<PAGE>
FILE PURSUANT TO
RULE NO. 424(b)(5)
REGISTRATION NO. 333-68849
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED DECEMBER 28, 1998
2,500,000 Shares
[GRAPHIC] ChiRex Inc.
Common Stock
------------
We are selling 2,500,000 shares of common stock. The underwriters
have an option to purchase a maximum of 375,000
additional shares to cover over-
allotments of shares.
The common stock trades on The Nasdaq Stock Market's National Market
under the symbol "CHRX." On March 18, 1999, the last reported sale
price of the common stock was $19.50 per share.
Investing in the common stock involves risks. See "Risk Factors" on page 26 of
our Annual Report
on Form 10-K for the year ended December 31, 1998.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company
----------- ------------- -----------
<S> <C> <C> <C>
Per Share.................................. $19.00 $0.95 $18.05
Total...................................... $47,500,000 $2,375,000 $45,125,000
</TABLE>
Delivery of shares of common stock will be made on or about March 24, 1999,
against payment in immediately available funds.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the attached prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
Credit Suisse First Boston
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Hambrecht & Quist
Legg Mason Wood Walker
Incorporated
Prospectus Supplement dated March 18, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
Prospectus Supplement ---- Prospectus ----
<S> <C> <C> <C>
About This Prospectus Supplement... S-3 About This Prospectus............... i
Where You Can Find More Information Where You Can Find More Information
About the Company................. S-3 About the Company.................. ii
Disclosure Regarding Forward- Disclosure Regarding Forward-Looking
Looking Statements................ S-4 Statements......................... ii
Summary............................ S-5 The Company......................... 1
Use of Proceeds.................... S-11 Risk Factors........................ 1
Price Range of Common Stock........ S-11 Use of Proceeds..................... 7
Dividend Policy.................... S-11 Earnings to Fixed Charges--Coverage
Capitalization..................... S-12 Deficiency......................... 7
Management's Discussion and Description of Debt Securities...... 8
Analysis of Results of Operations Description of Capital Stock........ 20
and Financial Condition........... S-13 Description of Depositary Shares.... 23
Business........................... S-20 Description of Warrants............. 26
Management......................... S-28 Plan of Distribution................ 27
Scientific Advisory Board.......... S-30 Legal Opinions...................... 28
Certain United States Tax Experts............................. 28
Consequences to Non-United States
Holders........................... S-31
Underwriting....................... S-33
Notice to Canadian Residents....... S-34
Legal Matters...................... S-35
Experts............................ S-35
</TABLE>
------------
You should rely only on the information contained in this Prospectus
Supplement and the attached Prospectus or to which we have referred you. We
have not authorized anyone to provide you with information that is different.
These documents may only be used where it is legal to sell these securities.
The information contained in this Prospectus Supplement and the attached
Prospectus is accurate only as of the date of this Prospectus Supplement and
the attached Prospectus, as the case may be, regardless of the time of
delivery of this Prospectus Supplement or the attached Prospectus or any sale
of Common Stock. In this Prospectus Supplement and the attached Prospectus,
"the Company," "our Company," "ChiRex," "we," "us" and "our" refer to ChiRex
Inc.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
S-2
<PAGE>
ABOUT THIS PROSPECTUS SUPPLEMENT
This Prospectus Supplement contains the terms of this offering. A
description of our Capital Stock is contained in the attached Prospectus. This
Prospectus Supplement, or the information incorporated by reference in this
Prospectus Supplement, may add, update or change information in the attached
Prospectus. If information in this Prospectus Supplement, or the information
incorporated by reference in this Prospectus Supplement, is inconsistent with
the attached Prospectus, this Prospectus Supplement, or the information
incorporated by reference in this Prospectus Supplement, will apply and will
supersede that information in the attached Prospectus.
It is important for you to read and consider all information contained in
this Prospectus Supplement and the attached Prospectus in making your
investment decision. You should also read and consider the information in the
documents we have referred you to in "Where You Can Find More Information
About the Company" below.
WHERE YOU CAN FIND MORE
INFORMATION ABOUT THE COMPANY
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). You may read
and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to the public at the SEC's web site at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" into this Prospectus
Supplement the information we file with it, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be a part of this
Prospectus Supplement and later information filed with the SEC will update and
supersede this information. We incorporate by reference our Annual Report on
Form 10-K for the year ended December 31, 1998, including the documents
incorporated by reference therein, and any future filings made with the SEC
under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until our offering
is completed.
You may request a copy of these filings, at no cost, by writing to or
telephoning us at the following address:
Jon E. Tropsa
Vice President, Finance
ChiRex Inc.
300 Atlantic Street, Suite 402
Stamford, Connecticut 06901
(203) 351-2300
S-3
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus Supplement contains or incorporates "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act") and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). These forward-looking statements
are subject to a number of risks and uncertainties, many of which are beyond
the Company's control. Forward-looking statements are typically identified by
the words "believe," "expect," "anticipate," "intent," "estimate," "plan" and
similar expressions.
Actual results could differ materially from those contemplated by these
forward-looking statements as a result of factors ("Cautionary Statements")
such as product development and market acceptance risks, product manufacturing
risks, the impact of competitive products and pricing, the results of current
and future licensing and other collaborative relationships, the results of
financing efforts, developments regarding intellectual property rights and
litigation, risks of product non-approval or delays or post-approval reviews
by the U.S. Food and Drug Administration ("FDA") or foreign regulatory
authorities and those described under "Risk Factors" on page 26 of our Annual
Report on Form 10-K for the year ended December 31, 1998.
In light of these risks and uncertainties, there can be no assurance that
the results and events contemplated by the forward-looking information
contained or incorporated in this Prospectus Supplement will in fact
transpire. Potential investors are cautioned not to place undue reliance on
these forward-looking statements. ChiRex does not undertake any obligation to
update or revise any forward-looking statements. All subsequent written or
oral forward-looking statements attributable to ChiRex or persons acting on
behalf of ChiRex are expressly qualified in their entirety by the Cautionary
Statements.
----------------
In this Prospectus Supplement, references to "Pounds Sterling" or
"(Pounds)" are to British Pounds Sterling, and references to "Dollars" or "$"
are to United States Dollars. Unless otherwise indicated, all assets and
liabilities of our foreign subsidiaries are translated at year-end exchange
rates, and revenues and expenses are translated at average exchange rates for
the year. See Note 1 to the Consolidated Financial Statements of the
Company incorporated by reference in this Prospectus Supplement. Solely for
the convenience of the reader, this Prospectus Supplement contains
translations of certain amounts denominated in Pounds Sterling into Dollars.
The translations of Pounds Sterling into Dollars have been made at the rate of
(Pounds)1.00 = $1.66, the noon buying rate in the City of New York for cable
transfers in Pounds Sterling as announced by the Federal Reserve Bank of New
York for customs purposes on December 31, 1998. On March 18, 1999, the noon
buying rate for such transfers was (Pounds)1.00 = $1.63.
S-4
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements
contained elsewhere and incorporated by reference in this Prospectus
Supplement.
The Company
ChiRex is an integrated outsourcing company that provides an extensive range
of services to pharmaceutical and life science companies. Our services span
from the early stages of post-discovery drug development to full scale
manufacturing of active ingredients. As a customer discovers a new molecule for
possible drug therapies, the creation of the compound goes through a number of
phases, any one or all of which are suitable for outsourcing to third parties
such as ChiRex, including:
. design, development and synthesis of molecules, including process
development;
. evaluation, analysis and scale-up activities; and
. full scale production in accordance with current Good Manufacturing
Practices ("cGMP") at two FDA inspected sites.
We are one of only a few outsourcing companies to offer all of these
services in-house in addition to offering proprietary process technologies. By
offering integrated services, we are able to minimize the risks, costs and time
associated with our customers bringing new drugs to market. Specifically, we
provide contract process research and development and pharmaceutical fine
chemical manufacturing services, while also offering our customers access to
our extensive portfolio of proprietary technologies. Our contract manufacturing
services, developed over the past 30 years, include process research and
development, hazard evaluation, analytical methods development, clinical
quantity production and both pilot-scale and commercial scale manufacturing. In
addition, we utilize our proprietary technologies to solve process development
challenges for our customers and reduce drug development time.
Prior to our initial public offering in March 1996, we were primarily a
contract manufacturing organization with a single facility in Dudley, England.
Since completing our initial public offering, we have taken steps to become a
high-quality, full-service outsourcing company. For example, we: (i) optimized
our Dudley facility and disposed of non-core products, primarily our
acetaminophen business; (ii) opened our research and development laboratories
and an associated pilot plant (collectively, the "Development Center") at the
Dudley site that has allowed us to develop products successfully for our
customers, many of which are based on our proprietary process chemistry
technologies; (iii) purchased a cGMP facility in Annan, Scotland in the fall of
1997 from Glaxo Wellcome and entered into a five-year supply agreement with
Glaxo Wellcome, which we estimate will provide for approximately $450 million
in aggregate sales; and (iv) redesigned, reconfigured and upgraded the Annan
facility to manufacture products under the Glaxo Wellcome supply agreement and
to increase the general flexibility of the facility to produce products for
other leading pharmaceutical and life science companies. In addition, in April
1999 we plan to open our new process development facility, the ChiRex
Technology Center (the "CTC"), in Boston, Massachusetts. The CTC will expand
our capacity to assist our customers in the design, development and synthesis
of molecules during clinical and pre-clinical phases, work which was previously
performed to a limited extent at our Development Center. The CTC will enable us
to capitalize on our capabilities to serve customers at the earliest stages in
the development of new compounds and allow us to further develop our
proprietary technologies.
Currently, we manufacture in excess of 50 products on a commercial scale at
our two world-class, cGMP facilities located in Dudley, England and Annan,
Scotland. We have approximately 45 U.S. patents and several patent applications
with respect to our technologies. Our customers currently include Glaxo
Wellcome plc, Sanofi S.A., Rohm and Haas Company, Pharmacia & Upjohn Inc.,
Astra AB, Bristol Myers-Squibb Company, Eli Lilly and Company, Pfizer Inc. and
SmithKline Beecham plc.
S-5
<PAGE>
For the year ended December 31, 1998, our revenues increased 27.2% to $119.7
million from $94.1 million for 1997. Revenues from core products in 1998
increased 68.3% to $114.7 million from $68.1 million in 1997. Gross profits in
1998 were $31.8 million and represented 26.6% of total revenues, as compared to
24.1% of total revenues in 1997.
Industry Trends
Recent trends in the industry are resulting in the increased outsourcing of
drug design, development and manufacturing. Pharmaceutical and life science
companies are under pressure to deliver new drugs to market in the shortest
period of time in order to capture market share, accelerate the realization of
revenues and maximize the impact of the limited life of patent protection. As a
result, they have increasingly focused their resources on the discovery of new
drugs and sought to outsource more and more services. We believe this trend
towards outsourcing drug design, development and manufacture will continue for
the following reasons:
. the development of new technologies that have resulted in the
identification of a larger number of promising therapeutics, increasing
the demand for the services which we offer;
. the pressure to reduce drug development time in order to enhance
competitive position and maximize return on investment;
. the continuing cost containment pressures in the consumer market, led by
health maintenance organizations and other health insurance
intermediaries, resulting in pharmaceutical companies shifting more of
their fixed cost base to variable cost alternatives through outsourcing;
. the increasing complexity of the chemical synthesis used to produce new
drugs, particularly in commercial quantities; and
. the growth of the biotechnology industry, in which many companies do not
have the chemical expertise and capabilities needed to conduct their own
process development, scale-up work or commercial scale manufacturing.
Business Strategy
Our strategy is to increase shareholder value by capitalizing on our
technological strengths and manufacturing capabilities to be the preferred
partner to major pharmaceutical and life science companies in the design,
development and synthesis of new drugs and for the manufacturing of active
ingredients. The key elements of our strategy are as follows:
Provide Integrated Services/"One Stop" Shopping. We believe that significant
opportunities exist for a company that provides a broad range of outsourcing
services. With the CTC, we will now be able to offer our customers a complete
and integrated package of services throughout the life cycle of a product. By
providing process development expertise, pilot plant capacity and full scale
manufacturing facilities, we will be able to offer a convenient and seamless
solution to our customers' outsourcing needs. Our integrated approach offers
technical and commercial synergies and the potential to reduce the time and
decrease the costs and risks associated with the development of new drugs.
Commercialization of Proprietary Technology. With the CTC, we will
capitalize on the industry trend for drug companies to outsource the
development of production processes at earlier stages in the development
timeline. The CTC will expand on our accumulated expertise established at the
Development Center. Through the addition of the CTC, we will focus on assisting
customers in the early stages of process development to devise manufacturing
processes that will be viable and cost efficient for scale-up and full scale
commercial production. The CTC will further strengthen our ability to use our
proprietary technologies to solve process development challenges for our
customers and to reduce drug development time. The CTC is intended to:
. advance the commercialization of a variety of our technologies, with an
initial emphasis on our kinetic resolution process technology developed
by Professor Eric Jacobsen which enables the production of single-isomer
pharmaceutical chiral intermediates;
S-6
<PAGE>
. provide process development services that will serve as a source of new
commercial scale product opportunities for our manufacturing facilities;
. develop and market non-regulated, proprietary chiral building blocks to
innovative pharmaceutical companies to save them time and money and to
infuse the benefit of our technologies into their development pipelines;
. serve as a source of licensing revenues derived from our technologies
where: (i) our customer has other manufacturing capacity; (ii) the
technology is being used for non-pharmaceutical purposes; or (iii)
capacity constraints prevent us from offering manufacturing services;
and
. enhance our presence in the United States, the world's largest
pharmaceutical market.
The CTC will be initially staffed with approximately ten research scientists
under the direction of Professor Eric Jacobsen, Professor of Chemistry and
Chemical Biology at Harvard University.
Focus on Manufacturing High-Margin, Value-Added Products. We intend to
continue focusing on manufacturing high-margin, highly-engineered, value-added
products which are manufactured using a variety of technologies. Because of the
high level of development engineering and synthesis design required for these
products and because these products must be made in strictly controlled; FDA
inspected facilities, they require the expertise of a company such as ours and
offer the potential for higher margins than specialty chemicals and non-
regulated fine chemicals. In addition, once full production of these products
is commenced, the commercial relationship for such products is generally stable
due to the significant cost of transferring production to a new facility.
Continue Developing Significant, Long-Term Relationships with Industry
Leaders. We intend to expand our customer base by developing significant, long-
term relationships with a few major pharmaceutical and life science companies.
We believe that the CTC will be a valuable platform for forging new
relationships as customers seek the benefits of our proprietary technologies.
In addition, our Annan facility has substantial available capacity which we are
marketing to significant potential customers.
Pursue Selective Acquisitions/Affiliations/Expansions. We intend to expand
our business activities through selective acquisitions, strategic affiliations
and internal expansion, including:
. in the technology area, we intend to seek opportunities to acquire or
license complementary technologies and to collaborate or form alliances
with third parties with valuable, complementary technology;
. in the development business, we intend to pursue strategic acquisitions
in North America and extend our geographical presence and customer base
by acquiring or building development capability near the CTC; and
. in manufacturing operations, we intend to pursue strategic, value-added
acquisitions to add to our geographic scope or customer base.
Competitive Strengths
We believe we have a strong competitive position in our industry, which is
attributable to a number of factors:
Full Complement of Integrated Services. We believe that our ability to
address our customers' outsourcing needs at each stage in the chemical
development process allows us to compete effectively for the entire range of
outsourcing arrangements that customers require. In addition, we believe we
will have a competitive advantage because we can internally transfer technology
throughout the product lifecycle, saving time and money and reducing risk. Our
ability to provide services at the earliest stages of the drug development
process should give us a competitive advantage during clinical trial and full
scale manufacturing.
S-7
<PAGE>
Leading Proprietary Technologies. In addition to our expertise in classical
chemical transformation technologies, we hold numerous licenses and patents in
chiral process chemistries, including an exclusive license with Harvard
University for the application of kinetic resolution. Based on industry
estimates, more than two-thirds of pharmaceuticals currently in development are
chiral molecules. We believe that utilizing our technologies, and in particular
our chiral technologies, in the production process may allow us to achieve
higher margins than possible with non-proprietary technologies. Also, we have
found that our customers value suppliers who invest in technology as such
investment allows customers to reduce their drug development time and provides
unique solutions to their process development challenges. In addition, we can
leverage our proprietary technologies to forge relationships for our high-
margin, manufacturing operations.
World-Class Manufacturing Facilities. Since January 1, 1996, we have
invested over $200 million to acquire and upgrade our two world-class cGMP
facilities. The manufacturing operations at Dudley are flexibly designed so
that they can be used for a large number of products. The Annan facility is a
modern state-of-the-art pharmaceutical manufacturing facility with substantial
space to expand future production.
Relationships with Industry Leaders. Our reputation for high quality
manufacturing and process development capabilities and innovative proprietary
technologies have enabled us to establish relationships with leading
pharmaceutical and life science companies, including Glaxo Wellcome, Sanofi,
Rohm and Haas, Pharmacia & Upjohn, Astra and SmithKline Beecham.
Barriers to Entry. We believe there are significant entry barriers to our
industry, including:
. access to and expertise in leading manufacturing and process
technologies and the ability to manage the complex regulatory regime
governing new product development; and
. the significant cost and lead time necessary to construct state-of-the-
art pilot plant facilities and to qualify cGMP commercial scale
manufacturing facilities, such as our Annan and Dudley facilities.
In addition, world-class facilities typically require experienced management
and highly trained technical personnel familiar with specific production
facilities and processes. Pharmaceutical companies are generally reluctant to
outsource their needs to companies that do not have production facilities or a
staff with a proven track record. We believe that our management and technical
personnel, almost all of whom have substantial experience at FDA inspected cGMP
facilities, are experienced and highly trained to meet these needs.
S-8
<PAGE>
The Offering
Common Stock Offered........ 2,500,000 shares(1)
Common Stock outstanding
after the Offering.........
14,396,352 shares(1)(2)
Use of Proceeds............. We intend to use the net proceeds of this
offering to repay indebtedness under our
revolving and term loan credit facilities. See
"Use of Proceeds."
Nasdaq National Market CHRX
symbol......................
- --------
(1) Excludes up to 375,000 shares of Common Stock that we may sell pursuant to
the Underwriters' over-allotment option. See "Underwriting."
(2) Excludes 1,870,593 shares of Common Stock issuable upon the exercise of
options. See Note 3 to the Consolidated Financial Statements of the Company
incorporated by reference in this Prospectus Supplement.
Risk Factors
Investing in our Common Stock involves risks. See page 26 of our Annual
Report on Form 10-K for the year ended December 31, 1998 incorporated by
reference in this Prospectus Supplement for a discussion of these risks.
S-9
<PAGE>
Summary Consolidated Financial Data
The following table sets forth summary historical consolidated financial
data for ChiRex Inc. and its subsidiaries as of, and for the three years ended,
December 31, 1998. The summary historical consolidated financial data have been
derived from the Consolidated Financial Statements of ChiRex Inc. incorporated
by reference in this Prospectus Supplement and which have been audited by
Arthur Andersen LLP, independent public accountants. The following summary
historical consolidated financial data should be read in conjunction with
"Capitalization" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the Consolidated Financial Statements
of ChiRex Inc. incorporated by reference in this Prospectus Supplement.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
(in thousands, except ratios
and per share amounts)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues..................................... $ 74,615 $ 94,100 $119,663
Cost and Expenses:
Cost of goods sold........................... 56,508 71,440 87,876
Research and development..................... 3,517 3,937 4,389
Selling, general and administrative.......... 7,952 9,423 12,622
Goodwill amortization........................ 924 1,164 1,164
Restructuring and other expenses............. 5,611 8,069 3,242
Write-off of in-process research and
development................................. 5,790 -- --
--------- --------- ---------
Total operating expenses..................... 80,302 94,033 109,293
--------- --------- ---------
Operating income (loss)...................... (5,687) 67 10,370
Interest expense, net........................ 755 1,052 5,829
--------- --------- ---------
Income (loss) before income taxes............ (6,442) (985) 4,541
(Provision) benefit for income taxes......... (1,867) 335 (2,373)
--------- --------- ---------
Net income (loss)............................ $ (8,309) $ (650) $ 2,168
========= ========= =========
Net income (loss) per common share:
Basic...................................... $ (0.88) $ (0.06) $ 0.18
========= ========= =========
Diluted.................................... $ (0.88) $ (0.06) $ 0.18
========= ========= =========
Weighted average number of common shares:
Basic...................................... 9,485 11,407 11,820
========= ========= =========
Diluted.................................... 9,485 11,407 12,330
========= ========= =========
Other Financial Data:
Ratio of earnings to fixed charges........... N/A N/A 1.34x
Earnings to fixed charges--coverage
deficiency.................................. $ 6,442 $ 1,135 N/A
<CAPTION>
As of December 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash......................................... $ 291 $ 5,347 $ 128
Total assets................................. 130,806 203,067 238,538
Long term debt............................... 3,933 69,675 76,544
Stockholders' equity......................... 90,068 93,095 97,213
</TABLE>
S-10
<PAGE>
USE OF PROCEEDS
The net proceeds from this offering will be approximately $44.7 million
($51.3 million if the Underwriters' over-allotment option is exercised in
full), after deducting the underwriting discount and estimated offering
expenses that will have been paid by us. We will use a portion of the net
proceeds to repay all the outstanding loans under our revolving credit
facility and the balance of the net proceeds to repay a portion of the loans
outstanding under our term loan facility. As of December 31, 1998, we had
outstanding loans under our revolving credit and term loan facilities of
(Pounds)15.0 million ($24.9 million) and (Pounds)40.0 million ($66.4 million),
respectively. Our revolving credit facility terminates on December 31, 2002
and our term loan facility must be repaid in nine equal installments
commencing June 30, 1999, with the final payment due on December 31, 2002. At
December 31, 1998, the weighted average interest rate on the loans under both
facilities was 8.5%, which is based on LIBOR plus an applicable margin.
PRICE RANGE OF COMMON STOCK
The Common Stock is listed and traded on the Nasdaq National Market under
the symbol "CHRX." The following table sets forth for the periods indicated
the high and low sales prices of the Common Stock as reported by Nasdaq:
<TABLE>
<CAPTION>
High Low
1997 ------ ------
<S> <C> <C>
First Quarter.................................................. $13.25 $ 9.50
Second Quarter................................................. 12.75 9.88
Third Quarter.................................................. 25.50 11.63
Fourth Quarter................................................. 26.25 16.63
1998
First Quarter.................................................. $19.31 $11.63
Second Quarter................................................. 23.25 14.19
Third Quarter.................................................. 19.00 9.75
Fourth Quarter................................................. 21.38 10.50
1999
First Quarter (through March 18, 1999)......................... $23.00 $18.16
</TABLE>
On March 18, 1999, the last reported sale price of the Common Stock as
reported by Nasdaq was $19.50. As of February 23, 1999, there were
approximately 5,900 holders of record of the Common Stock.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain any future earnings for use in our business and,
therefore, do not anticipate paying any cash dividends in the foreseeable
future.
S-11
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1998, the consolidated
capitalization of the Company (1) on a historical basis and (2) as adjusted to
give effect to the offering of 2,500,000 shares of Common Stock and the
application of the net proceeds of the offering as if it had occurred on
December 31, 1998, after deducting the underwriting discount and estimated
offering expenses that will have been paid by us. See "Use of Proceeds" for a
description of how we intend to use the net proceeds from this offering. The
information set forth below should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes to the
Consolidated Financial Statements of the Company incorporated by reference in
this Prospectus Supplement.
<TABLE>
<CAPTION>
As of December 31, 1998
--------------------------
Historical As Adjusted
----------- ------------
(in thousands)
<S> <C> <C>
Cash............................................... $ 128 $ 128
=========== ===========
Debt(1):
Revolving credit facility........................ $ 24,900 $ --
Term loan facility............................... 66,400 46,650
----------- -----------
Total debt..................................... 91,300 46,650
----------- -----------
Stockholders' equity:
Preferred Stock, $0.01 par value (4,000,000
shares authorized; none issued and
outstanding).................................... -- --
Common Stock, $0.01 par value (30,000,000 shares
authorized; 11,881,377 issued and outstanding,
14,381,377 shares as adjusted).................. 119 144
Additional paid-in capital......................... 102,354 146,979
Accumulated deficit................................ (9,243) (9,243)
Cumulative translation adjustment.................. 3,983 3,983
----------- -----------
Total stockholders' equity..................... 97,213 141,863
----------- -----------
Total capitalization......................... $ 188,513 $ 188,513
=========== ===========
</TABLE>
- --------
(1) Amounts repaid under the revolving credit facility will be available for
reborrowing until termination of the revolving credit facility, subject to
stepdowns in the available borrowing amount. The term loan facility does
not have prepayment penalty provisions.
S-12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements of the Company incorporated by reference
in this Prospectus Supplement.
Introduction
In April 1997, the Company disposed of its acetaminophen (paracetamol, an
over-the-counter analgesic) business and in September 1997, the Company ceased
production of acetaminophen. At the time of the disposition, acetaminophen was
the largest volume product manufactured by the Company, representing
approximately 31% of the Company's 1996 pro forma revenues, but was not highly
profitable at the gross margin level. In connection with the disposition of
the business, the Company recorded a $8.1 million pre-tax restructuring charge
net of proceeds on disposition in the second quarter of 1997 and implemented
measures designed to offset the effect of the disposal on operating
performance. The Company's decision to dispose of its acetaminophen business
followed a strategic review of several alternatives and was based on a number
of factors, including the continued domination of the acetaminophen business
by high volume, low cost manufacturers and the Company's expectation that the
market price of acetaminophen would continue to erode.
On October 31, 1997, the Company completed the purchase of a Glaxo Wellcome
cGMP pharmaceutical production facility located in Annan, Scotland. The
Company paid approximately $66.8 million ((Pounds)40.0 million) for the
facility plus an additional payment for certain working capital of
approximately $1.7 million ((Pounds)1.0 million). As part of the transaction,
Glaxo Wellcome awarded the Company a five-year contract to supply certain
pharmaceutical intermediates and active ingredients which we estimate will
provide for approximately $450 million of aggregate sales. ChiRex purchased
all of the buildings, land and equipment at the 154-acre Annan, Scotland
property, encompassing three main production facilities, plus certain working
capital. The Company has invested approximately $24.0 million in 1998 and
plans to invest an additional $10.0 million in 1999 to accommodate newly
contracted products and to continue the modification of the facility for
multi-product pharmaceutical fine chemical manufacturing. Under the Glaxo
supply agreement, the Company will manufacture up to ten products at the Annan
and Dudley facilities. The acquisition has been accounted for as a purchase
and, accordingly, the operating results of the Annan facility have been
included in the Company's consolidated financial statements from the date of
acquisition.
In July 1998, the Company announced a restructuring, including management
changes, and the transition to a product management structure. The Company
recorded restructuring and other expenses of $3.2 million in 1998. The 1998
restructuring and other expenses consist of $2.9 million of severance costs
related to management changes associated with implementing the product
management structure and $0.3 million of other costs.
Substantially all of the Company's revenues and expenses are denominated in
Pounds Sterling, and to prepare the Company's consolidated financial
statements such amounts are translated into Dollars at average exchange rates
in accordance with generally accepted accounting principles. The average
exchange rate used to make this translation in 1996, 1997 and 1998 was $1.56,
$1.65 and $1.66, respectively, per (Pounds)1.00. Period-to-period changes in
exchange rates can affect the comparability of the Company's consolidated
financial statements.
S-13
<PAGE>
The following table summarizes certain operating results for the three
years ended December 31, 1998 based on the adjusted results for 1998 and 1997
and the pro forma adjusted results for 1996 as set forth below under
"-- Results of Operations":
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
% of % of % of
1996 Revenues 1997 Revenues 1998 Revenues
------- -------- ------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $89,827 100.0% $94,100 100.0% $119,663 100.0%
Cost of goods sold........ 67,812 75.5 71,440 75.9 87,876 73.4
------- ----- ------- ----- -------- -----
Gross profit.............. 22,015 24.5 22,660 24.1 31,787 26.6
Research and development.. 4,075 4.5 3,937 4.2 4,389 3.7
Selling, general &
administrative........... 9,252 10.3 9,423 10.0 12,622 10.5
Goodwill amortization..... 1,149 1.3 1,164 1.2 1,164 1.0
------- ----- ------- ----- -------- -----
Operating income.......... $ 7,539 8.4% $ 8,136 8.6% $ 13,612 11.4%
======= ===== ======= ===== ======== =====
Revenues by type:
Core...................... $48,445 54.0% $68,130 72.4% $114,686 95.8%
Non-core.................. 12,333 13.7 6,029 6.4 3,742 3.1
Acetaminophen............. 27,874 31.0 19,205 20.4 782 0.7
Licences and royalties.... 1,175 1.3 736 0.8 453 0.4
------- ----- ------- ----- -------- -----
Total..................... $89,827 100.0% $94,100 100.0% $119,663 100.0%
======= ===== ======= ===== ======== =====
</TABLE>
Results of Operations
In order to make the comparison of financial information more meaningful,
the following tables set forth (i) the historical results for 1997 and 1998 as
adjusted to exclude various restructuring and other non-recurring expenses,
(ii) the historical results for 1996 and the pro forma 1996 results (giving
effect to the formation of the Company), and as further adjusted to exclude
various charges resulting from the formation of the Company (consisting of
adjustments to restate inventory at fair value, write-off of acquired in-
process research and development and expense relating to certain stock
compensation). All intercompany transactions requiring elimination have been
eliminated. The pro forma as adjusted financial data for 1996 are not
necessarily indicative of future operations or what the Company's results of
operations would actually have been had the various transactions set forth
below occurred as described. The period-to-period comparisons that follow the
tables compare the pro forma as adjusted results of operations for 1996 and
the as adjusted results of operations for 1997 and 1998 set forth in the
following tables. For a more complete description of the formation of the
Company see Notes 1 and 2 to the Consolidated Financial Statements of the
Company incorporated by reference in this Prospectus Supplement.
S-14
<PAGE>
ChiRex Inc. Comparative Operating Results
For Years Ended December 31, 1998, 1997 and 1996 (in thousands)
<TABLE>
<CAPTION>
1998 ChiRex Inc. Adjustments As Adjusted
- ---- ----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................. $119,663 $ -- $119,663
Cost of goods sold....................... 87,876 -- 87,876
-------- ------- --------
Gross profit............................. 31,787 -- 31,787
Research and development................. 4,389 -- 4,389
Selling, general and administrative...... 12,622 -- 12,622
Goodwill amortization.................... 1,164 -- 1,164
Restructuring and other expenses......... 3,242 (3,242)(1) --
Interest expense, net.................... 5,829 -- 5,829
-------- ------- --------
Income before income taxes............... 4,541 3,242 7,783
Provision for income taxes............... (2,373) (621)(2) (2,994)
-------- ------- --------
Net income............................... $ 2,168 $ 2,621 $ 4,789
======== ======= ========
<CAPTION>
1997 ChiRex Inc. Adjustments As Adjusted
- ---- ----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................. $ 94,100 $ -- $ 94,100
Cost of goods sold....................... 71,440 -- 71,440
-------- ------- --------
Gross profit............................. 22,660 -- 22,660
Research and development................. 3,937 -- 3,937
Selling, general and administrative...... 9,423 -- 9,423
Goodwill amortization.................... 1,164 -- 1,164
Restructuring expenses net of proceeds... 8,069 (8,069)(3) --
Interest expense, net.................... 1,052 -- 1,052
-------- ------- --------
Income (loss) before income taxes........ (985) 8,069 7,084
Benefit (provision) for income taxes..... 335 (2,572)(4) (2,237)
-------- ------- --------
Net income (loss)........................ $ (650) $ 5,497 $ 4,847
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
ChiRex
(Holdings) Pro Forma Pro Pro Forma
1996 ChiRex Inc. Limited(5) Adjustments Forma Adjustments As Adjusted
- ---- ----------- ---------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $74,615 $15,212 $ -- $89,827 $ -- $89,827
Cost of goods sold...... 56,508 12,564 112 (6) 69,184 (1,372)(10) 67,812
------- ------- ----- ------- ------- -------
Gross profit............ 18,107 2,648 (112) 20,643 1,372 22,015
Research and
development............ 9,307 558 -- 9,865 (5,790)(11) 4,075
Selling, general and
administrative......... 13,563 1,300 -- 14,863 (5,611)(12) 9,252
Goodwill amortization... 924 -- 225 (7) 1,149 -- 1,149
Interest expense, net... 755 690 (440)(8) 1,005 -- 1,005
------- ------- ----- ------- ------- -------
Income (loss) before
income taxes........... (6,442) 100 103 (6,239) 12,773 6,534
Benefit (provision) for
income taxes........... (1,867) (33) (108)(9) (2,008) (453)(13) (2,461)
------- ------- ----- ------- ------- -------
Net income (loss)....... $(8,309) $ 67 $ (5) $(8,247) $12,320 $ 4,073
======= ======= ===== ======= ======= =======
</TABLE>
(1) To reverse the effect of the restructuring and other expenses.
(2) Tax effect of tax deductible adjustments described in note (1) above.
(3) To reverse the effect of the restructuring and asset impairment charge
net of proceeds received on the disposal of the acetaminophen business.
(4) Tax effect of the adjustment described in note (3) above.
(5) This covers ChiRex (Holdings) Limited from January 1, 1996 through March
11, 1996.
(6) Increase in depreciation reflecting the increased valuation of ChiRex
(Holdings) Limited's fixed assets for the period prior to the formation
of the Company.
(7) Increase in amortization of goodwill related to the period prior to the
formation of the Company.
(8) Reduction in interest expense related to debt retired in connection with
the formation of the Company.
(9) Income tax effect of pro forma adjustments, excluding amortization of
goodwill, which is not deductible for tax purposes.
(10)To reverse the effect of the purchase method of accounting step-up of
inventory to fair value at the time of the formation of the Company.
(11) To reverse the effect of the write-off of research and development
expenses that were in process at the time of the formation of the
Company.
(12) To reverse the effect of a stock compensation charge associated with
granting of stock and options to purchase stock in connection with the
formation of the Company.
(13) Tax effect of the adjustment described in note (9) above.
S-15
<PAGE>
Years ended December 31, 1997 and 1998
Substantially all of the Company's revenues in 1998 were generated from the
manufacture and sale of products. Total revenues increased $25.6 million or
27.2%, to $119.7 million in 1998, from $94.1 million in 1997, as new products
were introduced and shipments under the Glaxo Wellcome supply contract
increased, partly offset by the unfavorable effect on revenues from the sale
of the acetaminophen business which contributed $19.2 million in 1997 or 20.4%
of total revenues. Existing core-product revenue increased by $41.3 million,
and seven new core products contributed $5.3 million of revenues in 1998.
Revenues from core products of $114.7 million, which accounted for 95.8% of
revenues in 1998, increased by $46.6 million or 68.3%, while revenues from
non-core products of $3.7 million accounted for 3.1% of revenues in 1998,
decreased by $2.3 million or 37.9%. The Company expects core revenues to
increase in 1999 due to higher shipments under the Glaxo Wellcome supply
agreement and revenues from new core products. License fee and royalty income
declined $0.3 million due to the decline in demand for the products generating
such revenue. Product price changes did not contribute significantly to
changes in revenue between the two periods.
Cost of goods sold increased $16.4 million, or 23.0%, to $87.9 million in
1998 from $71.4 million in 1997. This increase is due to the higher volume of
new products and expenses associated with new product introductions, partly
offset by lower acetaminophen and non-core product sales. Gross margin
percentage increased to 26.6% in 1998 from 24.1% in 1997 due to higher margin
new product sales and the inclusion in 1997 of a $1.2 million inventory
reserve. The 1998 gross margin was adversely affected by the under-utilization
of the Annan facility during its refurbishment into a multi-product
pharmaceutical fine chemical manufacturing facility.
Research and development expenses increased $0.5 million, or 11.5%, to $4.4
million in 1998 from $3.9 million in 1997. This increase was due primarily to
the cost of additional research chemists and pilot plant costs to support the
new product pipeline, partly offset by lower technology support expenses.
Research and development expenses are expected to increase in 1999 due to the
formation of the CTC. The Company is committed to improving and expanding its
research and development activities, including commercializing its proprietary
process technologies.
Selling, general and administrative expenses increased $3.2 million, or
33.9%, to $12.6 million in 1998. The increase is attributable to additional
costs associated with the Annan facility acquired in the fourth quarter of
1997, senior management recruitment expenses and costs associated with the
formation of the CTC.
Interest expense was $5.8 million in 1998 compared to $1.1 million in 1997.
This is a result of higher borrowing levels resulting from the acquisition of
the Annan facility in the fourth quarter of 1997.
Income tax expense was $3.0 million in 1998, an effective tax rate of
38.5%, compared to $2.2 million in 1997, an effective tax rate of 31.6%. The
effective tax rate in 1998 is greater than 1997 primarily due to incremental
non-deductible charges incurred during the year.
As a result of the factors described above, the as adjusted net income was
$4.8 million in 1998, comparable to the as adjusted net income in 1997.
Years ended December 31, 1996 and 1997
Substantially all of the Company's revenues in 1997 were generated from the
manufacture and sale of products. Revenues of $94.1 million in 1997 increased
$4.3 million, or 4.8%, from $89.8 million in 1996. Revenues from core products
of $68.1 million, which accounted for 72.4% of revenues in 1997, increased by
$19.7 million or 40.6%, while revenues from non-core products (excluding
acetaminophen) of $6.0 million, which accounted for 6.4% of revenues in 1997,
decreased by $6.3 million or 51.1%. Existing core-product revenues increased
by $15.6 million, and seven new products contributed $4.1 million of revenues
in 1997. Revenues of $19.2 million attributable to acetaminophen, which
accounted for 20.4% of revenues in 1997, declined by $8.7 million or 31.1%
compared to 1996 due primarily to the sale of the business in 1997. License
S-16
<PAGE>
fee and royalty income declined $0.4 million due to the decline in demand for
the products generating such revenue. Product price changes did not contribute
significantly to changes in revenue between the two periods.
Cost of goods sold increased $3.6 million, or 5.4%, to $71.4 million in
1997. Of the increase, approximately $1.2 million relates to reserves recorded
in 1997 for certain inventory including Phentermine Hydrochloride, one of the
active ingredients in the dietary suppressant combined therapy commonly known
as "Fen-Phen", that was the subject of an FDA action resulting in
significantly reduced demand for the drug. The remainder of the increase can
be attributable to the higher level of sales and the Company's introduction of
new products.
Research and development expenses decreased $0.1 million, or 3.4%, to $3.9
million in 1997 from $4.0 million in 1996. Development activity in 1997
remained at a high level to support new product development.
Selling, general and administrative expenses increased $0.2 million, or
1.8%, to $9.4 million in 1997. The increase was attributable to approximately
$0.4 million of additional expenses generated at the Annan facility after its
acquisition partly offset by a reduction in fixed costs following changes to
the Company's organizational structure.
Interest expense, net in 1997 of $1.1 million, was $0.1 million higher than
last year because of lower debt borrowings early in the year as proceeds
received from the secondary offering (see Note 2 to the Consolidated Financial
Statements of the Company incorporated by reference in this Prospectus
Supplement) were used to reduce bank borrowings, which more than offset higher
borrowing requirements in the fourth quarter of 1997 following the acquisition
of the Annan facility which was financed by bank borrowings.
Income tax expense was $2.2 million in 1997, an effective tax rate of
31.6%, compared to $2.5 million in 1996, an effective tax rate of 37.7%. The
effective tax rate in 1997 is less then 1996 due to the recognition of a $0.4
million deferred tax benefit, resulting from the enactment of a statutory rate
reduction in the UK from 33% to 31% in 1997. The Company's effective tax rate
generally exceeds the statutory rates primarily due to non-deductible
amortization of goodwill.
As a result of the factors described above, the as adjusted net income was
$4.8 million in 1997 compared to pro forma as adjusted net income of $4.1
million in 1996.
Liquidity and Capital Resources
Cash provided from operations was $22.4 million in 1998. The Company
generated $24.2 million in cash from operations before $1.8 million of cash
restructuring charges incurred in 1998. Operating working capital, defined as
working capital excluding cash and the current portion of long-term debt,
decreased $3.0 million in 1998 primarily due to a decrease in accounts
receivable. Cash provided by operations of $4.3 million in 1997 reflects the
overall profitability of the business prior to the impact of the sale of the
acetaminophen business less the cash costs of restructuring charges incurred
in 1997. The Company generated $10.5 million in cash from operating activities
before $6.2 million of cash restructuring charges incurred in 1997 related to
the disposal of the acetaminophen business. Operating working capital
increased $5.3 million in 1997 largely due to an increase in accounts
receivable in the fourth quarter.
Net cash used in investing activities was $41.1 million in 1998, consisting
of capital spending for the modification of the Annan facility for multi-
product pharmaceutical fine chemical manufacturing, and capacity expansion for
new products and maintenance capital expenditures at the Dudley facility. Net
cash used in investing activities was $77.5 million in 1997, consisting of the
acquisition of the Annan facility for $69.5 million and $12.1 million in
capacity expansion and maintenance capital expenditures primarily at the
Dudley facility. These expenditures were partly offset by $4.1 million in
proceeds received from the sale of the acetaminophen business.
Net cash generated from financing activities in 1998 was $13.4 million
primarily from additional borrowings under the Company's credit facility. The
Company also received $0.9 million in proceeds from the exercise of stock
options in 1998.
S-17
<PAGE>
The Company entered into a senior secured term-loan and revolving credit
agreement in October 1997, with a group of banks allowing it to borrow up to
(Pounds)62.0 million (approximately $103.0 million) for a five-year period
(the "Facilities Agreement"). The Facilities Agreement consists of a
(Pounds)40.0 million (approximately $66.4 million) term loan and a
(Pounds)22.0 million (approximately $36.5 million) revolving credit facility.
At December 31, 1998, (Pounds)40.0 million (approximately $66.4 million) was
outstanding under the term loan and (Pounds)15.0 million (approximately $24.9
million) was outstanding under the revolving credit facility. See Note 7 to
the Consolidated Financial Statements of the Company incorporated by reference
in this Prospectus Supplement. The proceeds from this offering will be used to
reduce outstanding indebtedness under the Facilities Agreement. To the extent
that loans outstanding under the revolving credit facility are repaid, the
amount available to the Company under that facility will increase accordingly.
The Company believes that the funds generated from operations and funds
available under the Facilities Agreement will be sufficient to expand and grow
its business in accordance with its current plans. The Company's ability to
make acquisitions and to meet its long-term capital requirements and
obligations in 1999 and beyond will depend on many factors, including but not
limited to, the rate, if any, at which the Company's cash flow increases, the
ability and willingness of the Company to accomplish acquisitions with its
capital stock and the availability to the Company of public and private debt
and equity financing. No assurance can be given that additional financing, if
required, will be available or that if available, it will be available on
terms favorable to the Company. The Company anticipates capital expenditures
will be approximately $20.0 million during 1999. Of this, approximately $10.0
million will be used for the completion of the Annan facility and
approximately $10.0 million will be normal maintenance of the Dudley and Annan
sites.
Foreign Currency
For 1996, 1997 and 1998, net sales of the Company's products outside the
United States totaled approximately $73.4 million, $93.3 million and $119.2
million, representing 98%, 99% and 99% of the Company's net sales for those
years. The Company currently expects that sales of its products outside the
United States will continue to be a substantial percentage of its net sales.
The Company believes it has a natural cash currency hedge because its
operating expenses and revenues tend to be denominated in matched currencies.
Also, the Company has partly offset foreign currency-denominated assets with
foreign currency-denominated liabilities.
Financial results of the Company could be adversely or beneficially
affected by fluctuations in foreign exchange rates. Fluctuations in the value
of foreign currencies will affect the Dollar value of the Company's net
investment in its foreign subsidiaries, with related effects included in a
separate component of stockholders' equity. Operating results of foreign
subsidiaries will be translated into Dollars at average monthly exchange
rates. In addition, the Dollar value of transactions based in foreign currency
also fluctuates with exchange rates. The Company expects that the largest
foreign currency exposure will result from activity in Pounds Sterling and
Euros.
Year 2000 Disclosure
The Company has dedicated internal resources to identify and resolve "Year
2000" compliance issues with respect to computer systems and applications
utilized by the Company. The Company has also engaged external resources,
including hiring an independent consulting firm, and will purchase necessary
computer software upgrades to become year 2000 compliant. The Company will
develop comprehensive testing procedures once necessary software and equipment
have been installed to validate year 2000 compliance. The Company is
implementing a year 2000 compliant management information system at its Annan
facility in connection with its business plans for this location. The
Company's plan is to implement these systems at the Company's other locations,
including the Dudley facility, in 1999. The Company expects to spend
approximately $7.1 million on systems and equipment which are year 2000
compliant and will expense these costs in accordance with current accounting
guidance.
S-18
<PAGE>
The Company believes that the systems at two of the three production
facilities at Annan are year 2000 compliant. At present, the Company is not
utilizing the third production facility at Annan. In the event that the
Company commences operations at this third facility, it expects to spend
approximately $1.0 million upgrading the facility's computer systems and
applications and will expense these costs in accordance with current
accounting guidance.
No assurance can be given that the year 2000 compliance issues will be
resolved without any future disruption or that the Company will not incur
significant additional expense in resolving the issue. In addition, the
failure of certain of the Company's significant suppliers and customers to
address the year 2000 compliance issues could have a material adverse effect
on the Company.
Contingency plans have been addressed for all major computer systems and
applications, and they include manual capability of certain business areas if
necessary, and the controlled shutdown and start-up of the manufacturing plant
for a minimum period of days during the date change. The approach,
methodology, plans and contingencies for internal processes have been reviewed
by our independent computer consultant and are subject to further development
and testing. With regards to external factors such as supply of raw materials,
access to funds and potential utility disruption, the Company's contingency
plans are at a preliminary stage and require further development.
New Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity
recognizes all derivatives as either assets or liabilities in the statement of
financial position and measures those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as (a) a hedge
of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variability in cash flows attributable to a particular risk or (c) a hedge of
the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available for sale security and a forecasted
transaction. The Company will be required to implement SFAS No. 133 for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Company
expects the adoption of this pronouncement will not have a material effect on
the Company's financial statements.
S-19
<PAGE>
BUSINESS
We provide a broad range of outsourcing services to pharmaceutical and life
science companies, from the early stages of post-discovery drug development to
full scale manufacturing of active ingredients. By providing process
development expertise, pilot plant capacity and full scale manufacturing
capabilities, we are able to offer our customers a complete and integrated
package of services throughout the product life cycle. The diagram below sets
forth the different phases of drug discovery and development and indicates the
various services which we offer as our customers move through the drug
development process:
Product Development Life Cycle
Discovery Pre- IND Phase I Phase II Phase III NDA Commercialization
clinical
ChiRex
Technology Center
Process Research and Development
o Proprietary technology to speed process research
o Contract process development
o Technology licensing
o cGMP small scale capability (0.1-15 kilograms)
o Analytical methods development
o Scale-up synthesis
Chirex
Development Center
Scale-up Pilot Plant Production
o Process development for rapid scale-up
o Hazard evaluation
o cGMP pilot plant (10-10,000 kilograms)
o Analytical validation for cGMP
o Drug master file capability
o In-house regulatory expertise
o Supply clinical trial quantities of
pharmaceutical active ingredients
ChiRex
Manufacturing Operations
Commercial Scale Production
o 2 large scale cGMP manufacturing facilities
o Multi-hundred metric ton capability
o Process and plant design
o Multi-step complex organic synthesis at scale
o Drug master file and support for new drug
applications
S-20
<PAGE>
Product Development Life Cycle
Discovery
The initial challenge in the drug development process is discovery of a
compound which may have a therapeutic effect for a particular disease. Our
pharmaceutical and life science customers identify a lead compound which
interacts with certain biological targets, such as an enzyme or other protein,
which are associated with a disease. The discovery process involves screening
or testing multiple chemical compounds and their interactions with biological
targets to identify the most promising lead compounds for further study.
As pharmaceutical and life science companies face increasing pressure to
bring new drugs to market in the shortest period of time, our customers have
focused their efforts and resources on the discovery stage. As a result, these
customers have increasingly sought to outsource services in the subsequent
stages of the drug development process to companies such as ours to minimize
costs and development time.
Pre-Clinical
After a lead compound is identified and selected in the discovery phase,
the compound is evaluated for efficacy and safety during pre-clinical tests on
animal models.
While a product progresses through pre-clinical trials, customers require
process research and development services which will allow for a cost-
effective, safe and timely scale-up of a compound as it progresses from the
laboratory to pilot plant and ultimately to commercial scale manufacturing.
Process research and development seeks to provide a simple, economic and non-
hazardous route to production of a lead compound at the required scale. In
addition, customers often require small scale cGMP capabilities to produce
quantities of a product for clinical trials and analytical methods development
for regulatory and quality control purposes.
Customers are increasingly seeking outsourcing companies, such as ours,
which can provide seamless technology transfer throughout the development
process to push a product through the development life cycle as rapidly as
possible. As a result, process development and other related services can be a
valuable source for developing relationships with customers for pilot plant
production and ultimately commercial scale manufacturing. In addition, once a
company has received certification for a product by the applicable regulatory
authority, it is advantageous for the customer to maintain the relationship
with such company. Accordingly, expertise in process development can solidify
a relationship with a customer early in the product development timeline and
help secure longer term commercial-scale supply arrangements.
IND/Phase I/Phase II/Phase III/NDA
An investigational new drug application ("IND") is one of the first steps
in the clinical trial phase of drug development. Clinical trials are divided
into three investigational phases which test the use of a drug in humans.
Phase I tests the drug for safety; Phase II tests the drug for efficacy and
safety in a relatively small sample of patients; and Phase III tests the drug
for efficacy in a larger sample of patients. Upon completion of the clinical
trial phases, a new drug application ("NDA") is prepared which bridges the
development process from clinical trial to full scale commercial manufacture.
As a drug proceeds through the clinical testing phases, it is crucial that
its production conform with appropriate cGMP standards. In addition, the
process developed in the laboratories needs to be validated at a larger scale
to establish that it can be consistently produced at the required
specifications as it is scaled-up to commercial quantities. These steps are
often conducted in a pilot plant environment which can provide hazard
evaluation, analytical method validation, identity and purity testing as well
as significant regulatory expertise and documentation services.
Commercialization
After a drug has been approved, commercial quantities of the drug are
manufactured and marketed for commercial sale. Pharmaceutical and life science
companies frequently outsource the manufacture of bulk
S-21
<PAGE>
intermediates and pharmaceutical active ingredients. Companies which provide
such services must have facilities that conform to strict guidelines and can
pass FDA inspections. In addition, pharmaceutical fine chemical manufacturers
require significant expertise due to the high level of development engineering
and synthesis design required for these products.
Services Offered
We believe that we are one of only a few companies to offer an integrated
package of services from post-discovery to full scale manufacturing of active
ingredients. Through the CTC, the Development Center and our world-class cGMP
manufacturing facilities, we offer a convenient and seamless solution to our
customers' outsourcing needs.
ChiRex Technology Center
We plan to commence operations at the CTC in April 1999. The CTC, which
will be located in Boston, Massachusetts in close proximity to Harvard and
MIT, will consist of 11,000 square feet of laboratories which can accommodate
up to 35 research scientists. Professor Eric Jacobsen, Professor of Chemistry
and Chemical Biology at Harvard University and inventor of some of our leading
proprietary technologies, will be the scientific director of the CTC. The CTC
will focus on the design, development and synthesis of molecules.
The CTC will offer various process development services under cGMP
guidelines, including: (i) contract process development; (ii) custom
synthesis; (iii) contract analytical development; and (iv) process research
utilizing our proprietary intellectual property. The CTC will also serve as a
source of licensing revenue for our technologies.
Process development and custom synthesis services offered by the CTC will
include:
. synthesis route selection;
. process research to make finished quality products;
. samples of material and supply of small quantities;
. development work to generate a technology package which will allow us
or the customer to manufacture at scale; and
. transfer of technology by CTC personnel to the manufacturing
location.
Analytical development services offered by the CTC will include:
. test method development and validation;
. quality control and release testing;
. high performance liquid and/or gas chromatography for the separation
of enantiomers and identification of impurities; and
. nuclear magnetic resonance services.
Process research utilizing our proprietary technology will include:
. process development and sample quantities to qualify with customers;
. scale-up to 50 liter scale at the CTC or kilogram to ton production
at our cGMP manufacturing facilities; and
. validated scaled technology transfer package.
The state-of-the-art CTC laboratories will operate under cGMP using the
standard operating procedures developed at our large-scale manufacturing
facilities in Dudley and Annan and which have been refined over the past 30
years. The CTC equipment has been designed to mirror that of the Development
Center to aid in technology transfers. The CTC's state-of-the-art equipment
will include:
S-22
<PAGE>
.GC-Mass Spectrometry, GC and HPLC Systems with autosamplers;
.400 MHz JEOL multi-nuclear magnetic resonance spectrometer; and
.an isolated 50 liter glassware facility to provide kilogram quantities
of materials.
Development Center
The Development Center primarily prepares chemical processes for commercial
manufacturing by conducting economic, hazard and engineering evaluations.
Opened at our Dudley facility in 1996, the Development Center consists of
research and development laboratories and an associated pilot plant. The
Development Center offers a variety of services, including: (i) process
development based on either customer technologies or our proprietary
technologies, (ii) hazard evaluation, (iii) impurity profile characterization
and analytical method validation, (iv) supply of clinical trial material up to
Phase III clinical trials, and (v) state-of-the-art analytical structure
elucidation.
The Development Center is staffed with over 50 scientists, including
experts in process development, analytical and hazard evaluation. These
Development Center scientists manage the product between laboratory production
and commercial scale manufacture. During this intermediate process and before
commencing commercial manufacture, each scientific team carefully considers
the safety, speed and cost of each project. The Development Center uses small-
scale (25L and 50L) equipment to pilot plant size reactors to replicate
processes which assists in evaluations and seamless technology transfer. With
safety a primary consideration, the hazard evaluation laboratory enables us to
analyze each process before it is scaled up in the pilot plant. Equipment in
the hazard evaluation laboratory includes RC1 calorimeters, ARC and vent
sizing equipment, DSC and other standard hazard evaluation equipment.
In addition to assisting customers with early-stage molecule design and
development, the Development Center can also produce clinical trial material
quantities. These quantities are produced in the Development Center's pilot
plant, which allows for rapid scale-up from 50-1000 kilograms under cGMP
conditions.
The following table sets forth the number of projects worked on in the
Development Center during the past three years and the number of those
projects which incorporated our proprietary technology:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Projects (1)........................................... 67 53 48
Projects using ChiRex technologies (1)................. 18 22 24
Percentage of projects including ChiRex Technologies... 26.9% 41.5% 50.0%
</TABLE>
--------
(1)A project can span more than one fiscal year.
Of the projects that include our proprietary technologies, the following
table sets forth the number of projects sponsored by customers or the Company:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Customer sponsored......................................... 10 15 12
Company sponsored.......................................... 8 7 12
--- --- ---
Total projects with ChiRex technologies.................... 18 22 24
=== === ===
</TABLE>
The projects in the Development Center generated revenues for the years
ended December 31, 1996, 1997 and 1998 as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Product development revenues (1)(2)............. $3,143 $10,566 $12,947
Percentage of total revenues.................... 3.5% 11.2% 10.8%
</TABLE>
--------
(1) The revenue on a particular project may be recognized over more
than one fiscal year.
(2) Excludes a product that was manufactured in our pilot plant in
sufficient quantities to be treated as a commercial product.
S-23
<PAGE>
Manufacturing Facilities
We have two cGMP facilities, one in Dudley, England and the other in Annan,
Scotland. Our manufacturing facilities specialize in the scale-up and
commercial manufacture of intermediates and pharmaceutical active ingredients
under cGMP guidelines. Whether we design the initial synthesis or evaluate and
adapt a customer's process to our regulatory and efficiency standards, we
produce intermediates and pharmaceutical active ingredients in a highly-
regulated environment. Our facilities and processes used in the manufacture of
products for clinical use or for sale in the United States must be operated in
conformity with cGMP guidelines and must pass inspections by the FDA. We also
support the commercial production process with regulatory support, including
NDA and drug master file assistance.
The Dudley facility specializes in the scale-up and commercial-scale
production of intermediates and final products. The facility is located on 45
acres and consists of a former Sterling Winthrop facility with a production
capacity of 650 cubic meters (over 160,000 gallons). There are three main
production buildings at the Dudley site which have a variety of advanced
equipment to provide a flexible FDA-inspected, cGMP and ISO 9002 certified
manufacturing base. Two of the buildings provide flexible, multi-process
facilities (including a segregated bulk pharmaceutical purification suite
fitted with reactors, isolation and finishing equipment) capable of performing
an extensive range of chemical transformations. The third building is a plant
that was dedicated to the manufacture of acetaminophen and will be demolished
to allow for future capacity expansion.
The Annan facility, one of the world's best-equipped cGMP facilities,
specializes in the production of bulk pharmaceutical active ingredients. The
facility is located on a 154-acre site and was a former Glaxo Wellcome
facility. The site encompasses three main production buildings. Two of the
production buildings, operated as a unit since 1980 to produce large volumes
of an anti-hypertensive drug, have been extensively remodeled since acquired
in the fall of 1997 at a cost of approximately $24.0 million to accommodate
multiple products. Special features of these buildings include a computerized
process control system, a single fluid heat transfer system and a totally
enclosed plant with bulk handling systems (for both powders and liquids) to
ensure safe processing of chemicals and solvents. The third building, built in
1990 at a cost of $60.0 million, comprises nearly half the site capacity and
is available for future contract manufacturing demand.
Manufacturing and Process Development Technology
We have developed expertise in the large-scale operation of many classical
chemical transformation technologies and have the exclusive right to use our
proprietary technologies in a defined field on a perpetual basis. Our
proprietary technologies consist of proprietary synthesis and separation
technologies used in the manufacture of single-isomer products. The cost and
time of pharmaceutical product development has become significantly greater
for compounds developed as racemic mixtures as compared to single-isomer
chemicals, creating a demand for new processes and process technologies that
can produce single-isomer drugs quickly, efficiently and economically.
We have approximately 45 U.S. patents and several patent applications with
respect to our proprietary technologies. In addition, we have accumulated
experience in the effective management of the risks inherent in handling toxic
or hazardous raw materials and products and in carrying out hazardous chemical
reactions. Our expertise allows pharmaceutical companies to have complex
multi-step procedures carried out at a single site, which increases the
ability of such companies to maintain confidentiality, product supervision and
management.
S-24
<PAGE>
Our proprietary technologies consist of a broad platform of asymmetric
synthesis and resolution technologies, which we believe provide multiple
manufacturing routes to produce single-isomer chiral pharmaceutical
intermediates and active ingredients. We select the most appropriate
technology for a particular application based on several factors, including
the cost of any required catalyst and the availability and cost of the
starting materials. The following table summarizes certain aspects of our
proprietary technologies:
<TABLE>
<CAPTION>
Method of
Technology Use Phase Manufacture
- ------------------------ ------------------------- ---------- --------------------
<S> <C> <C> <C>
Kinetic Resolution...... Catalytic ring opening of Commerical Asymmetric Synthesis
epoxides to make chiral
epoxides and diols
Asymmetric Catalytic asymmetric Commercial Asymmetric Synthesis
dihydroxylation........ reaction to make chiral
diols using Sharpless
catalyst
Asymmetric Catalytic oxidation to Commercial Asymmetric Synthesis
expoxidation........... make chiral epoxides
using Jacobsen catalyst
Enzymatic resolution.... Enzymatic Commercial Enzymatic Resolution
biotransformation
Diastereomeric Resolution by Commercial Chemical Resolution
crystallization........ crystallization
Asymmetric reduction.... Catalytic reduction to Laboratory Asymmetric Synthesis
make chiral alcohols
Metal-Catalyzed Aromatic
Carbon-Heteroatom Manufacture of aromatic
Bonding-Forming amines, indoles and
Technologies (ABT)..... diphenyl ethers Laboratory Aromatic Coupling
</TABLE>
Relationship with Glaxo Wellcome
In the fall of 1997, we purchased Glaxo Wellcome's pharmaceutical
production facility located in Annan, Scotland for approximately (Pounds)41.0
million, including payment for certain working capital. We entered into a
supply agreement with Glaxo Wellcome to supply certain pharmaceutical
intermediates and active ingredients, which we estimate will provide for
approximately $450 million in aggregate sales over the life of the contract.
In connection with the Glaxo supply agreement, we invested approximately
(Pounds)14.5 million to remodel two of the production buildings to accommodate
multiple products. Prior to its acquisition by us, the Annan facility was one
of only four primary facilities that Glaxo Wellcome operated in the United
Kingdom. In connection with the acquisition of the Annan facility, we hired
most of the facility staff formerly employed by Glaxo Wellcome.
The Glaxo supply agreement provides for the purchase by Glaxo Wellcome from
us of intermediates and active ingredients for some of Glaxo Wellcome's most
important and innovative new drugs. In collaboration with Glaxo Wellcome, we
have undertaken to install production capacity for the main products covered
by the Glaxo supply agreement in excess of the contracted quantities.
Under the Glaxo supply agreement, Glaxo Wellcome agreed to purchase a
certain amount of products each year from us on a firm commitment basis. If
Glaxo Wellcome does not purchase such products from us in the amount of such
firm commitment (other than as a result of our default), it will pay to us the
Added Value of such products. As defined in the Glaxo supply agreement, "Added
Value" means the difference between the price at which we are to sell the
product to Glaxo Wellcome and the cost of the raw materials and variable costs
directly incurred in the manufacture, packaging and waste disposal processes.
The Glaxo supply agreement provides that if any amounts are owed by Glaxo
Wellcome under such provision, we will use reasonable endeavors to evaluate in
good faith the possibility of manufacturing additional products or volumes for
Glaxo Wellcome on the same terms.
S-25
<PAGE>
In addition to products to be supplied by us on a firm commitment basis,
the Glaxo supply agreement provides that certain products will be purchased by
Glaxo Wellcome on an intended purchase basis. In the event that such products
cannot be purchased by Glaxo Wellcome in the volumes specified or at all due
to lack of regulatory approval or market uncertainties in relation to such
products, the Glaxo supply agreement provides that Glaxo Wellcome will use its
best endeavors to purchase certain specified replacement products in a volume
which will result in the equivalent Added Value to us.
The Glaxo supply agreement also contains certain profit sharing terms which
provide that if orders in excess of volumes of products to be supplied on a
firm commitment basis and an intended purchase basis are placed, then any
Added Value to which we shall be entitled shall be shared between us and Glaxo
Wellcome in accordance with the terms of the agreement.
We have agreed under the Glaxo supply agreement to have sufficient capacity
to manufacture at least 10% in excess of orders placed by Glaxo Wellcome under
the terms of the Glaxo supply agreement. The products to be supplied by us
under the Glaxo supply agreement may be manufactured at either the Dudley or
Annan facilities.
The initial term of the Glaxo supply agreement is through December 31,
2002, and is automatically renewed for successive periods of twelve months
unless terminated by either party at the end of its initial term or at the end
of any renewal period by 24 months prior written notice. The Glaxo supply
agreement may also be terminated upon the occurrence of an insolvency event by
either party, a material breach of the terms of the agreement (subject to
certain cure periods), or upon 60 days notice by Glaxo Wellcome if at any time
prior to December 31, 2002, there occurs a Change of Control (as such term is
defined in the Glaxo supply agreement) of ChiRex (Annan) Limited.
Product Portfolio
Commercial Products
We currently manufacture in excess of 50 products on a commercial scale.
Approximately 90% of our product portfolio is pharmaceutical products with the
remaining 10% consisting of fragrance and flavor, agrichemical and polymer
products. Nearly all of the products produced or under development by us are
governed by secrecy agreements which contain, among other things, restrictions
on the disclosure of the customer, the product and the therapeutic indication.
Our customers' pharmaceutical products are used in the treatment of, among
others, cancer, cardiovascular disease, AIDS, urinary tract infections and
high cholesterol.
Development Products
We and our predecessors have over 30 years of experience collaborating with
pharmaceutical companies on the process development of new pharmaceutical
products. We manufacture development products upon the specific request of a
particular customer. Our work in the development stage of our customers'
products provides a strong foundation for securing supply arrangements for
full-scale manufacturing upon commercialization. Products are no longer
considered development products when they are produced by us on a commercial
scale.
S-26
<PAGE>
We provide development and pilot-scale manufacturing services for our
pharmaceutical customers. The following table sets forth 40 products in our
development pipeline which we believe have significant revenue potential.
Twenty-two of these products are produced at pilot-scale and had revenues
associated with them in the year ended December 31, 1998. Twenty-three of
these products incorporate chiral technologies, of which 21 use our
proprietary technologies. The remaining products are at an earlier stage in
the development cycle. We believe that the opening of the CTC will increase
the number of products under development.
<TABLE>
<CAPTION>
Number
of
Development Phase of Company
Drug(a) Products Representative Indications
- -------------------------- -------- -----------------------------------------
<S> <C> <C>
Commercial(b)............. 19 AIDS, Hypertension, Central Nervous
System Disorder, Diabetes and Allergies
Phase III................. 7 Cancer, Pancreatitis, Asthma and Migraine
Phase II.................. 8 Cancer and Antivirals
Preclinical/Phase
I/Unknown................ 6 Various
</TABLE>
(a) Based on customer provided or publicly available information.
(b) These products have either been approved or are being produced on a
commercial scale by manufacturers other than us.
S-27
<PAGE>
MANAGEMENT
Officers and Directors
The following table sets forth certain information, as of December 31,
1998, with respect to the executive officers, certain key management employees
and the Directors of the Company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael A. Griffith..... 40 Chairman of the Board and Chief Executive Officer
Ian D. Shott............ 41 Chief Operating Officer
Frank J. Wright......... 51 Executive Vice President, Corporate Development
Roger B. Pettman, 43 Vice President, General Manager ChiRex
Ph.D................... Technology Center
David F. Raynor......... 54 Vice President, Dudley Operations
Ian M. Brown............ 42 Vice President, Annan Operations
Jon E. Tropsa........... 43 Vice President, Finance
Dirk Detert, Ph.D....... 58 Director
Eric N. Jacobsen, Ph.D.. 39 Director
W. Dieter Zander........ 83 Director
</TABLE>
Michael A. Griffith has served as Chairman of the Board and Chief Executive
Officer since September 1, 1998. He served as co-CEO from July 7, 1998, as
Chief Financial Officer from April 10, 1996 and as Secretary from September 5,
1996 until September 1, 1998. Mr. Griffith has been a member of the Board of
Directors since October 17, 1996. From June 1994 until April 1996, Mr.
Griffith was a Director of Credit Suisse First Boston, and from August 1988
until June 1994, he was a Vice President at BT Securities Corporation, a
subsidiary of Bankers Trust Company. Mr. Griffith holds a Master of Management
in finance, marketing and international economics from the J.L. Kellogg
Graduate School of Management at Northwestern University and a Bachelor of
Science in Business Administration from the University of Kansas.
Ian D. Shott has served as the Chief Operating Officer of the Company since
September 1, 1998. From 1993 until joining the Company, Mr. Shott served as an
executive at Lonza Fine Chemicals, a Swiss-based contract manufacturing firm.
At Lonza, he held the positions of General Manager, Exclusive Fine Chemicals
and Head of International Supply Chain Management. Previously, he served at
ICI and Zeneca Fine Chemicals for 15 years, culminating in the position of
Business General Manager. Mr. Shott holds a B.Sc. in Chemical Engineering from
the Imperial College in London.
Frank J. Wright has served as Executive Vice President, Corporate
Development since December 17, 1998. Mr. Wright joined the Company as Vice
President, Annan Operations in November 1997, following the acquisition of the
Annan facility by the Company. During the previous 16 years, Mr. Wright served
in senior positions at Glaxo Wellcome in outsourcing and procurement,
manufacturing strategy and corporate development. He trained as a mechanical
engineer, and studied strategic business and management development, at
Liverpool University and London Business School.
Roger B. Pettman, Ph.D., has served as Vice President, General Manager
ChiRex Technology Center since September 1, 1998. From March 1996 to September
1, 1998, he served as Vice President, Sales and Marketing of the Company. From
1992 until March 1996, Dr. Pettman was Vice President, Sales and Marketing of
SepraChem Inc. He was United States Business Development Manager for Shell
Fine Chemical Co. from 1990 to 1992. He holds a B.Sc. degree and Ph.D. in
chemistry from Sheffield University and completed two years postdoctoral study
at Stanford University.
David F. Raynor has served as Vice President, Dudley Operations since March
1996. From 1991 until March 1996, he was Operations Director of Sterling
Organics Limited. Mr. Raynor held several senior positions with Sterling
Organics Limited since 1975. He holds a degree in chemistry, is a fellow of
the Royal Society of Chemistry and obtained a general management qualification
from Henley Business School.
S-28
<PAGE>
Ian M. Brown has served as Vice President, Annan Operations since September
1998. Mr. Brown joined ChiRex from Glaxo Wellcome following the Company's
acquisition of the Annan facility. During his 10 years with Glaxo Wellcome he
held a number of senior positions within the manufacturing operations of the
Annan facility. He holds a B.Sc. degree in Chemistry from Heriot-Watt
University, Edinburgh, is a Member of the Royal Society of Chemistry and has a
general management qualification from Henley Business School.
Jon E. Tropsa has served as Vice President, Finance since September 1,
1998. He served as Corporate Controller from September 15, 1997 to July 16,
1998 and as Vice President and Treasurer from July 16, 1998 to September 1,
1998. From April 1997 through September 1997, Mr. Tropsa was Corporate
Controller for Dynacast Inc., in Yorktown Heights, New York and from March
1990 through March 1997 Mr. Tropsa was Corporate Controller of Hargro
Associates of Stamford, Connecticut. Mr. Tropsa holds a B.S. in accounting
from Babson College and is a Certified Public Accountant.
Dirk Detert, Ph.D., is a member of the Board of Directors of the Company.
Dr. Detert has 27 years of experience in the pharmaceutical industry. Dr.
Detert was formerly the General Manager of Wellcome GmbH with responsibility
for Central Europe and Germany, as a Managing Director. He is a former Member
of the Board of the German Pharmaceutical Association and the German Chemical
Association. Dr. Detert holds a Ph.D. in Chemistry from the University of
Alberta, Edmonton, Canada and a Bachelor of Science in chemistry from the
University of Kiel.
Eric N. Jacobsen, Ph.D., is a member of the Board of Directors of the
Company. Professor Jacobsen is a Professor in the Department of Chemistry and
Chemical Biology at Harvard University and a member of the ChiRex Inc.
Scientific Advisory Board and, as of October 1, 1998, serves as the Scientific
Director of the ChiRex Technology Center on a consultancy basis. He also
currently serves as consultant to Merck & Co., Inc. and Versicor, Inc., where
he is co-founder and Chairman of the Scientific Advisory Board. Prior to
joining the faculty at Harvard, Dr. Jacobsen served from 1988 to 1993 at the
University of Illinois at Urbana-Champaign, most recently as Associate
Professor. He received his B.S. in Chemistry from New York University, his
Ph.D. from the University of California, Berkeley, and has served as a
National Institute of Health Postdoctoral Fellow at the Massachusetts
Institute of Technology.
W. Dieter Zander is a member of the Board of Directors of the Company. Mr.
Zander was educated in Germany and Switzerland and founded Henley & Co., Inc.,
a chemical pharmaceutical company with offices in the United States and
Canada. In 1980, Henley & Co. was sold to Boehringer Ingelheim GmbH. Mr.
Zander later joined Arnhold and S. Bleichroeder, Inc., a privately owned
investment bank, where he is currently Managing Director in the International
Corporate Finance Department.
S-29
<PAGE>
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board consists of individuals with
demonstrated expertise in various fields who advise the Company concerning
long-term scientific planning, research and development. Members also evaluate
the Company's research programs, recommend personnel to the Company and advise
the Company on technological matters. In addition, the Company has established
consulting relationships with scientific and chemical experts who advise the
Company on a project-specific basis.
Except for Messrs. Pettman and McKillop, the members of the Scientific
Advisory Board are not employed by the Company, and members may have other
commitments to or consulting or advisory contracts with their employers or
other entities that may conflict or compete with their obligations to the
Company. Accordingly, such persons are expected to devote only a small portion
of their time to the Company.
The members of the Company's Scientific Advisory Board are as follows:
Alexander McKillop, Ph.D......... Chairman
Stephen Buchwald, Ph.D........... Massachusetts Institute of Technology
Eric N. Jacobsen, Ph.D........... Harvard University
J. Bryan Jones, Ph.D............. University of Toronto
Roger B. Pettman, Ph.D........... ChiRex Inc.
William H. Pirkle, Ph.D.......... University of Illinois
K. Barry Sharpless, Ph.D......... Scripps Research Institute
S-30
<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
A general discussion of certain United States federal income and estate tax
consequences of the acquisition, ownership and disposition of Common Stock
applicable to Non-U.S. Holders (as defined) of Common Stock is set forth
below. In general, a "Non U.S. Holder" is a person other than: (i) a citizen
or resident (as defined for United States federal income or estate tax
purposes, as the case may be) of the United States; (ii) a corporation or
other entity taxable as a corporation organized in or under the laws of the
United States or a political subdivision thereof; (iii) an estate the income
of which is subject to United States federal income taxation regardless of its
source, or (iv) a trust if and only if (A) a court within the United States is
able to exercise primary supervision over the administration of the trust and
(B) one or more United States trustees have the authority to control all
substantial decisions of the trust. The discussion is based on current law and
is provided for general information only. The discussion does not address
aspects of United States federal taxation other than income and estate
taxation and does not address all aspects of federal income and estate
taxation. The discussion does not consider any specific facts or circumstances
that may apply to a particular Non-U.S. Holder and does not address all
aspects of United States federal income and estate tax laws that may be
relevant to Non-U.S. Holders that may be subject to special treatment under
such laws (for example, insurance companies, tax-exempt organizations,
financial institutions or broker-dealers). This discussion is based on the
Internal Revenue Code of 1986, as amended, Treasury Regulations promulgated
thereunder and administrative and judicial interpretations thereof, all of
which are subject to change, possibly with retroactive effect. ACCORDINGLY,
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX
CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF COMMON STOCK.
Dividends
In general, the gross amount of dividends paid to a Non-U.S. Holder will be
subject to United States withholding tax at a 30% rate (or any lower rate
prescribed by an applicable tax treaty) unless the dividends are (i)
effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States and a Form 4224 is filed with the withholding
agent or (ii) if a tax treaty applies, are attributable to a United States
permanent establishment of the Non-U.S. Holder. If either exception applies,
the dividend will be taxed at ordinary U.S. federal income tax rates. A Non-
U.S. Holder may be required to satisfy certain certification requirements in
order to claim the benefit of an applicable treaty rate or otherwise claim a
reduction of, or exemption from, the withholding obligation pursuant to the
above described rules. In the case of a Non-U.S. Holder that is a corporation,
effectively connected income may also be subject to the branch profits tax,
except to the extent that an applicable tax treaty provides otherwise.
Sale of Common Stock
Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of his Common Stock
unless: (i) the Company has been, is, or becomes a "U.S. real property holding
corporation" for federal income tax purposes and certain other requirements
are met; (ii) the gain is effectively connected with a trade or business
carried on by the Non-U.S. Holder within the United States; (iii) the Common
Stock is disposed of by an individual Non-U.S. Holder who holds the Common
Stock as a capital asset and is present in the United States for 183 days or
more in the taxable year of the disposition or (iv) the Non-U.S. Holder is an
individual who lost his U.S. citizenship within the last 10 years and such
loss had, as one of its principle purposes, the avoidance of taxes, and the
gains are considered derived from sources within the United States. The
Company believes that it has not been, is not currently and, based upon its
current business plans, is not likely to become a U.S. real property holding
corporation. Non-U.S. Holders should consult applicable treaties, which may
exempt from United States taxation gains realized upon the disposition of
Common Stock in certain cases.
S-31
<PAGE>
Estate Tax
Common Stock owned or treated as owned by an individual Non-U.S. Holder at
the time of his death will be includible in the individual's gross estate for
United States federal estate tax purposes, unless an applicable treaty
provides otherwise, and may be subject to United States federal estate tax.
Backup Withholding and Information Reporting Requirements
On October 14, 1997, the IRS issued final regulations relating to
withholding, information reporting and backup withholding that unify current
certification procedures and forms and clarify reliance standards (the "Final
Regulations"). The Final Regulations were intended to be effective with
respect to payments made after December 31, 1998. The IRS has, however,
recently issued a notice stating that such Final Regulations will not be
effective until January 1, 2000.
Except as provided below, this section describes rules applicable to
payments made on or before the Final Regulations take effect. Backup
withholding (which generally is a withholding tax imposed at the rate of 31%
on certain payments to persons that fail to furnish the information required
under the United States information reporting and backup withholding rules)
generally will not apply to (i) dividends paid to Non-U.S. Holders that are
subject to the 30% withholding discussed above (or that are not so subject
because a tax treaty applies that reduces or eliminates such 30% withholding)
or (ii) dividends paid on the Common Stock to a Non-U.S. Holder at an address
outside the United States. The Company will be required to report annually to
the IRS and to each Non-U.S. Holder the amount of dividends paid to, and the
tax withheld with respect to, such holder, regardless of whether any tax was
actually withheld. This information may also be made available to the tax
authorities in the Non-U.S. Holder's country of residence.
In the case of a Non-U.S. Holder that sells Common Stock to or through a
United States office of a broker, the broker must backup withhold at a rate of
31% and report the sale to the IRS, unless the holder certifies its Non-U.S.
status under penalties of perjury or otherwise establishes an exemption. In
the case of a Non-U.S. Holder that sells Common Stock to or through the
foreign office of a United States broker, or a foreign broker with certain
types of relationships to the United States, the broker must report the sale
to the IRS (but not backup withhold) unless the broker has documentary
evidence in its files that the seller is a Non-U.S. Holder or certain other
conditions are met, or the holder otherwise establishes an exemption. A Non-
U.S. Holder will generally not be subject to information reporting or backup
withholding if such Non-U.S. Holder sells the Common Stock to or through a
foreign office of a non-United States broker.
Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder is allowable as a credit against the holder's U.S. federal
income tax, which may entitle the Non-U.S. Holder to a refund, provided that
the holder furnishes the required information to the IRS. In addition, certain
penalties may be imposed by the IRS on a Non-U.S. Holder who is required to
supply information but does not do so in the proper manner.
The Final Regulations eliminate the general current law presumption that
dividends paid to an address in a foreign country are paid to a resident of
that country. In addition, the Final Regulations impose certain certification
and documentation requirements on Non-U.S. Holders claiming the benefit of a
reduced withholding rate with respect to dividends under a tax treaty.
Prospective purchasers of Common Stock are urged to consult their tax
advisors as to the application of the current rules regarding backup
withholding and information reporting and as to the effect, if any, of the
Final Regulations on their acquisition, ownership and disposition of the
Common Stock.
S-32
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in a terms
agreement dated March 18, 1999, which incorporates by reference the
underwriting agreement filed as an exhibit to our registration statement on
Form S-3 (File No. 333-68849), we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, Hambrecht & Quist LLC and
Legg Mason Wood Walker, Incorporated, are acting as representatives, the
following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation............................... 1,275,000
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated...... 425,000
Hambrecht & Quist LLC................................................ 212,500
Legg Mason Wood Walker, Incorporated................................. 212,500
Invemed Associates, Inc. ............................................ 75,000
Janney Montgomery Scott Inc.......................................... 75,000
Pennsylvania Merchant Group.......................................... 75,000
Salomon Smith Barney Inc. ........................................... 75,000
Charles Schwab & Co., Inc............................................ 75,000
---------
Total.............................................................. 2,500,000
=========
</TABLE>
The terms agreement provides that the underwriters are obligated to
purchase all the shares of Common Stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The terms agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of Common Stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 375,000 additional shares at the initial public offering
price less underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of Common Stock.
The underwriters propose to offer the shares of Common Stock initially at
the public offering price on the cover page of this Prospectus Supplement and
to selling group members at that price less a concession of $0.57 per share.
The underwriters and selling group members may allow a discount of $0.10 per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Total
-----------------------------
Per Without With
Share Over-allotment Over-allotment
----- -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions
paid by us................................ $0.95 $2,375,000 $2,731,250
Expenses payable by us.................... $0.19 $ 475,000 $ 546,250
</TABLE>
We, and certain of our officers and directors, have agreed that we will not
offer, sell, contract to sell, announce our intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any additional shares of our Common Stock or securities convertible into
or exchangeable or exercisable for any of our Common Stock without the prior
written consent of Credit Suisse First Boston Corporation for a period of 90
days after the date of this prospectus supplement.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect thereof.
S-33
<PAGE>
Credit Suisse Group, an affiliate of Credit Suisse First Boston
Corporation, recently announced an agreement to acquire Warburg Pincus Asset
Management, Inc. through Credit Suisse Asset Management Inc. The transaction
is expected to close by mid-1999 and is subject to, among other things, the
receipt of certain regulatory approvals. Warburg Pincus Asset Management, Inc.
owns approximately 7.2% of the Common Stock of ChiRex. Credit Suisse First
Boston Corporation disclaims beneficial ownership of the ChiRex securities
reported as beneficially owned by Warburg Pincus Asset Management, Inc.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and "passive" market making in
accordance with Regulation M under the Exchange Act. Over-allotment involves
syndicate sales in excess of the offering size, which creates a syndicate
short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the Common Stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the representatives to reclaim
a selling concession from a syndicate member when the Common Stock originally
sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. In "passive" market making,
market makers in the Common Stock who are underwriters or prospective
underwriters may, subject to certain limitations, make bids for or purchases
of the Common Stock until the time, if any, at which a stabilizing bid is
made. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it
would otherwise be in the absence of such transactions. These transactions may
be effected on The Nasdaq National Market, Inc. or otherwise and, if
commenced, may be discontinued at any time.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of Common Stock are effected. Accordingly, any resale of the Common
Stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the Common Stock.
Representations of Purchasers
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Common Stock without
the benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions".
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
S-34
<PAGE>
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.
Notice of British Columbia Residents
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such
report must be filed in respect of Common Stock acquired on the same date and
under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Cravath,
Swaine & Moore, New York, New York. Certain legal matters will be passed upon
for the underwriters by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The financial statements and schedules incorporated by reference in this
Prospectus Supplement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and
have been included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
S-35
<PAGE>
PROSPECTUS
ChiRex Inc.
DEBT SECURITIES,
PREFERRED STOCK,
DEPOSITARY SHARES,
WARRANTS
AND COMMON STOCK
From time to time, we may sell any of the following securities:
. Debt securities which may be
--senior or subordinated in priority of payment
--convertible or exchangeable into other of our securities or the
securities of another issuer
. Preferred stock which may be convertible into our common stock or
exchangeable for our debt securities
. Depositary shares which represent a fractional share of our preferred stock
. Warrants which would allow a buyer to purchase our debt securities, preferred
stock or common stock
. Common stock
When we decide to sell a particular series of securities, we will prepare a
Prospectus Supplement describing such securities offering and the particular
terms of the securities. You should read this Prospectus and any Prospectus
Supplement carefully.
Our common stock is listed on the Nasdaq Stock Market's National Market under
the trading symbol "CHRX".
This investment involves risks. See the Risk Factors section beginning on
page 1.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the securities to be issued under this
Prospectus or determined if this Prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
----------------
The date of this Prospectus is December 28, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
About This Prospectus...................................................... i
Where You Can Find More Information........................................ ii
Disclosure Regarding Forward-Looking Statements............................ ii
The Company................................................................ 1
Risk Factors............................................................... 1
Use of Proceeds............................................................ 7
Earnings to Fixed Charges--Coverage Deficiency............................. 7
Description of Debt Securities............................................. 8
Description of Capital Stock............................................... 20
Description of Depositary Shares........................................... 23
Description of Warrants.................................................... 26
Plan of Distribution....................................................... 27
Legal Opinions............................................................. 28
Experts.................................................................... 28
</TABLE>
This Prospectus is part of a Registration Statement that we filed with the
Securities and Exchange Commission (the "SEC") utilizing a "shelf" registration
process. Under this shelf process, we may, from time to time over approximately
the next two years, sell any combination of the securities described in this
Prospectus in one or more offerings up to a total dollar amount of $100,000,000
or the equivalent of this amount in foreign currencies or foreign currency
units.
This Prospectus provides you with a general description of the securities we
may offer. Each time we sell securities, we will provide a Prospectus
Supplement that will contain specific information about the terms of that
offering. The Prospectus Supplement may also add, update or change information
contained in this Prospectus. You should read both this Prospectus and any
Prospectus Supplement together with additional information described under the
heading "Where You Can Find More Information About the Company" beginning on
page (i) of this Prospectus.
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell notes and making offers
to buy notes only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or any
sale of the notes. In this prospectus, the "Company," "we," "us" and "our"
refer to CHIREX INC.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING OF THE OFFERED SECURITIES MAY
ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE
OF THE OFFERED SECURITIES OR ANY SECURITIES THE PRICES OF WHICH MAY BE USED TO
DETERMINE PAYMENTS ON THE OFFERED SECURITIES. SPECIFICALLY, THE UNDERWRITERS OR
AGENTS SPECIFIED IN THE RELEVANT PROSPECTUS SUPPLEMENT OR PRICING SUPPLEMENT
MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR AND PURCHASE THE
OFFERED SECURITIES OR ANY SECURITIES THE PRICES OF WHICH MAY BE USED TO
DETERMINE PAYMENTS ON THE OFFERED SECURITIES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION" IN THIS PROSPECTUS
AND "PLAN OF DISTRIBUTION" OR "UNDERWRITING" IN THE RELEVANT PROSPECTUS
SUPPLEMENT.
i
<PAGE>
Where You Can Find More
Information About the Company
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public at the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be a part of this prospectus, and
later information filed with the SEC will update and supersede this
information. We incorporate by reference the documents listed below and any
future filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act until our offering is completed:
(1) Annual Reports on Form 10-K for the year ended December 31, 1997 and
Form 10K/A for the year ended December 31, 1997;
(2) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998; and
(3) Current Reports on Form 8-K filed on July 7, 1998 and September 1,
1998.
You may request a copy of these filings, at no cost, by writing to or
telephoning us at the following address:
Beth P. Hecht
Vice President, Secretary and General Counsel
ChiRex Inc.
300 Atlantic Street, Suite 402
Stamford, Connecticut 06901
(203) 351-2300
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act").
These forward-looking statements are subject to a number of risks and
uncertainties, many of which are beyond the Company's control. Forward-looking
statements are typically identified by the words "believe," "expect,"
"anticipate," "intent," "estimate" and similar expressions.
Actual results could differ materially from those contemplated by these
forward-looking statements as a result of factors ("Cautionary Statements")
such as product development and market acceptance risks, product manufacturing
risks, the impact of competitive products and pricing, the results of current
and future licensing and other collaborative relationships, the results of
financing efforts, developments regarding intellectual property rights and
litigation, risks of product non-approval or delays or post-approval reviews
by the U.S. Food and Drug Administration ("FDA") or foreign regulatory
authorities and those described under "Risk Factors."
In light of these risks and uncertainties, there can be no assurance that
the results and events contemplated by the forward-looking information
contained in this Prospectus will in fact transpire. Potential investors are
cautioned not to place undue reliance on these forward-looking statements. The
Company does not undertake any obligation to update or revise any forward-
looking statements. All subsequent written or oral forward-looking statements
attributable to the Company or persons acting on behalf of the Company are
expressly qualified in their entirety by the Cautionary Statements.
ii
<PAGE>
THE COMPANY
ChiRex Inc. serves the outsourcing needs of some of the largest
pharmaceutical and life science companies in the world by providing
pharmaceutical fine chemical manufacturing and process development services
and offering its customers access to the Company's extensive portfolio of
proprietary technologies (the "ChiRex Technologies"). The Company's contract
manufacturing services developed over the past thirty years, include process
research and development, hazard evaluation, clinical quantity production and
pilot-scale and commercial-scale manufacturing at its world-class, current
Good Manufacturing Practices facilities in Dudley, England (the "Dudley
Facility") and Annan, Scotland (the "Annan Facility"). The Company's customers
include Glaxo Wellcome plc, Sanofi S.A., Pfizer Inc., Pharmacia & Upjohn Inc.,
Bristol Myers-Squibb, Eli Lilly and Company, Astra, Rohm and Haas Company and
SmithKline Beecham plc.
As drug companies have focused their resources on the discovery and
development of new drugs that often require complex syntheses, they have
increasingly sought to outsource their process development and manufacturing
requirements to contract manufacturing organizations, such as ChiRex. The
Company believes that the recent trend of pharmaceutical and life science
companies to increase outsourcing of drug development and manufacturing
activities will continue as a result of: (i) cost containment pressures; (ii)
the need to reduce drug development time; (iii) the use of increasingly
complex chemical syntheses; and (iv) the growth of the biotechnology segment
of the industry.
One of the Company's most important and long-standing relationships is with
Glaxo Wellcome. In the fall of 1997, the Company enhanced this relationship by
purchasing the Annan Facility from Glaxo Wellcome and entering into a five-
year supply agreement (the "Glaxo Supply Agreement"). Pursuant to the Glaxo
Supply Agreement, the Company, through both of its manufacturing facilities,
will supply Glaxo Wellcome with certain pharmaceutical intermediates and
active ingredients for some of its important new drugs. Since the acquisition
of the Annan Facility, the Company has been redesigning, reconfiguring and
upgrading the Annan Facility (the "Annan Renovation") to manufacture certain
of the products to be supplied under the Glaxo Supply Agreement and to
increase the general flexibility of the Annan Facility for other products.
The Company's principal executive offices are located at 300 Atlantic
Street, Suite 402, Stamford, Connecticut 06901, and its telephone number at
those offices is 203-351-2300.
RISK FACTORS
Holding Company Structure; Structural Subordination
We are a holding company whose only asset, excluding certain trademarks, is
our investment in our subsidiaries. We conduct no business or operations and
we are completely dependent on the earnings of our subsidiaries to pay debt
obligations. Our subsidiaries do not have to make funds available to us,
whether in the form of loans, dividends or otherwise.
None of our English subsidiaries may pay us dividends unless such payments
are made out of profits available for distribution. Such profits consist of
accumulated, realized profits not previously written off in a reduction or
reorganization of capital.
Product Development Risks; Dependence on Others
Part of our business strategy involves collaborating with our customers in
the early stage of product development. This enables us to establish long-term
relationships for the manufacture of these products upon their
commercialization. We currently collaborate with customers on a substantial
number of development products, the majority of which are currently in
clinical trials. Our success depends in large part on the following factors:
. the commercial viability of new pharmaceutical and life science products
being developed by our customers
1
<PAGE>
. our customers' willingness to attempt to commercialize such products
. the ability of our pharmaceutical and life science customers to conduct
clinical trials, obtain required regulatory approvals and successfully
market such products
In particular, the marketing and sale of pharmaceutical products in the
United States will require FDA approvals and will require similar approvals in
foreign countries. To obtain such approvals, the safety and efficacy of these
products must be demonstrated through human clinical trials which, if
permitted, can take several years. We cannot assure you that any of these
products will be safe or efficacious. Each stage in the development of these
products can require substantial investment and take a long time without any
assurance as to the commercial viability of these products, the absence of
competing drugs or alternative therapies. We cannot assure you that our
product development efforts will be successful, that required regulatory
approvals can be obtained on a timely basis, if at all, that products can be
manufactured at an acceptable cost and with appropriate quality, that any
products, if approved, can be successfully marketed or that our customers will
commercialize such products.
Dependence on Key Customers and Products
Our largest customers account for a significant percentage of our revenues.
In 1997, our largest customers accounted for approximately 76% of total
revenues. Sanofi, Glaxo Wellcome, Rohm and Haas and SmithKline Beecham
accounted for approximately 36%, 17%, 13% and 10% of our revenues,
respectively. In addition, our top ten revenue generating products accounted
for 74% of 1997 revenues. We will continue to rely on a limited number of
customers, particularly Glaxo Wellcome, as well as a limited number of
products for a great deal of our revenues. The loss of any customer, or a
material amount of sales to any customer, could have a material adverse effect
on our business and results of operations. Our customers may also be
susceptible to adverse effects on their own businesses due to changes in
government regulation, including those regarding health care reform.
Risks Associated With the Annan Renovation
We acquired the Annan Facility in the fall of 1997. Since then, we have been
redesigning, reconfiguring and upgrading the facility to:
. manufacture the products we will supply under the Glaxo Supply Agreement
. increase the general flexibility of the Annan Facility to manufacture
other products.
We will be subject to all of the risks inherent in renovating a complex, FDA
and European Community-approved production facility. The commercial success of
the Annan Facility depends upon, among other things, its successful renovation
and operation at projected capacity. We cannot assure you that we will be able
to complete the Annan Renovation on time or on budget or to operate the
facility at its anticipated capacity.
We believe that any difficulties we experience will be typical of those
encountered when renovating such a facility. However, we cannot assure you
that we will not experience operational difficulties upon completion of the
Annan Renovation, or that we will ultimately achieve or be able to sustain
optimal production at the facility. Moreover, even after the facility is fully
operational, we may experience difficulties in validating the products we
intend to manufacture at the Annan Facility. Any significant delay in
completing the Annan Renovation, starting up full-scale production of
scheduled intermediates or validating the products scheduled to be
manufactured there could have a material adverse affect on us and our
relationship with Glaxo Wellcome.
Relationship with Glaxo Wellcome
In the fall of 1997, we entered into the Glaxo Supply Agreement. While sales
to Glaxo Wellcome already accounted for approximately 17% of our revenues
during 1997, we expect that over the next five years, an even higher
percentage of our total revenues will come from our sales to Glaxo Wellcome
under the Glaxo Supply
2
<PAGE>
Agreement. In addition, the Glaxo Supply Agreement contains certain profit
sharing provisions in the event that we supply greater volumes of products
than anticipated in the Glaxo Supply Agreement. Moreover, while the Glaxo
Supply Agreement contains certain provisions for renewal, we cannot assure you
that the contract will be renewed.
To meet expected demand under the Glaxo Supply Agreement, we are investing
approximately $39 million in capital expenditures for significant plant
modifications and expansion at our Dudley and Annan facilities. We anticipate
that the Annan Renovation will be completed in stages during the fourth
quarter of 1998 and the first quarter of 1999. The Annan Facility will be
fully operational during the first quarter of 1999.
During the second quarter of 1998, we experienced production difficulties at
our Dudley Facility in connection with one of the products being supplied to
Glaxo Wellcome. We had to significantly reduce production of this product
until we identified the cause of the problem and satisfactorily resolved these
difficulties. We resumed full-scale production in July 1998.
Risks Associated With Operating Facilities
Many factors, such as production disruptions, industrial accidents,
environmental hazards, technical difficulties or equipment failures, labor
disputes, late delivery of supplies, and periodic or extended interruptions
due to inclement or hazardous weather conditions, fires, explosions or other
accidents or acts of force majeure, could cause serious operational problems
at the Annan and Dudley Facilities. These events could damage or destroy the
Annan and/or Dudley Facilities, cause personal injury, environmental damage,
delays in productions, or result in financial losses and legal liability. Any
prolonged downtime or shutdowns of the Annan and/or Dudley Facilities could
have a material adverse effect on our business, results of operations,
financial conditions or prospects.
Competition; Rapid Technological Change
We operate in an extremely competitive environment. Many of our competitors
are major chemical and pharmaceutical companies, including a number of our own
customers, that have much greater financial resources, technical skills and
marketing experience than we do. Our competitive market is characterized by
extensive research efforts and rapid technological progress. We expect new
developments to continue, and we cannot assure you that discoveries by our
competitors will not render our research and development, our technologies or
our potential products obsolete or noncompetitive. Competition may grow more
intense as industry-wide technological progress accelerates and more money is
invested in these fields.
Competition in our market is based upon reputation, service, manufacturing
capability and expertise, price and reliability of supply. We cannot assure
you that we will be successful in obtaining customer contracts on commercially
favorable terms, if at all. Furthermore, our success depends to a significant
extent on our ability to provide manufacturing services to potential customers
at an early stage of product development. We cannot assure you that we will be
successful in such efforts. In addition, we may not be able to attract and
retain experienced management and technical personnel.
Environmental Risks; Hazardous Materials
Our manufacturing and research and development processes involve the
controlled use of hazardous materials. We are subject to laws and regulations
in the United Kingdom governing the use, manufacture, storage, handling and
disposal of such materials and certain waste products. In the event of
contamination or injury from hazardous materials, we could be held liable for
any damages that result. Our liability for these damages could exceed our
resources. In addition, we may have to incur significant costs to comply with
environmental laws and regulations in the future. Any environmental regulatory
action taken by U.K. environmental authorities causing the temporary cessation
of production operations at the Dudley or Annan facilities could have a
material adverse effect on our results of operations. Maintaining our
permitted effluent
3
<PAGE>
discharge limits and implementing air emission improvement programs acceptable
to the regulatory authorities may also prove costly. These programs may
require significant ongoing capital expenditures in an amount greater than we
currently anticipate, which could have a material adverse effect on our
results of operations.
Comprehensive Governmental Regulation
Our operations, as well as those of our customers, are subject to extensive
regulation by numerous governmental authorities in the United States, the
United Kingdom and other countries. In particular, we are required to adhere
to applicable FDA regulations for cGMP, including extensive record keeping and
reporting and periodic inspections of our manufacturing facilities. Similar
requirements are imposed by governmental agencies in other countries. The
concept of cGMP encompasses all aspects of the production process and involves
changing and evolving standards. Consequently, continuing compliance with cGMP
is a particularly difficult part of regulatory compliance. Failure to comply
with the applicable regulatory requirements can, among other things, result in
fines, suspensions of regulatory approvals, product recalls, operating
restrictions and criminal prosecution. We are also subject to numerous
environmental, health and workplace safety laws and regulations, including
those governing emissions control, laboratory procedures and the handling of
hazardous materials. Any violation of, and cost of compliance with, these laws
and regulations could adversely affect our operations.
Governmental laws and regulations, including environmental laws and
regulations, require us to obtain permits from appropriate regulatory agencies
to continue to operate our manufacturing facilities. These permits generally
require periodic renewal or review of their conditions, and public comment may
be solicited in the permitting process. We cannot assure you that we will be
able to obtain all necessary permits or renew all existing permits, or that
material changes in permit conditions will not be imposed or that material
public opposition will not surface. Failure to obtain or renew certain permits
could result in the shutdown of our facilities or the imposition of
significant fines, each of which would have a material adverse effect on our
business and results of operations.
Patent and License Uncertainties
Our proprietary rights with respect to our products and processes are
generally protected only to the extent that they are covered by valid and
enforceable patents or are maintained in confidence as trade secrets. We
currently have the perpetual, exclusive and royalty-free right and license to
use and practice the ChiRex Technologies on a worldwide basis in a defined
field. Our principal patents expire at various times beginning in 2005. Some
of our technology remains uncovered by any patent or patent application. In
addition, we have ongoing research efforts and expect to seek additional
patents in the future covering patentable results of such research. We cannot
assure you that any pending patent applications we file will result in patents
being issued, or that any patents or licenses:
. will protect us against competitors with similar technologies
. will not be infringed upon or designed around by others
. will not be challenged by others and held to be invalid or unenforceable
In the absence of patent protection, our business may be adversely affected
by competitors who independently develop substantially equivalent technology.
There may be third-party patents relating to technology we use. We may need
to acquire licenses to, or to contest the validity of, any such patents.
Defending any claim that we are infringing a third-party patent would most
likely prove costly, and any such claim could adversely affect us until the
claim is resolved. Furthermore, any such dispute could result in a rejection
of our patent applications or the invalidation of our patents. We cannot
assure you that we could obtain any licenses required under such patents on
acceptable terms or that we would prevail in any litigation involving such
patents. Any of the foregoing negative results could have a material adverse
effect on us and our results of operations.
4
<PAGE>
We use our own proprietary technology, including technology that may not be
patented or patentable. We seek to protect our proprietary technology through,
among other things, confidentiality agreements and, if applicable, inventors'
rights agreements with our collaborators, advisors, employees and consultants.
We cannot assure you that these agreements will not be breached, that we will
have adequate remedies for any breach or that our trade secrets will not
otherwise be disclosed to, or discovered by, our competitors. In addition, we
cannot assure you that these collaborators, advisors, employees and
consultants will not claim rights to intellectual property arising out of
their research.
Product Liability Risks; Lack of Insurance
Our business exposes us to product liability risks inherent in the testing,
manufacturing and marketing of pharmaceuticals and life science products. We
have limited product liability insurance coverage, and we cannot assure you
that we will be able to obtain further product liability insurance on
acceptable terms or that our current or future insurance will provide adequate
coverage against any or all potential claims. In addition, we have no clinical
trial liability insurance.
Significant Risks Relating to International Operations; Currency Fluctuations;
Introduction of the Euro
Substantially all of our operations are conducted outside the United States.
Upon completion of the Annan Renovation, we will operate two manufacturing
facilities in the United Kingdom, where substantially all of our employees are
located. For 1995, 1996, 1997 and the six months ended June 30, 1998, net
sales of our products outside the United States totaled approximately $85
million (on a pro forma basis), $82 million (on a pro forma basis), $89
million and $49 million, representing 96% (on a pro forma basis), 92% (on a
pro forma basis), 94% and 94%, respectively, of our net sales for those
periods. As a result of our international operations, we are subject to risks
associated with operating in foreign countries, including devaluations and
fluctuations in currency exchange rates, imposition or increase of withholding
and other taxes on remittances and other payments by foreign subsidiaries,
trade barriers, political risks and imposition or increase of investment and
other restrictions by foreign governments. Because substantially all of our
revenues and expenses are denominated in Pounds Sterling, our revenues, cash
flows and earnings are directly and materially affected by fluctuations in the
exchange rate between the Pound Sterling and the U.S. Dollar. We cannot assure
you that these risks will not have a material adverse effect on our business
and operating results.
The treaty on the European Union (the "Treaty") provides, among other
things, that on or before January 1, 1999, and subject to the fulfilment of
certain conditions, the "Euro" will replace some of the currencies of the
member states of the European Union (the "EU"), including countries in which
we market our products. We cannot assure you that the introduction of the Euro
will not increase the volatility of Pounds Sterling exchange rates or result
in the future appreciation of Pounds Sterling, which could, in either case,
adversely affect our results of operations. The United Kingdom government has
stated that it will not participate in the European monetary union at its
commencement, although it is possible that under certain circumstances it may
participate at a later date. If the United Kingdom were to participate in the
European monetary union, the Pound Sterling will be replaced by the Euro.
Fluctuations in Quarterly Results of Operations
Our quarterly operating results may vary significantly, depending on factors
such as the timing of substantial orders and new product introductions by us
or our competitors. Accordingly, results of operations for any quarter are not
necessarily indicative of the results of operations for a full year or
otherwise. We cannot assure you that we will be able to achieve or maintain
profitability on an annual or quarterly basis.
Management Changes
Since our initial public offering on March 5, 1996, we have had significant
changes in our senior management. On July 7, 1998, Mr. Alan R. Clark, Chairman
of the Board and Chief Executive Officer, retired from the Company and
resigned from the Board of Directors, and a number of other senior management
changes
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were made. On September 1, 1998, the Board of Directors appointed Mr. Michael
A. Griffith, formerly the Chief Financial Officer of the Company, as Chairman
of the Board and Chief Executive Officer, and Mr. Frank J. Wright, formerly
Vice President, Annan Operations, as Executive Vice President. In addition, on
September 1, 1998, the Company hired a new Chief Operating Officer, Mr. Ian
Shott. The new senior management team has only recently been established. We
cannot assure you that further changes will not be implemented or that the
recent changes in personnel will not have an adverse effect on our operations.
Year 2000 Issue
We have worked internally to identify and resolve any "year 2000" compliance
issues. We have also engaged external resources, including hiring an
independent consulting firm. We intend to purchase necessary computer software
and upgrades to become year 2000 compliant. We are implementing a year 2000
compliant management information system at our Annan Facility.
To ensure year 2000 compliance, we will develop comprehensive testing
procedures once necessary software and equipment have been installed. We are
implementing a year 2000 compliant management information system at our Annan
facility in connection with our business plans for this location. We plan to
implement these systems at our other locations, including the Dudley Facility,
in 1999. We expect to spend approximately $3.0 million on year 2000 compliant
systems and equipment, and will expense these costs in accordance with current
accounting guidance.
We believe that the systems at two of the three production facilities at
Annan are year 2000 compliant. At present, we do not utilize the third
production facility at Annan. If we do begin operations at this third
facility, we expect to spend approximately $1.0 million upgrading the
facility's computer systems and applications. We will expense these costs in
accordance with current accounting guidance.
We have contingency plans in place for all our major computer systems and
applications. These plans include manual capability of certain business areas,
if necessary, and the controlled shutdown and start-up of the manufacturing
plant for a minimum period of days during the date change. The approach,
methodology, plan and contingencies for our internal processes have been
reviewed by our independent computer consultant and are subject to further
development and testing. Our contingency plans for external factors, such as
supply of raw materials, access to funds and potential utility disruption, are
at a preliminary stage and require further development.
However, we cannot assure you that all year 2000 compliance issues will be
resolved without any future disruption or that we will not incur significant
additional expense. In addition, if some of our major suppliers and customers
fail to address their own year 2000 compliance issues, their non-compliance
could have a material adverse effect on us and our operations.
Risks Related to Enforceability of Civil Liabilities
We are a Delaware corporation. Although investors will be able to effect
service of process in the United States upon the Company, we are a holding
company and our principal assets are the stock of our subsidiaries. In
addition, virtually all of our tangible assets are owned by our subsidiaries
incorporated in, and physically located in, the United Kingdom. As a result,
it may not be possible for investors to enforce judgments of United States
courts upon the civil liability provisions of United States laws against our
subsidiaries and substantially all of our assets. Moreover, we have been
advised by our legal counsel in the United Kingdom, Dibb Lupton Alsop, that
there is doubt as to the enforceability in the United Kingdom of original
actions or, in actions for enforcement of judgments of the United States
courts, of civil liabilities based upon United States federal securities laws.
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USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the net
proceeds from the sale of the Offered Securities will be used for general
corporate purposes, which may include repayment of indebtedness, acquisitions,
additions to working capital, capital expenditures and repurchases and
redemption of securities.
EARNINGS TO FIXED CHARGES--COVERAGE DEFICIENCY
The following table sets forth the Company's consolidated earnings to fixed
charges--coverage deficiency for each of the years ended December 31, 1993,
1994, 1995, 1996, 1997 and the nine months ended September 30, 1998.
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months
---------------------------- Ended
1993 1994 1995 1996 1997 September 30, 1998
---- ---- ---- ------ ------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings to fixed charges--
coverage deficiency........... N/A N/A N/A $6,442 $1,135 $2,731
</TABLE>
For purposes of calculating the amount of the earnings to fixed charges--
coverage deficiency (the difference between earnings and the amount of the
fixed charges), earnings represent losses before income taxes and fixed
charges, excluding capitalized interest. Fixed charges consist of the total of
(i) interest, whether capitalized or expensed and (ii) amortization of
deferred debt costs.
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DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may apply to the Debt Securities so offered will be
described in the Prospectus Supplement relating to such Debt Securities.
Accordingly, for a description of the terms of a particular issue of Debt
Securities, reference must be made to both the Prospectus Supplement relating
thereto and to the following description.
The Debt Securities will be general obligations of the Company and may be
subordinated to "Senior Indebtedness" (as defined below) of the Company to the
extent set forth in the Prospectus Supplement relating thereto. See
"Description of Debt Securities--Subordination" below. Debt Securities will be
issued under an indenture (the "Indenture") between the Company and one or
more commercial banks to be selected as trustees (collectively, the
"Trustee"). A copy of the form of Indenture has been filed as an exhibit to
the Registration Statement filed with the SEC. The following discussion of
certain provisions of the Indenture is a summary only and does not purport to
be a complete description of the terms and provisions of the Indenture.
Accordingly, the following discussion is qualified in its entirety by
reference to the provisions of the Indenture, including the definition therein
of terms used below.
General
The Indenture does not limit the aggregate principal amount of Debt
Securities that can be issued thereunder. The Debt Securities may be issued in
one or more series as may be authorized from time to time by the Company.
Reference is made to the applicable Prospectus Supplement for the following
terms of the Debt Securities of the series with respect to which such
Prospectus Supplement is being delivered:
(a) the title of the Debt Securities of the series;
(b) any limit on the aggregate principal amount of the Debt Securities of
the series that may be authenticated and delivered under the Indenture;
(c) the date or dates on which the principal and premium with respect to
the Debt Securities of the series are payable;
(d) the rate or rates (which may be fixed or variable) at which the Debt
Securities of the series shall bear interest (if any) or the method of
determining such rate or rates, the date or dates from which such interest
shall accrue, the interest payment dates on which such interest shall be
payable or the method by which such dates will be determined, the record
dates for the determination of holders thereof to whom such interest is
payable (in the case of Registered Securities (as defined below)), and the
basis upon which interest will be calculated if other than that of a 360-
day year of twelve 30-day months;
(e) the place or places, if any, in addition to or instead of the
corporate trust office of the Trustee (in the case of Registered
Securities) or the principal London office of the Trustee (in the case of
Bearer Securities), where the principal, premium, and interest with respect
to Debt Securities of the series shall be payable;
(f) the price or prices at which, the period or periods within which, and
the terms and conditions upon which Debt Securities of the series may be
redeemed, in whole or in part, at the option of the Company or otherwise;
(g) whether Debt Securities of the series are to be issued as Registered
Securities or Bearer Securities (as defined below) or both and, if Bearer
Securities are to be issued, whether coupons will be attached thereto,
whether Bearer Securities of the series may be exchanged for Registered
Securities of the series, and the circumstances under which and the places
at which any such exchanges, if permitted, may be made;
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<PAGE>
(h) if any Debt Securities of the series are to be issued as Bearer
Securities or as one or more Global Securities (as defined below)
representing individual Bearer Securities of the series, whether certain
provisions for the payment of additional interest or tax redemptions shall
apply; whether interest with respect to any portion of a temporary Bearer
Security of the series payable with respect to any interest payment date
prior to the exchange of such temporary Bearer Security for definitive
Bearer Securities of the series shall be paid to any clearing organization
with respect to the portion of such temporary Bearer Security held for its
account and, in such event, the terms and conditions (including any
certification requirements) upon which any such interest payment received
by a clearing organization will be credited to the persons entitled to
interest payable on such interest payment date; and the terms upon which a
temporary Bearer Security may be exchanged for one or more definitive
Bearer Securities of the series;
(i) the obligation, if any, of the Company to redeem, purchase, or repay
Debt Securities of the series pursuant to any sinking fund or analogous
provisions or at the option of a holder thereof and the price or prices at
which, the period or periods within which, and the terms and conditions
upon which Debt Securities of the series shall be redeemed, purchased, or
repaid, in whole or in part, pursuant to such obligations;
(j) the terms, if any, upon which the Debt Securities of the series may
be convertible into or exchanged for Common Stock, Preferred Stock (which
may be represented by Depositary Shares), other Debt Securities or warrants
for Common Stock, Preferred Stock, indebtedness or other securities of any
kind of the Company or any other issuer or obligor and the terms and
conditions upon which such conversion or exchange shall be effected,
including the initial conversion or exchange price or rate, the conversion
or exchange period and any other additional provisions;
(k) if other than denominations of $1,000 or any integral multiple
thereof, the denominations in which Debt Securities of the series shall be
issuable;
(l) if the amount of principal, premium or interest with respect to the
Debt Securities of the series may be determined with reference to an index
or pursuant to a formula, the manner in which such amounts will be
determined;
(m) if the principal amount payable at the stated maturity of Debt
Securities of the series will not be determinable as of any one or more
dates prior to such stated maturity, the amount that will be deemed to be
such principal amount as of any such date for any purpose, including the
principal amount thereof which will be due and payable upon any maturity
other than the stated maturity or which will be deemed to be outstanding as
of any such date (or, in any such case, the manner in which such deemed
principal amount is to be determined), and if necessary, the manner of
determining the equivalent thereof in United States currency;
(n) any changes or additions to the provisions of the Indenture dealing
with defeasance;
(o) any provision for the Offered Securities to be denominated, and
payments thereon to be made, in currencies other than the U.S. dollar
(including the Euro) or in units based on or relating to such other
currencies (including ECUs);
(p) if other than such coin or currency of the United States as at the
time of payment is legal tender for payment of public and private debts,
the coin or currency or currencies or units of two or more currencies in
which payment of the principal, premium, and interest with respect to Debt
Securities of the series shall be payable;
(q) if other than the principal amount thereof, the portion of the
principal amount of Debt Securities of the series that shall be payable
upon declaration of acceleration of the maturity thereof or provable in
bankruptcy;
(r) the terms, if any, of the transfer, mortgage, pledge or assignment as
security for the Debt Securities of the series of any properties, assets,
moneys, proceeds, securities or other collateral, including whether
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<PAGE>
certain provisions of the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act") are applicable and any corresponding changes to
provisions of the Indenture as then in effect;
(s) any addition to or change in the Events of Default (as defined below)
with respect to the Debt Securities of the series and any change in the
right of the Trustee or the holders to declare the principal, premium and
interest with respect to such Debt Securities due and payable;
(t) if the Debt Securities of the series shall be issued in whole or in
part in the form of a Global Security, the terms and conditions, if any,
upon which such Global Security may be exchanged in whole or in part for
other individual Debt Securities in definitive registered form, the
Depositary (as defined in the applicable Prospectus Supplement) for such
Global Security and the form of any legend or legends to be borne by any
such Global Security in addition to or in lieu of the legend referred to in
the Indenture;
(u) any Trustee, authenticating or paying agents, transfer agents or
registrars;
(v) the applicability of, and any addition to or change in, the covenants
and definitions then set forth in the Indenture or in the terms then set
forth in the Indenture relating to permitted consolidations, mergers, or
sales of assets;
(w) the terms, if any, of any guarantee of the payment of principal,
premium, and interest with respect to Debt Securities of the series and any
corresponding changes to the provisions of the Indenture as then in effect;
(x) the subordination, if any, of the Debt Securities of the series
pursuant to the Indenture and any changes or additions to the provisions of
the Indenture relating to subordination;
(y) with regard to Debt Securities of the series that do not bear
interest, the dates for certain required reports to the Trustee; and
(z) any other terms of the Debt Securities of the series (which terms
shall not be prohibited by the provisions of the Indenture).
The Prospectus Supplement will also describe any material United States
federal income tax consequences or other special considerations applicable to
the series of Debt Securities to which such Prospectus Supplement relates,
including those applicable to (a) Bearer Securities, (b) Debt Securities with
respect to which payments of principal, premium or interest are determined
with reference to an index or formula (including changes in prices of
particular securities, currencies or commodities), (c) Debt Securities with
respect to which principal, premium or interest is payable in a foreign or
composite currency, (d) Debt Securities that are issued at a discount below
their stated principal amount, bearing no interest or interest at a rate that
at the time of issuance is below market rates ("Original Issue Discount Debt
Securities") and (e) variable rate Debt Securities that are exchangeable for
fixed rate Debt Securities.
Unless otherwise provided in the applicable Prospectus Supplement,
Registered Securities may be transferred or exchanged at the office of the
Trustee at which its corporate trust business is principally administered in
the United States or at the office of the Trustee or the Trustee's agent in
the Borough of Manhattan, the City and State of New York, at which its
corporate agency business is conducted, subject to the limitations provided in
the Indenture, without the payment of any service charge, other than any tax
or governmental charge payable in connection therewith. Bearer Securities will
be transferable only by delivery. Provisions with respect to the exchange of
Bearer Securities will be described in the Prospectus Supplement relating to
such Bearer Securities.
All funds paid by the Company to a paying agent for the payment of
principal, premium or interest with respect to any Debt Securities that remain
unclaimed at the end of two years after such principal, premium or interest
shall have become due and payable will be repaid to the Company, and the
holders of such Debt Securities or any coupons appertaining thereto will
thereafter look only to the Company for payment thereof.
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<PAGE>
Global Securities
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities. A Global Security is a Debt Security
that represents, and is denominated in an amount equal to the aggregate
principal amount of, all outstanding Debt Securities of a series, or any
portion thereof, in either case having the same terms, including the same
original issue date, date or dates on which principal and interest are due,
and interest rate or method of determining interest. A Global Security will be
deposited with, or on behalf of, a Depositary, which will be identified in the
Prospectus Supplement relating to such Debt Securities. Global Securities may
be issued in either registered or bearer form and in either temporary or
definitive form. Unless and until it is exchanged in whole or in part for the
individual Debt Securities represented thereby, a Global Security may not be
transferred except as a whole by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or another
nominee of the Depositary, or by the Depositary or any nominee of the
Depositary to a successor Depositary or any nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the Prospectus Supplement relating to
such Debt Securities. The Company anticipates that the following provisions
will generally apply to depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the individual Debt Securities represented by
such Global Security to the accounts of persons that have accounts with the
Depositary ("participants"). Such accounts shall be designated by the dealers
or underwriters with respect to such Debt Securities or, if such Debt
Securities are offered and sold directly by the Company or through one or more
agents, by the Company or such agents. Ownership of beneficial interests in a
Global Security will be limited to participants or persons that hold
beneficial interests through participants. Ownership of beneficial interests
in such Global Security will be shown on, and the transfer of that ownership
will be effected only through, records maintained by the Depositary (with
respect to interests of participants) or records maintained by participants
(with respect to interests of persons other than participants). The laws of
some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limitations and laws may
impair the ability to transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner or holder of such Global Security, such Depositary or
nominee, as the case may be, will be considered the sole owner or holder of
the individual Debt Securities represented by such Global Security for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Security will not be entitled to have any of the
individual Debt Securities represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
any of such Debt Securities in definitive form, and will not be considered the
owners or holders thereof under the Indenture.
Subject to the restrictions applicable to Bearer Securities described in an
applicable Prospectus Supplement (see Limitations on Issuance of Bearer
Securities" below), payments of principal, premium, and interest with respect
to individual Debt Securities represented by a Global Security will be made to
the Depositary or its nominee, as the case may be, as the registered owner or
holder of such Global Security. Neither the Company, the Trustee, any paying
agent or registrar for such Debt Securities or any agent of the Company or the
Trustee will have any responsibility or liability for (a) any aspect of the
records relating to or payments made by the Depositary, its nominee or any
participants on account of beneficial interests in the Global Security or for
maintaining, supervising or reviewing any records relating to such beneficial
interests, (b) the payment to the owners of beneficial interests in the Global
Security of amounts paid to the Depositary or its nominee or (c) any other
matter relating to the actions and practices of the Depositary, its nominee or
its participants. Neither the Company, the Trustee, any paying agent or
registrar for such Debt Securities or any agent of the Company or the Trustee
will be liable for any delay by the Depositary, its nominee or any of its
participants in identifying the owners of beneficial interests in the Global
Security, and the Company and the Trustee may conclusively rely on, and will
be protected in relying on, instructions from the Depositary or its nominee
for all purposes.
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The Company expects that the Depositary for a series of Debt Securities or
its nominee, upon receipt of any payment of principal, premium or interest
with respect to a definitive Global Security representing any of such Debt
Securities, will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the
principal amount of such Global Security, as shown on the records of the
Depositary or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers and registered in "street name." Such payments will be the
responsibility of such participants. Receipt by owners of beneficial interests
in a temporary Global Security of payments of principal, premium or interest
with respect thereto will be subject to the restrictions described in an
applicable Prospectus Supplement (see "Limitation on Issuance of Bearer
Securities" below).
If the Depositary for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as depositary, the Company shall appoint a
successor depositary. If a successor depositary is not appointed by the
Company within 90 days, the Company will issue individual Debt Securities of
such series in exchange for the Global Security representing such series of
Debt Securities. In addition, the Company may at any time and in its sole
discretion, subject to any limitations described in the Prospectus Supplement
relating to such Debt Securities, determine to no longer have Debt Securities
of a series represented by a Global Security and, in such event, will issue
individual Debt Securities of such series in exchange for the Global Security
representing such series of Debt Securities. Furthermore, if the Company so
specifies with respect to the Debt Securities of a series, an owner of a
beneficial interest in a Global Security representing Debt Securities of such
series may, on terms acceptable to the Company, the Trustee, and the
Depositary for such Global Security, receive individual Debt Securities of
such series in exchange for such beneficial interests, subject to any
limitations described in the Prospectus Supplement relating to such Debt
Securities. In any such instance, an owner of a beneficial interest in a
Global Security will be entitled to physical delivery of individual Debt
Securities of the series represented by such Global Security equal in
principal amount to such beneficial interest and to have such Debt Securities
registered in its name (if the Debt Securities are issuable as Registered
Securities). Individual Debt Securities of such series so issued will be
issued (a) as Registered Securities in denominations, unless otherwise
specified by the Company, of $1,000 and integral multiples thereof if the Debt
Securities are issuable as Registered Securities, (b) as Bearer Securities in
the denomination or denominations specified by the Company if the Debt
Securities are issuable as Bearer Securities or (c) as either Registered
Securities or Bearer Securities as described above if the Debt Securities are
issuable in either form.
Limitations on Issuance of Bearer Securities
The Debt Securities of a series may be issued as Registered Securities
(which will be registered as to principal and interest in the register
maintained by the registrar for such Debt Securities) or Bearer Securities
(which will be transferable only be delivery). If such Debt Securities are
issuable as Bearer Securities, the applicable Prospectus Supplement will
describe certain special limitations and considerations that will apply to
such Debt Securities.
Certain Covenants
Limitation on Secured Debt. The Indenture provides that the Company will
not, and will not permit any Restricted Subsidiary to, become liable for any
indebtedness for borrowed money secured by a mortgage or lien on a Principal
Property or on any shares of stock or indebtedness of any Restricted
Subsidiary ("Secured Debt") or secure the same without making effective
provision for securing the payment of the principal of and interest on the
Debt Securities (and, if the company so elects, any indebtedness ranking
equally with the Debt Securities) equally and ratably with or prior to such
secured indebtedness. This covenant will not apply to debt secured by (a)
mortgages or liens on property, capital stock or indebtedness of any
corporation existing at the time it becomes a subsidiary, (b) mortgages
existing on property at the time of acquisition, purchase money mortgages and
mortgages to secure indebtedness incurred within 180 days after the time of
acquisition thereof to finance the purchase price, (c) mortgages or liens on
unimproved property to finance the cost of improvements to such
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property, (d) mortgages or liens securing indebtedness owed by a Subsidiary
(as defined in the Indenture) to the Company or a wholly owned Restricted
Subsidiary, (e) certain mortgages in favor of governmental entities including
mortgages in connection with industrial revenue financing or (f) extensions,
renewals or replacements of any of the foregoing. Notwithstanding this
covenant, the Company and its Restricted Subsidiaries may incur or guarantee
any Secured Debt, provided that after giving effect thereto the aggregate
amount of such debt then outstanding (not including Secured Debt permitted
under the foregoing exceptions) and the aggregate "value" of Sale and
Leaseback Transactions (as defined below) other than Sale and Leaseback
Transactions permitted under clauses (a) through (d) and (f) in the following
paragraph, at such time does not exceed 10% of Consolidated Net Tangible
Assets (as defined below).
Limitation on Sales and Leasebacks. The Indenture provides that sales and
leasebacks of a Principal Property (as defined below) by the Company or a
Restricted Subsidiary (except those for a temporary period of not more than
three years and those from the Company or a wholly owned Restricted
Subsidiary) will be prohibited unless (a) the transaction is entered into to
finance the cost of acquiring such property or within 180 days after such
acquisition, (b) the transaction is entered into finance the cost of
improvements to such unimproved property, (c) the transaction is one of
certain types in which the lessor is a governmental entity, (d) the
transaction involves the extension, renewal or replacement of the transactions
referred to in clauses (a) through (c) above, (e) the property involved is
property that could be mortgaged without equally and ratably securing the Debt
Securities under the last sentence of the preceding paragraph or (f) an amount
equal to the proceeds of sale or the fair value of the property sold
(whichever is higher) is applied to the retirement of funded debt of the
Company.
A Prospectus Supplement may provide that additional covenants will be
applicable to the Company with respect to the Debt Securities of a series. In
addition, a Prospectus Supplement may provide that a series of Debt Securities
will not have the benefit of the covenants described above.
Definitions. For purposes of the events described above under Certain
Covenants" the following definitions and conventions will apply.
The term "Restricted Subsidiary" means (a) any Subsidiary other than (1) a
Subsidiary the primary business of which consists of one or more of the
following: (i) purchasing amounts receivable, (ii) making loans secured by
accounts receivable or inventories or otherwise providing credit, (iii) making
investment in real estate or providing services directly related thereto or
otherwise engaging in the business of a finance or real estate investment
company, or (iv) leasing equipment, machinery, vehicles, rolling stock and
other articles of use of the business of the Company, or (2) certain named
Subsidiaries; and (b) any Subsidiary described in Clauses (1) or (2) of
paragraph (a) above which at the time of determination shall be a Restricted
Subsidiary pursuant to designation by the Board of Directors hereinafter
provided for.
The Company may by board resolution designate any Unrestricted Subsidiary
(defined as a Subsidiary that is not a Restricted Subsidiary) to be a
Restricted Subsidiary. The Company may by board resolution designate a newly
acquired or formed Subsidiary to be an Unrestricted Subsidiary, provided such
designation takes place not later than 90 days after such acquisition or
formation.
The term "Principal Property" will mean any manufacturing or research
property, plant or facility of the Company or any Restricted Subsidiary except
any property that the Board of Directors by resolution declares is not of
material importance to the total business conducted by the Company and its
Restricted Subsidiaries as an entirety. The term "Consolidated Net Tangible
Assets" will mean at any date the total amount of assets that under generally
accepted accounting principles would be included on a consolidated balance
sheet of the Company and its Restricted Subsidiaries as of such date, less the
sum of the following items, which would then also be so included in accordance
with generally accepted accounting principles: (a) related depreciation,
amortization and other valuation reserves, (b) certain investments, less
applicable reserves in Unrestricted Subsidiaries, (c) all treasury stock,
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles and (d) all liabilities and liability in
terms of the Company and its Restricted
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Subsidiaries (including minority interests in Restricted Subsidiaries held by
persons other than the Company or wholly owned Restricted Subsidiaries) except
(i) the reserves deducted as described in clauses (a) and (b) above, (ii)
funded debt, (iii) provisions for deferred income taxes and (iv) capital
stock, surplus and surplus reserves.
A Prospectus Supplement may modify or add to the foregoing covenants. In
addition, a Prospectus Supplement may omit some or all of the foregoing
covenants and/or definitions (thereby evidencing the decision by the Company
to not be bound by such covenants and/or definitions).
Subordination
Debt Securities of a series may be subordinated ("Subordinated Debt
Securities") to Senior Indebtedness (as defined in the applicable Prospectus
Supplement) to the extent set forth in the Prospectus Supplement relating
thereto. The Company conducts substantially all its operations through
subsidiaries, and the holders of Debt Securities (whether or not Subordinated
Debt Securities) will be structurally subordinated to the creditors of the
Company's subsidiaries.
Upon any payment or distribution of assets of the Company to creditors or
upon a total or partial liquidation or dissolution of the Company or in a
bankruptcy, receivership, or similar proceeding relating to the Company or its
property, holders of Senior Indebtedness shall be entitled to receive payment
in full in cash of the Senior Indebtedness before holders of Subordinated Debt
Securities shall be entitled to receive any payment of principal, premium, or
interest with respect to the Subordinated Debt Securities, and until the
Senior Indebtedness is paid in full, any distribution to which holders of
Subordinated Debt Securities would otherwise be entitled shall be made to the
holders of Senior Indebtedness (except that such holders may receive shares of
stock and any debt securities that are subordinated to Senior Indebtedness to
at least the same extent as the Subordinated Debt Securities).
The Company may not make any payments of principal, premium, or interest
with respect to Subordinated Debt Securities, make any deposit for the purpose
of defeasance of such Subordinated Debt Securities, or repurchase, redeem, or
otherwise retire (except, in the case of Subordinated Debt Securities that
provide for a mandatory sinking fund, by the delivery of Subordinated Debt
Securities by the Company to the Trustee in satisfaction of the Company's
sinking fund obligation) any Subordinated Debt Securities if (a) any
principal, premium or interest with respect to Senior Indebtedness is not paid
in full in cash within any applicable grace period (including at maturity) or
(b) any other default on Senior Indebtedness occurs and the maturity of such
Senior Indebtedness is accelerated in accordance with its terms, unless, in
either case, the default has been cured or waived and such acceleration has
been rescinded, such Senior Indebtedness has been paid in full in cash or the
Company and the Trustee receive written notice approving such payment from the
representatives of such Senior Indebtedness. During the continuance of any
default (other than a default described in clause (a) or (b) above) with
respect to any Designated Senior Indebtedness (as defined in the applicable
Prospectus Supplement) pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable
grace periods, the Company may not pay the Subordinated Debt Securities for a
period (the "Payment Blockage Period") commencing on the receipt by the
Company and the Trustee of written notice of such default from the
representative of any Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period (a "Blockage Notice"). The Payment Blockage
Period may be terminated before its expiration by written notice to the
Trustee and the Company from the person who gave the Blockage Notice, by
repayment in full in cash of the Senior Indebtedness with respect to which the
Blockage Notice was given or because the default giving rise to the Payment
Blockage Period is no longer continuing. Unless the holders of such Designated
Senior Indebtedness shall have accelerated the maturity thereof, the Company
may resume payments on the Subordinated Debt Securities after the expiration
of the Payment Blockage Period. Not more than one Blockage Notice may be given
in any period of 360 consecutive days. In no event, however, may the total
number of days during which any Payment Blockage Period or Periods is in
effect exceed 179 days in the aggregate during any period of 360 consecutive
days. After all Senior Indebtedness is paid in full and until the Subordinated
Debt Securities are paid in full, holders of the Subordinated Debt Securities
shall be subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness.
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By reason of such subordination, in the event of insolvency, creditors of
the Company who are holders of Senior Indebtedness, as well as certain general
creditors of the Company, may recover more, ratably, than the holders of the
Subordinated Debt Securities.
Events of Default and Remedies
The following events are defined in the Indenture as "Events of Default"
with respect to a series of Debt Securities:
(a) default in the payment of any installment of interest on any Debt
Securities of that series or any payment with respect to the related
coupons, if any, as and when the same shall become due and payable (whether
or not, in the case of Subordinated Debt Securities, such payment shall be
prohibited by reason of the subordination provisions described above) and
continuance of such default for a period of 30 days;
(b) default in the payment of principal or premium with respect to any
Debt Securities of that series as and when the same shall become due and
payable, whether at maturity, upon redemption, by declaration, upon
required repurchase, or otherwise (whether or not, in the case of
Subordinated Debt Securities, such payment shall be prohibited by reason of
the subordination provisions described above);
(c) default in the payment of any sinking fund payment with respect to
any Debt Securities of that series as and when the same shall become due
and payable;
(d) failure on the part of the Company to comply with the provisions of
the Indenture relating to consolidations, mergers, and sales of assets;
(e) failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on the part of the Company in the Debt
Securities of that series, in any resolution of the Board of Directors of
the Company authorizing the issuance of that series of Debt Securities, in
the Indenture with respect to such series, or in any supplemental Indenture
with respect to such series (other than a covenant a default in the
performance of which is otherwise specifically dealt with) continuing for a
period of 60 days after the date on which written notice specifying such
failure and requiring the Company to remedy the same shall have been given
to the Company by the Trustee or to the Company and the Trustee by the
holders of at least 25% in aggregate principal amount of the Debt
Securities of that series at the time outstanding;
(f) indebtedness of the Company or any subsidiary of the Company is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default, the total amount
of such Indebtedness unpaid or accelerated exceeds $20 million or the
United States dollar equivalent thereof at the time, and such default
remains uncured or such acceleration is not rescinded for 10 days after the
date on which written notice specifying such failure and requiring the
Company to remedy the same shall have been given to the Company by the
Trustee or to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the Debt Securities of that series at the
time outstanding;
(g) the Company or any of its "Significant Subsidiaries" (defined as any
subsidiary of the Company that would be a "significant subsidiary" as
defined in Rule 405 under the Securities Act as in effect on the date of
the Indenture) shall (1) voluntarily commence any proceeding or file any
petition seeking relief under the United States Bankruptcy Code or other
federal, state or foreign bankruptcy, insolvency or similar law, (2)
consent to the institution of, or fail to controvert within the time and in
the manner prescribed by law, any such proceeding or the filing of any such
petition, (3) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator or similar official for the Company or any
such Significant Subsidiary or for a substantial part of its property, (4)
file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (5) make a general assignment for the
benefit of creditors, (6) admit in writing its inability or fail generally
to pay its debts as they become due, (7) take corporate action for the
purpose of effecting any of the foregoing or (8) take any comparable action
under any foreign laws relating to insolvency;
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(h) the entry of an order or decree by a court having competent
jurisdiction for (1) relief with respect to the Company or any of its
Significant Subsidiaries or a substantial part of any of their property
under the United States Bankruptcy Code or any other federal, state or
foreign bankruptcy, insolvency or similar law, (2) the appointment of a
receiver, trustee, custodian, sequestrator or similar official for the
Company or any such Significant Subsidiary or for a substantial part of any
of their property (except any decree or order appointing such official of
any Significant Subsidiary pursuant to a plan under which the assets and
operations of such Significant Subsidiary are transferred to or combined
with another Significant Subsidiary or Subsidiaries of the Company or to
the Company) or (3) the winding-up or liquidation of the Company or any
such Significant Subsidiary (except any decree or order approving or
ordering the winding-up or liquidation of the affairs of a Significant
Subsidiary pursuant to a plan under which the assets and operations of such
Significant Subsidiary are transferred to or combined with another
Significant Subsidiary or Subsidiaries of the Company or to the Company),
and such order or decree shall continue unstayed and in effect for 60
consecutive days, or any similar relief is granted under any foreign laws
and the order or decree stays in effect for 60 consecutive days;
(i) any judgment or decree for the payment of money in excess of $20
million or the United States dollar equivalent thereof at the time is
entered against the Company or any Significant Subsidiary of the Company by
a court of competent jurisdiction, which judgment is not covered by
insurance, and is not discharged and either (1) an enforcement proceeding
has been commenced by any creditor upon such judgment or decree or (2)
there is a period of 60 days following the entry of such judgment or decree
during which such judgment or decree is not discharged or waived or the
execution thereof stayed and, in either case, such default continues for 10
days after the date on which written notice specifying such failure and
requiring the Company to remedy the same shall have been given to the
Company by the Trustee or to the Company and the Trustee by the holders of
at least 25% in aggregate principal amount of the Debt Securities of that
series at the time outstanding; and
(j) any other Event of Default provided with respect to Debt Securities
of that series.
An Event of Default with respect to one series of Debt Securities is not
necessarily an Event of Default for another series.
A Prospectus Supplement may omit, modify or add to the foregoing Events of
Default.
If an Event of Default described in clause (a), (b), (c), (d), (e), (f), (i)
or (j) above occurs and is continuing with respect to any series of Debt
Securities, unless the principal and interest with respect to all the Debt
Securities of such series shall have already become due and payable, either
the Trustee or the holders not less than 25% in aggregate principal amount of
the Debt Securities of such series then outstanding may declare the principal
amount (or, if Original Issue Discount Debt Securities, such portion of the
principal amount as may be specified in such series) of and interest on all
the Debt Securities of such series due and payable immediately. If an Event of
Default described in clause (g) or (h) above occurs, unless the principal and
interest with respect to all the Debt Securities of all series shall have
become due and payable, the principal amount (or, if any series are Original
Issue Discount Debt Securities, such portion of the principal amount as may be
specified in such series) of and interest on all Debt Securities of all series
then outstanding shall become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder of Debt
Securities.
If an Event of Default occurs and is continuing, the Trustee shall be
entitled and empowered to institute any action or proceeding for the
collection of the sums so due and unpaid or to enforce the performance of any
provision of the Debt Securities of the affected series or the Indenture, to
prosecute any such action or proceeding to judgment or final decree, and to
enforce any such judgment or final decree against the Company or any other
obligor on the Debt Securities of such series. In addition, if there shall be
pending proceedings for the bankruptcy or reorganization of the Company or any
other obligor on the Debt Securities, or if a receiver, trustee, or similar
official shall have been appointed for its property, the Trustee shall be
entitled and empowered to file and prove a claim for the whole amount of
principal, premium, and interest (or, in the case of Original Issue Discount
Debt
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Securities, such portion of the principal amount as may be specified in the
terms of such series) owing and unpaid with respect to the Debt Securities. No
holder of any Debt Security or coupon of any series shall have any right to
institute any action or proceeding upon or under or with respect to the
Indenture, for the appointment of a receiver or trustee, or for any other
remedy, unless (a) such holder previously shall have given to the Trustee
written notice of an Event of Default with respect to Debt Securities of that
series and of the continuance thereof, (b) the holders of not less than 25% in
aggregate principal amount of the outstanding Debt Securities of that series
shall have made written request to the Trustee to institute such action or
proceeding with respect to such Event of Default and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs,
expenses, and liabilities to be incurred therein or thereby, and (c) the
Trustee, for 60 days after its receipt of such notice, request, and offer of
indemnity shall have failed to institute such action or proceeding and no
direction inconsistent with such written request shall have been given to the
Trustee pursuant to the provisions of the Indenture.
Prior to the acceleration of the maturity of the Debt Securities of any
series, the holders of a majority in aggregate principal amount of the Debt
Securities of that series at the time outstanding may, on behalf of the
holders of all Debt Securities and any related coupons of that series, waive
any past default or Event of Default and its consequences for that series,
except (a) a default in the payment of the principal, premium, or interest
with respect to such Debt Securities or (b) a default with respect to a
provision of the Indenture that cannot be amended without the consent of each
holder affected thereby. In case of any such waiver, such default shall cease
to exist, any Event of Default arising therefrom shall be deemed to have been
cured for all purposes, and the Company, the Trustee and the holders of the
Debt Securities of that series shall be restored to their former positions and
rights under the Indenture.
The Trustee shall, within 90 days after the occurrence of a default known to
it with respect to a series of Debt Securities, give to the holders of the
Debt Securities of such series notice of all uncured defaults with respect to
such series known to it, unless such defaults shall have been cured or waived
before the giving of such notice; provided, however, that except in the case
of default in the payment of principal, premium, or interest with respect to
the Debt Securities of such series or in the making of any sinking fund
payment with respect to the Debt Securities of such series, the Trustee shall
be protected in withholding such notice if it in good faith determines that
the withholding of such notice is in the interest of the holders of such Debt
Securities.
Modification of the Indenture
The Company and the Trustee may enter into supplemental Indentures without
the consent of the Holders of Debt Securities for one or more of the following
purposes:
(a) to evidence the succession of another person to the Company pursuant
to the provisions of the Indenture relating to consolidations, mergers and
sales of assets and the assumption by such successor of the covenants,
agreements and obligations of the Company in the Indenture and in the Debt
Securities;
(b) to surrender any right or power conferred upon the Company by the
Indenture, to add to the covenants of the Company such further covenants,
restrictions, conditions or provisions for the protection of the holders of
all or any series of Debt Securities as the Board of Directors of the
Company shall consider to be for the protection of the holders of such Debt
Securities, and to make the occurrence, or the occurrence and continuance,
of a default in any of such additional covenants, restrictions, conditions
or provisions a default or an Event of Default under the Indenture
(provided, however, that with respect to any such additional covenant,
restriction, condition or provision, such supplemental Indenture may
provide for a period of grace after default, which may be shorter or longer
than that allowed in the case of other defaults, may provide for an
immediate enforcement upon such default, may limit the remedies available
to the Trustee upon such default or may limit the right of holders of a
majority in aggregate principal amount of any or all series of Debt
Securities to waive such default);
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(c) to cure any ambiguity or to correct or supplement any provision
contained in the Indenture, in any supplemental Indenture or in any Debt
Securities that may be defective or inconsistent with any other provision
contained therein, to convey, transfer, assign, mortgage or pledge any
property to or with the Trustee, or to make such other provisions in regard
to matters or questions arising under the Indenture as shall not adversely
affect the interests of any holders of Debt Securities of any series;
(d) to modify or amend the Indenture in such a manner as to permit the
qualification of the Indenture or any supplemental Indenture under the
Trust Indenture Act as then in effect;
(e) to add to or change any of the provisions of the Indenture to provide
that Bearer Securities may be registerable as to principal, to change or
eliminate any restrictions on the payment of principal or premium with
respect to Registered Securities or of principal, premium or interest with
respect to Bearer Securities, or to permit Registered Securities to be
exchanged for Bearer Securities, so long as any such action does not
adversely affect the interests of the holders of Debt Securities or any
coupons of any series in any material respect or permit or facilitate the
issuance of Debt Securities of any series in uncertificated form;
(f) to comply with the provisions of the Indenture relating to
consolidations, mergers and sales of assets;
(g) in the case of Subordinated Debt Securities, to make any change in
the provisions of the Indenture relating to subordination that would limit
or terminate the benefits available to any holder of Senior Indebtedness
under such provisions (but only if each such holder of Senior Indebtedness
consents to such change);
(h) to add guarantees with respect to the Debt Securities or to secure
the Debt Securities;
(i) to make any change that does not adversely affect the rights of any
holder;
(j) to add to change, or eliminate any of the provisions of the Indenture
with respect to one or more series of Debt Securities, so long as any such
addition, change or elimination not otherwise permitted under the Indenture
shall (1) neither apply to any Debt Security of any series created prior to
the execution of such supplemental Indenture and entitled to the benefit of
such provision nor modify the rights of the holders of any such Debt
Security with respect to such provision or (2) become effective only when
there is no such Debt Security outstanding;
(k) to evidence and provide for the acceptance of appointment by a
successor or separate Trustee with respect to the Debt Securities of one or
more series and to add to or change any of the provisions of the Indenture
as shall be necessary to provide for or facilitate the administration of
the Indenture by more than one Trustee; and
(l) to establish the form or terms of Debt Securities and coupons of any
series, as described under "Description of Debt Securities--General" above.
With the consent of the holders of a majority in aggregate principal amount
of the outstanding Debt Securities of each series affected thereby, the
Company and the Trustee may from time to time and at any time enter into a
supplemental Indenture for the purpose of adding any provisions to, changing
in any manner or eliminating any of the provisions of the Indenture or of any
supplemental Indenture or modifying in any manner the rights of the holder of
the Debt Securities of such series; provided, however, that without the
consent of the holders of each Debt Security so affected, no such supplemental
Indenture shall (a) reduce the percentage in principal amount of Debt
Securities of any series whose holders must consent to an amendment, (b)
reduce the rate of or extend the time for payment of interest on any Debt
Security or coupon or reduce the amount of any payment to be made with respect
to any coupon, (c) reduce the principal of or extend the stated maturity of
any Debt Security, (d) reduce the premium payable upon the redemption of any
Debt Security or change the time at which any Debt Security may or shall be
redeemed, (e) make any Debt Security payable in a currency other than that
stated in the Debt Security, (f) in the case of any Subordinated Debt Security
or coupons appertaining thereto, make any change in the provisions of the
Indenture relating to subordination that adversely affects the
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rights of any holder under such provisions, (g) release any security that may
have been granted with respect to the Debt Securities, (h) make any change in
the provisions of the Indenture relating to waivers of defaults or amendments
that require unanimous consent, (i) change any obligation of the Company
provided for in the Indenture to pay additional interest with respect to
Bearer Securities or (j) limit the obligation of the Company to maintain a
paying agency outside the United States for payment on Bearer Securities or
limit the obligation of the Company to redeem certain Bearer Securities.
Consolidation, Merger, and Sale of Assets
The Company may not consolidate with or merge with or into any person, or
convey, transfer or lease all or substantially all of its assets, unless the
following conditions have been satisfied:
(a) either (1) the Company shall be the continuing person in the case of
a merger or (2) the resulting, surviving, or transferee person, if other
than the Company (the "Successor Company"), shall be a corporation
organized and existing under the laws of the United States, any State
thereof, or the District of Columbia and shall expressly assume all of the
obligations of the Company under the Debt Securities and coupons and the
Indenture;
(b) immediately after giving effect to such transaction (and treating any
indebtedness that becomes an obligation of the Successor Company or any
subsidiary of the Company as a result of such transaction as having been
incurred by the Successor Company or such subsidiary at the time of such
transaction), no Default or Event of Default would occur or be continuing;
(c) the Successor Company waives any right to redeem any Bearer Security
under circumstances in which the Successor Company would be entitled to
redeem such Bearer Security but the Company would not have been so entitled
to redeem if the consolidation, merger, conveyance, transfer or lease had
not occurred; and
(d) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer complies with the Indenture.
Satisfaction and Discharge of the Indenture; Defeasance
The Indenture shall generally cease to be of any further effect with respect
to a series of Debt Securities if (a) the Company has delivered to the Trustee
for cancelation all Debt Securities of such series (with certain limited
exceptions) or (b) all Debt Securities and coupons of such series not
theretofore delivered to the Trustee for cancelation shall have become due and
payable, or are by their terms to become due and payable within one year or
are to be called for redemption within one year, and the Company shall have
deposited with the Trustee as trust funds the entire amount sufficient to pay
at maturity or upon redemption all such Debt Securities and coupons (and if,
in either case, the Company shall also pay or cause to be paid all other sums
payable under the Indenture by the Company).
In addition, the Company shall have a "legal defeasance option" (pursuant to
which it may terminate, with respect to the Debt Securities of a particular
series, all of its obligations under such Debt Securities and the Indenture
with respect to such Debt Securities) and a "covenant defeasance option"
(pursuant to which it may terminate, with respect to the Debt Securities of a
particular series, its obligations with respect to such Debt Securities under
certain specified covenants contained in the Indenture). If the Company
exercises its legal defeasance option with respect to a series of Debt
Securities, payment of such Debt Securities may not be accelerated because of
an Event of Default. If the Company exercises its covenant defeasance option
with respect to a series of Debt Securities, payment of such Debt Securities
may not be accelerated because of an Event of Default related to the specified
covenants.
The applicable Prospectus Supplement will describe the procedures the
Company must follow in order to exercise its defeasance options.
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The Trustee
The Company may appoint a separate Trustee for any series of Debt
Securities. As used herein in the description of a series of Debt Securities,
the term "Trustee" refers to the Trustee appointed with respect to such series
of Debt Securities.
The Company may maintain banking and other commercial relationships with the
Trustee and its affiliates in the ordinary course of business, and the Trustee
may own Debt Securities.
DESCRIPTION OF CAPITAL STOCK
General
The following summary of certain provisions of the Company's capital stock
does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Company's Certificate of Incorporation (the
"Certificate of Incorporation"), which is included as an exhibit to the
Registration Statement of which this Prospectus is a part, and by the
provisions of applicable law.
Common Stock
The Company's Certificate of Incorporation authorizes the issuance of up to
30,000,000 shares of Common Stock, $.01 par value per share. Holders of Common
Stock are entitled to one vote for each share held on all matters submitted to
a vote of stockholders and do not have cumulative voting rights. Accordingly,
holders of a majority of the shares of Common Stock entitled to vote in any
election of directors may elect all of the directors standing for election.
Holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally
available therefor, subject to any preferential dividend rights of outstanding
Preferred Stock. Upon the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred
Stock. Holders of Common Stock have no preemption, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
The outstanding shares of Common Stock are listed on the NASDAQ and trade
under the symbol "CHRX."
The transfer agent and registrar for the Common Stock is Boston EquiServe
L.P., an affiliate of The First National Bank of Boston.
Preferred Stock
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which a
Prospectus Supplement may relate. Specific terms of any series of Preferred
Stock offered by a Prospectus Supplement will be described in the Prospectus
Supplement relating to such series. The description set forth below is subject
to and qualified in its entirety by reference to the certificate of
designations establishing a particular series of Preferred Stock, which will
be filed with the SEC in connection with the offering of such series.
The Certificate of Incorporation authorizes the issuance of up to 4,000,000
shares of Preferred Stock, $.01 par value per share. Under the terms of the
Certificate of Incorporation, the Board of Directors is authorized, subject to
any limitations prescribed by law, without stockholder approval, to issue such
shares of Preferred Stock in one or more series. Each such series of Preferred
Stock shall have such rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation
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preferences, as shall be determined by the Board of Directors. Accordingly,
the Board of Directors, without stockholder approval, may issue undesignated
stock with terms that could adversely affect the voting power and other rights
of holders of Common Stock.
The existence of undesignated preferred stock may have the effect of
discouraging attempts to acquire control of the Company with a view to
effecting a merger, sale or exchange of assets or a similar transaction. The
anti-takeover effects of the undesignated shares may deny stockholders the
opportunity to receive a premium on their stock and may also have a depressive
effect on the market price of the Common Stock.
The transfer agent, registrar, and dividend disbursement agent for a series
of Preferred Stock will be selected by the Company and will be described in
the applicable Prospectus Supplement. The registrar for shares of Preferred
Stock will send notices to stockholders of any meetings at which holders of
the Preferred Stock have the right to elect directors of the Company or to
vote on any other matter.
Rights Plan
Rights
The Board of Directors of the Company, pursuant to a stockholders rights
plan (the "Rights Plan") has declared a dividend of one right (the "Rights")
for each outstanding share of Common Stock. The Rights were issued to the
holders of record of Common Stock outstanding on the Rights issuance date, and
with respect to Common Stock issued thereafter until the Distribution Date (as
defined below), and, in certain circumstances, with respect to Common Stock
issued after the Distribution Date. Each Right, when it becomes exercisable as
described below, will entitle the registered holder to purchase from the
Company one one-thousandth (1/1000th) of a share of Preferred Stock (the
"Preferred Shares") at a price of $50 per (1/1000th) of a share, subject to
adjustment in certain circumstances (the "Purchase Price"). The description
and terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement") between the Company and the Rights Agent named therein. The Rights
will not be exercisable until the Distribution Date and will expire on the
tenth annual anniversary of the Rights Agreement (the "Expiration Date"),
unless earlier redeemed by the Company. Until a Right is exercised, the holder
thereof, as such, will have no rights as a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends with
respect to the Rights of the Preferred Shares relating thereto.
Distribution Date
Under the Rights Agreement, the Distribution Date is the earlier of (i) such
time as the Company learns that a person or group (including any affiliate or
associate of such person or group) has acquired, or has obtained the right to
acquire, beneficial ownership of more than 15% of the outstanding shares of
Common Stock (such person or group being an "Acquiring Person"), unless
provisions preventing accidental triggering of the distribution of the Rights
apply, and (ii) the close of business on such date, if any, as may be
designated by the Board of Directors following the commencement of, or first
public disclosure of an intent to commence, a tender or exchange offer for
more than 15% or more of the outstanding shares of Common Stock.
Triggering Event and Effect of Triggering Event
At such time as there is an Acquiring Person, the Rights will entitle each
holder (other than such Acquiring Person) of a Right to purchase, for the
Purchase Price, that number of one one-thousandths (1/1000ths) of a Preferred
Share equivalent to the number of shares of Common Stock which at the time of
such event would have a market value of twice the Purchase Price.
In the event the Company is acquired in a merger or other business
combination by an Acquiring Person or an affiliate or associate of an
Acquiring Person that is a publicly traded corporation or 50% or more of the
Company's assets or assets representing 50% or more of the Company's revenues
or cash flow are sold, leased, exchanged or otherwise transferred (in one or
more transactions) to an Acquiring Person or an affiliate or
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associate of an Acquiring Person, each Right will entitle its holder (other
than Rights beneficially owned by such Acquiring Person or its affiliates or
associates) to purchase, for the Purchase Price, that number of common shares
of such corporation (or, if such corporation is not a publicly traded
corporation, that number of common shares of an affiliate of such corporation
that has publicly traded shares) which at the time of the transaction would
have a market value or, in certain circumstances, book value of twice the
Purchase Price.
Redemption
At any time prior to the earlier of (i) such time as a person or group
becomes an Acquiring Person and (ii) the Expiration Date, the Board of
Directors may redeem the Rights in whole, but not in part, at a price (in cash
or Common Stock or other securities of the Company deemed by the Board of
Directors to be at least equivalent in value) of $.10 per Right (which amount
shall be subject to adjustment as provided in the Rights Agreement) (the
"Redemption Price"). Immediately upon the action of the Board of Directors
ordering the redemption of the Rights, and without any further action and
without any notice, the right to exercise the Rights will terminate and the
only right of the holders of Rights will be to receive the Redemption Price.
In addition, at any time after there is an Acquiring Person, the Board of
Directors may elect to exchange each Right for consideration per Right
consisting of one-half of the securities that would be issuable at such time
upon exercise of one Right pursuant to the terms of the Rights Agreement.
Amendment
At any time prior to the Distribution Date, the Company may, without the
approval of any holder of any Rights, supplement or amend any provision of the
Rights Agreement (including, without limitation, the date on which the
Distribution Date shall occur, the definition of Acquiring Person, the time
during which the Rights may be redeemed or the terms of the Preferred Shares),
except that no supplement or amendment shall be made which reduces the
Redemption Price (other than pursuant to certain adjustments therein) or
provides for an earlier Expiration Date.
Certain Effects of the Rights Plan
The Rights Plan is designed to protect stockholders of the Company in the
event of unsolicited offers to acquire the Company and other coercive takeover
tactics which, in the opinion of the Board of Directors, could impair its
ability to represent stockholder interests. The provisions of the Rights Plan
may render an unsolicited takeover of the Company more difficult or less
likely to occur or might prevent such a takeover, even though such takeover
may offer the Company's stockholders the opportunity to sell their stock at a
price above the prevailing market rate and may be favored by a majority of the
stockholders of the Company.
Delaware Law and Certain Charter and By-Law Provisions
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Company's Amended and Restated By-Laws (the "Amended and Restated By-
Laws") provide for the division of the Board of Directors into three classes
as nearly equal in size as possible with staggered three-year terms. In
addition, the Amended and Restated By-Laws provide that directors may be
removed only for cause by the affirmative vote of the holders of two-thirds of
the shares of capital stock of the corporation entitled to vote. Under the
Company's Amended and Restated By-Laws, any vacancy on the Board of Directors,
however
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occurring, including a vacancy resulting from an enlargement of the Board, may
be filled only by vote of a majority of the directors then in office. The
classification of the Board of Directors and the limitations on the removal of
directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
The Company's Amended and Restated By-Laws also provide that any action
required or permitted to be taken by the stockholders of the Company at an
annual meeting or special meeting of stockholders may be taken only if it is
properly brought before such meeting and may not be taken by written action in
lieu of a meeting. For business to be properly brought before an annual
meeting by a stockholder, the stockholder must give written notice thereof to
the Secretary of the Company, subject to certain exceptions, not less than 70
days nor more than 90 days prior to the anniversary date of the previous
annual meeting. In addition, the Amended and Restated By-Laws provide that the
Company need not present a stockholder proposal which was otherwise submitted
properly, if such stockholder or its representative does not appear to present
such proposal at the annual meeting. The Amended and Restated By-Laws further
provide that special meetings of the stockholders may only be called by the
Chairman of the Board of Directors, the Chief Executive Officer or the
President of the Company or by the Board of Directors. Under the Company's
Amended and Restated By-Laws, in order for any matter to be considered
"properly brought" before a meeting, a stockholder must comply with certain
other requirements regarding notice to the Company. The foregoing provisions
could have the effect of delaying until the next stockholders meeting
stockholder actions which are favored by the holders of a majority of the
outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the Common
Stock, because such person or entity, even if acquired a majority of the
outstanding voting securities of the Company, would be able to take action as
a stockholder (such as electing new directors or approving a merger) only at a
duly called stockholders meeting, and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's Certificate of Incorporation or By-Laws,
unless a corporation's Certificate of Incorporation or By-Laws, as the case
may be, requires a greater percentage. The Company's Amended and Restated By-
Laws require the affirmative vote of the holders of at least 75% of the shares
of capital stock of the Company issued and outstanding and entitled to vote to
amend or repeal any of the provisions described in the prior two paragraphs.
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. These provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, the Company's Certificate of Incorporation
contains provisions to indemnify the Company's directors and officers to the
fullest extent permitted by the General Corporation Law of Delaware. The
Company believes that these provisions will assist the Company in attracting
and retaining qualified individuals to serve as directors.
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below and in any Prospectus Supplement of certain
provisions of the Deposit Agreement (as defined below) and of the Depositary
Shares (as defined below) and Depositary Receipts (as defined below) does not
purport to be complete and is subject to and qualified in its entirety by
reference to the forms of Deposit Agreement and Depositary Receipts relating
to each series of Preferred Stock that will be filed with the SEC in
connection with the offering of such series of Preferred Stock.
General
The Company may, at its option, elect to offer fractional interests in
shares of Preferred Stock, rather than shares of Preferred Stock. In the event
such option is exercised, the Company will provide for the issuance by a
depositary to the public of receipts for depositary shares ("Depositary
Shares"), each of which will represent
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fractional interests of a particular series of Preferred Stock (which will be
set forth in the Prospectus Supplement relating to a particular series of
Preferred Stock).
The shares of any series of Preferred Stock underlying the Depositary Shares
will be deposited under a separate Deposit Agreement (the "Deposit Agreement")
between the Company and a bank or trust company selected by the Company having
its principal office in the United States and having a combined capital and
surplus of at least $50 million. The Prospectus Supplement relating to a
series of Depositary Shares will set forth the name and address of the
depositary with respect to such Depositary Shares. Subject to the terms of the
Deposit Agreement, each owner of Depositary Shares will be entitled, in
proportion to the applicable fractional interests in shares of Preferred Stock
underlying such Depositary Shares, to all the rights and preferences of the
Preferred Stock underlying such Depositary Shares (including dividend, voting,
redemption, conversion, and liquidation rights).
The Depositary Shares will be evidenced by depositary receipts issued
pursuant to the Deposit Agreement (the "Depositary Receipts"). Depositary
Receipts will be distributed to those persons purchasing the fractional
interests in shares of the related series of Preferred Stock in accordance
with the terms of the offering described in the related Prospectus Supplement.
Dividends and Other Distributions
The depositary will distribute all cash dividends or other cash
distributions received with respect to Preferred Stock to the record holders
of Depositary Shares relating to such Preferred Stock in proportion to the
numbers of such Depositary Shares owned by such holders on the relevant record
date. The depositary shall distribute only such amount, however, as can be
distributed without attributing to any holder of Depositary Shares a fraction
of one cent, and the balance not so distributed shall be added to and treated
as part of the next sum received by the depositary for distribution to record
holders of Depositary Shares.
In the event of a distribution other than in cash, the depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, unless the depositary determines that it is not feasible to
make such distribution, in which case the depositary may, with the approval of
the Company, sell such property and distribute the net proceeds from such sale
to such holders.
The Deposit Agreement will also contain provisions relating to the manner in
which any subscription or similar rights offered by the Company to holders of
the Preferred Stock shall be made available to the holders of Depositary
Shares.
Redemption of Depositary Shares
If a series of the Preferred Stock underlying the Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the
proceeds received by the depositary resulting from the redemption, in whole or
in part, of such series of the Preferred Stock held by the depositary. The
depositary shall mail notice of redemption not less than 30 and not more than
60 days prior to the date fixed for redemption to the record holders of the
Depositary Shares to be so redeemed at their respective addresses appearing in
the depositary's books. The redemption price per Depositary Share will be
equal to the applicable fraction of the redemption price per share payable
with respect to such series of the Preferred Stock. Whenever the Company
redeems shares of Preferred Stock held by the depositary, the depositary will
redeem as of the same redemption date the number of Depositary Shares relating
to shares of Preferred Stock so redeemed. If less than all the Depositary
Shares are to be redeemed, the Depositary Shares to be redeemed will be
selected by lot or pro rata as may be determined by the depositary.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be outstanding and all rights of the holders of the
Depositary Shares will cease, except the right to receive the money,
securities, or other property payable upon such redemption and any money,
securities, or other property to which the holders of such Depositary Shares
were entitled upon such redemption upon surrender to the depositary of the
Depositary Receipts evidencing such Depositary Shares.
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Voting the Preferred Stock
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the depositary will mail the information contained
in such notice of meeting to the record holders of the Depositary Shares
relating to such Preferred Stock. Each record holder of such Depositary Shares
on the record date (which will be the same date as the record date for the
Preferred Stock) will be entitled to instruct the depositary as to the
exercise of the voting rights pertaining to the number of shares of Preferred
Stock underlying such holder's Depositary Shares. The depositary will
endeavor, insofar as practicable, to vote the number of shares of Preferred
Stock underlying such Depositary Shares in accordance with such instructions,
and the Company will agree to take all action that may be deemed necessary by
the depositary in order to enable the depositary to do so.
Amendment and Termination of Depositary Agreement
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between the Company and the depositary. However, any amendment that materially
and adversely alters the rights of the existing holders of Depositary Shares
will not be effective unless such amendment has been approved by the record
holders of at least a majority of the Depositary Shares then outstanding. A
Deposit Agreement may be terminated by the Company or the depositary only if
(a) all outstanding Depositary Shares relating thereto have been redeemed or
(b) there has been a final distribution with respect to the Preferred Stock of
the relevant series in connection with any liquidation, dissolution, or
winding up of the Company and such distribution has been distributed to the
holders of the related Depositary Shares.
Charges of Depositary
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the depositary in connection with the initial deposit of
the Preferred Stock and any redemption of the Preferred Stock. Holders of
Depositary Shares will pay transfer and other taxes and governmental charges
and such other charges as are expressly provided in the Deposit Agreement to
be for their accounts.
Resignation and Removal of Depositary
The depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove the depositary,
any such designation or removal to take effect upon the appointment of a
successor depositary and its acceptance of such appointment. Such successor
depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company having its
principal office in the United States and having a combined capital and
surplus of at least $50 million.
Miscellaneous
The depositary will forward to the holders of Depositary Shares all reports
and communications from the Company that are delivered to the depositary and
that the Company is required to furnish to the holders of the Preferred Stock.
Neither the depositary nor the Company will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of the Company and
the depositary under the Deposit Agreement will be limited to performance in
good faith of their duties thereunder and they will not be obligated to
prosecute or defend any legal proceeding with respect to any Depositary Shares
or Preferred Stock unless satisfactory indemnity is furnished. They may rely
upon written advice of counsel or accountants, or information provided by
persons presenting Preferred Stock for deposit, holders of Depositary Shares
or other persons believed to be competent and on documents believed to be
genuine.
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DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Debt Securities,
Preferred Stock or Common Stock. Warrants may be issued independently or
together with Debt Securities, Preferred Stock or Common Stock offered by any
Prospectus Supplement and may be attached to or separate from any such Offered
Securities. Each series of Warrants will be issued under a separate warrant
agreement (a "Warrant Agreement") to be entered into between the Company and a
bank or trust company, as warrant agent (the "Warrant Agent"). The Warrant
Agent will act solely as an agent of the Company in connection with the
Warrants and will not assume any obligation or relationship of agency or trust
for or with any holders or beneficial owners of Warrants. The following
summary of certain provisions of the Warrants does not purport to be complete
and is subject to, and qualified in its entirety by reference to, the
provisions of the Warrant Agreement that will be filed with the SEC in
connection with the offering of such Warrants.
Debt Warrants
The Prospectus Supplement relating to a particular issue of Debt Warrants
will describe the terms of such Debt Warrants, including the following: (a)
the title of such Debt Warrants; (b) the offering price for such Debt
Warrants, if any; (c) the aggregate number of such Debt Warrants; (d) the
designation and terms of the Debt Securities purchasable upon exercise of such
Debt Warrants; (e) if applicable, the designation and terms of the Debt
Securities with which such Debt Warrants are issued and the number of such
Debt Warrants issued with each such Debt Security; (f) if applicable, the date
from and after which such Debt Warrants and any Debt Securities issued
therewith will be separately transferable; (g) the principal amount of Debt
Securities purchasable upon exercise of a Debt Warrant and the price at which
such principal amount of Debt Securities may be purchased upon exercise (which
price may be payable in cash, securities, or other property); (h) the date on
which the right to exercise such Debt Warrants shall commence and the date on
which such right shall expire; (i) if applicable, the minimum or maximum
amount of such Debt Warrants that may be exercised at any one time; (j)
whether the Debt Warrants represented by the Debt Warrant certificates or Debt
Securities that may be issued upon exercise of the Debt Warrants will be
issued in registered or bearer form; (k) information with respect to book-
entry procedures, if any; (1) the currency (including the Euro) or currency
units (including ECUs) in which the offering price, if any, and the exercise
price are payable; (m) if applicable, a discussion of material United States
federal income tax considerations; (n) the antidilution provisions of such
Debt Warrants, if any; (o) the redemption or call provisions, if any,
applicable to such Debt Warrants; and (p) any additional terms of such Debt
Warrants, including terms, procedures, and limitations relating to the
exchange and exercise of such Debt Warrants.
Stock Warrants
The Prospectus Supplement relating to any particular issue of Preferred
Stock Warrants or Common Stock Warrants will describe the terms of such
Warrants, including the following: (a) the title of such Warrants; (b) the
offering price for such Warrants, if any; (c) the aggregate number of such
Warrants; (d) the designation and terms of the Common Stock or Preferred Stock
purchasable upon exercise of such Warrants; (e) if applicable, the designation
and terms of the Offered Securities with which such Warrants are issued and
the number of such Warrants issued with each such Offered Security; (f) if
applicable, the date from and after which such Warrants and any Offered
Securities issued therewith will be separately transferable; (g) the number of
shares of Common Stock or Preferred Stock purchasable upon exercise of a
Warrant and the price at which such shares may be purchased upon exercise; (h)
the date on which the right to exercise such Warrants shall commence and the
date on which such right shall expire; (i) if applicable, the minimum or
maximum amount of such Warrants that may be exercised at any one time; (j) the
currency (including the Euro) or currency units (including ECUs) in which the
offering price, if any, and the exercise price are payable; (k) if applicable,
a discussion of material United States federal income tax considerations; (l)
the antidilution provisions of such Warrants, if any; (m) the redemption or
call provisions, if any, applicable to such Warrants; and (n) any additional
terms of such Warrants, including terms, procedures and limitations relating
to the exchange and exercise of such Warrants.
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PLAN OF DISTRIBUTION
The Company may sell the Offered Securities in or outside the United States
through underwriters or dealers, directly to one or more purchasers, or
through agents. The Prospectus Supplement with respect to the Offered
Securities will set forth the terms of the offering of the Offered Securities,
including the name or names of any underwriters, dealers, or agents, the
purchase price of the Offered Securities and the proceeds, to the Company from
such sale, any delayed delivery arrangements, any underwriting discounts and
other items constituting underwriters' compensation, the initial public
offering price, any discounts or concessions allowed or reallowed or paid to
dealers, and any securities exchanges on which the Offered Securities may be
listed.
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of
sale. The Offered Securities may be offered to the public either through
underwriting syndicates represented by one or more managing underwriters or
directly by one or more firms acting as underwriters. The underwriter or
underwriters with respect to a particular underwritten offering of Offered
Securities will be named in the Prospectus Supplement relating to such
offering, and if an underwriting syndicate is used, the managing underwriter
or underwriters will be set forth on the cover of such Prospectus Supplement.
Unless otherwise set forth in the Prospectus Supplement relating thereto, the
obligations of the underwriters or agents to purchase the Offered Securities
will be subject to conditions precedent and the underwriters will be obligated
to purchase all the Offered Securities if any are purchased. The initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
If dealers are utilized in the sale of Offered Securities with respect to
which this Prospectus is delivered, the Company will sell such Offered
Securities to the dealers as principals. The dealers may then resell such
Offered Securities to the public at varying prices to be determined by such
dealers at the time of resale. The names of the dealers and the terms of the
transaction will be set forth in the Prospectus Supplement relating thereto.
Offered Securities may be sold directly by the Company or through agents
designated by the Company from time to time at fixed prices, which may be
changed, or at varying prices determined at the time of sale. Any agent
involved in the offer or sale of the Offered Securities with respect to which
this Prospectus is delivered will be named, and any commissions payable by the
Company to such agent will be set forth, in the Prospectus Supplement relating
thereto. Unless otherwise indicated in the Prospectus Supplement, any such
agent will be acting on a best efforts basis for the period of its
appointment.
In connection with the sale of the Offered Securities, underwriters or
agents may receive compensation from the Company or from purchasers of Offered
Securities for whom they may act as agents in the form of discounts,
concessions, or commissions. Underwriters, agents, and dealers participating
in the distribution of the Offered Securities may be deemed to be
underwriters, and any discounts or commissions received by them from the
Company and any profit on the resale of the Offered Securities by them may be
deemed to be underwriting discounts or commissions under the Securities Act.
Offered Securities may be sold directly by the Company to institutional
investors or others, who may be deemed to be underwriters within the meaning
of the Securities Act with respect to any resale thereof. The terms of any
such sales will be described in the Prospectus Supplement relating thereto.
If so indicated in the Prospectus Supplement, the Company will authorize
agents, underwriters, or dealers to solicit offers from certain types of
institutions to purchase Offered Securities from the Company at the public
offering price set forth in the Prospectus Supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in
the future. Such contracts will be subject only to those conditions set forth
in the Prospectus Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts.
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Agents, dealers, and underwriters may be entitled under agreements entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that such agents, dealers, or
underwriters may be required to make with respect thereto. Agents, dealers,
and underwriters may be customers of, engage in transactions with, or perform
services for the Company in the ordinary course of business.
Some or all of the Offered Securities may be new issues of securities with
no established trading market. Any underwriters to whom Offered Securities are
sold by the Company for public offering and sale may make a market in such
Offered Securities, but such underwriters will not be obligated to do so and
may discontinue any market making at any time without notice. No assurance can
be given as to the liquidity of or the trading markets for any Offered
Securities.
In order to facilitate the offering of the Offered Securities, any
underwriters or agents, as the case may be, involved in the offering of such
Offered Securities may engaged in transactions that stabilize, maintain or
otherwise affect the price of the Offered Securities or any other securities
the prices of which may be used to determine payments on such Offered
Securities. Specifically, the underwriters or agents, as the case may be, may
overallot in connection with the offering, creating a short position in such
Offered Securities for their own account. In addition, to cover overallotments
or to stabilize the price of such Offered Securities or any such other
securities, the underwriters or agents, as the case may be, may bid for, and
purchase, such Offered Securities or any such other securities in the open
market. Finally, in any offering of such Offered Securities through a
syndicate of underwriters, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing such
Offered Securities in the offering if the syndicate repurchases previously
distributed Offered Securities in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Offered Securities above
independent market levels. The underwriters or agents, as the case may be, are
not required to engage in these activities, and may end any of these
activities at any time.
Agents, dealers and underwriters may be entitled under agreements entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that such agents, dealers, or
underwriters may be required to make with respect thereto.
Certain of the underwriters, dealers or agents and their affiliates may be
customers of, engage in transactions with or perform services for the Company
in the ordinary course of business.
LEGAL OPINIONS
The validity of the Offered Securities will be passed upon for the Company
by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated statements of operations, shareholders' equity and cash
flows of ChiRex Inc. for the year ended December 31, 1995 have been
incorporated by reference in this Prospectus in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, and upon the authority of
said firm as experts in accounting and auditing.
The consolidated balance sheets of ChiRex Inc. as of December 31, 1996 and
1997 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended December
31, 1997 incorporated by reference in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, to the extent and for the
periods indicated in their report with respect
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thereto and have been included herein in reliance upon the authority of such
firm as experts in accounting and auditing in giving such reports.
On September 5, 1996, the Company engaged Arthur Andersen LLP as its
independent accountant and dismissed PricewaterhouseCoopers LLP from such
position. The decision to change accountants was made by the Board of
Directors of the Company. During the fiscal year ended December 31, 1995 and
the subsequent interim period immediately preceding the date of this change in
accountants, the Company and each of its subsidiaries (the "Subsidiaries") had
no disagreements with PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statements disclosure or auditing scope or
procedure, which disagreement(s), if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to
make a reference to the subject matter of the disagreement in connection with
its reports on the financial statements of the Company or any of the
Subsidiaries.
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[GRAPHIC]
ChiRex
