-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QYeQFEQbtlQQERW+lpQDiVj9N6ZWfOpA/rnLkXnp4PJgVu2fjuDfI6HudviuUfHR tsQdwdubn4cAa3xchW7JXw== /in/edgar/work/0000950168-00-002414/0000950168-00-002414.txt : 20001115 0000950168-00-002414.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950168-00-002414 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALIX PHARMACEUTICALS LTD CENTRAL INDEX KEY: 0001009356 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 943267443 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23265 FILM NUMBER: 764452 BUSINESS ADDRESS: STREET 1: 3600 W BAYSHORE RD STREET 2: STE 205 CITY: PALO ALTO STATE: CA ZIP: 94303 BUSINESS PHONE: 6508495900 MAIL ADDRESS: STREET 1: 3600 W BAYSHORE BLVD STREET 2: SUITE 205 CITY: PALO ALTO STATE: CA ZIP: 94303 FORMER COMPANY: FORMER CONFORMED NAME: SALIX HOLDINGS LTD DATE OF NAME CHANGE: 19970807 10-Q 1 0001.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________. Commission file number: 000-23265 -------------------------- SALIX PHARMACEUTICALS, LTD. (Exact name of Registrant as specified in its charter) British Virgin Islands 94-3267443 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3801 Wake Forest Road, Suite 205 Raleigh, North Carolina 27609 (Address of principal executive offices, including zip code) (919) 788-8550 (Registrant's telephone number, including area code) 4101 Lake Boone Trail, Suite 418 Raleigh, NC 27607 (Former address) -------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The number of shares of the Registrant's Common Stock outstanding as of November 8, 2000 was 11,302,771. ================================================================================ SALIX PHARMACEUTICALS, LTD. TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No. - ------- --------------------- -------- Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999 (audited).............................. 1 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2000 and 1999 (unaudited) ............................................................. 2 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 (unaudited)..................... 3 Notes to Condensed Consolidated Financial Statements........................ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................................... 5 Item 3. Quantitative and Qualitative Disclosures About Market Risk...................... 9 PART II. OTHER INFORMATION - -------- ----------------- Item 6. Exhibits and Reports on Form 8-K .............................................. 9 Signatures ................................................................................... 10
PART I. FINANCIAL INFORMATION. Item 1. Condensed Consolidated Financial Statements SALIX PHARMACEUTICALS, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) (Expressed in U.S. Dollars)
September 30, December 31, 2000 1999 ------------- ------------ (unaudited) (audited) ASSETS Current assets: Cash and cash equivalents $ 7,011 $ 2,402 Accounts receivable 256 287 Inventory 2,108 378 Prepaids and other current assets 481 390 ---- ---- Total current assets 9,856 3,457 Property and equipment, net 188 151 Other assets 162 51 ---- --- $ 10,206 $ 3,659 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and other current liabilities $ 3,049 $ 1,444 Deferred revenue 2,957 ---- Commitments ---- ---- Shareholders' equity: Preferred stock, issuable in series, no par value; 5,000,000 shares authorized; none outstanding ---- ---- Common stock, no par value; 40,000,000 shares authorized; 11,269,447 shares issued and outstanding at September 30, 2000 and 10,208,838 shares issued and outstanding at December 31, 1999 28,009 27,626 Accumulated deficit (23,809) (25,411) -------- --------- Shareholders' equity 4,200 2,215 --------- -------- $ 10,206 $ 3,659 ========= ========
The accompanying notes are an integral part of these financial statements. 1 SALIX PHARMACEUTICALS, LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except per share data) (Expressed in U.S. Dollars)
Three months ended Nine months ended September 30, September 30, ------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- Revenues: Product revenue $ 299 $ 75 $ 852 $ 213 Other revenue 4,365 --- 13,737 1,484 ---------- -------- ------- -------- Total revenues 4,664 75 14,589 1,697 Expenses: Cost of products sold 284 111 819 674 License fees 2,522 --- 7,002 297 Research and development 1,161 1,127 2,485 3,977 Selling, general and administrative 1,239 382 2,785 1,501 ---------- -------- ------- -------- Total expenses 5,206 1,620 13,091 6,449 ---------- -------- ------- -------- Income (loss) from operations (542) (1,545) 1,498 (4,752) Interest, and other income (expense), net 75 56 113 160 ---------- -------- ------- -------- Net income (loss) before tax $ (467) $(1,489) $ 1,611 $ (4,592) Income tax --- --- 9 --- ---------- -------- ------- -------- Net income (loss) $ (467) $(1,489) $ 1,602 $ (4,592) ========== ======== ======= ======== Net income (loss) per share, basic $ (0.04) $ (0.15) $ 0.15 $ (0.45) ========== ========= ========= ======== Net income (loss) per share, diluted $ (0.04) $ (0.15) $ 0.14 $ (0.45) ========== ========= ========= ======== Shares used in computing net income (loss) per share, basic 11,223 10,209 10,948 10,209 ========== ========= ======== ======== Net effect of dilutive stock options based on treasury stock method using average market price --- --- 316 --- ---------- -------- ------- -------- Shares used in computing net income (loss) per share, diluted 11,223 10,209 11,264 10,209 ========== ========= ======== ========
The accompanying notes are an integral part of these financial statements. 2 SALIX PHARMACEUTICALS, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands) (Expressed in U.S. Dollars)
Nine months ended September 30, ------------------------------ 2000 1999 ---- ---- Cash flows from operating activities Net income (loss) $ 1,602 $ (4,592) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 95 68 Loss on disposal of equipment 13 --- Changes in assets and liabilities: Accounts receivable, inventory and other assets (1,901) 38 Accounts payable and other current liabilities 1,605 58 Deferred revenue 2,957 --- ----------- ---------- Net cash provided by (used in) operating activities 4,371 (4,428) Cash flows from investing activities Sale and maturity of short term investments --- 3,000 Purchases of property and equipment (145) (17) ----------- ---------- Net cash provided by (used in) investing activities (145) 2,983 Cash flows from financing activities Proceeds from issuance of common stock 383 --- ----------- ---------- Net cash provided by financing activities 383 --- Net increase (decrease) in cash and cash equivalents 4,609 (1,445) Cash and cash equivalents at beginning of period 2,402 2,763 ----------- ---------- Cash and cash equivalents at end of period $ 7,011 $ 1,318 =========== ==========
The accompanying notes are an integral part of these financial statements. 3 SALIX PHARMACEUTICALS, LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (Unaudited) 1. Organization and Basis of Presentation Salix Pharmaceuticals, Ltd. was incorporated in the British Virgin Islands in December 1993 for the purpose of acquiring all of the outstanding capital stock of Salix Pharmaceuticals, Inc., a California corporation ("Salix California"), and Glycyx Pharmaceuticals, Ltd., a Bermuda corporation. Salix California was incorporated in California in 1989 and Glycyx was incorporated in Bermuda in 1992. The Company is developing new pharmaceuticals, primarily focused in the area of gastrointestinal disease. The Company currently intends to commercialize its pharmaceutical products through its own direct sales force in the United States and via third party distributors or sub-licensees in other territories. The Company conducts its business within one industry segment. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. All amounts are denominated in United States dollars. Unless otherwise indicated, all references to "dollars" or "$" refer to United States dollars. The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring items) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. These financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Report and with the audited financial statements for the fiscal year ended December 31, 1999 included in the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1999 filed with the Securities and Exchange Commission. The results of operations for interim periods are not necessarily indicative of results to be expected for a full year or any future period. These statements have been prepared in accordance with accounting principles generally accepted in the United States. The application of these principles conforms in all material respects with financial statements prepared using accounting principles generally accepted in Canada. The Company's common stock is currently traded on The Toronto Stock Exchange under the symbol "SLX". 2. Commitments At September 30, 2000, the Company had a binding purchase order commitment for inventory purchases aggregating approximately $2.5 million to be delivered before January 31, 2001. 3. Inventory All inventories at December 31, 1999 were classified as raw materials. Inventories at September 30, 2000 consisted of raw materials of $1.0 million and finished goods of $1.1 million. 4. Subsequent Event In November 2000, the Company completed a private placement of its common stock to a limited number of accredited and sophisticated investors. The Company raised approximately $14.1 million through the issuance of 2,260,000 shares of common stock, along with warrants to purchase 226,000 additional shares at an exercise price of $9.72 per share. The Company also issued a similar warrant to purchase 158,200 shares to Leerink Swann & Company, the placement agent. The warrants have a five-year term, and are redeemable by the Company if its 4 common stock closes at over $16.90 per share for 10 consecutive trading days. The Company has also agreed to promptly register the common stock sold and issuable under the warrants. 5. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company will adopt SFAS 133 for its fiscal year ending December 31, 2001. The adoption of this pronouncement is expected to have no impact on the Company's results of operations or financial position. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), which among other guidance clarifies certain conditions to be met in order to recognize revenue. SAB 101 will require companies to recognize certain up-front non-refundable fees over the term of the related agreement unless the fee is in exchange for products delivered or services performed that represent the culmination of a separate earnings process. The Company has reviewed the requirements of SAB 101 as it relates to the Shire Pharmaceuticals agreement signed in May 2000 and discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Report. A substantial portion of the first payment from the agreement is in consideration for prior development of balsalazide and the purchase of the intellectual property related to balsalazide. This portion of the first payment was recognized as revenue in the second quarter. The Company believes that adoption of SAB 101 will not have a material impact on the Company's results of operations or financial condition. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those set forth under "Cautionary Statement" under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in, or incorporated by reference into, this report. The following discussion should be read in conjunction with the Company's Condensed Consolidated Financial Statements and notes thereto included elsewhere in this report. Overview Salix Pharmaceuticals, Ltd. ("Salix" or "the Company") is a specialty pharmaceutical company dedicated to acquiring, developing and commercializing brand name, prescription pharmaceutical products used in the treatment of a variety of gastrointestinal diseases. The Company does not do any basic research - - instead Salix engages in product "search and development" efforts. Salix's strategy is to identify and acquire late-stage proprietary pharmaceutical products having an existing base of safety and efficacy data in humans for the treatment of gastrointestinal disease, and to apply the Company's regulatory, product development, and sales and marketing expertise to commercialize these products. Salix selects products that have potential for rapid regulatory approval, and that are marketable to U.S. gastroenterologists through the Company's specialized sales force. Once approval is received for an initial indication, the Company might perform clinical studies for other broader indications to expand the approved use of the drug. This strategy is designed to significantly reduce the expense, time and risk typically associated with pharmaceutical research and development, and to expedite the commercialization of higher potential products. COLAZAL(TM) (balsalazide disodium) and rifaximin are the Company's first two in-licensed products. Salix in-licensed COLAZAL and completed the development work which resulted in U.S. Food and Drug Administration (FDA) approval in July 2000. Salix also in-licensed rifaximin and has completed Phase III clinical trials on the product. Salix currently intends to strategically market these and future products to U.S. gastroenterologists through its own direct sales 5 force, and form strategic partnerships outside the United States and in markets where a larger sales organization is necessary. The Company has generated limited revenues to date from the sales of products. The Company expects both sales revenues and operating expenses to increase as the Company intends to launch COLAZAL(TM) in the United States through its specialized sales force and continues product development and clinical programs for rifaximin. As of September 30, 2000, the Company had accumulated losses of approximately $23.8 million. Since 1992, the Company has financed its operations principally through reimbursement payments, license fees and milestone revenues under collaborative research and licensing agreements, and sales of equity and convertible debt securities. In May 2000, the Company signed an agreement with Shire Pharmaceuticals Group under which Shire purchased from Salix the exclusive rights to balsalazide, a treatment for ulcerative colitis, for Austria, Belgium, Denmark, Finland, France, Germany, Iceland, Republic of Ireland, Luxembourg, Norway, the Netherlands, Switzerland, Sweden and the United Kingdom. Under the agreement, Shire paid the Company a first payment of $11.7 million in the second quarter in consideration for the prior development of balsalazide and the purchase of the intellectual property related to balsalazide. During the third quarter, Shire paid the Company a $4.4 million milestone payment in connection with the transfer of the United Kingdom product license for balsalazide to Shire. Shire could pay an aggregate of as much as $7.2 million consisting of several milestone payments payable upon achievement of certain events. $3.0 million of the first payment was deferred and will be recognized as revenue, if and when expense is incurred for clinical trials necessary for registration of balsalazide in France, Germany and the Netherlands. Balsalazide was first approved in the United Kingdom in July 1997 for the treatment of acute ulcerative colitis and launched by AstraZeneca under the brand name COLAZIDE(R) in October 1997. Following receipt of pricing approvals AstraZeneca launched balsalazide in Sweden and Denmark in March 1999. AstraZeneca has also received approval for balsalazide in Argentina, Austria, Belgium, Brazil, Czech Republic, Iceland, Luxembourg, Norway and Switzerland and applications are pending in several other countries. Balsalazide is also approved in Italy, where following receipt of pricing approval it will be distributed by Menarini. On July 24, 2000, the Company announced that COLAZAL(TM) (balsalazide disodium) was approved by the United States Food and Drug Administration (FDA) for marketing in the United States for the treatment of mildly to moderately active ulcerative colitis, a chronic and debilitating inflammatory disease of the gastrointestinal tract. Product revenues to date have resulted primarily from sales of balsalazide in the United Kingdom, Sweden and Denmark. The Company has to date recognized only nominal product revenues from sales of balsalazide to Menarini for use in production trials. The Company is obligated to pay to Biorex, the original licensor of the product, a portion of any gross profit on balsalazide sales outside the United States, and will also share with Biorex any payments received from distribution partners outside the United States. In addition, the Company anticipates product costs will remain high until production volumes increase, thereby allowing the Company to benefit from economies of scale. The Company's second product, rifaximin, is currently under development. The Company obtained the rights to develop, make, use and sell rifaximin in Canada and the United States from Alfa Wassermann S.p.A. in exchange for future royalties and milestone payments. Under a separate agreement, Alfa Wassermann will supply Salix with bulk active ingredient rifaximin at a fixed price. The Company intends to pursue regulatory approvals for the initial indication for rifaximin, bacterial infectious diarrhea, with the cost of the clinical trials being borne by the Company. The Company is currently sponsoring a Phase III trial for the treatment of bacterial infectious diarrhea in travelers, which is expected to be completed during 2000. The Company plans further development of rifaximin for several other possible indications, which may include hepatic encephalopathy and antibiotic associated colitis. In February 1998, the Company received Orphan Drug Designation from the FDA for rifaximin to treat hepatic encephalopathy. Orphan Drug Designation can entail advantages in the testing and approval process for the drug. 6 Results of Operations Three-Month and Nine-Month Periods Ended September 30, 2000 and 1999 For the three-month period ended September 30, 2000, the Company recognized product revenue from sales to Shire Pharmaceuticals Group of $0.3 million and other revenue of $4.4 million. During the corresponding three-month period ended September 30, 1999 the Company recorded product revenue of $0.1 million. Higher other revenues for the three-month and nine-month periods ended September 30, 2000 were due to the signing of an agreement with Shire under which Shire purchased from Salix the intellectual property related to balsalazide disodium, a treatment for ulcerative colitis, for Austria, Belgium, Denmark, Finland, France, Germany, Iceland, Republic of Ireland, Luxembourg, Norway, the Netherlands, Switzerland and the United Kingdom. Under the agreement, Shire paid the Company a first payment of $11.7 million in the second quarter in consideration for the prior development of balsalazide and the purchase of the intellectual property related to balsalazide. During the third quarter, Shire paid the Company a $4.4 million milestone payment in connection with the transfer of the United Kingdom product license for balsalazide to Shire. Total expenses for the three months ended September 30, 2000 and 1999 were $5.2 million and $1.6 million, respectively. Total expenses for the nine months ended September 30, 2000 and 1999 were $13.1 million and $6.4 million, respectively. The increases in operating expenses from the corresponding prior periods were due primarily to non-recurring license fees to licensors and higher selling, general and administrative expenses associated with the planned launch of COLAZAL(TM). Cost of products sold for the three-month and nine-month periods ended September 30, 2000 were $0.3 million and $0.8 million respectively, compared with $0.1 million and $0.7 million in the corresponding three-month and nine-month periods in 1999. License fees totaled $2.5 million and $7.0 million for the three-month and nine-month periods ended September 30, 2000. License fees of $0.3 million were recorded during the corresponding nine-month period ended September 30, 1999. The increase was due to the Company's obligation to its licensor of balsalazide in connection with funds received under the May 2000 balsalazide agreement with Shire. Research and development expenses were $1.2 million and $2.5 million for the three-month and nine-month periods ended September 30, 2000, respectively, compared to $1.1 and $4.0 million for the comparable periods in 1999. The decrease in research and development expenses in the nine-month period ended September 30, 2000 versus the same prior year period is primarily due to the completion of a balsalazide disodium clinical trial initiated in late 1997 in the United States and reduced expenditures associated with the rifaximin Phase III clinical trial and other development projects. Selling, general and administrative expenses were $1.2 million and $2.8 million for the three-month and nine-month periods ended September 30, 2000, respectively, compared to $0.4 million and $1.5 million in the corresponding three-month and nine-month periods in 1999. This increase is primarily due to sales and marketing expenses related to the Company's planned launch of COLAZAL(TM) in the United States in first quarter 2001. Interest and other income (expense) for the nine-month period ended September 30, 2000 compared to the same nine-month period in the prior year is mainly attributable to increased interest on larger average cash balances in 2000 offset by currency exchange rate fluctuations. The Company recorded a net loss of $0.5 million for the three months ended September 30, 2000 compared with a net loss of $1.5 million in the corresponding three-month period prior year. The Company recorded net income of $1.6 million for the nine-month period ended September 30, 2000 compared with a net loss of $4.6 million in the corresponding nine-month period in the prior year. The decrease in net loss for the three-month periods and the increase in net income for the nine-month periods are both due to revenue resulting from the Shire agreement. 7 Liquidity and Capital Resources Since inception, the Company has financed product development, operations and capital expenditures primarily from funding arrangements with collaborative partners and from public and private sales of debt and equity securities. As of September 30, 2000, the Company had approximately $7.0 million in cash and cash equivalents. As of December 31, 1999, the Company had approximately $2.4 million in cash and cash equivalents. The increase of $4.6 million was due to revenue from the Shire agreement offset by cash used to fund the operating activities of the Company. In November 2000, the Company raised approximately $14.1 million in a private placement of common stock and warrants. See Note 4 of Notes to Condensed Consolidated Financial Statements. As of September 30, 2000, the Company had no long-term obligations. As of September 30, 2000 the Company had non-cancelable purchase order commitments for inventory purchases of approximately $2.5 million to be delivered before January 31, 2001 The Company has sustained continuing operating losses and had an accumulated deficit of $23.8 million as of September 30, 2000. The Company expects to incur substantial and increasing operating losses until product revenues reach a sufficient level to support ongoing operations. The Company believes its current cash and investment balances should be sufficient to satisfy the cash requirements of the Company for the foreseeable future and until such time, if at all, that it needs to raise additional funds in the form of debt or equity financing to fund future licensing, development and commercialization of rifaximin and new products. However, the Company's actual cash requirements might vary materially from those now planned because of a number of factors, including the results of research and development activities, FDA and foreign regulatory processes, establishment of and change in relationships with strategic partners, technological advances by the Company and other pharmaceutical companies, the terms of the Company's collaborative arrangements with strategic partners, and the status of competitive products. The Company might also enter into additional collaborative arrangements with corporate partners that could provide the Company with additional funding in the form of equity, debt, licensing, milestone and/or royalty payments. There can be no assurance that the Company will be able to enter into such arrangements or raise any additional funds on terms favorable to the Company. Cautionary Statement The Company operates in a highly competitive environment that involves a number of risks, some of which are beyond the Company's control. The following statement highlights some of these risks. Statements contained in "Management's Discussion and Analysis of Financial Conditions and Results of Operations" which are not historical facts are or might constitute forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Forward-looking statements involve known and unknown risks that could cause the Company's actual results to differ materially from expected results. Factors that could cause actual results to differ materially from the Company's expectations include, among others: the Company's limited sales and marketing experience; the high cost and uncertainty of the research, clinical trials and other development activities involving pharmaceutical products; the Company's ability to fund its activities internally or through additional financing, if necessary; the unpredictability of the duration and results of regulatory review of New Drug Applications and Investigational New Drug Applications; the Company's dependence on its two pharmaceutical products, balsalazide and rifaximin, and the uncertainty of market acceptance of those products; the possible impairment of, or inability to obtain, intellectual property rights and the costs of obtaining such rights from third parties; intense competition; the uncertainty of obtaining, and the Company's dependence on, third parties to manufacture and sell its products; and results of future litigation and other risk factors detailed from time to time in the Company's Securities and Exchange Commission filings. The Company does not undertake any obligation to release publicly any revisions to these statements to reflect later events or circumstances or to reflect the occurrence of unanticipated events. 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's purchases of raw materials and its product sales to its European distribution partners are denominated in Pounds Sterling. Translation into the Company's reporting currency, the United States dollar, has not historically had a material impact on the Company's financial position. Additionally, the Company's net assets denominated in currencies other than the functional currency have not exposed the Company to material risk associated with fluctuations in currency rates. Given these facts, the Company has not considered it necessary to use foreign currency contracts or other derivative instruments to manage changes in currency rates. Due to the nature and maturity of the Company's short-term investments, the Company does not believe these investments present significant market risk. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.28 Salix Pharmaceuticals, Ltd. 1996 Stock Option Plan, as amended, September 2000. 27.1 Financial Data Schedule (b) Reports on Form 8-K None. 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SALIX PHARMACEUTICALS, LTD. Date: November 14, 2000 By: /s/ Robert P. Ruscher --------------------------- Robert P. Ruscher, President and Chief Executive Officer Date: November 14, 2000 By: /s/ Adam C. Derbyshire --------------------------- Adam C. Derbyshire, Vice President, Finance & Administration, Chief Financial Officer and Corporate Secretary 10 EX-10.28 2 0002.txt 1996 STOCK OPTION PLAN, AS AMENDED SEP. 2000 Exhibit 10.28 SALIX PHARMACEUTICALS, LTD. 1996 STOCK OPTION PLAN (as amended, September 2000) 1. Purposes of the Plan. The purposes of this 1996 Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the Employees and Consultants of the Company and to promote the success of the Company's business. Options granted hereunder may be either Incentive Stock Options or Nonstatutory Stock Options, at the discretion of the Board and as reflected in the terms of the written option agreement. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" shall mean the Board or any of its Committees appointed pursuant to Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to the administration of stock option plans under the corporate laws and securities regulations of applicable Canadian provincial securities laws, U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan. (c) "Associate" shall mean (i) any company of which such person or company beneficially owns, directly or indirectly, voting securities carrying more than 10 per cent of the voting rights attached to all voting securities of the company for the time being outstanding, (ii) any partner of that person or company, (iii) any trust or estate in which such person or company has a substantial beneficial interest or as to which such person or company serves as trustee or in a similar capacity, (iv) any relative of that person who resides in the same home as that person, (v) any person of the opposite sex who resides in the same home as that person and to whom that person is married or with whom that person is living in a conjugal relationship outside marriage, or (vi) any relative of a person mentioned in clause (v) who has the same home as that person. (d) "Board" shall mean the Board of Directors of the Company. (e) "Change in Control" shall mean a change in control of a nature that would required to be reported in response to item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act as such Schedule, Regulation and Act were in effect on the date of adoption of this Plan by the Board, assuming that such Schedule, Regulation and Act applied to the Company, provided that such a change in control shall be deemed to have occurred at such time as: (i) any "person" (as that term is used in Section 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, a Subsidiary or an Affiliate of the Company) becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities representing a 33-1/3% or more of the combined voting power for election of members of the Board of the then outstanding voting securities of the Company or any successor of the Company; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of the Company cease, for any reason, to constitute at least a majority of the Board, unless the election of nomination for election of each new member of the Board was approved by a vote of at least two-thirds of the members of the Board then still in office who were members of the Board at the beginning of the period; (iii) the equityholders of the Company approve any merger or consolidation to which the Company is a party as a result of which the persons who were equityholders of the Company immediately prior to the effective date of the merger or consolidation (and excluding, however, any shares held by any party to such merger or consolidation and their affiliates) shall have beneficial ownership of less than 50% of the combined voting power for election of members of the Board (or equivalent) of the surviving entity following the effective date of such merger or consolidation; or (iv) the equityholders of the Company approve any merger or consolidation as a result of which the equity interests in the Company shall be changed, converted or exchanged (other than a merger with a wholly-owned Subsidiary of the Company) or any liquidation of the Company or any sale or other disposition of all or substantially all of the assets of the Company. However, in no event shall a Change in Control be deemed to have occurred with respect to a Optionee, if the Optionee is part of a purchasing group which consummates the Change in Control transaction. The Optionee shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Optionee is either directly or indirectly an equity participant in the purchasing group (except for (i) passive ownership of less than 3% of the stock of the purchasing group, or (ii) ownership of equity participation in the purchasing group which is otherwise not significant, as determined prior to the Change in Control by the Committee). (f) "Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor thereto. (g) "Committee" shall mean any Committee appointed by the Board of Directors in accordance with Section 4(a) of the Plan, if one is appointed. (h) "Common Stock" shall mean the Common Stock of the Company. (i) "Company" shall mean Salix Pharmaceuticals, Ltd., a British Virgin Islands International Business Company. (j) "Consultant" shall mean any person, including an advisor, engaged by the Company or any Parent or Subsidiary to render services to such entity, and any director of the Company whether compensated for such services or not. (k) "Continuous Status as an Employee or Consultant" shall mean the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Administrator; provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute. For purposes of this Plan, a change in status from Employee to Consultant or from Consultant to Employee will not constitute a termination of employment. (l) "Director" shall mean a member of the Board. (m) "Employee" shall mean any person, including officers and Named Executives (including officers and Named Executives who are also directors), employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (o) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) Subject to clauses (ii) and (iii) hereof, if the Common Stock is listed on The Toronto Stock Exchange, its Fair Market Value per Share shall be not less than the closing price of the Common Stock on The Toronto Stock Exchange on the last business day preceding the date of grant; (ii) If the Common Stock is listed principally on any established stock exchange or national market system in the United States, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported, as quoted on such exchange or system for the last market trading day prior to the time of determination) as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (iii) If the Common Stock is quoted principally on the NASDAQ System (but not on The National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock; or (iv) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. In the event the Fair Market Value is determined in accordance with clause (i) above, such Fair Market Value shall be priced in United States dollars converted at the then prevailing exchange rate between Canada and the United States. (p) "Incentive Stock Option" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (q) "Named Executive" shall mean any individual who, on the last day of the Company's fiscal year, is the chief executive officer of the Company (or is acting in such capacity) or among the four highest compensated officers of the Company (other than the chief executive officer). Such officer status shall be determined pursuant to the executive compensation disclosure rules under the Exchange Act. (r) "Nonstatutory Stock Option" shall mean an Option not intended to qualify as an Incentive Stock Option. (s) "Officer" shall mean a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder, or any successor thereto and (a) every director or senior officer of the Company, (b) every director or senior officer of a company that is itself an insider or subsidiary of the Company, (c) any person or company who beneficially owns, directly or indirectly, voting securities of the Company or who exercises control or direction over voting securities of the Company or a combination of both carrying more than 10% of the voting rights attached to all voting securities of the Company for the time being outstanding other than voting securities held by the person or company as underwriter in the course of a distribution, and (d) the Company where it has purchased, redeemed or otherwise acquired any of its securities, for so long as it holds any of its securities; (t) "Option" shall mean a stock option granted pursuant to the Plan. (u) "Optioned Stock" shall mean the Common Stock subject to an Option. (v) "Optionee" shall mean an Employee or Consultant who receives an Option. (w) "Outstanding Issue" shall mean the number of Shares that are outstanding immediately prior to the share issuance in question, excluding Shares issued pursuant to share compensation arrangements over the preceeding one-year period. (x) "Parent" shall mean a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (y) "Plan" shall mean this 1996 Stock Option Plan, as amended. (z) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act as the same may be amended from time to time, or any successor provision. (aa) "Share" shall mean a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan. (bb) "Subsidiary" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 14 of the Plan, the maximum aggregate number of shares that may be optioned and sold under the Plan is 2,677,207 provided that in no event shall the number of shares that may be optioned and sold under the Plan exceed the sum of (i) 2,238,382 shares of Common Stock plus (ii) such number of shares as are subject to outstanding and unexercised stock options under the Company's 1994 Stock Plan, as of the date of adoption of this Plan by the stockholders, which options are thereafter canceled or otherwise terminated without exercise. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares that were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. Notwithstanding any other provision of the Plan, shares issued under the Plan and later repurchased by the Company shall not become available for future grant or sale under the Plan. 4. Administration of the Plan. (a) Procedure. (i) Multiple Administrative Bodies. The Plan may be administered by different Committees with respect to different groups of Employees and Consultants. (ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to compliance with Applicable Laws, and further subject to the provisions of the Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(n) of the Plan; (ii) to select the Employees and Consultants to whom Options may from time to time be granted hereunder; (iii) to determine whether and to what extent Options are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to, the share price and any restriction or limitation, or any vesting acceleration or waiver of forfeiture restrictions regarding any Option and/or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator shall determine, in its sole discretion); (vii) to determine whether, to what extent and under what circumstances Common Stock and other amounts payable with respect to an award under this Plan shall be deferred either automatically or at the election of the participant (including providing for and determining the amount, if any, of any deemed earnings on any deferred amount during any deferral period); (viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; and (ix) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (x) to institute an option exchange program; (c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options. 5. Eligibility. (a) Nonstatutory Stock Options may be granted only to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if he or she is otherwise eligible, be granted an additional Option or Options. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of Options that are exercisable for the first time by an Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. (c) For purposes of Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (d) The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. (e) The terms of any Option shall comply with Applicable Laws. (f) Not more than 50% of the total number of shares reserved under the Plan shall be allocated to any one participant under the Plan within any twelve calendar month period. (g) The maximum number of shares that may be allocated to any one participant upon the grant of stock Options may not exceed 5% of the issued and outstanding Common Stock at the time of grant. (h) The following limitations shall apply to grants of Options: (i) No Employee or Consultant shall be granted, in any fiscal year of the Company, Options to purchase more than 250,000 Shares. (ii) In connection with his or her initial service, an Employee or Consultant may be granted Options to purchase up to an additional 500,000 Shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 13. (iv) If an Option is canceled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 13), the canceled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 6. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company. It shall continue in effect for a term of ten (10) years, unless sooner terminated under Section 16 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in the Option Agreement; provided, however, that in the case of an Incentive Stock Option, the term shall be no more than ten (10) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. Limitation on Grants to Officers. Subject to adjustment as provided in this Plan and subject to the other limitations set forth herein: (a) The maximum number of Shares which may be reserved for issuance to all Officers under the Plan may not exceed 10% of the Outstanding Issue. (b) The maximum number of Shares which may be issued to Officers under the Plan in any 12 month period shall be 10% of the Outstanding Issue. (c) The maximum number of Shares which may be issued to any one Officer and such Officer's Associates under the Plan in any 12 month period shall be 5% of the Outstanding Issue. 9. Option Exercise Price and Consideration. (a) The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant; (B) granted to any Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option granted to a person who, at the time of the grant of such Option, is a Named Executive of the Company, the per share Exercise Price shall be no less than 100% of the Fair Market Value on the date of grant; (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) other Shares that (x) in the case of Shares acquired upon exercise of an Option either have been owned by the Optionee for more than six months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (4) authorization from the Company to retain from the total number of Shares as to which the Option is exercised that number of Shares having a Fair Market Value on the date of exercise equal to the exercise price for the total number of Shares as to which the Option is exercised, (5) delivery of a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the exercise price, (6) any combination of the foregoing methods of payment, or (7) such other consideration and method of payment for the issuance of Shares to the extent permitted under Applicable Laws. No Optionee shall receive financial assistance from the Company in connection with the exercise of any Option and the purchase price of the Common Stock issuable pursuant to any Option shall be paid in full prior to the issuance of such Common Stock. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 10. Exercise of Option. (a) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 9(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 14 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Status as an Employee or Consultant. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant, such Optionee may, but only within thirty (30) days (or such other period of time, not exceeding three (3) months in the case of an Incentive Stock Option or six (6) months in the case of a Nonstatutory Stock Option, as is determined by the Administrator, with such determination in the case of an Incentive Stock Option being made at the time of grant of the Option) after the date of such termination (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the optionee does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate. (c) Disability of Optionee. Notwithstanding the provisions of Section 10(b) above, in the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her disability, he or she may, but only within twelve (12) months (or such other period of time not exceeding twelve (12) months as is determined by the Administrator, with such determination in the case of an Incentive Stock Option being made at the time of grant of the Option) from the date of such termination (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent he or she was entitled to exercise it at the date of such termination. To the extent that he or she was not entitled to exercise the Option at the date of termination, or if he does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate. (d) Death of Optionee. In the event of the death of an Optionee: (i) during the term of the Option who is at the time of his death an Employee or Consultant of the Company and who shall have been in Continuous Status as an Employee or Consultant since the date of grant of the Option, the Option may be exercised, at any time within six (6) months (or such other period of time, not exceeding six (6) months, as is determined by the Administrator, with such determination in the case of an Incentive Stock Option being made at the time of grant of the Option) following the date of death (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance but only to the extent of the right to exercise that would have accrued had the Optionee continued living and remained in Continuous Status as an Employee or Consultant three (3) months (or such other period of time as is determined by the Administrator as provided above) after the date of death, subject to the limitation set forth in Section 5(b); or (ii) within thirty (30) days (or such other period of time not exceeding three (3) months as is determined by the Administrator, with such determination in the case of an Incentive Stock Option being made at the time of grant of the Option) after the termination of Continuous Status as an Employee or Consultant, the Option may be exercised, at any time within twelve (12) months following the date of death (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of termination. 11. Withholding Taxes. As a condition to the exercise of Options granted hereunder, the Optionee shall make such arrangements as the Administrator may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the exercise, receipt or vesting of such Option. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied. 12. Satisfaction of Withholding Tax Obligations. At the discretion of the Administrator, Optionees may satisfy withholding obligations as provided in this paragraph. When an Optionee incurs tax liability in connection with an Option which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may satisfy the withholding tax obligation by one or some combination of the following methods: (a) by cash payment, or (b) out of Optionee's current compensation, (c) if permitted by the Administrator, in its discretion, by surrendering to the Company Shares that (i) in the case of Shares previously acquired from the Company, have been owned by the Optionee for more than six months on the date of surrender, and (ii) have a fair market value on the date of surrender equal to or less than Optionee's marginal tax rate times the ordinary income recognized, or (d) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a fair market value equal to the amount required to be withheld. For this purpose, the fair market value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). All elections by an Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator. 13. Non-Transferability of Options. Unless determined otherwise by the Administrator, an Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option transferable, such Option shall contain such additional terms and conditions as the Administrator deems appropriate. 14. Adjustments Upon Changes in Capitalization or Merger. (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, the number of shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, the maximum number of shares of Common Stock for which Options may be granted to any employee under Section 8 of the Plan, and the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Board shall notify the Optionee as soon as practicable prior to the effective date of such proposed action. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action. (c) Acceleration upon Change in Control. In the event of a Change in Control of the Company, all outstanding options granted under the Plan shall become vested and immediately and fully exercisable, and may either (i) be assumed or an equivalent option or right shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation or (ii) terminate 10 days after the Administrator shall notify the Optionee of such vesting and termination. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. (e) Certain Distributions. In the event of any distribution to the Company's shareholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Administrator may, in its discretion, appropriately adjust the price per share of Common Stock covered by each outstanding Option to reflect the effect of such distribution. 15. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 16. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable. (b) Stockholder Approval. The Company shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 17. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 18. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 19. Option Agreement. Options shall be evidenced by written option agreements in such form as the Board shall approve. EX-27.1 3 0003.txt FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 7,011 0 256 0 2,108 9,856 630 442 10,206 0 0 0 0 28,009 (23,809) 10,206 852 14,589 819 819 12,272 0 0 1,611 9 0 0 0 0 1,602 0.15 0.14
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