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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 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)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or Item 22(a)(2) of
Schedule 14A.
[ ] 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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
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(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:_______________________________________
(2) Form, Schedule or Registration Statement No.:_________________
(3) Filing Party:_________________________________________________
(4) Date Filed:___________________________________________________
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LOGO
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 14, 2000
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual and Special Meeting of Shareholders of
SALIX PHARMACEUTICALS, LTD., a corporation organized under the laws of the
British Virgin Islands (the "Company"), will be held on Wednesday, June 14, 2000
at 10:00 a.m. (local time) at the offices of Wyrick Robbins Yates & Ponton LLP,
4101 Lake Boone Trail, Suite 300, Raleigh, North Carolina 27607 for the
following purposes:
1. To elect five (5) directors to serve until the next Annual
Meeting of Shareholders and until their successors are duly
elected and qualified;
2. To approve the amendment of the Company's 1996 Stock Option Plan
to increase the number of Common Shares reserved for issuance
thereunder from 1,750,000 to 2,667,207;
3. To confirm the adoption of a shareholder protection rights plan
and approve the Shareholder Protection Rights Agreement dated
January 13, 2000 between the Company and Montreal Trust Company
of Canada;
4. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December 31,
2000; and
5. 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 April 21, 2000 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.
Robert P. Ruscher
President and Chief Executive Officer
Palo Alto, California
May 1, 2000
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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.
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PROXY STATEMENT
2000 ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 14, 2000
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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 and Special
Meeting of Shareholders to be held Wednesday, June 14, 2000 at 10:00 a.m., local
time (the "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 Meeting will be held at the offices of Wyrick Robbins Yates &
Ponton, 4101 Lake Boone Trail, Suite 300, Raleigh, North Carolina 27607. 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, 1999, including financial
statements, were first mailed on or about May 1, 2000 to all shareholders
entitled to vote at the Meeting. All references to dollars are to United States
dollars, unless specifically noted otherwise.
The purposes of the Meeting are (i) to elect five (5) directors to
serve for the ensuing year or until their successors are duly elected and
qualified; (ii) to approve an amendment to the Company's 1996 Stock Option Plan
to increase the number of Common Shares reserved for issuance thereunder from
1,750,000 to 2,667,207; (iii) to confirm the adoption of a shareholder
protection rights plan and approve the Shareholder Protection Rights Agreement
dated January 13, 2000 between the Company and Montreal Trust Company of Canada;
(iv) to ratify the appointment of Ernst & Young LLP as independent auditors of
the Company for the fiscal year ending December 31, 2000; and (v) 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 Common
Shares they represent will be voted for the election of the nominees for
directors set forth herein at the 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 of the 1996 Stock Option Plan, for the confirmation of the adoption of
a shareholder rights plan and the approval of the Shareholder Protection Rights
Agreement, 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 Meeting or any
adjournment or postponement thereof.
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on April 21, 2000 (the
"Record Date") are entitled to notice of and to vote at the 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, __________ Common Shares of
the Company were issued and outstanding and held by __________ holders of
record,
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and no Preferred Shares of the Company were issued or outstanding. Except as set
forth under "Security Ownership of Management and Certain Beneficial Owners," to
the knowledge of the directors and officers of the Company, no person
beneficially owns, directly or indirectly, or exercises control over more than
5% of the Common Shares of the Company.
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 Secretary of the Company at or before the taking of the vote at
the 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 Secretary of the Company at or before the taking of the
vote at the Meeting, or (iii) attending the Meeting and voting in person
(although attendance at the 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, Ltd. at 3600 West Bayshore Road,
Suite 205, Palo Alto, California 94303, Attention: Secretary, or hand-delivered
to the Secretary of the Company at or before the taking of the vote at the
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 Meeting. Shareholders' votes will be tabulated by persons appointed by the
Board of Directors to act as inspectors of election for the 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 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 under applicable Toronto Stock Exchange rules,
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.
The Articles of Association of the Company provide that a shareholder
shall be entitled to cumulate votes (i.e., cast for any candidate a number of
votes greater than the number of 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 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 Common 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 Common Shares (one vote each)
and desires to vote them for the election of directors, the shareholder would be
entitled to cast 500 votes, a number arrived at by multiplying the total number
of votes attached to the Common Shares held by the shareholder (100) by the
number (5) of directors to be elected. The 500 votes resulting from such
multiplication (100 x 5) could be cast in favor 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 such shareholder 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
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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.
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
Common 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 2001 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 U.S. Securities and Exchange Commission. Proposals of
shareholders of the Company that are intended to be presented by such
shareholders at the Company's 2001 Annual Meeting of Shareholders must be
received by the Company no later than December 31, 2000 in order that they may
be considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
The attached proxy card grants the proxy holders discretionary
authority to vote on any matter properly raised at the Meeting. If a shareholder
intends to submit a proposal at the 2001 Annual Meeting which is not eligible
for inclusion in the proxy statement and form of proxy relating to that meeting,
the shareholder must do so no later than March 15, 2001. If such shareholder
fails to comply with the foregoing notice provision, the proxy holders will be
allowed to use their discretionary voting authority when the proposal is raised
at the 2001 Annual Meeting.
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PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of five (5) directors is to be elected at the 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 five nominees named below, three
of whom are presently directors of the Company and two of whom are new nominees.
In the event that any nominee of the Company is unable or declines to serve as a
director at the time of the 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 COMPANY'S BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE FIVE
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 directors, director nominees
or executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE(1) POSITION(S) WITH DIRECTOR SINCE
THE COMPANY --------------
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<S> <C> <C> <C>
John F. Chappell(2)(3) 63 Director December 1993
Thomas D'Alonzo 56 Nominee --
Richard A. Franco, R.Ph. 58 Nominee --
Randy W. Hamilton 45 Chairman of the December 1993
Board of Directors
Robert P. Ruscher 39 President, Chief Executive November 1999
Officer and Director
</TABLE>
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(1) As of February 29, 2000.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
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
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early stage pharmaceutical companies. Prior to 1990, Mr. Chappell served in
various capacities at SmithKline Beecham plc, most recently as Chairman, and a
member of its Board of Directors.
THOMA D'ALONZO served as President and Chief Operating Officer of
Pharmaceutical Product Development, Inc. ("PPD") (research, development and
consulting services in life and discovery sciences) from 1996 to 1999, as
President and Chief Executive Officer of GENVEC, Inc. (gene therapy biotech)
from 1993 to 1996, and as President of Glaxo, Inc. from 1983 to 1993. Mr.
D'Alonzo is a director of PPD and of Amarillo Biosciences, Inc., both publicly
traded companies.
RICHARD A. FRANCO, R.Ph. is Chairman, Chief Executive Officer and a
founder of LipoMed, Inc. (spectroscopic analysis for clinical diagnostics).
Prior to that, he was President of the Richards Group, Ltd. from 19__ to 19__,
and President and Chief Executive Officer of Trimeris, Inc. from 19__ to 19__.
Mr. Franco also has held senior management positions at Eli Lilly & Company and
Glaxo, Inc.
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 present, Mr. Hamilton has also served
as President and Chief Executive Officer and as a director of Salix
Pharmaceuticals, Inc., a California corporation, ("Salix California"), 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.
ROBERT P. RUSCHER served as the Company's Director of Corporation
Development from April 1995 to February 1999, as Vice President-Corporate
Development from July 1996 to April 1999, as Chief Financial Officer from May
1996 to November 1999, as Executive Vice President from April 1999 to November
1999, and as President and Chief Executive Officer since November 1999. He also
became a director of the Company in November 1999. Prior to joining the Company,
Mr. Ruscher practiced law.
REQUIRED VOTE
The five nominees receiving the highest number of affirmative votes of
the Common 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 ten meetings
during the fiscal year ended December 31, 1999. No director, during the time he
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 served
which occurred during fiscal 1999. 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 affecting the Company's operating results, (v)
reviewing the Company's control procedures and personnel, and (vi) reviewing and
evaluating the Company's
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accounting principles and its system of internal accounting controls. The Audit
Committee held no meetings during fiscal 1999. 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 three meetings during fiscal
1999. The Compensation Committee currently consists of Lawrance A. Brown, Jr.,
John F. Chappell, and Nicholas M. Ediger.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal 1999 were
Lawrance A. Brown, Jr., John F. Chappell and Nicholas Ediger. None of Messrs.
Brown, Chappell or Ediger was at any time during the Company's 1999 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 until November 1999
participated, and Robert P. Ruscher, President and Chief Executive Officer since
November 1999, participates in all discussions and decisions regarding salaries
and incentive compensation for all executive officers of the Company, except
that each was and 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, director Nicholas M. Ediger was compensated $500 for each meeting
of the Board and each Committee meeting attended in person and $250 per meeting
for telephonic participation in 1999. 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 service as director. In 1999,
Mr. Brown was granted options on 20,000 Common Shares with an exercise price of
$0.47 (U.S.) per share. The options became exercisable as to 1/24 of the option
shares on each month anniversary of the vesting start date. Directors may from
time to time provide services as consultants that may provide for additional
consulting services at agreed upon rates.
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PROPOSAL TWO
AMENDMENT AND RESTATEMENT OF 1996 STOCK OPTION PLAN
At the Meeting, the shareholders are being asked to approve the amendment
of the Company's 1996 Stock Option Plan (the "Plan") to increase the number of
Common Shares reserved for issuance thereunder by 927,207 thereby increasing
to 2,677,207 the maximum aggregate number of Common Shares reserved for
issuance thereunder. The amendment of the Plan was approved by the Board of
Directors in February 2000. As of February 29, 2000, options to purchase an
aggregate of 1,214,930 Common Shares were outstanding under the Plan with a
weighted average exercise price of $1.62 per Common Share, and 535,070 Common
Shares were available for future grant under the Plan. The Plan authorizes the
Board of Directors to grant incentive and nonstatutory stock options to
eligible employees, directors and consultants of the Company. The Plan was
initially approved by the shareholders in 1996 and was amended in 1998 with
the approval of the shareholders.
The closing price of the Company's Common Shares on The Toronto Stock
Exchange on the Record Date was Cdn. $__________. The Bank of Canada noon rate
of exchange for Canadian dollars into United States dollars was Cdn.
$__________ per U.S. $1.00 on the Record Date.
The proposed amendment of the Plan will result in an increase by 927,207
shares in the number of Common Shares reserved for issuance under the Plan. As
a result of the share increase, a maximum aggregate of 2,677,207 Common Shares
(subject to certain limitations) will be reserved for issuance under the Plan,
which represents approximately _____% of the issued and outstanding Common
Shares of the Company on the Record Date. Of such maximum, 1,214,930 Common
Shares are subject to outstanding options under the Plan, and 425,825 Common
Shares are subject to outstanding options under the 1994 Stock Plan which are
not available for grant under the Plan unless such options are canceled or
otherwise terminated without exercise. See "Shares Reserved for Issuance under
the Plan" below. As a result of these limitations, upon shareholder approval
of the amendment and restatement, 1,263,677 Common Shares will be immediately
available for grant under the Plan.
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 February 29, 2000, the Company had only 11 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 539,070
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 in Palo Alto, California, and
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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 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 the presence or
absence of a quorum and (iii) 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 of the Plan.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE AMENDMENT OF THE PLAN TO INCREASE BY 927,207 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
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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. In addition, not more than 50% of the total number of shares reserved
under the Plan may be allocated to any one participant in any 12-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 Common Shares at the time of grant. The maximum number of shares
which may be issued to all officers as a group under the Plan in any 12-month
period may not exceed 10% of the issued and outstanding Common Shares 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 Shares at the time of
grant (excluding shares issued pursuant to 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 Shares 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 Shares 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 Shares 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 Shares
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
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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 optionee's 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.
(5) Disability: If an optionee's employment is terminated due to a
disability, options may be exercised at any time within 12 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 Common Shares that may be optioned and sold
under the Plan, assuming the proposed amendment is approved, is 2,677,207
provided that in no event shall the number of Common Shares that may be
optioned and sold exceed the sum of (i) 2,238,382 shares of Common Shares plus
(ii) such number of Common 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 Shares 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
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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 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 ten 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 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 sale of such shares by the optionee,
any difference between the sale 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.
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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" and "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 1999. During fiscal 1999, all current executive
officers as a group, all non-officer directors as a group, and all other
employees as a group were granted options to purchase 458,500 Common Shares,
20,000 Common Shares and 114,500 Common Shares, respectively, pursuant to the
Plan.
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PROPOSAL THREE
ADOPTION OF SHAREHOLDER RIGHTS PLAN AND APPROVAL OF
THE SHAREHOLDER PROTECTION RIGHTS AGREEMENT
At the Meeting, shareholders of the Corporation are being asked to
confirm the Company's shareholder rights plan (the "Rights Plan"), the terms and
conditions of which are set out in the Shareholder Protection Rights Agreement
dated as of January 13, 2000 (the "Shareholder Protection Rights Agreement")
between the Company and Montreal Trust Company of Canada (the "Rights Agent").
The full text of the Shareholder Protection Rights Agreement is set forth in
Exhibit A attached to this proxy statement.
CONFIRMATION BY SHAREHOLDERS
By a resolution passed on January 13, 2000, the Board of Directors of
the Company adopted the Rights Plan and the Rights Plan became effective,
subject to regulatory and shareholder approval, at the close of business on
January 13, 2000.
Regarding regulatory approval, the Toronto Stock Exchange accepted
notice for filing of the Rights Plan subject to certain conditions being
satisfied including, among other things, that the Rights Plan be ratified by the
shareholders of the Company prior to July 6, 2000 which ratification must be
evidenced by a majority of votes cast by shareholders at the Meeting in favor of
the resolution confirming the Rights Plan. If the Rights Plan is not ratified in
accordance with the foregoing condition, it will be rescinded or otherwise
cancelled and be of no further effect immediately after the Meeting.
Regarding shareholder approval, under the provisions of the Shareholder
Protection Rights Agreement, the Rights (as defined in the Shareholder
Protection Rights Agreement) and the Shareholder Protection Rights Agreement
will terminate and be void and of no further force and effect if the Shareholder
Protection Rights Agreement is not confirmed by Independent Shareholders by a
majority of the votes cast by Independent Shareholders at the Meeting in favor
of the resolution confirming the Rights Plan. The term Independent Shareholders
is defined in the Shareholder Protection Rights Agreement as all holders of
Common Shares, excluding any Acquiring Person or Offeror (as such terms are
defined in the Shareholder Protection Rights Agreement), any person that has
announced an intention to make a take-over bid for the Common Shares and
affiliates, associates and persons acting jointly or in concert with such
excluded persons. As of the date of this proxy statement, the Company is not
aware of any holder of Common Shares that would be excluded from the vote on the
basis that such holder is not an Independent Shareholder.
The text of the resolution to confirm the Shareholder Protection Rights
Agreement is set forth below:
BE IT RESOLVED THAT:
1. The Shareholder Protection Rights Agreement dated as of
January 13, 2000 between Salix Pharmaceuticals, Ltd. (the
"Company") and Montreal Trust Company of Canada, as Rights
Agent (a copy of which is attached as Exhibit B to this proxy
statement), as may be amended pursuant to its terms, be and
same is hereby ratified, confirmed and approved.
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2. Any director or officer of the Company be and is hereby
authorized, for and on behalf of the Company, to execute
(whether under the corporate seal of the Company or otherwise)
and deliver such other documents and instruments and take such
other actions as such director or officer may determine to be
necessary or advisable to implement this resolution and the
matters authorized hereby, such determination to be
conclusively evidenced by the execution and delivery of any
documents or instruments and the taking of any such actions.
THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY, IF NAMED AS PROXY,
INTEND TO VOTE IN FAVOR OF THE RESOLUTION REGARDING THE CONFIRMATION OF THE
SHAREHOLDER PROTECTION RIGHTS AGREEMENT UNLESS A SHAREHOLDER HAS SPECIFIED IN
ITS PROXY THAT ITS SHARES ARE TO BE VOTED AGAINST SUCH RESOLUTION.
The Board of Directors reserves the right to alter any terms of or not
to proceed with the Rights Plan at any time prior to the Meeting in the event
that the Board of Directors determines that it would not be in the best
interests of the Company and its shareholders to do so in light of the
circumstances at the time.
RECOMMENDATION OF THE BOARD OF DIRECTORS
In adopting the Rights Plan, the Board of Directors considered the
appropriateness of establishing a shareholder rights plan, received the advice
of its legal advisors and concluded, for the reasons discussed below, that it
was in the best interests of the Company and its shareholders to adopt the
Rights Plan. ACCORDINGLY, THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL, ADOPTION AND CONFIRMATION
OF THE SHAREHOLDER PROTECTION RIGHTS AGREEMENT.
PURPOSE OF THE RIGHTS PLAN
The Rights Plan was adopted by the Company to encourage the fair
treatment of shareholders if there is an unsolicited take-over bid for the
Common Shares. The Rights Plan was also adopted by the Company to provide all
shareholders of the Company with an equal opportunity to share in any premium
paid upon an acquisition of control and to allow both the shareholders and the
Board of Directors adequate time to assess a take-over bid made for the Common
Shares of the Company in relation to the circumstances and prospects of the
Company and to allow a reasonable period of time for the Board of Directors to
explore and develop alternative courses of action in an attempt to maximize
shareholder value, if the Board of Directors is of the opinion that it is
appropriate to do so. NEITHER AT THE TIME OF ADOPTION OF THE RIGHTS PLAN NOR AT
THE DATE OF THIS PROXY STATEMENT WAS THE BOARD OF DIRECTORS AWARE OF ANY
SPECIFIC TAKE-OVER BID FOR THE COMMON SHARES THAT HAS BEEN MADE OR IS
CONTEMPLATED.
It was not the intention of the Board of Directors in adopting the
Rights Plan to secure the continuance in office of the existing members of the
Board of Directors or to avoid an acquisition of control of the Company in a
transaction that is fair and in the best interests of the shareholders. The
rights of shareholders under existing law to seek a change in the management of
the Company or to influence or promote action of management in a particular
manner will not be affected by the Rights Plan. The adoption of the Rights Plan
does not affect the duty of the Board of Directors to act honestly and in good
faith with a view to the best interests of the Company and its shareholders.
The Board of Directors believes that under the existing statutory rules
relating to take-over bids there is not sufficient time for the directors to
fully assess offers and to explore and develop alternatives for shareholders in
the event of a bid. The time required to consider and complete a change of
control
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transaction must be considered from both the perspective of the Company and of
potential purchasers. Under the statutory take-over bid rules, a take-over bid
must remain open in Canada for a minimum of 21 days. The result is that
shareholders may fail, in the absence of the Rights Plan, to fully assess the
circumstances of the Company or to realize the maximum value for their Common
Shares. Accordingly, the directors believe that the Rights Plan is an
appropriate mechanism to ensure that they will be able to discharge their
responsibilities to assist shareholders in responding to a take-over bid.
The provisions of the Rights Plan relating to Permitted Bids, which are
described below under "The Rights Plan - Permitted Bid", will permit
shareholders to tender to a take-over bid which is a "Permitted Bid" regardless
of the views of the Board of Directors as to the acceptability of the bid. The
Board of Directors believes that the Rights Plan will not adversely limit the
opportunity for shareholders to dispose of their Common Shares through a
take-over bid for the Company which is a Permitted Bid and which provides fair
value to all shareholders. If an acquiror determines not to meet the
requirements of a Permitted Bid, the Board of Directors may, through the
opportunity to negotiate with the acquiror, be able to influence the fairness of
the terms of the take-over bid. SHAREHOLDERS ARE ADVISED THAT THE ADOPTION OF
THE RIGHTS PLAN MAY PRECLUDE THEIR CONSIDERATION OR ACCEPTANCE OF OFFERS WHICH
ARE INADEQUATE AND DO NOT MEET THE REQUIREMENTS OF A PERMITTED BID. The
directors of the Company will continue to be bound to consider fully and fairly
any take-over bid for the Common Shares of the Company and to discharge their
responsibilities with a view to the best interests of the shareholders.
Shareholder rights plans have been adopted by a large number of
publicly held corporations in Canada and the United States. The terms of the
Rights Plan, set forth in the Shareholder Protection Rights Agreement, are
substantially similar to those recently adopted by a number of major American
and Canadian corporations.
THE RIGHTS PLAN
The following is a summary description of the general operation of the
Rights Plan. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE TEXT
OF THE SHAREHOLDER PROTECTION RIGHTS AGREEMENT, A COPY OF WHICH IS SET FORTH IN
EXHIBIT A TO THIS PROXY STATEMENT.
Capitalized terms used below but not defined below have the meanings
ascribed to them in the Shareholder Protection Rights Agreement.
THE RIGHTS. On January 13, 2000, the Board of Directors authorized the
issuance at the close of business on January 13, 2000 (the "Record Time") of one
Right in respect of each outstanding Common Share to shareholders of record at
the Record Time. In addition, the Board of Directors authorized the issuance of
one Right in respect of each Common Share issued after the Record Time and prior
to the earlier of the Separation Time and the Expiration Time. The Company has
entered into a Shareholder Protection Rights Agreement dated as of January 13,
2000 with Montreal Trust Company of Canada, as Rights Agent, regarding the
exercise of the Rights, the issuance of certificates evidencing the Rights and
other related matters.
Each Right entitles the registered holder thereof to purchase from the
Company on the occurrence of certain events, one Common Share at the price of
Cdn. $60.00 per share (or the U. S. Dollar Equivalent of the Exercise Price),
subject to adjustments (the "Exercise Price"). The Exercise Price and the number
of securities issuable upon the exercise of the Rights are subject to adjustment
from time to time to prevent dilution upon the occurrence of certain corporate
events affecting the Common Shares. If a Flip-in Event occurs, each Right would
then entitle the registered holder to receive, upon exercise thereof, that
number of Common Shares that have a Market Price (as defined in the Shareholders
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Protection Rights Agreement) at the date of that occurrence equal to twice the
Exercise Price. The Rights are not exercisable until the Separation Time. The
Rights expire upon the earlier of (i) the Termination Time and (ii) the close of
business on January 13, 2005, unless earlier redeemed by the Board of Directors
with the consent of the shareholders.
OVERVIEW OF THE RIGHTS PLAN. The Rights Plan utilizes the mechanism of
the Permitted Bid to ensure that a person seeking control of the Company allows
shareholders and the Board of Directors adequate time to assess the bid. The
purpose of the Permitted Bid is to allow a potential bidder to avoid the
dilutive features of the Rights Plan by making a bid in conformity with the
conditions specified in the Permitted Bid provisions. If a person makes a
Take-over Bid that is a Permitted Bid, the Rights Plan will not affect the
transaction in any respect.
The Rights Plan should not deter a person seeking to acquire control of
the Company if that person is prepared to make a Take-over Bid pursuant to the
Permitted Bid requirements or is prepared to negotiate with the Board of
Directors. Otherwise, a person will likely find it impractical to acquire 20% or
more of the outstanding Common Shares because the Rights Plan will substantially
dilute the holdings of a person or group that seeks to acquire such an interest
other than by means of a Permitted Bid or on terms approved by the Board of
Directors. When a person or group becomes an Acquiring Person, the Rights
Beneficially Owned by those persons or their transferees become void thereby
diluting their holdings. The possibility of such dilution is intended to
encourage such a person to make a Permitted Bid or to seek to negotiate with the
Board of Directors the terms of an offer which is fair to all shareholders.
TRADING OF RIGHTS. The Rights are not exercisable initially and
certificates representing the Rights will not be sent to shareholders. Until the
Separation Time, the Rights will be evidenced only by outstanding Common Share
certificates. The Rights Plan provides that, until the Separation Time, the
Rights will be transferred only with the associated Common Shares. Until the
Separation Time, or earlier termination or expiration of the Rights, each new
share certificate issued upon transfer of existing Common Shares or the issuance
of additional Common Shares, will contain a notation incorporating the terms of
the Shareholder Protection Rights Agreement by reference. As soon as is
practicable following the Separation Time, separate certificates evidencing the
Rights (the "Rights Certificates") will be mailed to the holders of record of
Common Shares as of the close of business at the Separation Time, and thereafter
the Rights Certificates alone will evidence the Rights.
SEPARATION TIME. The Rights will be exercisable and begin to trade
separately from the Common Shares after the Separation Time. Separation Time
means the close of business on the tenth day after the earlier of:
(a) the first date (the "Stock Acquisition Date") of public
announcement by the Company or a person or a group of
affiliated or associated persons (an "Acquiring Person") that
it has acquired beneficial ownership of 20% or more of the
outstanding Common Shares other than as a result of, among
other things:
(i) an acquisition or redemption by the Company reducing
the number of Common Shares outstanding;
(ii) a "Permitted Bid" (see below);
(iii) acquisitions of Common Shares in respect of which the
Board of Directors has waived the provisions of the
Rights Plan; or
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(iv) acquisitions of Common Shares pursuant to any
dividend reinvestment plan or share purchase plan of
the Company, a stock dividend or a stock split or
other event pursuant to which a person becomes the
beneficial owner of Common Shares on the same pro
rata basis as other holders of Common Shares, and
acquisitions pursuant to a prospectus offering,
private placement or plan of arrangement,
amalgamation or other statutory procedure requiring
shareholder approval;
(b) the date of commencement of, or the first public announcement
of the intent of any person, other than the Company or any
subsidiary of the Company, to commence a Take-over Bid to
acquire 20% or more of the outstanding Common Shares;
or, in any circumstances, such later date as may be determined by the Board of
Directors.
ACQUIRING PERSON. An Acquiring Person is, generally, a person who
Beneficially Owns 20% or more of the outstanding Common Shares and any other
shares of capital stock or voting interests of the Company entitled to vote
generally in the election of directors.
The Rights Plan provides certain exceptions to the definition of
Acquiring Person, including the Company or any subsidiary and a person who
acquires 20% or more of the outstanding Common Shares through a Permitted Bid
acquisition or certain prescribed exempt acquisitions. The Rights Plan also
excludes from the definition of Beneficial Ownership, among others, a person in
its capacity as investment manager or trust company or plan trustee (and clients
and accounts of such persons) provided that the person is not making or
proposing to make a Take-over Bid. Furthermore, a person is deemed not to be the
Beneficial Owner of Common Shares where the holder of such Common Shares has
agreed to deposit or tender its Common Shares pursuant to a tender or exchange
offer or a Take-over Bid made by such person or such person's affiliates or
associates.
FLIP-IN EVENT. Ten days following a transaction that results in a
person becoming an Acquiring Person (a "Flip-in Event") the Rights will entitle
holders to receive, upon exercise and payment of the Exercise Price, Common
Shares with a Market Price equal to twice the Exercise Price of the Rights. In
such event, however, any Rights beneficially owned by an Acquiring Person
(including such person's associates and affiliates and any other person acting
jointly or in concert with the Acquiring Person and any direct or indirect
transferee of such persons) will be void. Holders of Rights who do not exercise
their Rights upon the occurrence of a Flip-in Event may suffer substantial
dilution.
PERMITTED BID. A Take-over Bid will not trigger the dilutive provisions
of the Rights Plan if it meets the Permitted Bid conditions prescribed in the
Shareholder Protection Rights Agreement. A Permitted Bid is a Take-over Bid,
made in compliance with the SECURITIES ACT (Ontario) and, if applicable, the
UNITED STATES SECURITIES EXCHANGE ACT OF 1934, which:
(a) is made to all registered holders of Common Shares;
(b) contains, and the take-up and payment for Voting Shares (such
term being defined in the Shareholder Protection Rights
Agreement) tendered or deposited is subject to, an irrevocable
and unqualified condition that no Voting Shares will be taken
up or paid for pursuant to the Take-over Bid prior to the
close of business on a date which is not less than 60 days
following the date of the Take-over Bid and only if at such
date more than
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50% of the Voting Shares held by Independent Shareholders
shall have been deposited or tendered pursuant to the
Take-over Bid and not withdrawn; and
(c) contains irrevocable and unqualified provisions that:
(i) unless the Take-over Bid is withdrawn, Voting Shares
may be deposited pursuant to the Take-over Bid at any
time prior to the close of business on the date of
first take-up or payment for Voting Shares under the
bid and that all Voting Shares deposited pursuant to
the Take-over Bid may be withdrawn at any time prior
to the close of business on such date; and
(ii) in the event that more than 50% of the then
outstanding Voting Shares held by Independent
Shareholders shall have been deposited to the
Take-over Bid, the Offeror will make public
announcement of that fact and the Take-over Bid will
be extended on the same terms for a period of not
less than 10 business days from the date of such
public announcement.
The Rights Plan also provides for a "Competing Permitted Bid", which is
a Take-over Bid made during the currency of another Permitted Bid that satisfies
all of the requirements of a Permitted Bid except that, provided it is
outstanding for a minimum period of 21 days, it may expire on the same date as
the initial Permitted Bid.
TAKE-OVER BID. A Take-over Bid is defined in the Shareholder Protection
Rights Agreement as an offer to acquire Voting Shares where the Voting Shares
subject to the offer to acquire, together with the Offeror's Securities,
constitute in the aggregate 20% or more of the outstanding Voting Shares at the
date of the offer.
WAIVER AND REDEMPTION. The Board of Directors of the Company may, prior
to the occurrence of a Flip-in Event, determine to waive the dilutive effects of
the Rights Plan in respect of a Flip-in Event that would occur as a result of a
Take-over Bid that is made by way of a take-over bid circular to all holders of
Common Shares. In such case, such waiver would be deemed also to be a waiver, on
the same terms and conditions, in respect of any other Flip-in Event which
occurs by reason of a Take-over Bid made by way of a take-over bid circular to
all holders of Common Shares made prior to the expiration of the Take-over Bid
for which the initial waiver was given. The Board of Directors may, prior to a
Flip-in Event and with the prior consent of shareholders, waive the dilutive
effects of the Rights Plan in respect of a Flip-in Event that would occur other
than as a result of a Take-over Bid made by way of a take-over bid circular to
all holders of Common Shares. The Board of Directors of the Company may also
waive the Rights Plan in respect of a particular Flip-in Event, provided that
the Acquiring Person that triggered such Flip-in Event reduces, or has entered
into a contractual agreement with the Company within 30 days, its beneficial
holdings to less than 20% of the outstanding Common Shares.
At any time prior to the occurrence of a Flip-in Event, the Board of
Directors may elect to redeem all, but not less than all, of the then
outstanding Rights at a redemption price of $0.000l per Right. In addition, if
an Offeror successfully completes a Permitted Bid by having taken up and paid
for not less than 50% of the Voting Shares held by Independent Shareholders, the
Board of Directors shall be deemed to have elected to redeem the Rights.
SUPPLEMENTS AND AMENDMENTS. The Company may, from time to time,
supplement or amend the Rights Plan in order to cure any ambiguity or to correct
or supplement any provisions contained in the
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Rights Plan which may be inconsistent with any other provision thereof or
otherwise defective. The Board of Directors may also, prior to shareholder
ratification at the Meeting, supplement or amend the Rights Plan without the
approval of shareholders or holders of Rights to make any changes which the
directors, acting in good faith, may deem necessary or desirable, provided that
no such supplement or amendment shall be made to the provisions relating to the
Rights Agent except with the concurrence of the Rights Agent. Any supplement or
amendment made after the date of shareholder ratification of the Rights Plan but
prior to the Separation Time may only be made with the prior consent of
shareholders. In addition, no supplement or amendment may be made to the Rights
Plan without the approval of the Toronto Stock Exchange.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
THIS DESCRIPTION IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED NOR
SHOULD IT BE CONSTRUED TO CONSTITUTE LEGAL OR TAX ADVICE TO ANY PARTICULAR
SHAREHOLDER. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS, TAKING
INTO ACCOUNT THEIR OWN PARTICULAR CIRCUMSTANCES.
The issuance of identical rights (the "Rights") to each existing holder
should not result in any benefit being conferred on a particular holder and no
amount should be required to be included in income thereon for purposes of the
INCOME TAX ACT (Canada)(the "Tax Act"). However, if at the time the Rights are
issued, it is known that certain holders will not exercise their Rights or will
not be entitled to exercise their Rights, the Canada Customs and Revenue Agency
is of the view that the Rights may not be conferred on all holders and the value
of the benefit, if any, will have to be included in each holder's income for the
taxation year. In the event that the issuance of Rights results in a shareholder
benefit for purposes of the Tax Act, the Company believes that the value of such
rights is nominal.
Should the Rights result in an income inclusion to a non-resident
holder, the Tax Act deems that such amount will be treated as a dividend.
Dividends paid or credited or deemed to be paid or credited to a non-resident
holder of Common Shares will be subject to Canadian non-resident withholding tax
at the rate of 25% of the gross amount of such dividends under the Tax Act. This
rate may be reduced under an applicable income tax treaty or convention between
Canada and such non-resident holder's country of residence. In the case of a
non-resident holder which is the beneficial owner of such dividends and a
resident of the United States for the purposes of the CANADA-UNITED STATES
INCOME TAX CONVENTION, 1980, the rate of non-resident withholding tax in respect
of dividends on the Common Shares will generally be reduced to a rate of 15% of
the gross amount of such dividends, except that where such beneficial owner is a
corporation and owns at least 10% of the voting stock of the Company, the rate
of withholding tax is reduced to 5% for dividends paid or credited or deemed to
be paid or credited.
In addition, the Rights will, on the date of this proxy statement, be
qualified investments under trusts governed by registered retirement savings
plans ("RRSPs"), registered retirement income funds ("RRIFs"), registered
education savings plans ("RESPs") or deferred profit sharing plans ("DPSPs")
under the Tax Act and the regulations thereunder. The Rights will not, on the
date hereof, be foreign property for purposes of the Tax Act for RRSPs, RRIFs,
RESPs or DPSPs and other persons subject to tax under Part XI of the Tax Act.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
THIS DESCRIPTION IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED NOR
SHOULD IT BE CONSTRUED TO CONSTITUTE LEGAL OR TAX ADVICE TO ANY PARTICULAR
SHAREHOLDER. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS, TAKING
INTO ACCOUNT THEIR OWN PARTICULAR CIRCUMSTANCES.
19
<PAGE>
The issuance the "Rights" to each existing holder should not result in
any distribution by the Company of stock or property to any holder, any exchange
of property or stock (either taxable or nontaxable), or any other event giving
rise to income recognition by any holder under the United States Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
20
<PAGE>
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
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, 2000 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 auditors 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 1993. 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 THAT
SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP
AS INDEPENDENT AUDITORS.
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 February 29, 2000 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 and director nominee of the Company, (iii) each of
the executive officers named in the Summary Compensation table and (iv) all
directors, director nominees and executive officers as a group:
FIVE PERCENT SHAREHOLDERS, SHARES PERCENTAGE
DIRECTORS, DIRECTOR NOMINEES BENEFICIALLY BENEFICIALLY
AND EXECUTIVE OFFICERS(1) OWNED(2) OWNED(2)
- --------------------- -------------- ---------------
John Brough(3)............................. 197,108 1.82
Lawrence A. Brown, Jr(4)................... 51,855 *
John F. Chappell........................... 909,494 8.49
Thomas D'Alonzo............................ ---- --
Nicholas M. Ediger(5)...................... 15,000 *
Richard A. Franco.......................... ---- --
Randy W. Hamilton(6)....................... 882,315 8.21
Lorin K. Johnson(7)........................ 807,167 7.50
David E. Lauck, Sr. ....................... 300,000 2.80
Lise Riopel(8)............................. 76,050 *
Robert P. Ruscher(9)....................... 860,102 7.88
All executive officers, directors and
director nominees as a group
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<PAGE>
(12 persons)(10)......................... 4,248,508 37.43
- ----------------
* Less than one percent.
(1) Except as otherwise indicated, 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 10,710,838 Common Shares
outstanding as of February 29, 2000, 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 currently
exercisable, or exercisable within 60 days after February 29, 2000, are deemed
outstanding for the purpose of computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing the
percentage ownership of any other person.
(3) Includes 131,108 Common Shares issuable upon exercise of outstanding options
that are presently exercisable or will become exercisable within 60 days of
February 29, 2000.
(4) Includes 12,500 Common Shares issuable upon exercise of outstanding options
that are presently exercisable or will become exercisable within 60 days of
February 29, 2000.
(5)Includes 10,000 Common Shares issuable upon exercise of outstanding options
that are presently exercisable or will become exercisable within 60 days of
February 29, 2000.
(6) Includes 35,000 Common Shares issuable upon exercise of outstanding options
that are presently exercisable or will become exercisable within 60 days of
February 29, 2000. Includes 190,000 Common Shares held by Mr. Hamilton's spouse,
for which Mr. Hamilton disclaims beneficial ownership.
(7) Includes 47,167 Common Shares issuable upon exercise of outstanding options
that are presently exercisable or will become exercisable within 60 days of
February 29, 2000. Also includes 674,500 Common 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 grandchildren. Dr.
Johnson and his wife are named as co-trustees of both trusts.
(8) Includes 72,750 Common Shares issuable upon exercise of outstanding options
that are presently exercisable or will become exercisable within 60 days of
February 29, 2000.
(9) Includes 207,600 Common Shares issuable upon exercise of outstanding options
that are presently exercisable or will become exercisable within 60 days of
February 29, 2000.
(10) Includes 640,542 Common Shares issuable upon exercise of outstanding
options that are presently exercisable or will become exercisable within 60 days
of February 29, 2000.
22
<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 and its subsidiaries
in all capacities during each of the fiscal years in the three year period ended
December 31, 1999, 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, 1999. 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>
Annual Long-Term
Compensation(1) Compensation
--------------- Awards
------
Year Salary Bonus Stock All Other
(US $) (US $) Options Compensation
Name and Principal Position ------ ----- (Shares) (US $)(1)(2)
--------------------------- -------- ------------
<S> <C> <C> <C> <C> <C>
Randy W. Hamilton 1999 215,000 - 60,000 -
Chairman 1998 215,000 - - -
1997 199,500 - - -
Robert P. Ruscher (3) 1999 194,892 - 180,000 -
President and Chief Executive Officer 1998 157,500 - 20,000 -
1997 157,500 - 40,000 984
John Brough (4) 1999 166,667 - 60,000 -
Chief Financial Officer; 1998 157,500 - 20,000 -
President, Glycyx Pharmaceuticals, Ltd. 1997 157,500 - 40,000 -
(wholly-owned subsidiary of the Company)
Lorin K. Johnson 1999 175,875 - 60,000 -
Vice President, Research and Director 1998 167,500 - - -
1997 167,500 - - 962
Lise Riopel, Ph.D. (5) 1999 151,500 - 92,500 -
Vice President, Clinical Affairs 1998 86,250 - 72,000 -
1997 - - - -
David Boyle (6) 1999 52,805 - - -
Executive Vice President, Finance and 1998 173,250 - 92,000 -
Administration and Chief Financial Officer 1997 157,500 - 40,000 21,181(7)
</TABLE>
- ----------------
(1) The Company did not pay any current 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 1997, 1998 and 1999.
(2) Except as otherwise indicated, represents matching contributions under the
Company's 401(k) retirement plan.
23
<PAGE>
(3) Mr. Ruscher became the Company's President and Chief Executive Officer on
November 1, 1999.
(4) Mr. Brough became the Company's Chief Financial Officer on November 1, 1999.
(5) Mr. Riopel joined the Company in May 1998 and became Vice President,
Clinical Affairs on January 1, 1999.
(6) Mr. Boyle's employment with the Company terminated in April 1999.
(7) Includes a sign-on payment of $20,000 paid to Mr. Boyle in connection with
his initial employment.
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, 1999.
All such options were awarded under the Company's 1996 Stock Option Plan.
<TABLE>
<CAPTION>
Number of % of Total
Shares Options Potential Realizable Value of
Underlying Granted to Exercise or Assumed Annual Rates of
Options Employees Base Price Expiration Stock Price appreciation for
Name Granted in 1999 per Share(1) Date Option Term (2)
- ---- ------- ------- ------------ ---- ---------------
5% 10%
-- ---
<S> <C> <C> <C> <C> <C> <C>
Randy W. Hamilton. . . 60,000(3) 10.1% 0.20 9/12/09 $7,547 $19,125
Robert P. Ruscher. . . 10,000(4) 1.7 0.55 3/23/09 3,459 8,766
120,000(5) 20.2 0.49 4/21/09 36,979 93,712
50,000(3) 8.4 0.20 9/12/09 6,289 15,937
John Brough. . . . . . 10,000(4) 1.7 0.55 3/23/09 3,459 8,766
50,000(3) 8.4 0.20 9/12/09 6,289 15,937
Lorin K. Johnson . . . 16,000(4) 2.7 0.55 3/23/09 5,534 14,025
50,000(3) 8.4 0.20 9/12/09 6,289 15,937
Lise Riopel . . . . . 40,000(5) 6.7 0.81 1/14/09 20,376 51,637
2,500(4) 0.4 0.55 3/23/09 865 2,191
10,000(4) 1.7 0.20 9/12/09 1,258 3,187
David Boyle . . . . . . -0- N.A. N.A. N.A. N.A. N.A.
</TABLE>
- ----------------
(1) 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. Exercise price may be paid in cash, check, delivery of already-owned
Common Shares of the Company subject to certain conditions, 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
24
<PAGE>
combination of the foregoing methods of payment or such other consideration or
method of payment to the extent permitted under applicable law.
(2) 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%.
(3) Options become exercisable as to 1/12 of the option shares on each month
anniversary of the vesting start date.
(4) Options become exercisable as to 1/24 of the option shares on each month
anniversary of the vesting start date.
(5) Options become exercisable as to 1/48 of the option shares on each month
anniversary of the vesting start date.
AGGREGATED 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, 1999 and stock options held as of December 31, 1999 by the
Named Executive Officers.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options at Options at
December 31, 1999 December 31, 1999 (1)
----------------- ---------------------
Shares
Acquired
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Randy W. Hamilton.... -0- -0- 20,000 40,000 $6,200 $12,400
Robert P. Ruscher ... -0- -0- 160,000 137,600 4,475 13,425
John Brough ......... -0- -0- 119,584 60,416 5,167 10,333
Lorin K. Johnson..... -0- -0- 31,334 34,666 5,167 7,000
Lise Riopel.......... -0- -0- 42,209 122,291 3,875 11,625
David Boyle.......... -0- -0- -0- -0- -0- -0-
</TABLE>
- ----------------
25
<PAGE>
(1) Based on the closing sales price in trading on The Toronto Stock Exchange on
December 31, 1999 of Cdn. $0.73 as converted to U.S. Dollars (at the exchange
rate of Cdn. $1.00 to U.S. $0.6924) minus the exercise price for the applicable
options.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company entered into employment agreements dated May 6, 1999 with
Randy W. Hamilton, Robert P. Ruscher, Lorin K. Johnson and John Brough to employ
each officer in his then current position with the Company of its subsidiaries.
Each agreement provides for a base salary which is in the amount of $215,000 for
Mr. Hamilton, $175,075 for Dr. Johnson, $200,000 for Mr. Ruscher and $165,375
for Mr. Brough. Each officer may be given a cash bonus of up to 30% of his then
current base salary, which bonus is within the sole discretion of the Board of
Directors. In the event the agreement is terminated other than for "good
reason", "reasonable cause" or death, the officer and the Company shall enter
into a consulting agreement for 12 months. Each agreement prohibits the officer
for soliciting any employee of the Company to leave the employ of the Company
while the agreement is in effect and for one year after termination of the
agreement. The agreements have no set term. Each agreement will remain in effect
until (i) the Company terminates the officer whether for "reasonable cause" (as
defined in the agreement) or not, (ii) the officer terminates whether for "good
reason" (as defined in the agreement) or not, or (iii) the officer's death or
incapacitating disability. In the event of termination by the Company without
"reasonable cause" or by the officer with "good reason", the officer will be
paid for a period of time severance payments consisting of cash in the amount of
the officer's monthly salary and one-twelfth of the officer's most recent cash
bonus. In addition, the Company will pay the officer for the same period of time
all benefits to which he was entitled at the time of termination. The severance
payment shall be paid for 12 months for Mr. Hamilton and Dr. Johnson, ten months
for Mr. Ruscher and six months for Mr. Brough. In addition to the severance
payment, all unvested stock options held by the officer shall fully vest.
Other than the agreements with Messrs. Hamilton, Ruscher, Johnson and
Brough, 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.
CERTAIN TRANSACTIONS
In connection with the termination of David Boyle's employment with the
Company, the Company and Mr. Boyle, who was Executive Vice President, Finance
and Administration, and Chief Financial Officer and Vice President, Finance and
Administration entered into a Severance Agreement and Mutual Release pursuant to
which Mr. Boyle remained an employee through the earlier of April 11, 1999 or
the date he obtained other employment. In addition, Mr. Boyle continued to
receive employee benefits, including health benefits, through April 11, 1999 and
all options granted to Mr. Boyle pursuant to the Company's stock plans continued
to vest through April 11, 1999.
The Company's policy regarding the transaction with management is that
such transactions should be made on terms no less favorable to the Company than
could have been obtained from
26
<PAGE>
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal shareholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors, and will
continue to be on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
officers and directors, and persons who own more than 10% 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 and the National Association of Securities Dealers, Inc. Such
officers, directors and 10% 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 1999 all Section 16(a)
filing requirements applicable to its officers, directors and 10% shareholders
were complied with.
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 SEC, this Report of the Compensation
Committee of the Board of Directors shall not be deemed "filed" with the SEC 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 was established in
December 1994 and is composed only of outside directors. During fiscal 1999, the
Compensation Committee consisted of Lawrance A. Brown, Jr., John F. Chappell and
Nicholas Ediger, who was appointed to the Compensation Committee in December
1998. 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;
27
<PAGE>
- 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 Named Executive Officers (other than the
Chief Executive Officer) for the year ended December 31, 1999 were reviewed by
the Board of Directors, upon the recommendation of the Chief Executive Officer.
No formal incentive cash bonus plan was in place in 1999.
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 Shares increases above the exercise price, which
is set at the fair market value of the Company's Common Shares on the date the
option is granted. In addition, employees must remain 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 1/48 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, upon the recommendation of the Chief Executive
Officer. In making its determination, the Board of Directors 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 1999, Randy W. Hamilton served as the Company's
President and Chief Executive Officer until October 31, 1999 and received a
salary of $215,000. On November 1, 1999, Robert P. Ruscher was elected the
Company's President and Chief Executive Officer. For fiscal 2000, the Company
has set Mr. Ruscher's base annual salary at $230,000.
28
<PAGE>
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
Named 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
COMPANY STOCK PRICE PERFORMANCE GRAPH
The following graph compares the Company's cumulative total shareholder
return with those of The Toronto Stock Exchange 300 Index and the Canadian
Biotech/Pharmaceuticals Index. The graph assumes that U.S. $100 was invested on
May 27, 1996 (the effective date of the initial listing of the Company's Common
Shares on The Toronto Stock Exchange) in (i) the Company's Common Shares, (ii)
The Toronto Stock Exchange 300 Index and (iii) the Canadian
Biotech/Pharmaceuticals Index, and that all dividends were reinvested. Note that
historic stock price performance is not necessarily indicative of future stock
price performance.
From May 1996 to October 1997, the Company's Common Shares traded on
The Toronto Stock Exchange exclusively under the symbol "SLX.s" following the
Company's initial public offering in Canada in May 1996. In October 1997, the
Company completed a secondary public offering in Canada and an initial public
offering in the United States, and the Common Shares issued in that offering
were traded and quoted separately under the symbol "SLX." On May 28, 1998, all
of the Company's Common Shares began to trade under the symbol "SLX."
29
<PAGE>
The stock price performance graph set forth below under the caption
"Performance Graph" 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.
COMPARISON OF THE FORTY-THREE MONTH CUMULATIVE TOTAL RETURN AMONG
SALIX PHARMACEUTICALS, LTD., THE TORONTO STOCK EXCHANGE 300 INDEX AND THE
CANADIAN BIOTECH/PHARMACEUTICALS INDEX
[LINE CHART APPEARS HERE]
SALIX (SLX.S) SALIX (SLX) TSE 300 BIOTECH/PHARM INDEX
------------- ----------- ------- -------------------
5/27/96 100.00 --- 100.00 100.00
12/31/96 69.50 --- 113.20 99.50
10/16/97 106.40 100.00 135.60 121.10
12/31/97 85.70 83.90 128.00 94.50
12/31/98 17.40 16.80 123.90 126.90
12/31/99 --- 9.79 160.71 160.73
No dividends have been declared or paid on the Company's Common Shares.
The Company intends to retain its earnings, if any, to fund its business and
does not anticipate paying any cash
30
<PAGE>
dividends in the foreseeable future. Shareholder returns over the period
indicated should not be considered indicative of future shareholder returns.
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: May 1, 2000
31
<PAGE>
EXHIBIT A
SHAREHOLDER PROTECTION RIGHTS AGREEMENT
THIS AGREEMENT made as of January 13, 2000
B E T W E E N:
SALIX PHARMACEUTICALS, LTD., a corporation
existing under the laws of the British Virgin Islands
(the "Corporation")
- and -
MONTREAL TRUST COMPANY OF CANADA, a trust
company incorporated under the laws of
Canada, as Rights Agent
(the "Rights Agent").
WHEREAS the Board of Directors has determined that it is advisable and
in the best interests of the Corporation to adopt a shareholder protection
rights plan (the "Rights Plan") to ensure, to the extent possible, that all
shareholders of the Corporation are treated fairly in connection with any
take-over offer for the Corporation;
AND WHEREAS in order to implement the Rights Plan the Board of
Directors has:
(a) authorized and declared a distribution of one (1) right (a
"Right") effective at the Record Time in respect of each
Common Share outstanding at that time;
(b) authorized the issuance of one (1) Right in respect of each
Common Share issued after the Record Time and prior to the
earlier of the Separation Time and the Expiration Time;
(c) authorized the issuance of Rights Certificates to holders of
Rights pursuant to the terms and subject to the conditions set
forth herein;
AND WHEREAS each Right entitles the holder thereof, after the
Separation Time, to purchase securities of the Corporation pursuant to the terms
and subject to the conditions set forth herein;
AND WHEREAS the Corporation desires to appoint the Rights Agent to act
on behalf of the Corporation, and the Rights Agent is willing to so act, in
connection with the issuance, transfer, exchange and replacement of Rights
Certificates, the exercise of Rights and other matters referred to herein;
NOW THEREFORE in consideration of the premises and their respective
covenants and agreements set forth herein, the parties hereby agree as follows:
A-1
<PAGE>
ARTICLE 1 -- INTERPRETATION
1.1 CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
indicated:
(a) "ACQUIRING PERSON" means any Person who is the Beneficial
Owner of 20% or more of the outstanding Voting Shares, but
shall not include:
(i) the Corporation or any Subsidiary of the Corporation;
(ii) any Person who becomes the Beneficial Owner of 20% or
more of the outstanding Voting Shares as a result of:
A. a Voting Share Reduction;
B. a Permitted Bid Acquisition;
C. an Exempt Acquisition; or
D. a Pro Rata Acquisition;
provided, however, that if a Person becomes the
Beneficial Owner of 20% or more of the outstanding
Voting Shares by reason of a Voting Share Reduction,
a Permitted Bid Acquisition, an Exempt Acquisition or
a Pro Rata Acquisition, and thereafter becomes the
Beneficial Owner of a number of additional Voting
Shares exceeding 1% of the number of Voting Shares
outstanding (other than pursuant to a Voting Share
Reduction, a Permitted Bid Acquisition, an Exempt
Acquisition or a Pro Rata Acquisition), then, as of
the date that such Person becomes the Beneficial
Owner of such additional Voting Shares, such Person
shall become an "Acquiring Person";
(iii) for the period of 10 days after the Disqualification
Date (as defined below), any Person who becomes the
Beneficial Owner of 20% or more of the outstanding
Voting Shares as a result of such Person becoming
disqualified from relying on Clause 1.1(d)(vii)
solely because such Person or the Beneficial Owner of
such Voting Shares is making or has announced an
intention to make a Take-over Bid, either alone or by
acting jointly or in concert with any other Person.
For the purposes of this definition,
"DISQUALIFICATION DATE" means the first date of
public announcement of facts indicating that any
Person is making or has announced an intention to
make a Take-over Bid;
(iv) an underwriter or member of a banking or selling
group that becomes the Beneficial Owner of 20% or
more of the Voting Shares in connection with a bona
fide distribution to the public of securities; or
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(v) a Person (a "Grandfathered Person") who is the
Beneficial Owner of 20% or more of the outstanding
Voting Shares of the Corporation determined as at the
date hereof, provided, however, that this exception
shall not be, and shall cease to be, applicable to a
Grandfathered Person in the event that such
Grandfathered Person shall, after the date hereof,
become the Beneficial Owner of additional Voting
Shares of the Corporation that increases its
Beneficial Ownership of Voting Shares by more than 1%
of the number of Voting Shares outstanding, other
than through a Permitted Bid Acquisition or a Pro
Rata Acquisition.
(b) "AFFILIATE", when used to indicate a relationship with a
specified Person, means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled
by, or is under common control with, such specified Person.
(c) "ASSOCIATE", when used to indicate a relationship with any
Person, means:
(i) any body corporate of which the Person beneficially
owns, directly or indirectly, voting securities
carrying more than 10 per cent of the voting rights
attached to all voting securities of the body
corporate for the time being outstanding;
(ii) any partner, spouse or child of that Person;
(iii) any trust or estate in which the Person has a
substantial beneficial interest or as to which the
Person serves as trustee or in a similar capacity;
(iv) any relative of the Person, where the relative has
the same home as the Person; or
(v) any relative of the spouse of the Person where the
relative has the same home as the Person.
(d) A Person is deemed the "BENEFICIAL OWNER" and to have
"BENEFICIAL OWNERSHIP" of, and to "BENEFICIALLY OWN":
(i) any securities as to which such Person or any of such
Person's Affiliates or Associates is the beneficial
owner (and, for the purposes of this Agreement, a
"beneficial owner" of securities shall include a
Person who is the owner at law or in equity of such
securities);
(ii) any securities as to which such Person or any of such
Person's Affiliates or Associates has, directly or
indirectly:
A. the right to become beneficial owner
(whether such right is exercisable
immediately or after the passage of time or
upon the occurrence of a contingency or
payment of instalments or otherwise)
pursuant to any agreement, arrangement,
pledge or understanding or otherwise,
whether or not in writing (other than (x)
customary agreements with and between
underwriters and/or banking group and/or
selling group members with respect to a bona
fide distribution to the public of
securities and (y)
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pledges of securities in the ordinary course
of business that meet all of the conditions
specified in Rule 13d-3(d)(3) under the 1934
Exchange Act), or upon the exercise of
conversion rights, exchange rights, rights
(other than the Rights), warrants or
options, or otherwise; or
B. the right to vote (whether such right is
exercisable immediately or after the passage
of time or upon the occurrence of a
contingency or payment of instalments or
otherwise) pursuant to any agreement,
arrangement or understanding or otherwise
whether or not in writing (other than (x)
pledges of securities in the ordinary course
of business that meet all of the
circumstances specified in Rule 13-3(d)(3)
under the 1934 Exchange Act other than the
condition in Rule 13d-3(3)(3)(ii) and (y) a
pledge agreement with a registered
securities dealer relating to the extension
of credit for purchases of securities on
margin in the ordinary course of the
dealer's business); and
(iii) any securities which are beneficially owned by any
other Person with which such Person or any of such
Person's Affiliates is acting jointly or in concert
(other than pursuant to (x) customary agreements with
and between underwriters and/or banking group and/or
selling group members with respect to a bona fide
distribution to the public of securities and (y)
pledges of securities in the ordinary course of
business that meet all of the conditions specified in
Rule 13d-3(d)(3) under the 1934 Exchange Act);
provided, however, that a Person shall NOT be deemed the
"Beneficial Owner" or to have "Beneficial Ownership" of, or to
"Beneficially Own", any security:
(iv) solely because such security has been deposited or
tendered pursuant to a tender or exchange offer or
Take-over Bid made by such Person or any of such
Person's Affiliates or Associates until the earlier
of such deposited or tendered security being accepted
unconditionally for payment or exchange or being
taken up and paid for;
(v) solely because such Person or any of such Person's
Affiliates or Associates has or shares the power to
vote or direct the voting of such security pursuant
to a revocable proxy given in response to a public
proxy solicitation made pursuant to, and in
accordance with, the applicable rules and regulations
under the Corporations Act, the Securities Act and
the 1934 Exchange Act, except if such power (or the
arrangements relating thereto) is then reportable
under Section 101 of the Securities Act or under Item
6 of Schedule 13D under the 1934 Exchange Act;
(vi) solely because such Person or any of such Person's
Affiliates or Associates has or shares the power to
vote or direct the voting of such security in
connection with, or in order to participate in, a
public proxy solicitation made or to be made pursuant
to, and in accordance with, the applicable rules and
regulations referred to in Clause 1.1(d)(v), except
if such power (or the arrangements relating thereto)
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is then reportable under Section 101 of the
Securities Act or under Item 6 of Schedule 13D under
the 1934 Exchange Act;
(vii) solely because such Person (hereinafter in this
Clause 1.1(d)(vii) referred to as the "MANAGER"),
being principally engaged in the business of managing
investment funds for other Persons (which others, for
greater certainty, may include and be limited to one
or more employee benefit plans or pension plans) who
are not Affiliates or Associates of the Manager and
who do not act jointly or in concert with the Manager
as part of the Manager's duties as agent for fully
managed accounts, holds or exercises voting or
dispositive power over such security and such voting
or dispositive power over such security is held in
the ordinary course of such business in the
performance of the duties of the Manager for the
account of the other Person; provided, however, that:
A. such security shall be deemed, in such case,
to be Beneficially Owned by such other
Persons; and
B. neither the Manager nor any Person acting
jointly or in concert with the Manager is
then making a Take-over Bid or has not then
publicly announced an intention to make a
Take-over Bid, either alone or by acting
jointly or in concert with any other Person;
and provided further that, notwithstanding the
foregoing, the Board of Directors shall have the
right to and may determine, acting in good faith,
that conditions exist which should disentitle the
Manager from relying on this Clause 1.1(d)(vii) and,
in such event, the Manager's Beneficial Ownership of
securities shall be determined without reference to
this Clause 1.1(d)(vii); or
(viii) solely because such Person (hereinafter in this
Clause 1.1(d)(viii) referred to as the "TRUST
COMPANY") holds or exercises voting or dispositive
power over such securities, provided that:
A. the Trust Company is licensed to carry on
the business of a trust company under
applicable law and, as such, acts as trustee
or administrator or in similar capacity in
relation to the estates of deceased or
incompetent Persons (each an "ESTATE
ACCOUNT") or in relation to other accounts
(each an "OTHER ACCOUNT") and holds such
voting or dispositive power over such
security in the ordinary course of such
duties for the estate of any such deceased
or incompetent Person or for such other
accounts; and
B. the Trust Company is not then making a
Take-over Bid or has not then publicly
announced an intention to make a Take-over
Bid, either alone or by acting jointly or in
concert with any other Person;
and provided further that, notwithstanding the
foregoing, the Board of Directors shall have the
right to and may determine, acting in good faith,
that conditions exist which should disentitle the
Trust Company from relying on this Clause
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1.1(d)(viii) and, in such event, the Trust Company's
Beneficial Ownership of securities shall be
determined without reference to this Clause
1.1(d)(viii); or
(ix) solely because such Person is a client of the same
Manager as another Person on whose account the
Manager holds or exercises voting or dispositive
power over such security, or solely because such
Person is an Estate Account or an Other Account of
the same Trust Company as another Person on whose
account the Trust Company holds or exercises voting
or dispositive power over such security; or
(x) solely because any such Person, any of such Person's
Affiliates or Associates or any other Person referred
to in paragraph (iii) of this definition has an
agreement, arrangement or understanding, whether or
not in writing (but other than of the nature
otherwise referred to in this Subsection 1.1(d)),
with respect to one or more shareholder proposals or
a matter or matters to come before a particular
meeting of shareholders, including the election of
directors.
For purposes of this Agreement, in determining the percentage
of the outstanding Voting Shares with respect to which a
Person is or is deemed to be the Beneficial Owner, all Voting
Shares as to which such Person is deemed the Beneficial Owner
shall be deemed outstanding.
(e) "BOARD OF DIRECTORS" means the board of directors of the
Corporation.
(f) "BUSINESS DAY" means any day other than a Saturday, Sunday or
a day on which chartered banks in the City of Toronto, Ontario
or banks in the City of Raleigh, North Carolina or Palo Alto,
California (or, if the Corporation's principal place of
business ceases to be in Palo Alto, California, such other
city in which the principal place of business of the
Corporation is located) are authorized or obliged by law to
close.
(g) "CANADIAN DOLLAR EQUIVALENT" of any amount which is expressed
in United States dollars means, on any date, the Canadian
dollar equivalent of such amount determined by multiplying
such amount by the U.S.-Canadian Exchange Rate in effect on
such date.
(h) "CANADIAN-U.S. EXCHANGE RATE" means, on any date, the inverse
of the U.S.-Canadian Exchange Rate in effect on such date.
(i) "CLOSE OF BUSINESS" on any given date means the time on such
date (or, if such date is not a Business Day, the time on the
next succeeding Business Day) at which the office of the
transfer agent for the Common Shares in the City of Toronto
(or, after the Separation Time, the office of the Rights Agent
in the City of Toronto), is closed to the public.
(j) "COMMON SHARES" means the common shares in the capital of the
Corporation and "COMMON SHARES", when used with reference to
any Person other than the Corporation, means the class or
classes of shares (or similar equity interest) with the
greatest per share voting power entitled to vote generally in
the election of all directors of such other Person or the
equity securities or other equity interest having power
(whether or not exercised) to
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control or direct the management of such other Person or, if
such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such
first-mentioned other Person.
(k) "COMPETING PERMITTED BID" means a Take-over Bid made while
another Permitted Bid is in existence and that satisfies all
of the provisions of a Permitted Bid except that the condition
set forth in subparagraph 1.1(bb)(ii) may provide that the
Voting Shares may be taken up or paid for on, and may not be
withdrawn after, a date which is not earlier than the later of
21 days after the date of the Take-over Bid or the earliest
date on which Voting Shares may be taken up or paid for under
any other Permitted Bid that is then in existence for the
Voting Shares.
(l) "CONTROLLED" means, in determining whether a corporation is
deemed to be "CONTROLLED" by another Person or Persons, a
situation where a Person is controlled by another Person or
Persons in any manner whatsoever that results in control in
fact by that other Person or Persons, whether directly or
indirectly, and whether through share ownership, a trust, a
contract or otherwise, including in the case of control of a
corporation where
(i) (A) securities entitled to vote in the election
of directors carrying more than 50% of the
votes for the election of directors are
held, directly or indirectly, by or on
behalf of the other Person or Persons; and
(B) the votes carried by such securities are
entitled, if exercised, to elect a majority
of the board of directors of such
corporation; or
(ii) the corporation is otherwise controlled by such other
Person or Persons;
and "CONTROL" and "CONTROLLING" shall be interpreted
accordingly.
(m) "CORPORATIONS ACT" means the International Business Companies
Act (Cap.291) of the British Virgin Islands, as amended, or
such other corporate legislation under which the Corporation
may exist under or be subject to from time to time, and the
regulations made thereunder, as now in effect or as the same
may from time to time be amended, re-enacted or replaced.
(n) "ELECTION TO EXERCISE" has the meaning attributed thereto in
Clause 2.2(d)(i).
(o) "EXEMPT ACQUISITION" means a share acquisition in respect of
which the Board of Directors has waived the application of
Section 3.1 pursuant to the provisions of Subsection 5.1(d) or
5.1(e).
(p) "EXERCISE PRICE" means, as of any date, the price at which a
holder of a Right may purchase the securities issuable upon
exercise of one whole Right. Until adjustment thereof in
accordance with the terms hereof, the Exercise Price shall be
$60.
(q) "EXPIRATION TIME" means the earlier of (i) the Termination
Time and (ii) the Close of Business on the fifth anniversary
of the date of this Agreement.
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(r) "EXPIRATION DATE OF THE PERMITTED BID" means the date, which
shall not be less than 60 days following the date on which the
proper Take-over Bid documentation relating to such Permitted
Bid is sent to the shareholders of the Corporation, which is
indicated in such documentation as the date until which such
Permitted Bid is open for acceptance.
(s) "FLIP-IN EVENT" means a transaction or event in or pursuant to
which any Person becomes an Acquiring Person.
(t) "INDEPENDENT SHAREHOLDERS" means beneficial owners of Voting
Shares, other than (i) any Acquiring Person, (ii) any Offeror,
(iii) any Affiliate or Associate of any Acquiring Person or
Offeror, (iv) any Person acting jointly or in concert with any
Acquiring Person or Offeror or any Affiliate of any Acquiring
Person or Offeror, in each case in respect of Voting Shares
beneficially owned by such persons.
(u) "MARKET PRICE" per security of any securities on any date of
determination means the average of the daily closing prices
per security of such securities (determined as described
below) on each of the 20 consecutive Trading Days through and
including the Trading Day immediately preceding such date;
provided, however, that if an event of a type analogous to any
of the events described in Section 2.3 hereof shall have
caused the closing prices used to determine the Market Price
on any Trading Day not to be fully comparable with the closing
price on the Trading Day immediately preceding such date of
determination each such closing price so used shall be
appropriately adjusted in a manner analogous to the applicable
adjustment provided for in Section 2.3 in order to make it
fully comparable with the closing price on the Trading Day
immediately preceding such date of determination. The closing
price per security of any securities on any date shall be:
(i) the closing board lot sale price or, in case no such
sale takes place on such date, the average of the
closing bid and asked prices for each of such
securities as reported by the principal stock
exchange or quotation system (as determined by the
Board of Directors) on which such securities are
listed or admitted to trading;
(ii) if for any reason none of such prices is available on
such day or the securities are not listed or admitted
to trading on a stock exchange or quotation system,
the last sale price, or in case no sale takes place
on such date, the average of the high bid and low
asked prices for each of such securities in the
over-the-counter market, as quoted by any reporting
system then in use (as determined by the Board of
Directors); or
(iii) if for any reason none of such prices is available on
such day or the securities are not listed or admitted
to trading on a stock exchange or quotation system or
quoted by any such reporting system, the average of
the closing bid and asked prices as furnished by a
professional market maker making a market in the
securities selected by the Board of Directors;
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provided, however, that if for any reason none of such prices
is available on such day, the closing price per security of
such securities on such date means the fair value per security
of such securities on such date as determined by the Board of
Directors, after consultation with a nationally recognized
investment dealer or investment banker with respect to the
fair value per security of such securities. The Market Price
shall be expressed in Canadian dollars and, if initially
determined in respect of any day forming part of the 20
consecutive Trading Day period in question in United States
dollars, such amount shall be translated into Canadian dollars
on such date at the Canadian Dollar Equivalent thereof.
Notwithstanding the foregoing, where the Board is Directors is
satisfied that the Market Price of securities as determined
herein was affected by an anticipated or actual Take-over Bid
or by improper manipulation, the Board of Directors may
determine the Market Price of securities, such determination
to be based upon a finding as to the price at which a holder
of securities of that class could reasonably have expected to
dispose of his securities immediately prior to the relevant
date excluding any change in price reasonably attributable to
the anticipated or actual Take-over Bid or to the improper
manipulation.
(v) "1934 EXCHANGE ACT" means the SECURITIES EXCHANGE ACT OF 1934
of the United States, as amended, and the rules and
regulations thereunder as now in effect or as the same may
from time to time be amended, re-enacted or replaced.
(w) "1933 SECURITIES ACT" means the SECURITIES ACT OF 1933 of the
United States, as amended and the rules and regulations
thereunder as now in effect or as the same may from time to
time be amended, re-enacted or replaced.
(x) "OFFER TO ACQUIRE" includes:
(i) an offer to purchase or a solicitation of an offer to
sell Voting Shares, or a public announcement of an
intention to make such an offer or solicitation; and
(ii) an acceptance of an offer to sell Voting Shares,
whether or not such offer to sell has been solicited;
or any combination thereof, and the Person accepting an offer
to sell shall be deemed to be making an Offer to Acquire to
the Person that made the offer to sell.
(y) "OFFEROR" means a Person who has publicly announced an
intention to make, or who has made, a Take-over Bid, including
a Permitted Bid.
(z) "OFFEROR'S SECURITIES" means the aggregate of the Voting
Shares Beneficially Owned on the date of a Take-over Bid by an
Offeror.
(aa) "OFFICER'S CERTIFICATE" of a Person shall mean a certificate
signed by the Chairman of the board of directors, the
President or any Vice President and by the Secretary, the
Treasurer, and Assistant Secretary or an Assistant Treasurer
of such Person.
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(bb) "PERMITTED BID" means a Take-over Bid made in compliance with,
and not on a basis which is exempt from or otherwise not
subject to, the provisions of Sections 95 through 98,
inclusive, and Section 100 of the Securities Act and, if
applicable, Sections 10, 13(d) and 14 of the 1934 Exchange Act
and the rules and regulations thereunder (or in each case such
comparable or successor laws or regulations as shall then be
in effect, or if all such provisions shall be repealed and
there shall be no comparable or successor laws then in effect,
pursuant to Sections 95 through 98, inclusive, and Section 100
of the Securities Act as in effect on the date of this
Agreement) and in compliance with all other applicable laws
(including the securities laws and regulations of all other
relevant jurisdictions) and which is also made in compliance
with the following additional provisions and conditions:
(i) the Take-over Bid shall be made for all of the Common
Shares to all holders of record of Common Shares
wherever resident or registered on the books of the
Corporation;
(ii) the Take-over Bid contains, and the take-up and
payment for securities tendered or deposited is
subject to, an irrevocable and unqualified provision
that no Voting Shares will be taken up or paid for
pursuant to the Take-over Bid prior to the close of
business on the date which is not less than 60 days
following the date of the Take-over Bid and only if
at such date more than 50% of the Voting Shares held
by Independent Shareholders shall have been deposited
or tendered pursuant to the Take-over Bid and not
withdrawn;
(iii) unless the Take-over Bid is withdrawn in accordance
with applicable law, the Take-over Bid contains an
irrevocable and unqualified provision that Voting
Shares may be deposited pursuant to such Take-over
Bid at any time during the period of time described
in Clause 1.1(bb)(ii) and that any Voting Shares
deposited pursuant to the Take-over Bid may be
withdrawn until taken up and paid for;
(iv) the Take-over Bid contains an irrevocable and
unqualified provision that in the event that the
deposit condition set forth in Clause 1.1(bb)(ii) is
satisfied the Offeror will make a public announcement
of that fact and the Take-over Bid will remain open
for deposits and tenders of Voting Shares for not
less than ten Business Days from the date of such
public announcement; and
(v) the Offeror shall make arrangements reasonably
required by the Board of Directors of the Corporation
to allow for the deposit in acceptance of such
Take-over Bid of shares issued on exercise of options
held by employees of the Corporation and its
subsidiaries;
and the Board of Directors acting in good faith determines,
prior to the expiry of the Take-over Bid, that the Take-over
Bid complies with the provisions of this Subsection 1.1(bb).
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For purposes of this Agreement, if a Permitted Bid ceases to
be a Permitted Bid because it ceases to meet any or all of the
requirements mentioned above at any time, any acquisition of
Voting Shares made pursuant to such Permitted Bid, including
any acquisition of Voting Shares theretofore made, shall cease
to be a Permitted Bid Acquisition.
(cc) "PERMITTED BID ACQUISITION" means an acquisition of Common
Shares or Voting Shares made pursuant to a Permitted Bid or a
Competing Permitted Bid made after the Board of Directors,
acting in good faith, has determined, that the Take-over Bid
complies with the provisions of Subsection 1.1(bb).
(dd) "PERSON" includes any individual, firm, partnership,
association, trust, trustee, executor, administrator, legal
personal representative, government, governmental body or
authority, group (as such term is used in Rule 13d-5 under the
1934 Exchange Act, as in effect on the date of this
Agreement), corporation or other incorporated or
unincorporated organization.
(ee) "PRO RATA ACQUISITION" means an acquisition by a Person of
Voting Shares pursuant to (w) any dividend reinvestment plan
or share purchase plan of the Corporation, (x) a stock
dividend, a stock split or other event pursuant to which such
Person becomes the Beneficial Owner of Voting Shares on the
same pro rata basis as all other holders of Voting Shares of
the same class or series, (y) the exercise (including the
grant) of rights granted to such Person to purchase Voting
Shares distributed to all holders of Voting Shares pursuant to
a bona fide rights offering which complies with the
requirements of Policy 6.2 of the Ontario Securities
Commission or is made pursuant to a prospectus or (z) a
distribution to the public of Voting Shares, or securities
convertible into or exchangeable for Voting Shares, made
pursuant to a prospectus or by way of a private placement
completed in accordance with applicable securities
legislation; provided, however, in the case of an acquisition
referred to in Subclauses (y) or (z), such acquisitions are
made for not more than such number of Voting Shares or of such
securities as is necessary for such Person to maintain the
percentage of Voting Shares it held immediately prior to the
announcement of such rights offering or distribution to the
public or private placement, as the case may be.
(ff) "RECORD TIME" means the Close of Business on January 13, 2000.
(gg) "REDEMPTION PRICE" has the meaning attributed thereto in
Subsection 5.1(a).
(hh) "REGULAR PERIODIC CASH DIVIDEND" means cash dividends paid at
regular intervals in any fiscal year of the Corporation to the
extent that such cash dividends do not, in the aggregate,
exceed in any fiscal year the greatest of:
(i) 200% of the aggregate amount of cash dividends
declared payable by the Corporation on its Common
Shares in its immediately preceding fiscal year;
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(ii) 300% of the arithmetic mean of the aggregate amounts
of cash dividends declared payable by the Corporation
on its Common Shares in its three immediately
preceding fiscal years; and
(iii) 100% of the aggregate consolidated net income of the
Corporation, before extraordinary items, for its
immediately preceding fiscal year.
(ii) "RIGHTS CERTIFICATE" means the certificates representing the
Rights after the Separation Time which shall be substantially
in the form attached hereto as Exhibit A.
(jj) "RIGHTS REGISTER" has the meaning attributed thereto in
Subsection 5.1(a).
(kk) "SECURITIES ACT" means the SECURITIES ACT, R.S.O. 1990, c.
S.5, as amended, and the regulations made thereunder, as now
in effect or as the same may from time to time be amended,
re-enacted or replaced.
(ll) "SEPARATION TIME" means the Close of Business on the tenth day
after the earlier of:
(i) the Stock Acquisition Date; and
(ii) the date of the commencement of, or first public
announcement of the intent of any Person (other than
the Corporation or any Subsidiary of the Corporation)
to commence, a Take-over Bid (other than a Permitted
Bid, so long as such Take-over Bid continues to
satisfy the requirements of a Permitted Bid or a
Competing Permitted Bid);
or such earlier or later date as may from time to time be
determined by the Board of Directors, provided that:
(A) if any such Take-over Bid expires, is
cancelled, is terminated or is otherwise
withdrawn prior to the Separation Time, such
offer shall be deemed, for the purposes of
this Subsection 1.1(kk), never to have been
made; and
(B) if the Board of Directors determines
pursuant to Subsection 5.1(d) or (e) to
waive the application of Section 3.1 to a
Flip-in Event, the Separation Time in
respect of such Flip-in Event shall be
deemed never to have occurred.
(mm) "SPECIAL MEETING" means a special meeting of the holders of
Voting Shares called by the Board of Directors for the purpose
of:
(i) ratifying the distribution and continued existence of
the Rights in accordance with Subsection 5.4(f); or
(ii) approving an amendment, variation or rescission of
any of the provisions of this Agreement pursuant to
Subsections 5.4(b), 5.4(c) or 5.4(e).
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(nn) "STOCK ACQUISITION DATE" means the first date of public
announcement (which for purposes of this definition includes,
without limitation, a report filed pursuant to Section 101 of
the Securities Act or Section 13(d) of the 1934 Exchange Act)
of facts indicating that a Person has become an Acquiring
Person.
(oo) "SUBSIDIARY" means a corporation which, in respect of another
corporation, is:
(i) controlled by:
A. that other; or
B. that other and one or more corporations each
of which is controlled by that other; or
C. two or more corporations each of which is
controlled by that other; or
(ii) a Subsidiary of a corporation that is that other's
Subsidiary;
(pp) "TAKE-OVER BID" means an Offer to Acquire Voting Shares or
other securities which (assuming the Voting Shares or other
securities subject to the Offer to Acquire are acquired at the
date of the Offer to Acquire by the Person making the Offer to
Acquire), together with the Offeror's Securities, would
constitute in the aggregate 20% or more of the outstanding
Voting Shares at the date of the Offer to Acquire (including
all Voting Shares that may be acquired upon exercise of all
rights of conversion, exchange or purchase attaching to the
other securities.
(qq) "TERMINATION TIME" means the time at which the right to
exercise Rights shall terminate pursuant to Subsections 3.2(b)
or 5.1(c).
(rr) "TRADING DAY", when used with respect to any securities, means
any day on which the principal securities exchange or
quotation system (as determined by the Board of Directors) on
which such securities are listed or admitted to trading or
quotation is open for the transaction of business or, if the
securities are not listed or admitted to trading or quotation
on any Canadian or United States securities exchange, a
Business Day.
(ss) "U.S.-CANADIAN EXCHANGE RATE" means, on any date:
(i) if on such date the Bank of Canada sets an average
noon spot rate of exchange for the conversion of one
United States dollar into Canadian dollars, such
rate; and
(ii) in any other case, the rate for such date for the
conversion of one United States dollar into Canadian
dollars calculated in such manner as may be
determined by the Board of Directors from time to
time acting in good faith.
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(tt) "U.S. DOLLAR EQUIVALENT" of any amount which is expressed in
Canadian dollars means, on any date, the United States dollar
equivalent of such amount determined by multiplying such
amount by the Canadian-U.S. Exchange Rate in effect on such
date.
(uu) "VOTING SHARES" means the Common Shares of the Corporation and
any other shares of capital stock or voting interests of the
Corporation entitled to vote generally in the election of
directors and "VOTING SHARES", when used with reference to any
Person other than the Corporation, means common shares of such
other Person and any other shares of capital stock or voting
interests of such other Person entitled to vote generally in
the election of the directors of such other Person. For
purposes of this Agreement, the percentage of Voting Shares
Beneficially Owned by any Person shall be, and be deemed to
be, the product determined by the formula:
A
--
100 X B
where
A = the aggregate number of votes for the election of
all directors generally attaching (or which would be
attached) to the Voting Shares Beneficially Owned by
such Person; and
B = the aggregate number of votes for the election of
all directors generally attaching to all outstanding
Voting Shares.
Where any Person is deemed to Beneficially Own unissued Voting
Shares, such Voting Shares shall be deemed to be outstanding
for the purpose of both A and B above.
(vv) "VOTING SHARE REDUCTION" means an acquisition or redemption by
the Corporation of Voting Shares which, by reducing the number
of Voting Shares outstanding, increases the proportionate
number of Voting Shares Beneficially Owned by any Person to
20% or more of the Common Shares or Voting Shares then
outstanding.
1.2 ACTING JOINTLY OR IN CONCERT
For the purposes of this Agreement, whether Persons are acting jointly
or in concert is a question of fact in each circumstance. Notwithstanding the
foregoing, a Person shall be deemed to be acting jointly or in concert with
another Person if such Person is presumed to be acting jointly or in concert
with such other Person for purposes of Section 91 of the Securities Act.
Notwithstanding the foregoing, and for greater certainty, the phrase,
"acting jointly or in concert", wherever used in this Agreement, shall not
include conduct:
(a) unrelated to Voting Shares of the Corporation; or
(b) consisting solely of:
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(i) voting or directing the vote of securities of the
Corporation pursuant to a revocable proxy given in
response to a public proxy solicitation;
(ii) voting or directing the vote of securities of the
Corporation in connection with or in order to
participate in a public proxy solicitation made or to
be made; or
(iii) having an agreement, arrangement or understanding
with respect to a shareholder proposal or a matter or
matters to come before a particular meeting of
shareholders, including the election of directors.
1.3 CURRENCY
All sums of money which are referred to in this Agreement are expressed
in lawful money of Canada, unless otherwise specified.
1.4 NUMBER AND GENDER
Wherever the context so requires, terms used herein importing the
singular number only shall include the plural and vice versa and words importing
any one gender shall include all others.
1.5 SECTIONS AND HEADINGS
The division of this Agreement into Articles, Sections, Subsections,
Clauses and Subclauses and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement. The terms "this Agreement", "hereof", "hereunder" and similar
expressions refer to this Agreement and not to any particular Article, Section
or other portion hereof and include any agreement or instrument supplemental or
ancillary hereto. Unless something in the subject matter or context is
inconsistent therewith, references herein to Articles, Sections, Subsections,
Clauses and Subclauses are to Articles, Sections, Subsections, Clauses and
Subclauses of this Agreement.
1.6 STATUTORY REFERENCES
Unless the context otherwise requires, any reference herein to a
specific Section, Subsection, Clause or Rule of any act or regulation shall be
deemed to refer to the same as it may be renumbered, amended, re-enacted or
replaced or, if repealed and there shall be no replacement therefor, to the same
as it is in effect on the date of this Agreement.
ARTICLE 2 -- THE RIGHTS
2.1 THE RIGHTS; LEGEND ON COMMON SHARE CERTIFICATES
(a) Certificates representing Common Shares that are issued and
outstanding at the later of the Record Time shall evidence one
Right for each Common Share evidenced thereby, notwithstanding
the absence of the legend referred to below, until the earlier
of (i) the Separation Time and (ii) the Expiration Time.
Certificates for Common Shares issued after the later of (i)
the Record Time and (ii) the date on which all regulatory
approvals
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for this Agreement have been received but prior to the earlier
of (i) the Separation Time and (ii) the Expiration Time shall
also evidence one Right for each Common Share represented
thereby.
(b) All such certificates for Common Shares shall have impressed
on, printed on, written on or otherwise affixed to them the
following legend:
"Until the Separation Time (as defined in the Rights
Agreement referred to below), this certificate also
evidences and entitles the holder hereof to certain
Rights as set forth in a Shareholder Protection
Rights Agreement made as of January 13, 2000 (the
"Rights Agreement"), between Salix Pharmaceuticals,
Ltd. (the "Corporation") and Montreal Trust Company
of Canada (the "Rights Agent"), the terms of which
are incorporated herein by this reference and a copy
of which is on file at the principal office of the
Corporation. Under certain circumstances, as set
forth in the Rights Agreement, such Rights may be
amended or redeemed, may expire, may become void (if,
in certain cases, they are "Beneficially Owned" by an
"Acquiring Person", as such terms are defined in the
Rights Agreement, or a transferee thereof), or may be
evidenced by separate certificates and may no longer
be evidenced by this certificate. The Corporation
will mail, or arrange for the mailing of, a copy of
the Rights Agreement to the holder of this
certificate without charge promptly after the receipt
of a written request therefor."
Certificates representing Common Shares issued and outstanding
at the Record Time shall also evidence one Right for each
Common Share evidenced thereby, notwithstanding the absence of
the foregoing legend, until the Close of Business on the
earlier of the Separation Time and the Expiration Time.
2.2 INITIAL EXERCISE PRICE; EXERCISE OF RIGHTS; DETACHMENT OF RIGHTS
(a) Subject to adjustment as herein set forth, each Right will
entitle the holder thereof, after the Separation Time and
prior to the Expiration Time, to purchase one Common Share for
the Exercise Price, or the U.S. Dollar Equivalent of the
Exercise Price as at the Business Day immediately preceding
the Separation Time (which Exercise Price and number of Common
Shares are subject to adjustment as set forth below).
Notwithstanding any other provision of this Agreement, any
Rights held by the Corporation or any of its Subsidiaries
shall be void.
(b) Until the Separation Time, (i) the Rights shall not be
exercisable and no Right may be exercised and (ii) for
administrative purposes, each Right will be evidenced by the
certificate for the associated Common Share registered in the
name of the holder thereof (which certificate shall be deemed
to represent a Rights Certificate) and will be transferable
only together with, and will be transferred by a transfer of,
such associated Common Share.
(c) After the Separation Time and prior to the Expiration Time,
the Rights may be exercised and the registration and transfer
of the Rights shall be separate from and independent of
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Common Shares. Promptly following the Separation Time, the
Rights Agent will mail to each holder of record of Common
Shares as of the Separation Time (other than an Acquiring
Person and, in respect of any Rights Beneficially Owned by
such Acquiring Person which are not held of record by such
Acquiring Person, the holder of record of such Rights), at
such holder's address as shown on the records of the
Corporation (the Corporation hereby agreeing to furnish copies
of such records to the Rights Agent for this purpose):
(i) a Rights Certificate appropriately completed,
representing the number of Rights held by such holder
at the Separation Time and having such marks of
identification or designation and such legends,
summaries or endorsements printed thereon as the
Corporation may deem appropriate and as are not
inconsistent with the provisions of this Agreement,
or as may be required to comply with any law or with
any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange or
quotation system on which the Rights may from time to
time be listed or traded, or to conform to usage; and
(ii) a disclosure statement prepared by the Corporation
describing the Rights.
(d) Rights may be exercised in whole or in part on any Business
Day after the Separation Time and prior to the Expiration Time
by submitting to the Rights Agent at its principal office in
the City of Toronto or any other office of the Rights Agent
designated for that purpose from time to time by the
Corporation:
(i) the Rights Certificate evidencing such Rights, with
an Election to Exercise (an "ELECTION TO EXERCISE")
substantially in the form attached to the Rights
Certificate appropriately completed and duly executed
by the holder or his executors or administrators or
other legal personal representatives or his or their
attorney duly appointed by an instrument in writing
in form and executed in a manner satisfactory to the
Rights Agent; and
(ii) payment by certified cheque, bank draft or money
order payable to the order of the Corporation, of a
sum equal to the Exercise Price multiplied by the
number of Rights being exercised and a sum sufficient
to cover any transfer tax or charge which may be
payable in respect of any transfer involved in the
transfer or delivery of Rights Certificates or the
issuance or delivery of certificates for Common
Shares in a name other than that of the holder of the
Rights being exercised.
(e) Upon receipt of a Rights Certificate, with an Election to
Exercise appropriately completed and duly executed, which does
not indicate that such Right is void (or which is not
otherwise void) as provided by Subsection 3.1(b), accompanied
by payment as set forth in Clause 2.2(d)(ii), the Rights Agent
(unless otherwise instructed by the Corporation) will
thereupon promptly:
(i) requisition from the transfer agent of the Common
Shares certificates for the number of Common Shares
to be purchased (the Corporation hereby irrevocably
agreeing to authorize such transfer agent to comply
with all such requisitions);
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(ii) after receipt of such Common Share certificates,
deliver such certificates to, or to the order of, the
registered holder of such Rights Certificate,
registered in such name or names as may be designated
by such holder;
(iii) when appropriate, requisition from the Corporation
the amount of cash, if any, to be paid in lieu of
issuing fractional Common Shares;
(iv) after receipt of such cash, deliver such cash to,
or to the order of, the registered holder of the
Rights Certificate; and
(v) tender to the Corporation all payments received on
exercise of the Rights.
(f) If the holder of any Rights exercises less than all the Rights
evidenced by such holder's Rights Certificate, a new Rights
Certificate evidencing the Rights remaining unexercised will
be issued by the Rights Agent to such holder or to such
holder's duly authorized assigns.
(g) The Corporation covenants and agrees that it will:
(i) take all such action as may be necessary and within
its power to ensure that all Common Shares delivered
upon exercise of Rights shall, at the time of
delivery of the certificates for such Common Shares
(subject to payment of the Exercise Price and subject
further to the provisions of Subsection 3.1(b)), be
duly and validly authorized, executed, issued and
delivered as fully paid and non-assessable;
(ii) take all such action as may reasonably be considered
to be necessary and within its power to comply with
any applicable requirements of the Corporations Act,
the Securities Act and the securities legislation of
each of the other provinces and territories of
Canada, the 1933 Securities Act and the 1934 Exchange
Act, and the rules and regulations thereunder or any
other applicable law, rule or regulation, in
connection with the issuance and delivery of the
Rights Certificates and the issuance of any Common
Shares upon exercise of Rights;
(iii) use reasonable efforts to cause all Common Shares
issued upon exercise of Rights to be listed upon
issuance on the stock exchange(s) or quotation
system(s) where the Common Shares may be listed at
that time;
(iv) pay when due and payable, any and all Canadian and
United States federal, provincial and state taxes
(not in the nature of income or withholding taxes)
and charges which may be payable in respect of the
original issuance or delivery of the Rights
Certificates or certificates for Common Shares issued
upon exercise of Rights, provided that the
Corporation shall not be required to pay any transfer
tax or charge which may be payable in respect of any
transfer of Rights or the issuance or delivery of
certificates for Common Shares issued upon exercise
of Rights in a name other than that of the holder of
the Rights being exercised; and
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(v) cause to be reserved and kept available out of its
authorized and unissued Shares the number of Shares
that, as provided in this Agreement, will from time
to time be sufficient to permit the exercise in full
of all outstanding Rights.
2.3 ADJUSTMENTS TO EXERCISE PRICE; NUMBER OF RIGHTS
(a) The Exercise Price, the number and kind of securities subject
to purchase upon exercise of each Right and the number of
Rights outstanding are subject to adjustment from time to time
as provided in this Section 2.3.
(b) In the event that the Corporation at any time after the Record
Time and prior to the Expiration Time:
(i) declares or pays a dividend on the Common Shares
payable in Common Shares (or other securities
exchangeable for or convertible into or giving a
right to acquire Common Shares) other than pursuant
to any dividend reinvestment plan;
(ii) subdivides or changes the then outstanding Common
Shares into a greater number of Common Shares;
(iii) consolidates or changes the then outstanding Common
Shares into a smaller number of Common Shares; or
(iv) issues any Common Shares (or other securities
exchangeable for or convertible into or giving a
right to acquire Common Shares) in respect of, in
lieu of, or in exchange for existing Common Shares,
except as otherwise provided in this Section 2.3,
then
A the Exercise Price shall be adjusted so that
the Exercise Price in effect after such
adjustment will be equal to the Exercise
Price in effect immediately prior to such
adjustment divided by the number of Common
Shares (the "ADJUSTMENT FACTOR") that a
holder of one Common Share immediately prior
to such dividend, subdivision, change,
consolidation or issuance would hold
thereafter as a result thereof (assuming the
exercise of all such exchange or conversion
rights, if any); and
B in a case to which clause (ii) or (iii)
applies or if clause (i) or (iv) applies to
an issue of securities made after the
Separation Time, the number of Rights
outstanding shall be adjusted so that each
Right held prior to such adjustment will
become that number of Rights equal to the
Adjustment Factor, and the adjusted number
of Rights will be deemed to be distributed
among the Common Shares with respect to
which the original Rights were associated
(if they remain outstanding) and the shares
issued in respect of such dividend,
subdivision, change, consolidation or
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issuance, so that each such Common Share
will have exactly one Right associated with
it.
In the event the Corporation shall at any time after the
Record Time and prior to the Separation Time issue any Common
Shares otherwise than in a transaction referred to in the
preceding paragraph, each such Common Share so issued shall
automatically have one new Right associated with it, which
Right shall be evidenced by the certificate representing such
share.
(c) In the event that the Corporation at any time after the Record
Time and prior to the Expiration Time fixes a record date for
the making of a distribution to substantially all holders of
Common Shares of rights or warrants entitling them (for a
period expiring within 45 calendar days after such record
date) to subscribe for or purchase Common Shares (or
securities convertible into or exchangeable for or carrying a
right to purchase or subscribe for Common Shares) at a price
per Common Share (or, in the case of a security convertible
into or exchangeable for or carrying a right to purchase or
subscribe for Common Shares, having a conversion, exchange or
exercise price per share (including the price required to be
paid to purchase such convertible or exchangeable security or
right)) less than 90 percent of the Market Price per Common
Share on such record date, the Exercise Price shall be
adjusted. The Exercise Price in effect after such record date
will equal the Exercise Price in effect immediately prior to
such record date multiplied by a fraction, of which the
numerator shall be the number of Common Shares outstanding on
such record date plus the number of Common Shares which the
aggregate offering price of the total number of Common Shares
so to be offered (and/or the aggregate initial conversion,
exchange or exercise price of the convertible or exchangeable
securities or rights so to be offered, including the price
required to be paid to purchase such convertible or
exchangeable securities or rights) would purchase at such
Market Price per Common Share and of which the denominator
shall be the number of Common Shares outstanding on such
record date plus the number of additional Common Shares to be
offered for subscription or purchase (or into which the
convertible or exchangeable securities or rights to be so
offered are initially convertible, exchangeable or
exercisable). In case such subscription price may be paid in a
consideration part or all of which will be in a form other
than cash, the value of such consideration shall be as
determined by the Board of Directors. To the extent that such
rights or warrants are not exercised prior to the expiration
thereof, the Exercise Price shall be readjusted on the
expiration thereof to the Exercise Price which would then be
in effect based on the number of Common Shares (or securities
convertible into or exchangeable for Common Shares) actually
issued upon the exercise of such rights. For purposes of this
Agreement, the granting of the right to purchase Common Shares
(whether from treasury shares or otherwise) pursuant to any
dividend reinvestment plan and/or any share purchase plan
providing for the reinvestment of dividends or interest
payable on securities of the Corporation and/or the investment
of periodic optional payments and/or employee benefit, stock
option or similar plans (so long as such right to purchase is
in no case evidenced by the delivery of rights or warrants by
the Corporation) shall not be deemed to constitute an issue of
rights or warrants by the Corporation; provided, however,
that, in the case of any dividend reinvestment plan or share
purchase plan, the right to purchase Common Shares is at a
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price per share of not less than 90 percent of the current
market price per share (determined in accordance with such
plans) of the Common Shares.
(d) In the event that the Corporation at any time after the Record
Time and prior to the Expiration Time fixes a record date for
the making of a distribution to substantially all holders of
Common Shares of evidences of indebtedness or assets (other
than a Regular Periodic Cash Dividend or a dividend paid in
Common Shares but including any dividend payable in securities
other than a dividend or distribution referred to in
Subsection 2.3(b)(i) or 2.3(b)(iv)) or rights or warrants
entitling them to subscribe for or purchase Common Shares (or
securities convertible into or exchangeable for or carrying a
right to purchase or subscribe for Common Shares) at a price
per Common Share (or, in the case of a security convertible
into or exchangeable for or carrying a right to purchase or
subscribe for Common Shares, having a conversion, exchange or
exercise price per share (including the price required to be
paid to purchase such convertible or exchangeable security or
right)) less than 90 percent of the Market Price per Common
Share on such record date (excluding rights or warrants
referred to in Subsection 2.3(c)), the Exercise Price in
effect after such record date shall be equal to the Exercise
Price in effect immediately prior to such record date less the
fair market value (as determined by the Board of Directors) of
the portion of the assets, evidences of indebtedness, rights
or warrants so to be distributed applicable to a Common Share.
(e) Each adjustment made pursuant to this Section 2.3 shall be
made as of:
(i) the record or effective date for the applicable
dividend, subdivision, change, consolidation or
issuance, in the case of an adjustment made pursuant
to Subsection 2.3(b); and
(ii) the record date for the applicable dividend or
distribution, in the case of an adjustment made
pursuant to Subsection 2.3(c) or (d).
(f) In the event that the Corporation shall at any time after the
Record Time and prior to the Separation Time issue any shares
of capital stock (other than Common Shares), or rights or
warrants to subscribe for or purchase any such capital stock,
or securities convertible into or exchangeable for any such
capital stock, in a transaction referred to in Clauses
2.3(b)(i) or (iv), if the Board of Directors determines that
the adjustments contemplated by Subsections 2.3(b), (c) and
(d) in connection with such transaction will not appropriately
protect the interests of the holders of Rights, the
Corporation may determine what other adjustments to the
Exercise Price, number of Rights and/or securities purchasable
upon exercise of Rights would be appropriate and,
notwithstanding Subsections 2.3(b), (c) and (d), such
adjustments, rather than the adjustments contemplated by
Subsections 2.3(b), (c) and (d), shall be made. The
Corporation and the Rights Agent shall amend this Agreement as
appropriate to provide for such adjustments.
(g) Notwithstanding anything herein to the contrary, no adjustment
of the Exercise Price shall be required unless such adjustment
would require an increase or decrease of at least one per cent
in such Exercise Price; provided, however, that any
adjustments which by reason of this Subsection 2.3(g) are not
required to be made shall be carried forward and
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taken into account in any subsequent adjustment. All
adjustments made pursuant to this Section 2.3 shall be made to
the nearest cent or to the nearest one ten-thousandth of a
Common Share or a Right, as the case may be.
(h) All Rights originally issued by the Corporation subsequent to
any adjustment made to an Exercise Price hereunder shall
evidence the right to purchase, at the adjusted Exercise
Price, the number of Common Shares purchasable from time to
time hereunder upon exercise of the Rights, all subject to
further adjustment as provided herein.
(i) Unless the Corporation shall have exercised its election, as
provided in Subsection 2.3(j), upon each adjustment of an
Exercise Price as a result of the calculations made in
Subsections 2.3(c) and (d), each Right outstanding immediately
prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Exercise
Price, that number of Common Shares obtained by:
(i) multiplying (A) the number of Common Shares covered
by a Right immediately prior to this adjustment, by
(B) the relevant Exercise Price in effect immediately
prior to such adjustment of the relevant Exercise
Price; and
(ii) dividing the product so obtained by the relevant
Exercise Price in effect immediately after such
adjustment of the relevant Exercise Price.
(j) The Corporation may elect prior to or after the date of any
adjustment of an Exercise Price to adjust the number of
Rights, in lieu of any adjustment in the number of Common
Shares purchasable upon the exercise of a Right. Each of the
Rights outstanding after the adjustment in the number of
Rights shall be exercisable for the number of Common Shares
for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment
of the number of Rights shall become the number of Rights
obtained by dividing the relevant Exercise Price in effect
immediately prior to adjustment of the relevant Exercise Price
by the relevant Exercise Price in effect immediately after
adjustment of the relevant Exercise Price. The Corporation
shall make a public announcement of its election to adjust the
number of Rights, indicating the record date for the
adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on
which the relevant Exercise Price is adjusted or any day
thereafter, but, if the Rights Certificates have been issued,
shall be at least 10 calendar days later than the date of the
public announcement. If Rights Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this
Subsection 2.3(j), the Corporation shall, as promptly as
practicable, cause to be distributed to holders of record of
Rights on such record date, Rights Certificates evidencing,
subject to Section 5.5, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or,
at the option of the Corporation, shall cause to be
distributed to such holders of record in substitution and
replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof,
if required by the Corporation, new Rights Certificates
evidencing all the Rights to which such holders shall be
entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the
manner provided for herein and may bear, at the option of the
Corporation, the relevant adjusted Exercise Price and
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shall be registered in the names of holders of record of
Rights Certificates on the record date specified in the public
announcement.
(k) Irrespective of any adjustment or change in the Exercise Price
or the number of securities issuable upon exercise of the
Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Exercise Price per Common
Share and the number of Common Shares so issuable which were
expressed in the initial Rights Certificates issued hereunder.
(l) In any case in which this Section 2.3 shall require that an
adjustment in an Exercise Price be made effective as of a
record date for a specified event, the Corporation may elect
to defer until the occurrence of such event the issuance to
the holder of any Right exercised after such record date of
the number of Common Shares and other securities of the
Corporation, if any, issuable upon such exercise over and
above the number of Common Shares and other securities of the
Corporation, if any, issuable upon such exercise on the basis
of the relevant Exercise Price in effect prior to such
adjustment; provided, however, that the Corporation shall
deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such
additional Common Shares (fractional or otherwise) or other
securities upon the occurrence of the event requiring such
adjustment.
(m) Notwithstanding anything in this Section 2.3 to the contrary,
the Corporation shall be entitled to make such reductions in
the Exercise Price, in addition to those adjustments expressly
required by this Section 2.3, as and to the extent that in its
good faith judgement the Board of Directors shall determine to
be advisable in order that any (i) subdivision or
consolidation of the Common Shares, (ii) issuance wholly for
cash of any Common Shares at less than the applicable Market
Price, (iii) issuance wholly for cash of any Common Shares or
securities that by their terms are exchangeable for or
convertible into or give a right to acquire Common Shares,
(iv) stock dividends or (v) issuance of rights, options or
warrants referred to in this Section 2.3, hereafter made by
the Corporation to holders of its Common Shares, subject to
applicable taxation laws, shall not be taxable to such
shareholders.
(n) The Corporation covenants and agrees that, after the
Separation Time, it will not, except as permitted by Section
5.1 or 5.4, take (or permit any Subsidiary of the Corporation
to take) any action if at the time such action is taken it is
reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to
be afforded by the Rights.
(o) If an event occurs which would require an adjustment under
both this Section 2.3 and Section 3.1, the adjustment provided
for in this Section 2.3 shall be in addition to and shall be
made prior to, any adjustment required pursuant to Section
3.1.
(p) Whenever an adjustment to the Exercise Price or a change in
the securities purchasable upon exercise of the Rights is made
pursuant to this Section 2.3, the Corporation shall promptly:
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(i) file with the Rights Agent and with the transfer
agent for the Common Shares a certificate specifying
the particulars of such adjustment or change; and
(ii) cause notice of the particulars of such adjustment or
change to be given to the holders of the Rights.
Failure to file such certificate or to cause such notice to be
given as aforesaid, or any defect therein, shall not affect
the validity of any such adjustment or change.
2.4 DATE ON WHICH EXERCISE IS EFFECTIVE
Each Person in whose name any certificate for Common Shares is issued
upon the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Common Shares represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered (together with an appropriately
completed and duly executed Election to Exercise) and payment of the Exercise
Price for such Rights (and any applicable transfer taxes or charges payable by
such Person hereunder) was made in accordance with Subsection 2.2(d); provided,
however, that if the date of such surrender and payment is a date upon which the
Common Share transfer books of the Corporation are closed, such Person shall be
deemed to have become the holder of record of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the Common
Share transfer books of the Corporation are open.
2.5 EXECUTION, AUTHENTICATION, DELIVERY AND DATING OF RIGHTS CERTIFICATES
(a) The Rights Certificates shall be executed on behalf of the
Corporation by its Chief Executive Officer and its Chief
Financial Officer. The signature of these officers on the
Rights Certificates may be manual or facsimile. Rights
Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the
Corporation shall bind the Corporation, notwithstanding that
such individuals or any of them have ceased to hold such
offices prior to the countersignature and delivery of such
Rights Certificates.
(b) Promptly following the Separation Time, the Corporation will
notify the Rights Agent of such Separation Time and will
deliver Rights Certificates executed by the Corporation to the
Rights Agent for countersignature and a disclosure statement
describing the Rights, and the Rights Agent will manually
countersign such Rights Certificates and deliver such Rights
Certificates and statement to the holders of the Rights
pursuant to Subsection 2.2(c). No Rights Certificate shall be
valid for any purpose until countersigned by the Rights Agent
as aforesaid.
(c) Each Rights Certificate shall be dated the date of
countersignature thereof.
2.6 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE
(a) After the Separation Time, the Corporation will cause to be
kept a register (the "RIGHTS REGISTER") in which, subject to
such reasonable regulations as it may prescribe, the
Corporation will provide for the registration and transfer of
Rights. The Rights Agent is
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hereby appointed "Rights Registrar" for the purpose of
maintaining the Rights Register for the Corporation and
registering Rights and transfers and exchanges of Rights as
herein provided. In the event that the Rights Agent shall
cease to be the Rights Registrar, the Rights Agent will have
the right to examine the Rights Register at all reasonable
times.
(b) After the Separation Time and prior to the Expiration Time,
upon surrender for registration of transfer or exchange of any
Rights Certificate, and subject to the provisions of
Subsection 2.6(d) and 3.1(b), the Corporation will execute,
and the Rights Agent will countersign, deliver and register,
in the name of the holder or the designated transferee or
transferees, as required pursuant to the holder's
instructions, one or more new Rights Certificates evidencing
the same aggregate number of Rights as did the Rights
Certificates so surrendered.
(c) All Rights issued upon any registration of transfer or
exchange of Rights Certificates shall be the valid obligations
of the Corporation, and such Rights shall be entitled to the
same benefits under this Agreement as the Rights surrendered
upon such registration of transfer or exchange.
(d) Every Rights Certificate surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to
the Corporation or the Rights Agent, as the case may be, duly
executed by the holder thereof or such holder's attorney duly
authorized in writing. As a condition to the issuance of any
new Rights Certificate under this Section 2.6, the Corporation
may require the payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and
expenses of the Rights Agent) connected therewith.
2.7 MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES
(a) If any mutilated Rights Certificate is surrendered to the
Rights Agent prior to the Expiration Time, the Corporation
shall execute and the Rights Agent shall countersign and
deliver in exchange therefor a new Rights Certificate
evidencing the same number of Rights as did the Rights
Certificate so surrendered.
(b) If there shall be delivered to the Corporation and the Rights
Agent prior to the Expiration Time (i) evidence to their
satisfaction of the destruction, loss or theft of any Rights
Certificate and (ii) such security or indemnity as may be
required by them to save each of them and any of their agents
harmless, then, in the absence of notice to the Corporation or
the Rights Agent that such Rights Certificate has been
acquired by a bona fide purchaser, the Corporation shall
execute and upon its request the Rights Agent shall
countersign and deliver, in lieu of any such destroyed, lost
or stolen Rights Certificate, a new Rights Certificate
evidencing the same number of Rights as did the Rights
Certificate so destroyed, lost or stolen.
(c) As a condition to the issuance of any new Rights Certificate
under this Section 2.7, the Corporation may require the
payment of a sum sufficient to cover any tax or other
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governmental charge that may be imposed in relation thereto
and any other expenses (including the fees and expenses of the
Rights Agent) connected therewith.
(d) Every new Rights Certificate issued pursuant to this Section
2.7 in lieu of any destroyed, lost or stolen Rights
Certificate shall evidence a contractual obligation of the
Corporation, whether or not the destroyed, lost or stolen
Rights Certificate shall be at any time enforceable by anyone,
and shall be entitled to all the benefits of this Agreement
equally and proportionately with any and all other Rights duly
issued hereunder.
2.8 PERSONS DEEMED OWNERS
Prior to due presentment of a Rights Certificate (or, prior to the
Separation Time, the associated Common Share certificate) for registration of
transfer, the Corporation and any agent of the Corporation or, if so authorized
by the Corporation, the Rights Agent may deem and treat the person in whose name
such Rights Certificate (or, prior to the Separation Time, such Common Share
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby for all purposes whatsoever. As used in this Agreement, unless
the context otherwise requires, the term "holder" of any Rights means the
registered holder of such Rights (or, prior to the Separation Time, the
associated Common Shares).
2.9 DELIVERY AND CANCELLATION OF CERTIFICATES
All Rights Certificates surrendered upon exercise or for redemption, or
for registration of transfer or exchange shall, if surrendered to any person
other than the Rights Agent, be delivered to the Rights Agent and, in any case,
shall be promptly cancelled by the Rights Agent. The Corporation may at any time
deliver to the Rights Agent for cancellation any Rights Certificates previously
countersigned and delivered hereunder which the Corporation may have acquired in
any manner whatsoever, and all Rights Certificates so delivered shall be
promptly cancelled by the Rights Agent. No Rights Certificate shall be
countersigned in lieu of or in exchange for any Rights Certificates cancelled as
provided in this Section 2.9, except as expressly permitted by this Agreement.
The Rights Agent shall destroy all cancelled Rights Certificates and deliver a
certificate of destruction to the Corporation.
2.10 AGREEMENT OF RIGHTS HOLDERS
Every holder of Rights, by accepting such Rights, consents and agrees
with the Corporation and the Rights Agent and with every other holder of Rights
that:
(a) such holder shall be bound by and subject to the provisions of
this Agreement, as amended from time to time in accordance
with the terms hereof, in respect of all Rights held;
(b) prior to the Separation Time, each Right will be transferable
only together with, and will be transferred by a transfer of,
the associated Common Share;
(c) after the Separation Time, the Rights will be transferable
only on the Rights Register as provided herein;
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(d) prior to due presentment of a Rights Certificate (or, prior to
the Separation Time, the associated Common Share certificate)
for registration of transfer, the Corporation and any agent of
the Corporation or, if so authorized by the Corporation, the
Rights Agent may deem and treat the person in whose name the
Rights Certificate (or, prior to the Separation Time, the
associated Common Share certificate) is registered as the
absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on such
Rights Certificate or the associated Common Share certificate
made by anyone other than the Corporation or the Rights Agent)
for all purposes whatsoever, and neither the Corporation nor
the Rights Agent shall be affected by any notice to the
contrary;
(e) such holder is not entitled to receive any fractional Rights
or fractional Common Shares upon the exercise of Rights;
(f) without the approval of any holder of Rights and upon the sole
authority of the Board of Directors, this Agreement may be
supplemented or amended from time to time as provided herein;
and
(g) notwithstanding anything in this Agreement to the contrary,
neither the Corporation nor the Rights Agent shall have any
liability to any holder of a Right or any other Person as a
result of its inability to perform any of its obligations
under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court
of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by a
governmental authority, prohibiting or otherwise restraining
performance of such obligations.
ARTICLE 3 -- ADJUSTMENTS TO THE RIGHTS
3.1 FLIP-IN EVENT
(a) Subject to Section 3.1(b) and Subsections 5.1(d) and 5.1(e),
and except as provided below, if prior to the Expiration Time
a Flip-in Event shall occur, each Right shall constitute,
effective at the Close of Business on the 10th day after the
Stock Acquisition Date, the right to purchase from the
Corporation, upon exercise thereof in accordance with the
terms hereof, that number of Common Shares having an aggregate
Market Price on the date of consummation or occurrence of such
Flip-in Event equal to twice the Exercise Price for an amount
in cash equal to the Exercise Price (such Right to be
appropriately adjusted in a manner analogous to the applicable
adjustment provided for in Section 2.3 in the event that,
after such date of consummation or occurrence, or event, an
event of a type analogous to any of the events described in
Section 2.3 shall have occurred with respect to such Common
Shares).
(b) Notwithstanding anything to the contrary in this Agreement,
upon the occurrence of any Flip-in Event, any Rights that are
or were Beneficially Owned on or after the earlier of the
Separation Time or the Stock Acquisition Date by:
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(i) (A) an Acquiring Person;
(B) any Affiliate or Associate of an Acquiring
Person;
(C) any Person acting jointly or in concert with
an Acquiring Person or any of its
Affiliates;
(D) any other Person whose securities are deemed
to be Beneficially Owned by an Acquiring
Person
(each such Person being herein referred to as the
"INELIGIBLE SHAREHOLDER"); or
(ii) a transferee, direct or indirect, of an Ineligible
Shareholder who becomes a transferee in a transfer,
whether or not for consideration, that the Board of
Directors has determined is part of a plan,
arrangement or scheme of an Ineligible Shareholder
that has the purpose or effect of avoiding Clause
3.1(b)(i),
shall become null and void without any further action, and any
holder of such Rights (including a transferee of, or other
successor to, such Rights, whether directly or indirectly)
shall thereafter have no right to exercise such Rights under
any provision of this Agreement and shall not have thereafter
any right whatsoever with respect to such Rights, whether
under any provision of this Agreement or otherwise. The holder
of any Rights represented by a Rights Certificate which is
submitted to the Rights Agent upon exercise or for
registration of transfer or exchange which does not contain
the necessary certifications set forth in the Rights
Certificate establishing that such Rights are not void under
this Subsection 3.1(b), shall be deemed to be an Acquiring
Person or other Ineligible Shareholder for the purposes of
this Subsection 3.1(b) and such Rights shall become null and
void.
(c) Any Rights Certificates that represent Rights Beneficially
Owned by a Person described in either Clause (i) or (ii) of
Subsection 3.1(b) or transferred to any nominee of any such
Person, and any Rights Certificate issued upon transfer,
exchange, replacement or adjustment of any other Rights
Certificate referred to in this sentence, shall contain the
following legend:
"The Rights represented by this Rights Certificate
were issued to a Person who was an Acquiring Person
or an Affiliate or an Associate of an Acquiring
Person or other Ineligible Shareholder (as such terms
are defined in the Rights Agreement), including a
Person, or an Affiliate or Associate of a Person, who
was acting jointly or in concert with any of them or
any other Person whose securities are deemed to be
Beneficially Owned by such Acquiring Person. This
Rights Certificate and the Rights represented hereby
shall become void in the circumstances specified in
Subsection 3.1(b) of the Rights Agreement."
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Provided, however, that the Rights Agent shall not be under
any responsibility to ascertain the existence of facts that
would require the imposition of such legend but shall impose
such legend only if instructed to do so by the Corporation in
writing of if a holder fails to certify upon transfer or
exchange in the space provided on the Rights Certificate that
such holder is not a Person described in such legend.
(d) From and after the Separation Time, the Corporation shall do
all such acts and things as shall be necessary and within its
power to ensure compliance with the provisions of this Section
3.1 including, without limitation, all such acts and things as
may be required to satisfy the requirements of the
Corporations Act and the Securities Act and any other
applicable laws in respect of the issue of Common Shares upon
the exercise of Rights in accordance with this Agreement.
3.2 EXCHANGE OPTION
(a) In the event that the Board of Directors determines that
conditions exist which would eliminate or otherwise materially
diminish in any respect the benefits intended to be afforded
to the holders of Rights pursuant to this Agreement, the Board
of Directors may, at its option and without seeking the
approval of the holders of Common Shares or Rights, at any
time after a Flip-in Event has occurred, authorize the
Corporation to issue or deliver in respect of each Right which
is not void pursuant to Subsection 3.1(b), either:
(i) in return for the Exercise Price and the Right, cash,
debt or equity securities or other assets (or a
combination thereof) having a cash value equal to
twice the Exercise Price; or
(ii) in return for the Right and without further charge,
subject to any amounts that may be required to be
paid under applicable law, cash, debt or equity
securities or other assets (or a combination thereof)
having a cash value equal to the Exercise Price,
in full and final settlement of all rights attaching to the
Rights, where in either case the value of such debt or equity
securities or other assets shall be determined by the Board of
Directors who may rely upon the advice of a nationally
recognized investment dealer or investment banker selected by
the Board of Directors. To the extent that the Board of
Directors determines that some action need be taken pursuant
to this Section 3.2, the Board of Directors may suspend the
exercisability of the Rights for a period of up to 90 days
following the date of the occurrence of the relevant Flip-in
Event in order to decide the appropriate form of distribution
to be made and to determine the value thereof. In the event of
any such suspension, the Corporation shall notify the Rights
Agent and issue as promptly as practicable a public
announcement stating that the exercisability of the Rights has
been temporarily suspended.
(b) If the Board of Directors authorizes the exchange of debt or
equity securities or other assets (or a combination thereof)
for Rights pursuant to Subsection 3.2(a), then, without any
further action or notice, the right to exercise the Rights
will terminate and the only right thereafter of a holder of
Rights shall be to receive such debt or equity securities or
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other assets (or a combination thereof) in accordance with the
exchange formula authorized by the Board of Directors. Within
10 Business Days after the Board of Directors has authorized
the exchange of debt or equity securities or other assets (or
a combination thereof) for Rights pursuant to Subsection
3.2(a), the Corporation shall give notice of such exchange to
the holders of such Rights. Each such notice of exchange will
state the method by which the exchange of debt or equity
securities or other assets (or a combination thereof) for
Rights will be effected.
(c) The Corporation shall not be required to issue fractions of
securities or to distribute certificates evidencing fractional
securities. In lieu of issuing such fractional securities,
there shall be paid to the registered holders of Rights to
whom such fractional securities would otherwise be issuable,
an amount in cash equal to the same fraction of the Market
Price of a whole security.
3.3 FIDUCIARY DUTIES OF THE BOARD OF DIRECTORS OF THE CORPORATION
For clarification it is understood that nothing contained in
this Article 3 shall be considered to affect the obligations of the members of
the Board of Directors to exercise their fiduciary duties. Without limiting the
generality of the foregoing, nothing contained herein shall be construed to
suggest or imply that the Board of Directors shall not be entitled to recommend
that holders of the Voting Shares of the Corporation reject or accept any
Take-over Bid or take any other action (including, without limitation, the
commencement, prosecution, defence or settlement of any litigation and the
submission of additional or alternative Take-over Bids or other proposals to the
Special Meeting) with respect to any Take-over Bid that the Board of Directors
believes is necessary or appropriate in the exercise of the fiduciary duties of
its members.
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ARTICLE 4 -- THE RIGHTS AGENT
4.1 GENERAL
(a) The Corporation hereby appoints the Rights Agent to act as
agent for the Corporation and the holders of Rights in
accordance with the terms and conditions hereof, and the
Rights Agent hereby accepts such appointment. The Corporation
may from time to time appoint such Co-Rights Agents as it may
deem necessary or desirable subject to the prior approval of
the Rights Agent. In the event the Corporation appoints one or
more Co-Rights Agents, the respective duties of the Rights
Agents and Co-Rights Agents shall be as the Corporation may
determine with the approval of the Rights Agent. The
Corporation agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder (as per
the attached Fee Schedule) and, from time to time, on demand
of the Rights Agent, its reasonable expenses and counsel fees
and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance
of its duties hereunder (including the fees and disbursements
of any expert or advisor retained by the Rights Agent with the
approval of the Corporation). The Corporation also agrees to
indemnify the Rights Agent, its officers, directors and
employees for, and to hold them harmless against, any loss,
liability, or expense, incurred without negligence, bad faith
or wilful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection
with the acceptance and administration of this Agreement,
including the costs and expenses of defending against any
claim of liability, which right to indemnification will
survive the termination of this Agreement or the resignation
or removal of the Rights Agent. The Corporation shall inform
the Rights Agent in a reasonably timely manner of events which
may materially affect the administration of this Agreement by
the Rights Agent and at any time, upon request, shall provide
to the Rights Agent an incumbency certificate with respect to
the then current directors of the Corporation.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or
omitted by it in connection with its administration of this
Agreement in reliance upon any certificate for Common Shares,
Rights Certificate, certificate for other securities of the
Corporation, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document
believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper
Person or Persons.
4.2 MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or amalgamated or with which it may
be consolidated, or any corporation resulting from any merger,
amalgamation or consolidation to which the Rights Agent or any
successor Rights Agent is a party, or any corporation
succeeding to the shareholder or stockholder services business
of the Rights Agent or any successor Rights Agent, will be the
successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such
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corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 4.4 hereof. In
case at the time such successor Rights Agent succeeds to the
agency created by this Agreement any of the Rights
Certificates have been countersigned but not delivered, any
such successor Rights Agent may adopt the countersignature of
the predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of
the Rights Certificates have not been countersigned, any
successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all
such cases such Rights Certificates will have the full force
provided in the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent is changed
and at such time any of the Rights Certificates shall have
been countersigned but not delivered, the Rights Agent may
adopt the countersignature under its prior name and deliver
Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights
Certificates either in its prior name or in its changed name;
and in all such cases such Rights Certificates shall have the
full force provided in the Rights Certificates and in this
Agreement.
4.3 DUTIES OF RIGHTS AGENT
The Rights Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the
Corporation and the holders of Rights Certificates, by their acceptance thereof,
shall be bound:
(a) The Rights Agent may retain and consult with legal counsel
(who may be legal counsel for the Corporation), and the
opinion of such counsel will be full and complete
authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance
with such opinion; the Rights Agent may also, with the
approval of the Corporation (where such approval may
reasonably be obtained and such approval not to be
unreasonably withheld), consult with such other experts as the
Rights Agent shall consider necessary or appropriate to
properly carry out the duties and obligations imposed under
this Agreement and the Rights Agent shall be entitled to rely
in good faith on the advice of any such expert;
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent deems it necessary or desirable that any fact
or matter be proved or established by the Corporation prior to
taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by a person
reasonably believed by the Rights Agent to be a senior officer
of the Corporation and delivered to the Rights Agent; and such
certificate will be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such
certificate;
(c) The Rights Agent will be liable hereunder only for its own
negligence, bad faith or wilful misconduct;
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(d) The Rights Agent will not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement
or in the certificates for Common Shares or the Rights
Certificates (except its countersignature thereof) or be
required to verify the same, but all such statements and
recitals are and will be deemed to have been made by the
Corporation only;
(e) The Rights Agent will not be under any responsibility in
respect of the validity of this Agreement or the execution and
delivery hereof (except the due authorization, execution and
delivery hereof by the Rights Agent) or in respect of the
validity or execution of any Common Share certificate or
Rights Certificate (except its countersignature thereof); nor
will it be responsible for any breach by the Corporation of
any covenant or condition contained in this Agreement or in
any Rights Certificate; nor will it be responsible for any
change in the exercisability of the Rights (including the
Rights becoming void pursuant to Subsection 3.1(b)) or any
adjustment required under the provisions of Section 2.3 or
responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that
would require any such adjustment (except with respect to the
exercise of Rights after receipt of the certificate
contemplated by Subsection 2.3(p) hereof describing any such
adjustment); nor will it by any act hereunder be deemed to
make any representation or warranty as to the authorization of
any Common Shares to be issued pursuant to this Agreement or
any Rights or as to whether any Common Shares will, when
issued, be duly and validly authorized, executed, issued and
delivered and fully paid and non-assessable;
(f) The Corporation agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by
the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement;
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties
hereunder from any Person designated in writing by the
Corporation, and to apply to such persons for advice or
instructions in connection with its duties and it shall not be
liable for any action taken or suffered by it in good faith in
accordance with instructions of any such person;
(h) The Rights Agent and any shareholder or stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal
in Common Shares, Rights or other securities of the
Corporation or become pecuniarily interested in any
transaction in which the Corporation may be interested, or
contract with or lend money to the Corporation or otherwise
act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Corporation or
for any other legal entity; and
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and
the Rights Agent will not be answerable or accountable for any
act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Corporation resulting
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from any such act, default, neglect or misconduct, provided
reasonable care was exercised in the selection and continued
employment thereof.
4.4 CHANGE OF RIGHTS AGENT
The Rights Agent may resign and be discharged from its duties under
this Agreement upon 30 days' notice (or such lesser notice as is acceptable to
the Corporation) in writing mailed to the Corporation and to the transfer agent
of Common Shares by registered or certified mail, and to the holders of the
Rights in accordance with Section 5.8. The Corporation may remove the Rights
Agent upon 30 days' notice in writing, mailed to the Rights Agent and to the
transfer agent of the Common Shares by registered or certified mail, and to the
holders of the Rights in accordance with Section 5.8. If the Rights Agent should
resign or be removed or otherwise become incapable of acting, the Corporation
will appoint a successor to the Rights Agent. If the Corporation fails to make
such appointment within a period of 30 days after such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of any Rights (which holder shall,
with such notice, submit such holder's Rights Certificate for inspection by the
Corporation), then the resigning Rights Agent or the holder of any Rights may
apply to any court of competent jurisdiction for the appointment of a new Rights
Agent at the Corporation's expense. Any successor Rights Agent, whether
appointed by the Corporation or by such a court, shall be a corporation
incorporated under the laws of Canada or a province thereof. After appointment,
the successor Rights Agent will be vested with the same powers, rights, duties
and responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent upon receipt of all outstanding fees and expenses
owing by the Corporation to the predecessor Rights Agent under this Agreement,
any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Corporation will file
notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Shares, and mail a notice thereof in writing to the holders
of the Rights. Failure to give any notice provided for in this Section 4.4,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
ARTICLE 5 -- MISCELLANEOUS
5.1 REDEMPTION AND WAIVER
(a) The Board of Directors may, at its option, at any time prior
to the occurrence of a Flip-in Event, elect to redeem all but
not less than all of the then outstanding Rights at a
redemption price of $0.0001 per Right appropriately adjusted
in a manner analogous to the applicable adjustment provided
for in Section 2.3 in the event that an event of the type
analogous to any of the events described in Section 2.3 shall
have occurred (such redemption price being herein referred to
as the "REDEMPTION PRICE"). The redemption of the Rights by
the Board of Directors may be made effective at such time, on
such basis and with such conditions as the Board of Directors
in its sole discretion may establish.
(b) If an Offeror successfully completes a Permitted Bid by having
taken up and paid for not less than 50 per cent of the Voting
Shares held by Independent Shareholders pursuant to
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Permitted Bid Acquisitions, the Board of Directors shall,
without further formality, be deemed to have elected to redeem
the Rights at the Redemption Price on the Expiry Date of the
Permitted Bid.
(c) If the Board of Directors elects to or is deemed to have
elected to redeem the Rights, the right to exercise the Rights
will thereupon without further action and without notice
terminate and the only right thereafter of the holder of a
Right shall be to receive the Redemption Price. Within 10 days
of the Board of Directors electing or being deemed to have
elected to redeem the Rights, the Corporation shall give
notice of such redemption to the holders of the then
outstanding Rights. Each such notice of redemption shall state
the method by which the payment of the Redemption Price shall
be made.
(d) The Board of Directors may until the occurrence of a Flip-in
Event determine, upon prior written notice delivered to the
Rights Agent, to waive the application of Section 3.1 to any
particular Flip-in Event (which for greater certainty shall
not include the circumstances described in Subsection 5.1(e));
provided that if the Board of Directors waives the application
of Section 3.1 to a particular Flip-in Event pursuant to this
Subsection 5.1(d), subject to as provided below the Board of
Directors shall be deemed to have waived the application of
Section 3.1 to any other Flip-in Event occurring by reason of
any Take-over Bid which is made by means of a take-over bid
circular (i) prior to the granting of such waiver, (ii)
thereafter and prior to the expiry of any Take-over Bid (as
the same may be extended from time to time) outstanding at the
time of the granting of such waiver or (iii) thereafter and
prior to the expiry of any Take-over Bid in respect of which a
waiver is, or is deemed to have been, granted under this
Subsection 5.1(d); provided further that if the first waiver
pursuant to this Subsection 5.1(d) is in respect of any bid
which would have been a Permitted Bid but for the absence of
one or more of the elements of a Permitted Bid set out in
subclauses 1.1(bb) (i), (ii), (iii) or (iv) (the "Waived
Conditions"), any such second or further waiver which is
deemed to occur by reason of Subsection 5.1(d) shall only be
deemed to occur if each such second or further Take-over Bid
would also be a Permitted Bid but for the Waived Conditions.
(e) The Board of Directors may prior to the Close of Business on
the tenth day following the Stock Acquisition Date determine,
upon prior written notice delivered to the Rights Agent, to
waive or to agree to waive the application of Section 3.1 to
the Flip-in Event giving rise to the Stock Acquisition Date,
provided that the Acquiring Person has (i) reduced its
Beneficial Ownership of Voting Shares or (ii) has entered into
a contractual arrangement with the Corporation, acceptable to
the Board of Directors, to do so within 30 days of the date on
which such contractual arrangement is entered into (the expiry
of which period is herein referred to as the "DISPOSITION
DATE"), such that at the time the waiver becomes effective
pursuant to this Subsection 5.1(e) such Person is no longer an
Acquiring Person. In the event of such a waiver becoming
effective, for the purposes of this Agreement, such Flip-in
Event shall be deemed not to have occurred. Without limiting
the generality of the foregoing, if the Person remains an
Acquiring Person at the close of business on the Disposition
Date, the Disposition Date shall be deemed to be the date of
occurrence of a further Stock Acquisition Date and Section 3.1
shall apply thereto.
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(f) Where a Take-over Bid, or other events giving rise to a
Separation Time, is withdrawn or otherwise terminated after
the Separation Time has occurred and prior to the occurrence
of a Flip-in Event, or in any other circumstances prior to the
occurrence of a Flip-in Event, the Board of Directors may
elect to redeem all the outstanding Rights at the Redemption
Price. Without restricting the rights of the Board of
Directors to elect to redeem the Rights pursuant to section
5.1(a) rather than pursuant to section 5.1(f), upon the Rights
being redeemed pursuant to this section 5.1(f), all of the
provisions of this Agreement shall continue to apply as if the
Separation Time had not occurred and Rights Certificates
representing the number of Rights held by each holder of
record of Common Shares as of the Separation Time had not been
mailed to each such holder and for all purposes of this
Agreement the events giving rise to the Separation Time shall
be deemed not to have occurred.
(g) The Corporation shall give prompt written notice to the Rights
Agent of any waiver of the application of Section 3.1 made by
the Board of Directors under this Section 5.1.
5.2 EXPIRATION
No Person shall have any rights pursuant to this Agreement or in
respect of any Right after the Expiration Time, except the Rights Agent as
specified in Subsection 4.1(a) hereof.
5.3 ISSUANCE OF NEW RIGHTS CERTIFICATES
Notwithstanding any of the provisions of this Agreement or of the
Rights to the contrary, the Corporation may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by the Board of
Directors to reflect any adjustment or change in the number or kind or class of
shares purchasable upon exercise of Rights made in accordance with the
provisions of this Agreement.
5.4 SUPPLEMENTS AND AMENDMENTS
(a) Without the approval of any holders of Voting Shares or
Rights, the Corporation may make amendments to this Agreement
to correct any clerical or typographical error, or which are
required to maintain the validity of the Agreement as a result
of any change in any applicable legislation or regulations
thereunder, or which are made to cure any ambiguity, defect or
inconsistency, or which are to make changes which do not
adversely affect the interests of holders of Rights (excluding
the interests of any Acquiring Person or other persons
identified in section 3.1(b) hereof), or which are to shorten
or lengthen any time period under the Rights Agreement;
provided, however, that no amendment to adjust the timer
period governing redemption shall be made at such time as the
Rights are not redeemable. The Corporation may, prior to the
date of the shareholders' meeting referred to in Section
5.4(f), supplement or amend this Agreement without the
approval of any holders of Rights or Voting Shares in order to
make any changes which the Board of Directors acting in good
faith may deem necessary or desirable. Notwithstanding
anything in this Section 5.4 to the contrary, no supplement or
amendment shall be made to the provisions of Article 4 except
with the written concurrence of the Rights Agent to such
change, supplement or amendment.
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(b) Subject to subsection 5.4(a), the Corporation may, with the
prior consent of the holders of Voting Shares obtained as set
forth below, at any time before the Separation Time, amend,
vary or rescind any of the provisions of this Agreement and
the Rights (whether or not such action would materially
adversely affect the interests of the holders of Rights
generally). Such consent shall be deemed to have been given if
the action requiring such approval is approved by the
affirmative vote of a majority of the votes cast by
Independent Shareholders represented in person or by proxy at
the Special Meeting.
(c) The Corporation may, with the prior consent of the holders of
Rights obtained as set forth below, at any time after the
Stock Acquisition Date amend, vary or rescind any of the
provisions of this Agreement and the Rights (whether or not
such action would materially adversely affect the interests of
the holders of Rights generally), provided that no such
amendment, variation or deletion shall be made to the
provisions of Article 4 except with the written concurrence of
the Rights Agent thereto. Such consent shall be deemed to have
been given if such amendment, variation or deletion is
authorized by the affirmative votes of the holders of Rights
present or represented at and entitled to vote at a meeting of
the holders and representing 50% plus one of the votes cast in
respect thereof.
(d) Any approval of the holders of Rights shall be deemed to have
been given if the action requiring such approval is authorized
by the affirmative votes of the holders of Rights present or
represented and entitled to vote at a meeting of the holders
of Rights and representing a majority of the votes cast in
respect thereof. For purposes hereof, each outstanding Right
(other than Rights which are void pursuant to the provisions
hereof) shall be entitled to one vote, and the procedures for
the calling, holding and conduct of the meeting shall be
those, as nearly as may be, which are provided in the
Corporation's by-laws and the Corporations Act with respect to
meetings of shareholders of the Corporation.
(e) Any amendments made by the Corporation to this Agreement
pursuant to Subsection 5.4(a) which are required to maintain
the validity of this Agreement as a result of any change in
any applicable legislation or regulation thereunder shall:
(i) if made before the Separation Time, be submitted to
the shareholders of the Corporation at the next
meeting of shareholders and the shareholders may, by
the majority referred to in subsection 5.4(b) confirm
or reject such amendment;
(ii) if made after the Separation Time, be submitted to
the holders of Rights at a meeting to be called for
on a date not later than immediately following the
next meeting of shareholders of the Corporation and
the holders of Rights may, by resolution passed by
the majority referred to in Subsection 5.4(d) confirm
or reject such amendment.
Any such amendment shall be effective from the date
of the resolution of the Board of Directors adopting
such amendment, until it is confirmed or rejected or
until it ceases to be effective (as described in the
next sentence) and, where such amendment is
confirmed, it continues in effect in the form so
confirmed. If such amendment is rejected by the
shareholders or the holders of Rights or is not
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<PAGE>
submitted to the shareholders or holders of Rights as
required, then such amendment shall cease to be
effective from and after the termination of the
meeting at which it was rejected or to which it
should have been but was not submitted or from and
after the date of the meeting of holders of Rights
that should have been but was not held, and no
subsequent resolution of the Board of Directors to
amend this Agreement to substantially the same effect
shall be effective until confirmed by the
shareholders or holders of Rights as the case may be.
(f) The Board of Directors shall call and hold a Special Meeting
of holders of Voting Shares to consider and, if thought
appropriate, ratify the distribution and the continued
existence of the Rights. The Special Meeting shall be held on
a date fixed by the Board of Directors, which date shall be no
later than July 6, 2000 (or such later date as The Toronto
Stock Exchange may approve). The Board of Directors shall fix
a record date for determining the holders of Voting Shares
entitled to receive notice of the Special Meeting in
accordance with all applicable laws and the articles and
by-laws of the Corporation. Unless a majority of the votes
cast by the Independent Shareholders on such resolution are
voted in favour of the continued existence of the Rights, then
the Board of Directors shall immediately upon the confirmation
by the Chairman of such shareholders' meeting of the result of
the vote on such resolution, without further formality, be
deemed to have elected to redeem the Rights at the Redemption
Price.
(g) The Corporation shall be required to provide the Rights Agent
with notice in writing of any such amendment, recession or
variation to this Agreement as referred to in this Section 5.4
within five days of effecting such amendment, recession or
variation.
(h) Any supplement or amendment to this Agreement pursuant to
Section 5.4(b) through (g) shall be subject to the receipt of
any requisite approval or consent from any governmental or
regulatory authority having jurisdiction over the Corporation,
including without limitation an requisite approval of stock
exchanges on which the Shares are listed (which supplement or
amendment shall be effective upon receipt of such approval
(whether or not such approval is subject to one or more
conditions which must be satisfied)).
5.5 FRACTIONAL RIGHTS AND FRACTIONAL SHARES
(a) The Corporation shall not be required to issue fractions of
Rights or to distribute Rights Certificates which evidence
fractional Rights. After the Separation Time, there shall be
paid to the registered holders of the Rights Certificates with
regard to which fractional Rights would otherwise be issuable,
an amount in cash equal to the same fraction of the Market
Price of a whole Right in lieu of such fractional Rights. The
Rights Agent shall have no obligation to make any payments in
lieu of fractional Rights unless the Corporation shall have
provided the Rights Agent with the necessary funds to pay in
full all amounts payable in accordance with Section 2.2 (e).
(b) The Corporation shall not be required to issue fractional
Common Shares upon exercise of the Rights or to distribute
certificates which evidence fractional Common Shares. In lieu
of issuing fractional Common Shares, the Corporation shall pay
to the registered
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holder of Rights Certificates at the time such Rights are
exercised as herein provided, an amount in cash equal to the
same fraction of the Market Price of one Common Share. The
Rights Agent shall have no obligation to make any payments in
lieu of fractional Common Shares unless the Corporation shall
have provided the Rights Agent with the necessary funds to pay
in full all amounts payable in accordance with Section 2.2
(e).
5.6 RIGHTS OF ACTION
Subject to the terms of this Agreement, rights of action in respect of
this Agreement, other than rights of action vested solely in the Rights Agent,
are vested in the respective holders of the Rights; and any holder of any
Rights, without the consent of the Rights Agent or of the holder of any other
Rights may, on such holder's own behalf and for such holder's own benefit and
the benefit of other holders of Rights, enforce, and may institute and maintain
any suit, action or proceeding against the Corporation to enforce, or otherwise
act in respect of, such holder's right to exercise such holder's Rights to which
such Person is entitled, in the manner provided in such holders Rights
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.
5.7 HOLDER OF RIGHTS DEEMED NOT A SHAREHOLDER
No holder, as such, of any Rights shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of Common Shares or any other
securities which may at any time be issuable on the exercise of such Rights, nor
shall anything contained herein or in any Rights Certificate be construed to
confer upon the holder of any Rights as such, any of the rights of a shareholder
of the Corporation or any right to vote for the election of directors or upon
any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting shareholders, or to receive dividends or subscription
rights or otherwise.
5.8 NOTICES
Notices or demands authorized or required by this Agreement to be given
or made by the Rights Agent or by the holder of any Rights to or on the
Corporation shall be sufficiently given or made if delivered personally or if
delivered or sent by registered or certified mail, postage prepaid, or by
facsimile transmission addressed (until another address is filed in writing with
the Rights Agent) as follows:
SALIX PHARMACEUTICALS, LTD.
c/o Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
U.S.A.
Facsimile No.: (919) 781-4865
Attention: Donald R. Reynolds
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<PAGE>
Any such notice or demand shall be deemed to have been received, if delivered
personally, on the date of delivery (if such date is a Business Day, failing
which it shall be deemed delivered on the next Business Day), if sent by
facsimile, on the next Business Day following transmission or if sent by
registered or certified mail, on the fifth Business Day after the mailing
thereof, except in the case of interruption of regular mail service, in which
case such notice shall be sent by facsimile or personally delivered.
Any notice or demand authorized or required by this Agreement to be
given or made by the Corporation or by the holder of any Rights to or on the
Rights Agent shall be sufficiently given or made if delivered personally or if
delivered or sent by registered or certified mail, postage prepaid, or by
facsimile transmission addressed as follows:
MONTREAL TRUST COMPANY OF CANADA
151 Front Street West
8th Floor
Toronto, Ontario
M5J 2N1
Attention: Senior Manager, Client Services
Facsimile No.: (416) 981-9800
Any such notice or demand shall be deemed to have been received, if delivered
personally, on the date of delivery (if such date is a Business Day, failing
which it shall be deemed delivered on the next Business Day), if sent by
facsimile, on the next Business Day following transmission or if sent by
registered or certified mail, on the fifth Business Day after the mailing
thereof, except in the case of interruption of regular mail service, in which
case such notice shall be sent by facsimile or personally delivered.
Notices or demands authorized or required by this Agreement to be given
or made by the Corporation or the Rights Agent to or on the holder of any Rights
shall be sufficiently given or made if delivered or sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as it
appears on the Rights Register or, prior to the Separation Time, on the
registers of the Corporation for the Common Shares. Any notice which is mailed
in the manner herein provided shall be deemed given on the fifth Business Day
after the date of mailing thereof, whether or not the holder receives the
notice. In the event of any interruption of mail service, such notice required
or permitted to be given hereunder will be deemed to be sufficiently given by
advertisement of such notice in a newspaper of general circulation in the City
of Toronto.
5.9 COSTS OF ENFORCEMENT
The Corporation agrees that if the Corporation or any other Person the
securities of which are purchasable upon exercise of Rights fails to fulfil any
of its obligations pursuant to this Agreement, then the Corporation or such
Person will reimburse the holder of any Rights for the costs and expenses
(including legal fees) incurred by such holder in actions to enforce his rights
pursuant to any Rights or this Agreement.
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<PAGE>
5.10 REGULATORY APPROVALS
Any obligation of the Corporation or action or event contemplated by
this Agreement, or any amendment to this Agreement, shall be subject to the
receipt of any requisite approval or consent from any governmental or regulatory
authority.
5.11 DECLARATION AS TO NON-CANADIAN AND NON-U.S. HOLDERS
If in the opinion of the Board of Directors (who may rely upon the
advice of counsel) any action or event contemplated by this Agreement would
require compliance with the securities laws or comparable legislation of a
jurisdiction outside Canada and the United States of America, the Board of
Directors acting in good faith may take such actions as it may deem appropriate
to ensure that such compliance is not required, including without limitation
establishing procedures for the issuance to a Canadian resident fiduciary of
Rights, or securities issuable on exercise of Rights, the holding thereof in
trust for the Persons entitled thereto (but reserving to the fiduciary or to the
fiduciary and the Corporation, as the Corporation may determine, absolute
discretion with respect thereto) and the sale thereof and remittance of the
proceeds of such sale, if any, to the Persons entitled thereto. In no event
shall the Corporation or the Rights Agent be required to issue or deliver Rights
or securities issuable on exercise of Rights to Persons who are citizens,
residents or nationals of any jurisdiction other than Canada and any province or
territory thereof and the United States of America in which such issue or
delivery would be unlawful without registration of the relevant Persons or
securities for such purposes.
5.12 SUCCESSORS
All the covenants and provisions of this Agreement by or for the
benefit of the Corporation or the Rights Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
5.13 BENEFITS OF THIS AGREEMENT
Nothing in this Agreement shall be construed to give to any Person
other than the Corporation, the Rights Agent and the holders of the Rights any
legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Corporation, the
Rights Agent and the holders of the Rights.
5.14 GOVERNING LAW
This Agreement and each Right issued hereunder shall be deemed to be a
contract made under the laws of the Province of Ontario and for all purposes
shall be governed by and construed in accordance with the laws of such
jurisdiction applicable to contracts to be made and performed entirely within
such province.
5.15 LANGUAGE
Les parties aux presentes ont exige que la presente convention ainsi
que tous les documents et avis qui s'y rattachent et/ou qui en decoulent soient
rediges en langue anglaise. The parties hereto have required that this Agreement
and all documents and notices related thereto and/or resulting therefrom be
drawn up in English.
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5.16 COUNTERPARTS
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
5.17 SEVERABILITY
If any Section, Subsection, paragraph, subparagraph, term or provision
hereof or the application thereof to any circumstance shall, in any jurisdiction
and to any extent, be invalid or unenforceable, such Section, Subsection,
paragraph, subparagraph, term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining Sections, Subsections,
paragraphs, subparagraphs, terms and provisions hereof or the application of
such Section, Subsection, paragraph, subparagraph, term or provision to
circumstances other than those as to which it is held invalid or unenforceable.
5.18 EFFECTIVE DATE
This Agreement is effective from the date hereof.
5.19 TIME OF THE ESSENCE
Time shall be of the essence hereof.
5.20 DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS
The Board of Directors shall have the exclusive power and authority to
administer and amend this Agreement in accordance with the terms hereof and to
exercise all rights and powers specifically granted hereunder to the Board of
Directors or the Corporation, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not to redeem the Rights or to
amend the Agreement, in accordance with the terms hereof). All such actions,
calculations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
of Directors in good faith, shall (x) be final, conclusive and binding on the
Corporation, the Rights Agent, the holders of the Rights, and all other parties
and (y) not subject the Board of Directors to any liability to the holders of
the Rights, or any other parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SALIX PHARMACEUTICALS, LTD.
Per:
Robert P. Ruscher
Chief Executive Officer
Authorized Signing Officer
MONTREAL TRUST COMPANY OF CANADA
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<PAGE>
Per:
Per:
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<PAGE>
EXHIBIT A
[FORM OF RIGHTS CERTIFICATE]
Certificate No. Rights
----------------------------- -----------------------
UNTIL THE SEPARATION TIME (AS DEFINED IN THE RIGHTS AGREEMENT REFERRED
TO BELOW), THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER
HEREOF TO CERTAIN RIGHTS AS SET FORTH IN A SHAREHOLDER PROTECTION
RIGHTS AGREEMENT MADE AS OF JANUARY 13, 2000 (THE "RIGHTS AGREEMENT"),
BETWEEN SALIX PHARMACEUTICALS, LTD. (THE "CORPORATION") AND MONTREAL
TRUST COMPANY OF CANADA , AS RIGHTS AGENT, THE TERMS OF WHICH ARE
INCORPORATED HEREIN BY THIS REFERENCE AND A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THE CORPORATION. UNDER CERTAIN CIRCUMSTANCES,
AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS MAY BE AMENDED OR
REDEEMED, MAY EXPIRE, MAY BECOME VOID (IF, IN CERTAIN CASES, THEY ARE
"BENEFICIALLY OWNED" BY AN "ACQUIRING PERSON" OR AN "INELIGIBLE
SHAREHOLDER", AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT, OR A
TRANSFEREE THEREOF), OR MAY BE EVIDENCED BY SEPARATE CERTIFICATES AND
MAY NO LONGER BE EVIDENCED BY THIS CERTIFICATE. THE CORPORATION WILL
MAIL, OR ARRANGE FOR THE MAILING OF, A COPY OF THE RIGHTS AGREEMENT TO
THE HOLDER OF THIS CERTIFICATE WITHOUT CHARGE PROMPTLY AFTER THE
RECEIPT OF A WRITTEN REQUEST THEREFOR.
RIGHTS CERTIFICATE
This certifies that__________________ is the registered holder of the number of
Rights set forth above, each of which entitles the registered holder thereof,
subject to the terms, provisions and conditions of the Shareholder Protection
Rights Agreement made as of January 13, 2000 (the "Rights Agreement") as amended
between SALIX PHARMACEUTICALS, LTD., a corporation incorporated under the laws
of British Virgin Islands (the "Corporation") and Montreal Trust Company of
Canada, a trust company incorporated under the laws of Canada, as Rights Agent
(the "Rights Agent", which term shall include any successor Rights Agent under
the Rights Agreement), to purchase from the Corporation, at any time after the
Separation Time and prior to the Expiration Time (as such terms are defined in
the Rights Agreement), one fully paid common share of the Corporation (a "Common
Share") at the Exercise Price referred to below, upon presentation and surrender
of this Rights Certificate, together with the Form of Election to Exercise
appropriately completed and duly executed, to the Rights Agent at its principal
office in the City of Toronto (or such other locations as the Corporation and
the Rights Agent may from time to time determine). Until adjustment thereof in
certain events as provided in the Rights Agreement, the Exercise Price shall be
$60 per Right (payable by bank draft, certified cheque or money order payable to
the order of the Corporation).
In certain circumstances described in the Rights Agreement, each Right
evidenced hereby may entitle the registered holder thereof to purchase or
receive assets, debt securities or shares in the capital of
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the Corporation other than Common Shares, or more or less than one Common Share
(or a combination thereof), all as provided in the Rights Agreement.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Rights Agent, the Corporation and the holders of the Rights Certificates. Copies
of the Rights Agreement are on file at the principal office of the Corporation
and are available upon written request.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office of the Rights Agent in the City of
Toronto (or such other locations as the Corporation and the Rights Agent may
from time to time determine), may be exchanged for another Rights Certificate or
Rights Certificates of like tenor evidencing an aggregate number of Rights equal
to the aggregate number of Rights evidenced by the Rights Certificate or Rights
Certificates surrendered. If this Rights Certificate shall be exercised in part,
the registered holder shall be entitled to receive, upon surrender hereof,
another Rights Certificate or Rights Certificates for the number of whole Rights
not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (i) may be redeemed by the Corporation at a redemption price
of $0.0001 per Right, subject to adjustment in certain events, or (ii) may be
exchanged, at the option of the Corporation, for cash, debt or equity securities
or other assets (or a combination thereof).
No fractional Common Shares will be issued upon the exercise of any
Right or Rights evidenced hereby, but in lieu thereof a cash payment will be
made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of Common
Shares or any other securities which may at any time be issuable upon the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the Corporation or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
any meeting or other actions affecting shareholders (except as provided in the
Rights Agreement), or to receive dividends or subscription rights or otherwise,
until the Rights evidenced by this Rights Certificate shall have been exercised
as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the signature of the proper officers of the Corporation.
Date:______________________________
SALIX PHARMACEUTICALS, LTD.
Per:_______________________________
Chief Executive Officer
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Countersigned:
MONTREAL TRUST COMPANY OF CANADA
Per:_______________________________
Authorized Signature
[Continued on Reverse Side]
FORM OF ELECTION TO EXERCISE
TO: SALIX PHARMACEUTICALS, LTD.
The undersigned hereby irrevocably elects to exercise______________________whole
Rights represented by this Rights Certificate to purchase the Common Shares
issuable upon the exercise of such Rights and requests that certificates for
such Common Shares be issued in the name of and delivered to:
Name
Address
City and Province/State/Country
Social Insurance No. or other taxpayer
identification number
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Name
Address
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City and Province/State/Country
Social Insurance Number or other
taxpayer identification number
Date: __________________________ _______________________________
Signature
(Signature must correspond to
name as written upon the face
of this Rights Certificate in
every particular, without
alteration or enlargement or
any change whatsoever)
______________________________________
Signature Guaranteed
(THE FOLLOWING IS TO BE COMPLETED ONLY IF TRUE)
The undersigned hereby represents, for the benefit of the Corporation
and all holders of Rights and Common Shares, that the Rights evidenced by this
Rights Certificate are not and, to the knowledge of the undersigned, have never
been, Beneficially Owned by (i) an Acquiring Person, (ii) any Affiliate or
Associate of an Acquiring Person, (iii) any other Person acting jointly or in
concert with an Acquiring Person or any Affiliate of an Acquiring Person, or
(iv) any other Person whose securities are deemed to be Beneficially Owned by an
Acquiring Person. Capitalized terms shall have the meanings ascribed thereto in
the Rights Agreement.
Date: ______________________________ _______________________________
Signature
(Signature must correspond to
name as written upon the face
of this Rights Certificate in
every particular, without
alteration or enlargement or
any change whatsoever)
______________________________________
Signature Guaranteed
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NOTE: Signature must be guaranteed by a major Canadian trust company, Canadian
chartered bank, or a member of the Securities Transfer Agents Medallion Program
(STAMP).
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(Please print name and address of transferee)
_________ {INSERT NUMBER} of the Rights represented by this Rights Certificate,
together with all right, title and interest therein.
Date: ______________________________ _______________________________
Signature
(Signature must correspond to
name as written upon the face
of this Rights Certificate in
every particular, without
alteration or enlargement or
any change whatsoever)
______________________________________
Signature Guaranteed
(THE FOLLOWING IS TO BE COMPLETED ONLY IF TRUE)
The undersigned hereby represents, for the benefit of the Corporation
and all holders of Rights and Common Shares, that the Rights evidenced by this
Rights Certificate are not and, to the knowledge of the undersigned, have never
been, Beneficially Owned by (i) an Acquiring Person, (ii) any Affiliate or
Associate of an Acquiring Person, (iii) any other Person acting jointly or in
concert with an Acquiring Person or any Affiliate of an Acquiring Person, or
(iv) any other Person whose securities are deemed to be Beneficially Owned by an
Acquiring Person. Capitalized terms shall have the meanings ascribed thereto in
the Rights Agreement.
Date: ______________________________ _______________________________
Signature
(Signature must correspond to
name as written upon the face
of this Rights Certificate in
every particular, without
alteration or enlargement or
any change whatsoever)
______________________________________
Signature Guaranteed
NOTE: Signature must be guaranteed by a major Canadian trust company, Canadian
chartered bank, or a member of the Securities Transfer Agents Medallion Program
(STAMP).
A-48
<PAGE>
NOTICE
In the event that the certifications set forth above in the Forms of
Election to Exercise and Assignment are not completed, the Corporation
shall deem the Beneficial Owner of the Rights represented by this
Rights Certificate to be an Acquiring Person or other Ineligible
Shareholder and, accordingly, such Rights shall be null and void.
Capitalized terms shall have the meanings ascribed thereto in the
Rights Agreement.
A-49
<PAGE>
SALIX PHARMACEUTICALS, LTD.
PROXY FOR 2000 ANNUAL AND SPECIAL 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 and Special Meeting of Shareholders
and Proxy Statement, each dated May 1, 2000, and hereby appoints Randy W.
Hamilton and Lorin Johnson 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 2000 Annual and Special Meeting
of Shareholders of SALIX PHARMACEUTICALS, LTD., to be held on Wednesday, June
14, 2000 at 10:00 a.m., local time, at the offices of Wyrick Robbins Yates &
Ponton LLP, 4101 Lake Boone Trail, Suite 300, Raleigh, North Carolina 27607 and
any adjournment(s) thereof, and to vote all 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: John F. Chappell; Thomas D'Alonzo; Richard A. Franco, R.Ph.;
Randy W. Hamilton; and Robert P. Ruscher
[ ] 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 approve the amendment of the Company's 1996 Stock Option
Plan to increase the number of Common Shares reserved for issuance
thereunder from 1,750,000 to 2,677,207.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to confirm the adoption of a shareholder protection rights
plan and approve the Shareholder Protection Rights Agreement dated
January 13, 2000 between the Company and Montreal Trust Company of
Canada.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to ratify the appointment of Ernst & Young LLP as independent
auditors for the fiscal year ending December 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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.
<PAGE>
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 OF THE 1996 STOCK OPTION PLAN, (3) FOR THE CONFIRMATION OF THE
ADOPTION OF A SHAREHOLDER RIGHTS PLAN AND THE APPROVAL OF THE SHAREHOLDER
PROTECTION RIGHTS AGREEMENT AND (4) THE RATIFICATION OF THE APPOINTMENT OF ERNST
& YOUNG LLP AS INDEPENDENT AUDITORS FOR THE 2000 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>
SALIX PHARMACEUTICALS, LTD.
3600 W. BAYSHORE ROAD, SUITE 205
PALO ALTO, CA 94305
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, Canada 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)
CUSIP: 794906305
<PAGE>
APPENDIX A TO THE PRELIMINARY PROXY MATERIALS FILED PURSUANT TO
INSTRUCTION 3 TO ITEM 10 OF SCHEDULE 14A
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.
1
<PAGE>
(g) "Common Stock" shall mean the Common Stock of the Company.
(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.
3
<PAGE>
(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.
(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 2,667,207 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) 2,238,382 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.
4
<PAGE>
(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 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;
(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; and
(x) to institute an option exchange program.
(b) 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.
(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
6
<PAGE>
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
(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.
7
<PAGE>
(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 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.
8
<PAGE>
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
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
9
<PAGE>
(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.
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
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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 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.
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(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.
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.
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19. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
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