DEFR14A


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
 

 
Filed by the Registrant x
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement
o
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
ý
Definitive Proxy Statement
o
Definitive Additional Materials
o
Soliciting Material Pursuant to §240.14a-12
 
ARBUTUS BIOPHARMA CORPORATION
(Name of the Registrant as Specified in its Charter)
 
(Name of Person(s) Filling Proxy Statement, if other than the Registrant)
 
 
 
Payment of Filing Fee (Check the appropriate box):
ý
 
No fee required.
o
 
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
 
1

 
Title of each class of securities to which transaction applies:
 
 
2

 
Aggregate number of securities to which transaction applies:
 
 
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
4

 
Proposed estimated aggregate value of transaction:
 
 
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Total Fee Paid:
o
 
Fee paid previously with preliminary materials.
o
 
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
 
1

 
Amount Previously Paid:
 
 
2

 
Form, Schedule, or Registration Statement No.:
 
 
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Filing Party:
 
 
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Date Filed:














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April 8, 2016
  
Dear Shareholder:
 
You are cordially invited to attend Arbutus Biopharma Corporation’s 2016 Annual General and Special Meeting of Shareholders (the “Meeting”) to be held on Thursday, May 19, 2016.  The Meeting will be held at the Terminal City Club at 837 West Hastings Street, Vancouver, British Columbia beginning at 2:00pm (Pacific Time).  The formal meeting notice and management proxy circular and proxy statement for the Meeting describe the matters to be presented at the Meeting.

Whether or not you plan to attend the Meeting, please vote as soon as possible to ensure that your shares will be represented and voted at the Meeting.  Due to voting rules that may prevent your bank or broker from voting your uninstructed shares on a discretionary basis in the election of directors and other non-routine matters, it is important that you cast your vote.
 
We look forward to seeing you at the Meeting.

Sincerely,

/s/ Vivek Ramaswamy

Vivek Ramaswamy, Chairman of the Board








































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ARBUTUS BIOPHARMA CORPORATION
100-8900 Glenlyon Parkway
Burnaby, British Columbia V5J 5J8

NOTICE OF ANNUAL GENERAL AND SPECIAL
MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, MAY 19, 2016

Dear Shareholders of Arbutus Biopharma Corporation:

NOTICE IS HEREBY GIVEN that the 2016 annual general and special meeting (the “Meeting”) of the shareholders (“Shareholders”) of Arbutus Biopharma Corporation, a British Columbia corporation (“Arbutus”) will be held on Thursday, May 19, 2016 at 2:00 pm (Pacific Time) at the Terminal City Club at 837 West Hastings Street, Vancouver, British Columbia in Vancouver, British Columbia, for the following purposes:

1.
RECEIVE ANNUAL FINANCIAL STATEMENTS. To receive the audited consolidated financial statements of Arbutus for the year ended December 31, 2015 and the report of the independent auditor thereon;
2.
ELECTION OF DIRECTORS.  To elect the seven directors of Arbutus named in the accompanying Management Proxy Circular on Proxy Statement to serve until the 2017 annual general meeting of the Shareholders or until their successors have been duly elected and qualified;
3.
RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT AUDITOR.  To ratify the appointment of KPMG LLP as our independent auditor for the fiscal year ended December 31, 2016;
4.
APPROVAL OF AMENDMENTS TO THE ARBUTUS 2011 OMNIBUS SHARE COMPENSATION PLAN. To approve certain amendments to the 2011 Omnibus Share Compensation Plan as more fully described in the accompanying Management Proxy Circular and Proxy Statement;
5.
APPROVAL OF THE 2016 OMNIBUS SHARE AND INCENTIVE PLAN. To approve the 2016 Omnibus Share and Incentive Plan and reserve for issuance 5,000,000 common shares thereunder; and
6.
ANY OTHER BUSINESS.  To transact such other business as may properly come before the Meeting, or at any adjournments or postponements thereof.
The foregoing matters are more fully described in the accompanying Management Proxy Circular and Proxy Statement. We recommend that Shareholders vote FOR the matters listed above.

Arbutus is sending meeting materials for the Meeting to Shareholders using the “notice and access” provisions of National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer.  Pursuant to such provisions Arbutus provides Shareholders with a notice on how they may access the Management Proxy Circular and Proxy Statement on the Internet instead of providing a paper copy. The notice also provides information on how Shareholders may obtain copies of our proxy materials if they so choose.

Important Notice Regarding the Availability of Proxy Materials for the Annual General and Special Meeting of Shareholders to be held on Thursday, May 19, 2016:  This notice of Annual General and Special Meeting of Shareholders, the Management Proxy Circular and  Proxy Statement, and our annual report on Form 10-K for fiscal 2015 are available at http://investor.arbutusbio.com/financials.cfm.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Vivek Ramaswamy
Vivek Ramaswamy, Chairman of the Board
Vancouver, British Columbia
April 8, 2016
 


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YOUR VOTE IS VERY IMPORTANT
 
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE REVIEW THE PROXY MATERIALS CAREFULLY AND VOTE AS PROMPTLY AS POSSIBLE.  PLEASE REFER TO THE SECTION ENTITLED “QUESTIONS ABOUT VOTING” ON PAGE 6 OF THE MANAGEMENT PROXY CIRCULAR AND PROXY STATEMENT FOR A DESCRIPTION OF HOW TO VOTE YOUR SHARES
 

ARBUTUS BIOPHARMA CORPORATION
100-8900 Glenlyon Parkway
Burnaby, British Columbia V5J 5J8
_______________________________

MANAGEMENT PROXY CIRCULAR AND PROXY STATEMENT
_______________________________

2016 ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, MAY 19, 2016

This management proxy circular and proxy statement (“Proxy Statement/Circular”) is furnished in connection with the solicitation of proxies by the management of Arbutus Biopharma Corporation, a British Columbia corporation, for use at the annual general and special meeting (the “Meeting”), or at any adjournments or postponements thereof, of its holders of Common Shares (“Shareholders”) to be held on Thursday, May 19, 2016 at the time and place and for the purposes set forth in the accompanying notice of the Meeting.

In this Proxy Statement/Circular, references to “the Company,” “Arbutus,” “we,” and “our” refer to Arbutus Biopharma Corporation. “Common Shares” means common shares without par value in the capital of the Company. Unless otherwise indicated, the statistical and financial data contained in this Proxy Statement/Circular are as of April 8, 2016.

To achieve greater comparability with our competitors’ financial information and improve the understandability of our financial information for our United States investors, effective October 1, 2013, Arbutus is using United States dollars as our reporting currency. Additionally, effective January 1, 2016, Arbutus' functional currency is the United States dollar. The information provided in this Proxy Statement/Circular is provided in United States dollars unless otherwise stated.

Whether or not you plan to attend the Meeting, please promptly provide your voting instructions. Your promptness in voting will assist in the expeditious and orderly processing of the proxies and in ensuring that a quorum is present. If you vote your proxy, you may nevertheless attend the Meeting and vote your Common Shares in person if you wish. Please note, however, that if your Common Shares are held of record by an Intermediary or other nominee and you wish to vote in person at the Meeting, you must follow the instructions provided to you by your Intermediary or such other nominee. If you want to revoke your instructions at a later time prior to the vote for any reason, you may do so in the manner described in this Proxy Statement/Circular.

















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TABLE OF CONTENTS
 
 
Page
INTERNET AVAILABILITY OF PROXY MATERIALS
 
 
NOTICE TO SHAREHOLDERS IN THE UNITED STATES
 
 
EXECUTIVE OFFICERS AND DIRECTORS
 
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
 
 
EXECUTIVE COMPENSATION
 
 
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
 
 
PROPOSAL NO. 1 – ELECTION OF DIRECTORS
 
 
PROPOSAL NO. 2 – RATIFICATION OF AUDITOR
 
 
PROPOSAL NO. 3 – APPROVAL OF AMENDMENTS TO THE 2011 OMNIBUS SHARE COMPENSATION PLAN
 
 
PROPOSAL NO. 4 – APPROVAL OF THE 2016 OMNIBUS SHARE AND INCENTIVE PLAN
 
 
STATEMENT ON CORPORATE GOVERNANCE
 
 
GENERAL INFORMATION
 
 
OTHER BUSINESS
 
 
ADDITIONAL INFORMATION
 
 
SHAREHOLDER PROPOSALS
 
 
APPROVAL OF MANAGEMENT PROXY CIRCULAR AND PROXY STATEMENT
 
 
EXHIBIT A MANDATE OF THE BOARD OF DIRECTORS
 
 
EXHIBIT B CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
 
 
EXHIBIT C 2011 PLAN AMENDMENTS RESOLUTION
 
 
EXHIBIT D 2011 OMNIBUS SHARE COMPENSATION PLAN AMENDMENTS
 
 
EXHIBIT E 2016 OMNIBUS SHARE AND INCENTIVE PLAN


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QUESTIONS ABOUT VOTING
 
Why did I receive this Proxy Statement/Circular?

Arbutus has sent this Notice of Annual General Meeting and Proxy Statement/Circular, because our management is soliciting your proxy to vote at the Meeting. This Proxy Statement/Circular contains information about the matters to be voted on at the Meeting and important information about Arbutus. As many of our Shareholders are expected to be unable to attend the Meeting in person, proxies are solicited to give each Shareholder an opportunity to vote on all matters that will properly come before the Meeting. References in this Proxy Statement/Circular to the Meeting include any adjournments or postponements of the Meeting.

We delivered a Notice of Internet Availability of Proxy Materials (the “Notice”) on or about April 8, 2016 to all of our Shareholders entitled to receive notice of and vote at the Meeting.  This Notice provides instructions to view the proxy materials for the Meeting, including this Proxy Statement/Circular, on the Internet at http://investor.arbutusbio.com/financials.cfm. The Notice also provides information on how Shareholders may obtain paper copies of our proxy materials if they so choose.
 
What are the date, time and place of the Meeting?

The Meeting will be held at the Terminal City Club at 837 West Hastings Street, Vancouver, British Columbia, on Thursday, May 19, 2016, at 2:00 pm (Pacific Time).
 
Who can vote at the Meeting?

Only Shareholders as of the close of business on the record date Wednesday, March 30, 2016 are entitled to receive notice of and vote on matters to be presented at the Meeting, or any adjournment or postponement thereof, in the manner and subject to the procedures described in this Proxy Statement/Circular and the accompanying proxy.

At the close of business on the record date Wednesday March 30, 2016, 54,625,703 Common Shares of Arbutus were issued and outstanding.

Each Shareholder is entitled to one vote per Common Share held on all matters to come before the Meeting. Common Shares of Arbutus are the only securities of Arbutus which will have voting rights at the Meeting.
 
What is the quorum for the Meeting?

To transact business at the Meeting, a quorum of Shareholders must be present at the commencement of the Meeting, either in person or by proxy. Under Arbutus’ amended Articles of Incorporation, a quorum for the transaction of business at the Meeting is the presence, in person or by proxy, of 33 1/3% of the Common Shares outstanding.

How do I Vote?

The voting process is different depending on whether you are a Registered or Beneficial Shareholder:
You are a Registered Shareholder if your Common Shares are registered in your name;
You are a Beneficial Shareholder if your shares are held on your behalf by an Intermediary. This means the shares are registered in your Intermediary’s name, and you are the beneficial owner.
“Intermediaries” refers to brokers, investment firms, clearing houses and similar entities that own securities on behalf of Beneficial Shareholders

Registered Shareholder: Common Shares Registered in Your Name

If you are a Registered Shareholder, you may vote in person at the Meeting or by proxy whether or not you attend the Meeting in person.

To vote over the Internet, go to www.cstvotemyproxy.com and follow the online voting instructions and refer to your holder account number and proxy access number provided on the Notice of Internet Availability of Proxy Materials (the “Notice”), or if you request a paper copy of the proxy materials, the enclosed proxy card. To vote via the Internet,

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you will need to use the control number appearing on your Notice or your proxy card. Internet voting is available 24 hours a day.

To vote in person at the Meeting, please come to the Meeting with personal identification and proof of ownership and we will give you an attendance card when you arrive.

To vote by mail, you must request a paper copy of the proxy materials with an enclosed proxy card; please promptly complete, sign and return your proxy card to our transfer agent ensure that it is received prior to the closing of the polls at the Meeting: CST Trust Company Inc.: PO Box 721, Agincourt, ON M1S 0A1 (mail) or 1600-1066 West Hastings St., Vancouver, BC V6E 3X1.

To vote by telephone, call 1-888-489-5760 (toll free in North America) and follow the instructions and refer to your holder account number and proxy access number provided on the Notice or proxy card.

To vote by facsimile, fax your completed and signed proxy card to 1-866-781-3111 (toll free in North America) or 1-416-368-2502.

To vote by email, send your completed and signed proxy card to proxy@canstockta.com.

In each case, the vote must be submitted no later than 48 hours (excluding Saturdays, Sundays and holidays) prior to the time of the Meeting, or adjournment thereof. The chair of the Meeting may waive the proxy cut-off without notice. If the proxy is not dated, it will be deemed to be submitted seven calendar days after the date on which it was mailed to you.

Beneficial Shareholder: Common Shares Registered in the Name of an Intermediary such as a Brokerage Firm, Bank, Dealer or other Similar Organization

The following information is of significant importance to Shareholders who do not hold Common Shares in their own name. Beneficial Shareholders should note that in order to vote in person at the Meeting, you must request in writing that your Intermediary send you a legal proxy which would enable you to attend the Meeting and vote your Common Shares.

If your Common Shares are listed in an account statement provided to you by a broker, then in almost all cases your Common Shares will not be registered in your name on the records of Arbutus. In such circumstances your Common Shares will more likely be registered under the names of your broker or an agent of that broker. In the United States, the vast majority of such Common Shares of Arbutus are registered under the name of Cede & Co., as nominee for The Depository Trust Company (which acts as depositary for many U.S. brokerage firms and custodian banks), and in Canada, under the name of CDS & Co. (the registration name for CDS Clearing and Depository Services Inc., which acts as nominee for many Canadian brokerage firms).

Intermediaries are required to seek voting instructions from Beneficial Shareholders in advance of Shareholders’ meetings. Every Intermediary has its own mailing procedures and provides its own return instructions to clients.

The Proxy Statement/Circular is being sent to both Registered Shareholders and Beneficial Shareholders. There are two kinds of Beneficial Shareholders — those who object to their names being made known to the issuers of securities which they own (called OBOs for Objecting Beneficial Owners), and those who do not object (called NOBOs for Non-Objecting Beneficial Owners).

Arbutus is taking advantage of National Instrument 54-101 - Communications with Beneficial Owners of Securities of a Reporting Issuer, which permits it to deliver proxy-related materials indirectly to its NOBOs and OBOs. As a result, if you are a NOBO or OBO you can expect to receive Meeting materials from your Intermediary via Broadridge Financial Solutions Inc. (“Broadridge”), including a voting information form (“VIF”). If you receive a VIF, you should follow the instructions in the VIF to ensure that your Common Shares are voted at the Meeting. The VIF or form of proxy will name the same individuals as Arbutus' proxy to represent you at the Meeting. You have the right to appoint a person (who need not be a Shareholder of Arbutus) other than the individuals designated in the VIF, to represent you at the Meeting. To exercise this right, you should insert the name of your desired representative in the blank space provided in the VIF. The completed VIF must then be returned in accordance with the instructions in the VIF. Broadridge then tabulates the results of all instructions received and completed in accordance with the instructions provided in the VIF and provides appropriate instructions respecting the voting of Common Shares to be represented at the Meeting. If you receive a VIF from Broadridge, you cannot use it to vote Common Shares directly at the Meeting – the VIF must be completed and returned in accordance with its instructions, well in advance of the Meeting in order to have your Common Shares voted.

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Although as a Beneficial Shareholder you may not be recognized directly at the Meeting for the purposes of voting Common Shares registered in the name of your Intermediary, you, or a person designated by you, may attend at the Meeting as proxyholder for your Intermediary and vote your Common Shares in that capacity. If you wish to attend the Meeting and indirectly vote your Common Shares as proxyholder for your Intermediary, or to have a person designated by you do so, you should enter your own name, or the name of the person you wish to designate, in the blank space on the VIF provided to you and return the same in accordance with the deadlines and instructions provided in the VIF, well in advance of the Meeting.

These proxy materials are being sent to both Registered and Beneficial Shareholders. If you are a Beneficial Shareholder, and Arbutus or its agent has sent these materials to you, your name and address and information about your holdings of Common Shares have been obtained in accordance with applicable securities regulatory requirements from the Intermediary holding on your behalf.

Corporate Shareholders

In order to be entitled to vote or to have its shares voted at the Meeting, a Shareholder which is a corporation (a “Corporate Shareholder”) must either (a) attach a certified copy of the directors’ resolution authorizing a representative to attend the Meeting on the Corporate Shareholder’s behalf, or (b) attach a certified copy of the directors’ resolution authorizing the completion and delivery of the proxy.
 
What am I voting on at the Meeting?

At the Meeting, you will be asked to vote on the following proposals:

1.
To elect seven directors named in this Proxy Statement/Circular (“Proposal No. 1”);

2.
To ratify the appointment of KPMG LLP as our independent auditor for the fiscal year ended December 31, 2016 (“Proposal No. 2”);

3.
To approve amendments to our 2011 Omnibus Share Compensation Plan necessary in order for awards to qualify as “performance-based compensation” under Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and to address certain administrative matters (the “2011 Plan”) (“Proposal No. 3”);

4.
To approve the 2016 Omnibus Share and Incentive Plan (the “2016 Plan”) (“Proposal No. 4”);

5.
To transact such other business as may properly come before the Meeting, or at any adjournments or postponements thereof. As of the date of this Proxy Statement/Circular, the Board of Directors of the Company (the “Board of Directors” or “Board”) is not aware of any such other matters.

How does the Board recommend that I vote?

Our Board of Directors recommends that each Shareholder vote “FOR” each of the proposals listed above.
 
What vote is required in order to approve each proposal?

Proposal No. 1: Under Arbutus' majority voting policy each director nominee must receive more “For” votes than “Withhold” votes in order for their appointment to be immediately approved.  In an uncontested election, any nominee who receives a greater number of “Withhold” votes from his or her election than “For” such election is required to tender his or her resignation to the Board promptly following the vote. The Board (excluding any director that has tendered a resignation) will consider the director’s offer to resign and decide whether or not to accept it within 90 days of receiving the final voting results of the Meeting. Arbutus' majority voting policy is more fully described below under “Statement on Corporate Governance - Director Election and Majority Voting Policy”.

Proposal No. 2: The appointment of KPMG LLP as our independent auditor requires a majority of the votes cast at the Meeting and votes cast only includes those votes cast "For" the proposal.

Proposal No. 3: The proposal to approve the amendments to our 2011 Plan will be approved if a majority of the votes are cast in favor of the proposal, meaning the number of shares voted “For” the proposal must exceed the number of shares voted “Against” the proposal.

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Proposal No. 4: The proposal to approve our 2016 Plan and reserve 5,000,000 shares of common stock for grant thereunder will be approved if a majority of the votes are cast in favor of the proposal, meaning the number of shares voted “For” the proposal must exceed the number of shares voted “Against” the proposal.

Proxies returned by Intermediaries as “broker non-votes” because the Intermediary has not received instructions from the Beneficial Shareholder with respect to the voting of certain of Common Shares and under applicable stock exchange or other rules, the Intermediary does not have the discretion to vote those Common Shares on one or more of the matters that come before the Meeting, will be treated as not entitled to vote on any such matter and will not be counted as having been voted in respect of any such matter. Common Shares represented by such broker “non-votes” will, however, be counted in determining whether there is a quorum for the Meeting.

What impact does a “Withhold” or “Abstain” vote have?

When a proxy is properly executed and returned, the shares it represents will be voted at the Meeting as directed. For voting matters that allow a Shareholder to “Withhold” or “Abstain,” the shares will be voted as set forth below.

Proposal No. 1: With respect to each nominee, you may either vote “For” the election of such nominee or “Withhold” your vote with respect to the election of such nominee. If you vote “For” the election of a nominee, your Common Shares will be voted accordingly. If you select “Withhold” with respect to the election of a nominee, your vote will not be counted as a vote cast for the purposes of electing such nominee but will be considered in the application of our majority voting policy which is described below under “Statement on Corporate Governance – Director Election and Majority Voting Policy”.

Proposal No. 2: With respect to the ratification of the appointment of the independent auditor, you may either vote “For” such appointment or “Withhold” your vote with respect to such appointment. If you vote “For” the appointment of the independent auditor, your Common Shares will be voted accordingly. If you select “Withhold” with respect to the appointment of the independent auditor, your vote will not be counted as a vote cast for the purposes of ratifying the appointment of the independent auditor.

Proposals No. 3 and 4:You may either vote “For” or “Against” the proposals regarding our 2011 and 2016 compensation plans, or “Abstain”. If you cast your vote “For” or “Against” either proposal, your Common Shares will be voted accordingly. Abstentions are not considered votes cast, and they will have no effect on the voting for these proposals.
 
What is the effect if I do not cast my vote?

If a Registered Shareholder does not cast its vote by proxy or in any other permitted fashion, no votes will be cast on its behalf on any of the items of business at the Meeting. If a Beneficial Shareholder does not instruct its Intermediary on how to vote on any of the items of business at the Meeting, the Intermediary has discretionary authority to vote the Beneficial Shareholder’s shares on Proposal No. 2, but the Intermediary does not have discretionary authority to vote the Beneficial Shareholder’s shares on the rest of the proposals or any unusual item, so no votes will be cast on behalf of such Beneficial Shareholder with respect to such item. If you have further questions on this issue, please contact your Intermediary or Arbutus (as provided below).
 
How will proxies be exercised?

The Common Shares represented by proxy will be voted or withheld from voting in accordance with your instructions. With respect to any amendments or variations in any of the Proposals, or any other matters which may properly come before the Meeting, the Common Shares will be voted by a proxyholder as he or she in their sole discretion sees fit.

Where you do not specify a vote on a Proposal shown in the Proxy Statement/Circular, a nominee of management acting as proxyholder will vote the Common Shares as if you had specified an affirmative vote.
 
What does it mean if I receive more than one set of proxy materials?

This means that you own Common Shares that are registered under different names. For example, you may own some Common Shares directly as a Registered Shareholder and other Common Shares as a Beneficial Shareholder through an Intermediary, or you may own Common Shares through more than one such organization. In these situations, you will receive

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multiple sets of proxy materials. It is necessary for you to complete and return all proxy cards and VIFs in order to vote all of the Common Shares you own. Please make sure you return each proxy card or VIF in the accompanying return envelope. You may also vote by Internet, telephone, facsimile or email by following the instructions.

How do I appoint a proxyholder?

The individuals named in the proxy card are directors or officers of Arbutus. If you are a Shareholder entitled to vote at the Meeting, you have the right to appoint a person or company other than the designees of management named in the proxy card, who need not be a Shareholder of the Company, to vote according to your instructions. To appoint someone other than the designees of management named, please insert your appointed proxyholder’s name in the space provided in the proxy card, sign and date and return the proxy card in accordance with the instructions set out in the proxy card.

The only methods by which you may appoint a person as proxy are submitting a proxy card by mail, hand delivery or fax.
 
Can I revoke my proxy?

In addition to revocation in any other manner permitted by law, if you are a Registered Shareholder and you wish to revoke your proxy, you may do so by depositing a written instrument to that effect and delivering it to CST Trust Company PO Box 721, Agincourt, ON M1S 0A1, or by hand to 1600-1066 West Hastings St., Vancouver, BC V6E 3X1 (hand delivery) or to the address of the registered office of Arbutus at Farris, Vaughan, Wills & Murphy LLP, 25th Floor, 700 West Georgia Street, Vancouver, British Columbia, V7Y 1B3, attention R. Hector MacKay-Dunn, Q.C., at any time up to and including the last business day preceding the day of the Meeting, or any adjournment thereof, or to the Chairman of the Meeting on the day of the Meeting before any vote in respect of which the proxy has been given has been taken.

If you are a Registered Shareholder and you wish to revoke your proxy by providing a written instrument to such effect, such written instrument must be executed in writing by you or your legal personal representative or trustee in bankruptcy, or, if you are a corporation that is a Registered Shareholder, by the corporation or a representative of the corporation appointed in accordance with Arbutus' Articles.

Beneficial Shareholders who wish to change their vote must, in sufficient time in advance of the Meeting, arrange for their Intermediaries to change the vote and, if necessary, revoke their proxy.
 
How will proxies be solicited and who will pay the cost of the proxy solicitation?

The solicitation of proxies will be primarily by mail, but Arbutus' directors, officers and regular employees may also solicit proxies personally or by telephone. Arbutus will bear all costs of the solicitation, including the printing, handling and mailing of the Meeting materials. Arbutus has arranged for Intermediaries to forward the Meeting materials to Beneficial Shareholders of Arbutus held of record by those Intermediaries and Arbutus may reimburse the Intermediaries for their reasonable fees and disbursements in that regard.

Are Meeting materials being provided by way of notice-and-access?

Arbutus is sending meeting materials for the Meeting to Shareholders using the “notice and access” provisions of National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer. Pursuant to such provisions, the Company provides Shareholders with a notice on how they may access the Proxy Statement/Circular electronically instead of providing a paper copy.
 
How can I make a Shareholder proposal for the 2017 Annual General Meeting?

If you want to propose a matter for consideration at our 2017 Annual General Meeting, then that proposal must be received at our registered office at 25th Floor, Toronto Dominion Bank Tower, 700 West Georgia Street, Vancouver, British Columbia, V7Y 1B3 by December 9, 2016. For a proposal to be valid, it must comply with either the Business Corporations Act (British Columbia) (the “BCBCA”) or the Securities Exchange Act of 1934 (United States) (the “Exchange Act”).

In order for a Shareholder proposal to be eligible under the BCBCA, it must be in writing, accompanied by the requisite declarations and signed by the submitter and qualified Shareholders who at the time of signing are the registered or beneficial owners of shares that, in the aggregate: (a) constitute at least 1% of our issued Common Shares that have the right to vote at general meetings; or (b) have a fair market value in excess of C$2,000. For the submitter or a qualified Shareholder to be eligible to sign the proposal, that Shareholder must have been the registered or beneficial owner of our Common Shares that

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carry the right to vote at general meetings for an uninterrupted period of at least two years before the date the proposal is signed.

In order for a Shareholder proposal to be eligible under the Exchange Act, the Shareholder must submit the proposal in accordance with Rule 14a-8, and the Shareholder must have continuously held at least $2,000 in market value, or 1%, of the Common Shares entitled to be voted on the proposal at the meeting, for at least one year by the date the Shareholder submits the proposal. The Shareholder must continue to hold those Common Shares through the date of the meeting.

A Shareholder wishing to nominate an individual to be a director, other than pursuant to a requisition of a meeting made pursuant to the BCBCA or a Shareholder proposal made pursuant to the BCBCA provisions described above, is required to comply with Section 13.9 of the Articles. Section 13.9 of the Articles provides, inter alia, that proper written notice of any such director nomination (the “Nomination Notice”) for an annual general meeting of Shareholders must be provided to the Secretary of the Company not less than 30 nor more than 65 days prior to the date of the annual general meeting of Shareholders; provided, however, that in the event that the annual general meeting of Shareholders is to be held on a date that is less than 50 days after the date (the “Notice Date”) on which the first public announcement of the date of the annual general meeting was made, the Nomination Notice must be provided no later than the close of business on the tenth day following the Notice Date. The foregoing is merely a summary of provisions contained in Section 13.9 of the Articles, and is not comprehensive and is qualified by the full text of such provisions. The full text of such provisions is set out in Section 13.9 of the Articles, a copy of which is attached as Exhibit B to the March 27, 2013 management information circular of the Company which can be found under the Company’s profile at www.sedar.com or www.sec.gov.
 
What if amendments are made to the Proposals or if other matters are brought before the Meeting?

With respect to any amendments or variations in any of the Proposals shown in the Proxy Statement/Circular, or any other matters which may properly come before the Meeting, the Common Shares will be voted by the appointed nominee as he or she in their sole discretion sees fit.

As of the date of this Proxy Statement/Circular, the Board is not aware of any such amendments, variations or other matters to come before the Meeting. However, if any such changes that are not currently known to the Board should properly come before the Meeting, the Common Shares represented by your proxyholders will be voted in accordance with the best judgment of the proxyholders.
 
How can I find out the results of the voting at the Meeting?

Preliminary voting results will be announced at the Meeting. Final voting results will be filed with the Canadian provincial securities regulatory authorities on SEDAR at www.sedar.com, and will also be published in a Current Report on Form 8-K filed with the SEC on EDGAR at www.sec.gov/edgar.shmtl within four business days of the Meeting

 Whom should I contact if I have questions concerning the Proxy Statement/ Circular or voting?

If you have questions concerning the information contained in this Proxy Statement/Circular or require assistance in voting, you may contact Arbutus by letter, phone, fax or through our website as follows:

Arbutus Biopharma Corporation
Attn: Bruce Cousins
Executive Vice President and Chief Financial Officer
100-9800 Glenlyon Parkway
Burnaby, British Columbia, Canada
V5J 5J8
Phone: 604-419-3200
Fax: 604-419-3201
Website: http://www.arbutusbio.com/

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INTERNET AVAILABILITY OF PROXY MATERIALS 

In accordance with the rules of the Securities and Exchange Commission (“SEC”), we are using the Internet as our primary means of furnishing proxy materials to Shareholders. Consequently, Shareholders will not receive paper copies of our proxy materials unless they request them. We will send Shareholders a Notice of Internet Availability of Proxy Materials with instructions for accessing the proxy materials, including our Proxy Statement/Circular and annual report, and voting via the Internet. The Notice of Internet Availability of Proxy Materials also provides information on how Shareholders may obtain paper copies of our proxy materials if they so choose. This makes the proxy distribution process more efficient and less costly, and helps conserve natural resources. If you previously elected to receive our proxy materials electronically, these materials will continue to be sent via email unless you change your election

DELIVERY OF PROXY MATERIALS TO HOUSEHOLDS

SEC rules allow us to deliver a single copy of an annual report and proxy statement to any household at which two or more Shareholders reside. We believe this rule benefits everyone. It eliminates duplicate mailings that Shareholders living at the same address receive, and it reduces our printing and mailing costs. This rule applies to any annual reports, proxy statements, proxy statements combined with a prospectus and information statements.

If your household would like to receive single rather than duplicate mailings in the future, and you are a Registered Shareholder, please write to CST Trust Company, PO Box 700, Station B, Montreal, PQ, H3B 3K3, call 800-387-0825 (in North America); 416-682-3860 (outside of North America), or email inquiries@canstockta.com. Each Shareholder will continue to receive a separate proxy card or Notice of Internet Availability of Proxy Materials. If a broker or other nominee holds your shares, you may continue to receive some duplicate mailings. Certain brokers will eliminate duplicate account mailings by allowing Shareholders to consent to such elimination, or through implied consent if a Shareholder does not request continuation of duplicate mailings. Since not all brokers and nominees offer Shareholders the opportunity to eliminate duplicate mailings, you may need to contact your broker or nominee directly to discontinue duplicate mailings from your broker to your household.

Your household may have received a single set of proxy materials this year. If you would like to receive another copy of this year’s proxy materials, please contact CST Trust Company as specified above.

NOTICE TO SHAREHOLDERS IN THE UNITED STATES

The solicitation of proxies involve securities of an issuer located in Canada and are being effected in accordance with the corporate laws of the Province of British Columbia, Canada and securities laws of the provinces of Canada.

The enforcement by Shareholders of civil liabilities under United States federal securities laws may be affected adversely by the fact that Arbutus is incorporated under the Business Corporations Act (British Columbia), as amended, certain of its executive officers are residents of Canada and a substantial portion of its assets and the assets of such persons are located outside the United States. Shareholders may not be able to sue a foreign company or its officers in a foreign court for violations of United States federal securities laws. It may be difficult to compel a foreign company and its officers to subject themselves to a judgment by a United States court.


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EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors and their ages as of April 8, 2016, are as follows:
Name
 
Age
 
Position(s)
Mark Murray*
 
67
 
President and Chief Executive Officer, and Director
Bruce Cousins
 
55
 
Executive Vice President and Chief Financial Officer
Mark Kowalski
 
61
 
Chief Medical Officer
Peter Lutwyche
 
50
 
Chief Technology Officer
Patrick Higgins
 
59
 
Chief Business Officer
Michael Sofia
 
58
 
Chief Scientific Officer
Elizabeth Howard
 
62
 
Executive Vice President and General Counsel
Michael Abrams
 
59
 
Managing Director
Vivek Ramaswamy*
 
30
 
Chairman of the Board
Herbert Conrad*+^
 
83
 
Director
Richard Henriques*+†
 
60
 
Director
Frank Karbe*+^†
 
47
 
Director
Keith Manchester*^
 
47
 
Director
William Symonds*
 
48
 
Chief Development Officer and Director
________________
*    Nominee for election to Board
+    Member of the Audit Committee
^    Member of the Corporate Governance and Nominating Committee
†    Member of the Executive Compensation and Human Resources Committee

Biographies for our executive officers appear in our annual report on Form 10-K for the fiscal year ended December 31, 2015. The following are brief biographies of nominees for the position of director:

Vivek Ramaswamy, Chairman. Mr. Ramaswamy has served as a Director since March 4, 2015. He has also served as a director of our subsidiary Arbutus Biopharma, Inc. (formerly “OnCore Biopharma, Inc.”) (“Arbutus Inc.”) since August 2014. Mr. Ramaswamy is currently the President and Chief Executive Officer of Roivant Sciences, Inc., a drug development and commercialization company that is wholly owned by Roivant Sciences Ltd., a position he has held since May 2014. From August 2007 to May 2014, Mr. Ramaswamy was a member of the investment team at QVT Financial LP. In addition, in 2007 Mr. Ramaswamy co-founded and served as the President of Campus Venture Network, a technology company that was acquired in 2009. Mr. Ramaswamy received his A.B. degree, summa cum laude, in Biology from Harvard College and a J.D. degree from Yale Law School.

Mark Murray, Ph.D., President and Chief Executive Officer and Director. Dr. Murray has served as our President, Chief Executive Officer and a Director since May 2008 when Arbutus and Protiva Biotherapeutics, Inc. merged. Previously, he was the President and CEO and founder of Protiva since its inception in 2000. Dr. Murray has over 20 years of experience in both the R&D and business development and management facets of the biotechnology industry. Dr. Murray has held senior management positions at ZymoGenetics and Xcyte Therapies. Since entering the biotechnology industry Dr. Murray has successfully completed numerous and varied partnering deals, directed successful research and product development programs, been responsible for strategic planning programs, raised millions of dollars in capital, and executed extensive business development initiatives in the U.S., Europe and Asia. Dr. Murray obtained his Ph.D. in Biochemistry from the University of Oregon Health Sciences University and was a Damon Runyon-Walter Winchell post-doctoral research fellow for three years at the Massachusetts Institute of Technology.

Herbert J. Conrad, Director. Mr. Conrad has served as a Director since March 4, 2015. He was President of the Pharmaceuticals Division of Hoffmann-La Roche Ltd., a pharmaceuticals and diagnostics company, from 1982 until his retirement in 1993. He previously served as Chairman of Pharmasset Inc. through its acquisition by Gilead Sciences, Inc. in 2012. In addition, he has served as both Chairman and Director for numerous companies; including Chairman for GenVec, Sapphire Therapeutics, and Bone Care International; and Director for Gensia Sicor, Dura Pharmaceuticals, UROCOR, Savient Pharmaceuticals, and Symphony Evolution. He was a co-founder and Director of Reliant Pharmaceuticals. Mr. Conrad currently serves as a Director of Celldex Therapeutics, Chairman for Matinas Bio Pharma, and as an advisor to the Seaver

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Autism Center at Mount Sinai Hospital. He received his B.S. and M.S. degrees from the Brooklyn College of Pharmacy and an honorary Doctorate in Humane Letters from Long Island University.

Richard C. Henriques, Director. Mr. Henriques has served as a Director since March 4, 2015. He is currently a Senior Fellow at the University of Pennsylvania with a focus on impact investing and provides business advisory services to a number of social entrepreneurs. He recently served as Chief Financial Officer for the Bill & Melinda Gates Foundation. In this role, Mr. Henriques was responsible for finance and accounting, financial planning and analysis, strategic planning, measurement and evaluation, program related investments and information technology. Mr. Henriques’ background includes more than 25 years working at Merck & Co., Inc. During this time, he served as Senior Vice President of Finance for Global Human Health, Vice President and Corporate Controller, and Principal Accounting Officer, among other roles. Mr. Henriques was responsible for the Corporate Controller’s Group, which provided direct financial support for Merck’s worldwide human health commercial operations. Mr. Henriques currently serves as a member of the Board of Directors for the Moyer Foundation, the Pennsylvania State Chapter of The Nature Conservancy and Episcopal Community Services (a Philadelphia based social services organization). He holds a B.A. in Oriental Studies from the University of Pennsylvania and an M.B.A. with a concentration in Finance from The Wharton School.

Frank Karbe, Director. Mr. Karbe has served as a Director since January 2010. Mr. Karbe is currently President of Bigsley Event House, a leading global mass participation events platform. Until June 2014, Mr. Karbe was the Executive Vice President and Chief Financial Officer of Exelixis, Inc., a NASDAQ-listed biotechnology company. Prior to joining Exelixis in 2004, Mr. Karbe worked as an investment banker for Goldman Sachs & Co., where he served most recently as Vice President in the healthcare group focusing on corporate finance and mergers and acquisitions in the biotechnology industry. Prior to joining Goldman Sachs in 1997, Mr. Karbe held various positions in the finance department of The Royal Dutch/Shell Group in Europe. Mr. Karbe holds a Diplom-Kaufmann from the WHU-Otto Beisheim Graduate School of Management, Koblenz, Germany (equivalent to a U.S. Masters of Business Administration).

Keith Manchester, M.D. Dr. Manchester has served as a Director since March 4, 2015. He has also served as a director of our subsidiary Arbutus Inc. since November 2014. Dr. Manchester has been a Managing Director and Head of Life Sciences for QVT Financial LP, an investment firm, where he has been employed since 2005, and focuses on investments in both publicly traded and privately owned life sciences companies. QVT Financial's address is 1177 Ave of the Americas #7, New York, NY 10036. Prior to joining QVT Financial, Dr. Manchester was Vice President of Business Development from 2002 to 2004 and Director of Business Development from 2000 to 2002 at Applied Molecular Evolution, Inc., a biotechnology company. From 1999 to 2000, Dr. Manchester was an associate at Vestar Capital Partners, a private equity firm. From 1997 to 1999, Dr. Manchester was an investment banker in the healthcare group at Goldman, Sachs & Co. Dr. Manchester received his A.B. degree from Harvard College and his M.D. degree from Harvard Medical School.

William T. Symonds, Pharm.D., Chief Development Officer and Director. Dr. Symonds has served as a Director since March 4, 2015. He has also served as a director of our subsidiary Arbutus Inc. since August 2014 and as its Senior Advisor since November 2014. Dr. Symonds is currently the Senior Vice-President of Clinical Research at Roivant Sciences, Inc., a drug development and commercialization company that is wholly owned by Roivant Sciences Ltd., a position that he has held since May 2014. Prior to that, Dr. Symonds served as Vice-President, Liver Disease Therapeutic Area at Gilead Sciences, Inc. from February 2012 until April 2014, and he was the Senior Vice-President, Clinical Pharmacology and Translational Medicine, at Pharmasset, Inc. from 2007 to January 2012. From 1993 to 2007, Dr. Symonds held various positions of increasing responsibility at GlaxoSmithKline, most recently as Director, Antiviral Clinical Pharmacology and Discovery Medicine. Dr. Symonds received his Doctor of Pharmacy degree from Campbell University and completed a fellowship in clinical pharmacokinetics at the Clinical Pharmacokinetics Laboratory in Buffalo, New York.

Governance Agreement with Roivant

Under the Agreement and Plan of Merger and Reorganization, among Arbutus, Arbutus Inc. , and TKM Acquisition Corporation, dated January 11, 2015, Arbutus acquired OnCore Biopharma, Inc. (“OnCore”), which became a wholly-owned subsidiary of the combined company through a merger with TKM Acquisition (the “Merger”). The parties designated the above directors to serve on the Board of the combined company upon the close of the Merger on March 4, 2015. Dr. Murray and Messers. Henriques and Karbe were nominated by Arbutus; Messers. Ramaswamy, Manchester, and Symonds were nominated by OnCore/Arbutus Inc.; and Mr. Conrad was nominated jointly by Arbutus and OnCore/Arbutus Inc.

In connection with the Merger, Arbutus and OnCore’s largest shareholder Roivant Sciences Ltd. (“Roivant”) entered into a Governance Agreement dated January 11, 2015 (the “Governance Agreement”) relating to the composition of the combined

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company’s board and certain other corporate governance matters. Roivant’s address is 2 Church Street, Hamilton, HM 11, Bermuda.

Messers. Ramaswamy, Manchester, and Symonds have been nominated by Roivant to serve on the Board of Directors pursuant to the Governance Agreement. They have consented to be named in the Proxy Statement/Circular and form of proxy, and, if elected, to serve on the Board.

Pursuant to the terms of the Governance Agreement, Roivant currently has the right to designate three directors to Arbutus’ board of directors. Arbutus amended its articles of incorporation (the “Amendment”) to provide Roivant the right to nominate one director to Arbutus’ board of directors for so long as Roivant has “beneficial ownership” or exercises control or direction over not less than 10% of Arbutus’ outstanding capital stock and the right to nominate up to two additional directors to Arbutus’ board of directors for so long as Roivant has “beneficial ownership” or exercises control or direction over not less than 20% of Arbutus’ outstanding capital stock, in each case subject to certain nomination procedures.  For so long as Roivant has the right to nominate at least one or more directors to Arbutus’ board of directors pursuant to the Amendment, the Amendment requires that the total authorized directors of Arbutus’ board of directors will not exceed seven directors without the prior written consent of Roivant.   Roivant’s director designation rights will expire upon the earlier of (i) 36 months from the effectiveness of the Merger and (ii) when Roivant has “beneficial ownership” or exercises control or direction over less than 10% of Arbutus’ outstanding capital stock. Further, for so long as Roivant has the right to nominate at least one or more directors to Arbutus’ Board pursuant to the Amendment, the Amendment requires Arbutus to notify Roivant in writing no earlier than ninety (90) days and no later than sixty (60) days prior to the date of the Shareholder meeting, of the date of any annual general meeting of Shareholders or special meeting of Shareholders called for the purpose of electing directors to the Board. The notice must also specify the total number of Common Shares issued and outstanding calculated before giving effect to the exercise, conversion or exchange of any securities exercisable for, convertible into, or exchangeable for, Common Shares as at the date of the letter filed on SEDAR by Arbutus’ registrar and transfer agent giving notice of the record date for the determination of the Shareholders entitled to notice of and to vote at the Meeting.
 
The Governance Agreement also provides that until the earlier of (i) 36 months from the effectiveness of the Merger and (ii) when Roivant no longer has the right to nominate one or more directors to Arbutus’ board of directors pursuant to the terms of the Amendment, Arbutus will put forward for nomination and election at each meeting of Arbutus’ Shareholders for the election of directors Roivant’s director designees and Roivant shall vote in favor of all such director nominees put forward by Arbutus for election to the board of directors and shall vote against the election of any person nominated by anyone other than Arbutus’ board of directors.  

To our management's knowledge, neither Roivant nor any of the Roivant nominees have been involved in a legal proceeding that would be required to be disclosed pursuant to Item 401(f) of Regulation S-K of the Exchange Act.

CORPORATE GOVERNANCE

Overview

Arbutus believes in building a strong governance foundation. We are subject to many provisions of the Sarbanes-Oxley Act of 2002 and related rules of the SEC, the governance standards of the NASDAQ and the rules and policies of the Canadian provincial securities regulators regarding audit committees, corporate governance and the certification of certain annual and interim filings. The following disclosure of our approach to corporate governance outlines the various procedures, policies and practices that Arbutus and our Board of Directors have implemented to address all of the foregoing requirements and, where appropriate, reflect current best practices.

Board Independence and Oversight

Our Board of Directors assumes responsibility for stewardship of Arbutus. The mandate of our Board of Directors is to supervise the management of the business and affairs of Arbutus. Our Board of Directors delegate day-to-day managerial responsibilities to management, and any responsibility not delegated to senior management or to a committee of the board remains with the full Board of Directors. Our Board of Directors has a formal mandate, the text of which is attached to this Proxy Statement/Circular as Exhibit A.

Our Board of Directors is currently composed of seven directors, and Shareholders are being asked at the Meeting to elect those seven directors. A majority of the members of the Board of Directors are independent directors, and thus the Board is able to act independently from management. Our Board of Directors has determined that five of the current seven members of the

15



Board are independent under the current requirements of the NASDAQ and the rules and regulations of the Canadian provincial securities regulatory authorities.

Independent directors who served for all or part of fiscal 2015 are as follows: Vivek Ramaswamy (Chairman of the Board), Herbert Conrad, Richard Henriques, Donald Jewell, Daniel Kisner, Frank Karbe, Keith Manchester and Peggy Phillips. Mark Murray, our Chief Executive Officer, and William Symonds, or Chief Development Officer, are not independent as a result of being an officers of Arbutus. Further information on our directors is set out in the biography of each director under the heading “Executive Officers and Directors”. Each biography also outlines the director’s relevant experience and expertise.

Board Leadership

Our entire Board of Directors is responsible for the overall governance of Arbutus. Any responsibility that is not delegated to senior management or a committee of our Board of Directors remains with the entire Board. Our Board of Directors has adopted a position description for our Chairman. Currently, our Chairman is independent of management; however, in the event that our Chairman is not independent, the Board would appoint an independent Lead Director. Additionally, we have adopted position descriptions for each of the Chairs of our three committees.

CEO Evaluation

Our Board of Directors has also adopted a position description for our Chief Executive Officer. Our Chief Executive Officer has overall responsibility for all operations of Arbutus. Our Board of Directors reviews and approves the corporate objectives that our Chief Executive Officer is responsible for meeting and such corporate objectives form a key reference point for the review and assessment of our Chief Executive Officer’s performance.

Director Orientation and Continuing Education

New Board members receive a director’s orientation including reports on our strategic plans and our significant financial, accounting and risk management issues. In addition, the orientation for our directors involves meeting with our senior management and an interactive introductory discussion about Arbutus, providing the directors with an opportunity to ask questions.

Board meetings are periodically held at our facilities and combined with presentations by our senior management to give the directors additional insight into the main areas of our business.

Director Nominations

Our Corporate Governance and Nominating Committee has the primary responsibility for establishing criteria for Board membership and identifying, evaluating, reviewing and recommending qualified candidates to serve on the Board.

All nominations proposed by the Corporate Governance and Nominating Committee must receive the approval of our Board of Directors. Prior to recommending candidates to serve on the Board, the Corporate Governance and Nominating Committee:

a.
considers what competencies and skills the Board, as a whole, should possess. In doing so, the Corporate Governance and Nominating Committee recognizes that the particular competencies and skills required for one company may not be the same as those required for another;

b.
assesses what competencies and skills each existing Board member possesses, considering that no one director is likely to have all the competencies and skills required by the Board, rather, each individual makes their own contribution. Attention shall also be paid to the personality and other qualities of each director, as they may ultimately determine the Board dynamic; and

c.
assesses what competencies and skills each nominee will bring to the Board and whether such nominee can devote sufficient time and resources to his or her duties as a Board member.
    
The Corporate Governance and Nominating Committee will consider and evaluate Shareholder-recommended candidates using the same criteria for other candidates. If the Committee decides the candidate is suitable for Board membership, the Committee will recommend the candidate to the Board, which approves the slate of director nominees for election by

16



Shareholders. During fiscal 2015, we received no director recommendations from our Shareholders other than pursuant to the Governance Agreement with Roivant.
    
Shareholders who wish to suggest a director candidate may submit a written recommendation to Attention: Corporate Secretary, 100-8900 Glenlyon Parkway Burnaby, British Columbia V5J 5J8, along with the Shareholder’s name, address and the number of Common Shares owned by the Shareholder; the name of the candidate and the number of Common Shares beneficially owned by the candidate; the candidate’s biographical information, describing experience and qualifications; a description of all agreements, arrangements or understandings between the Shareholder and candidate; and the candidate’s consent to serve as a director if elected. The Committee may request that the Shareholder provide certain additional information. For the Board to consider a candidate for nomination at the 2017 Annual General Meeting, Shareholders should submit the required information by December 9, 2016.

In addition to suggesting a director candidate, a Shareholder may also nominate a director candidate for election. A Shareholder wishing to nominate an individual to be a director, other than pursuant to a requisition of a meeting made pursuant to the BCBCA or a Shareholder proposal made pursuant to the provisions of the BCBCA, is required to comply with Section 13.9 of the Articles of Incorporation. Section 13.9 of the Articles provides, inter alia, that proper written notice of any such director nomination (the “Nomination Notice”) for an annual general meeting of Shareholders must be provided to the Secretary of the Company not less than 30 nor more than 65 days prior to the date of the annual general meeting of Shareholders; provided, however, that in the event that the annual general meeting of Shareholders is to be held on a date that is less than 50 days after the date (the “Notice Date”) on which the first public announcement of the date of the annual general meeting was made, the Nomination Notice must be provided no later than the close of business on the tenth day following the Notice Date. The foregoing is merely a summary of provisions contained in Section 13.9 of the Articles, and is not comprehensive and is qualified by the full text of such provisions. The full text of such provisions is set out in Section 13.9 of the Articles, a copy of which is attached as Exhibit B to the March 27, 2013 management information circular of the Company which can be found under the Company’s profile at www.sedar.com or www.sec.gov.

Director Election and Majority Voting Policy

The Board believes that each of its members should carry the confidence and support of the Company’s Shareholders. To this end, the Articles of Arbutus provide for a majority voting policy, which policy was approved by Arbutus’ Shareholders in 2013. Voting at the Meeting enables Shareholders to vote in favour of, or to withhold from voting, separately for each nominee director. If, with respect to any particular nominee, the number of Common Shares withheld exceeds the number of Common Shares voted in favour of the nominee, then for purposes of the Company’s policy, the nominee shall be considered not to have received the support of the Shareholders, even though duly elected as a matter of corporate law.

A person elected as a Director who is considered under this test not to have the confidence of Shareholders is expected to immediately submit to the Board his resignation in accordance with the Company’s Majority Voting Policy. The Board of Directors (excluding any director that has tendered a resignation) will consider the Director’s offer to resign and decide whether or not to accept it. In making its decision, the Board will consider the reason why the votes were withheld, the skills and expertise of that Director, the overall composition of the Board and the skills and the expertise of the other Directors. Within 90 days of receiving the final voting results of the Meeting, the Board will decide whether to accept or not accept the resignation of that Director. If the resignation is accepted, subject to any applicable law, the Board may leave the resultant vacancy unfilled until the next annual general meeting, fill the vacancy through the appointment of a new Director whom the Board considers to merit the confidence of the Shareholders, or call a special meeting of Shareholders at which there will be presented one or more nominees to fill any vacancy or vacancies. If the resignation is not accepted the Board will issue a press release disclosing the reasons for rejecting the offer to resign. The Company’s Majority Voting Policy is available on the Company’s website at www.arbutusbio.com.

Director Terms

Directors are elected annually. Unless the director’s office is earlier vacated in accordance with the provisions of the Business Corporations Act (British Columbia) and the Articles of Arbutus, each director elected will hold office until immediately before the election of new directors at the next annual general meeting of Arbutus or, if no director is then elected, until a successor is elected or appointed.

Director Term Limits


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The Board has not adopted term limits for the directors on the Board. In terms of mechanisms for Board renewal, the Corporate Governance and Nominating Committee has the mandate and responsibility to annually review, discuss and assess the performance of the Board. This assessment includes an evaluation of: the Board’s contribution as a whole and effectiveness in serving the best interests of the Company and its Shareholders; specific areas in which the Board and/or management believe contributions could be improved; the appropriate size of the Board, with a view to facilitating effective decision making; and overall Board composition and makeup. The Corporate Governance and Nominating Committee also has the primary responsibility for evaluating, reviewing and considering the recommendation for nomination of incumbent directors for re-election to the Board.

Diversity

The Corporate Governance and Nominating Committee has the primary responsibility for establishing criteria for Board membership and identifying, evaluating, reviewing and recommending qualified candidates to serve on the Board.

The Board’s Mandate, and the Corporate Governance and Nominating Committee’s Charter, do not specifically contemplate diversity or the level of representation of women on the Board in identifying and nominating candidates for election or re-election to the Board. However, prior to recommending candidates to serve on the Board, the Corporate Governance and Nominating Committee shall:

a.
consider what competencies and skills the Board, as a whole, should possess. In doing so, the Corporate Governance and Nominating Committee recognizes that the particular competencies and skills required for one company may not be the same as those required for another;

b.
assess what competencies and skills each existing Board member possesses, considering that no one director is likely to have all the competencies and skills required by the Board; rather, each individual makes their own contribution. Attention shall also be paid to the personality and other qualities of each director, as they may ultimately determine the Board dynamic; and

c.
assess what competencies and skills each nominee will bring to the Board and whether such nominee can devote sufficient time and resources to his or her duties as a Board member.

The Board’s Mandate does not specifically contemplate the level of representation of women in executive officer positions when making executive officer appointments. However, the Board’s Mandate does stipulate that the Board is responsible for evaluating the integrity of the Chief Executive Officer and other executive officers, and direct the Chief Executive Officer and other executive officers to promote a culture of integrity throughout the Company.

Arbutus has not adopted a target regarding women on its Board. As at the date hereof, Arbutus does not have any women on its Board (0%). Arbutus has not adopted a target regarding women in executive officer positions. As at the date hereof, Arbutus does not have any executive officer(s) that are women (0%).

Committees of the Board of Directors

To assist in the discharge of its responsibilities, our Board of Directors currently has three committees: the Audit Committee, the Executive Compensation and Human Resources Committee and the Corporate Governance and Nominating Committee, each of which is composed entirely of independent directors.

In addition to our formal, standing committees, the Board may from time-to-time organize informal, ad-hoc committees to address specific issues.

Audit Committee

The members of our Audit Committee are Mr. Karbe, Mr. Conrad and Mr. Henriques, each of whom is a non-employee member of our Board of Directors. Mr. Karbe chairs the Audit Committee. Our Board of Directors has determined that each of the members of the Audit Committee is financially literate and has financial expertise (as is currently defined under the applicable SEC rules). Our Board of Directors has determined that each member of our Audit Committee is an independent member of our Board of Directors under the current requirements of the NASDAQ and the rules and regulations of the SEC and Canadian provincial securities regulatory authorities.


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Our Audit Committee is responsible for overseeing our financial reporting processes on behalf of our Board of Directors. Our independent auditor reports directly to our Audit Committee. Specific responsibilities of our Audit Committee include:

overseeing the work of the independent auditors engaged for the purpose of preparing or issuing an auditor’s report or performing other audit, review or attest services for the Company;

evaluating the performance, and assessing the qualifications, of our independent auditor and recommending to our Board of Directors the appointment of, and compensation for, our independent auditor for the purpose of preparing or issuing an auditor report or performing other audit, review or attest services;

subject to the appointment of our independent auditor in accordance with applicable corporate formalities, determining and approving the engagement of, and compensation to be paid to, our independent auditor;

determining and approving the engagement, prior to the commencement of such engagement, of, and compensation for, our independent auditor and to perform any proposed permissible non-audit services;

reviewing our financial statements and management’s discussion and analysis of financial condition and results of operations and recommending to our Board of Directors whether or not such financial statements and management’s discussion and analysis of financial condition and results of operations should be approved by our Board of Directors;

conferring with our independent auditor and with our management regarding the scope, adequacy and effectiveness of internal financial reporting controls in effect;

establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; and

reviewing and discussing with our management and independent auditor, as appropriate, our guidelines and policies with respect to risk assessment and risk management, including our major financial risk exposures and investment and hedging policies and the steps taken by our management to monitor and control these exposures.

A copy of our Audit Committee’s charter, the text of which is attached to this Proxy Statement/Circular as Exhibit B, is available on our website at www.arbutusbio.com

Executive Compensation and Human Resources Committee

As part of the Merger , a new Executive Compensation and Human Resources Committee (the “Compensation Committee”) for the merged entity was formed. The initial members included Mr. Conrad (Chairman), Mr. Henriques and Mr. Ramaswamy. Mr. Ramaswamy subsequently relinquished his participation on November 18, 2015 and was replaced by Mr. Karbe.

Our Board of Directors has determined that each of the members of the Compensation Committee has the appropriate experience for their Committee responsibilities based on their prior senior roles in our industry. Our Board of Directors has determined that each member of our Compensation Committee is an independent member of our Board of Directors under the current requirements of the NASDAQ listing standards and as defined in the rules and regulations of the Canadian provincial securities regulatory authorities.

Specific responsibilities of our Compensation Committee include:

Compensation of the Chief Executive Officer and Other Executive Officers - reviewing and recommending to the Board an executive compensation program including:

corporate performance goals, the terms of executive bonus and other incentive plans, individual goals thereunder, evaluation of performance in light of those goals, and payment of individual executive bonuses;

executive compensation practices and trends to assess the adequacy and competitiveness of the Company’s executive compensation programs among comparable companies;


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the terms of any employment agreements, severance arrangements, change of control protections and any other compensatory arrangements; and

policies for the proper administration of executive compensation programs.

Overall Company Compensation - from time to time reviewing and recommending to the Board the Company’s overall compensation plans and structure, including without limitation incentive compensation and equity-based plans.

Non-Executive Director Compensation - recommending to the Board compensation for non-executive Board members, including any retainers, Committee and Committee chair fees and/or equity compensation.

Administration of Plans - administering the Company’s equity compensation plans, pension plans, and similar programs, including the adoption, amendment and termination of such plans and any sub-plans thereof, establishing guidelines, interpreting plan documents, selecting participants, approving grants and awards, or exercising such other power and authority as may be permitted or required under such plans.

Disclosure of Executive Compensation - reviewing with management all executive compensation disclosure before the Company publicly discloses this information.

Management Succession Planning - overseeing periodic evaluations of management succession planning.

Governance - reviewing, discussing and assessing annually the Committee’s own performance and the adequacy of the Committee’s Charter.

Only independent, non-employee members of the Board of Directors participate in the review and approval of the executive compensation actions described above. A copy of our Compensation Committee’s charter is available on our website at www.arbutusbio.com.

Corporate Governance and Nominating Committee

The members of our Corporate Governance and Nominating Committee are Mr. Conrad, Mr. Karbe and Mr. Manchester. Mr. Manchester chairs the Corporate Governance and Nominating Committee. Our Board of Directors has determined that each member of our Corporate Governance and Nominating Committee is an independent member of our Board of Directors under the current requirements of the NASDAQ and as defined in the rules and regulations of the Canadian provincial securities regulatory authorities.

Specific responsibilities of our Corporate Governance and Nominating Committee include:

establishing criteria for Board membership and identifying, evaluating, reviewing and recommending qualified candidates to serve on the Board;

evaluating, reviewing and considering the recommendation for nomination of incumbe0nt directors for re-election to the Board;

periodically reviewing and assessing the performance of our Board, including Board committees;

developing and reviewing a set of corporate governance principles for Arbutus.

A copy of our Corporate Governance and Nominating Committee’s charter is available on our website at www.arbutusbio.com.

Our Board of Directors is responsible for approving nominees for election as directors. However, as is described above, our Corporate Governance and Nominating Committee is responsible for reviewing, soliciting and recommending nominees to our Board of Directors.

Board and Committee Meetings
 

20



During the fiscal year ended December 31, 2015, our Board of Directors held a total of 8 meetings (in person or by teleconference). Our Audit Committee, Compensation Committee, and Corporate Governance and Nominating Committee met a total of 5, 3, and 1 time(s), respectively. All directors attended 100% of the aggregate total meetings of the Board and Board committees on which they served during the fiscal year.





The attendance records for the members of the Board of Directors in the year ended December 31, 2015 are as follows:
Director
Number of meetings attended:
Board
Audit
Committee
Compensation
Committee
Governance
Committee
Vivek Ramaswamy(1, 3)
6 of 6
n/a
2 of 2
n/a
Daniel Kisner(1)
2 of 2
n/a
1 of 1
n/a
Mark Murray
8 of 8
n/a
n/a
n/a
Frank Karbe(3)
8 of 8
5 of 5
1 of 1
1 of 1
Richard Henriques
8 of 8
5 of 5
3 of 3
n/a
Herbert Conrad(2)
6 of 6
5 of 5
3 of 3
1 of 1
Keith Manchester(2)
6 of 6
n/a
n/a
1 of 1
William Symonds(2)
6 of 6
n/a
n/a
n/a
Donald Jewell(2)
2 of 2
n/a
1 of 1
n/a
Peggy Phillips(2)
2 of 2
n/a
1 of 1
n/a

Notes:

(1)
Effective March 4, 2015 upon the completion of the Merger, Mr. Ramaswamy was appointed Chairman of the Board in conjunction with Dr. Kisner's resignation as the Chairman of the Board.
(2)
Effective March 4, 2015 upon the completion of the Merger, Mr. Conrad, Mr. Manchester, and Dr. Symonds were appointed to the Board in conjunction with Mr. Jewell's and Ms. Phillips' resignations from the Board.
(3)
Mr. Karbe was appointed as a member of the Compensation Committee in conjunction with Mr. Ramaswamy's resignation from the Compensation Committee on November 25, 2015.

At each regularly held quarterly Board meeting, the Board’s independent directors held an in camera session without the presence of non-independent directors and members of management.

Board Member Attendance at Annual Shareholder Meetings

Although we do not have a formal policy regarding director attendance at annual Shareholder meetings, directors are encouraged to attend these annual meetings absent extenuating circumstances.

DIRECTOR COMPENSATION

In order to align the interests of non-executive directors with the long-term interests of Shareholders, the Board has approved the non-executive directors' participation in Arbutus’ equity compensation plans, as well as an annual cash retainer. Members of our management team receive no additional consideration for acting as directors.

Cash Compensation

Our annual cash retainer and fees for meeting attendance are denominated in U.S. dollars. The Board fee schedule for fiscal 2015 was as follows: an annual cash retainer of $35,000 per annum for each non-executive director ($60,000 for the Chairman of the Board) and an additional $15,000 for the Chairman of the Audit Committee; an additional $10,000 for the Chairman of the Compensation Committee; an additional $7,500 for the Chairman of the Governance Committee; an additional $7,500 for members of the Audit Committee; and an additional $5,000 for the members of the Governance Committee and Compensation

21



Committee). These retainers are paid in quarterly increments, and they are pro-rated for those non-executive directors who serve for only part of the fiscal year.
 
Option Awards

The Board has adopted a policy that non-executive directors are granted options upon appointment as a director and are eligible for annual grants thereafter on their re-election at the annual general meeting. Director options are priced at the closing market price of the previous trading day.
 
Following our 2015 Annual General Meeting, we adjusted our new Board member option grant level from 10,000 to 15,000 shares and our ongoing Board member annual grant level from 5,000 to 7,500 shares. New Board member grants vest one third at each of the 1st, 2nd, and 3rd anniversaries of the grant date. Annual grants vest immediately. We expect to issue an annual grant of options to each of our non-executive Board members following our 2016 Annual General and Special Meeting.

Director Compensation Table

The following table summarizes the compensation of our non-executive directors who served during fiscal 2015:
Name
Fees earned or paid in cash ($)
 
Option
awards ($)(3)
 
Total
($)
 
Outstanding
And
Unexercised
Options to
Purchase
Common Shares
(#)(4)
Vivek Ramaswamy (1)
52,345

 
49,478

 
101,823

 
7,500

Herbert Conrad (2)
47,046

 
244,227

 
291,273

 
22,500

Richard Henriques (2)
47,625

 
244,227

 
291,852

 
22,500

Keith Manchester (1)
34,246

 
49,478

 
83,724

 
62,415

Frank Karbe
71,735

 
49,478

 
121,213

 
45,000

William Symonds (1)

 

 

 

Dan Kisner (1)
27,600

 

 
27,600

 

Don Jewell (1)
23,285

 

 
23,285

 

Peggy Phillips (1)
8,716

 

 
8,716

 


 Notes:
 
(1)
Effective March 4, 2015 upon the completion of the Merger, Mr. Ramaswamy, Mr. Manchester, and Mr. Symonds were appointed to the Board Directors, and Dr. Kisner, Mr. Jewell, and Ms. Phillips resigned from the Board.
(2)
Options awards for each of Mr. Henriques and Mr. Conrad include the grant date fair value of 15,000 new Board member options granted on March 30, 2015, calculated in accordance with FASB Topic 718. Mr. Henriques joined the Board on December 19, 2014 and Mr. Conrad joined the Board on March 4, 2015 upon the completion of the Merger. Refer to note 6 to our financial statements in the 10-K for the year-ended December 31, 2015 for assumptions used in our Black-Scholes option pricing model to calculate grant date fair values.
(3)
Except for the directors who resigned from the Board upon the completion of the Merger, amounts include the grant date fair value of 7,500 options that were granted to the directors at the Annual General Meeting in July 2015. Refer to note 6 to our financial statements in the 10-K for the year ended December 31, 2015 for assumptions used in our Black-Scholes option pricing model to calculate grant date fair values.
(4)
Amounts shown reflect option awards outstanding as of fiscal year end. Mr. Manchester's outstanding options include 54,915 options granted under the OnCore Option Plan, and they are shown as converted to Common Shares in connection with the Merger.

Code of Business Conduct for Directors Officers and Employees
 
We have adopted a code of business conduct for directors, officers and employees (the “Code of Conduct”), which is available on our website at http://investor.arbutusbio.com/governance.cfm and also at www.sedar.com. If we effect an

22



amendment to, or waiver from, a provision of our Code of Conduct, we intend to satisfy our disclosure requirements by posting a description of such amendment or waiver on the website above or via a current report on Form 8-K. The inclusion of our website address in this Proxy Statement/Circular does not include or incorporate by reference the information on our website into this Proxy Statement/Circular.

Our Board of Directors and management review and discuss from time to time the effectiveness of our Code of Conduct and any areas or systems that may be further improved. We have not filed a material change report that pertains to any conduct of any of our directors or executive officers that constitutes a departure from our Code of Conduct. If we make any substantive amendments to our Code of Conduct, or grant any waiver from a provision of our Code of Conduct to any of our executive officers or directors, we will promptly disclose the nature of the amendment or waiver on our website.

Arbutus complies with the relevant provisions under the Business Corporations Act (British Columbia) that deal with conflict of interest in the approval of agreements or transactions and our Code of Conduct sets out additional guidelines in relation to conflict of interest situations. Arbutus, through directors’ and officers’ questionnaires and other systems, also gathers and monitors relevant information in relation to potential conflicts of interest that one of our directors or executive officers may have. Where appropriate, our directors absent themselves from portions of a meeting of our Board of Directors or Board committee to allow independent discussion of points in issue.

Arbutus was founded on, and the business continues to be successful largely as a result of, a commitment to ethical conduct. Employees are regularly reminded about their obligations in this regard and senior management demonstrates a culture of integrity and monitors employee compliance with our Code of Conduct.
 
Shareholder Communications with Directors
 
We communicate with our stakeholders through a number of channels including our website at www.arbutusbio.com. Shareholders can provide feedback to us in a number of ways, including email at BCousins@arbutusbio.com. Any communication sent by a Shareholder must state the number of our Common Shares owned by the Shareholder making the communication. We will review each communication and will forward such communication to our Board of Directors, or to any individual director to whom the communication is addressed, unless the communication consists of general surveys and mailings to solicit business or advertise products; job applications or resumes; or any material that is threatening, illegal or that does not relate to the responsibilities of the Board. All communications that relate to questionable accounting or auditing matters involving Arbutus should be addressed directly to the chair of our Audit Committee as set forth in our Whistleblower Policy, which can be obtained on our website at www.arbutusbio.com.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table shows information regarding the beneficial ownership of our Common Shares as of March 30, 2016 by (a) each Shareholder, or group of affiliated Shareholders, that we know owns more than 5% of our outstanding Common Shares; (b) each of our Named Executive Officers; (c) each of our current directors; and (d) all of our current directors and executive officers as a group. The table is based upon information supplied by directors, executive officers and principal Shareholders, and Schedules 13D and 13G filed with the Securities and Exchange Commission.

Percentage ownership in the table below is based on 54,625,703 shares of Common Shares outstanding as of March 30, 2016. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and generally includes voting power and/or investment power with respect to the securities held. Any securities not outstanding but which are subject to options or warrants exercisable within 60 days of March 30, 2016 are deemed outstanding and beneficially owned for the purpose of computing the percentage of outstanding Common Shares beneficially owned by the Shareholder holding such options or warrants, but are not deemed outstanding for the purpose of computing the percentage of Common Shares beneficially owned by any other Shareholder.

Unless otherwise indicated, each of the Shareholders listed below has sole voting and investment power with respect to the Common Shares beneficially owned. The address for each director or Named Executive Officer is c/o Arbutus Biopharma Corporation, Attention: Corporate Secretary, 100-8900 Glenlyon Parkway, Burnaby, British Columbia, V5J 5J8.


23



Name of Beneficial Owner
No. of Shares
Beneficially
Owned
 
Percentage of Class
 Officers and Directors
 
 
 
Mark Murray (1)
583,896

 
1.1%

Bruce Cousins  (2)
137,500

 
*

Peter Lutwyche (3)
56,258

 
*

Mark Kowalski (2)
71,667

 
*

Patrick Higgins
1,764,815

 
3.2%

Michael Sofia
1,764,815

 
3.2%

William Symonds
256,327

 
*

Michael Abrams (4)
142,514

 
*

Elizabeth Howard

 
*

Vivek Ramaswamy (5)
62,415

 
*

Frank Karbe (6)
53,750

 
*

Herbert Conrad (2)
22,500

 
*

Richard Henriques (7)
28,500

 
*

Keith Manchester (2)
62,415

 
*

All current directors and executive officers as a group (14 persons)
5,019,039

 
9.2
%
5% Shareholders Not Listed Above
 

 
 

Roivant Sciences, Ltd. (8)
16,013,540

 
29.3
%
PRIMECAP Management Company (9)
2,930,982

 
5.4
%
_________________
* Less than 1.0%.
 Notes:

(1)
Includes warrants to purchase 10,000 Common Shares and options exercisable within 60 days of March 30, 2016 for 229,507 Common Shares.
(2)
These are options exercisable within 60 days of March 30, 2016.
(3)
Includes warrants to purchase 2,500 Common Shares and options exercisable within 60 days of March 30, 2016 for 15,000 Common Shares.
(4)
Includes warrants to purchase 2,500 Common Shares and options exercisable within 60 days of March 30, 2016 for 112,095 Common Shares.
(5)
Does not include 16,013,540 shares held by Roivant over which a board of three individuals including Mr. Ramaswamy shares voting and investment power.
(6)
Includes warrants to purchase 6,250 Common Shares and options exercisable within 60 days of March 30, 2016 for 42,500 Common Shares.
(7)
Includes options exercisable within 60 days of March 30, 2016 for 27,500 Common Shares.
(8)
Voting and dispositive decisions of Roivant are made collectively by Roivant’s Board of Directors, which consists of Vivek Ramaswamy, Ilan Oren and Keith Manchester, M.D. Roivant's address is: 2 Church Street, Hamilton, HM 11, Bermuda.
(9)
Based on information contained in Schedule 13G/A filed by PRIMECAP Management Company on February 12, 2016. The filing indicated that as of December 31, 2015, PRIMECAP had sole investment and voting over all of these shares. PRIMECAP's address is: 225 South Lake Ave., #400, Pasadena, CA 91101.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS


24



Except as disclosed below, to the knowledge of the directors and executive officers of the Company, no person or corporation owned, directly or indirectly, or exercised control or direction over, Common Shares carrying more than 10% of the voting rights attached to all outstanding Common Shares of Arbutus as at March 30, 2016.  See “Proposal No. 1 –Election of Directors – Information on Nominees for Directors” for information regarding the Common Shares held by our Directors.

Name
Number of Common
Shares Beneficially Owned
Percentage of
Outstanding Common Shares
Roivant Sciences Ltd
16,013,540
29.3%

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table shows the compensation for our CEO, CFO, and each of our other three most highly-compensated executive officers active at the end of fiscal 2015 (the “Named Executive Officers”). Compensation is shown for our three most recently completed financial years ending on December 31. Dr. Sofia is a former Arbutus Inc. executive who joined us in connection with the Merger, so compensation disclosed for him does not include amounts paid by Arbutus Inc. prior to the Merger. All amounts are expressed in US dollars unless otherwise noted. Amounts paid or denominated in Canadian dollars, were converted to US dollars for presentation purposes at the average exchange rate for the year of $0.78US dollars for every Canadian dollar.
Name and principal position
 
Year
 
Salary
($)
 
Bonus
($)(1)
 
Option Awards
($)
(2)
 
All other
compensation
($)
(3)
 
Total
($) 
Dr. Mark Murray
 
2015
 
524,930

 
430,000

 
3,616,277

 
45,341

 
4,616,548

President and CEO
 
2014
 
400,000

 
180,000

 
466,404

 
38,848

 
1,085,252

 
 
2013
 
377,500

 
160,359

 

 
43,792

 
581,651

 
 
 
 
 
 
 
 
 
 
 
 
 
Mr. Bruce Cousins
 
2015
 
337,015

 
195,465

 
1,998,127

 
37,787

 
2,568,394

EVP and CFO
 
2014
 
276,117

 
99,583

 

 
44,026

 
419,726

 
 
2013
 
69,480

 
24,318

 
1,247,159

 
2,085

 
1,343,042

 
 
 
 
 
 
 
 
 
 
 
 
 
Dr. Mark Kowalski
 
2015
 
366,782

 
216,594

 
1,291,663

 
11,425

 
1,886,464

Chief Medical
 
2014
 
333,125

 
105,000

 
333,146

 
15,986

 
787,257

Officer
 
2013
 
128,623

 
36,240

 
261,819

 
3,859

 
430,541

 
 
 
 
 
 
 
 
 
 
 
 
 
Dr. Peter Lutwyche
 
2015
 
287,176

 
152,702

 
1,291,663

 
11,839

 
1,743,380

Chief Technology
 
2014
 
223,790

 
70,494

 
266,517

 
8,865

 
569,666

Officer
 
2013
 
233,029

 
71,365

 

 
6,991

 
311,385

 
 
 
 
 
 
 
 
 
 
 
 
 
Dr. Michael Sofia (4)
 
2015
 
323,864

 
100,000

 

 
6,144

 
430,008

Chief Scientific
 
2014
 

 

 

 

 

Officer
 
2013
 

 

 

 

 

 
Notes:

(1)
Included in the 2015 Bonus of Dr. Murray, Mr. Cousins, Dr. Kowalski, and Dr. Lutwyche are additional bonus payments made in March 2015 following the completion of the Merger. These bonuses are described in greater detail under “Named Executive Officer Compensation in Fiscal 2015”.

(2)
The fair value of each option is estimated as at the date of grant using the most widely accepted option pricing model, Black-Scholes in accordance with FASB ASC Topic 718.

25



The weighted average option pricing assumptions and the resultant fair values for options awarded to Named Executive Officers for fiscal 2013 are as follows: expected average option term of ten years; a zero dividend yield; a weighted average expected volatility of 114.7%; and, a weighted average risk-free interest rate of 2.49%.
The weighted average option pricing assumptions and the resultant fair values for options awarded to Named Executive Officers for fiscal 2014 are as follows: expected average option term of ten years; a zero dividend yield; a weighted average expected volatility of 105.0%; and, a weighted average risk-free interest rate of 2.49%.
The weighted average option pricing assumptions and the resultant fair values for options awarded to Named Executive Officers for fiscal 2015 are as follows: expected average option term of ten years; a zero dividend yield; a weighted average expected volatility of 76.76%; and, a weighted average risk-free interest rate of 1.14%.

Options awarded to the Named Executive Officers in March 2016 are not included in the above table.

(3)
All other compensation in 2013, 2014 and 2015 includes Registered Retirement Savings Plan, or RRSP, or equivalent matching payments of 3.5% of salary. In 2013, 2014 and 2015 all of our full-time employees and executives were eligible for RRSP or equivalent matching payments. Dr. Murray’s and Dr. Kowalski’s other compensation also includes reimbursement of personal tax filing service fees up to a maximum of $10,000 and $5,000 per year, respectively. Dr. Murray’s other compensation also includes amounts claimed under contractual entitlement to reimbursement of any health expenses incurred, including family's health expenses, that are not covered by insurance. Mr. Cousins’ other compensation also includes amounts for housing provided. Dr. Murray's, Mr. Cousins', Dr. Kowalski's, and Dr. Lutwyche's other compensation also includes life insurance payments.

(4)
Dr. Sofia was one of OnCore Biopharma's co-founders and served as its Chief Scientific Officer and Head of Research and Development since July 2014. Dr. Sofia commenced employment with Arbutus upon the Merger.

Compensation Discussion and Analysis

Principles of Our Executive Compensation Program
 
The Executive Compensation and Human Resources Committee, or the Compensation Committee, is responsible for recommending the compensation of our executive officers to the Board of Directors. In establishing compensation levels for executive officers, the Compensation Committee seeks to accomplish the following goals:
 
to recruit and subsequently retain highly qualified executive officers by offering overall compensation which is competitive with that offered for comparable positions within our peer group;
to motivate executives to achieve important corporate performance objectives and reward them when such objectives are met; and
to align the interests of executive officers with the long-term interests of shareholders through participation in our stock-based compensation plans.

2015 Developments

2015 was a transitional year as we welcomed new employees from the Merger and updated our executive compensation program to ensure that it continues to drive corporate performance and align the interests of executives with the long-term interests of Shareholders. In conjunction with the Merger, we:

worked to retain key executives from OnCore BioPharma, integrated them into the Company and organized a new executive team;
updated the peer group in order to include biotechnology companies with comparable scale and complexity, as measured by sales, market capitalization, total assets and total employees, and direct competitors for business, capital or industry talent;
conducted a competitive analysis of compensation for our executive team members using peer group survey data provided by Radford and Equilar; and
designed compensation packages for the new executive team members based on post-Merger roles and responsibilities and the competitive analysis;
    

26



Compensation for the executive team was set with a base philosophy of paying a competitive base salary at the peer group median while utilizing cash bonus and equity grants to adjust total compensation above or below the median depending on corporate and individual performance.

We provide Shareholders with a non-binding, advisory vote on our executive compensation program every three years. We expect to hold the next vote at our 2018 Annual General Meeting. As part of its responsibilities, our Compensation Committee reviewed the results of the most recent advisory vote on executive compensation in 2015, when Shareholders supported our executive compensation program by 99.51% of the votes cast. The Committee recognizes that effective compensation practices evolve, and the Committee will continue to consider changes as needed to keep our executive compensation program competitive and performance-based.

With the assistance of its independent consultant, Radford, a business unit of Aon plc (“Radford”), which was engaged in August 2015, the Compensation Committee will continue its evaluation of the executive compensation program in 2016.

Prior to engaging Radford, the Committee assessed Radford’s independence pursuant to the company’s Charter and NASDAQ listing standards, including:

Provision of other services to the Company by Radford
Fees received from the Company by Radford as a percentage of Radford's total revenue
Radford's policies and procedures that are intended to prevent conflicts of interest
Any business or personal relationships between Radford advisers on the account and members of the Committee
Any business or personal relationships between Radford advisers on the account and executive officers of the Company
Company stock owned by Radford advisers on the account

The Committee determined, based on an analysis of the above factors, that the engagement does not create any conflict of interest and resulted in the engagement of Radford effective August 12, 2015.

Benchmarking of Executive Compensation
 
In connection with the Merger, we updated our peer group to include biotechnology companies with comparable scale and complexity of operations, as measured by sales, market capitalization, total assets and total employees, and direct competitors for business, capital or industry talent. Executive compensation for the new executive team was benchmarked against the following group of peer companies.
AVALANCHE
DYNAVAX TECHNOLOGIES CORP
NEWLINK GENETICS CORP
ACHILLION PHARMACEUTICALS INC
ENANTA PHARMACEUTICALS INC
SPARK
AGENUS INC
FIBROGEN INC
OPHTHOTECH CORP.
ARRAY BIOPHARMA INC
AMICUS THERAPEUTICS INC
PORTOLA PHARMACEUTICALS INC
ARROWHEAD RESEARCH CORP
GERON CORP
REGULUS THERAPEUTICS INC.
ATARA
HALOZYME THERAPEUTICS INC
SANGAMO BIOSCIENCES INC
CHIMERIX INC
IDERA PHARMACEUTICALS, INC.
SAREPTA THERAPEUTICS, INC.
CORCEPT THERAPEUTICS INC
INSMED INC
THRESHOLD PHARMACEUTICALS INC
CYTOKINETICS INC
KARYOPHARM THERAPEUTICS INC.
ACCELERON PHARMA INC
DICERNA PHARMACEUTICALS INC
MERRIMACK PHARMACEUTICALS INC
ZAFGEN
 
 
ZIOPHARM ONCOLOGY INC
 
Performance Graph
 
The performance of our share price is one of the factors the Compensation Committee takes into account when considering executive compensation. The following graph compares the cumulative total shareholder return on an investment of US$100 (as of December 31, 2010) in the Common Shares of the Company versus the NASDAQ Composite and NASDAQ Biotechnology Indices.


27



Elements of Executive Compensation
 
Currently, our executive compensation program principally consists of the following components: base salary, discretionary annual incentive cash bonus, long-term incentives in the form of stock options and health and retirement benefits generally available to all of our employees. We believe a competitive base salary and opportunity for annual incentive cash bonuses are required to recruit and retain key executives. Long-term incentives under our equity compensation plans enable our executive officers to participate in our long term success and aligns their interests with those of our Shareholders. Additional details on the compensation package for Named Executive Officers are described in the following sections.
 
Base Salary
 
The Named Executive Officers are paid a base salary tied to their responsibilities in role, their experience and past performance, and industry benchmarks. Base salary is designed to be competitive, and it is targeted at the median level for comparable positions within the peer group.
 
Annual Incentive Cash Bonuses

At the end of each fiscal year, the Board of Directors, in consultation with our CEO, determines whether annual incentive cash bonuses are warranted given the Company’s fiscal year performance and overall financial condition. If bonuses are to be paid, our policy is to pay them following the end of our fiscal year, based upon our level of achievement of major corporate objectives.

Our corporate objectives are established by the Board of Directors, which assigns each objective a quantitative weighting at the beginning of the fiscal year and then assesses our achievement against these objectives at the end of the fiscal year. Fiscal 2015 corporate objectives included: 

Hepatitis B Virus (HBV) R&D Programs - TKM-PLK HCC Clinical study;
Non-HBV R&D - tech improvement and partnering;

28



Corporate - enhance project management capability;
Discovery Tech Development - LNP asset enhancement;
Business Development and Capital Markets - increase analyst coverage

In February 2016, the Compensation Committee recommended, and the Board of Directors approved, the payment of executive bonuses based on fiscal 2015 corporate performance. Potential annual incentive cash bonuses can range from 0% to 150% of annual salary, with 40% to 60% of annual salary representing the target bonus. The bonus payments were based on performance against the corporate objectives, with no bonus paid for a substantial failure to perform against the objectives, all or a significant portion of target bonus earned for substantial completion of the objectives and the opportunity to earn a bonus multiplier of up to 150% of target for significantly exceeding the objectives.

The bonuses, a percentage of annual salary, earned by the Named Executive Officers for 2015 were therefore:

Dr. Mark Murray    42.6%
Mr. Bruce Cousins            28.6%       
Dr. Michael Sofia    28.6%
Dr. Mark Kowalski    27.4%
Dr. Peter Lutwyche    28.3%

These bonuses generally represent approximately 30% of annual salary, based on fiscal 2015 corporate performance, with additional adjustments for individual performance.
 
Long-Term Incentives — Stock Options
 
Stock options are granted to reward individuals for current performance, as an incentive for future performance and to align the long term interest of Named Executive Officers with Shareholders.
 
Stock options are generally awarded to Named Executive Officers at commencement of employment and annually thereafter after taking into consideration the results of a competitive analysis that benchmarks long-term incentive awards granted to executives in comparable positions at peer companies. The size of the grants is adjusted based on the Named Executive Officers' performance against pre-determined corporate and personal performance goals used for Annual Incentive Cash Bonuses. From time to time, stock options may be granted to retain executives or for other special purposes. The exercise price for the options is the closing price of the Common Shares on the last trading day before the grant of the option.

For vesting terms of outstanding options held by Named Executive Officers, see Note 1 to the table below under “Outstanding Equity Awards of Fiscal Year End.
 
Pension Plans or Similar Benefits for Named Executive Officers
 
We do not have any pension or deferred compensation plans for our Named Executive Officers. We do, however, have a 401-K plan and a Registered Retirement Savings Plan (“RRSP”) Matching Plan whereby the Company matches employee contributions up to 3.5% from the historical 3.0% of each employee’s base salary commencing for the year ended December 31, 2015, as approved by the Board. The matching percentage is the same for all employees and is not based on performance.
 
Health Care Plans

All Arbutus employees receive health care coverage as a benefit. In addition, Dr. Murray is entitled to reimbursement of any health expenses incurred, including his family’s health expenses that are not covered by our insurance, as part of his employment contracts.

Other Compensation
 
We provide modest perquisites that enable our Named Executive Officers to focus on their duties, including reimbursements for personal tax filings, a housing allowance and life insurance payments for certain executives. See the Summary Compensation Table for additional detail.

If a Named Executive Officer were involuntarily terminated under certain situations, we would provide him with payments and benefits described under “Termination and Change of Control Benefits”.
 

29



Named Executive Officer Compensation for Fiscal 2015
 
Dr. Mark J. Murray, President and Chief Executive Officer

During fiscal 2015, Dr. Murray's base salary was increased by 12.5% to $450,000, effective January 1, 2015. In recognition of his leadership and contributions to the Merger, his appointment as President and Chief Executive Officer of the merged entity with expanded responsibilities, and based on our competitive analysis of base salaries within our peer group, we increased Dr. Murray's base salary by 20% to $540,000 retroactive to the date of the Merger on March 4, 2015. In addition, Dr. Murray received a $200,000 bonus and100,000 stock options for the Merger, which were granted on July 9, 2015. For fiscal 2015, Dr. Murray's annual incentive cash target increased from 50% to 60% of his annual salary based on our competitive analysis. Dr. Murray received an annual incentive cash award of $230,000 equal to 42.6% of his annual salary, based on fiscal 2015 performance, and a long-term incentive of 450,000 stock options granted in March 2016.

Mr. Bruce Cousins, Executive Vice-President and Chief Financial Officer

During fiscal 2015, Mr. Cousins' base salary was increased by 4.6% to $244,391 effective January 1, 2015. In recognition of his leadership and contributions to the Merger, his appointment as Executive Vice-President and Chief Financial Officer of the merged entity with expanded responsibilities, and our competitive analysis of base salaries within our peer group, we increased Mr. Cousins' base salary by 43.2% to $350,000 retroactive to the date of the Merger on March 4, 2015. In addition, Mr. Cousins received a $95,465 bonus and 75,000 stock options for the Merger, which were granted on July 9, 2015. For fiscal 2015, Mr. Cousins' annual incentive cash target was 40% of his annual salary based on our competitive analysis. Mr. Cousins received an annual incentive cash award of $100,000 equal to 28.6% of his annual salary, based on fiscal 2015 performance, and a long-term incentive of 145,000 stock options granted in March 2016.

Dr. Mark Kowalski, Chief Medical Officer

During fiscal 2015, Dr. Kowalski's base salary was increased by 3.6% to $345,000 effective January 1, 2015. In recognition of his leadership and contributions to the Merger, his appointment as Chief Medical Officer of the merged entity with expanded responsibilities, and our competitive analysis of base salaries within our peer group, we increased Dr. Kowalski's base salary by 5.8% to $365,000 retroactive to the date of the Merger on March 4, 2015. In addition, Dr. Kowalski received a $116,594 bonus and 35,000 stock options for the Merger, which were granted on July 9, 2015. For fiscal 2015, Dr. Kowalski's annual cash incentive cash target increased from 35% to 40% of his annual salary based on our competitive analysis. Dr. Kowalski received an annual incentive cash award of $100,000 equal to 27.4% of his annual salary, based on fiscal 2015 performance, and a long-term incentive of 8,000 stock options granted in March 2016.

Dr. Peter Lutwyche, Chief Technology Officer

During fiscal 2015, Dr. Lutwyche's base salary was increased by 5.6% to $208,957 effective January 1, 2015. In recognition of his leadership and contributions to the Merger, his appointment as Chief Technology Officer of the merged entity with expanded responsibilities, and our competitive analysis of base salaries within our peer group, we increased Dr. Lutwyche's base salary by 43.6% to $300,000 retroactive to the date of the Merger on March 4, 2015. In addition, Dr. Lutwyche received a $67,702 bonus and 35,000 stock options for the Merger, which were granted on July 9, 2015. For fiscal 2015, Dr. Lutwyche's annual incentive cash target increased from 35% to 40% of his annual salary based on our competitive analysis. Dr. Lutwyche received an annual incentive cash award of $85,000 equal to 28.3% of his annual salary, based on fiscal 2015 performance, and a long-term incentive of 60,000 stock options granted in March 2016.

Dr. Michael Sofia, Chief Scientific Officer

Prior to the Merger, Dr. Sofia was employed as the Chief Scientific Officer and Head of Research and Development of OnCore Biopharma Inc. As of July 2014 his annual salary was $350,000 and his annual cash incentive target was 35% of annual salary. In August, 2014 as a condition of sourcing private investment in OnCore, Dr. Sofia and the other co-founders of OnCore, agreed to reduce their compensation to an annual salary of $200,000 and an annual cash incentive target of 25% of annual salary. Upon the Merger and in recognition of his leadership and contributions to the Merger, his appointment as Chief Scientific Officer of the merged entity, and our competitive analysis of base salaries within our peer group, we increased Dr. Sofia’s base salary by 75.0% to $350,000 retroactive to the date of the Merger on March 4, 2015. For fiscal 2015, Dr. Sofia's annual incentive cash target increased from 25% to 40% of his annual salary based on our competitive analysis. Dr. Sofia received an annual incentive cash award of $100,000 equal to 28.6% of his annual salary, based on fiscal 2015 performance, and a long-term incentive of 100,000 stock options granted in March 2016.


30



Report of the Compensation Committee of the Board of Directors

The Compensation Committee of the Board of Directors has reviewed and discussed Arbutus’s Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Arbutus’s definitive proxy statement on Schedule 14A for its 2016 Annual General Meeting of Shareholders for the fiscal year ended December 31, 2015, each as filed or to be filed with the Securities and Exchange Commission.

The foregoing report was submitted by the Compensation Committee of the Board of Directors and shall not be deemed soliciting material or filed with the Securities and Exchange Commission or subject to Regulation 14A or 14C promulgated by the Securities and Exchange Commission or to the liabilities of Section 18 of the Securities Exchange Act of 1934.

Respectfully submitted,

Herbert Conrad, Compensation Committee Chair
Richard Henriques
Frank Karbe

Grants of Plan-Based Awards Table
 
 
 
 
Estimated Possible Payouts Under Non-Equity Incentive Awards
 
Stock Awards: Number of Shares of Stock (#)
 
Option Awards: Number of Securities Underlying Options (#)(1)
 
Exercise or Base Price of Option Awards ($/Sh)
 
Grant Date Fair Value of Stock and Option Awards ($)(2)
Name
 
Grant Date(1)
 
Threshold
($)
 
Target
($)
 
Maximum
($)
 
 
 
 
Dr. Mark Murray
 
3/30/2015
 
$

 
$

 
$

 

 
180,000

 
$
17.57

 
$
2,336,992

 
 
7/9/2015
 
$

 
$

 
$

 

 
100,000

 
$
17.57

 
$
1,279,284

Mr. Bruce Cousins
 
3/30/2015
 
$

 
$

 
$

 

 
80,000

 
$
17.57

 
$
1,038,663

 
 
7/9/2015
 
$

 
$

 
$

 

 
75,000

 
$
17.57

 
$
959,463

Dr. Mark Kowalski
 
3/30/2015
 
$

 
$

 
$

 

 
65,000

 
$
17.57

 
$
843,914

 
 
7/9/2015
 
$

 
$

 
$

 

 
35,000

 
$
17.57

 
$
447,750

Dr. Peter Lutwyche
 
3/30/2015
 
$

 
$

 
$

 

 
65,000

 
$
17.57

 
$
843,914

 
 
7/9/2015
 
$

 
$

 
$

 

 
35,000

 
$
17.57

 
$
447,750

 
Notes:

(1)
The long-term incentive stock option awards granted on March 30, 2015 were granted under the 2011 Plan and were based on fiscal 2014 performance. In addition, we granted stock options on July 9, 2015 as part of the Merger to Dr. Murray, Mr. Cousins, and Dr. Kowalski, as described under “Fiscal 2015 Compensation for Named Executive Officers”.

(2)
The grant date fair value of the stock options, computed in accordance with FASB ASC Topic 718, represents the value of stock options granted during the year. The amounts reported in this table reflect our accounting expense and may not represent the amounts our Named Executive Officers will actually realize from the awards. Whether, and to what extent, a Named Executive Officer realizes value will depend on our actual operating performance, stock price fluctuations and that Named Executive Officer’s continued employment. Our Designated Plans, governed substantially under the same terms as our 2011 Plan, provide that the option exercise price is always at least equal to the closing market price of the common shares on the day preceding the date of grant and the term may not exceed 10 years. These stock options vest one third on the next three anniversaries of their grant date. Grants made on July 9, 2015 following Shareholders' approval at the Annual General Meeting on July 9, 2015 vest one third on the next three anniversaries from March 30, 2015.

31




Outstanding Equity Awards at Fiscal Year-End
 
The following table sets out all option awards, outstanding as at December 31, 2015, for each Named Executive Officer:
 
 
 
Option-based awards - total outstanding options (1)
Name
 
Number of securities
underlying unexercised options (#)
 
Option
exercise price
(C$)
 
Option exercise price (US$)
 
Option grant
date(2)
 
Value of
unexercised
in-the-money
options
(C$)(3)
 
Value of
unexercised
in-the-money
options
(US$)(4)
Dr. Mark Murray (5)
 
27,007

 
0.44

 
0.32

 
March 2, 2008
 
154,458

 
111,596

 
 
30,000

 
4.65

 
3.36

 
August 31, 2008
 
45,275

 
32,711

 
 
25,000

 
1.80

 
1.30

 
December 9, 2008
 
108,979

 
78,738

 
 
25,000

 
3.85

 
2.78

 
January 28, 2010
 
57,729

 
41,709

 
 
35,000

 
2.40

 
1.73

 
August 10, 2011
 
131,571

 
95,060

 
 
35,000

 
1.70

 
1.23

 
December 23, 2011
 
156,071

 
112,761

 
 
35,000

 
5.15

 
3.72

 
December 10, 2012
 
35,321

 
25,519

 
 
35,000

 
16.40

 
11.85

 
February 5, 2014
 
N/A

 
N/A

 
 
180,000

 
N/A

 
17.57

 
March 30, 2015
 
N/A

 
N/A

 
 
100,000

 
N/A

 
17.57

 
July 9, 2015
 
N/A

 
N/A

Mr. Bruce Cousins
 
150,000

 
9.12

 
6.59

 
October 7, 2013
 
N/A

 
N/A

 
 
80,000

 
N/A

 
17.57

 
March 30, 2015
 
N/A

 
N/A

 
 
75,000

 
N/A

 
17.57

 
July 9, 2015
 
N/A

 
N/A

Dr. Mark Kowalski
 
50,000

 
5.75

 
4.15

 
August 12, 2013
 
20,458

 
14,781

 
 
25,000

 
16.40

 
11.85

 
February 5, 2014
 
N/A

 
N/A

 
 
65,000

 
N/A

 
17.57

 
March 30, 2015
 
N/A

 
N/A

 
 
35,000

 
N/A

 
17.57

 
July 9, 2015
 
N/A

 
N/A

Dr. Peter Lutwyche
 
5,000

 
5.15

 
3.72

 
December 10, 2012
 
5,046

 
3,646

 
 
20,000

 
16.4

 
11.85

 
February 5, 2014
 
N/A

 
N/A

 
 
65,000

 
N/A

 
17.57

 
March 30, 2015
 
N/A

 
N/A

 
 
35,000

 
N/A

 
17.57

 
July 9, 2015
 
N/A

 
N/A



32



 
 
Option-based awards - outstanding vested options (1)
Name
 
Number of securities
underlying unexercised options (#)
 
Option
exercise price
(C$)
 
Option exercise price (US$)
 
Option grant
date(2)
 
Value of
unexercised
in-the-money
options
(C$)(3)
 
Value of
unexercised
in-the-money
options
(US$)(4)
Dr. Mark Murray(5)
 
27,007

 
0.44

 
0.32

 
March 2, 2008
 
154,458

 
111,596

 
 
30,000

 
4.65

 
3.36

 
August 31, 2008
 
45,275

 
32,711

 
 
25,000

 
1.8

 
1.30

 
December 9, 2008
 
108,979

 
78,738

 
 
25,000

 
3.85

 
2.78

 
January 28, 2010
 
57,729

 
41,709

 
 
35,000

 
2.4

 
1.73

 
August 10, 2011
 
131,571

 
95,060

 
 
35,000

 
1.70

 
1.23

 
December 23, 2011
 
156,071

 
112,761

 
 
35,000

 
5.15

 
3.72

 
December 10, 2012
 
35,321

 
25,519

 
 
17,500

 
16.4

 
11.85

 
February 5, 2014
 
N/A

 
N/A

Mr. Bruce Cousins
 
112,500

 
9.12

 
6.59

 
October 7, 2013
 
N/A

 
N/A

Dr. Mark Kowalski
 
37,500

 
5.75

 
4.15

 
August 12, 2013
 
15,344

 
11,086

 
 
12,500

 
16.4

 
11.85

 
February 5, 2014
 
N/A

 
N/A

Dr. Peter Lutwyche
 
5,000

 
5.15

 
3.72

 
December 10, 2012
 
5,046

 
3,646

 
 
10,000

 
16.4

 
11.85

 
February 5, 2014
 
N/A

 
N/A




33



 
 
Option-based awards - outstanding unvested options (1)
Name
 
Number of securities
underlying unexercised
unvested options (#)
 
Option
exercise price
(C$)
 
Option
exercise price
(US$)
 
Option grant
date (2)
 
Value of
unexercised
in-the-money
options
(3)(C$)
 
Value of
unexercised
in-the-money
options
(4)(US$)
Dr. Mark Murray(5)
 
17,500

 
16.40

 
11.85

 
February 5, 2014
 
N/A

 
N/A

 
 
180,000

 
N/A

 
17.57

 
March 30, 2015
 
N/A

 
N/A

 
 
100,000

 
N/A

 
17.57

 
July 9, 2015
 
N/A

 
N/A

Mr. Bruce Cousins
 
37,500

 
9.12

 
6.59

 
October 7, 2013
 
N/A

 
N/A

 
 
80,000

 
 N/A

 
17.57

 
March 30, 2015
 
N/A

 
N/A

 
 
75,000

 
 N/A

 
17.57

 
July 9, 2015
 
N/A

 
N/A

Dr. Mark Kowalski
 
12,500

 
5.75

 
4.15

 
August 12, 2013
 
5,115

 
3,695

 
 
12,500

 
16.40

 
11.85

 
February 5, 2014
 
N/A

 
N/A

 
 
65,000

 
N/A

 
17.57

 
March 30, 2015
 
N/A

 
N/A

 
 
35,000

 
N/A

 
17.57

 
July 9, 2015
 
N/A

 
N/A

Dr. Peter Lutwyche
 
10,000

 
16.40

 
11.85

 
February 5, 2014
 
N/A

 
N/A

 
 
65,000

 
N/A

 
17.57

 
March 30, 2015
 
N/A

 
N/A

 
 
35,000

 
N/A

 
17.57

 
July 9, 2015
 
N/A

 
N/A

 
Notes to tables:
 
(1) Options vest 25% immediately, and 25% at each of the first, second, and third anniversaries of the grant date except for options granted August 10, 2011 that vested based on the completion of certain performance goals and options granted on March 30, 2015 and July 9, 2015 that vest in thirds on each of the next three anniversaries from March 31, 2015.
(2) Options expire 10 years after the grant date.
(3) This amount is the difference between Arbutus' December 31, 2015 closing NASDAQ share price of US$4.45 converted to C$6.16 at the December 31, 2015 exchange rate and the exercise price of the option (denominated in Canadian dollars), multiplied by the number of options.
(4) This amount is the difference between Arbutus' December 31, 2015 closing NASDAQ share price of US$4.45 and the exercise price of the option converted to US dollars at the December 31, 2015 exchange rate of 0.7225, multiplied by the number of options.
(5) Dr. Murray holds options to purchase 40,000 common shares of Protiva, a wholly-owned subsidiary of Arbutus, with an exercise price of C$0.30. As part of the business combination between Arbutus and Protiva, Arbutus agreed to issue 27,007 Common Shares of Arbutus on the exercise of these stock options giving an effective cost per Arbutus stock option of C$0.44. The shares reserved for issue on the exercise of the Protiva options are equal to the number of Arbutus Common Shares that would have been issued if the options had been exercised before the completion of the business combination and the shares issued on exercise of the options had then been exchanged for Arbutus Common Shares. See subsection “Additional Shares Subject to Issue Under Historical Equity Compensation Plans”.
 





34



Options Exercises During the Fiscal Year
 
 
 
Option Awards
Name
 
Number of Shares Acquired on Exercise
(#)
 
Value Realized on Exercise
($)(1)
Dr. Mark Murray
 
219,428
 
 
$
1,133,628

 
Mr. Bruce Cousins
 
0
 
 
0

 
Dr. Peter Lutwyche
 
71,000
 
 
$
1,058,353

 
Dr. Mark Kowalski
 
0
 
 
0

 
Dr. Mike Sofia
 
0
 
 
0

 
(1)
Value realized equals the closing market price of the Common Shares on the NASDAQ at exercise, less the exercise price, multiplied by the number of shares exercised. Value was converted to US dollars for presentation purposes at the average exchange rate for the year of $0.78 US dollars for every Canadian dollar.
 
Potential Payments Upon Termination or Change in Control
 
The following table provides information concerning the value of payments and benefits following the termination of employment of the Named Executive Officers under various circumstances. Payments vary based on the reason for termination and the timing of a departure. The below amounts are calculated as if the Named Executive Officer’s employment had been terminated as of the last business day of the fiscal year ended on December 31, 2015. Receipt of payments on termination is contingent on the Named Executive Officer delivering a release to Arbutus.
 
Payment Type
 
Dr. Mark
Murray
 
Mr. Bruce
Cousins
 
 
Dr. Mark
Kowalski
 
Dr. Peter Lutwyche
 
Dr. Michael
Sofia
Involuntary termination by Arbutus for cause
 
 
Cash payment
 
$
206,869

 
$
6,452

 
 
$
6,736

 
$
1,106

 
$
6,371

Option values (1)
 
$
494,797

 
$

 
 
$
11,086

 
$
3,646

 
$

Benefits (2)
 
N/A

 
N/A

 
 
N/A

 
N/A

 
N/A

Total
 
$
701,666

 
$
6,452

 
 
$
17,822

 
$
4,752

 
$
6,371

Involuntary termination by Arbutus upon death
 
 
Cash payment
 
$
206,869

 
$
6,452

 
 
$
6,736

 
$
1,106

 
$
6,371

Option values (1)
 
$
494,797

 
$

 
 
$
11,086

 
$
3,646

 
$

Benefits (2)
 
N/A

 
N/A

 
 
N/A

 
N/A

 
N/A

Total
 
$
701,666

 
$
6,452

 
 
$
17,822

 
$
4,752

 
$
6,371

Involuntary termination by Arbutus without cause or by Executive with good reason
 
 
Cash payment
 
$
1,516,819

 
$
631,035

 
 
$
659,236

 
$
550,926

 
$
607,204

Option values (1)
 
$
494,797

 
$

 
 
$
11,086

 
$
3,646

 
$

Benefits (2)
 
$
79,024

 
$
14,728

 
 
$
79,233

 
$
11,398

 
$
72,187

Total
 
$
2,090,640

 
$
645,763

 
 
$
749,555

 
$
565,970

 
$
679,391

Involuntary termination by Arbutus after a change in control of the Company
 
 
Cash payment
 
$
1,516,819

 
$
806,035

 
 
$
841,736

 
$
700,926

 
$
782,204

Option values (1)
 
$
494,797

 
$

 
 
$
14,781

 
$
3,646

 
$

Benefits (2)
 
$
79,024

 
$
14,728

 
 
$
79,233

 
$
11,398

 
$
72,187

Total
 
$
2,090,640

 
$
820,763

 
 
$
935,750

 
$
715,970

 
$
854,391

 
Notes:
 
(1)
This amount is based on the difference between Arbutus' December 31, 2015 NASDAQ closing share price of US$4.45 and the exercise price of the options that were vested as at December 31, 2015. For the purpose of this calculation, stock options that are denominated in Canadian dollars have been converted into US dollars at the December 31, 2015 exchange rate of C$1.00 = US$0.7225.

35



(2)
Ongoing benefit coverage has been estimated assuming that benefits will be payable for the full length of the severance period which would be the case if new employment was not taken up during the severance period. Benefits include extended health and dental coverage that is afforded to all of the Company’s full time employees. Dr. Murray’s benefits also include an estimate of the costs of reimbursement of health expenses incurred, including his family's health expenses that are not covered by insurance.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

At Arbutus' annual general and special meeting of Shareholders held on June 22, 2011, Shareholders approved the 2011 Plan and a 273,889 increase in the number Common Shares in respect of which awards may be granted under the 2011 Plan. Arbutus' pre-existing 2007 Omnibus Compensation Plan (the “2007 Plan”) was limited to the granting of stock options as equity incentive awards whereas the 2011 Plan also allows for the issuance of tandem stock appreciation rights, restricted stock units and deferred stock units. The 2011 Plan replaced the 2007 Plan. The 2007 Plan will continue to govern the options granted thereunder. No further options will be granted under Arbutus' 2007 Plan, however, any 2007 Plan options that are canceled or forfeited will be available for grant under the 2011 Plan. At Arbutus' annual general and special meeting of Shareholders held on June 20, 2012, Shareholders approved a 550,726 increase in the number Common Shares in respect of which awards may be granted under the 2011 Plan. At Arbutus' annual general and special meeting of Shareholders held on May 8, 2014, Shareholders approved an 800,000 increase in the number Common Shares in respect of which awards may be granted under the 2011 Plan. At Arbutus' annual general and special meeting of Shareholders held on July 9, 2015, Shareholders approved a 3,500,000 increase in the number of Common Shares in respect of which awards may be granted under the 2011 Plan.

Excluding the potential impact of the 2016 Plan, there are a total of 5,171,243 Common Shares either subject to options currently outstanding under Arbutus' equity compensation plans or available for future grants under Arbutus equity compensation plans, which represents approximately 9.5% of the Company’s 54,625,703 issued and outstanding Common Shares at March 30, 2016.

Since January 1996, the equivalent of 1,322,229 Common Shares have been issued pursuant to the exercise of options granted under Arbutus' equity compensation plans (which represents approximately 2.4% of the Company’s issued and outstanding Common Shares), and as of March 30, 2016, there were 3,522,945 Common Shares of Arbutus subject to options outstanding under Arbutus' equity compensation plans (which represents approximately 6.4% of the Company’s current issued and outstanding Common Shares). The number of Common Shares of Arbutus remaining available for future grants as at March 30, 2016 was 1,648,298 (which represents approximately 3.0% of the Company’s issued and outstanding Common Shares).

Additionally, Arbutus issued a total of 200,000 options to purchase Common Shares in 2013 to two executive officers of Arbutus in conjunction with their appointments as executive officers of Arbutus. These options were granted in accordance with the policies of the Toronto Stock Exchange and pursuant to newly designated share compensation plans (the “Designated Plans”).  The Designated Plans are governed by substantially the same terms as the 2011 Plan.

At the Meeting, Shareholders will be asked to approve certain amendments to the 2011 Plan (see “Proposal No. 3 - Approval of Amendments to the 2011 Omnibus Share Compensation Plan” below for more detail) and to approve the new 2016 Plan (see “Proposal No. 4 - Approval of the 2016 Omnibus Share and Incentive Plan” below for more detail). If our Shareholders approve the 2016 Plan, an additional 5,000,000 Common Shares (subject to adjustment as described below) will be issuable under the 2016 Plan, which represents 9.2% of the Company’s 54,625,703 issued and outstanding Common Shares at March 30, 2016, and the total Common Shares outstanding and available for future grant under all our equity compensation plans (including the 2016 Plan) will be 10,171,243, which represents 18.6% of the Company’s 54,625,703 issued and outstanding Common Shares at March 30, 2016.

Additional Shares Subject to Issue Under Historical Equity Compensation Plans

On May 30, 2008, as a condition of the acquisition of Protiva, the Company reserved 350,457 Common Shares (which represents approximately 0.6% of the Company’s issued and outstanding Common Shares as at March 30, 2016) for the exercise of up to 519,073 Protiva share options (“Protiva Options”). These shares are reserved for the issuance to those Shareholders who did not exercise their Protiva share options and exchange the shares of Protiva issuable on exercise for Common Shares of Arbutus on the closing of the business combination with Protiva. The shares reserved for them are equal to the same number of Arbutus Common Shares they would have received if they had exercised their options and transferred the shares to Arbutus. The Protiva Options are not part of Arbutus' 2011 Plan or 2007 Plan and the Company is not permitted to grant any additional Protiva stock options. The Protiva Options all have a C$0.30 exercise price and expire on dates ranging from April 3, 2017 to March 1, 2018. As at March 30, 2016 Protiva options equating to 298,426 Common Shares had been

36



exercised, Protiva options equating to 6,794 Common Shares had been canceled, and Protiva options equating to 45,236 Common Shares remained outstanding.

On March 4, 2015, as a condition of the acquisition of Arbutus Inc., the Company reserved 184,332 Common Shares (which represents approximately 0.3% of the Company’s issued and outstanding Common Shares as at March 30, 2016) for the exercise of up to 183,040 Arbutus Inc. share options (“Arbutus Inc. Options”). These shares are reserved for the issuance to those Shareholders who did not exercise their Arbutus Inc. Options and exchange the shares of Arbutus Inc. issuable on exercise for Common Shares of Arbutus on the closing of the business combination with Arbutus Inc. The shares reserved for them are equal to the same number of Arbutus Common Shares they would have received if they had exercised their options and transferred the shares to Arbutus. The Arbutus Inc. Options are not part of Arbutus’s 2011 Plan or 2007 Plan and the Company is not permitted to grant any additional Arbutus Inc. stock options. The Arbutus Inc. Options all have exercise prices ranging from US$0.56 to US$0.58 and expire on dates ranging from November 12, 2024 to December 7, 2024. As at March 30 2016, no Arbutus Inc. Options had been exercised and Arbutus Inc. Options equating to 184,332 Common Shares remained outstanding.

Equity Compensation Plan Information

The following table sets out information for Arbutus' equity compensation plans as of the end of fiscal 2015.
Equity compensation plans approved by security holders
 
Number of securities to be issued upon exercise of outstanding options
(a)
 
Weighted-average exercise price of outstanding options (1)
(b)
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c )
2007 and 2011 Plan(2)
Protiva Options
Arbutus Inc. Options
 
3,522,945
45,236
184,332
 
$8.51
$0.23
$0.57
 
953,798
-
-
Equity compensation plans not approved by security holders
 
 
 
 
 
 
Designated Plans
 
200,000
 
$6.39
 
-
Total
 
4,647,013
 
 
 
953,798

Notes:
(1)
Options granted under the 2007 and 2011 Plan up to March 3, 2015 have a Canadian dollar denominated exercise price. Options granted under the 2011 Plan after March 3, 2015 have a US dollar denominated exercise price. For options with exercise prices denominated in Canadian dollars, in order to calculate a weighted-average exercise price for the purpose of the table, exercise prices have been converted to US dollars using the March 30, 2016 Bank of Canada US/Canadian closing exchange rate of 1.2965.
(2)
The 2011 Plan replaced the 2007 Plan. The 2007 Plan will continue to govern the options granted there under, but no additional options will be granted under the 2007 Plan. Any 2007 Plan options that are canceled or forfeited will be available for grant under the 2011 Plan.

CERTAIN TRANSACTIONS

Since January 1, 2015, there has not been, nor has there been proposed, any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business, to which we or our subsidiaries were or are a party, or in which we or our subsidiaries were or are a participant, in which the amount involved exceeded or exceeds the lesser of $120,000 or 1% of the average of our total assets at year end for the last two completed fiscal years and in which any of our directors, nominees for director, executive officers, beneficial owners of more than 5% of any class of our voting securities or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest, other than as described above under the heading “Executive Compensation” and other than the transactions described below.





37



Merger with Arbutus Biopharma, Inc. (formerly OnCore Biopharma, Inc.)

On March 3, 2015, Shareholders of Arbutus, approved and adopted an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) by and among Arbutus (formerly Tekmira Pharmaceuticals, Inc.), TKM Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Arbutus (“Merger Subsidiary”), and Arbutus Biopharma, Inc. (formerly OnCore Biopharma, Inc.) (“Arbutus Inc. ”), pursuant to which Merger Subsidiary merged with and into Arbutus Inc. , with Arbutus Inc. surviving as a wholly-owned subsidiary of Arbutus (the “Merger”).  The closing of the Merger occurred on March 4, 2015 and the Merger became effective with the filing of a Certificate of Merger with the Secretary of State of the State of Delaware on March 4, 2015 (the “Effective Time”). In connection with the Merger, Arbutus and OnCore’s largest shareholder Roivant Sciences Ltd. entered into a Governance Agreement dated January 11, 2015 relating to the composition of the combined company’s board and certain other corporate governance matters, as described under Proposal No. 1.

At the Effective Time, the issued and outstanding common shares of Arbutus Inc. were converted into and represent the right to receive 23,973,315 Common Shares of Arbutus. At the Effective Time, each Arbutus Inc. stock option, whether vested or unvested (the “Option Awards”), outstanding immediately prior to the Effective Time was assumed by Arbutus and converted automatically at the Effective Time into an option denominated in Arbutus Common Shares. The Option Awards shall continue to be subject to substantially the same terms and conditions as were applicable to the Option Awards in effect immediately prior to the Effective Time, other than for the adjustments described in the Merger Agreement. At the Effective Time, each Arbutus Inc. restricted stock award (the “Stock Awards”) that was outstanding immediately prior to the Effective Time was assumed by Arbutus and converted automatically at the Effective Time into a restricted stock award denominated in Arbutus Common Shares.  The Stock Awards shall continue to be subject to substantially the same terms and conditions as were applicable to the Stock Awards in effect immediately prior to the Effective Time, other than for the adjustments described in the Merger Agreement.

Immediately following completion of the Merger, Arbutus security holders owned 50% of the outstanding equity of the combined company, and Arbutus Inc. security holders owned 50% of the outstanding equity of the combined company, calculated immediately prior to the Effective Time on a fully-diluted and as-converted basis using the “treasury stock method”.  However, immediately following completion of the Merger, Arbutus and Arbutus Inc. security holders owned approximately 48.5% and 51.5%, respectively, of the issued and outstanding Common Shares of Arbutus, calculated on a non-diluted basis.

Following the Merger with Arbutus Inc. on March 4, 2015, Patrick Higgins and Michael Sofia became executives of the Company and entered into employment agreements with Arbutus Inc. The Employment Agreement with Patrick Higgins provides that he will serve as Arbutus Inc.’s Chief Business & Commercial Operations Officer and will receive a salary of $360,000. The Employment Agreement with Michael J. Sofia provides that he will serve as Arbutus Inc.’s Chief Scientific Officer and will receive a salary of $350,000. Under each of the Employment Agreements, each executive will be eligible to receive a bonus, will be reimbursed for certain expenses incurred in performing services to Arbutus Inc., will be eligible to participate in employee benefit plans, and will be eligible to receive equity awards under our equity compensation plans, subject to the approval of the Board of Directors.

Simultaneous with the execution of the Employment Agreements by Arbutus Inc. and each of Patrick Higgins and Michael Sofia, the Company entered into revised share repurchase agreements with each of Michael Sofia and Patrick Higgins (each referred to as a “Repurchase Agreement” and, together, the “Repurchase Agreements”). Under the terms of each Repurchase Agreement, in the event that Arbutus Inc. terminates the executive's employment with Arbutus Inc. for “Cause” (as defined in the applicable Employment Agreement) or the executive terminates his employment other than for “Good Reason” (as defined in the Employment Agreement), the Company may, during the 60-day period following such termination, repurchase any or all Arbutus shares owned by the executive not previously released from Arbutus’ repurchase right at a purchase price of $0.001 per share. The repurchase right terminates as to approximately 1/8 of the shares subject to the Repurchase Agreement on a quarterly basis until August 31, 2017. The repurchase right terminates as to all of the shares in the event of (i) a termination by Arbutus without Cause, (ii) a termination by the executive for Good Reason, (iii) a termination as a result of the death or disability of the executive and (iv) any termination during the period from April 1, 2016 until April 30, 2016.

Other Transactions

Our Board of Directors has adopted a written policy for reviewing and approving transactions between the Company and its related persons, including directors, director nominees, executive officers, 5% shareholders and their immediate family members and affiliates. Future transactions with these related parties will be on terms no less favorable to us than could be

38



obtained from independent third parties, and all such transactions will be reviewed and subject to approval by members of our Audit Committee.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, officers, and persons that own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% Shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
        
Based solely upon our review of the copies of such forms received by us during the fiscal year ended December 31, 2015, we believe that each person who, at any time during such fiscal year, was a director, officer, or beneficial owner of more than 10% of our Common Shares met the filing requirements on a timely basis except as disclosed below.

Michael J. Abrams, Managing Director                2 Late Form 4s (2 transactions)
Bruce Cousins, EVP & CFO                    2 Late Form 4s (2 transactions)
Mark J. Murray, Director, President & CEO            2 Late Form 4s (2 transactions)
Herbert J. Conrad, Director                    1 Late Form 4 (1 transaction)
Richard C. Henriques, Jr., Director                1 Late Form 4 (1 transaction)
Mark Kowalski, Chief Medical Officer                1 Late Form 4 (1 transaction)
Peter Lutwyche, Chief Technology Officer            1 Late Form 4 (1 transaction)

These reports were filed late due to transitions related to the Merger.

INDEPENDENT AUDITORS

Fees Billed by Independent Auditor

The aggregate fees billed for professional services rendered by KPMG for the fiscal years ended December 31, 2015 and December 31, 2014 are as follows:
 
Fiscal
2015
 
Fiscal
2014
Audit fees (1)
$
438,767

 
$
356,746

Audit-related fees (2)

 

Tax fees (3)
308,027

 
90,900

All other fees

 

Total fees
$
746,794

 
$
447,646

 
(1)
Quarterly reviews, review of SEC listing documents, review of prospectus, and business acquisition report.
(2)
Preliminary review of Sarbanes-Oxley internal controls
(3)
Tax compliance, tax planning, and tax advisory services on the Arbutus Inc. merger. 

A copy of our Audit Committee’s charter, the text of which is attached to this Proxy Statement/Circular as Exhibit B, is available on our website at www.arbutusbio.com.
 
Audit Committee Pre-Approval Policies and Procedures

The Audit Committee charter provides that the Audit Committee will pre-approve all audit services and non-audit services to be provided by our independent auditor before it is engaged to render these services.  The Audit Committee may consult with management in the decision-making process but may not delegate this authority to management.  The Audit Committee may delegate its authority to pre-approve services to one or more Committee members, provided that the designees present the pre-approvals to the full Committee at the next Committee meeting.  All audit and non-audit services performed by our independent auditor have been pre-approved by our Audit Committee to assure that such services do not impair the auditor's independence from us.



39




Attendance at Annual General Meeting

Representatives from KPMG are expected to be present at the Meeting, will have the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions.

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

The Audit Committee has reviewed and discussed the audited financial statements with management. The Audit Committee has discussed with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, as well as the matters required to be discussed by Auditing Standard No. 16 as adopted by the Public Company Accounting Oversight Board. The Audit Committee also has received the written disclosures and the letter from the independent auditor required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor's communications with the Audit Committee concerning independence and has discussed with the independent auditor the auditor's independence. Based on the review and discussions referred to above, the Audit Committee recommended to the Company’s Board of Directors that the audited financial statements be included in the Company’s annual report on Form 10-K for the year ended December 31, 2015.

Respectfully submitted,

AUDIT COMMITTEE

Frank Karbe (Chair), Herbert Conrad, Richard Henriques

40



PROPOSAL NO. 1 - ELECTION OF DIRECTORS

The size of the Board of Directors of the Company has been fixed at seven. The term of office of each of the current directors will end immediately before the election of directors at the Meeting. Unless the director’s office is earlier vacated in accordance with the provisions of the Business Corporations Act (British Columbia) and the Articles of Arbutus, each director elected will hold office until immediately before the election of new directors at the next annual general meeting of Arbutus or, if no director is then elected, until a successor is elected or appointed.
    
Upon the recommendation of our Nominating and Governance Committee, the Board has nominated the following individuals to serve until the 2017 Annual General Meeting of Shareholders and until their respective successors are duly elected and qualified: Vivek Ramaswamy, Mark Murray, Herbert Conrad, Richard Henriques, Frank Karbe, Keith Manchester, and William Symonds. Shareholders may also nominate individuals for election to the Board in accordance with our Articles and the Business Corporations Act (British Columbia), as more fully described below under “Corporate Governance - Director Nominations”.

We are not aware that any of our nominees will be unable or unwilling to serve as a director of Arbutus; however, should we become aware of such an occurrence before the election of directors takes place at the Meeting, if the persons named in the accompanying proxy are appointed as proxyholders, it is intended that the discretionary power granted under such proxy will be used by the proxyholders to vote in their discretion for a substitute nominee or nominees.

Under our majority voting policy each director nominee must receive more “For” votes than “Withhold” votes in order for their appointment to be immediately approved. Our majority voting policy is more fully described below under “Corporate Governance - Director Election and Majority Voting Policy”.

Unless directed otherwise by a Shareholder, or such authority is withheld, the individuals named in the accompanying Proxy intend to vote the Common Shares represented by proxies for which either of them is appointed proxyholder “FOR” each named nominee whose names are set forth herein.

The Board of Arbutus recommends that the Shareholders vote FOR the election of the nominees.

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PROPOSAL NO. 2 – RATIFICATION OF AUDITOR

Management requests that the Shareholders ratify the appointment of KPMG LLP, P.O. Box 10426, 777 Dunsmuir Street, Vancouver, British Columbia, V7Y 1K3 as independent auditor for the fiscal year ended December 31, 2016. KPMG LLP has been auditor of Arbutus since April 2007.

For more information concerning the Audit Committee and its members, see “Corporate Governance – Committees of our Board of Directors – Audit Committee.

The Board of Arbutus recommends that the Shareholders vote FOR the ratification of the appointment of KPMG LLP as independent auditor of Arbutus for the year-ended December 31, 2016.

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PROPOSAL NO. 3 - APPROVAL OF AMENDMENTS TO
THE 2011 OMNIBUS SHARE AND COMPENSATION PLAN

Overview

The Board of Directors has determined that it is advisable to amend the 2011 Plan order for certain awards to qualify as “performance-based compensation” under Section 162(m) of the Code by including an individual limit of Common Shares that may be issued to any one participant within any one year period to the lesser of: (i) 5% of the total number of outstanding Common Shares of Arbutus on a non-diluted basis and; (ii) 2,500,000 Common Shares (subject to certain adjustment provisions under the 2011 Plan) and to address certain administrative matters (collectively, the “2011 Stock Option Plan Amendments”) as follows:
(a)
To change all references from “Tekmira Pharmaceuticals Corporation” to “Arbutus Biopharma Corporation”;
(b)
To restrict, with limited exceptions, the Compensation Committee’s power, without prior Shareholder approval, to effect any re-pricing of any previously granted “underwater” options or tandem stock appreciation rights;
(c)
To clarify the treatment of certain awards subject to Section 409A of the Code; and
(d)
To make certain conforming amendments to the 2011 Plan to reflect the above.

The above summary of the 2011 Stock Option Plan Amendments is a summary only, and is qualified in entirety by the full text of the 2011 Plan, as amended, the full text of which is attached as Exhibit D to this Proxy Statement/Circular.

Material Terms of the 2011 Plan

The following is a summary of important provisions of the 2011 Plan. It is not a comprehensive discussion of all of the terms and conditions of the 2011 Plan, and is qualified in its entirety by the full text of the 2011 Plan. Readers are advised to review the full text of the 2011 Plan to fully understand all terms and conditions of the 2011 Plan. A copy of the 2011 Plan is attached as Exhibit D to this Proxy Statement/Circular.

Purpose. The purpose of the 2011 Plan is to promote the Company’s interests and long-term success by providing directors, officers, employees and consultants with greater incentive to further develop and promote the Company’s business and financial success, to further the identity of interest of persons to whom Awards may be granted with those of the Shareholders generally through a proprietary ownership interest in the Company, and to assist the Company in attracting, retaining and motivating its directors, officers, employees and consultants.

Administration. Under the 2011 Plan, the Board of Directors can, at any time, appoint a committee (the “2011 Plan Committee”) to, among other things, interpret, administer and implement the 2011 Plan on behalf of the Board of Directors in accordance with such terms and conditions as the Board of Directors may prescribe, consistent with the 2011 Plan (provided that if at any such time such a committee has not been appointed by the Board of Directors, the 2011 Plan will be administered by the Board of Directors).

Eligible Persons. Under the 2011 Plan, Awards may be granted to any director, officer, employee or consultant (as defined in the 2011 Plan) of the Company, or any of its affiliates, or a person otherwise approved by the 2011 Plan Committee (an “Eligible Person”). A participant (“Participant”) is an Eligible Person to whom an Award has been granted under the 2011 Plan.

Share Reserve. As of March 30, 2016, there were 208,113 options outstanding under the 2007 Plan and 3,314,832 options outstanding under the 2011 Plan. Any 2007 Plan options that are canceled or forfeited will be available for grant under the 2011 Plan. There are of 1,648,2908 available for issuance under the 2011 Plan, which represents 3.0% of our outstanding Common Shares as of March 30, 2016. The aggregate number of Awards that may be issued under the 2011 Plan is 6,493,870 as of March 30, 2016, representing 11.9% of our outstanding Common Shares as of March 30, 2016.

Amending Provisions. The 2011 Plan allows the 2011 Plan Committee of the Board of Directors to amend the 2011 Plan or any Award agreement under the 2011 Plan at any time provided that Shareholder approval has been obtained by ordinary resolution. The 2011 Plan Committee may not, without Shareholder approval, reprice any previously granted “underwater” option or Tandem SAR. Notwithstanding the foregoing, Shareholder approval would not be required for amendments of a clerical nature, amendments to reflect any regulatory authority requirements, amendments to vesting provisions, amendments to the term of options or tandem stock appreciation rights held by non-insiders, and any amendments which provide a cashless exercise feature to an Award that provides for the full deduction of the number of underlying Common Shares from the total number of Common Shares subject to the 2011 Plan.



43




Limits on Grants to Insiders. The 2011 Plan limits the number of Common Shares:

(i)
issuable, at any time, to Participants that are insiders of Arbutus; and

(ii)
issued to Participants that are insiders of Arbutus within any one year period,

pursuant to the 2011 Plan, or when combined with all of Arbutus' other security based share compensation arrangements, to a maximum of 10% of the total number of outstanding Common Shares (on a non-diluted basis). The Common Shares issued pursuant to an entitlement granted prior to the grantee becoming an insider will be excluded in determining the number of Common Shares issuable to insiders. Additionally, under the terms of the 2011 Plan, the number of Common Shares reserved for issuance to any one person shall not, in the aggregate, exceed the lesser of (i) 5% of the total number of outstanding Common Shares (on a non-diluted basis) and (ii) 2,500,000 Common Shares.

Issuance of Awards. The 2011 Plan allows for the issuance of stock options, tandem stock appreciation rights, restricted stock units and deferred stock units, each is briefly described below:

Nonqualified Stock Options - The 2011 Plan Committee may grant nonqualified stock options under the 2011 Plan which do not meet the requirements of Section 422 of the Code and which will be subject to the following terms and conditions. The exercise price of an option may be paid through various means specified by the 2011 Plan Committee, including in cash, Common Shares (actually or by attestation), other securities, other awards or other property, or any combination thereof. With limited exceptions (legal prohibition on exercise, Blackout Periods and lock-up agreements) for which a thirty day extension is provided, every option which has not been exercised within ten years of its date of grant will lapse upon the expiration of the ten year period, unless it has lapsed at an earlier date as determined by the 2011 Plan Committee.

Incentive Stock Options - The 2011 Plan Committee may grant incentive stock options under the 2011 Plan which meet the requirements of Section 422 of the Code. Under the 2011 Plan, the aggregate fair market value, determined at the time the option is granted, of the Common Shares with respect to which incentive stock options are exercisable for the first time by any participant during any calendar year (under the plan and any other incentive stock option plans of the Company) may not exceed $100,000, or any other limit as may be prescribed by the Code from time to time. The option exercise price per share will be determined by the 2011 Plan Committee but will not be less than 100% of the “fair market value” of the Common Shares on the date of grant of such option. In the case of a grant of an incentive stock option to a participant who, at the time such option is granted, owns stock possessing more than 10% of the combined voting power of all classes of stock of the Company, the option exercise price per share under such option will not be less than 110% of the fair market value of the Common Shares on the date of grant of such option and such option will expire and no longer be exercisable no later than five years from the date of grant of such option.

Tandem Stock Appreciation Rights - Tandem Stock Appreciation Rights, or Tandem SARs, provide option holders with a right to surrender vested options for termination in return for Common Shares (or the cash equivalent) equal to the net proceeds that the option holder would otherwise have received had the options been exercised and the underlying Common Shares immediately sold. Settlement may be made, in the sole discretion of the 2011 Plan Committee, in Common Shares or cash, or any combination thereof.

Restricted Stock Units - Restricted Stock Units, or RSUs, entitle the holder to receive Common Shares (or the cash equivalent) at a future date. RSUs are granted with vesting conditions (typically based on continued service or achievement of personal or corporate objectives) and settle upon vesting by delivery of Common Shares (or the cash equivalent). The value of the RSU increases or decreases as the price of the Common Shares increases or decreases, thereby promoting alignment of the interests of the RSU holders with Shareholders. Settlement may be made, in the sole discretion of the 2011 Plan Committee, in Common Shares or cash, or any combination thereof. Vesting of RSUs is determined by the 2011 Plan Committee in its sole discretion and specified in the Award agreement pursuant to which the RSU is granted.

Deferred Stock Units - Deferred Stock Units, or DSUs, represent a future right to receive Common Shares (or the cash equivalent) at the time of the holder’s retirement, death, or the holder otherwise ceasing to provide services to Arbutus, allowing Arbutus to pay compensation to holders of DSUs on a deferred basis. Each DSU awarded by Arbutus is initially equal to the fair market value of a Common Shares at the time the DSU is awarded. The value of the DSU increases or decreases as the price of the Common Shares increases or decreases, thereby promoting alignment of the interests of the DSU holders with Shareholders. Settlement may be made, in the sole discretion of the 2011 Plan Committee, in Common Shares or cash, or any combination thereof. Vesting of DSUs is determined by the 2011 Plan Committee in its sole discretion and specified in the Award agreement pursuant to which the DSU is granted.

44




Adjustment of Exercise/Settlement During Blackout Periods. Further to our Insider Trading Policy, our officers, directors and employees may be prohibited from trading in our securities for an interval of time, or the Blackout Period. As Blackout Periods are of varying length and may occur at unpredictable times, Awards may expire or settle during a Blackout Period. As a result, the 2011 Plan provides that: (i) where the expiry date of an option or Tandem SAR occurs during or within ten non-blackout trading days following the end of a Blackout Period, the expiry date for such option or Tandem SAR shall be the date which is ten non-blackout trading days following the end of such Blackout Period; and (ii) where the date for the settlement of Restricted Stock Units or the payment of a settlement amount in the case of a DSU occurs during a Blackout Period, Arbutus shall make such settlement or pay such settlement amount to the holder of such an Award within ten non-blackout trading days following the end of such Blackout Period.

Computation of Available Shares. For the purposes of computing the number of Common Shares available for grant under the 2011 Plan, the 2011 Plan provides that Common Shares subject to any Award (or portion thereof) that have expired or are forfeited, surrendered, cancelled or otherwise terminated prior to the issuance or transfer of such Common Shares, or are settled in cash in lieu of settlement in Common Shares, shall again be available for grant under the 2011 Plan. Notwithstanding the foregoing, any Common Shares subject to an Award that are withheld or otherwise not issued in order to satisfy the Participant’s withholding obligations, or in payment of any option exercise price, shall reduce the number of Common Shares available for grant.

Exercise Price of Options. The 2011 Plan provides that the exercise price for each option is to be determined by the 2011 Plan Committee, but in no event may be lower than:

(i)        where the Common Shares are listed on a stock exchange or other organized market, the closing price of the Common Shares on such stock exchange or other organized market as determined by the 2011 Plan Committee for the trading session ending on the day prior to the time of grant; or

(ii)        where the Common Shares are not publicly traded, the value which is determined by the 2011 Plan Committee to be the fair value of the Common Shares at the time of grant, taking into consideration all factors that the 2011 Plan Committee deems appropriate, including, without limitation, recent sale and offer prices of the Common Shares in private transactions negotiated at arm’s length.

Settlement of Awards. Subject to the terms and limitations of the 2011 Plan, payments or transfers to be made upon the exercise or settlement of an Award be made in such form or forms as the 2011 Plan Committee may determine (including, without limitation, cash or Common Shares), and payment or transfers made in whole or in part in Common Shares may, in the discretion of the 2011 Plan Committee, be issued from treasury or purchased in the open market.

Grant, Exercise, Vesting, Settlement Awards. Subject to the terms of the 2011 Plan, the 2011 Plan Committee may grant to any eligible person one or more Awards as it deems appropriate. The 2011 Plan Committee may also impose such limitations or conditions on the exercise, vesting, or settlement of any Awards as it deems appropriate.

Payment of Exercise Price of Options. Participants in the 2011 Plan may pay the exercise price by cash, bank draft or certified cheque, or by such other consideration as the 2011 Plan Committee may permit.

Term of Options. Subject to the Blackout Period provisions described above, an option will expire on the date determined by the 2011 Plan Committee and specified in the option agreement pursuant to which such option is granted, which date shall not be later than the tenth anniversary of the date of grant, or such earlier date as may be required by applicable law, rules or regulations, including those of any exchange or market on which the Common Shares are listed or traded. If an optionee’s status as a director, officer, employee or consultant terminates for any reason other than death or termination for cause, the option will expire on the date determined by the 2011 Plan Committee or as specified by agreement among Arbutus and the director, officer, employee or consultant, and in the absence of such specification, will be deemed to be the date that is three months following the director, officer, employee or consultant’s termination. If the optionee’s status as a director, officer, employee or consultant is terminated for cause, the option shall terminate immediately. In the event that the optionee dies before otherwise ceasing to be a director, officer, employee or consultant, or before the expiration of the option following such a termination, the option will expire one year after the date of death, or on such other date determined by the 2011 Plan Committee and specified in the option agreement. Notwithstanding the foregoing, except in the case of death or as expressly permitted by the 2011 Plan Committee, all stock options will cease to vest as at the date upon which the optionee ceases to be eligible to participate in the 2011 Plan.


45



Change in Control. In the event of a merger or acquisition transaction that results in a change of control of Arbutus, the 2011 Plan Committee may, at its option, take any of the following actions: (a) determine the manner in which all unexercised or unsettled Awards granted under the 2011 Plan will be treated, including the accelerated vesting of such options; (b) offer any participant under the 2011 Plan the opportunity to obtain a new or replacement Award, if applicable; or (c) commute for or into any other security or any other property or cash, any Award that is still capable of being exercised or settled.

Section 162(m). Section 162(m) of the Code generally prevents a publicly held company from obtaining a tax deduction for compensation of more than $1 million paid in any year to its chief executive officer or its three most highly paid executive officers, excluding the chief financial officer unless such payments are “performance-based” as defined in that section. In order to facilitate compensation paid via stock option or tandem SAR to be “performance-based” under Section 162(m), the proposed amendment to the 2011 Plan requires Shareholder approval of the per-individual share limit per year described in “Limits on Grants to Insiders” above. In addition, the 2011 Plan Committee must be comprised solely of two or more outside directors.
 
Accordingly, to enable us to receive tax deductions for compensation earned by our chief executive officer and other executive officers under grants of stock options and Tandem SARs under the 2016 Plan, the Board of Directors is requesting Shareholder approval of the plan limits and the material terms of the 2011 Plan.

Transferability. Awards granted under the 2011 Plan are not transferable or assignable and may be exercised only by the grantee, subject to exceptions in the event of the death or disability of the grantee.

Termination. The 2011 Plan will terminate on June 22, 2021.

Certain Federal Income Tax Consequences
 
The following is a summary of the principal U.S. federal income tax consequences generally applicable to awards made under the 2011 Plan. The summary does not contain a complete analysis of all the potential tax consequences relating to awards granted under the 2011 Plan, including state, local or foreign tax consequences.
 
Nonqualified Stock Options
 
A participant will not be deemed to have received taxable income upon the grant of a nonqualified stock option. Upon the exercise of a nonqualified stock option, a participant generally will be deemed to have received taxable ordinary income in an amount equal to the excess of the fair market value of the Common Shares received on the date of exercise over the option price.
 
Upon the exercise of a nonqualified stock option, we will ordinarily be entitled to a deduction for federal income tax purposes in an amount equal to the amount included in income by the participant as a result of such exercise. This deduction will be available to us in the tax year in which the participant recognizes the income.
 
The income arising from a participant who is an employee exercising a nonqualified stock option will be treated as compensation income for income and payroll tax withholding purposes, and the Committee may allow the participant to satisfy the tax withholding obligation by withholding a portion of the shares that would otherwise be delivered upon exercise. The basis of shares received upon the exercise of a nonqualified stock option will be the option exercise price paid plus the amount recognized by the participant as taxable income attributable to such shares as a result of the exercise. Gain or loss recognized by the participant on a subsequent disposition of any such shares will be capital gain or loss if such shares constitute a capital asset in the hands of the participant. A participant’s holding period will commence on the date of exercise.
 
Incentive Stock Options
 
Participants will not be deemed to recognize taxable income upon the grant or exercise of an incentive stock option. If a participant makes no disqualifying disposition of the Common Shares received upon exercise within the one year period beginning after the transfer of such Common Shares to the participant nor within two years from the date of grant of the incentive stock option, and if the participant at all times from the date of the grant of the incentive stock option to a date three months before the date of exercise has been an employee of ours, any gain recognized on the disposition of the Common Shares acquired upon exercise will be long-term capital gain. The difference between the fair market value of the Common Shares at the time of exercise and the exercise price will, however, be an item of tax preference, and may subject a participant to the alternative minimum tax. We will not be entitled to any deduction with respect to the grant or exercise of the incentive stock option or the transfer of Common Shares acquired upon exercise.
 

46



If the participant makes a disqualifying disposition of the Common Shares before the expiration of the one or two year holding periods described above, the participant will be deemed to have received taxable ordinary income at the time of such disposition to the extent that the fair market value of the Common Shares at the time of exercise, or, if less, the amount realized on such disposition, exceeds the exercise price. To the extent that the amount realized on such disposition exceeds the fair market value of the Common Shares at the time of exercise, such excess will be taxed as capital gain if the Common Shares are otherwise a capital asset in the hands of the participant. To the extent the participant recognizes ordinary income on a disqualifying disposition of the Common Shares, we may be entitled to a deduction for federal income tax purposes in an amount equal to the ordinary income recognized by the participant.

SARs
 
A participant will not be deemed to have received taxable income upon the grant or vesting of a SAR. Upon the exercise of a SAR, a participant generally will be deemed to have received income, taxable for federal income tax purposes at ordinary income rates, equal to the fair market value at the time of exercise of any Common Shares received plus the amount of any cash received, and we will ordinarily be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income recognized by the participant as a result of such exercise.
 
The income arising from a participant who is an employee exercising a SAR will be treated as compensation income for withholding tax purposes and the Committee may allow the participant to satisfy the tax withholding obligation by withholding a portion of the shares that would otherwise be delivered upon exercise. The basis of shares received upon the exercise of a SAR will equal the fair market value of the shares at the time of exercise. Gain or loss recognized by the participant on a subsequent disposition of any such shares will be capital gain or loss if such shares constitute a capital asset in the hands of the participant.

Restricted Stock Units/Deferred Stock Units
 
A participant will not be deemed to have received taxable income upon the grant of restricted stock units or deferred stock units. The participant will be deemed to have received taxable ordinary income at such time as shares are distributed to the participant. Upon the distribution of shares to a participant with respect to restricted stock units or deferred stock units, we will ordinarily be entitled to a deduction for federal income tax purposes in an amount equal to the taxable ordinary income recognized by the participant. In the case of employees, such income will be treated as compensation income for income and payroll tax withholding purposes and the 2011 Plan Committee may allow the participant to satisfy the tax withholding obligation by withholding a portion of the shares that would otherwise be delivered. The basis of the Common Shares received will equal the amount of taxable ordinary income recognized by the participant upon receipt of such shares. Gain or loss recognized by the participant on a subsequent disposition of any such shares will be capital gain or loss if such shares constitute a capital asset in the hands of the participant. A participant’s holding period will commence on the date Common Shares are distributed to the participant.

Section 409A of the Internal Revenue Code
 
The 2011 Plan Committee intends to administer and interpret the 2011 Plan and all award agreements in a manner designed to satisfy the requirements of Code Section 409A of the Internal Revenue Code and to avoid any adverse tax results thereunder to a holder of an award.

In accordance with the provisions of the 2011 Plan, the approval of Shareholders is required for certain amendments to the 2011 Plan. Accordingly, at the Meeting, the Shareholders will be asked to consider, and if deemed advisable, to approve, an ordinary resolution (the “2011 Plan Amendments Resolution”), attached as Exhibit C to this Proxy Statement/Circular.

2011 Plan Benefits
 
The awards, if any, that will be made to eligible persons under the 2011 Plan, as amended, are subject to the complete discretion of the Compensation Committee, compensation programs and policies adopted by the Compensation Committee or the Board, the speed and nature of new hires and other factors and, therefore, we cannot currently determine the benefits or number of Common Shares subject to awards that may be granted in the future to eligible persons under the 2011 Plan, as amended. Recent awards under the 2011 Plan are listed in the Grants of Plan-Based Awards table in this Proxy Statement/Circular. As of March 30, 2016, the closing market price of a Common Share was $3.94.

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PROPOSAL NO. 4 - APPROVAL OF THE 2016 OMNIBUS SHARE AND INCENTIVE PLAN

Overview
 
We are seeking Shareholder approval to adopt our 2016 Omnibus Share and Incentive Plan (the “2016 Plan”).
 
The purpose of the 2016 Plan is to promote the interests of the Company by aiding the Company in attracting and retaining employees, officers, consultants, advisors and non-employee Directors to promote the business and financial success of the Company, to offer such persons incentives to put forth maximum efforts for the success of the Company’s business and to compensate such persons through various share and cash based arrangements and provide them with opportunities for share ownership in the Company, thereby aligning the interests of such persons with the Company’s shareholders.
 
The 2016 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights (SARs), restricted stock, restricted stock units, performance awards, dividend equivalents and other stock-based awards to employees, officers, non-employee directors, consultants, independent contractors or advisors providing services to the Company or any affiliate of the Company, or any such person to whom an offer of employment or engagement with the Company or any affiliate is extended.

Under the 2016 Plan, the maximum number of Common Shares which may be issued, subject to adjustment as described below, is 5,000,000.

The aggregate number of shares with respect to which awards are exercisable, rather than the number of shares actually issued upon exercise, will be counted against the number of shares available for awards under the 2016 Plan. If awards under the 2016 Plan expire or otherwise terminate without being exercised, the shares not acquired pursuant to such awards again become available for issuance under the 2016 Plan in accordance with its terms. However, under the following circumstances, shares will not again be available for issuance under the 2016 Plan: (i) shares unissued due to a “net exercise” of a stock option, (ii) any shares withheld or shares tendered to satisfy tax withholding obligations with respect to an award, (iii) shares covered by a SAR that is not settled in shares upon exercise and (iv) shares repurchased using stock option exercise proceeds.
 
No eligible person under the 2016 Plan may be granted any stock options, SARs or performance awards denominated in Common Shares for more than an aggregate of 2,500,000 Common Shares during any calendar year, subject to adjustment as described below. The aggregate amount payable pursuant to all performance awards denominated in cash to any eligible person in any calendar year is limited to $5,000,000 in value. Directors who are not also employees of the Company or an affiliate of the Company may not be granted awards or awards denominated in Common Shares that exceed in the aggregate $500,000 in any calendar year.
 
A copy of the 2016 Plan is attached to this Proxy Statement/Circular as Exhibit E and is incorporated herein by reference. The summary herein of the material terms of the 2016 Plan does not purport to be a complete description of the 2016 Plan and is qualified in its entirety by reference to the complete copy of the 2016 Plan in Exhibit E attached to this Proxy Statement/Circular.

Material Terms of the 2016 Plan

Administration
 
The 2016 Plan will be administered by the Executive Compensation and Human Resources Committee of the Company, or such other committee designated by the Board to administer the Plan, and comprised of members as specified under the 2016 Plan (the “2016 Plan Committee”). The Board of Directors will fill vacancies on and from time to time may remove or add members to the 2016 Plan Committee, and the 2016 Plan Committee will be so constituted to permit awards granted under the 2016 Plan to be exempt from Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and to permit grants of performance-based compensation under the plan to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), or any other statutory rule or regulatory requirements, unless otherwise determined by the Board of Directors.
 
Subject to the express provisions of the 2016 Plan, the 2016 Plan Committee has authority to administer and interpret the 2016 Plan, including the authority to determine who is eligible to participate in the 2016 Plan and to whom and when awards are granted under the 2016 Plan, to grant awards, to determine the number of shares of Common Shares subject to awards and the exercise or purchase price of such shares under an award, to establish and verify the extent of satisfaction of any performance criteria applicable to awards, to prescribe and amend the terms of the agreements evidencing awards made under the 2016 Plan, and to make other determinations deemed necessary or advisable for the administration of the 2016 Plan. Also, subject to the

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requirements of applicable corporate laws, and any limitations under applicable stock exchange rules, the 2016 Plan Committee also has the power to delegate to officers the authority to grant and determine the terms and conditions of awards granted under the 2016 Plan. These delegated officers shall not be permitted to grant awards to any person subject to Rule 16b-3 under the Exchange Act or Code Section 162(m).

Eligibility
 
Participants under the 2016 Plan are limited to employees, officers, non-employee directors, consultants, independent contractors or advisors providing services to the Company or any affiliate of the Company, or any such person to whom an offer of employment or engagement with the Company or any affiliate of the Company is extended.

In determining to whom awards will be granted and the nature of such each award, the 2016 Plan Committee may take into account the nature of the services rendered by the respective participant, their present and potential contributions to the success of the Company or such other factors as the 2016 Plan Committee, in its discretion, deems relevant.
 
General Terms and Conditions of Awards
 
Nonqualified Stock Options
 
The 2016 Plan Committee may grant nonqualified stock options under the 2016 Plan which do not meet the requirements of Section 422 of the Code and which will be subject to the following terms and conditions. The option exercise price per share will be determined by the 2016 Plan Committee but will not be less than 100% of the “fair market value” of the Common Shares on the date of grant of such option, with limited exceptions. The term “fair market value” means either (a) if the Common Shares are listed on any established stock exchange, the price of one Common Share at the close of the regular trading session of such market or exchange on such date, as reported by The Wall Street Journal or a comparable reporting service, or, if no sale of Common Shares shall have occurred on such date, on the next preceding date on which there was a sale of Common Shares, or (b) if the Common Shares are not so listed on any established stock exchange, the average of the closing “bid” and “asked” prices quoted by the OTC Bulletin Board, the National Quotation Bureau, or any comparable reporting service on such date or, if there are no quoted “bid” and “asked” prices on such date, on the next preceding date for which there are such quotes for a Common Share; or (c) if the Common Shares are not publicly traded as of such date, the per share value of a Common Share, as determined by the Board, or any duly authorized Committee of the Board, in its sole discretion, by applying principles of valuation with respect thereto.

The exercise price of an option may be paid through various means specified by the 2016 Plan Committee, including in cash, Common Shares (actually or by attestation), other securities, other awards or other property, or any combination thereof. With limited exceptions (legal prohibition on exercise, black-out periods and lock-up agreements) for which a thirty day extension is provided, every option which has not been exercised within ten years of its date of grant will lapse upon the expiration of the ten year period, unless it has lapsed at an earlier date as determined by the 2016 Plan Committee.
  
Incentive Stock Options
 
The 2016 Plan Committee may grant incentive stock options under the 2016 Plan which meet the requirements of Section 422 of the Code. The aggregate number of Common Shares that may be issued under all incentive stock options under the 2016 Plan is 5,000,000 Common Shares. Under the 2016 Plan, the aggregate fair market value, determined at the time the option is granted, of the Common Shares with respect to which incentive stock options are exercisable for the first time by any participant during any calendar year (under the plan and any other incentive stock option plans of the Company) may not exceed $100,000, or any other limit as may be prescribed by the Code from time to time. The option exercise price per share will be determined by the 2016 Plan Committee but will not be less than 100% of the “fair market value” of the Common Shares on the date of grant of such option. In the case of a grant of an incentive stock option to a participant who, at the time such option is granted, owns stock possessing more than 10% of the combined voting power of all classes of stock of the Company, the option exercise price per share under such option will not be less than 110% of the “fair market value” of the Common Shares on the date of grant of such option and such option will expire and no longer be exercisable no later than five years from the date of grant of such option.
 
SARs
 
The 2016 Plan Committee may grant SARs under the 2016 Plan. Subject to the express provisions of the 2016 Plan and as discussed in this paragraph, the 2016 Plan Committee has discretion to determine the grant value, term, methods of exercise, dates of exercise, methods of settlement and any other terms and conditions of any SAR. The grant value of each SAR granted under

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the 2016 Plan will be determined by the 2016 Plan Committee and will be equal to or greater than the closing market price of a Common Share on the date of grant of the SAR, provided, however, that if the SAR being granted is in substitution for a SAR previously granted by an entity that is acquired by or merged with the Company, the grant value of such SAR may be lower than the closing market price of a share of common stock on the date of grant of the SAR. Every SAR which has not been exercised within ten years of its date of grant will lapse upon the expiration of such ten year period, unless it has lapsed at an earlier date as determined by the 2016 Plan Committee.

Restricted Stock and Restricted Stock Units
 
The 2016 Plan Committee may grant restricted stock or restricted stock units under the 2016 Plan. Restricted stock and restricted stock units will be subject to such restrictions as the 2016 Plan Committee may impose (including, without limitation, any limitation on the right to vote a share of restricted stock or the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the 2016 Plan Committee may deem appropriate.
 
Any restricted stock granted under the 2016 Plan shall be issued at the time such awards are granted and may be evidenced in such manner as the 2016 Plan Committee may deem appropriate. In the case of restricted stock units, no Common Shares shall be issued at the time such awards are granted. Upon the lapse or waiver of restrictions and the restricted period relating to restricted stock units evidencing the right to receive Common Shares, such Common Shares shall be issued and delivered to the holder of the restricted stock units.
 
Except as otherwise determined by the 2016 Plan Committee, if a director resigns or is removed or if the employment of an employee holding restricted stock or restricted stock units terminates during the applicable restricted period, the restricted stock and/or restricted stock units held by such director or employee will be forfeited and reacquired by the Company.

Dividend Equivalents
 
The holder of a dividend equivalent will be entitled to receive payments (in cash, shares, other securities or other property) equivalent to the amount of cash dividends paid by us to our Shareholders, with respect to the number of shares determined by the 2016 Plan Committee. Dividend equivalents will be subject to other terms and conditions determined by the Committee, but the 2016 Plan Committee may not (i) grant dividend equivalents in connection with options SARs or other awards the value of which is based solely on an increase in the value of the Common Shares after the date of grant of such award and (ii) pay a dividend equivalent with respect to an award prior to the date on which all condition or restrictions on such award have been satisfied, waived or lapsed.
 
Performance Awards
 
The 2016 Plan Committee may grant performance awards under the 2016 Plan. Each performance award will confer upon the participant the opportunity to earn future payments tied to the achievement of one or more performance criteria during such performance periods as the 2016 Plan Committee shall establish; provided, however, that to the extent a performance goal is based on share price, the minimum threshold share price must be at least $20.00 per Common Share. If the 2016 Plan is approved by stockholders, we estimate that up to fourteen persons, including ten officers and four employees, may be granted performance awards based on a combination of a minimum threshold share price of at least $20.00 per Common Share and the achievement of specified corporate objectives to be established by the 2016 Plan Committee at the time of grant.
 
The 2016 Plan authorizes the grant of performance awards pursuant to which a participant may become entitled to receive an amount payable in cash, stock, other securities, other awards, other property or a combination thereof on satisfaction of such performance criteria as are specified by the 2016 Plan Committee. For purposes of qualifying performance awards as “performance-based” compensation under Section 162(m) of the Code, the 2016 Plan Committee may set performance criteria based upon the business measurements described below under “Qualifying Performance Criteria.” Subject to the express provisions of the 2016 Plan and as discussed in this paragraph, the 2016 Plan Committee has discretion to determine the terms of any performance awards, including the performance goals to be achieved during any performance period, the length of any performance period, the amount of any performance award granted, the amount of any payment or transfer to be made pursuant to any performance award and such further terms and conditions, in each case not inconsistent with the 2016 Plan, as the 2016 Plan Committee may determine from time to time.
 
Qualifying Performance Criteria
 

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Section 162(m) of the Code generally does not allow a publicly held company to obtain a tax deduction for compensation of more than $1 million paid in any year to its chief executive officer or its three most highly paid executive officers, excluding the chief financial officer (or its chief executive officer or its three highest paid executive officers excluding the chief financial officer if the Company ceases to be a “smaller reporting company” for SEC disclosure purposes) unless such payments are “performance-based” as defined in that section. One of the requirements for compensation to be “performance-based” under Section 162(m) is that the Company must obtain Shareholder approval of the material terms of the qualifying performance criteria for such compensation. The material terms which the Shareholders approve constitute the framework within which the actual performance criteria are set by the 2016 Plan Committee.
 
Accordingly, to enable us to receive tax deductions for compensation earned by our chief executive officer and other executive officers under grants of performance-based awards under the 2016 Plan, the Board of Directors is requesting Shareholder approval of the material terms of the qualifying performance criteria for those types of awards.
 
Subject to Shareholder approval, the qualifying performance criteria for performance awards will be any one or more of the following performance criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or subsidiary, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case a specified by the 2016 Plan Committee in the award:

economic value added (EVA);
sales or revenue;
income (including without limitation operating income, pretax income and income attributable to the Company);