<PAGE>
SCHEDULE 14A
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 (S) 240.14a-11(c) or (S) 240.14a-12
NPS PHARMACEUTICALS, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] 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:
Common Stock (par value $.001)
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
7,619,290
-------------------------------------------------------------------------
(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):
$4.125**
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$31,429,571.25**
-------------------------------------------------------------------------
(5) Total fee paid:
$6,285.91
-------------------------------------------------------------------------
[_] 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:
Not Applicable
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Not Applicable
-------------------------------------------------------------------------
(3) Filing Party:
Not Applicable
-------------------------------------------------------------------------
(4) Date Filed:
Not Applicable
-------------------------------------------------------------------------
Notes:
** Estimated solely for the purpose of calculating the filing fee pursuant to
Exchange Act Rules 14a-6(i)(1) and 0-11. The fee has been calculated based on
the average of the high and low prices per share of NPS Common Stock as
reported on the Nasdaq Stock Market on October 28, 1999.
<PAGE>
November 15, 1999
NPS PHARMACEUTICALS, INC.
420 Chipeta Way
Salt Lake City, Utah 84108-1256
DEAR STOCKHOLDER:
You are cordially invited to attend a special meeting of the stockholders of
NPS Pharmaceuticals, Inc., to be held at the Salt Lake City Marriott University
Park, 500 South Wakara Way, Salt Lake City, Utah, 84108, on December 15, 1999
at 10:00 a.m. local time.
At this meeting, you will be asked to consider and vote upon certain matters
related to the merger between NPS and Allelix Biopharmaceuticals Inc. The
matters to be voted on are described more fully in the accompanying Proxy
Statement.
After careful consideration, the Board of Directors of NPS has unanimously
approved the merger and has concluded it is fair to, and in the best interests
of, NPS and its stockholders. The NPS Board of Directors unanimously recommends
that you vote in favor of the proposals described in the accompanying Proxy
Statement.
In the materials accompanying this letter you will find a Notice of Special
Meeting of Stockholders, a Proxy Statement relating to the proposals to be voted
upon at the NPS Special Meeting and a Proxy Card.
All stockholders are cordially invited to attend the NPS Special Meeting in
person, but if you do not plan to attend, please follow the instructions for
return of the proxy card.
On behalf of the NPS Board of Directors, we thank you for your support.
Sincerely,
Hunter Jackson
Chairman and CEO
<PAGE>
NPS PHARMACEUTICALS, INC.
420 Chipeta Way
Salt Lake City, Utah 84108-1256
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
December 15, 1999 at 10:00 a.m. (local time)
at the
Marriott-University Park Hotel
500 South Wakara Way
Salt Lake City, Utah 84108-1256
TO THE STOCKHOLDERS OF NPS PHARMACEUTICALS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of NPS
Pharmaceuticals, Inc., a Delaware corporation ("NPS"), will be held on December
15, 1999, at 10:00 a.m., local time, at the Marriott-University Park Hotel, 500
South Wakara Way, Salt Lake City, Utah for the following purposes:
1. To approve the issuance of shares of NPS common stock, $0.001 par value
per share (the "NPS Common Stock"), in connection with the Arrangement
Agreement, dated as of September 27, 1999, by and among Allelix
Biopharmaceuticals Inc. and NPS (the "Arrangement").
2. To approve an amendment to the Certificate of Incorporation of NPS
increasing the total number of shares of capital stock that NPS is
authorized to issue from 25,000,000 shares to 50,000,000 shares and the
total number of shares of common stock authorized for issuance thereunder
to 45,000,000 shares from 20,000,000 shares.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Approval of items 1 and 2 above is a closing condition to the Arrangement.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice.
The Board of Directors has fixed the close of business on [___] as the record
date for the determination of stockholders entitled to notice of and to vote at
this Special Meeting of Stockholders and at any adjournment thereof.
By Order of the Board of Directors
James U. Jensen, Secretary
Salt Lake City, Utah
November 15, 1999
- - --------------------------------------------------------------------------------
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE,
SIGN, AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN ORDER TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING. A RETURN ENVELOPE (WHICH IS
POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE.
YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE SPECIAL MEETING. PLEASE NOTE,
HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK, OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE SPECIAL MEETING, YOU MUST OBTAIN FROM THE
RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
- - --------------------------------------------------------------------------------
<PAGE>
NPS PHARMACEUTICALS, INC.
420 Chipeta Way
Salt Lake City, Utah 84108-1256
[___]
PROXY STATEMENT
for the
Special Meeting of Stockholders
(____________________)
___________
INFORMATION
This Proxy Statement is being furnished by the Board of Directors (the
"Board" or "Board of Directors") of NPS Pharmaceuticals, Inc., a Delaware
corporation ("NPS") or the "Company" or "we") to holders of common stock, $0.001
par value per share (the "NPS Common Stock") of NPS (the "NPS Stockholders") in
connection with the solicitation of proxies by the Board of Directors of NPS for
use at the Special Meeting of Stockholders of NPS or any adjournment or
postponement thereof. The Special Meeting is being called to consider and vote
upon a proposal to approve the issuance of shares of NPS Common Stock in
connection with the merger (sometimes called the "Arrangement") provided for in
the Arrangement Agreement dated as of September 27, 1999 between Allelix
Biopharmaceuticals Inc. ("Allelix") and NPS (the "Arrangement Agreement"), as
amended, and to approve an amendment to NPS's Certificate of Incorporation (the
"Certificate of Amendment") increasing the number of shares of capital stock
that NPS is authorized to issue from 25,000,000 shares to 50,000,000 shares, and
the total number of shares of common stock authorized for issuance thereunder to
45,000,000 shares from 20,000,000shares. The approval of this amendment is a
closing condition to the Arrangement. A copy of the Arrangement Agreement is
attached hereto as Appendix A. A copy of the Plan of Arrangement is attached
hereto as Appendix B. A copy of the Certificate of Amendment is attached hereto
as Appendix C.
Allelix is a Canadian biopharmaceutical company that applies proprietary
technologies to the identification of disease targets and to the discovery,
design, and development of novel pharmaceutical products. Products are
commercialized in partnership with leading biotechnology and multinational
pharmaceutical companies for global markets and by Allelix itself for niche
market indications.
Upon consummation of the proposed Arrangement, Allelix will effectively
become a wholly owned subsidiary of NPS. Each outstanding share of Allelix
Common Stock will become 0.3238 of a share of NPS Common Stock or 0.3238 of an
Exchangeable Share entitling the holder to acquire one share of NPS Common Stock
on exchange. Each outstanding warrant or option exercisable into Allelix Common
Stock will be exercisable into the right to receive 0.3238 of a share of NPS
Common Stock or 0.3238 of an Exchangeable Share entitling the holder to acquire
one share of NPS Common Stock on exchange for each one share of Allelix Common
Stock the holder was theretofore entitled to receive upon exercise. The number
of shares of NPS Common Stock into which each share of Allelix Common Stock will
be converted pursuant to the Arrangement is referred to as the "Exchange Ratio."
Up to an aggregate of 7,583,290 shares of NPS Common Stock may be issued in
connection with the Arrangement.
The obligations of NPS and Allelix to effect the Arrangement and otherwise
consummate the transactions contemplated by the Arrangement Agreement are
subject to the satisfaction or waiver of various conditions, including the
approval of an increase in the authorized capital stock of NPS by the holders of
a majority of the outstanding shares of NPS Common Stock, and the approval of
the issuance of NPS Common Stock in connection with the Arrangement by the
holders of a majority of the outstanding shares of NPS Common Stock present in
person or represented by proxy at the NPS Special Meeting and entitled to vote
thereat, and the adoption and approval of the Arrangement Agreement by holders
of the outstanding shares of Allelix Common Stock and approval by the Superior
Court of Justice in Toronto, Ontario. The Arrangement is expected to be
consummated shortly after such approvals are obtained, and the other conditions
to the consummation of the Arrangement are satisfied or waived. It is currently
anticipated that the Arrangement will be consummated in late December 1999.
This Proxy Statement and the accompanying form of proxy are first being
mailed to stockholders of NPS on or about November 15, 1999.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT.
STOCKHOLDERS OF NPS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT AND THE ACCOMPANYING APPENDICES IN THEIR ENTIRETY, INCLUDING THE
MATTERS REFERRED TO UNDER "RISK FACTORS" BEGINNING AT PAGE [___].
<PAGE>
THESE MATTERS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement is November 15, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
AVAILABLE INFORMATION.................................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................ 1
REPORTING OF CURRENCIES AND ACCOUNTING PRINCIPLES...................................... 2
CANADIAN / UNITED STATES EXCHANGE RATES................................................ 2
SUMMARY................................................................................ 2
The Companies..................................................................... 3
NPS Pharmaceuticals, Inc..................................................... 3
Allelix Biopharmaceuticals Inc............................................... 3
The NPS Special Meeting........................................................... 3
Time, Date, and Place........................................................ 3
Purpose...................................................................... 3
Record Date and Vote Required................................................ 4
The Arrangement................................................................... 4
General...................................................................... 4
Stock Ownership Following the Arrangement.................................... 5
Effective Time............................................................... 5
The Exchangeable Shares...................................................... 5
NPS's Reasons for the Arrangement............................................ 6
Recommendation of the Board of Directors of NPS.............................. 6
Opinion of NPS's Financial Advisor, Prudential Securities, Inc............... 6
Conditions to Closing........................................................ 7
Termination.................................................................. 7
Termination Fees and Expenses................................................ 7
Accounting Treatment......................................................... 8
Stock Exchange Listings...................................................... 8
Certain Tax Considerations................................................... 8
Dissent Rights............................................................... 9
Non-Solicitation............................................................. 9
Interests of Certain Persons in The Arrangement.............................. 9
Risk Factors................................................................. 9
SELECTED HISTORICAL FINANCIAL INFORMATION OF ALLELIX................................... 10
SELECTED HISTORICAL FINANCIAL INFORMATION OF NPS....................................... 10
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION....................... 11
COMPARATIVE PER SHARE DATA............................................................. 21
MARKETS AND MARKET PRICES AND DIVIDEND POLICY.......................................... 22
RISK FACTORS........................................................................... 23
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
THE NPS SPECIAL MEETING.................................................................................... 25
Purpose............................................................................................... 25
Solicitation of Proxies............................................................................... 26
Record Date, Entitlement to Vote, and Outstanding Shares.............................................. 26
Revocation of Proxies................................................................................. 26
Required Votes to Approve............................................................................. 26
THE ALLELIX SPECIAL MEETING................................................................................ 27
PROPOSAL ONE -- APPROVAL OF THE SHARE ISSUANCES IN CONNECTION WITH THE ARRANGEMENT......................... 27
Background of the Arrangement......................................................................... 27
NPS's Reasons for the Arrangement and Recommendation of the NPS Board................................. 28
Opinion of NPS's Financial Advisor, Prudential Securities, Inc........................................ 30
Interests of Certain Persons in the Arrangement....................................................... 35
Mechanics............................................................................................. 36
Description of Exchangeable Shares.................................................................... 36
Options............................................................................................... 39
Warrants.............................................................................................. 39
Court Approval and Completion of the Continuance and the Arrangement.................................. 39
Accounting Treatment.................................................................................. 40
Regulatory Matters.................................................................................... 40
No NPS Appraisal Rights............................................................................... 40
Voting Arrangements................................................................................... 40
The Composition of the NPS Board of Directors......................................................... 40
Stock Exchange Listing................................................................................ 41
Exchangeable Shares.............................................................................. 41
NPS Common Shares................................................................................ 41
Resale of Exchangeable Shares and NPS Common Shares Received in Connection with the Arrangement....... 41
United States.................................................................................... 41
Canada........................................................................................... 42
Ongoing Canadian Reporting Obligations................................................................ 42
THE ARRANGEMENT AGREEMENT AND RELATED AGREEMENTS........................................................... 43
Effective Date of the Arrangement..................................................................... 43
Termination........................................................................................... 43
Termination Fees and Expenses......................................................................... 44
Conditions to Closing................................................................................. 44
Mutual Conditions Precedent...................................................................... 44
Conditions Precedent for the Benefit of Allelix.................................................. 46
Conditions Precedent for the Benefit of NPS...................................................... 48
General Covenants..................................................................................... 49
Mutual Covenants................................................................................. 49
Covenants of Allelix............................................................................. 50
Covenants of NPS................................................................................. 50
Covenants of Allelix Regarding Non-Solicitation....................................................... 51
Covenants of NPS Regarding No Shop.................................................................... 52
Representations and Warranties........................................................................ 53
Mutual Representations and Warranties............................................................ 53
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Representations and Warranties of Allelix....................................... 54
Representations and Warranties of NPS........................................... 54
Confidentiality...................................................................... 54
Standstill........................................................................... 55
Access............................................................................... 56
Amendment............................................................................ 56
Support Agreement.................................................................... 57
Voting and Exchange Trust Agreement.................................................. 58
PROPOSAL TWO - APPROVAL OF THE AMENDMENT OF THENPS CERTIFICATE OF INCORPORATION........... 58
INCOME TAX CONSEQUENCES TO NPS STOCKHOLDERS............................................... 59
INFORMATION CONCERNING ALLELIX............................................................ 59
Business of Allelix.................................................................. 59
Documents Included as Appendices..................................................... 61
1999 Financial Results and Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A")..................................... 61
Directors and Officers................................................................ 62
Indebtedness of Directors and Senior Officers of Allelix......................... 63
Share Capital Matters................................................................. 63
Allelix Preferred Shares......................................................... 63
Allelix Common Shares............................................................ 63
Stock Exchange Listings............................................................... 63
Auditors, Transfer Agents and Registrars.............................................. 63
LEGAL MATTERS.............................................................................. 63
EXPERTS.................................................................................... 63
REPRESENTATIVES OF INDEPENDENT ACCOUNTANTS................................................. 64
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
APPENDIX A - Arrangement Agreement............................................................................................ A-1
APPENDIX B - Schedule A to the Arrangement Agreement:Plan of Arrangement Including Exchangeable Share Provisions............... B-1
APPENDIX C - Certificate of Amendment of the Certificate of Incorporation...................................................... C-1
APPENDIX D - Opinion of Prudential Securities, Inc............................................................................. D-1
APPENDIX E - Management's Proxy Circular of Allelix Biopharmaceuticals Inc.................................................... E-1
APPENDIX F - Schedule C to the Arrangement Agreement:Form of Voting and Exchange Trust Agreement............................... F-1
APPENDIX G - Conversion Agreement between Johnson & Johnson Development Corporation, Allelix Biopharmaceuticals Inc. and NPS
Pharmaceuticals, Inc........................................................................................................... G-1
APPENDIX H - Interim Order and Notice of Application (to be filed)............................................................ H-1
APPENDIX I - Schedule C to the Arrangement Agreement:Form of Support Agreement................................................ I-1
APPENDIX J - Allelix's Annual Information Form, dated January 14, 1999........................................................ J-1
APPENDIX K - Allelix's Audited Consolidated Financial Statementsfor the Year Ended August 31, 1999............................ K-1
APPENDIX L - Allelix's Management's Discussion and Analysis of Financial Conditionand Results of Operations for the Year
Ended August 31, 1999.......................................................................................................... L-1
APPENDIX M - Allelix's Form 27, Material Change Reports,dated October 6, 1999 (without exhibits)............................... M-1
</TABLE>
iv
<PAGE>
AVAILABLE INFORMATION
NPS is subject to the informational requirements of the Securities Exchange
Act of 1934 ("Exchange Act"), as amended, and in accordance therewith NPS files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). The reports, proxy statements, and other
information filed by NPS with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Commission's regional
offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material may also be obtained from the Commission at prescribed rates by writing
to the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The NPS Common Stock is quoted on the Nasdaq Stock
Market and reports and other information concerning NPS may be inspected at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
The Commission maintains a web site that contains reports, proxy and
information statements, and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov.
Allelix is subject to the continuous disclosure requirements of Canadian
securities regulatory authorities, the Montreal Exchange ("ME") and The Toronto
Stock Exchange ("TSE"). Copies of materials filed with the Canadian securities
regulatory authorities can be requested from Micromedia, 20 Victoria Street,
Toronto, Ontario M5C 2N3. Generally, such information is also available at the
Internet site maintained by CDS Inc. at www.sedar.com.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates by reference herein the following documents
previously filed with the Commission.
1. NPS's Annual Report on Form 10-K/A for the fiscal year ended December 31,
1998.
2. NPS's Quarterly Reports on Form 10-Q for the periods ended March 31,
1999, June 30, 1999, and September 30, 1999.
3. NPS's Current Report on Form 8-K filed with the Commission on October 1,
1999.
The information relating to NPS contained in this Proxy Statement does not
purport to be comprehensive and should be read together with the information in
the documents incorporated by reference herein.
All documents filed by NPS pursuant to Sections 13(a), 13(c), 14, or 15(d) of
the Exchange Act after the date of this Proxy Statement and prior to the date of
the NPS Special Meeting shall be deemed to be incorporated by reference into
this Proxy Statement and to be a part hereof from the dates of filing such
documents or reports. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein or in any other subsequently filed document
which is also incorporated or is deemed to be incorporated herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement.
1
<PAGE>
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT
CHARGE TO ANY PERSON TO WHOM A COPY OF THIS PROXY STATEMENT HAS BEEN DELIVERED
UPON WRITTEN OR ORAL REQUEST TO NPS PHARMACEUTICALS, INC., 420 CHIPETA WAY, SALT
LAKE CITY, UTAH 84108, ATTENTION: INVESTOR RELATIONS; TELEPHONE (801) 583-4939.
This Proxy Statement is being furnished to NPS's stockholders in connection
with the solicitation of proxies by the NPS Board of Directors for use at the
NPS Special Meeting. Each copy of this Proxy Statement mailed to the NPS
Stockholders is accompanied by a form of proxy for use at the NPS Special
Meeting.
This Proxy Statement contains trademarks of NPS and Allelix as well as
trademarks of other companies.
REPORTING OF CURRENCIES AND ACCOUNTING PRINCIPLES
The historical financial statements of Allelix contained in this Proxy
Statement are reported in Canadian dollars and have been prepared in accordance
with Canadian GAAP. The historical financial statements of NPS incorporated by
reference and the unaudited pro forma condensed consolidated financial
statements contained in this Proxy Statement are reported in U.S. dollars and
have been prepared in accordance with U.S. GAAP.
CANADIAN / UNITED STATES EXCHANGE RATES
In this Proxy Statement, dollar amounts are expressed in U.S.$ unless
otherwise indicated.
The following table sets forth, for each period indicated, the high and low
exchange rates for one Canadian dollar expressed in U.S. dollars, the average of
such exchange rates on the last day of each month during such period, and the
exchange rate at the end of such period, in each case, based upon the noon spot
rate of the Bank of Canada.
<TABLE>
<CAPTION>
Year Ended August 31
--------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
High 0.74910 0.75320 0.75370 0.73040 0.69170
Low 0.70040 0.72090 0.70970 0.63070 0.63750
Average 0.72692 0.73340 0.73070 0.69559 0.66374
Period End 0.74460 0.73120 0.72000 0.63920 0.66980
</TABLE>
On September 27, 1999 and on November [___], 1999, the exchange rate for one
Canadian dollar expressed in U.S. dollars was U.S.$0.68010 and U.S.$[___],
respectively.
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement. This summary is not, and is not intended to be, complete by
itself. This Proxy Statement contains forward-looking statements that involve
risks and uncertainties. Other risks and uncertainty also exist for the Company
and for the proposals to be presented at the NPS Special Meeting of
Stockholders. NPS's actual results may differ materially from those anticipated
in these forward-looking statements and/or for the Company or said proposals as
a result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Proxy Statement, and in the documents incorporated herein by
reference. This summary is qualified in its entirety by reference to the more
detailed information contained elsewhere in this Proxy Statement, the appendices
attached hereto and the documents referred to or
2
<PAGE>
incorporated by reference herein. Stockholders of NPS are urged to review
carefully all of the information contained in this Proxy Statement, the
Arrangement Agreement attached as Appendix A, and the other appendices attached
hereto.
The Companies
NPS Pharmaceuticals, Inc.
NPS is engaged in the discovery and development of novel, small molecule drugs
that address a variety of important diseases. NPS, alone or with its licensees,
is actively researching and developing drug therapies for important medical
conditions such as hyperparathyroidism and osteoporosis. In a measured way and
as resources are available, NPS is researching and developing drug therapies for
pain, epilepsy, bipolar disorder, brain damage from stroke or head trauma, and
diabetes. NPS was incorporated in the State of Utah in 1986 and reincorporated
in the State of Delaware in 1992. NPS's principal executive office is located at
420 Chipeta Way, Salt Lake City, Utah, 84108 and its telephone number is (801)
583-4939.
Allelix Biopharmaceuticals Inc.
Allelix is a Canadian biopharmaceutical company that applies proprietary
technologies to the identification of disease targets and to the discovery,
design, and development of novel pharmaceutical products. Products are
commercialized in partnership with leading biotechnology and multinational
pharmaceutical companies for global markets and by Allelix itself for niche
market indications. Allelix's principal executive office is located at 6850
Goreway Drive, Mississauga, Ontario, L4V 1V7 and its telephone number is (905)
677-0831.
The NPS Special Meeting
Time, Date, and Place
The NPS Special Meeting will be held at the Marriott-University Park Hotel,
500 South Wakara Way, Salt Lake City, Utah 84018 on [___], 1999 at [___] p.m.
local time.
Purpose
The purpose of the NPS Special Meeting is to vote upon proposals:
1. To approve the issuance of shares of NPS Common Stock, in connection with
the Arrangement; and
2. To approve an amendment to the Certificate of Incorporation of NPS
increasing the total number of shares of capital stock that the Company
is authorized to issue from 25,000,000 shares to 50,000,000 shares, and
an increase in the total number of shares of common stock issueable
thereunder from 20,000,000 shares to 45,000,000 shares.
The increase to the authorized capital stock will be implemented only if the
Arrangement is consummated. Each of NPS or Allelix may terminate the Arrangement
Agreement if either proposal is not approved. Holders of NPS Common Stock may
also consider and vote upon such other matters as may be properly brought before
the NPS Special Meeting or any postponements or adjournments thereof.
Record Date and Vote Required
3
<PAGE>
Only NPS Stockholders of record at the close of business on [___], 1999 (the
"Record Date") are entitled to vote at the NPS Special Meeting. Approval of the
issuance of shares of NPS Common Stock in connection with the Arrangement will
require approval by the affirmative vote of a majority of the shares present or
represented by proxy and entitled to vote. Approval of the amendment to the NPS
Certificate of Incorporation to increase the number of authorized shares of
capital stock requires the affirmative vote of the holders of a majority of the
outstanding shares of NPS Common Stock entitled to vote.
This Proxy Statement and accompanying Notice of Special Meeting of
Stockholders were mailed to all NPS Stockholders of record as of the Record Date
and constitute notice of the Special Meeting in conformity with the requirements
of the Delaware General Corporation Law (the "DGCL").
The Arrangement
General
NPS Allelix Inc., an indirect wholly-owned subsidiary of NPS ("NPS Allelix")
will acquire all of the outstanding shares of common stock of Allelix (the
"Allelix Common Shares"). As a result, Allelix will become an indirectly wholly-
owned subsidiary of NPS. Pursuant to the Arrangement, each holder of Allelix
Common Shares and each holder of Allelix Preferred Shares who does not properly
dissent in accordance with applicable law, will receive either NPS Common Stock
or shares of NPS Allelix exchangeable into shares of NPS Common Stock on a one-
for-one basis (the "Exchangeable Shares"). Each holder who is a Canadian
resident, will receive, at his or her or its option, 0.3238 Exchangeable Shares
or 0.3238 NPS Common Shares for each Allelix Common Share held. Each holder who
is not a Canadian resident, will receive 0.3238 NPS Common Shares for each
Allelix Common Share held. Holders of Allelix Common Shares who are not Canadian
residents will not be entitled to elect to receive Exchangeable Shares. They
will only receive NPS Common Shares.
Each holder of warrants exercisable into Allelix Common Shares ("Allelix
Warrants") will be entitled, upon the exercise of such warrants, to receive in
lieu of the number of Allelix Common Shares to which such holder was theretofore
entitled to receive upon such exercise, that aggregate number of Exchangeable
Shares or NPS Common Shares, as applicable, that such holder would have been
entitled to receive under the Plan of Arrangement, if such holder had been the
registered holder of that number of Allelix Common Shares that such holder was
theretofore entitled to receive if all such holder's Allelix Warrants had been
exercised immediately prior to the Effective Time.
Each holder of options exercisable into Allelix Common Shares (the "Allelix
Options") will be entitled, upon the exercise of such options, to receive in
lieu of the number of Allelix Common Shares to which such holder was theretofore
entitled to receive upon such exercise, that aggregate number of Exchangeable
Shares or NPS Common Shares, as applicable, that such holder would have been
entitled to receive under the Plan of Arrangement if such holder had been the
registered holder of that number of Allelix Common Shares that such holder was
theretofore entitled to receive if all such holder's Allelix Options had been
exercised immediately prior to the Effective Time.
The holder of preferred shares in the capital of Allelix (the "Allelix
Preferred Shares") will receive 284.269 NPS Common Shares for each Preferred
Share held. In addition, in connection with the Arrangement, NPS has entered
into an agreement with Johnson & Johnson Development Corporation ("J&J"),
pursuant to which J&J has agreed that on the exercise of its right to acquire
Allelix Common Shares pursuant to an agreement between Allelix and J&J, it will
receive not more than 163,949 NPS Common Shares.
Stock Ownership Following the Arrangement
4
<PAGE>
As a result of the Arrangement, NPS and its affiliates will become the sole
beneficial owners of the outstanding Allelix Common Shares. Under the
Arrangement, NPS will be required to issue up to 6,801,127 NPS Common Shares in
exchange for all the currently outstanding Allelix Common Shares. Should all of
the outstanding Allelix options and warrants be exercised, NPS would be required
to issue an additional 782,163 NPS Common Shares. On September 30, 1999 there
were 12,718,719 NPS Common Shares outstanding and options and warrants for an
additional 2,103,251 NPS Common Shares. Consequently, after completion of the
Arrangement, existing holders of Allelix Common Shares and Allelix preferred
shares will hold approximately 34.8% of the outstanding NPS Common Shares and
approximately 33.8% of the NPS Common Shares, assuming exercise of all options
and warrants of both Allelix and NPS.
Effective Time
It is anticipated that the Arrangement will become effective after the
required NPS Stockholder, Allelix stockholder, and Canadian court approvals have
been obtained and are final and all other conditions to closing have been
satisfied or waived (the "Effective Time"). As of the date hereof, NPS and
Allelix anticipate that the Arrangement will become effective late December
1999.
The Exchangeable Shares
The Exchangeable Shares will be securities of NPS Allelix that are, as nearly
as practicable, the voting and economic equivalent of NPS Common Shares. The
holders of Exchangeable Shares will have the following rights pursuant to the
conditions attaching to the Exchangeable Shares, the Support Agreement, and the
Voting and Exchange Trust Agreement:
. the right to exchange such shares for NPS Common Shares on a one-for-one
basis as discussed below;
. the right to receive dividends, on a per share basis, in amounts (or
property in the case of non-cash dividends) which are the same as, and
which are payable at the same time as, dividends declared on NPS Common
Shares;
. the right to vote, on a per share equivalent basis, at all stockholder
meetings at which NPS Common Shares are entitled to vote pursuant to the
terms of a special voting share in the capital of NPS carrying that number
of votes which is equal to the number of outstanding Exchangeable Shares
(which are not held by NPS or its affiliates); and
. the right to participate, on a per share equivalent basis, in a
liquidation, dissolution, or other winding-up of NPS, on a pro rata basis
with the holders of NPS Common Shares in the distribution of assets of NPS
pursuant to the terms of a mandatory exchange of Exchangeable Shares for
NPS Common Shares.
The Exchangeable Shares will have no separate economic or voting rights in
NPS Allelix, except as required by law or contractual right.
The Exchangeable Shares are redeemable by NPS Allelix at any time on or
after December 31, 2004, or any time on or after the date that there are fewer
than 1,000,000 Exchangeable Shares outstanding, or on or after the occurrence of
a NPS Control Transaction as defined herein. The Exchangeable Shares may be
redeemed by delivery to each holder of Exchangeable Shares one NPS Common Share
for each Exchangeable Share held by such holder, together with the dividend
amount applicable to such Exchangeable Shares if any such dividend amount
exists.
5
<PAGE>
NPS's Reasons for the Arrangement
The NPS Board of Directors considered a wide variety of information and a
number of factors in connection with its evaluation of the proposed Arrangement,
and determined that the Arrangement provides an opportunity that serves the best
interests of NPS and its stockholders. The NPS Board of Directors believes that
the Arrangement may result in a number of benefits to NPS and its stockholders,
including, among other benefits, the following:
. the combined company's increased pipeline of drug targets is expected to
increase the probability of finding and developing safe and efficacious
drug candidates and improve the combined company's competitive position;
. the Arrangement will combine NPS's and Allelix's complementary scientific
expertise and product discovery opportunities which may lead to increased
product opportunities;
. the ability of the combined company to operate more efficiently and thereby
efficiently utilize capital resources;
. the potential access to greater financial resources and more collaborative
agreements would provide increased flexibility and enhance the efficiency
of research and development efforts;
. the combined company will have late stage product candidates appropriate
for development and marketing by NPS directly; and
. the combined company will have a greater choice of late stage clinical
programs over which to deploy limited resources and thereby will be better
able to manage the inherent risks of the industry in general and NPS in
particular. See "Approval of the Arrangement -- NPS's Reasons for the
Arrangement."
Recommendation of the Board of Directors of NPS
The NPS Board of Directors unanimously approved the Arrangement Agreement
and recommends that NPS Stockholders vote in favor of the issuance of shares of
NPS Common Stock in connection with the Arrangement. The NPS Board of Directors
also unanimously recommends a vote in favor of the amendment to NPS's
Certificate of Incorporation.
Opinion of NPS's Financial Advisor, Prudential Securities
Prudential Securities Incorporated ("Prudential Securities") delivered an
opinion, dated September 27, 1999 (the "Prudential Securities Opinion") to the
NPS Board of Directors that, as of the date of such opinion and subject to the
various considerations set forth therein, the exchange ratio of 0.3238 NPS
Common Shares or 0.3238 Exchangeable Shares, as the case may be, for one Allelix
Common Share, was fair from a financial point of view to NPS. The full text of
the Prudential Securities Opinion, which sets forth, among other things,
assumptions made, procedures followed, matters considered and limitations on the
scope of the review undertaken in connection with such opinion, is attached
hereto as Appendix D and is incorporated herein by reference. Holders of NPS
common stock are urged to, and should, read the Prudential Securities Opinion in
its entirety. See "Approval of the Arrangement -- Opinion of Financial Advisor
to NPS."
6
<PAGE>
Conditions to Closing
The Arrangement Agreement provides that the parties' obligations to
complete the Arrangement are subject to the satisfaction, on or before the
Effective Date or such other time as specified, of certain conditions precedent,
each of which may only be waived by the mutual consent of NPS and Allelix. These
conditions precedent include, among others:
. the Arrangement must have been duly approved by the required majority of
Allelix stockholders, on or before January 20, 2000;
. each of the resolutions considered at the NPS Special Meeting shall have
been duly approved by the required majority of holders of NPS Common Shares
without amendment on or before January 20, 2000;
. the Superior Court of Justice for the Province of Ontario, Canada, shall
have issued a Final Order approving the Arrangement in form and substance
satisfactory to Allelix and NPS, acting reasonably, on or before January
31, 2000, and such final order shall not have been set aside or modified in
a manner unacceptable to such parties on appeal or otherwise; and
. holders of not more than 10% of Allelix's Common shares shall have
exercised rights of dissent in respect of the matters considered at the
meeting of Allelix stockholders held to consider the Arrangement.
Termination
The Arrangement Agreement may be terminated in certain circumstances,
including:
. by NPS if the Board of Directors of Allelix has withdrawn or varied, in a
manner determined by NPS to be adverse to NPS, approval of the Arrangement
Agreement or the Arrangement or its unanimous recommendation to the holders
of Allelix Common Shares;
. by Allelix if the Board of Directors of NPS has withdrawn its unanimous
recommendation to the holders of the NPS Common Shares to vote in favor of
the resolutions contemplated in the Arrangement Agreement to be considered
at the NPS Special Meeting;
. by Allelix in order to enter into a definitive written agreement with an
unrelated third party with respect to a Superior Proposal (as defined in
the Arrangement Agreement); subject to compliance with certain conditions;
. by the mutual agreement between NPS and Allelix; and
. by either NPS or Allelix if there shall be passed any law or regulation
that makes consummation of the transactions contemplated by the Arrangement
illegal or otherwise prohibited.
Termination Fees and Expenses
Allelix is obligated to pay to NPS a fee of U.S.$2,000,000 in the event
that:
. Allelix breaches its covenants or agreements in the Arrangement Agreement
in any material respect;
. NPS terminates the Arrangement Agreement because the Board of Directors of
Allelix has withdrawn or varied, in a manner determined by NPS to be
adverse to NPS, its approval of the
7
<PAGE>
Arrangement Agreement or the Arrangement or its unanimous recommendation to
the holders of Allelix Common Shares unless the Board of Directors of
Allelix has done so because of a material adverse change affecting NPS, and
such change is not attributable to a material adverse change affecting
Allelix;
. Allelix terminates the Arrangement Agreement to enter into a definitive
written agreement with respect to a Superior Proposal made by an
unrelated third party, subject to compliance with certain conditions;
or
. an Acquisition Proposal (as defined in the Arrangement Agreement) is
announced and is not withdrawn more than two business days prior to
the date of the Allelix Special Meeting, the holders of the Allelix
Common Shares do not approve the Arrangement at the Allelix Special
Meeting, and a significant transaction involving the acquisition of a
material portion of the assets of Allelix or Allelix Common Shares is
completed with the party that made the Acquisition Proposal or an
affiliate of such party within the twelve months following the date of
the Allelix Special Meeting.
NPS is obligated to pay to Allelix a fee of U.S.$1,000,000 in the event
that:
. NPS breaches a covenant or agreement on its part in the Arrangement
Agreement in any material respect; or
. The holders of the NPS Common Shares do not approve the matters relating to
the Arrangement considered at the NPS Special Meeting except following
a material adverse change affecting Allelix.
The fee shall be increased to U.S.$2,000,000 in the event that the Board of
Directors of NPS withdraws or varies its unanimous recommendation to the holders
of NPS Common Shares in a manner determined by Allelix to be adverse to Allelix,
otherwise than because of a material adverse change affecting Allelix.
Accounting Treatment
The transaction contemplated by the Arrangement Agreement is intended to be
accounted for as a purchase for financial reporting purposes in accordance with
U.S. generally accepted accounting principles. See "Approval of the Arrangement
- - -- Anticipated Accounting Treatment."
Stock Exchange Listings
The TSE has conditionally approved the listing of the Exchangeable Shares
subject to satisfaction of its customary requirements. The NPS Common Shares
issued in connection with the Arrangement, including those shares issuable from
time to time in exchange for Exchangeable Shares, and upon exercise of options
and warrants, will be listed for trading on the Nasdaq Stock Market.
Certain Federal Income Tax Considerations
The Company believes there should be no federal income tax consequences to
the Company as a result of the Arrangement. The Company's conclusion is based on
the determination that the Exchangeable Shares to be issued in connection with
the Arrangement constitute securities of NPS Allelix for federal income tax
purposes, and that the shares of NPS Common Stock to be issued in connection
with the Arrangement will be deemed to have a tax basis equal to their fair
market value at the time of issuance. These conclusions are based on the federal
income tax laws currently in effect, including the Internal Revenue Code of
1986, as amended, final and proposed Treasury Regulations, published rulings and
administrative practices of the Internal Revenue Service (the "Service") and
court decisions, which are subject to change and, in some cases, not binding on
the Service or the court. Any change could alter the tax consequences to NPS. No
advance income tax rulings have been sought from the Service with respect to any
of the transactions described herein. If the service were to successfully
challenge the Company's determinations described above, the Company may be
required to recognize taxable income in an amount equal to the value of the
Exchangeable Shares or NPS Common Stock issued on exchange of the Exchangeable
Shares determined at the time of issuance.
8
<PAGE>
Dissent Rights
NPS: NPS Stockholders are not entitled to appraisal rights under the DGCL.
Allelix: Under Canadian law, each registered holder of Allelix Common
Shares is entitled to dissent from the Arrangement and to be paid by Allelix the
court approved amount, if the Arrangement as applicable becomes effective. The
dissenting procedure requires that the court determine the fair value of the
Allelix Common Shares, held by such holder in respect of which such holder
dissents. Such value is to be determined as of the day before the date on which
the Arrangement is approved by the Allelix stockholders.
Non-Solicitation
Pursuant to the Arrangement Agreement, Allelix and NPS each have agreed
that prior to the completion of the Arrangement, or the earlier termination of
the Arrangement Agreement, they will not directly or indirectly take certain
actions that may encourage a material transaction involving its assets or
securities. However, NPS and Allelix may each furnish information and enter into
discussions or negotiations in response to a bona fide, unsolicited Acquisition
Proposal if and only to the extent that the board of directors of the company
receiving the proposal determines in good faith that the proposal is reasonably
likely to result in an offer superior to the one proposed in the Arrangement
Agreement, and after consultation with its outside counsel that such action is
required in order for the relevant board of directors to comply with its
fiduciary obligations. See "The Arrangement Agreement--Covenants--Non-
Solicitation."
Interests of Certain Persons in The Arrangement
The Arrangement Agreement provides that all rights to indemnification
existing in favor of the persons serving as directors and officers of Allelix as
of the date of the Arrangement Agreement for acts or omissions occurring prior
to the Effective Time, as provided in the bylaws of Allelix will survive the
Arrangement. Subject to certain limitations, NPS has also agreed to maintain in
effect for seven years after the Effective Time a policy of directors' and
officers' liability insurance on substantially the same terms as to coverage and
deductibles and other terms as Allelix had in place prior to the Arrangement,
for the benefit of persons serving as directors and officers of Allelix as of
such date.
Risk Factors
The Arrangement involves a high degree of risk. NPS Stockholders should
consider the risk factors set forth in section "Risk Factors" discussed
elsewhere in this Proxy Statement and in the documents incorporated herein by
reference in determining whether or not to vote in favor of the matters to be
considered at the NPS Special Meeting.
9
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF ALLELIX
The selected financial data presented below under the caption "Balance Sheet
Data" and "Statement of Operations Data" for, and as of the end of, each of the
years in the five-year period ended August 31, 1999, are derived from the
consolidated financial statements of Allelix, prepared in accordance with
Canadian GAAP, which financial statements have been audited by Ernst & Young
LLP, independent chartered accountants. The consolidated financial statements as
of August 31, 1999 and 1998 and for each of the years in the two-year period
ended August 31, 1999, and the report thereon, are included in this Proxy
Statement and reference should be made to these financial statements, including
the notes thereto.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ------------ ----------- ------------
(Cdn.$ thousands, except per share data)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets.............................. $ 50,539 $ 77,628 $ 95,764 $ 47,601 $ 30,483
Long-term debt (net of current portion)... 2,296 - - - -
Shareholders' equity...................... 39,527 68,472 83,158 41,921 26,497
STATEMENT OF OPERATIONS DATA
Revenue................................... $ 13,684 $ 27,720 $ 15,083 $ 17,901 $ 7,866
Net loss.................................. (38,595) (21,764) (15,953) (6,779) (12,759)
Per common share
Net loss - basic and diluted......... $ (2.02) $ (1.21) $ (1.11) $ (0.57) $ (1.20)
</TABLE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF NPS
The selected data presented below under the captions "Balance Sheet Data" and
"Statement of Operations Data" for, and as of the end of, each of the years in
the five-year period ended December 31, 1998, are derived from the financial
statements of NPS, which financial statements have been audited by KPMG LLP,
independent certified public accountants. The financial statements as of
December 31, 1998 and 1997, and for each of the years in the three-year period
ended December 31, 1998, and the report thereon, are incorporated by reference
elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ------------ ---------- ----------- -----------
(U.S.$ thousands, except per share data)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets............................. $ 48,111 $ 62,634 $ 72,160 $ 10,600 $ 12,084
Long-term capital leases and long-term
debt (net of current portions)...... 32 65 327 747 440
Shareholders' equity..................... 45,146 62,634 69,870 7,322 10,165
STATEMENT OF OPERATIONS DATA
Revenue.................................. $ 3,568 $ 5,842 $ 20,342 $ 9,562 $ 3,861
Net income (loss)........................ (17,162) (11,694) 6,105 (3,318) (6,756)
Per common share
Net income (loss) - basic........... $ (1.39) $ (0.98) $ 0.59 $ (0.48) $ (1.13)
Net income (loss) - diluted......... (1.39) (0.98) 0.55 (0.48) (1.13)
</TABLE>
10
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following pages [___] through [___] contain the Unaudited Pro Forma
Condensed Consolidated Balance Sheet as of September 30, 1999, the Unaudited Pro
Forma Condensed Consolidated Statements of Operations for the year ended
December 31, 1998 and the nine months ended September 30, 1999 and the notes
thereto.
The following Unaudited Pro Forma Condensed Consolidated Financial Statements
give effect to the Arrangement to be accounted for using the purchase method of
accounting, whereby the total cost of the Arrangement will be allocated to the
tangible and intangible assets acquired and liabilities assumed based upon their
respective fair values. The Unaudited Pro Forma Condensed Consolidated Financial
Statements have been prepared on the basis of assumptions described in the notes
thereto, including assumptions related to the allocation of the total purchase
cost to the assets and liabilities of Allelix based upon preliminary estimates
of fair value. The actual allocation may differ significantly from those
assumptions after valuations and other procedures are completed after the
closing of the Arrangement.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations were
prepared as if the Arrangement occurred as of January 1, 1998. The Unaudited
Pro Forma Condensed Consolidated Balance Sheet was prepared as if the
Arrangement occurred as of September 30, 1999. These statements are not
necessarily indicative of what the actual operating results or financial
position would have been had the Arrangement occurred on the dates and for the
periods indicated and do not purport to indicate future results of operations.
In addition, they do not reflect any cost savings or other synergies resulting
from the Arrangement.
The Unaudited Pro Forma Condensed Consolidated Financial Statements should be
read in conjunction with the historical financial statements and related notes
of NPS incorporated by reference and the historical financial statements and
related notes of Allelix included elsewhere in this Proxy Statement.
11
<PAGE>
NPS PHARMACEUTICALS, INC. AND ALLELIX BIOPHARMACEUTICALS INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
NPS Allelix
(September (August 31, Pro Forma Pro Forma
Assets 30, 1999) 31, 1999) adjustments combined
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 13,385 2,628 (2,250) (a) 13,763
Marketable investment securities 15,064 13,921 28,985
Accounts receivable 104 309 - 413
Other current assets 114 1,572 - 1,686
------------ ------------ ---------- -------------
Total current assets current assets 28,667 18,430 (2,250) 44,847
Plant, property, and equipment:
Land - 435 - 435
Building - 1,206 (21) (i) 1,185
Equipment 6,576 3,521 (1,705) (i) 8,392
Leasehold improvement 3,214 1,207 (125) (i) 4,296
------------ ------------ ---------- -------------
9,790 6,369 (1,851) 14,308
Less accumulated depreciation and amortization 5,684 1,851 (1,851) 5,684
------------ ------------ ---------- -------------
Net plant and equipment 4,106 4,518 - 8,624
Restricted marketable investment securities - 757 - 757
Equity investments - 1,942 2,402 (f) 1,194
(3,150) (c)
Goodwill and identifiable intangibles - 7,226 (7,226) (e) 12,567
12,567 (a)
Other assets 3 76 - 79
------------ ------------ ---------- -------------
$ 32,776 32,949 2,343 68,068
============ ============ ========== =============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of obligations under capital leases $ 23 381 - 404
Accounts payable 1,037 3,219 750 (a) 5,006
Accrued expenses 12,87 1,044 - 2,331
Due to related parties - 169 - 169
Deferred income 293 444 - 737
------------ ------------ ---------- -------------
Total current liabilities 2,640 5,257 750 8,647
Obligations under capital leases, excluding current installments 17 445 - 462
Long-term debt - 1,538 - 1,538
------------ ----------- ---------- -------------
Total liabilities 2,657 7,240 750 10,647
Stockholders' equity 30,119 25,709 46,762 (a) 57,421
(25,709) (b)
(16,310) (a)(c)
(3,150) (c)
------------ ----------- ---------- -------------
$ 32,776 32,949 2,343 68,068
============ =========== ========== =============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
12
<PAGE>
NPS PHARMACEUTICALS, INC. AND ALLELIX BIOPHARMACEUTICALS INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 1998
(in thousands, except shares and per share amount)
<TABLE>
<CAPTION>
NPS Allelix
(Year ended (Year ended
December 31, November 30, Pro Forma Pro Forma
1998) 1998) adjustments combined
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Research and license agreements $ 3,568 - - 3,568
Collaborative and contract - 8,588 - 8,588
------------- ------------ ------------- -------------
Total revenues 3,568 8,588 - 12,156
------------- ------------ ------------- -------------
Operating expenses:
Research and development 17,857 20,058 - 37,915
General and administrative 5,546 6,685 - 12,231
Amortization of goodwill and identifiable intangibles - 7,124 2,533 (d) 2,533
(7,124) (e)
------------- ------------ ------------- -------------
Total operating expenses 23,403 33,867 (4,591) 52,679
------------- ------------ ------------- -------------
Operating loss 19,835 25,279 (4,591) 40,523
Other income (expense):
Interest income 2,365 1,390 (180) (g) 3,575
Interest expense (16) (171) - (187)
Foreign exchange gain - 981 - 981
Loss from equity investments - (3,383) 1,337 (j) (2,255)
(209) (h)
Gain on marketable investment securities 323 - - 323
------------- ------------ ------------- -------------
Total other income (loss) 2,672 (1,183) 948 2,437
------------- ------------ ------------- -------------
Net loss $ 17,163 26,462 (5,539) 38,086
============= ============ ============= =============
Net loss per common and common-equivalent share
- basic and diluted $ 1.39 1.99
============= =============
Weighted average common and common-equivalent
shares outstanding - basic and diluted 12,337,200 6,801,645 19,138,845
============ ============= =============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
13
<PAGE>
NPS PHARMACEUTICALS, INC. AND ALLELIX BIOPHARMACEUTICALS INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the nine month period ended September 30, 1999
(in thousands, except shares and per share amount)
<TABLE>
<CAPTION>
NPS Allelix
(Nine months (Nine months
ended ended
September 30, August 31, Pro Forma Pro Forma
1999) 1999) adjustments combined
--------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Research and license agreements $ 2,745 - - 2,745
Collaborative and contract - 6,236 - 6,236
--------------- -------------- ------------ ------------
Total revenue 2,745 6,236 - 8,981
--------------- -------------- ------------ ------------
Operating expenses:
Research and development 15,002 12,049 - 27,051
General and administrative 4,440 5,135 - 9,575
Amortization of goodwill and identifiable intangibles - 5,496 1,900 (d) 1,900
(5,496)(e)
--------------- -------------- ------------ ------------
Total operating expenses 19,442 22,680 (3,596) 38,526
--------------- -------------- ------------ ------------
Operating loss 16,697 16,444 (3,596) 29,545
Other income (expense):
Interest income 1,266 760 (135)(g) 1,891
Interest expense (4) (141) - (145)
Foreign exchange loss - (412) - (412)
Loss from equity investments - (3,042) 1,201 (j) (1,998)
(157)(h)
--------------- -------------- ------------ ------------
Total other income (loss) 1,262 (2,835) 909 (664)
--------------- -------------- ------------ ------------
Net loss $ 15,435 19,279 (4,505) 30,209
Amortization of beneficial conversion feature - 265 (265)(k) -
--------------- -------------- ------------ ------------
Loss attributable to common shareholders $ 15,435 19,544 (4,770) 30,209
=============== ============== ============ ============
Net loss per common and common-equivalent share
-basic and diluted $ 1.22 1.55
=============== ============
Weighted average common and common-equivalent
shares outstanding - basic and diluted 12,664,900 6,801,645 19,466,545
=============== ============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
14
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(1) Basis of Presentation
On September 27, 1999, NPS entered into a definitive agreement to acquire
Allelix, pursuant to which Allelix will merge with and into an acquisition
subsidiary of NPS. The Arrangement described herein provides for the
combination of NPS and Allelix in a transaction in which each holder of Allelix
Common Shares who is a Canadian resident will be entitled to receive, at its
option, 0.3238 NPS Common Shares, or 0.3238 Exchangeable Shares for each Allelix
Common Share held, and each holder of Allelix Common Shares who is not a
Canadian Resident will be entitled to receive 0.3238 NPS Common Shares for each
Allelix Common Share held. Based on 21,004,098 common shares (including the
assumed conversion of the Allelix preferred shares) of Allelix outstanding at
September 27, 1999, NPS would issue approximately 6.8 million shares valued at
approximately $44.68 million, assuming a transaction stock price of $6.57. NPS
will also assume outstanding Allelix stock options and warrants with an
estimated fair value of approximately $2.08 million. The fair value of those
options and warrants was estimated using the Black-Scholes option pricing model.
In preparing the Unaudited Pro Forma Condensed Consolidated Balance Sheet, the
balances for NPS and Allelix were as of September 30, 1999 and August 31, 1999,
respectively. The NPS and Allelix Statement of Operations were for the nine
months ended September 30, 1999 and August 31, 1999, respectively, and the
twelve months ended December 31, 1998 and November 30, 1998, respectively. The
different dates resulted from the different year ends that the two companies
utilize and do not have a significant impact on the Unaudited Pro Forma
Condensed Consolidated Financial Statements.
(2) Purchase Price Allocation and Pro Forma Adjustments
The adjustments to arrive at the Unaudited Pro Forma Condensed Consolidated
Financial Statements are as follows:
(a) The Arrangement will be accounted for under the purchase method of
accounting. In accordance with generally accepted accounting principles,
the portion of the purchase price allocable to in-process research and
development projects of Allelix will be expensed at the consummation of
the Arrangement. The amount of the one-time nonrecurring charge for in-
process research and development is expected to be approximately $19.46
million (which consists of $16.31 million relating to NPS's acquisition
of Allelix and $3.15 million relating to Allelix's equity investment in
Allelix PharmEco LP). Since this charge is directly related to the
Arrangement and will not recur, the Unaudited Pro Forma Condensed
Consolidated Statements of Operations have been prepared excluding this
charge. NPS has not yet determined the final allocation of the purchase
price and, accordingly, the amount shown below may differ significantly
from the ultimate allocation.
15
<PAGE>
NOTES to Unaudited Pro Forma Condensed Cosolidated Financial Statements
Goodwill and identifiable intangibles in the amount of $12.57 million were
calculated as follows (all numbers in thousands except share amounts):
<TABLE>
<CAPTION>
<S> <C>
Total estimated purchase price ($2,250 cash, which relates to
estimated Merger costs of NPS, plus $46,762 representing the sum of
the $ 49,012 estimated market value of 6,801,127* shares of NPS
Common Stock issued as consideration in the amount of $44,683 and
$2,079 in fair value for NPS stock options issued in exchange for
outstanding warrants and options of Allelix) $ 49,012
Less:
Estimated fair value of net assets acquired other than
in-process research and development (comprised of Allelix's
historical stockholders equity of $25,709, less: previously
existing goodwill and identifiable intangibles of $7,226, the
net book value reduction to fair value of $748 in the equity
investments, and estimated Allelix Arrangement costs of $750) (16,985)
Expensed in-process research and development (19,460)
---------
Goodwill and identifiable intangibles (goodwill-$5,517,
patents-$6,370, assembled workforce-$680) $ 12,567
=========
</TABLE>
(b) Elimination of Allelix's stockholders' equity accounts.
(c) Stockholders equity adjustments for the nonrecurring charge related to the
write-off of in-process research and development projects acquired,
including the write-off of in-process research and development projects
associated with equity investments.
(d) Amortization of goodwill and identifiable intangibles recognized in the
purchase of Allelix will be recognized on a straight-line basis over the
following estimated useful lives:
Goodwill 6 years
Patents 5 years
Assembled workforce 2 years
(e) Elimination of previously existing goodwill and other identifiable
intangibles and amortization thereon of Allelix.
(f) Write up of equity investments acquired to estimated fair value.
(g) Decrease in interest income as a result of the reduction in cash that would
have occurred to effectuate the merger.
(h) Amortization of goodwill recognized in the purchase of Allelix's equity
investments (which is included as part of the equity investments line item
on the accompanying balance sheet) will be recognized on a straight-line
basis over six years.
- - -----------------------
*This value includes the conversion of the Allelix preferred shares to Allelix
common shares and eventual conversion to NPS common shares
16
<PAGE>
NOTES to Unaudited Pro Forma Condensed Consolidated Financial Statements
(i) Elimination of the accumulated depreciation and amortization related
to Allelix's plant and equipment.
(j) Elimination of amortization of historical excess of cost over
underlying book value of investees.
(k) Elimination of amortization of beneficial conversion feature on
Allelix Preferred Shares based on the assumed conversion of Preferred
Shares to Common Shares.
(3) Common Shares Outstanding
Basic and diluted net loss per common share, have been calculated based
upon the pro forma weighted average shares outstanding for each period
presented. NPS historical weighted average shares outstanding was increased in
each period by the number of Allelix Common Shares outstanding at September 27,
1999, (including the assumed conversion of the Allelix Preferred Shares)
multiplied by the Exchange Ratio of 0.3238, as if the converted shares were
outstanding for the entire period.
(4) Conversion of Allelix Historical Financial Statements
The Unaudited Pro Forma Condensed Consolidated Financial Statements are
presented in U.S. dollars and in accordance with U.S. GAAP. Thus, Allelix's
statements of operations for the year ended November 30, 1998, and for the nine
months ended August 31, 1999, were converted from Cdn$ to U.S.$ using an average
exchange rate for each period (U.S.$0.6788 per Cdn$1 and U.S.$0.668 per Cdn$1,
respectively). Allelix's balance sheet was converted from Cdn$ to U.S.$ using
the exchange rate effective on August 31, 1999, for assets and liabilities
(U.S.$0.67 per Cdn$1), except for the shareholders' equity accounts which were
translated at historical exchange rates. Certain adjustments were necessary to
convert Allelix's historical financial statements prepared in accordance with
Canadian GAAP to U.S. GAAP. The following schedules present the conversion of
Allelix's financial information from Canadian dollars and Canadian GAAP into
U.S. dollars and U.S. GAAP.
17
<PAGE>
NOTES to Unaudited Pro Forma Condensed Consolidated Financial Statements
(4) Conversion of Allelix Biopharmaceuticals' Historical Financial Statements
(continued)
Balance Sheet
August 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Canadian U.S. GAAP U.S. GAAP
Assets GAAP Cdn.$ Cdn.$ U.S.$
------------ ------------ ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents (I) $ 3,952 3,923 2,628
Marketable investment securities (II) 20,836 20,776 13,921
Accounts receivable 461 461 309
Other current assets 2,346 2,346 1,572
------------ ------------ ------------
Total current asset 27,595 27,506 18,430
Property, plant, and equipment:
Land 650 650 435
Building 1,800 1,800 1,206
Equipment 5,255 5,255 3,521
Leasehold improvements 1,801 1,801 1,207
------------ ------------ ------------
9,506 9,506 6,369
Less accumulated depreciation and amortization 2,763 2,763 1,851
------------ ------------ ------------
Net plant and equipment 6,743 6,743 4,518
Restricted marketable investment security 1,130 1,130 757
Equity investments (I) 216 2,899 1,942
Research and development acquired, goodwill, and
identifiable intangibles (I)(VI) 14,741 10,785 7,226
Other assets 114 114 76
------------ ------------ ------------
$ 50,539 49,177 32,949
============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of obligations under capital leases $ 569 569 381
Accounts payable (I) 4,936 4,804 3,219
Accrued expenses (I) 1,633 1,558 1,044
Due to related parties 252 252 169
Deferred income 662 662 444
------------ ------------ ------------
Total current liabilities 8,052 7,845 5,257
Obligations under capital leases, excluding current installments 664 664 445
Long-term debt 2,296 2,296 1,538
------------ ------------ ------------
Total liabilities 11,012 10,805 7,240
Stockholders' equity (II)(III)(IV)(V) 39,527 38,372 25,709
------------ ------------ ------------
50,539 49,177 32,949
============ ============ ============
</TABLE>
18
<PAGE>
NOTES to Unaudited Pro Forma Condensed Consolidated Financial Statements
(4) Conversion of Allelix Biopharmaceuticals' Historical Financial Statements
(continued)
Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
Canadian U.S. GAAP U.S. GAAP
GAAP Cdn.$ Cdn.$ U.S.$
------------- ------------- -------------
<S> <C> <C> <C> <C>
For the year ended November 30, 1998:
Collaborative and contract revenue (I) $ 12,173 12,652 8,588
Operating expenses:
Research and development (I)(III)(VI) 31,560 29,551 20,058
General and administrative 9,848 9,848 6,685
Amortization of goodwill and identifiable intangibles (VI) 13,659 10,494 7,124
------------- ------------- -------------
Total operating expenses 55,067 49,893 33,867
------------- ------------- -------------
Operating loss 42,894 37,241 25,279
Other income (expense):
Interest income 2,048 2,048 1,390
Interest expense (252) (252) (171)
Foreign exchange gain (I) 1,368 1,445 981
Loss from equity investment (I) (449) (4,984) (3,383)
------------- ------------- -------------
Total other income (loss) 2,715 (1,743) (1,183)
------------- ------------- -------------
Net loss $ 40,179 38,984 26,462
============= ============= =============
For the nine months ended August 31, 1999:
Collaborative and contract revenue (I) $ 8,964 9,334 6,236
Operating expenses:
Research and development (I)(III)(VI) 19,060 18,036 12,049
General and administrative 7,687 7,687 5,135
Amortization of goodwill and identifiable intangibles (VI) 10,921 8,227 5,496
------------- ------------- -------------
Total operating expenses 37,668 33,950 22,680
------------- ------------- -------------
Operating loss 28,704 24,616 16,444
Other income (expense):
Interest income 1,137 1,137 760
Interest expense (211) (211) (141)
Foreign exchange loss (I) (604) (616) (412)
Loss from equity investment (I) (1,280) (4,553) (3,042)
------------- ------------- -------------
Total other loss (958) (4,243) (2,835)
------------- ------------- -------------
Net loss $ 29,662 28,859 19,279
Amortization of beneficial conversion feature (VII) - 397 265
------------- ------------- -------------
Loss attributable to common shareholders $ 29,662 29,256 19,544
============= ============= =============
</TABLE>
19
<PAGE>
NOTES to Unaudited Pro Forma Condensed Consolidated Financial Statements
(I) Under Canadian GAAP, Allelix's interest in a jointly controlled entity is
accounted for using the proportional method of consolidation. For
purposes of U.S. GAAP, this interest would be accounted for by the equity
method. Net loss and deficit under U.S. GAAP are not impacted by the
proportionate consolidation of this interest in a jointly controlled
entity.
(II) Under Canadian GAAP, cash and marketable securities are recorded at cost
plus accrued interest that approximates market value. Under U.S. GAAP,
the unrealized gains or losses on available for sale marketable
securities are recorded as a component of stockholders' equity.
(III) Under Canadian GAAP, when stock options are granted to individuals, the
value of the options are not recorded uless there is intrinsic value at
the date of grant associated with the options. U.S. GAAP does, however,
require stock option transactions with non-employees to be recorded as
compensation expense and measured at the fair value of the consideration
received or the compensation paid, whichever is more reliably measured.
The fair value of the options granted to non-employees have been
estimated at the date of grant using the Black-Scholes option pricing
model.
(IV) Canadian GAAP permits the recording of share issue costs as an increase
in accumulated deficit. U.S. GAAP requires the share issue costs to be
accounted for in share capital as a reduction to the proceeds received
from the share issue.
(V) Under Canadian GAAP, the Company has included a gain in the determination
of net loss for the amount in excess of its carrying value of a
subsidiary's stock, which arose from the subsidiary selling unissued
shares of its stock in a subsequent offering to an unrelated investor.
Under U.S. GAAP, gains for which realization is not assured must be
treated as equity transactions.
(VI) Under Canadian GAAP, Allelix capitalized the fair value of the incomplete
research and development projects acquired and has been amortizing the
amount over three years. Under U.S. GAAP, in a business combination
accounted for as a purchase, a portion of the purchase price, may be
allocated to incomplete research and development projects. Unless the
project in process has an alternative future use, the fair value is
charged to expense as research and development costs.
(VII) Under U.S. GAAP, the preferred shares issued during the year which allow
the holder to convert the preferred shares to common shares at a discount
to market value is considered a beneficial conversion feature. The value
of this feature is amortized, using the effective yield method, over the
period of the preferred shares earliest conversion date.
20
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of NPS and
Allelix and combined per share data on an unaudited pro forma basis after giving
effect to the Arrangement as a purchase, assuming that 0.3238 shares of NPS
Common Stock, are issued in exchange for each share of Allelix Common Stock (as
adjusted for the conversion of the Allelix Preferred Shares) in the Arrangement.
The historical per share data of NPS presented below are presented as of and for
the nine months ended September 30, 1999 and as of and for the year ended
December 31, 1998. The historical per share data of Allelix is presented as of
and for the nine months ended August 31, 1999, and as of the year ended November
30, 1998. The pro forma per share data presented below combine NPS's per share
data as of and for the nine months ended September 30, 1999 and as of and for
the year ended December 31, 1998 with Allelix's per share data for the nine
months ended August 31, 1999 and as of and for the year ended November 30, 1998.
These data should be read in conjunction with the selected historical financial
information, the Unaudited Pro Forma Condensed Consolidated Financial Statements
and the separate historical financial statements of NPS and Allelix and the
notes thereto incorporated herein or included elsewhere in this Proxy Statement.
The Unaudited Pro Forma Condensed Consolidated Financial Statements are not
necessarily indicative of the operating results or financial position that would
have been achieved had the Arrangement been consummated at the beginning of the
period presented and should not be construed as representative of future
operations.
<TABLE>
<CAPTION>
For the year ended As of and for the
December 31, 1998 nine months ended
for NPS; and September 30, 1999
November 30, 1998 for NPS; and August
for Allelix 31, 1999 for Allelix
---------------------- ----------------------
(U.S. GAAP, U.S.$)
-------------------------------------------------
<S> <C> <C>
HISTORICAL - NPS:
Basic and diluted net loss per common share $ (1.39) $ (1.22)
Book value per common share (1) $ 3.59 $ 2.37
HISTORICAL - Allelix:
Basic and diluted net loss per common share $ (1.46) $ (1.02)
Book value per common share (1) N/A $ 1.28
PRO FORMA CONSOLIDATED PER NPS SHARE:
Basic and diluted net loss per common share (2) $ (1.99) $ (1.55)
Book value per common share (1) N/A $ 2.94
ALLELIX EQUIVALENT PRO FORMA PER SHARE: (3)
Basic and diluted net loss per common share (2) $ (0.64) $ (0.50)
Book value per common share (1) N/A $ 0.95
</TABLE>
(1) The historical book value per common share is computed by dividing total
stockholders= equity by the number of shares of common stock outstanding at
the end of the period. The pro forma book value per share is computed by
dividing pro forma stockholders= equity by the pro forma number of shares of
common stock outstanding at the end of the period.
(2) Excludes a charge for in-process technology estimated to be approximately
$19.46 million which will be charged to combined operations during the
period in which the Arrangement is consummated.
(3) The Allelix Per Share Equivalents are calculated by multiplying the NPS
consolidated pro forma per share amounts by the Exchange Ratio.
21
<PAGE>
MARKETS AND MARKET PRICES AND DIVIDEND POLICY
NPS Common Stock is listed on the Nasdaq Stock Market under the symbol "NPSP."
On September 27, 1999, the last trading day before the announcement by NPS and
Allelix that they had entered into the Arrangement Agreement, the closing sale
price of NPS Common Stock as reported on the Nasdaq Stock Market was $7.00 per
share. On October [___], 1999, the closing sale price of NPS Common Stock as
reported on the Nasdaq Stock Market was $[___]. There can be no assurance as to
the actual price of NPS Common Stock prior to, at or at any time following the
Effective Time.
Allelix Common Stock is traded on the TSE under the symbol "AXB." On September
27, 1999, the last trading day before the announcement by NPS and Allelix that
they had entered into the Arrangement Agreement, the closing sale price of
Allelix Common Stock as reported by the TSE was Cdn.$3.65 per share. Following
the Arrangement, Allelix Common Stock will cease to be traded on the TSE. On
October [___], 1999, the closing sale price of Allelix Common Stock as reported
by the TSE was $[___].
The table below shows the high and low sale prices of NPS on the Nasdaq Stock
Market for the periods indicated.
<TABLE>
<CAPTION>
NPS
------------------------
High Low
----------- -----------
<S> <C> <C>
1997
First Quarter............................ $ 12.250 $ 9.500
Second Quarter........................... $ 11.000 $ 8.250
Third Quarter............................ $ 10.750 $ 8.125
Fourth Quarter........................... $ 10.063 $ 7.500
1998
First Quarter............................ $ 8.500 $ 7.375
Second Quarter........................... $ 8.250 $ 6.750
Third Quarter............................ $ 9.313 $ 6.375
Fourth Quarter........................... $ 7.938 $ 5.500
1999
First Quarter............................ $ 7.500 $ 6.563
Second Quarter........................... $ 8.625 $ 5.875
Third Quarter............................ $ 8.000 $ 5.500
</TABLE>
On [___], 1999, there were approximately [___] beneficial holders of NPS
common stock.
NPS has never declared or paid cash dividends on capital stock. NPS intends to
retain any future earnings to finance growth and development and therefore does
not anticipate paying cash dividends in the foreseeable future.
22
<PAGE>
The table below shows the high and low sale prices of Allelix Common Stock as
reported in Canadian dollars on the TSE and the ME for the periods indicated.
<TABLE>
<CAPTION>
TSE ME
------------------------ ------------------------
High Low High Low
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997
First Quarter............................ $ 18.50 $ 11.05 $ 18.50 $ 11.50
Second Quarter........................... 12.40 9.00 12.10 9.80
Third Quarter............................ 16.00 9.75 15.50 10.20
Fourth Quarter........................... 15.25 10.35 14.50 10.35
1998
First Quarter............................ $ 12.50 $ 8.00 $ 12.00 $ 8.10
Second Quarter........................... 9.75 8.00 9.70 8.15
Third Quarter............................ 8.20 3.10 8.40 3.15
Fourth Quarter........................... 6.35 2.50 5.95 3.03
1999
First Quarter............................ $ 4.95 $ 3.01 $ 4.70 $ 3.05
Second Quarter........................... 3.50 2.26 3.40 2.26
Third Quarter............................ 3.75 2.00 3.60 2.01
</TABLE>
RISK FACTORS
Presented below are statements of the types of risks and uncertainties faced
by the Company and which are thereby borne by the Company's stockholders. Other
risks and uncertainties are described elsewhere herein or in other Commission
filed documents or are evident from the descriptions herein. There can be no
assurances that the Company or its management will succeed in efforts to avoid
or minimize these risks or uncertainties, or to optimize the potential return
associated with bearing these risks and uncertainties.
Risk Related to the Arrangement
The Arrangement and an investment in securities of NPS involve certain risks
and uncertainties, including risks related to the integration of NPS and
Allelix, risks associated with the fixed Exchange Ratio, risks relating to the
respective businesses of NPS and Allelix and other risks and uncertainties
discussed therein and elsewhere in this Proxy Statement and in the documents
incorporated by reference.
Uncertainty Relating to Integration. The Arrangement involves the integration
of two companies that have previously operated independently. Such integration
will require significant effort from each company including the coordination of
their efforts in research and development, business development, intellectual
property, finance, and administration efforts. There can be no assurance that
NPS will integrate the respective operations of NPS and Allelix without
encountering difficulties or experiencing loss of personnel, or that the
benefits expected from such integration will be realized. The diversion of the
attention of management and any difficulties encountered in the transition
process (including the interruption of, or a loss of momentum in, Allelix's or
NPS's activities and problems associated with employee uncertainty and the
potential loss of key personnel) could have an adverse impact on NPS's ability
to realize anticipated benefits from the Arrangement.
Risks Associated with Fixed Exchange Ratio. As a result of the Arrangement,
each outstanding share of Allelix Common Stock will be converted into either
0.3238 of an NPS Common Share or 0.3238 of an
23
<PAGE>
Exchangeable Share. Because the Exchange Ratio is fixed and will not increase or
decrease due to fluctuations in the market price of either NPS or Allelix Common
Stock, the specific value of the consideration to be received by Allelix
shareholders in the Arrangement will depend on the market price of NPS Common
Stock at the Effective Time. In the event that the market price of NPS Common
Stock increases or decreases prior to the Effective Time, the market value at
the Effective Time of NPS Common Stock to be received by Allelix shareholders in
the Arrangement would correspondingly increase or decrease. The market prices of
NPS Common Stock and Allelix Common Stock as of a recent date are set forth
herein under "Summary-Markets and Market Prices and Dividend Policy." NPS Common
Stock and Allelix Common Stock historically have been subject to price
volatility. No assurance can be given as to the market prices of NPS Common
Stock or Allelix Common Stock at any time.
Effect of the Arrangement on Corporate Partners and Existing Agreements.
Certain of Allelix's and NPS's existing corporate partners may view the
Arrangement as disadvantageous to them. As a consequence, the combined company's
relationship with these strategic partners could be adversely affected. In
addition, the Arrangement will provide certain corporate partners with the right
to terminate their research and development agreements with Allelix under
certain circumstances. There can be no assurance that these agreements will not
be terminated. The termination of such agreements could have a material adverse
effect on Allelix's business and operations. The Arrangement will require the
consent of certain parties who have entered into contracts with Allelix. There
can be no assurance that such consents will be given and, if not given, that
such contracts will not terminate.
The market price of NPS Common Stock may decline as a result of the
Arrangement. Since public announcement of the Arrangement, the price for NPS
Common Stock has declined [___]%. The market price of NPS Common Stock may
continue to decline significantly if, among other things:
. securities analysts fail to write reports which describe the Arrangement
favorably and/or if securities analysts write about the Arrangement, but
fail to recommend the stock;
. the integration of NPS's and Allelix's operations is not successful;
. the combined company does not experience business synergies as quickly or
to the extent as may be expected by financial analysts;
. the accretive/dilution effect of the Arrangement is not in line with the
expectation of financial analysts; or
. NPS determines that it will do an additional equity financing on terms or
at a time which the marketplace concludes is unattractive or dilutive.
In any such case, the trading price of NPS Common Stock may decline and you
may lose all or part of your investment.
The Arrangement will result in integration costs and transaction expenses that
could adversely affect combined financial results. If the benefits of the
Arrangement do not exceed the costs associated with it, including the dilution
to NPS's stockholders resulting from the issuance of shares of NPS Common stock
in connection with the Arrangement, NPS's financial results, including earnings
per share, could be adversely affected. The combined company also expects to
incur costs after completion of the Arrangement associated with integrating the
operations of NPS and Allelix. Such costs may include:
24
<PAGE>
. elimination of duplicate operations; and
. consolidation of certain administration, support, and research and
development activities.
Actual costs may substantially exceed preliminary estimates. In addition,
unanticipated expenses associated with integrating the two companies may arise.
NPS expects to incur a charge currently estimated to be $19.46 million in the
fourth quarter of 1999 to reflect NPS's write-off of Allelix's in-process
research and development efforts. These costs will not be accompanied by outward
cash flow, but may be seen by investors as increasing the net loss of the
Company. NPS may also incur additional charges in subsequent quarters to reflect
costs associated with the Arrangement.
If the combined company is not permitted to write-off a significant amount of
the purchase price as attributable to in-process research and development,
estimates of future period results and actual future period results could be
burdened with additional costs, and the price of NPS's Common Stock could
decline. If current accounting rules as interpreted by NPS's auditors and the
SEC do not permit the combined company to immediately write off a significant
amount of the purchase price of the Arrangement as attributable to in-process
research and development, the combined company would have to amortize a
correspondingly higher amount of the purchase price over several years. Such
amortization would be reflected as an expense item on the combined company's
statement of operations, and cause it to report higher losses, which may
adversely affect its stock price.
NPS may experience delay or ineffectiveness in efforts to manage its burn rate
and the attendant requirement to reduce costs, delay expenditures (for example
in clinical development), or raise additional equity financing incident to the
Arrangement. NPS has announced its intention to devote considerable cash
resources to late-stage clinical development, including for example, a Phase III
trial for ALX 1-11 for osteoporosis. If the Company's cost estimates are
exceeded or incurred earlier than planned, the Company may be required further
to realize costs (for example, by reducing head count), to delay developments or
to seek additional financing. Failure to manage the mix of this cash expenditure
and clinical progress may cause the price of NPS Common Stock to decline.
NPS may be assessed certain federal income taxes as a result of the
Arrangement. The Company believes that there should be no federal income tax
consequences to the Company as a result of the Arrangement. The Company's
conclusion is based upon the federal income tax laws currently in effect, which
are subject to change and, in some cases, not binding on the Internal Revenue
Service (the "Service") or the court. No advance income tax rulings have been
sought from the Service as to the anticipated federal income tax consequences of
the transactions described herein. If the Service were to successfully challenge
the Company's conclusions, then the Company will be required to recognize income
as a result of the transactions contemplated herein. See discussion under the
caption "Certain Federal Income Tax Consideration".
The Company has described other risks in its Annual Report on Form 10-K/A and
in other documents filed with the SEC. Stockholders are advised and encouraged
to read such other documents.
THE NPS SPECIAL MEETING
Purpose
The enclosed proxy is solicited on behalf of the Board of Directors of NPS,
for use at the Special Meeting to be held on [___], 1999, at [___], p.m., local
time and at any adjournment thereof (the "NPS Special Meeting"), for the
purposes set forth herein and in the accompanying Notice of Special Meeting. The
NPS Special Meeting will be held at the Marriott-University Park Hotel, 500
South Wakara Way, Salt Lake City, Utah.
25
<PAGE>
Solicitation of Proxies
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing, and mailing of this Proxy Statement, the proxy
card, and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses,
fiduciaries, and custodians holding in their names shares of NPS Common Stock,
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners of NPS Common Stock for
their costs of forwarding solicitation materials to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegram, or personal solicitation by directors, officers, or other regular
employees of the Company. No additional compensation will be paid to directors,
officers, or other regular employees for such services.
The Company intends to mail this Proxy Statement and accompanying proxy card
on or about the date shown above to all stockholders entitled to vote at the NPS
Special Meeting.
Record Date, Entitlement to Vote, and Outstanding Shares
[___], 1999 is the record date for determining those holders of NPS Common
Stock entitled to notice of and to vote at the NPS Special Meeting. On the
record date, the Company had outstanding and entitled to vote [___] shares of
common stock. Stockholders will be entitled to one vote for each share held on
all matters to be voted upon at the NPS Special Meeting. Except for the
stockholders identified herein under "NPS Principal Stockholders," as of the
Record Date, no other person beneficially owned more than 5% of the outstanding
NPS Common Stock.
Revocation of Proxies
Any stockholder giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company, at the Company's principal executive office, 420
Chipeta Way, Salt Lake City, Utah 84108-1256, a written notice of revocation or
a duly executed proxy bearing a later date, or it may be revoked by attending
the NPS Special Meeting and voting in person. Attendance at the NPS Special
Meeting will not, by itself, revoke a proxy.
Required Votes to Approve
All votes will be tabulated by the Inspector of Elections appointed for the
NPS Special Meeting, who will separately tabulate affirmative and negative
votes, abstentions, and broker non-votes. Abstentions will be counted toward the
tabulation of votes cast on proposals presented to the stockholders, and will
have the same effect as negative votes. Broker non-votes are counted toward a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of NPS Common Stock entitled to vote at the
NPS Special Meeting is necessary to constitute a quorum. Abstentions and broker
non-votes will be counted for purposes of determining a quorum.
Approval of the issuance of NPS Common Shares in connection with the
Arrangement requires the approval of a majority of the shares present in person
or represented by proxy and entitled to vote at the NPS Special Meeting.
Approval of the Amendment to the Certificate of Incorporation requires the
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approval of a majority of the outstanding shares of NPS Common Stock entitled to
vote as of the Record Date.
THE ALLELIX SPECIAL MEETING
The Board of Directors for Allelix will call a special meeting of the Allelix
stockholders for the principal purpose of obtaining stockholder approval of the
Continuance and the Arrangement. The Allelix Special Meeting will occur shortly
after the NPS Special Meeting. In order for the Continuance and the Arrangement
to be approved, 66 2/3% of the Allelix stockholders present in person or by
proxy at the Allelix Special Meeting must vote in favor of each of the
Continuance and the Arrangement. If the Continuance is not approved, then the
Arrangement will not become effective. A more detailed description of this
meeting is contained in the Management Proxy Circular of Allelix attached hereto
as Appendix E and incorporated herein.
PROPOSAL ONE -- APPROVAL OF THE SHARE ISSUANCES IN CONNECTION
WITH THE ARRANGEMENT
The following discussion summarizes the proposed Arrangement and related
transactions. The following is not, however, a complete statement of all
provisions of the Arrangement Agreement and related agreements. Detailed terms
of all conditions to the Arrangement and related transactions are contained in
the Arrangement Agreement, a copy of which is attached to this Proxy Statement
as Appendix A. Statements made in this Proxy Statement with respect to the terms
and conditions of the Arrangement and such related transactions are qualified in
their respective entireties by reference to, and you are urged to read carefully
the more detailed information set forth in the Arrangement Agreement and the
other documents attached hereto.
Background of the Arrangement
In March 1999, NPS engaged Prudential Securities to assist NPS in the
evaluation of strategic alternatives directed at enhancing stockholder value.
Strategic alternatives considered by Prudential Securities and NPS included the
acquisition by NPS of other small biotechnology and/or pharmaceutical companies
that could leverage NPS's existing clinical development programs and drug
discovery capabilities. The possible take-out of NPS by a large
pharmaceutical/biotechnology company was also considered.
During the period since signing the financial advisor agreement with
Prudential Securities and September 27, 1999, NPS reviewed a number of
acquisition/merger proposals. Confidentiality agreements were entered into and
due diligence performed with respect to numerous candidates. A non-binding
proposal was made to one small biotechnology company. This proposal was
rejected.
In early August, a significant shareholder in NPS asked Dr. Hunter Jackson,
NPS's Chairman, President, and Chief Executive Officer, if the shareholder could
assist NPS by placing a call to Allelix management to suggest that NPS might be
interested in pursuing a merger with Allelix. Dr. Jackson responded that he
would welcome the assistance of such a call. Shortly thereafter, Mr. Graham
Strachan, then CEO and President of Allelix, called Dr. Jackson. Mr. Strachan
said he would be pleased to meet with Dr. Jackson. During mid-August,
discussions between representatives of Allelix and NPS and their respective
financial advisors commenced. On August 10, 1999, Allelix entered into a
confidential disclosure agreement with NPS to permit mutual due diligence
investigations to begin between Allelix and NPS. On August 31, 1999, an
exclusivity agreement was entered into between Allelix and NPS, committing
Allelix to a period of exclusive negotiations with NPS, subject to a customary
"fiduciary
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out," which would terminate on September 13, 1999, unless due diligence
investigations and/or negotiations were continuing at that date, in which event
such period of exclusivity of negotiations would be extended until September 30,
1999.
On September 13, 1999, NPS sent a letter to Allelix outlining the proposed
financial and other terms of a merger. On September 14, 1999, representatives
of Allelix, together with its legal advisors, Stikeman, Elliott, met with
representatives of NPS and its legal advisors, Blake, Cassels & Graydon, to
discuss and further advance negotiations of the definitive terms and structure
of a proposed merger transaction.
On September 15, 1999, the NPS Board of Directors met to discuss the Allelix
transaction. A detailed presentation was made of the proposed transaction with
Allelix and the impact on the combined companies. That presentation also
addressed the necessity of downsizing the entities in order to preserve cash and
reallocate resources to those programs which have the opportunity to provide a
nearer term product to the combined entity. Duties of the directors in
connection with a merger were discussed with legal counsel.
During a meeting of the Board of Directors of Allelix on September 21, 1999,
members of NPS's senior management team attended and made a presentation to
Allelix's Board of Directors and Allelix's financial advisors concerning the
benefits available to Allelix through a merger with NPS and NPS's vision for
the merged company, and to otherwise familiarize the Board of Directors of
Allelix with NPS's research and development programs and business. During this
period and until September 27, 1999, the terms of a definitive arrangement
agreement between NPS and Allelix were negotiated.
On Friday, September 24, 1999, an information meeting for the NPS Board of
Directors was convened. At this meeting, a discussion of the transaction was
presented and the Board of Directors had opportunity to ask questions and assess
management's due diligence process. By overnight mail September 23, 1999,
Hunter Jackson sent to the NPS Board copies of the transaction documents and a
formal description of the transaction.
On September 27, 1999, the NPS Board of Directors met to receive a
presentation from Prudential Securities concerning the proposed merger and to
receive the Prudential Securities Opinion described below under "Opinion of
NPS's Financial Advisor, Prudential Securities." At the same meeting, the Board
of Directors of NPS received a report from legal counsel on the terms of the
arrangement agreement that had been negotiated. The Board of Directors of NPS
authorized the entering into of the Arrangement Agreement described below under
"The Arrangement Agreement and Related Agreements," which agreement was executed
and delivered on the evening of September 27, 1999. The Board of Directors also
approved the plans for and terms of a reduction in force to be implemented on
September 28, 1999.
NPS's Reasons for the Arrangement and Recommendation of the NPS Board
In reaching its determination and making its recommendation to NPS
Stockholders, the Board of Directors of NPS considered a number of factors,
including the following:
. the combined business which results from the Arrangement will have
significantly greater financial, business and scientific resources which
may enable the combined business to more effectively develop and exploit
its portfolio of drug product candidates;
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. the combination yields an increase in NPS's pipeline of drug development
candidates thereby decreasing NPS's dependence on one or a few programs;
. the combination can utilize the complementary nature of Allelix's and NPS's
respective portfolios of drug product candidates;
. the combination's focus on proprietary and late-stage clinical programs may
increase the potential for sustainable revenues and earnings;
. the combined business may be able to take advantage of NPS's U.S. biomedical
industry connections and NPS's presence on the Nasdaq Stock Market while
continuing to benefit from the Canadian biotechnology industry and its
associated technical and financial resources;
. the Prudential Securities Opinion dated September 27, 1999, that, from a
financial point of view, the Exchange Ratio is fair to NPS;
. the combined company may be able to obtain a significantly increased market
capitalization, potentially allowing greater access to financing
opportunities;
. the combined company will have late stage product candidates appropriate for
development and marketing by the Company directly; and
. the combined company will have a greater choice of late stage clinical
programs over which to deploy limited resources and thereby will be better
able to manage the inherent risks of the industry in general and the
Company in particular.
In reaching its determination, the Board of Directors of NPS also considered
and evaluated, among other things:
. information concerning the business, operations, financial condition and
prospects of Allelix and NPS;
. current industry, economic, and market conditions and trends and its informed
expectations of the future of the biotechnology and pharmaceutical products
industries;
. historical market prices and trading information with respect to Allelix
Common Shares and NPS Common Shares;
. the anticipated synergies, cost reductions, improved balance sheet, and other
operational advantages and efficiencies as a result of the combination;
. the anticipated challenges associated with successfully integrating the
businesses of Allelix and NPS;
. reports from management concerning due diligence conducted by NPS on the
scientific programs of Allelix;
. reports from management and legal and financial advisors concerning the
specific terms of the Arrangement Agreement and ancillary documents;
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. the possibility that the Arrangement would not be consummated;
. the potential disruption to the business of both companies following
announcement of the Arrangement, including the effects of employee
uncertainty, the possibility that key corporate employees may leave, and the
possibility that key corporate collaborators may not approve of the
Arrangement or may determine to terminate their relationship with the combined
company, if their agreements permit termination as a result of the
Arrangement;
. the dilutive effects of the issuance of shares in the Arrangement and the
higher level of expenses that will be borne by the combined company; and
. the possibility that the anticipated benefits of the Arrangement will not be
realized.
The NPS Board of Directors concluded that the benefits of the transaction to
NPS and its stockholders outweighed the risks associated with the foregoing
factors.
The foregoing discussion of the information and factors considered and given
weight by the Board of Directors of NPS is not intended to be exhaustive. In
reaching the determination to approve and recommend the Arrangement, the Board
of Directors of NPS did not assign any relative or specific weights to the
foregoing factors which were considered, and individual directors may have given
different weights to different factors. The Board of Directors of NPS is,
however, unanimous in its recommendation to the NPS Stockholders that the
matters presented at the NPS Special Meeting be approved.
The Board of Directors of NPS realizes that there are certain risks associated
with the Arrangement, including those set forth under "Risk Factors." However,
the Board of Directors of NPS believes that the positive factors should outweigh
those risks, although there cannot be assurances in this regard.
Opinion of NPS's Financial Advisor, Prudential Securities
On September 27, 1999, Prudential Securities Incorporated ("Prudential
Securities") delivered its oral opinion to the NPS Board of Directors to the
effect that, as of such date, the Exchange Ratio was fair, from a financial
point of view, to NPS (the "Prudential Securities Opinion"). Prudential
Securities made a presentation of the financial analysis underlying its oral
opinion at a meeting of the NPS Board on September 27, 1999. This analysis, as
presented to the NPS Board of Directors, is summarized below. Prudential
Securities confirmed its oral opinion in writing on September 27, 1999.
In requesting the Prudential Securities Opinion, the NPS Board did not give
any special instructions to Prudential Securities or impose any limitation upon
the scope of the investigation that Prudential Securities used to deliver the
Prudential Securities Opinion. A copy of the Prudential Securities Opinion,
which sets forth the assumptions made, matters considered and limits on the
review undertaken, is attached to this Proxy Statement as Appendix D and is
incorporated herein by reference. The summary of the Prudential Securities
Opinion set forth below is qualified in its entirety by reference to the full
text of the Prudential Securities Opinion. NPS Stockholders are urged to read
the Prudential Securities Opinion in its entirety.
THE PRUDENTIAL SECURITIES OPINION IS FOR THE USE OF THE NPS BOARD, IS DIRECTED
ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO TO THE COMPANY AS OF SEPTEMBER 27,
1999, FROM A FINANCIAL POINT OF VIEW, AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
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VOTE IN CONNECTION WITH THE ISSUANCE OF SHARES OF NPS COMMON STOCK PURSUANT TO
THE MERGER OR AS TO ANY OTHER ACTION SUCH STOCKHOLDER SHOULD TAKE REGARDING THE
MERGER.
In conducting its analysis and arriving at the Prudential Securities Opinion
dated September 27, 1999, Prudential Securities reviewed such materials and
considered such financial data and other factors as Prudential Securities deemed
relevant under the circumstances, including, the following:
. a draft dated September 25, 1999 of the Arrangement Agreement;
. certain publicly-available historical financial and operating data for NPS
including, but not limited to, (a) the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, (b) the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999, and (c) the Proxy Statement for the Annual
Meeting of Stockholders held on May 26, 1999;
. certain information relating to NPS, including financial forecasts for the
fiscal years December 31, 1999 through December 31, 2004, prepared by the
management of NPS;
. certain publicly-available historical financial and operating data for Allelix
including, but not limited to, the Annual Report for the fiscal year ended
August 31, 1998, and unaudited financial statements for Allelix for the fiscal
year ended August 31, 1999;
. certain information relating to Allelix, including the financial forecasts for
the four months ended December 31, 1999 and the fiscal year ending December
31,2000 through December 31,2004, prepared bty the management of Allelix;
. publicly-available financial, operating and stock market datd concerning
certain companies engaged in businesses Prudential Securities deemed
comparable to Allelix or otherwise relevant to Prudential Securities' inquiry;
. the financial terns of certain recent transactions deemed relevant by
Prudential Securities to its inquiry;
. the historical stock prices and trading volumes of NPS Common Stock and
Allelix Common Shares;
. the Stock Purchase Agreement dated October 30, 1998 between Allelix and
Johnson &Johnson Development Corporation; and
. such other financial studies, analysis and investigations that Prudential
Securities deemed appropriate.
Prudential Securities assumed, with NPS's consent, that (a) each holder of
Allelix Common Shares would recieve 0.3238 shares of NPS Common Stock and (b)
the draft of the Arrangement Agreement which Prudential Securities reviewed (as
referred to above) conformed in all material respects to that which documents in
final form and that the arrangement would be consummated on the term described
in the Arrangement Agreement without any waiver of any terms or conditions.
. Prudential Securities met with the senior management of NPS and Allelix to
discuss;
. the prospects for their respective business;
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. their estimates of such businesses' future financial performance;
. the financial impact of the Arrangement on the respective companies; and
. such other matters as Prudential Securities deemed relevant.
In connection with its review and analysis and in arriving at the Prudential
Securities Opinion, Prudential Securities relied upon the accuracy and
completeness of the financial and other information publicly available or
otherwise made available or provided to Prudential Securities concerning NPS and
Allelix, and did not undertake any independent verification of such information
or any independent valuation or appraisal of any of the assets or liabilities of
NPS or Allelix, and Prudential Securities was not provided with any independent
valuation or appraisal. With respect to the financial forecasts provided to
Prudential Securities by NPS for NPS, and by Allelix for Allelix, Prudential
Securities assumed that such information (including the assumptions and bases
therefor) represented each respective management's best currently available
estimate as to the future financial performance of NPS and Allelix and that NPS
and Allelix would perform in accordance with such projections. Prudential
Securities assumes no responsibility for and expresses no view as to such
forecasts or the assumptions under which they were prepared. Further, the
Prudential Securities Opinion is necessarily based on economic, financial and
market conditions as they existed on September 27, 1999 and can only be
evaluated as that date, the date of the Prudential Securities Opinion.
The Prudential Securities Opinion does not address nor should it be construed
to address the relative merits of the Arrangement or alternative business
strategies that may be available to NPS. In addition, the Prudential Securities
Opinion does not in any manner address the prices at which NPS Common Stock or
the Exchangeable Shares will trade following consummation of the Arrangement.
In addition, the Prudential Securities Opinion and the presentation to the NPS
Board, taken together, was one of the many factors taken into consideration by
the NPS Board in making its determination to recommend approval of the
Arrangement Agreement. Consequently, the analyses of Prudential Securities
described below should not be viewed as determinative of the opinion of the NPS
Board with respect to the Exchange Ratio. The Exchange Ratio was determined
through arm's length negotiations between NPS and Allelix and was approved by
the NPS Board.
In arriving at the Prudential Securities Opinion, Prudential Securities
performed a variety of financial analyses, including those summarized herein.
The summary set forth below of the analyses presented to the NPS Board at the
September 27, 1999 meeting does not purport to be a complete description of the
analyses performed. The preparation of a fairness opinion is a complex process
that involves various determinations as to the most appropriate and relevant
methods of financial analyses and the application of these methods to the
particular circumstance. Therefore, this kind of opinion is not necessarily
susceptible to partial analysis or summary description. Prudential Securities
believes that its analyses must be considered as a whole and that selecting
portions of its opinion or portions of the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying the Prudential Securities Opinion. Prudential
Securities made numerous assumptions with respect to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of NPS and Allelix. Any estimates
contained in Prudential Securities' analyses are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Additionally, estimates of the
values of businesses and securities do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities may be sold.
Accordingly, such analyses and estimates are
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inherently subject to substantial uncertainty. Subject to the foregoing, the
following is a summary of the material financial analyses presented by
Prudential Securities to the NPS Board in connection with the Prudential
Securities Opinion dated September 27, 1999.
Comparable Companies Analysis
A comparable companies analysis was employed by Prudential Securities to
establish implied ranges for the Exchange Ratio. Prudential Securities analyzed
publicly available historical and projected financial results, including
multiples of current enterprise value (defined as equity value plus total debt
minus cash) to total assets and last twelve months ("LTM") revenue, and current
equity value (defined as the closing stock price on September 24, 1999 (the
"September 24/th/ Closing Stock Price") times diluted shares outstanding) to
book value and tangible book value, of certain companies considered by
Prudential Securities to be reasonably similar to NPS and Allelix. The
companies analyzed included: Algos Pharmaceutical Corporation, Bone Care
International, Inc., Cephalon, Inc., GelTex Pharmaceuticals, Inc., Guilford
Pharmaceuticals, Inc., Neose Technologies, Inc., NeoTherapeutics, Inc.,
Neurocrine Biosciences, Inc., Neurogen Corporation, Regeneron Pharmaceuticals,
Inc., and Synaptic Pharmaceutical Corporation (the "Prudential Securities
Allelix Comparable Companies"). All of the trading multiples of the Prudential
Securities Allelix Comparable Companies were based on the September 24/th/
Closing Stock Price.
Based on the September 24/th/ Closing Stock Price, the Prudential Securities
Allelix Comparable Companies were found to have current enterprise values within
a range of 1.2x to 4.8x total assets and 3.0x to 16.1x LTM revenue, and current
equity values within a range of 1.6x to 3.7x book value and 1.6x to 4.0x
tangible book value. Applying such multiples to Allelix's total assets, LTM
revenue, book value and tangible book value, each for the fiscal year ended
August 31, 1999, resulted in implied ranges for the exchange ratio of 0.1913 to
0.9778, 0.1345 to 1.0280, 0.2835 to 0.6664 and 0.1788 to 0.4509, respectively.
Comparable Transactions Analysis
Prudential Securities also analyzed the consideration paid in several recent
merger and acquisition transactions deemed by Prudential Securities to be
reasonably similar to the Arrangement, and considered: (1) the multiple of the
acquired entity's equity value (defined as the purchase price of the acquired
entity's equity) to the acquired entity's book value and tangible book value;
(2) the multiple of the acquired entity's enterprise value (defined as the
purchase price of the acquired entity's equity plus assumed debt minus cash) to
the acquired entity's total assets and LTM revenue; and (3) the applicable
premiums paid over the acquired entity's public stock trading prices one day,
one week, four weeks and twelve weeks before announcement of each transaction,
all based upon publicly available information for such transactions. The
transactions considered were the combinations of the following companies:
(i) SIBIA Neurosciences Inc. and Merck & Co., Inc. (pending as of September 27,
1999), (ii) Centocor, Inc. and Johnson & Johnson (pending), (iii) ALZA
Corporation and Abbott Laboratories (pending), (iv) SUGEN, Inc. and Pharmacia &
Upjohn, Inc., (v) NeXstar Pharmaceuticals, Inc. and Gilead Sciences, Inc., (vi)
Agouron Pharmaceuticals, Inc. and Warner-Lambert Company, (vii) SEQUUS
Pharmaceuticals, Inc. and ALZA Corporation, (viii) Virus Research Institute,
Inc. and T Cell Sciences, Inc., (ix) Neurex Corporation and Elan Corporation
plc, (x) Somatogen, Inc. and Baxter International Inc., (xi) Sequana
Therapeutics, Inc. and Arris Pharmaceutical Corp., and (xii) Athena
Neurosciences, Inc. and Elan Corporation plc (the "Prudential Securities
Comparable Transactions").
The Prudential Securities Comparable Transactions were found to imply for the
acquired entity an enterprise value within a range of 1.8x to 8.9x total assets
and 3.3x to 13.8x LTM revenue, and an equity
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value within a range of 3.4x to 12.2x book value and 3.4x to 17.7x tangible book
value. Applying such multiples to Allelix resulted in implied ranges for the
Exchange Ratio of 0.3238 to 1.8927 for total assets, 0.1533 to 0.8710 for LTM
revenue, 0.6005 to 2.1761 for book value, and 0.3787 to 1.9818 for tangible book
value.
The Prudential Securities Comparable Transactions were found to imply for the
acquired entity a premium within a range of 12.3% to 61.9%, 16.8% to 105.4%,
14.4% to 92.0% and 30.1% to 107.1% for the one day, one week, four week and
twelve week periods, respectively. The corresponding premiums for the
Arrangement, using the Exchange Ratio, are 0.8%, 13.3%, 62.2% and 48.2%,
respectively.
None of the companies or acquired entities utilized in the above Prudential
Securities Allelix Comparable Companies analysis and Prudential Securities
Comparable Transactions analysis for comparative purposes is, of course,
identical to Allelix or the Arrangement. Accordingly, a complete analysis of
the results of the foregoing calculations cannot be limited to a quantitative
review of such results and involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
Prudential Securities Allelix Comparable Companies and the acquired entities in
the Prudential Securities Comparable Transactions, and other factors that could
affect the public trading value and consideration paid for each of the
Prudential Securities Allelix Comparable Companies and the Prudential Securities
Comparable Transactions, respectively, as well as that of Allelix.
Contribution Analysis
Prudential Securities examined NPS's and Allelix's relative contributions to
the LTM (as of June 30, 1999 for NPS and August 31, 1999 for Allelix) and
projected calendar 1999, 2000, 2001 and 2002 revenue, earnings before interest,
taxes, depreciation and amortization (for purposes of this section titled
"Opinion of NPS's Financial Advisor" only, "EBITDA"), and net income to the
combined entity (the "Combined Company"), and compared these results to the
percentage of post-merger NPS common stock that the respective current NPS
Stockholders and Allelix stockholders would hold. In performing such analysis,
Prudential Securities relied upon projected stand-alone financial data provided
by NPS management for NPS and Allelix management, as adjusted by NPS management,
for Allelix. The projections in the Contribution Analysis were calculated based
on pure contribution on a stand-alone basis and did not include synergies or
transaction costs related to the Arrangement. Prudential Securities observed
that for the last twelve months (as of June 30, 1999 for NPS and August 31, 1999
for Allelix), and projected calendar 1999, 2000, 2001 and 2002, Allelix would
contribute 73.9%, 69.7%, 47.4%, 33.4% and 51.2% to the Combined Company's pro
forma revenues, respectively, and 40.5%, 39.1%, 49.6% 71.5% and 136.4% to the
Combined Company's pro forma EBITDA. An analysis of net income is not meaningful
because either NPS, Allelix, or both companies are projected to have negative
net income for these periods.
Prudential Securities also examined NPS's and Allelix's relative contributions
of cash and cash equivalents, tangible book value, and total assets as of June
30, 1999 for NPS and August 31, 1999 for Allelix. NPS contributed to the
Combined Company 68.1% of the pro forma cash and equivalents, 67.2% of the pro
forma tangible book value, and 52.6% of the pro forma total assets, while
Allelix contributed to the Combined Company 31.9% of the pro forma cash and
equivalents, 32.8% of the pro forma tangible book value, and 47.4% of the pro
forma total assets. Based on the September 24/th/ Closing Stock Price and the
Exchange Ratio of 0.3238, NPS and Allelix were estimated to hold 65.9% and
34.1%, respectively, of the Combined Company's implied equity value and 62.0%
and 38.0% respectively, of the Combined Company's enterprise value.
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Dilution/Accretion Analysis
Prudential Securities also analyzed the pro forma effect of the Arrangement on
NPS's projected earnings per share. An analysis of the anticipated future
results of NPS and Allelix based on estimates provided by NPS management for NPS
and Allelix management, as adjusted by NPS management, for Allelix,
respectively, indicated that the Arrangement results in a dilution of NPS's
earnings per share for 1999 and 2000 with an accretive effect on NPS's earnings
per share for 2001, 2002, 2003 and 2004.
Projected financial and other information concerning NPS and Allelix and the
impact of the Arrangement upon the holders of NPS Common Stock are not
necessarily indicative of future results. All projected financial information
is subject to numerous contingencies, many of which are beyond the control of
management of NPS and Allelix.
NPS selected Prudential Securities to provide a fairness opinion because it is
a nationally recognized investment banking firm engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions and
for other purposes and has substantial experience in transactions similar to the
Arrangement. Pursuant to an engagement letter with Prudential Securities dated
March 16, 1999, Prudential Securities will receive a fee payable upon completion
of the Arrangement equal to 2.5% of the aggregate consideration (as defined in
the Engagement Letter) to be received by NPS, NPS Stockholders or employees,
subject to a maximum fee of $1,250,000. NPS has agreed to reimburse all
reasonable out-of-pocket expenses, including fees and disbursements of counsel.
NPS also has agreed, under separate agreement, to indemnify Prudential
Securities, its affiliates and its employees against certain liabilities,
including liabilities under federal securities laws.
In the past, Vector Securities International, Inc., now a unit of Prudential
Securities, has provided financial advisory and financing services for NPS. In
the ordinary course of business, Prudential Securities may actively trade the
shares of NPS Common Stock for its own account and for the accounts of
customers, and accordingly, may at any time hold a long or short position in
such securities.
Interests of Certain Persons in the Arrangement
The Arrangement Agreement provides that all rights to indemnification existing
in favor of the persons serving as directors and officers of Allelix as of the
date of the Arrangement Agreement for acts or omissions occurring prior to the
Effective Time, as provided in the bylaws of Allelix will survive the
Arrangement. Subject to certain limitations, NPS has also agreed to maintain in
effect for seven years after the Effective Time a policy of directors' and
officers' liability insurance on substantially the same terms as to coverage and
deductibles and other terms as Allelix had in place prior to the Arrangement,
for the benefit of persons serving as directors and officers of Allelix as of
such date.
Mechanics
At the Effective Time, NPS Allelix Inc., an indirect wholly-owned subsidiary
of NPS, will acquire the outstanding shares of common stock of Allelix including
the outstanding shares of Preferred Stock of Allelix, which by contract will
have converted to shares of Allelix common stock (the "Allelix Common Shares").
As a result, Allelix will effectively become an indirect wholly-owned subsidiary
of NPS. Each holder of Allelix Common Shares who does not elect dissenters'
rights under Canadian law, will receive either NPS Common Stock or shares of NPS
Allelix Exchangeable Shares. Each holder who is a Canadian resident, will
receive, at his or her or its option, 0.3238 Exchangeable Shares or 0.3238 NPS
Common Shares for each Allelix Common Share held by such holder. Each holder who
is not a Canadian resident, will receive 0.3238 NPS Common Shares for each
Allelix Common Share held.
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No certificates representing fractional shares will be delivered in exchange
for Allelix Common Shares pursuant to the Arrangement. Each party otherwise
entitled to a fractional interest in an Exchangeable Share or to a fractional
interest in a NPS Common Share will receive a certificate evidencing that number
of shares to which such party is entitled rounded up to the next highest whole
number.
Description of Exchangeable Shares
Retraction of Exchangeable Shares. Subject to the Retraction Call Right (as
defined in the Exchangeable Shares Provisions) of NPS Holdings, holders of
Exchangeable Shares will be entitled at any time following the Effective Time to
require NPS Allelix to redeem any or all of the Exchangeable Shares held by such
holder (the "Retraction Right") for an amount per share equal to the current
market price of an NPS Common Share on the date of retraction, which will be
satisfied in full by NPS by delivery to the holder of one share of NPS Common
Stock for each Exchangeable Share.
Redemption of Exchangeable Shares. Subject to applicable law and provided NPS
Holdings has not exercised the Redemption Call right, NPS Allelix has the right,
on or after December 31, 2004, to redeem all, but not less than all, of the then
outstanding Exchangeable Shares for an amount per share equal to the then
current market price of a share of NPS Common Stock determined as of the last
business day prior to the Redemption Date, plus any declared and unpaid
dividend, if any, which shall be payable through delivery of one NPS Common
Share for each Exchangeable Share redeemed. NPS Allelix also has the right to
require an early redemption of the Exchangeable Shares prior to December 31,
2004. An early redemption may occur upon (i) there being fewer than 1,000,000
Exchangeable Shares outstanding; or (ii) on the occurrence of a NPS Control
Transaction provided that the NPS Allelix Board of Directors determines that it
is not reasonably practicable to substantially replicate the terms of
Exchangeable Shares in connection with the transaction. An NPS Control
Transaction is defined in the Exchangeable Shares Provisions as any merger,
amalgamation, tender offer, material sale of shares or rights or interests
therein, or similar transactions involving NPS, or any proposal to do so.
Purchase for Cancellation. Subject to applicable law, NPS Allelix may at any
time and from time to time purchase for cancellation all or any part of the
outstanding Exchangeable Shares at any price by tender to all the holders of
record of Exchangeable Shares then outstanding or through the facilities of any
stock exchange on which the Exchangeable Shares are listed or quoted at any
price per share.
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Voting, Dividend and Liquidation Rights of Holders of Exchangeable Shares
Voting Rights with Respect to NPS Allelix. Except as required by law and by
Article 10 of the Exchangeable Share Provisions, the holders of Exchangeable
Shares are not entitled as such to receive notice of or attend any meeting of
shareholders of NPS Allelix or to vote at any such meeting.
Voting Rights with Respect to NPS. On the Effective Date, NPS, NPS Allelix,
and a trust company mutually acceptable to NPS and Allelix (the "Trustee") will
enter into the Voting and Exchange Trust Agreement in substantially the form
attached hereto as Appendix F. Pursuant to the Voting and Exchange Trust
Agreement the terms of which are incorporated herein, NPS will issue the NPS
Special Voting Share to the Trustee for the benefit of the holders of
Exchangeable Shares. The NPS Special Voting Share will have the number of votes,
which may be cast at any meeting at which holders of NPS Common Shares are
entitled to vote, equal to the number of outstanding Exchangeable Shares held by
the registered holders from time to time of Exchangeable Shares.
Each holder of Exchangeable Shares on the record date for any meeting at which
holders of NPS Common Shares are entitled to vote will be entitled to instruct
the Trustee to exercise one of the votes attached to the NPS Special Voting
Share for each Exchangeable Share held by such holder. The Trustee will exercise
(either by proxy or in person) each vote attached to the NPS Special Voting
Share only as directed by the relevant holder and, in the absence of
instructions from an Exchangeable Share holder as to voting, will not exercise
such votes. An Exchangeable Share holder may, upon instructing the Trustee,
obtain a proxy from the Trustee entitling the beneficiary to vote directly at
the relevant meeting the votes attached to the NPS Special Voting Share to which
the beneficiary is entitled.
All rights of a holder of Exchangeable Shares to exercise votes attached to
the NPS Special Voting Share will cease upon the exchange by the holder of such
Exchangeable Shares for NPS Common Shares.
Dividend Rights. Holders of Exchangeable Shares will be entitled to receive,
subject to applicable law, dividends:
. in the case of a cash dividend declared on the NPS Common Shares, in an
amount in cash for each Exchangeable Share corresponding to the cash
dividend declared on each NPS Common Share;
. in the case of a stock dividend declared on the NPS Common Shares to be
paid in NPS Common Shares, in such number of Exchangeable Shares for each
Exchangeable Share as is equal to the number of NPS Common Shares to be
paid on each NPS Common Share; or
. in the case of a dividend declared on the NPS Common Shares in property
other than cash or NPS Common Shares, in such type and amount of property
as is the same as, or economically equivalent to (as determined by the
Board of Directors of NPS Allelix in good faith and in its sole discretion)
the type and amount of property declared as a dividend on each NPS Common
Share. Cash dividends on the Exchangeable Shares are payable in U.S.
dollars or the Canadian Dollar Equivalent thereof, at the option of NPS
Allelix.
The declaration date, record date and payment date for dividends on the
Exchangeable Shares will be the same as the relevant date for the corresponding
dividends on the NPS Common Shares.
Liquidation Rights with Respect to NPS Allelix. In the event of the
liquidation, dissolution, or winding-up of NPS Allelix, each holder of
Exchangeable Shares will have preferential rights to receive from NPS Allelix
for each Exchangeable Share held by such holder an amount per share equal to the
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Current Market Price of an NPS Common Share on the last business day prior to
the liquidation date to be satisfied in full by delivery to such holder of one
NPS Common Share. Upon the occurrence of such liquidation, dissolution, or
winding-up, NPS Holdings will have an overriding right to purchase all but not
less than all of the outstanding Exchangeable Shares (other than Exchangeable
Shares held by NPS and its affiliates) from the holders thereof on the effective
date of such liquidation, dissolution, or winding-up for the same amount.
Liquidation Rights with Respect to NPS. In order for the holders of
Exchangeable Shares to participate on a pro rata basis with the holders of NPS
Common Shares in the event of a liquidation of NPS, each Exchangeable Share will
automatically be exchanged for an equivalent number of NPS Common Shares plus,
to the extent not paid by NPS Allelix on the designated payment date therefor,
the amount of all declared and unpaid dividends on each such Exchangeable Share.
Withholding Rights. NPS, NPS Allelix, and the Trustee will be entitled to
deduct and withhold from any consideration otherwise payable to any holder of
Exchangeable Shares or NPS Common Shares such amounts as NPS, NPS Allelix, or
the Trustee is required or permitted to deduct and withhold with respect to such
payment under the Canadian or United States tax laws, or any provision of
provincial, state, local, or foreign tax law.
Ranking. The Exchangeable Shares will be entitled to a preference over the
common shares in the capital of NPS Allelix and any other shares ranking junior
to the Exchangeable Shares with respect to the payment of dividends and the
distribution of assets in the event of a liquidation, dissolution, or winding-up
of NPS Allelix, whether voluntary or involuntary, or any other distribution of
the assets of NPS Allelix among its shareholders for the purpose of winding-up
its affairs.
Certain Restrictions. NPS Allelix will not, without the approval of the
holders of Exchangeable Shares:
. pay any dividends on the Common Shares of NPS Allelix, or any other shares
ranking junior to the Exchangeable Shares, other than stock dividends payable
in Common Shares of NPS Allelix or any such other shares ranking junior to the
Exchangeable Shares, as the case may be;
. redeem, purchase, or make any capital distribution in respect of Common Shares
of NPS Allelix or any other shares ranking junior to the Exchangeable Shares;
. redeem or purchase any other shares of NPS Allelix ranking equally with the
Exchangeable Shares with respect to the payment of dividends or on any
liquidation distribution; or
. except pursuant to and in accordance with the terms of the Allelix Options,
the Allelix Warrants and the Allelix Preferred Shares, issue any Exchangeable
Shares or any other shares of NPS Allelix ranking equally with, or superior
to, the Exchangeable Shares other than by way of stock dividends to the
holders of such Exchangeable Shares.
The above restrictions will not apply at any time when the dividends on the
outstanding Exchangeable Shares corresponding to dividends declared and paid on
the NPS Common Shares have been declared and paid in full.
Amendment and Approval. The rights, privileges, restrictions, and conditions
attaching to the Exchangeable Shares may be added to, changed, or removed only
with the approval of the holders thereof. Any such approval or any other
approval or consent to be given by the holders of Exchangeable
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Shares on any other matter will be deemed to have been sufficiently given if
given in accordance with applicable law subject to a minimum requirement that
such approval or consent be evidenced by a resolution passed by not less than
two-thirds of the votes cast on such resolution at a meeting of the holders of
Exchangeable Shares duly called and held at which holders of at least 10% of the
then outstanding Exchangeable Shares are present or represented by proxy.
Options
On August 31, 1999, there were Allelix Options outstanding which, when vested,
would be exercisable to acquire a total of 1,586,466 Allelix Common Shares at
prices between Cdn.$0.75 to Cdn.$22.45 with various expiration dates to 2009.
Each holder of Allelix Options will be entitled, after the Effective Time and
in accordance with the terms of the Allelix Options, upon the exercise of such
options, to receive in lieu of the number of Allelix Common Shares to which such
holder was theretofore entitled to receive upon such exercise, that aggregate
number of Exchangeable Shares or NPS Common Shares, as applicable, that such
holder would have been entitled to receive under the Plan of Arrangement if such
holder had been the registered holder of that number of Allelix Common Shares
that such holder was theretofore entitled to receive if all such holder's
Allelix Options had been exercised immediately prior to the Effective Time.
Warrants
On August 31, 1999, there were Allelix Warrants outstanding which entitled the
holders thereof to exercise such warrants for a total of 829,108 Allelix Common
Shares at prices between Cdn.$7.50 and Cdn$10.12 with various expiration dates
to 2005.
Each holder of Allelix Warrants will be entitled, after the Effective Time and
in accordance with the terms of the Allelix Warrants, upon the exercise of such
warrants, to receive in lieu of the number of Allelix Common Shares to which
such holder was theretofore entitled to receive upon such exercise, that
aggregate number of Exchangeable Shares or NPS Common Shares, as applicable,
that such holder would have been entitled to receive under the Plan of
Arrangement if such holder had been the registered holder of that number of
Allelix Common Shares that such holder was theretofore entitled to receive if
all such holder's Allelix Warrants had been exercised immediately prior to the
Effective Time.
Court Approval and Completion of the Continuance and the Arrangement
The Arrangement (including the Continuance) requires approval by the Superior
Court of Justice (Ontario) (the "Ontario Court"). Prior to the mailing of this
Proxy Statement, Allelix obtained an interim order from the Ontario Court
providing for the calling and holding of the Allelix Special Meeting and other
procedural matters.
Subsequent to the approval of the Continuance and the Arrangement by the
Allelix stockholders at the Allelix Special Meeting, the Ontario Court will be
requested to issue a final order approving the terms of the Continuance and the
Arrangement (the "Final Order"). The hearing in respect of the Final Order is
scheduled to take place on December [___], 1999 at 10:00 a.m. (Toronto time) in
the Ontario Court at 393 University Avenue, Toronto, Ontario. The Ontario Court
will consider, among other things, the fairness and reasonableness of the
Continuance and the Arrangement. The Ontario Court may approve the Continuance
and the Arrangement in any manner the Ontario Court may direct, subject to
compliance with such terms and conditions, if any, as the Ontario Court deems
fit.
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Assuming the Final Order is granted and the other conditions to closing
contained in the Arrangement Agreement are satisfied or waived, the Arrangement
will be effective shortly thereafter.
Subject to the foregoing, it is expected that the Effective Time will occur as
soon as practicable after the requisite Allelix stockholder approval has been
obtained.
Accounting Treatment
The Arrangement will be accounted for by NPS under the purchase method of
accounting in accordance with generally accepted accounting principles. Under
the purchase method of accounting, the purchase price of Allelix Common Stock,
including direct costs of the Arrangement, will be allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed based upon their
estimated fair value, with excess purchase price allocated to goodwill. NPS
expects the Arrangement to result in a substantial charge related to in-process
research and development. See "Selected Unaudited Pro Forma Condensed
Consolidated Financial Data".
Regulatory Matters
NPS and Allelix do not believe that any governmental filings with the U.S.
Federal Trade Commission ("FTC") are required with respect to the Arrangement.
However, the FTC or the Antitrust Division could take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin consummation of the Arrangement or seeking to cause
divestiture of significant assets of NPS or Allelix or their subsidiaries. There
can be no assurance that a challenge to the Arrangement on antitrust grounds
will not be made, or, if such challenge is made, of what the result would be.
Consummation of the Arrangement is conditioned upon, among other things, the
absence of any temporary restraining order, preliminary or permanent injunction,
or other order issued by any federal or state court in the United States which
prevents the consummation of the Arrangement.
No NPS Appraisal Rights
Holders of NPS Common Stock are not entitled to appraisal rights under the
DGCL because NPS is not a constituent corporation to the Arrangement under the
DGCL.
Voting Arrangements
Johnson & Johnson Development Corporation ("J&J"), the holder of all of the
outstanding shares of Preferred Stock of Allelix has given to Allelix its proxy
to vote J&J's shares in favor of the Arrangement and all other matters related
thereto. A copy of the Conversion Agreement between J&J, Allelix, and NPS, dated
October [___], 1999, is attached hereto as Appendix G.
The Composition of the NPS Board of Directors
The Board of Directors for NPS presently consists of eight members, all of
whom were elected by a vote of the NPS Stockholders at the NPS Annual Meeting of
Stockholders held May 26, 1999. Pursuant to the terms of the Arrangement
Agreement, NPS has agreed to appoint three current directors of Allelix to the
NPS Board, thereby increasing the size of the NPS Board to eleven members. The
three appointees will serve until their successors are duly elected and
qualified. It is anticipated that the three appointees will be Dr. John R.
Evans, who will serve as Co-Chairman to the NPS Board, Edward Rygiel, and
Dr. Calvin R. Stiller. For biographical information on these individuals, see
"Information Concerning Allelix--Directors and Officers" in this Proxy
Statement.
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Stock Exchange Listing
Exchangeable Shares
The Exchangeable Shares will be listed for trading on the TSE. NPS has no
current intention to list the Exchangeable Shares on any other stock exchange in
Canada or the United States.
NPS Common Shares
The NPS Common Shares are traded on the Nasdaq Stock Market. An application
will be made, as required, by NPS to the Nasdaq Stock Market to list the NPS
Common Shares that are issued pursuant to the Arrangement and that are issuable
from time to time in exchange for the Exchangeable Shares.
Resale of Exchangeable Shares and NPS Common Shares Received in Connection with
the Arrangement
United States
The Exchangeable Shares and the NPS Common Shares issued pursuant to the
Arrangement will not be registered under the Securities Exchange Act of 1933
("1933 Act"). Such shares will instead be issued in reliance upon the exemption
provided by Section 3(a)(10) of the 1933 Act. Section 3(a)(10) exempts
securities issued in exchange for one or more outstanding securities from the
general requirement of registration where the terms and conditions of the
issuance and exchange of such securities have been approved by any court, after
a hearing upon the fairness of the terms and conditions of the issuance and
exchange at which all persons to whom such securities will be issued have the
right to appear. The Ontario Court is authorized to conduct a hearing to
determine the fairness of the terms and conditions of the Arrangement, including
the proposed issuance of securities in exchange for other outstanding
securities. The Ontario Court entered the Interim Order on [___], 1999, a copy
of which is attached hereto as Appendix H, and subject to the approval of the
Arrangement by the Allelix stockholders, a hearing on the fairness of the
Arrangement will be held on [___], 1999, and [___] by the Ontario Court at which
time it is anticipated the Final Order will be entered by the Ontario Court.
The Exchangeable Shares and NPS Common Shares received in exchange for Allelix
Common Shares in the Arrangement generally will be freely transferable under
United States federal securities laws. Accordingly, except for "affiliates," (as
such term is defined under the 1933 Act), stockholders of Allelix will receive
free-trading shares of NPS Common Stock.
Except for Exchangeable Shares or NPS Common Shares held by persons who are
deemed to be affiliates of Allelix prior to the Arrangement. Exchangeable Shares
or NPS Common Shares held by such affiliates may be resold by them only in
transactions permitted by the resale provisions of Rule 145(d)(1), (2), or (3)
promulgated under the 1933 Act or as otherwise permitted under the 1933 Act.
Rule 145(d) provides a safe harbor for resales of securities received by certain
persons in transactions such as the Arrangement.
Rule 145(d)(1) generally provides that affiliates of Allelix may sell
securities of NPS received in the Arrangement if such sale is effected pursuant
to the volume, current public information and manner of sale limitations of Rule
144 promulgated under the 1933 Act, including Regulation S thereunder. These
limitations generally require that any sales made by such an affiliate in any
three month period shall not exceed the greater of 1% of the outstanding shares
of the securities being sold or the average weekly
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trading volume over the four calendar weeks preceding the placement of the sell
order and that such sales be made in unsolicited, open market "brokers
transactions."
Rules 145(d)(2) and (3) generally provide that the foregoing limitations lapse
for non-NPS affiliates after a period of one or two years, respectively,
depending upon whether certain currently available information continues to be
available with respect to NPS. Persons who may be deemed to be affiliates of an
issuer generally include individuals or entities that control, are controlled
by, or are under common control with, such issuer and may include certain
officers and directors of such issuer as well as principal shareholders of such
issuer.
Under Rule 904 of Regulation S, persons who are not "affiliates" of NPS (or
who are NPS affiliates solely by virtue of holding a position as an officer or
director of NPS) may sell Exchangeable Shares if no "directed selling efforts"
(as defined in Rule 902 of Regulation S) are made by the seller or any of its
affiliates or any person on their behalf, no offer is made to a person in the
United States, and either (i) at the time the buy order is originated, the buyer
is outside the United States, or the seller and any person acting on behalf of
the seller reasonably believes the buyer is outside the United States, or (ii)
the transaction is executed in, on or through the facility of the TSE and
neither the seller nor any person acting on behalf of the seller knows that the
Arrangement has been pre-arranged with a buyer in the United States. In the case
of sales by a person who is an officer or director of NPS and is an affiliate of
NPS solely by virtue of holding that position, no selling concession, fee or
other remuneration may be paid in connection with the offer or sale other than
the usual and customary broker's commission that would be received by a person
executing the transaction as agent. Additional conditions apply to resales by
persons who are NPS affiliates other than by virtue of holding a position as an
officer or director of NPS.
NPS has agreed that the issuance of NPS Common Shares from time to time in
exchange for the Exchangeable Shares will be registered under the 1933 Act prior
to the Effective Time and will be listed on the Nasdaq Stock Market.
Canada
NPS will apply for rulings or orders of securities regulatory authorities in
Canada to permit the issuance of the Exchangeable Shares and the NPS Common
Shares that are issuable under the Arrangement, upon exchange of Exchangeable
Shares and upon exercise of the Allelix Options and/or the Allelix Warrants.
Application will also be made to permit resale of those shares in various
jurisdictions without restriction by Persons other than a "control person,"
provided that no unusual effort is made to prepare the market for any such
resale or to create a demand for the securities which are the subject of any
such resale and no extraordinary commission or consideration is paid in respect
thereof.
Ongoing Canadian Reporting Obligations
Upon completion of the Arrangement, Allelix will be a subsidiary of NPS and
Allelix will continue to be a reporting issuer in all of the provinces of
Canada. NPS will file with the relevant securities regulatory authorities in
Canada copies of all documents required to be filed by it with the SEC under the
Exchange Act and registered holders of Exchangeable Shares will receive all
disclosure materials that are sent to holders of NPS Common Shares, including
the annual report of NPS and all proxy solicitation materials.
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THE NPS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
ISSUANCE OF NPS COMMON SHARES IN CONNECTION WITH THE ARRANGEMENT.
THE ARRANGEMENT AGREEMENT AND RELATED AGREEMENTS
The following paragraphs summarize, among other things, the material terms of
the Arrangement Agreement, a copy of which is attached to this Proxy Statement
as Appendix A, and the terms of which are incorporated by reference herein in
their entirety. NPS Stockholders are urged to read the Arrangement Agreement in
its entirety for a more complete description of the Arrangement.
Effective Date of the Arrangement
After obtaining the Final Order from the Ontario Court, and subject to the
satisfaction or waiver of the conditions set forth in the Arrangement Agreement,
the Arrangement shall become effective as of the date of issuance of the
certificate of arrangement giving effect to the Arrangement, issued pursuant to
subsection 183(2) of the Business Corporations Act (Ontario) ("OBCA").
Termination
The Arrangement Agreement may be terminated:
. by the delivery by one party to another of a written notice stating that a
condition precedent for the benefit of the party initiating such notice has
not been fulfilled or satisfied within the time contemplated by the
Arrangement Agreement and that the Arrangement Agreement is accordingly
terminated;
. by NPS if the Board of Directors of Allelix has withdrawn or varied in a
manner determined by NPS to be adverse to NPS, its approval of the
Arrangement Agreement or the Arrangement or its unanimous recommendation to
the holders of Allelix Common Shares;
. by Allelix if the Board of Directors of NPS has withdrawn its unanimous
recommendation to the holders of the NPS Common Shares to vote in favor of
the resolutions contemplated in the Arrangement Agreement to be considered
at the NPS Special Meeting;
. by Allelix in order to enter into a definitive written agreement with
respect to a Superior Proposal subject to compliance with certain
conditions;
. by the mutual agreement of Allelix and NPS; or
. by either NPS or Allelix if there has been passed any law or regulation
that makes consummation of the transactions contemplated by the Arrangement
Agreement illegal or otherwise prohibited or if any injunction, order, or
decree enjoining NPS or Allelix from consummation of the transactions
contemplated by the Arrangement Agreement is entered into and such
injunction, order or decree becomes final and non-applicable.
Termination Fees and Expenses
Allelix is obligated to pay to NPS a termination fee of U.S.$2,000,000 if any
of the following occur:
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. Allelix breaches its covenants or agreements in the Arrangement Agreement
in any material respect;
. NPS terminates the Arrangement Agreement because the Board of Directors of
Allelix has withdrawn or varied, in a manner determined by NPS to be
adverse to NPS, its approval of the Arrangement Agreement or the
Arrangement or its unanimous recommendation to the holders of Allelix
Common Shares unless the Board of Directors of Allelix has done so because
of a material adverse change affecting NPS, and such change is not
attributable to a material adverse change affecting Allelix;
. Allelix terminates the Arrangement Agreement to enter into a definitive
written agreement with respect to a Superior Proposal subject to compliance
with certain conditions;
. an Acquisition Proposal (as defined in the Arrangement Agreement) is announced
and is not withdrawn more than two business days prior to the date of the
Allelix Special Meeting, the holders of the Allelix Common Shares do not
approve the Arrangement at the Allelix Special Meeting, and a significant
transaction involving the acquisition of a material portion of the assets of
Allelix or Allelix Common Shares so as to hold not less than twenty percent of
the Allelix Common Shares outstanding is completed with the party that made
the acquisition proposal or an affiliate of such party within the twelve
months following the date of the Allelix Special Meeting; or
NPS is obligated to pay to Allelix a fee of U.S.$1,000,000 in the event
that:
. NPS breaches a covenant or agreement on its part in the Arrangement Agreement
in any material respect; or
. the holders of the NPS Common Shares do not approve the matters relating to
the Arrangement considered at the NPS Special Meeting except following a
material adverse change affecting Allelix. The fee shall be increased to
U.S.$2,000,000 in the event that the Board of Directors of NPS withdraws or
varies its unanimous recommendation to the holders of NPS Common Shares in
a manner determined by Allelix to be adverse to Allelix, otherwise than
because of a material adverse change affecting Allelix.
Conditions to Closing
Mutual Conditions Precedent
The Arrangement Agreement provides that the respective obligations of each
party to complete the transactions contemplated by the Arrangement Agreement are
subject to the satisfaction, on or before the Effective Date, or at such other
time specified below, of the following conditions precedent:
. the Interim Order shall have been granted in form and substance
satisfactory to Allelix and NPS, acting reasonably, on or before October
31, 1999 and shall not have been set aside or modified in a manner
unacceptable to such parties on appeal or otherwise;
. the Arrangement shall have been duly approved by the Allelix stockholders,
with or without amendment, in accordance with the Interim Order, on or
before January 20, 2000;
. each of the resolutions relating to the Arrangement considered at the NPS
Special Meeting shall have been duly approved by the NPS Common Stockholders
without amendment on or before January 20, 2000;
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. Allelix shall have obtained articles of continuance from the Ontario
Business Corporations Act Director (the "OBCA Director") in form and
substance satisfactory to Allelix and NPS, acting reasonably;
. the Final Order shall have been granted by the Ontario Court in form and
substance satisfactory to Allelix and NPS, acting reasonably, on or before
January 31, 2000, and shall not have been set aside or modified in a manner
unacceptable to such parties on appeal or otherwise;
. the Articles of Arrangement relating to the Arrangement shall be in form
and substance satisfactory to Allelix and NPS, acting reasonably;
. the Effective Date shall be on or before January 31, 2000;
. no act, action, suit, or proceeding shall have been taken or be outstanding
before or by any domestic or foreign court or tribunal or governmental
agency or other regulatory authority or administrative agency or commission
by any elected or appointed public official or private person (including,
without limitation, any individual, corporation, firm, group, or other
entity) in Canada or elsewhere, whether or not having the force of law, and
no law, regulation, or policy shall have been proposed, enacted,
promulgated, or applied which, in either case, has effect, or may have
effect, to cease trade, enjoin, or prohibit the acquisition by NPS of the
Allelix Common Shares, or the right of NPS to own or exercise full rights
of ownership of the Allelix Common Shares, or the issuance, pursuant to the
Arrangement, of NPS Common Shares and Exchangeable Shares to the holders of
Allelix Common Shares;
. there shall not exist any prohibition at law against NPS or Allelix and
holders of Allelix Common Shares consummating the Arrangement;
. Allelix and NPS shall have obtained the consents, approvals, and
authorizations referred to in Section 3.18 of the Arrangement Agreement and
such other material consents, approvals, and authorizations (if any),
regulatory or otherwise, required or necessary in connection with the
transactions contemplated therein on terms and conditions satisfactory to
each of them, acting reasonably;
. the Exchangeable Shares issuable pursuant to the Arrangement shall have
been conditionally approved for listing on the TSE subject to the filing of
the usual and customary documentation;
. any required orders from applicable securities authorities authorizing the
issue of the Exchangeable Shares shall have been obtained on terms
satisfactory to NPS and Allelix, both acting reasonably;
. there shall not have occurred any actual or threatened change, or any
announcement, governmental or regulatory initiative, condition, event, or
development involving a change or a prospective change that, in the
judgment of NPS, acting reasonably, directly or indirectly, has or may have
a material adverse effect with respect to consummating the proposed
transaction; and
. holders of not more than 10% of Allelix's Common Shares shall have
exercised dissent rights with respect to the Continuance and the
Arrangement.
The foregoing conditions are for the mutual benefit of Allelix and NPS and
may be waived, in whole or in part, by each of Allelix and NPS acting
individually for its own interest at any time. If any of the
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above conditions precedent shall not be complied with or waived as aforesaid on
or before the date required for the performance thereof, either Allelix or NPS
may, in addition to the other remedies it may have at law or in equity, rescind
and terminate the Arrangement Agreement by written notice to the other party.
Conditions Precedent for the Benefit of Allelix
The Arrangement Agreement provides that the obligation of Allelix to complete
the transactions contemplated by the Arrangement Agreement is subject to the
satisfaction or waiver, where permissible, of a number of additional conditions,
including the following:
. the representations and warranties made by NPS in the Arrangement Agreement
shall be true as of the Effective Date as if made on and as of such date
and NPS shall have provided to Allelix the certificate of one senior
officer of NPS certifying such accuracy on the Effective Date (and Allelix
shall have no knowledge to the contrary);
. NPS shall have provided Allelix with opinions of NPS's counsel in form and
substance satisfactory to Allelix, acting reasonably, dated the Effective
Date (or such other date as Allelix and NPS may agree) and addressed to
Allelix and Allelix's counsel to the effect that:
. NPS is duly incorporated and validly existing under the laws of the
jurisdiction of its incorporation and has the corporate power and
authority to carry on any business now conducted by it;
. NPS has full corporate power and authority to enter into the
Arrangement Agreement and to perform its obligations thereunder;
. all necessary proceedings, corporate, regulatory or otherwise, of NPS
have been taken to fully, validly, and effectively authorize the
Arrangement Agreement and the transactions contemplated therein
including the Arrangement, the performance by NPS of its obligations
thereunder, and the execution and delivery by NPS of the Arrangement
Agreement and all documents delivered pursuant thereto;
. each NPS Common Share to be issued under the Arrangement will be
authorized and reserved for issuance and, when so issued, will be
validly issued and outstanding as a fully paid and non-assessable
share in the capital of NPS;
. the NPS Common Shares to be issued on exchange of an Exchangeable
Share shall be immediately tradable upon the Nasdaq Stock Market;
. the execution and delivery by NPS of the Arrangement Agreement and all
documents delivered pursuant thereto, the performance by NPS of its
obligations thereunder and the consummation of the transactions
contemplated therein will not result in the breach of or violate any
term or provision of the articles or by-laws of NPS;
. the Arrangement Agreement has been duly executed and delivered by NPS
and all agreements delivered pursuant to the terms thereof are valid
and binding obligations of NPS enforceable against it in accordance
with their respective terms, subject to enforceability being limited
by applicable bankruptcy, insolvency, reorganization and other laws
affecting creditors' rights generally and the discretionary nature of
certain remedies (including specific
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performance and injunctive relief) and subject to the effectiveness of
clauses providing rights of indemnity or exculpating a party or
persons from a liability or a duty otherwise owed which may be limited
by law; and
. the issuance of NPS Common Shares on exchange of an Exchangeable Share
is exempt from the prospectus and registration requirements of the
applicable securities laws in each applicable province and no filing,
proceeding, consent, or approval is required under such applicable law
in connection with the issuance of such NPS Common Shares and that the
NPS Common Shares acquired on exchange of an Exchangeable Share will
not be subject to restrictions on their resale in such provinces,
other than trades from a control block and excluding any outstanding
escrow agreements, and in giving such opinion, NPS counsel may rely in
respect of matters of fact, upon certificates of senior officers of
NPS or any other appropriate persons, and in respect of matters
governed by the laws of any jurisdiction other than Delaware and Utah,
NPS counsel may deliver the opinion of local counsel in such other
jurisdiction;
. the appointment of three Allelix directors, to be jointly designated by NPS
and Allelix, acting reasonably, to the Board of Directors of NPS;
. NPS shall have complied with its covenants in the Arrangement Agreement and
shall have provided to Allelix the certificate of a senior officer of NPS
certifying that NPS has complied with its respective covenants therein and
Allelix shall have no knowledge to the contrary;
. between the date of the most recent public disclosure by NPS and the
Effective Date, there shall not have occurred any material adverse change
with respect to NPS that is not attributable to a material adverse change
with respect to Allelix;
. NPS, NPS Holdings Inc. (a wholly-owned subsidiary of NPS), and NPS Allelix
shall have entered into the Support Agreement a copy of which is attached
hereto as Appendix I; and
. NPS, NPS Allelix, and a trust company acceptable to NPS and Allelix, acting
reasonably, shall have entered into the Voting and Exchange Trust
Agreement.
The foregoing conditions precedent are for the benefit of Allelix and may
be waived, in whole or in part, by Allelix in writing at any time. If any of the
conditions shall not be complied with or waived by Allelix on or before the date
required for their performance then Allelix may, in addition to the other
remedies it may have at law or equity, rescind, and terminate the Arrangement
Agreement by written notice to NPS.
Conditions Precedent for the Benefit of NPS
The Arrangement Agreement provides that the obligation of NPS to complete
the transactions contemplated by the Arrangement Agreement is subject to the
satisfaction or waiver, where permissible, of a number of additional conditions,
including the following:
. the representations and warranties made by Allelix in the Arrangement
Agreement shall be true as of the Effective Date as if made on and as of
such date and Allelix shall have provided to NPS a certificate of the
Chairman of the Board of Allelix and the Chief Executive Officer (or such
other officer of Allelix that may be acceptable to NPS, acting reasonably)
certifying such accuracy on the Effective Date (and NPS shall have no
knowledge to the contrary);
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. Allelix shall have provided NPS with an opinion of Allelix counsel in form
and substance satisfactory to NPS, acting reasonably dated the Effective
Date (or such other date as Allelix and NPS may agree) and addressed to NPS
and NPS counsel to the effect that:
. Allelix and each of its material subsidiaries are duly incorporated,
amalgamated, continued, or formed and existing under the laws of the
jurisdiction of their respective incorporation or formation, as the
case may be, and each has the power and authority to carry on any
business now conducted by it;
. Allelix has full corporate power and authority to enter into the
Arrangement Agreement and to perform its obligations thereunder;
. all necessary proceedings, corporate, regulatory or otherwise, of
Allelix have been taken to fully, validly, and effectively authorize
the Arrangement Agreement and the transactions contemplated therein
including the Arrangement, the performance by Allelix of its
obligations thereunder, and the execution and delivery by Allelix of
the Arrangement Agreement and all documents delivered pursuant
thereto;
. the execution and delivery by Allelix of the Arrangement Agreement and
all agreements delivered pursuant thereto, the performance by Allelix
of its obligations thereunder and the consummation of the transactions
contemplated therein will not result in the breach of or violate any
term or provision of the articles or by-laws of Allelix; and
. the Arrangement Agreement has been duly executed and delivered by
Allelix and all agreements delivered pursuant to the terms thereof are
valid and binding obligations of Allelix enforceable against it in
accordance with their respective terms, subject to enforceability
being limited by applicable bankruptcy, insolvency, reorganization,
and other laws affecting creditors' rights generally and the
discretionary nature of certain remedies (including specific
performance and injunctive relief) and subject to the effectiveness of
clauses providing rights of indemnity or exculpating a party or
persons from a liability or a duty otherwise owed which may be limited
by law; and in giving such opinion, Allelix counsel may rely, in
respect of matters of fact, upon certificates of senior officers of
Allelix or any other appropriate persons; and in respect of matters
governed by the laws of any jurisdiction other than Ontario, Quebec,
Alberta, British Columbia, or the laws of Canada applicable therein,
Allelix counsel may deliver the opinion of local counsel in such other
jurisdiction;
. Allelix shall have complied, in all material respects, with its covenants
in the Arrangement Agreement and Allelix shall have provided to NPS a
certificate of the Chairman of the Board of Allelix and the Chief Executive
Officer (or such other officer of Allelix that may be acceptable to NPS,
acting reasonably) certifying that Allelix has complied with its covenants
therein and NPS shall have no knowledge to the contrary;
. the Interim Order, the Final Order, and any required orders from the
applicable securities regulatory authorities authorizing the issuance of
the Exchangeable Shares shall have been obtained on terms satisfactory to
NPS, acting reasonably;
. between the date of the most recent public disclosure by Allelix, and the
Effective Date, there shall not have occurred any material adverse change
with respect to Allelix; and
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. the Directors of Allelix and its subsidiaries shall have tendered their
resignations to be effective on the Effective Date.
The foregoing conditions precedent are for the benefit of NPS and may be
waived in whole or in part by NPS in writing at any time. If any of the above
conditions shall not be complied with or waived by NPS on or before the date
required for the performance thereof, NPS may, in addition to the other remedies
it may have at law or equity, rescind and terminate the Arrangement Agreement by
written notice to Allelix.
General Covenants
Mutual Covenants
Each of Allelix and NPS has covenanted pursuant to the Arrangement
Agreement, among other things, that, until the Effective Date or the date upon
which the Arrangement Agreement is terminated, whichever is earlier, unless the
other party otherwise agrees, it will:
. use all reasonable commercial efforts to satisfy the conditions precedent
to its respective obligations set out in the Arrangement Agreement and to
do all other things necessary, proper, or advisable under applicable law to
complete the Arrangement, including using all reasonable commercial efforts
to obtain all necessary waivers, consents, approvals, and authorizations
required to be obtained from other parties under loan agreements, leases,
and other contracts or otherwise under applicable law and to effect all
necessary registrations and filings and submissions of information
requested by governmental authorities required to be effected by it in
connection with the Arrangement;
. make available and cause to be made available to the other party, its
agents, and advisors, all documents and agreements in any way relating to
or affecting its business, financial condition, operations, prospects,
properties, assets, or affairs, except where it is contractually precluded
from making such document or agreement available in which case it shall
cooperate with the other party in securing access to any such documentation
not in its possession or under its control;
. not take any action, refrain from taking any action, or permit any action
to be taken or not taken, inconsistent with the Arrangement Agreement or
which might, directly or indirectly, interfere with or adversely affect the
consummation of the Arrangement; and
. not, during the period commencing on the date of the Arrangement Agreement
and ending on the earlier of the Effective Date of the Arrangement and the
second anniversary of the termination of the Arrangement Agreement,
directly or indirectly solicit, induce, recruit, or encourage any of the
other party's employees to terminate their employment with the other party
or attempt to solicit, induce, or recruit employees of the other party.
Covenants of Allelix
Allelix has covenanted and agreed pursuant to the Arrangement Agreement
that, until the Effective Date or the date on which the Arrangement Agreement is
terminated, whichever is earlier, it will, among other things:
. in a timely and expeditious manner and as soon as reasonably practicable,
carry out the terms of the Interim Order; convene the Allelix Special
Meeting; solicit proxies to be voted at the Allelix Special
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Meeting in favor of the Arrangement; provide notice to NPS of the Allelix
Special Meeting and allow NPS's representatives to attend the Allelix
Special Meeting; and conduct the Allelix Special Meeting in accordance with
the Interim Order, the by-laws of Allelix and any instrument governing such
meeting;
. subject to the approval of the Arrangement at the Allelix Special Meeting
in accordance with the provisions of the Interim Order, file, proceed with,
and prosecute an application for the Final Order;
. subject to approval of the Continuance by at the Allelix stockholders, file
articles of continuance with the OBCA Director;
. forthwith carry out the terms of the Final Order and, subject to the
receipt of the Final Order, will file the Articles of Arrangement and the
Final Order with the OBCA Director in order for the Arrangement to become
effective on or before January 31, 2000;
. except with the prior written consent of NPS, not incur significant new
capital expenditures above specified levels;
. except with the prior written consent of NPS, not incur any indebtedness
for borrowed money; and
. except with the prior written consent of NPS, not enter into or agree to
enter into any licence agreement, collaboration and/or development
agreement, or any other agreement to sell, convey, transfer, assign, or
encumber any of its right, title, or interest in any of its research, pre-
clinical, or clinical development programs.
Covenants of NPS
NPS has covenanted and agreed pursuant to the Arrangement Agreement that,
until the Effective Date or the date on which the Arrangement Agreement is
terminated, whichever is earlier, it will, among other things:
. not issue NPS Common Shares at a price which is less than the then current
market price on their date of issue, less 10%, except upon the exercise of
NPS options;
. allow Allelix and its counsel to participate fully in the preparation of
the notice of meeting and Proxy Statement of NPS prepared in connection
with the NPS Special Meeting;
. in a timely and expeditious manner and as soon as practicable but in any
event not later than January 15, 2000, convene the NPS Special Meeting;
. solicit proxies to be voted at the NPS Special Meeting in favor of the
matters to be considered thereat;
. provide notice to Allelix of the NPS Special Meeting and allow Allelix's
representatives to attend the NPS Special Meeting;
. to the extent within its power, forthwith carry out the terms of the
Interim Order and the Final Order;
. appoint on the Effective Date of the Arrangement (i) three Allelix
directors to the Board of NPS mutually acceptable to Allelix and NPS,
acting reasonably; and (ii) the individuals holding the
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positions of Senior Vice-President and Chief Financial Officer, and Senior
Vice-President, Operations of Allelix as officers of NPS;
. except with the prior written consent of Allelix, not acquire or agree to
acquire (by acquisition of securities or assets or otherwise) any
corporation, partnership, or other business organization or division or any
assets or properties for consideration of more than U.S.$4,000,000 in
total; and
. except with the prior written consent of Allelix, cause it and its
subsidiaries to use all reasonable efforts to preserve intact their present
business, licenses, and permits and will not, nor will it permit its
subsidiaries to enter into any transaction out of the ordinary course of
business if the total obligations and commitments of NPS and its
subsidiaries thereunder would exceed U.S.$4,000,000.
Covenants of Allelix Regarding Non-Solicitation
Pursuant to the Arrangement Agreement, without the prior written consent of
NPS, from and after the date of the Arrangement Agreement, Allelix and its
material subsidiaries have covenanted that they will not, and will not authorize
or permit any of their representatives to, directly or indirectly, solicit,
initiate, or encourage (including by way of furnishing information) or take any
other action to facilitate any inquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to an Acquisition Proposal, as
defined below, from any person, or engage in any discussions or negotiations
relating thereto or accept any Acquisition Proposal.
Notwithstanding the above however, Allelix may at any time prior to the
time the Allelix stockholders shall have voted to approve the Arrangement and
the other transactions contemplated thereby, engage in discussions or
negotiations with a third party who (without any solicitation, initiation, or
encouragement, directly or indirectly, by Allelix, any of its subsidiaries or
representatives after the date of the Arrangement Agreement) seeks to initiate
such discussions or negotiations and may furnish such third party information
concerning Allelix and its business, properties, and assets if and only to the
extent that:
. the third party has made a Superior Proposal (as defined below) and
Allelix's Board of Directors has concluded in good faith, after considering
the applicable law and receiving the advice of outside counsel to this
effect in writing or recorded in the minutes, that such action is necessary
for the Board of Directors to act in a manner consistent with its fiduciary
duties under applicable law; and
. prior to furnishing such information to or entering into discussions or
negotiations with such person or entity, Allelix provides prompt notice to
NPS to the effect that it is furnishing information to or entering into
discussions or negotiations with such person or entity and receives from
such person or entity an executed confidentiality and restricted use
agreement in reasonably customary form.
Pursuant to the Arrangement Agreement, Allelix is obligated to notify NPS
orally and in writing of any inquiries, offers or proposals with respect to an
Acquisition Proposal (including without limitation terms and conditions of any
such proposal, the identity of the person making it and all other information
reasonably requested by NPS) within twelve hours of the receipt thereof, shall
answer NPS's questions with respect to such inquiries, offers, or proposals and
shall give NPS five days advance notice of any agreement to be entered into
with, or information to be supplied to, any person making such inquiry, offer or
proposal.
Allelix has covenanted that it will not enter into any agreement regarding
a Superior Proposal without providing NPS with an opportunity to amend the
Arrangement Agreement to provide for a value
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per Allelix Common Share at least equal to that included in the Superior
Proposal (as determined in good faith by the Board of Directors of Allelix after
receiving the advice of its financial advisors to this effect in writing or
recorded in the minutes). In particular, Allelix has covenanted to provide NPS
with a copy of any Superior Proposal as executed by the party making the
proposal at least 72 hours prior to its proposed execution by Allelix. In the
event that NPS decides to amend the Arrangement Agreement as provided above,
Allelix has covenanted that it will not enter into the superior proposed
agreement.
Acquisition Proposal is defined in the Arrangement Agreement to be a written
proposal or offer by any person to acquire beneficial ownership of all or a
material portion of the assets of Allelix (including shares of subsidiaries) or
one or more of its subsidiaries or not less than 10% of the Allelix Common
Shares or of one or more of its subsidiaries pursuant to an amalgamation, plan
of arrangement, consolidation, or other business combination, sale of shares, or
other securities, sale of assets, take-over bid, or tender offer or exchange
offer or similar transaction involving Allelix or one or more of its
subsidiaries including, without limitation, any single or multi-step transaction
or series of related transactions which is structured to permit such third party
to acquire beneficial ownership or any material portion of the assets of, or
such percentage of the Allelix Common Shares or one or more of its subsidiaries
(other than transactions contemplated by this Agreement).
Under the Arrangement Agreement, a Superior Proposal is defined as an
Acquisition Proposal that is financially superior to the transaction
contemplated by the Arrangement Agreement which, in any event, shall mean that
such proposal shall offer a value per Allelix common Share greater than the per
share value attributable thereto under the transaction contemplated by the
Arrangement Agreement and the third party making the Superior Proposal has
demonstrated that the funds or other consideration necessary for the Acquisition
Proposal are reasonably likely to be available.
Covenants of NPS Regarding No Shop
Without the prior written consent of Allelix, from and after the date of the
Arrangement Agreement, NPS will not, and will not authorize or permit any of its
representatives to, directly or indirectly, solicit, initiate, or encourage or
take any other action to facilitate any inquiries or the making of a proposal
which constitutes or may be reasonably expected to lead to a NPS Acquisition
Proposal, as defined below, from any person engaged in any discussions or
negotiations relating thereto or accept any Acquisition Proposal. "NPS
Acquisition Proposal" is defined in the Arrangement Agreement to be a written
proposal or offer by any person to acquire not less than 20% of the NPS Common
Shares (other than NPS Common Shares issuable on the exercise of outstanding
options or warrants of NPS) by business combination, sale of issued or treasury
shares, or tender or exchange offer or similar transaction, including, without
limitation, any single or multi-step transaction or series of related
transactions which is structured to permit a party to acquire such NPS Common
Shares. However, NPS may engage in discussions or negotiations at any time with
a third party who seeks to initiate such discussions and may furnish such third
party with information concerning NPS if the Board of Directors of NPS has
concluded, in good faith, after considering applicable law and receiving the
advice of counsel, that such action is necessary for the Board to act in a
manner consistent with its fiduciary duties.
Representations and Warranties
Mutual Representations and Warranties
The Arrangement Agreement contains a number of mutual representations and
warranties of Allelix and NPS, relating to, among other things:
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. the corporate existence, organization, and qualification of each of Allelix
and NPS;
. authorization, execution, delivery, and enforceability of the Arrangement
Agreement;
. the absence of any violations, conflicts, breaches, defaults, rights,
encumbrances, suspensions, revocations, or lack of consents, approvals or
notices which would have a material adverse effect on the party giving the
representation and warranty;
. the absence of any outstanding actions, suits, proceedings, or investigations,
either commenced, contemplated or threatened against either of Allelix or NPS,
including their respective subsidiaries, which could reasonably be expected to
have a material adverse effect on the party giving the representation and
warranty;
. the financial statements of the party giving the representation and warranty;
. minute books and records;
. the filing of tax returns and the payment of taxes;
. the maintenance of insurance;
. environmental matters;
. employment agreements and labor matters;
. the obtaining by Allelix and NPS of various consents and approvals except
where the failure to obtain such consent or approval would not constitute a
material adverse effect to the party giving the representation and warranty;
and
. intellectual property rights.
Representations and Warranties of Allelix
The Arrangement Agreement contains a number of additional representations and
warranties of Allelix relating to, among other things:
. the capitalization of Allelix;
. the status of Allelix as a reporting issuer under the securities laws of each
province of Canada and the listing of all issued and outstanding Allelix
Common Shares on the TSE;
. the truth and correctness of the material provided by Allelix for inclusion in
this Proxy Statement; and
. the 1999 audited financial statements of Allelix.
Allelix has also represented and warranted that the Board of Directors of
Allelix has: (i) unanimously determined that the Arrangement is fair to the
holders of Allelix Common Shares and that the Arrangement is in the best
interests of Allelix and the holders of Allelix Common Shares; (ii) approved
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the Arrangement and the entering into and execution of the Arrangement
Agreement; and (iii) resolved to recommend that the holders of the Allelix
Common Shares vote in favor of the Arrangement.
Representations and Warranties of NPS
The Arrangement Agreement contains a number of additional representations and
warranties of NPS relating to, among other things: (i) the capitalization of
NPS; (ii) the status of NPS as a reporting company under the Exchange Act; and
(iii) the truth and correctness of the material provided by NPS for inclusion in
the Proxy Circular of Allelix. NPS has also represented and warranted that the
Board of Directors of NPS has unanimously approved the Arrangement Agreement and
has determined to recommend that the holders of the NPS Common Shares vote in
favor of the matters contemplated by the Arrangement Agreement to be voted on at
the NPS Special Meeting.
Confidentiality
Each of Allelix and NPS acknowledged and agreed pursuant to the Arrangement
Agreement that it will not use confidential information for any purpose
whatsoever other than for purposes specifically relating to evaluation of the
proposed transaction, and that any confidential information provided to a party
to the Arrangement Agreement (the "receiving party") in written form shall be
returned to the party supplying the same (the "supplier") forthwith upon the
Arrangement Agreement being terminated. Each of Allelix and NPS further agreed
pursuant to the Arrangement Agreement that no written materials, reproductions,
extracts, typed or hand written notes, or memorandums made from, or relating in
any way to, the confidential information shall be retained by such parties after
the termination of the Arrangement Agreement and, upon any such occurrence, all
such materials, extracts, notes, and memorandums shall be destroyed unless
returned to the supplier, and the receiving party shall, upon the request of the
supplier, provide a statutory declaration as to that fact, from an officer.
Pursuant to the Arrangement Agreement, each of Allelix and NPS further
undertook and agreed with the supplier that such receiving party shall keep such
confidential information in strict confidence, and shall not disclose any such
confidential information to any third party or parties whatsoever except in
strict accordance. Disclosure of the confidential information may be made by or
on behalf of the receiving party to its employees and professional advisors who
have a need to know such confidential information for purposes of considering
the making of a bona fide evaluation of the proposed transaction, provided that
all such persons agree to keep such information confidential and to be bound by
the Arrangement Agreement to the same extent as if they were parties thereto.
Disclosure of the confidential information may be made by or on behalf of the
receiving party, or any other party to whom disclosure has been made in
accordance therewith, if required by law, provided however, that upon receipt of
any such request or order for such disclosure, the receiving party or such other
party to whom the request for disclosure is made, shall notify the supplier that
a request has been made for disclosure in order that the supplier may seek any
appropriate protective order or waive compliance by the receiving party with the
provision of the Arrangement Agreement.
The restrictions on the use and disclosure of the confidential information set
forth in the Arrangement Agreement shall not apply if:
. the confidential information is or becomes publicly available other than
through a breach of the Arrangement Agreement by either party to whom
disclosure is made;
. the confidential information is subsequently lawfully obtained without a
secrecy obligation from a third party or parties not in a contractual or
fiduciary relationship with any member of the party
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receiving the Confidential Information (the "receiving party"), other than
through a breach of the Arrangement Agreement, provided that written
supporting documentation confirming the lawful authority of such third party
or parties to disclose the confidential information is provided to the
supplier;
. the confidential information was known by the receiving party or other parties
prior to the time at which disclosure of such confidential information was
made to the receiving party or such other parties in accordance with the
Arrangement Agreement, provided that written supporting documentation
confirming that fact is provided to the supplier; or
. the written consent of the supplier is given prior to any such use or
disclosure being made.
Each of Allelix and NPS agreed pursuant to the Arrangement Agreement that it
would be difficult to measure the damage to the other party resulting from the
breach of such party's obligations under such confidentiality provisions, that
injury to the other party from any such breach would be impossible to calculate,
and that monetary damages would therefore be an inadequate remedy; accordingly,
each party agreed that the other party shall be entitled, in addition to all
other remedies it might have, to injunctions or other appropriate orders to
restrain any such breach without showing or providing any actual damage or
posting any bond or other security in connection with such remedy.
Standstill
Each of Allelix and NPS has agreed pursuant to the Arrangement Agreement that
neither it nor an affiliate will, prior to June 27, 2000, without the prior
written consent of the other party, among other things:
. acquire, offer, or agree to acquire, directly or indirectly, by purchase or
otherwise, individually or in concert with any other person, any voting
securities or securities convertible into or exchangeable for voting
securities, of the other party;
. directly or indirectly make, or in any way participate in, any solicitation of
proxies to vote, or seek to advise or influence any other person with respect
to the voting of any voting securities of the other party; or
. act alone or in concert with others to seek to control the management,
directors, or corporate policies of the other party.
The above restrictions will not apply in the event an offer is made (and not
withdrawn at the time the conduct otherwise prohibited above has commenced) to
acquire beneficial ownership of all or a material portion of the assets of the
other party or one or more of its subsidiaries or not less than 20% of the
issued and outstanding common shares of the other party pursuant to a
transaction to be considered at a meeting of security holders requisitioned by a
security holder of such other party or pursuant to a take-over bid, tender
offer, or similar transaction involving the other party.
Access
Allelix has covenanted pursuant to the Arrangement Agreement that NPS will be
entitled, on reasonable notice to Allelix, to access Allelix's premises and will
be entitled to meet with Allelix's shareholders, creditors, licensors,
licensees, and employees. Allelix and its subsidiaries must keep NPS fully
informed as to its and its subsidiaries' business and affairs and as to the
decisions required with
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respect to the most advantageous methods of operating and producing from its and
its subsidiaries' assets.
Amendment
The Arrangement Agreement may, at any time and from time to time before or
after the holding of the Allelix Special Meeting, be amended by written
agreement of the parties thereto without further notice to or authorization on
the part of their respective shareholders, and any such amendment may, without
limitation:
. change the time for performance of any of the obligations or acts of the
parties thereto;
. waive any inaccuracies or modify any representation contained therein or in
any document delivered pursuant hereto;
. waive compliance with or modify any of the covenants therein contained and
waive or modify performance of any of the obligations of the parties thereto;
and
. waive compliance with or modify any conditions precedent therein contained;
provided that, notwithstanding the foregoing, the number of Exchangeable Shares
which the holders of Allelix Common Shares shall have the right to receive on
the Arrangement may not be reduced without the approval of the holders of the
Allelix Common Shares given in the same manner as required for the approval of
the Arrangement or as may be ordered by the Ontario Court.
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Support Agreement
The following is a summary of the material provisions of to the Support
Agreement, a copy of which is attached to this Proxy Statement as Appendix I,
and incorporated by reference herein. Statements made herein with respect to the
Support Agreement are qualified in their entirety by the more detailed
information set forth in the Support Agreement. Pursuant to the Support
Agreement, NPS will make the following covenants for so long as any Exchangeable
Shares (other than Exchangeable Shares owned by NPS or its affiliates) remain
outstanding:
. NPS will not declare or pay dividends on the NPS Common Shares unless NPS
Allelix is able to declare and pay and simultaneously declares or pays, as the
case may be, an equivalent dividend on the Exchangeable Shares;
. NPS will advise NPS Allelix in advance of the declaration of any dividend on
the NPS Common Shares and ensure that the declaration date, record date and
payment date for dividends on the Exchangeable Shares are the same as that for
the corresponding dividend on the NPS Common Shares;
. NPS will ensure that the record date for any dividend declared on the NPS
Common Shares is not less than ten business days after the declaration date of
such dividend; and
. NPS will take all actions and do all things reasonably necessary or desirable
to enable and permit NPS Allelix, in accordance with applicable law, to comply
with any Retraction Request by a holder of Exchangeable Shares, effectuate a
redemption of the Exchangeable Shares and/or make distributions under the
Exchangeable Shares Provisions to the holders of Exchangeable Shares upon the
liquidation of NPS.
The Support Agreement and the Exchangeable Share provisions provide that,
without the prior approval of NPS Allelix and the holders of Exchangeable
Shares, NPS will not issue or distribute additional NPS Common Shares,
securities exchangeable for or convertible into or carrying rights to acquire
NPS Common Shares, or rights to subscribe therefor or other assets to all or
substantially all holders of NPS Common Shares, nor change the NPS Common
Shares, unless the same or an economically equivalent distribution on or change
to the Exchangeable Shares (or in the rights of the holders thereof) is made
simultaneously. The Board of Directors of NPS Allelix is conclusively empowered
to determine in good faith and in its sole discretion whether any corresponding
distribution on or change to the Exchangeable Shares is the same as or
economically equivalent to any proposed distribution on or change to the NPS
Common Shares. In the event of any proposed tender offer, share exchange offer,
issuer bid, take-over bid, or similar transaction with respect to the NPS Common
Shares which is recommended, approved, or consented to by the Board of Directors
of NPS and in connection with which the Exchangeable Shares are not redeemed by
NPS Allelix or purchased by NPS Holdings, pursuant to the Redemption Call Right,
NPS will use reasonable efforts to take all actions necessary or desirable to
enable holders of Exchangeable Shares to participate in such transaction to the
same extent and on an economically equivalent basis as the holders of NPS Common
Shares.
NPS Allelix is required to notify NPS and NPS Holdings of the occurrence of
certain events, such as the liquidation, dissolution, or winding-up of NPS
Allelix, and NPS Allelix's receipt of a Retraction Request from a holder of
Exchangeable Shares.
Under the Support Agreement, NPS has agreed not to exercise any voting
rights attached to the Exchangeable Shares owned by it or any of its affiliates
on any matter considered at meetings of holders
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<PAGE>
of Exchangeable Shares. NPS has also agreed to use its reasonable efforts to
enable NPS Allelix to maintain a listing for the Exchangeable Shares on a
Canadian stock exchange.
With the exception of administrative changes for the purpose of adding
covenants for the protection of the holders of Exchangeable Shares, making
certain necessary amendments or curing ambiguities or clerical errors (in each
case provided that the Board of Directors of each of NPS, NPS Allelix, and NPS
Holdings are of the opinion that such amendments are not prejudicial to the
rights or interests of the holders of Exchangeable Shares), the Support
Agreement may not be amended without the approval of the holders of Exchangeable
Shares.
Voting and Exchange Trust Agreement
The following is a summary of the material provision of the Voting and
Exchange Trust, a copy of which is attached hereto as Appendix F, and
incorporated herein by reference. Statements made herein are qualified in their
entirety by the more detailed information set forth in the Voting and Exchange
Trust Agreement.
On the Effective Date, NPS, NPS Allelix, and a trust company mutually
acceptable to NPS and Allelix (the "Trustee") will enter into the Voting and
Exchange Trust Agreement in substantially the form attached hereto as Appendix
F. Pursuant to the Voting and Exchange Trust Agreement, the terms of which are
incorporated herein, NPS will issue the NPS Special Voting Share to the Trustee
for the benefit of the holders of Exchangeable Shares. The NPS Special Voting
Share will have the number of votes, which may be cast at any meeting at which
holders of NPS Common Shares are entitled to vote, equal to the number of
outstanding Exchangeable Shares held by the registered holders from time to time
of Exchangeable Shares.
Each holder of Exchangeable Shares on the record date for any meeting at
which holders of NPS Common Shares are entitled to vote will be entitled to
instruct the Trustee to exercise one of the votes attached to the NPS Special
Voting Share for each Exchangeable Share held by such holder. The Trustee will
exercise (either by proxy or in person) each vote attached to the NPS Special
Voting Share only as directed by the relevant holder and, in the absence of
instructions from an Exchangeable Share holder as to voting, will not exercise
such votes. An Exchangeable Share holder may, upon instructing the Trustee,
obtain a proxy from the Trustee entitling the beneficiary to vote directly at
the relevant meeting the votes attached to the NPS Special Voting Share to which
the beneficiary is entitled.
All rights of a holder of Exchangeable Shares to exercise votes attached to
the NPS Special Voting Share will cease upon the exchange by the holder of such
Exchangeable Shares for NPS Common Shares.
PROPOSAL TWO - APPROVAL OF THE AMENDMENT OF THE
NPS CERTIFICATE OF INCORPORATION
The NPS Board of Directors has approved and submitted for a vote with the
NPS Stockholders a Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of NPS (the "Certificate of Amendment"), a copy of
which is attached hereto as Appendix C.
Conditional upon satisfaction of the various conditions to closing in the
Arrangement Agreement, the Certificate of Amendment increases the total number
of shares of capital stock authorized from 25,000,000 shares to 50,000,000
shares and increases the total number of shares of NPS Common Stock authorized
from 20,000,000 to 45,000,000 shares.
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Such amendments to the authorized capital of NPS are needed in order for
the Allelix stockholders to receive the consideration contemplated by the
Arrangement Agreement and for further issuances of NPS Common Stock as
contemplated by the Arrangement in the ordinary course of business. Upon
consummation of the Arrangement (assuming no exercise of outstanding options or
other rights to purchase NPS Common Stock or Allelix Common Stock, and no
exercise of other outstanding rights to purchase Allelix Common Stock), an
aggregate of approximately 19,519,846 shares of NPS Common Stock will be issued
and outstanding on the expected Effective Date.
Based on NPS's need to authorize additional shares of its capital stock in
connection with the Arrangement and pursuant to the terms of the Arrangement
Agreement, the Arrangement will occur only if the Certificate of Amendment is
approved by the NPS Stockholders.
THE NPS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE CERTIFICATE OF AMENDMENT.
INCOME TAX CONSEQUENCES TO NPS STOCKHOLDERS
There are no tax consequences to NPS Stockholders as a result of the
Arrangement.
INFORMATION CONCERNING ALLELIX
Business of Allelix
Allelix is governed by the provisions of the Canadian Business Corporations
Act ("CBCA"). Allelix was originally incorporated in 1981 as Allelix Inc. and
its original emphasis was on agricultural biotechnology and human diagnostics.
In October 1989, as a result of a management buy-out, Allelix redirected its
focus to human therapeutics and changed its name to Allelix Biopharmaceuticals
Inc.
Allelix is a biopharmaceutical company that applies proprietary
technologies to the identification of disease targets and to the discovery,
design, and development of novel pharmaceutical products. Products will either
be commercialized in partnership with leading biotechnology and multinational
pharmaceutical companies for global markets or by the company itself for
identified market indications.
Allelix discovers products by applying chemical and biological approaches
to disease targets identified through biotechnology. Allelix has completed a
Phase II clinical trial for its leading product candidate: ALX1-11, a
recombinant form of human parathyroid hormone, for the treatment of
postmenopausal osteoporosis and is preparing to initiate a Phase III trial in
the first half of 2000. ALX-0600, for gastrointestinal disorders, has completed
Phase I and is recruiting patients for a pilot Phase II trial in short bowel
syndrome. ALX-0646 for migraine is approaching Phase II trials and ALE-26015 for
dementia is in Phase I trials. The product pipeline includes a series of GlyT-1
and GlyT-2 inhibitors for schizophrenia and pain together with other
neuroscience compounds. Allelix has developed core capabilities in two areas of
pharmaceutical drug discovery: protein therapeutics (particularly recombinant
production of proteins and peptides) and receptor- and transporter-based drug
design (focused specifically in neuroscience. Allelix believes that these core
capabilities represent technology platforms, which can be applied to support
development of additional product candidates.
Allelix discovers, patents, and develops promising lead compounds as human
therapeutics. If such products are successfully commercialized, they typically
enjoy significant periods of market exclusivity (depending on patent protection
granted). To achieve profitable operations Allelix, alone or with others, must
successfully develop and obtain regulatory approvals to market its products. To
obtain these
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regulatory approvals and to achieve commercial success clinical trials must
demonstrate that the products are safe for use in humans and that they are
effective. There can be no assurances that the research and development
conducted by Allelix will result in commercially viable products.
All of Allelix's products are in either the research or the development
stage and therefore Allelix does not generate revenue from product sales.
Allelix funds its operations with the proceeds from collaborations with
corporate partners, the sale of equity, interest income and government grants
and loans.
Allelix forms strategic collaborations with established pharmaceutical
companies to exploit fully its technological strengths in drug discovery and
gain access to worldwide pharmaceutical markets. Allelix currently has three
significant collaborative agreements with established pharmaceutical companies:
two agreements with Eli Lilly Canada Inc. to discover new drugs for psychiatric,
neurological, and eating disorders, an agreement with Janssen Pharmaceutical
N.V. to discover new drugs for schizophrenia and/or dementia. To strengthen and
accelerate its research and development efforts, Allelix also has established a
network of collaborations with universities, academics, clinicians, and research
institutions.
In deciding to initiate, continue, or discontinue scientific programs,
management rigorously evaluates each discovery target and product candidate from
a commercial perspective, focusing on unserved or unmet medical needs which
represent significant commercial opportunities. Market size, development cost,
competitive environment, intellectual property protection, and attractiveness to
potential pharmaceutical industry partners, among other factors impact the
commercial opportunity.
Allelix's business strategy is to enhance shareholder value by bring novel
products to market as rapidly as possible; developing technology platforms for
drug discovery and development; collaborating with established pharmaceutical
companies for broad-based clinical trials and worldwide commercialization; while
building and maintaining strong relationships with universities, academics,
clinicians, and research institutions to gain access to novel product candidates
and technologies. Patent protection is secured wherever possible. It is
Allelix's full intent to reach profitability in as short a time period as
possible.
Allelix's business is divided into two primary areas: Protein Therapeutics
and Neuroscience.
The primary focus within Protein Therapeutics is the development and
commercialization of protein-based drugs for treating medical diseases or
disorders related to hormone abnormalities or deficiencies, for example, PTH
(parathyroid hormone) for the treatment of post-menopausal osteoporosis. The
group has experience in microbiology, protein manufacturing, purification, and
analytical chemistry.
The primary focus within Neuroscience is the use of rational drug design to
develop novel drug candidates for the treatment of psychiatric, neurological,
and immunological disorders. The group has demonstrated its ability to discover
and utilize human neuroreceptors, ion channels, and neurotransporters for drug
screening. The unit is currently developing product candidates for
neuropsychiatric disorders such as schizophrenia and dementia, pain (migraine,
neuropathic) as well as diabetes and obesity.
Documents Included as Appendices
The following documents, attached hereto as appendices were also filed by
Allelix with the Canadian securities regulatory authorities. The appendices form
an integral part of this Proxy Statement NPS
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Stockholders are urged to review carefully all the information contained in the
following appendices concerning Allelix:
. Allelix's Annual Information Form dated January 14, 1999, which is
attached to this Proxy Statement as Appendix I;
. Allelix's Management Proxy Circular dated November [___], 1999, which is
attached to this Proxy Statement as Appendix E;
. Allelix's Audited Consolidated Financial Statements for the year ended
August 31, 1999, which are attached to this Proxy Statement as Appendix K;
. Allelix's Management's Discussion and Analysis of Financial Condition and
Results of Operation for the year ended August 31, 1999, which is attached
to this Proxy Statement as Appendix L; and
. Allelix's Form 27 Material Change Reports dated October 6, 1999, which is
attached to this Proxy Statement as Appendix M.
Any documents of the type referred to in the preceding paragraph
(excluding confidential material change reports) filed by Allelix with the
Canadian securities regulatory authorities after the date of this Proxy
Statement and prior to the Effective Time shall be deemed to be incorporated by
reference in this Proxy Statement.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Proxy Statement to the extent that a statement
contained herein, or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein, modifies or supersedes that
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Proxy Statement. The
making of a modifying or superseding statement shall not be deemed an admission
for any purposes that the modified or superseded statement, when made,
constituted a misrepresentation, an untrue statement of a material fact or an
omission to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in light of the circumstances in
which it was made.
1999 Financial Results and Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A")
On October 21, 1999, the Board of Directors of Allelix approved Allelix's
Audited Consolidated Financial Statements for the year ended August 31, 1999, a
copy of which is attached to this Proxy Statement as Appendix K. A copy of
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the year ended August 31, 1999 is attached to this Proxy
Statement as Appendix E.
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Directors and Officers
On [___], 1999, the directors and officers of Allelix as a group
beneficially owned or had voting control or direction over [___] Allelix Common
Shares carrying approximately [___]% of the number of votes entitled to be cast
at the Allelix Special Meeting by the holders of Allelix Common Shares.
As of the date hereof, the name and municipality of residence of each
director and officer of Allelix, the date when each became a director or officer
and the principal occupation of each during the past five years were as follows:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
Director/
Officer
Name/Residence Position Principal Occupation Since
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
George E. Connell, Ph.D. Director President Emeritus, University of Toronto 1995
Toronto, Ontario
- - -----------------------------------------------------------------------------------------------------------
William W. Crouse Director Managing Director, HealthCare Ventures 1997
Princeton, NJ L.L.C.
- - -----------------------------------------------------------------------------------------------------------
John R. Evans, M.D. Director Chairman of Allelix 1983
Toronto, Ontario
- - -----------------------------------------------------------------------------------------------------------
Irving S. Johnson, Ph.D. Director Biomedical Research Consultant since 1992
Sanibel Island, Florida 1988, prior thereto, Vice President,
Research, Eli Lilly & Co., (a
pharmaceutical company)
- - -----------------------------------------------------------------------------------------------------------
Edward Rygiel Director President and Chief Executive Officer, 1989
Toronto, Ontario MDS Capital Corp., (a venture capital
corporation)
- - -----------------------------------------------------------------------------------------------------------
Nelson Sims Director Executive Director of Alliance 1995
Indianapolis, Indiana Management, Eli Lilly & Company
- - -----------------------------------------------------------------------------------------------------------
Calvin R. Stiller, Director Chairman and Chief Executive Officer of 1999
M.D.Arva, Ontario Canadian Medical Discoveries Fund Inc.;
prior thereto, Professor, Department of
Medicine, University of Western Ontario
- - -----------------------------------------------------------------------------------------------------------
Graham Strachan Director President and Chief Executive Officer of 1989
Toronto, Ontario Allelix (retired)
- - -----------------------------------------------------------------------------------------------------------
James R. Howard-Tripp Senior Vice Senior Vice President, Neuroscience, Vice 1996
Burlington, Ontario President, President, Business Development, prior
Neuroscience thereto, Vice President, Business
Development, Wyeth-Ayerst
- - -----------------------------------------------------------------------------------------------------------
Paul J. Van Damme Senior Vice Senior Vice President, Chief Financial 1997
Toronto, Ontario President, Chief Officer and Corporate Secretary; prior
Financial Officer thereto, Vice President, Finance and Chief
and Corporate Financial Officer, GlycoDesign Inc.; prior
Secretary thereto, Senior Vice-President and Chief
Financial Officer, TeleZone Corporation.
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
From among its members, the Board of Directors appoints a number of
committees with specific duties, including an Audit Committee, a Compensation
Committee, and a Corporate Governance Committee. The members of the Audit
Committee are Dr. George Connell and Edward Rygiel. The members of the
Compensation Committee are Dr. George Connell, Dr. John Evans, Edward Rygiel,
and Nelson Sims. The members of the Corporate Governance Committee are all of
the directors of Allelix except the President and Chief Executive Officer.
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Indebtedness of Directors and Senior Officers of Allelix
None of the directors, executive officers or senior officers of Allelix is,
as of the date hereof, in any way, directly or indirectly, indebted to Allelix
by way of a guarantee, support agreement, or letter of credit or other similar
arrangement or understanding provided by Allelix.
Share Capital Matters
The authorized capital of Allelix consists of an unlimited number of common
shares and an unlimited number of preferred shares issuable in series.
Allelix Preferred Shares
As of [___], 1,000 Allelix Preferred Shares were issued and outstanding.
J&J, the holders of the Allelix Preferred Shares have agreed to the conversion
of such shares to NPS Common Stock at the Effective Time of the Arrangement.
Each Preferred Share will convert into 284,269 shares of NPS Common Stock.
Allelix Common Shares
As of August 31, 1999, there were 20,126,182 Allelix Common Shares issued
and outstanding. Holders of Allelix Common Shares are entitled to one vote for
each share held at all meetings of shareholders, other than meetings at which
only holders of another specified class or series are entitled to vote and are
entitled to receive dividends as and when declared by the Board of Directors of
Allelix from time to time. On the liquidation, dissolution, or winding up of
Allelix, holders of Allelix Common Shares (subject to the rights of holders of
any shares ranking prior to the Allelix Common Shares) are entitled to receive
the remaining property of Allelix.
Stock Exchange Listings
The Allelix Common Shares are listed on the TSE and the ME.
Auditors, Transfer Agents and Registrars
The auditors of Allelix are Ernst & Young LLP, Toronto. The transfer agent
and registrar for the Allelix Common Shares and the Allelix Preferred Shares is
CIBC Mellon Trust Company (Toronto).
LEGAL MATTERS
Certain legal matters in connection with the Arrangement will be passed
upon for NPS by Blake Cassels & Graydon, Toronto, Ontario and James U. Jensen,
Vice President of Legal Affairs of NPS Pharmaceuticals, Inc.
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<PAGE>
REPRESENTATIVES OF INDEPENDENT ACCOUNTANTS
Representatives of KPMG LLP are expected to be present at the NPS Special
Meeting. While such representatives have stated that they do not plan to make a
statement at such meetings, they will be available to respond to appropriate
questions from stockholders in attendance.
BY ORDER OF THE BOARD OF DIRECTORS OF
NPS PHARMACEUTICALS, INC.
____________________________________
James U. Jensen
Title: Secretary
---------------------------
Date: November 15, 1999
---------------------------
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EXHIBIT 2.1
ARRANGEMENT AGREEMENT
---------------------
THIS AGREEMENT made as of September 27, 1999
BETWEEN:
ALLELIX BIOPHARMACEUTICALS INC., a corporation subsisting pursuant to
the laws of Canada ("Allelix")
OF THE FIRST PART
AND
NPS PHARMACEUTICALS, INC., a corporation subsisting pursuant to the
laws of Delaware ("NPS")
OF THE SECOND PART
WHEREAS Allelix and NPS wish to propose an arrangement involving
Allelix, the Allelix Shareholders (as hereinafter defined) and NPS;
AND WHEREAS the parties hereto intend to carry out the transaction
contemplated herein by way of an arrangement under the provisions of the Canada
Business Corporations Act and the Business Corporations Act (Ontario);
AND WHEREAS the parties hereto have entered into this Agreement to
provide for the matters referred to in the foregoing recitals and for other
matters relating to such arrangement;
NOW THEREFORE THIS AGREEMENT WITNESSETH that, in consideration of the
covenants and agreements herein contained and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties hereto do hereby covenant and agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Agreement, unless the context otherwise requires:
"Agreement" means this Arrangement Agreement;
A-1
<PAGE>
"Allelix Common Shares" means the common shares of Allelix as constituted
on the date hereof;
"Allelix Counsel" means Stikeman, Elliott and Testa, Hurwitz & Thibeault
LLP, or such other counsel as may be appointed by Allelix;
"Allelix Financial Statements" means the comparative consolidated financial
statements (including consolidated balance sheets and consolidated
statements of loss and deficit and consolidated statements of changes in
financial position, together with notes thereto) for Allelix's fiscal year
ended August 31, 1998 (audited) and the nine month period ended May 31,
1999 (unaudited);
"Allelix Meeting" means the special meeting of Allelix Shareholders, as
ordered by the Interim Order and all adjournments and postponements
thereof, to consider and, if determined advisable, approve the repricing of
certain Allelix Options as approved by the Allelix board of directors on
April 15, 1999 and consider and, if determined advisable, approve a special
resolution (the "Continuance Resolution") approving the continuance of
Allelix as an Ontario corporation under the OBCA and the Arrangement
Resolution;
"Allelix Options" means the options to purchase Allelix Common Shares
issued from time to time prior to the date hereof pursuant to the Allelix
Stock Option Plan;
"Allelix Preferred Shares" means the preferred share, series 1 shares of
Allelix as constituted on the date hereof;
"Allelix Shareholders" means the registered holders of Allelix Common
Shares;
"Allelix Stock Option Plan" means the employee stock option plan dated
December 19, 1999 of Allelix;
"Allelix Subsidiaries" means Allelix Neuroscience Inc., Allelix Pharm-Eco
LP and Allelix Pharm-Eco Inc.;
"Allelix Warrants" means the warrants to purchase Allelix Common Shares
issued from time to time prior to the date hereof;
"Applicable Law" means, in relation to any Person, transaction or event,
all applicable provisions (or mandatory applicable provisions, if so
specified) of laws, statutes, regulations, rules, official directives and
orders of all stock exchanges and governmental bodies (whether
administrative, legislative, executive or otherwise) and judgments, orders,
rulings and decrees of all courts, arbitrators, commissions or bodies
exercising similar functions in actions or proceedings in which the Person
in question is a party or by which it is bound or having application to the
transaction or event;
"Arrangement" means the arrangement under the provisions of Section 182 of
the OBCA, on the terms and conditions set forth in the Plan of Arrangement
as such Plan
A-2
<PAGE>
may be amended in the Final Order with the consent of Allelix and NPS, both
acting reasonably;
"Arrangement Resolution" mean the special resolution of the Allelix
Shareholders concerning the Arrangement;
"Articles of Arrangement" means the articles of arrangement in respect of
the Arrangement required by the OBCA to be filed with the OBCA Director
after the Final Order is made;
"business day" means any day, other than Saturday, Sunday and a statutory
holiday in Toronto, Ontario or Salt Lake City, Utah;
"CBCA" means the Canada Business Corporations Act, as now in effect and as
it may be amended from time to time prior to the Effective Date, including
the regulations made thereunder;
"Confidential Information" means all interpretations, technical, data,
reports, notes, know how, computer printouts, information and documents (in
each case whether in written or electronic form) pertaining in any way
whatsoever to the business, operations or capital of a party hereto or its
affiliates (as such term is defined in the Securities Act (Ontario)),
disclosed or to be disclosed pursuant to the terms and conditions of this
Agreement, and includes but is not limited to information relating to
engineering, research and development, corporate operations, business
opportunities, products, formulas, services, designs, drawings, marketing
and financial and taxation matters;
"Court" means the Superior Court of Justice (Ontario);
"Delaware Act" means the Delaware Business Corporations Act, as amended;
"Dissent Rights" has the meaning ascribed thereto in the Plan of
Arrangement;
"Effective Date" means the date shown on the certificate of arrangement to
be issued by the Director;
"Effective Time" has the meaning ascribed thereto in the Plan of
Arrangement;
"Encumbrance" includes, without limitation, any mortgage, pledge,
assignment, charge, lien, or other security interest, or any trust or any
preferential right of purchase or other third party interest and any
agreement, option, right or privilege (whether by law, contract or
otherwise) capable of becoming any of the foregoing;
"Environmental Laws" means any applicable Canadian or foreign federal,
provincial, state, municipal or local laws, regulations, orders, government
decrees or ordinances with respect to environmental, health or safety
matters;
A-3
<PAGE>
"Exchangeable Shares" means the exchangeable shares of NPS - Allelix Inc.
created pursuant to the Plan of Arrangement with the share attributes set
forth in Appendix I to the Plan of Arrangement;
"Final Order" means the order of the Court approving the Arrangement, as
such order may be amended or modified by the highest court to which an
appeal may be applied for at any time prior to the Effective Date or, if
appealed, then, unless such appeal is withdrawn or denied, as granted or
affirmed;
"Information Circular" means the notice of meeting and management
information circular of Allelix prepared in connection with the Allelix
Meeting provided by Allelix to Allelix Shareholders in connection with the
transactions contemplated by this Agreement;
"Interim Order" means an order of the Court providing for, among other
things, the calling and holding of the Allelix Meeting and certain other
procedural matters, as well as for the issuance of the notice of
application for the Final Order, as the same may be amended or supplemented
from time to time;
"Material Adverse Effect" and "Material Adverse Change" means, in relation
to a party hereto, a condition affecting or a change in the business,
assets, properties, condition (financial or otherwise), results of
operations or prospects of such party (and its Subsidiaries on a
consolidated basis) which when taken as a whole have or represent or could
reasonably be expected to have a material adverse effect on the party or on
the market price or value of its securities, other than any matter or
action relating to (i) the Canadian economy or securities markets in
general or (ii) relating to the Canadian or U.S. biotechnology industry in
general, but not specifically relating to the party;
"ME" means The Montreal Exchange;
"Nasdaq" means the National Association of Securities Dealers Automated
Quotation System;
"NPS - Allelix Inc." means a corporation incorporated under the British
Columbia Companies Act as a wholly-owned subsidiary of NPS Holdings;
"NPS Common Shares" means the common shares of NPS, par value $0.001 as
constituted on the date hereof;
"NPS Counsel" means Blake, Cassels & Graydon and/or such other counsel as
may be appointed by NPS and James U. Jensen, Esq.;
"NPS Holdings" means a corporation incorporated under the British Columbia
Companies Act as a wholly-owned subsidiary of NPS;
"NPS Information Circular" means the notice of meeting and management
information circular of NPS prepared in connection with the NPS Meeting
provided by
A-4
<PAGE>
NPS to NPS Securityholders in connection with the transactions contemplated
by this Agreement;
"NPS Meeting" means the special meeting of the holders of NPS Common Shares
and all adjournments and postponements thereof to consider and, if
determined advisable, approve, among other things, (i) an amendment to
NPS' Articles of Incorporation to increase the number of NPS Common Shares
authorized for issuance thereunder; and (ii) the issuance of up to
7,534,000 NPS Common Shares as contemplated by the Arrangement;
"NPS Preferred Shares" means the NPS Preferred Stock, $0.001 par value, as
constituted on the date hereof;
"NPS Shareholder Rights Plan" means the Shareholder Rights Plan adopted by
the NPS Board of Directors in December 1996;
"NPS Stock Option Plans" means the 1987 Stock Option Plan, the 1994 Equity
Incentive Plan, the 1994 Non-Employee Directors' Stock Option Plan, the
1994 Non-Employee Director Stock Bonus Program, the Employee Stock Purchase
Plan and the 1998 Stock Option Plan;
"NPS Warrants" means the warrants to purchase NPS Common Shares issued from
time to time prior to the date hereof;
"OBCA" means the Business Corporations Act (Ontario), as now in effect and
as it may be amended from time to time prior to the Effective Date,
including the regulations made thereunder;
"OBCA Director" means the Director appointed under Section 278 of the OBCA;
"Person" means an individual, a partnership, a corporation, a trust, an
unincorporated organization, a union, a government or any department or
agency thereof and the heirs, executors, administrators or other legal
representatives of an individual;
"Plan of Arrangement" means the plan of arrangement which is annexed as
Schedule A hereto and any amendment or variation thereto made in accordance
with Section 9.1 of this Agreement;
"Preferred Stock Purchase Rights" means the purchase rights issued pursuant
to the NPS Shareholder Rights Plan;
"Public Documents" means all documents filed, in the case of Allelix, by
Allelix with the applicable securities regulatory authorities in all
provinces in Canada in which Allelix is a reporting issuer, and in the case
of NPS, by NPS with the United States Securities and Exchange Commission
and Nasdaq, during the three years preceding the date of this Agreement,
and includes all documents so filed to and including the Effective Date by
a Person with respect to its business and affairs;
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"Subsidiary" means, with respect to (i) a specified body corporate, any
body corporate of which more than 50% of the outstanding shares ordinarily
entitled to elect a majority of the board of directors thereof (whether or
not shares of any other class or classes shall or might be entitled to vote
upon the happening of any event or contingency) are at the time owned
directly or indirectly by such specified body corporate and shall include
any body corporate in like relation to a Subsidiary, and (ii) any Person
other than a corporation in which the first-mentioned Person or one or more
of its subsidiaries, directly or indirectly, has at least a majority
ownership and power to direct the policies, management and affairs thereof;
"Support Agreement" means the agreement between NPS, NPS Holdings and NPS -
Allelix Inc., substantially in the form of Schedule B hereto;
"Tax" and "Taxes" means, with respect to any entity, all income taxes
(including any tax on or based upon net income, gross income, income as
specially defined, earnings, profits or selected items of income, earnings
or profits) and all capital taxes, paid-up capital taxes, gross receipts
taxes, environmental taxes, sales taxes, use taxes, ad valorem taxes, value
added taxes, transfer taxes, franchise taxes, licence taxes, withholding
taxes, payroll taxes, employment taxes, Canada or Quebec Pension Plan
premiums, excise, severance, social security premiums, workers'
compensation premiums, unemployment insurance or compensation premiums,
stamp taxes, occupation taxes, premium taxes, property taxes, windfall
profits taxes, alternative or add-on minimum taxes, goods and services
tax, customs duties or other taxes, fees, imports, assessments or charges
of any kind whatsoever and any instalments in respect thereof, together
with any interest and any penalties or additional amounts imposed by any
taxing authority (domestic or foreign) on such entity and any interest,
penalties, additional taxes and additions to tax imposed with respect to
the foregoing.
"Tax Return" and "Tax Returns" means all returns, declarations, reports,
information returns and statements required to be filed with any taxing
authority relating to Taxes;
"TSE" means The Toronto Stock Exchange;
"U.S. Securities Exchange Act" means the United States Securities Exchange
Act of 1934, as amended;
"Voting and Exchange Trust Agreement" means the agreement between NPS,
NPS - Allelix Inc. and a trust company, substantially in the form of
Schedule C hereto.
1.2 Interpretation Not Affected by Headings
The division of this Agreement into Articles, Sections, subsections and
paragraphs and the insertion of headings are for convenience of reference only
and shall not affect in any way the meaning or interpretation of this Agreement.
1.3 Article References
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Unless the contrary intention appears, references in this Agreement to an
Article, Section, subsection, paragraph or schedule by number or letter or both
refer to the Article, Section, subsection, paragraph or schedule, respectively,
bearing that designation in this Agreement.
1.4 Number and Gender
In this Agreement, unless the contrary intention appears, words importing
the singular include the plural and vice versa; words importing gender shall
include all genders; and words importing persons shall include a natural person,
firm, trust, partnership, association, corporation, joint venture or government
(including any governmental board, agency or instrumentality thereof).
1.5 Date for Any Action
If the date on which any action is required to be taken hereunder by any of
the parties is not a business day in the place where the action is required to
be taken, such action shall be required to be taken on the next succeeding day
which is a business day in such place.
1.6 Currency
Unless otherwise stated, all references in this Agreement to sums of money
are expressed in lawful money of the United States of America.
1.7 Knowledge
The use in this Agreement of the phrases "Allelix knowledge", "knowledge of
Allelix" and "known to Allelix", and similar phrases referring to "it" or "its"
in reference to the knowledge of Allelix with respect to any matter or thing,
shall be interpreted to mean the actual knowledge of the directors and senior
officers of Allelix after enquiry of the management or employees of Allelix who
have management responsibility over the area of Allelix's business to which the
subject matter of Allelix's actual knowledge relates, and the phrases "NPS
knowledge", "knowledge of NPS", and similar phrases referring to "it" or "its"
in reference to the knowledge of NPS or "known to NPS" with respect to any
matter or thing, have a corresponding meaning.
1.8 Disclosure
The use in this Agreement of the phrase "except as disclosed" and similar
phrases, shall mean except as disclosed in writing by the disclosing party to
the receiving party (which shall include, without limitation, delivery of
documents for the purpose of disclosure of the contents thereof) and such
disclosure having been acknowledged in writing by the receiving party.
1.9 Schedules
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The following schedules are incorporated by reference into this Agreement
and form part hereof:
Schedule A - Plan of Arrangement
Schedule B - Support Agreement
Schedule C - Voting and Exchange Trust Agreement
ARTICLE 2
THE ARRANGEMENT
2.1 Arrangement
As soon as reasonably practicable, Allelix and NPS shall apply to the Court
pursuant to Section 192 of the CBCA and Section 182 of the OBCA for an order
approving the Arrangement and in connection with such application shall:
(a) as soon as practicable and, in any event, by not later than October
31, 1999, file, proceed with and diligently prosecute an application
for an Interim Order under Section 192(4) of the CBCA and Section
182(5) of the OBCA providing for, among other things, the calling and
holding of the Allelix Meeting for the purpose of Allelix Shareholders
considering and, if deemed advisable, approving the Arrangement
Resolution; and
(b) subject to obtaining the approval of the Allelix Shareholders as
contemplated in the Interim Order and as may be directed by the Court
in the Interim Order, take the steps necessary to submit the
Arrangement to the Court and apply for the Final Order;
and, subject to the fulfilment or waiver of the conditions set forth in Article
7, shall deliver to the Director the Articles of Arrangement and such other
documents as may be required to give effect to the Arrangement.
2.2 Interim Order
The Interim Order sought by Allelix and NPS shall provide that, for the
purpose of the Allelix Meeting, the requisite majority for the approval of the
Arrangement Resolution by the holders of the Allelix Common Shares shall be two-
thirds of the votes cast by such shares present in person or by proxy at the
Allelix Meeting with holders of Allelix Preferred Shares entitled to vote as
holders of Allelix Common Shares in respect of that number of Allelix Common
Shares equal to the number of Allelix Common Shares such holders would be
entitled to receive if such shares were converted into Allelix Common Shares on
the record date for the Allelix Meeting unless the Court otherwise orders.
2.3 Effective Date
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The Arrangement shall become effective on the Effective Date.
ARTICLE 3
MUTUAL REPRESENTATIONS AND WARRANTIES
Each party to this Agreement represents and warrants to the other party and
acknowledges that such other party is relying upon such representations and
warranties in connection with the matters contemplated by this Agreement that:
3.1 Organization and Qualification
It and each of its Subsidiaries is a corporation duly incorporated,
continued or amalgamated or a partnership formed, as the case may be, and
organized and validly existing under the laws of the jurisdiction of its
incorporation, continuance, amalgamation or formation and has the power and
authority to own or lease its property and assets and to carry on its business
as now being conducted and is duly registered to carry on business, and is in
good standing in each jurisdiction in which the character of its properties or
assets, owned or leased, or the nature of its business makes such registration
necessary, except where failure to be so registered or in good standing would
not have a Material Adverse Effect on it and its Subsidiaries, taken as a whole.
3.2 Subsidiaries
It has no Subsidiaries or agreements of any nature to acquire any
Subsidiary, or to acquire any other business operations out of the ordinary
course of business except for, in the case of Allelix, the Allelix Subsidiaries.
3.3 Authority Relative to this Agreement
It has the requisite corporate power and authority to enter into this
Agreement and, subject to obtaining the requisite approvals contemplated hereby,
to carry out its obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and in
the Plan of Arrangement have been duly authorized by its board of directors and,
except as contemplated hereby, no other corporate proceedings on behalf of it
are necessary to authorize this Agreement and the transactions contemplated
hereby. This Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of it enforceable against it
in accordance with its terms, subject to enforceability being limited by
applicable bankruptcy, insolvency, reorganization and other laws affecting the
enforcement of creditors' rights generally and the discretionary nature of
certain remedies (including specific performance and injunctive relief) and
subject to the effectiveness of clauses providing rights of indemnity or
exculpating a party or persons from a liability or a duty otherwise owed which
may be limited by law.
3.4 No Violations Caused by Agreement or Arrangement
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(a) Except as disclosed previously in writing to the other party making
reference to this paragraph, the execution and delivery of this
Agreement by it and the consummation of the transactions contemplated
hereby and by the Plan of Arrangement and performance or compliance
with the terms and provisions hereof and thereof, will not:
(i) subject to completion of the corporate proceedings contemplated
hereby, violate, conflict with, or result in breach of any
provision or, require any consent, approval or notice under, or
constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) or result in a right
of termination, cancellation, purchase or acceleration under, or
result in the creation of any Encumbrance upon any of the
properties or assets of it or of any of its Subsidiaries under
any of the terms, conditions or provisions of, its or its
Subsidiaries, articles, bylaws or other constating documents,
any agreement, contract, deed, indenture, debenture, note, bond,
Encumbrance, license, permit, approval or other instrument,
authority or obligation to which it or any of its Subsidiaries
is a party, or to which any of them or any of their respective
properties or assets may be subject, or by which it or any of
its Subsidiaries is bound;
(ii) subject to compliance with the statutes and regulations referred
to in Article 7, violate any Applicable Law, judicial or
administrative judgment, ruling, order, writ, injunction,
determination, award, decree, statute, ordinance, rule or
regulation applicable and known to it or any of its Subsidiaries
or any of their respective properties or assets; or
(iii) cause the suspension or revocation of any authorization,
consent, approval or license currently in effect,
except for such violations, conflicts, breaches, defaults, rights or
Encumbrances, suspensions, or revocations which, or any consents,
approvals or notices which if not given or received, would not have
any Material Adverse Effect; and
(b) no filing or registration with, or authorization, consent or approval
of, any domestic or foreign public body or authority is necessary by
it in connection with this Agreement, the Plan of Arrangement or the
consummation of the transactions contemplated hereby or thereby,
except as contemplated hereby and except for such filings or
registrations which, if not made, or for such authorizations, consents
or approvals, which, if not received, would not have any Material
Adverse Effect.
3.5 No Outstanding Actions, Suits, Proceedings or Investigations
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Except as disclosed previously in writing to the other party making
reference to this paragraph, there are no actions, suits, proceedings or
investigations commenced or, to its knowledge, contemplated or threatened
against or affecting it or any of its Subsidiaries, at law or in equity, before
or by any governmental department, commission, board, bureau, court, agency,
arbitrator, stock exchange, market system or instrumentality, domestic or
foreign, of any kind, nor to the best of its knowledge are there any existing
facts or conditions which may reasonably be expected to be a proper basis for
any actions, suits, proceedings or investigations, which in any case could
prevent or hinder the consummation of the transactions contemplated hereby or
which could reasonably be expected to have a Material Adverse Effect.
3.6 Financial Statements
The audited financial statements prepared in respect of its most recently
completed financial year for which such statements have been prepared and the
unaudited financial statements prepared in respect of the periods subsequent
thereto were prepared in accordance with applicable generally accepted
accounting principles consistently applied and fairly present the consolidated
financial position, consolidated profits and loss (in the case of Allelix),
results of operations and changes in the financial position of the corporations
to which they relate on a consolidated basis as of the dates and for the periods
indicated therein.
3.7 Minute Books and Unanimous Shareholder Agreement
Its and its Subsidiaries' minute books are true and correct and contain the
minutes of all meetings and all resolutions of the shareholders and directors
thereof up to September 12, 1999 and, to its knowledge, there are no agreements
among its securityholders in relation to or concerning the voting, holding or
acquisition of its securities.
3.8 Public Disclosure
Its Public Documents:
(a) did not, as of the respective dates thereof, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements made therein not misleading in light of the circumstances
under which they were made; and
(b) complied in all material respects with all applicable requirements of
Applicable Law, as of the respective dates thereof, and no fact exists
on the date hereof which has not been disclosed in its Public
Documents and which, if publicly disclosed, would reflect a Material
Adverse Change (or an event, condition or state of facts which might
reasonably have been expected to give rise to a Material Adverse
Effect).
3.9 No Outstanding Defaults and Violations
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Neither it nor any of its Subsidiaries is:
(a) in breach or violation of any term or provision of its articles, by-
laws or other constating documents; or
(b) in breach or violation of any of the terms or provisions of, or in
default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement (written or oral) or instrument or agreement,
contract, deed, indenture, debenture, note, bond, Encumbrance,
research agreement, license, license agreement, permit, joint venture
agreement, collaboration agreement, approval or other instrument,
obligation or authority to which it or any of its Subsidiaries is a
party or by which it or any of its Subsidiaries is bound or to which
any of the properties or assets of it or any of its Subsidiaries is
subject or, any statute or any Applicable Law order, rule or
regulation of any court or government or governmental agency or
authority having jurisdiction over it or any of its Subsidiaries or
any of their respective properties or assets, where such breach,
violation or default has or could reasonably be expected to have a
Material Adverse Effect.
3.10 No Unusual Transactions or Events
Except as previously disclosed in writing to the other party making
reference to this paragraph or as otherwise contemplated hereby, since, in the
case of Allelix, August 31, 1998 and, in the case of NPS, December 31, 1998, it
and each of its Subsidiaries has:
(a) not amended its articles, by-laws or other constating documents;
(b) conducted their respective businesses in all material respects in the
ordinary course of business consistent with normal industry practice;
(c) maintained or obtained all licences, permits, orders or approvals of,
and has made all required registrations with, any governmental or
regulatory body that is material to the conduct of its business;
(d) not suffered any Material Adverse Change except as has been disclosed
in its Public Documents;
(e) not made any change in its accounting principles and practices as
theretofore applied including, without limitation, the basis upon
which its assets and liabilities are recorded on its books and its
earnings and profits and losses are ascertained;
(f) not suffered any damage, destruction or loss whether covered by
insurance or not that could reasonably be expected to have a Material
Adverse Effect;
(g) not sold or otherwise disposed of property or assets aggregating to
10% or more of its total consolidated property and assets other than
in the ordinary and regular course of business consistent with past
practice;
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(h) not entered into, amended, relinquished, terminated or not renewed any
material contract, agreement, license, franchise, transaction,
commitment or other right or obligation, other than in the ordinary
and regular course of business consistent with past practice;
(i) maintained in effect salary and other compensation levels and benefits
and employee rights on termination, in accordance with its then
existing salary administration program;
(j) not declared, paid or set aside for payment any dividend or
distribution of any kind in respect of any of its outstanding
securities nor made any repayments of share capital; and
(k) not entered into or committed to enter into any agreement with an
officer or director of the corporation or the beneficial owner of
securities carrying more than 10% of the voting rights attached to all
of its outstanding securities.
3.11 Tax and other Returns
Except as previously disclosed in writing to the other party making
reference to this paragraph, it and each of its Subsidiaries has:
(a) duly and timely filed, in proper form, all Tax Returns required to be
filed by them (all of which Tax Returns were correct and complete in
all material respects) for all periods in respect of which such Tax
Returns were due prior to the date hereof, and have paid in full all
Taxes shown thereon, and there are no outstanding agreements or
waivers extending the statutory period of limitations applicable to
any return referred to above. There are no assessments or
reassessments of Taxes that have been issued and are outstanding and
there are no outstanding issues which have been raised and
communicated to it by any taxing authority including any discussions
in respect of potential assessments or reassessments; and
(b) withheld from each payment made to any of its officers, directors and
employees and former officers, directors and employees and, where the
party or its Subsidiary is resident or deemed to be resident in Canada
for purposes of the Income Tax Act (Canada), to all persons who are
non-residents of Canada, all amounts required to be withheld in
respect of Taxes (including, without limitation, income tax) and
remitted the same to the proper tax or other authority within the time
required under any applicable legislation. All Taxes required under
applicable legislation to be charged, collected and remitted on any
sale, supply or delivery whatsoever, have been so charged, collected
and remitted on a timely basis.
3.12 Tax Provisions
Provision has been made, in accordance with applicable generally accepted
accounting principles, in its Financial Statements for all Taxes, payable in
respect of the business or assets of
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it and its Subsidiaries or otherwise. Provision has also been made, in
accordance with generally accepted accounting principles, in their books and
records for all Taxes in respect of any accounting period which has ended
subsequent to the period covered by the Financial Statements.
3.13 Historical Assessments, Audits and Returns
In respect of each taxation year of it and each of its Subsidiaries, and
the predecessors of such corporations, it has provided to the other party making
reference to this paragraph:
(a) full and complete disclosure with respect to the status of any audits;
(b) copies of all objections or waivers with respect to such years
pursuant to applicable tax legislation, tax rulings and opinions from
applicable taxing authorities pursuant to which it, its affiliates and
any predecessors of such corporations operated or now operate; and
(c) copies of all Tax Returns which comprise all of the information
necessary to form a reasonably accurate understanding of the current
tax position of it and its Subsidiaries.
3.14 Assistance Filings
All filings made by it and its Subsidiaries under which it or its
Subsidiaries has received or is entitled to government assistance or incentives
have been made in accordance, in all material respects, with all applicable
legislation and contain no misrepresentations of a material fact or omit to
state any material fact which could cause any amount previously paid or
previously accrued on its accounts to be recovered or disallowed.
3.15 Insurance
It and its Subsidiaries maintain business and property insurance in
connection with their assets and business and liability insurance with respect
to claims for personal injury, death or property damage in relation to the
operation of their businesses, all with responsible and reputable insurance
companies in such amounts and with such deductibles as are customary in the case
of businesses of established reputation engaged in their industry.
3.16 Environmental Matters
To its knowledge, except as disclosed in writing to the other party making
reference to this paragraph or except to the extent that such violation does not
have a Material Adverse Effect on it:
(a) it and each of its Subsidiaries is not in violation of any
Environmental Laws;
(b) it and each of its Subsidiaries has operated its business at all times
and has received, handled, used, stored, treated, shipped and disposed
of all contaminants without violation of any Environmental Laws;
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(c) there have been no unrectified spills, releases, deposits or
discharges of hazardous or toxic substances, contaminants or wastes on
any of the real property owned or leased by it or any of its
Subsidiaries or under their respective control, nor has any such real
property been used at any time by any person as a landfill or waste
disposal site;
(d) there have been no releases, deposits or discharges, in violation of
Environmental Laws, of any hazardous or toxic substances, contaminants
or wastes to the earth, air or into any body of water or any municipal
or other sewer or drain water system by it or any of its Subsidiaries;
(e) no orders, directions or notices have been issued and remain
outstanding pursuant to Environmental Laws relating to its or any of
its Subsidiaries, business or assets;
(f) neither it nor any of its Subsidiaries has failed to report to the
proper governmental authority the occurrence of any event which is
required to be so reported by any Environmental Laws; and
(g) it and each of its Subsidiaries, holds all licenses, permits and
approvals required under Environmental Laws in connection with the
operation of its business and the ownership and use of its assets, all
such licenses, permits and approvals are in full force and effect, and
neither it nor any of its Subsidiaries has received any notification
pursuant to any Environmental Laws that any work, repairs,
construction or capital expenditures are required to be made by it as
a condition of continued compliance with any Environmental Laws, or
any license, permit or approval issued pursuant thereto, or that any
license, permit or approval referred to above is about to be reviewed,
made subject to limitations or conditions, revoked, withdrawn or
terminated.
3.17 Employment Agreements
Except as previously disclosed in writing to the other party making
reference to this paragraph:
(a) neither it nor any of its Subsidiaries is a party to any written
employment, service or pension agreement, whether written or oral,
which cannot be terminated without cause by it or such Subsidiary, as
the case may be, upon giving such notice as may be required by law (or
paying to such Person such amount in lieu of notice) and without the
payment of any damages or penalty;
(b) neither it nor any of its Subsidiaries is a party to or bound by any
union or collective agreements nor currently engaged in labour
negotiations. No grievance, application, complaint or other proceeding
has been filed by or against it which is unresolved or outstanding.
Neither it nor any of its Subsidiaries has engaged in any unfair
labour practice;
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(c) neither it nor any of its Subsidiaries is party to an employee benefit
or pension plan or other benefit plan;
(d) no vacation pay, bonus, deferred compensation, profit sharing, pension
or other similar obligation is owed to any employee.
3.18 Consents and Approvals
No consent or approval is required to be obtained from, or notice required
to be delivered to, any government authority, other party to a contract or any
other person whose consent or approval is required to be obtained, or to which
notice is required to be delivered, in connection with the execution and
delivery of this Agreement and the completion of the transactions contemplated
hereby except:
(a) the approval of matters relating to the transactions contemplated
hereby at the Allelix Meeting and the NPS Meeting;
(b) the approval of the Court of the transactions contemplated hereby;
(c) exemptions from the provincial securities regulators from the
registration and prospectus requirements with respect to the
exchangeable share structure;
(d) approval of the relevant Canadian stock exchange(s) regarding the
conditional listing of the Exchangeable Shares;
(e) effectiveness of the registration statements filed with the U.S.
Securities and Exchange Commission regarding the NPS Common Shares;
(f) approval of Nasdaq regarding the trading of the NPS Common Shares
subject to notice of issuance;
(g) filing notice of the Arrangement pursuant to the Investment Canada
Act;
except where failure to obtain such consent or approval would not constitute a
Material Adverse Effect.
3.19 Brokers and Finders' Fees
Except for the previously disclosed arrangements of Allelix with BancBoston
Robertson Stephens and of NPS with Prudential Vector, neither the execution of
this Agreement nor the consummation of the Plan of Arrangement will result in it
or any of its Subsidiaries having to pay any brokerage or finder's fee to any
person.
3.20 Intellectual Property Rights
To the best of its knowledge, all intellectual property rights (including
patents, trade-marks, know how and trade secrets) (such rights being defined as
"Intellectual Property Rights")
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owned by it or its Subsidiaries are valid, subsisting, unexpired, enforceable
and have not been abandoned and no claim has been made that the use of the
Intellectual Property Rights violates the rights of any third party. Except as
disclosed in writing to the other party making reference to this paragraph, none
of such Intellectual Property Rights have been licensed or franchised by the
Corporation to any party other than in the normal course of business.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ALLELIX
Allelix represents and warrants to NPS as follows, and acknowledges that
NPS is relying upon such representations and warranties in connection with the
matters contemplated by this Agreement:
4.1 Allelix Authorized Capital
The authorized capital of Allelix consists of an unlimited number of common
shares and preferred shares issuable in series.
4.2 Allelix Issued Capital
The issued and outstanding share capital of Allelix consists of 20,126,140
Allelix Common Shares and 1,000 Allelix Preferred Shares and, except for the
Allelix Options of which there are 1,596,321 outstanding and the Allelix
Warrants of which there are 829,108 outstanding, no other securities of Allelix
are issued and outstanding. All outstanding Allelix Common Shares have been
duly authorized and validly issued, are fully paid and non-assessable and are
not subject to, nor were they issued in violation of, any preemptive rights.
4.3 Allelix Subsidiaries
Allelix owns, except as disclosed in the notes to the Allelix Financial
Statements, directly or indirectly, all of the issued and outstanding shares of
all of its Subsidiaries, and all of the issued and outstanding shares in the
capital of each such Subsidiary as owned by Allelix are fully paid and non-
assessable and are legally and beneficially owned by Allelix free and clear of
any Encumbrances, voting trusts, proxies and other interests, claims or demands
of every kind or nature whatsoever other than the general security interest in
such shares granted by Allelix to a Canadian chartered bank pursuant to a
general security agreement, a copy of which has been provided to NPS by Allelix
and no person has any agreement, option, right or privilege (including, without
limitation, by law, pre-emptive right, contract or otherwise) to purchase,
convert into, exchange for or otherwise acquire, or any agreement, option, right
or privilege capable of becoming any such agreement, right, option or privilege,
any of the issued or unissued shares in the capital of the Subsidiary.
4.4 Allelix Options and Rights
No person has any agreement, option, warrant or any right or privilege
(whether by law, preemptive right, contract or otherwise) capable of becoming an
agreement, option or right for
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the purchase, subscription, allotment or issuance of any unissued securities of
Allelix or any Allelix Subsidiary, other than:
(a) 1,596,321 Allelix Common Shares issuable on the exercise of the
Allelix Options;
(b) 829,108 Allelix Common Shares issuable on the exercise of the Allelix
Warrants;
(c) not more than up to 875,773 Allelix Common Shares issuable upon the
conversion of the Allelix Preferred Shares (assuming a floor price of
Cdn.$3.36 and an exchange rate of U.S.$1.00 = Cdn.$1.4713, being the
noon buying rate quoted in New York for cable transfers payable in
Canadian dollars on September 27, 1999, certified by the Federal
Reserve Bank of New York for customs purposes, as required by Section
522 of the amended Tariff Act of 1930); and
(d) not more than up to 744,962 Allelix Common Shares issuable to Johnson
& Johnson Development Corporation under a stock purchase agreement
between dated October 30, 1998 (assuming a floor price of Cdn.$3.95
and an exchange rate of U.S.$1.00 = Cdn.$1.4713, being the noon buying
rate quoted in New York for cable transfers payable in Canadian
dollars on September 27, 1999, certified by the Federal Reserve Bank
of New York for customs purposes, as required by Section 522 of the
amended Tariff Act of 1930).
4.5 Allelix Status Under Securities Laws
Allelix is a reporting issuer under the securities laws of each province of
Canada and the issued and outstanding Allelix Common Shares and all issuable
Allelix Common Shares referred to in Section 4.4 are listed or listed subject to
issuance, as the case may be, on the TSE. To its knowledge, Allelix is not in
default of any requirements of such securities laws, and, to its knowledge,
Allelix is in compliance with the by-laws, rules and regulations of the TSE.
4.6 Allelix Board Approval and Recommendation
The Board of Directors of Allelix has unanimously determined that the
Arrangement is fair to the Allelix Shareholders and that the Arrangement is in
the best interests of Allelix and the Allelix Shareholders, approved the
Arrangement and the entering into and execution of this Agreement and resolved
to recommend that the Allelix Shareholders vote in favour of the Arrangement.
4.7 Information Circular
The information contained in the Information Circular (other than
information solely relating to NPS which is to be provided by NPS to Allelix for
inclusion in the Information Circular) will contain no untrue statement of a
material fact and will not omit to state a material fact that is required to be
stated or that is necessary to make a statement not misleading in light of the
circumstances in which it is made.
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4.8 Allelix Information in NPS Information Circular
The information contained in the NPS Information Circular provided by
Allelix for inclusion in the NPS Information Circular will contain no untrue
statement of a material fact and will not omit to state a material fact that is
required to be stated or that is necessary to make a statement not misleading in
light of the circumstances in which it is made.
4.9 1999 Audited Statements
Allelix represents and warrants that (i) the audited financial statements
to be prepared in respect of the financial year ended August 31, 1999 will be
prepared in accordance with generally accepted accounting principles
consistently applied and that such statements will fairly present the financial
position and results of operations and changes in the financial position of
Allelix on a consolidated basis as of the date of such statements and (ii) it
will not make any change in its accounting principles and practices previously
applied including, without limitation, the basis on which its assets and
liabilities are recorded on its books and its earnings and profits and losses
are ascertained.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF NPS
NPS represents and warrants to Allelix as follows, and acknowledges that
Allelix is relying upon such representations and warranties in connection with
the matters contemplated by this Agreement:
5.1 NPS Authorized Capital
The authorized capital of NPS consists of 20,000,000 NPS Common Shares and
5,000,000 NPS Preferred Shares.
5.2 NPS Issued Capital
The issued and outstanding share capital of NPS consists of 12,710,724 NPS
Common Shares and, except for (a) the NPS Options, (b) the NPS Warrants, (c) the
NPS Preferred Share to be issued in connection with the transactions
contemplated hereby, and (d) the NPS Common Shares to be issued in connection
with the transactions contemplated hereby, no other securities of NPS are issued
and outstanding. All outstanding NPS Common Shares have been duly authorized
and validly issued, are fully paid and non-assessable and are not subject to,
nor were they issued in violation of any preemptive rights.
5.3 NPS Options and Rights
No person has any agreement or option or any right or privilege (whether by
law, preemptive right, contract or otherwise) capable of becoming an agreement,
option or right for the purchase, subscription, allotment or issuance of any
unissued securities of NPS other than
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(a) 2,161,954 Common Shares issuable on the exercise of the NPS Options;
(b) 32,542 NPS Common Shares issuable on the exercise of the NPS Warrants;
(c) up to 7,500,000 NPS Common Shares and the NPS Preferred Share, in each
case, issuable under obligations to arise under the Exchangeable Shares
or under the Plan of Arrangement; and
(d) the securities issuable subsequent to the occurance of certain stated
events pursuant to the terms of the Preferred Stock Purchase Rights.
5.4 NPS Status Under Securities Laws
NPS is a reporting company under the U.S. Securities Exchange Act and the
issued and outstanding NPS Common Shares and the issuable NPS Common Shares
referred to in Section 5.3(a) are listed or listed subject to issuance,
respectively, on Nasdaq. To its knowledge, NPS is not in default of any
requirements of such securities laws, and, to the best of its knowledge, NPS is
in compliance with the by-laws, rules and regulations of Nasdaq.
5.5 NPS Information in Information Circular
The information contained in the Information Circular relating to NPS which
is provided by NPS to Allelix for inclusion in the Information Circular will
contain no untrue statement of a material fact and will not omit to state a
material fact that is required to be stated or that is necessary to make a
statement not misleading in light of the circumstances in which it is made.
5.6 NPS Information Circular
The information contained in the NPS Information Circular (other than the
information solely relating to Allelix which is to be provided by Allelix to NPS
for inclusion in the NPS Information Circular) will contain no untrue statement
of a material fact and will not omit to state a material fact that is required
to be stated or that is necessary to make a statement not misleading in light of
the circumstances in which it is made.
5.7 NPS Board Approval
The NPS Board of Directors has unanimously approved the Arrangement
Agreement and determined to recommend that the holders of NPS Common Shares vote
in favour of the matters contemplated in this Agreement to be voted on at the
NPS Meeting.
ARTICLE 6
COVENANTS
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6.1 Mutual Covenants
Each of the parties to this Agreement covenants to the other party that,
until the Effective Date or the day upon which this Agreement is terminated,
whichever is earlier, unless the other party shall otherwise agree in writing or
as otherwise expressly permitted or specifically contemplated by this Agreement,
it:
(a) will use all reasonable commercial efforts to satisfy (or to cause the
satisfaction of) the conditions precedent to its obligations hereunder
set forth in Article 7 to the extent the same is within its control
and to take, or to cause to be taken, all other action and to do, or
cause to be done, all other things necessary, proper or advisable
under Applicable Laws to complete the Arrangement, including using all
reasonable commercial efforts:
(i) to obtain all necessary waivers, consents and approvals required
to be obtained by it from other parties to loan agreements,
leases and other contracts;
(ii) to obtain all necessary consents, approvals and authorizations
as are required to be obtained by it under Applicable Law; and
(iii) to effect all necessary registrations and filings and
submissions of information requested by governmental authorities
required to be effected by it in connection with the
Arrangement;
and it will use its reasonable commercial efforts to cooperate with
the other party to this Agreement in connection with the performance
by it of its obligations hereunder including, without limitation,
continuing to provide reasonable access to information and to maintain
ongoing communications as between officers of Allelix and NPS;
(b) will make available and cause to be made available to the other party
to this Agreement, its agents and advisors, all documents and
agreements in any way relating to or affecting its business, financial
condition, operations, prospects, properties, assets or affairs
(including, without limitation, any such other documents or agreements
as may be necessary or desirable to enable such other party to verify
the truth of its representations and warranties and compliance by it
with the terms and conditions hereof, except where it is contractually
precluded from making such document or agreement available in which
case it shall cooperate with the other party in securing access to any
such documentation not in its possession or under its control;
(c) will not take any action, refrain from taking any action, or permit
any action to be taken or not taken, inconsistent with this Agreement
or which might, directly or indirectly, interfere with or adversely
affect the consummation of the Arrangement; and
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(d) will not, during the period commencing on the date of this Agreement
and ending on the earlier of (i) the Effective Date and (ii) the
second anniversary of the termination of this Agreement, directly or
indirectly solicit, induce, recruit or encourage any of the other
party's employees to terminate their employment with the other party
or attempt to solicit, induce or recruit employees of the other party.
The publication of advertisements in newspapers and/or other
publication of general circulation (including trade publications and
company websites) shall not in any event be deemed a violation of any
provision of this Subsection.
6.2 Covenants of Allelix
Allelix covenants and agrees that, until the Effective Date or the day upon
which this Agreement is terminated, whichever is earlier, it:
(a) will in a timely and expeditious manner and as soon as reasonably
practicable, but in any event not later than October 31, 1999, file,
proceed with and diligently prosecute an application to the Court
under the CBCA and/or OBCA, as required, for an Interim Order with
respect to the Arrangement;
(b) will, in a timely and expeditious manner and as soon as reasonably
practicable:
(i) carry out the terms of the Interim Order;
(ii) prepare and file the Information Circular with the applicable
securities regulatory authorities in all jurisdictions where the
same is required to be filed and mail the same as ordered by the
Interim Order and in accordance with Applicable Law, in all
jurisdictions where the same is required, complying in all
material respects with all applicable legal requirements on the
date of mailing thereof;
(iii) allow NPS and NPS Counsel to participate fully in preparation of
the Information Circular and any amendments or supplements
thereto;
(iv) convene the Allelix Meeting to be held on or before January 20,
2000 and distribute copies of this Agreement (or a written
summary thereof prepared by Allelix in form and substance
reasonably satisfactory to NPS), in each case as ordered by the
Interim Order;
(v) solicit proxies to be voted at the Allelix Meeting in favour of
the Arrangement;
(vi) provide notice to NPS of the Allelix Meeting and allow NPS's
representatives to attend the Allelix Meeting; and
(vii) conduct the Allelix Meeting in accordance with the Interim Order,
the by-laws of Allelix and any instrument governing such meeting,
as applicable, and as otherwise required by law;
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(c) will, in a timely and expeditious manner and, in any event not later
than October 20, 1999 deliver to NPS the audited financial statements
prepared in respect of its fiscal year ended August 31, 1999 in
accordance with Section 4.9;
(d) will, in a timely and expeditious manner, prepare (and allow NPS and
NPS Counsel to participate fully in such preparation) and file any
amendments or supplements to the Information Circular with respect to
the Allelix Meeting and mail the same as required by the Interim Order
and in accordance with Applicable Law, in all jurisdictions where the
same is required, complying in all material respects with all
applicable disclosure and other legal requirements on the date of
mailing thereof;
(e) will, subject to the approval of the Arrangement at the Allelix Meeting
in accordance with the provisions of the Interim Order, forthwith, but
in any event not later than January 31, 2000, file, proceed with and
diligently prosecute an application for the Final Order;
(f) will forthwith carry out the terms of the Final Order and, subject to
the receipt of the Final Order, will file Articles of Arrangement and
the Final Order with the OBCA Director in order for the Arrangement to
become effective on or before January 31, 2000;
(g) will, subject to approval of the Continuance Resolution at the Allelix
Meeting, file articles of continuance with the OBCA Director;
(h) will, except for proxies and non-substantive communications with
Securityholders, furnish promptly to NPS a copy of each notice, report,
schedule or other document or communication delivered, filed or
received by Allelix in connection with the Arrangement, the Allelix
Meeting or any other meeting of Allelix Shareholders or class of
security holders which all such holders, as the case may be, are
entitled to attend, any filings under Applicable Law and any dealings
with regulatory agencies in connection with, or in any way affecting,
the transactions contemplated herein;
(i) will make other necessary filings and applications under Applicable Law
required on the part of Allelix in connection with the transactions
contemplated herein and take all reasonable action necessary to be in
compliance with such Applicable Law;
(j) will make such filings and applications under Applicable Law as are
required on the part of Allelix to exempt Allelix from the obligation
to translate into the French language the materials delivered to
Allelix Shareholders in connection with the Allelix Meeting;
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(k) will apply for the delisting of the Allelix Common Shares from the ME
and allow NPS and NPS Counsel to participate in the preparation of the
documentation required in this regard;
(l) will conduct its affairs, and cause its Subsidiaries' affairs to be
conducted, so that all of its representations and warranties contained
herein shall be true and correct on and as of the Effective Date as if
made thereon;
(m) will use reasonable efforts, and cause its Subsidiaries to use
reasonable efforts to preserve intact its business organization and
goodwill, and to maintain satisfactory relationships with suppliers,
distributors, customers, partners and others which have business
relationships with it or its Subsidiaries;
(n) shall conduct its business, and cause its Subsidiaries' businesses to
be conducted, only in, not take any action except in, and maintain its
respective properties and facilities in, the usual, ordinary and
regular course of business and consistent with past practice;
(o) except as may be necessary to give effect to the transactions
contemplated hereby or with the prior written consent of NPS, shall
not, nor will it permit its Subsidiaries to, directly or indirectly, do
or permit to occur any of the following:
(i) issue, sell, pledge, lease, dispose of, encumber or agree to
issue, sell, pledge, lease, dispose of or encumber, any
additional shares of, or any options, warrants, calls, conversion
privileges or rights of any kind to acquire any shares of any
capital stock of Allelix (other than pursuant to the exercise of
Allelix Options, Allelix Warrants or the conversion of the
Allelix Preferred Shares in accordance with their terms);
(ii) enter into or assume any transaction or obligation or incur any
capital expenditures, or enter into any series of related
transactions or obligations or incur related capital
expenditures, which, in the aggregate, exceed Cdn. $250,000,
other than transactions, obligations and reasonable expenditures
relating to:
A. the negotiation and preparation of this Agreement, including
the fulfilment by Allelix of the covenants contained in
Sections 6.2(a) through (j), inclusive;
B. responding to any unsolicited submission or proposal in
accordance with Section 6.3 or otherwise incurring expenses
at the direction of the Board of Directors of Allelix in
respect of matters for which such Board has received an
opinion of Allelix Counsel that such expenses are required to
be incurred to enable such directors to fulfil their
fiduciary duties as board members;
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C. actions taken to preserve property or to safeguard
individuals from harm where such property or individuals are
in imminent danger of material damage or injury,
provided that Allelix shall consult fully with NPS before taking any
steps under this Section 6.2(o)(ii)(C) or, in the event of an
emergency, as soon as practicable thereafter;
(iii) amend or propose to amend its articles or by-laws;
(iv) split, combine or reclassify any outstanding Allelix Common Shares,
or declare, set aside or pay any dividend or other distribution
payable in cash, stock, property or otherwise with respect to the
Allelix Common Shares;
(v) redeem, purchase or offer to purchase any Allelix Common Shares or
other securities of Allelix;
(vi) reorganize, amalgamate or merge Allelix with any other person,
corporation, partnership or other business organization whatsoever;
(vii) reduce the stated capital of Allelix;
(viii) acquire or agree to acquire (by merger, amalgamation, acquisition of
securities or assets or otherwise) any corporation, partnership or
other business organization or division or, except in the ordinary
course of business, any assets or properties;
(ix) except as previously disclosed in writing to the other party making
reference to this paragraph, incur or commit to incur any
indebtedness for borrowed money or issue any debt securities except
for the borrowing of working capital in the ordinary course of
business and consistent with past practice; or
(x) enter into or agree to enter into any licence agreement,
collaboration and/or development agreement or any other agreement to
sell, convey, transfer, assign or encumber any of its right, title
or interest in any of its research, pre-clinical or clinical
development programs;
(p) except for annual salary adjustments consistent with historic practice for
Persons, other officers or management, shall not adopt or amend, nor will
it permit its Subsidiaries to adopt or amend, any compensation
arrangements, perquisites, profit sharing, incentive, compensation, stock
option, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, fund or arrangement for the
benefit or welfare of any employee;
(q) except with the prior written consent of NPS, will not permit any payments
to be made under any profit sharing plan;
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(r) shall not take any action that would render any representation or warranty
made by it in this agreement untrue at any time prior to the proposed
transaction being consummated if then made;
(s) shall promptly notify NPS orally and in writing of any governmental or
third party complaints, investigations or hearings (or communications
indicating that the same may be contemplated);
(t) shall not enter into, modify or terminate any material contract, agreement,
commitment or arrangement to which Allelix or a Subsidiary thereof is a
party or by which its assets are bound;
(u) will cause the auditors of Allelix to provide a comfort letter to NPS in
respect of the Allelix financial statements and the information derived
therefrom which is disclosed in the Information Circular and the NPS
Information Circular;
(v) will not, nor will it permit its Subsidiaries to, except for transactions
in the ordinary course of business and as required in the course of prudent
operations or with the prior written consent of NPS thereto, sell, dispose
of, transfer, convey, surrender, release or abandon, or create or assume
any Encumbrance on or in respect of, the whole or any part of its assets
other than chattels that are replaced by equivalent property or consumed in
operations and other than any liens arising as a result of operations under
agreements affecting the assets;
(w) will and will cause its Subsidiaries to use all reasonable commercial
efforts to cause its current insurance (or re-insurance) policies not to be
cancelled or terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse, replacement
policies underwritten by insurance and re-insurance companies of nationally
recognized standing providing coverage equal to or greater than the
coverage under the cancelled, terminated or lapsed policies for
substantially similar premiums are in full force and effect;
(x) will, in all material respects, conduct itself so as to keep NPS reasonably
informed as to its business and affairs and as to the decisions required
with respect to the most advantageous methods of operating its business;
(y) except with the prior written consent of NPS, will not, and will not permit
its Subsidiaries to enter into any transaction out of the ordinary course
of its business as hereinbefore conducted and will and will cause its
Subsidiaries to use all reasonable efforts to preserve intact its present
business, licenses and permits;
(z) will not, and will not permit its Subsidiaries to, declare any dividends or
make any other distribution or repay, other than the ordinary course of
business, any outstanding indebtedness; and
(aa) will use all commercially reasonable efforts to obtain the written
agreement of the holders of all of the Preferred Shares to vote in favour
of the Arrangement
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Resolution and the Continuance Resolution in a form
acceptable to NPS, acting reasonably, as soon as reasonably practicable.
6.3 No Soliciting Other Offers
(a) Without the prior written consent of NPS, from and after the date
hereof, Allelix and its Subsidiaries will not, and will not authorize
or permit any of their officers, directors, employees, financial
advisors, representatives and agents ("Representatives") to, directly
or indirectly, solicit, initiate or encourage (including by way of
furnishing information) or take any other action to facilitate any
enquiries or the making of any proposal which constitutes or may
reasonably be expected to lead to an Acquisition Proposal (as defined
herein) from any Person, or engage in any discussions or negotiations
relating thereto or accept any Acquisition Proposal; provided,
however, that notwithstanding any other provisions hereof, Allelix may
at any time prior to the time the Allelix Shareholders shall have
voted to approve the Arrangement and the other transactions
contemplated thereby, engage in discussions or negotiations with a
third party who (without any solicitation, initiation, or
encouragement, directly or indirectly, by Allelix, any of its
Subsidiaries or the Representatives after the date hereof) seeks to
initiate such discussions or negotiations and may furnish such third
party information concerning Allelix and its business, properties and
assets if, and only to the extent that, (A) the third party has (x)
first made an Acquisition Proposal that is financially superior to the
transaction contemplated by this Agreement which, in any event, shall
mean that such proposal shall offer a value per Allelix Common Share
greater than the per share value attributable thereto under the
transaction contemplated by this Agreement and (y) demonstrated that
the funds or other consideration necessary for the Acquisition
Proposal are reasonably likely to be available (as determined in good
faith, in each case by Allelix's board of directors after receiving
the advice of its financial advisors to this effect in writing or
recorded in the minutes) (a "Superior Proposal") and Allelix's board
of directors shall conclude in good faith, after considering
Applicable Law and receiving the advice of outside counsel to this
effect in writing or recorded in the minutes, that such action is
necessary for the board of directors to act in a manner consistent
with its fiduciary duties under Applicable Law, and (B) prior to
furnishing such information to or entering into discussions or
negotiations with such person or entity, Allelix provides prompt
notice to NPS to the effect that it is furnishing information to or
entering into discussions or negotiations with such person or entity
and receives from such person or entity an executed confidentiality
and restricted use agreement in reasonably customary form.
(b) Allelix shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or
negotiation (including, without limitation, the closing of its present
data room (if any)).
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(c) Allelix shall notify NPS orally and in writing of any enquiries,
offers or proposals with respect to an Acquisition Proposal (including
without limitation terms and conditions of any such proposal, the
identity of the person making it and all other information reasonably
requested by NPS) within 12 hours of the receipt thereof, shall answer
NPS' questions with respect to such enquiries, offers or proposals and
shall give NPS five days advance notice of any agreement to be entered
into with, or information to be supplied to, any person making such
enquiry, offer or proposal.
(d) Allelix covenants that it will not enter into any agreement regarding
a Superior Proposal (the "Proposed Agreement") without providing NPS
with an opportunity to amend this Agreement to provide for a value per
Allelix Common Share at least equal to that included in the Proposed
Agreement (as determined in good faith by Allelix's Board of Directors
after receiving the advice of its financial advisors to this effect in
writing or recorded in the minutes). In particular, Allelix covenants
to provide NPS with a copy of any Proposed Agreement as executed by
the party making the proposal at least 72 hours prior to its proposed
execution by Allelix. In the event that NPS agrees to amend this
Agreement as provided above, Allelix covenants that it will not enter
into the Proposed Agreement.
(e) As used herein, "Acquisition Proposal" shall mean a written proposal
or offer by any person to acquire beneficial ownership of all or a
material portion of the assets of Allelix (including shares of
Subsidiaries) or one or more of its Subsidiaries or not less than 10%
of the Allelix Common Shares or of one or more of its Subsidiaries
pursuant to an amalgamation, plan of arrangement, consolidation or
other business combination, sale of shares or other securities, sale
of assets, take-over bid or tender offer or exchange offer or similar
transaction involving Allelix or one or more of its Subsidiaries
including, without limitation, any single or multi-step transaction or
series of related transactions which is structured to permit such
third party to acquire beneficial ownership or any material portion of
the assets of, or such percentage of the Allelix Common Shares or one
or more of its Subsidiaries (other than transactions contemplated by
this Agreement).
6.4 Access
NPS shall be entitled, on reasonable notice to Allelix during normal
business hours and without undue interference to Allelix's operations, to access
to Allelix's premises and will be entitled to meet with Allelix's shareholders,
creditors, licensors, licensees and employees. Allelix will conduct itself, and
will cause its Subsidiaries to conduct themselves, so as to keep NPS fully
informed as to its and its Subsidiaries' business and affairs and as to the
decisions required with respect to the most advantageous methods of operating
and producing from its and its Subsidiaries' assets.
6.5 Covenants of NPS
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NPS covenants and agrees that, until the Effective Date or the day
upon which Agreement is terminated, whichever is earlier, it:
(a) will not issue NPS Common Shares at a price which is less than the
then current market price on their date of issue less 10% except upon
the exercise of the NPS Options;
(b) will allow Allelix and Allelix Counsel to participate fully in
preparation of the NPS Information Circular and any amendments or
supplements thereto;
(c) will, in a timely and expeditious manner and as soon as practicable
but in any event not later than January 15, 2000, convene the NPS
Meeting;
(d) solicit proxies to be voted at the NPS Meeting in favour of the
matters to be considered thereat;
(e) provide notice to Allelix of the NPS Meeting and allow Allelix's
representatives to attend the NPS Meeting;
(f) will, except for proxies and other non-substantive communications with
Securityholders, furnish promptly to Allelix a copy of each notice,
report, schedule or other document or communication delivered, filed
or received by NPS in connection with the NPS Meeting and any dealings
with regulatory agencies in connection therewith or in any way
affecting the transaction contemplated hereby;
(g) file a registration statement registering the issuance of the NPS
Common Shares pursuant to the Arrangement and on the exchange of the
Exchangeable Shares;
(h) will, in a timely and expeditious manner provide to Allelix all
information as may be reasonably requested by Allelix or as required
by the Interim Order or as may be required or desirable under
Applicable Law with respect to NPS and its businesses and properties
for inclusion in the Information Circular or in any amendments or
supplements to the Information Circular complying in all material
respects with all applicable legal requirements on the date of mailing
thereof and not containing any misrepresentation (as defined under
applicable securities laws) with respect thereto;
(i) will, to the extent within its power, forthwith carry out the terms of
the Interim Order and the Final Order;
(j) will, to the extent within its power and subject to Applicable Laws,
assist Allelix in the solicitation of proxies to be voted at the
Allelix Meeting in favour of the Arrangement;
(k) will prepare and file with all applicable provincial securities
commissions or similar securities regulatory authorities all necessary
applications to seek exemptions, if required, from the prospectus,
registration and other requirements
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of the applicable securities laws of such provinces for the issue by
NPS of NPS Common Shares on exercise of the Exchangeable Shares and to
permit resale of such shares in such provinces without the requirement
to file a prospectus (other than by control persons and subject to
general requirements other than a "hold period");
(l) will make all other necessary filings and applications under
Applicable Laws required in connection with the transactions
contemplated herein and take all reasonable action necessary to be in
compliance with Applicable Laws and regulations;
(m) will use reasonable commercial efforts to conduct its affairs so that
all of its representations and warranties contained herein shall be
true and correct on and as of the Effective Date as if made thereon;
(n) will appoint on the Effective Date three Allelix directors to the
Board of Directors of NPS mutually acceptable to Allelix and NPS,
acting reasonably;
(o) will appoint, on the Effective Date, the individuals holding the
positions of Senior Vice President and Chief Financial Officer and
Senior Vice President, Operations of Allelix as officers of NPS with
titles and duties commensurate with such positions acceptable to such
individuals, Allelix and NPS, acting reasonably, upon terms and
subject to conditions set out in employment agreements to be entered
into between NPS and each such individual on the Effective Date;
(p) will conduct its affairs and cause its Subsidiaries' affairs to be
conducted so that all of its representations and warranties contained
herein shall be true and correct on and as of the Effective Date as if
made thereon;
(q) shall not take any action that will render any representation or
warranty made by it in this Agreement untrue at any time prior to the
proposed transaction being consummated if then made;
(r) shall promptly notify Allelix orally and in writing of any government
or third party complaints, investigations or hearings (or
communications indicating that the same may be contemplated);
(s) shall, to the extent not then arranged by Allelix, as soon as
reasonably practicable after the Effective Date, cause Allelix to
provide an ongoing indemnity to the Persons serving as Allelix
directors and officers immediately before the Effective Time in
accordance with the OBCA and the Allelix by-laws and obtain a
directors and officers insurance policy on substantially the same
terms as to coverage, deductibles and other terms as Allelix' existing
directors and officers insurance, for a period of 7 years after the
Effective Date covering acts and omissions occurring before the
Effective Date, provided that the insured has provided to NPS such
information as NPS shall require acting reasonably and such
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information is not inconsistent with the representations given by
Allelix pursuant hereto. Allelix shall hold this covenant in trust for
Persons who are its directors and officers immediately before the
Effective Time;
(t) shall, on the Effective Date, arrange for the listing of the NPS
Common Shares on Nasdaq referred to in Section 5.3(c), which may be a
standby listing for such Shares not issued immediately;
(u) will, in a timely and expeditious manner and as soon as reasonably
practicable:
(i) prepare and file the NPS Information Circular with the
applicable securities regulatory authorities in all
jurisdictions where it is required to be filed and mailed in
accordance with Applicable Law in all jurisdictions where it is
required to be mailed complying in all material respects with
all applicable legal requirements on the date of mailing; and
(ii) conduct the NPS Meeting in accordance with the NPS by-laws and
any instrument governing the Meeting and otherwise in accordance
with Applicable Law;
(v) will use reasonable efforts, and cause its Subsidiaries to use
reasonable efforts, to preserve intact its business organization and
goodwill and to maintain satisfactory relationships with suppliers,
distributors, customers, partners and others which have business
relationships with it or its Subsidiaries;
(w) shall conduct its business, and cause its Subsidiaries' businesses to
be conducted, only in, not take any action except in, and maintain its
respective properties and facilities in, the usual, ordinary and
regular course of business and consistent with past practice;
(x) except as may be necessary to give effect to the transactions
contemplated herein or with the prior written consent of Allelix,
shall not, nor will it permit its Subsidiaries to, directly or
indirectly, do or permit to occur any of the following:
(i) amend or propose to amend its charter documents;
(ii) split, combine or reclassify any outstanding NPS Common Shares
or declare, set aside or pay any dividend or other distribution
payable in cash, stock, property or otherwise with respect to
the NPS Common Shares;
(iii) redeem, purchase or offer to purchase any NPS Common Shares or
other NPS securities;
(iv) reorganize, amalgamate or merge NPS with any other person,
corporation, partnership or other business organization;
(v) reduce the stated capital of NPS;
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(vi) acquire or agree to acquire (by acquisition of securities or
assets or otherwise) any corporation, partnership or other
business organization or division or any assets or properties
for consideration of more than $4,000,000 in total;
(vii) incur or commit to incur any indebtedness for borrowed money or
issue any debt securities except for the borrowing of working
capital in the ordinary course of business and consistent with
past practice; or
(viii) enter into any agreement to sell, convey, transfer, assign or
encumber any of its right, title or interest in any of its
research, pre-clinical or clinical development programs having
a cost equal to more than 30% of the cost of all such programs;
(y) will cause the auditors of NPS to provide a comfort letter to Allelix
in respect of the NPS financial statements and the information derived
therefrom which is disclosed in the Information Circular and the NPS
Information Circular;
(z) will and will cause its Subsidiaries to use all reasonable commercial
efforts to cause its current insurance (or re-insurance) policies not
to be cancelled or terminated or any of the coverage thereunder to
lapse, unless simultaneously with such termination, cancellation or
lapse, replacement policies underwritten by insurance and re-insurance
companies of national recognized standing providing coverage equal to
or greater than the coverage under the cancelled, terminated or lapsed
policies for substantially similar premiums are in full force and
effect;
(aa) will not, and will not permit its Subsidiaries to, declare any
dividends or make any other distribution or repay, other than in the
ordinary course of business, any outstanding indebtedness; and
(bb) except with the prior written consent of Allelix, will and will cause
its Subsidiaries to use all reasonable efforts to preserve intact
their present business, licenses and permits and will not, nor will it
permit its Subsidiaries, to enter into any transaction out of the
ordinary course of business as hereinbefore conducted if the total
obligations and commitments of NPS and its Subsidiaries thereunder
exceeds $4,000,000.
6.6 NPS No Shop
Without the prior written consent of Allelix, from and after the date
hereof, NPS and its Subsidiaries will not, and will not authorize or permit any
of their officers, directors, employees, financial advisors, representatives and
agents ("Agents") to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) or take any other action to
facilitate any enquiries or the making of any proposal which constitutes or may
reasonably be expected to lead to an NPS Acquisition Proposal (as defined
herein) from any Person engaged in any discussions or negotiations relating
thereto or accept any Acquisition Proposal; provided,
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however, that, notwithstanding any other provisions hereof, NPS may at any time
engage in discussions or negotiations with a third party who (without any
solicitation, initiation or encouragement, directly or indirectly, by NPS, any
of its Subsidiaries or any Agents after the date hereof) seeks to initiate such
discussions or negotiations and may furnish such third party information
concerning NPS and its business, properties and assets if the NPS board of
directors shall have concluded in good faith after considering Applicable Law
and receiving the advice of counsel in writing or as recorded in the NPS board
minutes to this effect, that such action is necessary for the board to act in a
manner consistent with its fiduciary duties. "NPS Acquisition Proposal" means a
written proposal or offer by any person to acquire not less than 20% of the NPS
Common Shares (excluding NPS Common Shares referred to in Section 5.3(a) and (b)
but including NPS Common Shares referred to in Section 5.3(c)) by business
combination, sale of issued or treasury shares or tender or exchange offer or
similar transaction including, without limitation, any single multi-step
transaction or series of related transactions which is structured to permit the
Person to acquire such NPS Common Shares. For certainty, NPS's obligations under
this Section 6.6 shall terminate on the earlier of the Effective Date and the
termination of this Agreement for any reason whatsoever.
ARTICLE 7
CONDITIONS
7.1 Mutual Conditions
The obligations of Allelix and NPS to complete the transactions
contemplated hereby are subject to fulfilment of the following conditions on or
before the Effective Date or such other time as is specified below:
(a) the Interim Order shall have been granted in form and substance
satisfactory to Allelix and NPS, acting reasonably, on or before
October 31, 1999 and shall not have been set aside or modified in a
manner unacceptable to such parties on appeal or otherwise;
(b) the Arrangement Resolution shall have been duly approved by the
required majority, with or without amendment, in accordance with the
Interim Order, on or before January 20, 2000;
(c) each of the resolutions considered at the NPS Meeting shall have been
duly approved by the required majority without amendment on or before
January 20, 2000;
(d) Allelix shall have obtained articles of continuance from the OBCA
Director in form and substance satisfactory to Allelix and NPS, acting
reasonably;
(e) the Final Order shall have been granted in form and substance
satisfactory to Allelix and NPS, acting reasonably, on or before
January 31, 2000, and shall not have been set aside or modified in a
manner unacceptable to such parties on appeal or otherwise;
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(f) the Articles of Arrangement relating to the Arrangement shall be in
form and substance satisfactory to Allelix and NPS, acting reasonably;
(g) the Effective Date shall be on or before January 31, 2000;
(h) (i) no act, action, suit or proceeding shall have been taken or be
outstanding before or by any domestic or foreign court or tribunal or
governmental agency or other regulatory authority or administrative
agency or commission by any elected or appointed public official or
private person (including, without limitation, any individual,
corporation, firm, group or other entity) in Canada or elsewhere,
whether or not having the force of law; and (ii) no law, regulation or
policy shall have been proposed, enacted, promulgated or applied
which, in either case, has effect, or may have effect, to cease trade,
enjoin, or prohibit the acquisition by NPS of the Allelix Common
Shares, or the right of NPS to own or exercise full rights of
ownership of the Allelix Common Shares, or the issuance, pursuant to
the Arrangement, of NPS Common Shares and Exchangeable Shares to the
Allelix Shareholders;
(i) there shall not exist any prohibition at law against NPS or Allelix
and Allelix Shareholders consummating the Arrangement;
(j) Allelix and NPS shall have obtained the consents, approvals and
authorizations referred to in Section 3.18 and such other material
consents, approvals and authorizations (if any), regulatory or
otherwise, required or necessary in connection with the transactions
contemplated herein on terms and conditions satisfactory to each of
them, acting reasonably:
(k) the Exchangeable Shares issuable pursuant to the Arrangement shall
have been conditionally approved for listing on the TSE subject to the
filing of the usual and customary documentation;
(l) any required orders from applicable securities authorities authorizing
the issue of the Exchangeable Shares shall have been obtained on terms
satisfactory to NPS and Allelix, both acting reasonably;
(m) there shall not have occurred any actual or threatened change
(including a proposal by the Minister of Finance of Canada to amend
the Income Tax Act (Canada) or any announcement, governmental or
regulatory initiative, condition, event or development involving a
change or a prospective change) that, in the judgment of NPS, acting
reasonably, directly or indirectly, has or may have a Material Adverse
Effect with respect to consummating the proposed transaction; and
(n) holders of not more than 10% of Allelix's Common Shares shall have
exercised Dissent Rights.
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(o) The foregoing conditions are for the mutual benefit of Allelix and NPS
and may be waived, in whole or in part, by each of Allelix and NPS
acting individually for its own interest at any time. If any of the
said conditions precedent shall not be complied with or waived as
aforesaid on or before the date required for the performance thereof,
either Allelix or NPS may, in addition to the other remedies it may
have at law or in equity, rescind and terminate this Agreement by
written notice to the other party.
7.2 Allelix Conditions
The obligation of Allelix to complete the transactions contemplated herein
is subject to the fulfilment of the following conditions on or before the
Effective Date or such other time as is specified below:
(a) the representations and warranties made by NPS in this Agreement shall
be true as of the Effective Date as if made on and as of such date and
NPS shall have provided to Allelix the certificate of one senior
officer of NPS certifying such accuracy on the Effective Date (and
Allelix shall have no knowledge to the contrary);
(b) NPS shall have provided Allelix with opinions of NPS Counsel (which,
except for the opinion referred to in Section 7.2(b)(viii), may be the
opinion of NPS' Vice President, Corporate Development and Legal
Affairs) in form and substance satisfactory to Allelix, acting
reasonably, dated the Effective Date (or such other date as Allelix
and NPS may agree) and addressed to Allelix and Allelix Counsel to the
effect that:
(i) NPS is duly incorporated and validly existing under the laws of
the jurisdiction of its incorporation and has the corporate
power and authority to carry on any business now conducted by
it;
(ii) NPS has full corporate power and authority to enter into this
Agreement and to perform its obligations hereunder;
(iii) all necessary proceedings, corporate, regulatory or otherwise,
of NPS have been taken to fully, validly and effectively
authorize this Agreement and the transactions contemplated
herein including the Arrangement, the performance by NPS of its
obligations hereunder, and the execution and delivery by NPS of
this Agreement and all documents delivered pursuant hereto;
(iv) each NPS Common Share to be issued under the Arrangement will be
authorized and reserved for issuance and, when so issued, will
be validly issued and outstanding as a fully paid and non-
assessable share in the capital of NPS;
(v) the NPS Common Shares to be issued on exchange of an
Exchangeable Share shall be immediately tradable upon Nasdaq;
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(vi) the execution and delivery by NPS of this Agreement and all
documents delivered pursuant hereto, the performance by NPS of
its obligations hereunder and thereunder and the consummation
of the transactions contemplated herein and therein will not
result in the breach of or violate any term or provision of the
articles or by-laws of NPS;
(vii) this Agreement has been duly executed and delivered by NPS and
this Agreement and all agreements delivered pursuant to the
terms hereof are valid and binding obligations of NPS
enforceable against it in accordance with their respective
terms, subject to enforceability being limited by applicable
bankruptcy, insolvency, reorganization and other laws affecting
creditors' rights generally and the discretionary nature of
certain remedies (including specific performance and injunctive
relief) and subject to the effectiveness of clauses providing
rights of indemnity or exculpating a party or persons from a
liability or a duty otherwise owed which may be limited by law;
and
(viii) the issuance of NPS Common Shares on exchange of an
Exchangeable Share is exempt from the prospectus and
registration requirements of the applicable securities laws in
each applicable province and no filing, proceeding, consent or
approval is required under such applicable law in connection
with the issuance of such NPS Common Shares; and that the NPS
Common Shares acquired on exchange of an Exchangeable Share
will not be subject to restrictions on their resale in such
provinces, other than trades from a control block and excluding
any outstanding escrow agreements,
and in giving such opinion, NPS Counsel may rely in respect of matters
of fact, upon certificates of senior officers of NPS or any other
appropriate persons; and in respect of matters governed by the laws of
any jurisdiction other than Delaware and Utah, NPS Counsel may deliver
the opinion of local counsel in such other jurisdiction;
(c) the appointment of three Allelix directors, to be jointly designated
by NPS and Allelix, acting reasonably, to the board of directors of
NPS;
(d) NPS shall have complied with its covenants herein and shall have
provided to Allelix the certificate of a senior officer of NPS
certifying that NPS has complied with its respective covenants herein
and Allelix shall have no knowledge to the contrary;
(e) between the date of the most recent public disclosure by NPS and the
Effective Date, there shall not have occurred any Material Adverse
Change with respect to NPS that is not attributable to a Material
Adverse Change with respect to Allelix;
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(f) NPS, NPS Holdings and NPS - Allelix Inc. shall have entered into the
Support Agreement; and
(g) NPS, NPS Allelix Inc. and a trust company acceptable to NPS and
Allelix, acting reasonably, shall have entered into the Voting and
Exchange Trust Agreement.
The foregoing conditions precedent are for the benefit of Allelix and may
be waived, in whole or in part, by Allelix in writing at any time. If any of
the conditions shall not be complied with or waived by Allelix on or before the
date required for their performance then Allelix may, in addition to the other
remedies it may have at law or equity, rescind and terminate this Agreement by
written notice to NPS.
7.3 NPS Conditions
The obligation of NPS to complete the transactions contemplated herein is
subject to fulfilment of the following conditions on or before the Effective
Date or such other time as specified below:
(a) the representations and warranties made by Allelix in this Agreement
shall be true as of the Effective Date as if made on and as of such
date and Allelix shall have provided to NPS a certificate of the
Chairman of the Board of Allelix and the Chief Executive Officer (or
such other officer of Allelix that may be acceptable to NPS, acting
reasonably) certifying such accuracy on the Effective Date (and NPS
shall have no knowledge to the contrary);
(b) Allelix shall have provided NPS with an opinion of Allelix Counsel in
form and substance satisfactory to NPS, acting reasonably dated the
Effective Date (or such other date as Allelix and NPS may agree) and
addressed to NPS and NPS Counsel to the effect that:
(i) Allelix and each of its material Subsidiaries are duly
incorporated, amalgamated, continued or formed and existing
under the laws of the jurisdiction of their respective
incorporation or formation, as the case may be, and each has the
power and authority to carry on any business now conducted by
it;
(ii) Allelix has full corporate power and authority to enter into
this Agreement and to perform its obligations hereunder;
(iii) all necessary proceedings, corporate, regulatory or otherwise,
of Allelix have been taken to fully, validly and effectively
authorize this Agreement and the transactions contemplated
herein including the Arrangement, the performance by Allelix of
its obligations hereunder, and the execution and delivery by
Allelix of this Agreement and all documents delivered pursuant
hereto;
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(iv) the execution and delivery by Allelix of this Agreement and all
agreements delivered pursuant hereto, the performance by Allelix
of its obligations hereunder and thereunder and the consummation
of the transactions contemplated herein and therein will not
result in the breach of or violate any term or provision of the
articles or by-laws of Allelix; and
(v) this Agreement has been duly executed and delivered by Allelix
and this Agreement and all agreements delivered pursuant to the
terms hereof are valid and binding obligations of Allelix
enforceable against it in accordance with their respective
terms, subject to enforceability being limited by applicable
bankruptcy, insolvency, reorganization and other laws affecting
creditors' rights generally and the discretionary nature of
certain remedies (including specific performance and injunctive
relief) and subject to the effectiveness of clauses providing
rights of indemnity or exculpating a party or persons from a
liability or a duty otherwise owed which may be limited by law,
and in giving such opinion, Allelix Counsel may rely, in respect of
matters of fact, upon certificates of senior officers of Allelix or
any other appropriate persons; and in respect of matters governed by
the laws of any jurisdiction other than Ontario, Quebec, Alberta,
British Columbia or the laws of Canada applicable therein, Allelix
Counsel may deliver the opinion of local counsel in such other
jurisdiction;
(c) Allelix shall have complied, in all material respects, with its
covenants herein and Allelix shall have provided to NPS a certificate
of the Chairman of the Board of Allelix and the Chief Executive
Officer (or such other officer of Allelix that may be acceptable to
NPS, acting reasonably) certifying that Allelix has complied with its
covenants herein and NPS shall have no knowledge to the contrary;
(d) the Interim Order, the Final Order and any required orders from the
applicable Securities Commissions authorizing the issuance of the
Exchangeable Shares shall have been obtained on terms satisfactory to
NPS, acting reasonably;
(e) between the date of the most recent public disclosure by Allelix, and
the Effective Date, there shall not have occurred any Material Adverse
Change with respect to Allelix;
(f) the directors of Allelix and its Subsidiaries shall have tendered
their resignations to be effective on the Effective Date.
The foregoing conditions precedent are for the benefit of NPS and may be
waived in whole or in part by NPS in writing at any time. If any of the said
conditions shall not be complied with or waived by NPS on or before the date
required for the performance thereof, NPS may, in addition to the other remedies
it may have at law or equity, rescind and terminate this Agreement by written
notice to Allelix.
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ARTICLE 8
FEES AND EXPENSES
8.1 Topping Fee
In the event that:
(a) Allelix breaches its covenants or agreements in this Agreement in any
material respect;
(b) NPS terminates this Agreement pursuant to Section 11.2(b); unless (i)
the Board of Directors of Allelix shall have withdrawn or varied in a
manner determined by NPS to be adverse to NPS its approval of this
Agreement or the Arrangement or its unanimous recommendation to the
Allelix Shareholders because of a Material Adverse Change affecting
NPS and (ii) that such change is not attributable to a Material
Adverse Change affecting Allelix;
(c) Allelix terminates this Agreement pursuant to Section 11.2(d);
(d) (i) an Acquisition Proposal (provided that for the purposes of this
Section 8.1(d), the reference to 10% of the Allelix Common Shares in
the definition of "Acquisition Proposal" in Section 6.3(c) shall be
deemed to be a reference to 20% of the Allelix Common Shares) is
announced or made and is not withdrawn more than two business days
prior to the date of the Allelix Meeting , (ii) the Allelix
Shareholders do not approve the Arrangement at the Allelix Meeting;
and (iii) a transaction involving the acquisition of a material
portion of the assets of Allelix or one or more of its Subsidiaries or
Allelix Common Shares so as to hold not less than 20% or more of the
Allelix Common Shares outstanding shall be completed with the Person
that made or announced the Acquisition Proposal or an affiliate of
such Person within the 12 months following the date of the Allelix
Meeting;
Allellix will pay NPS a fee of $2,000,000 in immediately available funds to an
account designated by NPS within one business day following receipt of notice
from NPS of particulars concerning such account.
8.2 Payment of Expenses
If the Allelix Shareholders shall fail to approve the Arrangement at the
Allelix Meeting except following a Material Adverse Change affecting NPS, then
on the first business day following the Allelix Meeting subject to receipt of
the documentation described below, Allelix shall reimburse NPS for out-of-pocket
cost and expenses in connection with the transaction contemplated by this
Agreement (against a copy of such documentation therefor as Allelix, acting
reasonably, may request) to a maximum of $500,000.
8.3 NPS Break Fee
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In the event that:
(a) NPS breaches a covenant or agreement on its part in this
Agreement in any material respect; or
(b) the holders of the NPS Common Shares do not approve the matters
relating to the Arrangement considered at the NPS Meeting except
following a Material Adverse Change affecting Allelix;
NPS will pay to Allelix a fee of $1,000,000 in immediately available funds to an
account designated by Allelix within one business day following receipt of
notice from Allelix of particulars concerning such account, provided that the
amount of such fee shall be increased to $2,000,000 in the event that the NPS
Board of Directors shall have withdrawn or varied in a manner determined by
Allelix to be adverse to Allelix their unanimous recommendation to holders of
NPS Common Shares, otherwise than because of a Material Adverse Change affecting
Allelix.
ARTICLE 9
AMENDMENT
9.1 Amendment
This Agreement may, at any time and from time to time before or after the
holding of the Allelix Meeting, be amended by written agreement of the parties
hereto without further notice to or authorization on the part of their
respective shareholders, and any such amendment may, without limitation:
(a) change the time for performance of any of the obligations or acts of
the parties hereto;
(b) waive any inaccuracies or modify any representation contained herein
or in any document delivered pursuant hereto;
(c) waive compliance with or modify any of the covenants herein contained
and waive or modify performance of any of the obligations of the
parties hereto; and
(d) waive compliance with or modify any conditions precedent herein
contained;
provided that, notwithstanding the foregoing, the number of Exchangeable Share
which the holders of Allelix Common Shares shall have the right to receive on
the Arrangement may not be reduced without the approval of the Allelix
Shareholders given in the same manner as required for the approval of the
Arrangement or as may be ordered by the Court.
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9.2 Mutual Understanding Regarding Amendments
(a) The parties will continue, from and after the date hereof and
through and including the Effective Date, to use their respective
reasonable efforts to maximize present and future financial and tax
planning opportunities for the holders of Allelix securities, and
for NPS and for Allelix as and to the extent that the same shall not
prejudice any party or its security holders. The parties will ensure
that such planning activities do not impede the progress of the
Arrangement in any material way.
(b) The parties agree that if either party shall propose any amendment
or amendments to this Agreement or to the Plan of Arrangement, the
other will act reasonably in considering such amendment and if the
other and its shareholders are not prejudiced by reason of any such
amendment the other will co-operate in a reasonable fashion with the
other party, so that such amendment can be effected subject to
Applicable Law and the rights of the security holders.
ARTICLE 10
CONFIDENTIALITY AND STANDSTILL
10.1 Confidentiality
Each of NPS and Allelix acknowledges and agrees that it will not use
Confidential Information for any purpose whatsoever other than for purposes
specifically relating to evaluation of the proposed transaction, and that any
Confidential Information provided to a party hereto (the "receiving party") in
written form shall be returned to the party supplying the same (the "supplier")
forthwith upon this Agreement being terminated and for greater certainty, it is
understood and agreed by each of the receiving parties that no written
materials, reproductions, extracts, typed or hand written notes or memorandums
made from, or relating in any way to, the Confidential Information shall be
retained by such parties after the termination of this Agreement and forthwith
upon any such occurrence, all such materials, extracts, notes and memorandums
shall be destroyed unless returned to the supplier as aforesaid, and the
receiving party shall, forthwith upon the request of the supplier, provide a
statutory declaration as to that fact, from an officer.
The receiving party hereby undertakes and agrees with the supplier that
such receiving party shall keep such Confidential Information in strict
confidence, and shall not disclose any such Confidential Information to any
third party or parties whatsoever except in strict accordance herewith.
Disclosure of the Confidential Information may be made by or on behalf of the
receiving party to its employees and professional advisors who have a need to
know such Confidential Information for purposes of considering the making of a
bona fide evaluation of the proposed transaction, provided that all such persons
agree to keep such information confidential and to be bound by this Agreement to
the same extent as if they were parties hereto. Disclosure of the Confidential
Information may be made by or on behalf of the receiving party, or any other
party to whom disclosure has been made in accordance herewith, if required by
law, provided however, that forthwith upon receipt of any such request or order
for such disclosure, the
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receiving party or such other party to whom the request for disclosure is made,
shall forthwith notify the supplier that a request has been made for disclosure
in order that the supplier may seek any appropriate protective order or waive
compliance by the receiving party with the provision of this Agreement. The
receiving party further agrees that, if in the absence of a protective order or
the receipt of a waiver from the supplier, the receiving party is nonetheless,
in the reasonable opinion of its counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt or suffer other
censure or penalty, the receiving party may disclose only that portion of the
Confidential Information that it is legally required to so disclose to such
tribunal without liability hereunder.
The restrictions on the use and disclosure of the Confidential
Information set forth in this Agreement shall not apply if:
(a) the Confidential Information is or becomes publicly available other
than through a breach of this Agreement by either party to whom
disclosure is made in accordance herewith;
(b) the Confidential Information is subsequently lawfully obtained
without secrecy obligation from a third party or parties not in a
contractual or fiduciary relationship with any member of the
receiving party, other than through a breach of this Agreement,
provided that written supporting documentation confirming the lawful
authority of such third party or parties to disclose the
Confidential Information is provided to the supplier;
(c) the Confidential Information was known by the receiving party or
other parties prior to the time at which disclosure of such
Confidential Information was made to the receiving party or such
other parties in accordance herewith, provided that written
supporting documentation confirming that fact is provided to the
supplier; or
(d) the written consent of the supplier is given prior to any such use
or disclosure being made.
Each party agrees that it would be difficult to measure the damage to the
other party from the breach of such party's obligations under this Section 10.1,
that injury to the other party from any such breach would be impossible to
calculate, and that monetary damages would therefore be an inadequate remedy;
accordingly, each party agrees that the other party shall be entitled, in
addition to all other remedies it might have, to injunctions or other
appropriate orders to restrain any such breach without showing or providing any
actual damage or posting any bond or other security in connection with such
remedy.
10.2 Standstill
Each of NPS and Allelix hereby agrees that, unless an offer to acquire
beneficial ownership of all or a material portion of the assets of the other
party (including shares of Subsidiaries) or one or more of its Subsidiaries or
not less than 20% of the common shares of the
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other party pursuant to a transaction to be considered at a meeting of security
holders requisitioned by a security holder of such other party or pursuant to a
take over bid, tender offer, exchange offer or similar transaction involving the
other party, is made and not withdrawn at the time the conduct otherwise
prohibited by this Section 10.2 has commenced (whether during the term of this
Agreement or thereafter), neither it nor any affiliate of it (regardless of
whether an affiliate on the date hereof) will, prior to June 27, 2000, without
the prior written consent of the other party:
(a) acquire, offer to acquire or agree to acquire, directly or
indirectly, by purchase or otherwise, individually or jointly or in
concert with any other person (as that expression is used in the
Securities Act (Ontario) any voting securities, or securities
convertible into or exchangeable for voting securities, of the other
party; or
(b) directly or indirectly make, or in any way participate in, any
solicitation of proxies to vote, or seek to advise or influence any
other person with respect to the voting of any voting securities of
the other party; or
(c) form, join or in any way participate in a "group" within the meaning
of Section 13(d)(3) of the United States Securities Exchange Act of
1934, as amended, with respect to any voting securities of the other
party; or
(d) otherwise act alone or in concert with others to seek to control the
management, directors or corporate policies of the other party; or
(e) engage in any discussions or negotiations, enter into any agreement
or submit a proposal for, or offer (with or without condition) any
business combination or extraordinary transaction involving the
other party or any affiliate of the other party or any of their
respective securities or assets; or
(f) make any public announcement of any intention to do or take any of
the foregoing.
ARTICLE 11
GENERAL
11.1 Expenses
Except as provided for in Article 8 hereof, each party hereto covenants
and agrees to bear its own costs and expenses in connection with the
transactions contemplated hereby.
11.2 Termination
This Agreement may be terminated by:
(a) the delivery by one party to another of a written notice stating
that a condition precedent for the benefit of the party initiating
such notice has not been fulfilled
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or satisfied within the time contemplated by this Agreement and that
this Agreement is accordingly terminated;
(b) NPS if the Board of Directors of Allelix shall have withdrawn or
varied in a manner determined by NPS to be adverse to NPS, its
approval of this Agreement or the Arrangement or its unanimous
recommendation to the Allelix Shareholders;
(c) Allelix if the NPS board of directors shall have withdrawn their
unanimous recommendation to the holders of the NPS Common Shares to
vote in favour of the resolutions contemplated in this Agreement to
be considered at the NPS Meeting;
(d) Allelix in order to enter into a definitive written agreement with
respect to a Superior Proposal, subject to compliance with Section
6.3 and the payment of any fee required to be paid to NPS pursuant
to Section 8.1.
(e) by the mutual agreement of NPS and Allelix (without further action
on the part of the Allelix Shareholders if terminated after the
holding of the Allelix Meeting);
(f) by either NPS or Allelix, if there shall be passed any law or
regulation that makes consummation of the transactions contemplated
by the Arrangement Agreement illegal or otherwise prohibited or if
any injunction, order or decree enjoining NPS or Allelix from
consummation of the transactions contemplated by the Arrangement
Agreement is entered and such injunction, order or decree shall
become final and non-applicable;
provided, however, nothing in this clause shall relieve a party from any
obligations that accrue prior to the date of termination nor shall it relieve a
party from any obligation under Article 10. Further, the obligations of Allelix
to NPS contained in Article 10 hereof shall survive termination of this
Agreement.
11.3 Notices
Any notice, request, consent, waiver, direction or other communication
required or permitted to be given under this Agreement by a party to any other
party shall be deemed to have been duly given and made, if in writing and if
served by personal delivery upon the party for whom it is intended or delivered,
by registered or certified mail, return receipt requested, or if sent by
telecopier, upon receipt to the person at the address set forth below, or such
other address as may be designated in writing hereafter, in the same manner, by
such person.
The address for service of each of the parties hereto shall be as
follows:
(a) if to Allelix:
Allelix Biopharmaceuticals Inc.
6850 Goreway Drive
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Mississauga, ON L4V 1V7
Attention: John R. Evans/Paul J. Van Damme/James R. Howard-Tripp
Telecopier No.: 905-677-1037
with a copy to:
Stikeman, Elliott
Commerce Court West
Suite 5300
PO Box 5300
Toronto, ON M5L 1B9
Attention: Robert W.A. Nicholls
Telecopier No.: 416-947-0866
(b) if to NPS:
NPS Pharmaceuticals, Inc.
420 Chipeta Way
Salt Lake City, UT 84108
Attention: Hunter Jackson
Telecopier No.: 801-583-4961
with a copy to:
James U. Jensen
Telecopier No.: 801-583-4961
with a copy to:
Blake, Cassels & Graydon
Commerce Court West
2800 - 199 Bay Street
PO Box 25
Toronto, ON M5L 1A9
Attention: J. Rob Collins
Telecopier No.: 416-863-2653
11.4 Time of Essence
Time shall be of the essence in this Agreement.
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11.5 Entire Agreement
This Agreement constitutes the entire agreement and supersedes all other
prior agreements and undertakings, both written and oral, among the parties with
respect to the subject matter hereof.
11.6 Severability
If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated and the parties shall negotiate in good faith to modify this
Agreement to preserve each party's anticipated benefits under this Agreement.
11.7 Announcements
Except as otherwise provided in this Agreement, unless required by
Applicable Law, no party to this Agreement shall make any public or private
announcement or communications in respect of the Arrangement (including, without
limitation, the existence of this Agreement or that any investigation,
discussions or negotiations are taking place concerning the evaluation of the
parties hereto or the proposed transaction) unless the prior consent of the
announcement is obtained from both parties, such consent not to be unreasonably
withheld.
11.8 Further Assurances
Subject to the conditions herein provided, each of the parties hereto
agrees to use all reasonable efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as is practicable the proposed
transaction, including the execution and delivery of such documents as the other
party hereto may reasonably require, and use of best efforts to obtain all
necessary waivers, consents and approvals and the effecting of all necessary
registrations and filings, including, but not limited to, filings under
applicable laws and submissions of information requested by governmental
authorities. Each of the parties hereto, where appropriate, shall reasonably
cooperate with the other party in taking such actions. Without limiting the
generality of the foregoing, in the event any provision of the Arrangement is
not capable of being carried out under the CBCA or the OBCA as provided hereby,
the parties agree to take all such commercially reasonable action as may be
necessary to have such provision carried out under whichever statute will
facilitate implementation of the provision.
11.19 Governing Law
This Agreement shall be governed by, and be construed in accordance with,
the laws of the Province of Ontario and the laws of Canada applicable therein
but the reference to such laws shall not, by conflict of laws rules or
otherwise, require the application of the law of any jurisdiction other than the
Province of Ontario. Each party hereto hereby irrevocably attorns to the
jurisdiction of the Courts of the Province of Ontario in respect of all matters
arising under or in relation to this Agreement.
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11.10 Execution in Counterparts
This Agreement may be executed in identical counterparts, each of which
is and is hereby conclusively deemed to be an original and the counterparts
collectively are to be conclusively deemed to be one instrument.
11.11 Waiver
No waiver by any party hereto shall be effective unless in writing and
any waiver shall affect only the matter, and the occurrence thereof,
specifically identified and shall not extend to any other matter or occurrence.
11.12 Enurement and Assignment
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns and is not intended
to confer upon any other person any rights or remedies hereunder. This
Agreement may not be assigned by operation of law or otherwise, except that NPS
may assign all or any portion of its rights under this Agreement to any direct
or indirect wholly-owned subsidiary of NPS, but no such assignment shall relieve
NPS of its obligations hereunder.
11.13 Subsidiary Covenants
To the extent any representations, warranties, covenants or agreements
contained herein relate, directly or indirectly, to a Subsidiary of any party,
each such provision shall be construed as a covenant by such party to cause (to
the fullest extent to which it is legally capable) such Subsidiary to perform
the required action.
To the extent any representations, warranties, covenants or agreements
contained herein relate, directly or indirectly, to a Subsidiary of any party,
each such provision shall be construed as a covenant by such party to cause (to
the fullest extent to which it is legally capable) such Subsidiary to perform
the required action.
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IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the date first above written.
ALLELIX BIOPHARMACEUTICALS INC.
By: /s/ Paul J. Van Damme
-----------------------------------
Name: Paul J. Van Damme
Title: Senior Vice President and CFO
I/We have authority to bind the Corporation
NPS PHARMACEUTICALS, INC.
By: /s/ Hunter Jackson
-----------------------------------
Name: Hunter Jackson
Title: Chairman and CEO
By: /s/ James U. Jensen
-----------------------------------
Name: James U. Jensen
Title: Vice President, Corporate Development
and Legal Affairs
I/We have authority to bind the Corporation
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<PAGE>
SCHEDULE A
PLAN OF ARRANGEMENT
UNDER SECTION 192
OF THE CANADA BUSINESS CORPORATIONS ACT
AND
UNDER SECTION 182
OF THE BUSINESS CORPORATIONS ACT (ONTARIO)
INTERPRETATION
Definitions
In this Plan of Arrangement, unless there is something in the subject
matter or context inconsistent therewith, the following terms shall have the
respective meanings set out below and grammatical variations of such terms shall
have corresponding meanings:
"Allelix" means Allelix Biopharmaceuticals Inc.;
"Allelix Common Shares" means the common shares of Allelix;
"Allelix Meeting" means the special meeting of the holders of the Allelix
Common Shares, as ordered by the Interim Order, to consider and, if
determined advisable, approve the repricing of certain Allelix Options as
approved by the Allelix board of directors on April 15, 1999 to consider
and, if determined advisable, approve the continuance of Allelix under the
OBCA and to consider and, if determined advisable, approve the Arrangement;
"Allelix Options" means the options to purchase Allelix Common Shares
issued from time to time prior to the date hereof pursuant to the Allelix
Stock Option Plan;
"Allelix Preferred Shares" means the preferred share, series 1 shares of
Allelix;
"Allelix Warrants" means the warrants to purchase Allelix Common Shares
issued from time to time;
"Arrangement" means an arrangement under Section 192 of the CBCA and
Section 182 of the OBCA on the terms and subject to the conditions set out
in this Plan of Arrangement, subject to any amendments or variations
thereto made in accordance with the Arrangement Agreement or Article 6 of
this Plan of Arrangement or made at the direction of the Court in the Final
Order;
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"Arrangement Agreement" means the agreement made as of the 27th day of
September, 1999, as amended, between NPS and Allelix providing for, among
other things, the Arrangement;
"Arrangement Resolution" means the special resolution in respect of the
Arrangement to be considered by the holders of Allelix Common Shares at the
Allelix Meeting;
"Articles of Arrangement" means the articles of arrangement of Allelix in
respect of the Arrangement that are required by the OBCA to be sent to the
Director after the Final Order is made;
"Business Day" means any day on which commercial banks are generally open
for business in Toronto, Canada and Salt Lake City, Utah, other than a
Saturday, a Sunday or a day observed as a holiday in Salt Lake City, Utah
under the laws of the State of Utah or the federal laws of the United
States of America or in Toronto, Canada under the laws of the Province of
Ontario or the federal laws of Canada;
"Canadian Resident" means a resident of Canada for purposes of the ITA;
"CBCA" means the Canada Business Corporations Act, as amended;
"Certificate" means the certificate of arrangement giving effect to the
Arrangement, issued pursuant to subsection 183(2) of the OBCA after the
Articles of Arrangement have been filed;
"Circular" means the notice of the Allelix Meeting and accompanying
management information circular, including all appendices thereto, to be
sent to holders of Allelix Common Shares in connection with the Allelix
Meeting;
"Continuance" means the continuance of Allelix under the OBCA, pursuant to
Section 188 of the CBCA, if authorized by the passing of the Continuance
Resolution by the holders of Allelix Common Shares at the Allelix Meeting;
"Continuance Resolution" means the special resolution in respect of the
Continuance to be considered by the holders of Allelix Common Shares at the
Allelix Meeting;
"Court" means the Ontario Superior Court of Justice;
"Current Market Price" has the meaning ascribed thereto in the Exchangeable
Share Provisions;
"Depositary" means the depositary selected by NPS and Allelix, acting
reasonably;
"Director" mean the Director appointed pursuant to Section 278 of the OBCA;
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"Dissent Rights" has the meaning ascribed thereto in Section 3.1;
"Dissenting Shareholder" means a holder of Allelix Common Shares who
dissents in respect of the Arrangement in strict compliance with the
Dissent Rights;
"Dividend Amount" means the amount of all declared and unpaid dividends on
an Exchangeable Share held by a holder on any dividend record date which
occurred prior to the date of purchase or redemption of such share by NPS
Allelix Inc. or NPS Holdings from such holder;
"Effective Date" means the date shown on the Certificate;
"Effective Time" means 12:01 a.m. (Toronto time) on the Effective Date;
"Election Deadline" means 5:00 p.m. (local time) at the place of deposit on
the date which is two Business Days prior to the date of the Allelix
Meeting;
"Exchange Ratio" means 0.3238, subject to adjustment, if any, as provided
in Section 2.4;
"Exchangeable Elected Share" means any Allelix Common Share held by a
Canadian Resident that the holder thereof shall have elected, in a duly
completed Letter of Transmittal and Election Form deposited with the
Depositary no later than the Election Deadline, to transfer to NPS -
Allelix Inc. under the Arrangement for a fraction of an Exchangeable Share
equal to the Exchange Ratio or that is deemed to be an Exchangeable Elected
Share pursuant to Section 2.2(c);
"Exchangeable Shares" means the non-voting exchangeable shares in the
capital of NPS - Allelix Inc., having substantially the rights, privileges,
restrictions and conditions set out in the Exchangeable Share Provisions;
"Exchangeable Share Provisions" means the rights, privileges, restrictions
and conditions attaching to the Exchangeable Shares, which rights,
privileges, restrictions and conditions shall be substantially as set out
in Appendix 1 hereto;
"Final Order" means the final order of the Court approving the Arrangement
as such order may be amended by the Court at any time prior to the
Effective Date or, if appealed, then, unless such appeal is withdrawn or
denied, as affirmed;
"Government Entity" means any (a) multinational, federal, provincial,
state, regional, municipal, local or other government, governmental or
public department, central bank, court, tribunal, arbitral body,
commission, board, bureau or agency, domestic or foreign, (b) any
subdivision, agent, commission, board, or authority of any of the
foregoing, or (c) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account of
any of the foregoing;
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"holders" means, when used with reference to the Allelix Common Shares, the
holders of Allelix Common Shares shown from time to time in the register
maintained by or on behalf of Allelix in respect of the Allelix Common
Shares and, when used with reference to the Exchangeable Shares, means the
holders of Exchangeable Shares shown from time to time in the register
maintained by or on behalf of NPS - Allelix Inc. in respect of the
Exchangeable Shares;
"Interim Order" means the interim order of the Court, as the same may be
amended, in respect of the Arrangement, as contemplated by Section 2.2 of
the Arrangement Agreement;
"ITA" means the Income Tax Act (Canada), as amended;
"Letter of Transmittal and Election Form" means the letter of transmittal
and election form for use by holders of Allelix Common Shares, in the form
accompanying the Circular;
"Liquidation Amount" has the meaning ascribed thereto in the Exchangeable
Share Provisions;
"Liquidation Call Purchase Price" has the meaning ascribed thereto in
Section 5.1(a);
"Liquidation Call Right" has the meaning ascribed thereto in Section
5.1(a);
"Liquidation Date" has the meaning ascribed thereto in the Exchangeable
Share Provisions;
"Meeting Date" means the date of the Allelix Meeting;
"Nasdaq" means the National Association of Securities Dealers Automated
Quotation System;
"NPS" means NPS Pharmaceuticals, Inc.;
"NPS - Allelix Inc." means NPS - Allelix Inc. to be incorporated under the
British Columbia Companies Act as a wholly-owned subsidiary of NPS
Holdings;
"NPS Common Shares" means the shares of common stock in the capital of NPS;
"NPS Control Transaction" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
"NPS Elected Share" means any Allelix Common Share (other than an Allelix
Common Share held by NPS or an affiliate thereof) held by a Canadian
Resident that the holder thereof shall have elected, in a duly completed
Letter of Transmittal and Election Form
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deposited with the Depositary no later than the Election Deadline, to
transfer to NPS - Allelix Inc. under the Arrangement for a fraction of a
NPS Common Share equal to the Exchange Ratio, or that is deemed to be an
NPS Elected Share pursuant to Sections 2.2(c) or 2.3(a);
"NPS Holdings" means NPS Holdings Limited, a company to be incorporated
under the British Columbia Companies Act as a wholly-owned subsidiary of
NPS;
"NPS Trading Price" means the average of the bid and ask prices of NPS
Common Shares on Nasdaq during a period of twenty consecutive trading days
ending on the Business Day immediately preceding the Effective Date;
"OBCA" means the Business Corporations Act (Ontario), as amended;
"Person" includes any individual, firm, partnership, joint venture, venture
capital fund, limited liability company, unlimited liability company,
association, trust, trustee, executor, administrator, legal personal
representative, estate, group, body corporate, corporation, unincorporated
association or organization, Government Entity, syndicate or other entity,
whether or not having legal status;
"Preference Shares" means the 100 preference shares in the capital of NPS -
Allelix Inc. having substantially the rights, privileges, restrictions and
conditions set forth in Appendix 2 hereto;
"Redemption Call Purchase Price" has the meaning ascribed thereto in
Section 5.2(a);
"Redemption Call Right" has the meaning ascribed thereto in Section 5.2(a);
"Redemption Date" has the meaning ascribed thereto in the Exchangeable
Share Provisions;
"Replacement Option" has the meaning ascribed thereto in Section 2.2(e);
"Replacement Warrant" has the meaning ascribed thereto in Section 2.2(d);
"Special Voting Share" means the share of NPS Special Voting Preferred
Stock having substantially the rights, privileges, restrictions and
conditions described in the Voting and Exchange Trust Agreement;
"Transfer Agent" means the transfer agent to be chosen by NPS and Allelix
to act as transfer agent of the Exchangeable Shares;
"Trustee" means the trustee to be chosen by NPS and Allelix to act as
trustee under the Voting and Exchange Trust Agreement, being a corporation
organized and existing under the laws of Canada and authorized to carry on
the business of a trust company in all the
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provinces of Canada, and any successor trustee appointed under the Voting
and Exchange Trust Agreement;
"Voting and Exchange Trust Agreement" means an agreement to be made among
NPS, NPS - Allelix Inc. and the Trustee in connection with the Plan of
Arrangement.
Sections and Headings
The division of this Plan of Arrangement into sections and the
insertion of headings are for reference purposes only and shall not affect the
interpretation of this Plan of Arrangement. Unless otherwise indicated, any
reference in this Plan of Arrangement to a section or an appendix refers to the
specified section of or appendix to this Plan of Arrangement.
Number, Gender and Persons
In this Plan of Arrangement, unless the context otherwise requires,
words importing the singular number include the plural and vice versa and words
importing any gender include all genders.
ARRANGEMENT
Binding Effect
This Plan of Arrangement will become effective at, and be binding at
and after, the Effective Time on (i) Allelix, (ii) NPS, NPS Holdings and NPS -
Allelix Inc., (iii) all holders of Allelix Common Shares, (iv) all holders of
Exchangeable Shares, and (v) all holders of Allelix Options and Allelix
Warrants.
Arrangement
Commencing at the Effective Time, the following shall occur and shall
be deemed to occur in the following order without any further act or formality:
each NPS Elected Share will be transferred by the holder thereof,
without any act or formality on its part, to NPS - Allelix Inc. in
exchange for a fraction of a fully-paid and non-assessable NPS Common
Share equal to the Exchange Ratio, and the name of each such holder
will be removed from the register of holders of Allelix Common Shares
and added to the register of holders of NPS Common Shares and NPS -
Allelix Inc. will be recorded as the registered holder of such Allelix
Common Shares so exchanged and will be deemed to be the legal and
beneficial owner thereof;
each Exchangeable Elected Share will be transferred by the holder
thereof, without any act or formality on its part, to NPS - Allelix
Inc. in exchange for a
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fraction of a fully-paid and non-assessable Exchangeable Share equal
to the Exchange Ratio, and the name of each such holder will be
removed from the register of holders of Allelix Common Shares and
added to the register of holders of Exchangeable Shares and NPS -
Allelix Inc. will be recorded as the registered holder of such Allelix
Common Shares so exchanged and will be deemed to be the legal and
beneficial owner thereof;
each Allelix Common Share in respect of which a duly completed Letter
of Transmittal and Election Form has not been deposited with the
Depositary on or prior to the Election Deadline (other than (i)
Allelix Common Shares held by Dissenting Shareholders who are
ultimately entitled to be paid the fair value of the Allelix Common
Shares held by them and (ii) Allelix Common Shares held by NPS or any
affiliate thereof which shall not be exchanged under this Arrangement
and shall remain outstanding as Allelix Common Shares held by NPS or
any affiliate thereof), (A) in the case of a holder of Allelix Common
Shares whose address as shown in the register of Allelix Common Shares
as of the close of business (Toronto time) on the day preceding the
Effective Date is in Canada will be deemed to be an Exchangeable
Elected Share and will be transferred by the holder thereof, without
any act or formality on its part, to NPS - Allelix Inc. in exchange
for that number of fully paid and non-assessable Exchangeable Shares
equal to the Exchange Ratio, and the name of each such holder of
Allelix Common Shares will be removed from the register of holders of
Allelix Common Shares and added to the register of holders of
Exchangeable Shares and NPS - Allelix Inc. will be recorded as the
registered holder of such Allelix Common Shares so exchanged and will
be deemed to be the legal and beneficial owner thereof, and (B) in the
case of a holder of Allelix Common Shares whose address as shown in
the register of Allelix Common Shares as of the close of business
(Toronto time) on the day preceding the Effective Date is not in
Canada will be deemed to be a NPS Elected Share and will be
transferred by the holder thereof, without any act or formality on its
part, to NPS - Allelix Inc. in exchange for a fraction of a fully-paid
and non-assessable NPS Common Share equal to the Exchange Ratio, and
the name of each such holder will be removed from the register of
holders of Allelix Common Shares and added to the register of holders
of NPS Common Shares and NPS - Allelix Inc. will be recorded as the
registered holder of such Allelix Common Shares so exchanged and will
be deemed to be the legal and beneficial owner thereof;
in accordance with the terms of the Allelix Warrants, after the
Effective Time, a holder of Allelix Warrants shall be entitled, upon
the exercise of such warrants, to receive in lieu of the number of
Allelix Common Shares to which such holder was theretofore entitled to
receive upon such exercise, that aggregate number of Exchangeable
Shares or NPS Common Shares, as applicable, that such holder would
have been entitled to receive under the Plan of Arrangement if such
holder had been the registered holder of that number of Allelix Common
Shares that such
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holder was theretofore entitled to receive if all such holder's
Allelix Warrants had been exercised immediately prior to the Effective
Time;
in accordance with the terms of the Allelix Options, after the
Effective Time, a holder of Allelix Options shall be entitled, upon
the exercise of such options, to receive in lieu of the number of
Allelix Common Shares to which such holder was theretofore entitled to
receive upon such exercise, that aggregate number of Exchangeable
Shares or NPS Common Shares, as applicable, that such holder would
have been entitled to receive under the Plan of Arrangement if such
holder had been the registered holder of that number of Allelix Common
Shares that such holder was theretofore entitled to receive if all
such holder's Allelix Options had been exercised immediately prior to
the Effective Time; and
NPS shall issue to and deposit with the Trustee the Special Voting
Share, in consideration of the payment to NPS of U.S. $1, to be
thereafter held of record by the Trustee as trustee for and on behalf
of, and for the use and benefit of, the holders of the Exchangeable
Shares in accordance with the Voting and Exchange Trust Agreement.
Elections
Each Person who, at or prior to the Election Deadline, is a holder of
record of Allelix Common Shares will be entitled, with respect to all
or a portion of such shares, to make an election at or prior to the
Election Deadline to receive Exchangeable Shares or NPS Common Shares,
or a combination thereof, in exchange for such holder's Allelix Common
Shares on the basis set forth herein and in the Letter of Transmittal
and Election Form; provided that, notwithstanding anything to the
contrary herein, a holder of Allelix Common Shares who is not a
Canadian Resident will not be entitled to elect to receive
Exchangeable Shares and any such election otherwise made by any such
holder shall be and be deemed to be an election to receive a NPS
Elected Share.
Each Person who, at or prior to the Election Deadline, is a holder of
record of Allelix Common Shares and who is Canadian Resident, other
than a holder who is exempt from tax under the ITA, who has elected
(or is deemed to have elected) to receive Exchangeable Shares shall be
entitled to make an income tax election pursuant to subsection 85(l)
of the ITA or, if the holder is a partnership, subsection 85(2) of the
ITA (and in each case, where applicable, the analogous provisions of
provincial income tax law) with respect to the transfer of its Allelix
Common Shares to NPS - Allelix Inc. by providing two signed copies of
the necessary prescribed election forms to the Depositary within 90
days following the Effective Date, duly completed with the details of
the number of Allelix Common Shares transferred and the applicable
agreed amounts for the purposes of such elections. Thereafter, subject
to the election forms being correct and
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complete and complying with the provisions of the ITA (and applicable
provincial income tax law), the forms will be signed by NPS - Allelix
Inc. and returned to such holder within 30 days after the receipt
thereof by the Depositary for filing with Revenue Canada (or the
applicable provincial taxing authority). NPS - Allelix Inc. will not
be responsible for the proper completion of any election form and,
except for NPS - Allelix Inc.'s obligation to return duly completed
election forms which are received by the Depositary within 90 days of
the Effective Date, within 30 days after the receipt thereof by the
Depositary, NPS - Allelix Inc. will not be responsible for any taxes,
interest or penalties resulting from the failure by a holder of
Allelix Common Shares to properly complete or file the election forms
in the form and manner and within the time prescribed by the ITA (or
any applicable provincial legislation). In its sole discretion, NPS -
Allelix Inc. may choose to sign and return an election form received
more than 90 days following the Effective Date, but NPS - Allelix Inc.
will have no obligation to do so.
2.4 Adjustments to Exchange Ratio
The Exchange Ratio shall be adjusted to reflect fully the effect of any
stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into NPS Common Shares or Allelix Common
Shares other than stock dividends paid in lieu of ordinary course dividends),
reorganization, recapitalization or other like change with respect to NPS Common
Shares or Allelix Common Shares occurring after the date of the Arrangement
Agreement and prior to the Effective Time.
RIGHTS OF DISSENT
General
Notwithstanding Article 2, each holder of Allelix Common Shares is
entitled to dissent from the Arrangement Resolution and to be paid by Allelix
the fair value of the Allelix Common Shares held by such holder in respect of
which such holder dissents, determined as of the day before the date on which
the Arrangement Resolution is passed (the "Dissent Right"), provided that (i)
such holder gives written notice of his, her or its dissent ("Notice of
Dissent") to Allelix by depositing such notice of dissent with Allelix, or
mailing it to Allelix by registered mail, at its head office at 6850 Goreway
Drive, Mississauga, Ontario, L4V 1V7, marked to the attention of the Corporate
Secretary in all cases not later than 48 hours before the Allelix Meeting and
which otherwise complies with Section 185 of the OBCA as modified by the
Interim Order, and (ii) such holder shall not have voted any of its Allelix
Common Shares in favour of the Arrangement Resolution at the Allelix Meeting in
person or by proxy.
Treatment of Dissenting Shareholders
A holder of Allelix Common Shares who:
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properly exercises the Dissent Right by complying with all of the
procedures (the "Dissent Procedures") required to be complied with by
a Dissenting Shareholder, will:
(i) be bound by the provisions of this Article 3,
(ii) be deemed not to have participated in the Arrangement, and
(iii) cease to have any rights as a holder of Allelix Common Shares
other than the right to be paid the fair value of the Allelix
Common Shares by Allelix in accordance with the Dissent
Procedures, or
seeks to exercise the Dissent Right, but:
(i) who for any reason does not properly fulfil each of the Dissent
Procedures required to be completed by a Dissenting
Shareholder, or
(ii) subsequent to giving its Notice of Dissent, acts inconsistently
with such dissent,
will be deemed to have participated in the Arrangement on the same
basis as each holder of Allelix Common Shares and shall receive such
number of NPS Common Shares or Exchangeable Shares as it is entitled
to on the basis determined in accordance with Section 2;
validly exercises the rights of dissent provided for under Section 190
of the CBCA in respect of the Continuance Resolution will:
(i) be deemed not to have participated in the Continuance or the
Arrangement, and
(ii) cease to have any rights as a holder of Allelix Common Shares
other than the right to be paid the fair value of the Allelix
Common Shares by Allelix in accordance with Section 190 of the
CBCA, or
seeks to exercise the rights of the dissent provided for under Section
190 of the CBCA in respect of the Continuance Resolution, but:
(i) who for any reason does not properly fulfil each of the dissent
procedures required to be completed by a dissenting
shareholder; or
(ii) subsequent to giving its notice of dissent as provided for
under Section 190 of the CBCA, acts inconsistently with such
dissent,
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<PAGE>
will be deemed to have participated in the Continuance and the
Arrangement on the same basis as each holder of Common Shares and
shall receive such number of NPS Common Shares or Exchangeable Shares
as they are entitled to on the basis determined in accordance with
Section 2.
CERTIFICATES AND FRACTIONAL SHARES
Issuance of Certificates Representing Exchangeable Shares
At or promptly after the Effective Time, NPS - Allelix Inc. shall
deposit with the Depositary, for the benefit of the holders of Allelix Common
Shares who will receive Exchangeable Shares in connection with the Arrangement,
certificates representing that number of whole Exchangeable Shares to be
delivered pursuant to Section 2.2 upon the exchange of Allelix Common Shares.
Upon surrender to the Depositary for cancellation of a certificate which
immediately prior to the Effective Time represented Allelix Common Shares that
were exchanged for Exchangeable Shares under the Arrangement, together with such
other documents and instruments as would have been required to effect the
transfer of the shares formerly represented by such certificate under the OBCA
and the articles and by-laws of Allelix and such additional documents and
instruments as the Depositary may reasonably require, the holder of such
surrendered certificate shall be entitled to receive in exchange therefor, and
the Depositary shall deliver to such holder, a certificate representing that
number (rounded down to the nearest whole number) of Exchangeable Shares which
such holder has the right to receive (together with any dividends or
distributions with respect thereto pursuant to Section 4.3 and any cash in lieu
of fractional Exchangeable Shares pursuant to Section 4.4), and the certificate
so surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of Allelix Common Shares that is not registered in the transfer
records of Allelix, a certificate representing the proper number of Exchangeable
Shares may be issued to the transferee if the certificate representing such
Allelix Common Shares is presented to the Depositary, accompanied by all
documents required to evidence and effect such transfer. Until surrendered as
contemplated by this Section 4.1, each certificate which immediately prior to
the Effective Time represented Allelix Common Shares that were exchanged for
Exchangeable Shares shall be deemed at all times after the Effective Time to
represent only the right to receive upon such surrender (i) the certificate
representing Exchangeable Shares as contemplated by this Section 4.1, (ii) a
cash payment in lieu of any fractional Exchangeable Shares as contemplated by
Section 4.4 and (iii) any dividends or distributions with a record date after
the Effective Time theretofore paid or payable with respect to Exchangeable
Shares as contemplated by Section 4.3.
Issuance of Certificates representing NPS Common Shares
At or promptly after the Effective Time, NPS - Allelix Inc. shall
deposit with the Depositary, for the benefit of the holders of Allelix Common
Shares who will receive NPS Common Shares in connection with the Arrangement,
certificates representing that whole
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<PAGE>
number of NPS Common Shares to be delivered pursuant to Section 2.2 upon the
exchange of Allelix Common Shares. Upon surrender to the Depositary for
cancellation of a certificate which immediately prior to the Effective Time
represented outstanding Allelix Common Shares that were exchanged for NPS Common
Shares under the Arrangement, together with such other documents and instruments
as would have been required to effect the transfer of the shares formerly
represented by such certificate under the OBCA, the articles and by-laws of
Allelix and such additional documents and instruments as the Depositary may
reasonably require, the holder of such surrendered certificate shall be entitled
to receive in exchange therefor, and the Depositary shall deliver to such
holder, a certificate representing that number (rounded down to the nearest
whole number) of NPS Common Shares which such holder has the right to receive
(together with any dividends or distributions with respect thereto pursuant to
Section 4.3 and any cash in lieu of fractional NPS Common Shares pursuant to
Section 4.4), and the certificate so surrendered shall forthwith be cancelled.
In the event of a transfer of ownership of Allelix Common Shares which is not
registered in the transfer records of Allelix, a certificate representing the
proper number of NPS Common Shares may be issued to the transferee if the
certificate representing such Allelix Common Shares is presented to the
Depositary, accompanied by all documents required to evidence and effect such
transfer. Until surrendered as contemplated by this Section 4.2, each
certificate which immediately prior to the Effective Time represented one or
more outstanding Allelix Common Shares that were exchanged for NPS Common Shares
shall be deemed at all times after the Effective Time to represent only the
right to receive upon such surrender (i) the certificate representing NPS Common
Shares as contemplated by this Section 4.2, (ii) a cash payment in lieu of any
fractional NPS Common Shares as contemplated by Section 4.4 and (iii) any
dividends or distributions with a record date after the Effective Time
theretofore paid or payable with respect to NPS Common Shares as contemplated by
Section 4.3.
Distributions with Respect to Unsurrendered Certificates
No dividends or other distributions declared or made after the
Effective Time with respect to Exchangeable Shares or NPS Common Shares with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered certificate which immediately prior to the Effective Time
represented outstanding Allelix Common Shares that were exchanged pursuant to
Section 2.2, and no cash payment in lieu of fractional shares shall be paid to
any such holder pursuant to Section 4.4 and no interest shall be earned or
payable on these proceeds, unless and until the holder of such certificate shall
surrender such certificate in accordance with Section 4.1 or 4.2. Subject to
applicable law and to Section 4.6, at the time of such surrender of any such
certificate (or, in the case of clause (iii) below, at the appropriate payment
date), there shall be paid to the holder of the certificates representing
Allelix Common Shares, as the case may be, without interest, (i) the amount of
any cash payable in lieu of a fractional Exchangeable Share or NPS Common Share
to which such holder is entitled pursuant to Section 4.4, (ii) the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to the Exchangeable Shares or NPS Common Shares,
as the case may be, to which such holder is entitled pursuant hereto and (iii)
on the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender
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<PAGE>
and a payment date subsequent to surrender payable with respect to such
Exchangeable Shares or NPS Common Shares, as the case may be.
No Fractional Shares
No certificates representing fractional Exchangeable Shares or
fractional NPS Common Shares shall be issued upon the surrender for exchange of
certificates pursuant to Section 4.1 or 4.2 and no dividend, stock split or
other change in the capital structure of NPS - Allelix Inc. shall relate to any
such fractional security and such fractional interests shall not entitle the
owner thereof to exercise any rights as a security holder of NPS - Allelix Inc..
In lieu of any such fractional securities, each Person otherwise entitled to a
fractional interest in an Exchangeable Share or to a fractional interest in a
NPS Common Share will receive a cash payment from the Depositary equal to the
product of such fractional interest and the NPS Trading Price. NPS - Allelix
Inc. shall from time to time as necessary provide the Depositary with funds
sufficient to satisfy these obligations. On the date of the notice referred to
in Section 7.2 of the Exchangeable Share Provisions, the aggregate number of
Exchangeable Shares and the aggregate number of NPS Common Shares for which no
certificates were issued as a result of the foregoing provisions of this Section
4.4 shall be deemed to have been surrendered by the Depositary for no
consideration to NPS - Allelix Inc. or NPS, as the case may be.
Lost Certificates
In the event that any certificate which immediately prior to the
Effective Time represented one or more outstanding Allelix Common Shares that
were exchanged pursuant to Section 2.2 shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such certificate to be lost, stolen or destroyed, the Depositary will issue in
exchange for such lost, stolen or destroyed certificate, any cash pursuant to
Section 4.4 and/or one or more certificates representing one or more
Exchangeable Shares or NPS Common Shares (and any dividends or distributions
with respect thereto) deliverable in accordance with such holder's Letter of
Transmittal and Election Form. When authorizing such payment in exchange for any
lost, stolen or destroyed certificate, the Person to whom certificates
representing Exchangeable Shares or NPS Common Shares are to be issued shall, as
a condition precedent to the issuance thereof, give a bond satisfactory to NPS -
Allelix Inc., NPS and their respective transfer agents in such sum as NPS -
Allelix Inc. or NPS may direct or otherwise indemnify NPS - Allelix Inc. and NPS
in a manner satisfactory to NPS - Allelix Inc. and NPS against any claim that
may be made against NPS - Allelix Inc. or NPS with respect to the certificate
alleged to have been lost, stolen or destroyed.
Extinction of Rights
Any certificate which immediately prior to the Effective Time
represented outstanding Allelix Common Shares that were exchanged pursuant to
Section 2.2 that is not deposited with all other instruments required by Section
4.1 or 4.2 on or prior to the date of the notice referred to in Section 7.2 of
the Exchangeable Share Provisions shall cease to represent a
B-13
<PAGE>
claim or interest of any kind or nature as a shareholder of NPS - Allelix Inc.
or NPS. On such date, the Exchangeable Shares or NPS Common Shares (or cash in
lieu of fractional interests therein, as provided in Section 4.4) to which the
former holder of the certificate referred to in the preceding sentence was
ultimately entitled shall be deemed to have been surrendered for no
consideration to NPS -Allelix Inc. or NPS, as the case may be, together with all
entitlements to dividends, distributions and interest in respect thereof held
for such former holder. None of NPS, NPS - Allelix Inc., NPS Holdings or the
Depositary shall be liable to any person in respect of any NPS Common Shares or
Exchangeable Shares (or dividends, distributions and interest in respect
thereof) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
Withholding Rights
NPS - Allelix Inc., NPS Holdings, NPS and the Depositary shall be
entitled to deduct and withhold from any dividend or consideration otherwise
payable pursuant to transactions contemplated by this Agreement to any holder of
Allelix Common Shares, NPS Common Shares or Exchangeable Shares such amounts as
NPS - Allelix Inc., NPS Holdings, NPS or the Depositary is required or permitted
to deduct and withhold with respect to such payment under the ITA, the United
States Internal Revenue Code of 1986 or any provision of provincial, state,
local or foreign tax law, in each case, as amended. To the extent that amounts
are so withheld, such withheld amounts shall be treated for all purposes hereof
as having been paid to the holder of the shares in respect of which such
deduction and withholding was made, provided that such withheld amounts are
actually remitted to the appropriate taxing authority. To the extent that the
amount so required or permitted to be deducted or withheld from any payment to a
holder exceeds the cash portion of the consideration otherwise payable to the
holder, NPS - Allelix Inc., NPS Holdings, NPS and the Depositary are hereby
authorized to sell or otherwise dispose of such portion of the consideration as
is necessary to provide sufficient funds to NPS - Allelix Inc., NPS Holdings,
NPS or the Depositary, as the case may be, to enable it to comply with such
deduction or withholding requirement and NPS - Allelix Inc., NPS Holdings, NPS
or the Depositary shall notify the holder thereof and remit any unapplied
balance of the net proceeds of such sale.
CERTAIN RIGHTS OF NPS - ALLELIX INC. TO ACQUIRE EXCHANGEABLE SHARES
NPS Holdings Liquidation Call Right
NPS Holdings shall have the overriding right (the "Liquidation Call
Right"), in the event of and notwithstanding the proposed liquidation,
dissolution or winding-up of NPS - Allelix Inc. pursuant to Article 5
of the Exchangeable Share Provisions, to purchase from all but not
less than all of the holders of Exchangeable Shares (other than any
holder of Exchangeable Shares which is an affiliate of NPS) on the
Liquidation Date all but not less than all of the Exchangeable Shares
held by each such holder on payment by NPS Holdings of
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<PAGE>
an amount per share (the "Liquidation Call Purchase Price") equal to
the Current Market Price of a NPS Common Share on the last Business
Day prior to the Liquidation Date, which shall be satisfied in full by
NPS Holdings causing to be delivered to such holder one NPS Common
Share, plus any Dividend Amount for each Exchangeable Share held by
such holder. In the event of the exercise of the Liquidation Call
Right by NPS Holdings, each holder shall be obligated to sell all the
Exchangeable Shares held by the holder to NPS Holdings on the
Liquidation Date on payment by NPS Holdings to the holder of the
Liquidation Call Purchase Price for each such share, and NPS - Allelix
Inc. shall have no obligation to pay any Liquidation Amount to the
holders of such shares so purchased by NPS Holdings.
To exercise the Liquidation Call Right, NPS Holdings must notify the
Trustee, as agent for the holders of Exchangeable Shares, and NPS -
Allelix Inc. of NPS Holdings's intention to exercise such right at
least 45 days before the Liquidation Date in the case of a voluntary
liquidation, dissolution or winding-up of NPS - Allelix Inc. and at
least five Business Days before the Liquidation Date in the case of an
involuntary liquidation, dissolution or winding-up of NPS - Allelix
Inc.. The Trustee will notify the holders of Exchangeable Shares as to
whether or not NPS Holdings has exercised the Liquidation Call Right
forthwith after the expiry of the period during which the same may be
exercised by NPS Holdings. If NPS Holdings exercises the Liquidation
Call Right, then on the Liquidation Date, NPS Holdings will purchase
and the holders will sell all of the Exchangeable Shares then
outstanding for a price per share equal to the Liquidation Call
Purchase Price.
For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Liquidation Call Right, NPS Holdings shall deposit
with the Transfer Agent, on or before the Liquidation Date,
certificates representing the aggregate number of NPS Common Shares
deliverable by NPS Holdings and a cheque or cheques of NPS Holdings
payable at par at any branch of the bankers of NPS Holdings
representing the aggregate Dividend Amount in payment of the total
Liquidation Call Purchase Price, less any amounts withheld pursuant to
Section 4.7 hereof. Provided that NPS Holdings has complied with the
immediately preceding sentence, on and after the Liquidation Date the
rights of each holder of Exchangeable Shares will be limited to
receiving such holder's proportionate part of the total Liquidation
Call Purchase Price payable by NPS Holdings upon presentation and
surrender by the holder of certificates representing the Exchangeable
Shares held by such holder and the holder shall on and after the
Liquidation Date be considered and deemed for all purposes to be the
holder of the NPS Common Shares to which it is entitled. Upon
surrender to the Transfer Agent of a certificate or certificates
representing Exchangeable Shares, together with such other documents
and instruments as may be required to effect a transfer of
Exchangeable Shares under the governing corporate statute and the by-
laws of NPS - Allelix Inc. and such additional documents and
instruments as the Transfer
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<PAGE>
Agent may reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in exchange
therefor, and the Transfer Agent on behalf of NPS Holdings shall
deliver to such holder, certificates representing the NPS Common
Shares to which the holder is entitled and a cheque or cheques of NPS
Holdings payable at par at any branch of the bankers of NPS Holdings
in payment of the remaining portion, if any, of the total Liquidation
Call Purchase Price, less any amounts withheld pursuant to Section 4.7
hereof. If NPS Holdings does not exercise the Liquidation Call Right
in the manner described above, on the Liquidation Date the holders of
the Exchangeable Shares will be entitled to receive in exchange
therefor the Liquidation Amount otherwise payable by NPS -Allelix Inc.
in connection with the liquidation, dissolution or winding-up of NPS -
Allelix Inc. pursuant to Article 5 of the Exchangeable Share
Provisions.
NPS Holdings Redemption Call Right
In addition to NPS Holdings's rights contained in the Exchangeable
Share Provisions, including, without limitation, the Retraction Call Right (as
defined in the Exchangeable Share Provisions), NPS Holdings shall have the
following rights in respect of the Exchangeable Shares:
NPS Holdings shall have the overriding right (the "Redemption Call
Right"), notwithstanding the proposed redemption of the Exchangeable
Shares by NPS - Allelix Inc. pursuant to Article 7 of the Exchangeable
Share Provisions, to purchase from all but not less than all of the
holders of Exchangeable Shares (other than any holder of Exchangeable
Shares which is an affiliate of NPS) on the Redemption Date all but
not less than all of the Exchangeable Shares held by each such holder
on payment by NPS to each holder of an amount per Exchangeable Share
(the "Redemption Call Purchase Price") equal to the Current Market
Price of a NPS Common Share on the last Business Day prior to the
Redemption Date, which shall be satisfied in full by NPS Holdings
causing to be delivered to such holder one NPS Common Share, plus any
Dividend Amount for each Exchangeable Share held by such holder. In
the event of the exercise of the Redemption Call Right by NPS
Holdings, each holder shall be obligated to sell all the Exchangeable
Shares held by the holder to NPS Holdings on the Redemption Date on
payment by NPS Holdings to the holder of the Redemption Call Purchase
Price for each such share, and NPS - Allelix Inc. shall have no
obligation to redeem, or to pay any Dividend Amount in respect of,
such shares so purchased by NPS Holdings.
To exercise the Redemption Call Right, NPS Holdings must notify the
Trustee, as agent for the holders of Exchangeable Shares, and NPS -
Allelix Inc. of NPS Holdings's intention to exercise such right at
least 60 days before the Redemption Date, except in the case of a
redemption occurring as a result of a NPS Control
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<PAGE>
Transaction, an Exchangeable Share Voting Event or an Exempt
Exchangeable Share Voting Event (each as defined in the Exchangeable
Share Provisions), in which case NPS Holdings shall so notify the
Trustee and NPS - Allelix Inc. on or before the Redemption Date. The
Trustee will notify the holders of the Exchangeable Shares as to
whether or not NPS Holdings has exercised the Redemption Call Right
forthwith after the expiry of the period during which the same may be
exercised by NPS Holdings. If NPS Holdings exercises the Redemption
Call Right, on the Redemption Date NPS Holdings will purchase and the
holders will sell all of the Exchangeable Shares then outstanding for
a price per share equal to the Redemption Call Purchase Price.
For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Redemption Call Right, NPS Holdings shall deposit with
the Trustee, on or before the Redemption Date, certificates
representing the aggregate number of NPS Common Shares deliverable by
NPS Holdings and a cheque or cheques of NPS Holdings payable at par at
any branch of the bankers of NPS Holdings representing the aggregate
Dividend Amount in payment of the total Redemption Call Purchase
Price, less any amounts withheld pursuant to Section 4.7 hereof.
Provided that NPS Holdings has complied with the immediately preceding
sentence, on and after the Redemption Date the rights of each holder
of Exchangeable Shares will be limited to receiving such holder's
proportionate part of the total Redemption Call Purchase Price payable
by NPS Holdings upon presentation and surrender by the holder of
certificates representing the Exchangeable Shares held by such holder
and the holder shall on and after the Redemption Date be considered
and deemed for all purposes to be the holder of the NPS Common Shares
to which it is entitled. Upon surrender to the Trustee of a
certificate or certificates representing Exchangeable Shares, together
with such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the governing corporate
statute and the by-laws of NPS - Allelix Inc. and such additional
documents and instruments as the Trustee may reasonably require, the
holder of such surrendered certificate or certificates shall be
entitled to receive in exchange therefor, and the Trustee on behalf of
NPS Holdings shall deliver to such holder, certificates representing
the NPS Common Shares to which the holder is entitled and a cheque or
cheques of NPS Holdings payable at par at any branch of the bankers of
NPS Holdings in payment of the remaining portion, if any, of the total
Redemption Call Purchase Price, less any amounts withheld pursuant to
Section 4.7 hereof. If NPS Holdings does not exercise the Redemption
Call Right in the manner described above, on the Redemption Date the
holders of the Exchangeable Shares will be entitled to receive in
exchange therefor the redemption price otherwise payable by NPS -
Allelix Inc. in connection with the redemption of the Exchangeable
Shares pursuant to Article 7 of the Exchangeable Share Provisions.
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<PAGE>
AMENDMENTS
Amendments to Plan of Arrangement
Allelix reserves the right to amend, modify and/or supplement this
Plan of Arrangement at any time and from time to time prior to the Effective
Date, provided that each such amendment, modification and/or supplement must be
(i) set out in writing, (ii) consented to by NPS, (iii) filed with the Court
and, if made following the Allelix Meeting, approved by the Court and (iv)
communicated to holders of Allelix Common Shares, Allelix Options, Allelix
Warrants and Allelix Preferred Shares, if and as required by the Court.
Any amendment, modification or supplement to this Plan of Arrangement
may be proposed by Allelix at any time prior to the Allelix Meeting (provided
that NPS shall have consented thereto) with or without any other prior notice or
communication, and if so proposed and accepted by the Persons voting at the
Allelix Meeting (other than as may be required under the Interim Order), shall
become part of this Plan of Arrangement for all purposes.
Any amendment, modification or supplement to this Plan of Arrangement
that is approved by the Court following the Allelix Meeting shall be effective
only if (i) it is consented to by each of Allelix and NPS and (ii) if required
by the Court, it is consented to by holders of the Allelix Common Shares,
Allelix Options, Allelix Warrants or Allelix Preferred Shares voting in the
manner directed by the Court.
Any amendment, modification or supplement to this Plan of Arrangement
may be made following the Effective Date unilaterally by NPS, provided that it
concerns a matter which, in the reasonable opinion of NPS, is of an
administrative nature required to better give effect to the implementation of
this Plan of Arrangement and is not adverse to the financial or economic
interests of any holder of Allelix Common Shares, Allelix Options, Allelix
Warrants, or Allelix Preferred Shares.
FURTHER ASSURANCES
Notwithstanding that the transactions and events set out herein shall
occur and be deemed to occur in the order set out in this Plan of Arrangement
without any further act or formality, each of the parties to the Arrangement
Agreement shall make, do and execute, or cause to be made, done and executed,
all such further acts, deeds, agreements, transfers, assurances, instruments or
documents as may reasonably be required by any of them in order further to
document or evidence any of the transactions or events set out herein.
APPENDIX I
TO THE PLAN OF ARRANGEMENT
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PROVISIONS ATTACHING TO THE
EXCHANGEABLE SHARES OF
NPS ALLELIX INC.
The Exchangeable Shares shall have the following rights, privileges,
restrictions and conditions:
INTERPRETATION
For the purposes of these share provisions:
"affiliate" has the meaning ascribed thereto in the Securities Act;
"Allelix" means Allelix Biopharmaceuticals Inc.;
"Allelix Common Shares" means the common shares of Allelix as constituted
on the date hereof;
"Allelix Meeting" means the special meeting of Allelix Shareholders, as
ordered by the Interim Order to consider and, if determined advisable,
approve the repricing of certain Allelix Options as approved by the Allelix
board of directors on April 15, 1999; to consider, and if determined
advisable, approve the continuance of Allelix under the OBCA and to
consider, and if determined advisable, approve the Arrangement;
"Allelix Options" means the options to purchase Allelix Common Shares
issued from time to time prior to the date hereof pursuant to the Allelix
Stock Option Plan;
"Allelix Preferred Shares" means the preferred shares, series 1 of Allelix
as constituted on the date hereof;
"Allelix Warrants" means the warrants to purchase Allelix Common Shares
issued from time to time prior to the date hereof;
"Arrangement" means an arrangement under Section 192 of the CBCA and
Section 182 of the OBCA on the terms and subject to the conditions set out
in the Plan of Arrangement, to which plan these share provisions are
attached as Appendix 1, subject to any amendments or variations thereto
made in accordance with Article 6 of the Plan of Arrangement or made at the
direction of the Court in the Final Order;
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<PAGE>
"Arrangement Agreement" means the agreement made as of the 27th day of
September, 1999 between NPS and Allelix, as amended, supplemented and/or
restated in accordance therewith prior to the Effective Date, providing
for, among other things, the Arrangement;
"Board of Directors" means the Board of Directors of the Company;
"Business Day" means any day on which commercial banks are generally
open for business in Salt Lake City, Utah and Toronto, Ontario, other than
a Saturday, a Sunday or a day observed as a holiday in Salt Lake City, Utah
under the laws of the State of Utah or the federal laws of the United
States of America or in Toronto, Ontario under the laws of the Province of
Ontario or the federal laws of Canada;
"CBCA" means the Canada Business Corporations Act, as amended;
"Canadian Dollar Equivalent" means in respect of an amount expressed
in a currency other than Canadian dollars (the "Foreign Currency Amount")
at any date the product obtained by multiplying:
(a) the Foreign Currency Amount by,
(b) the noon spot exchange rate on such date for such foreign currency
expressed in Canadian dollars as reported by the Bank of Canada or, in
the event such spot exchange rate is not available, such spot exchange
rate on such date for such foreign currency expressed in Canadian
dollars as may be deemed by the Board of Directors to be appropriate
for such purpose;
"Common Shares" means the common shares in the capital of the Company;
"Company" means NPS - Allelix Inc., a company to be incorporated under
the British Columbia Companies Act-as a wholly-owned subsidiary of NPS
Holdings;
"Current Market Price" means, in respect of a NPS Common Share on any
date, the Canadian Dollar Equivalent of the average of the closing bid and
asked prices of NPS Common Shares during a period of 20 consecutive trading
days ending not more than three trading days before such date on Nasdaq,
or, if the NPS Common Shares are not then quoted on Nasdaq, on such other
stock exchange or automated quotation system on which the NPS Common Shares
are listed or quoted, as the case may be, as may be selected by the Board
of Directors for such purpose; provided, however, that if in the opinion of
the Board of Directors the public distribution or trading activity of NPS
Common Shares during such period does not create a market which reflects
the fair market value of an NPS Common Share, then the Current Market Price
of a NPS Common Share shall be determined by the Board of Directors, in
good faith and in its sole discretion, and provided further that any such
selection, opinion or determination by the Board of Directors shall be
conclusive and binding;
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<PAGE>
"Director" means the Director appointed pursuant to Section 273 of the
OBCA;
"Dividend Amount" means the amount of all declared and unpaid
dividends on an Exchangeable Share held by a holder on any dividend record
date which occurred prior to the date of purchase or redemption of such
shares by the Company or NPS Holdings from such holder;
"Effective Date" means the date shown on the certificate of arrangement to
be issued by the Director under the OBCA giving effect to the Arrangement;
"Exchangeable Shares" means the non-voting exchangeable shares in the
capital of the Company, having the rights, privileges, restrictions and
conditions set forth herein;
"Governmental Entity" means any (a) multinational, federal, provincial,
state, regional, municipal, local or other government, governmental or
public department, central bank, court, tribunal, arbitral body,
commission, board, bureau or agency, domestic or foreign, (b) any
subdivision, agent, commission, board, or authority of any of the
foregoing, or (c) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account of
any of the foregoing;
"holder" means, when used with reference to the Exchangeable Shares, the
holders of Exchangeable Shares shown from time to time in the register
maintained by or on behalf of the Company in respect of the Exchangeable
Shares;
"Liquidation Amount" has the meaning ascribed thereto in Section 5.1 of
these share provisions;
"Liquidation Call Right" has the meaning ascribed thereto in the Plan of
Arrangement;
"Liquidation Date" has the meaning ascribed thereto in Section 5.1 of these
share provisions;
"Nasdaq" means the National Association of Securities Dealers Automated
Quotation System;
"NPS" means NPS Pharmaceuticals, Inc.;
"NPS Common Shares" mean the shares of common stock in the capital of NPS
and any other securities into which such shares may be changed;
"NPS Control Transaction" means any merger, amalgamation, tender offer,
material sale of shares or rights or interests therein or thereto or
similar transactions involving NPS, or any proposal to do so;
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"NPS Dividend Declaration Date" means the date on which the Board of
Directors of NPS declares any dividend on the NPS Common Shares;
"NPS Holdings" means NPS Holdings Limited, a company to be incorporated
under the British Columbia Companies Act as a wholly-owned subsidiary of
NPS;
"NPS Holdings Call Notice" has the meaning ascribed thereto in Section 6.3
of these share provisions;
"OBCA" means the Business Corporations Act (Ontario), as amended;
"Person" includes any individual, firm, partnership, joint venture, venture
capital fund, limited liability company, unlimited liability company,
association, trust, trustee, executor, administrator, legal personal
representative, estate, group, body corporate, corporation, unincorporated
association or organization, Governmental Entity, syndicate or other
entity, whether or not having legal status;
"Plan of Arrangement" means the plan of arrangement substantially in the
form and content of Schedule A annexed to the Arrangement Agreement and any
amendments or variations thereto made in accordance with Section 9.1 of the
Arrangement Agreement or Article 6 of the Plan of Arrangement or made at
the direction of the Court in the Final Order;
"Preference Shares" means the 100 preference shares in the capital of the
Company;
"Purchase Price" has the meaning ascribed thereto in Section 6.3 of these
share provisions;
"Redemption Call Purchase Price" has the meaning ascribed thereto in the
Plan of Arrangement;
"Redemption Call Right" has the meaning ascribed thereto in the Plan of
Arrangement;
"Redemption Date" means the date, if any, established by the Board of
Directors for the redemption by the Company of all but not less than all of
the outstanding Exchangeable Shares pursuant to Article 7 of these share
provisions, which date shall be no earlier than December 31, 2004, unless:
there are fewer than 1,000,000 Exchangeable Shares outstanding (other
than Exchangeable Shares held by NPS and its affiliates, and as such
number of shares may be adjusted as deemed appropriate by the Board of
Directors to give effect to any subdivision or consolidation of or
stock dividend on the Exchangeable Shares, any issue or distribution
of rights to acquire Exchangeable Shares or securities exchangeable
for or convertible into Exchangeable Shares, any issue or distribution
of other securities or rights or evidences of indebtedness or assets,
or
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<PAGE>
any other capital reorganization or other transaction affecting the
Exchangeable Shares), in which case the Board of Directors may
accelerate such redemption date to such date prior to December 31,
2004 as it may determine, upon at least 60 days' prior written notice
to the registered holders of the Exchangeable Shares and the Trustee;
a NPS Control Transaction occurs, in which case, provided that the
Board of Directors determines, in good faith and in its sole
discretion, that it is not reasonably practicable to substantially
replicate the terms and conditions of the Exchangeable Shares in
connection with such NPS Control Transaction and that the redemption
of all but not less than all of the outstanding Exchangeable Shares is
necessary to enable the completion of such NPS Control Transaction in
accordance with its terms, the Board of Directors may accelerate such
redemption date to such date prior to December 31, 2004 as it may
determine, upon such number of days' prior written notice to the
registered holders of the Exchangeable Shares and the Trustee as the
Board of Directors may determine to be reasonably practicable in such
circumstances;
provided, however, that the accidental failure or omission to give any
notice of redemption under clauses (a) or (b) above to less than 10% of
such holders of Exchangeable Shares shall not affect the validity of any
such redemption;
"Redemption Price" has the meaning ascribed thereto in Section 7.1 of
these share provisions;
"Retracted Shares" has the meaning ascribed thereto in Section 6.1(a)
of these share provisions;
"Retraction Call Right" has the meaning ascribed thereto in Section
6.1(c) of these share provisions;
"Retraction Date" has the meaning ascribed thereto in Section 6.1(b)
of these share provisions;
"Retraction Price" has the meaning ascribed thereto in Section 6.1 of
these share provisions;
"Retraction Request" has the meaning ascribed thereto in Section 6.1
of these share provisions;
"Securities Act" means the Securities Act (Ontario) and the rules,
regulations and policies made thereunder, as now in effect and as they may
be amended from time to time prior to the Effective Date;
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<PAGE>
"Support Agreement" means the agreement made among NPS, NPS Holdings
and the Company in connection with the Plan of Arrangement;
"Transfer Agent" means the transfer agent for the Exchangeable Shares;
"Trustee" means the trustee chosen by NPS and Allelix, acting
reasonably, to act as trustee under the Voting and Exchange Trust
Agreement, being a corporation organized and existing under the laws of
Canada and authorized to carry on the business of a trust company in all
the provinces of Canada, and any successor trustee appointed under the
Voting and Exchange Trust Agreement;
"Voting and Exchange Trust Agreement" means the agreement made between
NPS, the Company and the Trustee in connection with the Plan of
Arrangement.
RANKING OF EXCHANGEABLE SHARES
The Exchangeable Shares shall be entitled to a preference over the
Common Shares and any other shares ranking junior to the Exchangeable Shares,
but shall rank junior to the Preference Shares, with respect to the payment of
dividends and the distribution of assets in the event of the liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary, or
any other distribution of the assets of the Company, among its shareholders for
the purpose of winding up its affairs.
DIVIDENDS
A holder of an Exchangeable Share shall be entitled to receive and the
Board of Directors shall, subject to applicable law, on each NPS Dividend
Declaration Date, declare a dividend on each Exchangeable Share:
in the case of a cash dividend declared on the NPS Common Shares, in
an amount in cash for each Exchangeable Share in U.S. dollars, or the
Canadian Dollar Equivalent thereof on the NPS Dividend Declaration
Date, in each case, corresponding to the cash dividend declared on
each NPS Common Share;
in the case of a stock dividend declared on the NPS Common Shares to
be paid in NPS Common Shares by the issue or transfer by the Company
of such number of Exchangeable Shares for each Exchangeable Share as
is equal to the number of NPS Common Shares to be paid on each NPS
Common Share; or
in the case of a dividend declared on the NPS Common Shares in
property other than cash or NPS Common Shares, in such type and amount
of property for each Exchangeable Share as is the same as or
economically equivalent to (to be
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<PAGE>
determined by the Board of Directors as contemplated by Section 3.5
hereof) the type and amount of property declared as a dividend on each
NPS Common Share.
Such dividends shall be paid out of money, assets or property of the
Company properly applicable to the payment of dividends, or out of authorized
but unissued shares of the Company, as applicable.
Cheques of the Company payable at par at any branch of the bankers of
the Company shall be issued in respect of any cash dividends contemplated by
Section 3.1 (a) hereof and the sending of such a cheque to each holder of an
Exchangeable Share shall satisfy the cash dividend represented thereby unless
the cheque is not paid on presentation. Certificates registered in the name of
the registered holder of Exchangeable Shares shall be issued or transferred in
respect of any stock dividends contemplated by Section 3.1 (b) hereof and the
sending of such a certificate to each holder of an Exchangeable Share shall
satisfy the stock dividend represented thereby. Such other type and amount of
property in respect of any dividends contemplated by Section 3.1 (c) hereof
shall be issued, distributed or transferred by the Company in such manner as it
shall determine and the issuance, distribution or transfer thereof by the
Company to each holder of an Exchangeable Share shall satisfy the dividend
represented thereby. No holder of an Exchangeable Share shall be entitled to
recover by action or other legal process against the Company any dividend that
is represented by a cheque that has not been duly presented to the Company's
bankers for payment or that otherwise remains unclaimed for a period of six
years from the date on which such dividend was payable.
The record date for the determination of the holders of Exchangeable
Shares entitled to receive payment of, and the payment date for, any dividend
declared on the Exchangeable Shares under Section 3.1 hereof shall be the same
dates as the record date and payment date, respectively, for the corresponding
dividend declared on the NPS Common Shares.
If on any payment date for any dividends declared on the Exchangeable
Shares under Section 3.1 hereof the dividends are not paid in full on all of the
Exchangeable Shares then outstanding, any such dividends that remain unpaid
shall be paid on a subsequent date or dates determined by the Board of Directors
on which the Company shall have sufficient money, assets or property properly
applicable to the payment of such dividends.
The Board of Directors shall determine, in good faith and in its sole
discretion, economic equivalence for the purposes of Section 3.1 hereof, and
each such determination shall be conclusive and binding on the Company and its
shareholders. In making each such determination, the following factors shall,
without excluding other factors determined by the Board of Directors to be
relevant, be considered by the Board of Directors:
in the case of any stock dividend or other distribution payable in NPS
Common Shares, the number of such shares issued in proportion to the
number of NPS Common Shares previously outstanding;
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<PAGE>
in the case of the issuance or distribution of any rights, options or
warrants to subscribe for or purchase NPS Common Shares (or securities
exchangeable for or convertible into or carrying rights to acquire NPS
Common Shares), the relationship between the exercise price of each
such right, option or warrant and the Current Market Price;
in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities of NPS
of any class other than NPS Common Shares, any rights, options or
warrants other than those referred to in Section 3.5(b) above, any
evidences of indebtedness of NPS or any assets of NPS) the
relationship between the fair market value (as determined by the Board
of Directors in the manner above contemplated) of such property to be
issued or distributed with respect to each outstanding NPS Common
Share and the Current Market Price; and
in all such cases, the general taxation consequences of the relevant
event to holders of Exchangeable Shares to the extent that such
consequences may differ from the taxation consequences to holders of
NPS Common Shares as a result of differences between taxation laws of
Canada and the United States (except for any differing consequences
arising as a result of differing marginal taxation rates and without
regard to the individual circumstances of holders of Exchangeable
Shares).
CERTAIN RESTRICTIONS
So long as any of the Exchangeable Shares are outstanding, the Company
shall not at any time without, but may at any time with, the approval of the
holders of the Exchangeable Shares given as specified in Section 10.2 of these
share provisions:
pay any dividends on the Common Shares or any other shares ranking
junior to the Exchangeable Shares, other than stock dividends payable
in Common Shares or any such other shares ranking junior to the
Exchangeable Shares, as the case may be;
redeem or purchase or make any capital distribution in respect of
Common Shares or any other shares ranking junior to the Exchangeable
Shares;
redeem or purchase any other shares of the Company ranking equally
with the Exchangeable Shares with respect to the payment of dividends
or on any liquidation distribution; or
except pursuant to and in accordance with the terms of the Allelix
Options, the Allelix Warrants and the Allelix Preferred Shares, issue
any Exchangeable Shares or any other shares of the Company ranking
equally with, or superior to, the
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<PAGE>
Exchangeable Shares other than by way of stock dividends to the
holders of such Exchangeable Shares.
The restrictions in Sections 4.1(a), (b), (c) and (d) above shall not
apply if all dividends on the outstanding Exchangeable Shares corresponding to
dividends declared and paid to date on the NPS Common Shares shall have been
declared and paid on the Exchangeable Shares.
DISTRIBUTION ON LIQUIDATION
In the event of the liquidation, dissolution or winding-up of the
Company or any other distribution of the assets of the Company among its
shareholders for the purpose of winding up its affairs, a holder of Exchangeable
Shares shall be entitled, subject to applicable law, to receive from the assets
of the Company in respect of each Exchangeable Share held by such holder on the
effective date (the "Liquidation Date") of such liquidation, dissolution or
winding-up, before any distribution of any part of the assets of the Company
among the holders of the Common Shares or any other shares ranking junior to the
Exchangeable Shares, an amount per share (the "Liquidation Amount") equal to the
Current Market Price of a NPS Common Share on the last Business Day prior to the
Liquidation Date, which shall be satisfied in full by the Company causing to be
delivered to such holder one NPS Common Share, plus the Dividend Amount.
On or promptly after the Liquidation Date, and subject to the exercise
by NPS Holdings of the Liquidation Call Right, the Company shall cause to be
delivered to the holders of the Exchangeable Shares the Liquidation Amount for
each such Exchangeable Share upon presentation and surrender of the certificates
representing such Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
the OBCA and the Articles of the Company and such additional documents and
instruments as the Transfer Agent and the Company may reasonably require, at the
registered office of the Company or at any office of the Transfer Agent as may
be specified by the Company by notice to the holders of the Exchangeable Shares.
Payment of the total Liquidation Amount for such Exchangeable Shares shall be
made by delivery to each holder, at the address of the holder recorded in the
register of members of the Company for the Exchangeable Shares or by holding for
pick-up by the holder at the registered office of the Company or at any office
of the Transfer Agent as may be specified by the Company by notice to the
holders of Exchangeable Shares, on behalf of the Company of certificates
representing NPS Common Shares (which shares shall be duly issued as fully paid
and non-assessable and shall be free and clear of any lien, claim or
encumbrance) and a cheque of the Company payable at par at any branch of the
bankers of the Company in respect of the remaining portion, if any, of the total
Liquidation Amount (in each case less any amounts withheld on account of tax
required to be deducted and withheld therefrom). On and after the Liquidation
Date, the holders of the Exchangeable Shares shall cease to be holders of such
Exchangeable Shares and shall not be entitled to exercise any of the rights of
holders in respect thereof, other than the right to receive
B-27
<PAGE>
their proportionate part of the total Liquidation Amount, unless payment of the
total Liquidation Amount for such Exchangeable Shares shall not be made upon
presentation and surrender of share certificates in accordance with the
foregoing provisions, in which case the rights of the holders shall remain
unaffected until the total Liquidation Amount has been paid in the manner
hereinbefore provided. The Company shall have the right at any time after the
Liquidation Date to deposit or cause to be deposited the total Liquidation
Amount in respect of the Exchangeable Shares represented by certificates that
have not at the Liquidation Date been surrendered by the holders thereof in a
custodial account with any chartered bank or trust company in Canada. Upon such
deposit being made, the rights of the holders of Exchangeable Shares after such
deposit shall be limited to receiving their proportionate part of the total
Liquidation Amount (in each case less any amounts withheld on account of tax
required to be deducted and withheld therefrom) for such Exchangeable Shares so
deposited, against presentation and surrender of the said certificates held by
them, respectively, in accordance with the foregoing provisions. Upon such
payment or deposit of the total Liquidation Amount, the holders of the
Exchangeable Shares shall thereafter be considered and deemed for all purposes
to be holders of the NPS Common Shares delivered to them or the custodian on
their behalf.
After the Company has satisfied its obligations to pay the holders of
the Exchangeable Shares the Liquidation Amount per Exchangeable Share pursuant
to Section 5.1 of these share provisions, such holders shall not be entitled to
share in any further distribution of the assets of the Company.
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
A holder of Exchangeable Shares shall be entitled at any time, subject
to the exercise by NPS Holdings of the Retraction Call Right and otherwise upon
compliance with the provisions of this Article 6, to require the Company to
redeem any or all of the Exchangeable Shares registered in the name of such
holder for an amount per share equal to the Current Market Price of a NPS Common
Share on the last Business Day prior to the Retraction Date (the "Retraction
Price"), which shall be satisfied in full by the Company causing to be delivered
to such holder one NPS Common Share for each Exchangeable Share presented and
surrendered by the holder. To effect such redemption, the holder shall present
and surrender at the registered office of the Company or at any office of the
Transfer Agent as may be specified by the Company by notice to the holders of
Exchangeable Shares the certificate or certificates representing the
Exchangeable Shares which the holder desires to have the Company redeem,
together with such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the OBCA and the Articles of the Company
and such additional documents and instruments as the Transfer Agent and the
Company may reasonably require, and together with a duly executed statement (the
"Retraction Request") in the form of Schedule A hereto or in such other form as
may be acceptable to the Company:
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<PAGE>
specifying that the holder desires to have all or any number specified
therein of the Exchangeable Shares represented by such certificate or
certificates (the "Retracted Shares") redeemed by the Company;
stating the Business Day on which the holder desires to have the
Company redeem the Retracted Shares (the "Retraction Date"), provided
that the Retraction Date shall be not less than 10 Business Days nor
more than 15 Business Days after the date on which the Retraction
Request is received by the Company and further provided that, in the
event that no such Business Day is specified by the holder in the
Retraction Request, the Retraction Date shall be deemed to be the 15th
Business Day after the date on which the Retraction Request is
received by the Company; and
acknowledging the overriding right (the "Retraction Call Right") of
NPS Holdings to purchase all but not less than all the Retracted
Shares directly from the holder and that the Retraction Request shall
be deemed to be a revocable offer by the holder to sell the Retracted
Shares to NPS Holdings in accordance with the Retraction Call Right on
the terms and conditions set out in Section 6.3 below.
Subject to the exercise by NPS Holdings of the Retraction Call Right,
upon receipt by the Company or the Transfer Agent in the manner specified in
Section 6.1 hereof of a certificate or certificates representing the number of
Retracted Shares, together with a Retraction Request, and provided that the
Retraction Request is not revoked by the holder in the manner specified in
Section 6.7, the Company shall redeem the Retracted Shares effective at the
close of business on the Retraction Date and shall cause to be delivered to such
holder the total Retraction Price. If only a part of the Exchangeable Shares
represented by any certificate is redeemed (or purchased by NPS Holdings
pursuant to the Retraction Call Right), a new certificate for the balance of
such Exchangeable Shares shall be issued to the holder at the expense of the
Company.
Upon receipt by the Company of a Retraction Request, the Company shall
immediately notify NPS Holdings thereof and shall provide to NPS Holdings a copy
of the Retraction Request. In order to exercise the Retraction Call Right, NPS
Holdings must notify the Company of its determination to do so (the "NPS
Holdings Call Notice") within five Business Days of notification to NPS Holdings
by the Company of the receipt by the Company of the Retraction Request. If NPS
Holdings does not so notify the Company within such five Business Day period,
the Company will notify the holder as soon as possible thereafter that NPS
Holdings will not exercise the Retraction Call Right. If NPS Holdings delivers
the NPS Holdings Call Notice within such five Business Day period, and provided
that the Retraction Request is not revoked by the holder in the manner specified
in Section 6.7, the Retraction Request shall thereupon be considered only to be
an offer by the holder to sell the Retracted Shares to NPS Holdings in
accordance with the Retraction Call Right. In such event, the Company shall not
redeem the Retracted Shares and NPS Holdings shall purchase from such holder and
such holder shall sell to NPS Holdings on the Retraction Date the Retracted
Shares for a purchase price (the
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<PAGE>
"Purchase Price") per share equal to the Retraction Price per share, plus on the
designated payment date therefor, to the extent not paid by the Company on the
designated payment date therefor, any Dividend Amount. To the extent that NPS
Holdings pays the Dividend Amount in respect of the Retracted Shares, the
Company shall no longer be obligated to pay any declared and unpaid dividends on
such Retracted Shares. Provided that NPS Holdings has complied with Section 6.4,
the closing of the purchase and sale of the Retracted Shares pursuant to the
Retraction Call Right shall be deemed to have occurred as at the close of
business on the Retraction Date and, for greater certainty, no redemption by the
Company of such Retracted Shares shall take place on the Retraction Date. In the
event that NPS Holdings does not deliver a NPS Holdings Call Notice within such
five Business Day period, and provided that the Retraction Request is not
revoked by the holder in the manner specified in Section 6.7, the Company shall
redeem the Retracted Shares on the Retraction Date and in the manner otherwise
contemplated in this Article 6.
The Company or NPS Holdings, as the case may be, shall deliver or
cause the Trustee to deliver to the relevant holder, at the address of the
holder recorded in the register of members of the Company for the Exchangeable
Shares or at the address specified in the holder's Retraction Request or by
holding for pick-up by the holder at the registered office of the Company or at
any office of the Transfer Agent as may be specified by the Company by notice to
the holders of Exchangeable Shares, certificates representing the NPS Common
Shares (which shares shall be duly issued as fully paid and non-assessable and
shall be free and clear of any lien, claim or encumbrance) registered in the
name of the holder or in such other name as the holder may request, and, if
applicable and on or before the payment date therefor, a cheque payable at par
at any branch of the bankers of the Company or NPS Holdings, as applicable,
representing the aggregate Dividend Amount, in payment of the total Retraction
Price or the total Purchase Price, as the case may be, in each case, less any
amounts withheld on account of tax required to be deducted and withheld
therefrom, and such delivery of such certificates and cheques on behalf of the
Company or by NPS Holdings, as the case may be, or by the Transfer Agent shall
be deemed to be payment of and shall satisfy and discharge all liability for the
total Retraction Price or total Purchase Price, as the case may be, to the
extent that the same is represented by such share certificates and cheques (plus
any tax deducted and withheld therefrom and remitted to the proper tax
authority).
On and after the close of business on the Retraction Date, the holder
of the Retracted Shares shall cease to be a holder of such Retracted Shares and
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive his proportionate part of the total
Retraction Price or total Purchase Price, as the case may be, unless upon
presentation and surrender of certificates in accordance with the foregoing
provisions, payment of the total Retraction Price or the total Purchase Price,
as the case may be, shall not be made as provided in Section 6.4, in which case
the rights of such holder shall remain unaffected until the total Retraction
Price or the total Purchase Price, as the case may be, has been paid in the
manner hereinbefore provided. On and after the close of business on the
Retraction Date, provided that presentation and surrender of certificates and
payment of the total Retraction Price or the total Purchase Price, as the case
may be, has been made in accordance with the foregoing
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<PAGE>
provisions, the holder of the Retracted Shares so redeemed by the Company or
purchased by NPS Holdings shall thereafter be considered and deemed for all
purposes to be a holder of the NPS Common Shares delivered to it.
Notwithstanding any other provision of this Article 6, the Company
shall not be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent that such redemption of Retracted Shares would
be contrary to solvency requirements or other provisions of applicable law. If
the Company believes that on any Retraction Date it would not be permitted by
any of such provisions to redeem the Retracted Shares tendered for redemption on
such date, and provided that NPS Holdings shall not have exercised the
Retraction Call Right with respect to the Retracted Shares, the Company shall
only be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent of the maximum number that may be so redeemed
(rounded down to a whole number of shares) as would not be contrary to such
provisions and shall notify the holder at least two Business Days prior to the
Retraction Date as to the number of Retracted Shares which will not be redeemed
by the Company. In any case in which the redemption by the Company of Retracted
Shares would be contrary to solvency requirements or other provisions of
applicable law, the Company shall redeem Retracted Shares in accordance with
Section 6.2 of these share provisions on a pro rata basis and shall issue to
each holder of Retracted Shares a new certificate, at the expense of the
Company, representing the Retracted Shares not redeemed by the Company pursuant
to Section 6.2 hereof. Provided that the Retraction Request is not revoked by
the holder in the manner specified in Section 6.7, the holder of any such
Retracted Shares not redeemed by the Company pursuant to Section 6.2 of these
share provisions as a result of solvency requirements or other provisions of
applicable law shall be deemed by giving the Retraction Request to require NPS
to purchase such Retracted Shares from such holder on the Retraction Date or as
soon as practicable thereafter on payment by NPS to such holder of the Purchase
Price for each such Retracted Share, all as more specifically provided in the
Voting and Exchange Trust Agreement.
A holder of Retracted Shares may, by notice in writing given by the
holder to the Company before the close of business on the Business Day
immediately preceding the Retraction Date, withdraw its Retraction Request, in
which event such Retraction Request shall be null and void and, for greater
certainty, the revocable offer constituted by the Retraction Request to sell the
Retracted Shares to NPS Holdings shall be deemed to have been revoked.
REDEMPTION OF EXCHANGEABLE SHARES BY THE COMPANY
Subject to applicable law, and provided NPS Holdings has not exercised
the Redemption Call Right, the Company shall on the Redemption Date redeem all
but not less than all of the then outstanding Exchangeable Shares for an amount
per share equal to the Current Market Price of a NPS Common Share on the last
Business Day prior to the Redemption Date (the "Redemption Price"), which shall
be satisfied in full by the Company causing to be delivered to each holder of
Exchangeable Shares one NPS Common Share for each Exchangeable Share held by
such holder, together with the Dividend Amount.
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<PAGE>
In any case of a redemption of Exchangeable Shares under this Article
7, the Company shall, at least 60 days before the Redemption Date (other than a
Redemption Date established in connection with a NPS Control Transaction, an
Exchangeable Share Voting Event or an Exempt Exchangeable Share Voting Event),
send or cause to be sent to each holder of Exchangeable Shares a notice in
writing of the redemption by the Company or the purchase by NPS Holdings under
the Redemption Call Right, as the case may be, of the Exchangeable Shares held
by such holder. In the case of a Redemption Date established in connection with
a NPS Control Transaction, an Exchangeable Share Voting Event or an Exempt
Exchangeable Share Voting Event, the written notice of redemption by the Company
or the purchase by NPS Holdings under the Redemption Call Right will be sent on
or before the Redemption Date, on as many days prior written notice as may be
determined by the Board of Directors of the Company to be reasonably practicable
in the circumstances. In any such case, such notice shall set out the formula
for determining the Redemption Price or the Redemption Call Purchase Price, as
the case may be, the Redemption Date and, if applicable, particulars of the
Redemption Call Right.
On or after the Redemption Date and subject to the exercise by NPS
Holdings of the Redemption Call Right, the Company shall cause to be delivered
to the holders of the Exchangeable Shares to be redeemed the Redemption Price
for each such Exchangeable Share, together with the Dividend Amount upon
presentation and surrender at the registered office of the Company or at any
office of the Trustee as may be specified by the Company in such notice of the
certificates representing such Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the OBCA and the Articles of the Company and such
additional documents and instruments as the Transfer Agent and the Company may
reasonably require. Payment of the total Redemption Price for such Exchangeable
Shares, together with payment of the Dividend Amount, shall be made by delivery
to each holder, at the address of the holder recorded in the register of members
of the Company or by holding for pick-up by the holder at the registered office
of the Company or at any office of the Transfer Agent as may be specified by the
Company in such notice, on behalf of the Company of certificates representing
NPS Common Shares (which shares shall be duly issued as fully paid and non-
assessable and shall be free and clear of any lien, claim or encumbrance) and,
if applicable, a cheque of the Company payable at par at any branch of the
bankers of the Company in payment of any Dividend Amounts, in each case, less
any amounts withheld on account of tax required to be deducted and withheld
therefrom. On and after the Redemption Date, the holders of the Exchangeable
Shares called for redemption shall cease to be holders of such Exchangeable
Shares and shall not be entitled to exercise any of the rights of holders in
respect thereof, other than the right to receive their proportionate part of the
total Redemption Price and any Dividend Amount, unless payment of the total
Redemption Price and any Dividend Amount for such Exchangeable Shares shall not
be made upon presentation and surrender of certificates in accordance with the
foregoing provisions, in which case the rights of the holders shall remain
unaffected until the total Redemption Price and any Dividend Amount shall have
been paid in the manner hereinbefore provided. The Company shall have the right
at any time after the sending of notice of its intention to redeem the
Exchangeable Shares as aforesaid to deposit or cause to be deposited the total
Redemption Price for and the full amount of the Dividend Amount on (except as
otherwise provided in this Section 7.3) the Exchangeable Shares
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so called for redemption, or of such of the said Exchangeable Shares represented
by certificates that have not at the date of such deposit been surrendered by
the holders thereof in connection with such redemption, in a custodial account
with any chartered bank or trust company in Canada named in such notice, less
any amounts withheld on account of tax required to be deducted and withheld
therefrom. Upon the later of such deposit being made and the Redemption Date,
the Exchangeable Shares in respect whereof such deposit shall have been made
shall be redeemed and the rights of the holders thereof after such deposit or
Redemption Date, as the case may be, shall be limited to receiving their
proportionate part of the total Redemption Price and the Dividend Amount for
such Exchangeable Shares so deposited, against presentation and surrender of the
said certificates held by them, respectively, in accordance with the foregoing
provisions. Upon such payment or deposit of the total Redemption Price and the
full Dividend Amount, the holders of the Exchangeable Shares shall thereafter be
considered and deemed for all purposes to be holders of the NPS Common Shares
delivered to them or the custodian on their behalf.
PURCHASE FOR CANCELLATION
Subject to applicable law, the Company may at any time and from time
to time purchase for cancellation all or any part of the outstanding
Exchangeable Shares at any price by tender to all the holders of record of
Exchangeable Shares then outstanding or through the facilities of any stock
exchange on which the Exchangeable Shares are listed or quoted at any price per
share. If in response to an invitation for tenders under the provisions of this
Section 8.1, more Exchangeable Shares are tendered at a price or prices
acceptable to the Company than the Company is prepared to purchase, the
Exchangeable Shares to be purchased by the Company shall be purchased as nearly
as may be pro rata according to the number of shares tendered by each holder who
submits a tender to the Company, provided that when shares are tendered at
different prices, the pro rating shall be effected (disregarding fractions) only
with respect to the shares tendered at the price at which more shares were
tendered than the Company is prepared to purchase after the Company has
purchased all the shares tendered at lower prices. If part only of the
Exchangeable Shares represented by any certificate shall be purchased, a new
certificate for the balance of such shares shall be issued at the expense of the
Company.
VOTING RIGHTS
Except as required by applicable law and by Article 10 hereof, the
holders of the Exchangeable Shares shall not be entitled as such to receive
notice of or to attend any meeting of the Shareholders of the Company or to vote
at any such meeting.
AMENDMENT AND APPROVAL
B-33
<PAGE>
The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed but only with the
approval of the holders of the Exchangeable Shares given as hereinafter
specified.
Any approval given by the holders of the Exchangeable Shares to add
to, change or remove any right, privilege, restriction or condition attaching to
the Exchangeable Shares or any other matter requiring the approval or consent of
the holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable law subject to a
minimum requirement that such approval be evidenced by resolution passed by not
less than two-thirds of the votes cast on such resolution at a meeting of
holders of Exchangeable Shares duly called and held at which the holders of at
least 10% of the outstanding Exchangeable Shares at that time are present or
represented by proxy; provided that if at any such meeting the holders of at
least 10% of the outstanding Exchangeable Shares at that time are not present or
represented by proxy within one-half hour after the time appointed for such
meeting, then the meeting shall be adjourned to such date not less than five
days thereafter and to such time and place as may be designated by the Chairman
of such meeting. At such adjourned meeting the holders of Exchangeable Shares
present or represented by proxy thereat may transact the business for which the
meeting was originally called and a resolution passed thereat by the affirmative
vote of not less than two-thirds of the votes cast on such resolution at such
meeting shall constitute the approval or consent of the holders of the
Exchangeable Shares.
RECIPROCAL CHANGES, ETC. IN RESPECT OF NPS COMMON SHARES
Each holder of an Exchangeable Share acknowledges that the Support
Agreement provides, in part, that NPS will not without the prior approval of the
Company and the prior approval of the holders of the Exchangeable Shares given
in accordance with Section 10.2 of these share provisions:
issue or distribute NPS Common Shares (or securities exchangeable for
or convertible into or carrying rights to acquire NPS Common Shares)
to the holders of all or substantially all of the then outstanding NPS
Common Shares by way of stock dividend or other distribution, other
than an issue of NPS Common Shares (or securities exchangeable for or
convertible into or carrying rights to acquire NPS Common Shares) to
holders of NPS Common Shares who exercise an option to receive
dividends in NPS Common Shares (or securities exchangeable for or
convertible into or carrying rights to acquire NPS Common Shares) in
lieu of receiving cash dividends;
issue or distribute rights, options or warrants to the holders of all
or substantially all of the then outstanding NPS Common Shares
entitling them to subscribe for or to purchase NPS Common Shares (or
securities exchangeable for or convertible into or carrying rights to
acquire NPS Common Shares); or
B-34
<PAGE>
issue or distribute to the holders of all or substantially all of the
then outstanding NPS Common Shares:
shares or securities of NPS of any class other than NPS Common
Shares (other than shares convertible into or exchangeable for or
carrying rights to acquire NPS Common Shares);
rights, options or warrants other than those referred to in
Section 11.1(b) above;
evidences of indebtedness of NPS; or
assets of NPS,
unless the economic equivalent on a per share basis of such rights, options,
securities, shares, evidences of indebtedness or other assets is issued or
distributed simultaneously to holders of the Exchangeable Shares.
Each holder of an Exchangeable Share acknowledges that the Support
Agreement further provides, in part, that NPS will not without the prior
approval of the Company and the prior approval of the holders of the
Exchangeable Shares given in accordance with Section 10.2 of these share
provisions:
subdivide, redivide or change the then outstanding NPS Common Shares
into a greater number of NPS Common Shares;
reduce, combine, consolidate or change the then outstanding NPS Common
Shares into a lesser number of NPS Common Shares; or
reclassify or otherwise change the NPS Common Shares or effect an
amalgamation, merger, reorganization or other transaction affecting
the NPS Common Shares,
unless the same or an economically equivalent change shall simultaneously be
made to, or in, the rights of the holders of the Exchangeable Shares. The
Support Agreement further provides, in part, that the aforesaid provisions of
the Support Agreement shall not be changed without the approval of the holders
of the Exchangeable Shares given in accordance with Section 10.2 of these share
provisions.
ACTIONS BY THE COMPANY UNDER SUPPORT AGREEMENT
The Company will take all such actions and do all such things as shall
be necessary or advisable to perform and comply with and to ensure performance
and compliance by NPS, NPS Holdings and the Company with all provisions of the
Support Agreement applicable
B-35
<PAGE>
to NPS, NPS Holdings and the Company, respectively, in accordance with the terms
thereof including, without limitation, taking all such actions and doing all
such things as shall be necessary or advisable to enforce to the fullest extent
possible for the direct benefit of the Company all rights and benefits in favour
of the Company under or pursuant to such agreement.
The Company shall not propose, agree to or otherwise give effect to
any amendment to, or waiver or forgiveness of its rights or obligations under,
the Support Agreement without the approval of the holders of the Exchangeable
Shares given in accordance with Section 10.2 of these share provisions other
than such amendments, waivers and/or forgiveness as may be necessary or
advisable for the purposes of:
adding to the covenants of the other parties to such agreement for the
protection of the Company or the holders of the Exchangeable Shares
thereunder;
making such provisions or modifications not inconsistent with such
agreement as may be necessary or desirable with respect to matters or
questions arising thereunder which, in the good faith opinion of the
Board of Directors, it may be expedient to make, provided that the
Board of Directors shall be of the good faith opinion, after
consultation with counsel, that such provisions and modifications will
not be prejudicial to the interests of the holders of the Exchangeable
Shares; or
making such changes in or corrections to such agreement which, on the
advice of counsel to the Company, are required for the purpose of
curing or correcting any ambiguity or defect or inconsistent provision
or clerical omission or mistake or manifest error contained therein,
provided that the Board of Directors shall be of the good faith
opinion, after consultation with counsel, that such changes or
corrections will not be prejudicial to the interests of the holders of
the Exchangeable Shares.
LEGEND; CALL RIGHTS; WITHHOLDING RIGHTS
The certificates evidencing the Exchangeable Shares shall contain or
have affixed thereto a legend in form and on terms approved by the Board of
Directors, with respect to the Support Agreement, the provisions of the Plan of
Arrangement relating to the Liquidation Call Right and the Redemption Call
Right, and the Voting and Exchange Trust Agreement (including the provisions
with respect to the voting rights, exchange right and automatic exchange
thereunder).
Each holder of an Exchangeable Share, whether of record or beneficial,
by virtue of becoming and being such a holder shall be deemed to acknowledge
each of the Liquidation Call Right, the Retraction Call Right and the Redemption
Call Right, in each case, in favour of NPS Holdings, and the overriding nature
thereof in connection with the liquidation, dissolution
B-36
<PAGE>
or winding-up of the Company or the retraction or redemption of Exchangeable
Shares, as the case may be, and to be bound thereby in favour of NPS Holdings as
therein provided.
The Company, NPS Holdings, NPS and the Trustee shall be entitled to
deduct and withhold from any dividend or consideration otherwise payable to any
holder of Exchangeable Shares such amounts as the Company, NPS Holdings, NPS or
the Trustee is required or permitted to deduct and withhold with respect to such
payment under the Income Tax Act (Canada), the United States Internal Revenue
Code of 1986 or any provision of provincial, state, local or foreign tax law, in
each case, as amended. To the extent that amounts are so withheld, such withheld
amounts shall be treated for all purposes hereof as having been paid to the
holder of the shares in respect of which such deduction and withholding was
made, provided that such withheld amounts are actually remitted to the
appropriate taxing authority. To the extent that the amount so required or
permitted to be deducted or withheld from any payment to a holder exceeds the
cash portion of the consideration otherwise payable to the holder, the Company,
NPS Holdings, NPS and the Trustee are hereby authorized to sell or otherwise
dispose of such portion of the consideration as is necessary to provide
sufficient funds to the Company, NPS Holdings, NPS or the Trustee, as the case
may be, to enable it to comply with such deduction or withholding requirement
and the Company, NPS Holdings, NPS or the Trustee shall notify the holder
thereof and remit any unapplied balance of the net proceeds of such sale.
NOTICES
Any notice, request or other communication to be given to the Company
by a holder of Exchangeable Shares shall be in writing and shall be valid and
effective if given by mail (postage prepaid) or by telecopy or by delivery to
the registered office of the Company and addressed to the attention of the
President of the Company. Any such notice, request or other communication, if
given by mail, telecopy or delivery, shall only be deemed to have been given and
received upon actual receipt thereof by the Company.
Any presentation and surrender by a holder of Exchangeable Shares to
the Company or the Trustee of certificates representing Exchangeable Shares in
connection with the liquidation, dissolution or winding-up of the Company or the
retraction or redemption of Exchangeable Shares shall be made by registered mail
(postage prepaid) or by delivery to the registered office of the Company or to
such office of the Trustee as may be specified by the Company, in each case,
addressed to the attention of the President of the Company. Any such
presentation and surrender of certificates shall only be deemed to have been
made and to be effective upon actual receipt thereof by the Company or the
Trustee, as the case may be. Any such presentation and surrender of certificates
made by registered mail shall be at the sole risk of the holder mailing the
same.
Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of the Company shall be in writing and shall
be valid and
B-37
<PAGE>
effective if given by mail (postage prepaid) or by delivery to the address of
the holder recorded in the register of members of the Company or, in the event
of the address of any such holder not being so recorded, then at the last known
address of such holder. Any such notice, request or other communication, if
given by mail, shall be deemed to have been given and received on the third
Business Day following the date of mailing and, if given by delivery, shall be
deemed to have been given and received on the date of delivery. Accidental
failure or omission to give any notice, request or other communication to one or
more holders of Exchangeable Shares shall not invalidate or otherwise alter or
affect any action or proceeding to be taken by the Company pursuant thereto.
B-38
<PAGE>
SCHEDULE A
RETRACTION REQUEST
[TO BE PRINTED ON EXCHANGEABLE SHARE CERTIFICATES]
To NPS - Allelix Inc. ("NPS - Allelix Inc.") and NPS Holdings Limited ("NPS
Holdings")
This notice is given pursuant to Article 6 of the provisions (the
"Share Provisions") attaching to the Exchangeable Shares of NPS -
Allelix Inc. represented by this certificate and all capitalized words
and expressions used in this notice that are defined in the Share
Provisions have the meanings ascribed to such words and expressions in
such Share Provisions.
The undersigned hereby notifies NPS - Allelix Inc. that, subject to
the Retraction Call Right referred to below, the undersigned desires
to have NPS - Allelix Inc. redeem in accordance with Article 6 of the
Share Provisions:
all share(s) represented by this certificate; or
_________________ share(s) only represented by this certificate.
The undersigned hereby notifies NPS - Allelix Inc. that the Retraction Date
shall be ____________________.
NOTE: The Retraction Date must be a Business Day and must not be less than 10
Business Days nor more than 15 Business Days after the date upon which
this notice is received by NPS - Allelix Inc.. If no such Business Day is
specified above, the Retraction Date shall be deemed to be the 15th
Business Day after the date on which this notice is received by NPS -
Allelix Inc..
The undersigned acknowledges the overriding Retraction Call Right of NPS
Holdings to purchase all but not less than all the Retracted Shares from the
undersigned and that this notice is and shall be deemed to be a revocable offer
by the undersigned to sell the Retracted Shares to NPS Holdings in accordance
with the Retraction Call Right on the Retraction Date for the Purchase Price and
on the other terms and conditions set out in Section 6.3 of the Share
Provisions. This Retraction Request, and this offer to sell the Retracted
Shares to NPS Holdings, may be revoked and withdrawn by the undersigned only by
notice in writing given to NPS - Allelix Inc. at any time before the close of
business on the Business Day immediately preceding the Retraction Date.
The undersigned acknowledges that if, as a result of solvency
provisions of applicable law, NPS - Allelix Inc. is unable to redeem
all Retracted Shares, the
B-39
<PAGE>
undersigned will be deemed to have exercised the Exchange Right (as
defined in the Voting and Exchange Trust Agreement) so as to require
NPS to purchase the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to NPS Holdings and NPS
- Allelix Inc. that the undersigned:
is
(select one)
is not
a non-resident of Canada for purposes of the Income Tax Act (Canada). The
undersigned acknowledges that in the absence of an indication that the
undersigned is not a non-resident of Canada, withholding on account of Canadian
tax may be made from amounts payable to the undersigned on the redemption or
purchase of the Retracted Shares.
The undersigned hereby represents and warrants to NPS Holdings and NPS
- Allelix Inc. that the undersigned has good title to, and owns, the
share(s) represented by this certificate to be acquired by NPS
Holdings or NPS - Allelix Inc., as the case may be, free and clear of
all liens, claims and encumbrances.
------ ------------------------- -----------------------
(Date) (Signature of Shareholder) (Guarantee of Signature)
Please check box if the securities and any cheque(s) resulting from the
retraction or purchase of the Retracted Shares are to be held for pick-up by
the shareholder from the transfer agent acting in its capacity as trustee
under the Voting and Exchange Trust Agreement (the "Transfer Agent"), failing
which the securities and any cheque(s) will be mailed to the last address of
the shareholder as it appears on the register.
NOTE: This panel must be completed and this certificate, together with such
additional documents as the Transfer Agent may require, must be deposited
with the Transfer Agent. The securities and any cheque(s) resulting from
the retraction or purchase of the Retracted Shares will be issued and
registered in, and made payable to, respectively, the name of the
shareholder as it appears on the register of NPS - Allelix Inc. and the
securities and any cheque(s) resulting from such retraction or purchase
will be delivered to such shareholder as indicated above, unless the form
appearing immediately below is duly completed.
Date:____________________
B-40
<PAGE>
Name of Person in Whose Name Securities or Cheque(s)Are to be Registered,
Issued or Delivered (please print):_____________________________________________
Street Address or P.O. Box:______________________________________________
Signature of Shareholder:________________________________________________
City, Province and Postal Code:__________________________________________
Signature Guaranteed by:_________________________________________________
NOTE: If this Retraction Request is for less than all of the shares represented
by this certificate, a certificate representing the remaining share(s) of
NPS - Allelix Inc. represented by this certificate will be issued and
registered in the name of the shareholder as it appears on the register
of NPS - Allelix Inc., unless the Share Transfer Power on the share
certificate is duly completed in respect of such share(s).
B-41
<PAGE>
CERTIFICATE OF AMENDMENT
of the
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
of
NPS Pharmaceuticals, Inc.
The undersigned, being the President and Secretary of NPS Pharmaceuticals,
Inc. ("NPS" or the "Corporation"), do hereby certify and set forth that the
Certificate of Incorporation was originally filed with the Secretary of State of
Delaware on March 2, 1992, and was amended and restated in its entirety on June
4, 1994 (the "Certificate of Incorporation").
1. Paragraph 4.1 of the Certificate of Incorporation which sets forth the
authorized capital stock of the Corporation is amended to read as follows:
4.1 This Corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the Corporation is authorized to issue is
Fifty Million (50,000,000) shares. Forty-five million (45,000,000) shares
shall be Common Stock, each having a par value of one-tenth of one cent
($.001). Five million (5,000,000) shares shall be Preferred Stock, each
having a par value of one-tenth of one cent ($.001).
2. This Certificate of Amendment was authorized by a unanimous resolution
of the Board of Directors followed by the affirmative vote of the holders of a
majority of all shares of capital stock of the Corporation entitled to vote
thereon at a meeting of the stockholders of the Corporation duly called and held
on the ___ day of ___________, 1999, a quorum being present.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by its President and attested to by its Secretary this
____ day of ___________, 1999.
ATTEST: NPS Pharmaceuticals, Inc.
_____________________________ ________________________________________
James U. Jensen, Hunter Jackson, Ph.D.,
Secretary President
C-1
<PAGE>
PRIVATE AND CONFIDENTIAL
- - ------------------------
September 27, 1999
The Board of Directors
NPS Pharmaceuticals, Inc.
420 Chipeta Way
Salt Lake City, UT 84108
Members of the Board:
We understand that NPS Pharmaceuticals, Inc., a Delaware corporation
(the "Company" or "NPS"), and Allelix Biopharmaceuticals Inc., a corporation
subsisting pursuant to the laws of Canada ("Allelix"), propose to enter into an
Arrangement Agreement, including the Plan of Arrangement (the "Agreement").
Pursuant to the Agreement, Allelix shall merge (the "Merger") with and into NPS-
Allelix, Inc., a corporation incorporated under the Business Corporations Act
(Ontario) and an indirect, wholly-owned subsidiary of NPS (the "Merger Sub").
In the Merger, each outstanding common share of Allelix (the "Allelix Common
Shares") will be converted into the right to receive (a) 0.3238 shares (the
"Exchange Ratio") of common stock, par value $.001 per share, of the Company
(the "NPS Common Stock") or (b) at the election of certain holders of Allelix
Common Shares, 0.3238 exchangeable shares of Merger Sub (the "Exchangeable
Shares"). To the extent provided in the Agreement, each of the Exchangeable
Shares is exchangeable for one share of NPS Common Stock.
You have requested our opinion as to the fairness to the Company from
a financial point of view as of the date hereof of the Exchange Ratio to the
Company. In conducting our analysis and arriving at the opinion expressed
herein, we have reviewed such materials and considered such financial and other
factors as we deemed relevant under the circumstances, including:
(i) a draft dated September 25, 1999 of the Agreement;
(ii) certain other publicly-available historical financial and
operating data for NPS including, but not limited to, (a) the
Annual Report on Form 10-K for the fiscal year ended December 31,
1998, (b) the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999, and (c) the Proxy Statement for the Meeting of
Stockholders held on May 26, 1999.
(iii) certain information relating to NPS, including financial forecasts
for the fiscal years December 31, 1999 through December 31, 2004,
prepared by the management of the Company;
(iv) certain publicly-available historical financial and operating data
for Allelix including, but not limited to, the Annual Report for
the fiscal years ended August 31, 1998, and unaudited financial
statements for Allelix for the fiscal year ended August 31, 1999;
(v) certain information relating to Allelix, including the financial
forecasts for the four months ended December 31, 1999 and the
fiscal years ending December 31, 2000 through December 31, 2004
prepared by the management of Allelix;
D-1
<PAGE>
Board of Directors
NPS Pharmaceuticals, Inc.
September 27, 1999
Page 2
(vi) publicly-available financial, operating and stock market data
concerning certain companies engaged in businesses we deemed
comparable to Allelix or otherwise relevant to our inquiry;
(vii) the financial terms of certain recent transactions we deemed relevant
to our inquiry;
(viii) the historical stock prices and trading volumes of NPS Common Stock
and Allelix Common Shares;
(ix) the Stock Purchase Agreement dated October 30, 1998 between Allelix
and Johnson & Johnson Development Corporation; and
(x) such other financial studies, analyses and investigations that we
deemed appropriate.
We have assumed, with your consent that, (a) each holder of Allelix Common
Shares will receive 0.3238 shares of NPS Common Stock and (b) the draft of the
Agreement which we reviewed (as referred to above) will conform in all material
respects to that document when in final form and that the Merger will be
consummated on the terms described in the Agreement without any waiver of any
material terms or conditions.
We have met with the senior management of the Company and Allelix to
discuss (i) the prospects for their respective businesses, (ii) their estimates
of such businesses' future financial performance, (iii) the financial impact of
the Merger on the respective companies and (iv) such other matters that we
deemed relevant.
In connection with our review and analysis and in arriving at our opinion,
we have relied upon the accuracy and completeness of the financial and other
information publicly available or otherwise made available or provided to us
concerning the Company and Allelix, and have not undertaken any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company or Allelix and we have not been
provided with any such independent valuation or appraisal. With respect to the
financial forecasts provided to us by the Company for the Company, and by
Allelix for Allelix, we have assumed that such information (including the
assumptions and bases therefor) represents each respective management's best
currently available estimate as to the future financial performance of the
Company and Allelix and that the Company and Allelix will perform in accordance
with such projections. We assume no responsibility for and express no view as
to such forecasts or the assumptions under which they were prepared. Further,
our opinion is necessarily based on economic, financial and market conditions as
they exist and can only be evaluated as of the date hereof.
Our opinion does not address nor should it be construed to address the
relative merits of the Merger or alternative business strategies that may be
available to the Company. In addition, this opinion does not in any manner
address the prices at which NPS Common Stock or the Exchangeable Shares will
trade following consummation of the Merger.
D-2
<PAGE>
Board of Directors
NPS Pharmaceuticals, Inc.
September 27, 1999
Page 3
As you know, we have been retained by the Company to render this opinion
and provide other financial advisory services in connection with the Merger and
will receive a fee for such services, substantially all of which is contingent
upon the consummation of the Merger. In the ordinary course of business we may
actively trade the shares of NPS Common Stock and Allelix Common Shares for our
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. As you are aware, Prudential
Securities Incorporated provides equity research coverage on NPS.
This letter and the opinion expressed herein are for the use of the Board
of Directors of the Company. This opinion does not constitute a recommendation
to the stockholders of the Company as to how such stockholders should vote in
connection with the issuance of shares of NPS Common Stock pursuant to the
Merger or as to any other action such stockholders should take regarding the
Merger. This opinion may not be reproduced, summarized, excerpted from or
otherwise publicly referred to or disclosed in any manner, without our prior
written consent; except that the Company may include this opinion in its
entirety in any proxy statement or information statement relating to the Merger
sent to the Company's stockholders.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair to the Company from a financial
point of view.
Very truly yours,
PRUDENTIAL SECURITIES INCORPORATED
Barry M. Deutsch
Director
D-3
<PAGE>
[ALLELIX LETTERHEAD]
November __, 1999
Dear Shareholder:
The Board of Directors cordially invites you to attend a meeting of
shareholders of Allelix Biopharmaceuticals Inc. to be held at TSE Place, The
Exchange Tower, 2 First Canadian Place, 130 King Street West, Toronto, Ontario
on [Wednesday], December [15], 1999 at 2:00 p.m. (Toronto time).
At the meeting, you will be asked to approve a proposed plan of arrangement
involving Allelix and a wholly-owned subsidiary of NPS Pharmaceuticals, Inc.
pursuant to an Arrangement Agreement between Allelix and NPS. The Arrangement
will result in Allelix becoming a subsidiary of NPS. In order to facilitate the
Arrangement, you will also be asked to approve a continuance of Allelix from the
Canada Business Corporations Act to the Business Corporations Act (Ontario).
The Board of Directors has determined unanimously that the arrangement is
fair to the Allelix Shareholders and is in the best interests of Allelix.
Accordingly, the Board of Directors unanimously recommends that you vote to
approve both the continuance and the arrangement.
Under the arrangement, each Allelix common share will be exchanged for
0.3238 shares of NPS common stock or 0.3238 exchangeable shares.
The exchangeable shares will be issued by NPS Allelix Inc., an indirect
wholly-owned Canadian subsidiary of NPS and, as nearly as practicable, will be
the economic equivalent of shares of NPS common stock. The exchangeable shares
will be exchangeable at any time at the option of the holder, on a one-for-one
basis, for NPS common shares. The exchangeable shares provide an opportunity
for certain shareholders of Allelix to achieve a Canadian tax deferral in
certain circumstances, as described in the attached Management Proxy Circular.
A Letter of Transmittal and Election Form (printed on yellow paper) for use
by Allelix Common Shareholders is enclosed with the Circular. A separate Letter
of Transmittal and Election Form is available, upon request. Holders of Allelix
common shares will not receive certificates for the exchangeable shares or
shares of NPS common stock to which they are entitled under the arrangement
until they return a properly completed Letter of Transmittal and Election Form,
together with
<PAGE>
the certificates for their shares and any other required documentation to CIBC
Mellon Trust Company at one of the addresses specified on the last page of the
Letter of Transmittal and Election Form.
The arrangement is conditional upon, among other things, receiving 66 2/3
percent voting approval by the common shareholders at the meeting. Likewise,
the continuance, which is a necessary step in proceeding with the arrangement,
must be approved by not less than 662/3 percent of the collective votes cast by
the Allelix shareholders who attend the meeting, in person or by proxy. The
attached Circular contains a detailed description of the arrangement, the
Arrangement Agreement and the continuance and other information that may help
you make an informed decision.
We hope you will be able to attend the meeting. Whether or not you are
able to attend, it is still important that you be represented at the meeting.
We encourage you to complete the enclosed form of proxy and return it not later
than the time specified in the Notice of Special Meeting of Allelix Shareholders
(page 1 of the Circular). Voting by proxy will not prevent you from voting in
person if you attend the meeting, but will ensure that your vote will be counted
if you are unable to attend.
If you are a not an Allelix Common Shareholder and have received this
letter and the Circular from your broker or another intermediary, please
complete and return the proxy or other authorization form provided to you by
your broker or other intermediary in accordance with the instructions provided
with it. Failure to do so may result in your Allelix common shares not being
eligible to be voted at the meeting.
Sincerely,
John R. Evans
Chairman
Allelix Biopharmaceuticals Inc.
(2)
<PAGE>
ARRANGEMENT INVOLVING
ALLELIX BIOPHARMACEUTICALS INC.,
1380390 ONTARIO INC. and
NPS PHARMACEUTICALS, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
and
MANAGEMENT PROXY CIRCULAR
OF ALLELIX BIOPHARMACEUTICALS INC.
November __, 1999
------------------------------------------------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
ALL SHAREHOLDERS VOTE FOR THE CONTINUANCE RESOLUTION
AND THE ARRANGEMENT RESOLUTION
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TABLE OF CONTENTS
TABLE OF CONTENTS.......................................................... i
NOTICE OF SPECIAL MEETING
OF ALLELIX SHAREHOLDERS............................................... 1
GLOSSARY OF TERMS.......................................................... 3
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES............................. 16
CANADIAN/U.S. EXCHANGE RATES............................................... 16
INFORMATION CONCERNING NPS AND ITS AFFILIATES.............................. 16
SUMMARY.................................................................... 17
Business of NPS............................................................ 17
Business of Allelix........................................................ 17
Date, Place and Purpose of the Allelix Meeting............................. 18
Allelix Shareholders Entitled to Vote...................................... 18
Vote Required.............................................................. 18
The Continuance of Allelix................................................. 20
The Arrangement............................................................ 20
Effective Time............................................................. 21
The Exchangeable Shares.................................................... 22
Allelix Preferred Shares................................................... 23
Treatment of Options and Warrants.......................................... 23
Recommendation of the Board of Directors of Allelix........................ 24
Opinion of Allelix's Financial Adviser, BancBoston Robertson Stephens...... 24
Conditions to Closing...................................................... 24
Termination and Termination Fees and Expenses.............................. 25
Accounting Treatment....................................................... 26
Stock Exchange Listings.................................................... 26
Certain Tax Considerations................................................. 27
Dissent Rights............................................................. 27
Investment Considerations.................................................. 28
GENERAL PROXY INFORMATION.................................................. 28
General.................................................................... 28
Solicitation of Proxies.................................................... 28
Record Date and Entitlement to Vote........................................ 28
Signing and Deposit of Proxies............................................. 28
Revocation of Proxies...................................................... 29
Voting of Proxies.......................................................... 29
Voting Shares.............................................................. 30
Business of the Allelix Meeting............................................ 30
Required Votes to Approve the Option Resolution, the Continuance
Resolution and the Arrangement Resolution............................. 32
Interest of Management..................................................... 32
THE CONTINUANCE OF ALLELIX................................................. 33
Introduction to the Continuance............................................ 33
Shareholder Approval....................................................... 33
THE ARRANGEMENT............................................................ 33
Background of the Arrangement.............................................. 33
Allelix's Reasons for the Arrangement and Recommendation of the Board
of Directors of Allelix............................................... 35
Opinion of Allelix's Financial Adviser, BancBoston Robertson Stephens...... 37
Procedures for Election and Exchange of Share Certificates................. 39
Transaction Mechanics and Description of Exchangeable Shares............... 40
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Allelix Preferred Shares................................................... 51
Options.................................................................... 52
Warrants................................................................... 52
Court Approval and Completion of the Arrangement........................... 53
Accounting Treatment....................................................... 53
Stock Exchange Listing..................................................... 54
Resale of Exchangeable Shares and NPS Common Shares Received in the
Arrangement........................................................... 54
Ongoing Canadian Reporting Obligations..................................... 56
Future Issuances of Shares................................................. 56
Expenses................................................................... 57
THE ARRANGEMENT AGREEMENT AND RELATED AGREEMENTS........................... 57
Effective Date of the Arrangement.......................................... 57
Termination................................................................ 57
Termination Fees and Expenses.............................................. 58
Conditions to Closing...................................................... 59
General Covenants.......................................................... 65
Covenants of Allelix Regarding Non-Solicitation............................ 68
Covenants of NPS Regarding No Shop......................................... 69
Representations and Warranties............................................. 70
Confidentiality............................................................ 71
Standstill................................................................. 73
Access..................................................................... 73
Amendment.................................................................. 74
Support Agreement.......................................................... 74
INVESTMENT CONSIDERATIONS.................................................. 76
U.S. Federal Income Tax Consequences to Allelix Common Shareholders........ 76
Canadian Federal Income Tax Consequences to Allelix Common Shareholders.... 77
Market for Exchangeable Shares............................................. 78
Risk Related to the Arrangement............................................ 78
Risk Factors Related to the Business of NPS................................ 81
MARKET PRICE............................................................... 81
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF ALLELIX..................... 84
SELECTED FINANCIAL INFORMATION OF NPS...................................... 85
ALLELIX'S AND NPS' SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS.................................................. 87
INCOME TAX CONSIDERATIONS TO ALLELIX SHAREHOLDERS.......................... 87
Canadian Federal Income Tax Considerations................................. 87
Allelix Shareholders Resident in Canada.................................... 89
Allelix Shareholders Not Resident in Canada................................ 98
United States Federal Income Tax Considerations............................100
U.S. Holders...............................................................101
Non-U.S. Holders...........................................................104
Backup Withholding and Information Reporting106
INFORMATION CONCERNING NPS.................................................107
Business of NPS............................................................107
Documents Incorporated by Reference........................................112
Share Capital Matters......................................................113
Stock Exchange Listings....................................................115
Principal Holders of Common Stock..........................................115
Auditors, Transfer Agent and Registrar.....................................115
INFORMATION CONCERNING NPS ALLELIX.........................................116
NPS Allelix................................................................116
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Directors and Officers.....................................................116
Share Capital Matters......................................................116
Transfer Agent and Registrar...............................................117
INFORMATION CONCERNING ALLELIX.............................................117
Business of Allelix........................................................117
Business Units.............................................................119
Documents Incorporated by Reference........................................119
1999 Financial Results and Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A")................120
Information Concerning Forward-looking Statements..........................120
Directors and Officers.....................................................121
Share Capital Matters......................................................122
Executive Compensation.....................................................123
Termination of Employment, Change of Responsibility and Employment
Contracts.............................................................125
Long-Term Incentive Plans - Awards in the Year Ended August 31, 1999.......125
Option Grants During the Year Ended August 31, 1999........................125
Stock Performance Graph....................................................128
Stock Exchange Listings....................................................129
Principal Holders of Allelix Common Shares.................................129
Auditors, Transfer Agents and Registrars...................................129
COMPARISON OF SHAREHOLDERS' RIGHTS.........................................129
Vote Required for Extraordinary Transactions...............................130
Amendment to Governing Documents...........................................131
Dissenters' Rights.........................................................131
Oppression Remedy..........................................................132
Derivative Actions.........................................................133
Shareholder Consent in Lieu of Meeting.....................................134
Director Qualifications....................................................135
Fiduciary Duties of Directors..............................................135
Indemnification of Officers and Directors..................................136
Director Liability.........................................................137
DISSENTING SHAREHOLDER RIGHTS..............................................137
AVAILABLE INFORMATION......................................................141
LEGAL MATTERS..............................................................142
EXPERTS....................................................................142
APPROVAL OF PROXY CIRCULAR BY ALLELIX'S BOARD OF DIRECTORS.................142
APPENDICES.................................................................144
A FORM OF OPTION RESOLUTION.............................................144
B FORM OF CONTINUANCE RESOLUTION........................................144
C FORM OF ARRANGEMENT RESOLUTION........................................144
D PLAN OF ARRANGEMENT INCLUDING EXCHANGEABLE SHARE PROVISIONS...........144
E FORM OF SUPPORT AGREEMENT.............................................144
F FORM OF VOTING AND EXCHANGE TRUST AGREEMENT...........................144
G INTERIM ORDER AND NOTICE OF APPLICATION...............................144
H OPINION OF BANCBOSTON ROBERTSON STEPHENS..............................144
I SECTION 190 OF THE CBCA AND SECTION 185 OF THE OBCA...................144
J NPS' ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998.....................................................144
K NPS' PROXY STATEMENT DATED APRIL 21, 1999 FOR ITS 1999 ANNUAL
MEETING OF STOCKHOLDERS...............................................144
L NPS' QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1999........................................................144
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M NPS' QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1999.........................................................144
N NPS' QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1999....................................................145
O NPS' CURRENT REPORT ON FORM 8-K DATED OCTOBER 1, 1999.................145
P ALLELIX'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
AUGUST 31, 1999.......................................................145
Q ALLELIX'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED
AUGUST 31, 1999.......................................................145
R ALLELIX'S AND NPS' UNAUDITED SELECTED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS.........................................145
S RISK FACTORS RELATED TO THE BUSINESS OF NPS...........................145
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NOTICE OF SPECIAL MEETING
OF ALLELIX SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a special meeting (the "Meeting") of registered
holders of common shares ("Allelix Common Shares") and preferred shares
("Allelix Preferred Shares") of Allelix Biopharmaceuticals Inc. ("Allelix") will
be held at TSE Place, The Exchange Tower, 2 First Canadian Place, 130 King
Street West, Toronto, Ontario on [Wednesday], December [15], 1999 at 2:00 p.m.
(Toronto time):
1. for the registered holders of Allelix Common Shares and the registered
holder of Allelix Preferred Shares to consider and, if determined
advisable, approve a special resolution (the "Continuance Resolution")
approving the continuance of Allelix as an Ontario corporation under the
Business Corporations Act (Ontario) ("OBCA");
2. for the class consisting of the registered holders of Allelix Common Shares
and the class consisting of the registered holder of Allelix Preferred
Shares to each, separately, consider and, if determined advisable, approve
a special resolution (the "Arrangement Resolution") in respect of a plan of
arrangement (the "Arrangement"), all as more particularly described in the
accompanying management proxy circular of Allelix (the "Circular"); and
3. for the registered holders of Allelix Common Shares to consider and, if
determined advisable, approve a resolution approving the reissuance of
options to purchase Allelix Common Shares held by certain insiders as
approved by the board of directors of Allelix on April 15, 1999 and the
variance of the exercise period of options held by certain directors of
Allelix;
4. for the registered holders of Allelix Common Shares to receive and consider
the consolidated financial statements of Allelix for the fiscal year ended
August 31, 1999, together with the auditors' report thereon;
5. to transact such other business as may properly come before the Meeting or
any adjournment thereof.
The Circular provides additional information relating to the matters to be dealt
with at the Meeting and forms part of this Notice.
BY ORDER OF THE BOARD OF DIRECTORS
John R. Evans
November __, 1999 [NTD: to be the same date as that of Chairman
the Circular]
Toronto, Ontario
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If you are not able to attend the Meeting, please exercise your right to
vote by signing and returning the enclosed form of proxy to Allelix or CIBC
Mellon Trust Company in the enclosed envelope so as to arrive not later than
5:00 p.m. (Toronto time) on [Monday], December [13], 1999 or, if the Meeting is
adjourned, 48 hours (excluding Saturdays, Sundays and holidays) before the time
the adjourned Meeting is to be reconvened. Proxies may also be deposited with
the scrutineers of the Meeting, to the attention of the Chairman of the Meeting,
immediately prior to the commencement of the Meeting, or any adjournment or
postponement thereof.
Pursuant to section 190 of the Canada Business Corporations Act ("CBCA"),
each registered Allelix Shareholder is entitled to dissent from the Continuance
Resolution and to be paid by Allelix, if the Continuance becomes effective, the
fair value of the Allelix shares held by such holder in respect of which such
holder dissents, determined as of the day before the date on which the
Continuance Resolution is passed, provided that such holder gives written notice
of his, her or its dissent ("Notice of Dissent") to Allelix by depositing such
Notice of Dissent with Allelix, or mailing it to Allelix by registered mail, at
its principal executive office at 6850 Goreway Drive, Mississauga, Ontario, L4V
1V7, marked to the attention of the Senior Vice-President and Corporate
Secretary of Allelix at or before the Allelix Meeting, and otherwise complies
with section 190 of the CBCA as more fully described in the Circular. Failure
to comply strictly with such dissent procedures may result in the loss or
unavailability of any right of dissent.
Pursuant to the order of the Superior Court of Justice (Ontario) dated
November __, 1999 and section 190 of the CBCA, each registered holder of Allelix
Common Shares is entitled to dissent from the Arrangement Resolution and to be
paid by Allelix, if the Arrangement becomes effective, the fair value of the
Allelix Common Shares held by such holder in respect of which such holder
dissents, determined as of the day before the date on which the Arrangement
Resolution is passed provided that such holder deposits a Notice of Dissent with
Allelix, or mails it to Allelix by registered mail, at its principal executive
office at 6850 Goreway Drive, Mississauga, Ontario, L4V 1V7, marked to the
attention of the Senior Vice-President and Corporate Secretary of Allelix at or
before the Allelix Meeting, and otherwise complies with section 190 of the CBCA
as more fully described in the Circular. Failure to comply strictly with such
dissent procedures may result in the loss or unavailability of any right of
dissent.
If holders of more than 10 percent of Allelix Common Shares exercise(s)
their right to dissent from the Continuance Resolution or the Arrangement
Resolution, either Allelix or NPS have the right to choose not to effect the
Arrangement.
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GLOSSARY OF TERMS
Unless the context otherwise requires, the following terms shall have the
meanings set forth below when used in this Circular, words importing the
singular number shall include the plural and vice versa and words importing any
gender shall include all genders. These defined terms are not always used in
the financial statements and other financial information included herein.
"Acquisition Proposal" means a written proposal or offer by any Person to
acquire beneficial ownership of all or a material portion of the assets of
Allelix (including shares of its Subsidiaries) or one or more of its
Subsidiaries or not less than 10 percent of the Allelix Common Shares or of one
or more of its Subsidiaries pursuant to an amalgamation, plan of arrangement,
consolidation or other business combination, sale of shares or other securities,
sale of assets, take-over bid or tender offer or exchange offer or similar
transaction involving Allelix or one or more of its Subsidiaries including,
without limitation, any single or multi-step transaction or series of related
transactions which is structured to permit such third party to acquire
beneficial ownership or any material portion of the assets of, or such
percentage of the Allelix Common Shares or one or more of its Subsidiaries
(other than transactions contemplated by the Arrangement Agreement);
"1380390" means 1380390 Ontario Inc., a direct, wholly-owned subsidiary of
Allelix;
"Affiliate" has the meaning ascribed thereto in the Securities Act;
"Allelix" means Allelix Biopharmaceuticals Inc.;
"Allelix Common Shareholders" means the registered holders of Allelix Common
Shares;
"Allelix Common Shares" means the common shares of Allelix;
"Allelix Counsel" means Stikeman, Elliott and Testa, Hurwitz & Thibeault LLP, or
such other counsel as may be appointed by Allelix;
"Allelix Meeting" means the special meeting of Allelix Shareholders, as ordered
by the Interim Order, and all adjournments and postponements thereof, to, among
other things, consider and, if determined advisable, approve the Option
Resolution; to consider and, if determined advisable, approve the Continuance
Resolution; and to consider and, if deemed advisable, approve the Arrangement
Resolution;
"Allelix Options" means the options to purchase Allelix Common Shares issued
from time to time prior to the date of the Arrangement Agreement pursuant to the
Allelix Stock Option Plan;
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"Allelix Preferred Shareholder" means the registered holder of Allelix Preferred
Shares;
"Allelix Preferred Shares" means the preferred share, series 1 shares of
Allelix;
"Allelix Shareholders" means the Allelix Common Shareholders and the Allelix
Preferred Shareholder;
"Allelix Stock Option Plan" means the employee stock option plan dated December
19, 1991 of Allelix;
"Allelix Warrants" means the warrants to purchase Allelix Common Shares;
"Ancillary Rights" means the Voting Rights, the Automatic Exchange Rights and
the Exchange Right;
"applicable Law" means, in relation to any Person, transaction or event, all
applicable provisions (or mandatory applicable provisions, if so specified) of
laws, statutes, regulations, rules, official directives and orders of all stock
exchanges and governmental bodies (whether administrative, legislative,
executive or otherwise) and judgments, orders, rulings and decrees of all
courts, arbitrators, commissions or bodies exercising similar functions in
actions or proceedings in which the Person in question is a party or by which it
is bound or having application to the transaction or event;
"Arrangement" means an arrangement under section 182 of the OBCA on the terms
and subject to the conditions set out in the Plan of Arrangement, subject to any
amendments or variations thereto made in accordance with Article 6 of the Plan
of Arrangement or made at the direction of the Court in the Final Order;
"Arrangement Agreement" means the agreement made as of September 27, 1999
between NPS and Allelix, as amended by amendment no. 1 thereto dated November
__,1999 between NPS and Allelix, providing for, among other things, the
Arrangement;
"Arrangement Resolution" means the special resolution in respect of the
Arrangement to be considered by Allelix Shareholders at the Allelix Meeting, the
form of which is attached to this Circular as Appendix C;
"Articles of Arrangement" means the articles of arrangement in respect of the
Arrangement required by the OBCA to be filed with the OBCA Director after the
Final Order is made;
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"Automatic Exchange Rights" means the benefit of the obligation of NPS to effect
the automatic exchange of Exchangeable Shares for NPS Common Shares pursuant to
section 5.12 of the Voting and Exchange Trust Agreement;
"Beneficiaries" means the registered holders from time to time of Exchangeable
Shares, other than NPS and its Affiliates;
"business day" means any day, other than Saturday, Sunday and a statutory
holiday in Toronto, Ontario or Salt Lake City, Utah;
"Call Rights" means the Liquidation Call Right, the Redemption Call Right and
the Retraction Call Right, collectively;
"Canadian Dollar Equivalent" means, in respect of an amount expressed in a
currency other than Canadian dollars (the "Foreign Currency Amount") at any
date, the product obtained by multiplying (a) the Foreign Currency Amount by (b)
the Noon Spot Rate on such date for such foreign currency expressed in Canadian
dollars as reported by the Bank of Canada or, in the event such Noon Spot Rate
is not available, such exchange rate on such date for such foreign currency
expressed in Canadian dollars as may be deemed by the Allelix board of directors
to be appropriate for such purpose;
"Canadian GAAP" means Canadian generally accepted accounting principles;
"Canadian Resident" means a resident of Canada for purposes of the ITA;
"CBCA" means the Canada Business Corporations Act, as now in effect and as it
may be amended from time to time prior to the Effective Date, including the
regulations made thereunder;
"$" means Canadian dollars;
"CDS" means The Canadian Depository for Securities Limited;
"Certificate" means the certificate of arrangement giving effect to the
Arrangement, issued pursuant to subsection 183(2) of the OBCA after the Articles
of Arrangement have been filed;
"Circular" means the Notice of Special Meeting and accompanying management proxy
circular, including all appendices thereto;
"Confidential Information" means all interpretations, technical data, reports,
notes, know how, computer printouts, information and documents (in each case
whether in written or electronic form) pertaining in any way whatsoever to the
business, operations or capital of a party to the Arrangement Agreement or its
Affiliates,
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disclosed or to be disclosed pursuant to the terms and conditions of the
Arrangement Agreement, and includes but is not limited to information relating
to engineering, research and development, corporate operations, business
opportunities, products, formulas, services, designs, drawings, marketing and
financial and taxation matters;
"Continuance" means the continuance of Allelix under the OBCA, pursuant to
section 188 of the CBCA and section 180 of the OBCA;
"Continuance Resolution" means the special resolution in respect of the
Continuance to be considered by the Allelix Shareholders at the Allelix Meeting,
the form of which is attached to this Circular as Appendix B;
"Conversion Agreement" means the agreement to convert Preferred Shares to Common
Shares dated November __, 1999 among Allelix, NPS and J&J;
"Court" means the Superior Court of Justice (Ontario);
"Current Market Price" means, in respect of a NPS Common Share on any date, the
Canadian Dollar Equivalent of the average of the closing bid and ask prices of
NPS Common Shares during a period of 20 consecutive trading days ending not more
than three trading days before such date on the NASDAQ Stock Market, or, if the
NPS Common Shares are not then quoted on the NASDAQ Stock Market, on such other
stock exchange or automated quotation system on which the NPS Common Shares are
listed or quoted, as the case may be, as may be selected by the board of
directors of NPS for such purpose; provided however, that if in the opinion of
the board of directors of NPS the public distribution or trading activity of NPS
Common Shares during such period does not create a market which reflects the
fair market value of a NPS Common Share, then the Current Market Price of a NPS
Common Share shall be determined by the board of directors of NPS, in good faith
and in its sole discretion, and provided further that any such selection,
opinion or determination by the board of directors of NPS shall be conclusive
and binding;
"Depositary" means the depositary selected by NPS and Allelix, acting
reasonably;
"Dissent Procedures" means the dissent procedures under section 190 of the CBCA
and the Interim Order, as more fully described under the heading "Dissenting
Shareholder Rights" and set out in Appendix I to this Circular
"Dissent Rights" the right of a holder of Allelix Common Shares or Allelix
Preferred Shares to dissent from the Continuance Resolution and the right of a
holder of Allelix Common Shares to dissent from the Arrangement Resolution in
accordance with the Dissent Procedures;
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"Dissenting Shareholder" means a holder of Allelix Common Shares or Allelix
Preferred Shares who dissents in respect of the Continuance Resolution or a
holder of Allelix Common Shares who dissents in respect of the Arrangement
Resolution in accordance with the Dissent Rights;
"Dividend Amount" means the amount of all declared and unpaid dividends on an
Exchangeable Share held by a holder on any dividend record date which occurred
prior to the date of purchase or redemption of such share by NPS Allelix or NPS
Holdings from such holder;
"Effective Date" means the date shown on the Certificate;
"Effective Time" means 12:01 a.m. (Toronto time) on the Effective Date;
"Elected Amount" means the amount selected by an Eligible Holder to be the
proceeds of disposition of the Allelix Common Shares in the election made
pursuant to section 85 of the ITA;
"Election Deadline" means 5:00 p.m. (local time) at the place of deposit on the
date which is two business days prior to the date of the Allelix Meeting;
"Eligible Holder" means a holder of Allelix Common Shares (i) who is a Canadian
Resident, other than any such holder who is exempt from tax under the ITA, or
(ii) which is a partnership that owns Allelix Common Shares if one or more of
its partners would be an Eligible Holder if such partner held directly such
shares;
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended;
"Exchange Ratio" means 0.3238, subject to adjustment, if any, as provided in
section 2.4 of the Plan of Arrangement;
"Exchange Right" has the meaning ascribed thereto in section 5.1 of the Voting
and Exchange Trust Agreement;
"Exchangeable Elected Share" means any Allelix Common Share (other than an
Allelix Common Share held by NPS or an Affiliate thereof) held by a Canadian
Resident that the holder thereof shall have elected, in a duly completed Letter
of Transmittal and Election Form deposited with the Depositary no later than the
Election Deadline, to transfer to NPS Allelix under the Arrangement for a
fraction of an Exchangeable Share equal to the Exchange Ratio or that is deemed
to be an Exchangeable Elected Share pursuant to section 2.2(c) of the Plan of
Arrangement;
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"Exchangeable Shares" means the non-voting exchangeable shares in the capital of
NPS Allelix, having substantially the rights, privileges, restrictions and
conditions set out in the Exchangeable Share Provisions;
"Exchangeable Share Provisions" means the rights, privileges, restrictions and
conditions attaching to the Exchangeable Shares, which rights, privileges,
restrictions and conditions shall be substantially as set out in Appendix 1 to
the Plan of Arrangement;
"Final Order" means the order of the Court approving the Arrangement, as such
order may be amended or modified by the highest court to which an appeal may be
applied for at any time prior to the Effective Date or, if appealed, then,
unless such appeal is withdrawn or denied, as granted or affirmed;
"Governmental Entity" means any (a) multinational, federal, provincial, state,
regional, municipal, local or other government, governmental or public
department, central bank, court, tribunal, arbitral body, commission, board,
bureau or agency, domestic or foreign, (b) any subdivision, agent, commission,
board, or authority of any of the foregoing, or (c) any quasi-governmental or
private body exercising any regulatory, expropriation or taxing authority under
or for the account of any of the foregoing;
"Indemnified Parties" has the meaning ascribed thereto in section 9.1 of the
Voting and Exchange Trust Agreement;
"Insolvency Event" means the institution by NPS Allelix of any proceeding to be
adjudicated a bankrupt or insolvent or to be wound up, or the consent of NPS
Allelix to the institution of bankruptcy, insolvency or winding-up proceedings
against it, or the filing of a petition, answer or consent seeking dissolution
or winding-up under any bankruptcy, insolvency or analogous laws, including
without limitation the Companies Creditors' Arrangement Act (Canada) and the
Bankruptcy and Insolvency Act (Canada), and the failure by NPS Allelix to
contest in good faith any such proceedings commenced in respect of NPS Allelix
within 30 days of becoming aware thereof, or the consent by NPS Allelix to the
filing of any such petition or to the appointment of a receiver, or the making
by NPS Allelix of a general assignment for the benefit of creditors, or the
admission in writing by NPS Allelix of its inability to pay its debts generally
as they become due, or NPS Allelix not being permitted, pursuant to solvency
requirements of applicable Law, to redeem any Retracted Shares pursuant to
section 6.6 of the Exchangeable Share Provisions;
"Interim Order" means an order of the Court providing for, among other things,
the calling and holding of the Allelix Meeting and certain other procedural
matters, as
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well as for the issuance of the notice of application for the Final Order, as
the same may be amended or supplemented from time to time;
"IRS" means the United States Internal Revenue Service;
"ITA" means the Income Tax Act (Canada), as amended;
"J&J" means Johnson & Johnson Development Corporation;
"Letter of Transmittal and Election Form" means the letter of transmittal and
election form for use by Allelix Common Shareholders in the form accompanying
this Circular;
"Liquidation Amount" has the meaning ascribed thereto in section 5.1 of the
Exchangeable Share Provisions;
"Liquidation Call Purchase Price" has the meaning ascribed thereto in section
5.1(a) of the Plan of Arrangement;
"Liquidation Call Right" has the meaning ascribed thereto in section 5.1(a) of
the Plan of Arrangement;
"Liquidation Date" has the meaning ascribed thereto in section 5.1 of the
Exchangeable Share Provisions;
"Liquidation Event" has the meaning ascribed thereto in section 5.12(b) of the
Voting and Exchange Trust Agreement;
"Liquidation Event Effective Date" has the meaning ascribed thereto in section
5.12(c) of the Voting and Exchange Trust Agreement;
"Material Adverse Effect" and "Material Adverse Change" means, in relation to a
party hereto, a condition affecting or a change in business, assets, properties,
condition (financial or otherwise), results of operations or prospects of such
party (and its Subsidiaries on a consolidated basis) which when taken as a whole
have or represent or could reasonably be expected to have a material adverse
effect on the party or on the market price or value of its securities, other
than any matter or action relating to (i) the Canadian economy or securities
markets in general or (ii) relating to the Canadian or U.S. biotechnology
industry in general, but not specifically relating to the party;
"ME" means The Montreal Exchange;
"Meeting Date" means the date of the Allelix Meeting;
"1933 Act" means the United States Securities Act of 1933, as amended;
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"NASDAQ Stock Market" means the National Association of Securities Dealers
Automated Quotation System;
"Noon Spot Rate" means, on any day, the noon spot exchange rate on such day of
the Bank of Canada for one U.S. dollar expressed in Canadian dollars.
"Notice of Special Meeting" means this notice of the Allelix Meeting;
"NPS" means NPS Pharmaceuticals, Inc.;
"NPS Affiliate" means the Affiliates of NPS;
"NPS Allelix" means NPS Allelix Inc., a corporation incorporated under the
Companies Act (British Columbia) as a wholly-owned subsidiary of NPS Holdings;
"NPS Common Shares" means the shares of common stock in the capital of NPS;
"NPS Control Transaction" means any merger, amalgamation, tender offer, material
sale of shares or rights or interests therein or thereto or similar transactions
involving NPS, or any proposal to do so;
"NPS Counsel" means Blake, Cassels & Graydon, James U. Jensen, Esq. and/or such
other counsel as may be appointed by NPS;
"NPS Dividend Declaration Date" means the date on which the board of directors
of NPS declares any dividend on the NPS Common Shares;
"NPS Elected Share" means any Allelix Common Share (other than an Allelix Common
Share held by NPS or a NPS Affiliate) held by a Canadian Resident that the
holder thereof shall have elected, in a duly completed Letter of Transmittal and
Election Form deposited with the Depositary no later than the Election Deadline,
to transfer to NPS Allelix under the Arrangement for a fraction of a NPS Common
Share equal to the Exchange Ratio, or that is deemed to be a NPS Elected Share
pursuant to Sections 2.2(c) or 2.3(a) of the Plan of Arrangement;
"NPS Holdings" means NPS Holdings Limited, a corporation incorporated under the
Companies Act (British Columbia) as a wholly-owned subsidiary of NPS;
"NPS Information Circular" means the notice of meeting and management
information circular of NPS prepared in connection with the NPS Meeting provided
by NPS to registered holders of NPS Common Shares;
"NPS Meeting" means the special meeting of the registered holders of NPS Common
Shares and all adjournments and postponements thereof to consider and, if
determined advisable, approve, among other things, (i) an amendment of NPS'
10
<PAGE>
Articles of Incorporation to increase the number of NPS Common Shares authorized
for issuance thereunder; and (ii) the issuance of up to [7,534,000] NPS Common
Shares as contemplated by the Arrangement;
"NPS Shareholder Rights Plan" means the shareholder rights plan adopted by the
board of directors of NPS in December 1996;
"NPS Special Voting Share" means the one share of special voting preferred stock
of NPS issued in its own series which entitles the holder of record of such
share to a number of votes at meetings of registered holders of NPS Common
Shares equal to the number of Exchangeable Shares outstanding from time to time
(other than Exchangeable Shares held by NPS and Affiliates of NPS), which share
is to be issued to, deposited with, and voted by, the Trustee as described in
the Voting and Exchange Trust Agreement;
"NPS Trading Price" means the average of the bid and ask prices of NPS Common
Shares on the NASDAQ Stock Market during a period of twenty consecutive trading
days ending on the business day immediately preceding the Effective Date;
"NPS Warrants" means the warrants to purchase NPS Common Shares;
"OBCA" means the Business Corporations Act (Ontario), as now in effect and as it
may be amended from time to time prior to the Effective Date, including the
regulations made thereunder;
"OBCA Director" means the Director appointed under section 278 of the OBCA;
"Option Resolution" means the resolution to be considered by the Allelix Common
Shareholders at the Allelix Meeting in respect of the reissuance of Allelix
Options held by certain insiders of Allelix as approved by the Allelix board of
directors on April 15, 1999 and the variance of the exercise period of options
held by certain directors of Allelix, the form of which is attached to this
Circular as Appendix A;
"OSC" means the Ontario Securities Commission;
"Person" includes any individual, firm, partnership, joint venture, venture
capital fund, limited liability company, unlimited liability company,
association, trust, trustee, executor, administrator, legal personal
representative, estate, group, body corporate, corporation, unincorporated
association or organization, Governmental Entity, syndicate or other entity,
whether or not having legal status;
"Plan of Arrangement" means the plan of arrangement which is annexed as Schedule
A to the Arrangement Agreement and any amendment or variation thereto made in
accordance with section 9.1 of the Arrangement Agreement, a copy of which is
attached to this Circular as Appendix D;
11
<PAGE>
"Proposed Amendments" means the proposals to amend the ITA and the regulations
thereunder publicly announced by or on behalf of the Minister of Finance
(Canada) prior to the date hereof;
"Public Documents" means all documents filed, in the case of Allelix, by Allelix
with the applicable securities regulatory authorities in all provinces in Canada
in which Allelix is a reporting issuer, and in the case of NPS, by NPS with the
United States Securities and Exchange Commission and the NASDAQ Stock Market,
during the three years preceding the date of the Arrangement Agreement, and
includes all documents so filed to and including the Effective Date by a Person
with respect to its business and affairs;
"Record Date" means November [10], 1999;
"Redemption Call Purchase Price" has the meaning ascribed thereto in section
5.2(a) of the Plan of Arrangement;
"Redemption Call Right" has the meaning ascribed thereto in section 5.2(a) of
the Plan of Arrangement;
"Redemption Date" has the meaning ascribed thereto in the Exchangeable Share
Provisions;
"Redemption Price" has the meaning ascribed thereto in section 7.1 of the
Exchangeable Share Provisions;
"registered holders" means, when used with reference to the Allelix Common
Shares, the holders of Allelix Common Shares shown from time to time in the
register maintained by or on behalf of Allelix in respect of the Allelix Common
Shares and, when used with reference to the Exchangeable Shares, means the
holders of Exchangeable Shares shown from time to time in the register
maintained by or on behalf of NPS Allelix in respect of the Exchangeable Shares;
"Representatives" means officers, directors, employees, financial advisors,
representatives and agents;
"Retracted Shares" has the meaning ascribed thereto in section 6.1(a) of the
Exchangeable Share Provisions;
"Retraction Call Right" has the meaning ascribed thereto in section 6.1(c) of
the Exchangeable Share Provisions;
"Retraction Date" has the meaning ascribed thereto in section 6.1(b) of the
Exchangeable Share Provisions;
12
<PAGE>
"Retraction Price" has the meaning ascribed thereto in section 6.1 of the
Exchangeable Share Provisions;
"Retraction Request" has the meaning ascribed thereto in section 6.1 of the
Exchangeable Share Provisions;
"SEC" means the United States Securities and Exchange Commission;
"Securities Act" means the Securities Act (Ontario) and the rules, regulations
and policies made thereunder, as now in effect and as they may be amended from
time to time prior to the Effective Date;
"Subsidiary" means, with respect to (i) a specified body corporate, any body
corporate of which more than 50 percent of the outstanding shares ordinarily
entitled to elect a majority of the board of directors thereof (whether or not
shares of any other class or classes shall or might be entitled to vote upon the
happening of any event or contingency) are at the time owned directly or
indirectly by such specified body corporate and shall include any body corporate
in like relation to a Subsidiary, and (ii) any Person other than a corporation
in which the first-mentioned Person or one or more of its subsidiaries directly
or indirectly, has at least a majority ownership and power to direct the
policies, management and affairs thereof;
"Superior Proposal" means an Acquisition Proposal made by a third party that is
financially superior to the transaction contemplated by the Arrangement
Agreement which, in any event, shall mean that such proposal shall offer a value
per Allelix Common Share greater than the per share value attributable thereto
under the transaction contemplated by the Arrangement Agreement where such third
party has demonstrated that the funds or other consideration necessary for the
Acquisition Proposal are reasonably likely to be available (as determined in
good faith, in each case by the board of directors of Allelix after receiving
the advice of its financial advisors to this effect in writing or recorded in
the minutes);
"Support Agreement" means the agreement made among NPS, NPS Holdings and NPS
Allelix in connection with the Plan of Arrangement and attached to the
Arrangement Agreement as Schedule B, a copy of which is attached to this
Circular as Appendix E;
"Tax" and "Taxes" means, with respect to any entity, all income taxes (including
any tax on or based upon net income, gross income, income as specially defined,
earnings, profits or selected items of income, earnings or profits) and all
capital taxes, paid-up capital taxes, gross receipts taxes, environmental taxes,
sales taxes, use taxes, ad valorem taxes, value added taxes, transfer taxes,
franchise taxes, licence taxes, withholding taxes, payroll taxes, employment
taxes, Canada or Quebec Pension Plan premiums, excise, severance, social
security premiums, workers'
13
<PAGE>
compensation premiums, unemployment insurance or compensation premiums, stamp
taxes, occupation taxes, premium taxes, property taxes, windfall profits taxes,
alternative or add-on minimum taxes, goods and services tax, customs duties or
other taxes, fees, imports, assessments or charges of any kind whatsoever and
any instalments in respect thereof, together with any interest and any penalties
or additional amounts imposed by any taxing authority (domestic or foreign) on
such entity and any interest, penalties, additional taxes and additions to tax
imposed with respect to the foregoing;
"Tax Return" and "Tax Returns" means all returns, declarations, reports,
information returns and statements required to be filed with any taxing
authority relating to Taxes;
"Transaction" means the transactions contemplated by the Arrangement Agreement;
"Transfer Agent" means the transfer agent to be chosen by NPS and Allelix to act
as transfer agent of the Exchangeable Shares;
"Trust" means the trust created by the Voting and Exchange Trust Agreement;
"Trustee" means the trustee to be chosen by NPS and Allelix to act as trustee
under the Voting and Exchange Trust Agreement, being a corporation organized and
existing under the laws of Canada and authorized to carry on the business of a
trust company in all the provinces of Canada, and any successor trustee
appointed under the Voting and Exchange Trust Agreement;
"TSE" means The Toronto Stock Exchange;
"U.S. dollars" or "U.S.$" means United States dollars;
"U.S. GAAP" means United States generally accepted accounting principles;
"U.S. Holder" has the meaning ascribed to such term under the heading "Income
Tax Considerations to Shareholders - United States Federal Income Tax
Considerations";
"U.S. Securities Exchange Act" means the United States Securities Exchange Act
of 1934, as amended;
"Voting and Exchange Trust Agreement" means an agreement to be made among NPS,
NPS Allelix and the Trustee in connection with the Plan of Arrangement; and
"Voting Rights" means the rights of the registered holders of Exchangeable
Shares to direct the voting of the NPS Special Voting Share in accordance with
the Voting and
14
<PAGE>
Exchange Trust Agreement, a copy of which is attached to this Circular as
Appendix F.
15
<PAGE>
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES
The historical financial statements of Allelix contained in this Circular
are reported in Canadian dollars and have been prepared in accordance with
Canadian GAAP. The historical financial statements of NPS and the unaudited pro
forma condensed combined financial statements contained in this Circular are
reported in U.S. dollars and have been prepared in accordance with U.S. GAAP.
CANADIAN/U.S. EXCHANGE RATES
In this Circular, dollar amounts are expressed in Canadian dollars unless
otherwise indicated.
The following table sets forth, for each period indicated, the high and low
exchange rates for one U.S. dollar expressed in Canadian dollars, the average of
such exchange rates on the last day of each month during such period, and the
exchange rate at the end of such period, in each case, based upon the Noon Spot
Rate.
<TABLE>
<CAPTION>
Three Months Six Months Nine Months
Year Ended Year Ended Ended Ended Ended
August 31 December 31 March 31, June 30, September 30,
------------------ ------------------ 1999 1999 1999
1998 1999 1997 1998
------ ------ ------ ------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
High 1.5845 1.5615 1.4399 1.5845 1.5475 1.5475 1.5475
Low 1.3692 1.4460 1.3345 1.4040 1.4840 1.4460 1.4460
Average 1.5545 1.5068 1.3846 1.4835 1.5113 1.4921 1.4970
Period End 1.5353 1.4923 1.4267 1.5422 1.5175 1.4691 1.4923
</TABLE>
On September 27, 1999 and on November __, 1999, the exchange rate for one
U.S. dollar expressed in Canadian dollars was $1.4695 and $__, respectively, in
each case based on the Noon Spot Rate.
INFORMATION CONCERNING NPS AND ITS AFFILIATES
All information in this Circular relating to NPS and/or NPS Affiliates is
based solely upon publicly available sources and information provided to Allelix
by NPS. As such, Allelix assumes no responsibility for the information in this
Circular relating to NPS and/or NPS Affiliates.
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<PAGE>
SUMMARY
The following is a summary of certain information contained in this
Circular. This summary is not intended to be complete and is qualified in its
entirety by the more detailed information and financial statements, including
the notes thereto, contained elsewhere in this Circular. Allelix Shareholders
should read the entire Circular, including the Appendices. Capitalized terms
used in this summary are defined in the Glossary of Terms or elsewhere in this
Circular.
Business of NPS
NPS was incorporated in the State of Utah in 1986 and reincorporated in the
State of Delaware in 1992 and is engaged in the discovery and development of
novel, small molecule drugs that address a variety of important diseases. NPS,
along with its licensees, is actively researching and developing drug therapies
for important medical conditions such as hyperparathyroidism, osteoporosis,
pain, epilepsy, bipolar disorder, brain damage from stroke or head trauma and
diabetes.
As of December 31, 1998, NPS' total assets were U.S.$48.1 million and for
the year ended December 31, 1998, NPS' revenues and net losses were U.S.$3.6
million and U.S.$17.2 million, respectively. For the six month period ended
June 30, 1999, NPS' revenues and net losses were U.S.$1.8 million and U.S.$10.8
million, respectively.
NPS' principal executive office is located at 420 Chipeta Way, Salt Lake
City, Utah, 84108 and its telephone number is (801) 583-4939.
Business of Allelix
Allelix is a biopharmaceutical company that applies proprietary
technologies to the identification of disease targets and to the discovery,
design and development of novel pharmaceutical products. Products are
commercialized in partnership with leading biotechnology and multinational
pharmaceutical companies for global markets and by Allelix itself for niche
market indications.
As of August 31, 1999, Allelix's total assets were $50.5 million and for
the year ended August 31, 1999, Allelix's revenues and net losses were $13.7
million and $38.6 million, respectively.
Allelix's principal executive office is located at 6850 Goreway Drive,
Mississauga, Ontario, L4V 1V7 and its telephone number is (905) 677-0831.
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<PAGE>
Date, Place and Purpose of the Allelix Meeting
The Allelix Meeting will be held at TSE Place, The Exchange Tower, 2 First
Canadian Place, 130 King Street West, Toronto, Ontario on [Wednesday], December
[15], 1999 at 2:00 p.m. (Toronto time). The purpose of the Allelix Meeting is,
among other things, for: (i) the Allelix Common Shareholders to consider and, if
determined advisable, approve the Option Resolution; (ii) the Allelix Common
Shareholders to receive and consider the consolidated financial statements of
Allelix for the fiscal year ended August 31, 1999, together with the auditors'
report thereon; (iii) the Allelix Common Shareholders and the Allelix Preferred
Shareholder to consider and, if determined advisable, approve the Continuance
Resolution; and (iv) the class consisting of Allelix Common Shareholders and the
class consisting of the Allelix Preferred Shareholder to each, separately,
consider and, if determined advisable, approve the Arrangement Resolution.
Allelix Shareholders Entitled to Vote
Each Allelix Common Shareholder and each Allelix Preferred Shareholder at
the close of business (Toronto time) on the Record Date is entitled to attend
the Allelix Meeting in person or by proxy and to cast one vote for each Allelix
Common Share and each Allelix Preferred Share held by it on the Record Date.
The Allelix Common Shareholders will vote in respect of the Option Resolution.
The Allelix Common Shareholders and Allelix Preferred Shares will vote together
in respect of the Continuance Resolution and as separate classes in respect of
the Arrangement Resolution.
On the Record Date, the total number of votes entitled to be cast at the
Allelix Meeting by the Allelix Common Shareholders was ; the total number of
votes entitled to be cast at the Allelix Meeting by the Allelix Preferred
Shareholder was 1,000; and therefore the aggregate total number of votes
entitled to be cast at the Allelix Meeting by the Allelix Common Shareholders
and Allelix Preferred Shares collectively was .
Vote Required
The Option Resolution must be approved by more than 50 percent of the votes
cast by the Allelix Common Shareholders present in person or by proxy and
entitled to vote at the Allelix Meeting (excluding spoiled, illegible and/or
defective votes and abstentions).
The Continuance Resolution must be approved by at least 66 2/3 percent of
the votes cast by the Allelix Common Shareholders and Allelix Preferred Shares
present in person or by proxy and entitled to vote at the Allelix Meeting
(excluding spoiled, illegible and/or defective votes and abstentions).
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<PAGE>
The Arrangement Resolution must be approved by at least (i) 66 2/3 percent
of the votes cast by the Allelix Common Shareholders present in person or by
proxy and entitled to vote at the Allelix Meeting (excluding spoiled, illegible
and/or defective votes and abstentions); and (ii) 66 2/3 percent of the votes
cast by the Allelix Preferred Shareholder present in person or by proxy and
entitled to vote at the Allelix Meeting (excluding spoiled, illegible and/or
defective votes and abstentions).
Pursuant to the Conversion Agreement J&J, the sole holder of the Allelix
Preferred Shares, has appointed Allelix as the holder of its proxy to vote the
Allelix Preferred Shares at the Allelix Meeting and any postponement or
adjournment thereof in favour of the Continuance Resolution and the Arrangement
Resolution. Allelix has agreed to vote the Allelix Preferred Shares in favour
of the Continuance Resolution and the Arrangement Resolution.
To the best of the knowledge of the directors and officers of Allelix, on
the Record Date, no Person beneficially owned or exercised control or direction
over Allelix Common Shares carrying more than 10 percent of the number of votes
entitled to be cast at the Allelix Meeting by the Allelix Common Shareholders,
other than: (i) BVF Partners L.P. which held [2,400,000] Allelix Common Shares,
representing 11.9 percent of the Allelix Common Shares issued and outstanding.
To the best of the knowledge of the directors and officers of Allelix, on
the Record Date, no Person beneficially owned or exercised control or direction
over Allelix Preferred Shares carrying more than 10 percent of the number of
votes entitled to be cast at the Allelix Meeting by the Allelix Preferred
Shareholder other than J & J which held 1,000 Allelix Preferred Shares,
representing 100 percent of the Allelix Preferred Shares issued and outstanding.
To the best of the knowledge of the directors and officers of Allelix, on
the Record Date, no Person beneficially owned or exercised control or direction
over Allelix Common Shares or Allelix Preferred Shares carrying more than 10
percent of the collective number of votes entitled to be cast at the Allelix
Meeting by the Allelix Common Shareholders and Allelix Preferred Shares, other
than BVF Partners L.P. which held [2,400,000] Allelix Common Shares,
representing __ percent of the collective number of votes entitled to be cast at
the Allelix Meeting by the Allelix Shareholders.
On the Record Date, the directors and officers of Allelix as a group
beneficially owned or had voting control or direction over __ Allelix Common
Shares carrying approximately __ percent of the number of votes entitled to be
cast at the Allelix Meeting by the Allelix Common Shareholders.
19
<PAGE>
The Continuance of Allelix
Allelix will be continued from the federal jurisdiction as a corporation
under the OBCA in order to facilitate the Arrangement. Allelix is currently
governed by the CBCA. Subject to approval by Allelix Shareholders, Allelix
proposes to file articles of continuance to continue Allelix from the federal
jurisdiction under the provisions of the OBCA as soon as practicable after
approval of the Continuance Resolution at the Allelix Meeting. Allelix
Shareholders will be asked to consider, and if thought fit, approve the
Continuance Resolution in the form attached to this Circular as Appendix B.
The Arrangement
The Arrangement provides for the combination of Allelix and NPS in a
transaction in which:
1. each holder of Allelix Common Shares who properly completes and files a
Letter of Transmittal and Election Form with the Depositary on or before
the Election Deadline who is:
(a) a Canadian Resident, will receive, at his or her or its option,
0.3238 Exchangeable Shares or 0.3238 NPS Common Shares for each
Allelix Common Share held; or
(b) not a Canadian Resident, will receive 0.3238 NPS Common Shares for
each Allelix Common Share held;
2. each holder of Allelix Common Shares (other than a Dissenting Shareholder)
who does not properly complete and file a Letter of Transmittal and
Election Form with the Depositary on or before the Election Deadline whose
address as shown in the register of Allelix Common Shares as of the close
of business (Toronto time) on the day before the Effective Date is:
(a) in Canada, will be entitled to receive 0.3238 Exchangeable Shares for
each Allelix Common Share held; or
(b) not in Canada, will be entitled to receive 0.3238 NPS Common Shares
for each Allelix Common Share held;
3. each Allelix Preferred Share will be changed into 887.9166 Allelix Common
Shares pursuant to the Plan of Arrangement in respect of which the Allelix
Preferred Shareholder will receive NPS Common Shares pursuant to the Plan
of Arrangement on the basis of 0.3238 NPS Common Shares for each Allelix
Common Share held;
20
<PAGE>
4. each holder of Allelix Warrants will be entitled, after the Effective Time
and in accordance with the terms of the Allelix Warrants, upon the exercise
of such warrants, to receive in lieu of the number of Allelix Common Shares
to which such holder was theretofore entitled to receive upon such
exercise, that aggregate number of Exchangeable Shares or NPS Common
Shares, as applicable, that such holder would have been entitled to receive
under the Plan of Arrangement if such holder had been the registered holder
of that number of Allelix Common Shares that such holder was theretofore
entitled to receive if all such holder's Allelix Warrants had been
exercised immediately prior to the Effective Time; and
5. each holder of Allelix Options will be entitled, after the Effective Time
and in accordance with the terms of the Allelix Options, upon the exercise
of such options, to receive in lieu of the number of Allelix Common Shares
to which such holder was theretofore entitled to receive upon such
exercise, that aggregate number of Exchangeable Shares or NPS Common
Shares, as applicable, that such holder would have been entitled to receive
under the Plan of Arrangement if such holder had been the registered holder
of that number of Allelix Common Shares that such holder was theretofore
entitled to receive if all such holder's Allelix Options had been exercised
immediately prior to the Effective Time.
Allelix Common Shareholders who are not Canadian Residents will not be
entitled to elect to receive Exchangeable Shares. They will only receive NPS
Common Shares.
As a result of the Arrangement, NPS and the NPS Affiliates will become the
sole beneficial owners of all of the outstanding Allelix Common Shares.
Pursuant to the terms of the Arrangement, NPS will be required to issue up
to approximately [7,534,000] NPS Common Shares. On __ , 1999 there were __ NPS
Common Shares outstanding and on a fully diluted basis, __ NPS Common Shares
outstanding. Consequently, after completion of the Arrangement, (i) existing
Allelix Common Shareholders will ultimately hold approximately __ percent of the
NPS Common Shares outstanding and on a fully diluted basis, approximately __
percent of the NPS Common Shares outstanding; and (ii) the existing Allelix
Preferred Shareholder will ultimately hold approximately __ percent of the NPS
Common Shares outstanding.
Effective Time
It is anticipated that the Arrangement will become effective after the
required Allelix Shareholder and Court approvals have been obtained and are
final and all other conditions to closing have been satisfied or waived. As of
the date hereof,
21
<PAGE>
Allelix anticipates that the Arrangement will become effective on or about
December __ , 1999.
The Exchangeable Shares
The Exchangeable Shares will be securities of NPS Allelix that are, as
nearly as practicable, the functional and economic equivalent of NPS Common
Shares. The Exchangeable Share Provisions, the Support Agreement and the Voting
and Exchange Trust Agreement will provide the registered holders of Exchangeable
Shares with the following rights:
(a) the right to exchange such shares for NPS Common Shares on a one-for-
one basis as discussed below;
(b) the right to receive dividends, on a per share basis, in amounts (or
property in the case of non-cash dividends) which are the same as,
and which are payable at the same time as, dividends declared on NPS
Common Shares;
(c) the right to vote, on a per share equivalent basis, at all
stockholder meetings at which NPS Common Shares are entitled to vote,
through the medium of a special voting share in the capital of NPS
carrying votes equal to the number of outstanding Exchangeable
Shares; and
(d) the right to participate, on a per share equivalent basis, in a
liquidation, dissolution or other winding-up of NPS, on a pro rata
basis with the registered holders of NPS Common Shares in the
distribution of assets of NPS, through the medium of a mandatory
exchange of Exchangeable Shares for NPS Common Shares.
Each registered holder of Exchangeable Shares will be entitled at any time
following the Effective Time, upon delivery of a certificate representing
Exchangeable Shares and a duly executed Retraction Request, to require NPS
Allelix to redeem any or all of his, her or its Exchangeable Shares for NPS
Common Shares. However, NPS Holdings will have the right, but not the
obligation, to purchase the Exchangeable Shares that are the subject of the
Retraction Request for a purchase price payable in NPS Common Shares, provided
that such Retraction Request is not revoked by the retracting holder.
The Exchangeable Shares will have no separate economic or voting rights in
NPS Allelix, except as required by law, including applicable provisions of the
Companies Act (British Columbia), or under the Exchangeable Share Provisions,
the Support Agreement and the Voting and Exchange Trust Agreement.
22
<PAGE>
Subject to applicable Law and provided NPS Holdings has not exercised the
Redemption Call Right, NPS Allelix will on the Redemption Date redeem all but
not less than all of the then outstanding Exchangeable Shares for an amount per
share equal to the Current Market Price of a NPS Common Share on the last
business day prior to the Redemption Date, which will be satisfied in full by
NPS Allelix causing to be delivered to each holder of Exchangeable Shares one
NPS Common Share for each Exchangeable Share held by such holder, together with
the Dividend Amount.
Subject to the exceptions provided in the next sentence, the Redemption
Date will be on or after December 31, 2004. However, NPS Allelix will have the
right to cause the Redemption Date to occur at any time (i) if there are fewer
than 1,000,000 Exchangeable Shares outstanding (other than those held by NPS and
its Affiliates); or (ii) on or after the occurrence of a NPS Control Transaction
where it is not reasonably practicable to substantially replicate the existing
terms and conditions of the Exchangeable Shares in connection with such NPS
Control Transaction.
Allelix Preferred Shares
Pursuant to the Plan of Arrangement and in accordance with the Conversion
Agreement, such Allelix Preferred Share will be changed into 887.9166 Allelix
Common Shares in respect of which the registered holder of the Allelix Preferred
Shares will receive 0.3238 NPS Common Shares for each Allelix Common Share held.
The conversion of the Allelix Preferred Shares into Allelix Common Shares and
the subsequent exchange of Allelix Common Shares for NPS Common Shares will
occur at the Effective Time without any act or formality on the part of the
registered holder of Allelix Preferred Shares.
Treatment of Options and Warrants
Each holder of Allelix Options will be entitled, after the Effective Time
and in accordance with the terms of the Allelix Options, upon the exercise of
such options, to receive in lieu of the number of Allelix Common Shares to which
such holder was theretofore entitled to receive upon such exercise, that
aggregate number of Exchangeable Shares or NPS Common Shares, as applicable,
that such holder would have been entitled to receive under the Plan of
Arrangement if such holder had been the registered holder of that number of
Allelix Common Shares that such holder was theretofore entitled to receive if
all such holder's Allelix Options had been exercised immediately prior to the
Effective Time.
Each holder of Allelix Warrants will be entitled, after the Effective Time
and in accordance with the terms of the Allelix Warrants, upon the exercise of
such warrants, to receive in lieu of the number of Allelix Common Shares to
which such holder was theretofore entitled to receive upon such exercise, that
aggregate number of Exchangeable Shares or NPS Common Shares, as applicable,
that such holder
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would have been entitled to receive under the Plan of Arrangement if such holder
had been the registered holder of that number of Allelix Common Shares that such
holder was theretofore entitled to receive if all such holder's Allelix Warrants
had been exercised immediately prior to the Effective Time.
Recommendation of the Board of Directors of Allelix
The board of directors of Allelix has unanimously: (i) determined that the
Arrangement is fair to the Allelix Shareholders and that the Arrangement is in
the best interests of Allelix and the Allelix Shareholders; and (ii) approved
the Arrangement and the entering into and execution of the Arrangement
Agreement. Accordingly, the board of directors of Allelix unanimously recommends
that the Allelix Shareholders vote in favour of the Continuance and the
Arrangement.
Opinion of Allelix's Financial Adviser, BancBoston Robertson Stephens
In connection with the Arrangement, the board of directors of Allelix
received a written opinion dated September 27, 1999 of Allelix's financial
adviser, BancBoston Robertson Stephens, that, as of that date, the Exchange
Ratio was fair, from a financial point of view, to the holders of Allelix Common
Shares (other than NPS, NPS Allelix and their respective Affiliates). The full
text of the opinion of BancBoston Robertson Stephens is attached to this
Circular as Appendix H and should be read carefully in its entirety for a
description of the assumptions made, matters considered and limitations on the
review undertaken by BancBoston Robertson Stephens in providing its opinion.
The BancBoston Robertson Stephens opinion is directed to the board of
directors of Allelix and is not a recommendation to any Allelix Shareholder with
respect to any matter relating to the proposed Arrangement.
Conditions to Closing
The Arrangement Agreement provides that the parties' obligations to
complete the Arrangement are subject to the satisfaction, on or before the
Effective Date or such other time as specified, of certain conditions precedent.
These conditions include, among others:
(a) the Arrangement Resolution must have been duly approved by the
required majority of Allelix Shareholders in accordance with the
Interim Order, on or before January 20, 2000;
(b) each of the resolutions considered at the NPS Meeting shall have been
duly approved by the required majority of registered holders of NPS
Common Shares without amendment on or before January 20, 2000;
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(c) the Final Order shall have been granted in form and substance
satisfactory to Allelix and NPS, acting reasonably, on or before
January 31, 2000, and shall not have been set aside or modified in a
manner unacceptable to such parties on appeal or otherwise;
(d) there shall not have occurred any actual or threatened change
(including a proposal by the Minister of Finance of Canada to amend
the ITA or any announcement, governmental or regulatory initiative,
condition, event or development involving a change or a prospective
change) that, in the judgment of NPS, acting reasonably, directly or
indirectly, has or may have a Material Adverse Effect with respect to
consummating the proposed transaction; and
(e) registered holders of not more than 10 percent of Allelix's Common
Shares shall have exercised Dissent Rights.
Termination and Termination Fees and Expenses
The Arrangement Agreement may be terminated in certain circumstances,
including:
(a) by NPS if the board of directors of Allelix has withdrawn or varied,
in a manner determined by NPS to be adverse to NPS, approval of the
Arrangement Agreement or the Arrangement or its unanimous
recommendation to the Allelix Common Shareholders;
(b) by Allelix if the board of directors of NPS has withdrawn its
unanimous recommendation to the registered holders of the NPS Common
Shares to vote in favour of the resolutions contemplated in the
Arrangement Agreement to be considered at the NPS Meeting; and
(c) by Allelix in order to enter into a definitive written agreement with
respect to a Superior Proposal, subject to compliance with certain
conditions.
Allelix is obligated to pay to NPS a fee of U.S.$2,000,000 if any of the
following occur:
(a) Allelix breaches its covenants or agreements in the Arrangement
Agreement in any material respect;
(b) NPS terminates the Arrangement Agreement because the board of
directors of Allelix has withdrawn or varied, in a manner determined
by NPS to be adverse to NPS, its approval of the Arrangement
Agreement or the Arrangement or its unanimous recommendation to
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Allelix Common Shareholders unless the board of directors of Allelix
has done so because of a Material Adverse Change affecting NPS, and
such change is not attributable to a Material Adverse Change
affecting Allelix;
(c) Allelix terminates the Arrangement Agreement to enter into a
definitive written agreement with respect to a Superior Proposal
subject to compliance by Allelix with certain conditions; or
(d) an Acquisition Proposal is announced (in this instance, the reference
to 10 percent of the Allelix Common Shares in the definition of
Acquisition Proposal shall be deemed to be a reference to 20 percent
of the Allelix Common Shares) and is not withdrawn more than two
business days prior to the date of the Allelix Meeting, the
registered holders of the Allelix Common Shares do not approve the
Arrangement at the Allelix Meeting, and a significant transaction
involving the acquisition of a material portion of the assets of
Allelix or one or more of its Subsidiaries or Allelix Common Shares
so as to hold not less than 20 percent or more of the Allelix Common
Shares outstanding is completed with the Person who made the
Acquisition Proposal or an Affiliate of such Person within the twelve
months following the date of the Allelix Meeting.
NPS is obligated to pay to Allelix a fee of U.S.$1,000,000 in the event
that NPS breaches a covenant or agreement on its part in the Arrangement
Agreement in any material respect, or the registered holders of the NPS Common
Shares do not approve the matters relating to the Arrangement considered at the
NPS Meeting except following a Material Adverse Change affecting Allelix. The
fee shall be increased to U.S.$2,000,000 in the event that the board of
directors of NPS withdraws or varies its unanimous recommendation to the
registered holders of NPS Common Shares in a manner determined by Allelix to be
adverse to Allelix, otherwise than because of a Material Adverse Change
affecting Allelix.
Accounting Treatment
NPS will account for the Transaction as a purchase for financial reporting
and accounting purposes, in accordance with U.S. GAAP.
Stock Exchange Listings
The TSE has conditionally approved the listing of the Exchangeable Shares,
subject to the satisfaction of its customary requirements. NPS has informed
Allelix that, at this time, it does not intend to list the Exchangeable Shares
on any other stock exchange or quotation system.
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The NPS Common Shares are traded on the NASDAQ Stock Market. NPS will
apply to the NASDAQ Stock Market, as required, to list thereon the NPS Common
Shares issued pursuant to the Arrangement or issuable from time to time in
exchange for the Exchangeable Shares.
Certain Tax Considerations
The Allelix Shareholders should carefully read the information under
"Income Tax Considerations to Allelix Shareholders" which qualifies the
information set forth below. The following summary of income tax considerations
is intended as a general summary and does not discuss all of the facts and
circumstances that may affect the tax liability of particular Allelix
Shareholders. Therefore, all Allelix Shareholders are urged to consult their tax
advisers. No advance income tax rulings have been sought or obtained with
respect to any of the transactions described herein.
For Canadian federal income tax purposes, an Allelix Shareholder who is a
Canadian Resident, holds Allelix Common Shares as capital property and who
properly elects to receive NPS Common Shares pursuant to the Arrangement, will
realize a capital gain (or a capital loss) equal to the amount by which the sum
of the fair market value of the NPS Common Shares received by such holder on the
exchange, net of any reasonable costs of disposition, exceeds (or is less than)
the adjusted cost base to such holder of the Allelix Common Shares exchanged. An
Allelix Shareholder who is an Eligible Holder and who exchanges Allelix Common
Shares for Exchangeable Shares will be permitted to elect jointly with NPS
Allelix, in prescribed form pursuant to section 85 of the ITA, to obtain a tax-
deferred "rollover" in respect of such exchange.
The exchange by a U.S. Holder of Allelix Common Shares for NPS Common
Shares will be a taxable event for United States federal income tax purposes.
Dissent Rights
Pursuant to section 190 of the CBCA, each Allelix Common Shareholder is
entitled to dissent from the Continuance Resolution and to be paid by Allelix,
if the Continuance becomes effective, the fair value of the Allelix shares held
by such holder in respect of which such holder dissents, determined as of the
day before the date on which the Continuance Resolution is passed, provided that
such holder gives written notice of his, her or its dissent ("Notice of
Dissent") to Allelix by depositing such Notice of Dissent with Allelix, or
mailing it to Allelix by registered mail, at its principal executive office at
6850 Goreway Drive, Mississauga, Ontario, L4V 1V7, marked to the attention of
the Senior Vice-President and Corporate Secretary of Allelix at or before the
Allelix Meeting, and otherwise complies with section 190 of the CBCA as more
fully described in the Circular. Failure to comply
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strictly with such dissent procedures may result in the loss or unavailability
of any right of dissent.
Pursuant to the Interim Order and section 190 of the CBCA, each Allelix
Common Shareholder is entitled to dissent from the Arrangement Resolution and to
be paid by Allelix, if the Arrangement becomes effective, the fair value of the
Allelix Common Shares held by such holder in respect of which such holder
dissents, determined as of the day before the date on which the Arrangement
Resolution is passed provided that such holder gives Notice of Dissent to
Allelix by depositing such Notice of Dissent with Allelix, or mailing it to
Allelix by registered mail, at its principal executive office at 6850 Goreway
Drive, Mississauga, Ontario, L4V 1V7, marked to the attention of the Senior
Vice-President and Corporate Secretary of Allelix at or before the Allelix
Meeting, and which and which otherwise complies with section 190 of the CBCA as
more fully described in the Circular. Failure to comply strictly with such
dissent procedures may result in the loss or unavailability of any right of
dissent.
However, any one Allelix Common Shareholder is entitled to dissent from
only one of the Continuance Resolution or the Arrangement Resolution. The
Dissent Procedures are attached to this Circular as Appendix I.
Investment Considerations
[NTD: to be revised by NPS/Allelix]
In addition to information set out elsewhere, Allelix Shareholders should
consider the information set out in this Circular under the heading "Investment
Considerations" in evaluating whether to approve the Arrangement.
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GENERAL PROXY INFORMATION
General
This Circular is furnished in connection with the solicitation of proxies
by and on behalf of the management of Allelix and the board of directors of
Allelix.
Solicitation of Proxies
The management of Allelix is soliciting proxies for use at the Allelix
Meeting and has designated John R. Evans or, failing him, Paul J. Van Damme, on
the enclosed form of proxy as persons whom Allelix Shareholders may appoint as
their proxyholders. If an Allelix Shareholder wishes to appoint an individual
not listed on the enclosed form of proxy to represent him or her at the Allelix
Meeting, the Allelix Shareholder may do so either by crossing out the names on
the enclosed form of proxy and inserting the name of that other individual in
the blank space provided on the enclosed form of proxy or by completing another
acceptable form of proxy. A proxy nominee need not be an Allelix Shareholder. If
the Allelix Shareholder is a corporation, the proxy must be executed by an
officer or properly appointed attorney.
Allelix is paying for this solicitation, which is being made by mail, with
possible supplemental telephone or other personal solicitations by employees or
agents of Allelix. The management of Allelix may retain the services of a proxy
solicitation company at the customary rates for such services.
Record Date and Entitlement to Vote
The Record Date for the purpose of determining Allelix Shareholders
entitled to receive the Circular and to vote at the Allelix Meeting has been
fixed as 5:00 p.m. (Toronto time) on [November 10], 1999.
Each Allelix Common Shareholder and the Allelix Preferred Shareholder at
5:00 p.m. (Toronto time) on the Record Date is entitled to attend the Allelix
Meeting in person or by proxy and to cast one vote for each Allelix Common Share
and each Allelix Preferred Share held by it on the Record Date. The Allelix
Common Shareholders and the Allelix Preferred Shareholder will vote together in
respect of the Continuance Resolution and as separate classes in respect of the
Arrangement Resolution.
Signing and Deposit of Proxies
For a proxy to be valid, an Allelix Shareholder (or the Allelix
Shareholder's attorney, who must be authorized in writing) must sign and date
it, and must either
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return it in the envelope provided to, or deposit it at, the offices of __ not
later than 5:00 p.m. (Toronto time) on [Monday], December [13], 1999 or, if the
Allelix Meeting is adjourned, 48 hours (excluding Saturdays, Sundays and
holidays) before the time the adjourned Allelix Meeting is to be reconvened.
Proxies may also be deposited with the scrutineers of the Allelix Meeting, to
the attention of the Chairman of the Allelix Meeting, immediately prior to the
commencement of the Allelix Meeting, or any adjournment or postponement thereof.
Revocation of Proxies
An Allelix Shareholder giving a proxy has the power to revoke such proxy at
any time before it is exercised. A proxy may be revoked (a) by instrument in
writing executed by the Allelix Shareholder or by his or her attorney authorized
in writing, or, if the Allelix Shareholder is a corporation, under its corporate
seal or by an officer or attorney thereof duly authorized and deposited either
at Allelix's registered office at 6850 Goreway Drive, Mississauga, Ontario L4V
1V7, at any time up to and including the last business day before the day of the
Allelix Meeting or any adjournment or postponement thereof, or with the Chairman
of the Meeting on the day of the Allelix Meeting or any adjournment or
postponement thereof, or (b) in any other manner permitted by law. If the
Allelix Shareholder attends the Meeting and participates in a vote taken by a
show of hands, it will automatically be revoking any valid proxy previously
delivered by it.
Voting of Proxies
On any vote taken by a show of hands, the individuals named in the enclosed
form of proxy will vote the Allelix Common Shares and Allelix Preferred Shares
represented by proxy in accordance with the instructions of the Allelix
Shareholder who appointed them. If there are no instructions or the
instructions are not certain, on any vote taken by a show of hands they will
vote the Allelix Common Shares and/or the Allelix Preferred Shares, as
applicable, in favour of the Option Resolution, the Continuance Resolution and
the Arrangement Resolution. The enclosed form of proxy, when properly completed
and signed, confers discretionary authority on the appointed individuals to vote
as they see fit on any amendment or variation to any of the matters identified
in the Notice of Special Meeting and on any other matter that may properly be
brought before the Allelix Meeting. At the date hereof, neither the board of
directors of Allelix nor management of Allelix is aware of any variation,
amendment or other matter to be presented for a vote at the Allelix Meeting.
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Voting Shares
On the Record Date, there were outstanding: (i) __ Allelix Common Shares;
and (ii) 1,000 Allelix Preferred Shares. Each Allelix Common Share carries the
right to one vote. Each Allelix Preferred Share carries the right to one vote.
To the best of the knowledge of the directors and officers of Allelix, on
the Record Date, no Person beneficially owned or exercised control or direction
over Allelix Common Shares carrying more than 10 percent of the number of votes
entitled to be cast at the Allelix Meeting by the Allelix Common Shareholders,
other than: (i) BVF Partners L.P. which held [2,400,000] Allelix Common Shares,
representing 11.9 percent of the Allelix Common Shares issued and outstanding;
and (ii) __ .
To the best of the knowledge of the directors and officers of Allelix, on
the Record Date, J & J, the sole Allelix Preferred Shareholder, beneficially
owned or exercised control or direction over all 1,000 Allelix Preferred Shares
representing 100 percent of the Allelix Preferred Shares issued and outstanding.
To the best of the knowledge of the directors and officers of Allelix, on
the Record Date, no Person beneficially owned or exercised control or direction
over Allelix Common Shares or Allelix Preferred Shares carrying more than 10
percent of the collective number of votes entitled to be cast at the Allelix
Meeting by the Allelix Common Shareholders and Allelix Preferred Shares, other
than BVF Partners L.P. which held [2,400,000] Allelix Common Shares,
representing __ percent of the collective number of votes entitled to be cast at
the Allelix Meeting by the Allelix Common Shareholders and Allelix Preferred
Shares.
On the Record Date, the directors and officers of Allelix as a group
beneficially owned or had voting control or direction over __ Allelix Common
Shares carrying approximately __ percent of the number of votes entitled to be
cast at the Allelix Meeting by the Allelix Common Shareholders.
Business of the Allelix Meeting
The Allelix Meeting will be held for, among other things:
(a) the Allelix Common Shareholders to consider and, if determined
advisable, approve the Option Resolution;
(b) the Allelix Common Shareholders and the Allelix Preferred Shareholder
to consider and, if determined advisable, approve the Continuance
Resolution;
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(c) the class consisting of Allelix Common Shareholders and the class
consisting of the Allelix Preferred Shareholder to each, separately,
consider and, if determined advisable, approve the Arrangement
Resolution.
Each of these matters is discussed in more detail below.
Option Resolution
On April 15, 1999 the board of directors of Allelix approved a proposal for
the surrender of options by Allelix employees and excluding non-executive
directors, to acquire an aggregate of 876,572 Allelix Common Shares with
exercise prices ranging from $3.20 to $22.45 per share and the re-issuance of
replacement stock options at an exercise price of $2.80 per share (the
"Proposal"). Pursuant to the Proposal each employee was permitted to
surrendered for cancellation, at any time before the close of business on May
31, 1999, any or all of his or her options (the "Old Options") for a number of
new options equal to one half of the aggregate number of options surrendered for
cancellation (the "New Options"). Except for a reduced exercised price the New
Options are in all other respects the same as the Old Options. In particular
the New Options are vested to the same extent and expire on the same date as the
Old Options. Old Options to acquire an aggregate of 410,664 Allelix Common
Shares held by non-insider employees were surrendered and New Options to acquire
an aggregate of 205,337 Allelix Common Shares were issued in respect thereof (in
each case rounded up to the nearest whole option). Three senior employees who
are insiders of Allelix have surrendered Old Options to acquire an aggregate of
225,600 Allelix Common Shares for cancellation, pending approval of holders of
Allelix Common Shares.
The Board of Directors of Allelix determined that the reduction of the
exercise price of the Old Options was necessary to achieve the purpose of
attracting, encouraging and increasing the incentive for the continued service
of employees of Allelix as stated in the Allelix Stock Option Plan.
In addition, on [October __ ], 1999 the [Compensation Committee of the]
Board of Directors approved an amendment to options held by Allelix directors
(other than Dr. John R. Evans, Edward Rygiel and Dr. Calvin Stiller who will
become directors of NPS) so that such options will be exercisable until December
31, 2000 instead of expiring 90 days following the Effective Date pursuant to
the terms of the Allelix Stock Option Plan. The affected directors were not
eligible to participate in the Proposal described above and hold options with
exercise prices ranging from $4.40 to $16.80 per share. Notice of the re-
issuance of employee options has been given to the relevant stock exchanges.
Notice of the variation of exercise period of options held by certain directors
will be provided to the relevant stock exchanges prior to the Effective Date.
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Holders of Allelix Common Shares are being asked to consider and if thought
advisable, pass the Option Resolution at the Allelix Meeting to confirm and
approve the re-issuance of options held by certain insiders of Allelix and the
variance of the exercise period of options held by certain directors of Allelix
as described above.
For information pertaining to the proposed Continuance by Allelix,
please see "The Continuance of Allelix". For more information pertaining to the
Arrangement, please see "The Arrangement".
Required Votes to Approve the Option Resolution, the Continuance Resolution and
the Arrangement Resolution
The Option Resolution must be approved by more than 50 percent of the votes
cast by the Allelix Common Shareholders present in person or by proxy and
entitled to vote at the Allelix Meeting (excluding spoiled, illegible and/or
defective votes and abstentions).
The Continuance Resolution must be approved by at least 66 2/3 percent of
the collective votes cast by the Allelix Common Shareholders and Allelix
Preferred Shares present in person or by proxy and entitled to vote at the
Allelix Meeting (excluding spoiled, illegible and/or defective votes and
abstentions).
Subject to any further order of the Court, the Arrangement Resolution must
be approved by at least (i) 66 2/3 percent of the votes cast by the Allelix
Common Shareholders present in person or by proxy and entitled to vote at the
Allelix Meeting (excluding spoiled, illegible and/or defective votes and
abstentions); and (ii) 66 2/3 percent of the votes cast by the Allelix Preferred
Shareholder present in person or by proxy and entitled to vote at the Allelix
Meeting (excluding spoiled, illegible and/or defective votes and abstentions).
J&J, the sole holder of the Allelix Preferred Shares, has agreed, pursuant
to the Conversion Agreement to vote the Allelix Preferred Shares in favour of
the Continuance Resolution and the Arrangement Resolution at the Allelix
Meeting.
Interest of Management
Management is unaware of any material interest of any director or officer
of Allelix or any associate or Affiliate of any such individual or of Allelix in
any transaction since the beginning of the last completed financial year of
Allelix or in any proposed transaction or in connection with the Arrangement
that has materially affected or will materially affect Allelix or any of its
Affiliates.
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THE CONTINUANCE OF ALLELIX
Introduction to the Continuance
Allelix is currently governed by the CBCA. Allelix will be continued from
the federal jurisdiction as a corporation under the OBCA in order to facilitate
the Arrangement. Subject to approval by Allelix Shareholders, Allelix proposes
to file articles of continuance to continue Allelix from the federal
jurisdiction under the provisions of the OBCA as soon as practicable after
approval of the Continuance Resolution at the Allelix Meeting. Allelix
Shareholders will be asked to consider, and if thought fit, approve the
Continuance Resolution in the form attached to this Circular as Appendix B.
Shareholder Approval
In order for the Continuance to be implemented, the Continuance Resolution
must be passed by at least 66 2/3 percent of the collective votes cast by
holders of Allelix Common Shares and Allelix Preferred Shares present in person
or by proxy and entitled to vote, at the Allelix Meeting (excluding spoiled,
illegible and/or defective vote and abstentions).
If the Continuance is approved, Allelix intends to file articles of
continuance pursuant to section 180 of the OBCA. [The Continuance will be
effective on the date of the certificate of continuance, which shall be issued
by the OBCA Director upon receipt of articles of continuance pursuant to
subsection 180(4) of the CBCA]. Allelix must file a certified copy of the
certificate of continuance with the OBCA Director.
For a discussion of the Continuance dissent right, please see Dissenting
Shareholder Rights.
THE ARRANGEMENT
Background of the Arrangement
At a meeting of the board of directors of Allelix held in January, 1999,
BancBoston Robertson Stephens was invited to discuss strategic alternatives
available to Allelix to maximize shareholder value. The discussion included a
review of potential merger candidates among comparably sized biotechnology
companies, acquisition candidates among smaller biotechnology companies and
potential acquirors of Allelix among various larger biotechnology and/or
pharmaceutical companies. Following discussions thereon, no determination was
made as to the course that Allelix should follow. Subsequently, in the middle
of March, 1999, management of Allelix was approached by a mid-size U.S.-based
biotechnology company concerning a potential merger transaction. At a meeting
of
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the board of directors of Allelix held on April 14, 1999, Allelix's senior
management made a presentation to the board concerning a potential merger with
this company. The board of directors of Allelix authorized management to pursue
negotiations and due diligence investigations and appointed a subcommittee
comprised of four outside directors to oversee the conduct of negotiations.
Such negotiations continued into the summer of 1999; however, in the middle of
July, 1999, Allelix was advised that as a result of disagreements concerning the
economic basis of such a merger, the other company was no longer interested in
pursuing negotiations.
At a meeting of the board of directors of Allelix held on July 29, 1999 and
July 30, 1999, the board again reviewed strategic alternatives open to Allelix
and authorized management to pursue alternatives with a view to maximizing
shareholder value. In connection with such mandate, the board authorized the
engagement of BancBoston Robertson Stephens to assist Allelix in its exploration
of various strategic alternatives available to it.
In early August, one of Allelix's significant shareholders contacted
management to suggest that NPS might be interested in pursuing a merger with
Allelix. Shortly thereafter, Mr. Graham Strachan called Dr. Hunter Jackson,
Chairman, President and Chief Executive Officer of NPS to determine whether NPS
would be interested in pursuing a merger. During mid-August, discussions
between representatives of Allelix and NPS and their respective financial
advisers commenced. On August 10, 1999, Allelix entered into a confidential
disclosure agreement with NPS to permit mutual due diligence investigations to
begin between Allelix and NPS. On August 31, 1999, an exclusivity agreement was
entered into between Allelix and NPS, committing Allelix to a period of
exclusive negotiations with NPS, subject to a customary "fiduciary out" which
terminated on September 13, 1999, unless due diligence investigations and/or
negotiations were continuing at that date, in which event such period of
exclusivity of negotiations would be extended until September 30, 1999.
On September 13, 1999, Allelix received a letter from NPS outlining the
proposed financial and other terms of a merger. On September 14, 1999,
representatives of Allelix, together with their legal advisers, Stikeman,
Elliott, met with representatives of NPS and their legal advisers, Blake,
Cassels & Graydon, to discuss and commence negotiations of the definitive terms
and structure of a proposed merger transaction. During this period and until
September 27, 1999, the terms of a definitive arrangement agreement between NPS
and Allelix were being negotiated under the supervision of Allelix's Chairman,
Dr. John Evans.
Later that same day, a meeting of the board of directors of Allelix was
held to report on such discussions and negotiations, to allow the directors to
receive briefings by counsel concerning the duties of directors in connection
with merger
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transactions and by BancBoston Robertson Stephens concerning the financial and
strategic aspects of a merger between NPS and Allelix.
On September 21, 1999, NPS' senior management team made a presentation to
Allelix's board of directors and Allelix's financial advisers concerning the
benefits available to Allelix through a merger with NPS, NPS' vision for the
merged company and NPS' research programs and business. On September 27, 1999,
the board of directors of Allelix met to consider the proposed merger. At that
meeting, BancBoston Robertson Stephens made a presentation regarding its
financial analysis of the merger and delivered its oral opinion (which was
subsequently confirmed in writing) described below under "Opinion of Allelix's
Financial Adviser, BancBoston Robertson Stephens". At the same meeting, the
board of directors of Allelix received a report from Stikeman, Elliott on the
terms of the arrangement agreement that had been negotiated. Subject to
finalization of certain matters, the board of directors of Allelix authorized
the entering into of the arrangement agreement described below under "The
Arrangement Agreement and Related Agreements", which agreement was executed and
delivered on the evening of September 27, 1999.
Allelix's Reasons for the Arrangement and Recommendation of the Board of
Directors of Allelix
The board of directors of Allelix has unanimously: (i) determined that the
Arrangement is fair to the Allelix Shareholders and that the Arrangement is in
the best interests of Allelix and the Allelix Shareholders; and (ii) approved
the Arrangement and the entering into and execution of the Arrangement
Agreement. Accordingly, the board of directors of Allelix unanimously
recommends that the Allelix Shareholders vote in favour of the Continuance and
the Arrangement.
In reaching its determination and making this recommendation, the board of
directors of Allelix considered a number of factors, including the following:
(a) based on the closing price of NPS Common Shares reported on the
NASDAQ Stock Market on September 27, 1999, the last trading day prior
to the public announcement of the Transaction, the Exchange Ratio
represented a premium of approximately 22 percent over the average
closing price of Allelix Common Shares reported on the TSE for the 30
trading day period prior to the first public announcement of the
Transaction;
(b) the combined business which results from the Arrangement will have
significantly greater financial, business and scientific resources
which may enable the combined business to more effectively develop
and exploit its portfolio of drug product candidates and, in
particular, may make it possible for Allelix to take forward into
Phase III clinical trials
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its most advanced product program, ALX1-11, a recombinant form of
human parathyroid hormone which has potential as a bone-growth
therapy;
(c) the complementary nature of Allelix's and NPS' respective portfolios
of drug product candidates;
(d) the combined business may be able to take advantage of NPS' U.S.
biomedical industry connections and NPS' presence on the NASDAQ Stock
Market while continuing to benefit from the Canadian biotechnology
industry and its associated technical and financial resources;
(e) the risks and limitations associated with Allelix attempting to
pursue further development of its portfolio of drug product
candidates as an independent entity;
(f) the opinion dated September 27, 1999 of BancBoston Robertson
Stephens, Allelix's financial adviser, that, as of that date, the
Exchange Ratio was fair, from a financial point of view, to the
Allelix Common Shareholders (other than NPS, NPS Allelix and their
respective Affiliates);
(g) Allelix Common Shareholders will be entitled to receive Exchangeable
Shares or NPS Common Shares such that they will continue to
participate in the biotechnology and pharmaceutical products
industries through NPS, which has a significantly larger market
capitalization than Allelix;
(h) Canadian Resident Allelix Common Shareholders who hold Allelix Common
Shares as capital property and file a joint election with NPS Allelix
will generally be able to exchange their Allelix Common Shares for
Exchangeable Shares under the Arrangement on a tax-deferred basis
under Canadian federal income tax legislation (see "Income Tax
Considerations to Allelix Shareholders - Canadian Federal Income Tax
Considerations");
(i) Exchangeable Shares will not constitute foreign property under
Canadian federal income tax legislation for certain exempt holders
(see "Income Tax Considerations to Allelix Shareholders - Canadian
Federal Income Tax Considerations");
(j) the terms and conditions of the Arrangement Agreement, including the
termination and fee and expenses provisions thereof (see "The
Arrangement Agreement and Related Agreements"); and
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(k) the Arrangement must be approved by (i) special resolution passed by
not less than 66 2/3 percent of the votes cast by each of the class
of shareholders consisting of the Allelix Common Shareholders and the
class of shareholders consisting of the Allelix Preferred
Shareholder; and (ii) the Court which, Allelix is advised, will
consider, among other things, the fairness of the Arrangement to each
of the above classes of Allelix Shareholders.
In reaching its determination, the board of directors of Allelix also
considered and evaluated, among other things (i) information concerning the
business, operations, financial condition and prospects of Allelix and NPS; (ii)
current industry, economic and market conditions and trends and its informed
expectations of the future of the biotechnology and pharmaceutical products
industries; (iii) historical market prices and trading information with respect
to Allelix Common Shares and NPS Common Shares; (iv) the expected tax effect of
the Arrangement on Allelix Shareholders; (v) the anticipated synergies, cost
reductions, improved balance sheet and other operational advantages and
efficiencies as a result of the combination; and (vi) the anticipated challenges
associated with successfully integrating the businesses of Allelix and NPS.
The foregoing discussion of the information and factors considered and
given weight by the board of directors of Allelix is not intended to be
exhaustive. In reaching the determination to approve and recommend the
Arrangement, the board of directors of Allelix did not assign any relative or
specific weights to the foregoing factors which were considered, and individual
directors may have given different weights to different factors. The board of
directors of Allelix is, however, unanimous in its recommendation to the Allelix
Shareholders that the Arrangement Resolution be approved at the Allelix Meeting.
The board of directors of Allelix realizes that there are certain risks
associated with the Transaction, including those set forth under "Investment
Considerations". However, the board of directors of Allelix believes that the
positive factors outweigh those risks, although there cannot be assurances in
this regard.
In order to permit the Arrangement to occur, the board of directors of
Allelix unanimously recommends that Allelix be continued under the OBCA and that
Allelix Shareholders vote in favour of the Continuance at the Allelix Meeting.
Opinion of Allelix's Financial Adviser, BancBoston Robertson Stephens
Allelix, under the direction of its board of directors, retained BancBoston
Robertson Stephens to act as its financial adviser in connection with its
exploration of various strategic alternatives available to it, including the
Arrangement. At the meeting of the board of directors of Allelix held on
September 27, 1999, BancBoston
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Robertson Stephens delivered its opinion (which was subsequently confirmed in
writing) that, as of that date and based upon the matters reviewed with the
board, the Exchange Ratio was fair, from a financial point of view, to the
holders of Allelix Common Shares (other than NPS, NPS Allelix and their
respective Affiliates). A copy of BancBoston Robertson Stephens' opinion dated
September 27, 1999 is attached to this Circular as Appendix H. Allelix
Shareholders are urged to, and should, read the full text of the BancBoston
Robertson Stephens opinion for a complete description of the factors considered,
the assumptions made and the limitations on the review undertaken by BancBoston
Robertson Stephens in rendering its opinion.
The BancBoston Robertson Stephens opinion addresses only the fairness, from
a financial point of view, of the Exchange Ratio to the holders of Allelix
Common Shares (other than NPS, NPS Allelix and their respective Affiliates) and
does not constitute a recommendation to any Allelix Shareholder as to how to
vote at the Allelix Meeting. The summary of the BancBoston Robertson Stephens
opinion set forth in this Circular is qualified in its entirety by reference to
the full text of such opinion.
BancBoston Robertson Stephens is acting as financial advisor to Allelix in
connection with the Arrangement will receive an initial fee for the delivery of
its opinion and an additional fee contingent upon the consummation of the
Arrangement. In addition, Allelix has agreed to indemnify BancBoston Robertson
Stephens for certain liabilities that might arise out of its engagement.
In the ordinary course of business, BancBoston Robertson Stephens may trade
in securities of Allelix and/or NPS for its own account and the account of its
customers and, accordingly, may at any time hold a long or short position in the
securities of Allelix and/or NPS.
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Procedures for Election and Exchange of Share Certificates
Enclosed with this Circular is a Letter of Transmittal and Election Form
which is being delivered to Allelix Common Shareholders. The Letter of
Transmittal and Election Form, when properly completed and signed and returned
together with a certificate or certificates for Allelix Common Shares and all
other required documents, will enable each holder of Allelix Common Shares to
obtain a certificate for that number of Exchangeable Shares or NPS Common
Shares, or a combination thereof, as appropriate, equal to the number of Allelix
Common Shares previously held by such holder multiplied by the Exchange Ratio,
in each case, rounded up to the nearest whole number if such calculation results
in a fractional share. See "- Transaction Mechanics and Description of
Exchangeable Shares - Fractional Shares".
Any use of the mails to transmit a certificate for Allelix Common Shares
and a related Letter of Transmittal and Election Form is at the risk of the
holder thereof. If these documents are mailed, it is recommended that registered
mail, with return receipt requested, properly insured, be used.
A holder of Allelix Common Shares who is a Canadian Resident may elect
under the Arrangement to receive on exchange of its Allelix Common Shares either
NPS Common Shares or Exchangeable Shares by arranging for a properly completed
and signed Letter of Transmittal and Election Form, together with certificates
representing its Allelix Common Shares and all other required documents, to be
received by the Depositary, at one of the addresses set out on the last page of
the Letter of Transmittal and Election Form no later than the Election Deadline.
A holder of Allelix Common Shares who is not a Canadian Resident is entitled
under the Arrangement to receive on exchange of its Allelix Common Shares, NPS
Common Shares by arranging for a properly completed and signed Letter of
Transmittal and Election Form, together with certificates representing its
Allelix Common Shares and all other required documents, to be received by the
Depositary at one of the addresses set out on the last page of the Letter of
Transmittal and Election Form no later than the Election Deadline.
If the Depositary has not received a properly completed and signed Letter
of Transmittal and Election Form together with certificates representing Allelix
Common Shares and all other required documents on or prior to the Election
Deadline in respect of particular Allelix Common Shares, then those shares will
be treated under the Arrangement as follows: (i) each holder of Allelix Common
Shares whose address on the register for Allelix Common Shares as at the close
of business (Toronto time) on the day immediately preceding the Effective Date
is in Canada will be entitled to receive only Exchangeable Shares upon receipt
by the Depositary of a properly completed and signed Letter of Transmittal and
Election Form, together with certificates representing its Allelix Common Shares
and all other required documents, and (ii) each holder of Allelix Common Shares
whose address
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on the register for Allelix Common Shares as at the close of business (Toronto
time) on the day immediately preceding the Effective Date is not in Canada will
be entitled to receive only NPS Common Shares upon receipt by the Depositary of
a properly completed and signed Letter of Transmittal and Election Form,
together with certificates representing its Allelix Common Shares and all other
required documents.
Certificates representing the appropriate number of Exchangeable Shares
and/or NPS Common Shares issuable to a former holder of Allelix Common Shares
who has complied with the procedures set out above, as soon as practicable after
the Effective Date (i) be forwarded to the holder at the address specified in
the Letter of Transmittal and Election Form by insured first class mail, or (ii)
be made available for pick up by the holder as requested by the holder in the
Letter of Transmittal and Election Form at the office of __ specified by the
holder in the Letter of Transmittal and Election Form.
Where a certificate for Allelix Common Shares has been destroyed, lost or
mislaid, the holder of such certificate should, before the Effective Date,
contact __ at __ in the Toronto area, or toll free at __ , and after the
Effective Date, contact __ at __ in the Toronto area, or toll free at __ ,
regarding the issuance of a replacement certificate upon the holder satisfying
such requirements as may be imposed by Allelix in connection with issuance of
the replacement certi ficate.
Transaction Mechanics and Description of Exchangeable Shares
The Arrangement
Commencing at the Effective Time, the following shall occur and shall be
deemed to occur in the following order without any further act or formality:
(a) each Allelix Preferred Share will be changed into 887.9166 Allelix
Common Shares (the "Conversion Shares") and the name of each holder
of Allelix Preferred Shares will be removed from the register of
holders of Allelix Preferred Shares and added to the register of
holders of Allelix Common Shares;
(b) each Conversion Share will be deemed to be a NPS Elected Share and
will be transferred by the holder thereof, without any act or
formality on its part, to NPS Allelix Inc. in exchange for a fraction
of a fully-paid and non-assessable NPS Common Share equal to the
Exchange Ratio, and the name of each such holder will be removed from
the register of holders of Allelix Common Shares and added to the
register of holders of NPS Common Shares and NPS Allelix Inc. will be
recorded as the
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registered holder of such Allelix Common Shares so exchanged and will
be deemed to be the legal and beneficial owner thereof;".
(c) each NPS Elected Share will be transferred by the holder thereof,
without any act or formality on its part, to NPS Allelix in exchange
for a fraction of a fully-paid and non-assessable NPS Common Share
equal to the Exchange Ratio;
(d) each Exchangeable Elected Share will be transferred by the holder
thereof, without any act or formality on its part, to NPS Allelix in
exchange for a fraction of a fully-paid and non-assessable
Exchangeable Share equal to the Exchange Ratio;
(e) each Allelix Common Share in respect of which a duly completed Letter
of Transmittal and Election Form has not been deposited with the
Depositary on or prior to the Election Deadline (other than (i)
Allelix Common Shares held by Dissenting Shareholders who are
ultimately entitled to be paid the fair value of the Allelix Common
Shares held by them and (ii) Allelix Common Shares held by NPS or any
Affiliate thereof which shall not be exchanged under the Arrangement
and shall remain outstanding as Allelix Common Shares held by NPS or
any affiliate thereof),
(A) in the case of a holder of Allelix Common Shares whose
address as shown in the register of Allelix Common Shares
as of the close of business (Toronto time) on the day
preceding the Effective Date is in Canada will be deemed
to be an Exchangeable Elected Share and will be
transferred by the holder thereof, without any act or
formality on its part, to NPS Allelix in exchange for
that number of fully paid and non-assessable Exchangeable
Shares equal to the Exchange Ratio; and
(B) in the case of a holder of Allelix Common Shares whose
address as shown in the register of Allelix Common Shares
as of the close of business (Toronto time) on the day
preceding the Effective Date is not in Canada will be
deemed to be a NPS Elected Share and will be transferred
by the holder thereof, without any act or formality on
its part, to NPS Allelix in exchange for a fraction of a
fully-paid and non-assessable NPS Common Share equal to
the Exchange Ratio;
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(f) the registered holder of the Allelix Preferred Shares will receive,
pursuant to the Plan of Arrangement, __ Allelix Common Share for each
Allelix Preferred Share held which Allelix Common Shares will then be
converted into NPS Common Shares pursuant to the Plan of Arrangement
and under the terms of the Arrangement Agreement on the basis of
0.3238 NPS Common Shares for each Allelix Common Share held;
(g) in accordance with the terms of the Allelix Warrants, after the
Effective Time, a holder of Allelix Warrants shall be entitled, upon
the exercise of such warrants, to receive in lieu of the number of
Allelix Common Shares to which such holder was theretofore entitled
to receive upon such exercise, that aggregate number of Exchangeable
Shares or NPS Common Shares, as applicable, that such holder would
have been entitled to receive under the Plan of Arrangement if such
holder had been the registered holder of that number of Allelix
Common Shares that such holder was theretofore entitled to receive if
all such holder's Allelix Warrants had been exercised immediately
prior to the Effective Time;
(h) in accordance with the terms of the Allelix Options, after the
Effective Time, a holder of Allelix Options shall be entitled, upon
the exercise of such options, to receive in lieu of the number of
Allelix Common Shares to which such holder was theretofore entitled
to receive upon such exercise, that aggregate number of Exchangeable
Shares or NPS Common Shares, as applicable, that such holder would
have been entitled to receive under the Plan of Arrangement if such
holder had been the registered holder of that number of Allelix
Common Shares that such holder was theretofore entitled to receive if
all such holder's Allelix Options had been exercised immediately
prior to the Effective Time; and
(i) NPS shall issue to and deposit with the Trustee the Special Voting
Share, in consideration of the payment to NPS of U.S.$1, to be
thereafter held of record by the Trustee as trustee for and on behalf
of, and for the use and benefit of, the registered holders of the
Exchangeable Shares in accordance with the Voting and Exchange Trust
Agreement; and
(j) Allelix and 1380390 will amalgamate and continue as one corporation
under the OBCA upon the following terms:
(i) the name of the amalgamated corporation will be "Allelix
Biopharmaceuticals Inc.";
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(ii) the shares of 1380390 shall be cancelled without any repayment
of capital in respect thereof;
(iii) the articles of amalgamation shall be the same as the articles
of Allelix; and
(iv) no securities shall be issued and no assets shall be
distributed by the amalgamated corporation in connection with
the amalgamation.
As noted above, Allelix Common Shares held by NPS or any Affiliate thereof
will not be exchanged under the Arrangement. As a result, assuming no exercise
of Allelix Options or Allelix Warrants after the Record Date, immediately
following the Effective Time, Allelix's outstanding capital stock will consist
of __ Allelix Common Shares. Based on the Exchange Ratio, the former Allelix
Common Shareholders and Allelix Preferred Shares will hold an aggregate of
approximately __ Exchangeable Shares and NPS Common Shares. Assuming all Allelix
Common Shares and Allelix Preferred Shares are exchanged for NPS Common Shares,
based upon the number of NPS Common Shares outstanding as of __, 1999 and those
issued pursuant to the Arrangement, existing Allelix Common Shareholders will
ultimately hold approximately __ percent of the outstanding NPS Common Shares.
See "- Procedures for Election and Exchange of Share Certificates" for
procedures to be followed in order to obtain certificates representing the
Exchangeable Shares and the NPS Common Shares issuable pursuant to the
Arrangement.
Fractional Shares
No certificates representing fractional Exchangeable Shares or fractional
NPS Common Shares will be delivered in exchange for Allelix Common Shares
pursuant to the Arrangement. Each Person otherwise entitled to a fractional
interest in an Exchangeable Share or to a fractional interest in a NPS Common
Share will receive a certificate evidencing that number of shares to which such
Person is entitled rounded up to the nearest whole number.
Retraction, Redemption and Call Rights; Purchase for Cancellation
Retraction of Exchangeable Shares. Subject to the Retraction Call Right,
each registered holder of Exchangeable Shares will be entitled at any time
following the Effective Time to retract (i.e., require NPS Allelix to redeem)
any or all of the Exchangeable Shares held by such holder for an amount per
share equal to the Retraction Price. Each registered holder of Exchangeable
Shares may effect such retraction by presenting a certificate or certificates to
NPS Allelix or to the Transfer Agent representing the number of Exchangeable
Shares the holder desires to retract
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together with a duly executed Retraction Request indicating the number of
Exchangeable Shares the holder desires to retract and the Retraction Date upon
which the holder desires to receive the Retraction Price, and such other
documents as may be required to effect the retraction of the Retracted Shares.
The retraction of Retracted Shares shall not affect the obligation of NPS
Allelix to pay dividends declared on the Retracted Shares prior to the date of
their retraction.
When a holder requests NPS Allelix to redeem Retracted Shares, NPS Holdings
will have an overriding Retraction Call Right to purchase on the Retraction Date
all but not less than all of the Retracted Shares, at a purchase price per share
equal to the Retraction Price plus, on the designated payment date therefor, to
the extent not paid by NPS Allelix, the Dividend Amount, if any. To the extent
that NPS Holdings pays the Dividend Amount in respect of the Retracted Shares,
NPS Allelix shall no longer be obligated to pay any declared and unpaid
dividends on such Retracted Shares. Upon receipt of a Retraction Request, NPS
Allelix will immediately notify NPS Holdings. NPS Holdings must then advise NPS
Allelix within 5 business days as to whether the Retraction Call Right will be
exercised. If NPS Holdings does not so advise NPS Allelix, NPS Allelix will
notify the holder as soon as possible thereafter that NPS Holdings will not
exercise the Retraction Call Right. If NPS Holdings advises NPS Allelix that NPS
Holdings will exercise the Retraction Call Right within such five business day
period, then, provided the Retraction Request is not revoked by the holder as
described below, the Retraction Request shall thereupon be considered only to be
an offer by the holder to sell the Retracted Shares to NPS Holdings in
accordance with the Retraction Call Right.
A holder may revoke its Retraction Request, in writing, at any time prior
to the close of business on the business day immediately preceding the
Retraction Date, in which case the Retracted Shares will neither be purchased by
NPS Holdings nor be redeemed by NPS Allelix. If the holder does not revoke its
Retraction Request, on the Retraction Date, the Retracted Shares will be
purchased by NPS Holdings or redeemed by NPS Allelix, as the case may be, in
each case as set out above. NPS Allelix or NPS Holdings, as the case may be,
will deliver or cause the Transfer Agent to deliver (i) certificates,
representing the number of NPS Common Shares having an aggregate value equal to
the aggregate Retraction Price, registered in the name of the holder or in such
other name as the holder may request, and (ii) if applicable, a cheque for the
aggregate Dividend Amount to the holder at the address recorded in the
securities register or at the address specified in the holder's Retraction
Request or by holding the same for pick up by the holder at the registered
office of NPS Allelix or the office of the Transfer Agent as specified by NPS
Allelix, in each case less any amounts withheld on account of tax required to be
deducted and withheld therefrom.
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If, as a result of solvency requirements or applicable Law, NPS Allelix is
not permitted to redeem all Retracted Shares tendered by a retracting holder,
and provided NPS Holdings has not exercised its Retraction Call Right with
respect to such Retracted Shares, NPS Allelix will redeem only those Retracted
Shares tendered by the holder (rounded down to a whole number of shares) as
would not be contrary to such provisions or applicable Law and the Trustee, on
behalf of the holder of any Retracted Shares not so redeemed by NPS Allelix,
will require NPS to purchase such Retracted Shares on the Retraction Date
pursuant to the Exchange Right.
Redemption of Exchangeable Shares. Subject to applicable Law and the
Redemption Call Right, on the Redemption Date, NPS Allelix will redeem all but
not less than all of the then outstanding Exchangeable Shares for an amount per
share equal to the Redemption Price plus the Dividend Amount. NPS Allelix will,
at least 60 days prior to the Redemption Date, or such number of days as the
board of directors of NPS Allelix may determine to be reasonably practicable
under the circumstances in respect of a Redemption Date arising in connection
with a NPS Control Transaction, provide the registered holders of Exchangeable
Shares with written notice of the proposed redemption of the Exchangeable Shares
by NPS Allelix or the purchase of the Exchangeable Shares by NPS Holdings
pursuant to the Redemption Call Right described below.
On or after the Redemption Date and provided NPS Holdings has not exercised
its Redemption Call Right, upon the holder's presentation and surrender of the
certificates representing the Exchangeable Shares and such other documents as
may be required at the office of the Transfer Agent or the registered office of
NPS Allelix, NPS Allelix will deliver the Redemption Price together with the
Dividend Amount to such holder by mailing certificates, representing the number
of NPS Common Shares having an aggregate value equal to the aggregate Redemption
Price, registered in the name of the holder or such other name as the holder may
request and, if applicable, a cheque in payment of the Dividend Amount to the
holder at the address of the holder recorded in the securities register or by
holding the same for pick up by the holder at the registered office of NPS
Allelix or the office of the Transfer Agent as specified in the written notice
of redemption, in each case, less any amounts withheld on account of tax
required to be deducted and withheld therefrom.
NPS Holdings will have an overriding Redemption Call Right to purchase on
the Redemption Date all but not less than all of the Exchangeable Shares then
outstanding (other than Exchangeable Shares held by NPS and its Affiliates) for
an amount per share equal to the Redemption Price plus the Dividend Amount, if
any. Upon the exercise of the Redemption Call Right, registered holders will be
obligated to sell their Exchangeable Shares to NPS Holdings. If NPS Holdings
exercises the Redemption Call Right, NPS Allelix's right and obligation to pay
any declared and
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unpaid dividends in respect of, the Exchangeable Shares so purchased by NPS
Holdings will be fully satisfied by the payment of the Dividend Amount.
Early Redemption. In certain circumstances, NPS Allelix has the right to
require a redemption of the Exchangeable Shares prior to December 31, 2004. An
early redemption may occur upon (i) there being fewer than 1,000,000
Exchangeable Shares outstanding (other than Exchangeable Shares held by NPS and
its Affiliates); or (ii) the occurrence of a NPS Control Transaction. The
accidental failure or omission to give any notice of redemption under clauses
(i) and (ii) of this paragraph to less than 10 percent of the registered holders
of Exchangeable Shares will not affect the validity of any such redemption.
A NPS Control Transaction is any merger, amalgamation, tender offer,
material sale of shares or rights or interests therein or thereto or similar
transactions involving NPS, or any proposal to do so. If, prior to December 31,
2004, a NPS Control Transaction occurs, provided that the board of directors of
NPS Allelix determines, in good faith and in its sole discretion, that it is not
reasonably practicable to substantially replicate the terms and conditions of
the Exchangeable Shares in connection with such NPS Control Transaction and that
the redemption of all but not less than all of the outstanding Exchangeable
Shares is necessary to enable the completion of such NPS Control Transaction in
accordance with its terms, the board of directors of NPS Allelix may accelerate
the Redemption Date to such date prior to December 31, 2004 as the board of
directors of NPS Allelix may determine, upon such number of days' prior written
notice to the registered registered holders of Exchangeable Shares as the board
of directors of NPS Allelix may determine to be reasonably practicable in such
circumstances.
Purchase for Cancellation. Subject to applicable Law, NPS Allelix may at
any time and from time to time purchase for cancellation all or any part of the
outstanding Exchangeable Shares at any price by tender to all the registered
holders of record of Exchangeable Shares then outstanding or through the
facilities of any stock exchange on which the Exchangeable Shares are listed or
quoted at any price per share.
Voting, Dividend and Liquidation Rights of Registered Holders of Exchangeable
Shares; Withholding Rights
On the Effective Date, NPS, NPS Allelix and the Trustee will enter into the
Voting and Exchange Trust Agreement in substantially the form attached hereto as
Appendix F.
Voting Rights with Respect to NPS Allelix. Except as required by law and
by Article 10 of the Exchangeable Share Provisions, the registered holders of
Exchangeable Shares are not entitled as such to receive notice of or attend any
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meeting of shareholders of NPS Allelix or to vote at any such meeting. See " -
Amendment and Approval" below.
Voting Rights with Respect to NPS. Pursuant to the Voting and Exchange
Trust Agreement, NPS will issue the NPS Special Voting Share to the Trustee for
the benefit of the registered holders (other than NPS and its Affiliates) of
Exchangeable Shares. The NPS Special Voting Share will have the number of votes,
which may be cast at any meeting at which registered holders of NPS Common
Shares are entitled to vote, equal to the number of outstanding Exchangeable
Shares held by Beneficiaries.
Each Beneficiary on the record date for any meeting at which registered
holders of NPS Common Shares are entitled to vote will be entitled to instruct
the Trustee to exercise one of the votes attached to the NPS Special Voting
Share for each Exchangeable Share held by such Beneficiary. The Trustee will
exercise (either by proxy or in person) each vote attached to the NPS Special
Voting Share only as directed by the relevant Beneficiary and, in the absence of
instructions from a Beneficiary as to voting, will not exercise such votes. A
Beneficiary may, upon instructing the Trustee, obtain a proxy from the Trustee
entitling the Beneficiary to vote directly at the relevant meeting the votes
attached to the NPS Special Voting Share to which the Beneficiary is entitled.
The Trustee will use reasonable efforts to mail or otherwise send to the
registered holders of Exchangeable Shares the notice of each meeting at which
the registered holders of NPS Common Shares are entitled to vote, together with
the related meeting materials and a statement as to the manner in which the
holder may instruct the Trustee to exercise the votes attaching to the NPS
Special Voting Share, such mailing or sending to commence on the same day as NPS
mails or otherwise sends such notice and materials to the registered holders of
NPS Common Shares. The Trustee will also send to the registered holders of
Exchangeable Shares copies of all information statements, interim and annual
financial statements, reports and other materials sent by NPS to the registered
holders of NPS Common Shares at the same time as such materials are sent to the
registered holders of NPS Common Shares. To the extent such materials are
provided to the Trustee by NPS, the Trustee will also send to the registered
holders of Exchangeable Shares all materials sent by third parties to registered
holders of NPS Common Shares, including dissident proxy circulars and tender and
exchange offer circulars, as soon as possible after such materials are delivered
to the Trustee.
All rights of a holder of Exchangeable Shares to exercise votes attached to
the NPS Special Voting Share will cease upon the exchange (whether by
redemption, retraction or liquidation, or through the exercise of the related
Call Rights) of such Exchangeable Shares for NPS Common Shares.
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Dividend Rights. Registered holders of Exchangeable Shares will be
entitled to receive, subject to applicable Law, dividends (i) in the case of a
cash dividend declared on the NPS Common Shares, in an amount in cash for each
Exchangeable Share corresponding to the cash dividend declared on each NPS
Common Share, (ii) in the case of a stock dividend declared on the NPS Common
Shares to be paid in NPS Common Shares, in such number of Exchangeable Shares
for each Exchangeable Share as is equal to the number of NPS Common Shares to be
paid on each NPS Common Share, or (iii) in the case of a dividend declared on
the NPS Common Shares in property other than cash or NPS Common Shares, in such
type and amount of property as is the same as, or economically equivalent to (as
determined by the board of directors of NPS Allelix in good faith and in its
sole discretion) the type and amount of property declared as a dividend on each
NPS Common Share. Cash dividends on the Exchangeable Shares are payable in U.S.
dollars or the Canadian Dollar Equivalent thereof, at the option of NPS Allelix.
The declaration date, record date and payment date for dividends on the
Exchangeable Shares will be the same as the relevant date for the corresponding
dividends on the NPS Common Shares.
Liquidation Rights with Respect to NPS Allelix. In the event of the
liquidation, dissolution or winding-up of NPS Allelix or any other proposed
distribution of the assets of NPS Allelix among its shareholders for the purpose
of winding-up its affairs, each holder of Exchangeable Shares will have, subject
to applicable Law, preferential rights to receive from NPS Allelix for each
Exchangeable Share held by such holder the NPS Allelix Liquidation Amount plus
the Dividend Amount. Upon the occurrence of such liquidation, dissolution or
winding-up, NPS Holdings will have an overriding Liquidation Call Right to
purchase all but not less than all of the outstanding Exchangeable Shares (other
than Exchangeable Shares held by NPS and its Affiliates) from the registered
holders thereof on the effective date of such liquidation, dissolution or
winding-up for an amount per share equal to the Liquidation Call Purchase Price
(equal to the Liquidation Amount) plus any Dividend Amount. In the event that
NPS Holdings exercises its Liquidation Call Right and pays the Dividend Amount,
if any, the right of the holder of the Exchangeable Shares so purchased to
receive any Liquidation Amount from NPS Allelix shall be fully satisfied and
discharged.
Upon the occurrence and during the continuance of a NPS Allelix Insolvency
Event, a holder of Exchangeable Shares will be entitled to instruct the Trustee
to exercise the Exchange Right with respect to any or all of the Exchangeable
Shares held by such holder, thereby requiring NPS to purchase such Exchangeable
Shares from the holder. As soon as practicable following the occurrence of a NPS
Allelix Insolvency Event or any event which may, with the passage of time and/or
the giving of notice, become a NPS Allelix Insolvency Event, NPS Allelix and NPS
will give written notice thereof to the Trustee. As soon as practicable
thereafter, the
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Trustee will notify each holder of Exchangeable Shares of such event or
potential event and will advise the holder of its rights with respect to the
Exchange Right. The purchase price payable by NPS for each Exchangeable Share
purchased under the Exchange Right will be satisfied by issuance of one NPS
Common Share plus, to the extent not paid by NPS Allelix on the designated
payment date therefor, the amount of all declared and unpaid dividends on each
such Exchangeable Share held by such holder on any dividend record date which
occurred prior to the closing of such purchase and upon receipt of such amount,
the holder shall no longer be entitled to receive any declared and unpaid
dividends from NPS Allelix.
Liquidation Rights with Respect to NPS. In order for the registered
holders of Exchangeable Shares to participate on a pro rata basis with the
registered holders of NPS Common Shares on the fifth business day prior to the
effective date of a Liquidation Event, each Exchangeable Share will, pursuant to
the Automatic Exchange Right, automatically be exchanged for an equivalent
number of NPS Common Shares plus, to the extent not paid by NPS Allelix on the
designated payment date therefor, the amount of all declared and unpaid
dividends on each such Exchangeable Share held by such holder on any dividend
record date which occurred prior to the date of such exchange and, upon receipt
of the amount of such declared and unpaid dividends, the right of the holder of
the Exchangeable Share to receive declared and unpaid dividends from NPS Allelix
shall be fully satisfied and discharged. Upon a holder's request and surrender
of Exchangeable Share certificates, duly endorsed in blank and accompanied by
such instruments of transfer as NPS may reasonably require, NPS will deliver to
such holder certificates representing an equivalent number of NPS Common Shares,
plus a cheque for the amount of such dividends, if any, for the Exchangeable
Shares exchanged by such holder pursuant to the Automatic Exchange Right. For a
description of certain NPS obligations with respect to the dividend and
liquidation rights of the registered holders of Exchangeable Shares, see "The
Arrangement Agreement and Related Agreements - Support Agreement".
Withholding Rights. NPS, NPS Allelix and the Trustee will be entitled to
deduct and withhold from any consideration otherwise payable to any holder of
Exchangeable Shares or NPS Common Shares such amounts as NPS, NPS Allelix or the
Trustee is required or permitted to deduct and withhold with respect to such
payment under the ITA, the Code or any provision of provincial, state, local or
foreign tax law. Any amounts withheld will be treated for all purposes as having
been paid to the holder of the shares in respect of which such deduction and
withholding was made, provided that such withheld amounts are actually remitted
to the appropriate taxing authority. To the extent that the amount so required
to be deducted or withheld from any payment to a holder exceeds the cash portion
of the amount otherwise payable to the holder, NPS, NPS Allelix or the Trustee
may sell or otherwise dispose of such portion of the consideration as is
necessary to provide
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sufficient funds to NPS, NPS Allelix or the Trustee, as the case may be, to
enable it to comply with such deduction or withholding requirement. NPS, NPS
Allelix or the Trustee must notify the holder of any such sale and remit to such
holder any unapplied balance of the net proceeds of such sale. In the Voting and
Exchange Trust Agreement, NPS will represent and warrant that, based upon facts
known to it as of the Effective Date, it has no current intention to deduct or
withhold from any dividend paid to registered holders of Exchangeable Shares any
amounts under the Code.
Ranking
The Exchangeable Shares will be entitled to a preference over the common
shares in the capital of NPS Allelix and any other shares ranking junior to the
Exchangeable Shares with respect to the payment of dividends and the
distribution of assets in the event of a liquidation, dissolution or winding-up
of NPS Allelix, whether voluntary or involuntary, or any other distribution of
the assets of NPS Allelix among its shareholders for the purpose of winding-up
its affairs. See "Information Concerning NPS Allelix - Share Capital Matters".
Certain Restrictions
NPS Allelix will not, without the approval of the registered holders of
Exchangeable Shares (as provided for under section 10.2 of the Exchangeable
Share Provisions and set forth below under the heading "Amendment and
Approval"):
(a) pay any dividends on the common shares of NPS Allelix, or any other
shares ranking junior to the Exchangeable Shares, other than stock
dividends payable in common shares of NPS Allelix or any such other
shares ranking junior to the Exchangeable Shares, as the case may be;
(b) redeem, purchase or make any capital distribution in respect of common
shares of NPS Allelix or any other shares ranking junior to the
Exchangeable Shares;
(c) redeem or purchase any other shares of NPS Allelix ranking equally
with the Exchangeable Shares with respect to the payment of dividends
or on any liquidation distribution; or
(d) except pursuant to and in accordance with the terms of the Allelix
Options and the Allelix Warrants [and the Allelix Preferred Shares],
issue any Exchangeable Shares or any other shares of NPS Allelix
ranking equally with, or superior to, the Exchangeable Shares other
than by way of stock dividends to the registered holders of such
Exchangeable Shares.
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The restrictions in paragraphs (a), (b), (c) and (d) above will not apply
at any time when the dividends on the outstanding Exchangeable Shares
corresponding to dividends declared and paid on the NPS Common Shares have been
declared and paid in full.
Amendment and Approval
The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed only with the approval
of the registered holders thereof. Any such approval or any other approval or
consent to be given by the registered holders of Exchangeable Shares will be
deemed to have been sufficiently given if given in accordance with applicable
Law subject to a minimum requirement that such approval or consent be evidenced
by a resolution passed by not less than three-quarters of the votes cast on such
resolution at a meeting of the registered holders of Exchangeable Shares duly
called and held at which registered holders of at least 10 percent of the then
outstanding Exchangeable Shares are present or represented by proxy. In the
event that no such quorum is present at such meeting within one-half hour after
the time appointed therefor, then the meeting will be adjourned to such place
and time (not less than 5 days later) as may be designated by the Chairman of
such meeting. At such adjourned meeting, the registered holders of Exchangeable
Shares present or represented by proxy may transact the business for which the
meeting was originally called and a resolution passed thereat by the affirmative
vote of not less than three-quarters of the votes cast on such resolution will
constitute the approval or consent of the registered holders of Exchangeable
Shares.
Allelix Preferred Shares
On October __, 1999 there were 1,000 Allelix Preferred Shares outstanding.
Pursuant to the share conditions set out in Allelix's articles (the "Preferred
Share Conditions"), the Allelix Preferred Shares automatically convert into
fully paid non-assessable Allelix Common Shares on April 30, 2000. The
Preferred Shares Conditions provide that each Allelix Preferred Share is
convertible into that number of Allelix Common Shares equal to the number
determined by dividing the stated value of each Allelix Preferred Share,
U.S.$2,000, by the conversion price (the "Conversion Price") being equal to 80%
of the arithematic average of the closing price of the Allelix Common Shares on
the TSE for the 20 trading days on which the Allelix Common Shares were traded
immediately preceding the conversion date, subject to a minimum Conversion Price
of $3.36 and a maximum Conversion Price of U.S.$9.00. Pursuant to the
Conversion Agreement J&J, the sole holder of the Allelix Preferred Shares, has
agreed that each Allelix Preferred Share will convert on the Effective Date
pursuant to the Plan of Arrangement into 284,269 NPS Common Shares, which number
of NPS Common Shares was determined by first calculating the number of Allelix
Common Shares into which the Allelix Preferred Shares
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would otherwise convert, based on a Conversion Price of $3.36 and an exchange
rate of U.S.$1.00 = $1.4749 and multiplying the result by the Exchange Ratio.
Accordingly, the Plan of Arrangement provides that (i) each Allelix Preferred
Share will be changed into 877.9166 Allelix Common Shares following which (ii)
each such Allelix Common Share will be exchanged for 0.3238 NPS Common Shares.
As a result, J&J will receive 284,269 NPS Common Shares pursuant to the Plan of
Arrangement in respect of the Allelix Preferred Shares.
Pursuant to the Conversion Agreement J&J, the sole holder of the Allelix
Preferred Shares, has appointed Allelix as the holder of its proxy to vote the
Allelix Preferred Shares at the Allelix Meeting and any postponement or
adjournment thereof in favour of the Continuance Resolution and the Arrangement
Resolution. Allelix has agreed to vote the Allelix Preferred Shares in favour
of the Continuance Resolution and the Arrangement Resolution.
Options
On the Record Date, there were __ Allelix Options outstanding which, when
vested, would be exercisable to acquire a total of __ Allelix Common Shares at
prices between $2.30 to $22.45 with various expiry dates to July 15, 2009.
Each holder of Allelix Options will be entitled, after the Effective Time
and in accordance with the terms of the Allelix Options, upon the exercise of
such options, to receive in lieu of the number of Allelix Common Shares to which
such holder was theretofore entitled to receive upon such exercise, that
aggregate number of Exchangeable Shares or NPS Common Shares, as applicable,
that such holder would have been entitled to receive under the Plan of
Arrangement if such holder had been the registered holder of that number of
Allelix Common Shares that such holder was theretofore entitled to receive if
all such holder's Allelix Options had been exercised immediately prior to the
Effective Time.
For information pertaining to the proposed reissuance of options to
purchase Allelix Common Shares held by certain insiders of Allelix and the
proposed variance of the exercise period of options held by certain directors of
Allelix, see "General Proxy Information - Employee Stock Option Plan - Variation
of Options"
Warrants
On the Record Date, there were 829,108 Allelix Warrants outstanding which
entitled the registered holders thereof to acquire a total of 829,108 Allelix
Common Shares.
Each holder of Allelix Warrants will be entitled, after the Effective Time
and in accordance with the terms of the Allelix Warrants, upon the exercise of
such warrants, to receive in lieu of the number of Allelix Common Shares to
which such
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holder was theretofore entitled to receive upon such exercise, that aggregate
number of Exchangeable Shares or NPS Common Shares, as applicable, that such
holder would have been entitled to receive under the Plan of Arrangement if such
holder had been the registered holder of that number of Allelix Common Shares
that such holder was theretofore entitled to receive if all such holder's
Allelix Warrants had been exercised immediately prior to the Effective Time.
Court Approval and Completion of the Arrangement
An arrangement requires approval by the Court. Prior to the mailing of this
Circular, Allelix obtained the Interim Order providing for the calling and
holding of the Allelix Meeting and other procedural matters. A copy of the
Interim Order is attached hereto as Appendix G. The Notice of Application for
the Final Order is attached to this Circular as Appendix G.
Subject to the approval of the Continuance and the Arrangement by the
Allelix Shareholders at the Allelix Meeting, the hearing in respect of the Final
Order is scheduled to take place on December __, 1999 at 10:00 a.m. (Toronto
time) in the Court at 393 University Avenue, Toronto, Ontario. Any Allelix
Shareholder who wishes to present evidence or argument at that hearing must file
and deliver a notice of appearance, and all materials on which it relies, in
accordance with the Rules of the Court and the provisions of the Interim Order.
The Court will consider, among other things, the fairness and reasonableness of
the Arrangement. The Court may approve the Arrangement in any manner the Court
may direct, subject to compliance with such terms and conditions, if any, as the
Court deems fit.
Assuming the Final Order is granted and the other conditions to closing
contained in the Arrangement Agreement are satisfied or waived, it is
anticipated that the following will occur: the steps set forth in the Plan of
Arrangement will be completed; Articles of Arrangement for Allelix will be filed
with the Director under the OBCA to give effect to the Arrangement; the Voting
and Exchange Trust Agreement and the Support Agreement will be executed and
delivered; and the various other documents necessary to consummate the
transactions contemplated under the Arrangement Agreement will be executed and
delivered.
Subject to the foregoing, it is expected that the Effective Time will occur
as soon as practicable after the requisite Allelix Shareholder approval has been
obtained.
Accounting Treatment
NPS has informed Allelix that it will account for the Transaction as a
purchase for financial reporting and accounting purposes, in accordance with
U.S. GAAP. Under the purchase method of accounting, the total cost of the
Transaction is
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allocated to the tangible and intangible assets acquired and liabilities assumed
based upon their respective fair values at the Effective Date of the
Transaction.
Stock Exchange Listing
Exchangeable Shares
The TSE has been notified of the proposed Arrangement and has conditionally
approved the listing of the Exchangeable Shares, subject to the satisfaction of
customary requirements of the TSE. Allelix has been advised by NPS that it has
no current intention to list the Exchangeable Shares on any other stock exchange
in Canada or the United States.
NPS Common Shares
The NPS Common Shares are traded on the NASDAQ Stock Market. An application
will be made, as required, by NPS to the NASDAQ Stock Market to list the NPS
Common Shares that are issued pursuant to the Arrangement and that are issuable
from time to time in exchange for the Exchangeable Shares.
Resale of Exchangeable Shares and NPS Common Shares Received in the Arrangement.
United States
The Exchangeable Shares and NPS Common Shares issued pursuant to the
Arrangement will not be registered under the 1933 Act. Such shares will instead
be issued in reliance upon the exemption provided by section 3(a)(10) of the
1933 Act. section 3(a)(10) exempts securities issued in exchange for one or more
outstanding securities from the general requirement of registration where the
terms and conditions of the issuance and exchange of such securities have been
approved by any court, after a hearing upon the fairness of the terms and
conditions of the issuance and exchange at which all Persons to whom such
securities will be issued have the right to appear. The Court is authorized to
conduct a hearing to determine the fairness of the terms and conditions of the
Arrangement, including the proposed issuance of securities in exchange for other
outstanding securities. The Court entered the Interim Order on November __, 1999
and, subject to the approval of the Arrangement by the Allelix Shareholders, a
hearing on the fairness of the Arrangement will be held on December __, 1999 by
the Court. See "The Arrangement - Court Approval and Completion of the
Arrangement".
The Exchangeable Shares and NPS Common Shares received in exchange for
Allelix Common Shares in the Arrangement will be freely transferable under
United States federal securities laws, except for Exchangeable Shares or NPS
Common Shares held by persons who are deemed to be "affiliates" (as such term is
defined
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under the 1933 Act) of Allelix prior to the Transaction. Exchangeable Shares or
NPS Common Shares held by such "affiliates" may be resold by them only in
transactions permitted by the resale provisions of Rule 145(d)(1), (2), or (3)
promulgated under the 1933 Act or as otherwise permitted under the 1933 Act.
Rule 145(d) provides a safe harbour for resales of securities received by
certain persons in transactions such as the Arrangement. Rule 145(d)(1)
generally provides that "affiliates" of Allelix may sell securities of NPS
received in the Arrangement if such sale is effected pursuant to the volume,
current public information and manner of sale limitations of Rule 144
promulgated under the 1933 Act, including Regulation S thereunder. These
limitations generally require that any sales made by such an affiliate in any 3
month period shall not exceed the greater of 1 percent of the outstanding shares
of the securities being sold or the average weekly trading volume over the 4
calendar weeks preceding the placement of the sell order and that such sales be
made in unsolicited, open market "brokers transactions". Rules 145(d)(2) and (3)
generally provide that the foregoing limitations lapse for non-NPS Affiliates
after a period of 1 or 2 years, respectively, depending upon whether certain
currently available information continues to be available with respect to NPS.
Persons who may be deemed to be affiliates of an issuer generally include
individuals or entities that control, are controlled by, or are under common
control with, such issuer and may include certain officers and directors of such
issuer as well as principal shareholders of such issuer. Under Rule 904 of
Regulation S, persons who are not "affiliates" of NPS (or who are NPS Affiliates
solely by virtue of holding a position as an officer or director of NPS) may
sell Exchangeable Shares if no "directed selling efforts" (as defined in Rule
902 of Regulation S) are made by the seller or any of its affiliates or any
person on their behalf, no offer is made to a person in the United States, and
either (i) at the time the buy order is originated, the buyer is outside the
United States, or the seller and any person acting on behalf of the seller
reasonably believes the buyer is outside the United States, or (ii) the
transaction is executed in, on or through the facilities of the TSE and neither
the seller nor any person acting on behalf of the seller knows that the
Transaction has been pre-arranged with a buyer in the United States. In the case
of sales by a person who is an officer or director of NPS and is an affiliate of
NPS solely by virtue of holding that position, no selling concession, fee or
other remuneration may be paid in connection with the offer or sale other than
the usual and customary broker's commission that would be received by a person
executing the transaction as agent. Additional conditions apply to resales by
persons who are NPS Affiliates other than by virtue of holding a position as an
officer or director of NPS.
NPS has agreed that the issuance of NPS Common Shares from time to time in
exchange for the Exchangeable Shares will be registered under the 1933 Act prior
to the Effective Time.
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Canada
NPS has advised Allelix that NPS has applied for rulings or orders of
securities regulatory authorities in Canada to permit the issuance of the
Exchangeable Shares and the NPS Common Shares that are issuable under the
Arrangement, upon exchange of Exchangeable Shares and upon exercise of the
Allelix Options and/or the Allelix Warrants. Application has also been made to
permit resale of those shares in various jurisdictions without restriction by
Persons other than a "control person", provided that no unusual effort is made
to prepare the market for any such resale or to create a demand for the
securities which are the subject of any such resale and no extraordinary
commission or consideration is paid in respect thereof.
Ongoing Canadian Reporting Obligations
Upon completion of the Arrangement, NPS Allelix will be a reporting issuer
in all of the provinces of Canada. NPS has advised Allelix that applications
have been made for certain exemptions from statutory financial and reporting
requirements, including exempting insiders of NPS Allelix and Allelix from the
requirements of filing reports with respect to trades of NPS Allelix securities,
in all Canadian provinces on certain conditions, including that NPS files with
the relevant securities regulatory authorities copies of all documents required
to be filed by it with the SEC under the Exchange Act and that registered
holders of Exchangeable Shares receive all disclosure materials that are sent to
registered holders of NPS Common Shares resident in the United States, including
the annual report of NPS and all proxy solicitation materials. If such
exemptions are received, holders of Exchangeable Shares will receive annual and
interim financial statements of NPS in lieu of of financial statements of NPS
Allelix.
Future Issuances of Shares
NPS Allelix's authorized capital consists of __ common shares and __
Exchangeable Shares. The Exchangeable Shares that are authorized may be issued,
without approval of registered holders of Exchangeable Shares, at such time or
times, to such Persons and for such consideration as NPS Allelix may determine,
except as may otherwise be required by applicable Laws, regulations or stock
exchange requirements and subject to all dividends on the outstanding
Exchangeable Shares corresponding to dividends declared and paid on the
outstanding NPS Common Shares having been declared and paid at the relevant
times. The TSE, on which it is anticipated that the Exchangeable Shares will be
listed, currently requires shareholder approval of the issuance of shares in
certain circumstances.
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Expenses
The combined estimated fees, costs and expenses of Allelix and NPS in
connection with the completion of the transactions contemplated by the
Arrangement Agreement including, without limitation, financial advisory fees,
filing fees, legal and accounting fees and printing and mailing costs are
anticipated to be approximately U.S.$__. These expenses are referred to in
Note __ to the NPS and Allelix Unaudited Pro Forma Condensed Combined Financial
Statements included herein.
THE ARRANGEMENT AGREEMENT AND RELATED AGREEMENTS
The following paragraphs summarize, among other things, the material terms
of the Arrangement Agreement.
Effective Date of the Arrangement
After obtaining the Final Order and subject to the satisfaction or waiver
of the conditions set forth in the Arrangement Agreement, the Arrangement shall
become effective as of the date of the certificate of arrangement giving effect
to the Arrangement, issued pursuant to subsection 183(2) of the OBCA.
Termination
The Arrangement Agreement may be terminated:
(a) by the delivery by one party to another of a written notice stating
that a condition precedent for the benefit of the party initiating
such notice has not been fulfilled or satisfied within the time
contemplated by the Arrangement Agreement and that the Arrangement
Agreement is accordingly terminated;
(b) by NPS if the board of directors of Allelix has withdrawn or varied in
a manner determined by NPS to be adverse to NPS, its approval of the
Arrangement Agreement or the Arrangement or its unanimous
recommendation to the Allelix Common Shareholders;
(c) by Allelix if the board of directors of NPS has withdrawn its
unanimous recommendation to the registered holders of the NPS Common
Shares to vote in favour of the resolutions contemplated in the
Arrangement Agreement to be considered at the NPS Meeting;
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(d) by Allelix in order to enter into a definitive written agreement with
respect to a Superior Proposal, subject to compliance by Allelix with
certain conditions;
(e) by the mutual agreement of Allelix and NPS (without further action on
the part of the registered holders of the Allelix Common Shares if
terminated after the holding of the Allelix Meeting); or
(f) by either NPS or Allelix if there has been passed any law or
regulation that makes consummation of the transactions contemplated by
the Arrangement Agreement illegal or otherwise prohibited or if any
injunction, order or decree enjoining NPS or Allelix from consummation
of the transactions contemplated by the Arrangement Agreement is
entered into and such injunction, order or decree becomes final and
non-appealable.
Termination Fees and Expenses
Allelix is obligated to pay to NPS a fee of U.S.$2,000,000 if any of the
following occur:
(a) Allelix breaches its covenants or agreements in the Arrangement
Agreement in any material respect;
(b) NPS terminates the Arrangement Agreement because the board of
directors of Allelix has withdrawn or varied in a manner determined by
NPS to be adverse to NPS, its approval of the Arrangement Agreement or
the Arrangement or its unanimous recommendation to the Allelix
Shareholders unless the board of directors of Allelix has done so
because of a Material Adverse Change affecting NPS, and such change is
not attributable to a Material Adverse Change affecting Allelix;
(c) Allelix terminates the Arrangement Agreement to enter into a
definitive written agreement with respect to a Superior Proposal,
subject to compliance by Allelix with certain conditions; or
(d) an Acquisition Proposal is announced (in this instance, the reference
to 10 percent of the Allelix Common Shares in the definition of
Acquisition Proposal shall be deemed to be a reference to 20 percent
of the Allelix Common Shares) and is not withdrawn more than two
business days prior to the date of the Allelix Meeting , the
registered holders of the Allelix Common Shares do not approve the
Arrangement at the Allelix Meeting, and a significant transaction
involving the acquisition of a material portion of the assets of
Allelix or
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one or more of its subsidiaries or Allelix Common Shares so as to hold
not less than 20 percent or more of the Allelix Common Shares
outstanding is completed with the Person who made the Acquisition
Proposal or an Affiliate of such Person within the twelve months
following the date of the Allelix Meeting.
NPS is obligated to pay to Allelix a fee of U.S.$1,000,000 in the event
that NPS breaches a covenant or agreement on its part in the Arrangement
Agreement in any material respect, or the registered holders of the NPS Common
Shares do not approve the matters relating to the Arrangement considered at the
NPS Meeting except following a Material Adverse Change affecting Allelix. The
fee shall be increased to U.S.$2,000,000 in the event that the board of
directors of NPS withdraws or varies its unanimous recommendation to the
registered holders of NPS Common Shares in a manner determined by Allelix to be
adverse to Allelix, otherwise than because of a Material Adverse Change
affecting Allelix.
Conditions to Closing
Mutual Conditions Precedent
The Arrangement Agreement provides that the respective obligations of each
party to complete the Transaction are subject to the satisfaction, on or before
the Effective Date or at such other time specified below, of the following
conditions precedent:
(a) the Interim Order shall have been granted in form and substance
satisfactory to Allelix and NPS, acting reasonably, on or before
November 12, 1999 and shall not have been set aside or modified in a
manner unacceptable to such parties on appeal or otherwise;
(b) the Arrangement Resolution shall have been duly approved by the
required majority, with or without amendment, in accordance with the
Interim Order, on or before January 20, 2000;
(c) each of the resolutions relating to the Arrangement considered at the
NPS Meeting shall have been duly approved by the required majority
without amendment on or before January 20, 2000;
(d) Allelix shall have obtained articles of continuance from the OBCA
Director in form and substance satisfactory to Allelix and NPS, acting
reasonably;
(e) the Final Order shall have been granted in form and substance
satisfactory to Allelix and NPS, acting reasonably, on or before
January
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31, 2000, and shall not have been set aside or modified in a manner
unacceptable to such parties on appeal or otherwise;
(f) the Articles of Arrangement relating to the Arrangement shall be in
form and substance satisfactory to Allelix and NPS, acting reasonably;
(g) the Effective Date shall be on or before January 31, 2000;
(h) (i) no act, action, suit or proceeding shall have been taken or be
outstanding before or by any domestic or foreign court or tribunal or
governmental agency or other regulatory authority or administrative
agency or commission by any elected or appointed public official or
private person (including, without limitation, any individual,
corporation, firm, group or other entity) in Canada or elsewhere,
whether or not having the force of law, and (ii) no law, regulation or
policy shall have been proposed, enacted, promulgated or applied
which, in either case, has effect, or may have effect, to cease trade,
enjoin, or prohibit the acquisition by NPS of the Allelix Common
Shares, or the right of NPS to own or exercise full rights of
ownership of the Allelix Common Shares, or the issuance, pursuant to
the Arrangement, of NPS Common Shares and Exchangeable Shares to the
Allelix Common Shareholders;
(i) there shall not exist any prohibition at law against NPS or Allelix
and Allelix Common Shareholders consummating the Arrangement;
(j) Allelix and NPS shall have obtained the consents, approvals and
authorizations referred to in section 3.18 of the Arrangement
Agreement and such other material consents, approvals and
authorizations (if any), regulatory or otherwise, required or
necessary in connection with the transactions contemplated therein on
terms and conditions satisfactory to each of them, acting reasonably;
(k) the Exchangeable Shares issuable pursuant to the Arrangement shall
have been conditionally approved for listing on the TSE subject to the
filing of the usual and customary documentation;
(l) any required orders from applicable securities authorities authorizing
the issue of the Exchangeable Shares shall have been obtained on terms
satisfactory to NPS and Allelix, both acting reasonably;
(m) there shall not have occurred any actual or threatened change
(including a proposal by the Minister of Finance of Canada to amend
the ITA or any announcement, governmental or regulatory initiative,
condition, event or development involving a change or a prospective
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change) that, in the judgment of NPS, acting reasonably, directly or
indirectly, has or may have a Material Adverse Effect with respect to
consummating the proposed transaction; and
(n) registered holders of not more than 10 percent of Allelix's Common
Shares shall have exercised Dissent Rights.
The foregoing conditions are for the mutual benefit of Allelix and NPS and
may be waived, in whole or in part, by each of Allelix and NPS acting
individually for its own interest at any time. If any of the above conditions
precedent shall not be complied with or waived as aforesaid on or before the
date required for the performance thereof, either Allelix or NPS may, in
addition to the other remedies it may have at law or in equity, rescind and
terminate the Arrangement Agreement by written notice to the other party.
Conditions Precedent for the Benefit of Allelix
The Arrangement Agreement provides that the obligation of Allelix to
complete the Transaction is subject to the satisfaction or waiver, where
permissible, of a number of additional conditions, including the following:
(a) the representations and warranties made by NPS in the Arrangement
Agreement shall be true as of the Effective Date as if made on and as
of such date and NPS shall have provided to Allelix the certificate of
one senior officer of NPS certifying such accuracy on the Effective
Date (and Allelix shall have no knowledge to the contrary);
(b) NPS shall have provided Allelix with opinions of NPS' counsel (which,
except for the opinion referred to in section 7.2(1)(b)(viii) of the
Arrangement Agreement, may be the opinion of NPS' Vice President,
Corporate Development and Legal Affairs) in form and substance
satisfactory to Allelix, acting reasonably, dated the Effective Date
(or such other date as Allelix and NPS may agree) and addressed to
Allelix and Allelix's Counsel to the effect that:
(i) NPS is duly incorporated and validly existing under the laws of
the jurisdiction of its incorporation and has the corporate
power and authority to carry on any business now conducted by
it;
(ii) NPS has full corporate power and authority to enter into the
Arrangement Agreement and to perform its obligations
thereunder;
(iii) all necessary proceedings, corporate, regulatory or otherwise,
of NPS have been taken to fully, validly and effectively
authorize
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the Arrangement Agreement and the transactions contemplated
therein including the Arrangement, the performance by NPS of
its obligations thereunder, and the execution and delivery by
NPS of the Arrangement Agreement and all documents delivered
pursuant thereto;
(iv) each NPS Common Share to be issued under the Arrangement will
be authorized and reserved for issuance and, when so issued,
will be validly issued and outstanding as a fully paid and
non-assessable share in the capital of NPS;
(v) the NPS Common Shares to be issued on exchange of an
Exchangeable Share shall be immediately tradable upon the
NASDAQ Stock Market;
(vi) the execution and delivery by NPS of the Arrangement Agreement
and all documents delivered pursuant thereto, the performance
by NPS of its obligations thereunder and the consummation of
the transactions contemplated therein will not result in the
breach of or violate any term or provision of the articles or
by-laws of NPS;
(vii) the Arrangement Agreement has been duly executed and delivered
by NPS and all agreements delivered pursuant to the terms
thereof are valid and binding obligations of NPS enforceable
against it in accordance with their respective terms, subject
to enforceability being limited by applicable bankruptcy,
insolvency, reorganization and other laws affecting creditors'
rights generally and the discretionary nature of certain
remedies (including specific performance and injunctive relief)
and subject to the effectiveness of clauses providing rights of
indemnity or exculpating a party or persons from a liability or
a duty otherwise owed which may be limited by law; and
(viii) the issuance of NPS Common Shares on exchange of an
Exchangeable Share is exempt from the prospectus and
registration requirements of the applicable securities laws in
each applicable province and no filing, proceeding, consent or
approval is required under such applicable Law in connection
with the issuance of such NPS Common Shares and that the NPS
Common Shares acquired on exchange of an Exchangeable Share
will not be subject to restrictions on their resale in such
provinces, other than trades from a control block and excluding
any outstanding escrow agreements, and in giving such
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opinion, NPS Counsel may rely in respect of matters of fact,
upon certificates of senior officers of NPS or any other
appropriate persons, and in respect of matters governed by the
laws of any jurisdiction other than Delaware and Utah, NPS
Counsel may deliver the opinion of local counsel in such other
jurisdiction;
(c) the appointment of three Allelix directors, to be jointly designated
by NPS and Allelix, acting reasonably, to the board of directors of
NPS;
(d) NPS shall have complied with its covenants in the Arrangement
Agreement and shall have provided to Allelix the certificate of a
senior officer of NPS certifying that NPS has complied with its
respective covenants therein and Allelix shall have no knowledge to
the contrary;
(e) between the date of the most recent public disclosure by NPS and the
Effective Date, there shall not have occurred any Material Adverse
Change with respect to NPS that is not attributable to a Material
Adverse Change with respect to Allelix;
(f) NPS, NPS Holdings and NPS Allelix shall have entered into the Support
Agreement; and
(g) NPS, NPS Allelix and a trust company acceptable to NPS and Allelix,
acting reasonably, shall have entered into the Voting and Exchange
Trust Agreement.
The foregoing conditions precedent are for the benefit of Allelix and may
be waived, in whole or in part, by Allelix in writing at any time. If any of
the conditions shall not be complied with or waived by Allelix on or before the
date required for their performance then Allelix may, in addition to the other
remedies it may have at law or equity, rescind and terminate the Arrangement
Agreement by written notice to NPS.
Conditions Precedent for the Benefit of NPS
The Arrangement Agreement provides that the obligation of NPS to complete
the Transaction is subject to the satisfaction or waiver, where permissible, of
a number of additional conditions, including the following:
(a) the representations and warranties made by Allelix in the Arrangement
Agreement shall be true as of the Effective Date as if made on and as
of such date and Allelix shall have provided to NPS a certificate of
the Chairman of the Board of Allelix and the Chief Executive Officer
(or such other officer of Allelix that may be
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acceptable to NPS, acting reasonably) certifying such accuracy on the
Effective Date (and NPS shall have no knowledge to the contrary);
(b) Allelix shall have provided NPS with an opinion of Allelix Counsel in
form and substance satisfactory to NPS, acting reasonably dated the
Effective Date (or such other date as Allelix and NPS may agree) and
addressed to NPS and NPS Counsel to the effect that:
(i) Allelix and each of its material Subsidiaries are duly
incorporated, amalgamated, continued or formed and existing
under the laws of the jurisdiction of their respective
incorporation or formation, as the case may be, and each has
the power and authority to carry on any business now conducted
by it;
(ii) Allelix has full corporate power and authority to enter into
the Arrangement Agreement and to perform its obligations
thereunder;
(iii) all necessary proceedings, corporate, regulatory or otherwise,
of Allelix have been taken to fully, validly and effectively
authorize the Arrangement Agreement and the transactions
contemplated therein including the Arrangement, the performance
by Allelix of its obligations thereunder, and the execution and
delivery by Allelix of the Arrangement Agreement and all
documents delivered pursuant thereto;
(iv) the execution and delivery by Allelix of the Arrangement
Agreement and all agreements delivered pursuant thereto, the
performance by Allelix of its obligations thereunder and the
consummation of the transactions contemplated therein will not
result in the breach of or violate any term or provision of the
articles or by-laws of Allelix; and
(v) the Arrangement Agreement has been duly executed and delivered
by Allelix and all agreements delivered pursuant to the terms
thereof are valid and binding obligations of Allelix
enforceable against it in accordance with their respective
terms, subject to enforceability being limited by applicable
bankruptcy, insolvency, reorganization and other laws affecting
creditors' rights generally and the discretionary nature of
certain remedies (including specific performance and injunctive
relief) and subject to the effectiveness of clauses providing
rights of
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indemnity or exculpating a party or persons from a liability or
a duty otherwise owed which may be limited by law;
and in giving such opinion, Allelix Counsel may rely, in respect of matters of
fact, upon certificates of senior officers of Allelix or any other appropriate
persons; and in respect of matters governed by the laws of any jurisdiction
other than Ontario, Quebec, Alberta, British Columbia or the laws of Canada
applicable therein, Allelix Counsel may deliver the opinion of local counsel in
such other jurisdiction;
(c) Allelix shall have complied, in all material respects, with its
covenants in the Arrangement Agreement and Allelix shall have provided
to NPS a certificate of the Chairman of the Board of Allelix and the
Chief Executive Officer (or such other officer of Allelix that may be
acceptable to NPS, acting reasonably) certifying that Allelix has
complied with its covenants therein and NPS shall have no knowledge to
the contrary;
(d) the Interim Order, the Final Order and any required orders from the
applicable securities regulatory authorities authorizing the issuance
of the Exchangeable Shares shall have been obtained on terms
satisfactory to NPS, acting reasonably;
(e) between the date of the most recent public disclosure by Allelix, and
the Effective Date, there shall not have occurred any Material Adverse
Change with respect to Allelix; and
(f) the directors of Allelix and its Subsidiaries shall have tendered
their resignations to be effective on the Effective Date.
The foregoing conditions precedent are for the benefit of NPS and may be
waived in whole or in part by NPS in writing at any time. If any of the above
conditions shall not be complied with or waived by NPS on or before the date
required for the performance thereof, NPS may, in addition to the other remedies
it may have at law or equity, rescind and terminate the Arrangement Agreement by
written notice to Allelix.
General Covenants
Mutual Covenants
Each of Allelix and NPS has covenanted pursuant to the Arrangement
Agreement, among other things, that, until the Effective Date or the date upon
which the Arrangement Agreement is terminated, whichever is earlier, unless the
other party otherwise agrees, it will:
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(a) use all reasonable commercial efforts to satisfy the conditions
precedent to its respective obligations set out in the Arrangement
Agreement and to do all other things necessary, proper or advisable
under applicable Law to complete the Arrangement, including using all
reasonable commercial efforts to obtain all necessary waivers,
consents, approvals and authorizations required to be obtained from
other parties under loan agreements, leases and other contracts or
otherwise under applicable Law and to effect all necessary
registrations and filings and submissions of information requested by
governmental authorities required to be effected by it in connection
with the Arrangement;
(b) make available and cause to be made available to the other party, its
agents and advisors, all documents and agreements in any way relating
to or affecting its business, financial condition, operations,
prospects, properties, assets or affairs, except where it is
contractually precluded from making such document or agreement
available in which case it shall co-operate with the other party in
securing access to any such documentation not in its possession or
under its control;
(c) not take any action, refrain from taking any action or permit any
action to be taken or not taken, inconsistent with the Arrangement
Agreement or which might, directly or indirectly, interfere with or
adversely affect the consummation of the Arrangement; and
(d) not, during the period commencing on the date of the Arrangement
Agreement and ending on the earlier of the Effective Date of the
Arrangement and the second anniversary of the termination of the
Arrangement Agreement, directly or indirectly solicit, induce, recruit
or encourage any of the other party's employees to terminate their
employment with the other party or attempt to solicit, induce or
recruit employees of the other party.
Covenants of Allelix
Allelix has covenanted and agreed pursuant to the Arrangement Agreement
that, until the Effective Date or the date on which the Arrangement Agreement is
terminated, whichever is earlier, it will, among other things:
(a) in a timely and expeditious manner and as soon as reasonably
practicable, carry out the terms of the Interim Order; convene the
Allelix Meeting; solicit proxies to be voted at the Allelix Meeting in
favour of the Arrangement; provide notice to NPS of the Allelix
Meeting and allow NPS' representatives to attend the Allelix Meeting;
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and conduct the Allelix Meeting in accordance with the Interim Order,
the by-laws of Allelix and any instrument governing such meeting;
(b) subject to the approval of the Arrangement at the Allelix Meeting in
accordance with the provisions of the Interim Order, file, proceed
with and prosecute an application for the Final Order;
(c) subject to approval of the Continuance Resolution at the Allelix
Meeting, file articles of continuance with the OBCA Director;
(d) forthwith carry out the terms of the Final Order and, subject to the
receipt of the Final Order, will file the Articles of Arrangement and
the Final Order with the OBCA Director in order for the Arrangement to
become effective on or before January 31, 2000;
(e) except with the prior written consent of NPS, not to incur significant
new capital expenditures above specified levels;
(f) except with the prior written consent of NPS, not to incur any
indebtedness for borrowed money; and
(g) except with the prior written consent of NPS, not to enter into or
agree to enter into any licence agreement, collaboration and/or
development agreement or any other agreement to sell, convey,
transfer, assign or encumber any of its right, title or interest in
any of its research, pre-clinical or clinical development programs.
Covenants of NPS
NPS has covenanted and agreed pursuant to the Arrangement Agreement that,
until the Effective Date or the date on which the Arrangement Agreement is
terminated, whichever is earlier, it will, among other things:
(a) not issue NPS Common Shares at a price which is less than the then
current market price on their date of issue, less 10 percent, except
upon the exercise of NPS options;
(b) allow Allelix and its counsel to participate fully in the preparation
of the notice of meeting and management proxy circular of NPS prepared
in connection with the NPS Meeting;
(c) in a timely and expeditious manner and as soon as practicable but in
any event not later than January 15, 2000, convene the NPS Meeting;
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(d) solicit proxies to be voted at the NPS Meeting in favour of the
matters to be considered thereat;
(e) provide notice to Allelix of the NPS Meeting and allow Allelix's
representatives to attend the NPS Meeting;
(f) to the extent within its power, forthwith carry out the terms of the
Interim Order and the Final Order;
(g) appoint on the Effective Date of the Arrangement (i) three Allelix
directors to the board of NPS mutually acceptable to Allelix and NPS,
acting reasonably; and (ii) the individuals holding the positions of
Senior Vice-President and Chief Financial Officer and Senior Vice-
President, Operations of Allelix as officers of NPS;
(h) except with the prior written consent of Allelix, not acquire or agree
to acquire (by acquisition of securities or assets or otherwise) any
corporation, partnership or other business organization or division or
any assets or properties for consideration of more than U.S.$4,000,000
in total; and
(i) except with the prior written consent of Allelix, cause it and its
Subsidiaries to use all reasonable efforts to preserve intact their
present business, licenses and permits and will not, nor will it
permit its Subsidiaries to enter into any transaction out of the
ordinary course of business if the total obligations and commitments
of NPS and its Subsidiaries thereunder would exceed U.S.$4,000,000.
Covenants of Allelix Regarding Non-Solicitation
Pursuant to the Arrangement Agreement, without the prior written consent of
NPS, from and after the date of the Arrangement Agreement, Allelix and its
Subsidiaries have covenanted that they will not, and will not authorize or
permit any of their Representatives to, directly or indirectly, solicit,
initiate or encourage (including by way of furnishing information) or take any
other action to facilitate any enquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to an Acquisition Proposal
from any Person, or engage in any discussions or negotiations relating thereto
or accept any Acquisition Proposal.
Notwithstanding the foregoing however, Allelix may at any time prior to the
time the Allelix Shareholders shall have voted to approve the Arrangement and
the other transactions contemplated thereby, engage in discussions or
negotiations with a third party who (without any solicitation, initiation, or
encouragement, directly or indirectly, by Allelix, any of its Subsidiaries or
Representatives after the date of the Arrangement Agreement) seeks to initiate
such discussions or negotiations and may
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furnish such third party information concerning Allelix and its business,
properties and assets if and only to the extent that:
(a) the third party has made a Superior Proposal and Allelix's board of
directors has concluded in good faith, after considering the
applicable Law and receiving the advice of outside counsel to this
effect in writing or recorded in the minutes, that such action is
necessary for the board of directors to act in a manner consistent
with its fiduciary duties under applicable Law; and
(b) prior to furnishing such information to or entering into discussions
or negotiations with such person or entity, Allelix provides prompt
notice to NPS to the effect that it is furnishing information to or
entering into discussions or negotiations with such person or entity
and receives from such person or entity an executed confidentiality
and restricted use agreement in reasonably customary form.
Pursuant to the Arrangement Agreement, Allelix is obligated to notify NPS
orally and in writing of any enquiries, offers or proposals with respect to an
Acquisition Proposal (including without limitation terms and conditions of any
such proposal, the identity of the person making it and all other information
reasonably requested by NPS) within 12 hours of the receipt thereof, shall
answer NPS' questions with respect to such enquiries, offers or proposals and
shall give NPS five days advance notice of any agreement to be entered into
with, or information to be supplied to, any person making such enquiry, offer or
proposal.
Allelix has covenanted that it will not enter into any agreement regarding
a Superior Proposal (the "Proposed Agreement") without providing NPS with an
opportunity to amend the Arrangement Agreement to provide for a value per
Allelix Common Share at least equal to that included in the Proposed Agreement
(as determined in good faith by the board of directors of Allelix after
receiving the advice of its financial advisors to this effect in writing or
recorded in the minutes). In particular, Allelix has covenanted to provide NPS
with a copy of any Proposed Agreement as executed by the party making the
proposal at least 72 hours prior to its proposed execution by Allelix. In the
event that NPS decides to amend the Arrangement Agreement as provided above,
Allelix has covenanted that it will not enter into the Proposed Agreement.
Covenants of NPS Regarding No Shop
Without the prior written consent of Allelix, from and after the date of
the Arrangement Agreement, NPS and its Subsidiaries will not, and will not
authorize or permit any of their Representatives to, directly or indirectly,
solicit, initiate or encourage or take any other action to facilitate any
enquiries or the making of a
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proposal which constitutes or may be reasonably expected to lead to a NPS
Acquisition Proposal (as defined below) from any Person engaged in any
discussions or negotiations relating thereto or accept any Acquisition Proposal.
"NPS Acquisition Proposal" is defined in the Arrangement Agreement to be a
written proposal or offer by any person to acquire not less than 20 percent of
the NPS Common Shares (other than NPS Common Shares issuable on the exercise of
outstanding options or warrants of NPS) by business combination, sale of issued
or treasury shares or tender or exchange offer or similar transaction,
including, without limitation, any single or multi-step transaction or series of
related transactions which is structured to permit a Person to acquire such NPS
Common Shares. However, NPS may engage in discussions or negotiations at any
time with a third party who seeks to initiate such discussions and may furnish
such third party with information concerning NPS if the board of directors of
NPS has concluded, in good faith, after considering applicable Law and receiving
the advice of counsel, that such action is necessary for the board to act in a
manner consistent with its fiduciary duties.
Representations and Warranties
Mutual Representations and Warranties
The Arrangement Agreement contains a number of mutual representations and
warranties of Allelix and NPS, relating to, among other things: (i) the
corporate existence, organization and qualification of each of Allelix and NPS;
(ii) authorization, execution, delivery and enforceability of the Arrangement
Agreement; (iii) the absence of any violations, conflicts, breaches, defaults,
rights, encumbrances, suspensions, revocations or lack of consents, approvals or
notices which would have a Material Adverse Effect on the party giving the
representation and warranty; (iv) the absence of any outstanding actions, suits,
proceedings or investigations, either commenced, contemplated or threatened
against either of Allelix or NPS, including their respective subsidiaries, which
could reasonably be expected to have a Material Adverse Effect on the party
giving the representation and warranty; (v) the financial statements of the
party giving the representation and warranty; (vi) minute books and records;
(vii) the filing of tax returns and the payment of taxes; (viii) the maintenance
of insurance; (ix) environmental matters; (x) employment agreements and labour
matters; (xi) the obtaining by Allelix and NPS of various consents and approvals
except where the failure to obtain such consent or approval would not constitute
a Material Adverse Effect to the party giving the representation and warranty;
and (xii) intellectual property rights.
Representations and Warranties of Allelix
The Arrangement Agreement contains a number of additional representations
and warranties of Allelix relating to, among other things: (i) the
capitalization of Allelix; (ii) the status of Allelix as a reporting issuer
under the
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securities laws of each province of Canada and the listing of all issued and
outstanding Allelix Common Shares on the TSE; (iii) the truth and correctness of
the material provided by Allelix for inclusion in the information circular of
NPS; and (iv) the 1999 audited financial statements of Allelix. Allelix has also
represented and warranted that the board of directors of Allelix has: i)
unanimously determined that the Arrangement is fair to the Allelix Common
Shareholders and that the Arrangement is in the best interests of Allelix and
the Allelix Common Shareholders; ii) approved the Arrangement and the entering
into and execution of the Arrangement Agreement; and iii) resolved to recommend
that the registered holders of the Allelix Common Shares vote in favour of the
Arrangement.
Representations and Warranties of NPS
The Arrangement Agreement contains a number of additional representations
and warranties of NPS relating to, among other things, (i) the capitalization of
NPS; (ii) the status of NPS as a reporting company under the Exchange Act; and
(iii) the truth and correctness of the material provided by NPS for inclusion in
this Circular. NPS has also represented and warranted that the board of
directors of NPS has unanimously approved the Arrangement Agreement and has
determined to recommend that the registered holders of the NPS Common Shares
vote in favour of the matters contemplated by the Arrangement Agreement to be
voted on at the NPS Meeting.
Confidentiality
Each of Allelix and NPS acknowledged and agreed pursuant to the Arrangement
Agreement that it will not use Confidential Information for any purpose
whatsoever other than for purposes specifically relating to evaluation of the
proposed transaction, and that any Confidential Information provided to a party
to the Arrangement Agreement (the "receiving party") in written form shall be
returned to the party supplying the same (the "supplier") forthwith upon the
Arrangement Agreement being terminated. Each of Allelix and NPS further agreed
pursuant to the Arrangement Agreement that no written materials, reproductions,
extracts, typed or hand written notes or memorandums made from, or relating in
any way to, the Confidential Information shall be retained by such parties after
the termination of the Arrangement Agreement and, upon any such occurrence, all
such materials, extracts, notes and memorandums shall be destroyed unless
returned to the supplier, and the receiving party shall, upon the request of the
supplier, provide a statutory declaration as to that fact, from an officer.
Pursuant to the Arrangement Agreement, each of Allelix and NPS further
undertook and agreed with the supplier that such receiving party shall keep such
Confidential Information in strict confidence, and shall not disclose any such
Confidential Information to any third party or parties whatsoever except in
strict
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accordance with the Arrangement Agreement. Disclosure of the Confidential
Information may be made by or on behalf of the receiving party to its employees
and professional advisors who have a need to know such Confidential Information
for purposes of considering the making of a bona fide evaluation of the proposed
transaction, provided that all such persons agree to keep such information
confidential and to be bound by the Arrangement Agreement to the same extent as
if they were parties thereto. Disclosure of the Confidential Information may be
made by or on behalf of the receiving party, or any other party to whom
disclosure has been made in accordance therewith, if required by law, provided
however, that upon receipt of any such request or order for such disclosure, the
receiving party or such other party to whom the request for disclosure is made,
shall notify the supplier that a request has been made for disclosure in order
that the supplier may seek any appropriate protective order or waive compliance
by the receiving party with the provision of the Arrangement Agreement.
The restrictions on the use and disclosure of the Confidential Information
set forth in the Arrangement Agreement shall not apply if:
(a) the Confidential Information is or becomes publicly available other
than through a breach of the Arrangement Agreement by either party to
whom disclosure is made;
(b) the Confidential Information is subsequently lawfully obtained without
a secrecy obligation from a third party or parties not in a
contractual or fiduciary relationship with any member of the party
receiving the Confidential Information (the "receiving party"), other
than through a breach of the Arrangement Agreement, provided that
written supporting documentation confirming the lawful authority of
such third party or parties to disclose the Confidential Information
is provided to the supplier;
(c) the Confidential Information was known by the receiving party or other
parties prior to the time at which disclosure of such Confidential
Information was made to the receiving party or such other parties in
accordance with the Arrangement Agreement, provided that written
supporting documentation confirming that fact is provided to the
supplier; or
(d) the written consent of the supplier is given prior to any such use or
disclosure being made.
Each of Allelix and NPS agreed pursuant to the Arrangement Agreement that
it would be difficult to measure the damage to the other party resulting from
the breach of such party's obligations under such confidentiality provisions,
that injury
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to the other party from any such breach would be impossible to calculate, and
that monetary damages would therefore be an inadequate remedy; accordingly, each
party agreed that the other party shall be entitled, in addition to all other
remedies it might have, to injunctions or other appropriate orders to restrain
any such breach without showing or providing any actual damage or posting any
bond or other security in connection with such remedy.
Standstill
Each of Allelix and NPS has agreed pursuant to the Arrangement Agreement
that neither it nor an Affiliate will, prior to June 27, 2000, without the prior
written consent of the other party, among other things:
(a) acquire, offer or agree to acquire, directly or indirectly, by
purchase or otherwise, individually or in concert with any other
person, any voting securities or securities convertible into or
exchangeable for voting securities, of the other party;
(b) directly or indirectly make, or in any way participate in, any
solicitation of proxies to vote, or seek to advise or influence any
other person with respect to the voting of any voting securities of
the other party; or
(c) act alone or in concert with others to seek to control the management,
directors or corporate policies of the other party.
The above restrictions will not apply in the event an offer is made (and
not withdrawn at the time the conduct described above has commenced) to acquire
beneficial ownership of all or a material portion of the assets of the other
party or one or more of its Subsidiaries or not less than 20 percent of the
issued and outstanding common shares of the other party pursuant to a
transaction to be considered at a meeting of security holders requisitioned by a
security holder of such other party or pursuant to a take-over bid, tender
offer, or similar transaction involving the other party.
Access
Allelix has covenanted pursuant to the Arrangement Agreement that NPS will
be entitled, on reasonable notice to Allelix, to access Allelix's premises and
will be entitled to meet with Allelix's shareholders, creditors, licensors,
licensees and employees. Allelix and its Subsidiaries must keep NPS fully
informed as to its and its Subsidiaries' business and affairs and as to the
decisions required with respect to the most advantageous methods of operating
and producing from its and its Subsidiaries' assets.
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Amendment
The Arrangement Agreement may, at any time and from time to time before or
after the holding of the Allelix Meeting, be amended by written agreement of the
parties thereto without further notice to or authorization on the part of their
respective shareholders, and any such amendment may, without limitation:
(a) change the time for performance of any of the obligations or acts of
the parties thereto;
(b) waive any inaccuracies or modify any representation contained therein
or in any document delivered pursuant hereto;
(c) waive compliance with or modify any of the covenants therein contained
and waive or modify performance of any of the obligations of the
parties thereto; and
(d) waive compliance with or modify any conditions precedent therein
contained;
provided that, notwithstanding the foregoing, the number of Exchangeable Shares
which the Allelix Common Shareholders shall have the right to receive on the
Arrangement may not be reduced without the approval of the registered holders of
the Allelix Common Shares given in the same manner as required for the approval
of the Arrangement or as may be ordered by the Court.
Support Agreement
Pursuant to the Support Agreement, a copy of which is attached to this
Circular as Appendix E, NPS will make the following covenants for so long as any
Exchangeable Shares (other than Exchangeable Shares owned by NPS or its
Affiliates) remain outstanding:
(a) NPS will not declare or pay dividends on the NPS Common Shares unless
NPS Allelix is able to declare and pay and simultaneously declares or
pays, as the case may be, an equivalent dividend on the Exchangeable
Shares;
(b) NPS will advise NPS Allelix in advance of the declaration of any
dividend on the NPS Common Shares and ensure that the declaration
date, record date and payment date for dividends on the Exchangeable
Shares are the same as that for the corresponding dividend on the NPS
Common Shares;
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(c) NPS will ensure that the record date for any dividend declared on the
NPS Common Shares is not less than ten business days after the
declaration date of such dividend;
(d) NPS will take all actions and do all things reasonably necessary or
desirable to enable and permit NPS Allelix, in accordance with
applicable Law, to pay to the registered holders of Exchangeable
Shares the applicable NPS Allelix Liquidation Amount, the Retraction
Price or the Redemption Price in the event of a liquidation,
dissolution or winding-up of NPS Allelix, a Retraction Request by a
holder of Exchangeable Shares or a redemption of Exchangeable Shares
by NPS Allelix; and
(e) NPS will take all actions and do all things reasonably necessary or
desirable to enable and permit NPS Holdings, in accordance with
applicable Law, to perform its obligations arising upon the exercise
by it of the Liquidation Call Right, the Retraction Call Right or the
Redemption Call Right, including without limitation all such actions
and all such things as are necessary or desirable to enable and permit
NPS Holdings to cause to be delivered NPS Common Shares to the
registered holders of Exchangeable Shares in accordance with the
provisions of the Liquidation Call Right, the Retraction Call Right or
the Redemption Call Right, as the case may be.
The Support Agreement and the Exchangeable Share Provisions provide that,
without the prior approval of NPS Allelix and the registered holders of
Exchangeable Shares as set forth above under "The Arrangement - Transaction
Mechanics and Description of Exchangeable Shares - Amendment and Approval", NPS
will not issue or distribute additional NPS Common Shares, securities
exchangeable for or convertible into or carrying rights to acquire NPS Common
Shares or rights to subscribe therefor or other assets to all or substantially
all registered holders of NPS Common Shares, nor change the NPS Common Shares,
unless the same or an economically equivalent distribution on, or change to, the
Exchangeable Shares (or in the rights of the registered holders thereof) is made
simultaneously. The board of directors of NPS Allelix is exclusively empowered
to determine in good faith and in its sole discretion whether any corresponding
distribution on or change to the Exchangeable Shares is the same as or
economically equivalent to any proposed distribution on or change to the NPS
Common Shares. In the event of any proposed tender offer, share exchange offer,
issuer bid, take-over bid or similar transaction with respect to the NPS Common
Shares which is recommended, approved or consented to by the board of directors
of NPS and in connection with which the Exchangeable Shares are not redeemed by
NPS Allelix or purchased by NPS Holdings pursuant to the Redemption Call Right,
NPS will use reasonable efforts to take all actions necessary or desirable to
enable registered
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holders of Exchangeable Shares to participate in such transaction to the same
extent and on an economically equivalent basis as the registered holders of NPS
Common Shares.
NPS Allelix is required to notify NPS and NPS Holdings of the occurrence of
certain events, such as the liquidation, dissolution or winding-up of NPS
Allelix, and NPS Allelix's receipt of a Retraction Request from a holder of
Exchangeable Shares.
Under the Support Agreement, NPS has agreed not to exercise any voting
rights attached to the Exchangeable Shares owned by it or any of its Affiliates
on any matter considered at meetings of registered holders of Exchangeable
Shares. NPS has also agreed to use its reasonable efforts to enable NPS Allelix
to maintain a listing for the Exchangeable Shares on a Canadian stock exchange.
With the exception of administrative changes for the purpose of adding
covenants for the protection of the registered holders of Exchangeable Shares,
making certain necessary amendments or curing ambiguities or clerical errors (in
each case provided that the board of directors of each of NPS, NPS Allelix and
NPS Holdings are of the opinion that such amendments are not prejudicial to the
rights or interests of the registered holders of Exchangeable Shares), the
Support Agreement may not be amended without the approval of the registered
holders of Exchangeable Shares as set forth above under "The Arrangement -
Transaction Mechanics and Description of Exchangeable Shares - Amendment and
Approval".
INVESTMENT CONSIDERATIONS
The following investment considerations should be considered by Allelix
Shareholders in evaluating whether to approve the Arrangement. These investment
considerations should be considered in conjunction with the other information
included in this Circular.
U.S. Federal Income Tax Consequences to Allelix Common Shareholders
U.S. Holders
The exchange by a U.S. Holder of Allelix Common Shares for NPS Common
Shares will be a taxable event for United States federal income tax purposes.
Non-U.S. Holders
No statutory, judicial or administrative authority exists that directly
addresses certain of the United States federal income tax consequences of the
issuance and ownership of instruments and rights comparable to the Exchangeable
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Shares, the Ancillary Rights and the Call Rights. Consequently, the United
States federal income tax consequences of the issuance and ownership of the
Exchangeable Shares are uncertain.
NPS and NPS Allelix have advised Allelix that, based on the fact that the
Exchangeable Shares will be issued by NPS Allelix, a Canadian corporation, and
dividends on the Exchangeable Shares will be paid from the cash flow and
earnings generated by NPS Allelix and its Subsidiaries, they intend to treat
dividends received by non-U.S. Holders of Exchangeable Shares as dividends
distributed by NPS Allelix not subject to United States withholding tax. If,
contrary to this position, dividends on the Exchangeable Shares were determined
to constitute income from United States sources, non-U.S. Holders of
Exchangeable Shares would likely be subject to United States withholding tax.
See "Income Tax Considerations to Allelix Shareholders - United States Federal
Income Tax Considerations".
Canadian Federal Income Tax Consequences to Allelix Common Shareholders
The Transaction has been structured to provide the opportunity for a tax
deferral for Canadian income tax purposes for certain Canadian Residents who
receive Exchangeable Shares in exchange for Allelix Common Shares pursuant to
the Arrangement. However, such Canadian Residents will generally only be able to
obtain such Canadian tax deferral for as long as they hold the Exchangeable
Shares, and will generally recognize a taxable dividend and /or a gain or loss
upon the exchange (including on the redemption or retraction) of their
Exchangeable Shares for NPS Common Shares or upon the purchase for cancellation
of the Exchangeable Shares by NPS Allelix. Redemption of the Exchangeable Shares
for NPS Common Shares may occur at any time after the Effective Date if a
Redemption Date occurs. A Redemption Date will occur no earlier than December
31, 2004 except in the following circumstances: (i) the occurrence of a NPS
Control Transaction; or (ii) there being fewer than 1,000,000 Exchangeable
Shares outstanding (other than Exchangeable Shares held by NPS and its
Affiliates). See "Income Tax Considerations to Allelix Shareholders - Canadian
Federal Income Tax Considerations" and "The Arrangement - Transaction Mechanics
and Description of Exchangeable Shares - Retraction, Redemption and Call Rights;
Purchase for Cancellation". As a result of the existence of the Call Rights, the
Exchange Right and the Automatic Exchange Right, a holder of Exchangeable Shares
cannot control whether such holder will receive NPS Common Shares by way of
redemption (or retraction) of the Exchangeable Shares by NPS Allelix or by way
of purchase of the Exchangeable Shares by NPS or NPS Holdings. The Canadian
federal income tax consequences of a redemption (or retraction) differ from
those of a purchase.
Provided the Exchangeable Shares are listed on a prescribed stock exchange
in Canada (which currently includes the TSE), the Exchangeable Shares will not
be foreign property under the ITA for trusts governed by "registered retirement
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savings plans" ("RRSPs"), "registered retirement income funds" ("RRIFs") and
"deferred profit sharing plans" ("DPSPs") (as each of those terms are defined in
the ITA), for registered pension plans or for certain other persons to whom Part
XI of the ITA applies. The Ancillary Rights and NPS Common Shares will be
foreign property under the ITA.
Market for Exchangeable Shares
Although the economic value of the Exchangeable Shares is expected to be
closely linked to the trading value of NPS Common Shares because the voting and
economic rights of a holder of the Exchangeable Shares are substantially
equivalent in all material respects to the voting and economic rights of a
holder of NPS Common Shares and because of the right of a holder of Exchangeable
Shares at any time to exchange Exchangeable Shares for NPS Common Shares, there
can be no assurance that an active trading market in the Exchangeable Shares
will develop or be sustained or that the Exchangeable Shares will continue to
meet the listing requirements of the TSE. NPS has advised Allelix that,
currently, it does not intend to list the Exchangeable Shares on any other stock
exchange.
Risk Related to the Arrangement
Uncertainty Relating to Integration
The Arrangement involves the integration of two companies that have
previously operated independently. Such integration will require significant
effort from each company including the coordination of their efforts in research
and development, business development, intellectual property, finance and
administrative efforts. There can be no assurance that NPS will integrate the
respective operations of NPS and Allelix without encountering difficulties or
experiencing loss of personnel, or that the benefits expected from such
integration will be realized. The diversion of the attention of management and
any difficulties encountered in the transition process (including the
interruption of, or a loss of momentum in, Allelix's or NPS's activities and
problems associated with employee uncertainty and the potential loss of key
personnel) could have an adverse impact on NPS's ability to realize anticipated
benefits from the Arrangement.
Risks Associated with Fixed Exchange Ratio
As a result of the Arrangement, each outstanding Allelix Common Share will
be converted into the right to receive 0.3238 NPS Common Shares. Because the
Exchange Ratio is fixed and will not increase or decrease due to fluctuations in
the market price of either NPS or Allelix Common Shares, the specific value of
the consideration to be received by Allelix Shareholders pursuant to the
Arrangement will depend on the market price of NPS Common Shares at the
Effective Time. In
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the event that the market price of NPS Common Shares decreases or increases
prior to the Effective Time, the market value at the Effective Time of NPS
Common Shares to be received by Allelix Shareholders pursuant to the Arrangement
would correspondingly decrease or increase. The market prices of NPS Common
Shares and Allelix Common Shares as of a recent date are set forth in this
Circular under the heading "Market Price". NPS Common Shares and Allelix Common
Shares historically have been subject to price volatility. No assurance can be
given as to the market prices of NPS Common Shares or Allelix Common Shares at
any time.
Effect of the Arrangement on Corporate Partners and Existing Agreements
Certain of Allelix's and NPS's existing corporate partners may view the
Arrangement as disadvantageous to them. As a consequence, the combined
company's relationship with these strategic partners could be adversely
affected. In addition, the Arrangement will provide certain corporate partners
with the right to terminate their research and development agreements with
Allelix under certain circumstances. There can be no assurance that these
agreements will not be terminated. The termination under such agreements could
have a Material Adverse Effect on Allelix's business and operations. The
Arrangement will require the consent of certain parties who have entered into
contracts with Allelix. There can be no assurance that such consents will be
given and, if not given, that such contracts will not terminate.
The market price of NPS Common Stock may decline as a result of the Arrangement
Since public announcement of the Arrangement, the price for NPS Common
Shares has declined __%. The market price of NPS Common Shares may continue to
decline significantly if, among other things:
. securities analysts fail to write reports which describe the Arrangement
favorably and/or if securities analysis write about the Arrangement, but
fail to recommend the stock;
. the integration of NPS's and Allelix's operations is not successful;
. the combined company does not experience business synergies as quickly or
to the extent as may be expected by financial analysts; or
. the accretive/dilution effect of the Arrangement is not in line with the
expectations of financial analysis.
. NPS determines that it will do an additional equity financing on terms or
at a time which the marketplace concludes is unattractive or dilutive.
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In any such case, the trading price of NPS Common Shares may decline and an
Allelix Shareholder may lose all or part of his, her or its investment.
The Arrangement will result in costs of integration and transaction expenses
that could adversely affect combined financial results
If the benefits of the Arrangement do not exceed the costs associated with
it, including the dilution to the NPS's shareholders resulting from the issuance
of shares of NPS Common Shares in connection with the Arrangement, NPS's
financial results, including earnings per share, could be adversely affected.
The combined company also expects to incur costs after completion of the
Arrangement associated with integrating the operations of NPS and Allelix. Such
costs may include: (i) elimination of duplicate operations; and (ii)
consolidation of certain administration, support and research and development
activities.
Actual costs may substantially exceed preliminary estimates. In addition,
unanticipated expenses associated with integrating the two companies may arise.
NPS expects to incur a charge currently estimated to be U.S.$__ million in the
fourth quarter of 1999 to reflect NPS's write-off of Allelix's in-process
research and development efforts. These costs will not be accompanied by
outward cash flow, but may be seen by investors as increasing the net loss of
NPS. NPS may also incur additional charges in subsequent quarters to reflect
costs associated with the Arrangement.
If the combined company is not permitted to write-off a significant amount of
purchase price as attributable to in-process research and development, estimates
of future period results and actual future period results could be burdened with
additional costs and the price of NPS's Common Shares could decline
If current accounting rules as interpreted by NPS's auditors and the SEC do
not permit the combined company to write off immediately a significant amount of
the purchase price of the Arrangement as attributable to in-process research and
development, the combined company would have to amortize a correspondingly
higher amount of the purchase price over several years. Such amortization would
be reflected as an expense item on the combined company's statement of
operations, and cause it to report higher losses, which may adversely affect its
stock price.
Effect of Arrangement on burn rate and the attendant requirement to reduce
costs, delay expenditures (for example in clinical development), or raise
additional equity financing
NPS has announced its intention to devote considerable cash resources to
late-stage clinical development, including for example, a Phase III trial for
ALX 1-11 for osteoporosis. If the NPS's cost estimates are exceeded or incurred
earlier than
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planned, NPS may be required further to realize costs (for example, by reducing
head count), to delay developments or to seek additional financing. Failure to
manage the mix of this cash expenditure and clinical process may cause the price
of NPS Common Shares to decline.
Risk Factors Related to the Business of NPS
For a discussion of risk factors relating to the business of NPS, see
Appendix R to this Circular.
MARKET PRICE
NPS Common Shares are traded on the NASDAQ Stock Market. Allelix Common
Shares are listed on the TSE and the ME.
The following table sets forth, for the calendar periods indicated, the
high and low closing sale prices for NPS Common Shares as reported on the NASDAQ
Stock Market:
NPS Common Shares
<TABLE>
<CAPTION>
NASDAQ
-----------------------
Calendar Period High Low
- - ---------------- ----------- ---------
<S> <C> <C>
1997
First Quarter US$12.250 US$9.500
Second Quarter 11.000 8.250
Third Quarter 10.750 8.125
Fourth Quarter 10.063 [7.3000]
1998
First Quarter US$8.500 US$7.375
Second Quarter 8.250 6.750
Third Quarter 9.313 6.375
Fourth Quarter 7.938 5.500
1999
First Quarter US$__ US$__
Second Quarter __ __
Third Quarter __ __
</TABLE>
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The following table sets forth, for the calendar periods indicated, the
high and low sale prices for the Allelix Common Shares as reported on the TSE
and the ME:
Allelix Common Shares
<TABLE>
<CAPTION>
TSE ME
------------------- --------------------
Calendar Period High Low High Low
- - --------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
1997
First Quarter $18.50 $11.05 $18.6 $ 11.5
Second Quarter 12.40 9.00 12.1 9.8
Third Quarter 16.00 9.75 15.8 10.2
Fourth Quarter 15.25 10.35 14.5 10.35
1998
First Quarter $12.50 $ 8.00 $12.0 $ 8.10
Second Quarter 9.75 8.00 9.7 8.15
Third Quarter 8.20 3.10 8.4 3.15
Fourth Quarter 6.35 2.50 5.95 3.03
1999
First Quarter $ 4.95 $ 3.01 $ 4.7 $ 3.05
Second Quarter 3.50 2.26 3.4 2.26
Third Quarter 3.75 2.00 3.6 2.01
Fourth Quarter __ __ __ __
</TABLE>
On September 27, 1999, the last full trading day prior to the public
announcement of the Arrangement Agreement, the closing sale price per NPS Common
Share, as reported on the NASDAQ Stock Market was U.S.$7.00 and the closing sale
price per Allelix Common Share as reported on the TSE and the ME was $3.65 and
$__, respectively. On November __, 1999, the closing sale price per NPS Common
Share as reported on the NASDAQ Stock Market was U.S.$__, and the closing sale
price per Allelix Common Share as reported on the TSE and the ME was $__ and
$__, respectively. Since the market price of NPS Common Shares and the U.S.$__
to $__ exchange rate are subject to fluctuation due to numerous market forces,
the market value in Canadian dollars of the NPS Common Shares that Allelix
Common Shareholders may receive pursuant to the Transaction may increase or
decrease prior to the Effective Time. Allelix Shareholders are urged to obtain
current market quotations for NPS Common Shares and Allelix Common Shares.
Historical
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market prices and dividends are not indicative of future market prices and
dividends.
As of __, 1999 there were __ Allelix Common Shares outstanding held of
record by __ registered holders, 1,000 Allelix Preferred Shares held of record
by one holder, __ Allelix Options outstanding held of record by __ registered
holders and 829,108 Allelix Warrants outstanding.
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SELECTED CONSOLIDATED FINANCIAL INFORMATION OF ALLELIX
[NTD: Insert selected consolidated financial information of Allelix]
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SELECTED FINANCIAL INFORMATION OF NPS
[NTD: Insert selected consolidated financial information of NPS]
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ALLELIX'S AND NPS' SELECTED UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The selected Unaudited Pro Forma Condensed Consolidated Balance Sheet and
Statement of Operations (collectively, the "Unaudited Pro Forma Statements"), a
copy of which is attached to this Circular as Appendix R, give effect to the
Transaction to be accounted for using the purchase method of accounting, whereby
the total cost of the Transaction will be allocated to the tangible and
intangible assets acquired and liabilities assumed based upon their respective
values at September 27, 1999. The selected Unaudited Pro Forma Statements have
been prepared on the basis of assumptions described in the notes thereto,
including assumptions related to the allocation of the total purchase cost to
the assets and liabilities of Allelix based upon preliminary estimates of fair
value. The actual allocation may differ from those assumptions after valuations
and other procedures are completed after the closing of the Transaction.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations
were prepared as if the Transaction occurred as of January 1, 1998. The
Unaudited Pro Forma Condensed Consolidated Balance Sheet was prepared as if the
Transaction occurred as of September 30, 1999. These statements are not
necessarily indicative of what the actual operating results or financial
position would have been had the Transaction occurred on the dates and for the
periods indicated and do not purport to indicate future results of operations.
In addition, they do not reflect any cost saving or other synergies resulting
from the Transaction.
The selected Unaudited Pro Forma Statements should be read in conjunction
with the historical consolidated financial statements and related notes of NPS
and Allelix included elsewhere in this Circular.
INCOME TAX CONSIDERATIONS TO ALLELIX COMMON SHAREHOLDERS
Canadian Federal Income Tax Considerations
The following is a summary, prepared by Ernst & Young LLP, of the principal
Canadian federal income tax considerations under the ITA of receiving NPS Common
Shares or Exchangeable Shares pursuant to the Arrangement generally applicable
to Allelix Common Shareholders who, for purposes of the ITA and at all relevant
times, hold their Allelix Common Shares and will hold their Exchangeable Shares
and/or NPS Common Shares as capital property and deal at arm's length and are
not and will not be affiliated with Allelix, NPS, NPS Holdings or NPS Allelix.
This summary does not apply to Allelix Common Shareholders with respect to whom
NPS is or will be a foreign affiliate within the meaning of the ITA. In
addition, this summary does not discuss the Canadian federal income tax
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considerations applicable to registered holders of Allelix Options or Allelix
Warrants.
Allelix Common Shares, Exchangeable Shares and NPS Common Shares will
generally be considered to be capital property to Allelix Common Shareholders
unless held in the course of carrying on a business, in an adventure in the
nature of trade or as "mark-to-market property" for purposes of the ITA. Allelix
Common Shareholders who are Canadian Residents and whose Allelix Common Shares
and/or Exchangeable Shares might not otherwise qualify as capital property may
be entitled to obtain such qualification by making an irrevocable election
permitted by subsection 39(4) of the ITA. Allelix Common Shareholders who do not
hold their Allelix Common Shares or who will not hold their Exchangeable Shares
and/or NPS Common Shares as capital property should consult their own tax
advisers regarding their particular circumstances as this summary does not apply
to such holders. This summary does not take into account the potential
application of the "mark-to-market" rules to certain "financial institutions"
(as defined in the ITA ).
This summary is based on the ITA, the regulations thereunder and Ernst &
Young LLP's understanding of published administrative practices and policies of
Revenue Canada, all in effect as of the date of this Circular. This summary
takes into account all Proposed Amendments to the ITA, although no assurances
can be given that the Proposed Amendments will be enacted in the form proposed,
or at all. This summary does not take into account or anticipate any other
changes in law, whether by judicial, governmental or legislative action or
decision, nor does it take into account provincial, territorial or foreign
income tax legislation or considerations, which may differ from the Canadian
federal income tax considerations described herein. No advance income tax
ruling has been sought or obtained from Revenue Canada to confirm the tax
consequences of any of the transactions described herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY PARTICULAR
ALLELIX COMMON SHAREHOLDER. ALLELIX COMMON SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS AS TO THE TAX CONSEQUENCES OF THE DESCRIBED TRANSACTIONS IN
THEIR PARTICULAR CIRCUMSTANCES.
For the purposes of the ITA, all amounts relating to the acquisition,
holding or disposition of NPS Common Shares (including dividends, adjusted cost
base and proceeds of disposition) must be expressed in Canadian dollars; amounts
denominated in United States dollars must be converted into Canadian dollars
based on the prevailing United States dollar exchange rate generally, at the
time such amounts arise. In computing an Allelix Common Shareholder's liability
for tax under the ITA , any cash amounts received by such holder in United
States dollars must be converted into the Canadian Dollar Equivalent, and the
amount of any non-
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cash consideration received by such holder must be expressed in Canadian dollars
at the time such consideration is received.
Allelix Common Shareholders Resident in Canada
The following portion of the summary is applicable to an Allelix Common
Shareholder who is or is deemed to be a Canadian Resident at all relevant times.
Exchange of Allelix Common Shares for Exchangeable Shares and Ancillary Rights
Non-Rollover Transaction. An Allelix Common Shareholder who exchanges
Allelix Common Shares for Exchangeable Shares and Ancillary Rights will, unless
such holder makes a joint election under subsection 85(1) or 85(2) of the ITA
as discussed below, be considered to have disposed of the Allelix Common Shares
exchanged for proceeds of disposition equal to the sum of (i) any cash received
by such holder in respect of a fractional Exchangeable Share, (ii) the fair
market value of Exchangeable Shares acquired by such holder on the exchange, and
(iii) the fair market value of Ancillary Rights acquired by such holder on the
exchange, and, as a result, such holder will, in general, realize a capital gain
(or capital loss) to the extent that such proceeds of disposition, net of any
reasonable costs of disposition, exceed (or are less than) the adjusted cost
base to such holder of the Allelix Common Shares immediately before the
exchange. See "- Taxation of Capital Gain or Capital Loss" below. Unless such
an election is made, the cost to the Allelix Common Shareholder of Exchangeable
Shares acquired on the exchange of Allelix Common Shares will be equal to the
fair market value of the Exchangeable Shares at the time of the exchange and the
cost to the Allelix Common Shareholder of Ancillary Rights acquired on the
exchange of Allelix Common Shares will be equal to the fair market value of such
rights at the time of the exchange. For these purposes, the Allelix Common
Shareholder will be required to determine the fair market value of Ancillary
Rights received on the exchange on a reasonable basis. Allelix is of the view,
and has advised Ernst & Young LLP, that such rights will have only nominal
value. [Discuss specifically with client] Such determination of value is not
binding on Revenue Canada, and Ernst & Young LLP is not expressing a view on
matters of factual determination such as this. The cost of Exchangeable Shares
and the cost of Ancillary Rights received by the Allelix Common Shareholder on
the exchange of Allelix Common Shares must be averaged with the adjusted cost
base to the Allelix Common Shareholder of Exchangeable Shares and the adjusted
cost base to the Allelix Common Shareholder of Ancillary Rights, respectively,
acquired by such holder other than on the exchange of Allelix Common Shares.
Rollover Transaction. An Eligible Holder who exchanges Allelix Common
Shares for Exchangeable Shares and Ancillary Rights may make a joint election
with NPS Allelix pursuant to subsection 85(1) of the ITA (or, in the case of an
Eligible Holder that is a partnership, pursuant to subsection 85(2) of the ITA )
and thereby
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obtain a full or partial tax deferred "rollover" for Canadian income tax
purposes, depending on the Elected Amount(s) and the adjusted cost base to the
Eligible Holder of such holder's Allelix Common Shares at the time of the
exchange. So long as, at the time of the exchange, the adjusted cost base to the
Eligible Holder of such holder's Allelix Common Shares equals or exceeds the sum
of (i) any cash received in respect of a fractional Exchangeable Share, and (ii)
the fair market value of Ancillary Rights acquired by the Eligible Holder on the
exchange, the Eligible Holder may elect so as to not realize a capital gain for
the purposes of the ITA on the exchange. Allelix Common Shareholders should
consult their own tax advisers regarding this "rollover" treatment and as to
corresponding provincial "rollover" rules applicable for provincial income tax
purposes.
In order to make an election under section 85 of the ITA , an Eligible
Holder must provide to the Depositary two signed copies of the necessary
prescribed election form within 90 days following the Effective Date, duly
completed with the details of the number of Allelix Common Shares transferred
and the applicable Elected Amount(s) for the purposes of the election. In
accordance with the Plan of Arrangement, subject to the election form being in
apparent compliance with the provisions of the ITA (and applicable provincial
income tax law ) the form, signed by NPS Allelix will be returned to the
Eligible Holders for filing by the Eligible Holder with Revenue Canada.
The relevant tax election form is Revenue Canada form T2057 (or, in the
event that the Allelix Common Shares are held as partnership property, Revenue
Canada form T2058). An Eligible Holder interested in making an election under
section 85 should so indicate on the Letter of Transmittal and Election Form
accompanying this Circular in the space provided therein and a tax election
package will be sent to the Eligible Holder. [verify]
In general, where a joint election under section 85 of the ITA is made by
NPS Allelix and an Eligible Holder in respect of the exchange of the Eligible
Holder's Allelix Common Shares for Exchangeable Shares pursuant to the Plan of
Arrangement, the Elected Amount must be elected in accordance with the following
rules:
1. The Elected Amount may not be less than the sum of (i) any cash received by
the Eligible Holder in respect of a fractional Exchangeable Share, and (ii)
the fair market value of Ancillary Rights acquired by the Eligible Holder
on the exchange as partial consideration for the Allelix Common Shares to
which the election applies.
2. The Elected Amount may not be less than the lesser of the adjusted cost
base to the Eligible Holder of the Allelix Common Shares to which the
election
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applies, determined immediately before the time of the exchange, and the
fair market value of such share at that time.
3. The Elected Amount may not exceed the fair market value, at the time of the
exchange, of the Allelix Common Shares to which the election applies.
Where such an election is made, the tax treatment to the Eligible Holder
(in respect of such holder's Allelix Common Shares to which the election
applies) will, in general, be as follows:
1. The Eligible Holder will be deemed to have disposed of the Allelix Common
Shares for proceeds of disposition equal to the Elected Amount.
2. If the proceeds of disposition of the Allelix Common Shares are equal to
the aggregate of the adjusted cost base to the Eligible Holder of such
shares, determined immediately before the exchange, and any reasonable
costs of disposition, no capital gain or capital loss will be realized by
the Eligible Holder.
3. To the extent that the proceeds of disposition of the Allelix Common Shares
exceed the aggregate of the adjusted cost base thereof to the Eligible
Holder of such shares, determined immediately before the exchange, and any
reasonable costs of disposition, the Eligible Holder will, in general,
realize a capital gain.
4. The cost to the Eligible Holder of Ancillary Rights received on the
exchange will be equal to the fair market value thereof at that time and
the cost to the Eligible Holder of Exchangeable Shares received on the
exchange will be equal to the amount by which the proceeds of disposition
of Allelix Common Shares exchanged by the Eligible Holder exceed the amount
of any cash received in respect of a fractional Exchangeable Share and the
fair market value of Ancillary Rights received on the exchange.
NPS Allelix will make an election pursuant to section 85 of the ITA only
with an Eligible Holder in respect of Allelix Common Shares exchanged, and at
the amount selected by the Eligible Holder subject to the limitations set out in
the ITA. Neither NPS Allelix nor the Depositary will be responsible for the
proper completion or filing of any election form and, except for NPS Allelix's
obligation to return duly completed election forms which are received by the
Depositary within 90 days of the Effective Date, within 30 days after the
receipt thereof by the Depositary, the Eligible Holder and not NPS Allelix will
be responsible or liable for any taxes, interest, penalties, damages or expenses
resulting from the failure by the Eligible Holder to properly complete or file
an election form in the form and manner and within the time prescribed by the
ITA (or the corresponding provision of any
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applicable provincial tax legislation). In its sole discretion, NPS Allelix may
choose to execute and return an election form received more than 90 days
following the Effective Date, but NPS Allelix will have no obligation to do so.
NPS Allelix agrees only to execute any apparently correct and complete election
form received within 90 days of the Effective Date and to return the executed
election form (within 30 days after the receipt thereof by the Depositary) to
the Eligible Holder. With the exception of execution of the election by NPS
Allelix, compliance with the requirements for a valid election will be the sole
responsibility of the Eligible Holder making the election.
In order for Revenue Canada to accept a tax election form without a late
filing penalty being paid by an Eligible Holder, the election form, duly
completed and executed by both the Eligible Holder and NPS Allelix must be
received by such revenue authorities on or before the day that is the earliest
of the days on or before which either NPS Allelix or the Eligible Holder is
required to file an income tax return for the taxation year in which the
exchange occurs. Eligible Holders are urged to consult their own adviser as soon
as possible respecting the deadlines applicable to their own particular
circumstances.
However, regardless of such deadline, the tax election forms of Eligible
Holders must be received by the Depositary no later than the 90th day after the
Effective Date.
Any Eligible Holder who does not ensure that the Depositary has received a
duly completed election form on or before the 90th day after the Effective Date,
will not be able to benefit from the rollover provisions of the ITA (unless NPS
Allelix in its sole discretion, chooses to execute an election form received
after such time). Accordingly, all Eligible Holders who wish to enter into an
election with NPS Allelix should give their immediate attention to this matter.
[The instructions for requesting a tax election package are set out in the
Letter of Transmittal and Election Form.- to confirm] Eligible Holders are
referred to Information Circular 76-19R3 and Interpretation Bulletin IT-291R2
issued by Revenue Canada for further information with respect to making an
election under section 85 of the ITA . Eligible Holders wishing to make the
election should consult their own tax advisers. The comments herein with
respect to such elections are provided for general assistance only. The law in
this area is complex and contains numerous technical requirements.
For these purposes, an Eligible Holder will be required to determine the
fair market value of Ancillary Rights received on the exchange of Allelix Common
Shares on a reasonable basis for purposes of the ITA . Allelix is of the view,
and has advised Ernst & Young LLP, that such rights will have only nominal
value. The tax election forms will be executed by NPS Allelix on the basis that
the fair market value of Ancillary Rights is a nominal amount per Exchangeable
Share issued on the
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exchange. Such amount will be provided to Eligible Holders in the letter of
instructions included in the tax election package. Such determination of value
is not binding on Revenue Canada and Ernst & Young LLP is not expressing a view
on matters of factual determination such as this.
Exchange of Allelix Common Shares for NPS Common Shares.
An Allelix Common Shareholder who exchanges Allelix Common Shares for NPS
Common Shares will be considered to have disposed of the Allelix Common Shares
exchanged for proceeds of disposition equal to the sum of (i) the fair market
value of NPS Common Shares acquired by such holder on the exchange, and (ii) any
cash received by such holder in respect of a fractional NPS Common Share, and,
as a result, such holder will in general realize a capital gain (or capital
loss) to the extent that such proceeds of disposition, net of any reasonable
costs of disposition, exceed (or are less than) the adjusted cost base to such
holder of the Allelix Common Shares immediately before the exchange. See " -
Taxation of Capital Gain or Capital Loss" below. The cost to the Allelix Common
Shareholder of NPS Common Shares acquired on the exchange of Allelix Common
Shares will be equal to the fair market value of the NPS Common Shares at the
time of the exchange, and must be averaged with the adjusted cost base to such
holder of other NPS Common Shares held by such holder as capital property.
Call Rights
Allelix is of the view, and has advised Ernst & Young LLP, that the
Liquidation Call Right, the Redemption Call Right and the Retraction Call Right
have nominal value. On this basis, no Allelix Common Shareholder should realize
a gain at the time that any of such rights are granted to NPS Holdings. Such
determinations of value are not binding on Revenue Canada and Ernst & Young LLP
is not expressing a view on matters of factual determination such as this.
Dividends
Dividends on Exchangeable Shares. In the case of a holder of Exchangeable
Shares who is an individual, dividends received or deemed to be received by the
holder on Exchangeable Shares will be included in computing the holder's income
and will be subject to the gross-up and dividend tax credit rules normally
applicable to taxable dividends received from taxable Canadian corporations.
Subject to the discussion below as to the denial of the dividend deduction,
in the case of a holder of Exchangeable Shares that is a corporation, other than
a "specified financial institution" as defined in the ITA , dividends received
or deemed to be received by the holder on Exchangeable Shares will be included
in computing the holder's income and will normally be deductible in computing
its
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taxable income. A corporation will, in general, be a specified financial
institution for purposes of the ITA if it is a bank, a trust company, a credit
union, an insurance corporation or a corporation whose principal business is the
lending of money to persons with whom the corporation is dealing at arm's length
or the purchasing of debt obligations issued by such persons or a combination
thereof, a prescribed corporation, and corporations controlled by or related to
such entities.
In the case of a holder of Exchangeable Shares that is a specified
financial institution, such a dividend will not be deductible in computing its
taxable income unless either: (i) the specified financial institution did not
acquire the Exchangeable Shares in the ordinary course of the business carried
on by the financial institution; or (ii) at the time of the receipt of the
dividend by the specified financial institution, the Exchangeable Shares are
listed on a prescribed stock exchange in Canada and the specified financial
institution, either alone or together with persons with whom it does not deal at
arm's length, does not receive and is not deemed to receive dividends in respect
of more than 10 percent of the issued and outstanding Exchangeable Shares.
Exchangeable Shares will be "taxable preferred shares" and "short-term
preferred shares" for purposes of the ITA . Accordingly, NPS Allelix will be
subject to a 66 2/3 percent tax under Part VI.1 of the ITA on dividends (other
than "excluded dividends" as defined in the ITA ) paid or deemed to be paid on
the Exchangeable Shares and will be entitled to deduct an amount equal to 9/4 of
the tax so payable in computing its taxable income for purposes of the ITA .
Dividends received or deemed to be received on Exchangeable Shares will not be
subject to the 10 percent tax under Part IV.1 of the ITA .
Dividends on NPS Common Shares. In the case of a holder of NPS Common
Shares who is an individual, dividends received or deemed to be received by the
holder on NPS Common Shares will be included in computing the holder's income
and will not be subject to the gross-up and dividend tax credit rules in the ITA
. In the case of a holder of NPS Common Shares that is a corporation, dividends
received or deemed to be received by the holder on NPS Common Shares will be
included in computing the holder's income and generally will not be deductible
in computing the holder's taxable income. United States non-resident withholding
tax on dividends generally will be eligible for foreign tax credit or deduction
treatment where applicable under the ITA .
Redemption, Retraction, Purchase or Exchange of Exchangeable Shares
On the redemption (or retraction) of Exchangeable Shares, the holder of the
Exchangeable Shares (i) will receive a dividend equal to any declared and unpaid
dividend on each Exchangeable Share redeemed that was held by the holder on any
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dividend record date which occurred prior to the Redemption Date, and (ii) will
be deemed to have received a dividend equal to the amount, if any, by which the
redemption (or retraction) proceeds (i.e. the fair market value at that time of
NPS Common Shares received by the holder of the Exchangeable Shares from NPS
Allelix on the redemption (or retraction) exceeds the paid-up capital (for
purposes of the ITA ) at the time of the redemption (or retraction) of the
Exchangeable Shares. The amount of any such dividend and/or deemed dividend
will be subject to the tax treatment described above under " - Dividends -
Dividends on Exchangeable Shares". On the redemption (or retraction) of
Exchangeable Shares, the holder of the Exchangeable Shares will also be
considered to have disposed of the Exchangeable Shares for proceeds of
disposition equal to the redemption (or retraction) proceeds less the amount of
such deemed dividend. The holder of the Exchangeable Shares redeemed (or
retracted) will, in general, realize a capital gain (or a capital loss) equal to
the amount by which the adjusted cost base to the holder of the Exchangeable
Shares immediately before redemption (or retraction) is less than (or exceeds)
such proceeds of disposition. See " - Taxation of Capital Gain or Capital Loss"
below. In the case of a holder of Exchangeable Shares that is a corporation, in
some circumstances, the amount of any deemed dividend arising on redemption (or
retraction) may be treated as proceeds of disposition and not as a dividend.
On the purchase for cancellation of Exchangeable Shares by NPS Allelix by
tender to all the registered holders of record of Exchangeable Shares then
outstanding, the holder of the Exchangeable Shares will be deemed to have
received a dividend equal to the amount, if any, by which the amount paid by NPS
Allelix for the Exchangeable Shares exceeds the paid-up capital (for purposes of
the ITA ) at the time the Exchangeable Shares are purchased for cancellation.
The amount of any such deemed dividend will be subject to the tax treatment
described above under " - Dividend - Dividends on Exchangeable Shares". On the
purchase for cancellation of Exchangeable Shares, the holder of the Exchangeable
Shares will also be considered to have disposed of the Exchangeable Shares for
proceeds of disposition equal to the purchase proceeds less the amount of such
deemed dividend. The holder of the Exchangeable Shares purchased for
cancellation will, in general, realize a capital gain (or a capital loss) equal
to the amount by which the adjusted cost base to the holder of the Exchangeable
Shares immediately before such shares are purchased for cancellation is less
than (or exceeds) such proceeds of disposition. See "- Taxation of Capital Gain
or Capital Loss" below. In the case of the holder of Exchangeable Shares that
is a corporation, in some circumstances, the amount of any deemed dividend
arising on the purchase for cancellation of the Exchangeable Shares may be
treated as proceeds of disposition and not as a dividend.
On the purchase for cancellation of Exchangeable Shares by NPS Allelix
through the facilities of any stock exchange in which the Exchangeable Shares
are listed or quoted, the holder of the Exchangeable Shares so purchased for
cancellation
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will be considered to have disposed of the Exchangeable Shares for proceeds of
disposition equal to the amount received as consideration for the Exchangeable
Shares. The holder of the Exchangeable Shares purchased for cancellation will,
in general, realize a capital gain (or capital loss) equal to the amount by
which such proceeds of disposition, net of any reasonable costs of disposition,
exceed (or are less than) the adjusted cost base to the holder of the
Exchangeable Shares immediately before such shares are purchased for
cancellation. See "- Taxation of Capital Gain or Capital Loss" below.
On the exchange of Exchangeable Shares by the holder thereof with NPS or
NPS Holdings for NPS Common Shares, the holder of the Exchangeable Shares will
receive a dividend equal to any declared and unpaid dividend on each
Exchangeable Share exchanged that was held by the holder on any dividend record
date which occurred prior to the Exchange Date. The amount of any such dividend
will be subject to the tax treatment described above under "Dividends -
Dividends on Exchangeable Shares". The holder will also in general, realize a
capital gain (or a capital loss) to the extent the proceeds of disposition of
the Exchangeable Shares, net of any reasonable costs of disposition, exceed (or
are less than) the adjusted cost base to the holder of the Exchangeable Shares
immediately before the exchange. For these purposes, the proceeds of
disposition will be the aggregate of the fair market value, at the time of the
exchange, of NPS Common Shares received on the exchange. See "- Taxation of
Capital Gain or Capital Loss" below.
Because of the existence of the Call Rights, the Exchange Right and the
Automatic Exchange Right, a holder of Exchangeable Shares cannot control whether
such holder will receive NPS Common Shares by way of redemption (or retraction)
of the Exchangeable Shares by NPS Allelix or by way of purchase of the
Exchangeable Shares by NPS or NPS Holdings. As described above, the Canadian
federal income tax consequences of a redemption (or retraction) differ from
those of a purchase.
Acquisition and Disposition of NPS Common Shares
The cost to a holder of NPS Common Shares who receives NPS Common Shares on
the redemption, retraction or exchange of Exchangeable Shares will be equal to
the fair market value of the NPS Common Shares at the time of such event and
will be averaged with the adjusted cost base of any other NPS Common Shares held
at that time by the holder as capital property.
A disposition or deemed disposition of NPS Common Shares by a holder will
generally result in a capital gain (or capital loss) to the extent that the
proceeds of disposition, net of any reasonable costs of disposition, exceed (or
are less than) the adjusted cost base to the holder of such shares immediately
before the disposition.
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Taxation of Capital Gain or Capital Loss
Three-quarters of any capital gain (the "taxable capital gain") realized by
an Allelix Common Shareholder will be included in the Allelix Common
Shareholder's income for the year of disposition. Three-quarters of any capital
loss so realized (the "allowable capital loss") may be deducted by the Allelix
Common Shareholder against taxable capital gains for the year of disposition.
Any excess of allowable capital losses over taxable capital gains for the
year of disposition may be carried back up to three taxation years or forward
indefinitely and deducted against net taxable capital gains in those other years
to the extent and in the circumstances prescribed in the ITA .
If the holder of an Allelix Common Share and/or Exchangeable Share is a
corporation, the amount of any capital loss arising on a disposition or deemed
disposition of any such share may be reduced by the amount of dividends received
or deemed to have been received by it on such share to the extent and under
circumstances prescribed by the ITA . Similar rules may apply where a
corporation is a member of a partnership or a beneficiary of a trust that owns
an Allelix common Share and/or Exchangeable Share or where a trust or
partnership of which a corporation is a beneficiary or a member is a member of a
partnership or a beneficiary of a trust that owns any such share.
Foreign Property Information Reporting
In general, a "specified Canadian entity", as defined in the ITA , for a
taxation year or fiscal period whose total cost amount of "specified foreign
property", as defined in the ITA , at any time in the year or fiscal period
exceeds Cdn. $100,000, is required to file an information return for the year or
period disclosing prescribed information, including the cost amount, any
dividends received in the year, and any gains or losses realized in the year, in
respect of such property. With some exceptions, a taxpayer resident in Canada
in the year will be a specified Canadian entity. Exchangeable Shares and NPS
Common Shares will be specified foreign property to a holder. Accordingly,
registered holders of Exchangeable Shares, and/or NPS Common Shares should
consult their own advisers regarding compliance with these rules.
Eligibility for Investment
Qualified Investments. Provided the Exchangeable Shares are listed on a
prescribed stock exchange in Canada (which currently includes the TSE), the
Exchangeable Shares will be "qualified investments" for trusts governed by
RRSPs, RRIFs, DPSPs and "registered education savings plans", as defined in the
ITA . Similarly, NPS Common Shares will be qualified investments under the ITA
for
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such plans provided such shares remain listed on the NASDAQ Stock Market (or are
listed on another prescribed stock exchange). The Ancillary Rights will not be
qualified investments under the ITA for such plans. However, Allelix is of the
view that the fair market value of these rights is nominal.
Foreign Property. Provided the Exchangeable Shares are listed on a
prescribed stock exchange in Canada (which currently includes the TSE), the
Exchangeable Shares will not be foreign property under the ITA for trusts
governed by RRSPs, RRIFs, DPSPs, for registered pension plans or for certain
other persons to whom Part XI of the ITA applies. The Ancillary Rights will be
foreign property under the ITA . However, Allelix is of the view that the fair
market value of these rights is nominal. NPS Common Shares will be foreign
property under the ITA .
Dissenting Shareholders
A Dissenting Shareholder is entitled, if the Arrangement becomes effective,
to receive the fair value of Allelix Common Shares held by the Dissenting
Shareholder. The Dissenting Shareholder will be considered to have disposed of
the Allelix Common Shares for proceeds of disposition equal to the amount
received by the Dissenting Shareholder less the amount of any deemed dividend
referred to below. See " - Taxation of Capital Gain or Capital Loss" above.
Where the amount is received from Allelix, the Allelix Common Shareholder also
will be deemed to receive a taxable dividend equal to the amount by which the
amount received exceeds the paid-up capital of such shareholder's Allelix Common
Shares. In the case of an Allelix Common Shareholder that is a corporation, in
some circumstances, the amount of any such deemed dividend may be treated as
proceeds of disposition and not as a dividend. Pursuant to Proposed Amendments,
a Dissenting Shareholder will not be entitled to the benefit of the "replacement
property" provisions of the ITA .
Allelix Common Shareholders Not Resident in Canada
The following portion of the summary is applicable to an Allelix Common
Shareholder who, for purposes of the ITA , has not been and will not be resident
(or deemed resident) in Canada at any time while such Allelix Common Shareholder
has held Allelix Common Shares and will hold NPS Common Shares and/or
Exchangeable Shares and to whom such shares are not "taxable Canadian property"
(as defined in the ITA). Special rules, which are not discussed in this
summary, may apply to a non-resident that is an insurer carrying on business in
Canada and elsewhere.
Generally, Allelix Common Shares, Exchangeable Shares and NPS Common Shares
will not be taxable Canadian property at a particular time provided that such
shares are listed on a prescribed stock exchange (which currently includes the
TSE),
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the holder does not use or hold, and is not deemed to use or hold, such shares
in carrying on a business in Canada and the holder, persons with whom the holder
does not deal at arm's length, or the holder together with all such persons has
not owned (or had under option) 25 percent or more of the issued shares of any
class or series of the capital stock of Allelix or NPS, as the case may be, at
any time during the 60-month period that ends at the particular time.
Disposition of Allelix Common Shares, Exchangeable Shares and NPS Common Shares
An Allelix Common Shareholder who is not a resident of Canada for purposes
of the ITA will not be subject to tax under the ITA on (i) the exchange of
Allelix Common Shares for NPS Common Shares or Exchangeable Shares for NPS
Common Shares, other than upon a redemption or retraction of such Exchangeable
Shares or to the extent NPS Holdings pays or credits a Dividend Amount to such
holder, (ii) the sale or other disposition of Exchangeable Shares, other than
upon a redemption, retraction or purchase for cancellation by tender to all
holders of record of Exchangeable Shares then outstanding, or (iii) the sale or
other disposition of NPS Common Shares.
On the redemption, retraction or purchase for cancellation by tender to all
the holders of record of Exchangeable Shares by NPS Allelix, the holder of the
Exchangeable Shares will receive and/or be deemed to have received a dividend as
described under "Income Tax Considerations to Allelix Common Shareholders-
Allelix Common Shareholders Resident in Canada - Redemption, Retraction,
Purchase or Exchange of Exchangeable Shares". Any such dividend and/or deemed
dividend will be subject to Canadian withholding tax at the rate of 25 percent
unless reduced by the provision of an applicable tax treaty.
Dividends and Interest
Dividends (including deemed dividends) paid or credited (or deemed to be
paid or credited) to registered holders of Exchangeable Shares by Allelix and
Dividend Amounts paid or credited by NPS Holdings are subject to non-resident
withholding tax under the ITA at the rate of 25 percent unless such rate is
reduced under the provision of an applicable income tax treaty.
Where an Allelix Common Shareholder is deemed to have received a taxable
dividend or interest consequent upon the exercise of Dissent Rights (see "Income
Tax Consideration to Allelix Common Shareholders - Allelix Common Shareholders
Resident in Canada - Dissenting Shareholders"), such amounts will be subject to
Canadian withholding tax at the rate of 25 percent unless the rate is reduced
under the provisions of an applicable tax treaty.
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United States Federal Income Tax Considerations
The following is a general discussion, prepared by Ernst & Young LLP of the
principal United States federal income tax considerations generally applicable
to U.S. Holders (as defined below) who receive NPS Common Shares and Non-U.S.
Holders (as defined below) who receive Exchangeable Shares or NPS Common Shares
pursuant to the Arrangement. For purposes of this discussion, a "U.S. Holder"
is a beneficial owner of Allelix Common Shares that is (i) a citizen or resident
of the United States, (ii) a corporation or other entity taxable as a
corporation organized under the laws of the United States or any state thereof,
(iii) an estate the income of which is subject to United States federal income
taxation regardless of source, or (iv) a trust if a United States court is able
to exercise primary supervision over the administration of such trust and one or
more United States persons have the authority to control all substantial
decisions of such trust. A "Non-U.S. Holder" is a beneficial owner of Allelix
Common Shares that is not a U.S. Holder.
This summary does not address all aspects of United States federal income
taxation that may be applicable to U.S. Holders and Non-U.S. Holders
(collectively, "Holders") in light of their particular circumstances or to
Holders subject to special treatment under United States federal income tax laws
(including, without limitation, certain financial institutions, insurance
companies, tax-exempt entities, dealers in securities, certain United States
expatriates, persons who hold Allelix Common Shares as part of a straddle,
hedge, conversion transaction or other integrated investment, U.S. Holders whose
functional currency is not the U.S. dollar, and Holders who acquire Allelix
Common Shares through exercise of employee stock options or otherwise as
compensation). This discussion is limited to Holders who hold their Allelix
Common Shares as capital assets and does not consider the tax treatment of
Holders who hold Allelix Common Shares through a partnership or other pass-
through entity. In addition, this summary does not discuss aspects of United
States federal income taxation that may be applicable to registered holders of
Allelix Options, Allelix Preferred Shares, or Allelix Warrants, nor does it
address any aspect of state, local or foreign taxation.
This discussion is based on current law, which is subject to change,
possibly with retroactive effect. No advance income tax ruling has been sought
or obtained from the IRS regarding the U.S. federal income tax consequences of
the Arrangement.
EACH HOLDER IS ADVISED TO CONSULT ITS TAX ADVISER REGARDING THE UNITED
STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE ARRANGEMENT.
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U.S. Holders
The following discussion applies only to U.S. Holders who receive NPS
Common Shares in exchange for their Allelix Common Shares. This discussion does
not address U.S. Holders who are Canadian Residents and who elect to receive
Exchangeable Shares pursuant to the Arrangement. Such U.S. Holders should
consult their tax advisers concerning the tax consequences of the Arrangement.
The exchange of Allelix Common Shares for NPS Common Shares pursuant to the
Arrangement will be a taxable event for United States federal income tax
purposes. Consequently, a U.S. Holder will recognize income, gain or loss.
Non-Passive Foreign Investment Company (PFIC) Shares
A U.S. Holder of non-PFIC shares will recognize gain or loss on the
exchange equal to the difference between (i) the sum of (a) the fair market
value on the date of the exchange of the NPS Common Shares received in the
exchange and (b) any cash received in lieu of fractional shares, and (ii) such
U.S. Holder's U.S. federal income tax basis in its Allelix Common Shares. In
the case of a U.S. Holder who dissents from the Arrangement, such gain or loss
will be equal to the difference between the amount of cash received and such
U.S. Holder's U.S. federal income tax basis in its Allelix Common Shares
surrendered in the exchange. Gain or loss on the exchange of Allelix Common
Shares will be capital gain or loss if such shares were held by a U.S. Holder as
a capital asset, and will be long-term capital gain or loss if the U.S. Holder
held its Allelix Common Shares for more than one year at the time of the
exchange.
Passive Foreign Investment Company (PFIC) Shares
For the reasons stated below, there is a possibility that the Allelix
Common Shares held by U.S. Holders (all or a portion thereof) are to be treated
as shares in a PFIC, as defined in section 1297 of the Internal Revenue Code.
This could occur, or may already have occurred, by virtue of the annual
percentage of Allelix's income which is passive, and/or the annual percentage of
Allelix's assets which are held for the purpose of producing passive income.
Allelix has not determined if it is currently or has ever been a PFIC.
Accordingly, Allelix is not expressing any opinion on its current year or prior
years PFIC status. U.S. Holders are strongly urged to consult their U.S. tax
advisors concerning the PFIC status of their shares in Allelix.
Certain U.S. income tax legislation contains rules governing PFICs, which
can have significant tax effects on U.S. Holders of foreign corporations. These
rules do not apply to non-U.S. Holders, or to U.S. Holders who recognize a loss
on the disposition of their Allelix Common Shares.
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Section 1297 of the Internal Revenue Code defines a PFIC as a corporation
that is not formed in the United States and, for any taxable year, either:
1. 75 percent or more of its gross income is passive income, which includes
interest, dividends and certain rents and royalties; or
2. the average percentage, by fair market value, (or, if the company is a
controlled foreign corporation or makes an election, by adjusted tax basis)
of its assets that produce or are held for the production of passive income
is 50 percent or more.
A U.S. Holder who holds shares in a foreign corporation during any year in
which that corporation qualifies as a PFIC is subject to U.S. federal income
taxation under alternative tax regimes, depending upon whether certain elections
are made by that U.S. Holder. The following is a discussion of these
alternative tax regimes as generally applicable to U.S. Holders of Allelix
Common Shares in the event that Allelix is, or was at any time, a PFIC.
A U.S. Holder of a PFIC who does not make either of the elections described
below is referred to in this discussion as a Non-electing U.S. Holder. A Non-
electing U.S. Holder is subject to special taxation rules under section 1291 of
the Internal Revenue Code with respect to:
1. gains realized on the disposition of his or her common shares, or deemed to
be realized by reason of a pledge of his or her common shares; and
2. certain excess distributions received.
A Non-electing U.S. Holder generally would be required to include in
income, pro rata, all gains realized on the disposition of his or her common
shares, and all excess distributions received, over the entire holding period
for the PFIC common shares. All gains or excess distributions allocated to
prior years of the U.S. Holder (other than years prior to January 1, 1987 for
which the foreign corporation was a PFIC) would be taxed at the highest tax rate
for each prior year applicable to ordinary income. The Non-electing U.S. Holder
also would be liable for interest on the foregoing tax liability for each prior
year calculated as if that liability had been due with respect to each prior
year. A Non-electing U.S. Holder that is not a corporation must treat this
interest charge as personal interest which is partially or wholly non-
deductible. The balance of the gain or the excess distribution will be treated
as ordinary income in the year of the disposition or distribution, and no
interest charge will be incurred with respect to that balance.
If Allelix was a PFIC for any taxable year during which a Non-electing U.S.
Holder holds common shares, then Allelix will continue to be treated as a PFIC
with respect to those common shares, even if it no longer qualifies
definitionally as a
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PFIC. A Non-electing U.S. Holder may terminate this deemed PFIC status by
electing to recognize a gain as if those common shares had been sold on the last
day of the last taxable year for which Allelix was a PFIC. This gain will be
taxed under the rules discussed above for Non-electing U.S. Holders.
Alternatively, if Allelix is or was a PFIC, a U.S. Holder who owns common
shares is permitted generally to elect out of the tax treatment discussed above
if that U.S. Holder makes a mark-to-market election with respect to the common
shares. A U.S. Holder who so elects is referred to in this discussion as an
Electing U.S. Holder. Under this election, an Electing U.S. Holder would
generally recognize as ordinary income for each taxable year an amount equal to
the excess, if any, of the fair market value of common shares as of the close of
the taxable year over the Electing U.S. Holder's adjusted tax basis in those
shares. An Electing U.S. Holder would generally be allowed an ordinary
deduction, to the extent of any net mark-to-market gains recognized for prior
taxable years, for the excess, if any, of the adjusted tax basis of the common
shares over their fair market value as of the close of the taxable year. An
Electing U.S. Holder's adjusted tax basis of the common shares would generally
be adjusted to reflect the amounts included or deducted under the mark-to-market
election. Additionally, any gain on the actual sale or other disposition of the
common shares generally will be treated as ordinary income. Ordinary loss
treatment also would generally apply to any loss realized on the actual sale or
other disposition of the common shares to the extent that the amount of that
loss did not exceed the net mark-to-market gains previously included with
respect to those shares. An election to mark to market would generally apply to
the taxable year made and all subsequent taxable years. A mark-to-market
election is subject to complex and specific rules and requirements, and U.S.
Holders are strongly urged to consult their tax advisors concerning this
election if Allelix were classified as a PFIC.
Finally, a U.S. Holder who elects in a timely manner to treat their PFIC
shares as a qualified electing fund ("QEF"), as defined in the Internal Revenue
Code, would be subject to another set of special rules different from those
described above. Although a QEF election may be beneficial to some U.S. Holders
depending upon their particular tax situations, it requires the foreign
corporation to annually make available certain information to those holders.
Allelix neither intends to make, nor in the past has ever made, this information
available. Accordingly, the QEF election has not and is not available to U.S.
Holders.
Holding NPS Common Shares. The U.S. federal income tax basis of NPS Common
Shares received by a U.S. Holder will be equal to the fair market value of such
shares on the date of the exchange. The holding period for such shares will
begin on the date after the date of the exchange.
For U.S. federal income tax purposes, a U.S. Holder of NPS Common Shares
will realize, to the extent of NPS' current and accumulated earnings and
profits,
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ordinary income on the receipt of a dividend distribution. To the extent, if
any, that distributions made by NPS to a U.S. Holder exceed the current and
accumulated earnings and profits of NPS, such distribution will be treated as a
tax-free return of capital to the extent of such U.S. Holder's U.S. federal
income tax basis for such shares, and to the extent in excess of such basis, as
capital gain. For U.S. Holders that are corporations, a dividends received
deduction may be available.
Non-U.S. Holders
Exchange of Allelix Common Shares
Non-U.S. Holders will not be subject to United States federal income tax as
a result of an exchange of Allelix Common Shares for Exchangeable Shares, NPS
Common Shares, cash or a combination thereof pursuant to the Arrangement, unless
such gain is effectively connected with a United States trade or business of the
Non-U.S. Holder (or, if a tax treaty applies, is attributable to a permanent
establishment of the Non-U.S. Holder in the United States) or, in the case of
gain recognized by an individual Non-U.S. Holder, such individual is present in
the United States for 183 days or more during the taxable year of disposition
and certain other conditions are satisfied.
Exchangeable Shares
Dividends on Exchangeable Shares. No statutory, judicial or administrative
authority exists that directly addresses the United States federal income tax
treatment of the Exchangeable Shares and, therefore, such treatment is subject
to some uncertainty. NPS and NPS Allelix have advised Allelix that, based on
the fact that the Exchangeable Shares will be issued by NPS Allelix., a Canadian
corporation, and dividends, if any on the Exchangeable Shares will be paid from
the cash flow and earnings generated by NPS Allelix and its subsidiaries, they
intend to treat dividends received by Non-U.S. Holders of Exchangeable Shares as
dividends distributed by NPS Allelix not subject to United States withholding
tax. If, contrary to this position, dividends on the Exchangeable Shares were
determined to constitute income from United States sources, Non-U.S. Holders of
Exchangeable Shares would likely be subject to United States withholding tax at
a rate of 30 percent, or any lower rate specified by an applicable income tax
treaty between the United States and the country of residence of the Non-U.S.
Holder. Under the Canada-United States Income Tax Convention, a maximum rate of
15 percent applies to dividends from United States sources distributed to
residents of Canada. See " - NPS Common Shares--Dividends on NPS Common Shares"
and "Backup Withholding and Information Reporting--Dividends" below.
Sale or Exchange of Exchangeable Shares. A Non-U.S. Holder generally will
not be subject to United States federal income tax on any gain realized on the
sale or
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other taxable disposition of Exchangeable Shares, including the exchange of
Exchangeable Shares for NPS Common Shares, unless such gain is effectively
connected with a United States trade or business of the Non-U.S. Holder (or, if
a tax treaty applies, is attributable to a permanent establishment of the Non-
U.S. Holder in the United States) or, in the case of gain recognized by an
individual Non-U.S. Holder, such individual is present in the United States for
183 days or more during the taxable year of disposition and certain other
conditions are satisfied. If it were to be determined that the Exchangeable
Shares should be treated as shares of NPS, see the rules described below under
"-NPS Common Shares--Sale or Exchange of NPS Common Shares" and " - Backup
Withholding and Information Reporting--Sale or Exchange of NPS Common Shares".
NPS Common Shares
Dividends on NPS Common Shares. Dividends paid to a Non-U.S. Holder of NPS
Common Shares will generally be subject to withholding of United States federal
income tax at a rate of 30 percent (or such lower rate as may be specified by an
applicable income tax treaty) unless the dividend is (a) effectively connected
with the conduct of a trade or business by the Non-U.S. Holder within the United
States or (b) if a tax treaty applies, attributable to a United States permanent
establishment of the Non-U.S. Holder, in which case the dividend will be taxed
at ordinary United States federal income tax rates. A Non-U.S. Holder may be
required to satisfy certain certification requirements to claim treaty benefits
or otherwise claim a reduction of, or exemption from, the 30 percent United
States withholding tax described above. If the Non-U.S. Holder is a
corporation, any effectively connected income may also be subject to an
additional "branch profits tax".
Sale or Exchange of NPS Common Shares. A Non-U.S. Holder generally will
not be subject to United States federal income or withholding tax in respect of
any gain recognized on the sale or other disposition of NPS Common Shares unless
(a) the gain is effectively connected with the conduct of a trade or business by
the Non-U.S. Holder within the United States, or if a tax treaty applies, is
attributable to a permanent establishment of the Non-U.S. Holder in the United
States; (b) in the case of a Non-U.S. Holder who is an individual, the Non-U.S.
Holder is present in the United States for 183 or more days during the taxable
year of the sale or other disposition and certain other conditions are
satisfied; or (c) NPS is or has been a "U.S. real property holding corporation"
("USRPHC "), as discussed below.
A USRPHC is a corporation organized under the laws of the United States or
any state thereof, and 50 percent or more of the assets of which (including
assets held indirectly through subsidiaries) consist of United States real
property interests. NPS has advised Allelix that it has not determined whether
NPS is or will become a USRPHC [NTD: to be confirmed] for United States federal
income tax purposes. If NPS were determined to be a USRPHC, a Non-U.S. Holder
who owned (actually or
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constructively) more than 5 percent of the NPS Common Shares would generally be
subject to United States federal income tax on any gain recognized on the sale
or other disposition of the NPS Common Shares as if such gain were effectively
connected with the conduct of a United States trade or business. Furthermore, if
the Exchangeable Shares were determined to be shares of NPS and NPS were a
USRPHC, a Non-U.S. Holder who owned (actually or constructively Exchangeable
Shares with a fair market value in excess of 5 percent of the fair market value
of the outstanding NPS Common Shares (determined at the time that the Non-U.S.
Holder first acquired such Exchangeable Shares) would likely be subject to
United States federal income tax on any gain recognized on such sale or other
disposition as if such gain were effectively connected with the conduct of a
United States trade or business. A Non-U.S. Holder who meets the 5 percent
ownership criteria set forth above should consult its tax adviser concerning the
United States federal income tax consequences to it if NPS were determined to be
a USRPHC.
Backup Withholding and Information Reporting
U.S. Holders
In general, a U.S. Holder may be subject to backup withholding at the rate
of 31 percent with respect to dividends paid on NPS Common Shares and to
proceeds from the sale, exchange or redemption of the NPS Common Shares, unless
such U.S. Holder (a) is a corporation or comes with certain other exempt
categories and, when required, demonstrates the fact, or (b) provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A U.S. Holder of NPS Common Shares who does not provide a
correct taxpayer identification number may be subject to penalties imposed by
the IRS.
Amounts withheld under the backup withholding rules may be credited against
a U.S. Holder's tax liability.
Non U.S. Holders
United States backup withholding tax generally will not apply to dividends
paid on NPS Common Shares to a Non-U.S. Holder at an address outside the United
States. NPS must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, such Non-U.S.
Holder, regardless of whether any tax was actually withheld. This information
may also be made available to the tax authorities in the Non-U.S. Holder's
country of residence.
Sale or Exchange of NPS Common Shares. Upon the sale or other disposition
of NPS Common Shares by a Non-U.S. Holder to or through a United States office
of
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a broker, the broker must backup withhold at a rate of 31 percent and report the
sale to the IRS, unless the Non-U.S. Holder certifies its Non-U.S. Holder status
under penalties of perjury or otherwise establishes an exemption. Upon the sale
or other disposition of NPS Common Shares by a Non-U.S. Holder to or through the
foreign office of a United States broker, or a foreign broker with certain types
of relationships to the United States, the broker must report the sale to the
IRS (but not backup withhold), unless the broker has documentary evidence in its
files that the seller is a Non-U.S. Holder and/or certain other conditions are
met, or the Non-U.S. Holder otherwise establishes an exemption.
Amounts withheld under the backup withholding rules are generally allowable
as a credit against such Non-U.S. Holder's United States federal income tax
liability, if any, which may entitle such Non-U.S. Holder to a refund, provided
that certain required information is furnished to the IRS.
On October 6, 1997, the IRS issued final regulations relating to the
withholding, information reporting and backup withholding on certain payments
made to Non-U.S. Holders, which are effective for payments made after December
31, 2000 (the "Final Regulations"). The Final Regulations alter the procedures
for claiming benefits under an income tax treaty and may also alter the
procedures for otherwise claiming a reduction of, or exemption from, the
withholding obligations described above. In addition, the Final Regulations
eliminate the current legal presumption that dividends paid to an address
outside the United States are paid to non-U.S. residents. Each Non-U.S. Holder
is urged to consult its tax adviser as to the effect, if any, of the final
regulations on its ownership and disposition of Exchangeable Shares or NPS
Common Shares.
INFORMATION CONCERNING NPS
Business of NPS
General
NPS was incorporated in the State of Utah in 1986 and reincorporated in the
State of Delaware in 1992. NPS is engaged in the discovery and development of
small molecule drugs that are intended to address a variety of important
diseases. NPS' approach to the discovery of novel drugs is to identify new drug
targets and small molecules that modulate the activities of these targets, or
the activities of previously identified targets, in ways that provide unique and
effective therapies. NPS has pioneered the use of various whole cell and tissue
functional screens in its drug discovery programs. These functional screens
substantially enhance NPS' ability to discover new receptors and ion channels
and new drug candidates that modulate the activities of specific receptors or
ion channels through novel
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mechanisms. Functional screens were of critical importance, for example, in its
discovery of calcimimetic compounds that modulate calcium receptor function as
discussed below in more detail.
NPS' most advanced programs focus on the development of small molecule
drugs for the treatment of hyperparathyroidism (HPT), for osteoporosis, for
neuroprotection in stroke and head trauma, and for epilepsy and bipolar
disorder. The HPT and osteoporosis programs arose from NPS' pioneering work on
a cell surface receptor, termed the "calcium receptor" or the "calcium sensing
receptor." This receptor detects levels of extracellular calcium and is involved
in numerous physiological processes. The neuroprotection program is based on
NPS' work on small molecules with novel activity at the NMDA (N-methyl-D-
aspartate) subtype of glutamate receptor-operated calcium channels. The
epilepsy/bipolar disorder program is based on NPS' work on small molecules that
belong to the same chemical class as valproic acid, but are structurally
distinct and have significantly different biological properties. In addition,
NPS is pursuing several discovery programs that are extensions of its research
on calcium receptors and ion channels.
Hyperparathyroidism
In the field of HPT, NPS has established a research collaboration and
license arrangement with the Pharmaceutical Division of Kirin Brewery, Ltd.
("Kirin") and a development and license arrangement with Amgen Inc. ("Amgen").
Before entering into the arrangements with Kirin and Amgen, NPS initiated and
conducted four clinical trials in the United States with NPS R-568, its lead
drug candidate for the treatment of HPT. Under the Amgen agreement, on March
18, 1996, Amgen acquired full authority and assumed full responsibility for
further development and commercialization of a drug for the treatment of HPT in
its territory. In 1998, Amgen concluded dosing in a Phase II clinical trial
using NPS R-568 in secondary HPT patients (patients on kidney dialysis). Amgen
has since announced commencement of clinical trials with a second-generation
compound licensed from NPS. Amgen has indicated that this second generation
compound has more favourable metabolism and kinetic profiles than NPS R-568. In
addition, Amgen has announced that it has successfully completed a Phase I
safety trial with the second-generation compound, and began a Phase II clinical
trial with the second-generation calcimimetic in secondary HPT in the second
quarter of 1998, and began a Phase II clinical trial in primary HPT with the
same compound in the third quarter of 1998. Amgen continues to conduct Phase II
clinical trials with the second generation compound.
While the HPT program is licensed to Amgen for most of the world, Kirin is
NPS' licensee in Asia. Effective June 30, 1995, Kirin acquired full authority
and assumed full responsibility for the development of a calcimimetic drug
program for HPT in Japan, China, Hong Kong, North and South Korea, and Taiwan.
Kirin began
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a Phase II clinical trial of NPS R-568 in Japan in December 1997, for which NPS
earned a $2.0 million milestone payment. Kirin has announced that it will pursue
development in Japan on the same second generation compound which Amgen has
taken into clinical development in the United States. Amgen and Kirin have
agreed to share with each other data generated from their respective development
activities with the second generation compound. NPS is working with Amgen and
Kirin to discover, identify, and characterize additional backup and second
generation compounds for the treatment of HPT. There can be no assurance that
the clinical trials will proceed as indicated or that a drug for the treatment
of HPT will prove safe and/or effective, meet applicable regulatory standards,
or be successfully marketed.
Osteoporosis
In conjunction with SmithKline Beecham, NPS is applying calcium receptor
technology to discovering, identifying, and characterizing orally active
therapeutics for the treatment of osteoporosis. Osteoporosis is an age-related
disorder that affects more than 200 million people worldwide, and is
characterized by reduced bone density and an increased susceptibility to
fractures. Among the elderly in particular, osteoporosis is a major cause of
morbidity and mortality. The NPS and SmithKline Beecham research is focused on
the stimulation of bone formation. Most osteoporosis patients are diagnosed
only after they have already lost significant bone mass. As a result, a therapy
that not only halts further bone loss, but that also builds new bone, would
constitute a significant advancement in the treatment of osteoporosis. Under
the collaboration with SmithKline Beecham, research efforts are being conducted
to find small molecules that will stimulate bone formation. In January 1996,
NPS received a milestone payment of $3.0 million from SmithKline Beecham for
progress made in this program. In November 1997, the term of the research
support obligation of SmithKline Beecham was extended for an additional period
of up to three years. There can be no assurance that lead molecules will be
identified, that preclinical and clinical trials will proceed, or that these
molecules will prove safe and/or effective, meet applicable regulatory
standards, or be successfully marketed.
Neuroprotection
NPS has conducted research on a new class of compounds that modulate
certain calcium channels. In this program NPS has selected a lead compound, NPS
1506, and focused its initial clinical development on neuroprotection in stroke
and head trauma; other indications are being evaluated. The influx of calcium
through glutamate receptor-operated calcium channels has been linked to a number
of neurological disorders, including nerve cell death following stroke and head
trauma. NPS 1506 and other compounds in this series antagonize NMDA receptor-
operated calcium channels thereby reducing the influx of calcium. These
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compounds demonstrated neuroprotectant activity in preclinical animal models of
stroke and head trauma. It appears that NPS 1506 works through a novel
mechanism and exhibits potentially advantageous pharmacological properties. In
July 1997, NPS began a Phase I clinical trial for NPS 1506 in healthy male
volunteers. This Phase I trial was completed in the second quarter of 1998.
Results of the trial indicated that NPS 1506 was safe and well tolerated. A
Phase Ib trial was initiated in July 1998 to assess safety and tolerability in
patients who had recently suffered a stroke. The clinical phase of this trial
has been completed and NPS expects to complete the evaluation of the study data
in 1999. NPS continues to formulate its clinical development plan. Future
development of NPS 1506 and related compounds will be determined in conjunction
with its efforts to find a partner to assist in the development of these
compounds. There can be no assurance that NPS 1506 will be pursued further for
stroke, head trauma, or other indications, or that any of the other compounds in
this series will advance through clinical development, that NPS 1506 or any
other compound from this series will prove safe and/or effective, meet
applicable regulatory standards, or be successfully marketed.
Epilepsy and Bipolar
NPS has initiated clinical testing of a proprietary compound, NPS 1776,
proposed for the initial indications of epilepsy and bipolar disorder. NPS
believes that NPS 1776 may be effective in the treatment of diseases such as
epilepsy and bipolar disorder. "Epilepsy" refers to a family of more than 40
neurological conditions characterized by aberrant brain activity that results in
a variety of seizure types. It affects roughly 2.5 million Americans. Bipolar
disorder is characterized by the occurrence of both manic and depressive states,
usually in alteration. Bipolar disorder affects about 2.5 million people in the
United States. NPS 1776 is an orally active, small molecule drug that has
demonstrated significant anticonvulsant safety properties in preclinical
studies. In September 1998, NPS began clinical trials in the United Kingdom in
healthy male volunteers to evaluate the safety and pharmacokinetics of the
molecule. This trial was concluded in December 1998 and another trial was
commenced, also in the United Kingdom, to confirm safety and tolerability in
volunteers receiving multiple doses of the drug. NPS is preparing a development
plan for further clinical trials to be conducted in the United States. Future
development of NPS 1776 will be determined in conjunction with efforts to find a
partner to assist in the development of this compound. There can be no
assurance that NPS 1776 will advance through clinical development, will prove
safe and/or effective, meet applicable regulatory standards, or be successfully
marketed.
Discovery Programs
Historically, NPS has engaged in discovery programs that seek to identify
molecular targets for the development of new drugs. Among these, current
activity focuses on other applications of calcium receptor technology and
metabotropic
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glutamate receptors (mGluRs). Significant discoveries have been made with regard
to novel forms of mGluRs. Small molecules active at these receptors have been
identified. Drugs acting at specific mGluRs may provide relevant therapies for a
number of neurological disorders. NPS is seeking a partner to assist in the
development of the mGluR program. There can be no assurance that NPS will be
successful in identifying lead compounds active at mGluRs, and that development
of these compounds will prove to be safe and/or effective, meet applicable
regulatory standards, or be successfully marketed.
In-Licensing and Product Acquisition
Periodically, NPS evaluates alternatives for acquisition of late-stage
product opportunities. This evaluation includes the consideration of merger and
acquisition candidates and the search for in-licensing or joint venture
development candidates. To date, the Transaction is the only such arrangement
NPS has pursued to agreement. There can be no assurance that NPS will be able
to negotiate acceptable licenses and/or collaborative agreements in the future
or that efforts under any license and/or collaborative agreement will be
successful.
Patents and Proprietary Technology
NPS' success will depend in part on its ability to obtain patents, maintain
trade secrets and operate without infringing on the proprietary rights of
others, both in the United States and other countries. Periodically, NPS files
patent applications to protect technology, inventions, and improvements that may
be important to the development of its business. NPS relies on trade secrets,
know-how, continuing technological innovations, and licensing opportunities to
develop and maintain its competitive position.
NPS files patent applications in its own name, and when appropriate, files
and expects to continue to file, applications jointly with collaborators. These
patent applications cover compositions of matter, methods of treatment, methods
of discovery, use of novel compounds and novel modes of action, and
recombinantly expressed receptors and gene sequences that are important in its
research and development activities.
Manufacturing
NPS anticipates that all products from its current programs will be made by
synthetic chemical manufacturing techniques. As such, NPS believes the
compounds can be precisely defined and characterized and should have relatively
low manufacturing costs compared to current pharmaceutical industry costs and
compared to recombinant proteins that are produced by the fermentation methods
common to currently available biotechnology products.
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NPS has no manufacturing facilities. Under the Amgen, Kirin, and
SmithKline Beecham agreements, each licensee is responsible for the manufacture
of the applicable product. NPS relies on other manufacturers to produce the
proprietary compounds for research and development activities and in sufficient
quantities for preclinical and clinical purposes.
Documents Incorporated by Reference
The following documents, filed by NPS with the SEC and reproduced as
Appendices to the Circular, are specifically incorporated by reference in and
form an integral part of this Circular:
(a) NPS' Annual Report on Form 10-K/A for the fiscal year ended December
31, 1998 [(including Management's Discussion and Analysis of Financial
Condition and Results of Operations)] which is attached to this
Circular as Appendix J, without exhibits;
(b) NPS' 1999 Definitive Proxy Statement on Schedule 14A dated April 21,
1999 with respect to the NPS annual meeting of stockholders held on
May 26, 1999, which is attached to this Circular as Appendix K;
(c) NPS' Quarterly Report on Form 10-Q for the quarterly period ended
March 31,1999, which is attached to this Circular as Appendix L;
(d) NPS' Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1999, which is attached to this Circular as Appendix M;
(e) NPS' Quarterly Report on Form 10-Q for the quarterly period ended
September 30,1999, which is attached to this Circular as Appendix N;
and
(f) NPS' Current Report on Form 8-K dated October 1, 1999 which is
attached to this Circular as Appendix O.
Any interim financial statements or Form 8-K reports filed by NPS with the
SEC after the date of this Circular and prior to the Effective Time shall be
deemed to be incorporated by reference in this Circular.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Circular to the extent that a statement contained
herein, or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein, modifies or supersedes that statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Circular. The making of a
modifying or
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superseding statement shall not be deemed an admission for any purposes that the
modified or superseded statement, when made, constituted a misrepresentation, an
untrue statement of a material fact or an omission to state a material fact that
is required to be stated or that is necessary to make a statement not misleading
in light of the circumstances in which it was made. Allelix assumes no
responsibility for the above documents relating to NPS and its Affiliates filed
by NPS with the SEC.
Share Capital Matters
The following summary of certain provisions of NPS' capital stock describes
all material provisions of, but does not purport to be complete and is subject
to, and qualified in its entirety by, NPS' Amended and Restated Certificate of
Incorporation and NPS' Amended and Restated By-laws and by the provisions of
applicable Law.
Capital Stock Generally
NPS' Certificate of Incorporation provides that the authorized capital
stock of NPS is 20,000,000 NPS Common Shares, U.S.$.001 par value, and 5,000,000
shares of preferred stock, U.S.$.001 par value. As of __, 1999, there were __
NPS Common Shares outstanding and no shares of preferred stock outstanding. Upon
completion of the Arrangement, NPS' Certificate of Incorporation will be amended
to increase the authorized capital stock to 40,000,000 NPS Common Shares and
10,000,000 shares of preferred stock. There will be one share of preferred stock
outstanding upon completion of the Arrangement (see "- NPS Special Voting
Share"). NPS also has a Shareholder Rights Plan providing for the issuance of
rights to purchase shares of preferred stock upon the occurrence of certain
events related to an unsolicited tender offer or takeover bid (see "-
Shareholders Rights Plan").
Common Shares
The registered holders of NPS Common Shares are entitled to one vote for
each share held of record on all matters submitted to a vote of the
stockholders. The registered holders of NPS Common Shares are not entitled to
cumulative voting rights with respect to the election of directors and, as a
consequence, minority stockholders will not be able to elect directors on the
basis of their votes alone. Subject to preferences that may be applicable to
any then outstanding shares of preferred stock, registered holders of NPS Common
Shares are entitled to receive rateably such dividends as may be declared by the
Board out of funds legally available therefor. In the event of a liquidation,
dissolution, or winding up of NPS, registered holders of the NPS Common Shares
are entitled to share rateably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding preferred
stock. Registered holders of NPS Common Shares have no pre-emptive rights and
no right to convert their NPS Common Shares into any
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other securities. There are no redemption or sinking fund provisions applicable
to the NPS Common Shares.
Preferred Stock
The board of directors of NPS has the authority, without further action by
the stockholders, to issue up to 5,000,000 shares of preferred stock (10,000,000
upon the completion of the Arrangement) in one or more series and to fix the
rights, preferences, privileges, and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms, and the number of shares constituting any
series or the designation of such series. The issuance of preferred stock could
adversely affect the voting power of registered holders of NPS Common Shares and
the likelihood that such holders will receive dividend payments and payments
upon liquidation and could have the effect of delaying, deferring, or preventing
a change in control of NPS.
NPS Special Voting Share
A single share of special voting preferred stock of NPS will be authorized
for issuance pursuant to the Arrangement Agreement. Except as otherwise
required by law or by NPS' Amended and Restated Certificate of Incorporation,
the NPS Special Voting Share will possess a number of votes equal to the number
of outstanding Exchangeable Shares from time to time not owned by NPS or NPS
Affiliates, which votes may be exercised for the election of directors and on
all other matters submitted to a vote of the registered holders of NPS Common
Shares. The registered holders of NPS Common Shares and the holder of the NPS
Special Voting Share will vote together as a class on all matters, except as
otherwise required by law. Pursuant to the Arrangement Agreement, the NPS
Special Voting Share will be issued to the Trustee appointed under the Voting
and Exchange Trust Agreement. In the event of a Liquidation Event, all
outstanding Exchangeable Shares will automatically be exchanged for NPS Common
Shares. The holder of the NPS Special Voting Share will not be entitled to
receive dividends, and in the event of any liquidation, dissolution, or winding-
up of NPS, will receive an amount equal to the par value thereof. At such time
as the NPS Special Voting Share has no votes attached to it because there are no
Exchangeable Shares outstanding not owned by NPS or NPS Affiliates, the NPS
Special Voting Share will cease to have any rights (see "The Arrangement -
Transaction Mechanics and Description of Exchangeable Shares - Voting, Dividend
and Liquidation Rights of Registered Holders of Exchangeable Shares; Withholding
Rights - Voting Rights with Respect to NPS").
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Shareholders Rights Plan
The Shareholders Rights Plan provides for the distribution of a preferred
stock purchase right ("Right") as a dividend for each outstanding NPS Common
Share. This right entitles registered holders of NPS Common Shares to acquire
stock in NPS or in an acquirer of NPS at a discounted price in the event that a
person or group acquires 20 percent or more of NPS' outstanding voting stock or
announces a tender or exchange offer that would result in ownership of 20
percent or more of NPS' stock. Each Right entitles the registered holder to
purchase from NPS 1/100th of a share of Series A Junior Participating Preferred
Stock, par value U.S.$.001 per share at a price of U.S.$50 per 1/100th of a
preferred stock, subject to adjustment. The Rights may only be exercised on the
occurrence of certain events related to a hostile takeover of NPS as described
above. In any event, the Rights will expire on December 31, 2001. The Rights
may be redeemed by NPS at U.S.$.01 per Right at any time prior to expiration or
the occurrence of an event triggering exercise.
Stock Exchange Listings
The NPS Common Shares are traded on the NASDAQ Stock Market.
Principal Holders of Common Stock
Allelix has been advised by NPS that the following table sets forth the
number of NPS Common Shares held by each person known to NPS to beneficially own
more than 5 percent of NPS Common Shares as at , 1999:
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Amount and Nature of Percent of NPS
Beneficial Ownership Common Shares
<S> <C> <C>
__ __ __
__ __ __
__ __ __
</TABLE>
Auditors, Transfer Agent and Registrar
The auditors for NPS are KPMG, LLP, and the transfer agent and registrar
for the NPS Common Shares is American Securities Transfer and Trust, Inc.
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<PAGE>
INFORMATION CONCERNING NPS ALLELIX
NPS Allelix
NPS Allelix is a direct wholly-owned subsidiary of NPS Holdings (and an
indirect wholly-owned subsidiary of NPS) incorporated under the Companies Act
(British Columbia) on __, 1999 for the purpose of implementing the Arrangement.
Allelix has been advised by NPS that NPS Allelix's only material assets upon
completion of the Arrangement will be the issued and outstanding Allelix Common
Shares. NPS Allelix's registered office address is __.
Directors and Officers
The directors of NPS Allelix are:
__
__
__
[NTD: NPS to insert biographical information regarding directors]
The officers of NPS Allelix are:
__ __
__ __
__ __
All of the officers of NPS Allelix are currently officers of NPS or its
Affiliates.
Share Capital Matters
The following summary of certain provisions of NPS Allelix's share capital
describes all material provisions of NPS Allelix's share capital, but does not
purport to be complete and is subject to, and qualified in its entirety by, NPS
Allelix's Memorandum and Articles and by the provisions of applicable Law. See
the Exchangeable Share Provisions attached to the Plan of Arrangement, which is
attached as Appendix D hereto.
Common Shares. As of November __, 1999, there were __ common shares of NPS
Allelix outstanding, held by NPS Holdings. The registered holders of common
shares of NPS Allelix are entitled to receive notice of and to attend all
meetings of the shareholders and are entitled to one vote for each share held of
record on all matters submitted to a vote of registered holders of common shares
of NPS Allelix.
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<PAGE>
Subject to the prior rights of the registered holders of any shares ranking
senior to the common shares of NPS Allelix with respect to priority in the
payment of dividends, the registered holders of common shares of NPS Allelix are
entitled to receive such dividends as may be declared by the board of directors
of NPS Allelix out of funds legally available therefor. Registered holders of
common shares of NPS Allelix are entitled upon any liquidation, dissolution or
winding-up of NPS Allelix, subject to the prior rights of the registered holders
of the Exchangeable Shares or any other shares ranking senior to the NPS Allelix
common shares, to receive the remaining property and assets of NPS Allelix.
[NTD: NPS Allelix Preference Shares?]
Exchangeable Shares. See "The Arrangement - Transaction Mechanics and
Description of Exchangeable Shares" for a summary of certain provisions of the
Exchangeable Shares.
Transfer Agent and Registrar
The Transfer Agent and registrar for the Exchangeable Shares will be __.
INFORMATION CONCERNING ALLELIX
Business of Allelix
Allelix is governed by the provisions of the CBCA. Allelix was originally
incorporated in 1981 as Allelix Inc. and its original emphasis was on
agricultural biotechnology and human diagnostics. In October 1989, Allelix
redirected its focus to human therapeutics and changed its name to Allelix
Biopharmaceuticals Inc.
Allelix is a biopharmaceutical company that applies proprietary
technologies to the identification of disease targets and to the discovery,
design and development of novel pharmaceutical products. Products are
commercialized in partnership with leading biotechnology and multinational
pharmaceutical companies for global markets and by the company itself for niche
market indications.
Allelix discovers and develops pharmaceutical product candidates for
commercialization through partnerships with established pharmaceutical
companies. Allelix discovers products by applying chemical and biological
approaches to disease targets identified through biotechnology. Allelix has
completed a Phase II clinical trial for its leading product candidate: ALX1-11,
a recombinant form of human parathyroid hormone, for the treatment of
postmenopausal osteoporosis and in 1998 completed a Phase I trial for the
treatment of migraine. Allelix has developed core capabilities in two areas of
pharmaceutical drug discovery: protein therapeutics (particularly recombinant
production of
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proteins and peptides) and receptor- and transporter-based drug design (focussed
specifically in neuroscience) and has organized itself into two business units
around these areas of expertise. Allelix believes that the core capabilities of
its business units represent technology platforms, which can be applied within
and between the business units to support development of additional product
candidates.
Allelix discovers, patents and develops promising lead compounds as human
therapeutics. If such products are successfully commercialized, they typically
enjoy significant periods of market exclusivity (depending on patent protection
granted). To achieve profitable operations Allelix, alone or with others, must
successfully develop and obtain regulatory approvals to market its products. To
obtain these regulatory approvals and to achieve commercial success clinical
trials must demonstrate that the products are safe for use in humans and that
they are effective. There can be no assurances that the research and
development conducted by Allelix will result in commercially viable products.
All of Allelix's products are in either the research or the development
stage and therefore Allelix does not generate revenue from product sales.
Allelix funds its operations with the proceeds from collaborations with
corporate partners, the sale of equity, interest income and government grants
and loans.
Allelix forms strategic collaborations with established pharmaceutical
companies to exploit fully its technological strengths in drug discovery and
gain access to worldwide pharmaceutical markets. Allelix currently has four
significant collaborative agreements with established pharmaceutical companies:
two agreements with Eli Lilly Canada Inc. to discover new drugs for psychiatric,
neurological and eating disorders, an agreement with Janssen Pharmaceutica N.V.
to discover new drugs for schizophrenia and/or dementia, and an agreement with
Hoechst Marion Roussel for dopamine D4 drugs for neuropsychiatric disorders. To
strengthen and accelerate its research and development efforts, Allelix also has
established a network of collaborations with universities, academics, clinicians
and research institutions.
In deciding to initiate, continue or discontinue scientific programs,
management rigorously evaluates each discovery target and product candidate from
a commercial perspective, focusing on unserved or underserved medical needs
which represent significant commercial opportunities. Market size, development
cost, competitive environment, intellectual property protection, and
attractiveness to potential pharmaceutical industry partners, among other
factors impact the commercial opportunity.
Allelix's business strategy is to enhance shareholder value by focusing on
its core strengths through its business unit structure; developing technology
platforms for drug discovery and development; collaborating with established
pharmaceutical
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<PAGE>
companies for broad-based clinical trials and worldwide commercialization; while
building and maintaining strong relationships with universities, academics,
clinicians and research institutions to gain access to novel product candidates
and technologies. Patent protection is secured wherever possible. It is
Allelix's full intent to reach profitability in as short a time period as
possible.
Allelix's business is divided into two primary business units: (i) Protein
Therapeutics; and (ii) Neuroscience.
Business Units
Protein Therapeutics
The primary focus of the Protein Therapeutics business unit is the
development and commercialization of protein-based drugs for treating medical
diseases or disorders related to hormone abnormalities or deficiencies. The
scientific staff that supports the Protein Therapeutics business unit has
experience in microbiology, protein manufacturing, purification and analytical
chemistry.
Neuroscience
The primary focus of the Neuroscience business unit is the use of rational
drug design to develop novel drug candidates for the treatment of psychiatric,
neurological and immunological disorders. The business unit has demonstrated
its ability to discover and utilize human neuroreceptors, ion channels and
neurotransporters for drug screening. The unit is currently developing product
candidates for schizophrenia, dementia, obesity, diabetes, migraine, spasticity
and pain.
Documents Incorporated by Reference
The following documents, filed by Allelix with the Canadian securities
regulatory authorities are specifically incorporated by reference in and form an
integral part of this Circular:
(a) Allelix's Annual Information Form dated January 14, 1999;
(b) Allelix's Management Proxy Circular dated November 30, 1998;
(c) Allelix's Consolidated Financial Statements for the year ended August
31, 1999, which are attached to this Circular as Appendix P.
(d) Allelix's Management's Discussion and Analysis for the year ended
August 31, 1999, which is attached to this Circular as Appendix Q; and
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<PAGE>
(e) Allelix's Material Change Report dated October 6, 1999.
Any documents of the type referred to in the preceding paragraph (excluding
confidential material change reports) filed by Allelix with the Canadian
securities regulatory authorities after the date of this Circular and prior to
the Effective Time shall be deemed to be incorporated by reference in this
Circular.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Circular to the extent that a statement contained
herein, or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein, modifies or supersedes that statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Circular. The making of a
modifying or superseding statement shall not be deemed an admission for any
purposes that the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an omission to
state a material fact that is required to be stated or that is necessary to make
a statement not misleading in light of the circumstances in which it was made.
1999 Financial Results and Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A")
On [October 21, 1999] the board of directors of Allelix approved Allelix's
Consolidated Financial Statements for the year ended August 31, 1999, a copy of
which is attached to this Circular as Appendix P. A copy of management's
discussion and analysis of financial condition and results of operations of
Allelix for the year ended August 31, 1999 is attached to this Circular as
Appendix Q.
[NTD: to be inserted by Allelix]
Information Concerning Forward-looking Statements
[NTD: to be revised by Allelix]
Statements in the preceding section, Management's Discussions and Analysis
of Financial Condition and Results of Operations, to the extent not based on
historical events, constitute forward-looking statements. Forward-looking
statements include, without limitation, statements evaluating market and general
economic conditions and statements regarding future-oriented costs and
expenditures. Investors are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date thereof. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially. Such risks
and uncertainties with
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<PAGE>
respect to Allelix include the effect of general economic conditions, Year 2000
risks, actions by government regulatory authorities, and __.
Directors and Officers
On __, 1999, the directors and officers of Allelix as a group beneficially
owned or had voting control or direction over __ Allelix Common Shares carrying
approximately __ percent of the number of votes entitled to be cast at the
Allelix Meeting by the Allelix Common Shareholders.
As of the date hereof, the name and municipality of residence of each
director and officer of Allelix, the date when each became a director or officer
and the principal occupation of each during the past five years were as follows:
<TABLE>
<CAPTION>
Name/Residence Position Principal Occupation Director/
Officer Since
<S> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------------------
George E. Connell Director President Emeritus, University of Toronto 1995
Toronto, Ontario
- - -------------------------------------------------------------------------------------------------------------------------------
William W. Crouse Director Managing Director, HealthCare Ventures L.L.C. 1997
Princeton, NJ
- - -------------------------------------------------------------------------------------------------------------------------------
John R. Evans, M.D. Director Chairman of Allelix 1983
Toronto, Ontario
- - -------------------------------------------------------------------------------------------------------------------------------
Irving S. Johnson, Ph.D. Director Biomedical Research Consultant since 1988, prior 1992
Sanibel Island, Florida thereto, Vice President, Research, Eli Lilly &
Co., (a pharmaceutical company)
- - -------------------------------------------------------------------------------------------------------------------------------
Edward Rygiel Director President and Chief Executive Officer, MDS 1989
Toronto, Ontario Capital Corp., (a venture capital corporation)
- - -------------------------------------------------------------------------------------------------------------------------------
Nelson Sims Director Executive Director of Alliance Management, Eli 1995
Indianapolis, Indiana Lilly & Company
- - -------------------------------------------------------------------------------------------------------------------------------
Dr. Calvin R. Stiller Director Chairman and Chief Executive Officer of Canadian 1999
Arva, Ontario Medical Discoveries Fund Inc.; prior thereto,
Professor, Department of Medicine, University of
Western Ontario
- - -------------------------------------------------------------------------------------------------------------------------------
Graham Strachan Director President and Chief Executive Officer of Allelix 1989
Toronto, Ontario (retired)
- - -------------------------------------------------------------------------------------------------------------------------------
James R. Howard-Tripp Senior Vice President, Neuroscience, Vice 1996
Burlington, Ontario President, Business Development, prior thereto,
Vice President, Business Development,
Wyeth-Ayerst
- - -------------------------------------------------------------------------------------------------------------------------------
Paul J. Van Damme Sr. Vice President & Chief Financial Officer, 1997
Toronto, Ontario Vice President, Finance and Chief Financial
Officer, GlycoDesign Inc.; prior thereto, Senior
Vice-President and Chief Financial Officer,
TeleZone Corporation..
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
From among its members, the board of directors appoints a number of
committees with specific duties, including an Audit Committee, a Compensation
Committee and a Corporate Governance Committee. The members of the Audit
Committee are Dr. George Connell and Edward Rygiel. The members of the
Compensation Committee are Dr. George Connell, Dr. John Evans, Edward Rygiel and
Nelson Sims. The members of the Corporate Governance Committee are all of the
directors of Allelix except the President and Chief Executive Officer.
Indebtedness of Directors and Senior Officers of Allelix
None of the directors, executive officers or senior officers of Allelix is,
as of the date hereof, in any way, directly or indirectly, indebted to Allelix
by way of a guarantee, support agreement or letter of credit or other similar
arrangement or understanding provided by Allelix.
Directors' and Officers' Liability Insurance
Allelix maintains directors' and officers' liability insurance against
claims made in the aggregate amount of $20,000,000 per occurrence. The total
deductible per occurrence is $250,000. During the year premiums paid in respect
of directors and officers as a group for liability insurance totalled $45,000.
None of the directors or officers paid any premiums associated with such
liability insurance.
Share Capital Matters
The authorized capital of Allelix consists of an unlimited number of common
shares and an unlimited number of preferred shares issuable in series.
Allelix Preferred Shares
As of November 9, 1999, 1,000 Allelix Preferred Shares were issued and
outstanding. The Allelix Preferred Shareholder is generally not entitled to
receive notice of or to attend any meeting of the shareholders of Allelix or to
vote at any such meeting, except as otherwise provided in the CBCA, unless such
meeting is called for the purpose of changing certain terms of the Allelix
Preferred Shares. Allelix Preferred Shares rank senior to Allelix Common Shares
in respect to the preferences as to distributions and payments upon the
liquidation, dissolution or winding-up of Allelix. Pursuant to the Preferred
Share Conditions, the Allelix Preferred Shares shall automatically convert into
Allelix Common Shares at a specified conversion rate no later than April 30,
2000.
Allelix Common Shares
As of November 9, 1999, 20,126,232 Allelix Common Shares were issued and
outstanding. Allelix Common Shareholders are entitled to one vote for each share
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held at all meetings of Allelix Common Shareholders, other than meetings at
which only registered holders of another specified class or series are entitled
to vote and are entitled to receive dividends as and when declared by the board
of directors of Allelix from time to time. On the liquidation, dissolution or
winding up of Allelix, Allelix Common Shareholders (subject to the rights of
registered holders of any shares ranking prior to the Allelix Common Shares) are
entitled to receive the remaining property of Allelix.
Executive Compensation
Report on Executive Compensation
The Compensation Committee approves all of the policies under which
compensation is paid or awarded to Allelix's named executive officers. In
addition, the Compensation Committee makes recommendations to the board of
directors regarding the granting of options to the named executive officers,
other employees, directors and various consultants under the Allelix Stock
Option Plan.
Under the direction of the Compensation Committee, Allelix has implemented
compensation practices that seek to enhance the performance of Allelix and
increase its value to all shareholders.
Compensation Philosophy
The Compensation Committee intends to continually monitor and refine the
executive compensation program of Allelix to ensure a high correlation between
level of compensation and return to shareholders, recognizing, however, that, in
a very competitive industry and difficult time, executives may be performing
well in this regard by protecting, without necessarily enhancing, shareholder
value.
The Compensation Committee attempts to position its executive compensation
targets competitively with other companies within the
biotechnology/pharmaceutical industry using a number of different sources of
information to evaluate and establish appropriate compensation practices.
Allelix's executive compensation program has two components - base salary
and cash and/or stock option bonuses.
Description of Compensation Program
Base salaries have been established at levels that the Compensation
Committee believes are sufficient to attract, motivate and retain highly
qualified executives. While aggregate base salary increases are intended to
parallel increases in the salary levels of the biotechnology/pharmaceutical
industry as a whole,
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individual executive salary increases will reflect the individuals level of
performance and, to a lesser extent, trends within the industry.
Cash and/or stock option bonuses are utilized to recognize and reward
exceptional performance by executives in helping Allelix to achieve significant
strategic and operational milestones, establish strategic alliances or joint
ventures, or otherwise enhance overall Company value.
The integrity of Allelix's executive compensation program relies on clearly
defined individual executive objectives and annual evaluation of individual
executive performance against these objectives.
Discussion of CEO Compensation
[NTD: to be inserted by Allelix]
Summary Compensation Table
The following table sets forth the compensation awarded or paid to, or
earned by each of Allelix's five most highly compensated executive officers
(referred to collectively as the "named executive officers") during the
financial years ended August 31, 1999, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Annual Compensation
Securities
Name & Principal Year Salary Bonus Under Options All Other Compensation /(1)/
Function ($) ($) Granted (#) ($)
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Graham Strachan(2) 1999 225,000 45,000 --- 27,000
President & CEO 1998 220,000 50,000 50,000 26,360
1997 206,666 50,000 10,000 13,500
1996 191,667 65,000 10,000 13,500
- - ---------------------------------------------------------------------------------------------------
John W. Dietrich(3) 1999 135,000 20,000 --- 4,500
Sr. VP, Research 1998 180,000 20,000 --- 6,750
& Development 1997 180,000 10,000 10,000 6,750
1996 180,000 25,000 5,000 6,750
- - ---------------------------------------------------------------------------------------------------
James R. Howard-Tripp(4) 1999 195,000 25,000 100.000 7,350
Sr. VP, Neuroscience 1998 168,333 40,000 50,000 6,733
1997 125,210 10,000 23,000 3,413
1996
- - ---------------------------------------------------------------------------------------------------
W. Douglas Froom(5) 1999 126,666 20,000 --- 5,067
Sr. VP, Protein 1998 161,167 --- 10,000 6,447
Therapeutics 1997 142,500 10,000 10,000 5,840
1996 134,167 50,000 10,000 5,367
- - ---------------------------------------------------------------------------------------------------
Paul J. Van Damme(6) 1999 149,167 20,000 100,000 5,967
Sr. VP & Chief Financial 1998 137,487 --- 20,000 4,200
Officer
===================================================================================================
</TABLE>
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<PAGE>
(1) Allelix's contributions to pension plan accounts, including a one-time
payment of $12,860 to Graham Strachan in respect of past service.
(2) Graham Strachan retired as President and CEO of Allelix effective August
31, 1999.
(3) John W. Dietrich resigned May 31, 1999
(4) James R. Howard-Tripp was appointed VP, Business Development effective
September 9, 1996 (and is now Sr. VP, Neuroscience).
(5) W. Douglas Froom ceased to be Sr VP, Protein Therapeutics October 31, 1998
and received severance of $__
(6) Paul J. Van Damme was appointed VP Finance and CFO effective September 8,
1997 and is now Sr. VP and CFO.
Termination of Employment, Change of Responsibility and Employment Contracts
Allelix has not entered into formal employee agreements/contracts with any
of the named executive officers.
Long-Term Incentive Plans - Awards in the Year Ended August 31, 1999
Allelix has no Long-Term Incentive Plan in place at this time.
Option Grants During the Year Ended August 31, 1999
Share Option Plan
[NTD: to be revised by Allelix]
In December, 1991, Allelix established the Allelix Stock Option Plan
pursuant to which it may grant to directors, officers, employees and consultants
of Allelix and any Subsidiaries non-assignable options to acquire Allelix Common
Shares in numbers not to exceed 10 percent of the aggregate number of issued and
outstanding Allelix Common Shares. In March 1994, the TSE revised its policy
governing share incentive arrangements. Effective October 11, 1995 (and
subsequently ratified by the shareholders at Allelix's Annual and Special
General Meeting on February 6, 1996), the board of directors of Allelix adopted
an amendment to the Allelix Stock Option Plan to reflect the revised TSE policy
and increase Allelix's flexibility in granting compensation in the form of share
incentives. Under the Allelix Stock Option Plan, as amended, the aggregate
number of Allelix Common Shares that may be issued under the Allelix Stock
Option Plan was increased to 2,000,000, provided that the number of options
outstanding at any time shall not exceed 12 percent of the then outstanding
Allelix Common Shares. In connection with the acquisition of Trophix
Pharmaceuticals Inc. during fiscal 1997, Allelix assumed existing obligations
under the stock option plan of Trophix by issuing options to purchase 380,367
Allelix Common Shares. At August 31, 1999, there were outstanding a total of
__ options to purchase Allelix Common Shares granted to directors, officers,
employees and consultants of Allelix. Excluded from the above are an additional
265,000 options to purchase Allelix Common Shares granted in connection with the
acquisition of product licensing rights. Currently,
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<PAGE>
115,000 are exercisable and the balance of 150,000 are unvested until future
milestones are achieved.
The purpose of the Allelix Stock Option Plan is to attract, encourage and
increase the incentive for continued service of directors, officers, employees
and consultants of Allelix and its Subsidiaries by facilitating their purchase
of equity interests in Allelix. The recipients will be entitled to receive, at
no cost to them, options to purchase Allelix Common Shares within a fixed period
of time and at a specified price per share. The Allelix Stock Option Plan is
administered by the Compensation Committee of the board of directors. Under the
Allelix Stock Option Plan, the exercise price for each stock option will be
equal to the value of the Allelix Common Shares, determined as of the date
immediately preceding the date of the grant, but in any event will not be less
than that permitted by the relevant regulatory authorities including any stock
exchanges on which the Allelix Common Shares are listed.
Bonus Plan
In December 1991, Allelix established a bonus share plan (the "Bonus Plan")
pursuant to which it may declare bonuses payable to officers, employees and
consultants of Allelix and any Subsidiaries, and which bonuses may be payable in
common shares. The purpose of the Bonus Plan is to compensate the recipients of
the Allelix Common Shares for their contribution to Allelix, and to encourage
further participation and contribution to benefit Allelix. The Bonus Plan is
administered by the Compensation Committee. Allelix does not currently intend
to issue any more than 20,000 common shares pursuant to the Bonus Plan in any
year. During the 1998 fiscal year ended August 31, 1998, 19 Allelix Common
Shares were issued under the Bonus Plan. During the 1999 fiscal year ended
August 31, 1999, shares were issued pursuant to the Bonus Plan. No bonus plan
shares were issued to executive officers in 1998 or 1999.
Employee Share Ownership Plan
All employees of Allelix are eligible to participate in the Employee Share
Ownership Plan on the first enrollment date immediately following satisfactory
completion of the employee's three-month probationary period of employment.
Plan members, upon written notice to Allelix, may terminate their participation
in the plan at any time.
Employee contributions are made through monthly payroll deductions. Each
employee determines his or her own contribution level, however it must be at
least $20 per month and may not exceed the lesser of 5% of the employee's
monthly salary or $3,500 per annum. Each month, Allelix contributes an
additional 10% of the employee's contribution towards the purchase of shares in
the open market.
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All administrative fees associated with the plan are paid by Allelix.
Brokerage fees associated with the purchase of shares are also paid by Allelix.
All fees associated with the sale of shares acquired under the plan are,
however, the responsibility of the plan member.
Option Grants in Latest Financial Year
The following table sets forth the particulars of individual grants of
options to purchase or acquire securities of Allelix made during the fiscal year
ended August 31, 1999 to each of the named executive officers:
<TABLE>
<CAPTION>
% of Total
Options Granted Exercise or Base
Name and Principal Securities Under to Employees in Price Expiration Date
Function Options Granted Fiscal Year ($/Security)(2)
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James R. Howard-Tripp
Sr. VP, Neuroscience 100,000/(1)/ 18.32% $2.30 June 23, 2009
- - -----------------------------------------------------------------------------------------------------------------------------
Paul J. Van Damme
Sr. VP & Chief Financial
Officer 100,000/(1)/ 18.32% $2.30 June 23, 2009
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These options become exercisable as follows: 1/3 on December 31, 1999, 1/3
on December 31, 2000 and the remaining 1/3 on December 31, 2001. Options
are for a term of 10 years from date of grant.
(2) The exercise price of all options issued is equal to the closing price of
the Allelix Common Shares on the TSE as of the date immediately preceding
the date of the grant.
Aggregated Option Exercises in Latest Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth particulars concerning each exercise of
options during the fiscal year ended August 31, 1999, by each of the named
executive officers and the fiscal year end value of unexercised options held by
each of the named executive officers on an aggregated basis.
<TABLE>
<CAPTION>
Value of Unexercised
Name and Principal Securities Aggregate Unexercised Options at In-the-Money Options at
Function Acquired on Value Realized Fiscal Year-End (#) Fiscal Year-End ($)/(1)/
Exercise (#) ($) Exercisable/Unexercisable/(2)/ Exercisable/Unexercisable
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Graham Strachan
President & CEO nil nil 82,600/50,000 nil/nil
- - -----------------------------------------------------------------------------------------------------------------------------
John W. Dietrich
Sr. VP, Research
& Development nil nil 50,000/nil nil/nil
- - -----------------------------------------------------------------------------------------------------------------------------
W. Douglas Froom
Sr. VP, Protein
Therapeutics nil nil 77,000/10,000 Nil/nil
- - -----------------------------------------------------------------------------------------------------------------------------
James R. Howard-
Tripp
Sr. VP,
Neuroscience nil nil 16,334/181,666 $15,000
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Paul J. Van Damme
Sr. VP & Chief
Financial Officer nil nil 13,334/131,666 $15,000
==============================================================================================================================
<S> <C> <C> <C> <C>
</TABLE>
(1) Value of unexercised in-the-money options calculated using the closing price
of Allelix Common Shares on the TSE on August 31, 1999 (i.e. $2.45/share),
less the exercise price of in-the-money stock options.
(2) Shareholder approval is sought for the reissuance of options to purchase
Allelix Common Shares previously granted to, among others, Graham Strachan,
John W. Dietrich, James Howard-Tripp and Paul J. Van Damme. If the
shareholder approval is granted, the unexercised options/unexercisable
options at the fiscal year end for the above directors will be as follows:
Graham Strachan (41,301/25,000), John W. Dietrich (50,000/-), James Howard-
Tripp (8,167,/153,333) and Paul J. Van Damme (6,667/128,333).
TABLE OF OPTION AND SAR REPRICINGS
<TABLE>
<CAPTION>
Securities Market Length of
Under Price of Exercise Original
Options/ Securities Price at Option
SARs at Time of Time of Term
Repriced Repricing Repricing New Remaining
or or or Exercise at Date of
Date of Amended Amendment Amendment Price Repricing
Name Repricing (#) ($/Security) ($/Security) ($/Security) or Amendment
(a) (b) (c) (d) (e) (f) (g)
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Graham Strachan April 15, 1999 32,000 $2.80 $ 6.88 $2.80 3.00 years
President & CEO April 15, 1999 1,268 2.80 6.50 2.80 3.58 years
April 15, 1999 20,000 2.80 7.50 2.80 4.58 years
April 15, 1999 1,000 2.80 7.00 2.80 4.83 years
April 15, 1999 8,334 2.80 5.63 2.80 5.75 years
April 15, 1999 10,000 2.80 21.70 2.80 7.00 years
April 15, 1999 10,000 2.80 11.00 2.80 7.83 years
April 15, 1999 50,000 2.80 11.20 2.80 8.25 years
- - -------------------------------------------------------------------------------------------------------------
James R. Howard-Tripp April 15, 1999 20,000 2.80 20.00 2.80 7.25 years
Sr. VP, Neuroscience April 15, 1999 3,000 2.80 11.00 2.80 8.00 years
April 15, 1999 50,000 2.80 11.20 2.80 8.42 years
- - -------------------------------------------------------------------------------------------------------------
Paul J. Van Damme April 15, 1999 20,000 2.80 11.20 2.80 8.25years
Senior Vice President,
Chief Financial Officer
and Corporate Secretary
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
Stock Performance Graph
[NTD: to be inserted]
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<PAGE>
Stock Exchange Listings
The Allelix Common Shares are listed on the TSE and the ME.
Principal Holders of Allelix Common Shares
To the knowledge of the directors and officers of Allelix the following are
the only persons, entities or corporations beneficially owning, directly or
indirectly, or exercising control or direction over greater than 10 percent of
the outstanding Allelix Common Shares as of November 9, 1999. BVF Partners L.P.
held 2,400,000 Allelix Common Shares representing approximately 11.9 percent of
the Allelix Common Shares outstanding.
Auditors, Transfer Agents and Registrars
The auditors of Allelix are Ernst & Young LLP., Toronto. The transfer
agent and registrar for the Allelix Common Shares and the Allelix Preferred
Shares is CIBC Mellon Trust Company (Toronto).
COMPARISON OF SHAREHOLDERS' RIGHTS
Allelix was incorporated under the CBCA and, accordingly, is governed by
the laws of Canada, the Allelix Articles of Incorporation and the Allelix By-
laws. NPS was reincorporated under the Delaware General Corporation Law
("DGCL") and, accordingly, is governed by the laws of Delaware, the NPS Amended
and Restated Certificate of Incorporation and the NPS Amended and Restated By-
laws. In the event that the Transaction is consummated, Allelix Common
Shareholders at the Effective Time will have their Allelix Common Shares
exchanged for NPS Common Shares or Exchangeable Shares, and will have the right
to exchange the Exchangeable Shares for an equivalent number of NPS Common
Shares.
While the rights and privileges of shareholders of a Delaware corporation
are, in many instances, comparable to those of shareholders of a CBCA
corporation, there are certain differences. The following is a summary of the
most significant differences in shareholder rights. These differences arise
from differences between Delaware and Canadian law, between the DGCL and the
CBCA and between the Allelix Articles of Incorporation and the Allelix By-laws
and the NPS Amended and Restated Certificate of Incorporation and the NPS
Amended and Restated By-laws. This summary is not intended to be complete and
is qualified in its entirety by reference to the DGCL, the CBCA and the
governing corporate instruments of NPS and Allelix. For a description of the
respective rights of the registered holders of NPS Common Shares and Allelix
Common Shares see, respectively, "Information
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<PAGE>
Concerning NPS - Share Capital Matters" and "Information Concerning Allelix -
Share Capital Matters".
Vote Required for Extraordinary Transactions
CBCA
Under the CBCA, certain extraordinary corporate actions, such as certain
amalgamations, continuances, sales, leases or exchange of all or substantially
all of the property of a corporation other than in the ordinary course of
business, and other extraordinary corporate actions such as liquidations,
dissolutions and (if ordered by a court) arrangements, are required to be
approved by special resolution. A special resolution is a resolution passed by
not less than two-thirds of the votes cast by the shareholders entitled to vote
on the resolution. In certain cases, a special resolution to approve an
extraordinary corporate action is also required to be approved separately by the
registered holders of a class of series of shares.
Matters such as take-over bids, issuer bids, or self-tenders, going-private
transactions and transactions with directors, officers, significant shareholders
and other related parties to which Allelix is a party will be subject to
regulation by Canadian provincial securities legislation and administrative
policies of Canadian securities administrators.
DGCL
The DGCL requires the affirmative vote of a majority of the outstanding
stock entitled to vote thereon to authorize any merger, consolidation,
dissolution or sale of substantially all of the assets of a corporation, except
that, no authorizing stockholder vote is required of a corporation surviving a
merger if (a) such corporation's certificate of incorporation is not amended in
any respect by the merger, (b) each share of stock of such corporation
outstanding immediately prior to the effective date of the merger will be an
identical outstanding or treasury share of the surviving corporation after the
effective date of the merger and (c) the number of shares to be issued in the
merger does not exceed 20 percent of such corporation's outstanding common stock
immediately prior to the effective date of the merger. Stockholder approval is
also not required under the DGCL for mergers or consolidations in which a parent
corporation merges or consolidates with a subsidiary of which it owns at least
90 percent of the outstanding shares of each class of stock.
Matters such as take-over bids, issuer bids, or self-tenders, going private
transactions and transactions with directors, officers, significant shareholders
officers, significant shareholders and other related parties to which NPS is a
party
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<PAGE>
will be subject to regulation under United States securities laws, regulations
and policies.
Amendment to Governing Documents
CBCA
Under the CBCA, any amendment to the articles generally requires the
approval by special resolution, which is a resolution passed by a majority of
not less than two-thirds of the votes cast by shareholders entitled to vote on
the resolution. Under the CBCA, unless the articles or by-laws otherwise
provide, the directors may, by resolution, make, amend or repeal any by-law that
regulates the business or affairs of a corporation. Where the directors make,
amend or repeal a by-law, they are required under the CBCA to submit the by-law,
amendment or repeal to the shareholders at the next meeting of shareholders, and
the shareholders may confirm, reject or amend the by-law, amendment or repeal by
an ordinary resolution, which is a resolution passed by a majority of the votes
cast by shareholders present and entitled to vote on the resolution.
DGCL
The DGCL requires a vote of the corporation's board of directors followed
by the affirmative vote of a majority of the outstanding stock of each class
entitled to vote for any amendment to the certificate of incorporation. If an
amendment alters the powers, preferences or special rights of a particular class
or series of stock so as to affect them adversely, that class or series shall be
given the power to vote as a class notwithstanding the absence of any
specifically enumerated power in the certificate of incorporation. The DGCL
also states that the power to adopt, amend or repeal the by-laws of a
corporation shall be in the stockholders entitlement to vote, provided that the
corporation in its certificate of incorporation may confer such power on the
board of directors in addition to the stockholders. The NPS Amended and
Restated Certificate of Incorporation allocates by-law adoption and selection
rights to the directors and the stockholders.
Dissenters' Rights
CBCA
The CBCA provides that shareholders of a CBCA corporation entitled to vote
on certain matters are entitled to exercise dissent rights and to be paid the
fair value of their shares in connection therewith. The CBCA does not
distinguish for this purpose between listed and unlisted shares. Such matters
include (a) any amalgamation with another corporation (other than with certain
affiliated corporations); (b) an amendment to the corporation's articles to add,
change or remove any provisions restricting the issue, transfer or ownership of
shares; (c) an
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<PAGE>
amendment to the corporation's articles to add, change or remove any restriction
upon the business or businesses that the corporation may carry on or upon the
powers that the corporation may exercise; (d) a continuance under the laws of
another jurisdiction; (e) a sale, lease or exchange of all or substantially all
of the property of the corporation other than in the ordinary course of
business; (f) a court order permitting a shareholder to dissent in connection
with an application to the court for an order approving an arrangement proposed
by the corporation; or (g) certain amendments to the articles of a corporation
which require a separate class or series vote, provided that a shareholder is
not entitled to dissent if an amendment to the articles is effected by a court
order approving a reorganization or by a court order made in connection with an
action for an oppression remedy. Under the CBCA, a shareholder may, in addition
to exercising dissent rights, seek an oppression remedy for any act or omission
of a corporation which is oppressive, unfairly prejudicial to or that unfairly
disregards a shareholder's interest.
DGCL
Under the DGCL, registered holders of shares of any class or series have
the right, in certain circumstances, to dissent from a merger or consolidation
of the corporation by demanding payment in cash for the shares equal to the fair
value (excluding any appreciation or depreciation as a consequence, or in
expectation, of the transaction) of such shares, as determined by agreement with
the corporation or by an independent appraiser appointed by a court in an action
timely brought by the corporation or the dissenters. The DGCL grants dissenters
appraisal rights only in the case of mergers or consolidations and not in the
case of a sale or transfer of assets or a purchase of assets for stock
regardless of the number of shares being issued. Further, no appraisal rights
are available for shares of any class or series listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by NASDAQ or held of record by more than 2,000 stockholders,
unless the agreement of merger or consolidation converts such shares into
anything other than (a) stock of the surviving corporation, (b) stock of another
corporation which is either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by NASDAQ or held of record by more than 2,000 stockholders, (c) cash in
lieu of fractional shares, or (d) some combination of the above. In addition,
dissenter's rights are not available for any shares of the surviving corporation
if the merger did not require the vote of the stockholders of the surviving
corporation.
Oppression Remedy
CBCA
The CBCA provides an oppression remedy that enables the court to make any
order, both interim and final, to rectify the matters complained of, if the
Director
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appointed under section 260 of the CBCA is satisfied upon application by a
complainant (as defined below) that: (i) any act or omission of the corporation
or an affiliate effects a result; (ii) the business or affairs of the
corporation or an affiliate are or have been carried on or conducted in a
manner; or (iii) the powers of the directors of the corporation or an affiliate
are or have been exercised in a manner; that is oppressive or unfairly
prejudicial to, or that unfairly disregards the interest of any security holder,
creditor, director or officer of the corporation. A complainant includes: (a) a
present or former registered holder or beneficial owner of securities of a
corporation or any of its affiliates; (b) a present or former officer or
director of the corporation or any of its affiliates; (c) the Director; and (d)
any other person who in the discretion of the court is a proper person to make
such application.
Because of the breadth of the conduct which can be complained of and the
scope of the court's remedial powers, the oppression remedy is very flexible and
is frequently relied upon to safeguard the interest of shareholders and other
complainants which have a substantial interest in the corporation. Under the
CBCA, it is not necessary to prove that the directors of a corporation acted in
bad faith in order to seek an oppression remedy. Furthermore, the court may
order the corporation to pay the interim expenses of a complainant seeking an
oppression remedy, but the complainant may be held accountable for such interim
costs on final disposition of the complaint (as in the case of derivative
action).
DGCL
The DGCL does not provide for an oppression remedy.
Derivative Actions
CBCA
Under the CBCA, a complainant may apply to the court for leave to bring an
action in the name of and on behalf of a corporation or any subsidiary, or to
intervene in an existing action to which any such body corporate is a party, for
the purpose of prosecuting, defending or discontinuing the action on behalf of
the body corporate. Under the CBCA, no action may be brought and no
intervention in an action may be made unless the complainant has given
reasonable notice to the directors of the corporation or its subsidiary of the
complainant's intention to apply to the court and the court is satisfied that
(a) the directors of the corporation or its subsidiary will not bring,
diligently prosecute or defend or discontinue the action; (b) the complainant is
acting in good faith; and (c) it appears to be in the interests of the
corporation or its subsidiary that the action be brought, prosecuted, defended
or discontinued.
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<PAGE>
Under the CBCA, the court in a derivative action may make any order it
thinks fit including, without limitation, (i) an order authorizing the
complainant or any other person to control the conduct of the action, (ii) an
order giving directions for the conduct of the action, (iii) an order directing
that any amount adjudged payable by a defendant in the action shall be paid, in
whole or in part, directly to former and present security holders of the
corporation or its subsidiary instead of to the corporation or its subsidiary,
and (iv) an order requiring the corporation or its subsidiary to pay reasonable
legal fees and any other costs reasonably incurred by the complainant in
connection with the action. Additionally, under the CBCA, a court may order a
corporation or its subsidiary to pay the complainant's interim costs, including
reasonable legal fees and disbursements. Although the complainant may be held
accountable for the interim costs on final disposition of the complainant, it is
not required to give security for costs in a derivative action.
DGCL
Derivative actions may be brought in Delaware by a stockholder on behalf
of, and for the benefit of, the corporation. The DGCL provides that a
stockholder must aver in the complaint that he or she was a stockholder of the
corporation at the time of the transaction of which he or she complains. A
stockholder may not sue derivatively unless he or she first makes demand on the
corporation that it bring suit and such demand has been refused, unless it is
shown that such demand would have been futile.
Shareholder Consent in Lieu of Meeting
CBCA
Under the CBCA, shareholders action without a meeting may only be taken by
written resolution signed by all shareholders who would be entitled to vote
thereon at a meeting.
DGCL
Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action required to be taken or which may be taken at an
annual or special meeting of stockholders may be taken without a meeting if a
consent in writing is signed by all the registered holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize such action at a meeting at which all shares entitled to vote were
present and voted. The NPS Amended and Restated Certificate of Incorporation
[does not contain any special provision relating to action by written consent]
and the NPS Amended and Restated By-laws [specifically authorize action by
written consent].
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Director Qualifications
CBCA
A majority of the directors of a CBCA corporation generally must be
resident Canadians but where a corporation earns in Canada directly or through
its subsidiaries less than five per cent of the gross revenues of the
corporation and all of its subsidiary bodies then not more than one-third of the
directors of the corporation are required to be resident Canadians. The CBCA
also requires that a corporation whose securities are publicly traded have not
fewer than three directors, at least two of whom are not officers or employees
of the corporation or any of its affiliates.
DGCL
The DGCL does not have any residency requirements.
Fiduciary Duties of Directors
CBCA
Directors of corporations incorporated or organized under the CBCA have
fiduciary obligations to the corporation and its shareholders. Pursuant to
these fiduciary obligations, the directors must act in accordance with the so-
called duties of "due care" and "loyalty".
Pursuant to section 122 of the CBCA, the duty of loyalty requires directors
of a Canadian corporation to act honestly and in good faith with a view to the
best interests of the corporation, and the duty of care requires that the
directors exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances.
DGCL
Under the DGCL, the duty of care requires that the directors act in an
informed and deliberative manner and to inform themselves, prior to making a
business decision, of all material information reasonably available to them.
The duty of loyalty may be summarized as the duty to act in good faith, not out
of self-interest, in a manner which the directors reasonably believe to be in
the best interests of the stockholders.
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Indemnification of Officers and Directors
CBCA
Under the CBCA [and pursuant to the Allelix By-Laws], Allelix may indemnify
a director or officer, a former director or officer or a person who acts or
acted at the corporation's request as a director or officer of a body corporate
of which Allelix is or was a shareholder or creditor, and his or her heirs and
legal representatives (an "Indemnifiable Person"), against all costs, charges
and expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him or her in respect of any civil, criminal or
administrative action or proceeding to which he or she is made a party by reason
of being or having been a director or officer of Allelix or such body
corporation, if: (a) he or she acted honestly and in good faith with a view to
the best interests of Allelix; and (b) in the case of a criminal or
administrative action or proceeding that is enforced by a monetary penalty, he
or she had reasonable grounds for believing that his or her conduct was lawful.
An Indemnifiable Person is entitled to such indemnity from the corporation if he
or she was substantially successful on the merits in his or her defense of the
action or proceeding and fulfilled the conditions set out in (a) and (b), above.
A corporation may, with the approval of a court, also indemnify an Indemnifiable
Person in respect of an action by or on behalf of the corporation or such body
corporate to procure a judgment in its favour, to which such person is made a
party by reason of being or having been a director or officer of the corporation
or body corporate, if he or she fulfils the conditions set out in (a) and (b),
above.
DGCL
The DGCL provides that a corporation may indemnify its present and former
directors, officers, employees and agents (each an "indemnitee") against all
reasonable expenses (including attorneys' fees) and, except in actions initiated
by or in the right of the corporation, against all judgments, fines and amounts
paid in settlement in actions brought against them, if such indemnitee acted in
good faith and in a manner which he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation, and in the case of a criminal
proceeding, had no reasonable cause to believe that his or her conduct was
unlawful. The corporation shall indemnify an indemnitee to the extent that he
or she is successful on the merits or otherwise in the defense of any claim,
issue or matter associated with an action. [The NPS Amended and Restated
Certificate of Incorporation provides for indemnification of directors or
officers to the fullest extent permitted by applicable Law].
The DGCL allows for the advance payment of an indemnitee's expenses prior
to the final disposition of an action, provided that the indemnitee undertakes
to repay any such amount advanced if it is later determined that the indemnitee
is not
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entitled to indemnification with regard to the action for which such expenses
were advanced. The CBCA does not expressly provide for such advance payment.
Director Liability
CBCA
The CBCA does not permit any limitation of a director's liability.
DGCL
The DGCL provides that the charter of the corporation may include a
provision which limits or eliminates the liability of directors to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided such liability does not arise from certain
proscribed conduct, including acts or omissions not in good faith or which
involve international misconduct or a knowing violation of law, breach of the
duty of loyalty, the payment of unlawful dividends or expenditure of funds for
unlawful stock purchases or redemptions or transactions from which such director
derived an improper personal benefit. The NPS Amended and Restated Certificate
of Incorporation provides for such provisions.
DISSENTING SHAREHOLDER RIGHTS
The CBCA provides shareholders with a statutory right to dissent from
certain resolutions of a corporation which effect extraordinary corporate
transactions or fundamental corporate changes. Specifically, Allelix
Shareholders may dissent from the Continuance Resolution by exercising their
right of dissent under section 190 of the CBCA. Assuming the Continuance
Resolution is approved by Allelix Shareholders at the Allelix Meeting and
Allelix is continued under the OBCA prior to the vote of Allelix Shareholders in
respect of the Arrangement Resolution, Allelix Common Shareholders may dissent
from the Arrangement Resolution by exercising their dissent rights under section
190 of the CBCA. In addition, the Interim Order expressly provides Allelix
Shareholders with the right to dissent from the Continuance Resolution pursuant
to section 190 of the CBCA and the Plan of Arrangement and Allelix Common
Shareholders the right to dissent from the Arrangement Resolution (assuming the
Continuance Resolution is approved) pursuant to section 190 of the CBCA and the
Plan of Arrangement. In general, any Allelix Shareholder who dissents from the
Continuance Resolution in compliance with section 190 of the CBCA and the Plan
of Arrangement will be entitled, in the event the Continuance Resolution is
approved, to be paid by Allelix the fair value of the Allelix Common Shares held
by such Dissenting Shareholder determined as of the close of business on the day
before the Continuance Resolution is adopted. Likewise, any Allelix Common
Shareholder who dissents from the Arrangement
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Resolution (assuming the Continuance Resolution is approved) in compliance with
section 185 of the CBCA and the Plan of Arrangement will be entitled, in the
event the Arrangement Resolution is approved, to be paid by Allelix the fair
value of the Allelix Common Shares held by such Dissenting Shareholder
determined as of the close of business on the day before the Arrangement
Resolution is adopted. However, any one Allelix Common Shareholder is entitled
to dissent from only one of the Continuance Resolution or the Arrangement
Resolution, not both. The following is a summary of the dissent provisions of
the CBCA.
The dissent provisions under the CBCA provide that a shareholder may only
make a claim thereunder with respect to all the shares of a class held by the
shareholder on behalf of any one beneficial owner and registered in the
shareholder's name. One consequence of this provision is that an Allelix
Shareholder may only exercise the right to dissent under the Dissent Procedures
in respect of Allelix shares that are registered in that holder's name. In many
cases, shares beneficially owned by a person are registered either: (a) in the
name of an intermediary that the non-registered holder deals with in respect of
the shares (such as banks, trust companies, securities dealers and brokers,
trustees or administrators of self-administered registered retirement savings
plans, registered retirement income funds, registered educational savings plans
and similar plans, and their nominees); or (b) in the name of a clearing agency
(such as CDS) of which the intermediary is a participant. Accordingly, a non-
registered holder of Allelix Common Shares will not be entitled to exercise the
right to dissent under section 190 of the CBCA or directly (unless the Allelix
Common Shares are re-registered in the non-registered holder's name). A non-
registered holder who wishes to exercise the right to dissent should immediately
contact the intermediary with whom the non-registered holder deals in respect of
his or her Allelix Common Shares and either: (i) instruct the intermediary to
exercise the right to dissent on the non-registered holder's behalf (which, if
the Allelix Common Shares are registered in the name of CDS or other clearing
agency, would require that such shares first be re-registered in the name of the
intermediary); or (ii) instruct the intermediary to re-register the Allelix
Common Shares in the name of the non-registered holder, in which case the non-
registered holder would have to exercise the right to dissent directly.
An Allelix Shareholder who wishes to dissent from either the Continuance
Resolution or the Arrangement Resolution must provide written notice of his, her
or its dissent ("Notice of Dissent") to Allelix by depositing such Notice of
Dissent with Allelix, or mailing it to Allelix by registered mail, at its
principal executive office at 6850 Goreway Drive, Mississauga, Ontario, L4V 1V7,
marked to the attention of the Senior Vice-President and Corporate Secretary of
Allelix at or before the Allelix Meeting. The filing of a Notice of Dissent
does not deprive an Allelix Shareholder of the right to vote at the Allelix
Meeting; however, the CBCA provides, in effect, that an Allelix Shareholder who
has submitted a Notice of Dissent in respect of either the
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Continuance Resolution or the Arrangement Resolution who then votes in favour of
such resolution will no longer be considered a Dissenting Shareholder with
respect to that class of shares voted in favour of such resolution. The CBCA
does not provide, and Allelix will not assume, that a vote against either the
Continuance Resolution or the Arrangement Resolution or an abstention
constitutes a Notice of Dissent but an Allelix Shareholder need not vote his or
her securities against such resolution in order to dissent. Similarly, the
revocation of a proxy conferring authority on the proxy holder to vote in favour
of such resolution does not constitute a Notice of Dissent; however, any proxy
granted by an Allelix Shareholder who intends to dissent, other than a proxy
that instructs the proxy holder to vote against either the Continuance
Resolution or the Arrangement Resolution, should be validly revoked (see
"General Proxy Information - Revocation of Proxies") in order to prevent the
proxy holder from voting such securities in favour of such resolution and
thereby causing the Allelix Shareholder to forfeit his, her or its right to
dissent.
Allelix is required, within 10 days after the Allelix Shareholders adopt
the Continuance Resolution and the Arrangement Resolution, to notify each of the
Dissenting Shareholders in respect of each resolution. Such notice is not
required to be sent to any Allelix Shareholder who voted in favour of the
resolution from which he, she or it submitted a Notice of Dissent nor to any
Allelix Shareholder who has withdrawn his or her Notice of Dissent.
A Dissenting Shareholder who has not withdrawn his or her Notice of Dissent
must then, within 20 days after receipt of notice that the resolution from which
he, she or it dissented has been adopted or, if the Dissenting Shareholder does
not receive such notice, within 20 days after he or she learns that such
resolution has been adopted, send to Allelix a Demand for Payment, containing
his or her name and address, the number of Allelix Common Shares in respect of
which he, she or it dissents, and a demand for payment of the fair value of such
shares. Within 30 days after sending a Demand for Payment, the Dissenting
Shareholder must send to Allelix or its transfer agent the certificates
representing the shares in respect of which he, she or it dissents. A Dissenting
Shareholder who fails to send certificates representing the shares in respect of
which he, she or it dissents forfeits his or her right to dissent. Allelix or
its transfer agent will endorse on any share certificate received from a
Dissenting Shareholder a notice that the holder is a Dissenting Shareholder and
will forthwith return the share certificates to the Dissenting Shareholder.
After sending a Demand for Payment, a Dissenting Shareholder ceases to have
any rights as a holder of the Allelix Common Shares in respect of which the
shareholder has dissented other than the right to be paid the fair value of such
shares as determined under the Dissent Procedures, unless: (i) the Dissenting
Shareholder withdraws the Demand for Payment before Allelix makes an Offer to
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Pay; (ii) Allelix fails to make a timely Offer to Pay to the Dissenting
Shareholder and the Dissenting Shareholder withdraws his or her Demand for
Payment; or (iii) the directors of Allelix revoke the Continuance Resolution
and/or the Arrangement Resolution, as applicable, in all of which cases the
Dissenting Shareholder's rights as a shareholder are reinstated.
In addition, pursuant to the Plan of Arrangement, Allelix Common
Shareholders who duly exercise such rights of dissent and who:
(a) are ultimately determined to be entitled to be paid fair value for
their Allelix Common Shares shall be deemed to have transferred such
shares to NPS Allelix, to the extent the fair value therefor is paid
by NPS Allelix, and to Allelix, to the extent the fair value therefor
is paid by Allelix, and, in the case of Allelix Common Shares so
transferred to Allelix such shares shall be cancelled as of the
Effective Date; or
(b) are ultimately determined not to be entitled, for any reason, to be
paid fair value for their Allelix Common Shares shall be deemed to
have participated in the Arrangement on the same basis as a
nondissenting holder of Allelix Common Shares and shall receive
Exchangeable Shares or NPS Common Shares on the basis determined in
accordance with the Plan of Arrangement.
Allelix is required, not later than 7 days after the later of the Effective
Date and the date on which Allelix receives a Demand for Payment from a
Dissenting Shareholder, to send such Dissenting Shareholder an Offer to Pay for
his or her Allelix Common Shares in an amount considered by the board of
directors of Allelix to be the fair value thereof, accompanied by a statement
showing the manner in which such fair value was determined. Every Offer to Pay
must be on the same terms. Allelix must pay for the Allelix Common Shares of a
Dissenting Shareholder within 10 days after an Offer to Pay has been accepted by
such Dissenting Shareholder, but any such offer lapses if Allelix does not
receive an acceptance thereof within 30 days after the Offer to Pay has been
made.
If Allelix fails to make an Offer to Pay for a Dissenting Shareholder's
Allelix Common Shares, or if a Dissenting Shareholder fails to accept an offer
which has been made, Allelix may, within 50 days after the Effective Date or
within such further period as the Court may allow, apply to the Court to fix a
fair value for the Allelix Common Shares of Dissenting Shareholders. If Allelix
fails to apply to the Court, a Dissenting Shareholder may apply to the Court for
the same purpose within a further period of 20 days or within such further
period as the Court may allow. A Dissenting Shareholder is not required to give
security for costs in such an application.
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Upon an application to the Court, all Dissenting Shareholders whose Allelix
Common Shares have not been purchased by Allelix will be joined as parties and
bound by the decision of the Court, and Allelix will be required to notify each
affected Dissenting Shareholder of the date, place and consequences of the
application and of his or her right to appear and be heard in person or by
counsel. Upon any such application to the Court, the Court may determine whether
any person is a Dissenting Shareholder who should be joined as a party, and the
Court will then fix a fair value for the Allelix Common Shares of all Dissenting
Shareholders. The final order of the Court will be rendered against Allelix in
favour of each Dissenting Shareholder and for the amount of the fair value of
his or her Allelix Common Shares as fixed by the Court. The Court may, in its
discretion, allow a reasonable rate of interest on the amount payable to each
Dissenting Shareholder from the Effective Date until the date of payment. An
application by either Allelix or a Dissenting Shareholder must made to the
Court.
The foregoing is only a summary of the Dissent Procedures under the CBCA
and under the Plan of Arrangement, which are technical and complex. A complete
copy of section 190 of the CBCA is attached to this Circular as Appendix I. It
is recommended that any Allelix Shareholder wishing to avail himself, herself or
itself of their Dissent Rights under the Dissent Procedures of the CBCA seek
legal advice as failure to comply strictly with the provisions of the CBCA and
the Plan of Arrangement may prejudice the right of dissent. For a general
summary of certain income tax implications to a Dissenting Shareholder, see
"Income Tax Considerations to Allelix Shareholders - Allelix Shareholders
Resident in Canada - Dissenting Shareholders".
AVAILABLE INFORMATION
NPS is subject to the informational requirements of the Exchange Act and in
accordance therewith will file reports and other information with the SEC. The
reports and other information filed by NPS with the SEC can be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies
of such material can also be obtained from the Public Reference section of the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. NPS public filings in the United States are also available to
the public from commercial document retrieval services and at the Internet World
Wide Web site maintained by the SEC at www.sec.gov. In addition, such material
filed by NPS can be inspected at the offices of the NASDAQ Stock Market [NTD:
insert the address of the NASDAQ].
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Allelix is subject to the informational requirements of Canadian securities
legislation, the ME and the TSE. The former type of information can be
requested from Micromedia, 20 Victoria Street, Toronto, Ontario M5C 2N3 while
the latter type of material can be inspected at the offices of the Montreal
Exchange, 800 Square Victoria, 4th Floor, Montreal, Quebec, H4Z 1A9; and the
TSE, 3rd Floor, 2 First Canadian Place, 130 King Street West, Toronto, Ontario
M5X 1J2. Generally, such information is also available at the Internet site
maintained by CDS Inc. at www.sedar.com, and the Internet site maintained by the
SEC at www.sec.gov.
LEGAL MATTERS
Certain legal matters in connection with the Transaction will be passed
upon by Stikeman, Elliott, Toronto, Ontario and Testa, Hurwitz & Thibeault LLP,
Boston, Massachusetts, on behalf of Allelix.
EXPERTS
The consolidated financial statements of NPS as of December 31, 1998 [and
December 31, 1997] included in this Circular have been so included in reliance
on the report of KPMG, LLP, given upon the authority of said firm as experts in
accounting and auditing. The consolidated financial statements of Allelix as of
August 31, 1999 [and August 31, 1998] included in this Circular have been so
included in reliance on the report of Ernst & Young LLP, given upon the
authority of said firm as experts in accounting and auditing. The Unaudited Pro
Forma Statements included in this Circular have been so included in reliance on
the report of __, given upon the authority of said firm as experts in accounting
and auditing. [The discussion included in this Circular under the heading
"Income Tax Considerations to Allelix Shareholders" has been so included in
reliance on the tax opinion of Ernst & Young LLP, given upon the authority of
said firm as experts in accounting and auditing.]
APPROVAL OF PROXY CIRCULAR BY ALLELIX'S BOARD OF DIRECTORS
The contents of this Circular and its sending to Allelix Shareholders have
been approved by the board of directors of Allelix.
BY ORDER OF THE BOARD OF DIRECTORS
John R. Evans
November __, 1999 Chairman
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Toronto, Ontario
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APPENDICES
A FORM OF OPTION RESOLUTION
B FORM OF CONTINUANCE RESOLUTION
C FORM OF ARRANGEMENT RESOLUTION
D PLAN OF ARRANGEMENT INCLUDING EXCHANGEABLE SHARE PROVISIONS
E FORM OF SUPPORT AGREEMENT
F FORM OF VOTING AND EXCHANGE TRUST AGREEMENT
G INTERIM ORDER AND NOTICE OF APPLICATION
H OPINION OF BANCBOSTON ROBERTSON STEPHENS
I SECTION 190 OF THE CBCA AND SECTION 185 OF THE OBCA
J NPS' ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
K NPS' PROXY STATEMENT DATED APRIL 21, 1999 FOR ITS 1999 ANNUAL MEETING OF
STOCKHOLDERS
L NPS' QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31,
1999
M NPS' QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30,
1999
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N NPS' QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER
30, 1999
O NPS' CURRENT REPORT ON FORM 8-K DATED OCTOBER 1, 1999
P ALLELIX'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31,
1999
Q ALLELIX'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1999
R ALLELIX'S AND NPS' UNAUDITED SELECTED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
S RISK FACTORS RELATED TO THE BUSINESS OF NPS
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SCHEDULE C
VOTING AND EXCHANGE TRUST AGREEMENT
MEMORANDUM OF AGREEMENT made as of the day of , .
A M O N G:
NPS PHARMACEUTICALS, INC.,
a corporation existing under the laws of the State of Delaware
hereinafter referred to as "NPS"),
OF THE FIRST PART,
- and -
NPS - ALLELIX INC.,
a company existing under the laws of the Province of British Columbia
(hereinafter referred to as "NPS Allelix Inc."),
OF THE SECOND PART,
- and -
.TRUST COMPANY
a trust company incorporated under the laws of Canada (hereinafter
referred to as "Trustee"),
OF THE THIRD PART.
WHEREAS in connection with an arrangement agreement (the "Arrangement
Agreement") made as of , between NPS and Allelix Biopharmaceuticals Inc.
("Allelix"), NPS - Allelix Inc. is to issue exchangeable shares (the
"Exchangeable Shares") to certain holders of securities of Allelix pursuant to
the plan of arrangement (the "Arrangement") contemplated in the Arrangement
Agreement;
AND WHEREAS pursuant to the Arrangement Agreement, NPS and NPS -
Allelix Inc. have agreed to execute a voting and exchange trust agreement
substantially in the form of this Agreement;
NOW THEREFORE in consideration of the respective covenants and
agreements provided in this Agreement and for other good and valuable
consideration (the
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receipt and sufficiency of which are hereby acknowledged), the parties hereto
covenant and agree as follows:
ARTICLE 5
DEFINITIONS AND INTERPRETATION
5.1 Definitions
In this Agreement, the following terms shall have the following meanings:
"Affiliate" of any person means any other person directly or indirectly
controlled by, or under control of, that person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control of"), as applied to any person,
means the possession by another person, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
that first mentioned person, whether through the ownership of voting
securities, by contract or otherwise.
"Arrangement" means the arrangement under section 192 of the CBCA and
section 182 of the OBCA on the terms and subject to the conditions set out
in the Plan of Arrangement, subject to any amendments or variations thereto
made in accordance with Article 6 of the Plan of Arrangement or made at the
direction of the Court.
"Arrangement Agreement" means the agreement made , 1999 between NPS and
Allelix, as amended, supplemented and/or restated in accordance therewith
prior to the Effective Date, providing for, among other things, the
Arrangement.
"Automatic Exchange Rights" means the benefit of the obligation of NPS to
effect the automatic exchange of Exchangeable Shares for NPS Common Shares
pursuant to section 5.12.
"Beneficiaries" means the registered holders from time to time of
Exchangeable Shares, other than NPS and its Affiliates.
"Beneficiary Votes" has the meaning ascribed thereto in section 4.2.
"Board of Directors" means the Board of Directors of NPS - Allelix Inc..
"Business Day" means any day on which commercial banks are generally open
for business in Salt Lake City, Utah and Toronto, Ontario, other than a
Saturday, a Sunday or a day observed as a holiday in Salt Lake City, Utah
under the laws of the State of Utah or the federal laws of the United
States of America or in Toronto, Ontario under the laws of the Province of
Ontario or the federal laws of Canada.
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"Canadian Dollar Equivalent" means, in respect of an amount expressed in a
currency other than Canadian dollars (the "Foreign Currency Amount") at any
date, the product obtained by multiplying (a) the Foreign Currency Amount
by (b) the noon spot exchange rate on such date for such foreign currency
expressed in Canadian dollars as reported by the Bank of Canada or, in the
event such spot exchange rate is not available, such exchange rate on such
date for such foreign currency expressed in Canadian dollars as may be
deemed by the Board of Directors to be appropriate for such purpose.
"Current Market Price" means, in respect of a NPS Common Share on any date,
the Canadian Dollar Equivalent of the average of the closing bid and asked
prices of NPS Common Shares during a period of 20 consecutive trading days
ending not more than three trading days before such date on Nasdaq, or, if
the NPS Common Shares are not then quoted on Nasdaq, on such other stock
exchange or automated quotation system on which the NPS Common Shares are
listed or quoted, as the case may be, as may be selected by the Board of
Directors for such purpose; provided however, that if in the opinion of the
Board of Directors the public distribution or trading activity of NPS
Common Shares during such period does not create a market which reflects
the fair market value of a NPS Common Share, then the Current Market Price
of a NPS Common Share shall be determined by the Board of Directors, in
good faith and in its sole discretion, and provided further that any such
selection, opinion or determination by the Board of Directors shall be
conclusive and binding.
"Exchange Right" has the meaning ascribed thereto in section 5.1.
"Exchangeable Shares" means the non-voting exchangeable shares in the
capital of NPS - Allelix Inc., having substantially the rights, privileges,
restrictions and conditions set out in Appendix 1 to the Plan of
Arrangement.
"Indemnified Parties" has the meaning ascribed thereto in section 9.1.
"Insolvency Event" means the institution by NPS - Allelix Inc. of any
proceeding to be adjudicated a bankrupt or insolvent or to be wound up, or
the consent of NPS - Allelix Inc. to the institution of bankruptcy,
insolvency or winding-up proceedings against it, or the filing of a
petition, answer or consent seeking dissolution or winding-up under any
bankruptcy, insolvency or analogous laws, including without limitation the
Companies Creditors' Arrangement Act (Canada) and the Bankruptcy and
Insolvency Act (Canada), and the failure by NPS - Allelix Inc. to contest
in good faith any such proceedings commenced in respect of NPS - Allelix
Inc. within 30 days of becoming aware thereof, or the consent by NPS -
Allelix Inc. to the filing of any such petition or to the appointment of a
receiver, or the making by NPS - Allelix Inc. of a general assignment for
the benefit of creditors, or the admission in writing by NPS - Allelix Inc.
of its inability to pay its debts generally as they become due, or NPS -
Allelix Inc. not being permitted, pursuant to solvency requirements of
applicable law, to redeem any Retracted Shares pursuant to section 6.6 of
the Share Provisions.
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"Liquidation Call Right" has the meaning ascribed thereto in the Plan of
Arrangement.
"Liquidation Event" has the meaning ascribed thereto in section 5.12(b).
"Liquidation Event Effective Date" has the meaning ascribed thereto in
section 5.12(c).
"List" has the meaning ascribed thereto in section 4.6.
"Nasdaq" means the National Association of Securities Dealers Automated
Quotation System;
"NPS Affiliates" means Affiliates of NPS.
"NPS Common Share" means a share of common stock in the capital of NPS.
"NPS Consent" has the meaning ascribed thereto in section 4.2.
"NPS Holdings" means NPS Holdings Limited, a company existing under the
laws of the Province of British Columbia and being a direct or indirect
wholly-owned subsidiary of NPS.
"NPS Meeting" has the meaning ascribed thereto in section 4.2.
"NPS Special Voting Share" means the one share of Special Voting Preferred
Stock of NPS issued in its own series which entitles the holder of record
to a number of votes at meetings of holders of NPS Common Shares equal to
the number of Exchangeable Shares outstanding from time to time (other than
Exchangeable Shares held by NPS and NPS Affiliates), which share is to be
issued to, deposited with, and voted by, the Trustee as described herein.
"NPS Successor" has the meaning ascribed thereto in section 11.1(a).
"OBCA" means the Business Corporations Act (Ontario), as amended.
"Officer's Certificate" means, with respect to NPS or NPS - Allelix Inc.,
as the case may be, a certificate signed by any officer or director of NPS
or NPS - Allelix Inc., as the case may be.
"person" includes any individual, firm, partnership, joint venture, venture
capital fund, limited liability company, unlimited liability company,
association, trust, trustee, executor, administrator, legal personal
representative, estate, group, body corporate, corporation, unincorporated
association or organization, government body, syndicate or other entity,
whether or not having legal status.
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"Plan of Arrangement" means the plan of arrangement substantially in the
form and content of Schedule D to the Arrangement Agreement and any
amendments or variations thereto.
"Redemption Call Right" has the meaning ascribed thereto in the Plan of
Arrangement.
"Retracted Shares" has the meaning ascribed thereto in section 5.7.
"Retraction Call Right" has the meaning ascribed thereto in the Share
Provisions.
"Share Provisions" means the rights, privileges, restrictions and
conditions attaching to the Exchangeable Shares.
"Support Agreement" means that certain support agreement made as of even
date herewith among NPS - Allelix Inc., NPS Holdings and NPS substantially
in the form and content of Schedule to the Arrangement Agreement, with
such changes thereto as the parties to the Arrangement Agreement, acting
reasonably, may agree.
"Trust" means the trust created by this Agreement.
"Trust Estate" means the NPS Special Voting Share, any other securities,
the Exchange Right, the Automatic Exchange Rights and any money or other
property which may be held by the Trustee from time to time pursuant to
this Agreement.
"Trustee" means CIBC Mellon Trust Company and, subject to the provisions of
Article 10, includes any successor trustee.
"Voting Rights" means the voting rights attached to the NPS Special Voting
Share.
5.2 Interpretation Not Affected by Headings, etc.
The division of this Agreement into Articles, sections and other portions
and the insertion of headings are for convenience of reference only and should
not affect the construction or interpretation of this Agreement. Unless
otherwise indicated, all references to an "Article" or "section" followed by a
number and/or a letter refer to the specified Article or section of this
Agreement. The terms "this Agreement", "hereof", "herein" and "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
supplementary or ancillary hereto.
5.3 Number, Gender, etc.
Words importing the singular number only shall include the plural and vice
versa. Words importing any gender shall include all genders.
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5.4 Date for any Action
If any date on which any action is required to be taken under this
Agreement is not a Business Day, such action shall be required to be taken on
the next succeeding Business Day.
ARTICLE 6
PURPOSE OF AGREEMENT
6.1 Establishment of Trust
The purpose of this Agreement is to create the Trust for the benefit of the
Beneficiaries, as herein provided. The Trustee will hold the NPS Special Voting
Share in order to enable the Trustee to exercise the Voting Rights and will hold
the Exchange Right and the Automatic Exchange Rights in order to enable the
Trustee to exercise such rights, in each case as trustee for and on behalf of
the Beneficiaries as provided in this Agreement.
ARTICLE 7
NPS SPECIAL VOTING SHARE
7.1 Issue and Ownership of the NPS Special Voting Share
NPS hereby issues to and deposits with the Trustee, the NPS Special Voting
Share to be hereafter held of record by the Trustee as trustee for and on behalf
of, and for the use and benefit of, the Beneficiaries and in accordance with the
provisions of this Agreement. NPS hereby acknowledges receipt from the Trustee
as trustee for and on behalf of the Beneficiaries of good and valuable
consideration (and the adequacy thereof) for the issuance of the NPS Special
Voting Share by NPS to the Trustee. During the term of the Trust and subject to
the terms and conditions of this Agreement, the Trustee shall possess and be
vested with full legal ownership of the NPS Special Voting Share and shall be
entitled to exercise all of the rights and powers of an owner with respect to
the NPS Special Voting Share provided that the Trustee shall:
(a) hold the NPS Special Voting Share and the legal title thereto as trustee
solely for the use and benefit of the Beneficiaries in accordance with
the provisions of this Agreement; and
(b) except as specifically authorized by this Agreement, have no power or
authority to sell, transfer, vote or otherwise deal in or with the NPS
Special Voting Share and the NPS Special Voting Share shall not be used
or disposed of by the Trustee for any purpose other than the purposes
for which this Trust is created pursuant to this Agreement.
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7.2 Legended Share Certificates
NPS - Allelix Inc. will cause each certificate representing Exchangeable
Shares to bear an appropriate legend notifying the Beneficiaries of their right
to instruct the Trustee with respect to the exercise of the Voting Rights in
respect of the Exchangeable Shares of the Beneficiaries.
7.3 Keeping of Certificate
The certificate representing the NPS Special Voting Share shall at all
times be held in safe keeping by the Trustee.
ARTICLE 8
EXERCISE OF VOTING RIGHTS
8.1 Voting Rights
The Trustee, as the holder of record of the NPS Special Voting Share, shall
be entitled to all of the Voting Rights, including the right to vote in person
or by proxy the NPS Special Voting Share on any matters, questions, proposals or
propositions whatsoever that may properly come before the shareholders of NPS at
a NPS Meeting or in connection with a NPS Consent. The Voting Rights shall be
and remain vested in and exercised by the Trustee. Subject to section 7.15:
(a) the Trustee shall exercise the Voting Rights only on the basis of
instructions received pursuant to this Article 4 from Beneficiaries
entitled to instruct the Trustee as to the voting thereof at the time at
which the NPS Meeting is held or a NPS Consent is sought; and
(b) to the extent that no instructions are received from a Beneficiary with
respect to the Voting Rights to which such Beneficiary is entitled, the
Trustee shall not exercise or permit the exercise of such Voting Rights.
8.2 Number of Votes
With respect to all meetings of shareholders of NPS at which holders of NPS
Common Shares are entitled to vote (each, a "NPS Meeting") and with respect to
all written consents sought by NPS from its shareholders including the holders
of NPS Common Shares (each, a "NPS Consent"), each Beneficiary shall be entitled
to instruct the Trustee to cast and exercise one of the votes comprised in the
Voting Rights for each Exchangeable Share owned of record by such Beneficiary on
the record date established by NPS or by applicable law for such NPS Meeting or
NPS Consent, as the case may be (the "Beneficiary Votes"), in respect of each
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matter, question, proposal or proposition to be voted on at such NPS Meeting or
in connection with such NPS Consent.
8.3 Mailings to Shareholders
With respect to each NPS Meeting and NPS Consent, the Trustee will use
its reasonable efforts promptly to mail or cause to be mailed (or otherwise
communicate in the same manner as NPS utilizes in communications to holders of
NPS Common Shares subject to applicable regulatory requirements and provided
such manner of communications is reasonably available to the Trustee) to each of
the Beneficiaries named in the List referred to in section 4.6, such mailing or
communication to commence on the same day as the mailing or notice (or other
communication) with respect thereto is commenced by NPS to its shareholders:
(a) a copy of such notice, together with any related materials,
including, without limitation, any proxy or information statement, to be
provided to shareholders of NPS;
(b) a statement that such Beneficiary is entitled to instruct the Trustee
as to the exercise of the Beneficiary Votes with respect to such NPS
Meeting or NPS Consent or, pursuant to section 4.7, to attend such NPS
Meeting and to exercise personally the Beneficiary Votes thereat;
(c) a statement as to the manner in which such instructions may be given
to the Trustee, including an express indication that instructions may
be given to the Trustee to give:
(i) a proxy to such Beneficiary or his designee to exercise
personally the Beneficiary Votes; or
(ii) a proxy to a designated agent or other representative of the
management of NPS to exercise such Beneficiary Votes;
(d) a statement that if no such instructions are received from the
Beneficiary, the Beneficiary Votes to which such Beneficiary is
entitled will not be exercised;
(e) a form of direction whereby the Beneficiary may so direct and instruct
the Trustee as contemplated herein; and
(f) a statement of the time and date by which such instructions must be
received by the Trustee in order to be binding upon it, which in the
case of a NPS Meeting shall not be earlier than the close of business
on the second Business Day prior to such meeting, and of the method
for revoking or amending such instructions.
The materials referred to in this section 4.3 are to be provided to
the Trustee by NPS and the materials referred to in section 4.3(c), (e) and (f)
shall be subject to reasonable
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comment by the Trustee in a timely manner. NPS shall ensure that the materials
to be provided to the Trustee are provided in sufficient time to permit the
Trustee to comment as aforesaid and to send all materials to each Beneficiary at
the same time as such materials are first sent to holders of NPS Common Shares.
For the purpose of determining Beneficiary Votes to which a
Beneficiary is entitled in respect of any NPS Meeting or NPS Consent, the number
of Exchangeable Shares owned of record by the Beneficiary shall be determined at
the close of business on the record date established by NPS or by applicable law
for purposes of determining shareholders entitled to vote at such NPS Meeting.
NPS will notify the Trustee of any decision of the Board of Directors of NPS
with respect to the calling of any NPS Meeting and shall provide all necessary
information and materials to the Trustee in each case promptly and in any event
in sufficient time to enable the Trustee to perform its obligations contemplated
by this section 4.3.
8.4 Copies of Shareholder Information
NPS will deliver to the Trustee copies of all proxy materials
(including notices of NPS Meetings but excluding proxies to vote NPS Common
Shares), information statements, reports (including without limitation, all
interim and annual financial statements) and other written communications that,
in each case, are to be distributed from time to time to holders of NPS Common
Shares in sufficient quantities and in sufficient time so as to enable the
Trustee to send those materials to each Beneficiary at the same time as such
materials are first sent to holders of NPS Common Shares. The Trustee will mail
or otherwise send to each Beneficiary, at the expense of NPS, copies of all such
materials (and all materials specifically directed to the Beneficiaries or to
the Trustee for the benefit of the Beneficiaries by NPS) received by the Trustee
from NPS contemporaneously with the sending of such materials to holders of NPS
Common Shares. The Trustee will also make available for inspection by any
Beneficiary at the Trustee's principal office in Toronto all proxy materials,
information statements, reports and other written communications that are:
(a) received by the Trustee as the registered holder of the NPS Special
Voting Share and made available by NPS generally to the holders of NPS
Common Shares; or
(b) specifically directed to the Beneficiaries or to the Trustee for the
benefit of the Beneficiaries by NPS.
8.5 Other Materials
As soon as reasonably practicable after receipt by NPS or shareholders
of NPS (if such receipt is known by NPS) of any material sent or given by or on
behalf of a third party to holders of NPS Common Shares generally, including
without limitation, dissident proxy and information circulars (and related
information and material) and tender and exchange offer circulars (and related
information and material), NPS shall use its reasonable efforts to obtain and
deliver to the Trustee copies thereof in sufficient quantities so as to enable
the Trustee to
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forward such material (unless the same has been provided directly to
Beneficiaries by such third party) to each Beneficiary as soon as possible
thereafter. As soon as reasonably practicable after receipt thereof, the Trustee
will mail or otherwise send to each Beneficiary, at the expense of NPS, copies
of all such materials received by the Trustee from NPS. The Trustee will also
make available for inspection by any Beneficiary at the Trustee's principal
office in Toronto copies of all such materials.
8.6 List of Persons Entitled to Vote
NPS - Allelix Inc. shall, (a) prior to each annual, general and
special NPS Meeting or the seeking of any NPS Consent and (b) forthwith upon
each request made at any time by the Trustee in writing, prepare or cause to be
prepared a list (a "List") of the names and addresses of the Beneficiaries
arranged in alphabetical order and showing the number of Exchangeable Shares
held of record by each such Beneficiary, in each case at the close of business
on the date specified by the Trustee in such request or, in the case of a List
prepared in connection with a NPS Meeting or a NPS Consent, at the close of
business on the record date established by NPS or pursuant to applicable law for
determining the holders of NPS Common Shares entitled to receive notice of
and/or to vote at such NPS Meeting or to give consent in connection with such
NPS Consent. Each such List shall be delivered to the Trustee promptly after
receipt by NPS - Allelix Inc. of such request or the record date for such
meeting or seeking of consent, as the case may be, and in any event within
sufficient time as to permit the Trustee to perform its obligations under this
Agreement. NPS agrees to give NPS - Allelix Inc. notice (with a copy to the
Trustee) of the calling of any NPS Meeting or the seeking of any NPS Consent,
together with the record dates therefor, sufficiently prior to the date of the
calling of such meeting or seeking of such consent so as to enable NPS - Allelix
Inc. to perform its obligations under this section 4.6.
8.7 Entitlement to Direct Votes
Any Beneficiary named in a List prepared in connection with any NPS
Meeting or NPS Consent will be entitled (a) to instruct the Trustee in the
manner described in section 4.3 with respect to the exercise of the Beneficiary
Votes to which such Beneficiary is entitled or (b) to attend such meeting and
personally exercise thereat, as the proxy of the Trustee, the Beneficiary Votes
to which such Beneficiary is entitled.
8.8 Voting by Trustee and Attendance of Trustee Representative at Meeting
(a) In connection with each NPS Meeting and NPS Consent, the Trustee shall
exercise, either in person or by proxy, in accordance with the instructions
received from a Beneficiary pursuant to section 4.3, the Beneficiary Votes as to
which such Beneficiary is entitled to direct the vote (or any lesser number
thereof as may be set forth in the instructions); provided, however, that such
written instructions are received by the Trustee from the Beneficiary prior to
the time and date fixed by the Trustee for receipt of such instruction in the
notice given by the Trustee to the Beneficiary pursuant to section 4.3.
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(b) The Trustee shall cause a representative who is empowered by it to
sign and deliver, on behalf of the Trustee, proxies for Voting Rights
to attend each NPS Meeting. Upon submission by a Beneficiary (or its
designee) of identification satisfactory to the Trustee's
representative, and at the Beneficiary's request, such representative
shall sign and deliver to such Beneficiary (or its designee) a proxy
to exercise personally the Beneficiary Votes as to which such
Beneficiary is otherwise entitled hereunder to direct the vote, if
such Beneficiary either (i) has not previously given the Trustee
instructions pursuant to section 4.3 in respect of such meeting or
(ii) submits to such representative written revocation of any such
previous instructions. At such meeting, the Beneficiary exercising
such Beneficiary Votes shall have the same rights as the Trustee to
speak at the meeting in favour of any matter, question, proposal or
proposition, to vote by way of ballot at the meeting in respect of any
matter, question, proposal or proposition, and to vote at such meeting
by way of a show of hands in respect of any matter, question or
proposition.
8.9 Distribution of Written Materials
Any written materials distributed by the Trustee pursuant to this
Agreement shall be sent by mail (or otherwise communicated in the same manner as
NPS utilizes in communications to holders of NPS Common Shares subject to
applicable regulatory requirements and provided such manner of communications is
reasonably available to the Trustee) to each Beneficiary at its address as shown
on the books of NPS - Allelix Inc.. NPS - Allelix Inc. shall provide or cause to
be provided to the Trustee for this purpose, on a timely basis and without
charge or other expense:
(a) a current List; and
(b) upon the request of the Trustee, mailing labels to enable the Trustee
to carry out its duties under this Agreement.
8.10 Termination of Voting Rights
All of the rights of a Beneficiary with respect to the Beneficiary
Votes exercisable in respect of the Exchangeable Shares held by such
Beneficiary, including the right to instruct the Trustee as to the voting of or
to vote personally such Beneficiary Votes, shall be deemed to be surrendered by
the Beneficiary to NPS or NPS Holdings, as the case may be, and such Beneficiary
Votes and the Voting Rights represented thereby shall cease immediately upon the
delivery by such holder to the Trustee of the certificates representing such
Exchangeable Shares in connection with the exercise by the Beneficiary of the
Exchange Right or the occurrence of the automatic exchange of Exchangeable
Shares for NPS Common Shares, as specified in Article 5 (unless, in either case,
NPS shall not have delivered the requisite NPS Common Shares issuable in
exchange therefor to the Trustee for delivery to the Beneficiaries), or upon the
redemption of Exchangeable Shares pursuant to Article 6 or 7 of the Share
Provisions, or upon the effective
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date of the liquidation, dissolution or winding-up of NPS - Allelix Inc.
pursuant to Article 5 of the Share Provisions, or upon the purchase of
Exchangeable Shares from the holder thereof by NPS Holdings pursuant to the
exercise by NPS Holdings of the Retraction Call Right, the Redemption Call Right
or the Liquidation Call Right.
8.11 Communications with Shareholders
NPS agrees not to communicate with holders of NPS Common Shares
otherwise than by mail unless such method of communication is also reasonably
available to the Trustee for communication with the Beneficiaries.
ARTICLE 9
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
9.1 Grant and Ownership of the Exchange Right
NPS hereby grants to the Trustee as trustee for and on behalf of, and
for the use and benefit of, the Beneficiaries the right (the "Exchange Right"),
upon the occurrence and during the continuance of an Insolvency Event, to
require NPS to purchase from each or any Beneficiary all or any part of the
Exchangeable Shares held by the Beneficiary and the Automatic Exchange Rights,
all in accordance with the provisions of this Agreement. NPS hereby acknowledges
receipt from the Trustee as trustee for and on behalf of the Beneficiaries of
good and valuable consideration (and the adequacy thereof) for the grant of the
Exchange Right and the Automatic Exchange Rights by NPS to the Trustee. During
the term of the Trust and subject to the terms and conditions of this Agreement,
the Trustee shall possess and be vested with full legal ownership of the
Exchange Right and the Automatic Exchange Rights and shall be entitled to
exercise all of the rights and powers of an owner with respect to the Exchange
Right and the Automatic Exchange Rights, provided that the Trustee shall:
(a) hold the Exchange Right and the Automatic Exchange Rights and the
legal title thereto as trustee solely for the use and benefit of the
Beneficiaries in accordance with the provisions of this Agreement; and
(b) except as specifically authorized by this Agreement, have no power or
authority to exercise or otherwise deal in or with the Exchange Right
or the Automatic Exchange Rights, and the Trustee shall not exercise
any such rights for any purpose other than the purposes for which the
Trust is created pursuant to this Agreement.
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9.2 Legended Share Certificates
NPS - Allelix Inc. will cause each certificate representing
Exchangeable Shares to bear an appropriate legend notifying the Beneficiaries
of:
(a) their right to instruct the Trustee with respect to the exercise of
the Exchange Right in respect of the Exchangeable Shares held by a
Beneficiary; and
(b) the Automatic Exchange Rights.
9.3 General Exercise of Exchange Right
The Exchange Right shall be and remain vested in and exercisable by
the Trustee. Subject to section 7.15, the Trustee shall exercise the Exchange
Right only on the basis of instructions received pursuant to this Article 5 from
Beneficiaries entitled to instruct the Trustee as to the exercise thereof. To
the extent that no instructions are received from a Beneficiary with respect to
the Exchange Right, the Trustee shall not exercise or permit the exercise of the
Exchange Right.
9.4 Purchase Price
The purchase price payable by NPS for each Exchangeable Share to be
purchased by NPS under the Exchange Right shall be an amount per share equal to
(a) the Current Market Price of a NPS Common Share on the last Business Day
prior to the day of closing of the purchase and sale of such Exchangeable Share
under the Exchange Right, which shall be satisfied in full by NPS causing to be
sent to such holder one NPS Common Share, plus (b) to the extent not paid by
NPS - Allelix Inc. on the designated payment date therefor, an additional amount
equivalent to the full amount of all declared and unpaid dividends on each such
Exchangeable Share held by such holder on any dividend record date which
occurred prior to the closing of the purchase and sale. In connection with each
exercise of the Exchange Right, NPS shall provide to the Trustee an Officer's
Certificate setting forth the calculation of the purchase price for each
Exchangeable Share. The purchase price for each such Exchangeable Share so
purchased may be satisfied only by NPS issuing and delivering or causing to be
delivered to the Trustee, on behalf of the relevant Beneficiary, one NPS Common
Share and on the applicable payment date a cheque for the balance, if any, of
the purchase price without interest (but less any amounts withheld pursuant to
section 5.13). Upon payment by NPS of such purchase price, the relevant
Beneficiary shall cease to have any right to be paid any amount in respect of
declared and unpaid dividends on each such Exchangeable Share by NPS - Allelix
Inc..
9.5 Exercise Instructions
Subject to the terms and conditions herein set forth, a Beneficiary
shall be entitled, upon the occurrence and during the continuance of an
Insolvency Event, to instruct the Trustee to exercise the Exchange Right with
respect to all or any part of the Exchangeable Shares registered in the name of
such Beneficiary on the books of NPS - Allelix Inc.. To cause the exercise of
the
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Exchange Right by the Trustee, the Beneficiary shall deliver to the Trustee,
in person or by certified or registered mail, as its principal office in Toronto
or at such other places in Canada as the Trustee may from time to time designate
by written notice to the Beneficiaries, the certificates representing the
Exchangeable Shares which such Beneficiary desires NPS to purchase, duly
endorsed in blank for transfer, and accompanied by such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
the OBCA and the articles and by-laws of NPS - Allelix Inc. and such additional
documents and instruments as the Trustee, NPS - Allelix Inc. and NPS may
reasonably require together with (a) a duly completed form of notice of exercise
of the Exchange Right, contained on the reverse of or attached to the
Exchangeable Share certificates, stating (i) that the Beneficiary thereby
instructs the Trustee to exercise the Exchange Right so as to require NPS to
purchase from the Beneficiary the number of Exchangeable Shares specified
therein, (ii) that such Beneficiary has good title to and owns all such
Exchangeable Shares to be acquired by NPS free and clear of all liens, claims
and encumbrances, (iii) the names in which the certificates representing NPS
Common Shares issuable in connection with the exercise of the Exchange Right are
to be issued and (iv) the names and addresses of the persons to whom such new
certificates should be delivered and (b) payment (or evidence satisfactory to
the Trustee, NPS - Allelix Inc. and NPS of payment) of the taxes (if any)
payable as contemplated by section 5.8 of this Agreement. If only a part of the
Exchangeable Shares represented by any certificate or certificates delivered to
the Trustee are to be purchased by NPS under the Exchange Right, a new
certificate for the balance of such Exchangeable Shares shall be issued to the
holder at the expense of NPS - Allelix Inc..
9.6 Delivery of NPS Common Shares; Effect of Exercise
Promptly after the receipt of the certificates representing the
Exchangeable Shares which the Beneficiary desires NPS to purchase under the
Exchange Right, together with such documents and instruments of transfer and a
duly completed form of notice of exercise of the Exchange Right (and payment of
taxes, if any payable as contemplated by section 5.8 or evidence thereof), duly
endorsed for transfer to NPS, the Trustee shall notify NPS and NPS - Allelix
Inc. of its receipt of the same, which notice to NPS and NPS - Allelix Inc.
shall constitute exercise of the Exchange Right by the Trustee on behalf of the
holder of such Exchangeable Shares, and NPS shall promptly thereafter deliver or
cause to be delivered to the Trustee, for delivery to the Beneficiary of such
Exchangeable Shares (or to such other persons, if any, properly designated by
such Beneficiary) the number of NPS Common Shares issuable in connection with
the exercise of the Exchange Right, and on the applicable payment date cheques
for the balance, if any, of the total purchase price therefor without interest
(but less any amounts withheld pursuant to section 5.13); provided, however,
that no such delivery shall be made unless and until the Beneficiary requesting
the same shall have paid (or provided evidence satisfactory to the Trustee,
NPS - Allelix Inc. and NPS of the payment of) the taxes (if any) payable as
contemplated by section 5.8 of this Agreement. Immediately upon the giving of
notice by the Trustee to NPS and NPS - Allelix Inc. of the exercise of the
Exchange Right as provided in this section 5.6, the closing of the transaction
of purchase and sale contemplated by the Exchange Right shall be deemed to have
occurred and the holder of such Exchangeable Shares shall be deemed to have
transferred to NPS all of such holder's right, title and interest in and to such
Exchangeable Shares and the
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related interest in the Trust Estate and shall cease to be a holder of such
Exchangeable Shares and shall not be entitled to exercise any of the rights of a
holder in respect thereof, other than the right to receive his proportionate
part of the total purchase price therefor, unless the requisite number of NPS
Common Shares is not allotted, issued and delivered by NPS to the Trustee within
five Business Days of the date of the giving of such notice by the Trustee or
the balance of the purchase price, if any, is not paid by NPS on the applicable
payment date therefor, in which case the rights of the Beneficiary shall remain
unaffected until such NPS Common Shares are so allotted, issued and delivered,
and the balance of the purchase price, if any, has been paid, by NPS. Upon
delivery by NPS to the Trustee of such NPS Common Shares, and the balance of the
purchase price, if any, the Trustee shall deliver such NPS Common Shares to such
Beneficiary (or to such other persons, if any, properly designated by such
Beneficiary). Concurrently with such Beneficiary ceasing to be a holder of
Exchangeable Shares, the Beneficiary shall be considered and deemed for all
purposes to be the holder of the NPS Common Shares delivered to it pursuant to
the Exchange Right.
9.7 Exercise of Exchange Right Subsequent to Retraction
In the event that a Beneficiary has exercised its right under Article
6 of the Share Provisions to require NPS - Allelix Inc. to redeem any or all of
the Exchangeable Shares held by the Beneficiary (the "Retracted Shares") and is
notified by NPS - Allelix Inc. pursuant to section 6.6 of the Share Provisions
that NPS - Allelix Inc. will not be permitted as a result of solvency
requirements of applicable law to redeem all such Retracted Shares, and provided
that NPS Holdings shall not have exercised the Retraction Call Right with
respect to the Retracted Shares and that the Beneficiary has not revoked the
retraction request delivered by the Beneficiary to NPS - Allelix Inc. pursuant
to section 6.1 of the Share Provisions and provided further that the Trustee has
received written notice of same from NPS - Allelix Inc. or NPS, the retraction
request will constitute and will be deemed to constitute notice from the
Beneficiary to the Trustee instructing the Trustee to exercise the Exchange
Right with respect to those Retracted Shares that NPS - Allelix Inc. is unable
to redeem. In any such event, NPS - Allelix Inc. hereby agrees with the Trustee
and in favour of the Beneficiary promptly to forward or cause to be forwarded to
the Trustee all relevant materials delivered by the Beneficiary to NPS - Allelix
Inc. or to the transfer agent of the Exchangeable Shares (including without
limitation, a copy of the retraction request delivered pursuant to section 6.1
of the Share Provisions) in connection with such proposed redemption of the
Retracted Shares and the Trustee will thereupon exercise the Exchange Right with
respect to the Retracted Shares that NPS - Allelix Inc. is not permitted to
redeem and will require NPS to purchase such shares in accordance with the
provisions of this Article 5.
9.8 Stamp or Other Transfer Taxes
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Upon any sale of Exchangeable Shares to NPS pursuant to the Exchange
Right or the Automatic Exchange Rights, the share certificate or certificates
representing NPS Common Shares to be delivered in connection with the payment of
the total purchase price therefor shall be issued in the name of the Beneficiary
of the Exchangeable Shares so sold or in such names as such Beneficiary may
otherwise direct in writing without charge to the holder of the Exchangeable
Shares so sold; provided, however, that such Beneficiary (a) shall pay (and none
of NPS, NPS - Allelix Inc. or the Trustee shall be required to pay) any
documentary, stamp, transfer or other taxes that may be payable in respect of
any transfer involved in the issuance or delivery of such shares to a person
other than such Beneficiary or (b) shall have evidenced to the satisfaction of
the Trustee, NPS and NPS - Allelix Inc. that such taxes, if any, have been paid.
9.9 Notice of Insolvency Event
As soon as practicable following the occurrence of an Insolvency Event
or any event that with the giving of notice or the passage of time or both would
be an Insolvency Event, NPS - Allelix Inc. and NPS shall give written notice
thereof to the Trustee. As soon as practicable following the receipt of notice
from NPS - Allelix Inc. and NPS of the occurrence of an Insolvency Event, or
upon the Trustee becoming aware of an Insolvency Event, the Trustee will mail to
each Beneficiary, at the expense of NPS (such funds to be received in advance),
a notice of such Insolvency Event in the form provided by NPS, which notice
shall contain a brief statement of the rights of the Beneficiaries with respect
to the Exchange Right.
9.10 Qualification of NPS Common Shares
NPS covenants that if any NPS Common Shares to be issued and delivered
pursuant to the Exchange Right or the Automatic Exchange Rights require
registration or qualification with or approval of or the filing of any document,
including any prospectus or similar document, or the taking of any proceeding
with or the obtaining of any order, ruling or consent from any governmental or
regulatory authority under any Canadian or United States federal, provincial or
state law or regulation or pursuant to the rules and regulations of any
regulatory authority or the fulfillment of any other Canadian or United States
federal, provincial or state legal requirement before such shares may be issued
and delivered by NPS to the initial holder thereof or in order that such shares
may be freely traded thereafter (other than any restrictions of general
application on transfer by reason of a holder being a "control person" of NPS
for purposes of Canadian provincial securities law or an "affiliate" of NPS for
purposes of United States federal or state securities law), NPS will in good
faith expeditiously take all such actions and do all such things as are
necessary or desirable to cause such NPS Common Shares to be and remain duly
registered, qualified or approved. NPS will in good faith expeditiously take all
such actions and do all such things as are reasonably necessary or desirable to
cause all NPS Common Shares to be delivered pursuant to the Exchange Right or
the Automatic Exchange Rights to be listed, quoted or posted for trading on all
stock exchanges and quotation systems on which outstanding NPS Common Shares
have been listed by NPS and remain listed and are quoted or posted for trading
at such time.
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9.11 NPS Common Shares
NPS hereby represents, warrants and covenants that the NPS Common
Shares issuable as described herein will be duly authorized and validly issued
as fully paid and non-assessable and shall be free and clear of any lien, claim
or encumbrance.
9.12 Automatic Exchange on Liquidation of NPS
(a) NPS will give the Trustee written notice of each of the following
events at the time set forth below:
(i) in the event of any determination by the Board of Directors of
NPS to institute voluntary liquidation, dissolution or winding-up
proceedings with respect to NPS or to effect any other
distribution of assets of NPS among its shareholders for the
purpose of winding up its affairs, at least 60 days prior to the
proposed effective date of such liquidation, dissolution,
winding-up or other distribution; and
(ii) as soon as practicable following the earlier of (A) receipt by
NPS of notice of, and (B) NPS otherwise becoming aware of, any
threatened or instituted claim, suit, petition or other
proceedings with respect to the involuntary liquidation,
dissolution or winding-up of NPS or to effect any other
distribution of assets of NPS among its shareholders for the
purpose of winding up its affairs, in each case where NPS has
failed to contest in good faith any such proceeding commenced in
respect of NPS within 30 days of becoming aware thereof.
(b) As soon as practicable following receipt by the Trustee from NPS of
notice of any event (a "Liquidation Event") contemplated by section
5.12 (a) (i) or 5.12 (a) (ii) above, the Trustee will give notice
thereof to the Beneficiaries. Such notice shall be provided to the
Trustee by NPS and shall include a brief description of the automatic
exchange of Exchangeable Shares for NPS Common Shares provided for in
section 5.12(c).
(c) In order that the Beneficiaries will be able to participate on a pro
rata basis with the holders of NPS Common Shares in the distribution
of assets of NPS in connection with a Liquidation Event, on the fifth
Business Day prior to the effective date (the "Liquidation Event
Effective Date") of a Liquidation Event all of the then outstanding
Exchangeable Shares shall be automatically exchanged for NPS Common
Shares. To effect such automatic exchange, NPS shall purchase on the
fifth Business Day prior to the Liquidation Event Effective Date each
Exchangeable Share then outstanding and held by Beneficiaries, and
each Beneficiary shall sell the Exchangeable Shares held by it at such
time, for a purchase price per share equal to (a) the Current Market
Price of a NPS Common
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Share on the fifth Business Day prior to the Liquidation Event
Effective Date, which shall be satisfied in full by NPS issuing to the
Beneficiary one NPS Common Share, and (b) to the extent not paid by
NPS - Allelix Inc., an additional amount equivalent to the full amount
of all declared and unpaid dividends on each such Exchangeable Share
held by such holder on any dividend record date which occurred prior
to the date of the exchange. NPS shall provide the Trustee with an
Officer's Certificate in connection with each automatic exchange
setting forth the calculation of the purchase price for each
Exchangeable Share.
(d) On the fifth Business Day prior to the Liquidation Event Effective
Date, the closing of the transaction of purchase and sale contemplated
by the automatic exchange of Exchangeable Shares for NPS Common Shares
shall be deemed to have occurred, and each Beneficiary shall be deemed
to have transferred to NPS all of the Beneficiary's right, title and
interest in and to such Beneficiary's Exchangeable Shares and any
right to receive declared and unpaid dividends from NPS - Allelix Inc.
and the related interest in the Trust Estate and shall cease to be a
holder of such Exchangeable Shares and NPS shall issue to the
Beneficiary the NPS Common Shares issuable upon the automatic exchange
of Exchangeable Shares for NPS Common Shares and on the applicable
payment date shall deliver to the Trustee for delivery to the
Beneficiary a cheque for the balance, if any, of the total purchase
price for such Exchangeable Shares without interest but less any
amounts withheld pursuant to section 5.13. Concurrently with such
Beneficiary ceasing to be a holder of Exchangeable Shares, the
Beneficiary shall be considered and deemed for all purposes to be the
holder of the NPS Common Shares issued pursuant to the automatic
exchange of Exchangeable Shares for NPS Common Shares and the
certificates held by the Beneficiary previously representing the
Exchangeable Shares exchanged by the Beneficiary with NPS pursuant to
such automatic exchange shall thereafter be deemed to represent NPS
Common Shares issued to the Beneficiary by NPS pursuant to such
automatic exchange. Upon the request of a Beneficiary and the
surrender by the Beneficiary of Exchangeable Share certificates deemed
to represent NPS Common Shares, duly endorsed in blank and accompanied
by such instruments of transfer as NPS may reasonably require, NPS
shall deliver or cause to be delivered to the Beneficiary certificates
representing NPS Common Shares of which the Beneficiary is the holder.
9.13 Withholding Rights
NPS, NPS - Allelix Inc. and the Trustee shall be entitled to deduct
and withhold from any consideration otherwise payable under this Agreement to
any holder of Exchangeable Shares or NPS Common Shares such amounts as NPS, NPS
- - - Allelix Inc. or the Trustee is required or permitted to deduct and withhold
with respect to such payment under the Income Tax Act (Canada), the United
States Internal Revenue Code of 1986 or any provision of provincial, state,
local or foreign tax law, in each case as amended or succeeded. The Trustee may
act on the advice of counsel with respect to such matters. To the extent that
amounts are so withheld, such
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withheld amounts shall be treated for all purposes as having been paid to the
holder of the shares in respect of which such deduction and withholding was
made, provided that such withheld amounts are actually remitted to the
appropriate taxing authority. To the extent that the amount so required or
permitted to be deducted or withheld from any payment to a holder exceeds the
cash portion of the consideration otherwise payable to the holder, NPS, NPS -
Allelix Inc. and the Trustee are hereby authorized to sell or otherwise dispose
of such portion of the consideration as is necessary to provide sufficient funds
to NPS, NPS - Allelix Inc. or the Trustee, as the case may be, to enable it to
comply with such deduction or withholding requirement and NPS, NPS - Allelix
Inc. or the Trustee shall notify the holder thereof and remit to such holder any
unapplied balance of the net proceeds of such sale. NPS represents and warrants
that, based upon facts currently known to it, it has no current intention, as at
the date of this Agreement, to deduct or withhold from any dividend paid to
holders of Exchangeable Shares any amounts under the United States Internal
Revenue Code of 1986.
ARTICLE 10
RESTRICTIONS ON ISSUE OF NPS SPECIAL VOTING STOCK
10.1 Issue of Additional Shares
During the term of this Agreement, NPS will not, without the consent
of the holders at the relevant time of Exchangeable Shares, given in accordance
with section 10.2 of the Share Provisions, issue any shares of its Special
Voting Preferred Stock in the same series as NPS Special Voting Share.
ARTICLE 11
CONCERNING THE TRUSTEE
11.1 Powers and Duties of the Trustee
The rights, powers, duties and authorities of the Trustee under this
Agreement, in its capacity as Trustee of the Trust, shall include:
(a) receipt and deposit of the NPS Special Voting Share from NPS as
Trustee for and on behalf of the Beneficiaries in accordance with the
provisions of this Agreement;
(b) granting proxies and distributing materials to Beneficiaries as
provided in this Agreement;
(c) voting the Beneficiary Votes in accordance with the provisions of this
Agreement;
(d) receiving the grant of the Exchange Right and the Automatic Exchange
Rights from NPS as Trustee for and on behalf of the Beneficiaries in
accordance with the provisions of this Agreement;
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(e) exercising the Exchange Right and enforcing the benefit of the
Automatic Exchange Rights, in each case in accordance with the
provisions of this Agreement, and in connection therewith receiving
from Beneficiaries Exchangeable Shares and other requisite documents
and distributing to such Beneficiaries NPS Common Shares and cheques,
if any, to which such Beneficiaries are entitled upon the exercise of
the Exchange Right or pursuant to the Automatic Exchange Rights, as
the case may be;
(f) holding title to the Trust Estate;
(g) investing any moneys forming, from time to time, a part of the Trust
Estate as provided in this Agreement;
(h) taking action on its own initiative or at the direction of a
Beneficiary or Beneficiaries to enforce the obligations of NPS and
NPS - Allelix Inc. under this Agreement; and
(i) taking such other actions and doing such other things as are
specifically provided in this Agreement.
In the exercise of such rights, powers, duties and authorities the
Trustee shall have (and is granted) such incidental and additional rights,
powers, duties and authority not in conflict with any of the provisions of this
Agreement as the Trustee, acting in good faith and in the reasonable exercise of
its discretion, may deem necessary, appropriate or desirable to effect the
purpose of the Trust. Any exercise of such discretionary rights, powers, duties
and authorities by the Trustee shall be final, conclusive and binding upon all
persons.
The Trustee in exercising its rights, powers, duties and authorities
hereunder shall act honestly and in good faith and with a view to the best
interests of the Beneficiaries and shall exercise the care, diligence and skill
that a reasonably prudent trustee would exercise in comparable circumstances.
The Trustee shall not be bound to give notice or do or take any act,
action or proceeding by virtue of the powers conferred on it hereby unless and
until it shall be specifically required to do so under the terms hereof; nor
shall the Trustee be required to take any notice of, or to do, or to take any
act, action or proceeding as a result of any default or breach of any provision
hereunder, unless and until notified in writing of such default or breach, which
notices shall distinctly specify the default or breach desired to be brought to
the attention of the Trustee, and in the absence of such notice the Trustee may
for all purposes of this Agreement conclusively assume that no default or breach
has been made in the observance or performance of any of the representations,
warranties, covenants, agreements or conditions contained herein.
11.2 No Conflict of Interest
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The Trustee represents to NPS and NPS - Allelix Inc. that at the date
of execution and delivery of this Agreement there exists no material conflict of
interest in the role of the Trustee as a fiduciary hereunder and the role of the
Trustee in any other capacity. The Trustee shall, within 90 days after it
becomes aware that such material conflict of interest exists, either eliminate
such material conflict of interest or resign in the manner and with the effect
specified in Article 10. If, notwithstanding the foregoing provisions of this
section 7.2, the Trustee has such a material conflict of interest, the validity
and enforceability of this Agreement shall not be affected in any manner
whatsoever by reason only of the existence of such material conflict of
interest. If the Trustee contravenes the foregoing provisions of this section
7.2, any interested party may apply to the Ontario Superior Court of Justice for
an order that the Trustee be replaced as Trustee hereunder.
11.3 Dealings with Transfer Agents, Registrars, etc.
NPS and NPS - Allelix Inc. irrevocably authorize the Trustee, from
time to time, to:
(a) consult, communicate and otherwise deal with the respective registrars
and transfer agents, and with any such subsequent registrar or
transfer agent, of the Exchangeable Shares and NPS Common Shares; and
(b) requisition, from time to time, (i) from any such registrar or
transfer agent any information readily available from the records
maintained by it which the Trustee may reasonably require for the
discharge of its duties and responsibilities under this Agreement and
(ii) from the transfer agent of NPS Common Shares, and any subsequent
transfer agent of such shares, the share certificates issuable upon
the exercise from time to time of the Exchange Right and pursuant to
the Automatic Exchange Rights.
NPS and NPS - Allelix Inc. irrevocably authorize their respective
registrars and transfer agents to comply with all such requests. NPS covenants
that it will supply its transfer agent with duly executed share certificates for
the purpose of completing the exercise from time to time of the Exchange Right
and the Automatic Exchange Rights.
11.4 Books and Records
The Trustee shall keep available for inspection by NPS and NPS -
Allelix Inc. at the Trustee's principal office in Toronto correct and complete
books and records of account relating to the Trust created by this Agreement,
including without limitation, all relevant data relating to mailings and
instructions to and from Beneficiaries and all transactions pursuant to the
Exchange Right and the Automatic Exchange Rights. On or before January 15, 2000,
and on or before January 15th in every year thereafter, so long as the NPS
Special Voting Share is on deposit with the Trustee, the Trustee shall transmit
to NPS and NPS - Allelix Inc. a brief report, dated as of the preceding December
31/st/, with respect to:
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(a) the property and funds comprising the Trust Estate as of that
date;
(b) the number of exercises of the Exchange Right, if any, and the
aggregate number of Exchangeable Shares received by the Trustee on
behalf of Beneficiaries in consideration of the issuance by NPS of NPS
Common Shares in connection with the Exchange Right, during the
calendar year ended on such December 31st; and
(c) any action taken by the Trustee in the performance of its duties under
this Agreement which it had not previously reported and which, in the
Trustee's opinion, materially affects the Trust Estate.
11.5 Income Tax Returns and Reports
The Trustee shall, to the extent necessary, prepare and file on behalf
of the Trust appropriate United States and Canadian income tax returns and any
other returns or reports as may be required by applicable law or pursuant to the
rules and regulations of any securities exchange or other trading system through
which the Exchangeable Shares are traded. In connection therewith, the Trustee
may obtain the advice and assistance of such experts or advisors as the Trustee
considers necessary or advisable (who may be experts or advisors to NPS or NPS -
Allelix Inc.). If requested by the Trustee, NPS or NPS - Allelix Inc. shall
retain qualified experts or advisors for the purpose of providing such tax
advice or assistance.
11.6 Indemnification Prior to Certain Actions by Trustee
The Trustee shall exercise any or all of the rights, duties, powers or
authorities vested in it by this Agreement at the request, order or direction of
any Beneficiary upon such Beneficiary furnishing to the Trustee reasonable
funding, security or indemnity against the costs, expenses and liabilities which
may be incurred by the Trustee therein or thereby, provided that no Beneficiary
shall be obligated to furnish to the Trustee any such security or indemnity in
connection with the exercise by the Trustee of any of its rights, duties, powers
and authorities with respect to the NPS Special Voting Share pursuant to Article
4, subject to section 7.15, and with respect to the Exchange Right pursuant to
Article 5, subject to section 7.15, and with respect to the Automatic Exchange
Rights pursuant to Article 5.
None of the provisions contained in this Agreement shall require the
Trustee to expend or risk its own funds or otherwise incur financial liability
in the exercise of any of its rights, powers, duties, or authorities unless
funded, given security and indemnified as aforesaid.
11.7 Action of Beneficiaries
No Beneficiary shall have the right to institute any action, suit or
proceeding or to exercise any other remedy authorized by this Agreement for the
purpose of enforcing any of its rights or for the execution of any trust or
power hereunder unless the Beneficiary has requested the Trustee to take or
institute such action, suit or proceeding and furnished the Trustee with the
funding, security or indemnity referred to in section 7.6 and the Trustee shall
have failed to act
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within a reasonable time thereafter. In such case, but not otherwise, the
Beneficiary shall be entitled to take proceedings in any court of competent
jurisdiction such as the Trustee might have taken; it being understood and
intended that no one or more Beneficiaries shall have any right in any manner
whatsoever to affect, disturb or prejudice the rights hereby created by any such
action, or to enforce any right hereunder or the Voting Rights, the Exchange
Rights or the Automatic Exchange Rights except subject to the conditions and in
the manner herein provided, and that all powers and trusts hereunder shall be
exercised and all proceedings at law shall be instituted, had and maintained by
the Trustee, except only as herein provided, and in any event for the equal
benefit of all Beneficiaries.
11.8 Reliance Upon Declarations
The Trustee shall not be considered to be in contravention of any of
its rights, powers, duties and authorities hereunder if, when required, it acts
and relies in good faith upon statutory declarations, certificates, opinions or
reports furnished pursuant to the provisions hereof or required by the Trustee
to be furnished to it in the exercise of its rights, powers, duties and
authorities hereunder if such statutory declarations, certificates, opinions or
reports comply with the provisions of section 7.9, if applicable, and with any
other applicable provisions of this Agreement.
11.9 Evidence and Authority to Trustee
NPS and/or NPS - Allelix Inc. shall furnish to the Trustee evidence of
compliance with the conditions provided for in this Agreement relating to any
action or step required or permitted to be taken by NPS and/or NPS - Allelix
Inc. or the Trustee under this Agreement or as a result of any obligation
imposed under this Agreement, including, without limitation, in respect of the
Voting Rights or the Exchange Right or the Automatic Exchange Rights and the
taking of any other action to be taken by the Trustee at the request of or on
the application of NPS and/or NPS - Allelix Inc. promptly if and when:
(a) such evidence is required by any other section of this Agreement to be
furnished to the Trustee in accordance with the terms of this section 7.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this Agreement, gives NPS and/or NPS - Allelix Inc. written
notice requiring it to furnish such evidence in relation to any particular
action or obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of NPS and/or
NPS - Allelix Inc. or a statutory declaration or a certificate made by persons
entitled to sign an Officer's Certificate stating that any such condition has
been complied with in accordance with the terms of this Agreement.
Whenever such evidence relates to a matter other than the Voting
Rights or the Exchange Right or the Automatic Exchange Rights or the taking of
any other action to be taken
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by the Trustee at the request or on the application of NPS and/or NPS - Allelix
Inc., and except as otherwise specifically provided herein, such evidence may
consist of a report or opinion of any solicitor, attorney, auditor, accountant,
appraiser, valuer, engineer or other expert or any other person whose
qualifications give authority to a statement made by him, provided that if such
report or opinion is furnished by a director, officer or employee of NPS and/or
NPS - Allelix Inc. it shall be in the form of an Officer's Certificate or a
statutory declaration.
Each statutory declaration, Officer's Certificate, opinion or report
furnished to the Trustee as evidence of compliance with a condition provided for
in this Agreement shall include a statement by the person giving the evidence:
(c) declaring that he has read and understands the provisions of this
Agreement relating to the condition in question;
(d) describing the nature and scope of the examination or investigation
upon which he based the statutory declaration, certificate, statement
or opinion; and
(e) declaring that he has made such examination or investigation as he
believes is necessary to enable him to make the statements or give the
opinions contained or expressed therein.
11.10 Experts, Advisers and Agents
The Trustee may:
(a) in relation to these presents act and rely on the opinion or advice of
or information obtained from any solicitor, attorney, auditor,
accountant, appraiser, valuer, engineer or other expert, whether
retained by the Trustee or by NPS and/or NPS - Allelix Inc. or
otherwise, and may retain or employ such assistants as may be
necessary to the proper discharge of its powers and duties and
determination of its rights hereunder and may pay proper and
reasonable compensation for all such legal and other advice or
assistance as aforesaid; and
(b) employ such agents and other assistants as it may reasonably require
for the proper determination and discharge of its powers and duties
hereunder, and may pay reasonable remuneration for all services
performed for it (and shall be entitled to receive reasonable
remuneration for all services performed by it) in the discharge of the
trusts hereof and compensation for all disbursements, costs and
expenses made or incurred by it in the discharge of its duties
hereunder and in the management of the Trust.
11.11 Investment of Moneys Held by Trustee
Unless otherwise provided in this Agreement, any moneys held by or on
behalf of the Trustee which under the terms of this Agreement may or ought to be
invested or which may
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be on deposit with the Trustee or which may be in the hands of the Trustee may
be invested and reinvested in the name or under the control of the Trustee, in
trust for NPS - Allelix Inc., in securities in which, under the laws of the
Province of Ontario, trustees are authorized to invest trust moneys, provided
that such securities are stated to mature within two years after their purchase
by the Trustee, and the Trustee shall so invest such moneys on the written
direction of NPS - Allelix Inc.. Pending the investment of any moneys as
hereinbefore provided, such moneys may be deposited in the name of the Trustee
in any chartered bank in Canada or, with the consent of NPS -Allelix Inc., in
the deposit department of the Trustee or any other loan or trust company
authorized to accept deposits under the laws of Canada or any province thereof
at the rate of interest then current on similar deposits.
11.12 Trustee Not Required to Give Security
The Trustee shall not be required to give any bond or security in
respect of the execution of the trusts, rights, duties, powers and authorities
of this Agreement or otherwise in respect of the premises.
11.13 Trustee Not Bound to Act on Request
Except as in this Agreement otherwise specifically provided, the
Trustee shall not be bound to act in accordance with any direction or request of
NPS and/or NPS - Allelix Inc. or of the directors thereof until a duly
authenticated copy of the instrument or resolution containing such direction or
request shall have been delivered to the Trustee, and the Trustee shall be
empowered to act upon any such copy purporting to be authenticated and believed
by the Trustee to be genuine.
11.14 Authority to Carry on Business
The Trustee represents to NPS and NPS - Allelix Inc. that at the date
of execution and delivery by it of this Agreement it is authorized to carry on
the business of a trust company in each of the Provinces of Canada but if,
notwithstanding the provisions of this section 7.14, it ceases to be so
authorized to carry on business, the validity and enforceability of this
Agreement and the Voting Rights, the Exchange Right and the Automatic Exchange
Rights shall not be affected in any manner whatsoever by reason only of such
event but the Trustee shall, within 90 days after ceasing to be authorized to
carry on the business of a trust company in any Province of Canada, either
become so authorized or resign in the manner and with the effect specified in
Article 10.
11.15 Conflicting Claims
If conflicting claims or demands are made or asserted with respect to
any interest of any Beneficiary in any Exchangeable Shares, including any
disagreement between the heirs, representatives, successors or assigns
succeeding to all or any part of the interest of any Beneficiary in any
Exchangeable Shares, resulting in conflicting claims or demands being made in
connection with such interest, then the Trustee shall be entitled, at its sole
discretion, to refuse
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to recognize or to comply with any such claims or demands. In so refusing, the
Trustee may elect not to exercise any Voting Rights, Exchange Rights or
Automatic Exchange Rights subject to such conflicting claims or demands and, in
so doing, the Trustee shall not be or become liable to any person on account of
such election or its failure or refusal to comply with any such conflicting
claims or demands. The Trustee shall be entitled to continue to refrain from
acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the Voting Rights,
Exchange Right or Automatic Exchange Rights subject to such
conflicting claims or demands have been adjudicated by a final
judgment of a court of competent jurisdiction; or
(b) all differences with respect to the Voting Rights, Exchange Right or
Automatic Exchange Rights subject to such conflicting claims or
demands have been conclusively settled by a valid written agreement
binding on all such adverse claimants, and the Trustee shall have been
furnished with an executed copy of such agreement certified to be in
full force and effect.
If the Trustee elects to recognize any claim or comply with any demand
made by any such adverse claimant, it may in its discretion require such
claimant to furnish such surety bond or other security satisfactory to the
Trustee as it shall deem appropriate to fully indemnify it as between all
conflicting claims or demands.
11.16 Acceptance of Trust
The Trustee hereby accepts the Trust created and provided for by and
in this Agreement and agrees to perform the same upon the terms and conditions
herein set forth and to hold all rights, privileges and benefits conferred
hereby and by law in trust for the various persons who shall from time to time
be Beneficiaries, subject to all the terms and conditions herein set forth.
ARTICLE 12
COMPENSATION
12.1 Fees and Expenses of the Trustee
NPS and NPS - Allelix Inc. jointly and severally agree to pay the
Trustee reasonable compensation for all of the services rendered by it under
this Agreement and will reimburse the Trustee for all reasonable expenses
(including, but not limited to, taxes other than taxes based on the net income
of the Trustee, fees paid to legal counsel and other experts and advisors and
travel expenses) and disbursements, including the cost and expense of any suit
or litigation of any character and any proceedings before any governmental
agency reasonably incurred by the Trustee in connection with its duties under
this Agreement; provided that NPS
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and NPS - Allelix Inc. shall have no obligation to reimburse the Trustee for any
expenses or disbursements paid, incurred or suffered by the Trustee in any suit
or litigation in which the Trustee is determined to have acted in bad faith or
with negligence, recklessness or wilful misconduct.
ARTICLE 13
INDEMNIFICATION AND LIMITATION OF LIABILITY
13.1 Indemnification of the Trustee
NPS and NPS - Allelix Inc. jointly and severally agree to indemnify
and hold harmless the Trustee and each of its directors, officers, employees and
agents appointed and acting in accordance with this Agreement (collectively, the
"Indemnified Parties") against all claims, losses, damages, reasonable costs,
penalties, fines and reasonable expenses (including reasonable expenses of the
Trustee's legal counsel) which, without fraud, negligence, recklessness, wilful
misconduct or bad faith on the part of such Indemnified Party, may be paid,
incurred or suffered by the Indemnified Party by reason or as a result of the
Trustee's acceptance or administration of the Trust, its compliance with its
duties set forth in this Agreement, or any written or oral instruction delivered
to the Trustee by NPS or NPS - Allelix Inc. pursuant hereto.
In no case shall NPS or NPS - Allelix Inc. be liable under this
indemnity for any claim against any of the Indemnified Parties unless NPS and
NPS - Allelix Inc. shall be notified by the Trustee of the written assertion of
a claim or of any action commenced against the Indemnified Parties, promptly
after any of the Indemnified Parties shall have received any such written
assertion of a claim or shall have been served with a summons or other first
legal process giving information as to the nature and basis of the claim.
Subject to (ii) below, NPS and NPS - Allelix Inc. shall be entitled to
participate at their own expense in the defence and, if NPS and NPS - Allelix
Inc. so elect at any time after receipt of such notice, either of them may
assume the defence of any suit brought to enforce any such claim. The Trustee
shall have the right to employ separate counsel in any such suit and participate
in the defence thereof, but the fees and expenses of such counsel shall be at
the expense of the Trustee unless: (i) the employment of such counsel has been
authorized by NPS or NPS - Allelix Inc.; or (ii) the named parties to any such
suit include both the Trustee and NPS or NPS - Allelix Inc. and the Trustee
shall have been advised by counsel acceptable to NPS or NPS - Allelix Inc. that
there may be one or more legal defences available to the Trustee that are
different from or in addition to those available to NPS or NPS - Allelix Inc.
and that, in the judgment of such counsel, would present a conflict of interest
were a joint representation to be undertaken (in which case NPS and NPS -
Allelix Inc. shall not have the right to assume the defence of such suit on
behalf of the Trustee but shall be liable to pay the reasonable fees and
expenses of counsel for the Trustee). This indemnity shall survive the
termination of this Agreement and the resignation or removal of the Trustee.
13.2 Limitation of Liability
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The Trustee shall not be held liable for any loss which may occur by
reason of depreciation of the value of any part of the Trust Estate or any loss
incurred on any investment of funds pursuant to this Agreement, except to the
extent that such loss is attributable to the fraud, negligence, recklessness,
wilful misconduct or bad faith on the part of the Trustee.
ARTICLE 14
CHANGE OF TRUSTEE
14.1 Resignation
The Trustee, or any trustee hereafter appointed, may at any time
resign by giving written notice of such resignation to NPS and NPS - Allelix
Inc. specifying the date on which it desires to resign, provided that such
notice shall not be given less than thirty (30) days before such desired
resignation date unless NPS and NPS - Allelix Inc. otherwise agree and provided
further that such resignation shall not take effect until the date of the
appointment of a successor trustee and the acceptance of such appointment by the
successor trustee. Upon receiving such notice of resignation, NPS and NPS -
Allelix Inc. shall promptly appoint a successor trustee, which shall be a
corporation organized and existing under the laws of Canada and authorized to
carry on the business of a trust company in all provinces of Canada, by written
instrument in duplicate, one copy of which shall be delivered to the resigning
trustee and one copy to the successor trustee. Failing the appointment and
acceptance of a successor trustee, a successor trustee may be appointed by order
of a court of competent jurisdiction upon application of one or more of the
parties to this Agreement. If the retiring trustee is the party initiating an
application for the appointment of a successor trustee by order of a court of
competent jurisdiction, NPS and NPS - Allelix Inc. shall be jointly and
severally liable to reimburse the retiring trustee for its legal costs and
expenses in connection with same.
14.2 Removal
The Trustee, or any trustee hereafter appointed, may (provided a
successor trustee is appointed) be removed at any time on not less than 30 days'
prior notice by written instrument executed by NPS and NPS - Allelix Inc., in
duplicate, one copy of which shall be delivered to the trustee so removed and
one copy to the successor trustee.
14.3 Successor Trustee
Any successor trustee appointed as provided under this Agreement shall
execute, acknowledge and deliver to NPS and NPS - Allelix Inc. and to its
predecessor trustee an instrument accepting such appointment. Thereupon the
resignation or removal of the predecessor trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, duties and obligations of its
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predecessor under this Agreement, with the like effect as if originally named as
trustee in this Agreement. However, on the written request of NPS and NPS -
Allelix Inc. or of the successor trustee, the trustee ceasing to act shall, upon
payment of any amounts then due it pursuant to the provisions of this Agreement,
execute and deliver an instrument transferring to such successor trustee all the
rights and powers of the trustee so ceasing to act. Upon the request of any such
successor trustee, NPS, NPS - Allelix Inc. and such predecessor trustee shall
execute any and all instruments in writing for more fully and certainly vesting
in and confirming to such successor trustee all such rights and powers.
14.4 Notice of Successor Trustee
Upon acceptance of appointment by a successor trustee as provided
herein, NPS and NPS - Allelix Inc. shall cause to be mailed notice of the
succession of such trustee hereunder to each Beneficiary specified in a List. If
NPS or NPS - Allelix Inc. shall fail to cause such notice to be mailed within 10
days after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be mailed at the expense of NPS and NPS -
Allelix Inc..
ARTICLE 15
NPS SUCCESSORS
15.1 Certain Requirements in Respect of Combination, etc.
NPS shall not consummate any transaction (whether by way of
reconstruction, reorganization, consolidation, merger, transfer, sale, lease or
otherwise) whereby all or substantially all of its undertaking, property and
assets would become the property of any other person or, in the case of a
merger, of the continuing corporation resulting therefrom unless, but may do so
if:
(a) such other person or continuing corporation (herein called the "NPS
Successor"), by operation of law, becomes, without more, bound by the
terms and provisions of this Agreement or, if not so bound, executes,
prior to or contemporaneously with the consummation of such
transaction, a trust agreement supplemental hereto and such other
instruments (if any) as are satisfactory to the Trustee, acting
reasonably, and in the opinion of legal counsel to the Trustee are
reasonably necessary or advisable to evidence the assumption by the
NPS Successor of liability for all moneys payable and property
deliverable hereunder and the covenant of such NPS Successor to pay
and deliver or cause to be delivered the same and its agreement to
observe and perform all the covenants and obligations of NPS under
this Agreement; and
(b) such transaction shall, to the satisfaction of the Trustee, acting
reasonably, and in the opinion of legal counsel to the Trustee, be
upon such terms and conditions as
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substantially to preserve and not to impair in any material respect
any of the rights, duties, powers and authorities of the Trustee or of
the Beneficiaries hereunder.
15.2 Vesting of Powers in Successor
Whenever the conditions of section 11.1 have been duly observed and
performed, the Trustee, NPS Successor and NPS - Allelix Inc. shall, if required
by section 11.1, execute and deliver the supplemental trust agreement provided
for in Article 12 and thereupon NPS Successor shall possess and from time to
time may exercise each and every right and power of NPS under this Agreement in
the name of NPS or otherwise and any act or proceeding by any provision of this
Agreement required to be done or performed by the Board of Directors of NPS or
any officers of NPS may be done and performed with like force and effect by the
directors or officers of such NPS Successor.
15.3 Wholly-Owned Subsidiaries
Subject to section 4.12 of the Arrangement Agreement, nothing herein
shall be construed as preventing the amalgamation or merger of any wholly-owned
direct or indirect subsidiary of NPS with or into NPS or the winding-up,
liquidation or dissolution of any wholly-owned subsidiary of NPS provided that
all of the assets of such subsidiary are transferred to NPS or another wholly-
owned direct or indirect subsidiary of NPS and any such transactions are
expressly permitted by this Article 11.
ARTICLE 16
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
16.1 Amendments, Modifications, etc.
This Agreement may not be amended or modified except by an agreement
in writing executed by NPS, NPS - Allelix Inc. and the Trustee and approved by
the Beneficiaries in accordance with section 10.2 of the Share Provisions.
16.2 Ministerial Amendments
Notwithstanding the provisions of section 12.1, the parties to this
Agreement may in writing, at any time and from time to time, without the
approval of the Beneficiaries, amend or modify this Agreement for the purposes
of:
(a) adding to the covenants of any or all parties hereto for the
protection of the Beneficiaries hereunder provided that the Board of
Directors of each of NPS - Allelix Inc. and NPS shall be of the good
faith opinion that such additions will not be prejudicial to the
rights or interests of the Beneficiaries;
(b) making such amendments or modifications not inconsistent with this
Agreement as may be necessary or desirable with respect to matters or
questions which, in the
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good faith opinion of the Board of Directors of each of NPS and NPS -
Allelix Inc. and in the opinion of the Trustee, having in mind the
best interests of the Beneficiaries it may be expedient to make,
provided that such Boards of Directors and the Trustee, acting on the
advice of counsel, shall be of the opinion that such amendments and
modifications will not be prejudicial to the interests of the
Beneficiaries; or
(c) making such changes or corrections which, on the advice of counsel to
NPS, NPS - Allelix Inc. and the Trustee, are required for the purpose
of curing or correcting any ambiguity or defect or inconsistent
provision or clerical omission or mistake or manifest error, provided
that the Trustee, acting on the advice of counsel, and the Board of
Directors of each of NPS and NPS - Allelix Inc. shall be of the
opinion that such changes or corrections will not be prejudicial to
the rights and interests of the Beneficiaries.
16.3 Meeting to Consider Amendments
NPS - Allelix Inc., at the request of NPS, shall call a meeting or
meetings of the Beneficiaries for the purpose of considering any proposed
amendment or modification requiring approval pursuant hereto. Any such meeting
or meetings shall be called and held in accordance with the by-laws of NPS -
Allelix Inc., the Share Provisions and all applicable laws.
16.4 Changes in Capital of NPS and NPS - Allelix Inc.
At all times after the occurrence of any event contemplated pursuant
to section 2.7 or 2.8 of the Support Agreement or otherwise, as a result of
which either NPS Common Shares or the Exchangeable Shares or both are in any way
changed, this Agreement shall forthwith be amended and modified as necessary in
order that it shall apply with full force and effect, mutatis mutandis, to all
new securities into which NPS Common Shares or the Exchangeable Shares or both
are so changed and the parties hereto shall execute and deliver a supplemental
trust agreement giving effect to and evidencing such necessary amendments and
modifications.
16.5 Execution of Supplemental Trust Agreements
No amendment to or modification or waiver of any of the provisions of
this Agreement otherwise permitted hereunder shall be effective unless made in
writing and signed by all of the parties hereto. From time to time NPS - Allelix
Inc. (when authorized by a resolution of its Board of Directors), NPS (when
authorized by a resolution of its Board of Directors) and the Trustee may,
subject to the provisions of these presents, and they shall, when so directed by
these presents, execute and deliver by their proper officers, trust agreements
or other instruments supplemental hereto, which thereafter shall form part
hereof, for any one or more of the following purposes:
(a) evidencing the succession of NPS Successors and the covenants of and
obligations assumed by each such NPS Successor in accordance with the
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provisions of Article 11 and the successors of any successor trustee
in accordance with the provisions of Article 10;
(b) making any additions to, deletions from or alterations of the
provisions of this Agreement or the Voting Rights, the Exchange Right
or the Automatic Exchange Rights which, in the opinion of the Trustee,
will not be prejudicial to the interests of the Beneficiaries or are,
in the opinion of counsel to the Trustee, necessary or advisable in
order to incorporate, reflect or comply with any legislation the
provisions of which apply to NPS, NPS -Allelix Inc., the Trustee or
this Agreement; and
(c) for any other purposes not inconsistent with the provisions of this
Agreement, including without limitation, to make or evidence any
amendment or modification to this Agreement as contemplated hereby,
provided that, in the opinion of the Trustee, the rights of the
Trustee and Beneficiaries will not be prejudiced thereby.
ARTICLE 17
TERMINATION
17.1 Term
The Trust created by this Agreement shall continue until the earliest
to occur of the following events:
(a) no outstanding Exchangeable Shares are held by a Beneficiary;
(b) each of NPS and NPS - Allelix Inc. elects in writing to terminate the
Trust and such termination is approved by the Beneficiaries in
accordance with section 10.2 of the Share Provisions; and
(c) 21 years after the death of the last survivor of the descendants of
His Majesty King George VI of Canada and the United Kingdom of Great
Britain and Northern Ireland living on the date of the creation of the
Trust.
17. Survival of Agreement
This Agreement shall survive any termination of the Trust and shall
continue until there are no Exchangeable Shares outstanding held by a
Beneficiary; provided, however, that the provisions of Articles 8 and 9 shall
survive any such termination of this Agreement.
ARTICLE 18
GENERAL
18.1 Severability
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If any provision of this Agreement is held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remainder of this
Agreement shall not in any way be affected or impaired thereby and the agreement
shall be carried out as nearly as possible in accordance with its original terms
and conditions.
18.2 Enurement
This Agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective successors and permitted assigns and to the
benefit of the Beneficiaries.
18.3 Notices to Parties
All notices and other communications between the parties hereunder
shall be in writing and shall be deemed to have been given if delivered
personally or by confirmed telecopy to the parties at the following addresses
(or at such other address for such party as shall be specified in like notice):
(a) if to NPS or NPS - Allelix Inc., at:
NPS Pharmaceuticals, Inc.
420 Chipeta Way
Salt Lake City, Utah 84108
Attention: .
Telecopier No.: .
if to the Trustee, at:
. Trust Company
.
Attention: Vice President, Client Services
Telecopier No.:
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof unless
such day is not a Business Day in which case it shall be deemed to have been
given and received upon the immediately following Business Day.
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18.4 Notice to Beneficiaries
Any and all notices to be given and any documents to be sent to any
Beneficiaries may be given or sent to the address of such Beneficiary shown on
the register of holders of Exchangeable Shares in any manner permitted by the
by-laws of NPS - Allelix Inc. from time to time in force in respect of notices
to shareholders and shall be deemed to be received (if given or sent in such
manner) at the time specified in such by-laws, the provisions of which by-laws
shall apply mutatis mutandis to notices or documents as aforesaid sent to such
Beneficiaries.
18.5 Counterparts
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument.
18.6 Jurisdiction
This Agreement shall be construed and enforced in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein.
18.7 Attornment
Each of the Trustee, NPS and NPS - Allelix Inc. agrees that any action
or proceeding arising out of or relating to this Agreement may be instituted in
the courts of the Province of Ontario, waives any objection which it may have
now or hereafter to the venue of any such action or proceeding, irrevocably
submits to the jurisdiction of the said courts in any such action or proceeding,
agrees to be bound by any judgment of the said courts and not to seek, and
hereby waives, any review of the merits of any such judgment by the courts of
any other jurisdiction and NPS hereby appoints NPS - Allelix Inc. at its
registered office in the Province of Ontario as attorney for service of process.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
NPS PHARMACEUTICALS, INC.
By:___________________________
Name:
Title:
NPS - ALLELIX INC.
F-34
<PAGE>
By:___________________________
Name:
Title:
. TRUST COMPANY
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
F-35
<PAGE>
CONVERSION AGREEMENT
This (the "Conversion Agreement") is made as of October ___, 1999 (the
"Effective Date") by and between Allelix Biopharmaceuticals Inc., a corporation
organized under the laws of Canada ("Allelix"), Johnson & Johnson Development
Corp., a New Jersey corporation ("J&J"), and NPS Pharmaceuticals, Inc., a
Delaware corporation ("NPS").
RECITALS
WHEREAS, Allelix and J&J are parties to a Stock Purchase Agreement
effective October 30, 1998 (the "SPA"); and
WHEREAS, J&J has purchased from Allelix under the SPA certain shares of
Allelix preferred stock, defined in the SPA as the "Initial Shares" (the
"Initial Shares"); and
WHEREAS, the Initial Shares are convertible into common shares in the
capital of Allelix; and
WHEREAS, pursuant to the SPA, J&J has the right (the "Purchase Right") to
acquire common shares in the capital of Allelix (the "Supplementary Shares");
and
WHEREAS, Allelix and NPS have agreed to merge (the "Merger") under terms
set out in a certain Arrangement Agreement dated September 27, 1999 (the "AA");
and
WHEREAS, NPS is a U.S. public company registered and reporting with the
Securities and Exchange Commission under the 1934 Exchange Act with shares
listed for public trading on NASDAQ; and
WHEREAS, each holder of an Allelix common share not resident in Canada will
receive (unless such holder properly dissents) under the Merger as provided for
in the AA in exchange for each share so held 0.3238 of an NPS common stock which
shares are required by the AA (1) to be registered for resale under SEC laws,
rules and regulations and on Form S-3, and (2) to be listed on NASDAQ; and
WHEREAS, the parties hereto desire that the Initial Shares be treated as if
they were shares of Allelix common stock for purposes of the merger of NPS and
Allelix under the AA, such that J&J will receive free trading shares of NPS
common stock in exchange for its Initial Shares, but only to the extent that the
Merger closes as contemplated by the AA; and
WHEREAS, the parties have agreed that J&J's right to acquire common shares
in the capitol of Allelix pursuant to the terms of the Initial Shares and the
SPA shall, at the Effective Time (as defined in the AA) be amended on the terms
and conditions set out herein.
<PAGE>
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. J&J supports the Merger under the AA.
1.1 J&J acknowledges and agrees that
(a) it received a copy of the AA (filed with the U.S. Securities and
Exchange Commission ("SEC") by NPS as an exhibit to a Form S-8
filed on October 1, 1999) and to copies of other forms, financial
statements, and documents filed with the SEC by NPS and with the
Ontario Securities Commission ("OSC") by Allelix. Allelix and NPS
are now preparing Allelix's Management Proxy Circular in
connection with the Special Meeting of Allelix Shareholders at
which the Merger will be considered (the "Meeting"), and NPS's
Proxy Statement, respectively, and these will be delivered to J&J
as soon as they are publicly available.
(b) it has full right, power and authority to vote the Initial Shares
at any meeting at which Allelix preferred shares are entitled to
vote and hereby revokes any prior proxy delivered in respect of
the Initial Shares; and
(c) it will not sell, transfer, convey, or assign its right, title or
interest in or to the Initial Shares prior to the termination of
the AA.
1.2 NPS warrants and represents that it is current in its filing
obligations with the SEC and Allelix warrants and represents that it
is current in its filing obligations with the OSC.
1.3 J&J hereby irrevocably appoints Allelix as the holder of its proxy
with full power and authority coupled with an interest to vote the
Initial Shares at the Meeting and any postponement or adjournment
thereof in favor of the Continuance Resolution and the Arrangement
Resolution (in each case as defined in the Allelix Management Proxy
Circular).
1.4 Allelix and NPS represent and warrant that they will include this
Conversion Agreement in the filing with the Canadian Court for the
preliminary order and the final order approving the merger under the
terms of the AA.
1.5 Allelix covenants and agrees to vote the Initial Shares in favor of
the Continuance Resolution and the Arrangement Resolution.
2. The Initial Shares will convert into NPS common shares pursuant to the
plan of arrangement.
2
<PAGE>
2.1 The parties agree that at the Effective Time (as defined in the AA)
the Initial Shares (being all of the issued and outstanding shares of
Allelix preferred shares purchased by J&J from Allelix under the SPA)
will, pursuant to the plan of arrangement, convert into 284,269 NPS
common shares (the "NPS Shares").
2.2 NPS agrees that forthwith after receipt of the certificate evidencing
the Initial Shares, NPS shall
(a) as of the Effective Time cause J&J to be recorded on the
books and records of NPS as the registered holder of the NPS
Shares; and
(b) deliver the certificate evidencing the NPS Shares to J&J.
2.3 The parties agree that the computation for this exchange is properly
shown on the attached "Appendix A: Computation of the Conversion,"
which is incorporated herein by this reference.
2.4 NPS warrants to J&J that the NPS Shares will be (a) validly issued as
fully paid, and non-assessable and (b) freely tradeable shares of NPS
common stock.
2.5 For greater certainty, the conversion of the Initial Shares described
in paragraph 2.1 above is conditional upon completion of the plan of
arrangement contemplated by and under the terms of the AA.
Accordingly, if such plan of arrangement fails to close for any
reason, the Initial Shares will not convert and J&J will continue to
hold the Initial Shares in Allelix under the terms of the SPA. The
parties further agree that they have no need to make arrangements for
continuation of any "share provisions" defining rights and preferences
for the preferred stock characteristics of the Initial Shares in any
successor company under the Merger contemplated in the AA because
either (1) the merger will close and the Initial Shares will become
NPS common shares, or (2) the merger will not close and the existing
"share provisions" in Allelix's articles will continue to govern the
rights and preferences of the Initial Shares.
3. The SPA remains in full force and effect.
3.2 Except as provided in the next sentence, the SPA remains in full force
and effect according to the terms thereof. The parties agree that the
SPA is amended such that the right to purchase Supplementary Shares is
hereby amended such that hereafter J&J shall be entitled to acquire
only common stock of NPS on the following terms: (a) purchases by J&J
under the SPA shall be made in U.S. dollars; and (b) purchase of
shares of NPS common stock shall be based upon the conversion ratio in
the AA.
4. Further assurances.
3
<PAGE>
4.1 Each of Allelix and NPS covenants to do all acts and deeds, execute
such instruments and to give any further assurances which are
reasonably necessary or appropriate to confirm that J&J will receive
the full measure of its rights under the SPA.
5. No known breach or default.
5.1 Each party hereby gives to the other party assurances that (1) it
knows of no breach or default by any party to the SPA, (2) it knows of
no basis in fact or law which, if asserted, would nullify or impair
the execution and performance of this Conversion Agreement by it or
another party to this Conversion Agreement.
IN WITNESS WHEREOF, the parties have set their hands and seals hereto as of
the Effective Date shown above.
ALLELIX BIOPHARMACEUTICALS INC.
By _____________________________________
Its _____________________________________
JOHNSON & JOHNSON DEVELOPMENT CORP.
By _____________________________________
Its _____________________________________
NPS PHARMACEUTICALS, INC.
By _____________________________________
Its _____________________________________
4
<PAGE>
This Appendix A is an appendix to a certain Conversion Agreement between
Allelix Biopharmaceuticals Inc. ("Allelix"), Johnson & Johnson Development Corp.
("J&J"), and NPS Pharmaceuticals Inc. ("NPS") dated the Effective Date of
October ____, 1999.
1. Conversion of the Initial Shares into shares of Allelix Common Shares.
----------------------------------------------------------------------
The articles of incorporation of Allelix contain share provisions for the
Preferred Shares, Series 1 Shares Share Provision (hereinafter the "Share
Provisions") which defines the dates and times for conversion of the Initial
Shares into Allelix common shares.
Section 1 of the Share Provisions provides:
Conversion Rate = Stated Value/1/ = U.S. $2,000 = Cdn$2,949.80
--------------- ----------- ------------
Conversion Price/2/ = Cdn$3.36 = Cdn$3.36 = 877.9166
Accordingly, each Preferred Share in the Initial Shares converts to
877.9166 Allelix common shares (2,949.8 + 3.36) and the 1,000 shares of
Preferred Stock convert into 877,916 Allelix common shares (fractional shares
are rounded down under the SPA).
2. Conversion of the Allelix common shares into NPS common shares.
---------------------------------------------------------------
The Arrangement Agreement (the "AA") provides a fixed conversion ratio for
converting Allelix common shares into NPS common shares. This ratio is one
Allelix common share converts into 0.3238 shares of NPS common stock. This
ratio then establishes that the 877,916 Allelix common shares convert into
284,269 shares of NPS common stock. (877,916 x 0.3238.)
Accordingly, J&J will receive 284,269 shares of NPS common stock upon
surrender of its certificate representing the Initial Shares (1,000 Allelix
Preferred Shares).
- - ---------------------------------
/1/ For purposes of computing the exchange rate for the conversion of
U.S. dollars into Canadian dollars the parties agree to use U.S. $1.00 =
Cdn$1.4749. This figure is the average of the "noon buying rate in the city of
New York for cable transfers in Canadian dollars as certified for customs
purposes for the twenty (20) business days preceding October 20, 1999. See the
attached sheet taken from the web page for the Federal Reserve Bank of New York.
/2/ The parties agree that the minimum threshold applies to establish
the Conversion Price at Cdn$3.36 per share.
5
<PAGE>
SCHEDULE B
SUPPORT AGREEMENT
MEMORANDUM OF AGREEMENT made as of the day of , .
AMONG:
NPS PHARMACEUTICALS, INC.,
a corporation existing under the laws of the State of Delaware
(hereinafter referred to as "NPS"),
OF THE FIRST PART,
- and -
NPS HOLDINGS LIMITED,
a company existing under the laws of the Province of British Columbia
(hereinafter referred to as "NPS Holdings"),
OF THE SECOND PART,
- and -
NPS ALLELIX INC.
a company existing under the laws of the Province of British Columbia
(hereinafter referred to as "NPS - Allelix Inc."),
OF THE THIRD PART.
WHEREAS in connection with an arrangement agreement (the "Arrangement
Agreement") made as of between NPS and Allelix Biopharmaceuticals Inc.
("Allelix"), NPS - Allelix Inc. is to issue exchangeable shares (the
"Exchangeable Shares") to certain holders of securities of Allelix pursuant to
the plan of arrangement (the "Arrangement") contemplated by the Arrangement
Agreement;
NOW THEREFORE in consideration of the respective covenants and
agreements provided in this Agreement and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties hereto covenant and agree as follows:
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<PAGE>
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Defined Terms
Each term denoted herein by initial capital letters and not otherwise
defined herein shall have the meaning ascribed thereto in the rights,
privileges, restrictions and conditions (collectively, the "Share Provisions")
attaching to the Exchangeable Shares attached as Appendix 1 to the Plan of
Arrangement as set out in the Articles of Arrangement of Allelix, unless the
context requires otherwise.
1.2 Interpretation Not Affected by Headings
The division of this agreement into Articles, sections and other
portions and the insertion of headings are for convenience of reference only and
shall not affect the construction or interpretation of this agreement. Unless
otherwise indicated, all references to an "Article" or "section" followed by a
number and/or a letter refer to the specified Article or section of this
agreement. The terms "this Agreement", "hereof", "herein" and "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
supplementary or ancillary hereto.
1.3 Number, Gender
Words importing the singular number only shall include the plural and
vice versa. Words importing any gender shall include all genders.
1.4 Date for any Action
If any date on which any action is required to be taken under this
agreement is not a Business Day, such action shall be required to be taken on
the next succeeding Business Day. For the purposes of this agreement, a
"Business Day" means any day on which commercial banks are open for business in
Salt Lake City, Utah and Toronto, Ontario other than a Saturday, a Sunday or a
day observed as a holiday in Salt Lake City, Utah under the laws of the State of
Utah or the federal laws of the United States of America or in Toronto, Ontario
under the laws of the Province of Ontario or the federal laws of Canada.
ARTICLE 2
COVENANTS OF NPS AND NPS HOLDINGS
2.1 Covenants Regarding Exchangeable Shares
So long as any Exchangeable Shares not owned by NPS or its Affiliates
are outstanding, NPS will:
I-2
<PAGE>
(a) not declare or pay any dividend on the NPS Common Shares unless (i) NPS -
Allelix Inc. shall simultaneously declare or pay, as the case may be, an
equivalent dividend (as provided for in the Share Provisions) on the
Exchangeable Shares and (ii) NPS - Allelix Inc. shall have sufficient money
or other assets or authorized but unissued securities available to enable
the due declaration and the due and punctual payment, in accordance with
applicable law, of any such dividend on the Exchangeable Shares;
(b) advise NPS - Allelix Inc. sufficiently in advance of the declaration by NPS
of any dividend on NPS Common Shares and take all such other actions as are
reasonably necessary, in co-operation with NPS - Allelix Inc., to ensure
that the respective declaration date, record date and payment date for a
dividend on the Exchangeable Shares shall be the same as the declaration
date, record date and payment date for the corresponding dividend on the
NPS Common Shares;
(c) ensure that the record date for any dividend declared on NPS Common Shares
is not less than 10 Business Days after the declaration date of such
dividend;
(d) take all such actions and do all such things as are reasonably necessary or
desirable to enable and permit NPS - Allelix Inc., in accordance with
applicable law, to pay and otherwise perform its obligations with respect
to the satisfaction of the Liquidation Amount, the Retraction Price or the
Redemption Price in respect of each issued and outstanding Exchangeable
Share (other than Exchangeable Shares owned by NPS or its Affiliates) upon
the liquidation, dissolution or winding-up of NPS - Allelix Inc., the
delivery of a Retraction Request by a holder of Exchangeable Shares or a
redemption of Exchangeable Shares by NPS - Allelix Inc., as the case may
be, including without limitation all such actions and all such things as
are necessary or desirable to enable and permit NPS - Allelix Inc. to cause
to be delivered NPS Common Shares to the holders of Exchangeable Shares in
accordance with the provisions of Article 5, 6 or 7, as the case may be, of
the Share Provisions; and
(e) take all such actions and do all such things as are reasonably necessary or
desirable to enable and permit NPS Holdings, in accordance with applicable
law, to perform its obligations arising upon the exercise by it of the
Liquidation Call Right, the Retraction Call Right or the Redemption Call
Right, including without limitation all such actions and all such things as
are necessary or desirable to enable and permit NPS Holdings to cause to be
delivered NPS Common Shares to the holders of Exchangeable Shares in
accordance with the provisions of the Liquidation Call Right, the
Retraction Call Right or the Redemption Call Right, as the case may be.
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<PAGE>
2.2 Segregation of Funds
NPS will cause NPS - Allelix Inc. to deposit a sufficient amount of funds
in a separate account of NPS - Allelix Inc. and segregate a sufficient
amount of such other assets and property as is necessary to enable NPS -
Allelix Inc. to pay dividends when due and to pay or otherwise satisfy its
respective obligations under Article 5, 6 or 7 of the Share Provisions, as
applicable.
2.3 Reservation of NPS Common Shares
NPS hereby represents, warrants and covenants in favour of NPS -Allelix
Inc. and NPS Holdings that NPS has reserved for issuance and will, at all times
while any Exchangeable Shares (other than Exchangeable Shares held by NPS or its
Affiliates) are outstanding, keep available, free from pre-emptive and other
rights, out of its authorized and unissued capital stock such number of NPS
Common Shares (or other shares or securities into which NPS Common Shares may be
reclassified or changed as contemplated by section 2.7 hereof) (a) as is equal
to the sum of (i) the number of Exchangeable Shares issued and outstanding from
time to time and (ii) the number of Exchangeable Shares issuable upon the
exercise of all rights to acquire Exchangeable Shares outstanding from time to
time and (b) as are now and may hereafter be required to enable and permit NPS
to meet its obligations under the Voting and Exchange Trust Agreement and under
any other security or commitment pursuant to which NPS may now or hereafter be
required to issue NPS Common Shares, to enable and permit NPS Holdings to meet
its obligations under each of the Liquidation Call Right, the Retraction Call
Right and the Redemption Call Right and to enable and permit NPS - Allelix Inc.
to meet its respective obligations hereunder and under the Share Provisions.
2.4 Notification of Certain Events
In order to assist NPS to comply with its obligations hereunder and to
permit NPS Holdings to exercise the Liquidation Call Right, the Retraction Call
Right and the Redemption Call Right, NPS - Allelix Inc. will notify NPS and NPS
Holdings of each of the following events at the time set forth below:
(a) in the event of any determination by the Board of Directors of NPS -
Allelix Inc. to institute voluntary liquidation, dissolution or winding-up
proceedings with respect to NPS - Allelix Inc. or to effect any other
distribution of the assets of NPS - Allelix Inc. among its shareholders for
the purpose of winding up its affairs, at least 60 days prior to the
proposed effective date of such liquidation, dissolution, winding-up or
other distribution;
(b) promptly, upon the earlier of receipt by NPS - Allelix Inc. of notice of
and NPS - Allelix Inc. otherwise becoming aware of any threatened or
instituted claim, suit, petition or other proceedings with respect to the
involuntary liquidation, dissolution or winding-up of NPS - Allelix Inc. or
to effect any other distribution
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<PAGE>
of the assets of NPS - Allelix Inc. among its shareholders for the purpose
of winding up its affairs;
(c) immediately, upon receipt by NPS - Allelix Inc. of a Retraction Request;
(d) on the same date on which notice of redemption is given to holders of
Exchangeable Shares, upon the determination of a Redemption Date in
accordance with the Share Provisions; and
(e) as soon as practicable upon the issuance by NPS - Allelix Inc. of any
Exchangeable Shares or rights to acquire Exchangeable Shares (other than
the issuance of Exchangeable Shares and rights to acquire Exchangeable
Shares in exchange for outstanding Allelix common shares pursuant to the
Arrangement).
2.5 Delivery of Common Shares to NPS - Allelix Inc. and NPS Holdings
In furtherance of its obligations under sections 2.1(d) and (e) hereof,
upon notice from NPS - Allelix Inc. or NPS Holdings of any event that requires
NPS - Allelix Inc. or NPS Holdings, to cause to be delivered NPS Common Shares
to any holder of Exchangeable Shares, NPS shall forthwith issue and deliver or
cause to be delivered to NPS - Allelix Inc. or NPS Holdings the requisite number
of NPS Common Shares to be received by, and issued to or to the order of, the
former holder of the surrendered Exchangeable Shares, as NPS -Allelix Inc. or
NPS Holdings shall direct. All such NPS Common Shares shall be duly authorized
and validly issued as fully paid and non-assessable and shall be free and clear
of any lien, claim or encumbrance. In consideration of the issuance and delivery
of each such NPS Common Share, NPS - Allelix Inc. or NPS Holdings, as the case
may be, shall pay a cash purchase price equal to the fair market value of such
NPS Common Shares.
2.6 Qualification of NPS Common Shares
If any NPS Common Shares (or other shares or securities into which NPS
Common Shares may be reclassified or changed as contemplated by section 2.7
hereof) to be issued and delivered hereunder require registration or
qualification with or approval of or the filing of any document, including any
prospectus or similar document or the taking of any proceeding with or the
obtaining of any order, ruling or consent from any governmental or regulatory
authority under any Canadian or United States federal, provincial or state
securities or other law or regulation or pursuant to the rules and regulations
of any securities or other regulatory authority or the fulfillment of any other
United States or Canadian legal requirement before such shares (or such other
shares or securities) may be issued by NPS and delivered by NPS at the direction
of NPS Holdings or NPS - Allelix Inc., if applicable, to the holder of
surrendered Exchangeable Shares or in order that such shares (or such other
shares or securities) may be freely traded thereafter (other than any
restrictions of general application on transfer by reason of a holder being a
"control person" for purposes of Canadian provincial securities law or an
"affiliate" of NPS for purposes of United States federal or state securities
law), NPS will in
I-5
<PAGE>
good faith expeditiously take all such actions and do all such things as are
necessary or desirable to cause such NPS Common Shares (or such other shares or
securities) to be and remain duly registered, qualified or approved under United
States and/or Canadian law, as the case may be. NPS will in good faith
expeditiously take all such actions and do all such things as are reasonably
necessary or desirable to cause all NPS Common Shares (or such other shares or
securities) to be delivered hereunder to be listed, quoted or posted for trading
on all stock exchanges and quotation systems on which outstanding NPS Common
Shares (or such other shares or securities) have been listed by NPS and remain
listed and are quoted or posted for trading at such time.
2.7 Economic Equivalence
So long as any Exchangeable Shares not owned by NPS or its Affiliates
are outstanding:
(a) NPS will not without prior approval of NPS - Allelix Inc. and the prior
approval of the holders of the Exchangeable Shares given in accordance with
section 10.2 of the Share Provisions:
(i) issue or distribute NPS Common Shares (or securities
exchangeable for or convertible into or carrying rights to
acquire NPS Common Shares) to the holders of all or
substantially all of the then outstanding NPS Common Shares by
way of stock dividend or other distribution, other than an issue
of NPS Common Shares (or securities exchangeable for or
convertible into or carrying rights to acquire NPS Common
Shares) to holders of NPS Common Shares who exercise an option
to receive dividends in NPS Common Shares (or securities
exchangeable for or convertible into or carrying rights to
acquire NPS Common Shares) in lieu of receiving cash dividends;
or
(ii) issue or distribute rights, options or warrants to the holders
of all or substantially all of the then outstanding NPS Common
Shares entitling them to subscribe for or to purchase NPS Common
Shares (or securities exchangeable for or convertible into or
carrying rights to acquire NPS Common Shares); or
(iii) issue or distribute to the holders of all or substantially all
of the then outstanding NPS Common Shares (A) shares or
securities of NPS of any class other than NPS Common Shares
(other than shares convertible into or exchangeable for or
carrying rights to acquire NPS Common Shares), (B) rights,
options or warrants other than those referred to in section
2.7(a)(ii) above, (C) evidences of indebtedness of NPS or (D)
assets of NPS,
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<PAGE>
unless the economic equivalent on a per share basis of such rights,
options, securities, shares, evidences of indebtedness or other assets is
issued or distributed simultaneously to holders of the Exchangeable
Shares; provided that, for greater certainty, the above restrictions shall
not apply to any securities issued or distributed by NPS in order to give
effect to and to consummate the transactions contemplated by, and in
accordance with, the Arrangement Agreement. ( i)
(b) NPS will not without the prior approval of NPS - Allelix Inc. and the prior
approval of the holders of the Exchangeable Shares given in accordance with
section 10.2 of the Share Provisions:
(i) subdivide, redivide or change the then outstanding NPS Common
Shares into a greater number of NPS Common Shares; or
(ii) reduce, combine, consolidate or change the then outstanding NPS
Common Shares into a lesser number of NPS Common Shares; or
(iii) reclassify or otherwise change NPS Common Shares or effect an
amalgamation, merger, reorganization or other transaction
affecting NPS Common Shares, unless the same or an economically
equivalent change shall simultaneously be made to, or in the
rights of the holders of, the Exchangeable Shares.
(c) NPS will ensure that the record date for any event referred to in section
2.7(a) or 2.7(b) above, or (if no record date is applicable for such event)
the effective date for any such event, is not less than five Business Days
after the date on which such event is declared or announced by NPS (with
contemporaneous notification thereof by NPS to NPS - Allelix Inc.).
(d) The Board of Directors of NPS - Allelix Inc. shall determine, in good faith
and in its sole discretion, economic equivalence for the purposes of any
event referred to in section 2.7(a) or 2.7(b) above and each such
determination shall be conclusive and binding on NPS. In making each such
determination, the following factors shall, without excluding other factors
determined by the Board of Directors of NPS - Allelix Inc. to be relevant,
be considered by the Board of Directors of NPS - Allelix Inc.:
(i) in the case of any stock dividend or other distribution payable
in NPS Common Shares, the number of such shares issued in proportion to the
number of NPS Common Shares previously outstanding;
(ii) in the case of the issuance or distribution of any rights,
options or warrants to subscribe for or purchase NPS Common Shares (or
securities
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<PAGE>
exchangeable for or convertible into or carrying rights to
acquire NPS Common Shares), the relationship between the
exercise price of each such right, option or warrant and the
Current Market Price;
(iii) in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities
of NPS of any class other than NPS Common Shares, any rights,
options or warrants other than those referred to in section 2.7
(d) (ii) above, any evidences of indebtedness of NPS or any
assets of NPS), the relationship between the fair market value
(as determined by the Board of Directors of NPS - Allelix Inc.
in the manner above contemplated) of such property to be issued
or distributed with respect to each outstanding NPS Common Share
and the Current Market Price;
(iv) in the case of any subdivision, redivision or change of the then
outstanding NPS Common Shares into a greater number of NPS
Common Shares or the reduction, combination, consolidation or
change of the then outstanding NPS Common Shares into a lesser
number of NPS Common Shares or any amalgamation, merger,
reorganization or other transaction affecting NPS Common Shares,
the effect thereof upon the then outstanding NPS Common Shares;
and
(v) in all such cases, the general taxation consequences of the
relevant event to holders of Exchangeable Shares to the extent
that such consequences may differ from the taxation consequences
to holders of NPS Common Shares as a result of differences
between taxation laws of Canada and the United States (except
for any differing consequences arising as a result of differing
marginal taxation rates and without regard to the individual
circumstances of holders of Exchangeable Shares).
(c) NPS - Allelix Inc. agrees that, to the extent required, upon due notice
from NPS, NPS - Allelix Inc. will use its best efforts to take or cause to
be taken such steps as may be necessary for the purposes of ensuring that
appropriate dividends are paid or other distributions are made by NPS -
Allelix Inc., or subdivisions, redivisions or changes are made to the
Exchangeable Shares, in order to implement the required economic equivalent
with respect to the NPS Common Shares and Exchangeable Shares as provided
for in this section 2.7.
2.8 Tender Offers
In the event that a tender offer, share exchange offer, issuer bid, take-
over bid or similar transaction with respect to NPS Common Shares (an "Offer")
is proposed by NPS or is proposed to NPS or its shareholders and is recommended
by the Board of Directors of
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NPS, or is otherwise effected or to be effected with the consent or approval of
the Board of Directors of NPS, and the Exchangeable Shares are not redeemed by
NPS - Allelix Inc. or purchased by NPS Holdings pursuant to the Redemption Call
Right, NPS will use its reasonable efforts expeditiously and in good faith to
take all such actions and do all such things as are necessary or desirable to
enable and permit holders of Exchangeable Shares (other than NPS and its
Affiliates) to participate in such Offer to the same extent and on an
economically equivalent basis as the holders of NPS Common Shares, without
discrimination. Without limiting the generality of the foregoing, NPS will use
its reasonable efforts expeditiously and in good faith to ensure that holders of
Exchangeable Shares may participate in each such Offer without being required to
retract Exchangeable Shares as against NPS - Allelix Inc. (or, if so required,
to ensure that any such retraction, shall be effective only upon, and shall be
conditional upon, the closing of such Offer and only to the extent necessary to
tender or deposit to the Offer). Nothing herein shall affect the rights of NPS -
Allelix Inc. to redeem (or NPS Holdings to purchase pursuant to the Redemption
Call Right) Exchangeable Shares, as applicable, in the event of a NPS Control
Transaction.
2.9 Ownership of Outstanding Shares
Without the prior approval of NPS - Allelix Inc. and the prior approval of
the holders of the Exchangeable Shares given in accordance with section 10.2 of
the Share Provisions, NPS covenants and agrees in favour of NPS- Allelix Inc.
that, as long as any outstanding Exchangeable Shares are owned by any Person
other than NPS or any of its Affiliates, NPS will be and remain the direct or
indirect beneficial owner of all issued and outstanding voting shares in the
capital of NPS - Allelix Inc. and NPS Holdings.
2.10 NPS and Affiliates Not to Vote Exchangeable Shares
NPS covenants and agrees that it will appoint and cause to be appointed
proxyholders with respect to all Exchangeable Shares held by it and its
Affiliates for the sole purpose of attending each meeting of holders of
Exchangeable Shares in order to be counted as part of the quorum for each such
meeting. NPS further covenants and agrees that it will not, and will cause its
Affiliates not to, exercise any voting rights which may be exercisable by
holders of Exchangeable Shares from time to time pursuant to the Share
Provisions or pursuant to the provisions of the Act (or any successor or other
corporate statute by which NPS - Allelix Inc. may in the future be governed)
with respect to any Exchangeable Shares held by it or by its Affiliates in
respect of any matter considered at any meeting of holders of Exchangeable
Shares.
2.11 Rule 10b-18 Purchases
For certainty, nothing contained in this Agreement, including without
limitation the obligations of NPS contained in section 2.8 hereof, shall limit
the ability of NPS or NPS - Allelix Inc. to make a "Rule 10b-18 Purchase" of NPS
Common Shares pursuant to Rule 10b-18 of the United States Securities Exchange
Act of 1934, as amended.
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2.12 Stock Exchange Listing
NPS covenants and agrees in favour of NPS - Allelix Inc. that, as long as
any outstanding Exchangeable Shares are owned by any Person other than NPS or
any of its Affiliates, NPS will use its reasonable efforts to maintain a listing
for such Exchangeable Shares on a Canadian stock exchange.
ARTICLE 3
NPS SUCCESSORS
3.1 Certain Requirements in Respect of Combination, etc.
NPS shall not consummate any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, transfer, sale, lease or other-wise)
whereby all or substantially all of its undertaking, property and assets would
become the property of any other Person or, in the case of a merger, of the
continuing corporation resulting therefrom unless, but may do so if:
(a) such other Person or continuing corporation (the "NPS Successor") by
operation of law, becomes, without more, bound by the terms and
provisions of this Agreement or, if not so bound, executes, prior to
or contemporaneously with the consummation of such transaction, an
agreement supplemental hereto and such other instruments (if any) as
are reasonably necessary or advisable to evidence the assumption by
the NPS Successor of liability for all moneys payable and property
deliverable hereunder and the covenant of such NPS Successor to pay
and deliver or cause to be delivered the same and its agreement to
observe and perform all the covenants and obligations of NPS under
this Agreement; and
(b) such transaction shall be upon such terms and conditions as
substantially to preserve and not to impair in any material respect
any of the rights, duties, powers and authorities of the other parties
hereunder.
3.2 Vesting of Powers in Successor
Whenever the conditions of section 3.1 have been duly observed and
performed, the parties, if required by section 3.1, shall execute and deliver
the supplemental agreement provided for in section 3.1(a) and thereupon the NPS
Successor shall possess and from time to time may exercise each and every right
and power of NPS under this Agreement in the name of NPS or otherwise and any
act or proceeding by any provision of this Agreement required to be done or
performed by the Board of Directors of NPS or any officers of NPS may be done
and performed with like force and effect by the directors or officers of such
NPS Successor.
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3.3 Wholly-Owned Subsidiaries
Subject to section 6.5(w) of the Arrangement Agreement, nothing herein
shall be construed as preventing the amalgamation or merger of any wholly-owned
direct or indirect subsidiary of NPS with or into NPS or the winding-up,
liquidation or dissolution of any wholly-owned subsidiary of NPS provided that
all of the assets of such subsidiary are transferred to NPS or another wholly-
owned direct or indirect subsidiary of NPS and any such transactions are
expressly permitted by this Article 3.
ARTICLE 4
GENERAL
4.1 Term
This Agreement shall come into force and be effective as of the date hereof
and shall terminate and be of no further force and effect at such time as no
Exchangeable Shares (or securities or rights convertible into or exchangeable
for or carrying rights to acquire Exchangeable Shares) are held by any Person
other than NPS and any of its Affiliates.
4.2 Changes in Capital of NPS and NPS - Allelix Inc.
At all times after the occurrence of any event contemplated pursuant to
sections 2.7 and 2.8 hereof or otherwise, as a result of which either NPS Common
Shares or the Exchangeable Shares or both are in any way changed, this agreement
shall forthwith be amended and modified as necessary in order that it shall
apply with full force and effect, mutatis mutandis, to all new securities into
which NPS Common Shares or the Exchangeable Shares or both are so changed and
the parties hereto shall execute and deliver an agreement in writing giving
effect to and evidencing such necessary amendments and modifications.
4.3 Severability
If any provision of this Agreement is held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remainder of this
Agreement shall not in any way be affected or impaired thereby and this
Agreement shall be carried out as nearly as possible in accordance with its
original terms and conditions.
4.4 Amendments, Modifications
This Agreement may not be amended or modified except by an agreement in
writing executed by NPS - Allelix Inc., NPS Holdings and NPS and approved by the
holders of the Exchangeable Shares in accordance with section 10.2 of the Share
Provisions.
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4.5 Ministerial Amendments
Notwithstanding the provisions of section 4.4, the parties to this
Agreement may in writing at any time and from time to time, without the approval
of the holders of the Exchangeable Shares, amend or modify this Agreement for
the purposes of:
(a) adding to the covenants of any or all parties provided that the Board
of Directors of each of NPS - Allelix Inc., NPS Holdings and NPS shall
be of the good faith opinion that such additions will not be
prejudicial to the rights or interests of the holders of the
Exchangeable Shares;
(b) making such amendments or modifications not inconsistent with this
Agreement as may be necessary or desirable with respect to matters or
questions which, in the good faith opinion of the Board of Directors
of each of NPS - Allelix Inc., NPS Holdings and NPS, it may be
expedient to make, provided that each such Board of Directors shall be
of the good faith opinion that such amendments or modifications will
not be prejudicial to the rights or interests of the holders of the
Exchangeable Shares; or
(c) making such changes or corrections which, on the advice of counsel to
NPS - Allelix Inc., NPS Holdings and NPS, are required for the purpose
of curing or correcting any ambiguity or defect or inconsistent
provision or clerical omission or mistake or manifest error, provided
that the Boards of Directors of each of NPS - Allelix Inc., NPS
Holdings and NPS shall be of the good faith opinion that such changes
or corrections will not be prejudicial to the rights or interests of
the holders of the Exchangeable Shares.
4.6 Meeting to Consider Amendments
NPS - Allelix Inc., at the request of NPS, shall call a meeting or meetings
of the holders of the Exchangeable Shares for the purpose of considering any
proposed amendment or modification requiring approval pursuant to section 4.4
hereof. Any such meeting or meetings shall be called and held in accordance with
the bylaws of NPS - Allelix Inc., the Share Provisions and all applicable laws.
4.7 Amendments Only in Writing
No amendment to or modification or waiver of any of the provisions of this
Agreement otherwise permitted hereunder shall be effective unless made in
writing and signed by all of the parties hereto.
4.8 Enurement
This Agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective successors and assigns.
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4.9 Notices to Parties
All notices and other communications between the parties to this Agreement
shall be in writing and shall be deemed to have been given if delivered
personally or by confirmed telecopy to the parties at the following addresses
(or at such other address for any such party as shall be specified in like
notice):
NPS Pharmaceuticals, Inc.
420 Chipeta Way
Salt Lake City, UT 84108
Attention: Hunter Jackson
Telecopier No.: 801-583-4961
with a copy to:
Blake, Cassels & Graydon
Box 25, Commerce Court West
199 Bay Street, 28th Floor
Toronto, Ontario
M5L 1A9
Attention: Mr. J. Rob Collins
Telecopier No.: (416) 863-2653
Any notice or other communication given personally shall be deemed to have
been given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of confirmed receipt thereof
unless such day is not a Business Day in which case it shall be deemed to have
been given and received upon the immediately following Business Day.
4.10 Counterparts
This Agreement may be executed in counterparts, each of which shall be
deemed an original, and all of which taken together shall constitute one and the
same instrument.
4.11 Jurisdiction
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This Agreement shall be construed and enforced in accordance with
the laws of the Province of Ontario and the laws of Canada applicable therein.
4.12 Attornment
Each of the parties hereto agrees that any action or proceeding arising out
of or relating to this Agreement may be instituted in the courts of the Province
of Ontario, waives any objection which it may have now or hereafter to the venue
of any such action or proceeding, irrevocably submits to the jurisdiction of the
said courts in any such action or proceeding, agrees to be bound by any judgment
of the said courts and not to seek, and hereby waives, any review of the merits
of any such judgment by the courts of any other jurisdiction and NPS hereby
appoints NPS - Allelix Inc. at its registered office in the Province of Ontario
as attorney for service of process.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
NPS PHARMACEUTICALS, INC.
By:________________________________
Name:
Title:
NPS HOLDINGS LIMITED
By:________________________________
Name:
Title:
NPS - ALLELIX INC.
By:________________________________
Name:
Title:
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ANNUAL INFORMATION
Incorporation
Allelix Biopharmaceuticals Inc. (the "Company" or "Allelix") is governed by
the provisions of the Canada Business Corporations Act. The Company was
originally incorporated in 1981 as Allelix Inc. and its original emphasis was
on agricultural biotechnology and human diagnostics. In October 1989, the
Company redirected its focus to human therapeutics and changed its name to
Allelix Biopharmaceuticals Inc.
The Corporation's head office is located in the City of Mississauga at 6850
Goreway Drive, Mississauga, Ontario L4V 1V7.
In December 1991, the articles of the Company were amended to combine the
outstanding series A and B common shares into a single class of common shares
on a two for one basis and to create a class of preference shares. As a result
of this amendment Allelix is currently authorized to issue an unlimited number
of common shares and an unlimited number of preference shares in series. The
Company's directors are authorized to create and issue these preferred shares.
In November 1998, 1,000 preferred shares--Series 1, were issued to Johnson &
Johnson Development Corporation ("JJDC") for US$2,000,000.
In May 1996, Allelix incorporated a subsidiary company Base4 Bioinformatics
Inc. ("Base4") pursuant to the provisions of the Canada Business Corporations
Act. Base4 will develop and apply bioinformatics techniques to drug discovery
and development.
On July 29, 1997, Allelix acquired all of the outstanding shares and
extinguished certain outstanding debt of Allelix Neuroscience Inc., formerly
Trophix Pharmaceuticals Inc. ["Trophix"] of South Plainfield, New Jersey, in
exchange for 2,495,203 Allelix common shares valued at $24,450,000 and
US$3,222,000 in cash. Following the completion of a licensing agreement with
Janssen Pharmaceutica N.V., ("Janssen") a US$1,000,000 milestone payment
payable in Allelix common shares to the former Trophix shareholders was made.
As a result, the Company issued 486,395 common shares valued at $3.19 each in
November 1998. Up to an additional US$3,000,000 may be paid to Trophix
shareholders in Allelix common shares upon achievement by Allelix Neuroscience
Inc. of further clinical and commercial milestones by July 29, 2001. The
acquisition added a new technology platform and three products to the Company's
neuroscience portfolio for the treatment of schizophrenia and/or dementia, for
neuropathic pain and for spinal cord injury. Allelix Neuroscience Inc. moved
its offices to Cranbury, New Jersey in December 1998.
On April 8, 1997, the Company and Pharm-Eco Laboratories, Inc. ["Pharm-Eco"]
of Lexington, Massachusetts formed Allelix Pharm-Eco LP, a United States
limited partnership, to develop jointly two families of neuropharmaceutical
compounds for cognition enhancement and cocaine addiction. Allelix paid
US$1,800,000, consisting of 88,094 Allelix common shares valued at $12.62 each
and US$1,000,000 in cash to Pharm-Eco for its interest in the joint venture.
The Company further invested US$1,000,000 in the joint venture in April 1997 to
fund pre-clinical development of the two programs to bring Allelix's ownership
interest to 60.5%. The purchase was accounted for as research and development
acquired. During 1998, the Company paid an additional US$1,800,000 by issuing
247,295 Allelix common shares to Pharm-Eco following the achievement of certain
commercial milestones. Allelix invested in the joint venture an additional
US$1,000,000 in cash and converted its accounts receivable of US$839,000 from
the Allelix Pharm-Eco LP into units of the partnership to bring Allelix's
ownership interest to 68.2%. Under the terms of the agreement with Pharm-Eco,
the Company will be responsible for its proportionate 68.2% share of the
research and development costs while Pharm-Eco will be responsible for the
balance.
General Development of Business
Allelix was formed in 1989 as the result of a management buyout of the
company then known as Allelix Inc. During 1989 the Company raised $8.4 million
from institutional and strategic investors. The Company
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completed an initial public offering in December 1991 to raise $25 million and
its common shares are listed on the Montreal and Toronto stock exchanges.
Overview of Business Activities
Allelix discovers and develops pharmaceutical product candidates for
commercialization through partnerships with established pharmaceutical
companies. Allelix discovers products by applying chemical and biological
approaches to disease targets identified through biotechnology. The Company has
completed a Phase II clinical trial for its leading product candidate: ALX1-11,
a recombinant form of human parathyroid hormone, for the treatment of
postmenopausal osteoporosis and in 1998 completed a Phase I trial for the
treatment of migraine. The Company has developed core capabilities in two areas
of pharmaceutical drug discovery: protein therapeutics (particularly
recombinant production of proteins and peptides) and receptor and transporter-
based drug design (focussed specifically in neuroscience) and has organized
itself into two business units around these areas of expertise. The Company
believes that the core capabilities of its business units represent technology
platforms, which can be applied within and between the business units to
support development of additional product candidates.
The Company discovers, patents and develops promising lead compounds as
human therapeutics. If such products are successfully commercialized, they
typically enjoy significant periods of market exclusivity (depending on patent
protection granted). To achieve profitable operations the Company, alone or
with others, must successfully develop and obtain regulatory approvals to
market its products. To obtain these regulatory approvals and to achieve
commercial success clinical trials must demonstrate that the products are safe
for use in humans and that they are effective. There can be no assurances that
the research and development conducted by Allelix will result in commercially
viable products.
All of Allelix's products are in either the research or the development
stage and therefore the Company does not generate revenue from product sales.
The Company funds its operations with the proceeds from collaborations with
corporate partners, the sale of equity, interest income and government grants.
The Company forms strategic collaborations with established pharmaceutical
companies to exploit fully its technological strengths in drug discovery and
gain access to worldwide pharmaceutical markets. Allelix currently has five
significant collaborative agreements with established pharmaceutical companies:
two agreements with Eli Lilly Canada Inc. ("Eli Lilly") to discover new drugs
for psychiatric, neurological and eating disorders, two agreements with Janssen
to discover new drugs for schizophrenia and/or dementia, and for neuropathic
pain plus an agreement with Hoechst Marion Roussel ("Hoechst") for dopamine D4
drugs for neuropsychiatric disorders. To strengthen and accelerate its research
and development efforts, the Company also has established a network of
collaborations with universities, academics, clinicians and research
institutions.
In deciding to initiate, continue or discontinue scientific programs,
management rigorously evaluates each discovery target and product candidate
from a commercial perspective, focusing on unserved or underserved medical
needs which represent significant commercial opportunities. Market size,
development cost, competitive environment, intellectual property protection,
and attractiveness to potential pharmaceutical industry partners, among other
factors impact the commercial opportunity.
Allelix's business strategy is to enhance shareholder value by focusing on
its core strengths through its business unit structure; developing technology
platforms for drug discovery and development; collaborating with established
pharmaceutical companies for broad-based clinical trials and worldwide
commercialization; while building and maintaining strong relationships with
universities, academics, clinicians and research institutions to gain access to
novel product candidates and technologies. Patent protection is secured
wherever possible. It is the Company's full intent to reach profitability in as
short a time period as possible.
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Narrative Description of Business
Business Units
Protein Therapeutics
The primary focus of the Protein Therapeutics business unit is the
development and commercialization of protein-based drugs for treating medical
diseases or disorders related to hormone abnormalities or deficiencies. The
scientific staff that supports the Protein Therapeutics business unit has
experience in microbiology, protein manufacturing, purification and analytical
chemistry.
A key strength of the Company is its ability to develop efficient production
processes for the manufacture of recombinant therapeutic proteins like ALX1-11.
The Company has developed a proprietary production process to produce PTH by
fermentation and purification in accordance with the Food and Drug
Administration ("FDA") and European Community Good Manufacturing Practices
(GMP). In selecting protein-based product candidates the Company favours those
that can be produced recombinantly through its proprietary E. coli production
process.
ALXI-11 Osteoporosis Program
Allelix has developed ALX1-11, the full-length recombinant parathyroid
hormone PTH, an 84 amino acid protein, as a treatment for postmenopausal
osteoporosis. Osteoporosis is a progressive skeletal disease characterized by
the loss of bone mass and bone mineral density leading to fractures. Bone mass
decreases with age, particularly in women, leaving the bones prone to fracture,
especially in the wrist, spine and hip. In women, this condition typically
occurs after menopause and the complications from these fractures can lead to
hospitalization and death. Approximately 20% of osteoporosis patients are male.
Demographic studies have shown that 35% of women over the age of 50 will
suffer an osteoporosis-related fracture during their lifetime. In North
America, 1.5 million individuals sustain a fracture related to this disease
each year, including 300,000 hip fractures, resulting in a significant economic
burden on the health care system. The National Osteoporosis Foundation in the
United States estimates that a woman's risk of suffering a hip fracture is
equal to her combined risk of developing breast, uterine and ovarian cancer.
The annual cost of osteoporosis in the United States in 1995 was estimated to
be more than US$13 billion. The National Institutes of Health estimate that, on
a worldwide basis, more than 200 million people suffer from reduced bone mass,
which contributes to more than 4 million fractures annually. Mortality in the
first year following a hip fracture is 15% to 20%. The successful treatment of
osteoporosis would result in the reduction of bone fractures, significantly
improving quality of life and reducing health care costs associated with
treatment and chronic care.
ALX1-11 is a recombinant form of human PTH. PTH is a hormone that plays an
important role in the natural regulation of bone mineral metabolism in the
body. Recently published studies have shown that PTH has a marked stimulatory
effect on new bone formation in animals when administered as a single daily
injection. Furthermore, several clinical investigators have demonstrated in
independent studies that a fragment of the PTH molecule enhances bone formation
in humans. Allelix believes that these results, published over the past 20
years, suggest that PTH is able to reverse bone loss in osteoporosis sufferers.
Allelix believes that PTH increases the number of bone-forming cells and may
also increase the activity of such cells. The increase in bone density observed
in these studies was confirmed in the Phase II clinical trial indicating that
PTH may represent a significant treatment alternative for osteoporosis
sufferers. The results demonstrated that PTH significantly increases bone
mineral density and bone content in the spine of women with postmenopausal
osteoporosis.
Traditional treatments for osteoporosis include calcium supplements, vitamin
D compounds, estrogen replacement therapy, calcitonin, diet and exercise. In
addition, a class of drugs known as bisphosphonates has been developed which
slow the resorption of bone and over several years can increase bone mass by
amounts ranging from 3% to 8%. Alendronate, marketed by Merck and Co. Inc.
("Merck") under the brand name
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Fosamax, is the most recently approved bisphosphonate and has demonstrated an
increase in bone mineral density ("BMD") of 8% over three years and a reduction
in the incidence of bone fractures by 50%. However, there is a widely
recognized need for a treatment that can prevent fractures by replacing lost
bone more rapidly. The Company believes that PTH may address this need. If
approved for commercial sale, ALX1-11 would be positioned as a therapy for
postmenopausal osteoporosis in patients who either have suffered a fracture due
to osteoporosis, or have been diagnosed to have significantly decreased bone
mass. Once bone mass is restored, patients could be treated with anti-
resorptive therapeutics. The Company has no way of knowing the extent or
progress of such competitors' trials. If any such trial were to result in
regulatory approval to market a competing PTH the market potential of ALX1-11
could be adversely affected. See "Competition".
In 1994, Allelix conducted a Phase I clinical trial in The Netherlands that
demonstrated the safety of ALX1-11 in humans. The Phase II clinical trial for
ALX1-11 was initiated in June 1995 in 18 centres throughout Canada and the
United States and involved over 200 women suffering from postmenopausal
osteoporosis. The trial was a double blind, placebo-controlled, dose-ranging
safety and efficacy study and the course of treatment was 12 months. Patients
self-administered one of three different dosages of ALX1-11 or a placebo by
subcutaneous injection in a manner similar to self-administered daily insulin
injections by diabetics. The goal of the clinical trial was to compare the
relative effectiveness of the three dose levels on spinal BMD. Blood samples
were taken in the clinical trial to monitor the effects of the drug on several
biochemical markers of bone growth and bone metabolism. In June 1996, Allelix
entered into a collaboration agreement with Astra AB ("Astra") for the
development and commercialization of ALX1-11 for osteoporosis. See
"Collaboration Agreements--Development Agreement with Astra AB". The Phase II
trial was completed in February 1997. The final report was submitted to Astra
in June 1997 and Astra conveyed its decision to conduct a Phase III trial with
ALX1-11 to Allelix in September 1997. In September 1998, Astra notified the
Company that it would return all of the assets associated with the program and
all related proprietary rights to Allelix at no cost and paid a 4,800,000
Netherlands Guilders cancellation penalty.
Since PTH is a protein, it must be administered by subcutaneous injection at
the present time. There is a possibility that alternate routes of
administration such as inhalation, intranasal or transdermal may be feasible. A
number of companies are investigating alternative routes of administration for
a variety of peptides. In particular, insulin has been shown to be absorbed by
the inhalation route and calcitonin is commercially available in an intranasal
form. Allelix believes that there is at least one company working on an
inhalation form of PTH. The feasibility of administering PTH by one of these
other routes is unknown and will need to be investigated.
ALX-0600 (Glucagon-Like Peptide-2 or GLP-2)
ALX-0600 is an analog of glucagon-like peptide-2 (GLP-2), a naturally
occurring 33 amino acid hormone. A published study by one of the Company's
academic collaborators demonstrated that the use of ALX-0600 in animals
resulted in a marked stimulatory effect on the rate of growth of epithelial
cells lining the small intestine. In this study, GLP-2 induced an approximately
50% increase in weight of small intestine epithelium within ten days of
administration. The Company believes that ALX-0600 may have the ability to
induce a similar effect in humans. Furthermore, the growth-promoting properties
of ALX-0600 appear to be highly tissue-specific, predominantly affecting the
small intestine, thereby reducing the risk of adverse side effects.
The Company is currently developing ALX-0600 for the treatment of short
bowel syndrome, a condition caused by removal of large segments of the small
intestine. Approximately 20,000 to 40,000 patients in North America have
undergone surgical resection (removal) of a portion of the small intestine
because of gastrointestinal problems that cause the intestine to malfunction.
Patients with this condition often do not have enough small intestine remaining
after resection to allow for the absorption of sufficient nutrients from the
diet since the epithelium of the small intestine is the primary site of
nutrient absorption. There are currently no effective therapies available for
enhancing the growth and repair of the small intestine epithelium. In extreme
cases, the remaining intestine is no longer able to perform its normal function
of transporting vital nutrients into the blood stream.
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Patients with severely impaired intestinal function caused by short bowel
syndrome often must be fed intravenously by a technique called total parenteral
nutrition ("TPN") for a period of time, and in some cases permanently. TPN
costs can exceed $100,000 annually per patient. Approximately 100,000 people in
North America are on long-term TPN. The Company believes that ALX-0600 for
short bowel syndrome may qualify for orphan drug status in the U.S. because of
the small patient population, the poor quality of life and the high mortality
rate facing these patients, and the current absence of an effective therapy for
enhancing growth and repair of small intestine epithelium. There is no
assurance that the Company will be successful in obtaining orphan drug status
for ALX-0600. See "Risk Factors--Government Regulation; No Assurance of
Regulatory Approval".
Allelix is also investigating the use of ALX-0600 for the replenishment of
epithelial cells of the small intestine which are damaged by chemotherapy
treatment for cancer. The Company believes that ALX-0600 may be suitable as an
adjunct therapy to cancer chemotherapy if it can ameliorate the toxic
gastrointestinal side effects, thereby improving patient compliance with the
chemotherapy regimen and possibly allowing for dose escalation of the
chemotherapy agent. The principal agents that would benefit from such an
adjunctive therapy are 5-fluorouracil (administered to approximately 1 million
patients per year) and CPT-11 (approximately 500,000 patients per year and
increasing). Approximately 16% and 50% of patients receiving these respective
therapies experience extreme gastrointestinal side effects sufficient to
warrant treatment with an agent such as ALX-0600 should its safety and efficacy
be proven in clinical trials.
Allelix is evaluating the potential use of ALX-0600 for the treatment of
other intestinal disorders, such as inflammatory bowel diseases and other
conditions and diseases associated with impaired intestinal function.
The Company has licensed rights to ALX-0600 from an academic collaborator
who is entitled to participate in the proceeds of commercialization of the
product candidates, if successfully developed and approved. The Company
completed a Phase I clinical trial of ALX-0600 in normal subjects in November
1998. Allelix has also identified a supplier of clinical grade ALX-0600. The
Company is also developing a recombinant production system that may be used to
produce the product.
The U.S. Patent and Trademark Office ("PTO") in August 1998 issued a Notice
of Allowance to the Company for its basic patent containing claims covering the
composition and medical uses of ALX-0600 and related gastrointestinal drug
candidate compounds.
Neuroscience
The primary focus of the Neuroscience business unit is the use of rational
drug design to develop novel drug candidates for the treatment of psychiatric,
neurological and immunological disorders. The business unit has demonstrated
its ability to discover and utilize human neuroreceptors, ion channels and
neurotransporters for drug screening. The unit is currently developing product
candidates for schizophrenia, dementia, obesity, diabetes, migraine, drug
abuse, spasticity and pain.
Control of physiological function in the nervous system depends on
production by nerve cells ("neurons") of chemical messengers called
neurotransmitters. These neurotransmitters interact with proteins located on
the surface of target cells (receptors or ion channels), thereby inducing
physiological activity. Neurotransmitters also interact with other membrane-
bound proteins (transporters) which control their actions by removing the
neurotransmitters from the synapse. Drugs can be designed to interact with
these membrane proteins to inhibit or augment the activity of the natural
neurotransmitter and bring about a therapeutic effect. Typically, receptor, ion
channels and transporters exist in families with several similar variations, or
subtypes, and it is possible to design drugs which interact only with
particular subtypes, leaving others unaffected. Such drugs will interfere
selectively with the physiological activity governed by the specific subtype,
potentially maximizing efficacy while reducing the risk of undesirable side
effects.
By using biochemical pharmacology methods to study the binding of
neurotransmitters to their recognition sites, chemists can design drugs that
bind more strongly and more selectively to specific subtypes. Computer-
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based molecular modelling studies of the receptor, ion channel or transporter
and of their interaction with drugs provide useful information to chemists in
designing novel and more effective drugs. These technologies make the overall
drug discovery process more efficient and predictive.
The number and diversity of targets that continue to be discovered in the
human brain complicate neuropharmaceutical drug design. Until the late 1980s,
new drug compounds were mostly discovered by random screening and the success
rate was approximately one active compound for each 20,000 tested. Now,
pharmacology is a key element in the streamlined discovery strategy which
applies rational drug design to molecular targets. By understanding the
structure and nature of the targets, compounds are synthesized to fit the
target and the success rate of identifying active compounds improves.
Allelix applies an integrated discovery strategy, with close co-operation
between chemists and pharmacologists, using tools provided by molecular and
cellular biologists and computer modelers. Allelix biologists clone human
receptor, ion channel and transporter genes and induce cells to express
proteins from these genes. Genetically engineered cells which express the pure
protein at their surface are used for discovery and evaluating chemical
libraries provided by Allelix's collaborative partners. Finally, the actions of
potential drug candidates emerging from the screening process are tested in
vivo, using in-house behavioral pharmacology expertise, in animal models of CNS
diseases.
Migraine
Migraine is a debilitating CNS disorder that affects more than 20 million
people in North America. At present, the "triptans", lead by sumatriptan, are
the dominant players in the estimated US$1.5 billion market. The "triptans" are
non-selective serotonergic agonists that demonstrate approximately equal
affinities for both the 5-HT1D and 5-HT1B receptor subtypes. Although these
compounds have efficacy as anti-migraine therapeutics, they have received class
labelling from the regulatory authorities due to the risk of serious
cardiovascular events. As the 5-HT1B receptor, but not the 5-HT1D receptor, is
expressed on human blood vessels, Allelix scientists hypothesized that 5-HT1B
likely mediates the coronary artery vasospasm. Consequently, Allelix used a
receptor-based drug design approach to identify and develop subtype-selective
compounds that have high affinity for 5-HT1D and minimal activity at 5-HT1B.
ALX-0646, our development compound, demonstrated efficacy in animal models
predictive of anti-migraine activity and importantly, ALX-0646 was virtually
devoid of activity on isolated human coronary arteries. In 1998, ALX-0646
completed a Phase Ia clinical trial in the United Kingdom. The compound was
deemed safe and no significant adverse events were detected during the study at
any of the dose levels examined. In particular, no cardiovascular effects were
reported. The company is preparing for Phase II studies in the United States in
1999 and the identification of a development and commercialization partner is
currently underway.
GlyT-1 for Schizophrenia and Dementia with Janssen Pharmaceutica N.V.
Prospective drug candidates are glycine reuptake inhibitors selective for
the GlyT-1 transporter. GlyT-1 inactivates the neurotransmitter glycine by
transport (reuptake) out of the synapse back into the releasing nerve cell.
Glycine acts as a co-transmitter with glutamic acid at the NMDA receptor. There
is evidence that this receptor is in a hypofunctional state in schizophrenia.
Based on this, Allelix has established a program to discover drugs which block
the reuptake of glycine. This approach should result in increased levels of
glycine, resultant activation of the NMDA receptor and a novel route to a
therapeutic effect in schizophrenia. In addition, the NMDA receptor is known to
be essential for learning and memory. Because of this, the Company is also
targeting reuptake inhibitors for dementia where the hallmark symptom is memory
loss.
In October 1998, Allelix entered into a collaborative agreement with Janssen
for the development and commercialization of GlyT-1 inhibitors for
schizophrenia and dementia. It is the intent of the partners to have a
development candidate in clinical trial by the end of 1999. See "Collaboration
Agreements--Development Agreement with Janssen Pharmaceutica N.V.".
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Research with Pharm-Eco Laboratories Inc.
In 1997 Allelix and Pharm-Eco established a joint venture ("JV") to develop
and commercialize therapeutic agents for dementia and cocaine abuse.
Dementia Program
Dementia, primarily Alzheimer's disease, is a major public health problem
globally, afflicting over 20 million people worldwide and increasing in
incidence with age to about one in two in the eighth decade of life. One of the
hallmark symptoms of dementia is memory loss and overall decline of cognitive
ability. The ability to treat dementia pharmacologically has only been realised
in the last several years, but existing treatments are of limited efficacy.
Only two drugs have been approved in North America to date (COGNEX(TM) and
ARICEPT(TM)) and both of these are of the same class. The Allelix Pharm-Eco JV
has identified ALE-26015, a compound that has been shown to enhance long term
potentiation ("LTP") and cognitive performance in animals as a novel approach
to treating dementia. LTP is widely believed to represent the fundamental
cellular mechanism of learning and memory. The Company believes that ALX-26015,
by enhancing LTP, could represent a means of improving memory and cognitive
function in Alzheimer's disease patients. The Company has received approval to
conduct Phase I studies in the United Kingdom, and will begin human dosing
early in 1999.
The Company plans to develop the compound through Phase I clinical trials
and license it to a major pharmaceutical partner. Partnering discussions have
been initiated.
Cocaine Abuse Program
The JV is collaborating with the U.S. National Institute of Drug Abuse
(whose mission is to reduce substance abuse) to develop a dopamine reuptake
inhibitor (DRI), as a substitution therapy for cocaine abuse. There is
currently no approved pharmacotherapeutic available to treat this form of
substance abuse, which afflicts approximately 1 million individuals in North
America, and engenders large dollar costs to society. Cocaine is believed to
exert its addictive effects by blocking the inactivation mechanism for the
neurotransmitter dopamine, which mediates reinforcing behavior. The Company
believes that DRI treatment can block the effects of cocaine at the
inactivation site for dopamine and relieve the abuser of the need to ingest
more cocaine.
CNS Receptor Research with Eli Lilly Canada Inc.
Allelix and Eli Lilly first entered into a collaborative agreement in
November 1989 to develop excitatory amino acid ("EAA") receptors as therapeutic
targets. EAA receptors, encoded by a large gene family, mediate the actions of
glutamate, the primary excitatory neurotransmitter in the central nervous
system. As a result of their important role in neuronal communication,
glutamatergic dysfunction has been implicated in variety of neuropathological
conditions, including neuropsychiatric disorders, Alzheimer's disease, epilepsy
and secondary damage caused by stroke. These diseases continue to represent
significant unmet medical need. Allelix has cloned and expressed the majority
of human EAA receptors in stable cell lines for use as drug targets. Research
efforts have identified numerous subtype-selective series' of compounds that
have the potential to treat a number of the above therapeutic indications. The
first clinical candidates are expected to be declared in early 1999. The
success of the research and the commitment of both parties to continue their
leadership role in this area is reflected by the two year extension and
expansion of the EAA program signed in November 1998.
In 1994, the Eli Lilly collaboration was expanded to include the
identification of novel neuropeptide Y (NPY) receptors implicated in eating
disorders leading to obesity. With few safe and effective drugs on the market,
obesity continues to be a growing problem in North America. Current estimates
suggest that 50% of all adults in the United States are clinically obese. In
1997, the program was broadened further to include a genomics-based approach
focused on identifying novel genetic targets as tools for drug discovery in
obesity and diabetes mellitus. These efforts are ongoing and the program has
been extended for one year until the end of 1999.
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Research on Neuron-Selective Sodium Channels with Janssen Pharmaceutica N. V
In December 1995, Trophix, entered into a collaborative research agreement
with Janssen, a wholly owned subsidiary of Johnson & Johnson, for the discovery
and development of compounds for the treatment of neuropathic pain. Janssen is
responsible for all research and development costs and has exclusive marketing
rights to drugs resulting from the collaboration. The Company received
approximately US$0.8 million from Janssen under the terms of the agreement in
1998. Allelix will receive milestone payments upon the achievement of
development and clinical benchmarks, as well as royalties when a product is
commercialized. This program is in discovery phase.
Dopamine Receptor Research with Hoechst Marion Roussel
In January 1995, Allelix entered into a research collaboration agreement
with Hoechst to discover and develop D4 receptor-specific compounds for the
treatment of antipsychotic disorders, particularly schizophrenia. See
"Collaboration Agreements--Dopamine D4 Receptor Research Agreement with Hoechst
Marion Roussel".
Allelix has completed use of the human dopamine D4 receptor subtype to
identify specific D4 antagonists, in collaboration with Hoechst, with the
objective of producing more selective drugs for the treatment of
neuropsychiatric disorders. Potential drug candidates from both Allelix and
Hoechst were identified during 1997 and are being further evaluated for a
number of potential therapeutic indications, in pre-clinical testing, by
Hoechst. Future development of the potential drug candidates, as per the
collaborative agreement, now lies with Hoechst.
Other Initiatives
Resolution Pharmaceuticals Inc.
Allelix and MDS Nordion Inc., ("Nordion"), a Canadian-based company that is
the world's leading supplier of technetium, formed Resolution Pharmaceuticals
Inc. ("Resolution") in August 1992 as a joint venture to develop peptide based
radiopharmaceuticals for the diagnosis of disease using nuclear imaging.
Allelix currently owns 21.8% of Resolution after giving effect to a $10 million
private financing in May 1996. The joint venture was created to take advantage
of Allelix's expertise in peptides and receptor based drug design and Nordion's
knowledge of the radiopharmaceuticals industry. Resolution's
radiopharmaceuticals consist of peptide-targeting compounds, chemically linked
(chelated) with the radioisotope technetium-99m. The peptide portions of the
molecules are used to target receptors affiliated with disease, while
technetium provides images useful in disease diagnosis. The unique structure
and specificity of the peptides permit their selective accumulation at disease
sites to allow physicians to diagnose internal disorders using imaging cameras.
The use of these labeled peptides represents the latest advance in the
development of imaging agents as they are inexpensive to produce, have a low
probability of immune reaction and clear from the blood faster, resulting in
increased imaging sensitivity and superior image quality relative to other
imaging agents. Resolution has two products in clinical trials. The most
advanced RP128 for the diagnostic imaging of inflammation has successfully
completed Phase II trials for rheumatoid arthritis and Crohn's disease. A
further clinical trial for osteomyelitis is underway conducted by our corporate
partner CIS BioInternational. RP527 which images prostate, breast and small
cell lung cancer started Phase I/II clinical trials in January 1999. Other
diagnostic and therapeutic radiopharmaceutical products for the cancer and
neuroscience markets are anticipated to enter clinical trials in 1999-2000.
Base4 Bioinformatics Inc.
In May 1996, Allelix incorporated Base4 to develop and apply bioinformatics
techniques to drug discovery and development. In January 1998, Base4 completed
a private financing by raising $4.5 million of equity capital. Allelix now
holds a 29.2% ownership interest in the company. Base4 had twenty-eight
employees at August 1998.
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Bioinformatics applies advanced information technology methodologies to the
management and analysis of pharmaceutical discovery information. The need for
these methods has developed in part because of the various genome-sequencing
projects underway internationally, which are doubling the number of known gene
sequences every 15-18 months. These sequences provide a wealth of new targets
for pharmaceutical development. Comparable advances in chemistry and
pharmacology have generated major information management issues.
Base4 developed and markets PharMatrix(TM), which is a browser-based
collaborative Knowledge Management and Project Management System tailored for
the pharmaceutical and biotechnology industries. Built upon the Livelink(TM)
product from Open Text Corporation, PharMatrix addresses specific requirements
of the target industries. The structure of Project Management and Laboratory
Management components are ideally suited to Base4's typical client's matrix
organizations and processes. Allelix was the first customer of PharMatrix.
Within the biotechnology industry, often the specialized nature of a
company's activities precludes applying an "off the shelf" software solution to
its information management requirements. In such cases, a custom database
solution is in order and Base4 has the expertise to guide customers through the
specification, design, development, implementation and testing stages of the
system development process. This ensures that the ultimate system incorporates
state of the art technology, fully achieves the customer's business objectives
and is able to grow and evolve with the customer's business.
Base4 employs advanced computer networking methods and software that allows
its staff to be distributed to multiple geographic sites within research
institutes allowing them to work closely with the scientific staff of these
institutes. Base4 has recently renewed its supply agreement with Canada's
National Research Council ("NRC") to take responsibility for the NRC's Canadian
Bioinformatics Resource "CBR" database that is available to biological
researchers. Base4 has also entered into collaboration arrangements with the
Samuel Lunenfeld Research Institute at Mount Sinai Hospital in Toronto and with
the Centre for Molecular Medicine and Therapeutics of the University of British
Columbia in Vancouver. An office in Carlsbad, California was recently opened
and an office in the eastern United States is planned to serve customers in
that region.
Collaboration Agreements
The Company forms strategic alliances with established pharmaceutical
companies to exploit fully its technological strengths, gain access to
worldwide pharmaceutical markets and to generate revenue. Allelix's timing and
choice of partner for such collaborations are based on the costs involved in
conducting further trials, Allelix's available resources, and the risk profile
of the product candidate, among other considerations. The collaboration
agreements Allelix enters into include rights of termination in favour of
Allelix's partners. Furthermore, these agreements generally provide that
Allelix will not conduct independently, or with any third party, any research
that competes with the research conducted under the collaborative program. See
"Risk Factors--Dependence on Strategic Alliances".
Protein Therapeutics
Development Agreement with Astra AB
In June 1996 Allelix entered into a collaboration agreement with Astra for
the development and worldwide commercialization of ALXI-11 for the treatment of
osteoporosis. Under the terms of the agreement, Allelix received a non-
refundable license fee of US$5 million in July, 1996, a progress payment of
US$2 million in November, 1996, representing partial reimbursement for its
Phase II clinical trial costs and a milestone payment and reimbursement of
costs of $17.1 million in November, 1997.
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In September 1998, Astra terminated its agreement due to a change in
research focus. As a result, all assets were returned to Allelix.
ALX1-11 Supply Agreement with Chiron Corporation
In May 1992, Allelix entered into an agreement with Chiron B.V. ("Chiron"),
a Netherlands company and a subsidiary of Chiron Corporation of Emeryville,
California, for the production of clinical grade ALX1-11 at Chiron's GMP plant
in the Netherlands. Chiron is currently producing clinical grade ALX1-11 for
Allelix using Allelix's proprietary protein manufacturing process. To prepare
for Phase II and Phase III clinical trials and commercial production, this
agreement was amended in April 1994 to increase the amount of ALX1-11 supplied
by Chiron and, in May 1996, the term was extended to December 31, 2002. The
agreement requires Chiron to produce ALX1-11 in accordance with FDA and
European Community guidelines for GMP of medicinal compounds. The agreement
provides for minimum annual purchases of bulk ALX1-11 material by Allelix in
each year and may be terminated by Allelix upon payment of a cancellation
penalty of 4.8 million Netherlands Guilders (currently approximately $3.8
million). The Company terminated in December 1998. The agreement provides that
Chiron will not manufacture recombinant human PTH or any related compound for
itself or any third party for 10 years after the termination of the agreement.
Neuroscience
Dopamine D4 Receptor Research Agreement with Hoechst Marion Roussel
Effective January 2, 1995, Allelix entered into a research collaboration
with Hoechst to discover and develop dopamine D4 receptor-specific compounds
for the treatment of antipsychotic disorders, particularly schizophrenia. Under
the terms of this agreement, Hoechst agreed to fund research through to January
1, 1998 up to US$2.3 million per year, extendable to January 2000. In addition,
Allelix could receive up to an additional US$18.0 million if certain research
and development milestones are met. A portion of these milestone payments is
creditable against future royalty payments made by Hoechst to Allelix, if any.
Hoechst could terminate this agreement upon six months notice on or after
January 2, 1998, or at any time if a change of control occurred with respect to
Allelix.
Pursuant to the terms of the agreement, Hoechst has been granted all rights
in any compounds discovered by Allelix under the research program. If products
are commercialized and sold by Hoechst, the agreement provides for the payment
by Hoechst of royalties to Allelix. Allelix has the right to co-promote
products in Canada and Scandinavia. The Company received approximately $1.0
million from Hoechst under the terms of the agreement in 1998 ($3.4 million in
1997). Hoechst also made a $9.9 million equity investment in Allelix in 1995
and currently owns approximately 6.6% of the Company's outstanding common
shares.
Pursuant to its option to allow termination of the collaboration on January
2, 1998, Hoechst has elected to do this. Although the scientific collaboration
has fully succeeded in developing D4-selective compounds, the D4-schizophrenia
hypothesis has not yet been proven and the program is judged to be high risk.
Additional preclinical work is therefore in progress in order to determine
possible additional therapeutic indications.
Research Agreement with Eli Lilly Canada Inc.
In December 1989, Allelix entered into a research agreement with Eli Lilly
under which scientists from Allelix collaborated with scientists from Lilly
Research Laboratories in Indianapolis to develop a number of proprietary
mammalian cell lines containing human glutamate or EAA receptors. This program
is funded by Eli Lilly and, effective November, 1994, was extended to similar
types of research activities as applied to the NPY class of CNS receptors.
Under the terms of this agreement, Eli Lilly committed to provide Allelix with
up to approximately US$10.7 million in research funding over the four-year term
that commenced in November, 1994. This program has again been renewed
(November, 1998)--EAA for two years, and eating disorders for one year, for
$4.1 million in revenue to Allelix in fiscal 1999. If products are marketed and
sold by Eli Lilly, royalty payments will be paid to Allelix. This program was
extended and expanded twice prior to November,
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1994. In 1998 and 1997 the Company received approximately $4.1 million and $3.6
million, respectively, from Eli Lilly. Under the terms of the agreement Eli
Lilly also made a US$2.25 million equity investment in Allelix in 1991 and
currently holds approximately 1.8% of the Company's outstanding common shares.
Limited Partnership with Pharm-Eco Laboratories Inc.
With respect to commercialization of products which arise from the Limited
Partnership, it is the Limited Partnership's intent to market the treatment for
cocaine abuse within North America (this is commercially and strategically
viable in that this would constitute a defined market accessible with a small
sales force), but license the rights to the rest of the world. A cognitive
enhancement product for the treatment of dementia would be licensed for co-
development and marketing to a large pharmaceutical partner.
Allelix anticipates that it will fund virtually all of the research and
development costs incurred by the Allelix Pharm-Eco LP and, in this way, will
earn an increasing interest in the Limited Partnership.
Technology Platform
Research Collaboration with Groupe Fournier
In August 1994, Allelix entered into a research collaboration agreement with
Groupe Fournier, France to identify and develop new therapies for the treatment
of atherosclerosis, combining Groupe Fournier's knowledge and capabilities in
the lipid field with Allelix's transcription drug discovery technology. The
Company received approximately $1.4 million in each of 1997, 1996 and 1995,
from Groupe Fournier as technology licensing fees and research support
payments. The collaboration was terminated in accordance with the agreement on
October 31, 1997. Fournier is presently evaluating the potential clinical
utility of some of the lead compounds which emerged from this collaboration.
Competition
The Company competes with numerous entities that develop and produce
products aimed at treating similar conditions to those addressed by the
Company, including early-stage companies, established pharmaceutical companies,
universities, research institutions, governmental agencies and health care
providers. In addition, the Company's product candidates will be required to
compete with existing pharmaceutical products, or products developed in the
future, that are based on established technologies. The Company is subject to
significant competition from industry participants who are pursuing the same or
similar technologies as those which constitute the Company's technology
platforms and from organizations that are pursuing pharmaceutical products or
therapies, or diagnostic products that are competitive with the Company's
product candidates. Many of the Company's competitors have substantially more
financial and other resources, larger research and development staffs, and more
experience and capabilities in researching, developing and testing products in
clinical trials, in obtaining FDA and other regulatory approvals, and in
manufacturing, marketing and distribution than the Company. The Company's
competitors may succeed in developing, obtaining patent protection for,
receiving FDA and other regulatory approvals for, or commercializing products
more rapidly than the Company. In addition, competitive products may be
manufactured and marketed more successfully than the Company's product
candidates.
The Company is aware of certain pharmaceutical companies that are pursuing
research and development for pharmaceutical products that are aimed at treating
conditions similar to those targeted by the Company's product candidates. In
particular, Merck has introduced the drug Fosamax for the treatment of
osteoporosis in postmenopausal women. If Fosamax enjoys wide clinical
acceptance, the Company's business, financial condition and results of
operations could be materially or adversely affected. At least two other
companies have an ALX1-11-like drug in clinical trials for osteoporosis,
including one in North America/Europe and one in Japan. The Company has no way
of knowing the extent or progress of such competitors' trials. If any such
competitors' trial were to result in regulatory approval to market a competing
PTH the market potential of
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ALX1-11 could be adversely affected. Moreover, even without such approval, the
announcement of clinical trials of PTH by a significant competitor could result
in a decrease in the market price of the Company's common shares.
The Company believes that its ability to compete successfully will be based
upon, among other things, its ability to create and maintain scientifically
advanced technology, attract and retain scientific personnel with a broad range
of expertise, obtain patent protection or otherwise develop proprietary
products or processes, enter into collaborative agreements, and, independently
or with its collaborative partners, conduct clinical trials, obtain required
governmental approvals on a timely basis, and through its collaborative
partners or directly, to commercialize its products. See "Risk Factors--Intense
Competition; Rapid Technological Change".
Patents and Trade Secrets
The Company's success depends, in part, on its ability to obtain patents,
maintain its trade secrets and operate without infringing the proprietary
rights of third parties. The Company attempts to protect any product candidates
and processes developed by it under the intellectual property laws of the
United States, Canada and other major market countries. Allelix employs three
full-time professionals to monitor competitive patent activities and ensure
prompt filings of patent applications. Patent and scientific staff members from
each of the business units work closely together to channel scientific
activities in patentable and non-infringing directions.
The Company's patent portfolio embraces more than 100 inventions made by
Allelix employees and its collaborators. This has resulted to date in more than
50 U.S. patents; another 85 U.S. patent applications are pending. Of these, 24
patents and 72 filings relate to the Company's business as described in this
Annual Information Form. It is the Company's policy to file counterparts of its
United States applications in various countries around the world, usually in
Canada, Europe and Japan and in other markets where circumstances warrant. The
failure to receive patents in respect of pending applications could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Patents and Proprietary Technology".
The Company's policy in respect of licensing its patents is to generate
revenue by licensing patent rights for applications other than human
therapeutics. If required, Allelix may seek to negotiate licences under
competitive or blocking patents that it believes are required for it to
commercialize its products. See "Risk Factors--Patents and Proprietary
Technology".
There can be no assurance that the Company's outstanding patent applications
will be allowed, that the Company will develop additional proprietary products
that are patentable, that issued patents will provide the Company with any
competitive advantages or will not be challenged by any third parties, or that
the patents of others will not have an adverse effect on the ability of the
Company to do business. Furthermore, there can be no assurance that others will
not develop independently similar products, duplicate any of the Company's
products or design around the patented products developed by the Company. In
addition, the Company may be required to obtain licences under patents or other
proprietary rights of third parties. No assurance can be given that any licence
required under patents or proprietary rights will be available on terms
acceptable to the Company. If Allelix does not obtain such licences, it or its
collaborative partners could encounter delays in introducing products to the
market while it attempts to design around such patents or proprietary rights,
or could find that the development, manufacture or sale of products requiring
such licences could be foreclosed. In addition, the Company could incur
substantial costs in defending itself in suits brought against Allelix on such
patents or in suits in which the Company attempts to enforce its own patents
against other parties.
Protein Therapeutics
The Company is not aware of any competitive patents covering the use of PTH
alone in bone treatment and believes that its patents will enhance its ability
to market its ALX1-11. Some competitive patents covering various formulations,
PTH production systems and combinations of PTH with other compounds are either
granted or pending.
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Since PTH is a naturally occurring compound, limited patent protection is
available for recombinant or synthetic forms of PTH or PTH fragments. Patent
protection is available for unique PTH compositions and for processes developed
for the production of highly pure PTH. Highly pure ALX1-11, its formulation and
a cost-effective means for its production are covered by United States patents.
Patents are pending for these inventions in other major markets. The Company's
Australian patent for ALX1-11, having been accepted by that patent office, was
the subject of an opposition proceeding in which a third party challenged grant
of the patent. In a subsequent decision received after transfer of the patent
to Astra, grant of certain claims of the patent was refused. The Company is
considering appeal of that decision. The opponent has recently indicated that
it is withdrawing its action if permitted by the Commissioner of Patents. See
"Risk Factors--Patents and Proprietary Technology".
The Company's GLP-2 patent portfolio includes patent applications filed in
the United States and internationally for pharmaceutically useful forms and
applications of GLP-2. In addition, Allelix has filed composition of matter
claims for a number of families of GLP-2 analogs, including ALX-0600 and their
use in a variety of intestine-related applications. Patent applications will be
filed internationally for these inventions. The Company is not aware of any
competitive patents or applications that would interfere with its development
program for ALX-0600.
Neuroscience
In the dopamine receptor field, Allelix has filed for United States patent
protection on five families of lead compounds, and on receptor cell lines
useful to assay other drug compounds. Other patent applications have also been
filed internationally for these inventions. Allelix has licensed certain
relevant patents owned by the Oregon Health Sciences University. The Company is
aware of other patents in the dopamine receptor field but does not believe that
other patents will affect the Company's current activities or product
candidates.
Allelix has patents pending in the United States and other major markets for
numerous inventions relating to the human forms of EAA receptors. The Company
is aware of a patent granted in the U.S. to the Salk Institute which describes
certain non-human receptor types and is aware of a patent that has been granted
to Synaptic Pharmaceutical Corporation on a possible NPY feeding receptor. The
Company does not believe that either of these patents will affect the Company's
current activities.
In the migraine field, the Company, through its relationship with the
Virginia Commonwealth University, has arranged for patent application filings
relating to lead drug compounds. Patent rights for these compounds and all
others arising from research at Virginia are owned by the University and
Allelix has the option to acquire exclusive and worldwide commercialization
rights. While the Company is aware of United States patents and other
applications held by others that cover certain receptor types, the Company does
not believe that these patents impede its on-going activities.
Regulatory Requirements
The Canadian pharmaceutical industry is regulated primarily by the Health
Protection Branch (the "HPB"), a department of the Government of Canada. This
federal agency is similar to the Food and Drug Administration (the "FDA") in
the United States and is responsible for regulating drugs for both human and
animal use, cosmetics, medical devices, radiation emitting devices, foods and
food additives, chemicals and other products affecting human health. A
manufacturer is required to follow specific GMP regulations in the production
of such products.
Regulations imposed by federal and local authorities in Canada and the
United States, as well as their counterparts in other countries, are a
significant factor in the conduct of the research, development, manufacturing
and eventual marketing activities for the Company's proposed products. The
regulatory processes in Canada and the United States follow the same essential
steps, although timing and results may be different.
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Before testing of any agents with potential therapeutic value in healthy
human test subjects or patients may begin in Canada and the United States,
stringent government requirements for pre-clinical data must be satisfied.
These data, obtained from studies in several animal species as well as from
laboratory studies, are submitted in Canada and the United States in an
Investigational New Drug ("IND") application which must be approved prior to
commencement of clinical studies. These pre-clinical data must provide an
adequate basis for evaluating both the safety and the scientific rationale for
the initial (Phase I) trials in human volunteers.
Phase I clinical trials commonly are performed in healthy human subjects or,
in rare cases such as the testing of HIV treatments, in selected patients with
the targeted disease or disorder. The goal of these studies is to establish
initial data about tolerance and safety of the drugs in humans. Also, the first
data regarding the absorption, distribution, metabolism and excretion of the
drug in humans are obtained.
Phase II clinical trials accumulate preliminary evidence about the
pharmacological effects of the drug and the desired therapeutic efficacy in
limited studies with moderate numbers of carefully selected patients with the
target disease or disorder. The goal is to evaluate the effects of various
dosages and to establish an optimal dosage level and dosage schedule.
Additional safety data also are gathered from these studies.
Phase III clinical trials involve expanded, large-scale studies of patients
with the target disease or disorder to obtain definitive statistical evidence
of the efficacy and safety of the product and dosing regimen. These studies may
include investigation of the effects in sub-populations of patients, such as
the elderly.
At the same time that the human clinical program is being performed,
additional animal studies are also conducted. Reproductive safety studies are
required to justify enrolling female subjects in their childbearing years.
Extensive toxicity and carcinogenicity studies lasting as long as 24 months are
undertaken to demonstrate the safety of drug administration for the extended
period of time required for effective therapy. A variety of studies are also
performed to establish manufacturing methods for the drug, as well as stable,
effective dosage forms.
After successful completion of Phase III clinical trials, all data obtained
from this comprehensive development program are submitted as a New Drug
Submission ("NDS") to the HPB in Canada and as a New Drug Application ("NDA")
to the United States FDA, and the corresponding documentation is submitted to
agencies in other countries for review and approval. Essentially, all proposed
products of the Company will be subject to demanding and time-consuming NDS/NDA
and facility approval procedures in most countries where marketing of the
product is intended. The regulations governing these procedures not only define
the form and content of the development of safety and efficacy data regarding
the proposed product, but also impose specific requirements regarding
manufacture of the product, quality assurance, packaging, storage,
documentation and record keeping, labelling, advertising and marketing
procedures.
To obtain approval, an applicant must submit, as relevant for the particular
product, proof of safety, purity, potency and efficacy. In most cases, such
proof entails extensive pre-clinical testing, clinical testing and laboratory
tests. The testing, preparation of necessary applications and processing of
those applications is expensive and time-consuming and may take several years
to complete. With respect to patented products or technologies, delays imposed
by the government approval process may reduce materially the period during
which the Company will have the exclusive right to exploit these products or
technologies because patent protection lasts for a limited time only, beginning
on the date the patent is first granted in the case of United States patent
applications and on the date the patent application is first filed in the case
of patent applications filed in the European Economic Community and Canada. The
Company seeks to maximize the useful life of its patents under the Patent Term
Restoration Act of 1984 in the United States and under similar laws, if
available, in other countries.
Among the requirements for product approval is the requirement that
prospective manufacturers conform to the FDA's and HPB's current GMP standards
which, thereafter, must be followed at all times. In complying with GMP
standards, manufacturers must continue to expend time, money and effort in
production, record
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keeping and quality control. Continued compliance with all requirements of the
applicable legislation and the conditions in an approved application, including
but not limited to product specification, manufacturing process, labelling,
promotional material, and record keeping and reporting requirements, is
necessary for all products. Failure to comply, or the occurrence of
unanticipated, adverse effects during commercial marketing, could lead to the
need for product recall, or regulator-initiated action such as the suspension
of manufacturing or seizure of the product, which could delay further marketing
until the products are brought into compliance. The regulator may also request
a voluntary recall of a product.
The process of obtaining regulatory approvals for clinical trials or for the
manufacturing or marketing of the Company's potential products is costly, time-
consuming and subject to unanticipated delays. The approval process varies from
country to country and approval for sale in one country may facilitate, but
does not ensure, approvals in other countries. Delays in obtaining regulatory
approvals by the Company or its collaborators would adversely affect the
development, testing and marketing of the Company's products. There can be no
assurance that any product candidates will prove to be safe and effective in
clinical trials or that the Company will obtain regulatory approvals for its
products in a timely manner, or at all. Even if regulatory approval of a
potential product is obtained, such approval may entail limitations on the
indicated use for which such product may be marketed and these limitations may
restrict the patient population for which such product may be prescribed. Later
discovery of previously unknown defects or failure to comply with applicable
regulatory requirements may result in restrictions on marketing or withdrawal
from the market, as well as possible civil or criminal sanctions. See "Risk
Factors--Government Regulation; No Assurance of Regulatory Approval".
Manufacturing
The Company currently produces material at its premises for pre-clinical
testing. In addition, other material is obtained from contract production
firms. For certain pre-clinical tests and clinical trials, material must be
manufactured under GMP. As the Company does not presently meet GMP
requirements, materials for pre-clinical testing and clinical trials are
obtained through contracts with contract production firms. For example, in the
protein therapeutics area, Allelix has developed and implemented a production
process for recombinant therapeutic proteins such as ALX1-11. Allelix has
developed a proprietary production process whereby ALX1-11 is produced by
fermentation in accordance with GMP. Clinical grade ALX1-11 was produced by
Chiron in accordance with the production specifications developed by Allelix.
The Company is currently reviewing alternatives to meet current and planned
manufacturing needs for ALX1-11 including, for example, the possible
acquisition, leasing or participation in the construction of a GMP facility.
The decision to proceed with these or any other such alternatives will be
determined through a cost-benefit analysis of constructing a GMP facility,
compared to contract manufacture and with due consideration for competitive
implications.
Employees
As of December 31, 1998, Allelix had 168 full time employees. Approximately
132 individuals are employed in the research and development activities of the
Company, with 52 holding Ph.D. degrees. As a group, these employees represent
skills in molecular biology, receptor technology, biochemical pharmacology,
synthetic organic chemistry, computational chemistry and manufacturing process
development. Approximately 36 of Allelix's employees are involved in managerial
and administrative functions at the Company's offices in Mississauga, Ontario
and Cranbury, New Jersey.
Premises
The Company's main facilities are located at 6850 Goreway Drive, in
Mississauga, Ontario. The Company leases a 9,000 square metre (90,000 square
foot) building custom built as a biotechnology research and development
facility. The facility includes offices, biology and chemical research
laboratories and fermentation operations. The Company's subsidiary leases 1,700
square metres (17,000 square feet) of research laboratories and office space in
Cranbury, New Jersey.
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Risk Factors
Early Stage of Product Development; Technological Uncertainty
The Company currently has no commercial products and all of its product
candidates are in research, development or clinical trials. As such, the
Company cannot predict when or if any of its product candidates under
development will be commercialized. Products, if any, resulting from the
Company's research and development programs are not expected to be commercially
available for a number of years, if at all, even if they are successfully
developed and proven safe and effective. The Company has a limited relevant
operating history upon which an evaluation of its prospects can be made. Such
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered in establishing a business in the evolving, heavily
regulated pharmaceutical industry, which is characterized by an increasing
number of market entrants, intense competition and a high failure rate. In
addition, significant challenges are often encountered in shifting from
development to commercialization of new products.
The Company has devoted substantial efforts to the development of ALX1-11,
for the treatment of osteoporosis. Product candidates that appear to be
promising at early stages of development may not reach the market for a number
of reasons. There can be no assurance that ALX1-11 will receive the necessary
regulatory approvals, prove to be safe and effective, be capable of being
produced in commercial quantities at acceptable cost, be protected from the
proprietary rights of third parties or be successfully marketed by the Company
or a partner. The failure of ALX1-11 to achieve any of the foregoing would have
a material adverse effect on the Company's business, financial condition and
results of operations.
History of Net Losses and Uncertainty of Future Operating Results
To date, the Company has not generated sufficient revenues to offset its
research and development costs and accordingly, has not made an operating
profit. The Company's accumulated deficit as at August 31, 1998 was
$83,745,000. During the year ended 1998, the Company incurred a net loss of
$21,764,000 and for the fiscal years ended 1997, 1996 and 1995, the net losses
were: $15,953,000, $6,779,000 and 12,759,000, respectively. See "Selected
Consolidated Information". While Allelix has historically benefited from the
inclusion of government grants and funds for research collaboration projects in
its annual revenue, there can be no assurance that either government grants or
research collaboration payments will continue to be available to the Company
or, if so, at what levels. There can be no assurance that the Company will ever
achieve significant revenues or profitable operations. The Company expects to
incur additional operating losses over the next few years as the Company's
research and development efforts and pre-clinical testing are expanded and
clinical trials are continued. The Company's ability to achieve profitability
depends on its ability, alone or with others, to select successfully
therapeutic compounds for development, to obtain the required regulatory
consents and to manufacture and market any resulting products.
Liquidity and Capital Needs
Although the Company's future capital requirements will depend on many
factors, including continued scientific progress in its drug discovery and
development programs, progress in its pre-clinical testing and clinical trials
of product candidates, time and expense associated with filing, prosecuting and
enforcing its patent claims, and costs associated with obtaining regulatory
approvals, the Company anticipates needing additional capital to meet its
business plan. In order to meet such capital requirements, the Company will
consider contract fees, collaborative research and development agreements, and
additional public or private financing (including the issuance of additional
equity securities). There can be no assurance that additional funding will be
available or, if available, that it will be available on terms acceptable to
the Company. If adequate funds are not available, the Company may have to
reduce substantially or eliminate expenditures for research and development,
testing, production and marketing of its product candidates, or obtain funds
through further agreements with corporate partners that require the Company to
relinquish rights to certain of its technologies or products. There can be no
assurance that the Company will be able to raise additional capital if its
capital resources are exhausted.
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Generally, the Company's funding pursuant to any particular collaborative
research agreement is subject to reduction or termination under various
circumstances. There can be no assurance that scheduled payments will be made
by third parties, that current agreements will not be cancelled, that
government research grants will continue to be received at current levels or
that unanticipated events requiring the expenditure of funds will not occur.
There can be no assurance that the Company's cash reserves and other liquid
assets, including funding that may be received from the Company's collaborative
partners and interest income earned thereon, will be adequate to satisfy its
capital and operating requirements for the foreseeable future.
Dependence on Strategic Alliances
The Company has collaborative agreements and/or joint ventures with certain
established pharmaceutical companies for the development, regulatory approval
and marketing of certain of its product candidates. The Company has granted to
its collaborative and/or joint venture partners rights to license and
commercialize the products developed under these agreements and, in some
instances, proprietary rights, and such rights will limit the Company's
flexibility in considering alternatives for the commercialization of such
product candidates. Under its agreements, the Company is relying on its
collaborative and/or joint venture partners to assist or conduct research
efforts, pre-clinical testing and clinical trials, to assist in obtaining
regulatory approvals and to market certain of the Company's product candidates.
Although the Company believes that its collaborative and/or joint venture
partners will have an economic motivation to commercialize the product
candidates which they may licence, the amount and timing of resources devoted
to these activities will be largely controlled by each partner. There can be no
assurance that the strategic partners will continue to perform their
obligations under these agreements, that they will be successful in their
clinical trials or in receiving the necessary regulatory approvals for the
products or that they will be successful in marketing and distributing the
products if regulatory approvals are received. The failure of the strategic
partners to perform any such obligations or to be successful in marketing and
distributing the products, if any, would have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
there can be no assurance that business conflicts will not arise between the
strategic partners or between the Company and the strategic partners. In
addition, each of Allelix's collaborative and/or joint venture agreements
contain termination provisions in favour of the Company's strategic partner. If
any of the Company's collaborative partners terminates or breaches its
agreement with the Company, or fails to devote the necessary resources to the
project, the project subject to the agreement would be materially adversely
affected, and such actions would have a material adverse effect on the
Company's business, financial condition and results of operation.
Generally, in its collaborative agreements, the Company agrees not to
conduct independently, or with any third party, any research that competes with
the research conducted under its collaborative programs. The Company's
collaborative relationships may limit the areas of research the Company may
pursue. However, the Company's collaborative partners may develop, either alone
or with others, products that are similar to or competitive with the product
candidates that are the subject of the Company's collaborations with such
partners. Competing products, either developed by the collaborative partners or
to which the collaborative partners have rights, may result in the withdrawal
of such partners' support for the Company's product candidates. This outcome
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's strategy for the discovery, pre-clinical testing, clinical
trials, manufacturing and marketing of certain of its product candidates
includes establishing additional collaborations. There can be no assurance that
the Company will be able to negotiate such collaborative agreements on
acceptable terms, if at all, or that such collaborations will be successful.
See "Collaboration Agreements".
Patents and Proprietary Technology
The Company's success will depend, in part, on its ability to obtain
patents, maintain trade secret protection and operate without infringing the
proprietary rights of third parties, both in the United States and in
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other countries. The failure of the Company or its licensors to obtain and
maintain patent protection for the Company's technology could have a material
adverse effect on the Company. The Company has been issued a number of patents
in the United States and has filed numerous applications for patents in the
United States and other jurisdictions. The patent positions of pharmaceutical
and biotechnology firms, including the Company, are uncertain and involve
complex legal and factual questions for which important legal principles are
largely unresolved, particularly in regard to methods for treating or
preventing human diseases. Substantial periods of time pass before the United
States Patent & Trademark Office ("USPTO") responds on the merits to patent
applications and submissions on behalf of the inventors. In addition, the
coverage originally claimed in a patent application can be significantly
reduced or modified before and after a patent is issued. There can be no
assurance that the Company's outstanding patent applications will be allowed,
that the Company will develop additional proprietary products that are
patentable, that issued patents will provide the Company with any competitive
advantages or will not be challenged by any third parties, or that the patents
of others will not have an adverse effect on the ability of the Company to do
business. Patent applications in the United States are maintained in secrecy
until patents are issued, and patent applications in certain other countries
generally are not published until more than 18 months after they are filed. In
addition, publication of scientific or patent literature often lags behind
actual discoveries. As a result, the Company cannot be certain that it or any
of its licensors was the first to invent the subject matter covered by the
Company's or its licensors' pending patent applications or that the Company or
its licensors were the first to file such applications. In addition, the
Company may be required to obtain licences under patents or other proprietary
rights of third parties. No assurance can be given that any licences required
under any such patents or proprietary rights will be available on terms
acceptable to the Company. If Allelix does not obtain such licences, it or its
collaborators could encounter delays in introducing products to the market
while it attempts to design around such patents or proprietary rights, or could
find that the development, manufacture or sale of products requiring such
licences could be foreclosed. In addition, the Company could incur substantial
costs in defending itself in suits brought against Allelix on such patents or
in suits in which the Company attempts to enforce its own patents against other
parties.
There can be no assurance that the Company's or licensors' patents, if
issued, would not be found invalid or unenforceable by a court or that such
patents would not cover products or technologies of the Company's competitors.
Competitors or potential competitors may have filed applications or received
patents, and may obtain additional patents and proprietary rights relating to
products or methods for treating or preventing human disease that are
competitive with those of the Company. To protect its proprietary rights, the
Company may be required to participate in interference proceedings declared by
the USPTO to determine priority of invention, which could result in substantial
cost to the Company. Moreover, even if the Company's or licensors' patents
issue, there can be no assurance that such patents will provide sufficient
proprietary protection or will not be later limited, circumvented or
invalidated.
There is substantial uncertainty whether human clinical data will be
required for the issuance of patents for methods of treating or preventing
human disease. If such data are required, the Company's ability to obtain
patent protection could be delayed or otherwise adversely affected. Although
the USPTO issued new utility guidelines in July 1995 that address the
requirements for demonstrating utility for biotechnology inventions, including
inventions relating to methods for treating or preventing human diseases, there
can be no assurance that USPTO patent examiners will follow such guidelines or
that the USPTO's position will not change with respect to what is required to
establish utility for future potential products of the Company in the treatment
of human diseases. Nor can it be assured that compliance with such guidelines
will result in patents that are valid and enforceable. Furthermore, the
enactment of legislation implementing the General Agreement on Trade and
Tariffs has resulted in certain changes to United States patent laws that
became effective on June 8, 1995. Most notably, the term of patents that issue
from patent applications filed on or after June 8, 1995 is no longer a period
of 17 years from the date of grant. The new term of United States patents will
commence on the date of issuance and terminate 20 years from the earliest
claimed filing date of the application. Because the time from filing to
issuance of biotechnology patent applications is often more than three years, a
20-year term from the claimed date of filing may result in a substantially
shortened term of patent protection, which may adversely
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impact the Company's patent position. In addition, if this change results in a
shorter period of patent coverage, and if the Company negotiates royalties
based on the existence of valid patents, there could be an adverse effect on
the Company's business, financial condition and results of operation.
The Company is currently involved in an opposition proceeding in Australia
relating to ALX1-11 in which certain claims of the grant of one of its
Australian patents have been challenged. The Company understands that a
decision against grant of the patent has been received. The Company is
considering an appeal of that decision. The opponent has recently indicated
that it is withdrawing its action if permitted by the Commissioner of Patents.
This patent has been issued in the United States and Japan.
The Company also relies upon unpatented proprietary technology. The Company
relies on proprietary know-how and confidential information and employs various
methods, such as entering into confidentiality and non-competition agreements
with its current employees and with third parties to whom it divulges
proprietary information, to protect the processes, concepts, ideas and
documentation associated with its technologies. Such methods may afford
incomplete protection, and there can be no assurance that the Company will be
able to protect adequately its trade secrets or that other companies will not
acquire or independently develop information that the Company considers to be
proprietary. The inability to maintain its trade secrets for its exclusive use
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Patents and Trade Secrets".
Government Regulation; No Assurance of Regulatory Approval
Prior to marketing by a collaborative partner, any new drug compound
discovered by the Company must undergo an extensive regulatory process in
Canada, the United States and other countries. The process of obtaining
regulatory approvals for clinical trials or for the manufacturing or marketing
of the Company's product candidates is costly, time-consuming and subject to
unanticipated delays. Prior to marketing in the United States, a product
candidate must undergo extensive pre-clinical testing and clinical trials to
satisfy the FDA that the product candidate is safe and efficacious in each
clinical indication (the specific condition intended to be treated), dosage,
dose schedule and route of administration for which approval for use is sought.
In addition, approval by analogous regulatory authorities in other countries
must be obtained prior to commencing marketing of pharmaceutical products in
those countries. Data obtained from pre-clinical testing and clinical trials
are susceptible to varying interpretations that could delay, limit or prevent
regulatory approval. In addition, delays or rejections may be encountered based
upon changes in FDA policies for drug approval during the period of product
development and FDA regulatory review of each submitted new drug application.
The approval process varies from country to country and approval for sale in
one country may facilitate, but does not ensure, approval in other countries.
Delays in obtaining regulatory approvals would adversely affect the
development, testing and marketing of the Company's product candidates. There
can be no assurance that any product candidates will prove to be safe and
effective in clinical trials or that the Company or its collaborators will
obtain regulatory approvals for its product candidates in a timely manner, or
at all. Even if regulatory approval of a product candidate is obtained, such
approval may entail limitations on the indicated uses for which such product
candidate may be marketed and these limitations may restrict the patient
population for which such product may be prescribed. Later discovery of
previously unknown defects or failure to comply with applicable regulatory
requirements may result in restrictions on marketing or withdrawal from the
market, as well as possible civil or criminal sanctions.
To commercialize any product and prior to submitting the application for
marketing approval in the United States, the Company must sponsor and file an
IND for each proposed product candidate and must be responsible for initiating
and overseeing the clinical trials to demonstrate the safety and efficacy that
are necessary to obtain FDA approval of such product candidate. None of the
Company's product candidates has been approved for commercialization in Canada,
the United States or elsewhere. After completion of clinical trials of a
product candidate, marketing approval must be obtained from the FDA before
marketing can occur in the United States. At that time, the Company or its
collaborators must submit relevant data, including the
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results of product candidate development activities, pre-clinical testing and
clinical trials, in addition to detailed manufacturing information.
Notwithstanding the submission of relevant data, the FDA may withhold marketing
approval and may require additional clinical trials. All manufacturing
operations are also subject to the FDA's current GMP requirements on an ongoing
basis. There can be no assurance that the Company or its collaborators will be
able to attain or maintain compliance with GMP requirements. The Company is
subject to similar regulation by governmental authorities in other
jurisdictions, including Canada. Failure to obtain regulatory approvals for its
product candidates or to either attain or maintain compliance with GMP
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Regulatory Requirements".
Intense Competition; Rapid Technological Change
The Company competes with numerous entities that develop and produce
products aimed at treating similar conditions to those treated by the Company,
including early-stage companies, established pharmaceutical companies,
universities, research institutions, governmental agencies and health care
providers. In addition, the Company's product candidates will be required to
compete with existing pharmaceutical products, or products developed in the
future, that are based on established technologies. The Company is subject to
significant competition from industry participants who are pursuing the same or
similar technologies as those which constitute the Company's technology
platform and from organizations that are pursuing pharmaceutical products or
therapies, or diagnostic products that are competitive with the Company's
product candidates. Many of the Company's competitors have substantially more
financial and other resources, larger research and development staffs, and more
experience and capabilities in researching, developing and testing products in
clinical trials, in obtaining FDA and other regulatory approvals, and in
manufacturing, marketing and distribution than the Company. The Company's
competitors may succeed in developing, obtaining patent protection for,
receiving FDA and other regulatory approvals for, or commercializing products
more rapidly than the Company.
The Company is aware of certain pharmaceutical companies that are pursuing
research and development for pharmaceutical products that are aimed at treating
conditions similar to those targeted by the Company's product candidates. In
particular, Merck has introduced the drug Fosamax for the treatment of
osteoporosis in postmenopausal women. If Fosamax enjoys wide clinical
acceptance, the Company's business, financial condition and results of
operations could be materially or adversely affected. The Company is aware of
at least two companies that are engaged in clinical trials of PTH for
osteoporosis. The Company has no way of knowing the extent or progress of such
trials. If any such trial were to result in regulatory approval to market a
competing PTH prior to the Company receiving approval to market ALX1-11, the
marketing of ALX1-11 would be more difficult and the Company's business,
financial condition and results of operations could be materially adversely
affected. Moreover, even without such approval, the announcement of clinical
trials of PTH by a significant competitor could result in a decrease in the
market price of the Company's common shares. In addition, Synaptic
Pharmaceutical Corporation is currently conducting a drug discovery program
with Ciba-Geigy Limited on the NPY family of receptors to identify and develop
NPY receptor subtype-specific drugs for the treatment of obesity. Should
competitors of the Company receive the necessary approval for commercial
marketing of a product and receive market acceptance for such product, there
could be a material adverse effect on the Company's business, financial
condition and results of operations. The Company also competes with others in
acquiring products from research institutions and universities. The Company's
competitors may develop new technologies and products that are available for
sale prior to the Company's product candidates or that are more effective than
the Company's product candidates are. In addition, competitive products may be
manufactured and marketed more successfully than the Company's product
candidates. Such developments could render the Company's product candidates
less competitive or obsolete, and could have a material adverse effect on the
Company's business, financial condition and results of operations.
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The Company will, for the foreseeable future, rely on its collaborative
partners for Phase III clinical trials of its product candidates and
manufacturing and marketing of any products. In addition, the Company relies
on its collaborative partners for support in its drug discovery operations. It
is likely that all of the pharmaceutical companies with which the Company has
collaborations are conducting multiple product development efforts within each
disease area. Generally, the Company's collaborative research agreements do
not restrict a party from pursuing competing internal development efforts
based on reasonable commercial judgement and other factors. Any product
candidate of the Company, therefore, may be in competition with a product
candidate of the pharmaceutical company with which the Company is
collaborating.
Biotechnology and related pharmaceutical technology have undergone rapid
and significant change. The Company expects the technology associated with the
Company's future success to depend, in large part, on its ability to maintain
a competitive position with respect to this technology. Rapid technological
development by the Company or others may result in its product candidates or
processes becoming obsolete before the Company recovers any expenses it incurs
in connection with developing such products or processes. See "Competition".
No Assurance of Market Acceptance; Uncertainties Related to Pharmaceutical
Pricing and Reimbursement
There can be no assurance that products, if any, successfully developed by
the Company, if approved for marketing, will achieve market acceptance. The
product candidates that the Company is attempting to develop will compete with
a number of drugs and therapies marketed and manufactured by pharmaceutical
companies, as well as products currently under development by such companies
and others. The degree of market acceptance of products developed by the
Company, if any, will depend on a number of factors, including the
establishment and demonstration in the medical community of the clinical
efficacy and safety of the Company's products, their potential advantage over
alternative treatment methods and the reimbursement policies of government and
third party payors. There is no assurance that physicians, patients or the
medical community in general will accept and utilize any products that may be
developed by the Company.
Sales of the Company's approved products, if any, will depend on the
availability of reimbursement from third party payors such as governmental
health administration authorities, private health insurers, health maintenance
organizations, pharmacy benefit management companies and other organizations.
Both federal and state governments in the United States and foreign
governments continue to propose and pass legislation designed to contain or
reduce the cost of health care through various means. Legislation and
regulations affecting the pricing of pharmaceuticals and other medical
products may change or be adopted before any of the Company's potential
products is approved for marketing. Cost control initiatives could decrease
the price that the Company or its collaborators receive for a product and
could have a material adverse effect on the Company's business, financial
condition or results of operations. Further, to the extent that cost control
initiatives have a material adverse effect on the Company's collaborative
partners, the ability to commercialize products developed through the
collaboration and accordingly, the Company's ability to receive royalty
payments based on the sale of such products may be adversely affected. In
addition, third party payors increasingly are challenging the price and cost-
effectiveness of medical products and services. Significant uncertainty exists
as to the reimbursement status of newly approved health care products,
including pharmaceuticals. Government and other third party payors
increasingly are attempting to contain health care costs by limiting both
coverage and reimbursement for uses of approved products for disease
indications for which the FDA has not granted labelling approval. If adequate
coverage and reimbursement levels are not provided by government and other
third party payors for the Company's products, the market acceptance of these
products will be adversely affected which would have a material adverse effect
on the Company's business, financial condition and results of operations.
No Manufacturing Capacity; Reliance on Third Party Manufacturing
The Company currently does not have facilities for the manufacture of
product candidates for clinical trials or commercial purposes, and has been,
and expects to remain, dependent on its collaborative partners or
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third parties for the manufacture of product candidates for pre-clinical
testing, clinical trials and commercial purposes. There can be no assurance
that the Company will be able to enter into any necessary third party
manufacturing agreements on acceptable terms, if at all.
The manufacture of the Company's product candidates for clinical trials and
the manufacture of resulting products for commercial purposes are subject to
regulations promulgated by the FDA. The Company currently relies on and may
continue to rely on collaborative partners or outside contractors to
manufacture its products in GMP facilities. The Company's products, if any, may
be in competition with other products for priority of access to these
facilities. There can be no assurance that the Company's collaborative partners
or third party manufacturers will manufacture such products in an effective or
timely manner. If not performed in a timely manner, the clinical trials of the
Company's product candidates or such product candidates' submissions for
regulatory approval could be delayed and the Company's ability to deliver
products on a timely basis could be impaired or precluded. The Company's
current dependence upon others for the manufacture of its products may affect
adversely its ability to commercialize approved products, if any, on a timely
and competitive basis.
Dependence on Key Employees and Scientific Collaborators
The Company is highly dependent on the principal members of its management
and scientific staff as well as its advisors and scientific collaborators, the
loss of whose services might impede the achievement of development objectives.
There can be no assurance that the Company will be successful in retaining its
existing personnel or advisors, or in attracting additional qualified
employees. The failure to attract and retain such personnel or the loss of
existing personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's ability
to develop product candidates will depend, to a great extent, on its ability to
attract and retain highly qualified scientific personnel and to develop and
maintain existing relationships with leading research institutions. Competition
among biotechnology and pharmaceutical companies for such personnel and
relationships is intense.
The Company also depends on the continued availability of outside scientific
collaborators who perform research, which may be funded by the Company, in
certain areas relevant to the Company's research. There can be no assurance
that the Company will be able to negotiate such collaborative agreements on
acceptable terms, if at all, or that such collaborations will be successful.
The Company's scientific collaborators are not employees of the Company and
generally may terminate their relationship with the Company at any time. In
addition, certain of the Company's scientific collaborators have consulting or
advisory relationships with other entities that may conflict with their
obligations to the Company. As a result, the Company has limited control over
their activities and can expect that only limited amounts of their time will be
dedicated to Company activities. For these reasons, there can be no assurance
that inventions or processes developed by the Company's scientific
collaborators will become the property of the Company. Although certain of the
Company's scientific collaborators have agreed not to engage in activities that
would involve a conflict of interest with the Company, there can be no
assurance that such conflicts of interest will not occur.
Product Liability and Insurance
The sale and use of product candidates under development by the Company and
its collaborative partners may entail risk of product liability. The Company
has obtained product liability insurance in the amount of $20 million for its
product candidates in clinical trials; however, there is no way to determine
the adequacy of such insurance coverage. In addition, as the Company expands,
there can be no assurances that it will be able to obtain appropriate levels of
product liability insurance prior to any use of the product candidates
discovered and developed by the Company and its collaborative partners in
clinical trials or offered for commercial sale. An inability to obtain
insurance on commercially reasonable terms or otherwise to protect against
potential product liability claims could inhibit or prevent the
commercialization of such products or expose the Company to significant product
liability risks following commercialization. The obligation to pay any product
liability claim or a recall of a product could have a material adverse effect
on the Company's business, financial condition and results of operations.
J-22
<PAGE>
Hazardous Material; Environmental Matters
The Company's research and development activities involve the controlled use
of hazardous materials, chemicals, biological materials and radioactive
compounds. The Company is subject to federal, provincial, state and local laws
and regulations governing the use, manufacture, storage, handling and disposal
of such materials and certain waste products. Although the Company believes
that its safety procedures for handling and disposing of such materials comply
with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any resulting damages and any such liability could exceed the Company's
resources. There can be no assurance that the Company will not be required to
incur significant costs to comply with environmental laws and regulations in
the future.
Volatility of Share Price; Absence of Dividends
Since its initial public offering in Canada in 1991, the market price of the
Company's common shares on The Toronto Stock Exchange has fluctuated
significantly. During that time, the stock market has also fluctuated
significantly in terms of price and volume. Stock market fluctuations are often
unrelated to the operating performance of particular companies. In addition,
market prices for securities of biotechnology companies generally are subject
to wide fluctuations in response to factors such as: announcements (through
news media or at scientific conferences) of technological innovations, new
commercial products and patents; the development of proprietary rights by the
Company or its competitors, results of clinical trials and regulatory actions;
actual or anticipated variations in the Company's operating results due to a
number of factors including, among others, the level of development expenses,
changes in financial estimates by securities analysts, and conditions and
trends in pharmaceutical, biotechnology and other industries; the adoption of
new accounting standards affecting the industry; general market conditions; and
other factors. As a result, it is possible that the Company's operating results
will be below the expectations of market analysts and investors, which likely
would have an adverse effect on the prevailing market price of the Company's
common shares. The prevailing market price of the Company's common shares may
also be adversely affected by public concern over the safety of biotechnology
and future sales of the Company's common shares by current shareholders.
The Company has never paid cash dividends on its common shares and does not
anticipate paying cash dividends in the foreseeable future.
Currency Risk
A significant amount of the Company's revenues are received and expenses are
incurred in U.S. dollars while the Company reports its financial results in
Canadian dollars. Accordingly, large fluctuations in the exchange rate between
the Canadian dollar and the U.S. dollar could have a material effect on the
Company's reported results. The exchange rate between the Canadian and U.S.
dollars has varied substantially during the last three years. To date, the
Company has not engaged in exchange rate hedging activities.
Selected Consolidated Financial Information
Revenues for the first quarter of 1998 ended November 30, 1997 include a
milestone payment and the reimbursement of certain Phase II clinical trial
costs by Astra AB totalling $17.1 million. Revenues for the first quarter of
1997 include a progress payment of $2.7 million from Astra. Revenues in the
third and fourth quarters of 1998 were lower than previous quarters as a result
of the elimination of research support payments from Hoechst Marion Roussel on
January 1, 1998.
Expenses and net loss (excluding the impact of the payments from Astra)
increased in the fourth quarter of 1997 as a result of the acquisition of
Allelix Neuroscience Inc. and the resulting increase in amortization expense of
$3.0 million per quarter.
J-23
<PAGE>
<TABLE>
<CAPTION>
Years ended August 31 1998 1997 1996 1995 1994
- - --------------------- ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Total revenues ($000s).................. 29,915 17,468 19,953 10,004 5,819
Net loss for the year ($000s)........... 21,764 15,953 6,779 12,760 10,818
Loss per share ($)...................... 1.21 1.11 0.57 1.20 1.29
Total assets ($000s).................... 77,628 95,764 47,601 30,483 31,387
<CAPTION>
Fiscal 1998 Q1 Q2 Q3 Q4
- - ----------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Total revenues ($000s)......................... 20,759 3,608 2,745 2,803
Net income (loss) for the quarter ($000s)...... 8,393 (8,609) (10,869) (10,679)
Net income (loss) per share ($)................ 0.47 (0.48) (0.60) (0.59)
<CAPTION>
Fiscal 1997
- - -----------
<S> <C> <C> <C> <C> <C>
Total revenues ($000s)......................... 6,366 3,503 3,676 3,923
Loss for the quarter ($000s)................... 955 4,765 3,381 6,852
Loss per share ($)............................. 0.07 0.36 0.22 0.43
</TABLE>
Dividend Record and Policy
Allelix has not declared or paid any dividends in the past five years nor
does it intend to pay dividends on the common or preferred shares in the
foreseeable future. The Company currently intends to retain any earnings to
finance the growth of the Company's business and to expand its research and
product development activities. Any future declaration and payment of dividends
will be in the discretion of the Company's Board of Directors and subject to
applicable law and will depend upon the Company's result of operations,
financial condition, contractual limitations, cash requirements, future
prospects and other matters deemed relevant by the Board of Directors.
Management's Discussion and Analysis of Operating Results
Reference is made to Management's Discussion and Analysis of Operating
Results ("MD&A") which accompanies the Company's financial statements contained
in the Annual Report which MD&A is hereby incorporated by reference.
Market for Securities
The common shares of Allelix are publicly traded on the Montreal and The
Toronto stock exchanges under the trading symbol AXB.
Directors and Officers
<TABLE>
<CAPTION>
Director/Officer
Name/Residence Position Principal Occupation Since
-------------- ---------------- ------------------------ ----------------
<C> <C> <S> <C>
Digby Barrios(2)...... Director Pharmaceutical Industry 1993
Ridgefield, Consultant since 1992,
Connecticut prior thereto,
President, Boehringer
Ingelheim Corporation (a
pharmaceutical company)
George E. President Emeritus, 1995
Connell(1)(2)........ Director University of Toronto
Toronto, Ontario
William Crouse........ Director Managing Director, 1997
Princeton, NJ HealthCare Ventures
L.L.C.
John R. Evans, Chairman of Allelix 1983
M.D.(1).............. Director
Toronto, Ontario
</TABLE>
J-24
<PAGE>
<TABLE>
<CAPTION>
Director/Officer
Name/Residence Position Principal Occupation Since
-------------- ---------------- ------------------------ ----------------
<C> <C> <S> <C>
Irving S. Johnson, Biomedical Research 1992
Ph.D................. Director Consultant since 1988,
Sanibel Island, prior thereto, Vice
Florida President, Research, Eli
Lilly & Co., ( a
pharmaceutical company)
Edward Rygiel(1)(2)... Director President & Chief 1989
Toronto, Ontario Executive Officer, MDS
Capital Corp., (a
venture capital
corporation)
Nelson Sims(1)........ Director President, Eli Lilly 1995
Toronto, Ontario Canada Inc.
Graham Strachan....... Director, President and Chief 1989
Toronto, Ontario President and Executive Officer of
Chief Executive Allelix
Officer
John Dietrich, Ph.D... Senior Vice Vice President, Research 1991
Toronto, Ontario President, and Development of
Research and Allelix; prior thereto,
Development Vice President,
Research, Chemex
Pharmaceuticals Inc.
James Howard-Tripp.... Senior Vice Vice President, Business 1996
Burlington, Ontario President, Development, prior
Business thereto, Vice President,
Development Business Development,
Wyeth-Ayerst.
Paul J. Van Damme..... Vice President, Prior to Allelix, Vice 1997
Toronto, Ontario Finance, Chief President, Finance and
Financial Chief Financial Officer,
Officer and GlycoDesign Inc.
Corporate
Secretary
</TABLE>
- - --------
(1) Member of Compensation Committee
(2) Member of Audit Committee Directors and officers of the Company controlled
either directly or indirectly approximately 4.5% of the outstanding common
shares of the Company as at fiscal 1998 year-end. In addition, HealthCare
Ventures L.L.C., of which Mr. Crouse is a senior officer, owned 1,432,611
of Allelix's shares, MDS Capital Corp., of which Mr. Rygiel is a senior
officer, owned 200,194, and Eli Lilly Canada Inc., of which Mr. Sims is a
senior officer, owned 333,334.
Additional Information
Upon request being made by any person to the Corporate Secretary of the
Company, the Company shall provide to that person the following:
(a) when the securities of the Company are in the course of a
distribution pursuant to a short form prospectus or a preliminary short
form prospectus has been filed in respect of the distribution of its
securities,
(i) one copy of this Annual Information Form, together with one copy
of any document or the pertinent pages of any document incorporated by
reference therein;
(ii) one copy of the Company's comparative consolidated financial
statements for its most recently completed financial year, together
with the accompanying report of the auditor, and one copy of any
interim consolidated financial statements of the Company subsequent to
the consolidated financial statements for the most recently completed
financial year;
J-25
<PAGE>
(iii) one copy of the Management Proxy Circular of the Company in
respect of its most recent annual meeting of shareholders that involved
the election of directors; and
(iv) one copy of any other documents that are incorporated by
reference into the preliminary short form prospectus or the short form
prospectus and are not required to be provided under (i) to (iii)
above; or
(b) at any other time, one copy of any other documents referred to in
(a) (i), (ii) and (iii) above. The Company may require the payment of a
reasonable charge if a person who is not a security holder of the Company
makes the request.
Additional information, including directors and officers remuneration and
indebtedness, principal holders of the Company's securities, options to
purchase securities and interests of insiders in material transactions, where
applicable, is contained in the Company's Management Proxy Circular for its
annual meeting of shareholders which is to take place on January 14, 1999.
Additional financial information is provided in the Consolidated Financial
Statements for its most recently completed financial year. Copies of the
Management Proxy Circular, Consolidated Financial Statements and the Annual
Report may be obtained upon request from the Corporate Secretary, Allelix
Biopharmaceuticals Inc., 6850 Goreway Drive, Mississauga, Ontario, L4V 1V7.
(telephone: (905) 677-0831; facsimile: (905) 677-9595)
January 14, 1999
J-26
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
ALLELIX BIOPHARMACEUTICALS INC.
August 31, 1999
K-1
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Allelix Biopharmaceuticals Inc.
We have audited the consolidated balance sheets of Allelix
Biopharmaceuticals Inc. as at August 31, 1999 and 1998 and the consolidated
statements of loss and deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at August 31,
1999 and 1998 and the results of its operations and its cash flows for the
years then ended in accordance with generally accepted accounting principles in
Canada.
Chartered Accountants
Toronto, Canada,
October 15, 1999.
K-2
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
CONSOLIDATED BALANCE SHEETS
[expressed in thousands of Canadian dollars]
<TABLE>
<CAPTION>
As at August 31
-----------------
1999 1998
$ $
-------- -------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents [note 3]......................... 3,952 5,365
Marketable securities [note 3]............................. 20,836 32,832
Accounts and grants receivable............................. 461 1,986
Due from related parties [note 14]......................... 59 9
Other current assets [note 6].............................. 2,287 3,201
-------- -------
Total current assets....................................... 27,595 43,393
-------- -------
Restricted funds [notes 3 and 4]........................... 1,130 1,130
Research and development acquired, net of accumulated
amortization of $29,756 [1998--$15,093] [note 8].......... 14,741 27,291
Capital assets, net [note 7]............................... 6,743 3,849
Long-term investments [note 8]............................. 216 1,120
Other assets............................................... 114 845
-------- -------
50,539 77,628
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities................... 6,569 6,553
Due to related parties [note 14]........................... 252 517
Deferred revenue and other................................. 662 15
Current portion of capital lease obligations [note 9]...... 569 831
-------- -------
Total current liabilities.................................. 8,052 7,916
-------- -------
Capital lease obligations [note 9]......................... 664 1,240
Long-term debt [note 10]................................... 2,296 --
Total liabilities.......................................... 11,012 9,156
-------- -------
Shareholders' equity
Share capital [note 11].................................... 161,867 152,217
Deficit.................................................... (122,340) (83,745)
-------- -------
Total shareholders' equity................................. 39,527 68,472
-------- -------
50,539 77,628
======== =======
</TABLE>
On behalf of the Board:
Director Director
See accompanying notes
K-3
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
[expressed in thousands of Canadian dollars]
<TABLE>
<CAPTION>
Years ended August 31
----------------------
1999 1998
$ $
---------- ----------
<S> <C> <C>
REVENUES
Collaborative and contract revenue [notes 5, 14 and
17].................................................. 13,684 27,720
---------- ----------
EXPENSES
Research and development.............................. 25,463 29,131
General and administrative............................ 9,336 10,105
Foreign exchange loss (gain).......................... 966 (2,290)
Interest.............................................. 256 289
---------- ----------
36,021 37,235
---------- ----------
Loss before the following............................. (22,337) (9,515)
Interest income....................................... 1,482 2,195
Dilution gain [note 8]................................ -- 1,089
Loss from equity investments.......................... (1,486) (243)
Amortization.......................................... (16,254) (15,290)
---------- ----------
Net loss for the year................................. (38,595) (21,764)
Deficit, beginning of year............................ (83,745) (61,981)
---------- ----------
Deficit, end of year.................................. (122,340) (83,745)
========== ==========
Loss per share........................................ $(2.02) $(1.21)
========== ==========
Weighted average number of shares outstanding for the
year................................................. 19,109,586 17,954,909
========== ==========
</TABLE>
See accompanying notes
K-4
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[expressed in thousands of Canadian dollars]
<TABLE>
<CAPTION>
Years ended
August 31
--------------------
1999 1998
$ $
------- -----------
[Restated--
see note
19]
<S> <C> <C>
OPERATING ACTIVITIES
Net loss for the year.................................... (38,595) (21,764)
Add (deduct) items not involving cash
Amortization........................................... 16,254 15,290
Loss from equity investments........................... 1,486 243
Dilution gain.......................................... -- (1,089)
------- -------
(20,855) (7,320)
Net change in non-cash working capital balances related
to operations........................................... 2,596 513
------- -------
Cash used in operating activities........................ (18,259) (6,807)
------- -------
INVESTING ACTIVITIES
Purchase of capital assets............................... (2,449) (2,036)
Net decrease in marketable securities.................... 11,996 12,048
Increase in investment in Resolution Pharmaceuticals..... (250) --
Increase in investment in Allelix Pharm-Eco LP........... (442) (512)
Increase in investment in Base4 Bioinformatics Inc....... -- (141)
Decrease (increase) in other assets...................... 731 (699)
------- -------
Cash provided by investing activities.................... 9,586 8,660
------- -------
FINANCING ACTIVITIES
Payment of capital lease obligations..................... (838) (1,500)
Proceeds from issuance of share capital, net............. 8,098 591
------- -------
Cash provided by (used in) financing activities.......... 7,260 (909)
------- -------
Net increase (decrease) in cash and cash equivalents
during the year......................................... (1,413) 944
Cash and cash equivalents, beginning of year............. 5,365 4,421
------- -------
Cash and cash equivalents, end of year................... 3,952 5,365
======= =======
</TABLE>
See accompanying notes
K-5
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
1. NATURE OF THE COMPANY
Allelix Biopharmaceuticals Inc. ["Allelix" or the "Company"] is a drug
development company with product programs focused on neuropharmaceuticals and
protein therapeutics. Allelix is a public company, currently trading on the
Montreal and Toronto Stock Exchanges, which is incorporated under the Canada
Business Corporations Act.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in Canada. The more
significant of these accounting policies are as follows:
Basis of presentation
The Company follows accounting principles generally accepted in Canada which
in respect of the Company comply in all material respects with those in the
United States, except as disclosed in note 15.
Use of estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
that affect the amounts recorded in the consolidated financial statements.
Actual results could differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents consists of all bank balances and short-term
investments with original maturities of less than 90 days.
Marketable securities
Marketable securities, having interest rates of 2.38% to 5.0%, are carried
at the lower of cost plus accrued interest and market value.
Capital assets
Capital assets are recorded at acquisition cost less any related government
assistance. Amortization is provided using the straight-line method at rates
which are expected to charge operations with the cost of the assets over their
estimated useful lives as follows:
<TABLE>
<S> <C>
Building............................................. 4%
Leasehold improvements............................... over the term of the lease
Equipment and furniture.............................. 20%--50%
Equipment under capital lease........................ 20%--33 1/3%
</TABLE>
K-6
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
Long-term investments
Investments in companies over which the Company can exercise significant
influence are accounted for on the equity basis of accounting under which
consolidated net loss includes the Company's share of the net income or loss of
the investee. The cost of the investment is adjusted for the Company's share of
undistributed income or losses since acquisition and write-downs are only made
for declines in value which are other than temporary.
Foreign exchange translation
Transactions denominated in foreign currencies are translated into Canadian
dollars at exchange rates in effect on the date of the transactions. Monetary
assets and liabilities are translated into Canadian dollars at the exchange
rate in effect as at the consolidated balance sheet dates. Gains or losses
resulting from these translation adjustments are included in income.
Monetary assets and liabilities of integrated foreign operations are
translated into Canadian dollars at exchange rates in effect as at the
consolidated balance sheet dates. Non-monetary items are translated at historic
exchange rates. Operating revenues and expenses are translated at average
exchange rates prevailing during the year. Any corresponding foreign exchange
gains and losses are included in income.
Revenue recognition
Collaborative and contract revenue includes initial licence fees, research
and development support and milestone payments earned. Initial licence fees and
milestone payments are recognized when earned under the terms of the related
agreement. Research and development support is recognized in the year in which
the related research and development expenditures are incurred. Funds received
in advance of meeting the criteria for revenue recognition are deferred and
recorded as revenue as they are earned.
Research and development
Research and development expenditures [except for capital assets] are
charged to expenses as incurred unless a development project meets the
generally accepted accounting criteria for deferral and amortization. No
development costs have been deferred to date.
The Company capitalizes the costs of research and development acquired upon
the acquisition of a business. These costs are amortized on a straight-line
basis over three years. Any unamortized portion of these costs related to
specific projects will be written off in the year in which the project is
discontinued or deemed to have experienced a permanent impairment in value.
Research and development acquired does not necessarily reflect the present
or future values of the projects and the ultimate amount recoverable is
dependent on advancing the acquired research and development through clinical
trials and ultimately to commercialization.
Costs associated with the supply of materials for clinical trial testing are
expensed as purchased unless the Company is reasonably certain of their
recovery from licensing partners or use in future clinical trials. In these
circumstances, the amounts are deferred on the consolidated balance sheets in
other current assets at the lower of cost and net realizable value.
K-7
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
Joint venture
The Company has an investment in a joint venture which conducts research and
development activities. The Company's proportionate share of the assets,
liabilities and expenses of the joint venture is included in the Company's
accounts.
Pension plan
The Company maintains a defined contribution pension plan covering
substantially all employees. The funding requirements for current service
pension costs are included in expenses during the year.
Loss per share
Loss per share is based on the weighted average number of common shares
outstanding during the year. Fully-diluted loss per share has not been
disclosed as the effect of the exercise of options or warrants would be anti-
dilutive.
Income taxes
Income taxes are accounted for using the deferral method of income tax
allocation.
Government assistance
The Company makes periodic applications for financial assistance under
available government incentive programs. Grants relating to capital
expenditures are recorded as a reduction of the cost of such assets. Grants
relating to current expenses are credited to income in the year the expenses
are incurred. Loans which are contingently repayable are treated as grants.
3. MARKETABLE SECURITIES
The Company's marketable securities by type of security, contractual
maturity and classification in the consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
------ ------
<S> <C> <C>
Type of security
Corporate debt.................................................... 10,887 11,101
Government debt................................................... 1,657 8,913
Guaranteed Investment Certificates................................ -- 2,032
U.S. dollar corporate debt........................................ 9,021 11,916
U.S. dollar fixed deposit......................................... 1,493 --
Euro dollar fixed deposit......................................... 2,526 --
------ ------
25,584 33,962
====== ======
</TABLE>
K-8
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
<TABLE>
<CAPTION>
1999 1998
$ $
------ ------
<S> <C> <C>
Contractual maturity
Maturing in one year or less...................................... 25,084 18,753
Maturing after one year through three years....................... -- 14,946
Maturing after three years........................................ 500 263
------ ------
25,584 33,962
====== ======
Classification in the consolidated balance sheets
Cash and cash equivalents......................................... 3,618 --
Marketable securities............................................. 20,836 32,832
Restricted funds.................................................. 1,130 1,130
------ ------
25,584 33,962
====== ======
</TABLE>
The cash and cash equivalents amount above represents marketable securities
with terms to maturity less than 90 days.
4. RESTRICTED FUNDS
The Company maintains restricted funds of $1,130,000 in the form of
marketable securities as collateral deposits in respect of certain lease
commitments.
5. LICENSING AGREEMENTS
[a] Astra AB
On June 18, 1996, Allelix signed a long-term agreement with Astra AB
["Astra"] for the worldwide development and commercialization of ALX1-11, the
recombinant human parathyroid hormone therapeutic ["PTH"] developed by Allelix
for the treatment of postmenopausal osteoporosis. During 1998, Allelix received
a $6,928,000 milestone payment, $10,730,000 reimbursement of costs of
commercial development and the Phase II clinical trial and $1,615,000 in
development support revenue.
In September 1998, Astra announced that it had completed a restructuring of
its product portfolio and determined it would cancel its previous commitment to
commence Phase III trials of ALX1-11 for osteoporosis. Under the terms of the
agreement, Astra paid a 4,800,000 Netherlands Guilders [Cdn$3,981,000]
cancellation penalty and reimbursed the company 3,500,000 Netherlands Guilders
[Cdn$2,800,000] for PTH manufacturing costs that were incurred prior to its
decision to end the collaboration. The amount received for PTH research
material was included in the determination of revenues, while the cancellation
penalty partially offset the cancellation penalty expense Allelix paid Chiron
described below.
In connection with the above agreement, Allelix had entered into a long-term
agreement with Chiron B.V. ["Chiron"] to supply PTH research material for
clinical trials and eventual commercialization. This agreement was cancelled in
December 1998. Under the terms of the agreement, Allelix paid a cancellation
penalty of 5,000,000 Netherlands Guilders [Cdn$4,048,000] in June 1999 and
fulfilled its commitment to purchase PTH research material at a cost of
4,000,000 Netherlands Guilders [Cdn$2,857,000]. Both the amount paid for PTH
K-9
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
research material and the cancellation penalty were included in the
determination of research and development expenses.
[b] Janssen Pharmaceutica N.V.
On October 30, 1998, Allelix entered into a collaborative agreement with
Janssen Pharmaceutica N.V. ["Janssen"], a wholly owned subsidiary of Johnson &
Johnson, for the research, development and marketing of new drugs for
neuropsychiatric disorders. Under the terms of the agreement, Allelix is
entitled to receive initial licensing revenue of U.S.$2,000,000
[Cdn$3,100,000], annual research and development funding of U.S. $2,250,000
[Cdn$3,400,000] for a minimum of two years and may receive milestone payments
of up to U.S.$21,500,000 [Cdn$33,000,000] which are dependent on successful
achievement of clinical development benchmarks. During 1999, U.S.$3,900,000
[Cdn$5,900,000] of revenue was recorded in connection with this agreement,
which represents the initial licensing revenue and a portion of the annual
research and development funding. Allelix will also receive royalties from the
commercial sale of products resulting from the partnership. Royalties will be
calculated under a tiered formula that provides for increases in the royalty
rate based on aggregate annual sales revenue. In addition, Janssen will assume
responsibility for development of the compounds, including expenses. Janssen
has the right to market products worldwide, subject to an Allelix option for
co-promotion in Canada.
6. OTHER CURRENT ASSETS
Other current assets consist of the following:
<TABLE>
<CAPTION>
1999 1998
$ $
----- -----
<S> <C> <C>
PTH research material............................................... 1,693 1,693
Prepaid expenses.................................................... 405 1,193
Other inventory..................................................... 189 315
----- -----
2,287 3,201
===== =====
</TABLE>
The realization of the PTH research material is dependent on obtaining a new
licensing partner for ALX1-11 or commencing Phase III clinical trials. If
neither event occurs, a material write-down of this asset in the future may be
required.
K-10
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
7. CAPITAL ASSETS
Capital assets consist of the following:
<TABLE>
<CAPTION>
1999 1998
$ $
----- -----
<S> <C> <C>
Cost
Land................................................................ 650 --
Building............................................................ 1,800 --
Leasehold improvements.............................................. 1,801 366
Equipment and furniture............................................. 3,097 2,653
Equipment under capital lease....................................... 2,158 3,517
----- -----
9,506 6,536
===== =====
Accumulated amortization
Building............................................................ 31 --
Leasehold improvements.............................................. 187 76
Equipment and furniture............................................. 1,029 597
Equipment under capital lease....................................... 1,516 2,014
----- -----
2,763 2,687
----- -----
Net book value...................................................... 6,743 3,849
===== =====
</TABLE>
8. JOINT VENTURES AND LONG-TERM INVESTMENTS
[a] Allelix Pharm-Eco LP
On April 8, 1997, the Company and Pharm-Eco Laboratories, Inc. ["Pharm-Eco"]
of Lexington, Massachusetts formed Allelix Pharm-Eco LP ["APE"], a United
States limited partnership, to develop jointly two families of
neuropharmaceutical compounds. At that time, Allelix paid U.S.$1,800,000
[Cdn$2,481,000], consisting of 88,094 Allelix common shares valued at
U.S.$800,000 [Cdn$1,112,000] and U.S.$1,000,000 [Cdn$1,369,000] in cash to
Pharm-Eco for its interest in the joint venture. The Company further invested
U.S.$1,000,000 [Cdn$1,379,000] in the joint venture in April 1997 to fund pre-
clinical development of the two programs to bring Allelix's ownership interest
to 60.5%. The purchase was accounted for as research and development acquired.
During 1998, the Company paid an additional U.S.$1,800,000 [Cdn$2,587,000]
by issuing 247,295 Allelix common shares to Pharm-Eco following the achievement
of certain commercial milestones. Allelix invested in the joint venture an
additional U.S.$1,000,000 [Cdn$1,507,000] in cash and converted its accounts
receivable [U.S.$839,000 or Cdn$1,314,000] from the APE into units of the
partnership to bring Allelix's ownership interest to 68.2%. The excess of these
amounts, of $3,623,000, over the underlying net book value was allocated to
research and development acquired.
In December 1998, an additional U.S.$1,000,000 [Cdn$1,536,800] in cash and
the conversion of U.S.$622,000 [Cdn$932,000] of the Company's accounts
receivable into units of the partnership increased Allelix's ownership in the
joint venture to 71.6%. The excess of these amounts, of $561,000, over the
underlying net book value was allocated to research and development acquired.
K-11
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
During 1999, the Company's proportionate share of the expenses of the joint
venture was $1,837,000 [1998--$1,906,000] which has been included in research
and development expenses. As at August 31, 1999, the Company's proportionate
share of assets was $30,297 [1998--$564,000] and the proportionate share of
liabilities was $207,000 [1998--$406,000].
[b] Resolution Pharmaceuticals Inc.
During 1993, the Company commenced certain research and development
activities in Resolution Pharmaceuticals Inc. ["Resolution"], a 50% owned joint
venture with Nordion International Inc. As a result of Resolution issuing
$7,500,000 of common and Class A preference shares to new investors during
fiscal 1997 and 1996, Allelix's investment was reduced to 25.4% and Resolution
was no longer considered a joint venture.
In June 1998, an additional $2,500,000 was advanced to Resolution from the
other investors upon the achievement by Resolution of certain commercial
milestones. As a result, Allelix's investment in Resolution, on a fully diluted
basis, was reduced from 25.4% to 21.8%. Allelix has the potential to earn back
a further 4.2%, based on the achievement by Resolution of certain research and
financial milestones.
On March 1, 1999, Allelix and the other investors loaned $1,250,000 to
Resolution. The Company's share of the loan was $250,000. As at August 31,
1999, the carrying balance of the loan has been fully reduced by equity losses
recorded in 1999.
[c] Base4 Bioinformatics Inc.
On January 14, 1998, Base4 Bioinformatics Inc. ["Base4"], a subsidiary
company established in 1996, successfully completed a private placement
financing for approximately $4,500,000. The funding came from three
institutional investors and reduced Allelix's shareholding in Base4 to an
equity position of approximately 30%. Allelix ceased consolidating this
subsidiary at this date and began accounting for Base4 as an equity investment.
Allelix recorded a dilution gain of $1,089,000 in 1998.
[d] Maxxam BioDiscoveries Inc.
On March 9, 1999, the Company, together with Maxxam Analytics Inc., formed a
new company, Maxxam BioDiscoveries Inc. ["MBD"]. The new company will provide
advanced high-throughput screening and pharmacology services for drug
discovery. Allelix received a 49.9% interest in MBD in return for the
assignment of patents and other intangible property to MBD. Allelix has entered
into a loan agreement with an initial carrying value of $332,000 with MBD as a
result of the transfer of certain research equipment to MBD. The loan is
interest free for the first two years and subsequently bears interest at prime
plus 3%. As at August 31, 1999, the carrying balance of the loan has been fully
reduced by equity losses recorded in 1999.
K-12
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
9. LEASE OBLIGATIONS
[a] Capital leases
Future minimum annual lease payments consist of the following:
<TABLE>
<CAPTION>
$
-----
<S> <C>
2000..................................................................... 655
2001..................................................................... 527
2002..................................................................... 179
2003..................................................................... 2
-----
1,363
Less amounts representing interest at rates ranging from 8.2% to 14.7%... 130
-----
1,233
Less current portion..................................................... 569
-----
664
=====
</TABLE>
The carrying value of these leases approximates fair value.
[b] Operating leases
At August 31, 1999, the Company had commitments under operating leases
requiring annual rental payments as follows:
<TABLE>
<CAPTION>
$
-----
<S> <C>
2000...................................................................... 707
2001...................................................................... 642
2002...................................................................... 631
2003...................................................................... 606
2004...................................................................... 664
Thereafter................................................................ 3,015
-----
6,265
=====
</TABLE>
10. LONG-TERM DEBT
On March 8, 1999 Allelix purchased the land and building on 6850 Goreway
Drive from the Ontario Development Corporation. Allelix financed the purchase
with a Committed Instalment Loan [the "loan"] of $2,300,000 which is available
on a revolving basis and matures March 15, 2004. As at August 31, 1999, the
interest rate on the loan is based on a three month Banker's Acceptance plus
1%. Interest expense in 1999 was $60,000 [1998--nil]. Since the interest rate
floats with current market rate, the current value approximates fair value.
Terms of the loan require the Company to maintain a minimum amount of cash and
cash equivalents and/or marketable securities.
11. SHARE CAPITAL
[a] Authorized
The authorized share capital of the Company consists of unlimited common
shares and unlimited preferred shares issuable in series.
K-13
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
The preferred shares may be issued solely by resolution of the Board of
Directors. The Board of Directors has the authority to provide for the creation
of each series and to determine the rate, amount or method of calculation of
dividends, whether such dividends are cumulative and the redemption, conversion
and other rights of each series. [note 5 [b]]
[b] Issued and outstanding
Summarized below are the Company's issued and outstanding shares, warrants
and options:
<TABLE>
<CAPTION>
Preferred Options
Common shares shares Warrants [v]
------------------ --------- -------------- -------
Stated Stated Stated Total share
value value value capital
Number $ $ Number $ $ $
---------- ------- --------- ------- ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, August 31,
1997................... 17,704,520 144,434 -- 162,441 705 3,900 149,039
Issued for business
acquisitions [i]...... 247,295 2,587 -- -- -- -- 2,587
Issued under stock
option plans [v]...... 196,276 3,347 -- -- -- (2,756) 591
---------- ------- ----- ------- --- ------ -------
Balance, August 31,
1998................... 18,148,091 150,368 -- 162,441 705 1,144 152,217
Issued for cash [ii],
[iii]................. 1,470,588 5,000 3,060 666,667 -- -- 8,060
Issued for business
acquisitions [iv]..... 486,395 1,552 -- -- -- -- 1,552
Issued under stock
option plans.......... 21,108 294 -- -- -- (256) 38
---------- ------- ----- ------- --- ------ -------
Balance, August 31,
1999................... 20,126,182 157,214 3,060 829,108 705 888 161,867
========== ======= ===== ======= === ====== =======
</TABLE>
- - --------
[i] On December 22, 1997 and February 12, 1998, the Company issued 57,901 and
189,394 common shares at $12.39 and $9.87, respectively, per share for an
aggregate value of $2,587,000 to Pharm-Eco [note 8[a]].
[ii] On April 19, 1999 the Company completed a private placement of 1,470,588
common shares together with 666,667 common share purchase warrants for an
aggregate value of $5,000,000. Each warrant entitles the holder to
purchase one common share at an exercise price of $7.50 per share to July
17, 2000.
[iii] On November 2, 1998, the Company issued 1,000 Series 1 preferred shares
to Johnson & Johnson Development Corporation ["JJDC"] for an aggregate
amount of U.S.$2,000,000 [Cdn$3,100,000]. The shares are non-voting, pay
no dividend and are mandatorily convertible into common shares on or
before April 30, 2000. The conversion price will be at a 20% discount
from fair market value subject to floor and ceiling prices of $3.36 and
U.S.$9.00 [Cdn$13.44] per share, respectively. At the time of conversion
JJDC will purchase an additional U.S.$2,000,000 [Cdn$2,986,000] of
common shares at the then current price subject to floor and ceiling
prices of $3.95 and U.S.$9.00 [Cdn$13.44] per share, respectively and
other conditions set forth in a stock purchase agreement.
[iv] Following the completion of the Janssen licensing agreement [note 5[b]],
a U.S.$1,000,000 [Cdn$1,552,000] milestone payment payable in Allelix
common shares to the former Trophix Pharmaceuticals Inc. ["Trophix"]
shareholders was required. As a result the Company issued 486,395 common
shares valued at $3.19 per share in November 1998. Up to an additional
U.S.$3,000,000 [Cdn$4,479,000] may be paid to Trophix shareholders in
Allelix common shares upon achievement by Allelix Neuroscience Inc. of
further clinical and commercial milestones by July 29, 2001.
[v] Upon acquisition of Trophix in 1997, 375,000 options of the Company were
issued to replace options held by Trophix shareholders. The fair value of
these options, $10.40 per option [aggregating $3,900,000 million], was
recorded at the time of acquisition. As each option is either exercised or
canceled, the carrying value per unit is transferred to common shares.
[c] Stock option plans
[i] The Board of Directors may authorize the issuance of up to 2,000,000
options to purchase common shares [excluding the options described in note
11[c][ii]] under various stock option plans provided that the number of options
outstanding at any time shall not exceed 12% of the then outstanding common
shares.
K-14
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
Stock option transactions for the respective periods and the number of share
options outstanding are summarized as follows:
<TABLE>
<CAPTION>
#
---------
<S> <C>
Issued and outstanding as at August 31, 1997......................... 1,336,944
Issued during the year............................................... 534,750
Exercised during the year............................................ (192,775)
Cancelled during the year............................................ (233,415)
---------
Issued and outstanding as at August 31, 1998......................... 1,445,504
Issued during the year............................................... 545,800
Exercised during the year............................................ (20,760)
Issued as a result of re-pricing..................................... 205,337
Cancelled as a result of re-pricing.................................. (410,664)
Cancelled during the year............................................ (330,952)
---------
Issued and outstanding as at August 31, 1999......................... 1,434,265
=========
</TABLE>
During the year, the Board of Directors of Allelix approved a revaluation of
410,664 options outstanding and offered the employees of Allelix the
opportunity to exchange the options that they held for new options with an
exercise price of $2.80 each at a ratio of 2:1.
Pending shareholder approval, 225,600 options held by three officers of the
Company have been revalued at a ratio of 2:1 with an exercise price of $2.80.
The stock options outstanding as at August 31, 1999, allow individuals to
purchase 1,434,265 shares at prices between $0.75 and $22.45 per share. These
options vest over a period of three to five years and expire at various dates
as follows:
<TABLE>
<CAPTION>
Expiry Weighted
Option price Outstanding date average
------------ ----------- --------- --------
<S> <C> <C> <C>
$0.75-$2.16 85,359 2003-2007 $ 1.54
$2.30-$2.60 364,000 2001-2005 $ 2.43
$2.80 271,812 2001-2009 $ 2.80
$3.20-$6.88 324,369 2001-2009 $ 4.99
$7.00-$22.45 388,725 2005-2008 $12.23
--------- --------- ------
$0.75-$22.45 1,434,265 2001-2009 $ 5.68
========= ========= ======
</TABLE>
[ii] In 1995, the Company issued 265,000 stock options to a company to
acquire exclusive worldwide licencing rights to a metabolic hormone. Of the
stock options issued, 65,000 are currently exercisable at a price of $9.63 and
50,000 are exercisable at $3.43; the remaining 150,000 options become
exercisable only when defined drug development milestones are achieved, at
prices to be set based upon market prices for Allelix common shares prevailing
when the milestones are met. These options are excluded from the maximum option
limits described in note 11[c][i].
K-15
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
12. CONSOLIDATED STATEMENTS OF CASH FLOWS
The following represent the non-cash transactions of the Company:
During 1999, capital assets were acquired at an aggregate cost of $4,745,000
[1998--$2,145,000] of which none were acquired by means of a capital lease
[1998--$109,000] and $2,296,000 [1998--nil] were financed through long-term
debt. In addition, capital assets with a book value of $332,000 [1998--nil]
were sold to MBD in exchange for a note payable.
During 1999, the Company converted $119,000 [1998--$524,000] of accounts
receivable due from APE into additional ownership units of APE.
During 1999, the Company paid $1,552,000 to Trophix shareholders by issuing
486,395 common shares pursuant to the achievement of certain milestones.
During 1999, 25,203 of the options either exercised or canceled as part of
the acquisition of Trophix were converted into common shares of the Company. As
a result, $256,000 of the value assigned to the options were transferred into
common stock.
During 1998, the reduction of the Company's interest in Base4 to
approximately 30% required the Company to cease consolidating this subsidiary
and begin accounting for Base4 as an equity investment. This recording of the
investment resulted in a reduction of $133,000 in non-cash net assets.
During 1998, the Company paid $2,587,000 to Pharm-Eco by issuing 247,295
common shares pursuant to the achievement of certain milestones.
During 1999, cash interest paid was $231,000 [1998--$289,000] and no cash
income taxes were paid.
13. INVESTMENT TAX CREDITS AND SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT
EXPENDITURES
The Company earns investment tax credits ["ITCs"] at the rate of 20% of
eligible scientific research and experimental development ["SRED"]
expenditures. Unclaimed ITCs may be carried forward to apply against future
years' federal income taxes. The Company has unclaimed ITCs of approximately
$12,700,000 which expire over the period from 2005 to 2009. In addition, as at
August 31, 1999, the Company has SRED expenditures not claimed for income tax
purposes of approximately $100,000,000 available to reduce taxable income in
future years, which have no expiry date. The Company also has Federal income
tax loss carryforwards of $1,200,000 and Ontario tax loss carryforwards of
$3,400,000 which will expire in 2006. The potential future tax benefits that
may result from the application of these carryforward amounts or from the
utilization of the unclaimed ITCs have not been recognized in these
consolidated financial statements.
At August 31, 1999, Allelix Neuroscience Inc. had accumulated net operating
losses of U.S.$17,800,000 for United States Federal income tax purposes. Net
operating losses prior to the change in ownership that occurred in July 1997,
when Allelix Neuroscience Inc. was purchased by the Company, will be subject to
an annual utilization limitation for U.S. income tax purposes. No tax benefit
has been recorded in these consolidated financial statements in respect of
losses. These losses will expire over the period from 2008 to 2014.
K-16
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
14. RELATED PARTY TRANSACTIONS
The Company conducted research projects under a collaborative agreement at
commercial rates with two shareholders resulting in approximately $10,029,000
[1998--$5,225,000] of revenue. The amount due from one of these shareholders as
at August 31, 1999 is $10,000 [1998--nil].
Effective January 1, 1997, Allelix entered into a services agreement with
Base4 to obtain systems administration services, custom programming and project
support. Amounts charged by Base4 in 1999 under this agreement were $598,000
[1998--$1,280,000 ]. The amount due to Base4 as at August 31, 1999 is $252,000
[1998--$517,000]. This amount is non-interest bearing.
The Company provided drug discovery research and development services to
Pharm-Eco at commercial rates resulting in approximately $631,000 [1998--
$644,000] of revenue. The amount due from Pharm-Eco as at August 31, 1999 is
$49,000 [1998--nil].
During 1999, the Company provided assay testing services to Resolution at
commercial rates resulting in approximately $58,000 [1998--nil] of revenue. The
Company was also reimbursed $158,000 [1998--203,000] by Resolution under the
terms of a shared services agreement. The amount due from Resolution as at
August 31, 1999 is nil [1998--$9,000].
15. SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The Company's consolidated financial statements are prepared in accordance
with accounting principles generally accepted ["GAAP"] in Canada. The most
significant differences between Canadian and United States GAAP insofar as they
affect the Company's consolidated financial statements are described below.
K-17
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
The following table reconciles results as reported under Canadian GAAP with
those that would have been reported under U.S. GAAP:
<TABLE>
<CAPTION>
1999 1998
$ $
------- -------
<S> <C> <C>
Net loss for the year--Canadian GAAP......................... (38,595) (21,764)
Stock-based compensation [i]................................. (93) --
Dilution gain [iii].......................................... -- (1,089)
Acquired research and development [iv]....................... 1,195 1,195
------- -------
Net loss for the year--U.S. GAAP............................. (37,493) (21,658)
Amortization of beneficial conversion feature [viii]......... (397) --
------- -------
Net loss attributable to common shareholders - U.S GAAP...... (37,890) (21,658)
Loss per share--U.S. GAAP.................................... 1.98 1.21
======= =======
Net loss for the year--U.S. GAAP............................. (37,493) (21,658)
Unrealized gains (losses) on securities available for sale... 94 (153)
------- -------
Comprehensive Income......................................... (37,399) (21,811)
======= =======
</TABLE>
- - --------
[i] SFAS No.123, "Accounting for Stock-based Compensation", became effective
for the Company's fiscal 1997 year. The Company continues, for
reconciliation to U.S. GAAP purposes, to account for its outstanding fixed
price stock options under Acounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees", which results in the recording
of no compensation expense in the Company's circumstances. U.S. GAAP does,
however, require stock option transactions with non-employees be recorded
as compensation expense and measured at the fair value of the consideration
received or the compensation paid, whichever is more reliably measured. The
fair value of the options granted to non-employees have been estimated at
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions: risk free interest rate of 5.0%;
dividend yield of 0%; volatility factor of the expected market price of the
Company's common shares of 0.566; and a weighted average expected option
life of five years.
[ii] Under U.S. GAAP, share issue costs must be accounted for in share capital
as a reduction to the proceeds received from the share issue. Under
Canadian GAAP, the Company has excluded share issue costs from the
determination of net loss and has recorded them as an increase to
accumulated deficit.
[iii] Under U.S. GAAP, dilution gains for which realization is not assured must
be treated as an equity transaction. Since Base4 is an entity whose
ability to continue in existence remains in question, the realization of
the dilution gain the Company experienced on the issuance of Base4 common
shares is not assured. Under Canadian GAAP, the Company has included the
dilution gain in the determination of net loss.
[iv] Under U.S. GAAP, in a business combination accounted for as a purchase, a
portion of the purchase price should be allocated to in-process research
and development projects. Unless the project in process has an alternative
future use, the fair value is charged to expense as research and
development costs. The $3,586,000 of in-process research and development
projects acquired in connection with the purchase of Trophix in 1997 do
not have alternative future uses. The Company, under Canadian GAAP,
capitalized the fair value of the in-process research and development
projects acquired and has been amortizing the amount over three years.
Amortization expense in 1999 was $1,195,000 [1998--$1,195,000, 1997--
$100,000]. Under U.S. GAAP, the Company is required to expense the
$3,586,000 in 1997 and reverse the amortization for each of the three
years mentioned above.
K-18
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
[v] SFAS No. 128, "Earnings Per Share", is effective for fiscal periods ending
after December 15, 1997. This statement has no significant effect on the
reported U.S. GAAP earnings per share data for the years ended August 31,
1999 and 1998.
[vi] The Company has certain interest in a jointly controlled entity which has
been proportionately consolidated in the Company's consolidated financial
statements. For purposes of U.S. GAAP, this interest would be accounted
for by the equity method. Net loss, loss per share and deficit under U.S.
GAAP are not impacted by the proportionate consolidation of this interest
in a jointly controlled entity.
[vii] Under U.S GAAP, the preferred shares issued during the year which allow
the holder to convert the preferred shares at a discount to a future
market value is considered a beneficial conversion feature. The value of
this feature is amortized, using the effective yield method, over the
period to the preferred shares' earliest conversion date.
As a result of the above differences, as at August 31, 1999 under U.S.
GAAP, long-term assets would decrease by $1,096,000 [1998--$2,291,000],
current assets would decrease by $59,000 [1998--$153,000], share capital would
decrease by $5,999,000 [1998--$6,092,000], and total shareholders' equity
would decrease by $1,155,000 [1998--$2,650,000]. In addition, comprehensive
income would decrease by $94,000 [1998--$153,000].
16. SEGMENTED INFORMATION
Allelix monitors its operations as one segment which involves the
development and discovery of biopharmaceuticals with focus on
neuropharmaceuticals and protein therapeutics. While in the current growth
phase, operating expenses are reviewed at the consolidated level. This
represents the manner in which the Company is organized for assessing
performance and making resource allocation decisions.
The Company's revenues by location of customer and capital assets by
geographic location are as follows:
<TABLE>
<CAPTION>
Canada United States Sweden Belgium Total
1999 $ $ $ $ $
- - ---- ------ ------------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Revenues............................. 3,965 639 3,124 5,956 13,684
Capital assets, net.................. 4,481 2,262 -- -- 6,743
<CAPTION>
1998
- - ----
<S> <C> <C> <C> <C> <C>
Revenues............................. 6,816 527 19,270 1,107 27,720
Capital assets, net.................. 3,187 662 -- -- 3,849
</TABLE>
Revenues from 2 related customers approximate $5,956,000 and $4,073,000 and
revenues from non-related customers approximate $3,124,000 of the Company's
total revenues.
17. GOVERNMENT GRANTS
During the year, Allelix earned government grants of approximately nil
[1998--$1,400,000] which are included in collaborative and contract revenue,
and nil [1998--$96,000] which are included as a reduction of capital assets.
18. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue
K-19
<PAGE>
ALLELIX BIOPHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[Tabular amounts are expressed in thousands of Canadian dollars,
except the number of shares and per share information]
August 31, 1999
may be experienced before, on, or after January 1, 2000, and, if not addressed,
the impact on operations and financial reporting may range from minor errors to
significant systems failure which could affect an entity's ability to conduct
normal business operations. It is not possible to be certain that all aspects
of the Year 2000 Issue affecting the Company, including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
19. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
The comparative consolidated financial statements have been reclassified
from statements previously presented to conform to the presentation of the 1999
consolidated financial statements. The consolidated statements of cash flows
for the year ended August 31, 1998 have been restated to reflect the
retroactive adoption of The Canadian Institute of Chartered Accountants revised
guideline for cash flow statements. In addition, the Company has reclassified
the fair value of the options issued pursuant to the Trophix acquisition from
accounts payable to share capital.
20. MERGER WITH NPS PHARMACEUTICALS, INC.
On September 27, 1999, Allelix announced that a definitive agreement had
been signed to merge the operations of the Company with NPS Pharmaceuticals,
Inc. ["NPS"] subject to approval by the shareholders of both companies. The
transaction is expected to close in the first quarter of 2000. The combined
company will operate as NPS Pharmaceuticals, Inc. in the U.S., and as NPS
Allelix in Canada. Based on the number of outstanding Allelix shares, NPS will
issue approximately 6,500,000 shares of common stock to Allelix common
shareholders at an exchange ratio of 0.3238 shares of NPS common stock for each
outstanding share of Allelix stock. In addition to the 6,500,000 shares
initially issued, 1,000,000 shares of NPS stock will be reserved for issuance
to the holders of Allelix options, warrants and preferred stock at the same
exchange ratio. Consummation of the merger may significantly affect the future
operations, capital requirements and liquidity of the Company in manners that
differ from those originally contemplated by management.
K-20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
Corporate Structure
Allelix Biopharmaceuticals Inc. is a biopharmaceutical company applying
innovative chemical and biological approaches to the discovery and development
of novel pharmaceutical products. The Company plans to commercialize products
for major therapeutic categories globally through partnerships with leading
multinational pharmaceutical companies that may generate royalty revenue for
Allelix. In addition, the Company intends to develop products for niche
indications that it will bring to market itself.
The Company has developed expertise in two areas of biopharmaceutical drug
discovery: large molecule protein therapeutics based on the recombinant
production of proteins and peptides and receptor and transporter-based drug
design focused on small molecule drugs for the neurosciences. Its technological
capabilities are sufficiently broad to support the development of a rich
pipeline of products.
The Company has incurred net losses since 1989 as a result of its investment in
technology and product development. Given the significant scientific, regulatory
and commercial uncertainties regarding the outcome of the Company's development
efforts, all development costs have been expensed to date .
The largest single cash expense for Allelix is the salaries and benefits of
its personnel. Costs such as research supplies are proportional to the staff
levels assigned to a given project. As products have entered clinical trials,
payments to external suppliers, including contract research organizations,
clinical investigators and suppliers of drug for use in the trials, have become
more significant. These costs are being incurred to bring products to the stage
where they can either lead to partnerships with pharmaceutical companies or
where they can be commercialized by Allelix itself. The partnerships typically
provide significant revenue to Allelix through licensing fees, milestone
payments and reimbursement of research and development expenditures.
Additionally, sales of the products in future years by the partners may generate
significant sustainable revenue for the Company through royalty payments.
Effective July 29, 1997, the Company acquired Trophix Pharmaceuticals, Inc. of
South Plainfield, New Jersey, in exchange for common shares of the Company
valued at $24.45 million. All amounts are in Canadian dollars, except where
otherwise indicated. In November 1998, Allelix made a milestone payment in
common shares of the Company valued at US$3.19 each for an aggregate value of
US$1 million. Trophix shareholders may receive further payments of up to US$3
million in Allelix common shares upon achievement of certain clinical and
business milestones prior to July 29, 2001. The acquisition added a new
technology platform and three programs to the Company's
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neuroscience portfolio. These were for the treatment of schizophrenia,
neuropathic pain and for pain/spinal cord injury. The neuropathic pain product
was being developed jointly with Janssen Pharmaceutica N.V. of Belgium.
Subsequent to acquisition, Trophix was renamed Allelix Neuroscience Inc. (ANI).
On April 8, 1997, the Company and Pharm-Eco Laboratories, Inc. of Lexington,
Massachusetts formed Allelix Pharm-Eco LP, a United States limited partnership
to jointly develop two families of neuropharmaceutical compounds in dementia and
cocaine addiction. At that time, Allelix contributed cash and common shares of
the Company having a combined value of $ 2.48 million. In April 1998, the
Company further invested $2.59 million, consisting of 247,295 common shares
valued at $10.46 each. Pharm-Eco contributed its intellectual property and
rights to the two programs. Allelix also funded US$1 million of pre-clinical
development costs during the current year and converted $0.9 million of accounts
receivable from the joint venture thereby increasing its interest in it to
71.6%. Under the terms of the agreement with Pharm-Eco, the Company will be
responsible for its proportionate share of the research and development costs
while Pharm-Eco will be responsible for the balance.
In March 1999, the Company formed a joint venture with Maxxam Analytics Inc. to
establish a high throughput screening company, Maxxam BioDiscoveries Inc.
Allelix owns a 49.9% interest in the company and has no obligation to provide
equity funding to the company. Allelix expects to continue its strategy of
developing and obtaining financing for businesses that may not be central to its
major areas of focus.
Results of Operations
For the fiscal year ended August 31, 1999, the Company incurred a net loss of
$38.6 million or $2.02 per common share. These results compare with a net loss
of $21.8 million or $1.21 per common share for the year ended August 31, 1998.
Conducting clinical trials is one of the most expensive aspects of drug
development. The Company's expenses are determined by the number of product
candidates it places into the clinical development phase (as compared to
earlier, less expensive research phases) and the financial support of corporate
partners, if any. In September 1997, the Company's pharmaceutical partner for
the commercialization of ALX1-11, a recombinant human form of PTH for the
treatment of post-menopausal osteoporosis, Astra AB of Sweden, announced its
decision to proceed into Phase III clinical trials. As a result, Allelix
received $19.3 million from Astra for a milestone payment and the reimbursement
of specific Phase II and other costs. In September 1998, Astra announced that
it had completed a restructuring of its product portfolio and would not commence
Phase III trials of ALX1-11. Astra returned the non-capital assets associated
with the program to Allelix at no cost and paid a cancellation penalty of 4.8
million Netherlands Guilders (Cdn$4.0 million) to the Company. As a result,
Allelix ended its long-term agreement with Chiron B.V. (Chiron) to supply PTH
research material for clinical trials and paid a similar cancellation fee in
June 1999 which was offset against the Astra payment.
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Revenues
Collaborative and contract revenues
Astra's decision to end its collaboration was the primary cause of the reduced
collaborative and contract revenues in 1999 of $13.7 million compared with $27.7
million in 1998. The Company earned $10.7 million in 1998 from Astra following
the submission of the final report on the Phase II clinical trial for ALX1-11 as
full reimbursement of Phase II costs. Allelix also received a milestone payment
of $7.0 million from Astra in 1998 for the successful completion of the trial.
In addition, the Company earned development support revenue from Astra of $0.3
million in 1999 compared with $1.6 million in 1998. In 1999 Allelix earned $2.8
million as a reimbursement from Astra for the PTH manufacturing costs that were
incurred prior to its decision to end the collaboration. Contract revenue from
the Company's other pharmaceutical partners was $12.4 million compared with $8.4
million in 1998. The increase was due to the new collaborative agreement for
GRI-1 entered into with Janssen Pharmaceutica N.V. ("Janssen") in the first
quarter of 1999.
New Alliances
On October 30, 1998, Allelix entered into a collaborative agreement with
Janssen, a wholly owned subsidiary of Johnson & Johnson, for the research,
development and marketing of new drugs for neuropsychiatric disorders. Under
the terms of the agreement, Allelix received initial licensing revenue of $3.1
million, annual R&D funding of $3.4 million for a minimum of two years and may
receive milestone payments of up to $33 million tied to clinical development
benchmarks. Allelix will also receive royalties from the commercial sale of
products resulting from the partnership. Janssen has the right to market
products worldwide, subject to an Allelix option for co-promotion in Canada.
Interest Income
Interest income decreased to $1.5 million compared to $2.2 million in 1998 as a
result of lower cash balances. Prevailing interest rates increased slightly over
the course of the year, the average rate increasing to 4.7% in 1999 from 4.6% in
1998.
Costs and Expenses
Research and Development
The Company's total operating expenses before amortization declined to $36.0
million in 1999 from $37.2 million in fiscal 1998. Research and development
expenses amounted to $25.5 million in 1999, a decrease of 12.4% from the $29.1
million in the preceding year. The most significant reason for the decrease is
the prior year's decision to terminate some of the early-stage discovery
programs and the reduction in related staffing and contract expenses. Expenses
associated with the anti-migraine drug ALX-0646, $1.7 million, which is
approaching Phase II trials, ALX-0600, $5.0 million, which completed Phase I and
is
<PAGE>
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recruiting patients for a pilot Phase II trial, ALX1-11 for osteoporosis, $5.3
million, and the GRI-1 program, $2.7 million, partnered with Janssen
Pharmaceutica, accounted for approximately $14.5 million of the $25.5 million of
R&D expenses during the year. The expenditures on these programs contributed to
the initiation of a Phase II clinical trial with ALX-0600 subsequent to year-end
and to the Janssen collaboration.
General and Administrative
Allelix includes in general and administrative expense all costs not directly
related to the conduct of research and development, including the costs of
premises, information services, human resources, accounting and senior
management compensation. This amount decreased by $0.8 million or 8% to $9.3
million in 1999 from $10.1 million in 1998. The decrease is primarily the result
of lower compensation costs as a result of the reduction in the senior
management complement.
Amortization
Allelix amortizes capital assets and research and development that are acquired.
Amortization expense of $16.3 million for 1999 increased from $15.3 million in
1998 due to the additional investment in Pharm-Eco LP through the current and
prior year.
Liquidity and Capital Resources
Since 1989, the Company has financed product candidate development costs,
operations and capital expenditures primarily from payments received under
agreements with other pharmaceutical companies, public and private sales of
equity securities and interest income.
As at August 31, 1999 the Company had total assets of $50.5 million, compared
with $77.6 million as at August 31, 1998. This decrease is primarily due to the
use of $18.3 million of cash to finance operations in 1999 and the $14.7 million
of amortization of acquired research and development.
Current assets also decreased due to the use of cash, from $43.4 million as at
August 31, 1998 to $27.6 million as at August 31, 1999. Current liabilities
increase $7.9 million as at August 31, 1998 to $8.1 million as at August 31,
1999. Therefore, working capital amounted to $19.5 million as at August 31,
1999 compared with $35.5 million the previous year.
The balance of cash, marketable securities and restricted funds at August
31, 1999 was $25.9 million, compared with $39.3 million at August 31, 1998.
The decrease represents the use of funds to support ongoing product development
activities. The Company invests its cash reserves in liquid, high-grade
investment securities with terms to maturity not exceeding two years. The terms
are selected based on prevailing interest rates and the expected timing of
expenditures for operations and capital requirements.
The Company anticipates funding virtually all of the pre-clinical drug
development costs of the dementia program in the Allelix Pharm-Eco LP,
notwithstanding its 71.6% interest.
<PAGE>
-5-
The Company receives an increased percentage ownership if it finances more than
its proportionate share in this joint venture.
The two U.S. subsidiaries involve the Company in foreign exchange transactions
as it funds their drug discovery and clinical trial costs. These U.S. dollar
costs will be partially offset by revenue received from its pharmaceutical
partners, most of which will likely be denominated in U.S. currency. As a
result, the Company will have created a natural hedge that should reduce the
necessity to engage in foreign exchange or other derivatives transactions.
On November 2, 1998, as part of the GRI-1 licensing transaction, Allelix
received $3.1 million from the sale of convertible preferred shares - series 1
to Johnson & Johnson Development Corporation ("JJDC"), a subsidiary of Janssen's
parent company, which is already an Allelix shareholder. The shares are non-
voting, pay no dividend and are mandatorily convertible in April 2000 into
common shares at a 20% discount from fair market value at the time of conversion
subject to floor and ceiling prices of $3.36 and US$9.00 (Cdn$13.44)
respectively per share. Also in April 2000, JJDC will purchase an additional
US$2 million (Cdn$3.0 million) of common shares at the then current price
subject to floor and ceiling prices of $3.95 and US$9.00 (Cdn$13.44)
respectively per share.
Completion of the Janssen agreement also triggered a US$1 million milestone
payment to the Trophix shareholders and as a result the Company issued 486,395
common shares valued at $3.19 each or $1.55 million in November 1998.
In April 1999, the Company completed a private placement of 1,470,588 common
shares together with 666,667 common share purchase warrants for an aggregate
value of $5 million. Each warrant entitles the holder to purchase one common
share at an exercise price of $7.50 per share to July 17, 2000.
Outlook
The Company expects to generate a milestone payment in 2000 from the GRI-1 drug
development agreement signed with Janssen, as well as another research,
development and distribution agreement expected to be completed in the
neuroscience area. The extent and timing of such additional licensing fees, if
any, will be dependent upon the overall structure of each proposed agreement,
including the royalties from product sales. In addition, one existing research
agreement has been extended for at least one more year generating $2.7 million
of collaborative and contract revenue in 2000.
The Company also expects a decrease in research and development expenses as a
result of the termination of certain early and mid-stage discovery programs and
the reduction of related staffing and contract expenses. This decrease will be
partially offset by the cost of the Phase II clinical trial of ALX-0600 for
gastrointestinal disorders and the Phase III trial in the U.S. of ALX1-11 for
osteoporosis.
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As a result, Allelix anticipates losses for at least the next two years as the
Company moves its product candidates through the rigorous clinical trial process
toward regulatory approval for marketing.
Capital expenditures for 2000 will be substantially lower than in 1999 as a
result of the move of ANI into new premises in December 1998. The Company
acquired the premises that were leased in Mississauga, Ontario in March 1999 for
$2.45 million. The purchase price was funded with debt financing. All other
significant capital expenditures are being curtailed.
The Company believes that its cash and marketable securities, together with
committed and expected revenue from partners and interest income, will be
sufficient to meet the operating and capital requirements of its existing
programs for at least the next two years.
Risks and Uncertainties
The Company has signed agreements with partners in the pharmaceutical industry,
which provide for royalty payments upon the commercialization of certain Allelix
products. However, it is very difficult to estimate the timing or extent of
such payments. There are long lead times involved in development and testing,
as well as stringent government regulatory processes, in jurisdictions around
the world, before a product can be marketed. The Company has not yet earned
revenues from the sale of products and does not expect to do so in the near
future, although niche products for certain indications may be brought to market
sooner.
The nature and speed of scientific progress, the advancement of pre-clinical
testing and clinical trials and the timing and costs of obtaining regulatory
approvals for its product candidates will determine whether Allelix has
sufficient cash on hand and the future requirements for external funding to
support its long-term product development and commercialization programs. The
Company will form strategic alliances with established pharmaceutical companies
to enhance its ability to exploit fully its technological strengths and gain
access to worldwide pharmaceutical markets. The timing and choice of partners
for such collaborations are based primarily on the costs involved in conducting
further trials, the Company's available resources and the ability of the partner
to quickly develop and commercialize the product. The revenues from research
contracts with pharmaceutical partners are typically of a limited duration and
there is no assurance that they will be renewed. Changes in existing
collaborative and joint venture relationships, as well as the establishment of
new ones, product licensing efforts and other financing relationships could
materially impact the Company's financial position. To the extent that the
Company expands therapeutic programs by licensing or acquiring rights to product
candidates or technology, the nature and stage of development of the product
candidates or technology so acquired will determine the Company's ongoing
resource requirements.
Allelix will require additional capital in the future to continue research
programs and to fund development costs, including the costs of conducting
clinical trials. The Company will decide to issue any debt or additional equity
securities based on market conditions, requirements for funding of its
development programs, the price of the Company's common
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shares and the relative attractiveness of other financing alternatives. However,
given the nature of the Company's business, there can be no assurances that
adequate funds will be available or that they will be available on terms
acceptable to the Company.
The Company has obtained $20 million of liability insurance for its product
candidates entering clinical trials. There is no way of determining the
adequacy of such coverage.
Year 2000 Compliance
We continue to assess impact of the year 2000 on our operations and systems. We
have developed assessment procedures and a plan to address identified issues. A
Y2K Task Force was assembled in the beginning of 1998 to evaluate the potential
impact of the so called "Year 2000 millennium bug" on our operations. Since
formation, the task force has monitored the evaluation of financial, accounting,
information management, scientific equipment, and building systems. To date,
financial, accounting, and information management systems reviews have been
completed. Those systems which were not compliant have been replaced. We
continue to assess the impact of the Year 2000 issue on our other systems and
equipment. We expect to have identified and replaced or updated all internal
systems and equipment which are not Year 2000 compliant before the Year 2000 to
the extent necessary to enable us to continue operations. We do not expect the
cost of repair or replacement to be material to our operations. We are also
seeking assurance from primary third-party service and goods suppliers,
including financial institutions, suppliers, CROs and other collaborative
parties that they do not expect the Year 2000 matter to impact materially their
dealings with us. To date, we are not aware of any critical third-party
suppliers that will not be able to meet our needs in order to maintain
operations. We cannot assure that these third parties are using systems that
are Year 2000 compliant or will address any Year 2000 issues in a timely
fashion. Any Year 2000 compliance problems of our suppliers, clinical research
organizations, or our licensees could have a material adverse effect on our
business, operating results, and financial condition.
<PAGE>
MATERIAL CHANGE REPORT
S.75(2) OF THE SECURITIES ACT (ONTARIO)
S.118(1) OF THE SECURITIES ACT (ALBERTA)
S.85(1) OF THE SECURITIES ACT (BRITISH COLUMBIA)
S.73 OF THE SECURITIES ACT (QUEBEC)
S.81(2) OF THE SECURITIES ACT (NOVA SCOTIA)
S.84(1) OF THE SECURITIES ACT, 1988 (SASKATCHEWAN)
S.112 OF THE SECURITIES ACT (MANITOBA)
S.76(2) OF THE SECURITIES ACT, 1990 (NEWFOUNDLAND)
1. Reporting Issuer
Allelix Biopharmaceuticals Inc.
2. Date of Material Change
September 27, 1999
3. News Release
A news release disclosing the material change was issued on September 28,
1999. A copy of the news release is attached hereto as Exhibit "1".
4. Summary of the Material Change
Allelix Biopharmaceuticals Inc. ("Allelix") and NPS Pharmaceuticals, Inc.
("NPS") have entered into a definitive arrangement agreement dated September
27, 1999 (the "Arrangement Agreement") pursuant to which NPS Allelix Inc. ("NPS
Allelix"), an indirect, wholly-owned subsidiary of NPS, will acquire, subject
to the terms and conditions set out therein, all of the issued and outstanding
common shares in the capital of Allelix ("Allelix Common Shares") pursuant to a
plan of arrangement (the "Arrangement"). Pursuant to the Arrangement, each
Canadian resident holder of Allelix Common Shares will receive, at his or her
option, 0.3238 fully-paid and non-assessable common shares in the capital of
NPS ("NPS Common Shares") or 0.3238 fully-paid and non-assessable exchangeable
shares in the capital of NPS Allelix ("Exchangeable Shares"), for each Allelix
Common Share held. Holders of Allelix Common Shares who are not Canadian
residents will receive 0.3238 NPS Common Shares for each Allelix Common Share
held and are not entitled to elect to receive Exchangeable Shares. In this
report, where the context permits, references to "Allelix" shall include its
material subsidiaries.
5. Full Description of Material Change
Overview
Allelix and NPS have entered into the Arrangement Agreement pursuant to
which NPS Allelix will acquire, subject to the terms and conditions set out
therein, all of the issued and outstanding Allelix Common Shares under the
Arrangement. Pursuant to the Arrangement, each Canadian resident holder of
Allelix Common Shares will receive, at his or her option, 0.3238 NPS Common
Shares or 0.3238 Exchangeable Shares for each Allelix Common Share held.
Holders of Allelix Common Shares who are not Canadian residents will receive
0.3238 NPS Common Shares for each Allelix Common Share held and are not
entitled to elect to receive Exchangeable Shares. Subject to regulatory
approval, it is intended that the Exchangeable Shares will be listed on The
Toronto Stock Exchange ("TSE").
M-1
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The Exchangeable Shares will be securities of NPS Allelix that entitle their
holders to dividend and other rights that are functionally and economically
equivalent in all material respects to those of the NPS Common Shares. Some of
the principal characteristics of the Exchangeable Shares are as follows:
. the right of the holders of Exchangeable Shares at any time to exchange
these shares for NPS Common Shares on a share-for-share basis (with an
adjustment for dividends payable, if any);
. the continued economic equivalency of the Exchangeable Shares and the
NPS Common Shares through extensive anti-dilution provisions;
. the right to receive dividends, on a per share basis, in amounts (in
equivalent Cdn. currency) (or property in the case of non-cash
dividends) which are the same as, and which are payable at the same time
as, dividends declared on NPS Common Shares;
. the right to vote, on a per share equivalent basis, at all stockholder
meetings at which NPS Common Shares are entitled to vote, through a
special voting share in the capital of NPS carrying votes equal to the
number of outstanding Exchangeable Shares which is held by a trustee for
the benefit of the holders of the Exchangeable Shares; and
. the right to participate, on a per share equivalent basis, in a
liquidation, dissolution or other winding-up of NPS, on a pro rata basis
with the holders of NPS Common Shares in the distribution of assets of
NPS, pursuant to a mandatory exchange of Exchangeable Shares for NPS
Common Shares.
Pursuant to the Arrangement Agreement, NPS will enter into: (i) a support
agreement (the "Support Agreement") with NPS Allelix and NPS Holdings Limited,
a wholly-owned subsidiary of NPS ("NPS Holdings"), and (ii) a voting and
exchange trust agreement (the "Voting and Exchange Trust Agreement") with NPS
Allelix and a trustee, in order to ensure that the Exchangeable Shares have
equivalent economic and other attributes to the NPS Common Shares. NPS Holdings
has the right pursuant to the Arrangement to purchase from the holders of the
Exchangeable Shares all but not less than all of the then outstanding
Exchangeable Shares in exchange for an equal number of NPS Common Shares i) at
any time that there are fewer than 1,000,000 Exchangeable Shares outstanding
(other than those held by NPS and its affiliates); ii) at any time on or after
the occurrence of certain control transactions (e.g. any merger, amalgamation,
tender offer, material sale of shares, etc.) involving NPS where it is not
reasonably practicable to substantially replicate the existing terms and
conditions of the Exchangeable Shares in connection with such control
transaction; and iii) at any time on or after December 31, 2004.
The Arrangement requires the approval of the registered shareholders of
Allelix as well as the approval of the Superior Court of Justice (Ontario) (the
"Court"). Accordingly, pursuant to the Arrangement, Allelix and NPS will apply
to the Court for an order approving the Arrangement. In connection with such
application, Allelix and NPS will proceed with an application for an interim
order (the "Interim Order") of the Court providing for, among other things, the
calling and holding of a special meeting of the registered shareholders of
Allelix (the "Allelix Meeting") for the purpose of such holders considering
and, if deemed advisable, approving the Arrangement. In connection with the
Arrangement, it is proposed that Allelix will be continued (the "Continuance")
under the Business Corporations Act (Ontario) ("OBCA"). Accordingly, the
registered shareholders of Allelix will also be asked to consider and, if
deemed advisable, approve a resolution authorizing the Continuance. Subject to
obtaining the approval of the registered shareholders of Allelix of the
Arrangement and the Continuance as contemplated by the Interim Order, Allelix
and NPS will take all remaining steps necessary to submit the Arrangement to
the Court and to apply for a final order of the Court (the "Final Order").
Both the Arrangement and the Continuance must be approved by a specified
majority of the votes cast at the Allelix Meeting (likely to be two-thirds of
the votes cast unless the Court provides otherwise in the Interim Order). NPS
will also hold a meeting of the registered holders of NPS Common Shares (the
"NPS Meeting") where such holders will consider and, if determined advisable,
approve, among other things: (i) an amendment to the articles of incorporation
of NPS to increase the number of NPS Common Shares authorized for issuance;
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and (ii) the issuance of NPS Common Shares in connection with the Arrangement,
such shares being listed on the NASDAQ.
Arrangement Agreement
The following is a summary of the material terms of the Arrangement
Agreement and as such is qualified in its entirety by the Arrangement Agreement
which is attached hereto as Exhibit "2".
Allelix--No Soliciting Other Offers
Without the prior written consent of NPS, from and after the date of the
Arrangement Agreement, Allelix and its subsidiaries will not, and will not
authorize or permit any of their officers, directors, employees, financial
advisors, representatives and agents (the "Representatives") to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
information) or take any other action to facilitate any enquiries or the making
of any proposal which constitutes or may reasonably be expected to lead to an
Acquisition Proposal (as defined below) from any person, or engage in any
discussions or negotiations relating thereto or accept any Acquisition
Proposal.
Notwithstanding the above however, Allelix may at any time prior to the time
the holders of the Allelix Common Shares shall have voted to approve the
Arrangement and the other transactions contemplated thereby, engage in
discussions or negotiations with a third party who (without any solicitation,
initiation, or encouragement, directly or indirectly, by Allelix, any of its
subsidiaries or the Representatives after the date of the Arrangement
Agreement) seeks to initiate such discussions or negotiations and may furnish
such third party information concerning Allelix and its business, properties
and assets if and only to the extent that:
(i) the third party has (A) first made an Acquisition Proposal that is
financially superior to the transaction contemplated by the Arrangement
Agreement which, in any event, shall mean that such proposal shall offer a
value per Allelix Common Share greater than the per share value
attributable thereto under the transaction contemplated by the Arrangement
Agreement and (B) demonstrated that the funds or other consideration
necessary for the Acquisition Proposal are reasonably likely to be
available (as determined in good faith, in each case by Allelix's board of
directors after receiving the advice of its financial advisors to this
effect in writing or recorded in the minutes) (a "Superior Proposal") and
Allelix's board of directors has concluded in good faith, after considering
the applicable law and receiving the advice of outside counsel to this
effect in writing or recorded in the minutes, that such action is necessary
for the board of directors to act in a manner consistent with its fiduciary
duties under the applicable law; and
(ii) prior to furnishing such information to or entering into
discussions or negotiations with such person or entity, Allelix provides
prompt notice to NPS to the effect that it is furnishing information to or
entering into discussions or negotiations with such person or entity and
receives from such person or entity an executed confidentiality and
restricted use agreement in reasonably customary form.
Pursuant to the Arrangement Agreement, Allelix is obligated to notify NPS
orally and in writing of any enquiries, offers or proposals with respect to an
Acquisition Proposal (including, without limitation, terms and conditions of
any such proposal, the identity of the person making it and all other
information reasonably requested by NPS) within 12 hours of the receipt
thereof, shall answer NPS's questions with respect to such enquiries, offers or
proposals and shall give NPS five days advance notice of any agreement to be
entered into with, or information to be supplied to, any person making such
enquiry, offer or proposal.
Allelix has covenanted that it will not enter into any agreement regarding a
Superior Proposal (the "Proposed Agreement") without providing NPS with an
opportunity to amend the Arrangement Agreement to provide for a value per
Allelix Common Share at least equal to that included in the Proposed Agreement
(as determined in good faith by Allelix's board of directors after receiving
the advice of its financial advisors to
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this effect in writing or recorded in the minutes). In particular, Allelix has
covenanted to provide NPS with a copy of any Proposed Agreement as executed by
the party making the proposal at least 72 hours prior to its proposed execution
by Allelix. In the event that NPS decided to amend the Arrangement Agreement as
provided above, Allelix has covenanted that it will not enter into the Proposed
Agreement.
"Acquisition Proposal" is defined in the Arrangement Agreement to mean a
written proposal or offer by any person to acquire beneficial ownership of all
or a material portion of the assets of Allelix (including shares of its
subsidiaries) or one or more of its subsidiaries or not less than 10 percent of
the Allelix Common Shares or of one or more of its subsidiaries pursuant to an
amalgamation, plan of arrangement, consolidation or other business combination,
sale of shares or other securities, sale of assets, take-over bid or tender
offer or exchange offer or similar transaction involving Allelix or one or more
of its subsidiaries including, without limitation, any single or multi-step
transaction or series of related transactions which is structured to permit
such third party to acquire beneficial ownership or any material portion of the
assets of, or such percentage of the Allelix Common Shares or one or more of
its subsidiaries (other than transactions contemplated by the Arrangement
Agreement).
NPS--No Shop
Without the prior written consent of Allelix, NPS and its subsidiaries will
not, and will not authorize or permit any of their officers, directors,
employees, financial advisors, representatives and agents to, directly or
indirectly, solicit, initiate or encourage or take any other action to
facilitate any enquiries or the making of a proposal which constitutes or may
be reasonably expected to lead to an NPS Acquisition Proposal, which is defined
in the Arrangement Agreement to be a written proposal or offer by any person to
acquire not less than 20 percent of the NPS Common Shares by business
combination, sale of issued or treasury shares or tender or exchange offer or
similar transaction, including, without limitation, any single or multi-step
transaction or series of related transactions which are structured to permit a
person to acquire such NPS Common Shares. However, NPS may engage in
discussions or negotiations at any time with a third party who seeks to
initiate such discussions and may furnish such a third party with information
concerning NPS if the board of directors of NPS has concluded, after
considering applicable law and receiving the advice of counsel in writing, in
good faith that such action is necessary for the board of directors to act in a
manner consistent with its fiduciary duties.
Access
NPS will be entitled, on reasonable notice to Allelix, to access Allelix's
premises and will be entitled to meet with Allelix's shareholders, creditors,
licensors, licensees and employees. Allelix and its subsidiaries must keep NPS
fully informed as to its and its subsidiaries' business and affairs and as to
the decisions required with respect to the most advantageous methods of
operating and producing from its and its subsidiaries' assets.
Topping Fee/Break Fee
Allelix is obligated to pay to NPS a U.S.$2,000,000 topping fee if any of
the following occur:
(i) Allelix breaches its covenants or agreements in the Arrangement
Agreement in any material respect;
(ii) NPS terminates the Arrangement Agreement because the board of
directors of Allelix has withdrawn or varied in a manner determined by NPS
to be adverse, its approval of the Arrangement Agreement or the Arrangement
or its unanimous recommendation to the holders of Allelix Common Shares
unless the board of directors of Allelix has so acted because of a material
adverse change affecting NPS, and such change is not attributable to a
material adverse change affecting Allelix;
(iii) Allelix terminates the Arrangement Agreement in order to enter
into a definitive written agreement with respect to a Superior Proposal; or
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(iv) an Acquisition Proposal is announced (in this instance, the
reference to 10 percent of the Allelix Common Shares in the definition of
Acquisition Proposal shall be deemed to be a reference to 20 percent of the
Allelix Common Shares), the holders of the Allelix Common Shares do not
approve the Arrangement at the Allelix Meeting, and a significant
transaction involving the acquisition of a material portion of the assets
of Allelix or one or more of its subsidiaries or Allelix Common Shares so
as to hold not less than 20 percent or more of the Allelix Common Shares
outstanding is completed with the person who made the Acquisition Proposal
within the twelve months following the date of the Allelix Meeting.
NPS is obligated to pay to Allelix a break fee of U.S.$1,000,000 in the
event that NPS breaches a covenant or agreement on its part in the Arrangement
Agreement in any material respect, or the holders of the NPS Common Shares do
not approve the matters relating to the Arrangement considered at the NPS
Meeting except following a material adverse change affecting Allelix. The
break fee shall be increased to U.S.$2,000,000 in the event that the board of
directors of NPS withdraws or varies its unanimous recommendation to the
holders of NPS Common Shares in a manner determined by Allelix to be adverse
to Allelix, otherwise than because of a material adverse change affecting
Allelix.
Standstill
Each of Allelix and NPS has agreed that neither it nor an affiliate will,
prior to June 27, 2000, without the prior written consent of the other party,
among other things:
(i) acquire, offer or agree to acquire, directly or indirectly, by
purchase or otherwise, individually or in concert with any other person,
any voting securities or securities convertible into or exchangeable for
voting securities, of the other party;
(ii) directly or indirectly make, or in any way participate in, any
solicitation of proxies to vote, or seek to advise or influence any other
person with respect to the voting of any voting securities of the other
party; or
(iii) act alone or in concert with others to seek to control the
management, directors or corporate policies of the other party.
The above restrictions will not apply in the event an offer is made (and
not withdrawn at the time the conduct otherwise prohibited by the foregoing
has commenced) to acquire beneficial ownership of all or a material portion of
the assets of the other party or one or more of its subsidiaries or not less
than 20 percent of the issued and outstanding common shares of the other party
pursuant to a transaction to be considered at a meeting of security holders
requisitioned by a security holder of such other party or pursuant to a take-
over bid, tender offer, or similar transaction involving the other party.
Termination
The Arrangement Agreement may be terminated by:
(i) the delivery by one party to another of a written notice stating
that a condition precedent for the benefit of the party initiating such
notice has not been fulfiled or satisfied within the time contemplated by
the Arrangement Agreement and that the Arrangement Agreement is accordingly
terminated;
(ii) NPS if the board of directors of Allelix has withdrawn or varied in
a manner determined by NPS to be adverse to NPS, approval of the
Arrangement Agreement or the Arrangement or its unanimous recommendation to
the holders of Allelix Common Shares;
(iii) Allelix if the board of directors of NPS has withdrawn its
unanimous recommendation to the holders of the NPS Common Shares to vote in
favour of the resolutions contemplated in the Arrangement Agreement to be
considered at the NPS Meeting;
(iv) Allelix in order to enter into a definitive written agreement with
respect to a Superior Proposal;
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(v) the mutual agreement of Allelix and NPS (without further action on
the part of the holders of the Allelix Common Shares if terminated after
the holding of the Allelix Meeting); or
(vi) either NPS or Allelix if there has been passed any law or
regulation that makes consummation of the transactions contemplated by the
Arrangement Agreement illegal or otherwise prohibited or if any injunction,
order or decree enjoining NPS or Allelix from consummation of the
transactions contemplated by the Arrangement Agreement is entered into and
such injunction, order or decree becomes final and non-applicable.
Mutual Conditions to Closing
The Arrangement Agreement provides that the respective obligations of each
of Allelix and NPS to complete the transactions contemplated therein are
subject to the satisfaction, on or before the Effective Date or at such other
specified time, of a number of conditions precedent, including the following:
(i) the Interim Order shall have been granted in form and substance
satisfactory to Allelix and NPS, acting reasonably, on or before October
31, 1999 and shall not have been set aside or modified in a manner
unacceptable to such parties on appeal or otherwise;
(ii) the resolution approving the Arrangement shall have been duly
approved by the required majority of the holders of Allelix Common Shares,
with or without amendment, in accordance with the Interim Order, on or
before January 20, 2000;
(iii) each of the resolutions considered at the NPS Meeting shall have
been duly approved by the required majority without amendment on or before
January 20, 2000;
(iv) Allelix shall have obtained articles of continuance from the
Director appointed under section 278 of the OBCA (the "OBCA Director") in
form and substance satisfactory to Allelix and NPS, acting reasonably;
(v) the Final Order shall have been granted in form and substance
satisfactory to Allelix and NPS, acting reasonably, on or before January
31, 2000, and shall not have been set aside or modified in a manner
unacceptable to such parties on appeal or otherwise;
(vi) the articles of arrangement relating to the Arrangement shall be in
form and substance satisfactory to Allelix and NPS, acting reasonably;
(vii) the Effective Date shall be on or before January 31, 2000;
(viii) (A) no act, action, suit or proceeding shall have been taken or
be outstanding before or by any domestic or foreign court or tribunal or
governmental agency or other regulatory authority or administrative agency
or commission by any elected or appointed public official or private person
(including, without limitation, any individual, corporation, firm, group or
other entity) in Canada or elsewhere, whether or not having the force of
law, and (B) no law, regulation or policy shall have been proposed,
enacted, promulgated or applied which, in either case, has effect, or may
have effect, to cease trade, enjoin, or prohibit the acquisition by NPS of
the Allelix Common Shares, or the right of NPS to own or exercise full
rights of ownership of the Allelix Common Shares, or the issuance, pursuant
to the Arrangement, of NPS Common Shares and Exchangeable Shares to the
holders of Allelix Common Shares;
(ix) there shall not exist any prohibition at law against NPS or Allelix
and the holders of Allelix Common Shares consummating the Arrangement;
(x) Allelix and NPS shall have obtained the consents, approvals and
authorizations referred to in Section 3.18 of the Arrangement Agreement and
such other material consents, approvals and authorizations (if any),
regulatory or otherwise, required or necessary in connection with the
transactions contemplated therein on terms and conditions satisfactory to
each of them, acting reasonably;
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(xi) the Exchangeable Shares issuable pursuant to the Arrangement shall
have been conditionally approved for listing on the TSE subject to the
filing of the usual and customary documentation;
(xii) any required orders from applicable securities authorities
authorizing the issue of the Exchangeable Shares shall have been obtained
on terms satisfactory to NPS and Allelix, both acting reasonably;
(xiii) there shall not have occurred any actual or threatened change
(including a proposal by the Minister of Finance of Canada to amend the ITA
or any announcement, governmental or regulatory initiative, condition,
event or development involving a change or a prospective change) that, in
the judgment of NPS, acting reasonably, directly or indirectly, has or may
have a material adverse effect with respect to consummating the proposed
transaction; and
(xiv) holders of not more than 10 percent of Allelix's Common Shares
shall have exercised Dissent Rights (as defined in the Arrangement
Agreement).
Conditions to Closing for the Benefit of Allelix
The Arrangement Agreement provides that the obligation of Allelix to
complete the transactions contemplated therein is subject to the satisfaction
or waiver, where permissible, of a number of additional conditions, including
the following:
(i) the representations and warranties made by NPS in the Arrangement
Agreement shall be true as of the Effective Date as if made on and as of
such date and NPS shall have provided to Allelix the certificate of one
senior officer of NPS certifying such accuracy on the Effective Date (and
Allelix shall have no knowledge to the contrary);
(ii) NPS shall have provided Allelix with opinions of NPS's counsel and
addressed to Allelix and Allelix's counsel as required pursuant to the
Arrangement Agreement;
(iii) the appointment of three Allelix directors, to be jointly
designated by NPS and Allelix, acting reasonably, to the board of directors
of NPS;
(iv) NPS shall have complied with its covenants in the Arrangement
Agreement and shall have provided to Allelix the certificate of a senior
officer of NPS certifying that NPS has complied with its respective
covenants therein and Allelix shall have no knowledge to the contrary;
(v) between the date of the most recent public disclosure by NPS and the
Effective Date, there shall not have occurred any material adverse change
with respect to NPS that is not attributable to a material adverse change
with respect to Allelix;
(vi) NPS, NPS Holdings and NPS Allelix shall have entered into the
Support Agreement; and
(vii) NPS, NPS Allelix and a trust company acceptable to NPS and
Allelix, acting reasonably, shall have entered into the Voting and Exchange
Trust Agreement.
Conditions to Closing for the Benefit of NPS
The Arrangement Agreement provides that the obligation of NPS to complete
the transactions contemplated therein is subject to the satisfaction or waiver,
where permissible, of a number of additional conditions, including the
following:
(i) the representations and warranties made by Allelix in the
Arrangement Agreement shall be true as of the Effective Date as if made on
and as of such date and Allelix shall have provided to NPS a certificate of
the Chairman of the board of directors of Allelix and the Chief Executive
Officer (or such other officer of Allelix that may be acceptable to NPS,
acting reasonably) certifying such accuracy on the Effective Date (and NPS
shall have no knowledge to the contrary);
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(ii) Allelix shall have provided NPS with an opinion of Allelix's
counsel in form and substance satisfactory to NPS, acting reasonably dated
the Effective Date (or such other date as Allelix and NPS may agree) and
addressed to NPS and NPS's counsel as required pursuant to the Arrangement
Agreement;
(iii) Allelix shall have complied, in all material respects, with its
covenants in the Arrangement Agreement and Allelix shall have provided to
NPS a certificate of the Chairman of the board of directors of Allelix and
the Chief Executive Officer (or such other officer of Allelix that may be
acceptable to NPS, acting reasonably) certifying that Allelix has complied
with its covenants therein and NPS shall have no knowledge to the contrary;
(iv) the Interim Order, the Final Order and any required orders from the
applicable securities commissions authorizing the issuance of the
Exchangeable Shares shall have been obtained on terms satisfactory to NPS,
acting reasonably;
(v) between the date of the most recent public disclosure by Allelix,
and the Effective Date, there shall not have occurred any material adverse
change with respect to Allelix; and
(vi) the directors of Allelix and its subsidiaries shall have tendered
their resignations to be effective on the Effective Date.
Mutual Representations and Warranties
The Arrangement Agreement contains a number of mutual representations and
warranties of Allelix and NPS, relating to, among other things: (i) the
corporate existence, organization and qualification of each of Allelix and NPS;
(ii) authorization, execution, delivery and enforceability of the Arrangement
Agreement; (iii) the absence of any violations, conflicts, breaches, defaults,
rights, encumbrances, suspensions, revocations or lack of consents, approvals
or notices which would have a material adverse effect on the party giving the
representation and warranty; (iv) the absence of any outstanding actions,
suits, proceedings or investigations, either commenced, contemplated or
threatened against either of Allelix or NPS, including their respective
subsidiaries, which could reasonably be expected to have a material adverse
effect on the party giving the representation and warranty; (v) financial
statements; (vi) minute books and records; (vii) the filing of tax returns and
the payment of taxes; (viii) the maintenance of insurance; (ix) environmental
matters; (x) employment agreements and labour matters; (xi) the obtaining by
Allelix and NPS of various consents and approvals except where the failure to
obtain such consent or approval would not constitute a material adverse effect
to the party giving the representation and warranty; and (xii) intellectual
property rights.
Representations and Warranties of Allelix
The Arrangement Agreement contains a number of additional representations
and warranties of Allelix relating to, among other things: (i) the
capitalization of Allelix; (ii) the status of Allelix as a reporting issuer
under the securities laws of each province of Canada and the listing of all
issued and outstanding Allelix Common Shares on the TSE (issuable Allelix
Common Shares are listed on the TSE subject to issuance); (iii) the truth and
correctness of the material provided by Allelix for inclusion in the
information circular of NPS; and (iv) the 1999 audited financial statements of
Allelix. Allelix has also represented and warranted that the board of directors
of Allelix has: i) unanimously determined that the Arrangement is fair to the
holders of Allelix Common Shares and that the Arrangement is in the best
interests of Allelix and the holders of Allelix Common Shares; ii) approved the
Arrangement and the entering into and execution of the Arrangement Agreement;
and iii) resolved to recommend that the holders of the Allelix Common Shares
vote in favour of the Arrangement.
Representations and Warranties of NPS
The Arrangement Agreement contains a number of additional representations
and warranties of NPS relating to, among other things, (i) the capitalization
of NPS; (ii) the status of NPS as a reporting company
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under the U.S. Securities Exchange Act of 1934, as amended; and (iii) the truth
and correctness of the material provided by NPS for inclusion in the
information circular of Allelix. NPS has also represented and warranted that
the board of directors of NPS has unanimously approved the Arrangement
Agreement and has determined to recommend that the holders of the NPS Common
Shares vote in favour of the matters contemplated in the Arrangement Agreement
to be voted on at the NPS Meeting.
Mutual Covenants
Each of Allelix and NPS has covenanted, among other things, that, until the
Effective Date or the date upon which the Arrangement Agreement is terminated,
whichever is earlier, they will:
(i) use all reasonable commercial efforts to satisfy the conditions
precedent to their respective obligations set out in the Arrangement
Agreement and to do all other things necessary, proper or advisable under
applicable laws to complete the Arrangement, including using all reasonable
commercial efforts to obtain all necessary waivers, consents, approvals and
authorizations required to be obtained under loan agreements, leases, other
contracts or under applicable law and to effect all necessary registrations
and filings and submissions of information requested by governmental
authorities required to be effected in connection with the Arrangement;
(ii) make available and cause to be made available to the other party,
their agents and advisors, all documents and agreements in any way relating
to or affecting their business, financial condition, operations, prospects,
properties, assets or affairs, except where they are contractually
precluded from making such document or agreement available in which case
they shall co-operate with the other party in securing access to any such
documentation not in their possession or under their control;
(iii) not take any action, refrain from taking any action or permit any
action to be taken or not taken, inconsistent with the Arrangement
Agreement or which might, directly or indirectly, interfere with or
adversely affect the consummation of the Arrangement; and
(iv) not, during the period commencing on the date of the Arrangement
Agreement and ending on the earlier of the Effective Date of the
Arrangement and the second anniversary of the termination of the
Arrangement Agreement, directly or indirectly solicit, induce, recruit or
encourage any of the other party's employees to terminate their employment
with the other party or attempt to solicit, induce or recruit employees of
the other party.
Covenants of Allelix
Allelix has covenanted and agreed, among other things, that, until the
Effective Date or the date on which the Arrangement Agreement is terminated,
whichever is earlier, it will:
(i) in a timely and expeditious manner and as soon as reasonably
practicable, but in any event not later than October 31, 1999, file,
proceed with and prosecute an application to the Court under the Canada
Business Corporations Act and/or the OBCA, as required, for the Interim
Order with respect to the Arrangement;
(ii) in a timely and expeditious manner and as soon as reasonably
practicable, carry out the terms of the Interim order; prepare and file the
notice of meeting and management information circular of Allelix (the
"Information Circular") prepared in connection with the Allelix Meeting;
allow NPS and its counsel to participate fully in preparation of the
Information Circular; convene the Allelix Meeting; solicit proxies to be
voted at the Allelix Meeting in favour of the Arrangement; provide notice
to NPS of the Allelix Meeting and allow NPS's representatives to attend the
Allelix Meeting; and conduct the Allelix Meeting in accordance with the
Interim Order, the by-laws of Allelix and any instrument governing such
meeting;
(iii) in a timely and expeditious manner and, in any event not later
than October 20, 1999, deliver to NPS the audited financial statements
prepared in respect of its fiscal year ended August 31, 1999;
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(iv) subject to the approval of the Arrangement at the Allelix Meeting
in accordance with the provisions of the Interim Order, file, proceed with
and prosecute an application for the Final Order;
(v) forthwith carry out the terms of the Final Order and, subject to the
receipt of the Final Order, will file the articles of arrangement and the
Final Order with the OBCA Director in order for the Arrangement to become
effective on or before January 31, 2000;
(vi) subject to approval of the resolution relating to the Continuance
at the Allelix Meeting, file articles of continuance with the OBCA
Director;
(vii) not to incur significant new capital expenditures above specified
levels;
(viii) not to incur any indebtedness for borrowed money; and
(ix) not to enter into or agree to enter into any licence agreement,
collaboration and/or development agreement or any other agreement to sell,
convey, transfer, assign or encumber any of its right, title or interest in
any of its research, pre-clinical or clinical development programs.
Covenants of NPS
NPS has covenanted and agreed, among other things, that, until the
Effective Date or the date on which the Arrangement Agreement is terminated,
whichever is earlier, it will:
(i) not issue NPS Common Shares at a price which is less than the then
current market price on their date of issue, less 10 percent, except upon
the exercise of NPS options;
(ii) allow Allelix and its counsel to participate fully in the
preparation of the notice of meeting and management information circular of
NPS prepared in connection with the NPS Meeting;
(iii) in a timely and expeditious manner and as soon as practicable but
in any event not later than January 15, 2000, convene the NPS Meeting;
(iv) solicit proxies to be voted at the NPS Meeting in favour of the
matters to be considered thereat;
(v) provide notice to Allelix of the NPS Meeting and allow Allelix's
representatives to attend the NPS Meeting;
(vi) to the extent within its power, forthwith carry out the terms of
the Interim Order and the Final Order;
(vii) to appoint three Allelix directors to the board of directors of
NPS mutually acceptable to Allelix and NPS, acting reasonably;
(viii) not to acquire or agree to acquire (by acquisition of securities
or assets or otherwise) any corporation, partnership or other business
organization or division or any assets or properties for consideration of
more than U.S.$4,000,000 in total; and
(ix) except with the prior written consent of Allelix, to cause it and
its subsidiaries to use all reasonable efforts to preserve intact their
present business, licenses and permits and to not, nor permit its
subsidiaries to enter into any transaction out of the ordinary course of
business if the total obligations and commitments of NPS and its
subsidiaries thereunder exceed U.S.$4,000,000.
6. Reliance on Confidentiality Provisions of Securities Legislation
Not applicable.
7. Omitted Information
No information has been omitted in respect of the material change.
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8. Senior Officers
For further information, please contact:
Paul J. Van Damme
Senior Vice-President and Chief Financial Officer
Telephone: (905) 677-0831
9. Statement of Senior Officer
The foregoing accurately discloses the material change referred to herein.
DATED at Toronto, this 6th day of October, 1999.
/s/ James Howard-Tripp
_____________________________________
James Howard-Tripp
Senior Vice-President, Neuroscience
IT IS AN OFFENCE FOR A PERSON TO MAKE A STATEMENT IN A DOCUMENT REQUIRED TO
BE FILED OR FURNISHED UNDER THIS ACT OR THIS REGULATION THAT, AT THE TIME AND
IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH IT IS MADE, IS A MISREPRESENTATION.
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NPS PHARMACEUTICALS, INC.
SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 15, 1999
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned constitutes and appoints Hunter Jackson and James U. Jensen
(with full power to act alone), the attorneys and proxies of the undersigned,
with power of substitution to each, to vote all shares of common stock of NPS
Pharmaceuticals, Inc., registered in the name provided herein which the
undersigned is entitled to vote, at a Special Meeting of Stockholders. This
meeting will be held at the Marriott-University Park Hotel located at 500 South
Wakara Way, Salt Lake City, Utah on December 15, 1999 at 10:00 a.m. (local
time). This Proxy is given in accordance with the following instructions, and
carries discretionary authority related to any and all other matters that may
come before the meeting and any adjournments thereof.
1. To approve the issuance of shares of NPS common stock, $0.001 par value per
share, in connection with the Arrangement Agreement, dated as of September
27, 1999, by and among Allelix Biopharmaceuticals Inc. and NPS
Pharmaceuticals, Inc. as set forth in the Proxy Statement:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To approve an amendment to the Certificate of Incorporation of NPS
increasing the total number of shares of capital stock that NPS is
authorized to issue from 25,000,000 shares to 50,000,000 shares and the
total number of shares of common stock authorized for issuance thereunder
to 45,000,000 shares from 20,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
This Proxy when properly executed will be voted as directed above. If no
direction is made, this Proxy will be voted FOR the issuance of shares of NPS
common stock, in connection with the Arrangement Agreement between Allelix
Biopharmaceuticals Inc. and NPS Pharmaceuticals, Inc.; FOR the approval of an
amendment to the Certificate of Incorporation of NPS increasing the total number
of shares of capital stock that NPS is authorized to issue from 25,000,000
shares to 50,000,000 shares and the total number of shares of common stock
authorized for issuance thereunder to 45,000,000 shares from 20,000,000 shares.
Dated
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Please sign here
Do you plan to attend the Special Meeting? [ ] Yes [ ] No
Please date this Proxy and sign your name exactly as it
appears hereon. Joint owners should each sign. When
signing as an agent, attorney, administrator, executor,
guardian, or trustee, please indicate your title as such.
If executed by a corporation, the Proxy should be signed
in the corporate name by a duly authorized officer who
should indicate his title. Please date, sign, and mail
---------------------------
this proxy card in the enclosed envelope.
----------------------------------------
