Salix Pharmaceuticals announces $200 million convertible senior notes offering

May 27 2010

Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) today announced that it intends to offer, subject to market and other conditions, $200 million aggregate principal amount of its convertible senior notes due 2015 under an automatically effective shelf registration statement on file with the Securities and Exchange Commission. Salix also expects to grant the underwriters an overallotment option to purchase up to an additional $30 million aggregate principal amount of notes on the same terms and conditions. The notes will be senior unsecured obligations of Salix and interest will be payable semiannually. The notes will be convertible subject to certain conditions into shares of Salix common stock. Salix will be entitled to settle any such conversion by delivery of cash, shares of Salix common stock or a combination of cash and shares. The interest rate, conversion price, offering price and other terms of the notes will be determined by Salix and the underwriters.

In connection with this offering, Salix plans to enter into capped call transactions with one or more underwriters in the offering or their respective affiliates. Subject to certain exceptions, the capped call transactions are expected to reduce potential dilution upon conversion of the notes, except to the extent that the volume-weighted average price per share of the Salix common stock, as measured under the terms of the capped call transactions at the time of exercise, exceeds the cap price of the capped call transactions. In connection with hedging the capped call transactions, the counterparties or their respective affiliates expect to enter into various derivative transactions with respect to Salix common stock concurrently with and shortly after pricing of the notes. In addition, the counterparties or their respective affiliates may from time to time following pricing of the notes and prior to conversion or maturity of the notes enter into or unwind various derivatives and/or purchase or sell Salix common stock or other of our securities (including the notes) in secondary market transactions or instruments they may wish to use in connection with such hedging or modify or unwind such hedge positions. These activities could have the effect of increasing or preventing a decline in, or of having a negative effect on, the price of Salix common stock (including concurrently with or shortly after pricing of the notes or during any cash settlement averaging period related to a conversion of the notes), adversely affecting the value of the notes, and, potentially the value of the shares of Salix common stock and/or the amount of cash holders may receive upon conversion of the notes.

Salix intends to use a portion of the net proceeds from this offering to pay the cost of the capped call transactions and the remaining net proceeds for business development activities and other general corporate purposes, including commercialization of product candidates, clinical trials, research and development expenses and general and administrative expenses. If the underwriters exercise their option to purchase additional notes to cover overallotments, Salix expects to use a portion of the net proceeds from the sale of the additional notes to enter into additional capped call transactions.

BofA Merrill Lynch and Jefferies & Company, Inc. are acting as joint book-running managers for the offering.

Salix has filed a registration statement (including a preliminary prospectus) with the U.S. Securities and Exchange Commission (SEC) for the offering to which this communication relates.