanding for computing the
percentage ownership of any other person.
(3) Includes 1,667 Common Shares issuable upon exercise of outstanding
warrants which are presently exercisable or will become exercisable
within 60 days of March 20, 1998. Also includes 190,000 shares held by
Mr. Hamilton's spouse, for which Mr. Hamilton disclaims beneficial
ownership.
(4) Represents 37,500 Common Shares issuable upon exercise of outstanding
options which are presently exercisable or will become exercisable within
60 days of March 20, 1998.
(5) Includes 33,333 Common Shares issuable upon exercise of outstanding
warrants which are presently exercisable or will become exercisable
within 60 days of March 20, 1998. Also includes 674,500 shares held by a
trust for the benefit of Dr. Johnson and his wife and 37,860 Common
Shares held by a family trust, the beneficiaries of which include Dr.
Johnson's minor children. Dr. Johnson's wife is the trustee of both
trusts.
(6) Includes 74,683 Common Shares issuable upon exercise of outstanding
options and 833 Common Shares issuable upon exercise of outstanding
warrants, which are presently exercisable or will become exercisable
within 60 days of March 20, 1998.
(7) Represents 43,334 Common Shares issuable upon exercise of outstanding
options which are presently exercisable or will become exercisable within
60 days of March 20, 1998.
(8) Represents 306,457 Common Shares held by Biorex Laboratories Limited and
16,667 Common Shares issuable upon exercise of outstanding warrants held
by Biorex Laboratories Limited which are presently exercisable or will
become exercisable within 60 days of March 20, 1998. Miss Baxendale is
the Managing Director and a co-founder of Biorex Laboratories Limited.
(9) Includes 8,333 Common Shares issuable upon exercise of outstanding
warrants which are presently exercisable or will become exercisable
within 60 days of March 20, 1998.
(10) Includes 10,000 Common Shares issuable upon exercise of outstanding
warrants which are presently exercisable or will become exercisable
within 60 days of March 20, 1998.
(11) Represents 4,167 Common Shares issuable upon exercise of outstanding
options which are presently exercisable or will become exercisable within
60 days of March 20, 1998.
(12) Includes 285,517 Common Shares issuable upon exercise of outstanding
options and 70,833 Common Shares issuable upon exercise of outstanding
warrants which are presently exercisable or will become exercisable
within 60 days of March 20, 1998.
11
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation
awarded to, earned by, or paid for services rendered to the Company in all
capacities during each of the fiscal years in the three year period ended
December 31, 1997, by (i) the Company's Chief Executive Officer and (ii) the
next four most highly compensated officers of the Company during the year
ended December 31, 1997. The officers of the Company listed on the table set
forth below are referred to collectively in this Proxy Statement as the "Named
Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- -------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS UNDERLYING COMPENSATION
POSITION YEAR (U.S.)($) (U.S.)($) OPTIONS(#)(1) (U.S.$)(2)
------------------ ------ --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Randy W. Hamilton....... 1997 $199,500 $ -- -- $ 998
Chairman, President and 1996 216,000 -- -- --
Chief Executive Officer 1995 78,000 -- -- --
David Boyle (3)......... 1997 157,500 -- 40,000 21,181(4)
Vice President, Finance 1996 33,300 -- 60,000 --
and Administration,
Chief Financial
Officer 1995 -- -- -- --
Lorin K. Johnson........ 1997 167,500 -- -- 962
Vice President,
Research 1996 182,333 -- -- 837
and Director 1995 66,000 -- -- --
Robert P. Ruscher (5)... 1997 157,500 -- 40,000 984
Vice President,
Corporate 1996 136,086 -- -- 787
Development 1995 52,677(6) -- 60,000 --
James G. Shook (7) ..... 1997 145,625 -- 200,000 --
Senior Vice President, 1996 -- -- -- --
Development 1995 -- -- -- --
</TABLE>
- --------
(1) Other than the salary described herein, the Company did not pay any Named
Executive Officer any fringe benefits, perquisites, or other compensation
in excess of 10% of such executive officer's salary and bonus during
fiscal years 1995, 1996 and 1997.
(2) Except as otherwise indicated, represents matching contributions under the
Company's 401(k) retirement plan.
(3) Mr. Boyle became the Company's Vice President, Finance and Administration,
and Chief Financial Officer in November 1996.
(4) Includes a sign-on payment of $20,000 paid to Mr. Boyle in connection with
his initial employment.
(5) Mr. Ruscher became the Company's Vice President, Corporate Development in
February 1996.
(6) Represents compensation paid to Mr. Ruscher as Director of Corporate
Affairs and General Counsel.
(7) Mr. Shook became the Company's Senior Vice President, Development, in
April 1997.
12
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the year ended December 31,
1997. All such options were awarded under the Company's 1996 Stock Option
Plan.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED FISCAL 1997 SHARE(2)(3) DATE 5% 10%
---- ---------- ------------- ----------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Randy W. Hamilton....... -- -- $ -- -- $ -- $ --
David Boyle (4)......... 40,000 8% 4.98 11/04/07 125,276 317,474
Lorin K. Johnson........ -- -- -- -- -- --
Robert P. Ruscher (4)... 40,000 8% 4.98 11/04/07 125,276 317,474
James G. Shook (5)...... 200,000 42% 6.44 04/02/07 810,016 2,052,740
</TABLE>
- --------
(1) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation based upon the exercise price per share are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future common stock price. Actual
gains, if any, on stock option exercises are dependent on the future
financial performance of the Company, overall market conditions and the
option holders' continued employment through the vesting period. This
table does not take into account any appreciation in the fair market value
of the Common Shares from the date of grant to the date of this Proxy
Statement, other than the columns reflecting assumed rates of appreciation
of 5% and 10%. All dollar amounts noted refer to United States dollars.
(2) Options were granted at an exercise price equal to the fair market value
of the Company's Common Shares on the date of grant, as determined by the
Board of Directors.
(3) Exercise price may be paid in cash, check, delivery of already-owned
Common Shares of the Company subject to certain conditions, authorization
to the Company to retain from the total number of shares for which the
option is exercised that number of shares having a fair market value on
the date of exercise equal to the exercise price for the total number of
shares as to which the option is exercised, delivery of a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company the amount of sale or loan
proceeds required to pay the exercise price, or any combination of the
foregoing methods of payment or such other consideration or method of
payment to the extent permitted under applicable law.
(4) Options become exercisable as to 1/8th of the option shares on the six
month anniversary of the vesting start date and as to 1/48th of the option
shares each month thereafter.
(5) Options become exercisable as to 1/10th on the six-month anniversary of
the vesting start date and as to 1/60th of the option shares each month
thereafter.
13
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the exercise of
stock options by the Named Executive Officers during the fiscal year ended
December 31, 1997 and stock options held as of December 31, 1997 by the Named
Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END
SHARES VALUE DECEMBER 31, 1997 (U.S.$)(2)
ACQUIRED ON REALIZED ------------------------- -------------------------
NAME EXERCISE(#) (U.S.$)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Randy W. Hamilton....... -- $ -- -- -- $ -- $ --
David Boyle (3)......... -- -- 27,083 72,917 11,375 30,625
Lorin K. Johnson........ -- -- -- -- -- --
Robert P. Ruscher (4)... 2,400 8,088 64,267 33,333 126,712 67,400
James G. Shook (5)...... -- -- 26,667 173,333 -- --
</TABLE>
- --------
(1) Based on the fair market value of the Common Shares on the date of
exercise minus the exercise price.
(2) Based on the closing sales price in trading on The Toronto Stock Exchange
on December 31, 1997 of Cdn. $6.25 as converted to U.S. Dollars (at the
exchange rate of Cdn. $1.4296 to U.S. $1.00) minus the exercise price for
the applicable options.
(3) Options to purchase 60,000 Common Shares, of which 16,250 were exercisable
at December 31, 1997, were in-the-money. The remaining options had an
exercise price greater than the fair market value of the Common Shares at
December 31, 1997.
(4) Options to purchase 57,600 Common Shares, of which 37,600 were exercisable
at December 31, 1997, were in-the-money. The remaining options had a
exercise price greater than the fair market value of the Common Shares at
December 31, 1997.
(5) All such options had an exercise price greater than the fair market value
of the Common Shares on December 31, 1997.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company currently does not have any employment contracts in effect with
any Named Executive Officer.
Under the Company's 1994 Stock Plan and the 1996 Stock Option Plan, in the
event of a merger or change of control of the Company, under certain
circumstances, vesting of options outstanding under the Stock Plans will
automatically accelerate such that outstanding options will become fully
exercisable, including with respect to shares for which such shares would be
otherwise unvested.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16 (a)") requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the
Securities and Exchange Commission (the "SEC"). Such officers, directors and
ten-percent shareholders are also required by SEC rules to furnish the Company
with copies of all such forms that they file. Based solely on its review of
the copies of such forms received by the Company, or written representations
from certain reporting persons that no Forms 5 were required for such persons,
the Company believes that during fiscal 1997 all Section 16(a) filing
requirements applicable to its officers, directors and ten-percent
shareholders were complied with.
14
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Notwithstanding any statement to the contrary in any of the Company's
previous or future filings with the Securities and Exchange Commission, this
Report of the Compensation Committee of the Board of Directors shall not be
deemed "filed" with the Securities and Exchange Commission or "soliciting
material" under the Exchange Act and shall not be incorporated by reference
into any such filings.
INTRODUCTION
The Compensation Committee of the Board of Directors (the "Committee") was
established in December 1994 and is composed only of outside directors. During
fiscal 1997, the Compensation Committee consisted of Lawrance A. Brown, Jr.
and John F. Chappell. In December 1997, Nicholas Ediger was elected a member
of the Committee. In general, the Committee is responsible for reviewing and
approving the Company's compensation practices, including executive salary
levels and variable compensation programs. With respect to the compensation of
the Company's Chief Executive Officer, the Committee reviews and approves the
various elements of the Chief Executive Officer's compensation. With respect
to other executive officers, the Committee reviews the recommendations for
such individuals presented by the Chief Executive Officer and the basis
therefor.
The Board of Directors administers the Company's 1996 Stock Option Plan and
the 1994 Stock Plan.
General Compensation Philosophy
The primary objectives of the Company's executive compensation policies
include the following:
. To attract, motivate and retain a highly qualified executive management
team;
. To link executive compensation to the Company's financial performance as
well as to defined individual management objectives established by the
Committee;
. To compensate competitively with the practices of similarly situated
technology companies; and
. To create management incentives designed to enhance shareholder value.
The Company competes in an aggressive and dynamic industry and, as a result,
believes that finding, motivating, and retaining quality employees,
particularly senior managers, sales personnel, and technical personnel, are
key factors to the Company's future success. The Committee's compensation
philosophy seeks to align the interests of shareholders and management by
tying compensation to the Company's performance, either directly in the form
of salary paid in cash or indirectly in the form of appreciation of stock
options granted to employees through the Company's equity incentive programs.
EXECUTIVE COMPENSATION
The Company has a compensation program which consists of two principal
components: cash-based compensation and equity-based compensation. These two
principal components are intended to attract, retain, motivate and reward
executives who are expected to manage both the short-term and long-term
success of the Company.
Cash-based compensation. Cash-based compensation consists of salary (base
pay). The salaries of each of the executive officers (other than the Chief
Executive Officer) for the year ended December 31, 1997 were reviewed by the
Board of Directors, upon the recommendation of the Chief Executive Officer. No
formal incentive bonus plan was in place in 1997.
15
<PAGE>
Equity Incentive Programs. Long-term equity incentives, including stock
options granted pursuant to the Company's 1996 Stock Option Plan and the 1994
Stock Plan, directly align the economic interests of the Company's management
and employees with those of its shareholders. Stock options are a particularly
strong incentive because they are valuable to employees only if the fair
market value of the Company's Common Stock increases above the exercise price,
which is set at the fair market value of the Company's Common Stock on the
date the option is granted. In addition, employees must retain employed with
the Company for a fixed period of time in order for the options to vest fully.
In general, one-eighth of the shares issuable upon exercise of options granted
under the Company's 1996 Stock Option Plan became vested six months after the
vesting start date and vest at the rate of 1/48th of the shares for each month
thereafter. The Board of Directors or the Committee may grant, and has
granted, options with vesting schedules that differ from such general
schedule. The number of options granted to each executive (other than the
Chief Executive Officer) is determined by the Board of Directors or the
Compensation Committee, upon the recommendation of the Chief Executive
Officer. In making its determination, the Compensation Committee considers the
executive's position at the Company, his or her individual performance, the
number of options held by the executive, with particular attention to the
executive's unvested option position, and other factors.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
In determining the Chief Executive Officer's compensation, the Committee
considers comparative financial and compensation data of selected peer
companies. During fiscal 1997, Randy W. Hamilton, the Company's President and
Chief Executive Officer, received a salary of $199,500. For fiscal 1998, the
Company has set Mr. Hamilton's base annual salary at $215,000. The Company has
not granted any stock options to the Chief Executive Officer.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162 of the Code limits the federal income tax deductibility of
compensation paid to the Company's Chief Executive Officer and to each of the
other four most highly-compensated executive officers. The Company may deduct
such compensation only to the extent that during any fiscal year the
compensation paid to such individual does not exceed $1 million or meet
certain specified conditions (including shareholder approval). Based on the
Company's current compensation plans and policies and proposed regulations
interpreting this provision of the Code, the Company and the Committee believe
that, for the near future, there is little risk that the Company will lose any
significant tax deduction for executive compensation.
SUMMARY
The Compensation Committee intends that its compensation program shall be
fair and motivating and shall be successful in attracting and retaining
qualified employees and in linking compensation directly to the Company's
success. The Board of Directors and the Compensation Committee intend to
review this program on an ongoing basis to evaluate its continued
effectiveness.
THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
Lawrance A. Brown, Jr.
John F. Chappell
Nicholas M. Ediger
16
<PAGE>
COMPANY STOCK PRICE PERFORMANCE GRAPH
The stock price performance graph set forth below shall not be deemed to be
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act or under the
Exchange Act, except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed "filed with"
or "soliciting material" under such Acts.
The following graph compares the Company's cumulative total shareholder
return with those of The Toronto Stock Exchange 300 and the Canadian
Biotech/Pharmaceuticals Index. The graph assumes that $100 was invested on May
27, 1996 (the effective date of the Company's initial public offering on The
Toronto Stock Exchange) in (i) the Company's Common Shares, (ii) The Toronto
Stock Exchange 300 and (iii) the Canadian Biotech/Pharmaceuticals Index,
including reinvestment of dividends. Note that historic stock price performance
is not necessarily indicative of future stock price performance. This graph
also assumes that $100 was invested on October 16, 1997 (the effective date of
the Company's follow-on offering on The Toronto Stock Exchange and the
Company's status as a reporting company under United States Securities laws)
under the symbol "SLX" in the Company's Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG SALIX PHARMACEUTICALS, LTD.,
THE TORONTO STOCK EXCHANGE 300
AND THE CANADIAN BIOTECH/PHARMACEUTICALS INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
5/27/96 6/30/96 9/30/96 12/31/96 3/30/97 6/30/97
<S> <C> <C> <C> <C> <C> <C>
Salix Holdings
(SLX.S) 100 92.1 85.7 71.4 127.9 121.4
Salix Holdings
(SLX)
TSE 300 100 96.4 101.2 113.3 111.9 123.1
Biotech/Pharm 100 83.8 88.1 99.5 92.7 98.7
Index
<CAPTION>
9/30/97 10/16/97 12/31/97
<S> <C> <C> <C>
Salix Holdings
(SLX.S) 92.9 106.4 85.7
Salix Holdings
(SLX) 100.0 89.3
TSE 300 134.6 135.6 128.1
Biotech/Pharm
Index 118.6 121.1 94.5
</TABLE>
No dividends have been declared or paid on the Company's Common Stock. The
Company intends to retain its earnings, if any, to fund its business and does
not anticipate paying any cash dividends in the foreseeable future. Shareholder
returns over the period indicated should not be considered indicative of future
shareholder returns.
17
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual Meeting.
If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed form of Proxy to vote the
shares they represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: March 31, 1998
18
<PAGE>
SALIX PHARMACEUTICALS, LTD.
1996 STOCK OPTION PLAN
(AS AMENDED, MARCH 1998)
1. Purposes of the Plan. The purposes of this 1996 Stock Option Plan are
--------------------
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business. Options
granted hereunder may be either Incentive Stock Options or Nonstatutory Stock
Options, at the discretion of the Board and as reflected in the terms of the
written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" shall mean the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under the corporate laws and securities
regulations of applicable Canadian provincial securities laws, U.S. state
corporate laws, U.S. federal and state securities laws, the Code, any stock
exchange or quotation system on which the Common Stock is listed or quoted and
the applicable laws of any foreign country or jurisdiction where Options are, or
will be, granted under the Plan.
(c) "Associate" shall mean (i) any company of which such person or
---------
company beneficially owns, directly or indirectly, voting securities carrying
more than 10 per cent of the voting rights attached to all voting securities of
the company for the time being outstanding, (ii) any partner of that person or
company, (iii) any trust or estate in which such person or company has a
substantial beneficial interest or as to which such person or company serves as
trustee or in a similar capacity, (iv) any relative of that person who resides
in the same home as that person, (v) any person of the opposite sex who resides
in the same home as that person and to whom that person is married or with whom
that person is living in a conjugal relationship outside marriage, or (vi) any
relative of a person mentioned in clause (v) who has the same home as that
person.
(d) "Board" shall mean the Board of Directors of the Company.
-----
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended,
----
or any successor thereto.
(f) "Committee" shall mean any Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan, if one is appointed.
(g) "Common Stock" shall mean the Common Stock of the Company.
------------
<PAGE>
(h) "Company" shall mean Salix Pharmaceuticals, Ltd., a British Virgin
-------
Islands International Business Company.
(i) "Consultant" shall mean any person, including an advisor, engaged
----------
by the Company or any Parent or Subsidiary to render services to such entity,
and any director of the Company whether compensated for such services or not.
(j) "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is for
--------
a period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute. For purposes of this Plan, a change
in status from Employee to Consultant or from Consultant to Employee will not
constitute a termination of employment.
(k) "Director" shall mean a member of the Board.
--------
(l) "Employee" shall mean any person, including officers and Named
--------
Executives (including officers and Named Executives who are also directors),
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(n) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) Subject to clauses (ii) and (iii) hereof, if the Common
Stock is listed on The Toronto Stock Exchange, its Fair Market Value per Share
shall be not less than the closing price of the Common Stock on The Toronto
Stock Exchange on the last business day preceding the date of grant;
(ii) If the Common Stock is listed principally on any
established stock exchange or national market system in the United States,
including without limitation the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported, as quoted on such exchange or system for
the last market trading day prior to the time of determination) as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(iii) If the Common Stock is quoted principally on the NASDAQ
System (but not on The National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock; or
-2-
<PAGE>
(iv) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
In the event the Fair Market Value is determined in accordance with clause
(i) above, such Fair Market Value shall be priced in United States dollars
converted at the then prevailing exchange rate between Canada and the United
States.
(o) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422 of the Code.
(p) "Named Executive" shall mean any individual who, on the last day
---------------
of the Company's fiscal year, is the chief executive officer of the Company (or
is acting in such capacity) or among the four highest compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(q) "Nonstatutory Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(r) "Officer" shall mean a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder, or any successor thereto and (a) every
director or senior officer of the Company, (b) every director or senior officer
of a company that is itself an insider or subsidiary of the Company, (c) any
person or company who beneficially owns, directly or indirectly, voting
securities of the Company or who exercises control or direction over voting
securities of the Company or a combination of both carrying more than 10% of the
voting rights attached to all voting securities of the Company for the time
being outstanding other than voting securities held by the person or company as
underwriter in the course of a distribution, and (d) the Company where it has
purchased, redeemed or otherwise acquired any of its securities, for so long as
it holds any of its securities;
(s) "Option" shall mean a stock option granted pursuant to the Plan.
------
(t) "Optioned Stock" shall mean the Common Stock subject to an Option.
--------------
(u) "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
(v) "Outstanding Issue" shall mean the number of Shares that are
-----------------
outstanding immediately prior to the share issuance in question, excluding
Shares issued pursuant to share compensation arrangements over the preceding
one-year period.
(w) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" shall mean this 1996 Stock Option Plan, as amended.
----
(y) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
----------
Act as the same may be amended from time to time, or any successor provision.
-3-
<PAGE>
(z) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 14 of the Plan.
(aa) "Subsidiary" shall mean a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
-------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 1,750,000 Shares; provided that in no event shall the number
--------
of shares that may be optioned and sold under the Plan exceed the sum of (i)
1,311,175 shares of Common Stock plus (ii) such number of shares as are subject
to outstanding and unexercised stock options under the Company's 1994 Stock
Plan, as of the date of adoption of this Plan by the stockholders, which options
are thereafter canceled or otherwise terminated without exercise. The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares that were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan. Notwithstanding any other provision of the Plan, shares
issued under the Plan and later repurchased by the Company shall not become
available for future grant or sale under the Plan.
4. Administration of the Plan.
---------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of
Employees and Consultants.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to compliance with
---------------------------
Applicable Laws, and further subject to the provisions of the Plan and in the
case of a Committee, the specific duties
-4-
<PAGE>
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
(ii) to select the Employees and Consultants to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option and/or
the shares of Common Stock relating thereto, based in each case on such factors
as the Administrator shall determine, in its sole discretion);
(vii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount, if any, of any
deemed earnings on any deferred amount during any deferral period);
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan; and
(ix) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(x) to institute an option exchange program;
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
-5-
<PAGE>
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted only to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he or she is
otherwise eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of Options that are exercisable for the first time by an Optionee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock
Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his or her right or the Company's right to
terminate his or her employment or consulting relationship at any time, with or
without cause.
(e) The terms of any Option shall comply with Applicable Laws.
(f) Not more than 50% of the total number of shares reserved under
the Plan shall be allocated to any one participant under the Plan within any
twelve calendar month period.
(g) The maximum number of shares that may be allocated to any one
participant upon the grant of stock Options may not exceed 5% of the issued and
outstanding Common Stock at the time of grant.
(h) The following limitations shall apply to grants of Options:
(i) No Employee or Consultant shall be granted, in any fiscal
year of the Company, Options to purchase more than 250,000 Shares.
(ii) In connection with his or her initial service, an Employee
or Consultant may be granted Options to purchase up to an additional 500,000
Shares which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
-6-
<PAGE>
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the canceled Option will be counted against the limits
set forth in subsections (i) and (ii) above. For this purpose, if the exercise
price of an Option is reduced, the transaction will be treated as a cancellation
of the Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years, unless sooner terminated under Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that in the case of an Incentive Stock
-------- -------
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Incentive Stock Option granted to an Optionee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
8. Limitation on Grants to Officers. Subject to adjustment as provided
--------------------------------
in this Plan and subject to the other limitations set forth herein:
(a) The maximum number of Shares which may be reserved for issuance to
all Officers under the Plan may not exceed 10% of the Outstanding Issue.
(b) The maximum number of Shares which may be issued to Officers under
the Plan in any 12 month period shall be 10% of the Outstanding Issue.
(c) The maximum number of Shares which may be issued to any one
Officer and such Officer's Associates under the Plan in any 12 month period
shall be 5% of the Outstanding Issue.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
-7-
<PAGE>
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant;
(B) granted to any Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option granted to a
person who, at the time of the grant of such Option, is a Named Executive of the
Company, the per share Exercise Price shall be no less than 100% of the Fair
Market Value on the date of grant;
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) other Shares that (x) in the case of Shares acquired upon exercise of
an Option either have been owned by the Optionee for more than six months on the
date of surrender or were not acquired, directly or indirectly, from the
Company, and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised, (4) authorization from the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market Value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised, (5) delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds required to
pay the exercise price, (6) any combination of the foregoing methods of payment,
or (7) such other consideration and method of payment for the issuance of Shares
to the extent permitted under Applicable Laws. No Optionee shall receive
financial assistance from the Company in connection with the exercise of any
Option and the purchase price of the Common Stock issuable pursuant to any
Option shall be paid in full prior to the issuance of such Common Stock. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is
-8-
<PAGE>
exercised has been received by the Company. Full payment may, as authorized by
the Administrator, consist of any consideration and method of payment allowable
under Section 9(b) of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate promptly
upon exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee or Consultant. In the event
---------------------------------------------------
of termination of an Optionee's Continuous Status as an Employee or Consultant,
such Optionee may, but only within thirty (30) days (or such other period of
time, not exceeding three (3) months in the case of an Incentive Stock Option or
six (6) months in the case of a Nonstatutory Stock Option, as is determined by
the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) after the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent that he or she was entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of such termination, or if the optionee does not exercise
such Option (which he or she was entitled to exercise) within the time specified
herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
10(b) above, in the event of termination of an Optionee's Continuous Status as
an Employee or Consultant as a result of his or her disability, he or she may,
but only within twelve (12) months (or such other period of time not exceeding
twelve (12) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) from the date of such termination (but in no event later
than the date of expiration of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent he or she was
entitled to exercise it at the date of such termination. To the extent that he
or she was not entitled to exercise the Option at the date of termination, or if
he does not exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
-----------------
(i) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months (or such
other period of time, not exceeding six (6) months, as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
-9-
<PAGE>
being made at the time of grant of the Option) following the date of death (but
in no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance but only to
the extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or Consultant
three (3) months (or such other period of time as is determined by the
Administrator as provided above) after the date of death, subject to the
limitation set forth in Section 5(b); or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the termination of Continuous Status as an Employee
or Consultant, the Option may be exercised, at any time within twelve (12)
months following the date of death (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement), by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination.
11. Withholding Taxes. As a condition to the exercise of Options granted
-----------------
hereunder, the Optionee shall make such arrangements as the Administrator may
require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with the exercise, receipt or
vesting of such Option. The Company shall not be required to issue any Shares
under the Plan until such obligations are satisfied.
12. Satisfaction of Withholding Tax Obligations. At the discretion of the
-------------------------------------------
Administrator, Optionees may satisfy withholding obligations as provided in this
paragraph. When an Optionee incurs tax liability in connection with an Option
which tax liability is subject to tax withholding under applicable tax laws, and
the Optionee is obligated to pay the Company an amount required to be withheld
under applicable tax laws, the Optionee may satisfy the withholding tax
obligation by one or some combination of the following methods: (a) by cash
payment, or (b) out of Optionee's current compensation, (c) if permitted by the
Administrator, in its discretion, by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from the Company, have been owned by
the Optionee for more than six months on the date of surrender, and (ii) have a
fair market value on the date of surrender equal to or less than Optionee's
marginal tax rate times the ordinary income recognized, or (d) by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option that number of Shares having a fair market value equal to the amount
required to be withheld. For this purpose, the fair market value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined (the "TAX DATE").
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator.
13. Non-Transferability of Options. Unless determined otherwise by the
------------------------------
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
-10-
<PAGE>
14. Adjustments Upon Changes in Capitalization or Merger.
-----------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, the maximum number of shares of Common Stock for which Options may
be granted to any employee under Section 8 of the Plan, and the price per share
of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
-------- -------
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Administrator, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
as soon as practicable prior to the effective date of such proposed action. To
the extent it has not been previously exercised, the Option will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale of all
------------------------
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's shareholders, each outstanding Option shall be assumed or an
equivalent option or right shall be substituted by such successor corporation or
a parent or subsidiary of such successor corporation, unless the successor
corporation does not agree to assume the Option or to substitute an equivalent
option or right, in which case such Option shall vest in its entirety and become
exercisable as follows prior to the consummation of the merger or sale of
assets. If the Option becomes fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets as provided in the
preceding sentence, the Administrator shall notify the Optionee and the Option
shall be fully exercisable for a period of ten (10) days from the date of such
notice, and will terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets is
not solely common stock of the successor corporation or its Parent, the
Administrator may, with the
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<PAGE>
consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
15. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is so granted within a reasonable time after the date of such
grant.
16. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable.
(b) Stockholder Approval. The Company shall obtain stockholder
---------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
17. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with
Applicable Laws and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
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<PAGE>
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
19. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
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<PAGE>
PROXY CARD
----------
SALIX PHARMACEUTICALS, LTD.
PROXY FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of SALIX PHARMACEUTICALS, LTD., a corporation
organized under the laws of the British Virgin Islands, hereby acknowledges
receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement,
each dated March 31, 1998, and hereby appoints David Boyle and Robert P.
Ruscher and each of them proxies and attorneys-in-fact, with full power to each
of substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the 1998 Annual Meeting of Shareholders of SALIX
PHARMACEUTICALS, LTD., to be held on Tuesday, May 12, 1998 at 8:00 a.m., local
time, at The Newstead Hotel, 27 Harbour Road, Paget, Bermuda PG 02 and any
adjournment(s) thereof, and to vote all shares of Common Shares which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side.
1. ELECTION OF DIRECTORS:
Nominees: Randy W. Hamilton; Lorin K. Johnson; Lily Baxendale; Lawrance
A. Brown, Jr.; John F. Chappell; Nicholas M. Ediger; David E. Lauck, Sr.
[_] FOR all nominees listed above (except as marked to the contrary below)
[_] WITHHOLD AUTHORITY to vote for all nominees listed above
----------------------------------------------------------------------------
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee(s) name(s) on the line above.
2. Proposal to amend and restate the Company's 1996 Stock Option Plan,
including an increase in the number of Common Shares reserved for
issuance thereunder by 600,000, thereby increasing to 1,750,000 the
maximum aggregate number of shares reserved for issuance thereunder.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to ratify the appointment of Ernst & Young LLP as independent
accountants for the fiscal year ending December 31, 1998.
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued and to be signed on reverse side)
In their discretion, the proxies are authorized to vote upon such other
matter(s) which may properly come before the meeting and at any adjournment(s)
thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [_]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL BE
VOTED (1) FOR THE LISTED NOMINEES IN THE ELECTION OF DIRECTORS, (2) FOR THE
AMENDMENT AND RESTATEMENT OF THE 1996 STOCK OPTION PLAN, INCLUDING AN INCREASE
IN THE NUMBER OF COMMON SHARES RESERVED FOR ISSUANCE THEREUNDER BY 600,000 AND
(3) FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
ACCOUNTANTS FOR THE 1998 FISCAL YEAR.
Both of such attorneys or
substitutes (if both are present
and acting at said meeting or any
adjournment(s) thereof, or, if only
one shall be present and acting,
then that one) shall have and may
exercise all of the powers of said
attorneys-in-fact hereunder.
Dated: _____________________________
____________________________________
Signature
____________________________________
Signature
(This proxy should be marked, dated, signed by the shareholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
<PAGE>
MAILING LIST CARD
-----------------
SALIX PHARMACEUTICALS, LTD.
3600 W. BAYSHORE ROAD, SUITE 205
PALO ALTO, CA 94303
For those shareholders who wish to be added to the Corporation's Supplemental
Mailing List in order to receive the Corporation's unaudited interim financial
statements, please complete the following and forward it to Montreal Trust
Company of Canada, 151 Front Street West, 8th Floor, Toronto, Ontario, M5J 2N1,
attention: Stock Transfer Services.
I HEREBY confirm that I am a shareholder of the Company, and as such, request
that you add me to your Supplemental Mailing List.
Please PRINT your name and address
------------------------------------
(First Name and Surname)
------------------------------------
(Number and Street)
------------------------------------
(Apartment) (City)
------------------------------------
(Province or State) (Postal/Zip Code)
Signed:-----------------------------
(Signature of Shareholder)
