UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a)
of
the Securities and Exchange Act of 1934
(Amendment
No. )
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Filed
by the Registrant x
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Filed
by a Party other than the Registrant ¨
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Check
the appropriate box
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Preliminary Proxy
Statement
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x
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Definitive Proxy
Statement
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Definitive Additional
Materials
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Soliciting Material Pursuant to
§240.14a-12
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ADHEREX
TECHNOLOGIES INC.
(Name
of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment
of Filing Fee (Check the appropriate
box)
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x
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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Title
of each class of securities to which the transaction
applies:
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Aggregate
number of securities to which the transaction applies:
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Per
unit price or other underlying value of the transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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Proposed
Maximum aggregate value of the transaction:
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Total
fee paid:
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of the filing.
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Amount
Previously Paid:
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Form,
Schedule or Registrant Statement No.:
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Filing
Party:
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Date
Filed:
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ADHEREX
TECHNOLOGIES INC.
NOTICE
OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO
BE HELD ON June 24, 2010
NOTICE IS HEREBY GIVEN that
the annual and special meeting (the “Meeting”) of the holders of
common shares (“Common
Shares”) in the capital
of Adherex Technologies Inc. (“Adherex” or the “Corporation”) will be held at
the Sofitel Montreal Golden Mile, Montreal, Quebec, Canada at 10:00
a.m. ET on June 24, 2010 for the following purposes:
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1.
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to
receive the consolidated financial statements of the Corporation for the
year ended December 31, 2009, together with the report of the auditors
thereon;
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2.
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to
elect directors;
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3.
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to
appoint auditors and to authorize the directors of the Corporation to fix
the auditors’ remuneration;
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4.
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to
consider and, if deemed advisable, pass an ordinary resolution in the form
set out in Appendix “A” to the Management Proxy Circular authorizing an
increase in the number of Common Shares issuable under the Corporation’s
stock option plan (the “Stock Option Plan
Resolution”); and
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5.
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to
transact such further or other business as may properly come before the
Meeting or any adjournment thereof.
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A copy of
the Management Proxy Circular and a form of proxy accompanies this notice, as
well as a copy of the Corporation’s annual report which contains the
consolidated financial statements of the Corporation for the year ended December
31, 2009, together with the report of the auditors thereon and management’s
discussion and analysis of financial condition and results of operations
relating thereto.
The board
of directors of Adherex has fixed 5:00 p.m. ET on May 25, 2010 (the “Record Date”), as the record date for
determining the holders of record of Common Shares who are entitled to receive
notice of the Meeting and to attend and vote at the Meeting and any adjournment
or postponement thereof.
Shareholders
who are unable to attend the Meeting in person are requested to date and sign
the enclosed form of proxy and return it to Olympia Transfer Services Inc., 120
Adelaide Street West, Suite 920, Toronto, Ontario, M5H 1T1, no later than 10:00
a.m. ET on June 22, 2010, or if the Meeting is adjourned or postponed, no later
than 48 hours, excluding any day which is not a business day in Montreal
preceding the reconvened Meeting. Proxies may also be deposited with the
scrutineers of the Meeting, to the attention of the Chair of the Meeting at and
immediately prior to the commencement of the Meeting or any adjournments or
postponement thereof. In order to be represented by proxy, you must
complete and submit the enclosed form of proxy or other appropriate form of
proxy.
Important Notice Regarding
the Availability of Proxy Materials for the Meeting:
This
Notice, Management Proxy Circular and the Corporation’s Annual Report on Form
10-K are available to you on the Internet at www.sec.gov and www.sedar.com. We
encourage you to access and review all of the important information contained in
these materials before voting.
DATED at
Chapel Hill, North Carolina this 24th day of May, 2010.
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By
Order of the Board of Directors of Adherex
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ss/
Rostislav Raykov
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Rostislav
Raykov
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Chief
Executive Officer and Board
Member
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Page
2
ADHEREX
TECHNOLOGIES INC.
MANAGEMENT
PROXY CIRCULAR
Unless otherwise stated, information
contained in this management proxy circular (the “Circular”) is given as of May 24,
2010. Except as otherwise indicated, all
amounts are expressed in United States dollars.
Solicitation
and Appointment of Proxies
This
Circular is furnished in connection with the solicitation of proxies by
management of Adherex Technologies Inc. (“Adherex” or the “Corporation”) for use at the
annual and special meeting (the “Meeting”) of the shareholders
of Adherex to be held at 10:00 a.m. ET on June 24, 2010 at the Sofitel Montreal
Golden Mile, Montreal, Quebec, Canada, and at any adjournment thereof, for the
purposes set forth in the accompanying notice of annual general meeting (the
“Notice of Meeting”). This
Circular was first mailed to stockholders on or about June 1, 2010.
The
persons named in the form of proxy accompanying this Circular are officers
and/or directors of Adherex. A holder of Common Shares (a “Shareholder”) has the
right to appoint a person, other than the persons named in the form of proxy
accompanying this Circular, as nominee to attend and act for and on behalf of
such Shareholder at the Meeting, and may exercise such right by inserting the
name of such person in the blank space provided on the form of proxy, or by
executing a proxy in a form similar to the form of proxy accompanying this
Circular. If a Shareholder appoints one of the persons named in the form of
proxy accompanying this Circular as the nominee of the Shareholder and does not
direct such nominee to vote either for or against or withhold from voting on a
matter or matters with respect to which an opportunity to specify how the Common
Shares registered in the name of such Shareholder are to be voted, the proxy
shall be voted FOR the matter or matters set forth on such proxy and in the
discretion of the person appointed on all other matters (if any) upon which the
Shareholder is entitled to cast a vote. A proxy nominee need not be a
Shareholder. If the Shareholder is a corporation, the proxy must be
executed by an officer or properly appointed attorney.
In order
for a proxy to be effective at the Meeting, it must be addressed to the Chief
Executive Officer of Adherex and be mailed to or deposited by hand with Olympia
Transfer Services Inc., 120 Adelaide Street West, Suite 920, Toronto,
Ontario M5H 1T1, not later than 10:00 a.m. ET on June 22, 2010 or, if the
Meeting is adjourned or postponed, not later than 48 hours (excluding any day
which is not a business day in Toronto) before the time of the reconvened
Meeting. Proxies may also be deposited with the scrutineers of the
Meeting, to the attention of the Chair of the Meeting, at or immediately prior
to the commencement of the Meeting, or any adjournment or postponement thereof.
An undated but executed proxy will be deemed to be dated the date of this
Circular.
The
solicitation of proxies for the Meeting will be primarily by mail, but proxies
may also be solicited personally or by telephone by employees or agents of
Adherex. Employees of Adherex will not receive any extra compensation for such
activities. Adherex will pay brokers or other persons holding Common
Shares in their own names, or in the names of nominees, for their reasonable
expenses for sending proxies and proxy material to beneficial owners of Common
Shares and requesting authority to execute proxies in respect of such Common
Shares. The solicitation of
proxies by this Circular is being made by or on behalf of the management of
Adherex and its board of directors (the “Board”) and the total cost of this
solicitation will be borne by Adherex.
3
Voting
of Proxies
The
Common Shares represented by a proxy at the Meeting will be voted for or
withheld from voting in each of the election of directors and appointment of
auditors and authorizing the Board to fix the auditors remuneration (together,
the “Ordinary Matters”) and voted for or
against the Stock Option Plan Resolution (the “Special Matter”) in accordance
with the instructions of the Shareholder. If no choice is specified in the
proxy or the instructions are not certain, the persons named in the form of
proxy accompanying this Circular will vote FOR all of the matters proposed by
management at the Meeting and described in the Notice of Meeting and in the
discretion of the person appointed on all other matters (if any) upon which the
Shareholder appointing the proxy is entitled to cast a vote.
The form
of proxy accompanying this Circular, when properly completed and executed,
confers discretionary authority upon the persons named therein with respect to
any amendment or variation to the matters identified in the Notice of Meeting
and with respect to other matters which may properly come before the Meeting.
Management of Adherex and the Board knows of no matters to come before the
Meeting other than those referred to in the Notice of Meeting. However, if any
other matters that are not now known to management of Adherex or the Board
should properly come before the Meeting, the Common Shares represented by
proxies given in favour of the persons named in the form of proxy accompanying
this Circular will be voted on such matters in accordance with the discretion of
such person.
Revocation
of Proxies
A
Shareholder may revoke a previously given proxy by:
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(i)
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completing
and signing a proxy bearing a later date and depositing it with Olympia
Transfer Services Inc. as described
above;
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(ii)
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depositing
an instrument in writing signed by the Shareholder or an attorney
authorized by a document signed in writing or by electronic signature (if
the Shareholder is a corporation, under its corporate seal by an officer
or attorney thereof properly authorized, indicating the capacity under
which such officer or attorney is signing), or by transmitting, by
telephonic or electronic means, a revocation signed by electronic
signature, or by any other manner permitted by law, which must be received
either (A) with Olympia Transfer Services Inc., 120 Adelaide Street West,
Suite 920, Toronto, Ontario M5H 1T1, not later than 10:00 a.m. ET on June
22, 2010, or (B) with the scrutineers of the Meeting to the attention of
the Chair of the Meeting on the day of the Meeting, or any adjournment
thereof, prior to the taking of the vote to which such proxy relates;
or
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(iii)
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in
any other manner permitted by law.
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Advice
to Beneficial Holders of Common Shares
This
section applies to beneficial holders of Common Shares who are not registered
holders. The information set forth in this section is of significant importance
to many holders of Common Shares, as a substantial number of Shareholders do not
hold Common Shares in their own name.
The
Notice of Meeting, the proxy and this Circular are being sent to both registered
and non-registered owners of Common Shares. Only registered holders
of Common Shares, or the persons that they appoint as proxies, are permitted to
attend and vote at the Meeting. In many cases, Common Shares are beneficially
owned by a shareholder and are registered in the name of an intermediary such as
a bank, broker or other nominee.
The
Corporation has distributed copies of the Notice of Meeting, the proxy and this
Circular (collectively, the “Meeting Materials”) to all of the
intermediaries for delivery to beneficial holders. Intermediaries are
required to forward the Meeting Materials to beneficial holders unless a
beneficial holder has waived the right to receive them. This permits
beneficial holders to direct the voting of the Common Shares that they
beneficially own. If a beneficial holder wishes to attend and vote at the
Meeting in person (or have another person attend and vote on behalf of the
beneficial holder), the beneficial holder should strike out the names of the
persons named in the proxy and insert the beneficial holder’s (or such other
person’s) name in the blank space provided. In any case, beneficial holders
should carefully follow the instructions of the intermediaries, including those
regarding when and where the proxy or proxy authorization form is to be
delivered.
4
Record
Date and Entitlement to Vote
The
Record Date for the purpose of determining Shareholders entitled to receive the
Circular and to vote at the Meeting has been fixed as 5:00 p.m. ET on May 25,
2010 (the “Record Date”). Each
Shareholder at the close of business (5:00 p.m. ET) on the Record Date is
entitled to attend the Meeting in person or by proxy and to cast one (1) vote
for each Common Share held by such Shareholder on the Record Date.
Quorum
According
to the Corporation’s by-laws, the quorum for the transaction of business at any
meeting of Shareholders shall be two or more persons present in person or
represented by proxy holding not less than 33 1/3% of the then issued and
outstanding Common Shares.
Voting
Securities and Principal Holders of Voting Securities
As at May
24, 2010, there were 368,293,451 Common Shares issued and
outstanding. Each Common Share carries the right to one vote at the
Meeting.
Beneficial
ownership of the Common Stock in the following tables is determined in
accordance with the rules and regulations of the U.S. Securities Exchange
Commission (the “SEC”). Under these
rules, a person is deemed to beneficially own a share of Common Stock if that
person has or shares voting power or investment power with respect to that
share, or has the right to acquire beneficial ownership of that share within 60
days, including through the exercise of any option, warrant or other right or
the conversion or any other security. Shares issuable under stock
options and warrants are deemed outstanding for computing the percentage of the
person holding options or warrants but are not outstanding for computing the
percentage of any other person.
To the
knowledge of the directors and senior officers of Adherex, as of the close of
trading on the date of this Circular, Southpoint Capital Advisors LP and Mr.
George W. Haywood each beneficially own, directly or indirectly, or exercise
control or direction over, voting securities of Adherex carrying more than 5% of
the voting rights attached to all of the outstanding Common Shares as
follows:
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Name and Address of Beneficial Owner
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Amount of Ownership
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Percent of Class
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Southpoint
Capital Advisors LP(1)
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441,504,000 |
(1)
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77.7 | % | ||||
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623
Fifth Avenue, Suite 2503
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New
York, New York 10022
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George
W. Haywood (2)
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19,450,000 |
(2)
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5.2 | % | ||||
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c/o
Moomjian, Waite, Wactlar & Coleman, LLP
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100
Jericho Quadrangle, Suite 225
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Jericho,
New York 11753
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(1)
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Includes
a warrant to purchase 200,000,000 shares of common stock at an exercise
price of $0.08, expiring on April 30, 2015. As per the subscription
agreement for the private placement, the warrant isn’t exercisable until
October 31, 2010.
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(2)
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Includes
800,000 shares for which there exist shared voting and dispositive power
with Mr. Haywood’s spouse, which spouse would have the right to receipt of
dividends from, and proceeds for the sale of such shares. Also
includes a warrant for 3,400,000 shares of common
stock at an exercise price of $0.08, expiring on April 30, 2015. As per
the subscription agreement for the private placement, the warrant isn’t
exercisable until October 31, 2010.
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5
As at May
24, 2010, the directors and senior officers of Adherex and, to the knowledge of
the directors and senior officers of Adherex, after reasonable enquiry, their
respective associates, as a group, beneficially owned, directly or indirectly,
or exercised control or direction over 3,147,781 Common Shares
(approximately 0.9% of all outstanding Common Shares on such date) and options
and warrants to purchase 4,088,623 Common Shares
(approximately 1.0% of the aggregate of all outstanding Common Shares and all
Common Shares subject to outstanding options and warrants to purchase Common
Shares on such date).
The
following table sets forth the number of shares of Common Stock beneficially
owned as of May 24, 2010 by (1) each director and executive officer, and (2) all
directors and executive officers as a group. The percentage of beneficial
ownership for the following table is based upon 368,293,451 shares of Common
Stock outstanding as of May 24, 2010. Except as indicated below, the
security holders listed possess sole voting and investment power with respect to
the shares beneficially owned by that person. The address for each
listed shareholder is c/o Adherex Technologies Inc., 501 Eastowne Drive, Suite
140, Chapel Hill, North Carolina 27514.
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Name and Address of Beneficial Owner
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Amount of
Ownership
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Percent of Class
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Robert
Andrade
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780,100 | * | ||||||
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William
G. Breen(1)
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1,617,781 | * | ||||||
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Claudio
F. Bussandri(2)
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250,000 | * | ||||||
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Arthur
T. Porter(3)
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370,742 | * | ||||||
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Rostislav
Raykov
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1,000,000 | * | ||||||
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Robert
Butts
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Nil
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Nil
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Thomas
Spector(4)
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70,000 | * | ||||||
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Directors and executive officers
as a group (seven persons)
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4,088,623 | 1.0 | % | |||||
* Less than 1%.
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(1)
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Includes
250,000 shares of common stock subject to options that are exercisable
within 60 days of May 24, 2010.
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(2)
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Includes
250,000 shares of common stock subject to options that are exercisable
within 60 days of May 24, 2010.
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(3)
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Includes
370,742 shares of common stock subject to options that are exercisable
within 60 days of May 24, 2010.
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(4)
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Includes
70,000 shares of common stock subject to options that are exercisable
within 60 days of May 24, 2010.
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Approval
Requirements and Eligible Voting Shares
Each of
the Ordinary Matters must be approved by a simple majority of the votes cast by
Shareholders, present in person or by proxy at the Meeting. The Stock
Option Plan Resolution must be approved by a simple majority of the votes cast
by Shareholders, present in person or by proxy at the Meeting, other than votes
attaching to common shares beneficially held by insiders to whom options may be
granted under the Stock Option Plan, and associates of such
insiders. For these purposes, any spoiled votes, illegible votes,
defective votes and abstentions will not be considered votes
cast.
6
Other
Business
Other
than the Ordinary Matters discussed elsewhere in this Circular, management of
Adherex does not intend to present and does not have any reason to believe that
others will present, at the Meeting, any item of business other than those set
forth in this Circular. If, however, any other business is properly
presented at the Meeting and may properly be considered and acted upon, proxies
will be voted by those named in the applicable form of proxy in their sole
discretion, including with respect to any amendments or variations to the
matters identified herein.
ORDINARY
MATTERS
Election
of Directors
The
number of directors of Adherex to be elected at the Meeting is seven (7). The
following are the names of the persons for whom it is intended that votes will
be cast for their election as directors of the Corporation pursuant to the proxy
which is hereby solicited, unless the Shareholder directs therein that such
Shareholder’s Common Shares be withheld from voting in the election of
directors:
Mr.
Robert W. Butts
Mr.
Robert C. Andrade
Mr.
William G. Breen
Mr.
Claudio F. Bussandri
Mr. David
Lieberman
Dr.
Arthur T. Porter
Mr.
Rostislav Raykov
The term
of office for each such person will be until Adherex’s next annual meeting of
Shareholders or until such person’s successor is elected or duly appointed.
In the event that prior to the
Meeting any vacancies occur in the slate of nominees submitted above, it is
intended that discretionary authority shall be exercised to vote the proxy
hereby solicited (unless otherwise directed as aforesaid) for the election of
any other person or persons as directors. Adherex management is not now aware
that any of such nominees would be unwilling to serve as a director if
elected.
The
following table sets forth the name of each person proposed at the date hereof
to be nominated by management for election to the Board, such person’s principal
occupation or employment, all other positions with Adherex and any significant
affiliate thereof now held by such person, if any, the year in which such person
became a director of Adherex and such person’s age.
The
Corporation has an Audit Committee, a Compensation Committee, and a Governance
Committee. The current members of such committees are noted
below:
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Name and Province/State and Country of
Residence, Position
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Current Principal Occupation
and Principal Occupation
For Previous Five Years
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Director Since
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Age
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Robert
W. Butts(1)
(2)(3)
Tennessee,
USA
Chairman
of Board
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Immediate
past Co-Founder and Portfolio Manager, Southpoint Capital Advisors LP;
previously Analyst, Greenlight Capital
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April
2007
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35
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Robert
Andrade
New
York, USA
Chief
Financial Officer, Director
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Co-Founder
and Manager, DCML LLC; previously Portfolio Manager Millennium Partners;
previously analyst Caxton Associates
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July
2009
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35
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William
G. Breen(1)(2)(3)
Ontario,
Canada
Director
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President
of William G. Breen and Associates; previously, Chairman of Simware
Inc.
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April
2007
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64
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Claudio
F. Bussandri, B.Eng, MBA(1)(2)(3)
Quebec,
Canada
Director
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Immediate
past CEO of McKesson Canada; previously President of Lantic Sugar
Limited
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April
2007
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62
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7
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Name and Province/State and Country of
Residence, Position
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Current Principal Occupation
and Principal Occupation
For Previous Five Years
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Director Since
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Age
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David
Lieberman
New
York, USA
Director
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Analyst
Southpoint Capital Advisors LP; previously analyst TiedemannInvestment
Group.
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-
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34
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Hon.
Arthur T. Porter, PC, MD, MBA (1)
Quebec,
Canada
Director
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Director
General and Chief Executive Officer, McGill University Health Centre;
previously, President and CEO, Detroit Medical Center
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Feb
2004
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53
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Rostislav
Raykov(3)
New
Jersey, USA
Chief
Executive Officer, Director
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Co-Founder and
Manager, DCML LLC; previously Portfolio Manager Alchem Partners;
previously Portfolio Manager John Levin & Associates
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July
2009
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34
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(1)
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Member
of the Audit Committee
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(2)
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Member
of the Compensation Committee
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(3)
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Member
of the Governance Committee
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Robert
W. Butts
Mr. Butts has served as a
director of Adherex since April 2007. Mr. Butts is the
immediate past Co-Founder and Portfolio Manager of Southpoint Capital Advisors
LP, a private investment partnership with more than $1 billion in assets under
management. Prior to Southpoint, Mr. Butts was an analyst for Greenlight
Capital, a value-oriented hedge fund. He began his career as a financial
analyst in the mergers and acquisitions group at Merrill Lynch. Mr. Butts
graduated from Amherst College, where he earned a Bachelor of Science degree
with a triple major in mathematics, physics and chemistry.
Robert
C. Andrade
Mr. Andrade has served as
a director of Adherex since July 2009 and Chief Financial Officer since
September 2009. Mr. Andrade is a General Partner at DCML, a
private investment partnership. Prior to DCML, Mr. Andrade was a
portfolio manager for Millennium Partners and a securities analyst for Caxton
Associates. He began his career as a financial analyst at Bear
Stearns. Mr. Andrade graduated from University of Southern
California, where he earned a Masters of Arts degree and Bachelor of Arts degree
in economics.
William
G. Breen
Mr. Breen has served as a
director of Adherex since April 2007. Mr. Breen has served as
President of William G. Breen and Associates since 1999. From 1988 to
1999, he held various positions at Simware Inc., a producer of internetworking
and connectivity software, including Chairman, President and Chief Executive
Officer. Prior to Simware, Mr. Breen was Senior Vice President,
Operations at Cognos Inc. and Vice President, Operations at Computel Systems
Ltd. Mr. Breen has served on numerous Boards of Directors and began
his career at IBM in 1966 following graduation from the University of Waterloo
in Science.
Claudio
F. Bussandri, B.Eng, MBA
Mr. Bussandri has served
as a director of Adherex since April 2007. Mr. Bussandri is
the immediate past CEO of McKesson Canada, a leading provider of logistics and
products and services in the Canadian health care marketplace. Prior
to his tenure at McKesson, Mr. Bussandri was President of Lantic Sugar Limited
and has held senior executive positions at Nabisco Brands Limited of Canada and
Coffee Club Companies. Mr. Bussandri graduated from McGill University
with a Bachelor of Engineering (Mechanical), and subsequently obtained an
MBA. Mr. Bussandri is a member of the Board of Directors of the
McGill University Health Centre (MUHC), of the Executive Committee of the MUHC
Foundation and of the Canadian Council of Chief Executives (CCCE). He is past
Chairman of the Board of the Montreal Children Hospital Foundation, former
Chairman of CAPDM and of the Food and Consumer Products Manufacturers of
Canada.
8
David
Lieberman
Mr. Lieberman is an
analyst at Southpoint Capital Advisors LP, a private investment partnership with
more than $1 billion in assets under management. Prior to Southpoint, Mr.
Lieberman was an analyst for Tiedemann Investment Group. Mr. Lieberman graduated
from University of Pennsylvania, The Wharton School, where he earned a Bachelor
of Science degree in economics.
Rostislav
Raykov
Mr. Raykov has served as a
director of Adherex since July 2009 and Chief Executive Officer since July
2009. Mr. Raykov is a General Partner at DCML, a private
investment partnership. Prior to DCML, Mr. Raykov was a portfolio
manager for Alchem Investment Partners and John Levin & Co. He began
his career as a financial analyst at Bear Stearns. Mr. Raykov
graduated from University of North Carolina at Chapel Hill, where he earned a
Bachelor of Science degree in business administration.
Honourable
Arthur T. Porter, P.C., MD, MBA
Dr.
Porter has served as a director of Adherex since February 2004. Dr.
Porter has served as the Director General and Chief Executive Officer of the
McGill University Health Centre since January 2004, is a Councilor of the Privy
Council for Canada and a member of the Security Intelligence Review Committee
(SIRC) for Canada. Dr. Porter was the President and Chief Executive
Officer of the Detroit Medical Center from 1999 to 2003. From 1991 to
1998, Dr. Porter served as the Chief of the Gershenson Radiation Oncology Center
at Harper Hospital, Radiation Oncologist-in-Chief at the Detroit Medical
Center. He has also served as Senior Radiation Oncologist at the
Cross Cancer Institute in Edmonton, Alberta and Associate Professor in the
Faculty of Medicine at the University of Alberta, Chief of the Department of
Radiation Oncology at the London Regional Cancer Centre and Chairman of the
Department of Oncology at Victoria Hospital Corporation. Dr. Porter
serves as a director of Munder Funds and Air Canada.
Appointment
of Auditors
The
persons named in the accompanying form of proxy intend to vote for the
re-appointment of Deloitte & Touche LLP as Adherex’s auditors to hold office
until the next annual meeting of Shareholders and to authorize the Board to fix
the remuneration of the auditors, unless the Shareholder has specified in the
form of proxy that the shares represented by such form of proxy are to be
withheld from voting in respect thereof. Deloitte & Touche LLP
was first appointed the Corporation’s auditors on September 23,
2009.
9
SPECIAL
MATTERS
Stock
Option Plan Resolution
At the Meeting, Shareholders will be
asked to approve an
amendment to the
Corporation’s Stock Option Plan (the “Stock Option
Plan”) that were approved
by the Board on May
13, 2010 (the “Plan Maximum
Amendment”), as are set
out in Appendix A. The Plan Maximum Amendment relates to changing the maximum number of
Common Shares issuable under the Stock Option Plan from a fixed number of 20,000,000 to the number of Common Shares that
represent twenty five percent (25%) of the total number of all issued and
outstanding Common Shares from time to time.
The
following is a summary of the Plan Maximum Amendment. The strategic use of
incentive stock options is an important component of the Corporation’s overall
compensation plan for its executives, employees and advisors and continues to be
one of the Corporation’s primary tools for attracting, motivating and retaining
qualified executives, employees and advisors, which is critical to the
Corporation’s success. On May 24, 2010, the Board approved, subject to
shareholder and regulatory approval, a proposed amendment to the Stock Option
Plan to change the maximum number of Common Shares that may be issued under the
Stock Option Plan from the current fixed maximum number of 20,000,000 Common
Shares to the number of Common Shares representing 25.0% of the total number of
all issued and outstanding Common Shares from time to time. If the Plan
Maximum Amendment is approved, any increase in the issued and outstanding Common
Shares will result in an increase in the available number of Shares that may be
issued pursuant to options granted under the Stock Option Plan, any Common
Shares subject to an option that expires or terminates without having been fully
exercised may be made the subject of a further Option and any exercises of
Options will make new grants available under the Stock Option Plan, effectively
resulting in a re-loading of the number of options available to grant under the
Stock Option Plan.
In making
the decision to recommend the Plan Maximum Amendment, the Board considered a
number of factors, including the number of options currently outstanding under
the Stock Option Plan, the number of options currently available for grant under
the Stock Option Plan, the Corporation’s current and anticipated human resource
requirements. Further, in light of the recent private placement by the
Corporation and the issuance of units thereunder in April 2010, the Board has
determined that it is in the best interests of the Corporation that the size of
the stock option pool be increased. Of the currently authorized 20,000,000
Common Shares, 15,123,674 are currently reserved for issuance upon the exercise
of outstanding options (not including 700,000 options granted to the previous
CEO outside the Stock Option Plan and approved by shareholders on
December 16, 2003). As of the date hereof, the Corporation has available a
total of 4,693,326 Common Shares to be issued pursuant to the exercise of
options to be granted under the Stock Option Plan. The Corporation believes that
the proposed increase in the maximum number of Common Shares that may be issued
under the Stock Option Plan will ensure that a reasonable number of Common
Shares remain available for the grant of options in the future. The Corporation
plans to request the conditional listing of additional Common Shares on the TSX
and to be listed as reserved for issuance under the Stock Option Plan. No
options have been granted to any director or Named Executive Officer out of the
proposed Plan Maximum Amendment.
The Plan
Maximum Amendment is subject to prior regulatory approval. The TSX has been
asked to conditionally approve the Plan Maximum Amendment subject to
ratification by the Shareholders at the Meeting as set forth herein.
Accordingly, Shareholders will be asked to consider and, if deemed advisable, to
approve, with or without amendment, the Stock Option Plan Resolution set out in
Appendix “A” to this Circular. See “Other Information Regarding Management –
Stock Option Plan” for a discussion of the material terms of the Stock Option
Plan.
To become
effective, the Stock Option Plan Resolution must be approved by a simple
majority of the votes cast by the Shareholders voting in person or by proxy at
the Meeting, other than the votes attaching to Common Shares beneficially held
by insiders of the Corporation to whom options may be granted under the Stock
Option Plan and associates of such insiders. To the knowledge of the directors
and senior officers of Adherex, after reasonable enquiry, as of the date hereof
such insiders and their respective associates, as a group, beneficially owned,
directly or indirectly, or exercised control or direction over 4,088,623 Common
Shares.
10
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
This
discussion relates to the executive officers listed in the Summary Compensation
Table below, who are referred to as Named Executive Officers.
Mandate
of the Compensation Committee
It is the
task of the Compensation Committee to periodically review Adherex’s compensation
structure with respect to its Named Executive Officers, including its Chief
Executive Officer, to ensure that Adherex continues to attract and retain
qualified and experienced individuals to its management team and to motivate
these individuals to perform to the best of their ability and in Adherex’s best
interests. The Compensation Committee determines the compensation of the Named
Executive Officers, evaluates and approves the compensation plans, policies and
programs of the Corporation and recommends to the Board from time to time other
incentive compensation plans that it determines should be
considered.
In
reviewing executive compensation, the Compensation Committee relies on the
advice of the Chief Executive Officer regarding other executive officers and
allows him to participate in the Committee’s deliberations on those executive
officers. The Chief Executive Officer, however, is not allowed to
participate in the Committee’s deliberations on his compensation. The
Compensation Committee may not delegate any of its responsibilities to another
entity or to an individual without the approval of the Board.
General
Compensation Philosophy
The key
components of executive officer compensation are salaries, cash incentive awards
and stock options. Adherex’s policy with respect to the compensation
of Named Executive Officers is to establish annual goals with respect to
corporate development and the individual areas of responsibility of each Named
Executive Officers and then to review total compensation with respect to the
achievement of these goals.
Salary
and Non-Equity Incentive Awards
It is
Adherex’s policy that the base salaries paid to its Named Executive Officers
reflect, in addition to the criteria set out above, the individual’s
responsibility, experience and achievements. Each year the
Compensation Committee sets a series of objectives for each executive and for
the executive team as a whole to determine the opportunity for cash incentive
awards. These objectives are prioritized and assigned potential
values in light of overall company objectives, including with respect to
scientific, clinical, regulatory, intellectual property, business and corporate
development, and financial objectives. The Compensation Committee
reviews both base salaries and cash incentive awards on at least an annual basis
to ensure that the relevant criteria are satisfied.
Stock
Options
The
annual compensation considerations also include the awarding of stock
options. The granting of options to the Named Executive Officers
under the Stock Option Plan serves three primary purposes: (1) to recognize
significant performance during the past year; (2) to provide long-term
incentives for future efforts, since the value of the options is directly
dependent on the market valuation of the Corporation; and (3) to retain
individuals, as the options typically vest over time. When
determining whether and how many new option grants will be made, the
Compensation Committee takes into account the amount and terms of any
outstanding options. The Compensation Committee generally considers
the granting of options twice annually to all eligible employees, including
executive officers. The Committee, in its discretion, may grant
options at other times during a fiscal year to a Named Executive Officer for
performance or other reasons. Adherex does not require its Named
Executive Officers to own a specific amount of Common Shares.
11
Analysis
of Named Executive Officer Compensation
The
Compensation Committee is charged with annually reviewing and approving
corporate goals and objectives relevant to each of the Named Executive Officer’s
compensation, evaluating each officer’s performance in light of those goals and
objectives, and fixing and determining each Named Executive Officer’s level of
salary and award of cash incentive payments and options based on this
evaluation. In determining the long-term incentive component of each Named
Executive Officer’s compensation, the Compensation Committee considers the
Corporation’s performance and relative shareholder return, the value of similar
incentive awards to other similarly situated executive officers at companies in
the comparator group, the awards given to the Named Executive Officer in past
years, and such other factors as the Compensation Committee considers
relevant. Specifically, the Compensation Committee’s review and
evaluation includes measurement of the following areas:
|
|
·
|
the
achievement of corporate objectives, such as financings, partnerships and
other business development, and consideration of those achievements in
light of budgetary constraints and other challenges facing the
Corporation;
|
|
|
·
|
the
Corporation’s financial condition;
|
|
|
·
|
the
Corporation’s share price and market capitalization;
and
|
|
|
·
|
the
advancement of our product candidates, both preclinical and
clinical.
|
Options
In August
2009, in recognition of services provided to assist in the transition of the new
corporate direction of the Corporation, the Board granted options to purchase
Common Shares to the Named Executive Officers as follows:
|
Named Executive
Officer
|
Grant Date
|
Number of Shares
Subject to Options
|
Exercise
Price
|
Vesting
|
Expiration
Date
|
||||||||
|
Robin
Norris, previously Chief Operating Officer(1)
|
08/19/2009
|
200,000 | $ | 0.06 |
08/19/2009
|
08/19/2016
|
|||||||
|
(1)
|
Dr.
Norris’ employment with the Corporation was concluded on December 31,
2009.
|
Compensation
Committee Report
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis contained in this Circular with management and, based on that
review and discussion, the Compensation Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this
Circular.
|
Submitted
by:
|
THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
|
|
|
Claudio
Bussandri, Chair
|
||
|
Robert
W. Butts
|
||
|
|
William
Breen
|
12
Compensation
Committee Interlocks and Insider Participation
Claudio
Bussandri, William Breen and Robert W. Butts are the current members of the
Compensation Committee. None of these individuals was at any time
during 2009 or at any other time an officer or employee of ours. No
interlocking relationship exists between any member of our Compensation
Committee and any member of any other company’s board of directors or
compensation committee.
The Board
has determined that each member of the Compensation Committee is “independent”
under applicable securities laws.
Summary
Compensation Table
The
following table sets out certain information respecting the compensation paid to
the CEO and CFO as well as any executive officer of the Company whose salary and
bonus for the financial year ended December 31, 2009 exceeded
$150,000.
|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)(1)
|
Option Awards
($)(2)
|
Non-Equity
Incentive Plan
Compensation
($) (3)
|
All Other
Compen-
sation
($)(4)
|
Total
($)
|
||||||||||||||||
|
Rostislav
Raykov, Chief
|
2009
|
$ | 11,572 | - | $ | 11,572 | |||||||||||||||||
|
Executive
Officer(5)
|
- | ||||||||||||||||||||||
| - | |||||||||||||||||||||||
|
Robert
Andrade, Chief
|
2009
|
$ | 11,572 | - | 11,572 | ||||||||||||||||||
|
Financial
Officer(6)
|
- | ||||||||||||||||||||||
| - | |||||||||||||||||||||||
|
Dr.
William P. Peters
|
2009
|
298,623 | 115,000 | - | 413,623 | ||||||||||||||||||
|
Former
Chief Executive
|
- | ||||||||||||||||||||||
|
Officer
and Chairman(7)
|
- | ||||||||||||||||||||||
|
James
A. Klein, Jr.
|
2009
|
180,934 | 35,000 | 215,934 | |||||||||||||||||||
|
Previously
Chief Financial
|
- | - | |||||||||||||||||||||
|
Officer(8)
|
- | ||||||||||||||||||||||
|
Dr.
Robin J. Norris
|
2009
|
208,000 | 35,000 | 9,000 | - | 252,000 | |||||||||||||||||
|
Previously
President and
|
- | ||||||||||||||||||||||
|
Chief
Operating Officer(9)
|
- | ||||||||||||||||||||||
|
D.
Scott Murray,
|
2009
|
123,822 | 65,000 | - | 188,822 | ||||||||||||||||||
|
Previously
Senior Vice
|
- | ||||||||||||||||||||||
|
President,
General Counsel
|
|||||||||||||||||||||||
|
and
Secretary(10)
|
|||||||||||||||||||||||
|
(1)
|
Represents
cash incentive awards in respect to fiscal 2008 and disbursed in the first
quarter of 2009 as detailed in the Company’s 2009
proxy.
|
|
(2)
|
Represents
the amounts recorded in the Corporation’s financial statements for the
relevant year in accordance with Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 123 (revised 2004)
Share-based Payment, or SFAS 123(R), for stock option awards, without
discounting of estimated
forfeitures.
|
|
(3)
|
The
term “incentive plan” means any plan providing compensation intended to
serve as incentive for performance to occur over a specified period,
whether such performance is measured by reference to financial performance
of the Corporation, the Corporation's stock price, or any other
performance measure. An “equity incentive plan” is an incentive
plan or portion of an incentive plan under which awards are granted that
fall within the scope of SFAS 123 (R). A “non-equity incentive
plan” is an incentive plan or portion of an incentive plan that is not an
equity incentive plan.
|
|
(4)
|
Consists
of the taxable benefit for premiums paid for group term life insurance,
long term disability and long term care
insurance.
|
|
(5)
|
Mr.
Raykov joined the Corporation in July
2009.
|
|
(6)
|
Mr.
Andrade joined the Corporation in July
2009.
|
|
(7)
|
Dr.
Peters concluded his employment relationship with the Corporation
effective July 2009.
|
|
(8)
|
Mr.
Klein resigned from the Corporation in September
2009.
|
|
(9)
|
Dr.
Norris’ employment with the Corporation ended in December
2009.
|
|
(10)
|
Mr.
Murray’s employment with the Corporation was terminated in July
2009.
|
13
Equity
Grants, Exercises and Holdings
During
the year ended December 31, 2009, the Board granted options to purchase an
aggregate of 200,000 Common Shares to one of our previously Named Executive
Officers as discussed above in “Compensation Discussion and
Analysis”.
The
following table sets forth information concerning the number and value of
unexercised options held by current Executive Officers as of December 31,
2009.
|
Outstanding
Equity Awards at December 31, 2008
|
|||||||||||
|
Name
|
Number of Securities
Underlying Unexercised
Options (#) Exercisable
|
Number of Securities
Underlying Unexercised
Options (#)
Unexercisable
|
Option
Exercise Price ($)
(1)
|
Option
Expiration Date
|
|||||||
|
Dr.
Thomas Spector
|
10,000 |
(1)
|
- |
CAD$2.20
|
09/24/2011
|
||||||
| 70,000 |
(3)
|
- |
CAD$1.35
|
7/1/2012
|
|||||||
|
|
(1)
|
10,000
options were granted on: 09/24/2004
|
|
|
(2)
|
70,000
options were granted on: 07/01/2005
|
No Named
Executive Officers exercised options in the year ended December 31,
2009.
Termination
of Employment, Change in Responsibilities and Employment Contracts
Rostislav
Raykov
Pursuant
to an employment agreement dated May 3, 2010 between Rostislav Raykov and
Adherex, Mr. Raykov is employed as Adherex’s Chief Executive
Officer. Pursuant to this agreement, Mr. Raykov (a) receives an
initial annual salary in the amount of $140,000, (b) upon approval by
shareholders of the amended Stock Option Plan will be granted options to
purchase up to 5.0% of Adherex’s common shares outstanding estimated by the
Company to be outstanding upon completion of the proposed rights offering
announced by the Company on April 20, 2010, and (c) may receive annual bonuses
at the sole discretion of the Board. If Mr. Raykov’s employment
terminates due to a change of control of Adherex, any then remaining unvested
shares under his options shall immediately vest and be fully
exercisable. If Mr. Raykov is dismissed from employment by Adherex
for any reason other than “cause,” Adherex is obligated to pay Mr. Raykov
severance compensation equal to twelve (12) months of salary.
Robert
Andrade
Pursuant
to an employment agreement dated May 3, 2010 between Robert Andrade and Adherex,
Mr. Andrade is employed as Adherex’s Chief Financial
Officer. Pursuant to this agreement, Mr. Andrade (a) receives an
initial annual salary in the amount of $140,000, (b) upon approval by
shareholders of the amended Stock Option Plan will be granted options to
purchase up to 5.0% of Adherex’s common shares outstanding estimated by the
Company to be outstanding upon completion of the proposed rights offering
announced by the Company on April 20, 2010, and (c) may receive annual bonuses
at the sole discretion of the Board. If Mr. Andrade’s employment
terminates due to a change of control of Adherex, any then remaining unvested
shares under his options shall immediately vest and be fully
exercisable. If Mr. Andrade is dismissed from employment by Adherex
for any reason other than “cause,” Adherex is obligated to pay Mr. Andrade
severance compensation equal to twelve (12) months of salary.
14
Dr.
Thomas Spector
Pursuant
to an employment agreement dated May 3, 2010 between Dr. Thomas Spector and
Adherex, Dr. Spector is employed as Adherex’s Chief Scientific
Officer. Pursuant to this agreement, Dr. Spector (a) receives an
initial annual salary in the amount of $150,000, (b) upon approval by
shareholders of the amended Stock Option Plan will be granted options to
purchase up to 5.0% of Adherex’s common shares outstanding estimated by the
Company to be outstanding upon completion of the proposed rights offering
announced by the Company on April 20, 2010, and (c) may receive annual bonuses
at the sole discretion of the Board. If Dr. Spector’s employment
terminates due to a change of control of Adherex, any then remaining unvested
shares under his options shall immediately vest and be fully
exercisable. If Dr. Spector is dismissed from employment by Adherex
for any reason other than “cause,” Adherex is obligated to pay Dr. Spector’s
severance compensation equal to twelve (12) months of salary.
William
Peters
Pursuant
to a separation and mutual release agreement dated July 2, 2010 between
Dr. William P. Peters and Adherex, Dr. Peters concluded the employment
relationship as Chief Executive Officer and Chairman of Adherex effective July
2, 2010. Pursuant to this agreement, Dr. Peters (a) received
separation pay equal to one(1) month of his regular base salary, (b) received a
$5,640 equal to the estimated cost of securing equivalent health coverage, and
(c) was granted three (3) years following the Termination Date to exercise any
vested but unexpired and unexercised stock options.
Robin
Norris
Pursuant
to an amended and restated employment agreement dated August 19, 2009 between
Dr. Robin Norris and Adherex, Dr. Norris continued as Adherex’s Chief
Operating Officer through December 31, 2009. Pursuant to his
agreement, Dr. Norris (a) received an amended annual salary in the amount
of $120,000 (Dr. Norris’ previous annual salary was $255,000), (b) was granted
options to purchase up to 200,000 Common Shares at a price per share of USD$0.06
under the Stock Option Plan, and (c) was to be reimbursed for certain business
expenses. Dr. Norris’s employment with Adherex was concluded on December
31, 2009.
The
Company terminated the employment of D. Scott Murray on July 10,
2009. D. Scott Murray, was previously employed as Adherex’s General
Counsel and Corporate Secretary.
James
Klein, the Company’s previous Chief Financial Officer, resigned on September 4,
2009.
In
addition to such employment agreements, each of Dr. Spector and Messrs. Andrade
and Raykov, is a party to a confidentiality and intellectual property agreement
with Adherex.
In the
agreements for each of Dr. Spector and Messrs. Andrade and Raykov “cause” is
generally defined as (1) material breach of the terms of the employment or
intellectual property agreements; (2) failure to perform the duties
inherent in Employee’s position in good faith and in a reasonable and
appropriate manner; or (3) acts of fraud or embezzlement or other intentional
misconduct which adversely affects the Company's business.
Estimated
Termination Benefits
|
Name
|
Lump Sum
Severance
|
Value of Benefits
Per Month (# of
months paid)
|
Value of Options
that Would
Vest(1)
|
Total
|
||||||||||
|
Rostislav
Raykov
|
$ | 140,000 |
Nil
|
(Nil)
|
N/A | $ | 140,000 | |||||||
|
Robert
Andrade
|
140,000 |
Nil
|
(Nil)
|
N/A | 140,000 | |||||||||
|
Dr.
Thomas Spector
|
150,000 |
Nil
|
(Nil)
|
N/A | 150,000 | |||||||||
|
(1)
|
Options
have not yet been granted to Dr. Spector and Messrs. Andrade and Raykov as
they are subject to approval of the amended option plan by
shareholders.
|
15
COMPENSATION
OF DIRECTORS
Beginning
in the first quarter of the fiscal year December 31, 2009, the members of the
Board of Directors agreed to continue to serve for the benefit of shareholders
without cash compensation.
The
annual compensation considerations for non-executive directors also include the
awarding of stock options. The granting of options to the
non-executive directors under the Stock Option Plan serves three primary
purposes: (1) to recognize the significant time and effort commitments during
the past year; (2) to provide long-term incentives for future efforts since the
value of the options is directly dependent on the market valuation of the
Corporation; and (3) to retain quality individuals as the options typically vest
over time. When determining whether and how many new option grants
will be made, the Compensation Committee takes into account the amount and terms
of any outstanding options. Adherex does not require its
non-executive directors to own a specific amount of Common Shares.
For the
year ended December 31, 2009, the Board did not grant any further options to
purchase Common Shares to the non-executive directors.
Pursuant
to an Independent Director Agreement on May 3, 2010 for each Dr. Porter and
Messrs. Breen and Bussandri and conditioned upon the approval of the amended
Stock Option Plan, the Board approved: (a) the grant to each Dr. Porter and
Messrs. Breen and Bussandri an option to purchase 1.33% of Adherex’s common
stock estimated by the Company to be outstanding upon completion of the proposed
rights offering announced by the Company on April 20, 2010, and (b)
reimbursement for reasonable travel and related expenses incurred.
Mr. Butts
does not accept cash fees or stock for his participation on the
Board.
OTHER
INFORMATION REGARDING MANAGEMENT
Stock
Option Plan
The
Amended and Restated Stock Option Plan was adopted to develop the interest and
incentive of eligible employees, directors and other service providers of the
Corporation in the Corporation's growth and development by giving eligible
Participants (as defined below) an opportunity to purchase Common Shares on a
favourable basis, thereby advancing the interests of the Corporation, enhancing
the value of the Common Shares for the benefit of all Shareholders and
increasing the ability of the Corporation to attract and retain skilled and
motivated individuals in the service of the Corporation. Without giving effect
to the Plan Maximum Amendment that is proposing to change the maximum number of
Common Shares that may be issued under the Stock Option Plan to a rolling
maximum equal to 25% of the issued and outstanding Common Shares from time to
time, the total number of Common Shares that may be currently issued by the
Corporation under the Stock Option Plan is 20,000,000, representing
approximately 5.4% of the currently issued and outstanding Common
Shares. As of May 24, 2010 options for an aggregate of 15,123,674
Common Shares have been granted and remain issued and outstanding under the
Stock Option Plan, representing approximately 4.1% of the currently issued and
outstanding Common Shares, and options for 183,000 Common Shares have been
exercised under the Stock Option Plan, representing 0.1% of the currently issued
and outstanding Common Shares. These numbers do not include options
for 700,000 Common Shares, representing approximately 0.2% of the currently
issued and outstanding Common Shares, which were specifically approved by the
Corporation’s shareholders on December 16, 2003 and granted to Dr. Peters
outside of the Stock Option Plan. Although granted outside of the
Stock Option Plan, these options were granted with an exercise price equal to
the market price of the Common Shares on the date of grant, a term of seven (7)
years from the date of grant, vesting as to one-third immediately upon granting,
another third on the next day following the first anniversary of the date of
grant, and the last third on the next day following the second anniversary of
the date of grant, and otherwise had terms similar to options granted by the
Corporation pursuant to the Stock Option Plan.
16
Within
the above aggregate limit of 20,000,000 Common Shares (and proposed limit of 25%
of the issued and outstanding Common Shares from time to time), the Stock Option
Plan contains no limits on the number or percentage of such options that may be
granted to insiders of the Corporation or to any one person. The
Board currently has the right, in its sole discretion, to alter, amend or
discontinue the Stock Option Plan from time to time and at any time. However, no
such amendment or discontinuation may alter or impair the rights or increase the
obligations under the Stock Option Plan of Participants without the consent of
the Participants. Further, any amendment to the Stock Option Plan is subject to
prior regulatory approval. The Stock Option Plan’s amending
procedures explicitly provide that shareholder approval is not required to
implement any amendments, save and except for amendments related to (i) the
maximum number of Common Shares or any other shares of the Corporation which are
reserved for issuance under the Stock Option Plan (and under any other share
compensation arrangement of the Corporation); (ii) a reduction in the exercise
price for options held by insiders; and (iii) an extension to the term of
options held by insiders. Examples of the amendments that may be made
by the Board without shareholder approval include, without limitation,
amendments related to (a) the vesting provisions of the Stock Option Plan or any
option granted under the Stock Option Plan, (b) the early termination provisions
of the Stock Option Plan or any option granted under the Stock Option Plan, (c)
the addition of any form of financial assistance by the Corporation for the
acquisition by all or certain categories of participants, and the subsequent
amendment of any such provision which is more favourable to such participants,
(d) the addition or modification of a cashless exercise feature, payable in cash
or Common shares, which provides for a full deduction of the number of
underlying Common Shares from the Stock Option Plan reserve, (e) changing the
maximum percentage of Common Shares which are reserved for issuance under the
Stock Option Plan to a maximum number of Common Shares not exceeding the number
of Common Shares which then represents the maximum percentage previously
approved by the Corporation’s security holders; (f) the suspension or
termination under applicable laws (including, without limitation, the rules,
regulations and policies of the TSX); and/or (g) general housekeeping
matters.
Participation
in the Stock Option Plan shall be limited to directors, employees and service
providers who are designated from time to time by the Compensation Committee
(each, a “Participant”). Board
nominees or other associates of the Corporation’s largest shareholder,
Southpoint Capital Advisors, are not eligible to participate in the Stock Option
Plan. Subject to the terms of the Stock Option Plan, the Compensation Committee
determines the Participants designated to participate in the Stock Option Plan,
the number of Common Shares such Participant is entitled to purchase and the
price at which the Common Shares may be purchased and the applicable vesting
period. The option price at which the Common Shares may be purchased under the
Stock Option Plan is the fair market value of the Common Shares of the
Corporation at the time of grant.
Options
granted under the Stock Option Plan must be exercised within a period of seven
(7) years from the date of grant, failing which the Participant's right to
purchase such Common Shares lapses. The Stock Option Plan provides
that should the expiry date of any vested stock option of a Stock Option Plan
participant fall on, or within nine (9) trading days immediately following, a
Black-Out Period, the expiry date of such a vested stock option will
automatically be the date that is ten (10) trading days from the date the
relevant Black-Out Period ends. Unless otherwise determined by the Compensation
Committee and specifically set forth in the stock option agreement executed by
the Participant, options vest and may be exercised by the Participant as to
one-third on each of the first, second and third anniversaries of the date of
grant. The Compensation Committee may, however, in its sole discretion by
written notice to any Participant, accelerate the vesting of all or any of the
options of a Participant. The Participant's rights under the options
granted under the Stock Option Plan are not assignable or transferable by the
Participant. The Corporation does not currently have any arrangements
in place for financial assistance to facilitate the purchase of securities by
Participants under the Stock Option Plan.
A
Participant’s right to exercise options ceases following any of the following
events (each of which, a “Participant Termination
Date”): (i) if an employee, such Participant’s employment with the
Corporation or any of its subsidiaries is terminated for any reason; (ii) if a
director, such Participant ceases to be a director on the Board for any reason;
or (iii) if a service provider, such Participant ceases to provide services to
the Corporation. In such case, the Participant, or the Participant's
legal representative, as the case may be, may only exercise such options that
are then vested any time prior to the earlier of: the original expiry date of
such option, or within 30 days of the Participant Termination Date, or if
specifically approved by the Board, such later date which may not be more than
three (3) years following the Participant Termination Date.
17
For U.S.
federal income tax purposes, an optionee who is granted an incentive stock
option under the Stock Option Plan will generally not recognize taxable income
either at the time the option is granted or upon its exercise, although the
exercise will increase the optionee’s alternative minimum taxable income by an
amount equal to the difference, if any, between the fair market value of the
shares at the time of exercise and the option's exercise price, and therefore
may subject the optionee to the alternative minimum tax. Upon the
sale or exchange of the shares more than two years after grant of the option and
more than one year after exercising the option, any gain or loss will be treated
as long-term capital gain or loss. If these holding periods are not satisfied,
the optionee will recognize ordinary income at the time of sale or exchange
equal to the difference between the exercise price and the lower of (i) the fair
market value of the shares at the date of the option’s exercise or (ii) the sale
price of the shares. Adherex will be entitled to a deduction in the same amount
as the ordinary income recognized by the optionee. Any gain or loss
recognized on such a premature disposition of the shares in excess of the amount
treated as ordinary income will be characterized as long-term or short-term
capital gain or loss, depending on the optionee’s holding period with respect to
such shares. Options that do not qualify as incentive stock options
under the Stock Option Plan are referred to as nonstatutory
options. Generally, an optionee will not recognize any taxable income
at the time he or she is granted a nonstatutory option. Upon its
exercise, however, the optionee will generally recognize taxable ordinary income
measured as the excess of the then fair market value of the shares acquired over
the exercise price of the option. Any taxable income recognized in
connection with an option exercise by an optionee who is also one of our
employees will be subject to tax withholding by us. Adherex will be
entitled to a tax deduction in the same amount as the ordinary income recognized
by the optionee with respect to shares acquired upon exercise of a nonstatutory
option. Upon resale of such shares by the optionee, any difference
between the sales price received and the fair market value for the shares on the
date of exercise of the option will be treated as long-term or short-term
capital gain or loss, depending on the optionee’s holding period with respect to
such shares.
Directors’
and Officers’ Liability Insurance
Adherex
has liability insurance for its directors and officers. The aggregate annual
premium for that insurance is approximately $95,000 no part of which is payable
by the directors and officers of the Corporation. The insurance coverage under
the policy for each loss is limited to an aggregate of $5,000,000 for each
policy year. The policy provides for a $150,000 deductible for any securities
claim made by the Corporation and for any other claim made by the Corporation
and there shall be no deductible for any claim made by a director or
officer.
Indebtedness
of Directors and Executive Officers
Section
13(k) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), prohibits
Adherex from making or arranging an extension of credit to its directors or
executive officers in the form of a personal loan.
No
individual, who is or was a director, executive officer or employee of Adherex,
nor any proposed nominee for election as a director of Adherex, nor any
associate of any one of them:
|
|
(i)
|
is
or, at any time since the beginning of Adherex’s most recent completed
financial period, has been indebted to Adherex or any of its subsidiaries;
or
|
|
|
(ii)
|
was
indebted to another entity, which indebtedness is, or was at any time
during Adherex’s most recent completed financial period, the subject of a
guarantee, support agreement, letter of credit or other similar
arrangement or understanding provided by Adherex or any of its
subsidiaries.
|
18
Interest
of Informed Persons in Material Transactions
In
accordance with the Canada Business Corporations Act ( the “CBCA”), directors who have a
material interest in any person who is a party to a material contract or a
proposed material contract with Adherex are required, subject to certain
exceptions, to disclose that interest and abstain from voting on any resolution
to approve that contract.
To the
knowledge of Adherex, no informed person or proposed nominee for election as a
director of Adherex and no associate or affiliate of the foregoing persons has
or has had any material interest, direct or indirect, in any transaction since
the commencement of Adherex’s last completed financial period or in any proposed
transaction which has materially affected or would materially affect Adherex or
any of its subsidiaries.
In
accordance with regulations of the SEC, Adherex must disclose in this Circular
any transaction or series of transactions in Adherex’s last completed financial
period to which Adherex was a party and in which any director or executive
officer of Adherex, or any of their immediate family members had a direct or
indirect material interest, if the amount involved exceeds $120,000 (a “Related Party Transaction”). To
the knowledge of Adherex, there were no Related Party Transactions in Adherex’s
last financial period and none anticipated at this time to occur in fiscal
2010.
Performance
Graph
The
following line graph compares the percentage change, from December 31, 2005 to
December 31, 2009, in cumulative total shareholder return for $100 (CAD$ for TSX
and US$ for AMEX) invested in our common stock with cumulative total return of
the AMEX Composite, the AMEX Biotechnology Index and the S&P/TSX Composite
Total Return Index.
19
Securities
Authorized for Issuance Under Equity Compensation Plan
The
following table provides certain information with respect to securities
authorized for issuance under equity incentive plans as of December 31,
2009:
|
Plan Category
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a))
|
|||||||||
|
Equity
compensation plans
|
13,200,852 |
$
|
0.55 | 4,693,326 | ||||||||
|
approved
by security
|
2,622,822 |
CAD
$
|
2.19
|
|||||||||
|
holders(1)
|
||||||||||||
|
Equity
compensation plans not approved by security holders
|
Nil
|
Nil
|
Nil
|
|||||||||
|
Total
|
15,823,674 | N/A | 4,693,326 | |||||||||
(1) The
Company’s current stock option plans allows for the issuance of stock options
denominated in both United States, or U.S., dollars and Canadian, or CAD,
dollars. This table presents the number and weighted-average exercise
price of outstanding options by the currency associated with the original
grants. The numbers presented include 700,000 options with an
exercise price of CAD $2.25 that were specifically approved by the Company’s
shareholders on December 16, 2003 and granted to the Company’s Chief Executive
Officer outside of the Company’s stock option plan. At December 31,
2009 we had 13,200,852 stock options denominated in U.S. dollars with a
weighted-average exercise price of $0.55 and 2,622,206 stock options denominated
in CAD dollars with a weighted-average exercise price of CAD$2.19. At
December 31, 2009, we had 4,693,326 stock options available for future
issuance.
REPORT
ON CORPORATE GOVERNANCE
Adherex
believes that good corporate governance is important to ensure that Adherex is
managed for the long-term benefit of its shareholders. In connection
with Adherex’s commitment to comply with the standards of applicable securities
legislation, Adherex has continued to review Adherex’s corporate governance
practices and policies and has compared them to developing practices and
regulation in Canada and the United States. In particular, Adherex
has considered the developing rules and guidelines for corporate governance
practices and policies, and related disclosures, promulgated by the Canadian
Securities Administrators, the SEC as well as the Sarbanes-Oxley Act of
2002.
In
February 2004, Adherex’s Board adopted a Mandate of the Board of Directors,
Corporate Governance Guidelines and a Code of Business Conduct and Ethics
applicable to all officers, directors and employees of Adherex. The
Board also (i) restated the charter of the Audit Committee, (ii) established a
separate Governance Committee and adopted a written charter for the committee,
(iii) restated the charter of the Compensation Committee, (iv) established a
Nominating Committee and adopted a written charter for the committee, and (v)
appointed a Lead Independent Director, currently Mr. Robert W.
Butts. Each of the various committee charters and other corporate
governance documents are regularly reviewed and updated.
Set out
below is a description of certain corporate governance practices of the
Corporation.
Shareholder
Communications
Shareholders
who wish to communicate with members of the Board of Directors, including the
independent directors individually or as a group, may send correspondence to
them care of the Chief Executive at our principal executive
offices. Such communication will be forwarded to the intended
recipient(s). Adherex currently does not intend to have the Chief
Executive screen this correspondence, but it may change this policy if directed
by the Board due to the nature or volume of the correspondence.
20
Board
of Directors
The board
of directors is composed of a majority of independent directors. The
Board applies the definition of independence found in the rules of the SEC and
in Canadian National Instrument 58-101 and National Policy
58-201. The Board has determined that four of the current six
directors are “independent”, including the Chair of the Board, being Messrs.
Butts, Breen, Bussandri, and Porter. Only two directors have material
relationships with the Corporation and are therefore not
independent. Mr. Raykov, Chief Executive Officer of the Corporation
and Chairman of the Board, and Mr. Andrade, Chief Financial Officer of the
Corporation, are considered to have a material relationship with the Corporation
by virtue of their executive officer positions. Adherex is of the
view that the composition of its Board reflects a diversity of background and
experience that are important for effective corporate
governance. Other directorships held by Board members are described
in this Circular under the heading “Ordinary Matters – Election of
Directors.”
During the financial year ended December 31, 2009, the
Board held eleven meetings in the absence of directors
who are not “independent,” and certain of the Committees also conducted
executive sessions where all participants were independent
directors. In order to facilitate open and candid discussion among
its independent directors, the Corporate Governance Guidelines provide that
independent directors should meet at least annually without the presence
of management or non-independent directors, that the Lead Independent Director is authorized to
call additional meetings of the independent directors and that the Lead Independent Director is authorized to
act as the presiding director at such meetings and to develop the agenda
for such meetings. In addition,
each Board member is free to suggest the inclusion of items on any Board
or Committee meeting agenda and suggest pre-meeting materials to either the
Chair of the Board or the Lead Independent Director. At any meeting
of the Board, each Board member is also free to raise subjects that are not on
the agenda for that meeting. Furthermore, each Board committee and
the Lead Independent Director, on behalf of the independent directors as a
group, have the authority to hire legal, accounting, financial or other advisors
as they may deem necessary in their best judgment, without the need to obtain
the prior approval of any officer of the Corporation. The Chief
Financial Officer of the Corporation will arrange for payment of the invoices of
any such third party.
Directors’
Attendance
For the
fiscal period ended December 31, 2009, the Board met on fifteen occasions, the
Audit Committee met on four occasions, the Compensation Committee met once, and
the Governance Committee met once.
The
following table sets forth the attendance of directors at meetings of the Board,
the Audit Committee, the Compensation Committee and the Governance
Committee.
|
Director
|
Attendance at
Board Meetings
|
Committees
|
Attendance at
Committee Meetings
|
|||
|
Robert
W. Butts
|
15/15
|
Audit
Committee, Governance Committee, Compensation Committee
|
6/6
|
|||
|
Robert
C Andrade (1)
|
4/4
|
N/A
|
||||
|
William
G. Breen
|
15/15
|
Audit
Committee,
Governance
Committee, Compensation Committee
|
6/6
|
|||
|
Claudio
F. Bussandri
|
15/15
|
Audit
Committee, Governance Committee, Compensation Committee
|
6/6
|
|||
|
Arthur
T. Porter
|
15/15
|
Audit
Committee
|
4/4
|
|||
|
Rostislav
Raykov (1)
|
4/4
|
Governance
Committee
|
N/A
|
(1) Messrs. Andrade and Raykov were appointed to the Board on July 7, 2009 and
attended each board meeting thereafter.
21
The Board
expects management to be responsible for the day-to-day operations of and to
implement the approved strategic business plan within the context of authorized
budgets and corporate policies and procedures. Management is expected to report
regularly to the Board in a comprehensive, accurate, and timely fashion on
Adherex’s business and affairs.
Adherex
does not have a formal written policy regarding attendance of Board members at
annual meetings of the shareholders. Adherex, however, strongly
encourages all directors to attend such meetings.
Mandate
of the Board of Directors
The Board
has the overall responsibility for the strategic planning and general management
of Adherex’s business and affairs. In fulfilling its responsibilities, the Board
is responsible for, among other things:
|
|
·
|
adoption
of a strategic plan;
|
|
|
·
|
approval
of the annual operating and capital expenditure
budgets;
|
|
|
·
|
identification
of the principal risks of the business and ensuring the implementation of
the appropriate systems to manage these
risks;
|
|
|
·
|
succession
planning, including appointing and monitoring senior
management;
|
|
|
·
|
adoption
of a communications policy;
|
|
|
·
|
approval
of acquisitions, dispositions, investments and financings that exceed
certain prescribed limits;
|
|
|
·
|
integrity
of the internal control and management information systems;
and
|
|
|
·
|
development
of clear position descriptions for directors, including the Chair of the
Board, the Chair of each Board committee and, together with the CEO, a
clear position description for the
CEO.
|
The Board
discharges its responsibilities directly and through committees that have
specific areas of responsibility. The frequency of Board meetings and
the nature of items discussed during the meetings depend on the opportunities or
risks that Adherex faces. The Board, directly and through its committees, has
adopted a process whereby it assesses the risk factors that must be identified
and managed to ensure Adherex’s long-term viability.
The Board
mandate generally describes the Board’s expectation of management and provides a
list of specific matters for which management must obtain Board approval prior
to implementation. The Board mandate also provides that the
Board annually establish performance objectives for the CEO, which
responsibility has been delegated to the Compensation Committee. In
addition, the Board receives regular updates from management concerning the
Corporation’s progress toward achieving corporate goals. The Board has also
delegated to the Compensation Committee responsibility for evaluating the CEO’s
compensation, which evaluation includes review of the CEO’s performance against
annual performance objectives for the year and input from the Lead Independent
Director as well as other directors.
The Board
Mandate is attached as Exhibit “A” to this Circular.
22
Position
Descriptions
The Board
Mandate and the Governance Committee Charter provide that the Board, is
responsible for the development of clear position descriptions for directors,
including the Chair of the Board and the chair of each board committee; and,
together with the Chief Executive Officer, a clear position description for the
Chief Executive Officer, which includes delineating management’s
responsibilities.
Ethical
Business Conduct
In
February 2004, Adherex’s Board adopted a Mandate of the Board of Directors,
Corporate Governance Guidelines and a Code of Business Conduct and Ethics (the
“Code”) applicable to
all officers, directors and employees of Adherex. You can access the
Code in the corporate governance section of Adherex’s website at www.adherex.com. Adherex is committed to
adhering to applicable legal requirements and maintaining the highest standards
of conduct and integrity. The Code is intended to promote those goals in
conjunction with the Corporation’s Insider Trading Policy, Disclosure Policy and
Audit Committee Complaint Procedures. The Code sets out the legal and
ethical standards of conduct for personnel of Adherex and addresses topics such
as: reporting obligations and procedures; honest and ethical conduct and
conflicts of interest; compliance with applicable laws and Corporation policies
and procedures; confidentiality of corporate information; use of corporate
assets and opportunities; public disclosure and books and records; and
non-retaliation. The Board is not aware of any conduct of a director
or officer that constitutes a departure from the Code and, as a result, since
the beginning of Adherex’s fiscal year ended December 31, 2009, there have been
no material change reports filed that pertain to such a departure.
The Code
provides that the Governance Committee shall monitor and periodically evaluate
compliance with the Code and its application to the Corporation’s
business. In addition, the Code sets out the procedures adopted by
the Audit Committee for the receipt, retention and treatment of complaints and
concerns regarding accounting, internal accounting control, or auditing matters.
In each case, the Code provides that the Corporation will not discipline,
discriminate against or retaliate against any employee who reports a complaint
or concern in good faith, whether or not the information is ultimately proven to
be correct, or who cooperates in any investigation or inquiry
thereof.
In order
to ensure independent judgment in considering transactions or agreements in
which a director or officer has a material interest, the Code contains a process
that must be followed regarding the disclosure, consultation and approval of
transactions involving potential conflicts of interest. As a first
step, officers and directors must disclose such matters to the Chief Executive
Officer and to the Chair or any other disinterested member of the Governance
Committee charged with reviewing conflicts of interest. The Board has
adopted rules for what activities constitute conflicts of interest and potential
conflicts of interest, as well as procedures for determining whether a
relationship or transaction constitutes a conflict of interest, the current
versions of which are attached as appendices to the Code. Following
disclosure, any officer or director must avoid or terminate any activity that
involves an actual or reasonably apparent conflict of interest unless it is
determined at the appropriate level that the activity is not a conflict of
interest or is otherwise not harmful to the Corporation or
improper. Disinterested members of the Governance Committee shall
make any such determination.
In
accordance with the CBCA, directors who have a material interest in any person
who is a party to a material contract or a proposed material contract with us
are required, subject to certain exceptions, to disclose that interest and
abstain from voting on any resolution to approve that contract. In
addition, no director, director nominee or officer may enter into any
transaction or relationship that is disclosable by such person or the
Corporation pursuant to the CBCA or by the Corporation pursuant to SEC rules
without the prior approval of the disinterested members of the Nominating (where
appropriate) and Governance Committees, and no such person may directly or
indirectly approve, or represent the Corporation or the other party in
arranging, the terms of any transaction between the Corporation and a party with
which he/she has any relationship of a type that is disclosable by such person
or the Corporation pursuant to the CBCA or by the Corporation pursuant to SEC
rules. All transactions between the Corporation and a party with
which a director, officer or employee has such a relationship shall be on an
arm’s length basis.
23
Orientation
and Continuing Education
Responsibility
for the oversight of orientation for new directors and continuing education
programs for all directors with respect to the Corporation’s business and
financial matters, corporate governance and other appropriate subjects is
assigned to the Governance Committee under its charter. In this regard, the
Governance Committee’s duties include ensuring the adequacy of the orientation
and education program for new members of the Board.
The
Governance Committee is also responsible for arranging continuing education for
directors in order to ensure that directors maintain the skill and knowledge
necessary to meet their obligations as directors. Given the
Corporation’s limited resources, to date, no formal external continuing
education programs have been sponsored by the Corporation but members of the
Board are free to attend such programs as they determine necessary and in the
Corporation’s best interest. The Corporation also provides directors
with the opportunity to meet with senior management of the Corporation,
including the Chief Financial Officer and the General Counsel, as well as
external advisors, at any time and such personnel and advisers are regularly
invited to present at Board meetings or in connection with Board retreats to
provide updates in legal, accounting, governance and other business
developments. Some meetings are held at the Corporation’s premises,
allowing directors the opportunity to gain additional insight into the
Corporation’s operations. In addition, analyst reports and other
information relating to the Corporation’s business and the industry in which it
operates are presented at Board meetings and strategy sessions and
industry-related articles of interest are distributed to Board members from time
to time. Pursuant to each Committee charter, directors are permitted
to obtain advice and assistance from internal or external advisors, including
for the purposes of continuing education and developments relevant to board
responsibilities.
Nomination
of Directors
The Board
does not have a nominating committee. Nominations to the Board are
largely the result of recruitment efforts of the Chairman of the
Board. Potential nominees are discussed with the Board as a
whole. The Board feels that the current approach is
appropriate.
Assessments
The
Chairman of the Board has the ongoing responsibility of assessing the
effectiveness of the Board as a whole, the committees of the Board and the
contribution of individual directors. Evaluation criteria include
such factors as the attendance record of individual Board members and the
effectiveness of their participation at Board meetings. Annually, the
Chairman of the Board prepares and approves the list of nominees to be presented
at the Annual Meetings of the Shareholders.
Compensation
The Board
is responsible for establishing director and executive officer compensation and
reviews such compensation at least as often as annually. The
Board believes that directors should be fairly compensated for undertaking the
responsibilities associated with serving as a director. At the same
time, director compensation should be consistent with market practices
generally. The Board delegates to the Compensation Committee
responsibility for periodically assessing market practices for director and
executive officer compensation. In addition, the Nominating Committee
evaluates director compensation in the context of evaluating director
recruitment and retention.
The
Compensation Committee operates under a written charter adopted by the
Board. The Compensation Committee is currently composed entirely of
independent directors: Mr. Bussandri (Chair), Mr. Butts and Mr.
Breen. The Compensation Committee held one meeting in the fiscal
period ending December 31, 2009.
24
In
addition to director compensation, the Compensation Committee of the Board
determines the compensation to be paid to Adherex’s executive officers and
periodically reviews Adherex’s compensation structure to ensure that Adherex
continues to attract and retain qualified and experienced individuals to
Adherex’s management team and motivate these individuals to perform to the best
of their ability and in Adherex’s best interests. Among other things,
the Compensation Committee considers compensation levels of comparable positions
in similarly sized organizations in the biotechnology industry. The
Compensation Committee also administers the Stock Option Plan and approves new
stock option grants.
Other
Board Committees
The Board
has created audit, compensation, and governance committees to ensure that the
Board functions independently of management. It is also customary practice for
directors (i) to regularly receive detailed information describing Adherex’s
performance, and (ii) when necessary, to speak directly with management
regarding additional information required on particular matters of
interest. Moreover, directors have access to information independent
of management through Adherex’s external auditors.
Audit
Committee
On behalf
of the Board, the Audit Committee of the Board retains, oversees and evaluates
Adherex’s independent auditors, reviews the financial reports and other
financial information provided by Adherex, including audited financial
statements, and discusses the adequacy of disclosure with management and the
auditors. The Audit Committee also reviews the performance of the
independent auditors in the annual audit and in assignments unrelated to the
audit, assesses the independence of the auditors, and reviews their
fees. The Audit Committee is also responsible for reviewing Adherex’s
internal controls over financial reporting and disclosure.
The Audit
Committee operates under a written charter adopted by the
Board. Multilateral Instrument 52-110 – Audit Committees requires
certain disclosures be cross-referenced with respect to the Audit Committee when
soliciting proxies from Shareholders for the purpose of electing
directors. The Corporation is relying on the exemption found in Part
7 of the Multilateral Instrument applicable to U.S. Listed Issuers. The Audit
Committee met four times during the fiscal period ending December 31, 2009. As
required by the rules of the SEC and Canadian securities laws, the Audit
Committee is composed entirely of independent directors, each of whom the Board
has determined is “financially literate” for purposes of the applicable laws:
Dr. Porter (Chair), Mr. Butts, Mr. Bussandri
and Mr. Breen. In addition, the Board has determined that Dr. Porter
qualifies as an “audit committee financial expert,” as defined in Item 401(h) of
Regulation S-K promulgated by the SEC.
Audit
Committee Report
The Audit
Committee has (1) reviewed and discussed the audited financial statements
with management, (2) discussed with Deloitte & Touche LLP, our
independent registered public accounting firm, the matters required to be
discussed by the Statement on Auditing Standards No. 61, and
(3) received the written disclosures and the letter from Deloitte &
Touche LLP required by the Independence Standards Board Standard No. 1, and
has discussed their independence with the independent registered public
accounting firm. Based upon these discussions and reviews, the Audit
Committee recommended to the Board that the audited financial statements be
included in the Corporation’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2009 that we filed with the SEC on or about March 30 ,
2010.
Deloitte
& Touche LLP served as our independent registered public accounting and
audited our consolidated financial statements for the year ended
December 31, 2009. Though the Audit Committee does not have
formal pre-approval policies and procedures in place, it has pre-approved all of
the services performed by Deloitte & Touche LLP as discussed below, as
required by SEC regulation.
25
Audit
Fees
The
following table presents the aggregate fees for professional services and other
services rendered by our independent auditors, Deloitte & Touche LLP and PwC
in fiscal year 2009 and PwC in fiscal year 2008 (in United States
dollars):
|
Fiscal Year
2009
|
Fiscal Year
2008
|
|||||||
|
Audit
Fees (1)
|
$ | 63,000 | $ | 182,943 | ||||
|
Audit-Related
Fees (2)
|
- | - | ||||||
|
Tax
Fees (3)
|
11,250 | 56,702 | ||||||
|
All
Other Fees (4)
|
- | 3,707 | ||||||
|
Total
|
$ | 74,250 | $ | 243,352 | ||||
|
(1)
|
Audit Fees include fees
for the standard audit work that needs to be performed each year in order
to issue an opinion on the consolidated financial statements of the
Corporation and to issue reports on the local statutory and regulatory
financial statements. It also includes fees for services that
can only be provided by the Corporation’s auditor such as auditing of
non-recurring transactions and application of new accounting policies,
audits of significant and newly implemented system controls, pre-issuance
reviews of quarterly financial results, consents and comfort letters and
any other audit services required for U.S. Securities and Exchange
Commission or other regulatory
filings.
|
|
(2)
|
Audit-Related Fees
include fees for those other assurance services provided by auditors but
not restricted to those that can only be provided by the auditor signing
the audit report.
|
|
(3)
|
Tax Fees include fees
for periodic tax consultations and compliance services in various local,
regional and national tax
jurisdictions.
|
|
(4)
|
All Other Fees include
fees for products and services other than Audit Fees, Audit Related Fees
and Tax Fees, including access to an online database service provided by
PwC.
|
Our Audit
Committee has considered and determined that the provision of the non-audit
services rendered to us during 2009 and 2008 was compatible with maintaining the
independence of Deloitte & Touche LLP.
|
Submitted
By:
|
THE
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
|
|
Arthur
T. Porter, Chair
|
|
|
Robert
W. Butts
|
|
|
Claudio
Bussandri
|
|
|
William
G. Breen
|
Governance
Committee
The
Governance Committee of the Board develops, recommends and oversees the
effectiveness of Adherex’s corporate governance guidelines. In
addition, the Governance Committee oversees the orientation and education of
directors and the process of evaluating the Board and its
committees.
The
Governance Committee of the Board is charged with nominating activities,
including determining desired Board skills and attributes for directors,
conducting appropriate and necessary evaluations of the backgrounds and
qualifications of possible director candidates, and recommending director
nominees for approval by the Board or the Shareholders.
26
The
Governance Committee is currently composed three independent directors and one
affiliated director: Mr. Bussandri (Chair), Mr. Butts, Mr. Breen and
Mr. Raykov. The Governance Committee held one meeting in the
fiscal period ending December 31, 2009.
Retention
of Outside Advisors
Adherex’s
Corporate Governance Guidelines provide that the Board, each Board committee and
the Lead Independent Director, on behalf of the independent directors as a
group, shall have the authority to hire legal, accounting, financial or other
advisors as they may deem necessary in their best judgment, without the need to
obtain the prior approval of any officer of the Corporation. The
Corporation will arrange for payment of the invoices of any such third
party.
Section
16(a) Beneficial Ownership Reporting Compliance
On
February 21, 2007, Adherex became subject to Section 16(a) of the Exchange
Act. Section 16(a) of the Exchange Act requires certain executive
officers and directors of Adherex, and persons who own more than 10% of the
Common Shares, to file reports of ownership on Form 3 and charges in ownership
on Form 4 or Form 5 with the SEC. Those persons are also required to
furnish Adherex with copies of all such forms that they file. Based
solely on a review of these forms, we believe that in 2009, all of our executive
officers, directors and shareholders required to file Forms 3, 4 and 5 with
respect to Adherex filed those reports on time.
SHAREHOLDER
PROPOSALS FOR NEXT YEAR’S ANNUAL MEETING
The CBCA
permits certain eligible shareholders of the Corporation to submit shareholder
proposals to the Corporation, which proposals may be included in a management
proxy circular relating to an annual meeting of shareholders. Under
SEC rules, shareholders having proposals that they desire to present at the next
year’s annual meeting of shareholders should, if they desire that such proposals
be included in the Corporation’s proxy circular relating to such meeting, submit
such proposals in time to be received by Adherex not later than December 8,
2010. To be so included, all such submissions must comply with the
requirements of the SEC’s Rule 14a-8 and you should pay close attention to that
rule. In addition, pursuant to SEC rules, management’s proxy holders
will have discretion to vote proxies given to them on any shareholder proposal
of which Adherex does not have notice prior to February 23,
2011. Proposals should be mailed to the Secretary at Adherex
Technologies Inc., 501 Eastowne Drive, Suite 140, Chapel Hill, NC
27514.
ADDITIONAL INFORMATION
Financial information for the financial year ended
December 31, 2009 is provided in
the Corporation’s consolidated financial statements and
management’s discussion and analysis (“MD&A”) which are
included in the Annual Report. Securityholders who wish to be added
to the mailing list for the annual and interim financial statements and MD&A
should complete the appropriate sections of
the proxy or contact the undersigned at 501 Eastowne Drive, Suite 140,
Chapel Hill, North Carolina 27514.
The Corporation’s Annual Report on Form 10-K for
the fiscal period ended December 31, 2009 (including the consolidated financial statements and MD&A) and other information
relating to the Corporation is available on SEDAR at www.sedar.com and at www.sec.gov.
27
APPROVAL
OF THE BOARD OF DIRECTORS
The
contents of this Circular and its sending to Shareholders have been approved by
the Board of Directors.
DATED at Chapel Hill, North
Carolina this 24th day of
May 2010.
|
BY
ORDER OF THE BOARD OF DIRECTORS
|
|
|
ss/
Rostislav Raykov
|
|
|
Rostislav
Raykov
|
|
|
Chief
Executive Officer, Member of Board
|
28
Exhibit “A”
ADHEREX
TECHNOLOGIES INC.
Mandate
of the Board of Directors
|
A.
|
Responsibilities
|
The Board
of Directors (the “Board”) of Adherex
Technologies Inc. (the “Company”) is responsible for
the stewardship of the Company. All directors shall act
honestly and in good faith with a view to the best interests of the Company and
exercise the care, diligence and skill that a reasonably prudent person would
exercise in comparable circumstances.
The Board
retains plenary authority and power to do all lawful acts and things as are not
by law or otherwise directed or required to be exercised or done by the
shareholders of the Company or in some other manner. In carrying out its
responsibilities, the Board of Directors (or the committees of the Board of
Directors duly constituted by the Board of Directors to the extent such
delegation is permitted by law and is specifically made by the Board of
Directors) shall have the following specific responsibilities:
|
1.
|
the
adoption of a corporate strategic plan that includes the periodic review
and approval of business plans, which take into account, among other
things, the opportunities and risks of the
business;
|
|
2.
|
the
identification of the principal risks of the Company’s business and
ensuring the implementation of appropriate systems to manage these
risks;
|
|
3.
|
the
adoption of processes for succession planning, the periodic review of
succession plans for key members of senior management, including the Chief
Executive Officer (the “CEO”), and the
appointment and training of, and monitoring the performance and
compensation of senior management, including officers of the
Company;
|
|
4.
|
the
adoption of a communications policy and the periodic review of such
policy;
|
|
5.
|
the
establishment of adequate systems of internal controls and management
information systems;
|
the
adoption of corporate governance guidelines or principles applicable to the
Company, including with respect to: (i) the size and composition of the Board;
(ii) the orientation of new directors; (iii) the provision of continuing
education to directors; (iv) the compensation and tenure of directors; (v) the
periodic assessment (at least annually) of the performance of the Board, its
committees and directors, this Mandate, the Charter for each committee of the
Board; and (vi) the position description(s) applicable to each individual
director, as well as the competencies and skills each individual director is
expected to bring to the Board;
|
6.
|
the
oversight of the maintenance by management of practices and processes to
ensure compliance with applicable laws and appropriate ethical standards,
including the adoption by management of corporate policies and procedures
and the adoption of a written code of business conduct and ethics
applicable to directors, officers and employees of the Company containing
standards that are reasonably designed to deter
wrongdoing;
|
|
7.
|
to
the extent feasible, satisfying itself as to the integrity of the CEO and
other senior officers and that the CEO and other senior officers create a
culture of integrity throughout the
Company;
|
|
8.
|
the
submission of matters or questions requiring the approval of shareholders
to the shareholders for
approval;
|
29
|
10.
|
the
approval of the submission to the shareholders of any amendment to the
articles of the Company or the approval of any adoption, amendment or
repeal of any bylaws of the
Company;
|
|
11.
|
the
recommendation of candidates for election or appointment to the Board of
Directors, including the review of nominations recommended by
shareholders;
|
|
12.
|
the
approval of the annual objectives of the Company and the Chief Executive
Officer, and the assessment of the performance of the Company and the
Chief Executive Officer against the approved
objectives;
|
|
13.
|
the
approval of an annual operating budget for the Company and its
subsidiaries on a consolidated
basis;
|
|
14.
|
the
authorization of the issuance of securities of the Company as required in
accordance with applicable laws;
|
|
15.
|
the
declaration of dividends on shares of the Company or the approval of the
purchase, redemption or other acquisition of shares issued by the Company
as required in accordance with applicable
laws;
|
|
16.
|
the
oversight of the reliability and integrity of accounting principles and
practices followed by management, financial statements and other financial
reporting, and disclosure practices followed by
management;
|
|
17.
|
the
oversight of the qualifications and independence of the independent
auditors of the Company and the approval of the terms of their audit and
non-audit service engagements as required in accordance with applicable
laws and the requirements of any stock exchanges on which the Company
lists its securities and of securities regulatory authorities, as adopted
or in force or amended from time to time, and the assessment of the
performance of the independent auditors, the filling of a vacancy in the
office of the independent auditor between shareholders' meetings, and the
recommendation of the annual appointment or, if appropriate, the removal,
of the independent auditors of the Company to the shareholders of the
Company for their approval in accordance with applicable
laws;
|
|
18.
|
the
approval of the annual audited consolidated financial statements of the
Company and, as required in accordance with applicable laws, the approval
of the quarterly unaudited consolidated financial statements of the
Company and overview of the accounting principles and practices followed
by management;
|
|
19.
|
the
approval of prospectuses, annual information forms, annual reports on Form
20-F, 40-F or 10-K or other applicable form, as the case may be, and proxy
circulars and proxy statements sent to shareholders of the Company and the
review of managements' discussion and analyses of financial condition and
results of operations, and other material disclosure documents as
determined by the Board of Directors from time to
time;
|
|
20.
|
the
establishment and periodic review of the Company’s measures for receiving
feedback from security holders;
|
|
21.
|
the
development of clear position descriptions for directors, including the
Chair of the Board, a “Lead Independent Director” and the chair of each
board committee; and, together with the CEO, a clear position description
for the CEO, which includes delineating management’s
responsibilities;
|
|
22.
|
the
oversight of the management of environmental risks and practices,
charitable activities and other social responsibility matters;
and
|
30
|
23.
|
to
the extent not otherwise referred to above, the review and approval of all
proposed transactions and matters described below under the heading “B.
Decisions Requiring Prior Approval of the
Board”
|
and,
where applicable, in accordance with the requirements of the Canada Business Corporations
Act, the stock exchanges on which the Company lists its securities and
securities regulatory authorities, as adopted or in force or amended from time
to time.
In
discharging its duties and responsibilities, the Board of Directors is expected
to be fully diligent in its oversight to avoid fraud or abuse. Accordingly, the
Board may conduct such examinations, investigations or inquiries, and engage
such special legal, accounting or other advisors, at the expense of the Company,
at such time or times and on such terms and conditions as the Board of Directors
considers appropriate.
|
B.
|
Decisions
Requiring Prior Approval of the
Board
|
In
addition to such other approvals as required by applicable law or the stock
exchanges on which the Company lists its securities and securities regulatory
authorities, the Board (or the committees of the Board duly constituted by the
Board to the extent such delegation is permitted by law and is specifically made
by the Board of Directors) shall review and approve:
|
1.
|
the
strategic plan, financial plans and operating budget of the Company on at
least an annual basis;
|
|
2.
|
the
quarterly and annual financial statements of the
Company;
|
|
3.
|
all
material capital expenditures not part of the approved operating budget,
all mergers and acquisitions, and all material investments and
dispositions of the Company;
|
|
4.
|
all
material borrowings and banking arrangements of the
Company;
|
|
5.
|
all
financing by the Company including the issuance of debt, equity and
derivative instruments; for greater certainty, this includes the approval
of all off-balance sheet financings by the Company or by special purpose
entities or affiliates;
|
|
6.
|
the
purchase and redemption of
securities;
|
|
7.
|
any
changes to the articles or by-laws of the
Company;
|
|
8.
|
the
hiring and, if necessary, the termination of the Chief Executive
Officer;
|
|
9.
|
the
compensation paid to senior management and directors, including the
issuance of stock options and non – arms length consulting
arrangements;
|
|
10
|
any
other material matters outside the ordinary course of the Company's
business including all major strategic and policy decisions;
and
|
|
11.
|
any
other matter specified by the Board as requiring its
approval.
|
|
C.
|
Expectations of
Management.
|
The CEO,
through the Senior management, is responsible for the day-to-day operations of
the Company and for providing the Board, directly or through the Chair of the
Board, the appropriate committee or the Lead Independent Director, with timely,
complete and accurate information on such operations. The Board expects
management to propose and, after Board approval, implement the Company's
strategic plan and to be accountable for the Company's financial and competitive
performance. The Board expects the Company's resources to be managed in a manner
consistent with enhancing the value of the Company and with consideration for
ethics and corporate social responsibility.
31
The Board
may request that certain members of senior management attend all or any portion
of a Board or committee meeting and may schedule presentations by managers who
can provide additional insight based on their personal involvement in the matter
or their particular expertise. Each director shall have complete
access to any member of senior management. The Chief Financial
Officer and the General Counsel of the Company shall each have access to meet
separately with the Audit Committee and Governance Committee respectively, and
the Lead Independent Director.
The Board
may reasonably rely on the information provided to them by the Company’s senior
management personnel and outside advisors and auditors.
|
D.
|
Measures
for Receiving Shareholder Feedback
|
The
Company has developed a Disclosure Policy to facilitate consistent disclosure
practices aimed at informative, timely and broad dissemination of material
information to the market in compliance with applicable securities laws and the
rules and policies of any exchange on which the Company’s securities are
listed. The Disclosure Policy Committee established under the
Disclosure Policy is responsible for overseeing and monitoring communications
with, and responses to inquiries from, both institutional and individual
investors and the financial community consistent with the objectives of the
Company’s Disclosure Policy.
Commencing
in fiscal 2005, the Company intends to solicit questions and comments from
shareholders by way of comments cards that will be mailed to shareholders in
connection with the Company’s annual meetings. The comments received
will be reviewed by the Disclosure Policy Committee and those requiring a
response will be answered individually. Any member of the Disclosure
Policy Committee may provide copies or summaries of such comments or other
communications from shareholders to the Directors, as he or she considers
appropriate.
Company
spokespersons as appointed by the Disclosure Policy Committee from time to time
are available to shareholders by telephone, fax and e-mail and the Company
maintains up-to-date material of interest to shareholders and investors on the
Company’s web site at www.adherex.com.
|
E.
|
General.
|
The Board
of Directors shall review and assess the adequacy of the mandate of the Board on
an annual basis.
Nothing
in this Mandate is intended, or may be construed, to impose on any member of the
Board a standard of care or diligence that is in any way more onerous or
extensive than the standard required by law.
32
APPENDIX
“A”
FORM
OF STOCK OPTION PLAN RESOLUTION
Stock
Option Plan Resolution
BE IT
RESOLVED AS AN ORDINARY RESOLUTION OF THE SHAREHOLDERS THAT:
|
1.
|
the Corporation’s stock option
plan, as amended (the “Stock Option Plan”) is hereby amended such that
maximum number of common shares of the Corporation (the “Common
Shares”) that may be
issued under the Stock Option Plan shall be increased from the current
fixed maximum number of 20,000,000 Common Shares to that number of Common
Shares representing twenty-five percent (25%) of the total number of all
issued and outstanding Common Shares from time to time, provided that any
increase in the issued and outstanding Common Shares will result in an
increase in the available number of Shares that may be issued pursuant to
options granted under the Stock Option Plan, any Common Shares subject to
an option that expires or terminates without having been fully exercised
may be made the subject of a further Option and any exercises of Options
will make new grants available under the Stock Option Plan, effectively
resulting in a re-loading of the number of options available to grant
under the Stock Option Plan.
|
|
|
|
|
2.
|
any officer or director of the
Corporation be and is hereby authorized and directed, for and on behalf of
the Corporation, to execute and deliver all such documents and to do all
such acts and things as he or she may determine to be necessary or
desirable in order to carry out the foregoing provisions of this
resolution, the execution of any such document or the doing of any such
acts and things being conclusive evidence of such determination;
and
|
|
|
|
|
3.
|
the directors of the Corporation
may in their discretion revoke this resolution before it is implemented,
without further notice to, or approval of the
shareholders.
|
A-1
33
INSTRUMENT
OF PROXY
For
the Annual Meeting of Shareholders of Common Shares
of
Adherex
Technologies Inc.
To
be held on June 24, 2010
The
undersigned holder of Common Shares of Adherex Technologies Inc. (the
“Corporation”) hereby appoints (with full power of appointment and
substitution),Robert Butts, Chairman of the Corporation, or failing him,
Rostislav Raykov, Chief Executive Officer of the Corporation, or in place or
stead of the foregoing Robert Andrade, Chief Financial Officer of the
Corporation as Proxy of the undersigned to attend the Annual Meeting of the
Corporation (the “Meeting”) to be held at Sofitel Montreal Golden Mile,
Montreal, Quebec on June 24, 2010 at 10:00 am (Montreal time) and at any
adjournment thereof. The undersigned hereby revokes any instrument of
proxy heretofore given to attend and vote at the Meeting. Without
limiting the general power hereby conferred, the person above named is directed
to vote as follows:
|
1.
|
To
vote FOR ¨
or WITHHOLD VOTE FROM ¨
the resolution electing as directors the nominees named in the
accompanying information circular (and, if no specification is
made, to vote FOR);
|
|
2.
|
To
vote FOR ¨
or WITHHOLD VOTE FROM ¨
the resolution appointing Deloitte & Touche LLP, Chartered
Accountants, as the auditors of the Corporation for the ensuing year and
authorizing the directors of the Corporation to fix their remuneration
(and, if no specification
is made, to vote FOR);
|
|
3.
|
To
vote FOR ¨
or AGAINST ¨
the resolution approving an increase in the number of Common Shares
issuable under the Corporation’s stock option plan (the “Stock Option Plan
Resolution”) (and, if no
specification is made, to vote FOR);
and
|
|
4.
|
At
the discretion of the said Proxyholder, to vote upon any amendments or
variation of the above matter or any other matter that may be properly
brought before the said Meeting or any adjournment
thereof.
|
34
|
This
Proxy is solicited on behalf of the Management of the Corporation and will
be voted as directed in the space provided above or, if no direction is
given, it will be voted FOR each resolution. The persons named
in this Proxy are officers of the Corporation. Each shareholder
has the right to appoint a person, who need not be a shareholder, to
attend and to act for him and on his behalf at the Meeting, other than the
persons designated above. To exercise such rights, the names of
the persons designated by Management to act should be crossed out and the
name of the shareholder’s appointee should be legibly printed in the blank
space provided.
|
||
|
DATED
this day
of ____________ , 20__
|
||
|
Signature
of Shareholder
|
||
|
Shareholder’s
Name (Please
Print)
|
||
NOTES
|
1.
|
In
the event that the date is not completed, this Proxy will be deemed to be
dated upon the day that it is mailed by the Corporation to the
securityholder.
|
|
2.
|
This
Proxy will not be valid and will not be acted upon or voted unless it is
signed and delivered to the attention of Olympia Transfer Services Inc,
920, 120 Adelaide St W, Toronto, Ontario M5H 1T1, no later than 48 hours
prior to the Meeting time or delivered to the Chairman at the
Meeting.
|
|
3.
|
In
addition to any revocation in any other manner permitted by law, a Proxy
may be revoked by instrument in writing executed by the securityholder or
his attorney duly authorized in writing or, if the securityholder is a
company, under its corporate seal by an officer or attorney thereof duly
authorized and deposited either at the registered office of the
Corporation, c/o Mr. Rostislav Raykov at any time up to and including 4:30
p.m. on the last Business Day preceding the day of the Meeting, or any
adjournment thereof, at which the Proxy is to be used, or with the
Chairman at the Meeting on the date of the Meeting, or any adjournment
thereof and upon such deposit, the Proxy is
revoked.
|
|
4.
|
The
signature on the Proxy should be exactly the same as the name in which the
shares are registered. If the appointee is a corporation, the
Proxy must be exercised under its corporate seal or signed by an officer
or attorney duly authorized. Persons signing as executors,
administrators, trustees, etc. should so
indicate.
|
35